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1
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
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14804
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General Electric Capital Services, Inc.
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(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
(Address of principal executive offices) (Zip Code)
(203) 357-4000
(Registrant's telephone number, including area code)
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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 27, 1995, 101 shares of common stock with a par value of $10,000
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.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<C>
<S>
PART I - FINANCIAL INFORMATION.
Item 1. Financial Statements.................................... 1
Item 2. Management's Discussion and Analysis of Results
of Operations................................................. 6
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges
and Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends......................... 9
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings....................................... 10
Item 5. Other.Information....................................... 10
Item 6. Exhibits and Reports on Form 8-K........................ 17
Signatures...................................................... 18
Index to Exhibits............................................... 19
</TABLE>
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3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Condensed Statement of Current and Retained Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------------------
September 30, October 1, September 30, October 1,
(In millions) 1995 1994 1995 1994
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Earned Income.................................. $ 7,099 $ 5,097 $ 19,268 $ 14,220
-------- -------- -------- --------
Expenses
Interest....................................... 1,726 1,128 4,946 3,222
Operating and administrative................... 1,913 1,386 5,550 4,328
Insurance losses and policyholder and
annuity benefits............................. 1,540 1,089 3,854 2,561
Provision for losses on financing receivables.. 352 186 710 607
Depreciation and amortization of buildings and
equipment and equipment on operating leases.. 491 426 1,434 1,194
Minority interest in net earnings of
consolidated affiliates...................... 29 25 82 99
-------- -------- -------- --------
6,051 4,240 16,576 12,011
-------- -------- -------- --------
Earnings
Earnings from continuing operations before
income taxes................................. 1,048 857 2,692 2,209
Provision for income taxes..................... (337) (242) (850) (618)
-------- -------- -------- --------
Earnings from continuing operations............ 711 615 1,842 1,591
Loss from discontinued operations.............. - (89) - (272)
-------- -------- -------- --------
Net earnings................................... 711 526 1,842 1,319
Dividends...................................... (247) (191) (645) (465)
Retained earnings at beginning of period....... 8,927 8,731 8,194 8,212
-------- -------- -------- --------
Retained earnings at end of period............. $ 9,391 $ 9,066 $ 9,391 $ 9,066
======== ======== ======== ========
<FN>
See Notes to Condensed, Consolidated Financial Statements.
</TABLE>
1
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4
Item 1. Financial Statements (Continued).
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Condensed Statement of Financial Position
<TABLE>
<CAPTION>
September 30, December 31,
(In millions) 1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Cash and equivalents......................................... $ 2,087 $ 1,218
Investment securities........................................ 36,814 30,872
Financing receivables:
Time sales and loans, net of deferred income........ 55,879 50,021
Investment in financing leases, net of deferred income..... 33,870 28,398
--------- ---------
89,749 78,419
Allowance for losses on financing receivables.............. (2,360) (2,062)
--------- ---------
Financing receivables - net............................... 87,389 76,357
Other receivables - net...................................... 10,063 6,012
Equipment on operating leases (at cost), less
accumulated amortization of $4,513 and $4,029.............. 13,298 12,859
Other assets................................................. 20,792 17,649
Assets of discontinued securities broker-dealer operations... 1,426 8,613
--------- ---------
Total assets................................................. $ 171,869 $ 153,580
========= =========
Liabilities and equity
Notes payable within one year................................ $ 56,278 $ 57,087
Senior notes payable after one year.......................... 46,777 33,615
Subordinated notes payable after one year.................... 995 697
Insurance liabilities, reserves and annuity benefits......... 34,534 29,438
Other liabilities............................................ 10,567 8,093
Deferred income taxes........................................ 6,806 4,937
Liabilities of discontinued securities broker-dealer
operations................................................. 1,813 8,868
--------- ---------
Total liabilities......................................... 157,770 142,735
--------- ---------
Minority interest in equity of consolidated affiliates....... 2,139 1,465
--------- ---------
Capital stock................................................ 11 11
Additional paid-in capital................................... 2,071 2,064
Retained earnings............................................ 9,391 8,194
Unrealized gains (losses) on investment securities........... 541 (821)
Currency translation adjustments............................. (54) (68)
--------- ---------
Total equity.............................................. 11,960 9,380
--------- ---------
Total liabilities and equity................................. $ 171,869 $ 153,580
========= =========
<FN>
See Notes to Condensed, Consolidated Financial Statements.
</TABLE>
2
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5
Item 1. Financial Statements (Continued).
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
September 30, October 1,
(In millions) 1995 1994
------------ ----------
<S> <C> <C>
Cash Flows From Operating Activities
Net earnings................................................. $ 1,842 $ 1,319
Adjustments for discontinued operations...................... - 272
Adjustments to reconcile net earnings to cash
provided from operating activities:
Provision for losses on financing receivables.............. 710 607
Depreciation and amortization of buildings and
equipment and equipment on operating leases............. 1,434 1,194
Other - net................................................ 2,189 629
--------- ---------
Cash provided from continuing operating activities....... 6,175 4,021
Cash provided from discontinued operating activities..... 1,428 692
--------- ---------
Cash provided from operating activities.................. 7,603 4,713
--------- ---------
Cash Flows From Investing Activities
Increase in loans to customers............................... (33,141) (17,811)
Principal collections from customers......................... 31,415 14,428
Investment in assets on financing leases..................... (10,703) (7,175)
Principal collections on financing leases.................... 5,968 5,062
Net increase in credit card receivables...................... (1,067) (839)
Buildings and equipment and equipment on operating leases:
- additions........................................... (4,214) (3,629)
- dispositions........................................ 2,074 2,033
Payments for principal businesses purchased, net of cash
acquired................................................... (3,236) (1,314)
Proceeds from principal businesses disposed.................. 575 -
Purchases of investment securities by insurance
affiliates and annuity businesses.......................... (10,153) (7,469)
Dispositions and maturities of investment
securities by insurance affiliates and annuity business.... 9,358 5,922
Other - net.................................................. (1,702) 2,928
--------- ---------
Cash used for investing activities - continuing
operations............................................. (14,826) (7,864)
Cash provided from investing activities - discontinued
operations............................................. 92 285
--------- ---------
Cash used for investing activities....................... (14,734) (7,579)
Cash Flows From Financing Activities
Net change in borrowings (maturities 90 days or less)........ (6,535) (4,927)
Newly issued debt - short-term (maturities 91-365 days)...... 1,862 2,354
- long-term.senior......................... 26,506 15,088
- long-term subordinated................... 298 -
Repayments and other reductions
- short-term (maturities 91-365 days)................ (11,336) (7,469)
- long-term senior................................... (597) (854)
Proceeds from sales of investment and annuity contracts...... 1,124 585
Redemption of investment and annuity contracts............... (1,956) (713)
Proceeds - non-recourse, leveraged lease debt 257 -
Principal payments - non-recourse, leverage lease debt....... (235) (246)
Dividends paid............................................... (645) (455)
Issuance of variable cumulative preferred stock by
consolidated affiliates.................................... 645 240
--------- ---------
Cash provided from financing activities - continuing
operations............................................. 9,388 3,603
Cash used for financing activities - discontinued
operations............................................. (1,388) (977)
--------- ---------
Cash provided from financing activities.................. 8,000 2,626
--------- ---------
Increase (decrease) in Cash and Equivalents.................. 869 (240)
Cash and Equivalents at Beginning of Period.................. 1,218 1,520
--------- ---------
Cash and Equivalents at End of Period........................ $ 2,087 $ 1,280
========= =========
<FN>
See Notes to Condensed, Consolidated Financial Statements
</TABLE>
3
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6
Item 1. Financial Statements (Continued).
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Notes to Condensed, Consolidated Financial Statements
(Unaudited)
1. The condensed, consolidated financial statements represent a
consolidation of General Electric Capital Services, Inc. ("Corporation")
and all majority-owned and controlled affiliates ("consolidated
affiliates"), except as discussed in Note 4 below. All outstanding
common stock of the Corporation is owned by General Electric Company.
("GE Company"). All significant transactions among the parent and
consolidated affiliates have been eliminated. In the opinion of
management, all adjustments of a normal recurring nature necessary to
present a fair statement of financial position as of September 30, 1995,
the statement of cash flows for the nine-month interim periods ended
September 30, 1995, and October 1, 1994, and the results of operations
for the three-month and nine-month interim periods ended September 30,
1995, and October 1, 1994, have been included. The condensed,
consolidated financial statements have been prepared in accordance with
the instructions for Form 10-Q and therefore do not include some
information and notes necessary to constitute a complete and detailed
presentation in conformity with annual reporting requirements.
2. The results of operations for the three and nine months ended September
30, 1995, should not be regarded as necessarily indicative of the
results that may be expected for the entire year.
3. The ratio of earnings to fixed charges was 1.54 for the nine months
ended September 30, 1995. For purposes of computing the ratio,
earnings consist of net earnings adjusted for provision for income
taxes, minority interest and fixed charges. Fixed charges consist of
interest and discount 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 of earnings to combined
fixed charges and preferred stock dividends was 1.54 for the nine months
ended September 30, 1995.
4. In November 1994, the Corporation elected to terminate the operations of
Kidder, Peabody Group Inc. ("Kidder, Peabody") by initiating an orderly
liquidation of its assets and liabilities. The financial results of the
discontinued securities broker-dealer operations are shown on a "one-
line" basis in the condensed, consolidated financial statements.
5. The Corporation adopted Statement of Financial Accounting Standards
("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan, and
the related SFAS No. 118, Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures, on January 1, 1995. The
adoption of these Statements had no effect on earnings or financial
position as the same level of allowance for losses was appropriate under
both the previous accounting policy and the newly-adopted policy.
4
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7
Item 1. Financial Statements (Continued).
6. The Corporation has completed several business acquisitions and entered
into definitive agreements to consummate other business acquisitions,
none of which, on a stand alone basis, were deemed significant for
purposes of Regulation S-X. In aggregate, however, the Corporation's
completed and probable acquisitions became significant as defined by
Regulation S-X and as a result, a Form 8-K was filed on September 14,
1995. The completed acquisitions, accounted for as purchases, have been
reflected in the accompanying consolidated financial statements of the
Corporation commencing with their respective acquisition dates. The
estimated purchase price of substantially all the completed and probable
acquisitions since December 31, 1994 amounted to $3,209 million.
Unaudited pro forma condensed results of operations of the Corporation
for each of the nine-month interim periods ended September 30, 1995 and
October 1, 1994, as if the acquisitions had occurred on January 1, 1995
and January 1, 1994, respectively, are as follows:
<TABLE>
<CAPTION>
September 30, October 1,
(In millions) 1995 1994
------------- -----------
<S> <C> <C>
Earned income............ $21,530 $17,308
Net earnings............. $ 1,887 $1,657
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 nine-month periods. The pro forma data
represent substantially all of the completed and probable acquisitions
since December 31, 1994.
</TABLE>
5
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Item 2. Management's Discussion and Analysis of Results of Operations.
Overview
Net earnings for the first nine months of 1995, all from continuing
operations, were $1,842 million, a $523 million increase from the first nine
months of 1994. The first nine months of 1994 included a $272 million loss
($485 million pretax) from the discontinued operations of Kidder, Peabody.
Discontinued Operations
In November 1994, the Corporation elected to terminate the operations of
Kidder, Peabody by initiating an orderly liquidation of its assets and
liabilities, including the sale of certain assets and operations to Paine
Webber Group Inc. The Corporation expects this liquidation will be largely
complete by the end of 1995.
Operating Results from Continuing Operations
Earnings from continuing operations were $1,842 million for the first nine
months of 1995, up 16% from $1,591 million for the first nine months of 1994.
Earnings of the Corporation's lending, leasing and equipment management
businesses are significantly influenced by the level of invested assets, the
related financing spreads (the excess of rates earned -- yields -- over rates
on borrowings) and the quality of those assets. The Corporation's increase in
net earnings principally resulted from a higher average level of invested
assets, partially offset by a decrease in spreads, as the increase in interest
rates paid on borrowings exceeded the increase in yields.
Earned income from continuing operations increased $5,048 million (35%) to
$19,268 million for the first nine months of 1995 over the first nine months of
1994.
Earned income from the Corporation's specialized financing, mid-market
financing, consumer services and equipment management businesses increased
$3,111 million (29%) over the comparable prior-year period principally
reflecting a higher average level of invested assets, resulting from both
origination volume and acquisitions of portfolios and businesses, and increased
yields. Earned income from the Corporation's specialty insurance businesses
increased $1,869 million (52%) over the comparable prior-year period, primarily
reflecting growth in premium and investment income in the property and casualty
reinsurance business due to business acquisitions during the past year and
increased volume.
Interest expense for the first nine months of 1995 increased $1,724
million (54%) from the first nine months of the prior year. The increase
reflected the effects of significantly higher interest rates and additional
borrowings required to finance the higher level of invested assets. The
Corporation's composite interest rate on borrowings for the first nine months
of 1995 was 6.79% compared with 5.23% for the first nine months of 1994.
Operating and administrative expenses were $5,550 million in the first
nine months of 1995, up 28% over the first nine months of 1994. This increase
reflected operating costs associated with the higher level of assets, largely
the result of businesses and portfolios acquired over the past year.
6
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9
Item 2. Management's Discussion and Analysis of Results of Operations
(Continued).
Insurance losses and policyholder and annuity benefits were $3,854 million
for the first nine months of 1995, compared with $2,561 million during the
first nine months of 1994, principally as a result of growth in the property
and casualty reinsurance business, and annuity benefits credited to customers
of the annuity business resulting from portfolios acquired in the second half
of 1994.
Provision for losses on financing receivables during the first nine months
of 1995 was $710 million, $103 million higher than during the comparable prior-
year period, principally reflecting growth in the Auto Financing Services and
Global Consumer Finance business portfolios and higher write-offs in the
domestic consumer credit card business.
Depreciation and amortization of buildings and equipment and equipment on
operating leases was $1,434 million in the first nine months of 1995, $240
million higher than in the first nine months of 1994, reflecting higher levels
of equipment on operating leases in the equipment management segment resulting
from portfolio growth and acquisitions.
Provision for income taxes for the first nine months of 1995 was $850
million (32% effective tax rate) compared with $618 million (28% effective tax
rate) for the comparable prior-year period. The higher provision for income
taxes was primarily due to increased pre-tax earnings subject to regular tax
rates. The increase in the effective tax rate was primarily attributable to
proportionately lower tax-exempt income on investment securities, lower levels
of earnings on leveraged leases having effective tax rates lower than statutory
rates and increased taxes on foreign income.
Portfolio Quality
Financing revenues are directly related to the largest financing asset,
the portfolio of financing receivables. The portfolio, net of the allowance for
losses, aggregated $87.4 billion at September 30, 1995, an increase of $11.0
billion (14%) from year-end 1994. The related allowance for losses was $2.4
billion (2.63% of receivables -- the same level as at the end of 1994) and is,
in management's judgment, appropriate given the risk profile of the portfolio.
A discussion of the portfolio quality of certain elements of financing
receivables and investments follows. For the purpose of this discussion,
"nonearning" receivables are those that are 90 days or more delinquent and
"reduced earning" receivables are those that have been restructured such that
the interest rate is below market.
Consumer loans receivable, primarily retailer and auto, were $26.1 billion
at September 30, 1995, an increase of $3.0 billion from the end of 1994. In
addition, the Corporation's investment in consumer auto finance lease
receivables was $11.8 billion at September 30, 1995, an increase of $4.3
billion from the end of 1994. Nonearning receivables increased to $581 million
at September 30, 1995, from $422 million at December 31, 1994, primarily
related to acquisitions. Write-offs of receivables were $469 million for the
first nine months of 1995, compared with $338 million for the first nine months
of 1994.
7
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Item 2. Management's Discussion and Analysis of Results of Operations
(Continued).
Commercial real estate investments were $18.8 billion at September 30,
1995, an increase of $1.9 billion from December 31, 1994. Commercial real
estate loans, the largest component of the Corporation's commercial real estate
investments, increased to $14.4 billion at September 30, 1995, from $13.3
billion at December, 31, 1994. Nonearning and reduced earning receivables were
$203 million at September 30, 1995, compared with $179 million at the prior
year end. Write-offs of commercial real estate loans were $102 million for the
first nine months of 1995, compared with $170 million for the comparable prior-
year period.
Other financing receivables relate primarily to a diverse commercial,
industrial and equipment loan and lease portfolio. Nonearning and reduced
earning receivables increased to $293 million at September 30, 1995, from $165
million at the prior year end. This portfolio included approximately $2.5
billion of financings provided for highly leveraged management buyouts and
corporate recapitalizations at September 30, 1995, essentially unchanged from
December 31, 1994.
The Corporation's aggregate loans and leases to commercial airlines at
September 30, 1995, increased to $8.0 billion from $7.6 billion at December 31,
1994, due to purchases of aircraft included in equipment on operating leases.
Accounting Standards to Be Adopted
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, requires, among other things, that certain long-lived assets be reviewed
for impairment whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment loss is recognized if,
upon such review, the sum of expected future cash flows is less than the
carrying amount of the asset. An impairment loss is measured based on the
difference between the carrying amount of the asset and its fair value. The
effect of adopting SFAS No. 121 is not expected to be material. Adoption is
required by no later than the first quarter of 1996.
SFAS No. 122, Accounting for Mortgage Servicing Rights, requires that
rights to service mortgage loans be recognized when the underlying loans are
sold. The standard also requires that capitalized mortgage servicing rights be
assessed for impairment by individual risk stratum based on the fair value of
such rights. Management is gathering information and evaluating the
requirements of SFAS No. 122, but has not determined the impact of its
application on the Corporation's financial position or results of operations.
Adoption is required by no later than the first quarter of 1996.
Other Matters
As 1995 progresses, management continues to believe that the diversity
and strength of the Corporation's assets, along with vigilant attention to risk
management, position it to deal effectively with a changing global economic
environment.
8
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EXHIBIT 12
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Fixed Charges and
Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
Nine months Ended September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Ratio Ratio of
of Earnings
Earnings to Combined
to Fixed Charges
Fixed and Preferred
(Dollar amounts in millions) Charges Stock Dividends
----------- ---------------
<S> <C> <C>
Net earnings.............................................. $ 1,842 $ 1,842
Provision for income taxes................................ 850 850
Minority interest in net earnings of consolidated
affiliates.............................................. 82 82
--------- ---------
Earnings before provision for income taxes and
minority interest....................................... 2,774 2,774
--------- ---------
Fixed charges:
Interest.................................................. 4,998 4,998
One-third of rentals...................................... 116 116
--------- ---------
Total fixed charges....................................... 5,114 5,114
--------- ---------
Less capitalized interest, net of amortization............ 13 13
--------- ---------
Earnings before provision for income taxes and
minority interest plus fixed charges.................... $ 7,875 $ 7,875
========= =========
Ratio of earnings to fixed charges........................ 1.54
=========
Preferred stock dividend requirements..................... $ -
Ratio of earnings before provision for income
taxes to net earnings................................... 1.46
---------
Preferred stock dividend on a pre-tax basis............... -
Fixed charges............................................. 5,114
---------
Total fixed charges and preferred stock dividend
requirements............................................ $ 5,114
=========
Ratio of earnings to combined fixed charges and
preferred stock dividends............................... 1.54
9 =========
</TABLE>
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12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
General
The following is not material to the Corporation, but is provided for
informational purposes. As previously reported, following GE Company's
announcement on April 17, 1994, of a $210 million charge to net earnings based
upon its discovery of false trading profits at its indirect subsidiary, Kidder,
Peabody & Co., Incorporated ("Kidder"), the United States Securities and
Exchange Commission, the United States Attorney for the Southern District of
New York, and the New York Stock Exchange initiated investigations, which are
ongoing, relating to the false trading profits. Also, two civil suits
purportedly brought on behalf of GE Company as shareholder derivative actions
were filed in New York State Supreme Court in New York County. Both suits
claim that GE Company's directors breached their fiduciary duties to GE Company
by failing to adequately supervise and control the Kidder employee responsible
for the irregular trading. One suit, claiming damages of over $350 million,
was filed on May 10, 1994, by the Teachers' Retirement System of Louisiana
against GE Company, its directors (other than Mr. Dammerman, Mr. Opie and Mr.
Penske), Kidder, its parent Kidder, Peabody Group Inc., and certain of Kidder's
former officers and directors. The other suit was filed on June 3, 1994, by
William Schrank and others against GE Company's directors claiming unspecified
damages and other relief. The defendants' time for responding to these
complaints was extended until 45 days after the plaintiffs' March 6, 1995
filing of an amended consolidated complaint. GE Company and the director
defendants have moved to dismiss the consolidated complaint. In addition,
various shareholders of GE Company have filed purported class action suits
claiming that GE Company, and certain of its directors and officers, among
others, allegedly violated federal securities laws by issuing statements
concerning GE Company's financial condition that included the false trading
profits at Kidder, and seeking compensatory damages for shareholders who
purchased GE Company's stock beginning as early as January 1993. The
defendants have filed motions to dismiss these purported class action suits.
On October 4, 1995, the court dismissed the complaint against GE Company, but
denied the motion to dismiss the complaint against Kidder.
Item 5. Other Information.
Pro Forma Condensed, Combined Financial Information
General Electric Capital Services, Inc., all of whose common stock is owned by
General Electric Company, is the sole owner of the common stock of General
Electric Capital Corporation and GE Global Insurance Holding Corporation which,
together with their subsidiaries and affiliates, constitute General Electric
Company's principal financial services businesses. General Electric Capital
Services, Inc. and its consolidated affiliates ("GE Capital Services") have
completed several business acquisitions, and entered into definitive agreements
to consummate other business acquisitions, none of which, on a stand alone
basis, were deemed significant for purposes of Regulation S-X. In aggregate,
however, GE Capital Services' completed and probable acquisitions became
significant for purposes of Regulation S-X and as a result, a Form 8-K was
filed on September 14, 1995. The acquisitions, described below, represent
substantially all of the completed and probable acquisitions (collectively
called the "Acquired Companies" or "Acquisitions") since December 31, 1994.
10
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13
Item 5. Other Information (Continued).
The Acquisitions involve expansion of GE Capital Services' existing
lines of business. GE Capital Services operates in four finance
industry segments and a specialty insurance segment. The segments most
affected by current year acquisitions are mid-market financing, consumer
services and specialty insurance.
General Electric Capital Corporation
Mid-market financing acquired the equipment finance and small business
finance businesses from a large multinational financial corporation.
The equipment finance business provides financing for customers to
purchase or lease capital assets, whereas the small business finance
business is the second largest non-bank lender under the Small Business
Administration's Section 7(a) loan program.
Two other acquisitions were completed jointly by mid-market financing
and consumer services as the activities acquired contain a mix of
financial products applicable to both segments. The first acquisition
resulted in the purchase of GE Capital Services' joint venture partner's
ownership share of a Hong Kong restricted license bank whose business
consists of deposit taking and installment finance, including personal
loans, leasing, business loans, property financing, residential
mortgages and related types of financing. The second acquisition
involved the purchase of a family owned business with half of its
portfolio invested in retail auto point of sale financing and the other
half invested in light equipment (e.g., copiers, security systems) and
heavy equipment (e.g., factory equipment) financing. This business
operates exclusively in France and its territories.
Other acquisitions, which relate solely to the consumer services
segment, included the purchase of a private label credit card business
from Australia's largest retail corporation and the purchase of a U.S.
based life insurance company providing long-term care, long-term
disability, corporate owned life and other group insurance (primarily
accidental death insurance).
GE Global Insurance Holding Corporation
GE Global Insurance Holding Corporation, ("GE Global Insurance") the
principal subsidiary of which is Employers Reinsurance Corporation,
acquired two major German reinsurance companies. These acquisitions
provide a foothold in the German market, an increased presence in the
European Union and the position of third largest global reinsurer. These
acquisitions also expand GE Global Insurance's presence in the motor,
fire and aviation risk reinsurance market.
The accompanying unaudited pro forma condensed, combined financial
information gives effect to the Acquired Companies described above.
The unaudited pro forma condensed, combined statement of financial
position as of September 30, 1995, combines the historical consolidated
balance sheet of GE Capital Services and the companies acquired, or are
probable of being acquired, subsequent to September 30, 1995, as if the
transactions had been effective September 30, 1995.
11
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14
Item 5. Other Information (Continued).
The unaudited pro forma condensed, combined statement of operations for
the nine months ended September 30, 1995 combines the historical
consolidated statement of operations of GE Capital Services and all
Acquired Companies as if the transactions had been effective on January
1, 1995.
The unaudited pro forma condensed, combined financial information has
been prepared by GE Capital Services based upon the principles of
purchase accounting assuming an aggregate estimated purchase price of
$3,209 million, including acquisition costs and estimable purchase price
adjustments as described in the accompanying notes. Under this method
of accounting, which is required by generally accepted accounting
principles, assets and liabilities of the Acquired Companies are
adjusted to their estimated fair values.
GE Capital Services continues to obtain detailed information in order to
appropriately allocate the cost of its investments to the fair values of
the Acquired Companies' assets and liabilities. The allocation of the
cost of the investments reflected in the pro forma data has been made
based on available information or assumptions management believes to be
reasonable. The excess of the purchase price over the estimated fair
value of the net assets acquired has been treated as goodwill. Actual
adjustments may differ based on the results of further evaluation of the
fair values of the assets and liabilities of the Acquired Companies.
Certain amounts relating to the unaudited pro forma condensed, combined
financial information of the Acquired Companies have been reclassified
to conform to GE Capital Services' presentation. It is possible that a
more detailed evaluation of the Acquired Companies may result in
additional reclassifications or adjustments of accounts or result in
changes to accounting principles of the Acquired Companies.
For purposes of preparing the accompanying unaudited pro forma
condensed, combined financial information, it is assumed that the
Acquisitions will be financed through commercial paper and long-term
borrowings.
The unaudited pro forma information does not purport to be indicative of
the results of operations or financial position of GE Capital Services
that would actually have resulted had the Acquisitions occurred at the
beginning of the periods presented and are not indicative of the results
that will be obtained in the future.
12
<PAGE>
15
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
AND ACQUIRED COMPANIES
Unaudited Pro Forma Condensed, Combined Statement of Financial Position
September 30, 1995
<TABLE>
<CAPTION>
Acquired
Companies
Subsequent
GE to Pro Forma
Capital September 30, Adjustments Pro Forma
(In millions) Services 1995 (Note 2) Combined
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Cash and equivalents........................... $ 2,087 $ 8 $ - $ 2,095
Investment securities.......................... 36,814 1,288 11 (A) 38,113
Financing receivables
Time sales and loans, net of deferred income... 55,879 - - 55,879
Investment in financing leases net of
deferred income.............................. 33,870 - - 33,870
-------- -------- -------- --------
89,749 - - 89,749
Allowance for losses on financing receivables.. (2,360) - - (2,360)
-------- -------- -------- --------
Financing receivables - net.................... 87,389 - - 87,389
Other receivables - net 10,063 2,048 - 12,111
Equipment on operating leases, at cost, less
accumulated amortization of $4,513........... 13,298 - - 13,298
Other assets................................... 20,792 240 (31)(A)(B) 21,001
Assets of discontinued operations.............. 1,426 - - 1,426
-------- -------- -------- --------
Total assets $171,869 $ 3,584 $ (20) $175,433
======== ======== ======== ========
Liabilities and equity
Notes payable within one year.................. $ 56,278 $ - $ - $ 56,278
Notes payable after one year................... 47,772 - 369 (A) 48,141
Insurance liabilities, reserves and annuity
benefits..................................... 34,534 3,197 30 (A) 37,761
Other liabilities.............................. 12,706 74 10 (A) 12,790
Deferred income taxes.......................... 6,806 (79) (37)(A) 6,690
Liabilities of discontinued operations......... 1,813 - - 1,813
-------- -------- -------- --------
Total liabilities.............................. 159,909 3,192 372 163,473
Total equity................................... 11,960 392 (392)(A) 11,960
-------- -------- -------- --------
Total liabilities and equity................... $171,869 $ 3,584 $ (20) $175,433
======== ======== ======== ========
<FN>
See accompanying notes to Unaudited Pro Forma Condensed, Combined Statement of Financial Position.
13
</TABLE>
<PAGE>
16
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
AND ACQUIRED COMPANIES
Notes to Unaudited Pro Forma Condensed,
Combined Statement of Financial Position
Note 1: The basis of presentation for the unaudited pro forma
condensed, combined statement of financial position is contained on
pages 10 through 12 of this Form 10-Q and should be read in
conjunction with the notes hereto.
Note 2: Pro forma adjustments and eliminations are as follows:
(A) Record the estimated purchase price, adjust the assets to
fair value, eliminate the equity and reflect the funding of the
acquisitions completed subsequent to September 30, 1995.
Goodwill arising as a result of these acquisitions is estimated
to be $66 million.
(B) Allocate a portion ($129 million) of the assumed purchase
price to the present value of future profits (PVFP),
representing the present value of estimated net cash flows
embedded in existing insurance contracts as of September 30,
1995. PVFP is actuarially estimated based on expected cash
flows from contracts in force, which include assumptions
related to investment income, surrender charges, assessments of
mortality, interest credited to in-force contracts, costs and
recurring expenses. Such net cash flows have been discounted
at 15% considering risks associated with the actuarial
assumptions used in estimating future net cash flows and recent
prices paid by others for similar books of business.
Amortization of PVFP, net of accretion as a percent of the
unamortized PVFP balance is estimated as 17% for 1996, 15% for
1997, 13% for 1998, and 11% for 1999 and 2000.
14
<PAGE>
17
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
AND ACQUIRED COMPANIES
Unaudited Pro Forma Condensed, Combined Statement of Operations
For the Nine Months Ended September 30, 1995
<TABLE>
<CAPTION>
GE Pro Forma
Capital Acquired Adjustments Pro Forma
(In millions) Services Companies (Note 2) Combined
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Earned income...................................... $ 19,268 $ 2,274 $ (12) (A) $ 21,530
-------- -------- ------ --------
Expenses
Interest........................................... 4,946 52 82 (B) 5,080
Operating and administrative....................... 5,632 569 26 (C) 6,227
Insurance losses and policyholder and annuity
benefits......................................... 3,854 1,446 - 5,300
Provision for losses on financing receivables...... 710 12 - 722
Depreciation and amortization of buildings and
equipment and equipment on operating leases..... 1,434 4 - 1,438
-------- -------- ------- --------
Earnings before income taxes....................... 2,692 191 (120) 2,763
Provision for income taxes......................... (850) (68) 42 (D) (876)
-------- -------- ------- --------
Net income (loss) from continuing operations....... $ 1,842 $ 123 $ (78) $ 1,887
======== ======== ======= ========
<FN>
See accompanying notes to Unaudited Pro Forma Condensed, Combined Statement of Operations.
15
</TABLE>
<PAGE>
18
GE CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
COMPANIES ACQUIRED
Notes to Unaudited Pro Forma Condensed, Combined Statement of Operations
Note 1: The basis of presentation for the unaudited pro forma condensed,
combined statement of operations is contained on pages 10
through 12 of this Form 10-Q and should be read in conjunction
with the notes hereto.
Note 2: Pro forma adjustments and eliminations are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1995
(In millions)
-------------------
<S> <C>
(A) Elimination of net gains on sales of securities
realized by the Acquired Companies. Such gains would not
have been recognized if the proposed Acquisition had
taken place on January 1 of each period as such investments
would have been recorded at fair value as a result of
purchase business combination accounting. Gains, if any,
that would have been realized under GE Capital Services'
ownership are not determinable. $ (5)
Elimination of investment income of the Acquired
Companies as a result of recording investments at fair
value assuming the Acquisitions were effected at January 1 (7)
------
$ (12)
======
(B) Interest expense on assumed additional borrowings
required to finance the Acquired Companies $ 134
Less: Elimination of interest expense
associated with the refinancing of the
Acquired Companies' debt by GE Capital Services (52)
------
$ 82
======
(C) Amortization of goodwill from the Acquisitions,
assumed to be over 15-20 years $ 17
Estimated costs, principally certain salaries, bonuses
and employee benefits, that the Acquired Companies
would not have incurred had the Acquisitions been
effected on January 1 (1)
Elimination of amortization of deferred acquisition
costs which would not have been expensed during
the nine months ended September 30, 1995 as a result
of purchase business combination accounting had the
Acquisitions been effected on January 1 (19)
Assumed net amortization of PVFP 29
------
$ 26
======
(D) Provisions for income taxes are based on the statutory
rate of 35%. The rate was applied to the pre-tax income
effects of pro forma adjustments for the nine months
ended September 30, 1995.
16
</TABLE>
<PAGE>
19
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
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.
A current report on Form 8-K was filed on September 14, 1995 under
Item 5 to disclose that the Registrant had completed several business
acquisitions, and entered into definitive agreements to consummate
other business acquisitions, which, on an aggregate basis, are
considered significant for purposes of Regulation S-X. None of the
acquisitions were considered significant for purposes of Regulation S-X
on a stand-alone basis.
17
<PAGE>
20
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 SERVICES, INC.
---------------------------------------
(Registrant)
Date: November 10, 1995 By: /s/ J.A. Parke
-------------------------------------------
J. A. Parke, Senior Vice President, Finance
(Principal Financial Officer)
Date: November 10, 1995 By: /s/ J.C. Amble
-------------------------------------------
J. C. Amble, Vice President and Controller
(Principal Accounting Officer)
18
<PAGE>
21
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No Page No.
- ---------- --------
<S> <C>
12 Computation of ratio of earnings to fixed charges and
computation of ratio of earnings to combined fixed
charges and preferred stock dividends................... 9
27 Financial Data Schedule (filed electronically only)
19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000797463
<NAME> GENERAL ELECTRIC CAPITAL SERVICES, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,087
<SECURITIES> 36,814
<RECEIVABLES> 89,749
<ALLOWANCES> 2,360
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,997
<DEPRECIATION> 5,452
<TOTAL-ASSETS> 171,869
<CURRENT-LIABILITIES> 0
<BONDS> 47,772
<COMMON> 1
0
10
<OTHER-SE> 11,949
<TOTAL-LIABILITY-AND-EQUITY> 171,869
<SALES> 0
<TOTAL-REVENUES> 19,268
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,550
<LOSS-PROVISION> 710
<INTEREST-EXPENSE> 4,946
<INCOME-PRETAX> 2,692
<INCOME-TAX> 850
<INCOME-CONTINUING> 1,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,842
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
1
EXHIBIT 12
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Fixed Charges and
Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
Nine Months Ended September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Ratio Ratio of
of Earnings
Earnings to Combined
to Fixed Charges
Fixed and Preferred
(Dollar amounts in millions) Charges Stock Dividends
--------- ---------------
<S> <C> <C>
Net earnings...................................................... $ 1,693 $ 1,693
Provision for income taxes........................................ 837 837
Minority interest in net earnings of consolidated
affiliates...................................................... 48 48
-------- --------
Earnings before provision for income taxes and
minority interest............................................... 2,578 2,578
-------- --------
Fixed charges:
Interest...................................................... 4,842 4,842
One-third of rentals.......................................... 113 113
-------- --------
Total fixed charges............................................... 4,955 4,955
-------- --------
Less capitalized interest, net of amortization.................... 13 13
-------- --------
Earnings before provision for income taxes and
minority interest plus fixed charges............................ $ 7,520 $ 7,520
======== ========
Ratio of earnings to fixed charges................................ 1.52
========
Preferred stock dividend requirements............................. $ 33
Ratio of earnings before provision for income
taxes to net earnings........................................... 1.49
--------
Preferred stock dividend on a pre-tax basis....................... 49
Fixed charges..................................................... 4,955
--------
Total fixed charges and preferred stock dividend requirements..... $ 5,004
========
Ratio of earnings to combined fixed charges and preferred
stock dividends................................................. 1.50
========
</TABLE>
