-----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, PTVYelbo4oaSHFH+tqMx9f4p7OQRf1Z6GcTBEbEFZ70fRYmlX6MzBfRzLPycFQHy 9BBgLDBN2PXEHJv2/tq1pw== 0000040554-01-500010.txt : 20010326 0000040554-01-500010.hdr.sgml : 20010326 ACCESSION NUMBER: 0000040554-01-500010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010323 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-K SEC ACT: SEC FILE NUMBER: 333-22265 FILM NUMBER: 1577886 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-K 1 gecc10kasc.txt GECC 10K YEAR ENDED 12/31/00 4 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, 2000 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ ---------------- Commission file number 1-6461 ---------------- General Electric Capital Corporation (Exact name of registrant as specified in its charter)
New York 13-1500700 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 260 Long Ridge Road, Stamford, Connecticut 06927 (203) 357-4000 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code)
---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each Title of each class exchange on which registered 7 7/8% Guaranteed Subordinated 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 23, 2001, 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 23, 2001. 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, 2000 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 ................................................................................ 12 Item 3. Legal Proceedings ......................................................................... 12 Item 4. Submission of Matters to a Vote of Security Holders ....................................... 12 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ................. 13 Item 6. Selected Financial Data ................................................................... 13 Item 7. Management's Discussion and Analysis of Results of Operations ............................. 13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................ 21 Item 8. Financial Statements and Supplementary Data ............................................... 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...... 43 PART III Item 10. Directors and Executive Officers of the Registrant ........................................ 44 Item 11. Executive Compensation .................................................................... 44 Item 12. Security Ownership of Certain Beneficial Owners and Management ............................ 44 Item 13. Certain Relationships and Related Transactions ............................................ 44 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......................... 45
PART I Item 1. Business GENERAL General Electric Capital Corporation (herein, together with its consolidated affiliates, called "the Corporation" or "GE Capital" unless the context otherwise requires) was incorporated in 1943 in the State of New York under the provisions of the New York Banking Law relating to investment companies, as successor to General Electric Contracts Corporation, which was formed in 1932. Until November 1987, the name of the Corporation was General Electric Credit Corporation. On May 25, 2000, GE Capital's Board of Directors adopted resolutions approving the reincorporation and change of domicile of GE Capital from New York to Delaware. This reincorporation is expected to occur in the first half of 2001. 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. 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, 2000, the Corporation employed approximately 90,200 persons. The Corporation's principal assets are classified as time sales and loans, investment in financing leases, equipment on operating leases and investment securities. The following table presents, by operating segment, these principal financing products which, together with other assets, constitute the Corporation's total assets at December 31, 2000 and 1999. GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES FINANCIAL INFORMATION BY OPERATING SEGMENT
(In millions) 2000 --------- ---------- --------- ---------- --------- ---------- 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 ........... $ - $ - $ - $ 55,532 $ 39,625 $ 95,157 Auto Financial Services .......... 1,639 4,353 412 155 431 6,990 GE Card Services ................. 13,110 1 - 412 6,148 19,671 Global Consumer Finance .......... 25,562 4,390 10 183 4,896 35,041 Mortgage Services ................ - - - - - - Other ............................ 1,673 252 15 321 499 2,760 --------- ---------- --------- ---------- --------- ---------- Total ......................... 41,984 8,996 437 56,603 51,599 159,619 EQUIPMENT MANAGEMENT Aviation Services ................ 1,223 4,636 9,403 242 2,425 17,929 Fleet Services ................... 96 4,201 2,132 15 2,010 8,454 Information Technology Solutions . - 170 29 1 3,195 3,395 Transport International Pool ..... 53 331 5,086 - 1,737 7,207 GE SeaCo/GE Capital Container Finance Corporation ........... 13 197 1,186 24 172 1,592 Penske Truck Leasing ............. - - - - 4,206 4,206 GE American Communications........ - - - - 2,268 2,268 Railcar Services ................. - 505 2,359 - 166 3,030 --------- ---------- --------- ---------- --------- ---------- Total ......................... 1,385 10,040 20,195 282 16,179 48,081 MID-MARKET FINANCING Commercial Equipment Financing ... 16,440 14,468 2,722 91 1,747 35,468 Vendor Financial Services ........ 4,246 6,191 569 20 2,245 13,271 European Equipment Finance ....... 693 5,372 114 - 592 6,771 Other ............................ 127 - - - 47 174 --------- ---------- --------- ---------- --------- ---------- Total ......................... 21,506 26,031 3,405 111 4,631 55,684 SPECIALIZED FINANCING Real Estate ...................... 11,269 994 2 434 7,320 20,019 Structured Finance Group ......... 3,185 4,848 168 1,439 2,417 12,057 Commercial Finance ............... 13,234 - - 136 2,241 15,611 GE Equity ........................ 49 - - 355 4,178 4,582 Other ............................ - - - 238 21 259 --------- ---------- --------- ---------- --------- ---------- Total ......................... 27,737 5,842 170 2,602 16,177 52,528 SPECIALTY INSURANCE .............. 90 - - 9,549 4,058 13,697 ALL OTHER ........................ 838 21 (62) 1,135 1,095 3,027 --------- ---------- --------- ---------- --------- ---------- TOTAL ............................ $ 93,540 $ 50,930 $ 24,145 $ 70,282 $ 93,739 $ 332,636 ========= ========== ========= ========== ========= ==========
(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 ........... $ - $ - $ - $ 43,000 $ 30,590 $ 73,590 Auto Financial Services .......... 2,347 7,090 1,011 96 595 11,139 GE Card Services ................. 12,189 2 - 380 4,958 17,529 Global Consumer Finance .......... 27,414 3,888 85 220 6,267 37,874 Mortgage Services ................ 98 - - 606 4,201 4,905 Other ............................ 1,118 183 7 322 788 2,418 --------- ---------- --------- ---------- --------- ---------- Total ......................... 43,166 11,163 1,103 44,624 47,399 147,455 EQUIPMENT MANAGEMENT Aviation Services ................ 655 3,583 7,534 101 1,407 13,280 Fleet Services ................... 198 3,413 2,880 25 1,921 8,437 Information Technology Solutions . - 213 17 34 3,384 3,648 Transport International Pool ..... 57 184 4,989 - 1,873 7,103 GE SeaCo/GE Capital Container Finance Corporation ........... 14 210 1,374 26 188 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 --------- ---------- --------- ---------- --------- ---------- Total ......................... 978 8,058 19,149 216 14,740 43,141 MID-MARKET FINANCING Commercial Equipment Financing ... 14,180 12,257 2,473 225 2,544 31,679 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 ............................ 110 - - - 53 163 --------- ---------- --------- ---------- --------- ---------- Total ......................... 18,422 22,583 3,079 273 5,324 49,681 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 - - 8,547 1,607 10,182 ALL OTHER ........................ 1,183 11 (115) 2,112 6,790 9,981 --------- ---------- --------- ---------- --------- ---------- TOTAL ............................ $ 87,896 $ 47,764 $ 23,603 $ 59,173 $89,005 $ 307,441 ========= ========== ========= ========== ========= ==========
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 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; and private mortgage insurance. Refer to Item 7, "Management's Discussion and Analysis of Results of Operations," in this Annual Report on Form 10-K for a 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, payment protection insurance and income protection packages, primarily in North America, Europe and Asia. 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 affiliates. GEFA's principal product lines in North America and Asia are annuities (deferred and immediate, fixed and variable), life insurance (universal, term, ordinary and group), guaranteed investment contracts including funding agreements, mutual funds, long-term care insurance, supplemental accident and health insurance, personal lines of automobile insurance and consumer club memberships. GEFA's principal product lines and services in Europe are payment protection insurance (designed to protect customers' loan repayment obligations), personal investment products, and travel and personal accident insurance, as well as management of uninsured loss claims on behalf of victims of traffic accidents. GEFA's product distribution in North America, Europe and Asia are accomplished primarily through four channels: intermediaries (brokerage general agents, banks and securities brokerage firms), dedicated sales forces, financial advisors, and affinity based marketing (through electronic-commerce, telemarketing, and direct mail). GEFA's principal operating affiliates include General Electric Capital Assurance Company, First Colony Life Insurance Company, Federal Home 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, GE Insurance Holdings Limited and GE Life Group Limited. Effective March 1, 2000, GE Edison Life Insurance Company ("GE Edison"), a subsidiary of GEFA, acquired the insurance policies and related assets of Toho Mutual Life Insurance Company by a comprehensive transfer. Total cash, investment securities and other tangible assets acquired by GE Edison was $20.3 billion, and restructured insurance contracts and other liabilities assumed were $21.9 billion. On April 3, 2000, GEFA acquired Phoenix American Life Insurance Company, a subsidiary of Phoenix Home Life Mutual Insurance Company, for approximately $281 million. Phoenix American Life Insurance Company, based in Hartford, Connecticut, serves the needs of small business owners by offering a broad range of products including dental, disability, and life insurance. Effective July 1, 2000, GEFA acquired 90% of the long-term care insurance portfolio of Citigroup's Travelers Life & Annuity unit and certain assets related thereto for $411 million. In addition, GEFA and certain Citigroup companies entered into agreements to underwrite and distribute long term care insurance through a long-term strategic alliance. Under this agreement, GEFA will market to the distribution channels of Citigroup, including Travelers. GEFA recognizes that consolidation in the financial services industry will create fewer but larger competitors. GEFA's ability to effectively compete will be dependent upon, among other things, its ability to reduce its expenses through the elimination of duplicate functions and the use of enhanced technology and its ability to bring together its recent acquisitions into compliant, integrated platforms with common information systems. GEFA has worked, and will continue to work, to promptly integrate its recent acquisitions, many of which have enhanced existing distribution channels or added new ones. GEFA operates in a highly competitive environment. While GEFA believes it has assembled a strong collection of products and distribution channels, there are competitors that have also assembled a similar array of financial products and have similar strategic goals. GEFA believes that the principal competitive factors in the sale of insurance and investment products are product features, commission structure, perceived stability of the insurer, claims paying ability ratings, service, name recognition and price. Many other companies are capable of competing for sales in GEFA's target markets. GEFA's ability to compete is affected in part by its ability to provide competitive products and quality service to the consumer, general agents, licensed insurance agents and brokers. GEFA's competition from banks and other financial institutions may increase as a result of recent federal legislation. The Gramm-Leach-Bliley Act (the Act), enacted on November 12, 1999, will allow bank holding companies to acquire insurance companies, and insurance holding companies to acquire banks. Although the effect of the Act on the industry is uncertain, the ability to retain its customers and to sell products could be materially affected in the future. Many of GEFA's activities are subject to regulation by a variety of regulatory agencies. GEFA headquarters are in Richmond, Virginia. Auto Financial Services GE Capital Auto Financial Services ("AFS") provided financial services in North America to automobile dealers, manufacturers, banks, financing companies and the consumer customers of those entities, both through traditional channels and through the Internet. In the United States, AFS was a leading independent provider of leases for new and used motor vehicles and of non-prime financing products. In addition, AFS offered inventory financing programs, off-lease vehicle sales, productivity enhancing internet solutions, and direct loans to the industry. On November 29, 2000, AFS announced its decision to discontinue originating new lease, loan and commercial transactions effective December 1, 2000. As a result of this announcement, AFS future operations will consist of servicing their existing portfolios and re-marketing off-lease vehicles. AFS headquarters are in Barrington, Illinois. 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. 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 financed and retailers are obliged to maintain insurance coverage for the merchandise financed. Additionally, CS 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. CS competes in the unsecured consumer lending market, doing business principally in the United States and Canada. CS' operations are subject to a variety of bank and consumer protection regulations. The unsecured consumer lending market's principal methods of competition are price, servicing capability including internet value added e-services and risk management capability. The unsecured consumer lending market is subject to various risks including declining retail sales, increases in personal bankruptcy filings, increasing payment delinquencies and rising interest rates. 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, auto loans and finance leases, bankcards and credit insurance. GCF provides financing to consumers through operations in Argentina, Australia, Austria, Brazil, China, the Czech Republic, Denmark, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Norway, Poland, Portugal, Republic of Ireland, Spain, Sweden, Switzerland, Thailand, and the United Kingdom. GCF's operations are subject to a variety of bank and consumer protection regulations in their respective jurisdictions and a number of countries have ceilings on rates chargeable to consumers in financial service transactions. The businesses in which GCF engages are subject to competition from various types of financial institutions including commercial banks, leasing companies, consumer loan companies, independent finance companies, manufacturers' captive finance companies, and insurance companies. GCF headquarters are in Stamford, Connecticut. Mortgage Services GE Capital Mortgage Services, Inc. ("Mortgage Services") 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. Mortgage Services obtained servicing through the origination and purchase of mortgage loans and servicing rights, and primarily packaged the loans it originated and purchased into mortgage-backed securities which it sold to investors. Mortgage Services also originated and serviced home equity loans. On September 29, 2000, Mortgage Services closed on a transaction with a major mortgage company, which is owned by a major national bank holding company, to subservice Mortgage Services' mortgage servicing portfolio and to acquire Mortgage Services' servicing facility and mortgage origination business. Mortgage Services retains its financial interest in the servicing portfolio and the related assets, which are now being managed by Mortgage Insurance. As a result of this transaction, Mortgage Services will be exiting the business of originating, purchasing and selling of residential mortgage loans. Mortgage Services headquarters are in Cherry Hill, New Jersey. 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, aircraft operators, owners, lenders and investors. Financial products include operating leases, sale/leasebacks, aircraft purchasing and trading, financing leases, engine/spare parts financing, pilot training, fleet planning and financial advisory services. GECAS owns or manages a fleet of over 1,000 aircraft world-wide with additional planes on order or on option from Boeing, Airbus, Fairchild Dornier, Embraer and Bombardier. GECAS has 173 customers in 60 countries. GECAS operates in a highly competitive area serving a cyclical industry that has seen a consolidation of its current and potential customer base. The business could also be affected by regulatory changes that, if enacted, would reduce the permissible noise levels emitted from commercial aircraft and affect values of certain aircraft. GECAS headquarters are in Stamford, Connecticut, with regional offices in Shannon, Republic of Ireland; New York, New York; Miami, Florida; Vienna, Austria; Luxembourg; Beijing and Hong Kong, China; Tokyo, Japan; and Singapore. Fleet Services GE Capital Fleet Services ("Fleet") is one of the leading corporate fleet management companies with operations in North America, Europe, Australia, New Zealand and Japan and approximately 1.2 million cars and trucks under lease and service management. Fleet 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 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 Fleet assumes residual risk. In addition to the services directly associated with the lease, Fleet 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. Fleet's customer base is diversified with respect to industry and geography and includes many Fortune 500 companies. Fleet competes both on a local and global basis with other leasing businesses of various sizes as well as automobile manufacturers. The industry is dependent upon the attractiveness of leasing and fleet management as a viable alternative for customers, along with the stability of new and used car prices in certain markets. Future success will depend upon the ability to maintain a large and diverse customer portfolio, to estimate used car prices as well as mitigate the impact of fluctuations in those prices, and to continue to understand and deliver unique product and service offerings to the customers in the most efficient and cost effective manner possible. Fleet 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 13 countries. The worldwide competition in information technology products and services is intense. Competition is very active in all products and services and comes from a number of principal manufacturers and other distributors and resellers of information technology products. Markets for products and services are highly price competitive. Additionally, many information technology product manufacturers are bypassing traditional information technology resellers in favor of direct manufacturer relationships with the ultimate end-users. IT Solutions' North American headquarters are in Newport, Kentucky; its European headquarters are in Munich, Germany. Transport International Pool/Modular Space In April, 1999, Transport International Pool and GE Capital Modular Space were consolidated to generate cost savings and management synergies. This merger has resulted in the elimination of duplicate support functions and the integration of back offices. 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's competitive environment is made up of a few large national competitors and many smaller, often changing regional players. TIP is a major participant in the transportation renting, leasing, selling and financing market. The industry is characterized by thin operating margins and continued consolidation of companies, with their volume driven by the gross domestic product and their costs affected by fuel prices and driver labor. The ability to remain competitive will require the continued expansion of value-added services around the core business of renting, leasing and financing transportation equipment. GE Capital Modular Space ("Modular Space") 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. Modular Space products are available as custom mobile and modular buildings, designed to customer specifications, or are available through the Modular Space stock fleet of approximately 125,000 mobile and modular units. Competition consists primarily of national modular companies and regional/local competitors who provide services in selected territories. Modular Space also competes with construction companies on permanent structure opportunities. Competitive factors for rental and lease customers include price, condition and availability of local fleet. Factors for custom and fleet sales opportunities include price, alternative solutions, and delivery. TIP/Modular Space have offices in North America and Europe. The world headquarters for TIP/Modular Space are in Devon, Pennsylvania. Modular Space's European headquarters are in Awtwerp, Belgium. TIP operates a European service center in Amsterdam, The Netherlands, and a commercial vehicle operation and administrative center in Manchester, England. 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 Ltd. GE SeaCo is one of the world's largest lessors of marine shipping containers with a combined fleet of over 1,100,000 twenty foot equivalent units of dry cargo, refrigerated and specialized containers for global cargo transport. Lessees are primarily shipping lines that lease on a long term or master lease basis. Concurrent with the formation of the joint venture, GE Capital Container Finance Corporation ("Container Finance") 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. The marine container leasing industry continues to be cyclical due to periods of excess capacity and changes in trade volumes. Further risk is attributable to the lessees, which are the major steamship lines and which exhibit cyclical results and generally weak financial condition, exposing GE SeaCo/Container Finance to customer credit risk. GE SeaCo is subject to asset value compression resulting from declining new container prices and positioning risk attributed to the increased use of one-way leases. Container Finance competes directly with financial institutions that may lend at lower rates and more advantageous terms. Finance leases are on a fixed rate basis thus exposing Container Finance to interest rate risk. All of Container Finance's finance lease customers are located outside of the United States and are exposed to risk associated with trade flow changes, foreign exchange, political risk, and industry structural changes. GE SeaCo headquarters are in Bridgetown, Barbados. Container Finance 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, 2000, Penske had a fleet of about 103,000 tractors, trucks and trailers in its leasing and rental fleets and provided contract maintenance programs or other support services for about 42,000 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 competes with several other companies conducting nationwide truck leasing and rental operations, a large number of regional truck leasing companies, many similar companies operating primarily on a local basis and both local and nationwide common and contract carriers. On a nationwide basis, Penske offers full-service truck leasing, commercial rental and logistics services. In its leasing and support services, Penske competes primarily on the basis of customer service. Geographic location, price and equipment availability are also important competitive factors in this business. In its consumer rental operations, Penske competes primarily on the basis of equipment availability, price, geographic location and customer service. 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, as well as broadcast radio. It is also a leading supplier of integrated communications services for government and commercial customers. GE Americom operates 14 communications satellites and maintains a supporting network of earth stations, central terminal offices, and telemetry, tracking and control facilities. Through a recent acquisition and the successful launch of the GE-1A satellite through its joint venture, Americom Asia-Pacific LLC, GE Americom's satellite fleet will be globally connected to deliver service in the Americas, Europe and Asia-Pacific. As a provider of global satellite services, GE Americom is subject to the regulatory authority of the United States (notably, the Federal Communications Commission), the regulatory authority of other countries in which GE Americom operates, and the frequency coordination process of the International Telecommunications Union. As a result, the ability to provide services in a particular country could be affected by new or changing laws, regulations, and policies implemented by such regulatory authorities. GE Americom headquarters are in Princeton, New Jersey. Rail Services GE Capital Rail 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 and 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. Traditional competitors include railroads, stand-alone leasing companies and other owners of railcar fleets, diversified financial institutions, and railcar builders. Customers who lease railcars also have the choice of purchasing them, either outright or through a financed sale. Certain segments of the North American railcar leasing industry continue to be affected by an oversupply of cars. Ongoing technology changes in car design and capacity are also impacting car supply. In Europe, liberalization and privatization of national railroads continue to significantly impact the rail industry. In addition, on both continents, changes in supply and demand for commodities shipped by rail also impact the demand for cars. In that regard, the trucking industries on both continents continue to make inroads into traditional haulage by rail. The interaction and timing of these forces across the portfolio of cars can impact the profitability of GERSCO. The ability to remain competitive will require the commitment to constant productivity gains and improvement in its breadth and quality of service through the implementation of technology and process improvements. European sales offices are in England, France, Germany, Italy and Sweden. GERSCO headquarters are in Chicago, Illinois. 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 and facilities 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. The global equipment financing industry continues to be highly fragmented and intensely competitive. Competitors in the U.S. domestic and international markets include independent financing companies, financing subsidiaries of equipment manufacturers, and banks (national, regional, and local). Industry participants compete not only on the basis of interest rates and fees charged customers but also on deal structures and credit terms. CEF's profitability is affected not only by broad economic conditions that impact customer credit quality and the availability and cost of capital, but also by successful management of credit risk, operating risk and such market risks as interest rate risk, foreign exchange risk and liquidity risk. Important factors to continued success include maintaining strong risk management systems, diverse product, service and distribution channels, strong collateral and asset management knowledge, deal structuring expertise, as well as, reducing costs by improving productivity through enhanced use of technology. CEF operates from offices throughout the Americas, Europe, Asia and Australia and through joint ventures in Indonesia and China. CEF headquarters are in Danbury, Connecticut. 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 non-U.S. 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 captive partnerships from manufacturers that do (captive partnerships provide sales financing solely for products of a given manufacturer). 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 services. An economic slowdown would impact the continued expansion of the equipment financing industry, intensifying a competitive pricing environment and pressuring delinquencies and residual realization. The ability to remain competitive will depend upon, among other things, the ability to drive down costs through the significant investment in productivity initiatives and the ability to continue to effectively manage its spread of risk in industry sectors and equipment categories in conjunction with vendor partners. 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 and 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 is subject to competition from various types of financial institutions, including leasing companies, commercial and investment banks, and finance companies associated with manufacturers. Consolidation in the financial services industry will create fewer but larger competitors. EEF continues to be affected by pricing pressures in a rising rate environment and slow growth in some of its markets. Its ability to effectively compete in a changing environment will depend upon, among other things, its ability to increase productivity and offer innovative financial products and services. Operations are subject to varying degrees of regulation in several jurisdictions. EEF operates from offices in the United Kingdom, Italy, France, Germany, Belgium, Republic of Ireland, Portugal, Switzerland 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. 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 asset 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 and roofing). Competition is intense in each of Real Estate's areas and across all product lines. Competitors include local, regional and, increasingly, multi-national lenders and investors. Important competitive factors in Real Estate's lending activities include financing rates, loan proceeds, loan structure and the ability to complete transactions quickly. Where Real Estate provides equity capital, principal competitive factors include the valuation of underlying properties and investment structure as well as transaction cycle time. 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 industrial and transportation sectors, worldwide. SFG combines industry and technical expertise 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 $12 billion. SFG's competition is diverse and global, ranging from large financial institutions to small niche capital providers. Additionally, two of SFG's client industry segments, telecommunications and energy, are faced with extraordinary challenges fostered by deregulation, globalization and technical innovation. Both of these industries have been recently experiencing significant increases in demand for their products and services. The ability to remain competitive will require innovative and unique ways of providing capital, based on industry knowledge and competitive pricing, as well as the ability to properly assess credit risks and effectively manage portfolios. SFG headquarters are in Stamford, Connecticut, and it has offices in Atlanta, Georgia; Chicago, Illinois; Houston, Texas, and New York, New York. Internationally, SFG is represented through affiliates in London, United Kingdom; Frankfurt, Germany; Milan, Italy; Hong Kong, China; and Tokyo, Japan. 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 CF 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 in equity with buying groups or invests directly on a select basis. The corporate financing business is characterized by intense competition from a variety of lenders and factoring services providers, including local, regional, national and international banks and non-bank financing institutions. Competition is based on interest rates, fees, credit terms, and transaction structures. In addition to these factors, successful management of credit risks within the existing customer loan portfolio also affects profitability. Important factors to continued success include maintaining deal structuring expertise, strong risk management systems, and collateral management knowledge. CF headquarters are in Stamford, Connecticut. 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. GE Equity GE Equity (formerly Equity Capital Group) purchases equity investments in early-stage, early growth, pre-IPO companies with a primary objective of long-term capital appreciation. GE Equity's portfolio consists primarily of direct investments in convertible preferred and common stocks in both public and private companies; GE Equity also participates in certain investment limited partnerships. The portfolio includes investments in the technology and communications, media and entertainment, business services, financial services and healthcare sectors. The portfolio is geographically diversified with investments located throughout the United States, as well as in Latin America, Europe and Asia. GE Equity operates in a highly competitive environment and competes with other domestic and foreign institutions. Competitors include corporate investors, private equity firms, investment banking companies, and a variety of other financial services and advisory companies. GE Equity seeks to develop meaningful business relationships with investees by offering GE's network of brands, services and management expertise. GE Equity's competitive environment is subject to the cyclical nature of the industries it invests in, as well as the momentum in the stock market. GE Equity headquarters are in Stamford, Connecticut. SPECIALTY INSURANCE Financial Guaranty Insurance FGIC Holdings ("FGIC"), through its subsidiary, Financial Guaranty Insurance Company ("Financial Guaranty"), is an insurer of municipal bonds, including new issues, bonds traded in the secondary market and bonds held in unit investment trusts and mutual funds. Financial Guaranty also guarantees certain taxable structured debt. The in force guaranteed principal, after reinsurance, amounted to approximately $150.6 billion at December 31, 2000. Approximately 86% of the business written 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. The municipal bond insurance business is fairly mature. This environment requires FGIC to place increasing emphasis on strategies that differentiate its offerings. Additionally, the stable nature of the industry continues to attract interest from potential new competitors, such as multiline insurance companies. Important factors to continued success include maintaining strong capitalization, superior customer service and competitive pricing. FGIC headquarters are in New York, New York. Mortgage Insurance GE Capital Mortgage Insurance ("Mortgage Insurance") is engaged principally in providing residential mortgage guaranty insurance. Operating in 30 field locations, Mortgage Insurance is licensed in 50 states, the District of Columbia and the U.S. Virgin Islands. At December 31, 2000, Mortgage Insurance was the mortgage insurance carrier for over 1,690,000 residential homes, with total insurance in force aggregating approximately $156 billion and total risk in force aggregating approximately $66 billion. When a claim is received, Mortgage Insurance either pays up to a guaranteed percentage based on the specified coverage, or pays the mortgage and delinquent interest, taking title to the property and arranging for its sale. Mortgage Insurance also provides mortgage guaranty insurance in the United Kingdom, Canada, and Australia. The mortgage insurance industry is sensitive to the interest rate environment and housing market conditions. The mortgage insurance industry is intensely competitive as excess market capacity seeks to underwrite business being generated from a consolidating customer base. In addition, considerable influence is exerted on the industry by two government-sponsored enterprises, which buy the majority of the loans insured by mortgage insurers. Mortgage Insurance headquarters are in Raleigh, North Carolina. OTHER Wards All other consists primarily of Montgomery Ward, LLC ("Wards") from August 2, 1999, when GECS acquired control of the retailer upon its emergence from bankruptcy reorganization, to December 28, 2000, when Wards again filed for bankruptcy protection. The retailer is currently in liquidation. 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. Business and economic conditions The Corporation's businesses are generally affected by general business and economic conditions in countries in which the Corporation conducts business. When overall economic conditions deteriorate in those countries, there generally are adverse effects on the Corporation's operations, although those effects are dynamic and complex. For example, a downturn in employment or economic growth in a particular national or regional economy will generally increase the pressure on customers, which generally will result in deterioration of repayment patterns and a reduction in the value of collateral. However, in such a downturn, demand for loans and other products and services offered by the Corporation may actually increase. Interest rates, another macro-economic factor, are important to the Corporation's businesses. In the lending and leasing businesses, higher real interest rates increase the Corporation's cost to borrow funds, but also provide higher levels of return on new investments. For the Corporation's operations that are less directly linked to interest rates, such as the insurance operations, rate changes generally affect returns on investment porfolios. FORWARD LOOKING STATEMENTS This document includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in global economic, business, competitive market and regulatory factors. Item 2. Properties. The Corporation conducts its business from various facilities, most of which are leased. Item 3. Legal Proceedings. The Corporation is not involved in any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. Omitted. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. See note 13 to the consolidated financial statements. The common stock of the Corporation is owned entirely by GE Capital Services and, therefore, there is no trading market in such stock. 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) 2000 1999 1998 1997 1996 -------------- -------------- -------------- -------------- -------------- Revenues ............................ $ 54,267 $ 46,605 $ 41,405 $ 33,404 $ 26,570 Net earnings ........................ 4,289 4,208 3,374 2,729 2,632 Return on common equity (a) (b) ..... 18.97% 21.81% 20.33% 18.62% 20.18% Ratio of earnings to fixed charges .. 1.52 1.60 1.50 1.48 1.53 Ratio of earnings to combined fixed charges and preferred stock dividends ......................... 1.50 1.58 1.48 1.46 1.51 Ratio of debt to equity ............. 7.53 8.44 7.86 7.45 7.84 Financing receivables - net ......... $ 140,500 $ 132,023 $ 118,098 $ 101,133 $ 97,287 Total assets ........................ 332,636 307,441 269,050 228,777 200,816 Short-term borrowings................ 117,482 123,073 107,419 91,680 74,971 Long-term senior notes .............. 78,078 68,164 57,486 44,437 46,124 Long-term subordinated notes ........ 698 698 697 697 697 Minority interest ................... 1,344 1,767 1,137 860 679 Equity .............................. 26,073 22,746 21,069 18,373 15,526
(a) Common 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 common equity excludes preferred stock. Item 7. Management's Discussion and Analysis of Results of Operations. Overview The Corporation's net earnings were $4,289 million in 2000, up 2% from $4,208 million in 1999, with strong double-digit earnings growth in four of the five operating segments. Net earnings in 1999 increased 25% from 1998. The earnings improvement throughout the three-year period resulted from asset growth, principally from acquisitions of businesses and portfolios, and origination volume. On December 28, 2000, Montgomery Ward, LLC (Wards), formerly a GE Capital subsidiary, filed for bankruptcy protection and began liquidation proceedings. Net earnings for the year 2000 included operating losses from Wards amounting to $245 million as well as a charge, primarily to other costs and expenses, for $815 million ($537 million, after tax) to recognize the additional losses resulting from the bankruptcy of Wards. Net earnings in 2000 also included an after-tax gain of $133 million from sale of the Corporation's investment in common stock of Paine Webber Group, Inc. (PaineWebber) and strategic rationalization costs of $347 million, primarily from asset write-downs, employee severance and lease termination. Operating Results Total Revenues increased 16% to $54.3 billion in 2000, following a 13% increase to $46.6 billion in 1999. The increases in both years reflected the contributions of acquired businesses as well as growth in origination volume. Revenues in 2000 included a gain of $219 million ($133 million, after tax) from sale of the Corporation's investment in common stock of PaineWebber. Interest expense on borrowings in 2000 was $10.5 billion, up from $8.9 billion in 1999 and $8.6 billion in 1998. The increase in both years reflected the effects of both interest rates and the average level of borrowings used to finance asset growth. The average composite interest rate was 5.84% in 2000, compared with 5.11% in 1999 and 5.90% in 1998. In 2000, average assets of $322.0 billion were 14% higher than in 1999, which in turn were 15% higher than in 1998. See the Capital Resources and Liquidity section for a discussion of interest rate management. Operating and administrative expenses were $16.4 billion in 2000, an increase from $13.5 billion in 1999 and $11.7 billion in 1998. The increase in 2000 reflected increased costs associated with acquired businesses and portfolios, the charges discussed previously for Wards, and the decision to rationalize certain operations discussed in the analysis of the All Other operating segment. The 1999 increase reflected increased costs associated with acquired businesses and portfolios and higher investment levels. Insurance losses and policyholder and annuity benefits increased to $7.7 billion in 2000, compared with $5.6 billion in 1999 and $5.5 billion in 1998, reflecting effects of business acquisitions and growth in premium volume throughout the period. Cost of goods sold amounted to $8.5 billion in 2000, compared with $8.0 billion in 1999 and $6.8 billion in 1998, and relates to IT Solutions and Wards. The increase in 2000 and 1999 primarily reflects the consolidation of Wards from August 2, 1999, when the Corporation acquired control, through December 28, 2000, when Wards commenced liquidation proceedings and was deconsolidated. Provision for losses on financing receivables was $2.0 billion in 2000, compared with $1.7 billion in 1999 and $1.6 billion in 1998. These provisions principally related to private-label credit cards, bank credit cards, personal loans and auto loans and leases in the consumer services operations, all of which are discussed in the Portfolio Quality section. The provision throughout the three-year period reflected higher average receivable balances, changes in the mix of business, and the effects of lower average consumer delinquency rates. Depreciation and amortization of buildings and equipment and equipment on operating leases increased 5% to $3.3 billion in 2000, compared with $3.1 billion in 1999, a 21% increase over 1998. The increase in both years was primarily the result of higher levels of short-lived equipment on operating leases, primarily reflecting acquisitions of vehicles and aircraft. Provision for income taxes was $1.6 billion in 2000 (an effective tax rate of 26.6%), compared with $1.6 billion in 1999 (an effective tax rate of 27.0%) and $1.2 billion in 1998 (an effective tax rate of 26.0%). Financing spreads (the excess of yields over interest rates on borrowings) increased slightly during 2000, as the improvement in yields outpaced increases in borrowing rates. Financing spreads in 1999 were relatively flat compared with 1998 as yields and borrowing rates decreased to a similar extent. Operating Segments Revenues and net earnings of the Corporation, by operating segment, for the past three years are summarized and discussed below. For additional information, see note 16 to the consolidated financial statements.
(In millions) 2000 1999 1998 --------------- -------------- -------------- Revenues Consumer Services ................................................ $ 23,439 $ 18,659 $ 17,612 Equipment Management ............................................. 14,677 15,329 14,879 Mid-Market Financing ............................................. 5,484 4,633 3,676 Specialized Financing ............................................ 5,496 4,501 3,300 Specialty Insurance .............................................. 1,782 1,648 1,672 All other ........................................................ 3,389 1,835 266 --------------- -------------- -------------- Total revenues ................................................ $ 54,267 $ 46,605 $ 41,405 =============== ============== ============== Net earnings Consumer Services ................................................ $ 1,590 $ 1,138 $ 845 Equipment Management ............................................. 833 684 806 Mid-Market Financing ............................................. 734 597 471 Specialized Financing ............................................ 1,486 1,243 740 Specialty Insurance .............................................. 404 541 428 All other ........................................................ (758) 5 84 --------------- -------------- -------------- Total net earnings ............................................ $ 4,289 $ 4,208 $ 3,374 =============== ============== ==============
Consumer Services revenues increased 26% in 2000 and 6% in 1999, and net earnings increased 40% in 2000 and 35% in 1999. Growth in revenues and net income in 2000 resulted from higher premium and investment income at GE Financial Assurance (GEFA), the consumer savings and insurance business, which experienced profitable growth from both acquisitions and volume. Revenues and net earnings also increased as a result of acquisition and volume growth at Card Services and Global Consumer Finance, partially offset by losses at Mortgage Services, which stopped accepting new business during 2000. The growth in revenues and net earnings during 1999 was led by Global Consumer Finance and improved results at GEFA, partially offset by the effects of asset reductions in Card Services. The portfolio at Auto Financial Services (AFS) began to run off in 1999 and continued in 2000, resulting in a significant decline in revenues; during 2000, AFS stopped accepting new business. Equipment Management revenues declined 4% in 2000, following a 3% increase in 1999, as higher revenues from GE Capital Aviation Services (GECAS), Transport International Pool, GE Capital Modular Space and Americom, the satellite services business, were more than offset by lower revenues at IT Solutions. The increase in 1999 reflected acquisitions in the corporate auto fleet management operations and higher revenues at GECAS, largely offset by decreases in sales volume at the remaining equipment management businesses. Net earnings increased 22% in 2000, following a 15% decrease in 1999. The increase in 2000 reflected volume growth at GECAS, Transport International Pool and GE Capital Modular Space, favorable tax effects and a higher level of asset gains, partially offset by lower results at IT Solutions. The decrease in net earnings in 1999 reflected lower results at IT Solutions and the European equipment management businesses, which more than offset growth at GECAS and Americom. Mid-Market Financing revenues increased 18% in 2000, following a 26% increase in 1999, while net earnings grew 23% and 27%, respectively. Favorable tax effects and asset growth from originations were the most significant contributing factors to results in 2000, while asset growth from both acquisitions and originations was the most significant contributing factor in 1999. Specialized Financing revenues rose 22% and 36%, while net earnings increased 20% and 68% in 2000 and 1999, respectively. Revenues and net earnings growth in 2000 was principally the result of origination growth across all businesses within Specialized Financing. Revenues and net earnings growth in 1999 was principally the result of gains on equity investments led by GE Equity, Commercial Finance and Real Estate. GE Equity experienced a high level of gains on sales of equity investments during 1999 and early 2000. Specialty Insurance revenues increased 8% in 2000 following a 1% decrease in 1999. The increase in 2000 revenues was primarily the result of increased revenues in Mortgage Insurance, partially offset by decreased revenues in Financial Guarantee Insurance. Net earnings decreased 25% in 2000 following a 26% increase in 1999. The 2000 decrease primarily reflected reduced earning from bond refunding and a lower level of realized gains at Financial Guarantee Insurance. The 1999 increase primarily reflected improved conditions in the Mortgage Insurance business, resulting from improvement in loss experience. All Other included the results of Wards from August 2, 1999, through December 28, 2000. The increase in revenues in 2000 also included a pre-tax gain of $219 million from sale of the Corporation's investment in common stock of PaineWebber. The net loss of $758 million for 2000 comprised the PaineWebber after-tax gain of $133 million, after-tax charges of $537 million related to Wards and after-tax strategic rationalization costs of $347 million, primarily for asset write-downs, employee severance and lease termination. These strategic rationalization costs consisted of $107 million related to Consumer Services, $191 million related to Equipment Management and $49 million related to Specialized Financing. Portfolio Quality Financing receivables is the largest category of assets of the Corporation and represents one of its primary sources of revenues. The portfolio of financing receivables, before allowance for losses, increased to $144.5 billion at the end of 2000 from $135.7 billion at the end of 1999, as discussed in the following paragraphs. The related allowance for losses at the end of 2000 amounted to $4.0 billion ($3.6 billion at the end of 1999), representing management's best estimate of probable losses inherent in the portfolio. A discussion of the quality of certain elements of the financing receivables 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 $46.8 billion at year-end 2000, a decrease of $3.9 billion from year-end 1999. Credit card and personal receivables decreased $0.2 billion, primarily from sales and securitizations and the net effects of foreign currency translation, partially offset by origination volume. Auto receivables decreased $3.7 billion, primarily as a result of the run-off of the liquidating Auto Financial Services portfolio and the net effects of foreign currency translation. Nonearning consumer receivables at year-end 2000 were $1.0 billion, about 2.3% of outstandings, compared with $0.9 billion, about 1.8% of outstandings at year-end 1999. Write-offs of consumer receivables increased to $1.3 billion from $1.2 billion for 1999, reflecting shifts in the mix of products and global businesses. Consistent with industry trends, consumer delinquency rates increased somewhat toward the end of 2000 from the unusually low levels earlier in the year but were below year-end 1999 levels. Other financing receivables, which totaled $97.7 billion at December 31, 2000, consisted of a diverse commercial, industrial and equipment loan and lease portfolio. This portfolio increased $12.7 billion during 2000, reflecting increased originations and acquisition growth, partially offset by sales and securitizations and the net effects of foreign currency translation. Related nonearning and reduced-earning receivables were $0.9 billion, about 1.0% of outstandings at year-end 2000, compared with $0.9 billion, about 1.1% of outstandings at year-end 1999. The Corporation's loans and leases to commercial airlines amounted to $15.3 billion at the end of 2000, up from $11.8 billion at the end of 1999. 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. 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). The Corporation's international revenues were $21.9 billion in 2000, an increase of 22% from $18.0 billion in 1999. Revenues in the Pacific Basin almost doubled in 2000, principally because of growth in Japan, the result of the purchase by GE Financial Assurance of the insurance policies and related assets of Toho Mutual Life Insurance Company (Toho). Global revenues, revenues which cannot be meaningfully associated with specific geographic areas, increased 19% in 2000, largely a result of higher revenues at GE Capital Aviation Services (GECAS). Overall, these increases reflect the continued expansion of the Corporation as a global provider of a wide range of financial services. International assets grew 17%, from $106.2 billion at year-end 1999 to $124.5 billion at the end of 2000. The increase in 2000 reflected strong growth in the Pacific Basin, particularly in Japan, resulting from the acquisition of Toho discussed previously. The Corporation also achieved significant asset growth at GECAS. 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 receivable delinquencies and bad debts, delays or cancellation of sales and orders principally related to aircraft, 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. 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. Investment securities were $70.3 billion in 2000, compared with $59.2 billion in 1999. The increase of $11.1 billion resulted from the addition of securities from acquired companies, investment of premiums received and increases in the fair value of debt securities, partially offset by the disposition of the Corporation's investment in common stock of PaineWebber and a decrease in the fair value of certain equity securities, consistent with market conditions. A breakdown of the investment securities portfolio is provided in note 2 to the consolidated financial statements. Inventories were $666 million and $1,209 million at December 31, 2000 and 1999, respectively. The decrease in 2000 primarily relates to the deconsolidation of Wards because of its bankruptcy filing. Financing receivables were $140.5 billion at year-end 2000, net of allowance for doubtful accounts, up $8.5 billion over 1999. These receivables are discussed in the Portfolio Quality section and in notes 3 and 4 to the consolidated financial statements. Insurance receivables were $12.1 billion at year-end 2000, an increase of $4.2 billion that was primarily attributable to acquisitions. Other receivables, which consist of trade receivables, accrued investment income, operating lease receivables and a variety of sundry items, were $14.3 billion and $16.8 billion at December 31, 2000 and 1999, respectively. The decrease of $2.5 billion primarily resulted from the planned run-off of assets from the 1999 acquisition of Japan Leasing Corporation. Equipment on operating leases was $24.1 billion at December 31, 2000, up $0.5 billion from 1999. Details by category of investment can be found in note 6 to the consolidated financial statements. Additions to equipment on operating leases were $11.4 billion during 2000 ($13.4 billion during 1999), primarily reflecting acquisitions of transportation equipment. Intangible assets were $13.2 billion at year-end 2000, up from $13.1 billion at year-end 1999. The $0.1 billion increase in intangible assets related primarily to goodwill and other intangibles associated with acquisitions, the largest of which was the acquisition of the insurance policies and related assets of Toho by GE Financial Assurance. Other assets totaled $48.1 billion at year-end 2000, compared with $42.5 billion at the end of 1999. The $5.7 billion increase was principally attributed to additional investments in real estate ventures and associated companies, and increases in "separate accounts" (see note 9), partially offset by decreases in assets acquired for resale, which reflected sales and securitizations in excess of originations. Insurance liabilities, reserves and annuity benefits were $79.9 billion, $19.2 billion higher than in 1999. The increase was primarily attributable to the addition of liabilities from acquisitions, 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 $196.3 billion at December 31, 2000, of which $117.5 billion is due in 2001 and $78.8 billion is due in subsequent years. Comparable amounts at the end of 1999 were $191.9 billion total, $123.1 billion due within one year and $68.8 billion due thereafter. The Corporation's composite interest rates are discussed in the Interest Expense section of Operating Results. A large portion of the Corporation's borrowings ($88.1 billion and $90.5 billion at the end of 2000 and 1999, 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 45 days and 6.43% at the end of 2000, compared with 53 days and 5.82% at the end of 1999. The Corporation's ratio of debt to equity was 7.53 to 1 at the end of 2000 and 8.44 to 1 at the end of 1999. 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, 2000 and 1999. Management believes the likelihood that GE Company will be required to contribute capital under either the commitments or the guarantee is remote. Statement of Cash Flows The Corporation's cash and equivalents aggregated $5.8 billion at the end of 2000, down from $6.5 billion at year-end 1999 principally as a result of liquidation of short term investments, partially offset by $13.2 billion of cash acquired in connection with the acquisition of the insurance policies and related assets of the Toho. The cash acquired with Toho is shown as cash from financing activities. Paydown of the acquired Toho insurance policies ($4.4 billion in 2000) appears as a usage under the caption "Insurance liabilities and reserves" and was a primary cause of the decrease in the Corporation's cash from operating activities in 2000. One of the primary sources of cash for the Corporation is financing activities involving the continued rollover of short-term borrowings and appropriate addition of borrowings with a reasonable balance of maturities. Over the past three years, the Corporation's borrowings with maturities of 90 days or less have increased by $18.6 billion. New borrowings of $134.2 billion having maturities longer than 90 days were added during those years, while $89.9 billion of such longer-term borrowings were retired. The Corporation also generated $35.6 billion from operating activities. The principal use of cash by the Corporation has been investing in assets to grow its businesses. Of the $107.9 billion that the Corporation invested over the past three years, $32.1 billion was used for additions to financing receivables; $31.8 billion was used to invest in new equipment, principally for lease to others; and $27.0 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 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 into investments in, loans to or guarantees of the obligations of particular customers. Such integrated swaps not involving assumption of third party credit risk 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 position. All other swaps, forward contracts and other derivatives have been designated as hedges of non-U.S. net investments or other assets. Established practices require that derivative financial instruments relate to specific asset, liability or equity transactions or to currency exposures. Substantially all treasury actions are centrally executed by the Corporation's Treasury Department, which maintains controls on all exposures, adheres to stringent counterparty credit standards and actively monitors marketplace exposures. Given the ways in which the Corporation uses swaps, purchased options and forwards, the principal risk is credit risk - risk that counterparties will be financially unable to make payments in accordance with the agreements. Associated market risk is meaningful only as it relates to how changes in the market value affect credit exposure to individual counterparties. Except as noted above for positions that are integrated into financings, all swaps, purchased options and forwards are carried out within the following credit policy constraints. o Once a counterparty reaches a credit exposure limit (see table below), no additional transactions are permitted until the exposure with that counterparty is reduced to an amount that is within the established limit. Open contracts remain in force.
Counterparty credit criteria Credit rating ------------------------------- Standard & Moody's Poor's -------------- -------------- Term of transaction Between one and five years ...................................... Aa3 AA- Greater than five years ......................................... Aaa AAA Credit exposure limits Up to $50 million ............................................... Aa3 AA- Up to $75 million ............................................... Aaa AAA
o All swaps are executed under master swap agreements containing mutual credit downgrade provisions that provide the ability to require assignment or termination in the event either party is downgraded below A3 or A-. More credit latitude is permitted for transactions having original maturities shorter than one year because of their lower risk. The conversion of interest rate and currency risk into credit risk results in a need to monitor counterparty credit risk actively. At December 31, 2000, the notional amount of long-term derivatives for which the counterparty was rated below Aa3/AA- was $1.2 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 2000 1999 1998 ------------------------- --------------- --------------- --------------- Aaa/AAA ......................................................... 64% 59% 66% Aa/AA ........................................................... 35% 37% 32% A/A and below ................................................... 1% 4% 2%
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. 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 2001 net earnings of the Corporation based on year-end 2000 positions by approximately $93 million. Based on conditions at year-end 1999, the effect on 2000 net earnings of such an increase in interest rates was estimated to be approximately $96 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 2000 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 have an insignificant effect on 2001 net earnings of the Corporation based on year-end 2000 positions. Based on conditions at year-end 1999, the effect on 2000 net earnings of such a decrease in exchange rates was estimated to be insignificant for the Corporation. Statement of Changes in Share Owners' Equity Share owners' equity increased $3,327 million to $26,073 million at year-end 2000. The increase was largely attributable to net earnings during the period of $4,289 million, partially offset by dividends and other transactions with shareowners of $642 million. Currency translation adjustments reduced equity by $344 million in 2000. 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 2000 largely reflected continued weakening in the Euro. Accumulated currency translation adjustments affect net earnings only when all or a portion of an affiliate is disposed of. New Accounting Standards The Financial Accounting Standards Board ("FASB") has issued, then subsequently amended, 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 the balance sheet at their fair values; changes in such fair values must be recognized immediately in earnings unless specific hedging criteria are met. Effects of qualifying changes in fair value will be recorded in equity pending recognition in earnings as offsets to the related earnings effects of the hedged items. Management estimates that, at January 1, 2001, the effects on its consolidated financial statements of adopting SFAS No. 133, as amended, will be a one-time reduction of net earnings of less than $0.1 billion, and a one-time reduction of equity, excluding the net earnings effect, of less than $1.0 billion. The precise transition effect is uncertain because the accounting for certain derivatives and hedging relationships in accordance with SFAS No. 133 is subject to further interpretation by the FASB. The Emerging Issues Task Force of the FASB reached a consensus on impairment accounting for beneficial interests in securitized financial assets (beneficial interests). Under this consensus, impairment on certain beneficial interests must be recognized when (1) the asset's fair value is below its carrying value, and (2) it is probable that there has been an adverse change in estimated cash flows. The Corporation previously recognized impairment on such assets when the asset's carrying value exceeded estimated cash flows discounted at a risk-free rate of return. Management estimates that upon adoption on January 1, 2001, the accounting change will result in a one-time charge of less than $125 million, principally for declines in market values of residual investments from the discontinued mortgage servicing 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 in the Interest Rate and Currency Risk Management section of Item 7. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 2, 2001
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Statement of Earnings For the years ended December 31 (In millions) 2000 1999 1998 -------------- -------------- -------------- REVENUES Time sales, loan and other income .................................. $ 21,519 $ 17,893 $ 14,518 Operating lease rentals ............................................ 6,179 6,020 5,402 Financing leases.................................................... 3,692 3,587 4,267 Investment income .................................................. 5,458 4,390 4,184 Premium and commission income of insurance affiliates (Note 11) .... 8,011 5,975 5,660 Sales of goods ..................................................... 9,408 8,740 7,374 -------------- -------------- -------------- Total revenues ................................................... 54,267 46,605 41,405 -------------- -------------- -------------- EXPENSES Interest ........................................................... 10,461 8,936 8,618 Operating and administrative (Note 14) ............................. 16,379 13,500 11,669 Insurance losses and policyholder and annuity benefits (Note 11) ... 7,697 5,564 5,544 Cost of goods sold ................................................. 8,537 7,976 6,777 Provision for losses on financing receivables (Note 4) ............. 1,975 1,655 1,595 Depreciation and amortization of buildings and equipment and equipment on operating leases (Notes 6 & 7) ...................... 3,288 3,145 2,594 Minority interest in net earnings of consolidated affiliates ....... 86 68 49 -------------- -------------- -------------- Total expenses ................................................... 48,423 40,844 36,846 -------------- -------------- -------------- Earnings before income taxes ....................................... 5,844 5,761 4,559 Provision for income taxes (Note 15) ............................... (1,555) (1,553) (1,185) -------------- -------------- -------------- NET EARNINGS ....................................................... $ 4,289 $ 4,208 $ 3,374 ============== ============== ============== Statement of Changes in Share Owners' Equity (In millions) 2000 1999 1998 -------------- -------------- -------------- CHANGES IN SHARE OWNERS' EQUITY Balance at January 1 ............................................... $ 22,746 $ 21,069 $ 18,373 -------------- -------------- -------------- Dividends and other transactions with share owners (Note 13) ....... (642) (1,086) (706) -------------- -------------- -------------- Changes other than transactions with share owners: Increases attributable to net earnings ........................... 4,289 4,208 3,374 Unrealized gains (losses) on investment securities - net (Note 13) 24 (1,330) 22 Currency translation adjustments (Note 13) ....................... (344) (115) 6 -------------- -------------- -------------- Total changes other than transactions with share owners ......... 3,969 2,763 3,402 -------------- -------------- -------------- Balance at December 31 ............................................. $ 26,073 $ 22,746 $ 21,069 ============== ============== ==============
See Notes to Consolidated Financial Statements.
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Statement of Financial Position At December 31 (In millions) 2000 1999 -------------- --------------- ASSETS Cash and equivalents ............................................................ $ 5,819 $ 6,505 Investment securities (Note 2) .................................................. 70,282 59,173 Financing receivables (Note 3): Time sales and loans, net of deferred income ................................. 93,540 87,896 Investment in financing leases, net of deferred income ....................... 50,930 47,764 -------------- --------------- 144,470 135,660 Allowance for losses on financing receivables (Note 4) ....................... (3,970) (3,637) -------------- --------------- Financing receivables - net ................................................ 140,500 132,023 Insurance Receivables (Note 5)................................................... 12,060 7,893 Other receivables ............................................................... 14,308 16,784 Inventories ..................................................................... 666 1,209 Equipment on operating leases (at cost), less accumulated amortization of $7,900 and $7,391 (Note 6) ........................................................... 24,145 23,603 Buildings and equipment (at cost), less accumulated depreciation of $1,999 and $2,034 (Note 7) ............................................................... 3,511 4,728 Intangible assets - net (Note 8) ................................................ 13,216 13,073 Other assets (Note 9) ........................................................... 48,129 42,450 -------------- --------------- Total assets ................................................................. $ 332,636 $ 307,441 ============== =============== LIABILITIES AND SHARE OWNERS' EQUITY Short-term borrowings (Note 10) ................................................. $ 117,482 $ 123,073 Long-term borrowings (Note 10) .................................................. 78,776 68,862 -------------- --------------- Total borrowings ............................................................. 196,258 191,935 Accounts payable ................................................................ 9,484 8,759 Insurance liabilities, reserves and annuity benefits (Note 11) .................. 79,933 60,775 Other liabilities ............................................................... 11,280 12,678 Deferred income taxes (Note 15) ................................................. 8,264 8,781 -------------- --------------- Total liabilities ............................................................ 305,219 282,928 -------------- --------------- Minority interest in equity of consolidated affiliates (Note 12) ................ 1,344 1,767 -------------- --------------- Variable cumulative preferred stock, $100 par value, liquidation preference $100,000 per share (33,000 shares authorized at December 31, 2000 and 1999 and 26,000 shares outstanding at December 31, 2000 and 1999) .................. 3 3 Common stock, $200 par value (3,866,000 shares authorized and 3,837,825 shares outstanding at December 31, 2000 and 1999, respectively) ...................... 768 768 Additional paid-in capital ...................................................... 6,347 5,383 Retained earnings ............................................................... 19,694 17,011 Accumulated unrealized (losses) gains on investment securities - net (a) ........ (139) (163) Accumulated foreign currency translation adjustments (a) ........................ (600) (256) -------------- --------------- Total share owners' equity (Note 13) ......................................... 26,073 22,746 -------------- --------------- Total liabilities and share owners' equity ................................... $ 332,636 $ 307,441 ============== ===============
(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 ($739) million and ($419) million at year-end 2000 and 1999, respectively. See Notes to Consolidated Financial Statements. GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Statement of Cash Flows
For the years ended December 31 (In millions) 2000 1999 1998 --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings .................................................... $ 4,289 $ 4,208 $ 3,374 Adjustments to reconcile net earnings to cash provided from operating activities: Depreciation and amortization of buildings and equipment and equipment on operating leases ............................. 3,288 3,145 2,594 Provision for losses on financing receivables ............... 1,975 1,655 1,601 Amortization of goodwill and other intangibles .............. 2,020 1,083 858 Increase in deferred income taxes ........................... 514 854 601 Decrease (increase) in inventories .......................... (261) 327 81 Increase (decrease) in accounts payable ..................... 3,089 (215) 1,491 Increase (decrease) in insurance liabilities and reserves ... (2,890) 2,085 2,466 Other - net ................................................. (1,969) 757 (1,392) -------------- ---------------- --------------- Cash from operating activities ................................ 10,055 13,899 11,674 --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in financing receivables (Note 19) ................. (15,397) (10,889) (5,815) Buildings and equipment and equipment on operating leases - additions .................................................. (11,384) (13,432) (6,942) - dispositions ............................................... 6,680 6,252 4,027 Payments for principal businesses purchased, net of cash acquired (Note 19) .................................................... (1,176) (9,823) (15,959) All other investing activities (Note 19) ........................ (13,649) (8,182) (12,179) --------------- --------------- --------------- Cash used for investing activities ............................ (34,926) (36,074) (36,868) --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (maturities of 90 days or less) ........ (2,445) 6,865 14,160 Newly issued debt (maturities longer than 90 days) (Note 19) .... 46,188 46,556 41,440 Repayments and other reductions (maturities longer than 90 days) (Note 19) .......................................... (31,907) (26,924) (31,027) Dividends paid .................................................. (1,612) (1,537) (895) Issuance of variable cumulative preferred stock in excess of par value ........................................................ - 300 70 Issuance of variable cumulative preferred stock by consolidated affiliate .................................................... - 213 200 All other financing activities (Note 19) ........................ 13,961 127 (322) --------------- --------------- --------------- Cash from financing activities ................................ 24,185 25,600 23,626 --------------- --------------- --------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR ..... (686) 3,425 (1,568) CASH AND EQUIVALENTS AT BEGINNING OF YEAR ....................... 6,505 3,080 4,648 --------------- --------------- --------------- CASH AND EQUIVALENTS AT END OF YEAR ............................. $ 5,819 $ 6,505 $ 3,080 =============== =============== ===============
See Notes to Consolidated Financial Statements. 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 on pages 27 and 28. 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. 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. 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 - Upon adoption of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, on January 1, 2001, certain financial instruments and portions of other financial instruments will be defined to be derivatives. After that date, all derivatives will be carried at their fair values, and all changes in fair values will affect net earnings or share owners' equity immediately. 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. Designated interest rate and currency swaps, forwards and limit contracts that modify borrowings or certain assets, and forecasted transactions such as 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 firm commitments; 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. 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. 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 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 Amortized unrealized unrealized Estimated (In millions) cost gains losses fair value --------------- ---------------- --------------- --------------- December 31, 2000 Debt securities: U.S. corporate ............................... $ 34,759 $ 420 $ (1,186) $ 33,993 State and municipal .......................... 6,459 243 (125) 6,577 Mortgage-backed .............................. 10,367 278 (141) 10,504 Corporate - non-U.S. ......................... 9,043 323 (104) 9,262 Government - non-U.S. ........................ 2,874 60 (79) 2,855 U.S. government and federal agency ........... 1,623 10 (38) 1,595 Equity securities ............................. 5,301 634 (439) 5,496 --------------- ---------------- --------------- --------------- $ 70,426 $ 1,968 $ (2,112) $ 70,282 =============== ================ =============== =============== 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 =============== ================ =============== ===============
A substantial portion of mortgage-backed securities shown in the table above are collateralized by U.S. residential mortgages. At December 31, 2000, contractual maturities of debt securities, other than mortgage-backed securities, were as follows:
Amortized Estimated (In millions) cost fair value --------------- --------------- Due in: 2001 ............................................................................ $ 3,003 $ 3,028 2002-2005 ....................................................................... 11,083 11,294 2006-2010 ....................................................................... 12,766 12,810 2011 and later .................................................................. 27,906 27,150
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 2000 were $12,384 million ($9,354 million in 1999 and $11,092 million in 1998). Gross realized gains were $1,494 million in 2000 ($553 million in 1999 and $589 million in 1998). Gross realized losses were $337 million in 2000 ($327 million in 1999 and $198 million in 1998). NOTE 3. FINANCING RECEIVABLES Financing receivables at December 31, 2000 and 1999, are shown below.
(In millions) 2000 1999 --------------- --------------- Time sales and loans: Consumer Services .............................................................. $ 41,984 $ 43,166 Specialized Financing .......................................................... 27,737 24,119 Mid-Market Financing ........................................................... 21,506 18,422 Equipment Management ........................................................... 1,385 978 Specialty Insurance ............................................................ 90 28 Other ......................................................................... 838 1,183 --------------- --------------- Time sales and loans - net of deferred income ................................. 93,540 87,896 --------------- --------------- Investment in financing leases: Direct financing leases ........................................................ 46,053 43,719 Leveraged leases ............................................................... 4,877 4,045 --------------- --------------- Investment in financing leases ................................................ 50,930 47,764 --------------- --------------- 144,470 135,660 Less allowance for losses (Note 4) ............................................... (3,970) (3,637) --------------- --------------- $ 140,500 $ 132,023 =============== ===============
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 2000 and 1999, commercial real estate loans and leases of $21,265 million and $15,661 million, respectively, were included in financing receivables and insurance receivables. 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. 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, 2000 and 1999, is shown below.
Total financing leases Direct financing leases Leveraged leases -------------------------- ------------------------- -------------------------- (In millions) 2000 1999 2000 1999 2000 1999 ------------- ------------ ------------ ------------ ------------ ------------- Total minimum lease payments receivable ..................... $ 74,909 $ 68,151 $ 50,505 $ 47,062 $ 24,404 $ 21,089 Less principal and interest on third-party nonrecourse debt .... (19,773) (17,184) - - (19,773) (17,184) ------------- ------------ ------------ ------------ ------------ ------------- Net rentals receivable .......... 55,136 50,967 50,505 47,062 4,631 3,905 Estimated unguaranteed residual value of leased assets .......... 7,202 7,142 4,490 4,930 2,712 2,212 Less deferred income .............. (11,408) (10,345) (8,942) (8,273) (2,466) (2,072) ------------- ------------ ------------ ------------ ------------ ------------- Investment in financing leases .. 50,930 47,764 46,053 43,719 4,877 4,045 Less: Allowance for losses ....... (646) (580) (558) (508) (88) (72) Deferred taxes arising from financing leases .......... (8,423) (8,587) (4,511) (5,081) (3,912) (3,506) ------------- ------------ ------------ ------------ ------------ ------------- Net investment in financing leases $ 41,861 $ 38,597 $ 40,984 $ 38,130 $ 877 $ 467 ============= ============ ============ ============ ============ =============
At December 31, 2000 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) --------------- ------------------ 2001 .......................................................................... $ 27,385 $ 16,599 2002........................................................................... 20,580 11,869 2003 .......................................................................... 17,746 8,244 2004 .......................................................................... 7,439 5,051 2005 .......................................................................... 5,611 3,172 Thereafter .................................................................... 14,779 10,201 --------------- ------------------ $ 93,540 $ 55,136 =============== ==================
(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 $1,043 million and $930 million at December 31, 2000 and 1999, respectively, a substantial amount of which were private-label credit card loans. Nonearning and reduced-earning receivables other than consumer receivables were $949 million and $932 million at year-end 2000 and 1999, 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. An analysis of impaired loans at December 31, 2000 and 1999 is shown below.
(In millions) 2000 1999 --------------- --------------- Loans requiring allowance for losses ........................................... $ 471 $ 630 Loans expected to be fully recoverable ......................................... 371 219 --------------- --------------- $ 842 $ 849 =============== =============== Allowance for losses ........................................................... $ 163 $ 178 Average investment during year ................................................. 798 608 Interest income earned while impaired (a) ...................................... 17 27
(a) Principally on the cash basis. NOTE 4. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
(In millions) 2000 1999 1998 -------------- -------------- -------------- Balance at January 1 ........................................... $ 3,637 $ 3,207 $ 2,745 Provisions charged to operations ............................... 1,975 1,655 1,595 Net transfers primarily related to acquisitions and sales ...... 22 218 375 Amounts written off - net ...................................... (1,664) (1,443) (1,508) -------------- -------------- -------------- Balance at December 31 ......................................... $ 3,970 $ 3,637 $ 3,207 ============== ============== ==============
NOTE 5. INSURANCE RECEIVABLES At year-end 2000 and 1999, this account included reinsurance recoverables of $1,816 million and $2,087 million and receivables of insurance affiliates of $10,244 million and $5,806 million, respectively. Receivables of insurance affiliates include premium receivables, investments in whole real estate and other loans and funds on deposit with reinsurers. NOTE 6. EQUIPMENT ON OPERATING LEASES Equipment on operating leases by type of equipment and accumulated amortization at December 31, 2000 and 1999, are shown below.
(In millions) 2000 1999 -------------- -------------- Original cost Aircraft ..................................................................... $ 12,888 $ 10,591 Vehicles ..................................................................... 9,872 10,939 Railroad rolling stock ....................................................... 3,459 3,323 Marine shipping containers ................................................... 2,196 2,309 Other ........................................................................ 3,630 3,832 --------------- --------------- 32,045 30,994 Accumulated amortization ...................................................... (7,900) (7,391) --------------- --------------- $ 24,145 $ 23,603 =============== ===============
Amortization of equipment on operating leases was $2,618 million, $2,673 million and $2,185 million in 2000, 1999 and 1998, respectively. Noncancelable future rentals due from customers for equipment on operating leases at year-end 2000 totaled $16,034 million and are due as follows: $4,017 million in 2001; $3,177 million in 2002; $2,407 million in 2003; $1,707 million in 2004; $1,194 million in 2005 and $3,532 million thereafter. The Corporation acts as a lender and lessor to the commercial airline industry. At December 31, 2000 and 1999, the balance of such loans, leases and equipment leased to others was $15,262 million and $11,772 million, respectively. In addition, at December 31, 2000, the Corporation had issued financial guarantees and funding commitments of $601 million ($59 million at year-end 1999) and had placed multiyear orders for various Boeing and Airbus aircraft with list prices of approximately $22.9 billion ($9.9 billion at year-end 1999). NOTE 7. BUILDINGS AND EQUIPMENT Buildings and equipment include office buildings, satellite communications equipment, computer hardware and software, vehicles, furniture and office equipment. Depreciation expense was $670 million in 2000, $472 million in 1999 and $409 million in 1998. NOTE 8. INTANGIBLE ASSETS Intangible assets at December 31, 2000 and 1999, are shown in the table below.
(In millions) 2000 1999 -------------- -------------- Goodwill .......................................................................... $ 10,063 $ 10,877 Present value of future profits ("PVFP") .......................................... 2,579 1,704 Other intangibles ................................................................. 574 492 -------------- -------------- $ 13,216 $ 13,073 ============== ==============
The Corporation's intangible assets are shown net of accumulated amortization of $5,225 million at December 31, 2000, and $3,500 million at December 31, 1999. The amount of goodwill amortization included in net earnings (net of income taxes) in 2000, 1999 and 1998 was $536 million, $450 million and $366 million, respectively. PVFP amortization, which is on an accelerated basis and net of interest, is projected to range from 18% to 7% of the year-end 2000 unamortized balance for each of the next five years. NOTE 9. OTHER ASSETS Other assets at December 31, 2000 and 1999, are shown in the table below.
(In millions) 2000 1999 -------------- --------------- Investments: Assets acquired for resale ...................................................... $ 1,394 $ 3,406 Investments in and advances to associated companies (a) ......................... 12,784 11,239 Real estate ventures ............................................................ 6,496 4,397 Other ........................................................................... 5,044 4,174 -------------- --------------- 25,718 23,216 Separate accounts ................................................................ 11,628 10,248 Servicing assets (b)............................................................... 1,378 1,669 Deferred insurance acquisition costs .............................................. 4,315 3,253 Other ............................................................................. 5,090 4,064 -------------- --------------- $ 48,129 $ 42,450 ============== ===============
(a) Includes advances (b) Associated primarily with serviced residential mortgage loans amounting to $81 billion and $86 billion at December 31, 2000 and 1999, respectively. Separate accounts represent investments controlled by policyholders and are associated with identical amounts reported as insurance liabilities in note 11. NOTE 10. BORROWINGS Total short-term borrowings at December 31, 2000 and 1999, consisted of the following:
2000 1999 --------------------------------- --------------------------------- Average Average (Dollars in millions) Amount rate (a) Amount rate (a) ---------------- ---------------- ---------------- ---------------- Commercial paper - U.S. ....................... $ 71,085 6.67% $ 78,609 6.07% Commercial paper - non-U.S. .................... 16,965 5.46 11,909 4.19 Current portion of long-term debt .............. 19,283 5.95 22,902 5.59 Other .......................................... 10,149 9,653 ---------------- ---------------- $ 117,482 $ 123,073 ================ ================
Total long-term borrowings at December 31, 2000 and 1999, were as follows:
2000 (In millions) average rate (a) Maturities 2000 1999 ------------- -------------- --------------- ------------- Senior notes ................................... 5.56% 2002-2055 $ 78,078 $ 68,164 Subordinated notes (b) ......................... 8.04 2006-2012 698 698 --------------- ------------- $ 78,776 $ 68,862 =============== =============
(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 as follows from two perspectives - liquidity and interest rate risk 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, 2000, were $19,283 million in 2001; $20,089 million in 2002; $15,581 million in 2003; $11,330 million in 2004 and $7,086 million in 2005. At December 31, 2000, the Corporation held committed lines of credit aggregating $28.1 billion with 95 banks, including $12.2 billion of revolving credit agreements pursuant to which it has the right to borrow funds for periods exceeding one year. A total of $3.6 billion of these credit lines were also available for use by GE Capital Services. Also, at December 31, 2000, 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 2000, 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 rate risk is 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, 2000 and 1999, considering the effects of swaps.
(In millions) 2000 1999 -------------- --------------- Effective borrowings (including swaps) Short-term ........................................................................ $ 75,251 $ 69,762 ============== =============== Long-term (including current portion) Fixed rate (a) .................................................................. $ 94,703 $ 86,856 Floating rate ................................................................... 26,304 35,317 -------------- --------------- Total long-term ................................................................... $ 121,007 $ 122,173 ============== ===============
(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, 2000, interest rate swap maturities ranged from 2001 to 2048, and average interest rates for fixed-rate borrowings (including "synthetic" fixed-rate borrowings) were 5.88% (5.59% at year-end 1999). NOTE 11. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS Insurance liabilities, reserves and annuity benefits at December 31, 2000 and 1999, are shown below.
(In millions) 2000 1999 --------------- -------------- Investment contracts and universal life benefits .................................. $ 31,071 $ 28,284 Life insurance benefits and other (a) ............................................. 29,652 15,528 Unpaid claims and claims adjustment expenses (b)................................... 4,143 3,235 Unearned premiums ................................................................. 3,439 3,480 Separate accounts (see note 9) .................................................... 11,628 10,248 --------------- -------------- $ 79,933 $ 60,775 =============== ==============
(a) Life insurance benefits are accounted for mainly by a net-level-premium method using estimated yields generally ranging from 2% to 9% in 2000 and from 5% to 9% in 1999. (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) 2000 1999 1998 -------------- -------------- -------------- Balance at January 1 - gross ................................... $ 3,235 $ 3,721 $ 3,670 Less reinsurance recoverables .................................. (552) (578) (438) --------------- --------------- --------------- Balance at January 1 - net ..................................... 2,683 3,143 3,232 Claims and expenses incurred: Current year ................................................. 3,969 2,286 2,469 Prior years .................................................. (155) (328) (184) Claims and expenses paid: Current year ................................................. (2,190) (1,210) (1,222) Prior years .................................................. (1,309) (1,276) (1,176) Claim reserves related to acquired companies ................... 209 136 6 Other .......................................................... 394 (68) 18 --------------- --------------- --------------- Balance at December 31 - net ................................... 3,601 2,683 3,143 Add reinsurance recoverables ................................... 542 552 578 --------------- --------------- --------------- Balance at December 31 - gross ................................. $ 4,143 $ 3,235 $ 3,721 =============== =============== ===============
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, 2000 and 1999, are summarized below.
(In millions) 2000 1999 -------------- -------------- Guarantees, principally on municipal bonds and structured finance issues .......... $ 190,184 $ 173,696 Mortgage insurance risk in force .................................................. 68,112 59,797 Credit life insurance risk in force ............................................... 19,910 26,427 Less reinsurance .................................................................. (42,143) (37,980) -------------- -------------- $ 236,063 $ 221,940 ============== ==============
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) 2000 1999 1998 2000 1999 1998 -------------- -------------- -------------- -------------- -------------- --------------- Direct ............ $ 7,929 $ 6,378 $ 5,696 $ 7,783 $ 6,108 $ 5,547 Assumed ........... 890 556 817 864 583 885 Ceded ............. (611) (534) (698) (636) (716) (772) -------------- -------------- -------------- -------------- -------------- --------------- Net ............... $ 8,208 $ 6,400 $ 5,815 $ 8,011 $ 5,975 $ 5,660 ============== ============== ============== ============== ============== ===============
Reinsurance recoveries recognized as a reduction of insurance losses and policyholder and annuity benefits amounted to $457 million, $386 million and $396 million for the years ended December 31, 2000, 1999 and 1998, respectively. NOTE 12. MINORITY INTEREST Minority interest in equity of consolidated affiliates includes preferred stock issued by a subsidiary with liquidation preference values of $1,066 million and $1,421 million as of December 31, 2000 and 1999, respectively. Dividend rates in local currency on the preferred stock ranged from 4.35% to 6.82% during 2000 and from 0.6% to 6.1% during 1999. NOTE 13. SHARE OWNERS' EQUITY Changes in share owners' equity for each of the last three years were as follows:
(In millions) 2000 1999 1998 ---------------- --------------- -------------- Variable Cumulative Preferred Stock Issued ....................... $ 3 $ 3 $ 2 Common Stock Issued .............................................. 768 768 768 ---------------- --------------- -------------- Accumulated nonowner changes other than earnings Balance at January 1 ............................................. (419) 1,026 998 Unrealized (losses) gains on investment securities - net of deferred taxes of $376, ($474), and $139 ...................... 776 (1,178) 276 Currency translation adjustments - net of deferred taxes of ($185), ($62), and $5.......................................... (344) (115) 6 Reclassification adjustments - net of deferred taxes of ($405), ($82) and ($141) .............................................. (752) (152) (254) ---------------- --------------- -------------- Balance at December 31 ........................................... (739) (419) 1,026 ---------------- --------------- -------------- Other Capital Balance at January 1 ............................................. 5,383 4,933 4,744 Contributions .................................................... 964 450 189 ---------------- --------------- -------------- Balance at December 31 ........................................... 6,347 5,383 4,933 ---------------- --------------- -------------- Retained Earnings Balance at January 1 ............................................. 17,011 14,340 11,861 Net Earnings ..................................................... 4,289 4,208 3,374 Dividends ........................................................ (1,606) (1,537) (895) ---------------- --------------- -------------- Balance at December 31 ........................................... 19,694 17,011 14,340 ---------------- --------------- -------------- Total Share Owners' Equity ....................................... $ 26,073 $ 22,746 $ 21,069 ================ =============== ==============
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. 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, the Corporation issued 3,000 additional shares of its variable cumulative preferred stock. Dividend rates on the preferred stock ranged from 4.2% to 5.2% during 2000, 3.5% to 5.1% during 1999 and from 3.9% to 5.2% during 1998. 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, 2000 or 1999. At December 31, 2000 and 1999, the aggregate statutory capital and surplus of the insurance businesses totaled $11.1 billion and $9.6 billion, respectively. Accounting principles 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 $496 million in 2000, $483 million in 1999 and $439 million in 1998. Other rental expense was $646 million in 2000, $552 million in 1999 and $429 million in 1998, principally for the rental of office space and data processing equipment. Minimum future rental commitments under noncancelable leases at December 31, 2000 are $4,570 million; $745 million in 2001; $666 million in 2002; $587 million in 2003; $460 million in 2004; $351 million in 2005 and $1,761 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 2000, 1999 and 1998 was $1,225 million, $1,031 million and $863 million, respectively. NOTE 15. INCOME TAXES The provision for income taxes is summarized in the following table.
(In millions) 2000 1999 1998 --------------- --------------- --------------- Current tax expense ............................................$ 1,041 $ 699 $ 584 Deferred tax expense from temporary differences ................ 514 854 601 --------------- --------------- --------------- $ 1,555 $ 1,553 $ 1,185 =============== =============== ===============
GE Company files a consolidated U.S. federal income tax return which includes the Corporation. The provision for current tax expense includes the effect of the Corporation on the consolidated return. Current tax expense (benefit) includes amounts applicable to U.S. federal income taxes of $274 million, ($142) million and ($130) million in 2000, 1999, and 1998, respectively, and amounts applicable to non-U.S. jurisdictions of $749 million, $765 million and $699 million in 2000, 1999 and 1998, respectively. Deferred tax expense related to U.S. federal income taxes was $426 million, $833 million and $663 million in 2000, 1999, and 1998, 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 $2.7 billion in 2000, $3.5 billion in 1999 and $3.2 billion in 1998. The corresponding amounts for non-U.S. based operations were $3.1 billion in 2000, $2.3 billion in 1999 and $1.3 billion in 1998. A reconciliation of the U.S. federal statutory rate to the actual income tax rate follows.
2000 1999 1998 --------------- --------------- --------------- Statutory U.S. federal income tax rate ......................... 35.0% 35.0% 35.0% Increase (reduction) in rate resulting from: Amortization of goodwill ...................................... 1.1 0.9 1.0 Tax-exempt income ............................................. (2.8) (2.7) (3.2) Tax on International Activities Including Foreign Sales Corporation benefits ........................................ (5.1) (5.2) (1.5) Dividends received, not fully taxable ......................... (1.5) (1.5) (1.8) Fuels credits ................................................. (1.5) (1.5) (2.0) Other - net ................................................... 1.4 2.0 (1.5) --------------- --------------- --------------- Actual income tax rate ......................................... 26.6% 27.0% 26.0% =============== =============== ===============
Principal components of the net deferred tax liability balances at December 31, 2000 and 1999, were as follows:
(In millions) 2000 1999 ------------- ------------- Assets: Allowance for losses ............................................................. $ 1,649 $ 1,370 Insurance reserves ............................................................... 1,252 1,035 AMT credit carryforwards ......................................................... 671 1,185 Other ............................................................................ 3,185 1,601 ------------- ------------- Total deferred tax assets ........................................................ 6,757 5,191 ------------- ------------- Liabilities: Financing leases ................................................................. 8,423 8,587 Operating leases ................................................................. 3,300 2,834 Other ............................................................................ 3,298 2,551 ------------- ------------- Total deferred tax liabilities ................................................... 15,021 13,972 ------------- ------------- Net deferred tax liability ....................................................... $ 8,264 $ 8,781 ============= =============
NOTE 16. OPERATING SEGMENT DATA 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 in the table on page 14 and in the All Other operating segment discussion on page 15 of this report. Other specific information is provided as follows.
(In millions) Depreciation and amortization (a) Provision for income taxes -------------------------------------- -------------------------------------- For the years ended December 31 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- ----------- ----------- ------------ Consumer Services ................. $ 1,934 $ 1,042 $ 960 $ 612 $ 346 $ 471 Equipment Management .............. 2,421 2,440 1,913 389 317 258 Mid-Market Financing .............. 713 555 409 226 237 234 Specialized Financing ............. 36 57 51 550 457 40 Specialty Insurance ............... 12 26 27 49 111 72 All other ......................... 192 108 92 (271) 85 110 ------------ ------------ ----------- ----------- ----------- ------------ Total .......................... $ 5,308 $ 4,228 $ 3,452 $ 1,555 $ 1,553 $ 1,185 ============ ============ =========== =========== =========== ============
Time sales, loan, investment and other income (b) Interest expense -------------------------------------- -------------------------------------- For the years ended December 31 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- ----------- ----------- ------------ Consumer Services ................. $ 15,805 $ 12,776 $ 11,272 $ 3,544 $ 3,332 $ 3,746 Equipment Management .............. 2,358 2,318 2,249 1,796 1,598 1,494 Mid-Market Financing .............. 2,547 2,258 1,621 2,382 1,992 1,631 Specialized Financing ............. 5,046 3,926 2,645 2,382 1,814 1,541 Specialty Insurance ............... 852 701 680 458 369 367 All other ......................... 369 304 235 (101) (169) (161) ------------ ------------ ----------- ----------- ----------- ------------ Total .......................... $ 26,977 $ 22,283 $ 18,702 $ 10,461 $ 8,936 $ 8,618 ============ ============ =========== =========== =========== ============
Property, plant and equipment additions (including equipment Assets leased to others) (c) At December 31 For the years ended December 31 -------------------------------------- -------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ----------- ----------- ----------- ------------ Consumer Services (d) ............. $159,619 $147,455 $138,953 $ 763 $ 2,332 $ 2,111 Equipment Management (d) .......... 48,081 43,141 38,114 8,298 8,011 4,492 Mid-Market Financing .............. 55,684 49,681 40,981 1,624 3,949 1,349 Specialized Financing (d).......... 52,528 47,001 35,807 543 155 88 Specialty Insurance ............... 13,697 10,182 10,746 6 9 10 All other ......................... 3,027 9,981 4,449 152 949 27 ------------ ------------ ----------- ----------- ----------- ------------ Total .......................... $332,636 $307,441 $269,050 $ 11,386 $ 15,405 $ 8,077 ============ ============ =========== =========== =========== ============
(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) Total assets of the Consumer Services, Equipment Management and Specialized Financing segments at December 31, 2000, include investments in and advances to non-consolidated affiliates of $4,064 million and $5,013 million, and $3,246 million, respectively, which contributed approximately $325 million and $317 million and $63 million, respectively, to segment pre-tax income for the year ended December 31, 2000. NOTE 17. QUARTERLY FINANCIAL DATA (unaudited) Summarized quarterly financial data were as follows:
First quarter Second quarter Third quarter Fourth quarter -------------------- --------------------- ---------------------- ---------------------- (In millions) 2000 1999 2000 1999 2000 1999 2000 1999 ---------- --------- ---------- ---------- ----------- ---------- ----------- ---------- Revenues ................... $ 13,305 $ 10,190 $ 13,732 $ 11,129 $ 13,714(a) $ 11,753 $ 13,516(a) $ 13,533 ---------- --------- ---------- ---------- ----------- ---------- ----------- ---------- Expenses: Interest ................... 2,424 2,020 2,660 2,133 2,592 2,189 2,785 2,594 Operating and administrative and cost of goods sold ........... 6,134 4,477 6,221 5,018 5,855 5,524 6,706 6,457 Insurance losses and policyholder and annuity benefits ................ 1,528 1,413 2,166 1,324 2,123 1,419 1,880 1,408 Provision for losses on financing receivables ... 508 377 406 439 448 223 613 616 Depreciation and amortization of buildings and equipment and equipment on operating leases ........ 936 678 665 815 786 786 901 866 Minority interest in net earnings of consolidated affiliates .............. 19 15 21 18 22 16 24 19 ---------- -------------------- ---------- ----------- ---------- ----------- ---------- Earnings before income taxes ................... 1,756 1,210 1,593 1,382 1,888 1,596 607 1,573 Provision for income taxes . (549) (305) (391) (350) (568) (435) (47) (463) ---------- -------------------- ---------- ----------- ---------- ----------- ---------- Net earnings ............... $ 1,207 $ 905 $ 1,202 $ 1,032 $ 1,320(b) $ 1,161 $ 560(c) $ 1,110 ========== ========= ========== ========== =========== ========== =========== ==========
(a) Third and fourth quarter revenues in 2000 were increased by the inclusion of gains related to PaineWebber of $193 million and $26 million, respectively. (b) Third quarter net earnings in 2000 were reduced by after-tax charges of $239 million. Such charges were included in "Other costs and expenses". Also in the third quarter, net earnings were increased by the inclusion of an after-tax gain of $117 million related to PaineWebber. (c) Fourth quarter net earnings in 2000 were reduced by after-tax charges of $645 million. Such charges were primarily included in "Other costs and expenses". 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 2000, net assets of the Corporation's regulated affiliates amounted to $23.5 billion, of which $18.6 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) 2000 1999 1998 -------------- -------------- --------------- Financing receivables Increase in loans to customers .................................. $ (97,735) $ (92,314) $ (73,525) Principal collections from customers - loans .................... 84,383 83,629 63,407 Investment in equipment for financing leases .................... (15,453) (18,173) (20,298) Principal collections from customers - financing leases ......... 7,986 13,618 15,501 Net change in credit card receivables ........................... (8,983) (9,122) (4,705) Sales of financing receivables .................................. 14,405 11,473 13,805 -------------- -------------- --------------- $ (15,397) $ (10,889) $ (5,815) ============== ============== =============== All other investing activities Purchases of securities by insurance and annuity businesses ..... $ (24,985) $ (15,897) $ (17,728) Dispositions and maturities of securities by insurance and annuity businesses ........................................... 14,465 13,432 14,231 Proceeds from principal business dispositions ................... (605) 176 - Other ........................................................... (2,524) (5,893) (8,682) -------------- -------------- --------------- $ (13,649) $ (8,182) $ (12,179) ============== ============== =============== Newly issued debt having maturities longer than 90 days Short-term (91 to 365 days) ..................................... $ 12,782 $ 15,799 $ 5,881 Long-term (longer than one year) ................................ 31,598 29,033 33,453 Proceeds - nonrecourse, leveraged lease debt .................... 1,808 1,724 2,106 -------------- -------------- --------------- $ 46,188 $ 46,556 $ 41,440 ============== ============== =============== Repayments and other reductions of debt having maturities longer than 90 days Short-term (91 to 365 days) ..................................... $ (27,777) $ (21,211) $ (25,901) Long-term (longer than one year) ................................ (3,953) (5,447) (4,739) Principal payments - nonrecourse, leveraged lease debt .......... (177) (266) (387) -------------- -------------- --------------- $ (31,907) $ (26,924) $ (31,027) ============== ============== =============== All other financing activities Proceeds from sales of investment contracts ..................... $ 8,717 $ 7,092 $ 4,914 Redemption of investment contracts .............................. (8,828) (6,965) (5,355) Capital contributions from parent company ....................... 895 - 119 Cash received upon assumption of Toho Mutual Life Insurance Company insurance liabilities................................. 13,177 - - -------------- -------------- --------------- $ 13,961 $ 127 $ (322) ============== ============== =============== Cash paid during the year for: Interest ........................................................ $ (10,564) $ (9,194) $ (8,324) Income taxes .................................................... (595) (246) (883)
Changes in operating assets and liabilities are net of acquisitions and dispositions of businesses. "Payments for principal businesses purchased" in the Statement of Cash Flows is net of cash acquired and includes debt assumed and immediately repaid. In conjunction with the acquisitions, liabilities were assumed as follows:
(In millions) 2000 1999 1998 ------------- ------------- ------------- Fair value of assets acquired ................................... $ 10,544 $ 14,888 $ 23,431 Cash paid ....................................................... (1,230) (9,737) (16,986) ------------- ------------- ------------- Liabilities assumed ............................................. $ 9,314 $ 5,151 $ 6,445 ============= ============= =============
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, 2000 or 1999. 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, 2000 and 1999, is shown as follows.
2000 1999 ----------------------------------------------- ----------------------------------------------- Assets (liabilities) Assets (liabilities) ----------------------------------- ----------------------------------- Carrying Estimated fair value Carrying Estimated fair value Notional amount ----------------------- Notional amount ---------------------- (In millions) amount (net) High Low amount (net) High Low ---------- ----------- ----------- ---------- ----------- ----------- ---------- ---------- Assets Time sales and loans ... $ (a) $ 90,246 $ 90,870 $ 89,691 $ (a) $ 84,839 $ 84,830 $ 83,331 Integrated interest rate swaps .................. 21,893 (37) (744) (744) 14,978 18 70 70 Purchased options ...... 9,832 105 164 164 8,949 60 174 174 Mortgage-related positions Mortgage purchase commitments.......... - - - - 669 - - - Mortgage sale commitments ........... - - - - 1,452 - 4 4 Mortgages acquired for resale .............. (a) 1,267 1,250 1,245 (a) 2,522 2,516 2,488 Options, including "floors" .............. 21,775 196 196 196 23,877 69 43 43 Interest rate swaps and futures ............... 2,798 29 38 38 4,054 - (67) (67) Other financial instruments ............ (a) 10,847 11,035 11,007 (a) 5,275 5,250 5,220 Liabilities Borrowings and related instruments Borrowings (b) (c)..... (a) (196,258) (198,526) (198,526) (a) (191,935) (190,767) (190,767) Interest rate swaps ... 51,081 - (165) (165) 54,739 - (113) (113) Currency swaps ........ 24,314 - (957) (957) 22,859 - (1,425) (1,425) Currency forwards ..... 27,381 - 379 379 26,770 - (458) (458) Investment contract benefits ............. (a) (26,514) (25,105) (25,105) (a) (23,798) (23,294) (23,294) Insurance - financial guarantees and credit life ................. 236,063 (2,740) (2,777) (2,882) 221,940 (2,722) (2,765) (2,866) Credit and liquidity support -securitizations (d) . 35,447 (492) (492) (492) 30,356 (353) (353) (353) Performance guarantees (e) .................. 6,740 - - - 2,773 (56) (56) (56) Other financial instruments........... 2,982 (1,184) (1,114) (1,114) 2,545 (1,473) (1,444) (1,444) Other firm commitments Currency forwards ..... 1,585 8 47 47 3,778 (14) (41) (41) Ordinary course of business lending commitments ......... 9,450 - - - 7,822 - - - Unused revolving credit lines Commercial ........... 11,278 - - - 11,440 - - - Consumer - principally credit cards ....... 171,112 - - - 145,531 - - -
(a) Not applicable. (b) Includes effects of interest rate and currency swaps, which also are listed separately. (c) See note 10. (d) Pre-tax gains on sales of financial assets through securitizations amounted to $489 million during 2000. (e) Includes letters of credit. Additional information about certain financial instruments in the above table follows. Currency forwards, swaps 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 swaps, along with purchased options and futures, are used by the Corporation to establish specific hedges of mortgage-related assets. Credit risk of these positions is evaluated by management under the credit criteria discussed below. As part of its ongoing activities, the Corporation also enters into swaps that are integrated into investments in or loans to particular customers. Such integrated swaps not involving assumption of third party credit risk 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, 2000 and 1999, this gross market risk amounted to $2.7 billion and $1.8 billion, respectively. Aggregate fair values that represent associated probable future obligations, normally associated with a right of offset against probable future receipts, amounted to $3.7 billion and $3.6 billion at December 31, 2000 and 1999, 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.
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) 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ United States ................. $ 32,361 $ 28,618 $ 26,538 $ 10,951 $ 12,917 $ 10,389 Europe ........................ 10,154 10,363 9,743 3,181 3,446 3,482 Pacific Basin ................. 7,147 3,722 1,418 1,146 1,311 625 Global (a) .................... 2,134 1,788 1,682 10,763 8,959 8,160 Other (b) ..................... 2,471 2,114 2,024 1,615 1,698 1,161 ------------ ------------ ------------ ------------ ------------ ------------ Total ...................... $ 54,267 $ 46,605 $ 41,405 $ 27,656 $ 28,331 $ 23,817 ============ ============ ============ ============ ============ ============
(a) Consists of 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 PART III Item 10. Directors and Executive Officers of the Registrant. Omitted Item 11. Executive Compensation. Omitted Item 12. Security Ownership of Certain Beneficial Owners and Management. Omitted Item 13. Certain Relationships and Related Transactions. Omitted PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements Included in Part II of this report: Independent Auditors' Report Statement of Earnings for each of the years in the three-year period ended December 31, 2000 Statement of Changes in Share Owners' Equity for each of the years in the three-year period ended December 31, 2000 Statement of Financial Position at December 31, 2000 and 1999 Statement of Cash Flows for each of the years in the three-year period ended December 31, 2000 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, 2000 (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. 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); (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); and (o) a Certificate of Amendment filed in the Office of the Superintendent as of November 28, 2000 (Incorporated by reference to Exhibit 3(i) of the Corporation's Form 10-Q Report for the quarter ended September 30, 2000. 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). 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. 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, 2000, (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. 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) 2000 1999 1998 ------------- ------------- ------------- REVENUES ......................................................... $ 6,596 $ 5,527 $ 5,310 ------------- ------------- ------------- EXPENSES: Interest, net of allocations ................................... 7,338 7,096 5,444 Operating and administrative ................................... 1,937 1,904 1,988 Provision for losses on financing receivables .................. 307 241 (125) Depreciation and amortization .................................. 332 530 443 ------------- ------------- ------------- 9,914 9,771 7,750 ------------- ------------- ------------- Loss before income taxes and equity in earnings of affiliates .... (3,318) (4,244) (2,440) Income tax benefit ............................................... 965 1,734 1,008 Equity in earnings of affiliates ................................. 6,642 6,718 4,806 ------------- ------------- ------------- NET EARNINGS ..................................................... 4,289 4,208 3,374 Dividends paid ................................................... (1,606) (1,537) (895) Retained earnings at January 1 ................................... 17,011 14,340 11,861 ------------- ------------- ------------- RETAINED EARNINGS AT DECEMBER 31 ................................. $ 19,694 $ 17,011 $ 14,340 ============= ============= =============
See Notes to Condensed Financial Statements. 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) 2000 1999 -------------- -------------- ASSETS Cash and equivalents ............................................................. $ - $ 2,658 Investment securities ............................................................ 3,789 5,499 Financing receivables: Time sales and loans ............................................................ 29,797 24,957 Investment in financing leases .................................................. 14,907 13,759 -------------- -------------- 44,704 38,716 Allowance for losses on financing receivables ................................... (1,047) (755) -------------- -------------- Financing receivables - net .................................................. 43,657 37,961 Investments in and advances to affiliates ........................................ 130,551 126,581 Equipment on operating leases (at cost), less accumulated amortization of $855 and $938 ............................................................................ 3,341 4,189 Other assets ..................................................................... 16,337 12,163 -------------- -------------- Total assets .................................................................. $ 197,675 $ 189,051 ============== ============== LIABILITIES AND EQUITY Short-term borrowings ............................................................ $ 91,522 $ 99,237 Long-term borrowings ............................................................. 69,704 59,136 Other liabilities ................................................................ 7,729 4,806 Deferred income taxes ............................................................ 2,647 3,126 -------------- -------------- Total liabilities ............................................................. 171,602 166,305 -------------- -------------- Variable cumulative preferred stock, $100 par value, liquidation preference $100,000 per share (33,000 shares authorized at December 31, 2000 and 1999 and 26,000 shares outstanding at December 31, 2000 and 1999) ................... 3 3 Common stock, $200 par value (3,866,000 shares authorized and 3,837,825 shares outstanding at December 31, 2000 and 1999, respectively)........................ 768 768 Additional paid-in capital ....................................................... 6,347 5,383 Retained earnings ................................................................ 19,694 17,011 Accumulated unrealized (losses) gains on investment securities - net (a) ......... (139) (163) Accumulated foreign currency translation adjustments (a) ......................... (600) (256) -------------- -------------- Total equity .................................................................. 26,073 22,746 -------------- -------------- Total liabilities and equity .................................................. $ 197,675 $ 189,051 ============== ==============
(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 ($739) million and ($419) million at year-end 2000 and 1999, respectively. See Notes to Condensed Financial Statements. 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) 2000 1999 1998 -------------- -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES ............................. $ 2,100 $ (1,537) $ (628) -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Increase in loans to customers ................................... (57,198) (58,899) (49,265) Principal collections from customers - loans ..................... 52,260 55,114 46,902 Investment in assets on financing leases ......................... (4,687) (4,712) (5,915) Principal collections from customers - financing leases .......... 2,493 2,788 3,207 Net change in credit card receivables ............................ (48) 193 (709) Buildings, equipment and equipment on operating leases - additions ................................................... (1,494) (1,710) (421) - dispositions ................................................ 2,007 976 445 Payments for principal businesses purchased, net of cash acquired . (1,176) (9,823) (15,959) Proceeds from principal business dispositions .................... (605) 176 - Change in investment in and advances to affiliates ............... 1,750 6,193 (1,956) Other - net ...................................................... (4,139) (4,687) (2,372) -------------- -------------- -------------- Cash used for investing activities ............................ (10,837) (14,391) (26,043) -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in borrowings (less than 90-day maturities) ........... (576) (2,591) 14,263 Newly issued debt - short-term (91-365 days) .................................... 7,601 14,081 5,881 - long-term senior ............................................ 28,780 25,016 25,381 Proceeds - non-recourse, leveraged lease debt .................... 1,139 816 1,422 Repayments and other reductions - short-term .................................................. (27,382) (17,291) (16,553) - long-term senior ............................................ (2,672) (97) (3,109) Principal payments - non-recourse, leveraged lease debt .......... (94) (126) (142) Dividends paid ................................................... (1,612) (1,537) (895) Contributions to additional paid-in capital ...................... 895 - 119 Issuance of preferred stock in excess of par ..................... - 300 70 -------------- -------------- -------------- Cash from financing activities ................................ 6,079 18,571 26,437 -------------- -------------- -------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING THE YEAR ....... (2,658) 2,643 (234) CASH AND EQUIVALENTS AT BEGINNING OF YEAR ........................ 2,658 15 249 -------------- -------------- -------------- CASH AND EQUIVALENTS AT END OF YEAR .............................. $ - $ 2,658 $ 15 ============== ============== ==============
See Notes to Condensed Financial Statements. 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, 2000 and 1999 are shown below.
2000 average rate (a) Maturities 2000 1999 (Dollars in millions) --------------- --------------- --------------- --------------- Senior notes .................................... 6.58% 2002-2055 $ 69,006 $ 58,438 Subordinated notes (b) .......................... 8.04 2006-2012 698 698 --------------- --------------- $ 69,704 $ 59,136 =============== ===============
(a) Includes the effects of associated interest rate and currency swaps. (b) Guaranteed by General Electric Company. At December 31, 2000, long-term borrowing maturities during the next five years, including the current portion of long-term notes payable, are $16,593 million in 2001, $17,718 million in 2002, $13,951 million in 2003, $10,301 million in 2004, and $6,201 million in 2005. Interest rates are managed by 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, 2000 interest rate swap maturities ranged from 2001 to 2048, and average interest rates for fixed-rate borrowings (including "synthetic" fixed-rate borrowings) were 6.24% (5.54% at year end 1999). 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 $1,610 million, $1,129 million and $2,050 million for 2000, 1999 and 1998, respectively. Income Taxes General Electric Company files a consolidated U.S. federal income tax return which includes GE Capital. Income tax benefit includes the effect of GE Capital on the consolidated return. 58 Exhibit 4 (g) March 23, 2001 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Subject: General Electric Capital Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2000 - File No. 1-6461 Dear Sirs: Neither General Electric Capital Corporation (the "Corporation") nor any of its subsidiaries has outstanding any instrument with respect to its long-term debt that is not registered or filed with the Commission and under which the total amount of securities authorized exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. In accordance with paragraph (b) (4) (iii) of Item 601 of Regulation S-K (17 CFR ss.229.601), the Corporation hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each instrument which defines the rights of holders of such long-term debt. Very truly yours, GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ J.A. Parke ------------------------------------------------- J.A. Parke, Vice Chairman and Chief Financial Officer Exhibit 12 (a) GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES Computation of Ratio of Earnings to Fixed Charges
Years ended December 31 ------------------------------------------------------------------ (Dollars in millions) 2000 1999 1998 1997 1996 ------------- ------------ -------------------------- ------------ Net earnings ....................................$ 4,289 $ 4,208 $ 3,374 $ 2,729 $ 2,632 Provision for income taxes ...................... 1,555 1,553 1,185 997 1,172 Minority interest ............................... 86 68 49 40 86 ------------- ------------ -------------------------- ------------ Earnings before income taxes and minority interest ....................................... 5,930 5,829 4,608 3,766 3,890 ------------- ------------ -------------------------- ------------ Fixed charges: Interest ....................................... 10,763 9,183 8,772 7,440 7,114 One-third of rentals ........................... 381 345 289 240 177 ------------- ------------ -------------------------- ------------ Total fixed charges ............................. 11,144 9,528 9,061 7,680 7,291 ------------- ------------ -------------------------- ------------ Less interest capitalized, net of amortization .. (121) (87) (88) (52) (41) ------------- ------------ -------------------------- ------------ Earnings before income taxes and minority interest plus fixed charges .................... $ 16,953 $ 15,270 $ 13,581 $ 11,394 $ 11,140 ============= ============ ========================== ============ Ratio of earnings to fixed charges .............. 1.52 1.60 1.50 1.48 1.53 ============= ============ ========================== ============
Exhibit 12 (b) GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Years ended December 31 ----------------------------------------------------------------- (Dollars in millions) 2000 1999 1998 1997 1996 ------------ ----------- ------------ ------------ ----------- Net earnings .................................... $ 4,289 $ 4,208 $ 3,374 $ 2,729 $ 2,632 Provision for income taxes ...................... 1,555 1,553 1,185 997 1,172 Minority interest ............................... 86 68 49 40 86 ------------ ----------- ------------ ------------ ----------- Earnings before income taxes and minority interest ....................................... 5,930 5,829 4,608 3,766 3,890 ------------ ----------- ------------ ------------ ----------- Fixed charges: Interest ...................................... 10,763 9,183 8,772 7,440 7,114 One-third of rentals .......................... 381 345 289 240 177 ------------ ----------- ------------ ------------ ----------- Total fixed charges ............................. 11,144 9,528 9,061 7,680 7,291 Less interest capitalized, net of amortization .. (121) (87) (88) (52) (41) ------------ ----------- ------------ ------------ ----------- Earnings before income taxes and minority interest plus fixed charges .................... $ 16,953 $ 15,270 $ 13,581 $ 11,394 $ 11,140 ============ =========== ============ ============ =========== Preferred stock dividend requirements ........... $ 126 $ 115 $ 97 $ 78 $ 76 Ratio of earnings before provision for income taxes to net earnings .......................... 1.36 1.37 1.35 1.37 1.45 ------------ ----------- ------------ ------------ ----------- Preferred stock dividend factor on pre-tax basis 171 157 131 107 110 Fixed charges ................................... 11,144 9,528 9,061 7,680 7,291 ------------ ----------- ------------ ------------ ----------- Total fixed charges and preferred stock dividend requirements ................................... $ 11,315 $ 9,685 $ 9,192 $ 7,787 $ 7,401 ============ =========== ============ ============ =========== Ratio of earnings to combined fixed charges and preferred stock dividends ...................... 1.50 1.58 1.48 1.46 1.51 ============ =========== ============ ============ ===========
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, and 333-40880) 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 2, 2001, relating to the statement of financial position of General Electric Capital Corporation and consolidated affiliates as of December 31, 2000 and 1999, 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, 2000, and the related schedule, which report appears in the December 31, 2000 annual report on Form 10-K of General Electric Capital Corporation. /s/ KPMG LLP Stamford, Connecticut March 23, 2001 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, 2000, 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 23rd day of March 2001. /s/ Denis J. Nayden /s/ James A. Parke - --------------------------------- ----------------------------------- Denis J. Nayden, James A. Parke, Chairman of the Board and Director, Vice Chairman 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/ Nancy E. Barton /s/ Michael A. Neal - ------------------------------------- ---------------------------------- Nancy E. Barton, Michael A. Neal, Director Director /s/ Francis S. Blake /s/ James A. Parke - ------------------------------------- ---------------------------------- Francis S. Blake, James A. Parke, Director Director /s/ James R. Bunt /s/ Ronald R. Pressman - ------------------------------------- ---------------------------------- James R. Bunt, Ronald R. Pressman, Director Director /s/ David L. Calhoun /s/ Gary M. Reiner - ------------------------------------- ---------------------------------- David L. Calhoun, Gary M. Reiner, Director Director /s/ Dennis D. Dammerman /s/ John M. Samuels - ------------------------------------- ---------------------------------- Dennis D. Dammerman, John M. Samuels, Director Director /s/ Scott C. Donnelly /s/ Keith S. Sherin - ------------------------------------- ---------------------------------- Scott C. Donnelly, Keith S. Sherin, Director Director /s/ Michael D. Fraizer /s/ Edward D. Stewart - ------------------------------------- ---------------------------------- Michael D. Fraizer, Edward D. Stewart, Director Director - ------------------------------------- ---------------------------------- Benjamin W. Heineman, Jr., John F. Welch, Jr., Director Director /s/ Jeffrey R. Immelt /s/ William A. Woodburn - ------------------------------------- ---------------------------------- Jeffrey R. Immelt, William A. Woodburn, Director Director /s/ John H. Myers - ------------------------------------- John H. Myers, Director A MAJORITY OF THE BOARD OF DIRECTORS (Page 2 of 2) 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 23, 2001 By: /s/ Denis J. Nayden -------------------------------------------------- (Denis J. Nayden) Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date /s/ Denis J. Nayden Chairman of the Board and March 23, 2001 - ---------------------------------------- (Denis J. Nayden) Chief Executive Officer (Principal Executive Officer) /s/ James A. Parke Vice Chairman March 23, 2001 - ---------------------------------------- (James A. Parke) and Chief Financial Officer (Principal Financial Officer) /s/ Joan C. Amble Vice President and Controller March 23, 2001 - ---------------------------------------- (Joan C. Amble) (Principal Accounting Officer)
NANCY E. BARTON * Director FRANCIS S. BLAKE* Director JAMES R. BUNT * Director DAVID L. CALHOUN * Director DENNIS D. DAMMERMAN * Director SCOTT C. DONNELLY * Director MICHAEL D. FRAZIER* Director JEFFREY R. IMMELT * Director JOHN H. MYERS* Director MICHAEL A. NEAL* Director JAMES A. PARKE * Director RONALD R. PRESSMAN* Director GARY M. REINER * Director JOHN M. SAMUELS * Director KEITH S. SHERIN * Director EDWARD D. STEWART* Director WILLIAM A. WOODBURN* Director A MAJORITY OF THE BOARD OF DIRECTORS *By: /s/ Joan C. Amble March 23, 2001 --------------------------- (Joan C. Amble) Attorney-in-fact EX-4 2 ex4g-gecc.txt INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS Exhibit 4 (g) March 23, 2001 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, 2000 - 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, Vice Chairman and Chief Financial Officer EX-12 3 ex12a-gecc.txt 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) 2000 1999 1998 1997 1996 ------------- ------------ -------------------------- ------------ Net earnings ....................................$ 4,289 $ 4,208 $ 3,374 $ 2,729 $ 2,632 Provision for income taxes ...................... 1,555 1,553 1,185 997 1,172 Minority interest ............................... 86 68 49 40 86 ------------- ------------ -------------------------- ------------ Earnings before income taxes and minority interest ....................................... 5,930 5,829 4,608 3,766 3,890 ------------- ------------ -------------------------- ------------ Fixed charges: Interest ....................................... 10,763 9,183 8,772 7,440 7,114 One-third of rentals ........................... 381 345 289 240 177 ------------- ------------ -------------------------- ------------ Total fixed charges ............................. 11,144 9,528 9,061 7,680 7,291 ------------- ------------ -------------------------- ------------ Less interest capitalized, net of amortization .. (121) (87) (88) (52) (41) ------------- ------------ -------------------------- ------------ Earnings before income taxes and minority interest plus fixed charges .................... $ 16,953 $ 15,270 $ 13,581 $ 11,394 $ 11,140 ============= ============ ========================== ============ Ratio of earnings to fixed charges .............. 1.52 1.60 1.50 1.48 1.53 ============= ============ ========================== ============
EX-12 4 ex12b-gecc.txt RATIO OF EARNINGS TO COMBINED FIXED CHARGES 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) 2000 1999 1998 1997 1996 ------------ ----------- ------------ ------------ ----------- Net earnings .................................... $ 4,289 $ 4,208 $ 3,374 $ 2,729 $ 2,632 Provision for income taxes ...................... 1,555 1,553 1,185 997 1,172 Minority interest ............................... 86 68 49 40 86 ------------ ----------- ------------ ------------ ----------- Earnings before income taxes and minority interest ....................................... 5,930 5,829 4,608 3,766 3,890 ------------ ----------- ------------ ------------ ----------- Fixed charges: Interest ...................................... 10,763 9,183 8,772 7,440 7,114 One-third of rentals .......................... 381 345 289 240 177 ------------ ----------- ------------ ------------ ----------- Total fixed charges ............................. 11,144 9,528 9,061 7,680 7,291 Less interest capitalized, net of amortization .. (121) (87) (88) (52) (41) ------------ ----------- ------------ ------------ ----------- Earnings before income taxes and minority interest plus fixed charges .................... $ 16,953 $ 15,270 $ 13,581 $ 11,394 $ 11,140 ============ =========== ============ ============ =========== Preferred stock dividend requirements ........... $ 126 $ 115 $ 97 $ 78 $ 76 Ratio of earnings before provision for income taxes to net earnings .......................... 1.36 1.37 1.35 1.37 1.45 ------------ ----------- ------------ ------------ ----------- Preferred stock dividend factor on pre-tax basis 171 157 131 107 110 Fixed charges ................................... 11,144 9,528 9,061 7,680 7,291 ------------ ----------- ------------ ------------ ----------- Total fixed charges and preferred stock dividend requirements ................................... $ 11,315 $ 9,685 $ 9,192 $ 7,787 $ 7,401 ============ =========== ============ ============ =========== Ratio of earnings to combined fixed charges and preferred stock dividends ...................... 1.50 1.58 1.48 1.46 1.51 ============ =========== ============ ============ ===========
EX-23 5 ex23ii-gecc.txt CONSENT OF EXPERTS 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, and 333-40880) 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 2, 2001, relating to the statement of financial position of General Electric Capital Corporation and consolidated affiliates as of December 31, 2000 and 1999, 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, 2000, and the related schedule, which report appears in the December 31, 2000 annual report on Form 10-K of General Electric Capital Corporation. /s/ KPMG LLP Stamford, Connecticut March 23, 2001 EX-24 6 ex24-gecc.txt 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, 2000, 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 23rd day of March 2001. /s/ Denis J. Nayden /s/ James A. Parke - --------------------------------- ----------------------------------- Denis J. Nayden, James A. Parke, Chairman of the Board and Director, Vice Chairman 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/ Nancy E. Barton /s/ Michael A. Neal - ------------------------------------- ---------------------------------- Nancy E. Barton, Michael A. Neal, Director Director /s/ Francis S. Blake /s/ James A. Parke - ------------------------------------- ---------------------------------- Francis S. Blake, James A. Parke, Director Director /s/ James R. Bunt /s/ Ronald R. Pressman - ------------------------------------- ---------------------------------- James R. Bunt, Ronald R. Pressman, Director Director /s/ David L. Calhoun /s/ Gary M. Reiner - ------------------------------------- ---------------------------------- David L. Calhoun, Gary M. Reiner, Director Director /s/ Dennis D. Dammerman /s/ John M. Samuels - ------------------------------------- ---------------------------------- Dennis D. Dammerman, John M. Samuels, Director Director /s/ Scott C. Donnelly /s/ Keith S. Sherin - ------------------------------------- ---------------------------------- Scott C. Donnelly, Keith S. Sherin, Director Director /s/ Michael D. Fraizer /s/ Edward D. Stewart - ------------------------------------- ---------------------------------- Michael D. Fraizer, Edward D. Stewart, Director Director - ------------------------------------- ---------------------------------- Benjamin W. Heineman, Jr., John F. Welch, Jr., Director Director /s/ Jeffrey R. Immelt /s/ William A. Woodburn - ------------------------------------- ---------------------------------- Jeffrey R. Immelt, 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-99 7 ex-99b.txt FINANCIAL STATEMENTS OF GENERAL ELECTRIC COMPANY 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) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- $129.90 $111.63 $100.47 $90.84 $79.18 ================================================================================ [CHART HERE] - -------------------------------------------------------------------------------- EARNINGS PER SHARE (In dollars) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- $1.27 $1.07 $0.93 $0.82 $0.72 ================================================================================ [CHART HERE] - -------------------------------------------------------------------------------- DIVIDENDS DECLARED PER SHARE (In dollars) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- $0.5700 $0.4866 $0.4166 $0.3600 $0.3166 ================================================================================ F-2 ANNUAL REPORT PAGE 34
STATEMENT OF EARNINGS General Electric Company and consolidated affiliates --------------------------------------- For the years ended December 31 (In millions; per-share amounts in dollars) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- REVENUES Sales of goods $ 54,828 $ 47,785 $ 43,749 Sales of services 18,126 16,283 14,938 Other income (note 2) 436 798 649 Earnings of GECS -- -- -- GECS revenues from services (note 3) 56,463 46,764 41,133 --------------------------------------- Total revenues 129,853 111,630 100,469 --------------------------------------- COSTS AND EXPENSES (note 4) Cost of goods sold 39,312 34,554 31,772 Cost of services sold 12,511 11,404 10,508 Interest and other financial charges 11,720 10,013 9,753 Insurance losses and policyholder and annuity benefits 14,399 11,028 9,608 Provision for losses on financing receivables (note 14) 2,045 1,671 1,603 Other costs and expenses 30,993 27,018 23,483 Minority interest in net earnings of consolidated affiliates 427 365 265 --------------------------------------- Total costs and expenses 111,407 96,053 86,992 --------------------------------------- EARNINGS BEFORE INCOME TAXES 18,446 15,577 13,477 Provision for income taxes (note 7) (5,711) (4,860) (4,181) --------------------------------------- NET EARNINGS $ 12,735 $ 10,717 $ 9,296 ========================================================================================================= PER-SHARE AMOUNTS (note 8) Diluted earnings per share $ 1.27 $ 1.07 $ 0.93 Basic earnings per share $ 1.29 $ 1.09 $ 0.95 ========================================================================================================= DIVIDENDS DECLARED PER SHARE $ 0.57 $ 0.48 2/3 $ 0.41 2/3 =========================================================================================================
CONSOLIDATED STATEMENT OF CHANGES IN SHARE OWNERS' EQUITY ----------------------------------- (In millions) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- CHANGES IN SHARE OWNERS' EQUITY (note 25) Balance at January 1 $ 42,557 $ 38,880 $ 34,438 ----------------------------------- Dividends and other transactions with share owners (3,044) (4,632) (5,178) ----------------------------------- Changes other than transactions with share owners Increase attributable to net earnings 12,735 10,717 9,296 Unrealized gains (losses) on investment securities--net (552) (1,776) 264 Currency translation adjustments (1,204) (632) 60 ----------------------------------- Total changes other than transactions with share owners 10,979 8,309 9,620 ----------------------------------- Balance at December 31 $ 50,492 $ 42,557 $ 38,880 ===================================================================================================== The notes to consolidated financial statements on pages 56-76 are an integral part of these statements. Per-share amounts have been adjusted for the 3-for-1 stock split effective on April 27, 2000.
F-3
ANNUAL REPORT PAGES 35 STATEMENT OF EARNINGS (continued) GE GECS ------------------------------ ------------------------------- 2000 1999 1998 2000 1999 1998 ---------------------------------------------------------------- REVENUES Sales of goods $ 45,427 $ 39,045 $ 36,376 $ 9,408 $ 8,740 $ 7,374 Sales of services 18,380 16,600 15,170 -- -- -- Other income (note 2) 498 856 684 -- -- -- Earnings of GECS 5,192 4,443 3,796 -- -- -- GECS revenues from services (note 3) -- -- -- 56,769 47,009 41,320 ---------------------------------------------------------------- Total revenues 69,497 60,944 56,026 66,177 55,749 48,694 ---------------------------------------------------------------- COSTS AND EXPENSES (note 4) Cost of goods sold 30,782 26,578 24,996 8,537 7,976 6,777 Cost of services sold 12,765 11,721 10,740 -- -- -- Interest and other financial charges 811 810 883 11,111 9,359 8,966 Insurance losses and policyholder and annuity benefits -- -- -- 14,399 11,028 9,608 Provision for losses on financing receivables (note 14) -- -- -- 2,045 1,671 1,603 Other costs and expenses 8,392 7,732 7,177 22,767 19,433 16,432 Minority interest in net earnings of consolidated affiliates 213 179 117 214 186 148 ---------------------------------------------------------------- Total costs and expenses 52,963 47,020 43,913 59,073 49,653 43,534 ---------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES 16,534 13,924 12,113 7,104 6,096 5,160 Provision for income taxes (note 7) (3,799) (3,207) (2,817) (1,912) (1,653) (1,364) ---------------------------------------------------------------- NET EARNINGS $ 12,735 $ 10,717 $ 9,296 $ 5,192 $ 4,443 $ 3,796 ==================================================================================================================================== 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.
F-4 ANNUAL REPORT PAGE 36
STATEMENT OF FINANCIAL POSITION General Electric Company and consolidated affiliates ---------------------- At December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------------------- ASSETS Cash and equivalents $ 8,195 $ 8,554 Investment securities (note 10) 91,339 81,758 Current receivables (note 11) 9,502 8,531 Inventories (note 12) 7,812 7,007 Financing receivables (investments in time sales, loans and financing leases)--net (notes 13 and 14) 143,299 134,215 Insurance receivables (note 15) 23,802 18,969 Other GECS receivables 11,714 14,153 Property, plant and equipment (including equipment leased to others)--net (note 16) 40,015 41,022 Investment in GECS -- -- Intangible assets--net (note 17) 27,441 26,010 All other assets (note 18) 73,887 64,981 ---------------------- TOTAL ASSETS $ 437,006 $ 405,200 ============================================================================================ LIABILITIES AND EQUITY Short-term borrowings (note 19) $ 119,180 $ 130,346 Accounts payable, principally trade accounts 14,853 13,676 Progress collections and price adjustments accrued 8,271 4,618 Dividends payable 1,589 1,347 All other GE current costs and expenses accrued 12,219 11,229 Long-term borrowings (note 19) 82,132 71,427 Insurance liabilities, reserves and annuity benefits (note 20) 106,150 86,776 All other liabilities (note 21) 28,494 28,772 Deferred income taxes (note 22) 8,690 9,238 ---------------------- Total liabilities 381,578 357,429 ---------------------- Minority interest in equity of consolidated affiliates (note 23) 4,936 5,214 ---------------------- Accumulated unrealized gains on investment securities--net 74 626 Accumulated currency translation adjustments (2,574) (1,370) Common stock (9,932,006,000 and 9,854,528,000 shares outstanding at year-end 2000 and 1999, respectively) 669 594 Other capital 15,195 10,790 Retained earnings 61,572 54,484 Less common stock held in treasury (24,444) (22,567) - -------------------------------------------------------------------------------------------- Total share owners' equity (notes 25 and 26) 50,492 42,557 - -------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 437,006 $ 405,200 ============================================================================================ The notes to consolidated financial statements on pages 56-76 are an integral part of this statement. Share data have been adjusted for the 3-for-1 stock split effective on April 27, 2000. 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 $(2,500)and $(744) at year-end 2000 and 1999, respectively.
F-5 ANNUAL REPORT PAGE 37
STATEMENT OF FINANCIAL POSITION (continued) GE GECS ---------------------- ---------------------- 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- ASSETS Cash and equivalents $ 7,210 $ 2,000 $ 6,052 $ 6,931 Investment securities (note 10) 1,009 1,273 90,330 80,485 Current receivables (note 11) 9,727 8,743 -- -- Inventories (note 12) 7,146 5,798 666 1,209 Financing receivables (investments in time sales, loans and financing leases)--net (notes 13 and 14) -- -- 143,299 134,215 Insurance receivables (note 15) -- -- 23,802 18,969 Other GECS receivables -- -- 13,288 15,126 Property, plant and equipment (including equipment leased to others)--net (note 16) 12,199 12,381 27,816 28,641 Investment in GECS 23,022 20,321 -- -- Intangible assets--net (note 17) 12,424 11,262 15,017 14,748 All other assets (note 18) 24,028 20,805 50,366 44,694 ---------------------- ---------------------- TOTAL ASSETS $ 96,765 $ 82,583 $ 370,636 $ 345,018 ====================================================================================================================== LIABILITIES AND EQUITY Short-term borrowings (note 19) $ 940 $ 2,245 $ 123,992 $ 129,259 Accounts payable, principally trade accounts 6,153 5,068 10,436 9,749 Progress collections and price adjustments accrued 8,271 4,618 -- -- Dividends payable 1,589 1,347 -- -- All other GE current costs and expenses accrued 12,219 11,048 -- -- Long-term borrowings (note 19) 841 722 81,379 70,766 Insurance liabilities, reserves and annuity benefits (note 20) -- -- 106,150 86,776 All other liabilities (note 21) 14,840 13,872 13,451 14,801 Deferred income taxes (note 22) 452 283 8,238 8,955 ---------------------- ---------------------- Total liabilities 45,305 39,203 343,646 320,306 ---------------------- ---------------------- Minority interest in equity of consolidated affiliates (note 23) 968 823 3,968 4,391 ---------------------- ---------------------- Accumulated unrealized gains on investment securities--net 74 626 4 170 Accumulated currency translation adjustments (2,574) (1,370) (957) (384) Common stock (9,932,006,000 and 9,854,528,000 shares outstanding at year-end 2000 and 1999, respectively) 669 594 1 1 Other capital 15,195 10,790 2,752 2,682 Retained earnings 61,572 54,484 21,222 17,852 Less common stock held in treasury (24,444) (22,567) -- -- - -------------------------------------------------------------------------------------------- ---------------------- Total share owners' equity (notes 25 and 26) 50,492 42,557 23,022 20,321 - -------------------------------------------------------------------------------------------- ---------------------- TOTAL LIABILITIES AND EQUITY $ 96,765 $ 82,583 $ 370,636 $ 345,018 ====================================================================================================================== 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.
F-6 ANNUAL REPORT PAGE 38
STATEMENT OF CASH FLOWS General Electric Company and consolidated affiliates ---------------------------------------- For the years ended December 31 (In millions) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS--OPERATING ACTIVITIES Net earnings $ 12,735 $ 10,717 $ 9,296 Adjustments to reconcile net earnings to cash provided from operating activities Depreciation and amortization of property, plant and equipment 5,039 4,908 4,377 Amortization of goodwill and other intangibles 2,697 1,783 1,483 Earnings retained by GECS -- -- -- Deferred income taxes 1,153 1,502 1,143 Decrease (increase) in GE current receivables (537) 143 649 Decrease (increase) in inventories (924) 266 150 Increase in accounts payable 3,297 820 1,576 Increase (decrease) in insurance liabilities and reserves (1,009) 4,584 3,670 Provision for losses on financing receivables 2,045 1,671 1,603 All other operating activities (1,806) (1,801) (4,587) ---------------------------------------- CASH FROM OPERATING ACTIVITIES 22,690 24,593 19,360 ---------------------------------------- CASH FLOWS--INVESTING ACTIVITIES Additions to property, plant and equipment (13,967) (15,502) (8,982) Dispositions of property, plant and equipment 6,767 6,262 4,043 Net increase in GECS financing receivables (16,076) (12,628) (5,999) Payments for principal businesses purchased (2,332) (11,654) (18,610) All other investing activities (12,091) (8,657) (10,585) ---------------------------------------- CASH USED FOR INVESTING ACTIVITIES (37,699) (42,179) (40,133) ---------------------------------------- CASH FLOWS--FINANCING ACTIVITIES Net increase (decrease) in borrowings (maturities of 90 days or less) (8,243) 6,171 16,881 Newly issued debt (maturities longer than 90 days) 47,645 48,158 42,008 Repayments and other reductions (maturities longer than 90 days) (32,762) (27,539) (32,814) Net dispositions (purchases) of GE shares for treasury 469 (1,002) (2,819) Dividends paid to share owners (5,401) (4,587) (3,913) All other financing activities 12,942 622 (114) ---------------------------------------- CASH FROM (USED FOR) FINANCING ACTIVITIES 14,650 21,823 19,229 ---------------------------------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR (359) 4,237 (1,544) Cash and equivalents at beginning of year 8,554 4,317 5,861 ---------------------------------------- Cash and equivalents at end of year $ 8,195 $ 8,554 $ 4,317 =================================================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $(11,617) $(10,078) $ (9,297) Cash paid during the year for income taxes (2,604) (1,597) (2,098) =================================================================================================================================== The notes to consolidated financial statements on pages 56-76 are an integral part of this statement.
F-7 ANNUAL REPORT PAGE 39
STATEMENT OF CASH FLOWS (continued) GE GECS ------------------------------ ------------------------------- 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS--OPERATING ACTIVITIES Net earnings $ 12,735 $ 10,717 $ 9,296 $ 5,192 $ 4,443 $ 3,796 Adjustments to reconcile net earnings to cash provided from operating activities Depreciation and amortization of property, plant and equipment 1,725 1,735 1,761 3,314 3,173 2,616 Amortization of goodwill and other intangibles 523 584 531 2,174 1,199 952 Earnings retained by GECS (3,370) (2,777) (2,124) -- -- -- Deferred income taxes 470 655 594 683 847 549 Decrease (increase) in GE current receivables (550) 190 520 -- -- -- Decrease (increase) in inventories (663) (61) 69 (261) 327 81 Increase in accounts payable 845 104 199 3,047 699 1,673 Increase (decrease) in insurance liabilities and reserves -- -- -- (1,009) 4,584 3,670 Provision for losses on financing receivables -- -- -- 2,045 1,671 1,603 All other operating activities 3,701 616 (814) (5,901) (2,124) (3,985) ------------------------------ ------------------------------- CASH FROM OPERATING ACTIVITIES 15,416 11,763 10,032 9,284 14,819 10,955 ------------------------------ ------------------------------- CASH FLOWS--INVESTING ACTIVITIES Additions to property, plant and equipment (2,536) (2,036) (2,047) (11,431) (13,466) (6,935) Dispositions of property, plant and equipment 53 -- 6 6,714 6,262 4,037 Net increase in GECS financing receivables -- -- -- (16,076) (12,628) (5,999) Payments for principal businesses purchased (1,156) (1,594) (1,455) (1,176) (10,060) (17,155) All other investing activities (234) (432) 477 (12,173) (8,283) (11,380) ------------------------------ ------------------------------- CASH USED FOR INVESTING ACTIVITIES (3,873) (4,062) (3,019) (34,142) (38,175) (37,432) ------------------------------ ------------------------------- CASH FLOWS--FINANCING ACTIVITIES Net increase (decrease) in borrowings (maturities of 90 days or less) (1,331) (1,230) 1,015 (2,121) 7,308 16,288 Newly issued debt (maturities longer than 90 days) 785 558 509 46,887 47,605 41,440 Repayments and other reductions (maturities longer than 90 days) (855) (615) (1,787) (31,907) (26,924) (31,027) Net dispositions (purchases) of GE shares for treasury 469 (1,002) (2,819) -- -- -- Dividends paid to share owners (5,401) (4,587) (3,913) (1,822) (1,666) (1,672) All other financing activities -- -- -- 12,942 622 (114) ------------------------------ ------------------------------- CASH FROM (USED FOR) FINANCING ACTIVITIES (6,333) (6,876) (6,995) 23,979 26,945 24,915 ------------------------------ ------------------------------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING YEAR 5,210 825 18 (879) 3,589 (1,562) Cash and equivalents at beginning of year 2,000 1,175 1,157 6,931 3,342 4,904 ------------------------------ ------------------------------- Cash and equivalents at end of year $ 7,210 $ 2,000 $ 1,175 $ 6,052 $ 6,931 $ 3,342 ==================================================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash paid during the year for interest $ (388) $ (482) $ (620) $(11,229) $ (9,596) $ (8,677) Cash paid during the year for income taxes (1,804) (1,246) (1,151) (800) (351) (947) ==================================================================================================================================== 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.
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 of America. 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 initiative 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 2000 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. Chairman of the Board and Chief Executive Officer Jeffrey R. Immelt President and Chairman-Elect Keith S. Sherin Senior Vice President, Finance, and Chief Financial Officer February 2, 2001 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 21. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Stamford, Connecticut February 2, 2001 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 General Electric Company achieved record revenues, earnings and cash generation in 2000, demonstrating the benefits of its continuing emphasis on globalization, growth in services, Six Sigma Quality and e-Business. Revenues rose 16% to a record $129.9 billion in 2000, compared with $111.6 billion in 1999, which was 11% higher than the $100.5 billion reported in 1998. The improvements in revenues over the three-year period reflect continued growth from global activities and services. Earnings increased to a record $12,735 million, a 19% increase from $10,717 million reported in 1999. Earnings per share increased to $1.27 during 2000, up 19% from the prior year's $1.07 (except as otherwise noted, earnings per share are presented on a diluted basis). Earnings in 1999 rose 15% from $9,296 million in 1998. In 1999, earnings per share increased 15% from $0.93 in 1998. THE FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") has issued, then subsequently amended, Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, effective for GE on January 1, 2001. Upon adoption, all derivative instruments (including certain derivative instruments embedded in other contracts) will be recognized in the balance sheet at their fair values; changes in such fair values must be recognized immediately in earnings unless specific hedging criteria are met. Effects of qualifying changes in fair value will be recorded in equity pending recognition in earnings as offsets to the related earnings effects of the hedged items. Management estimates that, at January 1, 2001, the effects on its consolidated financial statements of adopting SFAS No. 133, as amended, will be a one-time reduction of net earnings of less than $0.5 billion, and a one-time reduction of equity, excluding the net earnings effect, of less than $1.0 billion. The precise transition effect is uncertain because the accounting for certain derivatives and hedging relationships in accordance with SFAS No. 133 is subject to further interpretation by the FASB. DIVIDENDS DECLARED in 2000 amounted to $5,647 million. Per-share dividends of $0.57 were up 17% from 1999, following a 17% increase from the preceding year. GE has rewarded its share owners with 25 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 was 27.5% in 2000, up from 26.8% and 25.7% in 1999 and 1998, respectively. Except as otherwise noted, the analysis in the remainder of this section presents GE results with GECS reported on an equity basis. GE TOTAL REVENUES were $69.5 billion in 2000, compared with $60.9 billion in 1999 and $56.0 billion in 1998. * GE sales of goods and services were $63.8 billion in 2000, an increase of 15% from 1999, which in turn was 8% higher than in 1998. Volume was about 16% higher in 2000, reflecting growth across most businesses during the year, led [CHART HERE] - -------------------------------------------------------------------------------- GE/S&P CUMULATIVE DIVIDEND GROWTH SINCE 1995 - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- GE 101.01% 70.28% 45.19% 25.19% 10.94% S&P 21.10 20.67 17.48 12.40 8.05 ================================================================================ by strong double-digit increases at Power Systems and Medical Systems. While overall selling prices were down slightly in 2000, the effects of selling prices on sales in various businesses differed markedly. The net effect of exchange rates on sales denominated in currencies other than the U.S. dollar also negatively affected revenues. Volume in 1999 was about 10% higher than in 1998, with selling price and currency effects both slightly negative. For purposes of the financial statement display of 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 F-10 ANNUAL REPORT PAGE 42 sales includes both spare parts (goods) as well as repair services. Such sales are referred to by management as "product services." Sales of product services were $16.2 billion in 2000, a 9% increase over 1999 on a comparable basis. Increases in product services revenues in 2000 were widespread, led by Power Systems, Medical Systems and Transportation Systems. Operating margin from product services was approximately $3.9 billion, up 10% from 1999 on a comparable basis. The increase reflected improvements in most product services businesses and was led by Power Systems, Medical Systems and Transportation Systems. * GE other income, earned from a wide variety of sources, was $0.5 billion in 2000, $0.9 billion in 1999 and $0.7 billion in 1998. Comparisons over the three-year period are affected by a pre-tax gain of $388 million in 1999 resulting from the contribution of certain of NBC's media properties to NBC Internet (NBCi), a publicly-traded company, in exchange for a noncontrolling interest in NBCi. * Earnings of GECS were up 17% in 2000, following a 17% increase the year before. See page 45 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. Two GE initiatives had significant effects on costs: * The Six Sigma Quality initiative has lowered GE's costs by dramatically reducing rework, simplifying processes and reducing direct material costs. Design for Six Sigma has been a key to the introduction of numerous high-quality new products with significantly enhanced features. * Costs have also been reduced by the e-Business initiative, a broad-based program under which GE is investing in internal infrastructure hardware and software that is enabling its businesses to conduct a growing portion of their business over the Internet. Benefits 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 6) and other retiree benefit plans (described in note 5), principal U.S. postemployment benefit plans contributed pre-tax cost reductions of $1,266 million and $1,062 million in 2000 and 1999, respectively, about 6.5% of net earnings in both years. The present funding status provides assurance of benefits for participating employees, but future effects on operating results depend on economic conditions and investment performance. 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 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. The program was essentially completed by the end of 2000. OPERATING MARGIN is sales of goods and services less the costs of goods and services sold, and selling, general and administrative expenses. GE's ongoing operating margin reached a record 18.9% of sales in 2000, up from 17.8% in 1999 and 16.7% in 1998. Reported operating margin was 18.6% in 2000, including the effects of a one-time retirement benefit provision associated with the new labor agreement. Reported operating margin in 1999 was 17.3% of sales, including the $326 million of unusual charges discussed in the preceding paragraph. The improvement in ongoing operating margin in 2000 was broad-based, with improvements in a majority of GE's businesses, led by Power Systems and Aircraft Engines, reflecting the increasing benefits from GE's product services, Six Sigma Quality and e-Business 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 [CHART HERE] - -------------------------------------------------------------------------------- GE RETURNS ON INVESTED CAPITAL - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- Return on equity 27.50% 26.80% 25.70% 25.00% 24.00% Return on total capital 27.40 25.80 23.90 23.60 22.20 ================================================================================ F-11 ANNUAL REPORT PAGE 43 margin. Total cost productivity in 2000 was 3.6%, reflecting benefits from improvements in base cost productivity achieved through strong volume growth and the Six Sigma Quality and e-Business initiatives. Most businesses achieved improvements in base cost productivity in excess of 5%. Total cost productivity was 4.2% in 1999, reflecting Six Sigma Quality benefits as well as higher volume. 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 2000 amounted to $811 million, about the same as 1999 and slightly lower than the $883 million in 1998. During 2000, higher average interest rates were more than offset by lower average borrowing levels. The decrease in 1999 arose from a combination of lower average interest rates and lower average levels of borrowing. INCOME TAXES on a consolidated basis were 31.0% of pre-tax earnings in 2000, compared with 31.2% in 1999 and 31.0% in 1998. A more detailed analysis of 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. 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 17% increase in operating profit in 2000, on revenues that were slightly higher than in 1999. The improvement in operating profit reflected strong productivity. Revenues in 1999 increased 4%, principally reflecting higher volume in product services. Operating profit increased 19% in 1999 as a result of productivity and growth in product services. In 2000, $1.6 billion of Aircraft Engines revenues were from sales to the U.S. government, about the same as in 1999. Aircraft Engines received orders of $13.5 billion in 2000 compared with $12.0 billion in 1999. The $12.0 billion total backlog at year-end 2000 comprised unfilled product orders of $9.5 billion (of which 57% was scheduled for delivery in 2001) and product services orders of $2.5 billion to be delivered in 2001. Comparable December 31, 1999 total backlog was $10.0 billion. APPLIANCES revenues were 4% higher than a year ago, as volume increases more than offset lower selling prices. Operating profit also increased 4%, largely as a result of productivity and higher volume from new products. Revenues in 1999 were 1% higher than in 1998, as volume increases offset lower selling prices. Operating profit decreased 13% in 1999, reflecting lower selling prices and increased spending on programs for new products and e-Business. INDUSTRIAL PRODUCTS AND SYSTEMS revenues increased 3% in 2000, largely as a result of volume increases at Industrial Systems and growth in product services, including acquisitions, which more than offset lower selling prices. Operating profit increased 4%, primarily reflecting productivity and growth in product services. Revenues rose 3% in 1999, primarily as a result of volume increases at Transportation Systems, which more than offset lower selling prices. Operating profit increased 11% in 1999 as strong productivity at Industrial Systems and Lighting more than offset lower selling prices. Transportation Systems received orders of $2.1 billion in 2000, compared with $1.4 billion in 1999. The $1.4 billion total backlog at year-end 2000 comprised unfilled product orders of $1.0 billion (of which 78% was scheduled for delivery [CHART HERE] - -------------------------------------------------------------------------------- GE OPERATING MARGIN AS A PERCENTAGE OF SALES - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- As reported 18.60% 17.30% 16.70% 11.00% 14.80% Restructuring and other unusual charges 0.30 0.50 -- 4.70 -- ================================================================================ in 2001) and product services orders of $0.4 billion to be delivered in 2001. Comparable December 31, 1999 total backlog was $1.4 billion. NBC revenues increased 17% in 2000, reflecting its coverage of the Summer Olympic Games as well as continued strong growth in cable operations, particularly at CNBC. Operating profit increased 14% as growth in owned-and-operated stations, cable operations and network operations was somewhat reduced by higher license fees associated with renewal of certain sports and prime-time programs. In 1999, revenues increased 10%, reflecting higher revenues in NBC's owned-and-operated stations and growth in cable operations. Operating profit was 17% higher, reflecting a strong advertising marketplace and improved pricing at the network, excellent results in cable F-12 ANNUAL REPORT PAGE 44
SUMMARY OF OPERATING SEGMENTS General Electric Company and consolidated affiliates ----------------------------------------------------------- For the years ended December 31 (In millions) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- REVENUES GE Aircraft Engines $ 10,779 $ 10,730 $ 10,294 $ 7,799 $ 6,302 Appliances 5,887 5,671 5,619 5,801 5,586 Industrial Products and Systems 11,848 11,555 11,222 10,984 10,401 NBC 6,797 5,790 5,269 5,153 5,232 Plastics 7,776 6,941 6,633 6,695 6,509 Power Systems 14,861 10,099 8,500 7,986 7,704 Technical Products and Services 7,915 6,863 5,323 4,861 4,700 Eliminations (2,075) (1,767) (1,401) (1,247) (1,093) ----------------------------------------------------------- Total GE segment revenues 63,788 55,882 51,459 48,032 45,341 Corporate items 517 619 771 3,227 1,407 GECS net earnings 5,192 4,443 3,796 3,256 2,817 ----------------------------------------------------------- Total GE revenues 69,497 60,944 56,026 54,515 49,565 GECS segment revenues 66,177 55,749 48,694 39,931 32,713 Eliminations (5,821) (5,063) (4,251) (3,606) (3,099) ----------------------------------------------------------- CONSOLIDATED REVENUES $ 129,853 $ 111,630 $ 100,469 $ 90,840 $ 79,179 ========================================================================================================= SEGMENT PROFIT GE Aircraft Engines $ 2,464 $ 2,104 $ 1,769 $ 1,366 $ 1,214 Appliances 684 655 755 771 748 Industrial Products and Systems 2,187 2,095 1,880 1,789 1,587 NBC 1,797 1,576 1,349 1,216 1,020 Plastics 1,923 1,651 1,584 1,500 1,443 Power Systems 2,809 1,753 1,338 1,275 1,189 Technical Products and Services 1,718 1,359 1,109 988 855 ----------------------------------------------------------- Total GE operating profit 13,582 11,193 9,784 8,905 8,056 GECS net earnings 5,192 4,443 3,796 3,256 2,817 ----------------------------------------------------------- Total segment profit 18,774 15,636 13,580 12,161 10,873 Corporate items and eliminations (1,429) (902) (584) (1,351) (703) GE interest and other financial charges (811) (810) (883) (797) (595) GE provision for income taxes (3,799) (3,207) (2,817) (1,810) (2,295) ----------------------------------------------------------- CONSOLIDATED NET EARNINGS $ 12,735 $ 10,717 $ 9,296 $ 8,203 $ 7,280 ========================================================================================================= 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 and $789 million in 1997 and 1996, 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, of $79 million, $62 million, $271 million, $310 million and $282 million in 2000, 1999, 1998, 1997 and 1996, respectively. 1999 includes unusual charges amounting to $265 million. Of the total, amounts that relate to activities of GE 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. ================================================================================
F-13 ANNUAL REPORT PAGE 45 operations and continued cost reductions, 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 closing certain CNBC facilities. PLASTICS operating profit increased 16% in 2000 on revenues that were 12% higher than a year ago. The increases in both revenues and operating profit were primarily attributable to higher volume and improved selling prices, which more than offset the effects of higher raw material prices. Revenues in 1999 increased by 5%, as improved volume across all product lines more than offset the effects of lower selling prices. Operating profit increased by 4% as productivity and the increase in volume more than offset lower prices. POWER SYSTEMS revenues increased 47% in 2000, primarily as a result of sharply higher volume in gas turbines and continued growth in product services, including acquisitions. Operating profit rose 60%, reflecting the increase in volume, selling prices and productivity. Revenues in 1999 were 19% higher than in 1998, primarily as a result of strong double-digit growth in gas turbine volume and in product services. Operating profit rose 31%, reflecting productivity, growth in product services and the increase in volume. Power Systems orders were $23.6 billion for 2000, a 68% increase over 1999, reflecting very strong Americas market growth. The $25.1 billion total backlog at year-end 2000 comprised unfilled product orders of $21.9 billion (of which 63% was scheduled for delivery in 2001) and product services orders of $3.2 billion to be delivered in 2001. Comparable December 31, 1999 total backlog was $16.1 billion. TECHNICAL PRODUCTS AND SERVICES revenues rose 15% in 2000, reflecting sharply higher volume at Medical Systems, including acquired businesses. Operating profit grew 26%, largely as a result of productivity and volume growth at Medical Systems, which more than offset lower selling prices across the segment. Revenues in 1999 were 29% higher than 1998 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% as productivity and volume increases, particularly at Medical Systems, more than offset lower selling prices. Orders received by Medical Systems in 2000 were $7.6 billion, a 19% increase over 1999. The $3.6 billion total backlog at year-end 2000 comprised unfilled product orders of $2.3 billion (of which 87% was scheduled for delivery in 2001) and product services orders of $1.3 billion to be delivered in 2001. Comparable December 31, 1999 total backlog was $3.1 billion. GECS businesses are categorized for management purposes into five operating activities: consumer services, equipment management, mid-market financing, specialized financing and specialty insurance. GECS net earnings were $5,192 million in 2000, up 17% from $4,443 million in 1999, with strong double-digit earnings growth in four of the five operating activities. Net earnings in 1999 increased 17% from 1998. The earnings improvement throughout the three-year period resulted from asset growth, principally from acquisitions of businesses and portfolios, and origination volume. [CHART HERE] - -------------------------------------------------------------------------------- OPERATING PROFIT OF GE SEGMENTS (In billions) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- $13.58 $11.19 $9.78 $8.90 $8.056 ================================================================================ On December 28, 2000, Montgomery Ward, LLC (Wards), formerly a GECS subsidiary, filed for bankruptcy protection and began liquidation proceedings. Net earnings for the year 2000 included operating losses from Wards amounting to $245 million as well as a charge, primarily to other costs and expenses, for $815 million ($537 million, after tax) to recognize the additional losses resulting from the bankruptcy of Wards. * GECS total revenues increased 19% to $66.2 billion in 2000, following a 14% increase to $55.7 billion in 1999. The increases in both years reflected the contributions of acquired businesses as well as growth in origination volume. Revenues in 2000 included a gain of $1,366 million ($848 million, after tax) from sale of GECS investment in common stock of Paine Webber Group, Inc. (PaineWebber). F-14 ANNUAL REPORT PAGE 46 [CHART HERE] - -------------------------------------------------------------------------------- GECS REVENUES (In billions) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- $66.18 $55.75 $48.70 $39.93 $32.71 ================================================================================ * GECS cost of goods sold amounted to $8.5 billion in 2000, compared with $8.0 billion in 1999 and $6.8 billion in 1998, and relates to IT Solutions and Wards. The increase in 2000 and 1999 primarily reflects the consolidation of Wards from August 2, 1999, when GECS acquired control, through December 28, 2000, when Wards commenced liquidation proceedings and was deconsolidated. * GECS interest on borrowings in 2000 was $11.1 billion, up from $9.4 billion in 1999 and $9.0 billion in 1998. The increase in both years reflected the effects of both interest rates and the average level of borrowings used to finance asset growth. GECS average composite interest rate was 5.89% in 2000, compared with 5.14% in 1999 and 5.92% in 1998. In 2000, average assets of $360.5 billion were 13% higher than in 1999, which in turn were 16% higher than in 1998. See page 52 for a discussion of interest rate risk management. * GECS insurance losses and policyholder and annuity benefits increased to $14.4 billion in 2000, compared with $11.0 billion in 1999 and $9.6 billion in 1998. This increase reflected effects of growth in premium volume and business acquisitions throughout the period, as well as a higher ratio of losses to premiums earned in the reinsurance business discussed on page 47. * GECS provision for losses on financing receivables was $2.0 billion in 2000, compared with $1.7 billion in 1999 and $1.6 billion in 1998. These provisions principally related to private-label credit cards, bank credit cards, personal loans and auto loans and leases in the consumer services operations, all of which are discussed on page 48 under financing receivables. The provisions throughout the three-year period reflected higher average receivable balances, changes in the mix of business, and the effects of lower average consumer delinquency rates. * GECS other costs and expenses were $22.8 billion in 2000, an increase from $19.4 billion in 1999 and $16.4 billion in 1998. The increase in 2000 reflected increased costs associated with acquired businesses and portfolios, the charges discussed previously for Wards, and the decision to rationalize certain operations discussed in the analysis of All Other GECS operating activities. The 1999 increase reflected 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) increased slightly during 2000, as the improvement in yields outpaced increases in borrowing rates. Financing spreads in 1999 were relatively flat compared with 1998 as yields and borrowing rates decreased to a similar extent. 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 28% in 2000 and 6% in 1999, and net earnings increased 47% in 2000 and 35% in 1999. Growth in revenues and net income in 2000 resulted from higher premium and investment income at GE Financial Assurance (GEFA), the consumer savings and insurance business, which experienced profitable growth from both acquisitions and volume. Revenues and net earnings also increased as a result of acquisition and volume growth at Card Services and Global Consumer Finance, partially offset by losses at Mortgage Services, which stopped accepting new business during 2000. The growth in revenues and net earnings during 1999 was led by Global Consumer Finance and improved results at GEFA, partially offset by the effects of asset reductions in Card Services. The portfolio at Auto Financial Services (AFS) began to run off in 1999 and continued in 2000, resulting in a significant decline in revenues; during 2000, AFS stopped accepting new business. EQUIPMENT MANAGEMENT revenues declined 4% in 2000, following a 3% increase in 1999, as higher revenues from GE Capital Aviation Services (GECAS), Transport International Pool, GE Capital Modular Space and Americom, the satellite services business, were more than offset by lower revenues at IT Solutions. The increase in 1999 reflected acquisitions in the corporate auto fleet management operations and higher revenues at GECAS, largely offset by decreases in sales F-15 ANNUAL REPORT PAGE 47 - ------------------------------------------------------------------------------ GECS REVENUES AND NET EARNINGS FROM OPERATING ACTIVITIES - ------------------------------------------------------------------------------ (In millions) 2000 1999 1998 - ------------------------------------------------------------------------------ REVENUES Consumer services $ 23,893 $ 18,705 $ 17,621 Equipment management 14,747 15,383 14,926 Mid-market financing 5,483 4,634 3,676 Specialized financing 5,648 4,603 3,368 Specialty insurance 11,878 10,643 8,829 All other 4,528 1,781 274 -------------------------------------- Total revenues $ 66,177 $ 55,749 $ 48,694 ============================================================================== NET EARNINGS Consumer services $ 1,671 $ 1,140 $ 845 Equipment management 833 683 806 Mid-market financing 730 597 471 Specialized financing 1,503 1,244 745 Specialty insurance 879 1,167 1,115 All other (424) (388) (186) -------------------------------------- Total net earnings $ 5,192 $ 4,443 $ 3,796 ============================================================================== volume at the remaining equipment management businesses. Net earnings increased 22% in 2000, following a 15% decrease in 1999. The increase in 2000 reflected volume growth at GECAS, Transport International Pool and GE Capital Modular Space, favorable tax effects and a higher level of asset gains, partially offset by lower results at IT Solutions. The decrease in net earnings in 1999 reflected lower results at IT Solutions and the European equipment management businesses, which more than offset growth at GECAS and Americom. MID-MARKET FINANCING revenues increased 18% in 2000, following a 26% increase in 1999, while net earnings grew 22% and 27%, respectively. Favorable tax effects and asset growth from originations were the most significant contributing factors to results in 2000, while asset growth from both acquisitions and originations was the most significant contributing factor in 1999. SPECIALIZED FINANCING revenues rose 23% and 37%, while net earnings increased 21% and 67% in 2000 and 1999, respectively. Revenues and net earnings growth in 2000 was principally the result of origination growth across all businesses within Specialized Financing. Revenues and net earnings growth in 1999 was principally the result of gains on equity investments led by GE Equity, Commercial Finance and Real Estate. GE Equity experienced a high level of gains on sales of equity investments during 1999 and early 2000. SPECIALTY INSURANCE revenues increased 12% and 21% in 2000 and 1999, respectively, primarily resulting from premium growth throughout the period and higher premium income in 1999 from acquisitions. Net realized investment gains amounted to $639 million, $811 million and $574 million in 2000, 1999 and 1998, respectively. Investment income increased slightly in 2000, as higher interest income more than offset a decrease in net realized investment gains at GE Global Insurance (the parent of Employers Reinsurance). Net income decreased 25% in 2000, following a 5% increase in 1999. The decrease in 2000 was attributable to deterioration of underwriting results at GE Global Insurance, reflecting higher property and casualty-related losses (principally as a result of adverse development relating to prior-year loss events, including large loss events) and the continued effects of low premiums in the property and casualty insurance/reinsurance industry. Losses in 1999 were significantly affected by a number of large loss events. 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 and railroad accidents, fire damage, and weather-related damage from hurricanes, tornadoes, wind and ice. Large loss events for GE Global Insurance occurring in 2000, 1999 and 1998 resulted in losses in those years of approximately $250 million, $510 million and $150 million, respectively. A portion of the 2000 and 1999 losses were recovered under aggregate risk coverage obtained in the ordinary course of the reinsurance business. Overall insurance losses for Specialty Insurance were partially mitigated by favorable experience in the Mortgage Insurance business, particularly in 1999. ALL OTHER GECS operating activities included the results of Wards from August 2, 1999, through December 28, 2000. The increase in revenues in 2000 also included a pre-tax gain of $1,366 million from sale of GECS investment in common stock of PaineWebber. The net loss of $424 million for 2000 comprised the PaineWebber after-tax gain of $848 million, after-tax charges of $537 million related to Wards and after-tax strategic rationalization costs of $347 million, [CHART HERE] - -------------------------------------------------------------------------------- GECS NET EARNINGS (In billions) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- $5.19 $4.44 $3.80 $3.26 $2.82 ================================================================================ F-16 ANNUAL REPORT PAGE 48 [CHART HERE] - -------------------------------------------------------------------------------- CONSOLIDATED INTERNATIONAL REVENUES (In billions) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- International operations $45.82 $38.16 $33.76 $29.33 $25.45 Exports 7.14 7.51 8.75 8.91 7.58 ================================================================================ primarily for asset write-downs, employee severance and lease termination. These strategic rationalization costs consisted of $107 million related to Consumer Services, $191 million related to Equipment Management and $49 million related to Specialized Financing. 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 $147.3 billion at the end of 2000 from $137.9 billion at the end of 1999, as discussed in the following paragraphs. The related allowance for losses at the end of 2000 amounted to $4.0 billion ($3.7 billion at the end of 1999), 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 $48.8 billion at year-end 2000, a decrease of $3.5 billion from year-end 1999. Credit card and personal receivables increased $0.2 billion, primarily from origination volume, partially offset by sales and securitizations and the net effects of foreign currency translation. Auto receivables decreased $3.7 billion, primarily as a result of the run-off of the liquidating Auto Financial Services portfolio and the net effects of foreign currency translation. Nonearning consumer receivables at year-end 2000 were $1.1 billion, about 2.3% of outstandings, compared with $0.9 billion, about 1.8% of outstandings at year-end 1999. Write-offs of consumer receivables increased to $1.3 billion from $1.2 billion for 1999, reflecting shifts in the mix of products and global businesses. Consistent with industry trends, consumer delinquency rates increased somewhat toward the end of 2000 from the unusually low levels earlier in the year but were below year-end 1999 levels. Other financing receivables, which totaled $98.5 billion at December 31, 2000, consisted of a diverse commercial, industrial and equipment loan and lease portfolio. This portfolio increased $12.9 billion during 2000, reflecting increased originations and acquisition growth, partially offset by sales and securitizations and the net effects of foreign currency translation. Related nonearning and reduced-earning receivables were $0.9 billion, about 1.0% of outstandings at year-end 2000, compared with $0.9 billion, about 1.1% of outstandings at year-end 1999. GECS loans and leases to commercial airlines amounted to $15.3 billion at the end of 2000, up from $11.8 billion at the end of 1999. GECS commercial aircraft positions also included financial guarantees, funding commitments and aircraft orders as discussed in note 18. 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 2000 were $53.0 billion (41% of consolidated revenues), compared with $45.7 billion in 1999 and $42.5 billion in 1998. The chart above left depicts the growth in international revenues over the past five years. [CHART HERE] - -------------------------------------------------------------------------------- CONSOLIDATED INTERNATIONAL REVENUES BY REGION (In billions) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- Europe $26.67 $25.82 $24.35 $20.63 $18.03 Pacific Basin 15.19 10.19 8.06 7.98 7.57 Americas 7.68 6.73 6.91 6.20 4.71 Other 3.411 2.94 3.19 3.43 2.72 ================================================================================ F-17 ANNUAL REPORT PAGE 49 - -------------------------------------------------------------------------------- CONSOLIDATED INTERNATIONAL REVENUES - -------------------------------------------------------------------------------- (In millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Europe $24,144 $22,919 $21,665 Pacific Basin 12,921 7,879 5,166 Americas 5,912 5,229 5,030 Other 2,842 2,136 1,895 ----------------------------------- 45,819 38,163 33,756 Exports from the U.S. to external customers 7,138 7,513 8,751 ----------------------------------- $52,957 $45,676 $42,507 ================================================================================ GE international revenues were $26.7 billion in 2000, an increase of $2.7 billion over 1999, which was $0.3 billion lower than in 1998. Over the three-year period, international revenues were slightly less than half of total revenues. The increase in such revenues during 2000 was attributable to sales growth in operations based outside the United States, partially offset by a 5% decrease in U.S. exports, primarily at Power Systems. Revenues from operations based outside the United States grew 19% to $19.5 billion in 2000. European revenues were 8% higher in 2000, led by increases at Power Systems and Plastics. Pacific Basin revenues were 39% higher in 2000, reflecting double-digit growth at Power Systems, Medical Systems and Plastics. Revenues from the Americas (North and South America, except for the United States) increased 17%, reflecting double-digit growth in both Canadian and Latin American operations. GECS international revenues were $26.3 billion in 2000, an increase of 21% from $21.7 billion in 1999. Revenues in the Pacific Basin almost doubled in 2000, principally because of growth in Japan, the result of the purchase by GE Financial Assurance of the insurance policies and related assets of Toho Mutual Life Insurance Company (Toho). "Other international" revenues increased 27% in 2000, largely a result of higher revenues at GE Capital Aviation Services (GECAS). 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 $6.8 billion in 2000, an increase of 21% over 1999, which was 9% higher than in 1998. Additional information about operating profit by region is provided in note 29. Total assets of international operations were $159.4 billion in 2000 (37% of consolidated assets), an increase of 13% over 1999. The increase in 2000 reflected strong growth at GECS in the Pacific Basin, particularly in Japan, resulting from the acquisition of Toho discussed previously. GECS also achieved significant asset growth at GECAS, which is classified as "other international." The international 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. Certain of GE's operations in Europe will need to be fully euro-capable as of January 1, 2002. GE is taking appropriate actions to meet that requirement and no adverse consequences are expected. [CHART HERE] - -------------------------------------------------------------------------------- CONSOLIDATED TOTAL ASSETS (In billions) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- United States $277.82 $263.78 $227.11 $206.46 $189.43 International 159.19 141.26 128.82 97.55 82.97 ================================================================================ 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 $1.0 billion at year-end 2000, a decrease of $0.3 billion from 1999, reflecting decreases in the fair value of equity investment securities partially offset by additional investments. GECS investment securities were $90.3 billion in 2000, compared with $80.5 billion in 1999. The increase of $9.8 billion resulted from the addition of securities from acquired companies, investment of premiums received and increases in the fair value of debt securities, partially offset by the disposition of GECS investment in common stock of PaineWebber and a decrease in the fair value of certain equity securities, consistent with market conditions. See note 10 for further information. CURRENT RECEIVABLES for GE were $9.7 billion at the end of 2000, an increase of $1.0 billion from year-end 1999, and included $6.3 billion due from customers at the end of 2000, which was $0.5 billion higher than the amount due at the end of 1999. Turnover of customer receivables from sales of goods and services was 10.0 in 2000, compared with 9.4 in 1999. 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 $7.1 billion at December 31, 2000, up $1.3 billion from the end of 1999. GE inventory turnover was 8.5 in 2000, an increase from 8.3 in 1999. Acquisitions of inventories in business combinations and volume growth more than offset the positive effects of inventory management programs throughout the period. Last-in, first-out (LIFO) revaluations decreased $82 million in 2000, compared with decreases of $84 million in 1999 and $87 million in 1998. Included in these changes were decreases of $6 million, $4 million and $29 million in 2000, 1999 and 1998, 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 24.0 in 2000, compared with 11.5 in 1999, principally reflecting effects of increased progress collections throughout the period. GECS inventories were $666 million and $1,209 million at December 31, 2000 and 1999, respectively. The decrease in 2000 primarily relates to the deconsolidation of Wards because of its bankruptcy filing. FINANCING RECEIVABLES of GECS were $143.3 billion at year-end 2000, net of allowance for doubtful accounts, up $9.1 billion over 1999. These receivables are discussed on page 48 and in notes 13 and 14. INSURANCE RECEIVABLES of GECS were $23.8 billion at year-end 2000, an increase of $4.8 billion that was primarily attributable to acquisitions. OTHER RECEIVABLES of GECS, which consist of trade receivables, accrued investment income, operating lease receivables and a variety of sundry items, were $13.3 billion and $15.1 billion at December 31, 2000 and 1999, respectively. The decrease of $1.8 billion primarily resulted from the planned run-off of assets from the 1999 acquisition of Japan Leasing Corporation. PROPERTY, PLANT AND EQUIPMENT (including equipment leased to others) was $40.0 billion at December 31, 2000, down $1.0 billion from 1999. 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 16. F-19 ANNUAL REPORT PAGE 51 GE total expenditures for plant and equipment during 2000 totaled $2.5 billion, compared with $2.0 billion in 1999. Total expenditures for the past five years were $11.3 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. GECS additions to property, plant and equipment (including equipment leased to others), were $11.4 billion during 2000 ($13.5 billion during 1999), primarily reflecting acquisitions of transportation equipment. INTANGIBLE ASSETS were $27.4 billion at year-end 2000, up from $26.0 billion at year-end 1999. GE intangibles increased to $12.4 billion from $11.3 billion at the end of 1999, principally as a result of goodwill related to acquisitions, the largest of which were Harmon Industries and OEC Medical Systems, partially offset by amortization. GECS intangibles increased $0.3 billion to $15.0 billion, reflecting goodwill and other intangibles associated with acquisitions, the largest of which was the acquisition of the insurance policies and related assets of Toho Mutual Life Insurance Company by GE Financial Assurance, partially offset by amortization. ALL OTHER ASSETS totaled $73.9 billion at year-end 2000, an increase of $8.9 billion from the end of 1999. GE other assets increased $3.2 billion, principally reflecting an increase in the prepaid pension asset, higher costs associated with increased volume of long-term service agreements and additions to capitalized software. GECS other assets increased $5.7 billion as a result of additional investments in real estate ventures and associated companies, and increases in "separate accounts" (see note 18), partially offset by decreases in assets acquired for resale, which reflected sales and securitizations in excess of originations. CONSOLIDATED BORROWINGS aggregated $201.3 billion at December 31, 2000, compared with $201.8 billion at the end of 1999. 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, 2000 and 1999. Management believes the likelihood that GE will be required to contribute capital under either the commitments or the guarantee is remote. GE total borrowings were $1.8 billion at year-end 2000 ($0.9 billion short-term, $0.9 billion long-term), a decrease of $1.2 billion from year-end 1999. GE total debt at the end of 2000 equaled 3.3% of total capital, down from 6.4% at the end of 1999. GECS total borrowings were $205.4 billion at December 31, 2000, of which $124.0 billion is due in 2001 and $81.4 billion is due in subsequent years. [CHART HERE] - -------------------------------------------------------------------------------- GE WORKING CAPITAL TURNOVER - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- 23.98 11.52 9.22 7.42 6.30 ================================================================================ Comparable amounts at the end of 1999 were $200.0 billion in total, $129.2 billion due within one year and $70.8 billion due thereafter. A large portion of GECS borrowings ($94.5 billion and $96.6 billion at the end of 2000 and 1999, 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 45 days and 6.43% at the end of 2000, compared with 53 days and 5.82% at the end of 1999. The GE Capital ratio of debt to equity was 7.53 to 1 at the end of 2000 and 8.44 to 1 at the end of 1999. F-20 ANNUAL REPORT PAGE 52 INTEREST RATE AND CURRENCY RISK MANAGEMENT is important in the normal operations of GE and GECS. 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 changes in interest rates and currency exchange rates 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 2001 net earnings of GECS based on year-end 2000 positions by approximately $124 million; the pro forma effect for GE was insignificant. Based on positions at year-end 1999, the pro forma effect on 2000 net earnings of such an increase in interest rates was estimated to be approximately $105 million for GECS and $13 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 2000 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 2001 net earnings of GE and GECS based on year-end 2000 positions. Based on conditions at year-end 1999, the effect on 2000 net earnings of such a decrease in exchange rates was estimated to be insignificant for GE and GECS. INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS were $106.2 billion, $19.4 billion higher than in 1999. The increase was primarily attributable to the addition of liabilities from acquisitions, increases in separate accounts, and growth in guaranteed investment contracts. For additional information on these liabilities, see note 20. [CHART HERE] - -------------------------------------------------------------------------------- TOTAL ASSETS OF INTERNATIONAL OPERATIONS (In billions) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- Europe $80.28 $83.36 $84.52 $66.74 $55.19 Pacific Basin 42.28 28.21 18.43 8.88 8.12 Americas 15.33 13.29 11.25 8.62 7.23 Other 21.29 16.40 14.63 13.31 12.43 ================================================================================ STATEMENT OF CHANGES IN SHARE OWNERS' EQUITY Share owners' equity increased $7,935 million to $50,492 million at year-end 2000. The increase was largely attributable to net earnings during the period of $12,735 million, partially offset by dividends of $5,647 million. Currency translation adjustments reduced equity by $1,204 million in 2000. 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 2000 largely reflected continued weakening in the euro. Accumulated currency translation adjustments affect net earnings only when all or a portion of an affiliate is disposed of. F-21 ANNUAL REPORT PAGE 53 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 $7.2 billion at the end of 2000, up from $2.0 billion at year-end 1999. During 2000, GE generated a record $15.4 billion in cash from operating activities, a 31% increase over 1999. The increase reflected improvements in earnings and working capital, the latter principally from progress collections. The 2000 cash generation provided the necessary resources to purchase $2.2 billion of GE common stock under the share repurchase program, to pay $5.4 billion in dividends to share owners, to invest $2.5 billion in plant and equipment and to make $1.2 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 $37 billion of cash. The principal application of this cash was distributions of approximately $22 billion to share owners, both through payment of dividends ($13.9 billion) and through the share repurchase program ($7.7 billion) described below. Other applications included investment in plant and equipment ($6.6 billion) and acquisitions ($4.2 billion). Under the share repurchase program initiated in December 1994, GE has purchased more than $17 billion of GE stock--over 950 million shares through 2000. 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 plant and equipment are expected to be about $2.9 billion in 2001, principally for productivity and growth. GECS CASH AND EQUIVALENTS aggregated $6.1 billion at the end of 2000, down from $6.9 billion at year-end 1999 principally as a result of liquidation of short-term investments, partially offset by $13.2 billion of cash acquired in connection with the acquisition of the insurance policies and related assets of the Toho Mutual Life Insurance Company. The cash acquired with Toho is shown as cash from financing activities. Paydown of the acquired Toho insurance policies ($4.4 billion in 2000) appears as a usage under the caption "Insurance liabilities and reserves" and was a primary cause of the decrease in GECS cash from operating activities in 2000. 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 $21.5 billion. New borrowings of $135.9 billion having maturities longer than 90 days were added during those years, while $89.9 billion of such longer-term borrowings were retired. GECS also generated $35.1 billion from operating activities. [CHART HERE] - -------------------------------------------------------------------------------- GE CUMULATIVE CASH FLOWS SINCE 1994 (In billions) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- Cash flows from operating activities $67.73 $52.31 $40.55 $30.52 $21.20 Dividends paid 25.59 20.19 15.61 11.69 8.28 Shares repurchased 18.67 16.44 14.58 10.93 7.44 ================================================================================ The principal use of cash by GECS has been investing in assets to grow its businesses. Of the $109.7 billion that GECS invested over the past three years, $34.7 billion was used for additions to financing receivables; $31.8 billion was used to invest in new equipment, principally for lease to others; and $28.4 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. 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 $2,193 million in 2000, up 9% over 1999 and 1998. In 2000, expenditures from GE's own funds were $1,867 million, an increase of 12% over 1999, reflecting continuing research and development work related to new product, service and process technologies. Product technology efforts in 2000 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 [CHART HERE] - -------------------------------------------------------------------------------- ORDERS BACKLOG (In billions) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- $44.17 $32.42 $28.53 $26.44 $26.19 ================================================================================ 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 $326 million in 2000, down $24 million from 1999. GE'S TOTAL BACKLOG of firm unfilled orders at the end of 2000 was $44.2 billion, an increase of 36% over 1999, reflecting strong double-digit growth at Power Systems, Aircraft Engines and Medical Systems. Of the total, $36.7 billion related to products, of which 71% was scheduled for delivery in 2001. Services orders, included in this reported backlog for only the succeeding 12 months, were $7.5 billion at the end of 2000. Orders constituting this backlog may be canceled or deferred by customers, subject in certain cases to 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 2000, GE expended about $48 million for capital projects related to the environment. The comparable amount in 1999 was $66 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 [CHART HERE] - -------------------------------------------------------------------------------- GE SHARE PRICE ACTIVITY (In dollars) - -------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- High $60.50 $53.17 $34.65 $25.52 $17.69 Low 41.67 31.42 23.00 15.98 11.58 Close 47.94 51.58 34.00 24.46 16.48 ================================================================================ responsibility, average annual capital expenditures other than for remediation projects are presently expected to be about $55 million over the next two years. This level is in line with existing levels for new or expanded programs to build facilities or modify manufacturing processes to minimize waste and reduce emissions. GE also is involved in a sizable number of remediation actions to clean up hazardous wastes as required by federal and state laws. Such statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Expenditures for site remediation actions amounted to approximately $128 million in 2000, compared with $114 million in 1999. 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. F-23 ANNUAL REPORT PAGE 55
SELECTED FINANCIAL DATA (Dollar amounts in millions; -------------------------------------------------- per-share amounts in dollars) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES Revenues $129,853 $111,630 $100,469 $90,840 $ 79,179 Net earnings 12,735 10,717 9,296 8,203 7,280 Dividends declared 5,647 4,786 4,081 3,535 3,138 Earned on average share owners' equity 27.5% 26.8% 25.7% 25.0% 24.0% Per share Earnings--diluted $ 1.27 $ 1.07 $ 0.93 $ 0.82 $ 0.72 Earnings--basic 1.29 1.09 0.95 0.83 0.73 Dividends declared 0.57 0.48 2/3 0.41 2/3 0.36 0.31 2/3 Stock price range 60.50- 53.17- 34.65- 25.52- 17.69- 41.67 31.42 23.00 15.98 11.58 Year-end closing stock price 47.94 51.58 34.00 24.46 16.48 Total assets 437,006 405,200 355,935 304,012 272,402 Long-term borrowings 82,132 71,427 59,663 46,603 49,246 Shares outstanding--average (in thousands) 9,897,110 9,833,478 9,806,995 9,824,075 9,922,182 Share owner accounts--average 597,000 549,000 534,000 509,000 486,000 ========================================================================================================= GE DATA Short-term borrowings $ 940 $ 2,245 $ 3,466 $ 3,629 $ 2,339 Long-term borrowings 841 722 681 729 1,710 Minority interest 968 823 816 569 477 Share owners' equity 50,492 42,557 38,880 34,438 31,125 -------------------------------------------------- Total capital invested $ 53,241 $ 46,347 $ 43,843 $39,365 $ 35,651 ================================================== Return on average total capital invested 27.4% 25.8% 23.9% 23.6% 22.2% Borrowings as a percentage of total capital invested 3.3% 6.4% 9.5% 11.1% 11.4% Working capital $ 799 $ 3,922 $ 5,038 $ 5,990 $ 6,598 Additions to property, plant and equipment 2,536 2,036 2,047 2,191 2,389 Employees at year end United States 131,000 124,000 125,000 128,000 123,000 Other countries 92,000 86,000 82,000 81,000 65,000 -------------------------------------------------- Total employees 223,000 210,000 207,000 209,000 188,000 ========================================================================================================= GECS DATA Revenues $ 66,177 $ 55,749 $ 48,694 $39,931 $ 32,713 Net earnings 5,192 4,443 3,796 3,256 2,817 Share owner's equity 23,022 20,321 19,727 17,239 14,276 Minority interest 3,968 4,391 3,459 3,113 2,530 Borrowings from others 205,371 200,025 172,200 141,263 125,621 Ratio of debt to equity at GE Capital 7.53:1 8.44:1 7.86:1 7.45:1 7.84:1 Total assets $370,636 $345,018 $303,297 $255,408 $227,419 Insurance premiums written 16,461 13,624 11,865 9,396 8,185 Employees at year end United States 37,000 43,000 38,000 37,000 32,000 Other countries 53,000 57,000 48,000 30,000 19,000 -------------------------------------------------- Total employees 90,000 100,000 86,000 67,000 51,000 ========================================================================================================= Transactions between GE and GECS have been eliminated from the consolidated information. Per-share amounts and share data have been adjusted for the 3-for-1 stock split effective on April 27, 2000. 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. Excludes employees of Montgomery Ward. ================================================================================
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 Company directly or indirectly controls. Results of associated companies--generally companies that are 20% to 50% owned and over which General Electric Company, 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 2000 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. Sales under complex contracts are recorded based on the objectively determined fair value of each component of the contract, in accordance with generally accepted accounting principles. 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. 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. 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. Upon adoption of Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES, on January 1, 2001, certain financial instruments and portions of other financial instruments will be defined to be derivatives. After that date, all derivatives will be carried at their fair values, and all changes in fair values will affect net earnings or share owners' equity immediately. 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, forwards and limit contracts that modify borrowings or certain assets, and forecasted transactions such as 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 firm commitments; 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 earnings 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. F-26 ANNUAL REPORT PAGE 58 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. 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) 2000 1999 1998 - -------------------------------------------------------------------------------- Residual licensing and royalty income $ 65 $ 67 $ 301 Associated companies (111) (1) (32) Marketable securities and bank deposits 55 105 114 Customer financing 22 17 19 Other items 467 668 282 ---------------------------------- $ 498 $ 856 $ 684 ================================================================================ 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 included under the caption "Residual licensing and royalty income" in the previous table. Other income in 1999 included a gain of $388 million related to the contribution of certain of NBC's media properties to NBC Internet (NBCi), a publicly-traded company, in exchange for a noncontrolling interest in NBCi. Assets contributed by NBC included its 100% interest in NBC.com, NBC-IN.com and VideoSeeker.com as well as a 10% interest in a fourth property, CNBC.com. - --------------------------------------------- 3 GECS REVENUES FROM SERVICES - --------------------------------------------- ------------------------------------ (In millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Time sales, loan and other income (a) $22,326 $18,209 $14,682 Operating lease rentals 6,183 6,022 5,402 Financing leases 3,688 3,587 4,267 Investment income 8,479 6,243 5,617 Premium and commission income of insurance businesses 16,093 12,948 11,352 ------------------------------------ $56,769 $47,009 $41,320 ================================================================================ (a) Includes gains on sales of financial assets through securitizations of $489 million in 2000, approximately the same as in 1999 and 1998. - -------------------------------------------------------------------------------- For insurance businesses, the effects of reinsurance on premiums written and premium and commission income were as follows: --------------------------------------- (In millions) 2000 1999 1998 - -------------------------------------------------------------------------------- PREMIUMS WRITTEN Direct $ 9,390 $ 7,382 $ 6,237 Assumed 9,552 8,520 7,470 Ceded (2,481) (2,278) (1,842) --------------------------------------- $ 16,461 $ 13,624 $ 11,865 PREMIUM AND COMMISSION INCOME Direct $ 9,026 $ 7,002 $ 6,063 Assumed 9,643 8,460 7,151 Ceded (2,576) (2,514) (1,862) --------------------------------------- $ 16,093 $ 12,948 $ 11,352 ================================================================================ Reinsurance recoveries recognized as a reduction of insurance losses and policyholder and annuity benefits amounted to $3,232 million, $2,648 million and $1,594 million for the years ended December 31, 2000, 1999 and 1998, respectively. F-27 ANNUAL REPORT PAGE 59 - --------------------------------------------- 4 SUPPLEMENTAL COST INFORMATION - --------------------------------------------- Total expenditures for research and development were $2,193 million, $2,017 million and $1,930 million in 2000, 1999 and 1998, respectively. The Company-funded portion aggregated $1,867 million in 2000, $1,667 million in 1999 and $1,537 million in 1998. Rental expense under operating leases is shown below. --------------------------------------- (In millions) 2000 1999 1998 - -------------------------------------------------------------------------------- GE $ 648 $ 607 $ 568 GECS 1,176 1,067 889 ================================================================================ At December 31, 2000, minimum rental commitments under noncancelable operating leases aggregated $2,723 million and $4,726 million for GE and GECS, respectively. Amounts payable over the next five years follow. ------------------------------------------------ (In millions) 2001 2002 2003 2004 2005 - -------------------------------------------------------------------------------- GE $498 $413 $334 $277 $243 GECS 772 689 607 477 366 ================================================================================ GE's selling, general and administrative expense totaled $8,392 million in 2000, $7,732 million in 1999 and $7,177 million in 1998. Insignificant amounts of interest were capitalized by GE and GECS in 2000, 1999 and 1998. - --------------------------------------------- 5 RETIREE HEALTH AND LIFE BENEFITS - --------------------------------------------- GE and its affiliates sponsor a number of retiree health and life insurance benefit plans ("retiree 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 6) with 10 or more years of service. Retirees share in the cost of health care benefits. Benefit provisions are subject to collective bargaining. These plans cover 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) 2000 1999 1998 - -------------------------------------------------------------------------------- Expected return on plan assets $(178) $(165) $(149) Service cost for benefits earned 165 107 96 Interest cost on benefit obligation 402 323 319 Prior service cost 49 8 8 Net actuarial loss recognized 40 45 39 ------------------------------ Total cost $ 478 $ 318 $ 313 ================================================================================ 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 (APBO) ----------------------- (In millions) 2000 1999 - -------------------------------------------------------------------------------- Balance at January 1 $ 4,926 $ 5,007 Service cost for benefits earned 165 107 Interest cost on benefit obligation 402 323 Participant contributions 25 24 Plan amendments 948 -- Actuarial loss/(gain) 534 (62) Benefits paid (578) (499) Other -- 26 ----------------------- Balance at December 31 (a) $ 6,422 $ 4,926 ================================================================================ (a) The APBO for the health plans was $4,688 million and $3,275 million at year-end 2000 and 1999, respectively. ================================================================================ Changes in the fair value of assets for retiree benefit plans follow. - -------------------------------------------------------------------------------- FAIR VALUE OF ASSETS ------------------------- (In millions) 2000 1999 - -------------------------------------------------------------------------------- Balance at January 1 $ 2,369 $ 2,121 Actual return on plan assets (85) 355 Employer contributions 300 368 Participant contributions 25 24 Benefits paid (578) (499) ------------------------- Balance at December 31 $ 2,031 $ 2,369 ================================================================================ Plan assets are held in trust and consist mainly of common stock and fixed-income investments. GE common stock represented 6.9% and 6.2% of trust assets at year-end 2000 and 1999, respectively. GE recorded assets and liabilities for retiree benefit plans are as follows: - -------------------------------------------------------------------------------- RETIREE BENEFIT LIABILITY/ASSET ------------------------- December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation $ 6,422 $ 4,926 Deduct unrecognized balances Prior service cost (999) (100) Net actuarial loss (818) (61) Fair value of plan assets (2,031) (2,369) Retiree life plans asset 8 99 ------------------------- Retiree health plans liability $ 2,582 $ 2,495 ================================================================================ ACTUARIAL ASSUMPTIONS used to determine costs and benefit obligations for principal retiree benefit plans follow. F-28 ANNUAL REPORT PAGE 60 - ------------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS ---------------------------------- December 31 2000 1999 1998 - ------------------------------------------------------------------------------- Discount rate 7.5% 7.75% 6.75% Compensation increases 5.0 5.0 5.0 Health care cost trend (a) 10.0 9.0 7.8 Return on assets for the year 9.5 9.5 9.5 - ------------------------------------------------------------------------------- (a) For 2000, gradually declining to 5% after 2009. =============================================================================== Increasing or decreasing the health care cost trend rates by one percentage point would have had an insignificant effect on the December 31, 2000, 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. - --------------------------------------------- 6 PENSION BENEFITS - --------------------------------------------- GE and its affiliates sponsor a number of pension plans. Principal pension plans are discussed below; other pension plans are not significant individually or in the aggregate. PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE Supplementary Pension Plan. The GE Pension Plan 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. The GE Pension Plan covers approximately 485,000 participants, including 134,000 employees, 156,000 former employees with vested rights to future benefits, and 195,000 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. Details of the effect on operations of principal pension plans, and the total effect on cost of postemployment benefit plans, follow. - -------------------------------------------------------------------------------- EFFECT ON OPERATIONS -------------------------------- (In millions) 2000 1999 1998 -------------------------------- Expected return on plan assets $ 3,754 $ 3,407 $ 3,024 Service cost for benefits earned (a) (780) (693) (625) Interest cost on benefit obligation (1,966) (1,804) (1,749) Prior service cost (237) (151) (153) SFAS No. 87 transition gain 154 154 154 Net actuarial gain recognized 819 467 365 -------------------------------- Cost reduction from pension 1,744 1,380 1,016 -------------------------------- Retiree benefit plans (note 5) (478) (318) (313) Total cost reductions from postemployment benefit plans $ 1,266 $ 1,062 $ 703 - -------------------------------------------------------------------------------- (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 to the GE Pension Plan since 1987 because the fully funded status of the Plan precludes a 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 ------------------------- (In millions) 2000 1999 - -------------------------------------------------------------------------------- Balance at January 1 $ 25,522 $ 27,572 Service cost for benefits earned (a) 780 693 Interest cost on benefit obligation 1,966 1,804 Participant contributions 140 122 Plan amendments 1,155 -- Actuarial loss/(gain) (b) 970 (2,790) Benefits paid (1,998) (1,879) ------------------------- Balance at December 31 $ 28,535 $ 25,522 ================================================================================ (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 --------------------------- (In millions) 2000 1999 - -------------------------------------------------------------------------------- Balance at January 1 $ 50,243 $ 43,447 Actual return on plan assets 1,287 8,472 Employer contributions 85 81 Participant contributions 140 122 Benefits paid (1,998) (1,879) --------------------------- Balance at December 31 $ 49,757 $ 50,243 ================================================================================ Plan assets are held in trust and consist mainly of common stock and fixed-income investments. GE common stock represented 9.2% and 9.8% of trust assets at year-end 2000 and 1999, respectively. GE recorded assets and liabilities for principal pension plans are as follows: - -------------------------------------------------------------------------------- PREPAID PENSION ASSET --------------------------- December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------- Fair value of plan assets $ 49,757 $ 50,243 Add (deduct) unrecognized balances Prior service cost 1,617 699 SFAS No. 87 transition gain -- (154) Net actuarial gain (12,594) (16,850) Projected benefit obligation (28,535) (25,522) Pension liability 1,132 981 --------------------------- Prepaid pension asset $ 11,377 $ 9,397 ================================================================================ F-29 ANNUAL REPORT PAGE 61 ACTUARIAL ASSUMPTIONS used to determine costs and benefit obligations for principal pension plans follow. - -------------------------------------------------------------------------------- ACTUARIAL ASSUMPTIONS ---------------------------------- December 31 2000 1999 1998 - -------------------------------------------------------------------------------- Discount rate 7.5% 7.75% 6.75% Compensation increases 5.0 5.0 5.0 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. - --------------------------------------------- 7 PROVISION FOR INCOME TAXES - --------------------------------------------- - -------------------------------------------------------------------------------- (In millions) 2000 1999 1998 ---------------------------------- GE Current tax expense $3,331 $2,555 $2,227 Deferred tax expense from temporary differences 468 652 590 ---------------------------------- 3,799 3,207 2,817 ---------------------------------- GECS Current tax expense 1,229 806 815 Deferred tax expense from temporary differences 683 847 549 ---------------------------------- 1,912 1,653 1,364 ---------------------------------- CONSOLIDATED Current tax expense 4,560 3,361 3,042 Deferred tax expense from temporary differences 1,151 1,499 1,139 ---------------------------------- $5,711 $4,860 $4,181 ================================================================================ GE includes GECS in filing a consolidated U.S. federal income tax return. The GECS provision for current tax expense includes its effect on the consolidated return. Consolidated current tax expense includes amounts applicable to U.S. federal income taxes of $3,005 million, $1,632 million and $1,459 million in 2000, 1999 and 1998, respectively, and amounts applicable to non-U.S. jurisdictions of $1,246 million, $1,399 million and $1,335 million in 2000, 1999 and 1998, respectively. Consolidated deferred tax expense related to U.S. federal income taxes was $1,095 million, $1,475 million and $971 million in 2000, 1999 and 1998, 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 $12.9 billion in 2000, $11.3 billion in 1999 and $9.7 billion in 1998. The corresponding amounts for non-U.S.-based operations were $5.5 billion in 2000, $4.3 billion in 1999 and $3.8 billion in 1998. A reconciliation of the U.S. federal statutory tax rate to the actual tax rate is provided below.
- ----------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF U.S. FEDERAL Consolidated GE GECS STATUTORY TAX RATE TO ACTUAL RATE ---------------------- ----------------------- ---------------------- 2000 1999 1998 2000 1999 1998 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- 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 -- -- -- (11.0) (11.2) (11.0) -- -- -- Amortization of goodwill 1.1 1.1 1.1 0.7 0.8 0.7 1.1 1.0 1.0 Tax-exempt income (1.5) (1.7) (1.8) -- -- -- (4.0) (4.4) (4.7) Tax on international activities (including Foreign Sales Corporation benefits) (4.9) (4.2) (3.0) (3.0) (2.6) (2.7) (5.8) (4.8) (1.3) All other--net 1.3 1.0 (0.3) 1.3 1.0 1.3 0.6 0.3 (3.6) ---------------------- ----------------------- ---------------------- (4.0) (3.8) (4.0) (12.0) (12.0) (11.7) (8.1) (7.9) (8.6) ---------------------- ----------------------- ---------------------- Actual income tax rate 31.0% 31.2% 31.0% 23.0% 23.0% 23.3% 26.9% 27.1% 26.4% =======================================================================================================================
F-30 ANNUAL REPORT PAGE 62 - --------------------------------------------- 8 EARNINGS PER SHARE INFORMATION - ---------------------------------------------
- ------------------------------------------------------------------------------------------------------------ 2000 1999 1998 ----------------- ----------------- ----------------- (In millions; per-share amounts in dollars) Diluted Basic Diluted Basic Diluted Basic - ------------------------------------------------------------------------------------------------------------ CONSOLIDATED OPERATIONS Net earnings available to common share owners $12,735 $12,735 $10,717 $10,717 $ 9,296 $ 9,296 Dividend equivalents--net of tax 11 -- 8 -- 13 -- ----------------- ----------------- ----------------- Net earnings available for per-share calculation $12,746 $12,735 $10,725 $10,717 $ 9,309 $ 9,296 ----------------- ----------------- ----------------- AVERAGE EQUIVALENT SHARES Shares of GE common stock outstanding 9,897 9,897 9,833 9,833 9,807 9,807 Employee compensation-related shares, including stock options 160 -- 163 -- 183 -- ----------------- ----------------- ----------------- Total average equivalent shares 10,057 9,897 9,996 9,833 9,990 9,807 ----------------- ----------------- ----------------- Net earnings per share $ 1.27 $ 1.29 $ 1.07 $ 1.09 $ 0.93 $ 0.95 - ------------------------------------------------------------------------------------------------------------ Share data and per-share amounts have been adjusted for the 3-for-1 stock split effective on April 27, 2000. ============================================================================================================
- --------------------------------------------- 9 PROPOSED ACQUISITION - --------------------------------------------- On October 22, 2000, the Board of Directors of General Electric Company approved a definitive agreement by which GE will acquire Honeywell International Inc. (Honeywell) through a tax-free merger of Honeywell with a wholly-owned subsidiary of GE. Under the terms of the agreement, Honeywell share owners will receive 1.055 shares of GE common stock in exchange for each share of Honeywell. GE expects to use approximately 850 million shares to effect the transaction. Completion of the merger is subject to certain remaining conditions, which include review or approval of the transaction by various governmental authorities. The merger is expected to be accounted for as a pooling of interests. Honeywell share owners approved the merger in January, and GE and Honeywell are working with regulatory agencies to complete the required reviews so that the transaction can close as early as possible in 2001. - --------------------------------------------- 10 INVESTMENT SECURITIES - ---------------------------------------------
2000 1999 -------------------------------------------- -------------------------------------------- Gross Gross Gross Gross Amortized unrealized unrealized Estimated Amortized unrealized unrealized Estimated December 31 (In millions) cost gains losses fair value cost gains losses fair value - --------------------------------------------------------------------------------------------------------------------------------- GE SECURITIES Equity $ 316 $ 266 $ (146) $ 436 $ 149 $ 547 $ (1) $ 695 Debt--U.S. corporate 364 209 -- 573 430 148 -- 578 -------------------------------------------- -------------------------------------------- 680 475 (146) 1,009 579 695 (1) 1,273 -------------------------------------------- -------------------------------------------- GECS SECURITIES Debt U.S. corporate 39,078 459 (1,282) 38,255 31,512 175 (1,759) 29,928 State and municipal 13,272 499 (139) 13,632 12,558 141 (452) 12,247 Mortgage-backed 13,683 323 (160) 13,846 12,799 173 (376) 12,596 Corporate--non-U.S 12,640 374 (168) 12,846 9,923 228 (248) 9,903 Government--non-U.S 5,059 104 (108) 5,055 4,675 114 (77) 4,712 U.S. government and federal agency 2,106 15 (42) 2,079 2,481 5 (171) 2,315 Equity 4,392 703 (478) 4,617 6,420 2,641 (277) 8,784 -------------------------------------------- -------------------------------------------- 90,230 2,477 (2,377) 90,330 80,368 3,477 (3,360) 80,485 -------------------------------------------- -------------------------------------------- CONSOLIDATED TOTALS $ 90,910 $ 2,952 $ (2,523) $ 91,339 $ 80,947 $ 4,172 $ (3,361) $ 81,758 ================================================================================================================================= A substantial portion of mortgage-backed securities shown in the table above are collateralized by U.S. residential mortgages. - ---------------------------------------------------------------------------------------------------------------------------------
F-31 ANNUAL REPORT PAGE 63 - -------------------------------------------------------------------------------- CONTRACTUAL MATURITIES OF GECS DEBT SECURITIES (EXCLUDING MORTGAGE-BACKED SECURITIES) ----------------------------- Amortized Estimated (In millions) cost fair value - -------------------------------------------------------------------------------- Due in 2001 $ 5,002 $ 5,028 2002-2005 14,479 14,717 2006-2010 17,765 17,789 2011 and later 34,909 34,333 ================================================================================ 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 were $24,748 million in 2000 ($18,521 million in 1999 and $16,707 million in 1998). Gross realized gains were $3,589 million in 2000, including $1,366 million from sale of GECS investment in common stock of Paine Webber Group, Inc. Gross realized gains were $1,430 million in 1999 and $1,126 million in 1998. Gross realized losses were $790 million in 2000 ($484 million in 1999 and $308 million in 1998). - --------------------------------------------- 11 GE CURRENT RECEIVABLES - --------------------------------------------- -------------------------- December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------- Aircraft Engines $ 1,840 $ 1,601 Appliances 327 285 Industrial Products and Systems 1,274 1,163 NBC 384 329 Plastics 1,098 953 Power Systems 3,668 3,359 Technical Products and Services 1,128 1,036 Corporate items and eliminations 358 337 -------------------------- 10,077 9,063 Less allowance for losses (350) (320) -------------------------- $ 9,727 $ 8,743 ================================================================================ Receivables balances at December 31, 2000 and 1999, before allowance for losses, included $6,323 million and $5,832 million, respectively, from sales of goods and services to customers, and $233 million and $296 million, respectively, from transactions with associated companies. Current receivables of $227 million at year-end 2000 and $203 million at year-end 1999 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 3%, 4% and 4% of GE's sales of goods and services were to the U.S. government in 2000, 1999 and 1998, respectively. - --------------------------------------------- 12 INVENTORIES - --------------------------------------------- ------------------------ December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------- GE Raw materials and work in process $ 4,134 $ 3,438 Finished goods 3,614 3,054 Unbilled shipments 243 233 ------------------------ 7,991 6,725 Less revaluation to LIFO (845) (927) ------------------------ 7,146 5,798 GECS Finished goods (a) 666 1,209 ------------------------ $ 7,812 $ 7,007 ================================================================================ (a) Includes $773 million of retail inventory at year-end 1999 related to Wards, which was deconsolidated in 2000. ================================================================================ LIFO revaluations decreased $82 million in 2000, compared with decreases of $84 million in 1999 and $87 million in 1998. Included in these changes were decreases of $6 million, $4 million and $29 million in 2000, 1999 and 1998, respectively, that resulted from lower LIFO inventory levels. There were net cost decreases in each of the last three years. As of December 31, 2000, 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. F-32 ANNUAL REPORT PAGE 64 - --------------------------------------------- 13 GECS FINANCING RECEIVABLES (investments in time sales, loans and financing leases) - --------------------------------------------- ---------------------------- December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------- TIME SALES AND LOANS Consumer services $ 43,954 $ 44,784 Specialized financing 28,497 24,745 Mid-market financing 21,506 18,422 Equipment management 1,385 978 Specialty insurance 90 28 Other 838 1,183 ---------------------------- Time sales and loans 96,270 90,140 ---------------------------- INVESTMENT IN FINANCING LEASES Direct financing leases 46,186 43,738 Leveraged leases 4,877 4,045 ---------------------------- Investment in financing leases 51,063 47,783 ---------------------------- 147,333 137,923 Less allowance for losses (4,034) (3,708) ---------------------------- $ 143,299 $ 134,215 ================================================================================ 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 2000 and 1999, commercial real estate loans and leases of $21,329 million and $15,782 million, respectively, were included in either financing receivables or GECS insurance receivables. Note 18 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 is generally 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 Direct financing leases financing leases Leveraged leases -------------------- -------------------- -------------------- December 31 (In millions) 2000 1999 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------------- Total minimum lease payments receivable $ 74,960 $ 68,158 $ 50,556 $ 47,069 $ 24,404 $ 21,089 Less principal and interest on third-party nonrecourse debt (19,773) (17,184) -- -- (19,773) (17,184) -------------------- -------------------- -------------------- Net rentals receivable 55,187 50,974 50,556 47,069 4,631 3,905 Estimated unguaranteed residual value of leased assets 7,314 7,157 4,602 4,945 2,712 2,212 Less deferred income (11,438) (10,348) (8,972) (8,276) (2,466) (2,072) -------------------- -------------------- -------------------- INVESTMENT IN FINANCING LEASES (as shown above) 51,063 47,783 46,186 43,738 4,877 4,045 Less amounts to arrive at net investment Allowance for losses (646) (581) (558) (509) (88) (72) Deferred taxes (8,408) (8,593) (4,496) (5,087) (3,912) (3,506) -------------------- -------------------- -------------------- NET INVESTMENT IN FINANCING LEASES $ 42,009 $ 38,609 $ 41,132 $ 38,142 $ 877 $ 467 ==================================================================================================================================
F-33 ANNUAL REPORT PAGE 65 - -------------------------------------------------------------------------------- CONTRACTUAL MATURITIES ------------------------------------ Total time sales Net rentals (In millions) and loans (a) receivable (a) - -------------------------------------------------------------------------------- Due in 2001 $28,870 $16,620 2002 21,368 11,885 2003 18,140 8,253 2004 7,439 5,055 2005 5,611 3,173 2006 and later 14,842 10,201 ------------------------------------ Total $96,270 $55,187 ================================================================================ (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 $1,139 million and $930 million at December 31, 2000 and 1999, respectively, a substantial amount of which were private-label credit card loans. Nonearning and reduced-earning receivables other than consumer receivables were $949 million and $932 million at year-end 2000 and 1999, 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) 2000 1999 - -------------------------------------------------------------------------------- Loans requiring allowance for losses $475 $631 Loans expected to be fully recoverable 384 219 ---------------- $859 $850 ================ Allowance for losses $166 $179 Average investment during year 801 610 Interest income earned while impaired (a) 20 27 ================================================================================ (a) Principally on the cash basis - -------------------------------------------------------------------------------- - --------------------------------------------- 14 GECS ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES - --------------------------------------------- - -------------------------------------------------------------------------------- (In millions) 2000 1999 1998 ------------------------------------ Balance at January 1 $ 3,708 $ 3,223 $ 2,745 Provisions charged to operations 2,045 1,671 1,603 Net transfers primarily related to acquisitions and sales 22 271 386 Amounts written off--net (1,741) (1,457) (1,511) ------------------------------------ Balance at December 31 $ 4,034 $ 3,708 $ 3,223 ================================================================================ - --------------------------------------------- 15 GECS INSURANCE RECEIVABLES - --------------------------------------------- At year-end 2000 and 1999, this account included reinsurance recoverables of $8,240 million and $8,138 million and receivables at insurance affiliates of $15,562 million and $10,831 million, respectively. Receivables at insurance affiliates include premium receivables, investments in whole real estate and other loans and funds on deposit with reinsurers. - --------------------------------------------- 16 PROPERTY, PLANT AND EQUIPMENT (including equipment leased to others) - --------------------------------------------- ---------------------- December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------- ORIGINAL COST GE Land and improvements $ 544 $ 526 Buildings, structures and related equipment 6,982 6,674 Machinery and equipment 20,792 20,849 Leasehold costs and manufacturing plant under construction 1,871 2,150 ---------------------- 30,189 30,199 ---------------------- GECS Buildings and equipment 5,753 7,163 Equipment leased to others Aircraft 12,888 10,591 Vehicles 9,872 10,942 Railroad rolling stock 3,459 3,323 Marine shipping containers 2,196 2,309 Other 3,633 3,832 ---------------------- 37,801 38,160 ---------------------- $67,990 $68,359 ====================== ACCUMULATED DEPRECIATION AND AMORTIZATION GE $17,990 $17,818 GECS Buildings and equipment 2,084 2,127 Equipment leased to others 7,901 7,392 ---------------------- $27,975 $27,337 ================================================================================ Amortization of GECS equipment leased to others was $2,620 million, $2,673 million and $2,185 million in 2000, 1999 and 1998, respectively. Noncancelable future rentals due from customers for equipment on operating leases at year-end 2000 totaled $16,034 million and are due as follows: $4,017 million in 2001; $3,177 million in 2002; $2,407 million in 2003; $1,707 million in 2004; $1,194 million in 2005; and $3,532 million thereafter. F-34 ANNUAL REPORT PAGE 66 - --------------------------------------------- 17 INTANGIBLE ASSETS - --------------------------------------------- --------------------- December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------- GE Goodwill $11,962 $10,805 Other intangibles 462 457 --------------------- 12,424 11,262 --------------------- GECS Goodwill 11,550 12,301 Present value of future profits (PVFP) 2,780 1,812 Other intangibles 687 635 --------------------- 15,017 14,748 --------------------- $27,441 $26,010 ================================================================================ GE intangible assets are net of accumulated amortization of $3,413 million in 2000 and $2,891 million in 1999. GECS intangible assets are net of accumulated amortization of $5,815 million in 2000 and $4,233 million in 1999. - -------------------------------------------------------------------------------- The amount of goodwill amortization included in net earnings (net of income taxes) in 2000, 1999 and 1998 was $439 million, $395 million and $291 million for GE and $620 million, $512 million and $408 million for GECS, respectively. PVFP amortization, which is on an accelerated basis and net of interest, is projected to range from 17% to 7% of the year-end 2000 unamortized balance for each of the next five years. - --------------------------------------------- 18 ALL OTHER ASSETS - --------------------------------------------- ------------------------- December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------- GE Investments Associated companies (a) $ 2,670 $ 2,678 Other 954 741 ------------------------- Prepaid pension asset 11,377 9,397 Long-term receivables, including notes 1,987 2,024 Prepaid broadcasting rights 967 1,078 Other 6,073 4,887 ------------------------- 24,028 20,805 ------------------------- GECS Investments Assets acquired for resale 1,394 3,406 Associated companies (a) 12,785 11,298 Real estate ventures 6,496 4,397 Other 5,298 4,424 ------------------------- 25,973 23,525 Separate accounts 11,705 10,335 Servicing assets (b) 1,449 1,707 Deferred insurance acquisition costs 5,815 4,682 Other 5,424 4,445 ------------------------- 50,366 44,694 ------------------------- ELIMINATIONS (507) (518) ------------------------- $ 73,887 $ 64,981 ================================================================================ (a) Includes advances. (b) Associated primarily with serviced residential mortgage loans amounting to $81 billion and $86 billion at December 31, 2000 and 1999, 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 $1,160 million at year-end 2000 and $1,453 million at year-end 1999; and it had entered into commitments totaling $1,476 million and $1,843 million at year-end 2000 and 1999, 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, 2000. GECS acts as a lender and lessor to the commercial airline industry. At December 31, 2000 and 1999, the balance of such GECS loans, leases and equipment leased to others was $15.3 billion and $11.8 billion, respectively. In addition, at December 31, 2000, GECS had issued financial guarantees and funding commitments of $601 million ($59 million at year-end 1999) and had placed multi-year orders for various Boeing and Airbus aircraft with list prices of approximately $22.9 billion ($9.9 billion at year-end 1999). At year-end 2000, the National Broadcasting Company had $7,631 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 $4,599 million at year-end 2000 and $3,794 million at year-end 1999. Separate accounts represent investments controlled by policyholders and are associated with identical amounts reported as insurance liabilities in note 20. F-35 ANNUAL REPORT PAGE 67 - --------------------------------------------- 19 BORROWINGS - --------------------------------------------- - -------------------------------------------------------------------------------- SHORT-TERM BORROWINGS ------------------------------------------------ 2000 1999 - ----------------------------------------------------- --------------------- Average Average December 31 (In millions) Amount rate (a) Amount rate (a) - -------------------------------------------------------------------------------- GE Commercial paper U.S. $ -- --% $ 521 6.54% Non-U.S. 172 5.77 396 5.02 Payable to banks, principally non-U.S. 527 11.30 629 10.18 Current portion of long-term debt 71 7.90 123 7.27 Other 170 576 ------------------------------------------------ 940 2,245 ------------------------------------------------ GECS Commercial paper U.S 77,525 6.67 84,702 6.07 Non-U.S 16,965 5.46 11,909 4.19 Current portion of long-term debt 19,283 5.95 22,902 5.59 Other 10,219 9,746 ------------------------------------------------ 123,992 129,259 ------------------------------------------------ ELIMINATIONS (5,752) (1,158) ------------------------------------------------ $119,180 $130,346 ================================================================================ - -------------------------------------------------------------------------------- LONG-TERM BORROWINGS --------------------- ---------------------- 2000 Average December 31 (In millions) rate (a) Maturities 2000 1999 - -------------------------------------------------------------------------------- GE Industrial development/ pollution control bonds 4.65% 2003-2027 $ 334 $ 328 Payable to banks, principally non-U.S. 6.07 2002-2006 255 156 Other (b) 252 238 ---------------------- 841 722 ---------------------- GECS Senior notes 5.59 2002-2055 80,383 69,770 Subordinated notes (c) 7.88 2006-2035 996 996 ---------------------- 81,379 70,766 ---------------------- ELIMINATIONS (88) (61) ---------------------- $ 82,132 $71,427 ================================================================================ (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 at right from two perspectives--liquidity and interest rate risk 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) 2001 2002 2003 2004 2005 - -------------------------------------------------------------------------------- GE $ 71 $ 92 $ 20 $ 211 $ 15 GECS 19,283 20,089 16,231 11,330 7,086 ================================================================================ Committed credit lines of $4.2 billion had been extended to GE by 24 banks at year-end 2000. Substantially all of GE's credit lines are available to GECS and its affiliates in addition to their own credit lines. At year-end 2000, GECS and its affiliates held committed lines of credit aggregating $28.1 billion, including $12.2 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, 2000, were not significant. 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 RATE RISK is 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. - -------------------------------------------------------------------------------- GECS EFFECTIVE BORROWINGS (INCLUDING SWAPS) ----------------------- December 31 (In millions) 2000 1999 ----------------------- Short-term $ 80,162 $ 74,347 ======================= Long-term (including current portion) Fixed rate (a) $ 98,905 $ 90,361 Floating rate 26,304 35,317 ----------------------- Total long-term $125,209 $125,678 ================================================================================ (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, 2000, swap maturities ranged from 2001 to 2048, and average interest rates for fixed-rate borrowings (including "synthetic" fixed-rate borrowings) were 5.92% (5.63% at year-end 1999). F-36 ANNUAL REPORT PAGE 68 - --------------------------------------------- 20 GECS INSURANCE LIABILITIES, RESERVES AND ANNUITY BENEFITS - --------------------------------------------- ----------------------- December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------- Investment contracts and universal life benefits $ 33,232 $ 30,448 Life insurance benefits (a) 32,288 18,460 Unpaid claims and claims adjustment expenses (b) 22,886 21,473 Unearned premiums 6,039 6,060 Separate accounts (see note 18) 11,705 10,335 ----------------------- $106,150 $ 86,776 ================================================================================ (a) Life insurance benefits are accounted for mainly by a net-level-premium method using estimated yields generally ranging from 2% to 9% in 2000 and from 5% to 9% in 1999. (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) 2000 1999 1998 - -------------------------------------------------------------------------------- Balance at January 1--gross $ 21,473 $ 19,611 $ 14,654 Less reinsurance recoverables (4,832) (3,483) (2,246) ------------------------------------ Balance at January 1--net 16,641 16,128 12,408 Claims and expenses incurred Current year 9,718 6,917 6,330 Prior years 607 248 (162) Claims and expenses paid Current year (3,704) (2,508) (2,400) Prior years (6,572) (5,162) (3,692) Claim reserves related to acquired companies 488 929 3,476 Other 231 89 168 ------------------------------------ Balance at December 31--net 17,409 16,641 16,128 Add reinsurance recoverables 5,477 4,832 3,483 ------------------------------------ Balance at December 31--gross $ 22,886 $ 21,473 $ 19,611 ================================================================================ 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) 2000 1999 - -------------------------------------------------------------------------------- Guarantees, principally on municipal bonds and structured finance issues $ 194,061 $ 177,840 Mortgage insurance risk in force 68,112 59,798 Credit life insurance risk in force 19,910 26,427 Less reinsurance (42,143) (37,992) -------------------------- $ 239,940 $ 226,073 ================================================================================ - --------------------------------------------- 21 GE ALL OTHER LIABILITIES - --------------------------------------------- This caption includes noncurrent compensation and benefit accruals at year-end 2000 and 1999 of $6,268 million and $5,839 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 income tax amounts are summarized below. ----------------------- December 31 (In millions) 2000 1999 - -------------------------------------------------------------------------------- ASSETS GE $ 6,131 $ 5,808 GECS 7,309 5,528 ----------------------- 13,440 11,336 ----------------------- LIABILITIES GE 6,583 6,091 GECS 15,547 14,483 ----------------------- 22,130 20,574 ----------------------- NET DEFERRED INCOME TAX LIABILITY $ 8,690 $ 9,238 ================================================================================ F-37 ANNUAL REPORT PAGE 69 Principal components of the net deferred income tax balances for GE and GECS are as follows: ---------------------- December 31 (In millions) 2000 1999 - ------------------------------------------------------------------------------- GE Provisions for expenses (a) $(4,392) $(4,203) Retiree insurance plans (904) (839) Prepaid pension asset 3,982 3,289 Depreciation 944 922 Other--net 822 1,114 ---------------------- 452 283 ---------------------- GECS Financing leases 8,408 8,593 Operating leases 3,301 2,840 Allowance for losses (1,684) (1,379) Insurance reserves (1,270) (1,052) AMT credit carryforwards (671) (1,185) Other--net 154 1,138 ---------------------- 8,238 8,955 ---------------------- NET DEFERRED INCOME TAX LIABILITY $ 8,690 $ 9,238 =============================================================================== (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) 2000 1999 - -------------------------------------------------------------------------------- GE Capital $2,600 $2,600 GE Capital affiliates 1,066 1,421 ================================================================================ Dividend rates in local currency on the preferred stock ranged from 4.15% to 6.82% during 2000 and from 0.6% to 6.1% during 1999. - --------------------------------------------- 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 2000, net assets of regulated GECS affiliates amounted to $32.3 billion, of which $26.8 billion was restricted. At December 31, 2000 and 1999, the aggregate statutory capital and surplus of the insurance businesses totaled $16.2 billion and $14.5 billion, respectively. Accounting practices prescribed by statutory authorities are used in preparing statutory statements. - --------------------------------------------- 25 SHARE OWNERS' EQUITY - --------------------------------------------- --------------------------------- (In millions) 2000 1999 1998 - -------------------------------------------------------------------------------- COMMON STOCK ISSUED $ 669 $ 594 $ 594 ================================= ACCUMULATED NONOWNER CHANGES OTHER THAN EARNINGS Balance at January 1 $ (744) $ 1,664 $ 1,340 Unrealized gains (losses) on investment securities--net of deferred taxes of $686, $(614) and $430 1,363 (1,132) 795 Currency translation adjustments--net of deferred taxes of $(312), $(100) and $(13) (1,204) (632) 60 Reclassification adjustments-- net of deferred taxes of $(1,031), $(349) and $(291) (1,915) (644) (531) --------------------------------- Balance at December 31 $ (2,500) $ (744) $ 1,664 ================================= OTHER CAPITAL Balance at January 1 $ 10,790 $ 6,808 $ 4,434 Gains on treasury stock dispositions (a) 4,480 3,982 2,374 Adjustment for stock split (75) -- -- --------------------------------- Balance at December 31 $ 15,195 $ 10,790 $ 6,808 ================================= RETAINED EARNINGS Balance at January 1 $ 54,484 $ 48,553 $ 43,338 Net earnings 12,735 10,717 9,296 Dividends (a) (5,647) (4,786) (4,081) --------------------------------- Balance at December 31 $ 61,572 $ 54,484 $ 48,553 ================================= COMMON STOCK HELD IN TREASURY Balance at January 1 $ 22,567 $ 18,739 $ 15,268 Purchases (a) 5,342 7,488 6,475 Dispositions (a) (3,465) (3,660) (3,004) --------------------------------- Balance at December 31 $ 24,444 $ 22,567 $ 18,739 ================================================================================ (a) Total dividends and other transactions with share owners reduced equity by $3,044 million, $4,632 million and $5,178 million in 2000, 1999 and 1998, 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 2000, over 950 million shares having an aggregate cost of more than $17 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) 2000 1999 1998 - -------------------------------------------------------------------------------- Issued 11,145,212 11,145,054 11,142,205 In treasury (1,213,206) (1,290,526) (1,328,317) ------------------------------------------- Outstanding 9,932,006 9,854,528 9,813,888 ================================================================================ F-38 ANNUAL REPORT PAGE 70 In April 2000, share owners authorized (a) an increase in 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) the split of 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. All share data and per-share amounts have been adjusted to reflect this change. 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, 1997 416,709 $10.01 $ 24.46 Options granted 23,122 26.62 26.62 Options exercised (71,866) 6.92 28.15 Options terminated (8,181) 14.82 -- --------------------------------- Balance at December 31, 1998 359,784 11.59 34.00 Options granted 51,281 37.93 37.93 Options exercised (61,679) 7.82 39.42 Options terminated (8,012) 21.15 -- --------------------------------- Balance at December 31, 1999 341,374 16.01 51.58 Options granted 46,278 47.84 47.84 Options exercised (44,758) 8.82 53.00 Options terminated (9,715) 28.47 -- --------------------------------- Balance at December 31, 2000 333,179 21.03 47.94 ================================================================================ Share data have been adjusted for the 3-for-1 stock split effective on April 27, 2000. - -------------------------------------------------------------------------------- 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. At year-end 2000, there were 131 thousand SARs outstanding at an average exercise price of $7.68. There were 33.1 million restricted stock shares and restricted stock units outstanding at year-end 2000. There were 487.1 million and 423.1 million additional shares available for grants of options, SARs, restricted stock and restricted stock units at December 31, 2000 and 1999, 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, 2010. 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, 2000. - -------------------------------------------------------------------------------- STOCK OPTIONS OUTSTANDING (Shares in thousands) Outstanding Exercisable -------------------------------- ----------------- Average Average Exercise Average exercise exercise price range Shares life (a) price Shares price - -------------------------------------------------------------------------------- $ 5.31- 8.50 75,459 2.4 $ 7.39 75,459 $ 7.39 8.51-13.23 73,172 3.9 9.15 73,172 9.15 13.48-23.04 57,608 5.9 16.45 40,764 15.89 24.08-35.79 56,694 7.7 29.39 12,580 26.88 35.88-57.31 70,246 9.2 45.06 2,582 41.84 -------------------------------------------------------- Total 333,179 5.7 21.03 204,557 11.35 ================================================================================ At year-end 1999, options with an average exercise price of $9.13 were exercisable on 206 million shares; at year-end 1998, options with an average exercise price of $8.03 were exercisable on 218 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 No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, are as follows: - -------------------------------------------------------------------------------- OPTION VALUE INFORMATION (a) ------------------------------- (In dollars) 2000 1999 1998 - ------------------------------------------------------------------------------- Fair value per option (b) $15.76 $11.23 $6.33 Valuation assumptions Expected option term (years) 6.4 6.5 6.2 Expected volatility 27.1% 23.7% 21.7% Expected dividend yield 1.2% 1.3% 1.8% Risk-free interest rate 6.4% 5.8% 4.9% ================================================================================ (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) 2000 1999 1998 - -------------------------------------------------------------------------------- Net earnings $ 12,502 $ 10,572 $ 9,196 Earnings per share--diluted 1.24 1.06 0.92 --basic 1.26 1.08 0.94 ================================================================================ 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 2000, the acquisition of Harmon Industries for shares of GE common stock valued at $346 million; in 1999, GE's contribution of certain media properties in exchange for a noncontrolling interest in NBCi, a publicly-traded company (described in note 2); and in 1998, the acquisition of Marquette Medical Systems for shares of GE common stock valued at $829 million. Certain supplemental information related to GE and GECS cash flows is shown below.
-------------------------------- For the years ended December 31 (In millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- GE PURCHASES AND SALES OF GE SHARES FOR TREASURY Open market purchases under share repurchase program $ (2,226) $ (1,866) $ (3,646) Other purchases (3,116) (5,622) (2,829) Dispositions (mainly to employee and dividend reinvestment plans) 5,811 6,486 3,656 --------------------------------- $ 469 $ (1,002) $ (2,819) ================================= GECS FINANCING RECEIVABLES Increase in loans to customers $(100,938) $(95,201) $(75,840) Principal collections from customers--loans 87,432 86,379 65,573 Investment in equipment for financing leases (15,454) (18,173) (20,299) Principal collections from customers--financing leases 7,873 13,634 15,467 Net change in credit card receivables (9,394) (10,740) (4,705) Sales of financing receivables 14,405 11,473 13,805 --------------------------------- $ (16,076) $(12,628) $(5,999) ================================= ALL OTHER INVESTING ACTIVITIES Purchases of securities by insurance and annuity businesses $ (35,911) $(26,271) $(23,897) Dispositions and maturities of securities by insurance and annuity businesses 25,960 23,979 20,639 Proceeds from principal business dispositions (605) 279 -- Other (1,617) (6,270) (8,122) --------------------------------- $ (12,173) $ (8,283) $(11,380) ================================= NEWLY ISSUED DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $ 12,782 $ 15,799 $ 5,881 Long-term (longer than one year) 32,297 30,082 33,453 Proceeds--nonrecourse, leveraged lease debt 1,808 1,724 2,106 --------------------------------- $ 46,887 $ 47,605 $ 41,440 ================================= REPAYMENTS AND OTHER REDUCTIONS OF DEBT HAVING MATURITIES LONGER THAN 90 DAYS Short-term (91 to 365 days) $ (27,777) $(21,211) $(25,901) Long-term (longer than one year) (3,953) (5,447) (4,739) Principal payments--nonrecourse, leveraged lease debt (177) (266) (387) --------------------------------- $ (31,907) $(26,924) $(31,027) ================================= ALL OTHER FINANCING ACTIVITIES Proceeds from sales of investment contracts $ 8,826 $ 7,236 $ 5,149 Redemption of investment contracts (9,061) (7,127) (5,533) Preferred stock issued by GECS affiliates -- 513 270 Cash received upon assumption of Toho Mutual Life Insurance Company insurance liabilities 13,177 -- -- --------------------------------- $ 12,942 $ 622 $ (114) ===============================================================================================================================
F-40 ANNUAL REPORT PAGE 72 - --------------------------------------------- 28 OPERATING SEGMENTS - ---------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- REVENUES For the years ended December 31 Total revenues Intersegment revenues External revenues ---------------------------- --------------------------- ----------------------------- (In millions) 2000 1999 1998 2000 1999 1998 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- GE Aircraft Engines $10,779 $10,730 $ 10,294 $ 687 $ 477 $ 292 $10,092 $ 10,253 $ 10,002 Appliances 5,887 5,671 5,619 5 4 12 5,882 5,667 5,607 Industrial Products and Systems 11,848 11,555 11,222 428 530 479 11,420 11,025 10,743 NBC 6,797 5,790 5,269 -- -- -- 6,797 5,790 5,269 Plastics 7,776 6,941 6,633 24 17 20 7,752 6,924 6,613 Power Systems 14,861 10,099 8,500 144 169 170 14,717 9,930 8,330 Technical Products and Services 7,915 6,863 5,323 19 15 14 7,896 6,848 5,309 Eliminations (2,075) (1,767) (1,401) (1,307) (1,212) (987) (768) (555) (414) ---------------------------- --------------------------- ----------------------------- Total GE segment revenues 63,788 55,882 51,459 -- -- -- 63,788 55,882 51,459 Corporate items 517 619 771 -- -- -- 517 619 771 GECS net earnings 5,192 4,443 3,796 -- -- -- 5,192 4,443 3,796 ---------------------------- --------------------------- ----------------------------- Total GE revenues 69,497 60,944 56,026 -- -- -- 69,497 60,944 56,026 GECS SEGMENT REVENUES 66,177 55,749 48,694 -- -- -- 66,177 55,749 48,694 Eliminations (5,821) (5,063) (4,251) -- -- -- (5,821) (5,063) (4,251) ---------------------------- --------------------------- ----------------------------- CONSOLIDATED REVENUES $129,853 $111,630 $100,469 $ -- $ -- $ -- $129,853 $111,630 $100,469 ================================================================================================================================ 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. - --------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- ASSETS PROPERTY, PLANT AND EQUIPMENT DEPRECIATION AND AMORTIZATION ADDITIONS (INCLUDING EQUIPMENT (INCLUDING GOODWILL AND LEASED TO OTHERS) OTHER INTANGIBLES) At December 31 For the years ended December 31 For the years ended December 31 ----------------------------- --------------------------- --------------------------- (In millions) 2000 1999 1998 2000 1999 1998 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- GE Aircraft Engines $ 9,816 $ 9,204 $ 9,075 $ 416 $ 368 $ 480 $ 330 $ 382 $ 398 Appliances 2,775 2,463 2,436 213 151 150 142 147 137 Industrial Products and Systems 7,869 6,740 6,466 522 423 428 425 433 440 NBC 4,965 5,243 3,264 99 94 105 120 126 127 Plastics 9,561 9,261 9,813 546 462 722 549 561 591 Power Systems 11,618 9,865 7,299 657 514 248 306 285 215 Technical Products and Services 6,016 5,048 3,858 211 164 254 219 230 143 ----------------------------- --------------------------- ----------------------------- Total GE segments 52,620 47,824 42,211 2,664 2,176 2,387 2,091 2,164 2,051 Investment in GECS 23,022 20,321 19,727 -- -- -- -- -- -- Corporate items and eliminations 21,123 14,438 12,732 55 58 156 157 155 241 ----------------------------- --------------------------- ----------------------------- Total GE 96,765 82,583 74,670 2,719 2,234 2,543 2,248 2,319 2,292 GECS SEGMENT 370,636 345,018 303,297 11,434 15,432 8,110 5,488 4,372 3,568 Eliminations (30,395) (22,401) (22,032) -- -- -- -- -- -- ----------------------------- --------------------------- ----------------------------- CONSOLIDATED TOTALS $437,006 $405,200 $355,935 $14,153 $17,666 $10,653 $7,736 $6,691 $5,860 ================================================================================================================================ 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 2000, 1999 and 1998 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 Global eXchange 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. 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 and services 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 and services are sold in North America and in global markets under various GE and private-label brands. Distributed to both retail outlets and direct to consumers, 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 and services 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 and services 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 and aircraft engine derivatives and related services 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 and related services 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 equipment to support the distribution of oil and gas products. 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 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 and private mortgage insurance. Very few of the products financed by GECS are manufactured by GE. 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) 2000 1999 1998 2000 1999 1998 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- United States $ 90,981 $ 78,970 $ 71,799 $ 3,518 $ 2,690 $ 2,608 $ 87,463 $ 76,280 $ 69,191 Europe 24,144 22,919 21,665 1,212 1,081 837 22,932 21,838 20,828 Pacific Basin 12,921 7,879 5,166 1,218 924 951 11,703 6,955 4,215 Other 8,754 7,365 6,925 999 808 690 7,755 6,557 6,235 Intercompany eliminations (6,947) (5,503) (5,086) (6,947) (5,503) (5,086) -- -- -- -------------------------------- ----------------------------- ---------------------------- Total $129,853 $111,630 $100,469 $ -- $ -- $ -- $129,853 $111,630 $100,469 ============================================================================================================================ - ---------------------------------------------------------------------------------------------------------------------------- OPERATING PROFIT ASSETS LONG-LIVED ASSETS For the years ended December 31 At December 31 At December 31 ------------------------------- ------------------------------ --------------------------- (In millions) 2000 1999 1998 2000 1999 1998 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- United States $15,455 $13,391 $11,319 $277,818 $264,129 $227,311 $19,180 $21,612 $18,048 Europe 2,062 1,886 2,393 80,282 83,358 84,518 5,870 6,101 6,334 Pacific Basin 1,754 1,092 431 42,281 28,214 18,427 1,936 2,017 1,326 Other 1,406 909 810 36,804 29,687 25,878 13,076 11,329 10,057 Intercompany eliminations 9 11 (9) (179) (188) (199) (47) (37) (35) ------------------------------- ------------------------------ --------------------------- Total $20,686 $17,289 $14,944 $437,006 $405,200 $355,935 $40,015 $41,022 $35,730 ============================================================================================================================ Includes the Americas other than the United States and operations that cannot meaningfully be associated with specific geographic areas (for example, commercial aircraft leased by GE Capital Aviation Services). Excludes GECS income taxes of $1,912 million, $1,653 million and $1,364 million in 2000, 1999 and 1998, 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 certain 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, 2000 or 1999. 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. F-43 ANNUAL REPORT PAGE 75
- --------------------------------------------------------------------------------------------------------------------------- FINANCIAL INSTRUMENTS 2000 1999 -------------------------------------- ---------------------------------------- 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 $ $ 2,012 $ 2,060 $ 2,026 $ $ 1,700 $ 1,739 $ 1,684 Cancelable interest rate swap 1,046 6 4 4 1,046 11 22 22 Borrowings and related instruments Borrowings (1,781) (1,781) (1,781) (2,967) (2,966) (2,966) Interest rate swaps 786 -- (38) (38) 1,408 -- 30 30 Currency swaps 172 -- (4) (4) 879 -- (17) (17) Recourse obligations for receivables sold 589 (42) (42) (42) 555 (36) (36) (36) Financial guarantees 2,345 -- -- -- 2,710 -- -- -- Other firm commitments Forwards and options 6,961 37 30 30 6,764 16 (30) (30) Financing commitments 1,492 -- -- -- 1,858 -- -- -- GECS Assets Time sales and loans 92,912 93,539 92,360 87,013 87,004 85,504 Integrated swaps 22,911 (44) (771) (771) 15,933 18 59 59 Purchased options 9,832 105 164 164 8,949 60 174 174 Mortgage-related positions Mortgage purchase commitments -- -- -- -- 669 -- -- -- Mortgage sale commitments -- -- -- -- 1,452 -- 4 4 Mortgages acquired for resale 1,267 1,250 1,245 2,522 2,516 2,488 Options, including "floors" 21,984 202 208 208 23,929 76 56 56 Interest rate swaps and futures 2,798 29 38 38 4,054 -- (67) (67) Other financial instruments 10,940 11,130 11,102 5,347 5,322 5,292 Liabilities Borrowings and related instruments Borrowings (205,371) (207,670) (207,670) (200,025) (198,798) (198,798) Interest rate swaps 52,681 -- (208) (208) 56,339 -- (99) (99) Currency swaps 24,314 -- (957) (957) 22,744 -- (1,425) (1,425) Currency forwards 27,902 -- 381 381 26,806 -- (459) (459) Investment contract benefits (27,575) (26,144) (26,144) (24,943) (24,420) (24,420) Insurance--financial guarantees and credit life 239,940 (2,759) (2,797) (2,910) 226,073 (2,757) (2,797) (2,909) Credit and liquidity support-- securitizations 37,667 (630) (630) (630) 34,389 (489) (489) (489) Performance guarantees 7,895 -- -- -- 3,472 (56) (56) (56) Other financial instruments 2,982 (1,184) (1,114) (1,114) 2,545 (1,473) (1,444) (1,444) Other firm commitments Currency forwards 1,585 8 47 47 3,778 (14) (41) (41) Currency swaps 647 292 275 275 767 238 200 200 Ordinary course of business lending commitments 9,450 -- -- -- 7,822 -- -- -- Unused revolving credit lines Commercial 11,278 -- -- -- 11,440 -- -- -- Consumer--principally credit cards 188,421 -- -- -- 151,651 -- -- -- =========================================================================================================================== Not applicable. Includes effects of interest rate and currency swaps, which also are listed separately. See note 19. Includes letters of credit. - ---------------------------------------------------------------------------------------------------------------------------
Additional information about certain financial instruments in the table above follows. CURRENCY FORWARDS, SWAPS 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 cash flow variability of local currency costs or selling prices denominated in currencies other than the functional currency. Currency exposures that result from net investments in affiliates are managed principally by funding assets denominated in local currency with debt denominated in those same currencies. In certain circumstances, net investment exposures are managed using currency forwards and currency swaps. F-44 ANNUAL REPORT PAGE 76 OPTIONS AND INSTRUMENTS CONTAINING OPTION FEATURES that behave based on limits ("caps," "floors" or "collars") on interest rate and equity movements are used primarily to manage risks in certain investments as well as risks 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 swaps, along with purchased options and futures, are used by GECS to establish specific hedges of mortgage-related assets. Credit risk of these positions is evaluated by management under the credit criteria discussed below. As part of its ongoing activities, GECS also enters into swaps that are integrated into investments in or loans to particular customers. Such integrated swaps not involving assumption of third-party credit risk 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, 2000 and 1999, this gross market risk amounted to $2.9 billion and $2.0 billion, respectively. Aggregate fair values that represent associated probable future obligations, normally associated with a right of offset against probable future receipts, amounted to $3.7 billion at year-end 2000 and $3.6 billion at year-end 1999. 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) 2000 1999 2000 1999 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATIONS Net earnings $ 2,592 $ 2,155 $ 3,378 2,820 $ 3,180 $ 2,653 $ 3,585 $ 3,089 Earnings per share--diluted 0.26 0.22 0.34 0.28 0.32 0.27 0.36 0.31 --basic 0.26 0.22 0.34 0.29 0.32 0.27 0.36 0.31 SELECTED DATA GE Sales of goods and services 14,370 11,796 16,414 13,966 15,578 13,228 17,445 16,655 Gross profit from sales 4,520 3,667 5,372 4,545 4,675 4,091 5,693 5,043 GECS Total revenues 15,681 12,383 16,470 13,378 16,444 14,002 17,582 15,986 Operating profit 1,746 1,400 1,697 1,461 2,020 1,745 1,641 1,490 Net earnings 1,210 1,032 1,277 1,092 1,478 1,262 1,227 1,057 =================================================================================================================
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 2000 and 1999, and for basic earnings per share in 2000. Per-share amounts have been adjusted for the 3-for-1 stock split effective on April 27, 2000. -----END PRIVACY-ENHANCED MESSAGE-----