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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
260 LONG RIDGE ROAD, STAMFORD, CONNECTICUT 06927 (203) 357-4000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(B) OF THE ACT:
NONE.
SECURITIES REGISTERED PURSUANT
TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, PAR VALUE $10,000 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/
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AT MARCH 21, 1994. NONE.
AT MARCH 21, 1994, 101 SHARES OF COMMON STOCK WITH A PAR VALUE OF $10,000 WERE
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(A) AND (B)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................................................ 1
Item 2. Properties.......................................................... 2
Item 3. Legal Proceedings................................................... 2
Item 4. Submission of Matters to a Vote of Security Holders................. 2
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................... 3
Item 6. Selected Financial Data............................................. 3
Item 7. Management's Discussion and Analysis of Results of Operations....... 3
Item 8. Financial Statements and Supplementary Data......................... 8
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 28
PART III
Item 10. Directors and Executive Officers of the Registrant.................. 29
Item 11. Executive Compensation.............................................. 29
Item 12. Security Ownership of Certain Beneficial Owners and Management...... 29
Item 13. Certain Relationships and Related Transactions...................... 29
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 30
3
PART I
ITEM 1. BUSINESS.
General Electric Capital Services, Inc. (herein together with its
consolidated subsidiaries called "GE Capital Services" or the "Corporation,"
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 capital stock of GE Capital Services is
owned by General Electric Company, a New York corporation ("GE Company"). The
business of GE Capital Services consists of ownership of three principal
subsidiaries which, together with their subsidiaries and 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"), Employers Reinsurance Corporation ("Employers Reinsurance") and
Kidder, Peabody Group Inc. ("Kidder, Peabody"). GE Capital Services' principal
executive offices are located 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, 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. 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 type and brand of products financed and the
financial services offered are significantly more diversified. Very little of
the financing provided by GE Capital involves products that are manufactured by
GE Company.
GE Capital operates in four finance industry segments and in a specialty
insurance industry segment. GE Capital's financing activities include a full
range of leasing, loan, equipment management services and annuities. GE
Capital's specialty insurance activities include providing private mortgage
insurance, financial (primarily municipal) guarantee insurance, creditor
insurance, reinsurance and, for financing customers, credit life and property
and casualty insurance. GE Capital is an equity investor in a retail
organization and certain other financial services organizations. GE Capital's
operations are subject to a variety of regulations in their respective
jurisdictions.
Services of GE Capital are offered primarily throughout the United States,
Canada and Europe. Computerized accounting and service centers, including those
located in Connecticut, Ohio, Georgia and England, provide financing offices and
other service locations with data processing, accounting, collection, reporting
and other administrative support. GE Capital's principal executive offices are
located at 260 Long Ridge Road, Stamford, Connecticut 06927. At December 31,
1993 GE Capital employed approximately 27,000 persons.
EMPLOYERS REINSURANCE CORPORATION
Employers Reinsurance Corporation (ERC), together with its subsidiaries,
writes all lines of reinsurance other than title and annuities. ERC reinsures
property and casualty risks written by more than 1,000 domestic and foreign
insurers, and also writes certain specialty lines of insurance on a direct
basis, principally excess workers' compensation for self-insurers, errors and
omissions coverage for insurance and real estate agents and brokers, excess
indemnity for self-insurers of medical benefits, and libel and allied torts.
Domestic subsidiaries write property and casualty reinsurance through brokers,
excess and surplus lines insurance, and provide reinsurance brokerage services.
Subsidiaries in Denmark and the United Kingdom write property and casualty and
life reinsurance, principally in Europe, Asia and the Middle East.
Employers Reinsurance is licensed in all of the states of the United
States, the District of Columbia, certain provinces of Canada and in certain
other jurisdictions. Insurance and reinsurance operations are subject to
regulation by various insurance regulatory agencies. ERC and its subsidiaries
conduct business through 16 domestic offices and 9 foreign offices. Principal
offices of ERC are located at 5200 Metcalf Avenue, Overland Park, Kansas 66201.
At December 31, 1993 ERC employed approximately 1,000 persons.
Page 1
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ITEM 1. BUSINESS (CONTINUED).
KIDDER, PEABODY GROUP INC.
Kidder, Peabody, a successor to a partnership founded in Boston in 1865, is
incorporated in Delaware. Its principal subsidiary, Kidder, Peabody and Co.
Incorporated ("Kidder"), is a member of the principal domestic securities and
commodities exchanges and is a primary dealer in United States government
securities. Kidder is a full-service international investment bank and
securities broker. Its principal businesses include securities underwriting,
sales and trading of equity and fixed income securities, financial futures
activities, advisory services for mergers, acquisitions, and other corporate
finance matters, research services and asset management. These services are
provided to domestic and foreign business entities, governments, government
agencies, and individual and institutional investors.
Kidder is subject to the rules and regulations of various Federal and state
regulatory agencies, exchanges and industry self-regulatory organizations that
apply to securities broker-dealers and futures commission merchants, including
the U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading
Commission, New York Stock Exchange, National Association of Securities Dealers,
Chicago Mercantile Exchange and the Chicago Board of Trade.
Kidder, Peabody conducts business in 42 domestic and 8 foreign branch
offices. Principal offices of Kidder, Peabody are located at 10 Hanover Square,
New York, New York 10005 and 100 Federal Street, Boston, Massachusetts 02110. At
December 31, 1993 Kidder, Peabody employed approximately 5,650 persons.
INDUSTRY SEGMENTS
The Corporation provides a wide variety of financing, insurance, investment
banking and securities brokerage products and services, which are organized into
the following industry segments:
o Specialty Insurance -- U.S. and international multiple-line property and
casualty reinsurance and certain directly written specialty insurance
(ERC), financial guaranty insurance, principally on municipal bonds and
structured finance issues; private mortgage insurance; creditor insurance
covering international customer loan repayments; and property, casualty
and life insurance.
o Consumer Services -- private label and bank credit card loans, time sales
and revolving credit and inventory financing for retail merchants, auto
leasing, inventory financing, mortgage servicing and annuities.
o Mid-Market Financing -- loans and financing and operating leases for
middle-market customers including manufacturers, distributors and
end-users, for a variety of equipment, including data processing
equipment, medical and diagnostic equipment, and equipment used in
construction, manufacturing, office applications and telecommunications
activities.
o Equipment Management -- leases, loans 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, ocean-going containers and satellites.
o Securities Broker-Dealer -- Kidder, Peabody, a full-service international
investment bank and securities broker, member of the principal stock and
commodities exchanges and a primary dealer in U.S. government securities.
Offers services such as underwriting, sales and trading, advisory services
on acquisitions and financing, research and asset management.
o Specialized Financing -- loans and leases for major capital assets
including aircraft, industrial facilities and equipment and energy-related
facilities; commercial and residential real estate loans and investments;
and loans to and investments in corporate enterprises.
Refer to Item 7 "Management's Discussion and Analysis of Results of
Operations" in this Form 10-K for discussion of the Corporation's Portfolio
Quality.
ITEM 2. PROPERTIES.
GE Capital Services and its subsidiaries conduct their businesses from
various facilities, most of which are leased.
ITEM 3. LEGAL PROCEEDINGS.
The Corporation is not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
See Note 13 of Notes to Financial Statements. The common stock of the
Corporation is owned entirely by GE Company 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 Financial Statements.
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- -------
(Dollar amounts in millions)
For the Year:
Financing volume...................................... $ 57,094 $ 51,186 $ 45,965 $ 42,853 $38,681
Insurance premiums written............................ 3,956 2,900 2,155 1,981 1,819
Securities broker-dealer earned income................ 4,861 4,022 3,346 2,923 2,897
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Earned income......................................... $ 22,137 $ 18,440 $ 16,399 $ 14,774 $12,945
-------- -------- -------- -------- -------
Interest and discount expense......................... 6,473 6,122 6,536 6,474 5,912
Operating and administrative expense (including
minority interest).................................. 7,227 5,935 4,256 3,644 3,022
Insurance losses and policyholder and annuity
benefits............................................ 3,172 1,957 1,623 1,599 1,614
Provision for losses on financing receivables......... 987 1,056 1,102 688 527
Depreciation and amortization of buildings and
equipment and equipment on operating leases......... 1,630 1,335 1,225 974 732
-------- -------- -------- -------- -------
Earnings before income taxes and cumulative effect of
change in accounting principle...................... 2,648 2,035 1,657 1,395 1,138
Income tax provision from operations.................. 841 536 382 301 211
-------- -------- -------- -------- -------
Earnings before cumulative effect of change in
accounting principle................................ 1,807 1,499 1,275 1,094 927
Cumulative effect of change in accounting principle... -- -- 19 -- --
-------- -------- -------- -------- -------
Net earnings..................................... $ 1,807 $ 1,499 $ 1,256 $ 1,094 $ 927
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Ratio of earnings to fixed charges.................... 1.42 1.33 1.25 1.21 1.19
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
At Year End:
Financing receivables:
Time sales and loans, net of deferred income..... $ 40,748 $ 37,070 $ 36,849 $ 35,085 $30,142
Investment in financing leases, net of deferred
income......................................... 24,930 23,925 20,411 16,530 12,764
-------- -------- -------- -------- -------
Total financing receivables.................. 65,678 60,995 57,260 51,615 42,906
Allowance for losses on financing receivables.... (1,730) (1,607) (1,508) (1,360) (1,127)
-------- -------- -------- -------- -------
Financing receivables--net................... $ 63,948 $ 59,388 $ 55,752 $ 50,255 $41,779
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Percent of allowance for losses on financing
receivables to total financing receivables.......... 2.63% 2.63% 2.63% 2.63% 2.63%
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Equipment on operating leases--net.................... $ 10,650 $ 9,395 $ 7,552 $ 5,557 $ 5,095
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Total assets.......................................... $211,730 $154,524 $127,814 $115,095 $90,928
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Capitalization:
Notes payable within one year.................... $ 60,003 $ 53,183 $ 48,070 $ 40,403 $35,740
Long-term senior debt............................ 25,126 21,197 17,964 16,748 11,878
Long-term subordinated debt...................... 759 760 386 249 287
Equity........................................... 10,809 8,884 7,758 6,833 6,069
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," on
December 31, 1993 resulting in the inclusion of $812 million of net unrealized
gains on investment securities in equity at the end of the year.
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," was implemented in 1991 using the immediate recognition transition
option. The cumulative effect to January 1 of adopting SFAS No. 106 was $19
million, net of $12 million tax credit.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
OVERVIEW
The Corporation's earnings were $1,807 million in 1993, 21% more than
1992's earnings of $1,499 million, which were 18% more than the comparable 1991
earnings of $1,275 million. The 1993 increase reflected strong performance in
the Corporation's financing businesses, mainly as a result of a favorable
interest rate environment, asset growth and improved asset quality. Earnings of
the Corporation's Securities Broker-Dealer and Specialty Insurance segments were
substantially higher in 1993. The 1992
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(CONTINUED).
increase reflected sharp improvement in the earnings of both the Specialty
Insurance and Securities Broker-Dealer Segments.
OPERATING RESULTS
EARNED INCOME from all sources increased 20% to $22.1 billion in 1993,
following a 12% increase to $18.4 billion in 1992. Asset growth in each of the
Corporation's financing segments, through acquisitions of businesses and
portfolios as well as origination volume, was the primary reason for increased
income from time sales, loans, financing leases and operating lease rentals in
both 1993 and 1992. Yields on related assets were essentially flat in 1993
compared with 1992, following a decline from 1991. Earned income in 1993 from
the Corporation's annuity business, formed through two current year
acquisitions, was $571 million.
Specialty Insurance revenues increased 26% in 1993, compared with a 29%
increase in 1992, due to higher premium and investment income as well as the
impact of the creditor insurance business, which was consolidated at the end of
the second quarter of 1992 when an existing equity position was converted to a
controlling interest. Securities Broker-Dealer revenues increased 21% and 20% in
1993 and 1992, respectively, reflecting higher investment income and investment
banking activity.
INTEREST AND DISCOUNT EXPENSE on borrowings is the Corporation's principal
cost. Interest and discount expense in 1993 totaled $6.5 billion, 6% higher than
in 1992, which was 6% lower than in 1991. The 1993 increase was a result of
funding increased security positions in the Securities Broker-Dealer segment,
partially offset by substantially lower rates on higher average borrowings
supporting financing operations. The 1992 decrease reflected substantially lower
interest rates, which more than offset higher average borrowings and the cost of
funding higher levels of security positions in the Securities Broker-Dealer
segment. Composite interest rates on the Corporation's borrowings were 4.96% in
1993 compared with 5.78% in 1992 and 7.46% in 1991.
OPERATING AND ADMINISTRATIVE EXPENSES increased to $7.1 billion in 1993, a
20% increase over 1992, which was 40% higher than 1991, primarily reflecting
operating costs associated with businesses and portfolios acquired during the
past two years. Overall, provisions for losses on investments charged to
operating and administrative expense decreased in 1993, following an increase in
1992. These provisions principally related to the Commercial Real Estate and
highly leveraged transaction (HLT) portfolios, and in 1993, to commercial
aircraft as well.
INSURANCE LOSSES AND POLICYHOLDER AND ANNUITY BENEFITS increased 62% to
$3.2 billion in 1993, compared with a 21% increase to $2.0 billion in 1992. The
1993 increase principally reflected annuity benefits credited to customers
following the current year annuity business acquisitions, as well as higher
losses on increased volume in the property and casualty reinsurance and life
reinsurance businesses. In 1992, higher losses on increased volume in the
property and casualty reinsurance and the private mortgage insurance businesses,
and the effects of the creditor insurance business for the second half of the
year, were partially offset by lower losses in the life reinsurance business.
PROVISION FOR LOSSES ON FINANCING RECEIVABLES decreased $69 million to $987
million in 1993 compared with a $46 million decrease to $1,056 million in 1992.
These provisions principally related to the Consumer Services, Commercial Real
Estate and HLT portfolios discussed below.
DEPRECIATION AND AMORTIZATION OF BUILDINGS AND EQUIPMENT AND EQUIPMENT ON
OPERATING LEASES increased to $1.6 billion in 1993, a 22% increase over 1992,
which was 9% higher than 1991, primarily as a result of additions to equipment
on operating leases through business and portfolio acquisitions.
INCOME TAX PROVISION was $841 million in 1993 (an effective tax rate of
32%), compared with $536 million in 1992 (26%) and $382 million (23%) in 1991.
The increased provision for income taxes in both 1993 and 1992 reflected the
effects of additional income before taxes and, in 1993, the 1% increase in the
U. S. Federal income tax rate. The higher rate in 1993, compared with 1992,
primarily reflected the 1% increase in the U.S. Federal income tax rate and a
lower proportion of tax-exempt income. These items were partially offset by the
effects of certain unrelated financing transactions that will result in future
cash savings and reduced the Corporation's obligation for previously accrued
deferred taxes. The higher rate in 1992, compared with 1991, reflected a
relatively lower proportion of tax-exempt income and a 1991 adjustment for
tax-deductible claims reserves of the property reinsurance affiliates, for which
there was no 1992 counterpart.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(CONTINUED).
OPERATING PROFIT BY INDUSTRY SEGMENT
Operating profit (pre-tax income) of the Corporation, by industry segment,
is summarized in Note 19 and discussed below:
SPECIALTY INSURANCE operating profit of $770 million in 1993 was 20% higher
than the $641 million recorded in 1992, which was 28% higher than in 1991. The
1993 increase reflected higher premium volume from bond refunding in the
financial guaranty insurance business as well as reduced claims expense in the
creditor insurance business. The 1992 gains primarily reflected higher premium
volume and investment income at GE Capital's private mortgage and financial
guaranty insurance businesses.
CONSUMER SERVICES operating profit of $695 million in 1993, was 32% higher
than that of 1992. This increase reflected lower provisions for receivable
losses in Retailer Financial Services resulting from declines in consumer
delinquency as well as strong asset growth and interest rate favorability in
both Auto Financial Services and Retailer Financial Services. Operating profit
of $525 million in 1992 was 53% higher than that of 1991 (excluding the impact
in 1991 of the $134 million gain on the disposition of a significant portion of
GE Capital's auto auction affiliate). This increase reflected higher financing
spreads in Retailer Financial Services and increased asset levels in Auto
Financial Services.
EQUIPMENT MANAGEMENT operating profit increased $9 million to $377 million
in 1993. This increase reflected higher volume in most businesses, largely the
result of portfolio and business acquisitions, and improved trailer and railcar
utilization, offset by lower average rental rates in Fleet Services and Computer
Services, coupled with the effects of lower utilization and pricing pressures at
Genstar Container. Operating profit decreased $13 million to $368 million in
1992 due to lower utilization in the Railcar Services and Genstar Container
businesses, partially offset by operating profit generated as a result of Fleet
Services' 1992 acquisition of the fleet leasing operations of Avis-Europe.
MID-MARKET FINANCING operating profit of $454 million in 1993 was 29%
higher than that of 1992 and reflected higher spreads and higher levels of
invested assets, primarily as a result of business and portfolio acquisitions.
Operating profit increased $104 million to $352 million in 1992 compared with
1991. Operating profit for 1992 reflected higher levels of invested assets,
primarily as a result of asset portfolio acquisitions.
SECURITIES BROKER-DEALER (Kidder, Peabody) operating profit was $439
million in 1993, up 46% from 1992's record $300 million, which was $181 million
higher than in 1991. Strong performances in both years reflected higher
investment income from trading and investment banking activities. Favorable
market conditions were an important factor in both years. Higher interest
expense in both years reflected costs associated with funding increased security
positions. Operating and administrative expenses increased in both years,
primarily because of the revenue growth and, in 1992, because of costs
associated with certain litigation settlements.
SPECIALIZED FINANCING operating profit was $201 million in 1993, compared
with $121 million in 1992, and $220 million in 1991. The increase in 1993
principally reflected much lower provisions for losses on Corporate Finance
Group HLT investments and higher gains from sales of Commercial Real Estate
assets partially offset by higher loss provisions for Commercial Real Estate
assets and expenses associated with redeployment and refurbishment of owned
aircraft. The decline in 1992 principally reflected higher loss provisions,
particularly reserves for Corporate Finance Group in-substance and owned
investments, partially offset by higher gains on the sale of assets in both
Commercial Real Estate and Corporate Finance Group. Further details concerning
loss provisions relating to both the Commercial Real Estate portfolio and
Corporate Finance Group HLT investments are discussed below.
CAPITAL RESOURCES AND LIQUIDITY
The Corporation's principal source of cash is financing activities that
involve continuing rollover of short-term borrowings and appropriate addition of
long-term borrowings, with a reasonable balance of maturities. Over the past
three years, the Corporation's borrowings with maturities of 90 days or less
have increased by $14.0 billion. New borrowings of $40.2 billion having
maturities longer than 90 days were added during those years, while $25.6
billion of such longer-term borrowings were paid off. The Corporation has also
generated significant cash from operating activities, $14.8 billion during the
last three years.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(CONTINUED).
The Corporation's principal use of cash has been investing in assets to
grow the business. Of $40.9 billion that the Corporation invested over the past
three years, $16.1 billion was used for additions to financing receivables, $9.3
billion for new equipment, primarily for lease to others and $6.9 billion to
acquire new businesses.
GE Company has agreed to make payments to GE Capital, constituting
additions to pre-tax income, to the extent necessary to cause GE Capital's
consolidated ratio of earnings to fixed charges to be not less than 1.10 for
each fiscal year commencing with fiscal year 1991. Three years advance written
notice is required to terminate this agreement. No payments have been required
under this agreement. GE Capital's ratios of earnings to fixed charges for the
years 1993, 1992 and 1991, were 1.62, 1.44 and 1.34, respectively.
The Corporation's total borrowings were $85.9 billion at December 31, 1993,
of which $60.0 billion was due in 1994 and $25.9 billion was due in subsequent
years. Comparable amounts at the end of 1992 were: $75.1 billion in total; $53.2
billion due within one year; and $21.9 billion due thereafter. Composite
interest rates are discussed on page 4. Individual borrowings are structured
within overall asset/liability interest rate and currency risk management
strategies. Interest rate and currency swaps form an integral part of the
Corporation's goal of achieving the lowest borrowing costs for particular
funding strategies. Counterparty credit risk is closely
monitored -- approximately 90% of the notional amount of swaps outstanding at
December 31, 1993 was with counterparties having credit ratings of Aa/AA or
better.
With the financial flexibility that comes with excellent credit ratings,
management believes the Corporation is well positioned to meet the global needs
of its customers for capital and continue growing its diverse asset base.
PORTFOLIO QUALITY
THE PORTFOLIO OF FINANCING RECEIVABLES, $63.9 billion and $59.4 billion at
year-ends 1993 and 1992, respectively, is the Corporation's largest asset and
its primary source of revenues. Related allowances for losses aggregated $1.7
billion at the end of 1993 (2.63% of receivables -- the same level as 1992) and
are, in management's judgment, appropriate given the risk profile of the
portfolio.
A discussion about the quality of certain elements of the portfolio of
financing receivables and investments follows. Further details are included in
Notes 5 and 10.
CONSUMER LOANS RECEIVABLE, primarily retailer and auto receivables, were
$17.3 billion and $14.8 billion at the end of 1993 and 1992, respectively. The
Corporation's investment in consumer auto finance lease receivables was $5.6
billion and $4.8 billion at the end of 1993 and 1992, respectively. Non-earning
receivables, 1.7% of total loans and leases (2.1% at the end of 1992), amounted
to $391 million at the end of 1993. The provision for losses on retailer and
auto financing receivables was $469 million in 1993, a 19% decrease from $578
million in 1992, reflecting reduced consumer delinquencies and intensified
collection efforts, particularly in Europe. Most non-earning receivables were
private label credit card receivables, the majority of which were subject to
various loss sharing arrangements that provide full or partial recourse to the
originating retailer.
COMMERCIAL REAL ESTATE LOANS classified as finance receivables by the
Commercial Real Estate business, a part of the Specialized Financing segment,
were $10.9 billion at December 31, 1993, up $0.4 billion from the end of 1992.
In addition, the investment portfolio of the Corporation's annuity business,
acquired during 1993, included $1.1 billion of commercial property loans.
Commercial real estate loans are generally secured by first mortgages. In
addition to loans, Commercial Real Estate's portfolio also included in other
assets $2.2 billion of assets that were purchased for resale from the Resolution
Trust Corporation (RTC) and other institutions and $1.4 billion of investments
in real estate joint ventures. In recent years, the Corporation has been one of
the largest purchasers of assets from RTC and other institutions, growing its
portfolio of properties acquired for resale by $1.1 billion in 1993. To date,
values realized on these assets have met or exceeded expectations at the time of
purchase. Investments in real estate joint ventures have been made as part of
original financings and in conjunction with loan restructurings where management
believes that such investments will enhance economic returns.
Commercial Real Estate's foreclosed properties at the end of 1993 declined
to $110 million from $187 million at the end of 1992.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(CONTINUED).
At December 31, 1993, Commercial Real Estate's portfolio included loans
secured by and investments in a variety of property types that were well
dispersed geographically. Property types included apartments (36%), office
buildings (32%), shopping centers (14%), mixed use (8%), industrial and other
(10%). These properties were located, principally across the United States, as
follows: Mid-Atlantic (21%), Northeast (20%), Southwest (19%), West (15%),
Southeast (12%), Central (8%), with the remainder (5%) across Canada and Europe.
Reduced and non-earning receivables declined to $272 million in 1993 from $361
million in 1992, reflecting proactive management of delinquent receivables as
well as write-offs. Loss provisions for Commercial Real Estate's investments
were $387 million in 1993 ($248 million related to receivables and $139 million
to other assets), compared with $299 million and $213 million in 1992 and 1991,
respectively, as the portfolio continued to be adversely affected by the
weakened commercial real estate market.
HLT PORTFOLIO is included in the Specialized Financing segment and
represents financing provided for highly leveraged management buyouts and
corporate recapitalizations. The portion of those investments classified as
financing receivables was $3.3 billion at the end of 1993 compared with $5.3
billion at the end of 1992, as substantial repayments reduced this liquidating
portfolio. The year-end balance of amounts that had been written down to
estimated fair value and carried in other assets as a result of restructuring or
in-substance repossession aggregated $544 million at the end of 1993 and $513
million at the end of 1992 (net of allowances of $244 million and $224 million,
respectively).
Non-earning and reduced earning receivables declined to $139 million at the
end of 1993 from $429 million the prior year. Loss provisions for HLT
investments were $181 million in 1993 ($80 million related to receivables and
$101 million to other assets), compared with $573 million in 1992 and $328
million in 1991. Non-earning and reduced earning receivables as well as loss
provisions were favorably affected by the stronger economic climate during 1993
as well as by the successful restructurings implemented during the past few
years.
OTHER FINANCING RECEIVABLES, approximately $26 billion, consisted primarily
of a diverse commercial, industrial and equipment loan and lease portfolio. This
portfolio grew approximately $2 billion during 1993, while non-earning and
reduced earning receivables decreased $46 million to $98 million at year end.
The Corporation has loans and leases to commercial airlines that aggregated
about $6.8 billion at the end of 1993, up from $6 billion at the end of 1992. At
year-end 1993, commercial aircraft positions included conditional commitments to
purchase aircraft at a cost of $865 million and financial guarantees and funding
commitments amounting to $450 million. These purchase commitments are subject to
the aircraft having been placed on lease under agreements, and with carriers,
acceptable to the Corporation prior to delivery. Expenses associated with
redeployment and refurbishment of owned aircraft totaled $112 million in 1993,
compared with nominal amounts in prior years. The Corporation's increasing
investment demonstrates its continued long-term commitment to the airline
industry.
ENTERING 1994, management believes that the diversity and strength of the
Corporation's assets, along with vigilant attention to risk management, position
it to deal effectively with a global and changing competitive and economic
landscape.
NEW ACCOUNTING STANDARDS
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," modifies
the accounting that applies when it is probable that all amounts due under
contractual terms of a loan will not be collected. Management does not believe
that this Statement, required to be adopted no later than the first quarter of
1995, will have a material effect on the Corporation's financial position or
results of operations, although such effect will depend on the facts at the time
of adoption.
Page 7
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
General Electric Capital Services, Inc.
We have audited the 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 Company'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 generally accepted auditing
standards. 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, 1993
and 1992, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1993 in conformity with
generally accepted accounting principles. 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
Company adopted Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," effective December 31,
1993.
/s/ KPMG PEAT MARWICK
Stamford, Connecticut
February 11, 1994
Page 8
11
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
STATEMENT OF CURRENT AND RETAINED EARNINGS
For the years ended December 31 (In millions) 1993 1992 1991
-------- -------- --------
EARNED INCOME
Time sales, loan, investment and other income (Note 15)............ $ 11,999 $ 10,464 $ 9,790
Financing leases (Note 15)......................................... 2,315 2,151 1,836
Operating lease rentals (Note 15).................................. 3,267 2,444 2,205
Premium and commission income of insurance affiliates (Note 12).... 3,697 2,687 2,008
Commissions and fees of securities broker-dealer affiliate......... 859 694 560
-------- -------- --------
Total earned income........................................... 22,137 18,440 16,399
-------- -------- --------
EXPENSES
Interest and discount (Notes 11 & 16).............................. 6,473 6,122 6,536
Operating and administrative (Note 17)............................. 7,093 5,895 4,223
Insurance losses and policyholder and annuity benefits (Note 12)... 3,172 1,957 1,623
Provision for losses on financing receivables (Note 6)............. 987 1,056 1,102
Depreciation and amortization of buildings and equipment and equip-
ment on operating leases (Notes 8 & 9)........................... 1,630 1,335 1,225
Minority interest in net earnings of consolidated affiliates....... 134 40 33
-------- -------- --------
Total expenses................................................ 19,489 16,405 14,742
-------- -------- --------
Earnings before income taxes and cumulative effect of change in
accounting principle............................................. 2,648 2,035 1,657
Income tax provision from operations (Note 18)..................... 841 536 382
-------- -------- --------
Earnings before cumulative effect of change in accounting
principle........................................................ 1,807 1,499 1,275
Cumulative effect to January 1, 1991 of change in accounting
principle for postretirement benefits other than pensions, net... -- -- 19
-------- -------- --------
NET EARNINGS....................................................... 1,807 1,499 1,256
Cash dividends paid (Note 13)...................................... (610) (500) (350)
Retained earnings at January 1..................................... 7,015 6,016 5,110
-------- -------- --------
RETAINED EARNINGS AT DECEMBER 31................................... $ 8,212 $ 7,015 $ 6,016
-------- -------- --------
-------- -------- --------
See Notes to Consolidated Financial Statements.
Page 9
12
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
STATEMENT OF FINANCIAL POSITION
At December 31 (In millions) 1993 1992
-------- --------
ASSETS
Cash and equivalents..................................................... $ 1,682 $ 1,940
Trading securities (Note 3).............................................. 30,165 24,154
Investment securities (Note 4)........................................... 26,792 11,224
Securities purchased under agreements to resell.......................... 43,463 26,788
Financing receivables (Note 5):
Time sales and loans, net of deferred income........................ 40,748 37,070
Investment in financing leases, net of deferred income.............. 24,930 23,925
-------- --------
65,678 60,995
Allowance for losses on financing receivables (Note 6).............. (1,730) (1,607)
-------- --------
Financing receivables -- net................................... 63,948 59,388
Other receivables -- net (Note 7)........................................ 15,799 8,476
Equipment on operating leases (at cost), less accumulated amortization of
$3,238 and $2,549 (Note 8)............................................. 10,650 9,395
Buildings and equipment (at cost), less accumulated depreciation of $814
and $673 (Note 9)...................................................... 1,036 1,060
Other assets (Note 10)................................................... 18,195 12,099
-------- --------
TOTAL ASSETS............................................................. $211,730 $154,524
-------- --------
-------- --------
LIABILITIES AND EQUITY
Notes payable within one year (Note 11).................................. $ 60,003 $ 53,183
Notes payable after one year (Note 11)................................... 25,885 21,957
-------- --------
Total notes payable................................................. 85,888 75,140
Accounts and drafts payable (Note 7)..................................... 9,885 6,624
Securities sold under agreements to repurchase........................... 56,669 36,014
Securities sold but not yet purchased -- at market (Note 3).............. 15,332 11,413
Insurance reserves and annuity benefits (Note 12)........................ 22,909 7,948
Other liabilities........................................................ 3,529 2,638
Deferred income taxes (Note 18).......................................... 5,408 4,869
-------- --------
Total liabilities................................................... 199,620 144,646
-------- --------
Minority interest in equity of consolidated affiliates (Note 14)......... 1,301 994
-------- --------
Cumulative preferred stock, $10,000 par value (80,000 shares authorized;
51,000 shares issued and held by consolidated affiliates at December
31, 1993 and December 31, 1992)........................................ -- --
Common stock, $10,000 par value (101 shares authorized and
outstanding)........................................................... 1 1
Additional paid-in capital............................................... 1,877 1,877
Retained earnings........................................................ 8,212 7,015
Other.................................................................... 719 (9)
-------- --------
Total equity (Note 13).............................................. 10,809 8,884
-------- --------
TOTAL LIABILITIES AND EQUITY............................................. $211,730 $154,524
-------- --------
-------- --------
See Notes to Consolidated Financial Statements.
Page 10
13
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
STATEMENT OF CASH FLOWS
For the years ended December 31 (In millions) 1993 1992 1991
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings..................................................... $ 1,807 $ 1,499 $ 1,256
Adjustments to reconcile net earnings to cash provided by
operating activities:
Cumulative effect of change in accounting principle......... -- -- 19
Provision for losses on financing receivables............... 987 1,056 1,102
Increase in insurance reserves and annuity benefits......... 1,479 703 725
Increase in deferred income taxes........................... 341 32 555
Depreciation and amortization of buildings and equipment and
equipment on operating leases............................. 1,630 1,335 1,225
Increase in trading securities of broker-dealer............. (7,517) (5,966) (5,463)
(Increase) decrease in securities purchased under agreements
to resell................................................. (16,675) (7,386) 4,006
Increase in securities sold under agreements to
repurchase................................................ 20,655 7,841 349
Increase (decrease) in securities sold but not yet
purchased................................................. 3,919 6,529 (440)
Amortization of premium and discount on debt................ 99 197 222
Increase in accounts and drafts payable..................... 3,246 139 1,391
Gain on principal business dispositions..................... -- (65) (134)
Other -- net................................................ (4,518) (571) (842)
------- ------- -------
Cash provided by operating activities.................. 5,453 5,343 3,971
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loans to customers................................... (30,002) (27,069) (25,030)
Principal collections from customers............................. 27,571 25,136 25,289
Investment in assets on financing leases......................... (7,204) (7,758) (8,829)
Principal collections on financing leases........................ 6,812 5,338 3,726
Net increase in credit card receivables.......................... (1,341) (330) (2,410)
Buildings and equipment and equipment on
operating leases -- additions.................................. (3,151) (3,379) (2,744)
-- dispositions............................... 1,100 1,747 1,029
Payments for principal businesses purchased, net of cash
acquired....................................................... (2,090) (2,013) (2,836)
Proceeds from principal business dispositions.................... -- -- 277
Purchases of investment securities by insurance affiliates and
annuity businesses............................................. (10,488) (6,865) (6,002)
Dispositions of investment securities by insurance affiliates and
annuity businesses............................................. 7,698 6,200 5,415
Other............................................................ (4,124) (3,003) (1,538)
------- ------- -------
Cash used by investing activities...................... (15,219) (11,996) (13,653)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (less than 90-day maturities)........... 4,462 3,895 5,641
Newly issued debt -- short-term (91-365 days).................... 4,315 4,456 4,863
-- long-term senior............................ 10,885 6,699 6,317
-- long-term subordinated...................... -- 450 250
Proceeds -- non-recourse, leveraged lease debt................... 53 148 1,808
Repayments and other reductions -- short-term (91-365 days)...... (9,008) (6,474) (6,504)
-- long-term senior.............. (208) (658) (1,769)
-- long-term subordinated........ -- (76) (32)
Principal payments -- non-recourse, leveraged lease debt......... (312) (272) (280)
Proceeds from sales of investment and annuity contracts.......... 509 -- --
Redemption of investment and annuity contracts................... (578) -- --
Dividend paid to share owner..................................... (610) (500) (350)
------- ------- -------
Cash provided by financing activities.................. 9,508 7,668 9,944
------- ------- -------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS DURING THE YEAR...... (258) 1,015 262
CASH AND EQUIVALENTS AT BEGINNING OF YEAR........................ 1,940 925 663
------- ------- -------
CASH AND EQUIVALENTS AT END OF YEAR.............................. $ 1,682 $ 1,940 $ 925
------- ------- -------
------- ------- -------
See Notes to Consolidated Financial Statements.
Page 11
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GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The consolidated financial statements represent a consolidation
of GE Capital Services and all majority-owned and controlled affiliates
("consolidated affiliates"), including General Electric Capital Corporation ("GE
Capital"), Employers Reinsurance Corporation ("Employers Reinsurance") and
Kidder, Peabody Group Inc. ("Kidder, Peabody"). GE Capital Services owns all of
the common stock of GE Capital, Employers Reinsurance and Kidder, Peabody.
All significant transactions among the parent and consolidated affiliates
have been eliminated. Other affiliates in which the Corporation owns 20 percent
to 50 percent of the voting rights ("nonconsolidated affiliates") are included
in other assets, valued at the appropriate share of equity plus loans and
advances.
CASH FLOWS -- For purposes of the Statement of Cash Flows, certificates and
other time deposits are treated as cash equivalents.
METHODS OF RECORDING EARNED INCOME -- Income on all loans is recognized on
the interest method. Accrual of interest income is suspended when collection of
an account becomes doubtful, generally after the account becomes 90 days
delinquent.
Financing lease income, which includes related investment tax credits and
residual values, is recorded on the interest method so as to produce a level
yield on funds not yet recovered. Unguaranteed residual values included in lease
income are based principally on 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 term
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 the related services are performed unless significant contingencies exist.
Kidder, Peabody's proprietary securities and commodities transactions,
unrealized gains and losses on open contractual commitments (principally
financial futures), forward contracts on U.S. government and federal agency
securities, and when-issued securities are recorded on a trade-date basis.
Customer transactions and related revenues and expenses, investment banking
revenues from management fees, sales concessions and underwriting fees are
recorded on a settlement-date basis. Advisory fees are recorded as revenues when
services are substantially completed and the revenue is reasonably determinable.
See "Insurance and Annuity Businesses" below for information with respect
to earned income of these businesses.
ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS -- The
Corporation maintains an allowance for losses on financing receivables at an
amount which it believes is sufficient to provide adequate protection against
future losses in the portfolio. For small-balance receivables the allowance for
losses is determined principally on the basis of actual experience during the
preceding three years. Further allowances are also provided to reflect
management's judgment of additional loss potential. For other receivables,
principally the larger loans and leases, the allowance for losses is determined
primarily on the basis of management's judgment of net loss potential, 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 are progressively written down (from 10% when more than
three months delinquent to 100% when nine to twelve months delinquent) to record
the balances at estimated realizable value. However, if at any time during that
period an account is judged to be uncollectible, such as in the case of a
bankruptcy, the uncollectible balance is written off. Larger-balance accounts
are reviewed at least quarterly, and those accounts which are more than three
months delinquent are written down, if necessary, to record the balances at
estimated realizable value.
When collateral is formally or substantively repossessed in satisfaction of
a loan, the receivable is written down against the allowance for losses to
estimated fair value and is transferred to other assets.
Page 12
15
Subsequent to such transfer, these assets are carried at the lower of cost or
estimated current fair value. This accounting has been employed principally for
highly leveraged transactions (HLT) and real estate loans.
INCOME TAXES -- Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," was adopted effective January 1, 1992. The effect
of adopting SFAS No. 109 was not material. Deferred tax balances are stated at
tax rates expected to be in effect when taxes are actually paid or recovered.
INVESTMENT AND TRADING SECURITIES -- On December 31, 1993, the Corporation
adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires that investments in debt securities and marketable
equity securities be designated as trading, held-to-maturity or
available-for-sale. Trading securities are reported at fair value, with changes
in fair value included in earnings. Investment securities include both
available-for-sale and held-to-maturity securities. Available-for-sale
securities are reported at fair value, with net unrealized gains and losses
included in equity. Held-to-maturity debt securities are reported at amortized
cost. See notes 3 and 4 for a discussion of the classification and reporting of
these securities at December 31, 1992. For all investment securities, unrealized
losses that are other than temporary are recognized in earnings.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL (REVERSE REPURCHASE
AGREEMENTS) AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (REPURCHASE
AGREEMENTS) -- Such items are treated as financing transactions and are carried
at the contract amount at which the securities subsequently will be resold or
reacquired. Repurchase agreements relate either to marketable securities, which
are carried at market value, or to securities obtained pursuant to reverse
repurchase agreements. It is the Corporation's policy to take possession of
securities that are subject to reverse repurchase agreements. The Corporation
monitors the market value of the underlying securities in relation to the
related receivable, including accrued interest, and requests additional
collateral when appropriate.
EQUIPMENT ON OPERATING LEASES -- Equipment is amortized, principally on a
straight-line basis, to estimated net salvage value over the lease term or the
estimated economic life of the equipment.
BUILDINGS AND EQUIPMENT -- The Corporation records depreciation on a
sum-of-the-years' digits basis or a straight-line basis over the lives of the
assets.
OTHER ASSETS -- Goodwill is amortized on a straight-line basis over periods
not exceeding 30 years.
FOREIGN OPERATIONS -- Assets and liabilities of foreign affiliates are
translated into U.S. dollars at the year-end exchange rates while operating
results are translated at rates prevailing during the year. Such adjustments are
accumulated and reported as a separate component of equity.
INSURANCE AND ANNUITY BUSINESSES -- Premiums on short-duration insurance
contracts are reported as earned income over the terms of the related
reinsurance treaties or insurance policies. In general, earned premiums are
calculated on a pro-rata basis or are determined based on reports received from
reinsureds. Premium adjustments under retrospectively rated assumed reinsurance
contracts are recorded based on estimated losses and loss expenses, including
both case and incurred-but-not-reported reserves. Premiums on long-duration
insurance products are recognized as earned when due. Premiums received under
annuity contracts are not reported as revenues but as annuity benefits -- a
liability -- and are adjusted according to the terms of the respective policies.
The estimated liability for insurance losses and loss expenses consist of
both case and incurred-but-not-reported reserves. Where experience is not
sufficient, industry averages are used. Estimated amounts of salvage and
subrogation recoverable on paid and unpaid losses are deducted from outstanding
losses.
The liability for future policyholder benefits of the life insurance
affiliates has been computed mainly by a net-level-premium method based on
assumptions for investment yields, mortality and terminations that were
appropriate at date of purchase or at the time the policies were developed,
including provisions for adverse deviations.
Deferred insurance acquisition costs for the property and casualty
businesses are amortized pro-rata over the contract periods in which the related
premiums are earned. For the life insurance business, these costs are amortized
over the premium-paying periods of the contracts in proportion either to
anticipated premium income or to gross profit, as appropriate. For certain
annuity contracts, such costs are amortized on the basis of anticipated gross
profits. For other lines of business, acquisition costs are amortized over the
life of the related insurance contracts. Deferred insurance acquisition costs
are
Page 13
16
reviewed for recoverability; for short-duration contracts, anticipated
investment income is considered in making recoverability evaluations.
NOTE 2. ACQUISITIONS
The Corporation has acquired two individually non-significant entities
(collectively "the Acquisitions"). The acquisition of GNA Corporation ("GNA")
from Weyerhaeuser Company and Weyerhaeuser Financial Services, Inc. occurred on
April 1, 1993, while the acquisition of United Pacific Life Insurance Company
("UPL") from Reliance Insurance Company and its parent company, Reliance Group
Holdings, Inc. occurred on July 14, 1993.
The acquisitions, accounted for as purchases, have been reflected in the
accompanying consolidated financial statements of the Corporation since the
respective acquisition dates. The acquired companies had assets of approximately
$12.8 billion, principally investment securities. The aggregate estimated
purchase price was $1,113 million and is subject to certain post-closing
adjustments.
Unaudited pro forma condensed results of operations of the Corporation for
each of the years ended December 31, 1993 and 1992 as if the Acquisitions had
occurred on January 1, 1993 and January 1, 1992, respectively, are as follows:
(In millions) 1993 1992
------- -------
Earned income...................................................... $22,541 $19,565
Net earnings....................................................... 1,836 1,547
The pro forma data have been prepared based on assumptions management deems
appropriate and the results are not necessarily indicative of those that might
have occurred had the transactions become effective at the beginning of the
respective years, primarily due to changes in investment and other business
strategies of the acquired companies. The aggregate effect of several other
business acquisitions completed during 1993 was not material.
NOTE 3. TRADING SECURITIES AND SECURITIES SOLD BUT NOT YET PURCHASED
Trading securities are shown in the following table as of December 31, 1993 and
1992:
(In millions) 1993 1992
------- -------
U.S. Government and federal agency................................. $19,543 $16,172
Corporate stocks, bonds and non-U.S................................ 8,969 5,960
Mortgage loans..................................................... 1,292 974
State and municipal................................................ 361 1,048
------- -------
$30,165 $24,154
------- -------
------- -------
The balance of trading securities at December 31, 1992, included
investments in equity securities held by insurance affiliates at a fair value of
$1,505 million, with unrealized pretax gains of $94 million (net of unrealized
pretax losses of $37 million) included in equity. At December 31, 1993, equity
securities held by insurance affiliates were classified as investment securities
(see note 4).
A significant portion of the Corporation's trading securities at December
31, 1993, was pledged as collateral for bank loans and repurchase agreements in
connection with securities broker-dealer operations.
Market value of securities sold but not yet purchased at December 31, 1993
and 1992 are shown in the following table:
(In millions) 1993 1992
------- -------
U.S. Government.................................................... $12,789 $ 9,570
Corporate stocks, bonds and non-U.S................................ 2,528 1,802
State and municipal................................................ 15 41
------- -------
$15,332 $11,413
------- -------
------- -------
Page 14
17
NOTE 4. INVESTMENT SECURITIES
At December 31, 1993, investment securities were classified as
available-for-sale and reported at fair value, including net unrealized gains of
$1,261 million before taxes. At December 31, 1992, investment securities of
$9,033 million were classified as available-for-sale and were reported at the
lower of aggregate amortized cost or fair value. The balance of the 1992
investment securities portfolio was carried at amortized cost.
A summary of investment securities follows.
GROSS GROSS ESTIMATED
(In millions) AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31, 1993 COST GAINS(A) LOSSES(A) VALUE
--------- ---------- ---------- ---------
Corporate, non-U.S. and other.................... $11,448 $ 206 $ (59) $11,595
State and municipal.............................. 8,859 786 (9) 9,636
Mortgage-backed.................................. 2,487 31 (11) 2,507
Equity........................................... 1,517 393 (84) 1,826
U.S. government and federal agency............... 1,220 15 (7) 1,228
--------- ---------- ---------- ---------
$25,531 $1,431 $ (170) $26,792
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
DECEMBER 31, 1992
Corporate, non-U.S. and other.................... $ 4,097 $ 70 $ -- $ 4,167
State and municipal.............................. 6,626 339 (14) 6,951
Mortgage-backed.................................. 246 7 (1) 252
U.S. government and federal agency............... 255 10 (1) 264
--------- ---------- ---------- ---------
$11,224 $ 426 $ (16) $11,634
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
- ---------------
(a) December 31, 1992 amounts include gross unrealized gains and losses of $32
million and $5 million, respectively, on investment securities carried at
amortized cost.
Contractual maturities of debt securities, other than mortgage-backed
securities, at December 31, 1993, are shown below.
ESTIMATED
AMORTIZED FAIR
(In millions) COST VALUE
--------- ---------
Due in 1994.......................................................... $ 2,665 $ 2,696
1995-1998.......................................................... 4,326 4,476
1999-2003.......................................................... 4,316 4,429
2004 and later..................................................... 10,220 10,858
It is expected that actual maturities will differ from contractual
maturities because some borrowers have the right to call or prepay obligations
with or without call or prepayment penalties. Proceeds from sales of debt
securities in 1993, 1992 and 1991 amounted to $6,112 million, $3,514 million and
$2,814 million, respectively; gross realized gains were $173 million, $171
million and $106 million, respectively, and realized losses were $34 million, $4
million and $9 million, respectively.
NOTE 5. FINANCING RECEIVABLES
Financing receivables at December 31, 1993 and 1992 by principal category are
shown below.
AMOUNT
-------------------
(In millions) 1993 1992
------- -------
Time sales and loans:
Retailer and auto financing........................................... $17,242 $14,847
Commercial real estate financing...................................... 11,887 10,526
Commercial and industrial loans....................................... 6,781 8,270
Equipment sales financing............................................. 5,514 3,951
Other................................................................. 398 421
------- -------
41,822 38,015
Deferred income....................................................... (1,074) (945)
------- -------
Time sales and loans -- net of deferred income........................ 40,748 37,070
------- -------
Page 15
18
AMOUNT
-------------------
(In millions) 1993 1992
------- -------
Investment in financing leases:
Direct financing leases............................................... 22,063 20,890
Leveraged leases...................................................... 2,867 3,035
------- -------
24,930 23,925
------- -------
Total financing receivables................................................ $65,678 $60,995
------- -------
------- -------
Financing receivables classified as time sales and loans represent
transactions with customers 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 acquired on a discount basis
carried at gross book value, which includes finance charges. At year-ends 1993
and 1992 commercial and industrial loans included $3,293 million and $5,262
million, respectively, for highly leveraged transactions. Note 8 contains
information on commercial airline loans and leases.
The financing lease operations consist of direct financing and leveraged
leases of aircraft, railroad rolling stock, automobiles and other transportation
equipment, data processing equipment, medical equipment, and other
manufacturing, power generation, mining 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 also entitled generally to any investment tax credit on leased
equipment and to any residual value of leased assets.
Investments in direct financing and leveraged leases represent unpaid
rentals and estimated unguaranteed residual values of leased equipment, less
related deferred income. Because the Corporation has no general obligation 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 is subordinate to the share of the
other participants who also have a security interest in the leased equipment.
The Corporation's investment in financing leases at December 31, 1993 and
1992 is shown below.
DIRECT TOTAL
FINANCING LEASES LEVERAGED LEASES FINANCING LEASES
------------------- ------------------- -------------------
(In millions) 1993 1992 1993 1992 1993 1992
------- ------- ------- ------- ------- -------
Total minimum lease payments receivable....... $26,584 $25,390 $11,496 $12,782 $38,080 $38,172
Less principal and interest on third-party
nonrecourse debt............................ -- -- (8,398) (9,446) (8,398) (9,446)
------- ------- ------- ------- ------- -------
Rentals receivable........................ 26,584 25,390 3,098 3,336 29,682 28,726
Estimated unguaranteed residual value of
leased assets............................... 3,323 3,115 1,167 1,237 4,490 4,352
Less: Deferred income(a)...................... (7,844) (7,615) (1,398) (1,538) (9,242) (9,153)
------- ------- ------- ------- ------- -------
Investment in financing leases.......... 22,063 20,890 2,867 3,035 24,930 23,925
Less: Allowance for losses.................... (464) (481) (74) (79) (538) (560)
Deferred taxes arising from financing
leases.................................. (2,157) (1,986) (2,760) (2,567) (4,917) (4,553)
------- ------- ------- ------- ------- -------
Net investment in financing leases............ $19,442 $18,423 $ 33 $ 389 $19,475 $18,812
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
- ---------------
(a) Total financing lease deferred income is net of deferred initial direct
costs of $83 million and $73 million for 1993 and 1992, respectively.
At December 31, 1993, contractual maturities for time sales and loans over
the next five years and after are: $16,287 million in 1994; $6,286 million in
1995; $4,350 million in 1996; $4,104 million in 1997; $3,112 million in 1998;
and $7,683 million in 1999 and later -- aggregating $41,822 million. At December
31, 1993, contractual maturities for finance lease rentals receivable over the
next five years and after are: $6,417 million in 1994; $5,426 million in 1995;
$3,919 million in 1996; $2,570 million in 1997; $1,720 million in 1998; and
$9,630 million in 1999 and later -- aggregating $29,682 million.
Page 16
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Experience of the Corporation has shown that a portion of receivables will
be paid prior to contractual maturity. Accordingly, the contractual maturities
of time sales and loans and of rentals receivable shown above are not to be
regarded as forecasts of future cash collections.
GE Capital is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include financial guarantees and letters of credit.
GE Capital's exposure to credit loss in the event of nonperformance by the other
party to financial guarantees is represented by the contractual amount of those
instruments. GE Capital uses the same credit policies and the same collateral
requirements in making commitments and conditional obligations as it does for
financing transactions. In addition, GE Capital is involved with sales of
receivables for which it is contingently liable for credit losses for a
percentage of the initial face amount sold. At December 31, 1993 and 1992, the
aggregate amount of such financial guarantees were $1,863 million and $1,693
million, respectively, excluding those related to commercial aircraft (see note
8). In connection with the sales of financing receivables, GE Capital received
proceeds of $1,105 million in 1993, $1,097 million in 1992 and $2,316 million in
1991. At December 31, 1993 and 1992, $3,045 million and $3,473 million,
respectively, of such receivables were outstanding.
Under arrangements with customers, GE Capital had committed to lend funds
of $2,131 million and $1,794 million at December 31, 1993 and 1992,
respectively, excluding those related to commercial aircraft (see note 8).
Additionally, at December 31, 1993 and 1992, GE Capital was conditionally
obligated to advance $2,244 million and $2,236 million, respectively,
principally under performance-based standby lending commitments. GE Capital also
was obligated for $2,946 million and $2,147 million at year-ends 1993 and 1992,
respectively, under standby liquidity facilities related to third-party
commercial paper programs, although management believes that the prospects of
being required to fund under such standby facilities are remote. Note 12
discusses financial guarantees of insurance affiliates.
Non-earning consumer time sales and loans, primarily private-label credit
card receivables, amounted to $391 million and $444 million at December 31, 1993
and 1992, respectively. A majority of these receivables was subject to various
loss-sharing arrangements that provide full or partial recourse to the
originating private-label entity. Non-earning and reduced earning receivables
other than consumer time sales and loans were $509 million and $934 million at
year-ends 1993 and 1992, respectively. Earnings of $11 million and $30 million
realized in 1993 and 1992, respectively, were $41 million and $75 million lower
than would have been reported had these receivables earned income in accordance
with their original terms.
Additional information regarding financing receivables is included in
Management's Discussion of the Corporation's Portfolio Quality on Page 6.
NOTE 6. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
The allowance for losses on financing receivables represented 2.63% of total
financing receivables at both year-ends 1993 and 1992. The table below shows the
activity in the allowance for losses on financing receivables during 1991
through 1993:
(In millions) 1993 1992 1991
------ ------ ------
Balance at January 1........................................ $1,607 $1,508 $1,360
Additions charged to operations............................. 987 1,056 1,102
Net transfers related to companies acquired and sold........ 126 52 135
Amounts written off -- net.................................. (990) (1,009) (1,089)
------ ------ ------
Balance at December 31...................................... $1,730 $1,607 $1,508
------ ------ ------
------ ------ ------
Amounts written off in 1993 were approximately 1.46% of average financing
receivables outstanding during the year, compared with 1.58% and 1.87% of
average financing receivables outstanding during 1992 and 1991, respectively.
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NOTE 7. BROKER -- DEALER POSITIONS
Other receivables and accounts payable include amounts receivable from and
payable to brokers and dealers in connection with Kidder, Peabody's normal
trading, lending and borrowing of securities. At December 31, 1993 and 1992,
amounts consisted of the following:
(In millions) 1993 1992
------ ------
Included in other receivables:
Securities failed to deliver....................................... $2,315 $ 218
Deposits paid for securities borrowed.............................. 1,944 1,976
Other, principally clearing organizations.......................... 3,207 930
------ ------
$7,466 $3,124
------ ------
------ ------
Included in accounts payable:
Securities failed to receive....................................... $1,701 $ 193
Deposits received for securities loaned............................ 1,390 1,051
Other, principally clearing organizations.......................... 275 100
------ ------
$3,366 $1,344
------ ------
------ ------
Kidder, Peabody, in conducting its normal operations, invests in a wide
variety of financial instruments in order to balance its investment positions.
Management believes that the most meaningful measure of these positions for a
broker-dealer is market value, the value at which the positions are presented in
the Statement of Financial Position in accordance with securities industry
practices. The following required supplemental disclosures are indicators of the
nature and extent of broker-dealer positions and are not intended to portray the
much smaller credit or economic risk.
At December 31, 1993, open commitments to sell mortgage-backed securities
amounted to $18,539 million ($17,191 million in 1992); open commitments to
purchase mortgage-backed securities amounted to $14,637 million ($13,131 million
in 1992); interest rate swap agreements were open for interest on $4,084 million
($6,038 million in 1992); commitments amounting to $10,837 million ($6,711
million in 1992) were open under options written to cover price changes in
securities; the face amount of open interest rate futures and forward contracts
for currencies as well as money market and other instruments amounted to $30,506
million ($10,936 million in 1992); contracts establishing limits on counterparty
exposure to interest rates were outstanding for interest on $1,610 million
($2,722 million in 1992); and firm underwriting commitments for the purchase of
stock or debt amounted to $3,311 million ($4,094 million in 1992).
At December 31, 1993 and 1992, Kidder, Peabody had obtained irrevocable
letters of credit of $592 million and $314 million, respectively, from third
parties, written in favor of clearing associations to satisfy margin
requirements. Kidder, Peabody seeks to control the risks associated with its
customer activities by requiring customers to maintain margin collateral in
compliance with various regulations and internal policies. Kidder, Peabody
monitors customer credit exposure and collateral values on a daily basis and
requires additional collateral to be deposited with Kidder, Peabody or returned,
when deemed necessary.
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NOTE 8. EQUIPMENT ON OPERATING LEASES
Equipment on operating leases by type of equipment and accumulated amortization
at December 31, 1993 and 1992 are shown in the following table:
(In millions) 1993 1992
------- -------
Cost -- aircraft................................................... $ 3,677 $ 2,850
-- vehicles................................................... 3,568 2,274
-- marine shipping containers................................. 2,985 2,584
-- railroad rolling stock..................................... 1,498 1,478
-- other...................................................... 2,160 2,758
------- -------
13,888 11,944
Accumulated amortization........................................... (3,238) (2,549)
------- -------
$10,650 $ 9,395
------- -------
------- -------
Amortization of equipment on operating leases was $1,395 million in 1993,
$1,133 million in 1992 and $1,055 million in 1991.
The Corporation acts as a lender and lessor to commercial enterprises in
the airline industry; at December 31, 1993 and 1992, the aggregate amount of
such loans, leases and equipment leased to others were $6,776 million and $5,978
million, respectively. In addition, the Corporation had issued financial
guarantees and funding commitments of $450 million at December 31, 1993 ($645
million at year-end 1992) and had conditional commitments to purchase aircraft
at a cost of $865 million. These purchase commitments are subject to the
aircraft having been placed on lease under agreements, and with carriers,
acceptable to the Corporation prior to delivery. Included in the Corporation's
equipment leased to others at year-end 1993 is $244 million of commercial
aircraft off-lease ($94 million in 1992).
NOTE 9. BUILDINGS AND EQUIPMENT
Buildings and equipment include office buildings, satellite communications
equipment, data processing equipment, vehicles, furniture and office equipment
used at the Corporation's offices throughout the world. Depreciation expense was
$235 million for 1993, $202 million for 1992 and $170 million for 1991.
NOTE 10. OTHER ASSETS
Other assets at December 31, 1993 and 1992 are shown in the table below.
(In millions) 1993 1992
------- -------
Assets acquired for resale......................................... $ 8,141 $ 3,388
Goodwill........................................................... 2,133 1,841
Investments in and advances to nonconsolidated affiliates, at
equity........................................................... 2,079 1,720
Other intangibles.................................................. 1,765 1,062
Miscellaneous investments.......................................... 1,756 2,216
Deferred insurance acquisition costs............................... 987 720
Foreclosed real estate properties.................................. 213 304
Other.............................................................. 1,121 848
------- -------
$18,195 $12,099
------- -------
------- -------
Accumulated amortization of goodwill and other intangibles was $496 million
and $382 million, respectively, at December 31, 1993 and $415 million and $231
million, respectively, at December 31, 1992.
Miscellaneous investments included $75 million and $275 million at December
31, 1993 and 1992, respectively, of in-substance repossessions at the lower of
cost or estimated fair value previously included in financing receivables.
Investments in and advances to nonconsolidated affiliates include advances of
$1,159 million and $687 million at December 31, 1993 and 1992, respectively.
The Corporation's mortgage servicing activities include the purchase and
resale of mortgages. At December 31, 1993 and 1992, it had open commitments to
purchase mortgages totaling $5,935 million and $2,963 million, respectively.
Additionally, the Corporation had open commitments to sell mortgages totalling
$6,426 million and $1,777 million, at year-ends 1993 and 1992, respectively. At
December 31, 1993
Page 19
22
and 1992, mortgages sold with full or partial recourse to the Corporation
aggregated $2,526 million and $3,876 million, respectively.
NOTE 11. NOTES PAYABLE
Notes payable at December 31, 1993 totaled $85,888 million, consisting of
$85,129 million of senior debt and $759 million of subordinated debt. The
composite interest rate for the Corporation's finance activities during 1993 was
4.96% compared with 5.78% for 1992 and 7.46% for 1991. Total short-term notes
payable at December 31, 1993 and 1992 consisted of the following:
(In millions) 1993 1992
------- -------
Commercial paper................................................... $46,298 $42,168
Current portion of long-term debt.................................. 6,421 4,300
Banks.............................................................. 4,957 4,516
Notes with trust departments of banks.............................. 1,882 1,659
Other.............................................................. 445 540
------- -------
$60,003 $53,183
------- -------
------- -------
The average daily balance of short-term debt, excluding the current portion
of long-term debt, during 1993 was $47,357 million compared with $43,817 million
for 1992 and $40,513 million for 1991. The December 31, 1993 balance of $60,003
million was the maximum balance during 1993. The December 31, 1992 balance of
$53,183 million was the maximum balance during 1992. The December 27, 1991
balance of $49,604 million was the maximum balance during 1991. The average
short-term interest rate, excluding the current portion of long-term debt, for
the year 1993 was 3.29%, representing short-term interest expense divided by the
average daily balance, compared with 3.93% for 1992 and 6.36% for 1991. On
December 31, 1993, 1992 and 1991, average interest rates were 3.59%, 4.20% and
5.20%, respectively, for bank borrowings, 3.39%, 3.57% and 5.12%, respectively,
for commercial paper, and 3.10%, 3.54% and 4.90%, respectively, for notes with
trust departments of banks.
Outstanding balances in notes payable after one year at December 31, 1993
and 1992 are as follows.
WEIGHTED
AVERAGE 1993 1992
(Dollars in millions) INTEREST RATE MATURITIES AMOUNT AMOUNT
------------- ---------- ------- -------
Senior notes
Notes(a)(b)................................ 6.03% 1995-2012 $22,042 $18,087
Zero coupon/deep discount notes............ 13.72 1995-2001 1,407 1,578
Reset or remarketed notes(c)............... 8.39 2007-2018 1,500 1,500
Floating rate notes(d)..................... 1995-2053 521 496
Less unamortized discount/premium.......... (344) (464)
------ ------
Total senior notes................. 25,126 21,197
------ ------
Subordinated notes(e)........................ 8.12 2006-2012 759 760
------ ------
$25,885 $21,957
------ -------
------ -------
- ---------------
(a) At December 31, 1993 and 1992, the Corporation had agreed to exchange
currencies and related interest payments on principal amounts equivalent to
U.S. $8,101 million and $6,499 million, respectively. At December 31, 1993
and 1992, the Corporation also had entered into interest rate swaps related
to interest on $13,224 million and $8,549 million, respectively. To minimize
borrowing costs, the Corporation has entered into multiple currency and
interest rate agreements for certain notes.
(b) At December 31, 1993 and 1992, counterparties held options under which the
Corporation can be caused to execute interest rate swaps associated with
interest payments through 1999 on $500 million and $625 million,
respectively.
(c) The Corporation will reset interest rates at the end of the initial and each
subsequent interest period. At each interest rate-reset date, the
Corporation may redeem notes in whole or in part at its option. Current
interest periods range from March 1994 to May 1996.
(d) The rate of interest payable on each note is a variable rate based on the
commercial paper rate each month. Interest is payable, at the option of the
Corporation, either monthly or semiannually.
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23
(e) At December 31, 1993 and 1992, subordinated notes in the amount of $700
million principal were guaranteed by GE Company.
Long-term borrowing maturities during the next five years, including the
current portion of notes payable after one year, are: 1994 -- $6,421 million;
1995 -- $6,204 million; 1996 -- $4,868 million; 1997 -- $2,971 million; and
1998 -- $3,566 million.
At December 31, 1993 GE Capital had committed lines of credit aggregating
$19,045 million with 134 banks, including $6,005 million of revolving credit
agreements with 69 banks pursuant to which GE Capital has the right to borrow
funds for periods exceeding one year. A total of $4,627 million of these lines
were also available for use by GE Capital Services. In addition, at December 31,
1993, approximately $105 million of committed lines of credit were directly
available to a foreign affiliate of GE Capital. Also, at December 31, 1993,
approximately $3,045 million of GE Company's credit lines were available for use
by GE Capital or the Corporation. During 1993 the Corporation did not borrow
under any of these credit lines.
At December 31, 1993 Kidder, Peabody had established lines of credit
aggregating $6,058 million of which $3,110 million was available on an unsecured
basis. Borrowings from banks were primarily unsecured demand obligations, at
interest rates approximating broker call loan rates, to finance inventories of
securities and to facilitate the securities settlement process.
The Corporation compensates banks for credit facilities in the form of fees
which were immaterial for the past three years.
NOTE 12. INSURANCE RESERVES AND ANNUITY BENEFITS
The Corporation adopted SFAS No. 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts," during 1993. The principal
effect of this Statement was to report reinsurance receivables and prepaid
reinsurance premiums, a total of $1,818 million at December 31, 1993, as assets.
Such amounts were reported as reductions of insurance reserves at the end of
1992.
Insurance reserves and annuity benefits represents policyholders' benefits,
unearned premiums and provisions for policy losses and benefits relating to
insurance and annuity businesses. The related balances at December 31, 1993 and
1992 are as follows:
(In millions) 1993 1992
------- ------
Insurance reserves and annuity benefits:
Annuity benefits.................................................. $ 8,894 $ --
Other policyholder benefits....................................... 5,862 2,061
Property and casualty reserves.................................... 5,798 3,881
Financial and mortgage guarantee reserves......................... 607 412
Unearned premiums................................................. 1,748 1,594
------- ------
$22,909 $7,948
------- ------
------- ------
Financial guarantees, principally FGIC's guarantees on municipal bonds and
structured debt issues, amounted to approximately $101.4 billion and $81.3
billion at year-end 1993 and 1992, respectively, before reinsurance of $17.3
billion and $13.7 billion, respectively. Related unearned premiums amounted to
$803 million and $571 million at December 31, 1993 and 1992, respectively. As of
December 31, 1993 and 1992, reserves for losses and loss adjustment expenses
were $96 million and $40 million, respectively.
The Corporation's mortgage insurance operations underwrite residential
mortgage guarantee insurance. Total risk in force aggregated $27.0 billion and
$21.3 billion at December 31, 1993 and 1992, respectively; related unearned
premiums amounted to $276 million at December 31, 1993 and $236 million at
December 31, 1992. Case basis loss reserves and loss adjustment expense reserves
are provided in an amount sufficient to pay all estimated losses in the
portfolio, including those incurred but not reported. As of December 31, 1993
and 1992, reserves for losses and loss adjustment expenses were $511 million and
$372 million, respectively.
Interest rates credited to annuity contracts in 1993 ranged from 3.7% to
9.7%. For most annuities, interest rates to be credited are redetermined by
management on an annual basis.
Page 21
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The Corporation's Specialty Insurance businesses are involved significantly
in the reinsurance business, ceding reinsurance on both a pro-rata and an excess
basis. The maximum amount of individual life insurance retained on any one life
is $740,000.
When the Corporation cedes business to third parties, it is not relieved of
its primary obligation to policyholders and reinsureds. Consequently, the
Corporation establishes allowances for amounts deemed uncollectible due to the
failure of reinsurers to honor their obligations. The Corporation monitors both
the financial condition of individual reinsurers and risk concentrations arising
from similar geographic regions, activities and economic characteristics of
reinsurers.
The effects of reinsurance on premiums written and earned during 1993, 1992
and 1991 were as follows:
WRITTEN PREMIUMS EARNED PREMIUMS
---------------------------- ----------------------------
1993 1992 1991 1993 1992 1991
------ ------ ------ ------ ------ ------
Direct......................... $1,639 $1,323 $ 797 $1,480 $1,154 $ 700
Assumed........................ 2,540 2,030 1,794 2,424 1,989 1,739
Ceded.......................... (223) (453) (436) (207) (456) (431)
------ ------ ------ ------ ------ ------
Net Premiums................... $3,956 $2,900 $2,155 $3,697 $2,687 $2,008
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Reinsurance recoveries recognized as a reduction of insurance losses and
policyholder and annuity benefits amounted to $304 million, $525 million and
$478 million for the periods ended December 31, 1993, 1992 and 1991,
respectively.
NOTE 13. EQUITY CAPITAL
Equity capital is owned entirely by GE Company. Cash dividends paid were $610
million in 1993 and $500 million in 1992 and $350 million in 1991. In 1992, GE
Company contributed to the Corporation the assets of GE Computer Services and
the minority interest in Financial Insurance Group. These contributions were
reflected as a $155 million ($134 million and $21 million, respectively)
addition to the Corporation's additional paid-in capital. Total GE Capital
Services preferred stock at both December 31, 1993 and 1992 was $510 million. In
the accompanying financial statements, such preferred shares are shown as issued
to and held by consolidated affiliates.
At December 31, 1993 and 1992, the statutory capital and surplus of the
Corporation's insurance affiliates totaled $4,829 million and $3,416 million,
respectively; amounts available for the payment of dividends without the
approval of the insurance regulators totaled $382 million and $322 million,
respectively.
As a securities broker-dealer, Kidder, Peabody is required to maintain a
minimum net capital level by the Securities and Exchange Commission. At December
31, 1993, Kidder, Peabody had net capital of $625 million, $583 million in
excess of the minimum net capital requirement.
Other equity at December 31, 1993 and 1992 consisted of:
(In millions) 1993 1992
---- ----
Foreign currency translation adjustments.............................. $(92) $(45)
Unrealized gains on investment securities--net........................ 811 36
---- ----
$719 $ (9)
---- ----
---- ----
NOTE 14. MINORITY INTEREST IN EQUITY OF CONSOLIDATED AFFILIATES
Minority interest in equity of consolidated affiliates includes 8,750 shares of
$100 par value variable cumulative preferred stock issued by GE Capital with a
liquidation preference value of $875 million. Dividend rates on this preferred
stock ranged from 2.33% to 2.79% during 1993 and from 2.44% to 3.49% during
1992.
NOTE 15. EARNED INCOME
Included in earned income from financing leases were gains on the sale of
equipment at lease completion of $145 million in 1993, $126 million in 1992 and
$147 million in 1991.
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Noncancelable future rentals due from customers for equipment on operating
leases as of December 31, 1993 totaled $6,133 million and are due as follows:
1994, $2,036 million; 1995, $1,455 million; 1996, $879 million; 1997, $458
million; 1998, $316 million and $989 million thereafter.
Amortization of deferred investment tax credit was $29 million, $26 million
and $25 million in 1993, 1992 and 1991, respectively.
Time sales, loan and investment and other income includes the Corporation's
share of earnings from equity investees of $106 million, $72 million and $84
million for 1993, 1992 and 1991, respectively.
NOTE 16. INTEREST AND DISCOUNT EXPENSES
Interest and discount expenses reported in the Statement of Current and Retained
Earnings are net of interest income on temporary investments of excess funds of
$42 million for 1993, $48 million for 1992, and $54 million for 1991, and net of
capitalized interest of $5 million for 1993, $6 million for 1992 and $8 million
for 1991.
For purposes of computing the ratio of earnings to fixed charges (the
"ratio") in accordance with applicable Securities and Exchange Commission
instructions, earnings consist of net earnings adjusted for cumulative effect of
change in accounting principle, the provision for income taxes, minority
interest and fixed charges. Fixed charges consist of interest on all
indebtedness and one-third of annual rentals, which the Corporation believes is
a reasonable approximation of the interest factor of such rentals. The ratio was
1.42 for 1993, compared with 1.33 for 1992 and 1.25 for 1991.
NOTE 17. OPERATING AND ADMINISTRATIVE EXPENSES
Employees and retirees of the Corporation and its affiliates 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, including Employers Reinsurance and Kidder, Peabody, 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 Employers Reinsurance and
Kidder, Peabody and other affiliates. The annual cost to the Corporation of
providing these benefits is not material and the net transition obligation
arising from the 1991 adoption of the new accounting standard, SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pension," was not
separately determinable, except for the Employers Reinsurance and Kidder,
Peabody plans, where the charge to operations aggregated $19 million after a
deferred tax benefit of $12 million.
GE Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," in the second quarter of 1993. The Corporation adopted this standard
in conjunction with its parent. This Statement requires that employers expense
the costs of postemployment benefits (as distinct from postretirement pension,
medical and life insurance benefits) over the working lives of their employees.
This change principally affects the Corporation's accounting for severance
benefits, which previously were expensed when the severance event occurred. The
net transition obligation related to the Corporation's employees covered under
GE Company postemployment benefit plans is not separately determinable from the
GE Company plans as a whole; accordingly, there is no financial statement impact
on the Corporation. The net transition obligation for employees covered under
separate plans is not material.
Rental expense for 1993 aggregating $498 million, compared with $331
million for 1992 and $169 million for 1991, was principally for the rental of
office space, data processing equipment and railcars. Minimum future rental
commitments under noncancelable leases are: 1994, $404 million; 1995, $364
million; 1996, $340 million; 1997, $319 million; 1998, $296 million and $1,856
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 1993, 1992 and 1991 was $817 million, $624 million and $377 million,
respectively.
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NOTE 18. INCOME TAXES
Income tax provision from operations is summarized in the following table:
(In millions) 1993 1992 1991
---- ---- -----
Estimated taxes payable (recoverable)....................... $507 $374 $(192)
Effect of temporary differences............................. 341 167 555
Investment tax credit deferred (amortized) -- net........... (7) (5) 19
---- ---- -----
$841 $536 $ 382
---- ---- -----
---- ---- -----
GE Company files a consolidated Federal income tax return which includes GE
Capital Services. The provisions for estimated taxes payable (recoverable)
include the effect of the Corporation and its affiliates on the consolidated
tax. Estimated income taxes payable were $144 million and $73 million at
December 31, 1993 and 1992, respectively.
A reconciliation of the Corporation's actual income tax rate to the U.S.
Federal statutory rate is shown in the following table:
1993 1992 1991
---- ---- -----
Statutory U.S. Federal income tax rate........................ 35.0% 34.0% 34.0%
Increase (reduction) in rate resulting from:
Rate increase -- deferred taxes............................... 4.3 -- --
Tax-exempt income............................................. (6.8) (8.1) (10.1)
Change in tax-rate assumptions for leveraged leases........... (1.3) (2.1) (2.4)
State and local taxes......................................... 1.9 1.6 0.9
Other -- net.................................................. (1.3) 0.9 0.7
---- ---- -----
Actual income tax rate........................................ 31.8% 26.3% 23.1%
---- ---- -----
---- ---- -----
The tax effects of principal temporary differences are shown in the
following table:
(In millions) 1993 1992
------- -------
Assets
Provision for losses........................................ $ (831) $ (715)
Insurance reserves.......................................... (370) (344)
AMT credit carry forwards................................... -- (200)
Other....................................................... (1,003) (551)
------- -------
Total deferred tax assets........................................ (2,204) (1,810)
------- -------
Liabilities
Financing leases............................................ 4,917 4,553
Operating leases............................................ 966 811
Net unrealized gains on securities.......................... 437 19
Tax transfer leases......................................... 340 329
Other....................................................... 952 967
------- -------
Total deferred tax liability..................................... 7,612 6,679
------- -------
Net deferred tax liability....................................... $ 5,408 $ 4,869
------- -------
------- -------
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NOTE 19. INDUSTRY SEGMENT DATA
Industry segment operating data and identifiable assets for the years 1993, 1992
and 1991 are shown below. Corporate level expenses principally include interest
expense related to acquisition debt.
(In millions) 1993 1992 1991
-------- -------- --------
Earned income:
Specialty Insurance......................................... $ 4,862 $ 3,863 $ 2,989
Consumer Services........................................... 4,062 3,315 3,373
Equipment Management........................................ 3,601 2,756 2,331
Mid-Market Financing........................................ 1,652 1,499 1,440
Securities Broker-Dealer.................................... 4,861 4,022 3,346
Specialized Financing....................................... 3,084 2,974 2,925
-------- -------- --------
22,122 18,429 16,404
Corporate................................................ 15 11 (5)
-------- -------- --------
Total earned income........................................... $ 22,137 $ 18,440 $ 16,399
-------- -------- --------
-------- -------- --------
Segment operating profit:
Specialty Insurance......................................... $ 770 $ 641 $ 501
Consumer Services........................................... 695 525 478
Equipment Management........................................ 377 368 381
Mid-Market Financing........................................ 454 352 248
Securities Broker-Dealer.................................... 439 300 119
Specialized Financing....................................... 201 121 220
-------- -------- --------
Total segment operating profit................................ 2,936 2,307 1,947
Corporate................................................... (288) (272) (290)
-------- -------- --------
Earnings before taxes......................................... 2,648 2,035 1,657
Income tax provision.......................................... 841 536 382
-------- -------- --------
Net earnings from operations.................................. $ 1,807 $ 1,499 $ 1,275
-------- -------- --------
-------- -------- --------
Identifiable assets at December 31:
Specialty Insurance......................................... $ 18,915 $ 14,624 $ 11,812
Consumer Services........................................... 45,747 24,185 21,913
Equipment Management........................................ 14,277 12,464 9,658
Mid-Market Financing........................................ 14,879 13,647 11,386
Securities Broker-Dealer.................................... 85,009 55,455 41,218
Specialized Financing....................................... 31,951 31,911 31,597
Corporate................................................... 952 2,238 230
-------- -------- --------
Total Assets.................................................. $211,730 $154,524 $127,814
-------- -------- --------
-------- -------- --------
Page 25
28
NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1993 and 1992 are as follows:
THREE MONTHS ENDED
---------------------------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
--------------- --------------- --------------- ---------------
(In millions) 1993 1992 1993 1992 1993 1992 1993 1992
------ ------ ------ ------ ------ ------ ------ ------
Earned income.......................... $4,763 $4,301 $5,129 $4,493 $5,919 $4,761 $6,326 $4,885
------ ------ ------ ------ ------ ------ ------ ------
Expenses:
Interest and discount................ 1,422 1,478 1,585 1,527 1,896 1,521 1,570 1,596
Operating and administrative
(including minority interest)...... 1,547 1,313 1,601 1,372 1,799 1,583 2,280 1,667
Insurance losses and policyholder and
annuity benefits................... 545 443 692 544 809 551 1,126 419
Provision for losses on financing
receivables........................ 255 251 292 313 200 176 240 316
Depreciation and amortization of
buildings and equipment and
equipment on operating leases...... 350 299 376 253 382 388 522 395
------ ------ ------ ------ ------ ------ ------ ------
Earnings before income taxes........... 644 517 583 484 833 542 588 492
Provision for income taxes............. 193 146 169 137 340 135 139 118
------ ------ ------ ------ ------ ------ ------ ------
Net earnings........................... $ 451 $ 371 $ 414 $ 347 $ 493 $ 407 $ 449 $ 374
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
NOTE 21. RESTRICTED NET ASSETS OF AFFILIATES
Various state and foreign regulations require that the Corporation's investment
in certain affiliates, without regard to net unrealized after-tax gains on
investment securities which were $663 million at December 31, 1993, be
maintained at specified minimum levels to provide additional protection for
insurance customers, investment certificate holders and passbook savings
depositors. At December 31, 1993, such minimum investment levels aggregated
approximately $5,700 million.
NOTE 22. SUPPLEMENTAL CASH FLOW INFORMATION
Cash used or provided in 1993, 1992 and 1991 included interest paid by the
Corporation of $6,216 million, $5,907 million and $6,384 million, respectively
and income taxes (paid) recovered by the Corporation of $(189) million, $(97)
million and $99 million, respectively.
NOTE 23. FAIR VALUES OF FINANCIAL INSTRUMENTS
As required under generally accepted accounting principles, financial
instruments are presented in the accompanying financial statements -- generally
at either cost or fair value, based on both the characteristics of and
management intentions regarding the instruments. Management believes that the
financial statement presentation is the most useful for displaying the
Corporation's results. However, SFAS No. 107, "Disclosure About Fair Value of
Financial Instruments," requires disclosure of an estimate of the fair value of
certain financial instruments. These disclosures disregard management intentions
regarding the instruments, and therefore, management believes that this
information may be of limited usefulness.
Apart from the Corporation's own borrowings, certain marketable securities
and financial instruments of Kidder, Peabody, relatively few of the
Corporation's financial instruments are actively traded. Thus, fair values must
often be determined by using one or more models that indicate value based on
estimates of quantifiable characteristics as of a particular date. Because this
undertaking is, by nature, difficult and highly judgmental, for a limited number
of instruments, alternative valuation techniques indicate values sufficiently
diverse that the only practicable disclosure is a range of values. Users of the
following data are cautioned that limitations in the estimation techniques may
have produced disclosed values different from those that could have been
realized at December 31, 1993 or 1992. Moreover, the disclosed values are
representative of fair values only as of the dates indicated, inasmuch as
interest rates, performance of the economy, tax policies and other variables
significantly impact fair valuations. Cash and equivalents, trading securities,
reverse repurchase agreements, repurchase agreements and other receivables have
been excluded as their carrying amounts and fair values are the same, or
approximately the same.
Page 26
29
Values were estimated as follows:
INVESTMENT SECURITIES. Based on quoted market prices or dealer quotes for
actively traded securities. Value of other such securities was estimated using
quoted market prices for similar securities.
TIME SALES, LOANS AND RELATED PARTICIPATIONS. Based on quoted market prices,
recent transactions, market comparables and/or discounted future cash flows,
using rates at which similar loans would have been made to similar borrowers.
INVESTMENTS IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES. Based on market
comparables, recent transactions and/or discounted future cash flows. These
equity interests were generally acquired in connection with financing
transactions and, for purposes of this disclosure, fair values were estimated.
OTHER FINANCIAL INSTRUMENTS. Based on recent comparable transactions, market
comparables, discounted future cash flows, quoted market prices, and/or
estimates of the cost to terminate or otherwise settle obligations to
counterparties.
BORROWINGS. Based on quoted market prices or market comparables. Fair values of
interest rate and currency swaps on borrowings are based on quoted market prices
and include the effects of counterparty creditworthiness.
ANNUITY BENEFITS. Based on expected future cash flows, discounted at currently
offered discount rates for immediate annuity contracts or cash surrender value
for single premium deferred annuities.
FINANCIAL GUARANTIES OF INSURANCE AFFILIATES. Based on future cash flows,
considering expected renewal premiums, claims, refunds and servicing costs,
discounted at a market rate.
The carrying amounts and estimated fair values of the Corporation's
financial instruments at December 31, 1993 and 1992 are as follows:
1993 1992
---------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
ASSETS (LIABILITIES) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- -------------------- -------- --------------- -------- ---------------
(In millions)
Investment securities................... $ 26,792 $26,792 $ 11,224 $11,634
Time sales, loans and related
participations........................ 39,678 41,410-40,685 36,131 37,420-36,240
Investments in and advances to non-
consolidated affiliates............... 2,079 2,830-2,635 1,720 2,295-2,180
Other financial instruments............. 6,045 6,085-5,960 2,430 2,545-2,405
Annuity benefits........................ (8,894) (8,660) -- --
Borrowings(a) (b)....................... (85,888) (87,020) (75,140) (76,400)
Financial guaranties of insurance
affiliates............................ (1,312) (135)-(220) (1,036) 200-55
- ---------------
(a) Swap contracts are integral to the Corporation's goal of achieving the
lowest borrowing costs for particular funding strategies. The above fair
values of borrowings include fair values of associated interest rate and
currency swaps. At December 31, 1993, the approximate settlement values of
the Corporation's swaps were $340 million. Without such swaps, estimated
fair values of the Corporation's borrowings would have been $86,680 million.
Approximately 90% of the notional amount of swaps outstanding at December
31, 1993, was with counterparties having credit ratings of Aa/AA or better.
(b) Proceeds from borrowings are invested in a variety of activities, including
both financial instruments, shown in the preceding table, as well as leases,
for which fair value disclosures are not required. When evaluating the
extent to which estimated fair value of borrowings exceeds the related
carrying amount, users should consider that the fair value of the fixed
payment stream for long-term leases would increase as well.
Page 27
30
NOTE 24. GEOGRAPHIC SEGMENT INFORMATION
Geographic segment operating data and total assets for the years 1993,
1992, and 1991 are as follows:
EARNED INCOME OPERATING PROFIT
------------------------------ ------------------------
(In millions) 1993 1992 1991 1993 1992 1991
-------- -------- -------- ------ ------ ------
United States............................ $ 19,290 $ 16,233 $ 14,973 $2,359 $1,790 $1,500
Other areas of the world................. 2,847 2,207 1,426 289 245 157
-------- -------- -------- ------ ------ ------
Total.................................. $ 22,137 $ 18,440 $ 16,399 $2,648 $2,035 $1,657
-------- -------- -------- ------ ------ ------
-------- -------- -------- ------ ------ ------
TOTAL ASSETS
------------------------------
(In millions) 1993 1992 1991
-------- -------- --------
United States............................ $189,758 $140,483 $119,129
Other areas of the world................. 21,972 14,041 8,685
-------- -------- --------
Total.................................. $211,730 $154,524 $127,814
-------- -------- --------
-------- -------- --------
U.S. amounts were derived from the Corporation's operations located in the
U.S. The Corporation manages its exposure to currency movements by committing to
future exchanges of currencies at specified prices and dates. Commitments
outstanding at December 31, 1993 and 1992, were $1,833 million and $2,084
million, respectively, excluding Kidder, Peabody.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable
Page 28
31
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
Page 29
32
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 Current and Retained Earnings for each of the years in
the three-year period ended December 31, 1993
Statement of Financial Position at December 31, 1993 and 1992
Statement of Cash Flows for each of the years in the three-year
period ended December 31, 1993
Notes to Financial Statements
(a) 2. FINANCIAL STATEMENT SCHEDULES
III. Condensed financial information of registrant.
All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is
shown in the financial statements or notes thereto.
(a) 3. EXHIBIT INDEX
The exhibits listed below, as part of Form 10-K, are numbered in conformity
with the numbering used in Item 601 of Regulation S-K of the Securities and
Exchange Commission.
EXHIBIT
NUMBER DESCRIPTION
3 (i) A complete copy of the Certificate of Incorporation of
the Corporation as last amended on February 10, 1993
and currently in effect.
3 (ii) A complete copy of the By-Laws of the Corporation as
last amended on January 4, 1994 and currently in
effect.
4 (iii) 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 Computation of ratio of earnings to fixed charges.
23(ii) Consent of KPMG Peat Marwick.
24 Power of Attorney
99 Income Maintenance Agreement dated March 28, 1991 be-
tween 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).
(b) REPORTS ON FORM 8-K
None.
Page 30
33
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL ELECTRIC CAPITAL SERVICES, INC.
CONDENSED STATEMENT OF FINANCIAL POSITION
(In millions) DECEMBER 31,
--------------------
1993 1992
------- -------
ASSETS
Cash and equivalents..................................................... $ 100 $ 3
Investment securities.................................................... 100 --
Receivables -- net....................................................... -- 26
Investment in and advances to consolidated affiliates.................... 13,748 11,646
------- -------
Total assets............................................................. $13,948 $11,675
------- -------
------- -------
LIABILITIES AND EQUITY
Notes payable within one year............................................ $ 2,340 $ 1,989
Accounts and drafts payable.............................................. 211 238
Other liabilities........................................................ 78 54
------- -------
Total liabilities................................................... 2,629 2,281
------- -------
Cumulative preferred stock, $10,000 par value (80,000 shares authorized;
51,000 shares issued and held by consolidated affiliates at December
31, 1993 and 1992)..................................................... 510 510
Common stock, $10,000 par value (101 shares authorized and
outstanding)........................................................... 1 1
Additional paid-in capital............................................... 1,877 1,877
Retained earnings........................................................ 8,212 7,015
Other.................................................................... 719 (9)
------- -------
Total equity........................................................ 11,319 9,394
------- -------
Total liabilities and equity............................................. $13,948 $11,675
------- -------
------- -------
See Notes to Condensed Financial Statements.
Page 31
34
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
CONDENSED STATEMENT OF CURRENT AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31,
--------------------------------
(In millions) 1993 1992 1991
------ ------ ------
Earned income.................................................. $ -- $ -- $ --
------ ------ ------
Expenses
Interest and discount........................................ 91 77 133
Operating and administrative................................. 211 185 122
------ ------ ------
Loss before equity in earnings from operations of consolidated
affiliates, income taxes and cumulative effect of change in
accounting principle......................................... (302) (262) (255)
Income tax benefit............................................. 87 67 71
Cumulative effect to January 1, 1991 of change in accounting
principle for postretirement benefits other than pensions.... -- -- (19)
Net earnings from operations of consolidated affiliates........ 2,022 1,694 1,459
------ ------ ------
Net earnings................................................... 1,807 1,499 1,256
Cash dividends paid............................................ (610) (500) (350)
Retained earnings at January 1................................. 7,015 6,016 5,110
------ ------ ------
Retained earnings at December 31............................... $8,212 $7,015 $6,016
------ ------ ------
------ ------ ------
See Notes to Condensed Financial Statements.
Page 32
35
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
CONDENSED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------
(In millions) 1993 1992 1991
----- ----- -----
CASH FLOWS FROM OPERATING ACTIVITIES................................. $ 412 $ 387 $ 433
CASH FLOWS FROM INVESTING ACTIVITIES
Change in investment in and advances to consolidated affiliates.... 18 -- (236)
Net change in investment securities................................ (100) 41 34
Net change in other receivables.................................... 26 (25) 12
----- ----- -----
Cash provided by (used by) investing activities.................... (56) 16 (190)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (less than 90-day maturities)............. 351 99 43
Preferred stock issued............................................. -- -- 50
Cash dividends paid................................................ (610) (500) (350)
----- ----- -----
Cash used by financing activities.................................. (259) (401) (257)
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR.......... 97 2 (14)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR............................ 3 1 15
----- ----- -----
CASH AND EQUIVALENTS AT END OF YEAR.................................. $ 100 $ 3 $ 1
----- ----- -----
----- ----- -----
See Notes to Condensed Financial Statements.
Page 33
36
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONCLUDED)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
INCOME TAX BENEFIT
GE Company files a consolidated Federal income tax return which includes GE
Capital Services. Income tax benefit includes the effect of the Corporation on
the consolidated income tax.
DIVIDENDS FROM AFFILIATES
In 1993 and 1992, GE Capital Services received dividends of $150 million
and $200 million, respectively, from Employers Reinsurance and $460 million and
$300 million, respectively, from GE Capital.
Page 34
37
EXHIBIT 4(iii)
March 22, 1994
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, 1993 -- 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 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
sec. 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,
Senior Vice President, Finance
Page 35
38
EXHIBIT 12
GENERAL ELECTRIC CAPITAL SERVICES, INC.
AND CONSOLIDATED AFFILIATES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31,
----------------------------------------------
(Dollar amounts in millions) 1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Net earnings........................................ $1,807 $1,499 $1,256 $1,094 $ 927
Provision for income taxes.......................... 841 536 382 301 211
Minority interest................................... 134 40 33 41 46
Cumulative effect to January 1, 1991 of change in
accounting principle for postretirement benefits
other
than pensions..................................... -- -- 19 -- --
------ ------ ------ ------ ------
Earnings before income taxes, minority interest and
cumulative effect of change in accounting
principle......................................... 2,782 2,075 1,690 1,436 1,184
------ ------ ------ ------ ------
Fixed charges:
Interest and discount............................. 6,519 6,176 6,598 6,598 6,085
One-third of rentals.............................. 166 110 56 53 45
------ ------ ------ ------ ------
Total fixed charges................................. 6,685 6,286 6,654 6,651 6,130
------ ------ ------ ------ ------
Less interest capitalized, net of amortization...... 4 6 7 19 11
------ ------ ------ ------ ------
Earnings before income taxes, minority interest and
cumulative effect of change in accounting
principle, plus fixed charges..................... $9,463 $8,355 $8,337 $8,068 $7,303
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of earnings to fixed charges.................. 1.42 1.33 1.25 1.21 1.19
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Page 36
39
EXHIBIT 23(ii)
To the Board of Directors
General Electric Capital Services, Inc.
We consent to incorporation by reference in the Registration Statement on
Form S-3 (No. 33-7348) of General Electric Capital Services, Inc. of our report
dated February 11, 1994, relating to the statement of financial position of
General Electric Capital Services, Inc. and consolidated affiliates as of
December 31, 1993 and 1992 and the related statements of current and retained
earnings and cash flows and related schedules for each of the years in the
three-year period ended December 31, 1993, which report appears in the December
31, 1993 annual report on Form 10-K of General Electric Capital Services, Inc.
Our report refers to a change in 1993 in the method of accounting for certain
investments in securities.
/s/ KPMG PEAT MARWICK
Stamford, Connecticut
March 23, 1994
Page 37
40
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 Gary C. Wendt,
James A. Parke, John P. Malfettone and Burton J. Kloster, Jr., 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, 1993, 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
23rd day of March, 1994.
/s/ GARY C. WENDT /s/ JAMES A. PARKE
- ---------------------------------------- ---------------------------------
Gary C. Wendt, James A. Parke,
Chairman of the Board, Senior Vice President, Finance
President and Chief Executive Officer (Principal Financial Officer)
(Principal Executive Officer)
/s/ JOHN P. MALFETTONE
----------------------------------
John P. Malfettone
Vice President and Comptroller
(Principal Accounting Officer)
/s/ KAJ AHLMANN /s/ BENJAMIN W. HEINEMAN, JR.
- ---------------------------------------- --------------------------------------
Kaj Ahlmann, Director Benjamin W. Heineman, Jr., Director
/s/ NIGEL D. T. ANDREWS /s/ MICHAEL D. LOCKHART
- ---------------------------------------- --------------------------------------
Nigel D. T. Andrews, Director Michael D. Lockhart, Direcotr
/s/ JAMES R. BUNT /s/ HUGH J. MURPHY
- ---------------------------------------- --------------------------------------
James R. Bunt, Director Hugh J. Murphy, Director
/s/ DENIS J. NAYDEN
- ---------------------------------------- --------------------------------------
Michael A. Carpenter, Director Denis J. Nayden, Director
/s/ DENNIS D. DAMMERMAN /s/ JOHN M. SAMUELS
- ---------------------------------------- --------------------------------------
Dennis D. Dammerman, Director John M. Samuels, Director
/s/ PAOLO FRESCO /s/ EDWARD D. STEWART
- ---------------------------------------- --------------------------------------
Paolo Fresco, Director Edward D. Stewart, Director
/s/ DALE F. FREY /s/ JOHN F. WELCH, JR.
- ---------------------------------------- --------------------------------------
Dale F. Frey, Director John F. Welch, Jr., Director
A MAJORITY OF THE BOARD OF DIRECTORS
Page 38
41
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 23, 1994 By: /s/ GARY C. WENDT
-------------------------------------------
(GARY C. WENDT)
President
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/ GARY C. WENDT Chairman of the Board, March 23, 1994
- ---------------------------------------- President and Chief Executive
(GARY C. WENDT) Officer (Principal Executive Of-
ficer)
/s/ JAMES A. PARKE Senior Vice President, Finance March 23, 1994
- ---------------------------------------- (Principal Financial Officer)
(JAMES A. PARKE)
/s/ JOHN P. MALFETTONE Vice President and Comptroller March 23, 1994
- ---------------------------------------- (Principal Accounting Officer)
(JOHN P. MALFETTONE)
KAJ AHLMANN Director
NIGEL D. T. ANDREWS Director
JAMES R. BUNT Director
DENNIS D. DAMMERMAN Director
PAOLO FRESCO Director
DALE F. FREY Director
BENJAMIN W. HEINEMAN, JR. Director /s/ JOHN P. MALFETTONE
-----------------------------
(JOHN P. MALFETTONE)
MICHAEL D. LOCKHART Director Attorney-in-fact
HUGH J. MURPHY Director
March 23, 1994
DENIS J. NAYDEN Director
JOHN M. SAMUELS Director
EDWARD D. STEWART Director
JOHN F. WELCH, JR. Director
A majority of the Board of Directors
Page 39
42
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ----------- ----------
3 (i) A complete copy of the Certificate of Incorporation of the
Corporation as last amended on February 10, 1993 and currently in
effect.
3 (ii) A complete copy of the By-Laws of the Corporation as last amended on
January 4, 1994 and currently in effect.
4 (iii) 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 Computation of ratio of earnings to fixed charges.
23 (ii) Consent of KPMG Peat Marwick.
24 Power of Attorney
99 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).