GENERAL ELECTRIC CAPITAL SERVICES INC/CT - 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 June 30, 2004 OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____

Commission file number 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, CT		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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

At July 29, 2004, 1,064 shares of voting common stock, which constitutes all of the outstanding common equity, with a par value of $1,000 per share 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.

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Table of Contents

General Electric Capital Services, Inc.

Part I – Financial Information		Page

Item 1. Financial Statements
Condensed Statement of Current and Retained Earnings		3
Condensed Statement of Financial Position		4
Condensed Statement of Cash Flows		5
Notes to Condensed, Consolidated Financial Statements (Unaudited)		6
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition		12
Item 4. Controls and Procedures		23

Part II – Other Information

Item 6. Exhibits and Reports on Form 8–K		23
Signatures		24

Forward-Looking Statements

This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "will" or words of similar meaning and include, but are not limited to, statements about expected future business and financial performance. Forward-looking statements are based on management's current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from these expectations and assumptions due to changes in global political, economic, business, competitive, market, regulatory and other factors. We undertake no obligation to publicly update or review any forward-looking information, whether as a result of new information, future developments or otherwise.

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Part I. Financial Information

Item 1. Financial Statements

Condensed Statement of Current and Retained Earnings
General Electric Capital Services, Inc. and consolidated affiliates
(Unaudited)

	Second quarter ended June 30								Six months ended June 30

(In millions)	2004					2003			2004				2003

Revenues from services (note 8)	$			16,405		$	15,319		$	32,772		$	29,699
Sales of goods				728			568			1,304			1,055

Total revenues				17,133			15,887			34,076			30,754

Interest				2,818			2,533		5,489				4,996
Operating and administrative				5,227			4,610		10,523				8,693
Cost of goods sold				701			465		1,252				902
Insurance losses and policyholder and annuity benefits				3,808			4,256		7,432				8,241
Provision for losses on financing receivables				1,004			978		1,959				1,738
Depreciation and amortization				1,442			1,121		2,882				2,232
Minority interest in net earnings of consolidated affiliates				76			25			122			63

Total costs and expenses			15,076				13,988			29,659			26,865

Earnings before income taxes			2,057				1,899		4,417				3,889
Provision for income taxes			(361		)		(297	)	(876		)		(617	)

Net earnings			1,696				1,602		3,541				3,272
Dividends			(1,462		)		(159	)	(1,842		)		(328	)
Retained earnings at beginning of period			31,769				27,825			30,304			26,324

Retained earnings at end of period	$	32,003				$	29,268		$	32,003		$	29,268



See "Notes to Condensed, Consolidated Financial Statements."

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Condensed Statement of Financial Position
General Electric Capital Services, Inc. and consolidated affiliates

(In millions)		June 30, 2004				December 31, 2003

		(Unaudited)
Cash and equivalents			$	7,995			$	11,273
Investment securities				122,503				121,910
Financing receivables – net (note 5)				252,701				247,906
Insurance receivables				26,461				27,537
Other receivables – net				14,328				12,079
Inventories				190				197
Buildings and equipment, less accumulated amortization of $19,885 and $16,748				44,918				38,822
Intangible assets (note 6)				27,555				24,821
Other assets				72,239				69,981

Total assets			$	568,890			$	554,526

Borrowings (note 7)			$	325,311			$	320,318
Accounts payable				17,185				13,547
Insurance liabilities, reserves and annuity benefits				138,110				136,264
Other liabilities				23,961				23,238
Deferred income taxes				9,691				10,736

Total liabilities				514,258				504,103

Minority interest in equity of consolidated affiliates				8,737				5,115

Capital stock				11				11
Additional paid-in capital				12,342				12,258
Retained earnings				32,003				30,304
Accumulated gains/(losses) – net ^(a)
Investment securities				222				1,823
Currency translation adjustments				2,414				2,639
Derivatives qualifying as hedges				(1,097	)			(1,727	)

Total shareowner's equity				45,895				45,308

Total liabilities and equity			$	568,890			$	554,526


^(a)	The sum of accumulated gains/(losses) on investment securities, currency translation adjustments and derivatives qualifying as hedges constitutes "Accumulated nonowner changes other than earnings," and was $1,539 million and $2,735 million at June 30, 2004 and December 31, 2003, respectively.

See "Notes to Condensed, Consolidated Financial Statements."

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Condensed Statement of Cash Flows
General Electric Capital Services, Inc. and consolidated affiliates

(Unaudited)

	Six months ended June 30

(In millions)	2004			2003

Cash Flows – Operating Activities
Net earnings	$	3,541		$	3,272
Adjustments to reconcile net earnings to cash provided from operating activities
Provision for losses on financing receivables		1,959			1,738
Depreciation and amortization		2,882			2,232
Increase in accounts payable		3,078			928
Increase in insurance liabilities, reserves and annuity benefits		1,930			495
All other operating activities		(257	)		(915	)

Cash from operating activities		13,133			7,750

Cash Flows – Investing Activities
Increase in loans to customers		(133,199	)		(110,007	)
Principal collections from customers – loans		134,879			101,495
Investment in equipment for financing leases		(9,883	)		(9,856	)
Principal collections from customers – financing leases		9,994			9,954
Net change in credit card receivables		167			(1,757	)
Buildings and equipment:
– additions		(5,432	)		(3,202	)
– dispositions		2,272			2,509
Payments for principal businesses purchased		(15,484	)		(8,083	)
Purchases of securities by insurance and annuity businesses		(15,945	)		(27,531	)
Dispositions of securities by insurance and annuity businesses		14,630			25,229
All other investing activities		2,214			(2,555	)

Cash used for investing activities		(15,787	)		(23,804	)

Cash Flows – Financing Activities
Net decrease in borrowings (maturities 90 days or less)		(2,013	)		(4,075	)
Newly issued debt:
Short-term (91-365 days)		242			738
Long-term senior		27,716			36,234
Non-recourse, leveraged lease		283			168
Repayments and other debt reductions:
Short-term (91-365 days)		(21,320	)		(16,341	)
Long-term senior		(2,033	)		(1,518	)
Non-recourse, leveraged lease		(363	)		(521	)
Proceeds from sales of investment contracts		7,010			4,443
Redemption of investment contracts		(8,304	)		(4,237	)
Dividends paid		(1,842	)		(328	)

Cash from/(used for) financing activities		(624	)		14,563

Decrease in cash and equivalents		(3,278	)		(1,491	)

Cash and equivalents at beginning of year		11,273			7,918

Cash and equivalents at June 30	$	7,995		$	6,427


See "Notes to Condensed, Consolidated Financial Statements."

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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 of our affiliates (GECS). Companies that we directly or indirectly control (consolidated affiliates), include General Electric Capital Corporation (GE Capital) and GE Global Insurance Holding Corporation (GE Global Insurance Holding), the parent of Employers Reinsurance Corporation (ERC). As described in our Annual Report on Form 10-K for the year ended December 31, 2003, we reorganized our businesses on January 1, 2004, around markets and customers. On March 30, 2004, we provided the required reclassified prior-period information about this reorganization in a Form 8-K.

We have reclassified certain prior-period amounts herein to conform to the current period's presentation.

2. The condensed, consolidated quarterly financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of the results of operations, financial position and cash flows. The results reported in these condensed, consolidated quarterly financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish actual interim closing dates using a fiscal calendar, which requires our businesses to close their books on a Saturday. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar from 1993 through 2013 is available on our Web site, www.ge.com/en/company/investor/secreports.htm.

3. We adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46R, Consolidation of Variable Interest Entities (Revised), on January 1, 2004, adding $2.6 billion of assets and $2.1 billion of liabilities to our consolidated balance sheet as of that date. The most significant entity consolidated was Penske Truck Leasing Co., L.P. (Penske), which was previously accounted for using the equity method. Penske provides full-service commercial truck leasing, truck rental and logistics services, primarily in North America. This accounting change did not require an adjustment to earnings and will not affect future earnings or cash flows. We adopted FIN 46, Consolidation of Variable Interest Entities, on July 1, 2003, and at that date consolidated certain entities in our financial statements.

4. FIN 46 and FIN 46R changed the accounting for certain types of entities we use in the ordinary course of our securitization activities. Securitization entities consolidated as a result of FIN 46 and FIN 46R differ from other entities included in our consolidated financial statements because, by terms of relevant governing documents, the assets they hold, which are typically financial in nature, are legally isolated and are unavailable to us under any circumstances. Similarly, their liabilities are not our legal obligations but repayment depends primarily on cash flows generated by their assets. These securitization entities normally issue debt in the form of asset-backed securities, that is, debt secured by assets in the entity. We refer to certain of these entities as "consolidated, liquidating securitization entities" because we do not intend to replace the assets they contain; rather, we intend that such entities will liquidate as their assets are repaid. Beginning in the second quarter of 2004, we reclassified the assets, liabilities and operations of consolidated, liquidating securitization entities into the associated financial statement captions. Because their assets and liabilities differ from other assets and liabilities in our financial statements, we are providing supplemental information about these matters below and

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in notes 5 and 7. Also, to ensure that we have presented all of our securitization activities clearly, we also are providing information about off-balance sheet assets in securitization entities.

		At

(In millions)		6/30/04		12/31/03

Assets in consolidated, liquidating securitization entities are shown in the following captions:
Investment securities		$	1,363	$	1,566
Financing receivables – net (note 5)			16,870		21,877
Other assets			2,746		2,352
Other, principally insurance receivables			457		668

Total			21,436		26,463

Off-balance sheet ^(a)			25,787		23,561

Total securitized assets		$	47,223	$	50,024


(a)	Of amounts off-balance sheet, $6,253 million at June 30, 2004 and $5,759 million at December 31, 2003, were in entities to which we provide credit and/or liquidity support.

We continue to engage in off-balance sheet securitization transactions with third-party entities and to use public market, term securitizations. The following table provides further information about the nature of the assets in securitization entities that are both consolidated and off-balance sheet.

	At

(In millions)	6/30/04		12/31/03

Receivables and other assets secured by:
Equipment	$	14,052	$	15,616
Commercial real estate		15,505		16,713
Other assets		9,298		9,114
Credit card receivables		8,368		8,581

Total securitized assets	$	47,223	$	50,024

5. Financing receivables are summarized in the following table.

	At

(In millions)	6/30/04			12/31/03

Time sales and loans, net of deferred income	$	192,207		$	188,842
Investment in financing leases, net of deferred income		67,100			65,320

		259,307			254,162
Allowance for losses on financing receivables		(6,606	)		(6,256	)

Financing receivables – net	$	252,701		$	247,906

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Included in the above are the financing receivables of consolidated, liquidating securitization entities as follows:

	At

(In millions)	6/30/04			12/31/03

Time sales and loans, net of deferred income	$	14,023		$	18,050
Investment in financing leases, net of deferred income		2,864			3,827

		16,887			21,877
Allowance for losses on financing receivables		(17	)		–

Financing receivables – net	$	16,870		$	21,877

6. Intangible assets are summarized in the following table.

	At

(In millions)	6/30/04		12/31/03

Goodwill	$	24,377	$	21,527
Present value of future profits (PVFP)		1,576		1,562
Capitalized software		776		800
Other intangibles		826		932

Total	$	27,555	$	24,821



Intangible assets were net of accumulated amortization of $10,312 million at June 30, 2004, and $10,323 million at December 31, 2003.

GOODWILL

Changes in goodwill balances follow.

	2004

(In millions)	Commercial Finance				Consumer Finance			Equipment & Other Services				Insurance			Total

Balance at January 1		$	8,627		$	7,779			$	1,029		$	4,092		$	21,527
Acquisitions/purchase accounting adjustments ^(a)			799			1,036				3			9			1,847
Inter-segment transfers		523			384				(523		)	(384		)	–
Currency exchange and other			(34	)		(36	)			1,042	(b)		31			1,003
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