General Electric Company Bulk Rate Fairfield, Connecticut 06431 U.S. Postage Paid General Electric Company e General Electric Company General Electric Company 1997 Annual Report 1997Annualg Report To Our Share Owners and Employees In 1997, your Company had a great year — a record year. • Ongoing revenues rose to $89.3 billion; up 13%. • Global (non-U.S.) revenues rose to $38.5 billion, now 42% of total revenues. • Earnings increased to more than $8.2 bil- lion; up 13%. • Earnings per share increased 14% to a record $2.50. • Ongoing operating margin rose to a record 15.7%, exceeding 15% for the first time in the history of our Company. • Operating cash flow rose to a record $9.3 Chairman and Chief billion. This, in combination with our Triple A debt rating, fueled the Executive Officer John F. Welch, Jr. investment of $17.2 billion in more than 75 industrial and financial (front) and Vice Chair- men and Executive services acquisitions in 1997. Officers Paolo Fresco (left), John D. Opie • This record cash flow also allowed us to return $7 billion to share (center) and Eugene F. Murphy (right) form owners: $3.5 billion in dividends and $3.5 billion for the repurchase GE’s Corporate Executive Office. of GE stock. Dividends were increased by 15%, our 22nd consecutive annual dividend increase. • In April, our share owners approved a 2-for-1 stock split, the fourth in the last 15 years. Our share owners — including our active and retired employees, who now own more than $12 billion in GE stock in their savings plans — were rewarded for this performance. The total return on a share of GE stock was 51% in 1997; this followed gains of 40% in 1996 and 45% in 1995. 1 e delivered these 1997 results by executing Mexico in the mid-1990s was a similar story: dis- on our three major initiatives: globaliza- location, uncertainty and turbulence. Reacting to Wtion, a focus on product services and our drive for the peso crisis of 1995 and its aftermath, GE moved, Six Sigma quality. Building on these same three acquiring 10 companies and investing more than initiatives will be critical to our future success. $1 billion in new and existing operations. The The uncertainty brought about by the Asian result was revenue growth of 60% and a doubling economic difficulties creates both challenges and of earnings in the two years following the crisis. opportunities. For GE, Asia represents about 9% Today, we are determined, and poised, to do of our revenues (about half in Japan) — exposure the same thing in Asia we have done in the United that is by no means insignificant, but certainly States, Europe and Mexico: invest in the future. manageable — and we are confident that we can minimize any impact on our existing operations. It has been our repeated experience that busi- Globalization ness uncertainty is inevitably accompanied by Globalization is one of the engines of GE growth, opportunity. The Asian situation should be no now and well into the next century. There will be exception; it should provide us with a unique dislocations and speed bumps on the road to pros- opportunity to make the strategic moves that will perity in all the world’s critical markets, but one increase our presence and our participation in cannot afford to write off any region in difficulty. what we know will be one of the world’s great mar- Bad business management or bad government kets of the 21st Century. policies that weaken competitiveness can be reme- We’ve been down this path before. In the early died by tough restructuring and policy change. 1980s, we experienced a United States mired in recession, hand-wringing from the pundits and Today, we are determined, and poised, dirges being sung over American manufacturing. to do the same thing in Asia we have We didn’t buy this dismal scenario; instead, we invested in both a widespread restructuring and in done in the United States, Europe and new businesses. We emerged into the recovery a much more competitive and productive company. Mexico: invest in the future. Our successful experience with U.S. business The same conditions that made restructuring uncertainty gave us a very different view of the and reform necessary frequently create a cur- European malaise of the early 1990s. rency weakness that, when coupled with the To us, Europe looked a lot like the United increased competitiveness brought about by States in the 1980s, and in need of the same reme- restructuring, leads the country out of recession, dies: restructuring, spin-offs, and the like. So, via internal growth and increased exports. while many were “writing-off” Europe, we invested The path to greatness in Asia is irreversible, heavily, buying new companies and expanding and GE will be there. our existing presence. Following the restructuring of its industrial and financial structure, as well as a dose of the powerful export medicine of a deval- Services ued currency, Europe is now recovering, and Another growth engine, which we have described “GE Europe” is now a $20.6 billion operation. for you in the past, is Services. By any measure, Our revenues have more than doubled from 1994 GE is today a global service company, and in 1998 to 1997; net income has tripled to more than more than two-thirds of its revenues will come $1.5 billion; and this growth is accelerating as the from financial, information and product services. European recovery progresses. Our second major initiative is focused on high- technology product services. In 1997, we achieved 2 a second consecutive year of double-digit growth in GE had another huge advantage that acceler- product service revenues and improved ongoing ated our quality effort: we had a Company that was operating margin, while making 20 acquisitions and open to change, hungry to learn and anxious to joint ventures, primarily in the industrial, power, move quickly on a good idea. medical and aircraft engine services businesses. Key This learning environment came from a decade- among these were the $1.5 billion Greenwich/UNC long, soul-transforming cultural initiative called jet engine service acquisition and the recently com- “Work-Out.” Work-Out is a continuing effort to pleted $600 million acquisition of the gas turbine- achieve what we call “boundaryless behavior”— related businesses of Stewart & Stevenson Services, a business behavior that tramples or demolishes all global power generation equipment service company. barriers of rank, function, geography and bureau- The opportunity for growth in product services cracy in an endless pursuit of the best idea — in is unlimited. We have the ability, using high- the cause of engaging and involving every mind technology services, to make our customers’ existing in the Company. assets (e.g., power plants, locomotives, airplanes, After a decade of Work-Out, most of the old factories, hospital equipment and the like) more bureaucracy and the boundaries among us have productive, and by doing so reduce their capital been demolished. (We are, however, aware that outlays. This growing capability, much of it infor- bureaucracy is the Dracula of institutional behav- mation technology-based, will enable us to increase ior, and will rise again and again, requiring every- our revenues from product services by more than one in the organization to reflexively pound stakes 30% in 1998 — to $13 billion. through its reappearances.) But at GE today — and we are obviously proud of this — finding the better way, the best idea, from whomever Six Sigma will share it with us, has become our central focus. We have described our progress in globalization Nowhere has this learning environment, this and services rather quickly so we could cover in search for the better idea, been more powerfully depth something we talk to each other about all demonstrated than in our drive for Six Sigma qual- day: the centerpiece of our dreams and aspirations ity. Twenty-eight months ago, we became con- for this great Company — the drive for Six Sigma vinced that Six Sigma quality could play a central quality. “Six Sigma” is a disciplined methodology, role in GE’s future; but we believed, as well, that it led and taught by highly trained GE employees would take years of consistent communication, called “Master Black Belts” and “Black Belts,” that relentless emphasis and impassioned leadership to focuses on moving every process that touches our move this big Company on this bold new course. customers — every product and service — toward We were wrong! near-perfect quality. We are the ones who now find ourselves run- Six Sigma project work consists of five basic ning to keep up with the excited charge of tens of activities: Defining, Measuring, Analyzing, thousands of GE employees who have seen the Improving and then Controlling processes. These transformational magic — the rejuvenation — that projects usually focus on improving our customers’ this combination of rigid discipline and cheerful productivity and reducing their capital outlays, fanaticism can achieve in our businesses. Projec- while increasing the quality, speed and efficiency tions of our progress in Six Sigma, no matter how of our operations. optimistic, have had to be junked every few months We didn’t invent Six Sigma — we learned it. as gross underestimates. Motorola pioneered it and AlliedSignal success- Six Sigma has spread like wildfire across the fully embraced it. The experiences of these two Company, and it is transforming everything we do. companies, which they shared with us, made the launch of our initiative much simpler and faster. 3 We had our annual Operating Managers • Superabrasives — our industrial diamond busi- Meeting — 500 of our senior business leaders ness — described how Six Sigma quadrupled from around the globe — during the first week of its return on investment and, by improving January 1998, and it turned out to be a wonderful yields, is giving it a full decade’s worth of snapshot of the way this learning Company — this capacity despite growing volume — without new GE — has come to behave; and now, with Six spending a nickel on plant and equipment Sigma, how it has come to work.