-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ojuk6KGbKjw0pWbeQ7yvIlYwj6tvTeuANVkknE3jAMlro3q3BdBoRBPjqQTqlmWK 748epQ803m8Snx/hY/HZmw== 0000040554-96-000108.txt : 19960401 0000040554-96-000108.hdr.sgml : 19960401 ACCESSION NUMBER: 0000040554-96-000108 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL ELECTRIC CAPITAL CORP CENTRAL INDEX KEY: 0000040554 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE LESSORS [6172] IRS NUMBER: 131500700 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06461 FILM NUMBER: 96540608 BUSINESS ADDRESS: STREET 1: 260 LONG RIDGE RD CITY: STAMFORD STATE: CT ZIP: 06927 BUSINESS PHONE: 2033574000 MAIL ADDRESS: STREET 1: 260 LONG RIDGE ROAD CITY: STAMFORD STATE: CT ZIP: 06927 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL ELECTRIC CREDIT CORP DATE OF NAME CHANGE: 19871216 10-K405 1 FORM 10-K 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 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 executive offices) (Zip Code) (Registrant's telephone 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 Notes Due December 1, 2006 New York Stock Exchange 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/ Aggregate market value of the voting stock held by nonaffiliates of the registrant at March 25, 1996. None. At March 25, 1996, 3,837,825 shares of common stock with a par value of $200 were outstanding. 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, 1995 are incorporated by reference into Part IV hereof. REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE FORMAT. TABLE OF CONTENTS Page ---- PART I Item 1. Business.................................................. 1 Item 2. Properties................................................ 12 Item 3. Legal Proceedings......................................... 12 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................................... 13 Item 7. Management's Discussion and Analysis of Results of Operations................................................ 14 Item 8. Financial Statements and Supplementary Data............... 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................... 50 PART III Item 10. Directors and Executive Officers of the Registrant........ 50 Item 11. Executive Compensation.................................... 50 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 50 Item 13. Certain Relationships and Related Transactions............ 50 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................... 50 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 financial services offered are significantly more diversified. Very little of the financing provided by GE Capital involves products that 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 services and annuities. 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 a retail organization and certain other service and financial services organizations. GE Capital's operations are subject to a variety of regulations in their respective jurisdictions. Services of the Corporation are offered primarily in the United States, Canada, Europe and the Pacific rim. The Corporation's principal executive offices are located at 260 Long Ridge Road, Stamford, Connecticut 06927 (Telephone number (203) 357-4000). At December 31, 1995 the Corporation employed approximately 37,000 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, comprise the Corporation's total assets at December 31, 1995 and 1994. 1 TOTAL ASSETS BY SEGMENT
1995 -------------------------------------------------------------------- Time Net Allow. sales investment for and Net in losses loans, investment equipment and net of in on all deferred financing operating Investment other Total (In millions) income leases leases securities assets assets -------- ---------- ---------- ---------- ------- -------- CONSUMER SERVICES GNA................................... $ 1,601 $ 16,149 $3,683 $ 21,433 Auto Financial Services............... 5,555 $ 12,461 $ 161 112 2,054 20,343 Retailer Financial Services........... 14,427 825 15,252 Global Consumer Finance............... 6,146 64 960 7,170 Mortgage Servicing.................... 1,078 373 3,956 5,407 Consumer Financial Services........... 3,364 31 67 3,462 Other................................. 9 9 -------- -------- -------- -------- -------- -------- Total................................ 32,180 12,461 161 16,729 11,545 73,076 SPECIALIZED FINANCING Commercial Real Estate................ 11,804 37 57 3,901 15,799 Global Project and Structured Finance.............................. 1,732 5,047 627 873 744 9,023 Commercial Finance.................... 4,272 149 268 4,689 Equity Capital Group.................. 249 47 411 707 Other................................. 17 5 45 67 -------- -------- -------- -------- -------- -------- Total................................ 18,074 5,084 627 1,131 5,369 30,285 EQUIPMENT MANAGEMENT Aviation Services..................... 919 3,115 4,219 319 251 8,823 Fleet Services........................ 262 2,883 1,713 1,173 6,031 Genstar Container..................... 363 2,526 314 3,203 Transport International Pool.......... 128 1,433 421 1,982 Railcar Services...................... 318 1,182 95 1,595 Technology Management Services........ 78 357 522 588 1,545 Satellite Telecommunications Services............................. 801 801 Modular Space......................... 29 529 203 761 Other................................. 2 329 331 -------- -------- -------- -------- ------- -------- Total............................... 1,259 7,195 12,124 319 4,175 25,072 MID-MARKET FINANCING Commercial Equipment Financing........ 5,229 6,713 800 70 562 13,374 Vendor Financial Services............. 1,576 4,691 81 537 6,885 GE Capital--Hawaii.................... 1,084 56 9 8 1,157 Other................................. 8 141 149 -------- -------- -------- -------- -------- -------- Total................................. 7,889 11,460 881 87 1,248 21,565 SPECIALTY INSURANCE..................... 189 8,084 1,568 9,841 CORPORATE............................... 641 345 986 -------- -------- -------- -------- ------- -------- TOTAL............................... $ 59,591 $ 36,200 $ 13,793 $ 26,991 $ 24,250 $160,825 ======== ======== ======== ======== ======== ========
1994 -------------------------------------------------------------------- Time Net Allow. sales investment for and Net in losses loans, investment equipment and net of in on all deferred financing operating Investment other Total (In millions) income leases leases securities assets assets -------- ---------- ---------- ---------- ------- ------ CONSUMER SERVICES GNA................................... $ 1,377 $ 13,327 $ 1,816 $ 16,520 Auto Financial Services............... 3,682 $ 7,473 $ 124 222 11,501 Retailer Financial Services........... 13,210 722 13,932 Global Consumer Finance............... 3,407 53 550 4,010 Mortgage Servicing.................... 1,231 382 3,507 5,120 Consumer Financial Services........... 2,512 23 35 2,570 Other................................. 123 395 518 -------- -------- -------- -------- -------- -------- Total................................ 25,542 7,473 124 13,785 7,247 54,171 SPECIALIZED FINANCING Commercial Real Estate................ 11,833 36 55 3,369 15,293 Global Project and Structured Finance.............................. 1,758 4,780 448 432 496 7,914 Commercial Finance.................... 3,900 109 184 4,193 Equity Capital Group.................. 302 90 357 749 Other................................. -------- -------- -------- -------- -------- -------- Total................................ 17,793 4,816 448 686 4,406 28,149 EQUIPMENT MANAGEMENT Aviation Services..................... 919 2,901 3,750 328 281 8,179 Fleet Services........................ 360 2,252 1,795 867 5,274 Genstar Container..................... 459 2,687 269 3,415 Transport International Pool.......... 96 1,104 279 1,479 Railcar Services...................... 342 1,041 2 164 1,549 Technology Management Services........ 111 374 393 436 1,314 Satellite Telecommunications Services............................. 600 600 Modular Space......................... 16 484 165 665 Other................................. 401 321 722 -------- -------- -------- -------- -------- -------- Total............................... 1,390 6,440 11,655 330 3,382 23,197 MID-MARKET FINANCING Commercial Equipment Financing........ 2,995 6,235 596 2 357 10,185 Vendor Financial Services............. 1,252 3,377 28 376 5,033 GE Capital--Hawaii.................... 1,049 57 7 1,113 Other................................. 36 36 -------- -------- -------- -------- -------- -------- Total................................. 5,296 9,669 624 2 776 16,367 SPECIALTY INSURANCE..................... 5,447 1,190 6,637 CORPORATE............................... 1,958 425 2,383 -------- -------- -------- -------- -------- -------- TOTAL............................... $ 50,021 $ 28,398 $ 12,851 $ 22,208 $ 17,426 $130,904 ======== ======== ======== ======== ======== ========
2 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: 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 annuity and mutual fund sales. 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 buy- outs, including those with high leverage, and corporate recapitalizations. Equipment Management--leases, loans 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, ocean-going containers and satellites. Mid-Market Financing--loans and leases for middle-market customers including manufacturers, distributors and end users, of a variety of commercial equipment, including data processing equipment, medical and diagnostic equipment, and equipment used in construction, manufacturing, office applications and telecommunications activities. Specialty Insurance--financial guaranty insurance, principally on municipal bonds and structured finance issues; private mortgage insurance; and creditor insurance covering international customer loan repayments. Refer to Item 7, "Management's Discussion and Analysis of Results of Operations," in this Form 10-K for discussion of the Corporation's Portfolio Quality. A description of GE Capital's principal businesses by industry segment follows: CONSUMER SERVICES GNA GNA writes and markets tax-deferred, structured and immediate annuities, traditional and universal life insurance, accident and health insurance including long-term care insurance and sells proprietary and third party mutual funds through independent and captive agents and financial institutions. In 1995, GNA acquired AMEX Life Assurance Company's long-term care insurance business, as well as its long-term disability, corporate owned life insurance and accidental death insurance businesses. GNA is headquartered in Seattle, Washington. 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 Asia. 3 In the United States, AFS is the leading independent auto lessor and provides leasing products for new automobiles and the growing used automobile leasing market. During 1995, AFS entered the sub-prime loan financing market through the start-up of a new business, Customized Auto Credit Services. AFS provides the private label financing for American Isuzu Motors, Inc. and is a joint venture partner with Volvo of North America. In addition, AFS provides inventory financing programs and direct loans to segments of the automotive industry, including dealers, rental car companies and leasing companies. In 1995, AFS expanded its European presence through acquisitions of Credit de l'Est and Sovac SA in France, and Filea S.p.A in Italy. Other European businesses include Mercurbank (Austria), GE Capital Motor Finance (United Kingdom), Finanzia (Spain) and Skandic-Bilfinans (Sweden). AFS is active in the Asian automotive market through equity investments in ASTRA Sedaya Finance (Indonesia), Taiwan Acceptance Corporation, United Merchants Finance Private Ltd. (Singapore), United Motor Works (Malaysia), GS Capital Corporation (Thailand) and through majority ownership (80%) of Australian Guarantee Limited (Taiwan). In 1995, AFS acquired 100% of United Merchants Finance Ltd. (Hong Kong) and continues to provide financing under the name GE Capital Finance Ltd. AFS is headquartered in Barrington, Illinois. Retailer Financial Services Retailer Financial Services ("RFS") provides sales financing services to distribution chains for various consumer industries. Financing plans differ considerably by client, but fall into two major categories: customized private-label credit card programs with retailers and inventory financing programs with manufacturers, distributors and retailers. RFS purchases consumer receivables from retailers, primarily in the United States and Canada, most of whom 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. Maximum maturities ordinarily do not exceed 40 months. 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, as part of the agreement, retailers are required to provide insurance coverage for the merchandise financed. GE Capital Credit Services ("GECCS") is a services venture which provides statement printing, mailing, remittance processing, credit card embossing, and specialized collections services to over 75 million accounts. GECCS offers services to the banking, utilities, telecommunications, insurance and transportation industries. RFS is headquartered in Stamford, Connecticut. 4 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 & Asia, as well as offering a variety of direct-to-the-consumer credit programs such as consumer loans, bankcards and credit insurance. GCF provides financing to consumers in the United Kingdom under contractual arrangements with retailers. GCF's wide range of proprietary financial services includes private label credit cards, credit promotion and accounting services, billing (in the store's name) and customer credit and collection services. Similar services are provided through GCF operations in Japan, Scandinavia, Austria and Thailand and joint ventures in Spain, Indonesia and India. GCF also provides consumers with MasterCard (registered trademark) products. During 1995, GCF acquired operations that provide credit card services and consumer loans in Germany, Australia and Poland. Service Bank provides financial services to German consumers through its branch offices located inside Metro Group stores. With the acquisition of the credit card operations of Coles Myer Ltd., GCF entered the Australian private label retail credit market. GCF entered the Eastern European financial services markets through its purchase of Solidarnosc Chase D.T. Bank in Poland. GCF is headquartered in Stamford, Connecticut. Mortgage Servicing GE Capital Mortgage Services, Inc. ("GECMSI"), wholly owned by GE Capital Mortgage Corporation ("GECMC"), is engaged in the business of 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 is headquartered in Cherry Hill, New Jersey. Consumer Financial Services Consumer Financial Services ("CFS") issues and services MasterCard (registered trademark)and Visa (registered trademark)products originated through direct mail campaigns, private-label credit card conversions, telemarketing and point-of-sale applications. CFS also issues and services the GE Capital Corporate Card, providing payment and information systems to help medium and large-size companies reduce travel costs, and the GE Capital Purchasing Card, which helps companies streamline purchasing and accounts payable processes. CFS originates, acquires and services home equity loans and lines of credit, and services HUD-insured home improvement loans. In addition to its headquarters in Mason, Ohio, CFS also has offices in Connecticut, New Jersey, Ohio and Utah. 5 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 buildings, rental apartments, shopping centers, industrial buildings, mobile home parks, hotels and warehouses. Loans range in amount from single-property mortgages typically greater than $5 million to multi-property portfolios of several hundred million dollars. Approximately 90% of all loans are senior mortgages. During 1995, CRE continued to broaden its investment base by buying or providing restructuring financing for portfolios of real estate, mortgage loans, limited partnerships, and tax-exempt bonds. CRE also offers a variety of real estate management services to outside investors, institutions, corporations, investment banks, and others through its GE Capital Realty Group subsidiary. Services include acquisitions and dispositions, strategic asset positioning, asset restructuring, facilities management and loan servicing. CRE, through its GE Capital-ResCom venture, also offers owners of multi-family housing ways to reduce costs and enhance value in properties by offering buying services (e.g. lighting, appliances) and bundled telecommunications and video services. CRE has offices located throughout the United States, as well as offices in Canada, Mexico, Singapore, Sweden, and throughout the United Kingdom, in addition to its headquarters in Stamford, Connecticut. Global Project and Structured Finance Global Project and Structured Finance ("GPSF") provides financing for major capital investments in the energy, industrial and infrastructure sectors, historically concentrating in the United States market but more recently conducting business in Asia, Latin America and Europe. At year-end 1995, GPSF's portfolio included investments in energy-related facilities, industrial facilities and equipment, infrastructure projects, telecommunications equipment, railcars and marine vessels. At December 31, 1995, GPSF's portfolio consisted of finance leases (both direct financing and leveraged leases), operating leases, loans (both senior and subordinated) and equity investments (including collateralized, sinking fund and adjustable rate preferred stock, joint ventures, and partnerships). The portfolio is generally secured by liens on the financial assets, preferred mortgages, assignments of earnings, insurance, guarantees, and rights to cash flow streams. GPSF provides syndication and private placement services for GE Capital and GE Company transactions. When such services are performed, GPSF typically retains a portion of the transaction and places the remainder with one or more other financial institutions. In addition to its Stamford, Connecticut headquarters, GPSF has offices in Mexico, the United Kingdom, Singapore, Hong Kong, China and India. 6 Commercial Finance Commercial Finance ("CF") provides revolving and term debt financing for working capital and capital expansion. The portfolio is diversified with approximately 140 accounts dispersed throughout the United States and, to a lesser degree, Canada and Europe. Loans range in amount from $5 million to several hundred million dollars, and represent investments in the cable television/media, retail, healthcare, manufacturing and food and beverage industries. CF is active in the loan syndication market, selling and occasionally purchasing participations in leveraged transactions. CF has offices throughout the United States including its headquarters in Stamford, Connecticut and plans to open its European office in the United Kingdom. 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 to realize long-term capital appreciation. Investments include the retail, financial services, healthcare, food and beverage, cable and broadcasting industries. The portfolio is geographically diversified with customers located throughout the United States, as well as in Canada and Europe. ECG is headquartered in Stamford, Connecticut. 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, aircraft owners, lenders and investors. Financial products include financing leases, operating leases, tax-advantaged and other incentive-based financing. GECAS also provides asset management, marketing, and technical support services to aircraft owners, lenders and investors. At December 31, 1995, the GECAS fleet comprised 890 owned and managed aircraft on lease to 157 customers in 54 countries. GECAS has offices in California, Ireland and a number of other locations worldwide including Great Britain, China, Hong Kong and Singapore and is headquartered in Stamford, Connecticut. Fleet Services GE Capital Fleet Services ("GECFS") is the leading corporate fleet management company in North America and Europe with 750,000 cars, trucks and specialty vehicles 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 7 associated with the lease, GECFS offers 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, title and licensing services and safety programs. GECFS' customer base is diversified with respect to industry and geography and includes many Fortune 500 companies. During 1995, GECFS added 13,000 vehicles to its European fleet, which now totals 175,000 vehicles, with the purchase of Leasecontracts, plc in the United Kingdom. GECFS' headquarters are located in Eden Prairie, Minnesota. Genstar Container Genstar Container Corporation ("Genstar") is the world's largest lessor of intermodal shipping containers. Genstar maintains a fleet of over 1,300,000 TEU ('twenty-foot equivalent units') of dry-cargo, refrigerated and specialized containers for global intermodal cargo transport. Lessees are primarily shipping lines which lease on a long-term or master lease basis. Genstar is headquartered in San Francisco, California. Transport International Pool Transport International Pool ("TIP") is the leading trailer specialist offering diverse trailer programs and associated services. TIP's fleet of over 100,000 dry freight, refrigerated and double vans, flatbeds and specialized trailers is available for rent, lease or purchase at over 180 locations in the United States, Canada, Mexico and Europe. TIP also finances new and used trailers, buys trailer fleets, and structures sale-leaseback transactions. TIP's customer base comprises trucking companies, manufacturers and retailers worldwide. TIP is headquartered in Devon, Pennsylvania. Railcar Services General Electric Railcar Services Corporation ("GERSCO") has a fleet of approximately 140,000 railcars leased to others in North America, principally under operating leases. Railcar maintenance and repair services are provided by General Electric Railcar Repair Services Corporation, a wholly-owned affiliate of GERSCO, at its 15 repair centers in the United States and Canada. GERSCO is headquartered in Chicago, Illinois. Technology Management Services GE Capital Technology Management Services ("GE Capital TMS"), is a leader in providing a broad spectrum of services that enable customers to utilize information technology more efficiently by combining consulting, services and financing options to help businesses plan, acquire, manage and refresh technology assets. These services and financing options include, among others, acquisition, leasing, rental, installation, help desk network services, audio visual rental and show services, and test equipment rental, repair and calibration services. 8 During 1995, GE Capital TMS assumed responsibility for GE Capital's Commercial Processing Service Center, an information technology data center and outsourcing provider, and established the Network and Asset Management business unit, enhancing GE Capital TMS' information technology help desk and network service capabilities. Also, in 1995, GE Capital TMS acquired Andersen Consulting's OM/NI Solution Center as part of an alliance formed between GE Capital TMS and Andersen Consulting designed to promote full service information technology. GE Capital TMS is headquartered in Norcross, Georgia, and has other principal locations in Canada and California. 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 13 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 one-way and two-way Very Small Aperture Terminal (VSAT) network products and services. GE Americom is headquartered in Princeton, New Jersey. Modular Space GE Capital Modular Space ("GECMS") maintains a fleet of approximately 68,000 non-residential relocatable modular structures for rental, lease and sale from over 100 facilities in North America and Europe. Markets served include construction, education, healthcare, financial, commercial, institutional and government. GECMS' operating leases average 12-18 months. During 1995, GECMS acquired the fleet assets of HOB Units, N.V. in Europe and Elder Equipment Leasing, Inc. in the U.S. GECMS is headquartered in Malvern, Pennsylvania. MID-MARKET FINANCING Commercial Equipment Financing Commercial Equipment Financing ("CEF") offers a broad line of financial products including leases, loans and municipal financing to middle-market customers including manufacturers, distributors, dealers and end-users. Products are designed to meet customers' financing needs and 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 is headquartered in Danbury, Connecticut. 9 Vendor Financial Services Vendor Financial Services ("VFS") provides captive financing services to over 75 equipment manufacturers in 22 countries and 3,500 distributors and dealers in seven countries. Customers include telecommunications, information technology, healthcare, manufacturing and office equipment businesses. Financing programs are tailored to meet the individual needs of each manufacturer and distributor and include sales force training, marketing support and customized financing products. Funding, billing, collections and other related services are provided by several highly automated service operations around the world. VFS' typical transaction size ranges from $2,000 to $150,000, with typical terms between 36 to 60 months. Security interests are generally maintained in the assets being financed. During 1995, VFS acquired Pallas Leasing Group located in the United Kingdom. Pallas provides financing services to leading manufacturers, dealers and distributors in the telecommunications, information technology and office equipment industries. Sales offices are located worldwide at sites that include the United States, Canada, the United Kingdom, Spain, Sweden, Mexico, France, Hong Kong, India and elsewhere in Asia. VFS is headquartered in Danbury, Connecticut. GE Capital Hawaii GE Capital Hawaii Inc. ("GECH") operates in the state of Hawaii and territory of Guam. Through a network of 10 branch offices, GECH offers commercial and residential real estate loans, auto and equipment leasing, inventory financing and equity lines of credit. GECH is headquartered in Honolulu, Hawaii. SPECIALTY INSURANCE Financial Guaranty Insurance FGIC Corporation ("FGIC"), through its wholly-owned subsidiary Financial Guaranty Insurance Company ("Financial Guaranty"), is an insurer of municipal bonds, including new issues and bonds traded in the secondary market and bonds held in unit investment trusts and mutual funds. Financial Guaranty also guarantees certain structured debt issues in the taxable market. The guaranteed principal, after reinsurance, amounted to approximately $99 billion at December 31, 1995. Approximately 87% of the business written to date by Financial Guaranty has been municipal bond insurance. Companies affiliated with Financial Guaranty offer a variety of other services to state and local governments and agencies. These affiliates provide liquidity facilities in variable-rate transactions, municipal investment products and cash management services. FGIC is headquartered in New York, New York. 10 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 and the District of Columbia and, at December 31, 1995, was the primary insurance carrier for over 1,305,000 residential homes, with total insurance in force aggregating approximately $160 billion and total risk in force aggregating approximately $33 billion. When a claim is received, GE Capital Mortgage Insurance proceeds by either paying 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. In 1995, GE Capital Mortgage Insurance also began providing mortgage quaranty insurance in the United Kingdom and Canada. GE Capital Mortgage Insurance is headquartered in Raleigh, North Carolina. Creditor Insurance Consolidated Financial Insurance ("CFI"), headquartered in Brentford, Middlesex, England, provides creditor insurance in the European Union. The insurance, which covers loan repayments, is sold through banks, building societies and other lenders to retail borrowers. Insurance Services Heritage Insurance Group primarily comprises a California property and casualty company and an Arizona life insurance company. Heritage is licensed to offer life, accident and health and property coverage in the District of Columbia and all states except New York. Viking Insurance Company, based in Bermuda, provides life, property and casualty reinsurance coverage. Other GE Capital Insurance Services' operations market and distribute insurance-related products through direct brokerage and agent networks. Insurance Services is headquartered in Stamford, Connecticut. 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 such regulations have not had a material adverse effect on the Corporation's volume of financing operations or profitability. The Corporation's charges for providing financing services are changed from time to time either on a general basis or for specific types of financing when warranted in light of competition or interest and other costs. 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, credit unions, leasing companies, consumer loan companies, independent finance companies and finance companies associated with manufacturers. 11 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. 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 11 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. 12 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. Year ended December 31, ------------------------------------------------------ 1995 1994 1993 1992 1991 (Dollar amounts in millions) ------- -------- -------- -------- --------- Earned income................... $ 21,179 $ 16,923 $ 14,444 $ 12,250 $ 11,328 Net earnings.................... 2,261 1,918 1,478 1,251 1,125 Return on common equity ........................... 19.89% 19.59% 17.14% 16.17% 16.63% Ratio of earnings to fixed charges........................ 1.51 1.63 1.62 1.44 1.34 Ratio of earnings to combined fixed charges and preferred stock dividends................ 1.49 1.62 1.60 1.43 1.32 Ratio of debt to equity..... 7.89 7.94 7.96 7.91 7.80 Financing receivables--net...... $ 93,272 $ 76,357 $ 63,948 $ 59,388 $ 55,752 Percent of allowance for losses on financing receivables to total financing receivables.... 2.63% 2.63% 2.63% 2.63% 2.63% Total assets.................... $160,825 $130,904 $117,939 $ 92,632 $ 80,528 Short-term borrowings........... 59,264 54,579 52,903 48,492 43,152 Long-term senior notes......... 47,794 33,615 25,112 21,182 17,946 Long-term subordinated notes... 697 697 697 697 325 Minority interest............... 703 615 426 123 - Equity...................... 14,202 10,540 10,370 8,892 7,872 Equity excludes unrealized gains and losses on investment securities, net of tax. Return on common equity is calculated using earnings from continuing operations. Earnings are adjusted for preferred stock dividends and equity excludes preferred stock. The Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities, on December 31, 1993, resulting in the inclusion in equity, net of tax, of net unrealized gains on investment securities of $543 million, net unrealized losses of $655 million and unrealized gains of $485 million at December 31, 1995, 1994 and 1993, respectively.
13 Item 7. Management's Discussion and Analysis of Results of Operations. Overview The Corporation's net earnings for 1995 were $2,261 million, which, after payment of dividends on its variable cumulative preferred stock, resulted in a contribution of $2,204 million to GE Capital Services' 1995 net earnings, an increase of 17% over 1994. Net earnings for 1994 were $1,918 million, which, after payment of dividends on its variable cumulative preferred stock, resulted in a contribution to GE Capital Services' 1994 net earnings of $1,888 million, an increase of 30% over 1993. Earnings growth during 1995 reflected strong performances from the financing segments. Asset growth, with approximately equal contributions from origination volume and from acquisitions of businesses and portfolios, was a significant contributing factor. The 1995 increase in earnings was partially offset by a decrease in financing spreads (the excess of yields over interest rates on borrowings) as the increase in borrowing rates outpaced the improvements in yields. The increase in 1994 earnings resulted from asset growth, improved financing spreads and asset quality along with a full year of earnings relating to the 1993 mid-year acquisition of the annuity business. In addition, financing spreads increased in 1994, when borrowing rates declined substantially. Earnings from the Corporation's Specialty Insurance businesses increased in 1995, principally because there was no current-year counterpart to the 1994 adverse loss development in private mortgage pool insurance. Earnings declined during 1994 in the Specialty Insurance segment primarily due to private mortgage pool insurance losses. Operating Results Earned income from all sources increased 25% to $21,179 million in 1995, following a 17% increase in 1994. Asset growth in each of the Corporation's financing segments was the primary reason for increased income from time sales, loans, financing leases and operating lease rentals in both 1995 and 1994. Yields on related assets increased during 1995 and 1994 after holding essentially flat in 1993. 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 $381 million to pre-tax income in 1995, compared with $453 million in 1994 and $647 million in 1993. Earned income of the Corporation's Specialty Insurance segment increased 10% to $2,174 million in 1995 compared with $1,976 million in 1994 reflecting premium growth and improved investment results. Earned income during 1994 was essentially flat compared with 1993 reflecting steady growth in premium revenue offset by a reduction in assumed life reinsurance. 14 The correlation between interest rate changes and financing spreads is subject to many factors and cannot be forecasted with reliability. Although not necessarily relevant to future effects, management estimates that, all else constant, an increase of 100 basis points in interest rates for all of 1995 would have reduced net earnings by approximately $60 million. Interest expense on borrowings in 1995 was $6.5 billion, 46% higher than in 1994 which was 28% higher than in 1993. Increases in 1995 and 1994 reflected the effects of higher average borrowings used to finance asset growth as well as the effects of higher interest rates. Part of the 1995 increase resulted from a shift during the year to longer-term funding. The composite interest rate on the Corporation's borrowings was 6.77% in 1995 compared with 5.47% in 1994 and 4.97% in 1993 Operating and administrative expenses were $6.2 billion in 1995, a 15% increase over 1994, which was 9% higher than 1993, primarily reflecting higher investment levels and costs associated with acquired businesses and portfolios over the past two years. These increases were partially offset by reductions in provisions for losses on investments charged to operating and administrative expenses, principally those relating to commercial real estate assets during 1995 and a combination of commercial real estate assets, highly leveraged transactions and commercial aircraft during 1994. Insurance losses and policyholder and annuity benefits increased 19% to $2.0 billion in 1995, compared with a 36% increase to $1.7 billion in 1994. The 1995 and 1994 increases primarily resulted from annuity benefits credited to customers of the annuity businesses acquired during 1994 and 1993, respectively. The 1994 increase also included adverse loss development in private mortgage pool insurance, particularly related to the effects of poor economic conditions and housing value declines in southern California. This 1994 increase was partially offset by lower policyholder benefits in the life reinsurance business resulting from reduced assumed volume. Provision for losses on financing receivables increased to $1,117 million in 1995 from $873 million in 1994, which decreased from $987 million in 1993. These provisions principally related to private-label credit cards, bank credit cards, auto loans and auto leases in the Consumer Segment along with commercial real estate loans, all of which are discussed below under Portfolio Quality. Depreciation and amortization of buildings and equipment and equipment on operating leases increased 21% to $2,001 million in 1995 compared with $1,657 million in 1994, a 4% increase over 1993. The increase in both years was the result of additions to equipment on operating leases through origination volume as well as business and portfolio acquisitions. Provision for income taxes was $1,071 million in 1995 (an effective tax rate of 32.2%), compared with $896 million in 1994 (an effective tax rate of 31.8%), and $664 million in 1993 (an effective tax rate of 31.0%). The higher provision for income taxes in both 1995 and 1994 reflected increased pre-tax earnings subject to statutory tax rates. The marginal increase in the 1995 effective tax rate resulted primarily from proportionately lower tax-exempt income, partially offset by an increase in dividends received which are not fully taxable. Increases affecting the effective tax rate in 1994, compared with 1993, included proportionately lower tax-exempt income and an increase in 15 state and local income taxes. In addition, there was no 1994 counterpart to the effects of certain 1993 financing transactions that reduced the Corporation's obligation for deferred taxes. These increases were offset by the absence of a 1994 counterpart to the unfavorable effects of the 1993 increase of 1% in the U.S. federal income tax rate. Operating profit by industry segment Operating profit of the Corporation, by industry segment, is summarized in note 15 to the consolidated financial statements and discussed below. Consumer Services operating profit was $1,030 million in 1995, compared with $1,067 million in 1994, and $709 million in 1993. Strong performances during 1995 in the bank credit card, annuity and non-U.S. private label credit card businesses, resulting primarily from acquisition growth, were offset by losses from adverse market conditions in the mortgage servicing business. The strong 1994 growth in operating profit resulted from origination and acquisition growth in the auto leasing business and the private-label and bank credit card businesses. In addition, the operations of the annuity business, purchased in 1993, were included for a full year in 1994. Specialized Financing operating profit increased to $651 million in 1995 from $513 million in 1994, which increased 40% over 1993. The 1995 increase resulted from lower provisions for losses, particularly in the commercial real estate business, and increased end-of-lease residual realization. The increase in 1994 principally reflected much lower provisions for losses on highly leveraged investments and commercial real estate assets. Equipment Management operating profit increased to $897 million in 1995 from $624 million in 1994, which was up from $246 million in 1993. Increases in both years reflected higher volume in most businesses, largely the result of portfolio and business acquisitions. The 1995 increase also resulted from increased prices at the trailer, modular space and railcar businesses along with the sale of an outdoor media business. The 1994 increase also reflected improved trailer, container and railcar utilization, and reduced expenses associated with redeployment and refurbishment of owned aircraft compared with 1993. Mid-Market Financing operating profit increased slightly to $445 million in 1995 compared with $435 million in 1994 primarily due to continued asset growth partially offset by reduced financing spreads. Operating profit during 1994 increased 7% over 1993 reflecting higher levels of invested assets, primarily as a result of business and portfolio acquisitions and increased financing spreads. Specialty Insurance operating profit increased to $341 million in 1995 from $188 million in 1994, principally because there was no current-year counterpart to the 1994 adverse loss development in private mortgage pool insurance, the result of poor economic conditions and housing value declines in southern California. 1994 operating profit declined from $422 million in 1993 as private mortgage pool insurance losses more than offset operating profit increases in other parts of the segment, including primary mortgage insurance. 16 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 businesses in support of obligations to policyholders and annuitants. The increase of $4.8 billion during 1995 was principally related to acquisitions, increases in fair value resulting from lower year-end interest rates and investment of premiums. Financing receivables were $93.3 billion at year-end 1995, net of allowance for doubtful accounts, up $16.9 billion over 1994. These receivables are discussed on page 21 and in notes 3 and 4 to the consolidated financial statements. Other receivables were $6.4 billion and $3.6 billion at December 31, 1995 and 1994, respectively. The 1995 increase was almost entirely attributable to premiums receivable and reinsurance recoverables, reflecting acquired businesses and a general increase in underwriting activity. Equipment on operating leases was $13.8 billion at December 31, 1995, up $942 million from 1994. Details by category of investment can be found in note 5 to the consolidated financial statements. Additions to equipment on operating leases were $4.5 billion during 1995 and $5.6 billion during 1994. Other assets totaled $17.6 billion at year-end 1995, an increase of $3.4 billion from the end of 1994. $1.0 billion of the increase relates to goodwill attributable to various acquisitions, none of which was individually significant. The remaining increase of $2.4 billion related principally to acquisitions. Insurance liabilities, reserves and annuity benefits were $22.4 billion at year-end 1995, $3.8 billion higher than in 1994. The increase was primarily attributable to acquisitions. Borrowings were $107.8 billion at December 31, 1995, of which $59.3 billion is due in 1996 and $48.5 billion is due in subsequent years. Comparable amounts at the end of 1994 were $88.9 billion in total, $54.6 billion due within one year and $34.3 billion due thereafter. A large portion of the Corporation's borrowings ($38.3 billion and 41.2 billion at the end of 1995 and 1994, 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 41 days and 5.88%, respectively, at the end of 1995 compared with 45 days and 5.90% at the end of 1994. The Corporation's leverage (ratio of debt to equity, excluding from equity all unrealized gains and losses on investment securities, net of tax) was 7.89 to 1 at the end of 1995, compared with 7.94 to 1 at the end of 1994. By comparison, including in equity all unrealized gains and losses on investment securities, net of tax, the Corporation's ratio of debt to equity was 7.59 to 1 at the end of 1995, compared with 8.43 to 1 at the end of 1994. GE Company has committed to make contributions to the Corporation in the event of either a significant, specified decrease 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 of the Corporation's preferred stock is redeemed. 17 GE Company also has guaranteed the Corporation's subordinated debt with a face amount of $700 million at December 31, 1995 and 1994. Management believes the likelihood that GE Company will be required to make contributions or payments under either the commitments or the guarantees is remote. Statement of Cash Flows The Corporation's primary source of cash is financing activity 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 decreased by $5.9 billion. New borrowings of $74.2 billion having maturities longer than 90 days were added during those years, while $38.3 billion of such longer-term borrowings were retired. The Corporation also generated $19.8 billion of cash from operating activities during the last three years. The Corporation's principal use of cash has been investing in assets to grow its businesses. Of the $49.0 billion that the Corporation invested in operations over the past three years, $25.0 billion was used for additions to financing receivables, $13.5 billion was used to invest in new equipment, principally for lease to others, and $8.8 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. Interest Rate and Currency Risk Management The Corporation uses various financial instruments, particularly interest rate, currency and basis swaps, but also 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. 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 and currency swaps (including non-U.S. currency and cross currency interest rate swaps) to achieve lower borrowing costs. Substantially all of these swaps 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. 18 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 and option-based financial instruments. These instruments generally behave based on limits ("caps," "floors" or "collars") on interest rate movement. These swaps and option-based instruments are governed by the credit risk policies described below and are transacted in the 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:
Counterparty credit criteria Credit rating ------------------------------------ Moody's Standard & Poor's ------- ----------------- >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
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-. Because of their lower risk, more credit latitude is permitted for original maturities shorter than one year. Once a counterparty exceeds credit exposure limits, 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. 19 The conversion of interest rate and currency risk into credit risk results in a need to monitor counterparty credit risk actively. At December 31, 1995, the notional amount of long-term derivatives for which the counterparty was rated below Aa3/AA- was $2,297 million. 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. The total exposure to credit risk associated with in-the-money derivatives at December 31, 1995 was $680 million. The Corporation does not anticipate any loss from this exposure. Following is an analysis of credit risk exposures for the last three years.
Percentage of Notional Derivative Exposure by Counterparty Credit Rating ------------------------------------------------------------------------ Moody's / S&P 1995 1994 1993 ------------- ----- ----- ----- Aaa/AAA........................ 75% 77% 65% Aa/AA.......................... 22% 18% 23% A/A and below.................. 3% 5% 12%
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 principal and interest will be received and floating rate non-U.S. currency principal and 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. This type of structure usually results from using several swap counterparties for steps (2) and (3). 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.
Spread over U.S. Treasuries in basis points Counterparty -------------- ------------ 1. Fixed rate 5 year medium term note...................... +65 -- 2. U.S. dollar commercial paper swapped into 5 year U.S. dollar fixed rate funding...... +40 A 3. Swiss franc fixed rate debt swapped into 5 year U.S. dollar fixed rate funding...... +35 B
20 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. Portfolio Quality The portfolio of financing receivables, before allowance for losses, increased to $95.8 billion at the end of 1995 from $78.4 billion at the end of 1994, with approximately equal contribution from origination volume and from acquisitions of businesses and portfolios. Financing receivables are the Corporation's largest asset and its primary source of revenues. Related allowances for losses at the end of 1995 aggregated $2.5 billion (2.63% of receivables - the same level as 1994 and 1993) and are, in management's judgment, appropriate given the risk profile of the portfolio. Amounts written off in 1995 were approximately 1.01% of the year's average financing receivables, compared with 1.04% and 1.59% during 1994 and 1993, respectively. A discussion about the quality of certain elements of the portfolio of financing receivables follows. Further details are included in notes 3, 4 and 5 to the consolidated financial statements. Nonearning receivables are those that are 90 days or more delinquent and reduced earning receivables are receivables whose terms have been restructured to a below-market yield. Consumer receivables at year-end 1995 and 1994 are shown in the following table:
1995 1994 (In millions) -------- ------- Credit card and personal loans............. $23,937 $19,124 Auto loans................................. 5,555 3,991 Auto finance leases........................ 12,461 7,473 ------- ------- Total consumer........................... $41,953 $30,588 ======= ======= Nonearning and reduced earning............. $ 671 $ 422 - As a percentage of total.............. 1.6% 1.4% Receivable write offs for the year......... $ 644 $ 482
Most of the nonearning consumer receivables were U.S. private-label credit card loans, the majority of which were subject to various loss sharing arrangements that provide full or partial recourse to the originating retailer. Delinquencies in the consumer portfolio were slightly higher at the end of 1995 than 1994, consistent with overall industry experience. 21 Commercial real estate portfolio at year-end 1995 and 1994 amounted to $17.4 billion and $16.9 billion, respectively, as shown in the following table:
1995 1994 (In millions) -------- ------- Loans $13,405 $13,282 Nonearning and reduced earning loans...... 179 179 Receivable write offs for the year........ 147 209 Assets acquired for resale.................. 2,335 2,103 Other (primarily ventures).................. 1,651 1,508
Commercial real estate loans are generally secured by first mortgages. Assets are acquired for resale from various financial institutions. Values realized during 1995 and 1994 on disposition of assets acquired for resale have met or exceeded expectations at the time of purchase. The commercial real estate portfolio included investments in a variety of property types and continues to be well dispersed geographically, principally in the continental United States. Write offs in the commercial real estate portfolio declined during 1995, as markets continued to stabilize. Other financing receivables, totaling $40.4 billion at December 31, 1995, consisted of a diverse commercial, industrial and equipment loan and lease portfolio. This portfolio increased $5.9 billion during 1995, primarily because of acquisitions. The related nonearning and reduced-earning receivables increased to $285 million at year-end 1995 from $165 million at year-end 1994. The Corporation has loans and leases to commercial airlines, as discussed in note 5 to the consolidated financial statements, amounting to $8.3 billion at the end of 1995, up from $7.6 billion at the end of 1994. At year-end 1995, the Corporation's commercial aircraft positions included financial guarantees and funding commitments amounting to $409 million ($506 million in 1994) and conditional commitments to purchase aircraft at a cost of $141 million ($81 million at December 31, 1994). On January 22, 1996, the Corporation announced that it had placed a multi-year order for various Boeing aircraft with list prices approximating $4 billion. Entering 1996, management believes that vigilant attention to risk management and controllership and a strong focus on complete satisfaction of customer needs position it to deal effectively with the increasing competition in an ever-changing global economy. New Accounting Standards Two newly-issued accounting standards will be adopted in the first quarter of 1996 and are not expected to have a material effect on the Corporation's financial position or results of operations. A summary of these standards follows. SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, requires that certain long-lived assets be reviewed for impairment when events or circumstances indicate that the carrying amounts of the assets may not be recoverable. If such review indicates that 22 the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset's carrying value must be written down to fair value. SFAS No. 122, Accounting for Mortgage Servicing Rights, requires that capitalized rights to service mortgage loans be assessed for impairment by individual risk stratum by comparing each stratum's carrying amount with its fair value. Impairment, if any, would be recognized in earnings. 23 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, 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 9, 1996 24
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Statement of Current and Retained Earnings For the years ended December 31 1995 1994 1993 (In millions) ------ ------ ------ EARNED INCOME Time sales, loan, investment and other income (Note 12)................................ $12,104 $ 9,208 $ 7,558 Financing leases (Note 12)....................... 3,176 2,539 2,315 Operating lease rentals (Note 5)................. 4,079 3,802 3,267 Premium and commission income of insurance affiliates (Note 9)............................. 1,820 1,374 1,304 ------- ------- ------- Total earned income.......................... 21,179 16,923 14,444 ------- ------- ------- EXPENSES Interest (Note 8)................................ 6,455 4,414 3,461 Operating and administrative (Note 13)........... 6,162 5,349 4,894 Insurance losses and policyholder and annuity benefits (Note 9)............................... 2,031 1,707 1,259 Provision for losses on financing receivables (Note 4)........................................ 1,117 873 987 Depreciation and amortization of buildings and equipment and equipment on operating leases (Notes 5 & 6)............................ 2,001 1,657 1,587 Minority interest in net earnings of consolidated affiliates......................... 81 109 114 ------- ------- ------- Total expenses............................... 17,847 14,109 12,302 ------- ------- ------- Earnings before income taxes..................... 3,332 2,814 2,142 Provision for income taxes (Note 14)............. (1,071) (896) (664) ------- ------- ------- NET EARNINGS..................................... 2,261 1,918 1,478 Dividends paid (Note 11)......................... (1,645) (605) (482) Retained earnings at January 1................... 8,321 7,008 6,012 ------- ------- ------- RETAINED EARNINGS AT DECEMBER 31................. $ 8,937 $ 8,321 $ 7,008 ======= ======= =======
See Notes to Consolidated Financial Statements. 25
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Statement of Financial Position At December 31 1995 1994 (In millions) -------- -------- ASSETS Cash and equivalents......................................... $ 1,316 $ 712 Investment securities (Note 2)............................... 26,991 22,208 Financing receivables (Note 3): Time sales and loans, net of deferred income............... 59,591 50,021 Investment in financing leases, net of deferred income..... 36,200 28,398 -------- -------- 95,791 78,419 Allowance for losses on financing receivables (Note 4)..... (2,519) (2,062) -------- -------- Financing receivables--net................................. 93,272 76,357 Other receivables--net....................................... 6,408 3,624 Equipment on operating leases (at cost), less accumulated amortization of $4,670 and $4,029 (Note 5).................. 13,793 12,851 Buildings and equipment (at cost), less accumulated depreciation of $915 and $764 (Note 6)...................... 1,478 1,018 Other assets (Note 7)........................................ 17,567 14,134 -------- -------- Total assets................................................. $160,825 $130,904 ======== ======== LIABILITIES AND EQUITY Short-term borrowings (Note 8)............................... $ 59,264 $ 54,579 Long-term borrowings (Note 8)................................ 48,491 34,312 -------- -------- Total borrowings........................................... 107,755 88,891 Accounts payable............................................. 4,560 3,156 Insurance liabilities, reserves and annuity benefits (Note 9).................................................... 22,401 18,593 Other liabilities............................................ 4,642 3,842 Deferred income taxes (Note 14).............................. 6,562 5,267 -------- -------- Total liabilities.......................................... 145,920 119,749 -------- -------- Minority interest in equity of consolidated affiliates (Note 10)................................................... 703 615 -------- -------- Variable cumulative preferred stock, $100 par value, liquidation preference $100,000 per share (18,000 shares authorized and outstanding at December 31, 1995; 10,500 shares authorized and 8,750 shares outstanding at December 31, 1994).......................................... 2 1 Common stock, $200 par value (3,866,000 shares authorized and 3,837,825 shares outstanding at December 31, 1995 and December 31, 1994)......... 768 768 Additional paid-in capital................................... 4,022 2,172 Retained earnings............................................ 8,937 8,321 Unrealized gains (losses) on investment securities........... 543 (655) Foreign currency translation adjustments..................... (70) (67) -------- -------- Total equity (Note 11)..................................... 14,202 10,540 -------- -------- Total liabilities and equity................................. $160,825 $130,904 ======== ========
See Notes to Consolidated Financial Statements. 26
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Statement of Cash Flows For the years ended December 31 1995 1994 1993 (In millions) ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings........................................... $ 2,261 $ 1,918 $ 1,478 Adjustments to reconcile net earnings to cash provided from operating activities: Provision for losses on financing receivables........ 1,117 873 987 Increase in insurance liabilities, reserves and annuity benefits................................... 1,006 542 764 Increase in deferred income taxes.................... 653 721 496 Depreciation and amortization of buildings and equipment and equipment on operating leases........ 2,001 1,657 1,587 Increase (decrease) in accounts payable.............. 720 (656) 624 Other--net........................................... 357 135 554 ------- ------- ------- Cash from operating activities..................... 8,115 5,190 6,490 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in financing receivables (Note 18)........ (11,309) (9,525) (4,164) Buildings and equipment and equipment on operating leases--additions.................................... (4,628) (5,734) (3,133) --dispositions................................. 1,495 2,417 1,080 Payments for principal businesses purchased, net of cash acquired........................................ (4,600) (2,144) (2,090) All other investing activities (Note 18))............. (2,617) 1,544 (5,628) ------- ------- ------- Cash used for investing activities................. (21,659) (13,442) (13,935) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (maturities 90 days or less).. (5,547) (2,429) 2,053 Newly issued debt (maturities longer than 90 days) (Note 18)............................................. 36,480 22,473 15,253 Repayments and other reductions (maturities longer than 90 days) (Note 18)............................... (17,045) (11,699) (9,526) Dividends paid......................................... (961) (595) (482) Issuance of preferred stock in excess of par value..... 924 - - Issuance of variable cumulative preferred stock by consolidated affiliate............................... 120 240 - All other financing activities (Note 18)............... 177 (75) (44) ------- ------- ------- Cash from financing activities..................... 14,148 7,915 7,254 ------- ------- ------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR.............................................. 604 (337) (191) CASH AND EQUIVALENTS AT BEGINNING OF YEAR.............. 712 1,049 1,240 ------- ------- ------- CASH AND EQUIVALENTS AT END OF YEAR.................... $ 1,316 $ 712 $ 1,049 ======= ======= =======
See Notes to Consolidated Financial Statements. 27 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 "Corporation") and all majority-owned and controlled affiliates ("consolidated affiliates"). All significant transactions among the Corporation and consolidated affiliates have been eliminated. Other affiliates, generally companies in which the Corporation owns 20 to 50 percent of the voting rights ("nonconsolidated affiliates"), are included in other assets and valued at the appropriate share of equity plus loans and advances. Certain prior period data 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. Cash Equivalents--Certificates and other time deposits are treated as cash equivalents. Methods of Recording 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 the related services are performed unless significant contingencies exist. Premiums on insurance contracts are reported as earned income over the terms of the contracts. In general, earned premiums are calculated on a pro-rata basis. Premiums received under annuity contracts that do not have significant mortality or morbidity risk are not reported as revenues but as annuity benefits - a liability - and are adjusted according to the terms of the respective policies. 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. For small-balance receivables, the allowance for losses is determined principally on the basis of actual experience during the preceding three years. Further allowances are also provided to reflect management's judgment of additional loss potential. For other financing 28 receivables, principally the larger loans and leases, the allowance for losses is determined primarily on the basis of management's judgment of net loss potential, including specific allowances for known troubled accounts. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses. Generally, small-balance accounts are progressively written down (from 10% when more than three months delinquent to 100% when nine to twelve months delinquent) to record the balances at estimated realizable value. However, if at any time during that period an account is judged to be uncollectible, such as in the case of a bankruptcy, the uncollectible balance is written off. Larger-balance accounts are reviewed at least quarterly, and those accounts with amounts that are judged to be uncollectible are written down to estimated realizable value. When collateral is repossessed in satisfaction of a loan, the receivable is written down against the allowance for losses to estimated fair value 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--The Corporation has designated its investments in debt securities and marketable equity securities as available-for-sale. Those securities are reported at fair value, with net unrealized gains and losses included in equity, net of applicable taxes. Unrealized losses that are other than temporary are recognized in earnings. 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. Goodwill--Goodwill is amortized over its estimated period of benefit on a straight-line basis. No amortization period exceeds 30 years. Goodwill in excess of associated expected operating cash flows is considered to be impaired and is written down to fair value. Deferred Insurance Acquisition Costs--For the property and casualty businesses, deferred insurance acquisition costs are amortized pro-rata over the contract periods in which the related premiums are earned. For the life insurance business, these costs are amortized over the premium-paying periods of the contracts in proportion either to anticipated premium income or to gross profit, as appropriate. For certain annuity contracts, such costs are amortized on the basis of anticipated gross profits. For other lines of business, acquisition costs are amortized over the life of the related insurance contracts. Deferred insurance acquisition costs are reviewed for recoverability; anticipated investment income is considered in making recoverability evaluations. Insurance Liabilities and Reserves--The estimated liability for insurance losses and loss expenses 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. 29 The liability for future policyholder benefits of the life insurance affiliates has been computed mainly by a net-level-premium method based on assumptions for investment yields, mortality and terminations that were appropriate at date of purchase or at the time the policies were developed, including provisions for adverse deviations. 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. Any instrument designated but ineffective as a hedge is marked to market and recognized in operations immediately. 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 options and 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. NOTE 2. INVESTMENT SECURITIES A summary of investment securities follows:
Gross Gross Estimated Amortized unrealized unrealized fair (In millions) cost gains losses value --------- ---------- ---------- --------- December 31, 1995 Corporate and other............ $11,470 $ 447 $ (62) $11,855 Mortgage-backed................ 4,824 221 (63) 4,982 State and municipal............ 3,781 196 (6) 3,971 Equity......................... 3,090 257 (13) 3,334 Non-U.S........................ 1,489 39 (21) 1,507 U.S. government and federal agency........................ 1,282 63 (3) 1,342 ------- ------- ------- ------- $25,936 $ 1,223 $ (168) $26,991 ======= ======= ======= ======= December 31, 1994 Corporate and other............ $10,428 $ 3 $ (755) $ 9,676 Mortgage-backed................ 4,448 81 (188) 4,341 State and municipal............ 3,440 37 (166) 3,311 Equity......................... 2,917 156 (91) 2,982 Non-U.S........................ 1,084 8 (22) 1,070 U.S. government and federal agency......................... 994 - (166) 828 ------- ------- ------- ------- $23,311 $ 285 $(1,388) $22,208 ======= ======= ======= =======
30 Contractual maturities of debt securities at December 31, 1995, other than mortgage-backed securities, are shown below.
Amortized Estimated (In millions) cost fair value ---------- ---------- Due in: 1996........................................ $1,345 $1,369 1997 - 2000................................. 5,761 5,896 2001 - 2005................................. 3,968 4,136 2006 and later.............................. 6,948 7,274
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 the sales of investment securities in 1995, 1994 and 1993 were $6,225 million, $3,100 million and $4,922 million, respectively; gross realized gains were $241 million, $143 million and $129 million, respectively; and gross realized losses were $86 million, $68 million and $31 million, respectively. NOTE 3. FINANCING RECEIVABLES Financing receivables at December 31, 1995 and 1994 are shown below.
(In millions) 1995 1994 ------- ------- Time sales and loans: Consumer services........................... $33,430 $25,906 Specialized financing....................... 18,230 17,988 Mid-market financing........................ 8,795 5,916 Equipment management........................ 1,371 1,516 Specialty insurance......................... 189 - ------- ------- 62,015 51,326 Deferred income................................ (2,424) (1,305) ------- ------- Time sales and loans--net of deferred income... 59,591 50,021 ------- ------- Investment in financing leases: Direct financing leases...................... 33,291 25,916 Leveraged leases............................. 2,909 2,482 ------- ------- Investment in financing leases............ 36,200 28,398 ------- ------- 95,791 78,419 Less allowance for losses (Note 4)............. (2,519) (2,062) ------- ------- $93,272 $76,357 ======= =======
Time sales and loans represent transactions in a variety of forms, including time sales, revolving charge and credit arrangements, 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. 31 At year-end 1995 and 1994, specialized financing and consumer services loans included $13,405 million and $13,282 million, respectively, for commercial real estate loans. note 5 contains information on commercial airline loans and leases. At December 31, 1995, contractual maturities for time sales and loans were $24,543 million in 1996, $11,933 million in 1997, $6,635 million in 1998, $5,052 million in 1999, $4,424 million in 2000 and $9,428 million thereafter, aggregating $62,015 million. Experience of the Corporation has shown that a substantial portion of receivables will be paid prior to contractual maturity. Accordingly, the contractual 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, automobiles and other transportation equipment, data processing equipment, 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 is also generally entitled to any residual value of leased assets and to any investment tax credit on leased equipment. Investments in direct financing and leveraged leases represent unpaid rentals and estimated unguaranteed residual values of leased equipment, less related deferred income. Because 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 the other participants who also have security interests in the leased equipment. The Corporations net investment in financing leases at December 31, 1995 and 1994 is shown below.
Direct Total financing leases Leveraged leases financing leases ----------------- ----------------- ----------------- (In millions) 1995 1994 1995 1994 1995 1994 ------- ------- ------- ------- ------- ------- Total minimum lease payments receivable........................ $37,434 $30,338 $12,625 $ 9,630 $50,059 $39,968 Less principal and interest on third-party nonrecourse debt..... - - (9,329) (7,103) (9,329) (7,103) ------- ------- ------- ------- ------- ------- Net rentals receivable......... 37,434 30,338 3,296 2,527 40,730 32,865 Estimated unguaranteed residual value of leased assets............ 4,630 3,767 1,138 1,122 5,768 4,889 Less deferred income............... (8,773) (8,189) (1,525) (1,167) (10,298) (9,356) ------- ------- ------- ------- ------- ------- Investment in financing leases..... 33,291 25,916 2,909 2,482 36,200 28,398 Less: Allowance for losses......... (669) (471) (76) (99) (745) (570) Deferred taxes arising from financing leases............ (2,959) (2,470) (2,787) (2,605) (5,746) (5,075) ------- ------- ------- ------- ------- ------- Net investment in financing leases. $29,663 $22,975 $ 46 $ (222) $29,709 $22,753 ======= ======= ======= ======= ======= ======= At December 31, 1995, contractual maturities for finance lease rentals receivable were $8,780 million in 1996, $10,418 million in 1997, $6,837 million in 1998, $3,631 million in 1999, $2,126 million in 2000 and $8,938 million thereafter aggregating $40,730 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. In connection with the sales of financing receivables with recourse, GE Capital received proceeds of $2,139 million in 1995, $1,239 million in 1994 and $1,105 million in 1993. GE Capital's exposure under such recourse provisions is included in "credit and liquidity support-securitizations" in note 19. Nonearning consumer receivables, primarily private-label credit card receivables, amounted to $671 million and $422 million at December 31, 1995 and 1994, respectively. A majority of these receivables were subject to various loss-sharing arrangements that provide full or partial recourse to the originating private-label entity. Nonearning and reduced earning receivables other than consumer receivables were $464 million and $346 million at year-ends 1995 and 1994, respectively. On January 1, 1995, the Corporation adopted Statement of Financial Accounting (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, and the related SFAS No. 118, Accounting by Creditors for Impairment of a Loan- - -Income Recognition and Disclosures. These Statements do not apply to, among other things, leases or large groups of smaller-balance, homogeneous loans, and therefore are principally relevant to commercial loans. There was no effect of adopting the Statements on 1995 results of operations or financial position because the allowance for losses established under the previous accounting policy continued to be appropriate following the accounting change. The Statements require disclosures of impaired loans--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, based on current information and events. At December 31, 1995, loans that required disclosure as impaired amounted to $867 million, principally commercial real estate loans. For $647 million of such loans, the required allowance for losses was $285 million. The remaining $220 million of loans represents the recorded investment in loans that are fully recoverable, but only because the recorded investment had been reduced through charge-offs or deferral of income recognition. These loans must be disclosed under the Statements' technical definition of "impaired" because the Corporation will be unable to collect all amounts due according to original contractual terms of the loan agreement. Under the Statements, such loans do not require an allowance for losses. The average investment in impaired loans requiring disclosure under the Statements was $1,037 million during 1995, with revenue of $49 million recognized, principally on the cash basis. NOTE 4. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES The allowance for losses on financing receivables represented 2.63% of total financing receivables at year-end 1995 and 1994. The table below shows the activity in the allowance for losses on financing receivables during each of the past three years. 33
(In millions) 1995 1994 1993 ------ ------ ------ Balance at January 1............................. $2,062 $1,730 $1,607 Provisions charged to operations................. 1,117 873 987 Net transfers related to companies acquired or sold................................ 217 199 126 Amounts written off--net......................... (877) (740) (990) ------ ------ ------ Balance at December 31........................... $2,519 $2,062 $1,730 ====== ====== ======
NOTE 5. EQUIPMENT ON OPERATING LEASES Equipment on operating leases by type of equipment and accumulated amortization at December 31, 1995 and 1994 are shown below.
(In millions) 1995 1994 -------- -------- Original Cost Aircraft..................................... $ 5,682 $ 4,593 Vehicles..................................... 4,948 4,542 Marine shipping containers................... 3,253 3,333 Railroad rolling stock....................... 1,811 1,605 Other........................................ 2,769 2,807 ------- ------- 18,463 16,880 Accumulated amortization........................ (4,670) (4,029) ------- ------- $13,793 $12,851 ======= =======
Amortization of equipment on operating leases was $1,702 million, $1,435 million and $1,395 million in 1995, 1994 and 1993, respectively. Noncancelable future rentals due from customers for equipment on operating leases at year-end 1995 totaled $8,412 million and are due as follows: $2,501 million in 1996, $1,657 million in 1997, $1,119 million in 1998, $732 million in 1999, $450 million in 2000, and $1,953 million thereafter. The Corporation acts as a lender and lessor to the commercial airline industry. At December 31, 1995 and 1994, the balance of such loans, leases and equipment leased to others was $8,337 million and $7,571 million, respectively. In addition, the Corporation had issued financial guaranties and funding commitments of $409 million at December 31, 1995 ($506 million at year-end 1994) and had conditional commitments to purchase aircraft at a cost of $141 million ($81 million at year-end 1994). Included in the Corporation's equipment leased to others at year-end 1995 is $101 million of commercial aircraft off-lease ($226 million in 1994). NOTE 6. BUILDINGS AND EQUIPMENT Buildings and equipment include office buildings, satellite communications equipment, data processing equipment, vehicles, furniture and office equipment. Depreciation expense was $299 million for 1995, $222 million for 1994 and $192 million for 1993. 34 NOTE 7. OTHER ASSETS Other assets at December 31, 1995 and 1994 are shown in the table below.
(In millions) 1995 1994 ------- ------- Assets acquired for resale......................... $ 3,998 $ 3,867 Goodwill........................................... 3,218 2,171 Investments in and advances to nonconsolidated affiliates....................................... 3,366 2,098 Real estate ventures............................... 1,564 1,400 Mortgage servicing rights.......................... 1,688 1,351 Other intangibles.................................. 778 1,003 Miscellaneous investments.......................... 789 628 Deferred insurance acquisition costs............... 595 471 Other.............................................. 1,571 1,145 ------- ------- $17,567 $14,134 ======= =======
Goodwill, mortgage servicing rights, and other intangibles are shown net of accumulated amortization of $1,090 million at December 31, 1995 and $672 million at December 31, 1994. NOTE 8. BORROWINGS Total short-term borrowings at December 31, 1995 and 1994 consisted of the following:
1995 1994 ---------------- ---------------- Average Average (Dollars in millions) Amount rate Amount rate ------ ------ ------ ------ Commercial paper - U.S................... $34,513 5.83% $39,279 5.89% Commercial paper - Non U.S............... 3,796 6.33 1,938 6.27 Current portion of long-term debt........ 15,719 9,695 Other.................................... 5,236 3,667 ------- ------- $59,264 $54,579 ======= =======
Total long-term borrowings at December 31, 1995 and 1994 were as follows:
Weighted average interest (Dollars in millions) rate Maturities 1995 1994 --------- ---------- ------- ------- Senior notes............... 6.56% 1997-2055 $47,794 $33,615 Subordinated notes..... 8.04 2006-2012 697 697 ------- ------- $48,491 $34,312 ======= ======= Includes the effects of associated interest rate and currency swaps. Guaranteed by GE Company.
35 Interest rate and currency swaps are employed to achieve the lowest cost of funds for a particular funding strategy. The Corporation enters into interest rate swaps and currency swaps (including non-U.S. currency and cross- currency interest rate swaps) to modify interest rates and/or currencies of specific debt instruments. For example, to fund U.S. operations, GE Capital may issue fixed-rate debt denominated in a currency other than the U.S. dollar and simultaneously enter into a currency swap to create synthetic fixed-rate U.S. dollar debt with a lower yield than could be achieved directly. Such interest rate and currency swaps have been designated as modifying interest rates, currencies or both. The Corporation does not engage in derivatives trading, market-making or other speculative activities. The Corporation used a portion of this interest rate swap portfolio to convert interest rate exposure on short-term and floating rate long-term borrowings to interest rates that are fixed over the terms of the related swaps; interest rate basis swaps also are employed to manage short-term financing factors--for example, to convert commercial paper-based interest costs to prime rate-based costs. At December 31, 1995 and 1994, such swaps were outstanding for principal amounts equivalent to $9,851 million and $7,701 million with maturities from 1996 to 2029 and weighted average interest rates of 6.45% and 6.28%, respectively. At December 31, 1995, long-term borrowing maturities, including the current portion of long-term debt, were $15,719 million in 1996, $14,012 million in 1997, $11,517 million in 1998, $5,480 million in 1999, and $4,494 million in 2000. Additional information about borrowings, as well as associated swaps, is provided in note 19. At December 31, 1995, the Corporation had committed lines of credit aggregating $20.4 billion with 128 banks, including $9.5 billion of revolving credit agreements pursuant to which the Corporation has the right to borrow funds for periods exceeding one year. A total of $2.5 billion and $1.5 billion of these lines were also available for use by GE Capital Services and GE Company, respectively. In addition, at December 31, 1995, approximately $108 million of committed lines of credit were directly available to a non-U.S. affiliate of the Corporation. Also, at December 31, 1995, substantially all of the approximately $3.1 billion of GE Company's credit lines were available for use by the Corporation or GE Capital Services. During 1995, GE Capital, GE Capital Services and GE Company did not borrow 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. NOTE 9. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS Insurance liabilities, reserves and annuity benefits comprises policyholders' benefits, unearned premiums and provisions for policy losses and benefits relating to insurance and annuity businesses. The related balances at December 31, 1995 and 1994, follow:
(In millions) 1995 1994 ------- ------- Annuity benefits.................................. $11,597 $12,194 Other policyholder benefits....................... 7,913 3,778 Property and casualty reserves.................... 175 163 Financial and mortgage guaranty reserves.......... 720 715 Unearned premiums................................. 1,996 1,743 ------- ------- $22,401 $18,593 ======= =======
36 The liability for future policy benefits of the life insurance affiliates, included in other policyholder benefits above, has been computed using average yields of 3.5% to 9.0% in 1995 and 4.0% to 9.1% in 1994. Activity in the liability for unpaid claims and claims adjustment expenses is summarized as follows for the past three years:
(In millions) 1995 1994 1993 ------ ------ ------ Balance at January 1 - gross.................. $ 999 $1,047 $ 928 Less reinsurance recoverables................. (138) (95) (74) ------ ------ ------ Balance at January 1 - net.................... 861 952 854 Claims and expenses incurred Current year............................... 838 600 434 Prior years................................ 51 253 117 Claims and expenses paid Current year............................... (359) (189) (108) Prior years................................ (394) (481) (333) Reserves transferred to ERC................... - (291) - Claim reserves related to acquired companies.................................... 364 4 - Other......................................... (5) 13 (12) ------ ------ ------ Balance at December 31 - net.................. 1,356 861 952 Add reinsurance recoverables.................. 76 138 95 ------ ------ ------ Balance at December 31 - gross................ $1,432 $ 999 $1,047 ====== ====== ======
In December 1994, two insurance affiliates were transferred to Employers Reinsurance Corporation ("ERC"), an affiliate of GE Capital Services. Financial guarantees of insurance affiliates as of December 31, 1995 and 1994, are summarized below.
(In millions) 1995 1994 -------- -------- Guarantees, principally on municipal bonds and structured finance issues................ $119,406 $106,726 Mortgage insurance risk in force............... 32,599 31,463 Credit life insurance risk in force............ 10,260 8,940 Less reinsurance............................... (21,694) (19,353) -------- -------- $140,571 $127,776 ======== ========
The Corporation's Specialty Insurance businesses cede reinsurance on both a pro-rata and an excess basis. When the Corporation cedes business to third parties, it is not relieved of its primary obligation to policyholders and reinsureds. Consequently, the Corporation establishes allowances for amounts deemed uncollectible due to the failure of reinsurers to honor their obligations. The Corporation monitors both the financial condition of individual reinsurers and risk concentrations arising from similar geographic regions, activities and economic characteristics of reinsurers. The maximum amount of individual life insurance retained on any one life is $500,000. 37 The effects of reinsurance on premiums written and earned were as follows for the past three years.
Written premiums Earned premiums ------------------------ ------------------------ (In millions) 1995 1994 1993 1995 1994 1993 ------ ------ ------ ------ ------ ------ Direct............. $2,053 $1,422 $1,312 $1,839 $1,401 $1,161 Assumed............ 154 108 266 124 106 268 Ceded.............. (270) (151) (125) (143) (133) (125) ------ ------ ------ ------ ------ ------ Net Premiums....... $1,937 $1,379 $1,453 $1,820 $1,374 $1,304 ====== ====== ====== ====== ====== ======
Reinsurance recoveries recognized as a reduction of insurance losses and policyholder and annuity benefits amounted to $113 million, $40 million and $163 million for the periods ended December 31, 1995, 1994 and 1993, respectively. NOTE 10. MINORITY INTEREST Minority interest in equity of consolidated affiliates includes preferred stock issued by a subsidiary with a liquidation preference value of $360 million and $240 million as of December 31, 1995 and 1994, respectively. Dividend rates on the preferred stock ranged from 4.2% to 4.6% during 1995 and from 2.8% to 4.7% during 1994. 38 NOTE 11. EQUITY
Changes in equity for the years ended December 31, 1995, 1994 and 1993 are as follows: Variable Unrealized Foreign cumulative Additional gains (losses) currency preferred Common paid-in Retained on investment trans- (In millions) stock stock capital earnings securities lations Total --------- ------- --------- -------- ------------ -------- ------ Balance at January 1, 1993.... $ 1 $ 768 $ 2,147 $ 6,012 $ (6) $ (30) $ 8,892 Capital contributions......... - - 25 - - - 25 Net unrealized gains on investment securities........ - - - - 491 - 491 Currency translation adjustments.................. - - - - - (34) (34) Net earnings.................. - - - 1,478 - - 1,478 Dividends declared: Common stock................ - - - (460) - - (460) Preferred stock............. - - - (22) - - (22) ------- ------- ------- ------- ------- ------- ------- Balance at December 31, 1993.. 1 768 2,172 7,008 485 (64) 10,370 Net unrealized losses on investment securities........ - - - - (1,140) - (1,140) Currency translation adjustments.................. - - - - - (3) (3) Net earnings.................. - - - 1,918 - - 1,918 Dividends declared: Common stock................ - - - (575) - - (575) Preferred stock............. - - - (30) - - (30) ------- ------- ------- ------- ------- ------- ------- Balance at December 31, 1994.. 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 ======= ======= ======= ======= ======= ====== =======
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. These contributions increased the Corporation's additional paid-in capital by $926 million. In 1993, GE Capital Services contributed the minority interest in Financial Insurance Group to the Corporation, which increased additional paid-in capital by $25 million. Changes in fair value of investment securities are reflected, net of tax, 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. 39 During 1995, the Corporation issued 9,250 additional shares of its variable cumulative preferred stock. Dividend rates on the preferred stock ranged from 4.2% to 5.2% during 1995, 2.3% to 4.9% during 1994 and 2.3% to 2.8% during 1993. At December 31, 1995 and 1994, the statutory capital and surplus of the Corporation's insurance affiliates totaled $4,120 million and $3,122 million, respectively, and amounts available for the payment of dividends without the approval of the insurance regulators totaled $279 million and $296 million, respectively. NOTE 12. EARNED INCOME Time sales, loan, investment and other income includes the Corporation's share of earnings from equity investees of approximately $113 million, $169 million and $106 million for 1995, 1994 and 1993, respectively. Included in earned income from financing leases for 1995, 1994 and 1993 were gains on the sale of equipment at lease completion of $191 million, $180 million and $145 million, respectively. NOTE 13. OPERATING AND ADMINISTRATIVE EXPENSES Employees and retirees of the Corporation and its affiliates 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. GE Company adopted SFAS No. 112, Employers' Accounting for Post employment Benefits, in the second quarter of 1993. The Corporation adopted this standard in conjunction with its parent. This Statement requires that employers expense the costs of postemployment benefits (as distinct from postretirement pension, medical and life insurance benefits) over the working lives of their employees. This change principally affects the Corporation's accounting for severance benefits, which previously were expensed when the severance event occurred. The net transition obligation related to the Corporations employees covered under GE Company postemployment benefit plans is not separately determinable from the GE Company plans as a whole; accordingly, there is no financial statement impact on the Corporation. The net transition obligation for employees covered under separate plans is not material. Rental expense relating to equipment the Corporation leases from others for the purposes of subleasing was $273 million in 1995, $262 million in 1994 and $239 million in 1993. Other rental expense was $237 million in 1995, $198 million in 1994 and $174 million in 1993, principally for the rental of office space and data processing equipment. Minimum future rental commitments under noncancelable leases at December 31, 1995, are $426 million in 1996, $378 million in 1997, $340 million in 1998, $316 million in 1999, $285 million in 2000 and $1,333 million thereafter. The Corporation, as a lessee, has no material lease agreements classified as capital leases. 40 Amortization of deferred acquisition costs charged to operations in 1995, 1994 and 1993 was $252 million, $355 million and $330 million, respectively. NOTE 14. INCOME TAXES The provision for income tax is summarized in the following table.
(In millions) 1995 1994 1993 ------ ------ ------ Estimated amounts payable.................. $ 425 $ 462 $ 175 Deferred tax expense from temporary differences............................... 653 448 496 Investment tax credit amortized - net...... (7) (14) (7) ------ ------ ------ $1,071 $ 896 $ 664 ====== ====== ======
Estimated amounts payable includes amounts applicable to non-U.S. jurisdictions of $158 million, $218 million and $116 million in 1995, 1994 and 1993, respectively. GE Company files a consolidated U.S. federal income tax return which includes GE Capital. The provisions for estimated taxes payable include the effect of the Corporation and its affiliates on the consolidated return. Except for certain earnings that GE Capital 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. A reconciliation of the U.S. federal statutory rate to the actual income tax rate follows.
1995 1994 1993 ----- ----- ----- Statutory U.S. federal income tax rate................. 35.0% 35.0% 35.0% Increase (reduction) in rate resulting from: Rate increase - deferred taxes....................... - - 5.6 Amortization of goodwill............................. 1.0 0.9 1.0 Tax-exempt income.................................... (3.0) (4.4) (5.0) Dividends received, not fully taxable (1.6) (0.6) (1.1) Other--net........................................... 0.8 0.9 (4.5) ----- ----- ----- Actual income tax rate................................. 32.2% 31.8% 31.0% ===== ===== =====
41 Principal components of the net deferred tax liability balances at December 31, 1995 and 1994 are as follows:
(In millions) 1995 1994 ------ ------ Assets Allowance for losses................................. $ (845) $ (862) Net unrealized losses on investment securities....... - (382) Insurance reserves................................... (128) (121) Other................................................ (936) (961) ------ ------ Total deferred tax assets.............................. (1,909) (2,326) ------ ------ Liabilities Financing leases..................................... 5,746 5,075 Operating leases..................................... 1,367 1,233 Net unrealized gains on investment securities........ 362 - Other................................................ 996 1,285 ------ ------ Total deferred tax liabilities......................... 8,471 7,593 ------ ------ Net deferred tax liability............................. $6,562 $5,267 ====== ======
42 NOTE 15. INDUSTRY SEGMENT DATA Industry segment operating data and identifiable assets are shown below.
(In millions) 1995 1994 1993 ------ ------ ------ Earned Income: Consumer Services.................... $ 7,586 $ 5,508 $ 4,061 Specialized Financing................ 3,076 2,638 2,543 Equipment Management................. 6,144 5,186 4,323 Mid-Market Financing................. 2,184 1,575 1,472 Specialty Insurance.................. 2,174 1,976 2,002 -------- -------- -------- 21,164 16,883 14,401 Corporate............................ 15 40 43 -------- -------- -------- Total earned income.................... $ 21,179 $ 16,923 $ 14,444 ======== ======== ======== Segment operating profit: Consumer Services.................... $ 1,030 $ 1,067 $ 709 Specialized Financing................ 651 513 366 Equipment Management................. 897 624 246 Mid-Market Financing................. 445 435 406 Specialty Insurance.................. 341 188 422 -------- -------- -------- Total segment operating profit......... 3,364 2,827 2,149 Corporate............................ (32) (13) (7) -------- -------- -------- Earnings before income taxes........... $ 3,332 $ 2,814 $ 2,142 ======== ======== ======== Identifiable assets at December 31: Consumer Services.................... $ 73,076 $ 54,171 $ 45,772 Specialized Financing................ 30,285 28,149 27,069 Equipment Management................. 25,072 23,197 20,145 Mid-Market Financing................. 21,565 16,367 14,022 Specialty Insurance.................. 9,841 7,835 9,579 Corporate............................ 986 1,185 1,352 -------- -------- -------- Total assets........................... $160,825 $130,904 $117,939 ======== ======== ========
43 NOTE 16. QUARTERLY FINANCIAL DATA (unaudited) Summarized quarterly financial data are as follows.
First quarter Second quarter Third quarter Fourth quarter --------------- -------------- -------------- -------------- (In millions) 1995 1994 1995 1994 1995 1994 1995 1994 ------ ------ ------ ------ ------ ------ ------ ------ Earned income..................... $4,790 $3,808 $5,169 $3,982 $5,395 $4,306 $5,825 $4,827 ------ ------ ------ ------ ------ ------ ------ ------ Expenses: Interest........................ 1,502 985 1,629 1,056 1,662 1,098 1,662 1,275 Operating and administrative.... 1,432 1,265 1,512 1,312 1,456 1,222 1,762 1,550 Insurance losses and policyholder and annuity benefits...................... 516 351 486 292 445 575 584 489 Provision for losses on financing receivables......... 79 170 279 251 352 186 407 266 Depreciation and amortization of buildings and equipment and equipment on operating leases......................... 450 384 489 382 487 425 575 466 Minority interest in net earnings of consolidated affiliates...................... 17 18 16 43 15 18 33 30 ------ ------ ------ ------ ------ ------ ------ ------ Earnings before income taxes...... 794 635 758 646 978 782 802 751 Provision for income taxes........ (266) (191) (241) (205) (330) (234) (234) (266) ------ ------ ------ ------ ------ ------ ------ ------ Net earnings...................... $ 528 $ 444 $ 517 $ 441 $ 648 $ 548 $ 568 $ 485 ====== ====== ====== ====== ====== ====== ====== ======
NOTE 17. RESTRICTED NET ASSETS OF AFFILIATES Certain consolidated affiliates are restricted from remitting funds to the Corporation 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 1995, net assets of the Corporation's regulated affiliates amounted to $9.3 billion, of which $7.4 billion was restricted. NOTE 18. SUPPLEMENTAL CASH FLOWS INFORMATION "Other--net operating activities" in the Statement of Cash Flows consists principally of adjustments to current and noncurrent accruals of costs and expenses, amortization of premium and discount on debt, 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 other than the non-cash dividends disclosed in note 11. 44 Certain supplemental information related to the Corporation's cash flows is shown below.
For the years ended December 31 (In millions) 1995 1994 1993 -------- -------- -------- Financing receivables Increase in loans to customers................................ $(46,154) $(37,059) $(30,002) Principal collections from customers.......................... 44,840 31,264 27,571 Investment in equipment for financing leases.................. (17,182) (10,528) (7,204) Principal collections on financing leases..................... 8,821 8,461 6,011 Net change in credit card receivables......................... (3,773) (2,902) (1,645) Sales of financing receivables with recourse.................. 2,139 1,239 1,105 -------- -------- -------- $(11,309) $ (9,525) $ (4,164) ======== ======== ======== All other investing activities Purchases of securities by insurance and annuity businesses... $ (6,409) $ (5,484) $ (7,527) Dispositions and maturities of securities by insurance and annuity businesses...................................... 5,866 4,417 5,623 Proceeds from principal business dispositions................. 575 - - Other......................................................... (2,649) 2,611 (3,724) -------- -------- -------- $ (2,617) $ 1,544 $ (5,628) ======== ======== ======== Newly issued debt having maturities longer than 90 days Short-term (91 to 365 days)................................... $ 2,545 $ 3,214 $ 4,315 Long-term (longer than one year).............................. 32,507 19,228 10,885 Proceeds -- nonrecourse, leveraged lease debt................. 1,428 31 53 --------- - ------- -------- $ 36,480 $ 22,473 $ 15,253 ======== ======== ======== Repayments and other reductions of debt having maturities longer than 90 days Short-term (91 to 365 days).................................. $(16,075) $(10,460) $ (9,008) Long-term (longer than one year)............................. (678) (930) (206) Principal payments -- nonrecourse, leveraged lease debt...... (292) (309) (312) -------- -------- -------- $(17,045) $(11,699) $ (9,526) ======== ======== ======== All other financing activities Proceeds from sales of investment and annuity contracts...... $ 1,554 $ 886 $ 509 Redemption of investment and annuity contracts............... (2,061) (961) (578) Capital contributions from parent company.................... 684 - 25 -------- -------- -------- $ 177 $ (75) $ (44) ======== ======== ======== Cash recovered (paid) during the year for: Interest..................................................... $ (5,970) $ (4,005) $ (3,298) Income taxes................................................. 217 (340) (133)
Changes in operating assets and liabilities are net of acquisitions and dispositions of businesses. "Payments for principal businesses purchased" in the Statement of Cash Flows is net of cash acquired and includes debt assumed and immediately repaid in acquisitions. In conjunction with the acquisitions, liabilities were assumed as follows:
1995 1994 1993 -------- -------- -------- Fair value of assets acquired................................ $15,496 $ 7,992 $15,175 Cash paid.................................................... (4,749) (2,220) (2,988) ------- ------- ------- Liabilities assumed.......................................... $10,747 $ 5,772 $12,187 ======= ======= =======
45 NOTE 19. 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 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, 1995 or 1994. Moreover, the disclosed values are representative of fair values only as of the dates indicated. Assets 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 assets include cash and equivalents, investment securities, and other receivables. 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. Annuity benefits. Based on expected future cash flows, discounted at currently offered discount rates for immediate annuity contracts or cash surrender value for single premium deferred annuities. Financial guarantees. 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. 46 Information about financial instruments that were not carried at fair value at December 31, 1995 and 1994, is shown below.
1995 1994 -------------------------------------- ------------------------------------- Assets (liabilities) Assets (liabilities) ---------------------------- ---------------------------- Estimated fair Estimated fair Carrying value Carrying value Notional amount ------------------ Notional amount ------------------ amount (net) High Low amount (net) High Low At December 31 (In millions) -------- -------- -------- -------- -------- -------- -------- -------- Assets Time sales and loans..................... $ $ 57,817 $ 59,188 $ 58,299 $ $ 48,529 $ 49,496 $ 48,840 Integrated interest rate swaps........... 1,703 - (93) (93) 1,183 - 64 64 Purchased options........................ 1,213 24 11 11 103 2 2 2 Mortgage-related positions Mortgage purchase commitments........... 1,360 - 17 17 205 - (2) (2) Mortgage sale commitments............... 1,334 - (11) (11) 1,792 - 2 2 Memo: mortgages held for sale ..... 1,663 1,663 1,663 1,764 1,764 1,764 Options, including "floors"............. 18,522 67 144 144 - - - - Interest rate swaps..................... 1,990 - 31 31 950 - (127) (127) Other cash financial instruments......... 1,878 2,281 2,019 1,992 2,160 2,058 Liabilities Borrowings and related instruments Borrowings .................... (107,755) (109,118) (109,118) (88,891) (87,515) (87,515) Interest rate swaps..................... 42,081 - (496) (496) 20,396 - 43 39 Currency swaps.......................... 22,342 - 937 937 11,695 - 86 86 Purchased options....................... 2,736 16 (2) (2) 124 11 12 13 Annuity benefits......................... (11,597) (11,350) (11,350) (12,194) (11,826) (11,826) Insurance -- Financial guarantees and credit life .................... 140,571 (1,505) (770) (864) 127,776 (1,517) (619) (765) Credit and liquidity support -- securitizations......................... 6,060 (41) (48) (48) 5,808 (22) (22) (22) Performance guarantees -- principally letters of credit....................... 2,622 (48) (79) (79) 2,227 (18) (98) (101) Other -- principally liquidity commitments............................. 3,556 1 (36) (45) 3,166 - 42 38 Other firm commitments Currency forwards and options........... 6,189 - 55 55 3,106 - 12 12 Currency swaps.......................... 280 - (22) (22) 488 - (3) (3) Ordinary course of business lending commitments............................. 6,929 - (60) (60) 6,687 - (50) (50) Unused revolving credit lines Commercial............................. 3,223 - - - 2,580 - - - Consumer -- principally credit cards................................. 118,710 - - - 101,582 - - - - ----------------------------------------- Not applicable. Included in other cash financial instruments. See note 8. Includes interest rate and currency swaps. See note 9.
47 Additional information about certain financial instruments in the above table follows. Currency forwards and options are employed by the Corporation to manage exposures to changes in currency exchange rates associated with commercial purchase and sale transactions. 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 other than currency options. 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 one-sided financial instruments containing option features. These instruments generally behave based on limits ("caps," "floors" or "collars") on interest rate movement. Interest rate and currency swaps are used by the Corporation to optimize borrowing costs for a particular funding strategy (see note 8) and to establish specific hedges of mortgage-related assets and to manage net investment exposures. Such swaps are evaluated by management under the credit criteria set forth below. 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. Counterparty credit risk. 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 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: - 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.
Counterparty credit criteria Credit rating ---------------------------------- Moody's Standard & Poor's ------- ----------------- Term of transaction Five years or less...................... Aa3 AA- Greater than five years................. Aaa AAA Credit exposure limits Up to $50 million....................... Aa3 AA- Up to $75 million....................... Aaa AAA
48 - 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-. Because of their lower risk, more credit latitude is permitted for original maturities shorter than one year. NOTE 20. GEOGRAPHIC SEGMENT INFORMATION Geographic segment operating data and total assets are as follows:
Earned income Operating profit ---------------------------- ---------------------- (In millions) 1995 1994 1993 1995 1994 1993 ------- ------- ------- ------ ------ ------ United States........ $15,306 $12,832 $11,303 $2,740 $2,327 $1,921 Europe............... 2,729 1,886 1,425 293 203 (8) Global-including other areas of the world............... 3,144 2,205 1,716 299 284 229 ------- ------- ------- ------ ------ ------ Total.............. $21,179 $16,923 $14,444 $3,332 $2,814 $2,142 ======= ======= ======= ====== ====== ====== Total assets ---------------------------- (In millions) 1995 1994 1993 -------- -------- -------- United States........ $121,078 $104,610 $ 97,469 Europe............... 19,895 9,774 6,800 Global-including other areas of the world............... 19,852 16,520 13,670 -------- -------- -------- Total.............. $160,825 $130,904 $117,939 ======== ======== ========
The basis of presentation of geographic segment information was revised in 1995 to reclassify the results of certain business activities within GE Capital that are essentially global in nature to "Global-including other areas of the world." Prior-year amounts have been restated to conform to the current year presentation. 49 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, 1995 Statement of Financial Position at December 31, 1995 and 1994 Statement of Cash Flows for each of the years in the three- year period ended December 31, 1995 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, 1995 (pages F-1 through F-40) 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. 50 (a) 3. Exhibit Index The exhibits listed below, as part of Form 10-K, are numbered in conformity with the numbering used in Item 601 of Regulation S-K of the Securities and Exchange Commission. Exhibit Number Description - ------- ----------- 3(i) A complete copy of the Organization Certificate of the Corporation as last amended on November 1, 1995 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); and (f) a Certificate of Amendment filed in the Office of the Superintendent as of November 1, 1995. 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). 51 Exhibit Number Description - ------- ----------- 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, 1995 (pages F-1 through F-40) and Exhibit 12 (Ratio of Earnings to Fixed Charges) of General Electric Company. 99(C) Letter, dated June 29, 1995, 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 General Electric Capital Corporation's Registration Statement on Form S-3, File No. 33-61257) (b) Reports on Form 8-K None. 52 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
For the years ended December 31 1995 1994 1993 (In millions) ------ ------ ------ Earned income.................................... $5,721 $3,980 $3,819 ------ ------ ------ Expenses: Interest, net of allocations................... 3,094 2,635 1,962 Operating and administrative................... 1,217 1,113 1,340 Provision for losses on financing receivables.. 206 397 382 Depreciation and amortization.................. 209 157 209 ------ ------ ------ 4,726 4,302 3,893 ------ ------ ------ Earnings (loss) before income taxes and equity in earnings of affiliates....................... 995 (322) (74) Income tax (provision) benefit................... (291) 54 (72) Equity in earnings of affiliates................. 1,557 2,186 1,624 ------ ------ ------ Net earnings..................................... 2,261 1,918 1,478 Dividends paid................................... (1,645) (605) (482) Retained earnings at January 1................... 8,321 7,008 6,012 ------ ------ ------ Retained earnings at December 31................. $8,937 $8,321 $7,008 ====== ====== ======
See Notes to Condensed Financial Statements. 53 GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued) GENERAL ELECTRIC CAPITAL CORPORATION CONDENSED STATEMENT OF FINANCIAL POSITION
At December 31 1995 1994 (In millions) -------- - ------- ASSETS Cash and equivalents................................... $ 12 $ 145 Investment securities.................................. 3,449 3,097 Financing receivables: Time sales and loans................................. 25,746 25,525 Investment in financing leases....................... 10,786 10,129 -------- -------- 36,532 35,654 Allowance for losses on financing receivables........ (899) (997) -------- -------- Financing receivables -- net......................... 35,633 34,657 Investments in and advances to affiliates.............. 69,739 54,883 Equipment on operating leases (at cost), less accumulated amortization of $477 and $258............ 2,378 1,897 Other assets........................................... 3,898 5,597 -------- -------- Total assets........................................... $115,109 $100,276 ======== ======== LIABILITIES AND EQUITY Short-term borrowings (including notes payable to affiliates of $553 in 1995)........................... $ 52,700 $ 50,765 Long-term borrowings (including notes payable to affiliates of $914 in 1994)........................... 42,169 31,769 Other liabilities...................................... 3,574 4,898 Deferred income taxes.................................. 2,464 2,304 -------- -------- Total liabilities.................................... 100,907 89,736 -------- -------- Capital stock.......................................... 770 769 Additional paid-in capital............................. 4,022 2,172 Retained earnings...................................... 8,937 8,321 Unrealized gains (losses) on investment securities..... 543 (655) Foreign currency translation adjustments............... (70) (67) -------- -------- Total equity......................................... 14,202 10,540 -------- -------- Total liabilities and equity........................... $115,109 $100,276 ======== ========
See Notes to Condensed Financial Statements. 54 GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued) GENERAL ELECTRIC CAPITAL CORPORATION CONDENSED STATEMENT OF CASH FLOWS
For the years ended December 31 1995 1994 1993 (In millions) -------- -------- -------- CASH FROM OPERATING ACTIVITIES....................... $ 1,489 $ 1,150 $ 1,117 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Increase in loans to customers....................... (41,650) (30,198) (27,112) Principal collections from customers................. 39,664 27,155 27,237 Investment in assets on financing leases............. .(2,976) (1,937) (1,271) Principal collections on financing leases............ 1,587 1,701 1,728 Net change in credit card receivables................ 1,566 (620) 299 Buildings, equipment and equipment on operating leases --additions.................................... (810) (809) (610) --dispositions................................. 78 76 365 Payments for principal businesses purchased, net of cash acquired.................................... (3,866) (817) (2,090) Proceeds from principal business dispositions........ 575 - - Change in investment in and advances to affiliates... (11,377) (859) (10,296) Other - net.......................................... 1,984 (1,236) 1,093 -------- -------- -------- CASH USED FOR INVESTING ACTIVITIES................... (15,225) (7,544) (10,657) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (less than 90-day maturities) (3,544) (2,970) 3,969 Newly issued debt - -short-term (91-365 days)............................ 2,545 3,214 4,315 - -long-term senior.................................... 25,654 16,641 10,188 Proceeds-non-recourse, leveraged lease debt.......... 783 31 - Repayments and other reductions - -short-term.......................................... (11,710) (8,823) (8,636) - -long-term senior.................................... (638) (912) (157) Principal payments - non-recourse, leveraged lease debt.......................................... (134) (132) (198) Dividends paid....................................... (961) (595) (482) Contributions to additional paid-in capital.......... 684 - 25 Issuance of preferred stock in excess of par......... 924 - - -------- -------- -------- CASH FROM FINANCING ACTIVITIES....................... 13,603 6,454 9,024 -------- -------- -------- (DECREASE) INCREASE IN CASH AND EQUIVALENTS DURING THE YEAR.................................... (133) 60 (516) CASH AND EQUIVALENTS AT BEGINNING OF YEAR............ 145 85 601 -------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR.................. $ 12 $ 145 $ 85 ======== ======== ========
See Notes to Condensed Financial Statements 55 GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Concluded) GENERAL ELECTRIC CAPITAL CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS Summary of Significant Accounting Policies Certain reclassifications have been made to prior year amounts to conform with 1995 presentation. Borrowings Total long-term borrowings at December 31, 1995 and 1994 are shown below.
Weighted average interest (Dollars in millions) rate Maturities 1995 1994 --------- ---------- ------ ------- Senior notes.................. 6.60% 1997-2055 $41,472 $30,158 Subordinated notes........ 8.04 2006-2012 697 697 Intercompany.................. - 914 ------- ------- $42,169 $31,769 ======= ======= Includes the effects of associated interest rate and currency swaps. Guaranteed by GE Company.
Interest rate and currency swaps are employed to achieve the lowest cost of funds for a particular funding strategy. The Corporation enters into interest rate swaps and currency swaps (including non-U.S. currency and cross- currency interest rate swaps) to modify interest rates and/or currencies of specific debt instruments. For example, to fund U.S. operations, GE Capital may issue fixed-rate debt denominated in a currency other than the U.S. dollar and simultaneously enter into a currency swap to create synthetic fixed-rate U.S. dollar debt with a lower yield than could be achieved directly. Such interest rate and currency swaps have been designated as modifying interest rates, currencies or both. The Corporation does not engage in derivatives trading, market-making or other speculative activities. The Corporation used a portion of this interest rate swap portfolio to convert interest rate exposure on short-term and floating rate long-term borrowings to interest rates that are fixed over the terms of the related swaps; interest rate basis swaps also are employed to manage short-term financing factors--for example, to convert commercial paper-based interest costs to prime rate-based costs. At December 31, 1995 and 1994, such swaps were outstanding for principal amounts equivalent to $7,955 million and $6,780 million with maturities from 1996 to 2029 and weighted average interest rates of 6.67% and 6.33%, respectively. 56 At December 31, 1995, long-term borrowing maturities during the next five years, including the current portion of long-term notes payable are $13,587 million in 1996, $12,417 million in 1997; $10,137 million in 1998, $4,353 million in 1999, and $3,977 million in 2000. 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 $2,310 million, $1,322 million and $1,335 million for 1995, 1994 and 1993, respectively. Income Taxes GE Company files a consolidated U.S. federal income tax return which includes GE Capital. Income tax (provision) benefit includes the effect of the Corporation on the consolidated return. 57 Exhibit 4 (iii) March 26, 1996 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, 1995 - 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 under which the total amount of securities authorized exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. In accordance with paragraph (b) (4) (iii) of Item 601 of Regulation S-K (17 CFR 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 58 Exhibit 12 (a) GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Computation of Ratio of Earnings to Fixed Charges
Years ended December 31, ------------------------------------------------ (Dollar amounts in millions) 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Net earnings..................... $ 2,261 $ 1,918 $ 1,478 $ 1,251 $ 1,125 Provision for income taxes....... 1,071 896 664 415 362 Minority interest................ 81 109 114 14 (7) ------- ------- ------- ------- ------- Earnings before income taxes and minority interest.......... 3,413 2,923 2,256 1,680 1,480 ------- ------- ------- ------- ------- Fixed charges: Interest......................... 6,520 4,464 3,503 3,713 4,280 One-third of rentals............. 170 153 138 90 34 ------- ------- ------- ------- ------- Total fixed charges.............. 6,690 4,617 3,641 3,803 4,314 ------- ------- ------- ------- ------- Less interest capitalized, net of amortization............ 21 9 4 6 7 ------- ------- ------- ------- ------- Earnings before income taxes and minority interest plus fixed charges.................. $10,082 $ 7,531 $ 5,893 $ 5,477 $ 5,787 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges........................ 1.51 1.63 1.62 1.44 1.34 ======= ======= ======= ======= =======
59 Exhibit 12 (b) GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Years ended December 31, ------------------------------------------------ (Dollar amounts in millions) 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Net earnings................... $ 2,261 $ 1,918 $ 1,478 $ 1,251 $ 1,125 Provision for income taxes..... 1,071 896 664 415 362 Minority interest.............. 81 109 114 14 (7) ------- ------- ------- ------- ------- Earnings before income taxes and minority interest........ 3,413 2,923 2,256 1,680 1,480 ------- ------- ------- ------- ------- Fixed charges: Interest..................... 6,520 4,464 3,503 3,713 4,280 One-third of rentals......... 170 153 138 90 34 ------- ------- ------- ------- ------- Total fixed charges............ 6,690 4,617 3,641 3,803 4,314 ------- ------- ------- ------- ------- Less interest capitalized, net of amortization.......... 21 9 4 6 7 ------- ------- ------- ------- ------- Earnings before income taxes and minority interest plus fixed charges................ $10,082 $ 7,531 $ 5,893 $ 5,477 $ 5,787 ======= ======= ======= ======= ======= Preferred stock dividend requirements................. $ 57 $ 30 $ 22 $ 26 $ 41 Ratio of earnings before provision for income taxes to net earnings.............. 1.47 1.47 1.45 1.34 1.32 ------- ------- ------- ------- ------- Preferred stock dividend factor on pre-tax basis...... 84 44 32 35 54 Fixed charges 6,690 4,617 3,641 3,803 4,314 ------- ------- ------- ------- ------- Total fixed charges and preferred stock dividend requirements................. $ 6,774 $ 4,661 $ 3,673 $ 3,838 $ 4,368 ======= ======= ======= ======= ======= Ratio of earnings to combined fixed charges and preferred stock dividends.............. 1.49 1.62 1.60 1.43 1.32 ======= ======= ======= ======= =======
60 Exhibit 23 (ii) To the Board of Directors General Electric Capital Corporation We consent to incorporation by reference in the Registration Statements (Nos. 33-36601, 33-39596, 33-43420, 33-51793 and 33-60723) on Form S-3 of General Electric Capital Corporation of our report dated February 9, 1996 relating to the statement of financial position of General Electric Capital Corporation and consolidated affiliates as of December 31, 1995 and 1994 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, 1995, and the related schedule which report appears in the December 31, 1995 annual report on Form 10-K of General Electric Capital Corporation. /s/ KPMG Peat Marwick LLP Stamford, Connecticut March 28, 1996 61 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, 1995, on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as such attorney-in-fact may deem necessary or desirable, any amendments thereto, and all additional amendments thereto in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done to the end that such Annual Report or Annual Reports shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations of the Securities and Exchange Commission adopted or issued pursuant thereto, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or resubstitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this 26th day of March, 1996. /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) 62 /s/ Nigel D. T. Andrews - --------------------------------- --------------------------------- Nigel D. T. Andrews, Benjamin W. Heineman, Jr., Director Director /s/ Nancy E. Barton - --------------------------------- --------------------------------- Nancy E. Barton, Hugh J. Murphy, Director Director /s/ James R. Bunt /s/ Denis J. Nayden - --------------------------------- --------------------------------- James R. Bunt, Denis J. Nayden, Director Director /s/ Dennis D. Dammerman /s/ Michael A. Neal - --------------------------------- --------------------------------- Dennis D. Dammerman, Michael A. Neal, Director Director - --------------------------------- --------------------------------- Paolo Fresco, John M. Samuels, Director Director /s/ Edward D. Stewart - --------------------------------- --------------------------------- Dale F. Frey, Edward D. Stewart, Director Director /s/ John F. Welch, Jr. --------------------------------- John F. Welch, Jr., Director A MAJORITY OF THE BOARD OF DIRECTORS (Page 2 of 2) 63 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 26, 1996 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. Signature Title Date --------- ----- ----- /s/ Gary C. Wendt Chairman of the Board and March 26, 1996 - ----------------------- Chief Executive Officer (Gary C. Wendt) (Principal Executive Officer) /s/ James A. Parke Director and March 26, 1996 - ----------------------- Senior Vice President, Finance (James A. Parke) (Principal Financial Officer) /s/ Joan C. Amble Vice President and Controller March 26, 1996 - ----------------------- (Principal Accounting Officer) (Joan C. Amble) NIGEL D. T. ANDREWS* Director NANCY E. BARTON* Director JAMES R. BUNT* Director DENNIS D. DAMMERMAN* Director DENIS J. NAYDEN* Director MICHAEL A. NEAL* Director EDWARD D. STEWART* Director JOHN F. WELCH, JR.* Director A MAJORITY OF THE BOARD OF DIRECTORS * By: /s/ Joan C. Amble March 26, 1996 ----------------- (Joan C. Amble) Attorney-in-fact 64 EX-3.I 2 CERTIFICATE OF AMENDMENT OF THE ORGANIZATION CERTIFICATE Exhibit 3 (i) CERTIFICATE OF AMENDMENT OF THE ORGANIZATION CERTIFICATE OF GENERAL ELECTRIC CAPITAL CORPORATION UNDER SECTION 8005 OF THE BANKING LAW We, the undersigned, James A. Parke and Nancy E. Barton, being respectively the Senior Vice President, Finance and the Secretary of General Electric Capital Corporation, do hereby certify and set forth: 1. The name of this corporation is General Electric Capital Corporation. The name under which the corporation was formed was General Electric Credit Corporation. 2. The Organization Certificate of General Electric Capital Corporation was filed by the Superintendent of Banks of the State of New York on the 6th day of October, 1943, and in the office of the Clerk of New York County on the 21st day of October, 1943. A Restated Organization Certificate was filed by the Superintendent of Banks of the State of New York on the 28th day of November, 1988 (hereinafter the "Restated Organization Certificate"). Certificates of Amendment of the Organization Certificate were filed by the Superintendent of Banks of the State of New York on the 21st day of December, 1988, the 22nd day of December, 1989, the 28th day of September, 1990, the 18th day of October, 1990, the 14th day of November, 1990, the 6th day of December, 1990, the 21st day of April, 1995, the 11th day of May, 1995, the 28th day of June, 1995 and the 17th day of July, 1995 (hereinafter the "Certificates of Amendment"). The Restated Organization Certificate as amended by such Certificates of Amendment is hereinafter referred to as the "Organization Certificate." 3. Paragraph Third of the Organization Certificate, which Paragraph relates to the amount of capital stock of this corporation, is amended so as to add the following provisions authorizing five series and stating the numbers, designations and certain relative rights, preferences and limitations of such five series, as fixed by a resolution of the Board of Directors of the corporation, at the end of subparagraph (c) thereof, following section twenty, as follows: "SECTION TWENTY ONE: Variable Cumulative Preferred Stock, Series X; Variable Cumulative Preferred Stock, Series X-1; and Variable Cumulative Preferred Stock, Series Y, Variable Cumulative Preferred Stock, Series Y-1 and Variable Cumulative Preferred Stock, Series Z. A. Designation. ----------- There are hereby created five series of the Variable Cumulative Preferred Stock, consisting of 750 shares to be designated the "Variable Cumulative Preferred Stock, Series X" (the "Series X Shares"), 750 shares to be designated the "Variable Cumulative Preferred Stock, Series X- 1" (the "Series X-1 Shares"), 750 shares to be designated the "Variable Cumulative Preferred Stock, Series Y" (the "Series Y Shares"), 750 shares to be designated the "Variable Cumulative Preferred Stock, Series Y-1" (the "Series Y-1 Shares") and 1,000 shares to be designated the "Variable Cumulative Preferred Stock, Series Z (the "Series Z Shares"). B. Dividends. --------- The initial Dividend Rate for the Series X Shares shall be 4.75% per annum; for the Series X-1 Shares shall be 4.75% per annum; for the Series Y Shares shall be 4.95% per annum; for the Series Y-1 Shares shall be 4.95% per annum; and for the Series Z Shares shall be 5.15% per annum. The Initial Dividend Period shall end for the Series X Shares on November 3, 1997; for the Series X-1 Shares on November 3, 1997; for the Series Y Shares on November 3, 1998; for the Series Y-1 Shares on November 3, 1998; and for the Series Z Shares on November 3, 2000. Paragraph J of SECTION FOUR of subparagraph (c) of Paragraph Third is amended with respect to the Series X Shares, Series X-1 Shares, Series Y Shares, Series Y-1 Shares or Series Z Shares by deleting (i) the words "less than one (1) year" in the third line thereof and (ii) deleting the last sentence thereof. C. Certain Redemption Dates and Prices. ----------------------------------- Notwithstanding the provisions of clause (ii) of paragraph A of SECTION EIGHT of subparagraph (c) of Paragraph Third, in the case of any Series X Shares, Series X-1 Shares, Series Y Shares, Series Y-1 Shares or Series Z Shares with a Dividend Period equal to or more than two (2) years, any redemption price determined by the corporation prior to the commencement of such Dividend Period shall not be less than One Hundred Thousand Dollars ($100,000) per share, plus accumulated and unpaid dividends to the date fixed for redemption. Notwithstanding the provision of paragraph A of SECTION EIGHT of subparagraph (c) of Paragraph Third, the corporation shall not be entitled to redeem the Series X Shares, Series X-1 Shares, Series Y Shares, Series Y-1 Shares or Series Z Shares until the last day of the respective Initial Dividend Periods set forth above; thereafter, redemption dates and prices applicable to Subsequent Dividend Periods for each such Series shall be as set forth in the notice to Holders with respect thereto. D. Auction Method. -------------- Notwithstanding any provisions to the contrary contained in Paragraph Third of the Organization Certificate, the Auction Method shall be the sole method for determining Dividend Periods and Dividends Rates for the Series X Shares, the Series X-1 Shares, the Series Y Shares, the Series Y-1 Shares and the Series Z Shares; accordingly, the following amendments to Paragraph Third are hereby made with respect to each such Series: SECTION ONE: (i) the definitions of "Auction Stock", "Auction Stock Depository", "Available Auction Stock", and "Subject Auction Stock" are amended to "Stock", "Auction Depository", "Available Stock" and "Subject Stock", respectively; (ii) the definitions of "Converted Remarketed Stock", "Remarketed Stock", "Remarketing Agent", "Remarketing Depository", "Remarketing Method" and "Remarketing Procedures" are deleted; and (iii) the definition of "Dividend Determination Method" or "Method" is amended and restated to read in its entirety, "'Dividend Determination Method' or 'Method' shall mean the Auction Method". Each reference to any of the terms set forth in (i) or (iii) above as used throughout Paragraph Third of the Organization Certificate shall be a reference to such terms as so amended or restated, respectively, and each reference to a term set forth in (ii) above shall be deleted. SECTION THREE: the words "either all" and "or all" appearing in the seventh line thereof are deleted. SECTION FOUR: (i) the word "either" in the 16th line of paragraph B is deleted together with the remaining text of paragraph B from the sentence beginning with the words "Subject to" in the seventeenth line thereof; (ii) paragraph E is deleted in its entirety; (iii) the word "or" appearing in the third line of paragraph F is deleted; and (iv) the words "and the" appearing in the third and sixteenth line are deleted. SECTION SIX: the section is deleted in its entirety. SECTION SEVEN: (i) the words "or the" appearing in the fourth line of paragraph A are deleted; (ii) the remaining text of the first sentence of paragraph F following the word "Depository" in the sixth line thereof is deleted; and (iii) the remaining text of the second sentence of paragraph F following the word "Depository" in the twelfth line thereof is deleted. 4. The foregoing amendment of Paragraph Third of the Organization Certificate was authorized by a resolution of the Securities Issuance Committee of the Board of Directors adopted at a meeting duly called and held on the 31st day of October, 1995, such resolution having been adopted pursuant to authority granted to such Committee of the Board of Directors in the Organization Certificate referred to in paragraph 2 which was authorized by resolutions of the Board of Directors and by consent of the sole common stockholder of the corporation. IN WITNESS WHEREOF, this Certificate has been signed this 31st day of October, 1995. /s/ JAMES A. PARKE ------------------------------------ James A. Parke Senior Vice President, Finance /s/ NANCY E. BARTON ------------------------------------ Nancy E. Barton Secretary STATE OF CONNECTICUT ) : ss.: COUNTY OF FAIRFIELD ) James A. Parke and Nancy E. Barton, each being duly sworn, respectively deposes and says: that the said James A. Parke is the Senior Vice President, Finance and that the said Nancy E. Barton is the Secretary of General Electric Capital Corporation, the corporation executing the foregoing instrument; that each of them has read the same and that the statements contained therein are true and they have been authorized to execute and file the foregoing Certificate of Amendment by resolution of the Securities Issuance Committee of the Board of Directors adopted at a meeting duly called and held on the 31st day of October, 1995. /s/ JAMES A. PARKE ------------------------------------ James A. Parke Senior Vice President, Finance /s/ NANCY E. BARTON ------------------------------------ Nancy E. Barton Secretary Subscribed and sworn to before me this 31st day of October, 1995 /s/ NOTARY PUBLIC - -------------------------------- Notary Public EX-4.III 3 AGREEMENT TO FURNISH COPIES OF INSTRUMENTS TO SEC Exhibit 4(iii) March 26, 1996 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, 1995 - 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 under which the total amount of securities authorized exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. In accordance with paragraph (b) (4) (iii) of Item 601 of Regulation S-K (17 CFR 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 EX-12.A 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 (a) GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Computation of Ratio of Earnings to Fixed Charges
Years ended December 31, ------------------------------------------------ (Dollar amounts in millions) 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Net earnings..................... $ 2,261 $ 1,918 $ 1,478 $ 1,251 $ 1,125 Provision for income taxes....... 1,071 896 664 415 362 Minority interest................ 81 109 114 14 (7) ------- ------- ------- ------- ------- Earnings before income taxes and minority interest.......... 3,413 2,923 2,256 1,680 1,480 ------- ------- ------- ------- ------- Fixed charges: Interest......................... 6,520 4,464 3,503 3,713 4,280 One-third of rentals............. 170 153 138 90 34 ------- ------- ------- ------- ------- Total fixed charges.............. 6,690 4,617 3,641 3,803 4,314 ------- ------- ------- ------- ------- Less interest capitalized, net of amortization............ 21 9 4 6 7 ------- ------- ------- ------- ------- Earnings before income taxes and minority interest plus fixed charges.................. $10,082 $ 7,531 $ 5,893 $ 5,477 $ 5,787 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges........................ 1.51 1.63 1.62 1.44 1.34 ======= ======= ======= ======= =======
EX-12.B 5 COMPUTATION OF RATIO OF EARNINGS TO CFC AND PSD Exhibit 12 (b) GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Years ended December 31, ------------------------------------------------ (Dollar amounts in millions) 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Net earnings................... $ 2,261 $ 1,918 $ 1,478 $ 1,251 $ 1,125 Provision for income taxes..... 1,071 896 664 415 362 Minority interest.............. 81 109 114 14 (7) ------- ------- ------- ------- ------- Earnings before income taxes and minority interest........ 3,413 2,923 2,256 1,680 1,480 ------- ------- ------- ------- ------- Fixed charges: Interest..................... 6,520 4,464 3,503 3,713 4,280 One-third of rentals......... 170 153 138 90 34 ------- ------- ------- ------- ------- Total fixed charges............ 6,690 4,617 3,641 3,803 4,314 ------- ------- ------- ------- ------- Less interest capitalized, net of amortization.......... 21 9 4 6 7 ------- ------- ------- ------- ------- Earnings before income taxes and minority interest plus fixed charges................ $10,082 $ 7,531 $ 5,893 $ 5,477 $ 5,787 ======= ======= ======= ======= ======= Preferred stock dividend requirements................. $ 57 $ 30 $ 22 $ 26 $ 41 Ratio of earnings before provision for income taxes to net earnings.............. 1.47 1.47 1.45 1.34 1.32 ------- ------- ------- ------- ------- Preferred stock dividend factor on pre-tax basis...... 84 44 32 35 54 Fixed charges 6,690 4,617 3,641 3,803 4,314 ------- ------- ------- ------- ------- Total fixed charges and preferred stock dividend requirements................. $ 6,774 $ 4,661 $ 3,673 $ 3,838 $ 4,368 ======= ======= ======= ======= ======= Ratio of earnings to combined fixed charges and preferred stock dividends.............. 1.49 1.62 1.60 1.43 1.32 ======= ======= ======= ======= =======
EX-23.II 6 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23 (ii) To the Board of Directors General Electric Capital Corporation We consent to incorporation by reference in the Registration Statements (Nos. 33-36601, 33-39596, 33-43420, 33-51793 and 33-60723) on Form S-3 of General Electric Capital Corporation of our report dated February 9, 1996 relating to the statement of financial position of General Electric Capital Corporation and consolidated affiliates as of December 31, 1995 and 1994 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, 1995, and the related schedule which report appears in the December 31, 1995 annual report on Form 10-K of General Electric Capital Corporation. /s/ KPMG Peat Marwick LLP Stamford, Connecticut March 28, 1996 EX-24 7 POWER OF ATTORNEY 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, 1995, on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as such attorney-in-fact may deem necessary or desirable, any amendments thereto, and all additional amendments thereto in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in- fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done to the end that such Annual Report or Annual Reports shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations of the Securities and Exchange Commission adopted or issued pursuant thereto, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or resubstitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this 26th day of March, 1996. /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) /s/ Nigel D. T. Andrews - --------------------------------- --------------------------------- Nigel D. T. Andrews, Benjamin W. Heineman, Jr., Director Director /s/ Nancy E. Barton - --------------------------------- --------------------------------- Nancy E. Barton, Hugh J. Murphy, Director Director /s/ James R. Bunt /s/ Denis J. Nayden - --------------------------------- --------------------------------- James R. Bunt, Denis J. Nayden, Director Director /s/ Dennis D. Dammerman /s/ Michael A. Neal - --------------------------------- --------------------------------- Dennis D. Dammerman, Michael A. Neal, Director Director - --------------------------------- --------------------------------- Paolo Fresco, John M. Samuels, Director Director /s/ Edward D. Stewart - --------------------------------- --------------------------------- Dale F. Frey, Edward D. Stewart, Director Director /s/ John F. Welch, Jr. --------------------------------- John F. Welch, Jr., Director A MAJORITY OF THE BOARD OF DIRECTORS (Page 2 of 2) EX-27 8
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000040554 GENERAL ELECTRIC CAPITAL CORPORATION 1,000,000 YEAR DEC-31-1995 DEC-31-1995 1,316 26,991 95,791 2,519 0 0 20,856 5,585 160,825 0 48,491 768 0 2 13,432 160,825 0 21,179 0 0 6,162 1,117 6,455 3,332 1,071 2,261 0 0 0 2,261 0 0
EX-99 9 F-1 (Annual Report Pages) Annual Report Page No. 25 FINANCIAL SECTION CONTENTS 44 INDEPENDENT AUDITORS' REPORT AUDITED FINANCIAL STATEMENTS 26 Earnings 28 Financial Position 30 Cash Flows 45 Notes to Consolidated Financial Statements MANAGEMENT'S DISCUSSION 32 Operations 32 Consolidated Operations 33 GE Continuing Operations 34 Industry Segments 36 GECS Continuing Operations 38 International Operations 39 Financial Resources and Liquidity 42 Selected Financial Data 44 Financial Responsibility
- - ----------------------------------------------------------------------------- REVENUES (In billions) 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- $51.283 $53.051 $55.701 $60.109 $70.028 - - -----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------- EARNINGS PER SHARE FROM CONTINUING OPERATIONS BEFORE ACCOUNTING CHANGES (In dollars) 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- $2.27 $2.41 $2.45 $3.46 $3.90 - - -----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------- DIVIDENDS PER SHARE (In dollars) 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- $1.04 $1.16 $1.305 $1.49 $1.69 - - -----------------------------------------------------------------------------
F-2 Annual Report Page No. 26 STATEMENT OF EARNINGS
General Electric Company and consolidated affiliates ----------------------------------- For the years ended December 31 (In millions) 1995 1994 1993 - - -------------------------------------------------------------- ----------------------------------- REVENUES Sales of goods $33,157 $30,740 $29,509 Sales of services 9,733 8,803 8,268 Other income (note 3) 752 793 735 Earnings of GECS from continuing operations - - - GECS revenues from operations (note 4) 26,386 19,773 17,189 ------- ------- ------- Total revenues 70,028 60,109 55,701 ------- ------- ------- COSTS AND EXPENSES (note 5) Cost of goods sold 24,288 22,748 22,606 Cost of services sold 6,682 6,214 6,308 Interest and other financial charges 7,286 4,949 4,054 Insurance losses and policyholder and annuity benefits 5,285 3,507 3,172 Provision for losses on financing receivables (note 8) 1,117 873 987 Other costs and expenses 15,429 12,987 12,287 Minority interest in net earnings of consolidated affiliates 204 170 151 ------- ------- ------- Total costs and expenses 60,291 51,448 49,565 ------- ------- ------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND ACCOUNTING CHANGE 9,737 8,661 6,136 Provision for income taxes (note 9) (3,164) (2,746) (1,952) ------- ------- ------- EARNINGS FROM CONTINUING OPERATIONS BEFORE ACCOUNTING CHANGE 6,573 5,915 4,184 EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS (note 2) - (1,189) 993 ------- ------- ------- EARNINGS BEFORE ACCOUNTING CHANGE 6,573 4,726 5,177 Cumulative effect of accounting change (note 20) - - (862) ------- ------- ------- NET EARNINGS $ 6,573 $ 4,726 $ 4,315 ======= ======= ======= - - --------------------------------------------------------------------------------------------------------- NET EARNINGS PER SHARE (in dollars) Continuing operations before accounting change $ 3.90 $ 3.46 $ 2.45 Discontinued operations before accounting change - (0.69) 0.58 ------- ------- ------- Earnings before accounting change 3.90 2.77 3.03 Cumulative effect of accounting change - - (0.51) ------- ------- ------- Net earnings per share $ 3.90 $ 2.77 $ 2.52 ======= ======= ======= - - --------------------------------------------------------------------------------------------------------- DIVIDENDS DECLARED PER SHARE (in dollars) $ 1.69 $ 1.49 $ 1.305 - - --------------------------------------------------------------------------------------------------------- The notes to consolidated financial statements on pages 45-64 are an integral part of this statement.
F-3 Annual Report Page No. 27 STATEMENT OF EARNINGS
GE GECS -------------------------------- -------------------------------- For the years ended December 31 (In millions) 1995 1994 1993 1995 1994 1993 - - ---------------------------------------------------------- -------------------------------- ------------------------------ REVENUES Sales of goods $33,177 $30,767 $29,533 $ - $ - $ - Sales of services 9,836 8,863 8,289 - - - Other income (note 3) 753 783 730 - - - Earnings of GECS from continuing operations 2,415 2,085 1,567 - - - GECS revenues from operations (note 4) - - - 26,492 19,875 17,276 ------- ------- ------- ------- ------- ------- Total revenues 46,181 42,498 40,119 26,492 19,875 17,276 ------- ------- ------- ------- ------- ------- COSTS AND EXPENSES (note 5) Cost of goods sold 24,308 22,775 22,630 - - - Cost of services sold 6,785 6,274 6,329 - - - Interest and other financial charges 649 410 525 6,661 4,545 3,538 Insurance losses and policyholder and annuity benefits - - - 5,285 3,507 3,172 Provision for losses on financing receivables (note 8) - - - 1,117 873 987 Other costs and expenses 5,743 5,211 5,124 9,769 7,862 7,236 Minority interest in net earnings of consolidated affiliates 64 31 17 140 139 134 ------- ------- ------- ------- ------- ------- Total costs and expenses 37,549 34,701 34,625 22,972 16,926 15,067 ------- ------- ------- ------- ------- ------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND ACCOUNTING CHANGE 8,632 7,797 5,494 3,520 2,949 2,209 Provision for income taxes (note 9) (2,059) (1,882) (1,310) (1,105) (864) (642) ------- ------- ------- ------- ------- ------- EARNINGS FROM CONTINUING OPERATIONS BEFORE ACCOUNTING CHANGE 6,573 5,915 4,184 2,415 2,085 1,567 EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS (note 2) - (1,189) 993 - (1,189) 240 ------- ------- ------- ------- ------- ------- EARNINGS BEFORE ACCOUNTING CHANGE 6,573 4,726 5,177 2,415 896 1,807 Cumulative effect of accounting change (note 20) - - (862) - - - ------- ------- ------- ------- ------- ------- NET EARNINGS $ 6,573 $ 4,726 $ 4,315 $ 2,415 $ 896 $ 1,807 ======= ======= ======= ======= ======= ======= - - --------------------------------------------------------------------------------------------------------------------------------- In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 26.
F-4 Annual Report Page No. 28 STATEMENT OF FINANCIAL POSITION
General Electric Company and consolidated affiliates ------------------------------- At December 31 (In millions) 1995 1994 - - -------------------------------------------------------------- ------------------------------- ASSETS Cash and equivalents $ 2,823 $ 2,591 Investment securities (note 10) 41,067 30,965 Current receivables (note 11) 8,735 7,527 Inventories (note 12) 4,395 3,880 GECS financing receivables (investment in time sales, loans and financing leases) - net (notes 8 and 13) 93,272 76,357 Other GECS receivables 12,417 5,763 Property, plant and equipment (including equipment leased to others) - net (note 14) 25,679 23,465 Investment in GECS - - Intangible assets (note 15) 13,342 11,373 All other assets (note 16) 26,305 23,950 -------- -------- TOTAL ASSETS $228,035 $185,871 ======== ======== - - ------------------------------------------------------------------------------------------------------------ LIABILITIES AND EQUITY Short-term borrowings (note 18) $64,463 $57,781 Accounts payable, principally trade accounts 9,061 6,766 Progress collections and price adjustments accrued 1,812 2,065 Dividends payable 767 699 All other GE current costs and expenses accrued (note 17) 5,898 5,543 Long-term borrowings (note 18) 51,027 36,979 Insurance liabilities, reserves and annuity benefits (note 19) 39,699 29,438 All other liabilities (note 20) 15,363 13,161 Deferred income taxes (note 22) 7,380 5,205 -------- -------- Total liabilities 195,470 157,637 -------- -------- Minority interest in equity of consolidated affiliates (note 23) 2,956 1,847 -------- -------- Common stock (1,857,013,000 shares issued) 594 594 Unrealized gains (losses) on investment securities 1,000 (810) Other capital 1,663 1,122 Retained earnings 34,528 30,793 Less common stock held in treasury (8,176) (5,312) -------- -------- Total share owners' equity (notes 24 and 25) 29,609 26,387 -------- -------- TOTAL LIABILITIES AND EQUITY $228,035 $185,871 ======== ======== - - ------------------------------------------------------------------------------------------------------------ The notes to consolidated financial statements on pages 45-64 are an integral part of this statement. Year- end 1994 assets and liabilities of Kidder, Peabody Group Inc., the discontinued securities broker-dealer of GECS, have been reclassified to "All other liabilities."
F-5 Annual Report Page No. 29 STATEMENT OF FINANCIAL POSITION
GE GECS ------------------- -------------------- At December 31 (In millions) 1995 1994 1995 1994 - - -------------------------------------------------------------- ------------------- -------------------- ASSETS Cash and equivalents $ 874 $ 1,373 $ 1,949 $ 1,218 Investment securities (note 10) 4 93 41,063 30,872 Current receivables (note 11) 8,891 7,807 - - Inventories (note 12) 4,395 3,880 - - GECS financing receivables (investment in time sales, loans and financing leases) - net (notes 8 and 13) - - 93,272 76,357 Other GECS receivables - - 12,897 6,012 Property, plant and equipment (including equipment leased to others) - net (note 14) 10,234 9,525 15,445 13,940 Investment in GECS 12,774 9,380 - - Intangible assets (note 15) 6,643 6,336 6,699 5,037 All other assets (note 16) 11,901 12,419 14,404 11,531 ------- ------- -------- -------- TOTAL ASSETS $55,716 $50,813 $185,729 $144,967 ======= ======= ======== ======== - - ------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND EQUITY Short-term borrowings (note 18) $1,666 $906 $62,808 $57,087 Accounts payable, principally trade accounts 3,968 3,141 5,952 3,777 Progress collections and price adjustments accrued 1,812 2,065 - - Dividends payable 767 699 - - All other GE current costs and expenses accrued (note 17) 5,747 5,798 - - Long-term borrowings (note 18) 2,277 2,699 48,790 34,312 Insurance liabilities, reserves and annuity benefits (note 19) - - 39,699 29,438 All other liabilities (note 20) 8,928 8,468 6,312 4,571 Deferred income taxes (note 22) 508 268 6,872 4,937 ------- ------- -------- -------- Total liabilities 25,673 24,044 170,433 134,122 ------- ------- -------- -------- Minority interest in equity of consolidated affiliates (note 23) 434 382 2,522 1,465 ------- ------- -------- -------- Common stock (1,857,013,000 shares issued) 594 594 1 1 Unrealized gains (losses) on investment securities 1,000 (810) 989 (821) Other capital 1,663 1,122 2,266 2,006 Retained earnings 34,528 30,793 9,518 8,194 Less common stock held in treasury (8,176) (5,312) - - ------- ------- -------- -------- Total share owners' equity (notes 24 and 25) 29,609 26,387 12,774 9,380 ------- ------- -------- -------- TOTAL LIABILITIES AND EQUITY $55,716 $50,813 $185,729 $144,967 ======= ======= ======== ======== - - ------------------------------------------------------------------------------------------------------------------------ In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 28.
F-6 Annual Report Page No. 30 STATEMENT OF CASH FLOWS
General Electric Company and consolidated affiliates ----------------------------------- For the years ended December 31 (In millions) 1995 1994 1993 - - -------------------------------------------------------------- ----------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 6,573 $ 4,726 $ 4,315 Adjustments for discontinued operations - 1,189 (993) Adjustments to reconcile net earnings to cash provided from operating activities Cumulative effect of accounting change - - 862 Depreciation, depletion and amortization 3,594 3,207 3,223 Earnings retained by GECS - continuing operations - - - Deferred income taxes 1,047 1,228 548 Decrease (increase) in GE current receivables (632) 668 (571) Decrease (increase) in GE inventories 55 (56) 750 Increase (decrease) in accounts payable 244 697 639 Increase in insurance liabilities, reserves and annuity benefits 2,490 1,624 1,479 Provision for losses on financing receivables 1,117 873 987 All other operating activities 458 (2,399) 782 -------- -------- -------- CASH FROM OPERATING ACTIVITIES 14,946 11,757 12,021 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (6,447) (7,492) (4,727) Dispositions of property, plant and equipment 1,542 2,506 1,139 Net increase in GECS financing receivables (11,309) (9,525) (4,164) Payments for principal businesses purchased (5,641) (2,606) (2,090) All other investing activities (3,362) 372 (6,518) -------- -------- -------- CASH USED FOR INVESTING ACTIVITIES (25,217) (16,745) (16,360) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (maturities of 90 days or less) (3,487) (2,784) 2,406 Newly issued debt (maturities longer than 90 days) 37,604 23,239 15,468 Repayments and other reductions (maturities longer than 90 days) (18,580) (13,098) (11,851) Net purchase of GE shares for treasury (2,523) (353) (364) Dividends paid to share owners (2,770) (2,462) (2,153) All other financing activities 259 181 (69) -------- -------- -------- CASH FROM (USED FOR) FINANCING ACTIVITIES 10,503 4,723 3,437 -------- -------- -------- CASH FROM (USED FOR) DISCONTINUED OPERATIONS - (200) 962 -------- -------- -------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 232 (465) 60 Cash and equivalents at beginning of year 2,591 3,056 2,996 -------- -------- -------- Cash and equivalents at end of year $ 2,823 $ 2,591 $ 3,056 ======== ======== ======== - - --------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $ (6,645) $ (4,524) $ (3,754) Cash recovered (paid) during the year for income taxes (1,483) (1,777) (1,644) - - --------------------------------------------------------------------------------------------------------- The notes to consolidated financial statements on pages 45-64 are an integral part of this statement. Data for 1994 and 1993 have been reclassified to combine cash flows of discontinued operations.
F-7 Annual Report Page No. 31 STATEMENT OF CASH FLOWS
For the years ended December 31 (in millions) GE GECS -------------------------------- -------------------------------- 1995 1994 1993 1995 1994 1993 - - -------------------------------------------------------- -------------------------------- ------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 6,573 $ 4,726 $ 4,315 $ 2,415 $ 896 $ 1,807 Adjustments for discontinued operations - 1,189 (993) - 1,189 (240) Adjustments to reconcile net earnings to cash provided from operating activities Cumulative effect of accounting change - - 862 - - - Depreciation, depletion and amortization 1,581 1,545 1,631 2,013 1,662 1,592 Earnings retained by GECS - continuing operations (1,324) (1,181) (957) - - - Deferred income taxes 369 575 120 678 653 428 Decrease (increase) in GE current receivables (739) 754 (625) - - - Decrease (increase) in GE inventories 55 (56) 750 - - - Increase (decrease) in accounts payable 462 810 114 418 (222) 540 Increase in insurance liabilities, reserves and annuity benefits - - - 2,490 1,624 1,479 Provision for losses on financing receivables - - - 1,117 873 987 All other operating activities (912) (2,291) (16) 946 140 770 ------- ------- ------- -------- -------- -------- CASH FROM OPERATING ACTIVITIES 6,065 6,071 5,201 10,077 6,815 7,363 ------- ------- ------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (1,831) (1,743) (1,588) (4,616) (5,749) (3,139) Dispositions of property, plant and equipment 38 86 55 1,504 2,420 1,084 Net increase in GECS financing receivables - - - (11,309) (9,525) (4,164) Payments for principal businesses purchased (238) (575) - (5,403) (2,031) (2,090) All other investing activities 408 14 298 (3,913) 176 (6,793) ------- ------- ------- -------- -------- -------- CASH USED FOR INVESTING ACTIVITIES (1,623) (2,218) (1,235) (23,737) (14,709) (15,102) ------- ------- ------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (maturities of 90 days or less) 1,061 (566) 46 (4,510) (2,261) 2,404 Newly issued debt (maturities longer than 90 days) 826 766 215 36,778 22,473 15,253 Repayments and other reductions (maturities longer than 90 days) (1,535) (1,399) (2,325) (17,045) (11,699) (9,526) Net purchase of GE shares for treasury (2,523) (353) (364) - - - Dividends paid to share owners (2,770) (2,462) (2,153) (1,091) (904) (610) All other financing activities - (2) - 259 183 (69) ------- ------- ------- -------- -------- -------- CASH FROM (USED FOR) FINANCING ACTIVITIES (4,941) (4,016) (4,581) 14,391 7,792 7,452 ------- ------- ------- -------- -------- -------- CASH FROM (USED FOR) DISCONTINUED OPERATIONS - - 962 - (200) - ------- ------- ------- -------- -------- -------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR (499) (163) 347 731 (302) (287) Cash and equivalents at beginning of year 1,373 1,536 1,189 1,218 1,520 1,807 ------- ------- ------- -------- -------- -------- Cash and equivalents at end of year $ 874 $ 1,373 $ 1,536 $ 1,949 $ 1,218 $ 1,520 ======= ======= ======= ======== ======== ======== - - --------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $ (468) $ (374) $ (473) $ (6,177) $ (4,150) $ (3,281) Cash recovered (paid) during the year for income taxes (1,651) (1,456) (1,455) 168 (321) (189) - - --------------------------------------------------------------------------------------------------------------------------------- In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 30.
F-8 Annual Report Page No. 32 MANAGEMENT'S DISCUSSION OF OPERATIONS OVERVIEW General Electric Company's consolidated financial statements represent the combination of the Company's manufacturing and nonfinancial services businesses ("GE") and the accounts of General Electric Capital Services, Inc. ("GECS"). See note 1 to the consolidated financial statements, which explains how the various financial data are presented. Management's Discussion of Operations is presented in four parts: Consolidated Operations, GE Continuing Operations, GECS Continuing Operations and International Operations. CONSOLIDATED OPERATIONS GE achieved record revenues and earnings in 1995, as broad strength across its businesses, coupled with continued emphasis on globalization, productivity and effective asset management, produced top-line growth, higher margins and strong cash generation. Consolidated revenues, including acquisitions, rose to a record $70.0 billion, a 17% increase that was attributable primarily to the Company's increasing international activities. Eleven of twelve businesses increased revenues, with six businesses - led by GE Capital Services, Plastics and NBC - achieving double-digit increases. Consolidated earnings per share from continuing operations increased to $3.90, up 13% from last year's $3.46 from continuing operations, and earnings increased 11% to $6.573 billion. Earnings per share grew faster than earnings, reflecting the cumulative impact of $3.2 billion of shares purchased under a three-year, $9 billion share repurchase program initiated in December 1994. Net earnings in 1995 were 39% higher than 1994's $4.726 billion ($2.77 per share), which were 10% higher than 1993's $4.315 billion ($2.52 per share). Three factors affecting 1994 and 1993 are important to these comparisons: discontinued operations of the GECS securities broker-dealer and the GE Aerospace businesses; 1993 restructuring provisions; and the effect of an accounting change in 1993. Each is discussed separately below. Excluding the effects of these items, 1994 earnings would have been $5.915 billion, up 22% from $4.862 billion in 1993. * DISCONTINUED OPERATIONS reflected the results of the GECS securities broker-dealer, Kidder, Peabody Group Inc. (Kidder, Peabody) in 1994 and 1993, and the results of the discontinued GE Aerospace businesses in 1993. Note 2 provides additional information about these discontinued operations. The 1994 loss from discontinued operations included a provision of $868 million after taxes for exit costs related to the liquidation of Kidder, Peabody. This liquidation was substantially complete as of December 31, 1995. * RESTRUCTURING PROVISIONS in 1993, amounting to $678 million after taxes, covered costs of actions that have reduced GE's cost structure. Essentially all restructuring expenditures were completed by the end of 1994. Savings arising from these restructuring programs can best be observed in the growth in operating margin seen in the chart at the bottom of the page and in the productivity measurements discussed on page 33. * THE 1993 ACCOUNTING CHANGE represented effects of adopting Statement of Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for Postemployment Benefits (see note 20). The transition effect of the accounting change decreased net earnings by $862 million ($0.51 per share), with a corresponding decrease in share owners' equity. TWO NEWLY ISSUED ACCOUNTING STANDARDS will be adopted in the first quarter of 1996 and are not expected to have a material effect on financial position or results of operations of GE or GECS. A summary of these standards follows. * SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, requires that certain long-lived assets be reviewed for impairment when events or circumstances indicate that the carrying amounts of the assets may not be recoverable. If such review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset's carrying value must be written down to fair value. * SFAS No. 122, Accounting for Mortgage Servicing Rights, requires that capitalized rights to service mortgage loans be assessed for impairment by individual risk stratum by comparing each stratum's carrying amount with its fair value. Impairment, if any, would be recognized in earnings.
- - ----------------------------------------------------------------------------- GE OPERATING MARGIN AS A PERCENTAGE OF SALES 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- As reported 11.2% 11.1% 9.9% 13.6% 14.4% Restructuring charges 0.3 0.4 2.6 - - - - -----------------------------------------------------------------------------
F-9 Annual Report Page No. 33 DIVIDENDS DECLARED totaled $2.838 billion in 1995. Per-share dividends of $1.69 were up 13% from the previous year, following a 14% increase from the year before. The 1995 increase marks the 20th consecutive year of dividend growth. The chart at right compares GE's dividend growth for the last five years with dividend growth of companies in the Standard and Poor's 500 stock index. GE CONTINUING OPERATIONS GE total revenues were $46.2 billion in 1995, compared with $42.5 billion in 1994 and $40.1 billion in 1993. * GE's sales of goods and services were $43.0 billion in 1995, an increase of 9% from 1994, which in turn was 5% higher than in 1993. The improvement was led by Plastics and NBC. Volume was about 8% higher in 1995, reflecting growth in most businesses and the effect of consolidating Nuovo Pignone, a European energy equipment manufacturer. The effects of selling prices on sales differed markedly among businesses during the year. Overall, selling prices were essentially flat in 1995, while the effect of currency exchange rates on the translation of sales denominated in other than U.S. dollars contributed modestly to the sales increase. Volume in 1994 was about 6% higher than in 1993, but was partially offset by the effects of lower selling prices. Currency exchange rates had a minor negative effect on 1994 sales. * GE's other income, earned from a wide variety of sources, was $753 million in 1995, $783 million in 1994 and $730 million in 1993. Details of GE's other income are provided in note 3. * Earnings of GECS from continuing operations were up 16% in 1995, following a 33% increase the year before. See page 36 for an analysis of these earnings. PRINCIPAL COSTS AND EXPENSES FOR GE are those classified as costs of goods and services sold, and selling, general and administrative expenses. OPERATING MARGIN is sales of goods and services less the costs of goods and services sold, and selling, general and administrative expenses. In 1995, GE's operating margin rose to a record 14.4% of sales, an improvement of 0.8 percentage points from 1994. The operating margin increase was led by strong improvements in Plastics, Aircraft Engines and NBC. Operating margin was 13.6% of sales in 1994, compared with 12.5% (before restructuring provisions) in 1993. Including restructuring provisions, 1993 operating margin was 9.9% of sales. The improved performance in 1994 was attributable
- - ----------------------------------------------------------------------------- GE/S&P DIVIDEND GROWTH SINCE 1990 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- GE 7.22% 18.39% 32.91% 51.63% 68.00% S&P 500 0.83 2.31 3.97 8.93 14.05 - - -----------------------------------------------------------------------------
to Appliances, NBC, Power Systems and Transportation Systems, which increased their margin rates by one percentage point or more. TOTAL COST PRODUCTIVITY (sales in relation to costs, both on a constant dollar basis) has been a major source of improvements in operating margin, accounting for more than $1 billion of the increases in margin in each of the last three years. The productivity rate was 3.7% in 1995, reflecting the sharp improvement at Aircraft Engines and improvements at Plastics and Medical Systems, largely offset by adverse productivity performance by Power Systems, the result of its lower 1995 capacity utilization. While the productivity rate in 1994 was reasonably strong throughout most businesses, at 3.2% overall, it reflected adverse results of Aircraft Engines' lower volume. Cost savings provided by productivity improvements more than offset the impact of inflation in each of the last three years. GE INTEREST EXPENSE in 1995 was $649 million, up from $410 million in 1994, which was down from $525 million in 1993. The increase in interest expense was attributable to a number of factors, including higher interest rates and average borrowing levels. The decrease in interest expense in 1994 was primarily the result of lower borrowings partially offset by the effects of higher interest rates. ENTERING 1996 with excellent cash flows and a strong balance sheet, the Company continues to be well positioned to deliver strong performance in the current global economic environment. F-10 Annual Report Page No. 34 GE INDUSTRY SEGMENT REVENUES AND OPERATING PROFIT for the past five years are shown in the table on page 35. For additional information, including a description of the products and services included in each segment, see note 27. * AIRCRAFT ENGINES revenues increased 7% from 1994, which was down 13% from 1993. The revenue increase was primarily attributable to higher volume in commercial and military spares and related services, partially offset by effects of lower selling prices. Operating profit increased 26% from 1994, as significant productivity gains and, to a lesser degree, higher volume more than offset the effects of lower prices. Operating profit increased 17% during 1994, principally because there was no counterpart to 1993 restructuring provisions ($267 million). Excluding 1993 restructuring provisions, operating profit decreased 12% in 1994, largely as a result of lower volume. In 1995, $1.7 billion of revenues were from sales to the U.S. government, down $0.1 billion from 1994, which was $0.6 billion lower than in 1993. The lower 1994 revenues were primarily attributable to declines in sales for the F110 and T700 engine programs. Firm orders received during 1995 totaled $5.9 billion, up 7% from $5.5 billion in 1994. The firm orders backlog at year-end 1995 was $7.7 billion ($7.6 billion at the end of 1994), about 38% of which was scheduled for delivery in 1996. * APPLIANCES revenues were about the same as in 1994, as softening North American sales offset strong growth in Europe and Asia. Operating profit increased 2% despite higher material costs, primarily as a result of productivity. Operating profit rose 84% in 1994 on a 7% increase in revenues, in part because there was no counterpart to restructuring provisions of $136 million in 1993. Excluding 1993 restructuring provisions, operating profit increased 34% in 1994, primarily as a result of strong productivity and higher volume. * BROADCASTING revenues increased 17% in 1995, following an 8% increase in 1994. The revenue increase in both years was principally attributable to sharply stronger prime-time ratings and improved cable and owned-and-operated station performance, resulting in improved advertising prices throughout the period. Operating profit was up 48% in 1995, as a result of the stronger advertising revenues. Operating profit also increased sharply in 1994, in part because of restructuring provisions of $81 million in 1993. Excluding the effect of those provisions, operating profit improved 45% from 1993, reflecting the impact of stronger advertising, improved ratings performance and substantially improved cable operations. * INDUSTRIAL PRODUCTS AND SYSTEMS revenues rose 8% in 1995, following a 10% increase in 1994. The improvements in revenues in both years were largely attributable to increased volume in Transportation Systems, Lighting, and Motors and Industrial Systems (Motors). Operating profit increased 14% in 1995, after a 47% increase in 1994. The improvement in 1995 resulted from the combination of productivity across the segment and the volume increases, which more than offset higher material costs. The 1994 increase in operating profit reflected primarily the effect of $253 million of restructuring provisions in 1993. Absent restructuring provisions, operating profit increased 15% in 1994, principally because of improved European operations in Lighting and the combination of higher volume and productivity in Motors and Transportation Systems. Transportation Systems received orders of $1.6 billion in 1995, down $1.2 billion from 1994's record level. The backlog at year-end 1995 was $3.4 billion ($3.5 billion at the end of 1994), about 29% of which was scheduled for shipment in 1996. * MATERIALS revenues increased 17% in 1995, reflecting principally the effects of higher selling prices and the consolidation of Toshiba Silicones. Operating profit increased 51%, primarily because of higher prices, productivity and volume growth, the combination of which more than offset increases in material costs. Revenues were up 13% in 1994, primarily because of increased volume across all major product groups. Operating profit rose 16% in 1994, in part because there was no counterpart to $52 million of restructuring provisions in 1993. Excluding 1993 restructuring provisions, operating profit increased 9%, as ongoing productivity and improved volume more than offset the impact of lower selling prices and much higher material costs. * POWER GENERATION revenues were 10% higher in 1995, following a 7% increase in 1994. The current-year revenue increase was more than accounted for by the 1995 consolidation of Nuovo Pignone ($1.5 billion in revenues). Excluding Nuovo Pignone, the revenue decrease in 1995 resulted from lower volume in both gas and steam turbines. Operating profit decreased 38% in 1995, as the profit contribution of Nuovo Pignone was more than offset by the effects of difficult market conditions on volume and prices, cost inflation, and modification costs related to series "F" gas turbines. Operating profit in 1994 increased 21%, reflecting the effect of 1993 restructuring provisions of $82 million. Adjusting for 1993 restructuring provisions, operating profit increased 12%, primarily as a result of lower material costs and volume improvements that more than offset lower selling prices. F-11 Annual Report Page No. 35
SUMMARY OF INDUSTRY SEGMENTS General Electric Company and consolidated affiliates ------------------------------------------------------- For the years ended December 31 (In millions) 1995 1994 1993 1992 1991 - - ------------------------------------------------------------------------------------------------------------------------ REVENUES GE Aircraft Engines $ 6,098 $ 5,714 $ 6,580 $ 7,368 $ 7,777 Appliances 5,933 5,965 5,555 5,330 5,225 Broadcasting 3,919 3,361 3,102 3,363 3,121 Industrial Products and Systems 10,194 9,406 8,575 8,210 8,248 Materials 6,647 5,681 5,042 4,853 4,736 Power Generation 6,545 5,933 5,530 5,106 4,813 Technical Products and Services 4,424 4,285 4,174 4,674 4,686 All Other 2,707 2,348 1,803 1,581 1,485 Corporate items and eliminations (286) (195) (242) (399) (538) ------- ------- ------- ------- ------- Total GE 46,181 42,498 40,119 40,086 39,553 ------- ------- ------- ------- ------- GECS Financing 19,042 14,932 12,399 10,544 10,069 Specialty Insurance 7,444 4,926 4,862 3,863 2,989 All Other 6 17 15 11 (5) ------- ------- ------- ------- ------- Total GECS 26,492 19,875 17,276 14,418 13,053 ------- ------- ------- ------- ------- Eliminations (2,645) (2,264) (1,694) (1,453) (1,323) ------- ------- ------- ------- ------- CONSOLIDATED REVENUES $70,028 $60,109 $55,701 $53,051 $51,283 ======= ======= ======= ======= ======= - - ------------------------------------------------------------------------------------------------------------------------ OPERATING PROFIT GE Aircraft Engines $ 1,176 $ 935 $ 798 $ 1,274 $ 1,390 Appliances 697 683 372 386 400 Broadcasting 738 500 264 204 209 Industrial Products and Systems 1,519 1,328 901 1,071 1,088 Materials 1,465 967 834 740 800 Power Generation 769 1,238 1,024 854 679 Technical Products and Services 801 787 706 912 693 All Other 2,683 2,309 1,725 1,495 1,405 ------- ------- ------- ------- ------- Total GE 9,848 8,747 6,624 6,936 6,664 ------- ------- ------- ------- ------- GECS Financing 3,045 2,662 1,727 1,366 1,327 Specialty Insurance 1,020 589 770 641 501 All Other (545) (302) (288) (272) (290) ------- ------- ------- ------- ------- Total GECS 3,520 2,949 2,209 1,735 1,538 ------- ------- ------- ------- ------- Eliminations (2,396) (2,072) (1,554) (1,317) (1,199) ------- ------- ------- ------- ------- CONSOLIDATED OPERATING PROFIT 10,972 9,624 7,279 7,354 7,003 GE interest and financial charges, net of eliminations (644) (417) (529) (752) (881) GE items not traceable to segments (591) (546) (614) (629) (515) ------- ------- ------- ------- ------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND ACCOUNTING CHANGES $ 9,737 $ 8,661 $ 6,136 $ 5,973 $ 5,607 ======= ======= ======= ======= ======= - - ------------------------------------------------------------------------------------------------------------------------ The notes to consolidated financial statements on pages 45-64 are an integral part of this statement. "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Operating profit of GE segments excludes interest and other financial charges; operating profit of GECS includes interest and discount expense, which is the largest element of GECS' operating costs.
F-12 Annual Report Page No. 36 Power Generation orders were $6.7 billion for 1995, compared with $5.7 billion in 1994. The backlog of unfilled orders at year-end 1995 was $10.2 billion ($9.4 billion at the end of 1994), about 43% of which was scheduled to be shipped in 1996. The increases in orders and backlog were more than accounted for by the consolidation of Nuovo Pignone in 1995. * TECHNICAL PRODUCTS AND SERVICES revenues were up 3% in 1995, following a similar increase in 1994, as higher volume was partially offset by lower selling prices in both Medical Systems and Information Services. Medical Systems achieved strong volume growth in Asia and Europe, but the U.S. market was weak throughout both years. Information Services revenues increased in 1995 and 1994, reflecting continued worldwide growth in services associated with electronic commerce. Segment operating profit increased 2% in 1995, primarily a result of productivity gains. The 1994 increase in operating profit of 11% was partially attributable to 1993 restructuring provisions of $60 million. Excluding such provisions, 1994 operating profit was 3% ahead of 1993, reflecting productivity and volume improvements that were partially offset by weaker pricing at both Medical Systems and Information Services. Orders received by Medical Systems in 1995 were $3.7 billion, up 12% from 1994. The backlog of unfilled orders at year-end 1995 was $1.6 billion ($1.5 billion at the end of 1994), about 94% of which was scheduled to be shipped in 1996. * ALL OTHER consists primarily of GECS' earnings, which are discussed in the next section. Also included are revenues derived from licensing the use of GE technology to others. GECS CONTINUING OPERATIONS GECS conducts its operations in two segments: Financing and Specialty Insurance. The Financing segment includes financing operations of General Electric Capital Corporation (GE Capital). The Specialty Insurance segment includes operations of GE Global Insurance Holding Corporation (GE Global Insurance), the principal subsidiary of which is Employers Reinsurance Corporation (ERC), and the other insurance businesses described on page 61. IMPROVED OPERATING RESULTS for 1995 and 1994 reflect the effects of asset growth with approximately equal contributions from origination volume and from acquisitions of businesses and portfolios. * GECS revenues from operations were $26.5 billion in 1995, up 33% from 1994, which was up 15% from 1993. * GECS earnings from continuing operations were $2.4 billion in 1995, up 16% from 1994, which was up 33% from 1993. The 1995 increase reflected asset growth partially offset by a decrease in financing spreads (the excess of yields over interest rates on borrowings). The 1994 increase resulted primarily from asset growth, increased financing spreads and improved asset quality, which were partially offset by higher insurance losses. * GECS interest on borrowings in 1995 was $6.7 billion, 47% higher than in 1994, which was 28% higher than in 1993. Increases in 1995 and 1994 reflected the effects of higher average borrowings used to finance asset growth as well as the effects of higher interest rates. Part of the 1995 increase resulted from a shift during the year to longer-term funding. The composite interest rate on GECS' borrowings was 6.76% in 1995, compared with 5.47% in 1994 and 4.96% in 1993. * GECS insurance losses and policyholder and annuity benefits increased to $5.3 billion during 1995, compared with $3.5 billion in 1994 and $3.2 billion in 1993, primarily because of business acquisitions and growth in originations throughout the period. * GECS other costs and expenses increased to $9.8 billion in 1995 from $7.9 billion in 1994 and $7.2 billion in 1993, reflecting costs associated with acquired businesses and portfolios, and higher investment levels. GECS industry segment revenues and operating profit for the past five years are shown in the table on page 35. Revenues from operations (earned income) are detailed in note 4. * FINANCING SEGMENT revenues from operations were $19.0 billion in 1995, up 28% from 1994, which was up 20% from 1993. Asset growth and increased yields were significant factors in both years. Operating profit was $3.0 billion in 1995, up 14% from 1994, as the effects of the asset growth were partially offset by declining financing spreads and losses from adverse market conditions in the Mortgage Services business. Financing spreads declined during 1995, as the increase in borrowing rates outpaced the improvements in yields. Operating profit increased 54% in 1994 over 1993, the result of asset growth of 14%, increased financing spreads and improved asset quality. The provision for losses on financing receivables increased in 1995, principally reflecting portfolio growth, following a decline in 1994 that was attributable to improved quality of the portfolio. Other costs and expenses increased in both years, primarily as a result of asset growth. The portfolio of financing receivables, before allowance for losses, increased to $95.8 billion at the end of 1995 from $78.4 billion at the end of 1994. Financing receivables are the Financing segment's largest asset and its primary source of revenues. The related allowance for losses at the end of F-13 Annual Report Page No. 37 1995 amounted to $2.5 billion (2.63% of receivables - the same as for 1994 and 1993) and, in management's judgment, is appropriate given the risk profile of the portfolio. Amounts written off in 1995 were approximately 1.01% of the year's average financing receivables, compared with 1.04% and 1.59% during 1994 and 1993, respectively. A discussion of the quality of certain elements of the Financing segment portfolio follows. Nonearning receivables are those that are 90 days or more delinquent and reduced- earning receivables are receivables whose terms have been restructured to a below-market yield. Consumer receivables at year-end 1995 and 1994 are shown in the following table:
- - ------------------------------------------------------------------------- (In millions) 1995 1994 - - ------------------------------------------------------------------------- Credit card and personal loans $23,937 $19,124 Auto loans 5,555 3,991 Auto finance leases 12,461 7,473 ------- ------- Total consumer $41,953 $30,588 ======= ======= Nonearning and reduced-earning $671 $422 - As percentage of total 1.6% 1.4% Receivable write-offs for the year $644 $482 - - -------------------------------------------------------------------------
Most of the nonearning consumer receivables were U.S. private-label credit card loans, the majority of which were subject to various loss-sharing agreements that provide full or partial recourse to the originating retailer. Delinquencies in the consumer portfolio were slightly higher at the end of 1995 than for 1994, consistent with overall industry experience. Commercial real estate portfolio at year-end 1995 and 1994 amounted to $17.4 billion and $16.9 billion, respectively, as shown in the following table:
- - ------------------------------------------------------------------------- (In millions) 1995 1994 - - ------------------------------------------------------------------------- Commercial real estate loans $13,405 $13,282 Nonearning and reduced-earning loans 179 179 Receivable write-offs for the year 147 209 Assets acquired for resale 2,335 2,103 Other (primarily ventures) 1,651 1,508 - - -------------------------------------------------------------------------
Commercial real estate loans are generally secured by first mortgages. Assets are acquired for resale from various financial institutions. Values realized during 1995 and 1994 on disposition of assets acquired for resale have met or exceeded expectations at the time of purchase. The commercial real estate portfolio includes investments in a variety of property types and continues to be well dispersed geographically, principally in the continental United States. Write-offs in the commercial real estate portfolio declined during 1995, as markets continued to stabilize.
- - ----------------------------------------------------------------------------- GECS EARNINGS FROM CONTINUING OPERATIONS (In billions) 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- $1.221 $1.331 $1.567 $2.085 $2.415 - - -----------------------------------------------------------------------------
Other financing receivables, totaling $40.4 billion at December 31, 1995, consisted of a diverse commercial, industrial and equipment loan and lease portfolio. This portfolio increased $5.9 billion during 1995, primarily because of acquisitions. The related nonearning and reduced-earning receivables increased to $285 million at year-end 1995 from $165 million at year-end 1994. GECS held loans and leases to commercial airlines, as discussed in note 16, amounting to $8.3 billion at the end of 1995, up from $7.6 billion at the end of 1994, reflecting purchases of aircraft. At year-end 1995, GECS' commercial aircraft positions included financial guaranties and funding commitments amounting to $409 million ($506 million at year-end 1994) and conditional commitments to purchase aircraft at a cost of $141 million ($81 million at year-end 1994). On January 22, 1996, GECS announced that it had placed a multi-year order for various Boeing aircraft with list prices approximating $4 billion. * SPECIALTY INSURANCE SEGMENT revenues from operations were $7.4 billion in 1995, an increase of 51% from 1994, which was essentially the same as 1993. The increase in 1995 reflected growth, primarily associated with business acquisitions, in the property and casualty reinsurance business. Operating profit increased to $1,020 million in 1995 from $589 million in 1994, principally because there was no current-year counterpart to the 1994 adverse loss development in the private mortgage pool insurance, the result of poor economic conditions and housing value declines in southern California. Operating profit in 1995 also was enhanced by improved returns on investment securities and effects of acquisitions. For 1994, private mortgage pool insurance losses more than offset operating profit increases in other parts of the segment, including primary mortgage insurance. F-14 Annual Report Page No. 38 INTERNATIONAL OPERATIONS Estimated results of international operations include all exports from the United States plus the results of GE's and GECS' operations located outside the United States. International revenues in 1995 were $26.9 billion (38% of consolidated revenues), compared with $20.0 billion in 1994 and $18.2 billion in 1993. In 1995, about 46% of GE's sales of goods and services were international, compared with about 40% in the previous two years. The chart below left depicts the growth in international revenues in relation to total revenues over the past five years. International operating profit was $3.0 billion (27% of consolidated operating profit) in 1995, compared with $2.6 billion in 1994 and $2.3 billion in 1993. GE's international revenues were $20.2 billion in 1995, an increase of 24% from 1994, reflecting strong growth in Europe and the Pacific Basin. European revenues increased by $2.5 billion, largely because of the 1995 consolidation of Nuovo Pignone's $1.5 billion of sales. Additionally, many GE businesses, especially Aircraft Engines and Plastics, achieved strong revenue performance in Europe during the year. GE's Pacific Basin revenues were up $0.9 billion in 1995, the result of consolidating Toshiba Silicones in the Plastics business, as well as growth across many other businesses, particularly Medical Systems and Lighting. GECS' international revenues were $6.7 billion in 1995 and year-end assets were about $43.3 billion. These revenues, which were derived primarily from operations in Europe, Canada and the Pacific Basin, were up sharply from $3.7 billion in 1994; year-end assets more than doubled during the year from approximately $21.5 billion at the end of 1994. The increase is attributable to expansion of GECS' operations into the international marketplace - expansion that management expects to continue. The accompanying financial results reported in U.S. dollars are unavoidably affected by currency exchange. A number of techniques are used to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. International activity is diverse, as shown for revenues in the chart at the bottom right of this page. Principal currencies include those of countries in the European Monetary Union, as well as the Japanese yen and the Canadian dollar. GE's export sales by major world areas follow.
- - --------------------------------------------------------------------------- GE'S TOTAL EXPORTS FROM THE UNITED STATES (In millions) 1995 1994 1993 - - --------------------------------------------------------------------------- Pacific Basin $3,397 $3,260 $2,645 Europe 1,701 1,319 2,320 Americas 1,023 1,027 981 Other 964 821 1,039 ------ ------ ------ Exports to external customers 7,085 6,427 6,985 Exports to affiliates 2,123 1,683 1,513 ------ ------ ------ Total exports $9,208 $8,110 $8,498 ====== ====== ====== - - ---------------------------------------------------------------------------
< GE made a positive 1995 contribution of approximately $5.2 billion to the U.S. balance of trade. Total exports in 1995 were $9.2 billion; direct imports from external suppliers were $2.8 billion; and imports from GE affiliates were $1.2 billion.
- - ----------------------------------------------------------------------------- CONSOLIDATED REVENUES (In billions) 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- United States $34.631 $35.228 $37.471 $40.064 $43.164 International 16.652 17.823 18.230 20.045 26.864 - - -----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------- CONSOLIDATED INTERNATIONAL REVENUES (In billions) 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- Europe $7.972 $8.721 $9.042 $9.116 $14.117 Pacific Basin 4.030 4.349 4.531 5.997 7.136 Americas 3.194 3.315 3.215 3.763 4.105 Other 1.456 1.438 1.442 1.169 1.506 - - -----------------------------------------------------------------------------
F-15 Annual Report Page No. 39 MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY OVERVIEW This discussion of financial resources and liquidity focuses on the Statement of Financial Position (page 28) and the Statement of Cash Flows (page 30). Throughout the discussion, it is important to understand the differences between the businesses of GE and GECS. Although GE's manufacturing and nonfinancial services activities involve a variety of different businesses, their underlying characteristics are development, preparation for market and delivery of tangible goods and services. Risks and rewards are directly related to the ability to manage and finance those activities. GECS' principal businesses provide financing, asset management, insurance and other financial services to third parties. The underlying characteristics of these businesses involve the management of financial risk. GECS' risks and rewards stem from the abilities of its businesses to continue to design and provide a wide range of financial services in a competitive marketplace and to receive adequate compensation for such services. GECS is not a "captive finance company" nor a vehicle for "off-balance-sheet financing" for GE; very little of GECS' business is directly related to other GE operations. Despite the different business profiles of GE and GECS, the global commercial airline industry is one significant example of an important source of business for both. GE assumes financing positions primarily in support of engine sales, whereas GECS is a significant source of lease and loan financing for the industry (see details in note 16). Management believes that, particularly as the industry regains financial strength, these financing positions are reasonably protected by collateral values and by its ability to control assets, either by ownership or security interests. The fundamental differences between GE and GECS are reflected in the measurements commonly used by investors, rating agencies and financial analysts. These differences will become clearer in the discussion that follows with respect to the more significant items in the financial statements. STATEMENT OF FINANCIAL POSITION * INVESTMENT SECURITIES for each of the past two years comprised mainly investment-grade debt securities held by GECS' specialty insurance and annuity businesses in support of obligations to policyholders and annuitants. The increase of $10.2 billion at GECS during 1995 was principally related to acquisitions, increases in fair value resulting from lower year-end interest rates and investment of premiums. * GE'S CURRENT RECEIVABLES were $8.9 billion and $7.8 billion at the end of 1995 and 1994, respectively, and included $6.6 billion and $5.7 billion due from customers at the end of 1995 and 1994, respectively. As a measure of
- - ----------------------------------------------------------------------------- GE ANNUAL INVENTORY TURNOVER 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- 4.71 5.26 5.97 6.86 6.90 - - -----------------------------------------------------------------------------
asset utilization, customer receivables turnover was 6.7 in 1995, compared with 6.9 in 1994, a decline solely attributable to consolidation of Nuovo Pignone. Current receivables other than amounts owed by customers are primarily amounts that did not originate from sales of GE goods or services, such as advances to suppliers in connection with large contracts. * INVENTORIES were $4.4 billion at December 31, 1995, up $0.5 billion from the end of 1994. As a measure of inventory utilization, turnover was 6.9 in 1995, about the same as in 1994. Absent the consolidation of Nuovo Pignone, inventory turnover would have been 7.2 in 1995, continuing the improvements achieved over the past five years. Last-in, first-out (LIFO) revaluations decreased $87 million in 1995, compared with decreases of $197 million in 1994 and $179 million in 1993. Included in these changes were decreases of $88 million, $72 million and $101 million (1995, 1994 and 1993, respectively) that resulted from lower LIFO inventory levels. There was no cost change in 1995 and net cost decreases in 1994 and 1993. * GECS FINANCING RECEIVABLES were $93.3 billion at year-end 1995, net of allowance for doubtful accounts, up $16.9 billion over 1994. These receivables are discussed on page 36 and in notes 8 and 13. * GECS OTHER RECEIVABLES were $12.9 billion and $6.0 billion at December 31, 1995 and 1994, respectively. The 1995 increase was almost entirely attributable to premiums receivable and reinsurance recoverables, reflecting acquired businesses and a general increase in underwriting activity. * PROPERTY, PLANT AND EQUIPMENT (including equipment leased to others) was $25.7 billion at December 31, 1995, up $2.2 billion from 1994. GE's property, plant and equipment consists of investments for its own productive use, whereas the largest element of GECS' investment is in equipment provided to third parties on operating leases. Details by category of investment can be found in note 14. F-16 Annual Report Page No. 40 GE's total expenditures for new plant and equipment during 1995 totaled $1.8 billion, up slightly from $1.7 billion in 1994. Total expenditures for the past five years were $8.8 billion, of which 36% was investment in productivity, through new equipment and process improvements; 35% was investment for growth, through new capacity and product development; and 29% was investment for such other purposes as improvement of research and development facilities and safety and environmental protection. GECS' additions to its equipment leased to others were $4.5 billion during 1995 ($5.6 billion during 1994). * INTANGIBLE ASSETS were $13.3 billion at year-end 1995, up from $11.4 billion at year-end 1994. GE's intangibles increased to $6.6 billion from $6.3 billion at the end of 1994. The $1.7 billion increase in GECS' intangibles was primarily goodwill attributable to various acquisitions, none of which was individually material. * ALL OTHER ASSETS totaled $26.3 billion at year-end 1995, an increase of $2.4 billion from the end of 1994. GE's other assets decreased $0.5 billion, reflecting the 1995 consolidation of Nuovo Pignone, which was classified in other assets in 1994, and an increase in the prepaid pension asset. GECS' increase of $2.9 billion related principally to acquisitions. * INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $39.7 billion, $10.3 billion higher than in 1994. The increase was primarily attributable to acquisitions. * CONSOLIDATED BORROWINGS aggregated $115.5 billion at December 31, 1995, compared with $94.8 billion at the end of 1994. The major debt-rating agencies evaluate the financial condition of GE and of GE Capital (GECS' major public borrowing entity) differently because of their distinct business characteristics. Using criteria appropriate to each and considering their combined strength, those major rating agencies continue to give the highest ratings to debt of both GE and GE Capital. GE has committed to contribute capital to GE Capital in the event of either a significant, specified decrease 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 also has guarantied subordinated debt of GECS with a face amount of $1,000 million and $700 million at December 31, 1995 and 1994, respectively. Management believes the likelihood that GE will be required to contribute capital under either the commitments or the guaranties is remote. GE's total borrowings were $3.9 billion at year-end 1995 ($1.6 billion short-term, $2.3 billion long-term), an increase of about $0.3 billion from year-end 1994. GE's total debt at the end of 1995 equaled 11.6% of total capital, down from 11.9% at the end of 1994. GECS' total borrowings were $111.6 billion at December 31, 1995, of which $62.8 billion is due in 1996 and $48.8 billion is due in subsequent years. Comparable amounts at the end of 1994 were $91.4 billion total, $57.1 billion due within one year and $34.3 billion due thereafter. GECS' composite interest rates are discussed on page 36. A large portion of GECS' borrowings ($41.2 billion and $43.7 billion at the end of 1995 and 1994, respectively) was issued in active commercial paper markets that management believes will continue to be a reliable source of short-term financing. Most of this commercial paper is issued by GE Capital. The average remaining terms and interest rates of GE Capital's commercial paper were 41 days and 5.88%, respectively, at the end of 1995, compared with 45 days and 5.90% at the end of 1994. GE Capital's leverage (ratio of debt to equity, excluding from equity all net unrealized gains and losses on investment securities) was 7.89 to 1 at the end of 1995, compared with 7.94 to 1 at the end of 1994. By comparison, including in equity all net unrealized gains and losses on investment securities, GE Capital's ratio of debt to equity was 7.59 to 1 at the end of 1995, compared with 8.43 to 1 at the end of 1994. INTEREST RATE AND CURRENCY RISK MANAGEMENT Both GE and GECS are exposed to various types of risk, although the nature of their activities means that the respective risks are different. The multinational nature of GE's operations and the relatively low level of GE's borrowings means that currency management is more important than managing exposure to changes in interest rates. On the other hand, changes in interest rates are the more significant exposure for GECS because of the potential effects of such changes on financing spreads. The correlation between interest rate changes and financing spreads is subject to many factors and cannot be forecast with reliability. Although not necessarily relevant to future effects, management estimates that, all
- - ----------------------------------------------------------------------------- GE BORROWINGS AS A PERCENTAGE OF TOTAL CAPITAL INVESTED 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- 26.18% 22.39% 15.51% 11.87% 11.60% - - -----------------------------------------------------------------------------
F-17 Annual Report Page No. 41 else constant, an increase of 100 basis points in interest rates for all of 1995 would have reduced GECS net earnings by approximately $65 million. GE and GECS use various financial instruments, particularly interest rate, currency and basis swaps, but also options and currency forwards, to manage their respective risks. GE and GECS are exclusively end users of these instruments, which are commonly referred to as derivatives; neither GE nor GECS engages in trading, market-making or other speculative activities in the derivatives markets. Established practices require that derivative financial instruments relate to specific asset, liability or equity transactions or to currency exposures. The total exposure of GE and GECS to credit risk associated with in-the-money derivatives at December 31, 1995, was $50 million and $680 million, respectively. Management does not anticipate any loss from this exposure. More detailed information regarding these financial instruments, as well as the strategies and policies for their use, is contained in notes 1, 18 and 29. STATEMENT OF CASH FLOWS Because cash management activities of GE and GECS are separate and distinct, it is more useful to review their cash flows statements separately. GE GE's cash and equivalents aggregated $0.9 billion at the end of 1995, about $0.5 billion lower than at the end of 1994. During 1995, GE generated $6.1 billion in cash from operating activities, about the same as in 1994. The 1995 cash generation provided most of the resources to repurchase $3.1 billion of GE common stock under share repurchase programs, to pay $2.8 billion in dividends to share owners, and to invest $1.8 billion in new plant and equipment. Operating activities are the principal source of GE's cash flows from continuing operations. Over the past three years, operating activities have provided more than $17.3 billion of cash. Principal applications were payment of dividends to share owners ($7.4 billion), investment in new plant and equipment ($5.2 billion) and reduction of debt ($2.9 billion). In addition, the Company repurchased and placed into treasury $3.4 billion of its common stock during the past three years under share repurchase programs. In December 1994, GE's Board of Directors authorized the repurchase of up to $5 billion of the Company's common stock over the following two years. In December 1995, the Board increased the authorized amount of the repurchase to $9 billion and extended the program through 1997. This program is a direct result of GE's solid financial condition and cash-generating capability, and it was authorized after evaluating various alternatives to enhance long-term share owner value.
- - ----------------------------------------------------------------------------- GE CUMULATIVE CASH FLOWS (In billions) 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- Cash flows from operating activities $3.626 $8.199 $13.400 $19.471 $25.536 Dividends paid 1.780 3.705 5.858 8.320 11.090 Shares repurchased 1.043 2.175 2.882 3.955 7.057 - - -----------------------------------------------------------------------------
Based on past performance and current expectations, in combination with the financial flexibility that comes with a strong balance sheet and the highest credit ratings, management believes that GE is in a sound position to complete the share repurchase program, to grow dividends in line with earnings, and to continue making long-term investments for future growth, including selective acquisitions and investments in joint ventures. Expenditures for new plant and equipment in 1996 are expected to be about 20% higher than in 1995, principally for productivity and growth. GECS GECS' primary source 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, GECS' borrowings with maturities of 90 days or less have decreased by $4.4 billion. New borrowings of $74.5 billion having maturities longer than 90 days were added during those years, while $38.3 billion of such longer-term borrowings were retired. GECS also generated $24.3 billion from continuing operating activities. GECS' principal use of cash has been investing in assets to grow its businesses. Of the $53.5 billion that GECS invested over the past three years, $25.0 billion was used for additions to financing receivables, $13.5 billion was used to invest in new equipment, principally for lease to others, and $9.5 billion was used for acquisitions of new businesses. With the financial flexibility that comes with excellent credit ratings, management believes that GECS should be well positioned to meet the global needs of its customers for capital and to continue providing GE share owners with good returns. F-18 Annual Report Page No. 42 MANAGEMENT'S DISCUSSION OF SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA summarizes on the opposite page some data frequently requested about General Electric Company. The data are divided into three sections: upper portion - consolidated data; middle portion - GE data that reflect various conventional measurements for industrial enterprises; and lower portion - GECS data that reflect key information pertinent to financial services. GE'S TOTAL RESEARCH AND DEVELOPMENT expenditures were $1,892 million in 1995, up $151 million (or 9%) from 1994. In 1995, expenditures of $1,299 million were from GE's own funds, up 10% from 1994. Expenditures reflected continuing research and development work related to new product programs, including the next generation of gas turbines, a more powerful version of the recently introduced AC locomotive and, in Aircraft Engines, introduction of the new GE90 and development of more fuel-efficient versions of the best- selling CFM56. Expenditures from funds provided by customers (mainly the U.S. government) were $593 million in 1995, up $28 million from 1994, primarily reflecting additional research efforts in advanced propulsion technologies at Aircraft Engines. GE'S TOTAL BACKLOG of firm unfilled orders at the end of 1995 was $25.5 billion, up $1.2 billion from the 1994 level. The increase was more than accounted for by the 1995 consolidation of Nuovo Pignone. Orders constituting this backlog may be canceled or deferred by customers, subject in certain cases to cancellation penalties. See Industry Segments beginning on page 34 for further discussion on unfilled orders of relatively long- cycle manufacturing businesses. About 46% of total unfilled orders at the end of 1995 was scheduled to be shipped in 1996, with most of the remainder to be shipped in the two years after that. For comparison, about 50% of the 1994 backlog was expected to be shipped in 1995. REGARDING ENVIRONMENTAL MATTERS, the Company's operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. In 1995, GE had capital expenditures of about $75 million for projects related to the environment. The comparable amount in 1994 was $63 million. These amounts exclude expenditures for remediation actions, which are principally expensed and are discussed below. Capital expenditures for environmental purposes have included pollution control devices - such as wastewater treatment plants, groundwater monitoring devices, air strippers or separators, and incinerators - at new and existing facilities constructed or upgraded in the normal course of business. Consistent with policies stressing environmental responsibility, average annual capital expenditures other than for remediation projects are presently expected to be about $85 million over the next two years. This level is in line with existing levels for new or expanded programs to build facilities or modify manufacturing processes to minimize waste and reduce emissions. GE also is involved in a sizable number of remediation actions to clean up hazardous wastes as required by federal and state laws. Such statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Expenditures for site remediation actions amounted to approximately $76 million in 1995, compared with $98 million in 1994. It is presently expected that remediation actions will require average annual expenditures in the range of $80 million to $110 million over the next two years. Liabilities for remediation costs are based on management's best estimate of future costs; when there appears to be a range of possible costs with equal likelihood, liabilities are based on the lower end of such range. Possible insurance recoveries are not considered in estimating liabilities. It is difficult to estimate with any meaning the annual level of future remediation expenditures because of the many uncertainties, including uncertainties about the status of laws, regulations, technology and information related to individual sites. Subject to the foregoing, management believes that capital expenditures and remediation actions to comply with the present laws governing environmental protection will not have a material effect on consolidated earnings, liquidity or competitive position. In making this determination, management considered the fact that, if remediation expenditures were to continue at the 1995 level, liabilities recorded at the end of 1995 would be sufficient to cover expenditures through the end of 2001, and that the probability of incurring more than nominal expenditures beyond 2015 is remote. Of course, lower annual expenditures could be incurred over a longer period without increasing the total expenditures.
- - ----------------------------------------------------------------------------- GE SHARE PRICE ACTIVITY 1991 1992 1993 1994 1995 - - ----------------------------------------------------------------------------- High $39.00 $43.75 $53.50 $54.875 $73.125 Low 26.50 36.375 40.375 45.00 49.875 Close 38.25 42.75 52.44 51.00 72.00 - - -----------------------------------------------------------------------------
F-19 Annual Report Page No. 43 SELECTED FINANCIAL DATA
----------------------------------------------------------------- (Dollar amounts in millions; per-share amounts in dollars) 1995 1994 1993 1992 1991 - - ----------------------------------------------------------------------------------------------------------------------- GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES Revenues $ 70,028 $60,109 $55,701 $53,051 $51,283 Earnings from continuing operations 6,573 5,915 4,184 4,137 3,943 Earnings (loss) from discontinued operations - (1,189) 993 588 492 Earnings before accounting changes 6,573 4,726 5,177 4,725 4,435 Net earnings 6,573 4,726 4,315 4,725 2,636 Dividends declared 2,838 2,546 2,229 1,985 1,808 Earned on average share owners' equity 23.5% 18.1% 17.5% 20.9% 12.2% Per share Earnings from continuing operations $ 3.90 $ 3.46 $ 2.45 $ 2.41 $ 2.27 Earnings (loss) from discontinued operations - (0.69) 0.58 0.34 0.28 Earnings before accounting changes 3.90 2.77 3.03 2.75 2.55 Net earnings 3.90 2.77 2.52 2.75 1.51 Dividends declared 1.69 1.49 1.305 1.16 1.04 Stock price range 73 1/8-49 7/8 54 7/8-45 53 1/2-40 3/8 43 3/4-36 3/8 39-26 1/2 Total assets of continuing operations 228,035 185,871 166,413 135,472 123,115 Long-term borrowings 51,027 36,979 28,194 25,298 22,602 Shares outstanding - average (in thousands) 1,683,812 1,708,738 1,707,979 1,714,396 1,737,863 Share owner accounts - average 460,000 458,000 464,000 481,000 495,000 Employees at year end United States 150,000 156,000 157,000 168,000 173,000 Other countries 72,000 60,000 59,000 58,000 62,000 Discontinued operations (primarily U.S.) - 5,000 6,000 42,000 49,000 -------- ------- ------- ------- ------- Total employees 222,000 221,000 222,000 268,000 284,000 ======== ======= ======= ======= ======= - - ----------------------------------------------------------------------------------------------------------------------- GE DATA Short-term borrowings $ 1,666 $ 906 $ 2,391 $ 3,448 $ 3,482 Long-term borrowings 2,277 2,699 2,413 3,420 4,332 Minority interest 434 382 355 350 353 Share owners' equity 29,609 26,387 25,824 23,459 21,683 -------- ------- ------- ------- ------- Total capital invested $ 33,986 $30,374 $30,983 $30,677 $29,850 ======== ======= ======= ======= ======= Return on average total capital invested 21.3% 15.9% 15.2% 16.9% 11.1% Borrowings as a percentage of total capital invested 11.6% 11.9% 15.5% 22.4% 26.2% Working capital $ 204 $ 544 $ (419) $ (822) $ (231) Property, plant and equipment additions 1,831 1,743 1,588 1,445 2,164 Year-end orders backlog 25,507 24,324 22,861 25,434 26,049 - - ----------------------------------------------------------------------------------------------------------------------- GECS DATA Revenues $ 26,492 $19,875 $17,276 $14,418 $13,053 Earnings from continuing operations 2,415 2,085 1,567 1,331 1,221 Earnings (losses) from discontinued operations - (1,189) 240 168 54 Net earnings 2,415 896 1,807 1,499 1,256 Share owner's equity 12,774 9,380 10,809 8,884 7,758 Minority interest 2,522 1,465 1,301 994 865 Borrowings from others 111,598 91,399 81,052 72,360 63,313 Ratio of debt to equity at GE Capital 7.89:1 7.94:1 7.96:1 7.91:1 7.80:1 Total assets of GE Capital $160,825 $130,904 $117,939 $92,632 $80,528 Reserve coverage on financing receivables 2.63% 2.63% 2.63% 2.63% 2.63% Insurance premiums written $ 6,158 $ 3,962 $ 3,956 $ 2,900 $ 2,155 - - ------------------------------------------------------------------------------------------------------------------------ Equity excludes unrealized gains and losses on investment securities. See note 20 to the consolidated financial statements for information about the 1993 accounting change. The 1991 accounting change represented the adoption of SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "consolidated information."
F-20 Annual Report Page No. 44 MANAGEMENT'S DISCUSSION OF FINANCIAL RESPONSIBILITY The financial data in this report, including the audited financial statements, have been prepared by management using the best available information and applying judgment. Accounting principles used in preparing the financial statements are those that are generally accepted in the United States. Management believes that a sound, dynamic system of internal financial controls that balances benefits and costs provides the best safeguard for Company assets. Professional financial managers are responsible for implementing and overseeing the financial control system, reporting on management's stewardship of the assets entrusted to it by share owners and maintaining accurate records. GE is dedicated to the highest standards of integrity, ethics and social responsibility. This dedication is reflected in written policy statements covering, among other subjects, environmental protection, potentially conflicting outside interests of employees, compliance with antitrust laws, proper business practices and adherence to the highest standards of conduct and practices in transactions with the U.S. government. Management continually emphasizes to all employees that even the appearance of impropriety can erode public confidence in the Company. Ongoing education and communication programs and review activities, such as those conducted by the Company's Policy Compliance Review Board, are designed to create a strong compliance culture - one that encourages employees to raise their policy questions and concerns and that prohibits retribution for doing so. KPMG Peat Marwick LLP provides an objective, independent review of management's discharge of its obligations relating to the fairness of reporting operating results and financial condition. Their report for 1995 appears below. The Audit Committee of the Board (consisting solely of Directors from outside GE) maintains an ongoing appraisal - on behalf of share owners - of the activities and independence of the Company's independent auditors, the activities of its internal audit staff, financial reporting process, internal financial controls and compliance with key Company policies. /s/ John F. Welch, Jr. /s/ Dennis D. Dammerman - - ---------------------------- --------------------------- John F. Welch, Jr. Dennis D. Dammerman Chairman of the Board and Senior Vice President Chief Executive Officer Finance February 9, 1996 Independent Auditors' Report To Share Owners and Board of Directors of General Electric Company We have audited the financial statements of General Electric Company and consolidated affiliates as listed in Item 14 (a)(1) on page 27. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in Item 14 (a)(2) on page 27. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and 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 aforementioned financial statements present fairly, in all material respects, the financial position of General Electric Company and consolidated affiliates at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three- year period ended December 31, 1995, 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. As discussed in note 20 to the consolidated financial statements, the Company in 1993 adopted a required change in its method of accounting for postemployment benefits. /s/ KPMG Peat Marwick LLP - - ---------------------------------------- KPMG Peat Marwick LLP Stamford, Connecticut February 9, 1996 F-21 Annual Report Page No. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION. The consolidated financial statements represent the adding together of all affiliates - companies that General Electric directly or indirectly controls, either through majority ownership or otherwise. Results of associated companies - generally companies that are 20% to 50% owned and over which GE, directly or indirectly, has significant influence - are included in the financial statements on a "one-line" basis. FINANCIAL STATEMENT PRESENTATION. Financial data and related measurements are presented in the following categories. * GE. This represents the adding together of all affiliates other than General Electric Capital Services, Inc. ("GECS"), whose continuing operations are presented on a one-line basis. * GECS. This affiliate owns all of the common stock of General Electric Capital Corporation (GE Capital) and GE Global Insurance Holding Corporation (GE Global Insurance). GE Capital, GE Global Insurance and their respective affiliates are consolidated in the GECS columns and constitute its business. * CONSOLIDATED. These data represent the adding together of GE and GECS. The effects of transactions among related companies within and between each of the above-mentioned groups are eliminated. Transactions between GE and GECS are not material. Certain prior-year amounts have been reclassified to conform to the 1995 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. SALES OF GOODS AND SERVICES. A sale is recorded when title passes to the customer or when services are performed in accordance with contracts. GECS REVENUES FROM OPERATIONS ("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 unguarantied residual values of leased assets are based primarily on periodic independent appraisals of the values of leased assets remaining at expiration of the lease terms. Operating lease income is recognized on a straight-line basis over the terms of underlying leases. Origination, commitment and other nonrefundable fees related to fundings are deferred and recorded in earned income on the interest method. Commitment fees related to loans not expected to be funded and line-of-credit fees are deferred and recorded in earned income on a straight-line basis over the period to which the fees relate. Syndication fees are recorded in earned income at the time related services are performed unless significant contingencies exist. Premiums on insurance contracts are reported as earned income over the terms of the related reinsurance treaties or insurance policies. In general, earned premiums are calculated on a pro rata basis or are determined based on reports received from reinsureds. Premium adjustments under retrospectively rated reinsurance contracts are recorded based on estimated losses and loss expenses, including both case and incurred-but-not-reported reserves. Premiums received under annuity contracts that do not have significant mortality or morbidity risk are not reported as revenues but as annuity benefits - a liability - and are adjusted according to terms of the respective policies. DEPRECIATION AND AMORTIZATION. The cost of most of GE's manufacturing plant and equipment is depreciated using an accelerated method based primarily on a sum-of-the-years digits formula. If manufacturing plant and equipment is subject to abnormal economic conditions or obsolescence, additional depreciation is provided. The cost of GECS' equipment leased to others on operating leases is amortized, principally on a straight-line basis, to estimated net salvage value over the lease term or over the estimated economic life of the equipment. Depreciation of property and equipment for GECS' own use is recorded on either a sum-of-the-years digits formula or a straight-line basis over the lives of the assets. RECOGNITION OF LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS. GECS 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. See note 8 for further information on GECS' allowance for losses on financing receivables. F-22 Annual Report Page No. 46 CASH EQUIVALENTS. Marketable securities with original maturities of three months or less are included in cash equivalents. INVESTMENT SECURITIES. The Company has designated its investments in debt securities and marketable equity securities as available-for-sale. Those securities are reported at fair value, with net unrealized gains and losses included in equity, net of applicable taxes. Unrealized losses that are other than temporary are recognized in earnings. INVENTORIES. All inventories are stated at the lower of cost or realizable values. Cost for virtually all of GE's U.S. inventories is stated on a last- in, first-out (LIFO) basis; cost of other inventories is primarily determined on a first-in, first-out (FIFO) basis. INTANGIBLE ASSETS. Goodwill is amortized over its estimated period of benefit on a straight-line basis; other intangible assets are amortized on appropriate bases over their estimated lives. No amortization period exceeds 40 years. Goodwill in excess of associated expected operating cash flows is considered to be impaired and is written down to fair value. DEFERRED INSURANCE ACQUISITION COSTS. For the property and casualty business, deferred insurance acquisition costs are amortized pro rata over the contract periods in which the related premiums are earned. For the life insurance business, these costs are amortized over the premium-paying periods of the contracts in proportion either to anticipated premium income or to gross profit, as appropriate. For certain annuity contracts, such costs are amortized on the basis of anticipated gross profits. For other lines of business, acquisition costs are amortized over the life of the related insurance contracts. Deferred insurance acquisition costs are reviewed for recoverability; anticipated investment income is considered in making recoverability evaluations. INTEREST RATE AND CURRENCY RISK MANAGEMENT. As a matter of policy, neither GE nor GECS engages in derivatives trading, market-making or other speculative activities. Any instrument designated but ineffective as a hedge is marked to market and recognized in operations immediately. GE and GECS use swaps primarily to optimize funding costs. To a lesser degree, and in combination with options and limit contracts, GECS uses swaps to stabilize cash flows from mortgage-related assets. 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. Both GE and GECS require all other swaps, as well as options and 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. 2. DISCONTINUED OPERATIONS A summary of discontinued operations follows.
- - ------------------------------------------------------------------------- (In millions) 1994 1993 - - ------------------------------------------------------------------------- Earnings (loss) from GECS securities broker-dealer $(1,189) $240 Earnings from GE Aerospace - 753 ------- ---- Earnings (loss) from discontinued operations $(1,189) $993 ======= ==== - - -------------------------------------------------------------------------
GECS SECURITIES BROKER-DEALER. In November 1994, GE elected to terminate the operations of Kidder, Peabody Group Inc. (Kidder, Peabody), the GECS securities broker-dealer, by initiating an orderly liquidation of its assets and liabilities. As part of the liquidation plan, GE received securities of Paine Webber Group Inc. valued at $657 million in exchange for certain broker-dealer assets and operations. Summary operating results of the discontinued broker-dealer operations follow.
- - ------------------------------------------------------------------------- (In millions) 1994 1993 - - ------------------------------------------------------------------------- Revenues $ 4,578 $4,861 ======= ====== Earnings (loss) before income taxes $(551) $ 439 Income tax benefit (provision) 230 (199) ------- ------ Earnings (loss) from discontinued operations (321) 240 Provision for loss, net of income tax benefit of $266 (868) - ------- ----- Earnings (loss) from GECS securities broker-dealer $(1,189) $ 240 ======= ====== - - -------------------------------------------------------------------------
The 1994 provision of $868 million after taxes, shown in the summary above, related to exit costs associated with liquidation of Kidder, Peabody. This liquidation was substantially complete as of December 31, 1995. GE AEROSPACE. In April 1993, General Electric Company transferred GE's Aerospace business segment, GE Government Services, Inc., and a component of GE that operated Knolls Atomic Power Laboratory under a contract with the U.S. Department of Energy to a new company controlled by the shareholders of Martin Marietta Corporation in a transaction valued at $3.3 billion. Summary operating results of discontinued aerospace operations follow.
- - ------------------------------------------------------------------------- (In millions) 1993 - - ------------------------------------------------------------------------- Revenues $996 ==== Earnings before income taxes $119 Provision for income taxes (44) ---- Earnings from discontinued operations 75 Gain on transfer, net of income taxes of $752 678 ---- Earnings from GE Aerospace $753 ==== - - -------------------------------------------------------------------------
F-23 Annual Report Page No. 47 3. GE OTHER INCOME
- - ------------------------------------------------------------------------- (In millions) 1995 1994 1993 - - ------------------------------------------------------------------------- Royalty and technical agreements $453 $395 $371 Associated companies 111 115 65 Marketable securities and bank deposits 70 77 75 Customer financing 26 28 29 Other investments Dividends 62 62 50 Interest 18 21 21 Other items 13 85 119 ---- ---- ---- $753 $783 $730 ==== ==== ==== - - -------------------------------------------------------------------------
4. GECS REVENUES FROM OPERATIONS
- - ------------------------------------------------------------------------- (In millions) 1995 1994 1993 - - ------------------------------------------------------------------------- Time sales, loan, investment and other income $13,004 $9,709 $7,997 Financing leases 3,176 2,539 2,315 Operating lease rentals 4,080 3,802 3,267 Premium and commission income of insurance affiliates 6,232 3,825 3,697 ------- ------- ------- $26,492 $19,875 $17,276 ======= ======= ======= - - -------------------------------------------------------------------------
Included in earned income from financing leases were pretax gains on the sale of equipment at lease completion of $191 million in 1995, $180 million in 1994 and $145 million in 1993. 5. SUPPLEMENTAL COST DETAILS Total expenditures for research and development were $1,892 million, $1,741 million and $1,955 million in 1995, 1994 and 1993, respectively. The Company- funded portion aggregated $1,299 million in 1995, $1,176 million in 1994 and $1,297 million in 1993. Rental expense under operating leases is shown below.
- - ------------------------------------------------------------------------- (In millions) 1995 1994 1993 - - ------------------------------------------------------------------------- GE $523 $514 $635 GECS 524 468 413 - - -------------------------------------------------------------------------
At December 31, 1995, minimum rental commitments under noncancelable operating leases aggregated $2,705 million and $3,119 million for GE and GECS, respectively. Amounts payable over the next five years are shown below.
- - ------------------------------------------------------------------------- (In millions) 1996 1997 1998 1999 2000 - - ------------------------------------------------------------------------- GE $358 $324 $275 $216 $164 GECS 434 384 345 320 288 - - -------------------------------------------------------------------------
GE's selling, general and administrative expense totaled $5,743 million in 1995, $5,211 million in 1994 and $5,124 million in 1993. Insignificant amounts of interest were capitalized by GE and GECS in 1995, 1994 and 1993. 6. PENSION BENEFITS GE and its affiliates sponsor a number of pension plans. Principal pension plans are discussed below; other pension plans are not significant individually or in the aggregate. PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE Supplementary Pension Plan. The GE Pension Plan covers substantially all GE employees and 65% of GECS employees in the United States. Generally, benefits are based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Benefit provisions are subject to collective bargaining. At the end of 1995, the GE Pension Plan covered approximately 462,000 participants, including 134,000 employees, 147,000 former employees with vested rights to future benefits, and 181,000 retirees and beneficiaries receiving benefits. The GE Supplementary Pension Plan is an unfunded plan providing supplementary retirement benefits primarily to higher-level, longer-service U.S. employees. Details of income for principal pension plans follow.
- - ------------------------------------------------------------------------- PENSION PLAN INCOME (In millions) 1995 1994 1993 - - ------------------------------------------------------------------------- Actual return on plan assets $ 5,439 $ 316 $ 3,221 Unrecognized portion of return (3,087) 1,951 (1,066) Service cost for benefits earned (469) (496) (452) Interest cost on benefit obligation (1,580) (1,491) (1,486) Amortization 394 294 352 ------- ------- ------- Total pension plan income $ 697 $ 574 $ 569 ======= ======= ======= - - ------------------------------------------------------------------------- Net of employee contributions. - - -------------------------------------------------------------------------
Actual return on trust assets in 1995 was 21.2%, compared with the 9.5% assumed return on such assets. The effect of this higher return will be recognized in future years. The 1993 gain on transfer of discontinued Aerospace operations included a pretax pension plan curtailment/settlement loss of $125 million. F-24 Annual Report Page No. 48 FUNDING POLICY for the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as GE may determine to be appropriate. GE has not made contributions since 1987 because the fully funded status of the GE Pension Plan precludes current tax deduction and because any Company contribution would require payment of annual excise taxes.
- - ------------------------------------------------------------------------- FUNDED STATUS OF PENSION PLANS December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- Market-related value of assets $27,795 $25,441 Projected benefit obligation 23,119 19,334 - - -------------------------------------------------------------------------
The market-related value of pension assets recognizes market appreciation or depreciation in the portfolio over five years, a method that reduces the short-term impact of market fluctuations. Plan assets are held in trust and consist mainly of common stock and fixed-income investments. GE common stock represents about 3% of trust assets. An analysis of amounts shown in the Statement of Financial Position is shown below.
- - ------------------------------------------------------------------------- PREPAID PENSION ASSET December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- Fair value of trust assets $30,200 $26,166 Projected benefit obligation (23,119) (19,334) ------- ------- Assets in excess of obligation 7,081 6,832 Add (deduct) unamortized balances SFAS No. 87 transition gain (769) (923) Experience gains (2,127) (2,548) Plan amendments 523 602 Pension liability 564 526 ------- ------- PREPAID PENSION ASSET $5,272 $4,489 ======= ======= - - -------------------------------------------------------------------------
The accumulated benefit obligation was $22,052 million and $18,430 million at year-end 1995 and 1994, respectively; the vested benefit obligation was approximately equal to the accumulated benefit obligation at the end of both years. ACTUARIAL ASSUMPTIONS AND TECHNIQUES used to determine costs and benefit obligations for principal pension plans follow.
- - ------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS December 31 1995 1994 - - ------------------------------------------------------------------------- Discount rate 7.0% 8.5% Compensation increases 4.0 5.5 Return on assets for the year 9.5 9.5 - - -------------------------------------------------------------------------
Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, are amortized over employees' average future service period. 7. RETIREE HEALTH AND LIFE BENEFITS GE and its affiliates sponsor a number of retiree health and life insurance benefit plans. Principal retiree benefit plans are discussed below; other such plans are not significant individually or in the aggregate. PRINCIPAL RETIREE BENEFIT PLANS generally provide health and life insurance benefits to employees who retire under the GE Pension Plan with 10 or more years of service. Retirees share in the cost of their health care benefits. Benefit provisions are subject to collective bargaining. At the end of 1995, these plans covered approximately 252,000 retirees and dependents. Details of cost for principal retiree benefit plans follow.
- - ------------------------------------------------------------------------- COST OF RETIREE BENEFIT PLANS (In millions) 1995 1994 1993 - - ------------------------------------------------------------------------- RETIREE HEALTH PLANS Service cost for benefits earned $73 $78 $49 Interest cost on benefit obligation 189 191 192 Actual return on plan assets - - (3) Unrecognized portion of return - (1) 1 Amortization (12) (3) (26) ------- ------- ------- Retiree health plan cost 250 265 213 ------- ------- ------- RETIREE LIFE PLANS Service cost for benefits earned 13 24 21 Interest cost on benefit obligation 108 105 111 Actual return on plan assets (329) (2) (152) Unrecognized portion of return 206 (120) 42 Amortization 1 8 7 ------- ------- ------- Retiree life plan cost (income) (1) 15 29 ------- ------- ------- TOTAL COST $249 $280 $242 ======= ======= ======= - - -------------------------------------------------------------------------
The 1993 gain on transfer of discontinued Aerospace operations included a pretax retiree health and life plan curtailment/settlement gain of $245 million. FUNDING POLICY for retiree health benefits is generally to pay covered expenses as they are incurred. GE funds retiree life insurance benefits at its discretion and within limits imposed by tax laws.
- - ------------------------------------------------------------------------- FUNDED STATUS OF RETIREE BENEFIT PLANS December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- c> Market-related value of assets $1,430 $1,346 Accumulated postretirement benefit obligation 4,089 3,701 - - -------------------------------------------------------------------------
The market-related value of assets of retiree life plans recognizes market appreciation or depreciation in the portfolio over five years, a method that reduces the short-term impact of market fluctuations. Plan assets are held in trust and consist mainly of common stock and fixed-income investments. GE common stock represents about 2% of trust assets. F-25 Annual Report Page No. 49 An analysis of amounts shown in the Statement of Financial Position is shown below.
- - ----------------------------------------------------------------------------------------------- RETIREE BENEFIT LIABILITY/ASSET Retiree health plans Retiree life plans -------------------- ------------------- December 31 (In millions) 1995 1994 1995 1994 - - ----------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees and dependents $1,984 $1,858 $1,314 $1,099 Employees eligible to retire 95 101 53 55 Other employees 451 427 192 161 ------ ------ ------ ------ 2,530 2,386 1,559 1,315 Less fair value of trust assets - - (1,556) (1,323) ------ ------ ------ ------ Obligation over (under) assets 2,530 2,386 3 (8) Add (deduct) unamortized balances Experience losses (292) (112) (199) (198) Plan amendments 177 188 119 130 ------ ------ ------ ------ RETIREE BENEFIT LIABILITY (PREPAID ASSET) $2,415 $2,462 $(77) $(76) ====== ====== ====== ====== - - -----------------------------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS AND TECHNIQUES used to determine costs and benefit obligations for principal retiree benefit plans are shown below.
- - ------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS December 31 1995 1994 - - ------------------------------------------------------------------------- Discount rate 7.0% 8.5% Compensation increases 4.0 5.5 Health care cost trend 8.5 9.0 Return on assets for the year 9.5 9.5 - - ------------------------------------------------------------------------- Gradually declining to 5.0% after 2002. Gradually declining to 5.0% after 2022. - - -------------------------------------------------------------------------
Increasing the health care cost trend rates by one percentage point would not have had a material effect on the December 31, 1995, accumulated postretirement benefit obligation or the annual cost of retiree health plans. Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, are amortized over employees' average future service period. 8. GECS ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES GECS allowance for losses on financing receivables represented 2.63% of total financing receivables at year-end 1995 and 1994. The allowance for 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 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.
- - ------------------------------------------------------------------------- (In millions) 1995 1994 1993 - - ------------------------------------------------------------------------- Balance at January 1 $2,062 $1,730 $1,607 Provisions charged to operations 1,117 873 987 Net transfers related to companies acquired or sold 217 199 126 Amounts written off - net (877) (740) (990) ------ ------ ------ Balance at December 31 $2,519 $2,062 $1,730 ====== ====== ====== - - -------------------------------------------------------------------------
All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses. Generally, small-balance accounts are progressively written down (from 10% when more than three months delinquent to 100% when 9 to 12 months delinquent) to record the balances at estimated realizable value. If at any time during that period an account is judged to be uncollectible, such as in the case of a bankruptcy, the uncollectible balance is written off. 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. F-26 Annual Report Page No. 50 9. PROVISION FOR INCOME TAXES
- - ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - - ------------------------------------------------------------------------------------------ GE Estimated amounts payable $1,696 $1,305 $1,207 Deferred tax expense from temporary differences 373 592 120 Investment credit amortized - net (10) (15) (17) ------ ------ ------ 2,059 1,882 1,310 ------ ------ ------ GECS Estimated amounts payable 434 447 221 Deferred tax expense from temporary differences 678 431 428 Investment credit amortized - net (7) (14) (7) ------ ------ ------ 1,105 864 642 ------ ------ ------ CONSOLIDATED Estimated amounts payable 2,130 1,752 1,428 Deferred tax expense from temporary differences 1,051 1,023 548 Investment credit amortized - net (17) (29) (24) ------ ------ ------ $3,164 $2,746 $1,952 ====== ====== ====== - - ------------------------------------------------------------------------------------------
GE includes GECS in filing a consolidated U.S. federal income tax return. GECS' provision for estimated taxes payable includes its effect on the consolidated return. Estimated consolidated amounts payable includes amounts applicable to non-U.S. jurisdictions of $721 million, $453 million and $302 million in 1995, 1994 and 1993, respectively. Deferred income tax balances reflect the impact of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. See note 22 for details. Except for certain earnings that GE intends to reinvest indefinitely, provision has been made for the estimated U.S. federal income tax liabilities applicable to undistributed earnings of affiliates and associated companies. Based on location (not tax jurisdiction) of the business providing goods and services, consolidated U.S. income before taxes was $8.1 billion in 1995, $7.5 billion in 1994 and $5.6 billion in 1993. The corresponding amounts for non-U.S. based operations were $1.6 billion in 1995, $1.2 billion in 1994 and $0.5 billion in 1993.
- - -------------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF U.S. FEDERAL Consolidated GE GECS STATUTORY TAX RATE TO ACTUAL RATE ------------------------- ------------------------- -------------------------- 1995 1994 1993 1995 1994 1993 1995 1994 1993 - - -------------------------------------------------------------------------------------------------------------------------------- Statutory U.S. federal income tax rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% ---- ---- ---- ---- ---- ---- ---- ---- ---- Increase (reduction) in rate resulting from: Inclusion of after-tax earnings of GECS in before-tax earnings of GE - - - (9.8) (9.4) (10.0) - - - Rate increase - deferred taxes - - 1.6 - - (0.2) - - 5.2 Amortization of goodwill 1.1 1.1 1.5 0.8 0.8 1.2 1.1 1.0 1.2 Tax-exempt income (2.1) (2.4) (2.9) - - - (5.8) (6.9) (8.3) Foreign Sales Corporation tax benefits (0.9) (1.1) (1.3) (1.1) (1.2) (1.5) - - - Dividends received, not fully taxable (0.5) (0.5) (0.7) (0.2) (0.3) (0.3) (0.8) (0.8) (1.2) All other - net (0.1) (0.4) (1.4) (0.8) (0.8) (0.4) 1.9 1.0 (2.8) ---- ---- ---- ---- ---- ---- ---- ---- ---- (2.5) (3.3) (3.2) (11.1) (10.9) (11.2) (3.6) (5.7) (5.9) ---- ---- ---- ---- ---- ---- ---- ---- ---- Actual income tax rate 32.5% 31.7% 31.8% 23.9% 24.1% 23.8% 31.4% 29.3% 29.1% ==== ==== ==== ==== ==== ==== ==== ==== ==== - - --------------------------------------------------------------------------------------------------------------------------------
F-27 Annual Report Page No. 51 10. GECS INVESTMENT SECURITIES
- - ----------------------------------------------------------------------------------------------- Gross Gross Amortized unrealized unrealized Estimated (In millions) cost gains losses fair value - - ----------------------------------------------------------------------------------------------- DECEMBER 31, 1995 Corporate and other $12,313 $ 463 $ (63) $12,713 State and municipal 9,460 570 (11) 10,019 Mortgage-backed 5,991 255 (65) 6,181 Non-U.S. 6,887 213 (37) 7,063 Equity 2,843 412 (59) 3,196 U.S. government and federal agency 1,817 77 (3) 1,891 ------- ------- ------- ------- $39,311 $ 1,990 $ (238) $41,063 ======= ======= ======= ======= DECEMBER 31, 1994 Corporate and other $10,883 $4 $(763) $10,124 State and municipal 9,193 146 (392) 8,947 Mortgage-backed 4,927 82 (220) 4,789 Non-U.S. 3,892 20 (76) 3,836 Equity 2,147 201 (180) 2,168 U.S. government and federal agency 1,185 - (177) 1,008 ------- ------- ------- ------- $32,227 $453 $(1,808) $30,872 ======= ======= ======= ======= - - -----------------------------------------------------------------------------------------------
At December 31, 1995, contractual maturities of debt securities, other than mortgage-backed securities, were as follows:
- - ------------------------------------------------------------------------- GECS CONTRACTUAL MATURITIES (EXCLUDING MORTGAGE-BACKED SECURITIES) Amortized Estimated (In millions) cost fair value - - ------------------------------------------------------------------------- Due in 1996 $2,359 $2,386 1997-2000 9,753 9,982 2001-2005 6,821 7,129 2006 and later 11,544 12,189 - - -------------------------------------------------------------------------
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 1995 were $11,017 million ($5,821 million in 1994 and $6,112 million in 1993). Gross realized gains were $503 million in 1995 ($281 million in 1994 and $173 million in 1993). Gross realized losses were $157 million in 1995 ($112 million in 1994 and $34 million in 1993). 11. GE CURRENT RECEIVABLES
- - ------------------------------------------------------------------------- December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- Aircraft Engines $1,373 $1,183 Appliances 595 499 Broadcasting 556 493 Industrial Products and Systems 1,525 1,503 Materials 1,322 1,256 Power Generation 2,334 1,925 Technical Products and Services 692 603 All Other 94 282 Corporate 631 268 ------ ------ 9,122 8,012 Less allowance for losses (231) (205) ------ ------ $8,891 $7,807 ====== ====== - - -------------------------------------------------------------------------
Of receivables balances at December 31, 1995 and 1994 before allowance for losses, $6,582 million and $5,668 million, respectively, were from sales of goods and services to customers, and $293 million and $196 million, respectively, were from transactions with associated companies. Current receivables of $322 million at year-end 1995 and $387 million at year-end 1994 arose from sales, principally of aircraft engine goods and services, on open account to various agencies of the U.S. government, which is GE's largest single customer. About 5%, 6% and 8% of GE's sales of goods and services were to the U.S. government in 1995, 1994 and 1993, respectively. 12. GE INVENTORIES
- - ------------------------------------------------------------------------- December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- Raw materials and work in process $ 3,205 $ 2,933 Finished goods 2,277 2,165 Unbilled shipments 258 214 ------- ------- 5,740 5,312 Less revaluation to LIFO (1,345) (1,432) ------- ------- $ 4,395 $ 3,880 ======= ======= - - -------------------------------------------------------------------------
LIFO revaluations decreased $87 million in 1995, compared with decreases of $197 million in 1994 and $179 million in 1993. Included in these changes were decreases of $88 million, $72 million and $101 million in 1995, 1994 and 1993, respectively, that resulted from lower LIFO inventory levels. There was no cost change in 1995 and net cost decreases in 1994 and 1993. As of December 31, 1995, GE is obligated to acquire raw materials at market prices through the year 2000 under various take-or-pay or similar arrangements. Annual minimum commitments under these arrangements are insignificant. F-28 Annual Report Page No. 52 13. GECS FINANCING RECEIVABLES (INVESTMENT IN TIME SALES, LOANS AND FINANCING LEASES)
- - ------------------------------------------------------------------------- December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- TIME SALES AND LOANS Consumer services $33,430 $25,906 Specialized financing 18,230 17,988 Mid-market financing 8,795 5,916 Equipment management 1,371 1,516 Specialty insurance 189 - ------- ------- 62,015 51,326 Deferred income (2,424) (1,305) ------- ------- Time sales and loans - net 59,591 50,021 ------- ------- INVESTMENT IN FINANCING LEASES Direct financing leases 33,291 25,916 Leveraged leases 2,909 2,482 ------- ------- Investment in financing leases 36,200 28,398 ------- ------- 95,791 78,419 Less allowance for losses (2,519) (2,062) ------- ------- $93,272 $76,357 ======= ======= - - -------------------------------------------------------------------------
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 1995 and 1994, specialized financing and consumer services loans included $13,405 million and $13,282 million, respectively, for commercial real estate loans. Note 16 contains information on airline loans and leases. At December 31, 1995, contractual maturities for time sales and loans were $24,543 million in 1996; $11,933 million in 1997; $6,635 million in 1998; $5,052 million in 1999; $4,424 million in 2000; and $9,428 million thereafter - - - aggregating $62,015 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, GECS is taxed on total lease payments received and is entitled to tax deductions based on the cost of leased assets and tax deductions for interest paid to third-party participants. GECS generally is entitled to any residual value of leased assets. Investment in direct financing and leveraged leases represents unpaid rentals and estimated unguarantied residual values of leased equipment, less related deferred income. GECS has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. GECS' share of rentals receivable on leveraged leases is subordinate to the share of other participants who also have security interests in the leased equipment.
- - --------------------------------------------------------------------------------------------------------------------- Total Direct NET INVESTMENT IN FINANCING LEASES financing leases financing leases Leveraged leases ---------------- ---------------- ---------------- December 31 (In millions) 1995 1994 1995 1994 1995 1994 - - --------------------------------------------------------------------------------------------------------------------- Total minimum lease payments receivable $50,059 $39,968 $37,434 $30,338 $12,625 $ 9,630 Less principal and interest on third-party nonrecourse debt (9,329) (7,103) - - (9,329) (7,103) ------- ------- ------- ------- ------- ------- Net rentals receivable 40,730 32,865 37,434 30,338 3,296 2,527 Estimated unguarantied residual value of leased assets 5,768 4,889 4,630 3,767 1,138 1,122 Less deferred income (10,298) (9,356) (8,773) (8,189) (1,525) (1,167) ------- ------- ------- ------- ------- ------- INVESTMENT IN FINANCING LEASES (as shown above) 36,200 28,398 33,291 25,916 2,909 2,482 Less amounts to arrive at net investment Allowance for losses (745) (570) (669) (471) (76) (99) Deferred taxes arising from financing leases (5,746) (5,075) (2,959) (2,470) (2,787) (2,605) ------- ------- ------- ------- ------- ------- NET INVESTMENT IN FINANCING LEASES $29,709 $22,753 $29,663 $22,975 $ 46 $ (222) ======= ======= ======= ======= ======= ======= - - ---------------------------------------------------------------------------------------------------------------------
F-29 Annual Report Page No. 53 At December 31, 1995, contractual maturities for rentals receivable under financing leases were $8,780 million in 1996; $10,418 million in 1997; $6,837 million in 1998; $3,631 million in 1999; $2,126 million in 2000; and $8,938 million thereafter - aggregating $40,730 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. Nonearning consumer receivables, primarily private-label credit card receivables, amounted to $671 million and $422 million at December 31, 1995 and 1994, respectively. A majority of these receivables were subject to various loss-sharing arrangements that provide full or partial recourse to the originating private-label entity. Nonearning and reduced-earning receivables other than consumer receivables were $464 million and $346 million at year-end 1995 and 1994, respectively. On January 1, 1995, GE adopted Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, and the related SFAS No. 118, Accounting by Creditors for Impairment of a Loan - - - Income Recognition and Disclosures. These Statements do not apply to, among other things, leases or large groups of smaller-balance, homogeneous loans, and therefore are principally relevant to GECS' commercial loans. There was no effect of adopting the Statements on 1995 results of operations or financial position because the allowance for losses established under the previous accounting policy continued to be appropriate following the accounting change. The Statements require disclosures of impaired loans - 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, based on current information and events. At December 31, 1995, loans that required disclosure as impaired amounted to $867 million, principally commercial real estate loans. For $647 million of such loans, the required allowance for losses was $285 million. The remaining $220 million of loans represents the recorded investment in loans that are fully recoverable, but only because the recorded investment had been reduced through charge-offs or deferral of income recognition. These loans must be disclosed under the Statements' technical definition of "impaired" because GECS will be unable to collect all amounts due according to original contractual terms of the loan agreement. Under the Statements, such loans do not require an allowance for losses. GECS' average investment in impaired loans requiring disclosure under the Statements was $1,037 million during 1995, with revenue of $49 million recognized, principally on the cash basis. 14. PROPERTY, PLANT AND EQUIPMENT (INCLUDING EQUIPMENT LEASED TO OTHERS)
- - ------------------------------------------------------------------------- December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- ORIGINAL COST GE Land and improvements $ 496 $ 416 Buildings, structures and related equipment 6,063 5,547 Machinery and equipment 17,184 15,847 Leasehold costs and manufacturing plant under construction 1,100 1,073 Other 24 24 ------- ------- 24,867 22,907 ------- ------- GECS Buildings and equipment 2,616 1,875 Equipment leased to others Aircraft 5,682 4,601 Vehicles 4,948 4,542 Marine shipping containers 3,253 3,333 Railroad rolling stock 1,811 1,605 Other 2,769 2,807 ------- ------- 21,079 18,763 ------- ------- $45,946 $41,670 ======= ======= ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION GE $14,633 $13,382 GECS Buildings and equipment 964 794 Equipment leased to others 4,670 4,029 ------- ------- $20,267 $18,205 ======= ======= - - ------------------------------------------------------------------------- Includes $101 million and $226 million of commercial aircraft off- lease in 1995 and 1994, respectively. - - -------------------------------------------------------------------------
Amortization of GECS' equipment leased to others was $1,702 million, $1,435 million and $1,395 million in 1995, 1994 and 1993, respectively. Noncancelable future rentals due from customers for equipment on operating leases at year-end 1995 totaled $8,412 million and are due as follows: $2,501 million in 1996; $1,657 million in 1997; $1,119 million in 1998; $732 million in 1999; $450 million in 2000; and $1,953 million thereafter. F-30 Annual Report Page No. 54 15. INTANGIBLE ASSETS
- - ------------------------------------------------------------------------- December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- GE Goodwill $ 5,901 $ 5,605 Other intangibles 742 731 ------- ------- 6,643 6,336 ------- ------- GECS Goodwill 3,984 2,513 Mortgage servicing rights 1,688 1,351 Other intangibles 1,027 1,173 ------- ------- 6,699 5,037 ------- ------- $13,342 $11,373 ======= ======= - - -------------------------------------------------------------------------
GE's intangible assets are shown net of accumulated amortization of $2,347 million in 1995 and $2,049 million in 1994. GECS' intangible assets are net of accumulated amortization of $1,494 million in 1995 and $988 million in 1994. 16. ALL OTHER ASSETS
- - ------------------------------------------------------------------------- December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- GE Investments Associated companies $ 1,201 $ 1,945 Government and government-guarantied securities 100 273 Other 1,572 1,713 ------- ------- 2,873 3,931 Prepaid pension asset 5,272 4,489 Other 3,756 3,999 ------- ------- 11,901 12,419 ------- ------- GECS Investments Assets acquired for resale 3,998 3,867 Associated companies 3,566 2,098 Real estate ventures 1,564 1,400 Other 2,072 1,652 ------- ------- 11,200 9,017 Deferred insurance acquisition costs 1,336 1,290 Other 1,868 1,224 ------- ------- 14,404 11,531 ------- ------- $26,305 $23,950 ======= ======= - - ------------------------------------------------------------------------- Includes advances. - - -------------------------------------------------------------------------
In line with industry practice, sales of commercial jet aircraft engines often involve long-term customer financing commitments. In making such commitments, it is GE's general practice to require that it have or be able to establish a secured position in the aircraft being financed. Under such airline financing programs, GE had issued loans and guaranties (principally guaranties) amounting to $1,433 million at year-end 1995 and $1,260 million at year-end 1994; and it had entered into commitments totaling $1,505 million and $1,136 million at year-end 1995 and 1994, respectively, to provide financial assistance on future aircraft engine sales. Estimated fair values of the aircraft securing these receivables and associated guaranties exceeded the related account balances and guarantied amounts at December 31, 1995. GE sells certain long-term receivables from the airline industry with recourse. Proceeds from such sales amounted to $297 million in 1995 and $137 million in 1993. No receivables were sold in 1994. Balances outstanding were $487 million and $269 million at December 31, 1995 and 1994, respectively. GECS acts as a lender and lessor to the commercial airline industry. At December 31, 1995 and 1994, the balance of such GECS loans, leases and equipment leased to others was $8,337 million and $7,571 million, respectively. In addition, GECS had issued financial guaranties and funding commitments of $409 million at December 31, 1995 ($506 million at year-end 1994) and had conditional commitments to purchase aircraft at a cost of $141 million ($81 million at year-end 1994). At year-end 1995, the National Broadcasting Company had $7,953 million of commitments to acquire broadcast material or the rights to broadcast television programs, including U.S. television rights to future Olympic games, and commitments under long-term television station affiliation agreements that require payments through the year 2008. In connection with numerous projects, primarily power generation bids and contracts, GE had issued various bid and performance bonds and guaranties totaling $2,462 million at year-end 1995 and $2,229 million at year-end 1994. 17. GE ALL OTHER CURRENT COSTS AND EXPENSES ACCRUED At year-end 1995 and 1994, this account included taxes accrued of $1,598 million and $1,238 million, respectively, and compensation and benefit accruals of $1,233 million and $1,191 million, respectively. Also included are amounts for product warranties, estimated costs on shipments billed to customers and a variety of sundry items. F-31 Annual Report Page No. 55 18. BORROWINGS
- - ----------------------------------------------------------------------------------------------- SHORT-TERM BORROWINGS 1995 1994 ---------------------- -------------------- December 31 Average Average (In millions) Amount rate Amount rate - - ----------------------------------------------------------------------------------------------- GE Payable to banks $ 266 8.18% $ 353 8.21% Commercial paper (U.S.) 403 5.72 - Current portion of long-term debt 697 243 Other 300 310 ------- ------- 1,666 906 ------- ------- GECS Commercial paper U.S. 37,432 5.82 41,759 5.88 Non-U.S. 3,796 6.33 1,938 6.27 Current portion of long-term debt 15,719 9,695 Other 5,861 3,695 ------- ------- 62,808 57,087 ------- ------- ELIMINATIONS (11) (212) ------- ------- $64,463 $57,781 ======= ======= - - ----------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------- LONG-TERM BORROWINGS Weighted December 31 average interest (In millions) rate Maturities 1995 1994 - - ----------------------------------------------------------------------------------------------- GE Senior notes 7.16% 1997-2000 $ 988 $ 1,480 Payable to banks 6.11 1997-2003 482 283 Industrial development/pollution control bonds 3.90 1997-2019 260 261 Other 547 675 ------- ------- 2,277 2,699 ------- ------- GECS Senior notes 6.56 1997-2055 47,794 33,615 Subordinated notes 7.88 2006-2035 996 697 ------- ------- 48,790 34,312 ------- ------- ELIMINATIONS (40) (32) ------- ------- $51,027 $36,979 ======= ======= - - ----------------------------------------------------------------------------------------------- Includes the effects of associated interest rate and currency swaps. Includes a variety of obligations having various interest rates and maturities, including certain borrowings by parent operating components and affiliates. Guarantied by GE. - - -----------------------------------------------------------------------------------------------
INTEREST RATE AND CURRENCY SWAPS are employed by GE and GECS to achieve the lowest cost of funds for a particular funding strategy. GECS enters into interest rate swaps and currency swaps (including non-U.S. currency and cross-currency interest rate swaps) to modify interest rates and/ or currencies of specific debt instruments. For example, to fund U.S. operations, GE Capital may issue fixed-rate debt denominated in a currency other than the U.S. dollar and simultaneously enter into a currency swap to create synthetic fixed-rate U.S. dollar debt with a lower yield than could be achieved directly. Such interest rate and currency swaps have been designated as modifying interest rates, currencies, or both. Neither GE nor GECS engages in derivatives trading, market-making or other speculative activities. GECS used a portion of this interest rate swap portfolio to convert interest rate exposure on short-term and floating rate long-term borrowings to interest rates that are fixed over the terms of the related swaps; interest rate basis swaps also are employed to manage short-term financing factors - for example, to convert commercial paper-based interest costs to prime rate- based costs. At December 31, 1995 and 1994, such swaps were outstanding for principal amounts equivalent to $11,451 million and $9,301 million with maturities from 1996 to 2029 and weighted average interest rates of 6.86% and 6.80%, respectively. Aggregate amounts of long-term borrowings that mature during the next five years are as follows.
- - ------------------------------------------------------------------------- (In millions) 1996 1997 1998 1999 2000 - - ------------------------------------------------------------------------- GE $ 697 $ 527 $ 1,011 $ 28 $ 276 GECS 15,719 14,012 11,517 5,480 4,494 - - -------------------------------------------------------------------------
Additional information about GE and GECS borrowings, as well as associated swaps, is provided in note 29. CONFIRMED CREDIT LINES of approximately $3.1 billion had been extended to GE by 32 banks at year-end 1995. Substantially all of GE's credit lines are available to GECS and its affiliates in addition to their own credit lines. At year-end 1995, GECS and its affiliates had committed lines of credit aggregating $20.4 billion with 128 banks, including $9.5 billion of revolving credit agreements pursuant to which it has the right to borrow funds for periods exceeding one year. A total of $1.5 billion of GE Capital's credit lines is available for use by GE. During 1995, neither GE nor GECS borrowed under any of these credit lines. Both GE and GECS compensate banks for credit facilities in the form of fees, which were insignificant in each of the past three years. F-32 Annual Report Page No. 56 19. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS Insurance liabilities, reserves and annuity benefits comprises policyholders' benefits, unearned premiums and reserves for policy losses in GECS' insurance and annuity businesses. The estimated liability for insurance losses and loss expenses consists of both case and incurred-but- not-reported reserves. Where GECS' 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. The insurance subsidiaries of GECS have no significant permitted statutory accounting practices that differ from either statutorially prescribed or generally accepted accounting principles. Activity in the liability for unpaid claims and claims adjustment expenses is summarized below.
- - ------------------------------------------------------------------------- (In millions) 1995 1994 1993 - - ------------------------------------------------------------------------- Balance at January 1 - gross $ 7,032 $ 6,405 $ 5,484 Less reinsurance recoverables (1,084) (1,142) (1,191) ------- ------- ------- Balance at January 1 - net 5,948 5,263 4,293 Claims and expenses incurred Current year 3,268 2,016 2,051 Prior years 492 558 359 Claims and expenses paid Current year (706) (543) (378) Prior years (1,908) (1,432) (1,048) Claim reserves related to acquired companies 3,696 49 - Other 19 37 (14) ------- ------- ------- Balance at December 31 - net 10,809 5,948 5,263 Add reinsurance recoverables 1,853 1,084 1,142 ------- ------- ------- Balance at December 31 - gross $12,662 $ 7,032 $ 6,405 ======= ======= ======= - - -------------------------------------------------------------------------
The liability for future policy benefits of the life insurance affiliates has been computed mainly by a net-level-premium method based on assumptions for investment yields, mortality and terminations that were appropriate at date of purchase or at the time the policies were developed, including provisions for adverse deviations. Average yields used in these computations ranged from 2.0% to 9.0% in 1995 and 4.0% to 9.1% in 1994. Financial guaranties and credit life risk of insurance affiliates are summarized below.
- - ------------------------------------------------------------------------- December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- Guaranties, principally on municipal bonds and structured finance issues $119,406 $106,726 Mortgage insurance risk in force 32,599 31,463 Credit life insurance risk in force 13,670 13,713 Other 110 147 Less reinsurance (21,749) (19,426) -------- -------- $144,036 $132,623 ======== ======== - - -------------------------------------------------------------------------
20. GE ALL OTHER LIABILITIES This account includes noncurrent compensation and benefit accruals at year- end 1995 and 1994 of $4,858 million and $4,632 million, respectively. Also included are amounts for deferred incentive compensation, deferred income, product warranties and a variety of sundry items. SFAS No. 112, Employers' Accounting for Postemployment Benefits, was adopted as of January 1, 1993. This Statement requires that employers recognize over the service lives of employees the costs of postemployment benefits if certain conditions are met. The principal effect for GE was to change the method of accounting for severance benefits. Under the previous accounting policy, the total cost of severance benefits was expensed when the severance event occurred. The cumulative effect of the accounting change as of January 1, 1993, amounted to $1,306 million before taxes ($862 million, or $0.51 per share, after taxes). 21. RESTRICTED NET ASSETS OF AFFILIATES Certain GECS consolidated affiliates are restricted from remitting funds to GECS in the form of dividends or loans by a variety of regulations, the purpose of which is to protect affected insurance policyholders, depositors or investors. At year-end 1995, net assets of GECS' regulated affiliates amounted to $14.7 billion, of which $12.5 billion was restricted. F-33 Annual Report Page No. 57 22. DEFERRED INCOME TAXES Aggregate deferred tax amounts are summarized below.
- - ------------------------------------------------------------------------- December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- ASSETS GE $3,851 $ 3,720 GECS 2,183 2,642 ------ ------- 6,034 6,362 ------ ------- LIABILITIES GE 4,359 3,988 GECS 9,055 7,579 ------ ------- 13,414 11,567 ------ ------- NET DEFERRED TAX LIABILITY $7,380 $5,205 ====== ======= - - -------------------------------------------------------------------------
Principal components of the net deferred tax liability balances for GE and GECS are as follows:
- - ------------------------------------------------------------------------- December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- GE Provisions for expenses $(2,539) $(2,422) Retiree insurance plans (818) (835) Prepaid pension asset 1,845 1,571 Depreciation 928 860 Other - net 1,092 1,094 ------- ------- 508 268 ------- ------- GECS Financing leases 5,746 5,075 Operating leases 1,367 1,234 Net unrealized gains (losses) on securities 608 (468) Allowance for losses (852) (876) Insurance reserves (497) (460) Other - net 500 432 ------- ------- 6,872 4,937 ------- ------- NET DEFERRED TAX LIABILITY $ 7,380 $ 5,205 ======= ======= - - -------------------------------------------------------------------------
23. MINORITY INTEREST IN EQUITY OF CONSOLIDATED AFFILIATES Minority interest in equity of consolidated GECS affiliates includes preferred stock issued by GE Capital and by a subsidiary of GE Capital. The preferred stock pays cumulative dividends at variable rates. The liquidation preference of the preferred shares is summarized below.
- - ------------------------------------------------------------------------- December 31 (In millions) 1995 1994 - - ------------------------------------------------------------------------- GE Capital $1,800 $875 GE Capital subsidiary 360 240 - - -------------------------------------------------------------------------
Dividend rates on the preferred stock ranged from 4.2% to 5.2% during 1995, from 2.3% to 4.9% during 1994 and from 2.3% to 2.8% during 1993. 24. SHARE OWNERS' EQUITY
- - ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - - ------------------------------------------------------------------------------------------ COMMON STOCK ISSUED Balance at January 1 $ 594 $ 584 $ 584 Adjustment for stock split - 9 - Newly issued stock - 1 - ------- ------- ------- Balance at December 31 $ 594 $ 594 $ 584 ======= ======= ======= UNREALIZED GAINS (LOSSES) ON INVESTMENT SECURITIES $ 1,000 $ (810) $ 848 ======= ======= ======= OTHER CAPITAL Balance at January 1 $ 1,122 $ 550 $ 719 Currency translation adjustments 127 180 (279) Gains on treasury stock dispositions 414 215 110 Newly issued stock - 186 - Adjustment for stock split - (9) - ------- ------- ------- Balance at December 31 $ 1,663 $ 1,122 $ 550 ======= ======= ======= RETAINED EARNINGS Balance at January 1 $30,793 $28,613 $26,527 Net earnings 6,573 4,726 4,315 Dividends declared (2,838) (2,546) (2,229) ------- ------- ------- Balance at December 31 $34,528 $30,793 $28,613 ======= ======= ======= COMMON STOCK HELD IN TREASURY Balance at January 1 $ 5,312 $ 4,771 $ 4,407 Purchases 4,016 1,124 770 Dispositions (1,152) (583) (406) ------- ------- ------- Balance at December 31 $ 8,176 $ 5,312 $ 4,771 ======= ======= ======= - - ------------------------------------------------------------------------------------------
In December 1994, GE's Board of Directors authorized the repurchase of up to $5 billion of Company common stock over a two-year period with funds generated largely from free cash flow. In December 1995, the Board increased the authorized amount of the repurchase to $9 billion, which will allow the program to continue through 1997. A total of 54.7 million shares having an aggregate cost of $3.2 billion had been repurchased under this program and placed into treasury as of December 31, 1995. Common shares issued and outstanding are summarized in the table below.
- - ------------------------------------------------------------------------- SHARES OF GE COMMON STOCK December 31 (In thousands) 1995 1994 1993 - - ------------------------------------------------------------------------- Issued 1,857,013 1,857,013 1,853,128 In treasury (190,501) (151,046) (145,826) --------- --------- --------- Outstanding 1,666,512 1,705,967 1,707,302 ========= ========= ========= - - -------------------------------------------------------------------------
GE has 50 million authorized shares of preferred stock ($1.00 par value), but no such shares have been issued. The effects of translating to U.S. dollars the financial statements of non-U.S. affiliates whose functional currency is the local currency are included in other capital. Asset and liability accounts are translated at year- end exchange rates, while revenues and expenses are translated at average rates for the period. The cumulative currency translation adjustment was an addition to other capital of $61 million at year-end 1995 and a reduction of other capital of $66 million and $246 million at December 31, 1994 and 1993, respectively. F-34 Annual Report Page No. 58 25. OTHER STOCK-RELATED INFORMATION Stock option plans, stock appreciation rights (SARs), restricted stock and restricted stock units are described in GE's current Proxy Statement. More than 20,000 individuals, nearly one third of all exempt professionals at GE and GECS, hold stock options. With certain restrictions, requirements for stock option shares can be met from either unissued or treasury shares.
- - ------------------------------------------------------------------------- STOCK OPTION ACTIVITY Average per share Shares subject Exercise Market (Shares in thousands) to option price price - - ------------------------------------------------------------------------- Balance at January 1, 1993 48,164 $32.19 $42.75 Options granted 17,580 45.90 45.90 Replacement options 882 28.60 28.60 Options exercised (6,072) 28.33 47.57 Options terminated (1,200) 36.84 - ------ Balance at December 31, 1993 59,354 36.50 52.44 Options granted 15,134 50.66 50.66 Replacement options 340 36.44 36.44 Options exercised (4,163) 30.35 50.58 Options terminated (1,167) 44.04 - ------ Balance at December 31, 1994 69,498 39.82 51.00 Options granted 12,089 55.88 55.88 Replacement options 753 41.82 41.82 Options exercised (7,784) 31.44 59.21 Options terminated (2,119) 47.33 - ------ Balance at December 31, 1995 72,437 43.20 72.00 ====== - - -------------------------------------------------------------------------
Options granted have been adjusted for the April 1994 2-for-1 stock split. Without giving effect to that adjustment, options granted (in thousands) were 12,089 in 1995; 10,117 in 1994; and 8,790 in 1993. The replacement options replaced canceled SARs and have identical terms thereto. At year-end 1995, there were 8.3 million SARs outstanding at an average exercise price of $45.55. There were 4.4 million restricted stock shares and restricted stock units outstanding at year-end 1995. There were 20.8 million and 16.1 million shares available for grants of options, SARs, restricted stock and restricted stock units at December 31, 1995 and 1994, respectively. Under the 1990 Long-Term Incentive Plan, 0.95% of the Company's issued common stock (including treasury shares) as of the first day of each calendar year during which the Plan is in effect becomes available for granting awards in such year. Any unused portion, in addition to shares allocated to awards that are canceled or forfeited, is available for later years. Outstanding options and SARs expire on various dates through December 14, 2005. Restricted stock grants vest on various dates up to normal retirement of grantees. GE adopted the disclosure-only option under SFAS No. 123, Accounting for Stock-Based Compensation, as of December 31, 1995. If the accounting provisions of the new Statement had been adopted as of the beginning of 1995, the effect on 1995 net earnings would have been immaterial. Further, based on current and anticipated use of stock options, it is not envisioned that the impact of the Statement's accounting provisions would be material in any future period. The following table summarizes information about stock options outstanding at December 31, 1995.
- - ----------------------------------------------------------------------------------------- STOCK OPTIONS OUTSTANDING (Shares in thousands) Outstanding Exercisable ------------------------------------- ------------------- Average Average Exercise Average exercise exercise price range Shares life price Shares price - - ----------------------------------------------------------------------------------------- $19 3/4-$33 15/16 14,705 4.2 $29.25 14,705 $29.25 $34 5/16-$43 1/16 16,539 6.1 37.39 15,644 37.23 $43 1/4-$51 20,087 7.8 47.02 6,383 43.94 $51 1/16-$72 3/8 21,106 8.8 53.84 55 51.69 ------ ------ Total 72,437 7.0 43.20 36,787 35.23 ====== ====== - - ----------------------------------------------------------------------------------------- Average contractual life remaining in years. At December 31, 1994, there were approximately 38 million options exercisable at an average exercise price of $33.43. - - -----------------------------------------------------------------------------------------
Stock options expire in 10 years from the date they are granted; options vest over service periods that range from one to five years. F-35 Annual Report Page No. 59 26. SUPPLEMENTAL CASH FLOWS INFORMATION Changes in operating assets and liabilities are net of acquisitions and dispositions of businesses. "Payments for principal businesses purchased" in the Statement of Cash Flows is net of cash acquired and includes debt assumed and immediately repaid in acquisitions. "All other operating activities" in the Statement of Cash Flows consists principally of adjustments to current and noncurrent accruals of costs and expenses, amortization of premium and discount on debt, and adjustments to assets such as amortization of goodwill and intangibles. The Statement of Cash Flows excludes certain noncash transactions that had no significant effects on the investing or financing activities of GE or GECS. Certain supplemental information related to GE and GECS cash flows is shown below.
- - ----------------------------------------------------------------------------------------------------------------------- For the years ended December 31 (In millions) 1995 1994 1993 - - ----------------------------------------------------------------------------------------------------------------------- GE NET PURCHASE OF GE SHARES FOR TREASURY Open market purchases under share repurchase programs $ (3,101) $ (69) $ (217) Other purchases (915) (1,055) (553) Dispositions (mainly to employee and dividend reinvestment plans) 1,493 771 406 -------- -------- -------- $ (2,523) $ (353) $ (364) ======== ======== ======== GECS FINANCING RECEIVABLES Increase in loans to customers $(46,154) $(37,059) $(30,002) Principal collections from customers 44,840 31,264 27,571 Investment in equipment for financing leases (17,182) (10,528) (7,204) Principal collections on financing leases 8,821 8,461 6,011 Net change in credit card receivables (3,773) (2,902) (1,645) Sales of financing receivables with recourse 2,139 1,239 1,105 -------- -------- -------- $(11,309) $ (9,525) $ (4,164) ======== ======== ======== ALL OTHER INVESTING ACTIVITIES Purchases of securities by insurance and annuity businesses $(14,452) $(8,663) $(10,488) Dispositions and maturities of securities by insurance and annuity businesses 12,460 6,338 7,698 Proceeds from principal business dispositions 575 - - Other (2,496) 2,501 (4,003) -------- -------- -------- $ (3,913) $ 176 $ (6,793) ======== ======== ======== NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $2,545 $3,214 $4,315 Long-term (longer than one year) 32,507 19,228 10,885 Long-term subordinated 298 - - Proceeds - nonrecourse, leveraged lease debt 1,428 31 53 -------- -------- -------- $ 36,778 $ 22,473 $ 15,253 ======== ======== ======== REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $(16,075) $(10,460) $(9,008) Long-term (longer than one year) (678) (930) (206) Principal payments - nonrecourse, leveraged lease debt (292) (309) (312) -------- -------- -------- $(17,045) $(11,699) $ (9,526) ======== ======== ======== ALL OTHER FINANCING ACTIVITIES Proceeds from sales of investment and annuity contracts $ 1,754 $ 1,207 $ 509 Preferred stock issued by GE Capital 1,045 240 - Redemption of investment and annuity contracts (2,540) (1,264) (578) -------- -------- -------- $ 259 $ 183 $ (69) ======== ======== ======== OTHER CASH FROM (USED FOR) DISCONTINUED OPERATIONS Cash from GE Aerospace operating activities $ - $ - $ 76 Cash from GE Aerospace investing activities - - 886 Cash from (used for) GECS securities broker-dealer operating activities 1,414 1,635 (1,910) Cash from (used for) GECS securities broker-dealer investing activities 92 334 (107) Cash from (used for) GECS securities broker-dealer financing activities (1,506) (2,169) 2,017 -------- -------- -------- $ - $ (200) $ 962 ======== ======== ======== - - -----------------------------------------------------------------------------------------------------------------------
F-36 Annual Report Page No. 60 27. INDUSTRY SEGMENTS
- - --------------------------------------------------------------------------------------------------------------------------------- REVENUES (In millions) For the years ended December 31 - - --------------------------------------------------------------------------------------------------------------------------------- Total revenues Intersegment revenues External revenues --------------------------- -------------------------- ---------------------------- 1995 1994 1993 1995 1994 1993 1995 1994 1993 - - --------------------------------------------------------------------------------------------------------------------------------- GE Aircraft Engines $ 6,098 $ 5,714 $ 6,580 $ 115 $ 43 $ 59 $ 5,983 $ 5,671 $ 6,521 Appliances 5,933 5,965 5,555 4 3 3 5,929 5,962 5,552 Broadcasting 3,919 3,361 3,102 - - - 3,919 3,361 3,102 Industrial Products and Systems 10,194 9,406 8,575 436 368 409 9,758 9,038 8,166 Materials 6,647 5,681 5,042 19 43 50 6,628 5,638 4,992 Power Generation 6,545 5,933 5,530 57 44 135 6,488 5,889 5,395 Technical Products and Services 4,424 4,285 4,174 19 18 18 4,405 4,267 4,156 All Other 2,707 2,348 1,803 - - - 2,707 2,348 1,803 Corporate items and eliminations (286) (195) (242) (650) (519) (674) 364 324 432 ------- ------- ------- ----- ----- ----- ------- ------- ------- Total GE 46,181 42,498 40,119 - - - 46,181 42,498 40,119 ------- ------- ------- ----- ----- ----- ------- ------- ------- GECS Financing 19,042 14,932 12,399 - - - 19,042 14,932 12,399 Specialty Insurance 7,444 4,926 4,862 - - - 7,444 4,926 4,862 All Other 6 17 15 - - - 6 17 15 ------- ------- ------- ----- ----- ----- ------- ------- ------- Total GECS 26,492 19,875 17,276 - - - 26,492 19,875 17,276 ------- ------- ------- ----- ----- ----- ------- ------- ------- Eliminations (2,645) (2,264) (1,694) - - - (2,645) (2,264) (1,694) ------- ------- ------- ----- ----- ----- ------- ------- ------- CONSOLIDATED REVENUES $70,028 $60,109 $55,701 $ - $ - $ - $70,028 $60,109 $55,701 ======= ======= ======= ===== ===== ===== ======= ======= ======= - - --------------------------------------------------------------------------------------------------------------------------------- GE revenues include income from sales of goods and services to customers and other income. Sales from one Company component to another generally are priced at equivalent commercial selling prices. "All Other" GE revenues consists primarily of GECS' earnings. - - ---------------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------------- ASSETS PROPERTY, PLANT AND EQUIPMENT (INCLUDING EQUIPMENT LEASED TO OTHERS) (In millions) At December 31 For the years ended December 31 - - --------------------------------------------------------------------------------------------------------------------------------- Depreciation, depletion Additions and amortization --------------------------- -------------------------- ---------------------------- 1995 1994 1993 1995 1994 1993 1995 1994 1993 - - --------------------------------------------------------------------------------------------------------------------------------- GE Aircraft Engines $ 4,890 $ 4,751 $ 5,329 $ 266 $ 254 $ 207 $ 273 $ 261 $ 333 Appliances 2,304 2,309 2,193 143 159 129 93 84 125 Broadcasting 3,915 3,881 3,742 97 86 56 64 67 98 Industrial Products and Systems 6,117 5,862 5,442 425 400 397 308 363 332 Materials 9,095 8,628 8,181 521 417 374 478 443 413 Power Generation 5,679 4,887 3,875 155 176 212 166 143 143 Technical Products and Services 2,200 2,362 2,179 110 154 124 109 95 88 All Other 13,113 9,768 11,604 1 - 1 1 2 3 Corporate items and eliminations 8,403 8,365 8,589 113 97 88 89 87 96 -------- -------- -------- ------ ------ ------ ------ ------ ------ Total GE 55,716 50,813 51,134 1,831 1,743 1,588 1,581 1,545 1,631 -------- -------- -------- ------ ------ ------ ------ ------ ------ GECS Financing 150,062 121,966 106,854 5,144 5,889 3,352 1,962 1,607 1,545 Specialty Insurance 34,795 22,058 18,915 132 62 15 24 16 9 All Other 872 943 868 36 44 59 27 39 38 -------- -------- -------- ------ ------ ------ ------ ------ ------ Total GECS 185,729 144,967 126,637 5,312 5,995 3,426 2,013 1,662 1,592 -------- -------- -------- ------ ------ ------ ------ ------ ------ Eliminations (13,410) (9,909) (11,358) - - - - - - -------- -------- -------- ------ ------ ------ ------ ------ ------ CONSOLIDATED TOTALS $228,035 $185,871 $166,413 $7,143 $7,738 $5,014 $3,594 $3,207 $3,223 ======== ======== ======== ====== ====== ====== ====== ====== ====== - - --------------------------------------------------------------------------------------------------------------------------------- "All Other" GE assets consists primarily of investment in GECS. - - ---------------------------------------------------------------------------------------------------------------------------------
F-37 Annual Report Page No. 61 Details of operating profit by industry segment can be found on page 35 of this report. A description of industry segments for General Electric Company and consolidated affiliates follows. * AIRCRAFT ENGINES. Jet engines and replacement parts and repair services for all categories of commercial aircraft (short/medium, intermediate and long-range); for a wide variety of military aircraft, including fighters, bombers, tankers and helicopters; and for executive and commuter aircraft. Sold worldwide to airframe manufacturers, airlines and government agencies. Also, aircraft engine derivatives used as marine propulsion and industrial power sources. * APPLIANCES. Major appliances and related services for products such as refrigerators, freezers, electric and gas ranges, dishwashers, clothes washers and dryers, microwave ovens and room air conditioning equipment. Sold in North America and in global markets under various GE and private-label brands. Distributed to retail outlets, mainly for the replacement market, and to building contractors and distributors for new installations. * BROADCASTING. Primarily the National Broadcasting Company (NBC). Principal businesses are the furnishing of U.S. network television services to more than 200 affiliated stations, production of television programs, operation of six VHF television broadcasting stations, operation of five cable/satellite networks around the world, and investment and programming activities in multimedia and cable television. * INDUSTRIAL PRODUCTS AND SYSTEMS. Lighting products (including a wide variety of lamps, lighting fixtures, wiring devices and quartz products); electrical distribution and control equipment (including power delivery and control products such as transformers, meters, relays, capacitors and arresters); transportation systems products (including diesel-electric locomotives, transit propulsion equipment and motorized wheels for off-highway vehicles); electric motors and related products; a broad range of electrical and electronic industrial automation products, including drive systems; installation, engineering and repair services, which includes management and technical expertise for large projects such as process control systems; and GE Supply, a network of electrical supply houses. Markets are extremely diverse. Products are sold to commercial and industrial end users, including utilities, to original equipment manufacturers, to electrical distributors, to retail outlets, to railways and to transit authorities. Increasingly, products are developed for and sold in global markets. * MATERIALS. High-performance engineered plastics used in applications such as automobiles and housings for computers and other business equipment; ABS resins; silicones; superabrasives such as man-made diamonds; and laminates. Sold worldwide to a diverse customer base consisting mainly of manufacturers. * POWER GENERATION. Products and related maintenance services, mainly for the generation of electricity. Markets and competition are global. Gas turbines are sold principally as packaged power plants for electric utilities and for industrial cogeneration and mechanical drive applications. Steam turbine-generators are sold to electric utilities, to the U.S. Navy and, for cogeneration, to industrial and other power customers. Marine steam turbines are sold to the U.S. Navy. Power Generation also includes nuclear reactors and fuel and support services for GE's installed boiling water reactors. * TECHNICAL PRODUCTS AND SERVICES. Medical systems such as magnetic resonance (MR) and computed tomography (CT) scanners, x-ray, nuclear imaging, ultrasound, other diagnostic equipment and related services sold worldwide to hospitals and medical facilities. This segment also includes a full range of computer-based information and data interchange services for internal use and external commercial and industrial customers. * GECS FINANCING. Operations of GE Capital, as follows: Consumer services - private-label and bank credit card loans, time sales and revolving credit and inventory financing for retail merchants, auto leasing and inventory financing, mortgage servicing, and annuity and mutual fund sales. 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. Equipment management - leases, loans 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, oceangoing containers and satellites. 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. Very few of the products financed by GE Capital are manufactured by other GE segments. * GECS SPECIALTY INSURANCE. U.S. and international multiple-line property and casualty reinsurance, certain directly written specialty insurance and life reinsurance; financial guaranty insurance, principally on municipal bonds and structured finance issues; private mortgage insurance; and creditor insurance covering international customer loan repayments. F-38 Annual Report Page No. 62 28. GEOGRAPHIC SEGMENT INFORMATION (CONSOLIDATED) Revenues and operating profit shown below are classified according to their country of origin (including exports from such areas). Revenues and operating profit classified under the caption "United States" include royalty and licensing income from non-U.S. sources. U.S. exports to international customers by major areas of the world are shown on page 38. At year-end 1995, net assets of operations classified under the captions "Europe" and "Other areas of the world" were $20,793 million and $6,942 million, respectively.
- - -------------------------------------------------------------------------------------------------------------------------------- REVENUES (In millions) For the years ended December 31 - - -------------------------------------------------------------------------------------------------------------------------------- Total revenues Intersegment revenues External revenues ---------------------------- --------------------------- ----------------------------- 1995 1994 1993 1995 1994 1993 1995 1994 1993 - - -------------------------------------------------------------------------------------------------------------------------------- United States $54,319 $49,920 $47,495 $ 2,123 $ 1,683 $ 1,513 $52,196 $48,237 $45,982 Europe 12,417 7,797 6,722 656 579 525 11,761 7,218 6,197 Other areas of the world 6,967 5,493 4,171 896 839 649 6,071 4,654 3,522 Intercompany eliminations (3,675) (3,101) (2,687) (3,675) (3,101) (2,687) - - - ------- ------- ------- ------- ------- ------- ------- ------- ------- Total $70,028 $60,109 $55,701 $ - $ - $ - $70,028 $60,109 $55,701 ======= ======= ======= ======= ======= ======= ======= ======= ======= - - --------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------- OPERATING PROFIT ASSETS (In millions) For the years ended December 31 At December 31 - - ------------------------------------------------------------------------------------------------------- 1995 1994 1993 1995 1994 1993 - - ------------------------------------------------------------------------------------------------------- United States $ 9,175 $8,351 $6,635 $168,878 $152,151 $145,390 Europe 1,063 673 360 45,167 22,464 14,257 Other areas of the world 725 595 307 14,164 11,439 6,954 Intercompany eliminations 9 5 (23) (174) (183) (188) ------- ------ ------ -------- -------- -------- Total $10,972 $9,624 $7,279 $228,035 $185,871 $166,413 ======= ====== ====== ======== ======== ======== - - -------------------------------------------------------------------------------------------------------
29. ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS This note contains estimated fair values of certain financial instruments to which GE and GECS are parties. Apart from GE's and GECS' 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, 1995 or 1994. Moreover, the disclosed values are representative of fair values only as of the dates indicated. Assets 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 assets include cash and equivalents and investment securities. Values are estimated as follows: BORROWINGS. Based on quoted market prices or market comparables. Fair values of interest rate and currency swaps on borrowings are based on quoted market prices and include the effects of counterparty creditworthiness. TIME SALES AND LOANS. Based on quoted market prices, recent transactions and/or discounted future cash flows, using rates at which similar loans would have been made to similar borrowers. ANNUITY 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 GUARANTIES. 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. F-39 Annual Report Page No. 63
- - ------------------------------------------------------------------------------------------------------------------------------- FINANCIAL INSTRUMENTS 1995 1994 --------------------------------------- ----------------------------------------- Assets (liabilities) Assets (liabilities) ----------------------------- ---------------------- Estimated Estimated Carrying fair value Carrying fair value Notional amount ------------------ Notional amount --------------------- At December 31 (In millions) amount (net) High Low amount (net) High Low - - ------------------------------------------------------------------------------------------------------------------------------- GE Investments $ $ 1,796 $ 2,886 $ 2,886 $ $ 2,128 $ 2,289 $ 2,269 Borrowings and related instruments Borrowings (3,943) (3,981) (3,981) (3,605) (3,530) (3,530) Interest rate swaps 89 - (16) (16) 89 - 2 2 Currency swaps 180 - 50 50 393 - 26 26 Financial guaranties 1,722 - - - 1,520 - - - Other firm commitments Currency forwards and options 3,774 - 131 131 3,195 - - - Financing commitments 1,505 - - - 1,153 - - - GECS Assets Time sales and loans 57,817 59,188 58,299 48,529 49,496 48,840 Integrated interest rate swaps 1,703 - (93) (93) 1,183 - 64 64 Purchased options 1,213 24 11 11 103 2 2 2 Mortgage-related positions Mortgage purchase commitments 1,360 - 17 17 205 - (2) (2) Mortgage sale commitments 1,334 - (11) (11) 1,792 - 2 2 Memo: mortgages held for sale 1,663 1,663 1,663 1,764 1,764 1,764 Options, including "floors" 18,522 67 144 144 - - - - Interest rate swaps 1,990 - 31 31 950 - (127) (127) Other cash financial instruments 1,514 1,967 1,705 1,897 2,026 1,924 Liabilities Borrowings and related instruments Borrowings (111,598) (113,105) (113,105) (91,399) (89,797) (89,797) Interest rate swaps 43,681 - (630) (630) 21,996 - 198 195 Currency swaps 22,342 - 937 937 11,695 - 86 86 Purchased options 2,751 26 12 11 130 12 11 12 Other 515 - (65) (65) - - - - Annuity benefits (11,994) (11,728) (11,728) (13,186) (12,788) (12,788) Insurance - financial guaranties and credit life 144,036 (1,570) (832) (922) 132,623 (1,562) (663) (806) Credit and liquidity support - securitizations 7,035 (58) (65) (65) 5,808 (22) (22) (22) Performance guaranties - principally letters of credit 2,920 (48) (78) (78) 2,227 (18) (98) (101) Other - principally liquidity commitments 3,556 1 (36) (45) 3,166 - 42 38 Other firm commitments Currency forwards and options 7,657 - 69 69 3,372 - 12 12 Currency swaps 280 - (22) (22) 488 - (3) (3) Ordinary course of business lending commitments 6,929 - (60) (60) 6,687 - (50) (50) Unused revolving credit lines Commercial 3,223 - - - 2,580 - - - Consumer - principally credit cards 118,710 - - - 101,582 - - - - - ------------------------------------------------------------------------------------------------------------------------------- Not applicable. Includes interest rate and currency swaps. See note 18. Included in other cash financial instruments. - - -------------------------------------------------------------------------------------------------------------------------------
Additional information about certain financial instruments in the above table follows. CURRENCY FORWARDS AND OPTIONS are employed by GE and GECS to manage exposures to changes in currency exchange rates associated with commercial purchase and sale transactions. 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 OTHER THAN CURRENCY OPTIONS. GECS is exposed to prepayment risk in certain of its business activities, such as in its mortgage servicing and F-40 Annual Report Page No. 64 annuities activities. In order to hedge those exposures, GECS uses one-sided financial instruments containing option features. These instruments generally behave based on limits ("caps," "floors" or "collars") on interest rate movement. INTEREST RATE AND CURRENCY SWAPS are used by both GE and GECS to optimize borrowing costs for a particular funding strategy (see note 18) and by GECS to establish specific hedges of mortgage-related assets and to manage net investment exposures. Such swaps are evaluated by management under the credit criteria set forth below. In addition, as part of its ongoing customer activities, GECS 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. COUNTERPARTY CREDIT RISK. Given the ways in which GE and GECS each use 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 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: * Once a counterparty exceeds credit exposure limits (see table below), no additional transactions are permitted until the exposure with that counterparty is reduced to an amount that is within the established limit. Open contracts remain in force.
- - -------------------------------------------------------------------------- COUNTERPARTY CREDIT CRITERIA Credit rating -------------------------------- Moody's Standard & Poor's - - -------------------------------------------------------------------------- Term of transaction Between one and five years Aa3 AA- Greater than five years Aaa AAA Credit exposure limits Up to $50 million Aa3 AA- Up to $75 million Aaa AAA - - --------------------------------------------------------------------------
* All swaps are executed under master swap agreements containing mutual credit downgrade provisions that provide the ability to require assignment or termination in the event either party is downgraded below A3 or A-. More credit latitude is permitted for transactions having original maturities shorter than one year because of their lower risk. 30. QUARTERLY INFORMATION (UNAUDITED)
- - --------------------------------------------------------------------------------------------------------------------------------- First quarter Second quarter Third quarter Fourth quarter (Dollar amounts in millions; ----------------- ------------------ ----------------- ----------------- per-share amounts in dollars) 1995 1994 1995 1994 1995 1994 1995 1994 - - --------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATIONS Earnings from continuing operations $1,372 $1,219 $ 1,726 $1,554 $1,610 $1,457 $ 1,865 $ 1,685 Losses from discontinued operations - (151) - (32) - (89) - (49) Provision for loss on discontinued securities broker-dealer operations - - - - - - - (868) ------ ------ ------- ------ ------ ------ ------- ------- Net earnings $1,372 $1,068 $ 1,726 $1,522 $1,610 $1,368 $ 1,865 $ 768 ====== ====== ======= ====== ====== ====== ======= ======= Per share Earnings from continuing operations $ 0.81 $ 0.71 $ 1.02 $ 0.91 $ 0.96 $ 0.85 $ 1.12 $ 0.99 Losses from discontinued operations - (0.09) - (0.02) - (0.05) - (0.54) ------ ------ ------- ------ ------ ------ ------- ------- Net earnings $ 0.81 $ 0.62 $ 1.02 $ 0.89 $ 0.96 $ 0.80 $ 1.12 $ 0.45 ====== ====== ======= ====== ====== ====== ======= ======= SELECTED DATA GE Sales of goods and services $9,278 $8,264 $11,237 $10,038 $10,106 $9,384 $12,392 $11,944 Gross profit from sales 2,567 2,282 3,219 2,743 2,794 2,441 3,340 3,115 GECS Revenues from operations 5,754 4,393 6,415 4,730 7,099 5,097 7,224 5,655 Operating profit 826 668 818 684 1,048 857 828 740 - - --------------------------------------------------------------------------------------------------------------------------------- For GE, gross profit from sales is sales of goods and services less costs of goods and services sold. For GECS, operating profit is income before taxes. First-quarter 1994 discontinued operations included a $210 million ($350 million before tax) charge resulting from the discovery of false trading profits created by the then head U.S. government securities trader in the discontinued securities broker-dealer. Approximately $143 million ($238 million before tax) of the charge related to periods prior to 1994. Earnings-per-share amounts for each quarter are required to be computed independently and, as a result, their sums do not equal the total year earnings-per-share amounts.
Exhibit 12 GENERAL ELECTRIC COMPANY RATIO OF EARNINGS TO FIXED CHARGES
Year ended December 31 (Dollars in millions) ----------------------------------------------- 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- GE except GECS - - -------------- "Earnings" $ 5,329 $ 5,582 $ 5,511 $ 7,828 $ 8,696 Less: Equity in undistributed earnings of General Electric Capital Services, Inc. (871) (831) (957) (1,181) (1,324) Plus: Interest and other financial charges included in expense 893 768 525 410 649 One-third of rental expense 225 228 212 171 174 ------- ------- ------- ------- ------- Adjusted "earnings" $ 5,576 $ 5,747 $ 5,291 $ 7,228 $8,195 ======= ======= ======= ======= ======= Fixed Charges: Interest and other financial charges $ 893 $ 768 $ 525 $ 410 $ 649 Interest capitalized 33 29 21 21 13 One-third of rental expense 225 228 212 171 174 ------- ------- ------- ------- ------- Total fixed charges $ 1,151 $ 1,025 $ 758 $ 602 $ 836 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges 4.84 5.61 6.98 12.01 9.80 ======= ======= ======= ======= ======= General Electric Company and consolidated affiliates - - ----------------------------------------- "Earnings" $ 5,679 $ 6,026 $ 6,287 $ 8,831 $ 9,941 Plus: Interest and other financial charges included in expense 5,270 4,512 4,096 4,994 7,336 One-third of rental expense 261 320 349 327 349 ------- ------- ------- ------- ------- Adjusted "earnings" $11,210 $10,858 $10,732 $14,152 $17,626 ======= ======= ======= ======= ======= Fixed Charges: Interest and other financial charges $ 5,270 $ 4,512 $ 4,096 $ 4,994 $ 7,336 Interest capitalized 41 35 26 30 34 One-third of rental expense 261 320 349 327 349 ------- ------- ------- ------- ------- Total fixed charges $ 5,572 $ 4,867 $ 4,471 $ 5,351 $ 7,719 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges 2.01 2.23 2.40 2.64 2.28 ======= ======= ======= ======= ======= Earnings for all years consist of earnings from continuing operations before income taxes and minority interest. For 1991 and 1993, earnings are before cumulative effects of changes in accounting principle. Earnings for all years consist of earnings from continuing operations after income taxes, net of dividends. For 1991, earnings are before cumulative effect of change in accounting principle. Considered to be representative of interest factor in rental expense.
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