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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 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 NOTES DUE DECEMBER 1, 2006 NEW YORK STOCK EXCHANGE
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/
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT AT MARCH 21, 1994. NONE.
AT MARCH 21, 1994, 3,837,825 SHARES OF COMMON STOCK WITH A PAR VALUE OF $200
WERE OUTSTANDING.
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, 1993 ARE INCORPORATED BY REFERENCE INTO PART IV HEREOF.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(A) AND (B)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................................................ 1
Item 2. Properties.......................................................... 9
Item 3. Legal Proceedings................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders................. 9
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters........................................................... 10
Item 6. Selected Financial Data............................................. 10
Item 7. Management's Discussion and Analysis of Results of Operations....... 11
Item 8. Financial Statements and Supplementary Data......................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 33
PART III
Item 10. Directors and Executive Officers of the Registrant.................. 34
Item 11. Executive Compensation.............................................. 34
Item 12. Security Ownership of Certain Beneficial Owners and Management...... 34
Item 13. Certain Relationships and Related Transactions...................... 34
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 35
3
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, formed in 1932. Until
November 1987, the name of the Corporation was General Electric Credit
Corporation. All outstanding common stock of the Corporation is owned by General
Electric Capital Services, Inc. ("GE Capital Services"), formerly General
Electric Financial Services, Inc., which is in turn wholly owned 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 type and brand of products
financed and the financial services offered are significantly more diversified.
Very little of the financing provided by GE Capital involves products that are
manufactured by GE Company.
The Corporation operates in four finance industry segments and in a
specialty insurance industry segment. GE Capital's financing activities include
a full range of leasing, loan, equipment management services and annuities. The
Corporation's specialty insurance activities include providing private mortgage
insurance, financial (primarily municipal) guarantee insurance, creditor
insurance, reinsurance and, for financing customers, credit life and property
and casualty insurance. The Corporation is an equity investor in a retail
organization and certain other financial services organizations. GE Capital's
operations are subject to a variety of regulations in their respective
jurisdictions.
Services of the Corporation are offered primarily in the United States,
Canada and Europe. Computerized accounting and service centers, including those
located in Connecticut, Ohio, Georgia and England, provide financing offices and
other service locations with data processing, accounting, collection, reporting
and other administrative support. The Corporation's principal executive offices
are located at 260 Long Ridge Road, Stamford, Connecticut 06927 (Telephone
number (203) 357-4000). At December 31, 1993 the Corporation employed
approximately 27,000 persons.
Industry segment operating data and identifiable assets for the years 1993,
1992 and 1991 are shown in Note 17 of the Notes to Financial Statements of
General Electric Capital Corporation and Consolidated Affiliates included in
Item 8 of this Annual Report.
For accounting purposes, the Corporation's principal financing products are
classified as time sales and loans, investment in financing leases or equipment
on operating leases. The following table presents, by industry segment, these
principal financing products which, together with investment securities and
other assets, comprise the Corporation's total assets at December 31, 1993 and
1992.
Page 1
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ITEM 1. BUSINESS (Continued).
TOTAL ASSETS BY SEGMENT
1993
------------------------------------------------------------------------
TIME NET ALLOW.
SALES INVESTMENT FOR
AND NET IN LOSSES
LOANS, INVESTMENT EQUIPMENT AND
NET OF IN ON ALL
DEFERRED FINANCING OPERATING INVESTMENT OTHER TOTAL
(IN MILLIONS) INCOME LEASES LEASES SECURITIES ASSETS ASSETS
------- ------- --------- ------- ------- --------
SPECIALIZED FINANCING
Commercial Real
Estate............... $10,751 $ 35 $ $ 37 $ 3,657 $ 14,480
Global Project and
Structured Finance... 2,957 7,893 1,193 428 211 12,682
Corporate Finance
Group................ 3,239 436 279 802 4,756
------- ------- ------- ------- ------- --------
Total.............. 16,947 7,928 1,629 744 4,670 31,918
------- ------- ------- ------- ------- --------
CONSUMER SERVICES
Retailer Financial
Services............. 14,512 52 1,052 15,616
Auto Financial
Services............. 2,510 5,556 161 243 8,470
Mortgage Servicing..... 177 1 7,408 7,586
GNA.................... 1,088 11,270 981 13,339
Other.................. 155 45 535 735
------- ------- ------- ------- ------- --------
Total.............. 18,442 5,556 161 11,368 10,219 45,746
------- ------- ------- ------- ------- --------
MID-MARKET
FINANCING
Commercial Equipment
Financing............ 3,030 5,877 424 12 454 9,797
Vendor Financial
Services............. 847 2,404 43 137 3,431
GECC Financial --
Hawaii............... 933 65 1 8 1,007
Computer Leasing....... 146 223 225 61 655
------- ------- ------- ------- ------- --------
Total.............. 4,956 8,569 693 12 660 14,890
------- ------- ------- ------- ------- --------
EQUIPMENT
MANAGEMENT
Fleet Services......... 224 2,011 1,475 757 4,467
Genstar Container...... 417 2,416 318 296 3,447
Railcar Services....... 317 990 2 169 1,478
Polaris Aircraft....... 171 2,137 189 2,497
Transport International
Pool................. 73 799 278 1,150
Satellite
Telecommunications
Services............. 584 584
Computer Services...... 49 107 335 491
Modular Space.......... 10 243 87 340
------- ------- ------- ------- ------- --------
Total.............. 395 2,877 8,167 320 2,695 14,454
------- ------- ------- ------- ------- --------
SPECIALTY
INSURANCE.............. 8 7,029 2,542 9,579
CORPORATE................ 1,104 248 1,352
------- ------- ------- ------- ------- --------
TOTAL.................... $40,748 $24,930 $10,650 $20,577 $21,034 $117,939
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
TOTAL ASSETS BY SEGMENT
1992
---------------------------------------------------------------
TIME NET ALLOW.
SALES INVESTMENT FOR
AND NET IN LOSSES
LOANS, INVESTMENT EQUIPMENT AND
NET OF IN ON ALL
DEFERRED FINANCING OPERATING INVESTMENT OTHER TOTAL
INCOME LEASES LEASES SECURITIES ASSETS ASSETS
(IN MILLIONS) ------- ------- ------ --------- ------- -------
SPECIALIZED FINANCING
Commercial Real
Estate............... $10,476 $ 33 $ $ 51 $ 2,940 $13,500
Global Project and
Structured Finance... 2,838 7,549 772 26 612 11,797
Corporate Finance
Group................ 5,157 482 929 6,568
------- ------- ------ ------- ------- -------
Total.............. 18,471 7,582 1,254 77 4,481 31,865
------- ------- ------ ------- ------- -------
CONSUMER SERVICES
Retailer Financial
Services............. 12,817 6 8 721 13,552
Auto Financial
Services............. 1,841 4,827 234 336 7,238
Mortgage Servicing..... 129 3,038 3,167
GNA....................
Other.................. 202 5 207
------- ------- ------ ------- ------- -------
Total.............. 14,989 4,827 240 8 4,100 24,164
------- ------- ------ ------- ------- -------
MID-MARKET
FINANCING
Commercial Equipment
Financing............ 1,980 5,652 321 1 486 8,440
Vendor Financial
Services............. 569 2,774 80 153 3,576
GECC Financial --
Hawaii............... 915 81 1 12 1,009
Computer Leasing....... 75 241 231 93 640
------- ------- ------ ------- ------- -------
Total.............. 3,539 8,748 633 1 744 13,665
------- ------- ------ ------- ------- -------
EQUIPMENT
MANAGEMENT
Fleet Services......... 3 2,096 1,418 956 4,473
Genstar Container...... 324 2,111 250 2,685
Railcar Services....... 264 1,033 20 196 1,513
Polaris Aircraft....... 68 1,884 1 183 2,136
Transport International
Pool................. 56 493 157 706
Satellite
Telecommunications
Services............. 524 524
Computer Services...... 19 128 178 325
Modular Space.......... 9 201 68 278
------- ------- ------ ------- ------- -------
Total.............. 71 2,768 7,268 21 2,512 12,640
------- ------- ------ ------- ------- -------
SPECIALTY
INSURANCE.............. 5,654 1,765 7,419
CORPORATE................ 2,170 709 2,879
------- ------- ------ ------- ------- -------
TOTAL.................... $37,070 $23,925 $9,395 $ 7,931 $14,311 $92,632
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
The Corporation provides a wide variety of financing and insurance products
and services, which are organized into the following industry segments:
o Specialized Financing -- loans and leases for major capital assets
including aircraft, industrial facilities and equipment and
energy-related facilities; commercial and residential real estate loans
and investments; and loans to and investments in corporate enterprises.
o Consumer Services -- private label and bank credit card loans, time sales
and revolving credit and inventory financing for retail merchants, auto
leasing and inventory financing, mortgage servicing and annuities.
o Mid-Market Financing -- loans and financing and operating leases for
middle-market customers including manufacturers, distributors and
end-users, for a variety of equipment, including data processing
equipment, medical and diagnostic equipment, and equipment used in
construction, manufacturing, office applications and telecommunications
activities.
Page 2
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ITEM 1. BUSINESS (Continued).
o Equipment Management -- leases, loans 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, ocean-going containers and satellites.
o Specialty Insurance -- financial guaranty insurance, principally on
municipal bonds and structured finance issues; private mortgage
insurance; creditor insurance covering international customer loan
repayments; and property, casualty and life insurance.
Refer to Item 7 "Management's Discussion and Analysis of Results of
Operations" in this Form 10-K for discussion of the Corporation's Portfolio
Quality.
SPECIALIZED FINANCING
Commercial Real Estate
Commercial Real Estate Financing and Services (CRE) provides funds for the
acquisition, refinancing or renovation of a wide range of commercial and
residential properties located throughout the United States, and, to a lesser
extent, in Canada, Mexico and Europe. CRE also provides selected asset
management services to real estate investors. CRE has field offices located
throughout the United States, as well as offices in Toronto, Canada, Mexico
City, Mexico and London, England, in addition to its headquarters in Stamford,
Connecticut.
Lending represents a major segment of CRE's business in the form of
intermediate-term senior or subordinated floating-rate loans secured by existing
income-producing commercial properties such as office buildings, rental
apartments, shopping centers, industrial buildings, mobile home parks and
warehouses. Loans range in amount from single-property mortgages typically
greater than $5 million to multi-property portfolios of several hundred million
dollars, and are well dispersed geographically, covering properties located in
38 states and several foreign countries. Approximately 90% of all loans are
senior mortgages.
During 1993, CRE continued to broaden its investment base by acquiring
certain loans and properties from both government and private institutions. CRE
actively buys or provides restructuring financing for portfolios of real estate,
mortgage loans, limited partnerships, REIT's, and tax-exempt bonds.
CRE also offers a variety of real estate management services to outside
investors, institutions, corporations and investment banks through its GE
Capital Realty Group subsidiary. Services include acquisitions and dispositions,
strategic asset positioning, asset restructuring, on-site property management,
maintenance, and leasing and loan servicing.
Global Project and Structured Finance
The Corporation's Global Project and Structured Finance (GP&SF) business
provides financing for major capital investments in various sectors of the
economy, concentrating principally in the North American market with efforts
being made toward Asia, South America and Europe. At year-end 1993, GP&SF's
diversified portfolio included investments in commercial aircraft (38%),
industrial facilities and equipment (24%), energy-related facilities (30%),
railcar rolling stock (5%), and marine vessels (3%).
GP&SF's fundings take various forms ranging from financing leases to total
balance sheet recapitalizations. At December 31, 1993, GP&SF's portfolio
consisted of finance leases (both direct financing and leveraged leases),
operating leases, loans (both senior and subordinated) and equity investments
(including collateralized, sinking fund and adjustable rate preferred stock;
joint ventures; and partnerships). Fundings are adequately collateralized in the
form of property liens, preferred mortgages, assignment of earnings, insurance,
guarantees, cash flow streams and the financed assets.
GP&SF provides lease syndication and private placement services for
transactions generated by GE Capital as well as other companies. When such
services are performed, GP&SF typically retains a portion of the transaction and
sells off the remainder to one or more other financial institutions.
In addition to its Stamford, Connecticut headquarters, GP&SF has field
offices in New York City and Chicago, as well as in Canada, Mexico, England,
Singapore, Hong Kong, China and India.
Page 3
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ITEM 1. BUSINESS (Continued).
Corporate Finance Group
The Corporate Finance Group (CFG) provides senior and subordinated loans,
on both a revolving and term basis, secured by various assets, which may include
accounts receivable, inventory, property, plant and equipment and intangible
assets (e.g. franchise licenses). Loans range in size from $5 million to several
hundred million dollars with maturities generally between 5 and 10 years. CFG is
active in the loan syndication market, selling and occasionally purchasing
participations in leveraged transactions. CFG also makes preferred and common
stock investments and frequently receives warrants exercisable into a certain
percentage of the financed entities' common stock. In addition, with the
diminished market for acquisition related transactions, CFG has expanded the
scope of its business into other financing opportunities, such as providing
lines of credit to bankrupt companies undergoing reorganization.
The portfolio is diversified with approximately 100 accounts dispersed
throughout the United States and, to a lesser degree, Canada and Europe.
Industry concentration is spread among cable television, commercial and
industrial, retail, financial services, media, and, to a lesser extent,
healthcare, food and beverage and broadcasting.
CFG has offices throughout the United States in addition to its
headquarters in Stamford, Connecticut.
CONSUMER SERVICES
Retailer Financial Services
Retailer Financial Services (RFS) provides sales financing services to the
distribution chain for various consumer industries. Financing plans offered vary
considerably by client (including Montgomery Ward & Co., Incorporated, through a
wholly-owned affiliate Montgomery Ward Credit Corporation, "MW Credit"), but
fall into three major product offerings: customized private label credit card
programs with retailers, bankcard programs direct with consumers and inventory
financing programs with manufacturers, distributors and retailers.
RFS purchases consumer revolving charge accounts from retailers in the
United States, Canada and the United Kingdom, most of whom sell a variety of
products of various manufacturers on a time sales basis. The terms made
available for these financing plans vary by size of contract and the credit
standing of the customer. Maximum maturities ordinarily do not exceed 40 months.
The Corporation generally maintains a security interest in the merchandise
financed. Financing is provided to consumers under contractual arrangements both
with and without recourse to retailers. RFS's wide range of financial services
includes private label credit cards, credit promotion and accounting services,
billing (in the store's name) and customer credit and collection services.
Similar services are also provided through joint ventures in Mexico and Spain.
During 1993, RFS expanded into the Scandinavian market with the purchase of
Finax Finans AB which provides credit card services and consumer loans in Sweden
and Norway.
RFS provides consumers with Visa and Mastercard products, including the new
GE Rewards Credit Card, through Monogram Bank, USA. RFS is also engaged in the
home equity loan business.
RFS provides inventory financing for retailers primarily in the appliance
and consumer electronics industries. The majority of such financing is for
products manufactured by General Electric Company. The Corporation obtains a
security interest in the inventory of retailers to whom financing is provided.
As part of the inventory financing agreement, retailers are required to provide
insurance coverage deemed adequate by RFS on the merchandise financed (with an
insurer selected by the retailer). In addition, RFS usually obtains agreements
from the distributor or manufacturer obligating them to repurchase inventory
repossessed by RFS from defaulting retailers.
Auto Financial Services
Auto Financial Services (AFS) provides lease financing for automobiles of
domestic and foreign manufacture through dealers, independent leasing companies
and importers of new and used cars throughout the United States, Canada and the
United Kingdom. Contractual terms do not exceed 66 months and have an average
expected term ranging from 30 to 45 months. Property and casualty insurance is
required for all leases, with the insurer selected by the lessee.
Page 4
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ITEM 1. BUSINESS (Continued).
AFS also provides inventory financing programs and direct loans to segments
of the automotive industry, including dealers, rental car companies and leasing
companies located throughout the United States.
AFS purchases auto lease and loan assets from financial institutions and
services the outstanding accounts throughout the liquidation of the portfolios.
AFS is active in the Asian market through equity investments in United
Merchants Finance Ltd. (Hong Kong) and ASTRA Sedaya Finance (Indonesia) and
expanded in 1993 with United Motor Works (Malaysia) and Government Savings Bank
and General Finance and Securities (Thailand) which provide primarily automobile
and vehicle financing in their respective markets.
On January 1, 1993 AFS and Volvo of North America began a joint venture to
provide financing for Volvo's customers.
Mortgage Servicing
GE Capital Mortgage Services, Inc. (GECMSI), wholly owned by GE Capital
Mortgage Corporation (GECMC), is engaged in the business of servicing
residential mortgage loans collateralized by one-to-four-family homes located
throughout the United States. It obtains servicing through the purchase of
mortgage loans and of servicing rights. GECMSI packages the loans it purchases
into mortgage-backed securities which are sold to investors. GECMSI is also
engaged in the home equity loan business. GECMC, through GECMSI and other
wholly-owned affiliates, is among the nation's leading asset management,
servicing and disposition organizations.
GNA
The Corporation acquired two companies during 1993 (GNA Corporation and
United Pacific Life Insurance Company) which together comprise the Corporation's
annuity business ("GNA"). GNA writes and markets tax-deferred annuities and
sells proprietary and third party mutual funds through independent agents and
financial institutions.
MID-MARKET FINANCING
Commercial Equipment Financing
Commercial Equipment Financing (CEF) offers a broad line of financial
products including loans, leases and municipal financing to middle-market
customers including manufacturers, distributors, dealers and end-users. Products
are designed to meet customers' unique equipment needs and tax requirements and
are either held for CEF's own account or brokered to a third party for a fee.
Generally, transactions range from $50 thousand dollars to several million
dollars with financing terms from 36 to 120 months. CEF enhances the value of
its leased equipment by maintaining an asset management operation that both
redeploys off-lease equipment and monitors asset values. The portfolio includes
vehicles, manufacturing equipment, corporate aircraft, construction equipment,
medical diagnostic equipment, office equipment, telecommunications equipment and
electronics.
CEF operates from offices throughout the United States, Puerto Rico,
Canada, Europe, Australia and through joint ventures in Mexico, Spain and Hong
Kong. In 1993, Canadian operations were significantly expanded with the purchase
of financing receivables and infrastructure of the National Bank of Canada.
Vendor Financial Services
Vendor Financial Services (VFS) provides captive financing services to
equipment manufacturers and distributors in specific industries including office
furniture, healthcare, franchise, information systems, manufacturing and office
equipment worldwide. The captive financing programs are tailored to meet the
individual needs of each vendor including sales force training, marketing
support and customized financing products. Funding, billing, collections and
other related services are provided by six highly automated service operations
and sales offices located throughout the United States, Canada, Mexico, Asia and
Europe. VFS's typical transaction size ranges from $6 thousand to $500 thousand.
Security is generally provided by the asset being financed.
Page 5
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ITEM 1. BUSINESS (Continued).
During 1993, VFS acquired Digital Equipment Corporation's financing group.
Digital Financial Services, the new name for the VFS unit dedicated to Digital,
provides financing for the acquisition of equipment manufactured by Digital.
GECC Financial -- Hawaii
GECC Financial Corporation of Hawaii (GFC) operates exclusively in the
state of Hawaii. Through a network of 10 branch offices, GFC offers commercial
and residential real estate loans, auto and equipment leasing, inventory
financing and equity lines of credit. GFC also offers thrift investment programs
and loan servicing to institutional investors.
Computer Leasing
GE Capital Computer Leasing Corporation(GECCL), is based in Emeryville,
California and offers primarily lease financing for new and used computer
equipment and peripherals of all major computer manufacturers. GECCL manages
these assets during their product life cycle by offering a wide range of
services including remarketing and trading of used equipment. GECCL's offering
of financial services and products are tailored to provide information
technology solutions to its customers.
EQUIPMENT MANAGEMENT
Fleet Services
GE Capital Fleet Services (GECFS), is the leading corporate fleet
management company in North America and Europe with 620,000 cars, trucks and
specialty vehicles under lease and service management.
GECFS markets finance and operating leases to several thousand customers
with an average lease term of 36 months. The primary product is a Terminal
Rental Adjustment Clause (TRAC) lease with the customer assuming the residual
risk for the difference between market and book value at termination. In
addition to the services directly associated with the lease, GECFS offers
value-added fleet management services designed to reduce its customers' total
fleet management costs. These include maintenance management programs, accident
services, national account purchasing programs, fuel programs, title and
licensing services, safety programs and many other value-added programs. GECFS'
customer base is well diversified across all industries and geographic locations
and includes many Fortune 500 companies.
Genstar Container
In 1993, Genstar Container Corporation maintained a fleet of over 1,300,000
TEU ("twenty-foot equivalent units") of dry-cargo, refrigerated and specialized
containers for intermodal cargo transport on a global basis. Lessees consist
primarily of shipping lines who lease on a long-term or master lease basis.
Genstar is the world's largest lessor of intermodal shipping containers.
Railcar Services
At December 31, 1993, GE Railcar Services Corporation (GERSCO) had
approximately 140,000 railcars leased to others in North America (principally
operating leases). Railcar maintenance and repair services are provided by GE
Railcar Repair Services Corporation, a wholly-owned affiliate of GERSCO, at its
21 repair centers in the United States and Canada. GE Railcar Wheel Services
Corporation, a wholly-owned affiliate of GERSCO, provides railcar refurbishing
services and also remanufactures railcar parts.
Polaris Aircraft
Polaris Holding Company and its subsidiaries (Polaris) provide lease
financing to the commercial airline industry on a worldwide basis, primarily
through short-term operating leases. At December 31, 1993, Polaris' fleet of
aircraft, one of the largest such fleets in the world, consisted of 250 owned or
managed aircraft on lease to 50 customers around the world.
In 1994, the activities of Polaris and the commercial aircraft finance and
leasing assets of the Global Project and Structured Finance business will be
combined to form GE Capital Aviation Services, Inc. (GECAS). GECAS will also
manage the aircraft assets of GPA Group, plc.
Page 6
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ITEM 1. BUSINESS (Continued).
Transport International Pool
Transport International Pool (TIP) rents, leases, sells and finances
over-the-road trailers in the United States, Canada and throughout Europe from
185 locations. In June 1993, TIP acquired an extensive European network by
purchasing TIP Europe plc. and its 65 branches in 10 countries. TIP also
launched its trailer storage and cartage rental business by purchasing the
assets of Trailerco. TIP's large diversified fleet of over 83,000 dry freight
vans, refrigerated and double vans, flatbeds and specialized trailers serves the
trailer needs of common and private carriers.
Satellite Telecommunications Services
GE American Communications (GE Americom) is a leading provider of satellite
communication services (video and audio services) to the media, including the
broadcast and cable TV industries, and voice, facsimile and wideband data
services for various agencies of the federal government. GE Americom operates
seven domestic communications satellites, which carry cable TV programming to
the nation's 11,000 plus cable television systems and is also the leading
satellite carrier of radio programming, serving more than 6,000 radio stations.
It also maintains a supporting network of earth stations, central terminal
offices, and telemetry, tracking and control facilities.
Computer Services
Computer Services, is a combination of four businesses (Computer
Maintenance Service, Rental/Lease, Electronic Services and GE Hamilton
Technology Services). Recognized for its premier service, the Computer
Maintenance Service business provides comprehensive repair, maintenance and
networking services for multi-vendor personal computers. The Rental/Lease
business rents and leases a broad range of brand-name personal computers,
workstations and test and measurement equipment. The Electronic Service business
provides world-class, single-source repair and calibration services for
electronic test equipment from more than 1,000 manufacturers. GE Hamilton
Technology Services provides a diverse base of technology services -- computer
rental, leasing, sales, support and asset management -- to customers seeking
communication solutions.
Modular Space
GE Capital Modular Space (GECMS) maintains a fleet, at December 31, 1993,
of approximately 36,000 non-residential relocatable modular structures for
rental, lease and sale from over 80 facilities in the United States. GECMS'
operating leases are primarily rental and short-term leases, averaging 15
months, in term and usage.
SPECIALTY INSURANCE
Mortgage Insurance
GE Mortgage Insurance Companies (GEMICO) are engaged principally in
underwriting residential mortgage guaranty insurance. Operating in 26 field
locations, GEMICO is licensed in 50 states and the District of Columbia, and at
December 31, 1993, was the primary insurance carrier for over 828,100
residential homes, with total insurance in force aggregating over $149 billion
and total risk in force aggregating over $27 billion. When a claim is received,
GEMICO proceeds by either paying a guaranteed percentage based on the specified
coverage or paying the mortgage and delinquent interest, taking title to the
property and arranging for its sale.
Financial Guaranty Insurance
FGIC Corporation (FGIC), through its wholly-owned subsidiary Financial
Guaranty Insurance Company (Financial Guaranty), is an insurer of municipal
bonds, including new issues and bonds traded in the secondary market, including
bonds held in unit investment trusts and mutual funds. Financial Guaranty also
guarantees certain structured debt issues in the taxable market. The guaranteed
principal, after reinsurance, amounted to approximately $84 billion at December
31, 1993. Approximately 90% of the business written to date by Financial
Guaranty has been municipal bond insurance.
Page 7
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ITEM 1. BUSINESS (Continued).
Creditor Insurance
Financial Insurance Group (FIG), headquartered in Enfield, Middlesex,
England, is licensed to offer creditor insurance in the United Kingdom, the
Republic of Ireland and Spain. The insurance, which covers loan repayments, is
sold through banks, building societies and other lenders to retail borrowers.
Life, Property and Casualty Insurance
Employers Reassurance Corporation (ERAC), a Kansas life insurance company,
formerly Puritan Life Insurance Company, was acquired by GE Capital during 1973.
ERAC is licensed to offer life, annuity and accident and health coverage in the
District of Columbia and all states except New York, where it is licensed only
for reinsurance.
Puritan Excess & Surplus Lines Insurance Company (PESLIC), a successor to
the operations of Puritan Insurance Company, began operations as a subsidiary of
GE Capital during 1981. PESLIC is licensed to transact property and casualty
insurance in Connecticut and Missouri. The administrative office of the combined
life and property and casualty insurance operation is located in Overland Park,
Kansas.
ERAC and PESLIC continue to provide reinsurance and credit insurance
coverage to GE Capital customers. ERAC also markets all types of life and
accident and health reinsurance coverage to direct writing life insurance
companies.
Insurance and reinsurance operations are subject to regulation by various
state insurance commissions or foreign regulatory authorities, as applicable.
ALLOWANCE FOR LOSSES AND LOSS EXPERIENCE ON FINANCING RECEIVABLES
The Corporation maintains an allowance for losses on financing receivables
at an amount which it believes is sufficient to provide adequate protection
against future losses in the portfolio. For small-balance financing receivables,
the allowance for losses is determined principally on the basis of actual
experience during the preceding three years. Additional allowances are also
recorded to reflect management's judgment of additional loss potential. For
larger-balance financing receivables, the allowance for losses is determined
primarily on the basis of management's judgment of net loss potential, including
specific allowances for known troubled accounts. Note 6 of the Notes to
Financial Statements shows the activity in the allowance for losses on financing
receivables for the years 1991 through 1993.
The following table sets forth the Corporation's net loss experience on
total financing receivables (time sales, loans and financing lease rentals
receivable) in dollars and as a percentage of average financing receivables
outstanding for each of the last three years. Recoveries on accounts written off
have been netted against gross credit losses.
YEAR ENDED DECEMBER 31,
----------------------------
(Dollar amounts in millions) 1993 1992 1991
------ ------ ------
Specialized Financing............................... $434 $415 $394
% of average financing receivables............. 1.48% 1.37% 1.37%
Consumer Services................................... $467 $535 $627
% of average financing receivables............. 2.23% 2.90% 3.72%
Mid-Market Financing................................ $70 $57 $63
% of average financing receivables............. 0.49% 0.47% 0.62%
Equipment Management................................ $19 $2 $5
% of average financing receivables............. 0.51% 0.06% 0.20%
Total(a)............................................ $990 $1,009 $1,089
% of average financing receivables............. 1.46% 1.58% 1.87%
- ---------------
(a) Write-downs of in-substance repossessions, foreclosed real
estate properties and other investments aggregated $135
million, $243 million and $206 million in 1993, 1992 and
1991, respectively.
All accounts or portions thereof deemed to be uncollectible or to require
an excessive collection cost are written off to the allowance for losses.
Small-balance accounts are progressively written down (from 10% when more than
three months delinquent to 100% when nine to twelve months delinquent) to record
the balances at estimated realizable value. However, if at any time during that
period an account is judged to be uncollectible, such as in the case of a
bankruptcy, the remaining balance is written off.
Page 8
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ITEM 1. BUSINESS (Continued).
Larger-balance accounts are reviewed at least quarterly, and those accounts
which are more than three months delinquent are written down, if necessary, to
record the balances at estimated realizable value.
RATES 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. The Corporation's international operations are subject to
regulation in their respective jurisdictions. To date such regulations have not
had a material adverse effect on the Corporation's volume of financing
operations or profitability. Common carrier services of GE Americom are subject
to regulation by the Federal Communications Commission.
The Corporation's charges for providing financing services are changed from
time to time either on a general basis or for specific types of financing when
warranted in light of competition or interest and other costs. The businesses in
which the Corporation engages are highly competitive. The Corporation is subject
to competition from various types of financial institutions, including banks,
investment banks, credit unions, leasing companies, consumer loan companies,
independent finance companies and finance companies associated with
manufacturers.
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.
Page 9
12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
See Note 12 of the Notes to 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 Financial Statements.
YEAR ENDED DECEMBER 31,
------------------------------------------------
(Dollar amounts in millions) 1993 1992 1991 1990 1989
-------- ------- ------- ------- -------
FOR THE YEAR:
Financing volume.............................. $ 57,094 $51,186 $45,965 $42,853 $38,681
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Earned income................................. $ 14,444 $12,250 $11,328 $10,121 $ 8,372
-------- ------- ------- ------- -------
Interest and discount expense................. 3,461 3,665 4,225 4,228 3,674
Operating and administrative expense
(including minority interest)............... 5,008 3,955 2,728 2,373 1,709
Insurance losses and policyholder and annuity
benefits.................................... 1,259 611 599 521 602
Provision for losses on financing
receivables................................. 987 1,056 1,102 688 527
Depreciation and amortization of buildings and
equipment and equipment on operating
leases...................................... 1,587 1,297 1,187 940 698
-------- ------- ------- ------- -------
Earnings before income taxes.................. 2,142 1,666 1,487 1,371 1,162
Provision for income taxes.................... 664 415 362 350 303
-------- ------- ------- ------- -------
Net earnings................................ $ 1,478 $ 1,251 $ 1,125 $ 1,021 $ 859
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Ratio of earnings to fixed charges............ 1.62 1.44 1.34 1.31 1.30
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Ratio of earnings to combined fixed charges
and preferred stock dividends............... 1.60 1.43 1.32 1.29 1.28
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
AT YEAR END:
Financing receivables:
Time sales and loans, net of deferred
income................................. $ 40,748 $37,070 $36,849 $35,085 $30,142
Investment in financing leases, net of
deferred income........................ 24,930 23,925 20,411 16,530 12,764
-------- ------- ------- ------- -------
Total financing receivables......... 65,678 60,995 57,260 51,615 42,906
Allowance for losses on financing
receivables............................ (1,730) (1,607) (1,508) (1,360) (1,127)
-------- ------- ------- ------- -------
Financing receivables -- net........ $ 63,948 $59,388 $55,752 $50,255 $41,779
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Percent of allowance for losses on financing
receivables to total financing
receivables................................. 2.63% 2.63% 2.63% 2.63% 2.63%
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Equipment on operating leases -- net.......... $ 10,650 $ 9,395 $ 7,552 $ 5,557 $ 5,095
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Total assets.................................. $117,939 $92,632 $80,528 $70,385 $58,696
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Capitalization:
Notes payable within one year................. $ 52,903 $48,492 $43,152 $36,691 $31,485
Long-term senior debt......................... 25,112 21,182 17,946 16,728 11,815
Long-term subordinated debt................... 697 697 325 112 148
Equity(a)..................................... 10,370 8,892 7,872 6,886 5,571
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Debt to equity ratio(a)....................... 7.59 7.91 7.80 7.77 7.80
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
- ------------
(a) The Corporation adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," on December 31, 1993 resulting in the inclusion
of $485 million of net unrealized gains on investment securities in equity
at the end of the year. Excluding such unrealized gains on investment
securities, the Corporation's equity and debt to equity ratio would have
been $9,885 million and 7.96 to 1 at December 31, 1993, respectively.
Page 10
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
OVERVIEW
The Corporation's net earnings for 1993 were $1,478 million, which, after
payment of dividends on its variable cumulative preferred stock, resulted in a
contribution of $1,456 million to GE Capital Services' 1993 net earnings, an
increase of 19% over 1992. Net earnings for 1992 were $1,251 million, which,
after payment of dividends on its variable cumulative preferred stock, resulted
in a contribution to GE Capital Services' net earnings of $1,225 million, an
increase of 13% over 1991.
Earnings of the Corporation's lending, leasing and equipment management
businesses are significantly influenced by the level of invested assets and the
financing spread on those assets, the excess of yield (rates earned) over
interest rates on borrowings. In 1993, the level of invested assets increased
and lower rates on borrowings resulted in improved spreads. For 1992, the level
of invested assets increased and lower rates on borrowings more than offset
lower yields on assets, also resulting in improved spreads. In both years, these
increases were partially offset by higher administrative expenses related to the
asset growth. As a result of improved asset quality, portfolio loss provisions
were lower in 1993, compared with 1992, which had been higher than in 1991.
In both 1993 and 1992, earnings of the Corporation's Specialty Insurance
businesses were up sharply. 1993's improvement reflected strong performances by
the financial guaranty insurance and creditor insurance businesses. 1992's
increase was primarily the result of growth in both the private mortgage
insurance and financial guaranty insurance businesses.
OPERATING RESULTS
EARNED INCOME from all sources increased 18% in 1993, following an 8%
increase in 1992. Asset growth in each of the Corporation's financing segments,
through acquisitions of businesses and portfolios as well as origination volume,
was the primary reason for increased income from time sales, loans, financing
leases and operating lease rentals in both 1993 and 1992. Yields on related
assets were essentially flat in 1993 compared with 1992, following a decline
from 1991. Earned income in 1993 from the Corporation's annuity business, formed
through two current year acquisitions, was $571 million.
Gains on sales of warrants and other equity interests obtained in
connection with certain loans, fee income associated with syndication
activities, and sales of certain assets, including real estate investments,
contributed $647 million to pre-tax income in 1993, compared with $438 million
in 1992 and $261 million in 1991. In addition, pre-tax income in 1992 included
$65 million of gains from the disposition of partial interests in several
affiliates while pre-tax income in 1991 included a $134 million gain from the
disposition of a significant portion of the Corporation's auto auction
affiliate.
Earned income of the Corporation's Specialty Insurance segment in 1993 was
20% higher than in 1992, which in turn was 35% higher than in 1991. The 1993
increase was primarily the result of growth in premium income in the private
mortgage, life reinsurance and financial guaranty insurance businesses and
reflected the full year impact of the creditor insurance business which was
consolidated at the end of the second quarter of 1992 when an existing equity
position was converted to a controlling interest. The 1992 increase was
primarily the result of growth in premium and investment income in the private
mortgage and financial guaranty insurance businesses and reflected revenue from
the creditor insurance business for the second half of the year.
INTEREST AND DISCOUNT EXPENSE in 1993 totaled $3.5 billion, 6% lower than
in 1992, which was 13% lower than in 1991. Both decreases reflected
substantially lower composite interest rates which more than offset the effect
of higher average borrowings required to finance the significantly higher level
of invested assets. The Corporation's 1993 composite interest rate of 4.97% was
87 basis points lower than the 1992 rate, which in turn was 167 basis points
lower than the 1991 rate.
OPERATING AND ADMINISTRATIVE EXPENSES increased 24% to $4,894 million in
1993, compared with a 44% increase to $3,941 million in 1992, primarily
reflecting operating costs associated with businesses and portfolios acquired
during the past two years. Overall, provisions for losses on investments that
were charged to operating and administrative expense decreased in 1993,
following an increase in 1992. These
Page 11
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(Continued).
provisions principally related to the Commercial Real Estate and highly
leveraged transaction (HLT) portfolios and, in 1993, to commercial aircraft as
well.
INSURANCE LOSSES AND POLICYHOLDER AND ANNUITY BENEFITS increased $648
million to $1,259 million in 1993, compared with a $12 million increase to $611
million in 1992. The 1993 increase largely reflected annuity benefits credited
to customers following the current year annuity business acquisitions. The
remainder of the 1993 increase represented higher losses on increased volume in
the life reinsurance and private mortgage insurance businesses, partially offset
by reduced losses in the creditor insurance business. In 1992, lower losses in
the life reinsurance business were more than offset by higher losses on
increased volume in the private mortgage insurance business and the effects of
the creditor insurance business for the second half of the year.
PROVISION FOR LOSSES ON FINANCING RECEIVABLES decreased $69 million to $987
million in 1993, compared with a $46 million decrease to $1,056 million in 1992.
These provisions principally related to the Consumer Services, Commercial Real
Estate and HLT portfolios discussed below.
DEPRECIATION AND AMORTIZATION OF BUILDINGS AND EQUIPMENT AND EQUIPMENT ON
OPERATING LEASES increased 22% to $1.6 billion in 1993, compared with a 9%
increase to $1.3 billion in 1992. Increases in both years were primarily a
result of additions to equipment on operating leases through business and
portfolio acquisitions.
INCOME TAX PROVISION was $664 million in 1993 (an effective tax rate of
31.0%), compared with $415 million in 1992 (24.9%) and $362 million (24.3%) in
1991. The increased provision for income taxes in both 1993 and 1992 reflected
the effects of additional income before taxes and, in 1993, the 1% increase in
the U.S. Federal income tax rate. The higher rate in 1993 compared with 1992
reflected the 1% increase in the U.S. Federal income tax rate and a lower
proportion of tax-exempt income. These items were partially offset by the
effects of certain unrelated financing transactions that will result in future
cash savings and reduced the Corporation's obligation for previously accrued
deferred taxes. The higher rate in 1992 compared with 1991 reflected a
relatively lower proportion of tax-exempt income and a 1991 adjustment for
tax-deductible claims reserves of the property insurance affiliates, for which
there was no 1992 counterpart.
OPERATING PROFIT BY INDUSTRY SEGMENT
Operating profit (pre-tax income) of the Corporation, by industry segment,
is summarized in Note 17 and discussed below:
CONSUMER SERVICES operating profit of $695 million in 1993 was 32% higher
than that of 1992. This increase reflected lower provisions for receivable
losses in Retailer Financial Services resulting from declines in consumer
delinquency as well as strong asset growth and interest rate favorability in
both Auto Financial Services and Retailer Financial Services. Operating profit
of $525 million in 1992 was 53% higher than that of 1991 (excluding the impact
in 1991 of the $134 million gain on the disposition of a significant portion of
GE Capital's auto auction affiliate). This increase reflected higher financing
spreads in Retailer Financial Services and increased asset levels in Auto
Financial Services.
EQUIPMENT MANAGEMENT operating profit increased $9 million to $377 million
in 1993. This increase reflected higher volume in most businesses, largely the
result of portfolio and business acquisitions, and improved trailer and railcar
utilization, offset by lower average rental rates in Fleet Services and Computer
Services, and the effects of lower utilization and pricing pressures at Genstar
Container. Operating profit decreased $13 million to $368 million in 1992 due to
lower utilization in the Railcar Services and Genstar Container businesses,
partially offset by operating profit generated as a result of Fleet Services'
acquisition of the fleet leasing operations of Avis-Europe.
MID-MARKET FINANCING operating profit of $454 million in 1993 was 29%
higher than that of 1992 and reflected higher spreads and higher levels of
invested assets, primarily as a result of business and portfolio acquisitions.
Operating profit increased $104 million to $352 million in 1992 compared with
1991. Operating profit for 1992 reflected higher levels of invested assets,
primarily as a result of portfolio acquisitions.
SPECIALTY INSURANCE operating profit of $422 million in 1993 was 40% higher
than the $302 million recorded in 1992, which was 79% higher than in 1991. The
1993 increase reflected higher premium volume from bond refunding in the
financial guaranty insurance business as well as reduced claims expense in the
Page 12
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(Continued).
creditor insurance business. The 1992 gains primarily reflected higher premium
volume and investment income at GE Capital's private mortgage and financial
guaranty insurance businesses.
SPECIALIZED FINANCING operating profit was $201 million in 1993, compared
with $121 million in 1992 and $220 million in 1991. The increase in 1993
principally reflected much lower provisions for losses on Corporate Finance
Group HLT investments and higher gains from sales of Commercial Real Estate
assets, partially offset by higher loss provisions for Commercial Real Estate
assets and expenses associated with redeployment and refurbishment of owned
aircraft. The decline in 1992 principally reflected higher loss provisions,
particularly reserves for Corporate Finance Group in-substance and owned
investments, partially offset by higher gains on the sale of assets in both
Commercial Real Estate and Corporate Finance Group. Loss provisions relating to
both the Commercial Real Estate portfolio and Corporate Finance Group HLT
investments are discussed below.
CAPITAL RESOURCES AND LIQUIDITY
The Corporation's principal source of cash is financing activities that
involve continuing rollover of short-term borrowings and appropriate addition of
long-term 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 $10.6 billion. New borrowings of $40.2 billion having
maturities longer than 90 days were added during those years, while $25.5
billion of such longer-term borrowings were paid off. The Corporation has also
generated significant cash from operating activities, $15.5 billion during the
last three years.
The Corporation's principal use of cash has been investing in assets to
grow the business. Additions to financing receivables were $16.1 billion of the
$39.2 billion in net investments the Corporation has made over the past three
years. Other principal investments during these years were $6.9 billion to
acquire new businesses and $9.2 billion for new equipment, primarily for lease
to others.
GE Company has agreed to make payments to the Corporation, constituting
additions to pre-tax income, to the extent necessary to cause the Corporation's
consolidated ratio of earnings to fixed charges to be not less than 1.10 for
each fiscal year commencing with fiscal year 1991. Three years advance written
notice is required to terminate this agreement. No payments have been required
under this agreement. The Corporation's ratios of earnings to fixed charges for
the years 1993, 1992 and 1991, were 1.62, 1.44 and 1.34, respectively.
GE Capital's total borrowings were $78.7 billion at December 31, 1993, of
which $52.9 billion was due in 1994 and $25.8 billion was due in subsequent
years. Comparable amounts at the end of 1992 were: $70.4 billion in total; $48.5
billion due within one year; and $21.9 billion due thereafter. Composite
interest rates are discussed on page 11. Individual borrowings are structured
within overall asset/liability interest rate and currency risk management
strategies. Interest rate and currency swaps form an integral part of the
Corporation's goal of achieving the lowest borrowing costs for particular
funding strategies. Counterparty credit risk is closely
monitored -- approximately 90% of the notional amount of swaps outstanding at
December 31, 1993 was with counterparties having credit ratings of Aa/AA or
better. The Corporation's ratio of debt to equity (leverage) was 7.59 to 1 at
the end of 1993, compared with 7.91 to 1 at the end of 1992. Excluding net
unrealized gains on investment securities included in equity, the Corporation's
leverage was 7.96 to 1 at the end of 1993.
With the financial flexibility that comes with excellent credit ratings,
management believes the Corporation is well positioned to meet the global needs
of its customers for capital and continue growing its diverse asset base.
PORTFOLIO QUALITY
THE PORTFOLIO OF FINANCING RECEIVABLES, $63.9 billion and $59.4 billion at
year-ends 1993 and 1992, respectively, is the Corporation's largest asset and
its primary source of revenues. Related allowances for losses aggregated $1.7
billion at the end of 1993 (2.63% of receivables -- the same level as 1992) and
are, in management's judgment, appropriate given the risk profile of the
portfolio.
A discussion about the quality of certain elements of the portfolio of
financing receivables and investments follows. Further details are included in
Notes 5 and 9.
Page 13
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(Continued).
CONSUMER LOANS RECEIVABLE, primarily retailer and auto receivables, were
$17.3 billion and $14.8 billion at the end of 1993 and 1992, respectively. The
Corporation's investment in consumer auto finance lease receivables was $5.6
billion and $4.8 billion at the end of 1993 and 1992, respectively. Non-earning
receivables, 1.7% of total loans and leases (2.1% at the end of 1992), amounted
to $391 million at the end of 1993. The provision for losses on retailer and
auto financing receivables was $469 million in 1993, a 19% decrease from $578
million in 1992, reflecting reduced consumer delinquencies and intensified
collection efforts, particularly in Europe. Most non-earning receivables were
private label credit card receivables, the majority of which were subject to
various loss sharing arrangements that provide full or partial recourse to the
originating retailer.
COMMERCIAL REAL ESTATE LOANS classified as finance receivables by the
Commercial Real Estate business, a part of the Specialized Financing segment,
were $10.9 billion at December 31, 1993, up $0.4 billion from the end of 1992.
In addition, the investment portfolio of the Corporation's annuity business,
acquired during 1993, included $1.1 billion of commercial property loans.
Commercial real estate loans are generally secured by first mortgages. In
addition to loans, Commercial Real Estate's portfolio also included in other
assets $2.2 billion of assets that were purchased for resale from the Resolution
Trust Corporation (RTC) and other institutions and $1.4 billion of investments
in real estate joint ventures. In recent years, the Corporation has been one of
the largest purchasers of assets from RTC and others, growing its portfolio of
properties acquired for resale by $1.1 billion in 1993. To date, values realized
on these assets have met or exceeded expectations at the time of purchase.
Investments in real estate joint ventures have been made as part of original
financings and in conjunction with loan restructurings where management believes
that such investments will enhance economic returns.
Commercial Real Estate's foreclosed properties at the end of 1993 declined
to $110 million from $187 million at the end of 1992.
At December 31, 1993, Commercial Real Estate's portfolio included loans
secured by and investments in a variety of property types that were well
dispersed geographically. Property types included apartments (36%), office
buildings (32%), shopping centers (14%), mixed use (8%), industrial and other
(10%). These properties were located, principally across the United States, as
follows: Mid-Atlantic (21%), Northeast (20%), Southwest (19%), West (15%),
Southeast (12%), Central (8%), with the remainder (5%) across Canada and Europe.
Reduced and non-earning receivables declined to $272 million in 1993 from $361
million in 1992, reflecting proactive management of delinquent receivables as
well as write-offs. Loss provisions for Commercial Real Estate's investments
were $387 million in 1993 ($248 million related to receivables and $139 million
to other assets), compared with $299 million and $213 million in 1992 and 1991,
respectively, as the portfolio continued to be adversely affected by the
weakened commercial real estate market.
HIGHLY LEVERAGED TRANSACTION (HLT) PORTFOLIO is included in the Specialized
Financing segment and represents financing provided for highly leveraged
management buyouts and corporate recapitalizations. The portion of those
investments classified as financing receivables was $3.3 billion at the end of
1993 compared with $5.3 billion at the end of 1992, as substantial repayments
reduced this liquidating portfolio. The year-end balance of amounts that had
been written down to estimated fair value and carried in other assets as a
result of restructuring or in-substance repossession aggregated $544 million at
the end of 1993 and $513 million at the end of 1992 (net of allowances of $244
million and $224 million, respectively).
Non-earning and reduced earning receivables declined to $139 million at the
end of 1993 from $429 million the prior year. Loss provisions for HLT
investments were $181 million in 1993 ($80 million related to receivables and
$101 million to other assets), compared with $573 million in 1992 and $328
million in 1991. Non-earning and reduced earning receivables as well as loss
provisions were favorably affected by the stronger economic climate during 1993
as well as by the successful restructurings implemented during the past few
years.
OTHER FINANCING RECEIVABLES, approximately $26 billion, consisted primarily
of a diverse commercial, industrial and equipment loan and lease portfolio. This
portfolio grew approximately $2 billion during 1993, while non-earning and
reduced earning receivables decreased $46 million to $98 million at year end.
The Corporation has loans and leases to commercial airlines that aggregated
about $6.8 billion at the end of 1993, up from $6 billion at the end of 1992. At
year-end 1993, commercial aircraft positions included conditional commitments to
purchase aircraft at a cost of $865 million and financial guarantees
Page 14
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(Continued).
and funding commitments amounting to $450 million. These purchase commitments
are subject to the aircraft having been placed on lease under agreements, and
with carriers, acceptable to the Corporation prior to delivery. Expenses
associated with redeployment and refurbishment of owned aircraft totaled $112
million in 1993 compared with nominal amounts in prior years. The Corporation's
increasing investment demonstrates its continued long-term commitment to the
airline industry.
ENTERING 1994, management believes that the diversity and strength of the
Corporation's assets, along with vigilant attention to risk management, position
it to deal effectively with a global and changing competitive and economic
landscape.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by
Creditors for Impairment of a Loan," modifies the accounting that applies when
it is probable that all amounts due under contractual terms of a loan will not
be collected. Management does not believe that this Statement, required to be
adopted no later than the first quarter of 1995, will have a material effect on
the Corporation's financial position or results of operations, although such
effect will depend on the facts at the time of adoption.
Page 15
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
General Electric Capital Corporation
We have audited the 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 schedules as listed in Item 14. These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1993
and 1992, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1993, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," effective December 31,
1993.
/s/ KPMG PEAT MARWICK
Stamford, Connecticut
February 11, 1994
Page 16
19
GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
STATEMENT OF CURRENT AND RETAINED EARNINGS
For the years ended December 31 (In millions) 1993 1992 1991
------- ------- -------
EARNED INCOME
Time sales, loan, investment and other income (Note 13)........... $ 7,558 $ 6,687 $ 6,595
Financing leases (Note 13)........................................ 2,315 2,151 1,836
Operating lease rentals (Note 13)................................. 3,267 2,444 2,205
Premium and commission income of insurance affiliates (Note 11)... 1,304 968 692
------- ------- -------
Total earned income.......................................... 14,444 12,250 11,328
------- ------- -------
EXPENSES
Interest and discount (Notes 10 & 14)............................. 3,461 3,665 4,225
Operating and administrative (Note 15)............................ 4,894 3,941 2,735
Insurance losses and policyholder and annuity benefits (Note
11)............................................................. 1,259 611 599
Provision for losses on financing receivables (Note 6)............ 987 1,056 1,102
Depreciation and amortization of buildings and equipment and
equipment on operating leases (Notes 7 & 8)..................... 1,587 1,297 1,187
Minority interest in net earnings of consolidated affiliates...... 114 14 (7)
------- ------- -------
Total expenses............................................... 12,302 10,584 9,841
------- ------- -------
Earnings before income taxes...................................... 2,142 1,666 1,487
Provision for income taxes (Note 16).............................. 664 415 362
------- ------- -------
NET EARNINGS...................................................... 1,478 1,251 1,125
Cash dividends paid (Note 12)..................................... (482) (326) (141)
Retained earnings at January 1.................................... 6,012 5,087 4,103
------- ------- -------
RETAINED EARNINGS AT DECEMBER 31.................................. $ 7,008 $ 6,012 $ 5,087
------- ------- -------
------- ------- -------
See Notes to Consolidated Financial Statements.
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GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
STATEMENT OF FINANCIAL POSITION
At December 31 (In millions) 1993 1992
-------- -------
ASSETS
Cash and equivalents...................................................... $ 1,049 $ 1,240
Trading securities (Note 3)............................................... -- 1,248
Investment securities (Note 4)............................................ 20,577 6,683
Financing receivables (Note 5):
Time sales and loans, net of deferred income......................... 40,748 37,070
Investment in financing leases, net of deferred income............... 24,930 23,925
-------- -------
65,678 60,995
Allowance for losses on financing receivables (Note 6)............... (1,730) (1,607)
-------- -------
Financing receivables -- net.................................... 63,948 59,388
Other receivables -- net.................................................. 4,046 3,037
Equipment on operating leases (at cost), less accumulated amortization of
$3,238 and $2,549 (Note 7).............................................. 10,650 9,395
Buildings and equipment (at cost), less accumulated depreciation of $555
and $435 (Note 8)....................................................... 910 909
Other assets (Note 9)..................................................... 16,759 10,732
-------- -------
TOTAL ASSETS.............................................................. $117,939 $92,632
-------- -------
-------- -------
LIABILITIES AND EQUITY
Notes payable within one year (Note 10)................................... $ 52,903 $48,492
Notes payable after one year (Note 10).................................... 25,809 21,879
-------- -------
Total notes payable.................................................. 78,712 70,371
Accounts and drafts payable............................................... 3,452 2,813
Insurance reserves and annuity benefits (Note 11)......................... 16,585 3,173
Other liabilities......................................................... 2,764 2,179
Deferred income taxes (Note 16)........................................... 5,630 5,081
-------- -------
Total liabilities.................................................... 107,143 83,617
-------- -------
Minority interest in equity of consolidated affiliates.................... 426 123
Variable cumulative preferred stock, $100 par value, liquidation
preference $100,000 per share (10,500 shares authorized and 8,750 shares
outstanding at December 31, 1993 and December 31, 1992)................. 1 1
Common stock, $200 par value (3,866,000 shares authorized and 3,837,825
shares outstanding at December 31, 1993 and December 31, 1992).......... 768 768
Additional paid-in capital................................................ 2,172 2,147
Retained earnings......................................................... 7,008 6,012
Other..................................................................... 421 (36)
-------- -------
Total equity (Note 12)............................................... 10,370 8,892
-------- -------
TOTAL LIABILITIES AND EQUITY.............................................. $117,939 $92,632
-------- -------
-------- -------
See Notes to Consolidated Financial Statements.
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GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
STATEMENT OF CASH FLOWS
For the years ended December 31 (In millions) 1993 1992 1991
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings............................................... $ 1,478 $ 1,251 $ 1,125
Adjustments to reconcile net earnings to cash provided by
operating activities:
Provision for losses on financing receivables......... 987 1,056 1,102
Increase in insurance reserves and annuity benefits... 764 374 133
Increase (decrease) in deferred income taxes.......... 496 (23) 573
Depreciation and amortization of buildings and
equipment and equipment on operating leases......... 1,587 1,297 1,187
Amortization of premium and discount on debt.......... 99 197 222
Increase in accounts and drafts payable............... 624 343 354
Gain on principal business dispositions............... -- (65) (134)
Other -- net.......................................... 455 271 (232)
------- ------- -------
Cash provided by operating activities............... 6,490 4,701 4,330
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loans to customers............................. (30,002) (27,069) (25,030)
Principal collections from customers....................... 27,571 25,136 25,289
Investment in assets on financing leases................... (7,204) (7,758) (8,829)
Principal collections on financing leases.................. 6,812 5,338 3,726
Net increase in credit card receivables.................... (1,341) (330) (2,410)
Buildings and equipment and equipment on operating
leases -- additions...................................... (3,133) (3,342) (2,706)
-- dispositions................................... 1,080 1,744 937
Payments for principal businesses purchased, net of cash
acquired................................................. (2,090) (2,013) (2,836)
Proceeds from principal business dispositions.............. -- -- 277
Purchases of investment securities by insurance and annuity
affiliates............................................... (7,527) (3,059) (3,281)
Dispositions of investment securities by insurance and
annuity affiliates....................................... 5,623 2,819 2,648
Other...................................................... (3,724) (3,457) (1,061)
------- ------- -------
Cash used by investing activities................... (13,935) (11,991) (13,276)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (less than 90-day maturities)..... 2,053 4,123 4,436
Newly issued debt -- short-term (91-365 days).............. 4,315 4,456 4,863
-- long-term senior...................... 10,885 6,699 6,317
-- long-term subordinated................ -- 450 250
Proceeds -- non-recourse, leveraged lease debt............. 53 148 1,808
Repayments and other reductions -- short-term (91-365
days).................................................... (9,008) (6,474) (6,504)
-- long-term senior........ (206) (658) (1,691)
-- long-term subordinated.. -- (76) (32)
Principal payments -- non-recourse, leveraged lease debt... (312) (272) (280)
Dividends paid............................................. (482) (326) (141)
Proceeds from sales of investment and annuity contracts.... 509 -- --
Redemptions of investment and annuity contracts............ (578) -- --
Capital contributions from parent company.................. 25 -- --
------- ------- -------
Cash provided by financing activities............... 7,254 8,070 9,026
------- ------- -------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS DURING THE
YEAR..................................................... (191) 780 80
CASH AND EQUIVALENTS AT BEGINNING OF YEAR.................. 1,240 460 380
------- ------- -------
CASH AND EQUIVALENTS AT END OF YEAR........................ $ 1,049 $ 1,240 $ 460
------- ------- -------
------- ------- -------
See Notes to Consolidated Financial Statements.
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GENERAL ELECTRIC CAPITAL CORPORATION AND CONSOLIDATED AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The consolidated financial statements represent a
consolidation of General Electric Capital Corporation and all majority-owned and
controlled affiliates ("consolidated affiliates"). All significant transactions
among the parent and consolidated affiliates have been eliminated. Other
affiliates in which the Corporation and/or its consolidated affiliates own 20%
to 50% of the voting rights ("nonconsolidated affiliates") are included in other
assets, valued at the appropriate share of equity plus loans and advances.
CASH FLOWS -- For purposes of the Statement of Cash Flows, certificates and
other time deposits are treated as cash equivalents.
METHODS OF RECORDING EARNED INCOME -- Income on all loans is recognized on
the interest method. Accrual of interest income is suspended when collection of
an account becomes doubtful, generally after the account becomes 90 days
delinquent.
Financing lease income, which includes related investment tax credits and
residual values, is recorded on the interest method so as to produce a level
yield on funds not yet recovered. Unguaranteed residual values included in lease
income are based principally on independent appraisals of the values of leased
assets remaining at expiration of the lease terms.
Operating lease income is recognized on a straight-line basis over the term
of the underlying leases.
Origination, commitment and other nonrefundable fees related to fundings
are deferred and recorded in earned income on the interest method. Commitment
fees related to loans not expected to be funded and line of credit fees are
deferred and recorded in earned income on a straight-line basis over the period
to which the fees relate. Syndication fees are recorded in earned income at the
time the related services are performed unless significant contingencies exist.
See "Insurance and Annuity Businesses" below for information with respect
to earned income of these businesses.
ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES AND INVESTMENTS -- The
Corporation maintains an allowance for losses on financing receivables at an
amount which it believes is sufficient to provide adequate protection against
future losses in the portfolio. For small-balance receivables the allowance for
losses is determined principally on the basis of actual experience during the
preceding three years. Further allowances are also provided to reflect
management's judgment of additional loss potential. For other receivables,
principally the larger loans and leases, the allowance for losses is determined
primarily on the basis of management's judgment of net loss potential, including
specific allowances for known troubled accounts.
All accounts or portions thereof deemed to be uncollectible or to require
an excessive collection cost are written off to the allowance for losses.
Small-balance accounts are progressively written down (from 10% when more than
three months delinquent to 100% when nine to twelve months delinquent) to record
the balances at estimated realizable value. However, if at any time during that
period an account is judged to be uncollectible, such as in the case of a
bankruptcy, the uncollectible balance is written off. Larger-balance accounts
are reviewed at least quarterly, and those accounts which are more than three
months delinquent are written down, if necessary, to record the balances at
estimated realizable value.
When collateral is formally or substantively repossessed in satisfaction of
a loan, the receivable is written down against the allowance for losses to
estimated fair value and is transferred to other assets. Subsequent to such
transfer, these assets are carried at the lower of cost or estimated current
fair value. This accounting has been employed principally for highly leveraged
transactions (HLT) and real estate loans.
INCOME TAXES -- Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," was adopted effective January 1, 1992. The effect
of adopting SFAS No. 109 was not material. Deferred tax balances are stated at
tax rates expected to be in effect when taxes are actually paid or recovered.
INVESTMENT AND TRADING SECURITIES -- On December 31, 1993, the Corporation
adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires that
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23
investments in debt securities and marketable equity securities be designated as
trading, held-to-maturity or available-for-sale. Trading securities are reported
at fair value, with changes in fair value included in earnings. Investment
securities include both available-for-sale and held-to-maturity securities.
Available-for-sale securities are reported at fair value, with net unrealized
gains and losses included in equity. Held-to-maturity debt securities are
reported at amortized cost. See notes 3 and 4 for a discussion of the
classification and reporting of these securities at December 31, 1992. For all
investment securities, unrealized losses that are other than temporary are
recognized in earnings.
EQUIPMENT ON OPERATING LEASES -- Equipment is amortized, principally on a
straight-line basis, to estimated net salvage value over the lease term or the
estimated economic life of the equipment.
BUILDINGS AND EQUIPMENT -- The Corporation records depreciation principally
on a sum-of-the-year's-digits basis over the lives of the assets.
OTHER ASSETS -- Goodwill is amortized on a straight-line basis over periods
not exceeding 30 years.
FOREIGN OPERATIONS -- Assets and liabilities of foreign affiliates are
translated into U.S. dollars at the year-end exchange rates while operating
results are translated at rates prevailing during the year. Such adjustments are
accumulated and reported as a separate component of equity.
INSURANCE AND ANNUITY BUSINESSES -- Premiums on short-duration insurance
contracts are reported as earned income over the terms of the related
reinsurance treaties or insurance policies. In general, earned premiums are
calculated on a pro-rata basis or are determined based on reports received from
reinsureds. Premium adjustments under retrospectively rated assumed reinsurance
contracts are recorded based on estimated losses and loss expenses, including
both case and incurred-but-not-reported reserves. Premiums on long-duration
insurance products are recognized as earned when due. Premiums received under
annuity contracts are not reported as revenues but as annuity benefits -- a
liability -- and are adjusted according to the terms of the respective policies.
The estimated liability for insurance losses and loss expenses consist of
both case and incurred-but-not-reported reserves. Where experience is not
sufficient, industry averages are used. Estimated amounts of salvage and
subrogation recoverable on paid and unpaid losses are deducted from outstanding
losses.
The liability for future policyholder benefits of the life insurance
affiliates has been computed mainly by a net-level-premium method based on
assumptions for investment yields, mortality and terminations that were
appropriate at date of purchase or at the time the policies were developed,
including provisions for adverse deviations.
Deferred insurance acquisition costs for the property and casualty
businesses are amortized pro-rata over the contract periods in which the related
premiums are earned. For the life insurance business, these costs are amortized
over the premium-paying periods of the contracts in proportion either to
anticipated premium income or to gross profit, as appropriate. For certain
annuity contracts, such costs are amortized on the basis of anticipated gross
profits. For other lines of business, acquisition costs are amortized over the
life of the related insurance contracts. Deferred insurance acquisition costs
are reviewed for recoverability; for short-duration contracts, anticipated
investment income is considered in making recoverability evaluations.
NOTE 2. ACQUISITIONS
The Corporation has acquired two individually non-significant entities
(collectively "the Acquisitions"). The acquisition of GNA Corporation ("GNA")
from Weyerhaeuser Company and Weyerhaeuser Financial Services, Inc. occurred on
April 1, 1993, while the acquisition of United Pacific Life Insurance Company
("UPL") from Reliance Insurance Company and its parent company, Reliance Group
Holdings, Inc. occurred on July 14, 1993. The acquisitions, accounted for as
purchases, have been reflected in the accompanying consolidated financial
statements of the Corporation since the respective acquisition dates.
The acquired companies had assets of approximately $12.8 billion,
principally investment securities. The aggregate estimated purchase price was
$1,113 million and is subject to certain post-closing adjustments.
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Unaudited pro forma condensed results of operations of the Corporation for
each of the years ended December 31, 1993 and 1992 as if the Acquisitions had
occurred on January 1, 1993 and January 1, 1992, respectively, are as follows:
1993 1992
---- ----
(In millions)
Earned Income......................................................... $ 14,848 $ 13,375
Net earnings.......................................................... 1,507 1,299
The pro forma data have been prepared based on assumptions management deems
appropriate and the results are not necessarily indicative of those that might
have occurred had the transactions become effective at the beginning of the
respective years, primarily due to changes in investment and other business
strategies of the acquired companies. The aggregate effect of several other
business acquisitions completed during 1993 was not material.
NOTE 3. TRADING SECURITIES
The Corporation's trading securities at December 31, 1992, included investments
in equity securities held by insurance affiliates at a fair value of $812
million, with unrealized pretax gains of $30 million (net of unrealized pretax
losses of $11 million) included in equity and $436 million of preferred stock
issued by affiliated companies. At December 31, 1993, such securities were
classified as investment securities (see note 4).
NOTE 4. INVESTMENT SECURITIES
At December 31, 1993, investment securities were classified as
available-for-sale and reported at fair value, including net unrealized gains of
$760 million before taxes. At December 31, 1992, investment securities of $5,641
million were classified as available-for-sale and were reported at the lower of
aggregate amortized cost or fair value. The balance of the 1992 investment
securities portfolio was carried at amortized cost.
A summary of investment securities follows.
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
(In millions) COST GAINS(A) LOSSES(A) VALUE
--------- ---------- ---------- ---------
DECEMBER 31, 1993
Corporate and non-U.S. ............................... $10,490 $145 $ (59) $10,576
State and municipal................................... 4,646 396 (5) 5,037
Mortgage-backed....................................... 2,487 31 (11) 2,507
U.S. government and federal agency.................... 1,217 14 (7) 1,224
Equity................................................ 977 299 (43) 1,233
------- ---- ------ -------
$19,817 $885 $ (125) $20,577
------- ---- ------ -------
------- ---- ------ -------
DECEMBER 31, 1992
Corporate and non-U.S. ............................... $ 3,091 $ 42 $ -- $ 3,133
State and municipal................................... 3,095 180 (8) 3,267
Mortgage-backed....................................... 246 7 (1) 252
U.S. government and federal agency.................... 251 10 (1) 260
------- ---- ------ -------
$ 6,683 $239 $ (10) $ 6,912
------- ---- ------ -------
- ---------------
(a) December 31, 1992 amounts include gross unrealized gains of $24 million and
there were no unrealized losses on investment securities carried at
amortized cost.
Contractual maturities of debt securities, other than mortgage-backed
securities, at December 31, 1993, are shown below.
ESTIMATED
AMORTIZED FAIR
(In millions) COST VALUE
--------- ---------
Due in:
1994......................................................... $ 2,432 $ 2,460
1995 - 1998.................................................. 3,779 3,888
1999 - 2003.................................................. 3,895 3,975
2004 and later............................................... 6,247 6,514
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It is expected that actual maturities will differ from contractual
maturities because some borrowers have the right to call or prepay obligations
with or without call or prepayment penalties. Proceeds from the sales of debt
securities were $4,922 million in 1993, $1,249 million in 1992 and $1,078
million in 1991. Gross realized gains were $129 million in 1993, $60 million in
1992 and $36 million in 1991. Gross realized losses were $31 million in 1993, $1
million in 1992 and $8 million in 1991.
NOTE 5. FINANCING RECEIVABLES
Financing receivables at December 31, 1993 and 1992 by principal category are
shown below.
AMOUNT
-------------------
(In millions) 1993 1992
------- -------
Time sales and loans:
Retailer and auto financing........................................... $17,242 $14,847
Commercial real estate financing...................................... 11,887 10,526
Commercial and industrial loans....................................... 6,781 8,270
Equipment sales financing............................................. 5,514 3,951
Other................................................................. 398 421
------- -------
41,822 38,015
Deferred income....................................................... (1,074) (945)
------- -------
Time sales and loans -- net of deferred income........................ 40,748 37,070
------- -------
Investment in financing leases:
Direct financing leases............................................... 22,063 20,890
Leveraged leases...................................................... 2,867 3,035
------- -------
24,930 23,925
------- -------
Total financing receivables................................................ $65,678 $60,995
------- -------
------- -------
Financing receivables classified as time sales and loans represent transactions
with customers in a variety of forms, including time sales, revolving charge and
credit, mortgages, installment loans, intermediate-term loans and revolving
loans secured by business assets. The portfolio includes time sales and loans
carried at the principal amount on which finance charges are billed
periodically, and time sales and loans acquired on a discount basis carried at
gross book value, which includes finance charges. At year-ends 1993 and 1992,
commercial and industrial loans included $3,293 million and $5,262 million,
respectively, for highly leveraged transactions. Note 7 contains information on
commercial airline loans and leases.
The financing lease operations consist of direct financing and leveraged
leases of aircraft, railroad rolling stock, automobiles and other transportation
equipment, data processing equipment, medical equipment, and other
manufacturing, power generation, mining and commercial equipment and facilities.
As the sole owner of assets under direct financing leases and as the equity
participant in leveraged leases, the Corporation is taxed on total lease
payments received and is entitled to tax deductions based on the cost of leased
assets and tax deductions for interest paid to third-party participants. The
Corporation is also entitled generally to any investment tax credit on leased
equipment and to any residual value of leased assets.
Investments in direct financing and leveraged leases represent unpaid
rentals and estimated unguaranteed residual values of leased equipment, less
related deferred income. Because the Corporation has no general obligation on
notes and other instruments representing third-party participation related to
leveraged leases, such notes and other instruments have not been included in
liabilities but have been offset against the related rentals receivable.
The Corporation's share of rentals receivable is subordinate to the share
of such other participants who also have a security interest in the leased
equipment.
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The Corporation's investment in financing leases at December 31, 1993 and
1992 is shown below.
DIRECT TOTAL
FINANCING LEASES LEVERAGED LEASES FINANCING LEASES
------------------ ------------------- -------------------
(In millions) 1993 1992 1993 1992 1993 1992
-------- -------- -------- -------- -------- --------
Total minimum lease payments
receivable........................... $26,584 $25,390 $11,496 $12,782 $38,080 $38,172
Less principal and interest on
third-party nonrecourse debt......... -- -- (8,398) (9,446) (8,398) (9,446)
-------- -------- -------- -------- -------- --------
Rentals receivable................ 26,584 25,390 3,098 3,336 29,682 28,726
Estimated unguaranteed residual value
of leased assets..................... 3,323 3,115 1,167 1,237 4,490 4,352
Less: Deferred income(a)............... (7,844) (7,615) (1,398) (1,538) (9,242) (9,153)
-------- -------- -------- -------- -------- --------
Investment in financing leases... 22,063 20,890 2,867 3,035 24,930 23,925
Less: Allowance for losses............. (464) (481) (74) (79) (538) (560)
Deferred taxes arising from
financing leases................ (2,157) (1,986) (2,760) (2,567) (4,917) (4,553)
-------- -------- -------- -------- -------- --------
Net investment in financing leases..... $19,442 $18,423 $ 33 $ 389 $19,475 $18,812
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
- ------------
(a) Total financing lease deferred income is net of deferred initial direct
costs of $83 million and $73 million for 1993 and 1992, respectively.
At December 31, 1993, contractual maturities for time sales and loans over
the next five years and after are: $16,287 million in 1994; $6,286 million in
1995; $4,350 million in 1996; $4,104 million in 1997; $3,112 million in 1998;
and $7,683 million in 1999 and later -- aggregating $41,822 million. At December
31, 1993, contractual maturities for finance lease rentals receivable over the
next five years and after are: $6,417 million in 1994; $5,426 million in 1995;
$3,919 million in 1996; $2,570 million in 1997; $1,720 million in 1998; and
$9,630 million in 1999 and later -- aggregating $29,682 million.
Experience of the Corporation has shown that a portion of receivables will
be paid prior to contractual maturity. Accordingly, the contractual maturities
of time sales and loans and of rentals receivable shown above are not to be
regarded as forecasts of future cash collections.
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include financial guarantees and letters
of credit. The Corporation's exposure to credit loss in the event of
nonperformance by the other party to financial guarantees is represented by the
contractual amount of those instruments. The Corporation uses the same credit
policies and the same collateral requirements in making commitments and
conditional obligations as it does for financing transactions. In addition, the
Corporation is involved in the sales of receivables for which it is contingently
liable for credit losses for a percentage of the initial face amount sold. At