SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-35
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
New York 14-0689340
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3135 Easton Turnpike, Fairfield, CT 06431-0001
----------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (203) 373-2211
-------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
There were 3,267,714,205 shares with a par value of $0.16 per share
outstanding at September 30, 1998.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED STATEMENT OF EARNINGS
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
(Dollars, except per-share amounts, in millions)
THIRD QUARTER ENDED SEPTEMBER 30 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED GE GECS
------------------------- ------------------------- ------------------------
1998 1997 1998 1997 1998 1997
------------ ---------- ----------- ----------- ---------- ----------
Sales of goods $ 10,330 $ 9,875 $ 8,524 $ 8,693 $ 1,806 $ 1,182
Sales of services 3,484 2,972 3,551 3,005 - -
Earnings of GECS - - 1,082 938 - -
GECS revenues from services 10,164 8,959 - - 10,210 9,000
Other income 158 185 169 189 - -
------------ ---------- ----------- ----------- ---------- ----------
Total revenues 24,136 21,991 13,326 12,825 12,016 10,182
------------ ---------- ----------- ----------- ---------- ----------
Cost of goods sold 7,587 7,160 5,906 6,097 1,681 1,063
Cost of services sold 2,472 2,200 2,539 2,233 - -
Interest and other financial charges 2,361 2,120 199 215 2,188 1,919
Insurance losses and policyholder and annuity benefits 2,239 1,980 - - 2,239 1,980
Provision for losses on financing receivables 306 371 - - 306 371
Other costs and expenses 5,704 5,229 1,755 1,673 3,980 3,587
Minority interest in net earnings of
consolidated affiliates 68 67 30 34 38 33
------------ ---------- ----------- ----------- ---------- ----------
Total costs and expenses 20,737 19,127 10,429 10,252 10,432 8,953
------------ ---------- ----------- ----------- ---------- ----------
Earnings before income taxes 3,399 2,864 2,897 2,573 1,584 1,229
Provision for income taxes (1,115) (850) (613) (559) (502) (291)
------------ ---------- ----------- ----------- ---------- ----------
Net earnings $ 2,284 $ 2,014 $ 2,284 $ 2,014 $ 1,082 $ 938
============ ========== =========== =========== ========== ==========
Net earnings per share
Basic $ 0.70 $ 0.62
Diluted $ 0.69 $ 0.60
Dividends declared per share $ 0.30 $ 0.26
<FN>
See notes to condensed consolidated financial statements. Consolidating data are
shown for "GE" and "GECS." Transactions between GE and GECS have been eliminated
from the "consolidated" columns.
</FN>
CONDENSED STATEMENT OF EARNINGS
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
(Dollars, except per-share amounts, in millions)
NINE MONTHS ENDED SEPTEMBER 30 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED GE GECS
------------------------- ------------------------- ------------------------
1998 1997 1998 1997 1998 1997
------------ ---------- ----------- ----------- ---------- ----------
Sales of goods $ 30,968 $ 28,813 $ 25,644 $ 25,656 $ 5,325 $ 3,159
Sales of services 10,886 9,080 11,056 9,184 - -
Earnings of GECS - - 2,896 2,490 - -
GECS revenues from services 29,511 25,771 - - 29,643 25,884
Other income 467 481 497 483 - -
------------ ---------- ----------- ----------- ---------- ----------
Total revenues 71,832 64,145 40,093 37,813 34,968 29,043
------------ ---------- ----------- ----------- ---------- ----------
Cost of goods sold 22,569 20,990 17,679 18,191 4,891 2,801
Cost of services sold 7,639 6,321 7,809 6,425 - -
Interest and other financial charges 6,939 6,072 610 538 6,400 5,564
Insurance losses and policyholder and annuity benefits 6,852 6,236 - - 6,852 6,236
Provision for losses on financing receivables 1,047 1,020 - - 1,047 1,020
Other costs and expenses 16,753 14,678 5,225 4,873 11,619 9,890
Minority interest in net earnings of consolidated
affiliates 185 174 81 90 104 84
------------ ---------- ----------- ----------- ---------- ----------
Total costs and expenses 61,984 55,491 31,404 30,117 30,913 25,595
------------ ---------- ----------- ----------- ---------- ----------
Earnings before income taxes 9,848 8,654 8,689 7,696 4,055 3,448
Provision for income taxes (3,223) (2,801) (2,064) (1,843) (1,159) (958)
------------ ---------- ----------- ----------- ---------- ----------
Net earnings $ 6,625 $ 5,853 $ 6,625 $ 5,853 $ 2,896 $ 2,490
============ ========== =========== =========== ========== ==========
Net earnings per share
Basic $ 2.03 $ 1.79
Diluted $ 1.99 $ 1.75
Dividends declared per share $ 0.90 $ 0.78
<FN>
See notes to condensed consolidated financial statements. Consolidating data are
shown for "GE" and "GECS." Transactions between GE and GECS have been eliminated
from the "consolidated" columns.
</FN>
CONDENSED STATEMENT OF FINANCIAL POSITION
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
(Dollars in millions)
CONSOLIDATED GE GECS
------------------------- ------------------------- ------------------------
9/30/98 12/31/97 9/30/98 12/31/97 9/30/98 12/31/97
------------ ---------- ----------- ----------- ---------- ----------
Cash and equivalents $ 5,767 $ 5,861 $ 732 $ 1,157 $ 5,035 $ 4,904
Investment securities 74,814 70,621 112 265 74,702 70,356
Current receivables 8,232 8,924 8,356 9,054 - -
Inventories 6,202 5,895 5,473 5,109 729 786
GECS financing receivables - net 113,918 103,799 - - 113,918 103,799
Other GECS receivables 21,049 17,655 - - 21,915 18,332
Property, plant and equipment (including equipment
leased to others) - net 34,085 32,316 11,179 11,118 22,906 21,198
Investment in GECS - - 19,140 17,239 - -
Intangible assets 21,377 19,121 9,473 8,755 11,904 10,366
Other assets 49,131 39,820 17,651 14,729 31,936 25,667
------------ ---------- ----------- ----------- ---------- ----------
Total assets $ 334,575 $304,012 $ 72,116 $ 67,426 $283,045 $255,408
============ ========== =========== =========== ========== ==========
Short-term borrowings $ 107,127 $ 98,075 $ 4,253 $ 3,629 $103,431 $ 95,274
Accounts payable 11,004 10,407 4,548 4,779 7,592 6,490
Other GE current liabilities 13,115 12,186 12,871 12,058 - -
Long-term borrowings 57,436 46,603 720 729 56,802 45,989
Insurance liabilities, reserves and annuity benefits 71,196 67,270 - - 71,196 67,270
All other liabilities 24,374 22,700 12,201 11,539 12,084 11,067
Deferred income taxes 9,006 8,651 (396) (315) 9,402 8,966
------------ ---------- ----------- ----------- ---------- ----------
Total liabilities 293,258 265,892 34,197 32,419 260,507 235,056
------------ ---------- ----------- ----------- ---------- ----------
Minority interest in equity of consolidated
affiliates 4,152 3,682 754 569 3,398 3,113
------------ ---------- ----------- ----------- ---------- ----------
Unrealized gains on investment securities 2,318 2,138 2,318 2,138 2,375 2,135
Foreign currency translation adjustments (878) (798) (878) (798) (261) (185)
------------ ---------- ----------- ----------- ---------- ----------
Accumulated non-owner changes in equity 1,440 1,340 1,440 1,340 2,114 1,950
Common stock (3,714,026,000 shares issued) 594 594 594 594 1 1
Other capital 6,027 4,434 6,027 4,434 2,490 2,337
Retained earnings 47,030 43,338 47,030 43,338 14,535 12,951
Less common stock held in treasury (17,926) (15,268) (17,926) (15,268) - -
------------ ---------- ----------- ----------- ---------- ----------
Total share owners' equity 37,165 34,438 37,165 34,438 19,140 17,239
------------ ---------- ----------- ----------- ---------- ----------
Total liabilities and equity $ 334,575 $304,012 $ 72,116 $ 67,426 $283,045 $255,408
============ ========== =========== =========== ========== ==========
<FN>
See notes to condensed consolidated financial statements. Consolidating data are
shown for "GE" and "GECS." September data are unaudited. Transactions between GE
and GECS have been eliminated from the "consolidated" columns.
</FN>
CONDENSED STATEMENT OF CASH FLOWS
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
(Dollars in millions)
NINE MONTHS ENDED SEPTEMBER 30 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED GE GECS
------------------------- ------------------------- ------------------------
1998 1997 1998 1997 1998 1997
------------ ---------- ----------- ----------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 6,625 $ 5,853 $ 6,625 $ 5,853 $ 2,896 $ 2,490
Adjustments to reconcile net earnings to cash
provided from (used for) operating activities
Depreciation and amortization 3,235 2,980 1,306 1,215 1,929 1,765
Earnings retained by GECS - - (1,584) (1,496) - -
Deferred income taxes 672 714 347 229 325 485
Decrease in GE current receivables 560 465 566 500 - -
Decrease (increase) in inventories (13) (849) (109) (849) 96 -
Increase (decrease) in accounts payable (291) 150 (81) 74 64 439
Increase in insurance reserves 3,008 1,674 - - 3,008 1,674
Provision for losses on financing receivables 1,047 1,020 - - 1,047 1,020
All other operating activities (2,570) (2,396) (1,192) (448) (1,367) (2,430)
------------ ---------- ----------- ----------- ---------- ----------
Cash from operating activities 12,273 9,611 5,878 5,078 7,998 5,443
------------ ---------- ----------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment (including
equipment leased to others) - additions (5,335) (6,004) (1,285) (1,363) (4,050) (4,641)
Net decrease (increase) in GECS financing receivables (3,110) 1,893 - - (3,110) 1,893
Payments for principal businesses purchased (9,670) (2,522) (1,226) (990) (8,444) (1,532)
All other investing activities (5,930) (3,032) 242 190 (6,363) (3,364)
------------ ---------- ----------- ----------- ---------- ----------
Cash used for investing activities (24,045) (9,665) (2,269) (2,163) (21,967) (7,644)
------------ ---------- ----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities 90 days or less) 9,109 9,137 1,788 2,206 7,050 7,157
Newly issued debt (maturities more than 90 days) 31,752 16,047 467 579 31,256 15,468
Repayments and other reductions (maturities
more than 90 days) (24,262) (20,728) (1,639) (1,119) (22,623) (19,609)
Net purchase of GE shares for treasury (1,717) (2,031) (1,717) (2,031) - -
Dividends paid to share owners (2,933) (2,559) (2,933) (2,559) (1,312) (994)
All other financing activities (271) 286 - - (271) 286
------------ ---------- ----------- ----------- ---------- ----------
Cash from (used for) financing activities 11,678 152 (4,034) (2,924) 14,100 2,308
------------ ---------- ----------- ----------- ---------- ----------
Increase (decrease) in cash and equivalents (94) 98 (425) (9) 131 107
Cash and equivalents at beginning of year 5,861 4,191 1,157 957 4,904 3,234
------------ ---------- ----------- ----------- ---------- ----------
Cash and equivalents at September 30 $ 5,767 $ 4,289 $ 732 $ 948 $ 5,035 $ 3,341
============ ========== =========== =========== ========== ==========
<FN>
See notes to condensed consolidated financial statements. Consolidating data are
shown for "GE" and "GECS." Transactions between GE and GECS have been eliminated
from the "consolidated" columns.
</FN>
Notes to Condensed Consolidated Financial Statements
1. The accompanying condensed quarterly financial statements
represent the consolidation of General Electric Company and all companies which
it directly or indirectly controls. Reference is made to note 1 to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997. That note discusses
consolidation and financial statement presentation. As used in this Report and
in the Report on Form 10-K, "GE" represents the adding together of all
affiliated companies except General Electric Capital Services, Inc. ("GECS"),
which is presented on a one-line basis; GECS consists of General Electric
Capital Services, Inc. and all of its affiliates; and "consolidated" represents
the adding together of GE and GECS with the effects of transactions between the
two eliminated.
2. The condensed consolidated quarterly financial statements are
unaudited. These statements include all adjustments (consisting of normal
recurring accruals) considered necessary by management to present a fair
statement of the results of operations, financial position and cash flows. The
results reported in these condensed consolidated financial statements should not
be regarded as necessarily indicative of results that may be expected for the
entire year.
3. Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, was adopted as of January 1, 1998. This
Statement requires reporting of changes in share owners' equity that do not
result directly from transactions with share owners. An analysis of these
changes follows:
Three months ended
------------------
(Dollars in millions) 9/30/98 9/30/97
------- -------
Net earnings $ 2,284 $ 2,014
Unrealized gains (losses) on investment securities - net (272) 832
Foreign currency translation adjustments - net 132 (154)
------- -------
Total $ 2,144 $ 2,692
======= =======
Nine months ended
------------------
9/30/98 9/30/97
------- -------
Net earnings $ 6,625 $ 5,853
Unrealized gains on investment securities - net 180 1,191
Foreign currency translation adjustments - net (80) (542)
------- -------
Total $ 6,725 $ 6,502
======= =======
4. In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (the
"Statement"). The Statement requires that, upon adoption, all derivative
instruments (including certain derivative instruments embedded in other
contracts) be recognized in the balance sheet at fair value, and that changes in
such fair values be recognized in earnings unless specific hedging criteria are
met. Changes in the values of derivatives that meet these hedging criteria will
ultimately offset related earnings effects of the hedged items; effects of
certain changes in fair value are recorded in Other Comprehensive Income pending
recognition in earnings. GE will not adopt the Statement until required to do so
on January 1, 2000.
5. GE's inventories consisted of the following:
At
------------------------
(Dollars in millions) 9/30/98 12/31/97
------- --------
GE
Raw materials and work in process $ 3,495 $ 3,070
Finished goods 2,814 2,895
Unbilled shipments 234 242
Revaluation to LIFO (1,070) (1,098)
------- -------
5,473 5,109
GECS
Finished goods 729 786
------- -------
Total $ 6,202 $ 5,895
======= =======
6. Property, plant and equipment (including equipment leased to
others) consisted of the following:
At
-----------------------
(Dollars in millions) 9/30/98 12/31/97
------- --------
Original cost
- - GE $27,809 $26,855
- - GECS 31,374 28,802
------- -------
Total 59,183 55,657
------- -------
Accumulated depreciation and amortization
- - GE 16,630 15,737
- - GECS 8,468 7,604
------- -------
Total 25,098 23,341
------- -------
Property, plant and equipment -- net
- - GE 11,179 11,118
- - GECS 22,906 21,198
------- -------
Total $34,085 $32,316
======= =======
7. GE's authorized common stock consisted of 4,400,000,000 shares
having a par value of $0.16 each. Information related to the calculation of
earnings per share follows:
Three months ended
---------------------------------
9/30/98 9/30/97
(Dollar amounts and shares in millions; --------------- ---------------
per-share amounts in dollars) Basic Diluted Basic Diluted
----- ------- ----- -------
CONSOLIDATED OPERATIONS
Net earnings available to common share owners $2,284 $2,284 $2,014 $2,014
Dividend equivalents-- net of tax -- 2 -- 3
------ ------ ------ ------
Net earnings available for per-share calculation $2,284 $2,286 $2,014 $2,017
------ ------ ------ ------
AVERAGE EQUIVALENT SHARES
Shares of GE common stock 3,268 3,268 3,269 3,269
Employee compensation-related shares,
including stock options -- 57 -- 72
------ ------ ------ ------
Total average equivalent shares 3,268 3,325 3,269 3,341
------ ------ ------ ------
Net earnings per share $ 0.70 $ 0.69 $ 0.62 $ 0.60
====== ====== ====== ======
Nine months ended
---------------------------------
9/30/98 9/30/97
--------------- ---------------
Basic Diluted Basic Diluted
----- ------- ----- -------
CONSOLIDATED OPERATIONS
Net earnings available to common share owners $6,625 $6,625 $5,853 $5,853
Dividend equivalents-- net of tax -- 11 -- 8
------ ------ ------ ------
Net earnings available for per-share calculation $6,625 $6,636 $5,853 $5,861
------ ------ ------ ------
AVERAGE EQUIVALENT SHARES
Shares of GE common stock 3,268 3,268 3,277 3,277
Employee compensation-related shares,
including stock options -- 64 -- 70
------ ------ ------ ------
Total average equivalent shares 3,268 3,332 3,277 3,347
------ ------ ------ ------
Net earnings per share $ 2.03 $ 1.99 $ 1.79 $ 1.75
====== ====== ====== ======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
A. RESULTS OF OPERATIONS -- THIRD QUARTER OF 1998 COMPARED WITH THIRD QUARTER
OF 1997
General Electric Company earnings per share increased 15% to $.69,
up from last year's $.60, and earnings increased 13% to $2.284 billion. Both
earnings per share and earnings were records for the quarter. Earnings per share
grew faster than earnings, reflecting the impact of shares repurchased under a
five-year, $17 billion share repurchase program initiated in December 1994.
Revenues, including acquisitions, rose to a record $24.1 billion,
10% higher than last year's third quarter, reflecting continued growth from
globalization and product services.
In the third quarter of 1998, the Industrial Control Systems
business was merged with Electrical Distribution and Control to form the
Industrial Systems business. Revenues increased at seven of GE's eleven
businesses, led by GE Capital Services, Aircraft Engines and Medical Systems.
Six of eleven businesses reported higher operating profit for the
third quarter, led by GE Capital Services, Aircraft Engines, Medical Systems and
Plastics.
GE's third-quarter operating margin was 15.5% of sales, up from last
year's 14.5%, and was a record for the quarter. The third-quarter margin growth
reflects the increasing benefits from GE's focus on product services and Six
Sigma quality initiatives.
GE Capital Services earnings exceeded the $1 billion mark during a
quarter for the first time with third-quarter earnings of $1.082 billion, 15%
more than last year's $938 million. These record results reflect the
globalization and diversity of GECS 28 businesses, led by strong double-digit
increases in its Consumer Services, Specialized Financing, Specialty Insurance
and Mid-Market Financing activities.
Cash generated from GE operating activities during the first nine
months was a strong $5.9 billion, up from last year's $5.1 billion. As part of
the five-year, $17 billion share repurchase program, GE purchased $978 million
of its stock during the third quarter to reach $12.7 billion - 278 million
shares - purchased since December 1994.
SEGMENT ANALYSIS:
The comments that follow compare revenues and operating profit by
industry segment for the third quarters of 1998 and 1997.
o Aircraft Engines reported a strong increase in revenues compared
with the third quarter of last year, reflecting strong growth in product
services, including the contribution from the acquisition of Greenwich Air
Services/UNC, as well as good volume growth in commercial engines. Operating
profit increased sharply as a result of productivity, volume growth and the
contribution from product services.
o Appliances had much lower revenues, essentially a result of the
first-quarter 1998 deconsolidation of a European distribution affiliate.
Operating profit decreased slightly compared with the third quarter of 1997 as
lower selling prices more than offset productivity.
o Broadcasting reported a slight increase in revenues over last
year's third quarter, primarily as a result of improved pricing. Operating
profit was much higher than a year ago as a result of stronger prime-time
pricing and improvements in NBC's cable operations, the combination of which
more than offset higher license fees for certain prime-time programs that were
renewed.
o GE Capital Services net earnings increased by 15% to $1,082
million, led by strong double digit increases in Consumer Services, Specialized
Financing, Specialty Insurance and Mid-Market Financing activities. Overall, the
increase in net earnings for the lending, leasing, and equipment management
businesses of GECS was primarily attributable to a higher average level of
invested assets. The growth in earnings from Specialty Insurance activities
primarily reflected growth in origination volume and higher investment income,
the result of continued growth in the investment portfolios and higher gains on
investment securities, as well as improved earnings in the mortgage insurance
business, the result of strengthened market conditions.
o Industrial Products and Systems reported slightly lower revenues
and operating profit compared with last year's third quarter. Revenues decreased
primarily as a result of lower selling prices across most businesses in the
segment. The decrease in operating profit was also attributable to the effects
of lower selling prices which more than offset productivity.
o Materials operating profit increased considerably despite slightly
lower revenues compared with last year. The decrease in revenues resulted
primarily from lower selling prices and adverse currency exchange rates. The
improvement in operating profit reflected lower material costs, productivity and
higher volume, the combination of which more than offset the decrease in selling
prices.
o Power Generation reported somewhat higher revenues compared with
last year, reflecting higher volume and the contribution of an acquired product
services business, the combination of which more than offset lower selling
prices. Operating profit decreased considerably as lower selling prices more
than offset productivity and volume.
o Technical Products & Services revenues were considerably higher
than in the third quarter of 1997, reflecting volume growth in both Medical
Systems and Information Services. Operating profit also rose considerably, as
strong productivity across the segment more than offset lower selling prices.
o All other operating profit was much lower on substantially lower
revenues compared with the third quarter of 1997, as a result of lower levels of
licensing income.
YEAR 2000
- ---------
The inability of business processes to continue to function
correctly after the beginning of the Year 2000 could have serious adverse
effects on companies and entities throughout the world. 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 multi-functional 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. Management plans to have completed the first
three phases of the program for a substantial majority of mission-critical
systems by the end of 1998 and to have nearly all significant information
systems, products, facilities and suppliers in 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 its facilities; and
30,000 direct suppliers. Business operations are also dependent on the Year 2000
readiness of 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. The likelihood and effects of failures in infrastructure systems and
in the supply chain cannot be estimated. However, with respect to operations
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.
Total Year 2000 remediation expenditures are expected to be
approximately $550 million, of which two-thirds is expected to be 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.
B. RESULTS OF OPERATIONS -- FIRST NINE MONTHS OF 1998 COMPARED WITH FIRST
NINE MONTHS OF 1997
Net earnings were $6.625 billion in the first nine months of 1998,
up 13% from $5.853 billion in the first nine months of 1997. Earnings per share
increased 14% to $1.99 from $1.75. Earnings per share grew faster than earnings,
reflecting the impact of shares repurchased under a four-year, $17 billion share
repurchase program initiated in December 1994.
Consolidated revenues for the first nine months of 1998 aggregated
$71.8 billion, up 12% from the comparable $64.1 billion in 1997's first nine
months. GE's sales of goods and services were 5% higher, led by Aircraft
Engines, Transportation Systems and NBC. The improvement in sales was largely
attributable to increases in the volume of goods and services sold which were
partially offset by the effects of lower selling prices.
Eight of GE's eleven businesses reported higher operating profit for
the first nine months, led by Aircraft Engines, Medical Systems and GE Capital
Services.
Operating margin in the first nine months of 1998 was 16.3% of
sales, an improvement over last year's 15.4%. The growth reflects the increasing
benefits from GE's focus on product services and Six Sigma quality initiatives.
SEGMENT ANALYSIS:
The following comments compare revenues and operating profit by
industry segment for the first nine months of 1998 with the same period of 1997.
o Aircraft Engines revenues and operating profit increased sharply
over last year. The revenue and operating profit increases both resulted from
strong growth in product services, including the contribution from the
acquisition of Greenwich Air Services/UNC, as well as good volume growth in
commercial engines.
o Appliances had much lower revenues, largely as a result of the
first-quarter 1998 deconsolidation of a European distribution affiliate.
Operating profit decreased slightly as lower selling prices more than offset
productivity.
o Broadcasting reported somewhat higher revenues compared with last
year, reflecting primarily improved pricing and NBC's broadcast of the January
1998 Superbowl. Operating profit was well ahead of last year's first nine
months, reflecting stronger prime-time pricing and improvements in NBC's cable
operations, which more than offset higher license fees for certain prime-time
programs that were renewed.
o GE Capital Services net earnings increased by 16% to $2,896
million, led by double digit increases in Specialized Financing, Consumer
Services, Specialty Insurance and Mid-Market Financing activities. Overall, the
increase in net earnings for the lending, leasing, and equipment management
businesses of GECS was primarily attributable to a higher average level of
invested assets. Financing spreads were essentially the same as in last year's
third quarter, reflecting slightly lower yields that were offset by lower
borrowing rates. The growth in earnings from Specialty Insurance activities
primarily reflected growth in origination volume and higher investment income,
the result of continued growth in the investment portfolios and a higher level
of gains on investment securities, as well as improved earnings in the mortgage
insurance business, the result of strengthened market conditions.
o Industrial Products and Systems reported slightly higher operating
profit on revenues that were about the same as last year. The improvement in
operating profit was attributable to productivity and volume increases, which
more than offset the decrease in selling prices.
o Materials operating profit was somewhat higher on revenues that
were about the same as the first nine months of 1997. The improvement in
operating profit reflected lower material costs and productivity which more than
offset lower selling prices.
o Power Generation reported slightly lower operating profit on
revenues that were about the same as last year. The decrease in operating profit
was primarily attributable to lower selling prices which more than offset
productivity.
o Technical Products & Services revenues were somewhat higher than
in the first nine months of 1997, reflecting volume growth in both Medical
Systems and Information Services, partially offset by the effects of lower
selling prices. Operating profit was sharply higher, primarily as a result of
strong productivity across the segment and the absence of a current year
counterpart to a 1997 provision for patent litigation at Medical Systems, the
combination of which more than offset lower selling prices.
o All other operating profit was much lower on revenues that were
substantially lower than last year, reflecting lower levels of licensing income.
C. FINANCIAL CONDITION
With respect to the Condensed Statement of Financial Position,
consolidated assets of $334.6 billion at September 30, 1998, were $30.6 billion
higher than at December 31, 1997.
GE assets were $72.1 billion at September 30, 1998, an increase of
$4.7 billion from December 31, 1997. The increase was primarily attributable to
greater investment in GECS ($1.9 billion), and increases in all other assets
($2.9 billion), principally as a result of an increase in the prepaid pension
asset, acquisitions that were not yet consolidated, and numerous smaller
changes.
GECS assets increased by $27.6 billion from the end of 1997. GE
Capital financing receivables at September 30, 1998, which aggregated $113.9
billion net of the allowance for doubtful accounts, were $10.1 billion higher
than at year-end 1997, reflecting acquisition-related growth and higher
origination volume, partially offset by securitizations of receivables and other
decreases in credit card portfolios. Other assets increased $6.3 billion,
principally as a result of higher advances to and investments in
non-consolidated affiliates, real estate acquired and growth in
investor-directed fund accounts ("separate accounts"). GECS investment
securities increased by $4.3 billion, reflecting new investments by various GECS
businesses, as well as increases in the fair value of investment securities
during the period. Other receivables increased $3.6 billion, reflecting
principally core growth and, to a lesser extent, the effect of acquisitions.
Property, plant and equipment, principally equipment leased to others, increased
by $1.7 billion reflecting the combination of volume growth and the effect of
acquisitions.
Consolidated liabilities of $293.3 billion at September 30, 1998,
were $27.4 billion higher than the year-end 1997 balance of $265.9 billion. GE
liabilities were up $1.8 billion; GECS liabilities increased $25.5 billion.
GE liabilities increased $1.8 billion to $34.2 billion. Total
borrowings were $5.0 billion ($4.3 billion short term and $0.7 billion long
term) at September 30, 1998, an increase of $0.6 billion from December 31, 1997.
The ratio of debt to total capital for GE at the end of the third quarter was
11.6% compared with 11.1% at the end of last year and 14.5% at September 30,
1997.
GECS liabilities increased to $260.5 billion, compared with $235.1
billion at the end of 1997. The increase was principally attributable to higher
borrowings ($19.0 billion) and an increase of $3.9 billion in insurance
liabilities, reserves and annuity benefits, reflecting primarily additions to
reserves related to volume and increases in separate accounts. Short-term
borrowings increased by $8.2 billion to $103.4 billion and long-term borrowings
increased by $10.8 billion to $56.8 billion.
With respect to cash flows, consolidated cash and equivalents were
$5.8 billion at September 30, 1998, a decrease of $0.1 billion during the first
nine months of 1998. Cash and equivalents were $4.3 billion at September 30,
1997, an increase of $0.1 billion since the beginning of the year.
GE cash and equivalents decreased $0.4 billion during the first nine
months of 1998 to $0.7 billion at September 30, 1998. Cash provided from 1998
operating activities was $5.9 billion compared with $5.1 billion for the first
nine months of 1997. The improvement resulted from, among other things,
continued improvements in earnings, higher GECS dividends, and increased cash
flows from working capital. Cash used for investing activities ($2.3 billion)
principally represented acquisitions and investments in new plant and equipment
for a wide variety of projects to lower costs and improve efficiencies. Cash
used for financing activities ($4.0 billion) included $2.8 billion for
repurchases of the Company's common stock under the share repurchase program and
$2.9 billion for dividends paid to share owners, a 15% increase in the per-share
dividend rate compared with the first nine months of last year. The effects of
dividends and share repurchases on cash used for financing activities were
partially offset by cash provided from higher borrowings ($0.6 billion).
GE cash and equivalents were $0.9 billion at September 30, 1997,
approximately the same as at the end of 1996. During the first nine months of
1997, cash provided from operating activities was $5.1 billion, compared with
$5.4 billion in cash flows during the comparable period in 1996. Strong 1997
cash generation resulted from, among other things, continued improvements in
earnings which was more than offset by the absence of counterparts to two 1996
matters - progress collections related to large power generation orders and
timing of collections of sundry receivables. Cash used for investing activities
($2.2 billion) represented principally the acquisition of Greenwich Air Services
and investments in new plant and equipment for a wide variety of projects to
reduce costs and improve efficiencies. Cash used for financing activities ($2.9
billion) included $2.7 billion for repurchases of the Company's common stock
under the share repurchase program and $2.6 billion for dividends paid to share
owners, a 13% increase in the per-share dividend rate compared with the first
nine months of 1996. The dividends and share repurchases were partially offset
by funds provided from higher borrowings ($1.7 billion).
GECS cash and equivalents increased $0.1 billion during the first
nine months of 1998. Cash provided from operating activities totaled $8.0
billion, compared with $5.4 billion for the first nine months of 1997. Cash was
used to fund business acquisitions ($8.4 billion), primarily the acquisition of
Met Life Capital Corporation; for additions to property, plant and equipment
($4.1 billion), principally equipment that is provided to third parties on
operating leases; and for additions to financing receivables ($3.1 billion).
Cash provided from financing activities resulted primarily from increased
borrowings ($15.7 billion) during the first nine months of 1998.
GECS cash and equivalents increased $0.1 billion during the first
nine months of 1997. Cash provided from operating activities totaled $5.4
billion, compared with $6.4 billion for the first nine months of 1996. Cash was
used primarily to fund additions to property, plant and equipment ($4.6
billion), principally equipment that is provided to third parties on operating
leases, and for acquisitions of businesses ($1.5 billion), the largest of which
were Coregis and Bank Aufina. Cash provided from financing activities resulted
primarily from increased borrowings ($3.0 billion) during the first nine months
of 1997.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On July 22, 1998, the Company sold 13.6 million shares of Common
Stock, par value $0.16 per share (the "Shares"), to certain institutional
investors for an aggregate price of $1.2 billion. Proceeds from the sale of
Shares were used by the Company for working capital, including the purchase from
UBS AG, London Branch ("UBS") of a call option exercisable at $97.52 per share
on 9.8 million shares of Company Common Stock. The Company also sold to UBS a
put option exercisable at $88.23 per share on 9.8 million shares of Company
Common Stock for deferred consideration of up to $0.3 billion. Both the call and
put options are long-dated; both provide for settlement only in cash; and both
are intended to counter changes in liabilities arising from certain employee
benefit plans. The sales of the Shares and of the put option were private
transactions exempt from registration under the Securities Act of 1933 (the
"Act"), pursuant to Section 4(2) of the Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 11. Computation of Per Share Earnings*
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges
Exhibit 27. Financial Data Schedule
* Data required by Statement of Financial Accounting Standards No.
128, Earnings per Share, is provided in note 7 to the condensed
consolidated financial statements in this report.
b. Reports on Form 8-K during the quarter ended September 30, 1998.
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
General Electric Company
(Registrant)
November 12, 1998 Philip D. Ameen
- ----------------- --------------------------------------
Date Vice President and Comptroller
Duly Authorized Officer and Principal Accounting Officer