<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934..................For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 33-44946
RAILCAR TRUST NO. 19921
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3822700
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
C/O WILMINGTON TRUST COMPANY
RODNEY SQUARE NORTH
1100 N. MARKET ST.
WILMINGTON, DELAWARE 19890
(Address of principal executive offices and ZIP code)
Registrant's telephone number, including area code: (302) 651-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
--------------------
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 SK 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 10K or any amendment to this
Form 10K. [_]
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I........................................................................................................... 1
ITEM 1. Business of the Company......................................................................... 1
ITEM 2. Properties...................................................................................... 4
ITEM 3. Legal Proceedings............................................................................... 4
ITEM 4. Submission of Matters to a Vote of Security Holders............................................. 4
PART II.......................................................................................................... 4
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters........................... 4
ITEM 6. Selected Consolidated Financial Data............................................................ 5
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 6
ITEM 8. Financial Statements and Supplementary Data..................................................... 7
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Statement Disclosure.. 7
PART III......................................................................................................... 8
ITEM 10. Directors and Executive Officers of the Registrant.............................................. 8
ITEM 11. Executive Compensation.......................................................................... 8
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.................................. 8
ITEM 13. Certain Relationships and Related Transactions.................................................. 8
PART IV.......................................................................................................... 9
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................ 9
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS OF THE COMPANY
Railcar Trust No. 1992-1 (the "Trust") is engaged in railcar leasing. The Trust
was organized in connection with the transactions described below (collectively,
the "Railcar Transaction").
Organization of the Trust
In June 1992, Itel Rail Corporation and certain of its affiliates ("Rail")
completed a transaction with General Electric Capital Corporation and certain of
its affiliates ("GECC") pursuant to which Rail and Railcar Services Corporation,
a Delaware special purpose corporation (the "SPC"), contributed substantially
all of their owned railcars, subject to approximately $170 million of existing
indebtedness ("Assumed Indebtedness"), to the Trust. Certain contracts
(including current end-user leases) relating to such railcars and cash in an
amount necessary to fund payments on the Assumed Indebtedness prior to the first
rental payment date under the Leases (as defined below) were also contributed to
the Trust.
Contribution to the Partnership
The Trust in turn contributed all of the railcars, subject to the Assumed
Indebtedness and together with the aforementioned contracts, to Railcar
Associates, L.P. (the "Partnership"). GE Railcar Associates, Inc.
("Associates") and GE Railcar Leasing Associates, Inc. ("GE Leasing"), each an
indirect wholly owned subsidiary of General Electric Corporation, also
contributed certain railcars, together with certain contracts relating to such
railcars, to the Partnership. The Trust is a 64.00% general partner and a
34.99% limited partner in the Partnership. Associates is a 1% general partner
and the managing general partner of the Partnership. GE Leasing is a 0.01%
limited partner in the Partnership.
In connection with the Railcar Transaction, the Partnership assumed the Assumed
Indebtedness, which is secured by certain of the railcars, and agreed to pay all
amounts owing thereunder as they become due. The Assumed Indebtedness is being
serviced out of rental receipts by the Partnership pursuant to certain leases
(the "Leases") of all of the contributed railcars between the Partnership and GE
Capital Railcar Associates, Inc. ("Lessee"). The Partnership invests any
available cash, pending application to the Assumed Indebtedness, at a fixed rate
of return with GECC. The parties agreed that the Trust and not the Partnership
would bear the economic impact of the Assumed Indebtedness and that payments in
respect of the Assumed Indebtedness would be made from amounts that would
otherwise have been distributed to the Trust. To this end, Partnership
distributions to the partners other than the Trust are proportionately increased
in respect of amounts paid on the Assumed Indebtedness.
1
<PAGE>
The Leases
The Leases between the Partnership and the Lessee are for a twelve (12) year
term expiring in 2004. Pursuant thereto, the Lessee pays to the Partnership
fixed annual rental payments in the approximate amount of $153 million ("Basic
Rent"). The Leases include the grant to the Lessee of an assignable fixed price
purchase option at the end of the term of the Leases for all, but not less than
all, of the railcars, for approximately $500 million. The Leases are net leases
under which the Lessee is responsible for maintenance and other expenses of the
railcars and all obligations of the Lessee are unconditionally guaranteed by
GECC. The Lessee has an annual obligation to make certain contingent payments
to the Partnership in addition to the Basic Rent as determined pursuant to the
Leases ("Additional Rent").
The Trust Notes
Upon the closing of the Railcar Transaction, the Trust issued certain 7.75%
trust notes due June 1, 2004 in an aggregate principal amount of $998,430,000
("Trust Notes"). The Trust Notes were issued pursuant to an Indenture between
the Trust and Harris Trust and Savings Bank. The Trust Notes are obligations of
the Trust, secured by the partnership interests in the Partnership owned by the
Trust, subject to certain excepted rights. All payments of the principal,
premium (if any), and interest on the Trust Notes are intended to be made or
funded by the Trust out of distributions made to the Trust by the Partnership of
a portion of Net Cash Flow (as defined in the Partnership Agreement) of the
Partnership, which is derived from the Basic Rent paid by the Lessee to the
Partnership. The Trust Notes are not registered on any exchanges.
The Trust Notes are represented by Trust Notes registered in the name of the
nominee of The Depository Trust Company ("DTC"). The Trust Notes were made
available for purchase in book-entry form in minimum denominations of $1,000 and
integral multiples thereof. The Trust was informed by DTC that DTC's nominee is
Cede & Co. ("Cede"). Except in limited circumstances, no beneficial owner of
the Trust Notes is entitled to receive a certificate representing such person's
interest in the Trust Notes. Cede is the only holder of record of the Trust
Notes.
Ownership of the Trust
Until November 10, 1993, the Trust was a consolidated affiliate of Rail, its
principal beneficiary, which held a 99% interest in the Trust. On November 10,
1993, Rail distributed as a dividend a 30% Trust interest to its parent, Signal
Capital Holdings Corporation ("Signal Capital Holdings"). Signal Capital
Holdings, on the same date, distributed the same 30% Trust interest as a
dividend to its parent, Itel Rail Holdings Corporation ("Itel Rail Holdings").
At such time, Rail continued to hold a 69% Trust interest.
2
<PAGE>
Prior to July 25, 1994, Rail was liquidated or merged with and into Signal
Capital Holdings and Signal Capital Holdings in turn distributed a 0.5% interest
in the Trust to its parent, Itel Rail Holdings. Such transactions resulted in
Signal Capital Holdings owning a 68.5% Trust interest and Itel Rail Holdings
owning a 30.5% Trust interest. On July 25, 1994, SCAP Associates, L.L.C., a
Delaware limited liability company ("SCAP"), acquired from Itel Rail Holdings a
30% beneficial interest in the Trust and 100% of the stock of Signal Capital
Holdings. SCAP subsequently acquired Itel Rail Holdings' remaining 0.5%
interest in the Trust.
During October 1994, SCAP and Signal Capital Holdings sold all of their
respective interests in the Trust, constituting 99% of the beneficial interest
in the Trust, to multiple investors. The names of each trustor and their
respective percentage beneficial interests ("Beneficial Interests") in the Trust
are set forth below:
NAME OF TRUSTOR % BENEFICIAL INTEREST
--------------- ---------------------
First of St. Louis Leasing Corporation No. 1 5.00000000%
The Fifth Third Leasing Company 3.09670292%
First Security Bank of Idaho, National Association 1.64187774%
First Security Bank of Utah, National Association 1.64187774%
First Security Leasing Company 0.76802089%
MetLife Capital, Limited Partnership 21.56719664%
Nat-Lea, Inc. 1.85802816%
BancBoston Leasing, Inc. 10.87503350%
U.S. Bancorp Leasing & Financial 3.87504300%
First Union Commercial Leasing Group, L.L.C. 12.77921530%
Phoenix Home Life Mutual Insurance Company 7.05927915%
Sun Life Assurance Company of Canada (U.S.) 8.33645448%
BA Leasing & Capital Corporation 20.50127048%
Railcar Services Corporation 1.00000000%
3
<PAGE>
ITEM 2. PROPERTIES
See Item 1--Business of the Company and the Consolidated Financial Statements.
All of the Trust's materially important physical properties have been
contributed to the Partnership and in turn leased to the Lessee pursuant to the
Leases.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust is managed pursuant to the Second Amended and Restated Trust Agreement
dated May 1, 1992 ("Trust Agreement"), an Interinvestor Agreement dated October
21, 1994 ("Interinvestor Agreement") and a Tax Matters Agreement dated as of
March 20, 1995. Under the Trust Agreement, a trustee, Wilmington Trust Company
("WTC") acts as a management functionary. WTC is authorized to act
independently only in the case of certain administrative actions with respect to
the Trust Indenture and the Trust Notes and in certain other cases where it has
express authority to act under the Trust Agreement. In all other cases, WTC may
take action only as it is directed by the holders of a majority of the
Beneficial Interests in the Trust. The Trust Agreement imposes an obligation on
WTC to provide various notices to the trustors upon events of default under the
underlying Partnership and Lease documents. In connection with such defaults,
WTC is required to take such action as it is directed by the holders of a
majority of the Beneficial Interests in the Trust.
During the fourth quarter of 1997, no material matters with respect to the
business and operation of the Trust came to a vote of trustors pursuant to the
Trust Agreement and the Interinvestor Agreement.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Neither the Beneficial Interests in the Trust nor the Trust Notes are registered
on any exchange. There is no established public trading market for either the
Beneficial Interests in the Trust or the Trust Notes.
4
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference to,
and should be read in conjunction with, the Company's 1997 Consolidated
Financial Statements and notes thereto and the discussion thereof included
elsewhere in this Form 10-K. The selected consolidated financial data as of
December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and
1995 has been derived from consolidated financial statements that have been
audited by Ernst & Young LLP, independent auditors, whose report with respect
thereto is included elsewhere in this Form 10-K. The selected consolidated
statements of income data for the years ended December 31, 1994 and 1993, and
the consolidated balance sheet data as of December 31, 1995, 1994 and 1993 have
been derived from audited consolidated financial statements of the Trust not
included in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA (IN 000'S):
Rental revenue...................... $153,801 $153,034 $ 152,457 $ 153,611 $ 153,034
Operating income.................... 103,660 102,820 102,203 103,516 102,896
Net Income.......................... $ 37,279 $ 29,493 $ 22,090 $ 17,181 $ 10,864
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN 000'S):
Total assets........................ $848,857 $898,113 $ 950,002 $1,002,845 $1,054,661
Current maturities of long-term 110,999 84,782 79,844 73,663 67,766
debt...............................
Long-term debt...................... 670,263 781,119 865,753 945,447 1,018,958
Trust surplus (deficit)............. $ 51,022 $ 14,493 ($15,000) ($37,090) ($54,271)
</TABLE>
5
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Liquidity and Capital Resources
As discussed in Item 1 above, substantially all of the physical property of the
Trust, consisting primarily of railcars, was contributed to the Partnership of
which the Trust is a 98.99% partner. At such time, the Partnership assumed the
Assumed Indebtedness. The Partnership then leased to the Lessee all of the
property contributed by the Trust, along with other railcars it received as a
contribution from its other partners. Financing of the Trust was accomplished
by issuance of $998 million of Trust Notes secured by the Trust's ownership
interest in the Partnership, as more specifically described in Item 1 of this
report. No new borrowings occurred during 1997.
As noted above, fixed rental receipts by the Partnership under the Leases are
used to service the Assumed Indebtedness and other expenses of the Partnership.
Remaining Partnership available cash is distributed to the partners, the Trust's
share of which must be used by the Trust to service the Trust Notes. During
1997, the Trust received rental revenues of $153.8 million pursuant to the
Leases. Total operating expenses of $50.1 million were incurred, resulting in
operating income in the amount of $103.7 million. Payment of interest expense,
net in the amount of $65.5 million and accounting for minority interests in the
Partnership, resulted in net income of $37.3 million at the Trust level.
Debt Maturities and Repayments
Current maturities of long-term debt of $111.0 million at December 31, 1997
represent debt, which is being serviced by cash flow from the Leases.
The Trust generated $87.2 million in cash from operating activities. Those
amounts were used to repay the Assumed Indebtedness and the Trust Notes as
payments became due. Of the net cash from operating activities, $84.8 million
was used in order to reduce borrowings, $1.6 million was distributed to the
minority interests in the Partnership and $0.8 million was distributed on a
prorated basis to the holders of the Beneficial Interest in the Trust as a
distribution of Additional Rent with respect to use and maintenance in 1995 (the
1996 and 1997 Additional Rent payments have not been received, see Note A to the
Consolidated Financial Statements). The principal amount outstanding under the
Assumed Indebtedness was decreased by $22.8 million to a total of $47.5 million
at year-end, and the principal amount outstanding under the Trust Notes was
decreased by $61.8 million to a total amount of $733.8 million at year-end.
6
<PAGE>
Results of Operations
Rental revenues for the years ended December 31, 1997, 1996, and 1995 were
$153.8 million, $153.0 million, and $152.5 million, respectively, reflecting
rent on the Leases. Operating income plus depreciation prior to minority
interests and interest expense was $153.4 million, $152.6 million, and $152.0
million in 1997, 1996, and 1995, respectively. Operating income before interest
expense and minority interests was $103.7 million, $102.8 million, and $102.2
million in 1997, 1996, and 1995, respectively. With the scheduled reduction of
outstanding debt, interest expense continued to decline, the net was $65.5
million, $72.4 million, and $79.2 million in 1997, 1996, and 1995, respectively.
Net income continued to increase due to the reduction of the interest expense.
Net income was $37.3 million, $29.5 million, and $22.1 million in 1997, 1996,
and 1995, respectively. The Trust does not provide for income taxes, as the
liability for such taxes is that of the holders of Beneficial Interests in the
Trust.
Impact of the Year 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Due to the nature of the
Trust, the Year 2000 implications are not material. The railcars owned by the
Trust are leased on a twelve-year contract expiring in 2004. The Trust received
quarterly lease payments that provide the majority of the revenue, $153 million.
The Trust was designed to operate solely on the lease payments. The Trust's
exposure to the Year 2000 is the possible impact on any Additional Rent.
Additional Rent can be received by the Trust if income generated by the railcars
exceed specific contractual parameters. Additional Rent could be reduced or
eliminated if the Year 2000 problems result in a decline in railcar usage.
While it is beyond the ability of the Trust to forecast the effect, the impact
is not expected to be material. Less than $0.8 million of the $153.8 million of
1997 revenue related to Additional Rent.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this report
starting on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL STATEMENT DISCLOSURE
Not applicable.
7
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Following is a list of the persons known to the Registrant to be the beneficial
owner of more than five percent of the Beneficial Interests in the Trust:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- - --------------- ------------------------------------ ----------------- ----------------
<S> <C> <C> <C>
Beneficial First of St. Louis Leasing Corporation No. 1 N/A 5.000%
Interest 800 Market Street
St. Louis, MO 63101
Beneficial MetLife Capital, Limited Partnership N/A 21.567%
Interest 10900 N.E. 4th Street, Suite 500
Bellevue, WA 98004
Beneficial BancBoston Leasing, Inc. N/A 10.875%
Interest 100 Federal Street, Mailstop 01-23-90
Boston, MA 02110
Beneficial First Union Commercial Leasing Group, L.L.C. N/A 12.779%
Interest One First Union Center
Charlotte, NC 28288
Beneficial Phoenix Home Life Mutual Insurance Company N/A 7.059%
Interest One American Row
Hartford, CT 06102-5056
Beneficial Sun Life Assurance Company of Canada (U.S.) N/A 8.336%
Interest One Sun Life Executive Park
Wellesley Hills, MA 02181
Beneficial BA Leasing & Capital Corporation N/A 20.501%
Interest Four Embarcadero Center
San Francisco, CA 94111
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
8
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2)--The response to this portion of Item 14 is submitted
as a separate section of this report starting on page F-1.
(3) Listing of Exhibits.
Number Description
- - ------ -----------
4.1 Indenture, dated June 1, 1992, between Railcar Trust No. 1992-1 and
Harris Trust and Savings Bank, as Trustee, providing for 7.75% Trust
Notes due 2004. /./
4.2 The Partnership is also party to other instruments defining the rights
of holders of long-term debt of the Trust where the total indebtedness
authorized under each agreement does not exceed 10% of the total assets
of the Trust on a consolidated basis. Pursuant to Item 601(b)(4)(iii) of
Regulation S-K, the Trust is not filing such instruments. The Trust
hereby undertakes to furnish to the Securities and Exchange Commission
upon request copies of any or all such instruments.
10.1 Participation Agreement, dated December 31, 1991, among General Electric
Railcar Services Corporation, GE Railcar Associates, Inc., GE Railcar
Leasing Associates, Inc., General Electric Capital Corporation, Itel
Rail Funding Corporation, Rex Railways, Inc., and Railcar Associates,
L.P. /./
10.2 Second Amended and Restated Trust Agreement, dated May 1, 1992, between
Itel Rail Corporation and Wilmington Trust Company, as Trustees. /../
10.3(a) Amended and Restated Agreement of Limited Partnership of Railcar
Associates, L.P., dated June 1, 1992, among GE Railcar Associates, Inc.,
GE Railcar Leasing Associates, Inc., and Railcar Trust No. 1992-1. /./
(b) Guaranty, dated June 1 1992, by General Electric Capital Corporation
of certain obligations under the above Agreement of Limited
Partnership. /./
9
<PAGE>
10.4(a) Master Lease Agreement, dated June 1, 1992, between Railcar Associates,
L.P. and GE Capital Railcar Associates, Inc. /./
(b) Lease Guaranty, dated June 1, 1992, by General Electric Capital
Corporation of the obligations of GE Capital Railcar Associates, Inc.
under the above Master Lease Agreement. /./
27 Financial Data Schedule.
99 Annual Report on Form 10-K for the year ended December 31, 1997 for
General Electric Capital Corporation.
(b) Report on Form 8-K.
None
(c) The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) The response to this portion of Item 14 is submitted as a separate
section of this report.
- - --------------------------------------------------------------------------------
/./ Incorporated by reference to Railcar Trust No. 1992-1's Quarterly Report
on Form 10-Q, for the fiscal quarter ended June 30, 1992.
/../ Incorporated by reference from Amendment No. 4 to Railcar Trust No.
1992-1's Registration Statement on Form S-1, Registration Number 33-44946,
filed May 18, 1992, Exhibit 10.5.
10
<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.
March 30, 1998 RAILCAR TRUST NO. 1992-1
By: /s/ David A. Vanaskey, Jr.
--------------------------------------
Name: David A. Vanaskey, Jr.
Title: Assistant Vice President
Wilmington Trust Company, Trustee
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/ David A. Vanaskey, Jr. Assistant Vice President
- - ------------------------------ Wilmington Trust Co., Trustee March 30, 1998
David A. Vanaskey, Jr.
/s/ Bruce L. Bisson Vice President
- - ------------------------------ Wilmington Trust Co., Trustee March 30, 1998
Bruce L. Bisson
11
<PAGE>
ITEM 8, ITEM 14(a) (1) AND (2), ITEM 14(c), AND ITEM 14(d)
RAILCAR TRUST NO. 1992-1
ANNUAL REPORT ON FORM 10-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-1
Consolidated Balance Sheets--December 31, 1997 and 1996.................................................... F-2
Consolidated Statements of Income for the years ended December 31, 1997, 1996, and 1995.................... F-3
Consolidated Statements of Trust Surplus (Deficit) for the years ended December 31, 1997, 1996, and 1995... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995................ F-5
Notes to the Consolidated Financial Statements............................................................. F-6
Financial Statement Schedule for the years ended December 31, 1997, 1996, and 1995.........................
Schedule I - Condensed Financial Information of Registrant............................................ F-9
</TABLE>
All other schedules are omitted because they are not required or are not
applicable, or the required information is shown in the financial statements or
notes thereto.
12
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Trustees
Railcar Trust No. 1992-1
We have audited the accompanying consolidated balance sheets of Railcar
Trust No. 1992-1 (The Trust) as of December 31, 1997 and 1996, and the related
consolidated statements of income, Trust surplus (deficit), and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 and schedule 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 consolidated financial position of
Railcar Trust No. 1992-1 at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Seattle, Washington
March 6, 1998
F-1
<PAGE>
RAILCAR TRUST NO. 1992-1
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents...................................... $ 587 $ 490
Restricted cash................................................ 18,888 17,919
Rent receivable from GE Capital Railcar Associates, Inc........ 12,753 12,753
Prepaid expenses and other..................................... 1,144 1,075
-------- --------
Total current assets........................................ 33,372 32,237
Rental equipment............................................... 813,044 862,825
Deferred financing fees........................................ 2,171 3,051
-------- --------
Total assets................................................... $848,587 $898,113
======== ========
LIABILITIES AND TRUST SURPLUS
Accrued interest and other expenses............................ $ 6,850 $ 7,600
Current maturities of long-term debt........................... 110,999 84,782
-------- --------
Total current liabilities................................... 117,849 92,382
Long-term debt:
Trust notes................................................... 642,351 733,663
Secured indebtedness.......................................... 27,912 47,456
-------- --------
Total long-term debt........................................ 670,263 781,119
Minority interest in Partnership............................... 9,453 10,119
Trust surplus:
Capital distributions in excess of contributions.............. (69,355) (68,605)
Cumulative net earnings....................................... 120,377 83,098
-------- --------
Net trust surplus........................................... 51,022 14,493
-------- --------
Total liabilities and trust surplus............................ $848,587 $898,113
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE>
RAILCAR TRUST NO. 1992-1
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Rental revenue from GE Capital Railcar Associates, Inc... $153,801 $153,034 $152,457
Operating expenses:
Depreciation............................................ (49,781) (49,782) (49,781)
General, administrative, and other...................... (360) (432) (473)
-------- -------- --------
Total operating expenses.............................. (50,141) (50,214) (50,254)
-------- -------- --------
Operating income......................................... 103,660 102,820 102,203
Interest expense......................................... (65,494) (72,448) (79,240)
Minority interest........................................ (887) (879) (873)
-------- -------- --------
Net income............................................... $ 37,279 $ 29,493 $ 22,090
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
RAILCAR TRUST NO. 1992-1
CONSOLIDATED STATEMENTS OF TRUST SURPLUS (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL
DISTRIBUTIONS CUMULATIVE NET TRUST
IN EXCESS OF NET SURPLUS
CONTRIBUTIONS EARNINGS (DEFICIT)
--------------- ------------ -------------
<S> <C> <C> <C>
Balance at January 1, 1995.................... $(68,605) $ 31,515 $(37,090)
Net income.................................... -- 22,090 22,090
-------- -------- --------
Balance at December 31, 1995.................. (68,605) 53,605 (15,000)
Net income.................................... -- 29,493 29,493
-------- -------- --------
Balance at December 31, 1996.................. (68,605) 83,098 14,493
Net income.................................... -- 37,279 37,279
Distribution to Holders of
Beneficial Interest......................... (750) -- (750)
-------- -------- --------
Balance at December 31, 1997.................. $(69,355) $120,377 $ 51,022
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
RAILCAR TRUST NO. 1992-1
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income......................................................... $ 37,279 $ 29,493 $ 22,090
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation..................................................... 49,781 49,782 49,781
Amortized discount on debt and deferred financing fees........... 1,167 1,325 1,506
Minority interest................................................ 887 879 873
Changes in assets and liabilities, net:
Restricted cash................................................ (969) 966 1,104
Rent receivable from GE Capital Railcar Associates, Inc........ 0 0 576
Other.......................................................... (962) (1,015) (747)
-------- -------- --------
Net cash provided by operating activities........................ 87,183 81,430 75,183
Financing activities:
Principal payments on borrowings................................... (84,783) (79,844) (73,663)
Distributions to beneficiaries..................................... (750) 0 0
Distributions to minority interest................................. (1,553) (1,544) (1,544)
-------- -------- --------
Net cash used in financing activities............................ (87,086) (81,388) (75,207)
-------- -------- --------
Net increase (decrease) in cash..................................... 97 42 (24)
Cash and cash equivalents at beginning of the year.................. 490 448 472
-------- -------- --------
Cash and cash equivalents at end of the year........................ $ 587 $ 490 $ 448
======== ======== ========
Supplemental cash flow information:
Interest paid during the year..................................... $ 65,586 $ 72,483 $ 78,808
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
RAILCAR TRUST NO. 1992-1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE A ORGANIZATION AND OPERATIONS
Railcar Trust No. 1992-1 (the "Trust") holds a majority interest in Railcar
Associates, L.P., a limited partnership (the Partnership). The Partnership
leases approximately 59,000 railcars within the United States. GE Capital
Railcar Associates, Inc. (the Lessee) is the sole lessee of the railcars. The
leases mature in 2004 with quarterly fixed rental payments totaling
approximately $153 million annually. These rental payments are guaranteed by
General Electric Capital Corporation (GECC). The Lessee has an option to
purchase all the railcars under lease for approximately $500 million at the end
of the lease. The Lessee is responsible for maintenance, taxes, insurance, and
other expenses involved with operating the railcars. The Lessee has an annual
obligation to make certain contingent rental payments to the Partnership in
addition to the previously described quarterly fixed rental payments
("Additional Rent"). Additional Rent for the year ending December 31, 1995 in
the amount of $759 thousand was received by the Trust. $750 thousand of the
Additional Rent was distributed in September 1997 on a prorata basis to the
holders of the Beneficial Interests in the Trust; the remainder was used by the
Trust to pay expenses.
The Partnership has the following partners:
PARTNER INTEREST (%)
Railcar Trust No. 1992-1 98.99 %
GE Railcar Associates, Inc. 1.00 %
GE Railcar Leasing Associates, Inc. 0.01 %
The partners share in profits or losses and distributions in accordance with a
specific formula, as defined in the Amended and Restated Agreement of Limited
Partnership.
The Additional Rent calculation is prepared by the Lessee and is subject to
verification by an independent auditor. The audit of Additional Rent has not
been completed for 1997 and certain components of the Additional Rent
calculation for 1996 are currently being disputed by the parties to the Leases.
Although management does not expect Additional Rent to be material to the
financial statements of the Partnership for 1996 or 1997, the outcome of this
dispute, and the amount of Additional Rent, if any, that will ultimately be paid
to the Partnership cannot be determined at this time. As a result, no
Additional Rent has been recorded by the Partnership for 1996 or 1997.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
financial results of the Trust and the Partnership. All interentity
transactions have been eliminated.
Use of Estimates: The preparation of financial statements requires management
to make estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known which could impact the amounts
reported and disclosed herein.
Revenue Recognition: All revenue is recognized as received from the
Partnership.
F-6
<PAGE>
RAILCAR TRUST NO. 1992-1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Cash, Cash Equivalents, and Restricted Cash: The Trust considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents. Due to the short maturity of these instruments, the carrying
amount approximates fair value. Restricted cash balances represent short-term
investments held by GECC. The investments are restricted as to the availability
to the Partnership and are available only to service principal and interest
payments on the Partnership's debt.
Rental Equipment: Rental equipment (rail cars) is carried at cost, which is
based upon the historical cost of the contributing partners. Rail cars are
depreciated to the estimated residual value using the straight-line method over
the terms of the leases.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Rail cars (at cost).................... $1,388,582 $1,388,582
Accumulated depreciation............... (575,538) (525,757)
---------- ----------
Net book value......................... $ 813,044 $ 862,825
========== ==========
</TABLE>
Income Taxes: The Trust does not provide for income taxes, as the liability for
such taxes is that of the beneficial owners of the Trust. The net trust deficit
for federal income tax purposes was approximately $283 million at December 31,
1997.
NOTE C LONG-TERM DEBT
Trust Notes: In June 1992, the Trust issued $998 million of 7.75% Trust Notes
(the "Trust Notes"). The Trust Notes mature through 2004 and are secured by the
Trust's ownership interest in the Partnership. The proceeds from the Trust
Notes, after the payment of certain expenses and the establishment of certain
reserves, were distributed to beneficiaries of the Trust.
Secured Indebtedness: The Partnership has long-term debt, which is secured by
certain of the railcars, and has agreed to pay all amounts owed thereunder as
they become due. This debt has interest rates ranging from 9.95% to 11.1% and
matures at various times through 2003. Some components of the debt have annual
sinking fund requirements. The debt is being serviced out of rental receipts of
the Partnership pursuant to the leases.
The Trust's debt agreements are secured by assets with an aggregate net book
value of approximately $849 million at December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
--------- --------
<S> <C> <C>
(IN THOUSANDS)
Trust notes............................... $ 733,806 $795,645
Secured indebtedness...................... 47,456 70,256
--------- --------
Total debt............................... 781,262 865,901
Less: Current maturities................. (110,999) (84,782)
--------- --------
Long-term debt........................... $ 670,263 $781,119
========= ========
</TABLE>
F-7
<PAGE>
RAILCAR TRUST NO. 1992-1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The fair value of the Trust's long-term debt was approximately $816 million at
December 31, 1997 and was estimated using a discounted cash flow analysis based
on the Trust's incremental borrowing rate.
The aggregate annual maturities of long-term debt (in thousands) as of December
31 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $110,999
1999 101,301
2000 94,488
2001 134,131
2002 and beyond 340,343
--------
Total debt $781,262
========
</TABLE>
NOTE D SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the Trust's quarterly consolidated financial
information:
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------
March 31, June 30, September 3, December 31,
------------------- -------------------- -------------------- --------------------
(In Thousands) 1997 1996 1997 1996 1997 1996 1997 1996
- - ----------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......... $38,259 $38,259 $38,258 $38,258 $39,026 $38,259 $38,258 $38,258
Operating Income.. 25,750 25,750 25,665 25,630 26,510 25,712 25,735 25,728
Net Income........ 8,466 6,862 8,889 7,093 10,146 7,586 9,778 7,952
</TABLE>
F-8
<PAGE>
RAILCAR TRUST NO. 1992-1
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RAILCAR TRUST NO. 1992-1 (PARENT COMPANY)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents...................................... $ 550 $ 456
Prepaid expenses and other..................................... 881 1,024
-------- --------
Total current assets........................................ 1,431 1,480
Investment in Partnership...................................... 785,969 810,750
Deferred financing fees........................................ 2,171 3,051
-------- --------
Total assets................................................... $789,571 $815,281
======== ========
LIABILITIES AND TRUST SURPLUS
Accrued interest............................................... $ 4,743 $ 5,143
Current maturities of Trust notes.............................. 91,455 61,982
-------- --------
Total current liabilities................................... 96,198 67,125
Trust notes.................................................... 642,351 733,663
-------- --------
Total liabilities........................................... 738,549 800,788
Trust surplus:
Capital distributions in excess of contributions.............. (69,355) (68,605)
Cumulative net earnings....................................... 120,377 83,098
-------- --------
Net trust surplus........................................... 51,022 14,493
-------- --------
Total liabilities and trust surplus............................ $789,571 $815,281
======== ========
</TABLE>
F-9
<PAGE>
RAILCAR TRUST NO. 1992-1
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RAILCAR TRUST NO. 1992-1 (PARENT COMPANY)
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Interest income.................................................... $ 10 $ 22 $ 11
Expenses:
Interest........................................................... (60,252) (65,121) (69,630)
General and administrative......................................... (110) (183) (223)
-------- -------- --------
(60,362) (65,304) (69,853)
-------- -------- --------
Loss from operations before equity in earnings of Partnership....... (60,352) (65,282) (69,842)
Equity in earnings of Partnership................................... 97,631 94,775 91,932
-------- -------- --------
Net income.......................................................... $ 37,279 $ 29,493 $ 22,090
======== ======== ========
</TABLE>
F-10
<PAGE>
RAILCAR TRUST NO. 1992-1
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RAILCAR TRUST NO. 1992-1 (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income.............................................. $ 37,279 $ 29,493 $ 22,090
Adjustments to reconcile net income to net cash used in
operating activities:
Equity in earnings of Partnership..................... (97,631) (94,775) (91,932)
Amortized discount on debt and deferred fees.......... 1,022 1,177 1,506
Accrued interest...................................... (400) (387) (340)
-------- -------- --------
Net cash used in operating activities................. (59,730) (64,492) (68,676)
Investing activities:
Net distributions from Partnership...................... 122,412 124,361 121,220
-------- -------- --------
Net cash provided by investing activities............. 122,412 124,361 121,220
Financing activities:
Principal payments on borrowings........................ (61,838) (59,838) (52,557)
Distribution to beneficiaries........................... (750) 0 0
-------- -------- --------
Net cash used in financing activities................. (62,588) (59,838) (52,557)
-------- -------- --------
Net increase (decrease) in cash.......................... 94 31 (13)
Cash and equivalents at beginning of year................ ---------- ---------- ----------
456 425 438
-------- -------- --------
Cash and equivalents at end of year...................... $ 550 $ 456 $ 425
======== ======== ========
</TABLE>
F-11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 19,475
<SECURITIES> 0
<RECEIVABLES> 12,753
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,372
<PP&E> 1,388,582
<DEPRECIATION> 575,538
<TOTAL-ASSETS> 848,587
<CURRENT-LIABILITIES> 117,849
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 51,022
<TOTAL-LIABILITY-AND-EQUITY> 848,587
<SALES> 0
<TOTAL-REVENUES> 153,801
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 50,141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,494
<INCOME-PRETAX> 37,279
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,279
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-K
-------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
---------------------------
COMMISSION FILE NUMBER 1-6461
---------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-1500700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
260 LONG RIDGE ROAD,
STAMFORD, CONNECTICUT 06927 (203) 357-4000
(Address of principal (Zip Code) (Registrant's telephone
executive offices) number, including area code)
---------------------------
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
- - ------------------------------ ----------------------------
7 7/8% GUARANTEED SUBORDINATED NEW YORK STOCK EXCHANGE
NOTES DUE DECEMBER 1, 2006
SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT:
NONE.
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 24, 1998, 3,837,825 shares of voting common stock, which constitute all
of the outstanding common equity, with a par value of $200 were outstanding.
Aggregate market value of the outstanding common equity held by nonaffiliates of
the registrant at March 24, 1998. 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, 1997 are incorporated by reference into Part IV 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business............................................... 1
Item 2. Properties............................................. 11
Item 3. Legal Proceedings...................................... 11
Item 4. Submission of Matters to a Vote of Security Holders.... 12
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.......................... 12
Item 6. Selected Financial Data................................ 12
Item 7. Management's Discussion and Analysis of
Results of Operations................................ 13
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.................................... 21
Item 8. Financial Statements and Supplementary Data............ 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............. 47
PART III
Item 10. Directors and Executive Officers of the Registrant .... 47
Item 11. Executive Compensation ................................ 47
Item 12. Security Ownership of Certain Beneficial Owners
and Management ...................................... 47
Item 13. Certain Relationships and Related Transactions ........ 47
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ........................................... 47
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
General Electric Capital Corporation (herein, together with its consolidated
affiliates, called "the Corporation" or "GE Capital" unless the context
otherwise requires) 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.
Until November 1987, the name of the Corporation was General Electric Credit
Corporation. All outstanding common stock of the Corporation is owned by General
Electric Capital Services, Inc. ("GE Capital Services"), formerly General
Electric Financial Services, Inc., the common stock of which is in turn wholly
owned by General Electric Company ("GE Company"). The business of the
Corporation 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.
The Corporation operates in four financing industry segments and in a specialty
insurance industry segment. GE Capital's financing activities include a full
range of leasing, lending, equipment management sales and services, and consumer
savings and insurance services. The Corporation's specialty insurance activities
include providing financial guaranty insurance, principally on municipal bonds
and structured finance issues, private mortgage insurance and creditor insurance
covering international customer loan repayments. The Corporation is an equity
investor in Montgomery Ward Holding Corp. ("MWHC"), a retail organization, and
certain other service and financial services organizations. As discussed on page
20 and in note 3 to the consolidated financial statements, MWHC filed a
bankruptcy petition for reorganization in 1997.
GE Capital's operations are subject to a variety of regulations in their
respective jurisdictions.
Services of the Corporation are offered primarily throughout the United States,
Canada, Europe and the Pacific Basin. The Corporation's principal executive
offices are located at 260 Long Ridge Road, Stamford, Connecticut 06927
(Telephone number (203) 357-4000). At December 31, 1997, the Corporation
employed approximately 65,000 persons.
The Corporation's principal assets are classified as time sales and loans,
investment in financing leases, equipment on operating leases and investment
securities. The following table presents, by industry segment, these principal
financing products which, together with other assets, constitute the
Corporation's total assets at December 31, 1997 and 1996.
1
<PAGE>
<TABLE>
<CAPTION>
TOTAL ASSETS BY SEGMENT
(In millions) 1997
-------------------------------------------------------------------
NET
TIME INVESTMENT ALLOWANCE
SALES AND NET IN FOR
LOANS, INVESTMENT EQUIPMENT LOSSES
NET OF IN ON AND ALL
DEFERRED FINANCING OPERATING INVESTMENT OTHER TOTAL
INCOME LEASES LEASES SECURITIES ASSETS ASSETS
--------- ----------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSUMER SERVICES
GE Financial Assurance................... $ 2,724 $ -- $ -- $35,692 $13,251 $ 51,667
Auto Financial Services.................. 8,973 12,594 2,773 61 3,041 27,442
Retailer Financial Services.............. 12,443 -- -- 12 1,057 13,512
Global Consumer Finance.................. 8,622 675 -- 25 645 9,967
Mortgage Services........................ 1,013 -- -- 689 4,474 6,176
Consumer Financial Services.............. 4,704 -- -- 28 52 4,784
Other.................................... 1,888 9 -- 750 105 2,752
------- ------- ------- ------- ------- --------
Total................................... 40,367 13,278 2,773 37,257 22,625 116,300
EQUIPMENT MANAGEMENT
Aviation Services........................ 256 3,162 5,525 374 822 10,139
Fleet Services........................... 1 3,036 1,498 -- 1,200 5,735
IT Solutions............................. 38 232 47 -- 3,752 4,069
Transport International Pool............. 31 62 2,433 -- 1,208 3,734
Genstar Container........................ -- 330 1,951 -- 252 2,533
Penske Truck Leasing..................... -- -- -- 30 2,129 2,159
Satellite Telecommunications Services.... -- -- -- -- 2,132 2,132
Railcar Services......................... -- 270 1,595 -- 148 2,013
Modular Space............................ 16 82 797 -- 469 1,364
Technology Management Services........... -- 24 -- -- 231 255
Other.................................... -- -- 163 -- 95 258
------- ------- ------- ------- ------- --------
Total................................... 342 7,198 14,009 404 12,438 34,391
MID-MARKET FINANCING
Commercial Equipment Financing........... 7,397 10,496 1,124 114 1,010 20,141
Vendor Financial Services................ 1,662 5,602 247 2 823 8,336
GE Capital - Hawaii...................... 1,055 89 3 9 30 1,186
Other.................................... 72 -- -- 7 82 161
------- ------- ------- ------- ------- --------
Total................................... 10,186 16,187 1,374 132 1,945 29,824
SPECIALIZED FINANCING
Commercial Real Estate................... 7,779 42 -- 303 4,634 12,758
Structured Finance Group................. 1,334 5,049 533 1,412 1,306 9,634
Commercial Finance....................... 4,467 15 -- 173 329 4,984
Equity Capital Group..................... 53 -- -- 35 970 1,058
Other.................................... 102 -- -- 729 37 868
------- ------- ------- ------- ------- --------
Total................................... 13,735 5,106 533 2,652 7,276 29,302
SPECIALTY INSURANCE...................... 202 -- -- 12,583 5,114 17,899
CORPORATE AND OTHER...................... -- -- -- 75 986 1,061
------- ------- ------- ------- ------- --------
TOTAL................................... $64,832 $41,769 $18,689 $53,103 $50,384 $228,777
======= ======= ======= ======= ======= ========
<CAPTION>
(In millions) 1996
-------------------------------------------------------------------
NET
TIME INVESTMENT ALLOWANCE
SALES AND NET IN FOR
LOANS, INVESTMENT EQUIPMENT LOSSES
NET OF IN ON AND ALL
DEFERRED FINANCING OPERATING INVESTMENT OTHER TOTAL
INCOME LEASES LEASES SECURITIES ASSETS ASSETS
--------- ----------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSUMER SERVICES
GE Financial Assurance................... $ 2,483 $ -- $ -- $32,735 $10,702 $ 45,920
Auto Financial Services.................. 5,915 13,113 1,502 544 972 22,046
Retailer Financial Services.............. 15,846 -- -- 10 528 16,384
Global Consumer Finance.................. 7,586 -- -- 7 1,078 8,671
Mortgage Services........................ 1,124 -- -- 651 3,504 5,279
Consumer Financial Services.............. 3,697 -- -- 21 17 3,735
Other.................................... 1,891 -- -- 228 184 2,303
------- ------- ------- ------- ------- --------
Total................................... 38,542 13,113 1,502 34,196 16,985 104,338
EQUIPMENT MANAGEMENT
Aviation Services........................ 223 3,205 4,774 344 373 8,919
Fleet Services........................... 27 2,667 1,443 -- 1,172 5,309
IT Solutions............................. 60 409 315 -- 2,321 3,105
Transport International Pool............. 35 92 1,745 -- 509 2,381
Genstar Container........................ -- 292 2,262 -- 286 2,840
Penske Truck Leasing..................... -- -- -- 31 1,934 1,965
Satellite Telecommunications Services . -- -- -- -- 1,589 1,589
Railcar Services......................... -- 296 1,409 -- 94 1,799
Modular Space............................ 2 48 651 -- 316 1,017
Technology Management Services........... -- 32 210 -- 273 515
Other.................................... -- 2 110 -- 107 219
------- ------- ------- ------- ------- --------
Total................................... 347 7,043 12,919 375 8,974 29,658
MID-MARKET FINANCING
Commercial Equipment Financing........... 6,362 9,291 1,037 43 718 17,451
Vendor Financial Services................ 1,388 4,856 185 -- 667 7,096
GE Capital - Hawaii...................... 1,094 84 2 10 31 1,221
Other.................................... 55 -- -- 7 118 180
------- ------- ------- ------- ------- --------
Total................................... 8,899 14,231 1,224 60 1,534 25,948
SPECIALIZED FINANCING
Commercial Real Estate................... 9,591 42 -- 394 3,937 13,964
Structured Finance Group................. 1,334 5,130 489 993 918 8,864
Commercial Finance....................... 3,685 16 -- 214 270 4,185
Equity Capital Group..................... 68 -- -- 114 577 759
Other.................................... 28 -- -- 3 44 75
------- ------- ------- ------- ------- --------
Total................................... 14,706 5,188 489 1,718 5,746 27,847
SPECIALTY INSURANCE...................... 338 -- -- 7,886 3,580 11,804
CORPORATE AND OTHER...................... -- -- -- 105 1,116 1,221
------- ------- ------- ------- ------- --------
TOTAL................................... $62,832 $39,575 $16,134 $44,340 $37,935 $200,816
======= ======= ======= ======= ======= ========
</TABLE>
2
<PAGE>
INDUSTRY SEGMENTS
The Corporation provides a wide variety of financing, asset management, and
insurance products and services which are organized into the following industry
segments:
o Consumer Services - private-label and bank 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.
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 and financing and operating leases for
middle-market customers, including manufacturers, distributors and end
users, for a variety of equipment that includes data processing
equipment, medical and diagnostic equipment, and equipment used in
construction, manufacturing, office applications 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 management buyouts,
including those with high leverage, and corporate recapitalizations.
o Specialty Insurance - financial guaranty insurance, principally on
municipal bonds and structured finance issues; private mortgage
insurance; and creditor insurance covering international customer loan
repayments.
Insurance services, previously included within the Specialty Insurance segment,
has been combined with the consumer savings and insurance operations in the
Consumer Services segment. Prior-year information has been reclassified to
reflect this and certain other organizational changes.
Refer to Item 7, "Management's Discussion and Analysis of Results of
Operations," in this Form 10-K for discussion of the Corporation's Portfolio
Quality. A description of the Corporation's principal businesses by industry
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, which help consumers accumulate wealth, transfer
wealth, and protect their lifestyles and assets. It achieves this through its
family of 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, The Life Insurance Company of
Virginia, Colonial Penn Insurance Company, Union Fidelity Life Insurance and GE
Capital Life Assurance of New York.
GEFA headquarters are in Richmond, Virginia.
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Auto Financial Services
Auto Financial Services ("AFS") is a full service provider of automobile
financing for automobile dealers, manufacturers and their customers in North
America, Europe and, to a lesser extent, Asia.
In the United States, AFS is one of the leading independent auto lessors and
offers leasing, retail financing and, to a lesser degree, sub-prime financing to
customers. AFS also provides the private-label financing for American Isuzu
Motors, Inc. and participates in a private-label purchase program with Volvo of
North America. In addition, AFS offers inventory financing programs and direct
loans to segments of the automotive industry, including dealers, rental car
companies and leasing companies.
AFS is active in the European markets through affiliates in France, the United
Kingdom, and Italy. AFS also provides automobile financing through businesses
located in Austria, Spain, Sweden, Poland, and Switzerland. In 1997, AFS
expanded its presence in Europe to include Ireland, Portugal, Denmark, and
Czechoslovakia through acquisitions.
AFS' Asian activities include affiliates in Taiwan, Hong Kong, Thailand and
Japan. AFS also maintains additional presence in Asia through equity investments
in Indonesia, Taiwan, Singapore, Malaysia, Korea, and India.
AFS headquarters are in Barrington, Illinois.
Retailer Financial Services
Retailer Financial Services ("RFS") 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.
RFS 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. RFS generally maintains a security interest in the merchandise
financed. Financing is provided to consumers under contractual arrangements,
both with and without recourse to retailers. RFS' wide range of financial
services includes application processing, sales authorization, statement
billings, customer services and collection services.
RFS provides inventory financing for retailers primarily in the appliance and
consumer electronics industries. RFS maintains a security interest in the
inventory and retailers are obliged to maintain insurance coverage for the
merchandise financed.
RFS has a noncontrolling investment in the common stock of Montgomery Ward
Holding Corp. ("MWHC"), which, together with its wholly-owned subsidiary,
Montgomery Ward & Co. Incorporated ("MWC"), is engaged in retail merchandising
and direct response marketing, the latter conducted primarily through Signature
Financial/Marketing, Inc. ("Signature"), which markets consumer club and
insurance products. RFS also provides financing to customers of MWHC and
affiliates. As discussed on page 20 and in note 3 to the consolidated financial
statements, MWHC, MWC and certain of their affiliates (excluding Signature)
filed a bankruptcy petition for reorganization in 1997.
RFS headquarters are in Stamford, Connecticut.
Global Consumer Finance
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 and Asia, as well as offering
a variety of direct-to-consumer credit programs such as consumer loans,
bankcards and credit insurance.
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During 1997, GCF expanded its European presence through acquisitions including
Multiservis AS in the Czech Republic, Bank Aufina Ltd. in Switzerland, and AVA
Bank in Austria.
GCF provides financing to consumers through operations in the United Kingdom,
Austria, France, Ireland, Germany, The Netherlands, Italy, Spain, Portugal,
Poland, Switzerland, Czech Republic, Japan, Thailand, Hong Kong, China, Brazil
and Australia and joint ventures in Indonesia and India. 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.
GCF headquarters are in Stamford, Connecticut.
Mortgage Services
GE Capital Mortgage Corporation, through its wholly-owned affiliate GE Capital
Mortgage Services, Inc. ("GECMSI"), is engaged in the business of wholesale
originations and servicing residential mortgage loans collateralized by one-to-
four-family homes located throughout the United States. GECMSI obtains servicing
through the purchase of mortgage loans and servicing rights, and packages the
loans it 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.
Consumer Financial Services
Consumer Financial Services ("CFS") primarily provides and services
MasterCard(R) and Visa(R) credit card loan products issued to retail customers
throughout the United States. These loans originate through loan portfolio
acquisitions, direct mail campaigns, private-label credit card loan conversions,
telemarketing efforts and point-of-sale applications. During 1997, CFS acquired
two large loan portfolios, totaling $1,419 million, and suspended active
participation in the consumer home equity loan market by selling loans totaling
$594 million.
CFS also issues and services the GE Capital Corporate Card, providing payment
and information systems which help medium and large-size companies reduce travel
costs, and the GE Capital Purchasing Card, which helps customers streamline
their purchasing and accounts payable processes.
CFS has offices in Canton, Ohio and Salt Lake City, Utah. CFS headquarters are
in Mason, Ohio.
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 financing leases, operating leases, and tax-advantaged and other
incentive-based financing. GECAS also provides asset management, marketing, and
technical support services to aircraft owners, lenders and investors.
GECAS has firm orders and options for more than 270 new Boeing and Airbus
aircraft with deliveries scheduled through 2003. GECAS current fleet comprises
850 owned and managed aircraft leased to more than 150 customers in 55
countries.
GECAS headquarters are in Stamford, Connecticut, with regional offices in Miami,
Florida; Shannon, Ireland; Beijing and Hong Kong, China; Singapore; and Vienna,
Austria.
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Fleet Services
GE Capital Fleet Services ("GECFS") is one of the leading corporate fleet
management companies with operations in North America, Europe, Australia and
Japan with approximately 900,000 cars and trucks under lease and service
management. GECFS offers finance and operating leases to several thousand
customers with an average lease term of 33 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.
During 1997, GECFS completed acquisitions of ARO Lease in The Netherlands and
BRS Leasing in the United Kingdom.
GECFS headquarters are in Eden Prairie, Minnesota.
IT Solutions
GE Capital IT 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. Included among the services offered are 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 around the world. During 1997,
the company expanded its global presence through acquisitions in the United
States, Canada, Mexico, Brazil, the United Kingdom, Portugal, Austria and
Denmark.
IT Solutions headquarters are in Stamford, Connecticut.
Transport International Pool
Transport International Pool ("TIP") is one of the leading trailer specialists
offering diverse trailer programs and associated services. TIP's fleet of over
150,000 dry freight, refrigerated and double vans, flatbeds, intermodal assets,
and specialized trailers is available for rent, lease or purchase at over 200
locations in the United States, Europe, Canada, and Mexico. TIP's commercial
vehicle fleet of over 20,000 units is available for rent, lease, or purchase in
the United Kingdom. TIP also finances new and used trailers and buys trailer
fleets. During 1997, TIP acquired two publicly traded companies in Europe:
Central Transport Rental Group plc, a pan-European trailer rental and leasing
business, and TLS plc, a United Kingdom commercial vehicle rental and leasing
business. TIP's customer base comprises trucking companies, manufacturers and
retailers.
TIP operates a European service center in Amsterdam, The Netherlands. TIP
headquarters are in Devon, Pennsylvania.
Genstar Container
Genstar Container Corporation ("Genstar") is one of the world's largest lessors
of marine shipping containers. Genstar maintains a 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
which lease on a long-term or master lease basis.
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In September 1997, a memorandum of understanding was signed with Sea Containers
Ltd. to form GE SeaCo Ltd., a joint venture to operate the combined marine
container fleet of Genstar and Sea Containers Ltd. The joint venture is expected
to be formed in 1998.
Genstar headquarters are in San Francisco, California.
Penske Truck Leasing
GE Capital is a limited partner in Penske Truck Leasing ("Penske"), which
operates the second largest full-service truck leasing business and is one of
the largest commercial and consumer truck rental businesses in the United
States. Penske operates through a national network of full-service truck leasing
and rental facilities. At December 31, 1997, Penske had a fleet of about 73,000
tractors, trucks and trailers in its leasing and rental fleets and provided
contract maintenance programs or other support services for about 28,500
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.
Satellite Telecommunications Services
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 12
communications satellites and maintains a supporting network of earth stations,
central terminal offices, and telemetry, tracking and control facilities. GE
Americom's GE Capital Spacenet Services business offers a full range of global
one-way and two-way Very Small Aperture Terminal (VSAT) network products and
services.
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 over 180,000 railcars in its portfolio. Serving
Class I 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, Cargowaggon, GERSCO's pan-European business acquired during 1997,
provides rail transport services and rail wagons to the automotive, steel and
paper industries in Eastern and Western Europe. Cargowaggon is based in
Frankfurt, Germany and has offices in the United Kingdom, Italy, Sweden and
France.
GERSCO headquarters are in Chicago, Illinois.
Modular Space
GE Capital Modular Space ("GECMS") provides non-residential relocatable 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 tailored as much as possible to client
specifications, accomplished through either custom modular units or through
GECMS stock fleet of approximately 103,200 modular units. In addition, GECMS
operating leases range from a few months to sixty months, with an average term
of 12-18 months.
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During 1997, GECMS continued its European growth through acquisitions including
Bacon B.V. in The Netherlands, Adco & Dixi GmbH and ACB GmbH in Germany, AFIBAT
in France, and DBS Nationwide plc in the United Kingdom.
GECMS has offices in North America and Europe. GECMS headquarters are in
Malvern, Pennsylvania.
Technology Management Services
GE Capital Technology Management Services ("TMS") has provided services that
enable customers to use information technology more efficiently by combining
consulting and other services, including data center outsourcing services.
During 1997, TMS sold its test equipment rental, repair and calibrations
services businesses, as well as certain assets of its computer rental business.
Effective January 1, 1998, operational control of the TMS consulting business
was transferred to IT Solutions. In addition, in March 1998, TMS announced the
sale of its data center outsourcing business.
TMS headquarters are in Alpharetta, Georgia.
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 120 months. CEF also maintains an asset management
operation that both redeploys off-lease equipment and monitors asset values. 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, India and Asia and through joint ventures in Indonesia and
China. CEF headquarters are in Danbury, Connecticut.
Vendor Financial Services
GE Capital Vendor Financial Services ("VFS") provides captive financing services
to over 90 equipment manufacturers and more than 3,500 dealers in North America,
Europe and Asia. Customers include major U.S. and foreign manufacturers in a
variety of industries including information technology, office equipment,
healthcare, telecommunications, energy and industrial equipment. VFS establishes
sales financing captives 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 and inventory financing.
In 1997, VFS acquired Transleasing Inc., expanding its presence in the
healthcare industry. VFS also expanded its European financing capabilities with
the acquisition of Fimacom Financiere Matra Comm, S.A., a French
telecommunications captive, and through GE Capital's acquisition of Woodchester
Investments plc with locations in Ireland, Portugal and the United Kingdom.
VFS has sales offices throughout the United States, Canada, Mexico, Europe,
Asia, and Australia. VFS headquarters are in Danbury, Connecticut.
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GE Capital Hawaii
GE Capital Hawaii Inc. ("GECH") operates in the states of Hawaii and Alaska and
in the territory of Guam. Through a network of 8 branch offices, GECH offers
commercial and residential real estate loans, auto and equipment leasing,
inventory financing, equity lines of credit and modular space rental and sales.
GECH headquarters are in Honolulu, Hawaii.
SPECIALIZED FINANCING
Commercial Real Estate
Commercial Real Estate Financing and Services ("CRE") 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 and Europe. CRE also provides asset management
services to real estate investors and selected services to real estate owners.
Lending is a major portion of CRE'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 rental buildings, 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.
CRE purchases and provides restructuring financing for portfolios of real
estate, mortgage loans, limited partnerships, and tax-exempt bonds. CRE'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, CRE provides equity capital for real estate
partnerships through the holding of limited partnership interests and receives
preferred returns; typical such investments range from $2 million to $10
million.
CRE 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. CRE also provides loan administration and
servicing through GE Capital Asset Management. In addition, CRE offers owners of
multi-family housing ways to reduce costs and enhance value in properties by
offering buying services (e.g., for appliances, roofing) and bundled
telecommunications and video services.
CRE has offices throughout the United States, as well as in Canada, Mexico,
Singapore, Sweden, France and the United Kingdom. CRE headquarters are in
Stamford, Connecticut.
Structured Finance Group
Structured Finance Group ("SFG") develops specialized financial products and
services to meet the specific transaction requirements of corporate and
government clients.
SFG provides capital, capital market services and financial advisory services
for major infrastructure, energy, telecommunications, and industrial development
worldwide. The range of financial services includes project finance
(construction and term), corporate finance, acquisition finance and arrangement
and placement services. Products include a variety of debt and equity
instruments, with particular concentration in structured finance transactions,
including leasing and partnerships.
SFG has offices in the United States, Australia, Brazil, Canada, China, Hong
Kong, India, Mexico, Singapore, and the United Kingdom. SFG headquarters are in
Stamford, Connecticut.
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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 $5 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 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.
CF has lending operations in 25 cities, including international offices in
Toronto, Montreal, Mexico City, and London, and also has significant factoring
operations in France and Italy serving European companies and U.S. exporters. CF
headquarters are in Stamford, Connecticut.
Equity Capital Group
Equity Capital Group ("ECG") purchases equity investments, primarily convertible
preferred and common stock investments including, in some cases, stock warrants
convertible into equity ownership. ECG's primary objective is long-term capital
appreciation. Investments include the retail, financial services, 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.
ECG headquarters are in Stamford, Connecticut.
SPECIALTY INSURANCE
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 $108 billion at December 31, 1997. Approximately 85% of the
business written to date by Financial Guaranty is municipal bond insurance.
During 1997, FGIC acquired a Chicago-based specialty property and casualty
insurer serving the public entity market. 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, 1997, GE Capital Mortgage Insurance was the
mortgage insurance carrier for over 1,480,000 residential homes, with total
insurance in force aggregating approximately $153 billion and total risk in
force aggregating approximately $40 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 and Canada, and commencing in 1998, in Australia.
10
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GE Capital Mortgage Insurance headquarters are in Raleigh, North Carolina.
Creditor Insurance
Consolidated Financial Insurance ("CFI") is one of the leading providers of
payment protection insurance in the United Kingdom and has insurance operations
in 11 countries in Europe and in Australia. 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.
CFI also offers personal accident insurance, which is distributed through
financial institutions, and personal investment products, which are distributed
through a network of over 6,000 independent financial advisors in the United
Kingdom. CFI is also a leading administrator of extended product warranty
insurance in the United Kingdom.
During 1997, CFI expanded its product and distribution with acquisitions
including Pet Protect Ltd., a pet insurance administrator; First Call Accident
Assistance Ltd., offering management and recovery of uninsured loss claims on
behalf of victims of road traffic accidents; World Cover and Accident & General,
travel insurance brokers and administrators; and Stalwart Group Ltd., a provider
of compulsory purchase annuities and home income products.
CFI headquarters are in London, England.
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.
The Corporation conducts its business from various facilities, most of which are
leased.
ITEM 3. LEGAL PROCEEDINGS.
The Corporation is not involved in any material pending legal proceedings.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted.
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 Capital Services 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 and consolidated affiliates and the related
Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
(Dollar amounts in millions) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................................................................... $ 33,404 $ 26,570 $ 21,179 $ 16,923 $ 14,444
Net earnings................................................................ 2,729 2,632 2,261 1,918 1,478
Return on common equity <F1> <F2>........................................... 18.62% 20.18% 19.89% 19.59% 17.14%
Ratio of earnings to fixed charges.......................................... 1.48 1.53 1.51 1.63 1.62
Ratio of earnings to combined fixed charges and preferred stock dividends... 1.46 1.51 1.49 1.62 1.60
Ratio of debt to equity <F1>................................................ 7.94 7.92 7.89 7.94 7.96
Financing receivables - net................................................. $103,799 $ 99,714 $ 93,272 $ 76,357 $ 63,948
Percent of allowance for losses on financing receivables to total
financing receivables..................................................... 2.63% 2.63% 2.63% 2.63% 2.63%
Total assets................................................................ $228,777 $200,816 $160,825 $130,904 $117,939
Short-term borrowings....................................................... 91,680 74,971 59,264 54,579 52,903
Long-term senior notes...................................................... 44,437 46,124 47,794 33,615 25,112
Long-term subordinated notes................................................ 697 697 697 697 697
Minority interest........................................................... 860 679 703 615 426
Equity...................................................................... 18,373 15,526 14,202 10,540 10,370
</TABLE>
[FN]
<F1> Equity excludes unrealized gains and losses on investment securities, net
of tax.
<F2> Earnings are adjusted for preferred stock dividends and equity excludes
preferred stock.
</FN>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
OVERVIEW
The Corporation's net earnings for 1997 were $2,729 million, which, after
payment of dividends on its variable cumulative preferred stock, resulted in a
contribution of $2,651 million to GE Capital Services' 1997 net earnings, an
increase of 4% over 1996. The Corporation's net earnings for 1996 were $2,632
million, which, after payment of dividends on its variable cumulative preferred
stock, resulted in a contribution to GE Capital Services' 1996 net earnings of
$2,556 million, an increase of 16% over 1995. The increase in net earnings in
both 1997 and 1996 was largely attributable to the effects of continued asset
growth, principally from acquisitions of businesses and portfolios throughout
the period and higher origination volume in 1997.
The increase in earnings in both years reflected strong performances in most of
the financing segments. Earnings in 1997 were affected by higher losses
associated with the Corporation's investment in Montgomery Ward Holding Corp.,
discussed on page 20, as well as by increased automobile residual losses. These
matters were partially offset by asset gains, including securitizations.
Financing spreads (the excess of yields over interest rates on borrowings) were
essentially flat in 1997 and 1996 as the reduction in yields was offset by
decreases in borrowing rates. Increased investment income was caused by the
combination of ongoing growth in the investment portfolios and a higher level of
gains on investment securities.
Earnings in the Specialty Insurance segment also grew in 1997 and 1996. The
increases in both years primarily reflected higher investment income, the result
of continued growth in investment portfolios and higher gains on investment
securities, improved earnings in the mortgage insurance business, the result of
improved market conditions, as well as contributions of acquired businesses.
Higher insurance losses, reserves and other costs and expenses partially offset
these increases.
OPERATING RESULTS
REVENUES from all sources increased 26% to $33.4 billion in 1997, following a
25% increase to $26.6 billion in 1996. Significant portions of the revenue
increase of the financing segments arose from the computer equipment
distribution businesses acquired during 1997 and 1996 and from the consumer
savings and insurance businesses acquired during 1996 and 1995. Asset growth
contributed to increased revenues in both years, but was partially offset by
lower yields. Financing segments revenues were negatively affected by higher
losses associated with the investment in Montgomery Ward Holding Corp. That
effect was partially offset by gains on asset transactions, including
securitizations.
Gains on sales of warrants and other equity interests obtained in connection
with certain loans and sales of certain assets, including real estate
investments, contributed $768 million to pre-tax income in 1997, compared with
$482 million in 1996 and $381 million in 1995.
Specialty Insurance revenues increased 36% to $2.8 billion in 1997 from $2.1
billion in 1996, which was up 18% over 1995. The increase in both years resulted
from increased premium and investment income associated with origination volume,
acquisitions and continued growth in the investment portfolios.
INTEREST EXPENSE on borrowings in 1997 was $7.3 billion, 4% higher than in 1996,
which was 9% higher than in 1995. The increases in 1997 and 1996 were caused by
higher average borrowings used to finance asset growth, partially offset by the
effects of lower average interest rates. The composite interest rate on the
Corporation's borrowings was 6.05% in 1997, compared with 6.24% in 1996 and
6.77% in 1995. See pages 17-19 for an analysis of interest rate sensitivities.
OPERATING AND ADMINISTRATIVE EXPENSES were $9.5 billion in 1997, a 25% increase
over 1996, which was 32% higher than 1995. The increase in both 1997 and 1996
primarily reflected costs associated with acquired businesses and portfolios and
higher investment levels.
13
<PAGE>
INSURANCE LOSSES AND POLICYHOLDER AND ANNUITY BENEFITS increased 52% to $4.8
billion in 1997, compared with a 57% increase to $3.2 billion in 1996. These
increases were primarily driven by the consumer savings and insurance businesses
acquired in 1996 and 1995 and growth in originations throughout the period.
COST OF GOODS SOLD was associated with the computer equipment distribution
businesses. This cost amounted to $4.1 billion in 1997, compared with $1.7
billion in 1996 and $0.4 billion in 1995, the result of acquisition-related
growth in 1997 and 1996.
PROVISION FOR LOSSES ON FINANCING RECEIVABLES increased to $1,421 million in
1997, compared with $1,033 million in 1996 and $1,117 million in 1995. 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 below under Portfolio Quality. The increase in 1997 principally
reflected higher average receivable balances as well as increased delinquencies
in the consumer portfolio, consistent with industry experience. Higher portfolio
growth from originations resulted in higher provisions in 1995 than in 1996.
DEPRECIATION AND AMORTIZATION OF BUILDINGS AND EQUIPMENT AND EQUIPMENT ON
OPERATING LEASES increased 14% to $2,443 million in 1997 compared with $2,137
million in 1996, a 7% increase over 1995. The increase in both years was the
result of additions to equipment on operating leases, primarily reflecting a
shift in auto lease volume from financing leases to operating leases and
increased volume in aircraft.
PROVISION FOR INCOME TAXES was $997 million in 1997 (an effective tax rate of
26.8%), compared with $1,172 million in 1996 (an effective tax rate of 30.8%)
and $1,071 million in 1995 (an effective tax rate of 32.2%). The decreases in
the 1997 provision for income taxes and effective tax rate were primarily caused
by increased tax credits and decreased taxes on non-U.S. earnings. The provision
for income taxes increased in 1996, reflecting increased pre-tax earnings
subject to statutory tax rates; the lower effective tax rate resulted primarily
from increased tax credits and decreased taxes on non-U.S. earnings.
OPERATING PROFIT BY INDUSTRY SEGMENT
Operating profit of the Corporation, by industry segment, is summarized in note
17 to the consolidated financial statements and discussed below.
CONSUMER SERVICES operating profit was $563 million in 1997, compared with
$1,269 million in 1996 and $1,044 million in 1995. As indicated above, 1997
operating profit included higher losses associated with the investment in
Montgomery Ward Holding Corp. ("MWHC"), increased automobile residual losses and
a higher provision for losses on financing receivables, reflecting higher
average receivable balances and increased delinquencies, consistent with
industry experience. These items were partially offset by acquisition and core
growth, principally from the consumer savings and insurance businesses, as well
as gains on asset transactions, including securitizations. The increase in 1996
was led by strong performances from the auto finance, consumer savings and
insurance and non-U.S. private-label credit card businesses, resulting from both
acquisition growth and higher origination volume. The 1996 increase also
reflected improved market conditions in the mortgage servicing business. The
1996 increases were partially offset by a higher provision for losses, also
reflecting higher average receivable balances and increased delinquencies,
consistent with industry experience, and higher losses associated with the
investment in MWHC.
EQUIPMENT MANAGEMENT operating profit increased to $1,062 million in 1997 from
$892 million in 1996, which was up from $869 million in 1995. Increases in both
years reflected higher volume in most businesses resulting from originations and
acquisitions of businesses and portfolios. The 1996 increase included the
effects of the computer equipment distribution businesses acquired, which was
partially offset by absence of a counterpart to the 1995 gain on sale of an
outdoor media business.
SPECIALIZED FINANCING operating profit increased to $1,036 million in 1997 from
$742 million in 1996, which increased 13% over 1995. Increased operating profit
in 1997 primarily reflected higher asset gains, including increased gains on
sales of warrants and other equity interests obtained in connection with certain
loans and sales of certain assets, including real estate investments, as
discussed above. The increase in 1996 principally reflected lower provisions for
losses, primarily related to lower investment levels from sales of receivables
and loan repayments and
14
<PAGE>
improved conditions in commercial real estate, and higher sales of warrants and
other equity interests. These increases were offset in part by a reduction in
earnings related to the lower investment levels and increased operating
expenses.
MID-MARKET FINANCING operating profit increased to $622 million in 1997,
compared with $558 million in 1996, which was up from $467 million in 1995.
Asset growth from higher volumes and acquisitions of businesses and portfolios
was the most significant contributing factor in both years.
SPECIALTY INSURANCE operating profit increased to $434 million in 1997 from $348
million in 1996, which increased from $325 million in 1995. The increases in
both years primarily reflected higher investment income, the result of continued
growth in investment portfolios and higher gains on investment securities,
improved earnings in the mortgage insurance business, the result of improved
market conditions, as well as contributions of acquired businesses. Higher
insurance losses, reserves and other costs and expenses partially offset these
increases.
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, shipping
containers used on ocean-going vessels). The Corporation's international
revenues were $10.7 billion in 1997, an increase of 31% from $8.1 billion in
1996, while international assets grew 35% from $50.9 billion at December 31,
1996, to $68.5 billion at the end of 1997. This revenue and asset growth
occurred primarily in Europe and, to a lesser extent, in Canada and the Pacific
Basin. These increases were attributable to the Corporation's continued
expansion as a global provider of a wide range of services.
Recent economic developments in parts of Asia have altered somewhat the risks
and opportunities of the Corporation's activities in affected economies. These
activities encompass primarily leasing of aircraft and providing certain
financial services within those Asian economies. As such, exposure exists to,
among other things, increased receivable delinquencies and potential bad debts,
delays in orders, principally related to aircraft-related equipment, and a
slowdown in financial services activities. Conversely, new sourcing
opportunities may arise and liberalization of financial regulations opens new
opportunities to penetrate Asian financial services markets. Taken as a whole,
while this situation bears close monitoring and increased management attention,
the current situation is not expected to have a material adverse effect on the
Corporation's financial position, results of operations or liquidity in 1998.
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 the Corporation's specialty insurance
and annuity and investment businesses in support of obligations to policyholders
and annuitants. The increase of $8.8 billion during 1997 was principally related
to acquisitions and increases in fair value as well as investment of premiums
received. A breakdown of the investment securities portfolio is provided in note
2 to the consolidated financial statements.
INVENTORIES were $786 million and $376 million at December 31, 1997 and 1996,
respectively. The increase in 1997 primarily reflected acquisitions in the
computer equipment distribution businesses.
FINANCING RECEIVABLES were $103.8 billion at year-end 1997, net of allowance for
doubtful accounts, up $4.1 billion over 1996. These receivables are discussed on
page 19 and in notes 3 and 4 to the consolidated financial statements.
OTHER RECEIVABLES were $11.9 billion and $8.5 billion at December 31, 1997 and
1996, respectively. Of the 1997 increase, $1.2 billion was attributable to
acquisitions and the remainder resulted from core growth.
EQUIPMENT ON OPERATING LEASES was $18.7 billion at December 31, 1997, up $2.6
billion from 1996. Details by category of investment can be found in note 6 to
the consolidated financial statements. Additions to equipment on
15
<PAGE>
operating leases were $6.8 billion during 1997 versus $5.3 billion during 1996,
principally reflecting a shift in auto lease volume from financing leases to
operating leases and increased acquisitions of new aircraft.
INTANGIBLE ASSETS were $9.5 billion at year-end 1997, up from $7.6 billion at
year-end 1996. The $1.9 billion increase in intangible assets related primarily
to goodwill from acquisitions.
OTHER ASSETS totaled $24.0 billion at year-end 1997, compared with $19.5 billion
at the end of 1996. The $4.5 billion increase related principally to increases
in assets acquired for resale, primarily residential mortgages, and increased
"separate accounts," which are investments controlled by policyholders and are
associated with identical amounts reported as insurance liabilities.
INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $50.2 billion at year-
end 1997, $6.9 billion higher than in 1996. The increase was primarily
attributable to acquisitions in 1997 and the increase in separate accounts. For
additional information on these liabilities, see note 11 to the consolidated
financial statements.
BORROWINGS were $136.8 billion at December 31, 1997, of which $91.7 billion is
due in 1998 and $45.1 billion is due in subsequent years. Comparable amounts at
the end of 1996 were $121.8 billion total, $75.0 billion due within one year and
$46.8 billion due thereafter. The Corporation's composite interest rates are
discussed on page 13. A large portion of the Corporation's borrowings ($67.6
billion and $51.2 billion at the end of 1997 and 1996, respectively) was issued
in active commercial paper markets that management believes will continue to be
a reliable source of short-term financing. The average remaining terms and
interest rates of the Corporation's commercial paper were 44 days and 5.83% at
the end of 1997, compared with 42 days and 5.58% at the end of 1996.
GE Capital leverage (ratio of debt to equity, excluding from equity net
unrealized gains on investment securities) was 7.94 to 1 at the end of 1997 and
7.92 to 1 at the end of 1996. By comparison, including in equity net unrealized
gains on investment securities, the GE Capital ratio of debt to equity was 7.45
to 1 at the end of 1997 and 7.84 to 1 at the end of 1996.
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 $700
million at December 31, 1997 and 1996. 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
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 $18.4 billion. New borrowings of $79.7 billion having
maturities longer than 90 days were added during those years, while 63.9 $
billion of such longer-term borrowings were retired. The Corporation also
generated $23.7 billion of cash from continuing 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 $52.6 billion that the Corporation invested in continuing
operations over the past three years, $15.5 billion was used for additions to
financing receivables; $16.1 billion was used to invest in new equipment,
principally for lease to others; and $12.8 billion was used for acquisitions of
new businesses.
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.
16
<PAGE>
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
derivatives 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 21 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.
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 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 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.
17
<PAGE>
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, 1997, the
notional amount of long-term derivatives for which the counterparty was rated
below Aa3/AA- was $5.1 billion. These amounts are the result of (1) counterparty
downgrades, (2) transactions executed prior to the adoption of the Corporation's
current counterparty credit standards, and (3) transactions relating to acquired
assets or businesses.
Following is an analysis of credit risk exposures for the last three years.
<TABLE>
<CAPTION>
PERCENTAGE OF NOTIONAL DERIVATIVE EXPOSURE BY COUNTERPARTY CREDIT RATING
- - ---------------------------------------------------------------------------
MOODY'S/STANDARD & POOR'S 1997 1996 1995
- - ------------------------- ---- ---- ----
<S> <C> <C> <C>
Aaa/AAA................................................ 75% 78% 75%
Aa/AA.................................................. 20% 17% 22%
A/A and below.......................................... 5% 5% 3%
</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.
18
<PAGE>
<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 a Aaa/AAA rated swap subsidiary
and a current exposure to the Corporation of $39 million. Counterparty B is a
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 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 extraordinarily 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 1998
net earnings of the Corporation based on year-end 1997 positions by
approximately $100 million.
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 1997 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
1998 net earnings of the Corporation based on year-end 1997 positions
by an insignificant amount.
PORTFOLIO QUALITY
FINANCING RECEIVABLES are the Financing segment's largest asset and its primary
source of revenues. The portfolio of financing receivables, before allowance for
losses, increased to $106.6 billion at the end of 1997 from $102.4 billion at
the end of 1996, principally reflecting acquisition growth and origination
volume that were partially offset by securitizations of receivables. The related
allowance for losses at the end of 1997 amounted to $2.8 billion (2.63% of
receivables - the same as 1996 and 1995) and, in management's judgment, is
appropriate given the risk profile of the portfolio. A discussion of the quality
of certain elements of the portfolio of financing receivables follows. Further
details are included in notes 3, 4 and 6 to the consolidated financial
statements.
"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
19
<PAGE>
to a below-market yield. The following discussion of nonearning and reduced-
earning receivable balances and write-off amounts excludes amounts related to
Montgomery Ward Holding Corp. and affiliates which are separately discussed
below.
CONSUMER FINANCING RECEIVABLES at year-end 1997 and 1996 are shown in the
following table:
<TABLE>
<CAPTION>
(In millions) 1997 1996
------- -------
<S> <C> <C>
Credit card and personal loans............................. $25,773 $27,127
Auto loans................................................. 8,973 5,915
Auto financing leases...................................... 13,346 13,113
------- -------
Total consumer financing receivables...................... $48,092 $46,155
======= =======
Nonearning................................................. $ 1,049 $ 926
- As a percentage of total................................ 2.2% 2.0%
Receivable write-offs for the year......................... $ 1,298 $ 870
</TABLE>
The decrease in credit card and personal loan portfolios primarily resulted from
securitization of receivables, partially offset by portfolio acquisitions and
origination volume. Both the auto loan and financing lease portfolios increased
as a result of acquisition growth; however, the increase in auto financing
leases was partially offset by a shift in U.S. lease volume from financing
leases to operating leases. Nonearning receivables did not change significantly
during 1997. A substantial amount of the nonearning consumer receivables were
U.S. private-label credit card loans which were subject to various loss-sharing
arrangements that provide full or partial recourse to the originating retailer.
Increased write-offs of consumer receivables were primarily attributable to the
impact of higher delinquencies and personal bankruptcies on the credit card loan
portfolios in the United States, consistent with overall industry experience, as
well as higher average receivable balances worldwide.
OTHER FINANCING RECEIVABLES, totaling $58.5 billion at December 31, 1997,
consisted of a diverse commercial, industrial and equipment loan and lease
portfolio. This portfolio increased $2.3 billion during 1997, primarily because
of increased origination volume, partially offset by sales of receivables.
Related nonearning and reduced-earning receivables were $353 million at year-end
1997, compared with $471 million at year-end 1996.
As discussed in note 3 to the consolidated financial statements, Montgomery Ward
Holding Corp. ("MWHC") filed a bankruptcy petition for reorganization in 1997.
MWHC reported losses from operations during 1997, and the Corporation's share of
such losses was $380 million (after tax). The Corporation recorded its share of
losses by reducing its investments in MWHC, resulting in the writing off of its
investments in MWHC common and preferred stock. In addition to those equity
investments, the Corporation has other primarily inventory investments,
financing, that resulted from ordinary course of business transactions with MWHC
and affiliates. Such investments, after reduction for the Corporation's share of
losses as discussed above, amounted to approximately $795 million at December
31, 1997 ($617 million classified as financing receivables). Income recognition
had been suspended on these pre-bankruptcy investments. Subsequent to the
petition, the Corporation committed to provide MWHC up to $1.0 billion in
debtor-in-possession financing, subject to certain conditions, in order to fund
working capital requirements and general corporate expenses. A majority of this
facility has been syndicated; total borrowings under this facility at December
31, 1997, were insignificant. The Corporation also provides financing to
customers of MWHC and affiliates through the Corporation's wholly-owned
affiliates, Montgomery Ward Credit Corporation and Monogram Credit Card Bank of
Georgia. These receivables, which represent revolving credit card transactions
directly with customers of MWHC and affiliates, aggregated approximately $4,232
million at December 31, 1997, including $1,755 million that have been sold with
recourse by the Corporation's affiliates. The obligations of customers with
respect to these receivables are not affected by the bankruptcy filing. MWHC and
its affiliates, under new management in 1997, are continuing their restructuring
efforts as well as developing a plan of reorganization.
The Corporation held loans and leases to commercial airlines amounting to $9.0
billion at the end of 1997, up from $8.2 billion at the end of 1996. The
Corporation's commercial aircraft positions also included financial guarantees,
funding commitments and aircraft orders as discussed in note 6 to the
consolidated financial statements.
20
<PAGE>
ENTERING 1998, management believes that continued vigilant attention to risk
management and controllership and a strong focus on quality - complete
satisfaction of customer needs - position it to deal effectively with the
increasing competition in an ever-changing economy.
YEAR 2000
Year 2000 compliance programs and information systems modifications have been
initiated in an attempt to ensure that these systems and key processes will
remain functional. This objective is expected to be achieved either by modifying
present systems using existing internal and external programming resources or by
installing new systems, including enterprise systems, and by monitoring supplier
and other third-party interfaces. While there can be no assurance that all such
modifications will be successful, management does not expect that either costs
of modifications or consequences of any unsuccessful modifications should have a
material adverse effect on the Corporation's financial position, results of
operations or liquidity.
NEW ACCOUNTING STANDARDS
New accounting standards issued in 1997 are described below. Neither of these
standards will have any effect on the financial position or results of
operations of the Corporation. The Financial Accounting Standards Board issued
two Statements of Financial Accounting Standards ("SFAS") that will affect
presentation in the Corporation's 1998 Annual Report on Form 10-K. SFAS No. 130,
Reporting Comprehensive Income, will require display of certain information
about adjustments to equity - most notably, adjustments arising from market
value changes in marketable securities. SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, will require additional information
about industry segments.
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 17-19.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
General Electric Capital Corporation:
We have audited the consolidated financial statements of General Electric
Capital Corporation 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 schedule listed in Item 14. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements and the financial
statement schedule 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 Corporation and consolidated affiliates at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
February 13, 1998
22
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
STATEMENT OF CURRENT AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the years ended December 31 (In millions) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Time sales, loan and other income (Note 14)......................................... $11,877 $11,305 $10,006
Operating lease rentals............................................................. 4,819 4,341 4,079
Financing leases.................................................................... 3,499 3,485 3,176
Investment income................................................................... 4,071 2,377 1,631
Premium and commission income of insurance affiliates (Note 11)..................... 4,516 3,136 1,820
Sales of goods...................................................................... 4,622 1,926 467
------- ------- -------
Total revenues..................................................................... 33,404 26,570 21,179
------- ------- -------
EXPENSES
Interest............................................................................ 7,330 7,042 6,455
Operating and administrative (Note 15).............................................. 9,472 7,565 5,747
Insurance losses and policyholder and annuity benefits (Note 11).................... 4,825 3,183 2,031
Cost of goods sold.................................................................. 4,147 1,720 415
Provision for losses on financing receivables (Note 4).............................. 1,421 1,033 1,117
Depreciation and amortization of buildings and equipment
and equipment on operating leases (Notes 6 & 7)..................................... 2,443 2,137 2,001
Minority interest in net earnings of consolidated affiliates........................ 40 86 81
------- ------- -------
Total expenses..................................................................... 29,678 22,766 17,847
------- ------- -------
Earnings before income taxes........................................................ 3,726 3,804 3,332
Provision for income taxes (Note 16)................................................ (997) (1,172) (1,071)
------- ------- -------
NET EARNINGS........................................................................ 2,729 2,632 2,261
Dividends paid (Note 13)............................................................ (1,546) (891) (1,645)
Retained earnings at January 1...................................................... 10,678 8,937 8,321
------- ------- -------
RETAINED EARNINGS AT DECEMBER 31.................................................... $11,861 $10,678 $ 8,937
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
At December 31 (In millions) 1997 1996
----------- ---------
<S> <C> <C>
ASSETS
Cash and equivalents................................................................ $ 4,648 $ 3,074
Investment securities (Note 2)...................................................... 53,103 44,340
Financing receivables (Note 3):
Time sales and loans, net of deferred income....................................... 64,832 62,832
Investment in financing leases, net of deferred income............................. 41,769 39,575
-------- --------
106,601 102,407
Allowance for losses on financing receivables (Note 4)............................. (2,802) (2,693)
-------- --------
Financing receivables - net....................................................... 103,799 99,714
Other receivables - net (Note 5).................................................... 11,925 8,456
Equipment on operating leases (at cost), less accumulated amortization of $6,126
and $5,625 (Note 6)................................................................ 18,689 16,134
Buildings and equipment (at cost), less accumulated depreciation of $1,421
and $1,188 (Note 7)................................................................ 2,335 1,647
Intangible assets (Note 8).......................................................... 9,459 7,594
Inventory........................................................................... 786 376
Other assets (Note 9)............................................................... 24,033 19,481
-------- --------
TOTAL ASSETS....................................................................... $228,777 $200,816
======== ========
LIABILITIES AND EQUITY
Short-term borrowings (Note 10)..................................................... $ 91,680 $ 74,971
Long-term borrowings (Note 10)...................................................... 45,134 46,821
-------- --------
Total borrowings................................................................... 136,814 121,792
Accounts payable.................................................................... 6,003 5,618
Insurance liabilities, reserves and annuity benefits (Note 11)..................... 50,248 43,263
Other liabilities................................................................... 8,312 6,466
Deferred income taxes (Note 16)..................................................... 8,167 7,472
-------- --------
Total liabilities.................................................................. 209,544 184,611
-------- --------
Minority interest in equity of consolidated affiliates (Note 12).................... 860 679
-------- --------
Variable cumulative preferred stock, $100 par value, liquidation preference
$100,000 per share (23,000 shares authorized at December 31, 1997 and 1996;
22,300 shares and 18,000 shares outstanding at December 31, 1997 and 1996,
respectively)...................................................................... 2 2
Common stock, $200 par value (3,866,000 shares authorized and 3,837,825 shares
outstanding at December 31, 1997 and 1996)......................................... 768 768
Additional paid-in capital.......................................................... 4,744 4,024
Retained earnings................................................................... 11,861 10,678
Unrealized gains on investment securities........................................... 1,145 149
Foreign currency translation adjustments............................................ (147) (95)
-------- --------
Total equity (Note 13)............................................................. 18,373 15,526
-------- --------
TOTAL LIABILITIES AND EQUITY....................................................... $228,777 $200,816
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31 (In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings........................................................................ $ 2,729 $ 2,632 $ 2,261
Adjustments to reconcile net earnings to cash provided from
operating activities:
Provision for losses on financing receivables...................................... 1,421 1,033 1,117
Increase in insurance liabilities, reserves and annuity benefits................... 1,825 1,373 1,006
Increase in inventories............................................................ (244) (58) (15)
Increase in deferred income taxes.................................................. 588 1,025 653
Depreciation and amortization of buildings and equipment and
equipment on operating leases..................................................... 2,443 2,137 2,001
Increase in accounts payable....................................................... 138 422 720
Other - net........................................................................ (2,782) 853 372
-------- -------- --------
Cash from operating activities...................................................... 6,118 9,417 8,115
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in financing receivables (Note 20)..................................... (1,898) (2,278) (11,309)
Buildings and equipment and equipment on operating leases
- - - additions......................................................................... (6,160) (5,348) (4,628)
- - - dispositions...................................................................... 2,209 1,326 1,495
Payments for principal businesses purchased, net of cash acquired................... (3,820) (4,385) (4,600)
All other investing activities (Note 20)............................................ (5,163) (5,405) (2,617)
-------- -------- --------
Cash used for investing activities.................................................. (14,832) (16,090) (21,659)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities of 90 days or less)............................ 12,964 10,996 (5,547)
Newly issued debt (maturities longer than 90 days) (Note 20)........................ 20,825 22,345 36,480
Repayments and other reductions (maturities longer than 90 days) (Note 20) . (22,757) (24,056) (17,045)
Dividends paid...................................................................... (1,540) (891) (961)
Issuance of preferred stock in excess of par value.................................. 430 -- 924
Issuance of variable cumulative preferred stock by consolidated affiliate........... 175 125 120
All other financing activities (Note 20)............................................ 191 (88) 177
-------- -------- --------
Cash from financing activities...................................................... 10,288 8,431 14,148
-------- -------- --------
INCREASE IN CASH AND EQUIVALENTS DURING THE YEAR.................................... 1,574 1,758 604
CASH AND EQUIVALENTS AT BEGINNING OF YEAR........................................... 3,074 1,316 712
-------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR................................................. $ 4,648 $ 3,074 $ 1,316
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements represent the adding
together of General Electric Capital Corporation ("the Parent") and all of its
majority-owned and controlled affiliates ("consolidated affiliates"),
(collectively called "the Corporation"). All outstanding common stock of the
Parent is owned by General Electric Capital Services, Inc. ("GE Capital
Services"), all of whose common stock is owned by General Electric Company ("GE
Company"). All significant transactions among the Parent 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.
Premium income from 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.
ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS - The Corporation
maintains an allowance for losses on financing receivables at an amount that it
believes is sufficient to provide adequate protection against future losses in
the portfolio.
When collateral is repossessed in satisfaction of a loan, the receivable is
written down against the allowance for losses to estimated fair value 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.
INVESTMENT SECURITIES - Investments in debt and marketable equity securities are
reported at fair value. Substantially all investment securities are designated
as available for sale, with unrealized gains and losses included in equity, net
26
<PAGE>
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 net salvage value over the lease term or 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, 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. Any instrument designated but ineffective as a hedge 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.
27
<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.
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 making 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 ("PVFP"). PVFP 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>
(In millions) GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt securities:
U.S. corporate........................................... $22,308 $ 972 $ (49) $23,231
State and municipal...................................... 5,235 290 (l) 5,524
Mortgage-backed.......................................... 9,777 255 (27) 10,005
Corporate - non-U.S...................................... 5,953 258 (6) 6,205
Government - non-U.S..................................... 1,257 30 -- 1,287
U.S. government and federal agency....................... 1,838 86 (3) 1,921
Equity securities........................................ 4,617 367 (54) 4,930
------- ------ ----- -------
$50,985 $2,258 $(140) $53,103
======= ====== ===== =======
DECEMBER 31, 1996
Debt securities:
U.S. corporate........................................... $21,093 $ 294 $(637) $20,750
State and municipal...................................... 4,366 120 (26) 4,460
Mortgage-backed.......................................... 9,139 240 (100) 9,279
Corporate - non-U.S...................................... 3,140 53 (11) 3,182
Government - non-U.S..................................... 779 5 (1) 783
U.S. government and federal agency....................... 1,824 31 (5) 1,850
Equity securities........................................ 3,728 325 (17) 4,036
------- ------ ----- -------
$44,069 $1,068 $(797) $44,340
======= ====== ===== =======
</TABLE>
The majority of mortgage-backed securities shown in the table above are
collateralized by U.S. residential mortgages.
28
<PAGE>
At December 31, 1997, contractual maturities of debt securities, other than
mortgage-backed securities, were as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
(In millions) COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in:
1998................................................ $ 1,568 $ 1,575
1999-2002........................................... 10,272 10,528
2003-2007........................................... 9,289 9,638
2008 and later...................................... 15,462 16,427
</TABLE>
It is expected that actual maturities will differ from contractual maturities
because borrowers have the right to call or prepay certain obligations,
sometimes without call or prepayment penalties. Proceeds from sales of
investment securities in 1997 were $8,485 million ($5,375 million in 1996 and
$6,225 million in 1995). Gross realized gains were $618 million in 1997 ($321
million in 1996 and $241 million in 1995). Gross realized losses were $81
million in 1997 ($96 million in 1996 and $86 million in 1995).
NOTE 3. FINANCING RECEIVABLES
Financing receivables at December 31, 1997 and 1996, are shown below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
Time sales and loans:
Consumer Services............................................ $ 42,270 $ 40,479
Specialized Financing........................................ 13,974 14,832
Mid-Market Financing......................................... 11,401 9,978
Equipment Management......................................... 469 448
Specialty Insurance.......................................... 202 339
-------- --------
68,316 66,076
Deferred income.............................................. (3,484) (3,244)
-------- --------
Time sales and loans - net of deferred income............... 64,832 62,832
-------- --------
Investment in financing leases:
Direct financing leases...................................... 38,616 36,576
Leveraged leases............................................. 3,153 2,999
-------- --------
Investment in financing leases.............................. 41,769 39,575
-------- --------
106,601 102,407
Less allowance for losses (Note 4)........................... (2,802) (2,693)
-------- --------
$103,799 $ 99,714
======== ========
</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 1997 and 1996,
specialized financing and consumer services loans included $10,503 million and
$12,075 million, respectively, for commercial real estate loans. Note 6 contains
information on commercial airline loans and leases.
At December 31, 1997, contractual maturities for time sales and loans were
$28,983 million in 1998; $12,792 million in 1999; $7,967 million in 2000; $5,156
million in 2001; $3,985 million in 2002 and $9,433 million thereafter -
29
<PAGE>
aggregating $68,316 million. Experience has shown that a substantial portion of
receivables will be paid prior to contractual maturity. Accordingly, the
maturities of time sales and loans are not to be regarded as forecasts of future
cash collections.
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, mining and commercial equipment and facilities.
As the sole owner of assets under direct financing leases and as the equity
participant in leveraged leases, the Corporation is taxed on total lease
payments received and is entitled to tax deductions based on the cost of leased
assets and tax deductions for interest paid to third-party participants. The
Corporation generally is entitled to any residual value of leased assets.
Investment in direct financing and leveraged leases represents 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, 1997 and
1996, is shown below.
<TABLE>
<CAPTION>
TOTAL DIRECT
FINANCING LEASES FINANCING LEASES LEVERAGED LEASES
------------------- ------------------- -------------------
(In millions) 1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total minimum lease payments
receivable....................... $ 58,543 $ 54,009 $42,901 $40,555 $ 15,642 $ 13,454
Less principal and interest on
third-party nonrecourse debt...... (12,097) (10,213) -- -- (12,097) (10,213)
-------- -------- -------- -------- -------- --------
Net rentals receivable............ 46,446 43,796 42,901 40,555 3,545 3,241
Estimated unguaranteed residual
value
of leased assets.................. 5,591 6,248 4,244 4,906 1,347 1,342
Less deferred income.............. (10,268) (10,469) (8,529) (8,885) (1,739) (1,584)
-------- -------- -------- -------- -------- --------
Investment in financing leases.... 41,769 39,575 38,616 36,576 3,153 2,999
Less: Allowance for losses....... (656) (720) (575) (641) (81) (79)
Deferred taxes arising from
financing leases................ (7,909) (7,488) (4,671) (4,077) (3,238) (3,411)
-------- -------- -------- -------- -------- --------
Net investment in financing leases $ 33,204 $ 31,367 $33,370 $31,858 $ (166) $ (491)
======== ======== ======== ======== ======== ========
</TABLE>
At December 31, 1997, contractual maturities for net rentals receivable under
financing leases were $12,820 million in 1998; $10,616 million in 1999; $ 8,395
million in 2000; $3,871 million in 2001; $2,371 million in 2002 and $8,373
million thereafter - aggregating $46,446 million. As with time sales and loans,
experience has shown that a portion of receivables will be paid prior to
contractual maturity and these amounts should not be regarded as forecasts of
future cash flows.
The Corporation has a noncontrolling investment in the common stock of
Montgomery Ward Holding Corp. ("MWHC") which, together with its wholly-owned
subsidiary, Montgomery Ward & Co., Incorporated ("MWC"), is engaged in retail
merchandising and direct response marketing, the latter conducted primarily
through Signature Financial/Marketing Inc. ("Signature"), which markets consumer
club and insurance products. On July 7, 1997, MWHC, MWC and certain of their
affiliates (excluding Signature) filed for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. As a result, inventory financing loans to MWHC and
affiliates became "impaired" loans (as defined below) because, due to the
automatic stay in bankruptcy, the Corporation is not receiving current interest
payment on its loans and, in management's judgment, it is therefore probable
that the Corporation will be unable to collect all amounts due according to
original contractual terms of the loan agreements. The total amount of such
30
<PAGE>
loans was $617 million at December 31, 1997. The nonearning and reduced-earning
receivable balances and the impaired loan balances discussed below exclude
amounts related to MWHC and affiliates.
Nonearning consumer receivables were $1,049 million and $926 million at December
31, 1997 and 1996, respectively, a substantial amount of which were U.S.
private-label credit card loans subject to various loss-sharing agreements that
provide full or partial recourse to the originating retailer. Nonearning and
reduced-earning receivables other than consumer receivables were $353 million
and $471 million at year-end 1997 and 1996, 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.
Under these principles, the Corporation has two types of "impaired" loans as of
December 31, 1997 and 1996: loans requiring allowances for losses ($339 million
and $583 million, respectively) and loans expected to be fully recoverable
because the carrying amount has been reduced previously through charge-offs or
deferral of income recognition ($167 million and $187 million, respectively) -
allowances for losses on these loans were $170 million and $222 million,
respectively. Average investment in these loans during 1997 and 1996 was $647
million and $842 million, respectively, before allowance for losses; interest
income earned, principally on the cash basis, while they were considered
impaired was $32 million and $30 million in 1997 and 1996, respectively.
NOTE 4. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
The allowance for losses on small-balance receivables is determined principally
on the basis of actual experience during the preceding three years. Further
allowances are provided to reflect management's judgment of additional loss
potential. For other receivables, principally the larger loans and leases, the
allowance for losses is determined primarily on the basis of management's
judgment of the net loss potential, including specific allowances for known
troubled accounts. The table below shows the activity in the allowance for
losses on financing receivables during each of the past three years.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Balance at January 1..................................................... $ 2,693 $2,519 $2,062
Provisions charged to operations......................................... 1,421 1,033 1,117
Net transfers primarily related to companies acquired or sold............ 127 139 217
Amounts written off - net................................................ (1,439) (998) (877)
------- ------ ------
Balance at December 31................................................... $ 2,802 $2,693 $2,519
======= ====== ======
</TABLE>
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 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.
NOTE 5. OTHER RECEIVABLES
This account includes reinsurance recoverables of $2,206 million and $1,691
million and insurance-related receivables of $1,830 million and $1,267 million
at year-end 1997 and 1996, respectively. Premium receivables, funds on deposit
with reinsurers and policy loans 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.
31
<PAGE>
NOTE 6. EQUIPMENT ON OPERATING LEASES
Equipment on operating leases by type of equipment and accumulated amortization
at December 31, 1997 and 1996, are shown below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
------- -------
<S> <C> <C>
Original cost
Vehicles........................................... $ 9,144 $ 6,789
Aircraft........................................... 7,686 6,647
Marine shipping containers......................... 2,774 3,053
Railroad rolling stock............................. 2,367 2,093
Other.............................................. 2,844 3,177
------- -------
24,815 21,759
Accumulated amortization........................... (6,126) (5,625)
------- -------
$18,689 $16,134
======= =======
</TABLE>
Amortization of equipment on operating leases was $2,102 million, $1,848 million
and $1,702 million in 1997, 1996 and 1995, respectively. Noncancelable future
rentals due from customers for equipment on operating leases at year-end 1997
totaled $10,438 million and are due as follows: $3,247 million in 1998; $ 2,243
million in 1999; $1,473 million in 2000; $935 million in 2001; $628 million in
2002 and $1,912 million thereafter.
The Corporation acts as a lender and lessor to the commercial airline industry.
At December 31, 1997 and 1996, the balance of such loans, leases and equipment
leased to others was $8,980 million and $8,240 million, respectively. In
addition, at December 31,1997, the Corporation had issued financial guarantees
and funding commitments of $123 million ($221 million at year-end 1996) and had
placed multiyear orders for various Boeing and Airbus aircraft with list prices
of approximately $6.2 billion ($6.5 billion at year-end 1996).
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 $341 million in 1997, $289 million in 1996 and $299
million in 1995.
NOTE 8. INTANGIBLE ASSETS
Intangible assets at December 31, 1997 and 1996, are shown in the table below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
------ ------
<S> <C> <C>
Goodwill.................................................... $7,368 $5,031
Present value of future profits ("PVFP").................... 1,671 2,271
Other intangibles........................................... 420 292
------ ------
$9,459 $7,594
====== ======
</TABLE>
The Corporation's intangible assets are shown net of accumulated amortization of
$2,098 million at December 31, 1997, and $1,518 million at December 31, 1996.
PVFP amortization, which is on an accelerated basis and net of interest, is
projected to range from 13% to 8% of the year-end 1997 unamortized balance for
each of the next five years.
32
<PAGE>
NOTE 9. OTHER ASSETS
Other assets at December 31, 1997 and 1996, are shown in the table below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
------ ------
<S> <C> <C>
Investments:
Assets acquired for resale.................................. $ 4,403 $ 2,993
Investments in and advances to associated companies......... 4,626 4,841
Real estate ventures........................................ 2,326 2,469
Other....................................................... 1,986 1,022
------- -------
13,341 11,325
Separate accounts........................................... 4,851 3,447
Servicing assets............................................ 1,710 1,663
Deferred insurance acquisition costs........................ 1,671 940
Other....................................................... 2,460 2,106
------- -------
$24,033 $19,481
======= ======
</TABLE>
Separate accounts represent investments controlled by policyholders and are
associated with identical amounts reported as insurance liabilities in note 11.
NOTE 10. BORROWINGS
Total short-term borrowings at December 31, 1997 and 1996, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
AVERAGE AVERAGE
(Dollars in millions) AMOUNT RATE AMOUNT RATE
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Commercial paper - U.S......................... $63,819 5.93% $47,511 5.68%
Commercial paper - non-U.S..................... 3,879 4.18 3,737 4.30
Current portion of long-term debt.............. 15,101 6.30<F1> 16,471 6.17<F1>
Other.......................................... 8,881 7,252
------- -------
$91,680 $74,971
======= =======
</TABLE>
[FN]
<F1> Includes the effects of associated interest rate and currency swaps.
</FN>
Total long-term borrowings at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997
AVERAGE
RATE
(Dollars in millions) <F1> MATURITIES 1997 1996
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Senior notes........................... 6.58% 1999-2055 $44,437 $46,124
Subordinated notes <F2>................ 8.04 2006-2012 697 697
------- -------
$45,134 $46,821
======= =======
</TABLE>
[FN]
<F1> Includes the effects of associated interest rate and currency swaps.
<F2> Guaranteed by GE Company.
</FN>
33
<PAGE>
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 21.
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, 1997, were
$15,101 million in 1998; $9,801 million in 1999; $6,927 million in 2000; $5,763
million in 2001 and $4,816 million in 2002.
At December 31, 1997, the Corporation held committed lines of credit aggregating
$20.9 billion with 113 banks, including $11.8 billion of revolving credit
agreements pursuant to which it has the right to borrow funds for periods
exceeding one year. A total of $6.9 billion and $1.4 billion of these credit
lines were also available for use by GE Capital Services and GE Company,
respectively. Also, at December 31, 1997, substantially all of the approximately
$3.9 billion of GE Company's credit lines were available for use by the
Corporation or GE Capital Services. During 1997, neither the Corporation, GE
Capital Services nor GE Company borrowed under any of these credit lines. 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.
The following table shows the Corporation's borrowing positions at December 31,
1997 and 1996, considering the effects of swaps.
<TABLE>
<CAPTION>
(In millions) 1997 1996
------- -------
<S> <C> <C>
EFFECTIVE BORROWINGS (INCLUDING SWAPS)
Short-term............................................... $53,366 $45,076
======= =======
Long-term (including current portion)
Fixed rate <F1>......................................... $58,474 $53,735
Floating rate........................................... 24,974 22,981
------- -------
Total long-term.......................................... $83,448 $76,716
======= =======
</TABLE>
[FN]
<F1> 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.
</FN>
At December 31, 1997, interest rate swap maturities ranged from 1998 to 2029,
and average interest rates for "synthetic" fixed-rate borrowings were 6.29%
(6.43% at year-end 1996).
34
<PAGE>
NOTE 11. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS
Insurance liabilities, reserves and annuity benefits at December 31, 1997 and
1996, are shown below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
------- -------
<S> <C> <C>
Investment contracts and universal life benefits......... $25,961 $24,038
Life insurance benefits and other <F1>................... 11,967 10,974
Unpaid claims and claims adjustment expenses............. 3,670 1,907
Unearned premiums........................................ 3,799 2,897
Separate accounts (see note 9)........................... 4,851 3,447
------- -------
$50,248 $43,263
======= =======
</TABLE>
[FN]
<F1> Life insurance benefits are accounted for mainly by a net-level-premium
method using estimated yields generally ranging from 5% to 9% in both 1997
and 1996.
</FN>
The liability for unpaid claims and claims adjustment expenses, principally
property and casualty reserves, consists of both case and incurred-but-not-
reported reserves. Where experience is not sufficient to determine reserves,
industry averages are used. Estimated amounts of salvage and subrogation
recoverable on paid and unpaid losses are deducted from outstanding losses.
Activity in the liability for unpaid claims and claims adjustment expenses is
summarized below.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Balance at January 1 - gross.......................... $ 1,907 $1,432 $ 999
Less reinsurance recoverables......................... (117) (76) (138)
------- ------ ------
Balance at January 1 - net............................ 1,790 1,356 861
Claims and expenses incurred:
Current year.......................................... 1,989 1,230 838
Prior years........................................... 61 29 51
Claims and expenses paid:
Current year.......................................... (1,144) (541) (359)
Prior years........................................... (902) (614) (394)
Claim reserves related to acquired companies.......... 1,360 309 364
Other................................................. 78 21 (5)
------- ------ ------
Balance at December 31 - net.......................... 3,232 1,790 1,356
Add reinsurance recoverables.......................... 438 117 76
------- ------ ------
Balance at December 31 - gross........................ $ 3,670 $1,907 $1,432
======= ====== ======
</TABLE>
Prior-year claims and expenses incurred in the above table resulted principally
from settling claims established in earlier accident years for amounts that
differed from expectations.
35
<PAGE>
Financial guarantees and credit life risk of insurance affiliates at December
31, 1997 and 1996, are summarized below.
<TABLE>
<CAPTION>
(In millions) 1997 1996
------- --------
<S> <C> <C>
Guarantees, principally on municipal bonds and
structured finance issues.......................... $140,077 $135,148
Mortgage insurance risk in force.................... 46,243 36,279
Credit life insurance risk in force................. 26,593 19,468
Less reinsurance.................................... (33,503) (32,369)
-------- --------
$179,410 $158,526
======== ========
</TABLE>
Insurance risk is ceded on both a pro rata and excess basis. 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 effects of reinsurance on premiums written and premiums and commissions
earned were as follows for the past three years.
<TABLE>
<CAPTION>
PREMIUMS AND
PREMIUMS WRITTEN COMMISSIONS EARNED
------------------------- ------------------------
(In millions) 1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Direct................. $4,541 $3,175 $2,053 $4,500 $3,126 $1,839
Assumed................ 502 534 154 479 380 124
Ceded.................. (493) (493) (270) (463) (370) (143)
------ ------ ------ ------ ------ ------
Net.................... $4,550 $3,216 $1,937 $4,516 $3,136 $1,820
====== ====== ====== ====== ====== ======
</TABLE>
Reinsurance recoveries recognized as a reduction of insurance losses and
policyholder and annuity benefits amounted to $334 million, $286 million and
$113 million for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 12. MINORITY INTEREST
Minority interest in equity of consolidated affiliates includes preferred stock
issued by a subsidiary with a liquidation preference value of $660 million and
$485 million as of December 31, 1997 and 1996, respectively. Dividend rates on
the preferred stock ranged from 3.8% to 4.5% during 1997, from 3.8% to 4.3%
during 1996, and from 4.2% to 4.6% during 1995.
36
<PAGE>
NOTE 13. EQUITY
Changes in equity for each of the last three years were as follows:
<TABLE>
<CAPTION>
UNREALIZED
VARIABLE GAINS FOREIGN
CUMULATIVE ADDITIONAL (LOSSES) ON CURRENCY
PREFERRED COMMON PAID-IN RETAINED INVESTMENT TRANSLATION
(In millions) STOCK STOCK CAPITAL EARNINGS SECURITIES ADJUSTMENTS TOTAL
---------- ------ ---------- -------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995.............. $ 1 $768 $2,172 $ 8,321 $ (655) $ (67) $10,540
Capital contributions................... -- -- 926 -- -- -- 926
Preferred stock issued.................. 1 -- 924 -- -- -- 925
Net unrealized gains on
investment securities................... -- -- -- -- 1,198 -- 1,198
Currency translation
adjustments............................. -- -- -- -- -- (3) (3)
Net earnings............................ -- -- -- 2,261 -- -- 2,261
Dividends declared:
Common stock............................ -- -- -- (1,588) -- -- (1,588)
Preferred stock......................... -- -- -- (57) -- -- (57)
--- ---- ------ -------- ------ ----- -------
Balance at December 31, 1995............ 2 768 4,022 8,937 543 (70) 14,202
Capital contributions................... -- -- 2 -- -- -- 2
Net unrealized losses on
investment securities................... -- -- -- -- (394) -- (394)
Currency translation
adjustments............................. -- -- -- -- -- (25) (25)
Net earnings............................ -- -- -- 2,632 -- -- 2,632
Dividends declared:
Common stock............................ -- -- -- (815) -- -- (815)
Preferred stock......................... -- -- -- (76) -- -- (76)
--- ---- ------ -------- ------ ----- -------
Balance at December 31, 1996............ 2 768 4,024 10,678 149 (95) 15,526
Capital contributions................... -- -- 290 -- -- -- 290
Preferred stock issued.................. -- -- 430 -- -- -- 430
Net unrealized gains on
investment securities................... -- -- -- -- 996 -- 996
Currency translation
adjustments............................. -- -- -- -- -- (52) (52)
Net earnings............................ -- -- -- 2,729 -- -- 2,729
Dividends declared:
Common stock............................ -- -- -- (1,468) -- -- (1,468)
Preferred stock......................... -- -- -- (78) -- -- (78)
--- ---- ------ ------- ------ ----- -------
Balance at December 31, 1997............ $ 2 $768 $4,744 $11,861 $1,145 $(147) $18,373
=== ==== ====== ======= ====== ===== =======
</TABLE>
All common stock is owned by GE Capital Services, all of the common stock of
which is in turn wholly owned by GE Company. In 1995, GE Company contributed to
GE Capital Services certain assets of Caribe GE Products, Inc. GE Capital
Services in turn contributed the assets of Caribe GE Products, Inc. to the
Corporation. Also in 1995, the Corporation distributed certain assets to GE
Capital Services by way of a dividend and in turn received an equal capital
contribution. During 1997, GE Capital Services contributed certain assets to the
Corporation, the largest of which were assets of Consolidated Insurance Group, a
component of Consolidated Financial Insurance. These contributions increased the
Corporation's additional paid-in capital by $926 million and $290 million at
December 31, 1995 and 1997, respectively.
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.
37
<PAGE>
During 1997 and 1995, the Corporation issued 4,300 and 9,250 additional shares
of its variable cumulative preferred stock, respectively. Dividend rates on the
preferred stock ranged from 3.8% to 5.2% during 1997 and 1996, and from 4.2% to
5.2% during 1995.
At December 31, 1997 and 1996, the aggregate statutory capital and surplus of
the insurance businesses totaled $7.8 billion and $5.8 billion, respectively. In
preparing statutory statements, no significant permitted accounting practices
are used that differ from prescribed accounting practices.
NOTE 14. REVENUES
Time sales, loan and other income includes the Corporation's share of losses
from equity investments of approximately $586 million in 1997 and earnings from
equity investments of approximately $85 million and $113 million for 1996 and
1995, respectively.
NOTE 15. 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. 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
purposes of subleasing was $392 million in 1997, $269 million in 1996 and $273
million in 1995. Other rental expense was $327 million in 1997, $263 million in
1996 and $237 million in 1995, principally for the rental of office space and
data processing equipment. Minimum future rental commitments under noncancelable
leases at December 31, 1997 are $640 million in 1998; $562 million in 1999; $502
million in 2000; $480 million in 2001; $449 million in 2002 and $2,411 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
1997, 1996 and 1995 was $543 million, $365 million and $252 million,
respectively.
NOTE 16. INCOME TAXES
The provision for income taxes is summarized in the following table.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
----- ------ ------
<S> <C> <C> <C>
Estimated amounts payable.................................. $ 409 $ 157 $ 425
Deferred tax expense from temporary differences............ 588 1,015 646
----- ------ ------
$ 997 $1,172 $1,071
===== ====== ======
</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 and its affiliates on the consolidated return.
Estimated amounts payable includes amounts applicable to non-U.S. jurisdictions
of $573 million, $485 million and $158 million in 1997, 1996 and 1995,
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.
38
<PAGE>
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.
U.S. income before taxes was $2.4 billion in 1997, and $2.7 billion in 1996 and
1995. The corresponding amounts for non-U.S. based operations were $1.3 billion
in 1997, $1.1 billion in 1996 and $0.6 billion in 1995.
A reconciliation of the U.S. federal statutory rate to the actual income tax
rate follows.
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- ----
<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............................... 1.1 1.0 1.0
Tax-exempt income...................................... (3.2) (3.0) (3.0)
Foreign Sales Corporation tax benefits................. (0.6) (0.4) --
Dividends received, not fully taxable.................. (1.8) (1.7) (1.6)
Other - net............................................ (3.7) (0.1) 0.8
---- ---- ----
Actual income tax rate................................. 26.8% 30.8% 32.2%
==== ==== =====
</TABLE>
Principal components of the net deferred tax liability balances at December 31,
1997 and 1996, were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996
------- -------
<S> <C> <C>
Assets:
Allowance for losses................................. $ 1,360 $ 1,173
Insurance reserves................................... 1,243 647
AMT credit carryforwards............................. 354 561
Other................................................ 2,100 1,190
------- -------
Total deferred tax assets............................ 5,057 3,571
------- -------
Liabilities:
Financing leases..................................... 7,909 7,488
Operating leases..................................... 2,156 1,833
Net unrealized gains on securities................... 760 97
Other................................................ 2,399 1,625
------- -------
Total deferred tax liabilities....................... 13,224 11,043
------- -------
Net deferred tax liability........................... $ 8,167 $ 7,472
======= =======
</TABLE>
39
<PAGE>
NOTE 17. INDUSTRY SEGMENT DATA
Industry segment operating data and identifiable assets are shown below.
Insurance services, previously included within the Specialty Insurance segment,
has been combined with the consumer savings and insurance operations in the
Consumer Services segment. Prior-year information has been reclassified to
reflect this and certain other organizational changes.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Consumer Services....................................... $ 13,266 $ 11,028 $ 7,989
Equipment Management.................................... 11,446 7,909 6,090
Mid-Market Financing.................................... 2,952 2,626 2,268
Specialized Financing................................... 2,985 2,935 3,047
Specialty Insurance..................................... 2,839 2,084 1,770
-------- -------- --------
Total segment revenues.................................. 33,488 26,582 21,164
Corporate and other..................................... (84) (12) 15
-------- -------- --------
Total revenues.......................................... $ 33,404 $ 26,570 $ 21,179
======== ======== ========
Segment operating profit:
Consumer Services....................................... $ 563 $ 1,269 $ 1,044
Equipment Management.................................... 1,062 892 869
Mid-Market Financing.................................... 622 558 467
Specialized Financing................................... 1,036 742 659
Specialty Insurance..................................... 434 348 325
-------- -------- --------
Total segment operating profit.......................... 3,717 3,809 3,364
Corporate and other..................................... 9 (5) (32)
-------- -------- --------
Earnings before income taxes............................ $ 3,726 $ 3,804 $ 3,332
======== ======== ========
Identifiable assets at December 31:
Consumer Services....................................... $116,300 $104,338 $ 74,313
Equipment Management.................................... 34,391 29,658 24,378
Mid-Market Financing.................................... 29,824 25,948 22,438
Specialized Financing................................... 29,302 27,847 30,102
Specialty Insurance..................................... 17,899 11,804 8,760
-------- -------- --------
Total segment identifiable assets....................... 227,716 199,595 159,991
Corporate and other..................................... 1,061 1,221 834
-------- -------- --------
Total assets............................................ $228,777 $200,816 $160,825
======== ======== ========
</TABLE>
40
<PAGE>
NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data were as follows:
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------------- --------------- --------------- ----------------
(In millions) 1997 1996 1997 1996 1997 1996 1997 1996
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... $7,773 $5,620 $7,658 $6,068 $8,377 $7,008 $9,596 $7,874
------ ------ ------ ------ ------ ------ ------ ------
Expenses:
Interest.............................. 1,711 1,668 1,780 1,722 1,832 1,685 2,007 1,967
Operating, administrative and cost of
goods sold........................... 3,025 1,716 2,855 1,906 3,567 2,583 4,172 3,080
Insurance losses and policyholder
and annuitY benefits ................ 1,149 615 1,106 777 1,227 821 1,343 970
Provision for losses on financing
receivables ......................... 312 213 337 228 371 254 401 338
Depreciation and amortization of
buildings and equipment and
equipment on operating leases........ 565 489 563 524 623 556 692 568
Minority interest in net earnings
of consolidated affiliates........... 13 25 1 17 13 17 13 27
------ ------ ------ ------ ------ ------ ------ ------
Earnings before income taxes........... 998 894 1,016 894 744 1,092 968 924
Provision for income taxes............. (301) (289) (298) (267) (176) (344) (222) (272)
------ ------ ------ ------ ------ ------ ------ ------
Net earnings........................... $ 697 $ 605 $ 718 $ 627 $ 568 $ 748 $ 746 $ 652
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
NOTE 19. 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 1997, net assets of the
Corporation's regulated affiliates amounted to $16.6 billion, of which $13.2
billion was restricted.
NOTE 20. 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 adjustments to assets such
as amortization of goodwill and intangibles.
The Statement of Cash Flows excludes certain noncash transactions that had no
significant effect on the investing or financing activities of the Corporation.
41
<PAGE>
Certain supplemental information related to the Corporation's cash flows were as
follows for the past three years.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
FINANCING RECEIVABLES
Increase in loans to customers...................................................... $(55,689) $(49,890) $(46,154)
Principal collections from customers................................................ 50,679 49,923 44,840
Investment in equipment for financing leases........................................ (16,420) (14,427) (17,182)
Principal collections on financing leases........................................... 13,796 11,158 8,821
Net change in credit card receivables............................................... (4,186) (3,068) (3,773)
Sales of financing receivables...................................................... 9,922 4,026 2,139
-------- -------- --------
$ (1,898) $ (2,278) $(11,309)
======== ======== ========
ALL OTHER INVESTING ACTIVITIES
Purchases of securities by insurance and annuity businesses......................... $(11,700) $ (8,244) $ (6,409)
Dispositions and maturities of securities by insurance and
annuity businesses.................................................................. 10,261 6,736 5,866
Proceeds from principal business dispositions....................................... 241 -- 575
Other............................................................................... (3,965) (3,897) (2,649)
-------- -------- --------
$ (5,163) $ (5,405) $ (2,617)
======== ======== ========
NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS
Short-term (91 to 365 days)......................................................... $ 3,502 $ 5,061 $ 2,545
Long-term (longer than one year).................................................... 15,566 16,689 32,507
Proceeds - nonrecourse, leveraged lease debt........................................ 1,757 595 1,428
-------- -------- --------
$ 20,825 $ 22,345 $ 36,480
======== ======== ========
REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS
Short-term (91 to 365 days)......................................................... $(21,320) $(22,755) $(16,075)
Long-term (longer than one year).................................................... (1,150) (1,025) (678)
Principal payments - nonrecourse, leveraged lease debt.............................. (287) (276) (292)
-------- -------- --------
$(22,757) $(24,056) $(17,045)
======== ======== ========
ALL OTHER FINANCING ACTIVITIES
Proceeds from sales of investment and annuity contracts............................. $ 4,462 $ 2,341 $ 1,554
Redemption of investment and annuity contracts...................................... (4,453) (2,429) (2,061)
Capital contributions from parent company........................................... 182 -- 684
-------- -------- --------
$ 191 $ (88) $ 177
======== ======== ========
CASH RECOVERED (PAID) DURING THE YEAR FOR
Interest............................................................................ $ (7,471) $ (7,166) $ (5,970)
Income taxes........................................................................ (502) (87) 217
</TABLE>
Changes in operating assets and liabilities are net of acquisitions and
dispositions of businesses.
42
<PAGE>
"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) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Fair value of assets acquired................. $15,190 $27,341 $15,496
Cash paid..................................... (4,736) (4,839) (4,749)
------- ------- -------
Liabilities assumed........................... $10,454 $22,502 $10,747
======= ======= =======
</TABLE>
NOTE 21. 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, 1997 or 1996. Moreover, the disclosed values
are representative of fair values only as of the dates indicated. 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.
Values are estimated as follows.
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.
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.
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.
43
<PAGE>
Information about financial instruments that were not carried at fair value at
December 31, 1997 and 1996, is shown below.
<TABLE>
<CAPTION>
1997
-------------------------------------------
ASSETS (LIABILITIES)
---------------------------------
CARRYING ESTIMATED FAIR VALUE
NOTIONAL AMOUNT ---------------------
(In millions) AMOUNT (NET) HIGH LOW
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets
Time sales and loans.............................................................. $ <F1> $ 62,712 $ 63,105 $ 61,171
Integrated interest rate swaps.................................................... 11,378 19 (128) (128)
Purchased options................................................................. 1,617 31 31 31
Mortgage-related positions
Mortgage purchase commitments.................................................... 2,082 -- 11 11
Mortgage sale commitments........................................................ 2,540 -- (9) (9)
Mortgages held for sale.......................................................... <F1> 2,378 2,379 2,379
Options, including "floors"...................................................... 30,347 51 141 141
Interest rate swaps and futures.................................................. 3,681 -- 23 23
Other cash financial instruments.................................................. <F1> 2,242 2,592 2,349
Liabilities
Borrowings and related instruments
Borrowings <F2> <F3>............................................................. <F1> (136,814) (137,360) (137,360)
Interest rate swaps.............................................................. 40,880 -- (170) (170)
Currency swaps................................................................... 23,382 -- (1,249) (1,249)
Currency forwards................................................................ 14,483 -- 367 367
Purchased options................................................................ 362 23 (22) (22)
Investment contract benefits...................................................... <F1> (21,703) (21,556) (21,556)
Insurance - financial guarantees and credit life.................................. 179,410 (2,837) (2,936) (3,052)
Credit and liquidity support - securitizations.................................... 10,008 (46) (46) (46)
Performance guarantees - principally letters of credit............................ 2,553 (34) -- (67)
Other............................................................................. 3,288 (1,134) (1,282) (1,303)
Other firm commitments
Currency forwards................................................................. 1,744 -- 11 11
Currency swaps.................................................................... -- -- -- --
Ordinary course of business lending commitments................................... 7,891 -- (62) (62)
Unused revolving credit lines
Commercial....................................................................... 4,850 -- -- --
Consumer - principally credit cards.............................................. 134,123 -- -- --
<CAPTION>
1996
-------------------------------------------
ASSETS (LIABILITIES)
---------------------------------
CARRYING ESTIMATED FAIR VALUE
NOTIONAL AMOUNT ---------------------
(In millions) AMOUNT (NET) HIGH LOW
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets
Time sales and loans.............................................................. $ <F1> $ 60,859 $ 61,632 $ 60,544
Integrated interest rate swaps.................................................... 3,604 -- 82 82
Purchased options................................................................. 1,938 11 12 12
Mortgage-related positions
Mortgage purchase commitments.................................................... 1,193 -- 2 2
Mortgage sale commitments........................................................ 1,417 -- 3 3
Mortgages held for sale.......................................................... <F1> 1,112 1,165 1,165
Options, including "floors"...................................................... 27,422 78 81 81
Interest rate swaps and futures.................................................. 1,731 -- (29) (29)
Other cash financial instruments.................................................. <F1> 1,347 1,630 1,382
Liabilities
Borrowings and related instruments
Borrowings <F2> <F3>............................................................. <F1> (106,836) (106,849) (106,849)
Interest rate swaps.............................................................. 32,891 -- (551) (551)
Currency swaps................................................................... 24,588 -- 368 368
Currency forwards................................................................ 6,165 -- 69 68
Purchased options................................................................ 1,882 10 1 1
Investment contract benefits...................................................... <F1> (18,499) (18,227) (18,227)
Insurance - financial guarantees and credit life.................................. 158,526 (3,089) (2,907) (3,297)
Credit and liquidity support - securitizations.................................... 4,684 (73) (72) (72)
Performance guarantees - principally letters of credit............................ 3,142 (55) (134) (134)
Other............................................................................. 3,060 (1,434) (1,049) (1,050)
Other firm commitments
Currency forwards................................................................. 1,224 -- -- --
Currency swaps.................................................................... 99 -- (7) (7)
Ordinary course of business lending commitments................................... 4,950 -- (27) (27)
Unused revolving credit lines
Commercial....................................................................... 3,375 -- -- --
Consumer - principally credit cards.............................................. 116,878 -- -- --
</TABLE>
[FN]
<F1> Not applicable.
<F2> Includes effects of interest rate and currency swaps, which also are listed
separately.
<F3> See note 10.
</FN>
Additional information about certain financial instruments in the above table
follows.
44
<PAGE>
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.
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 the mortgage servicing and annuities businesses.
SWAPS OF INTEREST RATES AND CURRENCIES are used by the Corporation to optimize
borrowing costs for a particular funding strategy (see note 10). In addition,
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, 1997 and 1996, this gross market risk amounted to $1.9 billion and
$0.6 billion, respectively. Aggregate fair values that represent associated
probable future obligations, normally associated with a right of offset against
probable future receipts, amounted to $2.8 billion at year-end 1997 and $0.6
billion at year-end 1996.
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.
<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.
45
<PAGE>
NOTE 22. GEOGRAPHIC SEGMENT INFORMATION
Geographic segment operating data and total assets were as follows:
<TABLE>
<CAPTION>
REVENUES OPERATING PROFIT
---------------------------- --------------------------
For the years ended December 31 1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- ------ ------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
United States................................... $ 22,737 $ 18,424 $ 15,306 $ 2,599 $2,889 $2,740
Europe.......................................... 6,414 4,429 2,729 680 507 293
Pacific Basin................................... 940 693 403 51 57 33
Other <F1>...................................... 3,313 3,024 2,741 396 351 266
-------- -------- -------- -------- ------ ------
Total.......................................... $ 33,404 $ 26,570 $ 21,179 $ 3,726 $3,804 $3,332
======== ======== ======== ======== ====== ======
<CAPTION>
TOTAL ASSETS
----------------------------
December 31 1997 1996 1995
-------- -------- --------
(In millions)
<S> <C> <C> <C>
United States................................... $160,276 $149,901 $121,078
Europe.......................................... 43,064 28,710 19,895
Pacific Basin................................... 5,785 5,060 3,567
Other <F1>...................................... 19,652 17,145 16,285
-------- -------- --------
Total.......................................... $228,777 $200,816 $160,825
======== ======== ========
</TABLE>
[FN]
<F1> Principally the Americas other than the United States, but also includes
operations that cannot meaningfully be associated with specific geographic
areas (for example, shipping containers used on ocean-going vessels).
</FN>
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable
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
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)1. FINANCIAL STATEMENTS
Included in Part II of this report:
Independent Auditors' Report
Statement of Current and Retained Earnings for each of the years
in the three-year period ended December 31, 1997
Statement of Financial Position at December 31, 1997 and 1996
Statement of Cash Flows for each of the years in the three-year
period ended December 31, 1997
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, 1997 (pages F-1 through F-42) and Exhibit 12 (Ratio
of Earnings to Fixed Charges) of General Electric Company.
(a)2. FINANCIAL STATEMENT SCHEDULES
I. Condensed financial information of registrant.
All other schedules are omitted because of the absence of conditions
under which they are required or because the required information is
shown in the financial statements or notes thereto.
(a)3. EXHIBIT INDEX
The exhibits listed below, as part of Form 10-K, are numbered in
conformity with the numbering used in Item 601 of Regulation S-K of
the Securities and Exchange Commission.
47
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<S> <C>
3(i) A complete copy of the Organization Certificate of the
Corporation as last amended as of February 17, 1998 and
currently in effect, consisting of the following: (a) the
Organization Certificate of the Corporation as in effect
immediately prior to the filing of the Certificate of Amendment
as of April 21, 1995 (Incorporated by reference to Exhibit 3(i)
to the Corporation's Form 10-K Report for the year ended
December 31, 1993); (b) a Certificate of Amendment filed in the
Office of the Superintendent of Banks of the State of New York
(the "Office of the Superintendent") as of April 21, 1995
(Incorporated by reference to Exhibit 4(b) to the Corporation's
Registration Statement on Form S-3, File No. 33-58771; (c) a
Certificate of Amendment filed in the Office of the
Superintendent as of May 11, 1995 (Incorporated by reference to
Exhibit 4(c) to the Corporation's Registration Statement on
form S-3, File No. 33-61257); (d) a Certificate of Amendment
filed in the Office of the Superintendent as of June 28, 1995
(Incorporated by reference to Exhibit 4(d) to the Corporation's
Registration Statement on Form S-3, File No. 33-61257); (e) a
Certificate of Amendment filed in the Office of the
Superintendent as of July 17, 1995 (Incorporated by reference
to Exhibit 4(e) to the Corporation's Registration Statement on
Form S-3, File No. 33-61257); (f) a Certificate of Amendment
filed in the Office of the Superintendent as of November 1,
1995 (Incorporated by reference to Exhibit 3(i) to the
Corporation's Form 10-K Report for the year ended December 31,
1995); (g) a Certificate of Amendment filed in the Office of
the Superintendent as of September 27, 1996 (Incorporated by
reference to Exhibit 4(g) to the Corporation's Registration
Statement on Form S-3, File No. 333-13195); (h) a Certificate
of Amendment filed in the Office of the Superintendent as of
December 9, 1997 (Incorporated by reference to Exhibit 4(g) to
the Corporation's Post-Effective Amendment No. 1 to
Registration Statement on Form S-3, File No. 333-13195); (i) a
Certificate of Amendment filed in the Office of the
Superintendent as of December 19, 1997 (Incorporated by
reference to Exhibit 4(h) to the Corporation's Post-Effective
Amendment No. 1 to Registration Statement on Form S-3, File No.
333-13195); and (j) a Certificate of Amendment filed in the
Office of the Superintendent as of February 17, 1998
(Incorporated by reference to Exhibit 4(i) to the Corporation's
Post-Effective Amendment No. 1 to Registration Statement on
Form S-3, File No. 333-13195).
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(iii) Agreement to furnish to the Securities and Exchange Commission
upon request a copy of instruments defining the rights of
holders of certain long-term debt of the registrant and all
subsidiaries for which consolidated or unconsolidated financial
statements are required to be filed.
12(a) Computation of ratio of earnings to fixed charges.
12(b) Computation of ratio of earnings to combined fixed charges and
preferred stock dividends.
23(ii) Consent of KPMG Peat Marwick 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 the Corporation. (Incorporated by
reference to Exhibit 28(a) 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, 1997, (pages F-1 through F-42) and Exhibit 12
(Ratio of Earnings to Fixed Charges) of General Electric
Company.
</TABLE>
48
<PAGE>
<TABLE>
<S> <C>
99(c) Letter, dated September 26, 1996 from Dennis D. Dammerman of
General Electric Company to Gary C. Wendt 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 the Corporation's Registration Statement on
Form S-3, File No. 333-13195).
</TABLE>
(b) REPORTS ON FORM 8-K
None.
49
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL ELECTRIC CAPITAL CORPORATION
CONDENSED STATEMENT OF CURRENT AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the years ended December 31 (In millions) 1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
REVENUES............................................................................ $ 4,867 $ 6,631 $ 5,721
------- ------- -------
EXPENSES:
Interest, net of allocations........................................................ 3,548 3,871 3,094
Operating and administrative........................................................ 1,765 1,573 1,217
Provision for losses on financing receivables....................................... 4 65 206
Depreciation and amortization....................................................... 345 255 209
------- ------- -------
5,662 5,764 4,726
------- ------- -------
Earnings (loss) before income taxes and equity in earnings of affiliates............ (795) 867 995
Income tax (provision) benefit...................................................... 439 (218) (291)
Equity in earnings of affiliates.................................................... 3,085 1,983 1,557
------- ------- -------
NET EARNINGS........................................................................ 2,729 2,632 2,261
Dividends paid...................................................................... (1,546) (891) (1,645)
Retained earnings at January 1...................................................... 10,678 8,937 8,321
------- ------- -------
RETAINED EARNINGS AT DECEMBER 31.................................................... $11,861 $10,678 $ 8,937
======= ======= =======
</TABLE>
See Notes to Condensed Financial Statements.
50
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)
GENERAL ELECTRIC CAPITAL CORPORATION
CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
At December 31 (In millions) 1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and equivalents............................................................... $ 249 $ 203
Investment securities.............................................................. 3,916 3,641
Financing receivables:
Time sales and loans............................................................... 19,509 21,622
Investment in financing leases..................................................... 11,817 10,851
-------- --------
31,326 32,473
Allowance for losses on financing receivables...................................... (786) (875)
-------- --------
Financing receivables - net....................................................... 30,540 31,598
Investments in and advances to affiliates.......................................... 95,578 82,676
Equipment on operating leases (at cost), less accumulated amortization of $726
and $583........................................................................... 3,477 3,000
Other assets....................................................................... 6,240 5,629
-------- --------
TOTAL ASSETS...................................................................... $140,000 $126,747
======== ========
LIABILITIES AND EQUITY
Short-term borrowings.............................................................. $ 79,755 $ 66,435
Long-term borrowings............................................................... 35,189 38,373
Other liabilities.................................................................. 3,938 3,684
Deferred income taxes.............................................................. 2,745 2,729
-------- --------
Total liabilities................................................................. 121,627 111,221
-------- --------
Capital stock...................................................................... 770 770
Additional paid-in capital......................................................... 4,744 4,024
Retained earnings.................................................................. 11,861 10,678
Unrealized gains on investment securities.......................................... 1,145 149
Foreign currency translation adjustments........................................... (147) (95)
-------- --------
Total equity...................................................................... 18,373 15,526
-------- --------
TOTAL LIABILITIES AND EQUITY...................................................... $140,000 $126,747
======== ========
</TABLE>
See Notes to Condensed Financial Statements.
51
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONTINUED)
GENERAL ELECTRIC CAPITAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31 (In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FROM OPERATING ACTIVITIES...................................................... $ (872) $ 1,243 $ 1,489
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loans to customers...................................................... (42,575) (40,381) (41,650)
Principal collections from customers................................................ 42,486 44,447 39,664
Investment in assets on financing leases............................................ (4,589) (2,206) (2,976)
Principal collections on financing leases........................................... 2,665 2,127 1,587
Net change in credit card receivables............................................... 1,805 (269) 1,566
Buildings, equipment and equipment on operating leases
- additions........................................................................ (900) (1,111) (810)
- dispositions..................................................................... 350 335 78
Payments for principal businesses purchased, net of cash acquired................... (4,736) (4,839) (3,866)
Proceeds from principal business dispositions....................................... 209 -- 575
Change in investment in and advances to affiliates................................. (5,290) (6,436) (11,377)
Other - net......................................................................... 1,348 (1,863) 1,984
-------- -------- --------
Cash used for investing activities................................................. (9,227) (10,196) (15,225)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (less than 90-day maturities).............................. 15,537 13,249 (3,544)
Newly issued debt
- short-term (91-365 days)......................................................... 4,066 5,061 2,545
- long-term senior................................................................. 9,700 11,065 25,654
Proceeds - non-recourse, leveraged lease debt....................................... 1,043 219 783
Repayments and other reductions
- short-term....................................................................... (18,379) (18,846) (11,710)
- long-term senior................................................................. (787) (583) (638)
Principal payments - non-recourse, leveraged lease debt............................. (107) (130) (134)
Dividends paid...................................................................... (1,540) (891) (961)
Contributions to additional paid-in capital......................................... 182 -- 684
Issuance of preferred stock in excess of par........................................ 430 -- 924
-------- -------- --------
Cash from financing activities..................................................... 10,145 9,144 13,603
-------- -------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR......................... 46 191 (133)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR........................................... 203 12 145
-------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR................................................. $ 249 $ 203 $ 12
======== ======== ========
</TABLE>
See Notes to Condensed Financial Statements.
52
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (CONCLUDED)
GENERAL ELECTRIC CAPITAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Total long-term borrowings at December 31, 1997 and 1996 are shown below.
<TABLE>
<CAPTION>
1997
AVERAGE
(Dollars in millions) RATE <F1> MATURITIES 1997 1996
--------- ---------- ------- -------
<S> <C> <C> <C> <C>
Senior notes............................................. 6.53% 1999-2055 $34,492 $37,676
Subordinated notes <F2>.................................. 8.04 2006-2012 697 697
------- -------
$35,189 $38,373
======= ======
</TABLE>
[FN]
<F1> Includes the effects of associated interest rate and currency swaps.
<F2> Guaranteed by General Electric Company.
</FN>
At December 31, 1997, long-term borrowing maturities during the next five years,
including the current portion of long-term notes payable, are $12,218 million in
1998, $6,795 million in 1999, $5,064 million in 2000, $4,770 million in 2001,
and $2,998 million in 2002.
INTEREST RATES ARE MANAGED by General Electric Capital Corporation ("GE
Capital") 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. At December 31, 1997 and 1996, interest rate swap maturities
ranged from 1998 to 2029, and average interest rates of "synthetic" fixed-rate
borrowings were 6.32% and 6.37%, respectively.
Interest expense on the Condensed Statement of Current and Retained Earnings is
net of interest income on loans and advances to majority owned affiliates of
$2,971 million, $2,332 million and $2,310 million for 1997, 1996 and 1995,
respectively.
INCOME TAXES
General Electric Company files a consolidated U.S. federal income tax return
which includes GE Capital. Income tax (provision) benefit includes the effect of
GE Capital on the consolidated return.
53
<PAGE>
EXHIBIT 4(iii)
March 25, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Subject: General Electric Capital Corporation Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 - File No. 1-6461
Dear Sirs:
Neither General Electric Capital Corporation (the "Corporation") nor any of its
subsidiaries has outstanding any instrument with respect to its long-term debt
that is not registered 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 CFRss. 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 CORPORATION
By: /s/ J.A. Parke
-------------------------
J.A. Parke,
Senior Vice President, Finance
54
<PAGE>
EXHIBIT 12 (a)
GENERAL ELECTRIC CAPITAL CORPORATION
AND CONSOLIDATED AFFILIATES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------
(Dollar amounts in millions) 1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net earnings................................................ $ 2,729 $ 2,632 $ 2,261 $1,918 $1,478
Provision for income taxes.................................. 997 1,172 1,071 896 664
Minority interest........................................... 40 86 81 109 114
------- ------- ------- ------ ------
Earnings before income taxes and minority interest.......... 3,766 3,890 3,413 2,923 2,256
------- ------- ------- ------ ------
Fixed charges:
Interest.................................................... 7,440 7,114 6,520 4,464 3,503
One-third of rentals........................................ 240 177 170 153 138
------- ------- ------- ------ ------
Total fixed charges......................................... 7,680 7,291 6,690 4,617 3,641
------- ------- ------- ------ ------
Less interest capitalized, net of amortization.............. 52 41 21 9 4
------- ------- ------- ------ ------
Earnings before income taxes and minority
interest plus fixed charges................................. $11,394 $11,140 $10,082 $7,531 $5,893
======= ======= ======= ====== ======
Ratio of earnings to fixed charges.......................... 1.48 1.53 1.51 1.63 1.62
======= ======= ======= ====== ======
</TABLE>
55
<PAGE>
EXHIBIT 12 (b)
GENERAL ELECTRIC CAPITAL CORPORATION
AND CONSOLIDATED AFFILIATES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------
(Dollar amounts in millions) 1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net earnings.......................................... $ 2,729 $ 2,632 $ 2,261 $1,918 $1,478
Provision for income taxes............................ 997 1,172 1,071 896 664
Minority interest..................................... 40 86 81 109 114
------- ------- ------- ------ ------
Earnings before income taxes and minority interest.... 3,766 3,890 3,413 2,923 2,256
------- ------- ------- ------ ------
Fixed charges:
Interest.............................................. 7,440 7,114 6,520 4,464 3,503
One-third of rentals.................................. 240 177 170 153 138
------- ------- ------- ------ ------
Total fixed charges................................... 7,680 7,291 6,690 4,617 3,641
------- ------- ------- ------ ------
Less interest capitalized, net of amortization........ 52 41 21 9 4
------- ------- ------- ------ ------
Earnings before income taxes and minority
interest plus fixed charges........................... $11,394 $11,140 $10,082 $7,531 $5,893
======= ======= ======= ====== ======
Preferred stock dividend requirements................. $ 78 $ 76 $ 57 $ 30 $ 22
Ratio of earnings before provision for income
taxes to net earnings................................. 1.37 1.45 1.47 1.47 1.45
------- ------- ------- ------ ------
Preferred stock dividend factor on pre-tax basis...... 107 110 84 44 32
Fixed charges......................................... 7,680 7,291 6,690 4,617 3,641
------- ------- ------- ------ ------
Total fixed charges and preferred stock dividend
requirements.......................................... $ 7,787 $ 7,401 $ 6,774 $4,661 $3,673
======= ======= ======= ====== ======
Ratio of earnings to combined fixed charges and
preferred stock dividends............................ 1.46 1.51 1.49 1.62 1.60
======= ======= ======= ====== ======
</TABLE>
56
<PAGE>
EXHIBIT 23 (ii)
To the Board of Directors
General Electric Capital Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
33-43420, 33-51793, 33-60723, 333-07469, 333-13195 and 333-22265) on Form S-3 of
General Electric Capital Corporation, and in the Registration Statement (No. 33-
39596) on Form S-3 jointly filed by General Electric Capital Corporation and
General Electric Company, of our report dated February 13, 1998, relating to the
statement of financial position of General Electric Capital Corporation and
consolidated affiliates as of December 31, 1997 and 1996 and the related
statements of current and retained earnings and cash flows for each of the years
in the three-year period ended December 31, 1997, and the related schedule,
which report appears in the December 31, 1997 annual report on Form 10-K of
General Electric Capital Corporation.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
March 26, 1998
57
<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 Corporation, a New York corporation
(the "Corporation"), hereby constitutes and appoints Gary C. Wendt, 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,
1997, 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 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 25th
day of March, 1998.
/s/ Gary C. Wendt /s/ James A. Parke
- - ----------------------- -----------------------
Gary C. Wendt, James A. Parke,
Chairman of the Board Director and Senior Vice President,
and Chief Executive Officer Finance
(Principal Executive Officer) (Principal Financial Officer)
/s/ Joan C. Amble
-----------------------
Joan C. Amble,
Vice President and Controller
(Principal Accounting Officer)
(Page 1 of 2)
58
<PAGE>
/s/ Nigel D.T. Andrews
- - ----------------------------- -----------------------------
Nigel D.T. Andrews, W. James McNerney, Jr.,
Director Director
/s/ Nancy E. Barton /s/ John H. Myers
- - ----------------------------- -----------------------------
Nancy E. Barton, John H. Myers,
Director Director
/s/ James R. Bunt /s/ Robert L. Nardelli
- - ----------------------------- -----------------------------
James R. Bunt, Robert L. Nardelli,
Director Director
/s/ David M. Cote /s/ Denis J. Nayden
- - ----------------------------- -----------------------------
David M. Cote, Denis J. Nayden,
Director Director
/s/ Dennis D. Dammerman
- - ----------------------------- -----------------------------
Dennis D. Dammerman, Michael A. Neal,
Director Director
/s/ John M. Samuels
- - ----------------------------- -----------------------------
Paolo Fresco, John M. Samuels,
Director Director
/s/ Benjamin W. Heineman, Jr. /s/ Edward D. Stewart
- - ----------------------------- -----------------------------
Benjamin W. Heineman, Jr., Edward D. Stewart,
Director Director
/s/ Jeffrey R. Immelt /s/ John F. Welch, Jr.
- - ----------------------------- -----------------------------
Jeffrey R. Immelt, John F. Welch, Jr.,
Director Director
A MAJORITY OF THE BOARD OF DIRECTORS
(Page 2 of 2)
59
<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 CORPORATION
March 25, 1998 By: /s/ Gary C. Wendt
---------------------------
(Gary C. Wendt)
Chairman of the Board
and Chief Executive Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary C. Wendt Chairman of the Board and March 25, 1998
- - ------------------ Chief Executive Officer
(Gary C. Wendt) (Principal Executive Officer)
/s/ James A. Parke Director and March 25, 1998
- - ------------------ Senior Vice President, Finance
(James A. Parke) (Principal Financial Officer)
/s/ Joan C. Amble Vice President and Controller March 25, 1998
- - ------------------ (Principal Accounting Officer)
(Joan C. Amble)
NIGEL D.T. ANDREWS* Director
NANCY E. BARTON* Director
JAMES R. BUNT* Director
DAVID M. COTE* Director
DENNIS D. DAMMERMAN* Director
BENJAMIN W. HEINEMAN, JR.* Director
JEFFREY R. IMMELT* Director
JOHN H. MYERS* Director
ROBERT L. NARDELLI* Director
DENIS J. NAYDEN* Director
JOHN M. SAMUELS* Director
EDWARD D. STEWART* Director
JOHN F. WELCH, JR.* Director
A MAJORITY OF THE BOARD OF DIRECTORS
*By: /s/ Joan C. Amble March 25, 1998
------------------
(Joan C. Amble)
Attorney-in-fact
</TABLE>
60
