General Electric 2003 Annual Report
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gene≥al elect≥ic growing in an uncertain 2003 annual ≥epo≥t 2003 annual world g gene≥al elect≥ic 2003 annual ≥epo≥t g gene≥al elect≥ic company, fai≥field, connecticut 06828 www.ge.com Through the cycles, GE’s long-term financial goals are: revenue growth of twice the U.S. Gross Domestic Product (GDP); 10%-plus annual earnings growth; operating cash flow growth greater than earnings; and a return on total capital exceeding 20%. Here is how GE performed in 2003: • Revenues grew 1% to $134.2 billion. • GE remained one of only seven Excluding Power Systems and the triple-A rated industrial companies. expected impact of the decline in U.S. The Company continued to reduce gas turbine shipments, revenue grew “parent-supported debt” at GE Capital, 6%, about twice GDP growth. with total reductions of more than • Earnings before required accounting $9 billion over 2002–03. Commercial changes grew 3% to $15.6 billion, paper as a percentage of total debt or $1.55 per share. Excluding Power remained below 30%. Systems, earnings grew 17%. • Total return for GE shareholders • Cash flow from operating activities (stock price appreciation assuming was $12.9 billion, up 28%, reflecting reinvested dividends) was 31% versus a $2.2 billion improvement from the S&P 500’s total return of 29%. At inventory, receivables and payables. year-end, GE traded at a price/earnings Return on average total capital ratio (P/E) of 20, a slight discount to remained strong at 19.9%. the S&P 500. • The Board of Directors increased the • GE continued to earn the respect Visit our interactive online annual report at dividend 5% for GE’s 28th consecutive of the business world. For the sixth annual increase. At year-end, GE’s consecutive year, GE was named www.ge.com/annual03 yield was 2.5%, a 40% premium to “The World’s Most Respected Company” the S&P 500. GE returned $8 billion in the Financial Times annual global to investors in 2003, primarily survey of CEOs. GE was ranked first through dividends. for governance and integrity. table of contents 1 Letter to Stakeholders CONSOLIDATED REVENUES EARNINGS PER SHARE BEFORE GE/S&P CUMULATIVE DIVIDEND (In billions) ACCOUNTING CHANGES GROWTH SINCE 1998 Printing: Anderson Lithograph five questions (In dollars) 13 Technical Leadership 17 Services $138 $1.56 90% ou≥ thanks to ou≥ custome≥s for agreeing to appea≥ in ou≥ ≥epo≥t: 23 Customer Focus 115 1.30 75 ASDA, AVIC I Commercial Aircraft Co. Ltd. (ACAC), 27 Globalization 60 New York-Presbyterian Hospital, Norfolk Southern Corporation, Southwest Airlines and Xerox Corporation. 92 1.04 31 Growth Platforms May our relationships deepen and endure. 45 69 0.78 34 Leadership Team 30 46 0.52 38 Governance 15 Principal Photography: John Midgley This document was printed on paper containing 10% post-consumer material and was manufactured using an elemental, chlorine-free process that conforms to the criteria of the Sustainable Forestry Initiative (SFI). 23 0.26 40 Citizenship Inc. GE employed a printer that produces all of its own electricity and is a certified totally enclosed facility that 41 Financial Section -15 produces virtually no volatile organic compound (VOC) emissions. 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03 Partners, GE S&P 500 Design: VSA Dear Fellow Stakeholders, We made GE a stronger Company in 2003. Our businesses performed solidly despite downturns in aviation and energy, high oil prices and slack industrial demand. We grew operating cash flow 28% and strengthened our balance sheet. We invested more than $4 billion in technology and launched dozens of leading-edge products. We grew our services revenues 10% and global revenues 14%. We reorganized our businesses around markets to simplify our operations and deepen our relationships with customers. And we committed more than $30 billion to portfolio moves to create faster- growth industrial businesses and improve our returns from financial services. Overall, we made tremendous progress on the strategy for long-term growth that I outlined in our last annual report. As you will see in this report, our actions in 2003 addressed the key question investors asked us last year: How will you grow in an uncertain world? Our earnings in 2003 trailed our long-term goal of double- Two important CEO lessons were reinforced for me last year: digit growth. We will have another challenging year in 2004 the value of context, and the importance of driving change. By as we go through the final year of the U.S. gas turbine decline, “context” I mean understanding important global trends and their lower non-cash pension earnings and the impact of portfolio impact on GE. I believe we are going through a time of rapid and moves. But this is a great time for your company. The GE meaningful changes to the economic environment. My belief has team, working with the support of your Board of Directors, is only increased my desire to accelerate change at GE. GE must look completing a dramatic strategic repositioning of GE while different … act different … be different … to excel in the years ahead. continuing to execute at a high level. We have put together all Over the next few pages, I want to describe the environment of the major pieces to generate consistent double-digit growth we see and the changes we are driving to build a company that starting in 2005. wins in the future. lette≥ to stakeholde≥s the envi≥onment we see Future economic growth will be uneven. To succeed, companies must navigate major global trends that will have significant impact on valuation. These include: • An increasingly interdependent global economy wracked by excess manufacturing capacity and the resulting price pressure. This is why unemployment remains stubborn and margin growth is tough to achieve. Winning companies will invest in innovation and build new revenue streams from their current capabilities. • A new economic order of global competitiveness and growth. Competition from places like China and India has evolved beyond low-cost manufacturing labor to include highly competitive engineering graduates who earn less than production workers in the developed world. Winning companies must think globally, but understand local consequences. Only competitive companies can serve investors, employees and stakeholders during this dramatic phase of globalization. • A move to consolidate distribution channels, which creates value for consumers but makes it difficult for manufacturers to maintain margins. Winning companies will have strong direct sales forces, low costs and value propositions that tie their own profitability to their customers’. • An opportunity to build growth platforms based on unstoppable demographics. Winning companies will sustain long-term growth by betting on high-growth markets to which they can bring unique technical and management capabilities. • A more volatile and uncertain world. The underlying insecurity created by 9/11 and the stock market bubbles will not end soon. Winning companies will keep the confidence of customers, investors and employees by maintaining financial and cultural strength. In this environment, GE can outperform by executing our strategic imperatives: sustain our strong business model; strengthen our portfolio; and drive our growth initiatives. These are the imperatives on which we executed in 2003. the ge business model GE is a multi-business growth company bound together by common operating systems and initiatives, and a common culture with strong values. Because of these shared systems, processes and values, the whole of GE is greater than the sum of its parts. I judge our model’s success along two dimensions: broad-based financial contribution of our businesses, measured by the number of them that grow earnings at double digits; and continuous improvement of our execution, measured by cash flow growth and balance sheet strength. Along both dimensions, GE had a successful 2003. Two-thirds of our businesses had double-digit earnings growth. Our performance leaders were Consumer Finance (+20%), NBC (+21%), Medical Systems (+10%), Specialty Materials (+35%) and, in a very tough market, Consumer Products (+13%). Our best over- all performer, and winner of the Chairman’s Leadership Award, was Commercial Finance. Mike Neal and his team grew earnings 18% and had an excellent strategic performance that improved both returns and market position. Two businesses that excelled even without double-digit earnings growth were Power Systems and Aircraft Engines. Power Systems’ earnings declined 35%, as demand for gas (right to left) turbines in the U.S. returned to normal after five years of a “bubble.” However, John Rice jeff≥ey ≥. immelt and his team have built powerful services, oil and gas, and renewables businesses, which Chairman of the Board and Chief Executive Officer together had nearly $12 billion of high-margin revenues, up 30% in 2003. While we ≥obe≥t c. w≥ight expect one more year of declining turbine shipments in the U.S., Power Systems—now Vice Chairman of the Board called GE Energy—is positioned for sustained double-digit growth starting in 2005. and Executive Officer The last three years were the worst in the history of commercial aviation, yet in 2003 dennis d. damme≥man Aircraft Engines still grew earnings 4%. Dave Calhoun and his team kept investing in Vice Chairman of the Board technology, services and customers. They and their partners launched a total of six new and Executive Officer 2 ge 2003 annual ≥epo≥t lette≥ to stakeholde≥s ge 2003 annual ≥epo≥t 3 lette≥ to stakeholde≥s commercial engines, won significant new commercial engine building a st≥onge≥ po≥tfolio orders and built a $28 billion multiyear services backlog. This In 2003, we announced three transformational moves: Amersham, year, Aircraft Engines is combining with our Rail business to NBC Universal, and Genworth.