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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES For the quarterly period ended June 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES For the transition period from ____ to ____ Commission file number 1-6461 GENERAL ELECTRIC CAPITAL CORPORATION Delaware (State or other jurisdiction of incorporation or
organization) 13-1500700 (I.R.S. Employer Identification No.) 260 Long Ridge Road, Stamford, CT 06927
(Address of principal executive offices) (Registrant's telephone number, including area code) (203)
357-4000 (Former name, former address and former fiscal year, if
changed since last report) 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 whether the registrant is an accelerated
filer (as defined in Rule 12 b-2 of the Act). Yes [ ] No [x] At July 31, 2003, 3,985,403 shares of common stock with a par
value of $4.00 were outstanding. REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE
REDUCED DISCLOSURE FORMAT. (1) General Electric Capital Corporation Part I – Financial Information Page Item 1. Financial Statements 3 4 5 6 9 24 Part II – Other Information 25 26 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 our current expectations and are
subject to uncertainty and changes in circumstances. Actual results may differ
materially from these expectations due to changes in global political, economic,
business, competitive, market and regulatory factors. (2) Part I. Financial Information Item 1. Financial Statements Condensed Statement of Current and Retained Earnings (Unaudited) Second quarter Six months (Dollars in millions) 2003 2002 2003 2002 Revenues from services $ 12,262 $ 10,894 $ 23,936 $ 21,608 Sales of goods 568 899 1,055 1,715 Total revenues 12,830 11,793 24,991 23,323 Interest 2,444 2,335 4,812 4,511 Operating and administrative 3,815 2,966 7,226 6,033 Cost of goods sold 465 822 902 1,564 Insurance losses and policyholder and annuity benefits 2,147 1,990 4,312 3,940 Provision for losses on financing receivables 935 780 1,677 1,410 Depreciation and amortization of equipment on operating
leases (including buildings and
equipment) 1,099 1,000 2,190 1,947 Minority interest in net earnings of consolidated
affiliates 15 27 46 49 Total costs and expenses 10,920 9,920 21,165 19,454 Earnings before income taxes and accounting changes 1,910 1,873 3,826 3,869 Provision for income taxes (306 ) (301 ) (604 ) (692 ) Earnings before accounting changes 1,604 1,572 3,222 3,177 Cumulative effect of accounting changes (note 4) – – – (1,015 ) Net earnings 1,604 1,572 3,222 2,162 Dividends (169 ) (444 ) (350 ) (987 ) Retained earnings at beginning of period 28,461 23,601 27,024 23,554 Retained earnings at end of period $ 29,896 $ 24,729 $ 29,896 $ 24,729 See "Notes to Condensed, Consolidated Financial
Statements." (3) Condensed Statement of Financial Position (Dollars in millions) June 30, 2003 December 31, 2002 Cash and equivalents $ 4,913 $ 6,983 Investment securities 81,450 89,807 Financing receivables: Time sales and loans, net of
deferred income 158,146 141,775 Investment in financing
leases, net of deferred income 58,714 58,994 216,860 200,769 Allowance for losses on
financing receivables (6,045 ) (5,447 ) Financing receivables – net 210,815 195,322 Insurance receivables 12,197 14,273 Other receivables – net 17,385 16,388 Inventories 181 208 Equipment on operating leases (at cost) including
buildings and 35,973 35,060 Intangible assets 21,338 20,916 Other assets 69,608 60,485 Assets held for sale (note 5) 22,235 – Total assets $ 476,095 $ 439,442 Short-term borrowings $ 122,126 $ 122,745 Long-term borrowings Senior 161,509 137,893 Subordinated 884 965 Insurance liabilities, reserves and annuity benefits 84,606 99,537 All other liabilities 29,171 26,169 Deferred income taxes 11,099 10,546 Liabilities associated with assets held for sale (note 5) 19,768 – Total liabilities 429,163 397,855 Minority interest in equity of consolidated affiliates 1,796 1,834 Accumulated gains/(losses) – net Investment securities 3,779 1,030 Currency translation
adjustments 105 (591 ) Derivatives qualifying as
hedges (2,892 ) (1,959 ) Accumulated non-owner changes other than earnings 992 (1,520 ) Capital stock 19 18 Additional paid-in capital 14,229 14,231 Retained earnings 29,896 27,024 Total share owner's equity 45,136 39,753 Total liabilities and equity $ 476,095 $ 439,442 See "Notes to Condensed, Consolidated Financial
Statements." (4) Condensed Statement of Cash Flows Six months ended (Dollars in millions) 2003 2002 Cash Flows – Operating Activities Net earnings $ 3,222 $ 2,162 Adjustments to reconcile net earnings to cash provided
from Cumulative
effect of accounting changes – 1,015 Provision
for losses on financing receivables 1,677 1,410 Depreciation
and amortization of equipment on 2,190 1,947 All other operating activities 1,608 1,601 Cash from operating activities 8,697 8,135 Cash Flows – Investing Activities Increase in loans to customers (108,420 ) (86,100 ) Principal collections from customers – loans 99,779 81,303 Investment in equipment for financing leases (9,463 ) (11,417 ) Principal collections from customers – financing leases 9,918 8,980 Net change in credit card receivables (1,610 ) (1,398 ) Equipment on operating leases (including buildings and
equipment): – (3,043 ) (4,934 ) – 2,353 2,666 Payments for principal businesses purchased, net of cash
acquired (8,083 ) (5,244 ) Purchases of securities by insurance and annuity
businesses (15,907 ) (18,498 ) Dispositions of securities by insurance and annuity
businesses 15,628 15,677 All other investing activities (5,573 ) (759 ) Cash used for investing activities (24,421 ) (19,724 ) Cash Flows – Financing Activities Net decrease in borrowings (maturities 90 days or less) (4,509 ) (35,865 ) Newly issued debt – short-term (91-365 days) 738 1,710 Newly issued debt – long-term senior 36,218 56,569 Proceeds – non-recourse, leveraged lease debt 168 585 Repayments and other reductions – short-term (91-365
days) (16,289 ) (12,057 ) Repayments and other reductions – long-term senior debt (1,517 ) 784 Principal payments – non-recourse, leveraged lease debt (521 ) (321 ) Proceeds from sales of investment contracts 4,414 3,805 Cash acquired in assumption of liabilities for policy
holder benefits – 2,406 Redemption of investment contracts (4,082 ) (3,742 ) Dividends paid (350 ) (987 ) Cash from financing activities 14,270 12,887 Increase (decrease) in cash and equivalents (1,454 ) 1,298 Cash and equivalents at beginning of year 6,983 6,784 Cash and equivalents at June 30 (a) $ 5,529 $ 8,082 (a) Cash and equivalents at
June 30, 2003 includes $616 million of cash classified as assets held
for sale in the Condensed Statement of Financial Position (see note 5). See "Notes to Condensed, Consolidated Financial
Statements."
(5) Notes to Condensed, Consolidated Financial Statements
(Unaudited) 1. The accompanying condensed,
consolidated quarterly financial statements represent the consolidation of
General Electric Capital Corporation and all of our affiliates (GECC) –
companies that we directly or indirectly control (consolidated affiliates). We
reclassified certain prior year amounts to conform to the current period
presentation. 2. The condensed, consolidated
quarterly financial statements are unaudited. These statements include all
adjustments (consisting of normal recurring accruals) that we considered
necessary to present a fair statement of the results of operations, financial
position and cash flows. The results reported in these condensed, consolidated
quarterly financial statements should not be regarded as necessarily indicative
of results that may be expected for the entire year. We label our quarterly
information using a calendar convention, that is, first quarter is consistently
labeled as ending on March 31, second quarter as ending on June 30, and third
quarter as ending on September 30. It is our longstanding practice to establish
actual interim closing dates using a "fiscal" calendar, which requires
our businesses to close their books on a Saturday in order to normalize the
potentially disruptive effects of quarterly closings on business processes. The
effects of this practice are modest and only exist within a reporting year. The
fiscal closing calendar from 1993 through 2013 is available on our Web site,
www.ge.com/en/company/investor/secreports.htm. 3. In November 2002, the Financial
Accounting Standards Board (FASB) issued Financial Interpretation No. (FIN) 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. Among other things, the
Interpretation requires guarantors to recognize, at fair value, their
obligations to stand ready to perform under certain guarantees. FIN 45 became
effective for guarantees issued or modified on or after January 1, 2003 and had
an inconsequential effect on our financial position as of June 30, 2003 and
results of operations for the second quarter and the first six months of 2003. FIN 46, Consolidation of
Variable Interest Entities is effective for us on July 1, 2003. Based on the
new criteria in the Interpretation, we will consolidate certain entities in our
third quarter financial statements. While FIN 46 represents a significant change
in accounting principles governing consolidation, it does not change the
economic or legal characteristics of asset sales. Important considerations that
differentiate FIN 46 entities from others included in our consolidated
statements include the following: We will consolidate approximately
$36 billion of securitized assets at transition and approximately $15 billion of
investment securities related to guaranteed investment contracts. Assets and
liabilities in FIN 46 entities differ from other consolidated assets and
liabilities, thus our future financial statements will distinguish assets and
liabilities that are included solely as a result of FIN 46. Because we will not
sell any additional assets to these consolidated FIN 46 entities, these balances
will decrease as the assets mature. Our July 1, 2003, consolidation of FIN 46
entities resulted in a $0.4 billion after-tax charge that will be reported as an
accounting change in our third quarter results. (6) 4. The FASB's Statement of
Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible
Assets, generally became effective for us on January 1, 2002. Under SFAS
142, goodwill is no longer amortized but is tested for impairment using a fair
value methodology. We stopped amortizing goodwill effective January 1, 2002. Under SFAS 142, we were required
to test all existing goodwill for impairment as of January 1, 2002, on a
"reporting unit" basis. A reporting unit is the operating segment
unless, at businesses one level below that operating segment (the
"component" level), discrete financial information is prepared and
regularly reviewed by management, in which case such component is the reporting
unit. A fair value approach is used to
test goodwill for impairment. An impairment charge is recognized for the amount,
if any, by which the carrying amount of goodwill exceeds its fair value. We
established fair values using discounted cash flows. When available and as
appropriate, we use comparative market multiples to corroborate discounted cash
flow results. The result of testing goodwill
impairment in accordance with SFAS 142, as of January 1, 2002, was a non-cash
charge of $1,204 million ($1,015 million after tax), which is reported in the
caption "Cumulative effect of accounting changes." Substantially all
of the charge relates to the IT Solutions business and the GE Auto and Home
business, a direct subsidiary of GE Financial Assurance. Factors contributing to
the impairment charge were the difficult economic environment in the information
technology sector and heightened price competition in the auto insurance
industry. No impairment charge had been required under our previous goodwill
impairment policy, which was based on undiscounted cash flows. Intangibles Subject To Amortization At June 30, 2003 At December 31, 2002 (Dollars in millions) Gross Accumulated Gross Accumulated Present value of future profits (PVFP) $ 3,978 $ (2,733 ) $ 4,754 $ (2,676 ) Capitalized software 1,255 (532 ) 1,269 (499 ) Servicing assets (a) 3,596 (3,353 ) 3,580 (3,238 ) Patents, licenses and other 960 (534 ) 826 (499 ) Total $ 9,789 $ (7,152 ) $ 10,429 $ (6,912 ) (a) Servicing assets, net
of accumulated amortization, are associated primarily with serviced
residential mortgage loans amounting to $22 billion and $33 billion at
June 30, 2003 and December 31, 2002, respectively.
Amortization expense related to
amortizable intangible assets for the second quarters ended June 30, 2003 and
2002, was $145 million and $431 million, respectively. Amortization expense related to amortizable intangible assets for the first six
months ended June 30, 2003 and 2002, was $427 million and $689 million, respectively. The
estimated percentage of the December 31, 2002, net PVFP balance (adjusted for
assets held for sale) to be amortized over each of the next five years follows. 2003 2004 2005 2006 2007 8.1 % 7.8 % 7.4 % 6.9 % 6.4 % Amortization expense for PVFP in
future periods will be affected by acquisitions, realized capital gains/losses
and other factors affecting the ultimate amount of gross profits realized from
certain lines of business. Similarly, future amortization expense for other
intangibles will depend on acquisition activity and other business transactions. (7) Goodwill Goodwill balances follow: (Dollars in millions) Commercial Consumer Equipment Insurance All Other Total Balance, December 31, 2002 $ 7,987 $ 5,562 $ 1,242 $ 4,176 $ (1,568 ) $ 17,399 Acquisitions/Purchase 98 919 – 47 (18 ) 1,046 Foreign exchange and other 69 386 82 (219 ) (62 ) 256 Balance, June 30, 2003 $ 8,154 $ 6,867 $ 1,324 $ 4,004 $ (1,648 ) $ 18,701 (a) Includes $(303) million of
goodwill associated with assets held for sale (see note 5). 5. On June 25, 2003, we announced
a definitive agreement to sell the Tokyo-based GE Edison Life Insurance Company
and U.S. Auto and Home businesses to American International Group, Inc. for
approximately $2,150 million in cash following a pre-closing dividend. The
transaction is subject to regulatory approvals and is expected to close in the
third quarter. After taxes and transaction costs, we estimate that we will
realize a gain of $150 million. Summarized financial information
for the GE Edison Life Insurance Company and U.S. Auto and Home businesses are
set forth below: (Dollars in millions) 6/30/03 Cash and equivalents $ 616 Investment securities 16,409 Insurance receivables 2,677 Goodwill 303 Other Intangible assets 597 Other 1,633 Total assets held for sale $ 22,235 Insurance liabilities, reserves and annuity benefits $ 18,018 Other 1,750 Total liabilities associated with assets held for sale $ 19,768 Accumulated gains on investment securities, currency
translation adjustments and derivatives qualifying as hedges – net $ 762 The GE Edison Life Insurance Company and U.S. Auto and Home
assets and liabilities are reported under the Insurance and All Other GECS
segment, respectively. At June 30, 2003, these amounts, net of
assets expected to be included in the pre-closing dividend, are classified as held for
sale. 6. A summary of increases/(decreases) in share owner's equity that did not result directly from
transactions with share owners, net of income taxes, follows: Second quarter ended (Dollars in millions) 6/30/03 6/30/02 Net earnings $ 1,604 $ 1,572 Investment securities – net changes in value 2,110 823 Currency translation adjustments – net 599 57 Derivatives qualifying as hedges – net changes in value (841 ) (749 ) Total $ 3,472 $ 1,703 (8) Six months ended (Dollars in millions) 6/30/03 6/30/02 Net earnings $ 3,222 $ 2,162 Investment securities – net changes in value 2,749 515 Currency translation adjustments – net 696 (108 ) Derivatives qualifying as hedges – net changes in value (933 ) (416 ) Total $ 5,734 $ 2,153 Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition A. Results of Operations – Second Quarter of 2003 Compared
with Second Quarter of 2002 Overview Earnings before accounting changes
(discussed in note 4 to the condensed, consolidated financial statements) for
the second quarter of 2003 were $1,604 million, a $32 million (2%) increase over
the second quarter of 2002. Three of our four businesses – Commercial Finance,
Consumer Finance and Insurance – achieved double-digit earnings growth during
the second quarter of 2003. Acquisitions contributed $71
million to earnings in the second quarter of 2003 compared with approximately
$132 million in the comparable 2002 period. For purposes of this discussion,
only earnings during the first 12 months following the quarter in which the
acquisition is completed are considered to be related to acquired companies. Total revenues increased $1,037
million (9%) to $12,830 million for the second quarter of 2003, compared with
$11,793 million for the second quarter of 2002. The increase resulted primarily
from growth in premium revenues and higher investment gains at Insurance as well
as the effects of origination growth and acquisitions at Consumer Finance and
Commercial Finance. These increases were partially offset by product line and
geographic market exits at IT Solutions. Interest expense on borrowings for
the second quarter of 2003 was $2,444 million, 5% higher than second quarter of
2002. The increase reflected the effects of higher average borrowings used to
finance asset growth, partially offset by the effects of lower interest rates.
The average composite interest rate on our borrowings for the second quarter of
2003 was 3.53% compared with 4.01% in the second quarter of 2002. Over the last three years, market interest rates have been more
volatile than our average composite effective interest rates, principally
because of the mix of effectively fixed rate borrowings in our financing
structure. Yields on our portfolio of fixed and floating-rate financial products
have behaved similarly; consequently, financing spreads have remained relatively
flat over the three-year period. Provision for income taxes was
$306 million for the second quarter of 2003, (an effective tax rate of 16.0%),
compared with $301 million for the second quarter of 2002 (an effective tax rate
of 16.1%). The slightly lower effective tax rate primarily reflected the effects
of lower taxed earnings from international operations offset by the absence of a
current year counterpart to the 2002 tax settlement with the Internal Revenue
Service allowing the deduction of previously realized losses associated with the
prior disposition of Kidder Peabody. (9) Operating Segments Revenues and earnings before
accounting changes, by operating segment, of General Electric Capital Services,
Inc. (GECS), the sole owner of the common stock of GECC, are summarized and
discussed below with a reconciliation to the GECC-only results, for the second
quarters ended June 30, 2003 and 2002. The most significant component of these
reconciliations is the exclusion from the Insurance segment at the GECC level of
the results of GE Global Insurance Holding (principally Employers Reinsurance
Corporation – ERC), which is not a subsidiary of GECC but is a direct
subsidiary of GECS. Additionally, the Commercial Finance (CF) business within
our Commercial Finance segment has been renamed Corporate Financial Services. We
reclassified certain prior year amounts to conform to the current period
presentation.
Second quarter ended (Dollars in millions) 6/30/03 6/30/02 Revenues Commercial Finance $ 4,737 $ 4,404 Consumer Finance 3,046 2,463 Equipment Management 1,153 1,168 Insurance 6,792 5,263 All Other GECS 159 672 Total revenues 15,887 13,970 Revenues not included in GECC (3,057 ) (2,177 ) Total revenues as reported
in GECC $ 12,830 $ 11,793 Net earnings Commercial Finance $ 805 $ 735 Consumer Finance 514 466 Equipment Management 26 67 Insurance 508 95 All Other GECS (251 ) (36 ) Total net earnings 1,602 1,327 Earnings not included in GECC 2 245 Total net earnings as
reported in GECC $ 1,604 $ 1,572 (10) Following is a discussion of revenues and net earnings from
operating segments for the second quarters of 2003 and 2002. Second quarter ended (Dollars in millions) 6/30/03 6/30/02 Revenues Commercial Equipment Financing $ 1,163 $ 1,069 Real Estate 599 545 Corporate Financial Services 590 554 Structured Finance 345 296 Aviation Services 710 683 Vendor Financial Services 1,142 1,081 Healthcare Financial Services 187 164 Other Commercial Finance 1 12 Total revenues 4,737 4,404 Commercial Finance not included in GECC (74 ) (58 ) Total revenues in GECC $ 4,663 $ 4,346 Net earnings Commercial Equipment Financing $ 170 $ 149 Real Estate 198 140 Corporate Financial Services 150 141 Structured Finance 117 127 Aviation Services 126 121 Vendor Financial Services 83 81 Healthcare Financial Services 39 33 Other Commercial Finance (78 ) (57 ) Total net earnings 805 735 Commercial Finance not included in GECC (14 ) (19 ) Total net earnings in GECC $ 791 $ 716 At 6/30/03 6/30/02 12/31/02 Total assets Commercial Equipment Financing $ 52,874 $ 49,965 $ 51,757 Real Estate 29,157 30,144 29,522 Corporate Financial Services 28,872 26,073 26,897 Structured Finance 19,970 17,701 19,293 Aviation Services 32,305 27,968 30,512 Vendor Financial Services 26,044 22,197 25,518 Healthcare Financial Services 8,408 7,107 7,905 Other Commercial Finance 835 2,289 2,841 Total assets 198,465 183,444 194,245 Commercial Finance not included in GECC (681 ) (580 ) (985 ) Total assets in GECC $ 197,784 $ 182,864 $ 193,260 GECC financing receivables $ 127,025 $ 118,421 $ 126,147 Commercial Finance revenues and net earnings increased 8% and
10%, respectively, compared with the second quarter of 2002. The increase in
revenues resulted primarily from acquisitions, higher securitization gains at
Commercial Equipment Financing and Vendor Financial Services and origination
growth. The increase in net earnings resulted primarily from higher
securitization gains at Commercial Equipment Financing and Vendor Financial
Services, lower credit losses at Corporate Financial Services and Real Estate
and acquisitions, partially offset by a higher effective tax rate. (11) (Dollars in millions) Second quarter ended 6/30/03 6/30/02 Revenues Global Consumer Finance $ 2,051 $ 1,501 Card Services 995 962 Total revenues 3,046 2,463 Consumer Finance not included in GECC 59 (119 ) Total revenues in GECC $ 3,105 $ 2,344 Net earnings Global Consumer Finance $ 366 $ 315 Card Services 172 175 Other Consumer Finance (24 ) (24 ) Total net earnings 514 466 Consumer Finance not included in GECC 76 (39 ) Total net earnings in GECC $ 590 $ 427 At 6/30/03 6/30/02 12/31/02 Total assets Global Consumer Finance $ 73,739 $ 52,712 $ 58,310 Card Services 23,378 16,327 18,655 Total assets 97,117 69,039 76,965 Consumer Finance not included in GECC (1,006 ) (343 ) (1,080 ) Total assets in GECC $ 96,111 $ 68,696 $ 75,885 GECC financing receivables – net $ 77,254 $ 56,473 $ 62,646 Consumer Finance revenues and net earnings increased 24% and
10%, respectively, compared with the second quarter of 2002. The increase in
revenues resulted primarily from acquisitions, the net effects of foreign
currency translation and origination growth. The increase in net earnings
resulted primarily from growth in lower taxed earnings from international
operations, acquisitions and origination growth, partially offset by lower
securitization gains at Card Services. (12) Second quarter ended (Dollars in millions) 6/30/03 6/30/02 Revenues Equipment Management total revenues $ 1,153 $ 1,168 Equipment Management not included in GECC – (15 ) Total revenues in GECC $ 1,153 $ 1,153 Net earnings Equipment Management total net earnings $ 26 $ 67 Equipment Management not included in GECC – 3 Total net earnings in GECC $ 26 $ 70 At 6/30/03 6/30/02 12/31/02 Total assets Equipment Management total assets $ 26,235 $ 25,140 $ 25,222 Equipment Management not included in GECC 102 57 57 Total assets in GECC $ 26,337 $ 25,197 $ 25,279 GECC equipment leased to others $ 11,467 $ 11,228 $ 11,285 Equipment Management revenues and net earnings decreased 1% and
61%, respectively, compared with the second quarter of 2002. The decrease in
revenues was primarily attributable to lower asset utilization and lower price,
partially offset by the net effects of foreign currency translation. The
decrease in net earnings was primarily attributable to lower asset utilization,
lower price and increased reserves. (13)
Second quarter ended (Dollars in millions) 6/30/03 6/30/02 Revenues GE Financial Assurance $ 3,334 $ 2,817 Mortgage Insurance 281 256 GE Global Insurance Holding (ERC) 3,065 2,076 Other Insurance 112 114 Total revenues 6,792 5,263 Insurance not included in GECC (3,040 ) (2,022 ) Total revenues in GECC $ 3,752 $ 3,241 Net earnings GE Financial Assurance $ 203 $ 118 Mortgage Insurance 130 152 GE Global Insurance Holding (ERC) 119 (229 ) Other Insurance 56 54 Total net earnings 508 95 Insurance not included in GECC (104 ) 233 Total net earnings in GECC $ 404 $ 328 Insurance revenues and net earnings increased compared with
the second quarter of 2002. The increase in revenues resulted primarily from
growth in premium revenues, the absence of a current year counterpart to
adjustments to estimates of prior-year loss events at ERC and higher
investment gains. The growth in premium revenues is primarily attributable to
the combination of price increases at ERC, origination volume at GE Financial
Assurance, and post acquisition revenues from acquired businesses. This was
partially offset by a decrease in premium volume resulting from the more
restrictive underwriting at ERC. The higher investment gains are primarily
attributable to other-than-temporary impairments recognized during the second
quarter of 2002, primarily related to WorldCom, Inc. bonds. The increase in
net earnings resulted primarily from growth in premium revenues, the absence
of a current year counterpart to adjustments to estimates of prior-year loss
events and lower adverse development at ERC, and higher investment gains. These
increases were partially offset by increased policyholder losses and benefits
primarily related to growth in premium revenues. (14)
Second quarter ended (Dollars in millions) 6/30/03 6/30/02 Revenues IT Solutions $ 115 $ 473 GE Equity (90 ) (87 ) Other – All Other GECS 134 286 Total revenues 159 672 All Other GECS not included in GECC (2 ) 37 Total revenues in GECC $ 157 $ 709 Net earnings IT Solutions $ (12 ) $ (4 ) GE Equity (75 ) (84 ) Other – All Other GECS (164 ) 52 Total net earnings (251 ) (36 ) All Other GECS not included in GECC 44 67 Total net earnings in GECC $ (207 ) $ 31 All Other GECS includes our activities and businesses that we
do not measure within one of the other financial services segments. Three factors explain these
results: (15) B. Results of Operations – First Half of 2003 Compared
with First Half of 2002 Overview Earnings before accounting changes
(discussed in note 4 to the condensed, consolidated financial statements) for
the first six months of 2003 were $3,222 million, a $45 million (1%) increase
over the first six months of 2002. Three of our four businesses – Commercial
Finance, Consumer Finance and Insurance – achieved double-digit earnings growth
during the first six months of 2003. Acquisitions contributed $149
million to earnings in the first six months of 2003 compared with approximately
$265 million in the comparable 2002 period. For purposes of this discussion,
only earnings during the first 12 months following the quarter in which the
acquisition is completed are considered to be related to acquired companies. Total revenues increased $1,668
million (7%) to $24,991 million for the first six months of 2003, compared with
$23,323 million for the first six months of 2002. The increase resulted
primarily from growth in premium revenues and higher investment gains at
Insurance as well as the effects of origination growth and acquisitions at
Consumer Finance and Commercial Finance. These increases were partially offset
by product line and geographic market exits at IT Solutions. Interest expense on borrowings for
the first six months of 2003 was $4,812 million, 7% higher than the first six
months of 2002. The increase reflected the effects of higher average borrowings
used to finance asset growth, partially offset by the effects of lower interest
rates. The average composite interest rate on our borrowings for the first six
months of 2003 was 3.64% compared with 4.02% in the first six months of 2002. Over the last three years, market
interest rates have been more volatile than our average composite effective
interest rates, principally because of the mix of effectively fixed rate
borrowings in our financing structure. Yields on our portfolio of fixed and
floating-rate financial products have behaved similarly; consequently, financing
spreads have remained relatively flat over the three-year period. Provision for income taxes was
$604 million for the first six months of 2003 (an effective tax rate of 15.8%),
compared with $692 million for the first six months of 2002 (an effective tax
rate of 17.9%). The lower effective tax rate primarily reflected the effects of
lower taxed earnings from international operations, partially offset by the
absence of a current year counterpart to the 2002 tax settlement with the
Internal Revenue Service allowing the deduction of previously realized losses
associated with the prior disposition of Kidder Peabody. (16) Operating Segments Revenues and earnings before
accounting changes, by operating segment, of General Electric Capital Services,
Inc. (GECS), the sole owner of the common stock of GECC, are summarized and
discussed below with a reconciliation to the GECC-only results, for the first
six months ended June 30, 2003 and 2002. The most significant component of these
reconciliations is the exclusion from the Insurance segment at the GECC level of
the results of GE Global Insurance Holding (principally Employers Reinsurance
Corporation – ERC), which is not a subsidiary of GECC but is a direct
subsidiary of GECS. Additionally, the Commercial Finance (CF) business within
our Commercial Finance segment has been renamed Corporate Financial Services. We
reclassified certain prior year amounts to conform to the current period
presentation.
Six months ended (Dollars in millions) 6/30/03 6/30/02 Revenues Commercial Finance $ 9,074 $ 8,420 Consumer Finance 5,805 4,835 Equipment Management 2,271 2,324 Insurance 13,160 11,031 All Other GECS 444 1,384 Total revenues 30,754 27,994 Revenues not included in GECC (5,763 ) (4,671 ) Total revenues as reported
in GECC $ 24,991 $ 23,323 Net earnings Commercial Finance $ 1,631 $ 1,455 Consumer Finance 1,060 964 Equipment Management 83 142 Insurance 1,020 611 All Other GECS (522 ) (188 ) Total earnings before
accounting changes 3,272 2,984 Earnings not included in GECC (50 ) 193 Total earnings in GECC
before accounting changes 3,222 3,177 Cumulative effect of accounting changes – (1,015 ) Total net earnings as
reported in GECC $ 3,222 $ 2,162
WASHINGTON, D.C. 20549
EXCHANGE ACT OF 1934
EXCHANGE ACT OF 1934
(Exact name of registrant as specified in its charter)
(Zip Code)
General Electric Capital Corporation and consolidated affiliates
ended June 30
ended June 30
General Electric Capital Corporation and consolidated affiliates
(Unaudited)
equipment, less accumulated amortization of
$14,557 and $13,407
General Electric Capital Corporation and consolidated affiliates
June 30 (Unaudited)
operating activities
operating
leases (including buildings and equipment)
carrying
amount
amortization
carrying
amount
amortization
Finance
Finance
Management
GECS and
eliminations
Accounting Adjustments
(17)
Six months ended |
||||||||||
(Dollars in millions) |
6/30/03 |
6/30/02 |
||||||||
Revenues |
||||||||||
Commercial Equipment Financing |
$ |
2,166 |
$ |
2,062 |
||||||
Real Estate |
1,202 |
993 |
||||||||
Corporate Financial Services |
1,126 |
1,164 |
||||||||
Structured Finance |
621 |
592 |
||||||||
Aviation Services |
1,424 |
1,251 |
||||||||
Vendor Financial Services |
2,162 |
2,034 |
||||||||
Healthcare Financial Services |
364 |
301 |
||||||||
Other Commercial Finance |
9 |
23 |
||||||||
Total revenues |
9,074 |
8,420 |
||||||||
Commercial Finance not included in GECC |
(142 |
) |
(104 |
) |
||||||
Total revenues in GECC |
$ |
8,932 |
$ |
8,316 |
||||||
|
|
|
|
|||||||
Net earnings |
||||||||||
Commercial Equipment Financing |
$ |
318 |
$ |
307 |
||||||
Real Estate |
464 |
308 |
||||||||
Corporate Financial Services |
280 |
251 |
||||||||
Structured Finance |
217 |
258 |
||||||||
Aviation Services |
261 |
219 |
||||||||
Vendor Financial Services |
157 |
150 |
||||||||
Healthcare Financial Services |
68 |
57 |
||||||||
Other Commercial Finance |
(134 |
) |
(95 |
) |
||||||
Total net earnings |
1,631 |
1,455 |
||||||||
Commercial Finance not included in GECC |
(31 |
) |
(33 |
) |
||||||
Total net earnings in GECC |
$ |
1,600 |
$ |
1,422 |
||||||
|
|
|
|
|||||||
At |
||||||||||
6/30/03 |
6/30/02 |
12/31/02 |
||||||||
Total assets |
||||||||||
Commercial Equipment Financing |
$ |
52,874 |
$ |
49,965 |
$ |
51,757 |
||||
Real Estate |
29,157 |
30,144 |
29,522 |
|||||||
Corporate Financial Services |
28,872 |
26,073 |
26,897 |
|||||||
Structured Finance |
19,970 |
17,701 |
19,293 |
|||||||
Aviation Services |
32,305 |
27,968 |
30,512 |
|||||||
Vendor Financial Services |
26,044 |
22,197 |
25,518 |
|||||||
Healthcare Financial Services |
8,408 |
7,107 |
7,905 |
|||||||
Other Commercial Finance |
835 |
2,289 |
2,841 |
|||||||
Total assets |
198,465 |
183,444 |
194,245 |
|||||||
Commercial Finance not included in GECC |
(681 |
) |
(580 |
) |
(985 |
) |
||||
Total assets in GECC |
$ |
197,784 |
$ |
182,864 |
$ |
193,260 |
||||
|
|
|
|
|
|
|||||
GECC financing receivables – net |
$ |
127,025 |
$ |
118,421 |
$ |
126,147 |
||||
|
|
|
|
|
|
Commercial Finance revenues and net earnings increased 8% and 12%, respectively, compared with the first six months of 2002. The increase in revenues resulted primarily from acquisitions, higher securitization gains at Commercial Equipment Financing and Vendor Financial Services and origination growth. The increase in net earnings resulted primarily from lower credit losses at Corporate Financial Services and Real Estate, acquisitions, higher securitization gains at Commercial Equipment Financing and Vendor Financial Services and origination growth. The increases for both revenues and net earnings were partially offset by a specific loss on a telecommunications investment by Structured Finance.
(18)
Six months ended |
|||||||||
(Dollars in millions) |
6/30/03 |
6/30/02 |
|||||||
Revenues |
|||||||||
Global Consumer Finance |
$ |
3,917 |
$ |
2,970 |
|||||
Card Services |
1,888 |
1,865 |
|||||||
Total revenues |
5,805 |
4,835 |
|||||||
Consumer Finance not included in GECC |
81 |
(223 |
) |
||||||
Total revenues in GECC |
$ |
5,886 |
$ |
4,612 |
|||||
|
|
|
|
|
|||||
Net earnings |
|||||||||
Global Consumer Finance |
$ |
756 |
$ |
628 |
|||||
Card Services |
353 |
384 |
|||||||
Other Consumer Finance |
(49 |
) |
(48 |
) |
|||||
Total net earnings |
1,060 |
964 |
|||||||
Consumer Finance not included in GECC |
118 |
(56 |
) |
||||||
Total net earnings in GECC |
$ |
1,178 |
$ |
908 |
|||||
|
|
|
|
|
|||||
At |
|||||||||
6/30/03 |
6/30/02 |
12/31/02 |
|||||||
|
|
|
|||||||
Total assets |
|||||||||
Global Consumer Finance |
$ |
73,739 |
$ |
52,712 |
$ |
58,310 |
|||
Card Services |
23,378 |
16,327 |
18,655 |
||||||
Total assets |
97,117 |
69,039 |
76,965 |
||||||
Consumer Finance not included in GECC |
(1,006 |
) |
(343 |
) |
(1,080 |
) |
|||
Total assets in GECC |
$ |
96,111 |
$ |
68,696 |
$ |
75,885 |
|
||
|
|
|
|
|
|
||||
GECC financing receivables – net |
$ |
77,254 |
$ |
56,473 |
$ |
62,646 |
|
||
|
|
|
|
|
|
Consumer Finance revenues and net earnings increased 20% and 10%, respectively, compared with the first six months of 2002. The increase in revenues resulted primarily from acquisitions, origination growth and the net effects of foreign currency translation, partially offset by lower securitization gains at Card Services. The increase in net earnings resulted primarily from growth in lower taxed earnings from international operations, origination growth, acquisitions, and the net effects of foreign currency translation, partially offset by lower securitization gains at Card Services and increased reserve requirements.
(19)
Six months ended |
|||||||||
(Dollars in millions) |
6/30/03 |
6/30/02 |
|||||||
Revenues |
|||||||||
Equipment Management total revenues |
$ |
2,271 |
$ |
2,324 |
|||||
Equipment Management not included in GECC |
– |
(28 |
) |
||||||
Total revenues in GECC |
$ |
2,271 |
$ |
2,296 |
|||||
|
|||||||||
Net earnings |
|||||||||
Equipment Management total net earnings |
$ |
83 |
$ |
142 |
|||||
Equipment Management not included in GECC |
– |
5 |
|||||||
Total net earnings in GECC |
$ |
83 |
$ |
147 |
|||||
|
|||||||||
At |
|||||||||
6/30/03 |
6/30/02 |
12/31/02 |
|||||||
Total assets |
|||||||||
Equipment Management total assets |
$ |
26,235 |
$ |
25,140 |
$ |
25,222 |
|||
Equipment Management not included in GECC |
102 |
57 |
57 |
||||||
Total assets in GECC |
$ |
26,337 |
$ |
25,197 |
$ |
25,279 |
|||
GECC equipment leased to others |
$ |
11,467 |
$ |
11,228 |
$ |
11,285 |
|||
Equipment Management revenues and net earnings decreased 2% and 42%, respectively, compared with the first six months of 2002. The decrease in revenues and net earnings resulted primarily from lower asset utilization and lower price. The decrease in revenues was partially offset by the net effects of foreign currency translation.
Six months ended |
||||||
(Dollars in millions) |
6/30/03 |
6/30/02 |
||||
Revenues |
||||||
GE Financial Assurance |
$ |
6,587 |
$ |
5,800 |
||
Mortgage Insurance |
572 |
536 |
||||
GE Global Insurance Holding (ERC) |
5,758 |
4,483 |
||||
Other Insurance |
243 |
212 |
||||
Total revenues |
13,160 |
11,031 |
||||
Insurance not included in GECC |
(5,721 |
) |
(4,372 |
) |
||
Total revenues in GECC |
$ |
7,439 |
$ |
6,659 |
||
Net earnings |
||||||
GE Financial Assurance |
$ |
404 |
$ |
372 |
||
Mortgage Insurance |
249 |
271 |
||||
GE Global Insurance Holding (ERC) |
240 |
(142 |
) |
|||
Other Insurance |
127 |
110 |
||||
Total net earnings |
1,020 |
611 |
||||
Insurance not included in GECC |
(217 |
) |
154 |
|||
Total net earnings in GECC |
$ |
803 |
$ |
765 |
||
(20)
Insurance revenues and net earnings increased 19% and 67%, respectively, compared with the first six months of 2002. The increase in revenues resulted primarily from growth in premium revenues, the absence of a current year counterpart to adjustments to estimates of prior-year loss events at ERC and higher investment gains. The growth in premium revenues is primarily attributable to the combination of price increases at ERC, origination volume at GE Financial Assurance, and post acquisition revenues from acquired businesses. This was partially offset by a decrease in premium volume resulting from the more restrictive underwriting at ERC. The higher investment gains are primarily attributable to other-than-temporary impairments recognized during the second quarter of 2002, primarily related to WorldCom, Inc. bonds. The increase in net earnings resulted primarily from growth in premium revenues, the absence of a current year counterpart to adjustments to estimates of prior-year loss events and lower adverse development at ERC, and higher investment gains. These increases were partially offset by increased policyholder losses and benefits primarily related to growth in premium revenues.
Six months ended |
||||||
(Dollars in millions) |
6/30/03 |
6/30/02 |
||||
Revenues |
||||||
IT Solutions |
$ |
244 |
$ |
968 |
||
GE Equity |
(173 |
) |
(142 |
) |
||
Other – All Other GECS |
373 |
558 |
||||
Total revenues |
444 |
1,384 |
||||
All Other GECS not included in GECC |
19 |
56 |
||||
Total revenues in GECC |
$ |
463 |
$ |
1,440 |
||
Net earnings |
||||||
IT Solutions |
$ |
(41 |
) |
$ |
(12 |
) |
GE Equity |
(147 |
) |
(154 |
) |
||
Other – All Other GECS |
(334 |
) |
(22 |
) |
||
Total net earnings |
(522 |
) |
(188 |
) |
||
All Other GECS not included in GECC |
80 |
123 |
||||
Total net earnings in GECC |
$ |
(442 |
) |
$ |
(65 |
) |
All Other GECS includes our activities and businesses that we do not measure within one of the other financial services segments.
Three factors explain these results:
- IT Solutions
– Revenues and net earnings decreased as a result of lower volume attributable to market conditions and product line and geographic market exits.
- GE Equity
– GE Equity manages equity investments in early-stage, early growth, and pre-IPO companies. GE Equity revenues include income, gains and losses on such investments. Revenues and net earnings during the first six months of 2003 reflected increased losses on investments. GE Equity ceased making new investments in the fourth quarter of 2002, but continues to give financial support to companies in its existing portfolio. The existing portfolio will be managed for maximum value over time, eventually winding down.
- Other
– All Other GECS includes GECS corporate expenses, liquidating businesses and other non-segment-aligned operations, the most significant of which were Auto Financial Services and GE Auto and Home.(21)
C. Statement of Financial Position
Investment securities comprise mainly investment-grade debt securities held by Insurance in support of obligations to annuitants and policyholders. Investment securities were $81.5 billion at June 30, 2003, compared with $89.8 billion as of December 31, 2002. The decrease of $8.4 billion was primarily the result of a reclassification of $16.4 billion of investments to assets held for sale. Absent this reclassification investment securities increased $8.1 billion as a result of investment of premiums received, reinvestment of investment income and increases in fair value, including debt and equity securities, partially offset by sales and maturities as well as impairments and losses related to certain debt and equity securities.
Gross unrealized gains and losses were $8.0 billion and $1.4 billion, respectively, including $2.4 billion and $0.1 billion related to assets classified as held for sale, respectively, at June 30, 2003. Gross unrealized gains and losses were $3.8 billion and $2.1 billion, respectively, as of December 31, 2002. We estimate that available gains, net of hedging positions and estimated impairment of insurance intangible assets, could be as much as $2.3 billion. Market value used in determining unrealized gains and losses is defined by relevant accounting standards and should not be viewed as a forecast of future gains or losses.
We regularly review investment securities for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline and the financial health and specific prospects for the issuer. Of securities with unrealized losses at second quarter 2003, approximately $270 million of portfolio value is at risk of being charged to earnings in the next 12 months. Impairment losses recognized for the first six months of 2003 were $266.9 million.
Financing Receivables is our largest category of assets and represents one of our primary sources of revenues. The portfolio of financing receivables, before allowance for losses increased to $216.9 billion at June 30, 2003, from $200.8 billion at the end of 2002, as discussed in the following paragraphs. The related allowance for losses at June 30, 2003, amounted to $6.0 billion ($5.4 billion at the end of 2002), representing our 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.
Commercial Finance financing receivables before allowance for losses totaled $129.5 billion at June 30, 2003 ($128.7 billion at December 31, 2002) and consisted of loans and leases to the equipment, commercial and industrial, real estate and commercial aircraft industries. This portfolio of receivables increased primarily as a result of the net effects of foreign currency translation and origination growth, partially offset by securitizations. Related nonearning and reduced-earning receivables were $2.2 billion and $2.1 billion about 1.7% of outstandings at June 30, 2003 and year-end 2002. Commercial Finance financing receivables are generally backed by assets and there is a broad spread of geographic and credit risk in the portfolio. Write-offs for the first six months of 2003 were $0.6 billion compared with $0.5 billion for the first six months of 2002.
Consumer Finance financing receivables before allowance for losses, primarily installment loans, auto loans and leases, and residential mortgages, were $80.8 billion at June 30, 2003, and $65.4 billion at December 31, 2002. This portfolio of receivables increased as a result of acquisitions, the net effects of foreign currency translation and origination growth, partially offset by the transfer of Home Depot private label credit card receivables to Other Assets in preparation for their sale when that contract is terminated in 2003. Nonearning consumer receivables at June 30, 2003, were $2.1 billion, about 2.6% of outstandings, compared with $1.6 billion, about 2.4% of outstandings at year-end 2002. Write-offs for the first six months of 2003 were $1.0 billion compared with $0.8 billion for the first six months of 2002.
(22)
Other, principally Equipment Management financing receivables before allowance for losses amounted to $6.6 billion and $6.7 billion at June 30, 2003, and December 31, 2002, respectively. Nonearning receivables were consistent at $0.1 billion, about 1.5% and 1.3% of outstandings at June 30, 2003 and at year-end 2002, respectively.
Delinquency rates on Consumer Finance financing receivables were 5.81% at June 30, 2003 and 5.58% at year-end 2002, on a managed basis. Delinquency rates on Commercial Finance equipment loans and leases were 1.86% at June 30, 2003 and 1.71% at year-end 2002, on a managed basis.
D. Additional Considerations
Commercial Airlines
Deteriorating aircraft utilization and pricing generally negatively affects Commercial Finance, which owned 1,189 commercial aircraft at June 30, 2003. However, despite pressure on the industry, 1,184, or 99% of its commercial aircraft were on lease. We believe, however, that the financial difficulties of our airline customers will continue to weigh on the airline industry.
At the end of the second quarter of 2003, Commercial Finance had provided loans and leases of $27.7 billion and combined with our insurance business had $2.6 billion of investment securities related to the airline industry. In addition, Commercial Finance had funding commitments of $1.4 billion and had placed multi-year orders for various Boeing, Airbus and other aircraft with list prices totaling approximately $14.8 billion at the end of the second quarter of 2003. As of June 30, 2003, Commercial Finance held placement agreements with commercial airlines for all of the 25 aircraft scheduled for delivery over the remainder of 2003.
UAL Corp and Air Canada, the parent companies of two of our major airline customers are experiencing significant financial difficulties and both filed for reorganization in bankruptcy. UAL Corp filed for bankruptcy protection in 2002 and Air Canada filed in Canada on April 1, 2003. At the end of the second quarter of 2003, our exposure related to these airlines amounted to $4.1 billion, including loans, leases, investment securities, and commitments. Various Boeing, Airbus and Bombardier aircraft secure substantially all of these financial exposures. Included in this exposure is a $700 million debtor-in-possession financing commitment to Air Canada. Another one of our major airline customers, US Airways Group, parent of US Airways, filed for reorganization in bankruptcy in 2002 but emerged from bankruptcy on March 31, 2003. Our financial statements include provisions for probable losses based on our best estimates of such losses.
Other Matters
On June 25, 2003, we announced a definitive agreement to sell the Tokyo-based GE Edison Life Insurance Company and U.S. Auto and Home businesses to American International Group, Inc. for approximately $2,150 million, in cash and a pre-closing dividend of approximately $440 million. The transaction is consistent with our strategy to focus global operations on selected segments in which we see the most attractive growth and return prospects.
E. Liquidity
The major debt-rating agencies evaluate our financial condition. Factors that are important to our rating include the following: cash generating ability – including cash generated from operating activities; earnings quality – including revenue growth and the breadth and diversity of sources of income; leverage ratios – such as debt to total capital and interest coverage; and asset utilization, including return on assets and asset turnover ratios. Considering those factors the major rating agencies continue to give the highest ratings to our debt (long term credit rating AAA/Aaa; short-term credit rating A-1+/P-1).
(23)
One of our strategic objectives is to maintain these ratings on debt issued by us. Our Triple-A rating lowers our cost of borrowings and facilitates access to a variety of lenders. We manage our businesses in a manner consistent with maintaining these Triple-A ratings.
To support our rating, at the end of 2002, General Electric Company (GE) was contractually committed to maintain our ratios of earnings to fixed charges at a specified level. To build equity, our Board of Directors intends to reduce our dividend payments to General Electric Capital Services, Inc. and retain a greater proportion of operating earnings. GE, through General Electric Capital Services, Inc. contributed $4.5 billion of cash in 2002. Our plans are to eliminate the debt allocated to All Other GECS by 2005. Proceeds from any strategic dispositions will be evaluated when and if they are received, but we anticipate using at least some of those proceeds to reduce financial services debt.
Global commercial paper markets are also a primary source of liquidity for us. We are the most widely-held name in those markets and are the principal issuer of financial services debt. The following table shows financial services debt composition as of June 30, 2003, and December 31, 2002:
At June 30, 2003 |
At December 31, 2002 |
||||||
Senior Notes |
57 |
% |
53 |
% |
|||
Commercial Paper |
25 |
29 |
|||||
Other – principally current portion of long-term debt |
18 |
18 |
|||||
Total |
100 |
% |
100 |
% |
|||
During the first half of 2003, we issued approximately $36 billion of long-term debt in U.S. and international markets. These funds were used primarily to fund maturing long-term debt, reduce the amount of commercial paper outstanding and to fund new asset growth. We target a ratio for commercial paper of 25% to 35% of outstanding debt based on the anticipated composition of our assets. We anticipate issuing approximately $25 billion of additional long-term debt using both U.S. and international markets during the remainder of 2003. The proceeds from such issuances will be used to fund maturing long-term debt, additional acquisitions and asset growth. The ultimate amount of debt issuances will depend on the growth in assets, acquisition activity, availability of markets and movements in interest rates.
We believe that alternative sources of liquidity are sufficient to permit an orderly transition from commercial paper in the unlikely event of impaired access to those markets. Funding sources on which we would rely would depend on the nature of such a hypothetical event, but includes $56 billion of contractually committed lending agreements with highly-rated global banks and investment banks, as well as other sources of liquidity, including medium and long-term funding, monetization, asset securitization, cash receipts from our lending and leasing activities, short-term secured funding on global assets, and potential asset sales.
We use special purpose entities (SPEs) as described in our Annual Report on Form 10-K for the year ended December 31, 2002. Receivables held by SPEs as of the end of the second quarter of 2003, and year-end 2002, were $37.2 billion and $40.5 billion, respectively. Net credit and liquidity support amounted to $25.0 billion after consideration of participated liquidity and arrangements that defer liquidity draws beyond 2003, a reduction of $1.2 billion from year-end 2002. This amount includes credit support, in which we provide recourse for a maximum of $14.2 billion of credit losses in SPEs.
Item 4. Controls and Procedures
As required by Rule 13a-15(b), we, including the Chairman of the Board (serving as the principal executive officer) and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the company's disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chairman of the Board and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report. As required by Rule 13a-15(d), we, including the Chairman of the Board and Chief Financial Officer, also conducted an evaluation of the company's internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.
(24)
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 12 |
Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends |
Exhibit 31.1 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Exhibit 31.2 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Exhibit 32 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
b. Reports on Form 8-K during the quarter ended June 30, 2003.
A Form 8-K was filed on April 3, 2003 under Item 9 (pursuant to Item 12), relating to a public presentation in which General Electric Company disclosed certain unaudited, estimated financial information related to the first quarter of 2003.
A Form 8-K was filed on April 10, 2003, under Item 5, setting forth portions of our 2002 Form 10-K, reflecting segment information reclassified to conform to organizational and measurement changes and setting forth 2002 unaudited financial services segment data by quarter, including the effect of financial services releveraging on the performance of business units within each segment.
(25)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
General Electric Capital
Corporation
(Registrant)
|
|
|
August 1, 2003 Date |
|
/s/ Philip D. Ameen Senior Vice President and Controller Duly Authorized Officer and Principal Accounting Officer
|
(26)
Exhibit 12
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
Computation of Ratio of Earnings to Fixed Charges
and
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
Six Months Ended June 30, 2003
(Unaudited)
(Dollars in millions) |
Ratio of |
Ratio of |
|||||||
|
|
|
|||||||
Net earnings |
$ |
3,222 |
$ |
3,222 |
|||||
Provision for income taxes |
604 |
604 |
|||||||
Minority interest in net earnings of consolidated affiliates |
46 |
46 |
|||||||
|
|
|
|||||||
Earnings before provision for income taxes and minority interest |
3,872 |
3,872 |
|||||||
Fixed charges: |
|
|
|||||||
Interest |
4,872 |
4,872 |
|||||||
One-third of rentals |
149 |
149 |
|||||||
|
|
|
|||||||
Total fixed charges |
5,021 |
5,021 |
|||||||
|
|
|
|||||||
Less interest capitalized, net of amortization |
(15 |
) |
(15 |
) |
|||||
|
|
|
|||||||
Earnings before provision for income taxes and minority
interest, |
$ |
8,878 |
$ |
8,878 |
|||||
|
|
|
|||||||
Ratio of earnings to fixed charges |
1.77 |
||||||||
|
|
||||||||
Preferred stock dividend requirements |
$ |
|
|||||||
Ratio of earnings before provision for income taxes to net earnings |
1.19 |
||||||||
|
|||||||||
Preferred stock dividend factor on pre-tax basis |
20 |
||||||||
Fixed charges |
5,021 |
||||||||
|
|
||||||||
Total fixed charges and preferred stock dividend requirements |
$ |
5,041 |
|||||||
|
|
||||||||
Ratio of earnings to combined fixed charges and preferred stock dividends |
1.76 |
||||||||
|
|
||||||||
For purposes of computing the ratios, fixed charges consist of interest on all indebtedness and one-third of rentals, which management believes is a reasonable approximation of the interest factor of such rentals. |
Exhibit 31.1
CERTIFICATIONS
I, Dennis D. Dammerman, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of General Electric Capital Corporation; |
|
|
||
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
||
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 1, 2003
/s/ Dennis D. Dammerman
Dennis D. Dammerman
Chairman of the Board
Exhibit 31.2
CERTIFICATIONS
I, James A. Parke, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of General Electric Capital Corporation; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 1, 2003
/s/ James A.
Parke
James A. Parke
Vice Chairman and Chief Financial Officer
Exhibit 32
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of General Electric Capital Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Dennis D. Dammerman and James A. Parke, Chairman of the Board and Vice Chairman and Chief Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
August 1, 2003
/s/ Dennis D. Dammerman
Dennis D. Dammerman
Chairman of the Board
/s/ James A. Parke
James A. Parke
Vice Chairman and Chief Financial Officer