Form 10-K/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A

Amendment No. 1 to Form 10-K

(Mark One)
 
þ 
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended December 31, 2004
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 charter)

New York
     
14-0689340
(State or other jurisdiction of incorporation or organization)
     
(I.R.S. Employer Identification No.)
 
       
3135 Easton Turnpike, Fairfield, CT
 
06828-0001
 
203/373-2211
(Address of principal executive offices)
 
(Zip Code)
 
(Telephone No.)
         
  
Securities Registered Pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange
on which registered
Common stock, par value $0.06 per share
 
New York Stock Exchange
Boston Stock Exchange

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 þ 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. ¨
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No ¨.
 
The aggregate market value of the outstanding common equity of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was $342.1 billion. Affiliates of the Company beneficially own, in the aggregate, less than one-tenth of one percent of such shares. There were 10,599,919,379 shares of voting common stock with a par value of $0.06 outstanding at February 10, 2005.
 
 
DOCUMENTS INCORPORATED BY REFERENCE
 
The definitive proxy statement relating to the registrant’s Annual Meeting of Shareowners, held on April 27, 2005, is incorporated by reference in Part III to the extent described therein.
 



(1)



Table of Contents
 
 
Page
   
2005 Restatement
3
 
 
Part I 
 
     
Item 1.
Business
9
Item 2.
Properties
21
Item 3.
Legal Proceedings
21
Item 4.
Submission of Matters to a Vote of Security Holders
21
   
Part II 
 
     
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
22
Item 6.
Selected Financial Data
22
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
24
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
55
Item 8.
Financial Statements and Supplementary Data
55
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
125
Item 9A.
Controls and Procedures
125
Item 9B.
Other Information
129
   
Part III 
 
     
Item 10.
Directors and Executive Officers of the Registrant
130
Item 11.
Executive Compensation
131
Item 12.
Security Ownership of Certain Beneficial Owners and Management
131
Item 13.
Certain Relationships and Related Transactions
131
Item 14.
Principal Accounting Fees and Services
131
   
Part IV 
 
     
Item 15.
Exhibits and Financial Statement Schedules
131
 
Signatures
137

 

(2)


2005 Restatement
 
Overview
 
We are filing this amendment to General Electric Company’s (GE) Annual Report on Form 10-K for the year ended December 31, 2004, to amend and restate financial statements and other financial information for the years 2004, 2003 and 2002 and financial information for the year 2001 and for each of the quarters in the years 2004 and 2003 with respect to the accounting for certain derivatives transactions. These transactions relate to treasury operations at General Electric Capital Corporation (GECC). The effect of the restatement on our statement of financial position at the end of the reported periods is immaterial and the restatement has no effect on our cash flows.

Cumulatively through December 31, 2004, and separately in first quarter 2005, this non-cash restatement had the following earnings effects:
 
 
Effects of Correction
 
(In millions)
Total
 
Quarter ending
March 31, 2005
 
Cumulative through
December 31, 2004
 
                   
Increase (decrease) in earnings
                 
before accounting changes
$
381
 
$
(78
)
$
459
 
Accounting changes
 
157
   
-
   
157
 
Increase (decrease) in net earnings
$
538
 
$
(78
)
$
616
 

 
We have also determined that a control deficiency related to this subset of derivatives giving rise to the restatement constituted a material weakness in our internal control over financial reporting. The material weakness related to accounting for derivatives that were entered into prior to August of 2003 (except for one immaterial transaction), and there were no subsequent transactions of this sort. We have fully remediated that weakness as of the date of this report. See “Item 9A - Controls and Procedures.”

Internal Audit
 

In the course of a regularly scheduled audit, our internal corporate audit staff identified errors with respect to GECC’s use of hedge accounting for certain transactions under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133). Descriptions of these errors follow:

The first errors were in accounting for interest rate and currency swaps at GECC that included fees paid or received at inception. These swaps related to about 14% of our overall borrowings at January 1, 2001, and about 6% of our overall borrowings at December 31, 2004. Our initial accounting viewed these fees as immaterial. KPMG LLP, our independent registered public accounting firm, reviewed this initial accounting in connection with their 2001 audit. In 2003, we discontinued use of such swaps, except for one immaterial transaction, but continued the previous accounting for those already in place. Because of the swap fees, however, the fair values of the swaps were not zero at inception as required by SFAS 133 and, accordingly, we were required to, but did not, test periodically for effectiveness.

The second errors arose from a hedge accounting position related to a portfolio of assets consolidated by GECC in July 2003 at the implementation of Financial Accounting Standards Board Interpretation No. (FIN) FIN 46, Consolidation of Variable Interest Entities. This portfolio included assets equal to 2% and 1% of GE’s total assets at consolidation and at December 31, 2004, respectively. We entered into interest rate swaps in 2003 to adjust the economic yield on these newly-consolidated fixed-rate assets from a fixed to a floating rate. Adhering to our hedge documentation at the 2003 inception of these swaps, we did not perform subsequent periodic testing of their effectiveness. We determined as a result of the internal audit that the prepayment penalties in the underlying assets, which penalties had not been identified by us or KPMG LLP at implementation, were not appropriately mirrored in the associated swaps, as required in order to avoid periodic testing of effectiveness under SFAS 133. Accordingly, periodic effectiveness testing was required under SFAS 133 for these swaps.

(3)


In the course of the internal audit, we also identified other errors under SFAS 133 with respect to other aspects of certain swaps and other derivative instruments. Adjustments to correct the accounting for these transactions also are included in our restated results of operations. We do not believe these other adjustments are material, individually or in the aggregate, to our financial position or our results of operations for any reported period.

During its audit, the internal audit staff reported its findings to management, to KPMG LLP and to the Audit Committee of the Board of Directors. After initial discussions with the Audit Committee, management reviewed these matters in further detail, and after completing its analysis on May 5, 2005, recommended to the Audit Committee that previously reported financial results be restated to reflect correction of these errors. The Audit Committee agreed with this recommendation. Pursuant to the recommendation of the Audit Committee, the Board of Directors determined at its meeting on May 5, 2005, that previously reported results for GE, General Electric Capital Services (GECS) and GECC be restated to eliminate hedge accounting for these swaps and, in light of the restatement, that the financial statements and other information referred to above should no longer be relied upon.

Based on information to date, our personnel did not use these accounting issues to influence incentive or other compensation in the past. Going forward, adjustments in the restated financial results will not be used to influence positively any person’s compensation.


Restatement

In response to the issues raised by the internal audit relating to the derivatives transactions described above:

we have completed a review of the documentation and accounting for interest rate and currency swaps with respect to the types of hedging transactions affected by the restatement at GECC treasury operations;
 
we are taking action to adjust our interest rate and currency swaps thereby eliminating any significant volatility associated with these swaps; and
 
we have reversed the effects of incorrect hedge accounting by restating our previously issued financial statements.
 

Effects of Restatement

The following tables set forth the effects of the restatement relating to derivatives transactions on affected line items within our previously reported Statements of Earnings for the years 2004, 2003, 2002 and 2001 and for each of the quarters in the years 2004 and 2003. The restatement has an immaterial effect on our Statements of Financial Position at the end of each of the restated periods and has no effect on the timing or amount of operating cash flows.


(4)


Effects on Statements of Earnings
 
Income (expense) (in millions; per-share amounts in dollars)
Total
 
2004
 
2003
 
2002
 
2001
 
                               
Revenues
$
930
    
$
503
    
$
454
    
$
16
    
$
(43
)
Interest and other financial charges
 
(170
)
 
(129
)
 
(67
)
 
65
   
(39
)
Provision for income taxes
 
(301
)
 
(148
)
 
(153
)
 
(32
)
 
32
 
Earnings before accounting changes
 
459
   
226
   
234
   
49
   
(50
)
Cumulative effect of accounting changes
 
157
   
-
   
-
   
-
   
157
 
Net earnings
$
616
 
$
226
 
$
234
 
$
49
 
$
107
 
                               
                     
     
2004
 
2003
 
2002
 
2001
 
                               
Per-share amounts before accounting changes
                             
Diluted, as reported
     
$
1.59
 
$
1.55
 
$
1.51
 
$
1.41
 
Adjustment
       
0.02
   
0.02
   
-
   
(0.01
)
Diluted, as restated
     
$
1.61
 
$
1.57
 
$
1.51
 
$
1.40
 
                               
Basic, as reported
     
$
1.60
 
$
1.56
 
$
1.52
 
$
1.42
 
Adjustment
       
0.02
   
0.02
   
-
   
-
 
Basic, as restated
     
$
1.62
 
$
1.58
 
$
1.52
 
$
1.42
 
                               
Per-share amounts after accounting changes
                             
Diluted, as reported
     
$
1.59
 
$
1.49
 
$
1.41
 
$
1.37
 
Adjustment
       
0.02
   
0.02
   
-
   
-
 
Diluted, as restated
     
$
1.61
 
$
1.51
 
$
1.41
 
$
1.37
 
                               
Basic, as reported
     
$
1.60
 
$
1.50
 
$
1.42
 
$
1.38
 
Adjustment
       
0.02
   
0.02
   
-
   
0.01
 
Basic, as restated
     
$
1.62
 
$
1.52
 
$
1.42
 
$
1.39
 



(5)



 
2004
 
Income (expense) (in millions; per-share amounts in dollars)
Total
 
First
quarter
 
Second
quarter
 
Third
quarter
 
Fourth
quarter
 
                               
Revenues
$
503
 
$
242
 
$
(254
)
$
64
 
$
451
 
Interest and other financial charges
 
(129
)
 
(33
)
 
(33
)
 
(31
)
 
(32
)
Provision for income taxes
 
(148
)
 
(83
)
 
114
   
(13
)
 
(166
)
Net earnings
$
226
 
$
126
 
$
(173
)
$
20
 
$
253
  
                               
     
First
quarter
 
Second
quarter
 
Third
quarter
 
Fourth
quarter
 
                               
Per-share amounts before accounting changes
                             
Diluted, as reported
     
$
0.32
 
$
0.38
 
$
0.38
 
$
0.51
 
Adjustment
       
0.01
   
(0.02
)
 
-
   
0.02
 
Diluted, as restated
     
$
0.33
 
$
0.36
 
$
0.38
 
$
0.53
 
                               
Basic, as reported
     
$
0.32
 
$
0.38
 
$
0.38
 
$
0.51
 
Adjustment
       
0.01
   
(0.02
)
 
0.01
   
0.02
 
Basic, as restated
     
$
0.33
 
$
0.36
 
$
0.39
 
$
0.53
 
                               
Per-share amounts after accounting changes
                             
Diluted, as reported
     
$
0.32
 
$
0.38
 
$
0.38
 
$
0.51
 
Adjustment
       
0.01
   
(0.02
)
 
-
   
0.02
 
Diluted, as restated
     
$
0.33
 
$
0.36
 
$
0.38
 
$
0.53
 
                               
Basic, as reported
     
$
0.32
 
$
0.38
 
$
0.38
 
$
0.51
 
Adjustment
       
0.01
   
(0.02
)
 
0.01
   
0.02
 
Basic, as restated
     
$
0.33
 
$
0.36
 
$
0.39
 
$
0.53
 

 

(6)



 
2003
 
Income (expense) (in millions; per-share amounts in dollars)
Total
 
First
quarter
 
Second
quarter
 
Third
quarter
 
Fourth
quarter
 
                               
Revenues
$
454
 
$
441
 
$
775
 
$
(703
)
$
(59
)
Interest and other financial charges
 
(67
)
 
33
   
(30
)
 
(34
)
 
(36
)
Provision for income taxes
 
(153
)
 
(187
)
 
(295
)
 
291
   
38
 
Net earnings
$
234
 
$
287
 
$
450
 
$
(446
)
$
(57
)
                               
     
First
quarter
 
Second
quarter
 
Third
quarter
 
Fourth
quarter
 
                               
Per-share amounts before accounting changes
                             
Diluted, as reported
     
$
0.32
 
$
0.38
 
$
0.40
 
$
0.45
 
Adjustment
       
0.03
   
0.04
   
(0.05
)
 
-
 
Diluted, as restated
     
$
0.35
 
$
0.42
 
$
0.35
 
$
0.45
 
                               
Basic, as reported
     
$
0.32
 
$
0.38
 
$
0.40
 
$
0.45
 
Adjustment
       
0.03
   
0.04
   
(0.04
)
 
-
 
Basic, as restated
     
$
0.35
 
$
0.42
 
$
0.36
 
$
0.45
 
                               
Per-share amounts after accounting changes
                             
Diluted, as reported
     
$
0.30
 
$
0.38
 
$
0.36
 
$
0.45
 
Adjustment
       
0.03
   
0.04
   
(0.04
)
 
-
 
Diluted, as restated
     
$
0.33
 
$
0.42
 
$
0.32
 
$
0.45
 
                               
Basic, as reported
     
$
0.30
 
$
0.38
 
$
0.36
 
$
0.45
 
Adjustment
       
0.03
   
0.04
   
(0.04
)
 
-
 
Basic, as restated
     
$
0.33
 
$
0.42
 
$
0.32
 
$
0.45
 

Reversal of these cumulative adjustments will affect net earnings negatively over the terms of the underlying assets and debt, but to a degree that we do not expect to be significant in any individual period given the terms of the arrangements and our plan to reduce accounting volatility by replacing volatile swaps not qualifying for hedge accounting.
 
For additional information relating to the effect of the restatement, see the following items:

Part I

Item 1 - Business

Part II:

Item 6 - Selected Financial Data
Item 7 - Management’s Discussion and Analysis of Results of Operations and Financial Condition
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Item 8 - Financial Statements and Supplementary Data
Item 9A - Controls and Procedures

(7)


Part IV:

Item 15 - Exhibits and Financial Statements Schedule

In our Quarterly Report on Form 10-Q for the three months ended March 31, 2005, which is being filed on the date hereof, we are reporting net earnings of $3,965 million for the three months ended March 31, 2005, compared with $4,043 million that we reported in our earnings release on April 15, 2005. This decrease results from the restatement and errors of the same type that gave rise to the restatement.

In light of the restatement, readers should no longer rely on our previously filed financial statements and other financial information for the years and for each of the quarters in the years 2004, 2003, 2002 and 2001. Readers also should no longer rely on our April 15, 2005, earnings release.

(8)


 
Part I
 
 
Item 1. Business
 
General
 
Unless otherwise indicated by the context, we use the terms “GE,” “GECS” and “GE Capital” on the basis of consolidation described in note 1 to the consolidated financial statements of General Electric Company (the Company) on pages 00. 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; we also maintain executive offices at 3135 Easton Turnpike, Fairfield, CT 06828-0001.
 
GE is one of the largest and most diversified industrial corporations in the world. We have engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity since our incorporation in 1892. Over the years, we have developed or acquired new technologies and services that have broadened considerably the scope of our activities.
 
Our products include major appliances; lighting products; industrial automation products; medical diagnostic imaging systems; bioscience assays and separation technology products; electrical distribution and control equipment; locomotives; power generation and delivery products; nuclear power support services and fuel assemblies; commercial and military aircraft jet engines; chemicals and equipment for treatment of water and process systems; security equipment and systems; and engineered materials, such as plastics and silicones.
 
Our services include product services; electrical product supply houses; electrical apparatus installation, engineering, and repair and rebuilding services. Through our affiliate, NBC Universal, Inc., we produce and deliver network television services, operate television stations, produce and distribute motion pictures, operate cable/satellite networks, operate theme parks, and program activities in multimedia and the Internet. Through another affiliate, General Electric Capital Services, Inc., we offer 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, and specialty insurance and reinsurance.
 
In virtually all of our global business activities, we encounter aggressive and able competition. In many instances, the competitive climate is characterized by changing technology that requires continuing research and development, as well as customer commitments. With respect to manufacturing operations, we believe that, in general, we are one of the leading firms in most of the major industries in which we participate. The NBC Television Network is one of four major U.S. commercial broadcast television networks. We also compete with syndicated broadcast television programming, cable and satellite television programming activities and in the motion picture industry. The businesses in which GECS engages are subject to competition from various types of financial institutions, including commercial 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.
 

(9)


This document contains “forward-looking statements” - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties arise from the behavior of financial markets, including fluctuations in interest rates and commodity prices; from future integration of acquired businesses; from future financial performance of major industries which we serve including, without limitation, the air and rail transportation, energy generation and healthcare industries; from unanticipated loss development in our insurance businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
 
Our consolidated global revenues increased to $71.8 billion in 2004, compared with $60.8 billion in 2003 and $53.4 billion in 2002. For additional information about our global operations, see pages 37-39.
 
Operating Segments
 
Segment revenue and profit information is presented on page 63. Additional financial data and commentary on recent financial results for operating segments are provided on pages 31-37 and in note 27 (page 113) to the consolidated financial statements.
 
Operating businesses that are reported as segments include Advanced Materials, Commercial Finance, Consumer Finance, Consumer & Industrial, Energy, Equipment & Other Services, Healthcare, Infrastructure, Insurance, NBC Universal and Transportation. There is appropriate elimination of the net earnings of GECS and the immaterial effect of transactions between segments to arrive at total consolidated data. A summary description of each of our operating segments follows.
 
Advanced Materials
 
Advanced Materials (5.4%, 5.3% and 5.3% of consolidated revenues in 2004, 2003 and 2002, respectively) manufactures and sells 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, telecommunications equipment and construction materials. Our products also include structured products, silicones, high-purity quartzware and, until the sale of our Superabrasives business in late 2003, industrial grade and gem quality diamonds. Market opportunities are created by substituting many of these products for other materials, thereby providing our customers with productivity through improved material performance at lower system costs. We sell these materials to a diverse, worldwide customer base, mainly manufacturers. Our business has a significant operating presence around the world and we participate in numerous manufacturing and distribution joint ventures. In 2003, we acquired OSi Specialties, a leading, global supplier of silanes, specialty silicones and urethane additives, and we divested our Specialty Chemicals and Superabrasives units.
 
Our business environment is characterized by technological innovation and heavy capital investment. To remain competitive we must maintain emphasis on efficient manufacturing process implementation and devote significant resources to market and application development. Our competitors include large, technology-driven suppliers of the same, as well as other functionally similar, materials. Our business is cyclical and is sensitive to variations in price and to the effects of supply/demand factors on the cost of raw materials such as benzene, cumene and methanol. Competition is affected by availability of manufacturing capacity and anticipation of new product or material performance requirements. Our application development, often in association with our existing or potential customers, and associated technology assistance have added additional market demand. Product and manufacturing process patents establish barriers to entry in many product lines.
 

(10)


Our headquarters are in Pittsfield, Massachusetts and our operations are located in North America, Asia, Europe, and South America.
 
Commercial Finance
 
Commercial Finance (15.4%, 15.5% and 14.8% of consolidated revenues in 2004, 2003, and 2002, respectively) offers a broad range of financial services worldwide. We have particular expertise in the mid-market, and offer loans, leases, and other financial services to customers, including manufacturers, distributors and end-users, for a variety of equipment and major capital assets. These assets include industrial and energy-related facilities and equipment; commercial and residential real estate; vehicles; aircraft; and equipment used in many industries, including the construction, manufacturing, telecommunications and healthcare industries.
 
During 2004, we acquired the commercial lending business of Transamerica Finance Corporation; the U.S. leasing business of IKON Office Solutions; Sophia, S.A., a real estate company in France; and Benchmark Group PLC, a U.K.-listed real estate property company.
 
We operate in a highly competitive environment. Our competitors include commercial banks, investment banks, leasing companies, financing companies associated with manufacturers and independent finance companies. Competition is based on price, that is interest rates and fees, as well as deal structure and terms. Profitability is affected not only by broad economic conditions that affect customer credit quality and the availability and cost of capital, but also by successful management of credit risk, operating risk and market risks such as interest rate and currency exchange risks. Success requires high quality risk management systems, customer and industry specific knowledge, diversification, service and distribution channels, strong collateral and asset management knowledge, deal structuring expertise and the ability to reduce costs through technology and productivity.
 
We provide additional information on two of our segment product lines, Real Estate (commercial real estate financing) and Aviation Services (commercial aircraft financing). Each of these product lines finances a single form of collateral, and each has understandable concentrations of risk and opportunities.
 
Real Estate
 
Our Real Estate product line operates globally, both directly and through joint ventures. Our Real Estate business finances, with both equity and loan structures, the acquisition, refinancing and renovation of office buildings, apartment buildings, self storage facilities, retail facilities, industrial properties, parking facilities and franchise properties. Our typical Real Estate loans are intermediate term, may be either senior or subordinated, fixed or floating-rate, and are secured by existing income-producing commercial properties. Our originations of low loan-to-value loans are conducted for term securitization within one year. We invest in, and provide restructuring financing for, portfolios of mortgage loans, limited partnerships and tax-exempt bonds.
 
Aviation Services
 
Our Aviation Services product line is a global commercial aviation financial services business that offers a broad range of financial products to airlines, aircraft operators, owners, lenders and investors. Financial products include leases, aircraft purchasing and trading, loans, engine/spare parts financing, pilot training, fleet planning and financial advisory services.
 
Our headquarters are in Stamford, Connecticut with offices throughout North America, South America, Europe and Asia.
 

(11)


Consumer Finance
 
Consumer Finance (10.3%, 9.5% and 7.8% of consolidated revenues in 2004, 2003 and 2002, respectively) is a leading provider of credit products and services to consumers, retailers and auto dealers in 41 countries. We offer a broad range of financial products, including private-label credit cards; personal loans; bank cards; auto loans, leases and inventory financing; residential mortgages; corporate travel and purchasing cards; debt consolidation loans; home equity loans; and credit and other insurance products for customers on a global basis.
 
In 2004, as part of our continued global expansion, we acquired Australian Financial Investments Group, a residential mortgage lender in Australia; WMC Finance Co., a U.S. wholesale mortgage lender; and the private-label credit card portfolio of Dillard’s Inc.
 
Our operations are subject to a variety of bank and consumer protection regulations, including regulations controlling data privacy. Further, a number of countries have ceilings on rates chargeable to consumers in financial service transactions. We are subject to competition from various types of financial institutions including commercial banks, leasing companies, consumer loan companies, independent finance companies, manufacturers’ captive finance companies, and insurance companies. Industry participants compete on the basis of price, servicing capability, promotional marketing, risk management, and cross selling. The markets in which we operate are also subject to the risks of declining retail sales, changes in interest and currency exchange rates, and increases in personal bankruptcy filings.
 
Our headquarters are in Stamford, Connecticut and our operations are located in the North America, Europe, Asia, South America and Australia.
 
Consumer & Industrial
 
Consumer & Industrial (9.0%, 9.5% and 9.7% of consolidated revenues in 2004, 2003 and 2002, respectively) sells products characterized by high volume and relatively low unit prices. Our products share several characteristics - competitive design, efficient manufacturing and effective distribution and service. Strong global competition rarely permits premium pricing, so cost control, including productivity, is key. Despite pricing pressures on many of our products, we also invest in the development of differentiated, premium products that are more profitable. The combination of three separate industrial businesses provides scale and facilitates synergies in headquarter, back office and distribution channel costs. While some Consumer & Industrial products are primarily directed to consumer applications (appliances, for example), and some primarily to industrial applications (switchgear, for example), others are directed to both markets (lighting, for example).
 
Our headquarters are in Louisville, Kentucky and our operations are located in North America, Europe, Asia and South America.
 
We describe the segment according to market channel - Consumer, and Industrial including GE Supply.
 
Through our Consumer business, we sell and service home appliances including refrigerators, freezers, electric and gas ranges, cooktops, dishwashers, clothes washers and dryers, microwave ovens, room air conditioners, and residential water systems for filtration, softening and heating. Brands are Monogram®, GE Profile™, GE®, and Hotpoint®.
 

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We manufacture certain products, and also source finished product and component parts from third-party global manufacturers. A large portion of our appliances sales are through a variety of retail outlets for replacement of installed units. Residential building contractors installing units in new construction are our second major U.S. channel. We offer the largest manufacturer’s service organization in the appliances industry, providing in-home repair, extended service plans, warranty administration and risk management services. We also manufacture and sell approximately 6,000 different lamp products for commercial, industrial and consumer markets, including full lines of incandescent, halogen, fluorescent, high-intensity discharge, light-emitting diode, automotive and miniature products.
 
Our Industrial business provides integrated electrical equipment and systems used to distribute, protect and control energy and equipment. We manufacture and distribute electrical distribution and control products including transformers, meters, relays, circuit breakers, panel boards and general purpose controls that are used to distribute and manage power in a variety of residential, commercial, consumer and industrial applications. In addition, we design and manufacture motors and control systems used in end-industrial and consumer products such as heating, ventilation and air conditioning, dishwashers, and clothes washers and dryers. We also provide customer-focused solutions centered on the delivery and control of electric power, and market a wide variety of commercial lighting systems and lighting for aircraft, automotive and other transportation applications, front and rear projection, video projection, medical, architectural, fiber optic, stage, studio, nightclub and theater applications.
 
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.
 
Our GE Supply business is a network of electrical product supply houses selling electrical products and parts, fasteners, voice and datacom parts, lighting equipment and supplies from GE and other leading manufacturers. Our business serves electrical contractors, industrial and commercial users, engineer constructors, original equipment manufacturers, utilities and the aerospace industry.
 
Energy
 
Energy (11.3%, 14.2% and 17.9% of consolidated revenues in 2004, 2003 and 2002, respectively) serves power generation, industrial, government and other customers worldwide with products and services related to energy production, distribution and management. In 2003, we made several acquisitions including Jenbacher A.G. of Austria. These acquisitions continue to improve our ability to serve our global customers and further add to the portfolio of complete solutions for the energy industry. The acquisition of Jenbacher A.G. added reciprocating gas engines to the portfolio. We offer wind turbines as part of our renewable energy portfolio, which also includes hydropower, solar, and geothermal technology. We also sell aircraft engine derivatives for use as industrial power sources. This activity is also reported in the Transportation segment. Gas turbines and generators are used principally in power plants for generation of electricity and for industrial cogeneration and mechanical drive applications. We are a worldwide supplier of gas turbines for Integrated Gasification Combined Cycle (IGCC) applications, having provided gas turbines for a significant number of the world's operating IGCC plants. IGCC systems convert coal and other hydrocarbons into synthetic gas which, after cleanup, is used as the primary fuel for gas turbines in combined-cycle systems. IGCC systems produce fewer air pollutants compared to traditional pulverized coal power plants. Our Oil and Gas business offers advanced technology turbomachinery products and services for production, liquid natural gas, transportation, storage, refineries, petrochemical and distribution systems. We have leading technology in total pipeline integrity solutions including analysis and pipeline asset management. We sell steam turbines and generators 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. We provide our customers with total solutions to meet their needs through a complete portfolio of aftermarket services, including equipment upgrades, contractual services agreements, repairs, equipment installation, monitoring and diagnostics, asset management and performance optimization tools, remote
 

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performance testing and Dry Low NOx (DLN) tuning. We continue to invest in advanced technology development that will provide more value to our customers and more efficient solutions that comply with today’s strict environmental regulations.
 
Worldwide competition for power generation products and services is intense. Demand for most power generation products and services is global and, as a result, is sensitive to the economic and political environment of each country in which we do business. Regional load growth requirements and demand side management are important factors. The availability of fuels and related prices have a large impact on demand. For information about orders and backlog, see page 50.
 
Our headquarters are in Atlanta, Georgia, and our operations are located in North America, Europe, South America and Asia.
 
Equipment & Other Services
 
Equipment & Other Services (5.9%, 3.6% and 4.2% of consolidated revenues in 2004, 2003 and 2002, respectively) helps customers manage, finance and operate a wide variety of business equipment worldwide. We provide rentals, leases, sales, asset management services and loans for portfolios of commercial and transportation equipment, including tractors, trailers, railroad rolling stock, modular space units, intermodal shipping containers and marine containers. Our operations are conducted in highly competitive markets. Economic conditions, geographic location, pricing and equipment availability are important factors in this business. Future success will depend upon our ability to maintain a large and diverse customer portfolio, optimize asset mix, maximize asset utilization and manage credit risk. In addition, we seek to understand our customers and to meet their needs with unique, efficient and cost effective product and service offerings.
 
In December 2004, we sold a majority interest in Gecis, our global business processing operation, to two leading private investment firms. We retained a 40% investment in Gecis.
 
Also included in the segment are activities and businesses that are not measured within one of the other financial services segments - for example, corporate expenses, liquidating businesses and other non-segment aligned operations.
 
Our headquarters are in Stamford, Connecticut with offices throughout North America and in South America and Europe.
 
Healthcare
 
Healthcare (8.8%, 7.6% and 6.8% of consolidated revenues in 2004, 2003 and 2002, respectively) manufacturers, sells and services a wide range of medical equipment including equipment for magnetic resonance (MR), computed tomography (CT), Positron Emission Tomography (PET) imaging, x-ray, patient monitoring, diagnostic cardiology, nuclear imaging, ultrasound, bone densitometry, anesthesiology and oxygen therapy, neonatal and critical care, and therapy. In April 2004, we acquired Amersham plc, a world leader in medical diagnostics and life sciences. Products include diagnostic imaging agents used in medical scanning procedures, protein separations products including chromotography purification systems used in the manufacture of bio-pharmaceuticals, and high-throughput systems for applications in genomics, proteomics and bioassays. We sell product services to hospitals, medical facilities, and pharmaceutical and research companies worldwide. Our 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.
 
We compete with a variety of U.S. and non-U.S. manufacturers and 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, we play a critical role in delivering new technology to improve patient outcomes and productivity tools to help control healthcare costs.
 

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For information about orders and backlog, see page 35.
 
Our headquarters are in Chalfont St. Giles, United Kingdom and our operations are located in North America, Europe, Asia, Australia and South America.
 
Infrastructure
 
Infrastructure (2.3%, 2.3% and 1.4% of consolidated revenues in 2004, 2003 and 2002, respectively) is a high-technology platform comprising some of our fastest-growing businesses. We offer protection and productivity solutions to some of the most pressing issues that industries face: pure water, safe facilities, plant automation and sensing applications in the operating environment. From home to industry to national security, our technology covers the full spectrum of security solutions, including card access systems, high-tech video monitoring, intrusion and smoke detection, real estate and property control and explosives and narcotics detection. We are an industry leader in the design and manufacture of sensing elements, devices, instruments and systems that enable customers to monitor, protect, control and ensure the safety of their critical applications. Other product services include precision sensors for temperature flow rate, pressure, humidity, gas, infrared and ultrasonic applications; high-quality handheld and portable field calibrators; stand-alone measurement instrumentation; and systems that provide the end-to-end solutions necessary to validate or certify vital processes. We supply specialty chemicals, pumps, valves, filters and fluid handling equipment for improving the performance of water, wastewater and process systems. We deliver automation hardware and software designed to help users reduce costs, increase efficiency and enhance profitability through a diverse array of capabilities and products, including controllers, embedded systems, advanced software, motion control, computer numerical controls, operator interfaces, industrial computers, and lasers.
 
Our products and services are sold to a diverse worldwide commercial and residential customer base in the transportation, industrial, pharmaceutical and healthcare markets. Our business environment is characterized by technological innovation and market growth. Our competitors include technology-driven suppliers of the same, as well as other functionally equivalent, products and services.
 
Our headquarters are in Wilton, Connecticut and our operations are located in North America, South America, Europe and Asia.
 
Insurance
 
Insurance (15.1%, 19.5% and 17.6% of consolidated revenues in 2004, 2003 and 2002, respectively) offers a broad range of insurance and investment products that provide reinsurance and primary commercial insurance products to insurance companies, Fortune 100 companies, self-insurers and healthcare providers, and help consumers create and preserve personal wealth, protect assets and enhance their life styles. For lenders and investors, we provide protection against the risks of default on low-down-payment mortgages.
 
Our Insurance businesses are subject to intense competition. We believe the principal competitive factors in the sale of our products are service, brand, product features, price, commission structure, marketing and distribution arrangements, reputation, and financial strength ratings. In the commercial insurance and reinsurance sector, we are well positioned to compete in select niche market segments given our expertise, analytics capabilities and service. In the consumer sector, we believe we are well positioned to benefit from a number of significant demographic, governmental and market trends, including aging U.S. populations with growing retirement income needs and increased risk of outliving their savings, growing lifestyle protection gaps, and increasing opportunities for mortgage insurance in the U.S. and other countries.
 

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Our headquarters are in Kansas City, Missouri with offices throughout North America, Europe, South America, Australia, and Asia.
 
In May 2004, we completed the initial public offering of Genworth Financial, Inc. (Genworth), our formerly wholly-owned subsidiary that conducts most of our consumer insurance business, including life and mortgage insurance operations. We sold approximately 30% of the common shares of Genworth to the public, and we expect (subject to market conditions) to reduce our ownership over the next two years as Genworth transitions to full independence.
 
GE Insurance Solutions Corporation
 
Through our principal insurance and reinsurance company affiliates, Employers Reinsurance Corporation (ERC), GE Reinsurance Corporation, the GE Frankona Group and the Medical Protective Corporation, we protect people, property and reputations by writing substantially all lines of reinsurance, where the insured party is another insurance company, and select lines of direct property and casualty insurance, where the insured party is a non-insurance company or an individual.
 
Our reinsurance operations include the reinsurance of property and casualty risks written by more than 1,000 insurers around the world. Direct insurance operations are focused on niche lines of business, principally medical malpractice coverage for physicians and dentists, medical professional liability for hospitals, errors and omissions coverage for insurance agents and brokers, professional liability insurance for attorneys, excess indemnity for self-insurers of medical benefits, excess workers compensation for self-insurers, as well as coverage for airlines, airline manufacturers and marine enterprises. Our life reinsurance affiliates are engaged in the reinsurance of life insurance products, including term, whole and universal life, annuities, certain health-related coverages and the provision of financial reinsurance to life insurers. During 2003, we announced our intent to scale back our life reinsurance operations to improve overall returns. Consequently, we ceased writing new life reinsurance business in the United States and sold one of our United States life reinsurance businesses - ERC Life Reinsurance Corporation.
 
ERC is one of the largest competitors in its marketplace. Our property and casualty reinsurance operations are ranked fourth in the world in terms of net premiums written and we compete with the world’s largest reinsurers as well as dozens of smaller niche competitors.
 

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NBC Universal
 
NBC Universal, Inc. (NBC Universal) (8.4%, 5.1% and 5.4% of consolidated revenues in 2004, 2003 and 2002, respectively) was formed in May 2004 upon the combination of NBC with Vivendi Universal Entertainment LLLP and certain related assets. NBC Universal 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 production and distribution of motion pictures; the operation, under licenses from the Federal Communications Commission (FCC), of television broadcasting stations; the ownership of several cable/satellite networks around the world; the operation of theme parks; and investment and programming activities in multimedia and the Internet. The NBC Television Network is one of four major U.S. commercial broadcast television networks and serves more than 230 affiliated stations within the United States. Telemundo is a leading U.S. Spanish-language commercial broadcast television network. At December 31, 2004, we owned and/or operated 29 VHF and UHF television stations including those located in Birmingham, AL; Los Angeles, CA; San Diego, CA; Hartford, CT; Miami, FL; Chicago, IL; New York, NY; Raleigh-Durham, NC; Columbus, OH; Philadelphia, PA; Providence, RI; Dallas, TX; and Washington, DC. Broadcasting operations of the NBC Television Network, the Telemundo network, and the company’s owned stations are subject to FCC regulation. Our operations include investment and programming activities in cable television, principally through USA Network, Bravo, CNBC, SCI FI Channel, MSNBC, CNBC Europe, CNBC Asia Pacific, and entertainment channels across Europe and Latin America; equity investments in Arts and Entertainment, The History Channel, the Sundance Channel, ValueVision Media, Inc.; and a non-voting interest in Paxson Communications Corporation. Through a strategic alliance with Dow Jones, we operate CNBC Europe and CNBC Asia Pacific using the European and Asian business news resources of Dow Jones, and we use Dow Jones editorial resources in the United States. We have secured exclusive United States television rights to the 2006, 2008, 2010 and 2012 Olympic Games.
 
Our headquarters are in New York, New York and our operations are located in North America and Europe.
 
Transportation
 
Transportation (10.2%, 10.0% and 10.3% of consolidated revenues in 2004, 2003 and 2002, respectively) produces, sells and services equipment for the air and rail transportation industries.
 
We describe the segment according to market channel - Aircraft Engines and Rail.
 
For information about orders and backlog, see page 37.
 
Our Aircraft Engines business produces, sells and services jet engines, turboprop and turbo shaft engines, and related replacement parts for use in military and commercial aircraft. Our military engines are used in a wide variety of aircraft including fighters, bombers, tankers, helicopters and surveillance aircraft and our commercial engines power aircraft in all categories of range: short/medium, intermediate and long-range, as well as executive and regional aircraft. We also produce engines through CFM International, a company jointly owned by GE and Snecma Moteurs of France, and a new engine is being designed and marketed in a joint venture with the Pratt & Whitney division of United Technologies Corporation.
 
We provide maintenance, component repair and overhaul services (MRO), including sales of replacement parts, for many models of engines, including repair and overhaul of engines manufactured by competitors. We also manufacture aircraft engine derivatives used for marine propulsion, mechanical drives and industrial power generation sources, the latter of which is also reported as part of the Energy segment. In December 2003, we completed the acquisition of the non-destructive testing (NDT) business of Agfa-Gevaert. This business has been combined with Aircraft Engines’ NDT business to offer radiographic, ultrasonic, eddy current and other inspection solutions that test the structure and tolerance of materials without damaging them.
 

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The worldwide competition in aircraft jet engines and MRO (including parts sales) 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 important in this business, as are focused intellectual property strategies and protection of key aircraft engine design, manufacture, repair and product upgrade technologies.
 
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 technology, the small number of potential customers and the limited number of relevant airframe applications. Aircraft engine orders tend to follow military and airline procurement cycles, although cycles for military and commercial engine procurement are different.
 
Our Rail business provides technology solutions for customers in a variety of industries including railroad, transit, mining, oil and gas, power generation, and marine. We serve customers in more than 100 countries. Our products include high horsepower diesel-electric locomotives as well as parts and services for locomotives, including locomotives manufactured by competitors.
 
With the launch of the Evolution Series™ Locomotive, we created our most technologically advanced, most fuel-efficient, diesel locomotive, while meeting or exceeding the EPA’s Tier II requirements. Commercial production of the GE Evolution Series™ locomotive began in January 2005.
 
The GE suite of locomotive service offerings, designed to improve fleet efficiency and reduce operating expenses, includes repair services, locomotive enhancements, modernizations, and information-based services like remote monitoring and diagnostics. We provide train control products, railway management services, and signaling systems to increase service levels, optimize asset utilization, and streamline operations for railroad owners and operators by delivering leading edge tools that improve asset availability and reliability, optimize network planning, and control network execution to plan. We also offer leading drive technology solutions to the mining, transit, marine and stationary and drilling industries. Our motors operate in thousands of applications, from electrical drive systems for large haulage trucks used in the mining industry to transit cars and drilling rigs, and our engines are used for marine power as well as stationary power generation applications. We also provide gearing technology for critical applications such as wind turbines.
 
Our headquarters are in Evendale, Ohio and our operations are located in North America, Europe, Asia and South America.
 
Geographic Data, Exports from the U.S. and Total Global Operations
 
Geographic data (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 27 to the consolidated financial statements on page 113.
 
Additional financial data about our exports from the U.S. and total global operations are provided on pages 37-39.
 
Orders Backlog
 
See pages 34, 35, 37 and 50 for information about our backlog of unfilled orders.
 
Research and Development
 
Total expenditures for research and development were $3,091 million in 2004. Total expenditures were $2,656 million in 2003 and $2,631 million in 2002. Of these amounts, $2,443 million in 2004 was GE-funded ($2,103 million in 2003 and $2,215 million in 2002); and $648 million in 2004 was funded by customers ($553 million in 2003 and $416 million in 2002), principally the U.S. government. Transportation accounts for the largest share of GE’s research and development expenditures from both GE and customer funds. Healthcare and Energy also made significant expenditures of GE and customer research and development funds.
 

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Approximately 14,800 person-years of scientist and engineering effort were devoted to research and development activities in 2004, with about 90% of the time involved primarily in GE-funded activities.
 
Environmental Matters
 
Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws.
 
We have developed and implemented environmental, health and safety management systems at all of our facilities and track our performance. Since 1996, we have reduced employee injuries by over 75% as well as reducing air and wastewater exceedances and emissions at our facilities. We also actively participate in various programs that recognize facilities with health and safety programs that exceed legal requirements, including the United States Occupational Safety and Health Administration’s Voluntary Protection Program (VPP), as well as a similar government program in Mexico. Participation in these programs requires government audits to verify our comprehensive health and safety management systems. We are a leading participant in the U.S. VPP program with 89 sites, and have an additional 20 sites participating in the Mexico program. We have a Global Star program designed to recognize sites with world-class health and safety programs in those countries without government VPP programs. Our 56 Global Star sites have passed a rigorous evaluation conducted by GE internal health and safety experts. We also have 89 sites accredited by outside auditors under the ISO 14000 Standard for Environmental Management Systems.
 
Over the last two years we spent a total of about $0.1 billion for capital projects related to the environment. 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, we expect our capital expenditures other than for remediation projects to total about $0.1 billion over the next two years for new or expanded programs to build facilities or modify manufacturing processes to minimize waste and reduce emissions.
 
We also are 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 $0.1 billion in each of the last two years. We presently expect that such remediation actions will require average annual expenditures in the range of $0.1 billion to $0.2 billion over the next two years.
 
The U.S. Environmental Protection Agency (EPA) ruled in February 2002 that approximately 150,000 pounds of polychlorinated biphenyls (PCBs) must be dredged from a 40-mile stretch of the upper Hudson River in New York State. We have submitted what is known as a “Good Faith Offer” under the Superfund law and continue to cooperate and negotiate with the EPA in the implementation of this ruling. Pursuant to negotiated agreements, we have conducted extensive sampling of the project area to determine the location of PCBs that may be dredged and have agreed to undertake the design and engineering of the remedy. The agreements also provide for the reimbursement of certain EPA costs expended in the past and which would be expended in the future. The remedial design and engineering activities are scheduled to be completed during 2006. Negotiations continue concerning performance of the remedial work. Our Statement of Financial Position as of December 31, 2004 and 2003, included liabilities for the estimated costs of this remediation.
 
See pages 39 and 106 for additional discussion of environmental matters.
 

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Employee Relations
 
At year-end 2004, General Electric Company and consolidated affiliates employed 307,000 persons, of whom approximately 165,000 were employed in the United States. For further information about employees, see page 23.
 
Approximately 23,700 GE manufacturing and service employees in the United States are represented for collective bargaining purposes by a total of approximately 150 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/CWA-AFL-CIO). During 2003, General Electric Company negotiated four-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 2007. NBC Universal is party to approximately 160 labor agreements covering about 3,500 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 our products and services, as well as the wide geographic dispersion of our production facilities, we use numerous sources for the wide variety of raw materials needed for our operations. We have not been adversely affected by the inability to obtain raw materials.
 
We own, or hold licenses to use, numerous patents. New patents are continuously being obtained through our research and development activities as existing patents expire. Patented inventions are used both within the Company and are licensed to others, but no operating segment is substantially dependent on any single patent or group of related patents.
 
Agencies of the U.S. Government constitute our largest single customer. An analysis of sales of goods and services as a percentage of revenues follows:
 
 
% of Consolidated Revenues
 
% of GE Revenues
 
2004
 
2003
 
2002
 
2004
 
2003
 
2002
                                   
Total sales to U.S. Government Agencies
2
%
 
2
%
 
2
%
 
4
%
 
4
%
 
4
%
Transportation segment defense-related sales
2
   
2
   
2
   
3
   
3
   
3
 
 
 
GE is a trademark and service mark of General Electric Company; NBC is a trademark and service mark of NBC Universal, Inc.; and MSNBC is a trademark and service mark of MSNBC Cable, LLC.
 
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available, without charge, on our website, www.ge.com/en/company/investor/secfilings.htm, as soon as reasonably practicable after they are filed electronically with the SEC. Copies are also available, without charge, from GE Corporate Investor Communications, 3135 Easton Turnpike, Fairfield, CT 06828.
 

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Item 2. Properties
 
Manufacturing operations are carried out at approximately 231 manufacturing plants located in 40 states in the United States and Puerto Rico and at 293 manufacturing plants located in 36 other countries.
 
 
Item 3. Legal Proceedings
 
On April 29, 2005, the Company received a subpoena from the Northeast Regional Office of the Securities and Exchange Commission. This subpoena requires the Company to produce documents related to “certain loss mitigation insurance products,” such as finite risk reinsurance. The Company will cooperate fully with the SEC.
 
GE Insurance Solutions has made limited use of reinsurance with finite risk characteristics to manage the risks of catastrophic events, such as storms or hurricanes, and to protect itself from the volatility inherent in its business. Based on its numerous reviews of GE Insurance Solutions’ reinsurance agreements with finite risk characteristics in the past several years, the Company believes that the agreements have been properly structured and accounted for, with appropriate risk transfer, and properly disclosed.
 
After we commenced the work for an internal audit in connection with GECC’s treasury operation, we received a letter dated January 20, 2005 from the Boston District Office of the U.S. Securities and Exchange Commission, indicating that it was conducting an informal investigation and requesting that GE and GECC voluntarily provide certain documents and information with respect to the use of hedge accounting for derivatives by us and GECC. In response to the staff’s request, we and GECC have voluntarily provided documents and other information and we intend to continue to cooperate fully with them in their ongoing investigation.
 
Environmental
 
In compliance with SEC disclosure requirements, the following are environmental proceedings involving potential monetary sanctions of $100,000 or greater.
 
On April 16, 2004, the New York Department of Environmental Conservation (DEC) informed us that it would be seeking $97,800 in penalties for violations by our Waterford, NY facility of the State of New York's water and hazardous waste laws. In July 2004, DEC informed us that it was dropping certain allegations and including others pertaining to the reporting of information and increasing its penalty demand to $117,000. We are currently engaged in settlement discussions with the DEC.
 
On October 18, 2004, the California Department of Pesticide Registration informed us that it would be seeking $202,959 in penalties for violations by our Betz Water business of the State of California’s pesticide registration requirements. The California Department of Pesticide Registration has since reduced its penalty demand to $160,000, and settlement discussions are continuing.
 
 
Item 4. Submission of Matters to a Vote of Security Holders
 
Not applicable.
 

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Part II
 
 
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
With respect to “Market 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 and on Euronext Paris. Trading prices, as reported on the New York Stock Exchange, Inc., Composite Transactions Tape, and dividend information follow:
 
 
Common stock market price
 
Dividends
(In dollars)
High
 
Low
 
declared
           
2004
         
Fourth quarter
$37.75
 
$32.65
 
$.22
Third quarter
34.53
 
31.42
 
.20
Second quarter
33.49
 
29.55
 
.20
First quarter
34.57
 
28.88
 
.20
 
         
2003
         
Fourth quarter
$31.30
 
$27.37
 
$.20
Third quarter
32.42
 
26.90
 
.19
Second quarter
31.66
 
25.50
 
.19
First quarter
28.00
 
21.30
 
.19
 
As of January 31, 2005, there were about 660,000 shareowner accounts of record.
 
Period
 
Total number
of shares
purchased(a)
 
Average
price paid
per share
 
Total number of
shares purchased as
part of our share
repurchase program(b)
 
Approximate dollar
value of shares that
may yet be purchased
under our share
repurchase program
(Shares in thousands)
                                   
2004
                                 
October
   
6,154
     
$33.98
     
705
           
November
   
6,925
     
$35.40
     
325
           
December
   
2,791
     
$36.63
     
1,040
           
Total
   
15,870
     
$35.06
     
2,070
     
$
15.0 billion
 
                                   
(a)
This category includes 13,800 thousand shares repurchased from our various benefit plans, primarily the GE Savings and Security Program (the S&SP). Through the S&SP, a defined contribution plan with 401(k) features, we repurchase shares resulting from changes in investment options by plan participants.
(b)
Of the total 2,070 thousand shares, 1,230 thousand shares were repurchased through the 1994 GE Share Repurchase Program (the ’94 Program) under which we were authorized to repurchase up to $30 billion of Company common stock. The ’94 Program was closed out in December 2004, after a total of 1,109 million shares were purchased at an aggregate cost of approximately $23 billion. In December 2004, our Board of Directors authorized a new three year, $15 billion share repurchase program (the Program). A total of 840 thousand shares were purchased under this program in December 2004. The Program is flexible and shares are acquired with a combination of borrowings and free cash flow. As major acquisitions or other circumstances warrant, we modify the frequency and amount of share repurchases under the Program.

 
Item 6. Selected Financial Data
 
Information below is 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.

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The selected financial data set forth in this Item 6 have been restated to reflect adjustments to our consolidated financial statements and other financial information contained in our Annual Report on Form 10-K for the year ended December 31, 2004, originally filed with the U.S. Securities and Exchange Commission on March 1, 2005. The following selected financial data should be read in conjunction with our restated financial statements and the related Notes to Consolidated Financial Statements.

(In millions; per-share amounts in dollars)
2004
(Restated)
 
2003
(Restated)
 
2002
(Restated)
 
2001
(Restated)
 
2000
 
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
                   
Revenues
$
152,866
 
$
134,641
 
$
132,226
 
$
126,373
 
$
130,385
 
Earnings before accounting changes
 
16,819
   
15,823
   
15,182
   
14,078
   
12,735
 
Cumulative effect of accounting changes
 
-
   
(587
)
 
(1,015
)
 
(287
)
 
-
 
Net earnings
 
16,819
   
15,236
   
14,167
   
13,791
   
12,735
 
Dividends declared
 
8,594
   
7,759
   
7,266
   
6,555
   
5,647
 
Return on average shareowners’ equity excluding the
                             
effect of accounting changes
 
17.6
%
 
22.2
%
 
25.7
%
 
26.8
%
 
27.5
%
Per share
                             
Earnings before accounting changes-diluted
$
1.61
 
$
1.57
 
$
1.51
 
$
1.40
 
$
1.27
 
Cumulative effect of accounting changes-diluted
 
-
   
(0.06
)
 
(0.10
)
 
(0.03
)
 
-
 
Earnings-diluted
 
1.61
   
1.51
   
1.41
   
1.37
   
1.27
 
Earnings before accounting changes-basic
 
1.62
   
1.58
   
1.52
   
1.42
   
1.29
 
Cumulative effect of accounting changes-basic
 
-
   
(0.06
)
 
(0.10
)
 
(0.03
)
 
-
 
Earnings-basic
 
1.62
   
1.52
   
1.42
   
1.39
   
1.29
 
Dividends declared
 
0.82
   
0.77
   
0.73
   
0.66
   
0.57
 
Stock price range
 
37.75-28.88
   
32.42-21.30
   
41.84-21.40
   
52.90-28.25
   
60.50-41.67
 
Year-end closing stock price
 
36.50
   
30.98
   
24.35
   
40.08
   
47.94
 
Total assets
 
750,507
   
647,828
   
575,236
   
495,012
   
437,006
 
Long-term borrowings
 
212,670
   
171,966
   
140,401
   
79,653
   
82,132
 
Shares outstanding-average (in thousands)
 
10,399,629
   
10,018,587
   
9,947,113
   
9,932,245
   
9,897,110
 
Shareowner accounts-average
 
658,000
   
670,000
   
655,000
   
625,000
   
597,000
 
GE DATA
                             
Short-term borrowings
$
3,409
 
$
2,555
 
$
8,786
 
$
1,722
 
$
940
 
Long-term borrowings
 
7,625
   
8,388
   
970
   
787
   
841
 
Minority interest
 
7,701
   
1,079
   
1,028
   
948
   
968
 
Shareowners’ equity
 
110,821
   
79,631
   
64,079
   
55,000
   
50,492
 
Total capital invested
$
129,556
 
$
91,653
 
$
74,863
 
$
58,457
 
$
53,241
 
Return on average total capital invested
                             
excluding effect of accounting changes
 
16.0
%
 
20.0
%
 
24.4
%
 
26.7
%
 
27.4
%
Borrowings as a percentage of total capital invested
 
9.0
%
 
11.9
%
 
13.0
%
 
4.3
%
 
3.3
%
Working capital(a)
$
8,328
 
$
5,282
 
$
3,821
 
$
(2,398
)
$
799
 
Additions to property, plant and equipment
 
2,427
   
2,158
   
2,386
   
2,876
   
2,536
 
Employees at year end
                             
United States
 
129,000
   
122,000
   
125,000
   
125,000
   
131,000
 
Other countries
 
98,000
   
96,000
   
94,000
   
94,000
   
92,000
 
Total employees
 
227,000
   
218,000
   
219,000
   
219,000
   
223,000
 
GECS DATA
                             
Revenues
$
71,279
 
$
64,733
 
$
58,715
 
$
58,813
 
$
66,709
 
Earnings before accounting changes
 
8,387
   
7,988
   
4,675
   
5,536
   
5,192
 
Cumulative effect of accounting changes
 
-
   
(339
)
 
(1,015
)
 
(12
)
 
-
 
Net earnings
 
8,387
   
7,649
   
3,660
   
5,524
   
5,192
 
Shareowner’s equity
 
54,292
   
45,759
   
37,302
   
28,766
   
23,022
 
Minority interest
 
8,682
   
5,115
   
4,445
   
4,267
   
3,968
 
Total borrowings
 
360,799
   
319,941
   
270,521
   
239,748
   
205,371
 
Ratio of debt to equity at GE Capital
 
6.53:1
   
6.66:1
   
6.51:1
   
7.26:1
   
7.53: 1
 
Total assets
$
618,504
 
$
554,871
 
$
489,820
 
$
425,473
 
$
370,636
 
Insurance premiums written
 
15,250
   
18,602
   
16,999
   
15,843
   
16,461
 
Employees at year end
                             
United States
 
36,000
   
33,000
   
36,000
   
33,000
   
37,000
 
Other countries
 
44,000
   
54,000
   
60,000
   
58,000
   
53,000
 
Total employees
 
80,000
   
87,000
   
96,000
   
91,000
   
90,000
 

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.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
2005 Restatement

As discussed in note 1, we are restating financial statements and other financial information for the years 2004, 2003 and 2002 and financial information for the year 2001 and for each of the quarters in the years 2004 and 2003 with respect to the accounting for certain derivatives transactions. These transactions relate to treasury operations at GE Capital Corporation (GECC).

The errors identified in our internal audit related to the accounting for certain derivative instruments used in meeting our objective of managing exchange rate and interest rate risks. Because we conduct business in diverse markets around the world and local funding is not always efficient, we use derivatives including swaps to eliminate certain market and financial risks. In addition, swaps are used to adjust the debt we are issuing to match the fixed or floating nature of the assets we are acquiring. When interest rate and currency swaps are effective as accounting hedges under the technical requirements of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133), they offset the variability of expected future cash flows or changes in the fair values of assets and liabilities, both economically and for financial reporting purposes. GE has historically used such instruments to effectively mitigate financial and market risks, as evidenced by the analysis of the potential effects of changes in interest rates and currency exchange rates presented on page 43. The effect of our inability to apply hedge accounting for the swaps requiring restatement is that changes in their fair values must be recorded in earnings each reporting period. As a result, reported results of operations will be directly influenced by changes in interest rates and currency rates.

The following table sets forth the effects of the errors in accounting for debt interest rate and currency swaps with fees, asset swaps with prepayment penalties and certain other derivatives, as more fully described in the Explanatory Statement beginning on page 3, on our previously reported earnings for the years 2001 through 2004, and each of the quarters in the years 2003 and 2004. The effect of the restatement on our Statements of Financial Position at the end of each of the reported periods is immaterial and the restatement had no effect on our cash flows.


 
Increase (decrease) in
 
 
Earnings Before Accounting Changes
 
2001
Accounting
Change (a)
 
(In millions)
2004
 
2003
 
2002
 
2001
   
     
    
   
    
   
    
   
    
   
  
Debt swaps with fees
                             
Interest rate
$
77
 
$
(35
)
$
198
 
$
(14
)
$
167
 
Currency
 
125
   
87
   
(154
)
 
(45
)
 
(7
)
Asset swaps with prepayment penalties
 
15
   
125
   
-
   
-
   
-
 
Other, net
 
9
   
57
   
5
   
9
   
(3
)
Total adjustment
$
226
 
$
234
 
$
49
 
$
(50
)
$
157
 
                               
Previously reported earnings before accounting changes
$
16,593
 
$
15,589
 
$
15,133
 
$
14,128
       
Percent variation for previously reported earnings before
                             
accounting changes
 
1.4
%
 
1.5
%
 
0.3
%
 
(0.4
)%
     

(a)
Represents the cumulative effect on earnings as of January 1, 2001, the date we adopted SFAS 133.

 

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(In millions)
Increase (decrease) in Net Earnings (a) 
 
 
2005
 
2004
 
2003
 
Quarter
1st Qtr.
 
4th Qtr.
 
3rd Qtr.
 
2nd Qtr.
 
1st Qtr.
 
4th Qtr.
 
3rd Qtr.
 
2nd Qtr.
 
1st Qtr.
 
     
    
   
    
   
    
   
    
   
    
   
    
   
    
   
    
   
  
Debt swaps with fees
                                                     
Interest rate
$
(153
)
$
144
 
$
142
 
$
(436
)
$
227
 
$
(61
)
$
(650
)
$
448
 
$
228
 
Currency
 
28
   
84
   
(20
)
 
69
   
(8
)
 
8
   
74
   
(1
)
 
6
 
Asset swaps with prepayment
                                                     
penalties
 
82
   
13
   
(102
)
 
198
   
(94
)
 
(5
)
 
130
   
-
   
-
 
Other, net
 
(35
)
 
12
   
-
   
(4
)
 
1
   
1
   
-
   
3
   
53
 
Total adjustment
$
(78
)
$
253
 
$
20
 
$
(173
)
$
126
 
$
(57
)
$
(446
)
$
450
 
$
287
 
                                                       
Previously reported earnings before
                                                     
accounting changes
     
$
5,378
 
$
4,051
 
$
3,924
 
$
3,240
 
$
4,560
 
$
4,021
 
$
3,794
 
$
3,214
 
Percent variation from previously
                                                     
reported earnings before accounting
                                                     
changes
       
4.7
%
 
0.5
%
 
(4.4
)%
 
3.9
%
 
(1.3
)%
 
(11.1
)%
 
11.9
%
 
8.9
%

(a)
See also Note 31 to the Notes to Consolidated Financial Statements - Quarterly Information (Unaudited), as restated.

Changes to our previously reported earnings detailed above reflect the increased volatility arising from factors outside our control - changes in interest rates and currency rates, and prepayments of fixed-rate loans by customers. We experienced such changes over the affected period of 2001 through the first quarter of 2005, with generally lower interest rates and the resultant increase in loan prepayments, and a U.S. dollar that was relatively strong in the early part of that period but weakened steadily thereafter.

We used interest rate and asset swaps to convert the economics of underlying debt and assets generally from fixed to floating interest rates. Values of swaps themselves change as interest rates change. Declines in rates generally tend to cause positive earnings effects from revaluation of associated debt swaps, the larger of our swap positions, but negative earnings effects from revaluation of asset swaps, the smaller position. Interest rates generally trended downward during the period from 2001 to the present, explaining the overall positive effect on earnings from this accounting error correction. But interest rates were sometimes volatile within the years - for example increasing sharply in the third quarter of 2003 and second quarter of 2004, resulting in a negative earnings effect in those quarters.

Those effects combined to produce a cumulative earnings increase of $0.6 billion through December 31, 2004. Of that amount, $0.4 arose from interest rate swaps, which were used throughout the affected period; $0.1 from asset swaps, which were first used in 2003 after which rates were somewhat volatile, but moved slightly higher; and no effect from currency swaps, where increases and decreases to earnings offset over the affected period. Reversal of these cumulative adjustments will affect net earnings negatively over the terms of the underlying assets and debt, but to a degree that we do not expect to be significant in any individual period given the terms of the arrangements andour plan to reduce accounting volatility by replacing volatile swaps not qualifying for hedge accounting.
 
Operations

Our consolidated financial statements combine the industrial manufacturing, services and media businesses of General Electric Company (GE) with the financial services businesses of General Electric Capital Services, Inc. (GECS or financial services).

We present Management’s Discussion of Operations in five parts: Overview of Our Earnings from 2002 through 2004, Global Risk Management, Segment Operations, Global Operations and Environmental Matters.

In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission (SEC) rules; those rules require the supplemental explanations and reconciliations provided on pages 50-52.

2004 WAS A YEAR OF PORTFOLIO TRANSITION. As described in our report last year, we simplified our organization on January 1, 2004, by realigning certain businesses within our segment structure. Certain prior-period amounts in this financial section have been reclassified to reflect this reorganization.

We continued making progress toward our objectives through strategic acquisitions, mergers and dispositions.

(25)


In April 2004, we acquired Amersham plc (Amersham), a world leader in medical diagnostics and life sciences, to complement our existing Healthcare business.

In May 2004, we combined NBC with Vivendi Universal Entertainment LLLP (VUE) to create one of the world’s leading media companies, NBC Universal.

In May 2004, we also completed an initial public offering of Genworth Financial, Inc. (Genworth), our formerly wholly-owned subsidiary that conducts most of our consumer insurance business, including life and mortgage insurance operations. We sold approximately 30% of the common shares of Genworth to the public, and we expect (subject to market conditions) to reduce our ownership over the next two years as Genworth transitions to full independence. This transaction resulted in a second quarter pre-tax loss of $0.6 billion ($0.3 billion after tax), recognized in the Insurance segment.

In December 2004, we sold a majority interest in Gecis, our global business processing operation, to two leading private investment firms. We received cash proceeds of $0.6 billion and retained a 40% investment in Gecis. This transaction resulted in a fourth quarter pre-tax gain of $0.4 billion ($0.3 billion after tax), recognized in the Equipment & Other Services segment.

WE DECLARED $8.6 BILLION IN DIVIDENDS IN 2004. Per-share dividends of $0.82 were up 6% from 2003, following a 5% increase from the preceding year. In December 2004, our Board of Directors raised our quarterly dividend 10% to $0.22 per share. We have rewarded our shareowners with over 100 consecutive years of dividends, with 29 consecutive years of dividend growth, and our dividend growth for the past five years has significantly outpaced that of companies in the Standard & Poor’s 500 stock index.

Except as otherwise noted, the analysis in the remainder of this section presents the results of GE (with GECS included on a one-line basis) and GECS. See the Segment Operations section on page 31 for a more detailed discussion of the businesses within GE and GECS.

Overview of Our Earnings from 2002 through 2004

The global economic environment must be considered when evaluating our results over the last several years. Important factors for us included slow global economic growth, a weakening U.S. dollar, lower global interest rates, a mild U.S. recession that did not cause significantly higher credit losses, developments in three industries - power generation, property and casualty insurance and commercial aviation - that are significant to us, and escalating raw material prices. As the following pages show in detail, our diversification and risk management strategies enabled us to continue to grow during this challenging time.

Three segments whose operations have a significant effect on our consolidated results and reflect their changing economic environments are Energy, Insurance and Transportation.

Energy (14% and 22% of consolidated three-year revenues and total segment profit, respectively) participated in the period of unprecedented U.S. power industry demand that peaked in 2002, a period often referred to as the “U.S. power bubble.” The return to normal demand levels is reflected in lower shipments of large heavy-duty gas turbines. In 2004, we sold 122 such units, compared with 175 in 2003 and 323 in 2002. We accurately foresaw the end of the bubble and took action to reduce the effect, right-sizing the business and growing and investing in other lines of the power generation business such as product services and wind energy. We believe the Energy segment is well positioned for its markets in 2005 and beyond.

Insurance (17% and 4% of consolidated three-year revenues and total segment profit, respectively) was much like most of the property and casualty reinsurance industry, facing volatility throughout the period. In 2002, we recognized losses on our 1997-2001 business, increasing related reserves by $3.5 billion before tax. In 2003, our turnaround efforts started to pay off and we realized benefits from improved operations as earnings increased by $2.3 billion to a profit of $0.5 billion at GE Insurance Solutions. In 2004, improved core performance at GE Insurance Solutions reflecting the favorable pricing environment was more than offset by U.S. hurricane-related losses and continued adverse loss development, essentially all related to the 1997 through 2001 underwriting years.


(26)


Transportation (10% and 14% of consolidated three-year revenues and total segment profit, respectively) continued to invest in market-leading technology and services. While the commercial aviation industry continues to face challenges and financial pressures that affect our commercial aviation business, our business model succeeds by diversification. Product services, the military engines business and our rail equipment and services business continued to be strong. Overall, Transportation reported segment profit that grew $0.6 billion in 2004 and $0.2 billion in 2003.

Results at two major segments, Healthcare and NBC Universal, reflected continued investment and growth over the last three years.

Healthcare (8% and 9% of consolidated three-year revenues and total segment profit, respectively) continued to show strong growth as 2004 revenues and segment profit both rose about 50% since 2002. Our acquisitions of Amersham in 2004 and Instrumentarium in 2003 contributed $3.2 billion and $0.6 billion to Healthcare revenues and segment profit, respectively, in 2004. These acquisitions also expanded the breadth of our product and services offerings to the healthcare industry, positioning us well for continued growth.

NBC Universal (6% and 10% of consolidated three-year revenues and total segment profit, respectively) also contributed a strong performance during the last three years as we continued to invest through acquisitions. Through the combination of NBC and VUE in 2004, and successful acquisitions of Telemundo and Bravo in 2002, we have created a diversified world-class media company. Earnings from the segment increased $0.6 billion in 2004 following a $0.3 billion increase in 2003.

Most of our other operations achieved operating results in line with our expectations in the 2002 to 2004 economic environment.

Commercial and Consumer Finance (in total, 24% and 30% of consolidated three-year revenues and total segment profit, respectively) are large, profitable growth businesses in which we continue to invest with confidence. In a challenging economic environment, these businesses grew earnings by $0.9 billion and $1.0 billion in 2004 and 2003, respectively. Solid core growth, disciplined risk management and successful acquisitions have delivered these strong results.

Infrastructure (2% of consolidated three-year revenues and total segment profit), with growth platforms such as security and water treatment, continued to grow significantly through acquisitions. We foresee dramatic revenue and earnings growth in these platforms through integration of these acquisitions, expanded distribution and new product introductions.

Advanced Materials, Consumer & Industrial and Equipment & Other Services (in total, 19% and 7% of consolidated three-year revenues and total segment profit, respectively) are particularly sensitive to economic conditions and consequently were affected adversely by the U.S. recession in 2002 and by slow global growth in developed countries. Higher capacity, in combination with declining or weak volume growth in many of these industries, resulted in fierce competitive price pressures. Advanced Materials was hit particularly hard because of additional pressures from significant inflation in certain raw materials such as benzene and natural gas.

As the preceding comments about Healthcare, Insurance and NBC Universal illustrate, acquisitions and dispositions played an important role in our growth strategy. We integrate acquisitions as quickly as possible and only revenues and earnings from the date we complete the acquisition through the end of the fourth following quarter are attributed to such businesses. Acquisitions contributed $12.3 billion, $5.4 billion and $7.2 billion to consolidated revenues in 2004, 2003 and 2002, respectively. Our consolidated net earnings in 2004, 2003 and 2002 included approximately $1.2 billion, $0.5 billion and $0.6 billion, respectively, from acquired businesses. Dispositions affected our operations through lower revenues and earnings in 2004 of $3.4 billion and $1.2 billion, respectively, and in 2003 through lower revenues of $2.3 billion and higher earnings of $0.2 billion.

Significant matters relating to our Statement of Earnings, which appears on pages 57and 58, are explained below.

GE SALES OF PRODUCT SERVICES were $25.8 billion in 2004, a 12% increase over 2003. Increases in product services in 2004 and 2003 were widespread, led by continued strong growth at Transportation, Healthcare, Infrastructure and Energy. Operating profit from product services was approximately $6.4 billion in 2004, up 21% from 2003, reflecting ongoing improvements at Transportation, Energy and Healthcare.


(27)


POSTRETIREMENT BENEFIT PLANS reduced pre-tax earnings by $1.2 billion and $0.2 billion in 2004 and 2003, respectively, after contributing $0.6 billion to pre-tax earnings in 2002. Costs of our principal pension plans increased in 2004 and 2003 primarily because of the effects of:

Prior years investment losses (reducing pre-tax earnings by $0.6 billion in 2004 and $0.4 billion in 2003), and

Lowering pension discount rates used to calculate 2004 and 2003 pension costs from 6.75% to 6.0% and 7.25% to 6.75%, respectively. Pre-tax earnings in 2004 and 2003 were $0.4 billion and $0.2 billion lower, respectively, because of these discount rate reductions.

Benefit costs for these plans in 2003 also increased as compared with 2002 because of plan changes resulting from union negotiations as well as increases in retiree medical and drug costs.

Considering current and expected asset allocations, as well as historical and expected returns on various categories of assets in which our plans are invested, we have assumed that long-term returns on our principal pension plan assets would be 8.5% throughout this period and in 2005. U.S. accounting principles provide for recognition of differences between assumed and actual returns over the average future service life of employees.

We believe our postretirement benefit costs will increase again in 2005 for a number of reasons, including further reduction in discount rates at December 31, 2004, continued recognition of prior years investment losses relating to our principal pension plans, and increases in retiree healthcare costs.

Our principal pension plans had a surplus of $6.7 billion at December 31, 2004. We will not make any contributions to the GE Pension Plan in 2005. To the best of our ability to forecast the next five years, we do not anticipate making contributions to that plan so long as expected investment returns are achieved. At December 31, 2004, the fair value of assets for our affiliate and other pension plans was $2.6 billion less than their respective projected benefit obligations. In 2004, we contributed $0.4 billion to such plans and expect to contribute $0.3 billion to these plans in 2005.

The funding status of our postretirement benefit plans and future effects on operating results depend on economic conditions and investment performance. See notes 5 and 6 for additional information about funding status, components of earnings effects and actuarial assumptions. See page 52 for discussion of pension assumptions.

GE OTHER COSTS AND EXPENSES are selling, general and administrative expenses, which increased 22% to $12.0 billion in 2004, following an 8% increase in 2003, substantially the result of acquisitions.

INTEREST ON BORROWINGS AND OTHER FINANCIAL CHARGES amounted to $12.0 billion, $10.9 billion and $10.2 billion in 2004, 2003 and 2002, respectively and included $0.1 billion in 2004 and 2003, and a reduction of $0.1 billion in 2002, related to the 2005 restatement. Substantially all of our borrowings are done through GECS, where interest expense was $11.5 billion, $10.3 billion and $9.9 billion in 2004, 2003 and 2002, respectively. Changes over the three-year period reflected increased average borrowings, partially offset by the effects of lower interest rates. GECS average borrowings were $322.3 billion, $308.7 billion and $250.1 billion in 2004, 2003 and 2002, respectively. GECS average composite effective interest rate was 3.6% in 2004, compared with 3.3% in 2003 and 4.0% in 2002. Proceeds of these borrowings were used in part to finance asset growth and acquisitions. In 2004, GECS average assets of $577.3 billion were 11% higher than in 2003, which in turn were 15% higher than in 2002. See page 43 for a discussion of interest rate risk management.

INCOME TAXES are a significant cost. As a global commercial enterprise, our tax rates are strongly affected by many factors, including our global mix of earnings, legislation, acquisitions, dispositions and tax characteristics of our income. Our tax returns are routinely audited and settlements of issues raised in these audits sometimes affect our tax provisions. Because of the number of variables affecting our reported tax results, we have prepared this section to facilitate an understanding of our income tax rates.

Income taxes on consolidated earnings before accounting changes were 17.9%, compared with 22.0% in 2003 and 20.0% in 2002. Our consolidated income tax rate was 4.1 percentage points lower in 2004 than 2003 because the 2004 tax benefits from favorable U.S. Internal Revenue Service (IRS) settlements, the NBC Universal transaction, a partial reorganization of our aircraft leasing

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business and the sale of a majority interest in Gecis were greater than the tax benefits from certain business dispositions in 2003. Our consolidated income tax rate increased by 2.0 percentage points in 2003 because our tax benefits from 2003 business dispositions were less than our 2002 tax benefits from settlements with the IRS. Income tax rates for all three years were lower because of the increasing share of earnings from lower taxed global operations. A more detailed analysis of differences between the U.S. federal statutory rate and the consolidated rate, as well as other information about our income tax provisions, is provided in note 7. The nature of business activities and associated income taxes differ for GE and for GECS, and a separate analysis of each is presented in the paragraphs that follow.

Because GE tax expense does not include taxes on GECS earnings, the GE effective tax rate is best analyzed in relation to GE earnings excluding GECS. GE’s pre-tax earnings excluding GECS were $10.4 billion, $10.7 billion and $14.3 billion for 2004, 2003 and 2002, respectively. On this basis, GE’s effective tax rate was 19.0% in 2004, lower by 7.7 percentage points than the 26.7% rate in 2003 and 2002. The 2004 reduction was primarily a result of two items which decreased the 2004 GE tax rate by 7.2 percentage points - settling several issues with the IRS for the years 1985 through 1999 and tax benefits associated with the NBC Universal transaction. As part of the IRS settlements, we closed two significant issues: the 1997 tax-free exchange of the Lockheed Martin convertible preferred stock we received on the disposition of our Aerospace business in 1993, and a 1998 tax loss on the sale of a Puerto Rican subsidiary. The tax portion of these settlements is included in the line “IRS settlements of Lockheed Martin tax-free exchange/Puerto Rico subsidiary loss” in note 7. The tax benefits associated with the NBC Universal transaction are included in the line “All other -net” in note 7. The 2004 GE effective tax rate also reflects lower pre-tax income, primarily because of lower earnings at Energy and higher costs related to our principal pension plans. Partially offsetting these changes was the nonrecurrence of the 2003 tax benefit, discussed below, on the disposition of GE Superabrasives U.S., Inc.

The 2003 GE rate was reduced by 1.7 percentage points because certain reductions in pre-tax earnings - specifically, lower earnings at Energy and higher costs related to our principal pension plans - affected income taxed at higher than our average rate. The 2003 GE rate was also reduced by 1.0 percentage point (after adjusting for the effect of the lower earnings at Energy and higher costs related to our principal pension plans) from a tax benefit on the disposition of shares of GE Superabrasives U.S., Inc., included in the line “All other - net” in note 7. In 2002, GE entered into settlements with the IRS concerning certain export tax benefits. The effect of these settlements, the tax portion of which is included in the line “Tax on global activities including exports” in note 7, was a reduction of the GE tax rate of 2.7 percentage points. Also in 2002, GE entered into a tax-advantaged transaction to exchange certain assets for the cable network Bravo. The related reduction of 1.0 percentage point in the GE effective tax rate is reflected in the line “All other - net” in note 7.

GECS effective tax rate was 16.8% in 2004 and 2003 and negative 1.0% in 2002. The 2004 GECS rate reflects the net benefits, discussed below, of legislation and a partial reorganization of our aircraft leasing operation, which decreased the effective tax rate 1.6 percentage points and is included in the line “Tax on global activities including exports” in note 7; tax benefits from favorable IRS settlements, which decreased the effective tax rate 1.2 percentage points and are included in the line “All other - net” in note 7; and the low-taxed disposition of a majority interest in Gecis which decreased the effective tax rate 0.8 percentage points, and is included in the line “Tax on global activities including exports” in note 7. Offsetting these benefits was the nonrecurrence of the 2003 tax benefit on the disposition of shares of ERC Life Reinsurance Corporation (ERC Life).

As a result of the repeal of the extraterritorial income (ETI) taxing regime as part of the American Jobs Creation Act of 2004 (the Act), the aircraft leasing operations of Commercial Finance no longer qualify for a reduced U.S. tax rate. However, the Act also extended to foreign aircraft leasing, the U.S. tax deferral benefits that were already available to GE’s other active foreign operations. As stated above, these legislative changes, coupled with a partial reorganization of our aircraft leasing business and a favorable Irish tax ruling, decreased GECS effective tax rate 1.6 percentage points.

The increase in the effective tax rate from 2002 to 2003 reflects the nonrecurrence of the 2002 losses at GE Insurance Solutions and GE Equity as well as certain 2002 IRS settlements discussed below, partially offset by a 2.5 percentage point decrease because of the 2003 tax benefit on the disposition of shares of ERC Life.

GECS 2002 effective tax rate reflects the effects of pre-tax losses at GE Insurance Solutions and GE Equity, which reduced the effective tax rate of GECS by 16.2 percentage points, the effects of lower taxed earnings from global operations and favorable tax settlements with the IRS. The benefits of these settlements, which reduced the GECS rate 4.0 percentage points (excluding the GE Insurance Solutions and GE Equity losses), are included in the line “All other - net” in note 7.


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Global Risk Management

A disciplined approach to risks is important in a diversified organization such as ours in order to ensure that we are executing according to our strategic objectives and that we only accept risks for which we are adequately compensated. It is necessary for us to manage risk at the individual transaction level, and to consider aggregate risk at the customer, industry, geography and collateral-type levels, where appropriate.

GE’s Board of Directors oversees the risk management process through clearly established delegation of authority. Board meeting agendas are jointly developed with management to cover the same risk topics as our Corporate Risk Committee reviews, including environmental, compliance, liquidity, credit, market and event risks.

GECS Board of Directors oversees the risk management process for financial services, including the approval of all significant acquisitions and dispositions and the establishment of borrowing and investment approval limits delegated to the Investment Committee of the Board, the Chairman, the Chief Financial Officer and the Chief Risk Officer. All participants in the risk management process must comply with these approval limits.

The GECS Chief Risk Officer is responsible, through the Corporate Risk Function, for establishing standards for the measurement, reporting and limiting of risk; for managing and evaluating risk managers; for approving risk management policies and for reviewing major risk exposures and concentrations across the organization. The GECS Corporate Risk Function analyzes certain business risks and assesses them in relation to aggregate risk appetite and approval limits set by the GECS Board of Directors.

Threshold responsibility for identifying, quantifying and mitigating risks is assigned to our individual businesses. Because the risks and their interdependencies are complex, we apply a Six Sigma-based analytical approach to each major product line that monitors performance against external benchmarks, proactively manages changing circumstances, provides early warning detection of risk and facilitates communication to all levels of authority. Other corporate functions such as Financial Planning and Analysis, Treasury, Legal and our Corporate Audit Staff support business-level risk management. Businesses that, for example, hedge risk with derivative financial instruments must do so using our centrally-managed Treasury function, providing assurance that the business strategy complies with our corporate policies and achieves economies of scale. We review risks periodically with business-level risk managers, senior management and our Board of Directors.

GECS employs about 10,000 dedicated risk professionals, including 2,700 involved in collection activities and 1,400 specialized asset managers who evaluate leased asset residuals and remarket off-lease equipment.

GE and GECS manage a variety of risks including liquidity, credit, market and event risks.

Liquidity risk is the risk of being unable to accommodate liability maturities, fund asset growth and meet contractual obligations through access to funding at reasonable market rates. Additional information about our liquidity and how we manage this risk can be found on page 40 and in notes 18 and 28.

Credit risk is the risk of financial loss arising from a customer or counterparty’s failure to meet its contractual obligations. We face credit risk in our lending and leasing activities (see pages 40 and 50 and notes 1, 12, 13 and 30) and derivative financial instruments activities (see note 28).

Market risk is the potential loss in value of investment and other asset and liability portfolios, including financial instruments, caused by changes in market variables, such as interest and currency exchange rates and equity and commodity prices. We are exposed to market risk in the normal course of our business operations as a result of our ongoing investing and funding activities. We attempt to mitigate the risks to our various portfolios arising from changes in interest and currency exchange rates in a variety of ways that often include offsetting positions in local currencies or use of derivatives. Additional information about how we mitigate the risks to our various portfolios from changes in interest and currency exchange rates can be found on page 43 and in note 28.


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Event risk is that body of risk beyond liquidity, credit and market risk. Event risk includes the possibility of adverse occurrences both within and beyond our control. Examples of event risk include natural disasters, availability of necessary materials, guarantees of product performance and business interruption. This type of risk is often insurable, and success in managing this risk is ultimately determined by the balance between the level of risk retained or assumed and the cost of transferring the risk to others. The decision as to the appropriate level of event risk to retain or cede is evaluated in the framework of business decisions. Additional information about how we mitigate event risk can be found in note 30.

Segment Operations

Revenues and segment profit for operating segments are shown on page 63. Effective January 1, 2004, we made changes to the way we report our segments. We have reclassified certain prior-period amounts to conform to the current period’s presentation. For additional information, including a description of the products and services included in each segment, see pages 124 and 125.
Segment profit is determined based on internal performance measures used by the Chief Executive Officer to assess the performance of each business in a given period. In connection with that assessment, the Chief Executive Officer may exclude matters such as charges for restructuring; rationalization and other similar expenses; in-process research and development and certain other acquisition-related charges; certain gains and losses from dispositions; and litigation settlements or other charges, responsibility for which precedes the current management team.

Segment profit always excludes the effects of principal pension plans and accounting changes. Segment profit excludes or includes interest and other financial charges and segment income taxes according to how a particular segment’s management is measured - excluded in determining operating profit for Advanced Materials, Consumer & Industrial, Energy, Healthcare, Infrastructure, NBC Universal and Transportation; included in determining segment profit, which we refer to as “segment net earnings,” for Commercial Finance, Consumer Finance, Equipment & Other Services and Insurance.

ADVANCED MATERIALS revenues in 2004 were up 17% to $8.3 billion reflecting higher volume ($0.7 billion), higher prices ($0.4 billion) and the effects of the weaker U.S. dollar ($0.2 billion). Volume increases resulted from the OSi acquisition ($0.4 billion) and higher demand for plastic resins and quartz products. Operating profit of $0.7 billion was 15% higher than in 2003 as productivity ($0.4 billion) and higher prices ($0.4 billion) more than offset the effect of higher material costs ($0.6 billion), primarily from commodities such as benzene and natural gas.

Advanced Materials revenues in 2003 were up 2% to $7.1 billion as the effects of the weaker U.S. dollar ($0.3 billion) and the OSi acquisition ($0.1 billion) more than offset lower core volume ($0.2 billion). Operating profit of $0.6 billion in 2003 was 38% lower than in 2002, reflecting higher material costs ($0.2 billion), primarily benzene, and lower productivity ($0.2 billion), partially offset by effects of dispositions and the OSi acquisition.

See GE Corporate Items and Eliminations on page 37 for a discussion of items not allocated to this segment.


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COMMERCIAL FINANCE

(In millions)
 
2004
 
2003
 
2002
 
REVENUES
 
$
23,489
 
$
20,813
 
$
19,592
 
NET REVENUES
                   
Total revenues
 
$
23,489
 
$
20,813
 
$
19,592
 
Interest expense
   
6,083
   
5,789
   
5,979
 
Total net revenues
 
$
17,406
 
$
15,024
 
$
13,613
 
NET EARNINGS
 
$
4,465
 
$
3,910
 
$
3,310
 

December 31 (In millions)
 
2004
 
2003
     
TOTAL ASSETS
 
$
232,123
 
$
214,125
       

(In millions)
 
2004
 
2003
 
2002
 
Real Estate(a)
                   
Revenues
 
$
2,519
 
$
2,386
 
$
2,124
 
Net earnings
   
957
   
834
   
650
 
Aviation Services(a)
                   
Revenues
   
3,159
   
2,881
   
2,694
 
Net earnings
   
520
   
506
   
454
 

December 31 (In millions)
 
2004
 
2003
     
Real Estate(a)
                   
Total assets
 
$
33,497
 
$
27,767
       
Aviation Services(a)
                   
Total assets
   
37,384
   
33,271
       

(a)
We provide additional information on two of our segment product lines, Real Estate (commercial real estate financing) and Aviation Services (commercial aircraft financing). Each of these product lines finances a single form of collateral, and each has understandable concentrations of risk and opportunities.

Commercial Finance revenues and net earnings increased 13% and 14%, respectively, compared with 2003. The increase in revenues resulted primarily from acquisitions ($2.3 billion), the effects of the weaker U.S. dollar ($0.6 billion) and core growth ($0.1 billion), partially offset by lower securitization activity ($0.2 billion) and lower investment gains ($0.1 billion). The increase in net earnings resulted primarily from acquisitions ($0.4 billion), core growth ($0.3 billion) and the effects of the weaker U.S. dollar ($0.1 billion), partially offset by lower securitization activity ($0.1 billion).

The most significant acquisitions affecting Commercial Finance results in 2004 were the U.S. leasing business of IKON Office Solutions, acquired during the second quarter of 2004; the commercial lending business of Transamerica Finance Corporation, and Sophia S.A., a real estate company in France, both acquired during the first quarter of 2004; and the assets of CitiCapital Fleet Services, acquired during the fourth quarter of 2003. These acquisitions contributed $1.9 billion and $0.3 billion to 2004 revenues and net earnings, respectively.

The 2003 increase in revenues of 6% resulted primarily from acquisitions across substantially all businesses ($1.1 billion), higher investment gains at Real Estate ($0.1 billion) and core growth, partially offset by lower securitization activity ($0.1 billion). The 2003 increase in net earnings of 18% resulted primarily from core growth, acquisitions across substantially all businesses ($0.2 billion), higher investment gains at Real Estate as a result of the sale of properties and our investments in Regency Centers and Prologis ($0.1 billion), lower credit losses ($0.1 billion) resulting from continued improvement in overall portfolio credit quality as reflected by lower delinquencies and nonearning receivables, and growth in lower taxed earnings from global operations ($0.1 billion).

The most significant acquisitions affecting Commercial Finance 2003 results were the commercial inventory financing business of Deutsche Financial Services and the structured finance business of ABB, both of which were acquired during the fourth quarter of 2002. These two acquisitions contributed $0.5 billion and $0.1 billion to 2003 revenues and net earnings, respectively.


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CONSUMER FINANCE

(In millions)
 
2004
 
2003
 
2002
 
REVENUES
 
$
15,734
 
$
12,845
 
$
10,266
 
NET REVENUES
                   
Total revenues
 
$
15,734
 
$
12,845
 
$
10,266
 
Interest expense
   
3,564
   
2,696
   
2,143
 
Total net revenues
 
$
12,170
 
$
10,149
 
$
8,123
 
NET EARNINGS
 
$
2,520
 
$
2,161
 
$
1,799
 
 
December 31 (In millions)
 
2004
 
2003
     
TOTAL ASSETS
 
$
151,255
 
$
106,530
       

Consumer Finance revenues and net earnings increased 22% and 17%, respectively, from 2003. The increase in revenues resulted primarily from core growth ($1.8 billion), as a result of continued global expansion, acquisitions ($1.0 billion), the effects of the weaker U.S. dollar ($0.8 billion) and higher securitization activity ($0.1 billion), partially offset by the absence of The Home Depot private-label credit card receivables that were sold for a gain in 2003 ($0.9 billion). The increase in net earnings resulted from core growth, including growth in lower taxed earnings from global operations ($0.6 billion), acquisitions ($0.1 billion), and the effects of the weaker U.S. dollar ($0.1 billion), partially offset by the effects of The Home Depot private-label credit card receivables ($0.4 billion) and increased costs to launch new products and promote brand awareness in 2004 ($0.1 billion).

The most significant acquisitions affecting Consumer Finance results in 2004 were WMC Finance Co. (WMC), a U.S. wholesale mortgage lender, acquired during the second quarter of 2004; GC Corporation (GC Card), which provides credit card and sales finance products in Japan, acquired during the third quarter of 2003; and First National Bank, which provides mortgage and sales finance products in the United Kingdom, and the U.S. retail sales finance unit of Conseco Finance Corp. (Conseco), both acquired during the second quarter of 2003. These acquisitions contributed $0.7 billion and $0.1 billion to 2004 revenues and net earnings, respectively.

In December 2004, we acquired Australian Financial Investments Group (AFIG), a residential mortgage lender in Australia, with $13.2 billion in assets and an insignificant effect on 2004 revenues and earnings. We expect this acquisition to be accretive to earnings in 2005.

Revenues increased 25% in 2003 as a result of acquisitions ($1.1 billion), the effects of the weaker U.S. dollar ($0.7 billion), core growth as a result of continued global expansion and the premium on the sale of The Home Depot private-label credit card receivables ($0.1 billion). Net earnings increased 20% in 2003 as a result of core growth, growth in lower taxed earnings from global operations, the premium on the sale of The Home Depot private-label credit card receivables ($0.1 billion) and acquisitions. These increases were partially offset by lower securitization activity ($0.2 billion) and lower earnings in Japan, principally as a result of increased personal bankruptcies.

The most significant acquisitions affecting Consumer Finance 2003 results were First National Bank and Conseco, both of which were acquired during the second quarter of 2003. These acquisitions contributed $0.7 billion and $0.1 billion to 2003 revenues and net earnings, respectively.

CONSUMER & INDUSTRIAL revenues rose 7% to $13.8 billion in 2004 as higher volume ($1.0 billion) and the effects of the weaker U.S. dollar ($0.2 billion) more than offset lower prices ($0.3 billion). Operating profit increased 24% to $0.7 billion as the negative effects of lower prices ($0.3 billion) and higher labor and indirect costs ($0.2 billion) were more than offset by productivity ($0.5 billion) and lower material costs ($0.1 billion).

In 2003, Consumer & Industrial revenues decreased slightly to $12.8 billion as lower prices ($0.3 billion), primarily of home appliances and consumer lighting products, were partially offset by the effects of the weaker U.S. dollar ($0.2 billion). Operating profit rose slightly in 2003 as productivity ($0.3 billion), primarily achieved by combining the lighting and appliance businesses, the mix of higher-margin appliances and an investment gain were partially offset by lower prices ($0.3 billion).

See GE Corporate Items and Eliminations on page 37 for a discussion of items not allocated to this segment.

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ENERGY revenues declined 9% to $17.3 billion as lower volume ($1.6 billion) and lower prices ($0.6 billion) were only partially offset by growth in the energy services businesses and the effects of the weaker U.S. dollar ($0.5 billion). Energy sold 122 large heavy-duty gas turbines in 2004, compared with 175 in 2003. Operating profit in 2004 fell 31% to $2.8 billion, reflecting lower productivity ($0.8 billion), primarily from the anticipated decline in higher margin gas turbine sales and a decrease in customer contract termination fees, lower prices ($0.6 billion) and lower volume ($0.3 billion), partially offset by lower material costs ($0.4 billion). Customer contract termination fees, net of associated costs, were $0.1 billion in 2004 compared with $0.6 billion in 2003.

Energy revenues fell 19% to $19.1 billion in 2003 as growth in the energy services and wind businesses was more than offset by lower volume ($4.8 billion), reflecting the continued effects of the decline in sales of large, heavy-duty gas turbines (down 46% from 323 units in 2002) and industrial aero-derivative products, partially offset by the net effects of the weaker U.S. dollar ($0.7 billion). Operating profit dropped 35% to $4.1 billion in 2003, principally reflecting the combined effects of lower volume ($1.3 billion), lower productivity ($0.8 billion) and lower prices ($0.5 billion). Customer contract termination fees, net of associated costs, were $0.6 billion in 2003 and $0.9 billion in 2002, reflecting the decline in demand for new power generation equipment that began in 2002, with such fees primarily occurring in that year and the first half of 2003.

Energy orders were $18.7 billion in 2004, compared with $16.0 billion in 2003, reflecting strong demand for wind turbines, services, and oil and gas turbomachinery. The $14.4 billion total backlog at year-end 2004 comprised unfilled product orders of $8.9 billion (of which 73% was scheduled for delivery in 2005) and product services orders of $5.5 billion scheduled for 2005 delivery. Comparable December 31, 2003, total backlog was $12.5 billion, of which $7.9 billion was for unfilled product orders and $4.6 billion for product services.

EQUIPMENT & OTHER SERVICES

(In millions)
 
2004
 
2003
 
2002
 
REVENUES
 
$
8,986
 
$
4,881
 
$
5,561
 
NET EARNINGS
 
$
833
 
$
(185
)
$
(339
)

Equipment & Other Services revenues and net earnings increased $4.1 billion and $1.0 billion, respectively, from 2003. Revenues included $0.5 billion for 2004 and 2003, related to the 2005 restatement. Adoption of a January 1, 2004, required accounting change also caused revenues to increase $3.2 billion, as a result of consolidating operating lease rentals ($2.6 billion) and other income ($0.6 billion). See note 1. The most significant entity consolidated as a result of this change was Penske Truck Leasing Co., L.P. (Penske), which was previously accounted for using the equity method. Revenue also increased reflecting the sale of a majority interest in Gecis ($0.4 billion), improved investment returns at GE Equity ($0.4 billion), the results of consolidated, liquidating securitization entities ($0.3 billion) and the effects of the weaker U.S. dollar ($0.1 billion). These increases were partially offset by the absence of the U.S. Auto and Home business that was disposed of in 2003 ($0.4 billion). Net earnings included $0.2 billion for 2004 and 2003, related to the 2005 restatement. Net earnings also increased from improved investment returns at GE Equity ($0.3 billion), the gain on sale of a majority interest in Gecis ($0.3 billion), improved operating performance at Equipment Services ($0.2 billion), and the results of consolidated, liquidating securitization entities ($0.1 billion).

Equipment & Other Services revenues in 2003 decreased $0.7 billion and net earnings increased $0.2 billion, compared with 2002. Revenues included $0.5 billion for 2003 and an inconsequential amount for 2002, related to the 2005 restatement. Revenues also decreased as a result of the following:

The exit of certain European operations at IT Solutions ($1.3 billion) in response to intense competition and transition of the computer equipment market to a direct distribution model,

Continued poor market conditions and ongoing dispositions and run-offs of IT Solutions and the Auto Financial Services business ($0.3 billion), and

Lower asset utilization and price ($0.2 billion), an effect of industry-wide excess equipment capacity reflective of the then current conditions in the road and rail transportation sector.


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These decreases were partially offset by the overall improvement in equity markets and lower level of investment losses in 2003 at GE Equity ($0.2 billion) and the consolidation of certain securitization entities in our financial statements ($0.7 billion) as a result of our July 1, 2003, required accounting change. See notes 1 and 29. Net earnings included $0.2 billion in 2003 and an inconsequential amount in 2002, related to the 2005 restatement. Net earnings also decreased primarily from lower asset utilization and price ($0.1 billion) and the absence of a 2002 tax settlement related to Kidder Peabody ($0.2 billion), offset by improved performance in 2003 at GE Equity ($0.2 billion) and the tax benefit related to the sale of ERC Life ($0.1 billion).

HEALTHCARE revenues increased 32% to $13.5 billion in 2004 as higher volume ($3.3 billion), primarily from acquisitions including Amersham ($2.2 billion) and Instrumentarium ($1.0 billion), and the effects of the weaker U.S. dollar ($0.4 billion), more than offset lower prices ($0.4 billion). Operating profit of $2.3 billion in 2004 was 34% higher than in 2003 as the effects of higher volume ($0.5 billion) and productivity ($0.5 billion) more than offset the effects of lower prices ($0.4 billion).

Healthcare revenues increased 14% to $10.2 billion in 2003 reflecting $0.5 billion of sales from recently acquired businesses, primarily Instrumentarium, and other volume growth ($0.7 billion) that more than offset lower prices ($0.4 billion). Operating profit of $1.7 billion in 2003 rose 10% as productivity ($0.3 billion) and higher volume ($0.2 billion) more than offset the $0.4 billion effects of lower prices.

See GE Corporate Items and Eliminations on page 37 for a discussion of items not allocated to this segment.

Orders received by Healthcare in 2004 were $13.8 billion, compared with $10.5 billion in 2003. The $4.7 billion total backlog at year-end 2004 comprised unfilled product orders of $2.9 billion (of which 92% was scheduled for delivery in 2005) and product services orders of $1.9 billion scheduled for 2005 delivery. Comparable December 31, 2003, total backlog was $4.6 billion, of which $2.8 billion was for unfilled product orders and $1.8 billion for product services orders.

INFRASTRUCTURE revenues increased 12% to $3.4 billion in 2004 on higher volume ($0.3 billion), primarily within our water and security businesses, and the effects of the weaker U.S. dollar ($0.1 billion). Operating profit rose 22% to $0.6 billion in 2004 as higher volume and productivity more than offset lower prices.

Infrastructure reported a sharp increase in 2003 revenues, to $3.1 billion, on higher volume ($1.0 billion), primarily from acquisitions. The largest of these acquisitions were Betz-Dearborn and Osmonics which contributed $0.5 billion of revenues in 2003. Operating profit also rose sharply to $0.5 billion in 2003 on higher volume ($0.2 billion), primarily from acquisitions.

INSURANCE

(In millions)
 
2004
 
2003
 
2002
 
REVENUES
 
$
23,070
 
$
26,194
 
$
23,296
 
NET EARNINGS
 
$
569
 
$
2,102
 
$
(95
)
GE Insurance Solutions(a)
                   
Revenues
 
$
10,005
 
$
11,600
 
$
9,432
 
Net earnings
   
36
   
481
   
(1,794
)

(a)
Formerly GE Global Insurance Holding Corporation, the parent of Employers Reinsurance Corporation (ERC).

Insurance revenues and net earnings decreased 12% and 73%, respectively, from 2003. The decrease in revenues resulted primarily from the 2003 dispositions ($2.5 billion), including GE Edison Life Insurance Company (Edison Life), Financial Guaranty Insurance Company (FGIC) and ERC Life; net declines in volume resulting from strategic exits of certain business channels, primarily at GE Insurance Solutions ($1.3 billion) and the effects of the Genworth initial public offering ($0.4 billion). These decreases were partially offset by the effects of the weaker U.S. dollar ($0.6 billion). Net earnings decreased primarily from the full-year after-tax earnings effects of the Genworth initial public offering ($0.7 billion), the 2003 dispositions ($0.5 billion) and the 2004 U.S. hurricane-related losses ($0.3 billion) at GE Insurance Solutions. Also contributing to the net earnings decrease were reserve actions taken at GE Insurance Solutions related to continued adverse development on liability-related exposures underwritten in 1997-2001 (discussed below). These decreases in net earnings were partially offset by improved core performance at GE Insurance Solutions reflecting the continued favorable premium pricing environment.


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Revenues in 2003 increased $2.9 billion (12%) on increased premium revenues ($2.2 billion), a gain of $0.6 billion on the sale of Edison Life, higher investment income ($0.4 billion) and the effects of the weaker U.S. dollar ($0.7 billion). The premium revenue increase reflected continued favorable pricing at GE Insurance Solutions ($0.5 billion), net volume growth at GE Insurance Solutions and certain other insurance businesses ($0.8 billion), absence of prior year loss adjustments ($0.4 billion), adjustment of current year premium accruals to actual ($0.3 billion) and lower levels of ceded premiums resulting from a decline in prior-year loss events ($0.1 billion). Partial revenue offsets resulted from the absence of revenues following the sale of Edison Life ($0.7 billion) and a $0.2 billion loss on the disposition of FGIC at the end of 2003.

Net earnings in 2003 increased $2.2 billion, primarily from the substantial improvement in current operating results at GE Insurance Solutions ($2.3 billion) reflecting improved underwriting, lower adverse development (discussed below) and generally favorable industry pricing conditions during the year. Net earnings also benefited from the gain on the sale of Edison Life ($0.3 billion). These increases were partially offset by the absence of a current year counterpart to the favorable tax settlement with the IRS in 2002 ($0.2 billion) and the loss on the sale of FGIC ($0.1 billion after tax).

As described on page 51 under the caption “Insurance Liabilities and Reserves,” we routinely update our insurance loss provisions to reflect our best estimates of losses. At year-end 2004, our best estimate of outstanding net property and casualty claim-related liabilities at GE Insurance Solutions was $17.4 billion. Few losses in an underwriting year are known exactly at the end of that year; an insurer cannot know a year’s exact losses before customers have submitted claims and those claims have been evaluated, adjudicated and settled. This process routinely spans years, and sometimes decades. Like much of the property and casualty insurance industry, GE Insurance Solution’s recent operating results have absorbed charges from updates to loss estimates associated with policies written in prior years. This adverse loss development has been most pronounced for certain liability-related risk policies underwritten from 1997 through 2001, principally hospital and professional liability, workers compensation, product liability and asbestos and environmental exposures. Adverse development on prior-years claims and expenses for the three years ended December 31, 2004, amounted to $5.5 billion. Business that we subsequently exited accounted for 84% of the most recent adverse development. Although we do not anticipate further provisions related to this risk, we observe that the associated losses have not yet fully matured.

In 2002, in light of our adverse loss development, we modified our underwriting processes, rejecting both risks that failed to meet our standards of price, terms or conditions as well as risks for which sufficient historical data did not exist to permit us to make a satisfactory pricing evaluation. Consequently, we curtailed and exited business in particular property and casualty business channels. Higher underwriting standards have yielded substantial improvement in operating results in more recent underwriting years, improvement that is most clearly indicated by our “combined ratio” - the ratio, expressed as a percentage, of claims-related losses and related underwriting expenses to earned premiums. In 2004, GE Insurance Solutions’ property and casualty combined ratio was 120%, that is, $1.20 of costs and losses for each $1.00 of earned premium. However, as an early indication of the effectiveness of our revised underwriting standards, the combined ratio for the 2004 underwriting year was 100%, even with extensive 2004 natural catastrophe losses - breakeven underwriting even before the contribution of investment income.

NBC UNIVERSAL 2004 revenues were up sharply to $12.9 billion and operating profit was up 28% to $2.6 billion. Operations were significantly affected by the May combination of NBC and VUE which increased revenues by $4.7 billion and, net of effects of the 20% minority interest, operating profit by $0.6 billion. Other significant 2004 factors affecting results were the Athens Olympic Games ($0.9 billion higher revenues), price increases ($0.2 billion of revenues and operating profit), volume ($0.3 billion of revenues and $0.1 billion of operating profit) and $0.3 billion higher NBC Universal operating costs.

NBC Universal revenues decreased 4% to $6.9 billion in 2003 while operating profit rose 21% to $2.0 billion. Results and comparability were affected by several events in 2003 and 2002. Higher prices and network sales increased revenues $0.5 billion in 2003, but were partially offset by advertising reductions because of coverage of the Iraq war ($0.1 billion). The Salt Lake City Olympic Games and the final year of NBA coverage contributed $0.7 billion and $0.3 billion, respectively, to 2002 revenues, but the NBA contract resulted in a loss that exceeded profit from the Olympics. Telemundo and Bravo, both acquired in 2002, together added $0.7 billion and $0.1 billion to 2003 revenues and operating profit, respectively. The 2002 exchange of certain assets for Bravo resulted in $0.6 billion of gain, $0.2 billion of which was attributed to NBC Universal’s segment results, an amount equal to $0.2 billion of other charges for impairments in 2002. The remainder was included in GE Corporate Items and Eliminations as discussed below.


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TRANSPORTATION revenues rose 15% to $15.6 billion in 2004 on higher volume ($1.9 billion), including sales in commercial services and of locomotives and military engines. Operating profit increased 21% to $3.2 billion as higher volume ($0.4 billion) and productivity ($0.2 billion) more than offset the effect of inflation ($0.1 billion).

In 2003, Transportation revenues decreased slightly to $13.5 billion reflecting lower volume ($0.2 billion) primarily related to commercial aircraft and industrial aero-derivative engines, partially offset by higher locomotive sales, higher military spare parts volume and growth in our rail global signaling business. Operating profit rose 6% to $2.7 billion in 2003 as productivity ($0.2 billion) largely from workforce efficiency, and lower research and development spending upon completion of certain development programs more than offset the effect of lower volume.

In 2004, Transportation revenues from sales to the U.S. government were $3.0 billion, compared with $2.4 billion and $2.2 billion in 2003 and 2002, respectively.

See GE Corporate Items and Eliminations below for a discussion of items not allocated to this segment.

Transportation received orders of $14.9 billion in 2004, up from $13.3 billion in 2003 primarily from strong locomotive and product services demand. The $13.4 billion total backlog at year-end 2004 comprised unfilled product orders of $9.3 billion (of which 59% was scheduled for delivery in 2005) and product services orders of $4.1 billion scheduled for 2005 delivery. Comparable December 31, 2003, total backlog was $12.9 billion, of which $9.3 billion was for unfilled product orders and $3.6 billion for product services orders.

GE CORPORATE ITEMS AND ELIMINATIONS

(In millions)
 
2004
 
2003
 
2002
 
REVENUES
                   
Eliminations
 
$
(3,169
)
$
(2,757
)
$
(1,662
)
OPERATING PROFIT
                   
Principal pension plans
 
$
124
 
$
1,040
 
$
1,556
 
Eliminations
   
(438
)
 
(504
)
 
(558
)
Underabsorbed corporate overhead
   
(777
)
 
(582
)
 
(367
)
Not allocated
   
(548
)
 
(354
)
 
(11
)
Other
   
132
   
(91
)
 
421
 
Total
 
$
(1,507
)
$
(491
)
$
1,041
 

GE Corporate Items and Eliminations include the effects of eliminating transactions between operating segments; cost reductions from our principal pension plans, which have declined sharply over the three-year period; liquidating businesses; underabsorbed corporate overhead; certain non-allocated amounts described below; and a variety of sundry items. Corporate overhead is allocated to GE operating segments based on a ratio of segment net cost of operations, excluding direct materials or their equivalent, to total company cost of operations. This caption also includes internal allocated costs for segment funds on deposit.

Certain amounts are not allocated to GE operating segments because they are excluded from the measurement of their operating performance for internal purposes. In 2004, these comprised $0.4 billion of Healthcare charges, principally related to the write off of in-process research and development projects and other transitional costs associated with Amersham, and a $0.1 billion charge at Consumer & Industrial as the gain on sale of the motors business was more than offset by costs for inventory obsolescence and other charges. In 2003 and 2002, amounts not allocated to GE operating segments included charges of $0.2 billion in each year for settlement of litigation, restructuring and other charges at Healthcare; and in 2002, a portion of NBC Universal’s gain from the Bravo exchange and $0.1 billion for restructuring and other charges at Transportation and Advanced Materials.

Other includes a $0.5 billion gain from the sale of 90% of Global eXchange Services in 2002.

Global Operations

Our global activities span all geographic regions and primarily encompass manufacturing for local and export markets, import and sale of products produced in other regions, leasing of aircraft, sourcing for our plants domiciled in other global regions and provision of

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financial services within these regional economies. Thus, when countries or regions experience currency and/or economic stress, we often have increased exposure to certain risks, but also often have new profit opportunities. Potential increased risks include, among other things, higher receivable delinquencies and bad debts, delays or cancelations of sales and orders principally related to power and aircraft equipment, higher local currency financing costs and slowdown in established financial services activities. New profit opportunities include, among other things, 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.

Estimated results of global activities include the results of our operations located outside the United States plus all U.S. exports. We classify certain GECS operations that cannot meaningfully be associated with specific geographic areas as “Other global” for this purpose.

Global revenues rose 18% to $71.8 billion in 2004 compared with $60.8 billion and $53.4 billion in 2003 and 2002, respectively. Global revenues to external customers as a percentage of consolidated revenues were 43% in 2004, compared with 42% and 37% in 2003 and 2002, respectively. The effects of exchange rates on reported results were to increase revenues by $3.5 billion, $3.8 billion and $0.4 billion in 2004, 2003 and 2002, respectively; and increase earnings by $0.1 billion in both 2004 and 2003 and decrease earnings by $0.1 billion in 2002.

CONSOLIDATED GLOBAL REVENUES

(In millions)
 
2004
 
2003
 
2002
 
Europe
 
$
37,000
 
$
30,500
 
$
24,800
 
Pacific Basin
   
13,100
   
13,100
   
12,000
 
Americas
   
7,200
   
5,900
   
5,200
 
Other global
   
5,400
   
4,600
   
3,900
 
     
62,700
   
54,100
   
45,900
 
Exports from the U.S. to external customers
   
9,100
   
6,700
   
7,500
 
Total
 
$
71,800
 
$
60,800
 
$
53,400
 

GE global revenues were $42.4 billion, $33.0 billion and $29.0 billion in 2004, 2003 and 2002, respectively. The increase in 2004 related to both increased operations outside the U.S. and U.S. exports. GE revenues in Europe rose 40% led by Healthcare and NBC Universal reflecting the Amersham acquisition and the combination of NBC and VUE. GE revenues in the Pacific Basin increased 13% led by Advanced Materials, Infrastructure and Energy. U.S. exports rose 35% on strong growth at Energy and Transportation. The increase in 2003 related to increased operations outside the U.S., partially offset by lower U.S. exports. In 2003, GE revenues in Europe rose 25%, led by Energy, Healthcare and Infrastructure, reflecting the effects of the weaker U.S. dollar and volume growth. GE revenues in the Pacific Basin increased 14% in 2003 as most businesses reported improved results. In 2003, Energy and Infrastructure were the primary contributors to a 16% increase in revenues in the Americas and Energy more than accounted for the 10% decrease in U.S. exports.

GECS global revenues were $29.4 billion, $27.8 billion and $24.4 billion in 2004, 2003 and 2002, respectively. GECS revenues in the Americas increased 47% in 2004, primarily as a result of the acquisition of the commercial lending business of Transamerica Finance Corporation at Commercial Finance. Revenues increased 31% in “Other global” as a result of growth at Commercial Finance and the gain on the sale of a majority interest in Gecis. Revenues in the Pacific Basin decreased 13% primarily as a result of the 2003 divestiture of Edison Life at Insurance. This decrease was partially offset by the effects of the weaker U.S. dollar, acquisitions, primarily GC Card at Consumer Finance, and core growth at Consumer Finance and Commercial Finance.

Global operating profit was $12.2 billion in 2004, an increase of 39% over 2003, which was 35% higher than in 2002. Operating profit in 2004 rose 45% in Europe reflecting core growth and acquisitions at Consumer Finance and Commercial Finance, the Amersham acquisition at Healthcare and the combination of NBC and VUE. Operating profit also rose 42% to $2.2 billion in the Americas and 22% to $2.9 billion in the Pacific Basin and 46% to $1.3 billion in “Other global.”

Total assets of global operations were $323.7 billion in 2004 (43% of consolidated assets), an increase of $64.8 billion, or 25%, over 2003. GECS global assets grew 24% from $232.0 billion at the end of 2003 to $287.7 billion at the end of 2004. GECS assets increased 18% in Europe as a result of the effects of the weaker U.S. dollar ($13.7 billion), acquisitions ($9.2 billion), primarily at

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Commercial Finance and Consumer Finance, and growth at Consumer Finance. GECS assets increased 46% in the Pacific Basin, primarily as a result of acquisitions at Consumer Finance.

Financial results of our global activities reported in U.S. dollars are affected by currency exchange. We use a number of techniques to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. Such principal currencies are the British pound sterling, the euro, the Japanese yen and the Canadian dollar.

Environmental Matters

Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws.

We are 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 $0.1 billion in each of the last two years. We presently expect that such remediation actions will require average annual expenditures in the range of $0.1 billion to $0.2 billion over the next two years.

The U.S. Environmental Protection Agency (EPA) ruled in February 2002 that approximately 150,000 pounds of polychlorinated biphenyls (PCBs) must be dredged from a 40-mile stretch of the upper Hudson River in New York State. We have submitted what is known as a “Good Faith Offer” under the Superfund law and continue to cooperate and negotiate with the EPA in the implementation of this ruling. Pursuant to negotiated agreements, we have conducted extensive sampling of the project area to determine the location of PCBs that may be dredged and have agreed to undertake the design and engineering of the remedy. The agreements also provide for the reimbursement of certain EPA costs expended in the past and which would be expended in the future. The remedial design and engineering activities are scheduled to be completed during 2006. Negotiations continue concerning performance of the remedial work. Our Statement of Financial Position as of December 31, 2004 and 2003, included liabilities for the estimated costs of this remediation.

Financial Resources and Liquidity

This discussion of financial resources and liquidity addresses the Statement of Financial Position (pages 59-60), Statement of Changes in Shareowners’ Equity (page 57) and the Statement of Cash Flows (pages 61-62).

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.

Overview of Financial Position

Major changes in our financial position resulted from the following:

During 2004, we completed the acquisition of Amersham by Healthcare and the combination of NBC and VUE. GECS completed acquisitions of the commercial lending business of Transamerica Finance Corporation; Sophia S.A., a real estate company in France; the U.S. leasing business of IKON Office Solutions; and Benchmark Group PLC, a U.K.-listed real estate property company at Commercial Finance. Consumer Finance completed acquisitions of AFIG and WMC. At their respective acquisition dates, these financial services transactions resulted in a combined increase in total assets of $32.1 billion, of which $23.0 billion was financing receivables before allowance for losses, and a combined increase in total liabilities of approximately $20.5 billion, of which $18.9 billion was debt.


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Minority interest in equity of consolidated affiliates increased $10.2 billion during 2004. In connection with the combination of NBC and VUE, NBC Universal issued 20% of its shares to a subsidiary of Vivendi Universal. This is the principal reason GE’s minority interest increased $6.6 billion. GECS minority interest increased $3.6 billion, primarily because of our sale of approximately 30% of the common shares of Genworth, our formerly wholly-owned subsidiary that conducts most of our consumer insurance business, including life and mortgage insurance operations.

We adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46R, Consolidation of Variable Interest Entities (Revised), on January 1, 2004, adding $2.6 billion of assets and $2.1billion of liabilities to our consolidated balance sheet as of that date, primarily relating to Penske.

Statement of Financial Position (pages 59-60)

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, we distinguish between GE and GECS activities in order to permit meaningful analysis of each individual statement.

INVESTMENT SECURITIES comprise mainly available-for-sale investment-grade debt securities held by Insurance in support of obligations to annuitants and policyholders, and debt and equity securities designated as trading and associated with certain non-U.S. separate accounts for which contractholders retain the related risks and rewards, except in the event of our bankruptcy or liquidation. Investment securities were $135.5 billion at the end of 2004, compared with $129.3 billion at the end of 2003. The increase of $6.2 billion was primarily the net result of investing premiums received, reinvesting investment income, improvements in debt markets and the effects of the weaker U.S. dollar.

We regularly review investment securities for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline, our intent and ability to hold to recovery and the financial health and specific prospects for the issuer. Of available-for-sale securities with unrealized losses at December 31, 2004, approximately $0.1 billion was at risk of being charged to earnings in the next 12 months; almost two-thirds of this amount related to commercial airlines.

Impairment losses for 2004 totaled $0.2 billion compared with $0.5 billion in 2003. We recognized impairments in both periods for issuers in a variety of industries; we do not believe that any of the impairments indicate likely future impairments in the remaining portfolio.

Gross unrealized gains and losses were $5.3 billion and $0.8 billion, respectively, at December 31, 2004, compared with $4.7 billion and $1.2 billion, respectively, at December 31, 2003, primarily reflecting an increase in the estimated fair value of debt securities as interest rates declined. We estimate that available gains, net of estimated impairment of insurance intangible assets, could be as much as $2.2 billion at December 31, 2004. The market values we used in determining unrealized gains and losses are those defined by relevant accounting standards and should not be viewed as a forecast of future gains or losses. See note 9.

At December 31, 2004, unrealized losses with a duration of 12 months or more related to investment securities collateralized by commercial aircraft were $0.3 billion. The aggregate amortized cost of these available-for-sale securities was $1.2 billion. We believe that our securities, which are current on all payment terms, are in an unrealized loss position because of ongoing negative market reaction to difficulties in the commercial airline industry. For these securities, we do not anticipate changes in the timing and amount of estimated cash flows, and expect full recovery of our amortized cost. Further, should our cash flow expectation prove to be incorrect, the current aggregate market values of aircraft collateral, based on information from independent appraisers, exceeded totals of both the market values and the amortized cost of our securities at December 31, 2004. See additional discussion of our positions in the commercial aviation industry on page 48.

WORKING CAPITAL, representing GE inventories and receivables from customers, less trade payables and progress collections, increased to $8.3 billion at the end of 2004 from $5.3 billion at the end of 2003. The increase was a result of the Amersham acquisition at Healthcare, the combination of NBC and VUE and the effect of the weaker U.S. dollar.

We discuss current receivables and inventories, two important elements of working capital, in the following paragraphs.


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CURRENT RECEIVABLES for GE were $14.5 billion at the end of 2004 and $11.0 billion at the end of 2003, and included $10.2 billion due from customers at the end of 2004, compared with $6.7 billion at the end of 2003. This $3.5 billion increase reflected higher receivables at NBC Universal resulting from the combination of NBC and VUE and the acquisition of Amersham by Healthcare. Turnover of customer receivables from sales of goods and services was 9.4 in 2004, compared with 10.4 in 2003. 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. See note 10.

INVENTORIES for GE were $9.6 billion at December 31, 2004, up $1.0 billion from the end of 2003. This increase reflected higher inventories at Healthcare resulting from the acquisition of Amersham. GE inventory turnover was 8.4 in 2004, an increase from 7.4 in 2003, as a result of increased sales at Transportation while inventory remained relatively flat. See note 11.

RESTATED FINANCING RECEIVABLES is our largest category of assets and represents one of our primary sources of revenues. The portfolio of financing receivables, before allowance for losses, increased to $288.3 billion at December 31, 2004, from $254.4 billion at the end of 2003, as discussed in the following paragraphs. The related allowance for losses at the end of 2004 amounted to $5.6 billion compared with $6.3 billion at December 31, 2003, representing our best estimate of probable losses inherent in the portfolio.

A discussion of the quality of certain elements of the financing receivables portfolio follows. For purposes of that discussion, “delinquent” receivables are those that are 30 days or more past due; “nonearning” receivables are those that are 90 days or more past due (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.

Commercial Finance financing receivables, before allowance for losses, totaled $145.4 billion at December 31, 2004, compared with $135.7 billion at December 31, 2003, and consisted of loans and leases to the equipment, commercial and industrial, real estate and commercial aircraft industries. This portfolio of receivables increased primarily from core growth ($28.0 billion) and acquisitions ($13.5 billion), partially offset by securitizations and sales ($31.5 billion). Related nonearning and reduced-earning receivables were $1.6 billion (1.1% of outstanding receivables) at December 31, 2004, compared with $1.7 billion (1.3% of outstanding receivables) at year-end 2003. Commercial Finance financing receivables are generally backed by assets and there is a broad spread of geographic and credit risk in the portfolio.

During 2004, Consumer Finance adopted a global policy for uncollectible receivables that accelerated write-offs to follow one consistent basis. We now write off unsecured closed-end installment loans that become 120 days contractually past due and unsecured open-ended revolving loans that become 180 days contractually past due.

Consumer Finance financing receivables, before allowance for losses, were $127.8 billion at December 31, 2004, compared with $94.7 billion at December 31, 2003, and consisted primarily of card receivables, installment loans, auto loans and leases, and residential mortgages. This portfolio of receivables increased as a result of acquisitions ($15.6 billion), core growth ($13.1 billion) and the effects of the weaker U.S. dollar ($7.3 billion). These increases were partially offset by whole loan sales and securitization activity ($2.0 billion) and the standardization of our write-off policy, which resulted in an increase in write-offs ($0.9 billion) but had an inconsequential effect on earnings.

Nonearning consumer receivables were $2.5 billion at December 31, 2004 and 2003, representing 2.0% and 2.6% of outstanding receivables, respectively. The percentage decrease is primarily related to the standardization of our write-off policy and the acquisition of AFIG, which obtains credit insurance for certain receivables, partially offset by higher nonearnings in our European secured financing business.

Restated Equipment & Other Services financing receivables, before allowance for losses, amounted to $15.1 billion and $24.0 billion at December 31, 2004 and 2003, respectively, and consisted primarily of financing receivables in consolidated, liquidating securitization entities. This portfolio of receivables decreased because we have stopped transferring assets to these entities. Nonearning receivables at December 31, 2004, were $0.2 billion (1.2% of outstanding receivables) compared with $0.1 billion (0.6% of outstanding receivables) at December 31, 2003.


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Delinquency rates on managed Commercial Finance equipment loans and leases and managed Consumer Finance financing receivables follow.

   
2004
 
2003
 
2002
 
Commercial Finance
   
1.40
%
 
1.38
%
 
1.75
%
Consumer Finance
   
4.85
   
5.62
   
5.62
 

Delinquency rates at Commercial Finance increased slightly from December 31, 2003 to December 31, 2004, reflecting the effect of certain acquired portfolios, partially offset by improvement in the overall core portfolio. The decline from December 31, 2002 to December 31, 2003, reflected improved economic conditions and collection results.

Delinquency rates at Consumer Finance decreased from December 31, 2003 to December 31, 2004, as a result of the standardization of our write-off policy, the acquisition of AFIG, and the U.S. acquisition of WMC, with lower relative delinquencies as a result of whole loan sales, partially offset by higher delinquencies in our European secured financing business. See notes 12 and 13.

OTHER GECS RECEIVABLES totaled $14.1 billion at December 31, 2004, and $12.1 billion at December 31, 2003, and consisted primarily of nonfinancing customer receivables, accrued investment income, amounts due from GE (generally related to certain material procurement programs), amounts due under operating leases, receivables due on sale of securities and various sundry items. Balances at December 31, 2004 and 2003, included securitized, managed GE trade receivables of $3.1 billion and $2.7 billion, respectively.

PROPERTY, PLANT AND EQUIPMENT was $63.3 billion at December 31, 2004, up $9.9 billion from 2003, primarily reflecting the consolidation of Penske effective January 1, 2004, and acquisitions of commercial aircraft at Commercial Finance. GE property, plant and equipment consisted of investments for its own productive use, whereas the largest element for GECS was equipment provided to third parties on operating leases. Details by category of investment are presented in note 15.

GE expenditures for plant and equipment during 2004 totaled $2.4 billion, compared with $2.2 billion in 2003. Total expenditures for the past five years were $12.9 billion, of which 33% was investment for growth through new capacity and product development; 36% was investment in productivity through new equipment and process improvements; and 31% was investment for other purposes such as improvement of research and development facilities and safety and environmental protection.

GECS additions to property, plant and equipment were $10.7 billion and $7.6 billion during 2004 and 2003, respectively, primarily reflecting additions of commercial aircraft and vehicles at Commercial Finance and of vehicles at Equipment & Other Services.

INTANGIBLE ASSETS were $83.2 billion at year-end 2004, up from $55.0 billion at year-end 2003. GE intangibles increased $24.5 billion from $30.2 billion at the end of 2003, principally as a result of goodwill and other intangibles related to the combination of NBC and VUE, the Amersham acquisition by Healthcare, acquisitions by Infrastructure and the effects of the weaker U.S. dollar. GECS intangibles increased $3.7 billion to $28.5 billion, reflecting goodwill associated with acquisitions, goodwill associated with the consolidation of Penske effective January 1, 2004, and the effects of the weaker U.S. dollar. See note 16.

ALL OTHER ASSETS totaled $109.9 billion at year-end 2004, an increase of $17.3 billion. This increase resulted principally from the combination of NBC and VUE, acquisitions affecting real estate and assets held for sale, and additional investments in associated companies, partially offset by the consolidation of Penske, which was previously accounted for using the equity method. See note 17.

CONSOLIDATED BORROWINGS were $370.4 billion at December 31, 2004, compared with $329.3 billion at the end of 2003.

GE total borrowings were $11.0 billion at year-end 2004 ($3.4 billion short term, $7.6 billion long term), about the same as at year-end 2003. GE total debt at the end of 2004 equaled 9.1% of total capital, compared with 12.0% at the end of 2003.

GECS restated borrowings were $360.8 billion at December 31, 2004, of which $154.8 billion is due in 2005 and $206.0 billion is due in subsequent years. Comparable amounts at the end of 2003 were $319.9 billion in total, $155.4 billion due within one year and $164.5 billion due thereafter. Included in GECS total borrowings were borrowings of consolidated, liquidating securitization entities

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amounting to $25.8 billion at December 31, 2004, of which $9.8 billion was asset-backed senior notes of AFIG, and $24.8 billion at December 31, 2003. A large portion of GECS borrowings ($97.4 billion and $102.6 billion at the end of 2004 and 2003, respectively) was issued in active commercial paper markets that we believe will continue to be a reliable source of short-term financing. The average remaining terms and interest rates of General Electric Capital Corporation (GE Capital) commercial paper were 42 days and 2.39% at the end of 2004, compared with 47 days and 1.40% at the end of 2003. The GE Capital ratio of debt to equity was 6.53 to 1 at the end of 2004 and 6.66 to 1 at the end of 2003. See note 18.

INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS of GECS were $140.9 billion at December 31, 2004, $4.5 billion higher than in 2003. The increase is primarily attributable to growth in annuities, long-term care insurance, structured settlements, the effects of the weaker U.S. dollar, increases in loss reserves for policies written in prior years and 2004 U.S. hurricane-related losses. These increases were partially offset by claim settlements and maturities of guaranteed investment contracts (GICs). See note 19.

EXCHANGE RATE AND INTEREST RATE RISKS are managed with a variety of straightforward techniques, including match funding and selective use of derivatives. We use derivatives to mitigate or eliminate certain financial and market risks because we conduct business in diverse markets around the world and local funding is not always efficient. In addition, we use derivatives to adjust the debt we are issuing to match the fixed or floating nature of the assets we are acquiring. We apply strict policies to manage each of these risks, including prohibitions on derivatives trading, derivatives market-making or other speculative activities. Following is an analysis of the potential effects of changes in interest rates and currency exchange rates using so-called “shock” tests that model effects of shifts in rates. These are not forecasts.

If, on January 1, 2005, interest rates had increased 100 basis points across the yield curve (a “parallel shift” in that curve) and that increase remained in place for 2005, we estimate, based on our year-end 2004 portfolio and holding everything else constant, that our 2005 GE and GECS net earnings would decline pro-forma by $0.1 billion and $0.2 billion, respectively.

If, on January 1, 2005, currency exchange rates were to decline by 10% against the U.S. dollar and that decline remained in place for 2005, we estimate, based on our year-end 2004 portfolio and holding everything else constant, that the effect on our 2005 GE and GECS net earnings would be insignificant..

Statement of Changes in Shareowners’ Equity (page 57)

Shareowners’ equity increased $31.2 billion in 2004, $15.6 billion in 2003 and $9.1 billion in 2002. These increases were largely attributable to net earnings but were partially offset by dividends declared of $8.6 billion, $7.8 billion and $7.3 billion in 2004, 2003 and 2002, respectively. We issued 341.7 million shares of stock in connection with the Amersham acquisition, increasing equity by $10.7 billion in 2004. We also issued 119.4 million shares of stock to partially fund the combination of NBC and VUE, increasing equity by $3.8 billion. Currency translation adjustments increased equity by $3.9 billion in 2004, compared with $5.1 billion in 2003. Changes in the currency translation adjustments reflect the effects of changes in currency exchange rates on our net investment in non-U.S. subsidiaries that have functional currencies other than the U.S. dollar. In 2004, the pound sterling, euro and, to a lesser extent, Asian currencies strengthened against the U.S. dollar. In 2003 and 2002, the euro and, to a lesser extent, Asian currencies strengthened against the U.S. dollar. Accumulated currency translation adjustments affect net earnings only when all or a portion of an affiliate is disposed of or substantially liquidated. See note 24.

Overview of Our Cash Flow from 2002 through 2004 (pages 61-62)

GE cash from operating activities (CFOA) is a useful measure of performance for our non-financial businesses and totaled $15.2 billion in 2004, $12.9 billion in 2003 and $10.1 billion in 2002. Generally, factors that affect our earnings - for example, pricing, volume, costs and productivity - affect CFOA similarly. However, while management of working capital, including timing of collections and payments and levels of inventory, affects operating results only indirectly, the effect of these programs on CFOA can

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be significant. Excluding progress collections, working capital improvements benefited CFOA by $2.7 billion since 2002, as we applied our inventory Lean Six Sigma and other working capital management tools broadly.

Our GE Statement of Cash Flows on page 62 shows CFOA in the required format. While that display is of some use in analyzing how various assets and liabilities affected our year-end cash positions, we believe it is also useful to supplement that display and to examine in a broader context the business activities that provide and require cash.

December 31 (In billions)
 
2004
 
2003
 
2002
 
Operating cash collections
 
$
81.6
 
$
68.4
 
$
67.5
 
Operating cash payments
   
(69.5
)
 
(58.9
)
 
(59.4
)
Cash dividends from GECS
   
3.1
   
3.4
   
2.0
 
GE cash from operating activities
 
$
15.2
 
$
12.9
 
$
10.1
 

The most significant source of cash in CFOA is customer-related activities, the largest of which is collecting cash following a product or services sale. GE operating cash collections increased by about $13.2 billion during 2004 and by about $0.9 billion during 2003. These increases are consistent with the changes in comparable GE operating segment revenues, including the 2004 effects of our acquisition of Amersham and the combination of NBC and VUE. Analyses of operating segment revenues on page 28 is the best way of understanding their customer-related CFOA.

The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for the wide range of material and services necessary in a diversified global organization. GE operating cash payments increased in 2004 by about $10.6 billion, primarily because of the effects of our acquisition of Amersham and the combination of NBC and VUE, and decreased in 2003 by about $0.5 billion.

Dividends from GECS represented distribution of a portion of GECS retained earnings, including proceeds from certain business sales, and are distinct from cash from operating activities within the financial services businesses, which increased in 2004 by $4.7 billion to $26.1 billion and decreased in 2003 by $0.1 billion to $21.4 billion. Financial services cash is not necessarily freely available for alternative uses. For example, certain cash generated by our Insurance businesses is restricted by various insurance regulations. See note 23. Further, any reinvestment in financing receivables is shown in cash used for investing, not operating activities. Therefore, maintaining or growing Commercial and Consumer Finance assets requires that we invest much of the cash they generate from operating activities in their earning assets. Also, we have been increasing the equity of our financial services businesses as discussed on page 46. The amount we show in CFOA is the total dividend, including the normal dividend as well as any special dividends such as proceeds from business sales.

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, we believe we are in a sound position to grow dividends, execute on our announced $15 billion share repurchase program and continue making selective investments for long-term growth. With the financial flexibility that comes with excellent credit ratings, we believe that GE and GECS should be well positioned to meet the global needs of its customers for capital and to continue providing our shareowners with good returns.


(44)


Contractual Obligations

As defined by reporting regulations, our contractual obligations for future payments as of December 31, 2004, follow:

   
Payments due by period
 
(In millions)
 
Total
 
2005
 
2006-2007
 
2008-2009
 
2010 and
thereafter
 
Borrowings (note 18) (e)
 
$
370,364
 
$
157,694
 
$
84,926
 
$
47,438
 
$
80,306
 
Interest on borrowings
   
59,000
   
11,000
   
16,000
   
10,000
   
22,000
 
Operating lease obligations (note 4)
   
7,718
   
1,383
   
2,240
   
1,613
   
2,482
 
Purchase obligations(a)(b)
   
53,000
   
35,000
   
11,000
   
4,000
   
3,000
 
Insurance liabilities (note 19)(c)
   
92,000
   
14,000
   
19,000
   
13,000
   
46,000
 
Other liabilities(d)
   
68,000
   
18,000
   
5,000
   
3,000
   
42,000
 

(a)
Included all take-or-pay arrangements, capital expenditures, contractual commitments to purchase equipment that will be classified as equipment leased to others, software acquisition/license commitments, contractual minimum programming commitments and contractually required cash payments for acquisitions.
(b)
Excluded funding commitments entered into in the ordinary course of business by our financial services businesses. Further information on these commitments is provided in note 30.
(c)
Included guaranteed investment contracts, structured settlements and single premium immediate annuities based on scheduled payouts, as well as those contracts with reasonably determinable cash flows such as deferred annuities, universal life, term life, long-term care, whole life and other life insurance contracts as well as workers compensation tabular indemnity loan and long-term liability claims.
(d)
Included an estimate of future expected funding requirements related to our pension and postretirement benefit plans. Because their future cash outflows are uncertain, the following non-current liabilities are excluded from the table above: deferred taxes, derivatives, deferred revenue and other sundry items. Refer to notes 21 and 28 for further information on these items.
(e)
As restated.

Off-Balance Sheet Arrangements

We use off-balance sheet arrangements in the ordinary course of business to improve shareowner returns. Beyond improving returns, these securitization transactions serve as funding sources for a variety of diversified lending and securities transactions. Our securitization transactions are similar to those used by many financial institutions. In a typical transaction, assets are sold by the transferor to a special purpose entity (SPE), which purchases the assets with cash raised through issuance of beneficial interests (usually debt instruments) to third-party investors. Investors in the beneficial interests usually have recourse to the assets in the SPEs and often benefit from credit enhancements supporting the assets (such as overcollateralization). The SPE may a