MORE EFFICIENT AND PRODUCTIVE General Electric has always been an efficient and productive Company. The record of our operating margin since 1966 shows that it was above 8% in the mid sixties, and reached 8.3% in the third quarter of 1976. There were two dips, and they make important points. The first was in 1969-70, when we suffered a 101-day strike that ruined our earnings for two years. Since then we have made great strides in improving our union relations, and have worked out two peaceful settlements, including one this year, that recognize the needs of our employees as well as the business. This greatly reduces a serious cyclical threat to our financial health and productivity. The other dip was of course in the deep recession of 1974 and '75, when all industry took the same beating. What we are proud of is the prompt action taken by our managers to control costs and assure a swift recovery. Margin improvement continues to be a major Company objective. Here are some statistics you might ponder: Since 1971, real volume of output has gone up 11%, total employment has risen only 2%, and salaried employment has gone down 4%. General Electric today is more productive and efficient than it was. We continue, of course, to modernize and expand our facilities. During most of this year our plant and equipment expenditures continued at about the same pace as last year, but new projects have been approved and the expenditure rate is picking up. The total year is now estimated at about $480 million, or about 7% higher than last year. We anticipate something like $625 to $650 million next year, up about a third over this year. That's exclusive of Utah, of course. Another important change since 1966 is the improvement in our financial structure. STRONGER FINANCIAL STRUCTURE General Electric has one of the few Triple-A credit ratings in manufacturing, and we value that greatly because it helps to assure our capacity to finance our future growth. We are now in a better position to do so than we were in 1966 or in fact just two years ago. In December 1966 our debt-to- total-capital ratio was 26%. It is at about the same level now. But there is a difference. In 1966, our surplus cash over and above current working needs was zero and we were supporting those three very expensive ventures into computers, jet engines, and nuclear energy. Today, we are not bearing such losses and our surplus cash is approaching a billion dollars. Like most other companies, we were hit hard by the cash crunch of 1974 and our debt-to-total- capital ratio rose sharply in that year. We asked our managers to concentrate on balance-sheet management, and through heroic effort they not only brought us back to 26%, but generated all that additional cash. In fact, if we had used our cash build-up to pay off debt, rather than maintain our current favorable credit arrangements to support future growth, our ratio of debt to total capital would be somewhere in the middle teens. With the addition of Utah International, also a big cash producer these days, General Electric will be well positioned to finance its strategy for future growth in earnings. SOPHISTICATED MANAGEMENT Finally, this new General Electric Company has more sophisticated and adaptive management than it had a decade ago. And that is no aspersion on my colleagues of that earlier time, many of whom are with us still. We have all learned by experience and we are, you might say, the survivors of many successful and unsuccessful ventures over the years. But there is more to this than "The College of Hard Knocks." General Electric has developed and fine-tuned a new management system in the past decade, and the initiative for this came from my predecessor, Fred Borch. We have developed a strategic planning process that works at corporate and operating levels, backed up by management controls and measurement procedures which give us a coherent yet flexible approach to our opportunities. I have described this management system in considerable detail in previous meetings, and reprints of those talks are available if you need them. But any evaluation of General Electric's prospects must take into account the quality of its manage-ment not just the executive group represented here today, but the managers at group, division, and department level. I've been with General Electric for 37 years, and I can say with all sincerity that we have never had a more sophisticated, analytical, entrepreneurial body of managers than we do today. So to sum it up we welcome our new associates from Utah International, and all they will bring to General Electric. After they join us, all our accounting data will be completely recast, not only for 1976 but even for previous years, as if they had always been part of General Electric. So I thought it was important to give you this perspective on the many other changes that have taken place, relating to the figures you already know from our previous financial reports. 14 The New General Electric A new General Electric has been developed in the past decade. . . . . less dependent on traditional product lines; . . . more widely diversified into fast-growing services and materials, and into new equipment businesses; . . . more international in its scope; . . . less vulnerable to inflation and cycles; . . . with greater containment and diversification of its risks; . . . more efficient and productive; . . . better able to finance future growth; . . . and with the most sophisticated management in its long history. It's a new General Electric, but its financial objective remains unchanged: high and sustained earnings growth. 15