-----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, PdhGQR4EXN4Os1nYy7/GLaa1nX4KzttOg8MtNUh4zqZQOt0R27Q1NBQMCAq6449s +B4p8sB91w4PR2Pkjetwew== 0000040554-00-000011.txt : 20000320 0000040554-00-000011.hdr.sgml : 20000320 ACCESSION NUMBER: 0000040554-00-000011 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000317 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: SEC FILE NUMBER: 333-22265 FILM NUMBER: 572585 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, 1999 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, 06927 (203) 357-4000 Stamford, Connecticut (Zip Code) (Registrant's telephone number, (Address of principal including area code) executive offices) ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each Title of each class exchange on which registered 7 7/8% Guaranteed Subordinated New York Stock Exchange Notes Due December 1, 2006 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| At March 17, 2000, 3,837,825 shares of voting common stock, which constitute all of the outstanding common equity, with a par value of $200 were outstanding. Aggregate market value of the outstanding common equity held by nonaffiliates of the registrant at March 17, 2000. None. DOCUMENTS INCORPORATED BY REFERENCE The consolidated financial statements of General Electric Company, set forth in the Annual Report on Form 10-K of General Electric Company for the year ended December 31, 1999 are incorporated by reference into Part IV hereof. 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. 2 TABLE OF CONTENTS Page PART I Item 1. Business .................................................. 1 Item 2. Properties ................................................ 10 Item 3. Legal Proceedings ......................................... 10 Item 4. Submission of Matters to a Vote of Security Holders ....... 10 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters .................................. 11 Item 6. Selected Financial Data ................................... 11 Item 7. Management's Discussion and Analysis of Results of Operations ........................................... 11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18 Item 8. Financial Statements and Supplementary Data ................ 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................. 39 PART III Item 10. Directors and Executive Officers of the Registrant ........ 40 Item 11. Executive Compensation .................................... 40 Item 12. Security Ownership of Certain Beneficial Owners and Management 40 Item 13. Certain Relationships and Related Transactions ............. 40 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................................. 41 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 directly or indirectly by General Electric Company ("GE Company"). The business of the Corporation originally related principally to financing the distribution and sale of consumer and other products of GE Company. Currently, however, the types and brands of products financed and the services offered are significantly more diversified. Very few of the products financed by GE Capital are manufactured by GE Company. GE Capital operates in five key operating segments that are described below. These operations are subject to a variety of regulations in their respective jurisdictions. In addition, as discussed on page 13, GE Capital acquired control of Montgomery Ward LLC ("Wards") on August 2, 1999. Further information about Wards is provided in the description of GE Capital's Other operating activities. Services of 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, 1999, the Corporation employed approximately 125,600 persons, including approximately 30,000 employees associated with the consolidation of the retail operations of Montgomery Ward LLC. 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 operating segment, these principal financing products which, together with other assets, constitute the Corporation's total assets at December 31, 1999 and 1998. 1
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES FINANCIAL INFORMATION BY OPERATING SEGMENT (In millions) 1999 --------- ---------- --------- ---------- --------- ---------- Net investment Time Net in Allowance sales investment equipment for and in on losses loans, financing operating Investment and all Total net of leases leases securities other assets deferred assets income --------- ---------- --------- ---------- --------- ---------- CONSUMER SERVICES GE Financial Assurance ........... $ 3,486 $ - $ - $ 38,033 $ 22,955 $ 64,474 Auto Financial Services .......... 2,347 7,090 1,011 96 601 11,145 GCF Auto Europe .................. 5,712 1,729 11 51 2,115 9,618 GE Card Services ................. 12,189 2 - 380 4,958 17,529 Global Consumer Finance .......... 19,188 1,736 - 107 3,738 24,769 Mortgage Services ................ 98 - - 606 4,201 4,905 Other ............................ 3,796 856 269 578 1,301 6,800 --------- ---------- --------- ---------- --------- ---------- Total ......................... 46,816 11,413 1,291 39,851 39,869 139,240 EQUIPMENT MANAGEMENT Aviation Services ................ 655 3,583 7,534 101 1,407 13,280 Fleet Services ................... 198 3,371 2,793 25 1,887 8,274 Information Technology Solutions . - 213 17 34 3,384 3,648 Transport International Pool ..... 56 128 3,926 - 1,397 5,507 GE SeaCo/GE Capital Container Finance Corporation ........... 13 210 1,374 26 189 1,812 Penske Truck Leasing ............. - - - 30 3,527 3,557 GE American Communications........ 54 - - - 2,315 2,369 Railcar Services ................. - 455 2,355 - 125 2,935 Modular Space .................... 1 56 1,006 - 447 1,510 --------- ---------- --------- ---------- --------- ---------- Total ......................... 977 8,016 19,005 216 14,678 42,892 MID-MARKET FINANCING Commercial Equipment Financing ... 14,015 12,049 2,428 225 2,533 31,250 Vendor Financial Services ........ 2,668 5,505 555 48 2,121 10,897 European Equipment Finance ....... 1,464 4,821 51 - 606 6,942 Other ............................ 1,039 88 - 9 90 1,226 --------- ---------- --------- ---------- --------- ---------- Total ......................... 19,186 22,463 3,034 282 5,350 50,315 SPECIALIZED FINANCING Real Estate ...................... 10,165 1,167 - 351 6,190 17,873 Structured Finance Group ......... 2,632 4,769 387 1,082 1,749 10,619 Commercial Finance ............... 11,265 13 - 58 1,751 13,087 GE Equity ........................ 57 - - 1,579 3,439 5,075 Other ............................ - - - 331 16 347 --------- ---------- --------- ---------- --------- ---------- Total ......................... 24,119 5,949 387 3,401 13,145 47,001 SPECIALTY INSURANCE .............. 28 - - 13,319 5,728 19,075 ALL OTHER ........................ 255 (77) (114) 2,104 6,750 8,918 --------- ---------- --------- ---------- --------- ---------- TOTAL ............................ $ 91,381 $ 47,764 $ 23,603 $ 59,173 $ 85,520 $307,441 ========= ========== ========= ========== ========= ==========
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES FINANCIAL INFORMATION BY OPERATING SEGMENT (In millions) 1998 --------- ---------- --------- ---------- --------- ---------- Net investment Time Net in Allowance sales investment equipment for and in on losses loans, financing operating Investment and all Total net of leases leases securities other assets deferred assets income --------- ---------- --------- ---------- --------- ---------- CONSUMER SERVICES GE Financial Assurance ........... $ 3,025 $ - $ - $ 37,972 $ 16,070 $ 57,067 Auto Financial Services .......... 2,946 10,496 1,913 5 781 16,141 GCF Auto Europe .................. 6,550 1,349 11 60 1,758 9,728 GE Card Services ................. 9,907 - - 80 2,529 12,516 Global Consumer Finance .......... 17,587 1,695 - 462 4,483 24,227 Mortgage Services ................ 343 - - 594 6,070 7,007 Other ............................ 2,215 608 189 537 626 4,175 --------- ---------- --------- ---------- --------- ---------- Total ......................... 42,573 14,148 2,113 39,710 32,317 130,861 EQUIPMENT MANAGEMENT Aviation Services ................ 459 3,210 6,499 118 1,294 11,580 Fleet Services ................... 89 3,254 1,722 - 1,227 6,292 Information Technology Solutions . - 197 31 - 3,908 4,136 Transport International Pool ..... 75 20 3,418 - 1,458 4,971 GE SeaCo/GE Capital Container Finance Corporation ........... 24 235 1,608 27 163 2,057 Penske Truck Leasing ............. - - - 30 2,559 2,589 GE American Communications........ 160 - - - 2,007 2,167 Railcar Services ................. - 426 1,908 - 124 2,458 Modular Space .................... 42 81 1,021 - 508 1,652 --------- ---------- --------- ---------- --------- ---------- Total ......................... 849 7,423 16,207 175 13,248 37,902 MID-MARKET FINANCING Commercial Equipment Financing ... 13,412 10,039 1,784 110 1,329 26,674 Vendor Financial Services ........ 1,998 3,867 236 1 894 6,996 European Equipment Finance ....... 620 5,556 20 - 653 6,849 Other ............................ 1,035 87 3 16 108 1,249 --------- ---------- --------- ---------- --------- ---------- Total ......................... 17,065 19,549 2,043 127 2,984 41,768 SPECIALIZED FINANCING Real Estate ...................... 7,200 1,563 - 163 5,940 14,866 Structured Finance Group ......... 1,899 4,910 506 932 1,580 9,827 Commercial Finance ............... 6,983 14 - 56 1,685 8,738 GE Equity ........................ 49 - - 43 1,445 1,537 Other ............................ 73 - - 742 24 839 --------- ---------- --------- ---------- --------- ---------- Total ......................... 16,204 6,487 506 1,936 10,674 35,807 SPECIALTY INSURANCE .............. 103 - - 14,470 4,782 19,355 ALL OTHER ........................ - (71) 72 857 2,499 3,357 --------- ---------- --------- ---------- --------- ---------- TOTAL ............................ $ 76,794 $ 47,536 $ 20,941 $ 57,275 $ 66,504 $269,050 ========= ========== ========= ========== ========= ==========
2 OPERATING SEGMENTS The Corporation provides a wide variety of financing, asset management, and insurance products and services which are organized into the following operating segments: o Consumer Services - private-label 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, retail businesses and consumer savings and insurance services. o Equipment Management - leases, loans, sales and asset management services for portfolios of commercial and transportation equipment, including aircraft, trailers, auto fleets, modular space units, railroad rolling stock, data processing equipment, containers used on ocean-going vessels, and satellites. o Mid-Market Financing - loans, financing and operating leases, and other services for middle-market customers, including manufacturers, distributors and end-users, for a variety of equipment that includes vehicles, corporate aircraft, data processing equipment, medical and diagnostic equipment, and equipment used in construction, manufacturing, office applications, electronics and telecommunications activities. o Specialized Financing - loans and financing leases for major capital assets, including industrial facilities and equipment, and energy-related facilities; commercial and residential real estate loans and investments; and loans to and investments in public and private entities in diverse industries. o Specialty Insurance - financial guaranty insurance, principally on municipal bonds and structured finance issues; private mortgage insurance; and creditor insurance covering international customer loan repayments. Refer to Item 7, "Management's Discussion and Analysis of Results of Operations," in this Annual Report on Form 10-K for discussion of the Corporation's Portfolio Quality. A description of the Corporation's principal businesses by operating segment follows. CONSUMER SERVICES GE Financial Assurance GE Financial Assurance ("GEFA") provides consumers financial security solutions by selling a wide variety of insurance, investment and retirement products, primarily in the United States and Japan. These products help consumers accumulate wealth, transfer wealth, and protect their lifestyles and assets and are sold through a family of regulated insurance and annuity companies. GEFA's principal product lines are annuities (deferred and immediate; either fixed or variable), life insurance (universal, term, ordinary and group), guaranteed investment contracts, mutual funds, long-term care insurance, supplemental accident and health insurance, personal lines of automobile insurance and credit insurance. The distribution of these products is accomplished through four distribution methods: intermediaries (brokerage general agents, banks, securities brokerage firms, personal producing general agents and specialized brokers), career or dedicated sales forces, marketing through businesses and affinity groups and direct marketing. GEFA's principal operating companies include General Electric Capital Assurance Company, First Colony Life Insurance Company, GE Life and Annuity Assurance Company (formerly The Life Insurance Company of Virginia), Colonial Penn Insurance Company, Union Fidelity Life Insurance Company, GE Edison Life Insurance Company and GE Capital Life Assurance of New York. GEFA headquarters are in Richmond, Virginia. Auto Financial Services GE Capital Auto Financial Services ("AFS") provides financial services to automobile dealers, manufacturers, financing companies and the consumer customers of those entities in North America. In the United States, AFS is a leading independent financier of leases for new and used motor vehicles leased at retail and sub-prime and prime financing products to consumers through a variety of distribution channels. In addition, AFS provides private-label programs for auto manufacturers and inventory financing programs and direct loans to auto dealers and finance companies. AFS headquarters are in Barrington, Illinois. 3 Global Consumer Finance Auto Europe GCF Auto Europe ("GCF Auto Europe") is a leading independent provider of automobile financing products to automobile dealers and their customers in Europe. Products include hire purchase contracts, finance leases, operating leases, loans, revolving credit facilities and insurance premium financing. GCF Auto Europe has a significant presence in the United Kingdom, the Republic of Ireland, Portugal, France, Spain, Italy, Sweden and Denmark. The headquarters of GCF Auto Europe are in Dublin, Republic of Ireland. GE Card Services GE Card Services ("CS") provides sales financing services to North American retailers in a broad range of consumer industries. Details of financing plans differ, but include customized private-label credit card programs with retailers and inventory financing programs with manufacturers, distributors and retailers. CS provides financing directly to customers of retailers or purchases the retailers' customer receivables. Most of the retailers sell a variety of products of various manufacturers on a time sales basis. The terms for these financing plans differ according to the size of contract and credit standing of the customer. CS generally maintains a security interest in the merchandise financed. Financing is provided to consumers under contractual arrangements, both with and without recourse to retailers. CS' wide range of financial services includes application processing, sales authorization, statement billings, customer services and collection services. CS provides inventory financing for retailers primarily in the appliance and consumer electronics industries. CS maintains a security interest in the inventory and retailers are obliged to maintain insurance coverage for the merchandise financed. CS also issues and services the GE Capital Corporate Card product, providing payment and information systems which help medium and large-sized companies reduce travel costs and the GE Capital Purchasing Card product, which helps customers streamline their purchasing and accounts payable processes. On June 30, 1999, CS completed its exit from the consumer bankcard business through the sale of approximately $3.4 billion in financing receivables, of which $2.2 billion were sold in December 1998. These were principally MasterCard(R) and Visa(R) credit loan products issued to retail customers throughout the United States. On December 6, 1999, CS acquired J.C. Penney's ("JCP") private label credit card accounts receivable and their credit card services facilities for approximately $3.2 billion. In addition, the Company entered into an initial 10-year agreement with JCP to provide private label credit card services. CS headquarters are in Stamford, Connecticut. Global Consumer Finance GE Capital Global Consumer Finance ("GCF") is a leading provider of credit services to non-U.S. retailers and consumers. GCF provides private-label credit cards and proprietary credit services to retailers in Europe, Asia, and, to a lesser extent, South America as well as offering a variety of direct-to-consumer credit programs such as consumer loans, bankcards and credit insurance. GCF's wide range of proprietary financial services includes private-label credit cards, credit promotion and accounting services, billing (in the retailer's name) and customer credit and collection services. GCF provides financing to consumers through operations in the United Kingdom, Austria, France, Republic of Ireland, Germany, The Netherlands, Italy, Spain, Portugal, Poland, Switzerland, the Czech Republic, Japan, Thailand, Hong Kong, China, Brazil and Australia and joint ventures in Indonesia, India and Brazil. GCF headquarters are in Stamford, Connecticut. Mortgage Services GE Capital Mortgage Services, Inc. ("GECMSI"), a wholly-owned affiliate of GE Capital Mortgage Corporation, is engaged primarily in the business of originating, purchasing, selling and servicing residential mortgage loans collateralized by one-to-four-family homes located throughout the United States. GECMSI obtains servicing through the origination and purchase of mortgage loans and servicing rights, and primarily packages the loans it originates and purchases into mortgage-backed securities which it sells to investors. GECMSI also originates and services home equity loans. GECMSI headquarters are in Cherry Hill, New Jersey. 4 EQUIPMENT MANAGEMENT Aviation Services GE Capital Aviation Services ("GECAS") is a global commercial aviation financial services business that offers a broad range of financial products to airlines and aircraft operators, owners, lenders and investors. Financial products include operating leases, sale/leasebacks, aircraft purchase and trading, financing leases, engine/spare parts financing, pilot training, fleet planning and financial advisory services. GECAS owns or manages a fleet of nearly 900 aircraft world-wide with more than 200 additional planes on order or on option from Boeing and Airbus. GECAS has 155 customers in 54 countries. GECAS headquarters are in Stamford, Connecticut, with regional offices in Shannon, Republic of Ireland; Miami, Florida; Vienna, Austria; Beijing and Hong Kong, China and Singapore. Fleet Services GE Capital Fleet Services ("GECFS") is one of the leading corporate fleet management companies with operations in North America, Europe, Australia, New Zealand, Brazil and Japan with approximately 1 million cars and trucks under lease and service management. GECFS offers finance and operating leases to several thousand customers with an average lease term of 36 months. The primary product in North America is a Terminal Rental Adjustment Clause (TRAC) lease through which the customer assumes the residual risk - that is, risk that the book value will be greater than market value at lease termination. In Europe, the primary product is a closed-end lease in which GECFS assumes residual risk. In addition to the services directly associated with the lease, GECFS offers value-added fleet management services designed to reduce customers' total fleet management costs. These services include, among others, maintenance management programs, accident services, national account purchasing programs, fuel programs and title and licensing services. GECFS customer base is diversified with respect to industry and geography and includes many Fortune 500 companies. In 1999, GECFS completed several acquisitions. These included Japan Lease Auto Corporation - a leading fleet leasing company in Japan, a small fleet leasing portfolio from Bank of America in the United States, InTraffic - a fleet services provider in Sweden and McClean Leasing in Canada. GECFS headquarters are in Eden Prairie, Minnesota. Information Technology Solutions GE Capital Information Technology Solutions ("IT Solutions") is a leading worldwide provider of a broad array of information technology products and services, including full life cycle services that provide customers with cost-effective control and management of their information systems. Products offered include desktop personal computers, client server systems, UNIX systems, local and wide area network hardware, and software. Services offered include network design, network support, asset management, help desk, disaster recovery, enterprise management and financial services. IT Solutions serves commercial, educational and governmental customers in over 20 countries. IT Solutions headquarters are in Newport, Kentucky. Transport International Pool Transport International Pool ("TIP") is one of the global leaders in renting, leasing, selling and financing transportation equipment. TIP's fleet of over 350,000 dry freight, refrigerated and double vans, flatbeds, intermodal assets, and specialized trailers is available for rent, lease or purchase at over 250 locations in the United States, Europe, Canada, and Mexico. TIP's commercial vehicle fleet of over 24,000 units is available for rent, lease, or purchase in the United Kingdom. TIP also finances new and used trailers and buys trailer fleets. TIP's customer base comprises trucking companies, railroads, shipping lines, manufacturers and retailers. TIP operates a European service center in Amsterdam, The Netherlands and a commercial vehicle operations and administrative center in Manchester, England. TIP headquarters are in Devon, Pennsylvania. 5 GE SeaCo/GE Capital Container Finance Corporation In May 1998, GE Capital and Sea Containers Ltd. formed GE SeaCo SRL ("GE SeaCo"), a joint venture which operates the combined marine container fleets of Genstar Container Corporation ("Genstar") and Sea Containers. GE SeaCo is one of the world's largest lessors of marine shipping containers with a combined fleet of over 1,100,000 TEU ("twenty foot equivalent units") of dry cargo, refrigerated and specialized containers for global cargo transport. Lessees are primarily shipping lines which lease on a long term or master lease basis. Concurrent with the formation of the joint venture, GE Capital Container Finance Corporation ("GECCF") was created to service the existing finance lease portfolio formerly run by Genstar, and to provide traditional finance leases and structured finance products to the global marine container industry. GE SeaCo headquarters are in Bridgetown, Barbados. GECCF headquarters are in Oakland, California. Penske Truck Leasing GE Capital is a limited partner in Penske Truck Leasing ("Penske"), which is a leading provider of full-service truck leasing and commercial and consumer truck rental in the United States. Penske operates through a national network of full-service truck leasing and rental facilities. At December 31, 1999, Penske had a fleet of about 98,000 tractors, trucks and trailers in its leasing and rental fleets and provided contract maintenance programs or other support services for about 33,000 additional vehicles. Penske also provides dedicated logistics operations support which combines company-employed drivers with its full-service lease vehicles to provide dedicated contract carriage services. In addition, Penske offers supply chain services such as distribution consulting, warehouse management and information systems support. Penske headquarters are in Reading, Pennsylvania. GE American Communications GE American Communications ("GE Americom") is a leading satellite service supplier to a diverse array of customers, including the broadcast and cable TV industries, broadcast radio, business information and integrated communications services for government and commercial customers. GE Americom operates 13 communications satellites and maintains a supporting network of earth stations, central terminal offices, and telemetry, tracking and control facilities. GE Americom headquarters are in Princeton, New Jersey. Railcar Services GE Capital Railcar Services ("GERSCO") is one of the leading railcar leasing companies in North America, with a fleet of 190,000 railcars in its total portfolio. Serving Class 1 railroads, short-line railroads, and shippers throughout North America, GERSCO offers one of the most diverse fleets in the industry, and a variety of lease options. GERSCO also owns and operates a network of railcar repair and maintenance facilities located throughout North America. The repair facilities offer a variety of services, ranging from light maintenance to heavy repair of damaged railcars. The company also provides railcar management, administration and other services. In addition, GERSCO is a pan-European provider of rail transport services, offering a broad range of railcar equipment and rail-related services to railroads, shippers and other transport providers. European sales offices are in England, France, Germany, Italy and Sweden. GERSCO headquarters are in Chicago, Illinois. Modular Space GE Capital Modular Space ("GECMS") provides commercial mobile and modular structures for rental, lease and sale from over 100 facilities in the United States, Europe, Canada and Mexico. The primary markets served include construction, education, healthcare, financial, commercial, institutional and government. GECMS products are available as custom mobile and modular buildings, designed to customer specifications, or are available through the GECMS stock fleet of approximately 125,000 mobile and modular units. GECMS has offices in North America and Europe. GECMS world headquarters are in Malvern, Pennsylvania; its European headquarters are in Antwerp, Belgium. 6 MID-MARKET FINANCING Commercial Equipment Financing GE Capital Commercial Equipment Financing ("CEF") offers a broad line of financial products including leases and loans to middle-market customers, including manufacturers, distributors, dealers and end-users, as well as municipal financing. Products are either held for CEF's own account or brokered to third parties. Generally, transactions range in size from $50 thousand to $50 million, with financing terms from 36 to 180 months. CEF also maintains an asset management operation that redeploys off-lease equipment. The portfolio includes loans and leases for vehicles, manufacturing equipment, corporate aircraft, construction equipment, medical diagnostic equipment, office equipment, telecommunications equipment and electronics. CEF operates from offices throughout the United States, Puerto Rico, Canada, Mexico, Europe and Asia and through joint ventures in Indonesia and China. CEF headquarters are in Danbury, Connecticut. In 1999, CEF, along with Vendor Financial Services, purchased the leasing and installment sales divisions of Japan Leasing Corporation. Vendor Financial Services GE Capital Vendor Financial Services ("VFS") provides financing services to over 100 equipment manufacturers and more than 3,500 dealers in North America, Europe and Asia (including Japan). Customers include major U.S. and foreign manufacturers in a variety of industries including information technology, office equipment, healthcare, telecommunications, energy and industrial equipment. VFS establishes sales financing in two ways - by forming captive partnerships with manufacturers that do not have them, and by outsourcing captives from manufacturers that do. VFS offers industry-specific knowledge, leading edge technology, leasing and equipment expertise, and global capabilities. In addition, VFS provides an expanding array of related financial services to customers including trade payables financing. VFS has sales offices throughout the United States, Canada, Europe, Asia (including Japan), and Australia. VFS headquarters are in Danbury, Connecticut. European Equipment Finance GE Capital European Equipment Finance ("EEF") is one of Europe's leading diversified equipment leasing businesses, offering financial solutions on a single-country or pan-European basis. Customers include manufacturers, vendors and end-users in industries such as office imaging, materials handling, corporate aircraft, information technology, broadcasting, machine tools, telecommunications and transportation. Products and services include loans, leases, off-balance sheet financing, master lease coordination and other services, such as helping end-users increase purchasing power through financing options and helping manufacturers and vendors offer leasing programs. EEF operates from offices in the United Kingdom, Italy, France, Germany, Belgium, Republic of Ireland, Portugal, and the Nordic countries. EEF headquarters are in Hounslow, England. SPECIALIZED FINANCING Real Estate GE Capital Real Estate ("Real Estate") provides funds for the acquisition, refinancing and renovation of a wide range of commercial and residential properties located throughout the United States, and, to a lesser extent, in Canada, Mexico, Europe, and the Far East. Real Estate also provides asset management services to real estate investors and selected services to real estate owners. Lending is a major portion of Real Estate's business in the form of intermediate-term senior or subordinated fixed and floating-rate loans secured by existing income-producing commercial properties such as office buildings, rental apartments, shopping centers, industrial buildings, mobile home parks, hotels and warehouses. Loans range in amount from single-property mortgages typically not less than $5 million to multi-property portfolios of several hundred million dollars. Approximately 90% of all loans are senior mortgages. 7 Real Estate purchases and provides restructuring financing for portfolios of real estate, mortgage loans, limited partnerships, and tax-exempt bonds. Real Estate's business also includes the origination and securitization of low leverage real estate loans, which are intended to be held less than one year before outplacement. To a lesser degree, Real Estate provides equity capital for real estate partnerships through the holding of limited partnership interests and receives preferred returns; typically such investments range from $2 million to $10 million. Real Estate also offers a variety of real estate management services to outside investors, institutions, corporations, investment banks, and others through its real estate services subsidiaries. Asset management services include acquisitions and dispositions, strategic asset management, asset restructuring, and debt and equity management. Real Estate also provides investment products and advisory and asset management services to pension fund clients through GE Capital Investment Advisors, its registered investment advisor, as well as loan administration and servicing through GE Capital Asset Management. In addition, Real Estate offers owners of multi-family housing ways to reduce costs and enhance value in properties by offering buying services (e.g., for appliances, roofing). Real Estate has offices throughout the United States, as well as in Canada, Mexico, Australia, Japan, Sweden, France and the United Kingdom. Real Estate headquarters are in Stamford, Connecticut. Structured Finance Group GE Capital Structured Finance Group ("SFG") makes equity investments and provides specialized financial products and services to its client partners in the commercial and industrial, energy, telecommunications, and transportation sectors, worldwide. SFG combines industry and technical expertise with significant financial capabilities to deliver a full range of sophisticated financial services and products. Services include project finance (construction and term), corporate finance, acquisition finance and arrangement and placement services. Products include a variety of debt and equity instruments, as well as structured transactions, including leasing and partnerships. SFG manages an investment portfolio of approximately $11 billion. SFG headquarters are in Stamford, Connecticut and it has regional offices in Atlanta, Georgia; Chicago, Illinois; Hong Kong, China; Houston, Texas; London, United Kingdom; Mexico City, Mexico; Sao Paulo, Brazil; and Toronto, Canada. Commercial Finance GE Capital Commercial Finance ("CF") is a leading provider of revolving and term debt and equity to finance acquisitions, business expansion, bank refinancings, recapitalizations and other special situations. Products also include asset securitization facilities, capital expenditure lines and bankruptcy-related facilities. Transactions typically range in size from under $2 million to over $200 million. CF's clients are owners, managers and buyers of both public and private companies, principally manufacturers, distributors, retailers and diversified service providers, and has industry specialists in the healthcare, retail and communications industries. Through its Merchant Banking Group, CF provides senior debt, subordinated debt and bridge financing to buyout and private equity firms, and co-invests equity with buying groups or invests directly on a select basis. CF has lending operations in 25 cities, including international offices in Canada, Mexico, Thailand, Australia, The Netherlands, and the United Kingdom, and also has significant factoring operations in France, Germany, the United Kingdom and Italy serving European companies and U.S. exporters. CF headquarters are in Stamford, Connecticut. GE Equity GE Equity (formerly Equity Capital Group) purchases equity investments, primarily convertible preferred and common stock investments including, in some cases, stock warrants convertible into equity ownership. GE Equity's primary objective is long-term capital appreciation. Investments include the retail, financial services, telecommunications, healthcare, food and beverage, cable and broadcasting industries. The portfolio is geographically diversified with investments located throughout the United States, as well as in Latin America, Europe and Asia. GE Equity headquarters are in Stamford, Connecticut. 8 SPECIALTY INSURANCE Financial Guaranty Insurance FGIC Holdings ("FGIC"), through its subsidiary, Financial Guaranty Insurance Company ("Financial Guaranty"), is an insurer of municipal bonds, including new issues, bonds traded in the secondary market and bonds held in unit investment trusts and mutual funds. Financial Guaranty also guarantees certain taxable structured debt. The guaranteed principal, after reinsurance, amounted to approximately $137.4 billion at December 31, 1999. Approximately 85% of the business written to date by Financial Guaranty is municipal bond insurance. FGIC subsidiaries provide a variety of services to state and local governments and agencies, liquidity facilities in variable-rate transactions, municipal investment products and other services. FGIC headquarters are in New York, New York. Mortgage Insurance GE Capital Mortgage Insurance is engaged principally in providing residential mortgage guaranty insurance. Operating in 25 field locations, GE Capital Mortgage Insurance is licensed in 50 states, the District of Columbia and the Virgin Islands. At December 31, 1999, GE Capital Mortgage Insurance was the mortgage insurance carrier for over 1,460,000 residential homes, with total insurance in force aggregating approximately $152 billion and total risk in force aggregating approximately $52 billion. When a claim is received, GE Capital Mortgage Insurance proceeds by either paying up to a guaranteed percentage based on the specified coverage, or paying the mortgage and delinquent interest, taking title to the property and arranging for its sale. GE Capital Mortgage Insurance also provides mortgage guaranty insurance in the United Kingdom, Canada, and Australia. GE Capital Mortgage Insurance headquarters are in Raleigh, North Carolina. GE Insurance Holdings GE Insurance Holdings (formerly Consolidated Financial Insurance) is a leading specialty insurer with operations in 13 European countries and the Philippines. GE Insurance Holdings is one of the leading payment protection insurers in the United Kingdom and Europe. Payment protection insurance is designed to protect customers' loan repayment obligations in the event of unemployment, disability or death. The product is sold alongside most forms of consumer credit through banks, building societies and finance houses. GE Insurance Holdings also provides an extensive range of personal investment products, including pension and purchased life annuities, home income plans and investment bonds through a network of over 6,000 independent financial advisors and a direct sales force, in the United Kingdom. In addition, GE Insurance Holdings sells pet insurance, provides travel and personal accident insurance, and offers the management of uninsured loss claims on behalf of victims of traffic accidents. GE Insurance Holdings headquarters are in London, England. OTHER Wards All other consists primarily of Montgomery Ward LLC ("Wards"). Wards is one of the largest retail merchandising operations in the United States. Wards offers a wide range of branded and private-label merchandise including apparel, fine jewelry, furniture, home furnishings, appliances, electronics, and automotive services. Wards operates 252 stores in 32 states, encompassing approximately 20 million square feet of selling space. Wards is currently rolling out an aggressive store remodeling program designed to enhance the shopping experience and offer better presentation of its merchandise. Through 1999, 43 stores have been remodeled, with an additional 75 to 80 stores to be completed during 2000 and 2001. Wards is headquartered in Chicago, Illinois. 9 REGULATIONS AND COMPETITION The Corporation's activities are subject to a variety of federal and state regulations including, at the federal level, the Consumer Credit Protection Act, the Equal Credit Opportunity Act and certain regulations issued by the Federal Trade Commission. A majority of states have ceilings on rates chargeable to customers in retail time sales transactions, installment loans and revolving credit financing. Common carrier services of GE Americom are subject to regulation by the Federal Communications Commission. Insurance and reinsurance operations are subject to regulation by various state insurance commissions or foreign regulatory authorities, as applicable. The Corporation's international operations are subject to regulation in their respective jurisdictions. To date, compliance with such regulations has not had a material adverse effect on the Corporation's financial position or results of operations. The businesses in which the Corporation engages are highly competitive. The Corporation is subject to competition from various types of financial institutions, including banks, thrifts, investment banks, broker-dealers, credit unions, leasing companies, consumer loan companies, independent finance companies, finance companies associated with manufacturers, insurance and reinsurance companies. Item 2. Properties. The Corporation conducts its business from various facilities, most of which are leased. Item 3. Legal Proceedings. The Corporation is not involved in any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. Omitted. 10 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. See note 13 to the consolidated financial statements. The common stock of the Corporation is owned entirely by GE Capital Services and, therefore, there is no trading market in such stock. Item 6. Selected Financial Data. The following selected financial data should be read in conjunction with the financial statements of GE Capital and consolidated affiliates and the related Notes to Consolidated Financial Statements.
Year ended December 31 ----------------------------------------------------------------------------- (Dollars in millions) 1999 1998 1997 1996 1995 -------------- -------------- -------------- -------------- -------------- Revenues ............................ $ 46,605 $ 41,405 $ 33,404 $ 26,570 $ 21,179 Net earnings ........................ 4,208 3,374 2,729 2,632 2,261 Return on common equity (a) (b) ..... 21.81% 20.33% 18.62% 20.18% 19.89% Ratio of earnings to fixed charges .. 1.60 1.50 1.48 1.53 1.51 Ratio of earnings to combined fixed charges and preferred stock dividends ......................... 1.58 1.48 1.46 1.51 1.49 Ratio of debt to equity ............. 8.44 7.86 7.45 7.84 7.59 Financing receivables - net ......... $ 135,437 $ 121,058 $ 103,799 $ 99,714 $ 93,272 Total assets ........................ 307,441 269,050 228,777 200,816 160,825 Short-term borrowings................ 123,073 107,419 91,680 74,971 59,264 Long-term senior notes .............. 68,164 57,486 44,437 46,124 47,794 Long-term subordinated notes ........ 698 697 697 697 697 Minority interest ................... 1,767 1,137 860 679 703 Equity .............................. 22,746 21,069 18,373 15,526 14,202
(a) Equity excludes unrealized gains and losses on investment securities, net of tax. (b) Return on common equity is calculated using earnings that are adjusted for preferred stock dividends and equity excludes preferred stock Item 7. Management's Discussion and Analysis of Results of Operations. Overview The Corporation's net earnings were $4,208 million in 1999, up 25% from $3,374 million in 1998, with strong double-digit earnings growth in four of the five operating segments. Net earnings in 1998 increased 24% from 1997. The earnings improvement throughout the three-year period resulted from asset growth, principally from acquisitions of businesses and portfolios, and origination volume. Operating Results Total Revenues increased 13% to $46.6 billion in 1999, following a 24% increase to $41.4 billion in 1998. The increases in both years reflected the contributions of businesses acquired as well as growth in origination volume. Interest expense on borrowings in 1999 was $8.9 billion, up from $8.6 billion in 1998 and $7.3 billion in 1997. In both 1999 and 1998, while average borrowings increased in order to finance asset growth, the associated higher interest costs were partially mitigated by lower average interest rates. The composite interest rate was 5.11% in 1999, compared with 5.90% in 1998 and 6.05% in 1997. See page 15 for a discussion of interest rate risk management. Operating and administrative expenses were $13.5 billion in 1999, an increase from $11.7 billion in 1998 and $9.5 billion in 1997. The increase in both 1999 and 1998 primarily reflected costs associated with acquired businesses and portfolios and higher investment levels. Insurance losses and policyholder and annuity benefits increased to $5.6 billion in 1999, compared with $5.5 billion in 1998 and $4.8 billion in 1997, reflecting effects of business acquisitions and growth in premium volume throughout the period. 11 Cost of goods sold amounted to $8.0 billion in 1999, compared with $6.8 billion in 1998 and $4.1 billion in 1997, and related to IT Solutions and Montgomery Ward LLC ("Wards"). The increase in 1999 primarily reflects the consolidation of Wards as discussed on page 13; the increase in 1998 is principally the result of acquisition-related growth at IT Solutions. Provision for losses on financing receivables increased to $1.7 billion in 1999, compared with $1.6 billion in 1998 and $1.4 billion in 1997. These provisions principally related to private-label credit cards, bank credit cards, auto loans and auto leases in the consumer services segment, all of which are discussed on page 17 under Portfolio Quality. The provision throughout the three-year period reflected higher average receivable balances, a different mix of business, as well as the effects of lower delinquency rates, consistent with industry experience. Depreciation and amortization of buildings and equipment and equipment on operating leases increased 21% to $3.1 billion in 1999, compared with $2.6 billion in 1998, a 6% increase over 1997. The increase in both years was primarily the result of additions to equipment on operating leases, primarily reflecting acquisitions of vehicles and aircraft. Provision for income taxes was $1.6 billion in 1999 (an effective tax rate of 27.0%), compared with $1.2 billion in 1998 (an effective tax rate of 26.0%) and $1.0 billion in 1997 (an effective tax rate of 26.8%). The higher provision for income taxes primarily reflected increased pre-tax earnings subject to statutory rates. Financing spreads (the excess of yields over interest rates on borrowings) were essentially flat in 1999, 1998 and 1997, reflecting slightly lower yields offset by decreases in borrowing rates. Operating Segments At year-end 1998, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related Information, which requires operating segment data to be measured and analyzed on a basis that is consistent with how business activities are reported internally to management. Previously reported data have been restated as required by SFAS No. 131. For additional information, see note 16 to the consolidated financial statements. Revenues and net earnings of the Corporation, by operating segment, for the past three years are summarized and discussed below.
(In millions) 1999 1998 1997 --------------- -------------- -------------- Revenues Consumer Services ................................................ $ 17,016 $ 15,939 $ 13,549 Equipment Management ............................................. 15,263 14,821 11,280 Mid-Market Financing ............................................. 4,684 3,751 3,009 Specialized Financing ............................................ 4,501 3,300 2,770 Specialty Insurance .............................................. 3,404 3,437 2,838 All other ........................................................ 1,737 157 (42) --------------- -------------- -------------- Total revenues ................................................ $ 46,605 $ 41,405 $ 33,404 =============== ============== ============== Net earnings Consumer Services ................................................ $ 1,072 $ 797 $ 546 Equipment Management ............................................. 695 806 708 Mid-Market Financing ............................................. 604 478 391 Specialized Financing ............................................ 1,243 740 591 Specialty Insurance .............................................. 597 479 396 All other ........................................................ (3) 74 97 --------------- -------------- -------------- Total net earnings ............................................ $ 4,208 $ 3,374 $ 2,729 =============== ============== ==============
Consumer Services revenues increased 7% in 1999 and 18% in 1998 and net earnings increased 35% in 1999 and 46% in 1998. The growth in revenues and net earnings was led by Global Consumer Finance, with strong returns on investments in Japan and other international growth. Additionally, revenues and net earnings were increased by higher premium and investment income at GE Financial Assurance, the consumer savings and insurance business, partially offset by the effects of asset reductions in Card Services and Auto Financial Services. A higher provision for losses on financing receivables because of higher average receivables balances also affected earnings in 1998. 12 Equipment Management revenues grew 3% in 1999, following a 31% increase in 1998. Growth in 1999 revenues was primarily the result of Japanese acquisitions in the corporate auto fleet management operation, as well as higher revenue from commercial aircraft management business at GECAS, largely offset by decreases in sales volume at the remaining equipment management businesses. The 1998 increase reflected acquisitions by IT Solutions and, to a lesser extent, asset growth. Net earnings decreased 14% in 1999, following a 14% increase in 1998. In 1999, as market conditions became more competitive, pricing at IT Solutions and utilization at the European equipment management businesses declined, more than offsetting growth in GECAS and the satellite service business, GE Americom. Net earnings increased in 1998 reflecting higher volume in most businesses from both increased origination as well as acquisitions of businesses and portfolios. These factors were partially offset in 1998 by lower pricing and higher operating costs at IT Solutions and Modular Space. Mid-Market Financing revenues increased 25% in both 1999 and 1998, while net earnings grew 26% and 22%, respectively. Asset growth from both acquisitions and originations was the most significant contributing factor in both years. Revenues and net earnings were also favorably affected in 1998 by the disposition of certain assets. Specialized Financing revenues rose 36% and 19%, while net earnings increased 68% and 25% in 1999 and 1998, respectively. Revenues principally reflect increases in asset gains as well as origination growth, with GE Equity, Commercial Finance and Real Estate accounting for most of the 1999 increase. Revenue and net earnings growth in both years is principally the result of gains on equity investments. Net earnings in 1998 also included the effects of certain tax-advantaged transactions and higher tax credits. Specialty Insurance revenues decreased 1% in 1999 and increased 21% in 1998. The decrease in 1999 revenues was primarily the result of decreased premium income associated with lower origination volume in Mortgage Insurance. The increase in 1998 revenues primarily resulted from increased investment income the result of continued growth in the investment portfolios, as well as a higher level of realized gains on investment securities. Net earnings increased 25% in 1999 and 21% in 1998, primarily reflecting improved conditions in the Mortgage Insurance business, the result of improvement in loss experience, as well as increased investment income in 1998. All Other The Corporation's operating activities include the results of Wards subsequent to August 2, 1999, when the Corporation acquired control of the formerly bankrupt retailer. Wards had sales of $1,622 million and a net loss of $26 million for the period during which it was consolidated. International Operations The Corporation's international operations include its operations located outside the United States and certain of its operations that cannot be meaningfully associated with specific geographic areas (for example, commercial aircraft and shipping containers used on ocean-going vessels). The Corporation's international revenues were $18.0 billion in 1999, an increase of 21% from $14.9 billion in 1998. Revenues in the Pacific Basin more than doubled in 1999. Much of the increase was attributable to growth in Japan, the result of several strategic acquisitions, the largest of which were the purchase of assets and infrastructure of Japan Leasing and the acquisition of a consumer financing business in Japan. Revenues in Europe increased 6% in 1999, reflecting a mix of acquisition and core growth across all of the Corporation's operating activities. Overall, these increases reflect the continued expansion of the Corporation as a global provider of a wide range of financial services. International assets grew 12%, from $94.6 billion at year-end 1998 to $106.2 billion at the end of 1999. The increase in 1999 reflected strong growth in the Pacific Basin, where current economic conditions continue to provide a favorable environment for strategic investments. The Corporation had a particularly large increase in Japan, reflecting a mix of acquisitions, discussed previously, and strong core asset growth. The Corporation also had significant asset growth at GECAS, its aviation services business, which is classified as "other international." The Corporation's activities span all global regions and primarily encompass leasing of aircraft and providing certain financial services within these regional economies. As such, when certain countries or regions such as the Pacific Basin and Latin America experience currency and/or economic stress, the Corporation may have increased exposure to certain risks but also may have new profit opportunities. Potential increased risks include, among other things, higher receivables delinquencies and bad debts, delays or cancellation of sales and orders principally related to aircraft-related equipment, higher local currency financing costs and a slowdown in established financial services activities. New profit opportunities include, among other things, more opportunities for lower cost outsourcing, expansion of financial services activities through purchases of companies or assets at reduced prices and lower U.S. debt financing costs. 13 Capital Resources and Liquidity Statement of Financial Position Investment securities for each of the past two years comprised mainly investment-grade debt securities held by GE Financial Assurance and the Corporation's specialty insurance segment in support of obligations to policyholders and annuitants. The increase of $1.9 billion during 1999 was principally related to investment of premiums received partially offset by decreases in the fair value of debt securities associated with rising interest rates. A breakdown of the investment securities portfolio is provided in note 2 to the consolidated financial statements. Inventories were $1,209 million and $744 million at December 31, 1999 and 1998, respectively. The increase in 1999 primarily reflected the consolidation of the retail operations of Wards. Financing receivables were $135.4 billion at year-end 1999, net of allowance for doubtful accounts, up $14.4 billion over 1998. These receivables are discussed on page 17 and in notes 3 and 4 to the consolidated financial statements. Other receivables were $21.3 billion and $17.8 billion at December 31, 1999 and 1998, respectively. Of the 1999 increase, $2.2 billion was attributable to acquisitions. Equipment on operating leases was $23.6 billion at December 31, 1999, up $2.7 billion from 1998. Details by category of investment can be found in note 6 to the consolidated financial statements. Additions to equipment on operating leases, including business acquisitions, were $13.4 billion during 1999 ($7.2 billion during 1998), primarily reflecting acquisitions of transportation equipment. Intangible assets were $13.1 billion at year-end 1999, up from $12.0 billion at year-end 1998. The $1.0 billion increase in intangible assets related primarily to goodwill from acquisitions, the largest of which were Signature Group and the Australian consumer financial services business of AVCO. Other assets totaled $42.5 billion at year-end 1999, compared with $33.2 billion at the end of 1998. The $9.2 billion increase was principally attributed to increases in "separate accounts," (see note 9 to the consolidated financial statements) and additional investments in associated companies, partially offset by decreases in assets acquired for resale, which reflect sales and securitizations in excess of originations. Insurance liabilities, reserves and annuity benefits were $60.8 billion at year-end 1999, $6.3 billion higher than in 1998. The increase was primarily attributable to increases in separate accounts and growth in guaranteed investment contracts. For additional information on these liabilities, see note 11 to the consolidated financial statements. Borrowings were $191.9 billion at December 31, 1999, of which $123.1 billion is due in 2000 and $68.8 billion is due in subsequent years. Comparable amounts at the end of 1998 were $165.6 billion total, $107.4 billion due within one year and $58.2 billion due thereafter. The Corporation's composite interest rates are discussed on page 11. A large portion of the Corporation's borrowings ($90.5 billion and $81.0 billion at the end of 1999 and 1998, respectively) was issued in active commercial paper markets that management believes will continue to be a reliable source of short-term financing. The average remaining terms and interest rates of the Corporation's commercial paper were 53 days and 5.82% at the end of 1999, compared with 45 days and 5.35% at the end of 1998. The Corporation's ratio of debt to equity was 8.44 to 1 at the end of 1999 and 7.86 to 1 at the end of 1998. GE Company has committed to contribute capital to GE Capital in the event of either a decrease below a specified level in the ratio of GE Capital's earnings to fixed charges, or a failure to maintain a specified debt-to-equity ratio in the event certain GE Capital preferred stock is redeemed. GE Company also has guaranteed the Corporation's subordinated debt with a face amount of $700 million at December 31, 1999 and 1998. Management believes the likelihood that GE Company will be required to contribute capital under either the commitments or the guarantees is remote. Statement of Cash Flows The Corporation's cash and cash equivalents aggregated $6.5 billion at the end of 1999, up from $3.1 billion at year-end 1998 as management held short-term investments as additional liquidity over year-end 1999.One of the Corporation's primary sources of cash is financing activities involving the continued rollover of short-term borrowings and appropriate addition of borrowings with a reasonable balance of maturities. Over the past three years, the Corporation's borrowings with maturities of 90 days or less have increased by $34.0 billion. New borrowings of $108.8 billion having maturities longer than 90 days were added during those years, while $80.7 billion of such longer-term borrowings were retired. The Corporation also generated $31.7 billion of cash from operating activities during the last three years. 14 The Corporation's principal use of cash has been investing in assets to grow its businesses. Of the $87.8 billion that the Corporation invested over the past three years, $19.4 billion was used for additions to financing receivables; $26.5 billion was used to invest in new equipment, principally for lease to others; and $29.6 billion was used for acquisitions of new businesses, the largest of which were Japan Leasing and the credit card operations of JC Penney in 1999. With the financial flexibility that comes with excellent credit ratings, management believes the Corporation should be well positioned to meet the global needs of its customers for capital and to continue growing its diversified asset base. Interest Rate and Currency Risk Management In normal operations, the Corporation must deal with effects of changes in interest rates and currency exchange rates. The following discussion presents an overview of how such changes are managed and a view of their potential effects. The Corporation uses various financial instruments, particularly interest rate and currency swaps, but also futures, options and currency forwards, to manage risks. The Corporation is exclusively an end user of these instruments, which are commonly referred to as derivatives. The Corporation does not engage in any trading, market-making or other speculative activities in the derivative markets. More detailed information regarding these financial instruments, as well as the strategies and policies for their use, is contained in notes 1, 10 and 20 to the consolidated financial statements. The Corporation manages its exposure to changes in interest rates, in part, by funding its assets with an appropriate mix of fixed and variable rate debt and its exposure to currency fluctuations principally by funding local currency denominated assets with debt denominated in those same currencies. It uses interest rate swaps, currency swaps (including non-U.S. currency and cross currency interest rate swaps) and currency forwards to achieve lower borrowing costs. Substantially all of these derivatives have been designated as modifying interest rates and/or currencies associated with specific debt instruments. These financial instruments allow the Corporation to lower its cost of funds by substituting credit risk for interest rate and currency risks. Since the Corporation's principal use of such swaps is to optimize funding costs, changes in interest rates and exchange rates underlying swaps would not be expected to have a material impact on the Corporation's financial position or results of operations. The Corporation conducts almost all activities with these instruments in the over-the-counter markets. The Corporation is exposed to prepayment risk in certain of its business activities, such as in its mortgage servicing and annuities activities. In order to hedge those exposures, the Corporation uses swaps, futures, and option-based financial instruments. These instruments generally behave based on limits ("caps", "floors" or "collars") on interest rate movement. These swaps, futures and option-based instruments are governed by the credit risk policies described below and are transacted in either exchange-traded or over-the-counter markets. In addition, as part of its ongoing customer activities, the Corporation may enter into swaps that are integrated with investments in, loans to or guarantees of the obligations of particular customers and do not involve assumption of third-party credit risk beyond the risk previously approved by the Corporation with respect to such investments, loans or guarantees. Such integrated swaps are evaluated and monitored like their associated investments, loans or guarantees, and are not therefore subject to the same credit criteria that would apply to a stand-alone swap. All other swaps, forward contracts and other derivatives have been designated as hedges of non-U.S. net investments or other assets. Established practices require that derivative financial instruments relate to specific asset, liability or equity transactions or to currency exposures. Substantially all treasury actions are centrally executed by the Corporation's Treasury Department, which maintains controls on all exposures, adheres to stringent counterparty credit standards and actively monitors marketplace exposures. Given the ways in which the Corporation uses swaps, purchased options and forwards, the principal risk is credit risk - risk that counterparties will be financially unable to make payments in accordance with the agreements. Associated market risk is meaningful only as it relates to how changes in the market value affect credit exposure to individual counterparties. Except as noted above for positions that are integrated into financings, all swaps, purchased options and forwards are carried out within the following credit policy constraints. 15 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, 1999, the notional amount of long-term derivatives for which the counterparty was rated below Aa3/AA- was $4.4 billion. These amounts are primarily the result of (1) counterparty downgrades, (2) transactions executed prior to the adoption of the Corporation's current counterparty credit standards, and (3) transactions relating to acquired assets or businesses. 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 1999 1998 1997 ------------------------- --------------- --------------- --------------- Aaa/AAA ......................................................... 59% 66% 75% Aa/AA ........................................................... 37% 32% 20% A/A and below ................................................... 4% 2% 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 denominated interest will be received and floating rate non-U.S. currency denominated interest will be paid, and (3) entering into a swap under which floating rate non-U.S. currency principal and interest will be received and fixed rate U.S. dollar denominated principal and interest will be paid. The end result is, in every important respect, fixed rate U.S. dollar denominated financing with an element of controlled credit risk. The Corporation uses multiple swaps only as part of such transactions. The interplay of the Corporation's credit risk policy with its funding activities is seen in the following example, in which the Corporation is assumed to have been offered three alternatives for funding five-year fixed rate U.S. dollar assets with five-year fixed rate U.S. dollar debt.
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. 16 In this hypothetical case, the Corporation would have chosen alternative 2. Alternative 1 is unacceptably costly. Although alternative 3 would have yielded a lower immediate cost of funds, the additional credit risk of Counterparty B would have exceeded the Corporation's risk management limits. The U.S. Securities and Exchange Commission requires that registrants disclose information about potential effects of changes in interest rates and currency exchange. Although the rules offer alternatives for presenting this information, none of the alternatives is without limitations. The following discussion is based on so-called "shock-tests," which model effects of interest rate and currency shifts on the reporting company. Shock tests, while probably the most meaningful analysis permitted, are constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by their inability to include the complex market reactions that normally would arise from the market shifts modeled. While the following results of shock tests for interest rates and currencies may have some limited use as benchmarks, they should not be viewed as forecasts. o One means of assessing exposure to interest rate changes is a duration-based analysis that measures the potential loss in net earnings resulting from a hypothetical increase in interest rates of 100 basis points across all maturities (sometimes referred to as a "parallel shift in the yield curve"). Under this model, it is estimated that, all else constant, such an increase, including repricing effects in the securities portfolio, would reduce the 2000 net earnings of the Corporation based on year-end 1999 positions by approximately $96 million. Based on conditions at year-end 1998, the effect on 1999 net earnings of such an increase in interest rates was estimated to be approximately $95 million. o One means of assessing exposure to changes in currency exchange rates is to model effects on reported earnings using a sensitivity analysis. Year-end 1999 consolidated currency exposures, including financial instruments designated and effective as hedges, were analyzed to identify Corporation assets and liabilities denominated in other than their relevant functional currency. Net unhedged exposures in each currency were then remeasured assuming a 10% decrease (substantially greater decreases for hyperinflationary currencies) in currency exchange rates compared with the U.S. dollar. Under this model, it is estimated that, all else constant, such a decrease would reduce the 2000 net earnings of the Corporation based on year-end 1999 positions by an insignificant amount. Portfolio Quality Financing receivables are the largest asset of the Corporation and one of its primary sources of revenues. The portfolio of financing receivables, before allowance for losses, increased to $139.1 billion at the end of 1999 from $124.3 billion at the end of 1998, principally reflecting acquisition growth and origination volume that were partially offset by securitizations and other sales of receivables. The related allowance for losses at the end of 1999 amounted to $3.7 billion ($3.3 billion at the end of 1998), representing management's best estimate of probable losses inherent in the portfolio. A discussion of the quality of certain elements of the financing receivable portfolio follows. "Nonearning" receivables are those that are 90 days or more delinquent (or for which collection has otherwise become doubtful) and "reduced-earning" receivables are commercial receivables whose terms have been restructured to a below-market yield. Consumer financing receivables, primarily credit card and personal loans and auto loans and leases, were $50.7 billion at year-end 1999, a decrease of $0.9 billion from year-end 1998. The credit card and personal receivables increased $3.6 billion, primarily from acquisition growth and origination volume, partially offset by sales and securitizations. Auto receivables decreased $4.5 billion primarily as a result of reduced volume. Nonearning receivables at year-end 1999 were $0.9 billion, about 1.8% of total consumer financing receivables compared with $1.3 billion, about 2.4% of total consumer receivables at year-end 1998. Write-offs of consumer receivables declined to $1.2 billion from $1.4 billion at year-end 1998 reflecting improved delinquency trends. Other financing receivables, totaling $88.4 billion at December 31, 1999, consisted of a diverse commercial, industrial and equipment loan and lease portfolio. This portfolio increased $15.7 billion during 1999, reflecting the combination of acquisition growth and increased origination volume. Related nonearning and reduced-earning receivables were $0.9 billion at year-end 1999, compared with $0.4 billion at year-end 1998. The Corporation's loans and leases to commercial airlines amounted to $11.8 billion at the end of 1999, up from $10.2 billion at the end of 1998. 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. 17 Statement of Changes in Share Owners' Equity Share owners' equity increased $1,677 million to $22,746 million at year-end 1999. The increase was largely attributable to net earnings during the period of $4,208 million, partially offset by dividends and other transactions with share owners of $1,086 million. Investment securities had unrealized losses of $1,330 million during 1999, principally as a result of decreases in fair value attributable to increases in interest rates during 1999. A significant majority of the unrealized losses are associated with debt securities held by insurance businesses and are matched with insurance liabilities of similar duration. Accordingly, decreases in fair values of such investment securities are directionally offset by corresponding decreases in fair values of associated insurance liabilities. However, changes in the fair values of insurance liabilities are difficult to measure and are appropriately not recognized under generally accepted accounting principles. Currency translation adjustments reduced equity by $115 million in 1999. Changes in the currency translation adjustment reflect the effects of changes in currency exchange rates on the Corporation's net investment in non-U.S. subsidiaries that have functional currencies other than the U.S. dollar. The decrease during 1999 largely reflected the weakening in the European currencies, partially offset by strengthening in Asian currencies. Such adjustments affect earnings only when all or a portion of an affiliate is disposed. New Accounting Standards Two changes in accounting standards may affect future financial statements. The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, effective for the Corporation on January 1, 2001. Upon adoption, all derivative instruments (including certain derivative instruments embedded in other contracts) will be recognized in balance sheets at fair value, and changes in such fair values must be recognized immediately in earnings unless specific hedging criteria are met. Changes in the values of derivatives meeting these hedging criteria will ultimately offset related earnings effects of the hedged items; effects of qualifying changes in fair value are to be recorded in equity pending recognition in earnings. Certain significant refinements and interpretations of SFAS No. 133 are being deliberated by the FASB, and the effects on accounting for the Corporation's financial instruments will depend to some degree on the results of such deliberations. Management has not determined the total probable effects on its financial statements of adopting SFAS No. 133, and does not believe that an estimate of such effects would be meaningful at this time. The FASB has also proposed new accounting for business combinations that, among other things, would change the accounting for and display of goodwill and other intangibles recorded in business acquisitions for transactions after January 1, 2001. An important aspect of the proposal is that goodwill amortization would be displayed as a separate element in the Statement of Earnings. Management believes that this proposal represents a useful approach to understanding financial performance but believes that the utility of this information would be materially enhanced if the proposed approach for goodwill were applied to all intangible assets acquired with a business. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Information about potential effects of changes in interest rates and currency exchange on the Corporation is discussed on pages 15-17. 18 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, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement 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 LLP Stamford, Connecticut February 4, 2000 19
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Statement of Earnings For the years ended December 31 (In millions) 1999 1998 1997 -------------- -------------- -------------- REVENUES Time sales, loan and other income .................................. $ 17,893 $ 14,518 $ 11,877 Operating lease rentals ............................................ 6,020 5,402 4,819 Financing leases.................................................... 3,587 4,267 3,499 Investment income .................................................. 4,390 4,184 4,071 Premium and commission income of insurance affiliates (Note 11) .... 5,975 5,660 4,516 Sales of goods ..................................................... 8,740 7,374 4,622 -------------- -------------- -------------- Total revenues ................................................... 46,605 41,405 33,404 -------------- -------------- -------------- EXPENSES Interest ........................................................... 8,936 8,618 7,330 Operating and administrative (Note 14) ............................. 13,493 11,663 9,472 Insurance losses and policyholder and annuity benefits (Note 11) ... 5,564 5,544 4,825 Cost of goods sold ................................................. 7,976 6,777 4,147 Provision for losses on financing receivables (Note 4) ............. 1,662 1,601 1,421 Depreciation and amortization of buildings and equipment and equipment on operating leases (Notes 6 & 7) ...................... 3,145 2,594 2,443 Minority interest in net earnings of consolidated affiliates ....... 68 49 40 -------------- -------------- -------------- Total expenses ................................................... 40,844 36,846 29,678 -------------- -------------- -------------- Earnings before income taxes ....................................... 5,761 4,559 3,726 Provision for income taxes (Note 15) ............................... (1,553) (1,185) (997) -------------- -------------- -------------- NET EARNINGS ....................................................... $ 4,208 $ 3,374 $ 2,729 ============== ============== ==============
Statement of Changes in Share Owners' Equity (In millions) 1999 1998 1997 -------------- -------------- -------------- CHANGES IN SHARE OWNERS' EQUITY Balance at January 1 ............................................... $ 21,069 $ 18,373 $ 15,526 -------------- -------------- -------------- Dividends and other transactions with share owners (Note 13) ....... (1,086) (706) (826) -------------- -------------- -------------- Changes other than transactions with share owners: Increases attributable to net earnings ........................... 4,208 3,374 2,729 Unrealized (losses) gains on investment securities - net (Note 13) (1,330) 22 996 Currency translation adjustments (Note 13) ....................... (115) 6 (52) -------------- -------------- -------------- Total changes other than transactions with share owners ......... 2,763 3,402 3,673 -------------- -------------- -------------- Balance at December 31 ............................................. $ 22,746 $ 21,069 $ 18,373 ============== ============== ==============
See Notes to Consolidated Financial Statements. 20
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Statement of Financial Position At December 31 (In millions) 1999 1998 -------------- --------------- ASSETS Cash and equivalents ............................................................ $ 6,505 $ 3,080 Investment securities (Note 2) .................................................. 59,173 57,275 Financing receivables (Note 3): Time sales and loans, net of deferred income ................................. 91,381 76,794 Investment in financing leases, net of deferred income ....................... 47,764 47,536 -------------- --------------- 139,145 124,330 Allowance for losses on financing receivables (Note 4) ....................... (3,708) (3,272) -------------- --------------- Financing receivables - net ................................................ 135,437 121,058 Other receivables (Note 5) ...................................................... 21,263 17,837 Inventories ..................................................................... 1,209 744 Equipment on operating leases (at cost), less accumulated amortization of $7,391 and $7,021 (Note 6) ........................................................... 23,603 20,941 Buildings and equipment (at cost), less accumulated depreciation of $2,034 and $1,654 (Note 7) ............................................................... 4,728 2,876 Intangible assets - net (Note 8) ................................................ 13,073 12,033 Other assets (Note 9) ........................................................... 42,450 33,206 -------------- --------------- Total assets ................................................................. $ 307,441 $ 269,050 ============== =============== LIABILITIES AND SHARE OWNERS' EQUITY Short-term borrowings (Note 10) ................................................. $ 123,073 $ 107,419 Long-term borrowings (Note 10) .................................................. 68,862 58,183 -------------- --------------- Total borrowings ............................................................. 191,935 165,602 Accounts payable ................................................................ 8,759 7,974 Insurance liabilities, reserves and annuity benefits (Note 11) .................. 60,775 54,435 Other liabilities ............................................................... 12,678 9,934 Deferred income taxes (Note 15) ................................................. 8,781 8,899 -------------- --------------- Total liabilities ............................................................ 282,928 246,844 -------------- --------------- Minority interest in equity of consolidated affiliates (Note 12) ................ 1,767 1,137 -------------- --------------- Variable cumulative preferred stock, $100 par value, liquidation preference $100,000 per share (33,000 and 28,000 shares authorized at December 31, 1999 and 1998, respectively, 26,000 and 23,000 shares outstanding at December 31, 1999 and 1998, respectively) .................................................. 3 2 Common stock, $200 par value (3,866,000 shares authorized and 3,837,825 shares outstanding at December 31, 1999 and 1998, respectively) ...................... 768 768 Additional paid-in capital ...................................................... 5,383 4,933 Retained earnings ............................................................... 17,011 14,340 Accumulated unrealized (losses) gains on investment securities - net (a) ........ (163) 1,167 Accumulated foreign currency translation adjustments (a) ........................ (256) (141) -------------- --------------- Total share owners' equity (Note 13) ......................................... 22,746 21,069 -------------- --------------- Total liabilities and share owners' equity ................................... $ 307,441 $ 269,050 ============== ===============
(a) The sum of accumulated unrealized (losses) gains on investment securities and accumulated foreign currency translation adjustments constitutes "Accumulated nonowner changes other than earnings," as shown in Note 13, and was ($419) million and $1,026 million at year-end 1999 and 1998, respectively. See Notes to Consolidated Financial Statements. 21
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Statement of Cash Flows For the years ended December 31 (In millions) 1999 1998 1997 --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings .................................................... $ 4,208 $ 3,374 $ 2,729 Adjustments to reconcile net earnings to cash provided from operating activities: Depreciation and amortization of buildings and equipment and equipment on operating leases ............................. 3,145 2,594 2,443 Provision for losses on financing receivables ............... 1,662 1,601 1,421 Amortization of goodwill and other intangibles .............. 1,083 858 695 Increase in deferred income taxes ........................... 854 601 588 Decrease (increase) in inventories .......................... 327 81 (244) (Decrease) increase in accounts payable ..................... (215) 1,491 138 Increase in insurance liabilities and reserves .............. 2,085 2,466 1,825 Other - net ................................................. 750 (1,392) (3,477) --------------- --------------- --------------- Cash from operating activities ................................ 13,899 11,674 6,118 --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in financing receivables (Note 19) ................. (11,349) (6,117) (1,898) Buildings and equipment and equipment on operating leases - additions .................................................. (13,432) (6,942) (6,160) - dispositions ............................................... 6,252 4,027 2,209 Payments for principal businesses purchased, net of cash acquired (Note 19) .................................................... (9,823) (15,959) (3,820) All other investing activities (Note 19) ........................ (7,722) (11,877) (5,163) --------------- --------------- --------------- Cash used for investing activities ............................ (36,074) (36,868) (14,832) --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (maturities of 90 days or less) ........ 6,865 14,160 12,964 Newly issued debt (maturities longer than 90 days) (Note 19) .... 46,556 41,440 20,825 Repayments and other reductions (maturities longer than 90 days) (Note 19) .......................................... (26,924) (31,027) (22,757) Dividends paid .................................................. (1,537) (895) (1,540) Issuance of variable cumulative preferred stock in excess of par value ........................................................ 300 70 430 Issuance of variable cumulative preferred stock by consolidated affiliate .................................................... 213 200 175 All other financing activities (Note 19) ........................ 127 (322) 191 --------------- --------------- --------------- Cash from financing activities ................................ 25,600 23,626 10,288 --------------- --------------- --------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR ..... 3,425 (1,568) 1,574 CASH AND EQUIVALENTS AT BEGINNING OF YEAR ....................... 3,080 4,648 3,074 --------------- --------------- --------------- CASH AND EQUIVALENTS AT END OF YEAR ............................. $ 6,505 $ 3,080 $ 4,648 =============== =============== ===============
See Notes to Consolidated Financial Statements. 22 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, directly or indirectly, by General Electric Company ("GE Company"). All significant transactions among the Parent and consolidated affiliates have been eliminated. Other associated companies, generally companies that are 20% to 50% owned and over which the Corporation, directly or indirectly, has significant influence, are included in other assets and valued at the appropriate share of equity plus loans and advances. Certain prior-year amounts have been reclassified to conform to the current year presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. Methods of Recording Revenues from Services (Earned Income) - Income on all loans is recognized on the interest method. Accrual of interest income is suspended at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days delinquent. Interest income on impaired loans is recognized either as cash is collected or on a cost recovery basis as conditions warrant. Financing lease income is recorded on the interest method so as to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values of leased assets are based primarily on periodic independent appraisals of the values of leased assets remaining at expiration of the lease terms. Operating lease income is recognized on a straight-line basis over the terms of the underlying leases. Origination, commitment and other nonrefundable fees related to fundings are deferred and recorded in earned income on the interest method. Commitment fees related to loans not expected to be funded and line-of-credit fees are deferred and recorded in earned income on a straight-line basis over the period to which the fees relate. Syndication fees are recorded in earned income at the time related services are performed unless significant contingencies exist. Income from investment and insurance activities is discussed under insurance accounting policies. Sales of Goods - A sale is recorded when title passes to the customer. Cash and Equivalents - Certificates and other time deposits are treated as cash equivalents. Recognition of Losses on Financing Receivables and Investments - The allowance for losses on small-balance receivables reflects management's best estimate of probable losses inherent in the portfolio determined principally on the basis of historical experience. For other receivables, principally the larger loans and leases, the allowance for losses is determined primarily on the basis of management's best estimate of probable losses, including specific allowances for known troubled accounts. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses. Small-balance accounts generally are written off when 6 to 12 months delinquent, although any such balance judged to be uncollectible, such as an account in bankruptcy, is written down immediately to estimated realizable value. Large-balance accounts are reviewed at least quarterly, and those accounts with amounts that are judged to be uncollectible are written down to estimated realizable value. When collateral is repossessed in satisfaction of a loan, the receivable is written down against the allowance for losses to estimated fair value of the asset less costs to sell, transferred to other assets and subsequently carried at the lower of cost or estimated fair value less costs to sell. This accounting method has been employed principally for specialized financing transactions. 23 Investment Securities - Investments in debt and marketable equity securities are reported at fair value based primarily on quoted market prices or, if quoted prices are not available, discounted expected cash flows using market rates commensurate with credit quality and maturity of the investment. Substantially all investment securities are designated as available for sale, with unrealized gains and losses included in equity, net of applicable taxes and other adjustments. Unrealized losses that are other than temporary are recognized in earnings. Realized gains and losses are accounted for on the specific identification method. Inventories - The Corporation's inventories consist primarily of finished products held for sale. All inventories are stated at the lower of cost or realizable values. Cost is primarily determined on a first-in, first-out basis. Equipment on Operating Leases - Equipment is amortized, principally on a straight-line basis, to estimated residual value over the lease term or over the estimated economic life of the equipment. Buildings and Equipment - Depreciation is recorded on either a sum-of-the-years digits formula or a straight-line basis over the lives of the assets. Intangible Assets - Goodwill is amortized over its estimated period of benefit on a straight-line basis; other intangible assets are amortized on appropriate bases over their estimated lives. No amortization period exceeds 40 years. Goodwill in excess of associated expected operating cash flows is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values, depending on the nature of the assets. Interest Rate and Currency Risk Management - As a matter of policy, the Corporation does not engage in derivatives trading, derivatives market-making or other speculative activities. The Corporation uses swaps primarily to optimize funding costs. To a lesser degree, and in combination with options and limit contracts, the Corporation uses swaps to stabilize cash flows from mortgage-related assets. Interest rate and currency swaps that modify borrowings or designated assets, including swaps associated with forecasted commercial paper renewals, are accounted for on an accrual basis. The Corporation requires all other swaps, as well as futures, options and currency forwards, to be designated and accounted for as hedges of specific assets, liabilities or committed transactions; resulting payments and receipts are recognized contemporaneously with effects of hedged transactions. A payment or receipt arising from early termination of an effective hedge is accounted for as an adjustment to the basis of the hedged transaction. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments must be highly correlated with changes in market values of underlying hedged items both at inception of the hedge and over the life of the hedge contract. As a matter of policy, any derivative that is either not designated as a hedge, or is so designated but is ineffective, is marked to market and recognized in operations immediately. Insurance Accounting Policies - Accounting policies for insurance businesses are as follows. Premium income. Insurance premiums are reported as earned income as follows: o For short-duration insurance contracts (including property and casualty, accident and health, and financial guaranty insurance), premiums are reported as earned income, generally on a pro rata basis, over the terms of the related agreements. For retrospectively rated reinsurance contracts, premium adjustments are recorded based on estimated losses and loss expenses, taking into consideration both case and incurred-but-not-reported reserves. o For traditional long-duration insurance contracts (including term and whole life contracts and annuities payable for the life of the annuitant), premiums are reported as earned income when due. o For investment contracts and universal life contracts, premiums received are reported as liabilities, not as revenues. Universal life contracts are long-duration insurance contracts with terms that are not fixed and guaranteed; for these contracts, revenues are recognized for assessments against the policyholder's account, mostly for mortality, contract initiation, administration and surrender. Investment contracts are contracts that have neither significant mortality nor significant morbidity risk, including annuities payable for a determined period; for these contracts, revenues are recognized on the associated investments and amounts credited to policyholder accounts are charged to expense. 24 Deferred policy acquisition costs. Costs that vary with and are primarily related to the acquisition of new and renewal insurance and investment contracts are deferred and amortized over the respective policy terms. For short-duration contracts, acquisition costs consist primarily of commissions, brokerage expenses and premium taxes. For long-duration insurance contracts, these costs consist primarily of first-year commissions in excess of recurring renewal commissions, certain variable sales expenses and certain support costs such as underwriting and policy issue expenses. o For short-duration insurance contracts, these costs are amortized pro rata over the contract periods in which the related premiums are earned. o For traditional long-duration insurance contracts, these costs are amortized over the respective contract periods in proportion to either anticipated premium income or, in the case of limited-payment contracts, estimated benefit payments. o For investment contracts and universal life contracts, these costs are amortized on the basis of anticipated gross profits. Periodically, deferred policy acquisition costs are reviewed for recoverability; anticipated investment income is considered in 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 and is amortized over the respective policy terms in a manner similar to deferred policy acquisition costs. Unamortized balances are adjusted to reflect experience and impairment, if any. NOTE 2. INVESTMENT SECURITIES A summary of investment securities follows:
Gross Gross Gross Estimated Amortized unrealized unrealized fair value (In millions) cost gains losses --------------- ---------------- --------------- --------------- December 31, 1999 Debt securities: U.S. corporate ............................... $ 27,726 $ 160 $ (1,631) $ 26,255 State and municipal .......................... 6,113 47 (254) 5,906 Mortgage-backed .............................. 9,968 151 (310) 9,809 Corporate - non-U.S. ......................... 7,054 187 (161) 7,080 Government - non-U.S. ........................ 2,242 22 (16) 2,248 U.S. government and federal agency ........... 1,637 4 (143) 1,498 Equity securities ............................. 4,829 1,663 (115) 6,377 --------------- ---------------- --------------- --------------- $ 59,569 $ 2,234 $ (2,630) $ 59,173 =============== ================ =============== =============== December 31, 1998 Debt securities: U.S. corporate ............................... $ 24,858 $ 1,194 $ (306) $ 25,746 State and municipal .......................... 6,295 336 (6) 6,625 Mortgage-backed .............................. 8,877 319 (99) 9,097 Corporate - non-U.S. ......................... 6,429 311 (84) 6,656 Government - non-U.S. ........................ 2,538 41 (7) 2,572 U.S. government and federal agency ........... 1,543 187 (4) 1,726 Equity securities ............................. 4,652 321 (120) 4,853 --------------- ---------------- --------------- --------------- $ 55,192 $ 2,709 $ (626) $ 57,275 =============== ================ =============== ===============
The majority of mortgage-backed securities shown in the table above are collateralized by U.S. residential mortgages. 25 At December 31, 1999, contractual maturities of debt securities, other than mortgage-backed securities, were as follows:
Amortized cost Estimated (In millions) fair value --------------- --------------- Due in: 2000 ............................................................................ $ 3,930 $ 4,008 2001-2004 ....................................................................... 9,891 9,843 2005-2009 ....................................................................... 9,380 8,945 2010 and later .................................................................. 21,571 20,191
It is expected that actual maturities will differ from contractual maturities because borrowers have the right to call or prepay certain obligations. Proceeds from sales of investment securities in 1999 were $9,354 million ($11,092 million in 1998 and $8,485 million in 1997). Gross realized gains were $553 million in 1999 ($589 million in 1998 and $618 million in 1997). Gross realized losses were $327 million in 1999 ($198 million in 1998 and $81 million in 1997). NOTE 3. FINANCING RECEIVABLES Financing receivables at December 31, 1999 and 1998, are shown below.
(In millions) 1999 1998 --------------- --------------- Time sales and loans: Consumer Services .............................................................. $ 46,817 $ 42,573 Specialized Financing .......................................................... 24,373 16,204 Mid-Market Financing ........................................................... 19,186 17,065 Equipment Management ........................................................... 977 849 Specialty Insurance ............................................................ 28 103 --------------- --------------- Time sales and loans - net of deferred income ................................. 91,381 76,794 --------------- --------------- Investment in financing leases: Direct financing leases ........................................................ 43,719 43,695 Leveraged leases ............................................................... 4,045 3,841 --------------- --------------- Investment in financing leases ................................................ 47,764 47,536 --------------- --------------- 139,145 124,330 Less allowance for losses (Note 4) ............................................... (3,708) (3,272) --------------- --------------- $ 135,437 $ 121,058 =============== ===============
Time sales and loans represents transactions in a variety of forms, including time sales, revolving charge and credit, mortgages, installment loans, intermediate-term loans and revolving loans secured by business assets. The portfolio includes time sales and loans carried at the principal amount on which finance charges are billed periodically, and time sales and loans carried at gross book value, which includes finance charges. At year-end 1999 and 1998, financing receivables included $15,661 million and $14,330 million, respectively, for commercial real estate loans and leases. Note 6 contains information on commercial airline loans and leases. Investment in financing leases consists of direct financing and leveraged leases of aircraft, railroad rolling stock, autos, other transportation equipment, data processing equipment and medical equipment, as well as other manufacturing, power generation, commercial real estate, and commercial equipment and facilities. As the sole owner of assets under direct financing leases and as the equity participant in leveraged leases, the Corporation is taxed on total lease payments received and is entitled to tax deductions based on the cost of leased assets and tax deductions for interest paid to third-party participants. The Corporation generally is entitled to any residual value of leased assets. 26 Investment in direct financing and leveraged leases represents net unpaid rentals and estimated unguaranteed residual values of leased equipment, less related deferred income. The Corporation has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. The Corporation's share of rentals receivable on leveraged leases is subordinate to the share of other participants who also have security interests in the leased equipment. The Corporation's net investment in financing leases at December 31, 1999 and 1998, is shown below.
Total financing leases Direct financing leases Leveraged leases -------------------------- ------------------------- -------------------------- (In millions) 1999 1998 1999 1998 1999 1998 ------------- ------------ ------------ ------------ ------------ ------------- Total minimum lease payments receivable ..................... $ 68,151 $ 66,513 $ 47,062 $ 47,436 $ 21,089 $ 19,077 Less principal and interest on third-party nonrecourse debt .... (17,184) (15,176) - - (17,184) (15,176) ------------- ------------ ------------ ------------ ------------ ------------- Net rentals receivable .......... 50,967 51,337 47,062 47,436 3,905 3,901 Estimated unguaranteed residual value of leased assets .......... 7,142 6,806 4,930 4,991 2,212 1,815 Less deferred income .............. (10,345) (10,607) (8,273) (8,732) (2,072) (1,875) ------------- ------------ ------------ ------------ ------------ ------------- Investment in financing leases .. 47,764 47,536 43,719 43,695 4,045 3,841 Less: Allowance for losses ....... (580) (619) (508) (519) (72) (100) Deferred taxes arising from financing leases .......... (8,587) (8,583) (5,081) (5,137) (3,506) (3,446) ------------- ------------ ------------ ------------ ------------ ------------- Net investment in financing leases $ 38,597 $ 38,334 $ 38,130 $ 38,039 $ 467 $ 295 ============= ============ ============ ============ ============ =============
At December 31, 1999 the Corporation's contractual maturities for time sales and loans and net rentals receivable were:
(In millions) Total time sales and Net rentals Due in: loans (a) receivable (a) --------------- ------------------ 2000 .......................................................................... $ 24,668 $ 14,900 2001........................................................................... 17,842 11,622 2002 .......................................................................... 17,325 7,565 2003 .......................................................................... 7,466 4,613 2004 .......................................................................... 5,910 2,906 Thereafter .................................................................... 18,170 9,361 --------------- ------------------ $ 91,381 $ 50,967 =============== ==================
(a) Experience has shown that a substantial portion of receivables will be paid prior to contractual maturity, and these amounts should not be regarded as forecasts of future cash flows. Nonearning consumer receivables were $930 million and $1,250 million at December 31, 1999 and 1998, respectively, a substantial amount of which were private-label credit card loans. Nonearning and reduced-earning receivables other than consumer receivables were $932 million and $354 million at year-end 1999 and 1998, respectively. "Impaired" loans are defined by generally accepted accounting principles as loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. That definition excludes, among other things, leases or large groups of smaller-balance homogenous loans, and therefore applies principally to the Corporation's commercial loans. 27 An analysis of impaired loans at December 31, 1999 and 1998 is shown below.
(In millions) 1999 1998 --------------- ---------------- Loans requiring allowance for losses ............................................. $ 630 $ 343 Loans expected to be fully recoverable ........................................... 219 158 --------------- ---------------- $ 849 $ 501 =============== ================ Allowance for losses ............................................................. $ 178 $ 109 Average investment during year ................................................... 608 512 Interest income earned while impaired (a) ........................................ 27 39
(a) Principally on the cash basis. NOTE 4. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
(In millions) 1999 1998 1997 -------------- -------------- -------------- Balance at January 1 ........................................... $ 3,272 $ 2,802 $ 2,693 Provisions charged to operations ............................... 1,662 1,601 1,421 Net transfers primarily related to acquisitions and sales ...... 217 377 127 Amounts written off - net ...................................... (1,443) (1,508) (1,439) -------------- -------------- -------------- Balance at December 31 ......................................... $ 3,708 $ 3,272 $ 2,802 ============== ============== ==============
NOTE 5. OTHER RECEIVABLES At year-end 1999 and 1998, this account included reinsurance recoverables of $2,087 million and $2,188 million and insurance-related receivables of $2,393 million and $2,627 million, respectively. Premium receivables, policy loans and funds on deposit with reinsurers are included in insurance-related receivables. Also in other receivables are trade receivables, accrued investment income, operating lease receivables and a variety of sundry items. NOTE 6. EQUIPMENT ON OPERATING LEASES Equipment on operating leases by type of equipment and accumulated amortization at December 31, 1999 and 1998, are shown below.
1999 1998 (In millions) -------------- -------------- Original cost Vehicles ..................................................................... $ 10,939 $ 9,825 Aircraft ..................................................................... 10,591 9,321 Railroad rolling stock ....................................................... 3,323 2,804 Marine shipping containers ................................................... 2,309 2,565 Other ........................................................................ 3,832 3,447 --------------- --------------- 30,994 27,962 Accumulated amortization ...................................................... (7,391) (7,021) --------------- --------------- $ 23,603 $ 20,941 =============== ===============
Amortization of equipment on operating leases was $2,673 million, $2,185 million and $2,102 million in 1999, 1998 and 1997, respectively. Noncancelable future rentals due from customers for equipment on operating leases at year-end 1999 totaled $16,058 million and are due as follows: $4,177 million in 2000; $3,177 million in 2001; $2,332 million in 2002; $1,624 million in 2003; $1,086 million in 2004 and $3,662 million thereafter. The Corporation acts as a lender and lessor to the commercial airline industry. At December 31, 1999 and 1998, the balance of such loans, leases and equipment leased to others was $11,772 million and $10,170 million, respectively. In addition, at December 31, 1999, the Corporation had issued financial guarantees and funding commitments of $59 million ($74 million at year-end 1998) and had placed multiyear orders for various Boeing and Airbus aircraft with list prices of approximately $9.9 billion ($9.4 billion at year-end 1998). 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 $472 million in 1999, $409 million in 1998 and $341 million in 1997. 28 NOTE 8. INTANGIBLE ASSETS Intangible assets at December 31, 1999 and 1998, are shown in the table below.
(In millions) 1999 1998 -------------- --------------- Goodwill .......................................................................... $ 10,877 $ 10,143 Present value of future profits ("PVFP") .......................................... 1,704 1,479 Other intangibles ................................................................. 492 411 -------------- --------------- $ 13,073 $ 12,033 ============== ===============
The Corporation's intangible assets are shown net of accumulated amortization of $3,500 million at December 31, 1999, and $2,763 million at December 31, 1998. PVFP amortization, which is on an accelerated basis and net of interest, is projected to range from 15% to 7% of the year-end 1999 unamortized balance for each of the next five years. NOTE 9. OTHER ASSETS Other assets at December 31, 1999 and 1998, are shown in the table below.
(In millions) 1999 1998 -------------- --------------- Investments: Assets acquired for resale ...................................................... $ 3,406 $ 6,164 Investments in and advances to associated companies ............................. 11,239 7,495 Real estate ventures ............................................................ 4,397 3,131 Other ........................................................................... 4,174 2,935 -------------- --------------- 23,216 19,725 Separate accounts ................................................................. 10,248 6,476 Servicing assets (a)............................................................... 1,669 1,606 Deferred insurance acquisition costs .............................................. 3,253 2,115 Other ............................................................................. 4,064 3,284 -------------- --------------- $ 42,450 $ 33,206 ============== ===============
(a) Associated primarily with serviced residential mortgage loans amounting to $86 billion and $91 billion at December 31, 1999 and 1998, respectively. Separate accounts represent investments controlled by policyholders and are associated with identical amounts reported as insurance liabilities in note 11 to the consolidated financial statements. NOTE 10. BORROWINGS Total short-term borrowings at December 31, 1999 and 1998, consisted of the following:
1999 1998 -------------------------------- -------------------------------- --------------- --------------- --------------- --------------- Average Average (Dollars in millions) Amount rate (a) Amount rate (a) --------------- --------------- --------------- --------------- Commercial paper - U.S. ....................... $ 78,609 6.07% $ 77,076 5.38% Commercial paper - non-U.S. .................... 11,909 4.19 3,953 4.80 Current portion of long-term debt .............. 22,902 5.59 14,645 5.66 Other .......................................... 9,653 11,745 --------------- --------------- $ 123,073 $ 107,419 =============== ===============
29 Total long-term borrowings at December 31, 1999 and 1998, were as follows:
1999 (Dollars in millions) average Maturities 1999 1998 rate (a) ------------- -------------- --------------- -------------- Senior notes .................................... 5.47% 2001-2055 $ 68,164 $ 57,486 Subordinated notes (b) .......................... 8.04 2006-2012 698 697 --------------- -------------- $ 68,862 $ 58,183 =============== ==============
(a) Based on year-end balances and local currency interest rates, including the effects of interest rate and currency swaps, if any, directly associated with the original debt issuance. (b) Guaranteed by GE Company. Borrowings of the Corporation are addressed below from two perspectives - liquidity and interest rate management. Additional information about borrowings and associated swaps can be found in note 20. Liquidity requirements of the Corporation are principally met through the credit markets. Maturities of long-term borrowings during the next five years, including the current portion of long-term debt, at December 31, 1999, were $22,902 million in 2000; $15,948 million in 2001; $12,763 million in 2002; $9,503 million in 2003 and $7,922 million in 2004. At December 31, 1999, the Corporation held committed lines of credit aggregating $32.5 billion with 118 banks, including $12 billion of revolving credit agreements pursuant to which it has the right to borrow funds for periods exceeding one year. A total of $8.9 billion and $7.7 billion of these credit lines were also available for use by GE Capital Services and GE Company, respectively. Also, at December 31, 1999, substantially all of the approximately $4.2 billion of GE Company's credit lines were available for use by the Corporation or GE Capital Services. During 1999, amounts drawn under these lines were not significant. The Corporation compensates banks for credit facilities in the form of fees, which were insignificant in each of the past three years. Interest rates are managed by the Corporation in light of the anticipated behavior, including prepayment behavior, of assets in which debt proceeds are invested. A variety of instruments, including interest rate and currency swaps and currency forwards, are employed to achieve management's interest rate objectives. Effective interest rates are lower under these "synthetic" positions than could have been achieved by issuing debt directly. The following table shows the Corporation's borrowing positions at December 31, 1999 and 1998, considering the effects of swaps.
(In millions) 1999 1998 -------------- --------------- Effective borrowings (including swaps) Short-term ........................................................................ $ 69,762 $ 68,001 ============== =============== Long-term (including current portion) Fixed rate (a) .................................................................. $ 86,856 $ 71,770 Floating rate ................................................................... 35,317 25,831 -------------- --------------- Total long-term ................................................................... $ 122,173 $ 97,601 ============== ===============
(a) Includes the notional amount of long-term interest rate swaps that effectively convert the floating-rate nature of short-term borrowings to fixed rates of interest. At December 31, 1999, interest rate swap maturities ranged from 2000 to 2048, and average interest rates for fixed-rate borrowings (including "synthetic" fixed-rate borrowings) were 5.59% (6.01% at year-end 1998). 30 NOTE 11. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS Insurance liabilities, reserves and annuity benefits at December 31, 1999 and 1998, are shown below.
(In millions) 1999 1998 --------------- -------------- Investment contracts and universal life benefits .................................. $ 28,284 $ 26,995 Life insurance benefits and other (a) ............................................. 15,528 13,725 Unpaid claims and claims adjustment expenses (b)................................... 3,235 3,721 Unearned premiums ................................................................. 3,480 3,518 Separate accounts (see note 9) .................................................... 10,248 6,476 --------------- -------------- $ 60,775 $ 54,435 =============== ==============
(a) Life insurance benefits are accounted for mainly by a net-level-premium method using estimated yields generally ranging from 5% to 9% in both 1999 and 1998. (b) Principally property and casualty reserves; includes amounts for both reported and incurred-but-not-reported claims, reduced by anticipated salvage and subrogation recoveries. Estimates of liabilities are reviewed and updated continually, with changes in estimated losses reflected in operations. When the Corporation cedes insurance to third parties, it is not relieved of its primary obligation to policyholders. Losses on ceded risks give rise to claims for recovery; allowances are established for such receivables from reinsurers. A summary of activity affecting unpaid claims and claims adjustment expenses follows.
(In millions) 1999 1998 1997 -------------- -------------- -------------- Balance at January 1 - gross ....................................$ 3,721 $ 3,670 $ 1,907 Less reinsurance recoverables ................................... (578) (438) (117) --------------- --------------- --------------- Balance at January 1 - net ...................................... 3,143 3,232 1,790 Claims and expenses incurred: Current year .................................................. 2,286 2,469 1,989 Prior years ................................................... (328) (184) 61 Claims and expenses paid: Current year .................................................. (1,210) (1,222) (1,144) Prior years ................................................... (1,276) (1,176) (902) Claim reserves related to acquired companies .................... 136 6 1,360 Other ........................................................... (68) 18 78 --------------- --------------- --------------- Balance at December 31 - net .................................... 2,683 3,143 3,232 Add reinsurance recoverables .................................... 552 578 438 --------------- --------------- --------------- Balance at December 31 - gross ..................................$ 3,235 $ 3,721 $ 3,670 =============== =============== ===============
Prior-year claims and expenses incurred in the preceding table resulted principally from settling claims established in earlier accident years for amounts that differed from expectations. Financial guarantees and credit life risk of insurance affiliates at December 31, 1999 and 1998, are summarized below.
(In millions) 1999 1998 -------------- --------------- Guarantees, principally on municipal bonds and structured finance issues .......... $ 173,696 $ 166,576 Mortgage insurance risk in force .................................................. 59,797 43,939 Credit life insurance risk in force ............................................... 26,427 31,018 Less reinsurance .................................................................. (37,980) (37,184) -------------- --------------- $ 221,940 $ 204,349 ============== ===============
31 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) 1999 1998 1997 1999 1998 1997 -------------- -------------- -------------- -------------- -------------- --------------- Direct ............. $ 6,378 $ 5,696 $ 4,541 $ 6,108 $ 5,547 $ 4,500 Assumed ............ 556 817 502 583 885 479 Ceded .............. (534) (698) (493) (716) (772) (463) -------------- -------------- -------------- -------------- -------------- --------------- Net ................ $ 6,400 $ 5,815 $ 4,550 $ 5,975 $ 5,660 $ 4,516 ============== ============== ============== ============== ============== ===============
Reinsurance recoveries recognized as a reduction of insurance losses and policyholder and annuity benefits amounted to $386 million, $396 million and $334 million for the years ended December 31, 1999, 1998 and 1997, respectively. NOTE 12. MINORITY INTEREST Minority interest in equity of consolidated affiliates includes preferred stock issued by a subsidiary with liquidation preference values of $1,421 million and $860 million as of December 31, 1999 and 1998, respectively. Dividend rates in local currency on the preferred stock ranged from 0.6% to 6.1% during 1999 and from 3.9% to 5.2% during 1998. NOTE 13. SHARE OWNERS' EQUITY Changes in share owners' equity for each of the last three years were as follows:
(In millions) 1999 1998 1997 -------------- -------------- -------------- Variable Cumulative Preferred Stock Issued ....................... $ 3 $ 2 $ 2 -------------- -------------- -------------- Common Stock Issued .............................................. 768 768 768 -------------- -------------- -------------- Accumulated nonowner changes other than earnings Balance at January 1 ............................................. 1,026 998 54 Unrealized (losses) gains on investment securities - net of deferred taxes of ($474), $139, and $663 ...................... (1,178) 276 996 Currency translation adjustments - net of deferred taxes of ($62), $5 and ($36) .................................................. (115) 6 (52) Reclassification adjustments - net of deferred taxes of ($82) and ($141) ........................................................ (152) (254) - -------------- -------------- -------------- Balance at December 31 ........................................... (419) 1,026 998 -------------- -------------- -------------- Other Capital Balance at January 1 ............................................. 4,933 4,744 4,024 Contributions .................................................... 450 189 720 -------------- -------------- -------------- Balance at December 31 ........................................... 5,383 4,933 4,744 -------------- -------------- -------------- Retained Earnings Balance at January 1 ............................................. 14,340 11,861 10,678 Net Earnings ..................................................... 4,208 3,374 2,729 Dividends ........................................................ (1,537) (895) (1,546) -------------- -------------- -------------- Balance at December 31 ........................................... 17,011 14,340 11,861 -------------- -------------- -------------- Total Share Owners' Equity ....................................... $ 22,746 $ 21,069 $ 18,373 ============== ============== ==============
All common stock is owned by GE Capital Services, all of the common stock of which is in turn owned, directly or indirectly, by GE Company. 32 Changes in fair value of available-for-sale investment securities are reflected, net of applicable taxes and other adjustments, in equity. The changes from year to year were primarily attributable to the effects of changes in year-end market interest rates on the fair value of the securities. During 1999 and 1998, the Corporation issued 3,000 and 700 additional shares of its variable cumulative preferred stock, respectively. Dividend rates on the preferred stock ranged from 3.5% to 5.1% during 1999, 3.9% to 5.2% during 1998 and from 3.8% to 5.2% during 1997. During 1998, the Corporation authorized 750,000 shares of preferred stock, $0.01 par value, none of which was issued or outstanding at December 31, 1999 or 1998. At December 31, 1999 and 1998, the aggregate statutory capital and surplus of the insurance businesses totaled $9.6 billion and $9.4 billion, respectively. Accounting practices prescribed by statutory authorities are used in preparing statutory statements. NOTE 14. OPERATING AND ADMINISTRATIVE EXPENSES Employees and retirees of the Corporation are covered under a number of pension, health and life insurance plans. The principal pension plan is the GE Company Pension Plan, a defined benefit plan, while employees of certain affiliates are covered under separate plans. The Corporation provides health and life insurance benefits to certain of its retired employees, principally through GE Company's benefit program, as well as through plans sponsored by GE Global Insurance and other affiliates. The annual cost to the Corporation of providing these benefits is not material. Rental expense relating to equipment the Corporation leases from others for the purposes of subleasing was $483 million in 1999, $439 million in 1998 and $392 million in 1997. Other rental expense was $552 million in 1999, $429 million in 1998 and $327 million in 1997, principally for the rental of office space and data processing equipment. Minimum future rental commitments under noncancelable leases at December 31, 1999 are $4,910 million; $810 million in 2000; $640 million in 2001; $586 million in 2002; $524 million in 2003; $400 million in 2004 and $1,950 million thereafter. The Corporation, as a lessee, has no material lease agreements classified as capital leases. Amortization of deferred insurance acquisition costs charged to operations in 1999, 1998 and 1997 was $1,031 million, $863 million and $543 million, respectively. NOTE 15. INCOME TAXES The provision for income taxes is summarized in the following table.
(In millions) 1999 1998 1997 --------------- --------------- --------------- Estimated amounts payable ......................................$ 699 $ 584 $ 409 Deferred tax expense from temporary differences ................ 854 601 588 --------------- --------------- --------------- $ 1,553 $ 1,185 $ 997 =============== =============== ===============
GE Company files a consolidated U.S. federal income tax return which includes the Corporation. The provision for estimated taxes payable includes the effect of the Corporation on the consolidated return. Estimated amounts payable includes amounts applicable to non-U.S. jurisdictions of $765 million, $699 million and $573 million in 1999, 1998 and 1997, respectively. Deferred income tax balances reflect the impact of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Except for certain earnings that the Corporation intends to reinvest indefinitely, provision has been made for the estimated U.S. federal income tax liabilities applicable to undistributed earnings of affiliates and associated companies. It is not practicable to determine the U.S. federal income tax liability, if any, that would be payable if such earnings were not reinvested indefinitely. U.S. income before taxes was $3.5 billion in 1999, $3.2 billion in 1998 and $2.4 billion in 1997. The corresponding amounts for non-U.S. based operations were $2.3 billion in 1999 and $1.3 billion in 1998 and 1997. 33 A reconciliation of the U.S. federal statutory rate to the actual income tax rate follows.
1999 1998 1997 --------------- --------------- --------------- Statutory U.S. federal income tax rate .......................... 35.0% 35.0% 35.0% Increase (reduction) in rate resulting from: Amortization of goodwill ....................................... 0.9 1.0 1.1 Tax-exempt income .............................................. (2.7) (3.2) (3.2) Tax on International Activities Including Foreign Sales Corporation benefits ......................................... (5.2) (1.5) (2.6) Dividends received, not fully taxable .......................... (1.5) (1.8) (1.8) Fuels credits .................................................. (1.5) (2.0) (1.9) Other - net .................................................... 2.0 (1.5) 0.2 --------------- --------------- --------------- Actual income tax rate .......................................... 27.0% 26.0% 26.8% =============== =============== ===============
Principal components of the net deferred tax liability balances at December 31, 1999 and 1998, were as follows:
(In millions) 1999 1998 Assets: ------------- ------------- Allowance for losses ............................................................. $ 1,370 $ 1,359 Insurance reserves ............................................................... 1,035 1,012 AMT credit carryforwards ......................................................... 1,185 903 Other ............................................................................ 1,601 1,897 ------------- ------------- Total deferred tax assets ........................................................ 5,191 5,171 ------------- ------------- Liabilities: Financing leases ................................................................. 8,587 8,583 Operating leases ................................................................. 2,834 2,417 Net unrealized (losses) gains on securities ...................................... (95) 655 Other ............................................................................ 2,646 2,415 ------------- ------------- Total deferred tax liabilities ................................................... 13,972 14,070 ------------- ------------- Net deferred tax liability ....................................................... $ 8,781 $ 8,899 ============= =============
NOTE 16. OPERATING SEGMENT DATA At year-end 1998, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related Information, which requires segment data to be measured and analyzed on a basis that is consistent with how business activities are reported internally for management. Prior period amounts have been restated in accordance with the requirements of the new standard. The Corporation's operating segments are organized based on the nature of products and services provided. A description of the operating segments can be found in Item 1. Business., under the heading Operating Segments, on page 3 of this report. The accounting policies for these segments are the same as those described for the consolidated entity. The Corporation evaluates the performance of its operating segments primarily on the basis of net earnings. Details of total revenues and net earnings by operating segment are provided in Item 7. Management's Discussion and Analysis of Results of Operations under the heading Operating Segments on page 12 of this report. Other specific information is provided below in accordance with the requirements of SFAS No. 131 because they are included as a component of overall segment net earnings or total assets.
(In millions) Depreciation and amortization (a) Provision for income taxes -------------------------------------- -------------------------------------- For the years ended December 31 1999 1998 1997 1999 1998 1997 ------------ ------------ ----------- ----------- ----------- ----------- Consumer Services ................. $ 1,070 $ 961 $ 897 $ 321 $ 442 $ 230 Equipment Management .............. 2,405 1,890 1,690 321 257 353 Mid-Market Financing .............. 548 405 398 241 239 198 Specialized Financing ............. 57 51 50 457 41 170 Specialty Insurance ............... 41 53 40 132 103 40 All other ......................... 107 92 63 81 103 6 ------------ ------------ ----------- ----------- ----------- ----------- Total .......................... $ 4,228 $ 3,452 $ 3,138 $ 1,553 $ 1,185 $ 997 ============ ============ =========== =========== =========== ===========
34
Time sales, loan, investment and other income (b) Interest expense -------------------------------------- -------------------------------------- For the years ended December 31 1999 1998 1997 1999 1998 1997 ------------ ------------ ----------- ----------- ----------- ----------- Consumer Services ................. $ 12,251 $ 10,661 $ 9,585 $ 3,249 $ 3,601 $ 3,225 Equipment Management .............. 2,311 2,241 1,985 1,588 1,486 1,296 Mid-Market Financing .............. 2,329 1,719 1,160 2,027 1,674 1,276 Specialized Financing ............. 3,926 2,645 2,192 1,814 1,541 1,436 Specialty Insurance ............... 1,250 1,301 953 481 538 427 All other ......................... 216 135 73 (223) (222) (330) ------------ ------------ ----------- ----------- ----------- ----------- Total .......................... $ 22,283 $ 18,702 $ 15,948 $ 8,936 $ 8,618 $ 7,330 ============ ============ =========== =========== =========== ===========
Property, plant and equipment additions (including equipment Assets leased to others) (c) At December 31 For the years ended December 31 -------------------------------------- -------------------------------------- 1999 1998 1997 1999 1998 1997 ------------ ------------ ----------- ----------- ----------- ----------- Consumer Services (d) (e) ......... $139,240 $130,861 $117,410 $ 2,440 $ 2,218 $ 1,863 Equipment Management (e) .......... 42,892 37,902 33,403 7,956 4,408 4,314 Mid-Market Financing .............. 50,315 41,768 29,315 3,893 1,316 978 Specialized Financing (e).......... 47,001 35,807 28,810 155 88 36 Specialty Insurance ............... 19,075 19,355 17,760 11 22 31 All other ......................... 8,918 3,357 2,079 950 25 64 ------------ ------------ ----------- ----------- ----------- ----------- Total .......................... $307,441 $269,050 $228,777 $ 15,405 $ 8,077 $ 7,286 ============ ============ =========== =========== =========== ===========
(a) Includes amortization of goodwill and other intangibles. (b) Principally interest income. (c) Additions to property, plant and equipment (including equipment leased to others) include amounts relating to principal businesses purchased. (d) In 1997, the Corporation recorded its share of Montgomery Ward Holding Corp. ("MWHC") losses of $380 million (after tax), by reducing its investments in MWHC, resulting in the writing off of its investment in MWHC common and preferred stock. (e) Total assets of the Consumer Services, Equipment Management and Specialized Financing segments at December 31, 1999, include investments in and advances to non-consolidated affiliates of $3,643 million and $4,070 million, and $3,043 million, respectively, which contributed approximately $182 million and $328 million and $73 million, respectively, to segment pre-tax income for the year ended December 31, 1999. NOTE 17. QUARTERLY FINANCIAL DATA (unaudited) Summarized quarterly financial data were as follows:
First quarter Second quarter Third quarter Fourth quarter ------------------------------------------ -------------------- --------------------- (In millions) 1999 1998 1999 1998 1999 1998 1999 1998 ---------- --------- ---------- ---------- -------------------- ---------- ---------- Revenues ....................$ 10,190 $ 9,501 $ 11,129 $ 9,984 $ 11,753 $ 10,335 $ 13,533 $ 11,585 ---------- --------- ---------- ---------- ---------- --------- ---------- ---------- Expenses: Interest .................... 2,020 1,948 2,133 2,105 2,189 2,076 2,594 2,489 Operating and administrative and cost of goods sold ............ 4,476 4,113 5,016 4,447 5,522 4,498 6,455 5,382 Insurance losses and policyholder and annuity benefits ................. 1,413 1,342 1,324 1,367 1,419 1,418 1,408 1,417 Provision for losses on financing receivables .... 378 332 441 408 225 304 618 557 Depreciation and amortization of buildings and equipment and equipment on operating leases ......... 678 652 815 598 786 663 866 681 Minority interest in net earnings of consolidated affiliates ............... 15 11 18 10 16 14 19 14 ---------- -------------------- ---------- ---------- --------- ---------- ---------- Earnings before income taxes .................... 1,210 1,103 1,382 1,049 1,596 1,362 1,573 1,045 Provision for income taxes .. (305) (323) (350) (236) (435) (432) (463) (194) ---------- -------------------- ---------- ---------- --------- ---------- ---------- Net earnings ................$ 905 $ 780 $ 1,032 $ 813 $ 1,161 $ 930 $ 1,110 $ 851 ========== ========= ========== ========== ========== ========= ========== ==========
35 NOTE 18. RESTRICTED NET ASSETS OF AFFILIATES Certain of the Corporation's consolidated affiliates are restricted from remitting funds to the Parent in the form of dividends or loans by a variety of regulations, the purpose of which is to protect affected insurance policyholders, depositors or investors. At year-end 1999, net assets of the Corporation's regulated affiliates amounted to $22.8 billion, of which $17.8 billion was restricted. NOTE 19. SUPPLEMENTAL CASH FLOWS INFORMATION "Other - net operating activities" in the Statement of Cash Flows consists principally of adjustments to other liabilities, current and noncurrent accruals and deferrals of costs and expenses, adjustments for gains and losses on assets, increases and decreases in assets held for sale, and other adjustments to assets. The Statement of Cash Flows excludes certain noncash transactions that had no significant effect on the investing or financing activities of the Corporation. Certain supplemental information related to the Corporation's cash flows were as follows for the past three years.
(In millions) 1999 1998 1997 -------------- -------------- --------------- Financing receivables Increase in loans to customers .................................... $ (92,774) $ (73,827) $ (55,689) Principal collections from customers - loans ...................... 83,629 63,407 50,679 Investment in equipment for financing leases ...................... (18,173) (20,298) (16,420) Principal collections from customers - financing leases ........... 13,618 15,501 13,796 Net change in credit card receivables ............................. (9,122) (4,705) (4,186) Sales of financing receivables .................................... 11,473 13,805 9,922 -------------- -------------- --------------- $ (11,349) $ (6,117) $ (1,898) ============== ============== =============== All other investing activities Purchases of securities by insurance and annuity businesses ....... $ (15,897) $ (17,728) $ (11,700) Dispositions and maturities of securities by insurance and annuity businesses ............................................. 13,432 14,231 10,261 Proceeds from principal business dispositions ..................... 176 - 241 Other ............................................................. (5,433) (8,380) (3,965) -------------- -------------- --------------- $ (7,722) $ (11,877) $ (5,163) ============== ============== =============== Newly issued debt having maturities longer than 90 days Short-term (91 to 365 days) ....................................... $ 15,799 $ 5,881 $ 3,502 Long-term (longer than one year) .................................. 29,033 33,453 15,566 Proceeds - nonrecourse, leveraged lease debt ...................... 1,724 2,106 1,757 -------------- -------------- --------------- $ 46,556 $ 41,440 $ 20,825 ============== ============== =============== Repayments and other reductions of debt having maturities longer than 90 days Short-term (91 to 365 days) ....................................... $ (21,211) $ (25,901) $ (21,320) Long-term (longer than one year) .................................. (5,447) (4,739) (1,150) Principal payments - nonrecourse, leveraged lease debt ............ (266) (387) (287) -------------- -------------- --------------- $ (26,924) $ (31,027) $ (22,757) ============== ============== =============== All other financing activities Proceeds from sales of investment contracts ....................... $ 7,092 $ 4,914 $ 4,462 Redemption of investment contracts ................................ (6,965) (5,355) (4,453) Capital contributions from parent company ......................... - 119 182 -------------- -------------- --------------- $ 127 $ (322) $ 191 ============== ============== =============== Cash paid during the year for: Interest .......................................................... $ (9,194) $ (8,324) $ (7,471) Income taxes ...................................................... (246) (883) (502)
Changes in operating assets and liabilities are net of acquisitions and dispositions of businesses. 36 "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) 1999 1998 1997 ------------- ------------- ------------- Fair value of assets acquired ................................... $ 14,888 $ 23,431 $ 15,190 Cash paid ....................................................... (9,737) (16,986) (4,736) ------------- ------------- ------------- Liabilities assumed ............................................. $ 5,151 $ 6,445 $ 10,454 ============= ============= =============
NOTE 20. ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS This note contains estimated fair values of certain financial instruments to which the Corporation is a party. Apart from the Corporation's own borrowings and certain marketable securities, relatively few of these instruments are actively traded. Thus, fair values must often be determined by using one or more models that indicate value based on estimates of quantifiable characteristics as of a particular date. Because this undertaking is, by its nature, difficult and highly judgmental, for a limited number of instruments, alternative valuation techniques may have produced disclosed values different from those that could have been realized at December 31, 1999 or 1998. Assets and liabilities that, as a matter of accounting policy, are reflected in the accompanying financial statements at fair value are not included in the following disclosures; such items include cash and equivalents, investment securities and separate accounts. A description of how values are estimated follows. Borrowings. Based on quoted market prices or market comparables. Fair values of interest rate and currency swaps on borrowings are based on quoted market prices and include the effects of counterparty creditworthiness. Time sales and loans. Based on quoted market prices, recent transactions and/or discounted future cash flows, using rates at which similar loans would have been made to similar borrowers. Investment contract benefits. Based on expected future cash flows, discounted at currently offered discount rates for immediate annuity contracts or cash surrender values for single premium deferred annuities. Financial guarantees and credit life. Based on future cash flows, considering expected renewal premiums, claims, refunds and servicing costs, discounted at a market rate. All other instruments. Based on comparable transactions, market comparables, discounted future cash flows, quoted market prices, and/or estimates of the cost to terminate or otherwise settle obligations to counterparties. Information about financial instruments that were not carried at fair value at December 31, 1999 and 1998, is shown below.
1999 1998 ----------------------------------------------- ----------------------------------------------- Assets (liabilities) Assets (liabilities) ----------------------------------- ----------------------------------- Carrying Carrying Notional amount Estimated fair value Notional amount Estimated fair value ----------------------- ---------------------- (In millions) amount (net) High Low amount (net) High Low ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------- Assets Time sales and loans ..... $ (a) $ 88,253 $ 88,139 $ 86,640 $ (a) $ 74,141 $ 75,000 $ 73,820 Integrated interest rate 14,978 18 70 70 13,217 16 (96) (96) swaps .................... Purchased options ........ 8,949 60 174 174 11,180 136 120 120 Mortgage-related positions Mortgage purchase 669 - - - 1,983 - 15 15 commitments............ Mortgage sale 1,452 - 4 4 3,276 - (9) (9) commitments ............. Mortgages held for sale . (a) 2,522 2,516 2,488 (a) 4,402 4,454 4,454 Options, including 23,877 69 43 43 21,406 87 176 176 "floors" ................ Interest rate swaps and futures ................. 4,054 - (67) (67) 6,662 - 49 49 Other financial (a) 4,406 4,486 4,456 (a) 3,089 3,317 3,115 instruments ..............
37
Liabilities Borrowings and related instruments Borrowings (b) (c)....... (a) (191,935) (190,767) (190,767) (a) (165,602) (167,814) (167,814) Interest rate swaps ..... 54,739 - (113) (113) 44,718 - (1,275) (1,275) Currency swaps .......... 22,859 - (1,425) (1,425) 29,645 - 252 252 Currency forwards ....... 26,770 - (458) (458) 22,864 - (392) (392) Investment contract benefits ............... (a) (23,798) (23,294) (23,294) (a) (22,609) (22,529) (22,529) Insurance - financial guarantees and credit life ................... 221,940 (2,722) (2,765) (2,866) 204,349 (3,091) (3,298) (3,390) Credit and liquidity support -securitizations ....... 30,356 (8) (8) (8) 17,471 (29) (29) (29) Performance guarantees- principally letters of credit ................. 2,773 (56) (56) (56) 2,340 - - - Other financial instruments............. 2,545 (1,473) (1,444) (1,444) 2,888 (1,921) (1,190) (1,190) Other firm commitments Currency forwards ....... 3,778 (14) (41) (41) 5,072 - (52) (52) Ordinary course of business lending commitments ........... 7,822 - - - 9,839 - (12) (12) Unused revolving credit lines Commercial ............. 11,440 - - - 6,401 - - - Consumer - principally credit cards ......... 145,531 - - - 132,475 - - -
(a) Not applicable. (b) Includes effects of interest rate and currency swaps, which also are listed separately. (c) See note 10. Additional information about certain financial instruments in the above table follows. Currency forwards and options are employed by the Corporation to manage exposures to changes in currency exchange rates associated with commercial purchase and sale transactions and to optimize borrowing costs as discussed in note 10. These financial instruments generally are used to fix the local currency cost of purchased goods or services or selling prices denominated in currencies other than the functional currency. Currency exposures that result from net investments in affiliates are managed principally by funding assets denominated in local currency with debt denominated in those same currencies. In certain circumstances, net investment exposures are managed using currency forwards and currency swaps. Options and instruments containing option features that behave based on limits ("caps", "floors" or "collars") on interest rate movement are used primarily to hedge prepayment risk in certain of the Corporation's business activities, such as mortgage servicing and annuities. Swaps of interest rates and currencies are used by the Corporation to optimize funding costs for a particular funding strategy (see note 10). Interest rate and currency swaps, along with purchased options and futures, are used by the Corporation to establish specific hedges of mortgage-related assets and to manage net investment exposures. Credit risk of these positions is evaluated by management under the credit criteria discussed below. As part of its ongoing customer activities, the Corporation also enters into swaps that are integrated into investments in or loans to particular customers and do not involve assumption of third-party credit risk. Such integrated swaps are evaluated and monitored like their associated investments or loans and are not therefore subject to the same credit criteria that would apply to a stand-alone position. Counterparty credit risk - risk that counterparties will be financially unable to make payments according to the terms of the agreements - is the principal risk associated with swaps, purchased options and forwards. Gross market value of probable future receipts is one way to measure this risk, but is meaningful only in the context of net credit exposure to individual counterparties. At December 31, 1999 and 1998, this gross market risk amounted to $1.8 billion and $2.2 billion, respectively. Aggregate fair values that represent associated probable future obligations, normally associated with a right of offset against probable future receipts, amounted to $3.6 billion and $3.4 billion at December 31, 1999 and 1998, respectively. 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. 38
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. NOTE 21. GEOGRAPHIC SEGMENT INFORMATION The table below presents data by geographic region. Revenues shown below are classified according to their country of origin.
Revenues Long-lived assets For the years ended December 31 At December 31 ---------------------------------------- ---------------------------------------- (In millions) 1999 1998 1997 1999 1998 1997 ------------ ------------ ------------ ------------ ------------ ------------ United States ................. $ 28,618 $ 26,538 $ 22,737 $ 12,917 $ 10,389 $ 9,666 Europe ........................ 10,363 9,743 6,414 3,446 3,482 2,601 Pacific Basin ................. 3,722 1,418 940 1,311 625 270 Global (a) .................... 1,788 1,682 1,669 8,959 8,160 7,543 Other (b) ..................... 2,114 2,024 1,644 1,698 1,161 944 ------------ ------------ ------------ ------------ ------------ ------------ Total ...................... $ 46,605 $ 41,405 $ 33,404 $ 28,331 $ 23,817 $ 21,024 ============ ============ ============ ============ ============ ============
(a) Includes operations that cannot meaningfully be associated with specific geographic areas (for example, commercial aircraft and shipping containers used on ocean-going vessels). (b) Principally the Americas other than the United States. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable 39 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 40 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements Included in Part II of this report: Independent Auditors' Report Statement of Earnings for each of the years in the three-year period ended December 31, 1999 Statement of Changes in Share Owners' Equity for each of the years in the three-year period ended December 31, 1999 Statement of Financial Position at December 31, 1999 and 1998 Statement of Cash Flows for each of the years in the three-year period ended December 31, 1999 Notes to Consolidated Financial Statements Incorporated by reference: The consolidated financial statements of General Electric Company, set forth in the Annual Report on Form 10-K of General Electric Company (S.E.C. File No. 001-00035) for the year ended December 31, 1999 (pages F-1 through F-44) and Exhibit 12 (Ratio of Earnings to Fixed Charges) of General Electric Company. (a) 2. Financial Statement Schedules Schedule I. Condensed financial information of registrant. 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. 41 Exhibit Number Description 3(i) A complete copy of the Organization Certificate of the Corporation as last amended as of February 16, 1999 and currently in effect, consisting of the following: (a) the Organization Certificate of the Corporation as in effect immediately prior to the filing of the Certificate of Amendment as of April 21, 1995 (Incorporated by reference to Exhibit 3(i) to the Corporation's Form 10-K Report for the year ended December 31, 1993); (b) a Certificate of Amendment filed in the Office of the Superintendent of Banks of the State of New York (the "Office of the Superintendent") as of April 21, 1995 (Incorporated by reference to Exhibit 4(b) to the Corporation's Registration Statement on Form S-3, File No. 33-58771; (c) a Certificate of Amendment filed in the Office of the Superintendent as of May 11, 1995 (Incorporated by reference to Exhibit 4(c) to the Corporation's Registration Statement on form S-3, File No. 33-61257); (d) a Certificate of Amendment filed in the Office of the Superintendent as of June 28, 1995 (Incorporated by reference to Exhibit 4(d) to the Corporation's Registration Statement on Form S-3, File No. 33-61257); (e) a Certificate of Amendment filed in the Office of the Superintendent as of July 17, 1995 (Incorporated by reference to Exhibit 4(e) to the Corporation's Registration Statement on Form S-3, File No. 33-61257); (f) a Certificate of Amendment filed in the Office of the Superintendent as of November 1, 1995 (Incorporated by reference to Exhibit 3(i) to the Corporation's Form 10-K Report for the year ended December 31, 1995); (g) a Certificate of Amendment filed in the Office of the Superintendent as of September 27, 1996 (Incorporated by reference to Exhibit 4(g) to the Corporation's Registration Statement on Form S-3, File No. 333-13195); (h) a Certificate of Amendment filed in the Office of the Superintendent as of December 9, 1997 (Incorporated by reference to Exhibit 4(g) to the Corporation's Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File No. 333-13195); (i) a Certificate of Amendment filed in the Office of the Superintendent as of December 19, 1997 (Incorporated by reference to Exhibit 4(h) to the Corporation's Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File No. 333-13195); (j) a Certificate of Amendment filed in the Office of the Superintendent as of February 17, 1998 (Incorporated by reference to Exhibit 4(i) to the Corporation's Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File No. 333-13195); (k) a Certificate of Amendment filed in the Office of the Superintendent as of June 24, 1998 (Incorporated by reference to Exhibit 4(l) to the Corporation's Post-Effective Amendment No. 2 to Registration Statement on Form S-3, file number 333-59707); (l) a Certificate of Amendment filed in the Office of the Superintendent as of July 23, 1998 (incorporated by reference to Exhibit 4(k) to the Corporation's Post-Effective Amendment No. 1 to Registration Statement on Form S-3, file number 333-59707); and (m) a Certificate of Amendment filed in the Office of the Superintendent as of February 16, 1999 (Incorporated by reference to Exhibit 4(m) to the Corporation's Post-Effective Amendment No. 2 to Registration Statement on Form S-3, file number 333-59707); and (n) a Certificate of Amendment filed in the Office of the Superintendent as of April 15, 1999 (Incorporated by reference to Exhibit 4 (kk) to the Corporation's Post-Effective Amendment No. 2 to Registration Statement on Form S-3, File No. 333-87367) 3(ii) A complete copy of the By-Laws of the Corporation as last amended on June 30, 1994, and currently in effect. (Incorporated by reference to Exhibit 3(ii) of the Corporation's Form 10-K Report for the year ended December 31, 1994). 4(a) Second Amended and Restated Fiscal and Paying Agency Agreement dated as of March 31, 1999 among the Corporation, GE Capital Australia, GE Capital Australia Funding Pty Ltd, GE Capital Finance Australia, General Electric Capital Canada, Inc., GE Capital Canada Funding Company, GE Capital Canada Retailer Financial Services Company and The Chase Manhattan Bank, London Branch (Incorporated by reference to Exhibit 4(ee) to the Corporation's Post-Effective Amendment No. 4 to Registration Statement on Form S-3, File No. 333-59707). 4(c) Form of Euro Medium-Term Note and Debt Security - Temporary Global Fixed Rate Bearer Note (Incorporated by reference to Exhibit 4(ff) to the Corporation's Post-Effective Amendment No. 4 to Registration Statement on Form S-3, File No. 333-59707). 4(d) Form of Euro Medium-Term Note and Debt Security - Permanent Global Fixed Rate Bearer Note (Incorporated by reference to Exhibit 4(gg) to the Corporation's Post-Effective Amendment No. 4 to Registration Statement on Form S-3, File No. 333-59707). 42 4(e) Form of Euro Medium-Term Note and Debt Security - Temporary Global Floating Rate Bearer Note (Incorporated by reference to Exhibit 4(ii) to the Corporation's Post-Effective Amendment No. 4 to Registration Statement on Form S-3, File No. 333-59707). 4(f) Form of Euro Medium-Term Note and Debt Security - Permanent Global Floating Rate Bearer Notes (Incorporated by reference to Exhibit 4(jj) to the Corporation's Post-Effective Amendment No. 4 to Registration Statement on Form S-3, File No. 333-59707). 4(g) 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 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, 1999, (pages F-1 through F-44) and Exhibit 12 (Ratio of Earnings to Fixed Charges) of General Electric Company. 99(c) Letter, dated February 4, 1999 from Dennis D. Dammerman of General Electric Company to Denis J. Nayden of General Electric Capital Corporation pursuant to which General Electric Company agrees to provide additional equity to General Electric Capital Corporation in conjunction with certain redemptions by General Electric Capital Corporation of shares of its Variable Cumulative Preferred Stock. (Incorporated by reference to Exhibit 99(g) to the Corporation's Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File No. 333-59707). (b) Reports on Form 8-K None. 43
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) 1999 1998 1997 ------------- ------------- ------------- REVENUES ......................................................... $ 5,527 $ 5,310 $ 4,867 ------------- ------------- ------------- EXPENSES: Interest, net of allocations ................................... 7,096 5,444 3,548 Operating and administrative ................................... 1,904 1,988 1,765 Provision for losses on financing receivables .................. 241 (125) 4 Depreciation and amortization .................................. 530 443 345 ------------- ------------- ------------- 9,771 7,750 5,662 ------------- ------------- ------------- Loss before income taxes and equity in earnings of affiliates .... (4,244) (2,440) (795) Income tax benefit ............................................... 1,734 1,008 439 Equity in earnings of affiliates ................................. 6,718 4,806 3,085 ------------- ------------- ------------- NET EARNINGS ..................................................... 4,208 3,374 2,729 Dividends paid ................................................... (1,537) (895) (1,546) Retained earnings at January 1 ................................... 14,340 11,861 10,678 ------------- ------------- ------------- RETAINED EARNINGS AT DECEMBER 31 ................................. $ 17,011 $ 14,340 $ 11,861 ============= ============= =============
See Notes to Condensed Financial Statements. 44
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) 1999 1998 -------------- -------------- ASSETS Cash and equivalents ............................................................. $ 2,658 $ 15 Investment securities ............................................................ 5,499 3,758 Financing receivables: Time sales and loans ............................................................ 24,957 21,546 Investment in financing leases .................................................. 13,759 12,525 -------------- -------------- 38,716 34,071 Allowance for losses on financing receivables ................................... (755) (642) -------------- -------------- Financing receivables - net .................................................. 37,961 33,429 Investments in and advances to affiliates ........................................ 126,581 118,299 Equipment on operating leases (at cost), less accumulated amortization of $938 and $906 ............................................................................ 4,189 3,666 Other assets ..................................................................... 12,163 10,314 -------------- -------------- Total assets .................................................................. $ 189,051 $ 169,481 ============== ============== LIABILITIES AND EQUITY Short-term borrowings ............................................................ $ 99,237 $ 93,670 Long-term borrowings ............................................................. 59,136 47,135 Other liabilities ................................................................ 4,806 4,982 Deferred income taxes ............................................................ 3,126 2,625 -------------- -------------- Total liabilities ............................................................. 166,305 148,412 -------------- -------------- Variable cumulative preferred stock, $100 par value, liquidation preference $100,000 per share (33,000 and 28,000 shares authorized at December 31, 1999 and 1998, respectively, 26,000 and 18,700 shares outstanding at December 31, 1999 and 1998, respectively .................................................... 3 2 Common stock, $200 par value (3,866,000 shares authorized and 3,837,825 shares outstanding at December 31, 1999 and 1998, respectively)........................ 768 768 Additional paid-in capital ....................................................... 5,383 4,933 Retained earnings ................................................................ 17,011 14,340 Accumulated unrealized (losses) gains on investment securities - net (a) ......... (163) 1,167 Accumulated foreign currency translation adjustments (a) ......................... (256) (141) -------------- -------------- Total equity .................................................................. 22,746 21,069 -------------- -------------- Total liabilities and equity .................................................. $ 189,051 $ 169,481 ============== ==============
(a) The sum of accumulated unrealized (losses) gains on investment securities and accumulated foreign currency translation adjustments constitutes "Accumulated nonowner changes other than earnings," and was ($419) million and $1,026 million at year-end 1999 and 1998, respectively. See Notes to Condensed Financial Statements. 45
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) 1999 1998 1997 -------------- -------------- -------------- CASH USED FOR OPERATING ACTIVITIES ............................... $ (1,537) $ (628) $ (872) -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Increase in loans to customers ................................... (58,899) (49,265) (42,575) Principal collections from customers - loans ..................... 55,114 46,902 42,486 Investment in assets on financing leases ......................... (4,712) (5,915) (4,589) Principal collections from customers - financing leases .......... 2,788 3,207 2,665 Net change in credit card receivables ............................ 193 (709) 1,805 Buildings, equipment and equipment on operating leases - additions ................................................... (1,710) (421) (900) - dispositions ................................................ 976 445 350 Payments for principal businesses purchased, net of cash acquired (9,823) (15,959) (4,736) Proceeds from principal business dispositions .................... 176 - 209 Change in investment in and advances to affiliates ............... 6,193 (1,956) (5,290) Other - net ...................................................... (4,687) (2,372) 1,348 -------------- -------------- -------------- Cash used for investing activities ............................ (14,391) (26,043) (9,227) -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (less than 90-day maturities) ........... (2,591) 14,263 15,537 Newly issued debt - short-term (91-365 days) .................................... 14,081 5,881 4,066 - long-term senior ............................................ 25,016 25,381 9,700 Proceeds - non-recourse, leveraged lease debt .................... 816 1,422 1,043 Repayments and other reductions - short-term .................................................. (17,291) (16,553) (18,379) - long-term senior ............................................ (97) (3,109) (787) Principal payments - non-recourse, leveraged lease debt .......... (126) (142) (107) Dividends paid ................................................... (1,537) (895) (1,540) Contributions to additional paid-in capital ...................... - 119 182 Issuance of preferred stock in excess of par ..................... 300 70 430 -------------- -------------- -------------- Cash from financing activities ................................ 18,571 26,437 10,145 -------------- -------------- -------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR ....... 2,643 (234) 46 CASH AND EQUIVALENTS AT BEGINNING OF YEAR ........................ 15 249 203 -------------- -------------- -------------- CASH AND EQUIVALENTS AT END OF YEAR .............................. $ 2,658 $ 15 $ 249 ============== ============== ==============
See Notes to Condensed Financial Statements. 46 GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Concluded) GENERAL ELECTRIC CAPITAL CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS Borrowings Total long-term borrowings at December 31, 1999 and 1998 are shown below.
1999 average (Dollars in millions) rate (a) Maturities 1999 1998 --------------- --------------- --------------- --------------- Senior notes .................................... 5.61% 2001-2055 $ 58,438 $ 46,438 Subordinated notes (b) .......................... 8.04 2006-2012 698 697 --------------- --------------- $ 59,136 $ 47,135 =============== ===============
(a) Includes the effects of associated interest rate and currency swaps. (b) Guaranteed by General Electric Company. At December 31, 1999, long-term borrowing maturities during the next five years, including the current portion of long-term notes payable, are $19,565 million in 2000, $13,816 million in 2001, $11,379 million in 2002, $7,811 million in 2003, and $6,912 million in 2004. Interest rates are managed by General Electric Capital Corporation ("GE Capital") in light of the anticipated behavior, including prepayment behavior, of assets in which debt proceeds are invested. A variety of instruments, including interest rate and currency swaps and currency forwards, are employed to achieve management's interest rate objectives. Effective interest rates are lower under these "synthetic" positions than could have been achieved by issuing debt directly. At December 31, 1999 interest rate swap maturities ranged from 2000 to 2048, and average interest rates for fixed-rate borrowings (including "synthetic" fixed-rate borrowings) were 5.54% (6.16% at year end 1998). 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 $1,129 million, $2,050 million and $2,971 million for 1999, 1998 and 1997, respectively. Income Taxes General Electric Company files a consolidated U.S. federal income tax return which includes GE Capital. Income tax benefit includes the effect of GE Capital on the consolidated return. 47 54 Exhibit 4 (g) March 14, 2000 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, 1999 - 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 or filed with the Commission and under which the total amount of securities authorized exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. In accordance with paragraph (b) (4) (iii) of Item 601 of Regulation S-K (17 CFR ss.229.601), the Corporation hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument which defines the rights of holders of such long-term debt. Very truly yours, GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ J.A. Parke J.A. Parke, Executive Vice President and Chief Financial Officer 48 Exhibit 12 (a)
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Computation of Ratio of Earnings to Fixed Charges Years ended December 31 ------------------------------------------------------------------ (Dollars in millions) 1999 1998 1997 1996 1995 ------------- ------------ ----------- -------------- ------------ Net earnings .................................... $ 4,208 $ 3,374 $ 2,729 $ 2,632 $ 2,261 Provision for income taxes ...................... 1,553 1,185 997 1,172 1,071 Minority interest ............................... 68 49 40 86 81 ------------- ------------ ----------- -------------- ------------ Earnings before income taxes and minority interest ....................................... 5,829 4,608 3,766 3,890 3,413 ------------- ------------ -------------------------- ------------ Fixed charges: Interest ....................................... 9,183 8,772 7,440 7,114 6,520 One-third of rentals ........................... 345 289 240 177 170 ------------- ------------ -------------------------- ------------ Total fixed charges ............................. 9,528 9,061 7,680 7,291 6,690 ------------- ------------ -------------------------- ------------ Less interest capitalized, net of amortization .. (87) (88) (52) (41) (21) ------------- ------------ -------------------------- ------------ Earnings before income taxes and minority interest plus fixed charges .................... $ 15,270 $ 13,581 $ 11,394 $ 11,140 $ 10,082 ============= ============ ========================== ============ Ratio of earnings to fixed charges .............. 1.60 1.50 1.48 1.53 1.51 ============= ============ ========================== ============
49 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 ----------------------------------------------------------------- (Dollars in millions) 1999 1998 1997 1996 1995 ------------ ----------- ------------ ------------ ----------- Net earnings .................................... $ 4,208 $ 3,374 $ 2,729 $ 2,632 $ 2,261 Provision for income taxes ...................... 1,553 1,185 997 1,172 1,071 Minority interest ............................... 68 49 40 86 81 ------------ ----------- ------------ ------------ ----------- Earnings before income taxes and minority interest ....................................... 5,829 4,608 3,766 3,890 3,413 ------------ ----------- ------------ ------------ ----------- Fixed charges: Interest ...................................... 9,183 8,772 7,440 7,114 6,520 One-third of rentals .......................... 345 289 240 177 170 ------------ ----------- ------------ ------------ ----------- Total fixed charges ............................. 9,528 9,061 7,680 7,291 6,690 Less interest capitalized, net of amortization .. (87) (88) (52) (41) (21) ------------ ----------- ------------ ------------ ----------- Earnings before income taxes and minority interest plus fixed charges .................... $ 15,270 $ 13,581 $ 11,394 $ 11,140 $ 10,082 ============ =========== ============ ============ =========== Preferred stock dividend requirements ........... $ 115 $ 97 $ 78 $ 76 $ 57 Ratio of earnings before provision for income taxes to net earnings .......................... 1.37 1.35 1.37 1.45 1.47 ------------ ----------- ------------ ------------ ----------- Preferred stock dividend factor on pre-tax basis 157 131 107 110 84 Fixed charges ................................... 9,528 9,061 7,680 7,291 6,690 ------------ ----------- ------------ ------------ ----------- Total fixed charges and preferred stock dividend requirements ................................... $ 9,685 $ 9,192 $ 7,787 $ 7,401 $ 6,774 ============ =========== ============ ============ =========== Ratio of earnings to combined fixed charges and preferred stock dividends ...................... 1.58 1.48 1.46 1.51 1.49 ============ =========== ============ ============ ===========
50 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, 333-22265, 333-59977, 333-76479 and 333-87367) 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 4, 2000, relating to the statement of financial position of General Electric Capital Corporation and consolidated affiliates as of December 31, 1999 and 1998, and the related statements of earnings, changes in share owners' equity and cash flows for each of the years in the three-year period ended December 31, 1999, and the related schedule, which report appears in the December 31, 1999 annual report on Form 10-K of General Electric Capital Corporation. /s/ KPMG LLP Stamford, Connecticut March 14, 2000 51 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 Denis J. Nayden, James A. Parke, Joan C. Amble and Nancy E. Barton, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, to sign one or more Annual Reports for the Corporation's fiscal year ended December 31, 1999, on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as such attorney-in-fact may deem necessary or desirable, any amendments thereto, and all additional amendments thereto in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done to the end that such Annual Report or Annual Reports shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations of the Securities and Exchange Commission adopted or issued pursuant thereto, as fully and to all intents and purposes as he might or could in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or resubstitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this 14th day of March, 2000. /s/ Denis J. Nayden /s/ James A. Parke - ----------------------------- ---------------------------- Denis J. Nayden, James A. Parke, Director, President and Director, Executive Vice President and Chief Executive Officer Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer) /s/ Joan C. Amble ----------------- Joan C. Amble, Vice President and Controller (Principal Accounting Officer) (Page 1 of 2) 52 /s/ Robert L. Nardelli - ------------------------------------- ---------------------------------- Nigel D.T. Andrews, Robert L. Nardelli, Director Director /s/ Nancy E. Barton - ------------------------------------- ---------------------------------- Nancy E. Barton, Michael A. Neal, Director Director /s/ James R. Bunt /s/ Gary M. Reiner - ------------------------------------- ---------------------------------- James R. Bunt, Gary M. Reiner, Director Director /s/ David L. Calhoun /s/ John M. Samuels - ------------------------------------- ---------------------------------- David L. Calhoun, John M. Samuels, Director Director /s/ Dennis D. Dammerman /s/ Keith S. Sherin - ------------------------------------- ---------------------------------- Dennis D. Dammerman, Keith S. Sherin, Director Director - ------------------------------------- ---------------------------------- Benjamin W. Heineman, Jr., Edward D. Stewart, Director Director /s/ Jeffrey R. Immelt /s/ John F. Welch, Jr. - ------------------------------------- ---------------------------------- Jeffrey R. Immelt, John F. Welch, Jr., Director Director /s/ W. James McNerney, Jr. - ------------------------------------- ---------------------------------- W. James McNerney, Jr., William A. Woodburn, Director Director /s/ John H. Myers - ------------------------------------- John H. Myers, Director A MAJORITY OF THE BOARD OF DIRECTORS (Page 2 of 2) 53 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 14, 2000 By: /s/ Denis J. Nayden --------------------------------------- (Denis J. Nayden) President 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/ Denis J. Nayden Director, President and March 14, 2000 - ----------------------- Chief Executive Officer (Denis J. Nayden) (Principal Executive Officer) /s/ James A. Parke Director, Executive Vice President March 14, 2000 - ----------------------- and Chief Financial Officer (James A. Parke) (Principal Financial Officer) /s/ Joan C. Amble Vice President and Controller March 14, 2000 - ---------------------- (Principal Accounting Officer) (Joan C. Amble) NANCY E. BARTON * Director JAMES R. BUNT * Director DAVID L. CALHOUN * Director DENNIS D. DAMMERMAN * Director JEFFREY R. IMMELT * Director W. JAMES McNERNEY, JR. * Director JOHN H. MYERS * Director ROBERT L. NARDELLI * Director DENNIS J. NAYDEN * Director JAMES A. PARKE * Director GARY M. REINER * Director JOHN M. SAMUELS * Director KEITH S. SHERIN * Director JOHN F. WELCH, JR. * Director A MAJORITY OF THE BOARD OF DIRECTORS *By: /s/ Joan C. Amble March 14, 2000 --------------------------- (Joan C. Amble) Attorney-in-fact 54 EX-99.B 2 FINANCIAL STATEMENTS OF GENERAL ELECTRIC COMPANY PAGE F-1 ANNUAL REPORT PAGE 33 FINANCIAL SECTION CONTENTS 40 INDEPENDENT AUDITORS' REPORT AUDITED FINANCIAL STATEMENTS 34 Earnings 34 Changes in Share Owners' Equity 36 Financial Position 38 Cash Flows 56 Notes to Consolidated Financial Statements MANAGEMENT'S DISCUSSION 40 Financial Responsibility 41 Operations 41 Consolidated Operations 43 Segment Operations 48 International Operations 50 Financial Resources and Liquidity 54 Selected Financial Data [CHART HERE] CONSOLIDATED REVENUES - ----------------------------------------------------------------------------- (IN BILLIONS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- $70.028 $79.179 $90.840 $100.469 $111.630 - ----------------------------------------------------------------------------- [CHART HERE] EARNINGS PER SHARE - ----------------------------------------------------------------------------- (IN DOLLARS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- $1.93 $2.16 $2.46 $2.80 $3.22 - ----------------------------------------------------------------------------- [CHART HERE] DIVIDENDS DECLARED PER SHARE - ----------------------------------------------------------------------------- (IN DOLLARS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- $0.845 $0.950 $1.080 $1.250 $1.460 - ----------------------------------------------------------------------------- PAGE F-2 ANNUAL REPORT PAGE 34 STATEMENT OF EARNINGS
General Electric Company For the years ended December 31 and consolidated affiliates (In millions; per-share amounts in dollars) ---------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- REVENUES Sales of goods $ 47,785 $ 43,749 $ 40,675 Sales of services 16,283 14,938 12,729 Other income (note 2) 798 649 2,300 Earnings of GECS -- -- -- GECS revenues from services (note 3) 46,764 41,133 35,136 ---------------------------------- Total revenues 111,630 100,469 90,840 ---------------------------------- COSTS AND EXPENSES (NOTE 4) Cost of goods sold 34,554 31,772 30,889 Cost of services sold 11,404 10,508 9,199 Interest and other financial charges 10,013 9,753 8,384 Insurance losses and policyholder and annuity benefits 11,028 9,608 8,278 Provision for losses on financing receivables (note 13) 1,678 1,609 1,421 Other costs and expenses 27,011 23,477 21,250 Minority interest in net earnings of consolidated affiliates 365 265 240 ---------------------------------- Total costs and expenses 96,053 86,992 79,661 ---------------------------------- EARNINGS BEFORE INCOME TAXES 15,577 13,477 11,179 Provision for income taxes (note 7) (4,860) (4,181) (2,976) ---------------------------------- NET EARNINGS $ 10,717 $ 9,296 $ 8,203 =============================================================================== PER-SHARE AMOUNTS (note 8) Diluted earnings per share $ 3.22 $ 2.80 $ 2.46 Basic earnings per share $ 3.27 $ 2.84 $ 2.50 =============================================================================== DIVIDENDS DECLARED PER SHARE $ 1.46 $ 1.25 $ 1.08 ===============================================================================
CONSOLIDATED STATEMENT OF CHANGES IN SHARE OWNERS' EQUITY
---------------------------------- (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------- CHANGES IN SHARE OWNERS' EQUITY Balance at January 1 $ 38,880 $ 34,438 $ 31,125 ---------------------------------- Dividends and other transactions with share owners (note 25) (4,632) (5,178) (5,615) ---------------------------------- Changes other than transactions with share owners Increase attributable to net earnings 10,717 9,296 8,203 Unrealized gains (losses) on investment securities--net (note 25) (1,776) 264 1,467 Currency translation adjustments (note 25) (632) 60 (742) ---------------------------------- Total changes other than transactions with share owners 8,309 9,620 8,928 --------- --------- -------- Balance at December 31 $ 42,557 $ 38,880 $ 34,438 =============================================================================== The notes to consolidated financial statements on pages 56 -76 are an integral part of these statements.
PAGE F-3 ANNUAL REPORT PAGE 35 STATEMENT OF EARNINGS (Continued)
GE GECS For the years ended December 31 -------------------------------- -------------------------------- (In millions; per-share amounts in dollars) 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ REVENUES Sales of goods $ 39,045 $ 36,376 $ 36,059 $ 8,740 $ 7,374 $ 4,622 Sales of services 16,600 15,170 12,893 -- -- -- Other income (note 2) 856 684 2,307 -- -- -- Earnings of GECS 4,443 3,796 3,256 -- -- -- GECS revenues from services (note 3) -- -- -- 47,009 41,320 35,309 -------------------------------- -------------------------------- Total revenues 60,944 56,026 54,515 55,749 48,694 39,931 -------------------------------- -------------------------------- COSTS AND EXPENSES (NOTE 4) Cost of goods sold 26,578 24,996 26,747 7,976 6,777 4,147 Cost of services sold 11,721 10,740 9,363 -- -- -- Interest and other financial charges 810 883 797 9,359 8,966 7,649 Insurance losses and policyholder and annuity benefits -- -- -- 11,028 9,608 8,278 Provision for losses on financing receivables (note 13) -- -- -- 1,678 1,609 1,421 Other costs and expenses 7,732 7,177 7,476 19,426 16,426 13,893 Minority interest in net earnings of consolidated affiliates 179 117 119 186 148 121 -------------------------------- -------------------------------- Total costs and expenses 47,020 43,913 44,502 49,653 43,534 35,509 -------------------------------- -------------------------------- EARNINGS BEFORE INCOME TAXES 13,924 12,113 10,013 6,096 5,160 4,422 Provision for income taxes (note 7) (3,207) (2,817) (1,810) (1,653) (1,364) (1,166) -------------------------------- -------------------------------- NET EARNINGS $ 10,717 $ 9,296 $ 8,203 $ 4,443 $ 3,796 $ 3,256 ================================================================================================================== In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 34. 1997 restructuring and other special charges are included in the following GE captions: "Cost of goods sold"--$1,364 million; "Cost of services sold"--$250 million; and "Other costs and expenses"--$708 million.
PAGE F-4 ANNUAL REPORT PAGE 36 STATEMENT OF FINANCIAL POSITION
General Electric Company and consolidated affiliates --------------------------- At December 31 (In millions) 1999 1998 - -------------------------------------------------------------------------------- ASSETS Cash and equivalents $ 8,554 $ 4,317 Investment securities (note 9) 81,758 78,717 Current receivables (note 10) 8,531 8,224 Inventories (note 11) 7,007 6,049 Financing receivables (investments in time sales, loans and financing leases) -- net (notes 12 and 13) 137,629 121,566 Other GECS receivables (note 14) 29,708 24,789 Property, plant and equipment (including equipment leased to others) -- net (note 15) 41,022 35,730 Investment in GECS -- -- Intangible assets--net (note 16) 26,010 23,635 All other assets (note 17) 64,981 52,908 --------------------- TOTAL ASSETS $ 405,200 $ 355,935 =============================================================================== LIABILITIES AND EQUITY Short-term borrowings (note 19) $ 130,346 $ 115,378 Accounts payable, principally trade accounts 13,676 12,502 Progress collections and price adjustments accrued 4,618 2,765 Dividends payable 1,347 1,146 All other GE current costs and expenses accrued (note 18) 11,229 9,788 Long-term borrowings (note 19) 71,427 59,663 Insurance liabilities, reserves and annuity benefits (note 20) 86,776 77,259 All other liabilities (note 21) 28,772 24,939 Deferred income taxes (note 22) 9,238 9,340 --------------------- Total liabilities 357,429 312,780 --------------------- Minority interest in equity of consolidated affiliates (note 23) 5,214 4,275 --------------------- Accumulated unrealized gains on investment securities -- net 626 2,402 Accumulated currency translation adjustments (a) (1,370) (738) Common stock (3,284,843,000 and 3,271,296,000 shares outstanding at year-end 1999 and 1998, respectively) 594 594 Other capital 10,790 6,808 Retained earnings 54,484 48,553 Less common stock held in treasury (22,567) (18,739) - ------------------------------------------------------------------------------- Total share owners' equity (notes 25 and 26) 42,557 38,880 - ------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 405,200 $ 355,935 ===============================================================================
[FN] The notes to consolidated financial statements on pages 56-76 are an integral part of this statement The sum of accumulated unrealized gains on investment securities -- net and accumulated currency translation adjustments constitutes "Accumulated nonowner changes other than earnings," as shown in note 25, and was $(744) million and $1,664 million at year-end 1999 and 1998, respectively. PAGE F-5 ANNUAL REPORT PAGE 37 STATEMENT OF FINANCIAL POSITION (Continued)
GE GECS ---------------------- ---------------------- At December 31 (In millions) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------- ASSETS Cash and equivalents $ 2,000 $ 1,175 $ 6,931 $ 3,342 Investment securities (note 9) 1,273 259 80,485 78,458 Current receivables (note 10) 8,743 8,483 -- -- Inventories (note 11) 5,798 5,305 1,209 744 Financing receivables (investments in time sales, loans and financing leases) -- net (notes 12 and 13) -- -- 137,629 121,566 Other GECS receivables (note 14) -- -- 30,681 25,973 Property, plant and equipment (including equipment leased to others) -- net (note 15) 12,381 11,694 28,641 24,036 Investment in GECS 20,321 19,727 -- -- Intangible assets -- net (note 16) 11,262 9,996 14,748 13,639 All other assets (note 17) 20,805 18,031 44,694 35,539 ---------------------- ---------------------- TOTAL ASSETS $ 82,583 $ 74,670 $ 345,018 $ 303,297 ==================================================================================================================== LIABILITIES AND EQUITY Short-term borrowings (note 19) $ 2,245 $ 3,466 $ 129,259 $ 113,162 Accounts payable, principally trade accounts 5,068 4,845 9,749 8,815 Progress collections and price adjustments accrued 4,618 2,765 -- -- Dividends payable 1,347 1,146 -- -- All other GE current costs and expenses accrued (note 18) 11,048 9,708 -- -- Long-term borrowings (note 19) 722 681 70,766 59,038 Insurance liabilities, reserves and annuity benefits (note 20) -- -- 86,776 77,259 All other liabilities (note 21) 13,872 12,613 14,801 12,247 Deferred income taxes (note 22) 283 (250) 8,955 9,590 ---------------------- ---------------------- Total liabilities 39,203 34,974 320,306 280,111 ---------------------- ---------------------- Minority interest in equity of consolidated affiliates (note 23) 823 816 4,391 3,459 ---------------------- ---------------------- Accumulated unrealized gains on investment securities -- net (a) 626 2,402 170 2,376 Accumulated currency translation adjustments (a) (1,370) (738) (384) (215) Common stock (3,284,843,000 and 3,271,296,000 shares outstanding at year-end 1999 and 1998, respectively) 594 594 1 1 Other capital 10,790 6,808 2,682 2,490 Retained earnings 54,484 48,553 17,852 15,075 Less common stock held in treasury (22,567) (18,739) -- -- ---------------------- ---------------------- Total share owners' equity (notes 25 and 26) 42,557 38,880 20,321 19,727 ---------------------- ---------------------- TOTAL LIABILITIES AND EQUITY $ 82,583 $ 74,670 $ 345,018 $ 303,297 =================================================================================================================== In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 36.
PAGE F-6 ANNUAL REPORT PAGE 38 STATEMENT OF CASH FLOWS
General Electric Company and consolidated affiliates ---------------------------- For the years ended December 31 (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------------- CASH FLOWS -- OPERATING ACTIVITIES Net earnings $ 10,717 $ 9,296 $ 8,203 Adjustments to reconcile net earnings to cash provided from operating activities Depreciation and amortization of property, plant and equipment 4,908 4,377 4,082 Amortization of goodwill and other intangibles 1,783 1,483 1,187 Earnings retained by GECS -- -- -- Deferred income taxes 1,502 1,143 284 Decrease in GE current receivables 143 649 250 Decrease (increase) in inventories 266 150 (386) Increase (decrease) in accounts payable 820 1,576 200 Increase in insurance liabilities and reserves 4,584 3,670 1,669 Provision for losses on financing receivables 1,678 1,609 1,421 All other operating activities (1,808) (4,593) (2,670) -------------------------------- CASH FROM OPERATING ACTIVITIES 24,593 19,360 14,240 -------------------------------- CASH FLOWS -- INVESTING ACTIVITIES Additions to property, plant and equipment (15,502) (8,982) (8,388) Dispositions of property, plant and equipment 6,262 4,043 2,251 Net increase in GECS financing receivables (13,088) (6,301) (1,898) Payments for principal businesses purchased (11,654) (18,610) (5,245) All other investing activities (8,197) (10,283) (4,995) -------------------------------- CASH USED FOR INVESTING ACTIVITIES (42,179) (40,133) (18,275) -------------------------------- CASH FLOWS -- FINANCING ACTIVITIES Net increase in borrowings (maturities of 90 days or less) 6,171 16,881 13,684 Newly issued debt (maturities longer than 90 days) 48,158 42,008 21,249 Repayments and other reductions (maturities longer than 90 days) (27,539) (32,814) (23,787) Net purchase of GE shares for treasury (1,002) (2,819) (2,815) Dividends paid to share owners (4,587) (3,913) (3,411) All other financing activities 622 (114) 785 CASH FROM (USED FOR) FINANCING ACTIVITIES 21,823 19,229 5,705 -------------------------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 4,237 (1,544) 1,670 Cash and equivalents at beginning of year 4,317 5,861 4,191 -------------------------------- Cash and equivalents at end of year $ 8,554 $ 4,317 $ 5,861 ====================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $(10,078) $ (9,297) $ (8,264) Cash paid during the year for income taxes (1,597) (2,098) (1,937) ====================================================================================== The notes to consolidated financial statements on pages 56-76 are an integral part of this statement.
PAGE F-7 ANNUAL REPORT PAGE 39 STATEMENT OF CASH FLOWS (Continued)
GE GECS -------------------------------- -------------------------------- For the years ended December 31 (In millions) 1999 1998 1997 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS -- OPERATING ACTIVITIES Net earnings $ 10,717 $ 9,296 $ 8,203 $ 4,443 $ 3,796 $ 3,256 Adjustments to reconcile net earnings to cash provided from operating activities Depreciation and amortization of property, plant and equipment 1,735 1,761 1,622 3,173 2,616 2,460 Amortization of goodwill and other intangibles 584 531 407 1,199 952 780 Earnings retained by GECS (2,777) (2,124) (1,597) -- -- -- Deferred income taxes 655 594 (514) 847 549 798 Decrease in GE current receivables 190 520 215 -- -- -- Decrease (increase) in inventories (61) 69 (145) 327 81 (244) Increase (decrease) in accounts payable 104 199 237 699 1,673 (64) Increase in insurance liabilities and reserves -- -- -- 4,584 3,670 1,669 Provision for losses on financing receivables -- -- -- 1,678 1,609 1,421 All other operating activities 616 (814) 889 (2,131) (3,991) (3,851) -------------------------------- -------------------------------- CASH FROM OPERATING ACTIVITIES 11,763 10,032 9,317 14,819 10,955 6,225 -------------------------------- -------------------------------- CASH FLOWS -- INVESTING ACTIVITIES Additions to property, plant and equipment (2,036) (2,047) (2,191) (13,466) (6,935) (6,197) Dispositions of property, plant and equipment -- 6 39 6,262 4,037 2,212 Net increase in GECS financing receivables -- -- -- (13,088) (6,301) (1,898) Payments for principal businesses purchased (1,594) (1,455) (1,425) (10,060) (17,155) (3,820) All other investing activities (432) 477 483 (7,823) (11,078) (5,646) -------------------------------- -------------------------------- CASH USED FOR INVESTING ACTIVITIES (4,062) (3,019) (3,094) (38,175) (37,432) (15,349) -------------------------------- -------------------------------- CASH FLOWS -- FINANCING ACTIVITIES Net increase in borrowings (maturities of 90 days or less) (1,230) 1,015 809 7,308 16,288 13,594 Newly issued debt (maturities longer than 90 days) 558 509 424 47,605 41,440 20,825 Repayments and other reductions (maturities longer than 90 days) (615) (1,787) (1,030) (26,924) (31,027) (22,757) Net purchase of GE shares for treasury (1,002) (2,819) (2,815) -- -- -- Dividends paid to share owners (4,587) (3,913) (3,411) (1,666) (1,672) (1,653) All other financing activities -- -- -- 622 (114) 785 -------------------------------- -------------------------------- CASH FROM (USED FOR) FINANCING ACTIVITIES (6,876) (6,995) (6,023) 26,945 24,915 10,794 -------------------------------- -------------------------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 825 18 200 3,589 (1,562) 1,670 Cash and equivalents at beginning of year 1,175 1,157 957 3,342 4,904 3,234 -------------------------------- -------------------------------- Cash and equivalents at end of year $ 2,000 $ 1,175 $ 1,157 $ 6,931 $ 3,342 $ 4,904 ========================================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $ (482) $ (620) $ (467) $ (9,596) $ (8,677) $ (7,797) Cash paid during the year for income taxes (1,246) (1,151) (1,596) (351) (947) (341) ========================================================================================================================== In the consolidating data on this page, "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the "General Electric Company and consolidated affiliates" columns on page 38.
PAGE F-8 ANNUAL REPORT PAGE 40 MANAGEMENT'S DISCUSSION OF FINANCIAL RESPONSIBILITY The financial data in this report, including the audited financial statements, have been prepared by management using the best available information and applying judgment. Accounting principles used in preparing the financial statements are those that are generally accepted in the United States. Management believes that a sound, dynamic system of internal financial controls that balances benefits and costs provides a vital ingredient for the Company's Six Sigma quality program as well as the best safeguard for Company assets. Professional financial managers are responsible for implementing and overseeing the financial control system, reporting on management's stewardship of the assets entrusted to it by share owners and maintaining accurate records. GE is dedicated to the highest standards of integrity, ethics and social responsibility. This dedication is reflected in written policy statements covering, among other subjects, environmental protection, potentially conflicting outside interests of employees, compliance with antitrust laws, proper business practices, and adherence to the highest standards of conduct and practices in transactions with customers, including the U.S. government. Management continually emphasizes to all employees that even the appearance of impropriety can erode public confidence in the Company. Ongoing education and communication programs and review activities, such as those conducted by the Company's Policy Compliance Review Board, are designed to create a strong compliance culture--one that encourages employees to raise their policy questions and concerns and that prohibits retribution for doing so. KPMG LLP, independent auditors, provide an objective, independent review of management's discharge of its obligations relating to the fairness of reporting of operating results and financial condition. Their report for 1999 appears below. The Audit Committee of the Board (consisting solely of Directors from outside GE) maintains an ongoing appraisal--on behalf of share owners--of the activities and independence of the Company's independent auditors, the activities of its audit staff, financial reporting process, internal financial controls and compliance with key Company policies. John F. Welch, Jr. Keith S. Sherin Chairman of the Board Senior Vice President, Finance, and Chief Executive Officer and Chief Financial Officer February 4, 2000 INDEPENDENT AUDITORS' REPORT TO SHARE OWNERS AND BOARD OF DIRECTORS OF GENERAL ELECTRIC COMPANY We have audited the financial statements of General Electric Company and consolidated affiliates as listed in Item 14 (a)1 on page 22. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of General Electric Company and consolidated affiliates at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. KPMG LLP Stamford, Connecticut February 4, 2000 PAGE F-9 ANNUAL REPORT PAGE 41 MANAGEMENT'S DISCUSSION OF OPERATIONS OVERVIEW General Electric Company's consolidated financial statements represent the combination of the Company's manufacturing and nonfinancial services businesses ("GE") and the accounts of General Electric Capital Services, Inc. ("GECS"). See note 1 to the consolidated financial statements, which explains how the various financial data are presented. Management's Discussion of Operations is presented in three parts: Consolidated Operations, Segment Operations and International Operations. CONSOLIDATED OPERATIONS GE achieved record revenues, earnings and cash generation in 1999, reflecting continuing benefits of its globalization, product services, Six Sigma quality and e-Business initiatives. Revenues rose 11% to a record $111.6 billion, as global activities and product services continued to grow. Revenues were $100.5 billion in 1998, an 11% increase from 1997 attributable primarily to increased global activities and higher sales of product services. Earnings increased to a record $10,717 million, a 15% increase from $9,296 million reported in 1998. Earnings per share increased to $3.22 during 1999, up 15% from the prior year's $2.80. (Except as otherwise noted, earnings per share are presented on a diluted basis). Earnings in 1998 rose 13% from $8,203 million reported in 1997. In 1998, earnings per share increased 14% from $2.46 in 1997. TWO CHANGES IN ACCOUNTING STANDARDS may affect future financial statements. The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (STATEMENT 133), effective for GE and GECS on January 1, 2001. Upon adoption, all derivative instruments (including certain derivative instruments embedded in other contracts) will be recognized in balance sheets at fair value, and changes in such fair values must be recognized immediately in earnings unless specific hedging criteria are met. Changes in the values of derivatives meeting these hedging criteria will ultimately offset related earnings effects of the hedged items; effects of qualifying changes in fair value are to be recorded in equity pending recognition in earnings. Certain significant refinements and interpretations of Statement 133 are being deliberated by the FASB, and the effects on accounting for GE and GECS financial instruments will depend to some degree on the results of such deliberations. Management has not determined the total probable effects on its financial statements of adopting Statement 133 and does not believe that an estimate of such effects would be meaningful at this time. The FASB has also proposed new accounting for business combinations that, among other things, would change the accounting for and display of goodwill and other intangibles recorded in business acquisitions for transactions after January 1, 2001. An important aspect of the proposal is that goodwill amortization would be displayed as a separate element in the Statement of Earnings, net of applicable income taxes, and related per-share effects could be displayed. Management believes that this proposal represents a useful approach to understanding financial performance but believes that the utility of this information would be materially enhanced if the proposed approach for goodwill were applied to all intangible assets acquired with a business. On this preferred basis, GE would have reported earnings per share before amortization of goodwill and acquired intangibles of $3.63 in 1999, an increase of 16% over $3.14 in 1998, which was 15% higher than $2.73 in 1997. [CHART HERE] GE/S&P CUMULATIVE DIVIDEND GROWTH SINCE 1994 - ----------------------------------------------------------------------------- 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- GE 10.80% 22.93% 38.71% 60.87% 88.62% S&P 500 4.63 13.05 17.60 22.91 26.25 - ----------------------------------------------------------------------------- DIVIDENDS DECLARED IN 1999 AMOUNTED TO $4,786 MILLION. Per-share dividends of $1.46 were up 17% from 1998, following a 16% increase from the preceding year. GE has rewarded its share owners with 24 consecutive years of dividend growth. The chart above illustrates that GE's dividend growth for the past five years has significantly outpaced dividend growth of companies in the Standard & Poor's 500 stock index. RETURN ON AVERAGE SHARE OWNERS' EQUITY reached 26.8% in 1999, up from 25.7% and 25.0% in 1998 and 1997, respectively. Except as otherwise noted, the analysis in the remainder of this section presents GE results with GECS on an equity basis. PAGE F-10 ANNUAL REPORT PAGE 42 GE TOTAL REVENUES were $60.9 billion in 1999, compared with $56.0 billion in 1998 and $54.5 billion in 1997. * GE sales of goods and services were $55.6 billion in 1999, an increase of 8% from 1998, which in turn was 5% higher than in 1997. Volume was about 10% higher in 1999, reflecting growth across all businesses during the year, led by strong double-digit increases at Medical Systems and Power Systems. While overall selling prices were down slightly in 1999, the effects of selling prices on sales in various businesses differed markedly. Revenues were also negatively affected by exchange rates for sales denominated in currencies other than the U.S. dollar. Volume in 1998 was about 8% higher than in 1997, with selling price and currency effects both slightly negative. For purposes of the financial statement display of GE sales and costs of sales on pages 34 and 35, "goods" is required to include sales of tangible products, and "services" must include all other sales, including broadcasting and information services activities. An increasingly important element of GE sales includes both spare parts (goods) as well as repair services--sales referred to by management as "product services." Sales of product services were $14.4 billion in 1999, a 14% increase over 1998. All businesses reported increases in product services revenues, led by double-digit increases at Medical Systems, Aircraft Engines and Power Systems. Operating margin from product services was approximately $3.2 billion, up 16% from 1998. The increase reflected improvements in all product services businesses and was led by double-digit growth at Aircraft Engines and Medical Systems. * GE other income, earned from a wide variety of sources, was $0.9 billion in 1999, $0.7 billion in 1998 and $2.3 billion in 1997. Comparisons over the three-year period are affected by certain gains in 1999 and 1997. A pre-tax gain of $388 million was recognized in 1999 as a result of the contribution of certain of NBC's internet assets to NBC Internet (NBCi), a newly formed publicly traded Internet company, in exchange for a noncontrolling interest in NBCi. The gain was reduced by $62 million of related operating losses from the non-consolidated contributed Internet properties, resulting in incremental revenue of $326 million from the transaction. In 1997, a $1,538 million after-tax gain was realized from the exchange of preferred stock in Lockheed Martin Corporation for the stock of a newly formed subsidiary. See note 2 for further information. * Earnings of GECS were up 17% in 1999, following a 17% increase the year before. See page 46 for an analysis of these earnings. PRINCIPAL COSTS AND EXPENSES FOR GE are those classified as costs of goods and services sold, and selling, general and administrative expenses. The Six Sigma quality initiative is an important factor affecting GE's cost structure. The benefits of Six Sigma quality are reflected in both variable and base cost productivity (discussed on page 43) as well as in lower direct material costs. Another important initiative is e-Business, a broad-based program under which GE is investing in Internet businesses, as well as internal infrastructure hardware and software that will enable its businesses to conduct a growing portion of their business over the Internet. The benefits expected from the e-Business initiative include improved customer service, expanded product and service offerings and increased operating efficiency for both GE and its customers. Principally because of the funding status of the GE Pension Plan (described in note 5) and other benefit plans (described in note 6), principal U.S. postemployment benefit plans contributed cost reductions of $1,062 million and $703 million in 1999 and 1998, respectively. The present funding status provides assurance of benefits for participating employees, but future effects on operating results depend on economic conditions and investment performance. The discussion that follows provides additional information about certain unusual charges that are included in costs and expenses for 1999 and 1997 and are relevant to comparisons of costs over the three-year period. Costs and expenses in 1999 included $326 million of unusual charges, the largest of which resulted from fourth-quarter developments affecting liabilities associated with past activities at former manufacturing sites that [CHART HERE] RETURNS ON INVESTED CAPITAL - ----------------------------------------------------------------------------- 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- RETURN ON EQUITY 23.5% 24.0% 25.0% 25.7% 26.8% RETURN ON TOTAL CAPITAL 21.3 22.2 23.6 23.9 25.8 - ----------------------------------------------------------------------------- PAGE F-11 ANNUAL REPORT PAGE 43 are not part of any current business segment. Other significant components of unusual charges included amounts described on page 45 for NBC and costs for rationalizing certain operations and facilities of GE's worldwide industrial businesses. Major elements of the restructuring program included costs for employee severance, lease termination, dismantlement and site restoration. In 1997, restructuring charges were recognized amounting to $1,243 million that covered costs of plans to rationalize certain production, service and administration activities of GE's worldwide industrial businesses. Principal actions required under those plans were complete by the end of 1999. Other 1997 special charges, which amounted to $1,079 million, were principally associated with strategic decisions that enhanced the long-term competitiveness of certain industrial businesses and fourth-quarter 1997 developments affecting liabilities associated with past activities at former manufacturing sites that were not part of any current business segment. OPERATING MARGIN is sales of goods and services less the costs of goods and services sold, and selling, general and administrative expenses. GE's reported operating margin was 17.3% in 1999, net of unusual charges discussed above. GE's ongoing operating margin (before such charges) reached a record 17.8% of sales, up from last year's 16.7% and 15.7% in 1997, on a comparable basis. GE reported operating margin of 11.0% of sales in 1997. The improvement in ongoing operating margin in 1999 was broad-based, with improvements in a majority of GE's businesses reflecting the increasing benefits from GE's product services and Six Sigma quality initiatives. TOTAL COST PRODUCTIVITY (sales in relation to costs, both on a constant dollar basis) has paralleled the significant improvement in GE's ongoing operating margin. Total cost productivity in 1999 was 4.2%, reflecting benefits from improvements in variable cost productivity achieved through the Six Sigma quality initiative. Most businesses achieved improvements in variable cost productivity in excess of 4%. Total cost productivity was 4.4% in 1998, reflecting Six Sigma quality benefits as well as higher volume. In 1998, three businesses--Medical Systems, Power Systems and NBC--achieved productivity in excess of 5%. The total contribution of productivity in the last two years offset not only the negative effects of total cost inflation, but also the effects of selling price decreases. GE INTEREST AND OTHER FINANCIAL CHARGES in 1999 amounted to $810 million, compared with $883 million in 1998 and $797 million in 1997. The decrease in 1999 was attributable to the combination of lower average interest rates on debt and lower average levels of borrowings during the year. The increase in 1998 reflected higher average levels of borrowings and other financing activities, which more than offset the effect of lower interest rates. INCOME TAXES on a consolidated basis were 31.2% of pretax earnings in 1999, compared with 31.0% in 1998 and 26.6% in 1997. The most significant factor explaining the lower effective tax rate in 1997 was a 4.8% decrease attributable to the realized gain on the tax-free exchange of Lockheed Martin Corporation preferred stock. A more detailed analysis of the differences between the U.S. federal statutory rate and the consolidated rate, as well as other information about income tax provisions, is provided in note 7. [CHART HERE] GE OPERATING MARGIN AS A PERCENTAGE OF SALES - ----------------------------------------------------------------------------- 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- AS REPORTED 14.4% 14.8% 11.0% 16.7% 17.3% UNUSUAL CHARGES - - 4.7 - 0.6 - ----------------------------------------------------------------------------- SEGMENT OPERATIONS REVENUES AND SEGMENT PROFIT FOR OPERATING SEGMENTS are shown on page 44. For additional information, including a description of the products and services included in each segment, see note 28. AIRCRAFT ENGINES reported a 3% increase in revenues in 1999, reflecting higher volume in product services. Operating profit increased 19% in 1999 as a result of productivity and growth in product services. Revenues, including acquisitions, increased 32% in 1998 as volume in commercial engines and product services increased. Operating profit increased 30% in 1998 with strong growth in product services as well as good volume growth in commercial engines. In 1999, $1.6 billion of Aircraft Engines revenues were from sales to the U.S. government, about the same as in 1998, which was $0.1 billion higher than in 1997. PAGE F-12 ANNUAL REPORT PAGE 44 SUMMARY OF OPERATING SEGMENTS
General Electric Company and consolidated affiliates --------------------------------------------------------------------- For the years ended December 31 (In millions) 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- REVENUES GE Aircraft Engines $ 10,558 $ 10,294 $ 7,799 $ 6,302 $ 6,098 Appliances 5,671 5,619 5,801 5,586 5,137 Industrial Products and Systems 11,555 11,222 10,984 10,401 10,209 NBC 5,790 5,269 5,153 5,232 3,919 Plastics 6,941 6,633 6,695 6,509 6,647 Power Systems 10,046 8,466 7,915 7,643 6,962 Technical Products and Services 6,863 5,323 4,861 4,700 4,430 Eliminations (1,542) (1,367) (1,176) (1,032) (1,082) --------------------------------------------------------------------- Total GE segment revenues 55,882 51,459 48,032 45,341 42,320 Corporate items 619 771 3,227 1,407 1,446 GECS net earnings 4,443 3,796 3,256 2,817 2,415 --------------------------------------------------------------------- Total GE revenues 60,944 56,026 54,515 49,565 46,181 GECS segment revenues 55,749 48,694 39,931 32,713 26,492 Eliminations (5,063) (4,251) (3,606) (3,099) (2,645) --------------------------------------------------------------------- CONSOLIDATED REVENUES $ 111,630 $ 100,469 $ 90,840 $ 79,179 $ 70,028 =================================================================================================================================== SEGMENT PROFIT GE Aircraft Engines $ 2,105 $ 1,769 $ 1,366 $ 1,214 $ 1,135 Appliances 655 755 771 748 682 Industrial Products and Systems 2,095 1,880 1,789 1,587 1,488 NBC 1,576 1,349 1,216 1,020 797 Plastics 1,651 1,584 1,500 1,443 1,435 Power Systems 1,693 1,306 1,203 1,124 782 Technical Products and Services 1,359 1,109 988 855 810 --------------------------------------------------------------------- Total GE operating profit 11,134 9,752 8,833 7,991 7,129 GECS net earnings 4,443 3,796 3,256 2,817 2,415 --------------------------------------------------------------------- Total segment profit 15,577 13,548 12,089 10,808 9,544 Corporate items and eliminations (843) (552) (1,279) (638) (263) GE interest and other financial charges (810) (883) (797) (595) (649) GE provision for income taxes (3,207) (2,817) (1,810) (2,295) (2,059) --------------------------------------------------------------------- CONSOLIDATED NET EARNINGS $ 10,717 $ 9,296 $ 8,203 $ 7,280 $ 6,573 =================================================================================================================================== The notes to consolidated financial statements on pages 56-76 are an integral part of this statement. "GE" means the basis of consolidation as described in note 1 to the consolidated financial statements; "GECS" means General Electric Capital Services, Inc. and all of its affiliates and associated companies. The segment profit measure for GE's industrial businesses is operating profit (earnings before interest and other financial charges, and income taxes). The segment profit measure for GECS is net earnings, reflecting the importance of financing and tax considerations to its operating activities. Includes revenues of $944 million, $789 million and $796 million in 1997, 1996 and 1995, respectively, from an appliance distribution affiliate that was deconsolidated in 1998. Also includes $1,538 million in 1997 from an exchange of preferred stock in Lockheed Martin Corporation for the stock of a newly formed subsidiary. Principally the elimination of GECS net earnings. Includes income, principally from licensing activities, previously reported in the All Other segment of $62 million, $271 million, $310 million, $282 million and $285 million in 1999, 1998, 1997, 1996 and 1995, respectively. 1999 includes unusual charges amounting to $265 million. Of the total, amounts that relate to activities of operating segments were as follows: Aircraft Engines--$42 million, Appliances--$75 million, Industrial Products and Systems--$12 million, Plastics--$13 million and Technical Products and Services --$34 million. 1997 includes unusual charges of $2,322 million. Of the total, amounts that relate to activities of GE operating segments were as follows: Aircraft Engines--$342 million, Appliances--$330 million, Industrial Products and Systems--$352 million, NBC--$161 million, Plastics--$63 million, Power Systems--$437 million and Technical Products and Services--$157 million. Also included in 1997 is $1,538 million associated with the Lockheed Martin Corporation transaction described in above.
PAGE F-13 ANNUAL REPORT PAGE 45 Aircraft Engines received orders of $12.0 billion in 1999, compared with $10.8 billion in 1998. The backlog at year-end 1999 was $10.0 billion ($9.7 billion at the end of 1998). Of the total, $7.6 billion related to products, about 54% of which was scheduled for delivery in 2000; the remainder related to 2000 product services. APPLIANCES revenues were 1% higher than a year ago, as volume increases offset lower selling prices and adverse currency effects. Operating profit decreased 13%, reflecting lower selling prices and increased spending on programs for new products and e-Business. Revenues in 1998 were 3% lower than in 1997, largely as a result of selling price decreases and, to a lesser extent, lower volume. Operating profit decreased 2% in 1998, as the decreases in selling prices and volume more than offset productivity. INDUSTRIAL PRODUCTS AND SYSTEMS revenues increased 3% in 1999, largely as a result of volume increases across all businesses in the segment (particularly at Transportation Systems), which more than offset lower selling prices. Operating profit increased 11%, as strong productivity at Industrial Systems and Lighting more than offset the lower selling prices. Revenues rose 2% in 1998, primarily as a result of volume increases at Transportation Systems and Industrial Systems that were partially offset by lower selling prices across most businesses in the segment. Operating profit increased 5% in 1998, reflecting productivity and the improvement in volume, which more than offset the effects of selling price decreases. Transportation Systems received orders of $1.4 billion in 1999, compared with $2.4 billion in 1998. The backlog at year-end 1999 was $1.4 billion ($2.3 billion at the end of 1998). Of the total, $1.1 billion related to products, of which 80% was scheduled for shipment in 2000; the remainder related to 2000 product services. NBC revenues increased 10% in 1999, reflecting higher revenues in NBC's owned-and-operated stations and growth in cable operations. Operating profit was 17% higher in 1999, reflecting a strong advertising marketplace and improved pricing at the network, excellent results in cable operations and continued cost reductions across NBC, which more than offset higher license fees for certain prime-time programs that were renewed. Operating profit in 1999 included $123 million of the gain from the NBCi transaction, described on page 42. That gain was entirely offset by $62 million of operating losses from NBCi and predecessor operations (recorded as a reduction of "other income"), as well as $61 million of unusual costs recorded as "other costs and expenses" for entering into a loss programming contract and for exiting CNBC's current facilities. In 1998, revenues increased 2%, reflecting higher revenues in NBC's owned-and-operated stations, including revenues from station acquisitions and growth in cable operations, the combination of which more than offset lower network revenues. Operating profit increased 11% in 1998 as improved results in international, cable operations and owned-and-operated stations, as well as cost reductions across NBC, more than offset higher license fees for certain prime-time programs that were renewed. PLASTICS revenues increased 5%, primarily as a result of improved volume across all product lines, which more than offset the effects of lower selling prices. Operating profit increased by 4% as productivity and the increase in volume more than offset pricing. Revenues decreased by 1% in 1998, as pricing and adverse currency exchange rates offset slightly higher volume. Operating profit in 1998 improved by 6%, as lower material costs and productivity more than offset pricing. [CHART HERE] OPERATING PROFIT OF GE SEGMENTS - ----------------------------------------------------------------------------- (IN BILLIONS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- $7.129 $7.991 $8.833 $9.752 $11.134 - ----------------------------------------------------------------------------- POWER SYSTEMS revenues increased 19%, primarily as a result of strong double-digit growth in gas turbine volume and in product services. Operating profit rose 30%, reflecting productivity, growth in product services and the increase in volume. Revenues in 1998 were 7% higher than in 1997, primarily as a result of higher volume in product services, including acquisitions, which was partially offset by lower selling prices. Operating profit increased 9% in 1998, as growth in product services and productivity more than offset the effects of lower selling prices. Power Systems orders were $14.0 billion for 1999, a 33% increase over 1998, reflecting very strong U.S. market growth. The backlog of unfilled orders at year-end 1999 was $16.1 billion ($12.4 billion at the end of 1998). Of that total, $14.8 billion related to products, of which 60% was scheduled for delivery in 2000; the remainder related to 2000 product services. PAGE F-14 ANNUAL REPORT PAGE 46 [CHART HERE] GECS REVENUES - ----------------------------------------------------------------------------- (IN BILLIONS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- $26.492 $32.713 $39.931 $48.694 $55.749 - ----------------------------------------------------------------------------- TECHNICAL PRODUCTS AND SERVICES revenues rose 29% in 1999, following a 10% increase in 1998. The improvement in revenues in both years was primarily attributable to growth at Medical Systems, the result of higher equipment volume, including new products, and continued growth in product services, partially offset by lower selling prices across the segment. Operating profit increased 23% in 1999 as productivity and volume increases, particularly at Medical Systems, more than offset lower selling prices. Operating profit increased 12% in 1998 as productivity and volume increases more than offset the effects of lower selling prices. Orders received by Medical Systems in 1999 were $6.4 billion, compared with $4.8 billion in 1998. The backlog of unfilled orders at year-end 1999 was $3.1 billion ($2.6 billion at the end of 1998). Of the total, $1.9 billion related to products, of which 83% was scheduled for delivery in 2000; the remainder related to 2000 product services. GECS consists of 28 businesses grouped for management purposes into five operating activities: consumer services, equipment management, mid-market financing, specialized financing and specialty insurance. GECS net earnings were $4,443 million in 1999, up 17% from $3,796 million in 1998, with strong double-digit earnings growth in three of the five operating activities. Net earnings in 1998 increased 17% from 1997. The earnings improvement throughout the three-year period resulted from asset growth, principally from acquisitions of businesses and portfolios, and origination volume. * GECS total revenues increased 14% to $55.7 billion in 1999, following a 22% increase to $48.7 billion in 1998. The increases in both years reflected the contributions of businesses acquired as well as growth in origination volume. * GECS cost of goods sold amounted to $8.0 billion in 1999, compared with $6.8 billion in 1998 and $4.1 billion in 1997, and relates to IT Solutions and Montgomery Ward LLC (Wards). The increase in 1999 primarily reflects the consolidation of Wards as discussed on page 48; the increase in 1998 is principally the result of acquisition-related growth at IT Solutions. * GECS interest on borrowings in 1999 was $9.4 billion, up from $9.0 billion in 1998 and $7.6 billion in 1997. In both 1999 and 1998, while average borrowings increased in order to finance asset growth, the associated higher interest costs were partially mitigated by lower average interest rates. The composite interest rate was 5.14% in 1999, compared with 5.92% in 1998 and 6.07% in 1997. See page 51 for a discussion of interest rate risk management. * GECS insurance losses and policyholder and annuity benefits increased to $11.0 billion in 1999, compared with $9.6 billion in 1998 and $8.3 billion in 1997, reflecting effects of business acquisitions and growth in premium volume throughout the period. In addition, the increase in 1999 reflected the higher loss ratio in the reinsurance business discussed on page 47. * GECS provision for losses on financing receivables increased to $1.7 billion in 1999, compared with $1.6 billion in 1998 and $1.4 billion in 1997. These provisions principally related to private-label credit cards, bank credit cards, auto loans and auto leases in the consumer services operations, all of which are discussed on page 48 under financing receivables. The provision throughout the three-year period reflected higher average receivable balances, a different mix of business, as well as the effects of lower delinquency rates, consistent with industry experience. * GECS other costs and expenses were $19.4 billion in 1999, an increase from $16.4 billion in 1998 and $13.9 billion in 1997, principally because of increased costs associated with acquired businesses and portfolios, higher investment levels and increases in insurance commissions. Financing spreads (the excess of yields over interest rates on borrowings) were essentially flat throughout the three-year period, reflecting slightly lower yields offset by slight decreases in borrowing rates. Revenues and net earnings from operating activities within the GECS segment for the past three years are summarized and discussed below. CONSUMER SERVICES revenues increased 7% in 1999 and 18% in 1998, and net earnings increased 35% in 1999 and 47% in 1998. The growth in revenues and net earnings was led by Global Consumer Finance, with strong returns on investments in Japan and other international growth. Additionally, revenues and net earnings were increased by higher premium and investment income PAGE F-15 ANNUAL REPORT PAGE 47 at GE Financial Assurance, the consumer savings and insurance business, partially offset by the effects of asset reductions in Card Services and Auto Financial Services. A higher provision for losses on financing receivables because of higher average receivables balances also affected earnings in 1998. - -------------------------------------------------------------------------------- GECS REVENUES AND NET EARNINGS FROM OPERATING ACTIVITIES - -------------------------------------------------------------------------------- (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------- REVENUES Consumer services $ 17,061 $ 15,948 $ 13,550 Equipment management 15,317 14,869 11,326 Mid-market financing 4,685 3,751 3,009 Specialized financing 4,603 3,368 2,828 Specialty insurance 12,399 10,594 8,836 All other 1,684 164 382 ---------------------------------------- Total revenues $ 55,749 $ 48,694 $ 39,931 ================================================================================ NET EARNINGS Consumer services $ 1,074 $ 797 $ 544 Equipment management 695 806 708 Mid-market financing 604 478 391 Specialized financing 1,244 745 593 Specialty insurance 1,223 1,166 973 All other (397) (196) 47 ---------------------------------------- Total net earnings $ 4,443 $ 3,796 $ 3,256 ================================================================================ EQUIPMENT MANAGEMENT revenues grew 3% in 1999, following a 31% increase in 1998. Growth in 1999 revenues was primarily the result of Japanese acquisitions in the corporate auto fleet management operation, as well as higher revenue from commercial aircraft management at GE Capital Aviation Services (GECAS), largely offset by decreases in sales volume at the remaining equipment management businesses. The 1998 increase reflected acquisitions by IT Solutions and, to a lesser extent, asset growth. Net earnings decreased 14% in 1999, following a 14% increase in 1998. In 1999, as market conditions became more competitive, pricing at IT Solutions and utilization at the European equipment management businesses declined, more than offsetting growth in GECAS and the satellite service business, Americom. Net earnings increased in 1998, reflecting higher volume in most businesses from both increased origination as well as acquisitions of businesses and portfolios. These factors were partially offset in 1998 by lower pricing and higher operating costs at IT Solutions and Modular Space. MID-MARKET FINANCING revenues increased 25% in both 1999 and 1998, while net earnings grew 26% and 22%, respectively. Asset growth from both acquisitions and originations was the most significant contributing factor in both years. Revenues and net earnings were also favorably affected in 1998 by the disposition of certain assets. SPECIALIZED FINANCING revenues rose 37% and 19%, while net earnings increased 67% and 26% in 1999 and 1998, respectively. Revenues principally reflect increases in asset gains as well as origination growth, with GE Equity, Commercial Finance and Real Estate accounting for most of the 1999 increase. Revenue and net earnings growth in both years is principally the result of gains on equity investments. Net earnings in 1998 also included the effects of certain tax-advantaged transactions and higher tax credits. SPECIALTY INSURANCE revenues increased 17% and 20% in 1999 and 1998, respectively, as premiums and investment income grew throughout the period. Premiums earned increased in line with higher origination volume and acquisitions. Investment income also grew, partially reflecting an increase in net realized investment gains in GE Global Insurance, which amounted to $699 million, $432 million and $308 million in 1999, 1998 and 1997, respectively. Increases in property and casualty-related losses in GE Global Insurance were directly related to the frequency and severity of large loss events during the last three years. Large loss events are individual events that, after specific reinsurance recoveries and related premium adjustments, affect GE Global Insurance operations by $2 million or more, and include losses from earthquakes, aviation or railroad accidents, fire damage, and weather-related damage from hurricanes, tornadoes, wind and ice. [CHART HERE] GECS NET EARNINGS - ----------------------------------------------------------------------------- (IN BILLIONS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- $2.415 $2.817 $3.256 $3.796 $4.443 - ----------------------------------------------------------------------------- PAGE F-16 ANNUAL REPORT PAGE 48 [CHART HERE] CONSOLIDATED INTERNATIONAL REVENUES - ----------------------------------------------------------------------------- (IN BILLIONS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- INTERNATIONAL OPERATIONS $20.768 $25.447 $29.328 $33.756 $38.164 EXPORTS 7.220 7.581 8.912 8.751 7.513 - ----------------------------------------------------------------------------- Large loss events for GE Global Insurance amounted to approximately $720 million, $230 million and $70 million in 1999, 1998 and 1997, respectively. 1999 losses were partially recovered under aggregate risk coverage obtained in the ordinary course of the reinsurance business. Overall losses for Specialty Insurance were mitigated by favorable experience in the Mortgage Insurance business, particularly in 1999. ALL OTHER GECS operating activities include the results of Wards subsequent to August 2, 1999, when GECS acquired control of the formerly bankrupt retailer. Wards had sales of $1,622 million and a net loss of $26 million for the period during which it was consolidated. Revenues and net earnings in 1997 included asset gains, the largest of which was $284 million (net of tax) from a transaction that included the reduction of the GECS investment in the common stock of Paine Webber Group Inc. FINANCING RECEIVABLES is the largest category of assets for GECS and represents one of its primary sources of revenues. The portfolio of financing receivables, before allowance for losses, increased to $141.4 billion at the end of 1999 from $124.9 billion at the end of 1998, principally reflecting higher origination volume and acquisition growth partially offset by securitizations and other sales of receivables. The related allowance for losses at the end of 1999 amounted to $3.8 billion ($3.3 billion at the end of 1998), representing management's best estimate of probable losses inherent in the portfolio. In GECS financing receivables, "nonearning" receivables are those that are 90 days or more delinquent (or for which collection has otherwise become doubtful) and "reduced-earning" receivables are commercial receivables whose terms have been restructured to a below-market yield. Consumer financing receivables, primarily credit card and personal loans and auto loans and leases, were $52.3 billion at year-end 1999, an increase of $0.7 billion from year-end 1998. The credit card and personal receivables increased $5.2 billion, primarily from acquisition growth and origination volume, partially offset by sales and securitizations. Auto receivables decreased $4.5 billion primarily as a result of reduced volume. Nonearning receivables at year-end 1999 were $0.9 billion, about 1.8% of total consumer financing receivables, compared with $1.3 billion, about 2.4% of total consumer receivables at year-end 1998. Write-offs of consumer receivables declined to $1.2 billion from $1.4 billion at year-end 1998, reflecting improved delinquency trends. Other financing receivables, totaling $89.1 billion at December 31, 1999, consisted of a diverse commercial, industrial and equipment loan and lease portfolio. This portfolio increased $15.8 billion during 1999, reflecting the combination of acquisition growth and increased originations. Related nonearning and reduced-earning receivables were $0.9 billion at year-end 1999, compared with $0.4 billion at year-end 1998. GECS loans and leases to commercial airlines amounted to $11.8 billion at the end of 1999, up from $10.2 billion at the end of 1998. GECS commercial aircraft positions also included financial guarantees, funding commitments and aircraft orders as discussed in note 17. INTERNATIONAL OPERATIONS Estimated results of international activities include the results of GE and GECS operations located outside the United States, plus all U.S. exports. Certain GECS operations that cannot meaningfully be associated with specific geographic areas are classified as "other international" for this purpose. International revenues in 1999 were $45.7 billion (41% of consolidated revenues), compared with $42.5 billion in 1998 and $38.2 billion in 1997. The chart above left depicts the growth in international revenues over the past five years. [CHART HERE] CONSOLIDATED INTERNATIONAL REVENUES BY REGION - ----------------------------------------------------------------------------- (IN BILLIONS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- EUROPE $14.062 $18.030 $20.634 $24.353 $25.816 PACIFIC BASIN 7.183 7.573 7.981 8.058 10.195 AMERICAS 4.110 4.706 6.196 6.907 6.730 OTHER 2.633 2.719 3.429 3.189 2.936 - ----------------------------------------------------------------------------- PAGE F-17 ANNUAL REPORT PAGE 49 - -------------------------------------------------------------------------------- CONSOLIDATED INTERNATIONAL REVENUES - -------------------------------------------------------------------------------- (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------- Europe (a) $22,919 $21,665 $18,166 Pacific Basin 7,879 5,166 4,742 Americas 5,229 5,030 4,632 Other 2,136 1,895 1,788 ----------------------------------- 38,163 33,756 29,328 Exports from the U.S. to external customers 7,513 8,751 8,912 ----------------------------------- $45,676 $42,507 $38,240 ================================================================================ (a) Includes $944 million in 1997 from an appliance distribution affiliate that was deconsolidated in 1998. - -------------------------------------------------------------------------------- GE international revenues were $24.0 billion in 1999, compared with $24.3 billion in 1998, which was $0.2 billion higher than in 1997. Over the three-year period, international revenues were slightly less than half of total revenues. The decrease in such revenues during 1999 was attributable to lower U.S. exports which offset sales growth in operations based outside the United States. Exports decreased 14%, largely as a result of lower exports in Power Systems. Revenues from operations based outside the United States grew 6% to $16.5 billion in 1999. European revenues were 3% higher in 1999, led by good increases at Medical Systems and Aircraft Engines. Pacific Basin revenues were 11% higher in 1999, reflecting double-digit growth at Medical Systems and Plastics. Revenues from the Americas (North and South America, except for the United States) increased 5%, principally as a result of growth in Canadian operations. GECS international revenues were $21.7 billion in 1999, an increase of 19% from $18.2 billion in 1998. Revenues in the Pacific Basin more than doubled in 1999. Much of the increase was attributable to growth in Japan, the result of several strategic acquisitions, the largest of which were the purchase of assets and infrastructure of Japan Leasing and the acquisition of Lake. Revenues in Europe increased 7% in 1999, reflecting a mix of acquisition and core growth across all GECS operating activities. Overall, these increases reflect the continued expansion of GECS as a global provider of a wide range of financial services. Consolidated international operating profit was $5.4 billion in 1999, an increase of 5% over 1998, which was 8% higher than in 1997. Additional information is provided in note 29. Total assets of international operations were $141.3 billion in 1999 (35% of consolidated assets), an increase of 10% over 1998. The increase in 1999 reflected strong growth at GECS in the Pacific Basin, where current economic conditions continue to provide a favorable environment for strategic investments. GECS had a particularly large increase in Japan, reflecting a mix of acquisitions, discussed previously, and strong core asset growth. GECS also had significant asset growth at GECAS, its aviation services business, which is classified as "other international." The activities of GE and GECS span all global regions and primarily encompass manufacturing for local and export markets, import and sale of products produced in other regions, leasing of aircraft, sourcing for GE plants domiciled in other global regions and provision of financial services within these regional economies. Thus, when countries or regions experience currency and/or economic stress, GE may have increased exposure to certain risks but also may have new profit opportunities. Potential increased risks include, among other things, higher receivables delinquencies and bad debts, delays or cancellation of sales and orders principally related to power and aircraft equipment, higher local currency financing costs and a slowdown in established financial services activities. New profit opportunities include, among other things, lower costs of goods sourced from countries with weakened currencies, more opportunities for lower cost outsourcing, expansion of industrial and financial services activities through purchases of companies or assets at reduced prices and lower U.S. debt financing costs. Financial results of GE's international activities reported in U.S. dollars are affected by currency exchange. A number of techniques are used to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. Principal currencies are the major European currencies, including the euro, as well as the Japanese yen and the Canadian dollar. [CHART HERE] CONSOLIDATED TOTAL ASSETS - ----------------------------------------------------------------------------- (IN BILLIONS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- UNITED STATES $158.710 $189.427 $206.465 $227.112 $263.778 INTERNATIONAL 69.325 82.975 97.547 128.823 141.259 - ----------------------------------------------------------------------------- PAGE F-18 ANNUAL REPORT PAGE 50 MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY OVERVIEW This discussion of financial resources and liquidity addresses the Statement of Financial Position (page 36), Statement of Changes in Share Owners' Equity (page 34) and the Statement of Cash Flows (page 38). GECS is not a "captive finance company" or a vehicle for "off-balance-sheet financing" for GE. Only a small portion of GECS business is directly related to other GE operations. The fundamental differences between GE and GECS are reflected in the measurements commonly used by investors, rating agencies and financial analysts. These differences will become clearer in the discussion that follows with respect to the more significant items in the financial statements. STATEMENT OF FINANCIAL POSITION Because GE and GECS share certain significant elements of their Statements of Financial Position -- property, plant and equipment, and borrowings, for example - -- the following discussion addresses significant captions in the "consolidated" statement. Within the following discussions, however, distinction is drawn between GE and GECS activities in order to permit meaningful analysis of each individual statement. INVESTMENT SECURITIES for each of the past two years comprised mainly investment-grade debt securities held by GE Financial Assurance and the specialty insurance businesses of GECS in support of obligations to annuitants and policyholders. GE investment securities were $1.3 billion at year-end 1999, an increase of $1.0 billion from 1998, reflecting increases in the fair value of debt and equity investments as well as additional investments. The increase of $2.0 billion at GECS during 1999 was principally related to investment of premiums received and acquisitions, partially offset by decreases in the fair value of debt securities associated with rising interest rates. See analysis of the Statement of Changes in Share Owners' Equity on page 52 for further information. A breakdown of the investment securities portfolio is provided in note 9. CURRENT RECEIVABLES for GE were $8.7 billion at the end of 1999, an increase of $0.2 billion from year-end 1998, and included $5.8 billion due from customers at the end of 1999, which was $0.4 billion higher than the amount due at the end of 1998. As a measure of asset management, turnover of customer receivables from sales of goods and services was 9.4 in 1999, compared with 8.8 in 1998. Other current receivables are primarily amounts that did not originate from sales of GE goods or services, such as advances to suppliers in connection with large contracts. INVENTORIES for GE were $5.8 billion at December 31, 1999, up $0.5 billion from the end of 1998. GE inventory turnover was 8.3 in 1999, about the same as in 1998. Acquisitions of inventories in business combinations more than offset the positive effects of inventory management programs throughout the period. Last-in, first-out (LIFO) revaluations decreased $84 million in 1999, compared with decreases of $87 million in 1998 and $119 million in 1997. Included in these changes were decreases of $4 million, $29 million and $59 million in 1999, 1998 and 1997, respectively, that resulted from lower LIFO inventory levels. There were net cost decreases in each of the last three years. Inventories (at FIFO) and customer receivables from sales of goods or services are two key components of GE's working capital turnover measurement. Working capital turnover was 11.5 in 1999, compared with 9.2 in 1998. Working capital also includes trade accounts payable and progress collections. GECS inventories were $1,209 million and $744 million at December 31, 1999 and 1998, respectively. The increase in 1999 primarily reflects the consolidation of the retail operations of Wards. FINANCING RECEIVABLES of GECS were $137.6 billion at year-end 1999, net of allowance for doubtful accounts, up $16.1 billion over 1998. These receivables are discussed on page 48 and in notes 12 and 13. OTHER RECEIVABLES of GECS were $30.7 billion and $26.0 billion at December 31, 1999 and 1998, respectively. Of the 1999 increase, $3.6 billion was attributable to acquisitions. PROPERTY, PLANT AND EQUIPMENT (including equipment leased to others) was $41.0 billion at December 31, 1999, up $5.3 billion from 1998. GE property, plant and equipment consists of investments for its own productive use, whereas the largest element for GECS is in equipment provided to third parties on operating leases. Details by category of investment are presented in note 15. GE total expenditures for new plant and equipment during 1999 totaled $2.0 billion, about the same as in 1998. Total expenditures for the past five years were $10.6 billion, of which 39% was investment for growth through new capacity and product development; 32% was investment in productivity through new equipment and process improvements; and 29% was investment for such other purposes as improvement of research and development facilities and safety and environmental protection. PAGE F-19 ANNUAL REPORT PAGE 51 GECS additions to equipment leased to others, including business acquisitions, were $13.4 billion during 1999 ($7.2 billion during 1998), primarily reflecting acquisitions of transportation equipment. INTANGIBLE ASSETS were $26.0 billion at year-end 1999, up from $23.6 billion at year-end 1998. GE intangibles increased to $11.3 billion from $10.0 billion at the end of 1998, principally as a result of goodwill related to acquisitions, the largest of which was Marquette Medical Systems. The $1.1 billion increase in GECS intangibles related to goodwill and other intangibles associated with acquired companies, the largest of which were Signature Group and the Australian consumer financial services business of AVCO. ALL OTHER ASSETS totaled $65.0 billion at year-end 1999, an increase of $12.1 billion from the end of 1998. GE other assets increased $2.8 billion, principally reflecting an increase in the prepaid pension asset and higher costs associated with increased volume of long-term service agreements, as well as additional investments in associated companies. The increase in GECS other assets of $9.2 billion was principally attributable to increases in "separate accounts" (see note 17) and additional investments in associated companies, partially offset by decreases in assets acquired for resale, which reflected sales and securitizations in excess of originations. CONSOLIDATED BORROWINGS aggregated $201.8 billion at December 31, 1999, compared with $175.0 billion at the end of 1998. The major debt-rating agencies evaluate the financial condition of GE and of GE Capital (the major public borrowing entity of GECS) differently because of their distinct business characteristics. Using criteria appropriate to each and considering their combined strength, those major rating agencies continue to give the highest ratings to debt of both GE and GE Capital. GE has committed to contribute capital to GE Capital in the event of either a decrease below a specified level in GE Capital's ratio of earnings to fixed charges, or a failure to maintain a specified debt-to-equity ratio in the event certain GE Capital preferred stock is redeemed. GE also has guaranteed subordinated debt of GECS with a face amount of $1.0 billion at December 31, 1999 and 1998. Management believes the likelihood that GE will be required to contribute capital under either the commitments or the guarantees is remote. GE total borrowings were $3.0 billion at year-end 1999 ($2.3 billion short-term, $0.7 billion long-term), a decrease of $1.2 billion from year-end 1998. GE total debt at the end of 1999 equaled 6.4% of total capital, down from 9.5% at the end of 1998. GECS total borrowings were $200.0 billion at December 31, 1999, of which $129.2 billion is due in 2000 and $70.8 billion is due in subsequent years. Comparable amounts at the end of 1998 were $172.2 billion in total, $113.2 billion due within one year and $59.0 billion due thereafter. A large portion of GECS borrowings ($96.6 billion and $87.0 billion at the end of 1999 and 1998, respectively) was issued in active commercial paper markets that management believes will continue to be a reliable source of short-term financing. Most of this commercial paper was issued by GE Capital. The average remaining terms and interest rates of GE Capital commercial paper were 53 days and 5.82% at the end of 1999, compared with 45 days and 5.35% at the end of 1998. [CHART HERE] GE WORKING CAPITAL TURNOVER - ----------------------------------------------------------------------------- 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- 5.56 6.30 7.42 9.22 11.52 - ----------------------------------------------------------------------------- The GE Capital ratio of debt to equity was 8.44 to 1 at the end of 1999 and 7.86 to 1 at the end of 1998. INTEREST RATE AND CURRENCY RISK MANAGEMENT is important in the normal operations of both GE and GECS. The following discussion presents an overview of such management. GE and GECS use various financial instruments, particularly interest rate and currency swaps, but also futures, options and currency forwards, principally to manage their respective interest rate and currency risks. GE and GECS are exclusively end users of these instruments, which are commonly referred to as derivatives; neither GE nor GECS engages in trading, market-making or other speculative activities in the derivatives markets. Management requires PAGE F-20 ANNUAL REPORT PAGE 52 that derivative financial instruments relate to specific asset, liability or equity transactions or to currency exposures. More detailed information about these financial instruments, as well as the strategies and policies for their use, is provided in notes 1, 19 and 30. The U.S. Securities and Exchange Commission requires that registrants provide information about potential effects of changes in interest rates and currency exchange. Although the rules offer alternatives for presenting this information, none of the alternatives is without limitations. The following discussion is based on so-called "shock tests," which model effects of interest rate and currency shifts on the reporting company. Shock tests, while probably the most meaningful analysis permitted, are constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by their inability to include the complex market reactions that normally would arise from the market shifts modeled. While the following results of shock tests for interest rates and currencies may have some limited use as benchmarks, they should not be viewed as forecasts. * One means of assessing exposure to interest rate changes is a duration-based analysis that measures the potential loss in net earnings resulting from a hypothetical increase in interest rates of 100 basis points across all maturities (sometimes referred to as a "parallel shift in the yield curve"). Under this model, it is estimated that, all else constant, such an increase, including repricing effects in the securities portfolio, would reduce the 2000 net earnings of GECS based on year-end 1999 positions by approximately $105 million; the pro forma effect for GE was approximately $13 million. Based on positions at year-end 1998, the pro forma effect on 1999 net earnings of such an increase in interest rates was estimated to be approximately $111 million for GECS and $17 million for GE. * As shown in the chart to the right, the geographic distribution of GE and GECS operations is diverse. One means of assessing exposure to changes in currency exchange rates is to model effects on reported earnings using a sensitivity analysis. Year-end 1999 consolidated currency exposures, including financial instruments designated and effective as hedges, were analyzed to identify GE and GECS assets and liabilities denominated in other than their relevant functional currency. Net unhedged exposures in each currency were then remeasured assuming a 10% decrease (substantially greater decreases for hyperinflationary currencies) in currency exchange rates compared with the U.S. dollar. Under this model, it is estimated that, all else constant, such a decrease would have an insignificant effect on the 2000 net earnings of GE and GECS based on year-end 1999 positions. Based on conditions at year-end 1998, the effect on 1999 net earnings of such a decrease in exchange rates was estimated to be a reduction in net earnings of $11 million for GE and insignificant for GECS. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $86.8 billion, $9.5 billion higher than in 1998. The increase was primarily attributable to increases in separate accounts, the addition of liabilities from acquired companies and growth in guaranteed investment contracts. For additional information on these liabilities, see note 20. [CHART HERE] TOTAL ASSETS OF INTERNATIONAL OPERATIONS - ----------------------------------------------------------------------------- (IN BILLIONS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- EUROPE $44.1072 $55.1956 $66.7401 $84.5179 $83.3580 PACIFIC BASIN 6.4424 8.1245 8.8814 18.4266 28.2140 AMERICAS 6.5591 7.2265 8.6168 11.2481 13.2920 OTHER 12.2167 12.4287 13.3090 14.6307 16.3950 - ----------------------------------------------------------------------------- STATEMENT OF CHANGES IN SHARE OWNERS' EQUITY Share owners' equity increased $3,677 million to $42,557 million at year-end 1999. The increase was largely attributable to net earnings during the period of $10,717 million, partially offset by dividends of $4,786 million. Investment securities had unrealized losses of $1,776 million during 1999, principally as a result of decreases in fair value attributable to increases in interest rates during 1999. A significant majority of the unrealized losses are associated with debt securities held by insurance businesses of GECS and are matched with insurance liabilities of similar PAGE F-21 ANNUAL REPORT PAGE 53 duration. Accordingly, decreases in fair values of such investment securities are directionally offset by corresponding decreases in fair values of associated insurance liabilities. However, changes in the fair values of insurance liabilities are difficult to measure and are appropriately not recognized under generally accepted accounting principles. Currency translation adjustments reduced equity by $632 million in 1999. Changes in the currency translation adjustment reflect the effects of changes in currency exchange rates on GE's net investment in non-U.S. subsidiaries that have functional currencies other than the U.S. dollar. The decrease during 1999 largely reflected weakening in the European currencies, partially offset by strengthening in Asian currencies. Such adjustments affect earnings only when all or a portion of an affiliate is disposed of. STATEMENT OF CASH FLOWS Because cash management activities of GE and GECS are separate and distinct, it is more useful to review their cash flows separately. GE CASH AND EQUIVALENTS aggregated $2.0 billion at the end of 1999, up from $1.2 billion at year-end 1998. During 1999, GE generated a record $11.8 billion in cash from operating activities, a 17% increase over 1998. The increase reflected improvements in earnings and working capital, principally cash from progress collections. The 1999 cash generation provided the necessary resources to repurchase $1.9 billion of GE common stock under the share repurchase program, to pay $4.6 billion in dividends to share owners, to invest $2.0 billion in new plant and equipment and to make $1.6 billion in acquisitions. Operating activities are the principal source of GE's cash flows. Over the past three years, operating activities have provided more than $31 billion of cash. The principal application of this cash was distributions of approximately $21 billion to share owners, both through payment of dividends ($11.9 billion) and through the share repurchase program ($9.0 billion) described below. Other applications included investment in new plant and equipment ($6.3 billion) and acquisitions ($4.5 billion). Under the share repurchase program initiated in December 1994, GE has purchased more than $15 billion of GE stock -- over 300 million shares. In December 1999, GE's Board of Directors increased the amount authorized from $17 billion to $22 billion. Funds used for the share repurchase are expected to be generated largely from operating cash flow. Based on past performance and current expectations, in combination with the financial flexibility that comes with a strong balance sheet and the highest credit ratings, management believes that GE is in a sound position to complete the share repurchase program, to grow dividends in line with earnings, and to continue making selective investments for long-term growth. Expenditures for new plant and equipment are expected to be about $2.5 billion in 2000, principally for productivity and growth. GECS CASH AND EQUIVALENTS aggregated $6.9 billion at the end of 1999, up from $3.3 billion at year-end 1998 as management held short-term investments as additional liquidity over year-end 1999. One of the primary sources of cash for GECS is financing activities involving the continued rollover of short-term borrowings and appropriate addition of borrowings with a reasonable balance of maturities. Over the past three years, GECS borrowings with maturities of 90 days or less have increased by $37.2 billion. New borrowings of $109.9 billion having maturities longer than 90 days were added during those years, while $80.7 billion of such longer-term borrowings were retired. GECS also generated $32.0 billion from operating activities. The principal use of cash by GECS has been investing in assets to grow its businesses. Of the $91.0 billion that GECS invested over the past three years, $21.3 billion was used for additions to financing receivables; $26.6 billion was used to invest in new equipment, principally for lease to others; and $31.0 billion was used for acquisitions of new businesses, the largest of which were Japan Leasing and the credit card operations of JC Penney, both in 1999. With the financial flexibility that comes with excellent credit ratings, management believes that GECS should be well positioned to meet the global needs of its customers for capital and to continue providing GE share owners with good returns. [CHART HERE] GE CUMULATIVE CASH FLOWS - ----------------------------------------------------------------------------- (IN BILLIONS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES $12.1360 $21.2030 $30.5200 $40.5520 $52.3150 SHARES REPURCHASED 5.2310 8.2819 11.6930 15.6060 20.1930 DIVIDENDS PAID 4.1750 7.4410 10.9330 14.5700 16.4450 - ----------------------------------------------------------------------------- PAGE F-22 ANNUAL REPORT PAGE 54 MANAGEMENT'S DISCUSSION OF SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA summarized on the following page are divided into three sections: upper portion -- consolidated data; middle portion -- GE data that reflect various conventional measurements for such enterprises; and lower portion -- GECS data that reflect key information pertinent to financial services businesses. GE'S TOTAL RESEARCH AND DEVELOPMENT expenditures were $2,017 million in 1999, up 5% over 1998 and 1997. In 1999, expenditures from GE's own funds were $1,667 million, an increase of 8% over 1998, reflecting continuing research and development work related to new product, service and process technologies. Product technology efforts in 1999 included continuing development work on the next generation of gas turbines, further advances in state-of-the-art diagnostic imaging technologies, and development of more fuel-efficient, cost-effective aircraft engine designs. Services technologies include advances in diagnostic applications, including remote diagnostic capabilities related to repair and maintenance of medical equipment, aircraft engines, power generation equipment and locomotives. Process technologies provided improved product quality and performance and increased capacity for manufacturing engineered materials. Expenditures funded by customers (mainly the U.S. government) were $350 million in 1999, down $43 million from 1998. [CHART HERE] YEAR END MARKET CAPITALIZATION - ----------------------------------------------------------------------------- (IN BILLIONS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- $119.989 $162.604 $239.539 $333.672 $508.329 - ----------------------------------------------------------------------------- GE'S TOTAL BACKLOG of firm unfilled orders at the end of 1999 was $32.4 billion, an increase of 14% over 1998, reflecting strong double-digit growth at Power Systems and Medical Systems. Of the total, $27.0 billion related to products, of which 63% was scheduled for delivery in 2000. Services orders are included in this reported backlog for only the succeeding 12 months and were $5.4 billion at the end of 1999. Orders constituting this backlog may be canceled or deferred by customers, subject in certain cases to cancellation penalties. See Segment Operations beginning on page 43 for further information. REGARDING ENVIRONMENTAL MATTERS, GE's operations, like operations of other companies engaged in similar businesses, involve the use, disposal and cleanup of substances regulated under environmental protection laws. In 1999, GE expended about $66 million for capital projects related to the environment. The comparable amount in 1998 was $81 million. These amounts exclude expenditures for remediation actions, which are principally expensed and are discussed below. Capital expenditures for environmental purposes have included pollution control devices -- such as wastewater treatment plants, groundwater monitoring devices, air strippers or separators, and incinerators -- at new and existing facilities constructed or upgraded in the normal course of business. Consistent with policies stressing environmental responsibility, average annual capital expenditures other than for remediation projects are presently expected to be about $65 million over the next two years. This level is in line with existing levels for new or expanded programs to build facilities or modify manufacturing processes to minimize waste and reduce emissions. [CHART HERE] GE SHARE PRICE ACTIVITY - ----------------------------------------------------------------------------- (IN DOLLARS) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------- HIGH $36 9/16 $53 1/16 $76 9/16 $103 15/16 $159 1/2 LOW 24 15/16 34 3/4 47 15/16 69 94 1/4 CLOSE 36 49 7/16 73 3/8 102 154 3/4 - ----------------------------------------------------------------------------- GE also is involved in a sizable number of remediation actions to clean up hazardous wastes as required by federal and state laws. Such statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Expenditures for site remediation actions amounted to approximately $114 million in 1999, compared with $127 million in 1998. It is presently expected that such remediation actions will require average annual expenditures in the range of $90 million to $150 million over the next two years. PAGE F-23 ANNUAL REPORT PAGE 55 SELECTED FINANCIAL DATA
------------------------------------------------------------------ (Dollar amounts in millions; per-share amounts in dollars) 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES Revenues $ 111,630 $ 100,469 $ 90,840 $ 79,179 $ 70,028 Net earnings 10,717 9,296 8,203 7,280 6,573 Dividends declared 4,786 4,081 3,535 3,138 2,838 Earned on average share owners' equity 26.8% 25.7% 25.0% 24.0% 23.5% Per share Earnings -- diluted $ 3.22 $ 2.80 $ 2.46 $ 2.16 $ 1.93 Earnings -- basic 3.27 2.84 2.50 2.20 1.95 Dividends declared 1.46 1.25 1.08 0.95 0.845 Stock price range 159 1/2- 103 15/16- 76 9/16- 53 1/16- 36 9/16- 94 1/4 69 47 15/16 34 3/4 24 15/16 Year-end closing stock price 154 3/4 102 73 3/8 49 7/16 36 Total assets 405,200 355,935 304,012 272,402 228,035 Long-term borrowings 71,427 59,663 46,603 49,246 51,027 Shares outstanding -- average (in thousands) 3,277,826 3,268,998 3,274,692 3,307,394 3,367,624 Share owner account -- average 549,000 534,000 509,000 486,000 460,000 =================================================================================================================================== GE DATA Short-term borrowings $ 2,245 $ 3,466 $ 3,629 $ 2,339 $ 1,666 Long-term borrowings 722 681 729 1,710 2,277 Minority interest 823 816 569 477 434 Share owners' equity 42,557 38,880 34,438 31,125 29,609 ------------------------------------------------------------------ Total capital invested $ 46,347 $ 43,843 $ 39,365 $ 35,651 $ 33,986 ================================================================== Return on average total capital invested 25.8% 23.9% 23.6% 22.2% 21.3% Borrowings as a percentage of total capital invested 6.4% 9.5% 11.1% 11.4% 11.6% Working capital (a) $ 3,922 $ 5,038 $ 5,990 $ 6,598 $ 7,405 Additions to property, plant and equipment 2,036 2,047 2,191 2,389 1,831 Employees at year end United States 124,000 125,000 128,000 123,000 124,000 Other countries 86,000 82,000 81,000 65,000 59,000 ------------------------------------------------------------------ Total employees 210,000 207,000 209,000 188,000 183,000 =================================================================================================================================== GECS DATA Revenues $ 55,749 $ 48,694 $ 39,931 $ 32,713 $ 26,492 Net earnings 4,443 3,796 3,256 2,817 2,415 Share owner's equity 20,321 19,727 17,239 14,276 12,774 Minority interest 4,391 3,459 3,113 2,530 2,522 Borrowings from others 200,025 172,200 141,263 125,621 111,598 Ratio of debt to equity at GE Capital 8.44:1 7.86:1 7.45:1 7.84:1 7.59:1 Total assets $ 345,018 $ 303,297 $ 255,408 $ 227,419 $ 185,729 Insurance premiums written 13,624 11,865 9,396 8,185 6,158 Employees at year end United States 73,000 38,000 37,000 32,000 26,000 Other countries 57,000 48,000 30,000 19,000 13,000 ------------------------------------------------------------------ Total employees 130,000 86,000 67,000 51,000 39,000 =================================================================================================================================== Transactions between GE and GECS have been eliminated from the consolidated information. Working capital is defined as the sum of receivables from the sales of goods and services plus inventories less trade accounts payable and progress collections.
PAGE F-24 ANNUAL REPORT PAGE 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION. The consolidated financial statements represent the adding together of all affiliates -- companies that General Electric directly or indirectly controls. Results of associated companies -- generally companies that are 20% to 50% owned and over which GE, directly or indirectly, has significant influence -- are included in the financial statements on a "one-line" basis. FINANCIAL STATEMENT PRESENTATION. Financial data and related measurements are presented in the following categories. * GE. This represents the adding together of all affiliates other than General Electric Capital Services, Inc. (GECS), whose operations are presented on a one-line basis. * GECS. This affiliate owns all of the common stock of General Electric Capital Corporation (GE Capital) and GE Global Insurance Holding Corporation (GE Global Insurance), the parent of Employers Reinsurance Corporation. GE Capital, GE Global Insurance and their respective affiliates are consolidated in the GECS columns and constitute its business. * CONSOLIDATED. This represents the adding together of GE and GECS. The effects of transactions among related companies within and between each of the above-mentioned groups are eliminated. Transactions between GE and GECS are not material. Certain prior-year amounts have been reclassified to conform to the 1999 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. SALES OF GOODS AND SERVICES. A sale is recorded when title passes to the customer or when services are performed in accordance with contracts. GECS REVENUES FROM SERVICES (EARNED INCOME). Income on all loans is recognized on the interest method. Accrual of interest income is suspended at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days delinquent. Interest income on impaired loans is recognized either as cash is collected or on a cost-recovery basis as conditions warrant. Financing lease income is recorded on the interest method so as to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values of leased assets are based primarily on periodic independent appraisals of the values of leased assets remaining at expiration of the lease terms. Operating lease income is recognized on a straight-line basis over the terms of underlying leases. Origination, commitment and other nonrefundable fees related to fundings are deferred and recorded in earned income on the interest method. Commitment fees related to loans not expected to be funded and line-of-credit fees are deferred and recorded in earned income on a straight-line basis over the period to which the fees relate. Syndication fees are recorded in earned income at the time related services are performed unless significant contingencies exist. Income from investment and insurance activities is discussed on page 57. DEPRECIATION AND AMORTIZATION. The cost of most of GE's manufacturing plant and equipment is depreciated using an accelerated method based primarily on a sum-of-the-years digits formula. The cost of GECS equipment leased to others on operating leases is amortized, principally on a straight-line basis, to estimated residual value over the lease term or over the estimated economic life of the equipment. Depreciation of property and equipment used by GECS is recorded on either a sum-of-the-years digits formula or a straight-line basis over the lives of the assets. RECOGNITION OF LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS. The allowance for losses on small-balance receivables reflects management's best estimate of probable losses inherent in the portfolio determined principally on the basis of historical experience. For other receivables, principally the larger loans and leases, the allowance for losses is determined primarily on the basis of management's best estimate of probable losses, including specific allowances for known troubled accounts. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses. Small-balance accounts generally are written off when 6 to 12 months delinquent, although any such balance judged to be uncollectible, such as an account in bankruptcy, is written down immediately to estimated realizable value. Large-balance accounts are reviewed at least quarterly, and those accounts with amounts that are judged to be uncollectible are written down to estimated realizable value. When collateral is repossessed in satisfaction of a loan, the receivable is written down against the allowance for losses to estimated fair value of the asset less costs to sell, transferred to other assets and subsequently carried at the lower of cost or estimated fair value less costs to sell. This accounting method has been employed principally for specialized financing transactions. PAGE F-25 ANNUAL REPORT PAGE 57 CASH AND EQUIVALENTS. Debt securities with original maturities of three months or less are included in cash equivalents unless designated as available for sale and classified as investment securities. INVESTMENT SECURITIES. Investments in debt and marketable equity securities are reported at fair value based primarily on quoted market prices or, if quoted prices are not available, discounted expected cash flows using market rates commensurate with credit quality and maturity of the investment. Substantially all investment securities are designated as available for sale, with unrealized gains and losses included in share owners' equity, net of applicable taxes and other adjustments. Unrealized losses that are other than temporary are recognized in earnings. Realized gains and losses are accounted for on the specific identification method. INVENTORIES. All inventories are stated at the lower of cost or realizable values. Cost for virtually all of GE's U.S. inventories is determined on a last-in, first-out (LIFO) basis. Cost of other GE inventories is primarily determined on a first-in, first-out (FIFO) basis. GECS inventories consist primarily of finished products held for sale. Cost is primarily determined on a FIFO basis. INTANGIBLE ASSETS. Goodwill is amortized over its estimated period of benefit on a straight-line basis; other intangible assets are amortized on appropriate bases over their estimated lives. No amortization period exceeds 40 years. When an intangible asset exceeds associated expected operating cash flows, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. INTEREST RATE AND CURRENCY RISK MANAGEMENT. As a matter of policy, neither GE nor GECS engages in derivatives trading, derivatives market-making or other speculative activities. GE and GECS use swaps primarily to optimize funding costs. To a lesser degree, and in combination with options and limit contracts, GECS uses swaps to stabilize cash flows from mortgage-related assets. Designated interest rate and currency swaps that modify borrowings or certain assets, including swaps associated with forecasted commercial paper renewals, are accounted for on an accrual basis. Both GE and GECS require all other swaps, as well as futures, options and currency forwards, to be designated and accounted for as hedges of specific assets, liabilities or committed transactions; resulting payments and receipts are recognized contemporaneously with effects of hedged transactions. A payment or receipt arising from early termination of an effective hedge is accounted for as an adjustment to the basis of the hedged transaction. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments must be highly correlated with changes in market values of underlying hedged items, both at inception of the hedge and over the life of the hedge contract. As a matter of policy, any derivative that is either not designated as a hedge, or is so designated but is ineffective, is marked to market and recognized in operations immediately. GECS INSURANCE ACCOUNTING POLICIES. Accounting policies for GECS insurance businesses follow. PREMIUM INCOME. Insurance premiums are reported as earned income as follows: * For short-duration insurance contracts (including property and casualty, accident and health, and financial guaranty insurance), premiums are reported as earned income, generally on a pro rata basis, over the terms of the related agreements. For retrospectively rated reinsurance contracts, premium adjustments are recorded based on estimated losses and loss expenses, taking into consideration both case and incurred-but-not-reported reserves. * For traditional long-duration insurance contracts (including term and whole life contracts and annuities payable for the life of the annuitant), premiums are reported as earned income when due. * For investment contracts and universal life contracts, premiums received are reported as liabilities, not as revenues. Universal life contracts are long-duration insurance contracts with terms that are not fixed and guaranteed; for these contracts, revenues are recognized for assessments against the policyholder's account, mostly for mortality, contract initiation, administration and surrender. Investment contracts are contracts that have neither significant mortality nor significant morbidity risk, including annuities payable for a determined period; for these contracts, revenues are recognized on the associated investments and amounts credited to policyholder accounts are charged to expense. DEFERRED POLICY ACQUISITION COSTS. Costs that vary with and are primarily related to the acquisition of new and renewal insurance and investment contracts are deferred and amortized over the respective policy terms. For short-duration insurance contracts, acquisition costs consist primarily of commissions, brokerage expenses and premium taxes. PAGE F-26 ANNUAL REPORT PAGE 58 For long-duration insurance contracts, these costs consist primarily of first-year commissions in excess of recurring renewal commissions, certain variable sales expenses and certain support costs such as underwriting and policy issue expenses. * For short-duration insurance contracts, these costs are amortized pro rata over the contract periods in which the related premiums are earned. * For traditional long-duration insurance contracts, these costs are amortized over the respective contract periods in proportion to either anticipated premium income or, in the case of limited-payment contracts, estimated benefit payments. * For investment contracts and universal life contracts, these costs are amortized on the basis of anticipated gross profits. Periodically, deferred policy acquisition costs are reviewed for recoverability; anticipated investment income is considered in recoverability evaluations. PRESENT VALUE OF FUTURE PROFITS. The actuarially determined present value of anticipated net cash flows to be realized from insurance, annuity and investment contracts in force at the date of acquisition of life insurance enterprises is recorded as the present value of future profits and is amortized over the respective policy terms in a manner similar to deferred policy acquisition costs. Unamortized balances are adjusted to reflect experience and impairment, if any. 2 GE OTHER INCOME ---------------------------------- (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------- Residual licensing and royalty income RCA Licensing $ 23 $ 250 $ 287 Other 44 51 54 Associated companies (1) (32) 50 Marketable securities and bank deposits 105 114 78 Customer financing 17 19 26 Other investments Dividends 24 8 62 Interest 6 8 1 Other items 638 266 1,749 ---------------------------------- $ 856 $ 684 $2,307 ================================================================================ Effective January 1, 1999, GE transferred certain licenses and intellectual property pursuant to an agreement to sell the former RCA Consumer Electronics business. Licensing income from these assets is shown under the caption "RCA Licensing" in the table above. Other income in 1999 includes $326 million from NBC Internet (NBCi), an amount that appears in two categories in the above table. "Other items" includes a gain of $388 million related to the contribution of certain of NBC's Internet assets to NBCi, a newly formed publicly traded Internet company, in exchange for a noncontrolling interest in NBCi. Assets contributed by NBC include its 100% interest in three Internet properties: NBC.com, NBC-IN.com and VideoSeeker.com and a 10% interest in a fourth Internet property, CNBC.com. Also included in the "associated companies" caption for 1999 is $62 million of operating losses related to NBCi and predecessor operations. Included in the "Other items" caption for 1997 is a gain of $1,538 million related to a tax-free exchange between GE and Lockheed Martin Corporation (Lockheed Martin). In exchange for its investment in Lockheed Martin Series A preferred stock, GE acquired a Lockheed Martin subsidiary containing two businesses, an equity interest and cash to the extent necessary to equalize the value of the exchange, a portion of which was subsequently loaned to Lockheed Martin. 3 GECS REVENUES FROM SERVICES ---------------------------------- (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------- Time sales, loan and other income $18,209 $14,682 $12,211 Operating lease rentals 6,022 5,402 4,819 Financing leases 3,587 4,267 3,499 Investment income 6,243 5,617 5,512 Premium and commission income of insurance businesses 12,948 11,352 9,268 ---------------------------------- $47,009 $41,320 $35,309 ================================================================================ For insurance businesses, the effects of reinsurance on premiums written and premium and commission income were as follows: ------------------------------------- (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------- PREMIUMS WRITTEN Direct $ 7,382 $ 6,237 $ 5,206 Assumed 8,520 7,470 5,501 Ceded (2,278) (1,842) (1,311) ------------------------------------- $ 13,624 $ 11,865 $ 9,396 ===================================== PREMIUM AND COMMISSION INCOME Direct $ 7,002 $ 6,063 $ 5,138 Assumed 8,460 7,151 5,386 Ceded (2,514) (1,862) (1,256) ------------------------------------- $ 12,948 $ 11,352 $ 9,268 =============================================================================== Reinsurance recoveries recognized as a reduction of insurance losses and policyholder and annuity benefits amounted to $2,648 million, $1,594 million and $903 million for the years ended December 31, 1999, 1998 and 1997, respectively. PAGE F-27 ANNUAL REPORT PAGE 59 4 SUPPLEMENTAL COST INFORMATION Total expenditures for research and development were $2,017 million, $1,930 million and $1,891 million in 1999, 1998 and 1997, respectively. The Company-funded portion aggregated $1,667 million in 1999, $1,537 million in 1998 and $1,480 million in 1997. Rental expense under operating leases is shown below. ------------------------------------- (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------- GE $ 607 $ 568 $ 536 GECS 1,067 889 734 =============================================================================== At December 31, 1999, minimum rental commitments under noncancelable operating leases aggregated $2,431 million and $5,041 million for GE and GECS, respectively. Amounts payable over the next five years follow. ------------------------------------------------ (In millions) 2000 2001 2002 2003 2004 - -------------------------------------------------------------------------------- GE $458 $366 $284 $226 $195 GECS 834 663 603 540 413 ================================================================================ GE's selling, general and administrative expense totaled $7,732 million in 1999, $7,177 million in 1998 and $7,476 million in 1997. Insignificant amounts of interest were capitalized by GE and GECS in 1999, 1998 and 1997. 5 PENSION BENEFITS GE and its affiliates sponsor a number of pension plans. Principal pension plans are discussed below; other pension plans are not significant individually or in the aggregate. PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE Supplementary Pension Plan. The GE Pension Plan provides benefits to certain U.S. employees based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Benefit provisions are subject to collective bargaining. At the end of 1999, the GE Pension Plan covered approximately 470,000 participants, including 124,000 employees, 153,000 former employees with vested rights to future benefits, and 193,000 retirees and beneficiaries receiving benefits. The GE Supplementary Pension Plan is a pay-as-you-go plan providing supplementary retirement benefits primarily to higher-level, longer-service U.S. employees. The effect on operations of principal pension plans is as follows: - ------------------------------------------------------------------------------- EFFECT ON OPERATIONS ------------------------------- (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------- Expected return on plan assets $ 3,407 $ 3,024 $ 2,721 Service cost for benefits earned (a) (693) (625) (596) Interest cost on benefit obligation (1,804) (1,749) (1,686) Prior service cost (151) (153) (145) SFAS No. 87 transition gain 154 154 154 Net actuarial gain recognized 467 365 295 Special early retirement cost -- -- (412) ------------------------------- Total pension plan income $ 1,380 $ 1,016 $ 331 =============================================================================== (a) Net of participant contributions. - ------------------------------------------------------------------------------- FUNDING POLICY for the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as GE may determine to be appropriate. GE has not made contributions since 1987 because the fully funded status of the GE Pension Plan precludes current tax deduction and because any GE contribution would require payment of excise taxes. Changes in the projected benefit obligation for principal pension plans follow. - ------------------------------------------------------------------------------- PROJECTED BENEFIT OBLIGATION ------------------------ December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- Balance at January 1 $ 27,572 $ 25,874 Service cost for benefits earned (a) 693 625 Interest cost on benefit obligation 1,804 1,749 Participant contributions 122 112 Actuarial (gain)/loss (b) (2,790) 1,050 Benefits paid (1,879) (1,838) ------------------------ Balance at December 31 $ 25,522 $ 27,572 =============================================================================== (a) Net of participant contributions. (b) Principally associated with discount rate changes. - ------------------------------------------------------------------------------- Changes in the fair value of assets for principal pension plans follow. - ------------------------------------------------------------------------------- FAIR VALUE OF ASSETS ------------------------ December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- Balance at January 1 $ 43,447 $ 38,742 Actual return on plan assets 8,472 6,363 Employer contributions 81 68 Participant contributions 122 112 Benefits paid (1,879) (1,838) ------------------------ Balance at December 31 $ 50,243 $ 43,447 =============================================================================== Plan assets are held in trust and consist mainly of common stock and fixed-income investments. GE common stock represented 9.8% and 7.5% of trust assets at year-end 1999 and 1998, respectively. PAGE F-28 ANNUAL REPORT PAGE 60 GE recorded assets and liabilities for principal pension plans as follows: - ------------------------------------------------------------------------------- PREPAID PENSION ASSET - ------------------------------------------------------------------------------- December 31 (In millions) 1999 1998 ------------------------ Fair value of plan assets $ 50,243 $ 43,447 Add (deduct) unrecognized balances Prior service cost 699 850 SFAS No. 87 transition gain (154) (308) Net actuarial gain (16,850) (9,462) Projected benefit obligation (25,522) (27,572) Pension liability 981 797 ------------------------ Prepaid pension asset $ 9,397 $ 7,752 =============================================================================== Actuarial assumptions used to determine costs and benefit obligations for principal pension plans follow. - ------------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS ------------------------------- December 31 1999 1998 1997 - ------------------------------------------------------------------------------- Discount rate 7.75% 6.75% 7.0% Compensation increases 5.0 5.0 4.5 Return on assets for the year 9.5 9.5 9.5 - ------------------------------------------------------------------------------- Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, are amortized over the average future service period of employees. 6 RETIREE HEALTH AND LIFE BENEFITS GE and its affiliates sponsor a number of retiree health and life insurance benefit plans. Principal retiree benefit plans are discussed below; other such plans are not significant individually or in the aggregate. PRINCIPAL RETIREE BENEFIT PLANS generally provide health and life insurance benefits to employees who retire under the GE Pension Plan (see note 5) with 10 or more years of service. Retirees share in the cost of health care benefits. Benefit provisions are subject to collective bargaining. At the end of 1999, these plans covered approximately 250,000 retirees and dependents. The effect on operations of principal retiree benefit plans is shown in the following table. - ------------------------------------------------------------------------------- EFFECT ON OPERATIONS ------------------------------- (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------- RETIREE HEALTH PLANS Service cost for benefits earned $ 88 $ 79 $ 90 Interest cost on benefit obligation 206 205 183 Prior service cost 14 14 (3) Net actuarial loss recognized 38 28 16 Special early retirement cost -- -- 152 ------------------------------- Retiree health plan cost 346 326 438 ------------------------------- RETIREE LIFE PLANS Expected return on plan assets (165) (149) (137) Service cost for benefits earned 19 17 17 Interest cost on benefit obligation 117 114 116 Prior service cost (6) (6) (8) Net actuarial loss recognized 7 11 16 Special early retirement cost -- -- 13 ------------------------------- Retiree life plan cost (income) (28) (13) 17 ------------------------------- Total cost $ 318 $ 313 $ 455 =============================================================================== FUNDING POLICY for retiree health benefits is generally to pay covered expenses as they are incurred. GE funds retiree life insurance benefits at its discretion. Changes in the accumulated postretirement benefit obligation for retiree benefit plans follow. - ------------------------------------------------------------------------------- ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION Health plans Life plans ------------------ ------------------ December 31 (In millions) 1999 1998 1999 1998 ---------------------------------------- Balance at January 1 $3,220 $3,098 $ 1,787 $ 1,677 Service cost for benefits earned 88 79 19 17 Interest cost on benefit obligation 206 205 117 114 Participant contributions 24 24 -- -- Actuarial (gain)/loss 103 177 (165) 91 Benefits paid (392) (363) (107) (112) Other 26 -- -- -- ---------------------------------------- Balance at December 31 $3,275 $3,220 $ 1,651 $ 1,787 =============================================================================== Changes in the fair value of assets for retiree benefit plans follow. - ------------------------------------------------------------------------------- FAIR VALUE OF ASSETS Health plans Life plans ---------------- ------------------- December 31 (In millions) 1999 1998 1999 1998 - ------------------------------------------------------------------------------- Balance at January 1 $-- $-- $ 2,121 $ 1,917 Actual return on plan assets -- -- 355 316 Employer contributions 368 339 -- -- Participant contributions 24 24 -- -- Benefits paid (392) (363) (107) (112) ---------------------------------------- Balance at December 31 $-- $-- $ 2,369 $ 2,121 - ------------------------------------------------------------------------------- PAGE F-29 ANNUAL REPORT PAGE 61 Plan assets are held in trust and consist mainly of common stock and fixed-income investments. GE common stock represented 6.2% and 4.5% of trust assets at year-end 1999 and 1998, respectively. GE recorded assets and liabilities for retiree benefit plans as follows: - ------------------------------------------------------------------------------- RETIREE BENEFIT LIABILITY/ASSET Health plans Life plans ----------------- ------------------- December 31 (In millions) 1999 1998 1999 1998 - ------------------------------------------------------------------------------- Accumulated postretirement benefit obligation $3,275 $3,220 $ 1,651 $ 1,787 Add (deduct) unrecognized balances Prior service cost (143) (157) 43 49 Net actuarial gain/(loss) (637) (572) 576 214 Fair value of plan assets -- -- (2,369) (2,121) ---------------------------------------- Retiree benefit liability/(asset) $2,495 $2,491 $ (99) $ (71) =============================================================================== ACTUARIAL ASSUMPTIONS used to determine costs and benefit obligations for principal retiree benefit plans are shown below. - ------------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS ------------------------------- December 31 1999 1998 1997 - ------------------------------------------------------------------------------- Discount rate 7.75% 6.75% 7.0% Compensation increases 5.0 5.0 4.5 Health care cost trend (a) 9.0 7.8 7.8 Return on assets for the year 9.5 9.5 9.5 - ------------------------------------------------------------------------------- (a) For 1999, gradually declining to 5% after 2004. - ------------------------------------------------------------------------------- Increasing or decreasing the health care cost trend rates by one percentage point would have had an insignificant effect on the December 31, 1999, accumulated postretirement benefit obligation and the annual cost of retiree health plans. Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, are amortized over the average future service period of employees. 7 PROVISION FOR INCOME TAXES ------------------------------- (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------- GE Estimated amounts payable $ 2,555 $ 2,227 $ 2,332 Deferred tax expense (benefit) from temporary differences 652 590 (522) ------------------------------- 3,207 2,817 1,810 ------------------------------- GECS Estimated amounts payable 806 815 368 Deferred tax expense from temporary differences 847 549 798 ------------------------------- 1,653 1,364 1,166 ------------------------------- Consolidated Estimated amounts payable 3,361 3,042 2,700 Deferred tax expense from temporary differences 1,499 1,139 276 ------------------------------- $ 4,860 $ 4,181 $ 2,976 =============================================================================== GE includes GECS in filing a consolidated U.S. federal income tax return. The GECS provision for estimated taxes payable includes its effect on the consolidated return. Estimated consolidated amounts payable includes amounts applicable to U.S. federal income taxes of $1,632 million, $1,459 million and $1,176 million in 1999, 1998 and 1997, respectively, and amounts applicable to non-U.S. jurisdictions of $1,399 million, $1,335 million and $1,298 million in 1999, 1998 and 1997, respectively. Deferred tax expense related to U.S. federal income taxes was $1,475 million, $971 million and $354 million in 1999, 1998 and 1997, respectively. Deferred income tax balances reflect the impact of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. See note 22 for details. Except for certain earnings that GE intends to reinvest indefinitely, provision has been made for the estimated U.S. federal income tax liabilities applicable to undistributed earnings of affiliates and associated companies. It is not practicable to determine the U.S. federal income tax liability, if any, that would be payable if such earnings were not reinvested indefinitely. Consolidated U.S. income before taxes was $11.3 billion in 1999, $9.7 billion in 1998 and $8.2 billion in 1997. The corresponding amounts for non-U.S.-based operations were $4.3 billion in 1999, $3.8 billion in 1998 and $3.0 billion in 1997. A reconciliation of the U.S. federal statutory tax rate to the actual tax rate is provided on the following page. PAGE F-30 ANNUAL REPORT PAGE 62
- --------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF U.S. FEDERAL Consolidated GE GECS STATUTORY TAX RATE TO ACTUAL RATE ------------------------ ------------------------ ------------------------ 1999 1998 1997 1999 1998 1997 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Statutory U.S. federal income tax rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Increase (reduction) in rate resulting from: Inclusion of after-tax earnings of GECS in before-tax earnings of GE -- -- -- (11.2) (11.0) (11.4) -- -- -- Lockheed Martin exchange (note 2) -- -- (4.8) -- -- (5.4) -- -- -- Amortization of goodwill 1.1 1.1 1.1 0.8 0.7 0.8 1.0 1.0 1.1 Tax-exempt income (1.7) (1.8) (1.9) -- -- -- (4.4) (4.7) (4.9) Tax on international activities (including Foreign Sales Corporation benefits) (4.2) (3.0) (2.7) (2.6) (2.7) (2.1) (4.8) (1.3) (2.2) All other -- net 1.0 (0.3) (0.1) 1.0 1.3 1.2 0.3 (3.6) (2.6) ------------------------------------------------------------------------------------ (3.8) (4.0) (8.4) (12.0) (11.7) (16.9) (7.9) (8.6) (8.6) ------------------------------------------------------------------------------------ Actual income tax rate 31.2% 31.0% 26.6% 23.0% 23.3% 18.1% 27.1% 26.4% 26.4% ===========================================================================================================================
8 EARNINGS PER SHARE INFORMATION
----------------- ------------------ ----------------- 1999 1998 1997 ----------------- ------------------ ----------------- (In millions; per-share amounts in dollars) Diluted Basic Diluted Basic Diluted Basic - -------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATIONS Net earnings available to common share owners $10,717 $10,717 $9,296 $9,296 $8,203 $8,203 Dividend equivalents -- net of tax 8 -- 13 -- 10 -- ----------------- ------------------ ----------------- Net earnings available for per-share calculation $10,725 $10,717 $9,309 $9,296 $8,213 $8,203 ----------------- ------------------ ----------------- AVERAGE EQUIVALENT SHARES Shares of GE common stock outstanding 3,278 3,278 3,269 3,269 3,275 3,275 Employee compensation-related shares, including stock options 54 -- 61 -- 70 -- ----------------- ------------------ ----------------- Total average equivalent shares 3,332 3,278 3,330 3,269 3,345 3,275 ----------------- ------------------ ----------------- Net earnings per share $ 3.22 $ 3.27 $ 2.80 $ 2.84 $ 2.46 $ 2.50 ================================================================================================================================
PAGE F-31 ANNUAL REPORT PAGE 63 9 INVESTMENT SECURITIES ------------------------------------------------ Gross Gross Amortized unrealized unrealized Estimated (In millions) cost gains losses fair value - -------------------------------------------------------------------------------- DECEMBER 31, 1999 GE SECURITIES Equity $ 149 $ 547 $ (1) $ 695 Debt -- U.S. corporate 430 148 -- 578 ------------------------------------------------ 579 695 (1) 1,273 ------------------------------------------------ GECS SECURITIES Debt U.S. corporate 31,512 175 (1,759) 29,928 State and municipal 12,558 141 (452) 12,247 Mortgage-backed 12,799 173 (376) 12,596 Corporate -- non-U.S 9,923 228 (248) 9,903 Government -- non-U.S 4,675 114 (77) 4,712 U.S. government and federal agency 2,481 5 (171) 2,315 Equity 6,420 2,641 (277) 8,784 ------------------------------------------------ 80,368 3,477 (3,360) 80,485 ------------------------------------------------ CONSOLIDATED TOTALS $80,947 $4,172 $ (3,361) $81,758 ================================================================================ DECEMBER 31, 1998 GE SECURITIES Equity $ 233 $ 26 $ -- $ 259 ------------------------------------------------ GECS SECURITIES Debt U.S. corporate 27,888 1,293 (325) 28,856 State and municipal 12,483 727 (8) 13,202 Mortgage-backed 11,641 413 (109) 11,945 Corporate -- non-U.S 8,692 409 (90) 9,011 Government -- non-U.S 5,415 258 (9) 5,664 U.S. government and federal agency 2,706 207 (7) 2,906 Equity 5,651 1,415 (192) 6,874 ------------------------------------------------ 74,476 4,722 (740) 78,458 ------------------------------------------------ CONSOLIDATED TOTALS $74,709 $4,748 $ (740) $78,717 ================================================================================ The majority of mortgage-backed securities shown in the table above are collateralized by U.S. residential mortgages. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONTRACTUAL MATURITIES OF DEBT SECURITIES (EXCLUDING MORTGAGE-BACKED SECURITIES) --------------------------- Amortized Estimated (In millions) cost fair value - -------------------------------------------------------------------------------- Due in 2000 $ 5,237 $ 5,309 2001-2004 13,348 13,310 2005-2009 14,478 13,953 2010 and later 28,086 26,533 ================================================================================ It is expected that actual maturities will differ from contractual maturities because borrowers have the right to call or prepay certain obligations. - -------------------------------------------------------------------------------- Proceeds from sales of investment securities by GE and GECS in 1999 were $18,521 million ($16,707 million in 1998 and $14,728 million in 1997). Gross realized gains were $1,430 million in 1999 ($1,126 million in 1998 and $1,018 million in 1997). Gross realized losses were $484 million in 1999 ($308 million in 1998 and $173 million in 1997). 10 GE CURRENT RECEIVABLES -------------------------- December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- Aircraft Engines $ 1,541 $ 1,722 Appliances 285 299 Industrial Products and Systems 1,163 1,274 NBC 329 261 Plastics 953 1,070 Power Systems 3,350 2,620 Technical Products and Services 1,036 904 All Other 44 141 Corporate 362 495 -------------------------- 9,063 8,786 Less allowance for losses (320) (303) -------------------------- $ 8,743 $ 8,483 - ------------------------------------------------------------------------------- Receivables balances at December 31, 1999 and 1998, before allowance for losses, included $5,832 million and $5,447 million, respectively, from sales of goods and services to customers, and $296 million and $350 million, respectively, from transactions with associated companies. Current receivables of $203 million at year-end 1999 and $305 million at year-end 1998 arose from sales, principally of aircraft engine goods and services, on open account to various agencies of the U.S. government, which is GE's largest single customer. About 4% of GE's sales of goods and services were to the U.S. government in 1999, 1998 and 1997. 11 INVENTORIES -------------------------- December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- GE Raw materials and work in process $ 3,438 $ 3,154 Finished goods 3,054 2,967 Unbilled shipments 233 195 -------------------------- 6,725 6,316 Less revaluation to LIFO (927) (1,011) -------------------------- 5,798 5,305 -------------------------- GECS Finished goods (a) 1,209 744 -------------------------- $ 7,007 $ 6,049 =============================================================================== (a) Including $773 million of Wards' retail inventory at year-end 1999. - ------------------------------------------------------------------------------- LIFO revaluations decreased $84 million in 1999, compared with decreases of $87 million in 1998 and $119 million in 1997. Included in these changes were decreases of $4 million, $29 million and $59 million in 1999, 1998 and 1997, respectively, that resulted from lower LIFO inventory levels. There were net cost decreases in each of the last three years. As of December 31, 1999, GE is obligated to acquire certain raw materials at market prices through the year 2008 under various take-or-pay or similar arrangements. Annual minimum commitments under these arrangements are insignificant. PAGE F-32 ANNUAL REPORT PAGE 64 12 GECS FINANCING RECEIVABLES (INVESTMENTS IN TIME SALES, LOANS AND FINANCING LEASES) -------------------------- December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- TIME SALES AND LOANS Consumer services $ 48,435 $ 42,573 Specialized financing 24,999 16,693 Mid-market financing 19,186 17,065 Equipment management 977 849 Specialty insurance 28 103 -------------------------- Time sales and loans 93,625 77,283 -------------------------- INVESTMENT IN FINANCING LEASES Direct financing leases 43,738 43,730 Leveraged leases 4,045 3,841 -------------------------- Investment in financing leases 47,783 47,571 -------------------------- 141,408 124,854 Less allowance for losses (3,779) (3,288) -------------------------- $137,629 $121,566 =============================================================================== Time sales and loans represents transactions in a variety of forms, including time sales, revolving charge and credit, mortgages, installment loans, intermediate-term loans and revolving loans secured by business assets. The portfolio includes time sales and loans carried at the principal amount on which finance charges are billed periodically, and time sales and loans carried at gross book value, which includes finance charges. At year-end 1999 and 1998, financing receivables included $15,782 million and $14,452 million, respectively, for commercial real estate loans and leases. Note 17 contains information on airline loans and leases. Investment in financing leases consists of direct financing and leveraged leases of aircraft, railroad rolling stock, autos, other transportation equipment, data processing equipment and medical equipment, as well as other manufacturing, power generation, commercial real estate, and commercial equipment and facilities. As the sole owner of assets under direct financing leases and as the equity participant in leveraged leases, GECS is taxed on total lease payments received and is entitled to tax deductions based on the cost of leased assets and tax deductions for interest paid to third-party participants. GECS generally is entitled to any residual value of leased assets. Investment in direct financing and leveraged leases represents net unpaid rentals and estimated unguaranteed residual values of leased equipment, less related deferred income. GECS has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. The GECS share of rentals receivable on leveraged leases is subordinate to the share of other participants who also have security interests in the leased equipment.
- ---------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT IN FINANCING LEASES Total financing Direct financing leases leases Leveraged leases -------------------- -------------------- -------------------- December 31 (In millions) 1999 1998 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Total minimum lease payments receivable $ 68,158 $ 66,528 $ 47,069 $ 47,451 $ 21,089 $ 19,077 Less principal and interest on third-party nonrecourse debt (17,184) (15,176) -- -- (17,184) (15,176) -------------------- -------------------- -------------------- Net rentals receivable 50,974 51,352 47,069 47,451 3,905 3,901 Estimated unguaranteed residual value of leased assets 7,157 6,826 4,945 5,011 2,212 1,815 Less deferred income (10,348) (10,607) (8,276) (8,732) (2,072) (1,875) -------------------- -------------------- -------------------- INVESTMENT IN FINANCING LEASES (as shown above) 47,783 47,571 43,738 43,730 4,045 3,841 Less amounts to arrive at net investment Allowance for losses (581) (619) (509) (519) (72) (100) Deferred taxes (8,593) (8,593) (5,087) (5,147) (3,506) (3,446) -------------------- -------------------- -------------------- NET INVESTMENT IN FINANCING LEASES $ 38,609 $ 38,359 $ 38,142 $ 38,064 $ 467 $ 295 ==================================================================================================================================
PAGE F-33 ANNUAL REPORT PAGE 65 - ------------------------------------------------------------------------------- CONTRACTUAL MATURITIES -------------------------------- Total time sales Net rentals (In millions) and loans (a) receivable (a) - ------------------------------------------------------------------------------- Due in 2000 $ 25,878 $ 14,901 2001 18,489 11,625 2002 17,649 7,567 2003 7,466 4,613 2004 5,972 2,906 2005 and later 18,171 9,362 -------------------------------- Total $ 93,625 $ 50,974 - ------------------------------------------------------------------------------- (a) Experience has shown that a substantial portion of receivables will be paid prior to contractual maturity, and these amounts should not be regarded as forecasts of future cash flows. - ------------------------------------------------------------------------------- Nonearning consumer receivables were $930 million and $1,250 million at December 31, 1999 and 1998, respectively, a substantial amount of which were private-label credit card loans. Nonearning and reduced-earning receivables other than consumer receivables were $932 million and $354 million at year-end 1999 and 1998, respectively. "Impaired" loans are defined by generally accepted accounting principles as loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. That definition excludes, among other things, leases or large groups of smaller-balance homogenous loans and therefore applies principally to commercial loans held by GECS. An analysis of impaired loans follows. -------------------------- December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- Loans requiring allowance for losses $ 631 $ 346 Loans expected to be fully recoverable 219 158 -------------------------- $ 850 $ 504 ========================== Allowance for losses $ 179 $ 109 Average investment during year 610 512 Interest income earned while impaired (a) 27 39 =============================================================================== (a) Principally on the cash basis. - ------------------------------------------------------------------------------- 13 GECS ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES ------------------------------- (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------- Balance at January 1 $ 3,288 $ 2,802 $ 2,693 Provisions charged to operations 1,678 1,609 1,421 Net transfers primarily related to acquisitions and sales 270 388 127 Amounts written off -- net (1,457) (1,511) (1,439) ------------------------------- Balance at December 31 $ 3,779 $ 3,288 $ 2,802 =============================================================================== 14 OTHER GECS RECEIVABLES At year-end 1999 and 1998, this account included reinsurance recoverables of $8,138 million and $6,124 million and insurance-related receivables of $7,417 million and $7,109 million, respectively. Premium receivables, policy loans and funds on deposit with reinsurers are included in insurance-related receivables. Also in "Other GECS receivables" are trade receivables, accrued investment income, operating lease receivables and a variety of sundry items. 15 PROPERTY, PLANT AND EQUIPMENT (INCLUDING EQUIPMENT LEASED TO OTHERS) -------------------------- December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- ORIGINAL COST GE Land and improvements $ 526 $ 483 Buildings, structures and related equipment 6,674 6,579 Machinery and equipment 20,849 19,491 Leasehold costs and manufacturing plant under construction 2,150 1,757 -------------------------- 30,199 28,310 -------------------------- GECS Buildings and equipment 7,163 4,828 Equipment leased to others Vehicles 10,942 9,825 Aircraft 10,591 9,321 Railroad rolling stock 3,323 2,804 Marine shipping containers 2,309 2,565 Other 3,832 3,447 -------------------------- 38,160 32,790 -------------------------- $ 68,359 $ 61,100 ========================== ACCUMULATED DEPRECIATION AND AMORTIZATION GE $ 17,818 $ 16,616 GECS Buildings and equipment 2,127 1,733 Equipment leased to others 7,392 7,021 -------------------------- $ 27,337 $ 25,370 =============================================================================== Amortization of GECS equipment leased to others was $2,673 million, $2,185 million and $2,102 million in 1999, 1998 and 1997, respectively. Noncancelable future rentals due from customers for equipment on operating leases at year-end 1999 totaled $16,058 million and are due as follows: $4,177 million in 2000; $3,177 million in 2001; $2,332 million in 2002; $1,624 million in 2003; $1,086 million in 2004; and $3,662 million thereafter. PAGE F-34 ANNUAL REPORT PAGE 66 16 INTANGIBLE ASSETS -------------------------- December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- GE Goodwill $ 10,805 $ 9,203 Other intangibles 457 793 -------------------------- 11,262 9,996 -------------------------- GECS Goodwill 12,301 11,469 Present value of future profits (PVFP) 1,812 1,618 Other intangibles 635 552 -------------------------- 14,748 13,639 -------------------------- $ 26,010 $ 23,635 =============================================================================== GE intangible assets are shown net of accumulated amortization of $2,891 million in 1999 and $2,923 million in 1998. GECS intangible assets are net of accumulated amortization of $4,233 million in 1999 and $3,396 million in 1998. PVFP amortization, which is on an accelerated basis and net of interest, is projected to range from 15% to 7% of the year-end 1999 unamortized balance for each of the next five years. 17 ALL OTHER ASSETS -------------------------- December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- GE Investments Associated companies (a) $ 2,678 $ 2,336 Other 741 474 -------------------------- 3,419 2,810 Prepaid pension asset 9,397 7,752 Long-term receivables, including notes 2,024 2,379 Prepaid broadcasting rights 1,078 929 Other 4,887 4,161 -------------------------- 20,805 18,031 -------------------------- GECS Investments Assets acquired for resale 3,406 6,167 Associated companies (a) 11,298 7,670 Real estate ventures 4,397 3,131 Other 4,424 3,473 -------------------------- 23,525 20,441 Separate accounts 10,335 6,563 Servicing assets (b) 1,707 1,625 Deferred insurance acquisition costs 4,682 3,326 Other 4,445 3,584 -------------------------- 44,694 35,539 -------------------------- ELIMINATIONS (518) (662) -------------------------- $ 64,981 $ 52,908 =============================================================================== (a) Includes advances. (b) Associated primarily with serviced residential mortgage loans amounting to $86 billion and $91 billion at December 31, 1999 and 1998, respectively. - ------------------------------------------------------------------------------- In line with industry practice, sales of commercial jet aircraft engines often involve long-term customer financing commitments. In making such commitments, it is GE's general practice to require that it have or be able to establish a secured position in the aircraft being financed. Under such airline financing programs, GE had issued loans and guarantees (principally guarantees) amounting to $1,453 million at year-end 1999 and $1,473 million at year-end 1998; and it had entered into commitments totaling $1,843 million and $1,519 million at year-end 1999 and 1998, respectively, to provide financial assistance on future aircraft engine sales. Estimated fair values of the aircraft securing these receivables and associated guarantees exceeded the related account balances and guaranteed amounts at December 31, 1999. GECS acts as a lender and lessor to the commercial airline industry. At December 31, 1999 and 1998, the balance of such GECS loans, leases and equipment leased to others was $11,772 million and $10,170 million, respectively. In addition, at December 31, 1999, GECS had issued financial guarantees and funding commitments of $59 million ($74 million at year-end 1998) and had placed multi-year orders for various Boeing and Airbus aircraft with list prices of approximately $9.9 billion ($9.4 billion at year-end 1998). At year-end 1999, the National Broadcasting Company had $8,843 million of commitments to acquire broadcast material and the rights to broadcast television programs, including U.S. television rights to future Olympic Games, and commitments under long-term television station affiliation agreements that require payments through the year 2010. In connection with numerous projects, primarily power generation bids and contracts, GE had issued various bid and performance bonds and guarantees totaling $3,794 million at year-end 1999 and $3,740 million at year-end 1998. Separate accounts represent investments controlled by policyholders and are associated with identical amounts reported as insurance liabilities in note 20. 18 GE ALL OTHER CURRENT COSTS AND EXPENSES ACCRUED At year-end 1999 and 1998, this account included taxes accrued of $3,940 million and $3,415 million and compensation and benefit accruals of $1,648 million and $1,487 million, respectively. Also included are amounts for product warranties, estimated costs on shipments billed to customers and a variety of sundry items. PAGE F-35 ANNUAL REPORT PAGE 67 19 BORROWINGS SHORT-TERM BORROWINGS 1999 1998 ---------------------- ---------------------- Average Average December 31 (In millions) Amount rate (a) Amount rate (a) - ------------------------------------------------------------------------------- GE Commercial paper U.S $521 6.54% $2,339 5.29% Non-U.S. 396 5.02 -- -- Payable to banks, principally non-U.S. 629 10.18 465 11.15 Current portion of long-term debt 123 7.27 50 5.08 Other 576 612 ----------------------------------------------- 2,245 3,466 ----------------------------------------------- GECS Commercial paper U.S. 84,702 6.07 83,044 5.38 Non-U.S. 11,909 4.19 3,953 4.80 Current portion of long-term debt 22,902 5.59 14,645 5.66 Other 9,746 11,520 ----------------------------------------------- 129,259 113,162 ---------------------- ---------------------- ELIMINATIONS (1,158) (1,250) ----------------------------------------------- $130,346 $115,378 =============================================================================== - ------------------------------------------------------------------------------- LONG-TERM BORROWINGS ------------------------------------------------ 1999 Average December 31 (In millions) rate (a) Maturities 1999 1998 - ------------------------------------------------------------------------------- GE Industrial development/ pollution control bonds 3.65% 2003-2027 $ 328 $ 327 Payable to banks, principally non-U.S. 11.11 2001-2006 156 230 Other (b) 238 124 ---------------------- 722 681 ---------------------- GECS Senior notes 5.50 2001-2055 69,770 58,042 Subordinated notes (c) 7.88 2006-2035 996 996 ---------------------- 70,766 59,038 ---------------------- ELIMINATIONS (61) (56) ---------------------- $71,427 $59,663 =============================================================================== (a) Based on year-end balances and local currency interest rates, including the effects of interest rate and currency swaps, if any, directly associated with the original debt issuance. (b) A variety of obligations having various interest rates and maturities, including certain borrowings by parent operating components and affiliates. (c) Guaranteed by GE. - ------------------------------------------------------------------------------- Borrowings of GE and GECS are addressed below from two perspectives -- liquidity and interest rate management. Additional information about borrowings and associated swaps can be found in note 30. LIQUIDITY requirements of GE and GECS are principally met through the credit markets. Maturities of long-term borrowings (including the current portion) during the next five years follow. ------------------------------------------------------ (In millions) 2000 2001 2002 2003 2004 - -------------------------------------------------------------------------------- GE $ 123 $ 73 $ 33 $ 17 $ 132 GECS 22,902 15,948 12,763 10,153 7,922 - -------------------------------------------------------------------------------- Committed credit lines of $4.2 billion had been extended to GE by 24 banks at year-end 1999. Substantially all of GE's credit lines are available to GECS and its affiliates in addition to their own credit lines. At year-end 1999, GECS and its affiliates held committed lines of credit aggregating $32.5 billion, including $12.0 billion of revolving credit agreements pursuant to which it has the right to borrow funds for periods exceeding one year. Amounts drawn by GECS under these lines at December 31, 1999, were not significant. A total of $7.7 billion of GE Capital credit lines is available for use by GE. Both GE and GECS compensate certain banks for credit facilities in the form of fees, which were insignificant in each of the past three years. INTEREST RATES ARE MANAGED by GECS in light of the anticipated behavior, including prepayment behavior, of assets in which debt proceeds are invested. A variety of instruments, including interest rate and currency swaps and currency forwards, are employed to achieve management's interest rate objectives. Effective interest rates are lower under these "synthetic" positions than could have been achieved by issuing debt directly. The following table shows GECS borrowing positions considering the effects of swaps. - ------------------------------------------------------------------------------- EFFECTIVE BORROWINGS (INCLUDING SWAPS) ------------------------ December 31 (In millions) 1999 1998 Short-term $ 74,347 $ 72,143 ======================== Long-term (including current portion) Fixed rate (a) $ 90,361 $ 74,226 Floating rate 35,317 25,831 ------------------------ Total long-term $125,678 $100,057 =============================================================================== (a) Includes the notional amount of long-term interest rate swaps that effectively convert the floating-rate nature of short-term borrowings to fixed rates of interest. - ------------------------------------------------------------------------------- At December 31, 1999, swap maturities ranged from 2000 to 2048, and average interest rates for fixed-rate borrowings (including "synthetic" fixed-rate borrowings) were 5.63% (6.03% at year-end 1998). PAGE F-36 ANNUAL REPORT PAGE 68 20 GECS INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS ------------------------ December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- Investment contracts and universal life benefits $ 30,448 $ 29,266 Life insurance benefits and other (a) 18,460 16,104 Unpaid claims and claims adjustment expenses (b) 21,473 19,611 Unearned premiums 6,060 5,715 Separate accounts (see note 17) 10,335 6,563 ------------------------ $ 86,776 $ 77,259 - ------------------------------------------------------------------------------- (a) Life insurance benefits are accounted for mainly by a net-level-premium method using estimated yields generally ranging from 5% to 9% in both 1999 and 1998. (b) Principally property and casualty reserves; includes amounts for both reported and incurred-but-not-reported claims, reduced by anticipated salvage and subrogation recoveries. Estimates of liabilities are reviewed and updated continually, with changes in estimated losses reflected in operations. - ------------------------------------------------------------------------------- When GECS cedes insurance to third parties, it is not relieved of its primary obligation to policyholders. Losses on ceded risks give rise to claims for recovery; allowances are established for such receivables from reinsurers. The insurance liability for unpaid claims and claims adjustment expenses related to policies that may cover environmental and asbestos exposures is based on known facts and an assessment of applicable law and coverage litigation. Liabilities are recognized for both known and unasserted claims (including the cost of related litigation) when sufficient information has been developed to indicate that a claim has been incurred and a range of potential losses can be reasonably estimated. Developed case law and adequate claim history do not exist for certain claims principally due to significant uncertainties as to both the level of ultimate losses that will occur and what portion, if any, will be deemed to be insured amounts. A summary of activity affecting unpaid claims and claims adjustment expenses follows. ------------------------------- (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------- Balance at January 1 -- gross $19,611 $14,654 $13,184 Less reinsurance recoverables (3,483) (2,246) (1,822) ------------------------------- Balance at January 1 -- net 16,128 12,408 11,362 Claims and expenses incurred Current year 6,917 6,330 4,494 Prior years 248 (162) 146 Claims and expenses paid Current year (2,508) (2,400) (1,780) Prior years (5,162) (3,692) (2,816) Claim reserves related to acquired companies 929 3,476 1,360 Other 89 168 (358) ------------------------------- Balance at December 31 -- net 16,641 16,128 12,408 Add reinsurance recoverables 4,832 3,483 2,246 ------------------------------- Balance at December 31 -- gross $21,473 $19,611 $14,654 =============================================================================== Prior-year claims and expenses incurred in the preceding table resulted principally from settling claims established in earlier accident years for amounts that differed from expectations. Financial guarantees and credit life risk of insurance affiliates are summarized below. ------------------------ December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- Guarantees, principally on municipal bonds and structured finance issues $177,840 $171,020 Mortgage insurance risk in force 59,798 43,941 Credit life insurance risk in force 26,427 31,018 Less reinsurance (37,992) (37,205) ------------------------ $226,073 $208,774 =============================================================================== 21 GE ALL OTHER LIABILITIES This account includes noncurrent compensation and benefit accruals at year-end 1999 and 1998 of $5,839 million and $5,594 million, respectively. Also included are amounts for deferred incentive compensation, deferred income, product warranties and a variety of sundry items. GE is involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs at each site are based on management's best estimate of undiscounted future costs, excluding possible insurance recoveries. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the lower end of such range. Uncertainties about the status of laws, regulations, technology and information related to individual sites make it difficult to develop a meaningful estimate of the reasonably possible aggregate environmental remediation exposure. However, even in the unlikely event that remediation costs amounted to the high end of the range of costs for each site, the resulting additional liability would not be material to GE's financial position, results of operations or liquidity. 22 DEFERRED INCOME TAXES Aggregate deferred tax amounts are summarized below. ------------------------ December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- ASSETS GE $ 5,808 $ 5,309 GECS 5,528 5,305 ------------------------ 11,336 10,614 ------------------------ LIABILITIES GE 6,091 5,059 GECS 14,483 14,895 ------------------------ 20,574 19,954 ------------------------ NET DEFERRED TAX LIABILITY $ 9,238 $ 9,340 =============================================================================== PAGE F-37 ANNUAL REPORT PAGE 69 Principal components of the net deferred tax balances for GE and GECS are as follows: ------------------------ December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- GE Provisions for expenses (a) $ (4,203) $ (3,809) Retiree insurance plans (839) (847) Prepaid pension asset 3,289 2,713 Depreciation 922 935 Other -- net 1,114 758 ------------------------ 283 (250) ------------------------ GECS Financing leases 8,593 8,593 Operating leases 2,840 2,419 Net unrealized gains on securities 73 1,369 Allowance for losses (1,379) (1,386) Insurance reserves (1,052) (1,022) AMT credit carryforwards (1,185) (903) Other -- net 1,065 520 ------------------------ 8,955 9,590 ------------------------ NET DEFERRED TAX LIABILITY $ 9,238 $ 9,340 =============================================================================== (a) Represents the tax effects of temporary differences related to expense accruals for a wide variety of items, such as employee compensation and benefits, interest on tax deficiencies, product warranties and other provisions for sundry losses and expenses that are not currently deductible. - ------------------------------------------------------------------------------- 23 GECS MINORITY INTEREST IN EQUITY OF CONSOLIDATED AFFILIATES Minority interest in equity of consolidated GECS affiliates includes preferred stock issued by GE Capital and by affiliates of GE Capital. The preferred stock pays cumulative dividends at variable rates. Value of the preferred shares is summarized below. ------------------------ December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------- GE Capital $ 2,600 $ 2,300 GE Capital affiliates 1,421 860 - -------------------------------------------------------------------------------- Dividend rates in local currency on the preferred stock ranged from 0.6% to 6.1% during 1999 and from 3.9% to 5.2% during 1998. 24 RESTRICTED NET ASSETS OF GECS AFFILIATES Certain GECS consolidated affiliates are restricted from remitting funds to GECS in the form of dividends or loans by a variety of regulations, the purpose of which is to protect affected insurance policyholders, depositors or investors. At year-end 1999, net assets of regulated GECS affiliates amounted to $31.0 billion, of which $25.9 billion was restricted. At December 31, 1999 and 1998, the aggregate statutory capital and surplus of the insurance businesses totaled $14.5 billion and $14.4 billion, respectively. Accounting practices prescribed by statutory authorities are used in preparing statutory statements. 25 SHARE OWNERS' EQUITY ------------------------------- (In millions) 1999 1998 1997 - ------------------------------------------------------------------------------- COMMON STOCK ISSUED $ 594 $ 594 $ 594 ACCUMULATED NONOWNER CHANGES OTHER THAN EARNINGS Balance at January 1 $ 1,664 $ 1,340 $ 615 Unrealized gains (losses) on investment securities -- net of deferred taxes of $(614), $430 and $860 (1,132) 795 1,467 Currency translation adjustments -- net of deferred taxes of $(100), $(13) and $(58) (632) 60 (742) Reclassification adjustments -- net of deferred taxes of $(349) and $(291) (644) (531) -- ------------------------------- Balance at December 31 $ (744) $ 1,664 $ 1,340 =============================== OTHER CAPITAL Balance at January 1 $ 6,808 $ 4,434 $ 2,554 Gains on treasury stock dispositions (a) 3,982 2,374 1,880 ------------------------------- Balance at December 31 $10,790 $ 6,808 $ 4,434 =============================== RETAINED EARNINGS Balance at January 1 $48,553 $43,338 $38,670 Net earnings 10,717 9,296 8,203 Dividends (a) (4,786) (4,081) (3,535) ------------------------------- Balance at December 31 $54,484 $48,553 $43,338 =============================== COMMON STOCK HELD IN TREASURY Balance at January 1 $18,739 $15,268 $11,308 Purchases (a) 7,488 6,475 6,392 Dispositions (a) (3,660) (3,004) (2,432) ------------------------------- Balance at December 31 $22,567 $18,739 $15,268 =============================================================================== (a) Total dividends and other transactions with share owners reduced equity by $4,632 million, $5,178 million and $5,615 million in 1999, 1998 and 1997, respectively. - -------------------------------------------------------------------------------- In December 1999, GE's Board of Directors increased the authorization to repurchase Company common stock to $22 billion and authorized the program to continue through 2002. Funds used for the share repurchase will be generated largely from free cash flow. Through year-end 1999, a total of 304 million shares having an aggregate cost of $15.4 billion had been repurchased under this program and placed in treasury. Common shares issued and outstanding are summarized in the following table. - ------------------------------------------------------------------------------- SHARES OF GE COMMON STOCK --------------------------------- December 31 (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------- Issued 3,715,018 3,714,068 3,714,026 In treasury (430,175) (442,772) (449,434) --------------------------------- Outstanding 3,284,843 3,271,296 3,264,592 =============================================================================== PAGE F-38 ANNUAL REPORT PAGE 70 The Proxy Statement for the 2000 Annual Meeting of Share Owners will include a proposal recommended by the Board of Directors on December 17, 1999, which, if approved by share owners, would (a) increase the number of authorized shares of common stock from 4,400,000,000 shares each with a par value of $0.16 to 13,200,000,000 shares each with a par value of $0.06 and (b) split each unissued and issued common share, including shares held in treasury, into three shares of common stock each with a par value of $0.06. GE has 50 million authorized shares of preferred stock ($1.00 par value), but no such shares have been issued. The effects of translating to U.S. dollars the financial statements of non-U.S. affiliates whose functional currency is the local currency are included in share owners' equity. Asset and liability accounts are translated at year-end exchange rates, while revenues and expenses are translated at average rates for the period. 26 OTHER STOCK-RELATED INFORMATION - ------------------------------------------------------------------------------- STOCK OPTION ACTIVITY --------------------------------- Average per share Shares --------------------- subject Exercise Market (Shares in thousands) to option price price - ------------------------------------------------------------------------------- Balance at December 31, 1996 149,545 $ 24.86 $ 49.44 Options granted (a) 13,795 68.07 68.07 Replacement options 30 24.16 24.16 Options exercised (21,746) 18.47 61.22 Options terminated (2,721) 31.10 -- --------------------------------- Balance at December 31, 1997 138,903 30.03 73.38 Options granted 7,707 79.86 79.86 Options exercised (23,955) 20.76 84.45 Options terminated (2,727) 44.46 -- --------------------------------- Balance at December 31, 1998 119,928 34.76 102.00 Options granted 17,094 113.80 113.80 Options exercised (20,560) 23.47 118.25 Options terminated (2,671) 63.46 -- --------------------------------- Balance at December 31, 1999 113,791 48.02 154.75 =============================================================================== (a) Without adjusting for the effect of the 2-for-1 stock split in April 1997, the number of options granted during 1997 would have been 13,476. - ------------------------------------------------------------------------------- Stock option plans, stock appreciation rights (SARs), restricted stock and restricted stock units are described in GE's current Proxy Statement. With certain restrictions, requirements for stock option shares can be met from either unissued or treasury shares. The replacement options replaced canceled SARs and have identical terms thereto. At year-end 1999, there were 544 thousand SARs outstanding at an average exercise price of $23.54. There were 8.9 million restricted stock shares and restricted stock units outstanding at year-end 1999. There were 141.0 million and 121.0 million additional shares available for grants of options, SARs, restricted stock and restricted stock units at December 31, 1999 and 1998, respectively. Under the 1990 Long-Term Incentive Plan, 0.95% of the Company's issued common stock (including treasury shares) as of the first day of each calendar year during which the Plan is in effect becomes available for granting awards in such year. Any unused portion, in addition to shares allocated to awards that are canceled or forfeited, is available for later years. Outstanding options and SARs expire on various dates through December 15, 2009. Restricted stock grants vest on various dates up to normal retirement of grantees. The following table summarizes information about stock options outstanding at December 31, 1999. - -------------------------------------------------------------------------------- STOCK OPTIONS OUTSTANDING (Shares in thousands) Outstanding Exercisable ------------------------------- -------------------- Average Average Exercise Average exercise exercise price range Shares life (a) price Shares price - -------------------------------------------------------------------------------- $ 13 27/32 - 25 3/16 28,493 2.8 $ 20.91 28,493 $ 20.91 25 1/2 - 39 11/16 34,428 4.9 27.14 30,763 26.55 40 7/16 - 69 1/8 21,435 6.9 49.30 8,590 44.73 72 1/4 - 97 5/8 12,882 8.4 76.75 475 78.77 104 7/8 - 147 1/2 16,553 9.5 114.06 455 107.47 -------------------------------------------------------- Total 113,791 5.8 48.02 68,776 27.38 ================================================================================ At year-end 1998, options with an average exercise price of $24.09 were exercisable on 73 million shares; at year-end 1997, options with an average exercise price of $21.11 were exercisable on 72 million shares. (a) Average contractual life remaining in years. - -------------------------------------------------------------------------------- Stock options expire 10 years from the date they are granted; options vest over service periods that range from one to five years. Disclosures required by Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, are as follows: - ------------------------------------------------------------------------------- OPTION VALUE INFORMATION (a) ------------------------------ (In dollars) 1999 1998 1997 Fair value per option (b) $33.70 $18.98 $17.81 Valuation assumptions Expected option term (years) 6.5 6.2 6.3 Expected volatility 23.7% 21.7% 20.0% Expected dividend yield 1.3% 1.8% 1.5% Risk-free interest rate 5.8% 4.9% 6.1% - -------------------------------------------------------------------------------- (a) Weighted averages of option grants during each period. (b) Estimated using Black-Scholes option pricing model. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PRO FORMA EFFECTS December 31 (In millions; ---------------------------- per-share amounts in dollars) 1999 1998 1997 - ------------------------------------------------------------------------------- Net earnings $10,572 $ 9,196 $ 8,129 Earnings per share -- diluted 3.18 2.77 2.43 -- basic 3.23 2.81 2.48 - ------------------------------------------------------------------------------- PAGE F-39 ANNUAL REPORT PAGE 71 27 SUPPLEMENTAL CASH FLOWS INFORMATION Changes in operating assets and liabilities are net of acquisitions and dispositions of principal businesses. "Payments for principal businesses purchased" in the Statement of Cash Flows is net of cash acquired and includes debt assumed and immediately repaid in acquisitions. "All other operating activities" in the Statement of Cash Flows consists primarily of adjustments to current and noncurrent accruals and deferrals of costs and expenses, increases and decreases in progress collections, adjustments for gains and losses on assets, increases and decreases in assets held for sale, and adjustments to assets. Noncash transactions include the following: in 1999, GE's contribution of certain Internet properties in exchange for a noncontrolling interest in NBCi, a newly formed publicly traded Internet company (described in note 2); the 1998 acquisition of Marquette Medical Systems for 9.4 million shares of GE common stock valued at $829 million; and the 1997 exchange of preferred stock in Lockheed Martin Corporation (Lockheed Martin) for the stock of a newly formed subsidiary (described in note 2). Certain supplemental information related to GE and GECS cash flows is shown below.
-------------------------------------- For the years ended December 31 (In millions) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- GE NET PURCHASE OF GE SHARES FOR TREASURY Open market purchases under share repurchase program $ (1,866) $ (3,646) $ (3,492) Other purchases (5,622) (2,829) (2,900) Dispositions (mainly to employee and dividend reinvestment plans) 6,486 3,656 3,577 -------------------------------------- $ (1,002) $ (2,819) $ (2,815) ====================================== GECS FINANCING RECEIVABLES Increase in loans to customers $(95,661) $(76,142) $(55,689) Principal collections from customers -- loans 86,379 65,573 50,679 Investment in equipment for financing leases (18,173) (20,299) (16,420) Principal collections from customers -- financing leases 13,634 15,467 13,796 Net change in credit card receivables (10,740) (4,705) (4,186) Sales of financing receivables 11,473 13,805 9,922 -------------------------------------- $(13,088) $ (6,301) $ (1,898) ====================================== ALL OTHER INVESTING ACTIVITIES Purchases of securities by insurance and annuity businesses $(26,271) $(23,897) $(19,274) Dispositions and maturities of securities by insurance and annuity businesses 23,979 20,639 17,280 Proceeds from principal business dispositions 279 -- 241 Other (5,810) (7,820) (3,893) -------------------------------------- $ (7,823) $(11,078) $(5,646) ====================================== NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $ 15,799 $ 5,881 $ 3,502 Long-term (longer than one year) 30,082 33,453 15,566 Proceeds -- nonrecourse, leveraged lease debt 1,724 2,106 1,757 -------------------------------------- $ 47,605 $ 41,440 $ 20,825 ====================================== REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $(21,211) $(25,901) $(21,320) Long-term (longer than one year) (5,447) (4,739) (1,150) Principal payments -- nonrecourse, leveraged lease debt (266) (387) (287) -------------------------------------- $(26,924) $(31,027) $(22,757) ====================================== ALL OTHER FINANCING ACTIVITIES Proceeds from sales of investment contracts $ 7,236 $ 5,149 $ 4,717 Preferred stock issued by GECS affiliates 513 270 605 Redemption of investment contracts (7,127) (5,533) (4,537) -------------------------------------- $ 622 $ (114) $ 785 ===================================================================================================================================
PAGE F-40 ANNUAL REPORT PAGE 72 28 OPERATING SEGMENTS
- --------------------------------------------------------------------------------------------------------------------------------- REVENUES For the years ended December 31 Total revenues Intersegment revenues External revenues ------------------------------- ------------------------ ---------------------------- (In millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- GE Aircraft Engines $10,558 $10,294 $ 7,799 $ 477 $ 292 $ 101 $10,081 $ 10,002 $ 7,698 Appliances 5,671 5,619 5,801 4 12 12 5,667 5,607 5,789 Industrial Products and Systems 11,555 11,222 10,984 530 479 491 11,025 10,743 10,493 NBC 5,790 5,269 5,153 -- -- -- 5,790 5,269 5,153 Plastics 6,941 6,633 6,695 17 20 24 6,924 6,613 6,671 Power Systems 10,046 8,466 7,915 162 166 80 9,884 8,300 7,835 Technical Products and Services 6,863 5,323 4,861 15 14 18 6,848 5,309 4,843 Eliminations (1,542) (1,367) (1,176) (1,205) (983) (726) (337) (384) (450) ------------------------------- ------------------------ ---------------------------- Total GE segment revenues 55,882 51,459 48,032 -- -- -- 55,882 51,459 48,032 Corporate items 619 771 3,227 -- -- -- 619 771 3,227 GECS net earnings 4,443 3,796 3,256 -- -- -- 4,443 3,796 3,256 ------------------------------- ------------------------ ---------------------------- Total GE 60,944 56,026 54,515 -- -- -- 60,944 56,026 54,515 GECS 55,749 48,694 39,931 -- -- -- 55,749 48,694 39,931 Eliminations (5,063) (4,251) (3,606) -- -- -- (5,063) (4,251) (3,606) ------------------------------- ------------------------ ---------------------------- CONSOLIDATED REVENUES $111,630 $100,469 $90,840 $ -- $ -- $ -- $111,630 $100,469 $90,840 ================================================================================================================================= 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. Includes revenues of $944 million in 1997 from an appliance distribution affiliate that was deconsolidated in 1998. Also includes $1,538 million in 1997 from exchanging preferred stock in Lockheed Martin Corporation for the stock of a newly formed subsidiary. - ---------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------- ASSETS PROPERTY, PLANT AND DEPRECIATION AND EQUIPMENT ADDITIONS AMORTIZATION (INCLUDING (INCLUDING EQUIPMENT LEASED GOODWILL AND OTHER TO OTHERS) INTANGIBLES) For the years ended For the years ended At December 31 December 31 December 31 ----------------------------------- -------------------------- ------------------------ (In millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- GE Aircraft Engines $ 8,890 $ 8,866 $ 8,895 $ 368 $ 480 $ 729 $ 382 $ 398 $ 292 Appliances 2,463 2,436 2,354 151 150 83 147 137 131 Industrial Products and Systems 6,740 6,466 6,672 423 428 487 433 440 408 NBC 5,243 3,264 3,050 94 105 116 126 127 142 Plastics 9,261 9,813 8,890 462 722 618 561 591 494 Power Systems 9,814 7,253 6,182 510 246 215 285 215 199 Technical Products and Services 5,048 3,858 2,438 164 254 189 230 143 137 ----------------------------------- -------------------------- ------------------------ Total GE segments 47,459 41,956 38,481 2,172 2,385 2,437 2,164 2,051 1,803 Investment in GECS 20,321 19,727 17,239 -- -- -- -- -- -- Corporate items and eliminations 14,803 12,987 11,706 62 158 129 155 241 226 ----------------------------------- -------------------------- ------------------------ Total GE 82,583 74,670 67,426 2,234 2,543 2,566 2,319 2,292 2,029 GECS 345,018 303,297 255,408 15,432 8,110 7,320 4,372 3,568 3,240 Eliminations (22,401) (22,032) (18,822) -- -- -- -- -- -- ----------------------------------- -------------------------- ------------------------ CONSOLIDATED TOTALS $ 405,200 $ 355,935 $ 304,012 $17,666 $10,653 $9,886 $6,691 $5,860 $5,269 ================================================================================================================================= Additions to property, plant and equipment include amounts relating to principal businesses purchased. Depreciation and amortization includes $64 million of unallocated RCA goodwill amortization in 1999, 1998 and 1997 that relates to NBC. - ---------------------------------------------------------------------------------------------------------------------------------
BASIS FOR PRESENTATION. The Company's operating businesses are organized based on the nature of products and services provided. Certain GE businesses do not meet the definition of a reportable operating segment and have been aggregated. The Industrial Products and Systems segment consists of Industrial Systems, Lighting, Transportation Systems and GE Supply. The Technical Products and Services segment consists of Medical Systems and Information Services. Segment accounting policies are the same as policies described in note 1. Details of segment profit by operating segment can be found on page 44 of this report. A description of operating segments for General Electric Company and consolidated affiliates is provided on the facing page. PAGE F-41 ANNUAL REPORT PAGE 73 AIRCRAFT ENGINES. Jet engines and replacement parts and repair and maintenance services for all categories of commercial aircraft (short/medium, intermediate and long-range); for a wide variety of military aircraft, including fighters, bombers, tankers and helicopters; and for executive and commuter aircraft. Products are sold worldwide to airframe manufacturers, airlines and government agencies. Also includes aircraft engine derivatives, used as marine propulsion and industrial power sources; the latter is also reported in Power Systems. APPLIANCES. Major appliances and related services for products such as refrigerators, freezers, electric and gas ranges, dishwashers, clothes washers and dryers, microwave ovens, room air conditioners and residential water system products. Products are sold in North America and in global markets under various GE and private-label brands. Distributed to retail outlets, mainly for the replacement market, and to building contractors and distributors for new installations. INDUSTRIAL PRODUCTS AND SYSTEMS. Lighting products (including a wide variety of lamps, lighting fixtures, wiring devices and quartz products); electrical distribution and control equipment (including power delivery and control products such as transformers, meters, relays, capacitors and arresters); transportation systems products (including diesel-electric locomotives, transit propulsion equipment and motorized wheels for off-highway vehicles); electric motors and related products; a broad range of electrical and electronic industrial automation products (including drive systems); installation, engineering and repair services, which includes management and technical expertise for large projects such as process control systems; and GE Supply, a network of electrical supply houses. Markets are extremely diverse. Products are sold to commercial and industrial end users, including utilities, to original equipment manufacturers, to electrical distributors, to retail outlets, to railways and to transit authorities. Increasingly, products are developed for and sold in global markets. NBC. Principal businesses are the furnishing of U.S. network television services to more than 220 affiliated stations, production of television programs, operation of 13 VHF and UHF television broadcasting stations, operation of four cable/satellite networks around the world, and investment and programming activities in the Internet, multimedia and cable television. PLASTICS. High-performance engineered plastics used in applications such as automobiles and housings for computers and other business equipment; ABS resins; silicones; superabrasive industrial diamonds; and laminates. Products are sold worldwide to a diverse customer base consisting mainly of manufacturers. POWER SYSTEMS. Power plant products and services, including design, installation, operation and maintenance services. Markets and competition are global. Gas turbines are sold separately and as part of packaged power plants for electric utilities, independent power producers and for industrial cogeneration and mechanical drive applications. Steam turbine-generators are sold to electric utilities and, for cogeneration, to industrial and other power customers. Also includes nuclear reactors and fuel and support services for GE's new and installed boiling water reactors and aircraft engine derivatives, also reported in the Aircraft Engines segment, used as industrial power sources. TECHNICAL PRODUCTS AND SERVICES. Medical imaging systems such as magnetic resonance (MR) and computed tomography (CT) scanners, x-ray, nuclear imaging and ultrasound, as well as diagnostic cardiology and patient monitoring devices; related services, including equipment monitoring and repair, computerized data management and customer productivity services. Products and services are sold worldwide to hospitals and medical facilities. Also includes a full range of computer-based information and data interchange services for both internal and external use to commercial and industrial customers. GECS. The operating activities of the GECS segment follow. CONSUMER SERVICES -- private-label credit card loans, personal loans, time sales and revolving credit and inventory financing for retail merchants, auto leasing and inventory financing, mortgage servicing and consumer savings and insurance services. EQUIPMENT MANAGEMENT -- leases, loans, sales and asset management services for portfolios of commercial and transportation equipment, including aircraft, trailers, auto fleets, modular space units, railroad rolling stock, data processing equipment, containers used on ocean-going vessels, and satellites. MID-MARKET FINANCING -- loans, financing and operating leases and other services for middle-market customers, including manufacturers, distributors and end users, for a variety of equipment that includes vehicles, corporate aircraft, data processing equipment, medical and diagnostic equipment, and equipment used in construction, manufacturing, office applications, electronics and telecommunications activities. SPECIALIZED FINANCING -- loans and financing leases for major capital assets, including industrial facilities and equipment, and energy-related facilities; commercial and residential real estate loans and investments; and loans to and investments in public and private entities in diverse industries. SPECIALTY INSURANCE -- U.S. and international multiple-line property and casualty reinsurance; certain directly written specialty insurance and life reinsurance; financial guaranty insurance, principally on municipal bonds and structured finance issues; private mortgage insurance; and creditor insurance covering international customer loan repayments. Very few of the products financed by GECS are manufactured by GE. PAGE F-42 ANNUAL REPORT PAGE 74 29 GEOGRAPHIC SEGMENT INFORMATION (CONSOLIDATED) The table below presents data by geographic region. Revenues and operating profit shown below are classified according to their country of origin (including exports from such areas). Revenues classified under the caption "United States" include royalty and licensing income from non-U.S. sources.
- ------------------------------------------------------------------------------------------------------------------------------ REVENUES For the years ended December 31 Total revenues Intersegment revenues External revenues ---------------------------------- ----------------------------- --------------------------- (In millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ United States $ 78,970 $ 71,799 $ 66,330 $ 2,690 $ 2,608 $ 2,471 $76,280 $69,191 $63,859 Europe 22,919 21,665 18,166 1,081 837 787 21,838 20,828 17,379 Pacific Basin 7,879 5,166 4,742 924 951 880 6,955 4,215 3,862 Other 7,365 6,925 6,420 808 690 680 6,557 6,235 5,740 Intercompany eliminations (5,503) (5,086) (4,818) (5,503) (5,086) (4,818) -- -- -- ---------------------------------- ----------------------------- --------------------------- Total $ 111,630 $ 100,469 $ 90,840 $ -- $ -- $ -- $111,630 $100,469 $90,840 ============================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------ OPERATING PROFIT ASSETS LONG-LIVED ASSETS For the years ended December 31 At December 31 At December 31 ---------------------------------- ----------------------------- --------------------------- (In millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ United States $ 13,293 $ 11,287 $ 9,939 $264,129 $227,311 $206,655 $21,612 $18,048 $17,074 Europe 1,884 2,393 2,271 83,358 84,518 66,740 6,101 6,334 5,180 Pacific Basin 1,089 431 355 28,214 18,427 8,881 2,017 1,326 971 Other 953 810 713 29,687 25,878 21,926 11,329 10,057 9,119 Intercompany eliminations 11 (9) (23) (188) (199) (190) (37) (35) (28) ---------------------------------- ----------------------------- --------------------------- Total $ 17,230 $ 14,912 $ 13,255 $405,200 $355,935 $304,012 $41,022 $35,730 $32,316 ============================================================================================================================== Includes $944 million in 1997 from an appliance distribution affiliate that was deconsolidated in 1998. Includes the Americas other than the United States and operations that cannot meaningfully be associated with specific geographic areas (for example, shipping containers used on ocean-going vessels). Excludes GECS income taxes of $1,653 million, $1,364 million and $1,166 million in 1999, 1998 and 1997, respectively, which are included in the measure of segment profit reported on page 44. Property, plant and equipment (including equipment leased to others). - ------------------------------------------------------------------------------------------------------------------------------
30 ADDITIONAL INFORMATION ABOUT FINANCIAL INSTRUMENTS This note contains estimated fair values of certain financial instruments to which GE and GECS are parties. Apart from borrowings by GE and GECS and certain marketable securities, relatively few of these instruments are actively traded. Thus, fair values must often be determined by using one or more models that indicate value based on estimates of quantifiable characteristics as of a particular date. Because this undertaking is, by its nature, difficult and highly judgmental, for a limited number of instruments, alternative valuation techniques may have produced disclosed values different from those that could have been realized at December 31, 1999 or 1998. Assets and liabilities that, as a matter of accounting policy, are reflected in the accompanying financial statements at fair value are not included in the following disclosures; such items include cash and equivalents, investment securities and separate accounts. A description of how values are estimated follows. BORROWINGS. Based on quoted market prices or market comparables. Fair values of interest rate and currency swaps on borrowings are based on quoted market prices and include the effects of counterparty creditworthiness. TIME SALES AND LOANS. Based on quoted market prices, recent transactions and/or discounted future cash flows, using rates at which similar loans would have been made to similar borrowers. INVESTMENT CONTRACT BENEFITS. Based on expected future cash flows, discounted at currently offered discount rates for immediate annuity contracts or cash surrender values for single premium deferred annuities. FINANCIAL GUARANTEES AND CREDIT LIFE. Based on future cash flows, considering expected renewal premiums, claims, refunds and servicing costs, discounted at a market rate. ALL OTHER INSTRUMENTS. Based on comparable transactions, market comparables, discounted future cash flows, quoted market prices, and/or estimates of the cost to terminate or otherwise settle obligations to counterparties. PAGE F-43 ANNUAL REPORT PAGE 75
- --------------------------------------------------------------------------------------------------------------------------------- FINANCIAL INSTRUMENTS 1999 1998 -------------------------------------- --------------------------------------- Assets (liabilities) Assets (liabilities) ----------------------------- ----------------------------- Carrying Estimated fair value Carrying Estimated fair value Notional amount -------------------- Notional amount ------------------- December 31 (In millions) amount (net) High Low amount (net) High Low - --------------------------------------------------------------------------------------------------------------------------------- GE Investment related Investments and notes receivable $ $ 1,700 $ 1,739 $ 1,684 $ $ 1,764 $ 1,810 $ 1,793 Cancelable interest rate swap 1,046 11 22 22 1,221 17 1 1 Borrowings and related instruments Borrowings (2,967) (2,966) (2,966) (4,147) (4,155) (4,155) Interest rate swaps 1,408 -- 30 30 951 -- (60) (60) Currency swaps 879 -- (17) (17) 1,046 -- 1 1 Recourse obligations for receivables sold 555 (36) (36) (36) 607 (38) (38) (38) Financial guarantees 2,710 -- -- -- 2,172 -- -- -- Other firm commitments Forwards and options 6,764 16 (30) (30) 6,868 72 113 113 Financing commitments 1,858 -- -- -- 1,519 -- -- -- GECS Assets Time sales and loans 90,427 90,313 88,813 74,616 75,474 74,293 Integrated interest rate swaps 15,933 18 59 59 14,135 16 (102) (102) Purchased options 8,949 60 174 174 11,195 146 158 158 Mortgage-related positions Mortgage purchase commitments 669 -- -- -- 1,983 -- 15 15 Mortgage sale commitments 1,452 -- 4 4 3,276 -- (9) (9) Mortgages held for sale 2,522 2,516 2,488 4,405 4,457 4,457 Options, including "floors" 23,929 76 56 56 21,433 91 181 181 Interest rate swaps and futures 4,054 -- (67) (67) 6,662 -- 49 49 Other financial instruments 4,478 4,558 4,528 3,205 3,433 3,231 Liabilities Borrowings and related instruments Borrowings (200,025) (198,798) (198,798) (172,200) (174,492) (174,492) Interest rate swaps 56,339 -- (99) (99) 46,325 -- (1,449) (1,449) Currency swaps 22,744 -- (1,425) (1,425) 29,645 -- 252 252 Currency forwards 26,806 -- (459) (459) 23,409 -- (389) (389) Investment contract benefits (24,943) (24,420) (24,420) (23,893) (23,799) (23,799) Insurance--financial guarantees and credit life 226,073 (2,757) (2,797) (2,909) 208,774 (3,135) (3,339) (3,446) Credit and liquidity support -- securitizations 34,389 (144) (144) (144) 21,703 (29) (29) (29) Performance guarantees -- principally letters of credit 3,472 (56) (56) (56) 2,684 -- -- -- Other financial instruments 2,545 (1,473) (1,444) (1,444) 2,888 (1,921) (1,190) (1,190) Other firm commitments Currency forwards 3,778 (14) (41) (41) 5,072 -- (52) (52) Currency swaps 767 238 200 200 915 72 72 72 Ordinary course of business lending commitments 7,822 -- -- -- 9,839 -- (12) (12) Unused revolving credit lines Commercial 11,440 -- -- -- 6,401 -- -- -- Consumer -- principally credit cards 151,651 -- -- -- 132,475 -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Not applicable. Includes effects of interest rate and currency swaps, which also are listed separately. See note 19. - ---------------------------------------------------------------------------------------------------------------------------------
Additional information about certain financial instruments in the table above follows. CURRENCY FORWARDS AND OPTIONS are employed by GE and GECS to manage exposures to changes in currency exchange rates associated with commercial purchase and sale transactions and by GECS to optimize borrowing costs as discussed in note 19. These financial instruments generally are used to fix the local currency cost of purchased goods or services or selling prices denominated in currencies other than the functional currency. Currency exposures that result from net investments in affiliates are managed principally by funding assets denominated in local currency with debt denominated in those same currencies. In certain circumstances, net investment exposures are managed using currency forwards and currency swaps. PAGE F-44 ANNUAL REPORT PAGE 76 OPTIONS AND INSTRUMENTS CONTAINING OPTION FEATURES that behave based on limits ("caps," "floors" or "collars") on interest rate movement are used primarily to hedge prepayment risk in certain GECS business activities, such as mortgage servicing and annuities. SWAPS OF INTEREST RATES AND CURRENCIES are used by GE and GECS to optimize funding costs for a particular funding strategy (see note 19). A cancelable interest rate swap was used by GE to hedge an investment position. Interest rate and currency swaps, along with purchased options and futures, are used by GECS to establish specific hedges of mortgage-related assets and to manage net investment exposures. Credit risk of these positions is evaluated by management under the credit criteria discussed below. As part of its ongoing customer activities, GECS also enters into swaps that are integrated into investments in or loans to particular customers and do not involve assumption of third-party credit risk. Such integrated swaps are evaluated and monitored like their associated investments or loans and are not therefore subject to the same credit criteria that would apply to a stand-alone position. COUNTERPARTY CREDIT RISK -- risk that counterparties will be financially unable to make payments according to the terms of the agreements -- is the principal risk associated with swaps, purchased options and forwards. Gross market value of probable future receipts is one way to measure this risk, but is meaningful only in the context of net credit exposure to individual counter-parties. At December 31, 1999 and 1998, this gross market risk amounted to $2.0 billion and $2.3 billion, respectively. Aggregate fair values that represent associated probable future obligations, normally associated with a right of offset against probable future receipts, amounted to $3.6 billion at both year-end 1999 and 1998. Except as noted above for positions that are integrated into financings, all swaps, purchased options and forwards are carried out within the following credit policy constraints. * Once a counterparty exceeds credit exposure limits (see table below), no additional transactions are permitted until the exposure with that counterparty is reduced to an amount that is within the established limit. Open contracts remain in force. - -------------------------------------------------------------- COUNTERPARTY CREDIT CRITERIA ---------------------------- Credit rating ---------------------------- Moody's Standard & Poor's - -------------------------------------------------------------- Term of transaction Between one and five years Aa3 AA- Greater than five years Aaa AAA Credit exposure limits Up to $50 million Aa3 AA- Up to $75 million Aaa AAA - -------------------------------------------------------------- * All swaps are executed under master swap agreements containing mutual credit downgrade provisions that provide the ability to require assignment or termination in the event either party is downgraded below A3 or A-. More credit latitude is permitted for transactions having original maturities shorter than one year because of their lower risk. 31 QUARTERLY INFORMATION (UNAUDITED)
First quarter Second quarter Third quarter Fourth quarter ----------------- ----------------- ----------------- ----------------- (Dollar amounts in millions; per-share amounts in dollars) 1999 1998 1999 1998 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATIONS Net earnings $ 2,155 $ 1,891 $ 2,820 $ 2,450 $ 2,653 $ 2,284 $ 3,089 $ 2,671 Earnings per share -- diluted 0.65 0.57 0.85 0.74 0.80 0.69 0.93 0.80 -- basic 0.66 0.58 0.86 0.75 0.81 0.70 0.94 0.82 SELECTED DATA GE Sales of goods and services 11,796 11,408 13,966 13,217 13,228 12,075 16,655 14,846 Gross profit from sales 3,667 3,366 4,545 4,216 4,091 3,630 5,043 4,598 GECS Total revenues 12,383 11,151 13,378 11,801 14,002 12,016 15,986 13,726 Operating profit 1,400 1,252 1,461 1,219 1,745 1,584 1,490 1,105 Net earnings 1,032 881 1,092 933 1,262 1,082 1,057 900 - --------------------------------------------------------------------------------------------------------------
For GE, gross profit from sales is sales of goods and services less costs of goods and services sold. For GECS, operating profit is "Earnings before income taxes." Earnings-per-share amounts for each quarter are required to be computed independently. As a result, their sum does not equal the total year earnings-per-share amounts for diluted earnings per share in 1999 and basic earnings per share in 1998. EX-4.G 3 AGREEMENT TO FURNISH COPIES OF INSTRUMENTS TO SEC Exhibit 4 (g) March 14, 2000 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, 1999 - 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 or filed with the Commission and under which the total amount of securities authorized exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. In accordance with paragraph (b) (4) (iii) of Item 601 of Regulation S-K (17 CFR ss.229.601), the Corporation hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument which defines the rights of holders of such long-term debt. Very truly yours, GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ J.A. Parke J.A. Parke, Executive Vice President and Chief Financial Officer EX-12.A 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 (a)
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Computation of Ratio of Earnings to Fixed Charges Years ended December 31 ------------------------------------------------------------------ (Dollars in millions) 1999 1998 1997 1996 1995 ------------- ------------ ----------- -------------- ------------ Net earnings .................................... $ 4,208 $ 3,374 $ 2,729 $ 2,632 $ 2,261 Provision for income taxes ...................... 1,553 1,185 997 1,172 1,071 Minority interest ............................... 68 49 40 86 81 ------------- ------------ ----------- -------------- ------------ Earnings before income taxes and minority interest ....................................... 5,829 4,608 3,766 3,890 3,413 ------------- ------------ -------------------------- ------------ Fixed charges: Interest ....................................... 9,183 8,772 7,440 7,114 6,520 One-third of rentals ........................... 345 289 240 177 170 ------------- ------------ -------------------------- ------------ Total fixed charges ............................. 9,528 9,061 7,680 7,291 6,690 ------------- ------------ -------------------------- ------------ Less interest capitalized, net of amortization .. (87) (88) (52) (41) (21) ------------- ------------ -------------------------- ------------ Earnings before income taxes and minority interest plus fixed charges .................... $ 15,270 $ 13,581 $ 11,394 $ 11,140 $ 10,082 ============= ============ ========================== ============ Ratio of earnings to fixed charges .............. 1.60 1.50 1.48 1.53 1.51 ============= ============ ========================== ============
EX-12.B 5 COMPUTATION OF RATIO OF EARNINGS TO CFC AND PSD Exhibit 12 (b)
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Years ended December 31 ----------------------------------------------------------------- (Dollars in millions) 1999 1998 1997 1996 1995 ------------ ----------- ------------ ------------ ----------- Net earnings .................................... $ 4,208 $ 3,374 $ 2,729 $ 2,632 $ 2,261 Provision for income taxes ...................... 1,553 1,185 997 1,172 1,071 Minority interest ............................... 68 49 40 86 81 ------------ ----------- ------------ ------------ ----------- Earnings before income taxes and minority interest ....................................... 5,829 4,608 3,766 3,890 3,413 ------------ ----------- ------------ ------------ ----------- Fixed charges: Interest ...................................... 9,183 8,772 7,440 7,114 6,520 One-third of rentals .......................... 345 289 240 177 170 ------------ ----------- ------------ ------------ ----------- Total fixed charges ............................. 9,528 9,061 7,680 7,291 6,690 Less interest capitalized, net of amortization .. (87) (88) (52) (41) (21) ------------ ----------- ------------ ------------ ----------- Earnings before income taxes and minority interest plus fixed charges .................... $ 15,270 $ 13,581 $ 11,394 $ 11,140 $ 10,082 ============ =========== ============ ============ =========== Preferred stock dividend requirements ........... $ 115 $ 97 $ 78 $ 76 $ 57 Ratio of earnings before provision for income taxes to net earnings .......................... 1.37 1.35 1.37 1.45 1.47 ------------ ----------- ------------ ------------ ----------- Preferred stock dividend factor on pre-tax basis 157 131 107 110 84 Fixed charges ................................... 9,528 9,061 7,680 7,291 6,690 ------------ ----------- ------------ ------------ ----------- Total fixed charges and preferred stock dividend requirements ................................... $ 9,685 $ 9,192 $ 7,787 $ 7,401 $ 6,774 ============ =========== ============ ============ =========== Ratio of earnings to combined fixed charges and preferred stock dividends ...................... 1.58 1.48 1.46 1.51 1.49 ============ =========== ============ ============ ===========
EX-23.II 6 CONSENT OF KPMG 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, 333-22265, 333-59977, 333-76479 and 333-87367) 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 4, 2000, relating to the statement of financial position of General Electric Capital Corporation and consolidated affiliates as of December 31, 1999 and 1998, and the related statements of earnings, changes in share owners' equity and cash flows for each of the years in the three-year period ended December 31, 1999, and the related schedule, which report appears in the December 31, 1999 annual report on Form 10-K of General Electric Capital Corporation. /s/ KPMG LLP Stamford, Connecticut March 14, 2000 EX-24 7 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being directors and/or officers of General Electric Capital Corporation, a New York corporation (the "Corporation"), hereby constitutes and appoints Denis J. Nayden, James A. Parke, Joan C. Amble and Nancy E. Barton, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, to sign one or more Annual Reports for the Corporation's fiscal year ended December 31, 1999, on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as such attorney-in-fact may deem necessary or desirable, any amendments thereto, and all additional amendments thereto in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done to the end that such Annual Report or Annual Reports shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations of the Securities and Exchange Commission adopted or issued pursuant thereto, as fully and to all intents and purposes as he might or could in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or resubstitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this 14th day of March, 2000. /s/ Denis J. Nayden /s/ James A. Parke - ----------------------------- ---------------------------- Denis J. Nayden, James A. Parke, Director, President and Director, Executive Vice President and Chief Executive Officer Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer) /s/ Joan C. Amble ----------------- Joan C. Amble, Vice President and Controller (Principal Accounting Officer) (Page 1 of 2) /s/ Robert L. Nardelli - ------------------------------------- ---------------------------------- Nigel D.T. Andrews, Robert L. Nardelli, Director Director /s/ Nancy E. Barton - ------------------------------------- ---------------------------------- Nancy E. Barton, Michael A. Neal, Director Director /s/ James R. Bunt /s/ Gary M. Reiner - ------------------------------------- ---------------------------------- James R. Bunt, Gary M. Reiner, Director Director /s/ David L. Calhoun /s/ John M. Samuels - ------------------------------------- ---------------------------------- David L. Calhoun, John M. Samuels, Director Director /s/ Dennis D. Dammerman /s/ Keith S. Sherin - ------------------------------------- ---------------------------------- Dennis D. Dammerman, Keith S. Sherin, Director Director - ------------------------------------- ---------------------------------- Benjamin W. Heineman, Jr., Edward D. Stewart, Director Director /s/ Jeffrey R. Immelt /s/ John F. Welch, Jr. - ------------------------------------- ---------------------------------- Jeffrey R. Immelt, John F. Welch, Jr., Director Director /s/ W. James McNerney, Jr. - ------------------------------------- ---------------------------------- W. James McNerney, Jr., William A. Woodburn, Director Director /s/ John H. Myers - ------------------------------------- John H. Myers, Director A MAJORITY OF THE BOARD OF DIRECTORS (Page 2 of 2) EX-27 8 FDS --
5 This schedule contains summary financial information extracted from the consolidated financial statement for the period ended Decembe 31, 1999, and is qualified in its entirety by reference to such financial statements. 0000040554 General Electric Capital Corporation 1,000,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 6,505 59,173 139,145 3,708 1,209 0 37,756 9,425 307,441 0 68,862 0 3 768 21,975 307,441 8,740 46,605 7,976 0 13,493 1,662 8,936 5,761 1,533 4,208 0 0 0 4,208 0 0
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