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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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|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 _____
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Commission file number 1-6461
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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)
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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 amortiz