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, 2001
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 0-14804
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General Electric Capital Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1109503
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
260 Long Ridge Road,
Stamford, Connecticut 06927 (203) 357-4000
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(Address of principal (Zip Code) (Registrant's telephone
executive offices) number, including area code)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
Title of each class Name of each
- ------------------------------ exchange on which registered
7 1/2% Guaranteed Subordinated ----------------------------
Notes Due August 21, 2035 New York Stock Exchange
SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT:
Title of each class
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Common Stock, par value $1,000 per share
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 7, 2002, 1,012 shares of voting common stock, which constitute all of
the outstanding common equity, with a par value of $1,000 were outstanding.
Aggregate market value of the outstanding common equity held by nonaffiliates of
the registrant at March 7, 2002. 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, 2001 are incorporated by reference into Part IV hereof.
Item 1. Business - Property and Casualty Reserves for Unpaid Claims and Claim
Expenses, set forth in the Annual Report on Form 10-K of GE Global Insurance
Holding Corporation for the year ended December 31, 2001 is incorporated by
reference into Part I 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.
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 ........................................ 27
Item 8. Financial Statements and Supplementary Data ....................................................... 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .............. 52
PART III
Item 10. Directors and Executive Officers of the Registrant ................................................ 53
Item 11. Executive Compensation ............................................................................ 53
Item 12. Security Ownership of Certain Beneficial Owners and Management .................................... 53
Item 13. Certain Relationships and Related Transactions .................................................... 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .................................. 54
1
PART I
Item 1. Business.
GENERAL ELECTRIC CAPITAL SERVICES, INC.
General Electric Capital Services, Inc. (herein, together with its consolidated
affiliates, called "GE Capital Services", "the Corporation" or "GECS" unless the
context otherwise requires) was incorporated in 1984 in the State of Delaware.
Until February 1993, the name of the Corporation was General Electric Financial
Services, Inc. All outstanding common stock of GE Capital Services is owned
directly or indirectly by General Electric Company, a New York corporation ("GE
Company" or "GE"). The business of GE Capital Services consists of ownership of
two principal subsidiaries which, together with their affiliates, constitute GE
Company's principal financial services businesses. GE Capital Services is the
sole owner of the common stock of General Electric Capital Corporation ("GE
Capital" or "GECC") and GE Global Insurance Holding Corporation ("GE Global
Insurance Holdings").
GE Capital Services' principal executive offices are at 260 Long Ridge Road,
Stamford, Connecticut 06927 (Telephone number (203) 357-4000).
GENERAL ELECTRIC CAPITAL CORPORATION
GE Capital 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.
The capital stock of GE Capital was contributed to GE Capital Services by GE
Company in June 1984. Until November 1987, the name of the corporation was
General Electric Credit Corporation. On July 2, 2001, GE Capital changed its
state of incorporation to Delaware. The business of GE Capital 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. GE Company
manufactures few of the products financed by GE Capital.
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 GE Capital are offered primarily in the United States, Canada,
Europe and the Pacific Basin. GE Capital's principal executive offices are at
260 Long Ridge Road, Stamford, Connecticut 06927. At December 31, 2001, GE
Capital and affiliates employed approximately 88,000 persons.
GE GLOBAL INSURANCE HOLDING CORPORATION
GE Global Insurance Holdings, together with its affiliates, writes substantially
all lines of reinsurance and certain lines of property and casualty insurance.
GE Global Insurance Holdings has three principal subsidiaries: Employers
Reinsurance Corporation, GE Reinsurance Corporation and Medical Protective
Corporation. These affiliates, together with their direct and indirect
subsidiaries, reinsure property and casualty risks written by more than 1,000
insurers around the world. They also write certain specialty lines of insurance
on a direct basis, principally excess workers' compensation for self-insurers,
medical malpractice coverage for physicians and dentists, errors and omissions
coverage for insurance agents and brokers; excess indemnity for self-insurers of
medical benefits, and libel and allied torts. Other property and casualty
affiliates write excess and surplus lines insurance. The life reinsurance
affiliates are engaged in the reinsurance of life insurance products, including
term, whole and universal life, annuities, group long-term health products and
the provision of financial reinsurance to life insurers.
GE Global Insurance Holdings operates in three broad arenas: property and
casualty reinsurance, life reinsurance and primary commercial lines. GE Global
Insurance Holdings competes with more than 100 other property and casualty and
life reinsurance companies around the world, and with several hundred primary
commercial lines companies in the United States. GE Global Insurance Holdings is
the fourth largest reinsurer in the world, based on 2000 net written premiums.
It is a relatively small niche player in the broad primary commercial lines
arena. In one of its major primary areas - medical professional liability - GE
Global Insurance Holdings is the fourth largest writer in the United States
based on 2000 premiums.
2
Inherent in GE Global Insurance Holdings business is a range of insurance
underwriting risks, weather risk and financial risk associated with inflation,
economic growth or recession in specific areas. Important factors to continued
success include maintaining clear underwriting guidelines, balancing portfolios
geographically and demographically with a broad variety of exposures, and
maintaining a balanced global portfolio exposed to a variety of economic
conditions. In addition, the insurance/reinsurance industry can experience
cyclical turns in profitability associated with catastrophic events.
The global reinsurance industry is operating in an unprecedented environment in
the aftermath of the events of September 11. After years of the effect of excess
market capacity, the global market finds itself in a capacity crunch and with
many market participants declining to write coverage that includes terrorism.
The challenges associated with quantifying terrorism risk today are significant.
Primary insurers continue to consider alternatives to traditional risk transfer,
including insurance captives, structured securities and derivative products.
Global reinsurers are offering ways to meet the demands of this changing global
market by expanding their markets, entering into new reinsurance niches,
offering new reinsurance products and spreading their risks geographically. This
changing reinsurance environment may affect the industry's profitability, which
has historically been influenced by the insurance industry's underwriting cycle,
changes in interest rates and catastrophic events.
Insurance and reinsurance operations are subject to regulation by various
insurance regulatory agencies.
GE Global Insurance Holdings and its affiliates conduct business throughout the
world using a network of local offices. The world headquarters of GE Global
Insurance Holdings are at 5200 Metcalf Avenue, Overland Park, Kansas 66201. At
December 31, 2001, GE Global Insurance Holdings and affiliates employed
approximately 3,400 persons.
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:
- - 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.
- - 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 and marine shipping containers.
- - 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.
- - 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.
- - Specialty Insurance - U.S. and international multiple-line property and
casualty reinsurance; certain directly written specialty insurance and life
reinsurance; financial guaranty insurance, principally on municipal bonds
and asset-backed securities; 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. Item 1. Business - Property and Casualty
Reserves for Unpaid Claims and Claim Expenses, which is set forth in the Annual
Report on Form 10-K of GE Global Insurance Holdings for the year ended December
31, 2001, is incorporated herein, by reference. A description of the
Corporation's principal businesses by operating segment follows.
3
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 invest, protect and
retire 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, long-term care insurance, 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 is accomplished
primarily through four channels: intermediaries (brokerage general agencies,
banks and securities brokerage firms), dedicated sales forces and financial
advisors, worksites, and direct and affinity based marketing (through the
Internet, 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, GE Edison Life Insurance
Company, GE Insurance Holdings Limited and GE Life Group Limited.
GEFA recognizes that consolidation in the financial services industry will
create fewer but larger competitors. 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, price and cost efficiency.
GEFA's ability to compete is affected by its ability to provide competitive
products and quality service to the consumer, general agents, licensed insurance
agents and brokers; to maintain operating scale; and to continually reduce its
expenses through the elimination of duplicate functions and enhanced technology.
Many of GEFA's activities are regulated by a variety of insurance and
other regulators.
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. Since that
date, AFS operations have consisted of servicing their existing portfolios and
re-marketing off-lease vehicles.
AFS headquarters are in Barrington, Illinois.
GE Card Services
GE Card Services ("CS") is a leading provider of 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 offers customized private-label credit card solutions designed to attract and
retain customers for retailers such as JC Penney, ExxonMobil, Wal-Mart, The Home
Depot, Sam's Club, Macy's and Lowe's. 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.
4
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 and
insurance products and 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, Central and South America, including
Tesco, The Home Depot, Metro and Wal-Mart, as well as offering a variety of
direct-to-consumer credit programs such as consumer loans, auto loans and
finance leases, mortgages, debt consolidation, bankcards and the distribution of
credit insurance.
GCF provides financing to consumers through operations in Argentina, Australia,
Austria, Brazil, the Caribbean, the Czech Republic, Denmark, France, Germany,
Hong Kong, Hungary, India, Indonesia, Italy, Japan, Korea, Mexico, New Zealand,
Norway, Poland, Portugal, Republic of Ireland, Slovakia, Spain, Sweden,
Switzerland, Taiwan, Thailand, and the United Kingdom.
In March, May and September 2001, GCF closed transactions increasing a former
minority interest in Budapest Bank in Hungary to a 99% majority holding.
Budapest Bank is a commercial and retail bank offering a variety of consumer and
small business financing products and new services such as electronic banking.
In June 2001, GCF acquired igroup Limited, a leading provider of mortgage and
debt consolidation products to the UK market, which is based in Watford,
England.
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
consumer lending market is also subject to the risk of declining retail sales,
changes in interest and currency exchange rates, increases in personal
bankruptcy filings and payment delinquencies.
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. Cross selling multiple products into
its customer base is a critical success factor for GCF.
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 GE Capital Mortgage Insurance
(see page 11) and the results of which are now included in the Specialty
Insurance segment. As a result of this transaction, Mortgage Services exited the
business of originating, purchasing and selling of residential mortgage loans.
5
EQUIPMENT MANAGEMENT
Aviation Services
GE Capital Aviation Services ("GECAS"), the world's foremost aircraft leasing
company, 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 solutions provided to customers 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 approximately 1,000 aircraft and manages approximately 300 on behalf
of third parties. In addition, it has planes on order or on option from Boeing,
Airbus, Dornier, Embraer and Bombardier. GECAS has over 200 customers in over 60
countries.
GECAS operates in a highly competitive area serving a cyclical industry that
could further consolidate if airlines generally continue to weaken financially.
The impact of the events of September 11 has hastened and deepened a downturn in
the aviation industry served by GECAS. The business can also be affected by
regulatory changes that may impact aircraft values. Regulations under current
consideration, if enacted, that reduce permissible noise levels emitted from
commercial aircraft would have an effect on aircraft values.
GECAS headquarters are in Stamford, Connecticut, with regional offices in
Shannon, Republic of Ireland; New York, New York; Miami, Florida; Chicago,
Illinois; Vienna, Austria; Toulouse, France; 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 has approximately 1.2 million cars and trucks under lease
and service management. Fleet offers finance and operating leases to several
thousand customers. The business via Web applications and other unique channels,
delivers productivity solutions that drive commercial vehicle cost savings to
company fleets of all sizes.
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, web-based
vehicle ordering and reporting, maintenance management programs, accident
services, national account purchasing programs, fuel programs, title and
licensing services and strategic cost analysis consulting. 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 in some parts of the world.
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. 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 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. During 2001, IT Solutions exited,
including through sales of portions of business units, its operations in France
and the United Kingdom.
6
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. With more than 40 years
of experience in the renting, leasing and selling of trailers, TIP's mission is
to provide customers with products and services that help them increase
productivity and lower operating costs. TIP's fleet of over 390,000 dry freight,
refrigerated and double vans, flatbeds, intermodal assets, and specialized
trailers is available for rent, lease or purchase at over 200 locations in the
United States, Europe, Canada, and Mexico. TIP's commercial vehicle fleet of
over 35,000 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 buildings are provided with
flexible customized financing, turnkey services and dedicated local sales staff.
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 120,000 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. TIP/Modular Space
European headquarters and pooled accounting service center are in Amsterdam, The
Netherlands, and a commercial vehicle operation and administrative center is
located in Manchester, England.
GE SeaCo
GE SeaCo SRL ("GE SeaCo") is a joint venture between GE Capital and Sea
Containers Ltd., 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 900,000 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.
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 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.
GE SeaCo headquarters are in Bridgetown, Barbados.
7
Penske Truck Leasing
GE Capital is a limited partner in Penske Truck Leasing Co. L.P. ("Penske"),
which is a leading provider of full-service truck leasing and commercial and
consumer truck rental in the United States and Canada. Penske operates through a
national network of full-service truck leasing and rental facilities. At
December 31, 2001, Penske had a fleet of about 145,000 tractors, trucks and
trailers in its leasing and rental fleets and provided contract maintenance
programs or other support services for about 50,000 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.
In February 2001, Penske acquired Rollins Truck Leasing Corporation for
approximately $2 billion in cash and assumed debt. Rollins Truck Leasing
Corporation was one of the largest national full-service truck leasing and
rental companies, with locations in the United States and Canada.
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 and
consumer 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 ("Americom") engaged primarily as a satellite service
supplier to a diverse array of customers, including the broadcast and cable TV
industries, as well as broadcast radio. It also supplied integrated
communications services for government and commercial customers. Americom also
operated communications satellites and maintained a supporting network of earth
stations, central terminal offices, and telemetry, tracking and control
facilities.
On November 9, 2001, GECS exchanged the stock of Americom and other related
assets and liabilities for a combination of cash and stock in SES Global
("SES"), a leading satellite company. As a result of the transaction, GE Capital
now owns 30.7% of the combined operations of both Americom and SES. The
investment in the combined entity is now part of the Structured Finance Group.
Americom headquarters were 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 financial 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
8
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 large and small
companies with a broad line of innovative financial solutions including leases
and loans to middle-market customers, including manufacturers, distributors,
dealers and end-users, as well as municipal financing and facilities financing,
in such areas as construction equipment, corporate aircraft, medical equipment,
trucks and trailers. It also furnishes customers with direct-source tax-exempt
finance programs, as well as lease and sale/leaseback offerings. 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 and repossessed equipment and other assets.
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 monthly payments, interest rates
and fees charged customers but also on deal structures and credit terms. The
profitability of CEF 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 and currency exchange risk. Important factors to
continued success include maintaining strong risk management systems, diverse
portfolios, service and distribution channels, strong collateral and asset
management knowledge, deal structuring expertise and the reduction of costs
through enhanced use of technology.
During 2001, CEF purchased the stock of Franchise Finance Corporation of America
and certain assets and liabilities from Mellon Financial Corporation and SAFECO
Corporation. The purchase price for these acquisitions amounted to approximately
$4.4 billion.
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.
Commercial Finance
GE Capital Commercial Finance ("CF") is a leading global provider of innovative
financing, primarily 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, as well as factoring
services. Loan transactions range in size from under $10 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 retail, media and
communications, and high technology 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, Korea,
Australia, The Netherlands, and the United Kingdom, and also has significant
factoring operations in the U.S., France, the United Kingdom and Italy serving
U.S. and European companies.
Vendor Financial Services
GE Capital Vendor Financial Services ("VFS") provides financial solutions and
services to over 100 equipment manufacturers and more than 4,500
dealers/distributors in North America, Europe and Asia (including Japan),
9
enabling them to offer financing options to their customers. With nearly $20
billion in served assets, VFS helps its partners focus on their core businesses
and improve sales by providing flexible financial solutions and services.
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.
In June 2001, VFS acquired the Manufacturer and Dealer Services business (MDS)
of Mellon Leasing for approximately $480 million. MDS provides financial
services for office equipment and industrial equipment manufacturers.
In September 2001, VFS signed a framework agreement with Xerox to form a Joint
Venture, Xerox Capital Services. Through this joint venture, VFS will become the
primary financing provider for Xerox customers across the United States.
An economic slowdown would impact the continued expansion of the equipment
financing industry, intensifying a competitive pricing environment, pressure
delinquencies and residual realizations, and pressure any recourse obligations
from vendor relationships. 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.
GE European Equipment Finance
GE 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, master lease
coordination and other services, such as helping end-users increase purchasing
power through financing options and helping manufacturers and vendors to offer
leasing programs. For financial reporting purposes, EEF's operating results are
allocated to CEF and VFS.
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 impacted
by pricing pressures, slow growth in some of its markets, and is directly
affected by the general economic conditions within country economies. Its
ability to effectively compete in a changing environment will be dependent 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 across the European continent.
EEF operates from offices in the United Kingdom, France, Germany, Switzerland,
Belgium, The Netherlands, Ireland, Italy, Spain, Norway, Denmark, Sweden and
Finland, as well as having transaction capabilities in countries such as
Portugal. EEF headquarters are in Hounslow, England.
Heller Financial
In October 2001, the Corporation acquired Heller Financial, Inc. ("Heller
Financial") for approximately $5.3 billion. At December 31, 2001, the
Corporation reported Heller Financial as a stand-alone entity within the
Mid-Market Financing segment due to the proximity of the acquisition to
year-end. During 2002, the Corporation will report Heller Financial's operations
with those of the Corporation's businesses with which they were combined,
primarily Commercial Finance, VFS and CEF. In addition, one of the strongest
Heller Financial / GE Capital synergies was achieved when their healthcare
businesses were combined to create a new business to meet the financial needs of
the dynamic healthcare industry, Healthcare Financial Services. Overall, Heller
Financial provides financing solutions to middle-market and small business
clients including collateralized cash flow and asset based lending, secured real
estate financing, debt and lease equipment financing and small businesses
financing.
Heller Financial originates transactions in the United States through its 62
domestic office locations and internationally through a network of wholly owned
subsidiaries and joint venture commercial finance companies in 22 countries
outside the United States. Heller Financial concentrates primarily on senior
10
secured lending, with approximately 90% of consolidated lending assets and
investments at December 31, 2001 being made on that basis. Heller Financial's
primary clients and customers are entities in the manufacturing and service
sectors having annual sales generally in the range of $5 million to $250 million
and in the real estate sector having property values generally in the range of
$1 million to $40 million.
Heller Financial's markets are highly fragmented and extremely competitive and
are characterized by competitive factors that vary by product and geographic
region. Heller Financial's competitors include commercial finance companies,
national and regional banks and thrift institutions, investment banks, leasing
companies, investment companies, and manufacturers and vendors. Heller Financial
competes primarily on the basis of pricing, terms, structure and service.
Heller Financial's operations are subject, in certain instances, to supervision
and regulation by state and federal governmental authorities. They may also be
subject to various laws and judicial and administrative decisions imposing
various requirements and restrictions, which, among other things, regulate
credit granting activities, establish maximum interest rates and finance
charges, restrict foreign ownership or investment, govern secured transactions
and set collection, foreclosure, repossession and claims handling procedures.
Heller Financial headquarters are in Chicago, Illinois.
SPECIALIZED FINANCING
Real Estate
GE Capital Real Estate ("Real Estate") provides funds for the acquisition,
refinancing and renovation of a wide range of apartment buildings, industrial
properties, multi-family housing, retail facilities and offices located
throughout the United States, Canada, Mexico, Europe and Asia. Real Estate also
provides asset management services to real estate investors and selected
services to real estate owners. Real Estate is one of the world's leading
providers of capital and services to the global commercial real estate market,
providing debt and equity for real estate operators, developers, REITs and
opportunity funds to allow them to meet their acquisition, refinancing and
renovation needs.
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. Additionally, 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. 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, Spain, Germany, Italy and the United
Kingdom. Real Estate headquarters are in Stamford, Connecticut.
Structured Finance Group
GE Capital Structured Finance Group ("SFG") provides innovative financial
solutions through equity, debt and structured investments to clients throughout
the world. SFG's clients are primarily in the energy, telecommunications,
industrial and transportation sectors and range from household names to early
stage businesses.
11
SFG combines industry and technical expertise to deliver a full range of
sophisticated financial services and products. Services include corporate
finance, acquisition finance and project finance (construction and term).
Products include a variety of debt and equity instruments, as well as structured
transactions, including leases and partnerships. SFG manages an investment
portfolio of approximately $17 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 volatility
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 Chicago,
Illinois; Houston, Texas; New York, New York; and San Francisco, California.
Internationally, SFG is represented in London, United Kingdom; Frankfurt,
Germany; Milan, Italy; Tokyo, Japan; and Mexico City, Mexico.
GE Equity
GE Equity 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
In addition to GE Global Insurance Holdings (discussed above), GECS' principal
specialty insurance businesses are as follows.
Financial Guaranty Insurance Company
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 $174 billion at December 31, 2001. Approximately 84% 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 multi-line 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") helps families become
homeowners by smoothing the way for customers to obtain low-down-payment
mortgages while protecting lenders and investors against the risks of default.
It enables more than a quarter million families per year to obtain
low-down-payment mortgages and now has a no-down-payment product as well.
Mortgage Insurance is engaged principally in providing residential mortgage
guaranty insurance in the United States, United Kingdom, Canada and Australia.
At December 31, 2001, Mortgage Insurance was the mortgage insurance carrier for
over 1.9 million residential homes, with total insurance in force aggregating
approximately $184 billion and total risk in force aggregating approximately $80
billion. When a valid claim is received, Mortgage Insurance either pays up to a
12
guaranteed percentage based on the specified coverage, or pays the mortgage and
delinquent interest, taking title to the property and arranging for its sale.
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 substantially liquidated.
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. 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 and 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
portfolios.
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 political, economic, business,
competitive, market and regulatory factors.
Item 2. Properties.
GE Capital Services and its subsidiaries conduct their businesses from various
facilities, most of which are leased. The locations of the Corporation's primary
facilities are described in Item 1. Business.
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
13
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 Company and an affiliate 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 Services and consolidated affiliates and the
related Notes to Consolidated Financial Statements.
Year ended December 31
----------------------------------------------------------------------
(In millions) 2001 2000 1999 1998 1997
----------------------------------------------------------------------
Revenues ..................................$ 58,353 $ 66,177 $ 55,749 $ 48,694 $ 39,931
Earnings before accounting changes......... 5,586 5,192 4,443 3,796 3,256
Cumulative effect of accounting changes.... (169) - - - -
Net earnings............................... 5,417 5,192 4,443 3,796 3,256
Return on common equity (a) ............... 21.84% 24.05% 23.74% 23.46% 22.59%
Ratio of earnings to fixed charges ........ 1.62 1.61 1.62 1.55 1.56
GECC ratio of earnings to fixed charges ... 1.72 1.52 1.60 1.50 1.48
GECC ratio of debt to equity .............. 7.31 7.53 8.44 7.86 7.45
Financing receivables - net ...............$ 174,032 $ 143,299 $ 134,215 $ 118,606 $ 101,133
Total assets............................... 425,484 370,636 345,018 303,297 255,408
Short-term borrowings ..................... 160,844 123,992 129,259 113,162 95,274
Long-term senior notes .................... 77,920 80,383 69,770 58,042 44,993
Long-term subordinated notes .............. 1,171 996 996 996 996
Minority interest ......................... 4,267 3,968 4,391 3,459 3,113
Share owners' equity ...................... 28,590 23,022 20,321 19,727 17,239
Insurance premiums written for the year ... 15,843 16,461 13,624 11,865 9,396
----------------------------------------------------------------------
(a) Common equity excludes unrealized gains and losses on investment securities
and derivatives qualifying as hedges, net of tax. Return on common equity
is calculated using earnings that are adjusted for preferred stock dividend
and common equity excludes preferred stock.
Item 7. Management's Discussion and Analysis of Results of Operations.
Overview
The Corporation's earnings before accounting changes were $5,586 million in
2001, up 8% from $5,192 million in 2000, with strong double-digit earnings
growth in three of the five operating segments. Net earnings in 2000 increased
17% from 1999. Earnings growth throughout the three-year period resulted from
origination volume and asset growth, productivity and acquisitions of businesses
and portfolios. Principal factors in the 2001 increase were strong productivity
($0.7 billion) and lower taxes ($0.5 billion) partially offset by GE Global
Insurance Holdings ($0.5 billion) and lower realized gains on financial
instruments. Excluding effects of Paine Webber Group, Inc. (PaineWebber) in 2000
and Americom in 2001, both of which are discussed below, such pre-tax gains were
lower in 2001 by $0.5 billion ($0.3 billion after tax). Pre-tax gains on sales
of investment securities declined in 2001 by $0.5 billion, of which $0.4 billion
related to GE Equity; other GE Equity gains were $0.8 billion lower; while gains
on securitizations were up $0.8 billion from 2000.
On November 9, 2001, GECS exchanged the stock of Americom and other related
assets and liabilities for a combination of cash and stock in SES Global, a
leading satellite company. The transaction resulted in a gain of $1,158 million
($642 million after tax).
On December 28, 2000, Montgomery Ward, LLC (Wards), formerly a GECS 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 additional associated losses.
14
Operating Results
Total Revenues decreased 12% to $58.4 billion in 2001, following a 19% increase
to $66.2 billion in 2000. The three principal reasons for the decrease in
revenues in 2001 compared with 2000 were: the deconsolidation of Wards and
resulting absence of sales in 2001 ($3.2 billion); the effects of
rationalization of operations and market conditions at IT Solutions ($2.9
billion); and reduced surrender fees compared with 2000 ($1.2 billion)
associated with the planned run-off of restructured insurance policies of Toho
Mutual Life Insurance Company (Toho) at GE Financial Assurance (GEFA). The
increase in 2000 reflected post-acquisition revenues from acquired businesses
($6.5 billion) as well as volume growth ($2.5 billion). Revenues in 2000 also
included the gain from sale of common stock of PaineWebber ($1.4 billion).
Additional information about other revenue items is provided in the analysis of
GECS operating segments beginning on page 15.
Interest expense on borrowings in 2001 was $10.6 billion, compared with $11.1
billion in 2000 and $9.4 billion in 1999. The change in both years reflected the
effects of both interest rates and the average level of borrowings used to
finance asset growth. The average composite effective interest rate was 5.11% in
2001, compared with 5.89% in 2000 and 5.14% in 1999. In 2001, average assets of
$386.6 billion were 7% higher than in 2000, which in turn were 13% higher than
in 1999. See page 20 for a discussion of interest rate risk management.
Operating and administrative expenses were $16.4 billion, $19.5 billion and
$16.3 billion in 2001, 2000 and 1999, respectively. Changes over the three-year
period were largely the result of acquisitions and unusual charges, which were
more than offset in 2001 by productivity at Consumer Services and Equipment
Management. Costs and expenses in 2001 included $0.4 billion of costs in
businesses that were acquired after January 1, 2001, as well as $0.3 billion of
costs discussed in the analysis of the All Other operating segment. Similarly,
2000 included $2.3 billion of costs in businesses that were acquired after
January 1, 2000; charges for costs associated with Wards amounting to $0.8
billion, as discussed previously; and $0.5 billion of costs to rationalize
certain operations discussed in the analysis of the All Other operating segment.
Insurance losses and policyholder and annuity benefits increased to $15.1
billion in 2001, compared with $14.4 billion in 2000 and $11.0 billion in 1999.
This increase reflected effects of growth in premium volume and business
acquisitions at GEFA throughout the period, and costs discussed in the analysis
of the Specialty Insurance and All Other operating segments, partially offset by
the planned run-off of restructured insurance policies at Toho.
Cost of goods sold declined to $3.3 billion in 2001, compared with $8.5 billion
in 2000 and $8.0 billion in 1999, reflecting volume declines at IT Solutions and
the deconsolidation of Wards on December 28, 2000, when Wards commenced
liquidation proceedings. The increase in 2000 primarily reflected the
consolidation of Wards from August 2, 1999, through December 28, 2000.
Provision for losses on financing receivables was $2.5 billion in 2001, compared
with $2.0 billion in 2000 and $1.7 billion in 1999. These provisions principally
related to private-label credit cards, bank credit cards, personal loans and
auto loans and leases as well as commercial, industrial, and equipment loans and
leases, all of which are discussed on page 18 under Portfolio Quality. The
provisions throughout the three-year period reflected higher average receivable
balances, changes in the mix of business, and the effects of delinquency rates -
higher during 2001 and lower during 2000 - consistent with industry experience.
Depreciation and amortization of buildings and equipment and equipment on
operating leases increased 4% to $3.5 billion in 2001, compared with $3.3
billion in 2000, a 4% increase over 1999. 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 $1.4 billion in 2001 (an effective tax rate of
19.8%), compared with $1.9 billion in 2000 (an effective tax rate of 26.9%) and
$1.7 billion in 1999 (an effective tax rate of 27.1%). The 2001 effective tax
rate reflects the effects of continuing globalization, certain transactions (see
note 15), and the effect of a pre-tax charge related to the events of September
11. The pre-tax charge related to September 11 amounted to approximately $600
million, principally at Specialty Insurance, and reduced the Corporation's
effective tax rate by one percentage point. Management expects that trends in
the Corporation's businesses, particularly the continuing impact of
globalization, are likely to result in an effective tax rate for the Corporation
in 2002 that will be lower than the 2000 and 1999 rates, but higher than the
2001 rate.
Financing spreads - Over the last three years, market interest rates have been
more volatile than GECS average composite effective interest rates, principally
because of the mix of effectively fixed-rate borrowings in the GECS financing
structure. GECS portfolio of fixed and floating-rate financial products has
behaved similarly over that period. Consequently, financing spreads have
remained relatively flat over the three-year period.
15
Operating Segments
Revenues and earnings before accounting changes of the Corporation, by operating
segment, for the past three years are summarized and discussed as follows. For
additional information, see note 16 to the consolidated financial statements.
Consolidated
(In millions) 2001 2000 1999
------------------- ------------------- ------------------
Revenues
Consumer Services............................. $ 23,574 $ 23,893 $ 18,705
Equipment Management.......................... 12,542 14,747 15,383
Mid-Market Financing.......................... 8,659 7,026 5,929
Specialized Financing......................... 2,930 4,105 3,308
Specialty Insurance........................... 11,064 11,878 10,643
All other..................................... (416) 4,528 1,781
------------------- ------------------- ------------------
Total revenues.............................. $ 58,353 $ 66,177 $ 55,749
=================== =================== ==================
Net earnings
Consumer Services............................. $ 2,319 $ 1,671 $ 1,140
Equipment Management.......................... 1,607 833 683
Mid-Market Financing.......................... 1,280 1,010 822
Specialized Financing......................... 557 1,223 1,019
Specialty Insurance........................... 522 879 1,167
All other..................................... (699) (424) (388)
------------------- ------------------- ------------------
Total earnings before accounting changes...... 5,586 5,192 4,443
Cumulative effect of accounting changes....... (169) - -
------------------- ------------------- ------------------
Net earnings................................ $ 5,417 $ 5,192 $ 4,443
=================== =================== ==================
Following is a discussion of revenues and earnings before accounting changes
from operating segments. For purposes of this discussion, earnings before
accounting changes is referred to as net earnings.
Consumer Services
(In millions) 2001 2000 1999
------------------- ------------------- ------------------
Revenues
Global Consumer Finance...................... $ 5,282 $ 5,138 $ 4,839
GE Financial Assurance....................... 13,565 13,669 9,604
GE Card Services............................. 3,947 3,891 2,478
Other Consumer Services...................... 780 1,195 1,784
------------------- ------------------- ------------------
Total revenues............................. $ 23,574 $ 23,893 $ 18,705
=================== =================== ==================
Net earnings (a)
Global Consumer Finance...................... $ 903 $ 710 $ 580
GE Financial Assurance....................... 687 564 411
GE Card Services............................. 654 495 196
Other Consumer Services...................... 75 (98) (47)
------------------- ------------------- ------------------
Net earnings............................... $ 2,319 $ 1,671 $ 1,140
=================== =================== ==================
(a) Charges of $196 million and $107 million in 2001 and 2000,
respectively, were not allocated to this segment and are included in
the All Other operating segment.
Consumer Services revenues declined 1% in 2001, following a 28% increase in
2000. Overall, the revenue performance in both years reflected the
post-acquisition revenues from acquired businesses and volume growth at GEFA,
Global Consumer Finance and Card Services which were offset by decreases at Auto
Financial Services and Mortgage Services, which both stopped accepting new
business in 2000 (included in Other Consumer Services) and, in 2001, a decrease
in surrender fee income at GEFA associated with the planned run-off of
restructured insurance policies at Toho. Net earnings increased 39% in 2001 and
47% in 2000. The increase in 2001 reflected productivity benefits at Global
Consumer Finance and GEFA, volume growth at Card Services and reduced residual
losses at Auto Financial Services. The increase in net earnings in 2000 resulted
from acquisition and volume growth at Card Services, GEFA, and Global Consumer
Finance, partially offset by losses at Mortgage Services.
16
Equipment Management
(In millions) 2001 2000 1999
------------------- ------------------- ------------------
Revenues
Aviation Services (GECAS)..................... $ 2,173 $ 1,962 $ 1,551
Americom...................................... 1,698 594 463
IT Solutions.................................. 4,180 7,073 8,380
Other Equipment Management.................... 4,491 5,118 4,989
------------------- ------------------- ------------------
Total revenues........................... $ 12,542 $ 14,747 $ 15,383
=================== =================== ==================
Net earnings (a)
Aviation Services (GECAS)..................... $ 470 $ 474 $ 280
Americom...................................... 896 195 150
IT Solutions.................................. 11 (197) (66)
Other Equipment Management.................... 230 361 319
------------------- ------------------- ------------------
Net earnings............................. $ 1,607 $ 833 $ 683
=================== =================== ==================
(a) Charges of $135 million and $191 million in 2001 and 2000,
respectively, were not allocated to this segment and are included in
the All Other operating segment.
Equipment Management revenues decreased 15% in 2001 following a 4% decline in
2000. The decrease in both years was primarily attributable to effects of
rationalization of operations and market conditions on revenues at IT Solutions,
partially offset by the gain on the disposition of Americom in 2001, and volume
growth at GECAS in both years. Other Equipment Management revenues decreased in
2001, primarily as a result of lower volume across all of the remaining
businesses. Net earnings increased 93% in 2001 and 22% in 2000, reflecting the
Americom gain and productivity benefits at IT Solutions in 2001 and volume
growth at GECAS in 2000. The decrease in Other Equipment Management net earnings
in 2001 primarily reflected lower results at Transport International Pool and GE
Capital Modular Space.
Mid-Market Financing
(In millions) 2001 2000 1999
------------------- ------------------- ------------------
Revenues
Commercial Equipment Financing.............. $ 4,515 $ 3,610 $ 3,180
Commercial Finance.......................... 1,695 1,543 1,295
Vendor Financial Services................... 2,095 1,791 1,372
Other Mid-Market Financing.................. 354 82 82
------------------- ------------------- ------------------
Total revenues......................... $ 8,659 $ 7,026 $ 5,929
=================== =================== ==================
Net earnings (a)
Commercial Equipment Financing.............. $ 592 $ 496 $ 396
Commercial Finance.......................... 364 280 225
Vendor Financial Services................... 287 241 200
Other Mid-Market Financing.................. 37 (7) 1
------------------- ------------------- ------------------
Net earnings........................... $ 1,280 $ 1,010 $ 822
=================== =================== ==================
(a) Charges of $52 million in 2001 were not allocated to this segment and
are included in the All Other operating segment.
Mid-Market Financing revenues increased 23% in 2001, following a 19% increase in
2000, resulting from acquisition and volume growth at Commercial Equipment
Financing, Vendor Financial Services and Commercial Finance, including the
acquisition of Heller Financial on October 24, 2001, (included in Other
Mid-Market Financing), and increased gains on securitizations of financial
assets. The increase in revenues in 2000 primarily reflected asset growth from
originations across all major businesses. Net earnings increased 27% in 2001 and
23% in 2000. Growth in net earnings in 2001 reflected securitization gains and
asset growth from acquisitions across all major businesses. In 2000,
improvements in net earnings resulted from favorable tax effects and asset
growth from originations.
17
Specialized Financing
(In millions) 2001 2000 1999
------------------- ------------------- ------------------
Revenues
Real Estate................................... $ 1,919 $ 1,977 $ 1,582
Structured Finance Group...................... 1,093 999 812
GE Equity..................................... (126) 1,079 863
Other Specialized Financing................... 44 50 51
------------------- ------------------- ------------------
Total revenues........................... $ 2,930 $ 4,105 $ 3,308
=================== =================== ==================
Net earnings (a)
Real Estate................................... $ 486 $ 371 $ 300
Structured Finance Group...................... 385 344 270
GE Equity..................................... (270) 525 416
Other Specialized Financing................... (44) (17) 33
------------------- ------------------- ------------------
Net earnings............................. $ 557 $ 1,223 $ 1,019
=================== =================== ==================
(a) Charges of $103 million and $49 million in 2001 and 2000,
respectively, were not allocated to this segment and are included in
the All Other operating segment.
Specialized Financing revenues declined 29%, following a 24% increase in 2000,
and net earnings declined 54% in 2001 following a 20% increase in 2000. The
decrease in revenues and net earnings in 2001 were a result of reduced asset
gains at GE Equity, partially offset by profitable origination growth at
Structured Finance Group and higher asset gains and productivity benefits at
Real Estate. Revenues and net earnings growth in 2000 were principally the
result of origination growth across all businesses and a particularly high level
of gains on equity investment sales at GE Equity.
Specialty Insurance
2001 2000 1999
(In millions) ------------------- ------------------- ------------------
Revenues
Mortgage Insurance............................ $ 1,029 $ 973 $ 936
GE Global Insurance Holdings.................. 9,453 10,223 9,013
Other Specialty Insurance..................... 582 682 694
------------------- ------------------- ------------------
Total revenues........................... $ 11,064 $ 11,878 $ 10,643
=================== =================== ==================
Net earnings (a)
Mortgage Insurance............................ $ 395 $ 366 $ 340
GE Global Insurance Holdings.................. (47) 413 625
Other Specialty Insurance..................... 174 100 202
------------------- ------------------- ------------------
Net earnings............................. $ 522 $ 879 $ 1,167
=================== =================== ==================
(a) Charges of $170 million in 2001 were not allocated to this segment and
are included in the All Other operating segment.
Specialty Insurance revenues decreased 7% in 2001, following a 12% increase in
2000, as a result of reduced net premiums earned at GE Global Insurance Holdings
(the parent of Employers Reinsurance Corporation), reflecting the events of
September 11 as discussed below, and decreased investment income, partially
offset by increased premium income associated with origination volume. The
increase in 2000 resulted from premium growth and increased investment income,
as higher interest income more than offset a decrease in net realized investment
gains at GE Global Insurance Holdings. Net pre-tax realized investment gains in
the marketable equity and debt securities portfolios amounted to $572 million,
$639 million and $811 million in 2001, 2000 and 1999, respectively. Remaining
available gains in the portfolios at December 31, 2001, amounted to $509 million
before tax.
Net earnings decreased 41% and 25% in 2001 and 2000, respectively, reflecting GE
Global Insurance Holdings underwriting results. Net earnings in 2001 were
adversely affected by approximately $575 million ($386 million after tax)
related to the insurance losses arising from the events of September 11. This
amount, which primarily resulted from contingent premium payment provisions
contained in certain retrocession agreements, comprises $698 million recorded as
a reduction in net premiums earned, and $78 million reflecting policyholder
losses, partially offset by $201 million reflecting a reduction in insurance
acquisition costs. Historical experience related to large catastrophic events
has shown that a broad range of total insurance industry loss estimates often
exists following such an event and it is not unusual for there to be significant
subsequent revisions in such estimates. $575 million is management's best
estimate of its existing net liability based on the information currently
available, and is net of estimated recoveries under retrocession arrangements,
18
under which a portion of losses is routinely ceded to other reinsurance
entities. Substantially all of GECS retrocessionaires are large, highly rated
reinsurance entities. At this time, management does not anticipate that any
significant portion of its estimated recoveries will be uncollectible.
Net earnings in 2001 and 2000 were also adversely affected by the continued
deterioration of underwriting results, reflecting higher property and
casualty-related losses (principally as a result of adverse development relating
to prior-year loss events) and the continued effects of low premiums in the
property and casualty insurance/reinsurance industry. As GE Global Insurance
Holdings underwriting results in 2001 and 2000, typical of the global property
and casualty industry, were realized, management began underwriting initiatives
that increased premium prices for given levels of coverage. These initiatives
resulted in management reconsidering and clarifying the product lines, policies,
contracts and specific customers for which, given the risk, acceptable future
levels of profit seem achievable. For these businesses, GECS has sought to
retain or even expand its business. On the other hand, management has identified
particular property and casualty business channels from which returns do not
appear to justify the risks. For these channels, new business will be
significantly curtailed or exited.
The majority of the adverse development in 2001, and to a lesser extent in 2000,
related to higher projected ultimate losses for liability coverages, especially
in the hospital liability, nonstandard automobile (automobile insurance extended
to higher-risk drivers) and commercial and public entity general liability lines
of business. The increase in 2000 also reflected an increase in industry-wide
loss estimates related to certain large property loss events, with the largest
impact resulting from the European windstorms occurring in late 1999. The
adverse development of GE Global Insurance Holdings for both years was partially
mitigated by favorable experience in the Mortgage Insurance business, which
resulted from favorable economic conditions, improvement in certain real estate
markets and loss mitigation efforts.
All Other
(In millions) 2001 2000 1999
-------------------- ----------------- --------------------
Total revenues...................... $ (416) $ 4,528 $ 1,781
==================== ================= ====================
Total net earnings.................. $ (699) $ (424) $ (388)
==================== ================= ====================
All Other includes results of operations of businesses other than those in the
five operating segments as well as charges management has not allocated to those
segments. In 2001, $436 million of charges, principally for asset write-downs,
resulted in a negative total for this category. Revenues in 2000 included the
results of Wards through December 28, 2000; a pre-tax gain of $1,366 million
from sale of the Corporation's investment in common stock of PaineWebber; and
charges of $238 million, principally for asset write-downs. The net loss of $699
million for 2001 included after-tax costs of $656 million in certain
unprofitable insurance and financing product lines that are being exited; in
disposing of and providing for disposition of several nonstrategic investments
and other assets; and in restructuring various global operations. These costs
included asset write-downs totaling $285 million. The net loss of $424 million
for 2000 comprised the PaineWebber gain of $848 million; charges of $537 million
related to Wards; strategic rationalization costs of $347 million related to
other operating segments, primarily for asset write-downs, employee severance
and lease terminations; and operating losses from Wards of $245 million.
Portfolio Quality
Financing Receivables is the largest category of assets for GECS and represents
one of its primary sources of revenues. The portfolio of financing receivables,
before allowance for losses, increased to $178.8 billion at the end of 2001 from
$147.3 billion at the end of 2000, as discussed in the following paragraphs. The
related allowance for losses at the end of 2001 amounted to $4.8 billion ($4.0
billion at the end of 2000), 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 $52.3 billion at year-end 2001, an increase of $3.5
billion from year-end 2000. Credit card and personal receivables increased $7.0
billion, primarily from increased origination and acquisition growth, partially
offset by sales and securitizations and the net effects of foreign currency
translation. Auto receivables decreased $3.5 billion, primarily as a result of
the run-off of the liquidating Auto Financial Services portfolio. Nonearning
consumer receivables at year-end 2001 were $1.5 billion, about 2.9% of
outstandings, compared with $1.1 billion, about 2.3% of outstandings at year-end
2000. Write-offs of consumer receivables increased to $1.7 billion from $1.3
billion for 2000, reflecting the maturing of private label credit card
19
portfolios and higher personal bankruptcies on credit card loan portfolios in
Japan. Consistent with industry trends, consumer delinquency rates increased
during 2001.
Other financing receivables, which totaled $126.5 billion at December 31, 2001,
consisted of a diverse commercial, industrial and equipment loan and lease
portfolio. This portfolio increased $28.0 billion during 2001, reflecting
increased acquisition and origination growth, partially offset by sales and
securitizations. Related nonearning and reduced-earning receivables were $1.7
billion, about 1.4% of outstandings at year-end 2001, compared with $0.9
billion, about 1.0% of outstandings at year-end 2000, reflecting several large
bankruptcies and the current economic environment. These receivables are backed
by assets and are covered by reserves for probable losses.
The Corporation's loans and leases to commercial airlines amounted to $21.5
billion at the end of 2001, up from $15.3 billion at the end of 2000. The
Corporation's commercial aircraft positions also included financial guarantees,
funding commitments, credit and liquidity support agreements and aircraft orders
as discussed in note 6.
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 $23.1 billion in 2001,
a decrease of 12% from $26.3 billion in 2000.
Revenues in the Pacific Basin decreased 19% in 2001, as 2000 revenues included
surrender fee income at GEFA from the planned run-off of restructured insurance
policies of Toho. Revenues in Europe decreased 12% in 2001 as acquisition and
core growth at Global Consumer Finance were more than offset by reduced premiums
earned, associated with a combination of lower origination volume and increased
ceded premiums as a result of the events of September 11 at GE Global Insurance
Holdings, and reduced revenue associated with the rationalization of certain
operations at IT Solutions. International assets grew 16%, from $139 billion at
year-end 2000 to $162 billion at the end of 2001. The increase in 2001 primarily
reflected growth in GECS asset base. GECS assets increased 23% in Europe,
reflecting a mix of origination and acquisition growth. GECS 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 receivables 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.
Financial results reported in U.S. dollars are affected by currency exchange. A
number of techniques are used to manage the effects of currency exchange,
including selective borrowings in local currencies and selective hedging of
significant cross-currency transactions. Principal currencies are the euro, the
Japanese yen and the Canadian dollar. The Corporation's operations in Europe are
all euro-capable as of January 1, 2002.
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
specialty insurance businesses of GECS in support of obligations to annuitants
and policyholders. Investment securities were $100.1 billion in 2001, compared
with $90.3 billion in 2000. The increase of $9.8 billion resulted from
investment of premiums received, reinvestment of investment income, and the
addition of securities from acquired companies, partially offset by sales and
maturities as well as decreases in the fair value of certain debt and equity
securities. A breakdown of the investment securities portfolio is provided in
note 2 to the consolidated financial statements.
Inventories were $270 million and $666 million at December 31, 2001 and 2000,
respectively. The decrease in 2001 primarily reflected the rationalization of
certain operations at IT Solutions, as well as improved inventory management.
Financing receivables were $174.0 billion at year-end 2001, net of allowance for
losses, up $30.7 billion over 2000. These receivables are discussed in the
Portfolio Quality section and in notes 3 and 4 to the consolidated financial
statements.
20
Insurance receivables were $27.3 billion at year-end 2001, an increase of $3.5
billion that was primarily attributable to increased recoveries under existing
retrocession agreements and core growth, partially offset by the planned run-off
of assets at Toho (see note 5).
Other receivables totaled $13.3 billion at both December 31, 2001 and 2000, and
consists primarily of nonfinancing customer receivables, accrued investment
income, amounts due from GE (generally related to certain trade payable
programs), amounts due under operating leases, receivables due on sales of
securities and various sundry items.
Equipment on operating leases was $27.3 billion at December 31, 2001, up $3.2
billion from 2000. Details by category of investment can be found in note 6 to
the consolidated financial statements. Additions to equipment on operating
leases were $12.6 billion during 2001 ($11.4 billion during 2000), primarily
reflecting acquisitions of transportation equipment.
Intangible assets were $18.7 billion at year-end 2001, up from $15.0 billion at
year-end 2000. The $3.7 billion increase in intangible assets related primarily
to goodwill and other intangibles associated with acquisitions, the largest of
which was the acquisition of Heller Financial, partially offset by amortization.
Other assets totaled $55.1 billion at year-end 2001, compared with $50.4 billion
at the end of 2000. The $4.7 billion increase was principally attributed to
additional investments in real estate and associated companies, the recognition
of all derivatives at fair value in accordance with SFAS 133, and increases in
deferred insurance acquisition costs, partially offset by decreases in "separate
accounts" (see note 9).
Borrowings were $239.9 billion at December 31, 2001, of which $160.8 billion is
due in 2002 and $79.1 billion is due in subsequent years. Comparable amounts at
the end of 2000 were $205.4 billion in total, $124.0 billion due within one year
and $81.4 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 ($117.5 billion and $94.5 billion at the end of
2001 and 2000, respectively) was issued in active commercial paper markets that
management believes will continue to be a reliable source of short-term
financing. Most of this commercial paper was issued by GE Capital. The average
remaining terms and interest rates of GE Capital commercial paper were 46 days
and 2.37% at the end of 2001, compared with 45 days and 6.43% at the end of
2000. The GE Capital ratio of debt to equity was 7.31 to 1 at the end of 2001
and 7.53 to 1 at the end of 2000.
Insurance liabilities, reserves and annuity benefits were $114.2 billion, $8.1
billion higher than in 2000. The increase was primarily attributable to the
addition of reserves associated with the events of September 11, and growth in
deferred annuities and guaranteed investment contracts, partially offset by the
planned run-off of policyholder contracts at Toho and decreases in separate
accounts. For additional information on these liabilities, see note 11.
Interest Rate and Currency Risk Management.
Interest rate and currency risk management is important in the normal business
activities of the Corporation. Derivative financial instruments are used by the
Corporation to mitigate or eliminate certain financial and market risks,
including those related to changes in interest rates and currency exchange
rates. As a matter of policy, the Corporation does not engage in derivatives
trading, derivatives market-making, or other speculative activities. 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.
One example of the risks to which the Corporation is exposed is prepayment risk
in certain of its business activities, such as in its mortgage servicing
activities. The Corporation uses interest rate swaps, purchased options and
futures as an economic hedge of the fair value of mortgage servicing rights.
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.
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.
21
Counterparty credit risk is managed on an individual counterparty basis, which
means that gains and losses are netted for each counterparty to determine the
amount at risk. When a counterparty exceeds credit exposure limits in terms of
amounts due to the Corporation, typically as a result of changes in market
conditions (see table below), no additional transactions are executed until the
exposure with that counterparty is reduced to an amount that is within the
established limit. 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-.
As part of its ongoing activities, the Corporation 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.
Except for such positions, all other swaps, purchased options and forwards with
contractual maturities longer than one year are conducted within the credit
policy constraints provided in the table below. Foreign exchange forwards with
contractual maturities shorter than one year must be executed with
counterparties having an A-1+/ P-1 credit rating and the credit limit for these
transactions is $150 million.
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
The conversion of interest rate and currency risk into credit risk results in a
need to monitor counterparty credit risk actively. At December 31, 2001, the
notional amount of long-term derivatives for which the counterparty was rated
below Aa3/AA- was $1.5 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 2001 2000 1999
- ----------------------------- --------------- -------------- --------------
Aaa/AAA .................... 70% 63% 59%
Aa/AA ...................... 29% 36% 38%
A/A and below .............. 1% 1% 3%
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
------------------------------ -------------------------
(a) Fixed rate five-year medium-term note ................ +75 -
(b) U.S. dollar commercial paper swapped into five-year
U.S. dollar fixed rate funding ....................... +60 A
(c) Swiss franc fixed rate debt swapped into five-year
U.S. dollar fixed rate funding ....................... +73 B
Counterparty A is a major brokerage house with an Aaa/AAA rated swap subsidiary
and a current exposure in terms of amounts due to the Corporation of $39
million. Counterparty B is an Aa2/AA rated insurance company with a current
exposure of $50 million.
In this hypothetical case, the Corporation would have chosen alternative (a) or
alternative (b), depending on the ratio of commercial paper outstanding to total
debt outstanding. Alternative (c) would not have been chosen as the additional
credit risk of Counterparty B would have exceeded the Corporation's risk
management limits.
22
The U.S. Securities and Exchange Commission requires that registrants provide
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
changes in interest rates and currency exchange rates may have some limited use
as benchmarks, they should not be viewed as forecasts.
- - 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, with all else constant, it is
estimated that such an increase, including repricing effects in the
securities portfolio, would reduce the 2002 net earnings of the Corporation
based on year-end 2001 positions by approximately $189 million. Based on
positions at year-end 2000, the pro forma effect on 2001 net earnings of
such an increase in interest rates was estimated to be a decrease of
approximately $124 million.
- - The geographic distribution of the Corporation's operations is diverse. One
means of assessing exposure to changes in currency exchange rates is to
model effects on reported earnings using a sensitivity analysis. Year-end
2001 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, management estimated at year-end 2001 that
such a decrease would have an insignificant effect on 2002 earnings of the
Corporation.
Statement of Changes in Share Owners' Equity
Share owners' equity increased $5,568 million to $28,590 million at year-end
2001. The increase was largely attributable to net earnings during the period of
$5,417 million and capital contributions of $3,237 million, partially offset by
dividends of $1,961 million.
Currency translation adjustments increased equity by $117 million in 2001.
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.
Accumulated currency translation adjustments affect net earnings only when all
or a portion of an affiliate is disposed of.
Adoption of SFAS 133 in 2001 reduced equity by $890 million, including $849
million at the date of adoption. Further information about this accounting
change is provided in note 1.
Statement of Cash Flows
The Corporation's cash and equivalents aggregated $7.3 billion at the end of
2001, up from $6.1 billion at year-end 2000. One of the primary sources of cash
for the Corporation is short and long-term borrowings. Over the past three
years, the Corporation's borrowings with maturities of 90 days or less have
increased by $28.8 billion. New borrowings of $125.2 billion having maturities
longer than 90 days were added during those years, while $94.9 billion of such
longer-term borrowings were retired. The Corporation also generated $41.7
billion from operating activities, which benefited in 2001 from an increase in
insurance liabilities and reserves, net of an increase in reinsurance
recoverables, and a decrease from the planned run-off of policyholder contracts
at Toho.
The principal use of cash by the Corporation has been investing in assets to
grow its businesses. Of the $110.1 billion that the Corporation invested over
the past three years, $42.7 billion was used for additions to financing
receivables; $37.5 billion was used to invest in new equipment, principally for
lease to others; and $22.2 billion was used for acquisitions of new businesses,
the largest of which were Heller Financial and Mellon Leasing in 2001 and Japan
Leasing and the credit card operations of JC Penney in 1999.
With the financial flexibility that comes with excellent credit ratings,
management believes that the Corporation should be well positioned to meet the
global needs of its customers for capital and to continue growing its
diversified asset base.
23
Liquidity
The major debt-rating agencies evaluate the financial condition of GE Capital,
the major public borrowing entity of GECS. Factors that are important to the
ratings of GE Capital include the following: cash generating ability - including
cash generated from operating activities; earnings quality - including revenue
growth and the breadth and diversity of sources of income; leverage ratios -
such as debt to total capital and interest coverage; and asset utilization,
including return on assets and asset turnover ratios. Considering those factors,
as well as other criteria appropriate to GECS, those major rating agencies
continue to give the highest ratings to debt of GE Capital (long-term credit
rating AAA/Aaa; short-term credit rating A-1+/P-1).
Global commercial paper markets are a primary source of liquidity for the
Corporation. GE Capital is the most widely-held name in those markets, with
$117.5 billion and $94.5 billion outstanding at the end of 2001 and 2000,
respectively. Money markets are extremely robust. In 2001, GE Capital's
commercial paper accounted for only 2.4% of activity with maturities of less
than one year in the U.S. market, the largest of the global money markets.
Management believes that alternative sources of liquidity are sufficient to
permit an orderly transition from commercial paper in the unlikely event of
impaired access to those markets. Funding sources on which management would rely
would depend on the nature of such a hypothetical event, but include $33 billion
of contractually committed lending agreements with highly-rated global banks,
medium and long-term funding, monetization and asset securitization, cash
receipts from the Corporation's lending and leasing activities, short-term
secured funding on global assets, and asset sales. Strength of commercial paper
markets and GE Capital's access to those markets was evidenced on and
immediately after September 11, when many financial markets were closed, but GE
Capital continued to issue commercial paper without interruption.
Off-balance sheet arrangements are used in the ordinary course of business to
achieve improved share owner returns. One of the most common forms of
off-balance sheet arrangements is asset securitization. The transactions
described below are similar to those used by many financial institutions and are
part of an $800 billion annual market for asset-backed commercial paper. The
Corporation uses sponsored and third-party entities as well as term execution
for securitizations. As part of this program, management considers the relative
risks and returns of each alternative and predominantly uses sponsored entities.
Management believes these transactions could be readily executed through
non-sponsored entities or term securitization at insignificant incremental cost.
In addition to improved share owner returns, special purpose entities serve as
funding sources for a variety of diversified lending and securities
transactions, transfer selected credit risk and improve cash flows while
enhancing the ability to provide a full range of competitive products for
customers.
The discussion below and on pages 24 and 25 describes sponsored special purpose
entities, and is organized as follows:
- Structure of sponsored special purpose entities and of transactions
that result in gains on sales and removal of assets from the financial
statements. This section describes assets in the entities as well as
management prohibitions on certain types of activities.
- Support, both financial and operational, provided for special purpose
entities. This section describes the potential risks associated with
special purpose entities as well as management's measures to control
risk and conclusions about its potential significance.
- Accounting outlook for these entities. This section briefly discusses
the accounting policy deliberations that have been undertaken recently
regarding special purpose entities.
Structure. Simply stated, the Corporation is selling high-quality, low-yield
financial assets to highly-rated entities that have financed those purchases
using low-cost commercial paper. Because the Corporation is the sponsor of these
entities and guarantees certain of their positions, management believes that the
structures warrant a more complete explanation, as follows.
The first step in the securitization process uses entities that meet the
accounting criteria for Qualifying Special Purpose Entities (qualifying
entities). Among other criteria, a qualifying entity's activities must be
restricted to passive investment in financial assets and issuance of beneficial
interests in those assets. Under generally accepted accounting principles,
entities meeting these criteria are not consolidated in the sponsor's financial
statements. The Corporation sells selected financial assets to qualifying
entities. Examples include the Corporation's financing and credit card
receivables. On the whole, the credit quality of such assets is equal to or
higher than the credit quality of similar assets owned by the Corporation.
Qualifying entities raise cash by issuing beneficial interests - rights to cash
flows from the assets - to other GECS-sponsored special purpose entities that
issue highly-rated commercial paper to third-party institutional investors.
These entities use commercial paper proceeds to obtain beneficial interests in
24
the financial assets of qualifying entities, as well as financial assets
originated by multiple third parties. The Corporation provides credit support
for certain of these assets, as well as liquidity support for the commercial
paper, as described below. In accordance with its contractual commitments to the
entities, the Corporation rigorously underwrites and services the associated
assets, both those originated by the Corporation, and those originated by other
participants. All of the entities' assets serve as collateral for the commercial
paper. These entities are not consolidated in the accompanying financial
statements. Support activities include credit reviews at acquisition and ongoing
review, billing and collection activities - the same support activities that the
Corporation employs for its own financing receivables.
GECS-sponsored special purpose entities are routinely evaluated by the major
credit rating agencies, including monthly reviews of key performance indicators
and annual reviews of asset quality. Commercial paper issued by these entities
has always received the highest available ratings from the major credit rating
agencies and at year-end 2001 was rated A-1+/P-1.
The following table summarizes receivables held by special purpose entities.
(In millions) 2001 2000
---------------- --------------------
Receivables - secured by
Equipment (a)................... $ 12,781 $ 7,993
Commercial real estate.......... 9,971 7,445
Other assets (a)................ 7,761 6,249
Credit card receivables........... 9,470 6,170
Trade receivables (a)............. 3,028 3,138
---------------- --------------------
Total receivables............ $ 43,011 $ 30,995
================ ====================
(a) GE assets included in the categories above at year-end 2001 and 2000,
respectively, are as follows: Equipment - $631 million and $269 million;
Other assets - $757 million and $611 million; Trade receivables - $2,396
million and $1,733 million.
Each of the categories of assets shown in the table above represent portfolios
of assets that, in addition to being highly rated, are diversified to avoid
concentrations of risk. In each of the first three categories, financing
receivables are collateralized by a diverse mix of assets. Examples of assets in
each category follow: equipment - loans and leases on manufacturing and
transportation equipment; commercial real estate - loans on diversified
commercial property; other assets - diversified commercial loans; credit card
receivables - more than 23 million individual accounts; trade receivables -
balances of high credit quality accounts from sales of a broad range of products
and services to a diversified customer base.
In addition to the activities discussed previously, Financial Guaranty Insurance
Company (FGIC), a leader in the municipal bond insurance market, uses special
purpose entities that offer municipalities guaranteed investment contracts with
interests in high-quality, fixed-maturity, investment grade assets. FGIC
actively manages these assets under strict investment criteria and GE Capital
also provides certain performance guarantees. Total assets in sponsored FGIC
entities amounted to $13.4 billion and $10.2 billion at December 31, 2001 and
2000, respectively.
None of these special purpose entities or qualifying entities is permitted to
hold GE stock and there are no commitments or guarantees that provide for the
potential issuance of GE stock. These entities do not engage in speculative
activities of any description, are not used to hedge GECS positions, and under
GE integrity policies, no GE employee is permitted to invest in any sponsored
special purpose entity.
Support. Financial support for certain special purpose entities is provided in
the following ways.
- - Under active liquidity support agreements, the Corporation has agreed to
lend to these entities on a secured basis if (a) certain market conditions
render the entities unable to issue new debt instruments, or (b) the
entity's credit ratings were reduced below specified levels. The maximum
amount of such support for commercial paper outstanding was $43.2 billion
at December 31, 2001. Under related unused liquidity support agreements,
the Corporation has made additional liquidity support commitments of $9.4
billion at December 31, 2001, that would be effective upon addition of
qualified assets to the entities.
- - Under credit support agreements, the Corporation provides recourse for a
maximum of $14.5 billion of credit losses in special purpose entities. $9.1
billion of this support represents full recourse for certain assets; the
balance is based on loss-sharing formulas. Assets with credit support are
funded by commercial paper that is subject to the liquidity support
described above. Potential credit losses are provided for in the
25
Corporation's financial statements based on management's best estimate of
probable losses inherent in the portfolio using the same methodology as for
owned assets. The Corporation's allowances for losses amounted to $0.7
billion and $0.6 billion at year-end 2001 and 2000, respectively.
- - Performance guarantees relate to letters of credit and liquidity support
for guaranteed investment contracts and are subject to a maximum of $3.8
billion at December 31, 2001.
Management has extensive experience in evaluating economic, liquidity and credit
risk. In view of this experience, the high quality of assets in these entities,
the historically robust quality of commercial paper markets, and the historical
reliability of controls applied both to asset servicing and to activities in the
credit markets, management believes that, under any reasonable future economic
developments, the likelihood is remote that any such arrangements could have a
significant effect on the Corporation's operations, cash flows or financial
position.
Sales of securitized assets to special purpose entities result in a gain or loss
amounting to the net of sales proceeds, the carrying amount of net assets sold,
the fair value of servicing rights and an allowance for losses. Securitization
sales resulted in gains of $1.3 billion and about $0.5 billion in 2001 and 2000,
respectively, and are included in time sales, loan and other income.
Accounting outlook. Various generally accepted accounting principles specify the
conditions that the Corporation observes in not consolidating special purpose
entities and qualifying entities. Accounting for special purpose entities is
under review by the Financial Accounting Standards Board, and their
non-consolidated status may change as a result of those reviews.
Summary. The special purpose entities described above meet the Corporation's
economic objectives for their use while complying with generally accepted
accounting principles. In the event that accounting rules change in a way that
adversely affects sponsored entities, alternative securitization techniques
discussed on page 23 would likely serve as a substitute at insignificant
incremental cost.
Principal debt conditions that could automatically result in remedies, such as
acceleration of the Corporation's debt, are described below.
- - If the short-term credit rating of GE Capital or certain special purpose
entities previously discussed were to fall below A-1+/P-1, GE Capital would
be required to provide substitute liquidity for those entities or to
purchase the outstanding commercial paper. The maximum amount that GE
Capital would be required to provide in the event of such a downgrade is
$43.2 billion at December 31, 2001.
- - If the long-term credit rating of GE Capital or certain special purpose
entities previously discussed were to fall below AA-/Aa3, GE Capital would
be required to provide substitute credit support or liquidate the special
purpose entities. The maximum amount that GE Capital would be required to
substitute in the event of such a downgrade is $14.5 billion at December
31, 2001.
- - If the long-term credit rating of the Corporation under certain swap,
forward and option contracts falls below A-/A3, certain remedies are
required as discussed in note 20.
- - If GE Capital's ratio of earnings to fixed charges, which was 1.72 to 1 at
the end of 2001 deteriorates to 1.10 to 1 or, upon redemption of certain
preferred stock, its ratio of debt to equity, which was 7.31 to 1 at the
end of 2001 exceeds 8 to 1, GE has committed to contribute capital to GE
Capital. GE also has guaranteed subordinated debt of GECS with a face
amount of $1.0 billion at December 31, 2001, and 2000.
None of these conditions has been met in the Corporation's history, and
management believes that under any reasonable future economic developments, the
likelihood is remote that any such arrangements could have a significant effect
on the Corporation's operations, cash flows or financial position.
Timing of contractual commitments at the Corporation, related to leases and
debt, follow.
(In billions) 2002 2003 2004 2005 2006
--------------- -------------- --------------- -------------- ---------------
Commercial paper.......... $ 117.5 $ - $ - $ - $ -
Other..................... 44.4 26.4 15.2 10.5 6.9
26
Critical Accounting Policies
High-quality financial statements require rigorous application of high-quality
accounting policies. The policies discussed below are considered by management
to be critical to an understanding of the Corporation's financial statements
because their application places the most significant demands on management's
judgment, with financial reporting results relying on estimation about the
effect of matters that are inherently uncertain. Specific risks for these
critical accounting policies are described in the following paragraphs. For all
of these policies, management cautions that future events rarely develop exactly
as forecast, and the best estimates routinely require adjustment.
Losses on financing receivables are recognized when they are incurred.
Measurement of such losses requires consideration of historical loss experience,
including the need to adjust for current conditions, and judgments about the
probable effects of relevant observable data, including present economic
conditions such as delinquency rates, financial health of specific customers and
market sectors, collateral value, and the present and expected levels of
interest rates. The Corporation's exposure to losses on financing receivables at
year-end 2001 was approximately $193 billion, including credit support for
special purpose entities, against which an allowance for losses of approximately
$5.5 billion was provided. An analysis of changes in the allowance for losses is
provided on page 18 which discusses financing receivable portfolio quality.
While losses depend to a large degree on future economic conditions, management
does not forecast significant adverse credit development in 2002. Further
information is provided in notes 1, 3 and 4.
Impairment of investment securities results in a charge to operations when a
market decline below cost is other than temporary. Management regularly reviews
each investment security for impairment based on criteria that include the
extent to which cost exceeds market value, the duration of that market decline
and the financial health of and specific prospects for the issuer. The
Corporation's investment securities amounted to approximately $100 billion at
year-end 2001. Gross unrealized gains and losses included in that carrying
amount related to debt securities were $1.9 billion and $2.3 billion,
respectively. Gross unrealized gains and losses on equity securities were $0.2
billion and $0.4 billion, respectively. Of those securities whose carrying
amount exceeds fair value at year-end 2001, and based on application of the
Corporation's accounting policy for impairment, approximately $600 million of
portfolio value is at risk of being charged to earnings in 2002. The Corporation
actively performs comprehensive market research, monitors market conditions and
segments its investments by credit risk in order to minimize impairment risks.
Further information is provided in notes 1 and 2 and on page 19, which discusses
the investment securities portfolio.
Insurance liabilities and reserves differ for short and long-duration insurance
contracts. Short-duration contracts such as property and casualty policies are
accounted for based on actuarial estimates of the amount of loss inherent in
that period's claims, including losses for which claims have not yet been
reported. Short-duration contract loss estimates rely on actuarial observations
of ultimate loss experience for similar historical events. Measurement of
long-duration insurance liabilities (such as term and whole life insurance
policies) also is based on approved actuarial techniques, but necessarily
includes assumptions about mortality, lapse rates and future yield on related
investments. The Corporation's insurance liabilities, reserves and annuity
benefits totaled $114.2 billion at year-end 2001. Of that total, approximately
$27.2 billion related to unpaid claims and claims adjustment expenses for
short-duration insurance coverage. As discussed on page 18, there has been a
recent shift in the source of adverse loss development away from property to
liability coverage. Management continually evaluates the potential for changes
in loss estimates, both positive and negative, and uses the results of these
evaluations both to adjust recorded provisions and to adjust underwriting
criteria and product offerings. The potential for further adverse loss
development in these areas is highly uncertain. Further information about
insurance liabilities is provided in note 11.
Other loss contingencies are recorded as liabilities when it is probable that a
liability has been incurred and the amount of the loss is reasonably estimable.
Disclosure is required when there is a reasonable possibility that the ultimate
loss will exceed the recorded provision. Contingent liabilities are often
resolved over long time periods. Estimating probable losses requires analysis of
multiple forecasts that often depend on judgments about potential actions by
third parties such as regulators.
Other significant accounting policies, not involving the same level of
measurement uncertainties as those discussed above, are nevertheless important
to an understanding of the financial statements. Policies related to financial
instruments and consolidation policy require difficult judgments on complex
matters that are often subject to multiple sources of authoritative guidance.
Certain of these matters are among topics currently under reexamination by
accounting standards setters and regulators. Although no specific conclusions
reached by these standard setters appear likely to cause a material change in
the Corporation's accounting policies, outcomes cannot be predicted with
confidence. Also see note 1, Summary of Significant Accounting Policies, which
discusses accounting policies that must be selected by management when there are
acceptable alternatives.
27
New Accounting Standards
Major provisions of new accounting standards that may be significant to the
Corporation's financial statements in the future are described in the following
paragraphs.
SFAS 141, Business Combinations, and SFAS 142, Goodwill and Other Intangible
Assets, modify the accounting for business combinations, goodwill and
identifiable intangible assets. As of January 1, 2002, all goodwill and
indefinite-lived intangible assets must be tested for impairment and a
transition adjustment will be recognized. Management has not yet determined the
exact amount of goodwill impairment under these new standards, but believes the
non-cash transition charge to earnings will be approximately $1.0 billion and
recognized in the first quarter of 2002. Amortization of goodwill will cease as
of January 1, 2002, and, thereafter, all goodwill and any indefinite-lived
intangible assets must be tested at least annually for impairment. The effect of
the non-amortization provisions on 2002 operations will be affected by 2002
acquisitions and cannot be forecast, but if these rules had applied to goodwill
in 2001, management believes that full-year 2001 net earnings would have
increased by approximately $600 million.
SFAS 143, Accounting for Asset Retirement Obligations, requires recognition of
the fair value of obligations associated with the retirement of long-lived
assets when there is a legal obligation to incur such costs. This amount is
accounted for like an additional element of the corresponding asset's cost, and
is depreciated over that asset's useful life. SFAS 143 will be effective for the
Corporation on January 1, 2003. Management has not yet determined the effect of
adopting this standard on the Corporation's financial position and results of
operations.
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.
28
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
General Electric Capital Services, Inc.:
We have audited the consolidated financial statements of General Electric
Capital Services, Inc. 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 schedules as listed in Item 14. These
consolidated financial statements and financial statement schedules are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedules 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 Services, Inc. and consolidated affiliates at December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in note 1 to the consolidated financial statements, the Corporation
in 2001 changed its method of accounting for derivative instruments and hedging
activities and impairment of certain beneficial interests in securitized assets.
/s/ KPMG LLP
Stamford, Connecticut
February 8, 2002
29
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Statement of Earnings
For the years ended December 31 (In millions) 2001 2000 1999
-------------- -------------- --------------
REVENUES
Time sales, loan and other income ................................. $ 22,150 $ 22,326 $ 18,209
Operating lease rentals ........................................... 6,088 6,183 6,022
Financing leases .................................................. 4,261 3,688 3,587
Investment income ................................................. 6,593 8,479 6,243
Premium and commission income of insurance affiliates (note 11).... 15,634 16,093 12,948
Sales of goods .................................................... 3,627 9,408 8,740
-------------- -------------- --------------
Total revenues ................................................. 58,353 66,177 55,749
-------------- -------------- --------------
EXPENSES
Interest .......................................................... 10,598 11,111 9,359
Operating and administrative (note 14) ............................ 16,366 19,453 16,260
Insurance losses and policyholder and annuity benefits ........... 15,062 14,399 11,028
Cost of goods sold ................................................ 3,266 8,537 7,976
Provision for losses on financing receivables (note 4) ............ 2,481 2,045 1,671
Depreciation and amortization of buildings and equipment and
equipment on operating leases (notes 6 & 7) ..................... 3,451 3,314 3,173
Minority interest in net earnings of consolidated affiliates ...... 163 214 186
-------------- -------------- --------------
Total expenses .............................................. 51,387 59,073 49,653
-------------- -------------- --------------
Earnings before income taxes and accounting changes................ 6,966 7,104 6,096
Provision for income taxes (note 15) .............................. (1,380) (1,912) (1,653)
-------------- -------------- --------------
Earnings before accounting changes................................. 5,586 5,192 4,443
Cumulative effect of accounting changes (note 1).................. (169) - -
-------------- -------------- --------------
NET EARNINGS ...................................................... $ 5,417 $ 5,192 $ 4,443
============== ============== ==============
Statement of Changes in Share Owners' Equity
(In millions) 2001 2000 1999
-------------- -------------- --------------
CHANGES IN SHARE OWNERS' EQUITY
Balance at January 1 .............................................. $ 23,022 $ 20,321 $ 19,727
-------------- -------------- --------------
Transactions with share owners (note 13) .......................... 1,276 (1,752) (1,474)
-------------- -------------- --------------
Changes other than transactions with share owners:
Increases attributable to net earnings .......................... 5,417 5,192 4,443
Investment securities - net (note 13)............................ (352) (166) (2,206)
Currency translation adjustments (note 13) ...................... 117 (573) (169)
Derivatives qualifying as hedges (note 13)....................... (890) - -
-------------- -------------- --------------
Total changes other than transactions with share owners ........ 4,292 4,453 2,068
-------------- -------------- --------------
Balance at December 31 ............................................ $ 28,590 $ 23,022 $ 20,321
============== ============== ==============
See notes to Consolidated Financial Statements.
30
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Statement of Financial Position
At December 31 (In millions) 2001 2000
-------------- --------------
ASSETS
Cash and equivalents .............................................................. $ 7,314 $ 6,052
Investment securities (note 2) .................................................... 100,138 90,330
Financing receivables (note 3):
Time sales and loans, net of deferred income .................................... 122,686 96,270
Investment in financing leases, net of deferred income .......................... 56,147 51,063
-------------- --------------
178,833 147,333
Allowance for losses on financing receivables (note 4) .......................... (4,801) (4,034)
-------------- --------------
Financing receivables - net .................................................. 174,032 143,299
Insurance receivables (note 5)..................................................... 27,317 23,802
Other receivables ................................................................. 13,267 13,288
Inventories ....................................................................... 270 666
Equipment on operating leases (at cost), less accumulated
amortization of $9,135 and $7,901 (note 6) ...................................... 27,320 24,147
Buildings and equipment (at cost), less accumulated depreciation
of $1,579 and $2,084 (note 7) ................................................... 2,021 3,669
Intangible assets - net (note 8) .................................................. 18,717 15,017
Other assets (note 9) ............................................................. 55,088 50,366
-------------- --------------
Total assets .................................................................... $ 425,484 $ 370,636
============== ==============
LIABILITIES AND SHARE OWNERS' EQUITY
Short-term borrowings (note 10) ................................................... $ 160,844 $ 123,992
Long-term borrowings (note 10) .................................................... 79,091 81,379
-------------- --------------
Total borrowings ................................................................ 239,935 205,371
Accounts payable .................................................................. 13,705 10,436
Insurance liabilities, reserves and annuity benefits (note 11) .................... 114,223 106,150
Other liabilities ................................................................. 16,647 13,451
Deferred income taxes (note 15) ................................................... 8,117 8,238
-------------- --------------
Total liabilities ............................................................... 392,627 343,646
-------------- --------------
Minority interest in equity of consolidated affiliates (note 12) .................. 4,267 3,968
-------------- --------------
Cumulative preferred stock, $10,000 par value (80,000 shares authorized; 51,000
shares issued and held primarily by consolidated affiliates at
December 31, 2001 and 2000) ..................................................... 10 10
Common stock, $1,000 par value (1,260 shares authorized at December 31, 2001
and 2000 and 1,012 shares outstanding at December 31, 2001 and 2000)............. 1 1
Additional paid-in capital ........................................................ 5,979 2,742
Retained earnings ................................................................. 24,678 21,222
Accumulated gains/(losses) - net:
Investment securities (a) ....................................................... (348) 4
Currency translation adjustments (a) ............................................ (840) (957)
Derivatives qualifying as hedges (a)............................................. (890) -
-------------- --------------
Total share owners' equity (note 13) ............................................ 28,590 23,022
-------------- --------------
Total liabilities and share owners' equity ...................................... $ 425,484 $ 370,636
============== ==============
(a) The sum of accumulated gains/(losses) on investment securities, currency
translation adjustments and derivatives qualifying as hedges constitutes
"Accumulated nonowner changes other than earnings," as shown in note 13,
and was ($2,078) million and ($953) million at year-end 2001 and 2000,
respectively.
See notes to Consolidated Financial Statements.
31
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Statement of Cash Flows
For the years ended December 31 (In millions) 2001 2000 1999
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings .................................................... $ 5,417 $ 5,192 $ 4,443
Adjustments to reconcile net earnings to cash provided from
operating activities:
Cumulative effect of accounting changes.......................... 169 - -
Depreciation and amortization of buildings and equipment and
equipment on operating leases................................. 3,451 3,314 3,173
Provision for losses on financing receivables ................... 2,481 2,045 1,671
Amortization of goodwill and other intangibles .................. 1,139 2,174 1,199
Increase in deferred income taxes ............................... 862 683 847
Decrease (increase) in inventories .............................. 396 (261) 327
Increase in accounts payable .................................... 4,804 3,047 699
Increase (decrease) in insurance liabilities and reserves ....... 8,194 (1,009) 4,584
All other operating activities .................................. (9,314) (5,901) (2,124)
-------------- -------------- --------------
Cash from operating activities .................................. 17,599 9,284 14,819
-------------- -------------- --------------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Net increase in financing receivables (note 19) ................. (13,952) (16,076) (12,628)
Buildings and equipment and equipment on operating leases
- additions .................................................. (12,644) (11,431) (13,466)
- dispositions ............................................... 7,345 6,714 6,262
Payments for principal businesses purchased, net of
cash acquired.................................................. (10,993) (1,176) (10,060)
All other investing activities (note 19) ........................ (7,557) (12,173) (8,283)
-------------- -------------- --------------
Cash used for investing activities .............................. (37,801) (34,142) (38,175)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities of 90 days or less) ........ 23,634 (2,121) 7,308
Newly issued debt (maturities longer than 90 days) (note 19) .... 30,752 46,887 47,605
Repayments and other reductions (maturities longer than 90 days)
(note 19) .................................................... (36,051) (31,907) (26,924)
Dividends paid .................................................. (1,961) (1,822) (1,666)
All other financing activities (note 19) ........................ 5,090 12,942 622
-------------- -------------- --------------
Cash from financing activities .................................. 21,464 23,979 26,945
-------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR ..... 1,262 (879) 3,589
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ....................... 6,052 6,931 3,342
-------------- -------------- --------------
CASH AND EQUIVALENTS AT END OF YEAR ............................. $ 7,314 $ 6,052 $ 6,931
============== ============== ==============
See notes to Consolidated Financial Statements.
32
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - General Electric Capital Services, Inc. ("the Parent") owns all
of the common stock of General Electric Capital Corporation ("GE Capital") and
GE Global Insurance Holding Corporation ("GE Global Insurance Holdings"). All
outstanding common stock of the Parent is owned by General Electric Company ("GE
Company" or "GE") and an affiliate of GE Company. The consolidated financial
statements represent the adding together of the Parent and all of its
majority-owned and controlled affiliates ("consolidated affiliates"), including
GE Capital and GE Global Insurance Holdings (collectively called "the
Corporation").
All significant transactions among the Corporation and consolidated affiliates
have been eliminated. 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 page 33.
Sales of Goods - Sales of goods are recorded when a firm sales agreement is in
place, delivery has occurred and collectibility of the fixed or determinable
sales price is reasonably assured.
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.
33
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 share owners' equity, net of applicable taxes and
other adjustments. Investment securities are regularly reviewed for impairment
based on criteria that include the extent to which cost exceeds market value,
the duration of the market decline, and the financial health of and specific
prospects for the issuer. 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.
Insurance Accounting Policies - Accounting policies for insurance businesses are
as follows.
Premium income. Insurance premiums are reported as earned income as follows:
- - 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.
- - 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.
- - For short-duration insurance contracts, these costs are amortized pro rata
over the contract periods in which the related premiums are earned.
- - 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.
- - 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.
34
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.
Accounting Changes
At January 1, 2001, GECS adopted Statement of Financial Accounting Standards
(SFAS) 133, Accounting for Derivative Instruments and Hedging Activities, as
amended. Under SFAS 133, all derivative instruments (including certain
derivative instruments embedded in other contracts) are recognized in the
balance sheet at their fair values and changes in fair value are recognized
immediately in earnings, unless the derivatives qualify as hedges of future cash
flows. For derivatives qualifying as hedges of future cash flows, the effective
portion of changes in fair value is recorded temporarily in equity, then
recognized in earnings along with the related effects of the hedged items. Any
ineffective portion of hedges is reported in earnings as it occurs. Further
information about derivatives and hedging is provided in note 20.
The cumulative effect of adopting this accounting change at January 1, 2001, was
as follows:
Share Owners'
(In millions) Earnings Equity
-------------- --------------
Adjustment to fair value of derivatives (a) .. $ (77) $ (1,374)
Income tax effects............................ 28 525
-------------- ---------------
Total.................................... $ (49) $ (849)
============== ===============
(a) For earnings effect, amount shown is net of adjustment to hedged items.
The cumulative effect on earnings comprised two significant elements. One
element was associated with conversion option positions that were embedded in
financing agreements, and the other was a portion of the effect of marking to
market options and currency contracts used for hedging. The cumulative effect on
share owners' equity was primarily attributable to marking to market forward and
swap contracts used to hedge variable-rate borrowings. Decreases in the fair
values of these instruments were attributable to declines in interest rates
since inception of the hedging arrangements. As a matter of policy, the
Corporation ensures that funding, including the effect of derivatives, of its
lending and other financing asset positions are substantially matched in
character (e.g., fixed vs. floating) and duration. As a result, declines in the
fair values of these effective derivatives are offset by unrecognized gains on
the related financing assets and hedged items, and future earnings will not be
subject to volatility arising from interest rate changes.
In November 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus on accounting for
impairment of retained beneficial interests (EITF 99-20). Under this consensus,
impairment of certain beneficial interests in securitized assets 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 cumulative effect of adopting EITF 99-20 at January 1, 2001, was a one-time
reduction of net earnings of $120 million.
These accounting changes did not involve cash, and management expects that they
will have no more than a modest effect on future results.
35
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, 2001
Debt securities:
U.S. corporate ............................... $ 47,391 $ 880 $ (1,626) $ 46,645
State and municipal .......................... 12,518 180 (136) 12,562
Mortgage-backed .............................. 16,442 424 (90) 16,776
Corporate - non-U.S. ......................... 13,088 232 (277) 13,043
Government - non-U.S. ........................ 6,104 183 (124) 6,163
U.S. government and federal agency ........... 1,233 25 (32) 1,226
Equity securities ............................. 3,926 178 (381) 3,723
------------- ------------- -------------- --------------
$ 100,702 $ 2,102 $ (2,666) $ 100,138
============= ============= ============== ==============
December 31, 2000
Debt securities:
U.S. corporate ............................... $ 39,078 $ 459 $ (1,282) $ 38,255
State and municipal .......................... 13,272 499 (139) 13,632
Mortgage-backed .............................. 13,683 323 (160) 13,846
Corporate - non-U.S. ......................... 12,640 374 (168) 12,846
Government - non-U.S. ........................ 5,059 104 (108) 5,055
U.S. government and federal agency ........... 2,106 15 (42) 2,079
Equity securities ............................. 4,392 703 (478) 4,617
------------- ------------- -------------- --------------
$ 90,230 $ 2,477 $ (2,377) $ 90,330
============= ============= ============== ==============
A substantial portion of mortgage-backed securities shown in the table above are
collateralized by U.S. residential mortgages.
At December 31, 2001, contractual maturities of debt securities, excluding
mortgage-backed securities, were as follows:
Amortized Estimated
(In millions) cost fair value
---------------- ----------------
Due in:
2002 ......................................................................... $ 5,184 $ 5,244
2003-2006 .................................................................... 17,382 17,293
2007-2011 .................................................................... 20,858 20,600
2012 and later ............................................................... 36,910 36,502
It is expected that actual maturities will differ from contractual maturities
because borrowers have the right to call or prepay certain obligations.
Supplemental information about gross realized gains and losses on investment
securities follows.
(In millions) 2001 2000 1999
------------------- ----------------- -------------------
Gains (a).................................. $ 1,800 $ 3,581 $ 1,406
Losses..................................... (838) (714) (484)
------------------- ----------------- -------------------
Net.............................. $ 962 $ 2,867 $ 922
=================== ================= ===================
(a) Includes $1,366 million, in 2000, from the sale of GECS investment in
common stock of Paine Webber Group, Inc.
Proceeds from sales of investment securities in 2001 were $39,512 million
($24,711 million in 2000 and $18,500 million in 1999).
36
NOTE 3. FINANCING RECEIVABLES
Financing receivables at December 31, 2001 and 2000, are shown below.
(In millions) 2001 2000
-------------- --------------
Time sales and loans:
Consumer Services ........................................................... $ 45,741 $ 43,954
Equipment Management ........................................................ 2,391 1,385
Mid-Market Financing ........................................................ 57,600 35,436
Specialized Financing ....................................................... 16,913 14,567
Other........................................................................ 41 928
-------------- --------------
Time sales and loans - net of deferred income ............................. 122,686 96,270
-------------- --------------
Investment in financing leases:
Direct financing leases ..................................................... 49,412 46,186
Leveraged leases ............................................................ 6,735 4,877
-------------- --------------
Investment in financing leases - net of deferred income.................... 56,147 51,063
-------------- --------------
178,833 147,333
Less allowance for losses (note 4) ........................................... (4,801) (4,034)
-------------- --------------
Net investment............................................................. $ 174,032 $ 143,299
============== ==============
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 2001 and 2000,
commercial real estate loans and leases of $25,466 million and $21,329 million,
respectively, were included in either financing receivables or 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 is generally 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.
37
The Corporation's net investment in financing leases at December 31, 2001 and
2000, is shown below.
Total financing leases Direct financing leases Leveraged leases
------------------------- ------------------------- ------------------------
(In millions) 2001 2000 2001 2000 2001 2000
------------ ------------ ------------ ----------- ----------- -----------
Total minimum lease payments
receivable ........................ $ 83,316 $ 74,960 $ 53,870 $ 50,556 $ 29,446 $ 24,404
Less principal and interest on
third-party nonrecourse debt ...... (22,588) (19,773) - - (22,588) (19,773)
------------ ------------ ------------ ----------- ----------- -----------
Net rentals receivable ............ 60,728 55,187 53,870 50,556 6,858 4,631
Estimated unguaranteed residual value
of leased assets .................. 8,996 7,314 5,544 4,602 3,452 2,712
Less deferred income ................ (13,577) (11,438) (10,002) (8,972) (3,575) (2,466)
------------ ------------ ------------ ----------- ----------- -----------
Investment in financing leases .... 56,147 51,063 49,412 46,186 6,735 4,877
Less: Allowance for losses .......... (679) (646) (606) (558) (73) (88)
Deferred taxes arising from
financing leases ............ (9,168) (8,408) (4,643) (4,496) (4,525) (3,912)
------------ ------------ ------------ ----------- ----------- -----------
Net investment in financing leases .. $ 46,300 $ 42,009 $ 44,163 $ 41,132 $ 2,137 $ 877
============ ============ ============ =========== =========== ===========
Contractual Maturities
At December 31, 2001, the Corporation's contractual maturities for time sales
and loans and net rentals receivable were:
Total time
(In millions) sales and Net rentals
loans (a) receivable (a)
-------------- ---------------
Due in:
2002 ............................ $ 39,162 $ 15,303
2003............................. 22,585 13,116
2004 ............................ 19,723 9,057
2005 ............................ 10,247 6,284
2006 ............................ 7,729 3,520
2007 and later .................. 23,240 13,448
-------------- ---------------
$ 122,686 $ 60,728
============== ===============
(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 $1,540 million and $1,139 million at
December 31, 2001 and 2000, respectively, a substantial amount of which were
private-label credit card loans. Nonearning and reduced-earning receivables
other than consumer receivables were $1,734 million and $949 million at year-end
2001 and 2000, respectively.
"Impaired" loans are defined by generally accepted accounting principles as
large balance 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.
An analysis of impaired loans at December 31, 2001 and 2000, is shown below.
(In millions) 2001 2000
------------- ------------
Loans requiring allowance for losses ....... $ 1,041 $ 475
Loans expected to be fully recoverable ..... 574 384
------------- ------------
$ 1,615 (a) $ 859
============= ============
Allowance for losses ....................... $ 422 $ 166
Average investment during year ............. 1,121 801
Interest income earned while impaired (b) .. 17 20
(a) Includes $408 million of loans classified as impaired by Heller Financial
which was acquired in October, 2001.
(b) Recognized principally on cash basis.
38
NOTE 4. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
(In millions) 2001 2000 1999
-------------- ------------- --------------
Balance at January 1 ......................................... $ 4,034 $ 3,708 $ 3,223
Provisions charged to operations ............................. 2,481 2,045 1,671
Net transfers primarily related to acquisitions and sales .... 564 22 271
Amounts written off - net .................................... (2,278) (1,741) (1,457)
-------------- ------------- --------------
Balance at December 31 ....................................... $ 4,801 $ 4,034 $ 3,708
============== ============= ==============
NOTE 5. INSURANCE RECEIVABLES
At year-end 2001 and 2000, insurance receivables included reinsurance
recoverables of $12,606 million and $8,240 million and receivables at insurance
affiliates of $14,711 million and $15,562 million, respectively. Receivables at
insurance affiliates include premium receivables, investments in whole real
estate and other loans, policy 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, 2001 and 2000, are shown below.
(In millions) 2001 2000
------------- -------------
Original cost
Aircraft...................................... $ 16,173 $ 12,888
Vehicles ..................................... 10,779 9,872
Railroad rolling stock ....................... 3,439 3,459
Marine shipping containers ................... 1,618 2,196
Mobile and modular structures................. 1,325 1,288
Information technology equipment.............. 1,321 1,069
Construction and manufacturing equipment...... 799 591
Scientific, medical and other equipment ...... 1,001 685
------------- -------------
36,455 32,048
Accumulated amortization ....................... (9,135) (7,901)
------------- -------------
$ 27,320 $ 24,147
============= =============
Amortization of equipment on operating leases was $2,958 million, $2,620 million
and $2,673 million in 2001, 2000 and 1999, respectively. Noncancelable future
rentals due from customers for equipment on operating leases at year-end 2001
totaled $16,072 million and are due as follows: $3,954 million in 2002; $3,183
million in 2003; $2,396 million in 2004; $1,749 million in 2005; $1,245 million
in 2006 and $3,545 million thereafter.
The Corporation acts as a lender and lessor to the commercial airline industry.
At December 31, 2001 and 2000, the balance of such loans and leases was $21.5
billion and $15.3 billion, respectively. In addition, at December 31, 2001, the
Corporation had issued financial guarantees and funding commitments of $0.9
billion ($0.6 billion at year-end 2000), credit and liquidity support agreements
to special purpose entities sponsored by the Corporation of $0.9 billion ($0.6
billion at year-end 2000) and had placed multi-year orders for various Boeing,
Airbus and other aircraft with list prices of approximately $19.9 billion ($22.9
billion at year-end 2000).
NOTE 7. BUILDINGS AND EQUIPMENT
Buildings and equipment include office buildings, satellite communications
equipment, computer hardware, vehicles, furniture and office equipment.
Depreciation expense was $493 million in 2001, $694 million in 2000 and $500
million in 1999.
39
NOTE 8. INTANGIBLE ASSETS
Intangible assets at December 31, 2001 and 2000, are shown in the table below.
(In millions) 2001 2000
------------ ------------
Goodwill ..................................... $ 15,933 $ 11,550
Present value of future profits ("PVFP") ..... 2,198 2,780
Other intangibles ............................ 586 687
------------ ------------
$ 18,717 $ 15,017
============ ============
The Corporation's intangible assets are shown net of accumulated amortization of
$6,954 million at December 31, 2001, and $5,815 million at December 31, 2000.
The amount of goodwill amortization included in net earnings (net of income
taxes) in 2001, 2000 and 1999, was $552 million, $620 million and $512 million,
respectively.
PVFP amortization, which is on an accelerated basis and net of interest, is
projected to range from 13% to 6% of the year-end 2001 unamortized balance for
each of the next five years.
NOTE 9. OTHER ASSETS
Other assets at December 31, 2001 and 2000 are shown in the table below.
(In millions) 2001 2000
-------------- --------------
Investments:
Associated companies (a) ................... $ 14,415 $ 12,785
Real estate................................. 8,141 6,496
Assets acquired for resale ................. 1,725 1,394
Other ...................................... 5,222 5,207
-------------- --------------
29,503 25,882
Separate accounts .......................... 10,403 11,705
Deferred insurance acquisition costs ....... 6,768 5,815
Derivative instruments (b).................. 2,066 314
Servicing assets (c) ....................... 1,139 1,449
Other ...................................... 5,209 5,201
-------------- --------------
$ 55,088 $ 50,366
============== ==============
(a) Includes advances to associated companies which are non-controlled,
non-consolidated equity investments.
(b) Amounts at December 31, 2001, are stated at fair value in accordance with
SFAS 133; corresponding amounts at December 31, 2000, are stated at
amortized cost. See note 20 for a discussion of the types and uses of
derivative instruments.
(c) Associated primarily with serviced residential mortgage loans amounting to
$59 billion and $81 billion at December 31, 2001 and 2000, 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, 2001 and 2000, consisted of the
following:
2001 2000
-------------------------------- --------------------------------
(In millions) Amount Average rate (a) Amount Average rate (a)
--------------- --------------- --------------- ---------------
Commercial paper - U.S. ....................... $ 100,170 2.21% $ 77,525 6.67%
Commercial paper - non-U.S. ................... 17,289 3.36 16,965 5.46
Current portion of long-term debt ............. 30,952 5.08 19,283 5.95
Other ......................................... 12,590 10,219
--------------- ---------------
$ 161,001 $ 123,992
Foreign currency loss (b)...................... (157) -
--------------- ---------------
$ 160,844 $ 123,992
=============== ===============
40
Total long-term borrowings at December 31, 2001 and 2000, were as follows:
2001 2000
----------------------------------- -----------------
(In millions) Maturities Amount Average rate (a) Amount
------------- ---------------- ----------------- -----------------
Senior notes ............................... 2003-2055 $ 78,347 4.89% $ 80,383
Subordinated notes (c) ..................... 2006-2035 1,171 7.74 996
---------------- -----------------
$ 79,518 $ 81,379
Foreign currency loss (b)................... (427) -
---------------- -----------------
$ 79,091 $ 81,379
================ =================
(a) Based on year-end balances and year-end local currency interest rates,
including the effects of related interest rate and currency swaps, if any,
directly associated with the original debt issuance.
(b) Borrowings in 2001 exclude the foreign exchange effects of related currency
swaps in accordance with the provisions of SFAS 133.
(c) At year-end 2001 and 2000, $996 million of subordinated notes were
guaranteed by GE.
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, 2001, were
$30,795 million in 2002; $25,713 million in 2003; $14,630 million in 2004;
$9,907 million in 2005 and $6,469 million in 2006.
Committed credit lines of $4.7 billion had been extended to GE by 22 banks at
year-end 2001. All of GE's credit lines are available to the Corporation and its
affiliates in addition to their own credit lines.
At year-end 2001, the Corporation held committed lines of credit aggregating
$28.6 billion, including $12.2 billion of revolving credit agreements pursuant
to which it has the right to borrow funds for periods exceeding one year. 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,
2001 and 2000, considering the effects of currency and interest rate swaps.
2001 2000
-------------------------------------- -------------------
(In millions) Amount Average Rate Amount
------------------ ----------------- -------------------
Effective borrowings (including swaps)
Short-term (a)............................... $ 101,101 2.56% $ 80,162
================== ===================
Long-term (including current portion)
Fixed rate (b) ............................. $ 105,387 5.59 $ 98,905
Floating rate .............................. 34,031 3.23 26,304
------------------ -------------------
Total long-term .............................. $ 139,418 $ 125,209
================== ===================
(a) Includes commercial paper and other short-term debt.
(b) Includes fixed rate borrowings and $28.9 billion ($24.5 billion in 2000)
notional long-term interest rate swaps that effectively convert the
floating-rate nature of short-term borrowings to fixed rates of interest.
At December 31, 2001, swap maturities ranged from 2002 to 2048.
41
NOTE 11. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS
Insurance liabilities, reserves and annuity benefits at December 31, 2001 and
2000, are shown below.
(In millions) 2001 2000
-------------- --------------
Investment contracts and universal life benefits ........................ $ 39,052 $ 33,232
Life insurance benefits (a) ............................................. 31,198 32,288
Unpaid claims and claims adjustment expenses (b)......................... 27,233 22,886
Unearned premiums ....................................................... 6,337 6,039
Separate accounts (see note 9) .......................................... 10,403 11,705
-------------- --------------
$ 114,223 $ 106,150
============== ==============
(a) Life insurance benefits are accounted for mainly by a net-level-premium
method using estimated yields generally ranging from 2% to 9% in both 2001
and 2000.
(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 for probable losses are established on such receivables
from reinsurers as required.
The insurance liability for unpaid claims and claims adjustment expenses related
to policies that may cover environmental and asbestos exposures is based on
known facts and an assessment of applicable law and coverage litigation.
Liabilities are recognized for both known and unasserted claims (including the
cost of related litigation) when sufficient information has been developed to
indicate that a claim has been incurred and a range of potential losses can be
reasonably estimated. Developed case law and adequate claim history do not exist
for certain claims principally due to significant uncertainties as to both the
level of ultimate losses that will occur and what portion, if any, will be
deemed to be insured amounts.
A summary of activity affecting unpaid claims and claims adjustment expenses,
principally in property and casualty lines follows.
(In millions) 2001 2000 1999
--------------- -------------- --------------
Balance at January 1 - gross ................................... $ 22,886 $ 21,473 $ 19,611
Less reinsurance recoverables .................................. (5,477) (4,832) (3,483)
--------------- -------------- --------------
Balance at January 1 - net ..................................... 17,409 16,641 16,128
Claims and expenses incurred:
Current year ................................................ 9,199 9,718 6,917
Prior years ................................................. 682 607 248
Claims and expenses paid:
Current year ................................................ (3,021) (3,704) (2,508)
Prior years ................................................. (6,694) (6,572) (5,162)
Claim reserves related to acquired companies ................... - 488 929
Other .......................................................... 258 231 89
--------------- -------------- --------------
Balance at December 31 - net ................................... 17,833 17,409 16,641
Add reinsurance recoverables ................................... 9,400 5,477 4,832
--------------- -------------- --------------
Balance at December 31 - gross ................................. $ 27,233 $ 22,886 $ 21,473
=============== ============== ==============
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.
The majority of the adverse development in 2001, and to a lesser extent in 2000,
related to higher projected ultimate losses for liability coverages, especially
in the hospital liability, nonstandard automobile (automobile insurance extended
to higher risk drivers) and public entity lines of business. The increase in
2000 also reflected an increase in industry-wide loss estimates related to
certain large property loss events, with the largest impact resulting from the
European windstorms occurring in late 1999. In 1999, the unfavorable development
was primarily the result of large loss events, including the significant impact
of Hurricane George, which occurred in 1998. The adverse development of GE
Global Insurance Holdings for all years was partially mitigated by favorable
experience in the Mortgage Insurance business, particularly in 1999, which
resulted from favorable economic conditions, improvement in certain real estate
markets and loss mitigation efforts.
42
Financial guarantees and credit life risk of insurance affiliates at December
31, 2001 and 2000, are summarized below.
(In millions) 2001 2000
-------------- --------------
Guarantees, principally on municipal bonds and asset-backed securities .......... $ 215,874 $ 194,061
Mortgage insurance risk in force ................................................ 79,892 68,112
Credit life insurance risk in force ............................................. 16,590 19,910
Less reinsurance ................................................................ (41,148) (42,143)
-------------- --------------
$ 271,208 $ 239,940
============== ==============
Certain GECS insurance affiliates offer insurance guaranteeing the timely
payment of scheduled principal and interest on municipal bonds and certain
asset-backed securities. These insurance affiliates also provide insurance to
protect residential mortgage lenders from severe financial loss caused by the
non-payment of loans and issue credit life insurance designed to pay the balance
due on a loan if the borrower dies before the loan is repaid. As part of their
overall risk management process, GECS insurance affiliates cede to third parties
a portion of their risk associated with these guarantees. In doing so, they are
not relieved of their primary obligation to policyholders.
The effects of reinsurance on premiums written and premium and commission income
were as follows:
Premiums written Premium and commission income
---------------------------------------------- ----------------------------------------------
(In millions) 2001 2000 1999 2001 2000 1999
-------------- -------------- -------------- -------------- -------------- --------------
Direct ......... $ 9,958 $ 9,390 $ 7,382 $ 9,912 $ 9,026 $ 7,002
Assumed ........ 9,603 9,552 8,520 9,471 9,643 8,460
Ceded .......... (3,718) (2,481) (2,278) (3,749) (2,576) (2,514)
-------------- -------------- -------------- -------------- -------------- --------------
Net ............ $ 15,843 $ 16,461 $ 13,624 $ 15,634 $ 16,093 $ 12,948
============== ============== ============== ============== ============== ==============
Reinsurance recoveries recognized as a reduction of insurance losses and
policyholder and annuity benefits amounted to $5,863 million, $3,232 million and
$2,648 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
NOTE 12. MINORITY INTEREST
Minority interest in equity of consolidated affiliates includes preferred stock
issued by GE Capital and by affiliates of GE Capital. The preferred stock
primarily pays cumulative dividends at variable rates. Value of the preferred
shares is summarized below.
(In millions) 2001 2000
-------------- --------------
GE Capital ......................... $ 2,600 $ 2,600
GE Capital affiliates............... 1,446 1,066
Dividend rates in local currency on the preferred stock ranged from 1.62% to
6.40% during 2001 and from 4.15% to 6.82% during 2000.
43
NOTE 13. SHARE OWNERS' EQUITY
Changes in share owners' equity for each of the last three years were as
follows:
(In millions) 2001 2000 1999
-------------- -------------- --------------
Cumulative Preferred Stock Issued .......................... $ 10 $ 10 $ 10
-------------- -------------- --------------
Common Stock Issued ........................................ 1 1 1
-------------- -------------- --------------
Accumulated nonowner changes other than earnings
Balance at January 1 ....................................... (953) (214) 2,161
Cumulative effect of adopting SFAS 133 -
net of deferred taxes of ($525).......................... (849) - -
Investment securities -
net of deferred taxes of $147, $865 and ($868)........... 273 1,698 (1,578)
Currency translation adjustments -
net of deferred taxes of $63, ($309) and ($91)........... 117 (573) (169)
Derivatives qualifying as hedges -
net of deferred taxes of ($448).......................... (577) - -
Reclassification adjustments -
Investment securities - net of deferred
taxes of ($337), ($1,003) and ($341) ................. (625) (1,864) (628)
Derivatives qualifying as hedges -
net of deferred taxes of $386......................... 536 - -
-------------- -------------- --------------
Balance at December 31 ..................................... (2,078) (953) (214)
-------------- -------------- --------------
Other Capital
Balance at January 1 ....................................... 2,742 2,672 2,480
Contributions .............................................. 3,237 70 192
-------------- -------------- --------------
Balance at December 31 ..................................... 5,979 2,742 2,672
-------------- -------------- --------------
Retained Earnings
Balance at January 1 ....................................... 21,222 17,852 15,075
Net earnings ............................................... 5,417 5,192 4,443
Dividends .................................................. (1,961) (1,822) (1,666)
-------------- -------------- --------------
Balance at December 31 ..................................... 24,678 21,222 17,852
-------------- -------------- --------------
Total Share Owners' Equity ................................. $ 28,590 $ 23,022 $ 20,321
============== ============== ==============
The Corporation's outstanding preferred stock amounted to $510 million at
December 31, 2001, all of which was held by consolidated affiliates with the
exception of $10 million of such shares, which were dividended to GE Company in
1994. All other equity is owned entirely by GE Company and an affiliate.
The Corporation's common stock was split on a ten for one basis ($1,000 par
value) on July 22, 1999 and the Corporation also authorized additional common
stock, accomplished through an amendment to its Certificate of Incorporation. As
a result of the common stock split, GE Company owns 1,010 shares of the
Corporation's common stock. On July 26, 1999, the Corporation issued 2 shares of
its common stock to MRA Systems, Inc. (a GE Company affiliate) in a private
placement, pursuant to a Share Exchange Agreement, dated as of July 22, 1999,
between the Corporation and MRA Systems, Inc., a Delaware corporation.
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.
44
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 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
purpose of subleasing was $400 million in 2001, $496 million in 2000 and $484
million in 1999. Other rental expense was $606 million in 2001, $680 million in
2000 and $583 million in 1999, principally for the rental of office space and
data processing equipment. Minimum future rental commitments under noncancelable
leases at December 31, 2001 are $5,179 million; $997 million in 2002; $680
million in 2003; $601 million in 2004; $636 million in 2005; $407 million in
2006 and $1,858 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
2001, 2000 and 1999 was $2,490 million, $2,787 million and $2,545 million,
respectively.
NOTE 15. INCOME TAXES
The provision for income taxes is summarized in the following table.
(In millions) 2001 2000 1999
--------------- --------------- ---------------
Current tax expense ...........................................$ 517 $ 1,229 $ 806
Deferred tax expense from temporary differences ............... 863 683 847
--------------- -------------- ---------------
$ 1,380 $ 1,912 $ 1,653
=============== ============== ===============
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 ($125) million, $443 million and ($126) million in 2001, 2000 and 1999,
respectively, and amounts applicable to non-U.S. jurisdictions of $606 million,
$707 million and $844 million in 2001, 2000 and 1999, respectively. Deferred tax
expense related to U.S. federal income taxes was $803 million, $655 million and
$810 million in 2001, 2000 and 1999, 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 and cumulative effect of accounting changes was $3.1
billion in 2001, $3.8 billion in 2000 and $3.5 billion in 1999. The
corresponding amounts for non-U.S. based operations were $3.9 billion in 2001,
$3.3 billion in 2000 and $2.6 billion in 1999.
A reconciliation of the U.S. federal statutory rate to the actual income tax
rate follows.
2001 2000 1999
--------------- ------------- --------------
Statutory U.S. federal income tax rate ........................ 35.0% 35.0% 35.0%
Increase (reduction) in rate resulting from:
Amortization of goodwill .................................... 0.9 1.1 1.0
Tax-exempt income ........................................... (3.8) (4.0) (4.4)
Tax on international activities including exports............ (6.7) (5.8) (4.8)
Americom / Rollins goodwill.................................. (3.2) - -
Other - net ................................................. (2.4) 0.6 0.3
--------------- ------------- --------------
Actual income tax rate ........................................ 19.8% 26.9% 27.1%
=============== ============= ==============
45
Principal components of the net deferred tax liability balances at December 31,
2001 and 2000, were as follows:
(In millions) 2001 2000
---------------- ---------------
Assets:
Allowance for losses ................... $ 2,139 $ 1,684
Insurance reserves ..................... 1,397 1,270
AMT credit carryforwards................ 695 671
Other .................................. 4,354 3,684
---------------- ---------------
Total deferred tax assets .............. $ 8,585 $ 7,309
---------------- ---------------
Liabilities:
Financing leases ....................... 9,168 8,408
Operating leases ....................... 3,399 3,301
Deferred insurance acquisition costs.... 1,360 856
Other .................................. 2,775 2,982
---------------- ---------------
Total deferred tax liabilities ......... 16,702 15,547
---------------- ---------------
Net deferred tax liability ............. $ 8,117 $ 8,238
================ ===============
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 2 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 earnings before accounting
changes. Details of total revenues and earnings before accounting changes by
operating segment are provided in Item 7. Management's Discussion and Analysis
of Results of Operations in the tables beginning 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 2001 2000 1999 2001 2000 1999
------------ ------------ ----------- ----------- ----------- ------------
Consumer Services .................. $ 958 $ 1,940 $ 1,042 $ 837 $ 665 $ 347
Equipment Management ............... 2,431 2,421 2,440 561 389 317
Mid-Market Financing ............... 969 728 568 462 370 396
Specialized Financing .............. 27 29 49 (6) 419 303
Specialty Insurance ................ 143 179 164 (77) 33 345
All other .......................... 62 191 109 (397) 36 (55)
------------ ------------ ----------- ----------- ----------- ------------
Total ........................... $ 4,590 $ 5,488 $ 4,372 $ 1,380 $ 1,912 $ 1,653
============ ============ =========== =========== =========== ============
46
Time sales, loan, investment and other
income (b) Interest expense
---------------------------------------- --------------------------------------
For the years ended December 31 2001 2000 1999 2001 2000 1999
------------- ----------- ------------ ----------- ----------- -----------
Consumer Services ................. $ 15,702 $ 16,252 $ 12,817 $ 3,187 $ 3,645 $ 3,335
Equipment Management .............. 3,204 2,428 2,372 1,891 1,796 1,598
Mid-Market Financing .............. 5,043 4,087 3,551 3,558 3,159 2,469
Specialized Financing ............. 2,367 3,656 2,734 1,573 1,651 1,358
Specialty Insurance ............... 2,772 2,875 2,727 632 711 580
All other ......................... (345) 1,507 251 (243) 149 19
------------- ----------- ------------ ----------- ----------- -----------
Total .......................... $ 28,743 $ 30,805 $ 24,452 $ 10,598 $ 11,111 $ 9,359
============= =========== ============ =========== =========== ===========
Property, plant and equipment additions
Assets (including equipment leased to others)(c)
At December 31 For the years ended December 31
------------------------------------------ ------------------------------------------
2001 2000 1999 2001 2000 1999
------------- ------------ ------------- ------------- ------------ ------------
Consumer Services (d)........... $ 166,648 $ 161,607 $ 149,139 $ 572 $ 764 $ 2,337
Equipment Management (d) ....... 52,708 48,573 43,617 9,594 8,298 8,011
Mid-Market Financing ........... 109,742 72,170 63,502 3,485 1,635 3,953
Specialized Financing (d)....... 40,788 37,660 34,740 11 533 150
Specialty Insurance ............ 58,741 52,108 47,926 10 39 30
All other ...................... (3,143) (1,482) 6,094 72 165 951
------------ ------------ -------------- ------------- ----------- ------------
Total ....................... $ 425,484 $ 370,636 $ 345,018 $ 13,744 $ 11,434 $ 15,432
============ ============ ============== ============= =========== ============
(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, 2001 include investments in and advances
to non-consolidated affiliates of $4,636 million, $5,164 million and $3,857
million, respectively, which contributed approximately $304 million, $233
million and $17 million, respectively, to segment pre-tax income for the
year ended December 31, 2001.
47
NOTE 17. QUARTERLY FINANCIAL DATA (unaudited)
Summarized quarterly financial data were as follows:
First quarter Second quarter Third quarter Fourth quarter
-------------------- -------------------- ----------------------- ------------------------
(In millions) 2001 2000 2001 2000 2001 2000 2001 2000
--------- --------- --------- --------- --------- ----------- ----------- -----------
Revenues .................... $ 14,723 $ 15,681 $ 14,399 $ 16,470 $ 13,298 $ 16,444 (b) $ 15,933 (a) $ 17,582 (b)
--------- --------- --------- --------- --------- ----------- ----------- -----------
Expenses:
Interest ................... 2,898 2,570 2,671 2,811 2,503 2,765 2,526 2,965
Operating and
administrative and cost of
goods sold ................ 5,130 6,922 4,826 6,964 4,147 6,617 5,529 7,487
Insurance losses and
policyholder and annuity
benefits .................. 3,523 2,930 3,712 3,852 3,618 3,731 4,209 3,886
Provision for losses on
financing receivables ..... 483 521 496 421 567 463 935 640
Depreciation and
amortization of buildings
and equipment and
equipment on operating
leases .................... 793 942 797 672 924 792 937 908
Minority interest in net
earnings of consolidated
affiliates ................ 57 50 42 53 27 56 37 55
--------- --------- --------- --------- --------- ----------- ----------- -----------
Earnings before income taxes 1,839 1,746 1,855 1,697 1,512 2,020 1,760 1,641
Provision for income taxes .. (438) (536) (378) (420) (211) (542) (353) (414)
--------- --------- --------- --------- --------- ----------- ----------- -----------
Earnings before accounting
changes ................... $ 1,401 $ 1,210 $ 1,477 $ 1,277 $ 1,301 $ 1,478 (c) $ 1,407 $ 1,227 (d)
========= ========= ========= ========= ========= =========== =========== ===========
(a) Fourth quarter revenues in 2001 were increased by a gain on the sale of
Americom of $1,158 million.
(b) Third and fourth quarter revenues in 2000 were increased by the inclusion
of gains related to PaineWebber of $369 million and $997 million,
respectively.
(c) Third quarter net earnings in 2000 were reduced by after-tax charges of
$239 million. Such charges were primarily included in Operating and
administrative and cost of goods sold. Also in the third quarter, net
earnings were increased by the inclusion of an after-tax gain of $226
million related to PaineWebber.
(d) Fourth quarter net earnings in 2000 were reduced by after-tax charges of
$645 million. Such charges were primarily included in Operating and
administrative and cost of goods sold. Also in the fourth quarter, net
earnings were increased by the inclusion of an after-tax gain of $622
million related to PaineWebber.
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 2001, net assets of the
Corporation's regulated affiliates amounted to $37.4 billion, of which $31.7
billion was restricted.
At December 31, 2001 and 2000, the aggregate statutory capital and surplus of
the insurance businesses totaled $17.7 billion and $16.2 billion, respectively.
Accounting practices prescribed by statutory authorities are used in preparing
statutory statements.
NOTE 19. SUPPLEMENTAL CASH FLOWS INFORMATION
"All other operating activities" in the Statement of Cash Flows consists
primarily of adjustments to 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 adjustments to assets.
48
Certain supplemental information related to the Corporation's cash flows were as
follows for the past three years.
(In millions) 2001 2000 1999
--------------- -------------- --------------
Financing receivables
Increase in loans to customers ............................... $ (140,758) $ (100,938) $ (95,201)
Principal collections from customers - loans ................. 121,004 87,432 86,379
Investment in equipment for financing leases ................. (20,315) (15,454) (18,173)
Principal collections from customers - financing leases ...... 11,641 7,873 13,634
Net change in credit card receivables ........................ (14,815) (9,394) (10,740)
Sales of financing receivables ............................... 29,291 14,405 11,473
--------------- -------------- --------------
$ (13,952) $ (16,076) $ (12,628)
=============== ============== ==============
All other investing activities
Purchases of securities by insurance and annuity businesses .. $ (53,452) $ (35,911) $ (26,271)
Dispositions and maturities of securities by insurance and
annuity businesses .......................................... 45,403 25,960 23,979
Proceeds from principal business dispositions ................ 2,572 (605) 279
Other ........................................................ (2,080) (1,617) (6,270)
--------------- -------------- --------------
$ (7,557) $ (12,173) $ (8,283)
=============== ============== ==============
Newly issued debt having maturities longer than 90 days
Short-term (91 to 365 days) ................................... $ 12,622 $ 12,782 $ 15,799
Long-term (longer than one year) .............................. 16,118 32,297 30,082
Proceeds - nonrecourse, leveraged lease debt .................. 2,012 1,808 1,724
--------------- -------------- --------------
$ 30,752 $ 46,887 $ 47,605
=============== ============== ==============
Repayments and other reductions of debt having maturities
longer than 90 days
Short-term (91 to 365 days) .................................. $ (29,195) $ (27,777) $ (21,211)
Long-term (longer than one year) ............................. (6,582) (3,953) (5,447)
Principal payments - nonrecourse, leveraged lease debt ....... (274) (177) (266)
--------------- -------------- --------------
$ (36,051) $ (31,907) $ (26,924)
=============== ============== ==============
All other financing activities
Proceeds from sales of investment contracts .................. $ 9,080 $ 8,826 $ 7,236
Redemption of investment contracts ........................... (7,033) (9,061) (7,127)
Preferred stock issued by consolidated affiliates ............ - - 513
Capital contributions from GE................................. 3,043 - -
Cash received upon assumption of Toho Mutual Life Insurance
Company insurance liabilities............................... - 13,177 -
--------------- -------------- --------------
$ 5,090 $ 12,942 $ 622
=============== ============== ==============
Cash (paid) recovered during the year for:
Interest ..................................................... $ (10,767) $ (11,229) $ (9,596)
Income taxes ................................................. 129 (800) (351)
Changes in operating assets and liabilities are net of acquisitions and
dispositions of principal 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
acquisitions. In conjunction with the acquisitions, liabilities were assumed as
follows:
(In millions) 2001 2000 1999
---------- ----------- -----------
Fair value of assets acquired .................................... $ 36,007 $ 10,544 $ 16,208
Cash paid ........................................................ (11,980) (1,230) (10,075)
---------- ----------- -----------
Liabilities assumed .............................................. $ 24,027 $ 9,314 $ 6,133
========== =========== ===========
49
NOTE 20. ADDITIONAL INFORMATION ABOUT CERTAIN FINANCIAL INSTRUMENTS
Assets and liabilities that 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, separate accounts
and, beginning in 2001, derivative financial instruments. Other assets and
liabilities - those not carried at fair value - are discussed in the following
pages. Apart from certain borrowings by GECS and certain marketable securities,
few of the instruments discussed below are actively traded and their fair values
must often be determined using models. Although management has made every effort
to develop the fairest representation of fair value for this section, it would
be unusual if the estimates could actually have been realized at December 31,
2001 or 2000.
A description of how fair values are estimated follows.
Borrowings. Based on market quotes or comparables.
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 expected future cash flows,
considering expected renewal premiums, claims, refunds and servicing costs,
discounted at a current market rate.
All other instruments. Based on comparable market transactions, discounted
future cash flows, quoted market prices, and/or estimates of the cost to
terminate or otherwise settle obligations.
Financial Instruments
2001 2000
--------------------------------------------- ------------------------------------------------
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) $ 118,584 $ 119,986 $ 117,930 $ (a) $ 92,912 $ 93,539 $ 92,360
Mortgages acquired for resale .. (a) 1,596 1,631 1,596 (a) 1,267 1,250 1,245
Other financial instruments .... (a) 9,496 9,671 9,599 (a) 10,940 11,130 11,102
Liabilities
Borrowings (b)(c) .............. (a) (240,519) (244,069) (244,069) (a) (205,371) (207,670) (207,670)
Investment contract benefits.... (a) (32,427) (32,192) (31,815) (a) (27,575) (26,144) (26,144)
Insurance - financial
guarantees and credit life (d). 271,208 (2,941) (2,983) (3,091) 239,940 (2,759) (2,797) (2,910)
Other financial instruments..... 4,678 (629) (590) (590) 2,982 (1,184) (1,114) (1,114)
Special purpose entity support
Credit and liquidity (e)(f)..... 43,176 (712) (712) (712) 31,197 (630) (630) (630)
Credit and liquidity - unused... 9,404 - - - 6,470 - - -
Performance guarantees.......... 3,759 - - - 2,870 (g) - - -
- unused....................... 441 - - - 1,330 (g) - - -
Swap guarantees and other
guarantees..................... 8,506 - - - 7,415 (g) - - -
Other firm commitments
Ordinary course of business
lending commitments ........... 9,636 - - - 9,450 - - -
Unused revolving credit lines
Commercial ................... 27,770 - - - 19,372 (h) - - -
Consumer - principally
credit cards ................ 222,929 - - - 188,421 - - -
(a) These financial instruments do not have notional amounts.
(b) Includes effects of interest rate and currency swaps.
(c) See note 10.
(d) See note 11.
(e) Includes credit support of $14,496 million and $9,784 million at December
31, 2001 and 2000, respectively.
(f) Pre-tax gains on sales of financial assets through securitizations amounted
to $1,327 million and $489 million in 2001 and 2000, respectively.
(g) Reported, in total, as $7,895 million in 2000.
(h) Reported as $11,278 million in 2000.
50
Derivatives and Hedging. The Corporation's global business activities routinely
deal with fluctuations in interest rates, in currency exchange rates and in
commodity and other asset prices. The Corporation applies strict policies to
managing each of these risks, including prohibitions on derivatives trading,
derivatives market-making or other speculative activities. These policies
require the use of derivative instruments in concert with other techniques to
reduce or eliminate these risks.
On January 1, 2001, the Corporation adopted SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, as discussed in note 1. The paragraphs that
follow provide additional information about derivatives and hedging
relationships in accordance with the requirements of SFAS 133.
Cash flow hedges. Under SFAS 133, cash flow hedges are hedges that use simple
derivatives to offset the variability of expected future cash flows. Variability
can appear in floating rate assets, floating rate liabilities or from certain
types of forecasted transactions, and can arise from changes in interest rates
or currency exchange rates. For example, the Corporation often borrows funds at
a variable rate of interest. If the Corporation needs the funds to make a
floating rate loan, there is no exposure to interest rate changes, and no hedge
is necessary. However, if a fixed rate loan is made, the Corporation will
contractually commit to pay a fixed rate of interest to a counterparty who will
pay the Corporation a variable rate of interest (an "interest rate swap"). This
swap will then be designated as a cash flow hedge of the associated variable
rate borrowing. If, as would be expected, the derivative is perfectly effective
in offsetting variable interest in the borrowing, changes in its fair value are
recorded in a separate component in equity and released to earnings
contemporaneously with the earnings effects of the hedged item. Further
information about hedge effectiveness is provided below.
The Corporation uses currency forwards, interest rate swaps and currency swaps,
to optimize borrowing costs and investment returns. For example, currency swaps
and non-functional currency borrowings together provide lower funding costs than
could be achieved by issuing debt directly in a given currency.
Adoption of SFAS 133 resulted in a reduction of share owners' equity of $849
million at January 1, 2001. Of that amount, $288 million was transferred to
earnings in 2001 along with the earnings effects of the related forecasted
transactions for no net impact on earnings. At December 31, 2001, amounts
related to derivatives qualifying as cash flow hedges amounted to a reduction of
equity of $890 million, of which $603 million was expected to be transferred to
earnings in 2002 along with the earnings effects of the related forecasted
transactions. In 2001, there were no forecasted transactions that failed to
occur. At December 31, 2001, the term of derivative instruments hedging
forecasted transactions, except those related to variable interest on existing
financial instruments, was zero.
Fair value hedges. Under SFAS 133, fair value hedges are hedges that eliminate
the risk of changes in the fair values of assets, liabilities and certain types
of firm commitments. For example, the Corporation will use an interest rate swap
in which it receives a fixed rate of interest and pays a variable rate of
interest to change the cash flow profile of a fixed rate borrowing to match the
variable rate financial asset that it is funding. Changes in fair value of
derivatives designated and effective as fair value hedges are recorded in
earnings and are offset by corresponding changes in the fair value of the hedged
item.
The Corporation uses interest rate swaps, currency swaps and interest rate and
currency forwards to hedge the effect of interest rate and currency exchange
rate changes on local and nonfunctional currency denominated fixed-rate
borrowings and certain types of fixed-rate assets. Equity options are used to
hedge price changes in investment securities and equity-indexed annuity
liabilities at the Corporation.
Net investment hedges. The net investment hedge designation under SFAS 133
refers to the use of derivative contracts or cash instruments to hedge the
foreign currency exposure of a net investment in a foreign operation. At the
Corporation, currency exposures that result from net investments in affiliates
are managed principally by funding assets denominated in local currency with
debt denominated in that same currency. In certain circumstances, such exposures
are managed using currency forwards and currency swaps.
Derivatives not designated as hedges. SFAS 133 specifies criteria that must be
met in order to apply any of the three forms of hedge accounting. For example,
hedge accounting is not permitted for hedged items that are marked to market
through earnings. The Corporation uses derivatives to hedge exposures when it
makes economic sense to do so, including circumstances in which the hedging
relationship does not qualify for hedge accounting as described in the following
paragraph. The Corporation also will occasionally receive derivatives, such as
equity warrants, in the ordinary course of business. Under SFAS 133, derivatives
that do not qualify for hedge accounting are marked to market through earnings.
The Corporation uses option contracts, including caps, floors and collars, as an
economic hedge of changes in interest rates, currency exchange rates and equity
prices on certain types of assets and liabilities. For example, the Corporation
uses equity options to hedge the risk of changes in equity prices embedded in
insurance liabilities associated with annuity contracts written by GE Financial
Assurance. The Corporation also uses interest rate swaps, purchased options and
51
futures as an economic hedge of the fair value of mortgage servicing rights. The
Corporation occasionally obtains equity warrants as part of sourcing or
financing transactions. Although these instruments are considered to be
derivatives under SFAS 133, their economic risk is similar to, and managed on
the same basis as, other equity instruments held by the Corporation.
Earnings effects of derivatives. The table that follows provides additional
information about the earnings effects of derivatives. In the context of hedging
relationships, "effectiveness" refers to the degree to which fair value changes
in the hedging instrument offset corresponding fair value changes in the hedged
item. Certain elements of hedge positions cannot qualify for hedge accounting
under SFAS 133 whether effective or not, and must therefore be marked to market
through earnings. Time value of purchased options is the most common example of
such elements in instruments used by the Corporation. Earnings effects of such
items are shown in the following table as "amounts excluded from the measure of
effectiveness."
December 31, 2001 (In millions) Cash flow hedges Fair value hedges
--------------------- ---------------------
Ineffectiveness................................................ $ 7 $ 28
Amounts excluded from the measure of effectiveness............. - (21)
At December 31, 2001, the fair value of derivatives in a gain position and
recorded in "All other assets" is $2.1 billion and the fair value of derivatives
in a loss position and recorded in "All other liabilities" is $3.6 billion.
The following table provides fair value information about derivative instruments
for the year 2000. Following adoption of SFAS 133 on January 1, 2001, all
derivative instruments are reported at fair value in the financial statements
and similar disclosures for December 31, 2001, are not relevant.
2000
------------------------------------------------------------------------
Assets (liabilities)
------------------------------------------------
Carrying
Notional amount Estimated
(In millions) amount (net) fair value
----------------------------------------- ------------------ -------------------- -----------------------
Assets
Integrated swaps...................... $ 22,911 $ (44) $ (771)
Purchased options..................... 9,832 105 164
Options, including "floors"........... 21,984 202 208
Interest rate swaps and futures....... 2,798 29 38
Liabilities
Interest rate swaps................... 52,681 - (208)
Currency swaps........................ 24,314 - (957)
Currency forwards..................... 27,902 - 381
Other firm commitments
Currency forwards..................... 1,585 8 47
Currency swaps........................ 647 292 275
Counterparty credit risk. The risk that counterparties to derivative contracts
will be financially unable to make payments to the Corporation according to the
terms of the agreements is counterparty credit risk. Counterparty credit risk is
managed on an individual counterparty basis, which means that gains and losses
are netted for each counterparty to determine the amount at risk. When a
counterparty exceeds credit exposure limits in terms of amounts due to the
Corporation, typically as a result of changes in market conditions (see table
below), no additional transactions are executed until the exposure with that
counterparty is reduced to an amount that is within the established limit. 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-. If the
downgrade provisions had been triggered at December 31, 2001, the Corporation
could have been required to disburse up to $2.8 billion and could have claimed
$0.8 billion from counterparties -- the net fair value losses and gains. At
December 31, 2001 and 2000, gross fair value gains amounted to $3.1 billion and
$2.9 billion, respectively. At December 31, 2001 and 2000, gross fair value
losses amounted to $5.1 billion and $3.7 billion, respectively.
As part of its ongoing activities, the Corporation 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.
Except for such positions, all other swaps, purchased options and forwards with
contractual maturities longer than one year are conducted within the credit
52
policy constraints provided in the table below. Foreign exchange forwards with
contractual maturities shorter than one year must be executed with
counterparties having an A-1+/ P-1 credit rating and the credit limit for these
transactions is $150 million.
Counterparty credit criteria Credit rating
--------------------------------
Moody's Standard & 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
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 (c)
For the years ended December 31 At December 31
---------------------------------------- ----------------------------------------
(In millions) 2001 2000 1999 2001 2000 1999
------------ ------------ ------------ ------------ ------------ ------------
United States ............. $ 35,230 $ 39,891 $ 34,063 $ 10,251 $ 11,032 $ 13,270
Europe .................... 12,722 14,526 14,045 3,479 3,260 3,449
Pacific Basin ............. 5,806 7,147 3,722 986 1,146 1,280
Global (a) ................ 2,291 2,134 1,788 12,978 10,763 8,960
Other (b) ................. 2,304 2,479 2,131 1,647 1,615 1,682
------------ ------------ ------------ ------------ ------------ ------------
Total .................... $ 58,353 $ 66,177 $ 55,749 $ 29,341 $ 27,816 $ 28,641
============ ============ ============ ============ ============ ============
(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.
(c) Property, plant and equipment (including equipment leased to others).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable
53
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
54
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, 2001
Statement of Changes in Share Owners' Equity for each of the
years in the three-year period ended December 31, 2001
Statement of Financial Position at December 31, 2001 and 2000
Statement of Cash Flows for each of the years in the three-year
period ended December 31, 2001
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, 2001 (pages F-1 through F-52) 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.
Schedule V. Supplemental information concerning property and casualty
insurance operations.
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 Certificate of Incorporation of the Corporation
as last amended on July 22, 1999 and currently in effect, consisting
of the following: (a) the Certificate of Incorporation of the
Corporation as in effect immediately prior to the filing of a
Certificate of Amendment on July 22, 1999 (incorporated by reference
to Exhibit 3(i) of the Corporation's Form 10-K Report for the year
ended December 31, 1993); and (b) a Certificate of Amendment filed
with the Office of the Secretary of State, State of Delaware on July
22, 1999 (incorporated by reference to Exhibit 3(i) of the
Corporation's Form 10-Q Report for the quarter ended June 26, 1999).
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) 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.
55
23(ii) Consent of KPMG LLP.
24 Power of Attorney.
99(a) Income Maintenance Agreement dated March 28, 1991, between General
Electric Company and General Electric Capital Corporation.
(Incorporated by reference to Exhibit 28 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, 2001,
(pages F-1 through F-52) and Exhibit 12 (Ratio of Earnings to Fixed
Charges) of General Electric Company.
99(c) Item 1. Business - Property and Casualty Reserves for Unpaid Claims
and Claim Expenses, set forth in the Annual Report on Form 10-K of GE
Global Insurance Holding Corporation (S.E.C. File No. 0-27394) for the
year ended December 31, 2001 (Pages 5 through 10).
99(d) 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 General Electric
Capital 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.
56
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL ELECTRIC CAPITAL SERVICES, INC.
CONDENSED STATEMENT OF CURRENT AND RETAINED EARNINGS
For the years ended December 31 (In millions) 2001 2000 1999
------------- ------------- -------------
REVENUES ........................................................ $ (50) $ 7 $ 26
------------- ------------- -------------
EXPENSES:
Interest ....................................................... 348 449 378
Operating and administrative ................................... 372 283 342
------------- ------------- -------------
Loss before income taxes and equity in earnings of affiliates ... (770) (725) (694)
Income tax benefit .............................................. 221 206 194
Equity in earnings of affiliates ................................ 6,135 5,711 4,943
Cumulative effect of accounting changes, net of tax.............. (169) - -
------------- ------------- -------------
NET EARNINGS .................................................... 5,417 5,192 4,443
Dividends paid .................................................. (1,961) (1,822) (1,666)
Retained earnings at January 1 .................................. 21,222 17,852 15,075
------------- ------------- -------------
RETAINED EARNINGS AT DECEMBER 31 ................................ $ 24,678 $ 21,222 $ 17,852
============= ============= =============
See notes to Condensed Financial Statements.
57
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Continued)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
CONDENSED STATEMENT OF FINANCIAL POSITION
At December 31 (In millions) 2001 2000
------------ -------------
ASSETS
Cash and equivalents ................................................................ $ 3 $ -
Investment in and advances to affiliates ............................................ 35,724 30,014
Other assets......................................................................... 639 600
------------ ------------
Total assets ....................................................................... $ 36,366 $ 30,614
============ ============
LIABILITIES AND SHARE OWNERS' EQUITY
Short-term borrowings ............................................................... $ 6,830 $ 6,696
Long-term borrowings ................................................................ 299 299
------------ ------------
Total borrowings.................................................................... 7,129 6,995
Accounts payable .................................................................... 1 12
Other liabilities ................................................................... 146 85
------------ ------------
Total liabilities .................................................................. 7,276 7,092
------------ ------------
Cumulative preferred stock, $10,000 par value (80,000 shares authorized; 51,000
shares issued and held primarily by affiliates at December 31, 2001 and 2000) ..... 510 510
Common stock, $1,000 (1,260 shares authorized at December 31, 2001 and 2000 and
1,012 shares outstanding at December 31, 2001 and 2000) ........................... 1 1
Additional paid-in capital .......................................................... 5,979 2,742
Retained earnings ................................................................... 24,678 21,222
Accumulated gains/(losses) - net:
Investment securities held by affiliates - net (a) ................................ (348) 4
Currency translation adjustments (a) .............................................. (840) (957)
Derivatives qualifying as hedges (a) .............................................. (890) -
------------ ------------
Total share owners' equity ......................................................... 29,090 23,522
------------ ------------
Total liabilities and share owners' equity ......................................... $ 36,366 $ 30,614
============ ============
(a) The sum of accumulated gains/(losses) on investment securities, currency
translation adjustments and derivatives qualifying as hedges constitutes
"Accumulated nonowner changes other than earnings," and was ($2,078)
million and ($953) million at year-end 2001 and 2000, respectively.
See notes to Condensed Financial Statements.
58
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Continued)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
CONDENSED STATEMENT OF CASH FLOWS
For the years ended December 31 (In millions) 2001 2000 1999
-------------- ------------- ---------------
CASH FROM OPERATING ACTIVITIES ................................... $ 1,705 $ 2,210 $ 1,387
-------------- ------------- ---------------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES
Change in investment and advances to affiliates .................. (2,852) (562) 45
Net change in other assets ....................................... (66) (385) 115
-------------- ------------- ---------------
Cash from (used for) investing activities ...................... (2,918) (947) 160
-------------- ------------- ---------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES
Net change in borrowings (maturities of 90 days or less) ......... 134 559 119
Dividends paid ................................................... (1,961) (1,822) (1,666)
Capital contributions from GE .................................... 3,043 - -
-------------- ------------- ---------------
Cash from (used for) financing activities ...................... 1,216 (1,263) (1,547)
-------------- ------------- ---------------
CHANGE IN CASH AND EQUIVALENTS DURING THE YEAR ................... 3 - -
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ........................ - - -
-------------- ------------- ---------------
CASH AND EQUIVALENTS AT END OF YEAR .............................. $ 3 $ - $ -
============== ============= ===============
See notes to Condensed Financial Statements.
59
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Concluded)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Income taxes
General Electric Company files a consolidated U.S. federal income tax return
which includes General Electric Capital Services, Inc. ("GE Capital Services").
Income tax benefit includes the effect of GE Capital Services on the
consolidated return.
Dividends from affiliates
In 2001, GE Capital Services received dividends of $1,961 million from General
Electric Capital Corporation ("GE Capital") and $216 million from other
affiliates. In 2000, GE Capital Services received dividends of $1,480 million
from General Electric Capital Corporation ("GE Capital") and $1,435 million from
other affiliates.
60
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE V - SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY AND CASUALTY INSURANCE OPERATIONS
(In millions)
At December 31 Year ended December 31
------------------------------------------- -------------------------------------------------------------------------------
Discount
deducted
from
Liability liability Claims and claims
for unpaid for unpaid adjustment expenses Amortization Paid
Deferred claims and claims and Earned incurred related to: of deferred claims
policy claims claims premiums Net -------------------- policy and claims
acquisition adjustment adjustment Unearned and investment Current Prior acquisition adjustment Premiums
costs expenses expenses premiums commissions income Year Years costs expenses written
------------ ----------- ----------- ---------- ----------- ----------- --------- -------- ------------ ----------- ---------
2001 $ 1,062 $ 23,363 $ 439 $ 4,840 $ 7,748 $ 1,540 $ 5,511 $ 535 $ 1,687 $ 6,687 $ 7,803
============ =========== =========== ========== =========== =========== ========= ======== ============ =========== =========
2000 $ 1,207 $ 19,836 $ 166 $ 4,646 $ 9,018 $ 1,641 $ 5,939 $ 646 $ 2,225 $ 6,939 $ 9,345
============ =========== =========== ========== =========== =========== ========= ======== ============ =========== =========
1999 $ 1,089 $ 19,683 $ 334 $ 4,505 $ 8,185 $ 1,464 $ 5,211 $ 185 $ 2,088 $ 5,854 $ 8,424
============ =========== =========== ========== =========== =========== ========= ======== ============ =========== =========
61
Exhibit 4 (a)
March 7, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Subject: General Electric Capital Services, Inc. Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 - File No. 0-14804
Dear Sirs:
Neither General Electric Capital Services, Inc. (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 SERVICES, INC.
By: /s/ J.A. Parke
------------------------------
J.A. Parke,
Executive Vice President and
Chief Financial Officer
62
Exhibit 12 (a)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Fixed Charges
Years ended December 31
-----------------------------------------------------------------
(In millions) 2001 2000 1999 1998 1997
------------ ----------- ----------- ------------ -----------
Net earnings ..................................... $ 5,417 $ 5,192 $ 4,443 $ 3,796 $ 3,256
Provision for income taxes ....................... 1,380 1,912 1,653 1,364 1,166
Minority interest ................................ 163 214 186 148 121
------------ ----------- ----------- ------------ -----------
Earnings before income taxes and minority interest 6,960 7,318 6,282 5,308 4,543
------------ ----------- ----------- ------------ -----------
Fixed charges:
Interest ....................................... 10,836 11,415 9,607 9,122 7,762
One-third of rentals ........................... 335 392 356 296 245
------------ ----------- ----------- ------------ -----------
Total fixed charges .............................. 11,171 11,807 9,963 9,418 8,007
Less interest capitalized, net of amortization ... (88) (121) (87) (88) (52)
------------ ----------- ----------- ------------ -----------
Earnings before income taxes and minority interest,
plus fixed charges ............................. $ 18,043 $ 19,004 $ 16,158 $ 14,638 $ 12,498
============ =========== =========== ============ ===========
Ratio of earnings to fixed charges ............... 1.62 1.61 1.62 1.55 1.56
============ =========== =========== ============ ===========
63
Exhibit 12 (b)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Years ended December 31
-----------------------------------------------------------------
(In millions) 2001 2000 1999 1998 1997
------------ ----------- ------------ ------------ -----------
Net earnings .................................... $ 5,417 $ 5,192 $ 4,443 $ 3,796 $ 3,256
Provision for income taxes ...................... 1,380 1,912 1,653 1,364 1,166
Minority interest ............................... 163 214 186 148 121
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest ...................................... 6,960 7,318 6,282 5,308 4,543
------------ ----------- ------------ ------------ -----------
Fixed charges:
Interest ...................................... 10,836 11,415 9,607 9,122 7,762
One-third of rentals .......................... 335 392 356 296 245
------------ ----------- ------------ ------------ -----------
Total fixed charges ............................. 11,171 11,807 9,963 9,418 8,007
------------ ----------- ------------ ------------ -----------
Less interest capitalized, net of amortization .. (88) (121) (87) (88) (52)
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest, plus fixed charges .................. $ 18,043 $ 19,004 $ 16,158 $ 14,638 $ 12,498
============ =========== ============ ============ ===========
Preferred stock dividend requirements ........... $ 1 $ 1 $ 1 $ 1 $ 1
Ratio of earnings before provisions for income
taxes to net earnings ......................... 1.25 1.37 1.37 1.36 1.36
------------ ----------- ------------ ------------ -----------
Preferred stock dividend factor on pre-tax basis 1 1 1 1 1
Fixed charges ................................. 11,171 11,807 9,963 9,418 8,007
------------ ----------- ------------ ------------ -----------
Total fixed charges and preferred stock dividend
requirements .................................. $ 11,172 $ 11,808 $ 9,964 $ 9,419 $ 8,008
============ =========== ============ ============ ===========
Ratio of earnings to combined fixed charges and
preferred stock dividends ..................... 1.62 1.61 1.62 1.55 1.56
============ =========== ============ ============ ===========
64
Exhibit 23 (ii)
To the Board of Directors
General Electric Capital Services, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
33-7348) on Form S-3 of General Electric Capital Services, Inc., of our report
dated February 8, 2002, relating to the statement of financial position of
General Electric Capital Services, Inc. and consolidated affiliates as of
December 31, 2001 and 2000, 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, 2001, and related schedules, which report appears in
the December 31, 2001 annual report on Form 10-K of General Electric Capital
Services, Inc.
/s/ KPMG LLP
Stamford, Connecticut
March 8, 2002
65
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 Services, Inc., a Delaware
corporation (the "Corporation"), hereby constitutes and appoints Dennis D.
Dammerman, 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, 2001, 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 do 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 7th
day of March 2002.
/s/ Dennis D. Dammerman /s/ James A. Parke
- ------------------------------- ---------------------------------
Dennis D. Dammerman, James A. Parke,
Chairman of the Board Director, Executive Vice President
(Principal Executive Officer) and Chief Financial Officer
(Principal Financial Officer)
/s/ Joan C. Amble
-------------------------------
Joan C. Amble,
Vice President and Controller
(Principal Accounting Officer)
(Page 1 of 2)
66
/s/ Nancy E. Barton /s/ Denis J. Nayden
- -------------------------------- ----------------------------------
Nancy E. Barton, Denis J. Nayden,
Director Director
/s/ James R. Bunt /s/ Michael A. Neal
- -------------------------------- ----------------------------------
James R. Bunt, Michael A. Neal,
Director Director
/s/ James A. Parke
- -------------------------------- ----------------------------------
David L. Calhoun, James A. Parke,
Director Director
/s/ Dennis D. Dammerman /s/ Ronald R. Pressman
- -------------------------------- ----------------------------------
Dennis D. Dammerman, Ronald R. Pressman,
Director Director
/s/ Gary M. Reiner
- -------------------------------- ----------------------------------
Scott C. Donnelly, Gary M. Reiner,
Director Director
/s/ Michael D. Fraizer /s/ Gary L. Rogers
- -------------------------------- ----------------------------------
Michael D. Fraizer, Gary L. Rogers,
Director Director
/s/ Arthur H. Harper /s/ John M. Samuels
- -------------------------------- ----------------------------------
Arthur H. Harper, John M. Samuels,
Director Director
/s/ Keith S. Sherin
- -------------------------------- ----------------------------------
Benjamin W. Heineman, Jr., Keith S. Sherin,
Director Director
/s/ Jeffrey R. Immelt /s/ Edward D. Stewart
- -------------------------------- ----------------------------------
Jeffrey R. Immelt, Edward D. Stewart,
Director Director
/s/ Robert Jeffe /s/ Robert C. Wright
- -------------------------------- ----------------------------------
Robert Jeffe, Robert C. Wright,
Director Director
- --------------------------------
John H. Myers,
Director
A MAJORITY OF THE BOARD OF DIRECTORS
(Page 2 of 2)
67
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 SERVICES, INC.
March 7 , 2002 By: /s/ Dennis D. Dammerman
----------------------------------------
(Dennis D. Dammerman)
Chairman of the Board
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/ Dennis D. Dammerman Chairman of the Board March 7, 2002
- -----------------------------
(Dennis D. Dammerman) (Principal Executive Officer)
/s/ James A. Parke Executive Vice President and March 7, 2002
- -----------------------------
(James A. Parke) Chief Financial Officer
(Principal Financial Officer)
/s/ Joan C. Amble Vice President and Controller March 7, 2002
- -----------------------------
(Joan C. Amble) (Principal Accounting Officer)
NANCY E. BARTON* Director
JAMES R. BUNT* Director
DENNIS D. DAMMERMAN* Director
MICHAEL D. FRAIZER* Director
ARTHUR H. HARPER* Director
JEFFREY R. IMMELT* Director
ROBERT JEFFE* Director
DENIS J. NAYDEN* Director
MICHAEL A. NEAL* Director
JAMES A. PARKE* Director
RONALD R. PRESSMAN* Director
GARY M. REINER* Director
GARY L. ROGERS* Director
JOHN M. SAMUELS* Director
KEITH S. SHERIN* Director
EDWARD D. STEWART* Director
ROBERT C. WRIGHT* Director
A MAJORITY OF THE BOARD OF DIRECTORS
*By: /s/ Joan C. Amble March 7, 2002
---------------------------
(Joan C. Amble)
Attorney-in-fact