-----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, QSgUuNTuu37IdVkfqiC72B6a8CVDlwADgL5FGul9U1i6FNFHoefW0IWE0sC07GF3 6peFL8n5k12RPIPcPnpYvQ== 0000040554-97-000033.txt : 19970329 0000040554-97-000033.hdr.sgml : 19970329 ACCESSION NUMBER: 0000040554-97-000033 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL ELECTRIC CAPITAL CORP CENTRAL INDEX KEY: 0000040554 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 131500700 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 333-22265 FILM NUMBER: 97567863 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 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ ---------------- COMMISSION FILE NUMBER 1-6461 ---------------- GENERAL ELECTRIC CAPITAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW YORK 13-1500700 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 260 LONG RIDGE ROAD, STAMFORD, CONNECTICUT 06927 (203) 357-4000 (Address of principal (Zip Code) (Registrant's telephone executive offices) number,including area code) ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED - ------------------- ---------------------------- 7 7/8% GUARANTEED SUBORDINATED NEW YORK STOCK EXCHANGE NOTES DUE DECEMBER 1, 2006 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Aggregate market value of the voting stock held by nonaffiliates of the registrant at March 24, 1997. None. At March 24, 1997, 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, 1996 are incorporated by reference into Part IV hereof. REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE FORMAT. TABLE OF CONTENTS PAGE ---- PART I Item 1. Business.................................................. 1 Item 2. Properties................................................ 11 Item 3. Legal Proceedings......................................... 11 Item 4. Submission of Matters to a Vote of Security Holders....... 11 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................................... 11 Item 6. Selected Financial Data................................... 12 Item 7. Management's Discussion and Analysis of Results of Operations........................................... 12 Item 8. Financial Statements and Supplementary Data............... 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 44 PART III Item 10. Directors and Executive Officers of the Registrant........ 45 Item 11. Executive Compensation.................................... 45 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................................... 45 Item 13. Certain Relationships and Related Transactions............ 45 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................. 45 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 sales and services, and consumer savings and insurance services. The Corporation's specialty insurance activities include providing financial guaranty insurance, principally on municipal bonds and structured finance issues, private mortgage insurance and creditor insurance covering international customer loan repayments. The Corporation is an equity investor in Montgomery Ward Holding Corp., 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 Basin. The Corporation's principal executive offices are located at 260 Long Ridge Road, Stamford, Connecticut 06927 (Telephone number (203) 357-4000). At December 31, 1996, the Corporation employed approximately 49,400 persons. The Corporation's principal assets are classified as time sales and loans, investment in financing leases, equipment on operating leases and investment securities. The following table presents, by industry segment, these principal financing products which, together with other assets, constitute the Corporation's total assets at December 31, 1996 and 1995. 1
TOTAL ASSETS BY SEGMENT (In millions) 1996 -------------------------------------------------------------- TIME NET SALES INVESTMENT ALLOWANCE AND NET IN FOR LOANS, INVESTMENT EQUIPMENT LOSSES NET OF IN ON AND ALL DEFERRED FINANCING OPERATING INVESTMENT OTHER TOTAL INCOME LEASES LEASES SECURITIES ASSETS ASSETS -------- -------- -------- -------- -------- -------- CONSUMER SERVICES Consumer Savings and Insurance Group .......... $ 2,483 -- -- $ 31,249 $ 9,187 $ 42,919 Auto Financial Services .... 5,915 $ 13,113 $ 1,502 6 1,504 22,040 Retailer Financial Services 15,846 -- -- 10 528 16,384 Global Consumer Finance .... 7,586 -- -- 7 1,084 8,677 Mortgage Services .......... 1,124 -- -- 651 3,504 5,279 Consumer Financial Services 3,697 -- -- 21 17 3,735 Other ...................... 1,891 -- -- -- 185 2,076 -------- -------- -------- -------- -------- -------- Total .................... 38,542 13,113 1,502 31,944 16,009 101,110 EQUIPMENT MANAGEMENT Aviation Services .......... 223 3,204 4,774 344 374 8,919 Fleet Services ............. 297 3,383 1,529 -- 1,177 6,386 Technology Management Services ................. 60 441 525 -- 2,595 3,621 Genstar Container .......... -- 292 2,262 -- 287 2,841 Transport International Pool 35 92 1,745 -- 509 2,381 Railcar Services ........... -- 296 1,409 -- 94 1,799 Satellite Telecommunications Services ................. -- -- -- -- 1,589 1,589 Modular Space .............. 2 48 651 -- 316 1,017 Other ...................... -- 3 -- 31 1,958 1,992 -------- -------- -------- -------- -------- -------- Total .................... 617 7,759 12,895 375 8,899 30,545 SPECIALIZED FINANCING Commercial Real Estate ..... 9,591 42 -- 394 3,937 13,964 Structured Finance Group ... 1,334 5,130 598 992 1,000 9,054 Commercial Finance ......... 3,437 16 -- 214 221 3,888 Equity Capital Group ....... 68 -- -- 114 577 759 Other ...................... 28 -- -- -- 48 76 -------- -------- -------- -------- -------- -------- Total .................... 14,458 5,188 598 1,714 5,783 27,741 MID-MARKET FINANCING Commercial Equipment Financing ................ 6,315 7,708 971 43 629 15,666 Vendor Financial Services .. 1,413 5,723 166 -- 798 8,100 GE Capital - Hawaii ........ 1,094 84 2 10 31 1,221 Other ...................... 55 -- -- 7 118 180 -------- -------- -------- -------- -------- -------- Total ...................... 8,877 13,515 1,139 60 1,576 25,167 SPECIALTY INSURANCE .......... 338 -- -- 9,911 4,555 14,804 CORPORATE .................... -- -- -- 336 1,113 1,449 -------- -------- -------- -------- -------- -------- TOTAL ...................... $ 62,832 $ 39,575 $ 16,134 $ 44,340 $ 37,935 $200,816 ======== ======== ======== ======== ======== ======== 1995 -------------------------------------------------------------- TIME NET SALES INVESTMENT ALLOWANCE AND NET IN FOR LOANS, INVESTMENT EQUIPMENT LOSSES NET OF IN ON AND ALL DEFERRED FINANCING OPERATING INVESTMENT OTHER TOTAL INCOME LEASES LEASES SECURITIES ASSETS ASSETS -------- -------- -------- -------- -------- -------- CONSUMER SERVICES Consumer Savings and Insurance Group .......... $ 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 Services .......... 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 EQUIPMENT MANAGEMENT Aviation Services .......... 919 3,115 4,219 319 251 8,823 Fleet Services ............. 262 2,883 1,713 -- 1,173 6,031 Technology Management Services ................. 78 357 522 -- 588 1,545 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 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 SPECIALIZED FINANCING Commercial Real Estate ..... 11,804 37 -- 57 3,901 15,799 Structured Finance Group ... 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 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 ======== ======== ======== ======== ======== ========
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: o Consumer Services - private-label and bank credit card loans, personal loans, time sales and revolving credit and inventory financing for retail merchants, auto leasing and inventory financing, mortgage servicing, and consumer savings and insurance services. o Equipment Management - leases, loans and asset management services, including sales, for portfolios of commercial and transportation equipment, including aircraft, trailers, auto fleets, modular space units, railroad rolling stock, data processing equipment, containers used on ocean-going vessels, and satellites. o 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. o Mid-Market Financing - loans and financing and operating leases for middle-market customers, including manufacturers, distributors and end users, for a variety of equipment that includes data processing equipment, medical and diagnostic equipment, and equipment used in construction, manufacturing, office applications and telecommunications activities. o 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 the Corporation's principal businesses by industry segment follows: CONSUMER SERVICES Consumer Savings and Insurance Group The Consumer Savings and Insurance Group ("CSIG") delivers financial security solutions to consumers with products and services which help consumers accumulate wealth, transfer wealth, and protect their lifestyles and assets. It achieves this through its family of insurance and annuity companies which is split into two primary groups. The Wealth Accumulation and Transfer Group includes: First Colony Corporation ("FCC"); Life of Virginia ("LOV"); Great Northern Annuity ("GNA"); Federal Home Life ("FHL") and GE Capital Assurance ("GECA"). FCC and LOV were both acquired during 1996. FCC markets term life insurance and immediate and deferred annuities and structured settlements, predominately through brokerage general agencies and specialized brokers. LOV specializes in variable annuity and substandard life insurance coverages sold through securities brokerages, brokerage general agencies and a dedicated sales force. GNA and GE Capital Assurance write and market tax-deferred, structured and immediate annuities, and third-party mutual funds through independent and captive agents and financial institutions. The Wealth and Lifestyle Protection Group includes GE Capital Assurance Long-Term Care (formerly AMEX Life); Union Fidelity Life; Harvest Life; and GE Capital Auto Dealer Services ("ADS"). GE Capital Assurance Long-Term Care writes and markets principally long-term care insurance for nursing home and home health care needs. Effective January 1, 1997, the operations of Union Fidelity Life Insurance Company ("UFLIC"), acquired during 1996, will be included within the consumer segment along with certain other operations previously reflected within the specialty 3 insurance segment. UFLIC is a marketer of supplementary accident and health products and life insurance to farm and small town populations. ADS provides service contracts on autos. CSIG, currently based in Stamford, Connecticut, will be headquartered in Richmond, Virginia. 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. In the United States, AFS is one of the leading independent auto lessors and offers leasing, retail financing and sub-prime financing to customers. AFS also provides the private-label financing for American Isuzu Motors, Inc. and participates in a private-label purchase program with Volvo of North America. In addition, AFS also offers inventory financing programs and direct loans to segments of the automotive industry, including dealers, rental car companies and leasing companies. AFS is active in the European markets through majority-owned entities in France, the United Kingdom, and Italy. AFS also provides automobile financing through businesses located in Austria, Spain, Sweden, and Poland. AFS' Asian activities include majority ownership of entities located in Taiwan, Hong Kong, and, with its 1996 acquisition of 80% of Marubeni Car Systems, AFS now operates in Japan. AFS also maintains a presence in Asia through equity investments in Indonesia, Taiwan, Singapore, Malaysia, and Korea. In 1996, AFS increased its minority equity investment in GS Capital Corporation (Thailand) to an 80% majority ownership interest. AFS headquarters are located in Barrington, Illinois. Retailer Financial Services Retailer Financial Services ("RFS") provides sales financing services to North American retailers in a broad range of consumer industries. Details of financing plans differ, but include customized private-label credit card programs with retailers and inventory financing programs with manufacturers, distributors and retailers. RFS 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. RFS holds a noncontrolling equity investment in Montgomery Ward Holding Corp. ("MWHC"), which, together with its wholly-owned subsidiary, Montgomery Ward & Co. Incorporated, are engaged in retail merchandising and direct response advertising (conducted primarily through Signature Financial/Marketing, Inc., which markets consumer club and insurance products). RFS also provides financing to customers of MWHC and affiliates through GE Capital's wholly-owned affiliate, Montgomery Ward Credit Corporation. RFS headquarters are located 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 and Asia, as well as offering a variety of direct-to-consumer credit programs such as consumer loans, bankcards and credit insurance. GCF provides financing to consumers through operations in the United Kingdom, Australia, Japan, Thailand, Scandinavia, Austria, France, Ireland, China, Brazil, Belgium, Germany and Poland and joint ventures in Indonesia, India and Spain. GCF's wide range of proprietary financial services includes private-label credit cards, credit promotion and accounting services, billing (in the retailer's name) and customer credit and collection services. GCF headquarters are located in Stamford, Connecticut. Mortgage Services GE Capital Mortgage Corporation, through its wholly-owned affiliate GE Capital Mortgage Services, Inc. ("GECMSI"), is engaged in the business of wholesale originations and servicing residential mortgage loans collateralized by one-to-four-family homes located throughout the United States. GECMSI obtains servicing through the purchase of mortgage loans and servicing rights, and packages the loans it purchases into mortgage-backed securities which it sells to investors. GECMSI also originates and services home equity loans. GECMSI headquarters are located in Cherry Hill, New Jersey. Consumer Financial Services Consumer Financial Services ("CFS") issues and services MasterCard(R) and Visa(R) 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 has offices located in Canton, Ohio and Salt Lake City, Utah. CFS headquarters are located in Mason, Ohio. EQUIPMENT MANAGEMENT Aviation Services GE Capital Aviation Services ("GECAS") is a global commercial aviation financial services business that offers a broad range of financial products to airlines and aircraft operators, owners, lenders and investors. Financial products include financing leases, operating leases, and tax-advantaged and other incentive-based financing. GECAS also provides asset management, marketing, and technical support services to aircraft owners, lenders and investors. During 1996, GECAS placed firm orders for more than 150 new Boeing and Airbus aircraft with deliveries scheduled from December 1996 through 2001. GECAS' current fleet comprises 880 owned and managed aircraft leased to more than 150 customers in 55 countries. GECAS headquarters are located in Stamford, Connecticut, and its regional offices are located in San Francisco, California; Miami, Florida; Dallas, Texas; Shannon, Ireland; Beijing, China; Hong Kong; and Singapore. Fleet Services GE Capital Fleet Services ("GECFS") is one of the leading corporate fleet management companies in North America, Europe and Australia with approximately 830,000 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 5 33 months. The primary product in North America is a Terminal Rental Adjustment Clause (TRAC) lease through which the customer assumes the residual risk - that is, risk that the book value will be greater than market value at lease termination. In Europe, the primary product is a closed-end lease in which GECFS assumes residual risk. In addition to the services directly associated with the lease, GECFS offers value-added fleet management services designed to reduce customers' total fleet management costs. These services include, among others, maintenance management programs, accident services, national account purchasing programs, fuel programs and title and licensing services. GECFS' customers are diversified with respect to industry, size and geography. During 1996, GECFS added approximately 40,000 vehicles to its portfolio with the acquisition of JMJ Fleet Services, a leading supplier of fleet management services to companies throughout Australia. GECFS headquarters are located in Eden Prairie, Minnesota. Technology Management Services GE Capital Technology Management Services ("TMS") is a leader in providing a broad spectrum of services that enable customers to utilize information technology more efficiently by combining consulting, services, sales and financing options to help businesses plan, acquire, manage and refresh technology assets. These services and financing options include, among others, leasing, rental, procurement, logistics, asset tracking, help desk, network and data center outsourcing services, and test equipment rental, repair and calibration services. During 1996, TMS acquired several companies including Ameridata Technologies Inc., based in Stamford, Connecticut, an international provider of distributed computer products and services, as well as business and technology consulting services; CompuNet Computer AG ("CompuNet"), based in Kerpen, Germany, a provider of distributed computing and communications technologies; Ferntree Computer Corporation ("Ferntree"), an Australian based desktop systems integrator; and other strategic operations. At the end of 1996, GE Capital formed a new company, GE Capital Information Technology Solutions ("ITS"), to provide computer products and services as well as computer networking and other technology services to government and commercial customers. This entity combined several TMS businesses including Ameridata, CompuNet, Ferntree and TMS-Canada, a systems integrator in Canada. ITS headquarters are located in Stamford, Connecticut. TMS has principal locations in Canada and California. TMS headquarters are located in Norcross, Georgia. Genstar Container Genstar Container Corporation ("Genstar") is one of the world's largest lessors 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 headquarters are located in San Francisco, California. Transport International Pool Transport International Pool ("TIP") is one of the leading trailer specialists offering diverse trailer programs and associated services. TIP's fleet of over 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 executes sale-leaseback transactions. TIP's customer base comprises trucking companies, manufacturers and retailers. TIP headquarters are located in Devon, Pennsylvania. 6 Railcar Services GE Capital Railcar Services ("GERSCO") is a major railcar leasing company in North America, with over 140,000 railcars in its portfolio. Serving Class 1 railroads, short-line railroads, and shippers throughout North America, GERSCO offers one of the most diverse fleets in the industry and a variety of lease options. GERSCO also owns and operates a network of railcar repair and maintenance facilities strategically located throughout North America. The repair facilities offer a variety of services, ranging from light maintenance to heavy repair of damaged railcars. The company also provides railcar management, administration and other services. GERSCO headquarters are located in Chicago, Illinois. Satellite Telecommunications Services GE American Communications ("GE Americom") is a leading satellite service supplier to a diverse array of customers, including the broadcast and cable TV industries, broadcast radio, business information and integrated communications services for government and commercial customers. GE Americom operates 12 communications satellites and maintains a supporting network of earth stations, central terminal offices, and telemetry, tracking and control facilities. GE Americom's GE Capital Spacenet Services business offers a full range of global one-way and two-way Very Small Aperture Terminal (VSAT) network products and services. GE Americom headquarters are located in Princeton, New Jersey. Modular Space GE Capital Modular Space ("GECMS") provides non-residential relocatable modular structures for rental, lease and sale from over 100 facilities in the United States, Europe, Canada and Mexico. The primary markets served include construction, education, healthcare, financial, commercial, institutional and government. GECMS' products are tailored as much as possible to client specifications; accomplished through either custom modular units or through GECMS' stock fleet of approximately 83,000 modular units. In addition, GECMS' operating leases range from a few months to sixty months, depending on customer needs, with the average operating lease approximating 12-18 months. During 1996, GECMS continued its European growth through acquisitions such as Groenendijk Yellowcabin in Belgium and Gefi Handelsgesellschaft in Germany, in addition to its operations in France and Holland. GECMS also acquired an entity in the United States. GECMS has offices located in North America as well as Europe. GECMS headquarters are located in Malvern, Pennsylvania. 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. 7 CRE continues 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's business also includes the origination and securitization of low leverage real estate loans. Such loans are intended to be held less than one year before outplacement. To a lesser degree, CRE provides equity capital for real estate partnerships through the holding of limited partnership interests and receives preferred returns; typical such investments range from $2 million to $10 million. CRE also offers a variety of real estate management services to outside investors, institutions, corporations, investment banks, and others through its real estate services subsidiaries. Asset management services include acquisitions and dispositions, strategic asset management, asset restructuring, and debt and equity management. CRE also provides investment products and advisory and asset management services to pension fund clients through GE Capital Investment Advisors, its registered investment advisor, as well as loan administration and servicing through GE Capital Asset Management. In addition, CRE offers owners of multi-family housing ways to reduce costs and enhance value in properties by offering buying services (e.g., for appliances, roofing) and bundled telecommunications and video services. CRE has offices located throughout the United States, as well as offices in Canada, Mexico, Singapore, Sweden, France and the United Kingdom. CRE headquarters are located in Stamford, Connecticut. Structured Finance Group Structured Finance Group ("SFG"), formally Global Project and Structured Finance, develops specialized financial products and services to meet the specific transaction requirements of corporate and government clients. SFG provides capital, capital market services and financial advisory services for major infrastructure, energy, telecommunications, and industrial development worldwide. The range of financial services includes project finance (construction and term), corporate finance, acquisition finance and arrangement and placement services. Products include the full spectrum of debt and equity instruments, with particular expertise in structured finance transactions, including leasing and partnerships. SFG has offices located in Mexico, the United Kingdom, Singapore, Hong Kong, China, India, Australia, Ireland and the Philippines. SFG headquarters are located in Stamford, Connecticut. 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 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 manufacturing, retail, healthcare, cable television/media and food and beverage industries. CF is active in the loan syndication market, selling and occasionally purchasing participations in leveraged transactions. During 1996, CF broadened its product base as well as its global presence with the acquisition of a European factoring company in Milan, Italy. This acquisition supports CF's strategy of developing a presence in the European community with the creation of a European factoring platform. CF has offices located throughout the United States and in London, England and Milan, Italy. CF headquarters are located in Stamford, Connecticut. Equity Capital Group Equity Capital Group ("ECG") purchases equity investments, primarily convertible preferred and common stock investments including, in some cases, stock warrants convertible into equity ownership. ECG's primary objective is to realize long-term capital appreciation. Investments include the retail, financial services, healthcare, food and beverage, cable and broadcasting industries. 8 The portfolio is geographically diversified with investments located throughout the United States, as well as in Latin America, Europe and Asia. ECG headquarters are located in Stamford, Connecticut. MID-MARKET FINANCING Commercial Equipment Financing GE Capital Commercial Equipment Financing ("CEF") offers a broad line of financial products including leases and loans to middle-market customers, including manufacturers, distributors, dealers and end-users, as well as municipal financing. Products are either held for CEF's own account or brokered to third parties. Generally, transactions range in size from $50 thousand to $50 million, with financing terms from 36 to 120 months. CEF also maintains an asset management operation that both redeploys off-lease equipment and monitors asset values. The portfolio includes loans and leases for vehicles, manufacturing equipment, corporate aircraft, construction equipment, medical diagnostic equipment, office equipment, telecommunications equipment and electronics. During 1996, CEF acquired Mietfinanz, a mid-market equipment financing company, located in Muelheim, Germany. Mietfinanz's portfolio consists of loans and leases for a variety of commercial equipment. CEF operates from offices located throughout the United States, Puerto Rico, Canada, Mexico, Europe, India and Asia and through joint ventures in Indonesia and China. CEF headquarters are located in Danbury, Connecticut. Vendor Financial Services GE Capital Vendor Financial Services ("VFS") provides captive financing services to over 90 equipment manufacturers, 3,500 dealers and more than 500,000 customers in over 25 countries throughout North America, Europe and Asia. Customers include major U.S. and foreign manufacturers in a variety of industries including information technology, office equipment, healthcare, telecommunications and industrial equipment. VFS establishes sales financing captives in two ways - by forming captive partnerships with manufacturers that do not have them, and by outsourcing captives from manufacturers that do. VFS offers industry-specific knowledge, leading edge technology, leasing and equipment expertise, and global capabilities. In addition, VFS provides an expanding array of related financial services to customers including trade payables financing and inventory financing. In 1996, VFS acquired BellSouth Financial Services expanding its presence in the growing telecommunications financial services industry. VFS is now BellSouth's preferred provider of leasing and financing to large business users of equipment such as private branch exchanges (PBXs) and network routers. VFS also expanded its European financing capabilities with the acquisition of LocaFrance S.A., a leading equipment financing company in France, and through GE Capital's 1995 acquisition of Sovac S.A. in France and the 1996 acquisition of Mietfinanz in Germany. VFS has sales offices located throughout the United States, Canada, Mexico, Europe, Asia, and Australia. VFS headquarters are located 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 nine branch offices, GECH offers commercial and residential real estate loans, auto and equipment leasing, inventory financing and equity lines of credit. GECH headquarters are located in Honolulu, Hawaii. 9 SPECIALTY INSURANCE Financial Guaranty Insurance FGIC Corporation ("FGIC"), through its 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 $104 billion at December 31, 1996. Approximately 85% of the business written to date by Financial Guaranty is 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 other services. FGIC headquarters are located in New York, New York. Mortgage Insurance GE Capital Mortgage Insurance is engaged principally in providing residential mortgage guaranty insurance. Operating in 25 field locations, GE Capital Mortgage Insurance is licensed in 50 states and the District of Columbia and, at December 31, 1996, was the primary insurance carrier for over 1,400,000 residential homes, with total insurance in force aggregating approximately $163 billion and total risk in force aggregating approximately $36 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. GE Capital Mortgage Insurance also provides mortgage guaranty insurance in the United Kingdom and Canada. GE Capital Mortgage Insurance headquarters are located in Raleigh, North Carolina. Creditor Insurance Consolidated Financial Insurance ("CFI") is one of the leading providers of payment protection in the United Kingdom. The insurance is designed to protect customers' loan repayment obligations in the event of unemployment, disability, or death. The product is sold alongside most forms of consumer credit through banks, building societies, and finance houses. CFI also offers personal accident insurance, which is distributed through financial institutions, and personal investment products, which are distributed through a network of over 6,000 independent financial advisors. To extend its product range, CFI acquired IMCO, a leading administrator of extended product warranty insurance in the United Kingdom, headquartered in London with operations in Brazil and Belgium. CFI is expanding distribution geographically and now has insurance operations in 11 countries across Europe and also in Australia. In 1996, CFI acquired Vie Plus and RD Plus, payment protection insurance companies with headquarters in Paris, France. CFI headquarters are located in London, England. 10 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 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, finance companies associated with manufacturers, insurance and reinsurance companies. ITEM 2. PROPERTIES. The Corporation conducts its business from various facilities, most of which are leased. ITEM 3. LEGAL PROCEEDINGS. The Corporation is not involved in any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Omitted. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. See note 13 to the consolidated financial statements. The common stock of the Corporation is owned entirely by GE Capital Services and, therefore, there is no trading market in such stock. 11 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 -------------------------------------------------------- (Dollar amounts in millions) 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Earned income ...................................... $ 26,570 $ 21,179 $ 16,923 $ 14,444 $ 12,250 Net earnings ....................................... 2,632 2,261 1,918 1,478 1,251 Return on common equity ................... 20.18% 19.89% 19.59% 17.14% 16.17% Ratio of earnings to fixed charges ................. 1.53 1.51 1.63 1.62 1.44 Ratio of earnings to combined fixed charges and preferred stock dividends ............ 1.51 1.49 1.62 1.60 1.43 Ratio of debt to equity ....................... 7.92 7.89 7.94 7.96 7.91 Financing receivables - net ........................ $ 99,714 $ 93,272 $ 76,357 $ 63,948 $ 59,388 Percent of allowance for losses on financing receivables to total financing receivables ....... 2.63% 2.63% 2.63% 2.63% 2.63% Total assets ....................................... $200,816 $160,825 $130,904 $117,939 $ 92,632 Short-term borrowings .............................. 74,971 59,264 54,579 52,903 48,492 Long-term senior notes ............................. 46,124 47,794 33,615 25,112 21,182 Long-term subordinated notes ....................... 697 697 697 697 697 Minority interest .................................. 679 703 615 426 123 Equity ........................................ 15,526 14,202 10,540 10,370 8,892 Equity excludes unrealized gains and losses on investment securities, net of tax. 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 $149 million and $543 million at December 31, 1996 and 1995, respectively, net unrealized losses of $655 million at December 31, 1994, and net unrealized gains of $485 million at December 31, 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS. OVERVIEW The Corporation's net earnings for 1996 were $2,632 million, which, after payment of dividends on its variable cumulative preferred stock, resulted in a contribution of $2,556 million to GE Capital Services' 1996 net earnings, an increase of 16% over 1995. Net earnings for 1995 were $2,261 million, which, after payment of dividends on its variable cumulative preferred stock, resulted in a contribution to GE Capital Services' 1995 net earnings of $2,204 million, an increase of 17% over 1994. 12 The increase in net earnings in both 1996 and 1995 was largely attributable to the effects of continued asset growth in the financing segments, principally from acquisitions of businesses and portfolios in 1996, and equal contributions from acquisitions and origination volume in 1995. The 1995 increase in earnings was partially offset by a decrease in financing spreads (the excess of yields over interest rates on borrowings). Financing spreads were essentially flat in 1996 as a reduction in yields was offset by decreases in borrowing rates. Earnings from the Corporation's Specialty Insurance businesses also increased in 1996, principally as a result of origination volume, higher investment income and acquisitions. The 1995 increase in Specialty Insurance net earnings principally reflects no 1995 counterpart to the 1994 adverse loss development in private mortgage pool insurance. OPERATING RESULTS EARNED INCOME from all sources increased 25% to $26,570 million in 1996, following a 25% increase in 1995. In both years, earned income of the financing segments increased significantly, primarily as a result of asset growth, but was partially offset in 1996 by lower yields. Yields increased in 1995 and contributed slightly to the increase. A significant component of the 1996 revenue increase was the contribution provided by the consumer savings and insurance businesses acquired in 1995 and 1996 and the computer equipment businesses acquired in 1996. 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 $482 million to pre-tax income in 1996, compared with $381 million in 1995 and $453 million in 1994. Earned income of the Corporation's Specialty Insurance segment increased 33% to $2,895 million in 1996, compared with $2,174 million in 1995, as a result of origination volume, investment income and acquisitions. Earned income in 1995 was up 10% over 1994, also reflecting premium growth and improved investment income. INTEREST EXPENSE on borrowings in 1996 was $7.0 billion, 9% higher than in 1995 which was 46% higher than in 1994. The increase in 1996 reflected the effects of higher average borrowings used to finance asset growth, partially offset by the effects of lower average interest rates. The 1995 increase resulted from higher average borrowings used to finance asset growth and the effects of higher average interest rates. The Corporation's use of floating rate versus fixed rate borrowings is largely a function of the assets against which borrowings are matched. The composite interest rate on the Corporation's borrowings was 6.24% in 1996 compared with 6.77% in 1995 and 5.47% in 1994. OPERATING AND ADMINISTRATIVE EXPENSES were $9.3 billion in 1996, compared with $6.2 billion in 1995, which was 15% higher than 1994. The increase in both 1996 and 1995 primarily reflects costs associated with acquired businesses and portfolios and higher investment levels. Included in the 1996 increase are costs of sales and services of computer equipment businesses acquired in 1996. The 1995 increase was partially offset by a reduction in provisions for losses on commercial real estate assets charged to operating and administrative expenses. INSURANCE LOSSES AND POLICYHOLDER AND ANNUITY BENEFITS increased 57% to $3.2 billion in 1996, compared with a 19% increase to $2.0 billion in 1995. These increases were primarily driven by business acquisitions and growth in originations. PROVISION FOR LOSSES ON FINANCING RECEIVABLES decreased to $1,033 million in 1996 from $1,117 million in 1995, following an increase from $873 million in 1994. These provisions principally related to private-label credit cards, bank credit cards, auto loans and auto leases in the Consumer Services 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 7% to $2,137 million in 1996 compared with $2,001 million in 1995, a 21% increase over 1994. The increase in both years was the result of additions to equipment on operating leases, primarily reflecting a shift in auto lease volume from financing leases to operating leases and increased volume in aircraft in 1996, and business and portfolio acquisitions as well as origination volume in 1995 and 1996. 13 PROVISION FOR INCOME TAXES was $1,172 million in 1996 (an effective tax rate of 30.8%), compared with $1,071 million in 1995 (an effective tax rate of 32.2%), and $896 million in 1994 (an effective tax rate of 31.8%). The higher provision for income taxes in both 1996 and 1995 reflected increased pre-tax earnings subject to statutory tax rates. The 1996 decrease in the effective tax rate reflected increased tax credits and a decrease in non-U.S. income taxes. 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. OPERATING PROFIT BY INDUSTRY SEGMENT Operating profit of the Corporation, by industry segment, is summarized in note 17 to the consolidated financial statements and discussed below. CONSUMER SERVICES operating profit was $1,272 million in 1996, compared with $1,030 million in 1995, and $1,067 million in 1994. The increase in 1996 was led by strong performances from the auto finance, consumer savings and insurance and non-U.S. private-label credit card businesses, resulting from both acquisition growth and higher origination volume. The 1996 increase also reflected improved market conditions in the mortgage servicing business. These increases were partially offset by a higher provision for losses, reflecting higher average receivable balances and increased delinquencies, consistent with industry experience, and losses associated with the Corporation's equity investment in Montgomery Ward Holding Corp. 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. EQUIPMENT MANAGEMENT operating profit increased to $929 million in 1996 from $897 million in 1995, which was up from $624 million in 1994. Increases in both years reflected higher volume in most businesses resulting from originations and acquisitions of businesses and portfolios. The 1996 increase included the effects of the computer equipment businesses acquired, which was partially offset by no counterpart to the 1995 sale of an outdoor media business. The 1995 increase also resulted from increased prices at the trailer, modular space and railcar businesses along with the sale of the outdoor media business. SPECIALIZED FINANCING operating profit increased to $726 million in 1996 from $651 million in 1995, which increased 27% over 1994. The increase in 1996 principally reflected lower provisions for losses, primarily related to lower investment levels from sales of receivables and loan repayments and improved conditions in commercial real estate, and higher sales of warrants and other equity interests. These increases were offset in part by a reduction in earnings related to the lower investment levels and increased operating expenses. The 1995 increase resulted from lower provisions for losses, particularly in the commercial real estate business, and increased end-of-lease residual realization. MID-MARKET FINANCING operating profit increased to $538 million in 1996 compared with $445 million in 1995, which was up from $435 million in 1994. Asset growth from higher volumes and acquisitions of businesses and portfolios was the most significant contributing factor in both years. SPECIALTY INSURANCE operating profit increased to $344 million in 1996 from $341 million in 1995, principally as a result of origination volume, higher investment income and acquisitions. These increases were mostly offset by increases in insurance losses, reserves and other costs and expenses. The 1995 operating profit increased $153 million over 1994, principally because there was no 1995 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. INTERNATIONAL OPERATIONS The Corporation's international operations include its operations located outside the United States and certain of its operations that cannot be meaningfully associated with specific geographic areas (for example, shipping containers used on ocean-going vessels). The Corporation's international revenues were $8.1 billion in 1996 and year-end assets were about $50.9 billion. These revenues, which are derived primarily from operations in Europe, Canada and the Pacific Basin, were up from $5.9 billion in 1995; year-end assets increased 28% during the year from approximately 14 $39.7 billion at the end of 1995. These increases are attributable to the Corporation's continued expansion as a global provider of financial products and services. CAPITAL RESOURCES AND LIQUIDITY STATEMENT OF FINANCIAL POSITION INVESTMENT SECURITIES for each of the past two years comprised mainly investment-grade debt securities held by the Corporation's specialty insurance and annuity and investment businesses in support of obligations to policyholders and annuitants. The increase of $17.3 billion during 1996 was principally related to acquisitions. A breakdown of the investment securities portfolio is provided in note 2 to the consolidated financial statements. FINANCING RECEIVABLES were $99.7 billion at year-end 1996, net of allowance for doubtful accounts, up $6.4 billion over 1995. These receivables are discussed on page 18 and in notes 3 and 4 to the consolidated financial statements. OTHER RECEIVABLES were $8.5 billion and $6.4 billion at December 31, 1996 and 1995, respectively. The 1996 increase was primarily attributable to receivables associated with the acquisitions of computer equipment businesses in 1996 and insurance activities, particularly increases in receivables associated with acquired businesses. EQUIPMENT ON OPERATING LEASES was $16.1 billion at December 31, 1996, up $2.3 billion from 1995. Details by category of investment can be found in note 6 to the consolidated financial statements. Additions to equipment on operating leases were $5.3 billion during 1996 versus $4.5 billion during 1995, principally reflecting a shift in auto lease volume from financing leases in 1995 to operating leases in 1996 and increased volume in aircraft. INTANGIBLE ASSETS were $7.6 billion at year-end 1996, up from $4.0 billion at year-end 1995. The $3.6 billion increase in intangible assets principally related to increases in goodwill attributable to various acquisitions and the present value of future profits associated with acquisitions of life insurance enterprises. OTHER ASSETS totaled $19.9 billion at year-end 1996, compared with $13.6 billion at the end of 1995. The $6.3 billion increase principally related to separate accounts of acquired life insurance businesses and investments in associated companies. Other Assets includes $314 million representing the Corporation's noncontrolling investment in common stock of Montgomery Ward Holding Corp. ("MWHC"). During 1996, MWHC reported significant losses from operations, and the Corporation's investment was reduced for its share of such losses. In addition to the investment in MWHC common stock, the Corporation engages in various ordinary course of business financing transactions with MWHC and affiliates. At December 31, 1996, such investments, primarily financing receivables from MWHC and affiliates, amounted to approximately $747 million. These investments were all performing in accordance with their terms at December 31, 1996. No impairment writedown was considered necessary for investments in or financing receivables from MWHC and affiliates at December 31, 1996. In addition to the direct transactions with MWHC and affiliates, the Corporation also provides financing to customers of MWHC and affiliates through GE Capital's wholly-owned affiliate, Montgomery Ward Credit Corporation. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $43.3 billion at year-end 1996, $20.9 billion higher than in 1995. The increase was primarily attributable to acquisitions in 1996. For additional information on these liabilities, see note 11 to the consolidated financial statements. BORROWINGS were $121.8 billion at December 31, 1996, of which $75.0 billion is due in 1997 and $46.8 billion is due in subsequent years. Comparable amounts at the end of 1995 were $107.8 billion in total, $59.3 billion due within one year and $48.5 billion due thereafter. The Corporation's composite interest rates are discussed on page 13. A large portion of the Corporation's borrowings ($51.2 billion and $38.3 billion at the end of 1996 and 1995, 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 42 days and 5.58%, respectively, at the end of 1996 compared with 41 days and 5.88% at the end of 1995. 15 The Corporation's leverage (ratio of debt to equity, excluding from equity net unrealized gains on investment securities) was 7.92 to 1 at the end of 1996, and 7.89 to 1 at the end of 1995. By comparison, including in equity net unrealized gains on investment securities, the Corporation's ratio of debt to equity was 7.84 to 1 at the end of 1996, and 7.59 to 1 at the end of 1995. 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. GE Company also has guaranteed the Corporation's subordinated debt with a face amount of $697 million at December 31, 1996 and 1995. 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 One of the Corporation's primary sources of cash is financing activities involving the continued rollover of short-term borrowings and appropriate addition of borrowings, with a reasonable balance of maturities. Over the past three years, the Corporation's borrowings with maturities of 90 days or less have increased by $3.0 billion. New borrowings of $81.3 billion having maturities longer than 90 days were added during those years, while $52.8 billion of such longer-term borrowings were retired. The Corporation also generated $22.7 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 $51.2 billion that the Corporation invested in operations over the past three years, $23.1 billion was used for additions to financing receivables, $15.7 billion was used to invest in new equipment, principally for lease to others, and $11.1 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 futures, options and currency forwards, to manage risks. The Corporation is exclusively an end user of these instruments, which are commonly referred to as derivatives. The Corporation does not engage in any derivatives trading, market-making or other speculative activities in the derivative markets. More detailed information regarding these financial instruments, as well as the strategies and policies for their use, is contained in notes 1, 10, and 21 to the consolidated financial statements. The relationship between interest rate changes and financing spreads is subject to many factors and cannot be forecasted with reliability. Although not necessarily predictive of future effects, management estimates that, all else constant, an increase of 100 basis points in interest rates for all of 1996 would have reduced net earnings by approximately $66 million. For comparison, the effect on 1995 net earnings would have been $60 million. 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. 16 The Corporation is exposed to prepayment risk in certain of its business activities, such as in its mortgage servicing and annuities activities. In order to hedge those exposures, the Corporation uses swaps, futures, and option-based financial instruments. These instruments generally behave based on limits ("caps", "floors" or "collars") on interest rate movement. These swaps, futures and option-based instruments are governed by the credit risk policies described below and are transacted in 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. o Once a counterparty reaches a credit exposure limit (see table below), no additional transactions are permitted until the exposure with that counterparty is reduced to an amount that is within the established limit. Open contracts remain in force.
COUNTERPARTY CREDIT CRITERIA CREDIT RATING ---------------------- STANDARD & MOODY'S 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
o All swaps are executed under master swap agreements containing mutual credit downgrade provisions that provide the ability to require assignment or termination in the event either party is downgraded below A3 or A-. More credit latitude is permitted for transactions having original maturities shorter than one year because of their lower risk. The conversion of interest rate and currency risk into credit risk results in a need to monitor counterparty credit risk actively. At December 31, 1996, the notional amount of long-term derivatives for which the counterparty was rated below Aa3/AA- was $5.0 billion. These amounts are the result of (1) counterparty downgrades, (2) transactions executed prior to the adoption of the Corporation's current counterparty credit standards, and (3) transactions relating to acquired assets or businesses. 17 Following is an analysis of credit risk exposures for the last three years.
PERCENTAGE OF NOTIONAL DERIVATIVE EXPOSURE BY COUNTERPARTY CREDIT RATING ------------------------------------------------------------------------------- MOODY'S/STANDARD & POOR'S 1996 1995 1994 ------------------------- ------ ------ ------ Aaa/AAA .................................... 78% 75% 77% Aa/AA ...................................... 17% 22% 18% A/A and below .............................. 5% 3% 5%
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 five-year medium term note ........ +65 -- 2. U.S. dollar commercial paper swapped into five-year U.S. dollar fixed rate funding ... +40 A 3. Swiss franc fixed rate debt swapped into five-year U.S. dollar fixed rate funding ... +35 B
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 $102.4 billion at the end of 1996 from $95.8 billion at the end of 1995. Financing receivables are the Financing segment's largest asset and its primary source of revenues. The related allowance for losses at the end of 1996 amounted to $2.7 billion (2.63% of receivables - the same as 1995 and 1994) and, in management's judgment, is appropriate given the risk profile of the portfolio. Amounts written off in 1996 were approximately 1.03% of the year's average financing receivables, compared with 1.01% and 1.04% during 1995 and 1994, respectively. The increase in 1996 principally reflects increased delinquencies in the consumer portfolio, consistent with industry experience. A discussion of the quality of certain elements of the portfolio of financing receivables follows. Further details are included in notes 3, 4 and 6 to the consolidated financial statements. 18 "Nonearning" receivables are those that are 90 days or more delinquent and "reduced-earning" receivables are commercial receivables whose terms have been restructured to a below-market yield. CONSUMER RECEIVABLES at year-end 1996 and 1995 are shown in the following table:
(In millions) 1996 1995 -------- -------- Credit card and personal loans ......................... $ 27,127 $ 23,937 Auto loans ............................................. 5,915 5,555 Auto financing leases .................................. 13,113 12,461 -------- -------- Total consumer ....................................... $ 46,155 $ 41,953 ======== ======== Nonearning ............................................. $ 926 $ 671 - - As a percentage of total ............................. 2.0% 1.6% Receivable write-offs for the year ..................... $ 870 $ 644
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. COMMERCIAL REAL ESTATE LOANS classified as financing receivables were $12.1 billion at December 31, 1996, a decrease of $1.3 billion from 1995, principally reflecting sales of receivables. Nonearning and reduced-earning receivables decreased to $158 million at December 31, 1996, compared with $179 million at year-end 1995. Write-offs of commercial real estate loans declined to $45 million in 1996 from $147 million in 1995 as markets continued to stabilize. Commercial real estate loans are generally secured by first mortgages. In addition to loans, the commercial real estate portfolio included, in other assets, $1.6 billion at year-end 1996 ($1.9 billion at year-end 1995) of assets acquired for resale from various financial institutions. Values realized on sales of these assets continue to meet or exceed expectations at the time of purchase. Also included in other assets were investments in real estate ventures at year-end 1996 totaling $2.5 billion, up from $2.0 billion at year-end 1995. Those investments are made as a part of original financings or in conjunction with certain loan restructurings. 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. OTHER FINANCING RECEIVABLES, totaling $44.1 billion at December 31, 1996, consisted of a diverse commercial, industrial and equipment loan and lease portfolio. This portfolio increased $3.7 billion during 1996, primarily because of acquisitions. Related nonearning and reduced-earning receivables were $313 million at year-end 1996, compared with $285 million at year-end 1995. The Corporation held loans and leases to commercial airlines amounting to $8.2 billion at the end of 1996, down from $8.3 billion at the end of 1995. The Corporation's commercial aircraft positions also included financial guarantees, funding commitments and aircraft orders as discussed in note 6 to the consolidated financial statements. ENTERING 1997, management believes that continued vigilant attention to risk management and controllership and a strong focus on quality - complete satisfaction of customer needs - position it to deal effectively with the increasing competition in an ever-changing global economy. NEW ACCOUNTING STANDARDS New accounting standards include Statement of Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Among other things, the new Statement distinguishes transfers of financial assets that are sales from transfers that are secured borrowings, based on control of the transferred assets. SFAS No. 125 is effective for transfers of financial assets occurring after December 31, 1996, and its adoption will not have an effect on the financial position or results of operations of the Corporation. 19 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, 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 7, 1997 20
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES STATEMENT OF CURRENT AND RETAINED EARNINGS For the years ended December 31 (In millions) 1996 1995 1994 -------- -------- -------- EARNED INCOME Time sales, loan and other income (Note 14) ................................ $ 13,231 $ 10,473 $ 7,681 Operating lease rentals (Note 6) ........................................... 4,341 4,079 3,802 Financing leases (Note 14) ................................................. 3,485 3,176 2,539 Investment income .......................................................... 2,377 1,631 1,527 Premium and commission income of insurance affiliates (Note 11) ..................................................... 3,136 1,820 1,374 -------- -------- -------- Total earned income ...................................................... 26,570 21,179 16,923 -------- -------- -------- EXPENSES Interest (Note 10) ......................................................... 7,042 6,455 4,414 Operating and administrative (Note 15) ..................................... 9,285 6,162 5,349 Insurance losses and policyholder and annuity benefits (Note 11) ........... 3,183 2,031 1,707 Provision for losses on financing receivables (Note 4) ..................... 1,033 1,117 873 Depreciation and amortization of buildings and equipment and equipment on operating leases (Notes 6 & 7) .......................... 2,137 2,001 1,657 Minority interest in net earnings of consolidated affiliates ............... 86 81 109 -------- -------- -------- Total expenses ........................................................... 22,766 17,847 14,109 -------- -------- -------- Earnings before income taxes ............................................... 3,804 3,332 2,814 Provision for income taxes (Note 16) ....................................... (1,172) (1,071) (896) -------- -------- -------- NET EARNINGS ............................................................... 2,632 2,261 1,918 Dividends paid (Note 13) ................................................... (891) (1,645) (605) Retained earnings at January 1 ............................................. 8,937 8,321 7,008 -------- -------- -------- RETAINED EARNINGS AT DECEMBER 31 ........................................... $ 10,678 $ 8,937 $ 8,321 ======== ======== ========
See Notes to Consolidated Financial Statements. 21
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES STATEMENT OF FINANCIAL POSITION At December 31 (In millions) 1996 1995 -------- -------- ASSETS Cash and equivalents ................................................................... $ 3,074 $ 1,316 Investment securities (Note 2) ......................................................... 44,340 26,991 Financing receivables (Note 3): Time sales and loans, net of deferred income ......................................... 62,832 59,591 Investment in financing leases, net of deferred income ............................... 39,575 36,200 -------- -------- 102,407 95,791 Allowance for losses on financing receivables (Note 4) ............................... (2,693) (2,519) -------- -------- Financing receivables - net ........................................................ 99,714 93,272 Other receivables - net (Note 5) ....................................................... 8,456 6,408 Equipment on operating leases (at cost), less accumulated amortization of $5,625 and $4,670 (Note 6) ...................................................................... 16,134 13,793 Buildings and equipment (at cost), less accumulated depreciation of $1,188 and $915 (Note 7) ............................................................................. 1,647 1,478 Intangible assets (Note 8) ............................................................. 7,594 3,996 Other assets (Note 9) .................................................................. 19,857 13,571 -------- -------- TOTAL ASSETS ......................................................................... $200,816 $160,825 ======== ======== LIABILITIES AND EQUITY Short-term borrowings (Note 10) ........................................................ $ 74,971 $ 59,264 Long-term borrowings (Note 10) ......................................................... 46,821 48,491 -------- -------- Total borrowings ..................................................................... 121,792 107,755 Accounts payable ....................................................................... 5,618 4,560 Insurance liabilities, reserves and annuity benefits (Note 11) ........................ 43,263 22,401 Other liabilities ...................................................................... 6,466 4,312 Deferred income taxes (Note 16) ........................................................ 7,472 6,892 -------- -------- Total liabilities .................................................................... 184,611 145,920 -------- -------- Minority interest in equity of consolidated affiliates (Note 12) ....................... 679 703 -------- -------- Variable cumulative preferred stock, $100 par value, liquidation preference $100,000 per share (23,000 shares authorized and 18,000 shares outstanding at December 31, 1996 and 18,000 shares authorized and outstanding at December 31, 1995) . 2 2 Common stock, $200 par value (3,866,000 shares authorized and 3,837,825 shares outstanding at December 31, 1996 and December 31, 1995) .............................. 768 768 Additional paid-in capital ............................................................. 4,024 4,022 Retained earnings ...................................................................... 10,678 8,937 Unrealized gains on investment securities .............................................. 149 543 Foreign currency translation adjustments ............................................... (95) (70) -------- -------- Total equity (Note 13) ............................................................... 15,526 14,202 -------- -------- TOTAL LIABILITIES AND EQUITY ......................................................... $200,816 $160,825 ======== ========
See Notes to Consolidated Financial Statements. 22
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES STATEMENT OF CASH FLOWS For the years ended December 31 (In millions) 1996 1995 1994 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings ............................................................... $ 2,632 $ 2,261 $ 1,918 Adjustments to reconcile net earnings to cash provided from operating activities: Provision for losses on financing receivables ........................... 1,033 1,117 873 Increase in insurance liabilities, reserves and annuity benefits ........ 1,373 1,006 542 Increase in deferred income taxes ....................................... 1,025 653 721 Depreciation and amortization of buildings and equipment and equipment on operating leases ......................................... 2,137 2,001 1,657 Increase (decrease) in accounts payable ................................. 422 720 (656) Other - net ............................................................. 795 357 135 -------- -------- -------- Cash from operating activities ........................................... 9,417 8,115 5,190 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in financing receivables (Note 20) ............................ (2,278) (11,309) (9,525) Buildings and equipment and equipment on operating leases - additions .............................................................. (5,348) (4,628) (5,734) - dispositions ........................................................... 1,326 1,495 2,417 Payments for principal businesses purchased, net of cash acquired .......... (4,385) (4,600) (2,144) All other investing activities (Note 20) ................................... (5,405) (2,617) 1,544 -------- -------- -------- Cash used for investing activities ....................................... (16,090) (21,659) (13,442) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (maturities 90 days or less) ...................... 10,996 (5,547) (2,429) Newly issued debt (maturities longer than 90 days) (Note 20) ............... 22,345 36,480 22,473 Repayments and other reductions (maturities longer than 90 days) (Note 20) . (24,056) (17,045) (11,699) Dividends paid ............................................................. (891) (961) (595) Issuance of preferred stock in excess of par value ......................... -- 924 -- Issuance of variable cumulative preferred stock by consolidated affiliate .. 125 120 240 All other financing activities (Note 20) ................................... (88) 177 (75) -------- -------- -------- Cash from financing activities ........................................... 8,431 14,148 7,915 -------- -------- -------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR ................ 1,758 604 (337) CASH AND EQUIVALENTS AT BEGINNING OF YEAR .................................. 1,316 712 1,049 -------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR ........................................ $ 3,074 $ 1,316 $ 712 ======== ======== ========
See Notes to Consolidated Financial Statements. 23 GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION - The consolidated financial statements represent the adding together of General Electric Capital Corporation ("the Parent") and all of its majority-owned and controlled affiliates ("consolidated affiliates"), (collectively called "the Corporation"). All outstanding common stock of the Parent is owned by General Electric Capital Services, Inc. ("GE Capital Services"), all of whose common stock is owned by General Electric Company ("GE Company"). All significant transactions among the Parent and consolidated affiliates have been eliminated. Other affiliates, generally companies in which the Corporation owns 20 to 50 percent of the voting rights ("non-consolidated 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 AND 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 related services are performed unless significant contingencies exist. Premium income from insurance activities is discussed under insurance accounting 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. 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. Realized gains and losses on investments are determined using the specific identification method. 24 EQUIPMENT ON OPERATING LEASES - Equipment is amortized, principally on a straight-line basis, to estimated net salvage value over the lease term or the estimated economic life of the equipment. BUILDINGS AND EQUIPMENT - Depreciation is recorded on either a sum-of-the-years digits formula or a straight-line basis over the lives of the assets. INTANGIBLE ASSETS - Goodwill is amortized over its estimated period of benefit on a straight-line basis; other intangible assets are amortized on appropriate bases over their estimated lives. No amortization period exceeds thirty years. Goodwill in excess of associated expected operating cash flows is considered to be impaired and is written down to fair value. INTEREST RATE AND CURRENCY RISK MANAGEMENT - As a matter of policy, the Corporation does not engage in derivatives trading, market-making or other speculative activities. The Corporation uses swaps primarily to optimize funding costs. To a lesser degree, and in combination with options and limit contracts, the Corporation uses swaps to stabilize cash flows from mortgage-related assets. Interest rate and currency swaps that modify borrowings or designated assets, including swaps associated with forecasted commercial paper renewals, are accounted for on an accrual basis. The Corporation requires all other swaps, as well as futures, options and forwards, to be designated and accounted for as hedges of specific assets, liabilities or committed transactions; resulting payments and receipts are recognized contemporaneously with effects of hedged transactions. A payment or receipt arising from early termination of an effective hedge is accounted for as an adjustment to the basis of the hedged transaction. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments must be highly correlated with changes in market values of underlying hedged items, both at inception of the hedge and over the life of the hedge contract. Any instrument designated but ineffective as a hedge is marked to market and recognized in operations immediately. INSURANCE ACCOUNTING POLICIES - Accounting policies for insurance businesses are as follows. PREMIUM INCOME. Insurance premiums are reported as earned income as follows: o For property and casualty and accident and health risks contracts (including financial guaranty insurance), premiums are reported as earned income, generally on a pro rata basis, over the terms of related insurance policies or reinsurance treaties. o For retrospectively rated reinsurance contracts, premium adjustments are recorded based on estimated losses and loss expenses, taking into consideration both case and incurred-but-not-reported reserves. o For term and whole life contracts, premiums are reported as earned income when due under terms of the respective policies. o For annuity and investment contracts - contracts that do not have significant mortality or morbidity risk - premiums are not reported as revenues, but as liabilities (included in "Insurance liabilities, reserves and annuity benefits") and are adjusted according to terms of the respective policies. DEFERRED POLICY ACQUISITION COSTS. Costs that vary with and are primarily related to the acquisition of new and renewal insurance and investment contracts are deferred and amortized systematically over the respective policy terms. o For property and casualty and accident and health risks (including financial guaranty insurance), these costs are amortized pro rata over the contract periods in which the related premiums are earned. o For term and whole life contracts, these costs are amortized over the respective contract periods in proportion to either anticipated premium income or gross profit, as appropriate. o For annuity and investment contracts, these costs are amortized on the basis of anticipated gross profits. 25 Periodically, deferred policy acquisition costs are reviewed for recoverability; anticipated investment income is considered in making recoverability evaluations. PRESENT VALUE OF FUTURE PROFITS. The actuarially determined present value of anticipated net cash flows to be realized from insurance, annuity and investment contracts in force at the date of acquisition of life insurance enterprises is recorded as the present value of future profits ("PVFP"). Amortization of PVFP is based on gross profit projections from the underlying contracts, adjusted to reflect actual experience and any impairment. NOTE 2. INVESTMENT SECURITIES A summary of investment securities follows:
(In millions) GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED DECEMBER 31, 1996 COST GAINS LOSSES FAIR VALUE -------- -------- -------- -------- Debt securities U.S. corporate .............................................. $ 21,093 $ 294 $ (637) $ 20,750 State and municipal ......................................... 4,366 120 (26) 4,460 Mortgage-backed ............................................. 9,139 240 (100) 9,279 Corporate - non-U.S ......................................... 3,140 53 (11) 3,182 Government - non-U.S ........................................ 779 5 (1) 783 U.S. government and federal agency .......................... 1,824 31 (5) 1,850 Equity securities ............................................. 3,728 325 (17) 4,036 -------- -------- -------- -------- $ 44,069 $ 1,068 $ (797) $ 44,340 ======== ======== ======== ======== DECEMBER 31, 1995 Debt securities U.S. corporate ............................................... $ 11,470 $ 447 $ (62) $ 11,855 State and municipal .......................................... 3,781 196 (6) 3,971 Mortgage-backed .............................................. 4,824 221 (63) 4,982 Corporate - non-U.S .......................................... 1,104 26 (21) 1,109 Government - non-U.S ......................................... 385 13 -- 398 U.S. government and federal agency ........................... 1,282 63 (3) 1,342 Equity securities .............................................. 3,090 257 (13) 3,334 -------- -------- -------- -------- $ 25,936 $ 1,223 $ (168) $ 26,991 ======== ======== ======== ========
The majority of mortgage-backed securities shown in the table above are collateralized by U.S. residential mortgages. Mortgage-backed securities are subject to prepayment risk, which affects yield but does not impair recovery of principal. At December 31, 1996, contractual maturities of debt securities, other than mortgage-backed securities, were as follows:
(In millions) AMORTIZED ESTIMATED COST FAIR VALUE -------- -------- Due in: 1997 ................................................................................. $ 1,509 $ 1,514 1998-2001 ............................................................................ 6,961 6,416 2002-2006 ............................................................................ 7,504 7,656 2007 and later ....................................................................... 15,228 15,439
26 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 1996 were $5,375 million ($6,225 million in 1995 and $3,100 million in 1994). Gross realized gains were $321 million in 1996 ($241 million in 1995 and $143 million in 1994). Gross realized losses were $96 million in 1996 ($86 million in 1995 and $68 million in 1994). NOTE 3. FINANCING RECEIVABLES Financing receivables at December 31, 1996 and 1995 are shown below.
(In millions) 1996 1995 -------- -------- Time sales and loans: Consumer Services .................................................................... $ 40,479 $ 33,430 Specialized Financing ................................................................ 14,584 18,230 Mid-Market Financing ................................................................. 9,914 8,795 Equipment Management ................................................................. 760 1,371 Specialty Insurance .................................................................. 339 189 -------- -------- 66,076 62,015 Deferred income ........................................................................ (3,244) (2,424) -------- -------- Time sales and loans - net of deferred income ....................................... 62,832 59,591 -------- -------- Investment in financing leases: Direct financing leases .............................................................. 36,576 33,291 Leveraged leases ..................................................................... 2,999 2,909 -------- -------- Investment in financing leases ...................................................... 39,575 36,200 -------- -------- 102,407 95,791 Less allowance for losses (Note 4) ..................................................... (2,693) (2,519) -------- -------- $ 99,714 $ 93,272 ======== ========
Time sales and loans represent 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 1996 and 1995, specialized financing and consumer services loans included $12,075 million and $13,405 million, respectively, for commercial real estate loans. Note 6 contains information on commercial airline loans and leases. At December 31, 1996, contractual maturities for time sales and loans were $28,128 million in 1997; $12,504 million in 1998; $7,255 million in 1999; $5,279 million in 2000; $3,743 million in 2001 and $9,167 million thereafter - aggregating $66,076 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, 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 27 assets and tax deductions for interest paid to third-party participants. The Corporation generally is entitled to any residual value of leased assets. Investments in direct financing and leveraged leases represents unpaid rentals and estimated unguaranteed residual values of leased equipment, less related deferred income. The Corporation has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. The Corporation's share of rentals receivable on leveraged leases is subordinate to the share of other participants who also have security interests in the leased equipment. The Corporation's net investment in financing leases at December 31, 1996 and 1995 is shown below.
TOTAL DIRECT FINANCING LEASES FINANCING LEASES LEVERAGED LEASES -------------------- -------------------- -------------------- (In millions) 1996 1995 1996 1995 1996 1995 -------- -------- -------- -------- -------- -------- Total minimum lease payments receivable ........................... $ 54,009 $ 50,059 $ 40,555 $ 37,434 $ 13,454 $ 12,625 Less principal and interest on third-party nonrecourse debt ......... (10,213) (9,329) -- -- (10,213) (9,329) -------- -------- -------- -------- -------- -------- Net rentals receivable ............... 43,796 40,730 40,555 37,434 3,241 3,296 Estimated unguaranteed residual value of leased assets ..................... 6,248 5,768 4,906 4,630 1,342 1,138 Less deferred income ................... (10,469) (10,298) (8,885) (8,773) (1,584) (1,525) -------- -------- -------- -------- -------- -------- Investment in financing leases ....... 39,575 36,200 36,576 33,291 2,999 2,909 Less: Allowance for losses ............ (720) (745) (641) (669) (79) (76) Deferred taxes arising from financing leases ................ (7,488) (6,243) (4,077) (3,215) (3,411) (3,028) -------- -------- -------- -------- -------- -------- Net investment in financing leases ..... $ 31,367 $ 29,212 $ 31,858 $ 29,407 $ (491) $ (195) ======== ======== ======== ======== ======== ========
At December 31, 1996, contractual maturities for rentals receivable under financing leases were $12,890 million in 1997; $9,759 million in 1998; $6,716 million in 1999; $3,616 million in 2000; $2,071 million in 2001 and $8,744 million thereafter - aggregating $43,796 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, the Corporation received proceeds of $4,026 million in 1996, $2,139 million in 1995 and $1,239 million in 1994. The Corporation's exposure under such recourse provisions is included in "credit and liquidity support - securitizations" in note 21. Nonearning consumer receivables, primarily private-label credit card receivables, amounted to $926 million and $671 million at December 31, 1996 and 1995, 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 $471 million and $464 million at year-end 1996 and 1995, respectively. "Impaired" loans are defined by generally accepted accounting principles as loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. That definition excludes, among other things, leases or large groups of smaller-balance homogenous loans, and therefore applies principally to the Corporation's commercial loans. Under these principles, the Corporation has two types of "impaired" loans as of December 31, 1996 and 1995: loans requiring allowances for losses ($583 million and $647 million, respectively) and loans expected to be fully recoverable because the carrying amount has been reduced previously through charge-offs or deferral of income recognition ($187 million and $220 million, respectively); allowances for losses on these loans were $222 million and 28 $285 million, respectively. Average investment in these loans during 1996 and 1995 was $842 million and $1,037 million, respectively, before allowance for losses; interest income earned, principally on the cash basis, while they were considered impaired was $30 million and $49 million in 1996 and 1995, respectively. NOTE 4. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES The allowance for losses on small-balance receivables is determined principally on the basis of actual experience during the preceding three years. Further allowances are provided to reflect management's judgment of additional loss potential. For other receivables, principally the larger loans and leases, the allowance for losses is determined primarily on the basis of management's judgment of the net loss potential, including specific allowances for known troubled accounts. The table below shows the activity in the allowance for losses on financing receivables during each of the past three years.
(In millions) 1996 1995 1994 -------- -------- -------- Balance at January 1 ....................................................... $ 2,519 $ 2,062 $ 1,730 Provisions charged to operations ........................................... 1,033 1,117 873 Net transfers related to companies acquired or sold ........................ 139 217 199 Amounts written off - net .................................................. (998) (877) (740) -------- -------- -------- Balance at December 31 ..................................................... $ 2,693 $ 2,519 $ 2,062 ======== ======== ========
All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses. Small-balance accounts generally are written off when 6 to 12 months delinquent, although any balance judged to be uncollectible, such as an account in bankruptcy, is written down immediately to estimated realizable value. Large-balance accounts are reviewed at least quarterly, and those accounts with amounts that are judged to be uncollectible are written down to estimated realizable value. NOTE 5. OTHER RECEIVABLES This account includes reinsurance recoverables of $1,691 million and $1,808 million at year-end 1996 and 1995, respectively. Also included are amounts for accrued investment income, trade receivables, operating lease receivables, insurance policy loans and a variety of sundry items. NOTE 6. EQUIPMENT ON OPERATING LEASES Equipment on operating leases by type of equipment and accumulated amortization at December 31, 1996 and 1995 are shown below.
(In millions) 1996 1995 -------- -------- Original cost Vehicles ............................................................................. $ 6,789 $ 4,948 Aircraft ............................................................................. 6,647 5,682 Marine shipping containers ........................................................... 3,053 3,253 Railroad rolling stock ............................................................... 2,093 1,811 Other ................................................................................ 3,177 2,769 -------- -------- 21,759 18,463 Accumulated amortization ............................................................... (5,625) (4,670) -------- -------- $ 16,134 $ 13,793 ======== ========
29 Amortization of equipment on operating leases was $1,848 million, $1,702 million and $1,435 million in 1996, 1995 and 1994, respectively. Noncancelable future rentals due from customers for equipment on operating leases at year-end 1996 totaled $9,093 million and are due as follows: $2,908 million in 1997; $1,923 million in 1998; $1,128 million in 1999; $686 million in 2000; $446 million in 2001 and $2,002 million thereafter. The Corporation acts as a lender and lessor to the commercial airline industry. At December 31, 1996 and 1995, the balance of such loans, leases and equipment leased to others was $8,240 million and $8,337 million, respectively. In addition, at December 31,1996, the Corporation had issued financial guarantees and funding commitments of $221 million ($409 million at year-end 1995) and had placed multiyear orders for various Boeing and Airbus aircraft with list prices of approximately $6.5 billion. Included in the Corporation's equipment leased to others at year-end 1996 was $190 million, net, of commercial aircraft off-lease ($101 million at the end of 1995). Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, specifies circumstances in which certain long-lived assets must be reviewed for impairment. 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. Adoption of this standard on January 1, 1996, did not have a material effect on the financial position or results of operations of the Corporation. NOTE 7. BUILDINGS AND EQUIPMENT Buildings and equipment include office buildings, satellite communications equipment, data processing equipment, vehicles, furniture and office equipment. Depreciation expense was $289 million in 1996, $299 million in 1995 and $222 million in 1994. NOTE 8. INTANGIBLE ASSETS Intangible assets at December 31, 1996 and 1995 are shown in the table below.
(In millions) 1996 1995 -------- -------- Goodwill ............................................................................... $ 5,031 $ 3,218 Present value of future profits (PVFP) ................................................. 2,271 452 Other intangibles ...................................................................... 292 326 -------- -------- $ 7,594 $ 3,996 ======== ========
The Corporation's intangible assets are shown net of accumulated amortization of $1,518 million at December 31, 1996 and $948 million at December 31, 1995. The year-end 1996 PVFP balance includes $1,880 million related to life insurance enterprises acquired during 1996. PVFP amortization, which is on an accelerated basis and net of interest, is projected to range from 11% to 9% of the year-end 1996 unamortized balance for each of the next five years. 30 NOTE 9. OTHER ASSETS Other assets at December 31, 1996 and 1995 are shown in the table below.
(In millions) 1996 1995 -------- -------- Investments Assets acquired for resale ........................................................... $ 2,993 $ 3,558 Investments in and advances to nonconsolidated affiliates ............................ 4,841 3,366 Real estate ventures ................................................................. 2,469 2,004 Other ................................................................................ 1,022 789 -------- -------- 11,325 9,717 Separate accounts ...................................................................... 3,447 -- Mortgage servicing rights .............................................................. 1,663 1,688 Deferred insurance acquisition costs ................................................... 940 595 Other .................................................................................. 2,482 1,571 -------- -------- $ 19,857 $ 13,571 ======== ========
Separate accounts represent investments controlled by policyholders and are associated with identical amounts reported as insurance liabilities in note 11. 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, is recognized as a charge to earnings. Adoption of this standard on January 1, 1996, did not have a material effect on the financial position or results of operations of the Corporation. NOTE 10. BORROWINGS Total short-term borrowings at December 31, 1996 and 1995 consisted of the following:
1996 1995 --------------------- -------------------- AVERAGE AVERAGE (Dollars in millions) AMOUNT RATE AMOUNT RATE -------- -------- -------- -------- Commercial paper - U.S. ........................................ $ 47,511 5.68% $ 34,513 5.83% Commercial paper - non-U.S ..................................... 3,737 4.30 3,796 6.33 Current portion of long-term debt .............................. 16,471 6.17 15,719 6.51 Other .......................................................... 7,252 5,236 -------- -------- $ 74,971 $ 59,264 ======== ======== Total long-term borrowings at December 31, 1996 and 1995 were as follows: 1996 AVERAGE RATE (Dollars in millions) MATURITIES 1996 1995 -------- -------- -------- -------- Senior notes ................................................... 6.16% 1998-2055 $ 46,124 $ 47,794 Subordinated notes ........................................ 8.04 2006-2012 697 697 -------- -------- $ 46,821 $ 48,491 ======== ======== Includes the effects of associated interest rate and currency swaps. Guaranteed by GE Company.
31 Borrowings of the Corporation are addressed below from two perspectives - liquidity and interest rate management. Additional information about borrowings and associated swaps can be found in note 21. LIQUIDITY requirements of the Corporation are principally met through credit markets. Maturities of long-term borrowings, including the current portion of long-term debt, at December 31, 1996 were $16,471 million in 1997; $14,414 million in 1998; $7,986 million in 1999; $5,433 million in 2000 and $3,773 million in 2001. At December 31, 1996, the Corporation had committed lines of credit aggregating $20.4 billion with 118 banks, including $11.2 billion of revolving credit agreements pursuant to which it has the right to borrow funds for periods exceeding one year. A total of $2.7 billion and $1.7 billion of these credit lines were also available for use by GE Capital Services and GE Company, respectively. In addition, at December 31, 1996, approximately $116 million of committed lines of credit were directly available to a non-U.S. affiliate of the Corporation. Also, at December 31, 1996, substantially all of the approximately $3.6 billion of GE Company's credit lines were available for use by the Corporation or GE Capital Services. During 1996, neither the Corporation, GE Capital Services nor GE Company borrowed under any of these credit lines. The Corporation compensates banks for credit facilities in the form of fees which were insignificant in each of the past three years. INTEREST RATES ARE MANAGED by the Corporation in light of the anticipated behavior, including prepayment behavior, of assets in which debt proceeds are invested. A variety of instruments, including interest rate and currency swaps, are employed to achieve management's interest rate objectives. Effective interest rates are lower under these "synthetic" positions than could have been achieved by issuing debt directly. The following table shows the Corporation's borrowing positions at December 31, 1996 and 1995, considering the effects of swaps.
(In millions) 1996 1995 -------- -------- EFFECTIVE BORROWINGS (INCLUDING SWAPS) Short-term ............................................................................. $ 45,076 $ 36,565 ======== ======== Long-term (including current portion) Fixed rate ...................................................................... $ 53,735 $ 47,682 Floating rate ........................................................................ 22,981 23,508 -------- -------- Total long-term ........................................................................ $ 76,716 $ 71,190 ======== ======== Includes the notional amount of long-term interest rate swaps that effectively convert the floating-rate nature of short-term borrowings to fixed rates of interest.
At December 31, 1996, interest rate swap maturities ranged from 1997 to 2029, and weighted average interest rates for "synthetic" fixed-rate borrowings were 6.43% (6.60% at year-end 1995). 32 NOTE 11. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS Insurance liabilities, reserves and annuity benefits at December 31, 1996 and 1995 are shown below.
(In millions) 1996 1995 -------- -------- Annuity and investment contract benefits ............................................... $ 18,499 $ 12,165 Life insurance benefits and other ................................................. 16,513 6,808 Unpaid claims and claims adjustment expenses ........................................... 1,907 1,432 Unearned premiums ...................................................................... 2,897 1,996 Separate accounts (see note 9) ......................................................... 3,447 -- -------- -------- $ 43,263 $ 22,401 ======== ======== Life insurance benefits are accounted for mainly by a net-level-premium method using estimated yields generally ranging from 5% to 9% in both 1996 and 1995.
The liability for unpaid claims and claims adjustment expenses, principally property and casualty reserves, consists of both case and incurred-but-not-reported reserves. Where experience is not sufficient to determine reserves, industry averages are used. Estimated amounts of salvage and subrogation recoverable on paid and unpaid losses are deducted from outstanding losses. Activity in the liability for unpaid claims and claims adjustment expenses is summarized below.
(In millions) 1996 1995 1994 -------- -------- -------- Balance at January 1 - gross ............................................... $ 1,432 $ 999 $ 1,047 Less reinsurance recoverables .............................................. (76) (138) (95) -------- -------- -------- Balance at January 1 - net ................................................. 1,356 861 952 Claims and expenses incurred Current year ............................................................. 1,230 838 600 Prior years .............................................................. 29 51 253 Claims and expenses paid Current year ............................................................. (541) (359) (189) Prior years .............................................................. (614) (394) (481) Reserves transferred to ERC ................................................ -- -- (291) Claim reserves related to acquired companies ............................... 309 364 4 Other ...................................................................... 21 (5) 13 -------- -------- -------- Balance at December 31 - net ............................................... 1,790 1,356 861 Add reinsurance recoverables ............................................... 117 76 138 -------- -------- -------- Balance at December 31 - gross ............................................. $ 1,907 $ 1,432 $ 999 ======== ======== ========
33 Prior-years claims and expenses incurred in the above table resulted principally from settling claims established in earlier accident years for amounts that differed from expectations. Financial guarantees and credit life risk of insurance affiliates at December 31, 1996 and 1995, are summarized below.
(In millions) 1996 1995 -------- -------- Guarantees, principally on municipal bonds and structured finance issues ............... $135,148 $119,406 Mortgage insurance risk in force ....................................................... 36,279 32,599 Credit life insurance risk in force .................................................... 19,468 10,260 Less reinsurance ....................................................................... (32,369) (21,694) -------- -------- $158,526 $140,571 ======== ========
The Corporation's insurance risk is ceded on both a pro rata and excess basis. When the Corporation cedes insurance to third parties, it is not relieved of its primary obligation to policyholders. Losses on ceded risks give rise to claims for recovery; allowances are established for such receivables from reinsurers. The effects of reinsurance on premiums written and premiums and commissions earned were as follows for the past three years.
PREMIUMS WRITTEN PREMIUMS AND COMMISSIONS EARNED -------------------------------- -------------------------------- (In millions) 1996 1995 1994 1996 1995 1994 -------- -------- -------- -------- -------- -------- Direct ................................. $ 3,175 $ 2,053 $ 1,422 $ 3,126 $ 1,839 $ 1,401 Assumed ................................ 534 154 108 380 124 106 Ceded .................................. (493) (270) (151) (370) (143) (133) -------- -------- -------- -------- -------- -------- Net premiums ........................... $ 3,216 $ 1,937 $ 1,379 $ 3,136 $ 1,820 $ 1,374 ======== ======== ======== ======== ======== ========
Reinsurance recoveries recognized as a reduction of insurance losses and policyholder and annuity benefits amounted to $286 million, $113 million and $40 million for the years ended December 31, 1996, 1995 and 1994, respectively. NOTE 12. MINORITY INTEREST Minority interest in equity of consolidated affiliates includes preferred stock issued by a subsidiary with a liquidation preference value of $485 million and $360 million as of December 31, 1996 and 1995, respectively. Dividend rates on the preferred stock ranged from 3.8% to 4.3% during 1996, from 4.2% to 4.6% during 1995, and from 2.8% to 4.7% during 1994. 34 NOTE 13. EQUITY Changes in equity for each of the years ended December 31, 1996, 1995 and 1994 were as follows:
UNREALIZED GAINS VARIABLE (LOSSES) FOREIGN CUMULATIVE ADDITIONAL ON CURRENCY PREFERRED COMMON PAID-IN RETAINED INVESTMENT TRANSLATION (In millions) STOCK STOCK CAPITAL EARNINGS SECURITIES ADJUSTMENTS TOTAL -------- -------- -------- -------- -------- -------- -------- Balance at January 1, 1994 . $ 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 Capital contributions ...... -- -- 2 -- -- -- 2 Net unrealized losses on investment securities ..... -- -- -- -- (394) -- (394) Currency translation adjustments ............... -- -- -- -- -- (25) (25) Net earnings ............... -- -- -- 2,632 -- -- 2,632 Dividends declared: Common stock .............. -- -- -- (815) -- -- (815) Preferred stock ........... -- -- -- (76) -- -- (76) -------- -------- -------- -------- -------- -------- -------- Balance at December 31, 1996 $ 2 $ 768 $ 4,024 $ 10,678 $ 149 $ (95) $ 15,526 ======== ======== ======== ======== ======== ======== ========
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. 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. During 1995, the Corporation issued 9,250 additional shares of its variable cumulative preferred stock. Dividend rates on the preferred stock ranged from 3.8% to 5.2% during 1996, from 4.2% to 5.2% during 1995 and from 2.3% to 4.9% during 1994. 35 At December 31, 1996 and 1995, the aggregate statutory capital and surplus of the insurance businesses totaled $5.8 billion and $4.1 billion, respectively. In preparing statutory statements, no significant permitted accounting practices were used that differ from prescribed accounting practices. NOTE 14. EARNED INCOME Time sales, loan and other income includes the Corporation's share of earnings from equity investees of approximately $85 million, $113 million and $169 million for 1996, 1995 and 1994, respectively. Included in earned income from financing leases for 1996, 1995 and 1994 were pretax gains on the sale of equipment at lease completion of $115 million, $191 million and $180 million, respectively. NOTE 15. OPERATING AND ADMINISTRATIVE EXPENSES Employees and retirees of the Corporation are covered under a number of pension, health and life insurance plans. The principal pension plan is the GE Company Pension Plan, a defined benefit plan, while employees of certain affiliates are covered under separate plans. The Corporation provides health and life insurance benefits to certain of its retired employees, principally through GE Company's benefit program. The annual cost to the Corporation of providing these benefits is not material. Rental expense relating to equipment the Corporation leases from others for the purposes of subleasing was $269 million in 1996, $273 million in 1995 and $262 million in 1994. Other rental expense was $263 million in 1996, $237 million in 1995 and $198 million in 1994, principally for the rental of office space and data processing equipment. Minimum future rental commitments under noncancelable leases at December 31, 1996 are $463 million in 1997; $408 million in 1998; $370 million in 1999; $323 million in 2000; $299 million in 2001 and $1,208 million thereafter. The Corporation, as a lessee, has no material lease agreements classified as capital leases. Amortization of deferred insurance acquisition costs charged to operations in 1996, 1995 and 1994 was $365 million, $252 million and $355 million, respectively. NOTE 16. INCOME TAXES The provision for income taxes is summarized in the following table.
(In millions) 1996 1995 1994 -------- -------- -------- Estimated amounts payable .................................................. $ 157 $ 425 $ 462 Deferred tax expense from temporary differences ............................ 1,015 646 434 -------- -------- -------- $ 1,172 $ 1,071 $ 896 ======== ======== ========
GE Company files a consolidated U.S. federal income tax return which includes the Corporation. The provision for estimated taxes payable includes the effect of the Corporation and its affiliates on the consolidated return. Estimated amounts payable includes amounts applicable to non-U.S. jurisdictions of $485 million, $158 million and $218 million in 1996, 1995 and 1994, 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. 36 Except for certain earnings that the Corporation intends to reinvest indefinitely, provision has been made for the estimated U.S. federal income tax liabilities applicable to undistributed earnings of affiliates and associated companies. Consolidated U.S. income before taxes was $2.7 billion in 1996 and 1995, and $2.3 billion in 1994. The corresponding amounts for non-U.S. based operations were $1.1 billion in 1996, $0.6 billion in 1995 and $0.5 billion in 1994. A reconciliation of the U.S. federal statutory rate to the actual income tax rate follows.
1996 1995 1994 -------- -------- -------- Statutory U.S. federal income tax rate ..................................... 35.0% 35.0% 35.0% Increase (reduction) in rate resulting from: Amortization of goodwill ................................................. 1.0 1.0 0.9 Tax-exempt income ........................................................ (3.0) (3.0) (4.4) Foreign Sales Corporation tax benefits ................................... (0.4) -- -- Dividends received, not fully taxable .................................... (1.7) (1.6) (0.6) Other - net .............................................................. (0.1) 0.8 0.9 -------- -------- -------- Actual income tax rate ..................................................... 30.8% 32.2% 31.8% ======== ======== ========
Principal components of the net deferred tax liability balances at December 31, 1996 and 1995 are as follows:
(In millions) 1996 1995 -------- -------- Assets Allowance for losses ................................................................. $ (1,173) $ (845) Insurance reserves ................................................................... (647) (128) AMT credit carryforwards ............................................................. (561) -- Other ................................................................................ (1,190) (1,005) -------- -------- Total deferred tax assets .............................................................. (3,571) (1,978) -------- -------- Liabilities Financing leases ..................................................................... 7,488 6,243 Operating leases ..................................................................... 1,833 1,485 Net unrealized gains on securities ................................................... 97 362 Other ................................................................................ 1,625 780 -------- -------- Total deferred tax liabilities ......................................................... 11,043 8,870 -------- -------- Net deferred tax liability ............................................................. $ 7,472 $ 6,892 ======== ========
37 NOTE 17. INDUSTRY SEGMENT DATA Industry segment operating data and identifiable assets are shown below.
(In millions) 1996 1995 1994 -------- -------- -------- Earned income Consumer Services ........................................................ $ 10,217 $ 7,586 $ 5,508 Equipment Management ..................................................... 7,968 6,144 5,186 Specialized Financing .................................................... 2,962 3,076 2,638 Mid-Market Financing ..................................................... 2,540 2,184 1,575 Specialty Insurance ...................................................... 2,895 2,174 1,976 -------- -------- -------- Total segment earned income ................................................ 26,582 21,164 16,883 Corporate ................................................................ (12) 15 40 -------- -------- -------- Total earned income ........................................................ $ 26,570 $ 21,179 $ 16,923 ======== ======== ======== Segment operating profit: Consumer Services ........................................................ $ 1,272 $ 1,030 $ 1,067 Equipment Management ..................................................... 929 897 624 Specialized Financing .................................................... 726 651 513 Mid-Market Financing ..................................................... 538 445 435 Specialty Insurance ...................................................... 344 341 188 -------- -------- -------- Total segment operating profit ............................................. 3,809 3,364 2,827 Corporate ................................................................ (5) (32) (13) -------- -------- -------- Earnings before income taxes ............................................... $ 3,804 $ 3,332 $ 2,814 ======== ======== ======== Identifiable assets at December 31: Consumer Services ........................................................ $101,110 $ 73,076 $ 54,171 Equipment Management ..................................................... 30,545 25,072 23,197 Specialized Financing .................................................... 27,741 30,285 28,149 Mid-Market Financing ..................................................... 25,167 21,565 16,367 Specialty Insurance ...................................................... 14,804 9,841 7,835 -------- -------- -------- Total segment identifiable assets .......................................... 199,367 159,839 129,719 Corporate ................................................................ 1,449 986 1,185 -------- -------- -------- Total assets ............................................................... $200,816 $160,825 $130,904 ======== ======== ========
38 NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data were as follows:
FIRST QUARTER SECOND QUARTER -------------------- -------------------- (In millions) 1996 1995 1996 1995 -------- -------- -------- -------- Earned income .......................... $ 5,620 $ 4,790 $ 6,068 $ 5,169 -------- -------- -------- -------- Expenses: Interest ............................. 1,668 1,502 1,722 1,629 Operating and administrative ......... 1,716 1,432 1,906 1,512 Insurance losses and policyholder and annuity benefits ............... 615 516 777 486 Provision for losses on financing receivables ........................ 213 79 228 279 Depreciation and amortization of buildings and equipment and equipment on operating leases ...... 489 450 524 489 Minority interest in net earnings of consolidated affiliates ......... 25 17 17 16 -------- -------- -------- -------- Earnings before income taxes ........... 894 794 894 758 Provision for income taxes ............. (289) (266) (267) (241) -------- -------- -------- -------- Net earnings ........................... $ 605 $ 528 $ 627 $ 517 ======== ======== ======== ======== THIRD QUARTER FOURTH QUARTER -------------------- -------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Earned income .......................... $ 7,008 $ 5,395 $ 7,874 $ 5,825 -------- -------- -------- -------- Expenses: Interest ............................. 1,685 1,662 1,967 1,662 Operating and administrative ......... 2,583 1,456 3,080 1,762 Insurance losses and policyholder and annuity benefits ............... 821 445 970 584 Provision for losses on financing receivables ........................ 254 352 338 407 Depreciation and amortization of buildings and equipment and equipment on operating leases ...... 556 487 568 575 Minority interest in net earnings of consolidated affiliates ......... 17 15 27 33 -------- -------- -------- -------- Earnings before income taxes ........... 1,092 978 924 802 Provision for income taxes ............. (344) (330) (272) (234) -------- -------- -------- -------- Net earnings ........................... $ 748 $ 648 $ 652 $ 568 ======== ======== ======== ========
NOTE 19. RESTRICTED NET ASSETS OF AFFILIATES Certain of the Corporation's consolidated affiliates are restricted from remitting funds to the Parent in the form of dividends or loans by a variety of regulations, the purpose of which is to protect affected insurance policyholders, depositors or investors. At year-end 1996, net assets of the Corporation's regulated affiliates amounted to $14.4 billion, of which $11.7 billion was restricted. NOTE 20. SUPPLEMENTAL CASH FLOWS INFORMATION "Other - net operating activities" in the Statement of Cash Flows consists principally of adjustments to other liabilities, current and noncurrent accruals 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. 39 Certain supplemental information related to the Corporation's cash flows were as follows for the past three years.
(In millions) 1996 1995 1994 -------- -------- -------- FINANCING RECEIVABLES Increase in loans to customers ............................................. $(49,890) $(46,154) $(37,059) Principal collections from customers ....................................... 49,923 44,840 31,264 Investment in equipment for financing leases ............................... (14,427) (17,182) (10,528) Principal collections on financing leases .................................. 11,158 8,821 8,461 Net change in credit card receivables ...................................... (3,068) (3,773) (2,902) Sales of financing receivables with recourse ............................... 4,026 2,139 1,239 -------- -------- -------- $ (2,278) $(11,309) $ (9,525) ======== ======== ======== ALL OTHER INVESTING ACTIVITIES Purchases of securities by insurance and annuity businesses ................ $ (8,244) $ (6,409) $ (5,484) Dispositions and maturities of securities by insurance and annuity businesses ....................................................... 6,736 5,866 4,417 Proceeds from principal business dispositions .............................. -- 575 -- Other ...................................................................... (3,897) (2,649) 2,611 -------- -------- -------- $ (5,405) $ (2,617) $ 1,544 ======== ======== ======== NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) ................................................ $ 5,061 $ 2,545 $ 3,214 Long-term (longer than one year) ........................................... 16,689 32,507 19,228 Proceeds - nonrecourse, leveraged lease debt ............................... 595 1,428 31 -------- -------- -------- $ 22,345 $ 36,480 $ 22,473 ======== ======== ======== REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) ................................................ $(22,755) $(16,075) $(10,460) Long-term (longer than one year) ........................................... (1,025) (678) (930) Principal payments - nonrecourse, leveraged lease debt ..................... (276) (292) (309) -------- -------- -------- $(24,056) $(17,045) $(11,699) ======== ======== ======== ALL OTHER FINANCING ACTIVITIES Proceeds from sales of investment and annuity contracts .................... $ 2,341 $ 1,554 $ 886 Redemption of investment and annuity contracts ............................. (2,429) (2,061) (961) Capital contributions from parent company .................................. -- 684 -- -------- -------- -------- $ (88) $ 177 $ (75) ======== ======== ======== CASH RECOVERED (PAID) DURING THE YEAR FOR Interest ................................................................... $ (7,166) $ (5,970) $ (4,005) Income taxes ............................................................... (87) 217 (340)
Changes in operating assets and liabilities are net of acquisitions and dispositions of businesses. 40 "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:
(In millions) 1996 1995 1994 -------- -------- -------- Fair value of assets acquired .............................................. $ 27,341 $ 15,496 $ 7,992 Cash paid .................................................................. (4,839) (4,749) (2,220) -------- -------- -------- Liabilities assumed ........................................................ $ 22,502 $ 10,747 $ 5,772 ======== ======== ========
NOTE 21. ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS This note contains estimated fair values of certain financial instruments to which the Corporation is a party. Apart from the Corporation's own borrowings and certain marketable securities, relatively few of these instruments are actively traded. Thus, fair values must often be determined by using one or more models that indicate value based on estimates of quantifiable characteristics as of a particular date. Because this undertaking is, by its nature, difficult and highly judgmental, for a limited number of instruments, alternative valuation techniques may have produced disclosed values different from those that could have been realized at December 31, 1996 or 1995. 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. 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. 41 Information about financial instruments that were not carried at fair value at December 31, 1996 and 1995, is shown below.
1996 ------------------------------------------- ASSETS (LIABILITIES) -------------------------------- ESTIMATED FAIR VALUE --------------------- CARRYING NOTIONAL AMOUNT (In millions) AMOUNT (NET) HIGH LOW -------- -------- -------- -------- Assets Time sales and loans .................. $ $ 60,859 $ 61,632 $ 60,544 Integrated interest rate swaps ........ 3,604 -- 82 82 Purchased options ..................... 1,938 11 12 12 Mortgage-related positions Mortgage purchase commitments ........ 1,193 -- 2 2 Mortgage sale commitments ............ 1,417 -- 3 3 Memo: mortgages held for sale .. 1,112 1,165 1,165 Options, including "floors" .......... 27,422 78 81 81 Interest rate swaps and futures ...... 1,731 -- (29) (29) Other cash financial instruments ...... 2,459 2,795 2,547 Liabilities Borrowings and related instruments Borrowings ................. (106,836) (106,849) (106,849) Interest rate swaps .................. 32,891 -- (551) (551) Currency swaps ....................... 24,588 -- 368 368 Purchased options .................... 1,882 10 1 1 Annuity and investment contract benefits ............................. (18,499) (18,227) (18,227) Separate accounts ..................... (3,447) (3,447) (3,447) Insurance - financial guarantees and credit life ...................... 158,526 (3,089) (2,907) (3,297) Credit and liquidity support -securitizations ..................... 4,684 (73) (72) (72) Performance guarantees -principally letters of credit ....... 3,142 (55) (134) (134) Other ................................. 3,060 (1,434) (1,049) (1,050) Other firm commitments Currency forwards ..................... 7,389 -- 69 68 Currency swaps ........................ 99 -- (7) (7) Ordinary course of business lending commitments .................. 4,950 -- (27) (27) Unused revolving credit lines Commercial ........................... 3,375 -- -- -- Consumer - principally credit cards .. 116,878 -- -- -- 1995 ------------------------------------------- ASSETS (LIABILITIES) -------------------------------- ESTIMATED FAIR VALUE --------------------- CARRYING NOTIONAL AMOUNT (In millions) AMOUNT (NET) HIGH LOW -------- -------- -------- -------- Assets Time sales and loans .................. $ $ 57,817 $ 59,188 $ 58,299 Integrated interest rate swaps ........ 1,703 -- (93) (93) Purchased options ..................... 1,213 24 11 11 Mortgage-related positions Mortgage purchase commitments ........ 1,360 -- 17 17 Mortgage sale commitments ............ 1,334 -- (11) (11) Memo: mortgages held for sale .. 1,663 1,663 1,663 Options, including "floors" .......... 18,522 67 144 144 Interest rate swaps and futures ...... 1,990 -- 31 31 Other cash financial instruments ...... 2,445 2,848 2,586 Liabilities Borrowings and related instruments Borrowings ................ (107,755) (108,566) (108,566) Interest rate swaps .................. 28,281 -- (496) (496) Currency swaps ....................... 22,342 -- 937 937 Purchased options .................... 2,736 16 (2) (2) Annuity and investment contract benefits ............................ (12,165) (11,918) (11,918) Separate accounts ..................... -- -- -- Insurance - financial guarantees and credit life ...................... 140,571 (1,505) (770) (864) Credit and liquidity support -securitizations ..................... 6,060 (41) (48) (48) Performance guarantees -principally letters of credit ....... 2,622 (48) (79) (79) Other ................................. 3,556 (302) (36) (45) Other firm commitments Currency forwards ..................... 6,189 -- 55 55 Currency swaps ........................ 280 -- (22) (22) Ordinary course of business lending commitments .................. 6,929 -- (60) (60) Unused revolving credit lines Commercial ........................... 3,223 -- -- -- Consumer - principally credit cards .. 118,710 -- -- -- Not applicable. Included in other cash financial instruments. Includes interest rate and currency swaps. See note 10.
Additional information about certain financial instruments in the above table follows. 42 CURRENCY FORWARDS AND OPTIONS are employed by the Corporation to manage exposures to changes in currency exchange rates associated with commercial purchase and sales 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 AND INSTRUMENTS CONTAINING OPTION FEATURES that behave based on limits ("caps", "floors" or "collars") on interest rate movement are used to hedge prepayment risk in certain of the Corporation's business activities, such as the mortgage servicing and annuities businesses. SWAPS OF INTEREST RATES AND CURRENCIES are used by the Corporation to optimize borrowing costs for a particular funding strategy (see note 10). In addition, swaps, along with purchased options and futures, are used by the Corporation to establish specific hedges of mortgage-related assets and to manage net investment exposures. Credit risk of these positions is evaluated by management under the credit criteria discussed below. As part of its ongoing customer activities, the Corporation also enters into swaps that are integrated into investments in or loans to particular customers and do not involve assumption of third-party credit risk. Such integrated swaps are evaluated and monitored like their associated investments or loans, and are not therefore subject to the same credit criteria that would apply to a stand-alone position. COUNTERPARTY CREDIT RISK - risk that counterparties will be financially unable to make payments according to the terms of the agreements - is the principal risk associated with swaps, purchased options and forwards. Gross market value of probable future receipts is one way to measure this risk, but is meaningful only in the context of net credit exposure to individual counterparties. At December 31, 1996 and 1995, this gross market risk amounted to $0.6 billion and $1.1 billion, respectively. Aggregate fair values that represent associated probable future obligations, normally associated with a right of offset against probable future receipts, amounted to $0.6 billion at year-end 1996 and 1995. Except as noted above for positions that are integrated into financings, all swaps, purchased options and forwards are carried out within the following credit policy constraints. o Once a counterparty exceeds a credit exposure limit (see table below), no additional transactions are permitted until the exposure with that counterparty is reduced to an amount that is within the established limit. Open contracts remain in force.
COUNTERPARTY CREDIT CRITERIA CREDIT RATING ---------------------- STANDARD & MOODY'S 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
o All swaps are executed under master swap agreements containing mutual credit downgrade provisions that provide the ability to require assignment or termination in the event either party is downgraded below A3 or A-. More credit latitude is permitted for transactions having original maturities shorter than one year because of their lower risk. 43 NOTE 22. GEOGRAPHIC SEGMENT INFORMATION Geographic segment operating data and total assets were as follows:
EARNED INCOME OPERATING PROFIT -------------------------------- -------------------------------- For the years ended December 31 1996 1995 1994 1996 1995 1994 (In millions) -------- -------- -------- -------- -------- -------- United States .......................... $ 18,424 $ 15,306 12,832 $ 2,889 $ 2,740 $ 2,327 Europe ................................. 4,429 2,729 1,886 507 293 203 Pacific Basin .......................... 693 403 42 57 33 10 Other ............................. 3,024 2,741 2,163 351 266 274 -------- -------- -------- -------- -------- -------- Total .................................. $ 26,570 $ 21,179 $ 16,923 $ 3,804 $ 3,332 $ 2,814 ======== ======== ======== ======== ======== ======== Principally the Americas other than the United States, but also includes operations that cannot meaningfully be associated with specific geographic areas (for example, shipping containers used on ocean-going vessels).
TOTAL ASSETS -------------------------------- December 31 1996 1995 1994 (In millions) -------- -------- -------- United States .............................................................. $149,901 $121,078 $104,610 Europe ..................................................................... 28,710 19,895 9,774 Pacific Basin .............................................................. 5,060 3,567 1,714 Other ................................................................. 17,145 16,285 14,806 -------- -------- -------- Total ...................................................................... $200,816 $160,825 $130,904 ======== ======== ======== Principally the Americas other than the United States, but also includes operations that cannot meaningfully be associated with specific geographic areas (for example, shipping containers used on ocean-going vessels).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable 44 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, 1996 Statement of Financial Position at December 31, 1996 and 1995 Statement of Cash Flows for each of the years in the three-year period ended December 31, 1996 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, 1996 (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. (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. 45 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3 (i) A complete copy of the Organization Certificate of the Corporation as last amended as of September 27, 1996 and currently in effect, consisting of the following: (a) the Organization Certificate of the Corporation as in effect immediately prior to the filing of the Certificate of Amendment as of April 21, 1995 (Incorporated by reference to Exhibit 3(i) to the Corporation's Form 10-K Report for the year ended December 31, 1993); (b) a Certificate of Amendment filed in the Office of the Superintendent of Banks of the State of New York (the "Office of the Superintendent") as of April 21, 1995 (Incorporated by reference to Exhibit 4(b) to the Corporation's Registration Statement on Form S-3, File No. 33-58771; (c) a Certificate of Amendment filed in the Office of the Superintendent as of May 11, 1995 (Incorporated by reference to Exhibit 4(c) to the Corporation's Registration Statement on form S-3, File No. 33-61257); (d) a Certificate of Amendment filed in the Office of the Superintendent as of June 28, 1995 (Incorporated by reference to Exhibit 4(d) to the Corporation's Registration Statement on Form S-3, File No. 33-61257); (e) a Certificate of Amendment filed in the Office of the Superintendent as of July 17, 1995 (Incorporated by reference to Exhibit 4(e) to the Corporation's Registration Statement on Form S-3, File No. 33-61257); (f) a Certificate of Amendment filed in the Office of the Superintendent as of November 1, 1995 (Incorporated by reference to Exhibit 3(i) to the Corporation's Form 10-K Report for the year ended December 31, 1995); and (g) a Certificate of Amendment filed in the Office of the Superintendent as of September 27, 1996 (Incorporated by reference to Exhibit 4(g) to the Corporation's Registration Statement on Form S-3, File No. 333-13195). 3 (ii) A complete copy of the By-Laws of the Corporation as last amended on June 30, 1994, and currently in effect. (Incorporated by reference to Exhibit 3(ii) of the Corporation's Form 10-K Report for the year ended December 31, 1994). 4 (iii) Agreement to furnish to the Securities and Exchange Commission upon request a copy of instruments defining the rights of holders of certain long-term debt of the registrant and all subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. 12 (a) Computation of ratio of earnings to fixed charges. 12 (b) Computation of ratio of earnings to combined fixed charges and preferred stock dividends. 23 (ii) Consent of KPMG Peat Marwick LLP. 24 Power of Attorney. 27 Financial Data Schedule (filed electronically herewith). 99 (a) Income Maintenance Agreement dated March 28, 1991, between General Electric Company and the Corporation. (Incorporated by reference to Exhibit 28(a) of the Corporation's Form 10-K Report for the year ended December 31, 1992). 99 (b) The consolidated financial statements of General Electric Company, set forth in the Annual Report on Form 10-K of General Electric Company (S.E.C. File No. 001-00035) for the year ended December 31, 1996, (pages F-1 through F-40) and Exhibit 12 (Ratio of Earnings to Fixed Charges) of General Electric Company. 99 (c) Letter, dated September 26, 1996 from Dennis D. Dammerman of General Electric Company to Gary C. Wendt of General Electric Capital Corporation pursuant to which General Electric Company agrees to provide additional equity to General Electric Capital Corporation in conjunction with certain redemptions by General Electric Capital Corporation of shares of its Variable Cumulative Preferred Stock. (Incorporated by reference to Exhibit 99(g) to the Corporation's Registration Statement on Form S-3, File No.333-13195). 46 (b) REPORTS ON FORM 8-K None. 47
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 (In millions) 1996 1995 1994 -------- -------- -------- EARNED INCOME .............................................................. $ 6,631 $ 5,721 $ 3,980 -------- -------- -------- EXPENSES: Interest, net of allocations ............................................. 3,871 3,094 2,635 Operating and administrative ............................................. 1,573 1,217 1,113 Provision for losses on financing receivables ............................ 65 206 397 Depreciation and amortization ............................................ 255 209 157 -------- -------- -------- 5,764 4,726 4,302 -------- -------- -------- Earnings (loss) before income taxes and equity in earnings of affiliates ... 867 995 (322) Income tax (provision) benefit ............................................. (218) (291) 54 Equity in earnings of affiliates ........................................... 1,983 1,557 2,186 -------- -------- -------- NET EARNINGS ............................................................... 2,632 2,261 1,918 Dividends paid ............................................................. (891) (1,645) (605) Retained earnings at January 1 ............................................. 8,937 8,321 7,008 -------- -------- -------- RETAINED EARNINGS AT DECEMBER 31 ........................................... $ 10,678 $ 8,937 $ 8,321 ======== ======== ========
See Notes to Condensed Financial Statements. 48
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 (In millions) 1996 1995 -------- -------- ASSETS Cash and equivalents ................................................................... $ 203 $ 12 Investment securities .................................................................. 3,641 3,449 Financing receivables: Time sales and loans ................................................................. 21,622 25,746 Investment in financing leases ....................................................... 10,851 10,786 -------- -------- 32,473 36,532 Allowance for losses on financing receivables .......................................... (875) (899) -------- -------- Financing receivables - net ........................................................ 31,598 35,633 Investments in and advances to affiliates .............................................. 82,676 69,739 Equipment on operating leases (at cost), less accumulated amortization of $583 and $477 ............................................................................. 3,000 2,378 Other assets ........................................................................... 5,629 3,898 -------- -------- TOTAL ASSETS ......................................................................... $126,747 $115,109 ======== ======== LIABILITIES AND EQUITY Short-term borrowings (including notes payable to affiliates of $553 in 1995) .......... $ 66,435 $ 52,700 Long-term borrowings ................................................................... 38,373 42,169 Other liabilities ...................................................................... 3,684 3,394 Deferred income taxes .................................................................. 2,729 2,644 -------- -------- Total liabilities .................................................................... 111,221 100,907 -------- -------- Capital stock .......................................................................... 770 770 Additional paid-in capital ............................................................. 4,024 4,022 Retained earnings ...................................................................... 10,678 8,937 Unrealized gains on investment securities .............................................. 149 543 Foreign currency translation adjustments ............................................... (95) (70) -------- -------- Total equity ......................................................................... 15,526 14,202 -------- -------- TOTAL LIABILITIES AND EQUITY ......................................................... $126,747 $115,109 ======== ========
See Notes to Condensed Financial Statements. 49
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 (In millions) 1996 1995 1994 -------- -------- -------- CASH FROM OPERATING ACTIVITIES ............................................. $ 1,243 $ 1,489 $ 1,150 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Increase in loans to customers ............................................. (40,381) (41,650) (30,198) Principal collections from customers ....................................... 44,447 39,664 27,155 Investment in assets on financing leases ................................... (2,206) (2,976) (1,937) Principal collections on financing leases .................................. 2,127 1,587 1,701 Net change in credit card receivables ...................................... (269) 1,566 (620) Buildings, equipment and equipment on operating leases - additions .............................................................. (1,111) (810) (809) - dispositions ........................................................... 335 78 76 Payments for principal businesses purchased, net of cash acquired .......... (4,839) (3,866) (817) Proceeds from principal business dispositions .............................. -- 575 -- Change in investment in and advances to affiliates ........................ (6,436) (11,377) (859) Other - net ................................................................ (1,863) 1,984 (1,236) -------- -------- -------- Cash used for investing activities ....................................... (10,196) (15,225) (7,544) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (less than 90-day maturities) ..................... 13,249 (3,544) (2,970) Newly issued debt short-term (91-365 days) ................................................. 5,061 2,545 3,214 long-term senior ......................................................... 11,065 25,654 16,641 Proceeds - non-recourse, leveraged lease debt .............................. 219 783 31 Repayments and other reductions short-term ............................................................... (18,846) (11,710) (8,823) long-term senior ......................................................... (583) (638) (912) Principal payments - non-recourse, leveraged lease debt .................... (130) (134) (132) Dividends paid ............................................................. (891) (961) (595) Contributions to additional paid-in capital ................................ -- 684 -- Issuance of preferred stock in excess of par ............................... -- 924 -- -------- -------- -------- Cash from financing activities ........................................... 9,144 13,603 6,454 -------- -------- -------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR 191 (133) 60 CASH AND EQUIVALENTS AT BEGINNING OF YEAR .................................. 12 145 85 -------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR ........................................ $ 203 $ 12 $ 145 ======== ======== ========
See Notes to Condensed Financial Statements. 50 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 1996 presentation. BORROWINGS Total long-term borrowings at December 31, 1996 and 1995 are shown below.
1996 AVERAGE (Dollars in millions) RATE MATURITIES 1996 1995 -------- --------- -------- -------- Senior notes ................................................... 6.20% 1998-2055 $ 37,676 $ 41,472 Subordinated notes ........................................ 8.04 2006-2012 697 697 -------- -------- $ 38,373 $ 42,169 ======== ======== Includes the effects of associated interest rate and currency swaps. Guaranteed by General Electric Company.
At December 31, 1996, long-term borrowing maturities during the next five years, including the current portion of long-term notes payable, are $14,455 million in 1997, $11,970 million in 1998, $6,385 million in 1999, $4,543 million in 2000, and $2,934 million in 2001. INTEREST RATES ARE MANAGED by General Electric Capital Corporation ("GE Capital") in light of the anticipated behavior, including prepayment behavior, of assets in which debt proceeds are invested. A variety of instruments, including interest rate and currency swaps, are employed to achieve management's interest rate objectives. Effective interest rates are lower under these "synthetic" positions than could have been achieved by issuing debt directly. At December 31, 1996 and 1995, interest rate swap maturities ranged from 1997 to 2029, and weighted average interest rates of "synthetic" fixed-rate borrowings were 6.37% and 6.56%, respectively. Interest expense on the Condensed Statement of Current and Retained Earnings is net of interest income on loans and advances to majority owned affiliates of $2,332 million, $2,310 million and $1,322 million for 1996, 1995 and 1994, respectively. INCOME TAXES General Electric Company files a consolidated U.S. federal income tax return which includes GE Capital. Income tax (provision) benefit includes the effect of GE Capital on the consolidated return. 51 EXHIBIT 4(iii) March 25, 1997 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, 1996 - File No. 1-6461 Dear Sirs: Neither General Electric Capital Corporation (the "Corporation") nor any of its subsidiaries has outstanding any instrument with respect to its long-term debt that is not registered with the Commission and under which the total amount of securities authorized exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. In accordance with paragraph (b) (4) (iii) of Item 601 of Regulation S-K (17 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 52 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) 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Net earnings ....................................... $ 2,632 $ 2,261 $ 1,918 $ 1,478 $ 1,251 Provision for income taxes ......................... 1,172 1,071 896 664 415 Minority interest .................................. 86 81 109 114 14 -------- -------- -------- -------- -------- Earnings before income taxes and minority interest ......................................... 3,890 3,413 2,923 2,256 1,680 -------- -------- -------- -------- -------- Fixed charges: Interest ........................................... 7,114 6,520 4,464 3,503 3,713 One-third of rentals ............................... 177 170 153 138 90 -------- -------- -------- -------- -------- Total fixed charges ................................ 7,291 6,690 4,617 3,641 3,803 -------- -------- -------- -------- -------- Less interest capitalized, net of amortization ..... 41 21 9 4 6 -------- -------- -------- -------- -------- Earnings before income taxes and minority interest plus fixed charges ...................... $ 11,140 $ 10,082 $ 7,531 $ 5,893 $ 5,477 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges ................. 1.53 1.51 1.63 1.62 1.44 ======== ======== ======== ======== ========
53
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) 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Net earnings ....................................... $ 2,632 $ 2,261 $ 1,918 $ 1,478 $ 1,251 Provision for income taxes ......................... 1,172 1,071 896 664 415 Minority interest .................................. 86 81 109 114 14 -------- -------- -------- -------- -------- Earnings before income taxes and minority interest . 3,890 3,413 2,923 2,256 1,680 -------- -------- -------- -------- -------- Fixed charges: Interest ........................................... 7,114 6,520 4,464 3,503 3,713 One-third of rentals ............................... 177 170 153 138 90 -------- -------- -------- -------- -------- Total fixed charges ................................ 7,291 6,690 4,617 3,641 3,803 -------- -------- -------- -------- -------- Less interest capitalized, net of amortization ..... 41 21 9 4 6 -------- -------- -------- -------- -------- Earnings before income taxes and minority interest plus fixed charges ...................... $ 11,140 $ 10,082 $ 7,531 $ 5,893 $ 5,477 ======== ======== ======== ======== ======== Preferred stock dividend requirements .............. $ 76 $ 57 $ 30 $ 22 $ 26 Ratio of earnings before provision for income taxes to net earnings ............................ 1.45 1.47 1.47 1.45 1.34 -------- -------- -------- -------- -------- Preferred stock dividend factor on pre-tax basis ... 110 84 44 32 35 Fixed charges ...................................... 7,291 6,690 4,617 3,641 3,803 -------- -------- -------- -------- -------- Total fixed charges and preferred stock dividend requirements ..................................... $ 7,401 $ 6,774 $ 4,661 $ 3,673 $ 3,838 ======== ======== ======== ======== ======== Ratio of earnings to combined fixed charges and preferred stock dividends ....................... 1.51 1.49 1.62 1.60 1.43 ======== ======== ======== ======== ========
54 EXHIBIT 23 (ii) To the Board of Directors General Electric Capital Corporation We consent to incorporation by reference in the Registration Statements (Nos. 33-43420, 33-51793, 33-60723, 333-07469, 333-13195 and 333-22265) on Form S-3 of General Electric Capital Corporation, and in the Registration Statement (No. 33-39596) on Form S-3 jointly filed by General Electric Capital Corporation and General Electric Company, of our report dated February 7, 1997, relating to the statement of financial position of General Electric Capital Corporation and consolidated affiliates as of December 31, 1996 and 1995 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, 1996, and the related schedule which report appears in the December 31, 1996 annual report on Form 10-K of General Electric Capital Corporation. /s/ KPMG Peat Marwick LLP Stamford, Connecticut March 25, 1997 55 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, 1996, on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as such attorney-in-fact may deem necessary or desirable, any amendments thereto, and all additional amendments thereto in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done to the end that such Annual Report or Annual Reports shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations of the Securities and Exchange Commission adopted or issued pursuant thereto, as fully and to all intents and purposes as he might or could in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or resubstitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this 25th day of March, 1997. /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) 56 /s/ Nigel D. T. Andrews /s/ Robert L. Nardelli - --------------------------- --------------------------- Nigel D.T. Andrews, Robert L. Nardelli, Director Director /s/ Nancy E. Barton /s/ Denis J. Nayden - --------------------------- --------------------------- Nancy E. Barton, Denis J. Nayden, Director Director /s/ James R. Bunt /s/ Michael A. Neal - --------------------------- --------------------------- James R. Bunt, Michael A. Neal, Director Director /s/ Dennis D. Dammerman - --------------------------- --------------------------- Dennis D. Dammerman, John M. Samuels, Director Director /s/ Edward D. Stewart - --------------------------- --------------------------- Paolo Fresco, Edward D. Stewart, Director Director /s/ John F. Welch, Jr. - --------------------------- --------------------------- Benjamin W. Heineman, Jr., John F. Welch, Jr., Director Director /s/ John H. Myers - --------------------------- John H. Myers, Director A MAJORITY OF THE BOARD OF DIRECTORS (Page 2 of 2) 57 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GENERAL ELECTRIC CAPITAL CORPORATION March 25, 1997 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 25, 1997 - ------------------ Chief Executive Officer (Gary C. Wendt) (Principal Executive Officer) /s/ James A. Parke Director and March 25, 1997 - ------------------ Senior Vice President, Finance (James A. Parke) (Principal Financial Officer) /s/ Joan C. Amble Vice President and Controller March 25, 1997 - ------------------ (Principal Accounting Officer) (Joan C. Amble) NIGEL D.T. ANDREWS* Director NANCY E. BARTON* Director JAMES R. BUNT* Director DENNIS D. DAMMERMAN* Director JOHN H. MYERS* Director ROBERT L. NARDELLI* 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 25, 1997 ----------------- (Joan C. Amble) Attorney-in-fact 58 EX-4.III 2 AGREEMENT TO FURNISH COPIES OF INSTRUMENTS TO SEC EXHIBIT 4(iii) March 25, 1997 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, 1996 - File No. 1-6461 Dear Sirs: Neither General Electric Capital Corporation (the "Corporation") nor any of its subsidiaries has outstanding any instrument with respect to its long-term debt that is not registered with the Commission and under which the total amount of securities authorized exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. In accordance with paragraph (b) (4) (iii) of Item 601 of Regulation S-K (17 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 3 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) 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Net earnings ....................................... $ 2,632 $ 2,261 $ 1,918 $ 1,478 $ 1,251 Provision for income taxes ......................... 1,172 1,071 896 664 415 Minority interest .................................. 86 81 109 114 14 -------- -------- -------- -------- -------- Earnings before income taxes and minority interest ......................................... 3,890 3,413 2,923 2,256 1,680 -------- -------- -------- -------- -------- Fixed charges: Interest ........................................... 7,114 6,520 4,464 3,503 3,713 One-third of rentals ............................... 177 170 153 138 90 -------- -------- -------- -------- -------- Total fixed charges ................................ 7,291 6,690 4,617 3,641 3,803 -------- -------- -------- -------- -------- Less interest capitalized, net of amortization ..... 41 21 9 4 6 -------- -------- -------- -------- -------- Earnings before income taxes and minority interest plus fixed charges ...................... $ 11,140 $ 10,082 $ 7,531 $ 5,893 $ 5,477 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges ................. 1.53 1.51 1.63 1.62 1.44 ======== ======== ======== ======== ========
EX-12.B 4 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) 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Net earnings ....................................... $ 2,632 $ 2,261 $ 1,918 $ 1,478 $ 1,251 Provision for income taxes ......................... 1,172 1,071 896 664 415 Minority interest .................................. 86 81 109 114 14 -------- -------- -------- -------- -------- Earnings before income taxes and minority interest . 3,890 3,413 2,923 2,256 1,680 -------- -------- -------- -------- -------- Fixed charges: Interest ........................................... 7,114 6,520 4,464 3,503 3,713 One-third of rentals ............................... 177 170 153 138 90 -------- -------- -------- -------- -------- Total fixed charges ................................ 7,291 6,690 4,617 3,641 3,803 -------- -------- -------- -------- -------- Less interest capitalized, net of amortization ..... 41 21 9 4 6 -------- -------- -------- -------- -------- Earnings before income taxes and minority interest plus fixed charges ...................... $ 11,140 $ 10,082 $ 7,531 $ 5,893 $ 5,477 ======== ======== ======== ======== ======== Preferred stock dividend requirements .............. $ 76 $ 57 $ 30 $ 22 $ 26 Ratio of earnings before provision for income taxes to net earnings ............................ 1.45 1.47 1.47 1.45 1.34 -------- -------- -------- -------- -------- Preferred stock dividend factor on pre-tax basis ... 110 84 44 32 35 Fixed charges ...................................... 7,291 6,690 4,617 3,641 3,803 -------- -------- -------- -------- -------- Total fixed charges and preferred stock dividend requirements ..................................... $ 7,401 $ 6,774 $ 4,661 $ 3,673 $ 3,838 ======== ======== ======== ======== ======== Ratio of earnings to combined fixed charges and preferred stock dividends ....................... 1.51 1.49 1.62 1.60 1.43 ======== ======== ======== ======== ========
EX-23.II 5 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. 33-43420, 33-51793, 33-60723, 333-07469, 333-13195 and 333-22265) on Form S-3 of General Electric Capital Corporation, and in the Registration Statement (No. 33-39596) on Form S-3 jointly filed by General Electric Capital Corporation and General Electric Company, of our report dated February 7, 1997, relating to the statement of financial position of General Electric Capital Corporation and consolidated affiliates as of December 31, 1996 and 1995 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, 1996, and the related schedule which report appears in the December 31, 1996 annual report on Form 10-K of General Electric Capital Corporation. /s/ KPMG Peat Marwick LLP Stamford, Connecticut March 25, 1997 EX-24 6 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, 1996, on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as such attorney-in-fact may deem necessary or desirable, any amendments thereto, and all additional amendments thereto in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done to the end that such Annual Report or Annual Reports shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations of the Securities and Exchange Commission adopted or issued pursuant thereto, as fully and to all intents and purposes as he might or could in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or resubstitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this 25th day of March, 1997. /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 /s/ Robert L. Nardelli - --------------------------- --------------------------- Nigel D.T. Andrews, Robert L. Nardelli, Director Director /s/ Nancy E. Barton /s/ Denis J. Nayden - --------------------------- --------------------------- Nancy E. Barton, Denis J. Nayden, Director Director /s/ James R. Bunt /s/ Michael A. Neal - --------------------------- --------------------------- James R. Bunt, Michael A. Neal, Director Director /s/ Dennis D. Dammerman - --------------------------- --------------------------- Dennis D. Dammerman, John M. Samuels, Director Director /s/ Edward D. Stewart - --------------------------- --------------------------- Paolo Fresco, Edward D. Stewart, Director Director /s/ John F. Welch, Jr. - --------------------------- --------------------------- Benjamin W. Heineman, Jr., John F. Welch, Jr., Director Director /s/ John H. Myers - --------------------------- John H. Myers, Director A MAJORITY OF THE BOARD OF DIRECTORS (Page 2 of 2) EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000040554 GENERAL ELECTRIC CAPITAL CORPORATION 1,000,000 YEAR DEC-31-1996 DEC-31-1996 3,074 44,340 102,407 2,693 0 0 24,594 6,813 200,816 0 46,821 0 2 768 14,756 200,816 0 26,570 0 0 9,285 1,033 7,042 3,804 1,172 2,632 0 0 0 2,632 0.00 0.00
EX-99.B 8 FINANCIAL STATEMENTS OF GENERAL ELECTRIC COMPANY F-1 (ANNUAL REPORT PAGES) ANNUAL REPORT PAGE 27 ================================================================================ FINANCIAL SECTION CONTENTS 46 INDEPENDENT AUDITORS' REPORT AUDITED FINANCIAL STATEMENTS 28 Earnings 30 Financial Position 32 Cash Flows 47 Notes to Consolidated Financial Statements MANAGEMENT'S DISCUSSION 34 Operations 34 Consolidated Operations 34 GE Operations 35 Industry Segments 38 GECS Continuing Operations 40 International Operations 41 Financial Resources and Liquidity 44 Selected Financial Data 46 Financial Responsibility [CHART HERE] CONSOLIDATED REVENUES - ----------------------------------------------------------------------------- (In billions) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- $53.051 $55.701 $60.109 $70.028 $79.179 - ----------------------------------------------------------------------------- [CHART HERE] EARNINGS PER SHARE FROM CONTINUING OPERATIONS BEFORE ACCOUNTING CHANGE - ----------------------------------------------------------------------------- (In dollars) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- $2.41 $2.45 $3.46 $3.90 $4.40 - ----------------------------------------------------------------------------- [CHART HERE] DIVIDENDS PER SHARE - ----------------------------------------------------------------------------- (In dollars) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- $1.16 $1.305 $1.49 $1.69 $1.90 - ----------------------------------------------------------------------------- F-2 ANNUAL REPORT PAGE 28 ================================================================================ STATEMENT OF EARNINGS
General Electric Company and consolidated affiliates -------------------------------- For the years ended December 31 (In millions) 1996 1995 1994 - ----------------------------------------------------------------- --------------------------------- REVENUES Sales of goods $ 34,180 $ 33,157 $ 30,740 Sales of services 11,791 9,733 8,803 Other income (note 3) 638 752 793 Earnings of GECS from continuing operations -- -- -- GECS revenues from operations (note 4) 32,570 26,386 19,773 -------- -------- ------- Total revenues 79,179 70,028 60,109 -------- -------- ------- COSTS AND EXPENSES (note 5) Cost of goods sold 24,578 24,288 22,748 Cost of services sold 8,293 6,682 6,214 Interest and other financial charges 7,904 7,286 4,949 Insurance losses and policyholder and annuity benefits 6,678 5,285 3,507 Provision for losses on financing receivables (note 8) 1,033 1,117 873 Other costs and expenses 19,618 15,429 12,987 Minority interest in net earnings of consolidated affiliates 269 204 170 -------- -------- ------- Total costs and expenses 68,373 60,291 51,448 -------- -------- ------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 10,806 9,737 8,661 Provision for income taxes (note 9) (3,526) (3,164) (2,746) -------- -------- ------- EARNINGS FROM CONTINUING OPERATIONS 7,280 6,573 5,915 LOSS FROM DISCONTINUED OPERATIONS (NOTE 2) -- -- (1,189) -------- -------- ------- NET EARNINGS $ 7,280 $ 6,573 $ 4,726 ======== ======== ======== - ----------------------------------------------------------------- --------------------------------- NET EARNINGS PER SHARE (in dollars) Continuing operations $ 4.40 $ 3.90 $ 3.46 Discontinued operations -- -- (0.69) -------- -------- ------- Net earnings per share $ 4.40 $ 3.90 $ 2.77 ======== ======== ======== - ----------------------------------------------------------------- --------------------------------- DIVIDENDS DECLARED PER SHARE (in dollars) $ 1.90 $ 1.69 $ 1.49 - ------------------------------------------------------------------------------------------------------- The notes to consolidated financial statements on pages 47-66 are an integral part of this statement.
F-3 ANNUAL REPORT PAGE 29 STATEMENT OF EARNINGS (CONTINUED)
GE GECS ---------------------------------- -------------------------------- For the years ended December 31 (In millions) 1996 1995 1994 1996 1995 1994 - ------------------------------------------------------ ---------------------------------- ------------------------------- REVENUES Sales of goods $ 34,196 $ 33,177 $ 30,767 $ -- $ -- $ -- Sales of services 11,923 9,836 8,863 -- -- -- Other income (note 3) 629 753 783 -- -- -- Earnings of GECS from continuing operations 2,817 2,415 2,085 -- -- -- GECS revenues from operations (note 4) -- -- -- 32,713 26,492 19,875 -------- -------- -------- -------- -------- -------- Total revenues 49,565 46,181 42,498 32,713 26,492 19,875 -------- -------- -------- -------- -------- -------- COSTS AND EXPENSES (note 5) Cost of goods sold 24,594 24,308 22,775 -- -- -- Cost of services sold 8,425 6,785 6,274 -- -- -- Interest and other financial charges 595 649 410 7,326 6,661 4,545 Insurance losses and policyholder and annuity benefits -- -- -- 6,678 5,285 3,507 Provision for losses on financing receivables (note 8) -- -- -- 1,033 1,117 873 Other costs and expenses 6,274 5,743 5,211 13,461 9,769 7,862 Minority interest in net earnings of consolidated affiliates 102 64 31 167 140 139 -------- -------- -------- -------- -------- -------- Total costs and expenses 39,990 37,549 34,701 28,665 22,972 16,926 -------- -------- -------- -------- -------- -------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 9,575 8,632 7,797 4,048 3,520 2,949 Provision for income taxes (note 9) (2,295) (2,059) (1,882) (1,231) (1,105) (864) -------- -------- -------- -------- -------- -------- EARNINGS FROM CONTINUING OPERATIONS 7,280 6,573 5,915 2,817 2,415 2,085 LOSS FROM DISCONTINUED OPERATIONS (NOTE 2) -- -- (1,189) -- -- (1,189) -------- -------- -------- -------- -------- -------- NET EARNINGS $ 7,280 $ 6,573 $ 4,726 $ 2,817 $ 2,415 $ 896 ======== ======== ======== ======== ======== ======== - -------------------------------------------------------------------------------------------------------------------------------- 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-4 ANNUAL REPORT PAGE 30 ================================================================================ STATEMENT OF FINANCIAL POSITION
General Electric Company and consolidated affiliates --------------------------- At December 31 (In millions) 1996 1995 - ----------------------------------------------------------------------- --------------------------- ASSETS Cash and equivalents $ 4,191 $ 2,823 Investment securities (note 10) 59,889 41,067 Current receivables (note 11) 8,704 8,735 Inventories (note 12) 4,473 4,395 Financing receivables (investment in time sales, loans and financing leases)-- net (notes 8 and 13) 99,714 93,272 Other GECS receivables (note 14) 15,418 12,417 Property, plant and equipment (including equipment leased to others) -- net (note 15) 28,795 25,679 Investment in GECS -- -- Intangible assets (note 16) 16,007 11,654 All other assets (note 17) 35,211 27,993 --------- --------- TOTAL ASSETS $ 272,402 $ 228,035 ========= ========= - ----------------------------------------------------------------------- --------------------------- LIABILITIES AND EQUITY Short-term borrowings (note 19) $ 80,200 $ 64,463 Accounts payable, principally trade accounts 10,205 9,061 Progress collections and price adjustments accrued 2,161 1,812 Dividends payable 855 767 All other GE current costs and expenses accrued (note 18) 7,086 5,898 Long-term borrowings (note 19) 49,246 51,027 Insurance liabilities, reserves and annuity benefits (note 20) 61,327 39,699 All other liabilities (note 21) 18,917 15,033 Deferred income taxes (note 22) 8,273 7,710 --------- --------- Total liabilities 238,270 195,470 --------- --------- Minority interest in equity of consolidated affiliates (note 23) 3,007 2,956 --------- --------- Common stock (1,857,013,000 shares issued) 594 594 Unrealized gains on investment securities-- net 671 1,000 Other capital 2,498 1,663 Retained earnings 38,670 34,528 Less common stock held in treasury (11,308) (8,176) --------- --------- Total share owners' equity (notes 25 and 26) 31,125 29,609 --------- --------- TOTAL LIABILITIES AND EQUITY $ 272,402 $ 228,035 ========= ========= - ---------------------------------------------------------------------------------------------------------- The notes to consolidated financial statements on pages 47-66 are an integral part of this statement.
F-5 ANNUAL REPORT PAGE 31 STATEMENT OF FINANCIAL POSITION (CONTINUED)
GE GECS --------------------- ------------------- At December 31 (In millions) 1996 1995 1996 1995 - --------------------------------------------------------------- --------------------- ------------------- ASSETS Cash and equivalents $ 957 $ 874 $ 3,234 $ 1,949 Investment securities (note 10) 17 4 59,872 41,063 Current receivables (note 11) 8,826 8,891 -- -- Inventories (note 12) 4,473 4,395 -- -- Financing receivables (investment in time sales, loans and financing leases)-- net (notes 8 and 13) -- -- 99,714 93,272 Other GECS receivables (note 14) -- -- 15,962 12,897 Property, plant and equipment (including equipment leased to others) -- net (note 15) 10,832 10,234 17,963 15,445 Investment in GECS 14,276 12,774 -- -- Intangible assets (note 16) 7,367 6,643 8,640 5,011 All other assets (note 17) 13,177 11,901 22,034 16,092 -------- -------- -------- -------- TOTAL ASSETS $ 59,925 $ 55,716 $227,419 $185,729 ======== ======== ======== ======== - --------------------------------------------------------------- --------------------- ------------------- LIABILITIES AND EQUITY Short-term borrowings (note 19) $ 2,339 $ 1,666 $ 77,945 $ 62,808 Accounts payable, principally trade accounts 4,195 3,968 6,787 5,952 Progress collections and price adjustments accrued 2,161 1,812 -- -- Dividends payable 855 767 -- -- All other GE current costs and expenses accrued (note 18) 6,870 5,747 -- -- Long-term borrowings (note 19) 1,710 2,277 47,676 48,790 Insurance liabilities, reserves and annuity benefits (note 20) -- -- 61,327 39,699 All other liabilities (note 21) 9,660 8,928 9,138 5,982 Deferred income taxes (note 22) 533 508 7,740 7,202 -------- -------- -------- -------- Total liabilities 28,323 25,673 210,613 170,433 -------- -------- -------- -------- Minority interest in equity of consolidated affiliates (note 23) 477 434 2,530 2,522 -------- -------- -------- -------- Common stock (1,857,013,000 shares issued) 594 594 1 1 Unrealized gains on investment securities-- net 671 1,000 668 989 Other capital 2,498 1,663 2,253 2,266 Retained earnings 38,670 34,528 11,354 9,518 Less common stock held in treasury (11,308) (8,176) -- -- -------- -------- -------- -------- Total share owners' equity (notes 25 and 26) 31,125 29,609 14,276 12,774 -------- -------- -------- -------- TOTAL LIABILITIES AND EQUITY $ 59,925 $ 55,716 $227,419 $185,729 ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------- 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-6 ANNUAL REPORT PAGE 32 ================================================================================ STATEMENT OF CASH FLOWS
General Electric Company and consolidated affiliates -------------------------------- For the years ended December 31 (In millions) 1996 1995 1994 - --------------------------------------------------------------- -------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 7,280 $ 6,573 $ 4,726 Adjustments for discontinued operations -- -- 1,189 Adjustments to reconcile net earnings to cash provided from operating activities Depreciation and amortization 3,785 3,594 3,207 Earnings retained by GECS-- continuing operations -- -- -- Deferred income taxes 1,145 1,047 1,228 Decrease (increase) in GE current receivables 118 (632) 668 Decrease (increase) in GE inventories (76) 55 (56) Increase (decrease) in accounts payable 641 244 697 Increase in insurance liabilities, reserves and annuity benefits 1,491 2,490 1,624 Provision for losses on financing receivables 1,033 1,117 873 All other operating activities 2,434 458 (2,399) -------- -------- -------- CASH FROM OPERATING ACTIVITIES 17,851 14,946 11,757 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (7,760) (6,447) (7,492) Dispositions of property, plant and equipment 1,363 1,542 2,506 Net increase in GECS financing receivables (2,278) (11,309) (9,525) Payments for principal businesses purchased (5,516) (5,641) (2,606) All other investing activities (6,021) (3,362) 372 -------- -------- -------- CASH USED FOR INVESTING ACTIVITIES (20,212) (25,217) (16,745) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (maturities of 90 days or less) 11,827 (3,487) (2,784) Newly issued debt (maturities longer than 90 days) 23,153 37,604 23,239 Repayments and other reductions (maturities longer than 90 days) (25,906) (18,580) (13,098) Net purchase of GE shares for treasury (2,323) (2,523) (353) Dividends paid to share owners (3,050) (2,770) (2,462) All other financing activities 28 259 181 -------- -------- -------- CASH FROM (USED FOR) FINANCING ACTIVITIES 3,729 10,503 4,723 -------- -------- -------- CASH USED FOR DISCONTINUED OPERATIONS -- -- (200) -------- -------- -------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 1,368 232 (465) Cash and equivalents at beginning of year 2,823 2,591 3,056 -------- -------- -------- Cash and equivalents at end of year $ 4,191 $ 2,823 $ 2,591 ======== ======== ======== - -------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $ (7,874) $ (6,645) $ (4,524) Cash recovered (paid) during the year for income taxes (1,392) (1,483) (1,777) - -------------------------------------------------------------------------------------------------------- The notes to consolidated financial statements on pages 47-66 are an integral part of this statement.
F-7 ANNUAL REPORT PAGE 33 STATEMENT OF CASH FLOWS (CONTINUED)
GE GECS -------------------------------- -------------------------------- For the years ended December 31 (In millions) 1996 1995 1994 1996 1995 1994 - ------------------------------------------------------- -------------------------------- -------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 7,280 $ 6,573 $ 4,726 $ 2,817 $ 2,415 $ 896 Adjustments for discontinued operations -- -- 1,189 -- -- 1,189 Adjustments to reconcile net earnings to cash provided from operating activities Depreciation, depletion and amortization 1,635 1,581 1,545 2,150 2,013 1,662 Earnings retained by GECS-- continuing operations (1,836) (1,324) (1,181) -- -- -- Deferred income taxes 68 369 575 1,077 678 653 Decrease (increase) in GE current receivables 152 (739) 754 -- -- -- Decrease (increase) in GE inventories (76) 55 (56) -- -- -- Increase (decrease) in accounts payable 197 462 810 318 418 (222) Increase in insurance liabilities, reserves and annuity benefits -- -- -- 1,491 2,490 1,624 Provision for losses on financing receivables -- -- -- 1,033 1,117 873 All other operating activities 1,647 (912) (2,291) 881 946 140 -------- -------- -------- -------- -------- -------- CASH FROM OPERATING ACTIVITIES 9,067 6,065 6,071 9,767 10,077 6,815 -------- -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (2,389) (1,831) (1,743) (5,371) (4,616) (5,749) Dispositions of property, plant and equipment 30 38 86 1,333 1,504 2,420 Net increase in GECS financing receivables -- -- -- (2,278) (11,309) (9,525) Payments for principal businesses purchased (1,122) (238) (575) (4,394) (5,403) (2,031) All other investing activities (106) 408 14 (6,090) (3,913) 176 -------- -------- -------- -------- -------- -------- CASH USED FOR INVESTING ACTIVITIES (3,587) (1,623) (2,218) (16,800) (23,737) (14,709) -------- -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (maturities of 90 days or less) 974 1,061 (566) 11,026 (4,510) (2,261) Newly issued debt (maturities longer than 90 days) 252 826 766 22,901 36,778 22,473 Repayments and other reductions (maturities longer than 90 days) (1,250) (1,535) (1,399) (24,656) (17,045) (11,699) Net purchase of GE shares for treasury (2,323) (2,523) (353) -- -- -- Dividends paid to share owners (3,050) (2,770) (2,462) (981) (1,091) (904) All other financing activities -- -- (2) 28 259 183 -------- -------- -------- -------- -------- -------- CASH FROM (USED FOR) FINANCING ACTIVITIES (5,397) (4,941) (4,016) 8,318 14,391 7,792 -------- -------- -------- -------- -------- -------- CASH USED FOR DISCONTINUED OPERATIONS -- -- -- -- -- (200) -------- -------- -------- -------- -------- -------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 83 (499) (163) 1,285 731 (302) Cash and equivalents at beginning of year 874 1,373 1,536 1,949 1,218 1,520 -------- -------- -------- -------- -------- -------- Cash and equivalents at end of year $ 957 $ 874 $ 1,373 $ 3,234 $ 1,949 $ 1,218 ======== ======== ======== ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $ (411) $ (468) $ (374) $ (7,463) $ (6,177) $ (4,150) Cash recovered (paid) during the year for income taxes (1,286) (1,651) (1,456) (106) 168 (321) - ------------------------------------------------------------------------------------------------------------------------------- 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 32.
F-8 ANNUAL REPORT PAGE 34 ================================================================================ 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 Operations, GECS Continuing Operations and International Operations. CONSOLIDATED OPERATIONS GE achieved record revenues, earnings, operating margin and cash flow from operating activities in 1996. The year's performance again demonstrates the ability of GE's diverse mix of leading global businesses to deliver strong financial results. Revenues, including acquisitions, rose to a record $79.2 billion in 1996, up 13% from 1995. This increase was primarily attributable to four factors -- growth at GE Capital Services, increased global activities across GE, higher sales of services and related spare parts by GE's equipment businesses, and higher revenues from NBC, including revenues from coverage of the 1996 Summer Olympic Games. Revenues increased at nine of GE's twelve businesses, led by double-digit growth at GE Capital Services, NBC and Power Systems. Revenues in 1995 were $70.0 billion, a 17% increase attributable primarily to increased international activities. In 1995, eleven of GE's twelve businesses increased revenues, six by double digits. Earnings per share increased to $4.40 during 1996, up 13% from the prior year's $3.90. Earnings increased 11% to a record $7.280 billion. In 1995, earnings per share were $3.90, up 13% from 1994's earnings per share from continuing operations. For 1995, earnings of $6.573 billion were up 11% from 1994's comparable level. Growth rates in earnings per share exceeded growth rates in earnings as a result of the ongoing repurchase of shares under the four-year, $13 billion share repurchase plan initiated in December 1994. Net earnings in 1994 were $4.726 billion ($2.77 per share) and, as discussed in note 2, included a loss amounting to $1,189 million ($0.69 per share) related to the GECS discontinued securities broker-dealer. NEW ACCOUNTING STANDARDS include Statement of Financial Accounting Standards (SFAS) No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. Among other things, the new Statement distinguishes transfers of financial assets that are sales from transfers that are secured borrowings, based on control of the transferred assets. SFAS No. 125 is effective for transfers of financial assets occurring after December 31, 1996, and its adoption will not have an effect on the financial position or results of operations of GE or GECS. DIVIDENDS DECLARED IN 1996 AMOUNTED TO $3.138 BILLION. Per-share dividends of $1.90 were up 12% from 1995, following a 13% increase from the preceding year. GE has rewarded its share owners with 21 consecutive years of dividend growth. The chart below illustrates that GE's dividend growth for the past five years has significantly outpaced dividend growth of companies in the Standard & Poor's 500 stock index. RETURN ON AVERAGE SHARE OWNERS' EQUITY reached 24.0% in 1996, up from 23.5% and 18.1% in 1995 and 1994, respectively. GE OPERATIONS GE total revenues were $49.6 billion in 1996, compared with $46.2 billion in 1995 and $42.5 billion in 1994. * GE's sales of goods and services were $46.1 billion in 1996, an increase of 7% from 1995, which in turn was 9% higher than in 1994. The improvement in 1996 was led by NBC, Power Systems and Appliances. Volume was about 9% higher in 1996, reflecting growth in most businesses during the year. While overall selling prices were down slightly in 1996, the effects of selling prices on sales differed markedly among businesses. There also was a minor negative effect on selling prices arising from effects of currency exchange rates on the translation of sales denominated in other than U.S. dollars. Volume in 1995 was about 8% higher than in 1994, while selling prices were essentially flat. Currency exchange rates contributed modestly to the 1995 sales increase. [CHART HERE] GE/S&P DIVIDEND GROWTH SINCE 1991 - ----------------------------------------------------------------------------- 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- GE 10.42% 23.96% 41.42% 56.70% 73.84% S&P 500 1.48 3.11 8.03 13.03 22.13 - ----------------------------------------------------------------------------- F-9 ANNUAL REPORT PAGE 35 For purposes of the required financial statement display of GE sales and costs of sales on pages 28 and 29, "goods" refers to tangible products, and "services" refers to all other sales, including broadcasting and information services activities. An increasingly important element of GE sales is sales related to equipment services -- services that include both spare parts (goods) as well as repair services. Such equipment services sales amounted to $8.4 billion in 1996 and were up 11% from 1995. * GE's other income, earned from a wide variety of sources, was $629 million in 1996, $753 million in 1995 and $783 million in 1994. The decrease in other income in 1996 was largely attributable to lower royalty payments and a decrease in income from associated companies. Details of GE's other income are provided in note 3. * Earnings of GECS from continuing operations were up 17% in 1996, following a 16% increase the year before. See page 38 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 1996, GE's operating margin rose to a record 14.8% of sales, an improvement of 0.4 percentage points from 1995. Nine businesses -- led by Power Systems, NBC, Appliances, Medical Systems and Aircraft Engines -- reported higher operating margins. Operating margin was 14.4% of sales in 1995, compared with 13.6% in 1994. The operating margin improvement in 1995 was led by strong increases in Plastics, Aircraft Engines and NBC. TOTAL COST PRODUCTIVITY (sales in relation to costs, both on a constant dollar basis) has been a major source of recent improvement in GE's operating margin, accounting for more than $1 billion of such increases in each of the past three years. The overall productivity rate was 2.9% in 1996, reflecting principally the positive effects of higher volume on base cost productivity. Three businesses -- Power Systems, NBC and Aircraft Engines -- reported productivity rates in excess of 5%. The overall productivity rate was 3.7% in 1995, reflecting improvements across all GE businesses except Power Systems, which was adversely affected by lower capacity utilization. Four businesses -- NBC, Transportation Systems, Aircraft Engines and Information Services -- had productivity rates in excess of 5%. Productivity performance more than offset the impact of inflation in each of the last three years. GE INTEREST AND OTHER FINANCIAL CHARGES in 1996 amounted to $595 million, down from $649 million in 1995, which was up from $410 million in 1994. The 1996 decrease was primarily attributable to lower interest rates and, to a lesser extent, a shift in the mix of debt towards short-term borrowings. The 1995 increase resulted from the combination of higher interest rates and a higher level of average borrowings during the period. [CHART HERE] GE OPERATING MARGIN AS A PERCENTAGE OF SALES (EXCLUDING RESTRUCTURING) - ----------------------------------------------------------------------------- 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- 11.5% 12.5% 13.6% 14.4% 14.8% - ----------------------------------------------------------------------------- ENTERING 1997 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. GE INDUSTRY SEGMENT REVENUES AND OPERATING PROFIT for the past five years are shown in the table on page 37. For additional information, including a description of the products and services included in each segment, see note 28. AIRCRAFT ENGINES revenues increased by 3% in 1996 as higher volume in services and military engines more than offset pricing pressures. Operating profit increased by 4% in 1996 as a result of improvements in the services business and productivity in the segment, offset somewhat by reduced selling prices and cost inflation. Revenues increased 7% in 1995 as a result of higher services volume, partially offset by the 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 selling prices. In 1996, $1.8 billion of revenues were from sales to the U.S. government, up $0.1 billion from 1995, which was $0.1 billion lower than in 1994. Aircraft Engines received orders of $7.1 billion in 1996, up 20% from $5.9 billion in 1995. The backlog at year-end 1996 was $9.0 billion ($9.1 billion at the end of 1995). Of the total, $7.7 billion related to products, about 39% of which was scheduled for delivery in 1997. Services orders are included in backlog at the end of 1996 for only the succeeding 12 months; such services backlog was $1.3 billion. F-10 ANNUAL REPORT PAGE 36 APPLIANCES revenues were 7% higher than a year ago, reflecting industry growth and U.S. market share gains across all core product lines. Operating profit increased 8% as a result of productivity and higher volume, which were partially offset by lower selling prices. Revenues in 1995 were about the same as the previous year as softening North American sales offset strong growth in Europe and Asia. Operating profit increased 2% in 1995 despite higher material costs, primarily as a result of productivity. BROADCASTING revenues increased 34% in 1996, following a 17% increase in 1995. The revenue increases in both years reflected a strong advertising market, excellent prime-time, news and other daypart ratings, strong growth in the owned-and-operated stations and, in 1996, NBC's broadcast of the Summer Olympic Games. Operating profit increased 29% in 1996 as the combination of excellent ratings, sharply higher results in owned-and-operated stations and profitable Olympics coverage more than offset higher license fees for certain primetime programs that were renewed. Operating profit was up 48% in 1995 on stronger advertising revenues. INDUSTRIAL PRODUCTS AND SYSTEMS revenues rose 2% in 1996, reflecting improved volume in Lighting, Electrical Distribution and Control, and Motors and Industrial Systems. Operating profit increased 6% as productivity improvements across the segment more than offset the effects of cost inflation and lower selling prices for certain products. Revenue increased 8% in 1995, principally as a result of higher volume at Transportation Systems, Lighting, and Motors and Industrial Systems. Operating profit increased 14% in 1995, reflecting productivity across the segment and improved volume, which more than offset higher material costs. Transportation Systems received orders of $2.0 billion in 1996, up $0.4 billion from 1995. The backlog at year-end 1996 was $1.5 billion, about the same as at the end of 1995. Of the total, $1.4 billion related to products, about 81% of which was scheduled for shipment in 1997, and the remainder related to 1997 services. MATERIALS revenues decreased 2% and operating profit was about the same as a year ago, primarily as a result of lower selling prices. The adverse effects of selling prices on operating profit were offset in part by reductions in certain material costs, volume improvements and productivity. Revenues increased 17% in 1995, reflecting higher selling prices and the consolidation of Toshiba Silicones. Operating profit increased 51% in 1995, primarily because of the increase in selling prices, productivity and volume growth, the combination of which more than offset increases in material costs. POWER GENERATION revenues were 11% higher in 1996, reflecting primarily strong growth at Nuovo Pignone and higher services volume. Operating profit increased 39% over 1995 as productivity more than offset cost inflation and lower selling prices. Revenues increased 10% in 1995, principally as a result of the consolidation of Nuovo Pignone at the beginning of the year. 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. Power Generation orders were $8.0 billion for 1996, a double-digit increase over 1995. The backlog of unfilled orders at year-end 1996 was $10.9 billion ($10.1 billion at the end of 1995). Of the total, $10.3 billion related to products, about 39% of which was scheduled for delivery in 1997, and the remainder related to 1997 services. TECHNICAL PRODUCTS AND SERVICES revenues were up 6% in 1996, following a 3% increase in 1995. Medical Systems reported higher revenues in both years, reflecting growth in new equipment volume and equipment services, partially offset by lower selling prices. Information Services revenues were essentially flat in 1996, following a slight increase in 1995, as selling prices declined and electronic commerce volume expanded. Operating profit for the segment increased 6% in 1996 as productivity, improved results in services at Medical Systems and the higher volume more than offset the effect of lower selling prices. Segment operating profit increased 2% in 1995, primarily a result of productivity gains. Orders received by Medical Systems in 1996 were $3.9 billion, up 5% from 1995. The backlog of unfilled orders at year-end 1996 was $2.4 billion, about the same as at the end of 1995. Of the total, $1.4 billion related to products, about 90% of which was scheduled for delivery in 1997, and the remainder related to 1997 services. 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. F-11 ANNUAL REPORT PAGE 37 ================================================================================ SUMMARY OF INDUSTRY SEGMENTS
General Electric Company and consolidated affiliates --------------------------------------------------------- For the years ended December 31 (In millions) 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- REVENUES GE Aircraft Engines $ 6,302 $ 6,098 $ 5,714 $ 6,580 $ 7,368 Appliances 6,375 5,933 5,965 5,555 5,330 Broadcasting 5,232 3,919 3,361 3,102 3,363 Industrial Products and Systems 10,412 10,194 9,406 8,575 8,210 Materials 6,509 6,647 5,681 5,042 4,853 Power Generation 7,257 6,545 5,933 5,530 5,106 Technical Products and Services 4,692 4,424 4,285 4,174 4,674 All Other 3,108 2,707 2,348 1,803 1,581 Corporate items and eliminations (322) (286) (195) (242) (399) -------- -------- -------- -------- -------- Total GE 49,565 46,181 42,498 40,119 40,086 -------- -------- -------- -------- -------- GECS Financing 23,742 19,042 14,932 12,399 10,544 Specialty Insurance 8,966 7,444 4,926 4,862 3,863 All Other 5 6 17 15 11 -------- -------- -------- -------- -------- Total GECS 32,713 26,492 19,875 17,276 14,418 -------- -------- -------- -------- -------- Eliminations (3,099) (2,645) (2,264) (1,694) (1,453) -------- -------- -------- -------- -------- CONSOLIDATED REVENUES $ 79,179 $ 70,028 $ 60,109 $ 55,701 $ 53,051 ======== ======== ======== ======== ======== - --------------------------------------------------------------------------------------------------------------------- OPERATING PROFIT GE Aircraft Engines $ 1,225 $ 1,176 $ 935 $ 798 $ 1,274 Appliances 750 697 683 372 386 Broadcasting 953 738 500 264 204 Industrial Products and Systems 1,617 1,519 1,328 901 1,071 Materials 1,466 1,465 967 834 740 Power Generation 1,068 769 1,238 1,024 854 Technical Products and Services 849 801 787 706 912 All Other 3,088 2,683 2,309 1,725 1,495 -------- -------- -------- -------- -------- Total GE 11,016 9,848 8,747 6,624 6,936 -------- -------- -------- -------- -------- GECS Financing 3,465 3,045 2,662 1,727 1,366 Specialty Insurance 1,234 1,020 589 770 641 All Other (651) (545) (302) (288) (272) -------- -------- -------- -------- -------- Total GECS 4,048 3,520 2,949 2,209 1,735 -------- -------- -------- -------- -------- Eliminations (2,795) (2,396) (2,072) (1,554) (1,317) -------- -------- -------- -------- -------- CONSOLIDATED OPERATING PROFIT 12,269 10,972 9,624 7,279 7,354 GE interest and financial charges-- net of eliminations (600) (644) (417) (529) (752) GE items not traceable to segments (863) (591) (546) (614) (629) -------- -------- -------- -------- -------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND ACCOUNTING CHANGE $ 10,806 $ 9,737 $ 8,661 $ 6,136 $ 5,973 ======== ======== ======== ======== ======== - --------------------------------------------------------------------------------------------------------------------- The notes to consolidated financial statements on pages 47-66 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 other financial charges, which is the largest element of GECS' operating costs. The 1993 accounting change represents adoption of Statement of Financial Accounting Standards (SFAS) No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS.
F-12 ANNUAL REPORT PAGE 38 GECS CONTINUING OPERATIONS GECS conducts its operations in two segments -- Financing and Specialty Insurance. The Financing segment includes the financing and consumer savings and insurance operations of General Electric Capital Corporation (GE Capital). The consumer savings and insurance operations, which increased significantly in 1996 due to acquisitions, focus on consumer wealth accumulation and transfer as well as wealth and lifestyle protection. The Specialty Insurance segment includes operations of GE Global Insurance Holding Corporation (GE Global Insurance), the principal subsidiary of which is Employers Reinsurance Corporation, and the other insurance businesses described on page 63. IMPROVED OPERATING RESULTS for 1996 and 1995 reflect the effects of continued asset growth, principally from acquisitions of businesses and portfolios in 1996, and equal contributions from acquisitions and origination volume in 1995. * GECS revenues from operations were $32.7 billion in 1996, up 23% from 1995, which was up 33% from 1994. * GECS earnings from continuing operations were $2.8 billion in 1996, up 17% from 1995, which was up 16% from 1994. The 1996 and 1995 increases primarily reflected asset growth, with the 1995 increase partially offset by a decrease in financing spreads (the excess of yields over interest rates on borrowings). * GECS interest on borrowings in 1996 was $7.3 billion, 10% higher than in 1995, which was 47% higher than in 1994. The increase in 1996 reflected the effects of higher average borrowings used to finance asset growth, partially offset by the effects of lower average interest rates. The 1995 increase resulted from higher average borrowings used to finance asset growth and the effects of higher average interest rates. GECS' use of floating rate versus fixed rate borrowings is largely a function of the assets against which borrowings are matched. The composite interest rate on GECS borrowings was 6.24% in 1996, compared with 6.76% in 1995 and 5.47% in 1994. * GECS insurance losses and policyholder and annuity benefits increased to $6.7 billion during 1996, compared with $5.3 billion in 1995 and $3.5 billion in 1994, primarily because of business acquisitions and growth in originations throughout the period. * GECS other costs and expenses increased to $13.5 billion in 1996 from $9.8 billion in 1995 and $7.9 billion in 1994, reflecting costs associated with acquired businesses and portfolios, and higher investment levels. [CHART HERE] GECS REVENUES - ----------------------------------------------------------------------------- (In billions) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- $14.418 $17.276 $19.875 $26.492 $32.713 - ----------------------------------------------------------------------------- GECS industry segment revenues and operating profit for the past five years are shown in the table on page 37. Revenues from operations (earned income) are detailed in note 4. FINANCING SEGMENT revenues from operations increased 25% to $23.7 billion in 1996, following a 28% increase in 1995. Asset growth was the most significant contributing factor in both years, but was partially offset in 1996 by lower yields. Yields increased in 1995 and contributed slightly to the revenue increase. A significant component of the 1996 revenue increase was the contribution provided by the consumer savings and insurance businesses acquired during 1995 and 1996 and the computer equipment businesses acquired during 1996. Operating profit was $3.5 billion in 1996, 14% higher than in 1995. The 1996 increase resulted primarily from asset growth. Financing spreads were essentially flat in 1996 as the reduction in yields was offset by decreases in borrowing rates. Operating profit increased 14% in 1995 as the effects of asset growth were partially offset by declining financing spreads and losses from adverse market conditions in the Mortgage Services business. Changes in the provision for losses on financing receivables were principally caused by different rates of portfolio growth in both years, with higher portfolio growth from originations resulting in higher provisions in 1995 than in 1996. Insurance losses and policyholder and annuity benefits associated with the consumer savings and insurance operations increased during 1996 and 1995 as a result of acquisitions. Other costs and expenses increased in both years, reflecting costs associated with acquired businesses and portfolios and higher levels of investment. Included in the 1996 increase are costs of sales and services of computer equipment businesses acquired in 1996. The portfolio of financing receivables, before allowance for losses, increased to $102.4 billion at the end of 1996 from $95.8 billion at the end of F-13 ANNUAL REPORT PAGE 39 1995. Financing receivables are the Financing segment's largest asset and its primary source of revenues. The related allowance for losses at the end of 1996 amounted to $2.7 billion (2.63% of receivables -- the same as 1995 and 1994) and, in management's judgment, is appropriate given the risk profile of the portfolio. Amounts written off in 1996 were approximately 1.03% of the year's average financing receivables, compared with 1.01% and 1.04% during 1995 and 1994, respectively. The increase in 1996 principally reflects increased delinquencies in the consumer portfolio, consistent with industry experience. 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 commercial receivables whose terms have been restructured to a below-market yield. CONSUMER RECEIVABLES at year-end 1996 and 1995 are shown in the following table: - -------------------------------------------------------------------------------- (In millions) 1996 1995 - -------------------------------------------------------------------------------- Credit card and personal loans $27,127 $23,937 Auto loans 5,915 5,555 Auto financing leases 13,113 12,461 ------- ------- Total consumer $46,155 $41,953 ======= ======= Nonearning $ 926 $ 671 -- As percentage of total 2.0% 1.6% Receivable write-offs for the year $ 870 $ 644 - -------------------------------------------------------------------------------- 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. COMMERCIAL REAL ESTATE LOANS classified as financing receivables were $12.1 billion at December 31, 1996, a decrease of $1.3 billion from 1995, principally reflecting sales of receivables. Nonearning and reduced-earning receivables decreased to $158 million at December 31, 1996, compared with $179 million at year-end 1995. Write-offs of commercial real estate loans declined to $45 million in 1996 from $147 million in 1995 as markets continued to stabilize. Commercial real estate loans are generally secured by first mortgages. In addition to loans, the commercial real estate portfolio included, in other assets, $1.6 billion at year-end 1996 ($1.9 billion at year-end 1995) of assets acquired for resale from various financial institutions. Values realized on sales of these assets continue to meet or exceed expectations at the time of purchase. Also included in other assets were investments in real estate ventures at year-end 1996 totaling $2.5 billion, up from $2.0 billion at year-end 1995. Those investments are made as a part of original financings or in conjunction with certain loan restructurings. 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. [CHART HERE] GECS EARNINGS FROM CONTINUING OPERATIONS - ----------------------------------------------------------------------------- (In billions) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- $1.331 $1.567 $2.085 $2.415 $2.817 - ----------------------------------------------------------------------------- OTHER FINANCING RECEIVABLES, totaling $44.1 billion at December 31, 1996, consisted of a diverse commercial, industrial and equipment loan and lease portfolio. This portfolio increased $3.7 billion during 1996, primarily because of acquisitions. Related nonearning and reduced-earning receivables were $313 million at year-end 1996, compared with $285 million at year-end 1995. GECS held loans and leases to commercial airlines amounting to $8.2 billion at the end of 1996, down from $8.3 billion at the end of 1995. GECS' commercial aircraft positions also included financial guarantees, funding commitments and aircraft orders as discussed in note 17. SPECIALTY INSURANCE SEGMENT revenues from operations were $9 billion in 1996, an increase of 20% from 1995, which increased 51% over 1994. The 1996 increase primarily reflected inclusion of a full year's results for the European property and casualty reinsurance businesses acquired in 1995. GE Global Insurance's net premiums earned on U.S. business declined, reflecting the effects of lower industry pricing and the exit of certain unprofitable reinsurance contracts. Revenues from GECS' other insurance businesses increased as a result of both origination volume and acquisitions. Operating profit increased 21% to $1.2 billion in 1996 from $1.0 billion in 1995. The increase in 1996 principally reflected the effects of a full year's results of the European acquisitions: higher premium and investment income, partially offset by increases in insurance losses and other costs and expenses. F-14 ANNUAL REPORT PAGE 40 INTERNATIONAL OPERATIONS Estimated results of international operations include all exports from the United States, plus the results of GE and GECS operations located outside the United States. Certain GECS operations that cannot meaningfully be associated with specific geographic areas were reclassified as "international" for this purpose and are not included in specific geographic areas. International revenues in 1996 were $33.3 billion (42% of consolidated revenues), compared with $28.2 billion in 1995 and $21.0 billion in 1994. In 1996, about 46% of GE's sales of goods and services were international, which was about the same percentage as in 1995 and much higher than the 40% reported in 1994. The chart below left depicts the growth in international revenues in relation to total revenues over the past five years. International operating profit was $4.0 billion (32% of consolidated operating profit) in 1996, compared with $3.2 billion in 1995 and $2.5 billion in 1994. GE international revenues were $21.7 billion in 1996, an increase of 8% from 1995, reflecting sales growth in operations based outside the United States and U.S. exports. European revenues increased by $1.1 billion as growth in Power Systems, particularly in Nuovo Pignone, and Aircraft Engines more than offset lower sales in Plastics and Medical Systems. GE's Pacific Basin revenues increased by $0.1 billion in 1996, reflecting increased revenues from local operations, partially offset by lower U.S. export sales to the region. GECS international revenues were $11.6 billion in 1996 and year-end assets were about $65.3 billion. These revenues, which were derived primarily from operations in Europe, Canada and the Pacific Basin, were up from $8.1 billion in 1995; year-end assets increased 23% during the year from approximately $53.3 billion at the end of 1995. These increases are attributable to continued expansion of GECS as a global provider of financial products and services. 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 in the international revenues chart at the bottom right of this page. Principal currencies include major European currencies as well as the Japanese yen and the Canadian dollar. GE's U.S. export sales follow. - -------------------------------------------------------------------------------- GE'S TOTAL EXPORTS FROM THE UNITED STATES (In millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Pacific Basin $3,180 $3,397 $3,260 Europe 2,060 1,701 1,319 Americas 1,257 1,023 1,027 Other 1,025 964 821 ------ ------ ------ Exports to external customers 7,522 7,085 6,427 Exports to affiliates 2,292 2,123 1,683 ------ ------ ------ Total exports $9,814 $9,208 $8,110 ====== ====== ====== - -------------------------------------------------------------------------------- GE made a positive 1996 contribution of approximately $5.2 billion to the U.S. balance of trade. Total exports in 1996 were $9.8 billion; direct imports from external suppliers were $2.8 billion; and imports from GE affiliates were $1.8 billion. [CHART HERE] CONSOLIDATED REVENUES - ----------------------------------------------------------------------------- (In billions) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- UNITED STATES $34.712 $36.447 $39.149 $41.780 $45.886 INTERNATIONAL 18.339 19.254 20.960 28.248 33.293 - ----------------------------------------------------------------------------- [CHART HERE] CONSOLIDATED INTERNATIONAL REVENUES - ----------------------------------------------------------------------------- (In billions) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- Europe $8.716 $9.037 $8.994 $13.993 $18.024 Pacific Basin 4.349 4.474 5.922 7.122 7.523 Americas 3.315 3.073 3.437 4.105 4.700 Other 1.959 2.670 2.607 3.028 3.046 - ----------------------------------------------------------------------------- F-15 ANNUAL REPORT PAGE 41 ================================================================================ MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY OVERVIEW This discussion of financial resources and liquidity focuses on the Statement of Financial Position (page 30) and the Statement of Cash Flows (page 32). 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, consumer savings and insurance, and other insurance and 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" or 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 17). Management believes that 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 and investment businesses in support of obligations to policyholders and annuitants. The increase of $18.8 billion at GECS during 1996 was principally related to acquisitions. A breakdown of the investment securities portfolio is provided in note 10. GE CURRENT RECEIVABLES were $8.8 billion at the end of 1996, approximately the same as at year-end 1995, and included $6.6 billion due from customers at the end of both 1996 and 1995. As a measure of asset utilization, customer receivables turnover was 6.8 in 1996, compared with 6.7 in 1995. 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. [CHART HERE] GE ANNUAL INVENTORY TURNOVER - ----------------------------------------------------------------------------- 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- 5.26 5.97 6.86 6.9 7.57 - ----------------------------------------------------------------------------- GE INVENTORIES were $4.5 billion at December 31, 1996, up $0.1 billion from the end of 1995. As shown in the chart above, inventory turnover improved to 7.6 in 1996, compared with 6.9 in 1995, reflecting continuing improvements in inventory management. Last-in, first-out (LIFO) revaluations decreased $128 million in 1996, compared with decreases of $87 million in 1995 and $197 million in 1994. Included in these changes were decreases of $58 million, $88 million and $72 million (1996, 1995 and 1994, respectively) that resulted from lower LIFO inventory levels. There were net cost decreases in 1996 and 1994 and no cost change in 1995. GECS FINANCING RECEIVABLES were $99.7 billion at year-end 1996, net of allowance for doubtful accounts, up $6.4 billion over 1995. These receivables are discussed on page 38 and in notes 8 and 13. GECS OTHER RECEIVABLES were $16.0 billion and $12.9 billion at December 31, 1996 and 1995, respectively. The 1996 increase was attributable to insurance activities, particularly increases in premiums receivable and reinsurance recoverables from acquired businesses as well as a general increase in underwriting activity. PROPERTY, PLANT AND EQUIPMENT (including equipment leased to others) was $28.8 billion at December 31, 1996, up $3.1 billion from 1995. 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 15. GE's total expenditures for new plant and equipment during 1996 totaled $2.4 billion, up 33% from $1.8 billion in 1995. Total expenditures for the past five F-16 ANNUAL REPORT PAGE 42 years were $9.1 billion, of which 36% was investment for growth through new capacity and product development; 35% was investment in productivity through new equipment and process improvements; and 29% was investment for such other purposes as improvement of research and development facilities and safety and environmental protection. GECS' additions to its equipment leased to others were $5.3 billion during 1996 ($4.5 billion during 1995), principally reflecting a shift in auto lease volume from financing leases in 1995 to operating leases in 1996 and increased volume in aircraft. INTANGIBLE ASSETS were $16.0 billion at year-end 1996, up from $11.7 billion at year-end 1995. GE intangibles increased to $7.4 billion from $6.6 billion at the end of 1995, principally as a result of goodwill related to certain broadcasting acquisitions. The $3.6 billion increase in GECS intangibles related to acquisitions. ALL OTHER ASSETS totaled $35.2 billion at year-end 1996, an increase of $7.2 billion from the end of 1995. GE other assets increased $1.3 billion, reflecting an increase in the prepaid pension asset and increased investments in associated companies. The increase in GECS other assets of $5.9 billion related principally to acquisitions and increased investments in associated companies. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $61.3 billion, $21.6 billion higher than in 1995. The increase was primarily attributable to acquisitions in 1996. For additional information on these liabilities, see note 20. CONSOLIDATED BORROWINGS aggregated $129.4 billion at December 31, 1996, compared with $115.5 billion at the end of 1995. 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 guaranteed subordinated debt of GECS with a face amount of $1.0 billion at December 31, 1996 and 1995. Management believes the likelihood that GE will be required to contribute capital under either the commitments or the guarantees is remote. GE's total borrowings were $4.0 billion at year-end 1996 ($2.3 billion short-term, $1.7 billion long-term), an increase of about $0.1 billion from year-end 1995. GE's total debt at the end of 1996 equaled 11.4% of total capital, down from 11.6% at the end of 1995. GECS' total borrowings were $125.6 billion at December 31, 1996, of which $77.9 billion is due in 1997 and $47.7 billion is due in subsequent years. Comparable amounts at the end of 1995 were $111.6 billion total, $62.8 billion due within one year and $48.8 billion due thereafter. GECS' composite interest rates are discussed on page 38. A large portion of GECS' borrowings ($54.2 billion and $41.2 billion at the end of 1996 and 1995, respectively) was issued in active commercial paper markets that management believes will continue to be a reliable source of short-term financing. Most of this commercial paper was issued by GE Capital. The average remaining terms and interest rates of GE Capital's commercial paper were 42 days and 5.58% at the end of 1996, compared with 41 days and 5.88% at the end of 1995. GE Capital's leverage (ratio of debt to equity, excluding from equity net unrealized gains on investment securities) was 7.92 to 1 at the end of 1996 and 7.89 to 1 at the end of 1995. By comparison, including in equity net unrealized gains on investment securities, GE Capital's ratio of debt to equity was 7.84 to 1 at the end of 1996 and 7.59 to 1 at the end of 1995. 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 its relatively low level of borrowings means that currency management is more important than managing exposure to changes in interest rates. On the other hand, despite strong international growth, changes in interest rates remain the more significant exposure for GECS because of the potential effects of such changes on financing spreads. [CHART HERE] GE CASH FLOWS FROM OPERATING ACTIVITIES - ----------------------------------------------------------------------------- (In billions) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- $4.573 $5.201 $6.071 $6.065 $9.067 - ----------------------------------------------------------------------------- F-17 ANNUAL REPORT PAGE 43 The relationship between interest rate changes and financing spreads is subject to many factors and cannot be forecasted with reliability. Although not necessarily predictive of future effects, management estimates that, all else constant, an increase of 100 basis points in interest rates for all of 1996 would have reduced GECS net earnings by approximately $74 million. For comparison, the effect on 1995 net earnings would have been $65 million. GE and GECS use various financial instruments, particularly interest rate, currency and basis swaps, but also futures, 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. More detailed information regarding these financial instruments, as well as the strategies and policies for their use, is contained in notes 1, 19 and 30. 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 $1.0 billion at the end of 1996, about the same as at the end of 1995. During 1996, GE generated a record $9.1 billion in cash from operating activities, an increase of $3.0 billion over 1995, principally as a result of improvements in working capital, including progress collections, and earnings. The 1996 cash generation provided most of the resources needed to repurchase $3.3 billion of GE common stock under share repurchase programs, to pay $3.1 billion in dividends to share owners, to invest $2.4 billion in new plant and equipment and to make $1.1 billion in acquisitions. Operating activities are the principal source of GE's cash flows. Over the past three years, operating activities have provided more than $21 billion of cash. The principal application of this cash was distributions of more than $14 billion to share owners, both through payment of dividends ($8.3 billion) and through the share repurchase program ($6.4 billion) described below. Other applications included investment in new plant and equipment ($6.0 billion) and reduction of debt ($0.9 billion). In December 1996, GE's Board of Directors increased the authorization to repurchase Company common stock to $13 billion and authorized the program to continue through 1998. Funds used for the share repurchase will be generated largely from free cash flow. [CHART HERE] GE CUMULATIVE CASH FLOWS - ----------------------------------------------------------------------------- (In billions) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES $4.573 $9.774 $15.845 $21.910 $30.973 SHARES REPURCHASED 1.925 4.078 6.540 9.310 12.360 DIVIDENDS PAID 1.132 1.839 2.912 6.014 9.280 - ----------------------------------------------------------------------------- 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 are expected to be about $2 billion in 1997, principally for productivity and growth. GECS One of GECS' primary sources of cash is financing activities involving the continued rollover of short-term borrowings and appropriate addition of borrowings with a reasonable balance of maturities. Over the past three years, GECS borrowings with maturities of 90 days or less have increased by $4.3 billion. New borrowings of $82.2 billion having maturities longer than 90 days were added during those years, while $53.4 billion of such longer-term borrowings were retired. GECS also generated $26.7 billion from continuing operating activities. GECS' principal use of cash has been investing in assets to grow its businesses. Of the $55.2 billion that GECS invested over the past three years, $23.1 billion was used for additions to financing receivables, $15.7 billion was used to invest in new equipment, principally for lease to others, and $11.8 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 44 ================================================================================ 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 businesses. GE'S TOTAL RESEARCH AND DEVELOPMENT expenditures were $1,886 million in 1996, about the same as in 1995. In 1996, expenditures from GE's own funds were $1,421 million, an increase of 9% over 1995, reflecting continuing research and development work related to new product and process technologies. Such efforts include development work on the next generation of gas turbines, new process technologies to improve quality and performance and increase capacity in engineered materials, further advances in state-of-the-art diagnostic imaging technologies, and development of more powerful versions of the GE90 and the industry's best-selling engine, the CFM56. Expenditures from funds provided by customers (mainly the U.S. government) were $465 million in 1996, down $128 million from 1995, primarily reflecting decreases in the F414 program at Aircraft Engines, which is nearing the end of the development phase, and, to a lesser extent, lower activity in the F118 engine program. GE'S TOTAL BACKLOG of firm unfilled orders at the end of 1996 was $26.2 billion, compared with $25.7 billion at the end of 1995. Of the total, $23.3 billion related to products, about 48% of which was scheduled for delivery in 1997. Services orders are included in backlog at the end of 1996 for only the succeeding 12 months; such backlog was $2.9 billion. Orders constituting this backlog may be canceled or deferred by customers, subject in certain cases to cancellation penalties. See Industry Segments beginning on page 35 for further discussion on unfilled orders of relatively long-cycle manufacturing businesses. REGARDING ENVIRONMENTAL MATTERS, GE's operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. In 1996, GE expended about $87 million for capital projects related to the environment. The comparable amount in 1995 was $75 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 1996, the same as in 1995. 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. [CHART HERE] YEAR-END MARKET CAPITALIZATION - ----------------------------------------------------------------------------- (In billions) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- $73.139 $89.527 $87.004 $119.989 $162.604 - ----------------------------------------------------------------------------- [CHART HERE] GE SHARE PRICE ACTIVITY - ----------------------------------------------------------------------------- (In dollars) 1992 1993 1994 1995 1996 - ----------------------------------------------------------------------------- CLOSE $ 42.75 $ 52.44 $ 51.00 $ 72.00 $ 98.875 HIGH 43.75 53.50 54.875 73.125 106.125 LOW 36.375 40.375 45.00 49.875 69.50 - ----------------------------------------------------------------------------- F-19 ANNUAL REPORT PAGE 45 ================================================================================ SELECTED FINANCIAL DATA
(Dollar amounts in millions; ------------------------------------------------------------------------- per-share amounts in dollars) 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES Revenues $ 79,179 $ 70,028 $ 60,109 $ 55,701 $ 53,051 Earnings from continuing operations 7,280 6,573 5,915 4,184 4,137 Earnings (loss) from discontinued operations -- -- (1,189) 993 588 Effect of accounting change -- -- -- (862) -- Net earnings 7,280 6,573 4,726 4,315 4,725 Dividends declared 3,138 2,838 2,546 2,229 1,985 Earned on average share owners' equity 24.0% 23.5% 18.1% 17.5% 20.9% Per share Earnings from continuing operations $ 4.40 $ 3.90 $ 3.46 $ 2.45 $ 2.41 Earnings (loss) from discontinued operations -- -- (0.69) 0.58 0.34 Effect of accounting change -- -- -- (0.51) -- Net earnings 4.40 3.90 2.77 2.52 2.75 Dividends declared 1.90 1.69 1.49 1.305 1.16 Stock price range 106 1/8-69 1/2 73 1/8-49 7/8 54 7/8-45 53 1/2-40 3/8 43 3/4-36 3/8 Total assets of continuing operations 272,402 228,035 185,871 166,413 135,472 Long-term borrowings 49,246 51,027 36,979 28,194 25,298 Shares outstanding -- average (in thousands) 1,653,697 1,683,812 1,708,738 1,707,979 1,714,396 Share owner accounts -- average 486,000 460,000 458,000 464,000 481,000 Employees at year end United States 155,000 150,000 156,000 157,000 168,000 Other countries 84,000 72,000 60,000 59,000 58,000 Discontinued operations (primarily U.S.) -- -- 5,000 6,000 42,000 ----------- ----------- ----------- ----------- ----------- Total employees 239,000 222,000 221,000 222,000 268,000 =========== =========== =========== =========== =========== - ---------------------------------------------------------------------------------------------------------------------------------- GE DATA Short-term borrowings $ 2,339 $ 1,666 $ 906 $ 2,391 $ 3,448 Long-term borrowings 1,710 2,277 2,699 2,413 3,420 Minority interest 477 434 382 355 350 Share owners' equity 31,125 29,609 26,387 25,824 23,459 ----------- ----------- ----------- ----------- ----------- Total capital invested $ 35,651 $ 33,986 $ 30,374 $ 30,983 $30,677 =========== =========== =========== =========== =========== Return on average total capital invested 22.2% 21.3% 15.9% 15.2% 16.9% Borrowings as a percentage of total capital invested 11.4% 11.6% 11.9% 15.5% 22.4% Working capital $ (2,147) $ 204 $ 544 $ (419) $ (822) Additions to property, plant and equipment 2,389 1,831 1,743 1,588 1,445 - ---------------------------------------------------------------------------------------------------------------------------------- GECS DATA Revenues $ 32,713 $ 26,492 $ 19,875 $ 17,276 $14,418 Earnings from continuing operations 2,817 2,415 2,085 1,567 1,331 Earnings (loss) from discontinued operations -- -- (1,189) 240 168 Net earnings 2,817 2,415 896 1,807 1,499 Share owner's equity 14,276 12,774 9,380 10,809 8,884 Minority interest 2,530 2,522 1,465 1,301 994 Borrowings from others 125,621 111,598 91,399 81,052 72,360 Ratio of debt to equity at GE Capital 7.92:1 7.89:1 7.94:1 7.96:1 7.91:1 Total assets of GE Capital $200,816 $160,825 $130,904 $117,939 $92,632 Reserve coverage on financing receivables 2.63% 2.63% 2.63% 2.63% 2.63% Insurance premiums written $ 8,185 $ 6,158 $ 3,962 $ 3,956 $ 2,900 Equity excludes net unrealized gains and losses on investment securities. - ---------------------------------------------------------------------------------------------------------------------------------- Discontinued operations reflect the results of Kidder, Peabody, the GECS securities broker-dealer, in 1994, 1993 and 1992, and the results of discontinued GE Aerospace businesses in 1993 and 1992. The 1993 accounting change represents the adoption of SFAS No. 112, EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS. "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 46 ================================================================================ MANAGEMENT'S DISCUSSION OF FINANCIAL RESPONSIBILITY The financial data in this report, including the audited financial statements, have been prepared by management using the best available information and applying judgment. Accounting principles used in preparing the financial statements are those that are generally accepted in the United States. Management believes that a sound, dynamic system of internal financial controls that balances benefits and costs provides a vital ingredient for Company quality programs as well as the best safeguard for Company assets. Professional financial managers are responsible for implementing and overseeing the financial control system, reporting on management's stewardship of the assets entrusted to it by share owners and maintaining accurate records. GE is dedicated to the highest standards of integrity, ethics and social responsibility. This dedication is reflected in written policy statements covering, among other subjects, environmental protection, potentially conflicting outside interests of employees, compliance with antitrust laws, proper business practices, and adherence to the highest standards of conduct and practices in transactions with 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 provide 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 1996 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. John F. Welch, Jr. Dennis D. Dammerman Chairman of the Board and Senior Vice President, Finance, and Chief Executive Officer Chief Financial Officer February 7, 1997 ================================================================================ INDEPENDENT AUDITORS' REPORT TO SHARE OWNERS AND BOARD OF DIRECTORS OF GENERAL ELECTRIC COMPANY We have audited the accompanying statement of financial position of General Electric Company and consolidated affiliates as of December 31, 1996 and 1995, and the related statements of earnings and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned financial statements appearing on pages 28-33, 37, and 47-66 present fairly, in all material respects, the financial position of General Electric Company and consolidated affiliates at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Stamford, Connecticut February 7, 1997 F-21 ANNUAL REPORT PAGE 47 ================================================================================ 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 1996 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 unguaranteed residual values of leased assets are based primarily on periodic independent appraisals of the values of leased assets remaining at expiration of the lease terms. Operating lease income is recognized on a straight-line basis over the terms of underlying leases. Origination, commitment and other nonrefundable fees related to fundings are deferred and recorded in earned income on the interest method. Commitment fees related to loans not expected to be funded and line-of-credit fees are deferred and recorded in earned income on a straight-line basis over the period to which the fees relate. Syndication fees are recorded in earned income at the time related services are performed unless significant contingencies exist. Premium income from insurance activities is discussed under GECS insurance accounting policies on page 48. DEPRECIATION AND AMORTIZATION. The cost of most of GE's manufacturing plant and equipment is depreciated using an accelerated method based primarily on a sum-of-the-years digits formula. The cost of GECS equipment leased to others on operating leases is amortized, principally on a straight-line basis, to estimated net salvage value over the lease term or over the estimated economic life of the equipment. Depreciation of property and equipment used by GECS is recorded on either a sum-of-the-years digits formula or a straight-line basis over the lives of the assets. RECOGNITION OF LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS. 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. CASH AND EQUIVALENTS. Marketable securities with original maturities of three months or less are included in cash equivalents unless designated as available for sale and classified as investment securities. INVESTMENT SECURITIES. Investments in debt securities that are not cash equivalents and marketable equity securities have been designated 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. Realized gains and losses on investments are determined using the specific identification method. INVENTORIES. All inventories are stated at the lower of cost or realizable values. Cost for virtually all of GE's U.S. inventories is stated on a last-in, first-out (LIFO) basis. Cost of other inventories is primarily determined on a first-in, first-out (FIFO) basis. F-22 ANNUAL REPORT PAGE 48 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. 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. 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 futures, 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. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments must be highly correlated with changes in market values of underlying hedged items both at inception of the hedge and over the life of the hedge contract. Any instrument designated but ineffective as a hedge is marked to market and recognized in operations immediately. GECS INSURANCE ACCOUNTING POLICIES. Accounting policies for GECS insurance businesses are as follows: PREMIUM INCOME. Insurance premiums are reported as earned income as follows: * For property and casualty and accident and health risks contracts (including financial guaranty insurance), premiums are reported as earned income, generally on a pro rata basis, over the terms of related insurance policies or reinsurance treaties. * For retrospectively rated reinsurance contracts, premium adjustments are recorded based on estimated losses and loss expenses, taking into consideration both case and incurred-but-not-reported reserves. * For term and whole life contracts, premiums are reported as earned income when due under terms of respective policies. * For annuity and investment contracts -- contracts that do not have significant mortality or morbidity risk -- premiums are not reported as revenues, but as liabilities (included in "Insurance liabilities, reserves and annuity benefits") and are adjusted according to terms of the respective policies. DEFERRED POLICY ACQUISITION COSTS. Costs that vary with and are primarily related to the acquisition of new and renewal insurance and investment contracts are deferred and amortized systematically over the respective policy terms. * For property and casualty and accident and health risks (including financial guaranty insurance), these costs are amortized pro rata over the contract periods in which the related premiums are earned. * For term and whole life contracts, these costs are amortized over the respective contract periods in proportion to either anticipated premium income or gross profit, as appropriate. * For annuity and investment contracts, these costs are amortized on the basis of anticipated gross profits. Periodically, deferred policy acquisition costs are reviewed for recoverability; anticipated investment income is considered in making recoverability evaluations. PRESENT VALUE OF FUTURE PROFITS. The actuarially determined present value of anticipated net cash flows to be realized from insurance, annuity and investment contracts in force at the date of acquisition of life insurance enterprises is recorded as the present value of future profits (PVFP). Amortization of PVFP is based on gross profit projections from the underlying contracts, adjusted to reflect actual experience and any impairment. ==================================================== 2 DISCONTINUED OPERATIONS 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 - -------------------------------------------------------------------------------- Revenues $ 4,578 ======= Loss before income taxes $ (551) Income tax benefit 230 ------- Loss from discontinued operations (321) Provision for loss-- net of income tax benefit of $266 (868) ------- Loss from GECS securities broker-dealer $(1,189) ======= - -------------------------------------------------------------------------------- The 1994 provision of $868 million after taxes, shown in the summary above, was related to exit costs associated with liquidation of Kidder, Peabody. This liquidation has been substantially complete since mid-1995. In 1996, regulatory authorities permitted Kidder, Peabody to de-register as a broker-dealer, releasing approximately $900 million of investments that were used to repay Kidder, Peabody borrowings. F-23 ANNUAL REPORT PAGE 49 ==================================================== 3 GE OTHER INCOME - -------------------------------------------------------------------------------- (In millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Royalty and technical agreements $ 391 $ 453 $ 395 Associated companies 50 111 115 Marketable securities and bank deposits 72 70 77 Customer financing 29 26 28 Other investments Dividends 79 62 62 Interest 18 18 21 Other items (10) 13 85 ----- ----- ----- $ 629 $ 753 $ 783 ===== ===== ===== ----- - -------------------------------------------------------------------------------- ==================================================== 4 GECS REVENUES FROM OPERATIONS - -------------------------------------------------------------------------------- (In millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Time sales, loan and other income $13,236 $10,462 $ 7,698 Operating lease rentals 4,341 4,080 3,802 Financing leases 3,485 3,176 2,539 Investment income 3,506 2,542 2,011 Premium and commission income of insurance affiliates 8,145 6,232 3,825 ------- ------- ------- $32,713 $26,492 $19,875 ======= ======= ======= - -------------------------------------------------------------------------------- Included in earned income from financing leases were pretax gains on the sale of equipment at lease completion of $115 million in 1996, $191 million in 1995 and $180 million in 1994. ==================================================== 5 SUPPLEMENTAL COST DETAILS Total expenditures for research and development were $1,886 million, $1,892 million and $1,741 million in 1996, 1995 and 1994, respectively. The Company-funded portion aggregated $1,421 million in 1996, $1,299 million in 1995 and $1,176 million in 1994. Rental expense under operating leases is shown below. - -------------------------------------------------------------------------------- (In millions) 1996 1995 1994 - -------------------------------------------------------------------------------- GE $512 $523 $514 GECS 547 524 468 - -------------------------------------------------------------------------------- At December 31, 1996, minimum rental commitments under noncancelable operating leases aggregated $2,525 million and $3,112 million for GE and GECS, respectively. Amounts payable over the next five years are shown below. - -------------------------------------------------------------------------------- (In millions) 1997 1998 1999 2000 2001 - -------------------------------------------------------------------------------- GE $401 $342 $274 $197 $173 GECS 471 415 375 327 302 - -------------------------------------------------------------------------------- GE's selling, general and administrative expense totaled $6,274 million in 1996, $5,743 million in 1995 and $5,211 million in 1994. Insignificant amounts of interest were capitalized by GE and GECS in 1996, 1995 and 1994. ==================================================== 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 in the United States as well as approximately two-thirds of such GECS employees. 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 1996, the GE Pension Plan covered approximately 471,000 participants, including 137,000 employees, 150,000 former employees with vested rights to future benefits, and 184,000 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) 1996 1995 1994 - -------------------------------------------------------------------------------- Actual return on plan assets $ 4,916 $ 5,439 $ 316 Unrecognized portion of return (2,329) (3,087) 1,951 Service cost for benefits earned (550) (469) (496) Interest cost on benefit obligation (1,593) (1,580) (1,491) Amortization 265 394 294 ------- ------- ------- Total pension plan income $ 709 $ 697 $ 574 ======= ======= ======= - -------------------------------------------------------------------------------- Net of employee contributions. - --------------------------------------------------------------------------------
Actual return on trust assets in 1996 was 17%, compared with the 9.5% assumed return on such assets. The effect of this higher return will be recognized in future years. F-24 ANNUAL REPORT PAGE 50 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) 1996 1995 - -------------------------------------------------------------------------------- Market-related value of assets $29,402 $27,795 Projected benefit obligation 23,251 23,119 - -------------------------------------------------------------------------------- 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 5% of trust assets. An analysis of amounts shown in the Statement of Financial Position is shown below. - -------------------------------------------------------------------------------- PREPAID PENSION ASSET December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- Current value of trust assets $ 33,686 $ 30,200 Add (deduct) unamortized balances SFAS No. 87 transition gain (615) (769) Experience gains (5,357) (2,127) Plan amendments 1,012 523 Projected benefit obligation (23,251) (23,119) Pension liability 637 564 -------- -------- PREPAID PENSION ASSET $ 6,112 $ 5,272 ======== ======== - -------------------------------------------------------------------------------- The accumulated benefit obligation was $22,176 million and $22,052 million at year-end 1996 and 1995, 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 ASSUMPTION December 31 1996 1995 - -------------------------------------------------------------------------------- Discount rate 7.5% 7.0% Compensation increases 4.5 4.0 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 1996, these plans covered approximately 250,000 retirees and dependents. Details of cost for principal retiree benefit plans follow. - -------------------------------------------------------------------------------- COST OF RETIREE BENEFIT PLANS (In millions) 1996 1995 1994 - -------------------------------------------------------------------------------- RETIREE HEALTH PLANS Service cost for benefits earned $ 77 $ 73 $ 78 Interest cost on benefit obligation 166 189 191 Amortization -- (12) (4) ----- ----- ----- Retiree health plan cost 243 250 265 ----- ----- ----- RETIREE LIFE PLANS Service cost for benefits earned 16 13 24 Interest cost on benefit obligation 106 108 105 Actual return on plan assets (225) (329) (2) Unrecognized portion of return 93 206 (120) Amortization 12 1 8 ----- ----- ----- Retiree life plan cost (income) 2 (1) 15 ----- ----- ----- TOTAL COST $ 245 $ 249 $ 280 ===== ===== ===== - -------------------------------------------------------------------------------- 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) 1996 1995 - -------------------------------------------------------------------------------- Market-related value of assets $1,487 $1,430 Accumulated postretirement benefit obligation 3,954 4,089 - -------------------------------------------------------------------------------- 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 3% of trust assets. F-25 ANNUAL REPORT PAGE 51 An analysis of amounts shown in the Statement of Financial Position is shown below.
- ---------------------------------------------------------------------------------------- RETIREE BENEFIT LIABILITY/ASSET Health plans Life plans ------------------ ------------------ December 31 (In millions) 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees and dependents $ 1,889 $ 1,984 $ 1,305 $ 1,314 Employees eligible to retire 86 95 45 53 Other employees 440 451 189 192 ------- ------- ------- ------- 2,415 2,530 1,539 1,559 Add (deduct) unamortized balances Experience losses (195) (292) (41) (199) Plan amendments 157 177 109 119 Current value of trust assets -- -- (1,682) (1,556) ------- ------- ------- ------- RETIREE BENEFIT LIABILITY (PREPAID ASSET) $ 2,377 $ 2,415 $ (75) $ (77) ======= ======= ======= ======= - ----------------------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS AND TECHNIQUES used to determine costs and benefit obligations for principal retiree benefit plans are shown below.
- -------------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS December 31 1996 1995 - -------------------------------------------------------------------------------- Discount rate 7.5% 7.0% Compensation increases 4.5 4.0 Health care cost trend 8.0 8.5 Return on assets for the year 9.5 9.5 - -------------------------------------------------------------------------------- Gradually declining to 5.0% after 2002. - --------------------------------------------------------------------------------
Increasing the health care cost trend rates by one percentage point would not have had a material effect on the December 31, 1996, 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 The allowance for losses on small-balance receivables is determined principally on the basis of actual experience during the preceding three years. Further allowances are provided to reflect management's judgment of additional loss potential. For other receivables, principally the larger loans and leases, the allowance for losses is determined primarily on the basis of management's judgment of 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) 1996 1995 1994 - -------------------------------------------------------------------------------- Balance at January 1 $ 2,519 $ 2,062 $ 1,730 Provisions charged to operations 1,033 1,117 873 Net transfers related to companies acquired or sold 139 217 199 Amounts written off -- net (998) (877) (740) ------- ------- ------- Balance at December 31 $ 2,693 $ 2,519 $ 2,062 ======= ======= ======= - -------------------------------------------------------------------------------- All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses. Small-balance accounts generally are written off when 6 to 12 months delinquent, although any balance judged to be uncollectible, such as an account in bankruptcy, is written down immediately to estimated realizable value. Large-balance accounts are reviewed at least quarterly, and those accounts with amounts that are judged to be uncollectible are written down to estimated realizable value. F-26 ANNUAL REPORT PAGE 52 ==================================================== 9 PROVISION FOR INCOME TAXES - -------------------------------------------------------------------------------- (In millions) 1996 1995 1994 - -------------------------------------------------------------------------------- GE Estimated amounts payable $2,235 $1,696 $1,305 Deferred tax expense from temporary differences 60 363 577 ------ ------ ------ 2,295 2,059 1,882 ------ ------ ------ GECS Estimated amounts payable 164 434 447 Deferred tax expense from temporary differences 1,067 671 417 ------ ------ ------ 1,231 1,105 864 ------ ------ ------ CONSOLIDATED Estimated amounts payable 2,399 2,130 1,752 Deferred tax expense from temporary differences 1,127 1,034 994 ------ ------ ------ $3,526 $3,164 $2,746 ====== ====== ====== - -------------------------------------------------------------------------------- GE includes GECS in filing a consolidated U.S. federal income tax return. The GECS provision for estimated taxes payable includes its effect on the consolidated return. Estimated consolidated amounts payable includes amounts applicable to non-U.S. jurisdictions of $1,204 million, $721 million and $453 million in 1996, 1995 and 1994, 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. Consolidated U.S. income before taxes was $8.0 billion in 1996, $7.6 billion in 1995 and $7.3 billion in 1994. The corresponding amounts for non-U.S. based operations were $2.8 billion in 1996, $2.1 billion in 1995 and $1.4 billion in 1994.
- --------------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF U.S. FEDERAL Consolidated GE GECS STATUTORY TAX RATE TO ACTUAL RATE ------------------------- -------------------------- -------------------------- 1996 1995 1994 1996 1995 1994 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- 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 -- -- -- (10.3) (9.8) (9.4) -- -- -- Amortization of goodwill 1.1 1.1 1.1 0.8 0.8 0.8 1.2 1.1 1.0 Tax-exempt income (2.0) (2.1) (2.4) -- -- -- (5.4) (5.8) (6.9) Foreign Sales Corporation tax benefits (0.7) (0.9) (1.1) (0.6) (1.1) (1.2) (0.3) -- -- Dividends received, not fully taxable (0.6) (0.5) (0.5) (0.2) (0.2) (0.3) (1.1) (0.8) (0.8) All other-- net (0.2) (0.1) (0.4) (0.7) (0.8) (0.8) 1.0 1.9 1.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ (2.4) (2.5) (3.3) (11.0) (11.1) (10.9) (4.6) (3.6) (5.7) ------ ------ ------ ------ ------ ------ ------ ------ ------ Actual income tax rate 32.6% 32.5% 31.7% 24.0% 23.9% 24.1% 30.4% 31.4% 29.3% ====== ====== ====== ====== ====== ====== ====== ====== ====== - ---------------------------------------------------------------------------------------------------------------------------------
F-27 ANNUAL REPORT PAGE 53 ==================================================== 10 GECS INVESTMENT SECURITIES
- ------------------------------------------------------------------------------------- Gross Gross Amortized unrealized unrealized Estimated (In millions) cost gains losses fair value - ------------------------------------------------------------------------------------- DECEMBER 31, 1996 Debt securities U.S. corporate $ 22,080 $ 308 $ (641) $ 21,747 State and municipal 10,232 399 (34) 10,597 Mortgage-backed 11,072 297 (108) 11,261 Corporate -- non-U.S 5,587 142 (13) 5,716 Government -- non-U.S 3,347 99 (2) 3,444 U.S. government and federal agency 2,340 34 (7) 2,367 Equity securities 4,117 677 (54) 4,740 -------- -------- -------- -------- $ 58,775 $ 1,956 $ (859) $ 59,872 ======== ======== ======== ======== DECEMBER 31, 1995 Debt securities U.S. corporate $ 12,313 $ 463 $ (63) $ 12,713 State and municipal 9,460 570 (11) 10,019 Mortgage-backed 5,991 255 (65) 6,181 Corporate-- non-U.S 3,764 98 (34) 3,828 Government-- non-U.S 3,123 115 (3) 3,235 U.S. government and federal agency 1,817 77 (3) 1,891 Equity securities 2,843 412 (59) 3,196 -------- -------- -------- -------- $ 39,311 $ 1,990 $ (238) $ 41,063 ======== ======== ======== ======== - -------------------------------------------------------------------------------------
The majority of mortgage-backed securities shown in the table above are collateralized by U.S. residential mortgages. Mortgage-backed securities are subject to prepayment risk, which affects yield but does not impair recovery of principal. At December 31, 1996, 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 1997 $ 2,569 $ 2,579 1998-2001 10,705 10,261 2002-2006 10,749 11,052 2007 and later 19,563 19,979 - -------------------------------------------------------------------------------- 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 1996 were $11,868 million ($11,017 million in 1995 and $5,821 million in 1994). Gross realized gains were $638 million in 1996 ($503 million in 1995 and $281 million in 1994). Gross realized losses were $190 million in 1996 ($157 million in 1995 and $112 million in 1994). ==================================================== 11 GE CURRENT RECEIVABLES - -------------------------------------------------------------------------------- December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- Aircraft Engines $ 1,389 $ 1,373 Appliances 713 595 Broadcasting 698 556 Industrial Products and Systems 1,574 1,525 Materials 1,068 1,322 Power Generation 2,463 2,334 Technical Products and Services 698 692 All Other 86 94 Corporate 377 631 ------- ------- 9,066 9,122 Less allowance for losses (240) (231) ------- ------- $ 8,826 $ 8,891 ======= ======= - -------------------------------------------------------------------------------- Of receivables balances at December 31, 1996 and 1995, before allowance for losses, $6,629 million and $6,582 million, respectively, were from sales of goods and services to customers, and $290 million and $293 million, respectively, were from transactions with associated companies. Current receivables of $326 million at year-end 1996 and $322 million at year-end 1995 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% of GE's sales of goods and services were to the U.S. government in 1996 (about 5% and 6% in 1995 and 1994, respectively). ==================================================== 12 GE INVENTORIES - -------------------------------------------------------------------------------- December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- Raw materials and work in process $ 3,028 $ 3,205 Finished goods 2,404 2,277 Unbilled shipments 258 258 ------- ------- 5,690 5,740 Less revaluation to LIFO (1,217) (1,345) ------- ------- $ 4,473 $ 4,395 ======= ======= - -------------------------------------------------------------------------------- LIFO revaluations decreased $128 million in 1996, compared with decreases of $87 million in 1995 and $197 million in 1994. Included in these changes were decreases of $58 million, $88 million and $72 million in 1996, 1995 and 1994, respectively, that resulted from lower LIFO inventory levels. There were net cost decreases in 1996 and 1994, and no cost change in 1995. As of December 31, 1996, GE is obligated to acquire raw materials at market prices through the year 2003 under various take-or-pay or similar arrangements. Annual minimum commitments under these arrangements are insignificant. F-28 ANNUAL REPORT PAGE 54 ==================================================== 13 GECS FINANCING RECEIVABLES (INVESTMENTS IN TIME SALES, LOANS AND FINANCING LEASES) - -------------------------------------------------------------------------------- December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- TIME SALES AND LOANS Consumer services $ 40,479 $ 33,430 Specialized financing 14,584 18,230 Mid-market financing 9,914 8,795 Equipment management 760 1,371 Specialty insurance 339 189 --------- --------- 66,076 62,015 Deferred income (3,244) (2,424) --------- --------- Time sales and loans -- net 62,832 59,591 --------- --------- INVESTMENT IN FINANCING LEASES Direct financing leases 36,576 33,291 Leveraged leases 2,999 2,909 --------- --------- Investment in financing leases 39,575 36,200 --------- --------- 102,407 95,791 Less allowance for losses (2,693) (2,519) --------- --------- $ 99,714 $ 93,272 ========= ========= - -------------------------------------------------------------------------------- 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 1996 and 1995, specialized financing and consumer services loans included $12,075 million and $13,405 million, respectively, for commercial real estate loans. Note 17 contains information on airline loans and leases. At December 31, 1996, contractual maturities for time sales and loans were $28,128 million in 1997; $12,504 million in 1998; $7,255 million in 1999; $5,279 million in 2000; $3,743 million in 2001; and $9,167 million thereafter -- aggregating $66,076 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 unguaranteed residual values of leased equipment, less related deferred income. GECS has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. 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. At December 31, 1996, contractual maturities for rentals receivable under financing leases were $12,890 million in 1997; $9,759 million in 1998; $6,716 million in 1999; $3,616 million in 2000; $2,071 million in 2001; and $8,744 million thereafter -- aggregating $43,796 million. As with time sales and loans, experience has shown that a portion of these receivables will be paid prior to contractual maturity, and these amounts should not be regarded as forecasts of future cash flows.
- ---------------------------------------------------------------------------------------------------------------------- NET INVESTMENT IN FINANCING LEASES Total financing leases Direct financing leases Leveraged leases ---------------------- ----------------------- -------------------- December 31 (In millions) 1996 1995 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Total minimum lease payments receivable $ 54,009 $ 50,059 $ 40,555 $ 37,434 $ 13,454 $ 12,625 Less principal and interest on third-party nonrecourse debt (10,213) (9,329) -- -- (10,213) (9,329) -------- -------- -------- -------- -------- -------- Net rentals receivable 43,796 40,730 40,555 37,434 3,241 3,296 Estimated unguaranteed residual value of leased assets 6,248 5,768 4,906 4,630 1,342 1,138 Less deferred income (10,469) (10,298) (8,885) (8,773) (1,584) (1,525) -------- -------- -------- -------- -------- -------- INVESTMENT IN FINANCING LEASES (as shown above) 39,575 36,200 36,576 33,291 2,999 2,909 Less amounts to arrive at net investment Allowance for losses (720) (745) (641) (669) (79) (76) Deferred taxes arising from financing leases (7,488) (6,243) (4,077) (3,215) (3,411) (3,028) -------- -------- -------- -------- -------- -------- NET INVESTMENT IN FINANCING LEASES $ 31,367 $ 29,212 $ 31,858 $ 29,407 $ (491) $ (195) ======== ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------
F-29 ANNUAL REPORT PAGE 55 Nonearning consumer receivables, primarily private- label credit card receivables, amounted to $926 million and $671 million at December 31, 1996 and 1995, 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 $471 million and $464 million at year-end 1996 and 1995, respectively. "Impaired" loans are defined by generally accepted accounting principles as loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. That definition excludes, among other things, leases or large groups of smaller-balance homogenous loans, and therefore applies principally to GECS commercial loans. Under these principles, GECS has two types of "impaired" loans as of December 31, 1996 and 1995: loans requiring allowances for losses ($583 million and $647 million, respectively) and loans expected to be fully recoverable because the carrying amount has been reduced previously through charge-offs or deferral of income recognition ($187 million and $220 million, respectively); allowances for losses on these loans were $222 million and $285 million, respectively. Average investment in these loans during 1996 and 1995 was $842 million and $1,037 million, respectively, before allowance for losses; interest income earned, principally on the cash basis, while they were considered impaired was $30 million and $49 million in 1996 and 1995, respectively. ==================================================== 14 OTHER GECS RECEIVABLES This account includes reinsurance recoverables of $4,403 million and $4,547 million and premiums receivable of $3,860 million and $3,001 million at year-end 1996 and 1995, respectively. Also included are amounts for accrued investment income, trade receivables, operating lease receivables, insurance policy loans and a variety of sundry items. ==================================================== 15 PROPERTY, PLANT AND EQUIPMENT (INCLUDING EQUIPMENT LEASED TO OTHERS)
- -------------------------------------------------------------------------------- December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- ORIGINAL COST GE Land and improvements $ 476 $ 496 Buildings, structures and related equipment 6,315 6,063 Machinery and equipment 17,824 17,184 Leasehold costs and manufacturing plant under construction 1,308 1,100 Other 27 24 ------- ------- 25,950 24,867 ------- ------- GECS Buildings and equipment 3,075 2,616 Equipment leased to others Vehicles 6,789 4,948 Aircraft 6,647 5,682 Marine shipping containers 3,053 3,253 Railroad rolling stock 2,093 1,811 Other 3,177 2,769 ------- ------- 24,834 21,079 ------- ------- $50,784 $45,946 ======= ======= ACCUMULATED DEPRECIATION AND AMORTIZATION GE $15,118 $14,633 GECS Buildings and equipment 1,246 964 Equipment leased to others 5,625 4,670 ------- ------- $21,989 $20,267 ======= ======= - -------------------------------------------------------------------------------- Includes $190 and $101, net, of commercial aircraft off-lease in 1996 and 1995, respectively. - --------------------------------------------------------------------------------
Amortization of GECS equipment leased to others was $1,848 million, $1,702 million and $1,435 million in 1996, 1995 and 1994, respectively. Noncancelable future rentals due from customers for equipment on operating leases at year-end 1996 totaled $9,093 million and are due as follows: $2,908 million in 1997; $1,923 million in 1998; $1,128 million in 1999; $686 million in 2000; $446 million in 2001; and $2,002 million thereafter. Statement of Financial Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, specifies circumstances in which certain long-lived assets must be reviewed for impairment. 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. Adoption of this standard on January 1, 1996, did not have a material effect on the financial position or results of operations of GE or GECS. F-30 ANNUAL REPORT PAGE 56 ==================================================== 16 INTANGIBLE ASSETS - -------------------------------------------------------------------------------- December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- GE Goodwill $ 6,676 $ 5,901 Other intangibles 691 742 ------- ------- 7,367 6,643 ------- ------- GECS Goodwill 5,847 3,984 Present value of future profits (PVFP) 2,438 624 Other intangibles 355 403 ------- ------- 8,640 5,011 ------- ------- $16,007 $11,654 ======= ======= - -------------------------------------------------------------------------------- GE intangible assets are shown net of accumulated amortization of $2,637 million in 1996 and $2,347 million in 1995. GECS intangible assets are net of accumulated amortization of $1,988 million in 1996 and $1,352 million in 1995. GECS' year-end 1996 PVFP balance includes $1,896 million related to life insurance enterprises acquired during 1996. PVFP amortization, which is on an accelerated basis and net of interest, is projected to range from 11% to 8% of the year-end 1996 unamortized balance for each of the next five years. ==================================================== 17 ALL OTHER ASSETS
- -------------------------------------------------------------------------------- December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- GE Investments Associated companies $ 1,526 $ 1,201 Other 1,591 1,672 ------- ------- 3,117 2,873 Prepaid pension asset 6,112 5,272 Other 3,948 3,756 ------- ------- 13,177 11,901 ------- ------- GECS Investments Assets acquired for resale 2,993 3,558 Associated companies 4,916 3,566 Real estate ventures 2,469 2,004 Other 2,095 2,072 ------- ------- 12,473 11,200 Separate accounts 3,516 -- Mortgage servicing rights 1,663 1,688 Deferred insurance acquisition costs 1,720 1,336 Other 2,662 1,868 ------- ------- 22,034 16,092 ------- ------- $35,211 $27,993 ======= ======= - -------------------------------------------------------------------------------- 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 guarantees (principally guarantees) amounting to $1,514 million at year-end 1996 and $1,433 million at year-end 1995; and it had entered into commitments totaling $1,554 million and $1,505 million at year-end 1996 and 1995, respectively, to provide financial assistance on future aircraft engine sales. Estimated fair values of the aircraft securing these receivables and associated guarantees exceeded the related account balances and guaranteed amounts at December 31, 1996. GE sells certain long-term receivables from the airline industry with recourse. Proceeds from such sales amounted to $141 million in 1996 and $297 million in 1995. No receivables were sold in 1994. Balances outstanding were $424 million and $487 million at December 31, 1996 and 1995, respectively. GECS acts as a lender and lessor to the commercial airline industry. At December 31, 1996 and 1995, the balance of such GECS loans, leases and equipment leased to others was $8,240 million and $8,337 million, respectively. In addition, at December 31, 1996, GECS had issued financial guarantees and funding commitments of $221 million ($409 million at year-end 1995) and had placed multiyear orders for various Boeing and Airbus aircraft with list prices of approximately $6.5 billion. At year-end 1996, the National Broadcasting Company had $7,744 million of commitments to acquire broadcast material and the rights to broadcast television programs, including U.S. television rights to future Olympic games, and commitments under long-term television station affiliation agreements that require payments through the year 2008. In connection with numerous projects, primarily power generation bids and contracts, GE had issued various bid and performance bonds and guarantees totaling $3,250 million at year-end 1996 and $2,462 million at year-end 1995. Separate accounts represent investments controlled by policyholders and are associated with identical amounts reported as insurance liabilities in note 20. 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, is recognized as a charge to earnings. Adoption of this standard on January 1, 1996, did not have a material effect on the financial position or results of operations of GE or GECS. F-31 ANNUAL REPORT PAGE 57 ==================================================== 18 GE ALL OTHER CURRENT COSTS AND EXPENSES ACCRUED At year-end 1996 and 1995, this account included taxes accrued of $2,487 million and $1,598 million, respectively, and compensation and benefit accruals of $1,315 million and $1,233 million, respectively. Also included are amounts for product warranties, estimated costs on shipments billed to customers and a variety of sundry items. ==================================================== 19 BORROWINGS
- -------------------------------------------------------------------------------- SHORT-TERM BORROWINGS 1996 1995 ----------------------- ------------------------- December 31 Average Average (In millions) Amount rate Amount rate - -------------------------------------------------------------------------------- GE Commercial paper (U.S.) $ 914 5.41% $ 40 5.72% Payable to banks 204 8.58 266 8.18 Current portion of long-term debt 551 6.39 697 7.49 Other 670 300 -------- ------- 2,339 1,666 -------- ------- GECS Commercial paper U.S 50,435 5.68 37,432 5.82 Non-U.S 3,737 4.30 3,796 6.33 Current portion of long-term debt 16,471 6.17 15,719 6.51 Other 7,302 5,861 -------- ------- 77,945 62,808 -------- ------- ELIMINATIONS (84) (11) -------- ------- $ 80,200 $64,463 ======== ======= - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LONG-TERM BORROWINGS 1996 December 31 average (In millions) rate Maturities 1996 1995 - -------------------------------------------------------------------------------- GE Senior notes 7.91% 1998-2000 $ 506 $ 988 Payable to banks 7.56 1998-2005 312 482 Industrial development/ pollution control bonds 3.63 1998-2019 244 260 Other 648 547 -------- ------- 1,710 2,277 -------- ------- GECS Senior notes 6.18 1998-2055 46,680 47,794 Subordinated notes 7.88 2006-2035 996 996 -------- ------- 47,676 48,790 -------- ------- ELIMINATIONS (140) (40) -------- -------- $ 49,246 $ 51,027 ======== ======== - -------------------------------------------------------------------------------- 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. Guaranteed by GE. - --------------------------------------------------------------------------------
Borrowings of GE and GECS are addressed below from two perspectives -- liquidity and interest rate management. Additional information about borrowings and associated swaps can be found in note 30. LIQUIDITY requirements of GE and GECS are principally met through the credit markets. Maturities of long-term borrowings during the next five years follow. - -------------------------------------------------------------------------------- (In millions) 1997 1998 1999 2000 2001 - -------------------------------------------------------------------------------- GE $ 551 $ 1,043 $ 49 $ 70 $ 36 GECS 16,471 14,414 7,986 5,433 3,773 - -------------------------------------------------------------------------------- Confirmed credit lines of approximately $3.6 billion had been extended to GE by 23 banks at year-end 1996. Substantially all of GE's credit lines are available to GECS and its affiliates in addition to their own credit lines. At year-end 1996, GECS and its affiliates had committed lines of credit aggregating $20.4 billion, including $11.2 billion of revolving credit agreements pursuant to which it has the right to borrow funds for periods exceeding one year. A total of $1.7 billion of GE Capital's credit lines is available for use by GE. During 1996, neither GE nor GECS borrowed under any of these credit lines. Both GE and GECS compensate certain banks for credit facilities in the form of fees, which were insignificant in each of the past three years. INTEREST RATES ARE MANAGED by GECS in light of the anticipated behavior, including prepayment behavior, of assets in which debt proceeds are invested. A variety of instruments, including interest rate and currency swaps, are employed to achieve management's interest rate objectives. Effective interest rates are lower under these "synthetic" positions than could have been achieved by issuing debt directly. The following table shows GECS borrowing positions considering the effects of swaps.
- -------------------------------------------------------------------------------- EFFECTIVE BORROWINGS (INCLUDING SWAPS) December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- Short-term $46,450 $38,508 ======= ======= Long-term (including current portion) Fixed rate $56,190 $49,582 Floating rate 22,981 23,508 ------- ------- Total long-term $79,171 $73,090 ======= ======= - -------------------------------------------------------------------------------- Includes the notional amount of long-term interest rate swaps that effectively convert the floating-rate nature of short-term borrowings to fixed rates of interest. - --------------------------------------------------------------------------------
At December 31, 1996, interest rate swap maturities ranged from 1997 to 2029, and weighted average interest rates for "synthetic" fixed-rate borrowings were 6.45% (6.62% at year-end 1995). F-32 ANNUAL REPORT PAGE 58 ==================================================== 20 GECS INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS
- -------------------------------------------------------------------------------- December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- Annuity and investment contract benefits $20,210 $14,007 Life insurance benefits and other 19,784 9,223 Unpaid claims and claims adjustment expenses 13,184 12,662 Unearned premiums 4,633 3,807 Separate accounts (see note 17) 3,516 -- ------- ------- $61,327 $39,699 ======= ======= - -------------------------------------------------------------------------------- Life insurance benefits are accounted for mainly by a net-level-premium method using estimated yields generally ranging from 5% to 9% in both 1996 and 1995. - --------------------------------------------------------------------------------
The liability for unpaid claims and claims adjustment expenses, principally property and casualty reserves, consists of both case and incurred-but-not- reported reserves. Where experience is not sufficient to determine reserves, industry averages are used. Estimated amounts of salvage and subrogation recoverable on paid and unpaid losses are deducted from outstanding losses. A summary of activity for this liability follows. - -------------------------------------------------------------------------------- (In millions) 1996 1995 1994 - -------------------------------------------------------------------------------- Balance at January 1-- gross $ 12,662 $ 7,032 $ 6,405 Less reinsurance recoverables (1,853) (1,084) (1,142) -------- -------- -------- Balance at January 1-- net 10,809 5,948 5,263 Claims and expenses incurred Current year 4,087 3,268 2,016 Prior years 104 492 558 Claims and expenses paid Current year (1,357) (706) (543) Prior years (2,373) (1,908) (1,432) Claim reserves related to acquired companies 309 3,696 49 Other (217) 19 37 -------- -------- -------- Balance at December 31-- net 11,362 10,809 5,948 Add reinsurance recoverables 1,822 1,853 1,084 -------- -------- -------- Balance at December 31-- gross $ 13,184 $ 12,662 $ 7,032 ======== ======== ======== - -------------------------------------------------------------------------------- Prior-year claims and expenses incurred in the above table resulted principally from settling claims established in earlier accident years for amounts that differed from expectations. Financial guarantees and credit life risk of insurance affiliates are summarized below. - -------------------------------------------------------------------------------- December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- Guarantees, principally on municipal bonds and structured finance issues $ 140,575 $ 119,516 Mortgage insurance risk in force 36,279 32,599 Credit life insurance risk in force 25,961 13,670 Less reinsurance (32,413) (21,749) --------- --------- $ 170,402 $ 144,036 ========= ========= - -------------------------------------------------------------------------------- Insurance risk is ceded on both a pro rata and an excess basis. When GECS cedes insurance to third parties, it is not relieved of its primary obligation to policyholders. Losses on ceded risks give rise to claims for recovery; allowances are established for such receivables from reinsurers. The effects of reinsurance on premiums written and premiums and commissions earned were as follows: - -------------------------------------------------------------------------------- (In millions) 1996 1995 1994 - -------------------------------------------------------------------------------- PREMIUMS WRITTEN Direct $ 3,926 $ 2,984 $ 1,816 Assumed 5,455 3,978 2,696 Ceded (1,196) (804) (550) ------- ------- ------- $ 8,185 $ 6,158 $ 3,962 ======= ======= ======= PREMIUMS AND COMMISSIONS EARNED Direct $ 3,850 $ 2,604 $ 1,787 Assumed 5,353 4,414 2,596 Ceded (1,058) (786) (558) ------- ------- ------- $ 8,145 $ 6,232 $ 3,825 ======= ======= ======= - -------------------------------------------------------------------------------- Reinsurance recoveries recognized as a reduction of insurance losses and policyholder and annuity benefits amounted to $937 million, $459 million and $434 million for the years ended December 31, 1996, 1995 and 1994, respectively. ==================================================== 21 GE ALL OTHER LIABILITIES This account includes noncurrent compensation and benefit accruals at year-end 1996 and 1995 of $5,177 million and $4,858 million, respectively. Also included are amounts for deferred incentive compensation, deferred income, product warranties and a variety of sundry items. Statement of Position No. 96-1, Environmental Remediation Liabilities, provides authoritative guidance on the recognition, measurement, display and disclosure of environmental remediation liabilities. The early adoption of this standard as of January 1, 1996, did not have a material effect on the financial position or results of operations of GE. GE is involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs at each site are based on management's best estimate of undiscounted future costs excluding possible insurance recoveries. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the lower end of such range. Uncertainties about the status of laws, regulations, technology and information related to individual sites make it difficult to develop a meaningful estimate of the reasonably possible aggregate environmental remediation exposure. However, even in the unlikely event that remediation costs amounted to the high end of the range of costs for each site, the resulting additional liability would not be material to GE's financial position, results of operations or liquidity. F-33 ANNUAL REPORT PAGE 59 ==================================================== 22 DEFERRED INCOME TAXES Aggregate deferred tax amounts are summarized below. - -------------------------------------------------------------------------------- December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- ASSETS GE $ 4,097 $ 3,851 GECS 3,310 1,974 ------- ------- 7,407 5,825 ------- ------- LIABILITIES GE 4,630 4,359 GECS 11,050 9,176 ------- ------- 15,680 13,535 ------- ------- NET DEFERRED TAX LIABILITY $ 8,273 $ 7,710 ======= ======= - -------------------------------------------------------------------------------- Principal components of the net deferred tax liability balances for GE and GECS are as follows: - -------------------------------------------------------------------------------- December 31 (In millions) 1996 1995 - -------------------------------------------------------------------------------- GE Provisions for expenses $(2,740) $(2,539) Retiree insurance plans (806) (818) Prepaid pension asset 2,139 1,845 Depreciation 836 928 Other -- net 1,104 1,092 ------- ------- 533 508 ------- ------- GECS Financing leases 7,488 6,243 Operating leases 1,833 1,485 Net unrealized gains on securities 404 608 Allowance for losses (1,184) (852) Insurance reserves (787) (218) AMT credit carryforwards (561) -- Other-- net 547 (64) ------- ------- 7,740 7,202 ------- ------- NET DEFERRED TAX LIABILITY $ 8,273 $ 7,710 ======= ======= - -------------------------------------------------------------------------------- ==================================================== 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) 1996 1995 - -------------------------------------------------------------------------------- GE Capital $1,800 $1,800 GE Capital subsidiary 485 360 - -------------------------------------------------------------------------------- Dividend rates on the preferred stock ranged from 3.8% to 5.2% during 1996, from 4.2% to 5.2% during 1995 and from 2.3% to 4.9% during 1994. ==================================================== 24 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 1996, net assets of regulated GECS affiliates amounted to $20.3 billion, of which $17.4 billion was restricted. At December 31, 1996 and 1995, the aggregate statutory capital and surplus of the insurance businesses totaled $10.2 billion and $7.7 billion, respectively. In preparing statutory statements, no significant permitted accounting practices are used that differ from prescribed accounting practices. ==================================================== 25 SHARE OWNERS' EQUITY - -------------------------------------------------------------------------------- (In millions) 1996 1995 1994 - -------------------------------------------------------------------------------- COMMON STOCK ISSUED Balance at January 1 $ 594 $ 594 $ 584 Adjustment for stock split -- -- 9 Newly issued stock -- -- 1 -------- -------- -------- Balance at December 31 $ 594 $ 594 $ 594 ======== ======== ======== UNREALIZED GAINS (LOSSES) ON INVESTMENT SECURITIES -- NET $ 671 $ 1,000 $ (810) ======== ======== ======== OTHER CAPITAL Balance at January 1 $ 1,663 $ 1,122 $ 550 Currency translation adjustments (117) 127 180 Gains on treasury stock dispositions 952 414 215 Newly issued stock -- -- 186 Adjustment for stock split -- -- (9) -------- -------- -------- Balance at December 31 $ 2,498 $ 1,663 $ 1,122 ======== ======== ======== RETAINED EARNINGS Balance at January 1 $ 34,528 $ 30,793 $ 28,613 Net earnings 7,280 6,573 4,726 Dividends declared (3,138) (2,838) (2,546) -------- -------- -------- Balance at December 31 $ 38,670 $ 34,528 $ 30,793 ======== ======== ======== COMMON STOCK HELD IN TREASURY Balance at January 1 $ 8,176 $ 5,312 $ 4,771 Purchases 4,842 4,016 1,124 Dispositions (1,710) (1,152) (583) -------- -------- -------- Balance at December 31 $ 11,308 $ 8,176 $ 5,312 ======== ======== ======== - -------------------------------------------------------------------------------- In December 1996, GE's Board of Directors increased the authorization to repurchase Company common stock to $13 billion and authorized the program to continue through 1998. Funds used for the share repurchase will be generated largely from free cash flow. At year-end 1996, a total of 93.5 million shares having an aggregate cost of $6.4 billion had been repurchased under this program and placed into treasury. F-34 ANNUAL REPORT PAGE 60 Common shares issued and outstanding are summarized in the table below. - -------------------------------------------------------------------------------- SHARES OF GE COMMON STOCK December 31 (In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Issued 1,857,013 1,857,013 1,857,013 In treasury (212,471) (190,501) (151,046) ---------- ---------- ---------- Outstanding 1,644,542 1,666,512 1,705,967 ========== ========== ========== - -------------------------------------------------------------------------------- The Proxy Statement for the 1997 Annual Meeting of Share Owners will include a proposal recommended by the Board of Directors on December 19, 1996, which, if approved by share owners, would (a) increase the number of authorized shares of common stock from 2,200,000,000 shares each with a par value of $0.32 to 4,400,000,000 shares each with a par value of $0.16 and (b) split each unissued and issued common share, including shares held in treasury, into two shares of common stock each with a par value of $0.16. 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. Cumulative currency translation adjustments represented reductions of other capital of $56 million and $66 million in 1996 and 1994, respectively, and an addition to other capital of $61 million in 1995. ==================================================== 26 OTHER STOCK-RELATED INFORMATION
- -------------------------------------------------------------------------------- STOCK OPTION ACTIVITY Average per share --------------------- Shares subject Exercise Market (Shares in thousands) to option price price - -------------------------------------------------------------------------------- Balance at December 31, 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 9,517 84.77 84.77 Replacement options 4,311 52.67 52.67 Options exercised (9,138) 35.39 86.50 Options terminated (2,354) 52.38 -- ------ Balance at December 31, 1996 74,773 49.72 98.88 ====== - -------------------------------------------------------------------------------- Without adjusting for the effect of the 2-for-1 stock split in April 1994, the number of options granted during 1994 would have been 10,117. - --------------------------------------------------------------------------------
Stock option plans, stock appreciation rights (SARs), restricted stock and restricted stock units are described in GE's current Proxy Statement. With certain restrictions, requirements for stock option shares can be met from either unissued or treasury shares. The replacement options replaced canceled SARs and have identical terms thereto. At year-end 1996, there were 3.3 million SARs outstanding at an average exercise price of $39.28. There were 4.2 million restricted stock shares and restricted stock units outstanding at year-end 1996. There were 31.1 million and 20.8 million shares available for grants of options, SARs, restricted stock and restricted stock units at December 31, 1996 and 1995, 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 20, 2006. 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 effects on 1995 and 1996 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, 1996.
- -------------------------------------------------------------------------------- STOCK OPTIONS OUTSTANDING (Shares in thousands) Outstanding Exercisable ------------------------------ --------------------- Average Average Exercise Average exercise exercise price range Shares life price Shares price - -------------------------------------------------------------------------------- $21 5/8 - 33 15/16 10,778 3.4 $29.81 10,778 $29.81 $34 5/16 - 43 1/16 13,970 5.1 37.46 13,959 37.46 $43 1/4 - 51 19,815 6.9 47.43 11,477 45.63 $51 1/16 - 72 3/8 20,819 7.9 54.59 4,192 51.25 $75 3/4 - 102 1/4 9,391 9.6 84.83 -- -- ------ ------ Total 74,773 6.7 49.72 40,406 39.17 ====== ====== - -------------------------------------------------------------------------------- Average contractual life remaining in years. - --------------------------------------------------------------------------------
At year-end 1995, options with an average exercise price of $35.23 were exercisable on 37 million shares; at year-end 1994, options with an average exercise price of $33.43 were exercisable on 38 million shares. - -------------------------------------------------------------------------------- Stock options expire 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 61 ==================================================== 27 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, increases and decreases in progress collections, 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) 1996 1995 1994 - -------------------------------------------------------------------------------------------------------- GE NET PURCHASE OF GE SHARES FOR TREASURY Open market purchases under share repurchase programs $ (3,266) $ (3,101) $ (69) Other purchases (1,576) (915) (1,055) Dispositions (mainly to employee and dividend reinvestment plans) 2,519 1,493 771 -------- -------- -------- $ (2,323) $ (2,523) $ (353) ======== ======== ======== GECS FINANCING RECEIVABLES Increase in loans to customers $(49,890) $(46,154) $(37,059) Principal collections from customers 49,923 44,840 31,264 Investment in equipment for financing leases (14,427) (17,182) (10,528) Principal collections on financing leases 11,158 8,821 8,461 Net change in credit card receivables (3,068) (3,773) (2,902) Sales of financing receivables with recourse 4,026 2,139 1,239 -------- -------- -------- $ (2,278) $(11,309) $ (9,525) ======== ======== ======== ALL OTHER INVESTING ACTIVITIES Purchases of securities by insurance and annuity businesses $(15,925) $(14,452) $ (8,663) Dispositions and maturities of securities by insurance and annuity businesses 14,018 12,460 6,338 Proceeds from principal business dispositions -- 575 -- Other (4,183) (2,496) 2,501 -------- -------- -------- $ (6,090) $ (3,913) $ 176 ======== ======== ======== NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $ 5,061 $ 2,545 $ 3,214 Long-term (longer than one year) 17,245 32,507 19,228 Long-term subordinated -- 298 -- Proceeds-- nonrecourse, leveraged lease debt 595 1,428 31 -------- -------- -------- $ 22,901 $ 36,778 $ 22,473 ======== ======== ======== REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $(23,355) $(16,075) $(10,460) Long-term (longer than one year) (1,025) (678) (930) Principal payments-- nonrecourse, leveraged lease debt (276) (292) (309) -------- -------- -------- $(24,656) $(17,045) $(11,699) ======== ======== ======== ALL OTHER FINANCING ACTIVITIES Proceeds from sales of investment and annuity contracts $ 2,561 $ 1,754 $ 1,207 Preferred stock issued by GECS affiliates 155 1,045 240 Redemption of investment and annuity contracts (2,688) (2,540) (1,264) -------- -------- -------- $ 28 $ 259 $ 183 ======== ======== ======== OTHER GECS DISCONTINUED SECURITIES BROKER-DEALER OPERATIONS (SEE NOTE 2) Cash from operating activities $ 892 $ 1,414 $ 1,635 Cash from (used for) investing activities (93) 92 334 Cash used for financing activities (799) (1,506) (2,169) -------- -------- -------- -- -- $ (200) ======== ======== ======== - --------------------------------------------------------------------------------------------------------
F-36 ANNUAL REPORT PAGE 62 ==================================================== 28 INDUSTRY SEGMENTS
- --------------------------------------------------------------------------------------------------------------------------------- REVENUES (In millions) For the years ended December 31 - --------------------------------------------------------------------------------------------------------------------------------- Total revenues Intersegment revenues External revenues -------------------------------- -------------------------------- -------------------------------- 1996 1995 1994 1996 1995 1994 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- GE Aircraft Engines $ 6,302 $ 6,098 $ 5,714 $ 86 $ 115 $ 43 $ 6,216 $ 5,983 $ 5,671 Appliances 6,375 5,933 5,965 5 4 3 6,370 5,929 5,962 Broadcasting 5,232 3,919 3,361 -- -- -- 5,232 3,919 3,361 Industrial Products and Systems 10,412 10,194 9,406 455 436 368 9,957 9,758 9,038 Materials 6,509 6,647 5,681 22 19 43 6,487 6,628 5,638 Power Generation 7,257 6,545 5,933 65 57 44 7,192 6,488 5,889 Technical Products and Services 4,692 4,424 4,285 23 19 18 4,669 4,405 4,267 All Other 3,108 2,707 2,348 -- -- -- 3,108 2,707 2,348 Corporate items and eliminations (322) (286) (195) (656) (650) (519) 334 364 324 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total GE 49,565 46,181 42,498 -- -- -- 49,565 46,181 42,498 -------- -------- -------- -------- -------- -------- -------- -------- -------- GECS Financing 23,742 19,042 14,932 -- -- -- 23,742 19,042 14,932 Specialty Insurance 8,966 7,444 4,926 -- -- -- 8,966 7,444 4,926 All Other 5 6 17 -- -- -- 5 6 17 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total GECS 32,713 26,492 19,875 -- -- -- 32,713 26,492 19,875 -------- -------- -------- -------- -------- -------- -------- -------- -------- Eliminations (3,099) (2,645) (2,264) -- -- -- (3,099) (2,645) (2,264) -------- -------- -------- -------- -------- -------- -------- -------- -------- CONSOLIDATED REVENUES $ 79,179 $ 70,028 $ 60,109 $ -- $ -- $ -- $ 79,179 $ 70,028 $ 60,109 ======== ======== ======== ======== ======== ======== ======== ======== ======== - --------------------------------------------------------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------------------------------------------------ Additions Depreciation and amortization -------------------------------- ------------------------------- -------------------------------- 1996 1995 1994 1996 1995 1994 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ GE Aircraft Engines $ 5,423 $ 4,890 $ 4,751 $ 551 $ 266 $ 254 $ 260 $ 273 $ 261 Appliances 2,569 2,304 2,309 168 143 159 104 93 84 Broadcasting 4,899 3,915 3,881 176 97 86 86 64 67 Industrial Products and Systems 6,580 6,117 5,862 450 446 448 340 308 363 Materials 9,130 9,095 8,628 748 521 550 475 478 443 Power Generation 5,741 5,679 4,887 185 155 337 165 166 143 Technical Products and Services 2,246 2,200 2,362 154 110 154 113 109 95 All Other 14,556 13,113 9,768 -- 1 -- 2 1 2 Corporate items and eliminations 8,781 8,403 8,365 114 113 97 90 89 87 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total GE 59,925 55,716 50,813 2,546 1,852 2,085 1,635 1,581 1,545 --------- --------- --------- --------- --------- --------- --------- --------- --------- GECS Financing 184,587 150,062 121,966 5,656 5,144 5,889 2,108 1,962 1,607 Specialty Insurance 41,575 34,795 22,058 42 132 62 32 24 16 All Other 1,257 872 943 64 36 44 10 27 39 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total GECS 227,419 185,729 144,967 5,762 5,312 5,995 2,150 2,013 1,662 --------- --------- --------- --------- --------- --------- --------- --------- --------- Eliminations (14,942) (13,410) (9,909) -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- --------- --------- CONSOLIDATED TOTALS $ 272,402 $ 228,035 $ 185,871 $ 8,308 $ 7,164 $ 8,080 $ 3,785 $ 3,594 $ 3,207 ========= ========= ========= ========= ========= ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------------------ "All Other" GE assets consists primarily of investment in GECS. Additions to property, plant and equipment include amounts relating to principal businesses purchased. - ------------------------------------------------------------------------------------------------------------------------------------
F-37 ANNUAL REPORT PAGE 63 Details of operating profit by industry segment can be found on page 37 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 11 VHF and UHF television broadcasting stations, operation of seven 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. Power plant products and services, including design, installation, operation and maintenance services. Markets and competition are global. Gas turbines are sold principally as part of 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. Power Generation also includes nuclear reactors and fuel and support services for GE's new and 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. Also 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 consumer savings and insurance services. 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, sales and asset management services for portfolios of commercial and transportation equipment, including aircraft, trailers, auto fleets, modular space units, railroad rolling stock, data processing equipment, containers used on ocean-going vessels, and satellites. MID-MARKET FINANCING -- loans 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 64 ==================================================== 29 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 40.
- ---------------------------------------------------------------------------------------------------------------------------------- REVENUES (In millions) For the years ended December 31 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues Intersegment revenues External revenues -------------------------------- -------------------------------- ------------------------------ 1996 1995 1994 1996 1995 1994 1996 1995 1994 United States $ 58,110 $ 52,935 $ 49,005 $ 2,292 $ 2,123 $ 1,683 $ 55,818 $ 50,812 $ 47,322 Europe 15,964 12,293 7,675 714 656 579 15,250 11,637 7,096 Pacific Basin 4,343 3,725 2,662 796 457 526 3,547 3,268 2,136 Other 5,140 4,750 3,868 576 439 313 4,564 4,311 3,555 Intercompany eliminations (4,378) (3,675) (3,101) (4,378) (3,675) (3,101) -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total $ 79,179 $ 70,028 $ 60,109 $ -- $ -- $ -- $ 79,179 $ 70,028 $ 60,109 ======== ======== ======== ======== ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------- OPERATING PROFIT ASSETS NON-U.S. ASSETS (In million) For the years ended December 31 At December 31 At December 31 - ---------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1996 1995 1994 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- United States $ 9,693 $ 9,002 $8,443 $189,593 $158,884 $142,710 $ $ Europe 1,724 1,043 570 55,196 44,107 21,587 23,021 20,059 Pacific Basin 269 375 177 8,125 6,442 4,491 5,082 3,740 Other 576 543 429 19,655 18,776 17,266 11,439 11,472 Intercompany eliminations 7 9 5 (167) (174) (183) (62) (51) ------- ------- ------ -------- -------- -------- ------- ------- Total $12,269 $10,972 $9,624 $272,402 $228,035 $185,871 $39,480 $35,220 ======= ======= ====== ======== ======== ======== ======= ======= - --------------------------------------------------------------------------------------------------------------------------- Principally the Americas other than the United States, but also includes operations that cannot meaningfully be associated with specific geographic areas (for example, shipping containers used on ocean-going vessels). Not applicable. - ---------------------------------------------------------------------------------------------------------------------------
===================================================== 30 ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS This note contains estimated fair values of certain financial instruments to which GE and GECS are parties. Apart from 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, 1996 or 1995. 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 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. F-39 ANNUAL REPORT PAGE 65
- ---------------------------------------------------------------------------------------------------------------------------------- FINANCIAL INSTRUMENTS 1996 1995 --------------------------------------------- -------------------------------------------- Assets (liabilities) Assets (liabilities) -------------------------------- -------------------------------- Carrying Estimated fair value Carrying Estimated fair value Notional amount -------------------- Notional amount -------------------- December 31 (In millions) amount (net) High Low amount (net) High Low - ----------------------------------------------------------------------------------------------------------------------------------- GE Investments $ $ 1,675 $ 3,127 $ 3,127 $ $ 1,796 $ 2,886 $ 2,886 Borrowings and related instruments Borrowings (4,049) (4,058) (4,058) (3,943) (3,981) (3,981) Interest rate swaps 536 -- (11) (11) 89 -- (16) (16) Currency swaps 180 -- 25 25 180 -- 50 50 Financial guarantees 1,805 -- -- -- 1,722 -- -- -- Other firm commitments Currency forwards and options 5,476 70 150 150 3,774 -- 131 131 Financing commitments 1,554 -- -- -- 1,505 -- -- -- GECS Assets Time sales and loans 60,859 61,632 60,544 57,817 59,188 58,299 Integrated interest rate swaps 4,376 -- 91 91 1,703 -- (93) (93) Purchased options 1,938 11 12 12 1,213 24 11 11 Mortgage-related positions Mortgage purchase commitments 1,193 -- 2 2 1,360 -- 17 17 Mortgage sale commitments 1,417 -- 3 3 1,334 -- (11) (11) Memo: mortgages held for sale 1,112 1,165 1,165 1,663 1,663 1,663 Options, including "floors" 27,422 78 81 81 18,522 67 144 144 Interest rate swaps and futures 1,731 -- (29) (29) 1,990 -- 31 31 Other cash financial instruments 3,352 3,900 3,652 3,527 3,973 3,711 Liabilities Borrowings and related instruments Borrowings (125,621) (125,648) (125,648) (111,598) (112,553) (112,553) Interest rate swaps 34,491 -- (575) (575) 29,881 -- (630) (630) Currency swaps 25,623 -- 337 337 22,342 -- 937 937 Purchased options 1,882 10 1 1 2,751 26 12 11 Other -- -- -- -- 515 -- (65) (65) Annuity and investment contract benefits (20,210) (19,953) (19,953) (14,007) (13,734) (13,734) Separate accounts (3,516) (3,516) (3,516) -- -- -- Insurance-- financial guarantees and credit life 170,402 (3,801) (3,614) (4,025) 144,036 (1,570) (832) (922) Credit and liquidity support -- securitizations 6,842 (73) (9) (9) 7,035 (58) (65) (65) Performance guarantees -- principally letters of credit 3,470 (55) (132) (133) 2,920 (48) (78) (78) Other 2,901 (1,560) (1,175) (1,176) 3,556 (302) (36) (45) Other firm commitments Currency forwards 7,988 -- 75 74 7,657 -- 69 69 Currency swaps 99 -- (7) (7) 280 -- (22) (22) Ordinary course of business lending commitments 4,950 -- (27) (27) 6,929 -- (60) (60) Unused revolving credit lines Commercial 3,375 -- -- -- 3,223 -- -- -- Consumer -- principally credit cards 116,878 -- -- -- 118,710 -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Not applicable. Includes interest rate and currency swaps. See note 19. Included in other cash financial instruments. - -----------------------------------------------------------------------------------------------------------------------------------
Additional information about certain financial instruments in the table above follows. CURRENCY FORWARDS AND OPTIONS are employed by GE and GECS to manage exposures to changes in currency exchange rates associated with commercial purchase and sale transactions. 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. F-40 ANNUAL REPORT PAGE 66 OPTIONS AND INSTRUMENTS CONTAINING OPTION FEATURES that behave based on limits ("caps," "floors" or "collars") on interest rate movement are used to hedge prepayment risk in certain GECS business activities, such as the mortgage servicing and annuities businesses. SWAPS OF INTEREST RATES AND CURRENCIES are used by GE and GECS to optimize borrowing costs for a particular funding strategy (see note 19). In addition, swaps, along with purchased options and futures, are used by GECS to establish specific hedges of mortgage-related assets and to manage net investment exposures. Credit risk of these positions is evaluated by management under the credit criteria discussed below. As part of its ongoing customer activities, GECS also enters into swaps that are integrated into investments in or loans to particular customers and do not involve assumption of third-party credit risk. Such integrated swaps are evaluated and monitored like their associated investments or loans and are not therefore subject to the same credit criteria that would apply to a stand-alone position. COUNTERPARTY CREDIT RISK -- risk that counterparties will be financially unable to make payments according to the terms of the agreements -- is the principal risk associated with swaps, purchased options and forwards. Gross market value of probable future receipts is one way to measure this risk, but is meaningful only in the context of net credit exposure to individual counterparties. At December 31, 1996 and 1995, this gross market risk amounted to $0.9 billion and $1.3 billion, respectively. Aggregate fair values that represent associated probable future obligations, normally associated with a right of offset against probable future receipts, amounted to $0.7 billion at both year-end 1996 and 1995. Except as noted above for positions that are integrated into financings, all swaps, purchased options and forwards are carried out within the following credit policy constraints. * Once a counterparty exceeds credit exposure limits (see table below), no additional transactions are permitted until the exposure with that counterparty is reduced to an amount that is within the established limit. Open contracts remain in force. - ------------------------------------------------------------------------------- COUNTERPARTY CREDIT CRITERIA Credit rating --------------------------- Moody's Standard & Poor's - -------------------------------------------------------------------------------- Term of transaction Between one and five years Aa3 AA- Greater than five years Aaa AAA Credit exposure limits Up to $50 million Aa3 AA- Up to $75 million Aaa AAA - -------------------------------------------------------------------------------- * All swaps are executed under master swap agreements containing mutual credit downgrade provisions that provide the ability to require assignment or termination in the event either party is downgraded below A3 or A-. More credit latitude is permitted for transactions having original maturities shorter than one year because of their lower risk. ==================================================== 31 QUARTERLY INFORMATION (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------ First quarter Second quarter Third quarter Fourth quarter (Dollar amounts in millions; ------------------ ------------------ ------------------ ------------------ per-share amounts in dollars) 1996 1995 1996 1995 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED OPERATIONS Net earnings $ 1,517 $ 1,372 $ 1,908 $ 1,726 $ 1,788 $ 1,610 $ 2,067 $ 1,865 Net earnings per share 0.91 0.81 1.15 1.02 1.08 0.96 1.26 1.12 SELECTED DATA GE Sales of goods and services 9,742 9,278 11,520 11,237 11,478 10,106 13,379 12,392 Gross profit from sales 2,781 2,567 3,475 3,219 3,060 2,794 3,784 3,340 GECS Revenues from operations 7,245 5,754 7,457 6,415 8,449 7,099 9,562 7,224 Operating profit 973 826 951 818 1,179 1,048 945 828 - ------------------------------------------------------------------------------------------------------------------------------------
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. Earnings-per-share amounts for each quarter are required to be computed independently and, as a result, their sum does not equal the total year earnings-per-share amount for 1995. EXHIBIT 12 GENERAL ELECTRIC COMPANY RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions) Year ended December 31 -------------------------------------------------------- 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- GE except GECS Earnings $ 5,582 $ 5,511 $ 7,828 $ 8,696 $ 9,677 Less: Equity in undistributed earnings of General Electric Capital Services, Inc. (831) (957) (1,181) (1,324) (1,836) Plus: Interest and other financial charges included in expense 768 525 410 649 595 One-third of rental expense 228 212 171 174 171 -------- -------- -------- -------- -------- Adjusted "earnings" $ 5,747 $ 5,291 $ 7,228 $ 8,195 $ 8,607 ======== ======== ======== ======== ======== Fixed Charges: Interest and other financial charges $ 768 $ 525 $ 410 $ 649 $ 595 Interest capitalized 29 21 21 13 19 One-third of rental expense 228 212 171 174 171 -------- -------- -------- -------- -------- Total fixed charges $ 1,025 $ 758 $ 602 $ 836 $ 785 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 5.61 6.98 12.01 9.80 10.96 ======== ======== ======== ======== ======== General Electric Company and consolidated affiliates Earnings $ 6,026 $ 6,287 $ 8,831 $ 9,941 $ 11,075 Plus: Interest and other financial charges included in expense 4,512 4,096 4,994 7,336 7,939 One-third of rental expense 320 349 327 349 353 -------- -------- -------- -------- -------- Adjusted "earnings" $ 10,858 $ 10,732 $ 14,152 $ 17,626 $ 19,367 ======== ======== ======== ======== ======== Fixed Charges: Interest and other financial charges $ 4,512 $ 4,096 $ 4,994 $ 7,336 $ 7,939 Interest capitalized 35 26 30 34 60 One-third of rental expense 320 349 327 349 353 -------- -------- -------- -------- -------- Total fixed charges $ 4,867 $ 4,471 $ 5,351 $ 7,719 $ 8,352 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 2.23 2.40 2.64 2.28 2.32 ======== ======== ======== ======== ======== Earnings before income taxes and minority interest. For 1993, earnings are before cumulative effect of a change in accounting principle. Earnings after income taxes, net of dividends. Considered to be representative of interest factor in rental expense.
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