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LETTER TO STAKEHOLDERS
have high-performing businesses run by talented man-
agers, it is enjoyable to let the world know how the
job is getting done. For example, in July we divided GE
Capital into four distinct financial services businesses,
each with its own growth strategies, leverage and bal-
ance sheet. This makes them easier to grow internally
and clarifies them externally.
I believe in the GE team. I see every day just how
special your GE team is. Its members are diverse and
talented. They have unceasing curiosity and relentless
drive. They understand the magic of GE… that what we
imagine, we can make happen. Leading this group is the
honor of my life. We are committed to work together,
to deliver and always to put the company first.
Your GE team believes in high standards, and
believes that strong integrity is the foundation of great
performance. I hold myself to a high standard, and I
know you will do the same.
Here is how we performed in 2002:
•Earnings before required accounting changes grew 7%
to a record $15.1 billion. Earnings were on track to grow
17% to $16.5 billion, but we recorded a $1.4 billion
charge for increasing ERC’s reserves.
•Revenues grew 5% to $132 billion. Industrial sales grew
8%, more than twice the GDP and exceeding our 2001
growth rate. Financial services revenues were flat,
reflecting lower interest rates. However, net revenues
(revenues less interest costs) of Commercial Finance,
Consumer Finance and Equipment Management grew
a more robust 15%.
•Cash flow from operating activities (excluding progress
collections) reached $15.2 billion, up 10%. Operating mar-
gin and return on average total capital remained near
historic highs at 19% and 24%, respectively.
•We raised our dividend 6% in December, our 27th
consecutive annual increase. Our yield is a very strong
3.1%, the highest at GE in nearly a decade. Overall,
we returned $9 billion to our investors in 2002 through
dividends and stock buybacks.
There is a job that belongs to you and your fellow
investors, and not to me. That is setting a value on
our future prospects in the form of a stock price. Last
year, despite what we saw as a lot of progress in the
face of headwinds, the market revised downward its
perception of our future. Maybe the market had too
rosy a view of many companies, and not just GE.
But that is certainly not the case now. This is a great
company with great prospects. When investors fully
understand that fact — and I intend to make sure they
do — valuation must change.
It starts with understanding our business model,
our strategy for growth and our values.
THE GE BUSINESS MODEL
CEOs don’t make the best economists. We make
commitments, not forecasts. But it’s safe to say
things are very different today than in the late 19 9 0 s.
We seem to be in the third year of a “post-bubble”
cycle, made worse by the 9/11 tragedy. This period is
characterized by slow economic growth— not a dou-
ble dip, but without a spark — with tough pricing,
volatile capital markets, difficult industry cycles, the
threat of war and low corporate trust.
We don’t see this environment as a negative.
Rather, we believe this is an environment in which
companies make their own success. This is the time
for us to create our own growth through bold ideas
and rigorous execution. And we have a business
model that will enable us to grow in this economy.
Our Goal: To grow earnings 10%-plus annually
with 20%-plus return on total capital …reliably,
sustainably, through the cycles. Getting there
depends on our solid business model:
•A diverse set of leading businesses driving performance
•Operating rigor with a focus on cash generation
•Great people in a culture of learning and accountability
A DIVERSE SET OF LEADING BUSINESSES
GE has great businesses, most of which we’ve been in
for decades, some for 80 years or more. In addition to
leading in their markets, these businesses have many
traits in common: an unparalleled technical foundation;
direct customer interfaces; multiple ways to make
money through products, services and financing; global
scale; and low capital intensity. The characteristics of our
businesses allow us to outperform our competitors in
each cycle; the combination of our businesses allows
GE to perform through the cycles.
Power Systems is a great example. In 2002, its
earnings grew nearly 30% as shipments of gas turbines
in the U.S. peaked. This business has generated an
incremental $7 billion of net income for investors during
the four-year gas turbine bubble. We know that Power’s
2003 earnings will be down as the demand for gas
turbines declines. But Power is led by one of our most
experienced teams. As a result, Power has no financial
The GE business model