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2001 Annual Report March 8 th, 2002 e. Chairmans Letter and 2001 Highlights Whats New in the Annual Report? Highlights of Significant Topics Contents.

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Presentation on theme: "2001 Annual Report March 8 th, 2002 e. Chairmans Letter and 2001 Highlights Whats New in the Annual Report? Highlights of Significant Topics Contents."— Presentation transcript:

1 2001 Annual Report March 8 th, 2002 e

2 Chairmans Letter and 2001 Highlights Whats New in the Annual Report? Highlights of Significant Topics Contents

3 The GE Model Works… Delivered in 2001 Despite Recession & 9/11 Great, Diverse Businesses Powerful Company-Wide Initiatives Our Best Days Are Ahead… Two Major Agenda Items: Build a Leaner, Faster, More Customer-Focused GE –More Front Room / Less Back Room Resources –Faster Execution Through Digital Cockpits –Improve Customer Success with Six Sigma and Digitization Accelerate High-Margin, Capital-Efficient Growth –Broaden, Deepen Product Superiority –Expand Services Excellence With Information Technology –Capitalize on Full BD Pipeline –Seize Global Opportunities Some companies are different. We believe GE is different, and one of the things that makes us different is that – in good times and bad – we deliver. That is who we are. J. Immelt, 2001 Annual Report Financial Strength + Controllership Culture of Common Values + Integrity Chairmans Letter to Share Owners Pages 1-7

4 Consistent Excellent Earnings Growth Core Set of #1 Franchises in Global Diversified Markets Easily Monetizable Business Initiatives Strong Balance Sheet to Capitalize on Change + Opportunity ++ GE Portfolio Diversity and Execution on Initiatives Drive Double Digit Results Earnings Before Accounting Changes Rose 11% to a Record $14.1B Cash from Operating Activities Rose 12% to a Record $17.2B. - Excluding Progress Collections, CFOA Grew 13% GE Operating Margin Rose to a Record 19.6%, a 0.7 Point Improvement, Driven by Six Sigma, Digitization, and Services Growth ROTC Exceeds 27% 2001 Highlights … Test Case of Why GE Works

5 More Disclosure Plain Language Describing How We Grow Earnings Discussion of Operations – Individual Business Results Disclosed within Segments 30% more content; 20% more pages in MD&A Industrial Businesses From 7 Segments to 12 Businesses GECS Segments From 6 Segments to 14 Businesses + Balance of Each Segment = 20 Total Additional Discussion of Drivers of Income Growth Discussion of Financial Resources & Liquidity – Off-Balance Sheet Arrangements Structure Overview; Nature of Assets in SPEs; No Speculation / Employee Participation Support Liquidity and Credit Support Commitments; Reserves for Credit Losses Accounting Gains on Securitization; Non-Consolidation Status Critical Accounting Policies – New Section and Expanded Discussion Losses on Financing Receivables Impairment of Investment Securities Revenue Recognition on Long Term Agreements Insurance Liabilities and Reserves Other Loss Contingencies Whats New in the Annual Report MD&A

6 Supplemental Segment Data Increased from 7 to 12 Businesses Aircraft Engines Appliances Industrial Products & Systems NBC Materials Power Technical Products & Services Old Disclosure New Disclosure More Disclosure – Industrial/Service Businesses

7 Visibility to 14 Larger Businesses More Disclosure – GE Capital Businesses Consumer Services Specialty Insurance Old Disclosure New Disclosure Equipment Management Mid-Market Financing Specialized Financing All Other GECS

8 The GE Business Model Works Long Cycle Strength Offsetting Short Cycle Pressures Long Cycle Record Year at Power Systems –Equipment Sales $15B … Up 47% –Grew Global Energy Services Revenue 16% to $5.7B Medical Systems Earnings Up 15% with Double-Digit Growth in Every Region of the World –DFSS Products Account for 60% Sales Aircraft Delivered Revenue & Earnings Growth; Positioned for Difficult Industry Environment Very Tough Short Cycle Environment Accelerated Cost Out Everywhere … Positioned for Good Profit Leverage on Upturn NBC #1 Network in All Key Areas Gained Market Share in Appliances with Strong New Product Performance Short Cycle $6.1 $5.2 $7.5 $10.2+36% (14)% GE Earnings Growth Op Profit ($ in Billions)

9 GE Capital Pages 53- 57, 85 Global Consumer$903$19327% GE Financial Assurance68712322 Card Services65415932 Commercial Equip. Finance5929619 Real Estate48611731 Aviation Services470(5)(1) Mortgage Insurance395298 Structured Finance3854112 Commercial Finance3648330 Vendor Financial Services2874619 Americom (ex. Gain)2545930 IT Solutions11208F Other47213339 Sub-Total $5,960$1,28227% ERC$(47)$(460)U GE Equity(270)(795)U 4 th Quarter Americom Gain642642F 4 th Quarter Charges(656)(656)U Corporate/Other(43)381F Total GE Capital$5,586$3948% 2001V$V% Strong Business Performances offset Declines at Equity / ERC And Well Positioned with Strong Asset Growth $5.2 $5.6 $4.7 $6.0 ERC & Equity Corp. (0.4) (0.3) (0.1) 0.9 20002001 ($ in Billions) Ex. Q4 Americom Gain & Q4 Charges +27% Diverse Portfolio Delivers Strong Performance Earnings Before Accounting Changes Financing Receivables$174$14322% Investment Securities1009011 PP&E29285 All Other Assets12211011 Total Assets$425$37115% Rest of The Portfolio +8% ($ in Millions) ($ in Billions) 20012000V%

10 Cash Beginning Balance$2.0$7.2$5.2 CFOA ex-Progress12.213.81.6 Dividends(5.4)(6.4)(1.0) Stock Repurchase(2.1)(3.1)(1.0) P&E Expend.(2.5)(2.9)(0.4) Acquisitions(1.2)(1.4)(0.2) Capital Contribution to GECS0(3.1)(3.1) Change in Debt(1.4)0.72.1 Other2.32.2(0.1) Progress Collections3.33.40.1 Ending Cash Balance$7.2$10.4$3.2 Generated $13.8B CFOA ex-Progress … Up $1.6B Gave $9.5B Back to Shareowners …Up $2.0B Invested $4.3B on Industrial Acquisitions and P&E … Up $0.6B Invested Additional $3.1B in GECS 20002001V$ 2001… Cash Results Prove Earnings Quality Pages 46-47, 60-61 ($ in Billions)

11 1)SFAS 142 -- Anticipated ~$1B Goodwill Impairment at Q1 2002 2)Use of Off-Balance Sheet Arrangements 3)Post-Retirement Benefits (Pension, Life, & Healthcare) 4)Derivatives 5)Summary of Critical Accounting Policies 6)GECS Comparable Revenues 7)GE Comparative Balance Sheet 8)GECS Comparative Balance Sheet 9)GE and GECS Tax Rate Reconciliation Highlights of Significant Topics MD&A

12 Effective 1/1/02 –Suspend Goodwill Amortization –No Change to Prior Period Financial Statements –Evaluate Goodwill For Impairment –Fair Value vs. Undiscounted Cash Flow Test Finalizing Assessment for Q1 2002 Implementation Four Impairments at 1/1/02 ITS$600$570 GEFA Auto-Related 557399 Genstar3030 Comml Direct2617 Total$1 213$1 016 Pre-Tax Goodwill After-Tax Goodwill % Total Goodwill 4.3% GE$12 354 GECS15 933 Total$28 287 Goodwill Balance As of 12/31/01 FAS 142 - Impairment Pages 48, 78 ($ in Millions)

13 Improves Returns Leverages Our Distribution Transfer Catastrophic Credit Risk Accesses Segment of Capital Mkts Use of SPEs for Asset Securitization Widespread & Long Standing in Financial Services Industry -- Participant in $800B Asset-Backed CP Market -- Why Most Economic of Securitization Alternatives Why SPEs Receivables – Secured by: Equipment$7 993$12 781 Commercial Real Estate7 4459 971 Other Assets6 2497 761 Credit Card Receivables6 1709 470 Trade Receivables3 1383 028 $30 995$43 011 Securitization Gains (After tax) ~$ 300~$ 800 20002001 Assets Held by SPEs ($ in Millions) Off-Balance Sheet Arrangements Pages 62-64 GE Capital Uses Special Purpose Entities (SPEs) for Asset Securitizations

14 GE/3 rd Party Assets Pools QSPE (Pass Through Legal Entity) Sell Assets CP Conduit (Edison) $s Beneficial Interest Institutional Investors $s CP Rated by Major Agencies GE/3rd Party Sells Assets to QSPE –Relinquish Control (True Sale Opinion) –GE Services the Assets (Bill / Collect) –Gain on Sale Beneficial Interest in the Assets Passes Through the QSPE to the CP Conduit CP Conduit (Edison) Issues Commercial Paper Backed by the High Quality Assets –CP Is Rated A1+/P1 by Major Rating Agencies GE Provides: –Credit Support –Loss Recourse on $14B of Assets –$0.7B Reserve on Book at 12/31/01 –$3.8B Performance Guar. on GICS –Liquidity Support –GECS Lends if Market Disruption –To-date, GECS Never Had to Fund High Quality, Investment-Grade Assets Excellent Asset Diversity and Spread of Risk Strict Review Criteria by GECS at Acquisition and Ongoing $s Special Purpose Entities Pages 62-64 Asset Backed Commercial Paper – $42B @ 12/31/01 Typical Structure

15 $15.9 $24.7 $49.8 Est. Rate of Return on Assets Lowered to 8.5% in 2002 Net Cost Reduction Expected to Decline to ~$500MM NI Pension Income$1 016$1 380$1 744$2 095~$1 450 Post Retirement Costs-313-318-478-615 ~ -747 Net Cost Reduction7031 0621 2661 480~ 703 After-Tax Impact$ 456$ 690$ 822$ 962~ 457 % to Net Income4.9%6.5%6.5%6.8%~ 2.7% Before Accounting Changes Trust Assets Surplus $21.2 $43.4 $50.2 $45.0 $14.6 Asset Performance Assumed 9.5% Return on Assets since 1991 10 yr Return = 11% ($ in Millions) ~$43.0 ~$11.2 GE Pension Plan Status Pages 49, 70-72 ($ in Billions)

16 Footnote 29 and page 85 of the MD&A sections of the 2001 GE Annual Report states: GE and GECS global business activities routinely deal with fluctuations in interest rates, in currency exchange rates and in commodity and other asset prices. GE and GECS apply strict policies to managing each of these risks, including prohibitions on derivatives trading, derivatives market-making or other speculative activities. These policies require the use of derivative instruments in concert with other techniques to reduce or eliminate these risks. Cash Flow Fair Value Net Investment FAS133 Hedges Other Hedges Mortgage Servicing Rights and Warrants Derivatives Marked to Fair Value Every Quarter FAS133 Implementation Complete No Derivatives Trading, Market Making or Speculation Allowed All Hedges Have Offsetting Underlying Asset and Liability Positions Marked to P&L Quarterly Balance Sheet 12/31/01 Other Assets$2.3B Other Liabilities$3.8B Derivatives Pages 89-91

17 Losses on Financing Receivables –Recognized When Incurred –Financing Receivables ~$179 B –Assets in SPEs with Recourse $14 B –Critical Element: Estimation of Incurred Losses Impairment of Investment Securities –Charge to Ops When a Market Decline Is Other than Temporary –GECS Investment Securities ~$100B –Critical Element: Determination of Permanent Impairment Revenue Recognition on Long-Term Agreements –Requires Estimation of Profits –GE Recorded $3.1B of Sales in 01 from Long-Term Agreements –Critical Element: Estimation of Future Performance and Costs Insurance Liabilities & Reserves –Based on Actuarial Techniques –GECS Insurance Liabilities ~$114B –Critical Element: Estimation of Claims Expenses and Timing Other Loss Contingencies –Recorded When Probable & Estimable –Critical Element: Estimation of Amount of Loss Key Areas Requiring Management Judgment & Estimation MD&A Disclosures Pages 64,66 Critical Accounting Policies

18 20012000V% GECS Revenues – As Reported$58.4 B$66.2(12)% IT Solutions4.27.1 TOHO1.32.5 Wards.03.2 AFS.4.6 All Other(0.6).8 GECS Revenues – Comparable53.151.9+2% GECS Comparable Revenues Pages 48, 53

19 Asset Growth Driven by Progress, Investment in GECS and Pension Asset Strong Financial Position Assets Cash & Marketable Securities$ 11 326$8 219–Progress Collections Up $3.4B Receivables9 8059 727–Turns Increased 0.1 Pts to 10.1 Inventories8 2957 146–Turns Down 0.6 Pts. to 7.9 Driven by Short Cycle Businesses Plant & Equipment12 79912 199–P&E Additions $2.9B Investment in GECS28 59023 022–Earnings Less Dividend & Capital Contrib. Intangible Assets12 93212 424–Increase in Goodwill Related to Acquisitions Other Assets25 98624 028–Pension Asset Growth $2.4B Total$ 109 733$ 96 765 Liabilities & Equity Borrowings$2 509$1 781–4.3% Debt to Capital Other Liabilities52 40044 492–Progress Collections Up $3.4B Share Owners Equity54 82450 492–Retained Earnings Growth Total$109 733$96 765 ($ in Millions) 20012000Comments GE Financial Position Pages 45, 58-61

20 Assets Cash & Marketable Securities$107 452$96 382–GEFA Investments Growth ($9B) Inventories270666–ITS Inventory Management GECS Financing Receivables174 032143 299–Strong Acquisition and Organic Growth Plant & Equipment29 34127 816–GECAS Aircraft $3B, Offset by Americom Intangible Assets18 71715 017–Heller and Other Acquisitions Other Assets95 67287 456–Reinsurance Recoverables $4B, Real Estate Op Leases $2B, FMV FAS133 $2B Total$425 484$370 636 Liabilities & Equity Borrowings$239 935$205 371–Heller Acq. ($21B) & Asset Growth ($14B) Insurance Reserves114 223106 150–9/11 $3B & GICS Growth $3B Other Liabilities42 73636 093–Accounts Payable $3, FMV FAS133 $3 Share Owners Equity28 59023 022–Includes $3.1 GE Equity Infusion Total$425 484$370 636 ($ in Millions) 20012000Comments Asset Growth Driven by Acquisitions and Strong Core Growth, Offset by Sales & Securitization GE Capital – Financial Position Pages 45, 58-61

21 Tax Rate Page 73

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