-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Olv+yKP4pD31LLyqWxPzJxOgAogI9fdKy4mjhJU7bOzCKmC82It0YmYByjr7+lWF N22Fc6oaJ4Rmr2qfTQm6iQ== 0000040545-99-000007.txt : 19990326 0000040545-99-000007.hdr.sgml : 19990326 ACCESSION NUMBER: 0000040545-99-000007 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL ELECTRIC CO CENTRAL INDEX KEY: 0000040545 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 140689340 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-00035 FILM NUMBER: 99572696 BUSINESS ADDRESS: STREET 1: 3135 EASTON TURNPIKE STREET 2: C/O BANK OF NEW YORK CITY: FAIRFIELD STATE: CT ZIP: 06431 BUSINESS PHONE: (203) 373-2211 MAIL ADDRESS: STREET 1: 3135 EASTON TURNPIKE CITY: FAIRFIELD STATE: CT ZIP: 06431 10-K405 1 SECTIONS Business 2 Properties 17 Legal Proceedings 17 Submission of Matters to a Vote of Security Holders 18 Market for Stock 19 Selected Financial Data 20 Management's Discussion 20 Financial Statements 20 Disagreements 20 Directors and Executive Officers 21 Executive Compensation 22 Security Ownership 22 Certain Relationships 22 Exhibits, Financial Statement Schedules 22 Signatures 27 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1998 Commission file number 1-35 ----------------- ---- or [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______to ______ GENERAL ELECTRIC COMPANY (Exact name of registrant as specified in charter) New York 14-0689340 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3135 Easton Turnpike, Fairfield, CT 06431-0001 203/373-2211 (Address of principal executive offices) (Zip Code) (Telephone No.) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of each exchange on which Title of each class registered - ------------------- ------------------------------ Common stock, par value $0.16 per share New York Stock Exchange Boston Stock Exchange There were 3,275,235,004 shares of voting common stock with a par value of $0.16 outstanding at February 28, 1999. These shares, which constitute all of the outstanding common equity of the registrant, had an aggregate market value on March 1, 1999, of $327.6 billion. Affiliates of the Company beneficially own, in the aggregate, less than one-tenth of one percent of such shares. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x --- DOCUMENTS INCORPORATED BY REFERENCE The definitive proxy statement relating to the registrant's Annual Meeting of Share Owners, to be held April 21, 1999, is incorporated by reference in Part III to the extent described therein. 2 PART I ITEM 1. BUSINESS GENERAL Unless otherwise indicated by the context, the terms "GE," "GECS" and "GE Capital Services" are used on the basis of consolidation described in note 1 to the consolidated financial statements on page 48 of the 1998 Annual Report to Share Owners of General Electric Company. The financial section of such Annual Report to Share Owners (pages 25 through 68 of that document) is set forth in Part IV Item 14(a)(1) of this 10-K Report and is an integral part hereof. References in Parts I and II of this 10-K Report are to the page numbers of the 1998 Annual Report to Share Owners included in Part IV of this 10-K Report. Also, unless otherwise indicated by the context, "General Electric" means the parent company, General Electric Company. General Electric's address is 1 River Road, Schenectady, NY 12345-6999; the Company also maintains executive offices at 3135 Easton Turnpike, Fairfield, CT 06431-0001. GE is one of the largest and most diversified industrial corporations in the world. GE has engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity since its incorporation in 1892. Over the years, GE has developed or acquired new technologies and services that have broadened considerably the scope of its activities. GE's products include major appliances; lighting products; industrial automation products; medical diagnostic imaging equipment; motors; electrical distribution and control equipment; locomotives; power generation and delivery products; nuclear power support services and fuel assemblies; commercial and military aircraft jet engines; and engineered materials, such as plastics, silicones and superabrasive industrial diamonds. GE's services include product services; electrical product supply houses; electrical apparatus installation, engineering, repair and rebuilding services; and computer-related information services. Through its affiliate, the National Broadcasting Company, Inc., GE delivers network television services, operates television stations, and provides cable, Internet and multimedia programming and distribution services. Through another affiliate, General Electric Capital Services, Inc., GE offers a broad array of financial and other services including consumer financing, commercial and industrial financing, real estate financing, asset management and leasing, mortgage services, consumer savings and insurance services, specialty insurance and reinsurance, and satellite communications. In virtually all of its global business activities, the Company encounters aggressive and able competition. In many instances, the competitive climate is characterized by changing technology that requires continuing research and development commitments, and by capital-intensive needs to meet customer requirements. With respect to manufacturing operations, management believes that, in general, GE has a leadership position (i.e., number one or number two) in most major markets served. The NBC Television Network is one of four major U.S. commercial broadcast television networks. It also competes with two relatively new commercial broadcast networks, syndicated broadcast television programming and cable and satellite television programming activities. The businesses in which GE Capital Services engages are subject to competition from various types of financial institutions, including commercial 3 banks, thrifts, investment banks, broker-dealers, credit unions, leasing companies, consumer loan companies, independent finance companies, finance companies associated with manufacturers, and insurance and reinsurance companies. GE has substantial export sales from the United States. In addition, the Company has expanded significantly its non-U.S. activities through majority, minority or other joint venture interests in companies engaged primarily in manufacturing and distributing products and providing nonfinancial services similar to those sold within the United States. GECS financial services operations outside the United States also have expanded considerably over the past several years. OPERATING SEGMENTS The Company's operations are highly decentralized. The basic organization of the Company's operations consists of 10 key businesses, which contain management units of differing sizes. At year-end 1998, GE adopted Statement of Financial Accounting Standards (SFAS) No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which requires segment data to be measured and analyzed on a basis that is consistent with how business activities are reported internally to management. The most significant change from previous 10-K Reports is that restructuring and other special charges are not included in the measure of segment profit. Previously reported data have been restated as required by SFAS No. 131. Revenue and segment profit information about the Company's operating segments in accordance with SFAS No. 131 is presented on page 36 of the 1998 Annual Report to Share Owners. Additional financial data and commentary on recent financial results for operating segments are provided on pages 35-40 of that Report and in note 28 (pages 64 and 65) to the consolidated financial statements. Operating businesses that are reported as segments under SFAS No. 131 include Aircraft Engines, Appliances, GECS, Power Systems, Plastics and NBC. The remaining key businesses do not meet the definition of a reportable segment and have been aggregated into two operating segments based on common characteristics of their activities (Industrial Products and Systems, and Technical Products and Services). The GE All Other segment consists primarily of revenues derived from licensing use of GE technology to others. For the GECS segment, revenues and net earnings are presented and analyzed on pages 37-40 by the five major operating activities in which it conducts its business (consumer services, equipment management, mid-market financing, specialized financing and specialty insurance). There is appropriate elimination of the net earnings of GECS and the immaterial effect of transactions between GE and GECS segments to arrive at total consolidated data. A summary description of each of the Company's operating segments follows. AIRCRAFT ENGINES Aircraft Engines (10.2%, 8.6% and 8.0% of consolidated revenues in 1998, 1997 and 1996, respectively) produces, sells and services jet engines, turboprop and turboshaft engines, and related replacement parts for use in military and commercial aircraft. GE's military engines are used in a wide variety of aircraft that includes fighters, bombers, tankers, helicopters and surveillance aircraft. The CFM56, produced by CFMI, a company jointly owned by GE and Snecma of France, and GE's CF6 engines power aircraft in all categories of large commercial aircraft: short/medium, intermediate and long-range. Applications for the CFM56 engine include: Boeing's 737-300/-400/-500 series, the next generation 737-600X/-700/-800/-900 series, and the 737 business jet; 4 Airbus Industrie's A319, A320, A321 and A340 series; and military aircraft such as the KC-135R, E/KE-3 and E-6. The CF6 family of engines powers intermediate and long-range aircraft such as Boeing's 747, 767, DC-10 and MD-11 series, as well as Airbus Industrie's A300, A310 and A330 series. The GE90 engine is used to power Boeing's 777 series twin-engine aircraft. The business also produces jet engines for executive aircraft and regional commuter aircraft and aircraft engine derivatives used for marine propulsion, mechanical drives and industrial power generation sources. These aircraft engine derivatives are also reported as part of the Power Systems segment. Maintenance, overhaul and component repair services are provided for many models of engines, including engines manufactured by competitors. The business further expanded its product services operations through acquisitions in each of the last three years: the overhaul operations of Varig Airlines in 1998, Greenwich Air Services/UNC in 1997 and Celma, an engine overhaul operation in Brazil, in 1996. The worldwide competition in aircraft jet engines is intense. Both U.S. and export markets are important. Product development cycles are long and product quality and efficiency are critical to success. Research and development expenditures, both customer-financed and internally funded, are also important in this segment. Potential sales for any engine are limited by, among other things, its technological lifetime, which may vary considerably depending upon the rate of advance in the state of the art, by the small number of potential customers and by the limited number of applicable airframe applications. Sales of product services (replacement parts and services) are an important part of the business. Aircraft engine orders tend to follow military and airline procurement cycles, although cycles for military and commercial engine procurement are different. Procurements of military jet engines are affected by changes in global political and economic factors. In line with industry practice, sales of commercial jet aircraft engines often involve long-term financing commitments to customers. In making such commitments, it is GE's general practice to require that it have or be able to establish a secured position in the aircraft being financed. Under such airline financing programs, GE had issued loans and guarantees (principally guarantees) amounting to $1.5 billion at year-end 1998, and had entered into commitments totaling $1.5 billion to provide financial assistance on future aircraft engine sales. Estimated fair values of the aircraft securing these receivables and associated guarantees exceeded the related account balances and guaranteed amounts at December 31, 1998. For current information about Aircraft Engines orders and backlog, see page 35 of the 1998 Annual Report to Share Owners. APPLIANCES Appliances (5.6%, 6.4% and 7.1% of consolidated revenues in 1998, 1997 and 1996, respectively) manufactures and/or markets a single class of product - major appliances - that includes refrigerators, electric and gas ranges, microwave ovens, freezers, dishwashers, clothes washers and dryers, water-softening and filtering products, and room air conditioning equipment. These are sold under GE, Hotpoint, Monogram, Profile and Profile Performance brands as well as under private brands for retailers and others. GE microwave ovens, room air conditioners, water softening and filtering products, and freezers are sourced from suppliers while investment in Company-owned U.S. facilities is focused on refrigerators, dishwashers, ranges (primarily electric, but some gas) and home laundry equipment. A large portion of appliance sales is for replacement of installed units. Such sales are through a variety of retail outlets. The other principal channel consists of residential building contractors who install appliances in new dwellings. GE has an extensive U.S. product services network that provides repair services, expanded service plans, warranty administration and risk management services. In 1998, a European appliance distribution affiliate was deconsolidated. 5 Appliances continues to increase its operating presence in the global business arena and participates in numerous manufacturing and distribution joint ventures around the world. In 1998, the business acquired an indirect interest in four Latin American appliance companies, further expanding its activities in Latin America. Demand for appliances is influenced by economic trends such as increases or decreases in consumer disposable income, availability of credit and housing construction. Competition is very active in all products and comes from a number of principal manufacturers and suppliers. An important factor is cost; considerable competitive emphasis is placed on minimizing manufacturing and distribution costs and on reducing cycle time from order to product delivery. Other significant factors include brand recognition, quality, features offered, innovation, customer responsiveness and appliance service capability. A number of processes, such as Quick Response, New Product Introduction and Quick Market Intelligence, have been implemented to improve GE's competitiveness in these areas. For example, the Six Sigma quality initiative continues to enable the business to improve the quality of products, reduce waste and provide better product services. In 1998, the business launched the TrueTemp (TM) gas range, introduced Monogram bottom mount refrigerators and new Zoneline air conditioners, upgraded its wall ovens and cooktops and added water heaters to its growing line of water products. In 1997, the business added GE SmartWater(TM) filtration and water softening systems to its product line, launched a new line of dishwashers, introduced the Profile Performance brand in the high-end market segment, and completed a joint venture with National Tech Team to further broaden its product services offerings. INDUSTRIAL PRODUCTS AND SYSTEMS Industrial Products and Systems (11.2%, 12.1% and 13.1% of consolidated revenues in 1998, 1997 and 1996, respectively) encompasses the following businesses: Lighting, Transportation Systems, Industrial Systems, and GE Supply. Products and services provided by each of the businesses in this segment are sold primarily to industrial customers, including original equipment manufacturers, industrial end users, utilities, electrical contractors, as well as to distributors. These businesses compete against a variety of both U.S. and non-U.S. manufacturers and service providers. Markets for industrial products and services are diverse, global and highly price competitive. The aggregate level of economic activity in markets for such products and services generally lag overall economic slowdowns as well as subsequent recoveries. In the United States, industrial markets are undergoing significant structural changes reflecting, among other factors, increased international competition and pressures to modernize productive capacity. A description of products and services provided by each of the businesses in this segment follows. Lighting includes a wide variety of lamps - incandescent, fluorescent, high intensity discharge, halogen and specialty - as well as outdoor lighting fixtures, wiring devices and quartz products. Markets and customers are global. In 1997, the business acquired certain assets of Flame Electrical Ltd., a lighting products distributor in South Africa, and entered into an agreement with MagneTek, Inc. that provides GE exclusive sales responsibility for electronic ballasts in North America. In 1996, the business acquired the remaining interest in GE Apar Lighting Private Ltd. in India, increased its ownership interest in GE Jiabao Lighting Co., Inc., a joint venture in China, and acquired PT Sinar Baru Electric in Indonesia. Customers for lighting products are diverse, ranging from household consumers to commercial and industrial end users and original equipment manufacturers. Transportation Systems includes locomotives, transit propulsion and control equipment, motorized wheels for off-highway vehicles such as those used in mining operations, motors for drilling devices, and parts and product services for the foregoing. Locomotives are sold worldwide, principally to railroads, while customers for other products include state and urban transit authorities and industrial users. An increasingly important product line is the alternating 6 current (AC) locomotive, which was first introduced at 4,400 horsepower. In 1998, the business began delivering a new 6,000 horsepower AC unit. Product services include maintenance and repair of locomotives and communications and logistics systems for locomotive, train and fleet control provided through GE-Harris Railway Electronics, L.L.C., a joint venture with Harris Corporation. Information about Transportation Systems orders and backlog is provided on page 35 of the 1998 Annual Report to Share Owners. Industrial Systems includes electric motors and related products and services for the appliance, commercial, industrial, heating, air conditioning, automotive and utility markets; power delivery and control products such as circuit breakers, transformers, electricity meters, relays, capacitors and arresters sold for installation in commercial, industrial and residential facilities; electrical and electronic industrial automation products, including drive systems, for metal and paper processing, mining, utilities and marine applications. Product services include engineering, management and technical expertise for power plants and other large projects; maintenance, inspection, repair and rebuilding of electrical apparatus produced by GE and others; and on-site engineering and upgrading of already installed products sold by GE and others. Other product services include the integration of software with hardware (principally motors, drives and programmable controls) into customized systems solutions for customers in the semiconductor, water treatment, pulp and paper, and petroleum industries. In 1997, the business expanded its presence in this emerging market segment through several small acquisitions. Motor products are used within GE and also are sold externally. Industrial automation products cover a broad range of electrical and electronic products with emphasis on manufacturing and advanced engineering automation applications. Through a 50-50 joint venture (GE Fanuc Automation Corporation) which has two operating subsidiaries (one in North America and the other in Europe), the business offers a wide range of high-technology industrial automation systems and equipment, including computer numerical controls and programmable logic controls. In 1998, GE Fanuc acquired Total Control Products, Inc., strengthening its position in the emerging market for open control systems. GE Supply operates a U.S. network of electrical supply houses and, through its affiliates, has operations in Mexico, Brazil, Argentina and Ireland. GE Supply offers products of General Electric and other manufacturers to electrical contractors and to industrial, commercial and utility customers. NBC NBC (5.2%, 5.7% and 6.6% of consolidated revenues in 1998, 1997 and 1996, respectively) is principally engaged in the broadcast of network television services to affiliated television stations within the United States; the production of live and recorded television programs; the operation, under licenses from the Federal Communications Commission (FCC), of television broadcasting stations; the operation of six cable/satellite networks around the world, and investment and programming activities in multimedia, the Internet and cable television. The NBC Television Network is one of four major U.S. commercial broadcast television networks and serves more than 200 affiliated stations within the United States. At December 31, 1998, NBC owned and operated 13 VHF and UHF television stations located in Birmingham, Ala.; Los Angeles, Calif.; San Diego, Calif.; Hartford, Conn.; Miami, Fla.; Chicago, Ill.; Columbus, Ohio; New York, NY; Raleigh-Durham, N.C.; Philadelphia, Pa.; Providence, R.I.; Dallas, TX; and Washington, D.C. Broadcasting operations, including the NBC Television Network and owned stations, are subject to FCC regulation. NBC's operations include investment and programming activities in cable television, principally through its ownership of CNBC, CNBC Europe, and CNBC Asia, as well as equity investments in Arts and Entertainment, American Movie Classics, Bravo, Prime Network and regional Sports Channels across the United States. In 1998, NBC acquired a majority ownership position in KXAS, a television station in Dallas, and an equity stake in Snap, an internet directory and search services business. 1998 marked the end of a 33-year affiliation with the National Football League. In 1997, the business entered into a strategic alliance with Dow Jones that merged the European and Asian business news services of Dow Jones with those of CNBC and uses Dow Jones editorial resources 7 in the United States. The business also entered into long-term arrangements with the National Basketball Association (NBA) and the United States Golf Association (USGA) that give NBC exclusive national over-the-air broadcast rights to NBA games through the 2002 season and to the USGA's major golf championships through the year 2003. NBC also has secured United States television rights to the 2000, 2002, 2004, 2006 and 2008 Olympic Games. In 1996, NBC and Microsoft Corporation entered into a joint venture that provides information to users through two separate but related sources: MSNBC Cable, a 24-hour news and information cable channel; and MSNBC Interactive, a comprehensive interactive on-line news and information service. NBC contributed the assets of America's Talking and NBC Desktop to the joint ventures. PLASTICS Plastics (6.6%, 7.4% and 8.2% of consolidated revenues in 1998, 1997 and 1996, respectively) includes high-performance plastics used by compounders, molders and major original equipment manufacturers for use in a variety of applications, including fabrication of automotive parts, computer enclosures, compact disks and optical-quality media, major appliance parts and construction materials. Products also include ABS resins, silicones, superabrasive industrial diamonds and laminates. Market opportunities for many of these products are created by substituting resins for other materials, which provides customers with productivity through improved material performance at lower cost. These materials are sold to a diverse worldwide customer base, mainly manufacturers. The business has a significant operating presence around the world and participates in numerous manufacturing and distribution joint ventures. During 1998, the business established two joint ventures with Bayer of Germany. The first venture, Exatec, is developing polycarbonate automotive glazing technology and manufacturing systems. The second venture, GE-Bayer Silicones Europe, strengthens the position of the silicones business in the European region. Also in 1998, the business neared completion on construction of a new polycarbonate manufacturing facility in Spain that adds 130,000 metric tons of capacity. During the year, the business announced plans to build a second plant on the site that will increase capacity to 260,000 metric tons per year by the year 2002. The materials business environment is characterized by technological innovation and heavy capital investment. Being competitive requires emphasis on efficient manufacturing process implementation and significant resources devoted to market and application development. Competitors include large, technology-driven suppliers of the same, as well as other functionally equivalent, materials. The business is cyclical and is subject to variations in price and in the availability of raw materials, such as cumene, benzene and methanol. Adequate capacity to satisfy growing demand and anticipation of new product or material performance requirements are key factors affecting competition. POWER SYSTEMS Power Systems (8.4%, 8.7% and 9.7% of consolidated revenues in 1998, 1997 and 1996, respectively) serves utility, industrial and governmental customers worldwide with electricity generating products, services and energy management systems. Gas turbines are used principally in power plants for generation of electricity and for industrial cogeneration and mechanical drive applications. In 1998, Power Systems acquired the gas turbine division of Stewart and Stevenson Services, Inc., which further expands its product and product services offerings to the industrial power generation market. Aircraft engine derivatives, also reported in the Aircraft Engines segment, are used as industrial power sources. Centrifugal compressors are sold for application in gas reinjection, pipeline services and such process applications as refineries and ammonia plants. Steam turbine-generators are sold to the electric utility industry and to private industrial customers for cogeneration applications. Nuclear reactors, fuel and support services for both new and installed boiling water reactors are also a part of this segment. There have been no nuclear power plant orders in the United States since the mid-1970s. However, the business is currently participating in the construction of nuclear power plants in Japan 8 and Taiwan. The business continues to invest in advanced technology development and to focus its resources on refueling and servicing its installed boiling-water reactors. Worldwide competition for power generation products and services is intense. Demand for most power generation products and services is worldwide and as a result is sensitive to the economic and political environment of each country in which the business participates. In the United States, demand for power generation equipment is sensitive to the financial condition of the electric utility industry as well as the electric power conservation efforts by power users. Internationally, the influence of petroleum and related prices has a large impact on demand. For information about orders and backlog, see page 37 of the 1998 Annual Report to Share Owners. TECHNICAL PRODUCTS AND SERVICES Technical Products and Services (5.3%, 5.4% and 5.9% of consolidated revenues in 1998, 1997 and 1996, respectively) consists of technology operations providing products, systems and services to a variety of customers. Principal businesses included in this segment are Medical Systems and Information Services. Medical Systems include magnetic resonance (MR) scanners, computed tomography (CT) scanners, x-ray, nuclear imaging, ultrasound, and other diagnostic and therapy equipment, and product services sold to hospitals and medical facilities worldwide. Product services include remote diagnostic and repair services for medical equipment manufactured by GE and by others, as well as computerized data management and customer productivity services. GE Medical Systems has a significant operating presence in Europe and Asia, including the operations of its affiliates, GE Medical Systems S.A. (France), GE Yokogawa Medical Systems (Japan) and WIPRO GE Medical Systems (India). Acquisitions and joint ventures continue to expand GE Medical Systems global activities. In 1998, the business completed three strategic acquisitions: Marquette Medical Systems, a global leader in diagnostic cardiology and patient monitoring devices, Diasonics Vingmed Ultrasound, a leading maker of cardiac ultrasound systems, and Elscint Ltd., which enhances Medical Systems' position in the nuclear imaging and magnetic resonance imaging segments. In 1997, the business acquired Lockheed Martin Medical Systems and a 20% stake in ALI, a leader in ultrasound image archiving. See page 37 of the 1998 Annual Report to Share Owners for information about orders and backlog of GE Medical Systems. Business-to-business electronic commerce solutions are provided to over 100,000 trading partners around the world by GE Information Services (GEIS). Its global networked-based solutions include Electronic Data Interchange and messaging services, Internet, intranet and systems integration services, and a line of applications that help customers to lower their costs, reduce cycle times, and improve quality in purchasing, logistics, and supplier and distribution channel management. Serving a range of customers with special needs (which are rapidly changing in areas such as medical and information systems), businesses in this segment compete against a variety of both U.S. and non-U.S. manufacturers or services operations. Technological competence and innovation, excellence in design, high product performance, quality of services and competitive pricing are among the key factors affecting competition for these products and services. Throughout the world, demands on health care providers to control costs have become much more important. Medical Systems is responding with cost-effective technologies that improve operating efficiency and clinical productivity. 9 ALL OTHER GE All Other GE (0.3%, 0.3% and 0.4% of consolidated revenues in 1998, 1997 and 1996, respectively) consists mostly of income from licensing the use of GE technology and patents to others. As discussed in note 2 of the 1998 Annual Report to Share Owners, effective on January 1, 1999 GE transferred certain licenses and intellectual property pursuant to an agreement to sell the former RCA Consumer Electronics business. GECS GECS (48.5%, 44.0% and 41.3% of consolidated revenues in 1998, 1997 and 1996, respectively) consists of 28 businesses that, for purposes of analysis, are grouped into five operating activities: consumer services, equipment management, mid-market financing, specialized financing and specialty insurance. Very little of the financing provided by GECS businesses involves products that are manufactured by GE. GE Capital's activities are subject to a variety of federal and state regulations including, at the federal level, the Consumer Credit Protection Act, the Equal Credit Opportunity Act and certain regulations issued by the Federal Trade Commission. A majority of states have ceilings on rates chargeable to customers in retail time sales transactions, installment loans and revolving credit financing. Common carrier services of GE Americom are subject to regulation by the Federal Communications Commission. Certain GECS consolidated affiliates are restricted from remitting funds to GECS in the form of dividends or loans by a variety of regulations, the purpose of which is to protect affected insurance policyholders, depositors or investors. GECS' international operations are also subject to regulation in their respective jurisdictions. To date, compliance with such regulations has not had a material adverse effect on GE Capital's financial position or results of operations. On March 28, 1991, GE entered into an agreement to make payments to GE Capital, constituting additions to pre-tax income, to the extent necessary to cause the ratio of earnings to fixed charges of GE Capital and consolidated affiliates (determined on a consolidated basis) to be not less than 1.10 for the period, as a single aggregation, of each GE Capital fiscal year commencing with fiscal year 1991. The agreement can only be terminated by written notice and termination is not effective until the third anniversary of the date of such notice. GE Capital's ratios of earnings to fixed charges for the years 1998, 1997 and 1996, respectively, were 1.50, 1.48 and 1.53, substantially above the level at which payments would be required. Under a separate agreement, GE has committed to make a capital contribution to GE Capital in the event certain GE Capital preferred stock is redeemed and such redemption were to cause the GE Capital debt-to-equity ratio, excluding from equity all net unrealized gains and losses on investment securities, to exceed 8 to 1. A description of principal businesses included in each of GECS five operating activities follows. Consumer Services GE Financial Assurance ("GEFA") provides consumers financial security solutions by selling a wide variety of insurance, investment and retirement products, primarily in the United States and Japan. These products help consumers accumulate wealth, transfer wealth, and protect their lifestyles and assets and are sold through a family of regulated insurance and annuity companies. GEFA's principal product lines are annuities (deferred and immediate; either fixed or variable), life insurance (universal, term, ordinary and group), guaranteed investment contracts, mutual funds, long-term care insurance, supplemental accident and health insurance, personal lines of automobile insurance and credit insurance. The distribution of these products is 10 accomplished through four distribution methods: intermediaries (brokerage general agents, banks, securities brokerage firms, personal producing general agents and specialized brokers), career or dedicated sales forces, marketing through businesses and affinity groups and direct marketing. In 1998, GEFA acquired the infrastructure and sales force of Toho Mutual Life, establishing a major presence in the life insurance business in Japan. GE Capital Auto Financial Services ("AFS") is a full service provider of automobile financing for automobile dealers, manufacturers and their customers in North America, and, to a lesser extent, Asia. In the United States, AFS is one of the leading independent auto lessors for new and used lease financing and, to a much lesser degree, sub-prime and prime retail financing to customers. AFS also provides private-label financing for American Isuzu Motors, Inc. and participates in a private-label purchase program with Volvo of North America. In addition, AFS offers inventory financing programs and direct loans to segments of the automotive industry, including dealers and finance companies. AFS' Asian activities include affiliates in Taiwan, Hong Kong, Thailand and Japan. AFS also maintains additional presence in Asia through equity investments in Indonesia, Taiwan, Singapore, Malaysia, Korea, and India. GE Capital Auto Financial Services Europe ("AFS Europe") is a leading independent provider of automobile financing products to automobile dealers and their customers in Europe. Products include hire purchase, finance leases, loans and insurance premium financing. AFS Europe has a significant presence in 13 countries throughout Western and Central Europe including the United Kingdom, Ireland, Portugal, France, Spain, Italy, Sweden, Denmark, Poland, Czech Republic, Hungary, Switzerland and Austria. GE Card Services ("CS") provides sales financing services to North American retailers in a broad range of consumer industries. Details of financing plans differ, but include customized private-label credit card programs with retailers and inventory financing programs with manufacturers, distributors and retailers. CS provides financing directly to customers of retailers or purchases the retailers' customer receivables. Most of the retailers sell a variety of products of various manufacturers on a time sales basis. The terms for these financing plans differ according to the size of contract and credit standing of the customer. CS generally maintains a security interest in the merchandise financed. Financing is provided to consumers under contractual arrangements, both with and without recourse to retailers. The wide range of financial services provided by CS includes application processing, sales authorization, statement billings, customer services and collection services. CS provides inventory financing for retailers primarily in the appliance and consumer electronics industries. CS maintains a security interest in the inventory and retailers are obliged to maintain insurance coverage for the merchandise financed. CS also provides and services MasterCard and Visa credit card loan products issued to retail customers throughout the United States. These loans originate through loan portfolio acquisitions, direct mail campaigns, private-label credit card loan conversions, telemarketing efforts and point-of-sale applications. CS also issues and services the GE Capital Corporate Card product, providing payment and information systems which help medium and large-sized companies reduce travel costs, and the GE Capital Purchasing Card product, which helps customers streamline their purchasing and accounts payable processes. CS has a noncontrolling interest in Montgomery Ward Holding Corp. (MWHC), a retail organization, and certain other service and financial services organizations. As discussed on page 40 of the 1998 Annual Report to Share Owners, MWHC filed a bankruptcy petition for reorganization in 1997 and has announced plans to emerge from bankruptcy protection in 1999. CS also provides financing to customers of MWHC and affiliates. GE Capital Global Consumer Finance ("GCF") is a leading provider of credit services to non-U.S. retailers and consumers. GCF provides private-label credit cards and proprietary credit services to retailers in Europe, Asia, and, to a lesser extent, South America as well as offering a variety of direct-to-consumer credit programs such as consumer loans, bankcards and credit insurance. GCF's wide range of proprietary financial services includes private-label credit cards, credit promotion and accounting services, billing 11 (in the retailer's name) and customer credit and collection services. During 1998, GCF expanded its global presence through acquisitions including Agrobanka in the Czech Republic, Prokredit Ltd. in Switzerland, and Koei Credit and Lake Finance in Japan. In addition, GCF launched a bankcard joint venture in India and a retail financing joint venture in Brazil. GCF provides financing to consumers through operations in the United Kingdom, Austria, France, Ireland, Germany, The Netherlands, Italy, Spain, Portugal, Poland, Switzerland, Czech Republic, Japan, Thailand, Hong Kong, China, Brazil and Australia and joint ventures in Indonesia, India and Brazil. GE Capital Mortgage Services, Inc. ("GECMSI"), a wholly-owned affiliate of GE Capital Mortgage Corporation, is engaged primarily in the business of originating, purchasing, selling and servicing residential mortgage loans collateralized by one-to-four-family homes located throughout the United States. GECMSI obtains servicing through the origination and purchase of mortgage loans and servicing rights, and primarily packages the loans it originates and purchases into mortgage-backed securities, which it sells to investors. GECMSI also originates and services home equity loans. Equipment Management GE Capital Aviation Services ("GECAS") is a global commercial aviation financial services business that offers a broad range of financial products to airlines and aircraft operators, owners, lenders and investors. Financial products include financing leases, operating leases, and tax-advantaged and other incentive-based financing. GECAS also provides asset management, marketing, and technical support services to aircraft owners, lenders and investors. GECAS has firm orders and options for more than 250 new Boeing and Airbus aircraft with deliveries scheduled through 2006. GECAS current fleet comprises 850 owned and managed aircraft leased to more than 175 customers in 58 countries. During 1998, GECAS acquired a commercial aviation training business from Raytheon Company. The training facility, located at London's Gatwick airport, operates a wide range of full-flight motion simulators to train commercial pilots and serves more than 100 airlines. GE Capital Fleet Services ("GECFS") is one of the leading corporate fleet management companies with operations in North America, Europe, Australia, New Zealand, Brazil and Japan with approximately 950,000 cars and trucks under lease and service management. The primary product in North America is a Terminal Rental Adjustment Clause (TRAC) lease through which the customer assumes the residual risk - that is, risk that the book value will be greater than market value at lease termination. In Europe, the primary product is a closed-end lease in which GECFS assumes residual risk. In addition to the services directly associated with the lease, GECFS offers value-added fleet management services designed to reduce customers' total fleet management costs. These services include, among others, maintenance management programs, accident services, national account purchasing programs, fuel programs and title and licensing services. GECFS customer base is diversified with respect to industry and geography and includes many Fortune 500 companies. In 1998, GECFS expanded its fleet management services with acquisitions of fleet logistics businesses in the United Kingdom, The Netherlands, Brazil and New Zealand. GE Capital Information Technology Solutions ("IT Solutions") is a leading worldwide provider of a broad array of information technology products and services, including full life cycle services that provide customers with cost-effective control and management of their information systems. Products offered include desktop personal computers, client server systems, UNIX systems, local and wide area network hardware, and software. Services offered include network design, network support, asset management, help desk, disaster recovery, enterprise management and financial services. IT Solutions serves commercial, educational and governmental customers in over 20 countries. 12 Transport International Pool ("TIP") is one of the global leaders in renting, leasing, selling and financing transportation equipment. TIP's fleet of over 260,000 dry freight, refrigerated and double vans, flatbeds, intermodal assets, and specialized trailers is available for rent, lease or purchase at over 240 locations in the United States, Europe, Canada, and Mexico. TIP's commercial vehicle fleet of over 25,000 units is available for rent, lease, or purchase in the United Kingdom. TIP also finances new and used trailers and buys trailer fleets. During 1998, TIP acquired the operating assets of Trailer Leasing Co., Inc., a trailer rental and leasing company in the United States. TIP also acquired a majority interest in Bay Cities Leasing LLC, a United States entity predominately doing business as a lessor of intermodal equipment. TIP's customer base comprises trucking companies, railroads, shipping lines, manufacturers and retailers. In May 1998, GE Capital and Sea Containers Ltd. formed GE SeaCo SRL ("GE SeaCo"), a joint venture which operates the combined marine container fleets of Genstar Container Corporation ("Genstar") and Sea Containers. GE SeaCo is one of the world's largest lessors of marine shipping containers with a combined fleet of over 1,100,000 TEU ("twenty-foot equivalent units") of dry-cargo, refrigerated and specialized containers for global cargo transport. Lessees are primarily shipping lines, which lease on a long-term or master lease basis. Concurrent with the formation of the joint venture, GE Capital Container Finance Corporation ("GECCF") was created to service the existing finance lease portfolio formerly run by Genstar, and to provide traditional finance leases and structured finance products to the global marine container industry. GE Capital is a limited partner in Penske Truck Leasing ("Penske"), which operates the second largest full-service truck leasing business and one of the largest commercial and consumer truck rental businesses in the United States. Penske operates through a national network of full-service truck leasing and rental facilities. At December 31, 1998, Penske had a fleet of about 78,000 tractors, trucks and trailers in its leasing and rental fleets and provided contract maintenance programs or other support services for about 32,000 additional vehicles. Penske also provides dedicated logistics operations support, which combines company-employed drivers with its full-service lease vehicles to provide dedicated contract carriage services. In addition, Penske offers supply chain services such as distribution consulting, warehouse management and information systems support. GE American Communications ("GE Americom") is a leading satellite service supplier to a diverse array of customers, including the broadcast and cable TV industries, broadcast radio, business information and integrated communications services for government and commercial customers. GE Americom operates 13 communications satellites and maintains a supporting network of earth stations, central terminal offices, and telemetry, tracking and control facilities. GE Capital Railcar Services ("GERSCO") is one of the leading railcar leasing companies in North America, with a fleet of 186,000 railcars in its total portfolio. Serving Class 1 railroads, short-line railroads, and shippers throughout North America, GERSCO offers one of the most diverse fleets in the industry, and a variety of lease options. GERSCO also owns and operates a network of railcar repair and maintenance facilities located throughout North America. The repair facilities offer a variety of services, ranging from light maintenance to heavy repair of damaged railcars. The company also provides railcar management, administration and other services. In addition, GERSCO is a pan-European provider of rail transport services, offering a broad range of railcar equipment and rail-related services to railroads, shippers and other transport providers. 13 GE Capital Modular Space ("GECMS") provides commercial mobile and modular structures for rental, lease and sale from over 100 facilities in the United States, Europe, Canada and Mexico. The primary markets served include construction, education, healthcare, financial, commercial, institutional and government. GECMS products are available as custom mobile and modular buildings, designed to customer specifications, or are available through the GECMS stock fleet of approximately 120,000 mobile and modular units. During 1998, GECMS continued its European growth through the acquisition of certain units of the modular structure business of MVS GmbH. This acquisition doubled the size of the European fleet to approximately 50,000 units. Mid-market Financing GE Capital Commercial Equipment Financing ("CEF") offers a broad line of financial products including leases and loans to middle-market customers, including manufacturers, distributors, dealers and end-users, as well as municipal financing. Products are either held for CEF's own account or brokered to third parties. Generally, transactions range in size from $50 thousand to $50 million, with financing terms from 36 to 180 months. CEF also maintains an asset management operation that both redeploys off-lease equipment and monitors asset values. The portfolio includes loans and leases for vehicles, manufacturing equipment, corporate aircraft, construction equipment, medical diagnostic equipment, office equipment, telecommunications equipment and electronics. GE Capital Vendor Financial Services ("VFS") provides financing services to over 90 equipment manufacturers and more than 3,500 dealers in North America, Europe and Asia. Customers include major U.S. and foreign manufacturers in a variety of industries including information technology, office equipment, healthcare, telecommunications, energy and industrial equipment. VFS establishes sales financing in two ways - by forming captive partnerships with manufacturers that do not have them, and by outsourcing captives from manufacturers that do. VFS offers industry-specific knowledge, leading edge technology, leasing and equipment expertise, and global capabilities. In addition, VFS provides an expanding array of related financial services to customers including trade payables financing. GE Capital European Equipment Finance ("EEF") is one of Europe's leading diversified equipment leasing businesses, offering financial solutions on a single-country or pan-European basis. Customers include manufacturers, vendors and end-users in industries such as office imaging, materials handling, corporate aircraft, information technology, broadcasting, machine tools, telecommunications and transportation. Products and services include loans, leases, off-balance sheet financing, master lease coordination and other services, such as helping end-users increase purchasing power through financing options and helping manufacturers and vendors offer leasing programs. Specialized Financing GE Capital Real Estate ("Real Estate") provides funds for the acquisition, refinancing and renovation of a wide range of commercial and residential properties located throughout the United States, and, to a lesser extent, in Canada, Mexico, Europe, and the Far East. Real Estate also provides asset management services to real estate investors and selected services to real estate owners. Lending is a major portion of Real Estate's business in the form of intermediate-term senior or subordinated fixed and floating-rate loans secured by existing income-producing commercial properties such as office buildings, rental apartments, shopping centers, industrial buildings, mobile home parks, hotels and warehouses. Loans range in amount from single-property mortgages typically not less than $5 million to multi-property portfolios of several hundred million dollars. Approximately 90% of all loans are senior mortgages. Real Estate purchases and provides restructuring financing for portfolios of real estate, mortgage loans, limited partnerships, and tax-exempt bonds. Real Estate's business also includes the origination and securitization 14 of low leverage real estate loans, which are intended to be held less than one year before outplacement. To a lesser degree, Real Estate provides equity capital for real estate partnerships through the holding of limited partnership interests and receives preferred returns; typically such investments range from $2 million to $10 million. Real Estate also offers a variety of real estate management services to outside investors, institutions, corporations, investment banks, and others through its real estate services subsidiaries. Asset management services include acquisitions and dispositions, strategic asset management, asset restructuring, and debt and equity management. Real Estate also provides investment products and advisory and asset management services to pension fund clients through GE Capital Investment Advisors, its registered investment advisor, as well as loan administration and servicing through GE Capital Asset Management. In addition, Real Estate offers owners of multi-family housing ways to reduce costs and enhance value in properties by offering buying services (e.g., for appliances, roofing). GE Capital Structured Finance Group ("SFG") provides specialized financial products and services to clients in the commercial and industrial, communications, energy, and transportation sectors, worldwide. SFG combines industry and technical expertise with significant financial capabilities to deliver a full range of sophisticated financial services and products. Services include project finance (construction and term), corporate finance, acquisition finance and arrangement and placement services. Products include a variety of debt and equity instruments, as well as structured transactions, including leasing and partnerships. GE Capital Commercial Finance ("CF") is a leading provider of revolving and term debt and equity to finance acquisitions, business expansion, bank refinancings, recapitalizations and other special situations. Products also include asset securitization facilities, capital expenditure lines and bankruptcy-related facilities. Transactions typically range in size from under $5 million to over $200 million. CF's clients are owners, managers and buyers of both public and private companies, principally manufacturers, distributors, retailers and diversified service providers in the healthcare, retail and communications industries. Through its Merchant Banking Group, CF provides senior debt, subordinated debt and bridge financing to buyout and private equity firms, and co-invests equity with buying groups or invests directly on a select basis. GE Equity, formerly GE Capital Equity Capital Group, purchases equity investments, primarily convertible preferred and common stock investments including, in some cases, stock warrants convertible into equity ownership. GE Equity's primary objective is long-term capital appreciation. Investments include the retail, financial services, healthcare, food and beverage, cable and broadcasting industries. The portfolio is geographically diversified with investments located throughout the United States, as well as in Latin America, Europe and Asia. Specialty Insurance GE Global Insurance, together with its affiliates, writes substantially all lines of reinsurance and certain lines of property and casualty insurance. GE Global Insurance has two principal subsidiaries, Employers Reinsurance Corporation and Kemper Reinsurance Company. These affiliates, together with their direct and indirect subsidiaries, reinsure property and casualty risks written by more than 1,000 insurers around the world. They also write certain specialty lines of insurance on a direct basis, principally excess workers' compensation for self-insurers, medical malpractice coverage for physicians and dentists, errors and omissions coverage for insurance agents and brokers, excess indemnity for self-insurers of medical benefits, and libel and allied torts. Other property and casualty affiliates write excess and surplus lines insurance and provide reinsurance brokerage services. The life reinsurance affiliates are engaged in the reinsurance of life insurance products, including term, whole and universal life, annuities, group long-term health products and the provision of financial reinsurance to life insurers. 15 FGIC Holdings ("FGIC"), through its subsidiary, Financial Guaranty Insurance Company ("Financial Guaranty"), is an insurer of municipal bonds, including new issues, bonds traded in the secondary market and bonds held in unit investment trusts and mutual funds. Financial Guaranty also guarantees certain taxable structured debt. The guaranteed principal, after reinsurance, amounted to approximately $131 billion at December 31, 1998. Approximately 86% of the business written to date by Financial Guaranty is municipal bond insurance. FGIC subsidiaries provide a variety of services to state and local governments and agencies, liquidity facilities in variable-rate transactions, municipal investment products and other services. GE Capital Mortgage Insurance is engaged principally in providing residential mortgage guaranty insurance. Operating in 25 field locations, GE Capital Mortgage Insurance is licensed in 50 states, the District of Columbia and the Virgin Islands. At December 31, 1998, GE Capital Mortgage Insurance was the mortgage insurance carrier for over 1,480,000 residential homes, with total insurance in force aggregating approximately $153 billion and total risk in force aggregating approximately $42 billion. GE Capital Mortgage Insurance also provides mortgage guaranty insurance in the United Kingdom, Canada, and Australia. GE Insurance Holdings (formerly Consolidated Financial Insurance) is a leading specialty insurer with operations in 13 European countries, Australia and the Philippines. GE Insurance Holdings is one of the leading payment protection insurers in the United Kingdom and Europe. Payment protection insurance is designed to protect customers' loan repayment obligations in the event of unemployment, disability or death. The product is sold alongside most forms of consumer credit through banks, building societies and finance houses. GE Insurance Holdings also provides an extensive range of personal investment products, including pension and purchased life annuities, home income plans and investment bonds through a network of over 6,000 independent financial advisors and a direct sales force, in the United Kingdom. In addition, GE Insurance Holdings sells insurance administration services for extended product warranty insurance and pet insurance, provides travel and personal accident insurance, and offers the management of uninsured loss claims on behalf of victims of traffic accidents. GEOGRAPHIC SEGMENTS, EXPORTS FROM THE U.S. AND TOTAL INTERNATIONAL OPERATIONS Financial data for geographic segments (based on the location of the Company operation supplying goods or services and including exports from the U.S. to unaffiliated customers) are reported in note 29 to consolidated financial statements on page 66 of the 1998 Annual Report to Share Owners. Additional financial data about GE's exports from the U.S. and total international operations are on pages 40 and 41 of the 1998 Annual Report to Share Owners. ORDERS BACKLOG See pages 35, 37 and 46 of the 1998 Annual Report to Share Owners for information about GE's backlog of unfilled orders. RESEARCH AND DEVELOPMENT Total expenditures for research and development were $1,930 million in 1998. Total expenditures had been $1,891 million in 1997 and $1,886 million in 1996. Of these amounts, $1,537 million in 1998 was GE-funded ($1,480 million in 1997 and $1,421 million in 1996); and $393 million in 1998 was funded by customers ($411 million in 1997 and $465 million in 1996), principally the U.S. government. Aircraft Engines accounts for the largest share of GE's research and 16 development expenditures from both GE and customer funds. Medical Systems, Power Systems, Transportation Systems and Plastics made other significant expenditures of GE and customer research and development funds. Approximately 8,000 person-years of scientist and engineering effort were devoted to research and development activities in 1998, with about 87% of the time involved primarily in GE-funded activities. ENVIRONMENTAL MATTERS See pages 46 and 60 of GE's 1998 Annual Report to Share Owners for a discussion of environmental matters. EMPLOYEE RELATIONS At year-end 1998, General Electric Company and consolidated affiliates employed 293,000 persons, of whom approximately 163,000 were in the United States. For further information about employees, see page 47 of the 1998 Annual Report to Share Owners. Approximately 35,000 GE manufacturing, engineering and service employees in the United States are represented for collective bargaining purposes by a total of approximately 165 different local collective bargaining groups. A majority of such employees are represented by union locals that are affiliated with, and bargain in conjunction with, the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers (IUE-AFL-CIO). During 1997, General Electric Company negotiated three-year contracts with unions representing a substantial majority of those United States employees who are represented by unions. Most of these contracts will terminate in June 2000. NBC is party to approximately 100 labor agreements covering about 2,000 staff employees (and a large number of freelance employees) in the United States. These agreements are with various labor unions, expire at various dates and are generally for a term ranging from three to five years. EXECUTIVE OFFICERS See Part III, Item 10 of this 10-K Report for information about Executive Officers of the Registrant. OTHER Because of the diversity of the Company's products and services, as well as the wide geographic dispersion of its production facilities, the Company uses numerous sources for the wide variety of raw materials needed for its operations. The Company has not been adversely affected by inability to obtain raw materials. The Company owns, or holds licenses to use, numerous patents. New patents are continuously being obtained through the Company's research and development activities as existing patents expire. Patented inventions are used both within the Company and licensed to others, but no operating segment is substantially dependent on any single patent or group of related patents. 17 Agencies of the U.S. Government constitute GE's largest single customer. An analysis of sales of goods and services as a percentage of revenues follows: % of Consolidated Revenues % of GE Revenues ----------------- ---------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Total sales to U.S. Government Agencies 2% 2% 3% 4% 3% 4% Aircraft Engines defense-related sales 1 2 2 3 3 3 ITEM 2. PROPERTIES Manufacturing operations are carried out at approximately 125 manufacturing plants located in 30 states in the United States and Puerto Rico and at some 155 manufacturing plants located in 30 other countries. ITEM 3. LEGAL PROCEEDINGS GENERAL As previously reported, on March 12, 1993, a complaint was filed in United States District Court for the District of Connecticut by ten employees of the Company's former Aerospace business, purportedly on behalf of all GE Aerospace employees whose GE employment status is or was affected by the then planned transfer of GE Aerospace to a new company controlled by the stockholders of Martin Marietta Corporation. The complaint sought to clarify and enforce the plaintiffs' claimed rights to pension benefits in accordance with, and rights to assets then held in, the GE Pension Plan (the "Plan"). The complaint names the Company, the trustees of the GE Pension Trust ("Trust"), and Martin Marietta Corporation and one of its former plan administrators as defendants. The complaint alleged primarily that the Company's planned transfer of certain assets of the Trust to a Martin Marietta pension trust, in connection with the transfer of the Aerospace business, violated the rights of the plaintiffs under the Plan and applicable provisions of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The complaint sought equitable and declaratory relief, including an injunction against transfer of the Plan assets except under circumstances and protections, if any, approved by the court, an order that the Company disgorge all profits allegedly received by it as a result of any such transfer and the making of restitution to the Trust for alleged investment losses resulting from the Company's treatment of Plan assets in connection with the transaction or alternatively the transfer of additional assets from the Trust to a new Martin Marietta pension trust, and an order requiring Martin Marietta to continue to offer transferred employees all accrued pension-related benefits for which they were eligible under the Plan as of the closing date of the transfer of the GE Aerospace business to Martin Marietta. On March 23, 1993, the Company and Martin Marietta Corporation filed motions to dismiss the complaint on the basis that the complaint does not state any claim upon which relief can be granted as a matter of law. On April 2, 1993, the transfer of the Aerospace business occurred, and on June 7, 1993, the court issued an order denying plaintiffs' request for injunctive relief. On September 26, 1996, the District Court granted defendants' motion to dismiss those claims which were based on allegations that the transfer of plan assets was unlawful, and ordered discovery on the remaining claims. As previously reported, the directors (other than Messrs. Cash, Gonzalez, Jung, Langone, Murphy, Nunn, Opie, Penske and Warner) and certain officers are defendants in a civil suit purportedly brought on behalf of the Company as a shareholder derivative action by Leslie McNeil, Harold Sachs, Arun Shingala and Paul and Harriet Luts (the McNeil action) in New York State Supreme Court on November 19, 1991. The suit alleges the Company was negligent and engaged in fraud in connection with the design and construction of containment systems for nuclear power plants and contends that, as a result, GE has incurred 18 significant financial liabilities and is potentially exposed to additional liabilities from claims brought by the Company's customers. The suit alleges breach of fiduciary duty by the defendants and seeks unspecified compensatory damages and other relief. On March 31, 1992, the defendants filed motions to dismiss the suit. On September 28, 1992, the court denied the motions as premature but ruled that they may be renewed after the completion of limited discovery. Defendants moved for reconsideration of that order, and on April 3, 1993, the court granted defendants' motion for reconsideration and directed that discovery be stayed pending the filing of an amended complaint. Plaintiffs filed an amended complaint on March 18, 1994, alleging breach of fiduciary duty, waste and indemnification claims. The defendants' time for responding to the amended complaint has been extended until 30 days following the completion of discovery. The defendants believe the plaintiffs' claims are without merit. ENVIRONMENTAL As previously reported, in April 1997, the United States Environmental Protection Agency informed the Company that it was considering issuing a complaint against the Company seeking $241,000 in penalties and alleging violations of the Emergency Planning and Community Right-to-Know Act for failure to report chemical use and releases from the Company's Waterford, New York facility. The Complaint was issued in April 1997 seeking $226,000 in penalties. The matter has been tentatively settled for a $92,000 penalty and $113,000 worth of donations to local emergency response organizations. As previously reported, in February 1997, the New York State Department of Environmental Conservation provided a draft complaint to the Company seeking $254,000 in penalties and alleging violations of the state's hazardous waste, clean water and spill acts at the Company's Waterford, New York facility. In January 1998, the matter was settled for $234,000. As previously reported, in August 1996, the Florida Department of Environmental Protection informed Greenwich Air Services that it was seeking penalties of $278,555 for violations of the state's hazardous waste law at its Miami facility (the facility was subsequently acquired as a portion of GE's purchase of Greenwich which was consummated in September 1997). The matter was settled on November 6, 1998, for $36,270 plus a supplemental wastewater treatment project. For further information regarding environmental matters, see pages 46 and 60 of GE's 1998 Annual Report to Share Owners. It is the view of management that none of the above described proceedings will have a material effect on the Company's financial position, results of operations, liquidity or competitive position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 19 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS With respect to "Stock Exchange Information", in the United States, GE common stock is listed on the New York Stock Exchange (its principal market) and on the Boston Stock Exchange. GE common stock also is listed on The Stock Exchange, London. Trading, as reported on the New York Stock Exchange, Inc., Composite Transactions Tape, and dividend information follows: - -------------------------------------------------------------------------------- Common stock market price - -------------------------------------------------------------------------------- Dividends (In dollars) High Low declared - -------------------------------------------------------------------------------- 1998 Fourth quarter $103 15/16 $69 $.35 Third quarter 96 7/8 72 5/8 .30 Second quarter 92 80 11/16 .30 First quarter 87 5/8 70 1/4 .30 1997 Fourth quarter $76 9/16 $59 $.30 Third quarter 74 5/8 61 5/16 .26 Second quarter 68 1/4 48 9/16 .26 First quarter 54 3/16 47 15/16 .26 - -------------------------------------------------------------------------------- As of December 31, 1998, there were about 543,000 share owner accounts of record. 20 ITEM 6. SELECTED FINANCIAL DATA Reported as data for revenues; earnings from continuing operations; earnings from continuing operations per share; loss from discontinued operations; net earnings; net earnings per share (basic and diluted); dividends declared; dividends declared per share; long-term borrowings; and total assets of continuing operations appearing on page 47 of the 1998 Annual Report to Share Owners. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reported on pages 33-35 and 37-46 (and graphs on pages 25, 33, 34, 37, 38, 39 and 40-46) of the Annual Report to Share Owners for the fiscal year ended December 31, 1998. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reported on pages 43-44 of the Annual Report to Share Owners for the fiscal year ended December 31, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See index under item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT Executive Officers of the Registrant (As of March 25, 1999)
Date assumed Executive Officer Name Position Age position - --------------------------------------------------------------------------------------------------------------- John F. Welch, Jr. Chairman of the Board and Chief Executive Officer 63 April 1981 Philip D. Ameen Vice President and Comptroller 50 April 1994 James R. Bunt Vice President and Treasurer 57 January 1993 David L. Calhoun Senior Vice President, GE Lighting 41 June 1995 William J. Conaty Senior Vice President, Human Resources 53 October 1993 David M. Cote Senior Vice President, GE Appliances 46 June 1996 Dennis D. Dammerman Vice Chairman of the Board and Executive Officer 53 March 1984 Lewis S. Edelheit Senior Vice President, Research and Development 56 November 1992 Benjamin W. Heineman, Jr. Senior Vice President, General Counsel and Secretary 55 September 1987 Jeffrey R. Immelt Senior Vice President, GE Medical Systems 43 January 1997 Goran S. Malm Senior Vice President, GE Asia-Pacific 52 October 1997 W. James McNerney, Jr. Senior Vice President, GE Aircraft Engines 49 January 1992 Eugene F. Murphy Vice Chairman of the Board and Executive Officer 63 October 1986 Robert L. Nardelli Senior Vice President, GE Power Systems 50 February 1992 Robert W. Nelson Vice President, Financial Planning and Analysis 58 September 1991 John D. Opie Vice Chairman of the Board and Executive Officer 61 August 1986 Gary M. Reiner Senior Vice President, Chief Information Officer 44 January 1991 John G. Rice Vice President, GE Transportation 42 September 1997 Gary L. Rogers Senior Vice President, GE Plastics 54 December 1989 Keith S. Sherin Senior Vice President, Finance, and Chief Financial Officer 40 December 1998 Lloyd G. Trotter Senior Vice President, GE Industrial Systems 53 November 1992
All Executive Officers are elected by the Board of Directors for an initial term which continues until the first Board meeting following the next annual statutory meeting of share owners and thereafter are elected for one-year terms or until their successors have been elected. All Executive Officers have been executives of GE for the last five years. The remaining information called for by this item is incorporated by reference to "Election of Directors" in the definitive proxy statement relating to the registrant's Annual Meeting of Share Owners to be held April 21, 1999. 22 ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to "Board of Directors and Committees," "Summary Compensation Table," "Stock Options and Stock Appreciation Rights" and "Retirement Benefits" in the definitive proxy statement relating to the registrant's Annual Meeting of Share Owners to be held April 21, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to "Information relating to Directors, Nominees and Executive Officers" in the registrant's definitive proxy statement relating to its Annual Meeting of Share Owners to be held April 21, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to "Certain Transactions" in the registrant's definitive proxy statement relating to its Annual Meeting of Share Owners to be held April 21, 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial statements applicable to General Electric Company and consolidated affiliates are contained on the page(s) indicated in the GE Annual Report to Share Owners for the fiscal year ended December 31, 1998. Annual 10-K Report Report Page(s) Page(s) ------- ------- Statement of earnings for the years ended December 31, 1998, 1997 and 1996 26 F-2 Consolidated statement of changes in share owners' equity for the years ended December 31, 1998, 1997 and 1996 26 F-2 Statement of financial position at December 31, 1998 and 1997 28 F-4 Statement of cash flows for the years ended December 31, 1998, 1997 and 1996 30 F-6 Independent Auditors' Report 32 F-8 Other financial information: Notes to consolidated financial statements 48-68 F-24 to F-44 Operating segment information 35-40 F-11 to F-16 64-65 F-40 to F-41 Geographic segment information 66 F-42 Operations by quarter (unaudited) 68 F-44 23 (a)2. The schedules listed in Reg. 210.5-04 have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (a)3. Exhibit Index (3) Restated Certificate of Incorporation, as amended, and By-laws, as amended, of General Electric Company. (Incorporated by reference to Exhibit of the same number to General Electric Form 8-K (Commission file number 1-35) filed with the Commission April 28, 1997.) (4) Agreement to furnish to the Securities and Exchange Commission upon request a copy of instruments defining the rights of holders of certain long-term debt of the registrant and consolidated subsidiaries.* (10) All of the following exhibits consist of Executive Compensation Plans or Arrangements: (a) General Electric Incentive Compensation Plan, as amended effective July 1, 1991. (Incorporated by reference to Exhibit of the same number to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1991.) (b) General Electric Supplementary Pension Plan, as amended effective July 1, 1991. (Incorporated by reference to Exhibit 10(e) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1991.) (c) Amendment to General Electric Supplementary Pension Plan dated May 22, 1992. (Incorporated by reference to Exhibit 10(d) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1992.) (d) Amendment to General Electric Supplementary Pension Plan, dated September 10, 1993. (Incorporated by reference to Exhibit 10(e) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993.) (e) Amendment to General Electric Supplementary Pension Plan, dated July 1, 1994. (Incorporated by reference to Exhibit 10(f) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1994.) (f) General Electric Insurance Plan for Directors. (Incorporated by reference to Exhibit 10(i) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1980.) (g) General Electric Financial Planning Program, as amended through September 1993. (Incorporated by reference to Exhibit 10(h) to General Electric Annual Report on Form 10-K 24 (Commission file number 1-35) for the fiscal year ended December 31, 1993.) (h) General Electric Supplemental Life Insurance Program, as amended February 8, 1991. (Incorporated by reference to Exhibit 10(i) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1990.) (i) General Electric Directors' Retirement and Optional Life Insurance Plan. (Incorporated by reference to Exhibit 10(l) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1986.) (j) General Electric 1987 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(k) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1987.) (k) General Electric 1991 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(n) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1990.) (l) General Electric 1994 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(o) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993.) (m) General Electric Directors' Charitable Gift Plan, as amended through May 1993. (Incorporated by reference to Exhibit 10(p) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993.) (n) General Electric Leadership Life Insurance Program, effective January 1, 1994. (Incorporated by reference to Exhibit 10(r) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993.) (o) General Electric 1996 Stock Option Plan for Non-Employee Directors. (Incorporated by reference to Exhibit A to the General Electric Proxy Statement for its Annual Meeting of Share Owners held on April 24, 1996.) (p) General Electric 1995 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(t) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1995.) (q) General Electric 1996 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(v) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1996.) (r) Employment and Post-Retirement Consulting Agreement Between General Electric Company and John F. Welch, Jr. (Incorporated by reference to Exhibit 10(w) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1996.) 25 (s) General Electric 1997 Executive Deferred Salary Plan. (Incorporated by reference to Exhibit 10(t) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1997.) (t) General Electric 1990 Long Term Incentive Plan as restated and amended effective August 1, 1997. (Incorporated by reference to Exhibit 10(u) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1997.) (u) General Electric Deferred Compensation Plan for Directors, as amended December 19, 1997. (Incorporated by reference to Exhibit 10(v) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1997.) (v) General Electric 1998 Executive Deferred Salary Plan.* (w) General Electric Non-Employee Director Fee Plan (Formerly the Deferred Compensation Plan for Directors).* (11) Statement re Computation of Per Share Earnings.** (12) Computation of Ratio of Earnings to Fixed Charges.* (21) Subsidiaries of Registrant.* (23) Consent of independent auditors incorporated by reference in each Prospectus constituting part of the Registration Statements on Form S-3 (Registration Nos. 33-29024, 33-3908, 33-39596, 33-39596-01, 33-47085, 33-50639, 33-61029, 33-61029-01, 333-46551 and 333-59671), on Form S-4 (Registration Nos. 333-01947 and 333-74417) and on Form S-8 (Registration Nos. 2-84145, 33-35922, 333-01953, 333-23767, 333-42695 and 333-74415).* (24) Power of Attorney.* (27) Financial Data Schedule.* (99)(a) Income Maintenance Agreement, dated March 28, 1991, between the registrant and General Electric Capital Corporation. (Incorporated by reference to Exhibit 28(a) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1990.) (99)(b) Undertaking for Inclusion in Registration Statements on Form S-8 of General Electric Company. (Incorporated by reference to Exhibit 99(b) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1992.) 26 (99)(c) Letter, dated June 29, 1995, from Dennis D. Dammerman of General Electric Company to Gary C. Wendt of General Electric Capital Corporation pursuant to which General Electric Company agrees to provide additional equity to General Electric Capital Corporation in conjunction with certain redemptions by General Electric Capital Corporation of share of its Variable Cumulative Preferred Stock. (Incorporated by reference to Exhibit 99(g) to General Electric Capital Corporation's Registration Statement on Form S-3, File No. 33-61257.) * Filed electronically herewith. ** Information required to be presented in Exhibit 11 is now provided in note 9 to the 1998 Annual Report to Share Owners in accordance with the provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. (b) Reports on Form 8-K during the quarter ended December 31, 1998. No reports on Form 8-K were filed during the quarter ended December 31, 1998. 27 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K for the fiscal year ended December 31, 1998, to be signed on its behalf by the undersigned, and in the capacities indicated, thereunto duly authorized in the Town of Fairfield and State of Connecticut on the 25th day of March 1999. General Electric Company (Registrant) By Keith S. Sherin ----------------------------------- Senior Vice President, Finance, and Chief Financial Officer (Principal Financial Officer) 28 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signer Title Date ------ ----- ---- Keith S. Sherin - ------------------------------- Senior Vice President, Finance, Principal Financial Officer March 25, 1999 and Chief Financial Officer Philip D. Ameen - ------------------------------- Vice President and Comptroller Principal Accounting Officer March 25, 1999 John F. Welch, Jr.* Chairman of the Board of Directors (Principal Executive Officer) Dennis D. Dammerman* Director Paolo Fresco* Director Claudio X. Gonzalez* Director Kenneth G. Langone* Director Eugene F. Murphy* Director Sam Nunn* Director John D. Opie* Director Roger S. Penske* Director Andrew C. Sigler* Director Douglas A. Warner III* Director A majority of the Board of Directors *By Benjamin W. Heineman, Jr. ----------------------------------- Attorney-in-fact March 25, 1999 F-1 ANNUAL REPORT PAGE 25 - --------------------- FINANCIAL SECTION CONTENTS 32 INDEPENDENT AUDITORS' REPORT AUDITED FINANCIAL STATEMENTS 26 Earnings 26 Changes in Share Owners' Equity 28 Financial Position 30 Cash Flows 48 Notes to Consolidated Financial Statements MANAGEMENT'S DISCUSSION 32 Financial Responsibility 33 Operations 33 Consolidated Operations 35 Segment Operations 40 International Operations 42 Financial Resources and Liquidity 46 Selected Financial Data [CHART HERE] CONSOLIDATED REVENUES - ----------------------------------------------------------------------------- (IN BILLIONS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- $60.109 $70.028 $79.179 $90.840 $100.469 - ----------------------------------------------------------------------------- [CHART HERE] EARNINGS PER SHARE FROM CONTINUING OPERATIONS - ----------------------------------------------------------------------------- (IN DOLLARS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- $1.71 $1.93 $2.16 $2.46 $2.80 - ----------------------------------------------------------------------------- [CHART HERE] DIVIDENDS DECLARED PER SHARE - ----------------------------------------------------------------------------- (IN DOLLARS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- $0.745 $0.845 $0.95 $1.08 $1.25 - ----------------------------------------------------------------------------- F-2 ANNUAL REPORT PAGE 26 - --------------------- STATEMENT OF EARNINGS
General Electric Company and consolidated affiliates ---------------------------------- For the years ended December 31 (In millions; per-share amounts in dollars) 1998 1997 1996 - --------------------------------------------------------------------------------------------------- REVENUES Sales of goods $ 43,749 $ 40,675 $ 36,106 Sales of services 14,938 12,729 11,791 Other income (note 2) 649 2,300 638 Earnings of GECS -- -- -- GECS revenues from services (note 3) 41,133 35,136 30,644 ---------------------------------- Total revenues 100,469 90,840 79,179 ---------------------------------- COSTS AND EXPENSES (note 4) Cost of goods sold 31,772 30,889 26,298 Cost of services sold 10,508 9,199 8,293 Interest and other financial charges 9,753 8,384 7,904 Insurance losses and policyholder and annuity benefits 9,608 8,278 6,678 Provision for losses on financing receivables (note 7) 1,609 1,421 1,033 Other costs and expenses 23,477 21,250 17,898 Minority interest in net earnings of consolidated affiliates 265 240 269 ---------------------------------- Total costs and expenses 86,992 79,661 68,373 ---------------------------------- EARNINGS BEFORE INCOME TAXES 13,477 11,179 10,806 Provision for income taxes (note 8) (4,181) (2,976) (3,526) ---------------------------------- NET EARNINGS $ 9,296 $ 8,203 $ 7,280 =================================================================================================== PER-SHARE AMOUNTS (note 9) Diluted earnings per share $ 2.80 $ 2.46 $ 2.16 Basic earnings per share $ 2.84 $ 2.50 $ 2.20 - --------------------------------------------------------------------------------------------------- DIVIDENDS DECLARED PER SHARE $ 1.25 $ 1.08 $ 0.95 - ---------------------------------------------------------------------------------------------------
F-3 ANNUAL REPORT PAGE 27 - --------------------- STATEMENT OF EARNINGS (continued)
GE GECS For the years ended December 31 (In millions; ------------------------------ ------------------------------- per-share amounts in dollars) 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ REVENUES Sales of goods $ 36,376 $ 36,059 $ 34,196 $ 7,374 $ 4,622 $ 1,926 Sales of services 15,170 12,893 11,923 -- -- -- Other income (note 2) 684 2,307 629 -- -- -- Earnings of GECS 3,796 3,256 2,817 -- -- -- GECS revenues from services (note 3) -- -- -- 41,320 35,309 30,787 ------------------------------- ------------------------------- Total revenues 56,026 54,515 49,565 48,694 39,931 32,713 ------------------------------- ------------------------------- COSTS AND EXPENSES (note 4) Cost of goods sold 24,996 26,747 24,594 6,777 4,147 1,720 Cost of services sold 10,740 9,363 8,425 -- -- -- Interest and other financial charges 883 797 595 8,966 7,649 7,326 Insurance losses and policyholder and annuity benefits -- -- -- 9,608 8,278 6,678 Provision for losses on financing receivables (note 7) -- -- -- 1,609 1,421 1,033 Other costs and expenses 7,177 7,476 6,274 16,426 13,893 11,741 Minority interest in net earnings of consolidated affiliates 117 119 102 148 121 167 ------------------------------- ------------------------------- Total costs and expenses 43,913 44,502 39,990 43,534 35,509 28,665 ------------------------------- ------------------------------- EARNINGS BEFORE INCOME TAXES 12,113 10,013 9,575 5,160 4,422 4,048 Provision for income taxes (note 8) (2,817) (1,810) (2,295) (1,364) (1,166) (1,231) ------------------------------- ------------------------------- NET EARNINGS $ 9,296 $ 8,203 $ 7,280 $ 3,796 $ 3,256 $ 2,817 ==================================================================================================================================== 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.
CONSOLIDATED STATEMENT OF CHANGES IN SHARE OWNERS' EQUITY
------------------------------- (In millions) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------ CHANGES IN SHARE OWNERS' EQUITY Balance at January 1 $ 34,438 $ 31,125 $ 29,609 ------------------------------- Dividends and other transactions with share owners (note 25) (5,178) (5,615) (5,318) ------------------------------- Changes other than transactions with share owners Increases attributable to net earnings 9,296 8,203 7,280 Unrealized gains (losses) on investment securities-- net (note 25) 264 1,467 (329) Currency translation adjustments (note 25) 60 (742) (117) ------------------------------- Total changes other than transactions with share owners 9,620 8,928 6,834 ------------------------------- Balance at December 31 $ 38,880 $ 34,438 $ 31,125 ====================================================================================================== The notes to consolidated financial statements on pages 48-68 are an integral part of these statements.
F-4 ANNUAL REPORT PAGE 28 - --------------------- STATEMENT OF FINANCIAL POSITION
General Electric Company and consolidated affiliates --------------------------- At December 31 (In millions) 1998 1997 - ------------------------------------------------------------------------------------------- ASSETS Cash and equivalents $ 4,317 $ 5,861 Investment securities (note 10) 78,717 70,621 Current receivables (note 11) 8,224 8,924 Inventories (note 12) 6,049 5,895 Financing receivables (investments in time sales, loans and financing leases) -- net (notes 7 and 13) 121,566 103,799 Other GECS receivables (note 14) 24,789 17,655 Property, plant and equipment (including equipment leased to others) -- net (note 15) 35,730 32,316 Investment in GECS -- -- Intangible assets -- net (note 16) 23,635 19,121 All other assets (note 17) 52,908 39,820 --------------------------- TOTAL ASSETS $ 355,935 $ 304,012 =========================================================================================== LIABILITIES AND EQUITY Short-term borrowings (note 19) $ 115,378 $ 98,075 Accounts payable, principally trade accounts 12,502 10,407 Progress collections and price adjustments accrued 2,765 2,316 Dividends payable 1,146 979 All other GE current costs and expenses accrued (note 18) 9,788 8,891 Long-term borrowings (note 19) 59,663 46,603 Insurance liabilities, reserves and annuity benefits (note 20) 77,259 67,270 All other liabilities (note 21) 24,939 22,700 Deferred income taxes (note 22) 9,340 8,651 --------------------------- Total liabilities 312,780 265,892 --------------------------- Minority interest in equity of consolidated affiliates (note 23) 4,275 3,682 --------------------------- Accumulated unrealized gains on investment securities-- net (a) 2,402 2,138 Accumulated currency translation adjustments (a) (738) (798) Common stock (3,271,296,000 and 3,264,592,000 shares outstanding at year-end 1998 and 1997, respectively) 594 594 Other capital 6,808 4,434 Retained earnings 48,553 43,338 Less common stock held in treasury (18,739) (15,268) --------------------------- Total share owners' equity (notes 25 and 26) 38,880 34,438 --------------------------- TOTAL LIABILITIES AND EQUITY $ 355,935 $ 304,012 =========================================================================================== The notes to consolidated financial statements on pages 48-68 are an integral part of this statement. (a) The sum of accumulated unrealized gains on investment securities and accumulated currency translation adjustments constitutes "Accumulated nonowner changes other than earnings," as shown in note 25, and was $1,664 million and $1,340 million at year-end 1998 and 1997, respectively.
F-5 ANNUAL REPORT PAGE 29 - --------------------- STATEMENT OF FINANCIAL POSITION (continued)
GE GECS ------------------------ ---------------------- At December 31 (In millions) 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash and equivalents $ 1,175 $ 1,157 $ 3,342 $ 4,904 Investment securities (note 10) 259 265 78,458 70,356 Current receivables (note 11) 8,483 9,054 -- -- Inventories (note 12) 5,305 5,109 744 786 Financing receivables (investments in time sales, loans and financing leases) -- net (notes 7 and 13) -- -- 121,566 103,799 Other GECS receivables (note 14) -- -- 25,973 18,332 Property, plant and equipment (including equipment leased to others) -- net (note 15) 11,694 11,118 24,036 21,198 Investment in GECS 19,727 17,239 -- -- Intangible assets -- net (note 16) 9,996 8,755 13,639 10,366 All other assets (note 17) 18,031 14,729 35,539 25,667 ------------------------ ---------------------- TOTAL ASSETS $ 74,670 $ 67,426 $ 303,297 $ 255,408 ==================================================================================================================================== LIABILITIES AND EQUITY Short-term borrowings (note 19) $ 3,466 $ 3,629 $ 113,162 $ 95,274 Accounts payable, principally trade accounts 4,845 4,779 8,815 6,490 Progress collections and price adjustments accrued 2,765 2,316 -- -- Dividends payable 1,146 979 -- -- All other GE current costs and expenses accrued (note 18) 9,708 8,763 -- -- Long-term borrowings (note 19) 681 729 59,038 45,989 Insurance liabilities, reserves and annuity benefits (note 20) -- -- 77,259 67,270 All other liabilities (note 21) 12,613 11,539 12,247 11,067 Deferred income taxes (note 22) (250) (315) 9,590 8,966 ------------------------ ---------------------- Total liabilities 34,974 32,419 280,111 235,056 ------------------------ ---------------------- Minority interest in equity of consolidated affiliates (note 23) 816 569 3,459 3,113 ------------------------ ---------------------- Accumulated unrealized gains on investment securities -- net (a) 2,402 2,138 2,376 2,135 Accumulated currency translation adjustments (a) (738) (798) (215) (185) Common stock (3,271,296,000 and 3,264,592,000 shares outstanding at year-end 1998 and 1997, respectively) 594 594 1 1 Other capital 6,808 4,434 2,490 2,337 Retained earnings 48,553 43,338 15,075 12,951 Less common stock held in treasury (18,739) (15,268) -- -- ------------------------ ---------------------- Total share owners' equity (notes 25 and 26) 38,880 34,438 19,727 17,239 ------------------------ ---------------------- TOTAL LIABILITIES AND EQUITY $ 74,670 $ 67,426 $ 303,297 $ 255,408 ==================================================================================================================================== In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 28.
F-6 ANNUAL REPORT PAGE 30 - --------------------- STATEMENT OF CASH FLOWS
General Electric Company and consolidated affiliates --------------------------------- For the years ended December 31 (In millions) 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 9,296 $ 8,203 $ 7,280 Adjustments to reconcile net earnings to cash provided from operating activities Depreciation and amortization of property, plant and equipment 4,377 4,082 3,785 Amortization of goodwill and other intangibles 1,483 1,187 983 Earnings retained by GECS -- -- -- Deferred income taxes 1,143 284 1,145 Decrease in GE current receivables 649 250 118 Decrease (increase) in inventories 150 (386) (134) Increase (decrease) in accounts payable 1,576 200 641 Increase in insurance liabilities, reserves and annuity benefits 3,670 1,669 1,491 Provision for losses on financing receivables 1,609 1,421 1,033 All other operating activities (4,593) (2,670) 1,509 --------------------------------- CASH FROM OPERATING ACTIVITIES 19,360 14,240 17,851 --------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (8,982) (8,388) (7,760) Dispositions of property, plant and equipment 4,043 2,251 1,363 Net increase in GECS financing receivables (6,301) (1,898) (2,278) Payments for principal businesses purchased (18,610) (5,245) (5,516) All other investing activities (10,283) (4,995) (6,021) --------------------------------- CASH USED FOR INVESTING ACTIVITIES (40,133) (18,275) (20,212) --------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in borrowings (maturities of 90 days or less) 16,881 13,684 11,827 Newly issued debt (maturities longer than 90 days) 42,008 21,249 23,153 Repayments and other reductions (maturities longer than 90 days) (32,814) (23,787) (25,906) Net purchase of GE shares for treasury (2,819) (2,815) (2,323) Dividends paid to share owners (3,913) (3,411) (3,050) All other financing activities (114) 785 28 --------------------------------- CASH FROM (USED FOR) FINANCING ACTIVITIES 19,229 5,705 3,729 --------------------------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR (1,544) 1,670 1,368 Cash and equivalents at beginning of year 5,861 4,191 2,823 --------------------------------- Cash and equivalents at end of year $ 4,317 $ 5,861 $ 4,191 ========================================================================================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $ (9,297) $ (8,264) $ (7,874) Cash paid during the year for income taxes (2,098) (1,937) (1,392) ========================================================================================================= The notes to consolidated financial statements on pages 48-68 are an integral part of this statement.
F-7 ANNUAL REPORT PAGE 31 - --------------------- STATEMENT OF CASH FLOWS (continued)
GE GECS ----------------------------- ------------------------------- For the years ended December 31 (In millions) 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 9,296 $ 8,203 $ 7,280 $ 3,796 $ 3,256 $ 2,817 Adjustments to reconcile net earnings to cash provided from operating activities Depreciation and amortization of property, plant and equipment 1,761 1,622 1,635 2,616 2,460 2,150 Amortization of goodwill and other intangibles 531 407 328 952 780 655 Earnings retained by GECS (2,124) (1,597) (1,836) -- -- -- Deferred income taxes 594 (514) 68 549 798 1,077 Decrease in GE current receivables 520 215 152 -- -- -- Decrease (increase) in inventories 69 (145) (76) 81 (244) (58) Increase (decrease) in accounts payable 199 237 197 1,673 (64) 318 Increase in insurance liabilities, reserves and annuity benefits -- -- -- 3,670 1,669 1,491 Provision for losses on financing receivables -- -- -- 1,609 1,421 1,033 All other operating activities (814) 889 1,319 (3,991) (3,851) 284 ----------------------------- ------------------------------- CASH FROM OPERATING ACTIVITIES 10,032 9,317 9,067 10,955 6,225 9,767 ----------------------------- ------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (2,047) (2,191) (2,389) (6,935) (6,197) (5,371) Dispositions of property, plant and equipment 6 39 30 4,037 2,212 1,333 Net increase in GECS financing receivables -- -- -- (6,301) (1,898) (2,278) Payments for principal businesses purchased (1,455) (1,425) (1,122) (17,155) (3,820) (4,394) All other investing activities 477 483 (106) (11,078) (5,646) (6,090) ----------------------------- ------------------------------- CASH USED FOR INVESTING ACTIVITIES (3,019) (3,094) (3,587) (37,432) (15,349) (16,800) ----------------------------- ------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in borrowings (maturities of 90 days or less) 1,015 809 974 16,288 13,594 11,026 Newly issued debt (maturities longer than 90 days) 509 424 252 41,440 20,825 22,901 Repayments and other reductions (maturities longer than 90 days) (1,787) (1,030) (1,250) (31,027) (22,757) (24,656) Net purchase of GE shares for treasury (2,819) (2,815) (2,323) -- -- -- Dividends paid to share owners (3,913) (3,411) (3,050) (1,672) (1,653) (981) All other financing activities -- -- -- (114) 785 28 ----------------------------- ------------------------------- CASH FROM (USED FOR) FINANCING ACTIVITIES (6,995) (6,023) (5,397) 24,915 10,794 8,318 ----------------------------- ------------------------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 18 200 83 (1,562) 1,670 1,285 Cash and equivalents at beginning of year 1,157 957 874 4,904 3,234 1,949 ----------------------------- ------------------------------- Cash and equivalents at end of year $ 1,175 $ 1,157 $ 957 $ 3,342 $ 4,904 $ 3,234 ==================================================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $ (620) $ (467) $ (411) $ (8,677) $ (7,797) $ (7,463) Cash paid during the year for income taxes (1,151) (1,596) (1,286) (947) (341) (106) ==================================================================================================================================== In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 30.
F-8 ANNUAL REPORT PAGE 32 - --------------------- MANAGEMENT'S DISCUSSION OF FINANCIAL RESPONSIBILITY The financial data in this report, including the audited financial statements, have been prepared by management using the best available information and applying judgment. Accounting principles used in preparing the financial statements are those that are generally accepted in the United States. Management believes that a sound, dynamic system of internal financial controls that balances benefits and costs provides a vital ingredient for the Company's Six Sigma quality program as well as the best safeguard for Company assets. Professional financial managers are responsible for implementing and overseeing the financial control system, reporting on management's stewardship of the assets entrusted to it by share owners and maintaining accurate records. GE is dedicated to the highest standards of integrity, ethics and social responsibility. This dedication is reflected in written policy statements covering, among other subjects, environmental protection, potentially conflicting outside interests of employees, compliance with antitrust laws, proper business practices, and adherence to the highest standards of conduct and practices in transactions with the U.S. government. Management continually emphasizes to all employees that even the appearance of impropriety can erode public confidence in the Company. Ongoing education and communication programs and review activities, such as those conducted by the Company's Policy Compliance Review Board, are designed to create a strong compliance culture -- one that encourages employees to raise their policy questions and concerns and that prohibits retribution for doing so. KPMG LLP provides an objective, independent review of management's discharge of its obligations relating to the fairness of reporting of operating results and financial condition. Their report for 1998 appears below. The Audit Committee of the Board (consisting solely of Directors from outside GE) maintains an ongoing appraisal -- on behalf of share owners -- of the activities and independence of the Company's independent auditors, the activities of its internal audit staff, financial reporting process, internal financial controls and compliance with key Company policies. John F. Welch, Jr. Keith S. Sherin Chairman of the Board and Senior Vice President, Finance, and Chief Executive Officer Chief Financial Officer February 12, 1999 - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT TO SHARE OWNERS AND BOARD OF DIRECTORS OF GENERAL ELECTRIC COMPANY We have audited the financial statements of General Electric Company and consolidated affiliates as listed in Item 14 (a)1 on page 22. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of General Electric Company and consolidated affiliates at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Stamford, Connecticut February 12, 1999 F-9 ANNUAL REPORT PAGE 33 - --------------------- MANAGEMENT'S DISCUSSION OF OPERATIONS OVERVIEW General Electric Company's consolidated financial statements represent the combination of the Company's manufacturing and nonfinancial services businesses ("GE") and the accounts of General Electric Capital Services, Inc. ("GECS"). See note 1 to the consolidated financial statements, which explains how the various financial data are presented. Management's Discussion of Operations is presented in three parts: Consolidated Operations, Segment Operations and International Operations. CONSOLIDATED OPERATIONS GE achieved record revenues, earnings and cash generation in 1998. This year's performance again demonstrated the benefits of GE's continuing emphasis on growth in services, Six Sigma quality and globalization. Revenues, including acquisitions, rose to a record $100.5 billion in 1998, up 11% from 1997. This increase was primarily attributable to continued growth from global activities and product services. Revenues were $90.8 billion in 1997, a 15% increase from 1996 attributable primarily to increased global activities and higher sales of product services. Earnings increased to a record $9.296 billion, a 13% increase from $8.203 billion reported in 1997. Earnings per share increased to $2.80 during 1998, up 14% from the prior year's $2.46. Except as otherwise noted, earnings per share are presented on a diluted basis. Earnings in 1997 rose 13% from $7.280 billion reported in 1996. In 1997, earnings per share increased 14% from $2.16 per share in 1996. Growth rates in earnings per share exceeded growth rates in earnings as a result of the ongoing repurchase of shares under the six-year, $17 billion share repurchase plan initiated in December 1994. A consolidated statement of changes in share owners' equity is provided on page 26, summarizing information about movements in equity from transactions with share owners and other sources. Additional information about such changes is provided in note 25. NEW ACCOUNTING STANDARDS issued in 1998 are described below. Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, requires that, upon adoption, all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value, and that changes in such fair values be recognized in earnings unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged items; effects of certain changes in fair value are recorded in equity pending recognition in earnings. GE will adopt the Statement on January 1, 2000. The impact of adoption will be determined by several factors, including the specific hedging instruments in place and their relationships to hedged items, as well as market conditions. Management has not estimated the effects of adoption as it believes that such determination will not be meaningful until closer to the adoption date. Statement of Position (SOP) 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES, provides guidance on accounting for start-up costs and organization costs, which must be expensed as incurred. The SOP, which is consistent with GE's previous accounting policy, is effective for financial statements beginning January 1, 1999. DIVIDENDS DECLARED IN 1998 AMOUNTED TO $4.081 BILLION. Per-share dividends of $1.25 were up 16% from 1997, following a 14% increase from the preceding year. GE has rewarded its share owners with 23 consecutive years of dividend growth. The chart below illustrates that GE's dividend growth for the past five years has significantly outpaced dividend growth of companies in the Standard & Poor's 500 stock index. RETURN ON AVERAGE SHARE OWNERS' EQUITY reached 25.7% in 1998, up from 25.0% and 24.0% in 1997 and 1996, respectively. [CHART HERE] GE/S&P CUMULATIVE DIVIDEND GROWTH SINCE 1993 - ----------------------------------------------------------------------------- 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- GE 14.09% 26.41% 40.24% 58.25% 83.53% S&P 500 4.77 9.62 18.44 23.21 28.78 - ----------------------------------------------------------------------------- F-10 ANNUAL REPORT PAGE 34 - --------------------- Except as otherwise noted, the analysis in the remainder of this section presents GE results with GECS on an equity basis. GE TOTAL REVENUES were $56.0 billion in 1998, compared with $54.5 billion in 1997 and $49.6 billion in 1996. o GE sales of goods and services were $51.5 billion in 1998, an increase of 5% from 1997, which in turn was 6% higher than in 1996. Volume was about 8% higher in 1998, including acquisitions, reflecting growth in most businesses during the year. While overall selling prices were down slightly in 1998, the effects of selling prices on sales in various businesses differed markedly. Revenues were also negatively affected by exchange rates for sales denominated in other than U.S. dollars. Volume in 1997 was about 9% higher than in 1996, with selling price and currency effects both slightly negative. For purposes of the required financial statement display of GE sales and costs of sales on pages 26 and 27, "goods" refers to tangible products, and "services" refers to all other sales, including broadcasting and information services activities. An increasingly important element of GE sales relates to product services, including both spare parts (goods) as well as repair services. Sales of product services were $12.6 billion in 1998, including acquisitions, a strong double-digit increase over 1997. Nearly all businesses reported increases in product services revenues, led by double-digit increases at Aircraft Engines, Transportation Systems and Power Systems. Operating margin from product services was approximately $2.8 billion, up from $2.5 billion in 1997. This improvement was primarily attributable to strong growth at Aircraft Engines and Power Systems. o GE other income, earned from a wide variety of sources, was $0.7 billion in 1998, $2.3 billion in 1997 and $0.6 billion in 1996. The decrease in other income in 1998 was primarily attributable to the lack of a current-year counterpart to the $1,538 million after-tax gain realized in 1997 from exchanging preferred stock in Lockheed Martin Corporation (Lockheed Martin) for the stock of a newly formed subsidiary as described in note 2. o Earnings of GECS were up 17% in 1998, following a 16% increase the year before. See page 37 for an analysis of these earnings. PRINCIPAL COSTS AND EXPENSES FOR GE are those classified as costs of goods and services sold, and selling, general and administrative expenses. The Six Sigma quality initiative is an important factor affecting GE's cost structure. The benefits of Six Sigma quality are reflected in both variable and base cost productivity (discussed on page 35) as well as in lower direct material costs. [CHART HERE] GE OPERATING MARGIN AS A PERCENTAGE OF SALES - ----------------------------------------------------------------------------- 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- AS REPORTED 13.6% 14.4% 14.8% 11.0% 16.7% RESTRUCTURING AND OTHER SPECIAL CHARGES - - - 4.7 - --------------------------------------------------- OPERATING MARGIN BEFORE RESTRUCTURING AND OTHER SPECIAL CHARGES 13.6% 14.4% 14.8% 15.7% 16.7% - ----------------------------------------------------------------------------- Comparisons between 1998 and 1997 costs and expenses are affected by restructuring and other special charges amounting to $2,322 million recorded in the fourth quarter of 1997. Aggregate restructuring charges of $1,243 million covered certain costs of plans that will enhance GE's global competitiveness through rationalization of certain production, service and administration activities of its worldwide industrial businesses; among these charges were $577 million of special early retirement pension, health and life benefit costs, including a one-time voluntary early retirement program that was provided to the U.S. work force in the 1997 labor contracts. Also included in restructuring charges were other severance costs as well as certain costs of exiting affected properties, including site demolitions, asset write-offs and expected losses on subleases. Other special charges amounting to $1,079 million were also recorded in 1997, principally associated with strategic decisions to enhance the long-term competitiveness of certain industrial businesses and fourth-quarter developments arising from past activities at several current and former manufacturing sites not associated with any current business segments. Such special charges included $275 million to reflect higher estimated manufacturing costs to fill firm customer orders for an aircraft engine program and $261 million that related principally to gas turbine warranty costs and costs arising from renegotiation and resolution of certain disputes in the Power Systems business. As discussed on page 35, restructuring and other special charges are not allocated to segments for purposes of measuring segment profit. OPERATING MARGIN is sales of goods and services less the costs of goods and services sold, and selling, general and administrative expenses. GE operating margin reached a record 16.7% of sales in 1998, compared with 15.7% achieved in 1997 before the effects of restructuring and other special charges, and 14.8% in 1996. Including restructuring and other special charges, GE reported operating margin of 11.0% of sales in 1997. The improvement in ongoing operating margin in F-11 ANNUAL REPORT PAGE 35 - --------------------- 1998 was broad-based, with improvements in a majority of GE's businesses reflecting the increasing benefits from GE's product services and Six Sigma quality initiatives. TOTAL COST PRODUCTIVITY (sales in relation to costs, both on a constant dollar basis) has paralleled the significant improvement in GE's ongoing operating margin. Total cost productivity in 1998 was 4.4%, reflecting benefits from the Six Sigma quality initiative as well as higher volume. Three businesses -- Medical Systems, Power Systems and NBC -- achieved productivity in excess of 5%. Total cost productivity was 4.2% in 1997, reflecting Six Sigma benefits and the positive effects of higher volume. In 1997, three businesses -- Power Systems, NBC and Plastics -- reported productivity in excess of 5%. The total contribution of productivity in the last two years offset not only the negative effects of total cost inflation, but also the effects of selling price decreases. GE INTEREST AND OTHER FINANCIAL CHARGES in 1998 amounted to $883 million, compared with $797 million in 1997 and $595 million in 1996. Lower interest rates in 1998 and 1997 were more than offset by higher average levels of borrowings and other financing activities. INCOME TAXES on a consolidated basis were 31.0% of pretax earnings in 1998, compared with 26.6% in 1997 and 32.6% in 1996. The most significant factor explaining 1997's lower effective tax rate was the 4.8% decrease attributable to the realized gain on the tax-free exchange of Lockheed Martin Corporation preferred stock. A more detailed analysis of the differences between the U.S. federal statutory rate and the consolidated rate, as well as other information about income tax provisions, is provided in note 8. RETURN ON AVERAGE TOTAL CAPITAL INVESTED was 23.9% at year-end 1998, compared with 23.6% in 1997 and 22.2% in 1996. SEGMENT OPERATIONS REVENUES AND SEGMENT PROFIT FOR OPERATING SEGMENTS are shown on page 36. At year-end 1998, GE adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which requires segment data to be measured and analyzed on a basis that is consistent with how business activities are reported internally to management. The most significant change from previous Annual Reports is that restructuring and other special charges are not included in the measure of segment profit. Previously reported data have been restated as required by SFAS No. 131. For additional information, including a description of the products and services included in each segment, see note 28. AIRCRAFT ENGINES achieved a 32% increase in revenues in 1998, following a 24% increase in 1997, on higher volume in commercial engines and product services, including acquisitions, in both years. Operating profit increased 30% in 1998, and 13% in 1997, largely as a result of strong growth in product services as well as good volume growth in commercial engines. In 1998, $1.6 billion of Aircraft Engines revenues were from sales to the U.S. government, an increase of $0.1 billion from 1997, which was $0.3 billion lower than in 1996. Aircraft Engines received orders of $10.8 billion in 1998, up $1.9 billion from 1997. The backlog at year-end 1998 was $9.7 billion ($9.5 billion at the end of 1997). Of the total, $7.5 billion related to products, about 52% of which was scheduled for delivery in 1999, and the remainder related to 1999 product services. APPLIANCES revenues were 3% lower than a year ago, reflecting primarily selling price decreases and, to a lesser extent, lower volume. Operating profit was 2% lower as the decreases in selling prices and volume more than offset productivity from Six Sigma. Revenues in 1997 were 4% higher than in 1996, reflecting primarily acquisition-related volume. Operating profit increased 3% in 1997, primarily as a result of productivity and higher volume, partially offset by lower selling prices. INDUSTRIAL PRODUCTS AND SYSTEMS revenues increased 2% in 1998, primarily as a result of volume increases at Transportation Systems and Industrial Systems that were partially offset by lower selling prices across most businesses in the segment. Operating profit increased 5%, reflecting productivity from Six Sigma and the improvement in volume, which more than offset the effects of selling price decreases. Revenues rose 6% in 1997 as improved volume more than offset weaker pricing across all businesses in the segment. Operating profit increased 13% in 1997, the result of Six Sigma-based productivity and volume improvements across the segment, which more than offset the effects of lower selling prices. Transportation Systems received orders of $2.4 billion in 1998, about the same as in 1997. The backlog at year-end 1998 was $2.3 billion ($2.0 billion at the end of 1997). Of the total, $2.1 billion related to products, about 83% of which was scheduled for shipment in 1999, and the remainder related to 1999 product services. NBC revenues increased 2% in 1998, reflecting higher revenues in NBC's owned-and-operated stations, including revenues from station acquisitions and growth in cable operations, the combination of which more than offset lower network revenues. Operating profit was 11% higher than a year ago as improved results in international, cable operations and owned-and-operated stations, as well as cost reductions across NBC, more than offset higher license fees for certain prime-time programs that were renewed. Revenues decreased 2% in 1997 as a strong advertising marketplace was more than offset by the absence of a 1997 counterpart to NBC's broadcast of the 1996 Summer Olympic Games. Operating profit increased 19% in 1997, reflecting improved prime-time pricing, strong F-12 ANNUAL REPORT PAGE 36 - --------------------- SUMMARY OF OPERATING SEGMENTS
General Electric Company and consolidated affiliates ------------------------------------------------------------------ For the years ended December 31 (In millions) 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ REVENUES GE Aircraft Engines $ 10,294 $ 7,799 $ 6,302 $ 6,098 $ 5,830 Appliances 5,619 5,801 5,586 5,137 5,204 Industrial Products and Systems 11,222 10,984 10,401 10,209 9,375 NBC 5,269 5,153 5,232 3,919 3,361 Plastics 6,633 6,695 6,509 6,647 5,681 Power Systems 8,466 7,915 7,643 6,962 6,357 Technical Products and Services 5,323 4,861 4,700 4,430 4,285 All Other 264 308 291 292 253 Eliminations (1,367) (1,176) (1,032) (1,082) (1,068) ------------------------------------------------------------------ Total GE segment revenues 51,723 48,340 45,632 42,612 39,278 Corporate items 507 2,919 1,116 1,154 1,135 GECS net earnings from continuing operations 3,796 3,256 2,817 2,415 2,085 ------------------------------------------------------------------ Total GE revenues 56,026 54,515 49,565 46,181 42,498 GECS segment revenues 48,694 39,931 32,713 26,492 19,875 Eliminations (4,251) (3,606) (3,099) (2,645) (2,264) ------------------------------------------------------------------ CONSOLIDATED REVENUES $ 100,469 $ 90,840 $ 79,179 $ 70,028 $ 60,109 ==================================================================================================================================== SEGMENT PROFIT GE Aircraft Engines $ 1,769 $ 1,366 $ 1,214 $ 1,135 $ 987 Appliances 755 771 748 682 704 Industrial Products and Systems 1,880 1,789 1,587 1,488 1,305 NBC 1,349 1,216 1,020 797 540 Plastics 1,584 1,500 1,443 1,435 981 Power Systems 1,306 1,203 1,124 782 1,354 Technical Products and Services 1,109 988 855 810 806 All Other 271 310 282 285 245 ------------------------------------------------------------------ Total GE operating profit 10,023 9,143 8,273 7,414 6,922 GECS net earnings from continuing operations 3,796 3,256 2,817 2,415 2,085 ------------------------------------------------------------------ Total segment profit 13,819 12,399 11,090 9,829 9,007 Corporate items and eliminations (823) (1,589) (920) (548) (800) GE interest and other financial charges (883) (797) (595) (649) (410) GE provision for income taxes (2,817) (1,810) (2,295) (2,059) (1,882) ------------------------------------------------------------------ CONSOLIDATED NET EARNINGS FROM CONTINUING OPERATIONS $ 9,296 $ 8,203 $ 7,280 $ 6,573 $ 5,915 ==================================================================================================================================== The notes to consolidated financial statements on pages 48-68 are an integral part of this statement. "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Includes revenues of $944 million, $789 million, $796 million and $761 million in 1997, 1996, 1995 and 1994, respectively, from an appliance distribution affiliate that was deconsolidated in 1998. Also includes $1,538 million in 1997 from an exchange of preferred stock in Lockheed Martin Corporation for the stock of a newly formed subsidiary. Principally the elimination of GECS net earnings. Includes 1997 restructuring and other special charges of $2,322 million. Of the total, restructuring and other special charges that relate to activities of GE operating segments were as follows: Aircraft Engines -- $342 million, Appliances -- $330 million, Industrial Products and Systems -- $352 million, NBC -- $161 million, Plastics -- $63 million, Power Systems -- $437 million and Technical Products and Services -- $157 million. Also included in 1997 is $1,538 million associated with the Lockheed Martin Corporation transaction described in above.
F-13 ANNUAL REPORT PAGE 37 - --------------------- growth in both owned-and-operated stations and cable operations, and increased international distribution of programming, the combination of which more than offset the absence of a 1997 counterpart to the Olympics broadcast and higher license fees for certain prime-time programs that were renewed. PLASTICS revenues decreased 1% in 1998 as lower selling prices and adverse currency exchange rates offset slightly higher volume. Operating profit in 1998 improved by 6% as lower material costs and productivity from Six Sigma more than offset lower selling prices. Revenues grew 3% in 1997, reflecting an increase in volume that was largely offset by lower selling prices and adverse currency exchange rates. Operating profit increased 4% as Six Sigma-based productivity and higher volume more than offset lower selling prices. POWER SYSTEMS revenues increased 7% in 1998, reflecting primarily higher volume in product services, including acquisitions, which was partially offset by lower selling prices. Operating profit increased 9% in 1998 as growth in product services and productivity more than offset the effects of lower selling prices. Revenues in 1997 were 4% higher than in 1996, primarily as a result of higher volume in gas turbines and product services. Operating profit increased by 7%, the result of strong productivity and higher volume, which more than offset lower selling prices. Power Systems orders were $10.5 billion for 1998, an increase of more than 50% over 1997, reflecting strong U.S. market growth. The backlog of unfilled orders at year-end 1998 was $12.4 billion ($10.5 billion at the end of 1997). Of the total, $11.3 billion related to products, about 45% of which was scheduled for delivery in 1999, and the remainder related to 1999 product services. TECHNICAL PRODUCTS AND SERVICES revenues rose 10% in 1998, following a 3% increase in 1997. The improvement in revenues in both years was primarily attributable to growth at Medical Systems, the result of higher equipment volume and continued growth in product services, partially offset by lower selling prices across the segment. Operating profit increased 12% in 1998 as productivity from Six Sigma and volume increases, particularly at Medical Systems, more than offset lower selling prices. Operating profit increased 16% in 1997 as productivity and higher volume more than offset the effects of lower selling prices. Orders received by Medical Systems in 1998 were $4.8 billion, up $0.5 billion from 1997. The backlog of unfilled orders at year-end 1998 was $2.6 billion ($2.4 billion at the end of 1997). Of the total, $1.5 billion related to products, about 80% of which was scheduled for delivery in 1999, and the remainder related to 1999 product services. [CHART HERE] OPERATING PROFIT OF GE SEGMENTS - ----------------------------------------------------------------------------- (IN BILLIONS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- $6.922 $7.414 $8.273 $9.143 $10.023 - ----------------------------------------------------------------------------- ALL OTHER GE revenues and operating profit consist primarily of residual royalty payments and other fees earned from licensing the use of GE technology to others. Effective January 1, 1999, GE transferred certain licenses and intellectual property pursuant to an agreement to sell the former RCA Consumer Electronics business. Details of licensing income derived from these assets is provided in note 2. GECS consists of 28 businesses that, for purposes of the analysis that follows, are grouped into five operating activities: consumer services, equipment management, mid-market financing, specialized financing and specialty insurance. GECS net earnings were $3.796 billion in 1998, up 17% from $3.256 billion in 1997, which increased 16% from 1996. Each operating activity achieved a double-digit earnings increase in 1998. The improvement in earnings in both 1998 and 1997 was largely attributable to the effects of continued asset growth, principally from acquisitions of businesses and portfolios and higher origination volume. o GECS total revenues increased 22% to $48.7 billion in 1998, following a 22% increase to $39.9 billion in 1997. The increases in both years reflected the contributions of businesses acquired as well as growth in core volume. o GECS cost of goods sold is associated with activities of its computer equipment distribution businesses. This cost amounted to $6.8 billion in 1998, compared with $4.1 billion in 1997 and $1.7 billion in 1996, principally the result of acquisition-related growth. o GECS interest on borrowings in 1998 was $9.0 billion, 17% higher than in 1997, which was 4% higher than in 1996. The increases in 1998 and 1997 were caused by higher average borrowings used to finance asset growth, partially offset by the effects of lower average interest rates. The composite F-14 ANNUAL REPORT PAGE 38 - --------------------- interest rate was 5.92% in 1998, compared with 6.07% in 1997 and 6.24% in 1996. See page 43 for a discussion of interest rate risk management. o GECS insurance losses and policyholder and annuity benefits increased to $9.6 billion in 1998, compared with $8.3 billion in 1997 and $6.7 billion in 1996, reflecting effects of business acquisitions and growth in premium volume throughout the period. o GECS provision for losses on financing receivables increased to $1.6 billion in 1998, compared with $1.4 billion in 1997 and $1.0 billion in 1996. These provisions principally related to private-label credit cards, bank credit cards, auto loans and auto leases in the consumer services operations, all of which are discussed on page 39 under financing receivables. The increases principally reflected higher average receivable balances and the effects of delinquency rates -- higher during 1997 and lower during 1998 -- consistent with industry experience. o GECS other costs and expenses were $16.4 billion in 1998, an increase from $13.9 billion in 1997 and $11.7 billion in 1996. The increase in both 1998 and 1997 primarily reflected costs associated with acquired businesses and portfolios, higher investment levels and increases in insurance commissions and other costs that vary directly with increased revenues. Financing spreads (the excess of yields over interest rates on borrowings) were essentially flat in 1998, 1997 and 1996, reflecting slightly lower yields offset by decreases in borrowing rates. Revenues and net earnings from operating activities within the GECS segment for the past three years are summarized and discussed below. ---------------------------------------- (In millions) 1998 1997 1996 ---------------------------------------- REVENUES Consumer services $ 15,948 $ 13,550 $ 11,109 Equipment management 14,869 11,326 7,725 Mid-market financing 3,751 3,009 2,781 Specialized financing 3,368 2,828 2,944 Specialty insurance 10,594 8,836 8,185 All other 164 382 (31) ---------------------------------------- Total revenues $ 48,694 $ 39,931 $ 32,713 ---------------------------------------- NET EARNINGS Consumer services $ 797 $ 544 $ 791 Equipment management 806 708 603 Mid-market financing 478 391 362 Specialized financing 745 593 563 Specialty insurance 1,166 973 852 All other (196) 47 (354) ---------------------------------------- Total net earnings $ 3,796 $ 3,256 $ 2,817 ================================================================================ [CHART HERE] GECS REVENUES - ----------------------------------------------------------------------------- (IN BILLIONS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- $19.875 $26.492 $32.713 $39.931 $48.694 - ----------------------------------------------------------------------------- CONSUMER SERVICES revenues increased 18% in 1998 and 22% in 1997. This growth -- largely acquisition related -- was led by higher premium and investment income at GE Financial Assurance, the consumer savings and insurance business of GECS. Asset growth in several of the other consumer services businesses also contributed to the increase in 1998. Net earnings increased 47% in 1998, following a 31% decrease in 1997. Comparisons of revenues and net earnings throughout the period were affected by the operating results of Montgomery Ward Holding Corp., which are discussed on page 40. Net earnings in 1998 also reflected acquisition and core volume growth, led by the Global Consumer Finance and GE Financial Assurance businesses. Overall gains on asset sales, including securitizations, were higher in 1997 than in 1998; gains in 1998 included the sale of certain bankcard assets. Net earnings in 1997 were affected by increased automobile residual losses, partially offset by acquisition and core growth, principally at GE Financial Assurance. A higher provision for losses on financing receivables also affected earnings in both years, as discussed previously. EQUIPMENT MANAGEMENT revenues grew 31% in 1998, following a 47% increase in 1997, primarily as a result of acquisitions by IT Solutions and, to a lesser extent, asset growth. Net earnings increased 14% in 1998, following a 17% increase in 1997. Increases in both years reflected higher volumes in most businesses resulting from origination growth and acquisitions of businesses and portfolios, with those effects in 1998 partially offset by lower earnings at IT Solutions and Modular Space, primarily the result of lower pricing from competitive market conditions and higher operating expenses. F-15 ANNUAL REPORT PAGE 39 - --------------------- MID-MARKET FINANCING revenues increased 25% in 1998, compared with an 8% increase in 1997. Net earnings for these businesses grew 22% and 8% in 1998 and 1997, respectively. Asset growth resulting from higher volumes and acquisitions of businesses and portfolios was the most significant contributing factor in both years. Revenues and net earnings were also favorably affected in 1998 by the disposition of certain assets. SPECIALIZED FINANCING revenues rose 19% and net earnings increased 26% in 1998. The increase in revenues reflected asset growth and a higher level of asset gains, while the increase in net earnings included those factors as well as the effects of certain tax-advantaged transactions and higher levels of tax credits. Revenues decreased 4% in 1997, primarily as a result of lower investment levels. Net earnings increased 5% in 1997, reflecting asset gains and lower levels of asset write-offs. SPECIALTY INSURANCE revenues and net earnings both increased 20% in 1998, following 8% revenue growth and 14% net earnings growth in 1997. The increases in both years resulted from increased premium and investment income associated with origination volume, acquisitions and continued growth in the investment portfolios, as well as a higher level of realized gains on investment securities. Net earnings in both years were also favorably affected by improved conditions in the Mortgage Insurance business, the result of improvements in loss experience. Within GE Global Insurance, the principal subsidiary of which is Employers Reinsurance Corporation, net premiums earned increased in 1998, primarily as a result of core and acquisition growth in both the property and casualty and life businesses. GE Global Insurance property and casualty underwriting results improved in 1998, reflecting a general reduction in incurred losses caused by a decline in both the frequency and overall severity of claims, partially offset by the effects of hurricane and other weather-related catastrophe losses. GE Global Insurance net premiums earned on U.S. business increased in 1997 -- the result of strong growth in the life reinsurance business -- while net premiums earned on European business declined, reflecting the effects of currency translation and market conditions. Property and casualty underwriting results at GE Global Insurance decreased in 1997, reflecting increased underwriting and operating expenses and adverse European market conditions, offset by growth in the life reinsurance business. ALL OTHER GECS revenues and net earnings in 1997 included asset gains, the largest of which was $284 million (net of tax) from a transaction that included the reduction of the GECS investment in the common stock of Paine Webber Group Inc. [CHART HERE] GECS NET EARNINGS FROM CONTINUING OPERATIONS - ----------------------------------------------------------------------------- (IN BILLIONS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- $2.085 $2.415 $2.817 $3.256 $3.796 - ----------------------------------------------------------------------------- FINANCING RECEIVABLES are the largest GECS asset and one of its primary sources of revenues. The portfolio of financing receivables, before allowance for losses, increased to $124.9 billion at the end of 1998 from $106.6 billion at the end of 1997, principally reflecting acquisition growth and origination volume that were partially offset by securitizations and other sales of receivables. The related allowance for losses at the end of 1998 amounted to $3.3 billion ($2.8 billion at the end of 1997) and, in management's judgment, is appropriate given the risk profile of the portfolio. A discussion of the quality of certain elements of the financing receivable portfolio follows. "Nonearning" receivables are those that are 90 days or more delinquent (or for which collection has otherwise become doubtful) and "reduced-earning" receivables are commercial receivables whose terms have been restructured to a below-market yield. The following discussion of the nonearning and reduced-earning receivable balances and write-off amounts excludes amounts related to Montgomery Ward Holding Corp. and affiliates, which are separately discussed on page 40. Consumer financing receivables at year-end 1998 and 1997 are shown in the following table. ----------------------- (In millions) 1998 1997 - -------------------------------------------------------------------------------- Credit card and personal loans $28,064 $25,773 Auto loans 9,496 8,973 Auto financing leases 14,063 13,346 ----------------------- Total consumer financing receivables $51,623 $48,092 ----------------------- Nonearning $ 1,250 $ 1,049 -- As percentage of total 2.4% 2.2% Receivable write-offs for the year $ 1,357 $ 1,298 ================================================================================ The increase in credit card and personal loan portfolios primarily resulted from acquisition growth and origination volume, partially offset by securitizations and other sales of receivables. Both the auto loan and financing F-16 ANNUAL REPORT PAGE 40 - --------------------- lease portfolios increased primarily as a result of acquisition growth; however, the increase in auto financing leases was partially offset by decreases in U.S. lease volume. A substantial amount of the nonearning consumer receivables were private-label credit card loans that were subject to various loss-sharing agreements that provide full or partial recourse to the originating retailer. Increased write-offs of consumer receivables were primarily attributable to the impact of higher average receivable balances. Other financing receivables, totaling $73.3 billion at December 31, 1998, consisted of a diverse commercial, industrial and equipment loan and lease portfolio. This portfolio increased $14.8 billion during 1998, reflecting the combination of acquisition growth and increased origination volume, partially offset by sales of receivables. Related nonearning and reduced-earning receivables were $354 million at year-end 1998, compared with $353 million at year-end 1997. As discussed in note 13, Montgomery Ward Holding Corp. (MWHC) filed a bankruptcy petition for reorganization in 1997. The GECS after-tax share of the losses of MWHC and affiliates was $49 million in 1998 and $380 million in 1997. The GECS investment in MWHC and affiliates at year-end was $622 million in 1998 and $795 million in 1997 (of which $578 million and $617 million, respectively, were classified as financing receivables). GECS also provides revolving credit card financing directly to customers of MWHC and affiliates; such receivables totaled $3.4 billion at December 31, 1998, including $1.6 billion that had been sold with recourse. The obligations of customers with respect to these receivables are not affected by the bankruptcy filing. On February 1, 1999, MWHC announced that it plans to emerge from bankruptcy protection in mid-1999 as a result of an agreement reached with the creditors' committee. GECS loans and leases to commercial airlines amounted to $10.2 billion at the end of 1998, up from $9.0 billion at the end of 1997. GECS commercial aircraft positions also included financial guarantees, funding commitments and aircraft orders as discussed in note 17. INTERNATIONAL OPERATIONS Estimated results of international activities include the results of GE and GECS operations located outside the United States, plus all U.S. exports. Certain GECS operations that cannot meaningfully be associated with specific geographic areas are classified as "other international" for this purpose. [CHART HERE] CONSOLIDATED INTERNATIONAL REVENUES - ----------------------------------------------------------------------------- (IN BILLIONS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- INTERNATIONAL OPERATIONS $14.205 $20.768 $25.447 $29.328 $33.756 EXPORTS AND LICENSING INCOME 6.755 7.480 7.846 9.199 9.001 - ----------------------------------------------------------------------------- International revenues in 1998 were $42.8 billion (43% of consolidated revenues), compared with $38.5 billion in 1997 and $33.3 billion in 1996. The chart above depicts the growth in international revenues over the past five years. - -------------------------------------------------------------------------------- CONSOLIDATED INTERNATIONAL REVENUES ------------------------------- (In millions) 1998 1997 1996 - -------------------------------------------------------------------------------- Europe (a) $21,665 $18,166 $15,964 Pacific Basin 5,166 4,742 4,343 Americas 5,030 4,632 3,443 Other 1,895 1,788 1,697 ------------------------------- 33,756 29,328 25,447 RCA residual licensing income 250 287 265 Exports from the U.S. to external customers 8,751 8,912 7,581 ------------------------------- $42,757 $38,527 $33,293 ================================================================================ (a) Includes $944 million and $789 million in 1997 and 1996, respectively, from an appliance distribution affiliate that was deconsolidated in 1998. - -------------------------------------------------------------------------------- GE international revenues were $24.6 billion in 1998, an increase of $0.7 billion from the comparable figure in 1997, which was $2.9 billion higher than in 1996. Over the three-year period, international revenues were slightly less than half of total revenues. The increase in revenues during 1998 reflected sales growth in operations based outside the United States, partially offset by lower U.S. exports. European revenues were 11% higher in 1998, reflecting increases in both local operations and in exports to the region, with particularly strong growth at Aircraft Engines. As expected, Pacific Basin revenues were 6% lower in 1998, reflecting primarily a decrease in exports to the region. Further information about the activities of GE and GECS in Asia is provided on page 41. International revenues from the Americas (North and South America, except for the United States) increased 8%, primarily as a result of strong growth in exports, particularly at Transportation Systems and Power Systems, and slightly higher revenues from local operations. F-17 ANNUAL REPORT PAGE 41 - --------------------- [CHART HERE] CONSOLIDATED INTERNATTIONAL REVENUES BY REGION - ----------------------------------------------------------------------------- (IN BILLIONS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- EUROPE $9.043 $14.062 $18.030 $20.634 $24.353 PACIFIC BASIN 5.976 7.183 7.573 7.981 8.058 AMERICAS 3.441 4.110 4.706 6.196 6.907 OTHER 2.500 2.893 2.984 3.716 3.439 - ----------------------------------------------------------------------------- GECS international revenues were $18.2 billion in 1998, an increase of 33% from $13.7 billion in 1997. International assets grew 36%, from $79.2 billion at year-end 1997 to $107.8 billion at the end of 1998. Revenues in Europe increased 38% in 1998, reflecting a mix of acquisition and core growth across all GECS operating activities. At the same time, revenues in the Pacific Basin grew 51%, principally in Japan, and principally as a result of consumer financing acquisitions by Global Consumer Finance and the acquisition of Toho Mutual Life's infrastructure and sales force by GE Financial Assurance. International revenues from the Americas increased 21% in 1998, largely as a result of acquisitions and core growth in Canada and Latin America. Overall, these increases reflect the continued expansion of GECS as a global provider of a wide range of services. Consolidated international operating profit was $5.4 billion in 1998, compared with $5.1 billion in 1997 and $3.8 billion in 1996. International activities accounted for 36% of consolidated operating profit, about the same as in 1997 on a comparable basis. Additional information is provided in note 29. Total assets of international operations were $128.8 billion in 1998 (36% of consolidated assets), an increase of 32% over 1997, reflecting double-digit growth in both GE and GECS activities outside the United States. The increase reflected sharp growth in Asia, where current economic conditions continue to provide a favorable environment for strategic investments. GE and GECS also had strong asset growth in operations based in Europe and the Americas. The activities of GE and GECS span all global regions and primarily encompass manufacturing for local and export markets, import and sale of products produced in other regions, leasing of aircraft, sourcing for GE plants domiciled in other global regions and provision of financial services within these regional economies. As such, when certain countries such as Russia or regions such as the Pacific Basin and Latin America experience currency and/or economic stress, GE may have increased exposure to certain risks but also may have new profit opportunities. Increased risks include, among other things, higher receivables delinquencies and bad debts, delays or cancellation of sales and orders principally related to power and aircraft-related equipment, higher local currency financing costs and a slowdown in established financial services activities. New profit opportunities include, among other things, lower costs of goods sourced from countries with weakened currencies, more opportunities for lower cost outsourcing, expansion of industrial and financial services activities through purchases of companies or assets at reduced prices and lower U.S. debt financing costs. Thus, while GE's global activities warrant close monitoring and significant management attention, regional economic disruptions had only a modest adverse effect on the overall financial position, results of operations and liquidity of GE and GECS in 1998, and there is little change in the outlook for 1999. As discussed previously, GE's international activities are diverse. Financial results of those activities reported in U.S. dollars are affected by currency exchange. A number of techniques are used to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. Principal currencies are the major European currencies, including the euro, as well as the Japanese yen and the Canadian dollar. [CHART HERE] TOTAL ASSETS OF INTERNATTIONAL OPERATIONS - ----------------------------------------------------------------------------- (IN BILLIONS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- EUROPE $21.5869 $44.1072 $55.1956 $66.7401 $84.5179 PACIFIC BASIN 4.4908 6.4424 8.1245 8.8814 18.4266 AMERICAS 5.6118 6.5591 7.2265 8.6168 11.2481 OTHER 11.6541 12.2167 12.4287 13.3090 14.6307 - ----------------------------------------------------------------------------- F-18 ANNUAL REPORT PAGE 42 - --------------------- MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY OVERVIEW This discussion of financial resources and liquidity addresses the Statement of Financial Position (page 28) and the Statement of Cash Flows (page 30). GECS is not a "captive finance company" or a vehicle for "off-balance-sheet financing" for GE. Only a small portion of GECS business is directly related to other GE operations. The fundamental differences between GE and GECS are reflected in the measurements commonly used by investors, rating agencies and financial analysts. These differences will become clearer in the discussion that follows with respect to the more significant items in the financial statements. STATEMENT OF FINANCIAL POSITION Because GE and GECS share certain significant elements of their Statements of Financial Position -- property, plant and equipment, and borrowings, for example - -- the following discussion addresses significant captions in the "consolidated" statement. Within the following discussions, however, distinction is drawn between GE and GECS activities in order to permit analysis of each individual statement. INVESTMENT SECURITIES for each of the past two years comprised mainly investment-grade debt securities held by the specialty insurance and annuity and investment businesses of GECS in support of obligations to policyholders and annuitants. GE investment securities were $259 million at year-end 1998, about the same as at the end of 1997. The increase of $8.1 billion at GECS during 1998 was principally related to acquisitions and investment of premiums received. A breakdown of the investment securities portfolio is provided in note 10. CURRENT RECEIVABLES for GE were $8.5 billion at the end of 1998, a decrease of $0.6 billion from year-end 1997, and included $5.4 billion due from customers at the end of 1998, which was $0.7 billion lower than the amount due at the end of 1997. As a measure of asset management, turnover of customer receivables from sales of goods and services was 8.8 in 1998, compared with 7.7 in 1997. Other current receivables are primarily amounts that did not originate from sales of GE goods or services, such as advances to suppliers in connection with large contracts. INVENTORIES for GE were $5.3 billion at December 31, 1998, up $0.2 billion from the end of 1997. GE inventory turnover improved to 8.3 in 1998, compared with 7.8 in 1997, reflecting continuing improvements in inventory management. Last-in, first-out (LIFO) revaluations decreased $87 million in 1998, compared with decreases of $119 million in 1997 and $128 million in 1996. Included in these changes were decreases of $29 million, $59 million and $58 million in 1998, 1997 and 1996, respectively, that resulted from lower LIFO inventory levels. There were net cost decreases in each of the last three years. [CHART HERE] GE INVENTORY TURNOVER - ----------------------------------------------------------------------------- 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- 6.86 6.90 7.57 7.75 8.25 - ----------------------------------------------------------------------------- Inventories (at FIFO) and customer receivables from sales of goods or services are two key components of GE's working capital turnover measurement. Working capital turnover increased from 6.3 turns in 1996 to 7.4 and 9.2 turns in 1997 and 1998, respectively. Working capital also includes trade accounts payable and progress collections. GECS inventories were $744 million and $786 million at December 31, 1998 and 1997, respectively. The decrease in 1998 primarily reflected improved inventory management in the computer equipment distribution businesses. FINANCING RECEIVABLES of GECS were $121.6 billion at year-end 1998, net of allowance for doubtful accounts, up $17.8 billion over 1997. These receivables are discussed on pages 39 and 40 and in notes 7 and 13. OTHER RECEIVABLES of GECS were $26.0 billion and $18.3 billion at December 31, 1998 and 1997, respectively. Of the 1998 increase, $3.6 billion was attributable to acquisitions and the remainder resulted from core growth. PROPERTY, PLANT AND EQUIPMENT (including equipment leased to others) was $35.7 billion at December 31, 1998, up $3.4 billion from 1997. GE property, plant and equipment consists of investments for its own productive use, whereas the largest element for GECS is in equipment provided to third parties on operating leases. Details by category of investment can be found in note 15. GE total expenditures for new plant and equipment during 1998 totaled $2.0 billion, down $0.2 billion from 1997. Total expenditures for the past five years were $10.2 billion, of which 38% was investment for growth through new capacity and product development; 32% was investment in productivity through new F-19 ANNUAL REPORT PAGE 43 - --------------------- equipment and process improvements; and 30% was investment for such other purposes as improvement of research and development facilities and safety and environmental protection. GECS additions to equipment leased to others, including business acquisitions, were $7.2 billion during 1998 ($6.8 billion during 1997), primarily reflecting acquisitions of vehicles and aircraft. INTANGIBLE ASSETS were $23.6 billion at year-end 1998, up from $19.1 billion at year-end 1997. GE intangibles increased to $10.0 billion from $8.8 billion at the end of 1997, principally as a result of goodwill from a number of acquisitions, the largest of which was the equipment services division of Stewart & Stevenson. The $3.3 billion increase in GECS intangibles also related primarily to goodwill from acquisitions, the largest of which were the consumer finance business of Lake Corporation (Lake) in Japan and Metlife Capital in the United States. ALL OTHER ASSETS totaled $52.9 billion at year-end 1998, an increase of $13.1 billion from the end of 1997. GE other assets increased $3.3 billion, principally reflecting an increase in the prepaid pension asset and investments in certain newly acquired affiliates that were not yet consolidated. The increase in GECS other assets of $9.9 billion related principally to additional investments in associated companies, increases in assets acquired for resale, primarily residential mortgages, and increases in "separate accounts," which are investments controlled by policyholders and are associated with identical amounts reported as insurance liabilities. CONSOLIDATED BORROWINGS aggregated $175.0 billion at December 31, 1998, compared with $144.7 billion at the end of 1997. The major debt-rating agencies evaluate the financial condition of GE and of GE Capital (the major public borrowing entity of GECS) differently because of their distinct business characteristics. Using criteria appropriate to each and considering their combined strength, those major rating agencies continue to give the highest ratings to debt of both GE and GE Capital. [CHART HERE] GE WORKING CAPITAL TURNOVER - ----------------------------------------------------------------------------- 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- 5.75 5.56 6.30 7.42 9.22 - ----------------------------------------------------------------------------- GE has committed to contribute capital to GE Capital in the event of either a decrease below a specified level in the ratio of GE Capital's earnings to fixed charges, or a failure to maintain a specified debt-to-equity ratio in the event certain GE Capital preferred stock is redeemed. GE also has guaranteed subordinated debt of GECS with a face amount of $1.0 billion at December 31, 1998 and 1997. Management believes the likelihood that GE will be required to contribute capital under either the commitments or the guarantees is remote. GE total borrowings were $4.1 billion at year-end 1998 ($3.4 billion short-term, $0.7 billion long-term), a decrease of $0.3 billion from year-end 1997. GE total debt at the end of 1998 equaled 9.5% of total capital, down from 11.1% at the end of 1997. GECS total borrowings were $172.2 billion at December 31, 1998, of which $113.2 billion is due in 1999 and $59.0 billion is due in subsequent years. Comparable amounts at the end of 1997 were $141.3 billion total, $95.3 billion due within one year and $46.0 billion due thereafter. A large portion of GECS borrowings ($87.0 billion and $71.2 billion at the end of 1998 and 1997, respectively) was issued in active commercial paper markets that management believes will continue to be a reliable source of short-term financing. Most of this commercial paper was issued by GE Capital. The average remaining terms and interest rates of GE Capital commercial paper were 45 days and 5.35% at the end of 1998, compared with 44 days and 5.83% at the end of 1997. The GE Capital ratio of debt to equity was 7.86 to 1 at the end of 1998 and 7.45 to 1 at the end of 1997. INTEREST RATE AND CURRENCY RISK MANAGEMENT is important in the normal operations of both GE and GECS. The following discussion presents an overview of such management. A related discussion of recent developments in the global economy is provided on page 41. GE and GECS use various financial instruments, particularly interest rate and currency swaps, but also futures, options and currency forwards, to manage their respective interest rate and currency risks. GE and GECS are exclusively end users of these instruments, which are commonly referred to as derivatives; neither GE nor GECS engages in trading, market-making or other speculative activities in the derivatives markets. Established practices require that derivative financial instruments relate to specific asset, liability or equity transactions or to currency exposures. More detailed information about these financial instruments, as well as the strategies and policies for their use, is provided in notes 1, 19 and 30. The U.S. Securities and Exchange Commission requires that registrants include information about potential effects of changes in interest rates and currency exchange in their financial statements. Although the rules offer alternatives for presenting this information, none of the alternatives is F-20 ANNUAL REPORT PAGE 44 - --------------------- without limitations. The following discussion is based on so-called "shock tests," which model effects of interest rate and currency shifts on the reporting company. Shock tests, while probably the most meaningful analysis permitted, are constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by their inability to include the complex market reactions that normally would arise from the market shifts modeled. While the following results of shock tests for interest rates and currencies may have some limited use as benchmarks, they should not be viewed as forecasts. o One means of assessing exposure to interest rate changes is a duration-based analysis that measures the potential loss in net earnings resulting from a hypothetical increase in interest rates of 100 basis points across all maturities (sometimes referred to as a "parallel shift in the yield curve"). Under this model, it is estimated that, all else constant, such an increase, including repricing effects in the securities portfolio, would reduce the 1999 net earnings of GECS based on year-end 1998 positions by approximately $111 million; the pro forma effect for GE was approximately $17 million. Based on conditions at year-end 1997, the effect on 1998 net earnings of such an increase in interest rates was estimated to be approximately $112 million for GECS. o As shown in the chart above right, the geographic distribution of GE and GECS operations is diverse. One means of assessing exposure to changes in currency exchange rates is to model effects on reported earnings using a sensitivity analysis. Year-end 1998 consolidated currency exposures, including financial instruments designated and effective as hedges, were analyzed to identify GE and GECS assets and liabilities denominated in other than their relevant functional currency. Net unhedged exposures in each currency were then remeasured assuming a 10% decrease (substantially greater decreases for hyperinflationary currencies) in currency exchange rates compared with the U.S. dollar. Under this model, it is estimated that, all else constant, such a decrease would reduce the 1999 net earnings of GE based on year-end 1998 positions by approximately $11 million; the pro forma effect for GECS was insignificant. Based on conditions at year-end 1997, the effect on 1998 net earnings of such a decrease in exchange rates was estimated to be approximately $10 million for GE. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $77.3 billion, $10.0 billion higher than in 1997. The increase was primarily attributable to acquisitions and the increase in separate accounts. For additional information on these liabilities, see note 20. [CHART HERE] CONSOLIDATED TOTAL ASSETS - ----------------------------------------------------------------------------- (IN BILLIONS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- UNITED STATES $142.527 $158.710 $189.427 $206.465 $227.112 INTERNATIONAL 43.344 69.325 82.975 97.547 128.823 - ----------------------------------------------------------------------------- YEAR 2000 will test the capability of business processes to function correctly. GE and GECS have undertaken a global effort to identify and mitigate Year 2000 issues in their information systems, products, facilities and suppliers. Each business has a Year 2000 leader who oversees a multifunctional remediation project team responsible for applying a Six Sigma quality approach in four phases: (1) DEFINE/MEASURE - identify and inventory possible sources of Year 2000 issues; (2) ANALYZE - determine the nature and extent of Year 2000 issues and develop project plans to address those issues; (3) IMPROVE - execute project plans and perform a majority of the testing; and (4) CONTROL - complete testing, continue monitoring readiness and complete necessary contingency plans. The progress of this program is monitored at each business, and Company-wide reviews with senior management are conducted quarterly. The first three phases of the program have been completed for a substantial majority of mission-critical activities. Management plans to have nearly all significant information systems, products and facilities through the control phase of the program by mid-1999. The scope of the global Year 2000 effort encompasses approximately 170,000 applications and computer programs; 8,000 types of installed-base products and services; up to 35,000 pieces of equipment in facilities; and 30,000 direct suppliers. Business operations are also affected by the Year 2000 readiness of customers and infrastructure suppliers in areas such as utilities, communications, transportation and other services. In this environment, there will likely be instances of failure that could cause disruptions in business processes for GE and GECS businesses, affect their customers' ability to repay amounts owed or result in an increased level of insurance claims activity. The likelihood and effects of failures in the customer base, infrastructure systems and in the supply chain cannot be estimated. However, with respect to operations F-21 ANNUAL REPORT PAGE 45 - --------------------- under its direct control, management does not expect, in view of its Year 2000 program efforts and the diversity of its businesses, suppliers and customers, that occurrences of Year 2000 failures will have a material adverse effect on the financial position, results of operations or liquidity of GE or GECS. Including amounts attributable to recent acquisitions, total Year 2000 remediation expenditures are expected to be approximately $575 million, of which 60% was spent by the end of 1998. Substantially all of the remainder is expected to be spent in 1999. Most of these costs are not likely to be incremental costs, but rather will represent the redeployment of existing resources. The activities involved in the Year 2000 effort necessarily involve estimates and projections of activities and resources that will be required in the future. These estimates and projections could change as work progresses. STATEMENT OF CASH FLOWS Because cash management activities of GE and GECS are separate and distinct, it is more useful to review their cash flows separately. GE CASH AND EQUIVALENTS aggregated $1.2 billion at the end of 1998, about the same as at year-end 1997. During 1998, GE generated a record $10.0 billion in cash from operating activities, an increase of $0.7 billion over 1997. The increase reflected improvements in earnings and working capital, including cash from monetization of receivables. The 1998 cash generation provided most of the resources needed to repurchase $3.6 billion of GE common stock under the share repurchase program, to pay $3.9 billion in dividends to share owners, to invest $2.0 billion in new plant and equipment and to make $1.5 billion in acquisitions. Operating activities are the principal source of GE's cash flows. Over the past three years, operating activities have provided more than $28 billion of cash. The principal application of this cash was distributions of approximately $21 billion to share owners, both through payment of dividends ($10.4 billion) and through the share repurchase program ($10.4 billion) described below. Other applications included investment in new plant and equipment ($6.6 billion) and acquisitions ($4.0 billion). The GE Board of Directors has authorized repurchase of $17 billion of common stock under the share repurchase program. This buyback will continue through the year 2000 at an annual rate of about $2 billion. Funds used for the share repurchase are expected to be generated largely from operating cash flow. [CHART HERE] GE CUMULATIVE CASH FLOWS SINCE 1993 - ----------------------------------------------------------------------------- (IN BILLIONS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES $6.071 $12.136 $21.203 $30.520 $40.552 SHARES REPURCHASED 1.073 4.175 7.441 10.933 14.579 DIVIDENDS PAID 2.462 5.232 8.282 11.693 15.606 - ----------------------------------------------------------------------------- Based on past performance and current expectations, in combination with the financial flexibility that comes with a strong balance sheet and the highest credit ratings, management believes that GE is in a sound position to complete the share repurchase program, to grow dividends in line with earnings, and to continue making selective investments for long-term growth. Expenditures for new plant and equipment are expected to be about $2.0 billion in 1999, principally for productivity and growth. The expected level of expenditures was moderated by the Six Sigma quality program's success in freeing capacity. GECS CASH AND EQUIVALENTS aggregated $3.3 billion at the end of 1998, down from $4.9 billion at year-end 1997. One of the primary sources of cash for GECS is financing activities involving the continued rollover of short-term borrowings and appropriate addition of borrowings with a reasonable balance of maturities. Over the past three years, GECS borrowings with maturities of 90 days or less have increased by $40.9 billion. New borrowings of $85.2 billion having maturities longer than 90 days were added during those years, while $78.4 billion of such longer-term borrowings were retired. GECS also generated $26.9 billion from continuing operating activities. The principal use of cash by GECS has been investing in assets to grow its businesses. Of the $69.6 billion that GECS invested over the past three years, $10.5 billion was used for additions to financing receivables; $18.5 billion was used to invest in new equipment, principally for lease to others; and $25.4 billion was used for acquisitions of new businesses, the largest of which were Metlife Capital and Lake in 1998. With the financial flexibility that comes with excellent credit ratings, management believes that GECS should be well positioned to meet the global needs of its customers for capital and to continue providing GE share owners with good returns. F-22 ANNUAL REPORT PAGE 46 - --------------------- MANAGEMENT'S DISCUSSION OF SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA summarizes on the following page some data frequently requested about General Electric Company. The data are divided into three sections: upper portion -- consolidated data; middle portion -- GE data that reflect various conventional measurements for such enterprises; and lower portion -- GECS data that reflect key information pertinent to financial services businesses. GE'S TOTAL RESEARCH AND DEVELOPMENT expenditures were $1,930 million in 1998, up slightly from 1997 and 1996. In 1998, expenditures from GE's own funds were $1,537 million, an increase of 4% over 1997, reflecting continuing research and development work related to new product, service and process technologies. Product technology efforts in 1998 included continuing development work on the next generation of gas turbines, further advances in state-of-the-art diagnostic imaging technologies, and development of more fuel-efficient, cost-effective aircraft engine designs. Services technologies include advances in diagnostic applications, including remote diagnostic capabilities related to repair and maintenance of medical equipment, aircraft engines, power generation equipment and locomotives. Process technologies -- vital to Six Sigma quality programs -- provided improved product quality and performance and increased capacity for manufacturing engineered materials. Expenditures from funds provided by customers (mainly the U.S. government) were $393 million in 1998, down $18 million from 1997. GE'S TOTAL BACKLOG of firm unfilled orders at the end of 1998 was $28.5 billion, compared with $26.4 billion at the end of 1997. Of the total, $23.9 billion related to products, about 56% of which was scheduled for delivery in 1999. Services orders are included in this reported backlog for only the succeeding 12 months; such backlog at the end of 1998 was $4.6 billion. Orders constituting this backlog may be canceled or deferred by customers, subject in certain cases to cancellation penalties. See Segment Operations beginning on page 35 for further discussion on unfilled orders of relatively long-cycle manufacturing businesses. REGARDING ENVIRONMENTAL MATTERS, GE's operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. In 1998, GE expended about $81 million for capital projects related to the environment. The comparable amount in 1997 was $80 million. These amounts exclude expenditures for remediation actions, which are principally expensed and are discussed below. Capital expenditures for environmental purposes have included pollution control devices -- such as wastewater treatment plants, groundwater monitoring devices, air strippers or separators, and incinerators -- at new and existing facilities constructed or upgraded in the normal course of business. Consistent with policies stressing environmental responsibility, average annual capital expenditures other than for remediation projects are presently expected to be about $85 million over the next two years. This level is in line with existing levels for new or expanded programs to build facilities or modify manufacturing processes to minimize waste and reduce emissions. GE also is involved in a sizable number of remediation actions to clean up hazardous wastes as required by federal and state laws. Such statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Expenditures for site remediation actions amounted to approximately $127 million in 1998, compared with $84 million in 1997. It is presently expected that such remediation actions will require average annual expenditures in the range of $90 million to $170 million over the next two years. [CHART HERE] YEAR-END MARKET CAPITALIZATION - ----------------------------------------------------------------------------- (IN BILLIONS) 1994 1995 1996 1997 1998 - ----------------------------------------------------------------------------- $87.004 $119.989 $162.604 $239.539 $333.762 - ----------------------------------------------------------------------------- [CHART HERE] GE SHARE PRICE ACTIVITY - ------------------------------------------------------------------------------ (IN DOLLARS) 1994 1995 1996 1997 1998 - ------------------------------------------------------------------------------ HIGH $27 7/16 $36 9/16 $53 1/16 $76 9/16 $103 15/16 LOW 22 1/2 24 1/2 34 3/4 47 15/16 69 CLOSE 25 1/2 36 49 7/16 73 3/8 102 - ------------------------------------------------------------------------------ F-23 ANNUAL REPORT PAGE 47 - --------------------- SELECTED FINANCIAL DATA
------------------------------------------------------------------------ (Dollar amounts in millions; per-share amounts in dollars) 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES Revenues $ 100,469 $ 90,840 $ 79,179 $ 70,028 $ 60,109 Earnings from continuing operations 9,296 8,203 7,280 6,573 5,915 Loss from discontinued operations -- -- -- -- (1,189) Net earnings 9,296 8,203 7,280 6,573 4,726 Dividends declared 4,081 3,535 3,138 2,838 2,546 Earned on average share owners' equity 25.7% 25.0% 24.0% 23.5% 18.1% Per share Earnings from continuing operations-- basic $ 2.84 $ 2.50 $ 2.20 $ 1.95 $ 1.73 Loss from discontinued operations -- -- -- -- (0.35) Net earnings-- basic 2.84 2.50 2.20 1.95 1.38 Net earnings-- diluted 2.80 2.46 2.16 1.93 1.37 Dividends declared 1.25 1.08 0.95 0.845 0.745 Stock price range 103 5/16-69 76 9/16- 53 1/16- 36 9/16- 27 7/16- 47 15/16 34 3/4 24 15/16 22 1/2 Year-end closing stock price 102 73 3/8 49 7/16 36 25 1/2 Total assets of continuing operations 355,935 304,012 272,402 228,035 185,871 Long-term borrowings 59,663 46,603 49,246 51,027 36,979 Shares outstanding-- average (in thousands) 3,268,998 3,274,692 3,307,394 3,367,624 3,417,476 Share owner accounts-- average 534,000 509,000 486,000 460,000 458,000 Employees at year end United States 163,000 165,000 155,000 150,000 156,000 Other countries 130,000 111,000 84,000 72,000 60,000 Discontinued operations (primarily U.S.) -- -- -- -- 5,000 ------------------------------------------------------------------------ Total employees 293,000 276,000 239,000 222,000 221,000 ==================================================================================================================================== GE DATA Short-term borrowings $ 3,466 $ 3,629 $ 2,339 $ 1,666 $ 906 Long-term borrowings 681 729 1,710 2,277 2,699 Minority interest 816 569 477 434 382 Share owners' equity 38,880 34,438 31,125 29,609 26,387 ------------------------------------------------------------------------ Total capital invested $ 43,843 $ 39,365 $ 35,651 $ 33,986 $ 30,374 ======================================================================== Return on average total capital invested 23.9% 23.6% 22.2% 21.3% 15.9% Borrowings as a percentage of total capital invested 9.5% 11.1% 11.4% 11.6% 11.9% Working capital (a) $ 5,038 $ 5,990 $ 6,598 $ 7,405 $ 6,552 Additions to property, plant and equipment 2,047 2,191 2,389 1,831 1,743 ==================================================================================================================================== GECS DATA Revenues $ 48,694 $ 39,931 $ 32,713 $ 26,492 $ 19,875 Earnings from continuing operations 3,796 3,256 2,817 2,415 2,085 Loss from discontinued operations -- -- -- -- (1,189) Net earnings 3,796 3,256 2,817 2,415 896 Share owner's equity 19,727 17,239 14,276 12,774 9,380 Minority interest 3,459 3,113 2,530 2,522 1,465 Borrowings from others 172,200 141,263 125,621 111,598 91,399 Ratio of debt to equity at GE Capital 7.86:1 7.45:1 7.84:1 7.59:1 8.43:1 Total assets of continuing operations $ 303,297 $ 255,408 $ 227,419 $ 185,729 $ 144,967 Insurance premiums written 11,865 9,396 8,185 6,158 3,962 - ------------------------------------------------------------------------------------------------------------------------------------ Discontinued operations reflect the results of Kidder, Peabody, the discontinued GECS securities broker-dealer, in 1994. Transactions between GE and GECS have been eliminated from the consolidated information. (a) Working capital is defined as the sum of receivables from the sales of goods and services plus inventories less trade accounts payable and progress collections.
F-24 ANNUAL REPORT PAGE 48 - --------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION. The consolidated financial statements represent the adding together of all affiliates -- companies that General Electric directly or indirectly controls. Results of associated companies -- generally companies that are 20% to 50% owned and over which GE, directly or indirectly, has significant influence -- are included in the financial statements on a "one-line" basis. FINANCIAL STATEMENT PRESENTATION. Financial data and related measurements are presented in the following categories. o GE. This represents the adding together of all affiliates other than General Electric Capital Services, Inc. (GECS), whose operations are presented on a one-line basis. o GECS. This affiliate owns all of the common stock of General Electric Capital Corporation (GE Capital) and GE Global Insurance Holding Corporation (GE Global Insurance). GE Capital, GE Global Insurance and their respective affiliates are consolidated in the GECS columns and constitute its business. o CONSOLIDATED. This represents the adding together of GE and GECS. The effects of transactions among related companies within and between each of the above-mentioned groups are eliminated. Transactions between GE and GECS are not material. Certain prior-year amounts have been reclassified to conform to the 1998 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. SALES OF GOODS AND SERVICES. A sale is recorded when title passes to the customer or when services are performed in accordance with contracts. GECS REVENUES FROM SERVICES (EARNED INCOME). Income on all loans is recognized on the interest method. Accrual of interest income is suspended at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days delinquent. Interest income on impaired loans is recognized either as cash is collected or on a cost-recovery basis as conditions warrant. Financing lease income is recorded on the interest method so as to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values of leased assets are based primarily on periodic independent appraisals of the values of leased assets remaining at expiration of the lease terms. Operating lease income is recognized on a straight-line basis over the terms of underlying leases. Origination, commitment and other nonrefundable fees related to fundings are deferred and recorded in earned income on the interest method. Commitment fees related to loans not expected to be funded and line-of-credit fees are deferred and recorded in earned income on a straight-line basis over the period to which the fees relate. Syndication fees are recorded in earned income at the time related services are performed unless significant contingencies exist. Premium income from insurance activities is discussed under GECS insurance accounting policies on page 49. DEPRECIATION AND AMORTIZATION. The cost of most of GE's manufacturing plant and equipment is depreciated using an accelerated method based primarily on a sum-of-the-years digits formula. The cost of GECS equipment leased to others on operating leases is amortized, principally on a straight-line basis, to estimated residual value over the lease term or over the estimated economic life of the equipment. Depreciation of property and equipment used by GECS is recorded on either a sum-of-the-years digits formula or a straight-line basis over the lives of the assets. RECOGNITION OF LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS. The allowance for losses on small-balance receivables is determined principally on the basis of actual experience during the preceding three years. Further allowances are provided to reflect management's judgment of additional probable losses. For other receivables, principally the larger loans and leases, the allowance for losses is determined primarily on the basis of management's judgment of net probable losses, including specific allowances for known troubled accounts. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses. Small-balance accounts generally are written off when 6 to 12 months delinquent, although any such balance judged to be uncollectible, such as an account in bankruptcy, is written down immediately to estimated realizable value. Large-balance accounts are reviewed at least quarterly, and those accounts with amounts that are judged to be uncollectible are written down to estimated realizable value. When collateral is repossessed in satisfaction of a loan, the receivable is written down against the allowance for losses to estimated fair value of the asset less costs to sell, transferred to other assets and subsequently carried at the lower of cost or estimated fair value less costs to sell. This accounting method has been employed principally for specialized financing transactions. F-25 ANNUAL REPORT PAGE 49 - --------------------- CASH AND EQUIVALENTS. Debt securities with original maturities of three months or less are included in cash equivalents unless designated as available for sale and classified as investment securities. INVESTMENT SECURITIES. Investments in debt and marketable equity securities are reported at fair value. Substantially all investment securities are designated as available for sale, with unrealized gains and losses included in share owners' equity, net of applicable taxes and other adjustments. Unrealized losses that are other than temporary are recognized in earnings. Realized gains and losses are accounted for on the specific identification method. INVENTORIES. All inventories are stated at the lower of cost or realizable values. Cost for virtually all of GE's U.S. inventories is determined on a last-in, first-out (LIFO) basis. Cost of other GE inventories is primarily determined on a first-in, first-out (FIFO) basis. GECS inventories consist primarily of finished products held for sale. Cost is primarily determined on a FIFO basis. INTANGIBLE ASSETS. Goodwill is amortized over its estimated period of benefit on a straight-line basis; other intangible assets, including internal-use software, are amortized on appropriate bases over their estimated lives. No amortization period exceeds 40 years. Goodwill in excess of associated expected operating cash flows is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values, depending on the nature of the asset. INTEREST RATE AND CURRENCY RISK MANAGEMENT. As a matter of policy, neither GE nor GECS engages in derivatives trading, derivatives market-making or other speculative activities. GE and GECS use swaps primarily to optimize funding costs. To a lesser degree, and in combination with options and limit contracts, GECS uses swaps to stabilize cash flows from mortgage-related assets. Interest rate and currency swaps that modify borrowings or designated assets, including swaps associated with forecasted commercial paper renewals, are accounted for on an accrual basis. Both GE and GECS require all other swaps, as well as futures, options and currency forwards, to be designated and accounted for as hedges of specific assets, liabilities or committed transactions; resulting payments and receipts are recognized contemporaneously with effects of hedged transactions. A payment or receipt arising from early termination of an effective hedge is accounted for as an adjustment to the basis of the hedged transaction. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments must be highly correlated with changes in market values of underlying hedged items, both at inception of the hedge and over the life of the hedge contract. As a matter of policy, any derivative that is either not designated as a hedge, or is so designated but is ineffective, is marked to market and recognized in operations immediately. GECS INSURANCE ACCOUNTING POLICIES. Accounting policies for GECS insurance businesses follow. PREMIUM INCOME. Insurance premiums are reported as earned income as follows: o For short-duration insurance contracts (including property and casualty, accident and health, and financial guaranty insurance), premiums are reported as earned income, generally on a pro rata basis, over the terms of the related agreements. For retrospectively rated reinsurance contracts, premium adjustments are recorded based on estimated losses and loss expenses, taking into consideration both case and incurred-but-not-reported reserves. o For traditional long-duration insurance contracts (including term and whole life contracts and annuities payable for the life of the annuitant), premiums are reported as earned income when due. o For investment contracts and universal life contracts, premiums received are reported as liabilities, not as revenues. Universal life contracts are long-duration insurance contracts with terms that are not fixed and guaranteed; for these contracts, revenues are recognized for assessments against the policyholder's account, mostly for mortality, contract initiation, administration and surrender. Investment contracts are contracts that have neither significant mortality nor significant morbidity risk, including annuities payable for a determined period; for these contracts, revenues are recognized on the associated investments and amounts credited to policyholder accounts are charged to expense. DEFERRED POLICY ACQUISITION COSTS. Costs that vary with and are primarily related to the acquisition of new and renewal insurance and investment contracts are deferred and amortized over the respective policy terms. For short-duration insurance contracts, acquisition costs consist primarily of commissions, F-26 ANNUAL REPORT PAGE 50 - --------------------- brokerage expenses and premium taxes. For long-duration insurance contracts, these costs consist primarily of first-year commissions in excess of recurring renewal commissions, certain variable sales expenses and certain support costs such as underwriting and policy issue expenses. o For short-duration insurance contracts, these costs are amortized pro rata over the contract periods in which the related premiums are earned. o For traditional long-duration insurance contracts, these costs are amortized over the respective contract periods in proportion to either anticipated premium income or, in the case of limited-payment contracts, estimated benefit payments. o For investment contracts and universal life contracts, these costs are amortized on the basis of anticipated gross profits. Periodically, deferred policy acquisition costs are reviewed for recoverability; anticipated investment income is considered in recoverability evaluations. PRESENT VALUE OF FUTURE PROFITS. The actuarially determined present value of anticipated net cash flows to be realized from insurance, annuity and investment contracts in force at the date of acquisition of life insurance enterprises is recorded as the present value of future profits and is amortized over the respective policy terms in a manner similar to deferred policy acquisition costs. Unamortized balances are adjusted to reflect experience and impairment, if any. 2 GE OTHER INCOME ------------------------------------ (In millions) 1998 1997 1996 - -------------------------------------------------------------------------------- Residual licensing and royalty income RCA Licensing $ 250 $ 287 $ 265 Other 51 54 60 Associated companies (9) 50 50 Marketable securities and bank deposits 114 78 72 Customer financing 19 26 29 Other investments Dividends 8 62 79 Interest 8 1 18 Other items 243 1,749 56 ------------------------------------ $ 684 $ 2,307 $ 629 ================================================================================ Effective January 1, 1999, GE transferred certain licenses and intellectual property pursuant to an agreement to sell the former RCA Consumer Electronics business. Licensing income from these assets is shown under the caption "RCA Licensing" in the table above. Included in the "Other items" caption for 1997 is a gain of $1,538 million related to a tax-free exchange between GE and Lockheed Martin Corporation (Lockheed Martin). In exchange for its investment in Lockheed Martin Series A preferred stock, GE acquired a Lockheed Martin subsidiary containing two businesses, an equity interest and cash to the extent necessary to equalize the value of the exchange, a portion of which was subsequently loaned to Lockheed Martin. 3 GECS REVENUES FROM SERVICES ----------------------------------- (In millions) 1998 1997 1996 - -------------------------------------------------------------------------------- Time sales, loan and other income $14,682 $12,211 $11,310 Operating lease rentals 5,402 4,819 4,341 Financing leases 4,267 3,499 3,485 Investment income 5,617 5,512 3,506 Premium and commission income of insurance businesses 11,352 9,268 8,145 ------------------------------------ $41,320 $35,309 $30,787 ================================================================================ For insurance businesses, the effects of reinsurance on premiums written and premium and commission income were as follows: --------------------------------------- (In millions) 1998 1997 1996 - -------------------------------------------------------------------------------- PREMIUMS WRITTEN Direct $ 6,237 $ 5,206 $ 3,926 Assumed 7,470 5,501 5,455 Ceded (1,842) (1,311) (1,196) --------------------------------------- $ 11,865 $ 9,396 $ 8,185 ======================================= PREMIUM AND COMMISSION INCOME Direct $ 6,063 $ 5,138 $ 3,850 Assumed 7,151 5,386 5,353 Ceded (1,862) (1,256) (1,058) --------------------------------------- $ 11,352 $ 9,268 $ 8,145 ================================================================================ Reinsurance recoveries recognized as a reduction of insurance losses and policyholder and annuity benefits amounted to $1,594 million, $903 million and $937 million for the years ended December 31, 1998, 1997 and 1996, respectively. F-27 ANNUAL REPORT PAGE 51 - --------------------- 4 SUPPLEMENTAL COST DETAILS Total expenditures for research and development were $1,930 million, $1,891 million and $1,886 million in 1998, 1997 and 1996, respectively. The Company-funded portion aggregated $1,537 million in 1998, $1,480 million in 1997 and $1,421 million in 1996. Rental expense under operating leases is shown below. ---------------------------------- (In millions) 1998 1997 1996 - -------------------------------------------------------------------------------- GE $568 $536 $512 GECS 889 734 547 - -------------------------------------------------------------------------------- At December 31, 1998, minimum rental commitments under noncancelable operating leases aggregated $2,479 million and $5,168 million for GE and GECS, respectively. Amounts payable over the next five years follow. ------------------------------------------------ (In millions) 1999 2000 2001 2002 2003 - -------------------------------------------------------------------------------- GE $453 $375 $296 $223 $187 GECS 720 636 582 519 468 - -------------------------------------------------------------------------------- GE's selling, general and administrative expense totaled $7,177 million in 1998, $7,476 million in 1997 and $6,274 million in 1996. Insignificant amounts of interest were capitalized by GE and GECS in 1998, 1997 and 1996. 5 PENSION BENEFITS GE and its affiliates sponsor a number of pension plans. Principal pension plans are discussed below; other pension plans are not significant individually or in the aggregate. PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE Supplementary Pension Plan. The GE Pension Plan covers substantially all GE employees in the United States as well as approximately two-thirds of GECS employees in the United States. Generally, benefits are based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Benefit provisions are subject to collective bargaining. At the end of 1998, the GE Pension Plan covered approximately 466,000 participants, including 127,000 employees, 149,000 former employees with vested rights to future benefits, and 190,000 retirees and beneficiaries receiving benefits. The GE Supplementary Pension Plan is a pay-as-you-go plan providing supplementary retirement benefits primarily to higher-level, longer-service U.S. employees. The effect on operations of principal pension plans is as follows: - -------------------------------------------------------------------------------- EFFECT ON OPERATIONS -------------------------------- (In millions) 1998 1997 1996 - -------------------------------------------------------------------------------- Expected return on plan assets $ 3,024 $ 2,721 $ 2,587 Service cost for benefits earned (a) (625) (596) (550) Interest cost on benefit obligation (1,749) (1,686) (1,593) Prior service cost (153) (145) (99) SFAS No. 87 transition gain 154 154 154 Net actuarial gain recognized 365 295 210 Special early retirement cost -- (412) -- -------------------------------- Total pension plan income $ 1,016 $ 331 $ 709 ================================================================================ (a) Net of participant contributions. - -------------------------------------------------------------------------------- FUNDING POLICY for the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as GE may determine to be appropriate. GE has not made contributions since 1987 because the fully funded status of the GE Pension Plan precludes current tax deduction and because any GE contribution would require payment of annual excise taxes. Changes in the projected benefit obligation for principal pension plans follow. - -------------------------------------------------------------------------------- PROJECTED BENEFIT OBLIGATION ------------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- Balance at January 1 $ 25,874 $ 23,251 Service cost for benefits earned (a) 625 596 Interest cost on benefit obligation 1,749 1,686 Participant contributions 112 120 Plan amendments -- 136 Actuarial loss 1,050 1,388 Benefits paid (1,838) (1,715) Special early retirement cost -- 412 ------------------------- Balance at December 31 $ 27,572 $ 25,874 ================================================================================ (a) Net of participant contributions. - -------------------------------------------------------------------------------- Changes in the fair value of assets for principal pension plans follow. - -------------------------------------------------------------------------------- FAIR VALUE OF ASSETS --------------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- Balance at January 1 $ 38,742 $ 33,686 Actual return on plan assets 6,363 6,587 Employer contributions 68 64 Participant contributions 112 120 Benefits paid (1,838) (1,715) --------------------------- Balance at December 31 $ 43,447 $ 38,742 ================================================================================ Plan assets are held in trust and consist mainly of common stock and fixed-income investments. GE common stock represented about 7% and 6% of trust assets at year-end 1998 and 1997, respectively. F-28 ANNUAL REPORT PAGE 52 - --------------------- GE recorded assets and liabilities for principal pension plans as follows: - -------------------------------------------------------------------------------- PREPAID PENSION ASSET --------------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- Fair value of plan assets $ 43,447 $ 38,742 Add (deduct) unrecognized balances SFAS No. 87 transition gain (308) (462) Net actuarial gain (9,462) (7,538) Prior service cost 850 1,003 Projected benefit obligation (27,572) (25,874) Pension liability 797 703 --------------------------- Prepaid pension asset $ 7,752 $ 6,574 ================================================================================ ACTUARIAL ASSUMPTIONS used to determine costs and benefit obligations for principal pension plans follow. - -------------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS ------------------------------- December 31 1998 1997 1996 - -------------------------------------------------------------------------------- Discount rate 6.75% 7.0% 7.5% Compensation increases 5.0 4.5 4.5 Return on assets for the year 9.5 9.5 9.5 ================================================================================ Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, are amortized over the average future service period of employees. 6 RETIREE HEALTH AND LIFE BENEFITS GE and its affiliates sponsor a number of retiree health and life insurance benefit plans. Principal retiree benefit plans are discussed below; other such plans are not significant individually or in the aggregate. PRINCIPAL RETIREE BENEFIT PLANS generally provide health and life insurance benefits to employees who retire under the GE Pension Plan (see note 5) with 10 or more years of service. Retirees share in the cost of health care benefits. Benefit provisions are subject to collective bargaining. At the end of 1998, these plans covered approximately 250,000 retirees and dependents. The effect on operations of principal retiree benefit plans is shown in the following table. - -------------------------------------------------------------------------------- EFFECT ON OPERATIONS ------------------------------ (In millions) 1998 1997 1996 - -------------------------------------------------------------------------------- RETIREE HEALTH PLANS Service cost for benefits earned $ 79 $ 90 $ 77 Interest cost on benefit obligation 205 183 166 Prior service cost 14 (3) (20) Net actuarial loss recognized 28 16 20 Special early retirement cost -- 152 -- ------------------------------ Retiree health plan cost 326 438 243 ------------------------------ RETIREE LIFE PLANS Expected return on plan assets (149) (137) (132) Service cost for benefits earned 17 17 16 Interest cost on benefit obligation 114 116 106 Prior service cost (6) (8) (11) Net actuarial loss recognized 11 16 23 Special early retirement cost -- 13 -- ------------------------------ Retiree life plan cost (income) (13) 17 2 ------------------------------ Total cost $ 313 $ 455 $ 245 ================================================================================ FUNDING POLICY for retiree health benefits is generally to pay covered expenses as they are incurred. GE funds retiree life insurance benefits at its discretion. Changes in the accumulated postretirement benefit obligation for retiree benefit plans follow. - -------------------------------------------------------------------------------- ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION Health plans Life plans -------------------- -------------------- December 31 (In millions) 1998 1997 1998 1997 - -------------------------------------------------------------------------------- Balance at January 1 $ 3,098 $ 2,415 $ 1,677 $ 1,539 Service cost for benefits earned 79 90 17 17 Interest cost on benefit obligation 205 183 114 116 Participant contributions 24 21 -- -- Plan amendments -- 325 -- 44 Actuarial loss 177 245 91 56 Benefits paid (363) (333) (112) (108) Special early retirement cost -- 152 -- 13 -------------------- -------------------- Balance at December 31 $ 3,220 $ 3,098 $ 1,787 $ 1,677 ================================================================================ Changes in the fair value of assets for retiree benefit plans follow. - -------------------------------------------------------------------------------- FAIR VALUE OF ASSETS Health plans Life plans -------------------- -------------------- December 31 (In millions) 1998 1997 1998 1997 - -------------------------------------------------------------------------------- Balance at January 1 $ -- $ -- $ 1,917 $ 1,682 Actual return on plan assets -- -- 316 343 Employer contributions 339 312 -- -- Participant contributions 24 21 -- -- Benefits paid (363) (333) (112) (108) -------------------- -------------------- Balanace at December 31 $ -- $ -- $ 2,121 $ 1,917 ================================================================================ F-29 ANNUAL REPORT PAGE 53 - --------------------- Plan assets are held in trust and consist mainly of common stock and fixed-income investments. GE common stock represented about 5% and 4% of trust assets at year-end 1998 and 1997, respectively. GE recorded assets and liabilities for retiree benefit plans as follows: - -------------------------------------------------------------------------------- RETIREE BENEFIT LIABILITY/ASSET Health plans Life plans -------------------- -------------------- December 31 (In millions) 1998 1997 1998 1997 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation $ 3,220 $ 3,098 $ 1,787 $ 1,677 Add (deduct) unrecognized balances Net actuarial gain/(loss) (572) (423) 214 127 Prior service cost (157) (171) 49 55 Fair value of plan assets -- -- (2,121) (1,917) -------------------- -------------------- Retiree benefit liability/ (asset) $ 2,491 $ 2,504 $ (71) $ (58) ================================================================================ ACTUARIAL ASSUMPTIONS used to determine costs and benefit obligations for principal retiree benefit plans are shown below. - -------------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS ------------------------------- December 31 1998 1997 1996 - -------------------------------------------------------------------------------- Discount rate 6.75% 7.0% 7.5% Compensation increases 5.0 4.5 4.5 Health care cost trend (a) 7.8 7.8 8.0 Return on assets for the year 9.5 9.5 9.5 ================================================================================ (a) For 1998, gradually declining to 5.0% after 2003. - -------------------------------------------------------------------------------- Increasing or decreasing the health care cost trend rates by one percentage point would not have had a material effect on the December 31, 1998, accumulated postretirement benefit obligation or the annual cost of retiree health plans. Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, are amortized over the average future service period of employees. 7 GECS ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES ---------------------------------- (In millions) 1998 1997 1996 - ------------------------------------------------------------------------------- Balance at January 1 $ 2,802 $ 2,693 $ 2,519 Provisions charged to operations 1,609 1,421 1,033 Net transfers primarily related to companies acquired or sold 388 127 139 Amounts written off-- net (1,511) (1,439) (998) ---------------------------------- Balance at December 31 $ 3,288 $ 2,802 $ 2,693 ================================================================================ 8 PROVISION FOR INCOME TAXES ---------------------------------- (In millions) 1998 1997 1996 - -------------------------------------------------------------------------------- GE Estimated amounts payable $ 2,227 $ 2,332 $ 2,235 Deferred tax expense (benefit) from temporary differences 590 (522) 60 ---------------------------------- 2,817 1,810 2,295 ---------------------------------- GECS Estimated amounts payable 815 368 164 Deferred tax expense from temporary differences 549 798 1,067 ---------------------------------- 1,364 1,166 1,231 ---------------------------------- CONSOLIDATED Estimated amounts payable 3,042 2,700 2,399 Deferred tax expense from temporary differences 1,139 276 1,127 ---------------------------------- $ 4,181 $ 2,976 $ 3,526 ================================================================================ GE includes GECS in filing a consolidated U.S. federal income tax return. The GECS provision for estimated taxes payable includes its effect on the consolidated return. Estimated consolidated amounts payable includes amounts applicable to U.S. federal income taxes of $1,459 million, $1,176 million and $971 million in 1998, 1997 and 1996, respectively, and amounts applicable to non-U.S. jurisdictions of $1,335 million, $1,298 million and $1,204 million in 1998, 1997 and 1996, respectively. Deferred tax expense related to U.S. federal income taxes was $971 million, $354 million and $1,081 million in 1998, 1997 and 1996, respectively. Deferred income tax balances reflect the impact of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. See note 22 for details. Except for certain earnings that GE intends to reinvest indefinitely, provision has been made for the estimated U.S. federal income tax liabilities applicable to undistributed earnings of affiliates and associated companies. It is not practicable to determine the U.S. federal income tax liability, if any, that would be payable if such earnings were not reinvested indefinitely. Consolidated U.S. income before taxes was $9.7 billion in 1998, $8.2 billion in 1997 and $8.0 billion in 1996. The corresponding amounts for non-U.S.-based operations were $3.8 billion in 1998, $3.0 billion in 1997 and $2.8 billion in 1996. A reconciliation of the U.S. federal statutory tax rate to the actual tax rate is provided on the following page. F-30 ANNUAL REPORT PAGE 54 - ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ RECONCILIATION OF U.S. FEDERAL STATUTORY TAX RATE TO ACTUAL RATE Consolidated GE GECS ------------------------- -------------------------- ------------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 ------------------------------------------------------------------------------------- Statutory U.S. federal income tax rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% ========================= ========================== ========================= Increase (reduction) in rate resulting from: Inclusion of after-tax earnings of GECS in before-tax earnings of GE -- -- -- (11.0) (11.4) (10.3) -- -- -- Lockheed Martin exchange (note 2) -- (4.8) -- -- (5.4) -- -- -- -- Amortization of goodwill 1.1 1.1 1.1 0.7 0.8 0.8 1.0 1.1 1.2 Tax-exempt income (1.8) (1.9) (2.0) -- -- -- (4.7) (4.9) (5.4) Foreign Sales Corporation tax benefits (1.2) (1.0) (0.7) (1.0) (0.9) (0.6) (0.6) (0.5) (0.3) Dividends received, not fully taxable (0.4) (0.5) (0.6) -- (0.2) (0.2) (1.0) (0.9) (1.1) All other -- net (1.7) (1.3) (0.2) (0.4) 0.2 (0.7) (3.3) (3.4) 1.0 ------------------------- -------------------------- ------------------------- (4.0) (8.4) (2.4) (11.7) (16.9) (11.0) (8.6) (8.6) (4.6) ------------------------- -------------------------- ------------------------- Actual income tax rate 31.0% 26.6% 32.6% 23.3% 18.1% 24.0% 26.4% 26.4% 30.4% ====================================================================================================================================
9 Earnings Per Share Information
1998 1997 1996 ------------------- ------------------- ------------------- (In millions; per-share amounts in dollars) Diluted Basic Diluted Basic Diluted Basic - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED OPERATIONS Net earnings available to common share owners $9,296 $9,296 $8,203 $8,203 $7,280 $7,280 Dividend equivalents -- net of tax 13 -- 10 -- 9 -- ------------------- ------------------- ------------------- Net earnings available for per-share calculation $9,309 $9,296 $8,213 $8,203 $7,289 $7,280 ------------------- ------------------- ------------------- AVERAGE EQUIVALENT SHARES Shares of GE common stock outstanding 3,269 3,269 3,275 3,275 3,307 3,307 Employee compensation-related shares, including stock options 61 -- 70 -- 64 -- ------------------- ------------------- ------------------- Total average equivalent shares 3,330 3,269 3,345 3,275 3,371 3,307 ------------------- ------------------- ------------------- Net earnings per share $ 2.80 $ 2.84 $ 2.46 $ 2.50 $ 2.16 $ 2.20 ====================================================================================================================================
F-31 ANNUAL REPORT PAGE 55 - --------------------- 10 INVESTMENT SECURITIES ---------------------------------------------- Gross Gross Amortized unrealized unrealized Estimated (In millions) cost gains losses fair value - -------------------------------------------------------------------------------- DECEMBER 31, 1998 GE Equity securities $ 233 $ 26 $ -- $ 259 ---------------------------------------------- GECS Debt securities U.S. corporate 27,888 1,293 (325) 28,856 State and municipal 12,483 727 (8) 13,202 Mortgage-backed 11,641 413 (109) 11,945 Corporate-- non-U.S 8,692 409 (90) 9,011 Government -- non-U.S 5,415 258 (9) 5,664 U.S. government and federal agency 2,706 207 (7) 2,906 Equity securities 5,651 1,415 (192) 6,874 ---------------------------------------------- 74,476 4,722 (740) 78,458 ---------------------------------------------- CONSOLIDATED TOTALS $ 74,709 $ 4,748 $ (740) $ 78,717 ================================================================================ DECEMBER 31, 1997 GE Equity securities $ 257 $ 13 $ (5) $ 265 ---------------------------------------------- GECS Debt securities U.S. corporate 24,580 1,028 (53) 25,555 State and municipal 10,780 636 (2) 11,414 Mortgage-backed 12,074 341 (30) 12,385 Corporate-- non-U.S 7,683 310 (12) 7,981 Government -- non-U.S 3,714 150 (3) 3,861 U.S. government and federal agency 2,413 103 (4) 2,512 Equity securities 5,414 1,336 (102) 6,648 ---------------------------------------------- 66,658 3,904 (206) 70,356 ---------------------------------------------- CONSOLIDATED TOTALS $ 66,915 $ 3,917 $ (211) $ 70,621 ================================================================================ The majority of mortgage-backed securities shown in the table above are collateralized by U.S. residential mortgages. At December 31, 1998, contractual maturities of debt securities, other than mortgage-backed securities, were as follows: - -------------------------------------------------------------------------------- CONTRACTUAL MATURITIES OF DEBT SECURITIES (EXCLUDING MORTGAGE-BACKED SECURITIES) ---------------------------- Amortized Estimated (In millions) cost fair value - -------------------------------------------------------------------------------- Due in 1999 $ 5,370 $ 5,574 2000-2003 14,145 14,497 2004-2008 13,068 13,538 2009 and later 24,601 26,030 ================================================================================ It is expected that actual maturities will differ from contractual maturities because borrowers have the right to call or prepay certain obligations. Proceeds from sales of investment securities by GE and GECS in 1998 were $16,707 million ($14,728 million in 1997 and $11,868 million in 1996). Gross realized gains were $1,126 million in 1998 ($1,018 million in 1997 and $638 million in 1996). Gross realized losses were $308 million in 1998 ($173 million in 1997 and $190 million in 1996). 11 GE CURRENT RECEIVABLES ------------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- Aircraft Engines $ 1,722 $ 2,118 Appliances 299 300 Industrial Products and Systems 1,274 1,645 NBC 261 362 Plastics 1,070 1,037 Power Systems 2,620 2,376 Technical Products and Services 904 786 All Other 141 130 Corporate 495 538 ------------------------- 8,786 9,292 Less allowance for losses (303) (238) ------------------------- $ 8,483 $ 9,054 ================================================================================ Receivables balances at December 31, 1998 and 1997, before allowance for losses, included $5,447 million and $6,125 million, respectively, from sales of goods and services to customers, and $350 million and $285 million, respectively, from transactions with associated companies. Current receivables of $305 million at year-end 1998 and $303 million at year-end 1997 arose from sales, principally of aircraft engine goods and services, on open account to various agencies of the U.S. government, which is GE's largest single customer. About 4% of GE's sales of goods and services were to the U.S. government in 1998 and 1997, compared with about 5% in 1996. 12 INVENTORIES ------------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- GE Raw materials and work in process $ 3,154 $ 3,070 Finished goods 2,967 2,895 Unbilled shipments 195 242 ------------------------- 6,316 6,207 Less revaluation to LIFO (1,011) (1,098) ------------------------- 5,305 5,109 ------------------------- GECS Finished goods 744 786 ------------------------- $ 6,049 $ 5,895 ================================================================================ LIFO revaluations decreased $87 million in 1998, compared with decreases of $119 million in 1997 and $128 million in 1996. Included in these changes were decreases of $29 million, $59 million and $58 million in 1998, 1997 and 1996, respectively, that resulted from lower LIFO inventory levels. There were net cost decreases in each of the last three years. As of December 31, 1998, GE is obligated to acquire certain raw materials at market prices through the year 2008 under various take-or-pay or similar arrangements. Annual minimum commitments under these arrangements are insignificant. F-32 ANNUAL REPORT PAGE 56 - --------------------- 13 GECS FINANCING RECEIVABLES (INVESTMENTS IN TIME SALES, LOANS AND FINANCING LEASES) --------------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- TIME SALES AND LOANS Consumer services $ 44,680 $ 42,270 Mid-market financing 20,240 11,401 Specialized financing 16,811 13,974 Equipment management 1,066 469 Specialty insurance 103 202 --------------------------- 82,900 68,316 Deferred income (5,617) (3,484) --------------------------- Time sales and loans-- net 77,283 64,832 --------------------------- INVESTMENT IN FINANCING LEASES Direct financing leases 43,730 38,616 Leveraged leases 3,841 3,153 --------------------------- Investment in financing leases 47,571 41,769 --------------------------- 124,854 106,601 Less allowance for losses (3,288) (2,802) --------------------------- $ 121,566 $ 103,799 ================================================================================ Time sales and loans represents transactions in a variety of forms, including time sales, revolving charge and credit, mortgages, installment loans, intermediate-term loans and revolving loans secured by business assets. The portfolio includes time sales and loans carried at the principal amount on which finance charges are billed periodically, and time sales and loans carried at gross book value, which includes finance charges. At year-end 1998 and 1997, specialized financing and consumer services loans included $12,980 million and $10,503 million, respectively, for commercial real estate loans. Note 17 contains information on airline loans and leases. At December 31, 1998, contractual maturities for time sales and loans were $31,014 million in 1999; $14,865 million in 2000; $9,448 million in 2001; $6,675 million in 2002; $5,465 million in 2003; and $15,433 million thereafter -- aggregating $82,900 million. Experience has shown that a substantial portion of receivables will be paid prior to contractual maturity. Accordingly, the maturities of time sales and loans are not to be regarded as forecasts of future cash collections. Investment in financing leases consists of direct financing and leveraged leases of aircraft, railroad rolling stock, autos, other transportation equipment, data processing equipment and medical equipment, as well as other manufacturing, power generation, commercial real estate, and commercial equipment and facilities. As the sole owner of assets under direct financing leases and as the equity participant in leveraged leases, GECS is taxed on total lease payments received and is entitled to tax deductions based on the cost of leased assets and tax deductions for interest paid to third-party participants. GECS generally is entitled to any residual value of leased assets. Investment in direct financing and leveraged leases represents net unpaid rentals and estimated unguaranteed residual values of leased equipment, less related deferred income. GECS has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. The GECS share of rentals receivable on leveraged leases is subordinate to the share of other participants who also have security interests in the leased equipment. At December 31, 1998, contractual maturities for net rentals receivable under financing leases were $14,093 million in 1999; $12,087 million in 2000; $8,947 million in 2001; $4,362 million in 2002; $2,759 million in 2003; and $9,104 million thereafter -- aggregating $51,352 million. As with time sales and loans, experience has shown that a portion of these receivables will be paid prior to contractual maturity, and these amounts should not be regarded as forecasts of future cash flows.
- --------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT IN FINANCING LEASES Total financing leases Direct financing leases Leveraged leases ---------------------- ----------------------- --------------------- December 31 (In millions) 1998 1997 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Total minimum lease payments receivable $ 66,528 $ 58,543 $ 47,451 $ 42,901 $ 19,077 $ 15,642 Less principal and interest on third-party nonrecourse debt (15,176) (12,097) -- -- (15,176) (12,097) ---------------------- ----------------------- --------------------- Net rentals receivable 51,352 46,446 47,451 42,901 3,901 3,545 Estimated unguaranteed residual value of leased assets 6,826 5,591 5,011 4,244 1,815 1,347 Less deferred income (10,607) (10,268) (8,732) (8,529) (1,875) (1,739) ---------------------- ----------------------- --------------------- INVESTMENT IN FINANCING LEASES (as shown above) 47,571 41,769 43,730 38,616 3,841 3,153 Less amounts to arrive at net investment Allowance for losses (619) (656) (519) (575) (100) (81) Deferred taxes (8,593) (7,909) (5,147) (4,671) (3,446) (3,238) ---------------------- ----------------------- --------------------- NET INVESTMENT IN FINANCING LEASES $ 38,359 $ 33,204 $ 38,064 $ 33,370 $ 295 $ (166) ====================================================================================================================================
F-33 ANNUAL REPORT PAGE 57 - --------------------- GECS has a noncontrolling interest in Montgomery Ward Holding Corp. (MWHC) which, together with certain of its affiliates, filed a bankruptcy petition for reorganization in 1997. Loans to MWHC, which are considered impaired (as defined below), were $578 million and $617 million at year-end 1998 and 1997, respectively. These amounts are excluded from the nonearning and reduced-earning receivable and impaired loan discussions below. GECS also provides revolving credit card financing directly to customers of MWHC and affiliates; such receivables totaled $3.4 billion at December 31, 1998, including $1.6 billion that had been sold with recourse. The obligations of customers with respect to these receivables are not affected by the bankruptcy filing. Nonearning consumer receivables were $1,250 million and $1,049 million at December 31, 1998 and 1997, respectively, a substantial amount of which were private-label credit card loans subject to various loss-sharing agreements that provide full or partial recourse to the originating retailer. Nonearning and reduced-earning receivables other than consumer receivables were $354 million and $353 million at year-end 1998 and 1997, respectively. "Impaired" loans are defined by generally accepted accounting principles as loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. That definition excludes, among other things, leases or large groups of smaller-balance homogenous loans and therefore applies principally to commercial loans held by GECS. An analysis of impaired loans follows. ---------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- Loans requiring allowance for losses $346 $339 Loans expected to be fully recoverable 158 167 ---------------- $504 $506 ---------------- Allowance for losses $109 $170 Average investment during year 512 647 Interest income earned while impaired (a) 39 32 ================================================================================ (a) Principally on the cash basis. - -------------------------------------------------------------------------------- 14 OTHER GECS RECEIVABLES At year-end 1998 and 1997, this account included reinsurance recoverables of $6,124 million and $5,027 million and insurance-related receivables of $7,109 million and $4,932 million, respectively. Premium receivables, funds on deposit with reinsurers and policy loans are included in insurance-related receivables. Also in "Other GECS receivables" are trade receivables, accrued investment income, operating lease receivables and a variety of sundry items. 15 PROPERTY, PLANT AND EQUIPMENT (INCLUDING EQUIPMENT LEASED TO OTHERS) ---------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- ORIGINAL COST GE Land and improvements $ 459 $ 459 Buildings, structures and related equipment 6,579 6,375 Machinery and equipment 19,491 18,376 Leasehold costs and manufacturing plant under construction 1,757 1,621 Other 24 24 ---------------------- 28,310 26,855 ---------------------- GECS Buildings and equipment 4,828 3,987 Equipment leased to others Vehicles 9,825 9,144 Aircraft 9,321 7,686 Railroad rolling stock 2,804 2,367 Marine shipping containers 2,565 2,774 Other 3,447 2,844 ---------------------- 32,790 28,802 ---------------------- $61,100 $55,657 ====================== ACCUMULATED DEPRECIATION AND AMORTIZATION GE $16,616 $15,737 GECS Buildings and equipment 1,733 1,478 Equipment leased to others 7,021 6,126 ---------------------- $25,370 $23,341 ================================================================================ Amortization of GECS equipment leased to others was $2,185 million, $2,102 million and $1,848 million in 1998, 1997 and 1996, respectively. Noncancelable future rentals due from customers for equipment on operating leases at year-end 1998 totaled $12,808 million and are due as follows: $3,377 million in 1999; $2,540 million in 2000; $1,841 million in 2001; $1,318 million in 2002; $897 million in 2003; and $2,835 million thereafter. F-34 ANNUAL REPORT PAGE 58 - --------------------- 16 INTANGIBLE ASSETS -------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- GE Goodwill $ 9,203 $ 8,046 Other intangibles 793 709 -------------------- 9,996 8,755 -------------------- GECS Goodwill 11,469 8,090 Present value of future profits (PVFP) 1,618 1,824 Other intangibles 552 452 -------------------- 13,639 10,366 -------------------- $23,635 $19,121 ================================================================================ GE intangible assets are shown net of accumulated amortization of $2,923 million in 1998 and $2,976 million in 1997. GECS intangible assets are net of accumulated amortization of $3,396 million in 1998 and $2,615 million in 1997. PVFP amortization, which is on an accelerated basis and net of interest, is projected to range from 15% to 8% of the year-end 1998 unamortized balance for each of the next five years. 17 ALL OTHER ASSETS ------------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- GE Investments Associated companies (a) $ 2,336 $ 1,692 Other 474 735 ------------------------- 2,810 2,427 Prepaid pension asset 7,752 6,574 Long-term receivables, including notes 2,379 2,389 Prepaid broadcasting rights 929 595 Other 4,161 2,744 ------------------------- 18,031 14,729 ------------------------- GECS Investments Assets acquired for resale 6,167 4,403 Associated companies (a) 7,670 4,695 Real estate ventures 3,131 2,326 Other 3,473 2,452 ------------------------- 20,441 13,876 Separate accounts 6,563 4,926 Servicing assets 1,625 1,713 Deferred insurance acquisition costs 3,326 2,521 Other 3,584 2,631 ------------------------- 35,539 25,667 ------------------------- ELIMINATIONS (662) (576) ------------------------- $ 52,908 $ 39,820 ================================================================================ (a) Includes advances - -------------------------------------------------------------------------------- In line with industry practice, sales of commercial jet aircraft engines often involve long-term customer financing commitments. In making such commitments, it is GE's general practice to require that it have or be able to establish a secured position in the aircraft being financed. Under such airline financing programs, GE had issued loans and guarantees (principally guarantees) amounting to $1,473 million at year-end 1998 and $1,590 million at year-end 1997; and it had entered into commitments totaling $1,519 million and $1,794 million at year-end 1998 and 1997, respectively, to provide financial assistance on future aircraft engine sales. Estimated fair values of the aircraft securing these receivables and associated guarantees exceeded the related account balances and guaranteed amounts at December 31, 1998. GECS acts as a lender and lessor to the commercial airline industry. At December 31, 1998 and 1997, the balance of such GECS loans, leases and equipment leased to others was $10,170 million and $8,980 million, respectively. In addition, at December 31, 1998, GECS had issued financial guarantees and funding commitments of $74 million ($123 million at year-end 1997) and had placed multiyear orders for various Boeing and Airbus aircraft with list prices of approximately $9.4 billion ($6.2 billion at year-end 1997). At year-end 1998, the National Broadcasting Company had $9,376 million of commitments to acquire broadcast material and the rights to broadcast television programs, including U.S. television rights to future Olympic Games, and commitments under long-term television station affiliation agreements that require payments through the year 2009. In connection with numerous projects, primarily power generation bids and contracts, GE had issued various bid and performance bonds and guarantees totaling $3,740 million at year-end 1998 and $2,895 million at year-end 1997. Separate accounts represent investments controlled by policyholders and are associated with identical amounts reported as insurance liabilities in note 20. 18 GE ALL OTHER CURRENT COSTS AND EXPENSES ACCRUED At year-end 1998 and 1997, this account included taxes accrued of $3,415 million and $2,866 million and compensation and benefit accruals of $1,487 million and $1,321 million, respectively. Also included are amounts for product warranties, restructuring, estimated costs on shipments billed to customers and a variety of sundry items. An analysis of changes in the restructuring liability follows. ---------------------------------------- Termination Exit (In millions) benefits costs Total - -------------------------------------------------------------------------------- 1997 provision $ 778 $ 465 $ 1,243 Charges (672) (395) (1,067) Reversed to operations -- (28) (28) ---------------------------------------- Balance at December 31, 1998 $ 106 $ 42 $ 148 ================================================================================ Substantially all of the 1997 provision is expected to be utilized by year-end 1999. F-35 ANNUAL REPORT PAGE 59 - --------------------- 19 BORROWINGS - -------------------------------------------------------------------------------- SHORT-TERM BORROWINGS ---------------------------------------------- 1998 1997 ----------------------- --------------------- Average Average December 31 (In millions) Amount rate (a) Amount rate (a) - --------------------------------------------------------- --------------------- GE Commercial paper (U.S.) $ 2,339 5.29% $ 1,835 5.88% Payable to banks, principally non-U.S 465 11.15 348 8.38 Current portion of long-term debt 50 5.08 1,099 5.85 Other 612 347 ---------------------------------------------- 3,466 3,629 ---------------------------------------------- GECS Commercial paper U.S 83,044 5.38 67,355 5.93 Non-U.S 3,953 4.80 3,879 4.18 Current portion of long-term debt 14,645 5.66 15,101 6.30 Other 11,520 8,939 ---------------------------------------------- 113,162 95,274 ---------------------------------------------- ELIMINATIONS (1,250) (828) ---------------------------------------------- $115,378 $98,075 ================================================================================ - -------------------------------------------------------------------------------- LONG-TERM BORROWINGS ---------------------------------------------- 1998 Average -------------------- December 31 (In millions) rate (a) Maturities 1998 1997 - -------------------------------------------------------------------------------- GE Industrial development/ pollution control bonds 3.78% 2003-2027 $ 327 $ 270 Payable to banks, principally non-U.S 9.56 2000-2006 230 195 Other (b) 124 264 --------------------- 681 729 --------------------- GECS Senior notes 6.07 2000-2055 58,042 44,993 Subordinated notes (c) 7.88 2006-2035 996 996 --------------------- 59,038 45,989 --------------------- ELIMINATIONS (56) (115) --------------------- $59,663 $ 46,603 ================================================================================ (a) Based on year-end balances and local currency interest rates, including the effects of interest rate and currency swaps, if any, directly associated with the original debt issuance. (b) A variety of obligations having various interest rates and maturities, including certain borrowings by parent operating components and affiliates. (c) Guaranteed by GE. - -------------------------------------------------------------------------------- Borrowings of GE and GECS are addressed below from two perspectives -- liquidity and interest rate management. Additional information about borrowings and associated swaps can be found in note 30. LIQUIDITY requirements of GE and GECS are principally met through the credit markets. Maturities of long-term borrowings during the next five years follow. --------------------------------------------------- (In millions) 1999 2000 2001 2002 2003 - -------------------------------------------------------------------------------- GE $ 50 $ 137 $ 132 $ 33 $ 48 GECS 14,645 13,889 10,925 7,059 4,794 - -------------------------------------------------------------------------------- Confirmed credit lines of $4.0 billion had been extended to GE by 23 banks at year-end 1998. Substantially all of GE's credit lines are available to GECS and its affiliates in addition to their own credit lines. At year-end 1998, GECS and its affiliates held committed lines of credit aggregating $26.7 billion, including $11.8 billion of revolving credit agreements pursuant to which it has the right to borrow funds for periods exceeding one year. Amounts drawn by GECS under these lines at December 31, 1998, were not significant. A total of $1.5 billion of GE Capital credit lines is available for use by GE. Both GE and GECS compensate certain banks for credit facilities in the form of fees, which were insignificant in each of the past three years. INTEREST RATES ARE MANAGED by GECS in light of the anticipated behavior, including prepayment behavior, of assets in which debt proceeds are invested. A variety of instruments, including interest rate and currency swaps and currency forwards, are employed to achieve management's interest rate objectives. Effective interest rates are lower under these "synthetic" positions than could have been achieved by issuing debt directly. The following table shows GECS borrowing positions considering the effects of swaps. - -------------------------------------------------------------------------------- EFFECTIVE BORROWINGS (INCLUDING SWAPS) ----------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- Short-term $ 72,143 $ 56,961 ----------------------- Long-term (including current portion) Fixed rate (a) $ 74,226 $ 59,329 Floating rate 25,831 24,973 ----------------------- Total long-term $100,057 $ 84,302 ================================================================================ (a) Includes the notional amount of long-term interest rate swaps that effectively convert the floating-rate nature of short-term borrowings to fixed rates of interest. - -------------------------------------------------------------------------------- At December 31, 1998, swap maturities ranged from 1999 to 2048, and average interest rates for fixed-rate borrowings (including "synthetic" fixed-rate borrowings) were 6.03% (6.32% at year-end 1997). F-36 ANNUAL REPORT PAGE 60 - --------------------- 20 GECS INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS ----------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- Investment contracts and universal life benefits $29,266 $28,266 Life insurance benefits and other (a) 16,104 14,356 Unpaid claims and claims adjustment expenses (b) 19,611 14,654 Unearned premiums 5,715 5,068 Separate accounts (see note 17) 6,563 4,926 ----------------------- $77,259 $67,270 ================================================================================ (a) Life insurance benefits are accounted for mainly by a net-level-premium method using estimated yields generally ranging from 5% to 9% in both 1998 and 1997. (b) Principally property and casualty reserves; includes amounts for both reported and incurred-but-not-reported claims, reduced by anticipated salvage and subrogation recoveries. Estimates of liabilities are reviewed and updated continually, with changes in estimated losses reflected in operations. - -------------------------------------------------------------------------------- When GECS cedes insurance to third parties, it is not relieved of its primary obligation to policyholders. Losses on ceded risks give rise to claims for recovery; allowances are established for such receivables from reinsurers. The insurance liability for unpaid claims and claims adjustment expenses related to policies that may cover environmental, asbestos and Year 2000-related exposures is based on known facts and an assessment of applicable law and coverage litigation. Liabilities are recognized for both known and unasserted claims (including the cost of related litigation) when sufficient information has been developed to indicate that a claim has been incurred and a range of potential losses can be reasonably estimated. Developed case law and adequate claim history do not exist for certain claims, particularly with respect to Year 2000-related exposures, principally due to significant uncertainties as to both the level of ultimate losses that will occur and what portion, if any, will be deemed to be insured amounts. A summary of activity affecting unpaid claims and claims adjustment expenses follows. ------------------------------------- (In millions) 1998 1997 1996 - ------------------------------------------------------------------------------- Balance at January 1 -- gross $ 14,654 $ 13,184 $ 12,662 Less reinsurance recoverables (2,246) (1,822) (1,853) ------------------------------------- Balance at January -- net 12,408 11,362 10,809 Claims and expenses incurred Current year 6,330 4,494 4,087 Prior years (162) 146 104 Claims and expenses paid Current year (2,400) (1,780) (1,357) Prior years (3,692) (2,816) (2,373) Claim reserves related to acquired companies 3,476 1,360 309 Other 168 (358) (217) ------------------------------------- Balance at December 31 -- net 16,128 12,408 11,362 Add reinsurance recoverables 3,483 2,246 1,822 ------------------------------------- Balance at December 31 -- gross $ 19,611 $ 14,654 $ 13,184 ================================================================================ Prior-year claims and expenses incurred in the preceding table resulted principally from settling claims established in earlier accident years for amounts that differed from expectations. Financial guarantees and credit life risk of insurance affiliates are summarized below. -------------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- Guarantees, principally on municipal bonds and structured finance issues $ 171,020 $ 144,647 Mortgage insurance risk in force 43,941 46,245 Credit life insurance risk in force 31,018 26,593 Less reinsurance (37,205) (33,528) -------------------------- $ 208,774 $ 183,957 ================================================================================ 21 GE ALL OTHER LIABILITIES This account includes noncurrent compensation and benefit accruals at year-end 1998 and 1997 of $5,594 million and $5,484 million, respectively. Also included are amounts for deferred incentive compensation, deferred income, product warranties and a variety of sundry items. GE is involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs at each site are based on management's best estimate of undiscounted future costs, excluding possible insurance recoveries. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the lower end of such range. Uncertainties about the status of laws, regulations, technology and information related to individual sites make it difficult to develop a meaningful estimate of the reasonably possible aggregate environmental remediation exposure. However, even in the unlikely event that remediation costs amounted to the high end of the range of costs for each site, the resulting additional liability would not be material to GE's financial position, results of operations or liquidity. F-37 ANNUAL REPORT PAGE 61 - --------------------- 22 DEFERRED INCOME TAXES Aggregate deferred tax amounts are summarized below. ------------------------ December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- ASSETS GE $ 5,309 $ 4,891 GECS 5,305 4,320 ------------------------ 10,614 9,211 ------------------------ LIABILITIES GE 5,059 4,576 GECS 14,895 13,286 ------------------------ 19,954 17,862 ------------------------ NET DEFERRED TAX LIABILITY $ 9,340 $ 8,651 ================================================================================ Principal components of the net deferred tax balances for GE and GECS are as follows: ------------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- GE Provisions for expenses (a) $(3,809) $(3,367) Retiree insurance plans (847) (856) Prepaid pension asset 2,713 2,301 Depreciation 935 955 Other-- net 758 652 ------------------------- (250) (315) ------------------------- GECS Financing leases 8,593 7,909 Operating leases 2,419 2,156 Net unrealized gains on securities 1,369 1,264 Allowance for losses (1,386) (1,372) Insurance reserves (1,022) (1,000) AMT credit carryforwards (903) (354) Other -- net 520 363 ------------------------- 9,590 8,966 ------------------------- NET DEFERRED TAX LIABILITY $ 9,340 $ 8,651 ================================================================================ (a) Represents the tax effects of temporary differences related to expense accruals for a wide variety of items, such as employee compensation and benefits, interest on tax deficiencies, product warranties and other provisions for sundry losses and expenses that are not currently deductible. - -------------------------------------------------------------------------------- 23 GECS MINORITY INTEREST IN EQUITY OF CONSOLIDATED AFFILIATES Minority interest in equity of consolidated GECS affiliates includes preferred stock issued by GE Capital and by an affiliate of GE Capital. The preferred stock pays cumulative dividends at variable rates. Value of the preferred shares is summarized below. ----------------------- December 31 (In millions) 1998 1997 - -------------------------------------------------------------------------------- GE Capital $2,300 $2,230 GE Capital affiliate 860 660 ================================================================================ Dividend rates on the preferred stock ranged from 3.9% to 5.2% during 1998 and from 3.8% to 5.2% during 1997 and 1996. 24 RESTRICTED NET ASSETS OF GECS AFFILIATES Certain GECS consolidated affiliates are restricted from remitting funds to GECS in the form of dividends or loans by a variety of regulations, the purpose of which is to protect affected insurance policyholders, depositors or investors. At year-end 1998, net assets of regulated GECS affiliates amounted to $25.1 billion, of which $21.9 billion was restricted. At December 31, 1998 and 1997, the aggregate statutory capital and surplus of the insurance businesses totaled $14.4 billion and $12.4 billion, respectively. Accounting practices prescribed by statutory authorities are used in preparing statutory statements. 25 SHARE OWNERS' EQUITY ----------------------------------- (In millions) 1998 1997 1996 - -------------------------------------------------------------------------------= COMMON STOCK ISSUED $ 594 $ 594 $ 594 =================================== ACCUMULATED NONOWNER CHANGES OTHER THAN EARNINGS Balance at January 1 $ 1,340 $ 615 $ 1,061 Unrealized gains (losses) on investment securities -- net of deferred taxes of $430, $860 and ($204) 795 1,467 (329) Currency translation adjustments -- net of deferred taxes of ($13), ($58) and ($9) 60 (742) (117) Reclassification adjustments-- net of deferred taxes of ($291) (531) -- -- ----------------------------------- Balance at December 31 $ 1,664 $ 1,340 $ 615 =================================== OTHER CAPITAL Balance at January 1 $ 4,434 $ 2,554 $ 1,602 Gains on treasury stock dispositions (a) 2,374 1,880 952 ----------------------------------- Balance at December 31 $ 6,808 $ 4,434 $ 2,554 =================================== RETAINED EARNINGS Balance at January 1 $ 43,338 $ 38,670 $ 34,528 Net earnings 9,296 8,203 7,280 Dividends (a) (4,081) (3,535) (3,138) ----------------------------------- Balance at December 31 $ 48,553 $ 43,338 $ 38,670 =================================== COMMON STOCK HELD IN TREASURY Balance at January 1 $ 15,268 $ 11,308 $ 8,176 Purchases (a) 6,475 6,392 4,842 Dispositions (a) (3,004) (2,432) (1,710) ----------------------------------- Balance at December 31 $ 18,739 $ 15,268 $ 11,308 ================================================================================ (a) Total dividends and other transactions with share owners reduced equity by $5,178 million, $5,615 million and $5,318 million in 1998, 1997 and 1996, respectively. - -------------------------------------------------------------------------------- The GE Board of Directors has authorized repurchase of $17 billion of common stock under the share repurchase program. This buyback will continue through the year 2000 at an annual rate of about $2 billion. Funds used for the share repurchase are expected to be generated largely from operating cash flow. F-38 ANNUAL REPORT PAGE 62 - --------------------- Through year-end 1998, a total of 287 million shares having an aggregate cost of $13.6 billion had been repurchased under this program and placed into treasury. Common shares issued and outstanding are summarized in the following table. - -------------------------------------------------------------------------------- SHARES OF GE COMMON STOCK ------------------------------------------ December 31 (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- Issued 3,714,068 3,714,026 3,714,026 In treasury (442,772) (449,434) (424,942) ------------------------------------------ Outstanding 3,271,296 3,264,592 3,289,084 ================================================================================ GE has 50 million authorized shares of preferred stock ($1.00 par value), but no such shares have been issued. The effects of translating to U.S. dollars the financial statements of non-U.S. affiliates whose functional currency is the local currency are included in share owners' equity. Asset and liability accounts are translated at year-end exchange rates, while revenues and expenses are translated at average rates for the period. 26 OTHER STOCK-RELATED INFORMATION - -------------------------------------------------------------------------------- Average per share ------------------------------------ Shares subject Exercise Market (Shares in thousands) to option price price - -------------------------------------------------------------------------------- Balance at December 31, 1995 144,874 $21.60 $36.00 Options granted 19,034 42.39 42.39 Replacement options 8,622 26.34 26.34 Options exercised (18,278) 17.70 43.25 Options terminated (4,707) 26.18 -- ------------------------------------ Balance at December 31, 1996 149,545 24.86 49.44 Options granted (a) 13,795 68.07 68.07 Replacement options 30 24.16 24.16 Options exercised (21,746) 18.47 61.22 Options terminated (2,721) 31.10 -- ------------------------------------ Balance at December 31, 1997 138,903 30.03 73.38 Options granted 7,707 79.86 79.86 Options exercised (23,955) 20.76 84.45 Options terminated (2,727) 44.46 -- ------------------------------------ Balance at December 31, 1998 119,928 34.76 102.00 ================================================================================ (a) Without adjusting for the effect of the 2-for-1 stock split in April 1997, the number of options granted during 1997 would have been 13,476. - -------------------------------------------------------------------------------- Stock option plans, stock appreciation rights (SARs), restricted stock and restricted stock units are described in GE's current Proxy Statement. With certain restrictions, requirements for stock option shares can be met from either unissued or treasury shares. The replacement options replaced canceled SARs and have identical terms thereto. At year-end 1998, there were 1.4 million SARs outstanding at an average exercise price of $22.14. There were 9.2 million restricted stock shares and restricted stock units outstanding at year-end 1998. There were 121.0 million and 92.8 million additional shares available for grants of options, SARs, restricted stock and restricted stock units at December 31, 1998 and 1997, respectively. Under the 1990 Long-Term Incentive Plan, 0.95% of the Company's issued common stock (including treasury shares) as of the first day of each calendar year during which the Plan is in effect becomes available for granting awards in such year. Any unused portion, in addition to shares allocated to awards that are canceled or forfeited, is available for later years. Outstanding options and SARs expire on various dates through December 18, 2008. Restricted stock grants vest on various dates up to normal retirement of grantees. The following table summarizes information about stock options outstanding at December 31, 1998. - -------------------------------------------------------------------------------- STOCK OPTIONS OUTSTANDING (Shares in thousands) Outstanding Exercisable ----------------------------- -------------------- Average Average Exercise Average exercise exercise price range Shares life (a) price Shares price - -------------------------------------------------------------------------------- $12 1/8 - 21 9/16 20,690 2.7 $ 17.80 20,690 $ 17.80 $21 5/8 - 31 15/16 61,600 5.5 25.72 47,372 25.16 $36 3/16 - 51 1/2 17,565 7.6 42.65 4,436 41.19 $51 3/4 - 73 12,475 8.8 68.88 75 60.15 $77 1/2 - 96 7/8 7,598 9.7 79.88 22 78.30 ---------------------------------------------------- Total 119,928 5.9 34.76 72,595 24.09 ================================================================================ At year-end 1997, options with an average exercise price of $21.11 were exercisable on 72 million shares; at year-end 1996, options with an average exercise price of $19.58 were exercisable on 81 million shares. (a) Average contractual life remaining in years. - -------------------------------------------------------------------------------- Stock options expire 10 years from the date they are granted; options vest over service periods that range from one to five years. Disclosures required by Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, are as follows: - -------------------------------------------------------------------------------- OPTION VALUE INFORMATION (a) ----------------------------------- (In dollars) 1998 1997 1996 - -------------------------------------------------------------------------------- Fair value per option (b) $18.98 $17.81 $9.34 Valuation assumptions Expected option term (years) 6.2 6.3 6.2 Expected volatility 21.7% 20.0% 20.1% Expected dividend yield 1.8% 1.5% 2.3% Risk-free interest rate 4.9% 6.1% 6.6% ================================================================================ (a) Weighted averages of option grants during each period. (b) Estimated using Black-Scholes option pricing model. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PRO FORMA EFFECTS (a) December 31 (In millions; per-share amounts in dollars) ----------------------------------- 1998 1997 1996 - -------------------------------------------------------------------------------- Net earnings $9,196 $8,129 $7,235 Earnings per share -- diluted 2.77 2.43 2.15 -- basic 2.81 2.48 2.19 ================================================================================ (a) Valuations only of grants made after January 1, 1995; thus, the pro forma effect increased over the periods presented. - -------------------------------------------------------------------------------- F-39 ANNUAL REPORT PAGE 63 - --------------------- 27 SUPPLEMENTAL CASH FLOWS INFORMATION Changes in operating assets and liabilities are net of acquisitions and dispositions of principal businesses. "Payments for principal businesses purchased" in the Statement of Cash Flows is net of cash acquired and includes debt assumed and immediately repaid in acquisitions. "All other operating activities" in the Statement of Cash Flows consists primarily of adjustments to current and noncurrent accruals and deferrals of costs and expenses, increases and decreases in progress collections, adjustments for gains and losses on assets, increases and decreases in assets held for sale, and adjustments to assets. Noncash transactions include the 1998 acquisition of Marquette Medical Systems for 9.4 million shares of GE common stock valued at $829 million and the 1997 exchange transaction described in note 2. Other noncash transactions did not have a significant effect on the investing or financing activities of GE or GECS. Certain supplemental information related to GE and GECS cash flows is shown below.
--------------------------------- For the years ended December 31 (In millions) 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------- GE NET PURCHASE OF GE SHARES FOR TREASURY Open market purchases under share repurchase program $ (3,646) $ (3,492) $ (3,266) Other purchases (2,829) (2,900) (1,576) Dispositions (mainly to employee and dividend reinvestment plans) 3,656 3,577 2,519 --------------------------------- $ (2,819) $ (2,815) $ (2,323) ================================= GECS FINANCING RECEIVABLES Increase in loans to customers $(76,142) $(55,689) $(49,890) Principal collections from customers -- loans 65,573 50,679 49,923 Investment in equipment for financing leases (20,299) (16,420) (14,427) Principal collections from customers -- financing leases 15,467 13,796 11,158 Net change in credit card receivables (4,705) (4,186) (3,068) Sales of financing receivables 13,805 9,922 4,026 --------------------------------- $ (6,301) $ (1,898) $ (2,278) ================================= ALL OTHER INVESTING ACTIVITIES Purchases of securities by insurance and annuity businesses $(23,897) $(19,274) $(15,925) Dispositions and maturities of securities by insurance and annuity businesses 20,639 17,280 14,018 Proceeds from principal business dispositions -- 241 -- Other (7,820) (3,893) (4,183) --------------------------------- $(11,078) $ (5,646) $ (6,090) ================================= NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $ 5,881 $ 3,502 $ 5,061 Long-term (longer than one year) 33,453 15,566 17,245 Proceeds -- nonrecourse, leveraged lease debt 2,106 1,757 595 --------------------------------- $ 41,440 $ 20,825 $ 22,901 ================================= REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $(25,901) $(21,320) $(23,355) Long-term (longer than one year) (4,739) (1,150) (1,025) Principal payments -- nonrecourse, leveraged lease debt (387) (287) (276) --------------------------------- $(31,027) $(22,757) $(24,656) ================================= ALL OTHER FINANCING ACTIVITIES Proceeds from sales of investment contracts $ 5,149 $ 4,717 $ 2,561 Preferred stock issued by GECS affiliates 270 605 155 Redemption of investment contracts (5,533) (4,537) (2,688) --------------------------------- $ (114) $ 785 $ 28 ====================================================================================================================
F-40 ANNUAL REPORT PAGE 64 - --------------------- 28 OPERATING SEGMENTS
- ------------------------------------------------------------------------------------------------------------------------------------ REVENUES For the years ended December 31 Total revenues Intersegment revenues External revenues -------------------------------- ------------------------ ------------------------------ (In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ GE Aircraft Engines $ 10,294 $ 7,799 $ 6,302 $ 292 $ 101 $ 86 $ 10,002 $ 7,698 $ 6,216 Appliances 5,619 5,801 5,586 12 12 5 5,607 5,789 5,581 Industrial Products and Systems 11,222 10,984 10,401 479 491 453 10,743 10,493 9,948 NBC 5,269 5,153 5,232 -- -- -- 5,269 5,153 5,232 Plastics 6,633 6,695 6,509 20 24 22 6,613 6,671 6,487 Power Systems 8,466 7,915 7,643 166 80 67 8,300 7,835 7,576 Technical Products and Services 5,323 4,861 4,700 14 18 23 5,309 4,843 4,677 All Other 264 308 291 -- -- -- 264 308 291 Eliminations (1,367) (1,176) (1,032) (983) (726) (656) (384) (450) (376) -------------------------------- ------------------------ ------------------------------ Total GE segment revenues 51,723 48,340 45,632 -- -- -- 51,723 48,340 45,632 Corporate items 507 2,919 1,116 -- -- -- 507 2,919 1,116 GECS net earnings 3,796 3,256 2,817 -- -- -- 3,796 3,256 2,817 -------------------------------- ------------------------ ------------------------------ Total GE 56,026 54,515 49,565 -- -- -- 56,026 54,515 49,565 GECS 48,694 39,931 32,713 -- -- -- 48,694 39,931 32,713 Eliminations (4,251) (3,606) (3,099) -- -- -- (4,251) (3,606) (3,099) -------------------------------- ------------------------ ------------------------------ CONSOLIDATED REVENUES $100,469 $90,840 $79,179 $ -- $ -- $ -- $100,469 $90,840 $79,179 ==================================================================================================================================== 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. Includes revenues of $944 million and $789 million in 1997 and 1996, respectively, from an appliance distribution affiliate that was deconsolidated in 1998. Also includes $1,538 million in 1997 from exchanging preferred stock in Lockheed Martin Corporation for the stock of a newly formed subsidiary. - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ ASSETS PROPERTY, PLANT AND DEPRECIATION AND EQUIPMENT ADDITIONS AMORTIZATION (INCLUDING (INCLUDING EQUIPMENT GOODWILL AND OTHER LEASED TO OTHERS) INTANGIBLES) For the years ended For the years ended At December 31 December 31 December 31 ---------------------------------- ------------------------ ----------------------- (In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ GE Aircraft Engines $ 8,866 $ 8,895 $ 5,423 $ 480 $ 729 $ 551 $ 398 $ 292 $ 282 Appliances 2,436 2,354 2,399 150 83 168 137 131 123 Industrial Products and Systems 6,466 6,672 6,574 428 487 450 440 408 362 NBC 3,264 3,050 3,007 105 116 176 127 142 121 Plastics 9,813 8,890 9,130 722 618 748 591 494 552 Power Systems 7,253 6,182 6,322 246 215 185 215 199 184 Technical Products and Services 3,858 2,438 2,245 254 189 154 143 137 123 All Other 189 224 239 -- -- -- 52 46 40 ---------------------------------- ------------------------ ----------------------- Total GE segments 42,145 38,705 35,339 2,385 2,437 2,432 2,103 1,849 1,787 Investment in GECS 19,727 17,239 14,276 -- -- -- -- -- -- Corporate items and eliminations (a) 12,798 11,482 10,310 158 129 114 189 180 176 ---------------------------------- ------------------------ ----------------------- Total GE 74,670 67,426 59,925 2,543 2,566 2,546 2,292 2,029 1,963 GECS 303,297 255,408 227,419 8,110 7,320 5,762 3,568 3,240 2,805 Eliminations (22,032) (18,822) (14,942) -- -- -- -- -- -- ---------------------------------- ------------------------ ----------------------- CONSOLIDATED TOTALS $ 355,935 $ 304,012 $ 272,402 $10,653 $9,886 $8,308 $5,860 $5,269 $4,768 ==================================================================================================================================== Additions to property, plant and equipment include amounts relating to principal businesses purchased. (a) Depreciation and amortization includes $64 million of unallocated RCA goodwill amortization in 1998, 1997 and 1996 that relates to NBC. - --------------------------------------------------------------------------------
At year=end 1998, GE adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. Prior-period amounts have been restated in accordance with the requirements of the new standard. BASIS FOR PRESENTATION. The Company's operating businesses are organized based on the nature of products and services provided. Certain GE businesses do not meet the definition of a reportable operating segment and have been aggregated. The Industrial Products and Systems segment consists of Industrial Systems, Lighting, Transportation Systems and GE Supply. The Technical Products and Services segment consists of Medical Systems and Information Services. Segment accounting policies are the same as policies described in note 1. F-41 ANNUAL REPORT PAGE 65 - --------------------- Details of segment profit by operating segment can be found on page 36 of this report. A description of operating segments for General Electric Company and consolidated affiliates follows. AIRCRAFT ENGINES. Jet engines and replacement parts and repair and maintenance services for all categories of commercial aircraft (short/medium, intermediate and long-range); for a wide variety of military aircraft, including fighters, bombers, tankers and helicopters; and for executive and commuter aircraft. Sold worldwide to airframe manufacturers, airlines and government agencies. Also includes aircraft engine derivatives, reported both in this segment and in Power Systems, used as marine propulsion and industrial power sources. APPLIANCES. Major appliances and related services for products such as refrigerators, freezers, electric and gas ranges, dishwashers, clothes washers and dryers, microwave ovens, room air conditioners and residential water system products. Sold in North America and in global markets under various GE and private-label brands. Distributed to retail outlets, mainly for the replacement market, and to building contractors and distributors for new installations. INDUSTRIAL PRODUCTS AND SYSTEMS. Lighting products (including a wide variety of lamps, lighting fixtures, wiring devices and quartz products); electrical distribution and control equipment (including power delivery and control products such as transformers, meters, relays, capacitors and arresters); transportation systems products (including diesel-electric locomotives, transit propulsion equipment and motorized wheels for off-highway vehicles); electric motors and related products; a broad range of electrical and electronic industrial automation products (including drive systems); installation, engineering and repair services, which includes management and technical expertise for large projects such as process control systems; and GE Supply, a network of electrical supply houses. Markets are extremely diverse. Products are sold to commercial and industrial end users, including utilities, to original equipment manufacturers, to electrical distributors, to retail outlets, to railways and to transit authorities. Increasingly, products are developed for and sold in global markets. NBC. Principal businesses are the furnishing of U.S. network television services to more than 200 affiliated stations, production of television programs, operation of 13 VHF and UHF television broadcasting stations, operation of six cable/satellite networks around the world, and investment and programming activities in the Internet, multimedia and cable television. PLASTICS. High-performance engineered plastics used in applications such as automobiles and housings for computers and other business equipment; ABS resins; silicones; superabrasive industrial diamonds; and laminates. Sold worldwide to a diverse customer base consisting mainly of manufacturers. POWER SYSTEMS. Power plant products and services, including design, installation, operation and maintenance services. Markets and competition are global. Gas turbines are sold separately and as part of packaged power plants for electric utilities, independent power producers and for industrial cogeneration and mechanical drive applications. Steam turbine-generators are sold to electric utilities and, for cogeneration, to industrial and other power customers. Also includes nuclear reactors and fuel and support services for GE's new and installed boiling water reactors and aircraft engine derivatives, also reported in the Aircraft Engines segment, used as industrial power sources. TECHNICAL PRODUCTS AND SERVICES. Medical imaging systems such as magnetic resonance (MR) and computed tomography (CT) scanners, x-ray, nuclear imaging and ultrasound, as well as diagnostic cardiology and patient monitoring devices; related services, including equipment monitoring and repair, computerized data management and customer productivity services. Products and services are sold worldwide to hospitals and medical facilities. Also includes a full range of computer-based information and data interchange services for both internal and external use to commercial and industrial customers. GECS. The operating activities of the GECS segment follow. CONSUMER SERVICES -- private-label and bank credit card loans, personal loans, time sales and revolving credit and inventory financing for retail merchants, auto leasing and inventory financing, mortgage servicing, and consumer savings and insurance services. EQUIPMENT MANAGEMENT -- leases, loans, sales and asset management services for portfolios of commercial and transportation equipment, including aircraft, trailers, auto fleets, modular space units, railroad rolling stock, data processing equipment, containers used on ocean-going vessels, and satellites. MID-MARKET FINANCING -- loans, financing and operating leases and other services for middle-market customers, including manufacturers, distributors and end users, for a variety of equipment that includes vehicles, corporate aircraft, data processing equipment, medical and diagnostic equipment, and equipment used in construction, manufacturing, office applications, electronics and telecommunications activities. SPECIALIZED FINANCING -- loans and financing leases for major capital assets, including industrial facilities and equipment, and energy-related facilities; commercial and residential real estate loans and investments; and loans to and investments in public and private entities in diverse industries. SPECIALTY INSURANCE -- U.S. and international multiple-line property and casualty reinsurance; certain directly written specialty insurance and life reinsurance; financial guaranty insurance, principally on municipal bonds and structured finance issues; private mortgage insurance; and creditor insurance covering international customer loan repayments. Very few of the products financed by GECS are manufactured by GE. F-42 ANNUAL REPORT PAGE 66 - --------------------- 29 GEOGRAPHIC SEGMENT INFORMATION (CONSOLIDATED) The table below presents data by geographic region. Operating profit data by geographic segment have been restated on a basis consistent with operating segment information presented on page 36. Revenues and operating profit shown below are classified according to their country of origin (including exports from such areas). Revenues and operating profit classified under the caption "United States" include royalty and licensing income from non-U.S. sources.
- --------------------------------------------------------------------------------------------------------------------------- REVENUES For the years ended December 31 Total revenues Intersegment revenues External revenues - --------------------------------------------------------------- ---------------------------------- ------------------------------- (In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996 ---------------------------------- ---------------------------------- ------------------------------- United States $ 71,799 $ 66,330 $ 58,110 $ 2,608 $ 2,471 $ 2,292 $ 69,191 $ 63,859 $ 55,818 Europe 21,665 18,166 15,964 837 787 714 20,828 17,379 15,250 Pacific Basin 5,166 4,742 4,343 951 880 796 4,215 3,862 3,547 Other 6,925 6,420 5,140 690 680 576 6,235 5,740 4,564 Intercompany eliminations (5,086) (4,818) (4,378) (5,086) (4,818) (4,378) -- -- -- ---------------------------------- ---------------------------------- ------------------------------- Total $ 100,469 $ 90,840 $ 79,179 $ -- $ -- $ -- $ 100,469 $ 90,840 $ 79,179 ==================================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING PROFIT ASSETS LONG-LIVED ASSETS For the years ended December 31 At December 31 At December 31 ----------------------------- ---------------------------------- ------------------------------- (In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ United States $ 11,558 $ 10,249 $ 9,745 $ 227,311 $ 206,655 $ 189,593 $ 18,048 $ 17,074 $ 15,016 Europe 2,393 2,271 1,724 84,518 66,740 55,196 6,334 5,180 4,483 Pacific Basin 431 355 269 18,427 8,881 8,125 1,326 971 881 Other 810 713 576 25,878 21,926 19,655 10,057 9,119 8,442 Intercompany eliminations (9) (23) 7 (199) (190) (167) (35) (28) (26) ----------------------------- ---------------------------------- ------------------------------- Total $ 15,183 $ 13,565 $12,321 $ 355,935 $ 304,012 $ 272,402 $ 35,730 $ 32,316 $ 28,796 ==================================================================================================================================== Includes $944 million and $789 million in 1997 and 1996, respectively, from an appliance distribution affiliate that was deconsolidated in 1998. Includes the Americas other than the United States and operations that cannot meaningfully be associated with specific geographic areas (for example, shipping containers used on ocean-going vessels). Excludes GECS income taxes of $1,364 million, $1,166 million and $1,231 million in 1998, 1997 and 1996, respectively, which are included in the measure of segment profit reported on page 36. Property, plant and equipment (including equipment leased to others). - --------------------------------------------------------------------------------
30 ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS This note contains estimated fair values of certain financial instruments to which GE and GECS are parties. Apart from borrowings by GE and GECS and certain marketable securities, relatively few of these instruments are actively traded. Thus, fair values must often be determined by using one or more models that indicate value based on estimates of quantifiable characteristics as of a particular date. Because this undertaking is, by its nature, difficult and highly judgmental, for a limited number of instruments, alternative valuation techniques may have produced disclosed values different from those that could have been realized at December 31, 1998 or 1997. Assets and liabilities that, as a matter of accounting policy, are reflected in the accompanying financial statements at fair value are not included in the following disclosures; such items include cash and equivalents, investment securities and separate accounts. A description of how values are estimated follows. BORROWINGS. Based on quoted market prices or market comparables. Fair values of interest rate and currency swaps on borrowings are based on quoted market prices and include the effects of counterparty creditworthiness. TIME SALES AND LOANS. Based on quoted market prices, recent transactions and/or discounted future cash flows, using rates at which similar loans would have been made to similar borrowers. INVESTMENT CONTRACT BENEFITS. Based on expected future cash flows, discounted at currently offered discount rates for immediate annuity contracts or cash surrender values for single premium deferred annuities. FINANCIAL GUARANTEES AND CREDIT LIFE. Based on future cash flows, considering expected renewal premiums, claims, refunds and servicing costs, discounted at a market rate. ALL OTHER INSTRUMENTS. Based on comparable transactions, market comparables, discounted future cash flows, quoted market prices, and/or estimates of the cost to terminate or otherwise settle obligations to counterparties. F-43 ANNUAL REPORT PAGE 67 - ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL INSTRUMENTS ---------------------------------------- --------------------------------------- 1998 1997 ---------------------------------------- --------------------------------------- Assets (liabilities) Assets (liabilities) ------------------------------- ----------------------------- Estimated Estimated Carrying fair value Carrying fair value Notional amount ------------------ Notional amount ------------------ December 31 (In millions) amount (net) High Low amount (net) High Low - ------------------------------------------------------------------------------------------------------------------------------------ GE Investment related Investments and notes receivable $ $ 1,764 $ 1,810 $ 1,793 $ $ 1,909 $ 1,915 $ 1,908 Cancelable interest rate swap 1,221 17 1 1 1,421 25 19 19 Borrowings and related instruments Borrowings (4,147) (4,155) (4,155) (4,358) (4,377) (4,377) Interest rate swaps 951 -- (60) (60) 531 -- (12) (12) Recourse obligations for receivables sold 441 (32) (32) (32) 427 (23) (23) (23) Financial guarantees 2,172 -- -- -- 2,141 -- -- -- Other firm commitments Currency forwards and options 7,914 72 114 114 6,656 82 270 270 Financing commitments 1,519 -- -- -- 1,794 -- -- -- GECS Assets Time sales and loans 74,616 75,474 74,293 62,712 63,105 61,171 Integrated interest rate swaps 14,135 16 (102) (102) 12,323 19 (125) (125) Purchased options 11,195 146 158 158 1,992 64 39 39 Mortgage-related positions Mortgage purchase commitments 1,983 -- 15 15 2,082 -- 11 11 Mortgage sale commitments 3,276 -- (9) (9) 2,540 -- (9) (9) Mortgages held for sale 4,405 4,457 4,457 2,378 2,379 2,379 Options, including "floors" 21,433 91 181 181 30,347 51 141 141 Interest rate swaps and futures 6,662 -- 49 49 3,681 -- 23 23 Other cash financial instruments 3,205 3,433 3,231 2,242 2,592 2,349 Liabilities Borrowings and related instruments Borrowings (172,200) (174,492) (174,492) (141,263) (141,828)(141,828) Interest rate swaps 46,325 -- (1,449) (1,449) 42,531 -- (250) (250) Currency swaps 29,645 -- 252 252 23,382 -- (1,249) (1,249) Currency forwards 23,409 -- (389) (389) 15,550 -- 371 371 Investment contract benefits (23,893) (23,799) (23,799) (23,045) (22,885) (22,885) Insurance -- financial guarantees and credit life 208,774 (3,135) (3,339) (3,446) 183,957 (2,897) (2,992) (3,127) Credit and liquidity support -- securitizations 21,703 (29) (29) (29) 13,634 (46) (46) (46) Performance guarantees -- principally letters of credit 2,684 -- -- -- 2,699 (34) -- (67) Other 2,888 (1,921) (1,190) (1,190) 3,147 (1,134) (1,282) (1,303) Other firm commitments Currency forwards 5,072 -- (52) (52) 1,744 -- 11 11 Currency swaps 915 72 72 72 1,073 192 192 192 Ordinary course of business lending commitments 9,839 -- (12) (12) 7,891 -- (62) (62) Unused revolving credit lines Commercial 6,401 -- -- -- 4,850 -- -- -- Consumer -- principally credit cards 132,475 -- -- -- 134,123 -- -- -- ==================================================================================================================================== Not applicable. Includes effects of interest rate and currency swaps, which also are listed separately. See note 19. - --------------------------------------------------------------------------------
Additional information about certain financial instruments in the table above follows. CURRENCY FORWARDS AND OPTIONS are employed by GE and GECS to manage exposures to changes in currency exchange rates associated with commercial purchase and sale transactions and by GECS to optimize borrowing costs as discussed in note 19. These financial instruments generally are used to fix the local currency cost of purchased goods or services or selling prices denominated in currencies other than the functional currency. Currency exposures that result from net investments in affiliates are managed principally by funding assets denominated in local currency with debt denominated in those same currencies. In certain circumstances, net investment exposures are managed using currency forwards and currency swaps. F-44 ANNUAL REPORT PAGE 68 - --------------------- OPTIONS AND INSTRUMENTS CONTAINING OPTION FEATURES that behave based on limits ("caps," "floors" or "collars") on interest rate movement are used primarily to hedge prepayment risk in certain GECS business activities, such as mortgage servicing and annuities. SWAPS OF INTEREST RATES AND CURRENCIES are used by GE and GECS to optimize borrowing costs for a particular funding strategy (see note 19). A cancelable interest rate swap was used by GE to hedge an investment position. Interest rate and currency swaps, along with purchased options and futures, are used by GECS to establish specific hedges of mortgage-related assets and to manage net investment exposures. Credit risk of these positions is evaluated by management under the credit criteria discussed below. As part of its ongoing customer activities, GECS also enters into swaps that are integrated into investments in or loans to particular customers and do not involve assumption of third-party credit risk. Such integrated swaps are evaluated and monitored like their associated investments or loans and are not therefore subject to the same credit criteria that would apply to a stand-alone position. COUNTERPARTY CREDIT RISK -- risk that counterparties will be financially unable to make payments according to the terms of the agreements -- is the principal risk associated with swaps, purchased options and forwards. Gross market value of probable future receipts is one way to measure this risk, but is meaningful only in the context of net credit exposure to individual counterparties. At December 31, 1998 and 1997, this gross market risk amounted to $2.3 billion and $2.0 billion, respectively. Aggregate fair values that represent associated probable future obligations, normally associated with a right of offset against probable future receipts, amounted to $3.6 billion and $2.9 billion at December 31, 1998 and 1997, respectively. Except as noted above for positions that are integrated into financings, all swaps, purchased options and forwards are carried out within the following credit policy constraints. o Once a counterparty exceeds credit exposure limits (see table below), no additional transactions are permitted until the exposure with that counterparty is reduced to an amount that is within the established limit. Open contracts remain in force. - -------------------------------------------------------------------------------- COUNTERPARTY CREDIT CRITERIA ----------------------------- Credit rating ----------------------------- Moody's Standard & Poor's - -------------------------------------------------------------------------------- Term of transaction Between one and five years Aa3 AA- Greater than five years Aaa AAA Credit exposure limits Up to $50 million Aa3 AA- Up to $75 million Aaa AAA ================================================================================ o All swaps are executed under master swap agreements containing mutual credit downgrade provisions that provide the ability to require assignment or termination in the event either party is downgraded below A3 or A-. More credit latitude is permitted for transactions having original maturities shorter than one year because of their lower risk. 31 QUARTERLY INFORMATION (UNAUDITED)
First quarter Second quarter Third quarter Fourth quarter (Dollar amounts in millions; ------------------ ------------------ ------------------ ------------------ per-share amounts in dollars) 1998 1997 1998 1997 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED OPERATIONS Net earnings $ 1,891 $ 1,677 $ 2,450 $ 2,162 $ 2,284 $ 2,014 $ 2,671 $ 2,350 Earnings per share -- diluted 0.57 0.50 0.74 0.65 0.69 0.60 0.80 0.70 -- basic 0.58 0.51 0.75 0.66 0.70 0.62 0.82 0.72 SELECTED DATA GE Sales of goods and services 11,408 10,522 13,217 12,620 12,075 11,698 14,846 14,112 Gross profit from sales 3,366 2,970 4,216 3,886 3,630 3,368 4,598 2,618 GECS Total revenues 11,151 9,544 11,801 9,317 12,016 10,182 13,726 10,888 Operating profit 1,252 1,081 1,219 1,138 1,584 1,229 1,105 974 Net earnings 881 754 933 798 1,082 938 900 766 ====================================================================================================================================
For GE, gross profit from sales is sales of goods and services less costs of goods and services sold. For GECS, operating profit is "Earnings before income taxes." Fourth-quarter gross profit from sales in 1997 was reduced by restructuring and other special charges. Such charges, including amounts shown in "Other costs and expenses," were $2,322 million before tax. Also in the fourth quarter of 1997, GE completed an exchange transaction with Lockheed Martin as described in note 2. Earnings-per-share amounts for each quarter are required to be computed independently. As a result, with the exception of 1998 diluted earnings per share, their sum does not equal the total year earnings-per-share amounts for 1998 and 1997. EX-4 2 EXHIBIT 4 March 25, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Subject: General Electric Company Annual Report on Form 10-K for the fiscal year ended December 31, 1998 - File No. 1-35 Dear Sirs: Neither General Electric Company (the "Company") nor any of its consolidated subsidiaries has outstanding any instrument with respect to its long-term debt under which the total amount of securities authorized exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. In accordance with paragraph (b)(4)(iii) of Item 601 of Regulation S-K (17 CFR Sec. 229.601), the Company hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument which defines the rights of holders of such long-term debt. Very truly yours, GENERAL ELECTRIC COMPANY By: James R. Bunt Vice President and Treasurer EX-10.V 3 EXHIBIT 10(V) GENERAL ELECTRIC COMPANY 1998 EXECUTIVE OFFICER DEFERRED SALARY PLAN I. ELIGIBILITY To maximize the ability of General Electric Company ("Company") to obtain a federal tax deduction for compensation to be paid to its Executive Officers in 1998, each Executive Officer of the Company who is expected to be paid more than $1 million in base salary compensation in 1998 shall be eligible to participate in this Plan. II. DEFERRAL OF SALARY 1. Each Executive Officer eligible to participate in this Plan ("Participant") shall be given an opportunity to irrevocably elect, prior to any deferral hereunder: (a) the portion (minimum of 10%, maximum of 100%) of the Participant's 1998 base salary to be deferred, and (b) the form of payout alternative as set forth in Section V. 2. Commencing with base salary earned for January 1998, the Participant's total base salary elected to be deferred under this Plan will be deferred in ratable installments through the month of December 1998, and will be credited to the Participant's deferred salary cash account ("Deferred Account") as of the end of the month of deferral ("Deferral Date"). III. SPECIAL ONE-TIME MATCHING MAKE-UP CREDIT As of December 31, 1998, a special one-time credit shall be made to the Deferred Account of each Participant who is actively employed by the Company on such date to make up for the matching Company payment that would otherwise have been available under the Company's Savings and Security Program. The amount of such credit shall equal 3.5% of the total 1998 base salary deferred under this Plan by the Participant (excluding interest). Such credit shall not be provided for any Participant who has terminated employment with the Company for any reason prior to December 31, 1998, or is not actively employed on such date. IV. MANNER OF ACCOUNTING 1. Each Deferred Account shall be unfunded, unsecured and nonassignable, and shall not be a trust for the benefit of any Participant. 2. Except as may be otherwise provided in Section V or VIII, the Participant's Deferred Account will be credited with (a) the amount of base salary deferred on each Deferral Date as set forth in Section II. 2., (b) the special one-time matching make-up credit as set forth in Section III, and (c) interest at the annual rate of 12% compounded annually on each December 31. V. PAYMENT OF DEFERRED ACCOUNT 1. Payment of a Participant's Deferred Account will be made only after termination of employment of the Participant. 2. If no manner of payment election is made, the Deferred Account will be paid in 10 annual installments commencing on March 1 (or as soon thereafter as practicable) following the year of termination of employment. 3. At the time of election to defer base salary, a Participant may irrevocably elect: (a) the number of annual payout installments (minimum of 10, maximum of 20) of the Deferred Account commencing on March 1 (or as soon thereafter as practicable) following the year of termination of employment, unless (b) a lump sum payment of the Deferred Account is elected in which case the lump sum payment will be made on March 1 (or as soon thereafter as practical) following the year of termination of employment. 4. Participants who terminate their employment on or after December 31, 1998 because of retirement, death or disability, or Participants who terminate their employment on or after December 31, 2002 for any reason, will receive payouts based on Deferred Account accumulations at the 12% interest rate. Payments will be made pursuant to Section V.2 or V.3 above beginning on March 1 (or as soon thereafter as practical) following the year of termination of employment. 5. Unless waived by the Management Development and Compensation Committee of the Board of Directors ("MDCC"), if the Participant terminates employment prior to December 31, 1998 for any reason, or prior to December 31, 2002 for any reason other than retirement, death, or disability, the Participant's Deferred Account will be paid in a lump sum as soon as practical following the date of termination, along with simple interest credited at an annual rate of 3% rather than the rate specified in Section IV. VI. DEATH BENEFITS In the event of a Participant's death prior to receiving any or all payments to which the Participant is entitled, the remaining Deferred Account shall be paid at the time and in the manner provided in Section V to the beneficiary or beneficiaries designated by the Participant on a beneficiary designation form properly file by the Participant with the Company in accordance with established administrative procedures. If no such designated beneficiary survives the Participant, such remaining benefits shall be paid as set forth above to the Participant's estate. VII. ADMINISTRATION AND INTERPRETATION This Plan shall be administered by the MDCC, which shall have full power and authority on behalf of the Company to administer and interpret the Plan in its sole discretion. All MDCC decisions with respect to the administration and interpretation of the Plan shall be final and binding upon all persons. VIII. AMENDMENT OF THE PLAN This Plan may be amended, suspended or terminated at any time by the MDCC. In addition, the MDCC may alter or amend the payout schedule of any or all of the accrued benefits of a Participant at any time. IX. EFFECTIVE DATE The effective date of this Plan shall be January 1, 1998. EX-10.W 4 EXHIBIT 10(W) NON-EMPLOYEE DIRECTOR FEE PLAN (Formerly the Deferred Compensation Plan For Directors) (As Amended through November 2, 1998) I. NON-EMPLOYEE DIRECTOR FEES A. ESTABLISHMENT AND PAYMENT OF FEES 1. The annual retainer and meeting fees payable to Non-Employee Directors of the Company (hereafter "Directors") shall be established from time-to-time by the Board of Directors. 2. The annual retainer fee shall be payable in quarterly installments, with each installment payable on the last business day of the calendar quarter to which it applies, or on such earlier date as is necessary to enable the Company to efficiently administer the payment of such fees. Quarterly payments shall be pro rated if Board service commences or terminates during a calendar quarter. Meeting fees shall be payable upon attendance at meetings. B. PAYMENT IN STOCK. One-half of any portion of the annual retainer fee payable on or after October 1, 1998, that is not deferred by a Director pursuant to the provisions of Section II of this Plan, shall be payable in GE common stock. II. DEFERRAL OF NON-EMPLOYEE DIRECTOR FEES A. INTRODUCTION Directors, on an individual election basis, may defer all or part of the fees received as a Director of the Company until such time as service on the Board terminates. B. PURPOSE OF DEFERRAL ELECTION To provide Directors with flexibility in the planning of their personal financial resources. C. MANNER OF DEFERRAL OF FEES 1. At, or prior to, each election to the Board, and prior to the right to receive any Board fees for the elected term, a Director may elect to defer all or a specified portion of the annual retainer and the meeting fees to be paid for attendance at Board and assigned Committee meetings. 2. An election to defer fees will be irrevocable for the Director's elected term to the Board of Directors. 3. The deferred fees will be credited to the Director's deferred fees account as of the date it would otherwise have been payable (the "Deferral Date"). 4. Deferral of fees shall have no effect on any fee-related benefits received by a Director. D. MANNER OF INVESTMENT For each term of election to the Board of Directors for which a Director elects to defer fees, the Director must also irrevocably elect the manner in which such deferred fees shall be accounted for, as described below, and all fees deferred pursuant to such election shall be accounted for in such manner until fully paid out. 1. As Units Based on GE Stock Value The Director's account will be credited with the hypothetical number of stock units ("Units"), calculated to the nearest thousandths of a Unit, determined by dividing the amount of fees deferred on the Deferral Date by the average of the closing market price of the Company's common stock as reported on the Consolidated Tape of the New York Stock Exchange listed shares for the 20 trading days immediately preceding and including such date. The Director's account will also be credited with the number of Units determined by multiplying the number of Units in the Director's account by any cash dividends declared by the Company on its common stock and dividing the product by the closing market price of the Company's common stock as reported on the Consolidated Tape of the New York Stock Exchange listed shares on the related dividend record date, and also by multiplying the number of Units in the Director's account by any stock dividends declared by the Company on its common stock. 2. As Cash Units With Interest The Director's account (a) will be credited with the amount of fees deferred on the Deferral Date, and (b) will be credited quarterly on the Company Dividend Record Date with interest equivalents based upon the consecutive prior calendar quarter's average quarterly yield for U.S. Treasury notes and bonds with maturities of from ten to thirty years, as published by an official agency to be determined by the Senior Vice President-Finance and utilized on a consistent year-to-year basis. E. RECAPITALIZATION If, as a result of a recapitalization of the Company (including stock splits), the Company's outstanding shares of common stock shall be changed into a greater or smaller number of shares, the number of Units credited to a Director's account shall be appropriately adjusted on the same basis. F. PAYMENT OF DEFERRED FEES Payment of a Director's deferred fees account may only be made after the Director's service on the Board has terminated and, except as described below, will be made in ten (10) annual installments in cash, beginning on the 15th of July (or as soon thereafter as practicable) following termination of Board service. 1. Termination Of Service For Reasons Other Than Retirement or Disability. Notwithstanding any prior elections, if a Director's service on the Board terminates for reasons other than retirement or disability, or terminates as a result of the Director's death before the Director has attained the age and Board service needed to qualify for retirement, the Director's total deferred fees account will be paid in a lump sum six months after the date of termination. 2. Termination Of Service For Retirement or Disability. a. Director Payout Elections. (i). Initial Payout Elections. At the time of each election to defer Board fees, a Director may elect to have: (a) the deferred fees account covered by the election paid in less than ten (10) annual installments; and (b) the initial installment be paid on the 15th of July (or as soon thereafter as practical) which either immediately follows the Director's termination of Board service, or which immediately follows the Director's 73rd birthday. (ii). Survivor Payout Elections. In the event of a Director's death prior to receiving all entitled deferred payments, the value of the Director's account on the date of the Director's death shall be determined and paid to the beneficiary(s) designated by the Director (or, failing such designation, to the Director's estate) in accordance with the installment schedule previously selected by the Director, unless the Director has elected to have the remaining payments made in a single lump sum, in which case a lump sum payment will be made to the designated beneficiaries or the Director's estate as soon as practicable after the Director's death. (iii). Form of Payment Elections. A Director, former Director, or deceased Director's beneficiary or legal representative may elect at anytime to have any or all payouts, or remaining payouts, of the Director's deferred fee account paid out in cash or in shares of GE common stock. (iv). Revised Payout Elections. At any time before the end of the calendar year prior to termination of Board service, a Director may revise and supersede any or all of his or her previous elections with respect to any or all of the payout alternatives set forth in this subsection F(2)(a). b. Determination of Amount of Cash Installment Payments. (i). The amount of the first cash installment payment shall be a fraction of the Cash and/or Units in the Director's account on the date of the initial installment payment, the numerator of which is one and the denominator of which is the total number of installments elected. Each subsequent installment shall be calculated in the same manner as of each subsequent first of July except that the denominator shall be reduced by the number of installments which have been previously paid. (ii). The amount of cash payable for deferred fees accounted for as Units based on GE common stock value will be paid, as described above, based on the number of Units in the Director's account on the payment date multiplied by the average of the closing market price of the Company's common stock as reported on the Consolidated Tape of New York Stock Exchange listed shares for the 20 trading days immediately preceding such date. c. Determination of Amount of Installment Payments In Shares of Common Stock. (i). The amount of the first installment payment payable in shares of GE common stock shall be a fraction of the value of the Cash and/or Units in the Director's account on the date of the initial installment payment, the numerator of which is one and the denominator of which is the total number of installments elected. Each subsequent installment shall be calculated in the same manner as of each subsequent first of July except that the denominator shall be reduced by the number of installments which have been previously paid. (ii). If a payout to be made in shares of GE common stock is based on deferred fees accounted for as Cash, the number of shares payable shall be determined by dividing the amount of cash that would otherwise be payable by the average of the closing market price of the Company's common stock as reported on the Consolidated Tape of New York Stock Exchange listed shares for the 20 trading days immediately preceding such payment date. (iii). Except for the final installment payment, only whole shares shall be payable, and the value of any fractional share payable shall be retained in the Director's deferred fee account until the final installment payment, at which time the value of any fractional share payable shall be paid in cash, based on the fractional share multiplied by the average of the closing market price of the Company's common stock as reported on the Consolidated Tape of New York Stock Exchange listed shares for the 20 trading days immediately preceding such date. G. ASSIGNABILITY No right to receive payment of deferred fees shall be transferable or assignable by a participant except by will or laws of descent and distribution. H. AMENDMENT OF THE PLAN This Plan may be amended, suspended or terminated at any time by the Board of Directors of General Electric Company. However, no amendment, suspension or termination of the Plan may, without the consent of a participant, alter or impair any of the rights previously granted under the Plan. I. EFFECTIVE DATE The effective date for implementation of this Plan shall be the first of the month following its approval by the Board of Directors. J. DEFINITIONS For purposes of the Plan, unless the context otherwise indicates, the following definitions shall be applicable: "Elected term" -- the period of time from election to the Board to the next Statutory Meeting of the Shareowners. "Retirement" -- termination of Board service at age 65 or older with at least five years of Board service. ORIGINAL - 6/15/79 AMENDED 3/5/81, 6/26/87, 9/18/87, 5/25/90, 12/19/97, 11/2/98 EX-12 5 EXHIBIT 12 GENERAL ELECTRIC COMPANY RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS) Years ended December 31 -------------------------------------------------------- 1994 1995 1996 1997 1998 -------- -------- -------- -------- -------- GE EXCEPT GECS Earnings $ 7,828 $ 8,696 $ 9,677 $ 10,132 $ 12,230 Less: Equity in undistributed earnings of General Electric Capital Services, Inc. (1,181) (1,324) (1,836) (1,597) (2,124) Plus: Interest and other financial charges included in expense 410 649 595 797 883 One-third of rental expense 171 174 171 179 189 -------- -------- -------- -------- -------- Adjusted "earnings" $ 7,228 $ 8,195 $ 8,607 $ 9,511 $ 11,178 ======== ======== ======== ======== ======== Fixed Charges: Interest and other financial charges $ 410 $ 649 $ 595 $ 797 $ 883 Interest capitalized 21 13 19 31 38 One-third of rental expense 171 174 171 179 189 -------- -------- -------- -------- -------- Total fixed charges $ 602 $ 836 $ 785 $ 1,007 $ 1,110 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 12.01 9.80 10.96 9.44 10.07 ======== ======== ======== ======== ======== GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES Earnings $ 8,831 $ 9,941 $ 11,075 $ 11,419 $ 13,742 Plus: Interest and other financial charges included in expense 4,994 7,336 7,939 8,445 9,821 One-third of rental expense 327 349 353 423 486 -------- -------- -------- -------- -------- Adjusted "earnings" $ 14,152 $ 17,626 $ 19,367 $ 20,287 $ 24,049 ======== ======== ======== ======== ======== Fixed Charges: Interest and other financial charges $ 4,994 $ 7,336 $ 7,939 $ 8,445 $ 9,821 Interest capitalized 30 34 60 83 126 One-third of rental expense 327 349 353 423 486 -------- -------- -------- -------- -------- Total fixed charges $ 5,351 $ 7,719 $ 8,352 $ 8,951 $ 10,433 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 2.64 2.28 2.32 2.27 2.31 ======== ======== ======== ======== ======== Earnings before income taxes and minority interest. Earnings after income taxes, net of dividends. Considered to be representative of interest factor in rental expense.
EX-21 6 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT General Electric's principal affiliates as of December 31, 1998, are listed below. All other affiliates, if considered in the aggregate as a single affiliate, would not constitute a significant affiliate. Affiliates of Registrant included in Registrant's Financial Statements. - -----------------------------------------------------------------------
Percentage of voting securities State or directly or indirectly country of owned by incorporation or registrant organization -------------- ------------ Caribe General Electric Products, Inc. 100 Delaware GE Aircraft Engines Maintenance Services, Ltd. Wales 100 United Kingdom GE Appliances Parts LLC 100 Delaware GE Energy Parts, Inc. 100 Delaware GE Engine Services Distribution, LLC 100 Delaware GE Fanuc Automation North America Inc. 55 Delaware GE Information Services, Inc. 100 Delaware GE Lighting Tungsram RT 100 Hungary GE Plastics Pacific Pte. Ltd. 100 Singapore GE Power Systems Licensing Inc. 100 Delaware GE Quartz Inc. 100 Delaware GE Superabrasives Ireland 100 Bermuda GE Yokogawa Medical Systems, Ltd. 75 Japan General Electric Canadian Holdings Limited 100 Canada General Electric Capital Services, Inc. 100 Delaware General Electric Capital Corporation 100 New York GE Global Insurance Holding Corporation 100 Missouri General Electric International, Inc. 100 Delaware General Electric Plastics B.V. 100 Netherlands National Broadcasting Company, Inc. 100 Delaware Nuovo Pignone SpA 92 Italy RCA Thomson Licensing Corporation 96 Delaware Notes With respect to certain companies, shares in names of nominees and qualifying shares in names of directors are included in above percentages.
EX-23 7 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS The Board of Directors General Electric Company We consent to the incorporation by reference in the registration statements Nos. 33-29024, 33-3908, 33-39596, 33-39596-01, 33-47085, 33-50639, 33-61029, 33-61029-01, 333-46551 and 333-59671 on Form S-3; Nos. 333-01947 and 333-74417 on Form S-4; and Nos. 2-84145, 33-35922, 333-01953, 333-23767, 333-42695 and 333-74415 on Form S-8 of General Electric Company of our report dated February 12, 1999, relating to the consolidated financial position of General Electric Company and consolidated affiliates as of December 31, 1998 and 1997, and the related consolidated statements of earnings, changes in share owners' equity and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998, annual report on Form 10-K of General Electric Company. KPMG LLP Stamford, Connecticut March 25, 1999 EX-24 8 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer of General Electric Company, a New York corporation (the "Company"), hereby constitutes and appoints John F. Welch, Jr., Benjamin W. Heineman, Jr., Keith S. Sherin, and Philip D. Ameen and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead in any and all capacities, to sign one or more Annual Reports for the Company's fiscal year ended December 31, 1998, on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as any such attorney-in-fact may deem necessary or desirable, any amendments thereto, and all additional amendments thereto, each in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done so that such Annual Report shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand this 12TH day of March, 1999. John F. Welch, Jr. Keith S. Sherin Chairman of the Board Senior Vice President - (Principal Executive Finance (Principal Officer and Director) Financial Officer) Philip D. Ameen Vice President and Comptroller (Principal Accounting Officer) (Page 1 of 2) Dennis D. Dammerman Eugene F. Murphy Director Director Paolo Fresco Sam Nunn Director Director Claudio X. Gonzalez John D. Opie Director Director Kenneth G. Langone Roger S. Penske Director Director Andrew C. Sigler Director Douglas A. Warner III Director A MAJORITY OF THE BOARD OF DIRECTORS (Page 2 of 2) EX-27 9
5 This schedule contains summary financial information extracted from the consolidated financial statements for the period ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 0000040545 GENERAL ELECTRIC COMPANY 1,000,000 12-MOS DEC-31-1998 DEC-31-1998 4,317 78,717 5,447 303 6,049 0 61,100 25,370 355,935 0 59,663 0 0 594 38,286 355,935 43,749 58,687 31,772 42,280 23,477 70 9,753 13,477 4,181 9,296 0 0 0 9,296 2.84 2.80 Not applicable to consolidated GE. Sales of goods ($43,749) and services ($14,938). Cost of goods ($31,772) and services ($10,508) sold. Represents basic earnings per share in accordance with SFAS No. 128, Earnings Per Share. Represents diluted earnings per share in accordance with SFAS No. 128, Earnings Per Share.
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