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This glossary provides definitions for both business and financial terms used throughout the annual report. You may want to print the entire glossary for reference while navigating the site.
Backlog
Unfilled customer orders for products and services.
Borrowing
Financial liability (short- or long-term) that obliges a company to repay cash or other financial asset to another entity.
Cash Equivalents
Highly liquid debt instruments with maturities of less than three months, such as commercial paper. These are typically included with cash for reporting purposes, unless designated as available for sale and included with investment securities.
Cash Flow Hedges
Qualifying derivative instruments used to protect against exposure to volatility in future cash flows. The exposure may be associated with an existing asset or liability, or with a forecasted transaction. See “Hedge.”
Commercial Paper
Unsecured, unregistered promise to repay borrowed funds within a specified period ranging from overnight to 270 days.
Customer Service Agreements
Contractual commitments (also referred to as “product services agreements”) to provide specified services for products in industrial installed base, for example, monitoring, maintenance, overhaul and spare parts for a gas turbine/generator set installed in a customer’s power plant.
Derivative Instrument
A financial instrument or contract with another party (“counterparty”) that is structured to meet any of a variety of financial objectives, including those related to fluctuations in interest rates, currency exchange rates and commodity prices. Options, forwards and swaps are the derivative instruments most commonly employed. See “Hedge.”
Direct Written Premiums
Amounts charged to insureds in exchange for coverages provided in accordance with the terms of an insurance/reinsurance contract.
Earned Premiums
Portion of the premium pertaining to the segment of the policy period for which insurance coverage has been provided.
Effective Tax Rate
Provision for income taxes as a percentage of earnings before income taxes and accounting changes. Does not represent cash paid for income taxes in the current accounting period.
Equipment Leased to Others (ELTO)
Owned equipment available for rent or lease and stated at cost less accumulated depreciation.
Fair Value Hedge
Qualifying derivative instruments used to protect against exposure to volatility in values of hedged assets, liabilities or certain types of firm commitments. Changes in the fair values of derivative instruments that are designated and effective as fair value hedges are recorded in earnings, but are offset by corresponding changes in the fair values of the hedged items. See “Hedge.”
Financial Leverage
The relationship of debt to equity. Expressed for financial services businesses as borrowings divided by equity. Expressed for industrial businesses as borrowings divided by total capital.
Financing Receivables
Investments in contractual loans and leases due from customers (not investment securities).
Forward Contract
Fixed price contract for purchase or sale of a specified quantity of a commodity, security, currency or other financial instrument with delivery and settlement at a specified future date. Commonly used as a hedging tool. See “Hedge.”
Goodwill
The premium paid for acquisition of a business. Calculated as the purchase price less the fair value of net assets acquired (net assets are identified tangible and intangible assets, less liabilities assumed).
Guaranteed Investment Contracts (GICS)
Deposit-type products (including funding agreements) that provide a stated interest rate on funds deposited with the insurer for a stated period. These products are generally purchased by institutionally accredited investors and defined contribution plans qualified under ERISA (the Employee Retirement Income Security Act of 1974).
Hedge
A technique designed to reduce or eliminate risk. Often refers to the use of derivative financial instruments to offset changes in interest rates, currency exchange rates or commodity prices, although many business positions are “naturally hedged” (for example, funding a U.S. fixed-rate investment with U.S. fixed-rate borrowings is a natural interest rate hedge.)
Insurance Receivables
Receivables of insurance businesses associated with: (1) reinsurance agreements in which those businesses legally transferred (ceded) insurance losses (and related premiums) to reinsurers and are entitled to recovery of those insurance losses; (2) premiums on insurance and reinsurance contracts; (3) policy loans to policyholders of certain life insurance contracts; and (4) premium funds on deposit with reinsurance customers as collateral for obligations as a reinsurer.
Intangible Asset
A non-financial asset lacking physical substance, such as goodwill, patents, trademarks and licenses. Also includes present value of future profits, which are anticipated net discounted cash flows to be realized from certain in-force insurance, annuity and investment contracts at the date of acquisition of a life insurance business.
Interest Rate Swap
Agreement under which two counterparties agree to exchange one type of interest rate cash flow for another type of cash flow on specified dates in the future. In a typical arrangement, one party periodically will pay a fixed amount of interest, in exchange for which that party will receive variable payments computed using a published index. See “Hedge.”
Investment Securities
Generally, an instrument that provides an ownership position in a corporation (a stock), a creditor relationship with a corporation or governmental body (a bond), or rights to ownership such as those represented by options, subscription rights and subscription warrants.
Monetization
Sale of financial assets to a third party for cash. For example, GE sells certain loans, credit card receivables and trade receivables to third-party financial buyers, typically providing at least some credit protection and often agreeing to provide collection and processing services for a fee. Monetization of interest-bearing assets such as loans normally results in gains; monetization of non-interest-bearing assets such as trade receivables normally results in losses.
Net Revenues
For lending and leasing businesses, revenues from services less interest and other financial charges.
Operating Margin
Sales of goods and services less the sum of cost of goods and services sold plus selling, general and administrative expenses. Operating margin is often expressed as a percentage of sales—the operating margin rate.
Operating Profit
Earnings before interest and other financial charges, income taxes and effects of accounting changes.
Option
The right, not the obligation, to execute a transaction at a designated price, generally involving equity interests, interest rates, currencies or commodities. See “Hedge.”
Premium
Rate that is charged under insurance/reinsurance contracts.
Present Value of Future Profits
See “Intangible Asset.”
Product Services Agreements
See “Customer Service Agreements.”
Productivity
The rate of increased output for a given level of input, with both output and input measured in constant currency. A decline in output for a given level of input is “negative” productivity.
Progress Collections
Payments received from customers as deposits before the associated work is performed or product is delivered.
Reinsurance
A form of insurance that insurance companies buy for their own protection.
Retrocession Agreement
Contract to acquire third-party insurance protection for reinsurance policies written. Retrocession is a risk mitigation technique.
Return on Average Shareowners’ Equity
Earnings before accounting changes divided by average total equity (on an annual basis, calculated using a five-point average).
Return on Average Total Capital Invested
Earnings before accounting changes plus the sum of after-tax interest and other financial charges and minority interest, divided by the sum of total equity, borrowings and minority interest (on an annual basis, calculated using a five-point average).
Securitization
A process whereby loans or other receivables are packaged, underwritten and sold to investors. In some instances, the assets sold are first transferred to an unconsolidated SPE (Special Purpose Entity). These entities are structured to be bankruptcy remote in order to isolate the credit risk of the assets from the overall credit risk of the selling entity. Outside investors, usually institutions, typically purchase a debt instrument issued by the SPE. Whether or not credit risk associated with the securitized assets is retained by the seller depends on the structure of the securitization. See “Monetization.”
Separate Account
Investments controlled by policyholders and associated with identical amounts reported as insurance liabilities.
Turnover
Broadly based on the number of times that working capital is replaced during a year. Accounts receivable turnover is total sales divided by the five-point average balance of customer receivables from sales of goods and services (trade receivables). Inventory turnover is total sales divided by a five-point average balance of inventories. See “Working Capital.”
Unearned Premiums
Portion of the premium received that relates to future coverage periods.
Unpaid Claims and Claims Adjustment Expenses
Claims reserves for events that have occurred, including both reported and incurred-but-not-reported (IBNR) reserves, and the expenses of settling such claims.
Variable Interest Entity
Entity defined by Financial Accounting Standards Board Interpretation No. 46, and that must be consolidated by its primary beneficiary. A variable interest entity has one or both of the following characteristics: (1) its equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) as a group, the equity investors lack one or more of the following characteristics: (a) direct/indirect ability to make decisions, (b) obligation to absorb expected losses, or (c) right to receive expected residual returns.
Working Capital
Sum of receivables from the sales of goods and services, plus inventories, less trade accounts payable and progress collections.
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