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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
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Commission file number 1-6461
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General Electric Capital Corporation
(Exact name of registrant as specified in its charter)
New York 13-1500700
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
260 Long Ridge Road, Stamford, Connecticut 06927 (203) 357-4000
(Address of principal executive offices) (Zip Code) (Registrant's telephone number,
including area code)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
Name of each
Title of each class exchange on which registered
7 7/8% Guaranteed Subordinated New York Stock Exchange
Notes Due December 1, 2006
SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT:
None.
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 |X| 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. |X|
At March 23, 2001, 3,837,825 shares of voting common stock, which constitute all
of the outstanding common equity, with a par value of $200 were outstanding.
Aggregate market value of the outstanding common equity held by nonaffiliates of
the registrant at March 23, 2001. None.
DOCUMENTS INCORPORATED BY REFERENCE
The consolidated financial statements of General Electric Company, set forth in
the Annual Report on Form 10-K of General Electric Company for the year ended
December 31, 2000 are incorporated by reference into Part IV hereof.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.
2
TABLE OF CONTENTS
Page
PART I
Item 1. Business .................................................................................. 1
Item 2. Properties ................................................................................ 12
Item 3. Legal Proceedings ......................................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders ....................................... 12
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ................. 13
Item 6. Selected Financial Data ................................................................... 13
Item 7. Management's Discussion and Analysis of Results of Operations ............................. 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................ 21
Item 8. Financial Statements and Supplementary Data ............................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...... 43
PART III
Item 10. Directors and Executive Officers of the Registrant ........................................ 44
Item 11. Executive Compensation .................................................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and Management ............................ 44
Item 13. Certain Relationships and Related Transactions ............................................ 44
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......................... 45
PART I
Item 1. Business
GENERAL
General Electric Capital Corporation (herein, together with its consolidated
affiliates, called "the Corporation" or "GE Capital" unless the context
otherwise requires) was incorporated in 1943 in the State of New York under the
provisions of the New York Banking Law relating to investment companies, as
successor to General Electric Contracts Corporation, which was formed in 1932.
Until November 1987, the name of the Corporation was General Electric Credit
Corporation. On May 25, 2000, GE Capital's Board of Directors adopted
resolutions approving the reincorporation and change of domicile of GE Capital
from New York to Delaware. This reincorporation is expected to occur in the
first half of 2001. All outstanding common stock of the Corporation is owned by
General Electric Capital Services, Inc. ("GE Capital Services"), formerly
General Electric Financial Services, Inc., the common stock of which is in turn
wholly owned directly or indirectly by General Electric Company ("GE Company").
The business of the Corporation originally related principally to financing the
distribution and sale of consumer and other products of GE Company. Currently,
however, the types and brands of products financed and the services offered are
significantly more diversified. Very few of the products financed by GE Capital
are manufactured by GE Company.
GE Capital operates in five key operating segments that are described below.
These operations are subject to a variety of regulations in their respective
jurisdictions.
Services of the Corporation are offered primarily in the United States, Canada,
Europe and the Pacific Basin. The Corporation's principal executive offices are
located at 260 Long Ridge Road, Stamford, Connecticut 06927 (Telephone number
(203) 357-4000). At December 31, 2000, the Corporation employed approximately
90,200 persons.
The Corporation's principal assets are classified as time sales and loans,
investment in financing leases, equipment on operating leases and investment
securities. The following table presents, by operating segment, these principal
financing products which, together with other assets, constitute the
Corporation's total assets at December 31, 2000 and 1999.
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
FINANCIAL INFORMATION BY OPERATING SEGMENT
(In millions) 2000
--------- ---------- --------- ---------- --------- ----------
Net
investment
Time Net in Allowance
sales investment equipment for
and in on losses
loans, financing operating Investment and all Total
net of leases leases securities other assets
deferred assets
income
--------- ---------- --------- ---------- --------- ----------
CONSUMER SERVICES
GE Financial Assurance ........... $ - $ - $ - $ 55,532 $ 39,625 $ 95,157
Auto Financial Services .......... 1,639 4,353 412 155 431 6,990
GE Card Services ................. 13,110 1 - 412 6,148 19,671
Global Consumer Finance .......... 25,562 4,390 10 183 4,896 35,041
Mortgage Services ................ - - - - - -
Other ............................ 1,673 252 15 321 499 2,760
--------- ---------- --------- ---------- --------- ----------
Total ......................... 41,984 8,996 437 56,603 51,599 159,619
EQUIPMENT MANAGEMENT
Aviation Services ................ 1,223 4,636 9,403 242 2,425 17,929
Fleet Services ................... 96 4,201 2,132 15 2,010 8,454
Information Technology Solutions . - 170 29 1 3,195 3,395
Transport International Pool ..... 53 331 5,086 - 1,737 7,207
GE SeaCo/GE Capital Container
Finance Corporation ........... 13 197 1,186 24 172 1,592
Penske Truck Leasing ............. - - - - 4,206 4,206
GE American Communications........ - - - - 2,268 2,268
Railcar Services ................. - 505 2,359 - 166 3,030
--------- ---------- --------- ---------- --------- ----------
Total ......................... 1,385 10,040 20,195 282 16,179 48,081
MID-MARKET FINANCING
Commercial Equipment Financing ... 16,440 14,468 2,722 91 1,747 35,468
Vendor Financial Services ........ 4,246 6,191 569 20 2,245 13,271
European Equipment Finance ....... 693 5,372 114 - 592 6,771
Other ............................ 127 - - - 47 174
--------- ---------- --------- ---------- --------- ----------
Total ......................... 21,506 26,031 3,405 111 4,631 55,684
SPECIALIZED FINANCING
Real Estate ...................... 11,269 994 2 434 7,320 20,019
Structured Finance Group ......... 3,185 4,848 168 1,439 2,417 12,057
Commercial Finance ............... 13,234 - - 136 2,241 15,611
GE Equity ........................ 49 - - 355 4,178 4,582
Other ............................ - - - 238 21 259
--------- ---------- --------- ---------- --------- ----------
Total ......................... 27,737 5,842 170 2,602 16,177 52,528
SPECIALTY INSURANCE .............. 90 - - 9,549 4,058 13,697
ALL OTHER ........................ 838 21 (62) 1,135 1,095 3,027
--------- ---------- --------- ---------- --------- ----------
TOTAL ............................ $ 93,540 $ 50,930 $ 24,145 $ 70,282 $ 93,739 $ 332,636
========= ========== ========= ========== ========= ==========
(In millions) 1999
--------- ---------- --------- ---------- --------- ----------
Net
investment
Time Net in Allowance
sales investment equipment for
and in on losses
loans, financing operating Investment and all Total
net of leases leases securities other assets
deferred assets
income
--------- ---------- --------- ---------- --------- ----------
CONSUMER SERVICES
GE Financial Assurance ........... $ - $ - $ - $ 43,000 $ 30,590 $ 73,590
Auto Financial Services .......... 2,347 7,090 1,011 96 595 11,139
GE Card Services ................. 12,189 2 - 380 4,958 17,529
Global Consumer Finance .......... 27,414 3,888 85 220 6,267 37,874
Mortgage Services ................ 98 - - 606 4,201 4,905
Other ............................ 1,118 183 7 322 788 2,418
--------- ---------- --------- ---------- --------- ----------
Total ......................... 43,166 11,163 1,103 44,624 47,399 147,455
EQUIPMENT MANAGEMENT
Aviation Services ................ 655 3,583 7,534 101 1,407 13,280
Fleet Services ................... 198 3,413 2,880 25 1,921 8,437
Information Technology Solutions . - 213 17 34 3,384 3,648
Transport International Pool ..... 57 184 4,989 - 1,873 7,103
GE SeaCo/GE Capital Container
Finance Corporation ........... 14 210 1,374 26 188 1,812
Penske Truck Leasing ............. - - - 30 3,527 3,557
GE American Communications........ 54 - - - 2,315 2,369
Railcar Services ................. - 455 2,355 - 125 2,935
--------- ---------- --------- ---------- --------- ----------
Total ......................... 978 8,058 19,149 216 14,740 43,141
MID-MARKET FINANCING
Commercial Equipment Financing ... 14,180 12,257 2,473 225 2,544 31,679
Vendor Financial Services ........ 2,668 5,505 555 48 2,121 10,897
European Equipment Finance ....... 1,464 4,821 51 - 606 6,942
Other ............................ 110 - - - 53 163
--------- ---------- --------- ---------- --------- ----------
Total ......................... 18,422 22,583 3,079 273 5,324 49,681
SPECIALIZED FINANCING
Real Estate ...................... 10,165 1,167 - 351 6,190 17,873
Structured Finance Group ......... 2,632 4,769 387 1,082 1,749 10,619
Commercial Finance ............... 11,265 13 - 58 1,751 13,087
GE Equity ........................ 57 - - 1,579 3,439 5,075
Other ............................ - - - 331 16 347
--------- ---------- --------- ---------- --------- ----------
Total ......................... 24,119 5,949 387 3,401 13,145 47,001
SPECIALTY INSURANCE .............. 28 - - 8,547 1,607 10,182
ALL OTHER ........................ 1,183 11 (115) 2,112 6,790 9,981
--------- ---------- --------- ---------- --------- ----------
TOTAL ............................ $ 87,896 $ 47,764 $ 23,603 $ 59,173 $89,005 $ 307,441
========= ========== ========= ========== ========= ==========
OPERATING SEGMENTS
The Corporation provides a wide variety of financing, asset management, and
insurance products and services which are organized into the following operating
segments:
o Consumer Services - private-label credit card loans, personal loans, time
sales and revolving credit and inventory financing for retail merchants,
auto leasing and inventory financing, mortgage servicing, retail businesses
and consumer savings and insurance services.
o Equipment Management - leases, loans, sales and asset management services
for portfolios of commercial and transportation equipment, including
aircraft, trailers, auto fleets, modular space units, railroad rolling
stock, data processing equipment, containers used on ocean-going vessels
and satellites.
o Mid-Market Financing - loans, financing and operating leases, and other
services for middle-market customers, including manufacturers, distributors
and end-users, for a variety of equipment that includes vehicles, corporate
aircraft, data processing equipment, medical and diagnostic equipment, and
equipment used in construction, manufacturing, office applications,
electronics and telecommunications activities.
o Specialized Financing - loans and financing leases for major capital
assets, including industrial facilities and equipment, and energy-related
facilities; commercial and residential real estate loans and investments;
and loans to and investments in public and private entities in diverse
industries.
o Specialty Insurance - financial guaranty insurance, principally on
municipal bonds and structured finance issues; and private mortgage
insurance.
Refer to Item 7, "Management's Discussion and Analysis of Results of
Operations," in this Annual Report on Form 10-K for a discussion of the
Corporation's Portfolio Quality. A description of the Corporation's principal
businesses by operating segment follows.
CONSUMER SERVICES
GE Financial Assurance
GE Financial Assurance ("GEFA") provides consumers financial security solutions
by selling a wide variety of insurance, investment and retirement products,
payment protection insurance and income protection packages, primarily in North
America, Europe and Asia. These products help consumers accumulate wealth,
transfer wealth, and protect their lifestyles and assets and are sold through a
family of regulated insurance and annuity affiliates.
GEFA's principal product lines in North America and Asia are annuities (deferred
and immediate, fixed and variable), life insurance (universal, term, ordinary
and group), guaranteed investment contracts including funding agreements, mutual
funds, long-term care insurance, supplemental accident and health insurance,
personal lines of automobile insurance and consumer club memberships.
GEFA's principal product lines and services in Europe are payment protection
insurance (designed to protect customers' loan repayment obligations), personal
investment products, and travel and personal accident insurance, as well as
management of uninsured loss claims on behalf of victims of traffic accidents.
GEFA's product distribution in North America, Europe and Asia are accomplished
primarily through four channels: intermediaries (brokerage general agents, banks
and securities brokerage firms), dedicated sales forces, financial advisors, and
affinity based marketing (through electronic-commerce, telemarketing, and direct
mail).
GEFA's principal operating affiliates include General Electric Capital Assurance
Company, First Colony Life Insurance Company, Federal Home Life Insurance
Company, GE Life and Annuity Assurance Company (formerly The Life Insurance
Company of Virginia), Colonial Penn Insurance Company, Union Fidelity Life
Insurance Company, GE Edison Life Insurance Company, GE Insurance Holdings
Limited and GE Life Group Limited.
Effective March 1, 2000, GE Edison Life Insurance Company ("GE Edison"), a
subsidiary of GEFA, acquired the insurance policies and related assets of Toho
Mutual Life Insurance Company by a comprehensive transfer. Total cash,
investment securities and other tangible assets acquired by GE Edison was $20.3
billion, and restructured insurance contracts and other liabilities assumed were
$21.9 billion.
On April 3, 2000, GEFA acquired Phoenix American Life Insurance Company, a
subsidiary of Phoenix Home Life Mutual Insurance Company, for approximately $281
million. Phoenix American Life Insurance Company, based in Hartford,
Connecticut, serves the needs of small business owners by offering a broad range
of products including dental, disability, and life insurance.
Effective July 1, 2000, GEFA acquired 90% of the long-term care insurance
portfolio of Citigroup's Travelers Life & Annuity unit and certain assets
related thereto for $411 million. In addition, GEFA and certain Citigroup
companies entered into agreements to underwrite and distribute long term care
insurance through a long-term strategic alliance. Under this agreement, GEFA
will market to the distribution channels of Citigroup, including Travelers.
GEFA recognizes that consolidation in the financial services industry will
create fewer but larger competitors. GEFA's ability to effectively compete will
be dependent upon, among other things, its ability to reduce its expenses
through the elimination of duplicate functions and the use of enhanced
technology and its ability to bring together its recent acquisitions into
compliant, integrated platforms with common information systems. GEFA has
worked, and will continue to work, to promptly integrate its recent
acquisitions, many of which have enhanced existing distribution channels or
added new ones.
GEFA operates in a highly competitive environment. While GEFA believes it has
assembled a strong collection of products and distribution channels, there are
competitors that have also assembled a similar array of financial products and
have similar strategic goals. GEFA believes that the principal competitive
factors in the sale of insurance and investment products are product features,
commission structure, perceived stability of the insurer, claims paying ability
ratings, service, name recognition and price. Many other companies are capable
of competing for sales in GEFA's target markets. GEFA's ability to compete is
affected in part by its ability to provide competitive products and quality
service to the consumer, general agents, licensed insurance agents and brokers.
GEFA's competition from banks and other financial institutions may increase as a
result of recent federal legislation. The Gramm-Leach-Bliley Act (the Act),
enacted on November 12, 1999, will allow bank holding companies to acquire
insurance companies, and insurance holding companies to acquire banks. Although
the effect of the Act on the industry is uncertain, the ability to retain its
customers and to sell products could be materially affected in the future.
Many of GEFA's activities are subject to regulation by a variety of regulatory
agencies.
GEFA headquarters are in Richmond, Virginia.
Auto Financial Services
GE Capital Auto Financial Services ("AFS") provided financial services in North
America to automobile dealers, manufacturers, banks, financing companies and the
consumer customers of those entities, both through traditional channels and
through the Internet. In the United States, AFS was a leading independent
provider of leases for new and used motor vehicles and of non-prime financing
products. In addition, AFS offered inventory financing programs, off-lease
vehicle sales, productivity enhancing internet solutions, and direct loans to
the industry.
On November 29, 2000, AFS announced its decision to discontinue originating new
lease, loan and commercial transactions effective December 1, 2000. As a result
of this announcement, AFS future operations will consist of servicing their
existing portfolios and re-marketing off-lease vehicles.
AFS headquarters are in Barrington, Illinois.
GE Card Services
GE Card Services ("CS") provides sales financing services to North American
retailers in a broad range of consumer industries. Details of financing plans
differ, but include customized private-label credit card programs with retailers
and inventory financing programs with manufacturers, distributors and retailers.
CS provides financing directly to customers of retailers or purchases the
retailers' customer receivables. Most of the retailers sell a variety of
products of various manufacturers on a time sales basis. The terms for these
financing plans differ according to the size of contract and credit standing of
the customer. Financing is provided to consumers under contractual arrangements,
both with and without recourse to retailers. CS' wide range of financial
services includes application processing, sales authorization, statement
billings, customer services and collection services. CS provides inventory
financing for retailers primarily in the appliance and consumer electronics
industries. CS maintains a security interest in the inventory financed and
retailers are obliged to maintain insurance coverage for the merchandise
financed.
Additionally, CS issues and services the GE Capital Corporate Card product,
providing payment and information systems which help medium and large-sized
companies reduce travel costs and the GE Capital Purchasing Card product, which
helps customers streamline their purchasing and accounts payable processes.
CS competes in the unsecured consumer lending market, doing business principally
in the United States and Canada. CS' operations are subject to a variety of bank
and consumer protection regulations.
The unsecured consumer lending market's principal methods of competition are
price, servicing capability including internet value added e-services and risk
management capability. The unsecured consumer lending market is subject to
various risks including declining retail sales, increases in personal bankruptcy
filings, increasing payment delinquencies and rising interest rates.
CS headquarters are in Stamford, Connecticut.
Global Consumer Finance
GE Capital Global Consumer Finance ("GCF") is a leading provider of credit
services to non-U.S. retailers and consumers. GCF provides private-label credit
cards and proprietary credit services to retailers in Europe, Asia and, to a
lesser extent, South America, as well as offering a variety of
direct-to-consumer credit programs such as consumer loans, auto loans and
finance leases, bankcards and credit insurance.
GCF provides financing to consumers through operations in Argentina, Australia,
Austria, Brazil, China, the Czech Republic, Denmark, France, Germany, Hong Kong,
India, Indonesia, Italy, Japan, Norway, Poland, Portugal, Republic of Ireland,
Spain, Sweden, Switzerland, Thailand, and the United Kingdom.
GCF's operations are subject to a variety of bank and consumer protection
regulations in their respective jurisdictions and a number of countries have
ceilings on rates chargeable to consumers in financial service transactions. The
businesses in which GCF engages 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.
GCF headquarters are in Stamford, Connecticut.
Mortgage Services
GE Capital Mortgage Services, Inc. ("Mortgage Services") engaged primarily in
the business of originating, purchasing, selling and servicing residential
mortgage loans collateralized by one-to-four-family homes located throughout the
United States. Mortgage Services obtained servicing through the origination and
purchase of mortgage loans and servicing rights, and primarily packaged the
loans it originated and purchased into mortgage-backed securities which it sold
to investors. Mortgage Services also originated and serviced home equity loans.
On September 29, 2000, Mortgage Services closed on a transaction with a major
mortgage company, which is owned by a major national bank holding company, to
subservice Mortgage Services' mortgage servicing portfolio and to acquire
Mortgage Services' servicing facility and mortgage origination business.
Mortgage Services retains its financial interest in the servicing portfolio and
the related assets, which are now being managed by Mortgage Insurance. As a
result of this transaction, Mortgage Services will be exiting the business of
originating, purchasing and selling of residential mortgage loans.
Mortgage Services headquarters are in Cherry Hill, New Jersey.
EQUIPMENT MANAGEMENT
Aviation Services
GE Capital Aviation Services ("GECAS") 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
operating leases, sale/leasebacks, aircraft purchasing and trading, financing
leases, engine/spare parts financing, pilot training, fleet planning and
financial advisory services.
GECAS owns or manages a fleet of over 1,000 aircraft world-wide with additional
planes on order or on option from Boeing, Airbus, Fairchild Dornier, Embraer and
Bombardier. GECAS has 173 customers in 60 countries.
GECAS operates in a highly competitive area serving a cyclical industry that has
seen a consolidation of its current and potential customer base. The business
could also be affected by regulatory changes that, if enacted, would reduce the
permissible noise levels emitted from commercial aircraft and affect values of
certain aircraft.
GECAS headquarters are in Stamford, Connecticut, with regional offices in
Shannon, Republic of Ireland; New York, New York; Miami, Florida; Vienna,
Austria; Luxembourg; Beijing and Hong Kong, China; Tokyo, Japan; and Singapore.
Fleet Services
GE Capital Fleet Services ("Fleet") is one of the leading corporate fleet
management companies with operations in North America, Europe, Australia, New
Zealand and Japan and approximately 1.2 million cars and trucks under lease and
service management. Fleet offers finance and operating leases to several
thousand customers with an average lease term of 36 months. The primary product
in North America is a terminal rental adjustment clause lease through which the
customer assumes the residual risk - that is, risk that the book value will be
greater than market value at lease termination. In Europe, the primary product
is a closed-end lease in which Fleet assumes residual risk. In addition to the
services directly associated with the lease, Fleet offers value-added fleet
management services designed to reduce customers' total fleet management costs.
These services include, among others, maintenance management programs, accident
services, national account purchasing programs, fuel programs and title and
licensing services. Fleet's customer base is diversified with respect to
industry and geography and includes many Fortune 500 companies.
Fleet competes both on a local and global basis with other leasing businesses of
various sizes as well as automobile manufacturers. The industry is dependent
upon the attractiveness of leasing and fleet management as a viable alternative
for customers, along with the stability of new and used car prices in certain
markets. Future success will depend upon the ability to maintain a large and
diverse customer portfolio, to estimate used car prices as well as mitigate the
impact of fluctuations in those prices, and to continue to understand and
deliver unique product and service offerings to the customers in the most
efficient and cost effective manner possible.
Fleet headquarters are in Eden Prairie, Minnesota.
Information Technology Solutions
GE Capital Information Technology Solutions ("IT Solutions") is a leading
worldwide provider of a broad array of information technology products and
services, including full life cycle services that provide customers with
cost-effective control and management of their information systems. Products
offered include desktop personal computers, client server systems, UNIX systems,
local and wide area network hardware, and software. Services offered include
network design, network support, asset management, help desk, disaster recovery,
enterprise management and financial services. IT Solutions serves commercial,
educational and governmental customers in 13 countries.
The worldwide competition in information technology products and services is
intense. Competition is very active in all products and services and comes from
a number of principal manufacturers and other distributors and resellers of
information technology products. Markets for products and services are highly
price competitive. Additionally, many information technology product
manufacturers are bypassing traditional information technology resellers in
favor of direct manufacturer relationships with the ultimate end-users.
IT Solutions' North American headquarters are in Newport, Kentucky; its European
headquarters are in Munich, Germany.
Transport International Pool/Modular Space
In April, 1999, Transport International Pool and GE Capital Modular Space were
consolidated to generate cost savings and management synergies. This merger has
resulted in the elimination of duplicate support functions and the integration
of back offices.
Transport International Pool ("TIP") is one of the global leaders in renting,
leasing, selling and financing transportation equipment. TIP's fleet of over
350,000 dry freight, refrigerated and double vans, flatbeds, intermodal assets,
and specialized trailers is available for rent, lease or purchase at over 250
locations in the United States, Europe, Canada, and Mexico. TIP's commercial
vehicle fleet of over 24,000 units is available for rent, lease, or purchase in
the United Kingdom. TIP also finances new and used trailers and buys trailer
fleets. TIP's customer base comprises trucking companies, railroads, shipping
lines, manufacturers and retailers.
TIP's competitive environment is made up of a few large national competitors and
many smaller, often changing regional players. TIP is a major participant in the
transportation renting, leasing, selling and financing market. The industry is
characterized by thin operating margins and continued consolidation of
companies, with their volume driven by the gross domestic product and their
costs affected by fuel prices and driver labor. The ability to remain
competitive will require the continued expansion of value-added services around
the core business of renting, leasing and financing transportation equipment.
GE Capital Modular Space ("Modular Space") provides commercial mobile and
modular structures for rental, lease and sale from over 100 facilities in the
United States, Europe, Canada and Mexico. The primary markets served include
construction, education, healthcare, financial, commercial, institutional and
government. Modular Space products are available as custom mobile and modular
buildings, designed to customer specifications, or are available through the
Modular Space stock fleet of approximately 125,000 mobile and modular units.
Competition consists primarily of national modular companies and regional/local
competitors who provide services in selected territories. Modular Space also
competes with construction companies on permanent structure opportunities.
Competitive factors for rental and lease customers include price, condition and
availability of local fleet. Factors for custom and fleet sales opportunities
include price, alternative solutions, and delivery.
TIP/Modular Space have offices in North America and Europe. The world
headquarters for TIP/Modular Space are in Devon, Pennsylvania. Modular Space's
European headquarters are in Awtwerp, Belgium. TIP operates a European service
center in Amsterdam, The Netherlands, and a commercial vehicle operation and
administrative center in Manchester, England.
GE SeaCo/GE Capital Container Finance Corporation
In May 1998, GE Capital and Sea Containers Ltd. formed GE SeaCo SRL ("GE
SeaCo"), a joint venture which operates the combined marine container fleets of
Genstar Container Corporation ("Genstar") and Sea Containers Ltd. GE SeaCo is
one of the world's largest lessors of marine shipping containers with a combined
fleet of over 1,100,000 twenty foot equivalent units of dry cargo, refrigerated
and specialized containers for global cargo transport. Lessees are primarily
shipping lines that lease on a long term or master lease basis.
Concurrent with the formation of the joint venture, GE Capital Container Finance
Corporation ("Container Finance") was created to service the existing finance
lease portfolio formerly run by Genstar, and to provide traditional finance
leases and structured finance products to the global marine container industry.
The marine container leasing industry continues to be cyclical due to periods of
excess capacity and changes in trade volumes. Further risk is attributable to
the lessees, which are the major steamship lines and which exhibit cyclical
results and generally weak financial condition, exposing GE SeaCo/Container
Finance to customer credit risk. GE SeaCo is subject to asset value compression
resulting from declining new container prices and positioning risk attributed to
the increased use of one-way leases.
Container Finance competes directly with financial institutions that may lend at
lower rates and more advantageous terms. Finance leases are on a fixed rate
basis thus exposing Container Finance to interest rate risk. All of Container
Finance's finance lease customers are located outside of the United States and
are exposed to risk associated with trade flow changes, foreign exchange,
political risk, and industry structural changes.
GE SeaCo headquarters are in Bridgetown, Barbados. Container Finance
headquarters are in Oakland, California.
Penske Truck Leasing
GE Capital is a limited partner in Penske Truck Leasing ("Penske"), which is a
leading provider of full-service truck leasing and commercial and consumer truck
rental in the United States. Penske operates through a national network of
full-service truck leasing and rental facilities. At December 31, 2000, Penske
had a fleet of about 103,000 tractors, trucks and trailers in its leasing and
rental fleets and provided contract maintenance programs or other support
services for about 42,000 additional vehicles.
Penske also provides dedicated logistics operations support which combines
company-employed drivers with its full-service lease vehicles to provide
dedicated contract carriage services. In addition, Penske offers supply chain
services such as distribution consulting, warehouse management and information
systems support.
Penske competes with several other companies conducting nationwide truck leasing
and rental operations, a large number of regional truck leasing companies, many
similar companies operating primarily on a local basis and both local and
nationwide common and contract carriers.
On a nationwide basis, Penske offers full-service truck leasing, commercial
rental and logistics services. In its leasing and support services, Penske
competes primarily on the basis of customer service. Geographic location, price
and equipment availability are also important competitive factors in this
business. In its consumer rental operations, Penske competes primarily on the
basis of equipment availability, price, geographic location and customer
service.
Penske headquarters are in Reading, Pennsylvania.
GE American Communications
GE American Communications ("GE Americom") is a leading satellite service
supplier to a diverse array of customers, including the broadcast and cable TV
industries, as well as broadcast radio. It is also a leading supplier of
integrated communications services for government and commercial customers. GE
Americom operates 14 communications satellites and maintains a supporting
network of earth stations, central terminal offices, and telemetry, tracking and
control facilities.
Through a recent acquisition and the successful launch of the GE-1A satellite
through its joint venture, Americom Asia-Pacific LLC, GE Americom's satellite
fleet will be globally connected to deliver service in the Americas, Europe and
Asia-Pacific. As a provider of global satellite services, GE Americom is subject
to the regulatory authority of the United States (notably, the Federal
Communications Commission), the regulatory authority of other countries in which
GE Americom operates, and the frequency coordination process of the
International Telecommunications Union. As a result, the ability to provide
services in a particular country could be affected by new or changing laws,
regulations, and policies implemented by such regulatory authorities.
GE Americom headquarters are in Princeton, New Jersey.
Rail Services
GE Capital Rail Services ("GERSCO") is one of the leading railcar leasing
companies in North America, with a fleet of 190,000 railcars in its total
portfolio. Serving Class 1 and short-line railroads and shippers throughout
North America, GERSCO offers one of the most diverse fleets in the industry and
a variety of lease options.
GERSCO also owns and operates a network of railcar repair and maintenance
facilities located throughout North America. The repair facilities offer a
variety of services, ranging from light maintenance to heavy repair of damaged
railcars. The company also provides railcar management, administration and other
services.
In addition, GERSCO is a pan-European provider of rail transport services,
offering a broad range of railcar equipment and rail-related services to
railroads, shippers and other transport providers.
Traditional competitors include railroads, stand-alone leasing companies and
other owners of railcar fleets, diversified financial institutions, and railcar
builders. Customers who lease railcars also have the choice of purchasing them,
either outright or through a financed sale. Certain segments of the North
American railcar leasing industry continue to be affected by an oversupply of
cars. Ongoing technology changes in car design and capacity are also impacting
car supply. In Europe, liberalization and privatization of national railroads
continue to significantly impact the rail industry. In addition, on both
continents, changes in supply and demand for commodities shipped by rail also
impact the demand for cars. In that regard, the trucking industries on both
continents continue to make inroads into traditional haulage by rail. The
interaction and timing of these forces across the portfolio of cars can impact
the profitability of GERSCO. The ability to remain competitive will require the
commitment to constant productivity gains and improvement in its breadth and
quality of service through the implementation of technology and process
improvements.
European sales offices are in England, France, Germany, Italy and Sweden. GERSCO
headquarters are in Chicago, Illinois.
MID-MARKET FINANCING
Commercial Equipment Financing
GE Capital Commercial Equipment Financing ("CEF") offers a broad line of
financial products including leases and loans to middle-market customers,
including manufacturers, distributors, dealers and end-users, as well as
municipal financing and facilities financing. Products are either held for CEF's
own account or brokered to third parties.
Generally, transactions range in size from $50 thousand to $50 million, with
financing terms from 36 to 180 months. CEF also maintains an asset management
operation that redeploys off-lease equipment. The portfolio includes loans and
leases for vehicles, manufacturing equipment, corporate aircraft, construction
equipment, medical diagnostic equipment, office equipment, telecommunications
equipment and electronics.
The global equipment financing industry continues to be highly fragmented and
intensely competitive. Competitors in the U.S. domestic and international
markets include independent financing companies, financing subsidiaries of
equipment manufacturers, and banks (national, regional, and local). Industry
participants compete not only on the basis of interest rates and fees charged
customers but also on deal structures and credit terms. CEF's profitability is
affected not only by broad economic conditions that impact customer credit
quality and the availability and cost of capital, but also by successful
management of credit risk, operating risk and such market risks as interest rate
risk, foreign exchange risk and liquidity risk. Important factors to continued
success include maintaining strong risk management systems, diverse product,
service and distribution channels, strong collateral and asset management
knowledge, deal structuring expertise, as well as, reducing costs by improving
productivity through enhanced use of technology.
CEF operates from offices throughout the Americas, Europe, Asia and Australia
and through joint ventures in Indonesia and China. CEF headquarters are in
Danbury, Connecticut.
Vendor Financial Services
GE Capital Vendor Financial Services ("VFS") provides financing services to over
100 equipment manufacturers and more than 3,500 dealers in North America, Europe
and Asia (including Japan). Customers include major U.S. and non-U.S.
manufacturers in a variety of industries including information technology,
office equipment, healthcare, telecommunications, energy and industrial
equipment. VFS establishes sales financing in two ways - by forming captive
partnerships with manufacturers that do not have them, and by outsourcing
captive partnerships from manufacturers that do (captive partnerships provide
sales financing solely for products of a given manufacturer). VFS offers
industry-specific knowledge, leading edge technology, leasing and equipment
expertise, and global capabilities. In addition, VFS provides an expanding array
of related financial services to customers, including trade payables services.
An economic slowdown would impact the continued expansion of the equipment
financing industry, intensifying a competitive pricing environment and
pressuring delinquencies and residual realization. The ability to remain
competitive will depend upon, among other things, the ability to drive down
costs through the significant investment in productivity initiatives and the
ability to continue to effectively manage its spread of risk in industry sectors
and equipment categories in conjunction with vendor partners.
VFS has sales offices throughout the United States, Canada, Europe, Asia
(including Japan), and Australia. VFS headquarters are in Danbury, Connecticut.
European Equipment Finance
GE Capital European Equipment Finance ("EEF") is one of Europe's leading
diversified equipment leasing businesses, offering financial solutions on a
single-country and pan-European basis. Customers include manufacturers, vendors
and end-users in industries such as office imaging, materials handling,
corporate aircraft, information technology, broadcasting, machine tools,
telecommunications and transportation. Products and services include loans,
leases, off-balance sheet financing, master lease coordination and other
services, such as helping end-users increase purchasing power through financing
options and helping manufacturers and vendors offer leasing programs.
EEF is subject to competition from various types of financial institutions,
including leasing companies, commercial and investment banks, and finance
companies associated with manufacturers. Consolidation in the financial services
industry will create fewer but larger competitors. EEF continues to be affected
by pricing pressures in a rising rate environment and slow growth in some of its
markets. Its ability to effectively compete in a changing environment will
depend upon, among other things, its ability to increase productivity and offer
innovative financial products and services. Operations are subject to varying
degrees of regulation in several jurisdictions.
EEF operates from offices in the United Kingdom, Italy, France, Germany,
Belgium, Republic of Ireland, Portugal, Switzerland and the Nordic countries.
EEF headquarters are in Hounslow, England.
SPECIALIZED FINANCING
Real Estate
GE Capital Real Estate ("Real Estate") provides funds for the acquisition,
refinancing and renovation of a wide range of commercial and residential
properties located throughout the United States, and, to a lesser extent, in
Canada, Mexico, Europe, and the Far East. Real Estate also provides asset
management services to real estate investors and selected services to real
estate owners.
Lending is a major portion of Real Estate's business in the form
of intermediate-term senior or subordinated fixed and floating-rate loans
secured by existing income-producing commercial properties such as office
buildings, rental apartments, shopping centers, industrial buildings, mobile
home parks, hotels and warehouses. Loans range in amount from single-property
mortgages typically not less than $5 million to multi-property portfolios of
several hundred million dollars. Approximately 90% of all loans are senior
mortgages.
Real Estate purchases and provides restructuring financing for portfolios of
real estate, mortgage loans, limited partnerships, and tax-exempt bonds. Real
Estate's business also includes the origination and securitization of low
leverage real estate loans, which are intended to be held less than one year
before outplacement. To a lesser degree, Real Estate provides equity capital for
real estate partnerships through the holding of limited partnership interests
and receives preferred returns; typically such investments range from $2 million
to $10 million.
Real Estate also offers a variety of asset management services to outside
investors, institutions, corporations, investment banks, and others through its
real estate services subsidiaries. Asset management services include
acquisitions and dispositions, strategic asset management, asset restructuring,
and debt and equity management. Real Estate also provides investment products
and advisory and asset management services to pension fund clients through GE
Capital Investment Advisors, its registered investment advisor, as well as loan
administration and servicing through GE Capital Asset Management. In addition,
Real Estate offers owners of multi-family housing ways to reduce costs and
enhance value in properties by offering buying services (e.g., for appliances
and roofing).
Competition is intense in each of Real Estate's areas and across all product
lines. Competitors include local, regional and, increasingly, multi-national
lenders and investors. Important competitive factors in Real Estate's lending
activities include financing rates, loan proceeds, loan structure and the
ability to complete transactions quickly. Where Real Estate provides equity
capital, principal competitive factors include the valuation of underlying
properties and investment structure as well as transaction cycle time.
Real Estate has offices throughout the United States, as well as in Canada,
Mexico, Australia, Japan, Sweden, France and the United Kingdom. Real Estate
headquarters are in Stamford, Connecticut.
Structured Finance Group
GE Capital Structured Finance Group ("SFG") makes equity investments and
provides specialized financial products and services to its client partners in
the commercial and industrial, energy, telecommunications, and industrial and
transportation sectors, worldwide.
SFG combines industry and technical expertise to deliver a full range of
sophisticated financial services and products. Services include project finance
(construction and term), corporate finance, acquisition finance and arrangement
and placement services. Products include a variety of debt and equity
instruments, as well as structured transactions, including leasing and
partnerships. SFG manages an investment portfolio of approximately $12 billion.
SFG's competition is diverse and global, ranging from large financial
institutions to small niche capital providers. Additionally, two of SFG's client
industry segments, telecommunications and energy, are faced with extraordinary
challenges fostered by deregulation, globalization and technical innovation.
Both of these industries have been recently experiencing significant increases
in demand for their products and services. The ability to remain competitive
will require innovative and unique ways of providing capital, based on industry
knowledge and competitive pricing, as well as the ability to properly assess
credit risks and effectively manage portfolios.
SFG headquarters are in Stamford, Connecticut, and it has offices in Atlanta,
Georgia; Chicago, Illinois; Houston, Texas, and New York, New York.
Internationally, SFG is represented through affiliates in London, United
Kingdom; Frankfurt, Germany; Milan, Italy; Hong Kong, China; and Tokyo, Japan.
Commercial Finance
GE Capital Commercial Finance ("CF") is a leading provider of revolving and term
debt and equity to finance acquisitions, business expansion, bank refinancings,
recapitalizations and other special situations. Products also include asset
securitization facilities, capital expenditure lines and bankruptcy-related
facilities. Transactions typically range in size from under $2 million to over
$200 million.
CF's clients are owners, managers and buyers of both public and
private companies, principally manufacturers, distributors, retailers and
diversified service providers, and CF has industry specialists in the
healthcare, retail and communications industries. Through its Merchant Banking
Group, CF provides senior debt, subordinated debt and bridge financing to buyout
and private equity firms, and co-invests in equity with buying groups or invests
directly on a select basis.
The corporate financing business is characterized by intense competition from a
variety of lenders and factoring services providers, including local, regional,
national and international banks and non-bank financing institutions.
Competition is based on interest rates, fees, credit terms, and transaction
structures. In addition to these factors, successful management of credit risks
within the existing customer loan portfolio also affects profitability.
Important factors to continued success include maintaining deal structuring
expertise, strong risk management systems, and collateral management knowledge.
CF headquarters are in Stamford, Connecticut. CF has lending operations in 25
cities, including international offices in Canada, Mexico, Thailand, Australia,
The Netherlands, and the United Kingdom, and also has significant factoring
operations in France, Germany, the United Kingdom and Italy serving European
companies and U.S. exporters.
GE Equity
GE Equity (formerly Equity Capital Group) purchases equity investments in
early-stage, early growth, pre-IPO companies with a primary objective of
long-term capital appreciation. GE Equity's portfolio consists primarily of
direct investments in convertible preferred and common stocks in both public and
private companies; GE Equity also participates in certain investment limited
partnerships. The portfolio includes investments in the technology and
communications, media and entertainment, business services, financial services
and healthcare sectors. The portfolio is geographically diversified with
investments located throughout the United States, as well as in Latin America,
Europe and Asia.
GE Equity operates in a highly competitive environment and competes with other
domestic and foreign institutions. Competitors include corporate investors,
private equity firms, investment banking companies, and a variety of other
financial services and advisory companies. GE Equity seeks to develop meaningful
business relationships with investees by offering GE's network of brands,
services and management expertise. GE Equity's competitive environment is
subject to the cyclical nature of the industries it invests in, as well as the
momentum in the stock market.
GE Equity headquarters are in Stamford, Connecticut.
SPECIALTY INSURANCE
Financial Guaranty Insurance
FGIC Holdings ("FGIC"), through its subsidiary, Financial Guaranty Insurance
Company ("Financial Guaranty"), is an insurer of municipal bonds, including new
issues, bonds traded in the secondary market and bonds held in unit investment
trusts and mutual funds. Financial Guaranty also guarantees certain taxable
structured debt. The in force guaranteed principal, after reinsurance, amounted
to approximately $150.6 billion at December 31, 2000. Approximately 86% of the
business written by Financial Guaranty is municipal bond insurance.
FGIC subsidiaries provide a variety of services to state and local governments
and agencies, liquidity facilities in variable-rate transactions, municipal
investment products and other services.
The municipal bond insurance business is fairly mature. This environment
requires FGIC to place increasing emphasis on strategies that differentiate its
offerings. Additionally, the stable nature of the industry continues to attract
interest from potential new competitors, such as multiline insurance companies.
Important factors to continued success include maintaining strong
capitalization, superior customer service and competitive pricing.
FGIC headquarters are in New York, New York.
Mortgage Insurance
GE Capital Mortgage Insurance ("Mortgage Insurance") is engaged principally in
providing residential mortgage guaranty insurance. Operating in 30 field
locations, Mortgage Insurance is licensed in 50 states, the District of Columbia
and the U.S. Virgin Islands. At December 31, 2000, Mortgage Insurance was the
mortgage insurance carrier for over 1,690,000 residential homes, with total
insurance in force aggregating approximately $156 billion and total risk in
force aggregating approximately $66 billion. When a claim is received, Mortgage
Insurance either pays up to a guaranteed percentage based on the specified
coverage, or pays the mortgage and delinquent interest, taking title to the
property and arranging for its sale. Mortgage Insurance also provides mortgage
guaranty insurance in the United Kingdom, Canada, and Australia.
The mortgage insurance industry is sensitive to the interest rate environment
and housing market conditions. The mortgage insurance industry is intensely
competitive as excess market capacity seeks to underwrite business being
generated from a consolidating customer base. In addition, considerable
influence is exerted on the industry by two government-sponsored enterprises,
which buy the majority of the loans insured by mortgage insurers.
Mortgage Insurance headquarters are in Raleigh, North Carolina.
OTHER
Wards
All other consists primarily of Montgomery Ward, LLC ("Wards") from August 2,
1999, when GECS acquired control of the retailer upon its emergence from
bankruptcy reorganization, to December 28, 2000, when Wards again filed for
bankruptcy protection. The retailer is currently in liquidation.
REGULATIONS AND COMPETITION
The Corporation's activities are subject to a variety of federal and state
regulations including, at the federal level, the Consumer Credit Protection Act,
the Equal Credit Opportunity Act and certain regulations issued by the Federal
Trade Commission. A majority of states have ceilings on rates chargeable to
customers in retail time sales transactions, installment loans and revolving
credit financing. Common carrier services of GE Americom are subject to
regulation by the Federal Communications Commission. Insurance and reinsurance
operations are subject to regulation by various state insurance commissions or
foreign regulatory authorities, as applicable. The Corporation's international
operations are subject to regulation in their respective jurisdictions. To date,
compliance with such regulations has not had a material adverse effect on the
Corporation's financial position or results of operations.
The businesses in which the Corporation engages are highly competitive. The
Corporation is subject to competition from various types of financial
institutions, including banks, thrifts, investment banks, broker-dealers, credit
unions, leasing companies, consumer loan companies, independent finance
companies, finance companies associated with manufacturers, insurance and
reinsurance companies.
Business and economic conditions
The Corporation's businesses are generally affected by general business and
economic conditions in countries in which the Corporation conducts business.
When overall economic conditions deteriorate in those countries, there generally
are adverse effects on the Corporation's operations, although those effects are
dynamic and complex. For example, a downturn in employment or economic growth in
a particular national or regional economy will generally increase the pressure
on customers, which generally will result in deterioration of repayment patterns
and a reduction in the value of collateral. However, in such a downturn, demand
for loans and other products and services offered by the Corporation may
actually increase. Interest rates, another macro-economic factor, are important
to the Corporation's businesses. In the lending and leasing businesses, higher
real interest rates increase the Corporation's cost to borrow funds, but also
provide higher levels of return on new investments. For the Corporation's
operations that are less directly linked to interest rates, such as the
insurance operations, rate changes generally affect returns on investment
porfolios.
FORWARD LOOKING STATEMENTS
This document includes certain "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
based on management's current expectations and are subject to uncertainty and
changes in circumstances. Actual results may differ materially from these
expectations due to changes in global economic, business, competitive market and
regulatory factors.
Item 2. Properties.
The Corporation conducts its business from various facilities, most of which are
leased.
Item 3. Legal Proceedings.
The Corporation is not involved in any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Omitted.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
See note 13 to the consolidated financial statements. The common stock of the
Corporation is owned entirely by GE Capital Services and, therefore, there is no
trading market in such stock.
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with the
financial statements of GE Capital and consolidated affiliates and the related
Notes to Consolidated Financial Statements.
Year ended December 31
-----------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
-------------- -------------- -------------- -------------- --------------
Revenues ............................ $ 54,267 $ 46,605 $ 41,405 $ 33,404 $ 26,570
Net earnings ........................ 4,289 4,208 3,374 2,729 2,632
Return on common equity (a) (b) ..... 18.97% 21.81% 20.33% 18.62% 20.18%
Ratio of earnings to fixed charges .. 1.52 1.60 1.50 1.48 1.53
Ratio of earnings to combined fixed
charges and preferred stock
dividends ......................... 1.50 1.58 1.48 1.46 1.51
Ratio of debt to equity ............. 7.53 8.44 7.86 7.45 7.84
Financing receivables - net ......... $ 140,500 $ 132,023 $ 118,098 $ 101,133 $ 97,287
Total assets ........................ 332,636 307,441 269,050 228,777 200,816
Short-term borrowings................ 117,482 123,073 107,419 91,680 74,971
Long-term senior notes .............. 78,078 68,164 57,486 44,437 46,124
Long-term subordinated notes ........ 698 698 697 697 697
Minority interest ................... 1,344 1,767 1,137 860 679
Equity .............................. 26,073 22,746 21,069 18,373 15,526
(a) Common equity excludes unrealized gains and losses on investment
securities, net of tax.
(b) Return on common equity is calculated using earnings that are adjusted for
preferred stock dividends and common equity excludes preferred stock.
Item 7. Management's Discussion and Analysis of Results of Operations.
Overview
The Corporation's net earnings were $4,289 million in 2000, up 2% from $4,208
million in 1999, with strong double-digit earnings growth in four of the five
operating segments. Net earnings in 1999 increased 25% from 1998. The earnings
improvement throughout the three-year period resulted from asset growth,
principally from acquisitions of businesses and portfolios, and origination
volume.
On December 28, 2000, Montgomery Ward, LLC (Wards), formerly a GE Capital
subsidiary, filed for bankruptcy protection and began liquidation proceedings.
Net earnings for the year 2000 included operating losses from Wards amounting to
$245 million as well as a charge, primarily to other costs and expenses, for
$815 million ($537 million, after tax) to recognize the additional losses
resulting from the bankruptcy of Wards.
Net earnings in 2000 also included an after-tax gain of $133 million from sale
of the Corporation's investment in common stock of Paine Webber Group, Inc.
(PaineWebber) and strategic rationalization costs of $347 million, primarily
from asset write-downs, employee severance and lease termination.
Operating Results
Total Revenues increased 16% to $54.3 billion in 2000, following a 13% increase
to $46.6 billion in 1999. The increases in both years reflected the
contributions of acquired businesses as well as growth in origination volume.
Revenues in 2000 included a gain of $219 million ($133 million, after tax) from
sale of the Corporation's investment in common stock of PaineWebber.
Interest expense on borrowings in 2000 was $10.5 billion, up from $8.9 billion
in 1999 and $8.6 billion in 1998. The increase in both years reflected the
effects of both interest rates and the average level of borrowings used to
finance asset growth. The average composite interest rate was 5.84% in 2000,
compared with 5.11% in 1999 and 5.90% in 1998. In 2000, average assets of $322.0
billion were 14% higher than in 1999, which in turn were 15% higher than in
1998. See the Capital Resources and Liquidity section for a discussion of
interest rate management.
Operating and administrative expenses were $16.4 billion in 2000, an increase
from $13.5 billion in 1999 and $11.7 billion in 1998. The increase in 2000
reflected increased costs associated with acquired businesses and portfolios,
the charges discussed previously for Wards, and the decision to rationalize
certain operations discussed in the analysis of the All Other operating segment.
The 1999 increase reflected increased costs associated with acquired businesses
and portfolios and higher investment levels.
Insurance losses and policyholder and annuity benefits increased to $7.7 billion
in 2000, compared with $5.6 billion in 1999 and $5.5 billion in 1998, reflecting
effects of business acquisitions and growth in premium volume throughout the
period.
Cost of goods sold amounted to $8.5 billion in 2000, compared with $8.0 billion
in 1999 and $6.8 billion in 1998, and relates to IT Solutions and Wards. The
increase in 2000 and 1999 primarily reflects the consolidation of Wards from
August 2, 1999, when the Corporation acquired control, through December 28,
2000, when Wards commenced liquidation proceedings and was deconsolidated.
Provision for losses on financing receivables was $2.0 billion in 2000, compared
with $1.7 billion in 1999 and $1.6 billion in 1998. These provisions principally
related to private-label credit cards, bank credit cards, personal loans and
auto loans and leases in the consumer services operations, all of which are
discussed in the Portfolio Quality section. The provision throughout the
three-year period reflected higher average receivable balances, changes in the
mix of business, and the effects of lower average consumer delinquency rates.
Depreciation and amortization of buildings and equipment and equipment on
operating leases increased 5% to $3.3 billion in 2000, compared with $3.1
billion in 1999, a 21% increase over 1998. The increase in both years was
primarily the result of higher levels of short-lived equipment on operating
leases, primarily reflecting acquisitions of vehicles and aircraft.
Provision for income taxes was $1.6 billion in 2000 (an effective tax rate of
26.6%), compared with $1.6 billion in 1999 (an effective tax rate of 27.0%) and
$1.2 billion in 1998 (an effective tax rate of 26.0%).
Financing spreads (the excess of yields over interest rates on borrowings)
increased slightly during 2000, as the improvement in yields outpaced increases
in borrowing rates. Financing spreads in 1999 were relatively flat compared with
1998 as yields and borrowing rates decreased to a similar extent.
Operating Segments
Revenues and net earnings of the Corporation, by operating segment, for the past
three years are summarized and discussed below. For additional information, see
note 16 to the consolidated financial statements.
(In millions) 2000 1999 1998
--------------- -------------- --------------
Revenues
Consumer Services ................................................ $ 23,439 $ 18,659 $ 17,612
Equipment Management ............................................. 14,677 15,329 14,879
Mid-Market Financing ............................................. 5,484 4,633 3,676
Specialized Financing ............................................ 5,496 4,501 3,300
Specialty Insurance .............................................. 1,782 1,648 1,672
All other ........................................................ 3,389 1,835 266
--------------- -------------- --------------
Total revenues ................................................ $ 54,267 $ 46,605 $ 41,405
=============== ============== ==============
Net earnings
Consumer Services ................................................ $ 1,590 $ 1,138 $ 845
Equipment Management ............................................. 833 684 806
Mid-Market Financing ............................................. 734 597 471
Specialized Financing ............................................ 1,486 1,243 740
Specialty Insurance .............................................. 404 541 428
All other ........................................................ (758) 5 84
--------------- -------------- --------------
Total net earnings ............................................ $ 4,289 $ 4,208 $ 3,374
=============== ============== ==============
Consumer Services revenues increased 26% in 2000 and 6% in 1999, and net
earnings increased 40% in 2000 and 35% in 1999. Growth in revenues and net
income in 2000 resulted from higher premium and investment income at GE
Financial Assurance (GEFA), the consumer savings and insurance business, which
experienced profitable growth from both acquisitions and volume. Revenues and
net earnings also increased as a result of acquisition and volume growth at Card
Services and Global Consumer Finance, partially offset by losses at Mortgage
Services, which stopped accepting new business during 2000. The growth in
revenues and net earnings during 1999 was led by Global Consumer Finance and
improved results at GEFA, partially offset by the effects of asset reductions in
Card Services. The portfolio at Auto Financial Services (AFS) began to run off
in 1999 and continued in 2000, resulting in a significant decline in revenues;
during 2000, AFS stopped accepting new business.
Equipment Management revenues declined 4% in 2000, following a 3% increase in
1999, as higher revenues from GE Capital Aviation Services (GECAS), Transport
International Pool, GE Capital Modular Space and Americom, the satellite
services business, were more than offset by lower revenues at IT Solutions. The
increase in 1999 reflected acquisitions in the corporate auto fleet management
operations and higher revenues at GECAS, largely offset by decreases in sales
volume at the remaining equipment management businesses. Net earnings increased
22% in 2000, following a 15% decrease in 1999. The increase in 2000 reflected
volume growth at GECAS, Transport International Pool and GE Capital Modular
Space, favorable tax effects and a higher level of asset gains, partially offset
by lower results at IT Solutions. The decrease in net earnings in 1999 reflected
lower results at IT Solutions and the European equipment management businesses,
which more than offset growth at GECAS and Americom.
Mid-Market Financing revenues increased 18% in 2000, following a 26% increase in
1999, while net earnings grew 23% and 27%, respectively. Favorable tax effects
and asset growth from originations were the most significant contributing
factors to results in 2000, while asset growth from both acquisitions and
originations was the most significant contributing factor in 1999.
Specialized Financing revenues rose 22% and 36%, while net earnings increased
20% and 68% in 2000 and 1999, respectively. Revenues and net earnings growth in
2000 was principally the result of origination growth across all businesses
within Specialized Financing. Revenues and net earnings growth in 1999 was
principally the result of gains on equity investments led by GE Equity,
Commercial Finance and Real Estate. GE Equity experienced a high level of gains
on sales of equity investments during 1999 and early 2000.
Specialty Insurance revenues increased 8% in 2000 following a 1% decrease in
1999. The increase in 2000 revenues was primarily the result of increased
revenues in Mortgage Insurance, partially offset by decreased revenues in
Financial Guarantee Insurance. Net earnings decreased 25% in 2000 following a
26% increase in 1999. The 2000 decrease primarily reflected reduced earning from
bond refunding and a lower level of realized gains at Financial Guarantee
Insurance. The 1999 increase primarily reflected improved conditions in the
Mortgage Insurance business, resulting from improvement in loss experience.
All Other included the results of Wards from August 2, 1999, through December
28, 2000. The increase in revenues in 2000 also included a pre-tax gain of $219
million from sale of the Corporation's investment in common stock of
PaineWebber. The net loss of $758 million for 2000 comprised the PaineWebber
after-tax gain of $133 million, after-tax charges of $537 million related to
Wards and after-tax strategic rationalization costs of $347 million, primarily
for asset write-downs, employee severance and lease termination. These strategic
rationalization costs consisted of $107 million related to Consumer Services,
$191 million related to Equipment Management and $49 million related to
Specialized Financing.
Portfolio Quality
Financing receivables is the largest category of assets of the Corporation and
represents one of its primary sources of revenues. The portfolio of financing
receivables, before allowance for losses, increased to $144.5 billion at the end
of 2000 from $135.7 billion at the end of 1999, as discussed in the following
paragraphs. The related allowance for losses at the end of 2000 amounted to $4.0
billion ($3.6 billion at the end of 1999), representing management's best
estimate of probable losses inherent in the portfolio.
A discussion of the quality of certain elements of the financing receivables
portfolio follows. "Nonearning" receivables are those that are 90 days or more
delinquent (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.
Consumer financing receivables, primarily credit card and personal loans and
auto loans and leases, were $46.8 billion at year-end 2000, a decrease of $3.9
billion from year-end 1999. Credit card and personal receivables decreased $0.2
billion, primarily from sales and securitizations and the net effects of foreign
currency translation, partially offset by origination volume. Auto receivables
decreased $3.7 billion, primarily as a result of the run-off of the liquidating
Auto Financial Services portfolio and the net effects of foreign currency
translation. Nonearning consumer receivables at year-end 2000 were $1.0 billion,
about 2.3% of outstandings, compared with $0.9 billion, about 1.8% of
outstandings at year-end 1999. Write-offs of consumer receivables increased to
$1.3 billion from $1.2 billion for 1999, reflecting shifts in the mix of
products and global businesses. Consistent with industry trends, consumer
delinquency rates increased somewhat toward the end of 2000 from the unusually
low levels earlier in the year but were below year-end 1999 levels.
Other financing receivables, which totaled $97.7 billion at December 31, 2000,
consisted of a diverse commercial, industrial and equipment loan and lease
portfolio. This portfolio increased $12.7 billion during 2000, reflecting
increased originations and acquisition growth, partially offset by sales and
securitizations and the net effects of foreign currency translation. Related
nonearning and reduced-earning receivables were $0.9 billion, about 1.0% of
outstandings at year-end 2000, compared with $0.9 billion, about 1.1% of
outstandings at year-end 1999.
The Corporation's loans and leases to commercial airlines amounted to $15.3
billion at the end of 2000, up from $11.8 billion at the end of 1999. The
Corporation's commercial aircraft positions also included financial guarantees,
funding commitments and aircraft orders as discussed in note 6 to the
consolidated financial statements.
International Operations
The Corporation's international operations include its operations located
outside the United States and certain of its operations that cannot be
meaningfully associated with specific geographic areas (for example, commercial
aircraft). The Corporation's international revenues were $21.9 billion in 2000,
an increase of 22% from $18.0 billion in 1999. Revenues in the Pacific Basin
almost doubled in 2000, principally because of growth in Japan, the result of
the purchase by GE Financial Assurance of the insurance policies and related
assets of Toho Mutual Life Insurance Company (Toho). Global revenues, revenues
which cannot be meaningfully associated with specific geographic areas,
increased 19% in 2000, largely a result of higher revenues at GE Capital
Aviation Services (GECAS). Overall, these increases reflect the continued
expansion of the Corporation as a global provider of a wide range of financial
services. International assets grew 17%, from $106.2 billion at year-end 1999 to
$124.5 billion at the end of 2000. The increase in 2000 reflected strong growth
in the Pacific Basin, particularly in Japan, resulting from the acquisition of
Toho discussed previously. The Corporation also achieved significant asset
growth at GECAS.
The Corporation's activities span all global regions and primarily encompass
leasing of aircraft and providing certain financial services within these
regional economies. As such, when certain countries or regions such as the
Pacific Basin and Latin America experience currency and/or economic stress, the
Corporation may have increased exposure to certain risks but also may have new
profit opportunities. Potential increased risks include, among other things,
higher receivable delinquencies and bad debts, delays or cancellation of sales
and orders principally related to aircraft, higher local currency financing
costs and a slowdown in established financial services activities. New profit
opportunities include, among other things, more opportunities for lower cost
outsourcing, expansion of financial services activities through purchases of
companies or assets at reduced prices and lower U.S. debt financing costs.
Capital Resources and Liquidity
Statement of Financial Position
Investment securities for each of the past two years comprised mainly
investment-grade debt securities held by GE Financial Assurance and the
Corporation's specialty insurance segment in support of obligations to
policyholders and annuitants. Investment securities were $70.3 billion in 2000,
compared with $59.2 billion in 1999. The increase of $11.1 billion resulted from
the addition of securities from acquired companies, investment of premiums
received and increases in the fair value of debt securities, partially offset by
the disposition of the Corporation's investment in common stock of PaineWebber
and a decrease in the fair value of certain equity securities, consistent with
market conditions. A breakdown of the investment securities portfolio is
provided in note 2 to the consolidated financial statements.
Inventories were $666 million and $1,209 million at December 31, 2000 and 1999,
respectively. The decrease in 2000 primarily relates to the deconsolidation of
Wards because of its bankruptcy filing.
Financing receivables were $140.5 billion at year-end 2000, net of allowance for
doubtful accounts, up $8.5 billion over 1999. These receivables are discussed in
the Portfolio Quality section and in notes 3 and 4 to the consolidated financial
statements.
Insurance receivables were $12.1 billion at year-end 2000, an increase of $4.2
billion that was primarily attributable to acquisitions.
Other receivables, which consist of trade receivables, accrued investment
income, operating lease receivables and a variety of sundry items, were $14.3
billion and $16.8 billion at December 31, 2000 and 1999, respectively. The
decrease of $2.5 billion primarily resulted from the planned run-off of assets
from the 1999 acquisition of Japan Leasing Corporation.
Equipment on operating leases was $24.1 billion at December 31, 2000, up $0.5
billion from 1999. Details by category of investment can be found in note 6 to
the consolidated financial statements. Additions to equipment on operating
leases were $11.4 billion during 2000 ($13.4 billion during 1999), primarily
reflecting acquisitions of transportation equipment.
Intangible assets were $13.2 billion at year-end 2000, up from $13.1 billion at
year-end 1999. The $0.1 billion increase in intangible assets related primarily
to goodwill and other intangibles associated with acquisitions, the largest of
which was the acquisition of the insurance policies and related assets of Toho
by GE Financial Assurance.
Other assets totaled $48.1 billion at year-end 2000, compared with $42.5 billion
at the end of 1999. The $5.7 billion increase was principally attributed to
additional investments in real estate ventures and associated companies, and
increases in "separate accounts" (see note 9), partially offset by decreases in
assets acquired for resale, which reflected sales and securitizations in excess
of originations.
Insurance liabilities, reserves and annuity benefits were $79.9 billion, $19.2
billion higher than in 1999. The increase was primarily attributable to the
addition of liabilities from acquisitions, increases in separate accounts, and
growth in guaranteed investment contracts. For additional information on these
liabilities, see note 11 to the consolidated financial statements.
Borrowings were $196.3 billion at December 31, 2000, of which $117.5 billion is
due in 2001 and $78.8 billion is due in subsequent years. Comparable amounts at
the end of 1999 were $191.9 billion total, $123.1 billion due within one year
and $68.8 billion due thereafter. The Corporation's composite interest rates are
discussed in the Interest Expense section of Operating Results. A large portion
of the Corporation's borrowings ($88.1 billion and $90.5 billion at the end of
2000 and 1999, respectively) was issued in active commercial paper markets that
management believes will continue to be a reliable source of short-term
financing. The average remaining terms and interest rates of the Corporation's
commercial paper were 45 days and 6.43% at the end of 2000, compared with 53
days and 5.82% at the end of 1999. The Corporation's ratio of debt to equity was
7.53 to 1 at the end of 2000 and 8.44 to 1 at the end of 1999.
GE Company has committed to contribute capital to GE Capital in the event of
either a decrease below a specified level in the ratio of GE Capital's earnings
to fixed charges, or a failure to maintain a specified debt-to-equity ratio in
the event certain GE Capital preferred stock is redeemed. GE Company also has
guaranteed the Corporation's subordinated debt with a face amount of $700
million at December 31, 2000 and 1999. Management believes the likelihood that
GE Company will be required to contribute capital under either the commitments
or the guarantee is remote.
Statement of Cash Flows
The Corporation's cash and equivalents aggregated $5.8 billion at the end of
2000, down from $6.5 billion at year-end 1999 principally as a result of
liquidation of short term investments, partially offset by $13.2 billion of cash
acquired in connection with the acquisition of the insurance policies and
related assets of the Toho. The cash acquired with Toho is shown as cash from
financing activities. Paydown of the acquired Toho insurance policies ($4.4
billion in 2000) appears as a usage under the caption "Insurance liabilities and
reserves" and was a primary cause of the decrease in the Corporation's cash from
operating activities in 2000.
One of the primary sources of cash for the Corporation is financing activities
involving the continued rollover of short-term borrowings and appropriate
addition of borrowings with a reasonable balance of maturities. Over the past
three years, the Corporation's borrowings with maturities of 90 days or less
have increased by $18.6 billion. New borrowings of $134.2 billion having
maturities longer than 90 days were added during those years, while $89.9
billion of such longer-term borrowings were retired. The Corporation also
generated $35.6 billion from operating activities.
The principal use of cash by the Corporation has been investing in assets to
grow its businesses. Of the $107.9 billion that the Corporation invested over
the past three years, $32.1 billion was used for additions to financing
receivables; $31.8 billion was used to invest in new equipment, principally for
lease to others; and $27.0 billion was used for acquisitions of new businesses,
the largest of which were Japan Leasing and the credit card operations of JC
Penney, both in 1999.
With the financial flexibility that comes with excellent credit ratings,
management believes the Corporation should be well positioned to meet the global
needs of its customers for capital and to continue growing its diversified asset
base.
Interest Rate and Currency Risk Management
In normal operations, the Corporation must deal with effects of changes in
interest rates and currency exchange rates. The following discussion presents an
overview of how such changes are managed and a view of their potential effects.
The Corporation uses various financial instruments, particularly interest rate
and currency swaps, but also futures, options and currency forwards, to manage
risks. The Corporation is exclusively an end user of these instruments, which
are commonly referred to as derivatives. The Corporation does not engage in any
trading, market-making or other speculative activities in the derivative
markets. More detailed information regarding these financial instruments, as
well as the strategies and policies for their use, is contained in notes 1, 10
and 20 to the consolidated financial statements.
The Corporation manages its exposure to changes in interest rates, in part, by
funding its assets with an appropriate mix of fixed and variable rate debt and
its exposure to currency fluctuations principally by funding local currency
denominated assets with debt denominated in those same currencies. It uses
interest rate swaps, currency swaps (including non-U.S. currency and cross
currency interest rate swaps) and currency forwards to achieve lower borrowing
costs. Substantially all of these derivatives have been designated as modifying
interest rates and/or currencies associated with specific debt instruments.
These financial instruments allow the Corporation to lower its cost of funds by
substituting credit risk for interest rate and currency risks. Since the
Corporation's principal use of such swaps is to optimize funding costs, changes
in interest rates and exchange rates underlying swaps would not be expected to
have a material impact on the Corporation's financial position or results of
operations. The Corporation conducts almost all activities with these
instruments in the over-the-counter markets.
The Corporation is exposed to prepayment risk in certain of its business
activities, such as in its mortgage servicing and annuities activities. In order
to hedge those exposures, the Corporation uses swaps, futures, and option-based
financial instruments. These instruments generally behave based on limits
("caps", "floors" or "collars") on interest rate movement. These swaps, futures
and option-based instruments are governed by the credit risk policies described
below and are transacted in either exchange-traded or over-the-counter markets.
In addition, as part of its ongoing customer activities, the Corporation may
enter into swaps that are integrated into investments in, loans to or guarantees
of the obligations of particular customers. Such integrated swaps not involving
assumption of third party credit risk are evaluated and monitored like their
associated investments, loans or guarantees, and are not therefore subject to
the same credit criteria that would apply to a stand-alone position. All other
swaps, forward contracts and other derivatives have been designated as hedges of
non-U.S. net investments or other assets.
Established practices require that derivative financial instruments relate to
specific asset, liability or equity transactions or to currency exposures.
Substantially all treasury actions are centrally executed by the Corporation's
Treasury Department, which maintains controls on all exposures, adheres to
stringent counterparty credit standards and actively monitors marketplace
exposures.
Given the ways in which the Corporation uses swaps, purchased options and
forwards, the principal risk is credit risk - risk that counterparties will be
financially unable to make payments in accordance with the agreements.
Associated market risk is meaningful only as it relates to how changes in the
market value affect credit exposure to individual counterparties. Except as
noted above for positions that are integrated into financings, all swaps,
purchased options and forwards are carried out within the following credit
policy constraints.
o Once a counterparty reaches a credit exposure limit (see table below),
no additional transactions are permitted until the exposure with that
counterparty is reduced to an amount that is within the established
limit. Open contracts remain in force.
Counterparty credit criteria Credit rating
-------------------------------
Standard &
Moody's Poor's
-------------- --------------
Term of transaction
Between one and five years ...................................... Aa3 AA-
Greater than five years ......................................... Aaa AAA
Credit exposure limits
Up to $50 million ............................................... Aa3 AA-
Up to $75 million ............................................... Aaa AAA
o All swaps are executed under master swap agreements containing mutual
credit downgrade provisions that provide the ability to require
assignment or termination in the event either party is downgraded
below A3 or A-.
More credit latitude is permitted for transactions having original maturities
shorter than one year because of their lower risk.
The conversion of interest rate and currency risk into credit risk results in a
need to monitor counterparty credit risk actively. At December 31, 2000, the
notional amount of long-term derivatives for which the counterparty was rated
below Aa3/AA- was $1.2 billion. These amounts are primarily the result of (1)
counterparty downgrades, (2) transactions executed prior to the adoption of the
Corporation's current counterparty credit standards, and (3) transactions
relating to acquired assets or businesses.
Following is an analysis of credit risk exposures for the last three years.
Percentage of Notional Derivative Exposure by Counterparty Credit Rating
- --------------------------------------------------------------------------------------------------------------------
Moody's/Standard & Poor's 2000 1999 1998
------------------------- --------------- --------------- ---------------
Aaa/AAA ......................................................... 64% 59% 66%
Aa/AA ........................................................... 35% 37% 32%
A/A and below ................................................... 1% 4% 2%
The optimal funding strategy is sometimes achieved by using multiple swaps. For
example, to obtain fixed rate U.S. dollar funding, several alternatives are
generally available. One alternative is a swap of non-U.S. dollar denominated
fixed rate debt into U.S. dollars. The synthetic U.S. dollar denominated debt
would be effectively created by taking the following steps: (1) issuing fixed
rate, non-U.S. currency denominated debt, (2) entering into a swap under which
fixed rate non-U.S. currency denominated interest will be received and floating
rate non-U.S. currency denominated interest will be paid, and (3) entering into
a swap under which floating rate non-U.S. currency principal and interest will
be received and fixed rate U.S. dollar denominated principal and interest will
be paid. The end result is, in every important respect, fixed rate U.S. dollar
denominated financing with an element of controlled credit risk. The Corporation
uses multiple swaps only as part of such transactions.
The interplay of the Corporation's credit risk policy with its funding
activities is seen in the following example, in which the Corporation is assumed
to have been offered three alternatives for funding five-year fixed rate U.S.
dollar assets with five-year fixed rate U.S. dollar debt.
Spread over
U.S. Treasuries
in basis points Counterparty
----------------- ------------------
1. Fixed rate five-year medium-term note ................................. +65 -
2. U.S. dollar commercial paper swapped into five-year U.S. dollar
fixed rate funding ................................................ +40 A
3. Swiss franc fixed rate debt swapped into five-year U.S. dollar fixed
rate funding ...................................................... +35 B
Counterparty A is a major brokerage house with a Aaa/AAA rated swap subsidiary
and a current exposure to the Corporation of $39 million. Counterparty B is a
Aa2/AA rated insurance company with a current exposure of $50 million.
In this hypothetical case, the Corporation would have chosen alternative 2.
Alternative 1 is unacceptably costly. Although alternative 3 would have yielded
a lower immediate cost of funds, the additional credit risk of Counterparty B
would have exceeded the Corporation's risk management limits.
The U.S. Securities and Exchange Commission requires that registrants disclose
information about potential effects of changes in interest rates and currency
exchange. Although the rules offer alternatives for presenting this information,
none of the alternatives is without limitations. The following discussion is
based on so-called "shock-tests," which model effects of interest rate and
currency shifts on the reporting company. Shock tests, while probably the most
meaningful analysis permitted, are constrained by several factors, including the
necessity to conduct the analysis based on a single point in time and by their
inability to include the complex market reactions that normally would arise from
the market shifts modeled. While the following results of shock tests for
interest rates and currencies may have some limited use as benchmarks, they
should not be viewed as forecasts.
o One means of assessing exposure to interest rate changes is a
duration-based analysis that measures the potential loss in net earnings
resulting from a hypothetical increase in interest rates of 100 basis
points across all maturities (sometimes referred to as a "parallel shift in
the yield curve"). Under this model, it is estimated that, all else
constant, such an increase, including repricing effects in the securities
portfolio, would reduce the 2001 net earnings of the Corporation based on
year-end 2000 positions by approximately $93 million. Based on conditions
at year-end 1999, the effect on 2000 net earnings of such an increase in
interest rates was estimated to be approximately $96 million.
o One means of assessing exposure to changes in currency exchange rates is to
model effects on reported earnings using a sensitivity analysis. Year-end
2000 consolidated currency exposures, including financial instruments
designated and effective as hedges, were analyzed to identify Corporation
assets and liabilities denominated in other than their relevant functional
currency. Net unhedged exposures in each currency were then remeasured
assuming a 10% decrease (substantially greater decreases for
hyperinflationary currencies) in currency exchange rates compared with the
U.S. dollar. Under this model, it is estimated that, all else constant,
such a decrease would have an insignificant effect on 2001 net earnings of
the Corporation based on year-end 2000 positions. Based on conditions at
year-end 1999, the effect on 2000 net earnings of such a decrease in
exchange rates was estimated to be insignificant for the Corporation.
Statement of Changes in Share Owners' Equity
Share owners' equity increased $3,327 million to $26,073 million at year-end
2000. The increase was largely attributable to net earnings during the period of
$4,289 million, partially offset by dividends and other transactions with
shareowners of $642 million.
Currency translation adjustments reduced equity by $344 million in 2000. Changes
in the currency translation adjustment reflect the effects of changes in
currency exchange rates on the Corporation's net investment in non-U.S.
subsidiaries that have functional currencies other than the U.S. dollar. The
decrease during 2000 largely reflected continued weakening in the Euro.
Accumulated currency translation adjustments affect net earnings only when all
or a portion of an affiliate is disposed of.
New Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued, then subsequently
amended, Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, effective for the
Corporation on January 1, 2001. Upon adoption, all derivative instruments
(including certain derivative instruments embedded in other contracts) will be
recognized in the balance sheet at their fair values; changes in such fair
values must be recognized immediately in earnings unless specific hedging
criteria are met. Effects of qualifying changes in fair value will be recorded
in equity pending recognition in earnings as offsets to the related earnings
effects of the hedged items. Management estimates that, at January 1, 2001, the
effects on its consolidated financial statements of adopting SFAS No. 133, as
amended, will be a one-time reduction of net earnings of less than $0.1 billion,
and a one-time reduction of equity, excluding the net earnings effect, of less
than $1.0 billion. The precise transition effect is uncertain because the
accounting for certain derivatives and hedging relationships in accordance with
SFAS No. 133 is subject to further interpretation by the FASB.
The Emerging Issues Task Force of the FASB reached a consensus on impairment
accounting for beneficial interests in securitized financial assets (beneficial
interests). Under this consensus, impairment on certain beneficial interests
must be recognized when (1) the asset's fair value is below its carrying value,
and (2) it is probable that there has been an adverse change in estimated cash
flows. The Corporation previously recognized impairment on such assets when the
asset's carrying value exceeded estimated cash flows discounted at a risk-free
rate of return. Management estimates that upon adoption on January 1, 2001, the
accounting change will result in a one-time charge of less than $125 million,
principally for declines in market values of residual investments from the
discontinued mortgage servicing business.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information about potential effects of changes in interest rates and currency
exchange on the Corporation is discussed in the Interest Rate and Currency Risk
Management section of Item 7.
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
General Electric Capital Corporation:
We have audited the consolidated financial statements of General Electric
Capital Corporation and consolidated affiliates as listed in Item 14. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule listed in Item 14. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of General Electric
Capital Corporation and consolidated affiliates at December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Stamford, Connecticut
February 2, 2001
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Statement of Earnings
For the years ended December 31 (In millions) 2000 1999 1998
-------------- -------------- --------------
REVENUES
Time sales, loan and other income .................................. $ 21,519 $ 17,893 $ 14,518
Operating lease rentals ............................................ 6,179 6,020 5,402
Financing leases.................................................... 3,692 3,587 4,267
Investment income .................................................. 5,458 4,390 4,184
Premium and commission income of insurance affiliates (Note 11) .... 8,011 5,975 5,660
Sales of goods ..................................................... 9,408 8,740 7,374
-------------- -------------- --------------
Total revenues ................................................... 54,267 46,605 41,405
-------------- -------------- --------------
EXPENSES
Interest ........................................................... 10,461 8,936 8,618
Operating and administrative (Note 14) ............................. 16,379 13,500 11,669
Insurance losses and policyholder and annuity benefits (Note 11) ... 7,697 5,564 5,544
Cost of goods sold ................................................. 8,537 7,976 6,777
Provision for losses on financing receivables (Note 4) ............. 1,975 1,655 1,595
Depreciation and amortization of buildings and equipment and
equipment on operating leases (Notes 6 & 7) ...................... 3,288 3,145 2,594
Minority interest in net earnings of consolidated affiliates ....... 86 68 49
-------------- -------------- --------------
Total expenses ................................................... 48,423 40,844 36,846
-------------- -------------- --------------
Earnings before income taxes ....................................... 5,844 5,761 4,559
Provision for income taxes (Note 15) ............................... (1,555) (1,553) (1,185)
-------------- -------------- --------------
NET EARNINGS ....................................................... $ 4,289 $ 4,208 $ 3,374
============== ============== ==============
Statement of Changes in Share Owners' Equity
(In millions) 2000 1999 1998
-------------- -------------- --------------
CHANGES IN SHARE OWNERS' EQUITY
Balance at January 1 ............................................... $ 22,746 $ 21,069 $ 18,373
-------------- -------------- --------------
Dividends and other transactions with share owners (Note 13) ....... (642) (1,086) (706)
-------------- -------------- --------------
Changes other than transactions with share owners:
Increases attributable to net earnings ........................... 4,289 4,208 3,374
Unrealized gains (losses) on investment securities - net (Note 13) 24 (1,330) 22
Currency translation adjustments (Note 13) ....................... (344) (115) 6
-------------- -------------- --------------
Total changes other than transactions with share owners ......... 3,969 2,763 3,402
-------------- -------------- --------------
Balance at December 31 ............................................. $ 26,073 $ 22,746 $ 21,069
============== ============== ==============
See Notes to Consolidated Financial Statements.
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Statement of Financial Position
At December 31 (In millions) 2000 1999
-------------- ---------------
ASSETS
Cash and equivalents ............................................................ $ 5,819 $ 6,505
Investment securities (Note 2) .................................................. 70,282 59,173
Financing receivables (Note 3):
Time sales and loans, net of deferred income ................................. 93,540 87,896
Investment in financing leases, net of deferred income ....................... 50,930 47,764
-------------- ---------------
144,470 135,660
Allowance for losses on financing receivables (Note 4) ....................... (3,970) (3,637)
-------------- ---------------
Financing receivables - net ................................................ 140,500 132,023
Insurance Receivables (Note 5)................................................... 12,060 7,893
Other receivables ............................................................... 14,308 16,784
Inventories ..................................................................... 666 1,209
Equipment on operating leases (at cost), less accumulated amortization of $7,900
and $7,391 (Note 6) ........................................................... 24,145 23,603
Buildings and equipment (at cost), less accumulated depreciation of $1,999 and
$2,034 (Note 7) ............................................................... 3,511 4,728
Intangible assets - net (Note 8) ................................................ 13,216 13,073
Other assets (Note 9) ........................................................... 48,129 42,450
-------------- ---------------
Total assets ................................................................. $ 332,636 $ 307,441
============== ===============
LIABILITIES AND SHARE OWNERS' EQUITY
Short-term borrowings (Note 10) ................................................. $ 117,482 $ 123,073
Long-term borrowings (Note 10) .................................................. 78,776 68,862
-------------- ---------------
Total borrowings ............................................................. 196,258 191,935
Accounts payable ................................................................ 9,484 8,759
Insurance liabilities, reserves and annuity benefits (Note 11) .................. 79,933 60,775
Other liabilities ............................................................... 11,280 12,678
Deferred income taxes (Note 15) ................................................. 8,264 8,781
-------------- ---------------
Total liabilities ............................................................ 305,219 282,928
-------------- ---------------
Minority interest in equity of consolidated affiliates (Note 12) ................ 1,344 1,767
-------------- ---------------
Variable cumulative preferred stock, $100 par value, liquidation preference
$100,000 per share (33,000 shares authorized at December 31, 2000 and 1999
and 26,000 shares outstanding at December 31, 2000 and 1999) .................. 3 3
Common stock, $200 par value (3,866,000 shares authorized and 3,837,825 shares
outstanding at December 31, 2000 and 1999, respectively) ...................... 768 768
Additional paid-in capital ...................................................... 6,347 5,383
Retained earnings ............................................................... 19,694 17,011
Accumulated unrealized (losses) gains on investment securities - net (a) ........ (139) (163)
Accumulated foreign currency translation adjustments (a) ........................ (600) (256)
-------------- ---------------
Total share owners' equity (Note 13) ......................................... 26,073 22,746
-------------- ---------------
Total liabilities and share owners' equity ................................... $ 332,636 $ 307,441
============== ===============
(a) The sum of accumulated unrealized (losses) gains on investment securities
and accumulated foreign currency translation adjustments constitutes
"Accumulated nonowner changes other than earnings," as shown in Note 13,
and was ($739) million and ($419) million at year-end 2000 and 1999,
respectively.
See Notes to Consolidated Financial Statements.
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Statement of Cash Flows
For the years ended December 31 (In millions) 2000 1999 1998
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings .................................................... $ 4,289 $ 4,208 $ 3,374
Adjustments to reconcile net earnings to cash provided from
operating activities:
Depreciation and amortization of buildings and equipment and
equipment on operating leases ............................. 3,288 3,145 2,594
Provision for losses on financing receivables ............... 1,975 1,655 1,601
Amortization of goodwill and other intangibles .............. 2,020 1,083 858
Increase in deferred income taxes ........................... 514 854 601
Decrease (increase) in inventories .......................... (261) 327 81
Increase (decrease) in accounts payable ..................... 3,089 (215) 1,491
Increase (decrease) in insurance liabilities and reserves ... (2,890) 2,085 2,466
Other - net ................................................. (1,969) 757 (1,392)
-------------- ---------------- ---------------
Cash from operating activities ................................ 10,055 13,899 11,674
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in financing receivables (Note 19) ................. (15,397) (10,889) (5,815)
Buildings and equipment and equipment on operating leases
- additions .................................................. (11,384) (13,432) (6,942)
- dispositions ............................................... 6,680 6,252 4,027
Payments for principal businesses purchased, net of cash acquired
(Note 19) .................................................... (1,176) (9,823) (15,959)
All other investing activities (Note 19) ........................ (13,649) (8,182) (12,179)
--------------- --------------- ---------------
Cash used for investing activities ............................ (34,926) (36,074) (36,868)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities of 90 days or less) ........ (2,445) 6,865 14,160
Newly issued debt (maturities longer than 90 days) (Note 19) .... 46,188 46,556 41,440
Repayments and other reductions (maturities longer than
90 days) (Note 19) .......................................... (31,907) (26,924) (31,027)
Dividends paid .................................................. (1,612) (1,537) (895)
Issuance of variable cumulative preferred stock in excess of par
value ........................................................ - 300 70
Issuance of variable cumulative preferred stock by consolidated
affiliate .................................................... - 213 200
All other financing activities (Note 19) ........................ 13,961 127 (322)
--------------- --------------- ---------------
Cash from financing activities ................................ 24,185 25,600 23,626
--------------- --------------- ---------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR ..... (686) 3,425 (1,568)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ....................... 6,505 3,080 4,648
--------------- --------------- ---------------
CASH AND EQUIVALENTS AT END OF YEAR ............................. $ 5,819 $ 6,505 $ 3,080
=============== =============== ===============
See Notes to Consolidated Financial Statements.
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements represent the adding
together of General Electric Capital Corporation ("the Parent") and all of its
majority-owned and controlled affiliates ("consolidated affiliates"),
(collectively called "the Corporation"). All outstanding common stock of the
Parent is owned by General Electric Capital Services, Inc. ("GE Capital
Services"), all of whose common stock is owned, directly or indirectly, by
General Electric Company ("GE Company"). All significant transactions among the
Parent and consolidated affiliates have been eliminated. Other associated
companies, generally companies that are 20% to 50% owned and over which the
Corporation, directly or indirectly, has significant influence, are included in
other assets and valued at the appropriate share of equity plus loans and
advances. Certain prior-year amounts have been reclassified to conform to the
current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and related disclosures. Actual results could differ
from those estimates.
Methods of Recording Revenues from Services (Earned Income) - Income on all
loans is recognized on the interest method. Accrual of interest income is
suspended at the earlier of the time at which collection of an account becomes
doubtful or the account becomes 90 days delinquent. Interest income on impaired
loans is recognized either as cash is collected or on a cost recovery basis as
conditions warrant.
Financing lease income is recorded on the interest method so as to produce a
level yield on funds not yet recovered. Estimated unguaranteed residual values
of leased assets are based primarily on periodic independent appraisals of the
values of leased assets remaining at expiration of the lease terms.
Operating lease income is recognized on a straight-line basis over the terms of
the underlying leases.
Origination, commitment and other nonrefundable fees related to fundings are
deferred and recorded in earned income on the interest method. Commitment fees
related to loans not expected to be funded and line-of-credit fees are deferred
and recorded in earned income on a straight-line basis over the period to which
the fees relate. Syndication fees are recorded in earned income at the time
related services are performed unless significant contingencies exist.
Income from investment and insurance activities is discussed on pages 27 and 28.
Sales of Goods - A sale is recorded when title passes to the customer.
Cash and Equivalents - Certificates and other time deposits are treated as cash
equivalents.
Recognition of Losses on Financing Receivables and Investments - The allowance
for losses on small-balance receivables reflects management's best estimate of
probable losses inherent in the portfolio determined principally on the basis of
historical experience. For other receivables, principally the larger loans and
leases, the allowance for losses is determined primarily on the basis of
management's best estimate of probable losses, including specific allowances for
known troubled accounts.
All accounts or portions thereof deemed to be uncollectible or to require an
excessive collection cost are written off to the allowance for losses.
Small-balance accounts generally are written off when 6 to 12 months delinquent,
although any such balance judged to be uncollectible, such as an account in
bankruptcy, is written down immediately to estimated realizable value.
Large-balance accounts are reviewed at least quarterly, and those accounts with
amounts that are judged to be uncollectible are written down to estimated
realizable value.
When collateral is repossessed in satisfaction of a loan, the receivable is
written down against the allowance for losses to estimated fair value of the
asset less costs to sell, transferred to other assets and subsequently carried
at the lower of cost or estimated fair value less costs to sell. This accounting
method has been employed principally for specialized financing transactions.
Investment Securities - Investments in debt and marketable equity securities are
reported at fair value based primarily on quoted market prices or, if quoted
prices are not available, discounted expected cash flows using market rates
commensurate with credit quality and maturity of the investment. Substantially
all investment securities are designated as available for sale, with unrealized
gains and losses included in equity, net of applicable taxes and other
adjustments. Unrealized losses that are other than temporary are recognized in
earnings. Realized gains and losses are accounted for on the specific
identification method.
Inventories - The Corporation's inventories consist primarily of finished
products held for sale. All inventories are stated at the lower of cost or
realizable values. Cost is primarily determined on a first-in, first-out basis.
Equipment on Operating Leases - Equipment is amortized, principally on a
straight-line basis, to estimated residual value over the lease term or over the
estimated economic life of the equipment.
Buildings and Equipment - Depreciation is recorded on either a sum-of-the-years
digits formula or a straight-line basis over the lives of the assets.
Intangible Assets - Goodwill is amortized over its estimated period of benefit
on a straight-line basis; other intangible assets are amortized on appropriate
bases over their estimated lives. No amortization period exceeds 40 years. When
an intangible asset exceeds associated expected operating cash flows, it is
considered to be impaired and is written down to fair value, which is determined
based on either discounted future cash flows or appraised values.
Interest Rate and Currency Risk Management - Upon adoption of Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, on January 1, 2001, certain financial instruments and
portions of other financial instruments will be defined to be derivatives. After
that date, all derivatives will be carried at their fair values, and all changes
in fair values will affect net earnings or share owners' equity immediately.
As a matter of policy, the Corporation does not engage in derivatives trading,
derivatives market-making or other speculative activities. The Corporation uses
swaps primarily to optimize funding costs. To a lesser degree, and in
combination with options and limit contracts, the Corporation uses swaps to
stabilize cash flows from mortgage-related assets.
Designated interest rate and currency swaps, forwards and limit contracts that
modify borrowings or certain assets, and forecasted transactions such as
forecasted commercial paper renewals, are accounted for on an accrual basis. The
Corporation requires all other swaps, as well as futures, options and currency
forwards, to be designated and accounted for as hedges of specific assets,
liabilities or firm commitments; resulting payments and receipts are recognized
contemporaneously with effects of hedged transactions. A payment or receipt
arising from early termination of an effective hedge is accounted for as an
adjustment to the basis of the hedged transaction.
Instruments used as hedges must be effective at reducing the risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the contract. Accordingly, changes in market values of hedge
instruments must be highly correlated with changes in market values of
underlying hedged items both at inception of the hedge and over the life of the
hedge contract. As a matter of policy, any derivative that is either not
designated as a hedge, or is so designated but is ineffective, is marked to
market and recognized in operations immediately.
Insurance Accounting Policies - Accounting policies for insurance businesses are
as follows.
Premium income. Insurance premiums are reported as earned income as follows:
o For short-duration insurance contracts (including property and casualty,
accident and health, and financial guaranty insurance), premiums are
reported as earned income, generally on a pro rata basis, over the terms of
the related agreements. For retrospectively rated reinsurance contracts,
premium adjustments are recorded based on estimated losses and loss
expenses, taking into consideration both case and incurred-but-not-reported
reserves.
o For traditional long-duration insurance contracts (including term and whole
life contracts and annuities payable for the life of the annuitant),
premiums are reported as earned income when due. For investment contracts
and universal life contracts, premiums received are reported as
liabilities, not as revenues. Universal life contracts are long-duration
insurance contracts with terms that are not fixed and guaranteed; for these
contracts, revenues are recognized for assessments against the
policyholder's account, mostly for mortality, contract initiation,
administration and surrender. Investment contracts are contracts that have
neither significant mortality nor significant morbidity risk, including
annuities payable for a determined period; for these contracts, revenues
are recognized on the associated investments and amounts credited to
policyholder accounts are charged to expense.
Deferred policy acquisition costs. Costs that vary with and are primarily
related to the acquisition of new and renewal insurance and investment contracts
are deferred and amortized over the respective policy terms. For short-duration
insurance contracts, acquisition costs consist primarily of commissions,
brokerage expenses and premium taxes. For long-duration insurance contracts,
these costs consist primarily of first-year commissions in excess of recurring
renewal commissions, certain variable sales expenses and certain support costs
such as underwriting and policy issue expenses.
o For short-duration insurance contracts, these costs are amortized pro rata
over the contract periods in which the related premiums are earned.
o For traditional long-duration insurance contracts, these costs are
amortized over the respective contract periods in proportion to either
anticipated premium income or, in the case of limited-payment contracts,
estimated benefit payments.
o For investment contracts and universal life contracts, these costs are
amortized on the basis of anticipated gross profits.
Periodically, deferred policy acquisition costs are reviewed for recoverability;
anticipated investment income is considered in recoverability evaluations.
Present value of future profits. The actuarially determined present value of
anticipated net cash flows to be realized from insurance, annuity and investment
contracts in force at the date of acquisition of life insurance enterprises is
recorded as the present value of future profits and is amortized over the
respective policy terms in a manner similar to deferred policy acquisition
costs. Unamortized balances are adjusted to reflect experience and impairment,
if any.
NOTE 2. INVESTMENT SECURITIES
A summary of investment securities follows:
Gross Gross
Amortized unrealized unrealized Estimated
(In millions) cost gains losses fair value
--------------- ---------------- --------------- ---------------
December 31, 2000
Debt securities:
U.S. corporate ............................... $ 34,759 $ 420 $ (1,186) $ 33,993
State and municipal .......................... 6,459 243 (125) 6,577
Mortgage-backed .............................. 10,367 278 (141) 10,504
Corporate - non-U.S. ......................... 9,043 323 (104) 9,262
Government - non-U.S. ........................ 2,874 60 (79) 2,855
U.S. government and federal agency ........... 1,623 10 (38) 1,595
Equity securities ............................. 5,301 634 (439) 5,496
--------------- ---------------- --------------- ---------------
$ 70,426 $ 1,968 $ (2,112) $ 70,282
=============== ================ =============== ===============
December 31, 1999
Debt securities:
U.S. corporate ............................... $ 27,726 $ 160 $ (1,631) $ 26,255
State and municipal .......................... 6,113 47 (254) 5,906
Mortgage-backed .............................. 9,968 151 (310) 9,809
Corporate - non-U.S. ......................... 7,054 187 (161) 7,080
Government - non-U.S. ........................ 2,242 22 (16) 2,248
U.S. government and federal agency ........... 1,637 4 (143) 1,498
Equity securities ............................. 4,829 1,663 (115) 6,377
--------------- ---------------- --------------- ---------------
$ 59,569 $ 2,234 $ (2,630) $ 59,173
=============== ================ =============== ===============
A substantial portion of mortgage-backed securities shown in the table above are
collateralized by U.S. residential mortgages.
At December 31, 2000, contractual maturities of debt securities, other than
mortgage-backed securities, were as follows:
Amortized Estimated
(In millions) cost fair value
--------------- ---------------
Due in:
2001 ............................................................................ $ 3,003 $ 3,028
2002-2005 ....................................................................... 11,083 11,294
2006-2010 ....................................................................... 12,766 12,810
2011 and later .................................................................. 27,906 27,150
It is expected that actual maturities will differ from contractual maturities
because borrowers have the right to call or prepay certain obligations. Proceeds
from sales of investment securities in 2000 were $12,384 million ($9,354 million
in 1999 and $11,092 million in 1998). Gross realized gains were $1,494 million
in 2000 ($553 million in 1999 and $589 million in 1998). Gross realized losses
were $337 million in 2000 ($327 million in 1999 and $198 million in 1998).
NOTE 3. FINANCING RECEIVABLES
Financing receivables at December 31, 2000 and 1999, are shown below.
(In millions) 2000 1999
--------------- ---------------
Time sales and loans:
Consumer Services .............................................................. $ 41,984 $ 43,166
Specialized Financing .......................................................... 27,737 24,119
Mid-Market Financing ........................................................... 21,506 18,422
Equipment Management ........................................................... 1,385 978
Specialty Insurance ............................................................ 90 28
Other ......................................................................... 838 1,183
--------------- ---------------
Time sales and loans - net of deferred income ................................. 93,540 87,896
--------------- ---------------
Investment in financing leases:
Direct financing leases ........................................................ 46,053 43,719
Leveraged leases ............................................................... 4,877 4,045
--------------- ---------------
Investment in financing leases ................................................ 50,930 47,764
--------------- ---------------
144,470 135,660
Less allowance for losses (Note 4) ............................................... (3,970) (3,637)
--------------- ---------------
$ 140,500 $ 132,023
=============== ===============
Time sales and loans represents transactions in a variety of forms, including
time sales, revolving charge and credit, mortgages, installment loans,
intermediate-term loans and revolving loans secured by business assets. The
portfolio includes time sales and loans carried at the principal amount on which
finance charges are billed periodically, and time sales and loans carried at
gross book value, which includes finance charges. At year-end 2000 and 1999,
commercial real estate loans and leases of $21,265 million and $15,661 million,
respectively, were included in financing receivables and insurance receivables.
Note 6 contains information on commercial airline loans and leases.
Investment in financing leases consists of direct financing and leveraged leases
of aircraft, railroad rolling stock, autos, other transportation equipment, data
processing equipment and medical equipment, as well as other manufacturing,
power generation, commercial real estate, and commercial equipment and
facilities.
As the sole owner of assets under direct financing leases and as the equity
participant in leveraged leases, the Corporation is taxed on total lease
payments received and is entitled to tax deductions based on the cost of leased
assets and tax deductions for interest paid to third-party participants. The
Corporation generally is entitled to any residual value of leased assets.
Investment in direct financing and leveraged leases represents net unpaid
rentals and estimated unguaranteed residual values of leased equipment, less
related deferred income. The Corporation has no general obligation for principal
and interest on notes and other instruments representing third-party
participation related to leveraged leases; such notes and other instruments have
not been included in liabilities but have been offset against the related
rentals receivable. The Corporation's share of rentals receivable on leveraged
leases is subordinate to the share of other participants who also have security
interests in the leased equipment.
The Corporation's net investment in financing leases at December 31, 2000 and
1999, is shown below.
Total financing leases Direct financing leases Leveraged leases
-------------------------- ------------------------- --------------------------
(In millions) 2000 1999 2000 1999 2000 1999
------------- ------------ ------------ ------------ ------------ -------------
Total minimum lease payments
receivable ..................... $ 74,909 $ 68,151 $ 50,505 $ 47,062 $ 24,404 $ 21,089
Less principal and interest on
third-party nonrecourse debt .... (19,773) (17,184) - - (19,773) (17,184)
------------- ------------ ------------ ------------ ------------ -------------
Net rentals receivable .......... 55,136 50,967 50,505 47,062 4,631 3,905
Estimated unguaranteed residual
value of leased assets .......... 7,202 7,142 4,490 4,930 2,712 2,212
Less deferred income .............. (11,408) (10,345) (8,942) (8,273) (2,466) (2,072)
------------- ------------ ------------ ------------ ------------ -------------
Investment in financing leases .. 50,930 47,764 46,053 43,719 4,877 4,045
Less: Allowance for losses ....... (646) (580) (558) (508) (88) (72)
Deferred taxes arising from
financing leases .......... (8,423) (8,587) (4,511) (5,081) (3,912) (3,506)
------------- ------------ ------------ ------------ ------------ -------------
Net investment in financing leases $ 41,861 $ 38,597 $ 40,984 $ 38,130 $ 877 $ 467
============= ============ ============ ============ ============ =============
At December 31, 2000 the Corporation's contractual maturities for time sales and
loans and net rentals receivable were:
(In millions) Total time
sales and Net rentals
Due in: loans (a) receivable (a)
--------------- ------------------
2001 .......................................................................... $ 27,385 $ 16,599
2002........................................................................... 20,580 11,869
2003 .......................................................................... 17,746 8,244
2004 .......................................................................... 7,439 5,051
2005 .......................................................................... 5,611 3,172
Thereafter .................................................................... 14,779 10,201
--------------- ------------------
$ 93,540 $ 55,136
=============== ==================
(a) Experience has shown that a substantial portion of receivables will be paid
prior to contractual maturity, and these amounts should not be regarded as
forecasts of future cash flows.
Nonearning consumer receivables were $1,043 million and $930 million at December
31, 2000 and 1999, respectively, a substantial amount of which were
private-label credit card loans. Nonearning and reduced-earning receivables
other than consumer receivables were $949 million and $932 million at year-end
2000 and 1999, respectively.
"Impaired" loans are defined by generally accepted accounting principles as
loans for which it is probable that the lender will be unable to collect all
amounts due according to original contractual terms of the loan agreement. That
definition excludes, among other things, leases or large groups of
smaller-balance homogenous loans, and therefore applies principally to the
Corporation's commercial loans.
An analysis of impaired loans at December 31, 2000 and 1999 is shown below.
(In millions) 2000 1999
--------------- ---------------
Loans requiring allowance for losses ........................................... $ 471 $ 630
Loans expected to be fully recoverable ......................................... 371 219
--------------- ---------------
$ 842 $ 849
=============== ===============
Allowance for losses ........................................................... $ 163 $ 178
Average investment during year ................................................. 798 608
Interest income earned while impaired (a) ...................................... 17 27
(a) Principally on the cash basis.
NOTE 4. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
(In millions) 2000 1999 1998
-------------- -------------- --------------
Balance at January 1 ........................................... $ 3,637 $ 3,207 $ 2,745
Provisions charged to operations ............................... 1,975 1,655 1,595
Net transfers primarily related to acquisitions and sales ...... 22 218 375
Amounts written off - net ...................................... (1,664) (1,443) (1,508)
-------------- -------------- --------------
Balance at December 31 ......................................... $ 3,970 $ 3,637 $ 3,207
============== ============== ==============
NOTE 5. INSURANCE RECEIVABLES
At year-end 2000 and 1999, this account included reinsurance recoverables of
$1,816 million and $2,087 million and receivables of insurance affiliates of
$10,244 million and $5,806 million, respectively. Receivables of insurance
affiliates include premium receivables, investments in whole real estate and
other loans and funds on deposit with reinsurers.
NOTE 6. EQUIPMENT ON OPERATING LEASES
Equipment on operating leases by type of equipment and accumulated amortization
at December 31, 2000 and 1999, are shown below.
(In millions) 2000 1999
-------------- --------------
Original cost
Aircraft ..................................................................... $ 12,888 $ 10,591
Vehicles ..................................................................... 9,872 10,939
Railroad rolling stock ....................................................... 3,459 3,323
Marine shipping containers ................................................... 2,196 2,309
Other ........................................................................ 3,630 3,832
--------------- ---------------
32,045 30,994
Accumulated amortization ...................................................... (7,900) (7,391)
--------------- ---------------
$ 24,145 $ 23,603
=============== ===============
Amortization of equipment on operating leases was $2,618 million, $2,673 million
and $2,185 million in 2000, 1999 and 1998, respectively. Noncancelable future
rentals due from customers for equipment on operating leases at year-end 2000
totaled $16,034 million and are due as follows: $4,017 million in 2001; $3,177
million in 2002; $2,407 million in 2003; $1,707 million in 2004; $1,194 million
in 2005 and $3,532 million thereafter.
The Corporation acts as a lender and lessor to the commercial airline industry.
At December 31, 2000 and 1999, the balance of such loans, leases and equipment
leased to others was $15,262 million and $11,772 million, respectively. In
addition, at December 31, 2000, the Corporation had issued financial guarantees
and funding commitments of $601 million ($59 million at year-end 1999) and had
placed multiyear orders for various Boeing and Airbus aircraft with list prices
of approximately $22.9 billion ($9.9 billion at year-end 1999).
NOTE 7. BUILDINGS AND EQUIPMENT
Buildings and equipment include office buildings, satellite communications
equipment, computer hardware and software, vehicles, furniture and office
equipment. Depreciation expense was $670 million in 2000, $472 million in 1999
and $409 million in 1998.
NOTE 8. INTANGIBLE ASSETS
Intangible assets at December 31, 2000 and 1999, are shown in the table below.
(In millions) 2000 1999
-------------- --------------
Goodwill .......................................................................... $ 10,063 $ 10,877
Present value of future profits ("PVFP") .......................................... 2,579 1,704
Other intangibles ................................................................. 574 492
-------------- --------------
$ 13,216 $ 13,073
============== ==============
The Corporation's intangible assets are shown net of accumulated amortization of
$5,225 million at December 31, 2000, and $3,500 million at December 31, 1999.
The amount of goodwill amortization included in net earnings (net of income
taxes) in 2000, 1999 and 1998 was $536 million, $450 million and $366 million,
respectively.
PVFP amortization, which is on an accelerated basis and net of interest, is
projected to range from 18% to 7% of the year-end 2000 unamortized balance for
each of the next five years.
NOTE 9. OTHER ASSETS
Other assets at December 31, 2000 and 1999, are shown in the table below.
(In millions) 2000 1999
-------------- ---------------
Investments:
Assets acquired for resale ...................................................... $ 1,394 $ 3,406
Investments in and advances to associated companies (a) ......................... 12,784 11,239
Real estate ventures ............................................................ 6,496 4,397
Other ........................................................................... 5,044 4,174
-------------- ---------------
25,718 23,216
Separate accounts ................................................................ 11,628 10,248
Servicing assets (b)............................................................... 1,378 1,669
Deferred insurance acquisition costs .............................................. 4,315 3,253
Other ............................................................................. 5,090 4,064
-------------- ---------------
$ 48,129 $ 42,450
============== ===============
(a) Includes advances
(b) Associated primarily with serviced residential mortgage loans amounting to
$81 billion and $86 billion at December 31, 2000 and 1999, respectively.
Separate accounts represent investments controlled by policyholders and are
associated with identical amounts reported as insurance liabilities in note 11.
NOTE 10. BORROWINGS
Total short-term borrowings at December 31, 2000 and 1999, consisted of the
following:
2000 1999
--------------------------------- ---------------------------------
Average Average
(Dollars in millions) Amount rate (a) Amount rate (a)
---------------- ---------------- ---------------- ----------------
Commercial paper - U.S. ....................... $ 71,085 6.67% $ 78,609 6.07%
Commercial paper - non-U.S. .................... 16,965 5.46 11,909 4.19
Current portion of long-term debt .............. 19,283 5.95 22,902 5.59
Other .......................................... 10,149 9,653
---------------- ----------------
$ 117,482 $ 123,073
================ ================
Total long-term borrowings at December 31, 2000 and 1999, were as follows:
2000
(In millions) average
rate (a) Maturities 2000 1999
------------- -------------- --------------- -------------
Senior notes ................................... 5.56% 2002-2055 $ 78,078 $ 68,164
Subordinated notes (b) ......................... 8.04 2006-2012 698 698
--------------- -------------
$ 78,776 $ 68,862
=============== =============
(a) Based on year-end balances and local currency interest rates, including the
effects of interest rate and currency swaps, if any, directly associated
with the original debt issuance.
(b) Guaranteed by GE Company.
Borrowings of the Corporation are addressed as follows from two perspectives -
liquidity and interest rate risk management. Additional information about
borrowings and associated swaps can be found in note 20.
Liquidity requirements of the Corporation are principally met through the credit
markets. Maturities of long-term borrowings during the next five years,
including the current portion of long-term debt, at December 31, 2000, were
$19,283 million in 2001; $20,089 million in 2002; $15,581 million in 2003;
$11,330 million in 2004 and $7,086 million in 2005.
At December 31, 2000, the Corporation held committed lines of credit aggregating
$28.1 billion with 95 banks, including $12.2 billion of revolving credit
agreements pursuant to which it has the right to borrow funds for periods
exceeding one year. A total of $3.6 billion of these credit lines were also
available for use by GE Capital Services. Also, at December 31, 2000,
substantially all of the approximately $4.2 billion of GE Company's credit lines
were available for use by the Corporation or GE Capital Services. During 2000,
amounts drawn under these lines were not significant. The Corporation
compensates banks for credit facilities in the form of fees, which were
insignificant in each of the past three years.
Interest rate risk is managed by the Corporation in light of the anticipated
behavior, including prepayment behavior, of assets in which debt proceeds are
invested. A variety of instruments, including interest rate and currency swaps
and currency forwards, are employed to achieve management's interest rate
objectives. Effective interest rates are lower under these "synthetic" positions
than could have been achieved by issuing debt directly.
The following table shows the Corporation's borrowing positions at December 31,
2000 and 1999, considering the effects of swaps.
(In millions) 2000 1999
-------------- ---------------
Effective borrowings (including swaps)
Short-term ........................................................................ $ 75,251 $ 69,762
============== ===============
Long-term (including current portion)
Fixed rate (a) .................................................................. $ 94,703 $ 86,856
Floating rate ................................................................... 26,304 35,317
-------------- ---------------
Total long-term ................................................................... $ 121,007 $ 122,173
============== ===============
(a) Includes the notional amount of long-term interest rate swaps that
effectively convert the floating-rate nature of short-term borrowings to
fixed rates of interest.
At December 31, 2000, interest rate swap maturities ranged from 2001 to 2048,
and average interest rates for fixed-rate borrowings (including "synthetic"
fixed-rate borrowings) were 5.88% (5.59% at year-end 1999).
NOTE 11. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS
Insurance liabilities, reserves and annuity benefits at December 31, 2000 and
1999, are shown below.
(In millions) 2000 1999
--------------- --------------
Investment contracts and universal life benefits .................................. $ 31,071 $ 28,284
Life insurance benefits and other (a) ............................................. 29,652 15,528
Unpaid claims and claims adjustment expenses (b)................................... 4,143 3,235
Unearned premiums ................................................................. 3,439 3,480
Separate accounts (see note 9) .................................................... 11,628 10,248
--------------- --------------
$ 79,933 $ 60,775
=============== ==============
(a) Life insurance benefits are accounted for mainly by a net-level-premium
method using estimated yields generally ranging from 2% to 9% in 2000 and
from 5% to 9% in 1999.
(b) Principally property and casualty reserves; includes amounts for both
reported and incurred-but-not-reported claims, reduced by anticipated
salvage and subrogation recoveries. Estimates of liabilities are reviewed
and updated continually, with changes in estimated losses reflected in
operations.
When the Corporation cedes insurance to third parties, it is not relieved of its
primary obligation to policyholders. Losses on ceded risks give rise to claims
for recovery; allowances are established for such receivables from reinsurers.
A summary of activity affecting unpaid claims and claims adjustment expenses
follows.
(In millions) 2000 1999 1998
-------------- -------------- --------------
Balance at January 1 - gross ................................... $ 3,235 $ 3,721 $ 3,670
Less reinsurance recoverables .................................. (552) (578) (438)
--------------- --------------- ---------------
Balance at January 1 - net ..................................... 2,683 3,143 3,232
Claims and expenses incurred:
Current year ................................................. 3,969 2,286 2,469
Prior years .................................................. (155) (328) (184)
Claims and expenses paid:
Current year ................................................. (2,190) (1,210) (1,222)
Prior years .................................................. (1,309) (1,276) (1,176)
Claim reserves related to acquired companies ................... 209 136 6
Other .......................................................... 394 (68) 18
--------------- --------------- ---------------
Balance at December 31 - net ................................... 3,601 2,683 3,143
Add reinsurance recoverables ................................... 542 552 578
--------------- --------------- ---------------
Balance at December 31 - gross ................................. $ 4,143 $ 3,235 $ 3,721
=============== =============== ===============
Prior-year claims and expenses incurred in the preceding table resulted
principally from settling claims established in earlier accident years for
amounts that differed from expectations.
Financial guarantees and credit life risk of insurance affiliates at December
31, 2000 and 1999, are summarized below.
(In millions) 2000 1999
-------------- --------------
Guarantees, principally on municipal bonds and structured finance issues .......... $ 190,184 $ 173,696
Mortgage insurance risk in force .................................................. 68,112 59,797
Credit life insurance risk in force ............................................... 19,910 26,427
Less reinsurance .................................................................. (42,143) (37,980)
-------------- --------------
$ 236,063 $ 221,940
============== ==============
The effects of reinsurance on premiums written and premiums and commissions
earned were as follows for the past three years.
Premiums written Premiums and commissions earned
---------------------------------------------- -----------------------------------------------
(In millions) 2000 1999 1998 2000 1999 1998
-------------- -------------- -------------- -------------- -------------- ---------------
Direct ............ $ 7,929 $ 6,378 $ 5,696 $ 7,783 $ 6,108 $ 5,547
Assumed ........... 890 556 817 864 583 885
Ceded ............. (611) (534) (698) (636) (716) (772)
-------------- -------------- -------------- -------------- -------------- ---------------
Net ............... $ 8,208 $ 6,400 $ 5,815 $ 8,011 $ 5,975 $ 5,660
============== ============== ============== ============== ============== ===============
Reinsurance recoveries recognized as a reduction of insurance losses and
policyholder and annuity benefits amounted to $457 million, $386 million and
$396 million for the years ended December 31, 2000, 1999 and 1998, respectively.
NOTE 12. MINORITY INTEREST
Minority interest in equity of consolidated affiliates includes preferred stock
issued by a subsidiary with liquidation preference values of $1,066 million and
$1,421 million as of December 31, 2000 and 1999, respectively. Dividend rates in
local currency on the preferred stock ranged from 4.35% to 6.82% during 2000 and
from 0.6% to 6.1% during 1999.
NOTE 13. SHARE OWNERS' EQUITY
Changes in share owners' equity for each of the last three years were as
follows:
(In millions) 2000 1999 1998
---------------- --------------- --------------
Variable Cumulative Preferred Stock Issued ....................... $ 3 $ 3 $ 2
Common Stock Issued .............................................. 768 768 768
---------------- --------------- --------------
Accumulated nonowner changes other than earnings
Balance at January 1 ............................................. (419) 1,026 998
Unrealized (losses) gains on investment securities - net of
deferred taxes of $376, ($474), and $139 ...................... 776 (1,178) 276
Currency translation adjustments - net of deferred taxes of
($185), ($62), and $5.......................................... (344) (115) 6
Reclassification adjustments - net of deferred taxes of ($405),
($82) and ($141) .............................................. (752) (152) (254)
---------------- --------------- --------------
Balance at December 31 ........................................... (739) (419) 1,026
---------------- --------------- --------------
Other Capital
Balance at January 1 ............................................. 5,383 4,933 4,744
Contributions .................................................... 964 450 189
---------------- --------------- --------------
Balance at December 31 ........................................... 6,347 5,383 4,933
---------------- --------------- --------------
Retained Earnings
Balance at January 1 ............................................. 17,011 14,340 11,861
Net Earnings ..................................................... 4,289 4,208 3,374
Dividends ........................................................ (1,606) (1,537) (895)
---------------- --------------- --------------
Balance at December 31 ........................................... 19,694 17,011 14,340
---------------- --------------- --------------
Total Share Owners' Equity ....................................... $ 26,073 $ 22,746 $ 21,069
================ =============== ==============
All common stock is owned by GE Capital Services, all of the common stock of
which is in turn owned, directly or indirectly, by GE Company.
Changes in fair value of available-for-sale investment securities are reflected,
net of applicable taxes and other adjustments, in equity. The changes from year
to year were primarily attributable to the effects of changes in year-end market
interest rates on the fair value of the securities.
During 1999, the Corporation issued 3,000 additional shares of its variable
cumulative preferred stock. Dividend rates on the preferred stock ranged from
4.2% to 5.2% during 2000, 3.5% to 5.1% during 1999 and from 3.9% to 5.2% during
1998.
During 1998, the Corporation authorized 750,000 shares of preferred stock, $0.01
par value, none of which was issued or outstanding at December 31, 2000 or 1999.
At December 31, 2000 and 1999, the aggregate statutory capital and surplus of
the insurance businesses totaled $11.1 billion and $9.6 billion, respectively.
Accounting principles prescribed by statutory authorities are used in preparing
statutory statements.
NOTE 14. OPERATING AND ADMINISTRATIVE EXPENSES
Employees and retirees of the Corporation are covered under a number of pension,
health and life insurance plans. The principal pension plan is the GE Company
Pension Plan, a defined benefit plan, while employees of certain affiliates are
covered under separate plans. The Corporation provides health and life insurance
benefits to certain of its retired employees, principally through GE Company's
benefit program, as well as through plans sponsored by GE Global Insurance and
other affiliates. The annual cost to the Corporation of providing these benefits
is not material.
Rental expense relating to equipment the Corporation leases from others for the
purposes of subleasing was $496 million in 2000, $483 million in 1999 and $439
million in 1998. Other rental expense was $646 million in 2000, $552 million in
1999 and $429 million in 1998, principally for the rental of office space and
data processing equipment. Minimum future rental commitments under noncancelable
leases at December 31, 2000 are $4,570 million; $745 million in 2001; $666
million in 2002; $587 million in 2003; $460 million in 2004; $351 million in
2005 and $1,761 million thereafter. The Corporation, as a lessee, has no
material lease agreements classified as capital leases.
Amortization of deferred insurance acquisition costs charged to operations in
2000, 1999 and 1998 was $1,225 million, $1,031 million and $863 million,
respectively.
NOTE 15. INCOME TAXES
The provision for income taxes is summarized in the following table.
(In millions) 2000 1999 1998
--------------- --------------- ---------------
Current tax expense ............................................$ 1,041 $ 699 $ 584
Deferred tax expense from temporary differences ................ 514 854 601
--------------- --------------- ---------------
$ 1,555 $ 1,553 $ 1,185
=============== =============== ===============
GE Company files a consolidated U.S. federal income tax return which includes
the Corporation. The provision for current tax expense includes the effect of
the Corporation on the consolidated return.
Current tax expense (benefit) includes amounts applicable to U.S. federal income
taxes of $274 million, ($142) million and ($130) million in 2000, 1999, and
1998, respectively, and amounts applicable to non-U.S. jurisdictions of $749
million, $765 million and $699 million in 2000, 1999 and 1998, respectively.
Deferred tax expense related to U.S. federal income taxes was $426 million, $833
million and $663 million in 2000, 1999, and 1998, respectively.
Deferred income tax balances reflect the impact of temporary differences between
the carrying amounts of assets and liabilities and their tax bases and are
stated at enacted tax rates expected to be in effect when taxes are actually
paid or recovered.
Except for certain earnings that the Corporation intends to reinvest
indefinitely, provision has been made for the estimated U.S. federal income tax
liabilities applicable to undistributed earnings of affiliates and associated
companies. It is not practicable to determine the U.S. federal income tax
liability, if any, that would be payable if such earnings were not reinvested
indefinitely.
U.S. income before taxes was $2.7 billion in 2000, $3.5 billion in 1999 and $3.2
billion in 1998. The corresponding amounts for non-U.S. based operations were
$3.1 billion in 2000, $2.3 billion in 1999 and $1.3 billion in 1998.
A reconciliation of the U.S. federal statutory rate to the actual income tax
rate follows.
2000 1999 1998
--------------- --------------- ---------------
Statutory U.S. federal income tax rate ......................... 35.0% 35.0% 35.0%
Increase (reduction) in rate resulting from:
Amortization of goodwill ...................................... 1.1 0.9 1.0
Tax-exempt income ............................................. (2.8) (2.7) (3.2)
Tax on International Activities Including Foreign Sales
Corporation benefits ........................................ (5.1) (5.2) (1.5)
Dividends received, not fully taxable ......................... (1.5) (1.5) (1.8)
Fuels credits ................................................. (1.5) (1.5) (2.0)
Other - net ................................................... 1.4 2.0 (1.5)
--------------- --------------- ---------------
Actual income tax rate ......................................... 26.6% 27.0% 26.0%
=============== =============== ===============
Principal components of the net deferred tax liability balances at December 31,
2000 and 1999, were as follows:
(In millions) 2000 1999
------------- -------------
Assets:
Allowance for losses ............................................................. $ 1,649 $ 1,370
Insurance reserves ............................................................... 1,252 1,035
AMT credit carryforwards ......................................................... 671 1,185
Other ............................................................................ 3,185 1,601
------------- -------------
Total deferred tax assets ........................................................ 6,757 5,191
------------- -------------
Liabilities:
Financing leases ................................................................. 8,423 8,587
Operating leases ................................................................. 3,300 2,834
Other ............................................................................ 3,298 2,551
------------- -------------
Total deferred tax liabilities ................................................... 15,021 13,972
------------- -------------
Net deferred tax liability ....................................................... $ 8,264 $ 8,781
============= =============
NOTE 16. OPERATING SEGMENT DATA
The Corporation's operating segments are organized based on the nature of
products and services provided. A description of the operating segments can be
found in Item 1. Business., under the heading Operating Segments on page 3 of
this report. The accounting policies for these segments are the same as those
described for the consolidated entity. The Corporation evaluates the performance
of its operating segments primarily on the basis of net earnings. Details of
total revenues and net earnings by operating segment are provided in Item 7.
Management's Discussion and Analysis of Results of Operations in the table on
page 14 and in the All Other operating segment discussion on page 15 of this
report. Other specific information is provided as follows.
(In millions) Depreciation and amortization (a) Provision for income taxes
-------------------------------------- --------------------------------------
For the years ended December 31 2000 1999 1998 2000 1999 1998
------------ ------------ ----------- ----------- ----------- ------------
Consumer Services ................. $ 1,934 $ 1,042 $ 960 $ 612 $ 346 $ 471
Equipment Management .............. 2,421 2,440 1,913 389 317 258
Mid-Market Financing .............. 713 555 409 226 237 234
Specialized Financing ............. 36 57 51 550 457 40
Specialty Insurance ............... 12 26 27 49 111 72
All other ......................... 192 108 92 (271) 85 110
------------ ------------ ----------- ----------- ----------- ------------
Total .......................... $ 5,308 $ 4,228 $ 3,452 $ 1,555 $ 1,553 $ 1,185
============ ============ =========== =========== =========== ============
Time sales, loan, investment and
other income (b) Interest expense
-------------------------------------- --------------------------------------
For the years ended December 31 2000 1999 1998 2000 1999 1998
------------ ------------ ----------- ----------- ----------- ------------
Consumer Services ................. $ 15,805 $ 12,776 $ 11,272 $ 3,544 $ 3,332 $ 3,746
Equipment Management .............. 2,358 2,318 2,249 1,796 1,598 1,494
Mid-Market Financing .............. 2,547 2,258 1,621 2,382 1,992 1,631
Specialized Financing ............. 5,046 3,926 2,645 2,382 1,814 1,541
Specialty Insurance ............... 852 701 680 458 369 367
All other ......................... 369 304 235 (101) (169) (161)
------------ ------------ ----------- ----------- ----------- ------------
Total .......................... $ 26,977 $ 22,283 $ 18,702 $ 10,461 $ 8,936 $ 8,618
============ ============ =========== =========== =========== ============
Property, plant and equipment
additions (including equipment
Assets leased to others) (c)
At December 31 For the years ended December 31
-------------------------------------- --------------------------------------
2000 1999 1998 2000 1999 1998
------------ ------------ ----------- ----------- ----------- ------------
Consumer Services (d) ............. $159,619 $147,455 $138,953 $ 763 $ 2,332 $ 2,111
Equipment Management (d) .......... 48,081 43,141 38,114 8,298 8,011 4,492
Mid-Market Financing .............. 55,684 49,681 40,981 1,624 3,949 1,349
Specialized Financing (d).......... 52,528 47,001 35,807 543 155 88
Specialty Insurance ............... 13,697 10,182 10,746 6 9 10
All other ......................... 3,027 9,981 4,449 152 949 27
------------ ------------ ----------- ----------- ----------- ------------
Total .......................... $332,636 $307,441 $269,050 $ 11,386 $ 15,405 $ 8,077
============ ============ =========== =========== =========== ============
(a) Includes amortization of goodwill and other intangibles.
(b) Principally interest income.
(c) Additions to property, plant and equipment (including equipment leased to
others) include amounts relating to principal businesses purchased.
(d) Total assets of the Consumer Services, Equipment Management and Specialized
Financing segments at December 31, 2000, include investments in and
advances to non-consolidated affiliates of $4,064 million and $5,013
million, and $3,246 million, respectively, which contributed approximately
$325 million and $317 million and $63 million, respectively, to segment
pre-tax income for the year ended December 31, 2000.
NOTE 17. QUARTERLY FINANCIAL DATA (unaudited)
Summarized quarterly financial data were as follows:
First quarter Second quarter Third quarter Fourth quarter
-------------------- --------------------- ---------------------- ----------------------
(In millions) 2000 1999 2000 1999 2000 1999 2000 1999
---------- --------- ---------- ---------- ----------- ---------- ----------- ----------
Revenues ................... $ 13,305 $ 10,190 $ 13,732 $ 11,129 $ 13,714(a) $ 11,753 $ 13,516(a) $ 13,533
---------- --------- ---------- ---------- ----------- ---------- ----------- ----------
Expenses:
Interest ................... 2,424 2,020 2,660 2,133 2,592 2,189 2,785 2,594
Operating and
administrative and cost
of goods sold ........... 6,134 4,477 6,221 5,018 5,855 5,524 6,706 6,457
Insurance losses and
policyholder and annuity
benefits ................ 1,528 1,413 2,166 1,324 2,123 1,419 1,880 1,408
Provision for losses on
financing receivables ... 508 377 406 439 448 223 613 616
Depreciation and
amortization of
buildings and equipment
and equipment on
operating leases ........ 936 678 665 815 786 786 901 866
Minority interest in net
earnings of consolidated
affiliates .............. 19 15 21 18 22 16 24 19
---------- -------------------- ---------- ----------- ---------- ----------- ----------
Earnings before income
taxes ................... 1,756 1,210 1,593 1,382 1,888 1,596 607 1,573
Provision for income taxes . (549) (305) (391) (350) (568) (435) (47) (463)
---------- -------------------- ---------- ----------- ---------- ----------- ----------
Net earnings ............... $ 1,207 $ 905 $ 1,202 $ 1,032 $ 1,320(b) $ 1,161 $ 560(c) $ 1,110
========== ========= ========== ========== =========== ========== =========== ==========
(a) Third and fourth quarter revenues in 2000 were increased by the inclusion
of gains related to PaineWebber of $193 million and $26 million,
respectively.
(b) Third quarter net earnings in 2000 were reduced by after-tax charges of
$239 million. Such charges were included in "Other costs and expenses".
Also in the third quarter, net earnings were increased by the inclusion of
an after-tax gain of $117 million related to PaineWebber.
(c) Fourth quarter net earnings in 2000 were reduced by after-tax charges of
$645 million. Such charges were primarily included in "Other costs and
expenses".
NOTE 18. RESTRICTED NET ASSETS OF AFFILIATES
Certain of the Corporation's consolidated affiliates are restricted from
remitting funds to the Parent in the form of dividends or loans by a variety of
regulations, the purpose of which is to protect affected insurance
policyholders, depositors or investors. At year-end 2000, net assets of the
Corporation's regulated affiliates amounted to $23.5 billion, of which $18.6
billion was restricted.
NOTE 19. SUPPLEMENTAL CASH FLOWS INFORMATION
"Other - net operating activities" in the Statement of Cash Flows consists
principally of adjustments to other liabilities, current and noncurrent accruals
and deferrals of costs and expenses, adjustments for gains and losses on assets,
increases and decreases in assets held for sale, and other adjustments to
assets.
The Statement of Cash Flows excludes certain noncash transactions that had no
significant effect on the investing or financing activities of the Corporation.
Certain supplemental information related to the Corporation's cash flows were as
follows for the past three years.
(In millions) 2000 1999 1998
-------------- -------------- ---------------
Financing receivables
Increase in loans to customers .................................. $ (97,735) $ (92,314) $ (73,525)
Principal collections from customers - loans .................... 84,383 83,629 63,407
Investment in equipment for financing leases .................... (15,453) (18,173) (20,298)
Principal collections from customers - financing leases ......... 7,986 13,618 15,501
Net change in credit card receivables ........................... (8,983) (9,122) (4,705)
Sales of financing receivables .................................. 14,405 11,473 13,805
-------------- -------------- ---------------
$ (15,397) $ (10,889) $ (5,815)
============== ============== ===============
All other investing activities
Purchases of securities by insurance and annuity businesses ..... $ (24,985) $ (15,897) $ (17,728)
Dispositions and maturities of securities by insurance and
annuity businesses ........................................... 14,465 13,432 14,231
Proceeds from principal business dispositions ................... (605) 176 -
Other ........................................................... (2,524) (5,893) (8,682)
-------------- -------------- ---------------
$ (13,649) $ (8,182) $ (12,179)
============== ============== ===============
Newly issued debt having maturities longer than 90 days
Short-term (91 to 365 days) ..................................... $ 12,782 $ 15,799 $ 5,881
Long-term (longer than one year) ................................ 31,598 29,033 33,453
Proceeds - nonrecourse, leveraged lease debt .................... 1,808 1,724 2,106
-------------- -------------- ---------------
$ 46,188 $ 46,556 $ 41,440
============== ============== ===============
Repayments and other reductions of debt having maturities longer
than 90 days
Short-term (91 to 365 days) ..................................... $ (27,777) $ (21,211) $ (25,901)
Long-term (longer than one year) ................................ (3,953) (5,447) (4,739)
Principal payments - nonrecourse, leveraged lease debt .......... (177) (266) (387)
-------------- -------------- ---------------
$ (31,907) $ (26,924) $ (31,027)
============== ============== ===============
All other financing activities
Proceeds from sales of investment contracts ..................... $ 8,717 $ 7,092 $ 4,914
Redemption of investment contracts .............................. (8,828) (6,965) (5,355)
Capital contributions from parent company ....................... 895 - 119
Cash received upon assumption of Toho Mutual Life Insurance
Company insurance liabilities................................. 13,177 - -
-------------- -------------- ---------------
$ 13,961 $ 127 $ (322)
============== ============== ===============
Cash paid during the year for:
Interest ........................................................ $ (10,564) $ (9,194) $ (8,324)
Income taxes .................................................... (595) (246) (883)
Changes in operating assets and liabilities are net of acquisitions and
dispositions of businesses.
"Payments for principal businesses purchased" in the Statement of Cash Flows is
net of cash acquired and includes debt assumed and immediately repaid. In
conjunction with the acquisitions, liabilities were assumed as follows:
(In millions) 2000 1999 1998
------------- ------------- -------------
Fair value of assets acquired ................................... $ 10,544 $ 14,888 $ 23,431
Cash paid ....................................................... (1,230) (9,737) (16,986)
------------- ------------- -------------
Liabilities assumed ............................................. $ 9,314 $ 5,151 $ 6,445
============= ============= =============
NOTE 20. ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS
This note contains estimated fair values of certain financial instruments to
which the Corporation is a party. Apart from the Corporation's own borrowings
and certain marketable securities, relatively few of these instruments are
actively traded. Thus, fair values must often be determined by using one or more
models that indicate value based on estimates of quantifiable characteristics as
of a particular date. Because this undertaking is, by its nature, difficult and
highly judgmental, for a limited number of instruments, alternative valuation
techniques may have produced disclosed values different from those that could
have been realized at December 31, 2000 or 1999. Assets and liabilities that, as
a matter of accounting policy, are reflected in the accompanying financial
statements at fair value are not included in the following disclosures; such
items include cash and equivalents, investment securities and separate accounts.
A description of how values are estimated follows.
Borrowings. Based on quoted market prices or market comparables. Fair values of
interest rate and currency swaps on borrowings are based on quoted market prices
and include the effects of counterparty creditworthiness.
Time sales and loans. Based on quoted market prices, recent transactions and/or
discounted future cash flows, using rates at which similar loans would have been
made to similar borrowers.
Investment contract benefits. Based on expected future cash flows, discounted at
currently offered discount rates for immediate annuity contracts or cash
surrender values for single premium deferred annuities.
Financial guarantees and credit life. Based on future cash flows, considering
expected renewal premiums, claims, refunds and servicing costs, discounted at a
market rate.
All other instruments. Based on comparable transactions, market comparables,
discounted future cash flows, quoted market prices, and/or estimates of the cost
to terminate or otherwise settle obligations to counterparties.
Information about financial instruments that were not carried at fair value at
December 31, 2000 and 1999, is shown as follows.
2000 1999
----------------------------------------------- -----------------------------------------------
Assets (liabilities) Assets (liabilities)
----------------------------------- -----------------------------------
Carrying Estimated fair value Carrying Estimated fair value
Notional amount ----------------------- Notional amount ----------------------
(In millions) amount (net) High Low amount (net) High Low
---------- ----------- ----------- ---------- ----------- ----------- ---------- ----------
Assets
Time sales and loans ... $ (a) $ 90,246 $ 90,870 $ 89,691 $ (a) $ 84,839 $ 84,830 $ 83,331
Integrated interest rate
swaps .................. 21,893 (37) (744) (744) 14,978 18 70 70
Purchased options ...... 9,832 105 164 164 8,949 60 174 174
Mortgage-related positions
Mortgage purchase
commitments.......... - - - - 669 - - -
Mortgage sale
commitments ........... - - - - 1,452 - 4 4
Mortgages acquired for
resale .............. (a) 1,267 1,250 1,245 (a) 2,522 2,516 2,488
Options, including
"floors" .............. 21,775 196 196 196 23,877 69 43 43
Interest rate swaps and
futures ............... 2,798 29 38 38 4,054 - (67) (67)
Other financial
instruments ............ (a) 10,847 11,035 11,007 (a) 5,275 5,250 5,220
Liabilities
Borrowings and related
instruments
Borrowings (b) (c)..... (a) (196,258) (198,526) (198,526) (a) (191,935) (190,767) (190,767)
Interest rate swaps ... 51,081 - (165) (165) 54,739 - (113) (113)
Currency swaps ........ 24,314 - (957) (957) 22,859 - (1,425) (1,425)
Currency forwards ..... 27,381 - 379 379 26,770 - (458) (458)
Investment contract
benefits ............. (a) (26,514) (25,105) (25,105) (a) (23,798) (23,294) (23,294)
Insurance - financial
guarantees and credit
life ................. 236,063 (2,740) (2,777) (2,882) 221,940 (2,722) (2,765) (2,866)
Credit and liquidity
support
-securitizations (d) . 35,447 (492) (492) (492) 30,356 (353) (353) (353)
Performance guarantees
(e) .................. 6,740 - - - 2,773 (56) (56) (56)
Other financial
instruments........... 2,982 (1,184) (1,114) (1,114) 2,545 (1,473) (1,444) (1,444)
Other firm commitments
Currency forwards ..... 1,585 8 47 47 3,778 (14) (41) (41)
Ordinary course of
business lending
commitments ......... 9,450 - - - 7,822 - - -
Unused revolving credit
lines
Commercial ........... 11,278 - - - 11,440 - - -
Consumer - principally
credit cards ....... 171,112 - - - 145,531 - - -
(a) Not applicable.
(b) Includes effects of interest rate and currency swaps, which also are listed
separately.
(c) See note 10.
(d) Pre-tax gains on sales of financial assets through securitizations amounted
to $489 million during 2000.
(e) Includes letters of credit.
Additional information about certain financial instruments in the above table
follows.
Currency forwards, swaps and options are employed by the Corporation to manage
exposures to changes in currency exchange rates associated with commercial
purchase and sale transactions and to optimize borrowing costs as discussed in
note 10. These financial instruments generally are used to fix the local
currency cost of purchased goods or services or selling prices denominated in
currencies other than the functional currency. Currency exposures that result
from net investments in affiliates are managed principally by funding assets
denominated in local currency with debt denominated in those same currencies. In
certain circumstances, net investment exposures are managed using currency
forwards and currency swaps.
Options and instruments containing option features that behave based on limits
("caps", "floors" or "collars") on interest rate movement are used primarily to
hedge prepayment risk in certain of the Corporation's business activities, such
as mortgage servicing and annuities.
Swaps of interest rates and currencies are used by the Corporation to optimize
funding costs for a particular funding strategy (see note 10). Interest rate
swaps, along with purchased options and futures, are used by the Corporation to
establish specific hedges of mortgage-related assets. Credit risk of these
positions is evaluated by management under the credit criteria discussed below.
As part of its ongoing activities, the Corporation also enters into swaps that
are integrated into investments in or loans to particular customers. Such
integrated swaps not involving assumption of third party credit risk are
evaluated and monitored like their associated investments or loans and are not
therefore subject to the same credit criteria that would apply to a stand-alone
position.
Counterparty credit risk - risk that counterparties will be financially unable
to make payments according to the terms of the agreements - is the principal
risk associated with swaps, purchased options and forwards. Gross market value
of probable future receipts is one way to measure this risk, but is meaningful
only in the context of net credit exposure to individual counterparties. At
December 31, 2000 and 1999, this gross market risk amounted to $2.7 billion and
$1.8 billion, respectively. Aggregate fair values that represent associated
probable future obligations, normally associated with a right of offset against
probable future receipts, amounted to $3.7 billion and $3.6 billion at December
31, 2000 and 1999, respectively.
Except as noted above for positions that are integrated into financings, all
swaps, purchased options and forwards are carried out within the following
credit policy constraints.
o Once a counterparty exceeds a credit exposure limit (see table
below), no additional transactions are permitted until the
exposure with that counterparty is reduced to an amount that is
within the established limit. Open contracts remain in force.
Counterparty credit criteria Credit rating
-----------------------------
Standard &
Moody's Poor's
------------- -------------
Term of transaction
Between one and five years ......................................... Aa3 AA-
Greater than five years ............................................ Aaa AAA
Credit exposure limits
Up to $50 million .................................................. Aa3 AA-
Up to $75 million .................................................. Aaa AAA
o All swaps are executed under master swap agreements containing
mutual credit downgrade provisions that provide the ability to
require assignment or termination in the event either party is
downgraded below A3 or A-.
More credit latitude is permitted for transactions having original maturities
shorter than one year because of their lower risk.
NOTE 21. GEOGRAPHIC SEGMENT INFORMATION
The table below presents data by geographic region. Revenues shown below are
classified according to their country of origin.
Revenues Long-lived assets
For the years ended December 31 At December 31
---------------------------------------- ----------------------------------------
(In millions) 2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
United States ................. $ 32,361 $ 28,618 $ 26,538 $ 10,951 $ 12,917 $ 10,389
Europe ........................ 10,154 10,363 9,743 3,181 3,446 3,482
Pacific Basin ................. 7,147 3,722 1,418 1,146 1,311 625
Global (a) .................... 2,134 1,788 1,682 10,763 8,959 8,160
Other (b) ..................... 2,471 2,114 2,024 1,615 1,698 1,161
------------ ------------ ------------ ------------ ------------ ------------
Total ...................... $ 54,267 $ 46,605 $ 41,405 $ 27,656 $ 28,331 $ 23,817
============ ============ ============ ============ ============ ============
(a) Consists of operations that cannot meaningfully be associated with specific
geographic areas (for example, commercial aircraft and shipping containers
used on ocean-going vessels).
(b) Principally the Americas other than the United States.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable
PART III
Item 10. Directors and Executive Officers of the Registrant.
Omitted
Item 11. Executive Compensation.
Omitted
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Omitted
Item 13. Certain Relationships and Related Transactions.
Omitted
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements
Included in Part II of this report:
Independent Auditors' Report
Statement of Earnings for each of the years in the three-year
period ended December 31, 2000
Statement of Changes in Share Owners' Equity for each of the
years in the three-year period ended December 31, 2000
Statement of Financial Position at December 31, 2000 and 1999
Statement of Cash Flows for each of the years in the three-year
period ended December 31, 2000
Notes to Consolidated Financial Statements
Incorporated by reference:
The consolidated financial statements of General Electric
Company, set forth in the Annual Report on Form 10-K of General
Electric Company (S.E.C. File No. 001-00035) for the year ended
December 31, 2000 (pages F-1 through F-44) and Exhibit 12 (Ratio
of Earnings to Fixed Charges) of General Electric Company.
(a) 2. Financial Statement Schedules
Schedule I. Condensed financial information of registrant.
All other schedules are omitted because of the absence of
conditions under which they are required or because the required
information is shown in the financial statements or notes
thereto.
(a) 3. Exhibit Index
The exhibits listed below, as part of Form 10-K, are numbered in
conformity with the numbering used in Item 601 of Regulation S-K
of the Securities and Exchange Commission.
Exhibit
Number Description
3(i) A complete copy of the Organization Certificate of the Corporation as last
amended as of February 16, 1999 and currently in effect, consisting of the
following: (a) the Organization Certificate of the Corporation as in effect
immediately prior to the filing of the Certificate of Amendment as of April
21, 1995 (Incorporated by reference to Exhibit 3(i) to the Corporation's
Form 10-K Report for the year ended December 31, 1993); (b) a Certificate
of Amendment filed in the Office of the Superintendent of Banks of the
State of New York (the "Office of the Superintendent") as of April 21, 1995
(Incorporated by reference to Exhibit 4(b) to the Corporation's
Registration Statement on Form S-3, File No. 33-58771; (c) a Certificate of
Amendment filed in the Office of the Superintendent as of May 11, 1995
(Incorporated by reference to Exhibit 4(c) to the Corporation's
Registration Statement on form S-3, File No. 33-61257); (d) a Certificate
of Amendment filed in the Office of the Superintendent as of June 28, 1995
(Incorporated by reference to Exhibit 4(d) to the Corporation's
Registration Statement on Form S-3, File No. 33-61257); (e) a Certificate
of Amendment filed in the Office of the Superintendent as of July 17, 1995
(Incorporated by reference to Exhibit 4(e) to the Corporation's
Registration Statement on Form S-3, File No. 33-61257); (f) a Certificate
of Amendment filed in the Office of the Superintendent as of November 1,
1995 (Incorporated by reference to Exhibit 3(i) to the Corporation's Form
10-K Report for the year ended December 31, 1995); (g) a Certificate of
Amendment filed in the Office of the Superintendent as of September 27,
1996 (Incorporated by reference to Exhibit 4(g) to the Corporation's
Registration Statement on Form S-3, File No. 333-13195); (h) a Certificate
of Amendment filed in the Office of the Superintendent as of December 9,
1997 (Incorporated by reference to Exhibit 4(g) to the Corporation's
Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File
No. 333-13195); (i) a Certificate of Amendment filed in the Office of the
Superintendent as of December 19, 1997 (Incorporated by reference to
Exhibit 4(h) to the Corporation's Post-Effective Amendment No. 1 to
Registration Statement on Form S-3, File No. 333-13195); (j) a Certificate
of Amendment filed in the Office of the Superintendent as of February 17,
1998 (Incorporated by reference to Exhibit 4(i) to the Corporation's
Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File
No. 333-13195); (k) a Certificate of Amendment filed in the Office of the
Superintendent as of June 24, 1998 (Incorporated by reference to Exhibit
4(l) to the Corporation's Post-Effective Amendment No. 2 to Registration
Statement on Form S-3, file number 333-59707); (l) a Certificate of
Amendment filed in the Office of the Superintendent as of July 23, 1998
(incorporated by reference to Exhibit 4(k) to the Corporation's
Post-Effective Amendment No. 1 to Registration Statement on Form S-3, file
number 333-59707); and (m) a Certificate of Amendment filed in the Office
of the Superintendent as of February 16, 1999 (Incorporated by reference to
Exhibit 4(m) to the Corporation's Post-Effective Amendment No. 2 to
Registration Statement on Form S-3, file number 333-59707); (n) a
Certificate of Amendment filed in the Office of the Superintendent as of
April 15, 1999 (Incorporated by reference to Exhibit 4 (kk) to the
Corporation's Post-Effective Amendment No. 2 to Registration Statement on
Form S-3, File No. 333-87367); and (o) a Certificate of Amendment filed in
the Office of the Superintendent as of November 28, 2000 (Incorporated by
reference to Exhibit 3(i) of the Corporation's Form 10-Q Report for the
quarter ended September 30, 2000.
3(ii)A complete copy of the By-Laws of the Corporation as last amended on June
30, 1994, and currently in effect. (Incorporated by reference to Exhibit
3(ii) of the Corporation's Form 10-K Report for the year ended December 31,
1994).
4(a) Second Amended and Restated Fiscal and Paying Agency Agreement dated as of
March 31, 1999 among the Corporation, GE Capital Australia, GE Capital
Australia Funding Pty Ltd, GE Capital Finance Australia, General Electric
Capital Canada, Inc., GE Capital Canada Funding Company, GE Capital Canada
Retailer Financial Services Company and The Chase Manhattan Bank, London
Branch (Incorporated by reference to Exhibit 4(ee) to the Corporation's
Post-Effective Amendment No. 4 to Registration Statement on Form S-3, File
No. 333-59707).
4(c) Form of Euro Medium-Term Note and Debt Security - Temporary Global Fixed
Rate Bearer Note (Incorporated by reference to Exhibit 4(ff) to the
Corporation's Post-Effective Amendment No. 4 to Registration Statement on
Form S-3, File No. 333-59707).
4(d) Form of Euro Medium-Term Note and Debt Security - Permanent Global Fixed
Rate Bearer Note (Incorporated by reference to Exhibit 4(gg) to the
Corporation's Post-Effective Amendment No. 4 to Registration Statement on
Form S-3, File No. 333-59707).
4(e) Form of Euro Medium-Term Note and Debt Security - Temporary Global Floating
Rate Bearer Note (Incorporated by reference to Exhibit 4(ii) to the
Corporation's Post-Effective Amendment No. 4 to Registration Statement on
Form S-3, File No. 333-59707).
4(f) Form of Euro Medium-Term Note and Debt Security - Permanent Global Floating
Rate Bearer Notes (Incorporated by reference to Exhibit 4(jj) to the
Corporation's Post-Effective Amendment No. 4 to Registration Statement on
Form S-3, File No. 333-59707).
4(g) Agreement to furnish to the Securities and Exchange Commission upon request
a copy of instruments defining the rights of holders of certain long-term
debt of the registrant and all subsidiaries for which consolidated or
unconsolidated financial statements are required to be filed.
12(a) Computation of ratio of earnings to fixed charges.
12(b)Computation of ratio of earnings to combined fixed charges and preferred
stock dividends.
23(ii) Consent of KPMG LLP.
24 Power of Attorney.
99(a)Income Maintenance Agreement dated March 28, 1991, between General
Electric Company and the Corporation. (Incorporated by reference to Exhibit
28(a) of the Corporation's Form 10-K Report for the year ended December 31,
1992).
99(b)The consolidated financial statements of General Electric Company, set
forth in the Annual Report on Form 10-K of General Electric Company (S.E.C.
File No. 001-00035) for the year ended December 31, 2000, (pages F-1
through F-44) and Exhibit 12 (Ratio of Earnings to Fixed Charges) of
General Electric Company.
99(c)Letter, dated February 4, 1999 from Dennis D. Dammerman of General
Electric Company to Denis J. Nayden of General Electric Capital Corporation
pursuant to which General Electric Company agrees to provide additional
equity to General Electric Capital Corporation in conjunction with certain
redemptions by General Electric Capital Corporation of shares of its
Variable Cumulative Preferred Stock. (Incorporated by reference to Exhibit
99(g) to the Corporation's Post-Effective Amendment No. 1 to Registration
Statement on Form S-3, File No. 333-59707).
(b) Reports on Form 8-K
None.
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL ELECTRIC CAPITAL CORPORATION
CONDENSED STATEMENT OF CURRENT AND RETAINED EARNINGS
For the years ended December 31 (In millions) 2000 1999 1998
------------- ------------- -------------
REVENUES ......................................................... $ 6,596 $ 5,527 $ 5,310
------------- ------------- -------------
EXPENSES:
Interest, net of allocations ................................... 7,338 7,096 5,444
Operating and administrative ................................... 1,937 1,904 1,988
Provision for losses on financing receivables .................. 307 241 (125)
Depreciation and amortization .................................. 332 530 443
------------- ------------- -------------
9,914 9,771 7,750
------------- ------------- -------------
Loss before income taxes and equity in earnings of affiliates .... (3,318) (4,244) (2,440)
Income tax benefit ............................................... 965 1,734 1,008
Equity in earnings of affiliates ................................. 6,642 6,718 4,806
------------- ------------- -------------
NET EARNINGS ..................................................... 4,289 4,208 3,374
Dividends paid ................................................... (1,606) (1,537) (895)
Retained earnings at January 1 ................................... 17,011 14,340 11,861
------------- ------------- -------------
RETAINED EARNINGS AT DECEMBER 31 ................................. $ 19,694 $ 17,011 $ 14,340
============= ============= =============
See Notes to Condensed Financial Statements.
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Continued)
GENERAL ELECTRIC CAPITAL CORPORATION
CONDENSED STATEMENT OF FINANCIAL POSITION
At December 31 (In millions) 2000 1999
-------------- --------------
ASSETS
Cash and equivalents ............................................................. $ - $ 2,658
Investment securities ............................................................ 3,789 5,499
Financing receivables:
Time sales and loans ............................................................ 29,797 24,957
Investment in financing leases .................................................. 14,907 13,759
-------------- --------------
44,704 38,716
Allowance for losses on financing receivables ................................... (1,047) (755)
-------------- --------------
Financing receivables - net .................................................. 43,657 37,961
Investments in and advances to affiliates ........................................ 130,551 126,581
Equipment on operating leases (at cost), less accumulated amortization of $855 and
$938 ............................................................................ 3,341 4,189
Other assets ..................................................................... 16,337 12,163
-------------- --------------
Total assets .................................................................. $ 197,675 $ 189,051
============== ==============
LIABILITIES AND EQUITY
Short-term borrowings ............................................................ $ 91,522 $ 99,237
Long-term borrowings ............................................................. 69,704 59,136
Other liabilities ................................................................ 7,729 4,806
Deferred income taxes ............................................................ 2,647 3,126
-------------- --------------
Total liabilities ............................................................. 171,602 166,305
-------------- --------------
Variable cumulative preferred stock, $100 par value, liquidation preference
$100,000 per share (33,000 shares authorized at December 31, 2000 and 1999
and 26,000 shares outstanding at December 31, 2000 and 1999) ................... 3 3
Common stock, $200 par value (3,866,000 shares authorized and 3,837,825 shares
outstanding at December 31, 2000 and 1999, respectively)........................ 768 768
Additional paid-in capital ....................................................... 6,347 5,383
Retained earnings ................................................................ 19,694 17,011
Accumulated unrealized (losses) gains on investment securities - net (a) ......... (139) (163)
Accumulated foreign currency translation adjustments (a) ......................... (600) (256)
-------------- --------------
Total equity .................................................................. 26,073 22,746
-------------- --------------
Total liabilities and equity .................................................. $ 197,675 $ 189,051
============== ==============
(a) The sum of accumulated unrealized (losses) gains on investment securities
and accumulated foreign currency translation adjustments constitutes
"Accumulated nonowner changes other than earnings," and was ($739) million
and ($419) million at year-end 2000 and 1999, respectively.
See Notes to Condensed Financial Statements.
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Continued)
GENERAL ELECTRIC CAPITAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
For the years ended December 31 (In millions) 2000 1999 1998
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES ............................. $ 2,100 $ (1,537) $ (628)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loans to customers ................................... (57,198) (58,899) (49,265)
Principal collections from customers - loans ..................... 52,260 55,114 46,902
Investment in assets on financing leases ......................... (4,687) (4,712) (5,915)
Principal collections from customers - financing leases .......... 2,493 2,788 3,207
Net change in credit card receivables ............................ (48) 193 (709)
Buildings, equipment and equipment on operating leases
- additions ................................................... (1,494) (1,710) (421)
- dispositions ................................................ 2,007 976 445
Payments for principal businesses purchased, net of cash acquired . (1,176) (9,823) (15,959)
Proceeds from principal business dispositions .................... (605) 176 -
Change in investment in and advances to affiliates ............... 1,750 6,193 (1,956)
Other - net ...................................................... (4,139) (4,687) (2,372)
-------------- -------------- --------------
Cash used for investing activities ............................ (10,837) (14,391) (26,043)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (less than 90-day maturities) ........... (576) (2,591) 14,263
Newly issued debt
- short-term (91-365 days) .................................... 7,601 14,081 5,881
- long-term senior ............................................ 28,780 25,016 25,381
Proceeds - non-recourse, leveraged lease debt .................... 1,139 816 1,422
Repayments and other reductions
- short-term .................................................. (27,382) (17,291) (16,553)
- long-term senior ............................................ (2,672) (97) (3,109)
Principal payments - non-recourse, leveraged lease debt .......... (94) (126) (142)
Dividends paid ................................................... (1,612) (1,537) (895)
Contributions to additional paid-in capital ...................... 895 - 119
Issuance of preferred stock in excess of par ..................... - 300 70
-------------- -------------- --------------
Cash from financing activities ................................ 6,079 18,571 26,437
-------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR ....... (2,658) 2,643 (234)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ........................ 2,658 15 249
-------------- -------------- --------------
CASH AND EQUIVALENTS AT END OF YEAR .............................. $ - $ 2,658 $ 15
============== ============== ==============
See Notes to Condensed Financial Statements.
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Concluded)
GENERAL ELECTRIC CAPITAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Borrowings
Total long-term borrowings at December 31, 2000 and 1999 are shown below.
2000
average
rate (a) Maturities 2000 1999
(Dollars in millions) --------------- --------------- --------------- ---------------
Senior notes .................................... 6.58% 2002-2055 $ 69,006 $ 58,438
Subordinated notes (b) .......................... 8.04 2006-2012 698 698
--------------- ---------------
$ 69,704 $ 59,136
=============== ===============
(a) Includes the effects of associated interest rate and currency swaps.
(b) Guaranteed by General Electric Company.
At December 31, 2000, long-term borrowing maturities during the next five years,
including the current portion of long-term notes payable, are $16,593 million in
2001, $17,718 million in 2002, $13,951 million in 2003, $10,301 million in 2004,
and $6,201 million in 2005.
Interest rates are managed by GE Capital in light of the anticipated behavior,
including prepayment behavior, of assets in which debt proceeds are invested. A
variety of instruments, including interest rate and currency swaps and currency
forwards, are employed to achieve management's interest rate objectives.
Effective interest rates are lower under these "synthetic" positions than could
have been achieved by issuing debt directly. At December 31, 2000 interest rate
swap maturities ranged from 2001 to 2048, and average interest rates for
fixed-rate borrowings (including "synthetic" fixed-rate borrowings) were 6.24%
(5.54% at year end 1999).
Interest expense on the Condensed Statement of Current and Retained Earnings is
net of interest income on loans and advances to majority owned affiliates of
$1,610 million, $1,129 million and $2,050 million for 2000, 1999 and 1998,
respectively.
Income Taxes
General Electric Company files a consolidated U.S. federal income tax return
which includes GE Capital. Income tax benefit includes the effect of GE Capital
on the consolidated return.
58
Exhibit 4 (g)
March 23, 2001
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Subject: General Electric Capital Corporation Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 - File No. 1-6461
Dear Sirs:
Neither General Electric Capital Corporation (the "Corporation") nor any of its
subsidiaries has outstanding any instrument with respect to its long-term debt
that is not registered or filed with the Commission and under which the total
amount of securities authorized exceeds 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis. In accordance with
paragraph (b) (4) (iii) of Item 601 of Regulation S-K (17 CFR ss.229.601), the
Corporation hereby agrees to furnish to the Securities and Exchange Commission,
upon request, a copy of each instrument which defines the rights of holders of
such long-term debt.
Very truly yours,
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ J.A. Parke
-------------------------------------------------
J.A. Parke,
Vice Chairman and
Chief Financial Officer
Exhibit 12 (a)
GENERAL ELECTRIC CAPITAL CORPORATION
AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Fixed Charges
Years ended December 31
------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
------------- ------------ -------------------------- ------------
Net earnings ....................................$ 4,289 $ 4,208 $ 3,374 $ 2,729 $ 2,632
Provision for income taxes ...................... 1,555 1,553 1,185 997 1,172
Minority interest ............................... 86 68 49 40 86
------------- ------------ -------------------------- ------------
Earnings before income taxes and minority
interest ....................................... 5,930 5,829 4,608 3,766 3,890
------------- ------------ -------------------------- ------------
Fixed charges:
Interest ....................................... 10,763 9,183 8,772 7,440 7,114
One-third of rentals ........................... 381 345 289 240 177
------------- ------------ -------------------------- ------------
Total fixed charges ............................. 11,144 9,528 9,061 7,680 7,291
------------- ------------ -------------------------- ------------
Less interest capitalized, net of amortization .. (121) (87) (88) (52) (41)
------------- ------------ -------------------------- ------------
Earnings before income taxes and minority
interest plus fixed charges .................... $ 16,953 $ 15,270 $ 13,581 $ 11,394 $ 11,140
============= ============ ========================== ============
Ratio of earnings to fixed charges .............. 1.52 1.60 1.50 1.48 1.53
============= ============ ========================== ============
Exhibit 12 (b)
GENERAL ELECTRIC CAPITAL CORPORATION
AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Years ended December 31
-----------------------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
------------ ----------- ------------ ------------ -----------
Net earnings .................................... $ 4,289 $ 4,208 $ 3,374 $ 2,729 $ 2,632
Provision for income taxes ...................... 1,555 1,553 1,185 997 1,172
Minority interest ............................... 86 68 49 40 86
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest ....................................... 5,930 5,829 4,608 3,766 3,890
------------ ----------- ------------ ------------ -----------
Fixed charges:
Interest ...................................... 10,763 9,183 8,772 7,440 7,114
One-third of rentals .......................... 381 345 289 240 177
------------ ----------- ------------ ------------ -----------
Total fixed charges ............................. 11,144 9,528 9,061 7,680 7,291
Less interest capitalized, net of amortization .. (121) (87) (88) (52) (41)
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest plus fixed charges .................... $ 16,953 $ 15,270 $ 13,581 $ 11,394 $ 11,140
============ =========== ============ ============ ===========
Preferred stock dividend requirements ........... $ 126 $ 115 $ 97 $ 78 $ 76
Ratio of earnings before provision for income
taxes to net earnings .......................... 1.36 1.37 1.35 1.37 1.45
------------ ----------- ------------ ------------ -----------
Preferred stock dividend factor on pre-tax basis 171 157 131 107 110
Fixed charges ................................... 11,144 9,528 9,061 7,680 7,291
------------ ----------- ------------ ------------ -----------
Total fixed charges and preferred stock dividend
requirements ................................... $ 11,315 $ 9,685 $ 9,192 $ 7,787 $ 7,401
============ =========== ============ ============ ===========
Ratio of earnings to combined fixed charges and
preferred stock dividends ...................... 1.50 1.58 1.48 1.46 1.51
============ =========== ============ ============ ===========
Exhibit 23 (ii)
To the Board of Directors
General Electric Capital Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
33-43420, 33-51793, 333-22265, 333-59977, and 333-40880) on Form S-3 of General
Electric Capital Corporation, and in the Registration Statement (No. 33-39596)
on Form S-3 jointly filed by General Electric Capital Corporation and General
Electric Company, of our report dated February 2, 2001, relating to the
statement of financial position of General Electric Capital Corporation and
consolidated affiliates as of December 31, 2000 and 1999, and the related
statements of earnings, changes in share owners' equity and cash flows for each
of the years in the three-year period ended December 31, 2000, and the related
schedule, which report appears in the December 31, 2000 annual report on Form
10-K of General Electric Capital Corporation.
/s/ KPMG LLP
Stamford, Connecticut
March 23, 2001
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being directors
and/or officers of General Electric Capital Corporation, a New York corporation
(the "Corporation"), hereby constitutes and appoints Denis J. Nayden, James A.
Parke, Joan C. Amble and Nancy E. Barton, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead in any and all capacities, to sign one
or more Annual Reports for the Corporation's fiscal year ended December 31,
2000, on Form 10-K under the Securities Exchange Act of 1934, as amended, or
such other form as such attorney-in-fact may deem necessary or desirable, any
amendments thereto, and all additional amendments thereto in such form as they
or any one of them may approve, and to file the same with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done to the end that such Annual Report or Annual
Reports shall comply with the Securities Exchange Act of 1934, as amended, and
the applicable Rules and Regulations of the Securities and Exchange Commission
adopted or issued pursuant thereto, as fully and to all intents and purposes as
he might or could in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them or their or his substitute or
resubstitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this 23rd
day of March 2001.
/s/ Denis J. Nayden /s/ James A. Parke
- --------------------------------- -----------------------------------
Denis J. Nayden, James A. Parke,
Chairman of the Board and Director, Vice Chairman and
Chief Executive Officer Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)
/s/ Joan C. Amble
-----------------------------------
Joan C. Amble,
Vice President and Controller
(Principal Accounting Officer)
(Page 1 of 2)
/s/ Nancy E. Barton /s/ Michael A. Neal
- ------------------------------------- ----------------------------------
Nancy E. Barton, Michael A. Neal,
Director Director
/s/ Francis S. Blake /s/ James A. Parke
- ------------------------------------- ----------------------------------
Francis S. Blake, James A. Parke,
Director Director
/s/ James R. Bunt /s/ Ronald R. Pressman
- ------------------------------------- ----------------------------------
James R. Bunt, Ronald R. Pressman,
Director Director
/s/ David L. Calhoun /s/ Gary M. Reiner
- ------------------------------------- ----------------------------------
David L. Calhoun, Gary M. Reiner,
Director Director
/s/ Dennis D. Dammerman /s/ John M. Samuels
- ------------------------------------- ----------------------------------
Dennis D. Dammerman, John M. Samuels,
Director Director
/s/ Scott C. Donnelly /s/ Keith S. Sherin
- ------------------------------------- ----------------------------------
Scott C. Donnelly, Keith S. Sherin,
Director Director
/s/ Michael D. Fraizer /s/ Edward D. Stewart
- ------------------------------------- ----------------------------------
Michael D. Fraizer, Edward D. Stewart,
Director Director
- ------------------------------------- ----------------------------------
Benjamin W. Heineman, Jr., John F. Welch, Jr.,
Director Director
/s/ Jeffrey R. Immelt /s/ William A. Woodburn
- ------------------------------------- ----------------------------------
Jeffrey R. Immelt, William A. Woodburn,
Director Director
/s/ John H. Myers
- -------------------------------------
John H. Myers,
Director
A MAJORITY OF THE BOARD OF DIRECTORS
(Page 2 of 2)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENERAL ELECTRIC CAPITAL CORPORATION
March 23, 2001 By: /s/ Denis J. Nayden
--------------------------------------------------
(Denis J. Nayden)
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
/s/ Denis J. Nayden Chairman of the Board and March 23, 2001
- ----------------------------------------
(Denis J. Nayden) Chief Executive Officer
(Principal Executive Officer)
/s/ James A. Parke Vice Chairman March 23, 2001
- ----------------------------------------
(James A. Parke) and Chief Financial Officer
(Principal Financial Officer)
/s/ Joan C. Amble Vice President and Controller March 23, 2001
- ----------------------------------------
(Joan C. Amble) (Principal Accounting Officer)
NANCY E. BARTON * Director
FRANCIS S. BLAKE* Director
JAMES R. BUNT * Director
DAVID L. CALHOUN * Director
DENNIS D. DAMMERMAN * Director
SCOTT C. DONNELLY * Director
MICHAEL D. FRAZIER* Director
JEFFREY R. IMMELT * Director
JOHN H. MYERS* Director
MICHAEL A. NEAL* Director
JAMES A. PARKE * Director
RONALD R. PRESSMAN* Director
GARY M. REINER * Director
JOHN M. SAMUELS * Director
KEITH S. SHERIN * Director
EDWARD D. STEWART* Director
WILLIAM A. WOODBURN* Director
A MAJORITY OF THE BOARD OF DIRECTORS
*By: /s/ Joan C. Amble March 23, 2001
---------------------------
(Joan C. Amble)
Attorney-in-fact