<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
* QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 .........................For the period ended September 30,
1998
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. 1992-1
(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
--- ---
===============================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
RAILCAR TRUST NO. 1992-1
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, DECEMBER 31,
1998 1997
-------------- -------------
<S> <C> <C>
Assets
Cash and cash equivalents...................................... $ 628 $ 587
Restricted cash................................................ 878 18,888
Rent receivable from GE Capital Railcar Associates, Inc........ 12,753 12,753
Prepaid expenses and other..................................... 765 1,144
-------- --------
Total current assets........................................ 15,024 33,372
Rental equipment............................................... 775,709 813,044
Deferred financing fees........................................ 1,619 2,171
-------- --------
Total assets................................................... $792,352 $848,587
======== ========
LIABILITIES AND TRUST EQUITY
Accrued interest and other expenses............................ $ 5,778 $ 6,850
Current maturities of long-term debt........................... 99,431 110,999
-------- --------
Total current liabilities................................... 105,209 117,849
Long-term debt:
Trust notes................................................... 568,562 642,351
Secured indebtedness.......................................... 26,252 27,912
-------- --------
Total long-term debt........................................ 594,814 670,263
Minority interest in Partnership............................... 8,954 9,453
Trust equity:
Capital distributions in excess of contributions.............. (74,623) (69,355)
Cumulative net earnings....................................... 157,998 120,377
-------- --------
Net trust equity............................................ 83,375 51,022
-------- --------
Total liabilities and trust equity............................. $792,352 $848,587
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
1
<PAGE>
RAILCAR TRUST NO. 1992-1
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three month periods Nine month periods
ended September 30, ended September 30,
1998 1997 1998 1997
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Rental revenue from GE Capital Railcar
Associates, Inc........................ $ 38,188 $ 39,026 $120,027 $115,543
-------- -------- -------- --------
Operating expenses:
Depreciation........................... (12,446) (12,445) (37,336) (37,336)
General, administrative and other...... (106) (71) (247) (282)
-------- -------- -------- --------
Total operating expenses............. (12,552) (12,516) (37,583) (37,618)
-------- -------- -------- --------
Operating income........................ 25,636 26,510 82,444 77,925
Interest expense........................ (14,207) (16,135) (44,162) (49,756)
Minority interest....................... (167) (229) (660) (668)
-------- -------- -------- --------
Net income.............................. $ 11,262 $ 10,146 $ 37,622 $ 27,501
======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
RAILCAR TRUST NO. 1992-1
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine month periods ended
September 30,
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net income.............................................. $ 37,622 $ 27,501
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.......................................... 37,336 37,336
Amortized discount on debt and deferred financing fees 781 890
Income of minority interest........................... 660 668
Changes in assets and liabilities, net:
Restricted cash..................................... 18,010 17,210
Rent receivable from GE Capital Railcar Associates,
Inc................................................ - -
Other............................................... (819) (1,279)
-------- --------
Net cash provided by operating activities............. 93,590 82,326
Financing activities:
Borrowings.............................................. - -
Principal payments on borrowings........................ (87,122) (80,362)
Distribution to beneficiaries........................... (5,268) (750)
Cash contributed........................................ - -
Distributions to minority interest...................... (1,159) (1,166)
-------- --------
Net cash used in financing activities................. (93,549) (82,278)
-------- --------
Net increase (decrease) in cash.......................... 41 48
Cash and equivalents at beginning of the period.......... 587 490
-------- --------
Cash and equivalents at end of the period................ $ 628 $ 538
======== ========
Supplemental cash flow information:
Interest paid during the period........................ $ 44,436 $ 50,181
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
RAILCAR TRUST NO. 1992-1
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A Basis of Presentation
Railcar Trust No. 1992-1 (the Trust) holds a majority interest in Railcar
Associates, LP, a limited partnership (the Partnership). The Partnership leases
approximately 59,000 railcars within the United States. GE 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. The Lessee has an option to purchase all, but not less than all, of
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.
The accompanying consolidated financial statements should be read in conjunction
with the consolidated financial statements included in the Trust's Annual Report
on Form 10-K for the year ended December 31, 1997. The consolidated financial
information furnished herein reflects all adjustments (consisting of normal
recurring accruals) which are, in the opinion of management, necessary for a
fair presentation of the consolidated statements for the periods shown.
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 the
Limited Partnership.
As mentioned above, the Lessee has an annual obligation to make certain
contingent rental payments ("Additional Rent") to the Partnership in addition to
the previously described quarterly fixed rental payments. The Additional Rent
calculation is prepared by the Lessee and is subject to verification by an
independent auditor. As of September 30, 1998, the audit of Additional Rent had
not been completed for 1997 and certain components of the Additional Rent
calculation 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, 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 1997 or 1998.
4
<PAGE>
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 inter-entity
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.
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 (railcars) are carried at cost, which is
based upon the historical cost of the contributing partners. Railcars are
depreciated to estimated residual value using the straight-line method over the
term of the leases.
<TABLE>
<CAPTION>
September 30, DECEMBER 31,
1998 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Railcars (at cost)... $1,388,582 $1,388,582
Accumulated
depreciation........ (612,873) (575,538)
---------- ----------
Net Book Value....... $ 775,709 $ 813,044
========== ==========
</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.
NOTE C DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
September 30, DECEMBER 31,
1998 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Trust notes....... $ 665,558 $ 733,806
Secured
indebtedness..... 28,687 47,456
--------- ---------
Total debt...... 694,245 781,262
Less: Current
maturities....... (99,431) (110,999)
--------- ---------
Long-term debt.. $ 594,814 $ 670,263
========= =========
</TABLE>
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Liquidity and Capital Resources
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. No
new borrowings have occurred during 1998.
Debt Maturities and Repayments
Current maturities of long-term debt of $99.4 million at September 30, 1998
represent debt which is being serviced from the cash flow from the leases.
Results of Operations
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 the first nine months of 1998 and 1997, on a consolidated basis the Trust
received rental revenues of $120.0 and $115.5 million, respectively, pursuant to
the Leases. Operating income was $82.4 and $77.9 million for the first nine
months of 1998 and 1997, respectively. Interest expense, net, was $44.2 million
and $49.8 million for the first nine months of 1998 and 1997, respectively. The
reduction of interest expense was due to scheduled repayments of Trust Notes and
Assumed Indebtedness. Consolidated net income of the Trust was $37.6 million and
$27.5 million for the first nine months of 1998 and 1997, respectively.
The Trust generated $93.6 million in cash from operating activities during the
first nine months of 1998. Those amounts were used to repay the Assumed
Indebtedness and the Trust Notes as payments became due. Of the net cash from
operating activities, $87.1 million was used in order to reduce borrowings and
$1.2 million was distributed to the minority interests in the Partnership. The
principal amount outstanding under the Assumed Indebtedness was decreased by
$18.8 million to a total of $28.7 million at quarter-end, and the principal
amount outstanding under the Trust Notes was decreased by $68.2 million to a
total amount of $665.6 million at quarter-end.
During the first nine months of 1998, $5,268 thousand of 1996 Additional Rent
was distributed to the holders of the Beneficial Interests in the Trust.
6
<PAGE>
PART II
ITEM 5. OTHER INFORMATION
The Quarterly Report on Form 10-Q for the quarter ended September 26,
1998 for General Electric Capital Corporation is hereby incorporated by
reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
99 Quarterly Report on Form 10-Q for the quarter ended September
26, 1998 for General Electric Capital Corporation.
(b) Reports on Form 8-K
none
7
<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.
November 13, 1998 RAILCAR TRUST NO. 1992-1
By: /s/David A. Vanskey,Jr.
-----------------------
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 Date
--------- ----
/s/ David A. Vanskey, Jr. 11/13/98
---------------------------------- ---------------
David A. Vanskey, Jr.
Assistant Vice President
/s/ Bruce L. Bisson 11/13/98
----------------------------------- ----------------
Bruce L. Bisson
Vice President
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,506
<SECURITIES> 0
<RECEIVABLES> 12,753
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,024
<PP&E> 1,388,582
<DEPRECIATION> 612,873
<TOTAL-ASSETS> 792,352
<CURRENT-LIABILITIES> 105,209
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 83,375
<TOTAL-LIABILITY-AND-EQUITY> 792,352
<SALES> 0
<TOTAL-REVENUES> 120,027
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 37,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,162
<INCOME-PRETAX> 37,622
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,622
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
-------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1998
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
(Address of principal executive offices) (Zip Code)
(203) 357-4000
(Registrant's telephone number, including area code)
------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No | |
At November 6, 1998, 3,837,825 shares of common stock with a par value of $200
were outstanding.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b)
OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE
FORMAT.
<PAGE>
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION.
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Results
of Operations 6
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges
and Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends 9
PART II - OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Index to Exhibits 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
CONDENSED STATEMENT OF CURRENT AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- ------------------------
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
26, 1998 27, 1997 26, 1998 27, 1997
(In millions)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Revenues from services...................... $ 8,529 $ 7,195 $24,495 $20,649
Sales of goods.............................. 1,806 1,182 5,325 3,159
------- ------- ------- -------
10,335 8,377 29,820 23,808
------- ------- ------- -------
EXPENSES
Interest.................................... 2,076 1,832 6,129 5,323
Operating and administrative 2,817 2,504 8,167 6,646
Cost of goods sold.......................... 1,681 1,063 4,891 2,801
Insurance losses and
policyholder and annuity
benefits................................... 1,418 1,227 4,127 3,482
Provision for losses on
financing receivables...................... 304 371 1,044 1,020
Depreciation and amortization
of buildings and equipment
and equipment on operating
leases..................................... 663 623 1,913 1,751
Minority interest in net
earnings of consolidated
affiliates................................. 14 13 35 27
------- ------- ------- -------
8,973 7,633 26,306 21,050
------- ------- ------- -------
EARNINGS
Earnings before income
taxes...................................... 1,362 744 3,514 2,758
Provision for income taxes (432) (176) (991) (775)
------- ------- ------- -------
NET EARNINGS 930 568 2,523 1,983
Dividends................................... (341) (529) (867) (1,186)
Retained earnings at
beginning of period........................ 12,928 11,436 11,861 10,678
------- ------- ------- -------
RETAINED EARNINGS AT END
OF PERIOD................................... $13,517 $11,475 $13,517 $11,475
======= ======= ======= =======
</TABLE>
See Notes to Condensed, Consolidated Financial Statements.
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued).
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
26, 1998 31, 1997
------------ -------------
(In millions)
(Unaudited)
<S> <C> <C>
ASSETS
Cash and equivalents............................ $ 4,708 $ 4,648
Investment securities........................... 57,079 53,103
Financing receivables:
Time sales and loans, net of deferred income . 71,145 64,832
Investment in financing leases, net of
deferred income............................... 45,411 41,769
-------- --------
116,556 106,601
Allowance for losses on financing receivables (3,065) (2,802)
-------- --------
Financing receivables - net..................... 113,491 103,799
Other receivables - net......................... 14,877 11,925
Equipment on operating leases (at cost), less
accumulated amortization of $6,716 and $6,126 . 20,209 18,689
Intangible assets............................... 10,737 9,459
Inventories..................................... 729 786
Other assets.................................... 32,306 26,368
-------- --------
TOTAL ASSETS................................. $254,136 $228,777
======== ========
LIABILITIES AND EQUITY
Short-term borrowings........................... $ 98,485 $ 91,680
Long-term borrowings:
Senior........................................ 55,249 44,437
Subordinated.................................. 697 697
Insurance liabilities, reserves and annuity
benefits....................................... 52,991 50,248
Other liabilities............................... 16,522 14,315
Deferred income taxes........................... 8,734 8,167
-------- --------
Total liabilities............................ 232,678 209,544
-------- --------
Minority interest in equity of consolidated
affiliates..................................... 1,076 860
-------- --------
Unrealized gains on investment securities....... 1,435 1,145
Foreign currency translation adjustments........ (154) (147)
-------- --------
Accumulated non-owner changes in equity......... 1,281 998
Capital stock................................... 770 770
Additional paid-in capital...................... 4,814 4,744
Retained earnings............................... 13,517 11,861
-------- --------
Total equity................................. 20,382 18,373
-------- --------
TOTAL LIABILITIES AND EQUITY................. $254,136 $228,777
======== ========
</TABLE>
See Notes to Condensed, Consolidated Financial Statements.
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued).
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
NINE MONTHS ENDED
---------------------
SEPTEMBER SEPTEMBER
26, 1998 27, 1997
(In millions)
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.............................................. $ 2,523 $ 1,983
Adjustments to reconcile net earnings to cash
provided from operating activities:
Provision for losses on financing receivables........... 1,044 1,020
Depreciation and amortization of buildings and
equipment and equipment on
operating leases...................................... 1,913 1,751
Other - net............................................. 2,749 1,203
-------- --------
Cash provided from operating activities............... 8,229 5,957
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loans to customers............................ (48,057) (38,386)
Principal collections from customers...................... 43,711 36,328
Investment in assets on financing leases.................. (13,886) (9,943)
Principal collections on financing leases................. 11,911 11,559
Net decrease in credit card receivables................... 3,307 2,335
Buildings and equipment and equipment on
operating leases:
- additions........................................... (4,010) (4,617)
- disposition......................................... 2,021 1,867
Payments for principal businesses purchased,
net of cash acquired..................................... (8,294) (1,532)
Purchases of investment securities by insurance
affiliates and annuity businesses........................ (11,845) (7,892)
Dispositions and maturities of investment
securities by insurance affiliates and annuity
businesses............................................... 8,669 6,828
Other - net............................................... (4,868) (4,456)
-------- --------
Cash used for investing activities.................... (21,341) (7,909)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities 90 days
or less)................................................. 5,718 6,861
Newly issued debt - short-term
(maturities 91-365 days)................................. 4,126 3,240
- long-term senior...................................... 26,158 12,099
Proceeds - non-recourse leveraged lease debt.............. 971 129
Repayments and other reductions:
- short-term (maturities 91-365 days)................... (17,992) (18,486)
- long-term senior...................................... (4,298) (861)
Principal payments - non-recourse, leveraged
lease debt............................................... (333) (262)
Proceeds from sales of investment and annuity
contracts................................................ 3,284 3,334
Redemption of investment and annuity contracts............ (867) (1,186)
Issuance of preferred stock in excess of par
value.................................................... 70 --
Issuance of variable cumulative preferred stock
by consolidated affiliate................................ 100 100
-------- --------
Cash provided from financing activities............... 13,172 1,717
-------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS............... 60 (235)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD............... 4,648 3,074
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD..................... $ 4,708 $ 2,839
======== ========
</TABLE>
See Notes to Condensed, Consolidated Financial Statements.
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued).
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying condensed quarterly financial statements represent the
adding together of General Electric Capital Corporation and all majority-owned
and controlled affiliates (collectively called "the Corporation" or "GECC"). All
significant transactions among the parent and consolidated affiliates have been
eliminated. Certain prior period data have been reclassified to conform to the
current period presentation.
2. The condensed consolidated quarterly financial statements are unaudited.
These statements include all adjustments (consisting of normal recurring
accruals) considered necessary by management to present a fair statement of the
results of operations, financial position and cash flows. The results reported
in these condensed consolidated financial statements should not be regarded as
necessarily indicative of results that may be expected for the entire year.
3. Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, was adopted as of January 1, 1998. This Statement requires
reporting of changes in shareowners' equity that do not result directly from
transactions with shareowners. An analysis of these changes follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
SEPTEMBER SEPTEMBER
26, 1998 27, 1997
(In millions)
--------- ---------
<S> <C> <C>
Net earnings...................................... $ 930 $ 568
Unrealized gains on investment securities - net... 130 503
Foreign currency translation adjustments.......... 26 5
--------- ---------
Total............................................. $ 1,086 $ 1,076
========= =========
NINE MONTHS ENDED
-----------------------------
SEPTEMBER SEPTEMBER
26, 1997 27, 1998
--------- ---------
Net earnings...................................... $ 2,523 $ 1,983
Unrealized gains on investment securities - net... 290 745
Foreign currency translation adjustments.......... (7) (38)
--------- ---------
Total............................................. $ 2,806 $ 2,690
========= =========
</TABLE>
4
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued).
4. In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities (the
"Statement"). The Statement requires that, upon adoption, all derivative
instruments (including certain derivative instruments embedded in other
contracts) be recognized in the balance sheet at fair value, and that changes in
such fair values be recognized in earnings unless specific hedging criteria
are met. Changes in the values of derivatives that meet these hedging criteria
will ultimately offset related earnings effects of the hedged items; effects of
certain changes in fair value are recorded in other comprehensive income pending
recognition in earnings. The Corporation will not adopt the Statement until
required to do so on January 1, 2000.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS.
OVERVIEW
Net earnings for the first nine months of 1998 were $2,523 million, a $540
million (27%) increase over the first nine months of 1997. The results reflected
the globalization and diversity of the Corporation's businesses and were led by
double-digit increases in Specialized Financing, Consumer Services, Specialty
Insurance and Mid-Market Financing activities. The Corporation's contribution to
its parent, General Electric Capital Services, Inc. ("GECS"), after payment of
dividends on its variable cumulative preferred stock, was $2,454 million, a $528
million (27%) increase over the comparable 1997 period.
Earnings of the lending, leasing and equipment management businesses are
significantly influenced by the level of invested assets, the related financing
spreads (the excess of rates earned -- yields -- over rates on borrowings) and
the quality of those assets. The increase in net earnings for these businesses
reflected a higher average level of invested assets. Financing spreads were
essentially the same in both periods, reflecting slightly lower yields offset by
lower borrowing rates. Earnings for these businesses were also significantly
impacted by lower losses associated with the Corporation's equity investment in
Montgomery Ward Holding Corp. ("MWHC"). This impact was partially offset by
lower gains recognized on sales of assets.
The increase in net earnings in the Specialty Insurance segment primarily
reflected improved earnings in the mortgage insurance business, the result of
improved market conditions, as well as increases in other insurance businesses.
OPERATING RESULTS
TOTAL REVENUES from all sources increased $6,012 million (25%) to $29,820
million for the first nine months of 1998, compared with $23,808 million for the
first nine months of 1997.
Revenues from the equipment management, consumer services, mid-market financing
and specialized financing businesses increased $5,118 million (23%) over the
comparable prior-year period. A significant portion of the increase arose from
sales of goods by the computer equipment distribution businesses, reflecting
both acquisition and core growth. The increase also reflected a higher average
level of invested assets, resulting principally from acquisitions of portfolios
and businesses, as well as increased premiums related to the acquisition of
consumer savings and insurance businesses in 1997 and 1998. Revenues were also
impacted by lower losses associated with the Corporation's equity investment in
MWHC. This impact was partially offset by lower gains recognized on sales of
assets.
Revenues of the Specialty Insurance segment increased $679 million (36%) to
$2,588 million for the first nine months of 1998 compared with the first nine
months of 1997. The increase reflected higher investment income resulting from
continued growth in the investment portfolios and a higher level of gains on
investment securities as well as growth in origination volume. The increase also
reflected the 1997 contribution of assets of Consolidated Insurance Group, a
component of Consolidated Financial Insurance, from GECS to the Corporation.
INTEREST EXPENSE for the first nine months of 1998 was $6,129 million, 15%
higher than for the first nine months of 1997. The increase reflected the
effects of higher average borrowings used to finance asset growth, slightly
offset by the effects of lower average interest rates. The composite interest
rate on the Corporation's borrowings for the first nine months of 1998 was 5.95%
compared with 6.02% in the first nine months of 1997.
OPERATING AND ADMINISTRATIVE EXPENSES were $8,167 million for the first nine
months of 1998, a 23% increase over the first nine months of 1997. The increase
primarily reflected costs associated with businesses and portfolios acquired
over the past year and higher investment levels.
INSURANCE LOSSES AND POLICYHOLDER AND ANNUITY BENEFITS increased $645 million to
$4,127 million for the first nine months of 1998, compared with the first nine
months of 1997. The increase primarily reflected the acquisitions of the
consumer savings and insurance businesses and higher origination volume,
partially offset by improved market conditions in the mortgage insurance
business.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS (Continued).
PROVISION FOR LOSSES ON FINANCING RECEIVABLES increased to $1,044 million for
the first nine months of 1998 from $1,020 million for the first nine months of
1997. These provisions principally related to private-label and bank credit
cards in the Consumer Services segment that are discussed below under Portfolio
Quality.
DEPRECIATION AND AMORTIZATION OF BUILDINGS AND EQUIPMENT AND EQUIPMENT ON
OPERATING LEASES increased $162 million to $1,913 million for the first nine
months of 1998 compared with $1,751 million for the first nine months of 1997.
The increase was principally the result of higher levels of equipment on
operating leases, primarily reflecting acquisition growth.
PROVISION FOR INCOME TAXES was $991 million for the first nine months of 1998
(an effective tax rate of 28.2%), compared with $775 million for the first nine
months of 1997 (an effective tax rate of 28.1%). The higher provision for income
taxes primarily reflected increased pre-tax earnings subject to statutory rates.
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 $116.6 billion at September 26, 1998, from $106.6 billion
at the end of 1997, primarily reflecting acquisition growth and higher
origination volume, partially offset by securitizations of receivables and other
decreases in the credit card portfolios. Related allowances for losses at
September 26, 1998, aggregated $3.1 billion (2.63% of receivables - the same as
at the end of 1997) and, in management's judgment, are appropriate given the
risk profile of the portfolio. A discussion about the quality of certain
elements of the portfolio of financing receivables follows. "Nonearning"
receivables are those that are 90 days or more delinquent (or for which
collection has otherwise become doubtful) and "reduced-earning" receivables are
commercial receivables whose terms have been restructured to a below-market
yield. The following discussion of the 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, primarily credit card and personal loans and
auto loans and leases, were $48.4 billion at September 26, 1998, an increase of
$0.3 billion from the end of 1997. Nonearning receivables were $1.1 billion at
September 26, 1998, 2.3% of total consumer financing receivables, compared with
$1.0 billion, 2.2% of total consumer receivables, at December 31, 1997.
Write-offs of consumer receivables increased to $1,052 million for the first
nine months of 1998, compared with $912 million for the first nine months of
1997. This increase was primarily attributable to higher average receivable
balances resulting from a combination of origination volume and acquisitions of
businesses and portfolios as well as the effects of higher delinquencies at the
end of 1997, consistent with overall industry experience.
OTHER FINANCING RECEIVABLES, totaling $68.2 billion at September 26, 1998 ($58.5
billion at December 31, 1997), consisted of a diverse commercial, industrial and
equipment loan and lease portfolio. Related nonearning and reduced-earning
receivables were $282 million at September 26, 1998, compared with $353 million
at year-end 1997.
As discussed in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997, Montgomer Ward Holding Corp. (MWHC) filed a bankruptcy
petition for reorganization in 1997. The Corporation's recorded investment in
MWHC and affiliates at September 26, 1998, was $754 million, a decrease of $41
million from the end of 1997, and consisted primarily of inventory financing.
Income recognition had been suspended on these pre-bankruptcy petition
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; the Corporation's
loans under this facility at September 26, 1998 were approximately $119 million.
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 $3.4 billion at September 26, 1998,
including $1.7 billion 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 since 1997, are continuing their restructuring efforts as well as
developing a plan of reorganization.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS (Continued).
The Corporation held loans and leases to commercial airlines amounting to $9.6
billion at September 26, 1998, up from $9.0 billion at the end of 1997.
OTHER MATTERS
YEAR 2000
The inability of business processes to continue to function correctly after the
beginning of the Year 2000 could have serious adverse effects on companies and
entities throughout the world. The Corporation has undertaken a global effort to
identify and mitigate Year 2000 issues in its information systems, products and
services, facilities and suppliers as well as to assess the extent to which Year
2000 issues will impact its customers. Each business has a Year 2000 leader who
oversees a multi-functional remediation project team responsible for applying a
Six Sigma quality approach in four phases: (1) define/measure -- identify and
inventory possible sources of Year 2000 issues; (2) analyze -- determine the
nature and extent of Year 2000 issues and develop project plans to address those
issues; (3) improve -- execute project plans and perform a majority of the
testing; and (4) control -- complete testing, continue monitoring readiness and
complete necessary contingency plans. The progress of this program is monitored
at each business, and company-wide reviews with senior management are conducted
monthly. Management plans to have completed the first three phases of the
program for a substantial majority of mission-critical systems by the end of
1998 and to have nearly all significant information systems, products and
services, facilities and suppliers in the control phase of the program by
mid-1999.
The scope of the global Year 2000 effort encompasses many thousands of
applications and computer programs; products and services; facilities and
facilities-related equipment; suppliers; and, customers. Business operations are
also dependent on the Year 2000 readiness of infrastructure suppliers in areas
such as utility, communications, transportation and other services. In this
environment, there will likely be instances of failure that could cause
disruptions in business processes or that could affect customers' ability to
repay amounts owed to the Corporation. The likelihood and effects of failures in
infrastructure systems and in the supply chain cannot be estimated. However,
with respect to operations under its direct control, management does not expect,
in view of its Year 2000 program efforts and the diversity of its businesses,
suppliers and customers, that occurrences of Year 2000 failures will have a
material adverse effect on the financial position, results of operations or
liquidity of the Corporation.
Total Year 2000 remediation expenditures are expected to be approximately $237
million, of which two-thirds is expected to be spent by the end of 1998.
Substantially all of the remainder is expected to be spent in 1999. Most of
these costs are not likely to be incremental costs, but rather will represent
the redeployment of existing resources.
The activities involved in the Year 2000 effort necessarily involve estimates
and projections of activities and resources that will be required in the future.
These estimates and projections could change as work progresses.
8
<PAGE>
EXHIBIT 12
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
NINE MONTHS ENDED SEPTEMBER 26, 1998
(Unaudited)
<TABLE>
<CAPTION>
RATIO OF
EARNINGS TO
COMBINED FIXED CHARGES
RATIO OF AND
EARNINGS TO PREFERRED
FIXED CHARGES STOCK DIVIDENDS
(Dollar amounts in millions)
--------------- ---------------
<S> <C> <C>
Net earnings......................................... $ 2,523 $ 2,523
Provision for income taxes........................... 991 991
Minority interest in net
earnings of consolidated affiliates................ 35 35
--------- ---------
Earnings before provision for income taxes
and minority interest............................... 3,549 3,549
--------- ---------
Fixed charges:
Interest.......................................... 6,266 6,266
One-third of rentals.............................. 204 204
--------- ---------
Total fixed charges.................................. 6,470 6,470
--------- ---------
Less interest capitalized,
net of amortization............................... 65 65
--------- ---------
Earnings before provision for income taxes
and minority interest, plus fixed charges......... $ 9,954 $ 9,954
========= =========
Ratio of earnings to fixed charges................... 1.54
=========
Preferred stock dividend requirements................ $ 69
Ratio of earnings before provision for
income taxes to net earnings...................... 1.39
Preferred stock dividend factor on
pre-tax basis..................................... 96
Fixed charges........................................ 6,470
---------
Total fixed charges and preferred stock
dividend requirements............................. $ 6,566
=========
Ratio of earnings to combined fixed charges
and preferred stock dividends..................... 1.52
=========
</TABLE>
For purposes of computing the ratios, fixed charges consist of interest on all
indebtedness and one-third of rentals, which management believes is a reasonable
approximation of the interest factor of such rentals.
9
<PAGE>
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. EXHIBITS.
Exhibit 12. Computation of ratio of earnings to fixed charges
and computation of ratio of earnings to combined
fixed charges and preferred stock dividends.
Exhibit 27. Financial Data Schedule (filed electronically only).
b. REPORTS ON FORM 8-K.
None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL ELECTRIC CAPITAL CORPORATION
------------------------------------
(Registrant)
Date: November 10, 1998 By: /s/ J.A. Parke
--------------------------------
J.A. Parke,
Senior Vice President, Finance
(Principal Financial Officer)
Date: November 10, 1998 By: /s/ J.C. Amble
---------------------------------
J.C. Amble,
Vice President and Controller
(Principal Accounting Officer)
11
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
INDEX TO EXHIBITS
EXHIBIT NO. PAGE
- - ------------- -------
12 Computation of ratio of earnings to fixed charges
and computation of ratio of earnings to combined
fixed charges and preferred stock dividends...... 9
27 Financial Data Schedule (filed electronically only)
12
