UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 1-6461
General Electric Capital Corporation
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(Exact name of registrant as specified in its charter)
New York 13-1500700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
260 Long Ridge Road, Stamford, Connecticut 06927
(Address of principal executive offices) (Zip Code)
(203) 357-4000
(Registrant's telephone number, including area code)
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
At October 25, 2000, 3,837,825 shares of common stock with a par value of $200
were outstanding.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b)
OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE
FORMAT.
<PAGE>
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1 Financial Statements 1
Item 2 Management's Discussion and Analysis of
Results of Operations 5
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
and Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends 8
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Condensed Statement of Current and Retained Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ------------------------------
September 30, September 25, September 30, September 25,
(In millions) 2000 1999 2000 1999
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Revenues from services $ 11,322 $ 9,401 $ 33,721 $ 27,119
Sales of goods 2,392 2,352 7,030 5,953
-------- -------- -------- --------
13,714 11,753 40,751 33,072
-------- -------- -------- --------
EXPENSES
Interest 2,592 2,189 7,676 6,342
Operating and administrative 3,618 3,398 11,627 9,573
Cost of goods sold 2,207 2,124 6,515 5,441
Insurance losses and policyholder and annuity benefits 2,123 1,419 5,817 4,156
Provision for losses on financing receivables 448 225 1,362 1,044
Depreciation and amortization of buildings and equipment and
equipment on operating leases 816 786 2,455 2,279
Minority interest in net earnings of consolidated affiliates 22 16 62 49
-------- -------- -------- --------
11,826 10,157 35,514 28,884
-------- -------- -------- --------
EARNINGS
Earnings before income taxes 1,888 1,596 5,237 4,188
Provision for income taxes (568) (435) (1,508) (1,090)
-------- -------- -------- --------
NET EARNINGS 1,320 1,161 3,729 3,098
Dividends (540) (505) (1,485) (1,350)
Retained earnings at beginning of period 18,475 15,432 17,011 14,340
-------- -------- -------- --------
RETAINED EARNINGS AT END OF PERIOD $ 19,255 $ 16,088 $ 19,255 $ 16,088
======== ======== ======== ========
</TABLE>
[FN]
See Notes to Condensed, Consolidated Financial Statements.
</FN>
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Condensed Statement of Financial Position
<TABLE>
<CAPTION>
September 30, December 31,
(In millions) 2000 1999
----------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and equivalents $ 6,690 $ 6,505
Investment securities 66,382 59,173
Financing receivables:
Time sales and loans, net of deferred income 86,962 87,896
Investment in financing leases, net of deferred income 48,610 47,764
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135,572 135,660
Allowance for losses on financing receivables (3,639) (3,637)
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Financing receivables - net 131,933 132,023
Other receivables - net 28,337 24,677
Inventories 1,642 1,209
Equipment on operating leases (at cost), less accumulated amortization of
$7,762 and $7,391 23,283 23,603
Intangible assets 13,311 13,073
Other assets 54,595 47,178
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TOTAL ASSETS $ 326,173 $ 307,441
========= =========
LIABILITIES AND SHARE OWNERS' EQUITY
Short-term borrowings $ 117,448 $ 123,073
Long-term borrowings:
Senior 71,776 68,164
Subordinated 698 698
Insurance liabilities, reserves and annuity benefits 81,004 60,775
Other liabilities 21,319 21,437
Deferred income taxes 8,194 8,781
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Total liabilities 300,439 282,928
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Minority interest in equity of consolidated affiliates 1,332 1,767
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Accumulated unrealized losses on investment securities - net (605) (163)
Accumulated foreign currency translation adjustments (472) (256)
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Accumulated non-owner changes in share owners' equity (1,077) (419)
Capital stock 771 771
Additional paid-in capital 5,453 5,383
Retained earnings 19,255 17,011
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Total share owners' equity 24,402 22,746
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TOTAL LIABILITIES AND SHARE OWNERS' EQUITY $ 326,173 $ 307,441
========= =========
<FN>
See Notes to Condensed, Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
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September 30, September 25,
(In millions) 2000 1999
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $3,729 $3,098
Adjustments to reconcile net earnings to cash provided from operating
activities:
Provision for losses on financing receivables 1,362 1,044
Depreciation and amortization of buildings and equipment and 2,455 2,279
equipment on operating leases
Other - net (3,685) 4,585
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Cash from operating activities 3,861 11,006
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CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loans to customers (68,591) (66,469)
Principal collections from customers - loans 69,212 57,230
Investment in equipment for financing leases (14,411) (12,591)
Principal collections from customers - financing leases 11,041 13,393
Net change in credit card receivables (381) 2,156
Buildings and equipment and equipment on operating leases:
- additions (7,830) (7,536)
- dispositions 4,888 4,399
Payments for principal businesses purchased, net of cash acquired (403) (6,437)
Purchases of securities by insurance and annuity businesses (16,917) (12,609)
Dispositions and maturities of securities by insurance and annuity 8,928 10,967
businesses
Other - net (6,694) ( 2,949)
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Cash used for investing activities (21,158) ( 20,446)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities 90 days or less) 6,382 (5,268)
Newly issued debt - short-term (maturities 91-365 days) 5,160 3,515
- long-term (longer than one year) 20,091 22,674
Proceeds - non-recourse, leveraged lease debt 1,112 559
Repayments and other reductions:
- short-term (maturities 91-365 days) (24,878) (8,205)
- long-term (longer than one year) (1,667) (1,302)
Principal payments - non-recourse, leveraged lease debt (154) (248)
Proceeds from sales of investment contracts 6,821 5,664
Cash received upon assumption of Toho Mutual Life Insurance Company 13,177 -
insurance liabilities
Redemption of investment contracts (7,077) (5,403)
Dividends paid (1,485) (1,350)
Issuance of preferred stock in excess of par value - 300
Issuance of variable cumulative preferred stock by consolidated affiliate - 100
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Cash from financing activities 17,482 11,036
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INCREASE IN CASH AND EQUIVALENTS 185 1,596
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 6,505 3,080
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CASH AND EQUIVALENTS AT END OF PERIOD $ 6,690 $4,676
================= ==================
<FN>
See Notes to Condensed, Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Notes to Condensed, Consolidated Financial Statements
(Unaudited)
1. The accompanying condensed quarterly financial statements represent the
consolidation of General Electric Capital Corporation and all
majority-owned and controlled affiliates (collectively called "the
Corporation" or "GECC"). All significant transactions among the parent
and consolidated affiliates have been eliminated. Certain prior period
data have been reclassified to conform to the current period
presentation.
2. The condensed consolidated quarterly financial statements are unaudited.
These statements include all adjustments (consisting of normal recurring
accruals) considered necessary by management to present a fair statement
of the results of operations, financial position and cash flows. The
results reported in these condensed consolidated financial statements
should not be regarded as necessarily indicative of results that may be
expected for the entire year.
3. The Financial Accounting Standards Board ("FASB") has issued, then
subsequently amended, Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, effective for GECC on January 1, 2001. Upon adoption, all
derivative instruments (including certain derivative instruments embedded
in other contracts) will be recognized in the balance sheet at their fair
values; changes in such fair values must be recognized immediately in
earnings unless specific hedging criteria are met. Effects of qualifying
changes in fair value will be recorded in equity pending recognition in
earnings as offsets to the related earnings effects of the hedged items.
Management estimates that, at September 30, 2000, the effects on its
financial statements of adopting SFAS No. 133, as amended, would have
been to reduce net earnings and share owners' equity by less than $100
million and $300 million, respectively. However, the transition effect as
of January 1, 2001, cannot be estimated at this time because it is
subject to the following unknown variables as of that date: (1) actual
derivatives and related hedged positions, (2) market values of
derivatives and hedged positions, and (3) further interpretation of SFAS
No. 133 by the FASB.
4. A summary of changes in share owners' equity that do not result directly
from transactions with share owners is provided below.
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 25,
(In millions) 2000 1999
------------- -------------
<S> <C> <C>
Net earnings $ 1,320 $ 1,161
Unrealized gains/(losses) on investment securities - net 253 (150)
Foreign currency translation adjustments (111) 6
------- -------
Total $ 1,462 $ 1,017
======= =======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 25,
(In millions) 2000 1999
------------- -------------
<S> <C> <C>
Net earnings $ 3,729 $ 3,098
Unrealized losses on investment securities - net (442) (1,614)
Foreign currency translation adjustments (216) (56)
------- -------
Total $ 3,071 $ 1,428
======= =======
</TABLE>
5. On March 1, 2000, the insurance policies and related assets of Toho
Mutual Life Insurance Company were transferred to GE Edison Life
Insurance Company ("GE Edison"), a subsidiary of GE Financial Assurance
Holdings, Inc., a wholly-owned, direct subsidiary of GECC. Total cash,
investment securities and other receivables acquired by GE Edison was
$19.7 billion, and restructured insurance contracts and other liabilities
assumed were $21.5 billion.
6. Revenues and net earnings of the Corporation, by operating segment, for
the three and nine months ended September 30, 2000 and September 25, 1999
can be found on page 6 of this report.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
OVERVIEW
Net earnings for the first nine months of 2000 were $3,729 million, a $631
million (20%) increase over the first nine months of 1999. The results reflected
the globalization and diversity of the Corporation's businesses. The improvement
in earnings was largely attributable to higher level of asset gains and the
effects of continued asset growth, principally from acquisitions of businesses
and portfolios.
OPERATING RESULTS
TOTAL REVENUES from all sources increased $7,679 million (23%) to $40,751
million for the first nine months of 2000, compared with $33,072 million for the
first nine months of 1999. The increase included a pretax gain of $193 million
on the Corporation's holdings of the common stock of PaineWebber Group, Inc.
(PaineWebber), which are classified as trading securities. See discussion of
Significant Pending Transaction below. The remaining increase primarily
reflected a combination of acquisition and core growth in the Consumer Services
segment, asset gains and core growth in the Specialized Financing segment, core
growth in the Mid-Market Financing segment, and the consolidation of the retail
operations.
INTEREST EXPENSE for the first nine months of 2000 was $7,676 million, 21%
higher than for the first nine months of 1999. The increase reflected higher
interest rates and higher average borrowings used to finance asset growth. The
composite interest rate on the Corporation's borrowings for the first nine
months of 2000 was 5.77% compared with 5.13% in the first nine months of 1999.
OPERATING AND ADMINISTRATIVE EXPENSES were $11,627 million for the first nine
months of 2000, a 21% increase over the first nine months of 1999. The increase
included unusual pretax charges of $326 million for asset writedowns, employee
severance and other facilities costs in connection with third quarter decisions
to rationalize certain information technology and mortgage servicing operations.
The remaining increase primarily reflected increases in insurance commissions
and other costs associated with businesses and portfolios acquired over the past
year. Excluding the effects of current year acquisitions and the unusual
charges, operating and administrative expenses would have decreased
approximately 2%.
COST OF GOODS SOLD is associated with activities of the Corporation's computer
equipment distribution business and retail operations. This cost amounted to
$6,515 million for the first nine months of 2000, compared with $5,441 million
for the first nine months of 1999. The increase primarily reflected the
consolidation of the retail operations.
INSURANCE LOSSES AND POLICYHOLDER AND ANNUITY BENEFITS increased $1,661 million
to $5,817 million for the first nine months of 2000, compared with the first
nine months of 1999. The increase primarily reflected the effects of business
acquisitions and growth in premium volume throughout the period, partially
offset by improved market conditions in the mortgage insurance business.
PROVISION FOR LOSSES ON FINANCING RECEIVABLES was $1,362 million for the first
nine months of 2000 compared with $1,044 million for the first nine months of
1999. This provision principally related to credit cards, personal loans and
auto loans and leases in the Consumer Services segment, which are discussed
below under Portfolio Quality.
DEPRECIATION AND AMORTIZATION OF BUILDINGS AND EQUIPMENT AND EQUIPMENT ON
OPERATING LEASES increased to $2,455 million for the first nine months of 2000
compared with $2,279 million for the first nine months of 1999. The increase was
principally the result of higher shorter-lived levels of equipment on operating
leases, primarily reflecting acquisition growth.
PROVISION FOR INCOME TAXES was $1,508 million for the first nine months of 2000
(an effective tax rate of 28.8%), compared with $1,090 million for the first
nine months of 1999 (an effective tax rate of 26.0%). The higher effective tax
rate primarily reflected increased earnings taxed at statutory rates.
<PAGE>
OPERATING SEGMENTS
Revenues and net earnings of the Corporation, by operating segment, for the
three and nine months ended September 30, 2000, and September 25, 1999, are
summarized and discussed below.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
(In millions) September 30, September 25, September 30, September 25,
2000 1999 2000 1999
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Consumer Services $ 6,019 $ 4,714 $ 17,594 $13,548
Equipment Management 3,595 3,838 10,965 11,456
Mid-Market Financing 1,396 1,152 3,959 3,279
Specialized Financing 1,356 1,018 4,405 2,783
Specialty Insurance 396 440 1,231 1,279
All other 952 591 2,597 727
-------- ------- -------- -------
Total revenues $ 13,714 $11,753 $ 40,751 $33,072
======== ======= ======== =======
NET EARNINGS
Consumer Services $ 467 $ 416 $ 1,076 $ 866
Equipment Management 245 165 563 597
Mid-Market Financing 222 165 521 407
Specialized Financing 376 251 1,374 725
Specialty Insurance 110 145 353 424
All other (100) 19 (158) 79
-------- ------- -------- -------
Total net earnings $ 1,320 $ 1,161 $ 3,729 $ 3,098
======== ======= ======== =======
</TABLE>
CONSUMER SERVICES revenues increased 30% and net earnings increased 24% for the
first nine months of 2000, compared with the first nine months of 1999. The
increase in revenues was led by acquisition-related and core growth in the
consumer savings and insurance, U.S. consumer credit card, and non-U.S. consumer
finance businesses, partially offset by the effects of asset reductions in
automobile financing activities. The increase in net earnings was led by a
combination of core growth in the U.S. consumer credit card business and
acquisition-related growth in the consumer savings and insurance business,
partially offset by the effects of asset reductions in automobile financing
activities.
EQUIPMENT MANAGEMENT revenues decreased 4% for the first nine months of 2000,
compared with the corresponding period in 1999, primarily as a result of volume
declines in the European information technology products and services business,
partially offset by core growth in aviation services and transportation
equipment management businesses. Net earnings decreased 6% for the first nine
months of 2000, compared with the corresponding period in 1999, primarily
attributable to volume declines in the European information technology products
and services business, partially offset by core growth in aviation services.
MID-MARKET FINANCING revenues grew 21% and net earnings increased 28% for the
first nine months of 2000, compared with the corresponding period in 1999,
primarily as a result of core growth from increased originations.
SPECIALIZED FINANCING revenues rose 58%, while net earnings increased 90% in the
first nine months of 2000 compared with the first nine months of 1999. Revenue
growth principally reflects increases in asset gains as well as origination
growth. Net earnings growth is principally the result of operating strength led
by gains on sale of equity investments.
SPECIALTY INSURANCE revenues decreased 4% in the first nine months of 2000,
compared with the corresponding period in 1999, principally resulting from lower
net realized investment gains. Net earnings decreased 17% in the same period,
also reflecting lower net realized investment gains, partially offset by
improved conditions in the mortgage insurance business.
ALL OTHER revenues in the first nine months of 2000 include a pretax gain on
PaineWebber securities of $193 million. Net loss in the first nine months of
2000 includes the related after tax gain of $117 million and unusual charges
after tax of $239 million, which were $160 million for the information
technology business in the Equipment Management segment and $79 million for the
mortgage servicing business in the Consumer Services segment. The remaining
growth in revenues and increase in net loss, compared to the corresponding
period in 1999, were primarily the result of the consolidation of the retail
operations.
<PAGE>
PORTFOLIO QUALITY
FINANCING RECEIVABLES are the financing businesses' largest asset and their
primary source of revenues. The portfolio of financing receivables, before
allowance for losses, decreased to $135.6 billion at September 30, 2000, from
$135.7 billion at the end of 1999, primarily reflecting the effects of foreign
currency translation on European financing receivables, partially offset by
acquisition growth and higher origination volume. The related allowance for
losses at September 30, 2000 amounted to $3.6 billion ($3.6 billion at the end
of 1999) and represents management's best estimate of probable losses inherent
in the portfolio given its strength and diversity and current economic
circumstances. A discussion about the quality of certain elements of the
portfolio of financing receivables follows. "Nonearning" receivables are those
that are 90 days or more delinquent (or for which collection has otherwise
become doubtful) and "reduced-earning" receivables are commercial receivables
whose terms have been restructured to a below-market yield.
CONSUMER FINANCING receivables, primarily credit card and personal loans and
auto loans and leases, were $44.5 billion at September 30, 2000, a decrease of
$6.2 billion from the end of 1999. Nonearning receivables were $1.0 billion,
2.1% of total consumer financing receivables at September 30, 2000, compared
with $0.9 billion, 1.8% of total consumer financing receivables at December 31,
1999. Write-offs of consumer receivables increased to $1.2 billion for the first
nine months of 2000 compared with $1.1 billion for the first nine months of
1999. This increase was primarily attributable to the effects of higher average
revolving receivable balances resulting from acquisitions.
OTHER FINANCING RECEIVABLES, totaling $91.1 billion at September 30, 2000 ($85.0
billion at December 31, 1999), consisted of a diverse commercial, industrial and
equipment loan and lease portfolio. Related nonearning and reduced-earning
receivables were $1.0 billion at September 30, 2000, compared with $0.9 billion
at year-end 1999.
STATEMENT OF FINANCIAL POSITION
The Corporation's assets increased by $18.7 billion from the end of 1999,
largely a result of acquisition of certain assets and assumption of liabilities
of Toho Mutual Life Insurance Company ("Toho"). That acquisition included
approximately $13.2 billion in cash, as well as investment securities and other
receivables, in exchange for assuming Toho's existing policyholder liabilities.
The significant cash position of Toho at the date of acquisition reflected the
liquidity needs of the business including policyholder redemptions that have
occurred through September 30, 2000.
STATEMENT OF CASH FLOWS
The Corporation's cash and equivalents increased by $0.2 billion during the
first nine months of 2000 to $6.7 billion, principally as a result of cash
acquired in connection with the Toho acquisition. Cash provided from operating
activities amounted to $3.9 billion during the first nine months of 2000
compared with $11.0 billion during the first nine months of 1999. The decrease
in cash from operating activities compared with last year was largely
attributable to policyholder redemptions associated with the Toho acquisition
and a smaller decrease in mortgages held for resale. Cash from financing
activities totaled $17.5 billion, primarily as a result of policyholder
liabilities assumed in the Toho acquisition. The principal use of cash during
the period was for investing activities ($21.2 billion), a majority of which was
attributable to investments in securities, financing receivables and equipment
on operating leases.
SIGNIFICANT PENDING TRANSACTION
On July 12, 2000, Union Bank of Switzerland (UBS) and PaineWebber announced they
had entered into a definitive merger agreement (the UBS merger agreement). The
Corporation holds 8,273,600 shares of PaineWebber common stock and has voted in
favor of the merger. The Corporation's holdings of PaineWebber securities are
classified as trading securities; the increase in the share price of those
securities through September 30, 2000, has thus been recognized as a pretax gain
of $193 million. The UBS merger agreement is subject to a number of conditions
that are not within the control of the Corporation, resolution of which will
affect the amount and timing of proceeds realized from the transaction.
FORWARD LOOKING STATEMENTS
This document includes certain "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
based on management's current expectations and are subject to uncertainty and
changes in circumstances. Actual results may differ materially from these
expectations due to changes in global economic, business, competitive market and
regulatory factors.
<PAGE>
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS.
Exhibit 3(i). A Certificate of Amendment to the Organization
Certificate of the Corporation filed in the Office of
the Superintendent of Banks of the State of
New York as of October 24, 2000.
Exhibit 12. Computation of ratio of earnings to fixed charges and
computation of ratio of earnings to combined fixed
charges and preferred stock dividends.
Exhibit 27. Financial Data Schedule (filed electronically only).
b. REPORTS ON FORM 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL ELECTRIC CAPITAL CORPORATION
------------------------------------
(Registrant)
Date: October 26, 2000 By: /s/ J.A. Parke
--------------------------------------------------
J.A. Parke,
Vice Chairman and Chief Financial Officer
(Principal Financial Officer)
Date: October 26, 2000 By: /s/ J.C. Amble
--------------------------------------------------
J.C. Amble,
Vice President and Controller
(Principal Accounting Officer)
