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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
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COMMISSION FILE NUMBER 1-6461
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GENERAL ELECTRIC CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-1500700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
260 LONG RIDGE ROAD,
STAMFORD, CONNECTICUT 06927 (203) 357-4000
(Address of principal (Zip Code) (Registrant's telephone
executive offices) number, including area code)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
-------------------------- ------------------------------
7 7/8% GUARANTEED SUBORDINATED NEW YORK STOCK EXCHANGE
NOTES DUE DECEMBER 1, 2006
SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT:
NONE.
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|
At March 24, 1998, 3,837,825 shares of voting common stock, which constitute all
of the outstanding common equity, with a par value of $200 were outstanding.
Aggregate market value of the outstanding common equity held by nonaffiliates of
the registrant at March 24, 1998. None.
DOCUMENTS INCORPORATED BY REFERENCE
The consolidated financial statements of General Electric Company, set forth in
the Annual Report on Form 10-K of General Electric Company for the year ended
December 31, 1997 are incorporated by reference into Part IV hereof.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business ............................................. 1
Item 2. Properties ........................................... 11
Item 3. Legal Proceedings .................................... 11
Item 4. Submission of Matters to a Vote of Security Holders .. 12
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters ........................ 12
Item 6. Selected Financial Data .............................. 12
Item 7. Management's Discussion and Analysis of
Results of Operations .............................. 13
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk .................................. 21
Item 8. Financial Statements and Supplementary Data .......... 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ............. 47
PART III
Item 10. Directors and Executive Officers of the Registrant ... 47
Item 11. Executive Compensation ............................... 47
Item 12. Security Ownership of Certain Beneficial Owners
and Management ..................................... 47
Item 13. Certain Relationships and Related Transactions ....... 47
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ........................................ 47
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
General Electric Capital Corporation (herein, together with its consolidated
affiliates, called "the Corporation" or "GE Capital" unless the context
otherwise requires) was incorporated in 1943 in the State of New York under the
provisions of the New York Banking Law relating to investment companies, as
successor to General Electric Contracts Corporation, which was formed in 1932.
Until November 1987, the name of the Corporation was General Electric Credit
Corporation. All outstanding common stock of the Corporation is owned by General
Electric Capital Services, Inc. ("GE Capital Services"), formerly General
Electric Financial Services, Inc., the common stock of which is in turn wholly
owned by General Electric Company ("GE Company"). The business of the
Corporation originally related principally to financing the distribution and
sale of consumer and other products of GE Company. Currently, however, the types
and brands of products financed and the services offered are significantly more
diversified. Very few of the products financed by GE Capital are manufactured by
GE Company.
The Corporation operates in four financing industry segments and in a specialty
insurance industry segment. GE Capital's financing activities include a full
range of leasing, lending, equipment management sales and services, and consumer
savings and insurance services. The Corporation's specialty insurance activities
include providing financial guaranty insurance, principally on municipal bonds
and structured finance issues, private mortgage insurance and creditor insurance
covering international customer loan repayments. The Corporation is an equity
investor in Montgomery Ward Holding Corp. ("MWHC"), a retail organization, and
certain other service and financial services organizations. As discussed on page
20 and in note 3 to the consolidated financial statements, MWHC filed a
bankruptcy petition for reorganization in 1997.
GE Capital's operations are subject to a variety of regulations in their
respective jurisdictions.
Services of the Corporation are offered primarily throughout the United States,
Canada, Europe and the Pacific Basin. The Corporation's principal executive
offices are located at 260 Long Ridge Road, Stamford, Connecticut 06927
(Telephone number (203) 357-4000). At December 31, 1997, the Corporation
employed approximately 65,000 persons.
The Corporation's principal assets are classified as time sales and loans,
investment in financing leases, equipment on operating leases and investment
securities. The following table presents, by industry segment, these principal
financing products which, together with other assets, constitute the
Corporation's total assets at December 31, 1997 and 1996.
1
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<TABLE>
<CAPTION>
TOTAL ASSETS BY SEGMENT
(In millions) 1997
--------------------------------------------------------------------
NET
TIME INVESTMENT ALLOWANCE
SALES AND NET IN FOR
LOANS, INVESTMENT EQUIPMENT LOSSES
NET OF IN ON AND ALL
DEFERRED FINANCING OPERATING INVESTMENT OTHER TOTAL
INCOME LEASES LEASES SECURITIES ASSETS ASSETS
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSUMER SERVICES
GE Financial Assurance ................. $ 2,724 $ -- $ -- $ 35,692 $ 13,251 $ 51,667
Auto Financial Services ................ 8,973 12,594 2,773 61 3,041 27,442
Retailer Financial Services ............ 12,443 -- -- 12 1,057 13,512
Global Consumer Finance ................ 8,622 675 -- 25 645 9,967
Mortgage Services ...................... 1,013 -- -- 689 4,474 6,176
Consumer Financial Services ............ 4,704 -- -- 28 52 4,784
Other .................................. 1,888 9 -- 750 105 2,752
-------- -------- -------- -------- -------- --------
Total ................................. 40,367 13,278 2,773 37,257 22,625 116,300
EQUIPMENT MANAGEMENT
Aviation Services ...................... 256 3,162 5,525 374 822 10,139
Fleet Services ......................... 1 3,036 1,498 -- 1,200 5,735
IT Solutions ........................... 38 232 47 -- 3,752 4,069
Transport International Pool ........... 31 62 2,433 -- 1,208 3,734
Genstar Container ...................... -- 330 1,951 -- 252 2,533
Penske Truck Leasing ................... -- -- -- 30 2,129 2,159
Satellite Telecommunications Services .. -- -- -- -- 2,132 2,132
Railcar Services ....................... -- 270 1,595 -- 148 2,013
Modular Space .......................... 16 82 797 -- 469 1,364
Technology Management Services ......... -- 24 -- -- 231 255
Other .................................. -- -- 163 -- 95 258
-------- -------- -------- -------- -------- --------
Total ................................. 342 7,198 14,009 404 12,438 34,391
MID-MARKET FINANCING
Commercial Equipment Financing ......... 7,397 10,496 1,124 114 1,010 20,141
Vendor Financial Services .............. 1,662 5,602 247 2 823 8,336
GE Capital - Hawaii .................... 1,055 89 3 9 30 1,186
Other .................................. 72 -- -- 7 82 161
-------- -------- -------- -------- -------- --------
Total ................................. 10,186 16,187 1,374 132 1,945 29,824
SPECIALIZED FINANCING
Commercial Real Estate ................. 7,779 42 -- 303 4,634 12,758
Structured Finance Group ............... 1,334 5,049 533 1,412 1,306 9,634
Commercial Finance ..................... 4,467 15 -- 173 329 4,984
Equity Capital Group ................... 53 -- -- 35 970 1,058
Other .................................. 102 -- -- 729 37 868
-------- -------- -------- -------- -------- --------
Total ................................. 13,735 5,106 533 2,652 7,276 29,302
SPECIALTY INSURANCE .................... 202 -- -- 12,583 5,114 17,899
CORPORATE AND OTHER .................... -- -- -- 75 986 1,061
-------- -------- -------- -------- -------- --------
TOTAL ................................ $ 64,832 $ 41,769 $ 18,689 $ 53,103 $ 50,384 $228,777
======== ======== ======== ======== ======== ========
(In millions) 1996
--------------------------------------------------------------------
NET
TIME INVESTMENT ALLOWANCE
SALES AND NET IN FOR
LOANS, INVESTMENT EQUIPMENT LOSSES
NET OF IN ON AND ALL
DEFERRED FINANCING OPERATING INVESTMENT OTHER TOTAL
INCOME LEASES LEASES SECURITIES ASSETS ASSETS
-------- -------- -------- -------- -------- --------
CONSUMER SERVICES
GE Financial Assurance ................ $ 2,483 $ -- $ -- $ 32,735 $ 10,702 $ 45,920
Auto Financial Services ............... 5,915 13,113 1,502 544 972 22,046
Retailer Financial Services ........... 15,846 -- -- 10 528 16,384
Global Consumer Finance ............... 7,586 -- -- 7 1,078 8,671
Mortgage Services ..................... 1,124 -- -- 651 3,504 5,279
Consumer Financial Services ........... 3,697 -- -- 21 17 3,735
Other ................................. 1,891 -- -- 228 184 2,303
-------- -------- -------- -------- -------- --------
Total ................................ 38,542 13,113 1,502 34,196 16,985 104,338
EQUIPMENT MANAGEMENT
Aviation Services ..................... 223 3,205 4,774 344 373 8,919
Fleet Services ........................ 27 2,667 1,443 -- 1,172 5,309
IT Solutions .......................... 60 409 315 -- 2,321 3,105
Transport International Pool .......... 35 92 1,745 -- 509 2,381
Genstar Container ..................... -- 292 2,262 -- 286 2,840
Penske Truck Leasing .................. -- -- -- 31 1,934 1,965
Satellite Telecommunications Services . -- -- -- -- 1,589 1,589
Railcar Services ...................... -- 296 1,409 -- 94 1,799
Modular Space ......................... 2 48 651 -- 316 1,017
Technology Management Services ........ -- 32 210 -- 273 515
Other ................................. -- 2 110 -- 107 219
-------- -------- -------- -------- -------- --------
Total ................................ 347 7,043 12,919 375 8,974 29,658
MID-MARKET FINANCING
Commercial Equipment Financing ........ 6,362 9,291 1,037 43 718 17,451
Vendor Financial Services ............. 1,388 4,856 185 -- 667 7,096
GE Capital - Hawaii ................... 1,094 84 2 10 31 1,221
Other ................................. 55 -- -- 7 118 180
-------- -------- -------- -------- -------- --------
Total ................................ 8,899 14,231 1,224 60 1,534 25,948
SPECIALIZED FINANCING
Commercial Real Estate ................ 9,591 42 -- 394 3,937 13,964
Structured Finance Group .............. 1,334 5,130 489 993 918 8,864
Commercial Finance .................... 3,685 16 -- 214 270 4,185
Equity Capital Group .................. 68 -- -- 114 577 759
Other ................................. 28 -- -- 3 44 75
-------- -------- -------- -------- -------- --------
Total ................................ 14,706 5,188 489 1,718 5,746 27,847
SPECIALTY INSURANCE .................... 338 -- -- 7,886 3,580 11,804
CORPORATE AND OTHER .................... -- -- -- 105 1,116 1,221
-------- -------- -------- -------- -------- --------
TOTAL ................................ $ 62,832 $ 39,575 $ 16,134 $ 44,340 $ 37,935 $200,816
======== ======== ======== ======== ======== ========
</TABLE>
2
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INDUSTRY SEGMENTS
The Corporation provides a wide variety of financing, asset management, and
insurance products and services which are organized into the following industry
segments:
o Consumer Services - private-label and bank credit card loans,
personal loans, time sales and revolving credit and inventory
financing for retail merchants, auto leasing and inventory
financing, mortgage servicing, and consumer savings and insurance
services.
o Equipment Management - leases, loans, sales and asset management
services for portfolios of commercial and transportation equipment,
including aircraft, trailers, auto fleets, modular space units,
railroad rolling stock, data processing equipment, containers used
on ocean-going vessels, and satellites.
o Mid-Market Financing - loans and financing and operating leases for
middle-market customers, including manufacturers, distributors and
end users, for a variety of equipment that includes data processing
equipment, medical and diagnostic equipment, and equipment used in
construction, manufacturing, office applications and
telecommunications activities.
o Specialized Financing - loans and financing leases for major
capital assets, including industrial facilities and equipment, and
energy-related facilities; commercial and residential real estate
loans and investments; and loans to and investments in management
buyouts, including those with high leverage, and corporate
recapitalizations.
o Specialty Insurance - financial guaranty insurance, principally on
municipal bonds and structured finance issues; private mortgage
insurance; and creditor insurance covering international customer
loan repayments.
Insurance services, previously included within the Specialty Insurance segment,
has been combined with the consumer savings and insurance operations in the
Consumer Services segment. Prior-year information has been reclassified to
reflect this and certain other organizational changes.
Refer to Item 7, "Management's Discussion and Analysis of Results of
Operations," in this Form 10-K for discussion of the Corporation's Portfolio
Quality. A description of the Corporation's principal businesses by industry
segment follows.
CONSUMER SERVICES
GE Financial Assurance
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, which help consumers accumulate wealth, transfer
wealth, and protect their lifestyles and assets. It achieves this through its
family of 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
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.
GEFA's principal operating companies include General Electric Capital Assurance
Company, First Colony Life Insurance Company, The Life Insurance Company of
Virginia, Colonial Penn Insurance Company, Union Fidelity Life Insurance Company
and GE Capital Life Assurance of New York.
GEFA headquarters are in Richmond, Virginia.
3
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Auto Financial Services
Auto Financial Services ("AFS") is a full service provider of automobile
financing for automobile dealers, manufacturers and their customers in North
America, Europe and, to a lesser extent, Asia.
In the United States, AFS is one of the leading independent auto lessors and
offers leasing, retail financing and, to a lesser degree, sub-prime financing to
customers. AFS also provides the 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, rental car
companies and leasing companies.
AFS is active in the European markets through affiliates in France, the United
Kingdom, and Italy. AFS also provides automobile financing through businesses
located in Austria, Spain, Sweden, Poland, and Switzerland. In 1997, AFS
expanded its presence in Europe to include Ireland, Portugal, Denmark, and
Czechoslovakia through acquisitions.
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.
AFS headquarters are in Barrington, Illinois.
Retailer Financial Services
Retailer Financial Services ("RFS") 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.
RFS 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. RFS generally maintains a security interest in the merchandise
financed. Financing is provided to consumers under contractual arrangements,
both with and without recourse to retailers. RFS' wide range of financial
services includes application processing, sales authorization, statement
billings, customer services and collection services.
RFS provides inventory financing for retailers primarily in the appliance and
consumer electronics industries. RFS maintains a security interest in the
inventory and retailers are obliged to maintain insurance coverage for the
merchandise financed.
RFS has a noncontrolling investment in the common stock of Montgomery Ward
Holding Corp. ("MWHC"), which, together with its wholly-owned subsidiary,
Montgomery Ward & Co. Incorporated ("MWC"), is engaged in retail merchandising
and direct response marketing, the latter conducted primarily through Signature
Financial/Marketing, Inc. ("Signature"), which markets consumer club and
insurance products. RFS also provides financing to customers of MWHC and
affiliates. As discussed on page 20 and in note 3 to the consolidated financial
statements, MWHC, MWC and certain of their affiliates (excluding Signature)
filed a bankruptcy petition for reorganization in 1997.
RFS headquarters are in Stamford, Connecticut.
Global Consumer Finance
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 and Asia, as well as offering
a variety of direct-to-consumer credit programs such as consumer loans,
bankcards and credit insurance.
4
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During 1997, GCF expanded its European presence through acquisitions including
Multiservis AS in the Czech Republic, Bank Aufina Ltd. in Switzerland, and AVA
Bank in Austria.
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 and India. GCF's wide range of
proprietary financial services includes private-label credit cards, credit
promotion and accounting services, billing (in the retailer's name) and customer
credit and collection services.
GCF headquarters are in Stamford, Connecticut.
Mortgage Services
GE Capital Mortgage Corporation, through its wholly-owned affiliate GE Capital
Mortgage Services, Inc. ("GECMSI"), is engaged in the business of wholesale
originations and servicing residential mortgage loans collateralized by
one-to-four-family homes located throughout the United States. GECMSI obtains
servicing through the purchase of mortgage loans and servicing rights, and
packages the loans it purchases into mortgage-backed securities which it sells
to investors. GECMSI also originates and services home equity loans.
GECMSI headquarters are in Cherry Hill, New Jersey.
Consumer Financial Services
Consumer Financial Services ("CFS") primarily provides and services
MasterCard(R) and Visa(R) 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. During 1997, CFS acquired
two large loan portfolios, totaling $1,419 million, and suspended active
participation in the consumer home equity loan market by selling loans totaling
$594 million.
CFS also issues and services the GE Capital Corporate Card, providing payment
and information systems which help medium and large-size companies reduce travel
costs, and the GE Capital Purchasing Card, which helps customers streamline
their purchasing and accounts payable processes.
CFS has offices in Canton, Ohio and Salt Lake City, Utah. CFS headquarters are
in Mason, Ohio.
EQUIPMENT MANAGEMENT
Aviation Services
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 270 new Boeing and Airbus
aircraft with deliveries scheduled through 2003. GECAS current fleet comprises
850 owned and managed aircraft leased to more than 150 customers in 55
countries.
GECAS headquarters are in Stamford, Connecticut, with regional offices in Miami,
Florida; Shannon, Ireland; Beijing and Hong Kong, China; Singapore; and Vienna,
Austria.
5
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Fleet Services
GE Capital Fleet Services ("GECFS") is one of the leading corporate fleet
management companies with operations in North America, Europe, Australia and
Japan with approximately 900,000 cars and trucks under lease and service
management. GECFS offers finance and operating leases to several thousand
customers with an average lease term of 33 months. 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.
During 1997, GECFS completed acquisitions of ARO Lease in The Netherlands and
BRS Leasing in the United Kingdom.
GECFS headquarters are in Eden Prairie, Minnesota.
IT Solutions
GE Capital IT 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. Included among the services offered are 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 around the world. During 1997,
the company expanded its global presence through acquisitions in the United
States, Canada, Mexico, Brazil, the United Kingdom, Portugal, Austria and
Denmark.
IT Solutions headquarters are in Stamford, Connecticut.
Transport International Pool
Transport International Pool ("TIP") is one of the leading trailer specialists
offering diverse trailer programs and associated services. TIP's fleet of over
150,000 dry freight, refrigerated and double vans, flatbeds, intermodal assets,
and specialized trailers is available for rent, lease or purchase at over 200
locations in the United States, Europe, Canada, and Mexico. TIP's commercial
vehicle fleet of over 20,000 units is available for rent, lease, or purchase in
the United Kingdom. TIP also finances new and used trailers and buys trailer
fleets. During 1997, TIP acquired two publicly traded companies in Europe:
Central Transport Rental Group plc, a pan-European trailer rental and leasing
business, and TLS plc, a United Kingdom commercial vehicle rental and leasing
business. TIP's customer base comprises trucking companies, manufacturers and
retailers.
TIP operates a European service center in Amsterdam, The Netherlands. TIP
headquarters are in Devon, Pennsylvania.
Genstar Container
Genstar Container Corporation ("Genstar") is one of the world's largest lessors
of marine shipping containers. Genstar maintains a 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.
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In September 1997, a memorandum of understanding was signed with Sea Containers
Ltd. to form GE SeaCo Ltd., a joint venture to operate the combined marine
container fleet of Genstar and Sea Containers Ltd. The joint venture is expected
to be formed in 1998.
Genstar headquarters are in San Francisco, California.
Penske Truck Leasing
GE Capital is a limited partner in Penske Truck Leasing ("Penske"), which
operates the second largest full-service truck leasing business and is 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, 1997, Penske had a fleet of about 73,000
tractors, trucks and trailers in its leasing and rental fleets and provided
contract maintenance programs or other support services for about 28,500
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.
Penske headquarters are in Reading, Pennsylvania.
Satellite Telecommunications Services
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 12
communications satellites and maintains a supporting network of earth stations,
central terminal offices, and telemetry, tracking and control facilities. GE
Americom's GE Capital Spacenet Services business offers a full range of global
one-way and two-way Very Small Aperture Terminal (VSAT) network products and
services.
GE Americom headquarters are in Princeton, New Jersey.
Railcar Services
GE Capital Railcar Services ("GERSCO") is one of the leading railcar leasing
companies in North America, with over 180,000 railcars in its portfolio. Serving
Class I 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, Cargowaggon, GERSCO's pan-European business acquired during 1997,
provides rail transport services and rail wagons to the automotive, steel and
paper industries in Eastern and Western Europe. Cargowaggon is based in
Frankfurt, Germany and has offices in the United Kingdom, Italy, Sweden and
France.
GERSCO headquarters are in Chicago, Illinois.
Modular Space
GE Capital Modular Space ("GECMS") provides non-residential relocatable 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 tailored as much as possible to client
specifications, accomplished through either custom modular units or through
GECMS stock fleet of approximately 103,200 modular units. In addition, GECMS
operating leases range from a few months to sixty months, with an average term
of 12-18 months.
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During 1997, GECMS continued its European growth through acquisitions including
Bacon B.V. in The Netherlands, Adco & Dixi GmbH and ACB GmbH in Germany, AFIBAT
in France, and DBS Nationwide plc in the United Kingdom.
GECMS has offices in North America and Europe. GECMS headquarters are in
Malvern, Pennsylvania.
Technology Management Services
GE Capital Technology Management Services ("TMS") has provided services that
enable customers to use information technology more efficiently by combining
consulting and other services, including data center outsourcing services.
During 1997, TMS sold its test equipment rental, repair and calibrations
services businesses, as well as certain assets of its computer rental business.
Effective January 1, 1998, operational control of the TMS consulting business
was transferred to IT Solutions. In addition, in March 1998, TMS announced the
sale of its data center outsourcing business.
TMS headquarters are in Alpharetta, Georgia.
MID-MARKET FINANCING
Commercial Equipment 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 120 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.
CEF operates from offices throughout the United States, Puerto Rico, Canada,
Mexico, Europe, India and Asia and through joint ventures in Indonesia and
China. CEF headquarters are in Danbury, Connecticut.
Vendor Financial Services
GE Capital Vendor Financial Services ("VFS") provides captive 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 captives 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 and inventory financing.
In 1997, VFS acquired Transleasing Inc., expanding its presence in the
healthcare industry. VFS also expanded its European financing capabilities with
the acquisition of Fimacom Financiere Matra Comm, S.A., a French
telecommunications captive, and through GE Capital's acquisition of Woodchester
Investments plc with locations in Ireland, Portugal and the United Kingdom.
VFS has sales offices throughout the United States, Canada, Mexico, Europe,
Asia, and Australia. VFS headquarters are in Danbury, Connecticut.
8
<PAGE>
GE Capital Hawaii
GE Capital Hawaii Inc. ("GECH") operates in the states of Hawaii and Alaska and
in the territory of Guam. Through a network of 8 branch offices, GECH offers
commercial and residential real estate loans, auto and equipment leasing,
inventory financing, equity lines of credit and modular space rental and sales.
GECH headquarters are in Honolulu, Hawaii.
SPECIALIZED FINANCING
Commercial Real Estate
Commercial Real Estate Financing and Services ("CRE") 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 and Europe. CRE also provides asset management
services to real estate investors and selected services to real estate owners.
Lending is a major portion of CRE'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.
CRE purchases and provides restructuring financing for portfolios of real
estate, mortgage loans, limited partnerships, and tax-exempt bonds. CRE's
business also includes the origination and securitization of low leverage real
estate loans, which are intended to be held less than one year before
outplacement. To a lesser degree, CRE provides equity capital for real estate
partnerships through the holding of limited partnership interests and receives
preferred returns; typical such investments range from $2 million to $10
million.
CRE 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. CRE also provides loan administration and
servicing through GE Capital Asset Management. In addition, CRE offers owners of
multi-family housing ways to reduce costs and enhance value in properties by
offering buying services (e.g., for appliances, roofing) and bundled
telecommunications and video services.
CRE has offices throughout the United States, as well as in Canada, Mexico,
Singapore, Sweden, France and the United Kingdom. CRE headquarters are in
Stamford, Connecticut.
Structured Finance Group
Structured Finance Group ("SFG") develops specialized financial products and
services to meet the specific transaction requirements of corporate and
government clients.
SFG provides capital, capital market services and financial advisory services
for major infrastructure, energy, telecommunications, and industrial development
worldwide. The range of financial services includes project finance
(construction and term), corporate finance, acquisition finance and arrangement
and placement services. Products include a variety of debt and equity
instruments, with particular concentration in structured finance transactions,
including leasing and partnerships.
SFG has offices in the United States, Australia, Brazil, Canada, China, Hong
Kong, India, Mexico, Singapore, and the United Kingdom. SFG headquarters are in
Stamford, Connecticut.
9
<PAGE>
Commercial Finance
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.
CF has lending operations in 25 cities, including international offices in
Toronto, Montreal, Mexico City, and London, and also has significant factoring
operations in France and Italy serving European companies and U.S. exporters. CF
headquarters are in Stamford, Connecticut.
Equity Capital Group
Equity Capital Group ("ECG") purchases equity investments, primarily convertible
preferred and common stock investments including, in some cases, stock warrants
convertible into equity ownership. ECG'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.
ECG headquarters are in Stamford, Connecticut.
SPECIALTY INSURANCE
Financial Guaranty Insurance
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 $108 billion at December 31, 1997. Approximately 85% of the
business written to date by Financial Guaranty is municipal bond insurance.
During 1997, FGIC acquired a Chicago-based specialty property and casualty
insurer serving the public entity market. 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.
FGIC headquarters are in New York, New York.
Mortgage Insurance
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, 1997, 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 $40 billion. When a claim is received, GE
Capital Mortgage Insurance proceeds by either paying up to a guaranteed
percentage based on the specified coverage, or paying the mortgage and
delinquent interest, taking title to the property and arranging for its sale. GE
Capital Mortgage Insurance also provides mortgage guaranty insurance in the
United Kingdom and Canada, and commencing in 1998, in Australia.
10
<PAGE>
GE Capital Mortgage Insurance headquarters are in Raleigh, North Carolina.
Creditor Insurance
Consolidated Financial Insurance ("CFI") is one of the leading providers of
payment protection insurance in the United Kingdom and has insurance operations
in 11 countries in Europe and in Australia. 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.
CFI also offers personal accident insurance, which is distributed through
financial institutions, and personal investment products, which are distributed
through a network of over 6,000 independent financial advisors in the United
Kingdom. CFI is also a leading administrator of extended product warranty
insurance in the United Kingdom.
During 1997, CFI expanded its product and distribution with acquisitions
including Pet Protect Ltd., a pet insurance administrator; First Call Accident
Assistance Ltd., offering management and recovery of uninsured loss claims on
behalf of victims of road traffic accidents; World Cover and Accident & General,
travel insurance brokers and administrators; and Stalwart Group Ltd., a provider
of compulsory purchase annuities and home income products.
CFI headquarters are in London, England.
REGULATIONS AND COMPETITION
The Corporation'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. Insurance and reinsurance
operations are subject to regulation by various state insurance commissions or
foreign regulatory authorities, as applicable. The Corporation's international
operations are subject to regulation in their respective jurisdictions. To date,
compliance with such regulations has not had a material adverse effect on the
Corporation's financial position or results of operations.
The businesses in which the Corporation engages are highly competitive. The
Corporation is subject to competition from various types of financial
institutions, including banks, thrifts, investment banks, broker-dealers, credit
unions, leasing companies, consumer loan companies, independent finance
companies, finance companies associated with manufacturers, insurance and
reinsurance companies.
ITEM 2. PROPERTIES.
The Corporation conducts its business from various facilities, most of which are
leased.
ITEM 3. LEGAL PROCEEDINGS.
The Corporation is not involved in any material pending legal proceedings.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
See note 13 to the consolidated financial statements. The common stock of the
Corporation is owned entirely by GE Capital Services and, therefore, there is no
trading market in such stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with the
financial statements of GE Capital and consolidated affiliates and the related
Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------
(Dollar amounts in millions) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ........................................... $ 33,404 $ 26,570 $ 21,179 $ 16,923 $ 14,444
Net earnings ....................................... 2,729 2,632 2,261 1,918 1,478
Return on common equity <F1> <F2> .................. 18.62% 20.18% 19.89% 19.59% 17.14%
Ratio of earnings to fixed charges ................. 1.48 1.53 1.51 1.63 1.62
Ratio of earnings to combined fixed
charges and preferred stock dividends ............. 1.46 1.51 1.49 1.62 1.60
Ratio of debt to equity <F1> ....................... 7.94 7.92 7.89 7.94 7.96
Financing receivables - net ........................ $103,799 $ 99,714 $ 93,272 $ 76,357 $ 63,948
Percent of allowance for losses on
financing receivables to total financing
receivables ....................................... 2.63% 2.63% 2.63% 2.63% 2.63%
Total assets ....................................... $228,777 $200,816 $160,825 $130,904 $117,939
Short-term borrowings .............................. 91,680 74,971 59,264 54,579 52,903
Long-term senior notes ............................. 44,437 46,124 47,794 33,615 25,112
Long-term subordinated notes ....................... 697 697 697 697 697
Minority interest .................................. 860 679 703 615 426
Equity ............................................. 18,373 15,526 14,202 10,540 10,370
<FN>
<F1> Equity excludes unrealized gains and losses on investment securities, net
of tax.
<F2> Earnings are adjusted for preferred stock dividends and equity excludes
preferred stock.
</FN>
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
OVERVIEW
The Corporation's net earnings for 1997 were $2,729 million, which, after
payment of dividends on its variable cumulative preferred stock, resulted in a
contribution of $2,651 million to GE Capital Services' 1997 net earnings, an
increase of 4% over 1996. The Corporation's net earnings for 1996 were $2,632
million, which, after payment of dividends on its variable cumulative preferred
stock, resulted in a contribution to GE Capital Services' 1996 net earnings of
$2,556 million, an increase of 16% over 1995. The increase in net earnings in
both 1997 and 1996 was largely attributable to the effects of continued asset
growth, principally from acquisitions of businesses and portfolios throughout
the period and higher origination volume in 1997.
The increase in earnings in both years reflected strong performances in most of
the financing segments. Earnings in 1997 were affected by higher losses
associated with the Corporation's investment in Montgomery Ward Holding Corp.,
discussed on page 20, as well as by increased automobile residual losses. These
matters were partially offset by asset gains, including securitizations.
Financing spreads (the excess of yields over interest rates on borrowings) were
essentially flat in 1997 and 1996 as the reduction in yields was offset by
decreases in borrowing rates. Increased investment income was caused by the
combination of ongoing growth in the investment portfolios and a higher level of
gains on investment securities.
Earnings in the Specialty Insurance segment also grew in 1997 and 1996. The
increases in both years primarily reflected higher investment income, the result
of continued growth in investment portfolios and higher gains on investment
securities, improved earnings in the mortgage insurance business, the result of
improved market conditions, as well as contributions of acquired businesses.
Higher insurance losses, reserves and other costs and expenses partially offset
these increases.
OPERATING RESULTS
REVENUES from all sources increased 26% to $33.4 billion in 1997, following a
25% increase to $26.6 billion in 1996. Significant portions of the revenue
increase of the financing segments arose from the computer equipment
distribution businesses acquired during 1997 and 1996 and from the consumer
savings and insurance businesses acquired during 1996 and 1995. Asset growth
contributed to increased revenues in both years, but was partially offset by
lower yields. Financing segments revenues were negatively affected by higher
losses associated with the investment in Montgomery Ward Holding Corp. That
effect was partially offset by gains on asset transactions, including
securitizations.
Gains on sales of warrants and other equity interests obtained in connection
with certain loans and sales of certain assets, including real estate
investments, contributed $768 million to pre-tax income in 1997, compared with
$482 million in 1996 and $381 million in 1995.
Specialty Insurance revenues increased 36% to $2.8 billion in 1997 from $2.1
billion in 1996, which was up 18% over 1995. The increase in both years resulted
from increased premium and investment income associated with origination volume,
acquisitions and continued growth in the investment portfolios.
INTEREST EXPENSE on borrowings in 1997 was $7.3 billion, 4% higher than in 1996,
which was 9% higher than in 1995. The increases in 1997 and 1996 were caused by
higher average borrowings used to finance asset growth, partially offset by the
effects of lower average interest rates. The composite interest rate on the
Corporation's borrowings was 6.05% in 1997, compared with 6.24% in 1996 and
6.77% in 1995. See pages 17-19 for an analysis of interest rate sensitivities.
OPERATING AND ADMINISTRATIVE EXPENSES were $9.5 billion in 1997, a 25% increase
over 1996, which was 32% higher than 1995. The increase in both 1997 and 1996
primarily reflected costs associated with acquired businesses and portfolios and
higher investment levels.
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<PAGE>
INSURANCE LOSSES AND POLICYHOLDER AND ANNUITY BENEFITS increased 52% to $4.8
billion in 1997, compared with a 57% increase to $3.2 billion in 1996. These
increases were primarily driven by the consumer savings and insurance businesses
acquired in 1996 and 1995 and growth in originations throughout the period.
COST OF GOODS SOLD was associated with the computer equipment distribution
businesses. This cost amounted to $4.1 billion in 1997, compared with $1.7
billion in 1996 and $0.4 billion in 1995, the result of acquisition-related
growth in 1997 and 1996.
PROVISION FOR LOSSES ON FINANCING RECEIVABLES increased to $1,421 million in
1997, compared with $1,033 million in 1996 and $1,117 million in 1995. These
provisions principally related to private-label credit cards, bank credit cards,
auto loans and auto leases in the Consumer Services segment, all of which are
discussed below under Portfolio Quality. The increase in 1997 principally
reflected higher average receivable balances as well as increased delinquencies
in the consumer portfolio, consistent with industry experience. Higher portfolio
growth from originations resulted in higher provisions in 1995 than in 1996.
DEPRECIATION AND AMORTIZATION OF BUILDINGS AND EQUIPMENT AND EQUIPMENT ON
OPERATING LEASES increased 14% to $2,443 million in 1997 compared with $2,137
million in 1996, a 7% increase over 1995. The increase in both years was the
result of additions to equipment on operating leases, primarily reflecting a
shift in auto lease volume from financing leases to operating leases and
increased volume in aircraft.
PROVISION FOR INCOME TAXES was $997 million in 1997 (an effective tax rate of
26.8%), compared with $1,172 million in 1996 (an effective tax rate of 30.8%)
and $1,071 million in 1995 (an effective tax rate of 32.2%). The decreases in
the 1997 provision for income taxes and effective tax rate were primarily caused
by increased tax credits and decreased taxes on non-U.S. earnings. The provision
for income taxes increased in 1996, reflecting increased pre-tax earnings
subject to statutory tax rates; the lower effective tax rate resulted primarily
from increased tax credits and decreased taxes on non-U.S. earnings.
OPERATING PROFIT BY INDUSTRY SEGMENT
Operating profit of the Corporation, by industry segment, is summarized in note
17 to the consolidated financial statements and discussed below.
CONSUMER SERVICES operating profit was $563 million in 1997, compared with
$1,269 million in 1996 and $1,044 million in 1995. As indicated above, 1997
operating profit included higher losses associated with the investment in
Montgomery Ward Holding Corp. ("MWHC"), increased automobile residual losses and
a higher provision for losses on financing receivables, reflecting higher
average receivable balances and increased delinquencies, consistent with
industry experience. These items were partially offset by acquisition and core
growth, principally from the consumer savings and insurance businesses, as well
as gains on asset transactions, including securitizations. The increase in 1996
was led by strong performances from the auto finance, consumer savings and
insurance and non-U.S. private-label credit card businesses, resulting from both
acquisition growth and higher origination volume. The 1996 increase also
reflected improved market conditions in the mortgage servicing business. The
1996 increases were partially offset by a higher provision for losses, also
reflecting higher average receivable balances and increased delinquencies,
consistent with industry experience, and higher losses associated with the
investment in MWHC.
EQUIPMENT MANAGEMENT operating profit increased to $1,062 million in 1997 from
$892 million in 1996, which was up from $869 million in 1995. Increases in both
years reflected higher volume in most businesses resulting from originations and
acquisitions of businesses and portfolios. The 1996 increase included the
effects of the computer equipment distribution businesses acquired, which was
partially offset by absence of a counterpart to the 1995 gain on sale of an
outdoor media business.
SPECIALIZED FINANCING operating profit increased to $1,036 million in 1997 from
$742 million in 1996, which increased 13% over 1995. Increased operating profit
in 1997 primarily reflected higher asset gains, including increased gains on
sales of warrants and other equity interests obtained in connection with certain
loans and sales of certain assets, including real estate investments,
as discussed above. The increase in 1996 principally reflected
lower provisions for losses, primarily related to lower investment levels
from sales of receivables and loan repayments and
14
<PAGE>
improved conditions in commercial real estate, and higher sales of warrants and
other equity interests. These increases were offset in part by a reduction in
earnings related to the lower investment levels and increased operating
expenses.
MID-MARKET FINANCING operating profit increased to $622 million in 1997,
compared with $558 million in 1996, which was up from $467 million in 1995.
Asset growth from higher volumes and acquisitions of businesses and portfolios
was the most significant contributing factor in both years.
SPECIALTY INSURANCE operating profit increased to $434 million in 1997 from $348
million in 1996, which increased from $325 million in 1995. The increases in
both years primarily reflected higher investment income, the result of continued
growth in investment portfolios and higher gains on investment securities,
improved earnings in the mortgage insurance business, the result of improved
market conditions, as well as contributions of acquired businesses. Higher
insurance losses, reserves and other costs and expenses partially offset these
increases.
INTERNATIONAL OPERATIONS
The Corporation's international operations include its operations located
outside the United States and certain of its operations that cannot be
meaningfully associated with specific geographic areas (for example, shipping
containers used on ocean-going vessels). The Corporation's international
revenues were $10.7 billion in 1997, an increase of 31% from $8.1 billion in
1996, while international assets grew 35% from $50.9 billion at December 31,
1996, to $68.5 billion at the end of 1997. This revenue and asset growth
occurred primarily in Europe and, to a lesser extent, in Canada and the Pacific
Basin. These increases were attributable to the Corporation's continued
expansion as a global provider of a wide range of services.
Recent economic developments in parts of Asia have altered somewhat the risks
and opportunities of the Corporation's activities in affected economies. These
activities encompass primarily leasing of aircraft and providing certain
financial services within those Asian economies. As such, exposure exists to,
among other things, increased receivable delinquencies and potential bad debts,
delays in orders, principally related to aircraft-related equipment, and a
slowdown in financial services activities. Conversely, new sourcing
opportunities may arise and liberalization of financial regulations opens new
opportunities to penetrate Asian financial services markets. Taken as a whole,
while this situation bears close monitoring and increased management attention,
the current situation is not expected to have a material adverse effect on the
Corporation's financial position, results of operations or liquidity in 1998.
CAPITAL RESOURCES AND LIQUIDITY
STATEMENT OF FINANCIAL POSITION
INVESTMENT SECURITIES for each of the past two years comprised mainly
investment-grade debt securities held by the Corporation's specialty insurance
and annuity and investment businesses in support of obligations to policyholders
and annuitants. The increase of $8.8 billion during 1997 was principally related
to acquisitions and increases in fair value as well as investment of premiums
received. A breakdown of the investment securities portfolio is provided in note
2 to the consolidated financial statements.
INVENTORIES were $786 million and $376 million at December 31, 1997 and 1996,
respectively. The increase in 1997 primarily reflected acquisitions in the
computer equipment distribution businesses.
FINANCING RECEIVABLES were $103.8 billion at year-end 1997, net of allowance for
doubtful accounts, up $4.1 billion over 1996. These receivables are discussed on
page 19 and in notes 3 and 4 to the consolidated financial statements.
OTHER RECEIVABLES were $11.9 billion and $8.5 billion at December 31, 1997 and
1996, respectively. Of the 1997 increase, $1.2 billion was attributable to
acquisitions and the remainder resulted from core growth.
EQUIPMENT ON OPERATING LEASES was $18.7 billion at December 31, 1997, up $2.6
billion from 1996. Details by category of investment can be found in note 6 to
the consolidated financial statements. Additions to equipment on
15
<PAGE>
operating leases were $6.8 billion during 1997 versus $5.3 billion during 1996,
principally reflecting a shift in auto lease volume from financing leases to
operating leases and increased acquisitions of new aircraft.
INTANGIBLE ASSETS were $9.5 billion at year-end 1997, up from $7.6 billion at
year-end 1996. The $1.9 billion increase in intangible assets related primarily
to goodwill from acquisitions.
OTHER ASSETS totaled $24.0 billion at year-end 1997, compared with $19.5 billion
at the end of 1996. The $4.5 billion increase related principally to increases
in assets acquired for resale, primarily residential mortgages, and increased
"separate accounts," which are investments controlled by policyholders and are
associated with identical amounts reported as insurance liabilities.
INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $50.2 billion at
year-end 1997, $6.9 billion higher than in 1996. The increase was primarily
attributable to acquisitions in 1997 and the increase in separate accounts. For
additional information on these liabilities, see note 11 to the consolidated
financial statements.
BORROWINGS were $136.8 billion at December 31, 1997, of which $91.7 billion is
due in 1998 and $45.1 billion is due in subsequent years. Comparable amounts at
the end of 1996 were $121.8 billion total, $75.0 billion due within one year and
$46.8 billion due thereafter. The Corporation's composite interest rates are
discussed on page 13. A large portion of the Corporation's borrowings ($67.6
billion and $51.2 billion at the end of 1997 and 1996, respectively) was issued
in active commercial paper markets that management believes will continue to be
a reliable source of short-term financing. The average remaining terms and
interest rates of the Corporation's commercial paper were 44 days and 5.83% at
the end of 1997, compared with 42 days and 5.58% at the end of 1996.
GE Capital leverage (ratio of debt to equity, excluding from equity net
unrealized gains on investment securities) was 7.94 to 1 at the end of 1997 and
7.92 to 1 at the end of 1996. By comparison, including in equity net unrealized
gains on investment securities, the GE Capital ratio of debt to equity was 7.45
to 1 at the end of 1997 and 7.84 to 1 at the end of 1996.
GE Company 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 Company also has
guaranteed the Corporation's subordinated debt with a face amount of $700
million at December 31, 1997 and 1996. Management believes the likelihood that
GE Company will be required to contribute capital under either the commitments
or the guarantees is remote.
STATEMENT OF CASH FLOWS
One of the Corporation's primary sources of cash 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, the Corporation's borrowings with maturities of 90 days or less
have increased by $18.4 billion. New borrowings of $79.7 billion having
maturities longer than 90 days were added during those years, while $63.9
billion of such longer-term borrowings were retired. The Corporation also
generated $23.7 billion of cash from continuing operating activities during the
last three years.
The Corporation's principal use of cash has been investing in assets to grow its
businesses. Of the $52.6 billion that the Corporation invested in continuing
operations over the past three years, $15.5 billion was used for additions to
financing receivables; $16.1 billion was used to invest in new equipment,
principally for lease to others; and $12.8 billion was used for acquisitions of
new businesses.
With the financial flexibility that comes with excellent credit ratings,
management believes the Corporation should be well positioned to meet the global
needs of its customers for capital and to continue growing its diversified asset
base.
16
<PAGE>
INTEREST RATE AND CURRENCY RISK MANAGEMENT
In normal operations, the Corporation must deal with effects of changes in
interest rates and currency exchange rates. The following discussion presents an
overview of how such changes are managed and a view of their potential effects.
The Corporation uses various financial instruments, particularly interest rate
and currency swaps, but also futures, options and currency forwards, to manage
risks. The Corporation is exclusively an end user of these instruments, which
are commonly referred to as derivatives. The Corporation does not engage in any
derivatives trading, market-making or other speculative activities in the
derivative markets. More detailed information regarding these financial
instruments, as well as the strategies and policies for their use, is contained
in notes 1, 10 and 21 to the consolidated financial statements.
The Corporation manages its exposure to changes in interest rates, in part, by
funding its assets with an appropriate mix of fixed and variable rate debt and
its exposure to currency fluctuations principally by funding local currency
denominated assets with debt denominated in those same currencies. It uses
interest rate swaps, currency swaps (including non-U.S. currency and cross
currency interest rate swaps) and currency forwards to achieve lower borrowing
costs. Substantially all of these derivatives have been designated as modifying
interest rates and/or currencies associated with specific debt instruments.
These financial instruments allow the Corporation to lower its cost of funds by
substituting credit risk for interest rate and currency risks. Since the
Corporation's principal use of such swaps is to optimize funding costs, changes
in interest rates and exchange rates underlying swaps would not be expected to
have a material impact on the Corporation's financial position or results of
operations. The Corporation conducts almost all activities with these
instruments in the over-the-counter markets.
The Corporation is exposed to prepayment risk in certain of its business
activities, such as in its mortgage servicing and annuities activities. In order
to hedge those exposures, the Corporation uses swaps, futures, and option-based
financial instruments. These instruments generally behave based on limits
("caps", "floors" or "collars") on interest rate movement. These swaps, futures
and option-based instruments are governed by the credit risk policies described
below and are transacted in either exchange-traded or over-the-counter markets.
In addition, as part of its ongoing customer activities, the Corporation may
enter into swaps that are integrated with 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 swap. All other swaps, forward contracts and other
derivatives have been designated as hedges of non-U.S. net investments or other
assets.
Established practices require that derivative financial instruments relate to
specific asset, liability or equity transactions or to currency exposures.
Substantially all treasury actions are centrally executed by the Corporation's
Treasury Department, which maintains controls on all exposures, adheres to
stringent counterparty credit standards and actively monitors marketplace
exposures.
Given the ways in which the Corporation uses swaps, purchased options and
forwards, the principal risk is credit risk - risk that counterparties will be
financially unable to make payments in accordance with the agreements.
Associated market risk is meaningful only as it relates to how changes in the
market value affect credit exposure to individual counterparties. 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.
17
<PAGE>
o Once a counterparty reaches a credit exposure limit (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.
<TABLE>
<CAPTION>
COUNTERPARTY CREDIT CRITERIA CREDIT RATING
--------------------
STANDARD &
MOODY'S POOR'S
-------- --------
<S> <C> <C>
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
</TABLE>
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.
The conversion of interest rate and currency risk into credit risk results in a
need to monitor counterparty credit risk actively. At December 31, 1997, the
notional amount of long-term derivatives for which the counterparty was rated
below Aa3/AA- was $5.1 billion. These amounts are the result of (1) counterparty
downgrades, (2) transactions executed prior to the adoption of the Corporation's
current counterparty credit standards, and (3) transactions relating to acquired
assets or businesses.
Following is an analysis of credit risk exposures for the last three years.
<TABLE>
<CAPTION>
PERCENTAGE OF NOTIONAL DERIVATIVE EXPOSURE BY COUNTERPARTY CREDIT RATING
- -------------------------------------------------------------------------------
MOODY'S/STANDARD & POOR'S 1997 1996 1995
- ------------------------- -------- -------- --------
<S> <C> <C> <C>
Aaa/AAA .................................... 75% 78% 75%
Aa/AA ...................................... 20% 17% 22%
A/A and below .............................. 5% 5% 3%
</TABLE>
The optimal funding strategy is sometimes achieved by using multiple swaps. For
example, to obtain fixed rate U.S. dollar funding, several alternatives are
generally available. One alternative is a swap of non-U.S. dollar denominated
fixed rate debt into U.S. dollars. The synthetic U.S. dollar denominated debt
would be effectively created by taking the following steps: (1) issuing fixed
rate, non-U.S. currency denominated debt, (2) entering into a swap under which
fixed rate non-U.S. currency denominated interest will be received and floating
rate non-U.S. currency denominated interest will be paid, and (3) entering into
a swap under which floating rate non-U.S. currency principal and interest will
be received and fixed rate U.S. dollar denominated principal and interest will
be paid. The end result is, in every important respect, fixed rate U.S. dollar
denominated financing with an element of controlled credit risk. The Corporation
uses multiple swaps only as part of such transactions.
The interplay of the Corporation's credit risk policy with its funding
activities is seen in the following example, in which the Corporation is assumed
to have been offered three alternatives for funding five-year fixed rate U.S.
dollar assets with five-year fixed rate U.S. dollar debt.
18
<PAGE>
<TABLE>
<CAPTION>
SPREAD OVER
U.S.
TREASURIES
IN
BASIS
POINTS COUNTERPARTY
----------- ------------
<C> <C> <C>
1. Fixed rate five-year medium term note ........... +65 --
2. U.S. dollar commercial paper swapped into
five-year U S. dollar fixed rate funding ...... +40 A
3. Swiss franc fixed rate debt swapped into
five-year U.S dollar fixed rate funding ....... +35 B
</TABLE>
Counterparty A is a major brokerage house with a Aaa/AAA rated swap subsidiary
and a current exposure to the Corporation of $39 million. Counterparty B is a
Aa2/AA rated insurance company with a current exposure of $50 million.
In this hypothetical case, the Corporation would have chosen alternative 2.
Alternative 1 is unacceptably costly. Although alternative 3 would have yielded
a lower immediate cost of funds, the additional credit risk of Counterparty B
would have exceeded the Corporation's risk management limits.
The Securities and Exchange Commission requires that registrants disclose
information about potential effects of changes in interest rates and currency
exchange. Although the rules offer alternatives for presenting this information,
none of the alternatives is without limitations. The following discussion is
based on so-called "shock-tests," which model effects of interest rate and
currency shifts on the reporting company. Shock tests, while probably the most
meaningful analysis permitted, are constrained by several factors, including the
necessity to conduct the analysis based on a single point in time and by their
inability to include the extraordinarily complex market reactions that normally
would arise from the market shifts modeled. While the following results of shock
tests for interest rates and currencies may have some limited use as benchmarks,
they should not be viewed as forecasts.
o One means of assessing exposure to interest rate changes is a
duration-based analysis that measures the potential loss in net earnings
resulting from a hypothetical increase in interest rates of 100 basis
points across all maturities (sometimes referred to as a "parallel shift in
the yield curve"). Under this model, it is estimated that, all else
constant, such an increase, including repricing effects in the securities
portfolio, would reduce the 1998 net earnings of the Corporation based on
year-end 1997 positions by approximately $100 million.
o One means of assessing exposure to changes in currency exchange rates is
to model effects on reported earnings using a sensitivity analysis.
Year-end 1997 consolidated currency exposures, including financial
instruments designated and effective as hedges, were analyzed to identify
Corporation assets and liabilities denominated in other than their relevant
functional currency. Net unhedged exposures in each currency were then
remeasured assuming a 10% decrease (substantially greater decreases for
hyperinflationary currencies) in currency exchange rates compared with the
U.S. dollar. Under this model, it is estimated that, all else constant,
such a decrease would reduce the 1998 net earnings of the Corporation based
on year-end 1997 positions by an insignificant amount.
PORTFOLIO QUALITY
FINANCING RECEIVABLES are the Financing segment's largest asset and its primary
source of revenues. The portfolio of financing receivables, before allowance for
losses, increased to $106.6 billion at the end of 1997 from $102.4 billion at
the end of 1996, principally reflecting acquisition growth and origination
volume that were partially offset by securitizations of receivables. The related
allowance for losses at the end of 1997 amounted to $2.8 billion (2.63% of
receivables - the same as 1996 and 1995) and, in management's judgment, is
appropriate given the risk profile of the portfolio. A discussion of the quality
of certain elements of the portfolio of financing receivables follows. Further
details are included in notes 3, 4 and 6 to the consolidated financial
statements.
"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
19
<PAGE>
to a below-market yield. The following discussion of nonearning and
reduced-earning receivable balances and write-off amounts excludes amounts
related to Montgomery Ward Holding Corp. and affiliates which are separately
discussed below.
CONSUMER FINANCING RECEIVABLES at year-end 1997 and 1996 are shown in the
following table:
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
Credit card and personal loans ......................... $ 25,773 $ 27,127
Auto loans ............................................. 8,973 5,915
Auto financing leases .................................. 13,346 13,113
-------- --------
Total consumer financing receivables ................. $ 48,092 $ 46,155
======== ========
Nonearning ............................................. $ 1,049 $ 926
- As a percentage of total ........................... 2.2% 2.0%
Receivable write-offs for the year ..................... $ 1,298 $ 870
</TABLE>
The decrease in credit card and personal loan portfolios primarily resulted from
securitization of receivables, partially offset by portfolio acquisitions and
origination volume. Both the auto loan and financing lease portfolios increased
as a result of acquisition growth; however, the increase in auto financing
leases was partially offset by a shift in U.S. lease volume from financing
leases to operating leases. Nonearning receivables did not change significantly
during 1997. A substantial amount of the nonearning consumer receivables were
U.S. private-label credit card loans which were subject to various loss-sharing
arrangements that provide full or partial recourse to the originating retailer.
Increased write-offs of consumer receivables were primarily attributable to the
impact of higher delinquencies and personal bankruptcies on the credit card loan
portfolios in the United States, consistent with overall industry experience, as
well as higher average receivable balances worldwide.
OTHER FINANCING RECEIVABLES, totaling $58.5 billion at December 31, 1997,
consisted of a diverse commercial, industrial and equipment loan and lease
portfolio. This portfolio increased $2.3 billion during 1997, primarily because
of increased origination volume, partially offset by sales of receivables.
Related nonearning and reduced-earning receivables were $353 million at year-end
1997, compared with $471 million at year-end 1996.
As discussed in note 3 to the consolidated financial statements, Montgomery Ward
Holding Corp. ("MWHC") filed a bankruptcy petition for reorganization in 1997.
MWHC reported losses from operations during 1997, and the Corporation's share of
such losses was $380 million (after tax). The Corporation recorded its share of
losses by reducing its investments in MWHC, resulting in the writing off of its
investments in MWHC common and preferred stock. In addition to those equity
investments, the Corporation has other investments, primarily inventory
financing, that resulted from ordinary course of business transactions with MWHC
and affiliates. Such investments, after reduction for the Corporation's share of
losses as discussed above, amounted to approximately $795 million at December
31, 1997 ($617 million classified as financing receivables). Income recognition
had been suspended on these pre-bankruptcy investments. Subsequent to the
petition, the Corporation committed to provide MWHC up to $1.0 billion in
debtor-in-possession financing, subject to certain conditions, in order to fund
working capital requirements and general corporate expenses. A majority of this
facility has been syndicated; total borrowings under this facility at December
31, 1997, were insignificant. The Corporation also provides financing to
customers of MWHC and affiliates through the Corporation's wholly-owned
affiliates, Montgomery Ward Credit Corporation and Monogram Credit Card Bank of
Georgia. These receivables, which represent revolving credit card transactions
directly with customers of MWHC and affiliates, aggregated approximately $4,232
million at December 31, 1997, including $1,755 million that have been sold with
recourse by the Corporation's affiliates. The obligations of customers with
respect to these receivables are not affected by the bankruptcy filing. MWHC and
its affiliates, under new management in 1997, are continuing their restructuring
efforts as well as developing a plan of reorganization.
The Corporation held loans and leases to commercial airlines amounting to $9.0
billion at the end of 1997, up from $8.2 billion at the end of 1996. The
Corporation's commercial aircraft positions also included financial guarantees,
funding commitments and aircraft orders as discussed in note 6 to the
consolidated financial statements.
20
<PAGE>
ENTERING 1998, management believes that continued vigilant attention to risk
management and controllership and a strong focus on quality - complete
satisfaction of customer needs - position it to deal effectively with the
increasing competition in an ever-changing economy.
YEAR 2000
Year 2000 compliance programs and information systems modifications have been
initiated in an attempt to ensure that these systems and key processes will
remain functional. This objective is expected to be achieved either by modifying
present systems using existing internal and external programming resources or by
installing new systems, including enterprise systems, and by monitoring supplier
and other third-party interfaces. While there can be no assurance that all such
modifications will be successful, management does not expect that either costs
of modifications or consequences of any unsuccessful modifications should have a
material adverse effect on the Corporation's financial position, results of
operations or liquidity.
NEW ACCOUNTING STANDARDS
New accounting standards issued in 1997 are described below. Neither of these
standards will have any effect on the financial position or results of
operations of the Corporation. The Financial Accounting Standards Board issued
two Statements of Financial Accounting Standards ("SFAS") that will affect
presentation in the Corporation's 1998 Annual Report on Form 10-K. SFAS No. 130,
Reporting Comprehensive Income, will require display of certain information
about adjustments to equity - most notably, adjustments arising from market
value changes in marketable securities. SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, will require additional information
about industry segments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information about potential effects of changes in interest rates and currency
exchange on the Corporation is discussed on pages 17-19.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
General Electric Capital Corporation:
We have audited the consolidated financial statements of General Electric
Capital Corporation and consolidated affiliates as listed in Item 14. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule listed in Item 14. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of General Electric
Capital Corporation and consolidated affiliates at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
February 13, 1998
22
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
STATEMENT OF CURRENT AND RETAINED EARNINGS
For the years ended December 31 (In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Time sales, loan and other income (Note 14) ................................ $ 11,877 $ 11,305 $ 10,006
Operating lease rentals .................................................... 4,819 4,341 4,079
Financing leases ........................................................... 3,499 3,485 3,176
Investment income .......................................................... 4,071 2,377 1,631
Premium and commission income of insurance affiliates (Note 11) ............ 4,516 3,136 1,820
Sales of goods ............................................................. 4,622 1,926 467
-------- -------- --------
Total revenues ........................................................... 33,404 26,570 21,179
-------- -------- --------
EXPENSES
Interest ................................................................... 7,330 7,042 6,455
Operating and administrative (Note 15) ..................................... 9,472 7,565 5,747
Insurance losses and policyholder and annuity benefits (Note 11) ........... 4,825 3,183 2,031
Cost of goods sold ......................................................... 4,147 1,720 415
Provision for losses on financing receivables (Note 4) ..................... 1,421 1,033 1,117
Depreciation and amortization of buildings and equipment
and equipment on operating leases (Notes 6 & 7) ........................... 2,443 2,137 2,001
Minority interest in net earnings of consolidated affiliates ............... 40 86 81
-------- -------- --------
Total expenses ........................................................... 29,678 22,766 17,847
-------- -------- --------
Earnings before income taxes ............................................... 3,726 3,804 3,332
Provision for income taxes (Note 16) ....................................... (997) (1,172) (1,071)
-------- -------- --------
NET EARNINGS ............................................................... 2,729 2,632 2,261
Dividends paid (Note 13) ................................................... (1,546) (891) (1,645)
Retained earnings at January 1 ............................................. 10,678 8,937 8,321
-------- -------- --------
RETAINED EARNINGS AT DECEMBER 31 ........................................... $ 11,861 $ 10,678 $ 8,937
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
STATEMENT OF FINANCIAL POSITION
At December 31 (In millions) 1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and equivalents ................................................................... $ 4,648 $ 3,074
Investment securities (Note 2) ......................................................... 53,103 44,340
Financing receivables (Note 3):
Time sales and loans, net of deferred income ......................................... 64,832 62,832
Investment in financing leases, net of deferred income ............................... 41,769 39,575
-------- --------
106,601 102,407
Allowance for losses on financing receivables (Note 4) ............................... (2,802) (2,693)
-------- --------
Financing receivables - net ........................................................ 103,799 99,714
Other receivables - net (Note 5) ....................................................... 11,925 8,456
Equipment on operating leases (at cost), less accumulated amortization of $6,126
and $5,625 (Note 6) .................................................................. 18,689 16,134
Buildings and equipment (at cost), less accumulated depreciation of $1,421
and $1,188 (Note 7) .................................................................. 2,335 1,647
Intangible assets (Note 8) ............................................................. 9,459 7,594
Inventory .............................................................................. 786 376
Other assets (Note 9) .................................................................. 24,033 19,481
-------- --------
TOTAL ASSETS ......................................................................... $228,777 $200,816
======== ========
LIABILITIES AND EQUITY
Short-term borrowings (Note 10) ........................................................ $ 91,680 $ 74,971
Long-term borrowings (Note 10) ......................................................... 45,134 46,821
-------- --------
Total borrowings ..................................................................... 136,814 121,792
Accounts payable ....................................................................... 6,003 5,618
Insurance liabilities, reserves and annuity benefits (Note 11) ........................ 50,248 43,263
Other liabilities ...................................................................... 8,312 6,466
Deferred income taxes (Note 16) ........................................................ 8,167 7,472
-------- --------
Total liabilities .................................................................... 209,544 184,611
-------- --------
Minority interest in equity of consolidated affiliates (Note 12) ....................... 860 679
-------- --------
Variable cumulative preferred stock, $100 par value, liquidation preference
$100,000 per share (23,000 shares authorized at December 31, 1997 and 1996;
22,300 shares and 18,000 shares outstanding at December 31, 1997 and 1996,
respectively) ........................................................................ 2 2
Common stock, $200 par value (3,866,000 shares authorized and 3,837,825 shares
outstanding at December 31, 1997 and 1996) ........................................... 768 768
Additional paid-in capital ............................................................. 4,744 4,024
Retained earnings ...................................................................... 11,861 10,678
Unrealized gains on investment securities .............................................. 1,145 149
Foreign currency translation adjustments ............................................... (147) (95)
-------- --------
Total equity (Note 13) ............................................................... 18,373 15,526
-------- --------
TOTAL LIABILITIES AND EQUITY ......................................................... $228,777 $200,816
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
STATEMENT OF CASH FLOWS
For the years ended December 31 (In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ............................................................... $ 2,729 $ 2,632 $ 2,261
Adjustments to reconcile net earnings to cash provided from
operating activities:
Provision for losses on financing receivables ............................ 1,421 1,033 1,117
Increase in insurance liabilities, reserves and annuity benefits ......... 1,825 1,373 1,006
Increase in inventories .................................................. (244) (58) (15)
Increase in deferred income taxes ........................................ 588 1,025 653
Depreciation and amortization of buildings and equipment and
equipment on operating leases .......................................... 2,443 2,137 2,001
Increase in accounts payable ............................................. 138 422 720
Other - net .............................................................. (2,782) 853 372
-------- -------- --------
Cash from operating activities ............................................ 6,118 9,417 8,115
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in financing receivables (Note 20) ............................ (1,898) (2,278) (11,309)
Buildings and equipment and equipment on operating leases
- additions ............................................................... (6,160) (5,348) (4,628)
- dispositions ............................................................ 2,209 1,326 1,495
Payments for principal businesses purchased, net of cash acquired .......... (3,820) (4,385) (4,600)
All other investing activities (Note 20) ................................... (5,163) (5,405) (2,617)
-------- -------- --------
Cash used for investing activities ........................................ (14,832) (16,090) (21,659)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities of 90 days or less) ................... 12,964 10,996 (5,547)
Newly issued debt (maturities longer than 90 days) (Note 20) ............... 20,825 22,345 36,480
Repayments and other reductions (maturities longer than 90 days) (Note 20) . (22,757) (24,056) (17,045)
Dividends paid ............................................................. (1,540) (891) (961)
Issuance of preferred stock in excess of par value ......................... 430 -- 924
Issuance of variable cumulative preferred stock by consolidated affiliate .. 175 125 120
All other financing activities (Note 20) ................................... 191 (88) 177
-------- -------- --------
Cash from financing activities ............................................ 10,288 8,431 14,148
-------- -------- --------
INCREASE IN CASH AND EQUIVALENTS DURING THE YEAR ........................... 1,574 1,758 604
CASH AND EQUIVALENTS AT BEGINNING OF YEAR .................................. 3,074 1,316 712
-------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR ........................................ $ 4,648 $ 3,074 $ 1,316
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements represent the adding
together of General Electric Capital Corporation ("the Parent") and all of its
majority-owned and controlled affiliates ("consolidated affiliates"),
(collectively called "the Corporation"). All outstanding common stock of the
Parent is owned by General Electric Capital Services, Inc. ("GE Capital
Services"), all of whose common stock is owned by General Electric Company ("GE
Company"). All significant transactions among the Parent and consolidated
affiliates have been eliminated. Other associated companies, generally companies
that are 20% to 50% owned and over which the Corporation, directly or
indirectly, has significant influence, are included in other assets and valued
at the appropriate share of equity plus loans and advances. Certain prior-year
amounts have been reclassified to conform to the current year 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.
METHODS OF RECORDING 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
the 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 insurance accounting
policies.
SALES OF GOODS - A sale is recorded when title passes to the customer.
CASH AND EQUIVALENTS - Certificates and other time deposits are treated as cash
equivalents.
ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS - The Corporation
maintains an allowance for losses on financing receivables at an amount that it
believes is sufficient to provide adequate protection against future losses in
the portfolio.
When collateral is repossessed in satisfaction of a loan, the receivable is
written down against the allowance for losses to estimated fair value less costs
to sell, transferred to other assets and subsequently carried at the lower of
cost or estimated fair value less costs to sell. This accounting method has been
employed principally for specialized financing transactions.
INVESTMENT SECURITIES - Investments in debt and marketable equity securities are
reported at fair value. Substantially all investment securities are designated
as available for sale, with unrealized gains and losses included in equity, net
26
<PAGE>
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 - The Corporation's inventories consist primarily of finished
products held for sale. All inventories are stated at the lower of cost or
realizable values. Cost is primarily determined on a first-in, first-out basis.
EQUIPMENT ON OPERATING LEASES - Equipment is amortized, principally on a
straight-line basis, to estimated net salvage value over the lease term or the
estimated economic life of the equipment.
BUILDINGS AND EQUIPMENT - Depreciation is recorded on either a sum-of-the-years
digits formula or a straight-line basis over the lives of the assets.
INTANGIBLE ASSETS - Goodwill is amortized over its estimated period of benefit
on a straight-line basis; other intangible assets are amortized on appropriate
bases over their estimated lives. No amortization period exceeds 40 years.
Goodwill in excess of associated expected operating cash flows is considered to
be impaired and is written down to fair value, which is determined based on
either discounted future cash flows or appraised values, depending on the nature
of the assets.
INTEREST RATE AND CURRENCY RISK MANAGEMENT - As a matter of policy, the
Corporation does not engage in derivatives trading, market-making or other
speculative activities. The Corporation uses swaps primarily to optimize funding
costs. To a lesser degree, and in combination with options and limit contracts,
the Corporation 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. The Corporation requires all other swaps, as
well as futures, options and currency forwards, to be designated and accounted
for as hedges of specific assets, liabilities or committed transactions;
resulting payments and receipts are recognized contemporaneously with effects of
hedged transactions. A payment or receipt arising from early termination of an
effective hedge is accounted for as an adjustment to the basis of the hedged
transaction.
Instruments used as hedges must be effective at reducing the risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the contract. Accordingly, changes in market values of hedge
instruments must be highly correlated with changes in market values of
underlying hedged items both at inception of the hedge and over the life of the
hedge contract. Any instrument designated but ineffective as a hedge is marked
to market and recognized in operations immediately.
INSURANCE ACCOUNTING POLICIES - Accounting policies for insurance businesses are
as follows.
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.
27
<PAGE>
DEFERRED POLICY ACQUISITION COSTS. Costs that vary with and are primarily
related to the acquisition of new and renewal insurance and investment contracts
are deferred and amortized over the respective policy terms.
o For short-duration insurance contracts, these costs are amortized pro rata
over the contract periods in which the related premiums are earned.
o For traditional long-duration insurance contracts, these costs are
amortized over the respective contract periods in proportion to either
anticipated premium income or, in the case of limited-payment contracts,
estimated benefit payments.
o For investment contracts and universal life contracts, these costs are
amortized on the basis of anticipated gross profits.
Periodically, deferred policy acquisition costs are reviewed for recoverability;
anticipated investment income is considered in making recoverability
evaluations.
PRESENT VALUE OF FUTURE PROFITS. The actuarially determined present value of
anticipated net cash flows to be realized from insurance, annuity and investment
contracts in force at the date of acquisition of life insurance enterprises is
recorded as the present value of future profits ("PVFP"). PVFP is amortized over
the respective policy terms in a manner similar to deferred policy acquisition
costs; unamortized balances are adjusted to reflect experience and impairment,
if any.
NOTE 2. INVESTMENT SECURITIES
A summary of investment securities follows:
<TABLE>
<CAPTION>
(In millions) GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST GAINS LOSSES FAIR VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Debt securities:
U.S. corporate ................................................ $ 22,308 $ 972 $ (49) $ 23,231
State and municipal ........................................... 5,235 290 (l) 5,524
Mortgage-backed ............................................... 9,777 255 (27) 10,005
Corporate - non-U.S. .......................................... 5,953 258 (6) 6,205
Government - non-U.S. ......................................... 1,257 30 -- 1,287
U.S. government and federal agency ............................ 1,838 86 (3) 1,921
Equity securities .............................................. 4,617 367 (54) 4,930
-------- -------- -------- --------
$ 50,985 $ 2,258 $ (140) $ 53,103
======== ======== ======== ========
DECEMBER 31, 1996
Debt securities:
U.S. corporate ................................................ $ 21,093 $ 294 $ (637) $ 20,750
State and municipal ........................................... 4,366 120 (26) 4,460
Mortgage-backed ............................................... 9,139 240 (100) 9,279
Corporate - non-U.S. .......................................... 3,140 53 (11) 3,182
Government - non-U.S. ......................................... 779 5 (1) 783
U.S. government and federal agency ............................ 1,824 31 (5) 1,850
Equity securities .............................................. 3,728 325 (17) 4,036
-------- -------- -------- --------
$ 44,069 $ 1,068 $ (797) $ 44,340
======== ======== ======== ========
</TABLE>
The majority of mortgage-backed securities shown in the table above are
collateralized by U.S. residential mortgages.
28
<PAGE>
At December 31, 1997, contractual maturities of debt securities, other than
mortgage-backed securities, were as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
(In millions) COST FAIR VALUE
-------- --------
<S> <C> <C>
Due in:
1998 .................................................. $ 1,568 $ 1,575
1999-2002 ............................................. 10,272 10,528
2003-2007 ............................................. 9,289 9,638
2008 and later ........................................ 15,462 16,427
</TABLE>
It is expected that actual maturities will differ from contractual maturities
because borrowers have the right to call or prepay certain obligations,
sometimes without call or prepayment penalties. Proceeds from sales of
investment securities in 1997 were $8,485 million ($5,375 million in 1996 and
$6,225 million in 1995). Gross realized gains were $618 million in 1997 ($321
million in 1996 and $241 million in 1995). Gross realized losses were $81
million in 1997 ($96 million in 1996 and $86 million in 1995).
NOTE 3. FINANCING RECEIVABLES
Financing receivables at December 31, 1997 and 1996, are shown below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
Time sales and loans:
Consumer Services ..................................... $ 42,270 $ 40,479
Specialized Financing ................................. 13,974 14,832
Mid-Market Financing .................................. 11,401 9,978
Equipment Management .................................. 469 448
Specialty Insurance ................................... 202 339
-------- --------
68,316 66,076
Deferred income ........................................ (3,484) (3,244)
-------- --------
Time sales and loans - net of deferred income ........ 64,832 62,832
-------- --------
Investment in financing leases:
Direct financing leases ............................... 38,616 36,576
Leveraged leases ...................................... 3,153 2,999
-------- --------
Investment in financing leases ....................... 41,769 39,575
-------- --------
106,601 102,407
Less allowance for losses (Note 4) ..................... (2,802) (2,693)
-------- --------
$103,799 $ 99,714
======== ========
</TABLE>
Time sales and loans represents transactions in a variety of forms, including
time sales, revolving charge and credit, mortgages, installment loans,
intermediate-term loans and revolving loans secured by business assets. The
portfolio includes time sales and loans carried at the principal amount on which
finance charges are billed periodically, and time sales and loans carried at
gross book value, which includes finance charges. At year-end 1997 and 1996,
specialized financing and consumer services loans included $10,503 million and
$12,075 million, respectively, for commercial real estate loans. Note 6 contains
information on commercial airline loans and leases.
At December 31, 1997, contractual maturities for time sales and loans were
$28,983 million in 1998; $12,792 million in 1999; $7,967 million in 2000; $5,156
million in 2001; $3,985 million in 2002 and $9,433 million thereafter -
29
<PAGE>
aggregating $68,316 million. Experience has shown that a substantial portion of
receivables will be paid prior to contractual maturity. Accordingly, the
maturities of time sales and loans are not to be regarded as forecasts of future
cash collections.
Investment in financing leases consists of direct financing and leveraged leases
of aircraft, railroad rolling stock, autos, other transportation equipment, data
processing equipment and medical equipment, as well as other manufacturing,
power generation, mining and commercial equipment and facilities.
As the sole owner of assets under direct financing leases and as the equity
participant in leveraged leases, the Corporation 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. The
Corporation generally is entitled to any residual value of leased assets.
Investment in direct financing and leveraged leases represents unpaid rentals
and estimated unguaranteed residual values of leased equipment, less related
deferred income. The Corporation 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 Corporation's share of rentals receivable on leveraged leases is
subordinate to the share of other participants who also have security interests
in the leased equipment.
The Corporation's net investment in financing leases at December 31, 1997 and
1996, is shown below.
<TABLE>
<CAPTION>
TOTAL DIRECT
FINANCING LEASES FINANCING LEASES LEVERAGED LEASES
-------------------- -------------------- --------------------
(In millions) 1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total minimum lease payments receivable $ 58,543 $ 54,009 $ 42,901 $ 40,555 $ 15,642 $ 13,454
Less principal and interest on
third-party nonrecourse debt .......... (12,097) (10,213) -- -- (12,097) (10,213)
-------- -------- -------- -------- -------- --------
Net rentals receivable ................ 46,446 43,796 42,901 40,555 3,545 3,241
Estimated unguaranteed residual value
of leased assets ...................... 5,591 6,248 4,244 4,906 1,347 1,342
Less deferred income ................... (10,268) (10,469) (8,529) (8,885) (1,739) (1,584)
-------- -------- -------- -------- -------- --------
Investment in financing leases ........ 41,769 39,575 38,616 36,576 3,153 2,999
Less: Allowance for losses ............ (656) (720) (575) (641) (81) (79)
Deferred taxes arising from
financing leases ............... (7,909) (7,488) (4,671) (4,077) (3,238) (3,411)
-------- -------- -------- -------- -------- --------
Net investment in financing leases ..... $ 33,204 $ 31,367 $ 33,370 $ 31,858 $ (166) $ (491)
======== ======== ======== ======== ======== ========
</TABLE>
At December 31, 1997, contractual maturities for net rentals receivable under
financing leases were $12,820 million in 1998; $10,616 million in 1999; $8,395
million in 2000; $3,871 million in 2001; $2,371 million in 2002 and $8,373
million thereafter - aggregating $46,446 million. As with time sales and loans,
experience has shown that a portion of receivables will be paid prior to
contractual maturity and these amounts should not be regarded as forecasts of
future cash flows.
The Corporation has a noncontrolling investment in the common stock of
Montgomery Ward Holding Corp. ("MWHC") which, together with its wholly-owned
subsidiary, Montgomery Ward & Co., Incorporated ("MWC"), is engaged in retail
merchandising and direct response marketing, the latter conducted primarily
through Signature Financial/Marketing Inc. ("Signature"), which markets consumer
club and insurance products. On July 7, 1997, MWHC, MWC and certain of their
affiliates (excluding Signature) filed for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. As a result, inventory financing loans to MWHC and
affiliates became "impaired" loans (as defined below) because, due to the
automatic stay in bankruptcy, the Corporation is not receiving current interest
payment on its loans and, in management's judgment, it is therefore probable
that the Corporation will be unable to collect all amounts due according to
original contractual terms of the loan agreements. The total amount of such
30
<PAGE>
loans was $617 million at December 31, 1997. The nonearning and reduced-earning
receivable balances and the impaired loan balances discussed below exclude
amounts related to MWHC and affiliates.
Nonearning consumer receivables were $1,049 million and $926 million at December
31, 1997 and 1996, respectively, a substantial amount of which were U.S.
private-label credit card loans subject to various loss-sharing agreements that
provide full or partial recourse to the originating retailer. Nonearning and
reduced-earning receivables other than consumer receivables were $353 million
and $471 million at year-end 1997 and 1996, respectively.
"Impaired" loans are defined by generally accepted accounting principles as
loans for which it is probable that the lender will be unable to collect all
amounts due according to original contractual terms of the loan agreement. That
definition excludes, among other things, leases or large groups of
smaller-balance homogenous loans, and therefore applies principally to the
Corporation's commercial loans.
Under these principles, the Corporation has two types of "impaired" loans as of
December 31, 1997 and 1996: loans requiring allowances for losses ($339 million
and $583 million, respectively) and loans expected to be fully recoverable
because the carrying amount has been reduced previously through charge-offs or
deferral of income recognition ($167 million and $187 million, respectively) -
allowances for losses on these loans were $170 million and $222 million,
respectively. Average investment in these loans during 1997 and 1996 was $647
million and $842 million, respectively, before allowance for losses; interest
income earned, principally on the cash basis, while they were considered
impaired was $32 million and $30 million in 1997 and 1996, respectively.
NOTE 4. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
The allowance for losses on small-balance receivables is determined principally
on the basis of actual experience during the preceding three years. Further
allowances are provided to reflect management's judgment of additional loss
potential. For other receivables, principally the larger loans and leases, the
allowance for losses is determined primarily on the basis of management's
judgment of the net loss potential, including specific allowances for known
troubled accounts. The table below shows the activity in the allowance for
losses on financing receivables during each of the past three years.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1 ....................................................... $ 2,693 $ 2,519 $ 2,062
Provisions charged to operations ........................................... 1,421 1,033 1,117
Net transfers primarily related to companies acquired or sold .............. 127 139 217
Amounts written off - net .................................................. (1,439) (998) (877)
-------- -------- --------
Balance at December 31 ..................................................... $ 2,802 $ 2,693 $ 2,519
======== ======== ========
</TABLE>
All accounts or portions thereof deemed to be uncollectible or to require an
excessive collection cost are written off to the allowance for losses.
Small-balance accounts generally are written off when 6 to 12 months delinquent,
although any balance judged to be uncollectible, such as an account in
bankruptcy, is written down immediately to estimated realizable value.
Large-balance accounts are reviewed at least quarterly, and those accounts with
amounts that are judged to be uncollectible are written down to estimated
realizable value.
NOTE 5. OTHER RECEIVABLES
This account includes reinsurance recoverables of $2,206 million and $1,691
million and insurance-related receivables of $1,830 million and $1,267 million
at year-end 1997 and 1996, respectively. Premium receivables, funds on deposit
with reinsurers and policy loans are included in insurance-related receivables.
Also in other receivables are trade receivables, accrued investment income,
operating lease receivables and a variety of sundry items.
31
<PAGE>
NOTE 6. EQUIPMENT ON OPERATING LEASES
Equipment on operating leases by type of equipment and accumulated amortization
at December 31, 1997 and 1996, are shown below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
Original cost
Vehicles .............................................................................. $ 9,144 $ 6,789
Aircraft .............................................................................. 7,686 6,647
Marine shipping containers ............................................................ 2,774 3,053
Railroad rolling stock ................................................................ 2,367 2,093
Other ................................................................................. 2,844 3,177
-------- --------
24,815 21,759
Accumulated amortization ............................................................... (6,126) (5,625)
-------- --------
$ 18,689 $ 16,134
======== ========
</TABLE>
Amortization of equipment on operating leases was $2,102 million, $1,848 million
and $1,702 million in 1997, 1996 and 1995, respectively. Noncancelable future
rentals due from customers for equipment on operating leases at year-end 1997
totaled $10,438 million and are due as follows: $3,247 million in 1998; $2,243
million in 1999; $1,473 million in 2000; $935 million in 2001; $628 million in
2002 and $1,912 million thereafter.
The Corporation acts as a lender and lessor to the commercial airline industry.
At December 31, 1997 and 1996, the balance of such loans, leases and equipment
leased to others was $8,980 million and $8,240 million, respectively. In
addition, at December 31,1997, the Corporation had issued financial guarantees
and funding commitments of $123 million ($221 million at year-end 1996) and had
placed multiyear orders for various Boeing and Airbus aircraft with list prices
of approximately $6.2 billion ($6.5 billion at year-end 1996).
NOTE 7. BUILDINGS AND EQUIPMENT
Buildings and equipment include office buildings, satellite communications
equipment, data processing equipment, vehicles, furniture and office equipment.
Depreciation expense was $341 million in 1997, $289 million in 1996 and $299
million in 1995.
NOTE 8. INTANGIBLE ASSETS
Intangible assets at December 31, 1997 and 1996, are shown in the table below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
Goodwill ............................................................................... $ 7,368 $ 5,031
Present value of future profits ("PVFP") ............................................... 1,671 2,271
Other intangibles ...................................................................... 420 292
-------- --------
$ 9,459 $ 7,594
======== ========
</TABLE>
The Corporation's intangible assets are shown net of accumulated amortization of
$2,098 million at December 31, 1997, and $1,518 million at December 31, 1996.
PVFP amortization, which is on an accelerated basis and net of interest, is
projected to range from 13% to 8% of the year-end 1997 unamortized balance for
each of the next five years.
32
<PAGE>
NOTE 9. OTHER ASSETS
Other assets at December 31, 1997 and 1996, are shown in the table below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
Investments:
Assets acquired for resale ............................................................ $ 4,403 $ 2,993
Investments in and advances to associated companies ................................... 4,626 4,841
Real estate ventures .................................................................. 2,326 2,469
Other ................................................................................. 1,986 1,022
-------- --------
13,341 11,325
Separate accounts ...................................................................... 4,851 3,447
Servicing assets ....................................................................... 1,710 1,663
Deferred insurance acquisition costs ................................................... 1,671 940
Other .................................................................................. 2,460 2,106
-------- --------
$ 24,033 $ 19,481
======== ========
</TABLE>
Separate accounts represent investments controlled by policyholders and are
associated with identical amounts reported as insurance liabilities in note 11.
NOTE 10. BORROWINGS
Total short-term borrowings at December 31, 1997 and 1996, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
AVERAGE AVERAGE
(Dollars in millions) AMOUNT RATE AMOUNT RATE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial paper - U.S. ........................................ $ 63,819 5.93% $ 47,511 5.68%
Commercial paper - non-U.S. .................................... 3,879 4.18 3,737 4.30
Current portion of long-term debt .............................. 15,101 6.30<F1> 16,471 6.17<F1>
Other .......................................................... 8,881 7,252
-------- --------
$ 91,680 $ 74,971
======== ========
<FN>
<F1> Includes the effects of associated interest rate and currency swaps.
</FN>
</TABLE>
Total long-term borrowings at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997
AVERAGE
RATE
(Dollars in millions) <F1> MATURITIES 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Senior notes ................................................... 6.58% 1999-2055 $ 44,437 $ 46,124
Subordinated notes <F2> ........................................ 8.04 2006-2012 697 697
-------- --------
$ 45,134 $ 46,821
======== ========
<FN>
<F1> Includes the effects of associated interest rate and currency swaps.
<F2> Guaranteed by GE Company.
</FN>
</TABLE>
33
<PAGE>
Borrowings of the Corporation are addressed below from two perspectives -
liquidity and interest rate management. Additional information about borrowings
and associated swaps can be found in note 21.
LIQUIDITY requirements of the Corporation are principally met through the credit
markets. Maturities of long-term borrowings during the next five years,
including the current portion of long-term debt, at December 31, 1997, were
$15,101 million in 1998; $9,801 million in 1999; $6,927 million in 2000; $5,763
million in 2001 and $4,816 million in 2002.
At December 31, 1997, the Corporation held committed lines of credit aggregating
$20.9 billion with 113 banks, including $11.8 billion of revolving credit
agreements pursuant to which it has the right to borrow funds for periods
exceeding one year. A total of $6.9 billion and $1.4 billion of these credit
lines were also available for use by GE Capital Services and GE Company,
respectively. Also, at December 31, 1997, substantially all of the approximately
$3.9 billion of GE Company's credit lines were available for use by the
Corporation or GE Capital Services. During 1997, neither the Corporation, GE
Capital Services nor GE Company borrowed under any of these credit lines. The
Corporation compensates banks for credit facilities in the form of fees which
were insignificant in each of the past three years.
INTEREST RATES ARE MANAGED by the Corporation 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 the Corporation's borrowing positions at December 31,
1997 and 1996, considering the effects of swaps.
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
EFFECTIVE BORROWINGS (INCLUDING SWAPS)
Short-term ............................................................................. $ 53,366 $ 45,076
======== ========
Long-term (including current portion)
Fixed rate <F1> ....................................................................... $ 58,474 $ 53,735
Floating rate ......................................................................... 24,974 22,981
-------- --------
Total long-term ........................................................................ $ 83,448 $ 76,716
======== ========
<FN>
<F1> 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.
</FN>
</TABLE>
At December 31, 1997, interest rate swap maturities ranged from 1998 to 2029,
and average interest rates for "synthetic" fixed-rate borrowings were 6.29%
(6.43% at year-end 1996).
34
<PAGE>
NOTE 11. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS
Insurance liabilities, reserves and annuity benefits at December 31, 1997 and
1996, are shown below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
Investment contracts and universal life benefits ....................................... $ 25,961 $ 24,038
Life insurance benefits and other <F1> ................................................. 11,967 10,974
Unpaid claims and claims adjustment expenses ........................................... 3,670 1,907
Unearned premiums ...................................................................... 3,799 2,897
Separate accounts (see note 9) ......................................................... 4,851 3,447
-------- --------
$ 50,248 $ 43,263
======== ========
<FN>
<F1> Life insurance benefits are accounted for mainly by a net-level-premium
method using estimated yields generally ranging from 5% to 9% in both
1997 and 1996.
</FN>
</TABLE>
The liability for unpaid claims and claims adjustment expenses, principally
property and casualty reserves, consists of both case and
incurred-but-not-reported reserves. Where experience is not sufficient to
determine reserves, industry averages are used. Estimated amounts of salvage and
subrogation recoverable on paid and unpaid losses are deducted from outstanding
losses.
Activity in the liability for unpaid claims and claims adjustment expenses is
summarized below.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1 - gross ............................................... $ 1,907 $ 1,432 $ 999
Less reinsurance recoverables .............................................. (117) (76) (138)
-------- -------- --------
Balance at January 1 - net ................................................. 1,790 1,356 861
Claims and expenses incurred:
Current year .............................................................. 1,989 1,230 838
Prior years ............................................................... 61 29 51
Claims and expenses paid:
Current year .............................................................. (1,144) (541) (359)
Prior years ............................................................... (902) (614) (394)
Claim reserves related to acquired companies ............................... 1,360 309 364
Other ...................................................................... 78 21 (5)
-------- -------- --------
Balance at December 31 - net ............................................... 3,232 1,790 1,356
Add reinsurance recoverables ............................................... 438 117 76
-------- -------- --------
Balance at December 31 - gross ............................................. $ 3,670 $ 1,907 $ 1,432
======== ======== ========
</TABLE>
Prior-year claims and expenses incurred in the above table resulted principally
from settling claims established in earlier accident years for amounts that
differed from expectations.
35
<PAGE>
Financial guarantees and credit life risk of insurance affiliates at December
31, 1997 and 1996, are summarized below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
Guarantees, principally on municipal bonds and structured finance issues ............... $140,077 $135,148
Mortgage insurance risk in force ....................................................... 46,243 36,279
Credit life insurance risk in force .................................................... 26,593 19,468
Less reinsurance ....................................................................... (33,503) (32,369)
-------- --------
$179,410 $158,526
======== ========
</TABLE>
Insurance risk is ceded on both a pro rata and excess basis. When the
Corporation cedes insurance to third parties, it is not relieved of its primary
obligation to policyholders. Losses on ceded risks give rise to claims for
recovery; allowances are established for such receivables from reinsurers.
The effects of reinsurance on premiums written and premiums and commissions
earned were as follows for the past three years.
<TABLE>
<CAPTION>
PREMIUMS WRITTEN PREMIUMS AND COMMISSIONS EARNED
-------------------------------- --------------------------------
(In millions) 1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Direct ................................. $ 4,541 $ 3,175 $ 2,053 $ 4,500 $ 3,126 $ 1,839
Assumed ................................ 502 534 154 479 380 124
Ceded .................................. (493) (493) (270) (463) (370) (143)
-------- -------- -------- -------- -------- --------
Net .................................... $ 4,550 $ 3,216 $ 1,937 $ 4,516 $ 3,136 $ 1,820
======== ======== ======== ======== ======== ========
</TABLE>
Reinsurance recoveries recognized as a reduction of insurance losses and
policyholder and annuity benefits amounted to $334 million, $286 million and
$113 million for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 12. MINORITY INTEREST
Minority interest in equity of consolidated affiliates includes preferred stock
issued by a subsidiary with a liquidation preference value of $660 million and
$485 million as of December 31, 1997 and 1996, respectively. Dividend rates on
the preferred stock ranged from 3.8% to 4.5% during 1997, from 3.8% to 4.3%
during 1996, and from 4.2% to 4.6% during 1995.
36
<PAGE>
NOTE 13. EQUITY
Changes in equity for each of the last three years were as follows:
<TABLE>
<CAPTION>
UNREALIZED
VARIABLE GAINS FOREIGN
CUMULATIVE ADDITIONAL (LOSSES) ON CURRENCY
PREFERRED COMMON PAID-IN RETAINED INVESTMENT TRANSLATION
(In millions) STOCK STOCK CAPITAL EARNINGS SECURITIES ADJUSTMENTS TOTAL
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 . $ 1 $ 768 $ 2,172 $ 8,321 $ (655) $ (67) $ 10,540
Capital contributions ...... -- -- 926 -- -- -- 926
Preferred stock issued ..... 1 -- 924 -- -- -- 925
Net unrealized gains on
investment securities ..... -- -- -- -- 1,198 -- 1,198
Currency translation
adjustments ............... -- -- -- -- -- (3) (3)
Net earnings ............... -- -- -- 2,261 -- -- 2,261
Dividends declared:
Common stock .............. -- -- -- (1,588) -- -- (1,588)
Preferred stock ........... -- -- -- (57) -- -- (57)
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1995 2 768 4,022 8,937 543 (70) 14,202
Capital contributions ...... -- -- 2 -- -- -- 2
Net unrealized losses on
investment securities ..... -- -- -- -- (394) -- (394)
Currency translation
adjustments ............... -- -- -- -- -- (25) (25)
Net earnings ............... -- -- -- 2,632 -- -- 2,632
Dividends declared:
Common stock .............. -- -- -- (815) -- -- (815)
Preferred stock ........... -- -- -- (76) -- -- (76)
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1996 2 768 4,024 10,678 149 (95) 15,526
Capital contributions ...... -- -- 290 -- -- -- 290
Preferred stock issued ..... -- -- 430 -- -- -- 430
Net unrealized gains on
investment securities ..... -- -- -- -- 996 -- 996
Currency translation
adjustments ............... -- -- -- -- -- (52) (52)
Net earnings ............... -- -- -- 2,729 -- -- 2,729
Dividends declared:
Common stock .............. -- -- -- (1,468) -- -- (1,468)
Preferred stock ........... -- -- -- (78) -- -- (78)
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1997 $ 2 $ 768 $ 4,744 $ 11,861 $ 1,145 $ (147) $ 18,373
======== ======== ======== ======== ======== ======== ========
</TABLE>
All common stock is owned by GE Capital Services, all of the common stock of
which is in turn wholly owned by GE Company. In 1995, GE Company contributed to
GE Capital Services certain assets of Caribe GE Products, Inc. GE Capital
Services in turn contributed the assets of Caribe GE Products, Inc. to the
Corporation. Also in 1995, the Corporation distributed certain assets to GE
Capital Services by way of a dividend and in turn received an equal capital
contribution. During 1997, GE Capital Services contributed certain assets to the
Corporation, the largest of which were assets of Consolidated Insurance Group, a
component of Consolidated Financial Insurance. These contributions increased the
Corporation's additional paid-in capital by $926 million and $290 million at
December 31, 1995 and 1997, respectively.
Changes in fair value of available-for-sale investment securities are reflected,
net of applicable taxes and other adjustments, in equity. The changes from year
to year were primarily attributable to the effects of changes in year-end market
interest rates on the fair value of the securities.
37
<PAGE>
During 1997 and 1995, the Corporation issued 4,300 and 9,250 additional shares
of its variable cumulative preferred stock, respectively. Dividend rates on the
preferred stock ranged from 3.8% to 5.2% during 1997 and 1996, and from 4.2% to
5.2% during 1995.
At December 31, 1997 and 1996, the aggregate statutory capital and surplus of
the insurance businesses totaled $7.8 billion and $5.8 billion, respectively. In
preparing statutory statements, no significant permitted accounting practices
are used that differ from prescribed accounting practices.
NOTE 14. REVENUES
Time sales, loan and other income includes the Corporation's share of losses
from equity investments of approximately $586 million in 1997 and earnings from
equity investments of approximately $85 million and $113 million for 1996 and
1995, respectively.
NOTE 15. OPERATING AND ADMINISTRATIVE EXPENSES
Employees and retirees of the Corporation are covered under a number of pension,
health and life insurance plans. The principal pension plan is the GE Company
Pension Plan, a defined benefit plan, while employees of certain affiliates are
covered under separate plans. The Corporation provides health and life insurance
benefits to certain of its retired employees, principally through GE Company's
benefit program. The annual cost to the Corporation of providing these benefits
is not material.
Rental expense relating to equipment the Corporation leases from others for the
purposes of subleasing was $392 million in 1997, $269 million in 1996 and $273
million in 1995. Other rental expense was $327 million in 1997, $263 million in
1996 and $237 million in 1995, principally for the rental of office space and
data processing equipment. Minimum future rental commitments under noncancelable
leases at December 31, 1997 are $640 million in 1998; $562 million in 1999; $502
million in 2000; $480 million in 2001; $449 million in 2002 and $2,411 million
thereafter. The Corporation, as a lessee, has no material lease agreements
classified as capital leases.
Amortization of deferred insurance acquisition costs charged to operations in
1997, 1996 and 1995 was $543 million, $365 million and $252 million,
respectively.
NOTE 16. INCOME TAXES
The provision for income taxes is summarized in the following table.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Estimated amounts payable .................................................. $ 409 $ 157 $ 425
Deferred tax expense from temporary differences ............................ 588 1,015 646
-------- -------- --------
$ 997 $ 1,172 $ 1,071
======== ======== ========
</TABLE>
GE Company files a consolidated U.S. federal income tax return which includes
the Corporation. The provision for estimated taxes payable includes the effect
of the Corporation and its affiliates on the consolidated return.
Estimated amounts payable includes amounts applicable to non-U.S. jurisdictions
of $573 million, $485 million and $158 million in 1997, 1996 and 1995,
respectively.
Deferred income tax balances reflect the impact of temporary differences between
the carrying amounts of assets and liabilities and their tax bases and are
stated at enacted tax rates expected to be in effect when taxes are actually
paid or recovered.
38
<PAGE>
Except for certain earnings that the Corporation 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.
U.S. income before taxes was $2.4 billion in 1997, and $2.7 billion in 1996 and
1995. The corresponding amounts for non-U.S. based operations were $1.3 billion
in 1997, $1.1 billion in 1996 and $0.6 billion in 1995.
A reconciliation of the U.S. federal statutory rate to the actual income tax
rate follows.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate ..................................... 35.0% 35.0% 35.0%
Increase (reduction) in rate resulting from:
Amortization of goodwill .................................................. 1.1 1.0 1.0
Tax-exempt income ......................................................... (3.2) (3.0) (3.0)
Foreign Sales Corporation tax benefits .................................... (0.6) (0.4) --
Dividends received, not fully taxable ..................................... (1.8) (1.7) (1.6)
Other - net ............................................................... (3.7) (0.1) 0.8
-------- -------- --------
Actual income tax rate ..................................................... 26.8% 30.8% 32.2%
======== ======== ========
</TABLE>
Principal components of the net deferred tax liability balances at December 31,
1997 and 1996, were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
Assets:
Allowance for losses .................................................................. $ 1,360 $ 1,173
Insurance reserves .................................................................... 1,243 647
AMT credit carryforwards .............................................................. 354 561
Other ................................................................................. 2,100 1,190
-------- --------
Total deferred tax assets .............................................................. 5,057 3,571
-------- --------
Liabilities:
Financing leases ...................................................................... 7,909 7,488
Operating leases ...................................................................... 2,156 1,833
Net unrealized gains on securities .................................................... 760 97
Other ................................................................................. 2,399 1,625
-------- --------
Total deferred tax liabilities ......................................................... 13,224 11,043
-------- --------
Net deferred tax liability ............................................................. $ 8,167 $ 7,472
======== ========
</TABLE>
39
<PAGE>
NOTE 17. INDUSTRY SEGMENT DATA
Industry segment operating data and identifiable assets are shown below.
Insurance services, previously included within the Specialty Insurance segment,
has been combined with the consumer savings and insurance operations in the
Consumer Services segment. Prior-year information has been reclassified to
reflect this and certain other organizational changes.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Consumer Services ......................................................... $ 13,266 $ 11,028 $ 7,989
Equipment Management ...................................................... 11,446 7,909 6,090
Mid-Market Financing ...................................................... 2,952 2,626 2,268
Specialized Financing ..................................................... 2,985 2,935 3,047
Specialty Insurance ....................................................... 2,839 2,084 1,770
-------- -------- --------
Total segment revenues ..................................................... 33,488 26,582 21,164
Corporate and other ....................................................... (84) (12) 15
-------- -------- --------
Total revenues ............................................................. $ 33,404 $ 26,570 $ 21,179
======== ======== ========
Segment operating profit:
Consumer Services ......................................................... $ 563 $ 1,269 $ 1,044
Equipment Management ...................................................... 1,062 892 869
Mid-Market Financing ...................................................... 622 558 467
Specialized Financing ..................................................... 1,036 742 659
Specialty Insurance ....................................................... 434 348 325
-------- -------- --------
Total segment operating profit ............................................. 3,717 3,809 3,364
Corporate and other ....................................................... 9 (5) (32)
-------- -------- --------
Earnings before income taxes ............................................... $ 3,726 $ 3,804 $ 3,332
======== ======== ========
Identifiable assets at December 31:
Consumer Services ......................................................... $116,300 $104,338 $ 74,313
Equipment Management ...................................................... 34,391 29,658 24,378
Mid-Market Financing ...................................................... 29,824 25,948 22,438
Specialized Financing ..................................................... 29,302 27,847 30,102
Specialty Insurance ....................................................... 17,899 11,804 8,760
-------- -------- --------
Total segment identifiable assets .......................................... 227,716 199,595 159,991
Corporate and other ....................................................... 1,061 1,221 834
-------- -------- --------
Total assets ............................................................... $228,777 $200,816 $160,825
======== ======== ========
</TABLE>
40
<PAGE>
NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data were as follows:
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
-------------------- -------------------- -------------------- --------------------
(In millions) 1997 1996 1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ......... $ 7,773 $ 5,620 $ 7,658 $ 6,068 $ 8,377 $ 7,008 $ 9,596 $ 7,874
-------- -------- -------- -------- -------- -------- -------- --------
Expenses:
Interest ........ 1,711 1,668 1,780 1,722 1,832 1,685 2,007 1,967
Operating,
administrative
and cost of
goods sold ..... 3,025 1,716 2,855 1,906 3,567 2,583 4,172 3,080
Insurance
losses and
policyholder
and annuity
benefits ....... 1,149 615 1,106 777 1,227 821 1,343 970
Provision for
losses on
financing
receivables .... 312 213 337 228 371 254 401 338
Depreciation
and amortization
of buildings and
equipment and
equipment on
operating
leases ......... 565 489 563 524 623 556 692 568
Minority interest
in net earnings
of consolidated
affiliates ..... 13 25 1 17 13 17 13 27
-------- -------- -------- -------- -------- -------- -------- --------
Earnings before
income taxes ... 998 894 1,016 894 744 1,092 968 924
Provision for
income taxes ... (301) (289) (298) (267) (176) (344) (222) (272)
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings ..... $ 697 $ 605 $ 718 $ 627 $ 568 $ 748 $ 746 $ 652
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
NOTE 19. RESTRICTED NET ASSETS OF AFFILIATES
Certain of the Corporation's consolidated affiliates are restricted from
remitting funds to the Parent in the form of dividends or loans by a variety of
regulations, the purpose of which is to protect affected insurance
policyholders, depositors or investors. At year-end 1997, net assets of the
Corporation's regulated affiliates amounted to $16.6 billion, of which $13.2
billion was restricted.
NOTE 20. SUPPLEMENTAL CASH FLOWS INFORMATION
"Other - net operating activities" in the Statement of Cash Flows consists
principally of adjustments to other liabilities, current and noncurrent accruals
and deferrals of costs and expenses, adjustments for gains and losses on assets,
increases and decreases in assets held for sale, and adjustments to assets such
as amortization of goodwill and intangibles.
The Statement of Cash Flows excludes certain noncash transactions that had no
significant effect on the investing or financing activities of the Corporation.
41
<PAGE>
Certain supplemental information related to the Corporation's cash flows were as
follows for the past three years.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
FINANCING RECEIVABLES
Increase in loans to customers ............................................. $(55,689) $(49,890) $(46,154)
Principal collections from customers ....................................... 50,679 49,923 44,840
Investment in equipment for financing leases ............................... (16,420) (14,427) (17,182)
Principal collections on financing leases .................................. 13,796 11,158 8,821
Net change in credit card receivables ...................................... (4,186) (3,068) (3,773)
Sales of financing receivables ............................................. 9,922 4,026 2,139
-------- -------- --------
$ (1,898) $ (2,278) $(11,309)
======== ======== ========
ALL OTHER INVESTING ACTIVITIES
Purchases of securities by insurance and annuity businesses ................ $(11,700) $ (8,244) $ (6,409)
Dispositions and maturities of securities by insurance and
annuity businesses ........................................................ 10,261 6,736 5,866
Proceeds from principal business dispositions .............................. 241 -- 575
Other ...................................................................... (3,965) (3,897) (2,649)
-------- -------- --------
$ (5,163) $ (5,405) $ (2,617)
======== ======== ========
NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS
Short-term (91 to 365 days) ................................................ $ 3,502 $ 5,061 $ 2,545
Long-term (longer than one year) ........................................... 15,566 16,689 32,507
Proceeds - nonrecourse, leveraged lease debt ............................... 1,757 595 1,428
-------- -------- --------
$ 20,825 $ 22,345 $ 36,480
======== ======== ========
REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER
THAN 90 DAYS
Short-term (91 to 365 days) ................................................ $(21,320) $(22,755) $(16,075)
Long-term (longer than one year) ........................................... (1,150) (1,025) (678)
Principal payments - nonrecourse, leveraged lease debt ..................... (287) (276) (292)
-------- -------- --------
$(22,757) $(24,056) $(17,045)
======== ======== ========
ALL OTHER FINANCING ACTIVITIES
Proceeds from sales of investment and annuity contracts .................... $ 4,462 $ 2,341 $ 1,554
Redemption of investment and annuity contracts ............................. (4,453) (2,429) (2,061)
Capital contributions from parent company .................................. 182 -- 684
-------- -------- --------
$ 191 $ (88) $ 177
======== ======== ========
CASH RECOVERED (PAID) DURING THE YEAR FOR
Interest ................................................................... $ (7,471) $ (7,166) $ (5,970)
Income taxes ............................................................... (502) (87) 217
</TABLE>
Changes in operating assets and liabilities are net of acquisitions and
dispositions of businesses.
42
<PAGE>
"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. In conjunction with the acquisitions, liabilities were assumed as
follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Fair value of assets acquired .............................................. $ 15,190 $ 27,341 $ 15,496
Cash paid .................................................................. (4,736) (4,839) (4,749)
-------- -------- --------
Liabilities assumed ........................................................ $ 10,454 $ 22,502 $ 10,747
======== ======== ========
</TABLE>
NOTE 21. ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS
This note contains estimated fair values of certain financial instruments to
which the Corporation is a party. Apart from the Corporation's own borrowings
and certain marketable securities, relatively few of these instruments are
actively traded. Thus, fair values must often be determined by using one or more
models that indicate value based on estimates of quantifiable characteristics as
of a particular date. Because this undertaking is, by its nature, difficult and
highly judgmental, for a limited number of instruments, alternative valuation
techniques may have produced disclosed values different from those that could
have been realized at December 31, 1997 or 1996. Moreover, the disclosed values
are representative of fair values only as of the dates indicated. Assets and
liabilities that, as a matter of accounting policy, are reflected in the
accompanying financial statements at fair value are not included in the
following disclosures; such items include cash and equivalents, investment
securities and separate accounts.
Values are estimated as follows.
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.
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.
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.
43
<PAGE>
Information about financial instruments that were not carried at fair value at
December 31, 1997 and 1996, is shown below.
<TABLE>
<CAPTION>
1997
-------------------------------------------
ASSETS (LIABILITIES)
--------------------------------
CARRYING ESTIMATED FAIR VALUE
NOTIONAL AMOUNT --------------------
(In millions) AMOUNT (NET) HIGH LOW
-------------------- -------- --------
<S> <C> <C> <C> <C>
Assets
Time sales and loans .......................................... $ <F1> $ 62,712 $ 63,105 $ 61,171
Integrated interest rate swaps ................................ 11,378 19 (128) (128)
Purchased options ............................................. 1,617 31 31 31
Mortgage-related positions
Mortgage purchase commitments ................................ 2,082 -- 11 11
Mortgage sale commitments .................................... 2,540 -- (9) (9)
Mortgages held for sale ...................................... <F1> 2,378 2,379 2,379
Options, including "floors" .................................. 30,347 51 141 141
Interest rate swaps and futures .............................. 3,681 -- 23 23
Other cash financial instruments .............................. <F1> 2,242 2,592 2,349
Liabilities
Borrowings and related instruments
Borrowings <F2> <F3> ......................................... <F1> (136,814) (137,360) (137,360)
Interest rate swaps .......................................... 40,880 -- (170) (170)
Currency swaps ............................................... 23,382 -- (1,249) (1,249)
Currency forwards ............................................ 14,483 -- 367 367
Purchased options ............................................ 362 23 (22) (22)
Investment contract benefits .................................. <F1> (21,703) (21,556) (21,556)
Insurance - financial guarantees and credit life .............. 179,410 (2,837) (2,936) (3,052)
Credit and liquidity support - securitizations ................ 10,008 (46) (46) (46)
Performance guarantees - principally letters of credit ........ 2,553 (34) -- (67)
Other ......................................................... 3,288 (1,134) (1,282) (1,303)
Other firm commitments
Currency forwards ............................................. 1,744 -- 11 11
Currency swaps ................................................ -- -- -- --
Ordinary course of business lending commitments ............... 7,891 -- (62) (62)
Unused revolving credit lines
Commercial ................................................... 4,850 -- -- --
Consumer - principally credit cards .......................... 134,123 -- -- --
1996
-------------------------------------------
ASSETS (LIABILITIES)
--------------------------------
CARRYING ESTIMATED FAIR VALUE
NOTIONAL AMOUNT --------------------
(In millions) AMOUNT (NET) HIGH LOW
-------------------- -------- --------
Assets
Time sales and loans .......................................... $ <F1> $ 60,859 $ 61,632 $ 60,544
Integrated interest rate swaps ................................ 3,604 -- 82 82
Purchased options ............................................. 1,938 11 12 12
Mortgage-related positions
Mortgage purchase commitments ................................ 1,193 -- 2 2
Mortgage sale commitments .................................... 1,417 -- 3 3
Mortgages held for sale ...................................... <F1> 1,112 1,165 1,165
Options, including "floors" .................................. 27,422 78 81 81
Interest rate swaps and futures .............................. 1,731 -- (29) (29)
Other cash financial instruments .............................. <F1> 1,347 1,630 1,382
Liabilities
Borrowings and related instruments
Borrowings <F2> <F3> ......................................... <F1> (106,836) (106,849) (106,849)
Interest rate swaps .......................................... 32,891 -- (551) (551)
Currency swaps ............................................... 24,588 -- 368 368
Currency forwards ............................................ 6,165 -- 69 68
Purchased options ............................................ 1,882 10 1 1
Investment contract benefits .................................. <F1> (18,499) (18,227) (18,227)
Insurance - financial guarantees and credit life .............. 158,526 (3,089) (2,907) (3,297)
Credit and liquidity support - securitizations ................ 4,684 (73) (72) (72)
Performance guarantees - principally letters of credit ........ 3,142 (55) (134) (134)
Other ......................................................... 3,060 (1,434) (1,049) (1,050)
Other firm commitments
Currency forwards ............................................. 1,224 -- -- --
Currency swaps ................................................ 99 -- (7) (7)
Ordinary course of business lending commitments ............... 4,950 -- (27) (27)
Unused revolving credit lines
Commercial ................................................... 3,375 -- -- --
Consumer - principally credit cards .......................... 116,878 -- -- --
<FN>
<F1> Not applicable.
<F2> Includes effects of interest rate and currency swaps, which also are
listed separately.
<F3> See note 10.
</FN>
</TABLE>
Additional information about certain financial instruments in the above table
follows.
44
<PAGE>
CURRENCY FORWARDS AND OPTIONS are employed by the Corporation to manage
exposures to changes in currency exchange rates associated with commercial
purchase and sale transactions and to optimize borrowing costs as discussed in
note 10. 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.
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 of the Corporation's business activities, such
as the mortgage servicing and annuities businesses.
SWAPS OF INTEREST RATES AND CURRENCIES are used by the Corporation to optimize
borrowing costs for a particular funding strategy (see note 10). In addition,
interest rate and currency swaps, along with purchased options and futures, are
used by the Corporation 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, the Corporation also enters into swaps that are
integrated into investments in or loans to particular customers and do not
involve assumption of third-party credit risk. Such integrated swaps are
evaluated and monitored like their associated investments or loans, and are not
therefore subject to the same credit criteria that would apply to a stand-alone
position.
COUNTERPARTY CREDIT RISK - risk that counterparties will be financially unable
to make payments according to the terms of the agreements - is the principal
risk associated with swaps, purchased options and forwards. Gross market value
of probable future receipts is one way to measure this risk, but is meaningful
only in the context of net credit exposure to individual counterparties. At
December 31, 1997 and 1996, this gross market risk amounted to $1.9 billion and
$0.6 billion, respectively. Aggregate fair values that represent associated
probable future obligations, normally associated with a right of offset against
probable future receipts, amounted to $2.8 billion at year-end 1997 and $0.6
billion at year-end 1996.
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 a credit exposure limit (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.
<TABLE>
<CAPTION>
COUNTERPARTY CREDIT CRITERIA CREDIT RATING
--------------------
STANDARD &
MOODY'S POOR'S
-------- --------
<S> <C> <C>
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
</TABLE>
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.
45
<PAGE>
NOTE 22. GEOGRAPHIC SEGMENT INFORMATION
Geographic segment operating data and total assets were as follows:
<TABLE>
<CAPTION>
REVENUES OPERATING PROFIT
-------------------------------- --------------------------------
For the years ended December 31 1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
United States .......................... $ 22,737 $ 18,424 $ 15,306 $ 2,599 $ 2,889 $ 2,740
Europe ................................. 6,414 4,429 2,729 680 507 293
Pacific Basin .......................... 940 693 403 51 57 33
Other <F1> ............................. 3,313 3,024 2,741 396 351 266
-------- -------- -------- -------- -------- --------
Total ................................ $ 33,404 $ 26,570 $ 21,179 $ 3,726 $ 3,804 $ 3,332
======== ======== ======== ======== ======== ========
TOTAL ASSETS
--------------------------------
December 31 1997 1996 1995
-------- -------- --------
(In millions)
United States .......................... $160,276 $149,901 $121,078
Europe ................................. 43,064 28,710 19,895
Pacific Basin .......................... 5,785 5,060 3,567
Other <F1> ............................. 19,652 17,145 16,285
-------- -------- --------
Total ................................ $228,777 $200,816 $160,825
======== ======== ========
<FN>
<F1> Principally the Americas other than the United States, but also includes
operations that cannot meaningfully be associated with specific geographic
areas (for example, shipping containers used on ocean-going vessels).
</FN>
</TABLE>
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted
ITEM 11. EXECUTIVE COMPENSATION.
Omitted
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omitted
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)1. FINANCIAL STATEMENTS
Included in Part II of this report:
Independent Auditors' Report
Statement of Current and Retained Earnings for each of the years
in the three-year period ended December 31, 1997
Statement of Financial Position at December 31, 1997 and 1996
Statement of Cash Flows for each of the years in the three-year
period ended December 31, 1997
Notes to Consolidated Financial Statements
Incorporated by reference:
The consolidated financial statements of General Electric
Company, set forth in the Annual Report on Form 10-K of General
Electric Company (S.E.C. File No. 001-00035) for the year ended
December 31, 1997 (pages F-1 through F-42) and Exhibit 12 (Ratio
of Earnings to Fixed Charges) of General Electric Company.
(a)2. FINANCIAL STATEMENT SCHEDULES
I. Condensed financial information of registrant.
All other schedules are omitted because of the absence of
conditions under which they are required or because the required
information is shown in the financial statements or notes thereto.
(a)3. EXHIBIT INDEX
The exhibits listed below, as part of Form 10-K, are numbered in
conformity with the numbering used in Item 601 of Regulation S-K of
the Securities and Exchange Commission.
47
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3(i) A complete copy of the Organization Certificate of the Corporation
as last amended as of February 17, 1998 and currently in effect,
consisting of the following: (a) the Organization Certificate of the
Corporation as in effect immediately prior to the filing of the
Certificate of Amendment as of April 21, 1995 (Incorporated by
reference to Exhibit 3(i) to the Corporation's Form 10-K Report for
the year ended December 31, 1993); (b) a Certificate of Amendment
filed in the Office of the Superintendent of Banks of the State of New
York (the "Office of the Superintendent") as of April 21, 1995
(Incorporated by reference to Exhibit 4(b) to the Corporation's
Registration Statement on Form S-3, File No. 33-58771; (c) a
Certificate of Amendment filed in the Office of the Superintendent as
of May 11, 1995 (Incorporated by reference to Exhibit 4(c) to the
Corporation's Registration Statement on form S-3, File No. 33-61257);
(d) a Certificate of Amendment filed in the Office of the
Superintendent as of June 28, 1995 (Incorporated by reference to
Exhibit 4(d) to the Corporation's Registration Statement on Form S-3,
File No. 33-61257); (e) a Certificate of Amendment filed in the Office
of the Superintendent as of July 17, 1995 (Incorporated by reference
to Exhibit 4(e) to the Corporation's Registration Statement on Form
S-3, File No. 33-61257); (f) a Certificate of Amendment filed in the
Office of the Superintendent as of November 1, 1995 (Incorporated by
reference to Exhibit 3(i) to the Corporation's Form 10-K Report for
the year ended December 31, 1995); (g) a Certificate of Amendment
filed in the Office of the Superintendent as of September 27, 1996
(Incorporated by reference to Exhibit 4(g) to the Corporation's
Registration Statement on Form S-3, File No. 333-13195); (h) a
Certificate of Amendment filed in the Office of the Superintendent as
of December 9, 1997 (Incorporated by reference to Exhibit 4(g) to the
Corporation's Post-Effective Amendment No. 1 to Registration Statement
on Form S-3, File No. 333-13195); (i) a Certificate of Amendment filed
in the Office of the Superintendent as of December 19, 1997
(Incorporated by reference to Exhibit 4(h) to the Corporation's
Post-Effective Amendment No. 1 to Registration Statement on Form S-3,
File No. 333-13195); and (j) a Certificate of Amendment filed in the
Office of the Superintendent as of February 17, 1998 (Incorporated by
reference to Exhibit 4(i) to the Corporation's Post-Effective
Amendment No. 1 to Registration Statement on Form S-3, File No.
333-13195).
3(ii) A complete copy of the By-Laws of the Corporation as last amended on
June 30, 1994, and currently in effect. (Incorporated by reference to
Exhibit 3(ii) of the Corporation's Form 10-K Report for the year ended
December 31, 1994).
4(iii) 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 all subsidiaries for
which consolidated or unconsolidated financial statements are required
to be filed.
12(a) Computation of ratio of earnings to fixed charges.
12(b) Computation of ratio of earnings to combined fixed charges and
preferred stock dividends.
23(ii) Consent of KPMG Peat Marwick LLP.
24 Power of Attorney.
27 Financial Data Schedule (filed electronically herewith).
99(a) Income Maintenance Agreement dated March 28, 1991, between General
Electric Company and the Corporation. (Incorporated by reference to
Exhibit 28(a) of the Corporation's Form 10-K Report for the year ended
December 31, 1992).
99(b) The consolidated financial statements of General Electric Company,
set forth in the Annual Report on Form 10-K of General Electric
Company (S.E.C. File No. 001-00035) for the year ended December 31,
1997, (pages F-1 through F-42) and Exhibit 12 (Ratio of Earnings to
Fixed Charges) of General Electric Company.
48
<PAGE>
99(c) Letter, dated September 26, 1996 from Dennis D. Dammerman of General
Electric Company to Gary C. Wendt of General Electric Capital
Corporation pursuant to which General Electric Company agrees to
provide additional equity to General Electric Capital Corporation in
conjunction with certain redemptions by General Electric Capital
Corporation of shares of its Variable Cumulative Preferred Stock.
(Incorporated by reference to Exhibit 99(g) to the Corporation's
Registration Statement on Form S-3, File No. 333-13195).
(b) REPORTS ON FORM 8-K
None.
49
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL ELECTRIC CAPITAL CORPORATION
CONDENSED STATEMENT OF CURRENT AND RETAINED EARNINGS
For the years ended December 31 (In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES ................................................................... $ 4,867 $ 6,631 $ 5,721
-------- -------- --------
EXPENSES:
Interest, net of allocations .............................................. 3,548 3,871 3,094
Operating and administrative .............................................. 1,765 1,573 1,217
Provision for losses on financing receivables ............................. 4 65 206
Depreciation and amortization ............................................. 345 255 209
-------- -------- --------
5,662 5,764 4,726
-------- -------- --------
Earnings (loss) before income taxes and equity in earnings of affiliates ... (795) 867 995
Income tax (provision) benefit ............................................. 439 (218) (291)
Equity in earnings of affiliates ........................................... 3,085 1,983 1,557
-------- -------- --------
NET EARNINGS ............................................................... 2,729 2,632 2,261
Dividends paid ............................................................. (1,546) (891) (1,645)
Retained earnings at January 1 ............................................. 10,678 8,937 8,321
-------- -------- --------
RETAINED EARNINGS AT DECEMBER 31 ........................................... $ 11,861 $ 10,678 $ 8,937
======== ======== ========
</TABLE>
See Notes to Condensed Financial Statements.
50
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)
GENERAL ELECTRIC CAPITAL CORPORATION
CONDENSED STATEMENT OF FINANCIAL POSITION
At December 31 (In millions) 1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and equivalents ................................................................... $ 249 $ 203
Investment securities .................................................................. 3,916 3,641
Financing receivables:
Time sales and loans .................................................................. 19,509 21,622
Investment in financing leases ........................................................ 11,817 10,851
-------- --------
31,326 32,473
Allowance for losses on financing receivables ......................................... (786) (875)
-------- --------
Financing receivables - net .......................................................... 30,540 31,598
Investments in and advances to affiliates .............................................. 95,578 82,676
Equipment on operating leases (at cost), less accumulated amortization of $726
and $583 .............................................................................. 3,477 3,000
Other assets ........................................................................... 6,240 5,629
-------- --------
TOTAL ASSETS ......................................................................... $140,000 $126,747
======== ========
LIABILITIES AND EQUITY
Short-term borrowings .................................................................. $ 79,755 $ 66,435
Long-term borrowings ................................................................... 35,189 38,373
Other liabilities ...................................................................... 3,938 3,684
Deferred income taxes .................................................................. 2,745 2,729
-------- --------
Total liabilities .................................................................... 121,627 111,221
-------- --------
Capital stock .......................................................................... 770 770
Additional paid-in capital ............................................................. 4,744 4,024
Retained earnings ...................................................................... 11,861 10,678
Unrealized gains on investment securities .............................................. 1,145 149
Foreign currency translation adjustments ............................................... (147) (95)
-------- --------
Total equity ......................................................................... 18,373 15,526
-------- --------
TOTAL LIABILITIES AND EQUITY ......................................................... $140,000 $126,747
======== ========
</TABLE>
See Notes to Condensed Financial Statements.
51
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)
GENERAL ELECTRIC CAPITAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
For the years ended December 31 (In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FROM OPERATING ACTIVITIES ............................................. $ (872) $ 1,243 $ 1,489
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loans to customers ............................................. (42,575) (40,381) (41,650)
Principal collections from customers ....................................... 42,486 44,447 39,664
Investment in assets on financing leases ................................... (4,589) (2,206) (2,976)
Principal collections on financing leases .................................. 2,665 2,127 1,587
Net change in credit card receivables ...................................... 1,805 (269) 1,566
Buildings, equipment and equipment on operating leases
- additions .............................................................. (900) (1,111) (810)
- dispositions ........................................................... 350 335 78
Payments for principal businesses purchased, net of cash acquired .......... (4,736) (4,839) (3,866)
Proceeds from principal business dispositions .............................. 209 -- 575
Change in investment in and advances to affiliates ........................ (5,290) (6,436) (11,377)
Other - net ................................................................ 1,348 (1,863) 1,984
-------- -------- --------
Cash used for investing activities ....................................... (9,227) (10,196) (15,225)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (less than 90-day maturities) ..................... 15,537 13,249 (3,544)
Newly issued debt
- short-term (91-365 days) ............................................... 4,066 5,061 2,545
- long-term senior ....................................................... 9,700 11,065 25,654
Proceeds - non-recourse, leveraged lease debt .............................. 1,043 219 783
Repayments and other reductions
- short-term ............................................................. (18,379) (18,846) (11,710)
- long-term senior ....................................................... (787) (583) (638)
Principal payments - non-recourse, leveraged lease debt .................... (107) (130) (134)
Dividends paid ............................................................. (1,540) (891) (961)
Contributions to additional paid-in capital ................................ 182 -- 684
Issuance of preferred stock in excess of par ............................... 430 -- 924
-------- -------- --------
Cash from financing activities ........................................... 10,145 9,144 13,603
-------- -------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR ................ 46 191 (133)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR .................................. 203 12 145
-------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR ........................................ $ 249 $ 203 $ 12
======== ======== ========
</TABLE>
See Notes to Condensed Financial Statements.
52
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONCLUDED)
GENERAL ELECTRIC CAPITAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
BORROWINGS
Total long-term borrowings at December 31, 1997 and 1996 are shown below.
<TABLE>
<CAPTION>
1997
AVERAGE
(Dollars in millions) RATE <F1> MATURITIES 1997 1996
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Senior notes ................................................... 6.53% 1999-2055 $ 34,492 $ 37,676
Subordinated notes <F2> ........................................ 8.04 2006-2012 697 697
-------- --------
$ 35,189 $ 38,373
======== ========
<FN>
<F1> Includes the effects of associated interest rate and currency swaps.
<F2> Guaranteed by General Electric Company.
</FN>
</TABLE>
At December 31, 1997, long-term borrowing maturities during the next five years,
including the current portion of long-term notes payable, are $12,218 million in
1998, $6,795 million in 1999, $5,064 million in 2000, $4,770 million in 2001,
and $2,998 million in 2002.
INTEREST RATES ARE MANAGED by General Electric Capital Corporation ("GE
Capital") 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. At December 31, 1997 and 1996, interest rate swap maturities
ranged from 1998 to 2029, and average interest rates of "synthetic" fixed-rate
borrowings were 6.32% and 6.37%, respectively.
Interest expense on the Condensed Statement of Current and Retained Earnings is
net of interest income on loans and advances to majority owned affiliates of
$2,971 million, $2,332 million and $2,310 million for 1997, 1996 and 1995,
respectively.
INCOME TAXES
General Electric Company files a consolidated U.S. federal income tax return
which includes GE Capital. Income tax (provision) benefit includes the effect of
GE Capital on the consolidated return.
53
<PAGE>
EXHIBIT 4(iii)
March 25, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Subject: General Electric Capital Corporation Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 - File No. 1-6461
Dear Sirs:
Neither General Electric Capital Corporation (the "Corporation") nor any of its
subsidiaries has outstanding any instrument with respect to its long-term debt
that is not registered with the Commission and 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 CFRss. 229.601), the Corporation 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 CAPITAL CORPORATION
By: /s/ J.A. Parke
-------------------------
J.A. Parke,
Senior Vice President, Finance
54
<PAGE>
EXHIBIT 12 (a)
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL CORPORATION
AND CONSOLIDATED AFFILIATES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31
--------------------------------------------------------
(Dollar amounts in millions) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net earnings ....................................... $ 2,729 $ 2,632 $ 2,261 $ 1,918 $ 1,478
Provision for income taxes ......................... 997 1,172 1,071 896 664
Minority interest .................................. 40 86 81 109 114
-------- -------- -------- -------- --------
Earnings before income taxes and minority interest . 3,766 3,890 3,413 2,923 2,256
-------- -------- -------- -------- --------
Fixed charges:
Interest .......................................... 7,440 7,114 6,520 4,464 3,503
One-third of rentals .............................. 240 177 170 153 138
-------- -------- -------- -------- --------
Total fixed charges ................................ 7,680 7,291 6,690 4,617 3,641
-------- -------- -------- -------- --------
Less interest capitalized, net of amortization ..... 52 41 21 9 4
-------- -------- -------- -------- --------
Earnings before income taxes and minority
interest plus fixed charges ....................... $ 11,394 $ 11,140 $ 10,082 $ 7,531 $ 5,893
======== ======== ======== ======== ========
Ratio of earnings to fixed charges ................. 1.48 1.53 1.51 1.63 1.62
======== ======== ======== ======== ========
</TABLE>
55
<PAGE>
EXHIBIT 12 (b)
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL CORPORATION
AND CONSOLIDATED AFFILIATES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
YEARS ENDED DECEMBER 31
--------------------------------------------------------
(Dollar amounts in millions) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net earnings ....................................... $ 2,729 $ 2,632 $ 2,261 $ 1,918 $ 1,478
Provision for income taxes ......................... 997 1,172 1,071 896 664
Minority interest .................................. 40 86 81 109 114
-------- -------- -------- -------- --------
Earnings before income taxes and minority interest . 3,766 3,890 3,413 2,923 2,256
-------- -------- -------- -------- --------
Fixed charges:
Interest .......................................... 7,440 7,114 6,520 4,464 3,503
One-third of rentals .............................. 240 177 170 153 138
-------- -------- -------- -------- --------
Total fixed charges ................................ 7,680 7,291 6,690 4,617 3,641
-------- -------- -------- -------- --------
Less interest capitalized, net of amortization ..... 52 41 21 9 4
-------- -------- -------- -------- --------
Earnings before income taxes and minority
interest plus fixed charges ....................... $ 11,394 $ 11,140 $ 10,082 $ 7,531 $ 5,893
======== ======== ======== ======== ========
Preferred stock dividend requirements .............. $ 78 $ 76 $ 57 $ 30 $ 22
Ratio of earnings before provision for income
taxes to net earnings ............................. 1.37 1.45 1.47 1.47 1.45
-------- -------- -------- -------- --------
Preferred stock dividend factor on pre-tax basis ... 107 110 84 44 32
Fixed charges ...................................... 7,680 7,291 6,690 4,617 3,641
-------- -------- -------- -------- --------
Total fixed charges and preferred stock dividend
requirements ...................................... $ 7,787 $ 7,401 $ 6,774 $ 4,661 $ 3,673
======== ======== ======== ======== ========
Ratio of earnings to combined fixed charges and
preferred stock dividends ........................ 1.46 1.51 1.49 1.62 1.60
======== ======== ======== ======== ========
</TABLE>
56
<PAGE>
EXHIBIT 23 (ii)
To the Board of Directors
General Electric Capital Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
33-43420, 33-51793, 33-60723, 333-07469, 333-13195 and 333-22265) on Form S-3 of
General Electric Capital Corporation, and in the Registration Statement (No.
33-39596) on Form S-3 jointly filed by General Electric Capital Corporation and
General Electric Company, of our report dated February 13, 1998, relating to the
statement of financial position of General Electric Capital Corporation and
consolidated affiliates as of December 31, 1997 and 1996 and the related
statements of current and retained earnings and cash flows for each of the years
in the three-year period ended December 31, 1997, and the related schedule,
which report appears in the December 31, 1997 annual report on Form 10-K of
General Electric Capital Corporation.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
March 26, 1998
57
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being directors
and/or officers of General Electric Capital Corporation, a New York corporation
(the "Corporation"), hereby constitutes and appoints Gary C. Wendt, James A.
Parke, Joan C. Amble and Nancy E. Barton, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead in any and all capacities, to sign one
or more Annual Reports for the Corporation's fiscal year ended December 31,
1997, on Form 10-K under the Securities Exchange Act of 1934, as amended, or
such other form as such attorney-in-fact may deem necessary or desirable, any
amendments thereto, and all additional amendments thereto 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 to the end that such Annual Report or Annual
Reports shall comply with the Securities Exchange Act of 1934, as amended, and
the applicable Rules and Regulations of the Securities and Exchange Commission
adopted or issued pursuant thereto, as fully and to all intents and purposes as
he might or could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them or their or his 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 hand this 25th
day of March, 1998.
/s/ Gary C. Wendt /s/ James A. Parke
- ----------------------- -----------------------
Gary C. Wendt, James A. Parke,
Chairman of the Board Director and Senior Vice President,
and Chief Executive Officer Finance
(Principal Executive Officer) (Principal Financial Officer)
/s/ Joan C. Amble
-----------------------
Joan C. Amble,
Vice President and Controller
(Principal Accounting Officer)
(Page 1 of 2)
58
<PAGE>
/s/ Nigel D.T. Andrews
- ----------------------------- -----------------------------
Nigel D.T. Andrews, W. James McNerney, Jr.,
Director Director
/s/ Nancy E. Barton /s/ John H. Myers
- ----------------------------- -----------------------------
Nancy E. Barton, John H. Myers,
Director Director
/s/ James R. Bunt /s/ Robert L. Nardelli
- ----------------------------- -----------------------------
James R. Bunt, Robert L. Nardelli,
Director Director
/s/ David M. Cote /s/ Denis J. Nayden
- ----------------------------- -----------------------------
David M. Cote, Denis J. Nayden,
Director Director
/s/ Dennis D. Dammerman
- ----------------------------- -----------------------------
Dennis D. Dammerman, Michael A. Neal,
Director Director
/s/ John M. Samuels
- ----------------------------- -----------------------------
Paolo Fresco, John M. Samuels,
Director Director
/s/ Benjamin W. Heineman, Jr. /s/ Edward D. Stewart
- ----------------------------- -----------------------------
Benjamin W. Heineman, Jr., Edward D. Stewart,
Director Director
/s/ Jeffrey R. Immelt /s/ John F. Welch, Jr.
- ----------------------------- -----------------------------
Jeffrey R. Immelt, John F. Welch, Jr.,
Director Director
A MAJORITY OF THE BOARD OF DIRECTORS
(Page 2 of 2)
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENERAL ELECTRIC CAPITAL CORPORATION
March 25, 1998 By: /s/ Gary C. Wendt
-------------------------
(Gary C. Wendt)
Chairman of the Board
and Chief Executive Officer
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 date indicated.
Signature Title Date
--------- ----- ----
/s/ Gary C. Wendt Chairman of the Board and March 25, 1998
- ------------------ Chief Executive Officer
(Gary C. Wendt) (Principal Executive Officer)
/s/ James A. Parke Director and March 25, 1998
- ------------------ Senior Vice President, Finance
(James A. Parke) (Principal Financial Officer)
/s/ Joan C. Amble Vice President and Controller March 25, 1998
- ------------------ (Principal Accounting Officer)
(Joan C. Amble)
NIGEL D.T. ANDREWS* Director
NANCY E. BARTON* Director
JAMES R. BUNT* Director
DAVID M. COTE* Director
DENNIS D. DAMMERMAN* Director
BENJAMIN W. HEINEMAN, JR.* Director
JEFFREY R. IMMELT* Director
JOHN H. MYERS* Director
ROBERT L. NARDELLI* Director
DENIS J. NAYDEN* Director
JOHN M. SAMUELS* Director
EDWARD D. STEWART* Director
JOHN F. WELCH, JR.* Director
A MAJORITY OF THE BOARD OF DIRECTORS
*By: /s/ Joan C. Amble March 25, 1998
------------------
(Joan C. Amble)
Attorney-in-fact
60
<PAGE>
EXHIBIT 4(iii)
March 25, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Subject: General Electric Capital Corporation Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 - File No. 1-6461
Dear Sirs:
Neither General Electric Capital Corporation (the "Corporation") nor any of its
subsidiaries has outstanding any instrument with respect to its long-term debt
that is not registered with the Commission and 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 CFRss. 229.601), the Corporation 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 CAPITAL CORPORATION
By: /s/ J.A. Parke
-------------------------
J.A. Parke,
Senior Vice President, Finance
<PAGE>
EXHIBIT 12 (a)
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL CORPORATION
AND CONSOLIDATED AFFILIATES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31
--------------------------------------------------------
(Dollar amounts in millions) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net earnings ....................................... $ 2,729 $ 2,632 $ 2,261 $ 1,918 $ 1,478
Provision for income taxes ......................... 997 1,172 1,071 896 664
Minority interest .................................. 40 86 81 109 114
-------- -------- -------- -------- --------
Earnings before income taxes and minority interest . 3,766 3,890 3,413 2,923 2,256
-------- -------- -------- -------- --------
Fixed charges:
Interest .......................................... 7,440 7,114 6,520 4,464 3,503
One-third of rentals .............................. 240 177 170 153 138
-------- -------- -------- -------- --------
Total fixed charges ................................ 7,680 7,291 6,690 4,617 3,641
-------- -------- -------- -------- --------
Less interest capitalized, net of amortization ..... 52 41 21 9 4
-------- -------- -------- -------- --------
Earnings before income taxes and minority
interest plus fixed charges ....................... $ 11,394 $ 11,140 $ 10,082 $ 7,531 $ 5,893
======== ======== ======== ======== ========
Ratio of earnings to fixed charges ................. 1.48 1.53 1.51 1.63 1.62
======== ======== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 12 (b)
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL CORPORATION
AND CONSOLIDATED AFFILIATES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
YEARS ENDED DECEMBER 31
--------------------------------------------------------
(Dollar amounts in millions) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net earnings ....................................... $ 2,729 $ 2,632 $ 2,261 $ 1,918 $ 1,478
Provision for income taxes ......................... 997 1,172 1,071 896 664
Minority interest .................................. 40 86 81 109 114
-------- -------- -------- -------- --------
Earnings before income taxes and minority interest . 3,766 3,890 3,413 2,923 2,256
-------- -------- -------- -------- --------
Fixed charges:
Interest .......................................... 7,440 7,114 6,520 4,464 3,503
One-third of rentals .............................. 240 177 170 153 138
-------- -------- -------- -------- --------
Total fixed charges ................................ 7,680 7,291 6,690 4,617 3,641
-------- -------- -------- -------- --------
Less interest capitalized, net of amortization ..... 52 41 21 9 4
-------- -------- -------- -------- --------
Earnings before income taxes and minority
interest plus fixed charges ....................... $ 11,394 $ 11,140 $ 10,082 $ 7,531 $ 5,893
======== ======== ======== ======== ========
Preferred stock dividend requirements .............. $ 78 $ 76 $ 57 $ 30 $ 22
Ratio of earnings before provision for income
taxes to net earnings ............................. 1.37 1.45 1.47 1.47 1.45
-------- -------- -------- -------- --------
Preferred stock dividend factor on pre-tax basis ... 107 110 84 44 32
Fixed charges ...................................... 7,680 7,291 6,690 4,617 3,641
-------- -------- -------- -------- --------
Total fixed charges and preferred stock dividend
requirements ...................................... $ 7,787 $ 7,401 $ 6,774 $ 4,661 $ 3,673
======== ======== ======== ======== ========
Ratio of earnings to combined fixed charges and
preferred stock dividends ........................ 1.46 1.51 1.49 1.62 1.60
======== ======== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 23 (ii)
To the Board of Directors
General Electric Capital Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
33-43420, 33-51793, 33-60723, 333-07469, 333-13195 and 333-22265) on Form S-3 of
General Electric Capital Corporation, and in the Registration Statement (No.
33-39596) on Form S-3 jointly filed by General Electric Capital Corporation and
General Electric Company, of our report dated February 13, 1998, relating to the
statement of financial position of General Electric Capital Corporation and
consolidated affiliates as of December 31, 1997 and 1996 and the related
statements of current and retained earnings and cash flows for each of the years
in the three-year period ended December 31, 1997, and the related schedule,
which report appears in the December 31, 1997 annual report on Form 10-K of
General Electric Capital Corporation.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
March 26, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being directors
and/or officers of General Electric Capital Corporation, a New York corporation
(the "Corporation"), hereby constitutes and appoints Gary C. Wendt, James A.
Parke, Joan C. Amble and Nancy E. Barton, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead in any and all capacities, to sign one
or more Annual Reports for the Corporation's fiscal year ended December 31,
1997, on Form 10-K under the Securities Exchange Act of 1934, as amended, or
such other form as such attorney-in-fact may deem necessary or desirable, any
amendments thereto, and all additional amendments thereto 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 to the end that such Annual Report or Annual
Reports shall comply with the Securities Exchange Act of 1934, as amended, and
the applicable Rules and Regulations of the Securities and Exchange Commission
adopted or issued pursuant thereto, as fully and to all intents and purposes as
he might or could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them or their or his 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 hand this 25th
day of March, 1998.
/s/ Gary C. Wendt /s/ James A. Parke
- ----------------------- -----------------------
Gary C. Wendt, James A. Parke,
Chairman of the Board Director and Senior Vice President,
and Chief Executive Officer Finance
(Principal Executive Officer) (Principal Financial Officer)
/s/ Joan C. Amble
-----------------------
Joan C. Amble,
Vice President and Controller
(Principal Accounting Officer)
(Page 1 of 2)
<PAGE>
/s/ Nigel D.T. Andrews
- ----------------------------- -----------------------------
Nigel D.T. Andrews, W. James McNerney, Jr.,
Director Director
/s/ Nancy E. Barton /s/ John H. Myers
- ----------------------------- -----------------------------
Nancy E. Barton, John H. Myers,
Director Director
/s/ James R. Bunt /s/ Robert L. Nardelli
- ----------------------------- -----------------------------
James R. Bunt, Robert L. Nardelli,
Director Director
/s/ David M. Cote /s/ Denis J. Nayden
- ----------------------------- -----------------------------
David M. Cote, Denis J. Nayden,
Director Director
/s/ Dennis D. Dammerman
- ----------------------------- -----------------------------
Dennis D. Dammerman, Michael A. Neal,
Director Director
/s/ John M. Samuels
- ----------------------------- -----------------------------
Paolo Fresco, John M. Samuels,
Director Director
/s/ Benjamin W. Heineman, Jr. /s/ Edward D. Stewart
- ----------------------------- -----------------------------
Benjamin W. Heineman, Jr., Edward D. Stewart,
Director Director
/s/ Jeffrey R. Immelt /s/ John F. Welch, Jr.
- ----------------------------- -----------------------------
Jeffrey R. Immelt, John F. Welch, Jr.,
Director Director
A MAJORITY OF THE BOARD OF DIRECTORS
(Page 2 of 2)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000040554
<NAME> GENERAL ELECTRIC CAPITAL CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,648
<SECURITIES> 53,103
<RECEIVABLES> 106,601
<ALLOWANCES> 2,802
<INVENTORY> 786
<CURRENT-ASSETS> 0
<PP&E> 28,571
<DEPRECIATION> 7,547
<TOTAL-ASSETS> 228,777
<CURRENT-LIABILITIES> 0
<BONDS> 45,134
0
2
<COMMON> 768
<OTHER-SE> 17,603
<TOTAL-LIABILITY-AND-EQUITY> 228,777
<SALES> 4,622
<TOTAL-REVENUES> 33,404
<CGS> 4,147
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,472
<LOSS-PROVISION> 1,421
<INTEREST-EXPENSE> 7,330
<INCOME-PRETAX> 3,726
<INCOME-TAX> 997
<INCOME-CONTINUING> 2,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,729
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<PAGE>
F-1
ANNUAL REPORT PAGE 25
FINANCIAL SECTION
CONTENTS
46 INDEPENDENT AUDITORS' REPORT
AUDITED FINANCIAL STATEMENTS
26 Earnings
28 Financial Position
30 Cash Flows
47 Notes to Consolidated Financial Statements
MANAGEMENT'S DISCUSSION
32 Operations
32 Consolidated Operations
33 GE Operations
34 Industry Segments
36 GECS Operations
39 International Operations
40 Financial Resources and Liquidity
44 Selected Financial Data
46 Financial Responsibility
[CHART HERE]
CONSOLIDATED REVENUES
- -----------------------------------------------------------------------------
(IN BILLIONS) 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------
$55.701 $60.109 $70.028 $79.179 $90.840
- -----------------------------------------------------------------------------
[CHART HERE]
EARNINGS PER SHARE FROM CONTINUING OPERATIONS BEFORE ACCOUNTING CHANGE
- -----------------------------------------------------------------------------
(IN DOLLARS) 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------
BASIC $1.220 $1.730 $1.950 $2.200 $2.500
DILUTED 1.210 1.710 1.930 2.160 2.460
- -----------------------------------------------------------------------------
[CHART HERE]
DIVIDENDS PER SHARE
- -----------------------------------------------------------------------------
(IN DOLLARS) 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------
$0.6525 $0.745 $0.845 $0.950 $1.080
- -----------------------------------------------------------------------------
<PAGE>
F-2
ANNUAL REPORT PAGE 26
STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
General Electric Company
and consolidated affiliates
---------------------------------
For the years ended December 31 (In millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Sales of goods $ 40,675 $ 36,106 $ 33,624
Sales of services 12,729 11,791 9,733
Other income (note 2) 2,300 638 752
Earnings of GECS -- -- --
GECS revenues from services (note 3) 35,136 30,644 25,919
---------------------------------
Total revenues 90,840 79,179 70,028
---------------------------------
COSTS AND EXPENSES (note 4)
Cost of goods sold 30,889 26,298 24,703
Cost of services sold 9,199 8,293 6,682
Interest and other financial charges 8,384 7,904 7,286
Insurance losses and policyholder and annuity benefits 8,278 6,678 5,285
Provision for losses on financing receivables (note 7) 1,421 1,033 1,117
Other costs and expenses 21,250 17,898 15,014
Minority interest in net earnings of consolidated affiliates 240 269 204
---------------------------------
Total costs and expenses 79,661 68,373 60,291
---------------------------------
EARNINGS BEFORE INCOME TAXES 11,179 10,806 9,737
Provision for income taxes (note 8) (2,976) (3,526) (3,164)
---------------------------------
NET EARNINGS $ 8,203 $ 7,280 $ 6,573
===================================================================================================
PER-SHARE AMOUNTS (in dollars)
Basic earnings per share (note 9) $ 2.50 $ 2.20 $ 1.95
Diluted earnings per share (note 9) $ 2.46 $ 2.16 $ 1.93
===================================================================================================
DIVIDENDS DECLARED PER SHARE (in dollars) $ 1.08 $ 0.95 $ 0.845
===================================================================================================
<FN>
The notes to consolidated financial statements on pages 47-66 are an integral part of this
statement. Per-share amounts have been adjusted for the 2-for-1 stock split effective on April 28,
1997.
</FN>
</TABLE>
<PAGE>
F-3
ANNUAL REPORT PAGE 27
STATEMENT OF EARNINGS (Continued)
<TABLE>
<CAPTION>
GE GECS
------------------------------ -------------------------------
For the years ended December 31 (In millions) 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sales of goods $ 36,059 $ 34,196 $ 33,177 $ 4,622 $ 1,926 $ 467
Sales of services 12,893 11,923 9,836 -- -- --
Other income (note 2) 2,307 629 753 -- -- --
Earnings of GECS 3,256 2,817 2,415 -- -- --
GECS revenues from services (note 3) -- -- -- 35,309 30,787 26,025
------------------------------ -------------------------------
Total revenues 54,515 49,565 46,181 39,931 32,713 26,492
------------------------------ -------------------------------
COSTS AND EXPENSES (note 4) --
Cost of goods sold 26,747 24,594 24,308 4,147 1,720 415
Cost of services sold 9,363 8,425 6,785 -- -- --
Interest and other financial charges 797 595 649 7,649 7,326 6,661
Insurance losses and policyholder and annuity benefits -- -- -- 8,278 6,678 5,285
Provision for losses on financing receivables (note 7) -- -- -- 1,421 1,033 1,117
Other costs and expenses 7,476 6,274 5,743 13,893 11,741 9,354
Minority interest in net earnings of consolidated affiliates 119 102 64 121 167 140
------------------------------ -------------------------------
Total costs and expenses 44,502 39,990 37,549 35,509 28,665 22,972
------------------------------ -------------------------------
EARNINGS BEFORE INCOME TAXES --
10,013 9,575 8,632 4,422 4,048 3,520
Provision for income taxes (note 8) (1,810) (2,295) (2,059) (1,166) (1,231) (1,105)
------------------------------ -------------------------------
NET EARNINGS $ 8,203 $ 7,280 $ 6,573 $ 3,256 $ 2,817 $ 2,415
==================================================================================================================================
<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>
<PAGE>
F-4
ANNUAL REPORT PAGE 28
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
General Electric Company
and consolidated affiliates
----------------------------
At December 31 (In millions) 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 5,861 $ 4,191
Investment securities (note 10) 70,621 59,889
Current receivables (note 11) 8,924 8,704
Inventories (note 12) 5,895 4,849
Financing receivables (investments in time sales, loans and
financing leases) -- net (notes 7 and 13) 103,799 99,714
Other GECS receivables (note 14) 17,655 15,418
Property, plant and equipment (including equipment leased
to others) -- net (note 15) 32,316 28,795
Investment in GECS -- --
Intangible assets (note 16) 19,121 16,007
All other assets (note 17) 39,820 34,835
-----------------------
TOTAL ASSETS $ 304,012 $ 272,402
=============================================================================================
LIABILITIES AND EQUITY
Short-term borrowings (note 19) $ 98,075 $ 80,200
Accounts payable, principally trade accounts 10,407 10,205
Progress collections and price adjustments accrued 2,316 2,161
Dividends payable 979 855
All other GE current costs and expenses accrued (note 18) 8,891 7,086
Long-term borrowings (note 19) 46,603 49,246
Insurance liabilities, reserves and annuity benefits (note 20) 67,270 61,327
All other liabilities (note 21) 22,700 18,917
Deferred income taxes (note 22) 8,651 8,273
-----------------------
Total liabilities 265,892 238,270
-----------------------
Minority interest in equity of consolidated affiliates (note 23) 3,682 3,007
-----------------------
Common stock (3,714,026,000 shares issued) 594 594
Unrealized gains on investment securities -- net 2,138 671
Other capital 3,636 2,498
Retained earnings 43,338 38,670
Less common stock held in treasury (15,268) (11,308)
-----------------------
Total share owners' equity (notes 25 and 26) 34,438 31,125
-----------------------
TOTAL LIABILITIES AND EQUITY $ 304,012 $ 272,402
=============================================================================================
<FN>
The notes to consolidated financial statements on pages 47-66 are an integral part of this
statement. Share data have been adjusted for the 2-for-1 stock split effective on April 28,
1997.
</FN>
</TABLE>
<PAGE>
F-5
ANNUAL REPORT PAGE 29
STATEMENT OF FINANCIAL POSITION (Continued)
<TABLE>
<CAPTION>
GE GECS
---------------------- ----------------------
At December 31 (In millions) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 1,157 $ 957 $ 4,904 $ 3,234
Investment securities (note 10) 265 17 70,356 59,872
Current receivables (note 11) 9,054 8,826 -- --
Inventories (note 12) 5,109 4,473 786 376
Financing receivables (investments in time sales, loans and
financing leases) -- net (notes 7 and 13) -- -- 103,799 99,714
Other GECS receivables (note 14) -- -- 18,332 15,962
Property, plant and equipment (including equipment leased
to others) -- net (note 15) 11,118 10,832 21,198 17,963
Investment in GECS 17,239 14,276 -- --
Intangible assets (note 16) 8,755 7,367 10,366 8,640
All other assets (note 17) 14,729 13,177 25,667 21,658
---------------------- ----------------------
TOTAL ASSETS $ 67,426 $ 59,925 $255,408 $227,419
---------------------- ----------------------
LIABILITIES AND EQUITY
Short-term borrowings (note 19) $ 3,629 $ 2,339 $ 95,274 $ 77,945
Accounts payable, principally trade accounts 4,779 4,195 6,490 6,787
Progress collections and price adjustments accrued 2,316 2,161 -- --
Dividends payable 979 855 -- --
All other GE current costs and expenses accrued (note 18) 8,763 6,870 -- --
Long-term borrowings (note 19) 729 1,710 45,989 47,676
Insurance liabilities, reserves and annuity benefits (note 20) -- -- 67,270 61,327
All other liabilities (note 21) 11,539 9,660 11,067 9,138
Deferred income taxes (note 22) (315) 533 8,966 7,740
---------------------- ----------------------
Total liabilities 32,419 28,323 235,056 210,613
---------------------- ----------------------
Minority interest in equity of consolidated affiliates (note 23) 569 477 3,113 2,530
---------------------- ----------------------
Common stock (3,714,026,000 shares issued) 594 594 1 1
Unrealized gains on investment securities -- net 2,138 671 2,135 668
Other capital 3,636 2,498 2,152 2,253
Retained earnings 43,338 38,670 12,951 11,354
Less common stock held in treasury (15,268) (11,308) -- --
---------------------- ----------------------
Total share owners' equity (notes 25 and 26) 34,438 31,125 17,239 14,276
---------------------- ----------------------
TOTAL LIABILITIES AND EQUITY $ 67,426 $ 59,925 $255,408 $227,419
===========================================================================================================================
<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
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
General Electric Company
and consolidated affiliates
-----------------------------------------
For the years ended December 31 (In millions) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 8,203 $ 7,280 $ 6,573
Adjustments to reconcile net earnings to cash provided
from operating activities
Depreciation and amortization 4,082 3,785 3,594
Earnings retained by GECS -- -- --
Deferred income taxes 284 1,145 1,047
Decrease (increase) in GE current receivables 250 118 (632)
Decrease (increase) in inventories (386) (134) 40
Increase (decrease) in accounts payable 200 641 244
Increase in insurance liabilities, reserves and annuity benefits 1,669 1,491 2,490
Provision for losses on financing receivables 1,421 1,033 1,117
All other operating activities (1,483) 2,492 473
------------------------------------------
CASH FROM OPERATING ACTIVITIES 14,240 17,851 14,946
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (8,388) (7,760) (6,447)
Dispositions of property, plant and equipment 2,251 1,363 1,542
Net increase in GECS financing receivables (1,898) (2,278) (11,309)
Payments for principal businesses purchased (5,245) (5,516) (5,641)
All other investing activities (4,995) (6,021) (3,362)
------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (18,275) (20,212) (25,217)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities of 90 days or less) 13,684 11,827 (3,487)
Newly issued debt (maturities longer than 90 days) 21,249 23,153 37,604
Repayments and other reductions (maturities longer than 90 days) (23,787) (25,906) (18,580)
Net purchase of GE shares for treasury (2,815) (2,323) (2,523)
Dividends paid to share owners (3,411) (3,050) (2,770)
All other financing activities 785 28 259
------------------------------------------
CASH FROM (USED FOR) FINANCING ACTIVITIES 5,705 3,729 10,503
------------------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 1,670 1,368 232
Cash and equivalents at beginning of year 4,191 2,823 2,591
------------------------------------------
Cash and equivalents at end of year $ 5,861 $ 4,191 $ 2,823
====================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for interest $ (8,264) $ (7,874) $ (6,645)
Cash recovered (paid) during the year for income taxes (1,937) (1,392) (1,483)
====================================================================================================================================
<FN>
The notes to consolidated financial statements on pages 47-66 are an integral part of this statement.
</FN>
</TABLE>
<PAGE>
F-7
ANNUAL REPORT PAGE 31
STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
GE GECS
-------------------------------- ---------------------------------
For the years ended December 31 (In millions) 1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 8,203 $ 7,280 $ 6,573 $ 3,256 $ 2,817 $ 2,415
Adjustments to reconcile net earnings to cash provided
from operating activities
Depreciation and amortization 1,622 1,635 1,581 2,460 2,150 2,013
Earnings retained by GECS (1,597) (1,836) (1,324) -- -- --
Deferred income taxes (514) 68 369 798 1,077 678
Decrease (increase) in GE current receivables 215 152 (739) -- -- --
Decrease (increase) in inventories (145) (76) 55 (244) (58) (15)
Increase (decrease) in accounts payable 237 197 462 (64) 318 418
Increase in insurance liabilities, reserves -- -- -- 1,669 1,491 2,490
and annuity benefits
Provision for losses on financing receivables -- -- -- 1,421 1,033 1,117
All other operating activities 1,296 1,647 (912) (3,071) 939 961
-------------------------------- ---------------------------------
CASH FROM OPERATING ACTIVITIES 9,317 9,067 6,065 6,225 9,767 10,077
-------------------------------- ---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (2,191) (2,389) (1,831) (6,197) (5,371) (4,616)
Dispositions of property, plant and equipment 39 30 38 2,212 1,333 1,504
Net increase in GECS financing receivables -- -- -- (1,898) (2,278) (11,309)
Payments for principal businesses purchased (1,425) (1,122) (238) (3,820) (4,394) (5,403)
All other investing activities 483 (106) 408 (5,646) (6,090) (3,913)
-------------------------------- ---------------------------------
CASH USED FOR INVESTING ACTIVITIES (3,094) (3,587) (1,623) (15,349) (16,800) (23,737)
-------------------------------- ---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities of 90 days or less) 809 974 1,061 13,594 11,026 (4,510)
Newly issued debt (maturities longer than 90 days) 424 252 826 20,825 22,901 36,778
Repayments and other reductions (maturities longer
than 90 days) (1,030) (1,250) (1,535) (22,757) (24,656) (17,045)
Net purchase of GE shares for treasury (2,815) (2,323) (2,523) -- -- --
Dividends paid to share owners (3,411) (3,050) (2,770) (1,653) (981) (1,091)
All other financing activities -- -- -- 785 28 259
-------------------------------- ---------------------------------
CASH FROM (USED FOR) FINANCING ACTIVITIES (6,023) (5,397) (4,941) 10,794 8,318 14,391
-------------------------------- ---------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 200 83 (499) 1,670 1,285 731
Cash and equivalents at beginning of year 957 874 1,373 3,234 1,949 1,218
-------------------------------- ---------------------------------
Cash and equivalents at end of year $ 1,157 $ 957 $ 874 $ 4,904 $ 3,234 $ 1,949
================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for interest $ (467) $ (411) $ (468) $ (7,797) $ (7,463) $ (6,177)
Cash recovered (paid) during the year for income taxes (1,596) (1,286) (1,651) (341) (106) 168
================================================================================================================================
<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 OPERATIONS
OVERVIEW
General Electric Company's consolidated financial statements represent the
combination of the Company's manufacturing and nonfinancial services businesses
("GE") and the accounts of General Electric Capital Services, Inc. ("GECS"). See
note 1 to the consolidated financial statements, which explains how the various
financial data are presented.
Management's Discussion of Operations is presented in four parts:
Consolidated Operations; GE Operations, including Industry Segments; GECS
Operations; and International Operations.
CONSOLIDATED OPERATIONS
GE achieved record revenues, earnings and cash generation in 1997. This year's
performance again demonstrated the ability of GE's diverse mix of leading global
businesses to deliver top-line growth and increased margins.
Revenues, including acquisitions, rose to a record $90.8 billion in 1997, up
15% from 1996. This increase was primarily attributable to increased global
activities, particularly at GECS, stronger aircraft engine shipments, and higher
sales of spare parts and services by GE's equipment businesses. Revenues
increased at ten of GE's twelve businesses, led by double-digit growth at GE
Capital Services, Aircraft Engines and Transportation Systems. Revenues in 1996
were $79.2 billion, a 13% increase attributable primarily to increased
international activities. In 1996, nine of GE's twelve businesses increased
revenues, with GE Capital Services, NBC and Power Systems reporting double-digit
increases.
Basic earnings per share increased to $2.50 during 1997, up 14% from the
prior year's $2.20. On a diluted basis, earnings per share also increased 14%,
to $2.46 from $2.16. Earnings increased 13% to a record $8.203 billion. In 1996,
basic earnings per share increased 13% from $1.95 per share in 1995 (12% from
$1.93 on a diluted basis). For 1996, earnings of $7.280 billion were up 11% from
$6.573 billion in 1995. Growth rates in earnings per share exceeded growth rates
in earnings as a result of the ongoing repurchase of shares under the five-year,
$17 billion share repurchase plan initiated in December 1994.
In 1997, GE realized an after-tax gain of $1,538 million from exchanging
preferred stock in Lockheed Martin Corporation (Lockheed Martin) for the stock
of a newly formed subsidiary as described in note 2.
Also in 1997, GE recorded restructuring and other special charges amounting
to $2,322 million, which are included in costs and expenses in the following
captions: "Cost of goods sold" -- $1,364 million; "Cost of services sold" --
$250 million; and "Other costs and expenses" -- $708 million. These charges are
discussed below and, as relevant, in Industry Segments beginning on page 34.
Aggregate restructuring charges of $1,243 million cover certain costs of plans
that will enhance GE's global competitiveness through rationalization of certain
production, service and administration activities of its worldwide industrial
businesses; among these charges is $577 million of special early retirement
pension, health and life benefit costs, including a fourth-quarter, one-time
voluntary early retirement program that was provided to the U.S. work force in
the 1997 labor contracts. Also included in restructuring charges are other
severance costs as well as certain costs of exiting affected properties,
including site demolitions, asset write-offs and expected losses on subleases.
Future cash outlays, including capital expenditures, amounting to approximately
$555 million will be incurred in order to execute these restructuring programs.
Other special charges amounting to $1,079 million were also recorded in 1997,
principally associated with strategic decisions to enhance the long-term
competitiveness of certain industrial businesses and fourth-quarter developments
arising from past activities at several current and former manufacturing sites
not associated with any current business segments. The largest such special
charge related to contracts on existing orders for an aircraft engine program
and is discussed on page 34.
NEW ACCOUNTING STANDARDS issued in 1997 are described below. Neither of these
standards will have any effect on the financial position or results of
operations of GE or GECS.
The Financial Accounting Standards Board issued two Statements of Financial
Accounting Standards (SFAS) that will affect presentation in GE's 1998 Annual
Report to Share Owners. SFAS No. 130, REPORTING COMPREHENSIVE INCOME, will
require display of certain information about adjustments to equity -- most
notably, adjustments arising from market value changes in marketable securities.
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, will require additional information about industry segments.
================================================================================
[CHART HERE]
GE/S&P CUMULATIVE DIVIDEND GROWTH SINCE 1992
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
GE 12.27% 28.08% 41.91% 57.44% 77.66%
S&P 500 1.62 6.46 11.39 20.36 25.12
================================================================================
<PAGE>
F-9
ANNUAL REPORT PAGE 33
DIVIDENDS DECLARED IN 1997 AMOUNTED TO $3.535 BILLION. Per-share dividends of
$1.08 were up 14% from 1996, following a 12% increase from the preceding year.
GE has rewarded its share owners with 22 consecutive years of dividend growth.
The chart on the previous page illustrates that GE's dividend growth for the
past five years has significantly outpaced dividend growth of companies in the
Standard & Poor's 500 stock index.
RETURN ON AVERAGE SHARE OWNERS' EQUITY
reached 25.0% in 1997, up from 24.0% and 23.5% in 1996 and 1995, respectively.
GE OPERATIONS
GE total revenues were $54.5 billion in 1997, compared with $49.6 billion in
1996 and $46.2 billion in 1995.
o GE sales of goods and services were $49.0 billion in 1997, an increase of
6% from 1996, which in turn was 7% higher than in 1995. The improvement in
1997 was led by Aircraft Engines, Transportation Systems and Power Systems.
Volume was about 9% higher in 1997, reflecting growth in most businesses
during the year. While overall selling prices were down slightly in 1997,
the effects of selling prices on sales in various businesses differed
markedly. Revenues were also negatively affected by exchange rates for
sales denominated in other than U.S. dollars. Volume in 1996 was about 9%
higher than in 1995, with selling price and currency effects both slightly
negative.
For purposes of the required financial statement display of GE sales
and costs of sales on pages 26 and 27, "goods" refers to tangible products,
and "services" refers to all other sales, including broadcasting and
information services activities. An increasingly important element of GE
sales relates to product services, including both spare parts (goods) as
well as repair services. Such product services sales amounted to $9.7
billion in 1997 and were up 16% from 1996, which was 11% higher than 1995.
o GE other income, earned from a wide variety of sources, was $2.3 billion in
1997, $0.6 billion in 1996 and $0.8 billion in 1995. The increase in other
income in 1997 was primarily attributable to the Lockheed Martin
transaction described in note 2, which also provides details of GE other
income.
o Earnings of GECS were up 16% in 1997, following a 17% increase the year
before. See page 36 for an analysis of these earnings.
PRINCIPAL COSTS AND EXPENSES FOR GE are those classified as costs of goods and
services sold, and selling, general and administrative expenses.
OPERATING MARGIN is sales of goods and services less the costs of goods and
services sold, and selling, general and administrative expenses. GE reported
================================================================================
[CHART HERE]
GE OPERATING MARGIN AS A PERCENTAGE OF SALES
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
AS REPORTED 9.9% 13.6% 14.4% 14.8% 11.0%
RESTRUCTURING AND
OTHER SPECIAL
CHARGES 2.6 - - - 4.7
================================================================================
operating margin as 11.0% of sales in 1997, after the effects of restructuring
and other special charges. GE ongoing operating margin (before such charges)
reached a record 15.7% of sales, up from 14.8% in 1996 and 14.4% in 1995. The
improvement in operating margin in 1997 -- with ten businesses, led by Power
Systems, Aircraft Engines, Medical Systems and NBC, reporting higher operating
margins -- showed the increasing benefits from GE's product services and Six
Sigma quality initiatives.
TOTAL COST PRODUCTIVITY (sales in relation to costs, both on a constant dollar
basis) has paralleled recent significant improvement in GE's ongoing operating
margin and accelerated over the period. Productivity in 1997 was 4.2%,
reflecting sharp improvements associated with variable costs, largely
attributable to the Six Sigma quality program, as well as base costs, associated
largely with higher volume. Four businesses -- Power Systems, NBC, Plastics and
Information Services -- achieved productivity in excess of 5%. Total
productivity was 2.9% in 1996, principally on the positive effects of higher
volume. In 1996, three businesses -- Power Systems, NBC and Aircraft Engines --
reported productivity in excess of 5%. The total contribution of productivity in
the last two years offset not only the negative effects of cost inflation, but
also the effects of selling price decreases.
GE INTEREST AND OTHER FINANCIAL CHARGES in 1997 amounted to $797 million,
compared with $595 million in 1996 and $649 million in 1995, as interest rates
trended lower over the period. Lower rates in 1997 were more than offset by
higher levels of average borrowings and other interest-bearing obligations.
INCOME TAXES on a consolidated basis were 26.6% of pretax earnings in 1997,
compared with 32.6% in 1996 and 32.5% in 1995. The 1997 decrease in effective
tax rate was primarily attributable to the realized gain on the tax-free
<PAGE>
F-10
ANNUAL REPORT PAGE 34
exchange of Lockheed Martin preferred stock. That gain accounted for 4.8% of the
difference between the expected and actual tax rates shown in note 8. A more
detailed analysis of the differences between the U.S. federal statutory rate and
the consolidated rate, as well as other information about income tax provisions,
is also provided in note 8.
GE INDUSTRY SEGMENT REVENUES AND OPERATING PROFIT for the past five years are
shown in the table on page 35. For additional information, including a
description of the products and services included in each segment, see note 28.
AIRCRAFT ENGINES achieved a 24% increase in revenues in 1997, following a 3%
increase in 1996, on higher volume in commercial engines and product services.
Operating profit decreased 14% in 1997, primarily as a result of $342 million of
charges. The largest charge followed Boeing Co.'s fourth-quarter announcement
that development of longer-range derivatives of the 777 jetliner would be
slowed. It was concluded at that time that development of a higher-thrust
derivative of the GE90 engine was not justified, resulting in charges of $275
million to reflect higher estimated manufacturing costs to fill firm customer
orders. An additional charge of $67 million was recorded for restructuring,
covering costs associated with closing certain redundant manufacturing and
warehousing facilities. Excluding these charges, operating profit increased 14%,
reflecting the effects of volume increases in commercial engines and product
services and improved product services pricing, the combination of which more
than offset cost increases. Operating profit increased by 4% in 1996 as a result
of improvements in the product services business and productivity, offset
somewhat by reduced selling prices and cost inflation.
In 1997, $1.5 billion of revenues were from sales to the U.S. government,
down $0.3 billion from 1996, which was $0.1 billion higher than in 1995.
Aircraft Engines received orders of $8.9 billion in 1997, up $1.8 billion
from 1996. The backlog at year-end 1997 was $9.8 billion ($9.0 billion at the
end of 1996). Of the total, $7.5 billion related to products, about 50% of which
was scheduled for delivery in 1998, and the remainder related to 1998 product
services.
APPLIANCES revenues were 6% higher than a year ago, reflecting primarily
acquisition-related volume. Operating profit decreased 39%, primarily as a
result of restructuring and other special charges of $330 million, principally
for severance costs related to work force reductions and facility closing costs.
Excluding such charges, operating profit increased 5%, reflecting productivity
and improved volume, partially offset by lower selling prices. Revenues in 1996
were 7% higher than in 1995, reflecting industry growth and U.S. market share
gains across core product lines. Operating profit increased 8% in 1996,
primarily as a result of productivity and higher volume, partially offset by
lower selling prices.
BROADCASTING revenues decreased 2% in 1997 as a strong advertising marketplace
was more than offset by the absence of a current-year counterpart to NBC's
broadcast of the 1996 Summer Olympic Games. Operating profit increased 5% in
1997, despite restructuring charges of $161 million associated with certain
broadcast properties, primarily international properties, and including asset
write-offs, expected losses on subleases from excess capacity, and severance
costs. Excluding the effects of such charges, operating profit increased 22%,
reflecting improved prime-time pricing, strong growth in both owned-and-operated
stations and cable programming services, and increased international
distribution of programming, the combination of which more than offset the
absence of a current-year counterpart to the Olympics broadcast and higher
license fees for certain prime-time programs that were renewed. Revenues
increased 34% in 1996, reflecting a strong advertising market, excellent
ratings, strong growth in the owned-and-operated stations and the Olympics
broadcast. Operating profit increased 29% in 1996 as the combination of
excellent ratings, sharply higher results in owned-and-operated stations and
profitable Olympics coverage more than offset higher license fees for certain
prime-time programs that were renewed.
INDUSTRIAL PRODUCTS AND SYSTEMS revenues rose 5% in 1997, with improved volume
more than offsetting weaker pricing across all businesses in the segment.
Operating profit declined 8%, reflecting $352 million of charges, essentially
all of which were related to restructuring -- mostly for severance costs related
to work force reductions and for facility closing costs. Excluding these
charges, operating profit increased 14% in 1997, the result of Six Sigma-based
productivity and volume improvements across the segment, which more than offset
the effects of lower selling prices. Revenues increased 2% in 1996, reflecting
volume increases in Lighting, Electrical Distribution and Control, and
Industrial Control Systems. Operating profit increased 6% as productivity
improvements across the segment more than offset the effects of cost inflation
and lower selling prices for certain products.
Transportation Systems received orders of $2.4 billion in 1997, an increase
of 20% from 1996. The backlog at year-end 1997 was $2.0 billion, an increase of
$0.5 billion from 1996. Of the total, $1.8 billion related to products, about
82% of which was scheduled for shipment in 1998, and the remainder related to
1998 product services.
<PAGE>
F-11
ANNUAL REPORT PAGE 35
SUMMARY OF INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
General Electric Company and consolidated affiliates
--------------------------------------------------------
For the years ended December 31 (In millions) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
GE
Aircraft Engines $ 7,799 $ 6,302 $ 6,098 $ 5,714 $ 6,580
Appliances 6,745 6,375 5,933 5,965 5,555
Broadcasting 5,153 5,232 3,919 3,361 3,102
Industrial Products and Systems 10,954 10,412 10,194 9,406 8,575
Materials 6,695 6,509 6,647 5,681 5,042
Power Generation 7,495 7,257 6,545 5,933 5,530
Technical Products and Services 4,917 4,692 4,424 4,285 4,174
All Other 3,564 3,108 2,707 2,348 1,803
Corporate items and eliminations 1,193 (322) (286) (195) (242)
---------------------------------------------------------
Total GE 54,515 49,565 46,181 42,498 40,119
---------------------------------------------------------
GECS
Financing 31,165 24,554 19,446 15,064 12,454
Specialty Insurance 8,844 8,155 7,042 4,794 4,807
All Other (78) 4 4 17 15
---------------------------------------------------------
Total GECS 39,931 32,713 26,492 19,875 17,276
---------------------------------------------------------
Eliminations (3,606) (3,099) (2,645) (2,264) (1,694)
---------------------------------------------------------
CONSOLIDATED REVENUES $ 90,840 $ 79,179 $ 70,028 $ 60,109 $ 55,701
=============================================================================================================
OPERATING PROFIT <F1>
GE
Aircraft Engines $ 1,051 $ 1,225 $ 1,176 $ 935 $ 798
Appliances 458 750 697 683 372
Broadcasting 1,002 953 738 500 264
Industrial Products and Systems 1,490 1,617 1,519 1,328 901
Materials 1,476 1,466 1,465 967 834
Power Generation 758 1,068 769 1,238 1,024
Technical Products and Services 828 849 801 787 706
All Other 3,558 3,088 2,683 2,309 1,725
---------------------------------------------------------
Total GE 10,621 11,016 9,848 8,747 6,624
---------------------------------------------------------
GECS
Financing 3,736 3,460 3,062 2,671 1,733
Specialty Insurance 1,293 1,238 1,002 580 764
All Other (607) (650) (544) (302) (288)
---------------------------------------------------------
Total GECS 4,422 4,048 3,520 2,949 2,209
--------------------------------------------------------
Eliminations (3,209) (2,795) (2,396) (2,072) (1,554)
---------------------------------------------------------
CONSOLIDATED OPERATING PROFIT 11,834 12,269 10,972 9,624 7,279
GE interest and other financial charges--
net of eliminations (782) (600) (644) (417) (529)
GE items not traceable to segments 127 (863) (591) (546) (614)
---------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND ACCOUNTING CHANGE $ 11,179 $ 10,806 $ 9,737 $ 8,661 $ 6,136
=============================================================================================================
<FN>
<F1> Operating profit for 1997 and 1993 included significant restructuring and other special charges. The 1997
effects for individual segments are discussed on pages 34 and 36.
The notes to consolidated financial statements on pages 47-66 are an integral part of this statement. "GE"
means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means
General Electric Capital Services, Inc. and all of its affiliates and associated companies. Operating profit
of GE segments excludes "Interest and other financial charges"; operating profit of GECS includes "Interest
and other financial charges," which is one of the largest elements of GECS' operating costs. The 1993
accounting change represents adoption of Statement of Financial Accounting Standards (SFAS) No. 112,
EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS.
</FN>
</TABLE>
<PAGE>
F-12
ANNUAL REPORT PAGE 36
MATERIALS revenues grew 3% in 1997, reflecting an increase in volume that was
largely offset by lower selling prices and adverse currency exchange rates.
Operating profit increased by 1%, including restructuring charges amounting to
$63 million for severance costs related to work force reductions and
outsourcing. Excluding such charges, operating profit increased 5%, as Six
Sigma-based productivity and higher volume more than offset lower selling
prices. Materials revenues decreased 2% in 1996 and operating profit was about
the same as the previous year, primarily as a result of lower selling prices.
The adverse effects of lower selling prices on operating profit were offset in
part by reductions in material costs, volume improvements and productivity.
POWER GENERATION revenues were 3% higher than in 1996, reflecting higher volume
in gas turbines and in product services. Operating profit decreased 29% in 1997,
reflecting aggregate charges of $437 million, including $261 million that was
principally a combination of gas turbine warranty costs and costs arising from
renegotiation and resolution of certain disputes. Additionally, $176 million was
recognized for restructuring, covering costs of exiting certain facilities,
including severance benefits, site demolitions and associated write-offs. Absent
such charges, operating profit increased by 12%, the result of strong Six
Sigma-based productivity and higher volume, which more than offset lower selling
prices. Revenues increased 11% in 1996, reflecting primarily strong growth at
Nuovo Pignone and higher product services volume. Operating profit increased 39%
in 1996 as productivity more than offset cost inflation and lower selling
prices.
Power Generation orders were $6.6 billion for 1997, compared with $8.0
billion in 1996. The backlog of unfilled orders at year-end 1997 was $9.8
billion ($10.9 billion at the end of 1996). Of the total, $8.9 billion related
to products, about 41% of which was scheduled for delivery in 1998, and the
remainder related to 1998 product services.
TECHNICAL PRODUCTS AND SERVICES revenues rose 5% in 1997, following a 6%
increase in 1996. Medical Systems reported higher revenues in both years,
reflecting higher equipment volume and continued growth in product services,
partially offset by lower selling prices. Information Services revenues were up
slightly in 1997 and were essentially flat in 1996, as declines in selling
prices offset increased volume in electronic commerce. Operating profit for the
segment decreased 2% in 1997, reflecting aggregate charges of $157 million
principally for severance costs related to work force reductions and facility
closing costs. Excluding such costs, segment operating profit increased 16% as
productivity and higher volume more than offset the effects of lower selling
================================================================================
[CHART HERE]
GECS REVENUES
- --------------------------------------------------------------------------------
(IN BILLIONS) 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
$17.276 $19.875 $26.492 $32.713 $39.931
================================================================================
prices. Operating profit for the segment increased 6% in 1996 as productivity,
growth in services at Medical Systems and volume improvements more than offset
selling price decreases.
Orders received by Medical Systems in 1997 were $4.3 billion, up $0.4 billion
from 1996. The backlog of unfilled orders at year-end 1997 was $2.4 billion,
about the same as at the end of 1996. Of the total, $1.3 billion related to
products, about 91% of which was scheduled for delivery in 1998, and the
remainder related to 1998 product services.
ALL OTHER consists primarily of GECS earnings, which are discussed in the next
section. Also included are revenues derived from licensing the use of GE
technology to others.
GECS OPERATIONS
GECS conducts its operations in two segments -- Financing and Specialty
Insurance. The Financing segment includes the financing and consumer savings and
insurance operations of General Electric Capital Corporation (GE Capital). The
consumer savings and insurance operations, conducted primarily by GE Financial
Assurance Holdings, Inc., provide consumers financial security solutions through
a wide variety of insurance, investment and retirement products, primarily in
the United States. The Specialty Insurance segment includes operations of GE
Global Insurance Holding Corporation (GE Global Insurance), the principal
subsidiary of which is Employers Reinsurance Corporation, and the other
insurance businesses described on page 63.
o GECS total revenues from operations were $39.9 billion in 1997, up 22% from
1996, which was up 23% from 1995. The 1997 increase reflected primarily the
contribution of businesses acquired in 1997 and 1996.
o GECS earnings were $3.3 billion in 1997, up 16% from 1996, which was up 17%
from 1995. The improved operating results for 1997 and 1996 were
attributable to continued asset growth, with business and portfolio
<PAGE>
F-13
ANNUAL REPORT PAGE 37
acquisitions throughout the period and higher origination volume in 1997.
Earnings in 1997 were affected by higher losses associated with the
investment in Montgomery Ward Holding Corp., discussed on page 38, as well
as by increased automobile residual losses. These matters were more than
offset by asset gains, the largest of which was $284 million (net of tax)
from a transaction that included the reduction of the GECS investment in
the common stock of Paine Webber Group Inc. Increased investment income was
the result of ongoing growth in the investment portfolios and a higher
level of gains on investment securities.
o GECS cost of goods sold was associated with the computer equipment
distribution businesses. This cost amounted to $4.1 billion in 1997,
compared with $1.7 billion in 1996 and $0.4 billion in 1995, the result of
acquisition-related growth in 1997 and 1996.
o GECS interest on borrowings in 1997 was $7.6 billion, 4% higher than in
1996, which was 10% higher than in 1995. The increases in 1997 and 1996
were caused by higher average borrowings used to finance asset growth,
partially offset by the effects of lower average interest rates. The
composite interest rate on GECS borrowings was 6.07% in 1997, compared with
6.24% in 1996 and 6.76% in 1995. See page 42 for an analysis of interest
rate sensitivities.
o GECS insurance losses and policyholder and annuity benefits increased to
$8.3 billion during 1997, compared with $6.7 billion in 1996 and $5.3
billion in 1995, primarily because of business acquisitions and growth in
originations throughout the period.
o GECS other costs and expenses increased to $13.9 billion in 1997 from $11.7
billion in 1996 and $9.4 billion in 1995 on increased costs associated with
acquired businesses and portfolios as well as higher investment levels.
GECS INDUSTRY SEGMENT revenues and operating profit for the past five years are
shown in the table on page 35. Revenues from services are detailed in note 3.
FINANCING SEGMENT revenues from operations increased 27% to $31.2 billion in
1997, following a 26% increase in 1996. Significant portions of the revenue
increase arose from the computer equipment distribution businesses acquired
during 1997 and 1996 and from the consumer savings and insurance businesses
acquired during 1996 and 1995. Asset growth contributed to increased revenues in
both years, but was partially offset by lower yields. Financing segment revenues
were negatively affected by higher losses associated with the investment in
Montgomery Ward Holding Corp. That effect was more than offset by gains on asset
transactions, including securitizations.
================================================================================
[CHART HERE]
GECS EARNINGS FROM CONTINUING OPERATIONS
- --------------------------------------------------------------------------------
(IN BILLIONS) 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
$1.567 $2.085 $2.415 $2.817 $3.256
================================================================================
Operating profit was $3.7 billion in 1997, 8% higher than in 1996. As
previously noted, 1997 operating profit included higher losses associated with
the investment in Montgomery Ward Holding Corp. as well as increased automobile
residual losses. These items were more than offset by acquisition and core
growth as well as gains on asset transactions, including securitizations.
Operating profit increased 13% in 1996, primarily because of asset growth.
Financing spreads (the excess of yields over interest rates on borrowings) were
essentially flat in 1997 and 1996 as the reduction in yields was offset by
decreases in borrowing rates. Cost of goods sold associated with the computer
equipment distribution businesses increased significantly in both years,
primarily because of acquisitions. The provision for losses on financing
receivables increased in 1997 on higher average receivable balances as well as
increased delinquencies, consistent with industry experience, in the consumer
portfolio. Higher portfolio growth from originations resulted in higher
provisions in 1995 than in 1996. Insurance losses and policyholder and annuity
benefits associated with the consumer savings and insurance operations increased
during 1997 and 1996 as a result of acquisitions. Other costs and expenses
increased in both years, the result of costs associated with acquired businesses
and portfolios and higher levels of investment.
Financing receivables are the Financing segment's largest asset and its
primary source of revenues. The portfolio of financing receivables, before
allowance for losses, increased to $106.6 billion at the end of 1997 from $102.4
billion at the end of 1996, principally reflecting acquisition growth and
origination volume that were partially offset by securitizations of receivables.
The related allowance for losses at the end of 1997 amounted to $2.8 billion
(2.63% of receivables -- the same as 1996 and 1995) and, in management's
judgment, is appropriate given the risk profile of the portfolio.
<PAGE>
F-14
ANNUAL REPORT PAGE 38
A discussion of the quality of certain elements of the Financing segment
portfolio follows. "Nonearning" receivables are those that are 90 days or more
delinquent (or for which collection has otherwise become doubtful) and
"reduced-earning" receivables are commercial receivables whose terms have been
restructured to a below-market yield. The following discussion of the nonearning
and reduced-earning receivable balances and write-off amounts excludes amounts
related to Montgomery Ward Holding Corp. and affiliates, which are separately
discussed below.
Consumer financing receivables at year-end 1997 and 1996 are shown in the
following table:
----------------------------
(In millions) 1997 1996
- --------------------------------------------------------------------------------
Credit card and personal loans $25,773 $27,127
Auto loans 8,973 5,915
Auto financing leases 13,346 13,113
-----------------------
Total consumer financing receivables $48,092 $46,155
=======================
Nonearning $ 1,049 $ 926
-- As percentage of total 2.2% 2.0%
Receivable write-offs for the year $ 1,298 $ 870
================================================================================
The decrease in credit card and personal loan portfolios primarily resulted
from securitization of receivables, partially offset by portfolio acquisitions
and origination volume. Both the auto loan and financing lease portfolios
increased as a result of acquisition growth; however, the increase in auto
financing leases was partially offset by a shift in U.S. lease volume from
financing leases to operating leases. Nonearning receivables did not change
significantly during 1997. A substantial amount of the nonearning consumer
receivables were U.S. private-label credit card loans that were subject to
various loss-sharing agreements that provide full or partial recourse to the
originating retailer. Increased write-offs of consumer receivables were
primarily attributable to the impact of higher delinquencies and personal
bankruptcies on the credit card loan portfolios in the United States, consistent
with overall industry experience, as well as higher average receivable balances
worldwide.
Other financing receivables, totaling $58.5 billion at December 31, 1997,
consisted of a diverse commercial, industrial and equipment loan and lease
portfolio. This portfolio increased $2.3 billion during 1997, primarily because
of increased origination volume, partially offset by sales of receivables.
Related nonearning and reduced-earning receivables were $353 million at year-end
1997, compared with $471 million at year-end 1996.
As discussed in note 13, Montgomery Ward Holding Corp. (MWHC) filed a
bankruptcy petition for reorganization in 1997. GECS' share of the losses of
MWHC and affiliates in 1997 was $380 million (after tax). The GECS investment in
MWHC and affiliates at December 31, 1997, was $795 million ($617 million
classified as financing receivables). Income recognition had been suspended on
these pre-bankruptcy investments. Subsequent to the petition, GECS committed to
provide MWHC up to $1.0 billion in debtor-in-possession financing, subject to
certain conditions, in order to fund working capital requirements and general
corporate expenses. A majority of this facility has been syndicated; total
borrowings under this facility at December 31, 1997, were insignificant.
GECS loans and leases to commercial airlines amounted to $9.0 billion at the
end of 1997, up from $8.2 billion at the end of 1996. GECS commercial aircraft
positions also included financial guarantees, funding commitments and aircraft
orders as discussed in note 17.
SPECIALTY INSURANCE SEGMENT revenues from operations were $8.8 billion in 1997,
an increase of 8% from 1996, which increased 16% over 1995. The increase in 1997
resulted from increased premium and investment income associated with
origination volume, acquisitions and continued growth in the investment
portfolios, as well as a higher level of gains on investment securities. GE
Global Insurance net premiums earned on U.S. business increased in 1997 -- the
result of strong growth in the life reinsurance business -- while net premiums
earned on European business declined, reflecting the effects of currency
translation and market conditions. The increase in 1996 resulted primarily from
inclusion of a full year's results for the European property and casualty
reinsurance businesses acquired in 1995. GE Global Insurance net premiums earned
on U.S. business declined in 1996 on lower industry-wide pricing and the exit of
certain unprofitable reinsurance contracts. Revenues from the other insurance
businesses of GECS increased during 1997 and 1996 as a result of both
origination volume and acquisitions.
Specialty Insurance operating profit increased 4% to $1.3 billion in 1997
from $1.2 billion in 1996. The increase in 1997 primarily reflected higher
investment income, the result of continued growth in investment portfolios and
higher gains on investment securities, as well as improved earnings in the
mortgage insurance business, the result of improved market conditions. Higher
insurance losses, reserves and other costs and expenses partially offset these
increases. Operating profit increased 24% in 1996 as the year included a full
year's results of the European reinsurance acquisitions: higher premium and
investment income, partially offset by increases in insurance losses and other
costs and expenses.
<PAGE>
F-15
ANNUAL REPORT PAGE 39
INTERNATIONAL OPERATIONS
Estimated results of international operations include all exports from the
United States, plus the results of GE and GECS operations located outside the
United States. Certain GECS operations that cannot meaningfully be associated
with specific geographic areas were classified as "other international" for this
purpose.
International revenues in 1997 were $38.5 billion (42% of consolidated
revenues), compared with $33.3 billion in 1996 and $28.2 billion in 1995. In
1997, about 48% of GE's revenues were international, which was about 2% higher
than in 1996 and 1995. The chart below left depicts the growth in international
revenues in relation to total revenues over the past five years.
International operating profit was $4.8 billion (41% of consolidated
operating profit) in 1997, compared with $4.0 billion in 1996 and $3.2 billion
in 1995.
GE international revenues were $24.8 billion in 1997, an increase of 14% from
1996, reflecting sales growth in operations based outside the United States and
in U.S. exports. European revenues were 10% higher in 1997, reflecting increases
in both local operations and in exports to the region, with particularly strong
growth at Aircraft Engines. Pacific Basin revenues increased by 2% in 1997,
reflecting primarily increased revenues from local operations, led by Plastics
and Lighting. Revenues from the Americas increased 37%, primarily as a result of
strong growth in local operations, particularly at Appliances and Aircraft
Engines, and increased exports.
GECS international revenues were $13.7 billion in 1997, an increase of 18%
from $11.6 billion in 1996, while international assets grew 21% from $65.3
billion at December 31, 1996, to $79.2 billion at the end of 1997. This revenue
and asset growth occurred primarily in Europe and, to a lesser extent, in Canada
and the Pacific Basin. These increases were attributable to continued expansion
of GECS as a global provider of a wide range of services.
Financial results reported in U.S. dollars are affected by currency exchange.
A number of techniques are used to manage the effects of currency exchange,
including selective borrowings in local currencies and selective hedging of
significant cross-currency transactions. International activity is diverse, as
shown in the international revenues chart at the bottom right of this page.
Principal currencies include major European currencies as well as the Japanese
yen and the Canadian dollar.
GE's total exports from the United States follow.
- --------------------------------------------------------------------------------
GE'S TOTAL EXPORTS FROM THE UNITED STATES
----------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Pacific Basin $ 3,176 $ 3,180 $ 3,397
Europe 2,423 2,060 1,701
Americas 1,553 1,257 1,023
Other 1,641 1,025 964
----------------------------------
Exports to external customers 8,793 7,522 7,085
Exports to affiliates 2,471 2,292 2,123
----------------------------------
Total exports $11,264 $ 9,814 $ 9,208
================================================================================
GE made a positive 1997 contribution of approximately $6.3 billion to the
U.S. balance of trade. Total exports in 1997 were $11.3 billion, direct imports
from external suppliers were $3.0 billion and imports from GE affiliates were
$2.0 billion.
================================================================================
[CHART HERE]
CONSOLIDATED REVENUES
- --------------------------------------------------------------------------------
(IN BILLIONS) 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
UNITED STATES $36.447 $39.149 $41.780 45.886 $52.513
INTERNATIONAL 19.254 20.960 28.248 33.293 38.527
================================================================================
[CHART HERE]
CONSOLIDATED INTERNATIONAL REVENUES
- --------------------------------------------------------------------------------
(IN BILLIONS) 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
EUROPE $9.037 $8.994 $13.993 $18.024 $20.589
PACIFIC BASIN 4.474 5.922 7.122 7.523 7.918
AMERICAS 3.073 3.437 4.105 4.700 6.185
OTHER 2.670 2.607 3.028 3.046 3.835
================================================================================
<PAGE>
F-16
ANNUAL REPORT PAGE 40
MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY
OVERVIEW
This discussion of financial resources and liquidity focuses on the Statement of
Financial Position (page 28) and the Statement of Cash Flows (page 30).
Throughout the discussion, it is important to understand the differences
between the businesses of GE and GECS. Although manufacturing and services
activities involve a variety of GE businesses, their underlying characteristics
are development, preparation for market and delivery of tangible goods and
services. Risks and rewards are directly related to the ability to manage and
finance those activities.
The principal businesses of GECS provide financing, asset management,
consumer savings and insurance, and other insurance and services to third
parties. The underlying characteristics of most of these businesses involve the
management of financial risk. Risks and rewards stem from the abilities of its
businesses to continue to design and provide a wide range of services in a
competitive marketplace and to receive adequate compensation for such services.
GECS is not a "captive finance company" or a vehicle for "off-balance-sheet
financing" for GE; a small portion of GECS business is directly related to other
GE operations.
Despite the different business profiles of GE and GECS, the global commercial
airline industry is one significant example of an important source of business
for both. GE assumes financing positions primarily in support of engine sales,
whereas GECS is a significant source of lease and loan financing for the
industry (see details in note 17). Management believes that these financing
positions are reasonably protected by collateral values and by its ability to
control assets, either by ownership or security interests.
The fundamental differences between GE and GECS are reflected in the
measurements commonly used by investors, rating agencies and financial analysts.
These differences will become clearer in the discussion that follows with
respect to the more significant items in the financial statements.
YEAR 2000 compliance programs and information systems modifications have been
initiated in an attempt to ensure that these systems and key processes will
remain functional. This objective is expected to be achieved either by modifying
present systems using existing internal and external programming resources or by
installing new systems, including enterprise systems, and by monitoring supplier
and other third-party interfaces. While there can be no assurance that all such
modifications will be successful, management does not expect that either costs
of modifications or consequences of any unsuccessful modifications should have a
material adverse effect on the financial position, results of operations or
liquidity of GE or GECS.
================================================================================
[CHART HERE]
GE ANNUAL INTERNAL WORKING CAPITAL TURNOVER
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
5.070 5.750 5.560 6.300 7.420
================================================================================
STATEMENT OF FINANCIAL POSITION
INVESTMENT SECURITIES for each of the past two years comprised mainly
investment-grade debt securities held by the specialty insurance and annuity and
investment businesses of GECS in support of obligations to policyholders and
annuitants. GE investment securities were $265 million at year-end 1997, up $248
million over 1996. The increase in 1997 primarily reflected an equity security
acquired as part of the Lockheed Martin transaction discussed previously. The
increase of $10.5 billion at GECS during 1997 was principally related to
acquisitions and increases in fair value as well as investment of premiums
received. A breakdown of the investment securities portfolio is provided in note
10.
GE CURRENT RECEIVABLES were $9.1 billion at the end of 1997, an increase of
$0.2 billion from year-end 1996, and included $6.1 billion due from customers at
the end of 1997, which was $0.5 billion lower than the amount due at the end of
1996. As a measure of asset management, customer receivables turnover was 7.7 in
1997, compared with 6.8 in 1996. Other current receivables are primarily amounts
that did not originate from sales of GE goods or services, such as advances to
suppliers in connection with large contracts.
GE INVENTORIEs were $5.1 billion at December 31, 1997, up $0.6 billion from the
end of 1996. Inventory turnover improved to 7.8 in 1997, compared with 7.6 in
1996, reflecting continuing improvements in inventory management. Last-in,
first-out (LIFO) revaluations decreased $119 million in 1997, compared with
decreases of $128 million in 1996 and $87 million in 1995. Included in these
changes were decreases of $59 million, $58 million and $88 million in 1997, 1996
and 1995, respectively, that resulted from lower LIFO inventory levels. There
were net cost decreases in 1997 and 1996, and no cost change in 1995.
<PAGE>
F-17
ANNUAL REPORT PAGE 41
Customer receivables and inventories (at FIFO) are two key components of GE's
internal working capital measurement. Internal working capital turnover
increased as shown in the chart on the facing page: from 5.6 turns in 1995 to
6.3 and 7.4 turns in 1996 and 1997, respectively. Internal working capital also
includes trade accounts payable and progress collections.
GECS INVENTORIES were $786 million and $376 million at December 31, 1997 and
1996, respectively. The increase in 1997 primarily reflected acquisitions in the
computer equipment distribution businesses.
GECS FINANCING RECEIVABLES were $103.8 billion at year-end 1997, net of
allowance for doubtful accounts, up $4.1 billion over 1996. These receivables
are discussed on pages 37 and 38 and in notes 7 and 13.
GECS OTHER RECEIVABLES were $18.3 billion and $16.0 billion at December 31, 1997
and 1996, respectively. Of the 1997 increase, $1.2 billion was attributable to
acquisitions and the remainder resulted from core growth.
PROPERTY, PLANT AND EQUIPMENT (including equipment leased to others) was $32.3
billion at December 31, 1997, up $3.5 billion from 1996. GE property, plant and
equipment consists of investments for its own productive use, whereas the
largest element for GECS is in equipment provided to third parties on operating
leases. Details by category of investment can be found in note 15.
GE total expenditures for new plant and equipment during 1997 totaled $2.2
billion, down $0.2 billion from 1996. Total expenditures for the past five years
were $9.7 billion, of which 38% was investment for growth through new capacity
and product development; 33% was investment in productivity through new
equipment and process improvements; and 29% was investment for such other
purposes as improvement of research and development facilities and safety and
environmental protection.
GECS additions to equipment leased to others, including business
acquisitions, were $6.8 billion during 1997 ($5.3 billion during 1996),
principally reflecting a shift in auto lease volume from financing leases to
operating leases and increased acquisitions of new aircraft.
INTANGIBLE ASSETS were $19.1 billion at year-end 1997, up from $16.0 billion at
year-end 1996. GE intangibles increased to $8.8 billion from $7.4 billion at the
end of 1996, principally as a result of goodwill related to the purchase of
Greenwich Air Services/UNC and a number of smaller acquisitions. The $1.7
billion increase in GECS intangibles also related primarily to goodwill from
acquisitions.
ALL OTHER ASSETS totaled $39.8 billion at year-end 1997, an increase of $5.0
billion from the end of 1996. GE other assets increased $1.6 billion,
principally reflecting consideration received in exchange for GE's investment in
Lockheed Martin preferred stock and an increase in the prepaid pension asset. In
connection with the exchange transaction, a portion of such consideration was
subsequently loaned to Lockheed Martin. The increase in GECS other assets of
$4.0 billion related principally to increases in assets acquired for resale,
primarily residential mortgages, and increased "separate accounts," which are
investments controlled by policyholders and are associated with identical
amounts reported as insurance liabilities.
INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $67.3 billion, $5.9
billion higher than in 1996. The increase was primarily attributable to
acquisitions in 1997 and the increase in separate accounts. For additional
information on these liabilities, see note 20.
CONSOLIDATED BORROWINGS aggregated $144.7 billion at December 31, 1997, compared
with $129.4 billion at the end of 1996. The major debt-rating agencies evaluate
the financial condition of GE and of GE Capital (the major public borrowing
entity of GECS) differently because of their distinct business characteristics.
Using criteria appropriate to each and considering their combined strength,
those major rating agencies continue to give the highest ratings to debt of both
GE and GE Capital.
GE has committed to contribute capital to GE Capital in the event of either a
decrease below a specified level in the ratio of GE Capital's earnings to fixed
charges, or a failure to maintain a specified debt-to-equity ratio in the event
certain GE Capital preferred stock is redeemed. GE also has guaranteed
subordinated debt of GECS with a face amount of $1.0 billion at December 31,
1997 and 1996. Management believes the likelihood that GE will be required to
contribute capital under either the commitments or the guarantees is remote.
================================================================================
[CHART HERE]
GE CASH FLOWS FROM OPERATING ACTIVITIES
- --------------------------------------------------------------------------------
(IN BILLIONS) 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
$5.201 $6.071 $6.065 $9.067 $9.317
================================================================================
<PAGE>
F-18
ANNUAL REPORT PAGE 42
GE total borrowings were $4.4 billion at year-end 1997 ($3.6 billion
short-term, $0.8 billion long-term), an increase of about $0.3 billion from
year-end 1996. GE total debt at the end of 1997 equaled 11.1% of total capital,
down from 11.4% at the end of 1996.
GECS total borrowings were $141.3 billion at December 31, 1997, of which
$95.3 billion is due in 1998 and $46.0 billion is due in subsequent years.
Comparable amounts at the end of 1996 were $125.6 billion total, $77.9 billion
due within one year and $47.7 billion due thereafter. A large portion of GECS
borrowings ($71.2 billion and $54.2 billion at the end of 1997 and 1996,
respectively) was issued in active commercial paper markets that management
believes will continue to be a reliable source of short-term financing. Most of
this commercial paper was issued by GE Capital. The average remaining terms and
interest rates of GE Capital commercial paper were 44 days and 5.83% at the end
of 1997, compared with 42 days and 5.58% at the end of 1996. GE Capital leverage
(ratio of debt to equity, excluding from equity net unrealized gains on
investment securities) was 7.94 to 1 at the end of 1997 and 7.92 to 1 at the end
of 1996. By comparison, including in equity net unrealized gains on investment
securities, the GE Capital ratio of debt to equity was 7.45 to 1 at the end of
1997 and 7.84 to 1 at the end of 1996.
INTEREST RATE AND CURRENCY RISK MANAGEMENT
In normal operations, both GE and GECS must deal with effects of changes in
interest rates and currency exchange rates. The following discussion presents an
overview of how such changes are managed, a view of their potential effects,
and, finally, what considerations arise from recent developments in Asia.
GE and GECS use various financial instruments, particularly interest rate and
currency swaps, but also futures, options and currency forwards, to manage their
respective interest rate and currency risks. GE and GECS are exclusively end
users of these instruments, which are commonly referred to as derivatives;
neither GE nor GECS engages in trading, market-making or other speculative
activities in the derivatives markets. Established practices require that
derivative financial instruments relate to specific asset, liability or equity
transactions or to currency exposures. More detailed information about these
financial instruments, as well as the strategies and policies for their use, is
provided in notes 1, 19 and 30.
The Securities and Exchange Commission requires that registrants include
information about potential effects of changes in interest rates and currency
exchange in their financial statements. Although the rules offer alternatives
================================================================================
[CHART HERE]
GE CUMULATIVE CASH FLOWS
- --------------------------------------------------------------------------------
(IN BILLIONS) 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
CASH FLOWS FROM
OPERATING
ACTIVITIES $5.201 $11.272 $17.337 $26.404 $35.721
DIVIDENDS PAID 2.153 4.615 7.385 10.435 13.846
SHARES REPURCHASED 0.707 1.780 4.882 8.148 11.640
================================================================================
for presenting this information, none of the alternatives is without
limitations. The following discussion is based on so-called "shock tests," which
model effects of interest rate and currency shifts on the reporting company.
Shock tests, while probably the most meaningful analysis permitted, are
constrained by several factors, including the necessity to conduct the analysis
based on a single point in time and by their inability to include the
extraordinarily complex market reactions that normally would arise from the
market shifts modeled. While the following results of shock tests for interest
rates and currencies may have some limited use as benchmarks, they should not be
viewed as forecasts.
o One means of assessing exposure to interest rate changes is a
duration-based analysis that measures the potential loss in net earnings
resulting from a hypothetical increase in interest rates of 100 basis
points across all maturities (sometimes referred to as a "parallel shift in
the yield curve"). Under this model, it is estimated that, all else
constant, such an increase, including repricing effects in the securities
portfolio, would reduce the 1998 net earnings of GECS based on year-end
1997 positions by approximately $112 million; the pro forma effect for GE
was insignificant.
o One means of assessing exposure to changes in currency exchange rates is to
model effects on reported earnings using a sensitivity analysis. Year-end
1997 consolidated currency exposures, including financial instruments
designated and effective as hedges, were analyzed to identify GE and GECS
assets and liabilities denominated in other than their relevant functional
currency. Net unhedged exposures in each currency were then remeasured
assuming a 10% decrease (substantially greater decreases for
hyperinflationary currencies) in currency exchange rates compared with the
U.S. dollar. Under this model, it is estimated that, all else constant,
such a decrease would reduce the 1998 net earnings of GE based on year-end
1997 positions by approximately $10 million; the pro forma effect for GECS
was insignificant.
<PAGE>
F-19
ANNUAL REPORT PAGE 43
Recent economic developments in parts of Asia have altered somewhat the risks
and opportunities of the GE and GECS activities in affected economies. These
activities encompass primarily manufacturing for local and export markets,
import and sale of products produced outside the area, leasing of aircraft,
sourcing for GE plants domiciled in other global regions and providing certain
financial services within those Asian economies. As such, exposure exists to,
among other things, increased receivables delinquencies and potential bad debts,
delays in sales and orders principally related to power and aircraft-related
equipment, and a slowdown in financial services activities. Conversely, costs of
sourced goods may decline and new sourcing opportunities may arise, sales of
products such as plastics to now more-competitive Asian manufacturers of
products destined for export should remain strong and liberalization of
financial regulations opens new opportunities to penetrate Asian financial
services markets. Taken as a whole, while this situation bears close monitoring
and increased management attention, the current situation is not expected to
have a material adverse effect on the financial position, results of operations
or liquidity of GE or GECS in 1998.
STATEMENT OF CASH FLOWS
Because cash management activities of GE and GECS are separate and distinct, it
is more useful to review their cash flows separately.
GE
GE cash and equivalents aggregated $1.2 billion at the end of 1997, an increase
of $0.2 billion from 1996. During 1997, GE generated a record $9.3 billion in
cash from operating activities, an increase of $0.2 billion over 1996,
principally as a result of improvements in earnings, working capital and higher
dividends from GECS. The 1997 cash generation provided most of the resources
needed to repurchase $3.5 billion of GE common stock under the share repurchase
program, to pay $3.4 billion in dividends to share owners, to invest $2.2
billion in new plant and equipment and to make $1.4 billion in acquisitions.
Operating activities are the principal source of GE's cash flows. Over the
past three years, operating activities have provided more than $24 billion of
cash. The principal application of this cash was distributions of more than $19
billion to share owners, both through payment of dividends ($9.2 billion) and
through the share repurchase program ($9.9 billion) described below. Other
applications included investment in new plant and equipment ($6.4 billion) and
acquisitions ($2.8 billion).
In December 1997, the GE Board of Directors increased the authorization to
repurchase common stock to $17 billion and authorized the program to continue
through 1999. Funds used for the share repurchase are expected to be generated
largely from free cash flow.
Based on past performance and current expectations, in combination with the
financial flexibility that comes with a strong balance sheet and the highest
credit ratings, management believes that GE is in a sound position to complete
the share repurchase program, to grow dividends in line with earnings, and to
continue making selective investments for long-term growth. Expenditures for new
plant and equipment are expected to be about $2.0 billion in 1998, principally
for productivity and growth. The expected level of expenditures was moderated by
the Six Sigma quality program's success in freeing capacity.
GECS
One of the primary sources of cash for GECS is financing activities involving
the continued rollover of short-term borrowings and appropriate addition of
borrowings with a reasonable balance of maturities. Over the past three years,
GECS borrowings with maturities of 90 days or less have increased by $20.1
billion. New borrowings of $80.5 billion having maturities longer than 90 days
were added during those years, while $64.5 billion of such longer-term
borrowings were retired. GECS also generated $26.1 billion from continuing
operating activities.
The principal use of cash by GECS has been investing in assets to grow its
businesses. Of the $55.9 billion that GECS invested over the past three years,
$15.5 billion was used for additions to financing receivables; $16.2 billion was
used to invest in new equipment, principally for lease to others; and $13.6
billion was used for acquisitions of new businesses.
With the financial flexibility that comes with excellent credit ratings,
management believes that GECS should be well positioned to meet the global needs
of its customers for capital and to continue providing GE share owners with good
returns.
<PAGE>
F-20
ANNUAL REPORT PAGE 44
MANAGEMENT'S DISCUSSION OF SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA summarizes on the opposite page some data frequently
requested about General Electric Company. The data are divided into three
sections: upper portion -- consolidated data; middle portion -- GE data that
reflect various conventional measurements for industrial enterprises; and lower
portion -- GECS data that reflect key information pertinent to financial
services businesses.
GE'S TOTAL RESEARCH AND DEVELOPMENT expenditures were $1,891 million in 1997,
about the same as in 1996 and 1995. In 1997, expenditures from GE's own funds
were $1,480 million, an increase of 4% over 1996, reflecting continuing research
and development work related to new product, service and process technologies.
Product technology efforts in 1997 included continuing development work on the
next generation of gas turbines, further advances in state-of-the-art diagnostic
imaging technologies, and development of more fuel-efficient, cost-effective
aircraft engine designs. New services technologies include advances in
diagnostic applications, including remote diagnostic capabilities related to
repair and maintenance of medical equipment, aircraft engines, power generation
equipment and locomotives. New process technologies -- vital to Six Sigma
quality programs -- provided improved product quality and performance and
increased capacity for manufacturing engineered materials. Expenditures from
funds provided by customers (mainly the U.S. government) were $411 million in
1997, down $54 million from 1996, primarily reflecting transition of the F414
program at Aircraft Engines from development to production.
GE'S TOTAL BACKLOG of firm unfilled orders at the end of 1997 was $26.4 billion,
compared with $26.2 billion at the end of 1996. Of the total, $22.0 billion
related to products, about 55% of which was scheduled for delivery in 1998.
Services orders are included in backlog for only the succeeding 12 months; such
backlog at the end of 1997 was $4.4 billion. Orders constituting this backlog
may be canceled or deferred by customers, subject in certain cases to
cancellation penalties. See Industry Segments beginning on page 34 for further
discussion on unfilled orders of relatively long-cycle manufacturing businesses.
REGARDING ENVIRONMENTAL MATTERS, GE's operations, like operations of other
companies engaged in similar businesses, involve the use, disposal and cleanup
of substances regulated under environmental protection laws.
In 1997, GE expended about $80 million for capital projects related to the
environment. The comparable amount in 1996 was $87 million. These amounts
exclude expenditures for remediation actions, which are principally expensed and
are discussed below. Capital expenditures for environmental purposes have
included pollution control devices -- such as wastewater treatment plants,
groundwater monitoring devices, air strippers or separators, and incinerators --
at new and existing facilities constructed or upgraded in the normal course of
business. Consistent with policies stressing environmental responsibility,
average annual capital expenditures other than for remediation projects are
presently expected to be about $85 million over the next two years. This level
is in line with existing levels for new or expanded programs to build facilities
or modify manufacturing processes to minimize waste and reduce emissions.
GE also is involved in a sizable number of remediation actions to clean up
hazardous wastes as required by federal and state laws. Such statutes require
that responsible parties fund remediation actions regardless of fault, legality
of original disposal or ownership of a disposal site. Expenditures for site
remediation actions amounted to approximately $84 million in 1997, compared with
$76 million in 1996. It is presently expected that remediation actions will
require average annual expenditures in the range of $80 million to $140 million
over the next two years.
================================================================================
[CHART HERE]
YEAR-END MARKET CAPITALIZATION
- --------------------------------------------------------------------------------
(IN BILLIONS) 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
$89.527 $87.004 $119.989 $162.604 $239.539
================================================================================
[CHART HERE]
GE SHARE PRICE ACTIVITY
- --------------------------------------------------------------------------------
(IN DOLLARS) 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
HIGH $26.7500 $27.4375 $36.5625 $53.0625 76.5627
LOW 20.1875 22.5000 24.9375 34.7500 47.9375
CLOSE 26.2500 25.5000 36.0000 49.4375 73.3750
================================================================================
<PAGE>
F-21
ANNUAL REPORT PAGE 45
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollar amounts in millions; ---------------------------------------------------------------------------
per-share amounts in dollars) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
Revenues $ 90,840 $ 79,179 $ 70,028 $ 60,109 $ 55,701
Earnings from continuing operations 8,203 7,280 6,573 5,915 4,184
Earnings (loss) from discontinued operations -- -- -- (1,189) 993
Effect of accounting change -- -- -- -- (862)
Net earnings 8,203 7,280 6,573 4,726 4,315
Dividends declared 3,535 3,138 2,838 2,546 2,229
Earned on average share owners' equity 25.0% 24.0% 23.5% 18.1% 17.5%
Per share
Earnings from continuing operations -- basic $ 2.50 $ 2.20 $ 1.95 $ 1.73 $ 1.22
Earnings (loss) from discontinued operations -- -- -- (0.35) 0.29
Effect of accounting change -- -- -- -- (0.25)
Net earnings -- basic 2.50 2.20 1.95 1.38 1.26
Net earnings -- diluted 2.46 2.16 1.93 1.37 1.25
Dividends declared 1.08 0.95 0.845 0.745 0.6525
Stock price range 76 9/16- 53 1/16- 36 9/16- 27 7/16- 26 3/4-
47 15/16 34 3/4 24 15/16 22 1/2 20 3/16
Total assets of continuing operations 304,012 272,402 228,035 185,871 166,413
Long-term borrowings 46,603 49,246 51,027 36,979 28,194
Shares outstanding-- average (in thousands) 3,274,692 3,307,394 3,367,624 3,417,476 3,415,958
Share owner accounts-- average 509,000 486,000 460,000 458,000 464,000
Employees at year end
United States 165,000 155,000 150,000 156,000 157,000
Other countries 111,000 84,000 72,000 60,000 59,000
Discontinued operations (primarily U.S.) -- -- -- 5,000 6,000
---------------------------------------------------------------------------
Total employees 276,000 239,000 222,000 221,000 222,000
==================================================================================================================================
GE DATA
Short-term borrowings $ 3,629 $ 2,339 $ 1,666 $ 906 $ 2,391
Long-term borrowings 729 1,710 2,277 2,699 2,413
Minority interest 569 477 434 382 355
Share owners' equity 34,438 31,125 29,609 26,387 25,824
---------------------------------------------------------------------------
Total capital invested $ 39,365 $ 35,651 $ 33,986 $ 30,374 $ 30,983
===========================================================================
Return on average total capital invested 23.6% 22.2% 21.3% 15.9% 15.2%
Borrowings as a percentage of total capital
invested 11.1% 11.4% 11.6% 11.9% 15.5%
Working capital $ (4,881) $ (2,147) $ 204 $ 544 $ (419)
Additions to property, plant and equipment 2,191 2,389 1,831 1,743 1,588
==================================================================================================================================
GECS DATA
Revenues $ 39,931 $ 32,713 $ 26,492 $ 19,875 $ 17,276
Earnings from continuing operations 3,256 2,817 2,415 2,085 1,567
Earnings (loss) from discontinued operations -- -- -- (1,189) 240
Net earnings 3,256 2,817 2,415 896 1,807
Share owner's equity 17,239 14,276 12,774 9,380 10,809
Minority interest 3,113 2,530 2,522 1,465 1,301
Borrowings from others 141,263 125,621 111,598 91,399 81,052
Ratio of debt to equity at GE Capital <F1> 7.94:1 7.92:1 7.89:1 7.94:1 7.96:1
Total assets of GE Capital $ 228,777 $ 200,816 $ 160,825 $ 130,904 $ 117,939
Reserve coverage on financing receivables 2.63% 2.63% 2.63% 2.63% 2.63%
Insurance premiums written $ 9,396 $ 8,185 $ 6,158 $ 3,962 $ 3,956
==================================================================================================================================
<FN>
<F1> Equity excludes net unrealized gains/losses on investment securities.
Discontinued operations reflect the results of Kidder, Peabody, the discontinued
GECS securities broker-dealer, in 1994 and 1993, and the results of discontinued
GE Aerospace businesses in 1993. The 1993 accounting change represents the
adoption of SFAS No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS.
"GE" means the basis of consolidation as described in note 1 to the consolidated
financial statements; "GECS" means General Electric Capital Services, Inc. and
all of its affiliates and associated companies. Transactions between GE and GECS
have been eliminated from the consolidated information. Share data and per-share
amounts have been adjusted to reflect the 2-for-1 stock split effective on April
28, 1997.
</FN>
</TABLE>
<PAGE>
F-22
ANNUAL REPORT PAGE 46
MANAGEMENT'S DISCUSSION OF FINANCIAL RESPONSIBILITY
The financial data in this report, including the audited financial statements,
have been prepared by management using the best available information and
applying judgment. Accounting principles used in preparing the financial
statements are those that are generally accepted in the United States.
Management believes that a sound, dynamic system of internal financial
controls that balances benefits and costs provides a vital ingredient for the
Company's Six Sigma quality program as well as the best safeguard for Company
assets. Professional financial managers are responsible for implementing and
overseeing the financial control system, reporting on management's stewardship
of the assets entrusted to it by share owners and maintaining accurate records.
GE is dedicated to the highest standards of integrity, ethics and social
responsibility. This dedication is reflected in written policy statements
covering, among other subjects, environmental protection, potentially
conflicting outside interests of employees, compliance with antitrust laws,
proper business practices, and adherence to the highest standards of conduct and
practices in transactions with the U.S. government. Management continually
emphasizes to all employees that even the appearance of impropriety can erode
public confidence in the Company. Ongoing education and communication programs
and review activities, such as those conducted by the Company's Policy
Compliance Review Board, are designed to create a strong compliance culture --
one that encourages employees to raise their policy questions and concerns and
that prohibits retribution for doing so.
KPMG Peat Marwick LLP provide an objective, independent review of
management's discharge of its obligations relating to the fairness of reporting
operating results and financial condition. Their report for 1997 appears below.
The Audit Committee of the Board (consisting solely of Directors from outside
GE) maintains an ongoing appraisal -- on behalf of share owners -- of the
activities and independence of the Company's independent auditors, the
activities of its internal audit staff, financial reporting process, internal
financial controls and compliance with key Company policies.
John F. Welch, Jr. Dennis D. Dammerman
Chairman of the Board and Senior Vice President, Finance, and
Chief Executive Officer Chief Financial Officer
February 13, 1998
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO SHARE OWNERS AND BOARD OF DIRECTORS OF
GENERAL ELECTRIC COMPANY
We have audited the financial statements of General Electric Company and
consolidated affiliates as listed in Item 14 (a)1 on page 19. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in Item 14 (a)2 on page 19. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of General Electric Company and
consolidated affiliates at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Stamford, Connecticut
February 13, 1998
<PAGE>
F-23
ANNUAL REPORT PAGE 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The consolidated financial statements represent the adding
together of all affiliates -- companies that General Electric directly or
indirectly controls. Results of associated companies -- generally companies that
are 20% to 50% owned and over which GE, directly or indirectly, has significant
influence -- are included in the financial statements on a "one-line" basis.
FINANCIAL STATEMENT PRESENTATION. Financial data and related measurements are
presented in the following categories.
o GE. This represents the adding together of all affiliates other than
General Electric Capital Services, Inc. (GECS), whose operations are
presented on a one-line basis.
o GECS. This affiliate owns all of the common stock of General Electric
Capital Corporation (GE Capital) and GE Global Insurance Holding
Corporation (GE Global Insurance). GE Capital, GE Global Insurance and
their respective affiliates are consolidated in the GECS columns and
constitute its business.
o Consolidated. These data represent the adding together of GE and GECS.
The effects of transactions among related companies within and between each of
the above-mentioned groups are eliminated. Transactions between GE and GECS are
not material.
Certain prior-year amounts have been reclassified to conform to the 1997
presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and related disclosures. Actual results could differ
from those estimates.
SALES OF GOODS AND SERVICES. A sale is recorded when title passes to the
customer or when services are performed in accordance with contracts.
GECS REVENUES FROM SERVICES (EARNED INCOME). Income on all loans is recognized
on the interest method. Accrual of interest income is suspended at the earlier
of the time at which collection of an account becomes doubtful or the account
becomes 90 days delinquent. Interest income on impaired loans is recognized
either as cash is collected or on a cost-recovery basis as conditions warrant.
Financing lease income is recorded on the interest method so as to produce a
level yield on funds not yet recovered. Estimated unguaranteed residual values
of leased assets are based primarily on periodic independent appraisals of the
values of leased assets remaining at expiration of the lease terms.
Operating lease income is recognized on a straight-line basis over the terms
of underlying leases.
Origination, commitment and other nonrefundable fees related to fundings are
deferred and recorded in earned income on the interest method. Commitment fees
related to loans not expected to be funded and line-of-credit fees are deferred
and recorded in earned income on a straight-line basis over the period to which
the fees relate. Syndication fees are recorded in earned income at the time
related services are performed unless significant contingencies exist.
Premium income from insurance activities is discussed under GECS insurance
accounting policies on page 48.
DEPRECIATION AND AMORTIZATION. The cost of most of GE's manufacturing plant and
equipment is depreciated using an accelerated method based primarily on a
sum-of-the-years digits formula.
The cost of GECS equipment leased to others on operating leases is amortized,
principally on a straight-line basis, to estimated net salvage value over the
lease term or over the estimated economic life of the equipment. Depreciation of
property and equipment used by GECS is recorded on either a sum-of-the-years
digits formula or a straight-line basis over the lives of the assets.
RECOGNITION OF LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS. GECS maintains
an allowance for losses on financing receivables at an amount that it believes
is sufficient to provide adequate protection against future losses in the
portfolio.
When collateral is repossessed in satisfaction of a loan, the receivable is
written down against the allowance for losses to estimated fair value less costs
to sell, transferred to other assets and subsequently carried at the lower of
cost or estimated fair value less costs to sell. This accounting method has been
employed principally for specialized financing transactions.
CASH AND EQUIVALENTS. Marketable securities with original maturities of three
months or less are included in cash equivalents unless designated as available
for sale and classified as investment securities.
INVESTMENT SECURITIES. Investments in debt and marketable equity securities are
reported at fair value. Substantially all investment securities are designated
as available for sale, with unrealized gains and losses included in equity, net
of applicable taxes and other adjustments. Unrealized losses that are other than
temporary are recognized in earnings. Realized gains and losses are accounted
for on the specific identification method.
<PAGE>
F-24
ANNUAL REPORT PAGE 48
INVENTORIES. All inventories are stated at the lower of cost or realizable
values. Cost for virtually all of GE's U.S. inventories is determined on a
last-in, first-out (LIFO) basis. Cost of other GE inventories is primarily
determined on a first-in, first-out (FIFO) basis.
GECS inventories consist primarily of finished products held for sale. Cost
is primarily determined on a FIFO basis.
INTANGIBLE ASSETS. Goodwill is amortized over its estimated period of benefit on
a straight-line basis; other intangible assets are amortized on appropriate
bases over their estimated lives. No amortization period exceeds 40 years.
Goodwill in excess of associated expected operating cash flows is considered to
be impaired and is written down to fair value, which is determined based on
either discounted future cash flows or appraised values, depending on the nature
of the asset.
INTEREST RATE AND CURRENCY RISK MANAGEMENT. As a matter of policy, neither GE
nor GECS engages in derivatives trading, market-making or other speculative
activities.
GE and GECS use swaps primarily to optimize funding costs. To a lesser
degree, and in combination with options and limit contracts, GECS uses swaps to
stabilize cash flows from mortgage-related assets.
Interest rate and currency swaps that modify borrowings or designated assets,
including swaps associated with forecasted commercial paper renewals, are
accounted for on an accrual basis. Both GE and GECS require all other swaps, as
well as futures, options and currency forwards, to be designated and accounted
for as hedges of specific assets, liabilities or committed transactions;
resulting payments and receipts are recognized contemporaneously with effects of
hedged transactions. A payment or receipt arising from early termination of an
effective hedge is accounted for as an adjustment to the basis of the hedged
transaction.
Instruments used as hedges must be effective at reducing the risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the contract. Accordingly, changes in market values of hedge
instruments must be highly correlated with changes in market values of
underlying hedged items both at inception of the hedge and over the life of the
hedge contract. Any instrument designated but ineffective as a hedge is marked
to market and recognized in operations immediately.
GECS INSURANCE ACCOUNTING POLICIES. Accounting policies for GECS insurance
businesses follow.
PREMIUM INCOME. Insurance premiums are reported as earned income as follows:
o For short-duration insurance contracts (including property and casualty,
accident and health, and financial guaranty insurance), premiums are
reported as earned income, generally on a pro rata basis, over the terms of
the related agreements. For retrospectively rated reinsurance contracts,
premium adjustments are recorded based on estimated losses and loss
expenses, taking into consideration both case and incurred-but-not-reported
reserves.
o For traditional long-duration insurance contracts (including term and whole
life contracts and annuities payable for the life of the annuitant),
premiums are reported as earned income when due.
o For investment contracts and universal life contracts, premiums received
are reported as liabilities, not as revenues. Universal life contracts are
long-duration insurance contracts with terms that are not fixed and
guaranteed; for these contracts, revenues are recognized for assessments
against the policyholder's account, mostly for mortality, contract
initiation, administration and surrender. Investment contracts are
contracts that have neither significant mortality nor significant morbidity
risk, including annuities payable for a determined period; for these
contracts, revenues are recognized on the associated investments and
amounts credited to policyholder accounts are charged to expense.
DEFERRED POLICY ACQUISITION COSTS. Costs that vary with and are primarily
related to the acquisition of new and renewal insurance and investment contracts
are deferred and amortized over the respective policy terms.
o For short-duration insurance contracts, these costs are amortized pro rata
over the contract periods in which the related premiums are earned.
o For traditional long-duration insurance contracts, these costs are
amortized over the respective contract periods in proportion to either
anticipated premium income or, in the case of limited-payment contracts,
estimated benefit payments.
o For investment contracts and universal life contracts, these costs are
amortized on the basis of anticipated gross profits.
Periodically, deferred policy acquisition costs are reviewed for recoverability;
anticipated investment income is considered in making recoverability
evaluations.
PRESENT VALUE OF FUTURE PROFITS. The actuarially determined present value of
anticipated net cash flows to be realized from insurance, annuity and investment
contracts in force at the date of acquisition of life insurance enterprises is
recorded as the present value of future profits (PVFP). PVFP is amortized over
the respective policy terms in a manner similar to deferred policy acquisition
costs; unamortized balances are adjusted to reflect experience and impairment,
if any.
<PAGE>
F-25
ANNUAL REPORT PAGE 49
2 GE OTHER INCOME
-------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Royalty and technical agreements $ 405 $ 391 $ 453
Associated companies 50 50 111
Marketable securities and
bank deposits 78 72 70
Customer financing 26 29 26
Other investments
Dividends 62 79 62
Interest 1 18 18
Other items 1,685 (10) 13
-------------------------------
$2,307 $ 629 $ 753
================================================================================
Included in the "Other items" caption is a gain of $1,538 million related to
a tax-free exchange between GE and Lockheed Martin Corporation (Lockheed Martin)
in the fourth quarter of 1997. In exchange for its investment in Lockheed Martin
Series A preferred stock, GE acquired a Lockheed Martin subsidiary containing
two businesses, an equity interest and cash to the extent necessary to equalize
the value of the exchange, a portion of which was subsequently loaned to
Lockheed Martin.
3 GECS REVENUES FROM SERVICES
---------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Time sales, loan and
other income $12,211 $11,310 $ 9,995
Operating lease rentals 4,819 4,341 4,080
Financing leases 3,499 3,485 3,176
Investment income 5,512 3,506 2,542
Premium and commission
income of insurance affiliates 9,268 8,145 6,232
---------------------------------
$35,309 $30,787 $26,025
================================================================================
4 SUPPLEMENTAL COST DETAILS
Total expenditures for research and development were $1,891 million, $1,886
million and $1,892 million in 1997, 1996 and 1995, respectively. The
Company-funded portion aggregated $1,480 million in 1997, $1,421 million in 1996
and $1,299 million in 1995.
Rental expense under operating leases is shown below.
----------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
GE $536 $512 $523
GECS 734 547 524
- --------------------------------------------------------------------------------
At December 31, 1997, minimum rental commitments under noncancelable
operating leases aggregated $2,368 million and $5,097 million for GE and GECS,
respectively. Amounts payable over the next five years are shown below.
------------------------------------------------
(In millions) 1998 1999 2000 2001 2002
- --------------------------------------------------------------------------------
GE $433 $360 $260 $213 $166
GECS 652 574 512 487 452
- --------------------------------------------------------------------------------
GE's selling, general and administrative expense totaled $7,476 million in
1997, $6,274 million in 1996 and $5,743 million in 1995. Insignificant amounts
of interest were capitalized by GE and GECS in 1997, 1996 and 1995.
5 PENSION BENEFITS
GE and its affiliates sponsor a number of pension plans. Principal pension plans
are discussed below; other pension plans are not significant individually or in
the aggregate.
PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE Supplementary Pension
Plan.
The GE Pension Plan covers substantially all GE employees in the United
States as well as approximately two-thirds of such GECS employees. Generally,
benefits are based on the greater of a formula recognizing career earnings or a
formula recognizing length of service and final average earnings. Benefit
provisions are subject to collective bargaining. At the end of 1997, the GE
Pension Plan covered approximately 466,000 participants, including 132,000
employees, 148,000 former employees with vested rights to future benefits, and
186,000 retirees and beneficiaries receiving benefits.
The GE Supplementary Pension Plan is an unfunded plan providing supplementary
retirement benefits primarily to higher-level, longer-service U.S. employees.
Details of income for principal pension plans follow.
- --------------------------------------------------------------------------------
PENSION PLAN INCOME
--------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Actual return on plan assets $ 6,587 $ 4,916 $ 5,439
Unrecognized portion of return (3,866) (2,329) (3,087)
Service cost for benefits earned (a) (596) (550) (469)
Interest cost on benefit obligation (1,686) (1,593) (1,580)
Amortization 304 265 394
Special early retirement cost (412) -- --
--------------------------------
Total pension plan income $ 331 $ 709 $ 697
================================================================================
(a) Net of employee contributions.
- --------------------------------------------------------------------------------
Actual return on trust assets in 1997 was 19.8%, compared with the 9.5%
assumed return on such assets. The effect of this higher return will be
recognized in future years.
<PAGE>
F-26
ANNUAL REPORT PAGE 50
FUNDING POLICY for the GE Pension Plan is to contribute amounts sufficient to
meet minimum funding requirements as set forth in employee benefit and tax laws
plus such additional amounts as GE may determine to be appropriate. GE has not
made contributions since 1987 because the fully funded status of the GE Pension
Plan precludes current tax deduction and because any Company contribution would
require payment of annual excise taxes.
- --------------------------------------------------------------------------------
FUNDED STATUS OF PENSION PLANS
-----------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
Market-related value of assets $32,638 $29,402
Projected benefit obligation 25,874 23,251
- --------------------------------------------------------------------------------
The market-related value of pension assets recognizes market appreciation or
depreciation in the portfolio over five years, a method that reduces the
short-term impact of market fluctuations.
Plan assets are held in trust and consist mainly of common stock and
fixed-income investments. GE common stock represented about 6% and 5% of trust
assets at year-end 1997 and 1996, respectively.
An analysis of amounts shown in the Statement of Financial Position is
presented below.
- --------------------------------------------------------------------------------
PREPAID PENSION ASSET
-------------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
Current value of trust assets $ 38,742 $ 33,686
Add (deduct) unamortized balances
SFAS No. 87 transition gain (462) (615)
Experience gains (7,538) (5,357)
Plan amendments 1,003 1,012
Projected benefit obligation (25,874) (23,251)
Pension liability 703 637
-------------------------
PREPAID PENSION ASSET $ 6,574 $ 6,112
================================================================================
The accumulated benefit obligation was $24,675 million and $22,176 million at
year-end 1997 and 1996, respectively; the vested benefit obligation was
approximately equal to the accumulated benefit obligation at the end of both
years.
ACTUARIAL ASSUMPTIONS AND TECHNIQUES used to determine costs and benefit
obligations for principal pension plans follow.
- --------------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS
---------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Discount rate 7.0% 7.5%
Compensation increases 4.5 4.5
Return on assets for the year 9.5 9.5
- --------------------------------------------------------------------------------
Experience gains and losses, as well as the effects of changes in actuarial
assumptions and plan provisions, are amortized over employees' average future
service period.
6 RETIREE HEALTH AND LIFE BENEFITS
GE and its affiliates sponsor a number of retiree health and life insurance
benefit plans. Principal retiree benefit plans are discussed below; other such
plans are not significant individually or in the aggregate.
PRINCIPAL RETIREE BENEFIT PLANS generally provide health and life insurance
benefits to employees who retire under the GE Pension Plan with 10 or more years
of service. Retirees share in the cost of their health care benefits. Benefit
provisions are subject to collective bargaining. At the end of 1997, these plans
covered approximately 250,000 retirees and dependents.
Details of cost for principal retiree benefit plans follow.
- --------------------------------------------------------------------------------
COST OF RETIREE BENEFIT PLANS
------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
RETIREE HEALTH PLANS
Service cost for benefits earned $ 90 $ 77 $ 73
Interest cost on benefit obligation 183 166 189
Amortization 13 -- (12)
Special early retirement cost 152 -- --
------------------------------
Retiree health plan cost 438 243 250
------------------------------
RETIREE LIFE PLANS
Service cost for benefits earned 17 16 13
Interest cost on benefit obligation 116 106 108
Actual return on plan assets (343) (225) (329)
Unrecognized portion of return 206 93 206
Amortization 8 12 1
Special early retirement cost 13 -- --
------------------------------
Retiree life plan cost (income) 17 2 (1)
------------------------------
TOTAL COST $ 455 $ 245 $ 249
================================================================================
FUNDING POLICY for retiree health benefits is generally to pay covered expenses
as they are incurred. GE funds retiree life insurance benefits at its discretion
and within limits imposed by tax laws.
- --------------------------------------------------------------------------------
FUNDED STATUS OF RETIREE BENEFIT PLANS
---------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
Market-related value of assets $1,621 $1,487
Accumulated postretirement
benefit obligation 4,775 3,954
- --------------------------------------------------------------------------------
The market-related value of assets of retiree life plans recognizes market
appreciation or depreciation in the portfolio over five years, a method that
reduces the short-term impact of market fluctuations.
Plan assets are held in trust and consist mainly of common stock and
fixed-income investments. GE common stock represented about 4% and 3% of trust
assets at year-end 1997 and 1996, respectively.
<PAGE>
F-27
ANNUAL REPORT PAGE 51
An analysis of amounts shown in the Statement of Financial Position is
presented below.
- --------------------------------------------------------------------------------
RETIREE BENEFIT LIABILITY/ASSET Health plans Life plans
-------------------- ---------------------
December 31 (In millions) 1997 1996 1997 1996
- --------------------------------------------------------------------------------
Accumulated
postretirement
benefit obligation
Retirees and
dependents $ 2,445 $ 1,889 $ 1,417 $ 1,305
Employees
eligible to retire 104 86 45 45
Other employees 549 440 215 189
-------------------- ---------------------
3,098 2,415 1,677 1,539
Add (deduct)
unamortized
balances
Experience
(losses) gains (423) (195) 127 (41)
Plan amendments (171) 157 55 109
Current value of
trust assets -- -- (1,917) (1,682)
-------------------- ---------------------
RETIREE BENEFIT LIABILITY
(PREPAID ASSET) $ 2,504 $ 2,377 $ (58) $ (75)
================================================================================
ACTUARIAL ASSUMPTIONS AND TECHNIQUES used to determine costs and benefit
obligations for principal retiree benefit plans are shown below.
- --------------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS
---------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Discount rate 7.0% 7.5%
Compensation increases 4.5 4.5
Health care cost trend (a) 7.8 8.0
Return on assets for the year 9.5 9.5
- --------------------------------------------------------------------------------
(a) Gradually declining to 5.0% after 2002.
- --------------------------------------------------------------------------------
Increasing the health care cost trend rates by one percentage point would not
have had a material effect on the December 31, 1997, accumulated postretirement
benefit obligation or the annual cost of retiree health plans.
Experience gains and losses, as well as the effects of changes in actuarial
assumptions and plan provisions, are amortized over employees' average future
service period.
7 GECS ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
The allowance for losses on small-balance receivables is determined principally
on the basis of actual experience during the preceding three years. Further
allowances are provided to reflect management's judgment of additional loss
potential. For other receivables, principally the larger loans and leases, the
allowance for losses is determined primarily on the basis of management's
judgment of net loss potential, including specific allowances for known troubled
accounts. The table below shows the activity in the allowance for losses on
financing receivables during each of the past three years.
----------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Balance at January 1 $ 2,693 $ 2,519 $ 2,062
Provisions charged to operations 1,421 1,033 1,117
Net transfers primarily related to
companies acquired or sold 127 139 217
Amounts written off-- net (1,439) (998) (877)
----------------------------------
Balance at December 31 $ 2,802 $ 2,693 $ 2,519
================================================================================
All accounts or portions thereof deemed to be uncollectible or to require an
excessive collection cost are written off to the allowance for losses.
Small-balance accounts generally are written off when 6 to 12 months delinquent,
although any balance judged to be uncollectible, such as an account in
bankruptcy, is written down immediately to estimated realizable value.
Large-balance accounts are reviewed at least quarterly, and those accounts with
amounts that are judged to be uncollectible are written down to estimated
realizable value.
8 PROVISION FOR INCOME TAXES
----------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
GE
Estimated amounts payable $ 2,332 $ 2,235 $ 1,696
Deferred tax expense (benefit)
from temporary differences (522) 60 363
----------------------------------
1,810 2,295 2,059
----------------------------------
GECS
Estimated amounts payable 368 164 434
Deferred tax expense from
temporary differences 798 1,067 671
----------------------------------
1,166 1,231 1,105
----------------------------------
CONSOLIDATED
Estimated amounts payable 2,700 2,399 2,130
Deferred tax expense from
temporary differences 276 1,127 1,034
----------------------------------
$ 2,976 $ 3,526 $ 3,164
================================================================================
GE includes GECS in filing a consolidated U.S. federal income tax return. The
GECS provision for estimated taxes payable includes its effect on the
consolidated return.
<PAGE>
F-28
ANNUAL REPORT PAGE 52
Estimated consolidated amounts payable includes amounts applicable to
non-U.S. jurisdictions of $1,298 million, $1,204 million and $721 million in
1997, 1996 and 1995, respectively.
Deferred income tax balances reflect the impact of temporary differences
between the carrying amounts of assets and liabilities and their tax bases and
are stated at enacted tax rates expected to be in effect when taxes are actually
paid or recovered. See note 22 for details.
Except for certain earnings that GE intends to reinvest indefinitely,
provision has been made for the estimated U.S. federal income tax liabilities
applicable to undistributed earnings of affiliates and associated companies.
Consolidated U.S. income before taxes was $8.2 billion in 1997, $8.0 billion
in 1996 and $7.6 billion in 1995. The corresponding amounts for non-U.S.-based
operations were $3.0 billion in 1997, $2.8 billion in 1996 and $2.1 billion in
1995.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF U.S. FEDERAL Consolidated GE GECS
STATUTORY TAX RATE TO ACTUAL RATE ------------------------ ------------------------ -------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<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 -- -- -- (11.4) (10.3) (9.8) -- -- --
Lockheed Martin exchange (note 2) (4.8) -- -- (5.4) -- -- -- -- --
Amortization of goodwill 1.1 1.1 1.1 0.8 0.8 0.8 1.1 1.2 1.1
Tax-exempt income (1.9) (2.0) (2.1) -- -- -- (4.9) (5.4) (5.8)
Foreign Sales Corporation
tax benefits (1.0) (0.7) (0.9) (0.9) (0.6) (1.1) (0.5) (0.3) --
Dividends received, not fully
taxable (0.5) (0.6) (0.5) (0.2) (0.2) (0.2) (0.9) (1.1) (0.8)
All other -- net (1.3) (0.2) (0.1) 0.2 (0.7) (0.8) (3.4) 1.0 1.9
------------------------ ------------------------- -------------------------
(8.4) (2.4) (2.5) (16.9) (11.0) (11.1) (8.6) (4.6) (3.6)
------------------------ ------------------------- -------------------------
Actual income tax rate 26.6% 32.6% 32.5% 18.1% 24.0% 23.9% 26.4% 30.4% 31.4%
===============================================================================================================================
</TABLE>
9 EARNINGS PER SHARE INFORMATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1997 1996 1995
(Dollar amounts and shares in millions; --------------- ---------------- ----------------
per-share amounts in dollars) Basic Diluted Basic Diluted Basic Diluted
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
Net earnings available to common share owners $8,203 $8,203 $7,280 $7,280 $6,573 $6,573
Dividend equivalents -- net of tax -- 10 -- 9 -- 9
--------------- ---------------- ----------------
Net earnings available for per-share calculation $8,203 $8,213 $7,280 $7,289 $6,573 $6,582
--------------- ---------------- ----------------
AVERAGE EQUIVALENT SHARES
Shares of GE common stock outstanding 3,275 3,275 3,307 3,307 3,368 3,368
Employee compensation-related shares,
including stock options -- 70 -- 64 -- 46
--------------- ---------------- ----------------
Total average equivalent shares 3,275 3,345 3,307 3,371 3,368 3,414
--------------- ---------------- ----------------
Net earnings per share $ 2.50 $ 2.46 $ 2.20 $ 2.16 $ 1.95 $ 1.93
=======================================================================================================
<FN>
Share data and per-share amounts have been adjusted for the 2-for-1 stock split effective on
April 28, 1997.
- -------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
10 INVESTMENT SECURITIES
GE held equity securities with an estimated fair value of $265 million
(amortized cost of $257 million) and $17 million (amortized cost of $17 million)
at December 31, 1997 and 1996, respectively. Gross unrealized gains and losses
at December 31, 1997 were $13 million and $5 million, respectively. There were
no unrealized gains or losses at December 31, 1996.
An analysis of GECS investment securities follows on the next page.
<PAGE>
F-29
ANNUAL REPORT PAGE 53
- --------------------------------------------------------------------------------
GECS INVESTMENT SECURITIES
Gross Gross
Amortized unrealized unrealized Estimated
(In millions) cost gains losses fair value
- --------------------------------------------------------------------------------
DECEMBER 31, 1997
Debt securities
U.S. corporate $ 24,580 $ 1,028 $ (53) $ 25,555
State and municipal 10,780 636 (2) 11,414
Mortgage-backed 12,074 341 (30) 12,385
Corporate --
non-U.S 7,683 310 (12) 7,981
Government --
non-U.S 3,714 150 (3) 3,861
U.S. government and
federal agency 2,413 103 (4) 2,512
Equity securities 5,414 1,336 (102) 6,648
------------------------------------------------
$ 66,658 $ 3,904 $ (206) $ 70,356
================================================================================
DECEMBER 31, 1996
Debt securities
U.S. corporate $ 22,080 $ 308 $ (641) $ 21,747
State and municipal 10,232 399 (34) 10,597
Mortgage-backed 11,072 297 (108) 11,261
Corporate --
non-U.S 5,587 142 (13) 5,716
Government --
non-U.S 3,347 99 (2) 3,444
U.S. government and
federal agency 2,340 34 (7) 2,367
Equity securities 4,117 677 (54) 4,740
------------------------------------------------
$ 58,775 $ 1,956 $ (859) $ 59,872
================================================================================
The majority of mortgage-backed securities shown in the table above are
collateralized by U.S. residential mortgages.
At December 31, 1997, contractual maturities of debt securities, other than
mortgage-backed securities, were as follows:
- --------------------------------------------------------------------------------
GECS CONTRACTUAL MATURITIES OF DEBT SECURITIES
(EXCLUDING MORTGAGE-BACKED SECURITIES)
-----------------------------
Amortized Estimated
(In millions) cost fair value
- --------------------------------------------------------------------------------
Due in
1998 $ 2,570 $ 2,583
1999-2002 13,329 13,653
2003-2007 12,881 13,406
2008 and later 20,390 21,681
- --------------------------------------------------------------------------------
It is expected that actual maturities will differ from contractual maturities
because borrowers have the right to call or prepay certain obligations,
sometimes without call or prepayment penalties. Proceeds from sales of
investment securities in 1997 were $14,728 million ($11,868 million in 1996 and
$11,017 million in 1995). Gross realized gains were $1,018 million in 1997 ($638
million in 1996 and $503 million in 1995). Gross realized losses were $173
million in 1997 ($190 million in 1996 and $157 million in 1995).
11 GE CURRENT RECEIVABLES
-------------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
Aircraft Engines $ 2,118 $ 1,389
Appliances 479 713
Broadcasting 362 698
Industrial Products and Systems 1,638 1,574
Materials 1,037 1,068
Power Generation 2,206 2,463
Technical Products and Services 787 698
All Other 131 86
Corporate 534 377
-------------------------
9,292 9,066
Less allowance for losses (238) (240)
-------------------------
$ 9,054 $ 8,826
================================================================================
Receivables balances at December 31, 1997 and 1996, before allowance for
losses, included $6,125 million and $6,629 million, respectively, from sales of
goods and services to customers, and $285 million and $290 million,
respectively, from transactions with associated companies.
Current receivables of $303 million at year-end 1997 and $326 million at
year-end 1996 arose from sales, principally of aircraft engine goods and
services, on open account to various agencies of the U.S. government, which is
GE's largest single customer. About 4% of GE's sales of goods and services were
to the U.S. government in 1997 (about 5% in 1996 and 1995).
12 INVENTORIES
------------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
GE
Raw materials and work in process $ 3,070 $ 3,028
Finished goods 2,895 2,404
Unbilled shipments 242 258
------------------------
6,207 5,690
Less revaluation to LIFO (1,098) (1,217)
------------------------
5,109 4,473
------------------------
GECS
Finished goods 786 376
------------------------
$ 5,895 $ 4,849
================================================================================
LIFO revaluations decreased $119 million in 1997, compared with decreases of
$128 million in 1996 and $87 million in 1995. Included in these changes were
decreases of $59 million, $58 million and $88 million in 1997, 1996 and 1995,
respectively, that resulted from lower LIFO inventory levels. There were net
cost decreases in 1997 and 1996, and no cost change in 1995. As of December 31,
1997, GE is obligated to acquire certain raw materials at market prices through
the year 2003 under various take-or-pay or similar arrangements. Annual minimum
commitments under these arrangements are insignificant.
<PAGE>
F-30
ANNUAL REPORT PAGE 54
13 GECS FINANCING RECEIVABLES (INVESTMENTS IN TIME SALES, LOANS AND FINANCING
LEASES)
---------------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
TIME SALES AND LOANS
Consumer services $ 42,270 $ 40,479
Specialized financing 13,974 14,832
Mid-market financing 11,401 9,978
Equipment management 469 448
Specialty insurance 202 339
---------------------------
68,316 66,076
Deferred income (3,484) (3,244)
---------------------------
Time sales and loans-- net 64,832 62,832
---------------------------
INVESTMENT IN FINANCING LEASES
Direct financing leases 38,616 36,576
Leveraged leases 3,153 2,999
---------------------------
Investment in financing leases 41,769 39,575
---------------------------
106,601 102,407
Less allowance for losses (2,802) (2,693)
---------------------------
$ 103,799 $ 99,714
================================================================================
Time sales and loans represents transactions in a variety of forms, including
time sales, revolving charge and credit, mortgages, installment loans,
intermediate-term loans and revolving loans secured by business assets. The
portfolio includes time sales and loans carried at the principal amount on which
finance charges are billed periodically, and time sales and loans carried at
gross book value, which includes finance charges. At year-end 1997 and 1996,
specialized financing and consumer services loans included $10,503 million and
$12,075 million, respectively, for commercial real estate loans. Note 17
contains information on airline loans and leases.
At December 31, 1997, contractual maturities for time sales and loans were
$28,983 million in 1998; $12,792 million in 1999; $7,967 million in 2000; $5,156
million in 2001; $3,985 million in 2002; and $9,433 million thereafter --
aggregating $68,316 million. Experience has shown that a substantial portion of
receivables will be paid prior to contractual maturity. Accordingly, the
maturities of time sales and loans are not to be regarded as forecasts of future
cash collections.
Investment in financing leases consists of direct financing and leveraged
leases of aircraft, railroad rolling stock, autos, other transportation
equipment, data processing equipment and medical equipment, as well as other
manufacturing, power generation, mining and commercial equipment and facilities.
As the sole owner of assets under direct financing leases and as the equity
participant in leveraged leases, GECS is taxed on total lease payments received
and is entitled to tax deductions based on the cost of leased assets and tax
deductions for interest paid to third-party participants. GECS generally is
entitled to any residual value of leased assets.
Investment in direct financing and leveraged leases represents unpaid rentals
and estimated unguaranteed residual values of leased equipment, less related
deferred income. GECS has no general obligation for principal and interest on
notes and other instruments representing third-party participation related to
leveraged leases; such notes and other instruments have not been included in
liabilities but have been offset against the related rentals receivable. GECS'
share of rentals receivable on leveraged leases is subordinate to the share of
other participants who also have security interests in the leased equipment.
At December 31, 1997, contractual maturities for net rentals receivable under
financing leases were $12,820 million in 1998; $10,616 million in 1999; $8,395
million in 2000; $3,871 million in 2001; $2,371 million in 2002; and $8,373
million thereafter -- aggregating $46,446 million. As with time sales and loans,
experience has shown that a portion of these receivables will be paid prior to
contractual maturity, and these amounts should not be regarded as forecasts of
future cash flows.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT IN FINANCING LEASES
Total financing leases Direct financing leases Leveraged leases
---------------------- ----------------------- ----------------
December 31 (In millions) 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total minimum lease payments receivable $ 58,543 $ 54,009 $ 42,901 $ 40,555 $ 15,642 $ 13,454
Less principal and interest on third-party nonrecourse debt (12,097) (10,213) -- -- (12,097) (10,213)
-------------------- -------------------- --------------------
Net rentals receivable 46,446 43,796 42,901 40,555 3,545 3,241
Estimated unguaranteed residual value of leased assets 5,591 6,248 4,244 4,906 1,347 1,342
Less deferred income (10,268) (10,469) (8,529) (8,885) (1,739) (1,584)
-------------------- -------------------- --------------------
INVESTMENT IN FINANCING LEASES (as shown above) 41,769 39,575 38,616 36,576 3,153 2,999
Less amounts to arrive at net investment
Allowance for losses (656) (720) (575) (641) (81) (79)
Deferred taxes arising from financing leases (7,909) (7,488) (4,671) (4,077) (3,238) (3,411)
-------------------- -------------------- --------------------
NET INVESTMENT IN FINANCING LEASES $ 33,204 $ 31,367 $ 33,370 $ 31,858 $ (166) $ (491)
====================================================================================================================================
</TABLE>
<PAGE>
F-31
ANNUAL REPORT PAGE 55
GECS has a noncontrolling investment in the common stock of Montgomery Ward
Holding Corp. (MWHC), which together with its wholly owned subsidiary,
Montgomery Ward & Co., Incorporated (MWC), is engaged in retail merchandising
and direct response marketing, the latter conducted primarily through Signature
Financial/Marketing Inc. (Signature), which markets consumer club and insurance
products. On July 7, 1997, MWHC, MWC and certain of their affiliates (excluding
Signature) filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. As a result, inventory financing loans to MWHC and affiliates became
"impaired" loans (as defined below) because, due to the automatic stay in
bankruptcy, GECS is not receiving current interest payment on its loans and, in
management's judgment, it is therefore probable that GECS will be unable to
collect all amounts due according to original contractual terms of the loan
agreements. The total amount of such loans was $617 million at December 31,
1997. The nonearning and reduced-earning receivable balances and the impaired
loan balances discussed below exclude amounts related to MWHC and affiliates.
Nonearning consumer receivables were $1,049 million and $926 million at
December 31, 1997 and 1996, respectively, a substantial amount of which were
U.S. private-label credit card loans subject to various loss-sharing agreements
that provide full or partial recourse to the originating retailer. Nonearning
and reduced-earning receivables other than consumer receivables were $353
million and $471 million at year-end 1997 and 1996, respectively.
"Impaired" loans are defined by generally accepted accounting principles as
loans for which it is probable that the lender will be unable to collect all
amounts due according to original contractual terms of the loan agreement. That
definition excludes, among other things, leases or large groups of
smaller-balance homogenous loans and therefore applies principally to GECS
commercial loans.
Under these principles, GECS has two types of "impaired" loans as of December
31, 1997 and 1996: loans requiring allowances for losses ($339 million and $583
million, respectively); and loans expected to be fully recoverable because the
carrying amount has been reduced previously through charge-offs or deferral of
income recognition ($167 million and $187 million, respectively) -- allowances
for losses on these loans were $170 million and $222 million, respectively.
Average investment in these loans during 1997 and 1996 was $647 million and $842
million, respectively, before allowance for losses; interest income earned,
principally on the cash basis, while they were considered impaired was $32
million and $30 million in 1997 and 1996, respectively.
14 OTHER GECS RECEIVABLES
This account includes reinsurance recoverables of $5,027 million and $4,403
million and insurance-related receivables of $4,932 million and $4,833 million
at year-end 1997 and 1996, respectively. Premium receivables, funds on deposit
with reinsurers and policy loans are included in insurance-related receivables.
Also in "Other GECS receivables" are trade receivables, accrued investment
income, operating lease receivables and a variety of sundry items.
15 PROPERTY, PLANT AND EQUIPMENT (INCLUDING EQUIPMENT LEASED TO OTHERS)
----------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
ORIGINAL COST
GE
Land and improvements $ 459 $ 476
Buildings, structures and related equipment 6,375 6,315
Machinery and equipment 18,376 17,824
Leasehold costs and manufacturing
plant under construction 1,621 1,308
Other 24 27
----------------------
26,855 25,950
----------------------
GECS
Buildings and equipment 3,987 3,075
Equipment leased to others
Vehicles 9,144 6,789
Aircraft 7,686 6,647
Marine shipping containers 2,774 3,053
Railroad rolling stock 2,367 2,093
Other 2,844 3,177
----------------------
28,802 24,834
----------------------
$55,657 $50,784
======================
ACCUMULATED DEPRECIATION AND AMORTIZATION
GE $15,737 $15,118
GECS
Buildings and equipment 1,478 1,246
Equipment leased to others 6,126 5,625
----------------------
$23,341 $21,989
================================================================================
Amortization of GECS equipment leased to others was $2,102 million, $1,848
million and $1,702 million in 1997, 1996 and 1995, respectively. Noncancelable
future rentals due from customers for equipment on operating leases at year-end
1997 totaled $10,438 million and are due as follows: $3,247 million in 1998;
$2,243 million in 1999; $1,473 million in 2000; $935 million in 2001; $628
million in 2002; and $1,912 million thereafter.
<PAGE>
F-32
ANNUAL REPORT PAGE 56
16 INTANGIBLE ASSETS
---------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
GE
Goodwill $ 8,046 $ 6,676
Other intangibles 709 691
---------------------
8,755 7,367
---------------------
GECS
Goodwill 8,090 5,847
Present value of future profits (PVFP) 1,824 2,438
Other intangibles 452 355
---------------------
10,366 8,640
---------------------
$19,121 $16,007
================================================================================
GE intangible assets are shown net of accumulated amortization of $2,976
million in 1997 and $2,637 million in 1996. GECS intangible assets are net of
accumulated amortization of $2,615 million in 1997 and $1,988 million in 1996.
PVFP amortization, which is on an accelerated basis and net of interest, is
projected to range from 13% to 8% of the year-end 1997 unamortized balance for
each of the next five years.
17 ALL OTHER ASSETS
------------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
GE
Investments
Associated companies (a) $ 1,288 $ 1,526
Other 1,139 1,591
------------------------
2,427 3,117
Prepaid pension asset 6,574 6,112
Notes receivable 1,412 26
Other 4,316 3,922
------------------------
14,729 13,177
------------------------
GECS
Investments
Assets acquired for resale 4,403 2,993
Associated companies (a) 4,695 4,916
Real estate ventures 2,326 2,469
Other 2,452 2,095
------------------------
13,876 12,473
Separate accounts 4,926 3,516
Servicing assets 1,713 1,663
Deferred insurance acquisition costs 2,521 1,720
Other 2,631 2,286
------------------------
25,667 21,658
------------------------
ELIMINATIONS (576) --
------------------------
$ 39,820 $ 34,835
================================================================================
(a) Includes advances.
- --------------------------------------------------------------------------------
In line with industry practice, sales of commercial jet aircraft engines
often involve long-term customer financing commitments. In making such
commitments, it is GE's general practice to require that it have or be able to
establish a secured position in the aircraft being financed. Under such airline
financing programs, GE had issued loans and guarantees (principally guarantees)
amounting to $1,590 million at year-end 1997 and $1,514 million at year-end
1996; and it had entered into commitments totaling $1,794 million and $1,554
million at year-end 1997 and 1996, respectively, to provide financial assistance
on future aircraft engine sales. Estimated fair values of the aircraft securing
these receivables and associated guarantees exceeded the related account
balances and guaranteed amounts at December 31, 1997. GECS acts as a lender and
lessor to the commercial airline industry. At December 31, 1997 and 1996, the
balance of such GECS loans, leases and equipment leased to others was $8,980
million and $8,240 million, respectively. In addition, at December 31, 1997,
GECS had issued financial guarantees and funding commitments of $123 million
($221 million at year-end 1996) and had placed multiyear orders for various
Boeing and Airbus aircraft with list prices of approximately $6.2 billion ($6.5
billion at year-end 1996).
At year-end 1997, the National Broadcasting Company had $9,388 million of
commitments to acquire broadcast material and the rights to broadcast television
programs, including U.S. television rights to future Olympic games, and
commitments under long-term television station affiliation agreements that
require payments through the year 2008.
In connection with numerous projects, primarily power generation bids and
contracts, GE had issued various bid and performance bonds and guarantees
totaling $2,895 million at year-end 1997 and $3,250 million at year-end 1996.
Separate accounts represent investments controlled by policyholders and are
associated with identical amounts reported as insurance liabilities in note 20.
18 GE ALL OTHER CURRENT COSTS AND EXPENSES ACCRUED
At year-end 1997 and 1996, this account included taxes accrued of $2,866 million
and $2,487 million, respectively, and compensation and benefit accruals of
$1,321 million and $1,315 million, respectively. Also included are amounts for
product warranties, estimated costs on shipments billed to customers and a
variety of sundry items.
<PAGE>
F-33
ANNUAL REPORT PAGE 57
19 BORROWINGS
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
----------------------------------------------------
1997 1996
----------------------- -------------------------
Average Average
December 31 (In millions) Amount rate Amount rate
- --------------------------------------------------------------------------------
GE
Commercial paper (U.S) $ 1,835 5.88% $ 914 5.41%
Payable to banks 348 8.38 204 8.58
Current portion of
long-term debt 1,099 5.85(a) 551 6.39(a)
Other 347 670
-----------------------------------------------------
3,629 2,339
-----------------------------------------------------
GECS
Commercial paper
U.S 67,355 5.93 50,435 5.68
Non-U.S 3,879 4.18 3,737 4.30
Current portion of
long-term debt 15,101 6.30(a) 16,471 6.17(a)
Other 8,939 7,302
-----------------------------------------------------
95,274 77,945
-----------------------------------------------------
ELIMINATIONS (828) (84)
-----------------------------------------------------
$98,075 $80,200
================================================================================
- --------------------------------------------------------------------------------
LONG-TERM BORROWINGS
------------------------------------------------
Average
December 31 (In millions) rate (a) Maturities 1997 1996
- --------------------------------------------------------------------------------
GE
Industrial development/
pollution control
bonds 3.82% 1999-2021 $ 270 $ 244
Payable to banks 7.60 1999-2005 195 312
Senior notes -- 500
Other (b) 264 654
--------------------
729 1,710
--------------------
GECS
Senior notes 6.59 1999-2055 44,993 46,680
Subordinated notes (c) 7.88 2006-2035 996 996
--------------------
45,989 47,676
--------------------
Eliminations (115) (140)
--------------------
$ 46,603 $ 49,246
================================================================================
(a) Includes the effects of associated interest rate and currency swaps.
(b) Includes a variety of obligations having various interest rates and
maturities, including certain borrowings by parent operating components and
affiliates.
(c) Guaranteed by GE.
- --------------------------------------------------------------------------------
Borrowings of GE and GECS are addressed below from two perspectives --
liquidity and interest rate management. Additional information about borrowings
and associated swaps can be found in note 30.
LIQUIDITY requirements of GE and GECS are principally met through the credit
markets. Maturities of long-term borrowings during the next five years follow.
---------------------------------------------------
(In millions) 1998 1999 2000 2001 2002
- --------------------------------------------------------------------------------
GE $ 1,099 $ 97 $ 69 $ 57 $ 38
GECS 15,101 9,801 6,927 5,763 4,816
- --------------------------------------------------------------------------------
Confirmed credit lines of $3.9 billion had been extended to GE by 22 banks at
year-end 1997. Substantially all of GE's credit lines are available to GECS and
its affiliates in addition to their own credit lines.
At year-end 1997, GECS and its affiliates held committed lines of credit
aggregating $20.9 billion, including $11.8 billion of revolving credit
agreements pursuant to which it has the right to borrow funds for periods
exceeding one year. A total of $1.4 billion of GE Capital credit lines is
available for use by GE.
During 1997, neither GE nor GECS borrowed under any of these credit lines.
Both GE and GECS compensate certain banks for credit facilities in the form of
fees, which were insignificant in each of the past three years.
INTEREST RATES ARE MANAGED by GECS in light of the anticipated behavior,
including prepayment behavior, of assets in which debt proceeds are invested. A
variety of instruments, including interest rate and currency swaps and currency
forwards, are employed to achieve management's interest rate objectives.
Effective interest rates are lower under these "synthetic" positions than could
have been achieved by issuing debt directly.
The following table shows GECS borrowing positions considering the effects of
swaps.
- --------------------------------------------------------------------------------
EFFECTIVE BORROWINGS (INCLUDING SWAPS)
---------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
Short-term $56,961 $46,450
=====================
Long-term (including current portion)
Fixed rate (a) $59,329 $56,190
Floating rate 24,973 22,981
---------------------
Total long-term $84,302 $79,171
================================================================================
(a) Includes the notional amount of long-term interest rate swaps that
effectively convert the floating-rate nature of short-term borrowings to
fixed rates of interest.
- --------------------------------------------------------------------------------
At December 31, 1997, interest rate swap maturities ranged from 1998 to 2029,
and average interest rates for "synthetic" fixed-rate borrowings were 6.32%
(6.45% at year-end 1996).
<PAGE>
F-34
ANNUAL REPORT PAGE 58
20 GECS INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS
----------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
Investment contracts and universal
life benefits $28,266 $26,140
Life insurance benefits and other (a) 14,356 13,854
Unpaid claims and claims adjustment
expenses 14,654 13,184
Unearned premiums 5,068 4,633
Separate accounts (see note 17) 4,926 3,516
----------------------
$67,270 $61,327
================================================================================
(a) Life insurance benefits are accounted for mainly by a net-level-premium
method using estimated yields generally ranging from 5% to 9% in both 1997
and 1996.
- --------------------------------------------------------------------------------
The liability for unpaid claims and claims adjustment expenses, principally
property and casualty reserves, consists of both case and incurred-but-not-
reported reserves. Where experience is not sufficient to determine reserves,
industry averages are used. Estimated amounts of salvage and subrogation
recoverable on paid and unpaid losses are deducted from outstanding losses. A
summary of activity for this liability follows.
-------------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Balance at January 1-- gross $ 13,184 $ 12,662 $ 7,032
Less reinsurance recoverables (1,822) (1,853) (1,084)
-------------------------------------
Balance at January 1-- net 11,362 10,809 5,948
Claims and expenses incurred
Current year 4,494 4,087 3,268
Prior years 146 104 492
Claims and expenses paid
Current year (1,780) (1,357) (706)
Prior years (2,816) (2,373) (1,908)
Claim reserves related to
acquired companies 1,360 309 3,696
Other (358) (217) 19
-------------------------------------
Balance at December 31-- net 12,408 11,362 10,809
Add reinsurance recoverables 2,246 1,822 1,853
-------------------------------------
Balance at December 31-- gross $ 14,654 $ 13,184 $ 12,662
================================================================================
Prior-year claims and expenses incurred in the above table resulted
principally from settling claims established in earlier accident years for
amounts that differed from expectations.
Financial guarantees and credit life risk of insurance affiliates are
summarized below.
--------------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
Guarantees, principally on municipal
bonds and structured finance issues $ 144,647 $ 140,575
Mortgage insurance risk in force 46,245 36,279
Credit life insurance risk in force 26,593 25,961
Less reinsurance (33,528) (32,413)
--------------------------
$ 183,957 $ 170,402
================================================================================
Insurance risk is ceded on both a pro rata and an excess basis. When GECS
cedes insurance to third parties, it is not relieved of its primary obligation
to policyholders. Losses on ceded risks give rise to claims for recovery;
allowances are established for such receivables from reinsurers.
The effects of reinsurance on premiums written and premiums and commissions
earned were as follows:
------------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
PREMIUMS WRITTEN
Direct $ 5,206 $ 3,926 $ 2,984
Assumed 5,501 5,455 3,978
Ceded (1,311) (1,196) (804)
------------------------------------
$ 9,396 $ 8,185 $ 6,158
====================================
PREMIUMS AND COMMISSIONS EARNED
Direct $ 5,138 $ 3,850 $ 2,604
Assumed 5,386 5,353 4,414
Ceded (1,256) (1,058) (786)
------------------------------------
$ 9,268 $ 8,145 $ 6,232
================================================================================
Reinsurance recoveries recognized as a reduction of insurance losses and
policyholder and annuity benefits amounted to $903 million, $937 million and
$459 million for the years ended December 31, 1997, 1996 and 1995, respectively.
21 GE ALL OTHER LIABILITIES
This account includes noncurrent compensation and benefit accruals at year-end
1997 and 1996 of $5,484 million and $5,177 million, respectively. Also included
are amounts for deferred incentive compensation, deferred income, product
warranties and a variety of sundry items.
GE is involved in numerous remediation actions to clean up hazardous wastes
as required by federal and state laws. Liabilities for remediation costs at each
site are based on management's best estimate of undiscounted future costs,
excluding possible insurance recoveries. When there appears to be a range of
possible costs with equal likelihood, liabilities are based on the lower end of
such range. Uncertainties about the status of laws, regulations, technology and
information related to individual sites make it difficult to develop a
meaningful estimate of the reasonably possible aggregate environmental
remediation exposure. However, even in the unlikely event that remediation costs
amounted to the high end of the range of costs for each site, the resulting
additional liability would not be material to GE's financial position, results
of operations or liquidity.
<PAGE>
F-35
ANNUAL REPORT PAGE 59
22 DEFERRED INCOME TAXES
Aggregate deferred tax amounts are summarized below.
------------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
ASSETS
GE $ 4,891 $ 4,097
GECS 4,320 3,310
------------------------
9,211 7,407
------------------------
LIABILITIES
GE 4,576 4,630
GECS 13,286 11,050
------------------------
17,862 15,680
------------------------
NET DEFERRED TAX LIABILITY $ 8,651 $ 8,273
================================================================================
Principal components of the net deferred tax balances for GE and GECS are as
follows:
-------------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
GE
Provisions for expenses $(3,367) $(2,740)
Retiree insurance plans (856) (806)
Prepaid pension asset 2,301 2,139
Depreciation 955 836
Other -- net 652 1,104
-------------------------
(315) 533
-------------------------
GECS
Financing leases 7,909 7,488
Operating leases 2,156 1,833
Net unrealized gains
on securities 1,264 404
Allowance for losses (1,372) (1,184)
Insurance reserves (1,000) (787)
AMT credit carryforwards (354) (561)
Other -- net 363 547
-------------------------
8,966 7,740
-------------------------
NET DEFERRED TAX LIABILITY $ 8,651 $ 8,273
================================================================================
The GE provisions for expenses category represents the tax effects of
temporary differences related to expense accruals for a wide variety of items,
such as employee compensation and benefits, interest on tax deficiencies,
product warranties and other provisions for sundry losses and expenses that are
not currently deductible.
23 GECS MINORITY INTEREST IN EQUITY OF CONSOLIDATED AFFILIATES
Minority interest in equity of consolidated GECS affiliates includes preferred
stock issued by GE Capital and by an affiliate of GE Capital. The preferred
stock pays cumulative dividends at variable rates. The liquidation preference of
the preferred shares is summarized below.
-----------------------
December 31 (In millions) 1997 1996
- --------------------------------------------------------------------------------
GE Capital $2,230 $1,800
GE Capital affiliate 660 485
- --------------------------------------------------------------------------------
Dividend rates on the preferred stock ranged from 3.8% to 5.2% during 1997
and 1996, and from 4.2% to 5.2% during 1995.
24 RESTRICTED NET ASSETS OF GECS AFFILIATES
Certain GECS consolidated affiliates are restricted from remitting funds to GECS
in the form of dividends or loans by a variety of regulations, the purpose of
which is to protect affected insurance policyholders, depositors or investors.
At year-end 1997, net assets of regulated GECS affiliates amounted to $22.9
billion, of which $19.4 billion was restricted.
At December 31, 1997 and 1996, the aggregate statutory capital and surplus of
the insurance businesses totaled $12.4 billion and $10.2 billion, respectively.
In preparing statutory statements, no significant permitted accounting practices
are used that differ from prescribed accounting practices.
25 SHARE OWNERS' EQUITY
--------------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
COMMON STOCK ISSUED $ 594 $ 594 $ 594
======================================
UNREALIZED GAINS ON
INVESTMENT SECURITIES-- NET $ 2,138 $ 671 $ 1,000
======================================
OTHER CAPITAL
Balance at January 1 $ 2,498 $ 1,663 $ 1,122
Currency translation adjustments (742) (117) 127
Gains on treasury stock
dispositions 1,880 952 414
--------------------------------------
Balance at December 31 $ 3,636 $ 2,498 $ 1,663
======================================
RETAINED EARNINGS
Balance at January 1 $ 38,670 $ 34,528 $ 30,793
Net earnings 8,203 7,280 6,573
Dividends declared (3,535) (3,138) (2,838)
--------------------------------------
Balance at December 31 $ 43,338 $ 38,670 $ 34,528
======================================
COMMON STOCK HELD IN TREASURY
Balance at January 1 $ 11,308 $ 8,176 $ 5,312
Purchases 6,392 4,842 4,016
Dispositions (2,432) (1,710) (1,152)
--------------------------------------
Balance at December 31 $ 15,268 $ 11,308 $ 8,176
================================================================================
In December 1997, GE's Board of Directors increased the authorization to
repurchase Company common stock to $17 billion and authorized the program to
continue through 1999. Funds used for the share repurchase will be generated
largely from free cash flow. Through year-end 1997, a total of 244 million
shares having an aggregate cost of $9.9 billion had been repurchased under this
program and placed into treasury.
In April 1997, share owners authorized (a) an increase in the number of
authorized shares of common stock from 2,200,000,000 shares each with a par
value of $0.32 to 4,400,000,000 shares each with a par value of $0.16 and (b)
the split of each unissued and issued common share, including shares held in
treasury, into two shares of common stock each with a par value of $0.16. All
share data and per-share amounts have been adjusted to reflect this change.
<PAGE>
F-36
ANNUAL REPORT PAGE 60
Common shares issued and outstanding are summarized in the following table.
- --------------------------------------------------------------------------------
SHARES OF GE COMMON STOCK
-------------------------------------------
December 31 (In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Issued 3,714,026 3,714,026 3,714,026
In treasury (449,434) (424,942) (381,002)
-------------------------------------------
Outstanding 3,264,592 3,289,084 3,333,024
================================================================================
GE has 50 million authorized shares of preferred stock ($1.00 par value), but
no such shares have been issued.
The effects of translating to U.S. dollars the financial statements of
non-U.S. affiliates whose functional currency is the local currency are included
in other capital. Asset and liability accounts are translated at year-end
exchange rates, while revenues and expenses are translated at average rates for
the period. Cumulative currency translation adjustments represented reductions
of other capital of $798 million and $56 million in 1997 and 1996, respectively,
and an addition to other capital of $61 million in 1995.
26 OTHER STOCK-RELATED INFORMATION
- --------------------------------------------------------------------------------
STOCK OPTION ACTIVITY
Average per share
Shares --------------------
subject Exercise Market
(Shares in thousands) to option price price
- --------------------------------------------------------------------------------
Balance at December 31, 1994 138,996 $19.91 $25.50
Options granted 24,179 27.94 27.94
Replacement options 1,506 20.91 20.91
Options exercised (15,568) 15.72 29.61
Options terminated (4,239) 23.67 --
-----------------------------------
Balance at December 31, 1995 144,874 21.60 36.00
Options granted 19,034 42.39 42.39
Replacement options 8,622 26.34 26.34
Options exercised (18,278) 17.70 43.25
Options terminated (4,707) 26.18 --
-----------------------------------
Balance at December 31, 1996 149,545 24.86 49.44
Options granted (a) 13,795 68.07 68.07
Replacement options 30 24.16 24.16
Options exercised (21,746) 18.47 61.22
Options terminated (2,721) 31.10 --
-----------------------------------
Balance at December 31, 1997 138,903 30.03 73.38
================================================================================
(a) Without adjusting for the effect of the 2-for-1 stock split in April 1997,
the number of options granted during 1997 would have been 13,476.
- --------------------------------------------------------------------------------
Stock option plans, stock appreciation rights (SARs), restricted stock and
restricted stock units are described in GE's current Proxy Statement. With
certain restrictions, requirements for stock option shares can be met from
either unissued or treasury shares.
The replacement options replaced canceled SARs and have identical terms
thereto. At year-end 1997, there were 3.2 million SARs outstanding at an average
exercise price of $21.02. There were 9.6 million restricted stock shares and
restricted stock units outstanding at year-end 1997.
There were 92.8 million and 62.1 million additional shares available for
grants of options, SARs, restricted stock and restricted stock units at December
31, 1997 and 1996, respectively. Under the 1990 Long-Term Incentive Plan, 0.95%
of the Company's issued common stock (including treasury shares) as of the first
day of each calendar year during which the Plan is in effect becomes available
for granting awards in such year. Any unused portion, in addition to shares
allocated to awards that are canceled or forfeited, is available for later
years.
Outstanding options and SARs expire on various dates through December 19,
2007. Restricted stock grants vest on various dates up to normal retirement of
grantees.
The following table summarizes information about stock options outstanding at
December 31, 1997.
- --------------------------------------------------------------------------------
STOCK OPTIONS OUTSTANDING
(Shares in thousands)
Outstanding Exercisable
-------------------------------- -----------------
Average Average
Exercise Average exercise exercise
price range Shares life (a) price Shares price
- --------------------------------------------------------------------------------
$10 13/16 - 21 9/16 34,059 3.6 $17.45 34,059 $17.45
$21 5/8 - 31 15/16 72,754 6.4 25.61 37,441 24.31
$36 3/16 - 51 1/2 18,867 8.5 42.59 205 47.20
$51 3/4 - 73 13,223 9.8 68.80 -- --
----------------------------------------------------
Total 138,903 6.3 30.03 71,705 21.11
================================================================================
(a) Average contractual life remaining in years.
At year-end 1996, options with an average exercise price of $19.58 were
exercisable on 81 million shares; at year-end 1995, options with an average
exercise price of $17.61 were exercisable on 74 million shares.
- --------------------------------------------------------------------------------
Stock options expire 10 years from the date they are granted; options vest
over service periods that range from one to five years.
Disclosures required by SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, are as follows:
----------------------------------
December 31 1997 1996 1995
- --------------------------------------------------------------------------------
Weighted average fair value
per option (a) $17.81 $ 9.34 $ 5.98
Valuation assumptions
Expected option term (years) 6.3 6.2 5.5
Expected volatility 20.0% 20.1% 20.0%
Expected dividend yield 1.5% 2.3% 3.1%
Risk-free interest rate 6.1% 6.6% 7.0%
PRO FORMA EFFECTS (b)(c)
Net earnings $8,129 $7,235 $6,557
Earnings per share-- basic 2.48 2.19 1.95
-- diluted 2.43 2.15 1.92
- --------------------------------------------------------------------------------
(a) Estimated using Black-Scholes option pricing model.
(b) Valuations only of grants made after January 1, 1995; thus, the pro forma
effect increased over the periods presented.
(c) Net earnings in millions; per-share amounts in dollars.
- --------------------------------------------------------------------------------
<PAGE>
F-37
ANNUAL REPORT PAGE 61
27 SUPPLEMENTAL CASH FLOWS INFORMATION
Changes in operating assets and liabilities are net of acquisitions and
dispositions of businesses.
"Payments for principal businesses purchased" in the Statement of Cash Flows
is net of cash acquired and includes debt assumed and immediately repaid in
acquisitions.
"All other operating activities" in the Statement of Cash Flows consists
principally of adjustments to current and noncurrent accruals and deferrals of
costs and expenses, increases and decreases in progress collections, adjustments
for gains and losses on assets, increases and decreases in assets held for sale,
and adjustments to assets such as amortization of goodwill and intangibles.
The Statement of Cash Flows excludes certain noncash transactions that,
except for the exchange transaction described in note 2, had no significant
effects on the investing or financing activities of GE or GECS.
Certain supplemental information related to GE and GECS cash flows is shown
below.
<TABLE>
<CAPTION>
---------------------------------------
For the years ended December 31 (In millions) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GE
NET PURCHASE OF GE SHARES FOR TREASURY
Open market purchases under share repurchase program $ (3,492) $ (3,266) $ (3,101)
Other purchases (2,900) (1,576) (915)
Dispositions (mainly to employee and dividend reinvestment plans) 3,577 2,519 1,493
---------------------------------------
$ (2,815) $ (2,323) $ (2,523)
=======================================
GECS
FINANCING RECEIVABLES
Increase in loans to customers $(55,689) $(49,890) $(46,154)
Principal collections from customers -- loans 50,679 49,923 44,840
Investment in equipment for financing leases (16,420) (14,427) (17,182)
Principal collections from customers -- financing leases 13,796 11,158 8,821
Net change in credit card receivables (4,186) (3,068) (3,773)
Sales of financing receivables 9,922 4,026 2,139
---------------------------------------
$ (1,898) $ (2,278) $(11,309)
=======================================
ALL OTHER INVESTING ACTIVITIES
Purchases of securities by insurance and annuity businesses $(19,274) $(15,925) $(14,452)
Dispositions and maturities of securities by insurance and annuity businesses 17,280 14,018 12,460
Proceeds from principal business dispositions 241 -- 575
Other (3,893) (4,183) (2,496)
---------------------------------------
$ (5,646) $ (6,090) $ (3,913)
=======================================
NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS
Short-term (91 to 365 days) $ 3,502 $ 5,061 $ 2,545
Long-term (longer than one year) 15,566 17,245 32,507
Long-term subordinated -- -- 298
Proceeds -- nonrecourse, leveraged lease debt 1,757 595 1,428
---------------------------------------
$ 20,825 $ 22,901 $ 36,778
=======================================
REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS
Short-term (91 to 365 days) $(21,320) $(23,355) $(16,075)
Long-term (longer than one year) (1,150) (1,025) (678)
Principal payments - nonrecourse, leveraged lease debt (287) (276) (292)
---------------------------------------
$(22,757) $(24,656) $(17,045)
=======================================
ALL OTHER FINANCING ACTIVITIES
Proceeds from sales of investment and annuity contracts $ 4,717 $ 2,561 $ 1,754
Preferred stock issued by GECS affiliates 605 155 1,045
Redemption of investment and annuity contracts (4,537) (2,688) (2,540)
---------------------------------------
$ 785 $ 28 $ 259
====================================================================================================================================
</TABLE>
<PAGE>
F-38
ANNUAL REPORT PAGE 62
28 INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUES
For the years ended December 31
Total revenues Intersegment revenues External revenues
---------------------------- -------------------------- ----------------------------
(In millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GE
Aircraft Engines $ 7,799 $ 6,302 $ 6,098 $ 101 $ 86 $ 115 $ 7,698 $ 6,216 $ 5,983
Appliances 6,745 6,375 5,933 12 5 4 6,733 6,370 5,929
Broadcasting 5,153 5,232 3,919 -- -- -- 5,153 5,232 3,919
Industrial Products and Systems 10,954 10,412 10,194 490 455 436 10,464 9,957 9,758
Materials 6,695 6,509 6,647 24 22 19 6,671 6,487 6,628
Power Generation 7,495 7,257 6,545 81 65 57 7,414 7,192 6,488
Technical Products and Services 4,917 4,692 4,424 18 23 19 4,899 4,669 4,405
All Other 3,564 3,108 2,707 -- -- -- 3,564 3,108 2,707
Corporate items and eliminations 1,193 (322) (286) (726) (656) (650) 1,919 334 364
---------------------------- -------------------------- ----------------------------
Total GE 54,515 49,565 46,181 -- -- -- 54,515 49,565 46,181
---------------------------- -------------------------- ----------------------------
GECS
Financing 31,165 24,554 19,446 -- -- -- 31,165 24,554 19,446
Specialty Insurance 8,844 8,155 7,042 -- -- -- 8,844 8,155 7,042
All Other (78) 4 4 -- -- -- (78) 4 4
---------------------------- -------------------------- ----------------------------
Total GECS 39,931 32,713 26,492 -- -- -- 39,931 32,713 26,492
---------------------------- -------------------------- ----------------------------
Eliminations (3,606) (3,099) (2,645) -- -- -- (3,606) (3,099) (2,645)
---------------------------- -------------------------- ----------------------------
CONSOLIDATED REVENUES $90,840 $ 79,179 $ 70,028 $ -- $ -- $ -- $90,840 $79,179 $70,028
====================================================================================================================================
<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. "All Other" GE revenues consists primarily of GECS earnings.
- ------------------------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS PROPERTY, PLANT AND EQUIPMENT
(INCLUDING EQUIPMENT LEASED TO OTHERS)
At December 31 For the years ended December 31
Additions Depreciation and amortization
---------------------------- -------------------------- -----------------------------
(In millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GE
Aircraft Engines $ 8,895 $ 5,423 $ 4,890 $ 729 $ 551 $ 266 $ 255 $ 260 $ 273
Appliances 2,533 2,569 2,304 83 168 143 112 104 93
Broadcasting 4,877 4,899 3,915 116 176 97 96 86 64
Industrial Products and Systems 6,658 6,580 6,117 487 450 446 368 340 308
Materials 8,890 9,130 9,095 618 748 521 427 475 478
Power Generation 5,605 5,741 5,679 176 185 155 161 165 166
Technical Products and Services 2,438 2,246 2,200 189 154 110 115 113 109
All Other 17,496 14,556 13,113 -- -- 1 2 2 1
Corporate items and eliminations 10,034 8,781 8,403 168 114 113 86 90 89
---------------------------- -------------------------- ---------------------------
Total GE 67,426 59,925 55,716 2,566 2,546 1,852 1,622 1,635 1,581
---------------------------- -------------------------- ---------------------------
GECS
Financing 211,139 188,472 151,952 7,188 5,663 5,143 2,411 2,111 1,963
Specialty Insurance 44,048 38,575 33,714 65 35 133 35 29 23
All Other 221 372 63 67 64 36 14 10 27
---------------------------- -------------------------- ---------------------------
Total GECS 255,408 227,419 185,729 7,320 5,762 5,312 2,460 2,150 2,013
---------------------------- -------------------------- ---------------------------
Eliminations (18,822) (14,942) (13,410) -- -- -- -- -- --
---------------------------- -------------------------- ---------------------------
CONSOLIDATED TOTALS $304,012 $272,402 $228,035 $9,886 $8,308 $7,164 $ 4,082 $ 3,785 $ 3,594
====================================================================================================================================
<FN>
"All Other" GE assets consists primarily of investment in GECS. Additions to property, plant and equipment include amounts
relating to principal businesses purchased.
- ------------------------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
<PAGE>
F-39
ANNUAL REPORT PAGE 63
Details of operating profit by industry segment can be found on page 35 of this
report. A description of industry segments for General Electric Company and
consolidated affiliates follows.
AIRCRAFT ENGINES. Jet engines and replacement parts and repair and maintenance
services for all categories of commercial aircraft (short/medium, intermediate
and long-range); for a wide variety of military aircraft, including fighters,
bombers, tankers and helicopters; and for executive and commuter aircraft. Sold
worldwide to airframe manufacturers, airlines and government agencies. Also,
aircraft engine derivatives used as marine propulsion and industrial power
sources.
APPLIANCES. Major appliances and related services for products such as
refrigerators, freezers, electric and gas ranges, dishwashers, clothes washers
and dryers, microwave ovens and room air conditioning equipment. Sold in North
America and in global markets under various GE and private-label brands.
Distributed to retail outlets, mainly for the replacement market, and to
building contractors and distributors for new installations.
BROADCASTING. Primarily NBC. Principal businesses are the furnishing of U.S.
network television services to more than 200 affiliated stations, production of
television programs, operation of 12 VHF and UHF television broadcasting
stations, operation of four cable/satellite networks around the world, and
investment and programming activities in multimedia and cable television.
INDUSTRIAL PRODUCTS AND SYSTEMS. Lighting products (including a wide variety of
lamps, lighting fixtures, wiring devices and quartz products); electrical
distribution and control equipment (including power delivery and control
products such as transformers, meters, relays, capacitors and arresters);
transportation systems products (including diesel-electric locomotives, transit
propulsion equipment and motorized wheels for off-highway vehicles); electric
motors and related products; a broad range of electrical and electronic
industrial automation products (including drive systems); installation,
engineering and repair services, which includes management and technical
expertise for large projects such as process control systems; and GE Supply, a
network of electrical supply houses. Markets are extremely diverse. Products are
sold to commercial and industrial end users, including utilities, to original
equipment manufacturers, to electrical distributors, to retail outlets, to
railways and to transit authorities. Increasingly, products are developed for
and sold in global markets.
MATERIALS. High-performance engineered plastics used in applications such as
automobiles and housings for computers and other business equipment; ABS resins;
silicones; superabrasive industrial diamonds; and laminates. Sold worldwide to a
diverse customer base consisting mainly of manufacturers.
POWER GENERATION. Power plant products and services, including design,
installation, operation and maintenance services. Markets and competition are
global. Gas turbines are sold principally as part of packaged power plants for
electric utilities and for industrial cogeneration and mechanical drive
applications. Steam turbine-generators are sold to electric utilities, to the
U.S. Navy and, for cogeneration, to industrial and other power customers. Power
Generation also includes nuclear reactors and fuel and support services for GE's
new and installed boiling water reactors.
TECHNICAL PRODUCTS AND SERVICES. Medical systems such as magnetic resonance (MR)
and computed tomography (CT) scanners, x-ray, nuclear imaging, ultrasound, other
diagnostic equipment and related services sold worldwide to hospitals and
medical facilities. Also includes a full range of computer-based information and
data interchange services for internal use and external commercial and
industrial customers.
GECS FINANCING. Operations of GE Capital, as follows:
CONSUMER SERVICES -- private-label and bank credit card loans, personal
loans, time sales and revolving credit and inventory financing for retail
merchants, auto leasing and inventory financing, mortgage servicing, and
consumer savings and insurance services. Insurance services, previously included
within the Specialty Insurance segment, has been combined with the consumer
savings and insurance operations in this segment. Prior-year information has
been reclassified to reflect this change.
SPECIALIZED FINANCING -- loans and financing leases for major capital assets,
including industrial facilities and equipment, and energy-related facilities;
commercial and residential real estate loans and investments; and loans to and
investments in management buyouts, including those with high leverage, and
corporate recapitalizations.
EQUIPMENT MANAGEMENT -- leases, loans, sales and asset management services
for portfolios of commercial and transportation equipment, including aircraft,
trailers, auto fleets, modular space units, railroad rolling stock, data
processing equipment, containers used on ocean-going vessels, and satellites.
MID-MARKET FINANCING -- loans and financing and operating leases for
middle-market customers, including manufacturers, distributors and end users,
for a variety of equipment that includes data processing equipment, medical and
diagnostic equipment, and equipment used in construction, manufacturing, office
applications and telecommunications activities.
Very few of the products financed by GE Capital are manufactured by GE.
GECS SPECIALTY INSURANCE. U.S. and international multiple-line property and
casualty reinsurance; certain directly written specialty insurance and life
reinsurance; financial guaranty insurance, principally on municipal bonds and
structured finance issues; private mortgage insurance; and creditor insurance
covering international customer loan repayments.
<PAGE>
F-40
ANNUAL REPORT PAGE 64
29 GEOGRAPHIC SEGMENT INFORMATION (CONSOLIDATED)
Revenues and operating profit shown below are classified according to their
country of origin (including exports from such areas). Revenues and operating
profit classified under the caption "United States" include royalty and
licensing income from non-U.S. sources. U.S. exports to international customers
by major areas of the world are shown on page 39.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
REVENUES
For the years ended December 31
Total revenues Intersegment revenues External revenues
---------------------------- ------------------------------- -----------------------------
(In millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $66,330 $58,110 $52,935 $ 2,471 $ 2,292 $ 2,123 $63,859 $55,818 $50,812
Europe 18,166 15,964 12,293 787 714 656 17,379 15,250 11,637
Pacific Basin 4,742 4,343 3,725 880 796 457 3,862 3,547 3,268
Other <F1> 6,420 5,140 4,750 680 576 439 5,740 4,564 4,311
Intercompany eliminations (4,818) (4,378) (3,675) (4,818) (4,378) (3,675) -- -- --
---------------------------- ------------------------------- -----------------------------
Total $90,840 $79,179 $70,028 $ -- $ -- $ -- $90,840 $79,179 $70,028
============================================================================================================================
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT <F2> ASSETS NON-U.S. NET ASSETS
For the years ended December 31 At December 31 At December 31
---------------------------- -------------------------------- ------------------------------
(In millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 8,825 $ 9,693 $ 9,002 $206,655 $189,593 $158,884 $ <F3> $ <F3> $ <F3>
Europe 2,024 1,724 1,043 66,740 55,196 44,107 31,076 23,021 20,059
Pacific Basin 302 269 375 8,881 8,125 6,442 6,237 5,082 3,740
Other <F1> 706 576 543 21,926 19,655 18,776 12,233 11,439 11,472
Intercompany eliminations (23) 7 9 (190) (167) (174) (72) (62) (51)
---------------------------- -------------------------------- ------------------------------
Total $11,834 $12,269 $10,972 $304,012 $272,402 $228,035 $49,474 $39,480 $35,220
===============================================================================================================================
<FN>
<F1> Principally the Americas other than the United States, but also includes operations that cannot meaningfully be associated
with specific geographic areas (for example, shipping containers used on ocean-going vessels).
<F2> Net of 1997 restructuring and other special charges.
<F3> Not applicable.
- -------------------------------------------------------------------------------------------------------------------------------
</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, 1997 or 1996. Moreover, the disclosed values
are representative of fair values only as of the dates indicated. Assets and
liabilities that, as a matter of accounting policy, are reflected in the
accompanying financial statements at fair value are not included in the
following disclosures; such items include cash and equivalents, investment
securities and separate accounts.
Values are estimated as follows:
BORROWINGS. Based on quoted market prices or market comparables. Fair values of
interest rate and currency swaps on borrowings are based on quoted market prices
and include the effects of counterparty creditworthiness.
TIME SALES AND LOANS. Based on quoted market prices, recent transactions and/or
discounted future cash flows, using rates at which similar loans would have been
made to similar borrowers.
INVESTMENT CONTRACT BENEFITS. Based on expected future cash flows, discounted at
currently offered discount rates for immediate annuity contracts or cash
surrender values for single premium deferred annuities.
FINANCIAL GUARANTEES AND CREDIT LIFE. Based on future cash flows, considering
expected renewal premiums, claims, refunds and servicing costs, discounted at a
market rate.
ALL OTHER INSTRUMENTS. Based on comparable transactions, market comparables,
discounted future cash flows, quoted market prices, and/or estimates of the cost
to terminate or otherwise settle obligations to counterparties.
<PAGE>
F-41
ANNUAL REPORT PAGE 65
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
1997 1996
---------------------------------------- ----------------------------------------
Assets (liabilities) Assets (liabilities)
----------------------------- -----------------------------
Carrying Estimated fair value Carrying Estimated fair value
Notional amount -------------------- Notional amount --------------------
December 31 (In millions) amount (net) High Low amount (net) High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GE
Investment related
Investments and notes receivable $ <F1> $ 1,909 $ 1,915 $ 1,908 $ <F1> $ 1,675 $ 3,127 $ 3,127
Cancelable interest rate swap 1,421 25 19 19 -- -- -- --
Borrowings and related instruments
Borrowings<F2><F3> <F1> (4,358) (4,377) (4,377) <F1> (4,049) (4,058) (4,058)
Interest rate swaps 531 -- (12) (12) 536 -- (11) (11)
Currency swaps -- -- -- -- 180 -- 25 25
Recourse obligations for receivables sold 427 (23) (23) (23) 424 -- -- --
Financial guarantees 2,141 -- -- -- 1,805 -- -- --
Other firm commitments
Currency forwards and options 6,656 82 270 270 5,476 70 150 150
Financing commitments 1,794 -- -- -- 1,554 -- -- --
GECS
Assets
Time sales and loans <F1> 62,712 63,105 61,171 <F1> 60,859 61,632 60,544
Integrated interest rate swaps 12,323 19 (125) (125) 4,376 -- 91 91
Purchased options 1,617 31 31 31 1,938 11 12 12
Mortgage-related positions
Mortgage purchase commitments 2,082 -- 11 11 1,193 -- 2 2
Mortgage sale commitments 2,540 -- (9) (9) 1,417 -- 3 3
Mortgages held for sale <F1> 2,378 2,379 2,379 <F1> 1,112 1,165 1,165
Options, including "floors" 30,347 51 141 141 27,422 78 81 81
Interest rate swaps and futures 3,681 -- 23 23 1,731 -- (29) (29)
Other cash financial instruments <F1> 2,242 2,592 2,349 <F1> 2,240 2,735 2,487
Liabilities
Borrowings and related instruments
Borrowings<F2><F3> <F1> (141,263) (141,828) (141,828) <F1> (125,621) (125,648) (125,648)
Interest rate swaps 42,531 -- (250) (250) 34,491 -- (575) (575)
Currency swaps 23,382 -- (1,249) (1,249) 24,588 -- 368 368
Currency forwards 15,550 -- 371 371 6,165 -- 72 72
Purchased options 375 33 8 8 1,882 10 1 1
Investment contract benefits <F1> (23,045) (22,885) (22,885) <F1> (20,210) (19,953) (19,953)
Insurance-- financial guarantees
and credit life 183,957 (2,897) (2,992) (3,127) 170,402 (3,801) (3,614) (4,025)
Credit and liquidity support --
securitizations 13,634 (46) (46) (46) 6,842 (73) (9) (9)
Performance guarantees -- principally
letters of credit 2,699 (34) -- (67) 3,470 (55) (132) (133)
Other 3,147 (1,134) (1,282) (1,303) 2,901 (1,560) (1,175) (1,176)
Other firm commitments
Currency forwards 1,744 -- 11 11 1,823 -- 3 2
Currency swaps 1,073 192 192 192 1,134 -- (38) (38)
Ordinary course of business
lending commitments 7,891 -- (62) (62) 4,950 -- (27) (27)
Unused revolving credit lines
Commercial 4,850 -- -- -- 3,375 -- -- --
Consumer-- principally credit cards 134,123 -- -- -- 116,878 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
<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
<PAGE>
F-42
ANNUAL REPORT PAGE 66
in local currency with debt denominated in those same currencies. In certain
circumstances, net investment exposures are managed using currency forwards and
currency swaps.
OPTIONS AND INSTRUMENTS CONTAINING OPTION FEATURES that behave based on limits
("caps," "floors" or "collars") on interest rate movement are used primarily to
hedge prepayment risk in certain GECS business activities, such as the mortgage
servicing and annuities businesses.
SWAPS OF INTEREST RATES AND CURRENCIES are used by GE and GECS to optimize
borrowing costs for a particular funding strategy (see note 19). A cancelable
interest rate swap was used by GE to hedge an investment position. Interest rate
and currency swaps, along with purchased options and futures, are used by GECS
to establish specific hedges of mortgage-related assets and to manage net
investment exposures. Credit risk of these positions is evaluated by management
under the credit criteria discussed below. As part of its ongoing customer
activities, GECS also enters into swaps that are integrated into investments in
or loans to particular customers and do not involve assumption of third-party
credit risk. Such integrated swaps are evaluated and monitored like their
associated investments or loans and are not therefore subject to the same credit
criteria that would apply to a stand-alone position.
COUNTERPARTY CREDIT RISK -- risk that counterparties will be financially unable
to make payments according to the terms of the agreements -- is the principal
risk associated with swaps, purchased options and forwards. Gross market value
of probable future receipts is one way to measure this risk, but is meaningful
only in the context of net credit exposure to individual counterparties. At
December 31, 1997 and 1996, this gross market risk amounted to $2.0 billion and
$0.9 billion, respectively. Aggregate fair values that represent associated
probable future obligations, normally associated with a right of offset against
probable future receipts, amounted to $2.9 billion and $0.7 billion at December
31, 1997 and 1996, respectively.
Except as noted above for positions that are integrated into financings, all
swaps, purchased options and forwards are carried out within the following
credit policy constraints.
o Once a counterparty exceeds credit exposure limits (see table below), no
additional transactions are permitted until the exposure with that
counterparty is reduced to an amount that is within the established limit.
Open contracts remain in force.
- --------------------------------------------------------------------------------
COUNTERPARTY CREDIT CRITERIA
------------------------------------
Credit rating
------------------------------------
Moody's Standard & Poor's
- --------------------------------------------------------------------------------
Term of transaction
Between one and five years Aa3 AA-
Greater than five years Aaa AAA
Credit exposure limits
Up to $50 million Aa3 AA-
Up to $75 million Aaa AAA
- --------------------------------------------------------------------------------
o All swaps are executed under master swap agreements containing mutual
credit downgrade provisions that provide the ability to require assignment
or termination in the event either party is downgraded below A3 or A-.
More credit latitude is permitted for transactions having original maturities
shorter than one year because of their lower risk.
31 QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First quarter Second quarter Third quarter Fourth quarter
(Dollar amounts in millions; ----------------- ----------------- ----------------- ------------------
per-share amounts in dollars) 1997 1996 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
Net earnings $ 1,677 $ 1,517 $ 2,162 $ 1,908 $ 2,014 $ 1,788 $ 2,350 $ 2,067
Earnings per share -- basic 0.51 0.46 0.66 0.58 0.62 0.54 0.72 0.63
-- diluted 0.50 0.45 0.65 0.57 0.60 0.53 0.70 0.62
SELECTED DATA
GE
Sales of goods and services 10,522 9,742 12,620 11,520 11,698 11,478 14,112 13,379
Gross profit from sales 2,970 2,781 3,886 3,475 3,368 3,060 2,618 3,784
GECS
Total revenues 9,544 7,245 9,317 7,457 10,182 8,449 10,888 9,562
Operating profit 1,081 973 1,138 951 1,229 1,179 974 945
- ---------------------------------------------------------------------------------------------------------------
</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 and, as a result, their sum does not equal the total year
earnings-per-share amounts for 1997 and 1996. Per-share amounts have been
adjusted for the 2-for-1 stock split effective on April 28, 1997.
<PAGE>
EXHIBIT 12
GENERAL ELECTRIC COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) Year ended December 31
---------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GE EXCEPT GECS
Earnings <F1> $ 5,511 $ 7,828 $ 8,696 $ 9,677 $ 10,132
Less: Equity in undistributed earnings of General Electric
Capital Services, Inc. <F2> (957) (1,181) (1,324) (1,836) (1,597)
Plus: Interest and other financial
charges included in expense 525 410 649 595 797
One-third of rental expense <F3> 212 171 174 171 179
-------- -------- -------- -------- --------
Adjusted "earnings" $ 5,291 $ 7,228 $ 8,195 $ 8,607 $ 9,511
======== ======== ======== ======== ========
Fixed Charges:
Interest and other financial charges $ 525 $ 410 $ 649 $ 595 $ 797
Interest capitalized 21 21 13 19 31
One-third of rental expense <F3> 212 171 174 171 179
-------- -------- -------- -------- --------
Total fixed charges $ 758 $ 602 $ 836 $ 785 $ 1,007
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 6.98 12.01 9.80 10.96 9.44
======== ======== ======== ======== ========
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
Earnings <F1> $ 6,287 $ 8,831 $ 9,941 $ 11,075 $ 11,419
Plus: Interest and other financial charges
included in expense 4,096 4,994 7,336 7,939 8,445
One-third of rental expense <F3> 349 327 349 353 423
-------- -------- -------- -------- --------
Adjusted "earnings" $ 10,732 $ 14,152 $ 17,626 $ 19,367 $ 20,287
======== ======== ======== ======== ========
Fixed Charges:
Interest and other financial charges $ 4,096 $ 4,994 $ 7,336 $ 7,939 $ 8,445
Interest capitalized 26 30 34 60 83
One-third of rental expense <F3> 349 327 349 353 423
-------- -------- -------- -------- --------
Total fixed charges $ 4,471 $ 5,351 $ 7,719 $ 8,352 $ 8,951
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.40 2.64 2.28 2.32 2.27
======== ======== ======== ======== ========
<FN>
<F1> Earnings before income taxes and minority interest. For 1993, earnings are
before cumulative effect of a change in accounting principle.
<F2> Earnings after income taxes, net of dividends.
<F3> Considered to be representative of interest factor in rental expense.
</FN>
</TABLE>
