GENERAL ELECTRIC CAPITAL CORP - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(mark one)
[ X ]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2002

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-6461

GENERAL ELECTRIC CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		13-1500700
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
260 Long Ridge Road, Stamford, Connecticut		06927
(Address of principal executive offices)		(Zip Code)

(Registrant's telephone number, including area code) (203) 357-4000

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

At October 28, 2002, 3,837,825 shares of common stock with a par value of $4.00 were outstanding.

REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements	1
Item 2. Management's Discussion and Analysis of Results of Operations	7
Item 4. Controls and Procedures	21

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K	22
Signatures	23
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	24
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges and Computation
of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends	26
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	27
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	28

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES

Condensed Statement of Current and Retained Earnings

(Unaudited)

	Third quarter ended								Nine months ended
(Dollars in millions)			September 28, 2002			September 29, 2001				September 28, 2002			September 29, 2001
Revenues
Revenues from services		$		11,588		$	10,844			$	32,953		$	32,572
Sales of goods				779			778				2,494			2,806
				12,367			11,622				35,447			35,378
Expenses
Interest				2,557			2,358				7,068			7,614
Operating and administrative				3,410			2,992				9,443			9,571
Cost of goods sold				673			692				2,237			2,519
Insurance losses and policyholder and annuity benefits				2,104			1,961				6,044			6,014
Provision for losses on financing receivables				619			521				2,029			1,428
Depreciation and amortization of buildings and equipment and equipment on operating leases				980			917				2,684			2,495
Minority interest in net earnings of consolidated affiliates				24			15				73			62
				10,367			9,456				29,578			29,703
Earnings
Earnings before income taxes and accounting changes				2,000			2,166				5,869			5,675
Provision for income taxes				(242	)		(495	)			(934	)		(1,238	)

Earnings before accounting changes				1,758			1,671				4,935			4,437
Cumulative effect of accounting changes				-			-				(1,015	)		(158	)

Net Earnings				1,758			1,671				3,920			4,279
Dividends				(565	)		(467	)			(1,552	)		(1,527	)
Retained earnings at beginning of period				24,729			21,242				23,554			19,694
Retained earnings at end of period		$		25,922		$	22,446			$	25,922		$	22,446

See Notes to Condensed, Consolidated Financial Statements.

GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES

Condensed Statement of Financial Position

(Dollars in millions)	September 28, 2002			December 31, 2001
		(Unaudited)
Assets
Cash and equivalents	$	7,960		$	6,784
Investment securities		91,722			78,723
Financing receivables:
Time sales and loans, net of deferred income		133,928			120,708
Investment in financing leases, net of deferred income		57,456			55,336
		191,384			176,044
Allowance for losses on financing receivables		(5,033	)		(4,743	)
Financing receivables - net		186,351			171,301
Insurance receivables - net		12,144			10,642
Other receivables - net		15,237			15,132
Inventories		251			270
Equipment on operating leases (at cost), less accumulated amortization of $10,522 and $9,133		28,989			27,314
Intangible assets		20,307			18,882
Other assets		61,789			52,028
Total assets	$	424,750		$	381,076

Liabilities and share owners' equity
Short-term borrowings	$	121,377		$	154,124
Long-term borrowings:
Senior		130,305			75,601
Subordinated		958			873
Insurance liabilities, reserves and annuity benefits		97,964			82,224
Other liabilities		27,886			26,930
Deferred income taxes		9,837			8,111
Total liabilities		388,327			347,863

Minority interest in equity of consolidated affiliates		1,816			1,650
Accumulated gains/(losses) - net
Investment securities		1,334			(362	)
Currency translation adjustments		(518	)		(564	)
Derivatives qualifying as hedges		(1,880	)		(832	)
Accumulated non-owner changes in share owners' equity		(1,064	)		(1,758	)
Capital stock		18			18
Additional paid-in capital		9,731			9,749
Retained earnings		25,922			23,554
Total share owners' equity		34,607			31,563
Total liabilities and share owners' equity	$	424,750		$	381,076

See Notes to Condensed, Consolidated Financial Statements.

2

GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES

Condensed Statement of Cash Flows

(Unaudited)

	Nine months ended
(Dollars in millions)	September 28, 2002			September 29, 2001
Cash Flows from Operating Activities
Net earnings	$	3,920			$	4,279
Adjustments to reconcile net earnings to cash provided from operating activities:
Cumulative effect of accounting changes		1,015				158
Provision for losses on financing receivables		2,029				1,428
Depreciation and amortization of buildings and equipment and equipment on operating leases		2,684				2,495
Other - net		5,617				4,298
Cash from operating activities		15,265				12,658

Cash Flows from Investing Activities
Increase in loans to customers		(135,405	)			(92,898	)
Principal collections from customers - loans		128,854				87,467
Investment in equipment for financing leases		(13,712	)			(11,267	)
Principal collections from customers - financing leases		11,637				11,954
Net change in credit card receivables		(3,071	)			1,772
Buildings and equipment and equipment on operating leases:
- additions		(6,671	)			(9,458	)
- dispositions		4,315				5,627
Payments for principal businesses purchased, net of cash acquired		(5,517	)			(6,100	)
Purchases of securities by insurance and annuity businesses		(36,781	)			(24,545	)
Dispositions and maturities of securities by insurance and annuity businesses		28,275				17,885
Other - net		(1,565	)			597
Cash used for investing activities		(29,641	)			(18,966	)

Cash Flows from Financing Activities
Net change in borrowings (maturities 90 days or less)		(39,338	)			134
Newly issued debt:
- short-term (maturities 91-365 days)		2,115				3,717
- long-term (longer than one year)		75,129				13,333
Proceeds - nonrecourse, leveraged lease debt		788				1,321
Repayments and other reductions:
- short-term (maturities 91-365 days)		(21,139	)			(5,951	)
- long-term (longer than one year)		(3,681	)			(4,222	)
Principal payments - nonrecourse, leveraged lease debt		(286	)			(206	)
Proceeds from sales of investment contracts		6,175				5,471
Cash received upon assumption of insurance liabilities		2,406				-
Redemption of investment contracts		(5,065	)			(5,188	)
Dividends paid		(1,552	)			(1,527	)
Cash from financing activities		15,552				6,882

Increase/(decrease) in Cash and Equivalents During the Period		1,176				574
Cash and Equivalents at Beginning of Period		6,784				5,819

Cash and Equivalents at End of Period	$	7,960			$	6,393

See Notes to Condensed, Consolidated Financial Statements.

3

GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES

Notes to Condensed, Consolidated Financial Statements

(Unaudited)

1. The accompanying condensed, consolidated quarterly financial statements represent the consolidation of General Electric Capital Corporation and all majority-owned and controlled affiliates (collectively called "GECC"). On August 12, 2002, GECC changed the par value of its common stock from $0.01 per share to $4.00 per share to conform with certain non-U.S. regulatory requirements. The condensed, consolidated financial statements contained herein have been restated to give retroactive effect to this change in par value. All significant transactions among the parent and consolidated affiliates have been eliminated. Certain prior period data have been reclassified to conform to the current period presentation.

2. The condensed, consolidated quarterly financial statements are unaudited. These statements include all adjustments (consisting of normal recurring accruals) considered necessary by management to present a fair statement of the results of operations, financial position and cash flows. The results reported in these condensed, consolidated quarterly financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year.

3. The Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets, generally became effective on January 1, 2002. Under SFAS 142, goodwill is no longer amortized but is tested for impairment using a fair value methodology.

GECC ceased amortizing goodwill effective January 1, 2002. Simultaneously, to maintain a consistent basis for its measurement of performance, management revised previously-reported segment information to correspond to the earnings measurements by which businesses were to be evaluated. As required by SFAS 131, Disclosures about Segments of an Enterprise and Related Information, previously reported segment results (presented under the heading Operating Segments on pages 8 and 14), have been restated to be consistent with 2002 reporting. Goodwill amortization expense for the third quarter and nine months ended September 29, 2001, was $165 million ($126 million after tax) and $466 million ($361 million after tax), respectively. The effect on earnings of excluding such goodwill amortization from the third quarter and first nine months of 2001 follow:

	Third quarter ended					Nine months ended
(Dollars in millions)	September 28, 2002			September 29, 2001			September 28, 2002			September 29, 2001
Earnings before accounting changes		$	1,758	$	1,671		$	4,935	$	4,437
Earnings before accounting changes, excluding 2001 goodwill amortization		$	1,758	$	1,797		$	4,935	$	4,798
Net earnings		$	1,758	$	1,671		$	3,920	$	4,279
Net earnings, excluding 2001 goodwill amortization		$	1,758	$	1,797		$	3,920	$	4,640

Under SFAS 142, GECC was required to test all existing goodwill for impairment as of January 1, 2002, on a "reporting unit" basis. A reporting unit is the operating segment unless, at businesses one level below that operating segment (the "component" level), discrete financial information is prepared and regularly reviewed by management, in which case such component is the reporting unit.

A fair value approach is used to test goodwill for impairment. An impairment charge is recognized for the amount, if any, by which the carrying amount of goodwill exceeds its fair value. Fair values were established using discounted cash flows. When available and as appropriate, comparative market multiples were used to corroborate discounted cash flow results.

The result of testing goodwill of GECC for impairment in accordance with SFAS 142, as of January 1, 2002, was a non-cash charge of $1,204 million ($1,015 million after tax), which is reported in the caption "Cumulative effect of accounting changes". Substantially all of the charge relates to the IT Solutions business and the GE Auto and Home business, a direct subsidiary of GE Financial Assurance. The primary factors resulting in the impairment charge were the difficult economic environment in the information technology sector and heightened price competition in the auto insurance industry. No impairment charge was appropriate under the FASB's previous goodwill impairment standard, which was based on undiscounted cash flows.

	At September 28, 2002						At December 31, 2001
Intangibles Subject to Amortization	Gross Carrying Amount		Accumulated Amortization				Gross Carrying Amount	Accumulated Amortization
(Dollars in millions)
Present value of future profits (PVFP)	$	4,731		$	(2,599)	$	4,477