GENERAL ELECTRIC CAPITAL SERVICES INC/CT - 10-Q Quarterly Report

[ ]

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 0-14804

GENERAL ELECTRIC CAPITAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware		06-1109503
(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, 1,012 shares of common stock with a par value of $1,000 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

19



PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

20

Signatures

21

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
22

Exhibit 12.    Computation of Ratio of Earnings to Fixed Charges and Computation

of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

24

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

25

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

26

PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

GENERAL ELECTRIC CAPITAL SERVICES, INC. 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
$
14,202
$
12,520
$
40,238
$
39,614

Sales of goods

779

778

2,494

2,806

14,981

13,298

42,732

42,420

Expenses

Interest

2,645

2,503

7,362

8,072

Operating and administrative

4,101

3,455

11,509

11,584

Cost of goods sold

673

692

2,237

2,519

Insurance losses and policyholder and annuity
          benefits

4,227

3,618

11,465

10,853

Provision for losses on financing receivables

640

567

2,087

1,546

Depreciation and amortization of buildings and
          equipment and equipment on operating
          leases

983

924

2,703

2,514

Minority interest in net earnings of consolidated affiliates

39

27

113

126

13,308

11,786

37,476

37,214

Earnings

Earnings before income taxes and accounting
changes

1,673

1,512

5,256

5,206

Provision for income taxes

(122

)

(211

)

(721

)

(1,027

)

Earnings before accounting changes

1,551

1,301

4,535

4,179

Cumulative effect of accounting changes

-

-

(1,015

)

(169

)

Net Earnings

1,551

1,301

3,520

4,010

Dividends

(550

)

(454

)

(1,511

)

(1,460

)

Retained earnings at beginning of period

25,686

22,925

24,678

21,222

Retained earnings at end of period
$
26,687
$
23,772
$
26,687
$
23,772

See Notes to Condensed, Consolidated Financial Statements.

1

GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATED AFFILIATES

Condensed Statement of Financial Position

(Dollars in millions)

September

28, 2002

December

31, 2001

(Unaudited)

Assets

Cash and equivalents

$

9,295

$

7,314

Investment securities

114,846

100,138

Financing receivables:

Time sales and loans, net of deferred income

134,909

122,686

Investment in financing leases, net of deferred income

58,373

56,147

193,282

178,833

Allowance for losses on financing receivables

(5,065

)

(4,801

)

Financing receivables - net

188,217

174,032

Insurance receivables - net

29,528

27,317

Other receivables - net

14,383

13,267

Inventories

251

270

Equipment on operating leases (at cost), less accumulated

amortization of $10,532 and $9,135

29,085

27,320

Intangible assets

22,527

20,757

Other assets

65,240

55,069

Total assets

$

473,372

$

425,484

Liabilities and share owners equity

Short-term borrowings

$

128,307

$

160,844

Long-term borrowings:

Senior

132,030

77,920

Subordinated

1,255

1,171

Insurance liabilities, reserves and annuity benefits

131,935

114,223

Other liabilities

33,615

30,352

Deferred income taxes

10,213

8,117

Total liabilities

437,355

392,627

Minority interest in equity of consolidated affiliates

4,435

4,267

Accumulated gains/(losses) - net

Investment securities

1,671

(348

)

Currency translation adjustments

(742

)

(840

)

Derivatives qualifying as hedges

(2,006

)

(890

)

Accumulated non-owner changes in share owners' equity

(1,077

)

(2,078

)

Capital stock

11

11

Additional paid-in capital

5,961

5,979

Retained earnings

26,687

24,678

Total share owners' equity

31,582

28,590

Total liabilities and share owners' equity

$

473,372

$

425,484

See Notes to Condensed, Consolidated Financial Statements.

2

GENERAL ELECTRIC CAPITAL SERVICES, INC. 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

$

3,520

$

4,010

Adjustments to reconcile net earnings to cash provided from operating activities:

Cumulative effect of accounting changes

1,015

169

Provision for losses on financing receivables

2,087

1,546

Depreciation and amortization of buildings and equipment and
equipment on operating leases

2,703

2,514

Other - net

7,776

5,926

Cash from operating activities

17,101

14,165

Cash Flows from Investing Activities

Increase in loans to customers

(138,317

)

(95,501

)

Principal collections from customers - loans

131,666

89,407

Investment in equipment for financing leases

(13,704

)

(11,654

)

Principal collections from customers - financing leases

11,518

11,357

Net change in credit card receivables

(2,016

)

2,412

Buildings and equipment and equipment on operating leases:

- additions

(6,855

)

(9,505

)

- dispositions

4,395

5,663

Payments for principal businesses purchased, net of cash acquired

(5,542

)

(6,100

)

Purchases of securities by insurance and annuity businesses

(47,756

)

(36,414

)

Dispositions and maturities of securities by insurance and annuity
businesses

40,176

30,203

Other - net

(4,133

)

(212

)

Cash used for investing activities

(30,568

)

(20,344

)

Cash Flows from Financing Activities

Net change in borrowings (maturities 90 days or less)

(39,128

)

(119

)

Newly issued debt:

- short-term (maturities 91-365 days)

2,115

3,717

- long-term (longer than one year)

75,129

13,347

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)

(4,276

)

(4,222

)

Principal payments - nonrecourse, leveraged lease debt

(286

)

(206

)

Proceeds from sales of investment contracts

6,216

5,534

Cash received upon assumption of insurance liabilities

2,813

-

Redemption of investment contracts

(5,273

)

(5,304

)

Cash contributions from parent company

-

395

Dividends paid

(1,511

)

(1,460

)

Cash from financing activities

15,448

7,052

Increase/(decrease) in Cash and Equivalents During the Period

1,981

873

Cash and Equivalents at Beginning of Period

7,314

6,052

Cash and Equivalents at End of Period

$

9,295

$

6,925

See Notes to Condensed, Consolidated Financial Statements.

3

GENERAL ELECTRIC CAPITAL SERVICES, INC. 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 Services, Inc. and all majority-owned and controlled affiliates (collectively called "GECS"). 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.
        GECS 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 13), have been restated to be consistent with 2002 reporting. Goodwill amortization expense for the third quarter and nine months ended September 29, 2001, was $187 million ($146 million after tax) and $533 million ($419 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
$
1,551
$
1,301

$

4,535

$

4,179

Earnings before accounting changes,
excluding 2001 goodwill amortization
$
1,551
$
1,447

$

4,535

$

4,598

Net earnings
$
1,551
$
1,301

$

3,520

$

4,010

Net earnings, excluding 2001 goodwill
amortization

$

1,551

$

1,447

$

3,520

$

4,429

        Under SFAS 142, GECS 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 GECS 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.

4

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)

$ 5,237

$ (2,722)

$ 4,744

$ (2,546)

Capitalized software

1,440

(572)

1,307

(406)

Servicing assets

3,763

(3,191)

3,768

(2,629)

All other

834

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

	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	19

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K	20
Signatures	21
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	22
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges and Computation
of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends	24
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	25
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	26

	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	$	14,202		$	12,520		$	40,238		$	39,614
Sales of goods		779			778			2,494			2,806
		14,981			13,298			42,732			42,420
Expenses
Interest		2,645			2,503			7,362			8,072
Operating and administrative		4,101			3,455			11,509			11,584
Cost of goods sold		673			692			2,237			2,519
Insurance losses and policyholder and annuity benefits		4,227			3,618			11,465			10,853
Provision for losses on financing receivables		640			567			2,087			1,546
Depreciation and amortization of buildings and equipment and equipment on operating leases		983			924			2,703			2,514
Minority interest in net earnings of consolidated affiliates		39			27			113			126
		13,308			11,786			37,476			37,214
Earnings
Earnings before income taxes and accounting changes		1,673			1,512			5,256			5,206
Provision for income taxes		(122	)		(211	)		(721	)		(1,027	)
Earnings before accounting changes		1,551			1,301			4,535			4,179
Cumulative effect of accounting changes		-			-			(1,015	)		(169	)
Net Earnings		1,551			1,301			3,520			4,010
Dividends		(550	)		(454	)		(1,511	)		(1,460	)
Retained earnings at beginning of period		25,686			22,925			24,678			21,222
Retained earnings at end of period	$	26,687		$	23,772		$	26,687		$	23,772

(Dollars in millions)	September 28, 2002			December 31, 2001
	(Unaudited)
Assets
Cash and equivalents	$	9,295		$	7,314
Investment securities		114,846			100,138
Financing receivables:
Time sales and loans, net of deferred income		134,909			122,686
Investment in financing leases, net of deferred income		58,373			56,147
		193,282			178,833
Allowance for losses on financing receivables		(5,065	)		(4,801	)
Financing receivables - net		188,217			174,032
Insurance receivables - net		29,528			27,317
Other receivables - net		14,383			13,267
Inventories		251			270
Equipment on operating leases (at cost), less accumulated amortization of $10,532 and $9,135		29,085			27,320
Intangible assets		22,527			20,757
Other assets		65,240			55,069
Total assets	$	473,372		$	425,484

Liabilities and share owners equity
Short-term borrowings	$	128,307		$	160,844
Long-term borrowings:
Senior		132,030			77,920
Subordinated		1,255			1,171
Insurance liabilities, reserves and annuity benefits		131,935			114,223
Other liabilities		33,615			30,352
Deferred income taxes		10,213			8,117
Total liabilities		437,355			392,627

Minority interest in equity of consolidated affiliates		4,435			4,267
Accumulated gains/(losses) - net
Investment securities		1,671			(348	)
Currency translation adjustments		(742	)		(840	)
Derivatives qualifying as hedges		(2,006	)		(890	)
Accumulated non-owner changes in share owners' equity		(1,077	)		(2,078	)
Capital stock		11			11
Additional paid-in capital		5,961			5,979
Retained earnings		26,687			24,678
Total share owners' equity		31,582			28,590
Total liabilities and share owners' equity	$	473,372		$	425,484

	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)	$ 5,237	$ (2,722)	$ 4,744		$ (2,546)
Capitalized software	1,440	(572)	1,307		(406)
Servicing assets	3,763	(3,191)	3,768		(2,629)
All other	834