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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
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Commission file number 0-14804
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General Electric Capital Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1109503
(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 (Zip Code) (Registrant's telephone number,
executive offices) including area code)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
Name of each
Title of each class exchange on which registered
7 1/2% Guaranteed Subordinated New York Stock Exchange
Notes Due August 21, 2035
SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT:
Title of each class
Common Stock, par value $1,000 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
At March 17, 2000, 1,012 shares of voting common stock, which constitute all of
the outstanding common equity, with a par value of $1,000 were outstanding.
Aggregate market value of the outstanding common equity held by nonaffiliates of
the registrant at March 17, 2000. None.
DOCUMENTS INCORPORATED BY REFERENCE
The consolidated financial statements of General Electric Company, set forth in
the Annual Report on Form 10-K of General Electric Company for the year ended
December 31, 1999 are incorporated by reference into Part IV hereof.
Item 1. Business - Property and Casualty Reserves for Unpaid Claims and Claim
Expenses, set forth in the Annual Report on Form 10-K of GE Global Insurance
Holding Corporation for the year ended December 31, 1999 is incorporated by
reference into Part I hereof.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business ..................................................... 1
Item 2. Properties ................................................... 9
Item 3. Legal Proceedings ............................................ 9
Item 4. Submission of Matters to a Vote of Security Holders .......... 9
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ....................................... 10
Item 6. Selected Financial Data ...................................... 10
Item 7. Management's Discussion and Analysis of Results of Operations . 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .... 18
Item 8. Financial Statements and Supplementary Data ................... 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ....................... 41
PART III
Item 10. Directors and Executive Officers of the Registrant ........... 42
Item 11. Executive Compensation ....................................... 42
Item 12. Security Ownership of Certain Beneficial Owners and Management 42
Item 13. Certain Relationships and Related Transactions ............... 42
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K .................................................. 43
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PART I
Item 1. Business.
GENERAL ELECTRIC CAPITAL SERVICES, INC.
General Electric Capital Services, Inc. (herein, together with its consolidated
affiliates, called "GE Capital Services", "the Corporation" or "GECS" unless the
context otherwise requires) was incorporated in 1984 in the State of Delaware.
Until February 1993, the name of the Corporation was General Electric Financial
Services, Inc. All outstanding common stock of GE Capital Services is owned
directly or indirectly by General Electric Company, a New York corporation ("GE
Company"). The business of GE Capital Services consists of ownership of two
principal subsidiaries which, together with their affiliates, constitute GE
Company's principal financial services businesses. GE Capital Services is the
sole owner of the common stock of General Electric Capital Corporation ("GE
Capital" or "GECC") and GE Global Insurance Holding Corporation ("GE Global
Insurance" or "GIH").
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, which was formed in 1932.
The capital stock of GE Capital was contributed to GE Capital Services by GE
Company in June 1984. Until November 1987, the name of the corporation was
General Electric Credit Corporation. The business of GE Capital originally
related principally to financing the distribution and sale of consumer and other
products of GE Company. Currently, however, the types and brands of products
financed and the services offered are significantly more diversified. Very few
of the products financed by GE Capital are manufactured by GE Company.
GE Capital operates in five key operating segments that are described below.
These operations are subject to a variety of regulations in their respective
jurisdictions. In addition, as discussed on page 12, GE Capital acquired control
of Montgomery Ward LLC ("Wards") on August 2, 1999. Further information about
Wards is provided in the description of GE Capital's Other operating activities.
Services of GE Capital are offered primarily in the United States, Canada,
Europe and the Pacific Basin. GE Capital's principal executive offices are
located at 260 Long Ridge Road, Stamford, Connecticut 06927. At December 31,
1999, GE Capital and affiliates employed approximately 125,600 persons,
including approximately 30,000 employees associated with the consolidation of
the retail operations of Montgomery Ward LLC.
GE GLOBAL INSURANCE HOLDING CORPORATION
GE Global Insurance, together with its affiliates, writes substantially all
lines of reinsurance and certain lines of property and casualty insurance. GE
Global Insurance has three principal subsidiaries: Employers Reinsurance
Corporation, GE Reinsurance Corporation (formerly Kemper Reinsurance
Corporation) and Medical Protective Corporation. These affiliates, together with
their direct and indirect subsidiaries, reinsure property and casualty risks
written by more than 1,000 insurers around the world. They also write certain
specialty lines of insurance on a direct basis, principally excess workers'
compensation for self-insurers, medical malpractice coverage for physicians and
dentists, errors and omissions coverage for insurance agents and brokers, excess
indemnity for self-insurers of medical benefits, and libel and allied torts.
Other property and casualty affiliates write excess and surplus lines insurance
and provide reinsurance brokerage services. The life reinsurance affiliates are
engaged in the reinsurance of life insurance products, including term, whole and
universal life, annuities, group long-term health products and the provision of
financial reinsurance to life insurers.
During 1999, GE Global Insurance acquired a major property and casualty
reinsurance business that strengthens its presence in the London broker-serviced
market. Also in 1999, Employers Reinsurance Corporation sold its reinsurance
brokerage subsidiary.
Insurance and reinsurance operations are subject to regulation by various
insurance regulatory agencies.
GE Global Insurance and its affiliates conduct business throughout the world
using a network of local offices. The world headquarters of GE Global Insurance
is located at 5200 Metcalf Avenue, Overland Park, Kansas 66201. At December 31,
1999, GE Global Insurance and affiliates employed approximately 4,100 persons.
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Item 1. Business - Property and Casualty Reserves for Unpaid Claims and Claim
Expenses, set forth in the Annual Report on Form 10-K of GE Global Insurance
Holding Corporation for the year ended December 31, 1999, is incorporated by
reference hereto.
OPERATING SEGMENTS
The Corporation provides a wide variety of financing, asset management, and
insurance products and services which are organized into the following operating
segments:
o Consumer Services - private-label card loans, personal loans, time
sales and revolving credit and inventory financing for retail
merchants, auto leasing and inventory financing, mortgage
servicing, retail businesses and consumer savings and insurance
services.
o Equipment Management - leases, loans, sales and asset management
services for portfolios of commercial and transportation equipment,
including aircraft, trailers, auto fleets, modular space units,
railroad rolling stock, data processing equipment, containers used
on ocean-going vessels, and satellites.
o Mid-Market Financing - loans, financing and operating leases, and
other services for middle-market customers, including
manufacturers, distributors and end-users, for a variety of
equipment that includes vehicles, corporate aircraft, data
processing equipment, medical and diagnostic equipment, and
equipment used in construction, manufacturing, office applications,
electronics and telecommunications activities.
o Specialized Financing - loans and financing leases for major
capital assets, including industrial facilities and equipment, and
energy-related facilities; commercial and residential real estate
loans and investments; and loans to and investments in public and
private entities in diverse industries.
o Specialty Insurance - U.S. and international multiple-line property
and casualty reinsurance; certain directly written specialty
insurance and life reinsurance; financial guaranty insurance,
principally on municipal bonds and structured finance issues;
private mortgage insurance; and creditor insurance covering
international customer loan repayments.
Refer to Item 7, "Management's Discussion and Analysis of Results of
Operations," in this Annual Report on Form 10-K for discussion of the
Corporation's Portfolio Quality. A description of the Corporation's principal
businesses by operating segment follows.
CONSUMER SERVICES
GE Financial Assurance
GE Financial Assurance ("GEFA") provides consumers financial security solutions
by selling a wide variety of insurance, investment and retirement products,
primarily in the United States and Japan. These products help consumers
accumulate wealth, transfer wealth, and protect their lifestyles and assets and
are sold through a family of regulated insurance and annuity companies.
GEFA's principal product lines are annuities (deferred and immediate; either
fixed or variable), life insurance (universal, term, ordinary and group),
guaranteed investment contracts, mutual funds, long-term care insurance,
supplemental accident and health insurance, personal lines of automobile
insurance and credit insurance. The distribution of these products is
accomplished through four distribution methods: intermediaries (brokerage
general agents, banks, securities brokerage firms, personal producing general
agents and specialized brokers), career or dedicated sales forces, marketing
through businesses and affinity groups and direct marketing.
GEFA's principal operating companies include General Electric Capital Assurance
Company, First Colony Life Insurance Company, GE Life and Annuity Assurance
Company (formerly The Life Insurance Company of Virginia), Colonial Penn
Insurance Company, Union Fidelity Life Insurance Company, GE Edison Life
Insurance Company and GE Capital Life Assurance of New York.
GEFA headquarters are in Richmond, Virginia.
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Auto Financial Services
GE Capital Auto Financial Services ("AFS") provides financial services to
automobile dealers, manufacturers, financing companies and the consumer
customers of those entities in North America.
In the United States, AFS is a leading independent financier of leases for new
and used motor vehicles leased at retail and sub-prime and prime financing
products to consumers through a variety of distribution channels. In addition,
AFS provides private-label programs for auto manufacturers and inventory
financing programs and direct loans to auto dealers and finance companies.
AFS headquarters are in Barrington, Illinois.
Global Consumer Finance Auto Europe
GCF Auto Europe ("GCF Auto Europe") is a leading independent provider of
automobile financing products to automobile dealers and their customers in
Europe. Products include hire purchase contracts, finance leases, operating
leases, loans, revolving credit facilities and insurance premium financing.
GCF Auto Europe has a significant presence in the United Kingdom, the Republic
of Ireland, Portugal, France, Spain, Italy, Sweden and Denmark.
The headquarters of GCF Auto Europe are in Dublin, Republic of Ireland.
GE Card Services
GE Card Services ("CS") provides sales financing services to North American
retailers in a broad range of consumer industries. Details of financing plans
differ, but include customized private-label credit card programs with retailers
and inventory financing programs with manufacturers, distributors and retailers.
CS provides financing directly to customers of retailers or purchases the
retailers' customer receivables. Most of the retailers sell a variety of
products of various manufacturers on a time sales basis. The terms for these
financing plans differ according to the size of contract and credit standing of
the customer. CS generally maintains a security interest in the merchandise
financed. Financing is provided to consumers under contractual arrangements,
both with and without recourse to retailers. CS' wide range of financial
services includes application processing, sales authorization, statement
billings, customer services and collection services. CS provides inventory
financing for retailers primarily in the appliance and consumer electronics
industries. CS maintains a security interest in the inventory and retailers are
obliged to maintain insurance coverage for the merchandise financed.
CS also issues and services the GE Capital Corporate Card product, providing
payment and information systems which help medium and large-sized companies
reduce travel costs and the GE Capital Purchasing Card product, which helps
customers streamline their purchasing and accounts payable processes.
On June 30, 1999, CS completed its exit from the consumer bankcard business
through the sale of approximately $3.4 billion in financing receivables, of
which $2.2 billion were sold in December 1998. These were principally
MasterCard(R) and Visa(R) credit loan products issued to retail customers
throughout the United States.
On December 6, 1999, CS acquired J.C. Penney's ("JCP") private label credit card
accounts receivable and their credit card services facilities for approximately
$3.2 billion. In addition, the Corporation entered into an initial 10-year
agreement with JCP to provide private label credit card services.
CS headquarters are in Stamford, Connecticut.
Global Consumer Finance
GE Capital Global Consumer Finance ("GCF") is a leading provider of credit
services to non-U.S. retailers and consumers. GCF provides private-label credit
cards and proprietary credit services to retailers in Europe, Asia, and, to a
lesser extent, South America as well as offering a variety of direct-to-consumer
credit programs such as consumer loans, bankcards and credit insurance. GCF's
wide range of proprietary financial services includes private-label credit
cards, credit promotion and accounting services, billing (in the retailer's
name) and customer credit and collection services.
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GCF provides financing to consumers through operations in the United Kingdom,
Austria, France, Republic of Ireland, Germany, The Netherlands, Italy, Spain,
Portugal, Poland, Switzerland, the Czech Republic, Japan, Thailand, Hong Kong,
China, Brazil and Australia and joint ventures in Indonesia, India and Brazil.
GCF headquarters are in Stamford, Connecticut.
Mortgage Services
GE Capital Mortgage Services, Inc. ("GECMSI"), a wholly-owned affiliate of GE
Capital Mortgage Corporation, is engaged primarily in the business of
originating, purchasing, selling and servicing residential mortgage loans
collateralized by one-to-four-family homes located throughout the United States.
GECMSI obtains servicing through the origination and purchase of mortgage loans
and servicing rights, and primarily packages the loans it originates and
purchases into mortgage-backed securities which it sells to investors. GECMSI
also originates and services home equity loans.
GECMSI headquarters are in Cherry Hill, New Jersey.
EQUIPMENT MANAGEMENT
Aviation Services
GE Capital Aviation Services ("GECAS") is a global commercial aviation financial
services business that offers a broad range of financial products to airlines
and aircraft operators, owners, lenders and investors. Financial products
include operating leases, sale/leasebacks, aircraft purchasing and trading,
financing leases, engine/spare parts financing, pilot training, fleet planning
and financial advisory services.
GECAS owns or manages a fleet of nearly 900 aircraft world-wide with more than
200 additional planes on order or on option from Boeing and Airbus. GECAS has
155 customers in 54 countries.
GECAS headquarters are in Stamford, Connecticut, with regional offices in
Shannon, Republic of Ireland; Miami, Florida; Vienna, Austria; Beijing and Hong
Kong, China and Singapore.
Fleet Services
GE Capital Fleet Services ("GECFS") is one of the leading corporate fleet
management companies with operations in North America, Europe, Australia, New
Zealand, Brazil and Japan with approximately 1 million cars and trucks under
lease and service management. GECFS offers finance and operating leases to
several thousand customers with an average lease term of 36 months. The primary
product in North America is a Terminal Rental Adjustment Clause (TRAC) lease
through which the customer assumes the residual risk - that is, risk that the
book value will be greater than market value at lease termination. In Europe,
the primary product is a closed-end lease in which GECFS assumes residual risk.
In addition to the services directly associated with the lease, GECFS offers
value-added fleet management services designed to reduce customers' total fleet
management costs. These services include, among others, maintenance management
programs, accident services, national account purchasing programs, fuel programs
and title and licensing services. GECFS customer base is diversified with
respect to industry and geography and includes many Fortune 500 companies.
In 1999, GECFS completed several acquisitions. These included Japan Lease Auto
Corporation - a leading fleet leasing company in Japan, a small fleet leasing
portfolio from Bank of America in the United States, InTraffic - a fleet
services provider in Sweden and McClean Leasing in Canada.
GECFS headquarters are in Eden Prairie, Minnesota.
Information Technology Solutions
GE Capital Information Technology Solutions ("IT Solutions") is a leading
worldwide provider of a broad array of information technology products and
services, including full life cycle services that provide customers with
cost-effective control and management of their information systems. Products
offered include desktop personal computers, client server systems, UNIX systems,
local and wide area network hardware, and software. Services offered include
network design, network support, asset management, help desk, disaster recovery,
enterprise management and financial services. IT Solutions serves commercial,
educational and governmental customers in over 20 countries.
IT Solutions headquarters are in Newport, Kentucky.
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Transport International Pool
Transport International Pool ("TIP") is one of the global leaders in renting,
leasing, selling and financing transportation equipment. TIP's fleet of over
350,000 dry freight, refrigerated and double vans, flatbeds, intermodal assets,
and specialized trailers is available for rent, lease or purchase at over 250
locations in the United States, Europe, Canada, and Mexico. TIP's commercial
vehicle fleet of over 24,000 units is available for rent, lease, or purchase in
the United Kingdom. TIP also finances new and used trailers and buys trailer
fleets. TIP's customer base comprises trucking companies, railroads, shipping
lines, manufacturers and retailers.
TIP operates a European service center in Amsterdam, The Netherlands and a
commercial vehicle operations and administrative center in Manchester, England.
TIP headquarters are in Devon, Pennsylvania.
GE SeaCo/GE Capital Container Finance Corporation
In May 1998, GE Capital and Sea Containers Ltd. formed GE SeaCo SRL ("GE
SeaCo"), a joint venture which operates the combined marine container fleets of
Genstar Container Corporation ("Genstar") and Sea Containers. GE SeaCo is one of
the world's largest lessors of marine shipping containers with a combined fleet
of over 1,100,000 TEU ("twenty foot equivalent units") of dry cargo,
refrigerated and specialized containers for global cargo transport. Lessees are
primarily shipping lines that lease on a long term or master lease basis.
Concurrent with the formation of the joint venture, GE Capital Container Finance
Corporation ("GECCF") was created to service the existing finance lease
portfolio formerly run by Genstar, and to provide traditional finance leases and
structured finance products to the global marine container industry.
GE SeaCo headquarters are in Bridgetown, Barbados. GECCF headquarters are in
Oakland, California.
Penske Truck Leasing
GE Capital is a limited partner in Penske Truck Leasing ("Penske"), which is a
leading provider of full-service truck leasing and commercial and consumer truck
rental in the United States. Penske operates through a national network of
full-service truck leasing and rental facilities. At December 31, 1999, Penske
had a fleet of about 98,000 tractors, trucks and trailers in its leasing and
rental fleets and provided contract maintenance programs or other support
services for about 33,000 additional vehicles.
Penske also provides dedicated logistics operations support which combines
company-employed drivers with its full-service lease vehicles to provide
dedicated contract carriage services. In addition, Penske offers supply chain
services such as distribution consulting, warehouse management and information
systems support.
Penske headquarters are in Reading, Pennsylvania.
GE American Communications
GE American Communications ("GE Americom") is a leading satellite service
supplier to a diverse array of customers, including the broadcast and cable TV
industries, broadcast radio, business information and integrated communications
services for government and commercial customers. GE Americom operates 13
communications satellites and maintains a supporting network of earth stations,
central terminal offices, and telemetry, tracking and control facilities.
GE Americom headquarters are in Princeton, New Jersey.
Railcar Services
GE Capital Railcar Services ("GERSCO") is one of the leading railcar leasing
companies in North America, with a fleet of 190,000 railcars in its total
portfolio. Serving Class 1 railroads, short-line railroads, and shippers
throughout North America, GERSCO offers one of the most diverse fleets in the
industry, and a variety of lease options.
GERSCO also owns and operates a network of railcar repair and maintenance
facilities located throughout North America. The repair facilities offer a
variety of services, ranging from light maintenance to heavy repair of damaged
railcars. The company also provides railcar management, administration and other
services.
In addition, GERSCO is a pan-European provider of rail transport services,
offering a broad range of railcar equipment and rail-related services to
railroads, shippers and other transport providers.
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European sales offices are in England, France, Germany, Italy and Sweden. GERSCO
headquarters are in Chicago, Illinois.
Modular Space
GE Capital Modular Space ("GECMS") provides commercial mobile and modular
structures for rental, lease and sale from over 100 facilities in the United
States, Europe, Canada and Mexico. The primary markets served include
construction, education, healthcare, financial, commercial, institutional and
government. GECMS products are available as custom mobile and modular buildings,
designed to customer specifications, or are available through the GECMS stock
fleet of approximately 125,000 mobile and modular units.
GECMS has offices in North America and Europe. GECMS world headquarters are in
Malvern, Pennsylvania; its European headquarters are in Antwerp, Belgium.
MID-MARKET FINANCING
Commercial Equipment Financing
GE Capital Commercial Equipment Financing ("CEF") offers a broad line of
financial products including leases and loans to middle-market customers,
including manufacturers, distributors, dealers and end-users, as well as
municipal financing. Products are either held for CEF's own account or brokered
to third parties.
Generally, transactions range in size from $50 thousand to $50 million, with
financing terms from 36 to 180 months. CEF also maintains an asset management
operation that redeploys off-lease equipment. The portfolio includes loans and
leases for vehicles, manufacturing equipment, corporate aircraft, construction
equipment, medical diagnostic equipment, office equipment, telecommunications
equipment and electronics.
CEF operates from offices throughout the United States, Puerto Rico, Canada,
Mexico, Europe and Asia and through joint ventures in Indonesia and China. CEF
headquarters are in Danbury, Connecticut.
In 1999, CEF, along with Vendor Financial Services, purchased the leasing and
installment sales divisions of Japan Leasing Corporation.
Vendor Financial Services
GE Capital Vendor Financial Services ("VFS") provides financing services to over
100 equipment manufacturers and more than 3,500 dealers in North America, Europe
and Asia (including Japan). Customers include major U.S. and non-U.S.
manufacturers in a variety of industries including information technology,
office equipment, healthcare, telecommunications, energy and industrial
equipment. VFS establishes sales financing in two ways - by forming captive
partnerships with manufacturers that do not have them, and by outsourcing
captives from manufacturers that do. VFS offers industry-specific knowledge,
leading edge technology, leasing and equipment expertise, and global
capabilities. In addition, VFS provides an expanding array of related financial
services to customers including trade payables financing.
VFS has sales offices throughout the United States, Canada, Europe, Asia
(including Japan), and Australia. VFS headquarters are in Danbury, Connecticut.
European Equipment Finance
GE Capital European Equipment Finance ("EEF") is one of Europe's leading
diversified equipment leasing businesses, offering financial solutions on a
single-country or pan-European basis. Customers include manufacturers, vendors
and end-users in industries such as office imaging, materials handling,
corporate aircraft, information technology, broadcasting, machine tools,
telecommunications and transportation. Products and services include loans,
leases, off-balance sheet financing, master lease coordination and other
services, such as helping end-users increase purchasing power through financing
options and helping manufacturers and vendors offer leasing programs.
EEF operates from offices in the United Kingdom, Italy, France, Germany,
Belgium, Republic of Ireland, Portugal, and the Nordic countries. EEF
headquarters are in Hounslow, England.
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SPECIALIZED FINANCING
Real Estate
GE Capital Real Estate ("Real Estate") provides funds for the acquisition,
refinancing and renovation of a wide range of commercial and residential
properties located throughout the United States, and, to a lesser extent, in
Canada, Mexico, Europe, and the Far East. Real Estate also provides asset
management services to real estate investors and selected services to real
estate owners.
Lending is a major portion of Real Estate's business in the form of
intermediate-term senior or subordinated fixed and floating-rate loans secured
by existing income-producing commercial properties such as office buildings,
rental apartments, shopping centers, industrial buildings, mobile home parks,
hotels and warehouses. Loans range in amount from single-property mortgages
typically not less than $5 million to multi-property portfolios of several
hundred million dollars. Approximately 90% of all loans are senior mortgages.
Real Estate purchases and provides restructuring financing for portfolios of
real estate, mortgage loans, limited partnerships, and tax-exempt bonds. Real
Estate's business also includes the origination and securitization of low
leverage real estate loans, which are intended to be held less than one year
before outplacement. To a lesser degree, Real Estate provides equity capital for
real estate partnerships through the holding of limited partnership interests
and receives preferred returns; typically such investments range from $2 million
to $10 million.
Real Estate also offers a variety of real estate management services to outside
investors, institutions, corporations, investment banks, and others through its
real estate services subsidiaries. Asset management services include
acquisitions and dispositions, strategic asset management, asset restructuring,
and debt and equity management. Real Estate also provides investment products
and advisory and asset management services to pension fund clients through GE
Capital Investment Advisors, its registered investment advisor, as well as loan
administration and servicing through GE Capital Asset Management. In addition,
Real Estate offers owners of multi-family housing ways to reduce costs and
enhance value in properties by offering buying services (e.g., for appliances,
roofing).
Real Estate has offices throughout the United States, as well as in Canada,
Mexico, Australia, Japan, Sweden, France and the United Kingdom. Real Estate
headquarters are in Stamford, Connecticut.
Structured Finance Group
GE Capital Structured Finance Group ("SFG") makes equity investments and
provides specialized financial products and services to its client partners in
the commercial and industrial, energy, telecommunications, and transportation
sectors, worldwide.
SFG combines industry and technical expertise with significant financial
capabilities to deliver a full range of sophisticated financial services and
products. Services include project finance (construction and term), corporate
finance, acquisition finance and arrangement and placement services. Products
include a variety of debt and equity instruments, as well as structured
transactions, including leasing and partnerships. SFG manages an investment
portfolio of approximately $11 billion.
SFG headquarters are in Stamford, Connecticut and it has regional offices in
Atlanta, Georgia; Chicago, Illinois; Hong Kong, China; Houston, Texas; London,
United Kingdom; Mexico City, Mexico; Sao Paulo, Brazil; and Toronto, Canada.
Commercial Finance
GE Capital Commercial Finance ("CF") is a leading provider of revolving and term
debt and equity to finance acquisitions, business expansion, bank refinancings,
recapitalizations and other special situations. Products also include asset
securitization facilities, capital expenditure lines and bankruptcy-related
facilities. Transactions typically range in size from under $2 million to over
$200 million.
CF's clients are owners, managers and buyers of both public and private
companies, principally manufacturers, distributors, retailers and diversified
service providers, and has industry specialists in the healthcare, retail and
communications industries. Through its Merchant Banking Group, CF provides
senior debt, subordinated debt and bridge financing to buyout and private equity
firms, and co-invests equity with buying groups or invests directly on a select
basis.
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CF has lending operations in 25 cities, including international offices in
Canada, Mexico, Thailand, Australia, The Netherlands, and the United Kingdom,
and also has significant factoring operations in France, Germany, the United
Kingdom and Italy serving European companies and U.S. exporters. CF headquarters
are in Stamford, Connecticut.
GE Equity
GE Equity (formerly Equity Capital Group) purchases equity investments,
primarily convertible preferred and common stock investments including, in some
cases, stock warrants convertible into equity ownership. GE Equity's primary
objective is long-term capital appreciation. Investments include the retail,
financial services, telecommunications, healthcare, food and beverage, cable and
broadcasting industries.
The portfolio is geographically diversified with investments located throughout
the United States, as well as in Latin America, Europe and Asia.
GE Equity headquarters are in Stamford, Connecticut.
SPECIALTY INSURANCE
In addition to GE Global Insurance Holding Corporation (discussed above), GECS
principal specialty insurance businesses are as follows.
Financial Guaranty Insurance
FGIC Holdings ("FGIC"), through its subsidiary, Financial Guaranty Insurance
Company ("Financial Guaranty"), is an insurer of municipal bonds, including new
issues, bonds traded in the secondary market and bonds held in unit investment
trusts and mutual funds. Financial Guaranty also guarantees certain taxable
structured debt. The guaranteed principal, after reinsurance, amounted to
approximately $137.4 billion at December 31, 1999. Approximately 85% of the
business written to date by Financial Guaranty is municipal bond insurance.
FGIC subsidiaries provide a variety of services to state and local governments
and agencies, liquidity facilities in variable-rate transactions, municipal
investment products and other services.
FGIC headquarters are in New York, New York.
Mortgage Insurance
GE Capital Mortgage Insurance is engaged principally in providing residential
mortgage guaranty insurance. Operating in 25 field locations, GE Capital
Mortgage Insurance is licensed in 50 states, the District of Columbia and the
Virgin Islands. At December 31, 1999, GE Capital Mortgage Insurance was the
mortgage insurance carrier for over 1,460,000 residential homes, with total
insurance in force aggregating approximately $152 billion and total risk in
force aggregating approximately $52 billion. When a claim is received, GE
Capital Mortgage Insurance proceeds by either paying up to a guaranteed
percentage based on the specified coverage, or paying the mortgage and
delinquent interest, taking title to the property and arranging for its sale. GE
Capital Mortgage Insurance also provides mortgage guaranty insurance in the
United Kingdom, Canada, and Australia.
GE Capital Mortgage Insurance headquarters are in Raleigh, North Carolina.
GE Insurance Holdings
GE Insurance Holdings (formerly Consolidated Financial Insurance) is a leading
specialty insurer with operations in 13 European countries and the Philippines.
GE Insurance Holdings is one of the leading payment protection insurers in the
United Kingdom and Europe. Payment protection insurance is designed to protect
customers' loan repayment obligations in the event of unemployment, disability
or death. The product is sold alongside most forms of consumer credit through
banks, building societies and finance houses.
GE Insurance Holdings also provides an extensive range of personal investment
products, including pension and purchased life annuities, home income plans and
investment bonds through a network of over 6,000 independent financial advisors
and a direct sales force, in the United Kingdom.
In addition, GE Insurance Holdings sells pet insurance, provides travel and
personal accident insurance, and offers the management of uninsured loss claims
on behalf of victims of traffic accidents.
GE Insurance Holdings headquarters are in London, England.
8
<PAGE>
OTHER
Wards
All other consists primarily of Montgomery Ward LLC ("Wards").
Wards is one of the largest retail merchandising operations in the United
States. Wards offers a wide range of branded and private-label merchandise
including apparel, fine jewelry, furniture, home furnishings, appliances,
electronics, and automotive services.
Wards operates 252 stores in 32 states, encompassing approximately 20 million
square feet of selling space. Wards is currently rolling out an aggressive store
remodeling program designed to enhance the shopping experience and offer better
presentation of its merchandise. Through 1999, 43 stores have been remodeled,
with an additional 75 to 80 stores to be completed during 2000 and 2001.
Wards is headquartered in Chicago, Illinois.
REGULATIONS AND COMPETITION
The Corporation's activities are subject to a variety of federal and state
regulations including, at the federal level, the Consumer Credit Protection Act,
the Equal Credit Opportunity Act and certain regulations issued by the Federal
Trade Commission. A majority of states have ceilings on rates chargeable to
customers in retail time sales transactions, installment loans and revolving
credit financing. Common carrier services of GE Americom are subject to
regulation by the Federal Communications Commission. Insurance and reinsurance
operations are subject to regulation by various state insurance commissions or
foreign regulatory authorities, as applicable. The Corporation's international
operations are subject to regulation in their respective jurisdictions. To date,
compliance with such regulations has not had a material adverse effect on the
Corporation's financial position or results of operations.
The businesses in which the Corporation engages are highly competitive. The
Corporation is subject to competition from various types of financial
institutions, including banks, thrifts, investment banks, broker-dealers, credit
unions, leasing companies, consumer loan companies, independent finance
companies, finance companies associated with manufacturers, insurance and
reinsurance companies.
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
9
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
See note 13 to the consolidated financial statements. The common stock of the
Corporation is owned entirely by GE Company and an affiliate and, therefore,
there is no trading market in such stock.
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with the
financial statements of GE Capital Services and consolidated affiliates and the
related Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------------------------
(Dollars in millions) 1999 1998 1997 1996 1995
------------------------------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues .................................. $ 55,749 $ 48,694 $ 39,931 $ 32,713 $ 26,492
Net earnings .............................. 4,443 3,796 3,256 2,817 2,415
Return on common equity (a) (b) ........... 23.74% 23.46% 22.59% 22.24% 21.98%
GECS ratio of earnings to fixed charges ... 1.62 1.55 1.56 1.55 1.53
GECC ratio of earnings to fixed charges ... 1.60 1.50 1.48 1.53 1.51
GECC ratio of debt to equity .............. 8.44 7.86 7.45 7.84 7.59
Financing receivables - net ............... $ 137,629 $ 121,566 $ 103,799 $ 99,714 $ 93,272
Total assets............................... 345,018 303,297 255,408 227,419 185,729
Short-term borrowings ..................... 129,259 113,162 95,274 77,945 62,808
Long-term senior notes .................... 69,770 58,042 44,993 46,680 47,794
Long-term subordinated notes .............. 996 996 996 996 996
Minority interest ......................... 4,391 3,459 3,113 2,530 2,522
Equity .................................... 20,321 19,727 17,239 14,276 12,774
Insurance premiums written for the year ... 13,624 11,865 9,396 8,185 6,158
</TABLE>
(a) Equity excludes unrealized gains and losses on investment securities,
net of tax.
(b) Return on common equity is calculated using earnings that are adjusted
for preferred stock dividends and equity excludes preferred stock.
Item 7. Management's Discussion and Analysis of Results of Operations.
Overview
The Corporation's net earnings were $4,443 million in 1999, up 17% from $3,796
million in 1998, with strong double-digit earnings growth in three of the five
operating segments. Net earnings in 1998 increased 17% from 1997. The earnings
improvement throughout the three-year period resulted from asset growth,
principally from acquisitions of businesses and portfolios, and origination
volume.
Operating Results
Total Revenues increased 14% to $55.7 billion in 1999, following a 22% increase
to $48.7 billion in 1998. The increases in both years reflected the
contributions of businesses acquired as well as growth in origination volume.
Interest expense on borrowings in 1999 was $9.4 billion, up from $9.0 billion in
1998 and $7.6 billion in 1997. In both 1999 and 1998, while average borrowings
increased in order to finance asset growth, the associated higher interest costs
were partially mitigated by lower average interest rates. The composite interest
rate was 5.14% in 1999, compared with 5.92% in 1998 and 6.07% in 1997. See page
14 for a discussion of interest rate risk management.
Operating and administrative expenses were $16.3 billion in 1999, an increase
from $13.8 billion in 1998 and $11.4 billion in 1997. The increase in both 1999
and 1998 primarily reflected costs associated with acquired businesses and
portfolios, higher investment levels and increases in insurance commissions.
10
<PAGE>
Insurance losses and policyholder and annuity benefits increased to $11.0
billion in 1999, compared with $9.6 billion in 1998 and $8.3 billion in 1997,
reflecting effects of business acquisitions and growth in premium volume
throughout the period. In addition, the increase in 1999 was reflected by a
higher loss ratio on reinsurance business discussed on page 12.
Cost of goods sold amounted to $8.0 billion in 1999, compared with $6.8 billion
in 1998 and $4.1 billion in 1997, and related to IT Solutions and Montgomery
Ward LLC ("Wards"). The increase in 1999 primarily reflects the consolidation of
Wards as discussed on page 12; the increase in 1998 is principally the result of
acquisition-related growth at IT Solutions.
Provision for losses on financing receivables increased to $1.7 billion in 1999,
compared with $1.6 billion in 1998 and $1.4 billion in 1997. These provisions
principally related to private-label credit cards, bank credit cards, auto loans
and auto leases in the consumer services segment, all of which are discussed on
page 17 under Portfolio Quality. The provision throughout the three-year period
reflected higher average receivable balances, a different mix of business, as
well as the effects of lower delinquency rates, consistent with industry
experience.
Depreciation and amortization of buildings and equipment and equipment on
operating leases increased 21% to $3.2 billion in 1999, compared with $2.6
billion in 1998, a 6% increase over 1997. The increase in both years was
primarily the result of additions to equipment on operating leases, primarily
reflecting acquisitions of vehicles and aircraft.
Provision for income taxes was $1.7 billion in 1999 (an effective tax rate of
27.1%), compared with $1.4 billion in 1998 (an effective tax rate of 26.4%) and
$1.2 billion in 1997 (an effective tax rate of 26.4%). The higher provision for
income taxes primarily reflected increased pre-tax earnings subject to statutory
rates.
Financing spreads (the excess of yields over interest rates on borrowings) were
essentially flat in 1999, 1998 and 1997, reflecting slightly lower yields offset
by decreases in borrowing rates.
Operating Segments
At year-end 1998, the Corporation adopted Statement of Financial Accounting
Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and
Related Information, which requires operating segment data to be measured and
analyzed on a basis that is consistent with how business activities are reported
internally to management. Previously reported data have been restated as
required by SFAS No. 131. For additional information, see note 16 to the
consolidated financial statements.
Revenues and net earnings of the Corporation, by operating segment, for the past
three years are summarized and discussed below.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues
Consumer Services .............................................. $ 17,061 $ 15,948 $ 13,550
Equipment Management ........................................... 15,317 14,869 11,326
Mid-Market Financing ........................................... 4,685 3,751 3,009
Specialized Financing .......................................... 4,603 3,368 2,828
Specialty Insurance ............................................ 12,399 10,594 8,836
All other ...................................................... 1,684 164 382
--------------- -------------- --------------
Total revenues .............................................. $ 55,749 $ 48,694 $ 39,931
=============== ============== ==============
Net earnings
Consumer Services .............................................. $ 1,074 $ 797 $ 544
Equipment Management ........................................... 695 806 708
Mid-Market Financing ........................................... 604 478 391
Specialized Financing .......................................... 1,244 745 593
Specialty Insurance ............................................ 1,223 1,166 973
All other ...................................................... (397) (196) 47
--------------- -------------- --------------
Total net earnings .......................................... $ 4,443 $ 3,796 $ 3,256
=============== ============== ==============
</TABLE>
11
<PAGE>
Consumer Services revenues increased 7% in 1999 and 18% in 1998 and net earnings
increased 35% in 1999 and 47% in 1998. The growth in revenues and net earnings
was led by Global Consumer Finance, with strong returns on investments in Japan
and other international growth. Additionally, revenues and net earnings were
increased by higher premium and investment income at GE Financial Assurance, the
consumer savings and insurance business, partially offset by the effects of
asset reductions in Card Services and Auto Financial Services. A higher
provision for losses on financing receivables because of higher average
receivables balances also affected earnings in 1998.
Equipment Management revenues grew 3% in 1999, following a 31% increase in 1998.
Growth in 1999 revenues was primarily the result of Japanese acquisitions in the
corporate auto fleet management operation, as well as higher revenue from
commercial aircraft management businesses at GECAS, largely offset by decreases
in sales volume at the remaining equipment management businesses. The 1998
increase reflected acquisitions by IT Solutions and, to a lesser extent, asset
growth. Net earnings decreased 14% in 1999, following a 14% increase in 1998. In
1999, as market conditions became more competitive, pricing at IT Solutions and
utilization at the European equipment management businesses declined, more than
offsetting growth in GECAS and the satellite service business, GE Americom. Net
earnings increased in 1998 reflecting higher volume in most businesses from both
increased origination as well as acquisitions of businesses and portfolios.
These factors were partially offset in 1998 by lower pricing and higher
operating costs at IT Solutions and Modular Space.
Mid-Market Financing revenues increased 25% in both 1999 and 1998, while net
earnings grew 26% and 22%, respectively. Asset growth from both acquisitions and
originations was the most significant contributing factor in both years.
Revenues and net earnings were also favorably affected in 1998 by the
disposition of certain assets.
Specialized Financing revenues rose 37% and 19%, while net earnings increased
67% and 26% in 1999 and 1998, respectively. Revenues principally reflect
increases in asset gains as well as origination growth, with GE Equity,
Commercial Finance and Real Estate accounting for most of the 1999 increase.
Revenue and net earnings growth in both years is principally the result of gains
on equity investments. Net earnings in 1998 also included the effects of certain
tax-advantaged transactions and higher tax credits.
Specialty Insurance revenues increased 17% and 20% in 1999 and 1998,
respectively, as premiums and investment income grew throughout the period.
Premiums earned increased in line with higher origination volume and
acquisitions. Investment income also grew, partially reflecting an increase in
realized investment gains in GE Global Insurance, which amounted to $699
million, $432 million and $308 million in 1999, 1998 and 1997, respectively.
Increases in property and casualty-related losses in GE Global Insurance were
directly related to the frequency and severity of large loss events during the
last three years. Large loss events are individual events that, after specific
reinsurance recoveries and related premium adjustments, affect GE Global
Insurance operations by $2 million or more, and include losses from earthquakes,
aviation or railroad accidents, fire damage, and weather-related damage from
hurricanes, tornadoes, wind and ice. Large loss events for GE Global Insurance
amounted to approximately $720 million, $230 million and $70 million in 1999,
1998 and 1997, respectively. 1999 losses were partially recovered under
aggregate risk coverage obtained in the ordinary course of the reinsurance
business. Overall losses for Specialty Insurance were mitigated by favorable
experience in the Mortgage Insurance business, particularly in 1999.
All Other GECS operating activities include the results of Wards subsequent to
August 2, 1999, when GECS acquired control of the formerly bankrupt retailer.
Wards had sales of $1,622 million and a net loss of $26 million for the period
during which it was consolidated. Revenues and net earnings in 1997 included
asset gains, the largest of which was $284 million (net of tax) from a
transaction that included the reduction of the GECS investment in the common
stock of Paine Webber Group Inc.
12
<PAGE>
International Operations
The Corporation's international operations include its operations located
outside the United States and certain of its operations that cannot be
meaningfully associated with specific geographic areas (for example, commercial
aircraft and shipping containers used on ocean-going vessels). The Corporation's
international revenues were $21.7 billion in 1999, an increase of 19% from $18.2
billion in 1998. Revenues in the Pacific Basin more than doubled in 1999. Much
of the increase was attributable to growth in Japan, the result of several
strategic acquisitions, the largest of which were the purchase of assets and
infrastructure of Japan Leasing and the acquisition of a consumer financing
business in Japan. Revenues in Europe increased 7% in 1999, reflecting a mix of
acquisition and core growth across all GECS operating activities. Overall, these
increases reflect the continued expansion of GECS as a global provider of a wide
range of financial services. International assets grew 13%, from $107.8 billion
at year-end 1998 to $121.6 billion at the end of 1999. The increase in 1999
reflected strong growth in the Pacific Basin, where current economic conditions
continue to provide a favorable environment for strategic investments. The
Corporation had a particularly large increase in Japan, reflecting a mix of
acquisitions, discussed previously, and strong core asset growth. The
Corporation also had significant asset growth at GECAS, its aviation services
business, which is classified as "other international."
The Corporation's activities span all global regions and primarily encompass
leasing of aircraft and providing certain financial services within these
regional economies. As such, when certain countries or regions such as the
Pacific Basin and Latin America experience currency and/or economic stress, the
Corporation may have increased exposure to certain risks but also may have new
profit opportunities. Potential increased risks include, among other things,
higher receivable delinquencies and bad debts, delays or cancellation of sales
and orders principally related to aircraft-related equipment, higher local
currency financing costs and a slowdown in established financial services
activities. New profit opportunities include, among other things, more
opportunities for lower cost outsourcing, expansion of financial services
activities through purchases of companies or assets at reduced prices and lower
U.S. debt financing costs.
Capital Resources and Liquidity
Statement of Financial Position
Investment securities for each of the past two years comprised mainly
investment-grade debt securities held by GE Financial Assurance and the
Corporation's specialty insurance segment in support of obligations to
policyholders and annuitants. The increase of $2.0 billion during 1999 was
principally related to investment of premiums received and acquisitions,
partially offset by decreases in the fair value of debt securities associated
with rising interest rates. A breakdown of the investment securities portfolio
is provided in note 2 to the consolidated financial statements.
Inventories were $1,209 million and $744 million at December 31, 1999 and 1998,
respectively. The increase in 1999 primarily reflected the consolidation of the
retail operations of Wards.
Financing receivables were $137.6 billion at year-end 1999, net of allowance for
doubtful accounts, up $16.1 billion over 1998. These receivables are discussed
on page 17 and in notes 3 and 4 to the consolidated financial statements.
Other receivables were $30.7 billion and $26.0 billion at December 31, 1999 and
1998, respectively. Of the 1999 increase, $3.6 billion was attributable to
acquisitions.
Equipment on operating leases was $23.6 billion at December 31, 1999, up $2.7
billion from 1998. Details by category of investment can be found in note 6 to
the consolidated financial statements. Additions to equipment on operating
leases, including business acquisitions, were $13.4 billion during 1999 ($7.2
billion during 1998), primarily reflecting acquisitions of transportation
equipment.
Intangible assets were $14.7 billion at year-end 1999, up from $13.6 billion at
year-end 1998. The $1.1 billion increase in intangible assets related primarily
to goodwill from acquisitions, the largest of which were Signature Group and the
Australian consumer financial services business of AVCO.
Other assets totaled $44.7 billion at year-end 1999, compared with $35.5 billion
at the end of 1998. The $9.2 billion increase was principally attributed to
increases in "separate accounts," (see note 9 to the consolidated financial
statements) and additional investments in associated companies, partially offset
by decreases in assets acquired for resale, which reflect sales and
securitizations in excess of originations.
13
<PAGE>
Insurance liabilities, reserves and annuity benefits were $86.8 billion at
year-end 1999, $9.5 billion higher than in 1998. The increase was primarily
attributable to increases in separate accounts, the addition of liabilities from
acquired companies and growth in guaranteed investment contracts. For additional
information on these liabilities, see note 11 to the consolidated financial
statements.
Borrowings were $200.0 billion at December 31, 1999, of which $129.2 billion is
due in 2000 and $70.8 billion is due in subsequent years. Comparable amounts at
the end of 1998 were $172.2 billion in total, $113.2 billion due within one year
and $59.0 billion due thereafter. The Corporation's composite interest rates are
discussed on page 10. A large portion of the Corporation's borrowings ($96.6
billion and $87.0 billion at the end of 1999 and 1998, respectively) was issued
in active commercial paper markets that management believes will continue to be
a reliable source of short-term financing. Most of this commercial paper was
issued by GE Capital. The average remaining terms and interest rates of GE
Capital commercial paper were 53 days and 5.82% at the end of 1999, compared
with 45 days and 5.35% at the end of 1998. The GE Capital ratio of debt to
equity was 8.44 to 1 at the end of 1999 and 7.86 to 1 at the end of 1998.
GE Company has committed to contribute capital to GE Capital in the event of
either a decrease below a specified level in the ratio of GE Capital's earnings
to fixed charges, or a failure to maintain a specified debt-to-equity ratio in
the event certain GE Capital preferred stock is redeemed. GE Company also has
guaranteed the Corporation's subordinated debt with a face amount of $1.0
billion at December 31, 1999 and 1998. Management believes the likelihood that
GE Company will be required to contribute capital under either the commitments
or the guarantees is remote.
Statement of Cash Flows
The Corporation's cash and cash equivalents aggregated $6.9 billion at the end
of 1999, up from $3.3 billion at year-end 1998 as management held short-term
investments as additional liquidity over year-end 1999. One of the Corporation's
primary sources of cash is financing activities involving the continued rollover
of short-term borrowings and appropriate addition of borrowings with a
reasonable balance of maturities. Over the past three years, the Corporation's
borrowings with maturities of 90 days or less have increased by $37.2 billion.
New borrowings of $109.9 billion having maturities longer than 90 days were
added during those years, while $80.7 billion of such longer-term borrowings
were retired. The Corporation also generated $32.0 billion of cash from
operating activities during the last three years.
The Corporation's principal use of cash has been investing in assets to grow its
businesses. Of the $91.0 billion that the Corporation invested over the past
three years, $21.3 billion was used for additions to financing receivables;
$26.6 billion was used to invest in new equipment, principally for lease to
others; and $31.0 billion was used for acquisitions of new businesses, the
largest of which were Japan Leasing and the credit card operations of JC Penney
in 1999.
With the financial flexibility that comes with excellent credit ratings,
management believes the Corporation should be well positioned to meet the global
needs of its customers for capital and to continue growing its diversified asset
base.
Interest Rate and Currency Risk Management
In normal operations, the Corporation must deal with effects of changes in
interest rates and currency exchange rates. The following discussion presents an
overview of how such changes are managed and a view of their potential effects.
The Corporation uses various financial instruments, particularly interest rate
and currency swaps, but also futures, options and currency forwards, to manage
risks. The Corporation is exclusively an end-user of these instruments, which
are commonly referred to as derivatives. The Corporation does not engage in any
trading, market-making or other speculative activities in the derivative
markets. More detailed information regarding these financial instruments, as
well as the strategies and policies for their use, is contained in notes 1, 10
and 20 to the consolidated financial statements.
The Corporation manages its exposure to changes in interest rates, in part, by
funding its assets with an appropriate mix of fixed and variable rate debt and
its exposure to currency fluctuations principally by funding local currency
denominated assets with debt denominated in those same currencies. It uses
interest rate swaps, currency swaps (including non-U.S. currency and cross
currency interest rate swaps) and currency forwards to achieve lower borrowing
costs. Substantially all of these derivatives have been designated as modifying
interest rates and/or currencies associated with specific debt instruments.
14
<PAGE>
These financial instruments allow the Corporation to lower its cost of funds by
substituting credit risk for interest rate and currency risks. Since the
Corporation's principal use of such swaps is to optimize funding costs, changes
in interest rates and exchange rates underlying swaps would not be expected to
have a material impact on the Corporation's financial position or results of
operations. The Corporation conducts almost all activities with these
instruments in the over-the-counter markets.
The Corporation is exposed to prepayment risk in certain of its business
activities, such as in its mortgage servicing and annuities activities. In order
to hedge those exposures, the Corporation uses swaps, futures, and option-based
financial instruments. These instruments generally behave based on limits
("caps", "floors" or "collars") on interest rate movement. These swaps, futures
and option-based instruments are governed by the credit risk policies described
below and are transacted in either exchange-traded or over-the-counter markets.
In addition, as part of its ongoing customer activities, the Corporation may
enter into swaps that are integrated with investments in, loans to or guarantees
of the obligations of particular customers and do not involve assumption of
third-party credit risk beyond the risk previously approved by the Corporation
with respect to such investments, loans or guarantees. Such integrated swaps are
evaluated and monitored like their associated investments, loans or guarantees,
and are not therefore subject to the same credit criteria that would apply to a
stand-alone swap. All other swaps, forward contracts and other derivatives have
been designated as hedges of non-U.S. net investments or other assets.
Established practices require that derivative financial instruments relate to
specific asset, liability or equity transactions or to currency exposures.
Substantially all treasury actions are centrally executed by the Corporation's
Treasury Department, which maintains controls on all exposures, adheres to
stringent counterparty credit standards and actively monitors marketplace
exposures.
Given the ways in which the Corporation uses swaps, purchased options and
forwards, the principal risk is credit risk - risk that counterparties will be
financially unable to make payments in accordance with the agreements.
Associated market risk is meaningful only as it relates to how changes in the
market value affect credit exposure to individual counterparties. Except as
noted above for positions that are integrated into financings, all swaps,
purchased options and forwards are carried out within the following credit
policy constraints.
o Once a counterparty reaches a credit exposure limit (see table below),
no additional transactions are permitted until the exposure with that
counterparty is reduced to an amount that is within the established
limit. Open contracts remain in force.
<TABLE>
<CAPTION>
Counterparty credit criteria Credit rating
-------------------------------
Standard &
Moody's Poor's
-------------- --------------
<S> <C> <C>
Term of transaction
Between one and five years ...................................... Aa3 AA-
Greater than five years ......................................... Aaa AAA
Credit exposure limits
Up to $50 million ............................................... Aa3 AA-
Up to $75 million ............................................... Aaa AAA
</TABLE>
o All swaps are executed under master swap agreements containing mutual
credit downgrade provisions that provide the ability to require
assignment or termination in the event either party is downgraded below
A3 or A-.
More credit latitude is permitted for transactions having original maturities
shorter than one year because of their lower risk.
The conversion of interest rate and currency risk into credit risk results in a
need to monitor counterparty credit risk actively. At December 31, 1999, the
notional amount of long-term derivatives for which the counterparty was rated
below Aa3/AA- was $5.0 billion. These amounts are primarily the result of (1)
counterparty downgrades, (2) transactions executed prior to the adoption of the
Corporation's current counterparty credit standards, and (3) transactions
relating to acquired assets or businesses.
15
<PAGE>
Following is an analysis of credit risk exposures for the last three years.
<TABLE>
<CAPTION>
Percentage of Notional Derivative Exposure by Counterparty Credit Rating
- ------------------------------------------------------------------------------------------------------------------
Moody's/Standard & Poor's 1999 1998 1997
-------------------------
---------------- --------------- --------------
<S> <C> <C> <C>
Aaa/AAA ........................................................ 59% 65% 75%
Aa/AA .......................................................... 38% 33% 20%
A/A and below .................................................. 3% 2% 5%
</TABLE>
The optimal funding strategy is sometimes achieved by using multiple swaps. For
example, to obtain fixed rate U.S. dollar funding, several alternatives are
generally available. One alternative is a swap of non-U.S. dollar denominated
fixed rate debt into U.S. dollars. The synthetic U.S. dollar denominated debt
would be effectively created by taking the following steps: (1) issuing fixed
rate, non-U.S. currency denominated debt, (2) entering into a swap under which
fixed rate non-U.S. currency denominated interest will be received and floating
rate non-U.S. currency denominated interest will be paid, and (3) entering into
a swap under which floating rate non-U.S. currency principal and interest will
be received and fixed rate U.S. dollar denominated principal and interest will
be paid. The end result is, in every important respect, fixed rate U.S. dollar
denominated financing with an element of controlled credit risk. The Corporation
uses multiple swaps only as part of such transactions.
The interplay of the Corporation's credit risk policy with its funding
activities is seen in the following example, in which the Corporation is assumed
to have been offered three alternatives for funding five-year fixed rate U.S.
dollar assets with five-year fixed rate U.S. dollar debt.
<TABLE>
<CAPTION>
Spread over U.S.
Treasuries in
basis points Counterparty
------------------ ------------------
<S> <C> <C>
1. Fixed rate five-year medium-term note ........................... +65 -
2. U.S. dollar commercial paper swapped into five-year U.S. dollar
fixed rate funding ............................................ +40 A
3. Swiss franc fixed rate debt swapped into five-year U.S. dollar
fixed rate funding ............................................ +35 B
</TABLE>
Counterparty A is a major brokerage house with an Aaa/AAA rated swap subsidiary
and a current exposure to the Corporation of $39 million. Counterparty B is an
Aa2/AA rated insurance company with a current exposure of $50 million.
In this hypothetical case, the Corporation would have chosen alternative 2.
Alternative 1 is unacceptably costly. Although alternative 3 would have yielded
a lower immediate cost of funds, the additional credit risk of Counterparty B
would have exceeded the Corporation's risk management limits.
The U.S. Securities and Exchange Commission requires that registrants disclose
information about potential effects of changes in interest rates and currency
exchange. Although the rules offer alternatives for presenting this information,
none of the alternatives is without limitations. The following discussion is
based on so-called "shock-tests," which model effects of interest rate and
currency shifts on the reporting company. Shock tests, while probably the most
meaningful analysis permitted, are constrained by several factors, including the
necessity to conduct the analysis based on a single point in time and by their
inability to include the complex market reactions that normally would arise from
the market shifts modeled. While the following results of shock tests for
interest rates and currencies may have some limited use as benchmarks, they
should not be viewed as forecasts.
o One means of assessing exposure to interest rate changes is a
duration-based analysis that measures the potential loss in net earnings
resulting from a hypothetical increase in interest rates of 100 basis
points across all maturities (sometimes referred to as a "parallel shift in
the yield curve"). Under this model, it is estimated that, all else
constant, such an increase, including repricing effects in the securities
portfolio, would reduce the 2000 net earnings of the Corporation based on
year-end 1999 positions by approximately $105 million. Based on conditions
at year-end 1998, the effect on 1999 net earnings of such an increase in
interest rates was estimated to be approximately $111 million.
16
<PAGE>
o One means of assessing exposure to changes in currency exchange rates is to
model effects on reported earnings using a sensitivity analysis. Year-end
1999 consolidated currency exposures, including financial instruments
designated and effective as hedges, were analyzed to identify Corporation
assets and liabilities denominated in other than their relevant functional
currency. Net unhedged exposures in each currency were then remeasured
assuming a 10% decrease (substantially greater decreases for
hyperinflationary currencies) in currency exchange rates compared with the
U.S. dollar. Under this model, it is estimated that, all else constant,
such a decrease would reduce the 2000 net earnings of the Corporation based
on year-end 1999 positions by an insignificant amount.
Portfolio Quality
Financing receivables are the largest GECS asset and one of its primary sources
of revenues. The portfolio of financing receivables, before allowance for
losses, increased to $141.4 billion at the end of 1999 from $124.9 billion at
the end of 1998, principally reflecting acquisition growth and origination
volume that were partially offset by securitizations and other sales of
receivables. The related allowance for losses at the end of 1999 amounted to
$3.8 billion ($3.3 billion at the end of 1998), representing management's best
estimate of probable losses inherent in the portfolio.
A discussion of the quality of certain elements of the financing receivables
portfolio follows. "Nonearning" receivables are those that are 90 days or more
delinquent (or for which collection has otherwise become doubtful) and
"reduced-earning" receivables are commercial receivables whose terms have been
restructured to a below-market yield.
Consumer financing receivables, primarily credit card and personal loans and
auto loans and leases, were $52.3 billion at year-end 1999, an increase of $0.7
billion from year-end 1998. The credit card and personal receivables increased
$5.2 billion, primarily from acquisition growth and origination volume,
partially offset by sales and securitizations. Auto receivables decreased $4.5
billion primarily as a result of reduced volume. Nonearning receivables at
year-end 1999 were $0.9 billion, about 1.8% of total consumer financing
receivables compared with $1.3 billion, about 2.4% of total consumer receivables
at year-end 1998. Write-offs of consumer receivables declined to $1.2 billion
from $1.4 billion at year-end 1998 reflecting improved delinquency trends.
Other financing receivables, totaling $89.1 billion at December 31, 1999,
consisted of a diverse commercial, industrial and equipment loan and lease
portfolio. This portfolio increased $15.8 billion during 1999, reflecting the
combination of acquisition growth and increased origination volume. Related
nonearning and reduced-earning receivables were $0.9 billion at year-end 1999,
compared with $0.4 billion at year-end 1998.
GECS loans and leases to commercial airlines amounted to $11.8 billion at the
end of 1999, up from $10.2 billion at the end of 1998. GECS commercial aircraft
positions also included financial guarantees, funding commitments and aircraft
orders as discussed in note 6 to the consolidated financial statements.
Statement of Changes in Share Owners' Equity
Share owners' equity increased $594 million to $20,321 million at year-end 1999.
The increase was largely attributable to net earnings during the period of
$4,443 million, partially offset by dividends and other transactions with
shareowners of $1,474 million.
Investment securities had unrealized losses of $2,206 million during 1999,
principally as a result of decreases in fair value attributable to increases in
interest rates during 1999. A significant majority of the unrealized losses are
associated with debt securities held by insurance businesses and are matched
with insurance liabilities of similar duration. Accordingly, decreases in fair
values of such investment securities are directionally offset by corresponding
decreases in fair values of associated insurance liabilities. However, changes
in the fair values of insurance liabilities are difficult to measure and are
appropriately not recognized under generally accepted accounting principles.
Currency translation adjustments reduced equity by $169 million in 1999. Changes
in the currency translation adjustment reflect the effects of changes in
currency exchange rates on the Corporation's net investment in non-U.S.
subsidiaries that have functional currencies other than the U.S. dollar. The
decrease during 1999 largely reflected the weakening in the European currencies,
partially offset by strengthening in Asian currencies. Such adjustments affect
earnings only when all or a portion of an affiliate is disposed.
17
<PAGE>
New Accounting Standards
Two changes in accounting standards may affect future financial statements. The
Financial Accounting Standards Board ("FASB") has issued Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities, effective for the Corporation on January 1, 2001. Upon
adoption, all derivative instruments (including certain derivative instruments
embedded in other contracts) will be recognized in balance sheets at fair value,
and changes in such fair values must be recognized immediately in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
meeting these hedging criteria will ultimately offset related earnings effects
of the hedged items; effects of qualifying changes in fair value are to be
recorded in equity pending recognition in earnings. Certain significant
refinements and interpretations of SFAS No. 133 are being deliberated by the
FASB, and the effects on accounting for the Corporation's financial instruments
will depend to some degree on the results of such deliberations. Management has
not determined the total probable effects on its financial statements of
adopting SFAS No. 133, and does not believe that an estimate of such effects
would be meaningful at this time.
The FASB has also proposed new accounting for business combinations that, among
other things, would change the accounting for and display of goodwill and other
intangibles recorded in business acquisitions for transactions after January 1,
2001. An important aspect of the proposal is that goodwill amortization would be
displayed as a separate element in the Statement of Earnings. Management
believes that this proposal represents a useful approach to understanding
financial performance, but believes that the utility of this information would
be materially enhanced if the proposed approach for goodwill were applied to all
intangible assets acquired with a business.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information about potential effects of changes in interest rates and currency
exchange on the Corporation is discussed on pages 14-17.
18
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
General Electric Capital Services, Inc.:
We have audited the consolidated financial statements of General Electric
Capital Services, Inc. and consolidated affiliates as listed in Item 14. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in Item 14. These
consolidated financial statements and financial statement schedules are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with 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, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, 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.
/s/ KPMG LLP
Stamford, Connecticut
February 4, 2000
19
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Statement of Earnings
For the years ended December 31 (In millions) 1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES
Time sales, loan and other income ................................. $ 18,209 $ 14,682 $ 12,211
Operating lease rentals ........................................... 6,022 5,402 4,819
Financing leases .................................................. 3,587 4,267 3,499
Investment income ................................................. 6,243 5,617 5,512
Premium and commission income of insurance affiliates (Note 11) ... 12,948 11,352 9,268
Sales of goods .................................................... 8,740 7,374 4,622
-------------- -------------- --------------
Total revenues ................................................. 55,749 48,694 39,931
-------------- -------------- --------------
EXPENSES
Interest .......................................................... 9,359 8,966 7,649
Operating and administrative (Note 14) ............................ 16,253 13,810 11,433
Insurance losses and policyholder and annuity benefits (Note 11) .. 11,028 9,608 8,278
Cost of goods sold ................................................ 7,976 6,777 4,147
Provision for losses on financing receivables (Note 4) ............ 1,678 1,609 1,421
Depreciation and amortization of buildings and equipment and
equipment on operating leases (Notes 6 & 7) ..................... 3,173 2,616 2,460
Minority interest in net earnings of consolidated affiliates ...... 186 148 121
-------------- -------------- --------------
Total expenses ................................................. 49,653 43,534 35,509
-------------- -------------- --------------
Earnings before income taxes ...................................... 6,096 5,160 4,422
Provision for income taxes (Note 15) .............................. (1,653) (1,364) (1,166)
-------------- -------------- --------------
NET EARNINGS ...................................................... $ 4,443 $ 3,796 $ 3,256
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Share Owners' Equity
(In millions) 1999 1998 1997
-------------- -------------- --------------
CHANGES IN SHARE OWNERS' EQUITY
<S> <C> <C> <C>
Balance at January 1 .............................................. $ 19,727 $ 17,239 $ 14,276
-------------- -------------- --------------
Dividends and other transactions with share owners (Note 13) ...... (1,474) (1,519) (1,648)
-------------- -------------- --------------
Changes other than transactions with share owners:
Increases attributable to net earnings .......................... 4,443 3,796 3,256
Unrealized (losses) gains on investment securities - net (Note 13) (2,206) 241 1,467
Currency translation adjustments (Note 13) ...................... (169) (30) (112)
-------------- -------------- --------------
Total changes other than transactions with share owners ........ 2,068 4,007 4,611
-------------- -------------- --------------
Balance at December 31 ............................................ $ 20,321 $ 19,727 $ 17,239
============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Statement of Financial Position
At December 31 (In millions) 1999 1998
-------------- --------------
ASSETS
<S> <C> <C>
Cash and equivalents .............................................................. $ 6,931 $ 3,342
Investment securities (Note 2) .................................................... 80,485 78,458
Financing receivables (Note 3):
Time sales and loans, net of deferred income .................................... 93,625 77,283
Investment in financing leases, net of deferred income .......................... 47,783 47,571
-------------- --------------
141,408 124,854
Allowance for losses on financing receivables (Note 4) .......................... (3,779) (3,288)
-------------- --------------
Financing receivables - net .................................................. 137,629 121,566
Other receivables (Note 5) ........................................................ 30,681 25,973
Inventories ....................................................................... 1,209 744
Equipment on operating leases (at cost), less accumulated amortization of $7,392 and
$7,021 (Note 6) ................................................................. 23,605 20,941
Buildings and equipment (at cost), less accumulated depreciation of $2,127 and
$1,733 (Note 7) ................................................................. 5,036 3,095
Intangible assets - net (Note 8) .................................................. 14,748 13,639
Other assets (Note 9) ............................................................. 44,694 35,539
-------------- --------------
Total assets ................................................................... $ 345,018 $ 303,297
============== ==============
LIABILITIES AND SHARE OWNERS' EQUITY
Short-term borrowings (Note 10) ................................................... $ 129,259 $ 113,162
Long-term borrowings (Note 10) .................................................... 70,766 59,038
-------------- --------------
Total borrowings ............................................................... 200,025 172,200
Accounts payable .................................................................. 9,749 8,815
Insurance liabilities, reserves and annuity benefits (Note 11) .................... 86,776 77,259
Other liabilities ................................................................. 14,801 12,247
Deferred income taxes (Note 15) ................................................... 8,955 9,590
-------------- --------------
Total liabilities .............................................................. 320,306 280,111
-------------- --------------
Minority interest in equity of consolidated affiliates (Note 12) .................. 4,391 3,459
-------------- --------------
Cumulative preferred stock, $10,000 par value (80,000 shares authorized; 51,000
shares issued and held primarily by consolidated affiliates at December 31,
1999 and 1998) .................................................................. 10 10
Common stock, $1,000 (1,260 and 1,010 shares authorized at December 31, 1999
and 1998, respectively, 1,012 and 1,010 shares outstanding at December 31,
1999 amd 1998, respectively) .................................................... 1 1
Additional paid-in capital ........................................................ 2,672 2,480
Retained earnings ................................................................. 17,852 15,075
Accumulated unrealized gains on investment securities - net (a) ................... 170 2,376
Accumulated foreign currency translation adjustments (a) .......................... (384) (215)
-------------- --------------
Total share owners' equity (Note 13) ........................................... 20,321 19,727
-------------- --------------
Total liabilities and share owners' equity ..................................... $ 345,018 $ 303,297
============== ==============
</TABLE>
(a) The sum of accumulated unrealized gains on investment securities and
accumulated foreign currency translation adjustments constitutes
"Accumulated nonowner changes other than earnings," as shown in note 13,
and was ($214) million and $2,161 million at year-end 1999 and 1998,
respectively.
See Notes to Consolidated Financial Statements.
21
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Statement of Cash Flows
For the years ended December 31 (In millions) 1999 1998 1997
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings .................................................... $ 4,443 $ 3,796 $ 3,256
Adjustments to reconcile net earnings to cash provided from operating
activities:
Depreciation and amortization of buildings and equipment and
equipment on operating leases................................. 3,173 2,616 2,460
Provision for losses on financing receivables ................... 1,678 1,609 1,421
Amortization of goodwill and other intangibles .................. 1,199 952 780
Increase in deferred income taxes ............................... 847 549 798
Decrease (increase) in inventories .............................. 327 81 (244)
Increase (decrease) in accounts payable ......................... 699 1,673 (64)
Increase in insurance liabilities and reserves .................. 4,584 3,670 1,669
Other - net ..................................................... (2,131) (3,991) (3,851)
-------------- -------------- --------------
Cash from operating activities .................................. 14,819 10,955 6,225
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in financing receivables (Note 19) ................. (13,088) (6,301) (1,898)
Buildings and equipment and equipment on operating leases
- additions .................................................. (13,466) (6,935) (6,197)
- dispositions ............................................... 6,262 4,037 2,212
Payments for principal businesses purchased, net of cash acquired
(Note 19) .................................................... (10,060) (17,155) (3,820)
All other investing activities (Note 19) ........................ (7,823) (11,078) (5,646)
-------------- -------------- --------------
Cash used for investing activities .............................. (38,175) (37,432) (15,349)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities of 90 days or less) ........ 7,308 16,288 13,594
Newly issued debt (maturities longer than 90 days) (Note 19) .... 47,605 41,440 20,825
Repayments and other reductions (maturities longer than 90 days)
(Note 19) .................................................... (26,924) (31,027) (22,757)
Dividends paid .................................................. (1,666) (1,672) (1,653)
All other financing activities (Note 19) ........................ 622 (114) 785
-------------- -------------- --------------
Cash from financing activities .................................. 26,945 24,915 10,794
-------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR ..... 3,589 (1,562) 1,670
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ....................... 3,342 4,904 3,234
-------------- -------------- --------------
CASH AND EQUIVALENTS AT END OF YEAR ............................. $ 6,931 $ 3,342 $ 4,904
============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - General Electric Capital Services, Inc. ("the Parent") owns all
of the common stock of General Electric Capital Corporation ("GE Capital") and
GE Global Insurance Holding Corporation ("GE Global Insurance"). All outstanding
common stock of the Parent is owned by General Electric Company ("GE Company")
and an affiliate of GE Company. The consolidated financial statements represent
the adding together of the Parent and all of its majority-owned and controlled
affiliates ("consolidated affiliates"), including GE Capital and GE Global
Insurance (collectively called "the Corporation").
All significant transactions among the Corporation and consolidated affiliates
have been eliminated. Other associated companies, generally companies that are
20% to 50% owned and over which the Corporation, directly or indirectly, has
significant influence, are included in other assets and valued at the
appropriate share of equity plus loans and advances. Certain prior-year amounts
have been reclassified to conform to the current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and related disclosures. Actual results could differ
from those estimates.
Methods of Recording Revenues from Services (Earned Income) - Income on all
loans is recognized on the interest method. Accrual of interest income is
suspended at the earlier of the time at which collection of an account becomes
doubtful or the account becomes 90 days delinquent. Interest income on impaired
loans is recognized either as cash is collected or on a cost recovery basis as
conditions warrant.
Financing lease income is recorded on the interest method so as to produce a
level yield on funds not yet recovered. Estimated unguaranteed residual values
of leased assets are based primarily on periodic independent appraisals of the
values of leased assets remaining at expiration of the lease terms.
Operating lease income is recognized on a straight-line basis over the terms of
the underlying leases.
Origination, commitment and other nonrefundable fees related to fundings are
deferred and recorded in earned income on the interest method. Commitment fees
related to loans not expected to be funded and line-of-credit fees are deferred
and recorded in earned income on a straight-line basis over the period to which
the fees relate. Syndication fees are recorded in earned income at the time
related services are performed unless significant contingencies exist.
Income from investment and insurance activities is discussed under insurance
accounting policies.
Sales of Goods - A sale is recorded when title passes to the customer.
Cash and Equivalents - Certificates and other time deposits are treated as cash
equivalents.
Recognition of Losses on Financing Receivables and Investments - The allowance
for losses on small-balance receivables reflects management's best estimate of
probable losses inherent in the portfolio determined principally on the basis of
historical experiences. For other receivables, principally the larger loans and
leases, the allowance for losses is determined primarily on the basis of
management's best estimate of probable losses, including specific allowances for
known troubled accounts.
All accounts or portions thereof deemed to be uncollectible or to require an
excessive collection cost are written off to the allowance for losses.
Small-balance accounts generally are written off when 6 to 12 months delinquent,
although any such balance judged to be uncollectible, such as an account in
bankruptcy, is written down immediately to estimated realizable value.
Large-balance accounts are reviewed at least quarterly, and those accounts with
amounts that are judged to be uncollectible are written down to estimated
realizable value.
When collateral is repossessed in satisfaction of a loan, the receivable is
written down against the allowance for losses to estimated fair value of the
asset less costs to sell, transferred to other assets and subsequently carried
at the lower of cost or estimated fair value less costs to sell. This accounting
method has been employed principally for specialized financing transactions.
23
<PAGE>
Investment Securities - Investments in debt and marketable equity securities are
reported at fair value based primarily on quoted market prices or, if quoted
prices are not available, discounted expected cash flows using market rates
commensurate with credit quality and maturity of investment. Substantially all
investment securities are designated as available for sale, with unrealized
gains and losses included in equity, net of applicable taxes and other
adjustments. Unrealized losses that are other than temporary are recognized in
earnings. Realized gains and losses are accounted for on the specific
identification method.
Inventories - The Corporation's inventories consist primarily of finished
products held for sale. All inventories are stated at the lower of cost or
realizable values. Cost is primarily determined on a first-in, first-out basis.
Equipment on Operating Leases - Equipment is amortized, principally on a
straight-line basis, to estimated residual value over the lease term or over the
estimated economic life of the equipment.
Buildings and Equipment - Depreciation is recorded on either a sum-of-the-years
digits formula or a straight-line basis over the lives of the assets.
Intangible Assets - Goodwill is amortized over its estimated period of benefit
on a straight-line basis; other intangible assets are amortized on appropriate
bases over their estimated lives. No amortization period exceeds 40 years.
Goodwill in excess of associated expected operating cash flows is considered to
be impaired and is written down to fair value, which is determined based on
either discounted future cash flows or appraised values, depending on the nature
of the assets.
Interest Rate and Currency Risk Management - As a matter of policy, the
Corporation does not engage in derivatives trading, derivatives market-making or
other speculative activities. The Corporation uses swaps primarily to optimize
funding costs. To a lesser degree, and in combination with options and limit
contracts, the Corporation uses swaps to stabilize cash flows from
mortgage-related assets.
Interest rate and currency swaps that modify borrowings or designated assets,
including swaps associated with forecasted commercial paper renewals, are
accounted for on an accrual basis. The Corporation requires all other swaps, as
well as futures, options and currency forwards, to be designated and accounted
for as hedges of specific assets, liabilities or committed transactions;
resulting payments and receipts are recognized contemporaneously with effects of
hedged transactions. A payment or receipt arising from early termination of an
effective hedge is accounted for as an adjustment to the basis of the hedged
transaction.
Instruments used as hedges must be effective at reducing the risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the contract. Accordingly, changes in market values of hedge
instruments must be highly correlated with changes in market values of
underlying hedged items both at inception of the hedge and over the life of the
hedge contract. As a matter of policy, any derivative that is either not
designated as a hedge, or is so designated but is ineffective, is marked to
market and recognized in operations immediately.
Insurance Accounting Policies - Accounting policies for insurance businesses are
as follows.
Premium income. Insurance premiums are reported as earned income as follows:
o For short-duration insurance contracts (including property and casualty,
accident and health, and financial guaranty insurance), premiums are
reported as earned income, generally on a pro rata basis, over the terms of
the related agreements. For retrospectively rated reinsurance contracts,
premium adjustments are recorded based on estimated losses and loss
expenses, taking into consideration both case and incurred-but-not-reported
reserves.
o For traditional long-duration insurance contracts (including term and whole
life contracts and annuities payable for the life of the annuitant),
premiums are reported as earned income when due.
o For investment contracts and universal life contracts, premiums received
are reported as liabilities, not as revenues. Universal life contracts are
long-duration insurance contracts with terms that are not fixed and
guaranteed; for these contracts, revenues are recognized for assessments
against the policyholder's account, mostly for mortality, contract
initiation, administration and surrender. Investment contracts are
contracts that have neither significant mortality nor significant morbidity
risk, including annuities payable for a determined period; for these
contracts, revenues are recognized on the associated investments and
amounts credited to policyholder accounts are charged to expense.
24
<PAGE>
Deferred policy acquisition costs. Costs that vary with and are primarily
related to the acquisition of new and renewal insurance and investment contracts
are deferred and amortized over the respective policy terms. For short-duration
contracts, acquisition costs consist primarily of commissions, brokerage
expenses and premium taxes. For long-duration insurance contracts, these costs
consist primarily of first-year commissions in excess of recurring renewal
commissions, certain variable sales expenses and certain support costs such as
underwriting and policy issue expenses.
o For short-duration insurance contracts, these costs are amortized pro
rata over the contract periods in which the related premiums are earned.
o For traditional long-duration insurance contracts, these costs are
amortized over the respective contract periods in proportion to either
anticipated premium income or, in the case of limited-payment contracts,
estimated benefit payments.
o For investment contracts and universal life contracts, these costs are
amortized on the basis of anticipated gross profits.
Periodically, deferred policy acquisition costs are reviewed for recoverability;
anticipated investment income is considered in recoverability evaluations.
Present value of future profits. The actuarially determined present value of
anticipated net cash flows to be realized from insurance, annuity and investment
contracts in force at the date of acquisition of life insurance enterprises is
recorded as the present value of future profits and is amortized over the
respective policy terms in a manner similar to deferred policy acquisition
costs. Unamortized balances are adjusted to reflect experience and impairment,
if any.
NOTE 2. INVESTMENT SECURITIES
A summary of investment securities follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(In millions) cost gains losses fair value
-------------- -------------- -------------- --------------
December 31, 1999 Debt securities:
<S> <C> <C> <C> <C>
U.S. corporate ............................... $ 31,512 $ 175 $ (1,759) $ 29,928
State and municipal .......................... 12,558 141 (452) 12,247
Mortgage-backed .............................. 12,799 173 (376) 12,596
Corporate - non-U.S. ......................... 9,923 228 (248) 9,903
Government - non-U.S. ........................ 4,675 114 (77) 4,712
U.S. government and federal agency ........... 2,481 5 (171) 2,315
Equity securities ............................. 6,420 2,641 (277) 8,784
-------------- -------------- -------------- --------------
$ 80,368 $ 3,477 $ (3,360) $ 80,485
============== ============== ============== ==============
December 31, 1998 Debt securities:
U.S. corporate ............................... $ 27,888 $ 1,293 $ (325) $ 28,856
State and municipal .......................... 12,483 727 (8) 13,202
Mortgage-backed .............................. 11,641 413 (109) 11,945
Corporate - non-U.S. ......................... 8,692 409 (90) 9,011
Government - non-U.S. ........................ 5,415 258 (9) 5,664
U.S. government and federal agency ........... 2,706 207 (7) 2,906
Equity securities ............................. 5,651 1,415 (192) 6,874
-------------- -------------- -------------- --------------
$ 74,476 $ 4,722 $ (740) $ 78,458
============== ============== ============== ==============
</TABLE>
The majority of mortgage-backed securities shown in the table above are
collateralized by U.S. residential mortgages.
25
<PAGE>
At December 31, 1999, contractual maturities of debt securities, other than
mortgage-backed securities, were as follows:
<TABLE>
<CAPTION>
Amortized Estimated
(In millions) cost fair value
---------------- ----------------
Due in:
<S> <C> <C>
2000 ........................................................................ $ 5,237 $ 5,309
2001-2004 ................................................................... 13,348 13,310
2005-2009 ................................................................... 14,478 13,953
2010 and later .............................................................. 28,086 26,533
</TABLE>
It is expected that actual maturities will differ from contractual maturities
because borrowers have the right to call or prepay certain obligations. Proceeds
from sales of investment securities in 1999 were $18,500 million ($16,659
million in 1998 and $14,728 million in 1997). Gross realized gains were $1,406
million in 1999 ($1,126 million in 1998 and $1,018 million in 1997). Gross
realized losses were $484 million in 1999 ($303 million in 1998 and $173 million
in 1997).
NOTE 3. FINANCING RECEIVABLES
Financing receivables at December 31, 1999 and 1998 are shown below.
<TABLE>
<CAPTION>
(In millions) 1999 1998
-------------- --------------
Time sales and loans:
<S> <C> <C>
Consumer Services ........................................................... $ 48,435 $ 42,573
Specialized Financing ....................................................... 24,999 16,693
Mid-Market Financing ........................................................ 19,186 17,065
Equipment Management ........................................................ 977 849
Specialty Insurance ......................................................... 28 103
-------------- --------------
Time sales and loans - net of deferred income ............................. 93,625 77,283
-------------- --------------
Investment in financing leases:
Direct financing leases ..................................................... 43,738 43,730
Leveraged leases ............................................................ 4,045 3,841
-------------- --------------
Investment in financing leases ............................................ 47,783 47,571
-------------- --------------
141,408 124,854
Less allowance for losses (Note 4) ........................................... (3,779) (3,288)
-------------- --------------
$ 137,629 $ 121,566
============== ==============
</TABLE>
Time sales and loans represents transactions in a variety of forms, including
time sales, revolving charge and credit, mortgages, installment loans,
intermediate-term loans and revolving loans secured by business assets. The
portfolio includes time sales and loans carried at the principal amount on which
finance charges are billed periodically, and time sales and loans carried at
gross book value, which includes finance charges. At year-end 1999 and 1998,
financing receivables included $15,782 million and $14,452 million,
respectively, for commercial real estate loans and leases. Note 6 contains
information on commercial airline loans and leases.
Investment in financing leases consists of direct financing and leveraged leases
of aircraft, railroad rolling stock, autos, other transportation equipment, data
processing equipment and medical equipment, as well as other manufacturing,
power generation, commercial real estate, and commercial equipment and
facilities.
As the sole owner of assets under direct financing leases and as the equity
participant in leveraged leases, the Corporation is taxed on total lease
payments received and is entitled to tax deductions based on the cost of leased
assets and tax deductions for interest paid to third-party participants. The
Corporation generally is entitled to any residual value of leased assets.
26
<PAGE>
Investment in direct financing and leveraged leases represents net unpaid
rentals and estimated unguaranteed residual values of leased equipment, less
related deferred income. The Corporation has no general obligation for principal
and interest on notes and other instruments representing third-party
participation related to leveraged leases; such notes and other instruments have
not been included in liabilities but have been offset against the related
rentals receivable. The Corporation's share of rentals receivable on leveraged
leases is subordinate to the share of other participants who also have security
interests in the leased equipment.
The Corporation's net investment in financing leases at December 31, 1999 and
1998 is shown below.
<TABLE>
<CAPTION>
Total financing leases Direct financing leases Leveraged leases
---------------------------------------------------- -------------------------
(In millions) 1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total minimum lease payments
receivable ....................... $ 68,158 $ 66,528 $ 47,069 $ 47,451 $ 21,089 $ 19,077
Less principal and interest on
third-party nonrecourse debt ..... (17,184) (15,176) - - (17,184) (15,176)
------------ ------------ ------------ ----------- ----------- -----------
Net rentals receivable ........... 50,974 51,352 47,069 47,451 3,905 3,901
Estimated unguaranteed residual value
of leased assets ................. 7,157 6,826 4,945 5,011 2,212 1,815
Less deferred income ............... (10,348) (10,607) (8,276) (8,732) (2,072) (1,875)
------------ ------------ ------------ ----------- ----------- -----------
Investment in financing leases ... 47,783 47,571 43,738 43,730 4,045 3,841
Less: Allowance for losses ......... (581) (619) (509) (519) (72) (100)
Deferred taxes arising from
financing leases ......... (8,593) (8,593) (5,087) (5,147) (3,506) (3,446)
------------ ------------ ------------ ----------- ----------- -----------
Net investment in financing leases . $ 38,609 $ 38,359 $ 38,142 $ 38,064 $ 467 $ 295
============ ============ ============ =========== =========== ===========
</TABLE>
Contractual Maturities
At December 31, 1999 the Corporation's contractual maturities for time sales and
loans and net rentals receivable were:
<TABLE>
<CAPTION>
Total time
(In millions) sales and Net rentals
loans (a) receivable (a)
---------------- ---------------
Due in:
<S> <C> <C>
2000 .................................................................. $25,878 $14,901
2001................................................................... 18,489 11,625
2002 .................................................................. 17,649 7,567
2003 .................................................................. 7,466 4,613
2004 .................................................................. 5,972 2,906
Thereafter ............................................................ 18,171 9,362
---------------- ---------------
$93,625 $50,974
================ ===============
</TABLE>
(a) Experience has shown that a substantial portion of receivables will be paid
prior to contractual maturity, and these amounts should not be regarded as
forecasts of future cash flows.
Nonearning consumer receivables were $930 million and $1,250 million at December
31, 1999 and 1998, respectively, a substantial amount of which were
private-label credit card loans. Nonearning and reduced-earning receivables
other than consumer receivables were $932 million and $354 million at year-end
1999 and 1998, respectively.
"Impaired" loans are defined by generally accepted accounting principles as
loans for which it is probable that the lender will be unable to collect all
amounts due according to original contractual terms of the loan agreement. That
definition excludes, among other things, leases or large groups of
smaller-balance homogenous loans, and therefore applies principally to the
Corporation's commercial loans.
27
<PAGE>
An analysis of impaired loans at December 31, 1999 and 1998 is shown below.
<TABLE>
<CAPTION>
(In millions) 1999 1998
-------------- --------------
<S> <C> <C>
Loans requiring allowance for losses ......................................... $ 631 $ 346
Loans expected to be fully recoverable ....................................... 219 158
-------------- --------------
$ 850 $ 504
============== ==============
Allowance for losses ......................................................... $ 179 $ 109
Average investment during year ............................................... 610 512
Interest income earned while impaired (a) .................................... 27 39
</TABLE>
(a) Principally on the cash basis.
NOTE 4. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Balance at January 1 ......................................... $ 3,288 $ 2,802 $ 2,693
Provisions charged to operations ............................. 1,678 1,609 1,421
Net transfers primarily related to acquisitions and sales .... 270 388 127
Amounts written off - net .................................... (1,457) (1,511) (1,439)
--------------- -------------- --------------
Balance at December 31 ....................................... $ 3,779 $ 3,288 $ 2,802
=============== ============== ==============
</TABLE>
NOTE 5. OTHER RECEIVABLES
At year-end 1999 and 1998, this account included reinsurance recoverables of
$8,138 million and $6,124 million and insurance-related receivables of $7,417
million and $7,109 million, respectively. Premium receivables, policy loans and
funds on deposit with reinsurers are included in insurance-related receivables.
Also in other receivables are trade receivables, accrued investment income,
operating lease receivables and a variety of sundry items.
NOTE 6. EQUIPMENT ON OPERATING LEASES
Equipment on operating leases by type of equipment and accumulated amortization
at December 31, 1999 and 1998 are shown below.
<TABLE>
<CAPTION>
(In millions) 1999 1998
--------------- ---------------
Original cost
<S> <C> <C>
Vehicles ...................................................................... $ 10,942 $ 9,825
Aircraft ...................................................................... 10,591 9,321
Railroad rolling stock ........................................................ 3,323 2,804
Marine shipping containers .................................................... 2,309 2,565
Other ......................................................................... 3,832 3,447
--------------- ---------------
30,997 27,962
Accumulated amortization ........................................................ (7,392) (7,021)
--------------- ---------------
$ 23,605 $ 20,941
=============== ===============
</TABLE>
Amortization of equipment on operating leases was $2,673 million, $2,185 million
and $2,102 million in 1999, 1998 and 1997, respectively. Noncancelable future
rentals due from customers for equipment on operating leases at year-end 1999
totaled $16,058 million and are due as follows: $4,177 million in 2000; $3,177
million in 2001; $2,332 million in 2002; $1,624 million in 2003; $1,086 million
in 2004 and $3,662 million thereafter.
The Corporation acts as a lender and lessor to the commercial airline industry.
At December 31, 1999 and 1998, the balance of such loans, leases and equipment
leased to others was $11,772 million and $10,170 million, respectively. In
addition, at December 31, 1999, the Corporation had issued financial guarantees
and funding commitments of $59 million ($74 million at year-end 1998) and had
placed multiyear orders for various Boeing and Airbus aircraft with list prices
of approximately $9.9 billion ($9.4 billion at year-end 1998).
28
<PAGE>
NOTE 7. BUILDINGS AND EQUIPMENT
Buildings and equipment include office buildings, satellite communications
equipment, data processing equipment, vehicles, furniture and office equipment.
Depreciation expense was $500 million in 1999, $431 million in 1998 and $358
million in 1997.
NOTE 8. INTANGIBLE ASSETS
Intangible assets at December 31, 1999 and 1998 are shown in the table below.
<TABLE>
<CAPTION>
(In millions) 1999 1998
-------------- --------------
<S> <C> <C>
Goodwill ....................................................................... $ 12,301 $ 11,469
Present value of future profits ("PVFP") ....................................... 1,812 1,618
Other intangibles .............................................................. 635 552
-------------- --------------
$ 14,748 $ 13,639
============== ==============
</TABLE>
The Corporation's intangible assets are shown net of accumulated amortization of
$4,233 million at December 31, 1999, and $3,396 million at December 31, 1998.
PVFP amortization, which is on an accelerated basis and net of interest, is
projected to range from 15% to 7% of the year-end 1999 unamortized balance for
each of the next five years.
NOTE 9. OTHER ASSETS
Other assets at December 31, 1999 and 1998 are shown in the table below.
<TABLE>
<CAPTION>
(In millions) 1999 1998
-------------- --------------
Investments:
<S> <C> <C>
Assets acquired for resale ..................................................... $ 3,406 $ 6,167
Investments in and advances to associated companies ............................ 11,298 7,670
Real estate ventures ........................................................... 4,397 3,131
Other .......................................................................... 4,424 3,473
-------------- --------------
23,525 20,441
Separate accounts .............................................................. 10,335 6,563
Servicing assets (a) ........................................................... 1,707 1,625
Deferred insurance acquisition costs ........................................... 4,682 3,326
Other .......................................................................... 4,445 3,584
-------------- --------------
$ 44,694 $ 35,539
============== ==============
</TABLE>
(a) associated primarily with serviced residential mortgage loans amounting
to $86 billion and $91 billion at December 31, 1999 and 1998, respectively.
Separate accounts represent investments controlled by policyholders and are
associated with identical amounts reported as insurance liabilities in note 11.
29
<PAGE>
NOTE 10. BORROWINGS
Total short-term borrowings at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- --------------------------------
--------------- --------------- --------------- ---------------
Average Average
(Dollars in millions) Amount rate (a) Amount rate (a)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Commercial paper - U.S. ........................ $ 84,702 6.07% $ 83,044 5.38%
Commercial paper - non-U.S. .................... 11,909 4.19 3,953 4.80
Current portion of long-term debt .............. 22,902 5.59 14,645 5.66
Other .......................................... 9,746 11,520
--------------- ---------------
$ 129,259 $ 113,162
=============== ===============
</TABLE>
Total long-term borrowings at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999
average
(Dollars in millions) rate (a) Maturities 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Senior notes ................................... 5.50% 2001-2055 $ 69,770 $ 58,042
Subordinated notes (b) ......................... 7.88 2006-2035 996 996
--------------- ---------------
$ 70,766 $ 59,038
=============== ===============
</TABLE>
(a) Based on year-end balances and local currency interest rates, including the
effects of interest rate and currency swaps, if any, directly associated
with the original debt issuance.
(b) Guaranteed by GE Company.
Borrowings of the Corporation are addressed below from two perspectives -
liquidity and interest rate management. Additional information about borrowings
and associated swaps can be found in note 20 to the consolidated financial
statements.
Liquidity requirements of the Corporation are principally met through the credit
markets. Maturities of long-term borrowings during the next five years,
including the current portion of long-term debt, at December 31, 1999, were
$22,902 million in 2000; $15,948 million in 2001; $12,763 million in 2002;
$10,153 million in 2003 and $7,922 million in 2004.
At December 31, 1999, the Corporation held committed lines of credit aggregating
$32.5 billion with 118 banks, including $12.0 billion of revolving credit
agreements pursuant to which it has the right to borrow funds for periods
exceeding one year. A total of $7.7 billion of GE Capital's credit lines is
available for use by GE Company. Also, at December 31, 1999, substantially all
of the approximately $4.2 billion of GE Company's credit lines were available
for use by the Corporation. During 1999, amounts drawn under these lines were
not significant. The Corporation compensates banks for credit facilities in the
form of fees, which were insignificant in each of the past three years.
Interest rates are managed by the Corporation in light of the anticipated
behavior, including prepayment behavior, of assets in which debt proceeds are
invested. A variety of instruments, including interest rate and currency swaps
and currency forwards, are employed to achieve management's interest rate
objectives. Effective interest rates are lower under these "synthetic" positions
than could have been achieved by issuing debt directly.
30
<PAGE>
The following table shows the Corporation's borrowing positions at December 31,
1999 and 1998, considering the effects of swaps.
<TABLE>
<CAPTION>
(In millions) 1999 1998
-------------- --------------
Effective borrowings (including swaps)
<S> <C> <C>
Short-term ..................................................................... $ 74,347 $ 72,143
============== ==============
Long-term (including current portion)
Fixed rate (a) ............................................................... $ 90,361 $ 74,226
Floating rate ................................................................ 35,317 25,831
-------------- --------------
Total long-term ................................................................ $ 125,678 $ 100,057
============== ==============
</TABLE>
(a) Includes the notional amount of long-term interest rate swaps that
effectively convert the floating-rate nature of short-term borrowings to
fixed rates of interest.
At December 31, 1999, interest rate swap maturities ranged from 2000 to 2048,
and average interest rates for fixed-rate borrowings (including "synthetic"
fixed-rate borrowings) were 5.63% (6.03% at year-end 1998).
NOTE 11. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS
Insurance liabilities, reserves and annuity benefits at December 31, 1999 and
1998, are shown below.
<TABLE>
<CAPTION>
(In millions) 1999 1998
-------------- --------------
<S> <C> <C>
Investment contracts and universal life benefits .............................. $ 30,448 $ 29,266
Life insurance benefits and other (a) ......................................... 18,460 16,104
Unpaid claims and claims adjustment expenses (b)............................... 21,473 19,611
Unearned premiums ............................................................. 6,060 5,715
Separate accounts (see note 9) ................................................ 10,335 6,563
-------------- --------------
$ 86,776 $ 77,259
============== ==============
</TABLE>
(a) Life insurance benefits are accounted for mainly by a net-level-premium
method using estimated yields generally ranging from 5% to 9% in both
1999 and 1998.
(b) Principally property and casualty reserves; includes amounts for both
reported and incurred-but-not-reported claims, reduced by anticipated
salvage and subrogation recoveries. Estimates of liabilities are reviewed
and updated continually, with changes in estimated losses reflected in
operations.
When the Corporation cedes insurance to third parties, it is not relieved of its
primary obligation to policyholders. Losses on ceded risks give rise to claims
for recovery; allowances are established for such receivables from reinsurers.
The insurance liability for unpaid claims and claims adjustment expenses related
to policies that may cover environmental and asbestos exposures is based on
known facts and an assessment of applicable law and coverage litigation.
Liabilities are recognized for both known and unasserted claims (including the
cost of related litigation) when sufficient information has been developed to
indicate that a claim has been incurred and a range of potential losses can be
reasonably estimated. Developed case law and adequate claim history do not exist
for certain claims principally due to significant uncertainties as to both the
level of ultimate losses that will occur and what portion, if any, will be
deemed to be insured amounts.
31
<PAGE>
A summary of activity affecting unpaid claims and claims adjustment expenses
follows.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Balance at January 1 - gross ................................... $ 19,611 $ 14,654 $ 13,184
Less reinsurance recoverables .................................. (3,483) (2,246) (1,822)
--------------- -------------- --------------
Balance at January 1 - net ..................................... 16,128 12,408 11,362
Claims and expenses incurred:
Current year ................................................ 6,917 6,330 4,494
Prior years ................................................. 248 (162) 146
Claims and expenses paid:
Current year ................................................ (2,508) (2,400) (1,780)
Prior years ................................................. (5,162) (3,692) (2,816)
Claim reserves related to acquired companies ................... 929 3,476 1,360
Other .......................................................... 89 168 (358)
--------------- -------------- --------------
Balance at December 31 - net ................................... 16,641 16,128 12,408
Add reinsurance recoverables ................................... 4,832 3,483 2,246
--------------- -------------- --------------
Balance at December 31 - gross ................................. $ 21,473 $ 19,611 $ 14,654
=============== ============== ==============
</TABLE>
Prior-year claims and expenses incurred in the preceding table resulted
principally from settling claims established in earlier accident years for
amounts that differed from expectations.
Financial guarantees and credit life risk of insurance affiliates at December
31, 1999 and 1998 are summarized below.
<TABLE>
<CAPTION>
(In millions) 1999 1998
-------------- --------------
<S> <C> <C>
Guarantees, principally on municipal bonds and structured finance issues ........ $ 177,840 $ 171,020
Mortgage insurance risk in force ................................................ 59,798 43,941
Credit life insurance risk in force ............................................. 26,427 31,018
Less reinsurance ................................................................ (37,992) (37,205)
-------------- --------------
$ 226,073 $ 208,774
============== ==============
</TABLE>
The effects of reinsurance on premiums written and premiums and commissions
earned were as follows for the past three years.
<TABLE>
<CAPTION>
Premiums written Premiums and commissions earned
---------------------------------------------- ----------------------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Direct ......... $ 7,382 $ 6,237 $ 5,206 $ 7,002 $ 6,063 $ 5,138
Assumed ........ 8,520 7,470 5,501 8,460 7,151 5,386
Ceded .......... (2,278) (1,842) (1,311) (2,514) (1,862) (1,256)
-------------- -------------- -------------- -------------- -------------- --------------
Net ............ $ 13,624 $ 11,865 $ 9,396 $ 12,948 $ 11,352 $ 9,268
============== ============== ============== ============== ============== ==============
</TABLE>
Reinsurance recoveries recognized as a reduction of insurance losses and
policyholder and annuity benefits amounted to $2,648 million, $1,594 million and
$903 million for the years ended December 31, 1999, 1998 and 1997, respectively.
NOTE 12. MINORITY INTEREST
Minority interest in equity of consolidated affiliates includes preferred stock
issued by GE Capital and by affiliates of GE Capital. The preferred stock pays
cumulative dividends at variable rates. The value of the preferred shares at
December 31, 1999 and 1998 is summarized below.
<TABLE>
<CAPTION>
(In millions) 1999 1998
-------------- --------------
<S> <C> <C>
GE Capital ...................................................................... $ 2,600 $ 2,300
GE Capital affiliates............................................................ 1,421 860
</TABLE>
32
<PAGE>
Dividend rates in local currency on the preferred stock ranged from 0.6% to 6.1%
during 1999 and from 3.9% to 5.2% during 1998.
NOTE 13. SHARE OWNERS' EQUITY
Changes in share owners' equity for each of the last three years were as
follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Cumulative Preferred Stock Issued ......................... $ 10 $ 10 $ 10
-------------- -------------- --------------
Common Stock Issued ....................................... 1 1 1
-------------- -------------- --------------
Accumulated nonowner changes other than earnings
Balance at January 1 ...................................... 2,161 1,950 595
Unrealized (losses) gains on investment securities - net of
deferred taxes of ($868), $432, and $860 ............... (1,578) 775 1,467
Currency translation adjustments - net of deferred taxes of
($91), ($13) and ($58) ................................. (169) (30) (112)
Reclassification adjustments - net of deferred taxes of
($341) and ($293) ...................................... (628) (534) -
-------------- -------------- --------------
Balance at December 31 .................................... (214) 2,161 1,950
-------------- -------------- --------------
Other Capital
Balance at January 1 ...................................... 2,480 2,327 2,316
Contributions ............................................. 192 153 11
-------------- -------------- --------------
Balance at December 31 .................................... 2,672 2,480 2,327
-------------- -------------- --------------
Retained Earnings
Balance at January 1 ...................................... 15,075 12,951 11,354
Net Earnings .............................................. 4,443 3,796 3,256
Dividends ................................................. (1,666) (1,672) (1,659)
-------------- -------------- --------------
Balance at December 31 .................................... 17,852 15,075 12,951
-------------- -------------- --------------
Total Share Owners' Equity ................................ $ 20,321 $ 19,727 $ 17,239
============== ============== ==============
</TABLE>
The Corporation's outstanding preferred stock amounted to $510 million at
December 31, 1999, all of which was held by consolidated affiliates with the
exception of $10 million of such shares, which were dividended to GE Company in
1994. All other equity is owned entirely by GE Company and an affiliate.
The Corporation's common stock was split on a ten for one basis ($1,000 par
value) on July 22, 1999 and the Corporation also authorized additional common
stock, accomplished through an amendment to its Certificate of Incorporation. As
a result of the common stock split, GE Company owns 1,010 shares of the
Corporation's common stock. On July 26, 1999, the Corporation issued 2 shares of
its common stock to MRA Systems, Inc. (a GE Company affiliate) in a private
placement, pursuant to a Share Exchange Agreement, dated as of July 22, 1999,
between the Corporation and MRA Systems, Inc., a Delaware corporation.
Changes in fair value of available-for-sale investment securities are reflected,
net of applicable taxes and other adjustments, in equity. The changes from year
to year were primarily attributable to the effects of changes in year-end market
interest rates on the fair value of the securities.
At December 31, 1999 and 1998, the aggregate statutory capital and surplus of
the insurance businesses totaled $14.5 billion and $14.4 billion, respectively.
Accounting practices prescribed by statutory authorities are used in preparing
statutory statements.
33
<PAGE>
NOTE 14. OPERATING AND ADMINISTRATIVE EXPENSES
Employees and retirees of the Corporation are covered under a number of pension,
health and life insurance plans. The principal pension plan is the GE Company
Pension Plan, a defined benefit plan, while employees of certain affiliates are
covered under separate plans. The Corporation provides health and life insurance
benefits to certain of its retired employees, principally through GE Company's
benefit program, as well as through plans sponsored by other affiliates. The
annual cost to the Corporation of providing these benefits is not material.
Rental expense relating to equipment the Corporation leases from others for the
purpose of subleasing was $484 million in 1999, $439 million in 1998 and $392
million in 1997. Other rental expense was $583 million in 1999, $450 million in
1998 and $342 million in 1997, principally for the rental of office space and
data processing equipment. Minimum future rental commitments under noncancelable
leases at December 31, 1999 are $5,041 million; $834 million in 2000; $663
million in 2001; $603 million in 2002; $540 million in 2003; $413 million in
2004 and $1,988 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
1999, 1998 and 1997 was $2,545 million, $1,940 million and $1,554 million,
respectively.
NOTE 15. INCOME TAXES
The provision for income taxes is summarized in the following table.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Estimated amounts payable .....................................$ 806 $ 815 $ 368
Deferred tax expense from temporary differences ............... 847 549 798
--------------- --------------- ---------------
$ 1,653 $ 1,364 $ 1,166
=============== =============== ===============
</TABLE>
GE Company files a consolidated U.S. federal income tax return which includes
the Corporation. The provision for estimated taxes payable includes the effect
of the Corporation on the consolidated return.
Estimated amounts payable includes amounts applicable to non-U.S. jurisdictions
of $844 million, $813 million and $636 million in 1999, 1998 and 1997,
respectively.
Deferred income tax balances reflect the impact of temporary differences between
the carrying amounts of assets and liabilities and their tax bases and are
stated at enacted tax rates expected to be in effect when taxes are actually
paid or recovered.
Except for certain earnings that the Corporation intends to reinvest
indefinitely, provision has been made for the estimated U.S. federal income tax
liabilities applicable to undistributed earnings of affiliates and associated
companies. It is not practicable to determine the U.S. federal income tax
liability, if any, that would be payable if such earnings were not reinvested
indefinitely.
U.S. income before taxes was $3.5 billion in 1999, $3.4 billion in 1998 and $2.8
billion in 1997. The corresponding amounts for non-U.S. based operations were
$2.6 billion in 1999, $1.8 billion in 1998 and $1.6 billion in 1997.
A reconciliation of the U.S. federal statutory rate to the actual income tax
rate follows.
<TABLE>
<CAPTION>
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate ........................ 35.0% 35.0% 35.0%
Increase (reduction) in rate resulting from:
Amortization of goodwill .................................... 1.0 1.0 1.1
Tax-exempt income ........................................... (4.4) (4.7) (4.9)
Tax on International Activities including Foreign Sales
Corporation benefits ...................................... (4.8) (1.3) (2.2)
Fuels credits ................................................. (1.5) (1.8) (1.6)
Other - net ................................................... 1.8 (1.8) (1.0)
---------------- --------------- ---------------
Actual income tax rate ........................................ 27.1% 26.4% 26.4%
================ =============== ===============
</TABLE>
34
<PAGE>
Principal components of the net deferred tax liability balances at December 31,
1999 and 1998, were as follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998
------------- -------------
Assets:
<S> <C> <C>
Allowance for losses ......................................................... $ 1,379 $ 1,386
Insurance reserves ........................................................... 1,052 1,022
AMT credit carryforwards ..................................................... 1,185 903
Other ........................................................................ 1,912 1,994
------------- -------------
Total deferred tax assets ..................................................... 5,528 5,305
------------- -------------
Liabilities:
Financing leases ............................................................. 8,593 8,593
Operating leases ............................................................. 2,840 2,419
Net unrealized gains on securities ........................................... 73 1,369
Other ........................................................................ 2,977 2,514
------------- -------------
Total deferred tax liabilities ................................................ 14,483 14,895
------------- -------------
Net deferred tax liability .................................................... $ 8,955 $ 9,590
============= =============
</TABLE>
NOTE 16. OPERATING SEGMENT DATA
At year-end 1998, the Corporation adopted Statement of Financial Accounting
Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and
Related Information, which requires segment data to be measured and analyzed on
a basis that is consistent with how business activities are reported internally
for management. Prior period amounts have been restated in accordance with the
requirements of the new standard. The Corporation's operating segments are
organized based on the nature of products and services provided. A description
of the operating segments can be found in Item 1. Business., under the heading
Operating Segments, on page 2 of this report. The accounting policies for these
segments are the same as those described for the consolidated entity.
The Corporation evaluates the performance of its operating segments primarily on
the basis of net earnings. Details of total revenues and net earnings by
operating segment are provided in Item 7. Management's Discussion and Analysis
of Results of Operations under the heading Operating Segments on page 11 of this
report.
Other specific information is provided below in accordance with the requirements
of SFAS No. 131 because they are included as a component of overall segment net
earnings or total assets.
<TABLE>
<CAPTION>
(In millions) Depreciation and amortization (a) Provision for income taxes
-------------------------------------- -------------------------------------
For the years ended December 31 1999 1998 1997 1999 1998 1997
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Consumer Services .............. $ 1,070 $ 961 $ 897 $ 322 $ 442 $ 229
Equipment Management ........... 2,405 1,890 1,690 321 257 353
Mid-Market Financing ........... 549 405 398 241 239 198
Specialized Financing .......... 62 56 51 462 47 171
Specialty Insurance ............ 179 165 140 366 359 251
All other ...................... 107 91 64 (59) 20 (36)
----------- ----------- ------------ ----------- ------------ -----------
Total ....................... $ 4,372 $ 3,568 $ 3,240 $ 1,653 $ 1,364 $ 1,166
=========== =========== ============ =========== ============ ===========
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Time sales, loan, investment and
other income (b) Interest expense
-------------------------------------- -------------------------------------
For the years ended December 31 1999 1998 1997 1999 1998 1997
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Consumer Services .............. $ 12,293 $ 10,668 $ 9,586 $ 3,253 $ 3,601 $ 3,226
Equipment Management ........... 2,364 2,288 2,032 1,588 1,486 1,296
Mid-Market Financing ........... 2,328 1,719 1,160 2,027 1,674 1,276
Specialized Financing .......... 4,028 2,712 2,250 1,836 1,552 1,437
Specialty Insurance ............ 3,276 2,769 2,198 692 704 586
All other ...................... 163 143 497 (37) (51) (172)
----------- ----------- ------------ ----------- ------------ -----------
Total ....................... $ 24,452 $ 20,299 $ 17,723 $ 9,359 $ 8,966 $ 7,649
=========== =========== ============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Property, plant and equipment
additions (including equipment
Assets leased to others) (c)
At December 31 For the years ended December 31
-------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Consumer Services (d) (e)....... $140,924 $130,868 $117,410 $ 2,441 $ 2,218 $ 1,863
Equipment Management (e) ....... 43,368 38,301 33,771 7,956 4,408 4,314
Mid-Market Financing ........... 50,337 41,802 29,315 3,893 1,316 978
Specialized Financing (e)....... 48,539 36,906 28,959 155 88 36
Specialty Insurance ............ 56,819 54,649 45,359 37 53 65
All other ...................... 5,031 771 594 950 27 64
----------- ----------- ------------ ----------- ------------ -----------
Total ....................... $345,018 $303,297 $255,408 $ 15,432 $ 8,110 $ 7,320
=========== =========== ============ =========== ============ ===========
</TABLE>
(a) Includes amortization of goodwill and other intangibles.
(b) Principally interest income.
(c) Additions to property, plant and equipment (including equipment leased to
others) include amounts relating to principal businesses purchased.
(d) In 1997, the Corporation recorded its share of Montgomery Ward Holding
Corp. ("MWHC") losses of $380 million (after tax), by reducing its
investments in MWHC, resulting in the writing off of its investment in
MWHC common and preferred stock.
(e) Total assets of the Consumer Services, Equipment Management and Specialized
Financing segments at December 31, 1999 include investments in and advances
to non-consolidated affiliates of $3,643 million, $4,070 million and $3,043
million, respectively, which contributed approximately $182 million, $328
million and $73 million, respectively, to segment pre-tax income for the
year ended December 31, 1999.
36
<PAGE>
NOTE 17. QUARTERLY FINANCIAL DATA (unaudited)
Summarized quarterly financial data were as follows:
<TABLE>
<CAPTION>
First quarter Second quarter Third quarter Fourth quarter
------------------- -------------------- -------------------- -------------------
(In millions) 1999 1998 1999 1998 1999 1998 1999 1998
--------- -------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues .................... $ 12,383 $ 11,151 $ 13,378 $ 11,801 $ 14,002 $ 12,016 $ 15,986 $ 13,726
--------- -------- --------- --------- --------- --------- --------- --------
Expenses:
Interest ................... 2,113 2,025 2,237 2,187 2,291 2,188 2,718 2,566
Operating and administrative
and cost of goods sold .... 5,149 4,640 5,665 4,949 6,134 4,992 7,281 6,006
Insurance losses and
policyholder and annuity
benefits .................. 2,619 2,213 2,705 2,400 2,764 2,239 2,940 2,756
Provision for losses on
financing receivables ..... 379 332 442 409 227 306 630 562
Depreciation and
amortization of buildings
and equipment and equipment
on operating leases ....... 685 656 823 604 792 669 873 687
Minority interest in net
earnings of consolidated
affiliates ................ 38 33 45 33 49 38 54 44
--------- -------- --------- --------- --------- --------- --------- --------
Earnings before income taxes 1,400 1,252 1,461 1,219 1,745 1,584 1,490 1,105
Provision for income taxes .. (368) (371) (369) (286) (483) (502) (433) (205)
--------- -------- --------- --------- --------- --------- --------- --------
Net earnings ................ $ 1,032 $ 881 $ 1,092 $ 933 $ 1,262 $ 1,082 $ 1,057 $ 900
========= ======== ========= ========= ========= ========= ========= ========
</TABLE>
NOTE 18. RESTRICTED NET ASSETS OF AFFILIATES
Certain of the Corporation's consolidated affiliates are restricted from
remitting funds to the Parent in the form of dividends or loans by a variety of
regulations, the purpose of which is to protect affected insurance
policyholders, depositors or investors. At year-end 1999, net assets of the
Corporation's regulated affiliates amounted to $31.0 billion, of which $25.9
billion was restricted.
NOTE 19. SUPPLEMENTAL CASH FLOWS INFORMATION
"Other - net operating activities" in the Statement of Cash Flows consists
principally of adjustments to other liabilities, current and noncurrent accruals
and deferrals of costs and expenses, adjustments for gains and losses on assets,
increases and decreases in assets held for sale, and other adjustments to
assets.
The Statement of Cash Flows excludes certain noncash transactions that had no
significant effect on the investing or financing activities of the Corporation.
Certain supplemental information related to the Corporation's cash flows were as
follows for the past three years.
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
--------------- -------------- --------------
Financing receivables
<S> <C> <C> <C>
Increase in loans to customers .............................. $ (95,661) $ (76,142) $ (55,689)
Principal collections from customers - loans ................ 86,379 65,573 50,679
Investment in equipment for financing leases ................ (18,173) (20,299) (16,420)
Principal collections from customers - financing leases ..... 13,634 15,467 13,796
Net change in credit card receivables ....................... (10,740) (4,705) (4,186)
Sales of financing receivables .............................. 11,473 13,805 9,922
--------------- -------------- --------------
$ (13,088) $ (6,301) $ (1,898)
=============== ============== ==============
All other investing activities
Purchases of securities by insurance and annuity businesses . $ (26,271) $ (23,897) $ (19,274)
Dispositions and maturities of securities by insurance and
annuity businesses ......................................... 23,979 20,639 17,280
Proceeds from principal business dispositions ............... 279 - 241
Other ....................................................... (5,810) (7,820) (3,893)
--------------- -------------- --------------
$ (7,823) $ (11,078) $ (5,646)
=============== ============== ==============
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Newly issued debt having maturities longer than 90 days
<S> <C> <C> <C>
Short-term (91 to 365 days) ................................. $ 15,799 $ 5,881 $ 3,502
Long-term (longer than one year) ............................ 30,082 33,453 15,566
Proceeds - nonrecourse, leveraged lease debt ................ 1,724 2,106 1,757
--------------- -------------- --------------
$ 47,605 $ 41,440 $ 20,825
=============== ============== ==============
Repayments and other reductions of debt having maturities
longer than 90 days
Short-term (91 to 365 days) ................................. $ (21,211) $ (25,901) $ (21,320)
Long-term (longer than one year) ............................ (5,447) (4,739) (1,150)
Principal payments - nonrecourse, leveraged lease debt ...... (266) (387) (287)
--------------- -------------- --------------
$ (26,924) $ (31,027) $ (22,757)
=============== ============== ==============
All other financing activities
Proceeds from sales of investment contracts ................. $ 7,236 $ 5,149 $ 4,717
Preferred stock issued by consolidated affiliates ........... 513 270 605
Redemption of investment contracts .......................... (7,127) (5,533) (4,537)
--------------- -------------- --------------
$ 622 $ (114) $ 785
=============== ============== ==============
Cash paid during the year for:
Interest .................................................... $ (9,596) $ (8,677) $ (7,797)
Income taxes ................................................ (351) (947) (341)
</TABLE>
Changes in operating assets and liabilities are net of acquisitions and
dispositions of businesses.
"Payments for principal businesses purchased" in the Statement of Cash Flows is
net of cash acquired and includes debt assumed and immediately repaid in
acquisitions. In conjunction with the acquisitions, liabilities were assumed as
follows:
<TABLE>
<CAPTION>
(In millions) 1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Fair value of assets acquired ................................. $ 16,208 $ 29,498 $ 15,190
Cash paid ..................................................... (10,075) (18,405) (4,736)
-------------- ------------- -------------
Liabilities assumed ........................................... $ 6,133 $ 11,093 $ 10,454
============== ============= =============
</TABLE>
NOTE 20. ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS
This note contains estimated fair values of certain financial instruments to
which the Corporation is a party. Apart from the Corporation's own borrowings
and certain marketable securities, relatively few of these instruments are
actively traded. Thus, fair values must often be determined by using one or more
models that indicate value based on estimates of quantifiable characteristics as
of a particular date. Because this undertaking is, by its nature, difficult and
highly judgmental, for a limited number of instruments, alternative valuation
techniques may have produced disclosed values different from those that could
have been realized at December 31, 1999 or 1998. Assets and liabilities that, as
a matter of accounting policy, are reflected in the accompanying financial
statements at fair value are not included in the following disclosures; such
items include cash and equivalents, investment securities and separate accounts.
A description of how values are estimated follows.
Borrowings. Based on quoted market prices or market comparables. Fair values of
interest rate and currency swaps on borrowings are based on quoted market prices
and include the effects of counterparty creditworthiness.
Time sales and loans. Based on quoted market prices, recent transactions and/or
discounted future cash flows, using rates at which similar loans would have been
made to similar borrowers.
Investment contract benefits. Based on expected future cash flows, discounted at
currently offered discount rates for immediate annuity contracts or cash
surrender values for single premium deferred annuities.
38
<PAGE>
Financial guarantees and credit life. Based on future cash flows, considering
expected renewal premiums, claims, refunds and servicing costs, discounted at a
market rate.
All other instruments. Based on comparable transactions, market comparables,
discounted future cash flows, quoted market prices, and/or estimates of the cost
to terminate or otherwise settle obligations to counterparties.
Information about financial instruments that were not carried at fair value at
December 31, 1999 and 1998, is shown below.
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- --------------------------------------------
Assets (liabilities) Assets (liabilities)
-------------------------------- --------------------------------
Carrying Carrying
Notional amount Estimated fair value Notional amount Estimated fair value
--------------------- ---------------------
(In millions) amount (net) High Low amount (net) High Low
--------- ---------- ---------- --------- ---------- --------- ---------- ----------
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Time sales and loans ....... $ (a) $ 90,427 $ 90,313 $ 88,813 $ (a) $ 74,616 $ 75,474 $ 74,293
Integrated interest rate
swaps ...................... 15,933 18 59 59 14,135 16 (102) (102
Purchased options .......... 8,949 60 174 174 11,195 146 158 158
Mortgage-related positions
Mortgage purchase 669 - - - 1,983 - 15 15
commitments .............
Mortgage sale commitments . 1,452 - 4 4 3,276 - (9) (9)
Mortgages held for sale ... (a) 2,522 2,516 2,488 (a) 4,405 4,457 4,457
Options, including 23,929 76 56 56 21,433 91 181 181
"floors" ..................
Interest rate swaps and 4,054 - (67) (67) 6,662 - 49 49
futures ...................
Other financial instruments (a) 4,478 4,558 4,528 (a) 3,205 3,433 3,231
Liabilities
Borrowings and related
instruments
Borrowings (b) (c) ........ (a) (200,025) (198,798) (198,798) (a) (172,200) (174,492) (174,492)
Interest rate swaps ....... 56,339 - (99) (99) 46,325 - (1,449) (1,449)
Currency swaps ............ 22,744 - (1,425) (1,425) 29,645 - 252 252
Currency forwards ......... 26,806 - (459) (459) 23,409 - (389) (389)
Investment contract
benefits ................. (a) (24,943) (24,420) (24,420) (a) (23,893) (23,799) (23,799)
Insurance - financial
guarantees and credit
life ..................... 226,073 (2,757) (2,797) (2,909) 208,774 (3,135) (3,339) (3,446)
Credit and liquidity
support -securitizations . 34,389 (144) (144) (144) 21,703 (29) (29) (29)
Performance guarantees
-principally letters of
credit ................... 3,472 (56) (56) (56) 2,684 - - -
Other financial instruments 2,545 (1,473) (1,444) (1,444) 2,888 (1,921) (1,190) (1,190)
Other firm commitments
Currency forwards ......... 3,778 (14) (41) (41) 5,072 - (52) (52)
Currency swaps ............ 767 238 200 200 915 72 72 72
Ordinary course of
business lending
commitments ............. 7,822 - - - 9,839 - (12) (12)
Unused revolving credit
lines
Commercial ............... 11,440 - - - 6,401 - - -
Consumer - principally
credit cards ........... 151,651 - - - 132,475 - - -
</TABLE>
(a) Not applicable.
(b) Includes effects of interest rate and currency swaps, which also are listed
separately.
(c) See note 10.
Additional information about certain financial instruments in the above table
follows.
Currency forwards and options are employed by the Corporation to manage
exposures to changes in currency exchange rates associated with commercial
purchase and sale transactions and to optimize borrowing costs as discussed in
note 10. These financial instruments generally are used to fix the local
currency cost of purchased goods or services or selling prices denominated in
currencies other than the functional currency. Currency exposures that result
from net investments in affiliates are managed principally by funding assets
denominated in local currency with debt denominated in those same currencies. In
certain circumstances, net investment exposures are managed using currency
forwards and currency swaps.
39
<PAGE>
Options and instruments containing option features that behave based on limits
("caps", "floors" or "collars") on interest rate movement are used primarily to
hedge prepayment risk in certain of the Corporation's business activities, such
as mortgage servicing and annuities.
Swaps of interest rates and currencies are used by the Corporation to optimize
funding costs for a particular funding strategy (see note 10). Interest rate and
currency swaps, along with purchased options and futures, are used by the
Corporation to establish specific hedges of mortgage-related assets and to
manage net investment exposures. Credit risk of these positions is evaluated by
management under the credit criteria discussed below. As part of its ongoing
customer activities, the Corporation also enters into swaps that are integrated
into investments in or loans to particular customers and do not involve
assumption of third-party credit risk. Such integrated swaps are evaluated and
monitored like their associated investments or loans and are not therefore
subject to the same credit criteria that would apply to a stand-alone position.
Counterparty credit risk - risk that counterparties will be financially unable
to make payments according to the terms of the agreements - is the principal
risk associated with swaps, purchased options and forwards. Gross market value
of probable future receipts is one way to measure this risk, but is meaningful
only in the context of net credit exposure to individual counterparties. At
December 31, 1999 and 1998, this gross market risk amounted to $2.0 billion and
$2.3 billion, respectively. Aggregate fair values that represent associated
probable future obligations, normally associated with a right of offset against
probable future receipts, amounted to $3.6 billion at both year-end 1999 and
1998.
Except as noted above for positions that are integrated into financings, all
swaps, purchased options and forwards are carried out within the following
credit policy constraints.
o Once a counterparty exceeds a credit exposure limit (see table below),
no additional transactions are permitted until the exposure with that
counterparty is reduced to an amount that is within the established
limit. Open contracts remain in force.
Counterparty credit criteria
<TABLE>
<CAPTION>
Credit rating
-------------------------------
Standard &
Moody's Poor's
-------------- --------------
<S> <C> <C>
Term of transaction
Between one and five years ...................................... Aa3 AA-
Greater than five years ......................................... Aaa AAA
Credit exposure limits
Up to $50 million ............................................... Aa3 AA-
Up to $75 million ............................................... Aaa AAA
</TABLE>
o All swaps are executed under master swap agreements containing mutual
credit downgrade provisions that provide the ability to require
assignment or termination in the event either party is downgraded below
A3 or A-.
More credit latitude is permitted for transactions having original maturities
shorter than one year because of their lower risk.
40
<PAGE>
NOTE 21. GEOGRAPHIC SEGMENT INFORMATION
The table below presents data by geographic region. Revenues shown below are
classified according to their country of origin.
<TABLE>
<CAPTION>
Revenues Long-lived assets
For the years ended December 31 At December 31
----------------------------------------- ----------------------------------------
(In millions) 1999 1998 1997 1999 1998 1997
------------- ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
United States .............. $ 34,063 $ 30,498 $ 26,188 $ 13,270 $ 10,476 $ 9,714
Europe ..................... 14,045 13,072 9,490 3,449 3,614 2,727
Pacific Basin .............. 3,722 1,418 940 1,280 625 270
Global (a) ................. 1,788 1,682 1,669 8,960 8,160 7,543
Other (b) .................. 2,131 2,024 1,644 1,682 1,161 944
------------- ------------- ------------- ------------ ------------ ------------
Total .................... $ 55,749 $ 48,694 $ 39,931 $ 28,641 $ 24,036 $ 21,198
============= ============= ============= ============ ============ ============
</TABLE>
(a) Includes operations that cannot meaningfully be associated with specific
geographic areas (for example, commercial aircraft and shipping containers
used on ocean-going vessels).
(b) Principally the Americas other than the United States.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable
41
<PAGE>
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
42
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements
Included in Part II of this report:
Independent Auditors' Report
Statement of Earnings for each of the years in the three-year
period ended December 31, 1999
Statement of Changes in Share Owners' Equity for each of the
years in the three-year period ended
December 31, 1999
Statement of Financial Position at December 31, 1999 and 1998
Statement of Cash Flows for each of the years in the three-year
period ended December 31, 1999
Notes to Consolidated Financial Statements
Incorporated by reference:
The consolidated financial statements of General Electric
Company, set forth in the Annual Report on Form 10-K of General
Electric Company (S.E.C. File No. 001-00035) for the year ended
December 31, 1999 (pages F-1 through F-44) and Exhibit 12 (Ratio
of Earnings to Fixed Charges) of General Electric Company.
(a) 2. Financial Statement Schedules
Schedule I. Condensed financial information of registrant.
Schedule V. Supplemental information concerning property and
casualty insurance operations.
All other schedules are omitted because of the absence of
conditions under which they are required or because the required
information is shown in the financial statements or notes thereto.
(a) 3. Exhibit Index
The exhibits listed below, as part of Form 10-K, are numbered in
conformity with the numbering used in Item 601 of Regulation S-K of
the Securities and Exchange Commission.
Exhibit Description
Number
3(i) A complete copy of the Certificate of Incorporation of the Corporation as
last amended on July 22, 1999 and currently in effect, consisting of the
following: (a) the Certificate of Incorporation of the Corporation as in
effect immediately prior to the filing of a Certificate of Amendment on
July 22, 1999 (incorporated by reference to Exhibit 3(i) of the
Corporation's Form 10-K Report for the year ended December 31, 1993); and
(b) a Certificate of Amendment filed with the Office of the Secretary of
State, State of Delaware on July 22, 1999 (incorporated by reference to
Exhibit 3(i) of the Corporation's Form 10-Q Report for the quarter ended
June 26, 1999).
3(ii) A complete copy of the By-Laws of the Corporation as last amended on June
30, 1994, and currently in effect. (Incorporated by reference to Exhibit
3(ii) of the Corporation's Form 10-K Report for the year ended December
31, 1994).
4(a) Agreement to furnish to the Securities and Exchange Commission upon
request a copy of instruments defining the rights of holders of certain
long-term debt of the registrant and all subsidiaries for which
consolidated or unconsolidated financial statements are required to be
filed.
12(a) Computation of ratio of earnings to fixed charges.
12(b) Computation of ratio of earnings to combined fixed charges and preferred
stock dividends.
43
<PAGE>
23(ii) Consent of KPMG LLP.
24 Power of Attorney.
27 Financial Data Schedule (filed electronically herewith).
99(a) Income Maintenance Agreement dated March 28, 1991, between General
Electric Company and General Electric Capital Corporation. (Incorporated
by reference to Exhibit 28 of the Corporation's Form 10-K Report for the
year ended December 31, 1992).
99(b) The consolidated financial statements of General Electric Company, set
forth in the Annual Report on Form 10-K of General Electric Company
(S.E.C. File No. 001-00035) for the year ended December 31, 1999, (pages
F-1 through F-44) and Exhibit 12 (Ratio of Earnings to Fixed Charges) of
General Electric Company.
99(c) Item 1. Business - Property and Casualty Reserves for Unpaid Claims and
Claim Expenses, set forth in the Annual Report on Form 10-K of GE Global
Insurance Holding Corporation (S.E.C. File No. 0-27394) for the year
ended December 31, 1999 (Pages 5 through 10).
99(d) Letter, dated February 4, 1999, from Dennis D. Dammerman of General
Electric Company to Denis J. Nayden of General Electric Capital
Corporation pursuant to which General Electric Company agrees to provide
additional equity to General Electric Capital Corporation in conjunction
with certain redemptions by General Electric Capital Corporation of
shares of its Variable Cumulative Preferred Stock. (Incorporated by
reference to Exhibit 99 (g) to General Electric Capital Corporation's
Post-Effective Amendment No. 1 to Registration Statement on Form S-3,
File No. 333-59707).
(b) Reports on Form 8-K
None.
44
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL ELECTRIC CAPITAL SERVICES, INC.
CONDENSED STATEMENT OF CURRENT AND RETAINED EARNINGS
For the years ended December 31 (In millions) 1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES ......................................................... $ 26 $ 1 $ 237
------------- ------------- -------------
EXPENSES:
Interest ....................................................... 378 306 289
Operating and administrative ................................... 342 234 445
------------- ------------- -------------
Loss before income taxes and equity in earnings of affiliates ... (694) (539) (497)
Income tax benefit .............................................. 194 143 175
Equity in earnings of affiliates ................................ 4,943 4,192 3,578
------------- ------------- -------------
NET EARNINGS .................................................... 4,443 3,796 3,256
Dividends paid .................................................. (1,666) (1,672) (1,659)
Retained earnings at January 1 .................................. 15,075 12,951 11,354
------------- ------------- -------------
RETAINED EARNINGS AT DECEMBER 31 ................................ $ 17,852 $ 15,075 $ 12,951
============= ============= =============
</TABLE>
See Notes to Condensed Financial Statements.
45
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Continued)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
CONDENSED STATEMENT OF FINANCIAL POSITION
At December 31 (In millions) 1999 1998
-------------- --------------
ASSETS
<S> <C>
Cash and equivalents .............................................................. $ - -
Investment in and advances to affiliates .......................................... 27,325 26,611
Other assets....................................................................... 242 308
-------------- --------------
Total assets ..................................................................... $ 27,567 $ 26,919
============== ==============
LIABILITIES AND EQUITY
Short-term borrowings ............................................................. $ 6,137 $ 6,018
Long-term borrowings .............................................................. 299 299
Accounts payable .................................................................. 12 72
Other liabilities ................................................................. 298 303
-------------- --------------
Total liabilities ................................................................ 6,746 6,692
-------------- --------------
Cumulative preferred stock, $10,000 par value (80,000 shares authorized; 51,000
shares issued and held primarily by affiliates at December 31, 1999 and 1998) ... 510 510
Common stock, $1,000 par value (1,260 and 1,010 shares authorized at December
31, 1999 and 1998, respectively, 1,012 and 1,010 shares outstanding at
December 31, 1999 and 1998, respectively) ....................................... 1 1
Additional paid-in capital ........................................................ 2,672 2,480
Retained earnings ................................................................. 17,852 15,075
Accumulated unrealized gains on investment securities held by affiliates - net (a) 170 2,376
Accumulated foreign currency translation adjustments (a) .......................... (384) (215)
-------------- --------------
Total equity ..................................................................... 20,821 20,227
-------------- --------------
Total liabilities and equity ..................................................... $ 27,567 $ 26,919
============== ==============
</TABLE>
(a) The sum of accumulated unrealized gains on investment securities held by
affiliates and accumulated foreign currency translation adjustments
constitutes "Accumulated nonowner changes other than earnings," and was
($214) million and $2,161 million at year-end 1999 and 1998, respectively.
See Notes to Condensed Financial Statements.
46
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Continued)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
CONDENSED STATEMENT OF CASH FLOWS
For the years ended December 31 (In millions) 1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FROM OPERATING ACTIVITIES ................................... $ 1,387 $ 669 $ 1,414
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in investment and advances to affiliates .................. 45 (1,339) 59
Net change in other assets ....................................... 115 (101) (44)
-------------- -------------- --------------
Cash from (used for) investing activities ...................... 160 (1,440) 15
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (less than 90-day maturities) ........... 119 2,443 223
Dividends paid ................................................... (1,666) (1,672) (1,659)
-------------- -------------- --------------
Cash (used for) from financing activities ...................... (1,547) 771 (1,436)
-------------- -------------- --------------
DECREASE IN CASH AND EQUIVALENTS DURING THE YEAR ................. - - (7)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ........................ - - 7
-------------- -------------- --------------
CASH AND EQUIVALENTS AT END OF YEAR .............................. $ - $ - $ -
============== ============== ==============
</TABLE>
See Notes to Condensed Financial Statements.
47
<PAGE>
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Concluded)
GENERAL ELECTRIC CAPITAL SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Income taxes
General Electric Company files a consolidated U.S. federal income tax return
which includes General Electric Capital Services, Inc. ("GE Capital Services").
Income tax benefit includes the effect of GE Capital Services on the
consolidated return.
Dividends from affiliates
In 1999 and 1998, GE Capital Services received dividends of $338 million and
$363 million, respectively, from GE Global Insurance Holding Corporation and
$1,423 million and $798 million, respectively, from General Electric Capital
Corporation ("GE Capital").
48
<PAGE>
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES
SCHEDULE V - SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY AND CASUALTY INSURANCE OPERATIONS
(in millions)
At December 31 Year ended December 31
------------------------------------------ -------------------------------------------------------------------------------
Discount
deducted
from
Liabliity liability Claims and claims
for upaid for unpaid adjustment expenses Amortization
Defered claims and claims and Earned incurred related to: of deferred Paid claims
policy claims claims premiums Net ------------------ policy and claims
acquisition djustment adjustment Unearned and investment Current Prior acquisition adjustment Premiums
costs expenses expenses premiums commissions income Year Years costs expenses written
-------- --------- ------ ------- -------- --------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $ 1,089 $ 19,683 $ 334 $ 4,505 $ 8,185 $ 1,464 $ 5,211 $ 185 $ 2,088 $ 5,854 $ 8,424
======== ========= ====== ======= ======== ========= ======== ======= ======== ======== ========
1998 $ 1,079 $ 18,396 $ 354 $ 4,293 $ 7,183 $ 1,327 $ 4,508 $ (186) $ 1,635 $ 4,641 $ 7,490
======== ========= ======= ======= ======== ========= ======== ======= ======== ======== ========
1997 $ 853 $ 13,672 $ 347 $ 3,653 $ 5,702 $ 1,185 $ 3,355 $ 124 $ 1,365 $ 3,505 $ 5,645
======== ========= ======= ======= ======== ========= ======== ======= ======== ======== ========
</TABLE>
49
<PAGE>
56
Exhibit 4 (a)
March 14, 2000
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, 1999 - File No. 0-14804
Dear Sirs:
Neither General Electric Capital Services, Inc. (the "Corporation") nor any of
its subsidiaries has outstanding any instrument with respect to its long-term
debt that is not registered or filed with the Commission and under which the
total amount of securities authorized exceeds 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis. In accordance with
paragraph (b) (4) (iii) of Item 601 of Regulation S-K (17 CFR ss.229.601), the
Corporation hereby agrees to furnish to the Securities and Exchange Commission,
upon request, a copy of each instrument which defines the rights of holders of
such long-term debt.
Very truly yours,
GENERAL ELECTRIC CAPITAL SERVICES, INC.
By: /s/ J.A. Parke
J.A. Parke,
Executive Vice President and
Chief Financial Officer
50
<PAGE>
Exhibit 12 (a)
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC.
AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Fixed Charges
Years ended December 31
-----------------------------------------------------------------
(Dollars in millions) 1999 1998 1997 1996 1995
------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net earnings .................................... $ 4,443 $ 3,796 $ 3,256 $ 2,817 $ 2,415
Provision for income taxes ...................... 1,653 1,364 1,166 1,231 1,105
Minority interest ............................... 186 148 121 167 140
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest ...................................... 6,282 5,308 4,543 4,215 3,660
------------ ----------- ------------ ------------ -----------
Fixed charges:
Interest ...................................... 9,607 9,122 7,762 7,402 6,731
One-third of rentals .......................... 356 296 245 182 175
------------ ----------- ------------ ------------ -----------
Total fixed charges ............................. 9,963 9,418 8,007 7,584 6,906
Less interest capitalized, net of amortization .. (87) (88) (52) (41) (21)
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest, plus fixed charges .................. $ 16,158 $ 14,638 $ 12,498 $ 11,758 $ 10,545
============ =========== ============ ============ ===========
Ratio of earnings to fixed charges .............. 1.62 1.55 1.56 1.55 1.53
============ =========== ============ ============ ===========
</TABLE>
51
<PAGE>
Exhibit 12 (b)
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC.
AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Years ended December 31
-----------------------------------------------------------------
(Dollars in millions) 1999 1998 1997 1996 1995
------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net earnings .................................... $ 4,443 $ 3,796 $ 3,256 $ 2,817 $ 2,415
Provision for income taxes ...................... 1,653 1,364 1,166 1,231 1,105
Minority interest ............................... 186 148 121 167 140
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest ...................................... 6,282 5,308 4,543 4,215 3,660
------------ ----------- ------------ ------------ -----------
Fixed charges:
Interest ...................................... 9,607 9,122 7,762 7,402 6,731
One-third of rentals .......................... 356 296 245 182 175
------------ ----------- ------------ ------------ -----------
Total fixed charges ............................. 9,963 9,418 8,007 7,584 6,906
------------ ----------- ------------ ------------ -----------
Less interest capitalized, net of amortization .. (87) (88) (52) (41) (21)
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest, plus fixed charges .................. $16,158 $14,638 $12,498 $11,758 $10,545
============ =========== ============ ============ ===========
Preferred stock dividend requirements ........... $ 1 $ 1 $ 1 $ 1 $ 1
Ratio of earnings before provisions for income
taxes to net earnings ......................... 1.37 1.36 1.36 1.44 1.46
------------ ----------- ------------ ------------ -----------
Preferred stock dividend factor on pre-tax basis 1 1 1 1 1
Fixed charges ................................... 9,963 9,418 8,007 7,584 6,906
------------ ----------- ------------ ------------ -----------
Total fixed charges and preferred stock dividend
requirements .................................. $ 9,964 $ 9,419 $ 8,008 $ 7,585 $ 6,907
============ =========== ============ ============ ===========
Ratio of earnings to combined fixed charges and
preferred stock dividends ..................... 1.62 1.55 1.56 1.55 1.53
============ =========== ============ ============ ===========
</TABLE>
52
<PAGE>
Exhibit 23 (ii)
To the Board of Directors
General Electric Capital Services, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
33-7348) on Form S-3 of General Electric Capital Services, Inc., of our report
dated February 4, 2000, relating to the statement of financial position of
General Electric Capital Services, Inc. and consolidated affiliates as of
December 31, 1999 and 1998, and the related statements of earnings, changes in
share owners' equity and cash flows for each of the years in the three-year
period ended December 31, 1999, and related schedules, which report appears in
the December 31, 1999 annual report on Form 10-K of General Electric Capital
Services, Inc.
/s/ KPMG LLP
Stamford, Connecticut
March 14, 2000
53
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being directors
and/or officers of General Electric Capital Services, Inc., a Delaware
corporation (the "Corporation"), hereby constitutes and appoints Dennis D.
Dammerman, James A. Parke, Joan C. Amble and Nancy E. Barton and each of them,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead in any and all
capacities, to sign one or more Annual Reports for the Corporation's fiscal year
ended December 31, 1999, 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 14th
day of March, 2000.
/s/ Dennis D. Dammerman /s/ James A. Parke
- ------------------------------------ ------------------
Dennis D. Dammerman, James A. Parke,
Chairman of the Board Director, Executive Vice President
and Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)
/s/ Joan C. Amble
-----------------
Joan C. Amble,
Vice President and Controller
(Principal Accounting Officer)
(Page 1 of 2)
54
<PAGE>
/s/ Denis J. Nayden
- ------------------------------------- ---------------------------------
Nigel D.T. Andrews, Denis J. Nayden,
Director Director
/s/ Nancy E. Barton
- ------------------------------------- ---------------------------------
Nancy E. Barton, Michael A. Neal,
Director Director
/s/ James R. Bunt /s/ Gary M. Reiner
- ------------------------------------- ---------------------------------
James R. Bunt, Gary M. Reiner,
Director Director
/s/ David L. Calhoun /s/ John M. Samuels
- ------------------------------------- ---------------------------------
David L. Calhoun, John M. Samuels,
Director Director
/s/ Keith S. Sherin
- ------------------------------------- ---------------------------------
Benjamin W. Heineman, Jr., Keith S. Sherin,
Director Director
/s/ Jeffrey R. Immelt
- ------------------------------------- ---------------------------------
Jeffrey R. Immelt, Edward D. Stewart,
Director Director
/s/ W. James McNerney, Jr. /s/ John F. Welch, Jr.
- ------------------------------------- ---------------------------------
W. James McNerney, Jr., John F. Welch, Jr.,
Director Director
/s/ John H. Myers
- ------------------------------------- ---------------------------------
John H. Myers, William A. Woodburn,
Director Director
/s/ Robert L. Nardelli
- -------------------------------------
Robert L. Nardelli,
Director
A MAJORITY OF THE BOARD OF DIRECTORS
(Page 2 of 2)
55
<PAGE>
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 14, 2000 By: /s/ Dennis D. Dammerman
------------------------------
(Dennis D. Dammerman)
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
/s/ Dennis D. Dammerman Chairman of the Board and March 14, 2000
- --------------------------- Chief Executive Officer
(Dennis D. Dammerman) (Principal Executive Officer)
/s/ James A. Parke Director, Executive Vice President March 14, 2000
- -------------------------- and Chief Financial Officer
(James A. Parke) (Principal Financial Officer)
/s/ Joan C. Amble Vice President and Controller March 14, 2000
- -------------------------- (Principal Accounting Officer)
(Joan C. Amble)
NANCY E. BARTON * Director
JAMES R. BUNT * Director
DAVID L. CALHOUN * Director
DENNIS D. DAMMERMAN * Director
JEFFREY R. IMMELT * Director
W. JAMES McNERNEY, JR. * Director
JOHN H. MYERS * Director
ROBERT L. NARDELLI * Director
DENIS J. NAYDEN * Director
JAMES A. PARKE * Director
GARY M. REINER * Director
JOHN M. SAMUELS * Director
KEITH S. SHERIN * Director
JOHN F. WELCH, JR. * Director
A MAJORITY OF THE BOARD OF DIRECTORS
*By: /s/ Joan C. Amble March 14, 2000
---------------------------
(Joan C. Amble)
Attorney-in-fact
56
<PAGE>
Exhibit 4 (a)
March 14, 2000
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, 1999 - File No. 0-14804
Dear Sirs:
Neither General Electric Capital Services, Inc. (the "Corporation") nor any of
its subsidiaries has outstanding any instrument with respect to its long-term
debt that is not registered or filed with the Commission and under which the
total amount of securities authorized exceeds 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis. In accordance with
paragraph (b) (4) (iii) of Item 601 of Regulation S-K (17 CFR ss.229.601), the
Corporation hereby agrees to furnish to the Securities and Exchange Commission,
upon request, a copy of each instrument which defines the rights of holders of
such long-term debt.
Very truly yours,
GENERAL ELECTRIC CAPITAL SERVICES, INC.
By: /s/ J.A. Parke
J.A. Parke,
Executive Vice President and
Chief Financial Officer
<PAGE>
Exhibit 12 (a)
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC.
AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Fixed Charges
Years ended December 31
-----------------------------------------------------------------
(Dollars in millions) 1999 1998 1997 1996 1995
------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net earnings .................................... $ 4,443 $ 3,796 $ 3,256 $ 2,817 $ 2,415
Provision for income taxes ...................... 1,653 1,364 1,166 1,231 1,105
Minority interest ............................... 186 148 121 167 140
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest ...................................... 6,282 5,308 4,543 4,215 3,660
------------ ----------- ------------ ------------ -----------
Fixed charges:
Interest ...................................... 9,607 9,122 7,762 7,402 6,731
One-third of rentals .......................... 356 296 245 182 175
------------ ----------- ------------ ------------ -----------
Total fixed charges ............................. 9,963 9,418 8,007 7,584 6,906
Less interest capitalized, net of amortization .. (87) (88) (52) (41) (21)
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest, plus fixed charges .................. $ 16,158 $ 14,638 $ 12,498 $ 11,758 $ 10,545
============ =========== ============ ============ ===========
Ratio of earnings to fixed charges .............. 1.62 1.55 1.56 1.55 1.53
============ =========== ============ ============ ===========
</TABLE>
<PAGE>
Exhibit 12 (b)
<TABLE>
<CAPTION>
GENERAL ELECTRIC CAPITAL SERVICES, INC.
AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Years ended December 31
-----------------------------------------------------------------
(Dollars in millions) 1999 1998 1997 1996 1995
------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net earnings .................................... $ 4,443 $ 3,796 $ 3,256 $ 2,817 $ 2,415
Provision for income taxes ...................... 1,653 1,364 1,166 1,231 1,105
Minority interest ............................... 186 148 121 167 140
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest ...................................... 6,282 5,308 4,543 4,215 3,660
------------ ----------- ------------ ------------ -----------
Fixed charges:
Interest ...................................... 9,607 9,122 7,762 7,402 6,731
One-third of rentals .......................... 356 296 245 182 175
------------ ----------- ------------ ------------ -----------
Total fixed charges ............................. 9,963 9,418 8,007 7,584 6,906
------------ ----------- ------------ ------------ -----------
Less interest capitalized, net of amortization .. (87) (88) (52) (41) (21)
------------ ----------- ------------ ------------ -----------
Earnings before income taxes and minority
interest, plus fixed charges .................. $16,158 $14,638 $12,498 $11,758 $10,545
============ =========== ============ ============ ===========
Preferred stock dividend requirements ........... $ 1 $ 1 $ 1 $ 1 $ 1
Ratio of earnings before provisions for income
taxes to net earnings ......................... 1.37 1.36 1.36 1.44 1.46
------------ ----------- ------------ ------------ -----------
Preferred stock dividend factor on pre-tax basis 1 1 1 1 1
Fixed charges ................................... 9,963 9,418 8,007 7,584 6,906
------------ ----------- ------------ ------------ -----------
Total fixed charges and preferred stock dividend
requirements .................................. $ 9,964 $ 9,419 $ 8,008 $ 7,585 $ 6,907
============ =========== ============ ============ ===========
Ratio of earnings to combined fixed charges and
preferred stock dividends ..................... 1.62 1.55 1.56 1.55 1.53
============ =========== ============ ============ ===========
</TABLE>
<PAGE>
Exhibit 23 (ii)
To the Board of Directors
General Electric Capital Services, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
33-7348) on Form S-3 of General Electric Capital Services, Inc., of our report
dated February 4, 2000, relating to the statement of financial position of
General Electric Capital Services, Inc. and consolidated affiliates as of
December 31, 1999 and 1998, and the related statements of earnings, changes in
share owners' equity and cash flows for each of the years in the three-year
period ended December 31, 1999, and related schedules, which report appears in
the December 31, 1999 annual report on Form 10-K of General Electric Capital
Services, Inc.
/s/ KPMG LLP
Stamford, Connecticut
March 14, 2000
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being directors
and/or officers of General Electric Capital Services, Inc., a Delaware
corporation (the "Corporation"), hereby constitutes and appoints Dennis D.
Dammerman, James A. Parke, Joan C. Amble and Nancy E. Barton and each of them,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead in any and all
capacities, to sign one or more Annual Reports for the Corporation's fiscal year
ended December 31, 1999, 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 14th
day of March, 2000.
/s/ Dennis D. Dammerman /s/ James A. Parke
- ------------------------------------ ------------------
Dennis D. Dammerman, James A. Parke,
Chairman of the Board Director, Executive Vice President
and Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)
/s/ Joan C. Amble
-----------------
Joan C. Amble,
Vice President and Controller
(Principal Accounting Officer)
(Page 1 of 2)
<PAGE>
/s/ Denis J. Nayden
- ------------------------------------- ---------------------------------
Nigel D.T. Andrews, Denis J. Nayden,
Director Director
/s/ Nancy E. Barton
- ------------------------------------- ---------------------------------
Nancy E. Barton, Michael A. Neal,
Director Director
/s/ James R. Bunt /s/ Gary M. Reiner
- ------------------------------------- ---------------------------------
James R. Bunt, Gary M. Reiner,
Director Director
/s/ David L. Calhoun /s/ John M. Samuels
- ------------------------------------- ---------------------------------
David L. Calhoun, John M. Samuels,
Director Director
/s/ Keith S. Sherin
- ------------------------------------- ---------------------------------
Benjamin W. Heineman, Jr., Keith S. Sherin,
Director Director
/s/ Jeffrey R. Immelt
- ------------------------------------- ---------------------------------
Jeffrey R. Immelt, Edward D. Stewart,
Director Director
/s/ W. James McNerney, Jr. /s/ John F. Welch, Jr.
- ------------------------------------- ---------------------------------
W. James McNerney, Jr., John F. Welch, Jr.,
Director Director
/s/ John H. Myers
- ------------------------------------- ---------------------------------
John H. Myers, William A. Woodburn,
Director Director
/s/ Robert L. Nardelli
- -------------------------------------
Robert L. Nardelli,
Director
A MAJORITY OF THE BOARD OF DIRECTORS
(Page 2 of 2)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the period ended December 31, 1999, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,931
<SECURITIES> 80,485
<RECEIVABLES> 141,408
<ALLOWANCES> 3,779
<INVENTORY> 1,209
<CURRENT-ASSETS> 0
<PP&E> 38,160
<DEPRECIATION> 9,519
<TOTAL-ASSETS> 345,018
<CURRENT-LIABILITIES> 0
<BONDS> 70,766
0
10
<COMMON> 1
<OTHER-SE> 20,310
<TOTAL-LIABILITY-AND-EQUITY> 345,018
<SALES> 8,740
<TOTAL-REVENUES> 55,749
<CGS> 7,976
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,253
<LOSS-PROVISION> 1,678
<INTEREST-EXPENSE> 9,359
<INCOME-PRETAX> 6,096
<INCOME-TAX> 1,653
<INCOME-CONTINUING> 4,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,443
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<PAGE>
PAGE F-1
ANNUAL REPORT PAGE 33
FINANCIAL SECTION
CONTENTS
40 INDEPENDENT AUDITORS' REPORT
AUDITED FINANCIAL STATEMENTS
34 Earnings
34 Changes in Share Owners' Equity
36 Financial Position
38 Cash Flows
56 Notes to Consolidated Financial Statements
MANAGEMENT'S DISCUSSION
40 Financial Responsibility
41 Operations
41 Consolidated Operations
43 Segment Operations
48 International Operations
50 Financial Resources and Liquidity
54 Selected Financial Data
[CHART HERE]
CONSOLIDATED REVENUES
- -----------------------------------------------------------------------------
(IN BILLIONS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
$70.028 $79.179 $90.840 $100.469 $111.630
- -----------------------------------------------------------------------------
[CHART HERE]
EARNINGS PER SHARE
- -----------------------------------------------------------------------------
(IN DOLLARS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
$1.93 $2.16 $2.46 $2.80 $3.22
- -----------------------------------------------------------------------------
[CHART HERE]
DIVIDENDS DECLARED PER SHARE
- -----------------------------------------------------------------------------
(IN DOLLARS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
$0.845 $0.950 $1.080 $1.250 $1.460
- -----------------------------------------------------------------------------
<PAGE>
PAGE F-2
ANNUAL REPORT PAGE 34
<TABLE>
STATEMENT OF EARNINGS
<CAPTION>
General Electric Company
For the years ended December 31 and consolidated affiliates
(In millions; per-share amounts in dollars) ----------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Sales of goods $ 47,785 $ 43,749 $ 40,675
Sales of services 16,283 14,938 12,729
Other income (note 2) 798 649 2,300
Earnings of GECS -- -- --
GECS revenues from services (note 3) 46,764 41,133 35,136
----------------------------------
Total revenues 111,630 100,469 90,840
----------------------------------
COSTS AND EXPENSES (NOTE 4)
Cost of goods sold 34,554 31,772 30,889
Cost of services sold 11,404 10,508 9,199
Interest and other financial charges 10,013 9,753 8,384
Insurance losses and policyholder and
annuity benefits 11,028 9,608 8,278
Provision for losses on financing
receivables (note 13) 1,678 1,609 1,421
Other costs and expenses 27,011 23,477 21,250
Minority interest in net earnings of
consolidated affiliates 365 265 240
----------------------------------
Total costs and expenses 96,053 86,992 79,661
----------------------------------
EARNINGS BEFORE INCOME TAXES 15,577 13,477 11,179
Provision for income taxes (note 7) (4,860) (4,181) (2,976)
----------------------------------
NET EARNINGS $ 10,717 $ 9,296 $ 8,203
===============================================================================
PER-SHARE AMOUNTS (note 8)
Diluted earnings per share $ 3.22 $ 2.80 $ 2.46
Basic earnings per share $ 3.27 $ 2.84 $ 2.50
===============================================================================
DIVIDENDS DECLARED PER SHARE $ 1.46 $ 1.25 $ 1.08
===============================================================================
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHARE OWNERS' EQUITY
<CAPTION>
----------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGES IN SHARE OWNERS' EQUITY
Balance at January 1 $ 38,880 $ 34,438 $ 31,125
----------------------------------
Dividends and other transactions
with share owners (note 25) (4,632) (5,178) (5,615)
----------------------------------
Changes other than transactions
with share owners
Increase attributable to net earnings 10,717 9,296 8,203
Unrealized gains (losses) on investment
securities--net (note 25) (1,776) 264 1,467
Currency translation adjustments (note 25) (632) 60 (742)
----------------------------------
Total changes other than transactions
with share owners 8,309 9,620 8,928
--------- --------- --------
Balance at December 31 $ 42,557 $ 38,880 $ 34,438
===============================================================================
<FN>
The notes to consolidated financial statements on pages 56 -76 are an integral
part of these statements.
</FN>
</TABLE>
<PAGE>
PAGE F-3
ANNUAL REPORT PAGE 35
<TABLE>
STATEMENT OF EARNINGS (Continued)
<CAPTION>
GE GECS
For the years ended December 31 -------------------------------- --------------------------------
(In millions; per-share amounts in dollars) 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sales of goods $ 39,045 $ 36,376 $ 36,059 $ 8,740 $ 7,374 $ 4,622
Sales of services 16,600 15,170 12,893 -- -- --
Other income (note 2) 856 684 2,307 -- -- --
Earnings of GECS 4,443 3,796 3,256 -- -- --
GECS revenues from services (note 3) -- -- -- 47,009 41,320 35,309
-------------------------------- --------------------------------
Total revenues 60,944 56,026 54,515 55,749 48,694 39,931
-------------------------------- --------------------------------
COSTS AND EXPENSES (NOTE 4)
Cost of goods sold 26,578 24,996 26,747 7,976 6,777 4,147
Cost of services sold 11,721 10,740 9,363 -- -- --
Interest and other financial charges 810 883 797 9,359 8,966 7,649
Insurance losses and policyholder and
annuity benefits -- -- -- 11,028 9,608 8,278
Provision for losses on financing
receivables (note 13) -- -- -- 1,678 1,609 1,421
Other costs and expenses 7,732 7,177 7,476 19,426 16,426 13,893
Minority interest in net earnings of
consolidated affiliates 179 117 119 186 148 121
-------------------------------- --------------------------------
Total costs and expenses 47,020 43,913 44,502 49,653 43,534 35,509
-------------------------------- --------------------------------
EARNINGS BEFORE INCOME TAXES 13,924 12,113 10,013 6,096 5,160 4,422
Provision for income taxes (note 7) (3,207) (2,817) (1,810) (1,653) (1,364) (1,166)
-------------------------------- --------------------------------
NET EARNINGS $ 10,717 $ 9,296 $ 8,203 $ 4,443 $ 3,796 $ 3,256
==================================================================================================================
<FN>
In the consolidating data on this page, "GE" means the basis of consolidation as
described in note 1 to the consolidated financial statements; "GECS" means
General Electric Capital Services, Inc. and all of its affiliates and associated
companies. Transactions between GE and GECS have been eliminated from the
"General Electric Company and consolidated affiliates" columns on page 34.
1997 restructuring and other special charges are included in the following GE
captions: "Cost of goods sold"--$1,364 million; "Cost of services sold"--$250
million; and "Other costs and expenses"--$708 million.
</FN>
</TABLE>
<PAGE>
PAGE F-4
ANNUAL REPORT PAGE 36
<TABLE>
STATEMENT OF FINANCIAL POSITION
<CAPTION>
General Electric Company
and consolidated affiliates
---------------------------
At December 31 (In millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 8,554 $ 4,317
Investment securities (note 9) 81,758 78,717
Current receivables (note 10) 8,531 8,224
Inventories (note 11) 7,007 6,049
Financing receivables (investments in time sales,
loans and financing leases) -- net (notes 12 and 13) 137,629 121,566
Other GECS receivables (note 14) 29,708 24,789
Property, plant and equipment (including
equipment leased to others) -- net (note 15) 41,022 35,730
Investment in GECS -- --
Intangible assets--net (note 16) 26,010 23,635
All other assets (note 17) 64,981 52,908
---------------------
TOTAL ASSETS $ 405,200 $ 355,935
===============================================================================
LIABILITIES AND EQUITY
Short-term borrowings (note 19) $ 130,346 $ 115,378
Accounts payable, principally trade accounts 13,676 12,502
Progress collections and price adjustments accrued 4,618 2,765
Dividends payable 1,347 1,146
All other GE current costs and expenses
accrued (note 18) 11,229 9,788
Long-term borrowings (note 19) 71,427 59,663
Insurance liabilities, reserves and
annuity benefits (note 20) 86,776 77,259
All other liabilities (note 21) 28,772 24,939
Deferred income taxes (note 22) 9,238 9,340
---------------------
Total liabilities 357,429 312,780
---------------------
Minority interest in equity of consolidated
affiliates (note 23) 5,214 4,275
---------------------
Accumulated unrealized gains on investment
securities -- net <F1> 626 2,402
Accumulated currency translation adjustments (a) (1,370) (738)
Common stock (3,284,843,000 and 3,271,296,000
shares outstanding at year-end 1999 and
1998, respectively) 594 594
Other capital 10,790 6,808
Retained earnings 54,484 48,553
Less common stock held in treasury (22,567) (18,739)
- -------------------------------------------------------------------------------
Total share owners' equity (notes 25 and 26) 42,557 38,880
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 405,200 $ 355,935
===============================================================================
</TABLE>
[FN]
The notes to consolidated financial statements on pages 56-76 are an integral
part of this statement
<F1> The sum of accumulated unrealized gains on investment securities -- net and
accumulated currency translation adjustments constitutes "Accumulated
nonowner changes other than earnings," as shown in note 25, and was $(744)
million and $1,664 million at year-end 1999 and 1998, respectively.
</FN>
<PAGE>
PAGE F-5
ANNUAL REPORT PAGE 37
<TABLE>
STATEMENT OF FINANCIAL POSITION (Continued)
<CAPTION>
GE GECS
---------------------- ----------------------
At December 31 (In millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 2,000 $ 1,175 $ 6,931 $ 3,342
Investment securities (note 9) 1,273 259 80,485 78,458
Current receivables (note 10) 8,743 8,483 -- --
Inventories (note 11) 5,798 5,305 1,209 744
Financing receivables (investments in time sales,
loans and financing leases) -- net (notes 12 and 13) -- -- 137,629 121,566
Other GECS receivables (note 14) -- -- 30,681 25,973
Property, plant and equipment (including
equipment leased to others) -- net (note 15) 12,381 11,694 28,641 24,036
Investment in GECS 20,321 19,727 -- --
Intangible assets -- net (note 16) 11,262 9,996 14,748 13,639
All other assets (note 17) 20,805 18,031 44,694 35,539
---------------------- ----------------------
TOTAL ASSETS $ 82,583 $ 74,670 $ 345,018 $ 303,297
====================================================================================================================
LIABILITIES AND EQUITY
Short-term borrowings (note 19) $ 2,245 $ 3,466 $ 129,259 $ 113,162
Accounts payable, principally trade accounts 5,068 4,845 9,749 8,815
Progress collections and price adjustments accrued 4,618 2,765 -- --
Dividends payable 1,347 1,146 -- --
All other GE current costs and expenses
accrued (note 18) 11,048 9,708 -- --
Long-term borrowings (note 19) 722 681 70,766 59,038
Insurance liabilities, reserves and
annuity benefits (note 20) -- -- 86,776 77,259
All other liabilities (note 21) 13,872 12,613 14,801 12,247
Deferred income taxes (note 22) 283 (250) 8,955 9,590
---------------------- ----------------------
Total liabilities 39,203 34,974 320,306 280,111
---------------------- ----------------------
Minority interest in equity of consolidated
affiliates (note 23) 823 816 4,391 3,459
---------------------- ----------------------
Accumulated unrealized gains on investment securities -- net (a) 626 2,402 170 2,376
Accumulated currency translation adjustments (a) (1,370) (738) (384) (215)
Common stock (3,284,843,000 and 3,271,296,000
shares outstanding at year-end 1999
and 1998, respectively) 594 594 1 1
Other capital 10,790 6,808 2,682 2,490
Retained earnings 54,484 48,553 17,852 15,075
Less common stock held in treasury (22,567) (18,739) -- --
---------------------- ----------------------
Total share owners' equity (notes 25 and 26) 42,557 38,880 20,321 19,727
---------------------- ----------------------
TOTAL LIABILITIES AND EQUITY $ 82,583 $ 74,670 $ 345,018 $ 303,297
===================================================================================================================
<FN>
In the consolidating data on this page, "GE" means the basis of consolidation as
described in note 1 to the consolidated financial statements; "GECS" means
General Electric Capital Services, Inc. and all of its affiliates and associated
companies. Transactions between GE and GECS have been eliminated from the
"General Electric Company and consolidated affiliates" columns on page 36.
</FN>
</TABLE>
<PAGE>
PAGE F-6
ANNUAL REPORT PAGE 38
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
General Electric Company
and consolidated affiliates
----------------------------
For the years ended December 31 (In millions) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES
Net earnings $ 10,717 $ 9,296 $ 8,203
Adjustments to reconcile net earnings to
cash provided from operating activities
Depreciation and amortization of
property, plant and equipment 4,908 4,377 4,082
Amortization of goodwill and other intangibles 1,783 1,483 1,187
Earnings retained by GECS -- -- --
Deferred income taxes 1,502 1,143 284
Decrease in GE current receivables 143 649 250
Decrease (increase) in inventories 266 150 (386)
Increase (decrease) in accounts payable 820 1,576 200
Increase in insurance liabilities and reserves 4,584 3,670 1,669
Provision for losses on financing receivables 1,678 1,609 1,421
All other operating activities (1,808) (4,593) (2,670)
--------------------------------
CASH FROM OPERATING ACTIVITIES 24,593 19,360 14,240
--------------------------------
CASH FLOWS -- INVESTING ACTIVITIES
Additions to property, plant and equipment (15,502) (8,982) (8,388)
Dispositions of property, plant and equipment 6,262 4,043 2,251
Net increase in GECS financing receivables (13,088) (6,301) (1,898)
Payments for principal businesses purchased (11,654) (18,610) (5,245)
All other investing activities (8,197) (10,283) (4,995)
--------------------------------
CASH USED FOR INVESTING ACTIVITIES (42,179) (40,133) (18,275)
--------------------------------
CASH FLOWS -- FINANCING ACTIVITIES
Net increase in borrowings (maturities
of 90 days or less) 6,171 16,881 13,684
Newly issued debt (maturities longer
than 90 days) 48,158 42,008 21,249
Repayments and other reductions (maturities
longer than 90 days) (27,539) (32,814) (23,787)
Net purchase of GE shares for treasury (1,002) (2,819) (2,815)
Dividends paid to share owners (4,587) (3,913) (3,411)
All other financing activities 622 (114) 785
CASH FROM (USED FOR) FINANCING ACTIVITIES 21,823 19,229 5,705
--------------------------------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS DURING YEAR 4,237 (1,544) 1,670
Cash and equivalents at beginning of year 4,317 5,861 4,191
--------------------------------
Cash and equivalents at end of year $ 8,554 $ 4,317 $ 5,861
======================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for interest $(10,078) $ (9,297) $ (8,264)
Cash paid during the year for income taxes (1,597) (2,098) (1,937)
======================================================================================
<FN>
The notes to consolidated financial statements on pages 56-76 are an integral
part of this statement.
</FN>
</TABLE>
<PAGE>
PAGE F-7
ANNUAL REPORT PAGE 39
<TABLE>
STATEMENT OF CASH FLOWS (Continued)
<CAPTION>
GE GECS
-------------------------------- --------------------------------
For the years ended December 31 (In millions) 1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES
Net earnings $ 10,717 $ 9,296 $ 8,203 $ 4,443 $ 3,796 $ 3,256
Adjustments to reconcile net earnings to
cash provided from operating activities
Depreciation and amortization of
property, plant and equipment 1,735 1,761 1,622 3,173 2,616 2,460
Amortization of goodwill and other intangibles 584 531 407 1,199 952 780
Earnings retained by GECS (2,777) (2,124) (1,597) -- -- --
Deferred income taxes 655 594 (514) 847 549 798
Decrease in GE current receivables 190 520 215 -- -- --
Decrease (increase) in inventories (61) 69 (145) 327 81 (244)
Increase (decrease) in accounts payable 104 199 237 699 1,673 (64)
Increase in insurance liabilities and reserves -- -- -- 4,584 3,670 1,669
Provision for losses on financing receivables -- -- -- 1,678 1,609 1,421
All other operating activities 616 (814) 889 (2,131) (3,991) (3,851)
-------------------------------- --------------------------------
CASH FROM OPERATING ACTIVITIES 11,763 10,032 9,317 14,819 10,955 6,225
-------------------------------- --------------------------------
CASH FLOWS -- INVESTING ACTIVITIES
Additions to property, plant and equipment (2,036) (2,047) (2,191) (13,466) (6,935) (6,197)
Dispositions of property, plant and equipment -- 6 39 6,262 4,037 2,212
Net increase in GECS financing receivables -- -- -- (13,088) (6,301) (1,898)
Payments for principal businesses purchased (1,594) (1,455) (1,425) (10,060) (17,155) (3,820)
All other investing activities (432) 477 483 (7,823) (11,078) (5,646)
-------------------------------- --------------------------------
CASH USED FOR INVESTING ACTIVITIES (4,062) (3,019) (3,094) (38,175) (37,432) (15,349)
-------------------------------- --------------------------------
CASH FLOWS -- FINANCING ACTIVITIES
Net increase in borrowings (maturities
of 90 days or less) (1,230) 1,015 809 7,308 16,288 13,594
Newly issued debt (maturities longer
than 90 days) 558 509 424 47,605 41,440 20,825
Repayments and other reductions (maturities
longer than 90 days) (615) (1,787) (1,030) (26,924) (31,027) (22,757)
Net purchase of GE shares for treasury (1,002) (2,819) (2,815) -- -- --
Dividends paid to share owners (4,587) (3,913) (3,411) (1,666) (1,672) (1,653)
All other financing activities -- -- -- 622 (114) 785
-------------------------------- --------------------------------
CASH FROM (USED FOR) FINANCING ACTIVITIES (6,876) (6,995) (6,023) 26,945 24,915 10,794
-------------------------------- --------------------------------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS DURING YEAR 825 18 200 3,589 (1,562) 1,670
Cash and equivalents at beginning of year 1,175 1,157 957 3,342 4,904 3,234
-------------------------------- --------------------------------
Cash and equivalents at end of year $ 2,000 $ 1,175 $ 1,157 $ 6,931 $ 3,342 $ 4,904
==========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for interest $ (482) $ (620) $ (467) $ (9,596) $ (8,677) $ (7,797)
Cash paid during the year for income taxes (1,246) (1,151) (1,596) (351) (947) (341)
==========================================================================================================================
<FN>
In the consolidating data on this page, "GE" means the basis of consolidation as
described in note 1 to the consolidated financial statements; "GECS" means
General Electric Capital Services, Inc. and all of its affiliates and associated
companies. Transactions between GE and GECS have been eliminated from the
"General Electric Company and consolidated affiliates" columns on page 38.
</FN>
</TABLE>
<PAGE>
PAGE F-8
ANNUAL REPORT PAGE 40
MANAGEMENT'S DISCUSSION OF FINANCIAL RESPONSIBILITY
The financial data in this report, including the audited financial statements,
have been prepared by management using the best available information and
applying judgment. Accounting principles used in preparing the financial
statements are those that are generally accepted in the United States.
Management believes that a sound, dynamic system of internal financial
controls that balances benefits and costs provides a vital ingredient for the
Company's Six Sigma quality program as well as the best safeguard for Company
assets. Professional financial managers are responsible for implementing and
overseeing the financial control system, reporting on management's stewardship
of the assets entrusted to it by share owners and maintaining accurate records.
GE is dedicated to the highest standards of integrity, ethics and
social responsibility. This dedication is reflected in written policy statements
covering, among other subjects, environmental protection, potentially
conflicting outside interests of employees, compliance with antitrust laws,
proper business practices, and adherence to the highest standards of conduct and
practices in transactions with customers, including the U.S. government.
Management continually emphasizes to all employees that even the appearance of
impropriety can erode public confidence in the Company. Ongoing education and
communication programs and review activities, such as those conducted by the
Company's Policy Compliance Review Board, are designed to create a strong
compliance culture--one that encourages employees to raise their policy
questions and concerns and that prohibits retribution for doing so.
KPMG LLP, independent auditors, provide an objective, independent
review of management's discharge of its obligations relating to the fairness of
reporting of operating results and financial condition. Their report for 1999
appears below.
The Audit Committee of the Board (consisting solely of Directors from
outside GE) maintains an ongoing appraisal--on behalf of share owners--of the
activities and independence of the Company's independent auditors, the
activities of its audit staff, financial reporting process, internal financial
controls and compliance with key Company policies.
John F. Welch, Jr. Keith S. Sherin
Chairman of the Board Senior Vice President, Finance,
and Chief Executive Officer and Chief Financial Officer February 4, 2000
INDEPENDENT AUDITORS' REPORT
TO SHARE OWNERS AND BOARD OF DIRECTORS OF
GENERAL ELECTRIC COMPANY
We have audited the financial statements of General Electric Company and
consolidated affiliates as listed in Item 14 (a)1 on page 22. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements 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 aforementioned financial statements present fairly, in all
material respects, the financial position of General Electric Company and
consolidated affiliates at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Stamford, Connecticut
February 4, 2000
<PAGE>
PAGE F-9
ANNUAL REPORT PAGE 41
MANAGEMENT'S DISCUSSION OF OPERATIONS
OVERVIEW
General Electric Company's consolidated financial statements represent the
combination of the Company's manufacturing and nonfinancial services businesses
("GE") and the accounts of General Electric Capital Services, Inc. ("GECS"). See
note 1 to the consolidated financial statements, which explains how the various
financial data are presented.
Management's Discussion of Operations is presented in three parts:
Consolidated Operations, Segment Operations and International Operations.
CONSOLIDATED OPERATIONS
GE achieved record revenues, earnings and cash generation in 1999, reflecting
continuing benefits of its globalization, product services, Six Sigma quality
and e-Business initiatives.
Revenues rose 11% to a record $111.6 billion, as global activities and
product services continued to grow. Revenues were $100.5 billion in 1998, an 11%
increase from 1997 attributable primarily to increased global activities and
higher sales of product services.
Earnings increased to a record $10,717 million, a 15% increase from
$9,296 million reported in 1998. Earnings per share increased to $3.22 during
1999, up 15% from the prior year's $2.80. (Except as otherwise noted, earnings
per share are presented on a diluted basis). Earnings in 1998 rose 13% from
$8,203 million reported in 1997. In 1998, earnings per share increased 14% from
$2.46 in 1997.
TWO CHANGES IN ACCOUNTING STANDARDS may affect future financial statements. The
Financial Accounting Standards Board (FASB) has issued Statement of Financial
Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES (STATEMENT 133), effective for GE and GECS on January 1, 2001. Upon
adoption, all derivative instruments (including certain derivative instruments
embedded in other contracts) will be recognized in balance sheets at fair value,
and changes in such fair values must be recognized immediately in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
meeting these hedging criteria will ultimately offset related earnings effects
of the hedged items; effects of qualifying changes in fair value are to be
recorded in equity pending recognition in earnings. Certain significant
refinements and interpretations of Statement 133 are being deliberated by the
FASB, and the effects on accounting for GE and GECS financial instruments will
depend to some degree on the results of such deliberations. Management has not
determined the total probable effects on its financial statements of adopting
Statement 133 and does not believe that an estimate of such effects would be
meaningful at this time.
The FASB has also proposed new accounting for business combinations
that, among other things, would change the accounting for and display of
goodwill and other intangibles recorded in business acquisitions for
transactions after January 1, 2001. An important aspect of the proposal is that
goodwill amortization would be displayed as a separate element in the Statement
of Earnings, net of applicable income taxes, and related per-share effects could
be displayed. Management believes that this proposal represents a useful
approach to understanding financial performance but believes that the utility of
this information would be materially enhanced if the proposed approach for
goodwill were applied to all intangible assets acquired with a business. On this
preferred basis, GE would have reported earnings per share before amortization
of goodwill and acquired intangibles of $3.63 in 1999, an increase of 16% over
$3.14 in 1998, which was 15% higher than $2.73 in 1997.
[CHART HERE]
GE/S&P CUMULATIVE DIVIDEND GROWTH SINCE 1994
- -----------------------------------------------------------------------------
1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
GE 10.80% 22.93% 38.71% 60.87% 88.62%
S&P 500 4.63 13.05 17.60 22.91 26.25
- -----------------------------------------------------------------------------
DIVIDENDS DECLARED IN 1999 AMOUNTED TO $4,786 MILLION. Per-share dividends of
$1.46 were up 17% from 1998, following a 16% increase from the preceding year.
GE has rewarded its share owners with 24 consecutive years of dividend growth.
The chart above illustrates that GE's dividend growth for the past five years
has significantly outpaced dividend growth of companies in the Standard & Poor's
500 stock index.
RETURN ON AVERAGE SHARE OWNERS' EQUITY reached 26.8% in 1999, up from 25.7% and
25.0% in 1998 and 1997, respectively.
Except as otherwise noted, the analysis in the remainder of this
section presents GE results with GECS on an equity basis.
<PAGE>
PAGE F-10
ANNUAL REPORT PAGE 42
GE TOTAL REVENUES were $60.9 billion in 1999, compared with $56.0 billion in
1998 and $54.5 billion in 1997.
* GE sales of goods and services were $55.6 billion in 1999, an increase of
8% from 1998, which in turn was 5% higher than in 1997. Volume was about
10% higher in 1999, reflecting growth across all businesses during the
year, led by strong double-digit increases at Medical Systems and Power
Systems. While overall selling prices were down slightly in 1999, the
effects of selling prices on sales in various businesses differed
markedly. Revenues were also negatively affected by exchange rates for
sales denominated in currencies other than the U.S. dollar. Volume in
1998 was about 8% higher than in 1997, with selling price and currency
effects both slightly negative.
For purposes of the financial statement display of GE sales and
costs of sales on pages 34 and 35, "goods" is required to include sales
of tangible products, and "services" must include all other sales,
including broadcasting and information services activities. An
increasingly important element of GE sales includes both spare parts
(goods) as well as repair services--sales referred to by management as
"product services." Sales of product services were $14.4 billion in 1999,
a 14% increase over 1998. All businesses reported increases in product
services revenues, led by double-digit increases at Medical Systems,
Aircraft Engines and Power Systems. Operating margin from product
services was approximately $3.2 billion, up 16% from 1998. The increase
reflected improvements in all product services businesses and was led by
double-digit growth at Aircraft Engines and Medical Systems.
* GE other income, earned from a wide variety of sources, was $0.9 billion
in 1999, $0.7 billion in 1998 and $2.3 billion in 1997. Comparisons over
the three-year period are affected by certain gains in 1999 and 1997. A
pre-tax gain of $388 million was recognized in 1999 as a result of the
contribution of certain of NBC's internet assets to NBC Internet (NBCi),
a newly formed publicly traded Internet company, in exchange for a
noncontrolling interest in NBCi. The gain was reduced by $62 million of
related operating losses from the non-consolidated contributed Internet
properties, resulting in incremental revenue of $326 million from the
transaction. In 1997, a $1,538 million after-tax gain was realized from
the exchange of preferred stock in Lockheed Martin Corporation for the
stock of a newly formed subsidiary. See note 2 for further information.
* Earnings of GECS were up 17% in 1999, following a 17% increase the year
before. See page 46 for an analysis of these earnings.
PRINCIPAL COSTS AND EXPENSES FOR GE are those classified as costs of goods and
services sold, and selling, general and administrative expenses. The Six Sigma
quality initiative is an important factor affecting GE's cost structure. The
benefits of Six Sigma quality are reflected in both variable and base cost
productivity (discussed on page 43) as well as in lower direct material costs.
Another important initiative is e-Business, a broad-based program under which GE
is investing in Internet businesses, as well as internal infrastructure hardware
and software that will enable its businesses to conduct a growing portion of
their business over the Internet. The benefits expected from the e-Business
initiative include improved customer service, expanded product and service
offerings and increased operating efficiency for both GE and its customers.
Principally because of the funding status of the GE Pension Plan
(described in note 5) and other benefit plans (described in note 6), principal
U.S. postemployment benefit plans contributed cost reductions of $1,062 million
and $703 million in 1999 and 1998, respectively. The present funding status
provides assurance of benefits for participating employees, but future effects
on operating results depend on economic conditions and investment performance.
The discussion that follows provides additional information about
certain unusual charges that are included in costs and expenses for 1999 and
1997 and are relevant to comparisons of costs over the three-year period.
Costs and expenses in 1999 included $326 million of unusual charges,
the largest of which resulted from fourth-quarter developments affecting
liabilities associated with past activities at former manufacturing sites that
[CHART HERE]
RETURNS ON INVESTED CAPITAL
- -----------------------------------------------------------------------------
1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
RETURN ON EQUITY 23.5% 24.0% 25.0% 25.7% 26.8%
RETURN ON TOTAL CAPITAL 21.3 22.2 23.6 23.9 25.8
- -----------------------------------------------------------------------------
<PAGE>
PAGE F-11
ANNUAL REPORT PAGE 43
are not part of any current business segment. Other significant components of
unusual charges included amounts described on page 45 for NBC and costs for
rationalizing certain operations and facilities of GE's worldwide industrial
businesses. Major elements of the restructuring program included costs for
employee severance, lease termination, dismantlement and site restoration.
In 1997, restructuring charges were recognized amounting to $1,243
million that covered costs of plans to rationalize certain production, service
and administration activities of GE's worldwide industrial businesses. Principal
actions required under those plans were complete by the end of 1999. Other 1997
special charges, which amounted to $1,079 million, were principally associated
with strategic decisions that enhanced the long-term competitiveness of certain
industrial businesses and fourth-quarter 1997 developments affecting liabilities
associated with past activities at former manufacturing sites that were not part
of any current business segment.
OPERATING MARGIN is sales of goods and services less the costs of goods and
services sold, and selling, general and administrative expenses. GE's reported
operating margin was 17.3% in 1999, net of unusual charges discussed above. GE's
ongoing operating margin (before such charges) reached a record 17.8% of sales,
up from last year's 16.7% and 15.7% in 1997, on a comparable basis. GE reported
operating margin of 11.0% of sales in 1997. The improvement in ongoing operating
margin in 1999 was broad-based, with improvements in a majority of GE's
businesses reflecting the increasing benefits from GE's product services and Six
Sigma quality initiatives.
TOTAL COST PRODUCTIVITY (sales in relation to costs, both on a constant dollar
basis) has paralleled the significant improvement in GE's ongoing operating
margin. Total cost productivity in 1999 was 4.2%, reflecting benefits from
improvements in variable cost productivity achieved through the Six Sigma
quality initiative. Most businesses achieved improvements in variable cost
productivity in excess of 4%. Total cost productivity was 4.4% in 1998,
reflecting Six Sigma quality benefits as well as higher volume. In 1998, three
businesses--Medical Systems, Power Systems and NBC--achieved productivity in
excess of 5%. The total contribution of productivity in the last two years
offset not only the negative effects of total cost inflation, but also the
effects of selling price decreases.
GE INTEREST AND OTHER FINANCIAL CHARGES in 1999 amounted to $810 million,
compared with $883 million in 1998 and $797 million in 1997. The decrease in
1999 was attributable to the combination of lower average interest rates on debt
and lower average levels of borrowings during the year. The increase in 1998
reflected higher average levels of borrowings and other financing activities,
which more than offset the effect of lower interest rates.
INCOME TAXES on a consolidated basis were 31.2% of pretax earnings in 1999,
compared with 31.0% in 1998 and 26.6% in 1997. The most significant factor
explaining the lower effective tax rate in 1997 was a 4.8% decrease attributable
to the realized gain on the tax-free exchange of Lockheed Martin Corporation
preferred stock. A more detailed analysis of the differences between the U.S.
federal statutory rate and the consolidated rate, as well as other information
about income tax provisions, is provided in note 7.
[CHART HERE]
GE OPERATING MARGIN AS A PERCENTAGE OF SALES
- -----------------------------------------------------------------------------
1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
AS REPORTED 14.4% 14.8% 11.0% 16.7% 17.3%
UNUSUAL CHARGES - - 4.7 - 0.6
- -----------------------------------------------------------------------------
SEGMENT OPERATIONS
REVENUES AND SEGMENT PROFIT FOR OPERATING SEGMENTS are shown on page 44. For
additional information, including a description of the products and services
included in each segment, see note 28.
AIRCRAFT ENGINES reported a 3% increase in revenues in 1999, reflecting higher
volume in product services. Operating profit increased 19% in 1999 as a result
of productivity and growth in product services. Revenues, including
acquisitions, increased 32% in 1998 as volume in commercial engines and product
services increased. Operating profit increased 30% in 1998 with strong growth in
product services as well as good volume growth in commercial engines.
In 1999, $1.6 billion of Aircraft Engines revenues were from sales to
the U.S. government, about the same as in 1998, which was $0.1 billion higher
than in 1997.
<PAGE>
PAGE F-12
ANNUAL REPORT PAGE 44
SUMMARY OF OPERATING SEGMENTS
<TABLE>
<CAPTION>
General Electric Company and consolidated affiliates
---------------------------------------------------------------------
For the years ended December 31 (In millions) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
GE
Aircraft Engines $ 10,558 $ 10,294 $ 7,799 $ 6,302 $ 6,098
Appliances 5,671 5,619 5,801 5,586 5,137
Industrial Products and Systems 11,555 11,222 10,984 10,401 10,209
NBC 5,790 5,269 5,153 5,232 3,919
Plastics 6,941 6,633 6,695 6,509 6,647
Power Systems 10,046 8,466 7,915 7,643 6,962
Technical Products and Services 6,863 5,323 4,861 4,700 4,430
Eliminations (1,542) (1,367) (1,176) (1,032) (1,082)
---------------------------------------------------------------------
Total GE segment revenues 55,882 51,459 48,032 45,341 42,320
Corporate items <F1> 619 771 3,227 1,407 1,446
GECS net earnings 4,443 3,796 3,256 2,817 2,415
---------------------------------------------------------------------
Total GE revenues 60,944 56,026 54,515 49,565 46,181
GECS segment revenues 55,749 48,694 39,931 32,713 26,492
Eliminations <F2> (5,063) (4,251) (3,606) (3,099) (2,645)
---------------------------------------------------------------------
CONSOLIDATED REVENUES $ 111,630 $ 100,469 $ 90,840 $ 79,179 $ 70,028
===================================================================================================================================
SEGMENT PROFIT
GE
Aircraft Engines $ 2,105 $ 1,769 $ 1,366 $ 1,214 $ 1,135
Appliances 655 755 771 748 682
Industrial Products and Systems 2,095 1,880 1,789 1,587 1,488
NBC 1,576 1,349 1,216 1,020 797
Plastics 1,651 1,584 1,500 1,443 1,435
Power Systems 1,693 1,306 1,203 1,124 782
Technical Products and Services 1,359 1,109 988 855 810
---------------------------------------------------------------------
Total GE operating profit 11,134 9,752 8,833 7,991 7,129
GECS net earnings 4,443 3,796 3,256 2,817 2,415
---------------------------------------------------------------------
Total segment profit 15,577 13,548 12,089 10,808 9,544
Corporate items and eliminations <F3> <F4> (843) (552) (1,279) (638) (263)
GE interest and other financial charges (810) (883) (797) (595) (649)
GE provision for income taxes (3,207) (2,817) (1,810) (2,295) (2,059)
---------------------------------------------------------------------
CONSOLIDATED NET EARNINGS $ 10,717 $ 9,296 $ 8,203 $ 7,280 $ 6,573
===================================================================================================================================
<FN>
The notes to consolidated financial statements on pages 56-76 are an integral
part of this statement. "GE" means the basis of consolidation as described in
note 1 to the consolidated financial statements; "GECS" means General Electric
Capital Services, Inc. and all of its affiliates and associated companies. The
segment profit measure for GE's industrial businesses is operating profit
(earnings before interest and other financial charges, and income taxes). The
segment profit measure for GECS is net earnings, reflecting the importance of
financing and tax considerations to its operating activities.
<F1> Includes revenues of $944 million, $789 million and $796 million in 1997,
1996 and 1995, respectively, from an appliance distribution affiliate
that was deconsolidated in 1998. Also includes $1,538 million in 1997
from an exchange of preferred stock in Lockheed Martin Corporation for
the stock of a newly formed subsidiary.
<F2> Principally the elimination of GECS net earnings.
<F3> Includes income, principally from licensing activities, previously
reported in the All Other segment of $62 million, $271 million, $310
million, $282 million and $285 million in 1999, 1998, 1997, 1996 and
1995, respectively.
<F4> 1999 includes unusual charges amounting to $265 million. Of the total,
amounts that relate to activities of operating segments were as follows:
Aircraft Engines--$42 million, Appliances--$75 million, Industrial
Products and Systems--$12 million, Plastics--$13 million and Technical
Products and Services --$34 million. 1997 includes unusual charges of
$2,322 million. Of the total, amounts that relate to activities of GE
operating segments were as follows: Aircraft Engines--$342 million,
Appliances--$330 million, Industrial Products and Systems--$352 million,
NBC--$161 million, Plastics--$63 million, Power Systems--$437 million and
Technical Products and Services--$157 million. Also included in 1997 is
$1,538 million associated with the Lockheed Martin Corporation
transaction described in <F1> above.
</FN>
</TABLE>
<PAGE>
PAGE F-13
ANNUAL REPORT PAGE 45
Aircraft Engines received orders of $12.0 billion in 1999, compared
with $10.8 billion in 1998. The backlog at year-end 1999 was $10.0 billion ($9.7
billion at the end of 1998). Of the total, $7.6 billion related to products,
about 54% of which was scheduled for delivery in 2000; the remainder related to
2000 product services.
APPLIANCES revenues were 1% higher than a year ago, as volume increases offset
lower selling prices and adverse currency effects. Operating profit decreased
13%, reflecting lower selling prices and increased spending on programs for new
products and e-Business. Revenues in 1998 were 3% lower than in 1997, largely as
a result of selling price decreases and, to a lesser extent, lower volume.
Operating profit decreased 2% in 1998, as the decreases in selling prices and
volume more than offset productivity.
INDUSTRIAL PRODUCTS AND SYSTEMS revenues increased 3% in 1999, largely as a
result of volume increases across all businesses in the segment (particularly at
Transportation Systems), which more than offset lower selling prices. Operating
profit increased 11%, as strong productivity at Industrial Systems and Lighting
more than offset the lower selling prices. Revenues rose 2% in 1998, primarily
as a result of volume increases at Transportation Systems and Industrial Systems
that were partially offset by lower selling prices across most businesses in the
segment. Operating profit increased 5% in 1998, reflecting productivity and the
improvement in volume, which more than offset the effects of selling price
decreases.
Transportation Systems received orders of $1.4 billion in 1999,
compared with $2.4 billion in 1998. The backlog at year-end 1999 was $1.4
billion ($2.3 billion at the end of 1998). Of the total, $1.1 billion related to
products, of which 80% was scheduled for shipment in 2000; the remainder related
to 2000 product services.
NBC revenues increased 10% in 1999, reflecting higher revenues in NBC's
owned-and-operated stations and growth in cable operations. Operating profit was
17% higher in 1999, reflecting a strong advertising marketplace and improved
pricing at the network, excellent results in cable operations and continued cost
reductions across NBC, which more than offset higher license fees for certain
prime-time programs that were renewed. Operating profit in 1999 included $123
million of the gain from the NBCi transaction, described on page 42. That gain
was entirely offset by $62 million of operating losses from NBCi and predecessor
operations (recorded as a reduction of "other income"), as well as $61 million
of unusual costs recorded as "other costs and expenses" for entering into a loss
programming contract and for exiting CNBC's current facilities. In 1998,
revenues increased 2%, reflecting higher revenues in NBC's owned-and-operated
stations, including revenues from station acquisitions and growth in cable
operations, the combination of which more than offset lower network revenues.
Operating profit increased 11% in 1998 as improved results in international,
cable operations and owned-and-operated stations, as well as cost reductions
across NBC, more than offset higher license fees for certain prime-time programs
that were renewed.
PLASTICS revenues increased 5%, primarily as a result of improved volume across
all product lines, which more than offset the effects of lower selling prices.
Operating profit increased by 4% as productivity and the increase in volume more
than offset pricing. Revenues decreased by 1% in 1998, as pricing and adverse
currency exchange rates offset slightly higher volume. Operating profit in 1998
improved by 6%, as lower material costs and productivity more than offset
pricing.
[CHART HERE]
OPERATING PROFIT OF GE SEGMENTS
- -----------------------------------------------------------------------------
(IN BILLIONS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
$7.129 $7.991 $8.833 $9.752 $11.134
- -----------------------------------------------------------------------------
POWER SYSTEMS revenues increased 19%, primarily as a result of strong
double-digit growth in gas turbine volume and in product services. Operating
profit rose 30%, reflecting productivity, growth in product services and the
increase in volume. Revenues in 1998 were 7% higher than in 1997, primarily as a
result of higher volume in product services, including acquisitions, which was
partially offset by lower selling prices. Operating profit increased 9% in 1998,
as growth in product services and productivity more than offset the effects of
lower selling prices.
Power Systems orders were $14.0 billion for 1999, a 33% increase over
1998, reflecting very strong U.S. market growth. The backlog of unfilled orders
at year-end 1999 was $16.1 billion ($12.4 billion at the end of 1998). Of that
total, $14.8 billion related to products, of which 60% was scheduled for
delivery in 2000; the remainder related to 2000 product services.
<PAGE>
PAGE F-14
ANNUAL REPORT PAGE 46
[CHART HERE]
GECS REVENUES
- -----------------------------------------------------------------------------
(IN BILLIONS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
$26.492 $32.713 $39.931 $48.694 $55.749
- -----------------------------------------------------------------------------
TECHNICAL PRODUCTS AND SERVICES revenues rose 29% in 1999, following a 10%
increase in 1998. The improvement in revenues in both years was primarily
attributable to growth at Medical Systems, the result of higher equipment
volume, including new products, and continued growth in product services,
partially offset by lower selling prices across the segment. Operating profit
increased 23% in 1999 as productivity and volume increases, particularly at
Medical Systems, more than offset lower selling prices. Operating profit
increased 12% in 1998 as productivity and volume increases more than offset the
effects of lower selling prices.
Orders received by Medical Systems in 1999 were $6.4 billion, compared
with $4.8 billion in 1998. The backlog of unfilled orders at year-end 1999 was
$3.1 billion ($2.6 billion at the end of 1998). Of the total, $1.9 billion
related to products, of which 83% was scheduled for delivery in 2000; the
remainder related to 2000 product services.
GECS consists of 28 businesses grouped for management purposes into five
operating activities: consumer services, equipment management, mid-market
financing, specialized financing and specialty insurance.
GECS net earnings were $4,443 million in 1999, up 17% from $3,796
million in 1998, with strong double-digit earnings growth in three of the five
operating activities. Net earnings in 1998 increased 17% from 1997. The earnings
improvement throughout the three-year period resulted from asset growth,
principally from acquisitions of businesses and portfolios, and origination
volume.
* GECS total revenues increased 14% to $55.7 billion in 1999, following a
22% increase to $48.7 billion in 1998. The increases in both years
reflected the contributions of businesses acquired as well as growth in
origination volume.
* GECS cost of goods sold amounted to $8.0 billion in 1999, compared with
$6.8 billion in 1998 and $4.1 billion in 1997, and relates to IT
Solutions and Montgomery Ward LLC (Wards). The increase in 1999 primarily
reflects the consolidation of Wards as discussed on page 48; the increase
in 1998 is principally the result of acquisition-related growth at IT
Solutions.
* GECS interest on borrowings in 1999 was $9.4 billion, up from $9.0
billion in 1998 and $7.6 billion in 1997. In both 1999 and 1998, while
average borrowings increased in order to finance asset growth, the
associated higher interest costs were partially mitigated by lower
average interest rates. The composite interest rate was 5.14% in 1999,
compared with 5.92% in 1998 and 6.07% in 1997. See page 51 for a
discussion of interest rate risk management.
* GECS insurance losses and policyholder and annuity benefits increased to
$11.0 billion in 1999, compared with $9.6 billion in 1998 and $8.3
billion in 1997, reflecting effects of business acquisitions and growth
in premium volume throughout the period. In addition, the increase in
1999 reflected the higher loss ratio in the reinsurance business
discussed on page 47.
* GECS provision for losses on financing receivables increased to $1.7
billion in 1999, compared with $1.6 billion in 1998 and $1.4 billion in
1997. These provisions principally related to private-label credit cards,
bank credit cards, auto loans and auto leases in the consumer services
operations, all of which are discussed on page 48 under financing
receivables. The provision throughout the three-year period reflected
higher average receivable balances, a different mix of business, as well
as the effects of lower delinquency rates, consistent with industry
experience.
* GECS other costs and expenses were $19.4 billion in 1999, an increase
from $16.4 billion in 1998 and $13.9 billion in 1997, principally because
of increased costs associated with acquired businesses and portfolios,
higher investment levels and increases in insurance commissions.
Financing spreads (the excess of yields over interest rates on borrowings) were
essentially flat throughout the three-year period, reflecting slightly lower
yields offset by slight decreases in borrowing rates.
Revenues and net earnings from operating activities within the GECS
segment for the past three years are summarized and discussed below.
CONSUMER SERVICES revenues increased 7% in 1999 and 18% in 1998, and
net earnings increased 35% in 1999 and 47% in 1998. The growth in revenues and
net earnings was led by Global Consumer Finance, with strong returns on
investments in Japan and other international growth. Additionally, revenues and
net earnings were increased by higher premium and investment income
<PAGE>
PAGE F-15
ANNUAL REPORT PAGE 47
at GE Financial Assurance, the consumer savings and insurance business,
partially offset by the effects of asset reductions in Card Services and Auto
Financial Services. A higher provision for losses on financing receivables
because of higher average receivables balances also affected earnings in 1998.
- --------------------------------------------------------------------------------
GECS REVENUES AND NET EARNINGS FROM OPERATING ACTIVITIES
- --------------------------------------------------------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
REVENUES
Consumer services $ 17,061 $ 15,948 $ 13,550
Equipment management 15,317 14,869 11,326
Mid-market financing 4,685 3,751 3,009
Specialized financing 4,603 3,368 2,828
Specialty insurance 12,399 10,594 8,836
All other 1,684 164 382
----------------------------------------
Total revenues $ 55,749 $ 48,694 $ 39,931
================================================================================
NET EARNINGS
Consumer services $ 1,074 $ 797 $ 544
Equipment management 695 806 708
Mid-market financing 604 478 391
Specialized financing 1,244 745 593
Specialty insurance 1,223 1,166 973
All other (397) (196) 47
----------------------------------------
Total net earnings $ 4,443 $ 3,796 $ 3,256
================================================================================
EQUIPMENT MANAGEMENT revenues grew 3% in 1999, following a 31% increase
in 1998. Growth in 1999 revenues was primarily the result of Japanese
acquisitions in the corporate auto fleet management operation, as well as higher
revenue from commercial aircraft management at GE Capital Aviation Services
(GECAS), largely offset by decreases in sales volume at the remaining equipment
management businesses. The 1998 increase reflected acquisitions by IT Solutions
and, to a lesser extent, asset growth. Net earnings decreased 14% in 1999,
following a 14% increase in 1998. In 1999, as market conditions became more
competitive, pricing at IT Solutions and utilization at the European equipment
management businesses declined, more than offsetting growth in GECAS and the
satellite service business, Americom. Net earnings increased in 1998, reflecting
higher volume in most businesses from both increased origination as well as
acquisitions of businesses and portfolios. These factors were partially offset
in 1998 by lower pricing and higher operating costs at IT Solutions and Modular
Space.
MID-MARKET FINANCING revenues increased 25% in both 1999 and 1998,
while net earnings grew 26% and 22%, respectively. Asset growth from both
acquisitions and originations was the most significant contributing factor in
both years. Revenues and net earnings were also favorably affected in 1998 by
the disposition of certain assets.
SPECIALIZED FINANCING revenues rose 37% and 19%, while net earnings
increased 67% and 26% in 1999 and 1998, respectively. Revenues principally
reflect increases in asset gains as well as origination growth, with GE Equity,
Commercial Finance and Real Estate accounting for most of the 1999 increase.
Revenue and net earnings growth in both years is principally the result of gains
on equity investments. Net earnings in 1998 also included the effects of certain
tax-advantaged transactions and higher tax credits.
SPECIALTY INSURANCE revenues increased 17% and 20% in 1999 and 1998,
respectively, as premiums and investment income grew throughout the period.
Premiums earned increased in line with higher origination volume and
acquisitions. Investment income also grew, partially reflecting an increase in
net realized investment gains in GE Global Insurance, which amounted to $699
million, $432 million and $308 million in 1999, 1998 and 1997, respectively.
Increases in property and casualty-related losses in GE Global
Insurance were directly related to the frequency and severity of large loss
events during the last three years. Large loss events are individual events
that, after specific reinsurance recoveries and related premium adjustments,
affect GE Global Insurance operations by $2 million or more, and include losses
from earthquakes, aviation or railroad accidents, fire damage, and
weather-related damage from hurricanes, tornadoes, wind and ice.
[CHART HERE]
GECS NET EARNINGS
- -----------------------------------------------------------------------------
(IN BILLIONS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
$2.415 $2.817 $3.256 $3.796 $4.443
- -----------------------------------------------------------------------------
<PAGE>
PAGE F-16
ANNUAL REPORT PAGE 48
[CHART HERE]
CONSOLIDATED INTERNATIONAL REVENUES
- -----------------------------------------------------------------------------
(IN BILLIONS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
INTERNATIONAL
OPERATIONS $20.768 $25.447 $29.328 $33.756 $38.164
EXPORTS 7.220 7.581 8.912 8.751 7.513
- -----------------------------------------------------------------------------
Large loss events for GE Global Insurance amounted to approximately $720
million, $230 million and $70 million in 1999, 1998 and 1997, respectively. 1999
losses were partially recovered under aggregate risk coverage obtained in the
ordinary course of the reinsurance business. Overall losses for Specialty
Insurance were mitigated by favorable experience in the Mortgage Insurance
business, particularly in 1999.
ALL OTHER GECS operating activities include the results of Wards
subsequent to August 2, 1999, when GECS acquired control of the formerly
bankrupt retailer. Wards had sales of $1,622 million and a net loss of $26
million for the period during which it was consolidated. Revenues and net
earnings in 1997 included asset gains, the largest of which was $284 million
(net of tax) from a transaction that included the reduction of the GECS
investment in the common stock of Paine Webber Group Inc.
FINANCING RECEIVABLES is the largest category of assets for GECS and
represents one of its primary sources of revenues. The portfolio of financing
receivables, before allowance for losses, increased to $141.4 billion at the end
of 1999 from $124.9 billion at the end of 1998, principally reflecting higher
origination volume and acquisition growth partially offset by securitizations
and other sales of receivables. The related allowance for losses at the end of
1999 amounted to $3.8 billion ($3.3 billion at the end of 1998), representing
management's best estimate of probable losses inherent in the portfolio.
In GECS financing receivables, "nonearning" receivables are those that
are 90 days or more delinquent (or for which collection has otherwise become
doubtful) and "reduced-earning" receivables are commercial receivables whose
terms have been restructured to a below-market yield.
Consumer financing receivables, primarily credit card and personal
loans and auto loans and leases, were $52.3 billion at year-end 1999, an
increase of $0.7 billion from year-end 1998. The credit card and personal
receivables increased $5.2 billion, primarily from acquisition growth and
origination volume, partially offset by sales and securitizations. Auto
receivables decreased $4.5 billion primarily as a result of reduced volume.
Nonearning receivables at year-end 1999 were $0.9 billion, about 1.8% of total
consumer financing receivables, compared with $1.3 billion, about 2.4% of total
consumer receivables at year-end 1998. Write-offs of consumer receivables
declined to $1.2 billion from $1.4 billion at year-end 1998, reflecting improved
delinquency trends.
Other financing receivables, totaling $89.1 billion at December 31,
1999, consisted of a diverse commercial, industrial and equipment loan and lease
portfolio. This portfolio increased $15.8 billion during 1999, reflecting the
combination of acquisition growth and increased originations. Related nonearning
and reduced-earning receivables were $0.9 billion at year-end 1999, compared
with $0.4 billion at year-end 1998.
GECS loans and leases to commercial airlines amounted to $11.8 billion
at the end of 1999, up from $10.2 billion at the end of 1998. GECS commercial
aircraft positions also included financial guarantees, funding commitments and
aircraft orders as discussed in note 17.
INTERNATIONAL OPERATIONS
Estimated results of international activities include the results of GE and GECS
operations located outside the United States, plus all U.S. exports. Certain
GECS operations that cannot meaningfully be associated with specific geographic
areas are classified as "other international" for this purpose.
International revenues in 1999 were $45.7 billion (41% of consolidated
revenues), compared with $42.5 billion in 1998 and $38.2 billion in 1997. The
chart above left depicts the growth in international revenues over the past five
years.
[CHART HERE]
CONSOLIDATED INTERNATIONAL REVENUES BY REGION
- -----------------------------------------------------------------------------
(IN BILLIONS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
EUROPE $14.062 $18.030 $20.634 $24.353 $25.816
PACIFIC BASIN 7.183 7.573 7.981 8.058 10.195
AMERICAS 4.110 4.706 6.196 6.907 6.730
OTHER 2.633 2.719 3.429 3.189 2.936
- -----------------------------------------------------------------------------
<PAGE>
PAGE F-17
ANNUAL REPORT PAGE 49
- --------------------------------------------------------------------------------
CONSOLIDATED INTERNATIONAL REVENUES
- --------------------------------------------------------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Europe (a) $22,919 $21,665 $18,166
Pacific Basin 7,879 5,166 4,742
Americas 5,229 5,030 4,632
Other 2,136 1,895 1,788
-----------------------------------
38,163 33,756 29,328
Exports from the U.S. to
external customers 7,513 8,751 8,912
-----------------------------------
$45,676 $42,507 $38,240
================================================================================
(a) Includes $944 million in 1997 from an appliance distribution affiliate
that was deconsolidated in 1998.
- --------------------------------------------------------------------------------
GE international revenues were $24.0 billion in 1999, compared with
$24.3 billion in 1998, which was $0.2 billion higher than in 1997. Over the
three-year period, international revenues were slightly less than half of total
revenues. The decrease in such revenues during 1999 was attributable to lower
U.S. exports which offset sales growth in operations based outside the United
States. Exports decreased 14%, largely as a result of lower exports in Power
Systems. Revenues from operations based outside the United States grew 6% to
$16.5 billion in 1999. European revenues were 3% higher in 1999, led by good
increases at Medical Systems and Aircraft Engines. Pacific Basin revenues were
11% higher in 1999, reflecting double-digit growth at Medical Systems and
Plastics. Revenues from the Americas (North and South America, except for the
United States) increased 5%, principally as a result of growth in Canadian
operations.
GECS international revenues were $21.7 billion in 1999, an increase of
19% from $18.2 billion in 1998. Revenues in the Pacific Basin more than doubled
in 1999. Much of the increase was attributable to growth in Japan, the result of
several strategic acquisitions, the largest of which were the purchase of assets
and infrastructure of Japan Leasing and the acquisition of Lake. Revenues in
Europe increased 7% in 1999, reflecting a mix of acquisition and core growth
across all GECS operating activities. Overall, these increases reflect the
continued expansion of GECS as a global provider of a wide range of financial
services.
Consolidated international operating profit was $5.4 billion in 1999,
an increase of 5% over 1998, which was 8% higher than in 1997. Additional
information is provided in note 29.
Total assets of international operations were $141.3 billion in 1999
(35% of consolidated assets), an increase of 10% over 1998. The increase in 1999
reflected strong growth at GECS in the Pacific Basin, where current economic
conditions continue to provide a favorable environment for strategic
investments. GECS had a particularly large increase in Japan, reflecting a mix
of acquisitions, discussed previously, and strong core asset growth. GECS also
had significant asset growth at GECAS, its aviation services business, which is
classified as "other international."
The activities of GE and GECS span all global regions and primarily
encompass manufacturing for local and export markets, import and sale of
products produced in other regions, leasing of aircraft, sourcing for GE plants
domiciled in other global regions and provision of financial services within
these regional economies. Thus, when countries or regions experience currency
and/or economic stress, GE may have increased exposure to certain risks but also
may have new profit opportunities. Potential increased risks include, among
other things, higher receivables delinquencies and bad debts, delays or
cancellation of sales and orders principally related to power and aircraft
equipment, higher local currency financing costs and a slowdown in established
financial services activities. New profit opportunities include, among other
things, lower costs of goods sourced from countries with weakened currencies,
more opportunities for lower cost outsourcing, expansion of industrial and
financial services activities through purchases of companies or assets at
reduced prices and lower U.S. debt financing costs.
Financial results of GE's international activities reported in U.S.
dollars are affected by currency exchange. A number of techniques are used to
manage the effects of currency exchange, including selective borrowings in local
currencies and selective hedging of significant cross-currency transactions.
Principal currencies are the major European currencies, including the euro, as
well as the Japanese yen and the Canadian dollar.
[CHART HERE]
CONSOLIDATED TOTAL ASSETS
- -----------------------------------------------------------------------------
(IN BILLIONS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
UNITED STATES $158.710 $189.427 $206.465 $227.112 $263.778
INTERNATIONAL 69.325 82.975 97.547 128.823 141.259
- -----------------------------------------------------------------------------
<PAGE>
PAGE F-18
ANNUAL REPORT PAGE 50
MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY
OVERVIEW
This discussion of financial resources and liquidity addresses the Statement of
Financial Position (page 36), Statement of Changes in Share Owners' Equity (page
34) and the Statement of Cash Flows (page 38).
GECS is not a "captive finance company" or a vehicle for
"off-balance-sheet financing" for GE. Only a small portion of GECS business is
directly related to other GE operations. The fundamental differences between GE
and GECS are reflected in the measurements commonly used by investors, rating
agencies and financial analysts. These differences will become clearer in the
discussion that follows with respect to the more significant items in the
financial statements.
STATEMENT OF FINANCIAL POSITION
Because GE and GECS share certain significant elements of their Statements of
Financial Position -- property, plant and equipment, and borrowings, for example
- -- the following discussion addresses significant captions in the "consolidated"
statement. Within the following discussions, however, distinction is drawn
between GE and GECS activities in order to permit meaningful analysis of each
individual statement.
INVESTMENT SECURITIES for each of the past two years comprised mainly
investment-grade debt securities held by GE Financial Assurance and the
specialty insurance businesses of GECS in support of obligations to annuitants
and policyholders. GE investment securities were $1.3 billion at year-end 1999,
an increase of $1.0 billion from 1998, reflecting increases in the fair value of
debt and equity investments as well as additional investments. The increase of
$2.0 billion at GECS during 1999 was principally related to investment of
premiums received and acquisitions, partially offset by decreases in the fair
value of debt securities associated with rising interest rates. See analysis of
the Statement of Changes in Share Owners' Equity on page 52 for further
information. A breakdown of the investment securities portfolio is provided in
note 9.
CURRENT RECEIVABLES for GE were $8.7 billion at the end of 1999, an increase of
$0.2 billion from year-end 1998, and included $5.8 billion due from customers at
the end of 1999, which was $0.4 billion higher than the amount due at the end of
1998. As a measure of asset management, turnover of customer receivables from
sales of goods and services was 9.4 in 1999, compared with 8.8 in 1998. Other
current receivables are primarily amounts that did not originate from sales of
GE goods or services, such as advances to suppliers in connection with large
contracts.
INVENTORIES for GE were $5.8 billion at December 31, 1999, up $0.5 billion from
the end of 1998. GE inventory turnover was 8.3 in 1999, about the same as in
1998. Acquisitions of inventories in business combinations more than offset the
positive effects of inventory management programs throughout the period.
Last-in, first-out (LIFO) revaluations decreased $84 million in 1999, compared
with decreases of $87 million in 1998 and $119 million in 1997. Included in
these changes were decreases of $4 million, $29 million and $59 million in 1999,
1998 and 1997, respectively, that resulted from lower LIFO inventory levels.
There were net cost decreases in each of the last three years.
Inventories (at FIFO) and customer receivables from sales of goods or
services are two key components of GE's working capital turnover measurement.
Working capital turnover was 11.5 in 1999, compared with 9.2 in 1998. Working
capital also includes trade accounts payable and progress collections.
GECS inventories were $1,209 million and $744 million at December 31,
1999 and 1998, respectively. The increase in 1999 primarily reflects the
consolidation of the retail operations of Wards.
FINANCING RECEIVABLES of GECS were $137.6 billion at year-end 1999, net of
allowance for doubtful accounts, up $16.1 billion over 1998. These receivables
are discussed on page 48 and in notes 12 and 13.
OTHER RECEIVABLES of GECS were $30.7 billion and $26.0 billion at December 31,
1999 and 1998, respectively. Of the 1999 increase, $3.6 billion was attributable
to acquisitions.
PROPERTY, PLANT AND EQUIPMENT (including equipment leased to others) was $41.0
billion at December 31, 1999, up $5.3 billion from 1998. GE property, plant and
equipment consists of investments for its own productive use, whereas the
largest element for GECS is in equipment provided to third parties on operating
leases. Details by category of investment are presented in note 15.
GE total expenditures for new plant and equipment during 1999 totaled
$2.0 billion, about the same as in 1998. Total expenditures for the past five
years were $10.6 billion, of which 39% was investment for growth through new
capacity and product development; 32% was investment in productivity through new
equipment and process improvements; and 29% was investment for such other
purposes as improvement of research and development facilities and safety and
environmental protection.
<PAGE>
PAGE F-19
ANNUAL REPORT PAGE 51
GECS additions to equipment leased to others, including business
acquisitions, were $13.4 billion during 1999 ($7.2 billion during 1998),
primarily reflecting acquisitions of transportation equipment.
INTANGIBLE ASSETS were $26.0 billion at year-end 1999, up from $23.6 billion at
year-end 1998. GE intangibles increased to $11.3 billion from $10.0 billion at
the end of 1998, principally as a result of goodwill related to acquisitions,
the largest of which was Marquette Medical Systems. The $1.1 billion increase in
GECS intangibles related to goodwill and other intangibles associated with
acquired companies, the largest of which were Signature Group and the Australian
consumer financial services business of AVCO.
ALL OTHER ASSETS totaled $65.0 billion at year-end 1999, an increase of $12.1
billion from the end of 1998. GE other assets increased $2.8 billion,
principally reflecting an increase in the prepaid pension asset and higher costs
associated with increased volume of long-term service agreements, as well as
additional investments in associated companies. The increase in GECS other
assets of $9.2 billion was principally attributable to increases in "separate
accounts" (see note 17) and additional investments in associated companies,
partially offset by decreases in assets acquired for resale, which reflected
sales and securitizations in excess of originations.
CONSOLIDATED BORROWINGS aggregated $201.8 billion at December 31, 1999, compared
with $175.0 billion at the end of 1998. The major debt-rating agencies evaluate
the financial condition of GE and of GE Capital (the major public borrowing
entity of GECS) differently because of their distinct business characteristics.
Using criteria appropriate to each and considering their combined strength,
those major rating agencies continue to give the highest ratings to debt of both
GE and GE Capital.
GE has committed to contribute capital to GE Capital in the event of
either a decrease below a specified level in GE Capital's ratio of earnings to
fixed charges, or a failure to maintain a specified debt-to-equity ratio in the
event certain GE Capital preferred stock is redeemed. GE also has guaranteed
subordinated debt of GECS with a face amount of $1.0 billion at December 31,
1999 and 1998. Management believes the likelihood that GE will be required to
contribute capital under either the commitments or the guarantees is remote.
GE total borrowings were $3.0 billion at year-end 1999 ($2.3 billion
short-term, $0.7 billion long-term), a decrease of $1.2 billion from year-end
1998. GE total debt at the end of 1999 equaled 6.4% of total capital, down from
9.5% at the end of 1998.
GECS total borrowings were $200.0 billion at December 31, 1999, of
which $129.2 billion is due in 2000 and $70.8 billion is due in subsequent
years. Comparable amounts at the end of 1998 were $172.2 billion in total,
$113.2 billion due within one year and $59.0 billion due thereafter. A large
portion of GECS borrowings ($96.6 billion and $87.0 billion at the end of 1999
and 1998, respectively) was issued in active commercial paper markets that
management believes will continue to be a reliable source of short-term
financing. Most of this commercial paper was issued by GE Capital. The average
remaining terms and interest rates of GE Capital commercial paper were 53 days
and 5.82% at the end of 1999, compared with 45 days and 5.35% at the end of
1998.
[CHART HERE]
GE WORKING CAPITAL TURNOVER
- -----------------------------------------------------------------------------
1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
5.56 6.30 7.42 9.22 11.52
- -----------------------------------------------------------------------------
The GE Capital ratio of debt to equity was 8.44 to 1 at the end of
1999 and 7.86 to 1 at the end of 1998.
INTEREST RATE AND CURRENCY RISK MANAGEMENT is important in the normal
operations of both GE and GECS. The following discussion presents an overview of
such management.
GE and GECS use various financial instruments, particularly interest
rate and currency swaps, but also futures, options and currency forwards,
principally to manage their respective interest rate and currency risks. GE and
GECS are exclusively end users of these instruments, which are commonly referred
to as derivatives; neither GE nor GECS engages in trading, market-making or
other speculative activities in the derivatives markets. Management requires
<PAGE>
PAGE F-20
ANNUAL REPORT PAGE 52
that derivative financial instruments relate to specific asset, liability or
equity transactions or to currency exposures. More detailed information about
these financial instruments, as well as the strategies and policies for their
use, is provided in notes 1, 19 and 30.
The U.S. Securities and Exchange Commission requires that registrants
provide information about potential effects of changes in interest rates and
currency exchange. Although the rules offer alternatives for presenting this
information, none of the alternatives is without limitations. The following
discussion is based on so-called "shock tests," which model effects of interest
rate and currency shifts on the reporting company. Shock tests, while probably
the most meaningful analysis permitted, are constrained by several factors,
including the necessity to conduct the analysis based on a single point in time
and by their inability to include the complex market reactions that normally
would arise from the market shifts modeled. While the following results of shock
tests for interest rates and currencies may have some limited use as benchmarks,
they should not be viewed as forecasts.
* One means of assessing exposure to interest rate changes is a
duration-based analysis that measures the potential loss in net earnings
resulting from a hypothetical increase in interest rates of 100 basis
points across all maturities (sometimes referred to as a "parallel shift
in the yield curve"). Under this model, it is estimated that, all else
constant, such an increase, including repricing effects in the securities
portfolio, would reduce the 2000 net earnings of GECS based on year-end
1999 positions by approximately $105 million; the pro forma effect for GE
was approximately $13 million. Based on positions at year-end 1998, the
pro forma effect on 1999 net earnings of such an increase in interest
rates was estimated to be approximately $111 million for GECS and $17
million for GE.
* As shown in the chart to the right, the geographic distribution of GE and
GECS operations is diverse. One means of assessing exposure to changes in
currency exchange rates is to model effects on reported earnings using a
sensitivity analysis. Year-end 1999 consolidated currency exposures,
including financial instruments designated and effective as hedges, were
analyzed to identify GE and GECS assets and liabilities denominated in
other than their relevant functional currency. Net unhedged exposures in
each currency were then remeasured assuming a 10% decrease (substantially
greater decreases for hyperinflationary currencies) in currency exchange
rates compared with the U.S. dollar. Under this model, it is estimated
that, all else constant, such a decrease would have an insignificant
effect on the 2000 net earnings of GE and GECS based on year-end 1999
positions. Based on conditions at year-end 1998, the effect on 1999 net
earnings of such a decrease in exchange rates was estimated to be a
reduction in net earnings of $11 million for GE and insignificant for
GECS.
INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $86.8 billion, $9.5
billion higher than in 1998. The increase was primarily attributable to
increases in separate accounts, the addition of liabilities from acquired
companies and growth in guaranteed investment contracts. For additional
information on these liabilities, see note 20.
[CHART HERE]
TOTAL ASSETS OF INTERNATIONAL OPERATIONS
- -----------------------------------------------------------------------------
(IN BILLIONS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
EUROPE $44.1072 $55.1956 $66.7401 $84.5179 $83.3580
PACIFIC BASIN 6.4424 8.1245 8.8814 18.4266 28.2140
AMERICAS 6.5591 7.2265 8.6168 11.2481 13.2920
OTHER 12.2167 12.4287 13.3090 14.6307 16.3950
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN SHARE OWNERS' EQUITY
Share owners' equity increased $3,677 million to $42,557 million at year-end
1999. The increase was largely attributable to net earnings during the period of
$10,717 million, partially offset by dividends of $4,786 million.
Investment securities had unrealized losses of $1,776 million during
1999, principally as a result of decreases in fair value attributable to
increases in interest rates during 1999. A significant majority of the
unrealized losses are associated with debt securities held by insurance
businesses of GECS and are matched with insurance liabilities of similar
<PAGE>
PAGE F-21
ANNUAL REPORT PAGE 53
duration. Accordingly, decreases in fair values of such investment securities
are directionally offset by corresponding decreases in fair values of associated
insurance liabilities. However, changes in the fair values of insurance
liabilities are difficult to measure and are appropriately not recognized under
generally accepted accounting principles.
Currency translation adjustments reduced equity by $632 million in
1999. Changes in the currency translation adjustment reflect the effects of
changes in currency exchange rates on GE's net investment in non-U.S.
subsidiaries that have functional currencies other than the U.S. dollar. The
decrease during 1999 largely reflected weakening in the European currencies,
partially offset by strengthening in Asian currencies. Such adjustments affect
earnings only when all or a portion of an affiliate is disposed of.
STATEMENT OF CASH FLOWS
Because cash management activities of GE and GECS are separate and distinct, it
is more useful to review their cash flows separately.
GE CASH AND EQUIVALENTS aggregated $2.0 billion at the end of 1999, up from $1.2
billion at year-end 1998. During 1999, GE generated a record $11.8 billion in
cash from operating activities, a 17% increase over 1998. The increase reflected
improvements in earnings and working capital, principally cash from progress
collections. The 1999 cash generation provided the necessary resources to
repurchase $1.9 billion of GE common stock under the share repurchase program,
to pay $4.6 billion in dividends to share owners, to invest $2.0 billion in new
plant and equipment and to make $1.6 billion in acquisitions.
Operating activities are the principal source of GE's cash flows. Over
the past three years, operating activities have provided more than $31 billion
of cash. The principal application of this cash was distributions of
approximately $21 billion to share owners, both through payment of dividends
($11.9 billion) and through the share repurchase program ($9.0 billion)
described below. Other applications included investment in new plant and
equipment ($6.3 billion) and acquisitions ($4.5 billion).
Under the share repurchase program initiated in December 1994, GE has
purchased more than $15 billion of GE stock -- over 300 million shares. In
December 1999, GE's Board of Directors increased the amount authorized from $17
billion to $22 billion. Funds used for the share repurchase are expected to be
generated largely from operating cash flow.
Based on past performance and current expectations, in combination with
the financial flexibility that comes with a strong balance sheet and the highest
credit ratings, management believes that GE is in a sound position to complete
the share repurchase program, to grow dividends in line with earnings, and to
continue making selective investments for long-term growth. Expenditures for new
plant and equipment are expected to be about $2.5 billion in 2000, principally
for productivity and growth.
GECS CASH AND EQUIVALENTS aggregated $6.9 billion at the end of 1999, up from
$3.3 billion at year-end 1998 as management held short-term investments as
additional liquidity over year-end 1999. One of the primary sources of cash for
GECS is financing activities involving the continued rollover of short-term
borrowings and appropriate addition of borrowings with a reasonable balance of
maturities. Over the past three years, GECS borrowings with maturities of 90
days or less have increased by $37.2 billion. New borrowings of $109.9 billion
having maturities longer than 90 days were added during those years, while $80.7
billion of such longer-term borrowings were retired. GECS also generated $32.0
billion from operating activities.
The principal use of cash by GECS has been investing in assets to grow
its businesses. Of the $91.0 billion that GECS invested over the past three
years, $21.3 billion was used for additions to financing receivables; $26.6
billion was used to invest in new equipment, principally for lease to others;
and $31.0 billion was used for acquisitions of new businesses, the largest of
which were Japan Leasing and the credit card operations of JC Penney, both in
1999.
With the financial flexibility that comes with excellent credit
ratings, management believes that GECS should be well positioned to meet the
global needs of its customers for capital and to continue providing GE share
owners with good returns.
[CHART HERE]
GE CUMULATIVE CASH FLOWS
- -----------------------------------------------------------------------------
(IN BILLIONS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
CASH FLOWS FROM
OPERATING
ACTIVITIES $12.1360 $21.2030 $30.5200 $40.5520 $52.3150
SHARES REPURCHASED 5.2310 8.2819 11.6930 15.6060 20.1930
DIVIDENDS PAID 4.1750 7.4410 10.9330 14.5700 16.4450
- -----------------------------------------------------------------------------
<PAGE>
PAGE F-22
ANNUAL REPORT PAGE 54
MANAGEMENT'S DISCUSSION OF SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA summarized on the following page are divided into three
sections: upper portion -- consolidated data; middle portion -- GE data that
reflect various conventional measurements for such enterprises; and lower
portion -- GECS data that reflect key information pertinent to financial
services businesses.
GE'S TOTAL RESEARCH AND DEVELOPMENT expenditures were $2,017 million in 1999, up
5% over 1998 and 1997. In 1999, expenditures from GE's own funds were $1,667
million, an increase of 8% over 1998, reflecting continuing research and
development work related to new product, service and process technologies.
Product technology efforts in 1999 included continuing development work on the
next generation of gas turbines, further advances in state-of-the-art diagnostic
imaging technologies, and development of more fuel-efficient, cost-effective
aircraft engine designs. Services technologies include advances in diagnostic
applications, including remote diagnostic capabilities related to repair and
maintenance of medical equipment, aircraft engines, power generation equipment
and locomotives. Process technologies provided improved product quality and
performance and increased capacity for manufacturing engineered materials.
Expenditures funded by customers (mainly the U.S. government) were $350 million
in 1999, down $43 million from 1998.
[CHART HERE]
YEAR END MARKET CAPITALIZATION
- -----------------------------------------------------------------------------
(IN BILLIONS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
$119.989 $162.604 $239.539 $333.672 $508.329
- -----------------------------------------------------------------------------
GE'S TOTAL BACKLOG of firm unfilled orders at the end of 1999 was $32.4 billion,
an increase of 14% over 1998, reflecting strong double-digit growth at Power
Systems and Medical Systems. Of the total, $27.0 billion related to products, of
which 63% was scheduled for delivery in 2000. Services orders are included in
this reported backlog for only the succeeding 12 months and were $5.4 billion at
the end of 1999. Orders constituting this backlog may be canceled or deferred by
customers, subject in certain cases to cancellation penalties. See Segment
Operations beginning on page 43 for further information.
REGARDING ENVIRONMENTAL MATTERS, GE's operations, like operations of other
companies engaged in similar businesses, involve the use, disposal and cleanup
of substances regulated under environmental protection laws.
In 1999, GE expended about $66 million for capital projects related to
the environment. The comparable amount in 1998 was $81 million. These amounts
exclude expenditures for remediation actions, which are principally expensed and
are discussed below. Capital expenditures for environmental purposes have
included pollution control devices -- such as wastewater treatment plants,
groundwater monitoring devices, air strippers or separators, and
incinerators -- at new and existing facilities constructed or upgraded in the
normal course of business. Consistent with policies stressing environmental
responsibility, average annual capital expenditures other than for remediation
projects are presently expected to be about $65 million over the next two years.
This level is in line with existing levels for new or expanded programs to build
facilities or modify manufacturing processes to minimize waste and reduce
emissions.
[CHART HERE]
GE SHARE PRICE ACTIVITY
- -----------------------------------------------------------------------------
(IN DOLLARS) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------
HIGH $36 9/16 $53 1/16 $76 9/16 $103 15/16 $159 1/2
LOW 24 15/16 34 3/4 47 15/16 69 94 1/4
CLOSE 36 49 7/16 73 3/8 102 154 3/4
- -----------------------------------------------------------------------------
GE also is involved in a sizable number of remediation actions to clean
up hazardous wastes as required by federal and state laws. Such statutes require
that responsible parties fund remediation actions regardless of fault, legality
of original disposal or ownership of a disposal site. Expenditures for site
remediation actions amounted to approximately $114 million in 1999, compared
with $127 million in 1998. It is presently expected that such remediation
actions will require average annual expenditures in the range of $90 million to
$150 million over the next two years.
<PAGE>
PAGE F-23
ANNUAL REPORT PAGE 55
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
------------------------------------------------------------------
(Dollar amounts in millions; per-share amounts in dollars) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
Revenues $ 111,630 $ 100,469 $ 90,840 $ 79,179 $ 70,028
Net earnings 10,717 9,296 8,203 7,280 6,573
Dividends declared 4,786 4,081 3,535 3,138 2,838
Earned on average share owners' equity 26.8% 25.7% 25.0% 24.0% 23.5%
Per share
Earnings -- diluted $ 3.22 $ 2.80 $ 2.46 $ 2.16 $ 1.93
Earnings -- basic 3.27 2.84 2.50 2.20 1.95
Dividends declared 1.46 1.25 1.08 0.95 0.845
Stock price range 159 1/2- 103 15/16- 76 9/16- 53 1/16- 36 9/16-
94 1/4 69 47 15/16 34 3/4 24 15/16
Year-end closing stock price 154 3/4 102 73 3/8 49 7/16 36
Total assets 405,200 355,935 304,012 272,402 228,035
Long-term borrowings 71,427 59,663 46,603 49,246 51,027
Shares outstanding -- average (in thousands) 3,277,826 3,268,998 3,274,692 3,307,394 3,367,624
Share owner account -- average 549,000 534,000 509,000 486,000 460,000
===================================================================================================================================
GE DATA
Short-term borrowings $ 2,245 $ 3,466 $ 3,629 $ 2,339 $ 1,666
Long-term borrowings 722 681 729 1,710 2,277
Minority interest 823 816 569 477 434
Share owners' equity 42,557 38,880 34,438 31,125 29,609
------------------------------------------------------------------
Total capital invested $ 46,347 $ 43,843 $ 39,365 $ 35,651 $ 33,986
==================================================================
Return on average total capital invested 25.8% 23.9% 23.6% 22.2% 21.3%
Borrowings as a percentage of total capital invested 6.4% 9.5% 11.1% 11.4% 11.6%
Working capital (a) $ 3,922 $ 5,038 $ 5,990 $ 6,598 $ 7,405
Additions to property, plant and equipment 2,036 2,047 2,191 2,389 1,831
Employees at year end
United States 124,000 125,000 128,000 123,000 124,000
Other countries 86,000 82,000 81,000 65,000 59,000
------------------------------------------------------------------
Total employees 210,000 207,000 209,000 188,000 183,000
===================================================================================================================================
GECS DATA
Revenues $ 55,749 $ 48,694 $ 39,931 $ 32,713 $ 26,492
Net earnings 4,443 3,796 3,256 2,817 2,415
Share owner's equity 20,321 19,727 17,239 14,276 12,774
Minority interest 4,391 3,459 3,113 2,530 2,522
Borrowings from others 200,025 172,200 141,263 125,621 111,598
Ratio of debt to equity at GE Capital 8.44:1 7.86:1 7.45:1 7.84:1 7.59:1
Total assets $ 345,018 $ 303,297 $ 255,408 $ 227,419 $ 185,729
Insurance premiums written 13,624 11,865 9,396 8,185 6,158
Employees at year end
United States 73,000 38,000 37,000 32,000 26,000
Other countries 57,000 48,000 30,000 19,000 13,000
------------------------------------------------------------------
Total employees 130,000 86,000 67,000 51,000 39,000
===================================================================================================================================
<FN>
Transactions between GE and GECS have been eliminated from the consolidated
information.
<F1> Working capital is defined as the sum of receivables from the sales of
goods and services plus inventories less trade accounts payable and
progress collections.
</FN>
</TABLE>
<PAGE>
PAGE F-24
ANNUAL REPORT PAGE 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The consolidated financial statements represent the adding
together of all affiliates -- companies that General Electric directly or
indirectly controls. Results of associated companies -- generally companies that
are 20% to 50% owned and over which GE, directly or indirectly, has significant
influence -- are included in the financial statements on a "one-line" basis.
FINANCIAL STATEMENT PRESENTATION. Financial data and related measurements are
presented in the following categories.
* GE. This represents the adding together of all affiliates other than
General Electric Capital Services, Inc. (GECS), whose operations are
presented on a one-line basis.
* GECS. This affiliate owns all of the common stock of General Electric
Capital Corporation (GE Capital) and GE Global Insurance Holding
Corporation (GE Global Insurance), the parent of Employers Reinsurance
Corporation. GE Capital, GE Global Insurance and their respective
affiliates are consolidated in the GECS columns and constitute its
business.
* CONSOLIDATED. This represents the adding together of GE and GECS.
The effects of transactions among related companies within and between each of
the above-mentioned groups are eliminated. Transactions between GE and GECS are
not material.
Certain prior-year amounts have been reclassified to conform to the
1999 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates.
SALES OF GOODS AND SERVICES. A sale is recorded when title passes to the
customer or when services are performed in accordance with contracts.
GECS REVENUES FROM SERVICES (EARNED INCOME). Income on all loans is recognized
on the interest method. Accrual of interest income is suspended at the earlier
of the time at which collection of an account becomes doubtful or the account
becomes 90 days delinquent. Interest income on impaired loans is recognized
either as cash is collected or on a cost-recovery basis as conditions warrant.
Financing lease income is recorded on the interest method so as to
produce a level yield on funds not yet recovered. Estimated unguaranteed
residual values of leased assets are based primarily on periodic independent
appraisals of the values of leased assets remaining at expiration of the lease
terms.
Operating lease income is recognized on a straight-line basis over the
terms of underlying leases.
Origination, commitment and other nonrefundable fees related to
fundings are deferred and recorded in earned income on the interest method.
Commitment fees related to loans not expected to be funded and line-of-credit
fees are deferred and recorded in earned income on a straight-line basis over
the period to which the fees relate. Syndication fees are recorded in earned
income at the time related services are performed unless significant
contingencies exist.
Income from investment and insurance activities is discussed on
page 57.
DEPRECIATION AND AMORTIZATION. The cost of most of GE's manufacturing plant and
equipment is depreciated using an accelerated method based primarily on a
sum-of-the-years digits formula.
The cost of GECS equipment leased to others on operating leases is
amortized, principally on a straight-line basis, to estimated residual value
over the lease term or over the estimated economic life of the equipment.
Depreciation of property and equipment used by GECS is recorded on either a
sum-of-the-years digits formula or a straight-line basis over the lives of the
assets.
RECOGNITION OF LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS. The allowance
for losses on small-balance receivables reflects management's best estimate of
probable losses inherent in the portfolio determined principally on the basis of
historical experience. For other receivables, principally the larger loans and
leases, the allowance for losses is determined primarily on the basis of
management's best estimate of probable losses, including specific allowances for
known troubled accounts.
All accounts or portions thereof deemed to be uncollectible or to
require an excessive collection cost are written off to the allowance for
losses. Small-balance accounts generally are written off when 6 to 12 months
delinquent, although any such balance judged to be uncollectible, such as an
account in bankruptcy, is written down immediately to estimated realizable
value. Large-balance accounts are reviewed at least quarterly, and those
accounts with amounts that are judged to be uncollectible are written down to
estimated realizable value.
When collateral is repossessed in satisfaction of a loan, the
receivable is written down against the allowance for losses to estimated fair
value of the asset less costs to sell, transferred to other assets and
subsequently carried at the lower of cost or estimated fair value less costs to
sell. This accounting method has been employed principally for specialized
financing transactions.
<PAGE>
PAGE F-25
ANNUAL REPORT PAGE 57
CASH AND EQUIVALENTS. Debt securities with original maturities of three months
or less are included in cash equivalents unless designated as available for sale
and classified as investment securities.
INVESTMENT SECURITIES. Investments in debt and marketable equity securities are
reported at fair value based primarily on quoted market prices or, if quoted
prices are not available, discounted expected cash flows using market rates
commensurate with credit quality and maturity of the investment. Substantially
all investment securities are designated as available for sale, with unrealized
gains and losses included in share owners' equity, net of applicable taxes and
other adjustments. Unrealized losses that are other than temporary are
recognized in earnings. Realized gains and losses are accounted for on the
specific identification method.
INVENTORIES. All inventories are stated at the lower of cost or realizable
values. Cost for virtually all of GE's U.S. inventories is determined on a
last-in, first-out (LIFO) basis. Cost of other GE inventories is primarily
determined on a first-in, first-out (FIFO) basis.
GECS inventories consist primarily of finished products held for sale.
Cost is primarily determined on a FIFO basis.
INTANGIBLE ASSETS. Goodwill is amortized over its estimated period of benefit on
a straight-line basis; other intangible assets are amortized on appropriate
bases over their estimated lives. No amortization period exceeds 40 years. When
an intangible asset exceeds associated expected operating cash flows, it is
considered to be impaired and is written down to fair value, which is determined
based on either discounted future cash flows or appraised values.
INTEREST RATE AND CURRENCY RISK MANAGEMENT. As a matter of policy, neither GE
nor GECS engages in derivatives trading, derivatives market-making or other
speculative activities.
GE and GECS use swaps primarily to optimize funding costs. To a lesser
degree, and in combination with options and limit contracts, GECS uses swaps to
stabilize cash flows from mortgage-related assets.
Designated interest rate and currency swaps that modify borrowings or
certain assets, including swaps associated with forecasted commercial paper
renewals, are accounted for on an accrual basis. Both GE and GECS require all
other swaps, as well as futures, options and currency forwards, to be designated
and accounted for as hedges of specific assets, liabilities or committed
transactions; resulting payments and receipts are recognized contemporaneously
with effects of hedged transactions. A payment or receipt arising from early
termination of an effective hedge is accounted for as an adjustment to the basis
of the hedged transaction.
Instruments used as hedges must be effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge at
the inception of the contract. Accordingly, changes in market values of hedge
instruments must be highly correlated with changes in market values of
underlying hedged items, both at inception of the hedge and over the life of the
hedge contract.
As a matter of policy, any derivative that is either not designated as
a hedge, or is so designated but is ineffective, is marked to market and
recognized in operations immediately.
GECS INSURANCE ACCOUNTING POLICIES. Accounting policies for GECS insurance
businesses follow.
PREMIUM INCOME. Insurance premiums are reported as earned income as follows:
* For short-duration insurance contracts (including property and casualty,
accident and health, and financial guaranty insurance), premiums are
reported as earned income, generally on a pro rata basis, over the terms of
the related agreements. For retrospectively rated reinsurance contracts,
premium adjustments are recorded based on estimated losses and loss
expenses, taking into consideration both case and incurred-but-not-reported
reserves.
* For traditional long-duration insurance contracts (including term and whole
life contracts and annuities payable for the life of the annuitant),
premiums are reported as earned income when due.
* For investment contracts and universal life contracts, premiums received
are reported as liabilities, not as revenues. Universal life contracts are
long-duration insurance contracts with terms that are not fixed and
guaranteed; for these contracts, revenues are recognized for assessments
against the policyholder's account, mostly for mortality, contract
initiation, administration and surrender. Investment contracts are
contracts that have neither significant mortality nor significant morbidity
risk, including annuities payable for a determined period; for these
contracts, revenues are recognized on the associated investments and
amounts credited to policyholder accounts are charged to expense.
DEFERRED POLICY ACQUISITION COSTS. Costs that vary with and are primarily
related to the acquisition of new and renewal insurance and investment contracts
are deferred and amortized over the respective policy terms. For short-duration
insurance contracts, acquisition costs consist primarily of commissions,
brokerage expenses and premium taxes.
<PAGE>
PAGE F-26
ANNUAL REPORT PAGE 58
For long-duration insurance contracts, these costs consist primarily of
first-year commissions in excess of recurring renewal commissions, certain
variable sales expenses and certain support costs such as underwriting and
policy issue expenses.
* For short-duration insurance contracts, these costs are amortized pro rata
over the contract periods in which the related premiums are earned.
* For traditional long-duration insurance contracts, these costs are
amortized over the respective contract periods in proportion to either
anticipated premium income or, in the case of limited-payment contracts,
estimated benefit payments.
* For investment contracts and universal life contracts, these costs are
amortized on the basis of anticipated gross profits.
Periodically, deferred policy acquisition costs are reviewed for recoverability;
anticipated investment income is considered in recoverability evaluations.
PRESENT VALUE OF FUTURE PROFITS. The actuarially determined present value of
anticipated net cash flows to be realized from insurance, annuity and investment
contracts in force at the date of acquisition of life insurance enterprises is
recorded as the present value of future profits and is amortized over the
respective policy terms in a manner similar to deferred policy acquisition
costs. Unamortized balances are adjusted to reflect experience and impairment,
if any.
2 GE OTHER INCOME
----------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Residual licensing and
royalty income
RCA Licensing $ 23 $ 250 $ 287
Other 44 51 54
Associated companies (1) (32) 50
Marketable securities and
bank deposits 105 114 78
Customer financing 17 19 26
Other investments
Dividends 24 8 62
Interest 6 8 1
Other items 638 266 1,749
----------------------------------
$ 856 $ 684 $2,307
================================================================================
Effective January 1, 1999, GE transferred certain licenses and
intellectual property pursuant to an agreement to sell the former RCA Consumer
Electronics business. Licensing income from these assets is shown under the
caption "RCA Licensing" in the table above.
Other income in 1999 includes $326 million from NBC Internet (NBCi), an
amount that appears in two categories in the above table. "Other items" includes
a gain of $388 million related to the contribution of certain of NBC's Internet
assets to NBCi, a newly formed publicly traded Internet company, in exchange for
a noncontrolling interest in NBCi. Assets contributed by NBC include its 100%
interest in three Internet properties: NBC.com, NBC-IN.com and VideoSeeker.com
and a 10% interest in a fourth Internet property, CNBC.com. Also included in the
"associated companies" caption for 1999 is $62 million of operating losses
related to NBCi and predecessor operations.
Included in the "Other items" caption for 1997 is a gain of $1,538
million related to a tax-free exchange between GE and Lockheed Martin
Corporation (Lockheed Martin). In exchange for its investment in Lockheed Martin
Series A preferred stock, GE acquired a Lockheed Martin subsidiary containing
two businesses, an equity interest and cash to the extent necessary to equalize
the value of the exchange, a portion of which was subsequently loaned to
Lockheed Martin.
3 GECS REVENUES FROM SERVICES
----------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Time sales, loan and
other income $18,209 $14,682 $12,211
Operating lease rentals 6,022 5,402 4,819
Financing leases 3,587 4,267 3,499
Investment income 6,243 5,617 5,512
Premium and commission
income of insurance
businesses 12,948 11,352 9,268
----------------------------------
$47,009 $41,320 $35,309
================================================================================
For insurance businesses, the effects of reinsurance on premiums
written and premium and commission income were as follows:
-------------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------
PREMIUMS WRITTEN
Direct $ 7,382 $ 6,237 $ 5,206
Assumed 8,520 7,470 5,501
Ceded (2,278) (1,842) (1,311)
-------------------------------------
$ 13,624 $ 11,865 $ 9,396
=====================================
PREMIUM AND COMMISSION
INCOME
Direct $ 7,002 $ 6,063 $ 5,138
Assumed 8,460 7,151 5,386
Ceded (2,514) (1,862) (1,256)
-------------------------------------
$ 12,948 $ 11,352 $ 9,268
===============================================================================
Reinsurance recoveries recognized as a reduction of insurance losses
and policyholder and annuity benefits amounted to $2,648 million, $1,594 million
and $903 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
<PAGE>
PAGE F-27
ANNUAL REPORT PAGE 59
4 SUPPLEMENTAL COST INFORMATION
Total expenditures for research and development were $2,017 million, $1,930
million and $1,891 million in 1999, 1998 and 1997, respectively. The
Company-funded portion aggregated $1,667 million in 1999, $1,537 million in 1998
and $1,480 million in 1997.
Rental expense under operating leases is shown below.
-------------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------
GE $ 607 $ 568 $ 536
GECS 1,067 889 734
===============================================================================
At December 31, 1999, minimum rental commitments under noncancelable
operating leases aggregated $2,431 million and $5,041 million for GE and GECS,
respectively. Amounts payable over the next five years follow.
------------------------------------------------
(In millions) 2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------
GE $458 $366 $284 $226 $195
GECS 834 663 603 540 413
================================================================================
GE's selling, general and administrative expense totaled $7,732 million
in 1999, $7,177 million in 1998 and $7,476 million in 1997. Insignificant
amounts of interest were capitalized by GE and GECS in 1999, 1998 and 1997.
5 PENSION BENEFITS
GE and its affiliates sponsor a number of pension plans. Principal pension plans
are discussed below; other pension plans are not significant individually or in
the aggregate.
PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE Supplementary Pension
Plan.
The GE Pension Plan provides benefits to certain U.S. employees based
on the greater of a formula recognizing career earnings or a formula recognizing
length of service and final average earnings. Benefit provisions are subject to
collective bargaining. At the end of 1999, the GE Pension Plan covered
approximately 470,000 participants, including 124,000 employees, 153,000 former
employees with vested rights to future benefits, and 193,000 retirees and
beneficiaries receiving benefits.
The GE Supplementary Pension Plan is a pay-as-you-go plan providing
supplementary retirement benefits primarily to higher-level, longer-service U.S.
employees.
The effect on operations of principal pension plans is as follows:
- -------------------------------------------------------------------------------
EFFECT ON OPERATIONS
-------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------
Expected return on plan assets $ 3,407 $ 3,024 $ 2,721
Service cost for benefits earned (a) (693) (625) (596)
Interest cost on benefit obligation (1,804) (1,749) (1,686)
Prior service cost (151) (153) (145)
SFAS No. 87 transition gain 154 154 154
Net actuarial gain recognized 467 365 295
Special early retirement cost -- -- (412)
-------------------------------
Total pension plan income $ 1,380 $ 1,016 $ 331
===============================================================================
(a) Net of participant contributions.
- -------------------------------------------------------------------------------
FUNDING POLICY for the GE Pension Plan is to contribute amounts sufficient to
meet minimum funding requirements as set forth in employee benefit and tax laws
plus such additional amounts as GE may determine to be appropriate. GE has not
made contributions since 1987 because the fully funded status of the GE Pension
Plan precludes current tax deduction and because any GE contribution would
require payment of excise taxes.
Changes in the projected benefit obligation for principal pension plans
follow.
- -------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION
------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
Balance at January 1 $ 27,572 $ 25,874
Service cost for benefits earned (a) 693 625
Interest cost on benefit obligation 1,804 1,749
Participant contributions 122 112
Actuarial (gain)/loss (b) (2,790) 1,050
Benefits paid (1,879) (1,838)
------------------------
Balance at December 31 $ 25,522 $ 27,572
===============================================================================
(a) Net of participant contributions.
(b) Principally associated with discount rate changes.
- -------------------------------------------------------------------------------
Changes in the fair value of assets for principal pension plans follow.
- -------------------------------------------------------------------------------
FAIR VALUE OF ASSETS
------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
Balance at January 1 $ 43,447 $ 38,742
Actual return on plan assets 8,472 6,363
Employer contributions 81 68
Participant contributions 122 112
Benefits paid (1,879) (1,838)
------------------------
Balance at December 31 $ 50,243 $ 43,447
===============================================================================
Plan assets are held in trust and consist mainly of common stock and
fixed-income investments. GE common stock represented 9.8% and 7.5% of trust
assets at year-end 1999 and 1998, respectively.
<PAGE>
PAGE F-28
ANNUAL REPORT PAGE 60
GE recorded assets and liabilities for principal pension plans as
follows:
- -------------------------------------------------------------------------------
PREPAID PENSION ASSET
- -------------------------------------------------------------------------------
December 31 (In millions) 1999 1998
------------------------
Fair value of plan assets $ 50,243 $ 43,447
Add (deduct) unrecognized balances
Prior service cost 699 850
SFAS No. 87 transition gain (154) (308)
Net actuarial gain (16,850) (9,462)
Projected benefit obligation (25,522) (27,572)
Pension liability 981 797
------------------------
Prepaid pension asset $ 9,397 $ 7,752
===============================================================================
Actuarial assumptions used to determine costs and benefit obligations for
principal pension plans follow.
- -------------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS
-------------------------------
December 31 1999 1998 1997
- -------------------------------------------------------------------------------
Discount rate 7.75% 6.75% 7.0%
Compensation increases 5.0 5.0 4.5
Return on assets for the year 9.5 9.5 9.5
- -------------------------------------------------------------------------------
Experience gains and losses, as well as the effects of changes in
actuarial assumptions and plan provisions, are amortized over the average future
service period of employees.
6 RETIREE HEALTH AND LIFE BENEFITS
GE and its affiliates sponsor a number of retiree health and life insurance
benefit plans. Principal retiree benefit plans are discussed below; other such
plans are not significant individually or in the aggregate.
PRINCIPAL RETIREE BENEFIT PLANS generally provide health and life insurance
benefits to employees who retire under the GE Pension Plan (see note 5) with 10
or more years of service. Retirees share in the cost of health care benefits.
Benefit provisions are subject to collective bargaining. At the end of 1999,
these plans covered approximately 250,000 retirees and dependents.
The effect on operations of principal retiree benefit plans is shown in
the following table.
- -------------------------------------------------------------------------------
EFFECT ON OPERATIONS
-------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------
RETIREE HEALTH PLANS
Service cost for benefits earned $ 88 $ 79 $ 90
Interest cost on benefit obligation 206 205 183
Prior service cost 14 14 (3)
Net actuarial loss recognized 38 28 16
Special early retirement cost -- -- 152
-------------------------------
Retiree health plan cost 346 326 438
-------------------------------
RETIREE LIFE PLANS
Expected return on plan assets (165) (149) (137)
Service cost for benefits earned 19 17 17
Interest cost on benefit obligation 117 114 116
Prior service cost (6) (6) (8)
Net actuarial loss recognized 7 11 16
Special early retirement cost -- -- 13
-------------------------------
Retiree life plan cost (income) (28) (13) 17
-------------------------------
Total cost $ 318 $ 313 $ 455
===============================================================================
FUNDING POLICY for retiree health benefits is generally to pay covered expenses
as they are incurred. GE funds retiree life insurance benefits at its
discretion.
Changes in the accumulated postretirement benefit obligation for
retiree benefit plans follow.
- -------------------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION Health plans Life plans
------------------ ------------------
December 31 (In millions) 1999 1998 1999 1998
----------------------------------------
Balance at January 1 $3,220 $3,098 $ 1,787 $ 1,677
Service cost for
benefits earned 88 79 19 17
Interest cost on
benefit obligation 206 205 117 114
Participant
contributions 24 24 -- --
Actuarial (gain)/loss 103 177 (165) 91
Benefits paid (392) (363) (107) (112)
Other 26 -- -- --
----------------------------------------
Balance at
December 31 $3,275 $3,220 $ 1,651 $ 1,787
===============================================================================
Changes in the fair value of assets for retiree benefit plans follow.
- -------------------------------------------------------------------------------
FAIR VALUE OF ASSETS Health plans Life plans
---------------- -------------------
December 31 (In millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------
Balance at January 1 $-- $-- $ 2,121 $ 1,917
Actual return on plan
assets -- -- 355 316
Employer
contributions 368 339 -- --
Participant
contributions 24 24 -- --
Benefits paid (392) (363) (107) (112)
----------------------------------------
Balance at
December 31 $-- $-- $ 2,369 $ 2,121
- -------------------------------------------------------------------------------
<PAGE>
PAGE F-29
ANNUAL REPORT PAGE 61
Plan assets are held in trust and consist mainly of common stock and
fixed-income investments. GE common stock represented 6.2% and 4.5% of trust
assets at year-end 1999 and 1998, respectively.
GE recorded assets and liabilities for retiree benefit plans as
follows:
- -------------------------------------------------------------------------------
RETIREE BENEFIT LIABILITY/ASSET Health plans Life plans
----------------- -------------------
December 31 (In millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------
Accumulated
postretirement
benefit obligation $3,275 $3,220 $ 1,651 $ 1,787
Add (deduct)
unrecognized
balances
Prior service cost (143) (157) 43 49
Net actuarial
gain/(loss) (637) (572) 576 214
Fair value of
plan assets -- -- (2,369) (2,121)
----------------------------------------
Retiree benefit
liability/(asset) $2,495 $2,491 $ (99) $ (71)
===============================================================================
ACTUARIAL ASSUMPTIONS used to determine costs and benefit obligations for
principal retiree benefit plans are shown below.
- -------------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS
-------------------------------
December 31 1999 1998 1997
- -------------------------------------------------------------------------------
Discount rate 7.75% 6.75% 7.0%
Compensation increases 5.0 5.0 4.5
Health care cost trend (a) 9.0 7.8 7.8
Return on assets for the year 9.5 9.5 9.5
- -------------------------------------------------------------------------------
(a) For 1999, gradually declining to 5% after 2004.
- -------------------------------------------------------------------------------
Increasing or decreasing the health care cost trend rates by one
percentage point would have had an insignificant effect on the December 31,
1999, accumulated postretirement benefit obligation and the annual cost of
retiree health plans.
Experience gains and losses, as well as the effects of changes in
actuarial assumptions and plan provisions, are amortized over the average future
service period of employees.
7 PROVISION FOR INCOME TAXES
-------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------
GE
Estimated amounts payable $ 2,555 $ 2,227 $ 2,332
Deferred tax expense (benefit)
from temporary differences 652 590 (522)
-------------------------------
3,207 2,817 1,810
-------------------------------
GECS
Estimated amounts payable 806 815 368
Deferred tax expense from
temporary differences 847 549 798
-------------------------------
1,653 1,364 1,166
-------------------------------
Consolidated
Estimated amounts payable 3,361 3,042 2,700
Deferred tax expense from
temporary differences 1,499 1,139 276
-------------------------------
$ 4,860 $ 4,181 $ 2,976
===============================================================================
GE includes GECS in filing a consolidated U.S. federal income tax return. The
GECS provision for estimated taxes payable includes its effect on the
consolidated return.
Estimated consolidated amounts payable includes amounts applicable to
U.S. federal income taxes of $1,632 million, $1,459 million and $1,176 million
in 1999, 1998 and 1997, respectively, and amounts applicable to non-U.S.
jurisdictions of $1,399 million, $1,335 million and $1,298 million in 1999, 1998
and 1997, respectively. Deferred tax expense related to U.S. federal income
taxes was $1,475 million, $971 million and $354 million in 1999, 1998 and 1997,
respectively.
Deferred income tax balances reflect the impact of temporary
differences between the carrying amounts of assets and liabilities and their tax
bases and are stated at enacted tax rates expected to be in effect when taxes
are actually paid or recovered. See note 22 for details.
Except for certain earnings that GE intends to reinvest indefinitely,
provision has been made for the estimated U.S. federal income tax liabilities
applicable to undistributed earnings of affiliates and associated companies. It
is not practicable to determine the U.S. federal income tax liability, if any,
that would be payable if such earnings were not reinvested indefinitely.
Consolidated U.S. income before taxes was $11.3 billion in 1999, $9.7
billion in 1998 and $8.2 billion in 1997. The corresponding amounts for
non-U.S.-based operations were $4.3 billion in 1999, $3.8 billion in 1998 and
$3.0 billion in 1997.
A reconciliation of the U.S. federal statutory tax rate to the actual
tax rate is provided on the following page.
<PAGE>
PAGE F-30
ANNUAL REPORT PAGE 62
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF U.S. FEDERAL Consolidated GE GECS
STATUTORY TAX RATE TO ACTUAL RATE ------------------------ ------------------------ ------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statutory U.S. federal income
tax rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
Increase (reduction) in rate
resulting from:
Inclusion of after-tax earnings
of GECS in before-tax
earnings of GE -- -- -- (11.2) (11.0) (11.4) -- -- --
Lockheed Martin exchange (note 2) -- -- (4.8) -- -- (5.4) -- -- --
Amortization of goodwill 1.1 1.1 1.1 0.8 0.7 0.8 1.0 1.0 1.1
Tax-exempt income (1.7) (1.8) (1.9) -- -- -- (4.4) (4.7) (4.9)
Tax on international activities
(including Foreign Sales
Corporation benefits) (4.2) (3.0) (2.7) (2.6) (2.7) (2.1) (4.8) (1.3) (2.2)
All other -- net 1.0 (0.3) (0.1) 1.0 1.3 1.2 0.3 (3.6) (2.6)
------------------------------------------------------------------------------------
(3.8) (4.0) (8.4) (12.0) (11.7) (16.9) (7.9) (8.6) (8.6)
------------------------------------------------------------------------------------
Actual income tax rate 31.2% 31.0% 26.6% 23.0% 23.3% 18.1% 27.1% 26.4% 26.4%
===========================================================================================================================
</TABLE>
8 EARNINGS PER SHARE INFORMATION
<TABLE>
<CAPTION>
----------------- ------------------ -----------------
1999 1998 1997
----------------- ------------------ -----------------
(In millions; per-share amounts in dollars) Diluted Basic Diluted Basic Diluted Basic
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
Net earnings available to common share owners $10,717 $10,717 $9,296 $9,296 $8,203 $8,203
Dividend equivalents -- net of tax 8 -- 13 -- 10 --
----------------- ------------------ -----------------
Net earnings available for per-share calculation $10,725 $10,717 $9,309 $9,296 $8,213 $8,203
----------------- ------------------ -----------------
AVERAGE EQUIVALENT SHARES
Shares of GE common stock outstanding 3,278 3,278 3,269 3,269 3,275 3,275
Employee compensation-related shares,
including stock options 54 -- 61 -- 70 --
----------------- ------------------ -----------------
Total average equivalent shares 3,332 3,278 3,330 3,269 3,345 3,275
----------------- ------------------ -----------------
Net earnings per share $ 3.22 $ 3.27 $ 2.80 $ 2.84 $ 2.46 $ 2.50
================================================================================================================================
</TABLE>
<PAGE>
PAGE F-31
ANNUAL REPORT PAGE 63
9 INVESTMENT SECURITIES
------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
(In millions) cost gains losses fair value
- --------------------------------------------------------------------------------
DECEMBER 31, 1999
GE SECURITIES
Equity $ 149 $ 547 $ (1) $ 695
Debt -- U.S. corporate 430 148 -- 578
------------------------------------------------
579 695 (1) 1,273
------------------------------------------------
GECS SECURITIES
Debt
U.S. corporate 31,512 175 (1,759) 29,928
State and municipal 12,558 141 (452) 12,247
Mortgage-backed 12,799 173 (376) 12,596
Corporate -- non-U.S 9,923 228 (248) 9,903
Government
-- non-U.S 4,675 114 (77) 4,712
U.S. government and
federal agency 2,481 5 (171) 2,315
Equity 6,420 2,641 (277) 8,784
------------------------------------------------
80,368 3,477 (3,360) 80,485
------------------------------------------------
CONSOLIDATED TOTALS $80,947 $4,172 $ (3,361) $81,758
================================================================================
DECEMBER 31, 1998
GE SECURITIES
Equity $ 233 $ 26 $ -- $ 259
------------------------------------------------
GECS SECURITIES
Debt
U.S. corporate 27,888 1,293 (325) 28,856
State and municipal 12,483 727 (8) 13,202
Mortgage-backed 11,641 413 (109) 11,945
Corporate -- non-U.S 8,692 409 (90) 9,011
Government
-- non-U.S 5,415 258 (9) 5,664
U.S. government and
federal agency 2,706 207 (7) 2,906
Equity 5,651 1,415 (192) 6,874
------------------------------------------------
74,476 4,722 (740) 78,458
------------------------------------------------
CONSOLIDATED TOTALS $74,709 $4,748 $ (740) $78,717
================================================================================
The majority of mortgage-backed securities shown in the table above are
collateralized by U.S. residential mortgages.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACTUAL MATURITIES OF DEBT SECURITIES
(EXCLUDING MORTGAGE-BACKED SECURITIES)
---------------------------
Amortized Estimated
(In millions) cost fair value
- --------------------------------------------------------------------------------
Due in
2000 $ 5,237 $ 5,309
2001-2004 13,348 13,310
2005-2009 14,478 13,953
2010 and later 28,086 26,533
================================================================================
It is expected that actual maturities will differ from contractual maturities
because borrowers have the right to call or prepay certain obligations.
- --------------------------------------------------------------------------------
Proceeds from sales of investment securities by GE and GECS in 1999
were $18,521 million ($16,707 million in 1998 and $14,728 million in 1997).
Gross realized gains were $1,430 million in 1999 ($1,126 million in 1998 and
$1,018 million in 1997). Gross realized losses were $484 million in 1999 ($308
million in 1998 and $173 million in 1997).
10 GE CURRENT RECEIVABLES
--------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
Aircraft Engines $ 1,541 $ 1,722
Appliances 285 299
Industrial Products and Systems 1,163 1,274
NBC 329 261
Plastics 953 1,070
Power Systems 3,350 2,620
Technical Products and Services 1,036 904
All Other 44 141
Corporate 362 495
--------------------------
9,063 8,786
Less allowance for losses (320) (303)
--------------------------
$ 8,743 $ 8,483
- -------------------------------------------------------------------------------
Receivables balances at December 31, 1999 and 1998, before allowance
for losses, included $5,832 million and $5,447 million, respectively, from sales
of goods and services to customers, and $296 million and $350 million,
respectively, from transactions with associated companies.
Current receivables of $203 million at year-end 1999 and $305 million
at year-end 1998 arose from sales, principally of aircraft engine goods and
services, on open account to various agencies of the U.S. government, which is
GE's largest single customer. About 4% of GE's sales of goods and services were
to the U.S. government in 1999, 1998 and 1997.
11 INVENTORIES
--------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
GE
Raw materials and work in process $ 3,438 $ 3,154
Finished goods 3,054 2,967
Unbilled shipments 233 195
--------------------------
6,725 6,316
Less revaluation to LIFO (927) (1,011)
--------------------------
5,798 5,305
--------------------------
GECS
Finished goods (a) 1,209 744
--------------------------
$ 7,007 $ 6,049
===============================================================================
(a) Including $773 million of Wards' retail inventory at year-end 1999.
- -------------------------------------------------------------------------------
LIFO revaluations decreased $84 million in 1999, compared with
decreases of $87 million in 1998 and $119 million in 1997. Included in these
changes were decreases of $4 million, $29 million and $59 million in 1999, 1998
and 1997, respectively, that resulted from lower LIFO inventory levels. There
were net cost decreases in each of the last three years. As of December 31,
1999, GE is obligated to acquire certain raw materials at market prices through
the year 2008 under various take-or-pay or similar arrangements. Annual minimum
commitments under these arrangements are insignificant.
<PAGE>
PAGE F-32
ANNUAL REPORT PAGE 64
12 GECS FINANCING RECEIVABLES (INVESTMENTS IN
TIME SALES, LOANS AND FINANCING LEASES)
--------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
TIME SALES AND LOANS
Consumer services $ 48,435 $ 42,573
Specialized financing 24,999 16,693
Mid-market financing 19,186 17,065
Equipment management 977 849
Specialty insurance 28 103
--------------------------
Time sales and loans 93,625 77,283
--------------------------
INVESTMENT IN FINANCING LEASES
Direct financing leases 43,738 43,730
Leveraged leases 4,045 3,841
--------------------------
Investment in financing leases 47,783 47,571
--------------------------
141,408 124,854
Less allowance for losses (3,779) (3,288)
--------------------------
$137,629 $121,566
===============================================================================
Time sales and loans represents transactions in a variety of forms,
including time sales, revolving charge and credit, mortgages, installment loans,
intermediate-term loans and revolving loans secured by business assets. The
portfolio includes time sales and loans carried at the principal amount on which
finance charges are billed periodically, and time sales and loans carried at
gross book value, which includes finance charges. At year-end 1999 and 1998,
financing receivables included $15,782 million and $14,452 million,
respectively, for commercial real estate loans and leases. Note 17 contains
information on airline loans and leases.
Investment in financing leases consists of direct financing and
leveraged leases of aircraft, railroad rolling stock, autos, other
transportation equipment, data processing equipment and medical equipment, as
well as other manufacturing, power generation, commercial real estate, and
commercial equipment and facilities.
As the sole owner of assets under direct financing leases and as the
equity participant in leveraged leases, GECS 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. GECS generally
is entitled to any residual value of leased assets.
Investment in direct financing and leveraged leases represents net
unpaid rentals and estimated unguaranteed residual values of leased equipment,
less related deferred income. GECS has no general obligation for principal and
interest on notes and other instruments representing third-party participation
related to leveraged leases; such notes and other instruments have not been
included in liabilities but have been offset against the related rentals
receivable. The GECS share of rentals receivable on leveraged leases is
subordinate to the share of other participants who also have security interests
in the leased equipment.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT IN FINANCING LEASES
Total financing Direct financing
leases leases Leveraged leases
-------------------- -------------------- --------------------
December 31 (In millions) 1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total minimum lease payments receivable $ 68,158 $ 66,528 $ 47,069 $ 47,451 $ 21,089 $ 19,077
Less principal and interest on third-party nonrecourse debt (17,184) (15,176) -- -- (17,184) (15,176)
-------------------- -------------------- --------------------
Net rentals receivable 50,974 51,352 47,069 47,451 3,905 3,901
Estimated unguaranteed residual value of leased assets 7,157 6,826 4,945 5,011 2,212 1,815
Less deferred income (10,348) (10,607) (8,276) (8,732) (2,072) (1,875)
-------------------- -------------------- --------------------
INVESTMENT IN FINANCING LEASES (as shown above) 47,783 47,571 43,738 43,730 4,045 3,841
Less amounts to arrive at net investment
Allowance for losses (581) (619) (509) (519) (72) (100)
Deferred taxes (8,593) (8,593) (5,087) (5,147) (3,506) (3,446)
-------------------- -------------------- --------------------
NET INVESTMENT IN FINANCING LEASES $ 38,609 $ 38,359 $ 38,142 $ 38,064 $ 467 $ 295
==================================================================================================================================
</TABLE>
<PAGE>
PAGE F-33
ANNUAL REPORT PAGE 65
- -------------------------------------------------------------------------------
CONTRACTUAL MATURITIES
--------------------------------
Total time sales Net rentals
(In millions) and loans (a) receivable (a)
- -------------------------------------------------------------------------------
Due in
2000 $ 25,878 $ 14,901
2001 18,489 11,625
2002 17,649 7,567
2003 7,466 4,613
2004 5,972 2,906
2005 and later 18,171 9,362
--------------------------------
Total $ 93,625 $ 50,974
- -------------------------------------------------------------------------------
(a) Experience has shown that a substantial portion of receivables will be paid
prior to contractual maturity, and these amounts should not be regarded as
forecasts of future cash flows.
- -------------------------------------------------------------------------------
Nonearning consumer receivables were $930 million and $1,250 million at
December 31, 1999 and 1998, respectively, a substantial amount of which were
private-label credit card loans. Nonearning and reduced-earning receivables
other than consumer receivables were $932 million and $354 million at year-end
1999 and 1998, respectively.
"Impaired" loans are defined by generally accepted accounting
principles as loans for which it is probable that the lender will be unable to
collect all amounts due according to original contractual terms of the loan
agreement. That definition excludes, among other things, leases or large groups
of smaller-balance homogenous loans and therefore applies principally to
commercial loans held by GECS. An analysis of impaired loans follows.
--------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
Loans requiring allowance for losses $ 631 $ 346
Loans expected to be fully recoverable 219 158
--------------------------
$ 850 $ 504
==========================
Allowance for losses $ 179 $ 109
Average investment during year 610 512
Interest income earned while impaired (a) 27 39
===============================================================================
(a) Principally on the cash basis.
- -------------------------------------------------------------------------------
13 GECS ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
-------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------
Balance at January 1 $ 3,288 $ 2,802 $ 2,693
Provisions charged to operations 1,678 1,609 1,421
Net transfers primarily related to
acquisitions and sales 270 388 127
Amounts written off -- net (1,457) (1,511) (1,439)
-------------------------------
Balance at December 31 $ 3,779 $ 3,288 $ 2,802
===============================================================================
14 OTHER GECS RECEIVABLES
At year-end 1999 and 1998, this account included reinsurance recoverables of
$8,138 million and $6,124 million and insurance-related receivables of $7,417
million and $7,109 million, respectively. Premium receivables, policy loans and
funds on deposit with reinsurers are included in insurance-related receivables.
Also in "Other GECS receivables" are trade receivables, accrued investment
income, operating lease receivables and a variety of sundry items.
15 PROPERTY, PLANT AND EQUIPMENT (INCLUDING EQUIPMENT LEASED TO OTHERS)
--------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
ORIGINAL COST
GE
Land and improvements $ 526 $ 483
Buildings, structures and related
equipment 6,674 6,579
Machinery and equipment 20,849 19,491
Leasehold costs and manufacturing
plant under construction 2,150 1,757
--------------------------
30,199 28,310
--------------------------
GECS
Buildings and equipment 7,163 4,828
Equipment leased to others
Vehicles 10,942 9,825
Aircraft 10,591 9,321
Railroad rolling stock 3,323 2,804
Marine shipping containers 2,309 2,565
Other 3,832 3,447
--------------------------
38,160 32,790
--------------------------
$ 68,359 $ 61,100
==========================
ACCUMULATED DEPRECIATION
AND AMORTIZATION
GE $ 17,818 $ 16,616
GECS
Buildings and equipment 2,127 1,733
Equipment leased to others 7,392 7,021
--------------------------
$ 27,337 $ 25,370
===============================================================================
Amortization of GECS equipment leased to others was $2,673 million,
$2,185 million and $2,102 million in 1999, 1998 and 1997, respectively.
Noncancelable future rentals due from customers for equipment on operating
leases at year-end 1999 totaled $16,058 million and are due as follows: $4,177
million in 2000; $3,177 million in 2001; $2,332 million in 2002; $1,624 million
in 2003; $1,086 million in 2004; and $3,662 million thereafter.
<PAGE>
PAGE F-34
ANNUAL REPORT PAGE 66
16 INTANGIBLE ASSETS
--------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
GE
Goodwill $ 10,805 $ 9,203
Other intangibles 457 793
--------------------------
11,262 9,996
--------------------------
GECS
Goodwill 12,301 11,469
Present value of future profits (PVFP) 1,812 1,618
Other intangibles 635 552
--------------------------
14,748 13,639
--------------------------
$ 26,010 $ 23,635
===============================================================================
GE intangible assets are shown net of accumulated amortization of
$2,891 million in 1999 and $2,923 million in 1998. GECS intangible assets are
net of accumulated amortization of $4,233 million in 1999 and $3,396 million in
1998.
PVFP amortization, which is on an accelerated basis and net of
interest, is projected to range from 15% to 7% of the year-end 1999 unamortized
balance for each of the next five years.
17 ALL OTHER ASSETS
--------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
GE
Investments
Associated companies (a) $ 2,678 $ 2,336
Other 741 474
--------------------------
3,419 2,810
Prepaid pension asset 9,397 7,752
Long-term receivables, including notes 2,024 2,379
Prepaid broadcasting rights 1,078 929
Other 4,887 4,161
--------------------------
20,805 18,031
--------------------------
GECS
Investments
Assets acquired for resale 3,406 6,167
Associated companies (a) 11,298 7,670
Real estate ventures 4,397 3,131
Other 4,424 3,473
--------------------------
23,525 20,441
Separate accounts 10,335 6,563
Servicing assets (b) 1,707 1,625
Deferred insurance acquisition costs 4,682 3,326
Other 4,445 3,584
--------------------------
44,694 35,539
--------------------------
ELIMINATIONS (518) (662)
--------------------------
$ 64,981 $ 52,908
===============================================================================
(a) Includes advances.
(b) Associated primarily with serviced residential mortgage loans amounting to
$86 billion and $91 billion at December 31, 1999 and 1998, respectively.
- -------------------------------------------------------------------------------
In line with industry practice, sales of commercial jet aircraft
engines often involve long-term customer financing commitments. In making such
commitments, it is GE's general practice to require that it have or be able to
establish a secured position in the aircraft being financed. Under such airline
financing programs, GE had issued loans and guarantees (principally guarantees)
amounting to $1,453 million at year-end 1999 and $1,473 million at year-end
1998; and it had entered into commitments totaling $1,843 million and $1,519
million at year-end 1999 and 1998, respectively, to provide financial assistance
on future aircraft engine sales. Estimated fair values of the aircraft securing
these receivables and associated guarantees exceeded the related account
balances and guaranteed amounts at December 31, 1999. GECS acts as a lender and
lessor to the commercial airline industry. At December 31, 1999 and 1998, the
balance of such GECS loans, leases and equipment leased to others was $11,772
million and $10,170 million, respectively. In addition, at December 31, 1999,
GECS had issued financial guarantees and funding commitments of $59 million ($74
million at year-end 1998) and had placed multi-year orders for various Boeing
and Airbus aircraft with list prices of approximately $9.9 billion ($9.4 billion
at year-end 1998).
At year-end 1999, the National Broadcasting Company had $8,843 million
of commitments to acquire broadcast material and the rights to broadcast
television programs, including U.S. television rights to future Olympic Games,
and commitments under long-term television station affiliation agreements that
require payments through the year 2010.
In connection with numerous projects, primarily power generation bids
and contracts, GE had issued various bid and performance bonds and guarantees
totaling $3,794 million at year-end 1999 and $3,740 million at year-end 1998.
Separate accounts represent investments controlled by policyholders and
are associated with identical amounts reported as insurance liabilities in note
20.
18 GE ALL OTHER CURRENT COSTS AND EXPENSES ACCRUED
At year-end 1999 and 1998, this account included taxes accrued of $3,940 million
and $3,415 million and compensation and benefit accruals of $1,648 million and
$1,487 million, respectively. Also included are amounts for product warranties,
estimated costs on shipments billed to customers and a variety of sundry items.
<PAGE>
PAGE F-35
ANNUAL REPORT PAGE 67
19 BORROWINGS
SHORT-TERM BORROWINGS
1999 1998
---------------------- ----------------------
Average Average
December 31 (In millions) Amount rate (a) Amount rate (a)
- -------------------------------------------------------------------------------
GE
Commercial paper
U.S $521 6.54% $2,339 5.29%
Non-U.S. 396 5.02 -- --
Payable to banks,
principally non-U.S. 629 10.18 465 11.15
Current portion of
long-term debt 123 7.27 50 5.08
Other 576 612
-----------------------------------------------
2,245 3,466
-----------------------------------------------
GECS
Commercial paper
U.S. 84,702 6.07 83,044 5.38
Non-U.S. 11,909 4.19 3,953 4.80
Current portion of
long-term debt 22,902 5.59 14,645 5.66
Other 9,746 11,520
-----------------------------------------------
129,259 113,162
---------------------- ----------------------
ELIMINATIONS (1,158) (1,250)
-----------------------------------------------
$130,346 $115,378
===============================================================================
- -------------------------------------------------------------------------------
LONG-TERM BORROWINGS
------------------------------------------------
1999
Average
December 31 (In millions) rate (a) Maturities 1999 1998
- -------------------------------------------------------------------------------
GE
Industrial development/
pollution control bonds 3.65% 2003-2027 $ 328 $ 327
Payable to banks,
principally non-U.S. 11.11 2001-2006 156 230
Other (b) 238 124
----------------------
722 681
----------------------
GECS
Senior notes 5.50 2001-2055 69,770 58,042
Subordinated notes (c) 7.88 2006-2035 996 996
----------------------
70,766 59,038
----------------------
ELIMINATIONS (61) (56)
----------------------
$71,427 $59,663
===============================================================================
(a) Based on year-end balances and local currency interest rates, including the
effects of interest rate and currency swaps, if any, directly associated
with the original debt issuance.
(b) A variety of obligations having various interest rates and maturities,
including certain borrowings by parent operating components and affiliates.
(c) Guaranteed by GE.
- -------------------------------------------------------------------------------
Borrowings of GE and GECS are addressed below from two perspectives --
liquidity and interest rate management. Additional information about borrowings
and associated swaps can be found in note 30.
LIQUIDITY requirements of GE and GECS are principally met through the credit
markets. Maturities of long-term borrowings (including the current portion)
during the next five years follow.
------------------------------------------------------
(In millions) 2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------
GE $ 123 $ 73 $ 33 $ 17 $ 132
GECS 22,902 15,948 12,763 10,153 7,922
- --------------------------------------------------------------------------------
Committed credit lines of $4.2 billion had been extended to GE by 24
banks at year-end 1999. Substantially all of GE's credit lines are available to
GECS and its affiliates in addition to their own credit lines.
At year-end 1999, GECS and its affiliates held committed lines of
credit aggregating $32.5 billion, including $12.0 billion of revolving credit
agreements pursuant to which it has the right to borrow funds for periods
exceeding one year. Amounts drawn by GECS under these lines at December 31,
1999, were not significant. A total of $7.7 billion of GE Capital credit lines
is available for use by GE. Both GE and GECS compensate certain banks for credit
facilities in the form of fees, which were insignificant in each of the past
three years.
INTEREST RATES ARE MANAGED by GECS in light of the anticipated behavior,
including prepayment behavior, of assets in which debt proceeds are invested. A
variety of instruments, including interest rate and currency swaps and currency
forwards, are employed to achieve management's interest rate objectives.
Effective interest rates are lower under these "synthetic" positions than could
have been achieved by issuing debt directly.
The following table shows GECS borrowing positions considering the
effects of swaps.
- -------------------------------------------------------------------------------
EFFECTIVE BORROWINGS (INCLUDING SWAPS)
------------------------
December 31 (In millions) 1999 1998
Short-term $ 74,347 $ 72,143
========================
Long-term (including current portion)
Fixed rate (a) $ 90,361 $ 74,226
Floating rate 35,317 25,831
------------------------
Total long-term $125,678 $100,057
===============================================================================
(a) Includes the notional amount of long-term interest rate swaps that
effectively convert the floating-rate nature of short-term borrowings to
fixed rates of interest.
- -------------------------------------------------------------------------------
At December 31, 1999, swap maturities ranged from 2000 to 2048, and
average interest rates for fixed-rate borrowings (including "synthetic"
fixed-rate borrowings) were 5.63% (6.03% at year-end 1998).
<PAGE>
PAGE F-36
ANNUAL REPORT PAGE 68
20 GECS INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS
------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
Investment contracts and universal
life benefits $ 30,448 $ 29,266
Life insurance benefits and other (a) 18,460 16,104
Unpaid claims and claims adjustment
expenses (b) 21,473 19,611
Unearned premiums 6,060 5,715
Separate accounts (see note 17) 10,335 6,563
------------------------
$ 86,776 $ 77,259
- -------------------------------------------------------------------------------
(a) Life insurance benefits are accounted for mainly by a net-level-premium
method using estimated yields generally ranging from 5% to 9% in both 1999
and 1998.
(b) Principally property and casualty reserves; includes amounts for both
reported and incurred-but-not-reported claims, reduced by anticipated
salvage and subrogation recoveries. Estimates of liabilities are reviewed
and updated continually, with changes in estimated losses reflected in
operations.
- -------------------------------------------------------------------------------
When GECS cedes insurance to third parties, it is not relieved of its
primary obligation to policyholders. Losses on ceded risks give rise to claims
for recovery; allowances are established for such receivables from reinsurers.
The insurance liability for unpaid claims and claims adjustment
expenses related to policies that may cover environmental and asbestos exposures
is based on known facts and an assessment of applicable law and coverage
litigation. Liabilities are recognized for both known and unasserted claims
(including the cost of related litigation) when sufficient information has been
developed to indicate that a claim has been incurred and a range of potential
losses can be reasonably estimated. Developed case law and adequate claim
history do not exist for certain claims principally due to significant
uncertainties as to both the level of ultimate losses that will occur and what
portion, if any, will be deemed to be insured amounts.
A summary of activity affecting unpaid claims and claims adjustment
expenses follows.
-------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------
Balance at January 1 -- gross $19,611 $14,654 $13,184
Less reinsurance recoverables (3,483) (2,246) (1,822)
-------------------------------
Balance at January 1 -- net 16,128 12,408 11,362
Claims and expenses incurred
Current year 6,917 6,330 4,494
Prior years 248 (162) 146
Claims and expenses paid
Current year (2,508) (2,400) (1,780)
Prior years (5,162) (3,692) (2,816)
Claim reserves related to
acquired companies 929 3,476 1,360
Other 89 168 (358)
-------------------------------
Balance at December 31 -- net 16,641 16,128 12,408
Add reinsurance recoverables 4,832 3,483 2,246
-------------------------------
Balance at December 31 -- gross $21,473 $19,611 $14,654
===============================================================================
Prior-year claims and expenses incurred in the preceding table resulted
principally from settling claims established in earlier accident years for
amounts that differed from expectations.
Financial guarantees and credit life risk of insurance affiliates are
summarized below.
------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
Guarantees, principally on municipal
bonds and structured finance issues $177,840 $171,020
Mortgage insurance risk in force 59,798 43,941
Credit life insurance risk in force 26,427 31,018
Less reinsurance (37,992) (37,205)
------------------------
$226,073 $208,774
===============================================================================
21 GE ALL OTHER LIABILITIES
This account includes noncurrent compensation and benefit accruals at year-end
1999 and 1998 of $5,839 million and $5,594 million, respectively. Also included
are amounts for deferred incentive compensation, deferred income, product
warranties and a variety of sundry items.
GE is involved in numerous remediation actions to clean up hazardous
wastes as required by federal and state laws. Liabilities for remediation costs
at each site are based on management's best estimate of undiscounted future
costs, excluding possible insurance recoveries. When there appears to be a range
of possible costs with equal likelihood, liabilities are based on the lower end
of such range. Uncertainties about the status of laws, regulations, technology
and information related to individual sites make it difficult to develop a
meaningful estimate of the reasonably possible aggregate environmental
remediation exposure. However, even in the unlikely event that remediation costs
amounted to the high end of the range of costs for each site, the resulting
additional liability would not be material to GE's financial position, results
of operations or liquidity.
22 DEFERRED INCOME TAXES
Aggregate deferred tax amounts are summarized below.
------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
ASSETS
GE $ 5,808 $ 5,309
GECS 5,528 5,305
------------------------
11,336 10,614
------------------------
LIABILITIES
GE 6,091 5,059
GECS 14,483 14,895
------------------------
20,574 19,954
------------------------
NET DEFERRED TAX LIABILITY $ 9,238 $ 9,340
===============================================================================
<PAGE>
PAGE F-37
ANNUAL REPORT PAGE 69
Principal components of the net deferred tax balances for GE and GECS
are as follows:
------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
GE
Provisions for expenses (a) $ (4,203) $ (3,809)
Retiree insurance plans (839) (847)
Prepaid pension asset 3,289 2,713
Depreciation 922 935
Other -- net 1,114 758
------------------------
283 (250)
------------------------
GECS
Financing leases 8,593 8,593
Operating leases 2,840 2,419
Net unrealized gains
on securities 73 1,369
Allowance for losses (1,379) (1,386)
Insurance reserves (1,052) (1,022)
AMT credit carryforwards (1,185) (903)
Other -- net 1,065 520
------------------------
8,955 9,590
------------------------
NET DEFERRED TAX LIABILITY $ 9,238 $ 9,340
===============================================================================
(a) Represents the tax effects of temporary differences related to expense
accruals for a wide variety of items, such as employee compensation and
benefits, interest on tax deficiencies, product warranties and other
provisions for sundry losses and expenses that are not currently
deductible.
- -------------------------------------------------------------------------------
23 GECS MINORITY INTEREST IN EQUITY OF CONSOLIDATED AFFILIATES
Minority interest in equity of consolidated GECS affiliates includes preferred
stock issued by GE Capital and by affiliates of GE Capital. The preferred stock
pays cumulative dividends at variable rates. Value of the preferred shares is
summarized below.
------------------------
December 31 (In millions) 1999 1998
- -------------------------------------------------------------------------------
GE Capital $ 2,600 $ 2,300
GE Capital affiliates 1,421 860
- --------------------------------------------------------------------------------
Dividend rates in local currency on the preferred stock ranged from
0.6% to 6.1% during 1999 and from 3.9% to 5.2% during 1998.
24 RESTRICTED NET ASSETS OF GECS AFFILIATES
Certain GECS consolidated affiliates are restricted from remitting funds to GECS
in the form of dividends or loans by a variety of regulations, the purpose of
which is to protect affected insurance policyholders, depositors or investors.
At year-end 1999, net assets of regulated GECS affiliates amounted to $31.0
billion, of which $25.9 billion was restricted.
At December 31, 1999 and 1998, the aggregate statutory capital and
surplus of the insurance businesses totaled $14.5 billion and $14.4 billion,
respectively. Accounting practices prescribed by statutory authorities are used
in preparing statutory statements.
25 SHARE OWNERS' EQUITY
-------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------------
COMMON STOCK ISSUED $ 594 $ 594 $ 594
ACCUMULATED NONOWNER
CHANGES OTHER THAN EARNINGS
Balance at January 1 $ 1,664 $ 1,340 $ 615
Unrealized gains (losses) on
investment securities -- net
of deferred taxes of $(614),
$430 and $860 (1,132) 795 1,467
Currency translation
adjustments -- net of deferred
taxes of $(100), $(13) and $(58) (632) 60 (742)
Reclassification adjustments
-- net of deferred taxes of $(349)
and $(291) (644) (531) --
-------------------------------
Balance at December 31 $ (744) $ 1,664 $ 1,340
===============================
OTHER CAPITAL
Balance at January 1 $ 6,808 $ 4,434 $ 2,554
Gains on treasury stock
dispositions (a) 3,982 2,374 1,880
-------------------------------
Balance at December 31 $10,790 $ 6,808 $ 4,434
===============================
RETAINED EARNINGS
Balance at January 1 $48,553 $43,338 $38,670
Net earnings 10,717 9,296 8,203
Dividends (a) (4,786) (4,081) (3,535)
-------------------------------
Balance at December 31 $54,484 $48,553 $43,338
===============================
COMMON STOCK HELD IN TREASURY
Balance at January 1 $18,739 $15,268 $11,308
Purchases (a) 7,488 6,475 6,392
Dispositions (a) (3,660) (3,004) (2,432)
-------------------------------
Balance at December 31 $22,567 $18,739 $15,268
===============================================================================
(a) Total dividends and other transactions with share owners reduced equity by
$4,632 million, $5,178 million and $5,615 million in 1999, 1998 and 1997,
respectively.
- --------------------------------------------------------------------------------
In December 1999, GE's Board of Directors increased the authorization
to repurchase Company common stock to $22 billion and authorized the program to
continue through 2002. Funds used for the share repurchase will be generated
largely from free cash flow. Through year-end 1999, a total of 304 million
shares having an aggregate cost of $15.4 billion had been repurchased under this
program and placed in treasury.
Common shares issued and outstanding are summarized in the following
table.
- -------------------------------------------------------------------------------
SHARES OF GE COMMON STOCK
---------------------------------
December 31 (In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Issued 3,715,018 3,714,068 3,714,026
In treasury (430,175) (442,772) (449,434)
---------------------------------
Outstanding 3,284,843 3,271,296 3,264,592
===============================================================================
<PAGE>
PAGE F-38
ANNUAL REPORT PAGE 70
The Proxy Statement for the 2000 Annual Meeting of Share Owners will
include a proposal recommended by the Board of Directors on December 17, 1999,
which, if approved by share owners, would (a) increase the number of authorized
shares of common stock from 4,400,000,000 shares each with a par value of $0.16
to 13,200,000,000 shares each with a par value of $0.06 and (b) split each
unissued and issued common share, including shares held in treasury, into three
shares of common stock each with a par value of $0.06.
GE has 50 million authorized shares of preferred stock ($1.00 par
value), but no such shares have been issued.
The effects of translating to U.S. dollars the financial statements of
non-U.S. affiliates whose functional currency is the local currency are included
in share owners' equity. Asset and liability accounts are translated at year-end
exchange rates, while revenues and expenses are translated at average rates for
the period.
26 OTHER STOCK-RELATED INFORMATION
- -------------------------------------------------------------------------------
STOCK OPTION ACTIVITY
---------------------------------
Average per share
Shares ---------------------
subject Exercise Market
(Shares in thousands) to option price price
- -------------------------------------------------------------------------------
Balance at December 31, 1996 149,545 $ 24.86 $ 49.44
Options granted (a) 13,795 68.07 68.07
Replacement options 30 24.16 24.16
Options exercised (21,746) 18.47 61.22
Options terminated (2,721) 31.10 --
---------------------------------
Balance at December 31, 1997 138,903 30.03 73.38
Options granted 7,707 79.86 79.86
Options exercised (23,955) 20.76 84.45
Options terminated (2,727) 44.46 --
---------------------------------
Balance at December 31, 1998 119,928 34.76 102.00
Options granted 17,094 113.80 113.80
Options exercised (20,560) 23.47 118.25
Options terminated (2,671) 63.46 --
---------------------------------
Balance at December 31, 1999 113,791 48.02 154.75
===============================================================================
(a) Without adjusting for the effect of the 2-for-1 stock split in April 1997,
the number of options granted during 1997 would have been 13,476.
- -------------------------------------------------------------------------------
Stock option plans, stock appreciation rights (SARs), restricted stock
and restricted stock units are described in GE's current Proxy Statement. With
certain restrictions, requirements for stock option shares can be met from
either unissued or treasury shares.
The replacement options replaced canceled SARs and have identical terms
thereto. At year-end 1999, there were 544 thousand SARs outstanding at an
average exercise price of $23.54. There were 8.9 million restricted stock shares
and restricted stock units outstanding at year-end 1999.
There were 141.0 million and 121.0 million additional shares available
for grants of options, SARs, restricted stock and restricted stock units at
December 31, 1999 and 1998, respectively. Under the 1990 Long-Term Incentive
Plan, 0.95% of the Company's issued common stock (including treasury shares) as
of the first day of each calendar year during which the Plan is in effect
becomes available for granting awards in such year. Any unused portion, in
addition to shares allocated to awards that are canceled or forfeited, is
available for later years.
Outstanding options and SARs expire on various dates through December
15, 2009. Restricted stock grants vest on various dates up to normal retirement
of grantees.
The following table summarizes information about stock options
outstanding at December 31, 1999.
- --------------------------------------------------------------------------------
STOCK OPTIONS OUTSTANDING
(Shares in thousands)
Outstanding Exercisable
------------------------------- --------------------
Average Average
Exercise Average exercise exercise
price range Shares life (a) price Shares price
- --------------------------------------------------------------------------------
$ 13 27/32 - 25 3/16 28,493 2.8 $ 20.91 28,493 $ 20.91
25 1/2 - 39 11/16 34,428 4.9 27.14 30,763 26.55
40 7/16 - 69 1/8 21,435 6.9 49.30 8,590 44.73
72 1/4 - 97 5/8 12,882 8.4 76.75 475 78.77
104 7/8 - 147 1/2 16,553 9.5 114.06 455 107.47
--------------------------------------------------------
Total 113,791 5.8 48.02 68,776 27.38
================================================================================
At year-end 1998, options with an average exercise price of $24.09 were
exercisable on 73 million shares; at year-end 1997, options with an average
exercise price of $21.11 were exercisable on 72 million shares.
(a) Average contractual life remaining in years.
- --------------------------------------------------------------------------------
Stock options expire 10 years from the date they are granted; options
vest over service periods that range from one to five years.
Disclosures required by Statement of Financial Accounting Standards
(SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, are as follows:
- -------------------------------------------------------------------------------
OPTION VALUE INFORMATION (a)
------------------------------
(In dollars) 1999 1998 1997
Fair value per option (b) $33.70 $18.98 $17.81
Valuation assumptions
Expected option term (years) 6.5 6.2 6.3
Expected volatility 23.7% 21.7% 20.0%
Expected dividend yield 1.3% 1.8% 1.5%
Risk-free interest rate 5.8% 4.9% 6.1%
- --------------------------------------------------------------------------------
(a) Weighted averages of option grants during each period.
(b) Estimated using Black-Scholes option pricing model.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRO FORMA EFFECTS
December 31 (In millions; ----------------------------
per-share amounts in dollars) 1999 1998 1997
- -------------------------------------------------------------------------------
Net earnings $10,572 $ 9,196 $ 8,129
Earnings per share -- diluted 3.18 2.77 2.43
-- basic 3.23 2.81 2.48
- -------------------------------------------------------------------------------
<PAGE>
PAGE F-39
ANNUAL REPORT PAGE 71
27 SUPPLEMENTAL CASH FLOWS INFORMATION
Changes in operating assets and liabilities are net of acquisitions and
dispositions of principal businesses.
"Payments for principal businesses purchased" in the Statement of Cash
Flows is net of cash acquired and includes debt assumed and immediately repaid
in acquisitions.
"All other operating activities" in the Statement of Cash Flows
consists primarily of adjustments to current and noncurrent accruals and
deferrals of costs and expenses, increases and decreases in progress
collections, adjustments for gains and losses on assets, increases and decreases
in assets held for sale, and adjustments to assets.
Noncash transactions include the following: in 1999, GE's contribution
of certain Internet properties in exchange for a noncontrolling interest in
NBCi, a newly formed publicly traded Internet company (described in note 2); the
1998 acquisition of Marquette Medical Systems for 9.4 million shares of GE
common stock valued at $829 million; and the 1997 exchange of preferred stock in
Lockheed Martin Corporation (Lockheed Martin) for the stock of a newly formed
subsidiary (described in note 2).
Certain supplemental information related to GE and GECS cash flows is
shown below.
<TABLE>
<CAPTION>
--------------------------------------
For the years ended December 31 (In millions) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GE
NET PURCHASE OF GE SHARES FOR TREASURY
Open market purchases under share repurchase program $ (1,866) $ (3,646) $ (3,492)
Other purchases (5,622) (2,829) (2,900)
Dispositions (mainly to employee and dividend reinvestment plans) 6,486 3,656 3,577
--------------------------------------
$ (1,002) $ (2,819) $ (2,815)
======================================
GECS
FINANCING RECEIVABLES
Increase in loans to customers $(95,661) $(76,142) $(55,689)
Principal collections from customers -- loans 86,379 65,573 50,679
Investment in equipment for financing leases (18,173) (20,299) (16,420)
Principal collections from customers -- financing leases 13,634 15,467 13,796
Net change in credit card receivables (10,740) (4,705) (4,186)
Sales of financing receivables 11,473 13,805 9,922
--------------------------------------
$(13,088) $ (6,301) $ (1,898)
======================================
ALL OTHER INVESTING ACTIVITIES
Purchases of securities by insurance and annuity businesses $(26,271) $(23,897) $(19,274)
Dispositions and maturities of securities by insurance and annuity businesses 23,979 20,639 17,280
Proceeds from principal business dispositions 279 -- 241
Other (5,810) (7,820) (3,893)
--------------------------------------
$ (7,823) $(11,078) $(5,646)
======================================
NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS
Short-term (91 to 365 days) $ 15,799 $ 5,881 $ 3,502
Long-term (longer than one year) 30,082 33,453 15,566
Proceeds -- nonrecourse, leveraged lease debt 1,724 2,106 1,757
--------------------------------------
$ 47,605 $ 41,440 $ 20,825
======================================
REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS
Short-term (91 to 365 days) $(21,211) $(25,901) $(21,320)
Long-term (longer than one year) (5,447) (4,739) (1,150)
Principal payments -- nonrecourse, leveraged lease debt (266) (387) (287)
--------------------------------------
$(26,924) $(31,027) $(22,757)
======================================
ALL OTHER FINANCING ACTIVITIES
Proceeds from sales of investment contracts $ 7,236 $ 5,149 $ 4,717
Preferred stock issued by GECS affiliates 513 270 605
Redemption of investment contracts (7,127) (5,533) (4,537)
--------------------------------------
$ 622 $ (114) $ 785
===================================================================================================================================
</TABLE>
<PAGE>
PAGE F-40
ANNUAL REPORT PAGE 72
28 OPERATING SEGMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
REVENUES
For the years ended December 31
Total revenues Intersegment revenues External revenues
------------------------------- ------------------------ ----------------------------
(In millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GE
Aircraft Engines $10,558 $10,294 $ 7,799 $ 477 $ 292 $ 101 $10,081 $ 10,002 $ 7,698
Appliances 5,671 5,619 5,801 4 12 12 5,667 5,607 5,789
Industrial Products and Systems 11,555 11,222 10,984 530 479 491 11,025 10,743 10,493
NBC 5,790 5,269 5,153 -- -- -- 5,790 5,269 5,153
Plastics 6,941 6,633 6,695 17 20 24 6,924 6,613 6,671
Power Systems 10,046 8,466 7,915 162 166 80 9,884 8,300 7,835
Technical Products and Services 6,863 5,323 4,861 15 14 18 6,848 5,309 4,843
Eliminations (1,542) (1,367) (1,176) (1,205) (983) (726) (337) (384) (450)
------------------------------- ------------------------ ----------------------------
Total GE segment revenues 55,882 51,459 48,032 -- -- -- 55,882 51,459 48,032
Corporate items <F1> 619 771 3,227 -- -- -- 619 771 3,227
GECS net earnings 4,443 3,796 3,256 -- -- -- 4,443 3,796 3,256
------------------------------- ------------------------ ----------------------------
Total GE 60,944 56,026 54,515 -- -- -- 60,944 56,026 54,515
GECS 55,749 48,694 39,931 -- -- -- 55,749 48,694 39,931
Eliminations (5,063) (4,251) (3,606) -- -- -- (5,063) (4,251) (3,606)
------------------------------- ------------------------ ----------------------------
CONSOLIDATED REVENUES $111,630 $100,469 $90,840 $ -- $ -- $ -- $111,630 $100,469 $90,840
=================================================================================================================================
<FN>
GE revenues include income from sales of goods and services to customers and
other income. Sales from one Company component to another generally are priced
at equivalent commercial selling prices.
<F1> Includes revenues of $944 million in 1997 from an appliance distribution
affiliate that was deconsolidated in 1998. Also includes $1,538 million in
1997 from exchanging preferred stock in Lockheed Martin Corporation for the
stock of a newly formed subsidiary.
</FN>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
PROPERTY, PLANT AND DEPRECIATION AND
EQUIPMENT ADDITIONS AMORTIZATION (INCLUDING
(INCLUDING EQUIPMENT LEASED GOODWILL AND OTHER
TO OTHERS) INTANGIBLES)
For the years ended For the years ended
At December 31 December 31 December 31
----------------------------------- -------------------------- ------------------------
(In millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GE
Aircraft Engines $ 8,890 $ 8,866 $ 8,895 $ 368 $ 480 $ 729 $ 382 $ 398 $ 292
Appliances 2,463 2,436 2,354 151 150 83 147 137 131
Industrial Products and Systems 6,740 6,466 6,672 423 428 487 433 440 408
NBC 5,243 3,264 3,050 94 105 116 126 127 142
Plastics 9,261 9,813 8,890 462 722 618 561 591 494
Power Systems 9,814 7,253 6,182 510 246 215 285 215 199
Technical Products and Services 5,048 3,858 2,438 164 254 189 230 143 137
----------------------------------- -------------------------- ------------------------
Total GE segments 47,459 41,956 38,481 2,172 2,385 2,437 2,164 2,051 1,803
Investment in GECS 20,321 19,727 17,239 -- -- -- -- -- --
Corporate items and
eliminations <F1> 14,803 12,987 11,706 62 158 129 155 241 226
----------------------------------- -------------------------- ------------------------
Total GE 82,583 74,670 67,426 2,234 2,543 2,566 2,319 2,292 2,029
GECS 345,018 303,297 255,408 15,432 8,110 7,320 4,372 3,568 3,240
Eliminations (22,401) (22,032) (18,822) -- -- -- -- -- --
----------------------------------- -------------------------- ------------------------
CONSOLIDATED TOTALS $ 405,200 $ 355,935 $ 304,012 $17,666 $10,653 $9,886 $6,691 $5,860 $5,269
=================================================================================================================================
<FN>
Additions to property, plant and equipment include amounts relating to principal
businesses purchased.
<F1> Depreciation and amortization includes $64 million of unallocated RCA
goodwill amortization in 1999, 1998 and 1997 that relates to NBC.
</FN>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BASIS FOR PRESENTATION. The Company's operating businesses are organized based
on the nature of products and services provided. Certain GE businesses do not
meet the definition of a reportable operating segment and have been aggregated.
The Industrial Products and Systems segment consists of Industrial Systems,
Lighting, Transportation Systems and GE Supply. The Technical Products and
Services segment consists of Medical Systems and Information Services.
Segment accounting policies are the same as policies described in
note 1.
Details of segment profit by operating segment can be found on page 44
of this report. A description of operating segments for General Electric Company
and consolidated affiliates is provided on the facing page.
<PAGE>
PAGE F-41
ANNUAL REPORT PAGE 73
AIRCRAFT ENGINES. Jet engines and replacement parts and repair and maintenance
services for all categories of commercial aircraft (short/medium, intermediate
and long-range); for a wide variety of military aircraft, including fighters,
bombers, tankers and helicopters; and for executive and commuter aircraft.
Products are sold worldwide to airframe manufacturers, airlines and government
agencies. Also includes aircraft engine derivatives, used as marine propulsion
and industrial power sources; the latter is also reported in Power Systems.
APPLIANCES. Major appliances and related services for products such as
refrigerators, freezers, electric and gas ranges, dishwashers, clothes washers
and dryers, microwave ovens, room air conditioners and residential water system
products. Products are sold in North America and in global markets under various
GE and private-label brands. Distributed to retail outlets, mainly for the
replacement market, and to building contractors and distributors for new
installations.
INDUSTRIAL PRODUCTS AND SYSTEMS. Lighting products (including a wide variety of
lamps, lighting fixtures, wiring devices and quartz products); electrical
distribution and control equipment (including power delivery and control
products such as transformers, meters, relays, capacitors and arresters);
transportation systems products (including diesel-electric locomotives, transit
propulsion equipment and motorized wheels for off-highway vehicles); electric
motors and related products; a broad range of electrical and electronic
industrial automation products (including drive systems); installation,
engineering and repair services, which includes management and technical
expertise for large projects such as process control systems; and GE Supply, a
network of electrical supply houses. Markets are extremely diverse. Products are
sold to commercial and industrial end users, including utilities, to original
equipment manufacturers, to electrical distributors, to retail outlets, to
railways and to transit authorities. Increasingly, products are developed for
and sold in global markets.
NBC. Principal businesses are the furnishing of U.S. network television services
to more than 220 affiliated stations, production of television programs,
operation of 13 VHF and UHF television broadcasting stations, operation of four
cable/satellite networks around the world, and investment and programming
activities in the Internet, multimedia and cable television.
PLASTICS. High-performance engineered plastics used in applications such as
automobiles and housings for computers and other business equipment; ABS resins;
silicones; superabrasive industrial diamonds; and laminates. Products are sold
worldwide to a diverse customer base consisting mainly of manufacturers.
POWER SYSTEMS. Power plant products and services, including design,
installation, operation and maintenance services. Markets and competition are
global. Gas turbines are sold separately and as part of packaged power plants
for electric utilities, independent power producers and for industrial
cogeneration and mechanical drive applications. Steam turbine-generators are
sold to electric utilities and, for cogeneration, to industrial and other power
customers. Also includes nuclear reactors and fuel and support services for GE's
new and installed boiling water reactors and aircraft engine derivatives, also
reported in the Aircraft Engines segment, used as industrial power sources.
TECHNICAL PRODUCTS AND SERVICES. Medical imaging systems such as magnetic
resonance (MR) and computed tomography (CT) scanners, x-ray, nuclear imaging and
ultrasound, as well as diagnostic cardiology and patient monitoring devices;
related services, including equipment monitoring and repair, computerized data
management and customer productivity services. Products and services are sold
worldwide to hospitals and medical facilities. Also includes a full range of
computer-based information and data interchange services for both internal and
external use to commercial and industrial customers.
GECS. The operating activities of the GECS segment follow.
CONSUMER SERVICES -- private-label credit card loans, personal loans, time
sales and revolving credit and inventory financing for retail merchants, auto
leasing and inventory financing, mortgage servicing and consumer savings and
insurance services.
EQUIPMENT MANAGEMENT -- leases, loans, sales and asset management services
for portfolios of commercial and transportation equipment, including aircraft,
trailers, auto fleets, modular space units, railroad rolling stock, data
processing equipment, containers used on ocean-going vessels, and satellites.
MID-MARKET FINANCING -- loans, financing and operating leases and other
services for middle-market customers, including manufacturers, distributors and
end users, for a variety of equipment that includes vehicles, corporate
aircraft, data processing equipment, medical and diagnostic equipment, and
equipment used in construction, manufacturing, office applications, electronics
and telecommunications activities.
SPECIALIZED FINANCING -- loans and financing leases for major capital assets,
including industrial facilities and equipment, and energy-related facilities;
commercial and residential real estate loans and investments; and loans to and
investments in public and private entities in diverse industries.
SPECIALTY INSURANCE -- U.S. and international multiple-line property and
casualty reinsurance; certain directly written specialty insurance and life
reinsurance; financial guaranty insurance, principally on municipal bonds and
structured finance issues; private mortgage insurance; and creditor insurance
covering international customer loan repayments.
Very few of the products financed by GECS are manufactured by GE.
<PAGE>
PAGE F-42
ANNUAL REPORT PAGE 74
29 GEOGRAPHIC SEGMENT INFORMATION (CONSOLIDATED)
The table below presents data by geographic region.
Revenues and operating profit shown below are classified according to
their country of origin (including exports from such areas). Revenues classified
under the caption "United States" include royalty and licensing income from
non-U.S. sources.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
REVENUES
For the years ended December 31
Total revenues Intersegment revenues External revenues
---------------------------------- ----------------------------- ---------------------------
(In millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 78,970 $ 71,799 $ 66,330 $ 2,690 $ 2,608 $ 2,471 $76,280 $69,191 $63,859
Europe <F1> 22,919 21,665 18,166 1,081 837 787 21,838 20,828 17,379
Pacific Basin 7,879 5,166 4,742 924 951 880 6,955 4,215 3,862
Other <F2> 7,365 6,925 6,420 808 690 680 6,557 6,235 5,740
Intercompany eliminations (5,503) (5,086) (4,818) (5,503) (5,086) (4,818) -- -- --
---------------------------------- ----------------------------- ---------------------------
Total $ 111,630 $ 100,469 $ 90,840 $ -- $ -- $ -- $111,630 $100,469 $90,840
==============================================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT <F3> ASSETS LONG-LIVED ASSETS <F4>
For the years ended December 31 At December 31 At December 31
---------------------------------- ----------------------------- ---------------------------
(In millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 13,293 $ 11,287 $ 9,939 $264,129 $227,311 $206,655 $21,612 $18,048 $17,074
Europe 1,884 2,393 2,271 83,358 84,518 66,740 6,101 6,334 5,180
Pacific Basin 1,089 431 355 28,214 18,427 8,881 2,017 1,326 971
Other <F2> 953 810 713 29,687 25,878 21,926 11,329 10,057 9,119
Intercompany eliminations 11 (9) (23) (188) (199) (190) (37) (35) (28)
---------------------------------- ----------------------------- ---------------------------
Total $ 17,230 $ 14,912 $ 13,255 $405,200 $355,935 $304,012 $41,022 $35,730 $32,316
==============================================================================================================================
<FN>
<F1> Includes $944 million in 1997 from an appliance distribution affiliate that
was deconsolidated in 1998.
<F2> Includes the Americas other than the United States and operations that
cannot meaningfully be associated with specific geographic areas (for
example, shipping containers used on ocean-going vessels).
<F3> Excludes GECS income taxes of $1,653 million, $1,364 million and $1,166
million in 1999, 1998 and 1997, respectively, which are included in the
measure of segment profit reported on page 44.
<F4> Property, plant and equipment (including equipment leased to others).
</FN>
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30 ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS
This note contains estimated fair values of certain financial instruments to
which GE and GECS are parties. Apart from borrowings by GE and GECS and certain
marketable securities, relatively few of these instruments are actively traded.
Thus, fair values must often be determined by using one or more models that
indicate value based on estimates of quantifiable characteristics as of a
particular date. Because this undertaking is, by its nature, difficult and
highly judgmental, for a limited number of instruments, alternative valuation
techniques may have produced disclosed values different from those that could
have been realized at December 31, 1999 or 1998. Assets and liabilities that, as
a matter of accounting policy, are reflected in the accompanying financial
statements at fair value are not included in the following disclosures; such
items include cash and equivalents, investment securities and separate accounts.
A description of how values are estimated follows.
BORROWINGS. Based on quoted market prices or market comparables. Fair values of
interest rate and currency swaps on borrowings are based on quoted market prices
and include the effects of counterparty creditworthiness.
TIME SALES AND LOANS. Based on quoted market prices, recent transactions and/or
discounted future cash flows, using rates at which similar loans would have been
made to similar borrowers.
INVESTMENT CONTRACT BENEFITS. Based on expected future cash flows, discounted at
currently offered discount rates for immediate annuity contracts or cash
surrender values for single premium deferred annuities.
FINANCIAL GUARANTEES AND CREDIT LIFE. Based on future cash flows, considering
expected renewal premiums, claims, refunds and servicing costs, discounted at a
market rate.
ALL OTHER INSTRUMENTS. Based on comparable transactions, market comparables,
discounted future cash flows, quoted market prices, and/or estimates of the cost
to terminate or otherwise settle obligations to counterparties.
<PAGE>
PAGE F-43
ANNUAL REPORT PAGE 75
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
1999 1998
-------------------------------------- ---------------------------------------
Assets (liabilities) Assets (liabilities)
----------------------------- -----------------------------
Carrying Estimated fair value Carrying Estimated fair value
Notional amount -------------------- Notional amount -------------------
December 31 (In millions) amount (net) High Low amount (net) High Low
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GE
Investment related
Investments and notes receivable $ <F1> $ 1,700 $ 1,739 $ 1,684 $ <F1> $ 1,764 $ 1,810 $ 1,793
Cancelable interest rate swap 1,046 11 22 22 1,221 17 1 1
Borrowings and related instruments
Borrowings<F2> <F3> <F1> (2,967) (2,966) (2,966) <F1> (4,147) (4,155) (4,155)
Interest rate swaps 1,408 -- 30 30 951 -- (60) (60)
Currency swaps 879 -- (17) (17) 1,046 -- 1 1
Recourse obligations for receivables sold 555 (36) (36) (36) 607 (38) (38) (38)
Financial guarantees 2,710 -- -- -- 2,172 -- -- --
Other firm commitments
Forwards and options 6,764 16 (30) (30) 6,868 72 113 113
Financing commitments 1,858 -- -- -- 1,519 -- -- --
GECS
Assets
Time sales and loans <F1> 90,427 90,313 88,813 <F1> 74,616 75,474 74,293
Integrated interest rate swaps 15,933 18 59 59 14,135 16 (102) (102)
Purchased options 8,949 60 174 174 11,195 146 158 158
Mortgage-related positions
Mortgage purchase commitments 669 -- -- -- 1,983 -- 15 15
Mortgage sale commitments 1,452 -- 4 4 3,276 -- (9) (9)
Mortgages held for sale <F1> 2,522 2,516 2,488 <F1> 4,405 4,457 4,457
Options, including "floors" 23,929 76 56 56 21,433 91 181 181
Interest rate swaps and futures 4,054 -- (67) (67) 6,662 -- 49 49
Other financial instruments <F1> 4,478 4,558 4,528 <F1> 3,205 3,433 3,231
Liabilities
Borrowings and related instruments
Borrowings<F2> <F3> <F1> (200,025) (198,798) (198,798) <F1> (172,200) (174,492) (174,492)
Interest rate swaps 56,339 -- (99) (99) 46,325 -- (1,449) (1,449)
Currency swaps 22,744 -- (1,425) (1,425) 29,645 -- 252 252
Currency forwards 26,806 -- (459) (459) 23,409 -- (389) (389)
Investment contract benefits <F1> (24,943) (24,420) (24,420) <F1> (23,893) (23,799) (23,799)
Insurance--financial guarantees
and credit life 226,073 (2,757) (2,797) (2,909) 208,774 (3,135) (3,339) (3,446)
Credit and liquidity support
-- securitizations 34,389 (144) (144) (144) 21,703 (29) (29) (29)
Performance guarantees -- principally
letters of credit 3,472 (56) (56) (56) 2,684 -- -- --
Other financial instruments 2,545 (1,473) (1,444) (1,444) 2,888 (1,921) (1,190) (1,190)
Other firm commitments
Currency forwards 3,778 (14) (41) (41) 5,072 -- (52) (52)
Currency swaps 767 238 200 200 915 72 72 72
Ordinary course of business
lending commitments 7,822 -- -- -- 9,839 -- (12) (12)
Unused revolving credit lines
Commercial 11,440 -- -- -- 6,401 -- -- --
Consumer -- principally credit cards 151,651 -- -- -- 132,475 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Not applicable.
<F2> Includes effects of interest rate and currency swaps, which also are listed separately.
<F3> See note 19.
</FN>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Additional information about certain financial instruments in the table
above follows.
CURRENCY FORWARDS AND OPTIONS are employed by GE and GECS to manage exposures to
changes in currency exchange rates associated with commercial purchase and sale
transactions and by GECS to optimize borrowing costs as discussed in note 19.
These financial instruments generally are used to fix the local currency cost of
purchased goods or services or selling prices denominated in currencies other
than the functional currency. Currency exposures that result from net
investments in affiliates are managed principally by funding assets denominated
in local currency with debt denominated in those same currencies. In certain
circumstances, net investment exposures are managed using currency forwards and
currency swaps.
<PAGE>
PAGE F-44
ANNUAL REPORT PAGE 76
OPTIONS AND INSTRUMENTS CONTAINING OPTION FEATURES that behave based on limits
("caps," "floors" or "collars") on interest rate movement are used primarily to
hedge prepayment risk in certain GECS business activities, such as mortgage
servicing and annuities.
SWAPS OF INTEREST RATES AND CURRENCIES are used by GE and GECS to optimize
funding costs for a particular funding strategy (see note 19). A cancelable
interest rate swap was used by GE to hedge an investment position. Interest rate
and currency swaps, along with purchased options and futures, are used by GECS
to establish specific hedges of mortgage-related assets and to manage net
investment exposures. Credit risk of these positions is evaluated by management
under the credit criteria discussed below. As part of its ongoing customer
activities, GECS also enters into swaps that are integrated into investments in
or loans to particular customers and do not involve assumption of third-party
credit risk. Such integrated swaps are evaluated and monitored like their
associated investments or loans and are not therefore subject to the same credit
criteria that would apply to a stand-alone position.
COUNTERPARTY CREDIT RISK -- risk that counterparties will be financially unable
to make payments according to the terms of the agreements -- is the principal
risk associated with swaps, purchased options and forwards. Gross market value
of probable future receipts is one way to measure this risk, but is meaningful
only in the context of net credit exposure to individual counter-parties. At
December 31, 1999 and 1998, this gross market risk amounted to $2.0 billion and
$2.3 billion, respectively. Aggregate fair values that represent associated
probable future obligations, normally associated with a right of offset against
probable future receipts, amounted to $3.6 billion at both year-end 1999 and
1998.
Except as noted above for positions that are integrated into
financings, all swaps, purchased options and forwards are carried out within the
following credit policy constraints.
* Once a counterparty exceeds credit exposure limits (see table below), no
additional transactions are permitted until the exposure with that
counterparty is reduced to an amount that is within the established limit.
Open contracts remain in force.
- --------------------------------------------------------------
COUNTERPARTY CREDIT CRITERIA
----------------------------
Credit rating
----------------------------
Moody's Standard & Poor's
- --------------------------------------------------------------
Term of transaction
Between one and five years Aa3 AA-
Greater than five years Aaa AAA
Credit exposure limits
Up to $50 million Aa3 AA-
Up to $75 million Aaa AAA
- --------------------------------------------------------------
* All swaps are executed under master swap agreements containing mutual
credit downgrade provisions that provide the ability to require assignment
or termination in the event either party is downgraded below A3 or A-.
More credit latitude is permitted for transactions having original maturities
shorter than one year because of their lower risk.
31 QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First quarter Second quarter Third quarter Fourth quarter
----------------- ----------------- ----------------- -----------------
(Dollar amounts in millions;
per-share amounts in dollars) 1999 1998 1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
Net earnings $ 2,155 $ 1,891 $ 2,820 $ 2,450 $ 2,653 $ 2,284 $ 3,089 $ 2,671
Earnings per share -- diluted 0.65 0.57 0.85 0.74 0.80 0.69 0.93 0.80
-- basic 0.66 0.58 0.86 0.75 0.81 0.70 0.94 0.82
SELECTED DATA
GE
Sales of goods and services 11,796 11,408 13,966 13,217 13,228 12,075 16,655 14,846
Gross profit from sales 3,667 3,366 4,545 4,216 4,091 3,630 5,043 4,598
GECS
Total revenues 12,383 11,151 13,378 11,801 14,002 12,016 15,986 13,726
Operating profit 1,400 1,252 1,461 1,219 1,745 1,584 1,490 1,105
Net earnings 1,032 881 1,092 933 1,262 1,082 1,057 900
- --------------------------------------------------------------------------------------------------------------
</TABLE>
For GE, gross profit from sales is sales of goods and services less
costs of goods and services sold. For GECS, operating profit is "Earnings before
income taxes."
Earnings-per-share amounts for each quarter are required to be computed
independently. As a result, their sum does not equal the total year
earnings-per-share amounts for diluted earnings per share in 1999 and basic
earnings per share in 1998.
<PAGE>
Property and Casualty Reserves for Unpaid Claims and Claim Expenses
The Company's insurance/reinsurance subsidiaries maintain reserves to cover
their estimated ultimate liability for unpaid claims and claim expenses with
respect to reported and unreported claims incurred as of the end of each
accounting period (net of estimated related salvage and subrogation claims).
These reserves are estimates that involve actuarial and statistical projections
of the expected cost of the ultimate settlement and administration of unpaid
claims based on facts and circumstances then known, estimates of future trends
in claims severity and other variable factors such as inflation and new concepts
of liability. The inherent uncertainties of estimating claim reserves are
exacerbated for reinsurers by the significant periods of time that often elapse
between the occurrence of an insured claim, the reporting of the claim to the
primary insurer and, ultimately, to the reinsurer, and the primary insurer's
payment of that claim and subsequent indemnification by the reinsurer (i.e., the
"tail"). As a consequence, actual claims and claim expenses paid may deviate,
perhaps substantially, from estimates reflected in the insurance companies'
reserves in their financial statements. Adjustments to previously reported
reserves for net claims and claim expenses are considered changes in estimates
for accounting purposes and are reflected in the financial statements in the
period in which the adjustment occurs.
<PAGE>
When a claim is reported to a ceding company, the ceding company's claims
personnel establish a "case reserve" for the estimated amount of the ultimate
payment. The estimate reflects the informed judgment of such personnel based on
general insurance reserving practices and on the experience and knowledge of
such personnel regarding the nature and value of the specific type of claim. The
Company, in turn, typically establishes a case reserve when it receives notice
of a claim from the ceding company. Such reserves are based on an independent
evaluation by the Company's claims departments, taking into consideration
coverage, liability, severity of injury or damage, jurisdiction, an assessment
of the ceding company's ability to evaluate and handle the claim and the amount
of reserves recommended by the ceding company. Case reserves are adjusted
periodically by the claims departments based on subsequent developments and
audits of ceding companies.
In accordance with GAAP, the Company also maintains reserves for claims incurred
but not reported ("IBNR"). Such reserves are established to provide for future
case reserves and loss payments on incurred claims that have not yet been
reported to an insurer or reinsurer. In calculating IBNR reserves, the Company
uses generally accepted actuarial reserving techniques that take into account
quantitative loss experience data, together with, where appropriate, qualitative
factors. IBNR reserves are based on claim experience and are grouped both by
class of business and by accident year. IBNR reserves are also adjusted to take
into account certain additional factors, such as changes in the volume of
business written, reinsurance contract terms and conditions, the mix of
business, claims processing and inflation, that can be expected to affect the
Company's liability for claims over time.
The potential for adverse development of the Company's reserves for its
international business, as compared to that of its domestic business, is reduced
because the international operations have a relatively low proportion of longer
tail exposures.
Reserve Development. The development of the Company's net balance sheet property
and casualty liabilities for unpaid claims and claim expenses for accident years
1989 through 1999 is summarized in the following table.
Net Liability. The first row of data shows the estimated net liability for
unpaid claims and claim expenses at December 31 for each year from 1989 to 1999.
The liability includes both case and IBNR reserves as of each year-end date, net
of anticipated recoveries from other reinsurers. The rows immediately following
the first row of data show cumulative paid data at December 31, as of one year,
two years, . . ., 10 years of subsequent payments.
Net Liability Re-estimated. The middle rows of data show the re-estimated amount
for previously reported net liability based on experience as of the end of each
subsequent calendar year's results. This estimate is changed as more information
becomes known about the underlying claims for individual years. The cumulative
redundancy (deficiency) shown in the table is the aggregate net change in
estimates over the period of years subsequent to the calendar year reflected at
the top of the respective columns. The amount in the line titled "Redundancy
(Deficiency) at December 31, 1999," represents for each calendar year (the "Base
Year") the aggregate change in (i) the Company's original estimate of net
liability for unpaid claims and claim expenses for all years prior to and
including the Base Year compared to (ii) the Company's re-estimate as of
December 31, 1999, of net liability for unpaid claims and claim expenses for all
years prior to and including the Base Year. A redundancy means that the original
estimate was greater than the re-estimate and a deficiency means that the
original estimate was less than the re-estimate.
<PAGE>
<TABLE>
<CAPTION>
Changes in Historical Reserves for Unpaid Claims and Claim Expenses
For the Last Ten Years - GAAP Basis as of December 31, 1999
Year ended December 31,
-------- --------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
(In millions) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-------- --------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
Net liability for unpaid
claims and claim
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
expenses $3,338 $3,579 $3,596 $3,991 $4,525 $5,071 $9,351 $9,458 $9,114 $12,495 $13,210
Paid (cumulative) as of:
One year later....... 706 747 665 802 949 1,115 1,964 1,949 2,176 2,867 ---
Two years later...... 1,125 1,119 1,103 1,274 1,602 1,804 3,130 3,189 3,241 --- ---
Three years later.... 1,469 1,524 1,499 1,739 2,054 2,341 3,933 3,881 --- --- ---
Four years later..... 1,746 1,772 1,784 2,036 2,424 2,708 4,464 --- --- --- ---
Five years later..... 1,929 1,989 2,008 2,293 2,690 2,988 --- --- --- --- ---
Six years later...... 2,072 2,173 2,208 2,485 2,952 --- --- --- --- --- ---
Seven years later.... 2,229 2,348 2,362 2,688 --- --- --- --- --- --- ---
Eight years later.... 2,380 2,482 2,531 --- --- --- --- --- --- --- ---
Nine years later..... 2,495 2,630 --- --- --- --- --- --- --- --- ---
Ten years later...... 2,629 --- --- --- --- --- --- --- --- --- ---
Net liability
re-estimated
as of:
One year later....... $3,390 $3,616 $3,625 $3,919 $4,612 $5,173 $9,192 $9,229 $ 9,179 $12,410 ---
Two years later...... 3,482 3,583 3,587 4,066 4,656 5,313 8,959 9,127 8,655 --- ---
Three years later.... 3,462 3,564 3,701 4,095 4,793 5,256 8,907 8,549 --- --- ---
Four years later..... 3,472 3,654 3,687 4,238 4,747 5,155 8,392 --- --- --- ---
Five years later..... 3,537 3,635 3,818 4,154 4,668 4,902 --- --- --- --- ---
Six years later...... 3,521 3,758 3,771 4,075 4,487 --- --- --- --- --- ---
Seven years later.... 3,626 3,734 3,711 3,942 --- --- --- --- --- --- ---
Eight years later.... 3,608 3,674 3,592 --- --- --- --- --- --- --- ---
Nine years later..... 3,567 3,565 --- --- --- --- --- --- --- --- ---
Ten years later...... 3,479 --- --- --- --- --- --- --- --- --- ---
Redundancy (Deficiency)
at December 31, 1999 (141) 14 4 49 38 169 959 909 459 85 ---
Effect of foreign
exchange (1) 6 (38) (41) (14) 12 (36) (467) (402) (122) (323) ---
-------- -------- ------- ------ ------- -------- ------- ------- -------- ------- -------
Redundancy (Deficiency)
at December 31, 1999,
excluding foreign
exchange $ (135) $ (24) $ (37) $ 35 $ 50 $ 133 $ 492 $ 507 $ 337 $(238) $ ---
======== ======== ====== ======= ======= ======= ====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
(In millions) 1992 1993 1994 1995 1996 1997 1998 1999
--------- --------- --------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31 - gross....................... $4,815 $5,312 $6,020 $11,145 $10,869 $10,936 $15,342 $17,435
Less reinsurance recoverables........................ (824) (787) (949) (1,794) (1,411) (1,822) (2,847) (4,225)
-------- ------- ------- ------- -------- -------- ------- -------
Balance at December 31 - net......................... 3,991 4,525 5,071 9,351 9,458 9,114 12,495 13,210
------- ------- ------- -------- -------- -------- ------- -------
Latest re-estimated liability - gross................ 4,967 5,471 5,926 9,967 10,044 10,421 15,570 ---
Less re-estimated reinsurance recoverables........... (1,025) (984) (1,024) (1,575) (1,495) (1,766) (3,160) ---
------- -------- ------ ------- -------- -------- ------- -------
Latest re-estimated liability - net.................. 3,942 4,487 4,902 8,392 8,549 8,655 12,410 ---
------- ------- ------- ------- -------- -------- ------- -------
Gross redundancy (deficiency)........................ (152) (159) 94 1,178 825 515 (227) ---
Effect of foreign exchange (1)....................... (14) 13 (37) (576) (487) (157) (473) ---
------- ------- --------- ------- -------- -------- ------- -------
Gross redundancy (deficiency), excluding foreign
exchange.......................................... $ (166) $ (146) $ 57 $ 602 $ 338 $ 358 $ (700) $ ---
======= ======= ======= ========= ======= ======= ======= =======
</TABLE>
(1) The results of the Company's international operations translated from
functional currencies into U.S. dollars are included with the Company's
U.S. underwriting operations in this table. The foreign currency
translation impact on the cumulative redundancy (deficiency) arises from
the difference between reserve developments translated at the exchange
rates at the end of the year in which the liabilities were originally
estimated and the exchange rates at the end of the year in which the
liabilities were re-estimated.
Note: For a description of the purpose of the above table and the various table
sections, please refer to the immediately preceding section entitled "Reserve
Development."
<PAGE>
A number of major trends that occurred within the insurance industry, the
economy in general and several Company-specific factors have had a significant
effect on the Company's liabilities for unpaid claims and claim expenses during
the period covered by the preceding table. The claims and claim expense reserve
deficiencies developed to December 31, 1999, as reflected in the preceding
table, included reserve deficiencies of approximately $52 million in 1989 and
$21 million in 1990 related to the general liability business on the books of
Puritan Excess and Surplus Lines Insurance Company ("PESLIC") before the
Company's acquisition of PESLIC in 1994. Prior to 1994, PESLIC was owned by GE
Capital Corporation. Additionally, beginning in 1985, the Company strengthened
the reserves for its excess liability and workers' compensation business for
qualified self-insured employers. Claims and claim expense reserve development
in the mid 1980's in these businesses reflected the inadequate premium rates
which resulted from intense competition in the market during that period.
In the late 1980's, the reinsurance market generally reacted to the rate
deficiencies and the resulting claims and claim expense reserve development by
increasing rates and strengthening claims and claim expense reserves. This is
reflected, with respect to the Company, in the significant improvements in the
overall reserve adequacy in most of the recent years. The increase in reserve
redundancies indicated for 1995 through 1997 is attributable to the favorable
claim environment that existed during that period.
The indicated deficiency in the 1998 reserve position is attributable to higher
than normal claim and claim expense development across a number of lines of
business, including property coverages (which was most highly impacted by much
higher than expected industry-wide losses with respect to Hurricane Georges),
long-term disability and communications/media liability.
To a lesser degree, development of asbestos and environmental claims has
affected the Company's results. Higher than anticipated levels of inflation in
certain lines of reinsurance businesses has also had an adverse effect on
liabilities for claims and claim expenses, particularly in excess of loss
reinsurance. Partially offsetting the above factors is favorable development in
recent years in medical professional liability and facultative casualty
businesses, as well as an increase in net retentions by ceding companies.
The Company's reconciliation of its beginning and ending property and casualty
reserves for unpaid claims and claim expenses on a GAAP basis is summarized as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
(In millions) 1999 1998 1997
---------------- --------------- ----------------
<S> <C> <C> <C>
Balance at January 1 - gross............................. $15,342 $10,936 $10,869
Less reinsurance recoverables............................ (2,847) (1,822) (1,411)
--------- --------- ---------
Balance at January 1 - net............................... 12,495 9,114 9,458
-------- --------- ---------
Claims and expenses incurred:
Current year.......................................... 4,162 3,286 2,438
Prior years........................................... 233 (126) 71
---------- ---------- -----------
4,395 3,160 2,509
--------- --------- ---------
Claims and expenses paid:
Current year.......................................... (1,228) (1,074) (612)
Prior years........................................... (2,867) (2,176) (1,949)
--------- --------- --------
(4,095) (3,250) (2,561)
--------- --------- --------
Claim reserves related to acquired companies............. 793 3,470 -
Claim reserves related to disposed companies............. (202) - -
Foreign exchange and other............................... (176) 1 (292)
---------- ------------ ---------
Balance at December 31 - net............................. 13,210 12,495 9,114
Add reinsurance recoverables............................. 4,225 2,847 1,822
--------- --------- ---------
Balance at December 31 - gross........................... $17,435 $15,342 $10,936
======= ======= =======
</TABLE>
The liabilities for claims and claim expenses in the preceding table include
long-term disability claims that are discounted at a 6% rate for all years
presented. As a result of discounting the Company's long-term disability claims,
total liabilities for claims and claim expenses have been reduced by an
estimated 2% at December 31, 1999 and 1998. The amortization of discount is
included in current operating results as part of the development of prior year
liabilities.
Long-term disability discounts accrued as a percentage of claims, claim expenses
and policy benefits were less than 1% for the years ended December 31, 1999 and
1998 and approximately 1% for the year ended December 31, 1997. Discounts
amortized as a percentage of claims, claim expenses and policy benefits were
less than 1% for the years ended December 31, 1999 and 1998 and approximately 1%
for the year ended December 31, 1997.
The Company's reconciliation of its property and casualty reserves for unpaid
claims and claim expenses between statutory basis and GAAP basis is summarized
as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
(In millions) 1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Statutory basis reserves for U.S. companies - net......... $ 7,204 $ 7,679 $ 5,527
Adjustments to GAAP basis (1)............................. 636 667 (118)
---------- ---------- ----------
GAAP basis reserves for U.S. companies - net.............. 7,840 8,346 5,409
GAAP basis reserves for non-U.S. companies - net.......... 5,370 4,149 3,705
--------- --------- ---------
Total GAAP basis reserves - net........................... 13,210 12,495 9,114
Add reinsurance recoverables.............................. 4,225 2,847 1,822
--------- --------- ---------
GAAP basis reserves - gross............................... $17,435 $15,342 $10,936
======= ======= =======
</TABLE>
(1) Statutory basis reserve offsets and reserves reclassified to contract
deposit assets or liabilities based on risk transfer provisions of SFAS No.
113.
Asbestos and Environmental Exposure. Included in the Company's liability for
claims and claim expenses are liabilities for asbestos and environmental
exposures. These claims and claim expenses are primarily related to policies
written prior to 1986 as the policies written since 1986 have tended to
explicitly exclude asbestos and environmental risks from coverage and most of
the asbestos and environmental exposures arise from risks located in the United
States. During 1997, the Company's international operations completed the
initial process of identifying asbestos and environmental claims that had been
reserved in prior periods but were initially aggregated and coded under other
general lines of business rather than being specifically identified as asbestos
or environmental claims.
The three-year development of claims and claim expense reserves associated with
the Company's asbestos and environmental claims, including case and IBNR
reserves, is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
(In millions) 1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at January 1 - gross.............................. $995 $462 $368
Less reinsurance recoverables............................. (206) (193) (174)
----- ----- ----
Balance at January 1 - net................................ 789 269 194
Claims and expenses incurred.............................. (7) 35 54
Claim identification and IBNR allocation.................. - - 43 (1)
Claims and expenses paid.................................. (210) (39) (22)
Claim reserves related to acquired companies.............. 33 524 -
------ ----- ----
Balance at December 31 - net.............................. 605 789 269
Add reinsurance recoverables.............................. 195 206 193
----- ----- -----
Balance at December 31 - gross............................ $800 $995 $462
==== ==== ====
</TABLE>
(1) Prior to 1997, the Company's international operations were unable to
identify and segregate recorded claim reserves that related to asbestos and
environmental exposures as they were grouped with claim reserves in various
lines of business such as general liability. Beginning in 1997, the Company
began identifying and segregating the asbestos and environmental claims
related to its international operations.
<PAGE>
The amounts on the preceding page are management's best estimate, based on
currently available information, of claims and claim expense payments and
recoveries that are expected to develop in future years.
The Company monitors evolving case law and its effect on asbestos-related
illness and toxic waste cleanup claims. Changing domestic and foreign government
regulations and legislation, including continuing congressional consideration of
federal Superfund law, newly reported claims, new contract interpretations and
other factors could significantly affect future claim development. While the
Company has recorded its best estimate of its liabilities for asbestos-related
illness and toxic waste cleanup claims based on currently available information,
it is possible that additional liabilities may arise in the future. It is not
possible to estimate with any certainty the amount of additional net claims and
claim expenses, or the range of net claims and claim expenses, if any, that is
reasonably possible; therefore, there can be no assurance that future
liabilities will not materially affect the Company's results of operations,
financial position or cash flows.
Other Mass Tort Exposures. In addition to asbestos and environmental exposures,
the Company also may have exposures to other mass torts involving primarily
product liability issues such as tobacco products, gun manufacturers and
silicone breast implants. The Company has, in the past, generally avoided the
products liability reinsurance business, and, based on currently available
information, future liabilities resulting from these matters are not expected to
be material to the Company's results of operations, financial position or cash
flows.
