UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
þ |
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 |
|
For
the fiscal year ended December 31, 2004 |
or
|
¨ |
Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 |
|
For
the transition period from ___________to
___________ |
|
_____________________________
Commission
file number 1-6461
_____________________________ |
|
General
Electric Capital Corporation
(Exact
name of registrant as specified in its
charter) |
Delaware |
|
13-1500700 |
(State
or other jurisdiction of incorporation or organization) |
|
(I.R.S.
Employer Identification No.) |
|
|
|
260
Long Ridge Road, Stamford, Connecticut |
|
06927 |
|
203/357-4000 |
(Address
of principal executive offices) |
|
(Zip
Code) |
|
(Registrant’s
telephone number,
including
area code) |
Securities
Registered Pursuant to Section 12(b) of the Act:
|
Title
of each class |
|
Name
of each exchange
on
which registered |
|
|
|
7.875%
Guaranteed Subordinated Notes Due December 1,
2006 |
|
New
York Stock Exchange |
6.625%
Public Income Notes Due June 28, 2032 |
|
New
York Stock Exchange |
6.10%
Public Income Notes Due November 15, 2032 |
|
New
York Stock Exchange |
5.875%
Notes Due February 18, 2033 |
|
New
York Stock Exchange |
Step-Up
Public Income Notes Due January 28, 2035 |
|
New
York Stock Exchange |
|
|
|
Securities
Registered Pursuant to Section 12(g) of the
Act: |
Title
of each class |
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 þ 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. þ
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2). Yes ¨ No
þ
Aggregate
market value of the outstanding common equity held by nonaffiliates of the
registrant as of the last business day of the registrant’s recently completed
second fiscal quarter: None.
At
February 28, 2005, 3,985,403 shares of voting common stock, which constitute all
of the outstanding common equity, with a par value of $14 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, 2004 are incorporated by reference into Part IV
hereof.
REGISTRANT
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM
10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.
TABLE
OF CONTENTS |
|
|
|
|
Page |
PART
I |
|
|
|
|
|
Item
1. |
Business |
3 |
Item
2. |
Properties |
7 |
Item
3. |
Legal
Proceedings |
7 |
Item
4. |
Submission
of Matters to a Vote of Security Holders |
7 |
|
|
|
PART
II |
|
|
|
|
|
Item
5. |
Market
for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer
Purchases of Equity Securities |
7 |
Item
6. |
Selected
Financial Data |
8 |
Item
7. |
Management’s
Discussion and Analysis of Results of Operations and Financial
Condition |
8 |
Item
7A. |
Quantitative
and Qualitative Disclosures About Market Risk |
32 |
Item
8. |
Financial
Statements and Supplementary Data |
32 |
Item
9. |
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure |
74 |
Item
9A. |
Controls
and Procedures |
74 |
Item
9B. |
Other
Information |
75 |
|
|
|
PART
III |
|
|
|
|
|
Item
10. |
Directors
and Executive Officers of the Registrant |
75 |
Item
11. |
Executive
Compensation |
75 |
Item
12. |
Security
Ownership of Certain Beneficial Owners and Management |
75 |
Item
13. |
Certain
Relationships and Related Transactions |
75 |
Item
14. |
Principal
Accounting Fees and Services |
75 |
|
|
|
PART
IV |
|
|
|
|
|
Item
15. |
Exhibits
and Financial Statement Schedules |
76 |
|
Signatures |
84 |
PART
I
Item
1. Business.
General
Electric Capital Corporation
General
Electric Capital Corporation (GE Capital or GECC) was incorporated in 1943 in
the State of New York under the provisions of the New York Banking Law relating
to investment companies, as successor to General Electric Contracts Corporation,
which was formed in 1932. Until November 1987, our name was General Electric
Credit Corporation. On July 2, 2001, we changed our state of incorporation to
Delaware. All of our outstanding common stock is owned by General Electric
Capital Services, Inc. (GE Capital Services or GECS), formerly General Electric
Financial Services, Inc., the common stock of which is in turn wholly owned,
directly or indirectly, by General Electric Company (GE Company or GE).
Financing and services offered by GE Capital are diversified, a significant
change from the original business of GE Capital, that is, financing distribution
and sale of consumer and other GE products. GE manufactures few of the products
financed by GE Capital.
We
operate in four key operating segments described below. These operations are
subject to a variety of regulations in their respective
jurisdictions.
Our
services are offered primarily in North America, Europe and Asia. Our principal
executive offices are located at 260 Long Ridge Road, Stamford, Connecticut
06927-1600. At December 31, 2004, our employment totaled approximately
76,300.
Our
financial information, including filings with the U.S. Securities and Exchange
Commission (SEC), is available at www.ge.com/secreports. Copies are also
available, without charge, from GE Corporate Investor Communications, 3135
Easton Turnpike, Fairfield, CT, 06828-0001. Reports filed with the SEC may be
viewed at www.sec.gov or obtained at the SEC Public Reference Room in
Washington, D.C.
Operating
Segments
2004
was a year of portfolio transition.
As described in our report last year, we simplified our organization on January
1, 2004, by realigning certain businesses within our segment structure. Certain
prior-period amounts in this financial section have been reclassified to reflect
this reorganization.
Commercial
Finance
Commercial
Finance (38.8%, 38.7% and 39.5% of total revenue in 2004, 2003 and 2002,
respectively) offers a broad range of financial services worldwide. We have
particular expertise in the mid-market, and offer loans, leases and other
financial services to customers, including manufacturers, distributors and
end-users for a variety of equipment and major capital assets. These assets
include industrial and energy-related facilities and equipment; commercial and
residential real estate; vehicles; aircraft; and equipment used in many
industries, including the construction, manufacturing, telecommunications and
healthcare industries.
During
2004, we acquired the commercial lending business of Transamerica Finance
Corporation; the U.S. leasing business of IKON Office Solutions; Sophia S.A., a
real estate company in France; and Benchmark Group PLC, a U.K.-listed real
estate property company.
We
operate in a highly competitive environment. Our competitors include commercial
banks, investment banks, leasing companies, financing companies associated with
manufacturers and independent finance companies. Competition is based on price,
that is interest rates and fees, as well as deal structure and terms.
Profitability is affected not only by broad economic conditions that affect
customer credit quality and the availability and cost of capital, but also by
successful management of credit risk, operating risk and market risks such as
interest rate and currency exchange risks. Success requires high quality risk
management systems, customer and industry specific knowledge, diversification,
service and distribution channels, strong collateral and asset management
knowledge, deal structuring expertise and the ability to reduce costs through
technology and productivity.
For
further information about revenues, net earnings and assets for Commercial
Finance, see page 13 and note 18.
We
provide additional information on two of our segment product lines, Real Estate
(commercial real estate financing) and Aviation Services (commercial aircraft
financing). Each of these product lines finances a single form of collateral,
and each has understandable concentrations of risk and opportunities.
Real
Estate
Our
Real Estate product line operates globally, both directly and through joint
ventures. Our Real Estate business finances, with both equity and loan
structures, the acquisition, refinancing and renovation of office
buildings, apartment buildings, self storage facilities, retail facilities,
industrial properties, parking facilities and franchise properties. Our typical
Real Estate loans are intermediate term, may be either senior or subordinated,
fixed or floating-rate, and are secured by existing income-producing commercial
properties. Our originations of low loan-to-value loans are conducted for term
securitization within one year. We invest in, and provide restructuring
financing for, portfolios of mortgage loans, limited partnerships and tax-exempt
bonds.
Aviation
Services
Our
Aviation Services product line is a global commercial aviation financial
services business that offers a broad range of financial products to airlines,
aircraft operators, owners, lenders and investors. Financial products include
leases, aircraft purchasing and trading, loans, engine/spare parts financing,
pilot training, fleet planning and financial advisory services.
Our
headquarters are in Stamford, Connecticut with offices throughout North America,
South America, Europe and Asia.
Consumer
Finance
Consumer
Finance (26.5%, 24.1% and 20.1% of total revenue in 2004, 2003 and 2002,
respectively) is a leading provider of credit products and services to
consumers, retailers and auto dealers in 41 countries. We offer a broad range of
financial products, including private-label credit cards; personal loans; bank
cards; auto loans, leases and inventory financing; residential mortgages;
corporate travel and purchasing cards; debt consolidation loans; home equity
loans; and credit and other insurance products for customers on a global basis.
In
2004, as part of our continued global expansion, we acquired Australian
Financial Investments Group (AFIG), a residential mortgage lender in Australia;
WMC Finance Co. (WMC), a U.S. wholesale mortgage lender; and the private-label
credit card portfolio of Dillard’s Inc.
Our
operations are subject to a variety of bank and consumer protection regulations,
including regulations controlling data privacy. Further, a number of countries
have ceilings on rates chargeable to consumers in financial service
transactions. We are subject to competition from various types of financial
institutions including commercial banks, leasing companies, consumer loan
companies, independent finance companies, manufacturers’ captive finance
companies, and insurance companies. Industry participants compete on the basis
of price, servicing capability, promotional marketing, risk management, and
cross selling. The markets in which we operate are also subject to the risks of
declining retail sales, changes in interest and currency exchange rates, and
increases in personal bankruptcy filings.
Our
headquarters are in Stamford, Connecticut and our operations are located in
North America, Europe, Asia, South America and Australia.
For
further information about revenues, net earnings and assets for Consumer
Finance, see page 14 and note 18.
Equipment
& Other Services
Equipment
& Other Services (15.4%, 9.5% and 11.7% of total revenue in 2004, 2003 and
2002, respectively) helps customers manage, finance and operate a wide variety
of business equipment worldwide. We provide rentals, leases, sales, asset
management services and loans for portfolios of commercial and transportation
equipment, including tractors, trailers, railroad rolling stock, modular space
units, intermodal shipping containers and marine containers. Our operations are
conducted in highly competitive markets. Economic conditions, geographic
location, pricing and equipment availability are important factors in this
business. Future success will depend upon our ability to maintain a large and
diverse customer portfolio, optimize asset mix, maximize asset utilization and
manage credit risk. In addition, we seek to understand our customers and to meet
their needs with unique, efficient and cost effective product and service
offerings.
In
December 2004, we sold a majority interest in Gecis, our global business
processing operation, to two leading private investment firms. We retained a 40%
investment in Gecis.
Also
included in the segment are activities and businesses that are not measured
within one of our other segments - for example, corporate expenses, liquidating
businesses and other non-segment aligned operations.
Our
headquarters are in Stamford, Connecticut with offices throughout North America,
South America and Europe.
For
further information about revenues, net earnings and assets for Equipment &
Other Services, see page 15 and note 18.
Insurance
Insurance
(19.3%, 27.7% and 28.7% of total revenue in 2004, 2003 and 2002, respectively)
offers a broad range of insurance and investment products that provide
reinsurance and primary commercial insurance products to insurance companies,
Fortune 100 companies, self-insurers and healthcare providers, and help
consumers create and preserve personal wealth, protect assets and enhance their
life styles. For lenders and investors, we provide protection against the risks
of default on low-down-payment mortgages.
Our
Insurance businesses are subject to intense competition. We believe the
principal competitive factors in the sale of our products are service, brand,
product features, price, commission structure, marketing and distribution
arrangements, reputation and financial strength ratings. In the commercial
sector, we are well positioned to compete in select niche insurance and
reinsurance segments given our expertise, analytics capabilities and service. In
the consumer sector, we are well positioned to benefit from developing
demographic, governmental and market trends, including aging U.S. populations
with growing retirement income needs, growing lifestyle protection gaps and
increasing global opportunities for mortgage insurance.
Our
headquarters are in Kansas City, Missouri with offices throughout North America,
Europe, South America, Australia and Asia.
In
May 2004, we completed an initial public offering of Genworth Financial, Inc.
(Genworth), our formerly wholly-owned subsidiary that conducts most of our
consumer insurance business, including life and mortgage insurance operations.
We sold approximately 30% of the common shares of Genworth to the public, and we
expect (subject to market conditions) to reduce our ownership over the next two
years as Genworth transitions to full independence.
For
further information about revenues, net earnings and assets for Insurance, see
page 16 and note 18.
Regulations
and Competition
Our
activities are subject to a variety of U.S. 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
on retail time sales transactions, installment loans and revolving credit
financing. Our insurance operations are regulated by various state insurance
commissions and non-U.S. regulatory authorities. We are a unitary diversified
savings and loan holding company by virtue of owning a federal savings bank in
the U.S.; as such, we are subject to holding company supervision by the Office
of Thrift Supervision, which is also our consolidated supervisor under the EU
Financial Conglomerates Directive. Our global operations are subject to
regulation in their respective jurisdictions. To date, compliance with such
regulations has not had a material adverse effect on our financial position or
results of operations.
The
businesses in which we engage are highly competitive. We are subject to
competition from various types of financial institutions, including banks,
thrifts, investment banks, broker-dealers, credit unions, leasing companies,
consumer loan companies, independent finance companies, finance companies
associated with manufacturers and insurance and reinsurance
companies.
Business
and Economic Conditions
Our
businesses are generally affected by general business and economic conditions in
countries in which we conduct business. When overall economic conditions
deteriorate in those countries, there generally are adverse effects on our
operations, although those effects are dynamic and complex. For example, a
downturn in employment or economic growth in a particular national or regional
economy will generally increase the pressure on customers, which generally will
result in deterioration of repayment patterns and a reduction in the value of
collateral. However, in such a downturn, demand for loans and other products and
services we offer may actually increase. Interest rates, another macro-economic
factor, are important to our businesses. In the lending and leasing businesses,
higher real interest rates increase our cost to borrow funds, but also provide
higher levels of return on new investments. For our operations, such as the
insurance operations, that are linked less directly to interest rates, rate
changes generally affect returns on investment portfolios.
Forward-looking
Statements
This
document contains “forward-looking statements” - that is, statements related to
future, not past, events. In this context, forward-looking statements often
address our expected future business and financial performance, and often
contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”
“seeks,” or “will.” Forward-looking statements by their nature address matters
that are, to different degrees, uncertain. For us, particular uncertainties
arise from the behavior of financial markets, including fluctuations in interest
rates and commodity prices, from future integration of acquired businesses, from
future financial performance of major industries which we serve, including,
without limitation, the air and rail transportation, energy generation and
healthcare industries, from unanticipated loss development in our insurance
businesses, and from numerous other matters of national, regional and global
scale, including those of a political, economic, business, competitive or
regulatory nature. These uncertainties may cause our actual future results to be
materially different than those expressed in our forward-looking statements. We
do not undertake to update our forward-looking statements.
Item
2. Properties.
We
conduct our business from various facilities, most of which are leased. The
locations of our primary facilities are described in Item 1.
Business.
Item
3. Legal Proceedings.
We
are not involved in any material pending legal proceedings.
Item
4. Submission of Matters to a Vote of Security Holders.
Not
required by this form.
PART
II
Item
5. Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
See
note 16 to the consolidated financial statements. Our common stock 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 our
financial statements and the related Notes to Consolidated Financial
Statements.
|
Year
ended December 31 |
|
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
59,347 |
|
$ |
52,916 |
|
$ |
48,819 |
|
$ |
49,048 |
|
$ |
54,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before accounting changes |
|
8,034 |
|
|
7,232 |
|
|
6,505 |
|
|
6,060 |
|
|
4,289 |
|
Cumulative
effect of accounting changes |
|
- |
|
|
(339 |
) |
|
(1,015 |
) |
|
(158 |
) |
|
- |
|
Net
earnings |
|
8,034 |
|
|
6,893 |
|
|
5,490 |
|
|
5,902 |
|
|
4,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average shareowner’s equity |
|
16.43 |
% |
|
16.68 |
% |
|
19.12 |
% |
|
21.85 |
% |
|
17.90 |
% |
Ratio
of earnings to fixed charges |
|
1.87 |
|
|
1.83 |
|
|
1.65 |
|
|
1.72 |
|
|
1.52 |
|
Ratio
of earnings to combined fixed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charges
and preferred stock dividends |
|
1.86 |
|
|
1.82 |
|
|
1.64 |
|
|
1.70 |
|
|
1.50 |
|
Ratio
of debt to equity |
|
6.61:1 |
|
|
6.74:1 |
|
|
6.58:1 |
|
|
7.31:1 |
|
|
7.53:1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
receivables - net |
$ |
279,356 |
|
$ |
245,295 |
|
$ |
195,322 |
|
$ |
169,615 |
|
$ |
138,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
566,708 |
|
|
506,590 |
|
|
439,442 |
|
|
381,076 |
|
|
332,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
352,869 |
|
|
311,474 |
|
|
261,603 |
|
|
230,598 |
|
|
196,258 |
|
Minority
interest |
|
6,105 |
|
|
2,512 |
|
|
1,834 |
|
|
1,650 |
|
|
1,344 |
|
Shareowner’s
equity |
|
53,421 |
|
|
46,241 |
|
|
39,753 |
|
|
31,563 |
|
|
26,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
7. Management’s Discussion and Analysis of Results of Operations and Financial
Condition.
Operations
We
present Management’s Discussion of Operations in four parts: Overview of Our
Earnings from 2002 through 2004, Global Risk Management, Segment Operations and
Global Operations.
In
the accompanying analysis of financial information, we sometimes use information
derived from consolidated financial information but not presented in our
financial statements prepared in accordance with U.S. generally accepted
accounting principles (GAAP). Certain of these data are considered “non-GAAP
financial measures” under the SEC rules; those rules require the supplemental
explanations and reconciliations provided on page 31.
2004
was a year of portfolio transition.
As
described in our report last year, we simplified our organization on January 1,
2004, by realigning certain businesses within our segment structure. Certain
prior-period amounts in this financial section have been reclassified to reflect
this reorganization.
In
May 2004, we completed an initial public offering of Genworth Financial, Inc.
(Genworth), our formerly wholly-owned subsidiary that conducts most of our
consumer insurance business, including life and mortgage insurance operations.
We sold approximately 30% of the common shares of Genworth to the public, and we
expect (subject to market conditions) to reduce our ownership over the next two
years as Genworth transitions to full independence. This transaction resulted in
a second quarter pre-tax loss of $0.6 billion ($0.3 billion after tax),
recognized in the Insurance segment.
In
December 2004, we sold a majority interest in Gecis, our global business
processing operation, to two leading private investment firms. We received cash
proceeds of $0.5 billion and retained a 40% investment in Gecis. This
transaction resulted in a fourth quarter pre-tax gain of $0.4 billion ($0.3
billion after tax), recognized in the Equipment & Other Services
segment.
Overview
of Our Earnings from 2002 through 2004
The
global economic environment must be considered when evaluating our results over
the last several years. Important factors for us included slow global economic
growth, a weakening U.S. dollar, lower global interest rates, a mild U.S.
recession that did not cause significantly higher credit losses and developments
in the commercial aviation industry, an industry significant to us. As the
following pages show in detail, our diversification and risk management
strategies enabled us to continue to grow during this challenging time. Our
results were affected by a combination of factors, both positive and negative,
as follows:
• |
Commercial
and Consumer Finance (in total, 63% and 81% of total three-year revenues
and earnings before accounting changes, respectively) are large,
profitable growth businesses in which we continue to invest with
confidence. In a challenging economic environment, these businesses grew
earnings by $0.7 billion and $1.1 billion in 2004 and 2003, respectively.
Solid core growth, disciplined risk management and successful acquisitions
have delivered these strong results. |
• |
Equipment
& Other Services (12% and 1% of total three-year revenues and earnings
before accounting changes, respectively) is particularly sensitive to
economic conditions and consequently was affected adversely by the U.S.
recession in 2002 and by slow global growth in developed countries. Higher
capacity, in combination with declining or weak volume growth in many of
these industries serviced by this business, resulted in fierce competitive
price pressures. |
Acquisitions
and dispositions played an important role in our growth strategy. We integrate
acquisitions as quickly as possible and only revenues and earnings from the date
we complete the acquisition through the end of the fourth following quarter are
attributed to such businesses. Acquisitions contributed $3.3 billion, $2.3
billion and $3.7 billion to consolidated revenues in 2004, 2003 and 2002,
respectively. Our consolidated net earnings in 2004, 2003 and 2002 included
approximately $0.5 billion, $0.3 billion and $0.4 billion, respectively, from
acquired businesses. Dispositions affected our operations through lower revenues
and earnings in 2004 of $2.8 billion and $1.1 billion, respectively, and in 2003
through lower revenues of $1.7 billion and higher earnings of $0.1
billion.
Significant
matters relating to our Statement of Earnings, which appears on page 34, are
explained below.
Interest
on borrowings amounted
to $11.0 billion, $9.9 billion and $9.5 billion in 2004, 2003 and 2002,
respectively. Changes over the three-year period reflected increased average
borrowings, partially offset by the effects of lower interest rates. Average
borrowings were $313.1 billion, $299.3 billion and $240.5 billion in 2004, 2003
and 2002, respectively. Our average composite effective interest rate was 3.6%
in 2004, compared with 3.3%
in
2003 and 4.1% in 2002. Proceeds of these borrowings were used in part to finance
asset growth and acquisitions. In 2004, average assets of $526.6 billion were
12% higher than in 2003, which in turn were 15% higher than in 2002. See page 22
for a discussion of interest rate risk management.
Income
taxes
are a significant cost. As a global commercial enterprise, our tax rates are
strongly affected by many factors, including our global mix of earnings,
legislation, acquisitions, dispositions and tax characteristics of our income.
Our tax returns are routinely audited and settlements of issues raised in these
audits sometimes affect our tax provisions. Because of the number of variables
affecting our reported tax results, we have prepared this section to facilitate
an understanding of our income tax rates.
Income
taxes on
earnings before accounting changes were 16.5% in 2004, compared with 18.0% in
2003 and 12.9% in 2002. The 2004 rate reflects the net benefits, discussed
below, of legislation and a partial reorganization of our aircraft leasing
operation, which decreased the effective tax rate 1.6 percentage points and is
included in the line “Tax on global activities including exports” in note 13;
tax benefits from favorable U.S. Internal Revenue Service (IRS) settlements,
which decreased the effective tax rate 1.2 percentage points and are included in
the line “All other - net” in note 13; and the low-taxed disposition of a
majority interest in Gecis which decreased the effective tax rate 0.9 percentage
points, and is included in the line “Tax on global activities including exports”
in note 13.
As
a result of the repeal of the extraterritorial income (ETI) taxing regime as
part of the American Jobs Creation Act of 2004 (the Act), the aircraft leasing
operations of Commercial Finance no longer qualify for a reduced U.S. tax rate.
However, the Act also extended to foreign aircraft leasing, the U.S. tax
deferral benefits that were already available to GE’s other active foreign
operations. As stated above, these legislative changes, coupled with a partial
reorganization of our aircraft leasing business and a favorable Irish tax
ruling, decreased our effective tax rate 1.6 percentage points.
The
increase in the effective tax rate from 2002 to 2003 reflects the absence of a
current year counterpart to the 2002 IRS settlements discussed
below.
The
2002 effective tax rate reflects the effects of lower taxed earnings from global
operations and favorable tax settlements with the IRS.
During
2002, as a result of revised IRS regulations, we reached a settlement with the
IRS allowing the deduction of previously realized losses associated with the
prior disposition of Kidder Peabody. Also during 2002, we reached a settlement
with the IRS regarding the treatment of certain reserves for obligations to
policyholders on life insurance contracts in Insurance. See note
13.
Global
Risk Management
A
disciplined approach to risks is important in a diversified organization such as
ours in order to ensure that we are executing according to our strategic
objectives and that we only accept risks for which we are adequately
compensated. It is necessary for us to manage risk at the individual transaction
level, and to consider aggregate risk at the customer, industry, geography and
collateral-type levels, where appropriate.
Our
Board of Directors oversees the risk management process, including the approval
of all significant acquisitions and dispositions and the establishment of
borrowing and investment approval limits delegated to the
Investment
Committee of the Board, the Chairman, the Chief Financial Officer and the Chief
Risk Officer. All participants in the risk management process must comply with
these approval limits.
The
Chief Risk Officer is responsible, through the Corporate Risk Function, for
establishing standards for the measurement, reporting and limiting of risk; for
managing and evaluating risk managers; for approving risk management policies
and for reviewing major risk exposures and concentrations across the
organization. Our Corporate Risk Function analyzes certain business risks and
assesses them in relation to aggregate risk appetite and approval limits set by
our Board of Directors.
Threshold
responsibility for identifying, quantifying and mitigating risks is assigned to
our individual businesses. Because the risks and their interdependencies are
complex, we apply a Six Sigma-based analytical approach to each major product
line that monitors performance against external benchmarks, proactively manages
changing circumstances, provides early warning detection of risk and facilitates
communication to all levels of authority. Other corporate functions such as
Financial Planning and Analysis, Treasury, Legal and our Corporate Audit Staff
support business-level risk management. Businesses that, for example, hedge risk
with derivative financial instruments must do so using our centrally-managed
Treasury function, providing assurance that the business strategy complies with
our corporate policies and achieves economies of scale. We review risks
periodically with business-level risk managers, senior management and our Board
of Directors.
We
employ about 10,000 dedicated risk professionals, including 2,700 involved in
collection activities and 1,400 specialized asset managers who evaluate leased
asset residuals and remarket off-lease equipment.
We
manage a variety of risks including liquidity, credit, market and event risks.
• |
Liquidity
risk is the risk of being unable to accommodate liability maturities, fund
asset growth and meet contractual obligations through access to funding at
reasonable market rates. Additional information about our liquidity and
how we manage this risk can be found on page 19 and in notes 11 and
19. |
• |
Credit
risk is the risk of financial loss arising from a customer or
counterparty’s failure to meet its contractual obligations. We face credit
risk in our lending and leasing activities (see pages 19 and 29 and notes
1, 5, 6 and 21) and derivative financial instruments activities (see note
19). |
• |
Market
risk is the potential loss in value of investment and other asset and
liability portfolios, including financial instruments, caused by changes
in market variables, such as interest and currency exchange rates and
equity and commodity prices. We are exposed to market risk in the normal
course of our business operations as a result of our ongoing investing and
funding activities. We attempt to mitigate the risks to our various
portfolios arising from changes in interest and currency exchange rates in
a variety of ways that often include offsetting positions in local
currencies or use of derivatives. Additional information about how we
mitigate the risks to our various portfolios from changes in interest and
currency exchange rates can be found on page 22 and in note 19.
|
• |
Event
risk is that body of risk beyond liquidity, credit and market risk. Event
risk includes the possibility of adverse occurrences both within and
beyond our control. Examples of event risk include natural disasters,
availability of necessary materials, guarantees of product performance and
business interruption. This type of risk is often insurable, and success
in managing this risk is ultimately determined by the balance between the
level of risk retained or assumed and the cost of transferring the risk to
others. The decision as to the appropriate level of event risk to retain
or cede is evaluated in the framework of business decisions. Additional
information about how we mitigate event risk can be found in note 21.
|
Segment
Operations
Revenues
and segment net earnings for operating segments of
General Electric Capital Services, Inc. (GECS), the sole owner of the common
stock of GE Capital (GECC), are summarized and discussed below with a
reconciliation to the GECC-only results, for three comparative years ending
December 31 2004. The most significant component of these reconciliations is the
exclusion from the Insurance segment at the GECC level of the results of GE
Insurance Solutions Corporation (GE Insurance Solutions), the parent of
Employers Reinsurance Corporation (ERC), which is not a subsidiary of GECC but
is a direct subsidiary of GECS. Effective January 1, 2004, we made changes to
the way we report our segments. We have reclassified certain prior-period
amounts to conform to the current period's presentation. For additional
information, including a description of the products and services included in
each segment, see page 3.
Segment
net earnings is determined based on internal performance measures used by the
Chairman to assess the performance of each business in a given period. In
connection with that assessment, the Chairman may exclude matters such as
charges for restructuring; rationalization and other similar expenses; certain
acquisition-related charges; certain gains and losses from dispositions; and
litigation settlements or other charges, responsibility for which precedes the
current management team.
Consolidated
For
the years ended December 31 (In millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
Commercial
Finance |
$ |
23,489 |
|
$ |
20,813 |
|
$ |
19,592 |
|
Consumer
Finance |
|
15,734 |
|
|
12,845 |
|
|
10,266 |
|
Equipment
& Other Services |
|
8,483 |
|
|
4,427 |
|
|
5,545 |
|
Insurance |
|
23,070 |
|
|
26,194 |
|
|
23,296 |
|
Total
revenues |
|
70,776 |
|
|
64,279 |
|
|
58,699 |
|
Less
portion of revenues not included in GECC |
|
(11,429 |
) |
|
(11,363 |
) |
|
(9,880 |
) |
Total
revenues in GECC |
$ |
59,347 |
|
$ |
52,916 |
|
$ |
48,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings |
|
|
|
|
|
|
|
|
|
Commercial
Finance |
$ |
4,465 |
|
$ |
3,910 |
|
$ |
3,310 |
|
Consumer
Finance |
|
2,520 |
|
|
2,161 |
|
|
1,799 |
|
Equipment
& Other Services |
|
607 |
|
|
(419 |
) |
|
(388 |
) |
Insurance |
|
569 |
|
|
2,102 |
|
|
(95 |
) |
Total
earnings before accounting changes |
|
8,161 |
|
|
7,754 |
|
|
4,626 |
|
Less
portion of earnings not included in GECC |
|
(127 |
) |
|
(522 |
) |
|
1,879 |
|
Total
earnings in GECC before accounting changes |
|
8,034 |
|
|
7,232 |
|
|
6,505 |
|
Cumulative
effect of accounting changes |
|
- |
|
|
(339 |
) |
|
(1,015 |
) |
Total
net earnings as reported in GECC |
$ |
8,034 |
|
$ |
6,893 |
|
$ |
5,490 |
|
Commercial
Finance
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
Revenues |
$ |
23,489 |
|
$ |
20,813 |
|
$ |
19,592 |
|
Less
portion of Commercial Finance not included in GECC |
|
(489 |
) |
|
(316 |
) |
|
(290 |
) |
Total
revenues in GECC |
$ |
23,000 |
|
$ |
20,497 |
|
$ |
19,302 |
|
|
|
|
|
|
|
|
|
|
|
Net
revenues |
|
|
|
|
|
|
|
|
|
Total
revenues |
$ |
23,000 |
|
$ |
20,497 |
|
$ |
19,302 |
|
Interest
expense |
|
6,021 |
|
|
5,780 |
|
|
5,965 |
|
Total
net revenues |
$ |
16,979 |
|
$ |
14,717 |
|
$ |
13,337 |
|
|
|
|
|
|
|
|
|
|
|
Net
earnings |
$ |
4,465 |
|
$ |
3,910 |
|
$ |
3,310 |
|
Less
portion of Commercial Finance not included in GECC |
|
(195 |
) |
|
(104 |
) |
|
(47 |
) |
Total
net earnings in GECC |
$ |
4,270 |
|
$ |
3,806 |
|
$ |
3,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At |
|
|
|
|
December
31 (In
millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
$ |
232,123 |
|
$ |
214,125 |
|
|
|
|
Less
portion of Commercial Finance not included in GECC |
|
288 |
|
|
686 |
|
|
|
|
Total
assets in GECC |
$ |
232,411 |
|
$ |
214,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Real
Estate(a) |
|
|
|
|
|
|
|
|
|
Revenues
in GECS |
$ |
2,519 |
|
$ |
2,386 |
|
$ |
2,124 |
|
Net
Earnings in GECS |
$ |
957 |
|
$ |
834 |
|
$ |
650 |
|
|
|
|
|
|
|
|
|
|
|
Aviation
Services(a) |
|
|
|
|
|
|
|
|
|
Revenues
in GECS |
$ |
3,159 |
|
$ |
2,881 |
|
$ |
2,694 |
|
Net
Earnings in GECS |
$ |
520 |
|
$ |
506 |
|
$ |
454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At |
|
|
|
|
December
31 (In
millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate(a) |
|
|
|
|
|
|
|
|
|
Total
assets in GECS |
$ |
33,497 |
|
$
|
27,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aviation
Services(a) |
|
|
|
|
|
|
|
|
|
Total
assets in GECS |
$ |
37,384 |
|
$ |
33,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
We
provide additional information on two of our segment product lines, Real
Estate (commercial real estate financing) and Aviation Services
(commercial aircraft financing). Each of these product lines finances a
single form of collateral, and each has understandable concentrations of
risk and opportunities.
|
|
Commercial
Finance revenues and net earnings increased 13% and 14%, respectively, compared
with 2003. The increase in revenues resulted primarily from acquisitions ($2.3
billion), the effects of the weaker U.S. dollar ($0.6 billion) and core growth
($0.1 billion), partially offset by lower securitization activity ($0.2 billion)
and lower investment gains ($0.1 billion). The increase in net earnings resulted
primarily from acquisitions ($0.4 billion), core growth ($0.3 billion) and the
effects of the weaker U.S. dollar ($0.1 billion), partially offset by lower
securitization activity ($0.1 billion).
The
most significant acquisitions affecting Commercial Finance results in 2004 were
the U.S. leasing business of IKON Office Solutions, acquired during the second
quarter of 2004; the commercial lending business of Transamerica Finance
Corporation, and Sophia S.A., a real estate company in France, both acquired
during the first quarter of 2004; and the assets of CitiCapital Fleet Services,
acquired during the fourth quarter of 2003. These acquisitions contributed $1.9
billion and $0.3 billion to 2004 revenues and net earnings,
respectively.
The
2003 increase in revenues of 6% resulted primarily from acquisitions across
substantially all businesses ($1.1 billion), higher investment gains at Real
Estate ($0.1 billion) and core growth, partially offset by lower securitization
activity ($0.1 billion). The 2003 increase in net earnings of 18% resulted
primarily from core growth, acquisitions across substantially all businesses
($0.2 billion), higher investment gains at Real Estate as a result of the sale
of properties and our investments in Regency Centers and Prologis ($0.1
billion), lower credit losses ($0.1 billion) resulting from continued
improvement in overall portfolio credit quality as reflected by lower
delinquencies and nonearning receivables, and growth in lower taxed earnings
from global operations ($0.1 billion).
The
most significant acquisitions affecting Commercial Finance 2003 results were the
commercial inventory financing business of Deutsche Financial Services and the
structured finance business of ABB, both of which were acquired during the
fourth quarter of 2002. These two acquisitions contributed $0.5 billion and $0.1
billion to 2003 revenues and net earnings, respectively.
Consumer
Finance
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
15,734 |
|
$ |
12,845 |
|
$ |
10,266 |
|
Less
portion of Consumer Finance not included in GECC |
|
(9 |
) |
|
(111 |
) |
|
(433 |
) |
Total
revenues in GECC |
$ |
15,725 |
|
$ |
12,734 |
|
$ |
9,833 |
|
|
|
|
|
|
|
|
|
|
|
Net
revenues |
|
|
|
|
|
|
|
|
|
Total
revenues |
$ |
15,725 |
|
$ |
12,734 |
|
$ |
9,833 |
|
Interest
expense |
|
3,560 |
|
|
2,683 |
|
|
2,105 |
|
Total
net revenues |
$ |
12,165 |
|
$ |
10,051 |
|
$ |
7,728 |
|
|
|
|
|
|
|
|
|
|
|
Net
earnings |
$ |
2,520 |
|
$ |
2,161 |
|
$ |
1,799 |
|
Less
portion of Consumer Finance not included in GECC |
|
(25 |
) |
|
50 |
|
|
(117 |
) |
Total
net earnings in GECC |
$ |
2,495 |
|
$ |
2,211 |
|
$ |
1,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At |
|
|
|
|
December
31 (In
millions) |
2004 |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
$ |
151,255 |
|
$ |
106,530 |
|
|
|
|
Less
portion of Consumer Finance not included in GECC |
|
(724 |
) |
|
(595 |
) |
|
|
|
Total
assets in GECC |
$ |
150,531 |
|
$ |
105,935 |
|
|
|
|
Consumer
Finance revenues and net earnings increased 22% and 17%, respectively, from
2003. The increase in revenues resulted primarily from core growth ($1.8
billion), as a result of continued global expansion, acquisitions ($1.0
billion), the effects of the weaker U.S. dollar ($0.8 billion) and higher
securitization activity ($0.1 billion), partially offset by the absence of The
Home Depot private-label credit card receivables that were sold for a gain in
2003 ($0.9 billion). The increase in net earnings resulted from core growth,
including growth in lower taxed earnings from global operations ($0.6 billion),
acquisitions ($0.1 billion), and the effects of the weaker U.S. dollar ($0.1
billion), partially offset by the effects of The Home Depot private-label credit
card receivables ($0.4 billion) and increased costs to launch new products and
promote brand awareness in 2004 ($0.1 billion).
The
most significant acquisitions affecting Consumer Finance results in 2004 were
WMC, a U.S. wholesale mortgage lender, acquired during the second quarter of
2004; GC Corporation (GC Card), which provides credit card and sales finance
products in Japan, acquired during the third quarter of 2003; and First National
Bank, which provides mortgage and sales finance products in the United Kingdom,
and the U.S. retail sales finance unit of Conseco Finance Corp. (Conseco), both
acquired during the second quarter of 2003. These acquisitions contributed $0.7
billion and $0.1 billion to 2004 revenues and net earnings,
respectively.
In
December 2004, we acquired AFIG, a residential mortgage lender in Australia,
with $13.2 billion in assets and an insignificant effect on 2004 revenues and
earnings. We expect this acquisition to be accretive to earnings in
2005.
Revenues
increased 25% in 2003 as a result of acquisitions ($1.1 billion), the effects of
the weaker U.S. dollar ($0.7 billion), core growth as a result of continued
global expansion and the premium on the sale of The Home Depot private-label
credit card receivables ($0.1 billion). Net earnings increased 20% in 2003 as a
result of core growth, growth in lower taxed earnings from global operations,
the premium on the sale of The Home Depot private-label credit card receivables
($0.1 billion) and acquisitions. These increases were partially offset by lower
securitization activity ($0.2 billion) and lower earnings in Japan, principally
as a result of increased personal bankruptcies.
The
most significant acquisitions affecting Consumer Finance 2003 results were First
National Bank and Conseco, both of which were acquired during the second quarter
of 2003. These acquisitions contributed $0.7 billion and $0.1 billion to 2003
revenues and net earnings, respectively.
Equipment
& Other Services
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
8,483 |
|
$ |
4,427 |
|
$ |
5,545 |
|
Less
portion of Equipment & Other Services not included |
|
|
|
|
|
|
|
|
|
in
GECC |
|
706 |
|
|
595 |
|
|
118 |
|
Total
revenues in GECC |
$ |
9,189 |
|
$ |
5,022 |
|
$ |
5,663 |
|
|
|
|
|
|
|
|
|
|
|
Net
earnings |
$ |
607 |
|
$ |
(419 |
) |
$ |
(388 |
) |
Less
portion of Equipment & Other Services not included |
|
|
|
|
|
|
|
|
|
in
GECC |
|
152 |
|
|
41 |
|
|
261 |
|
Total
net earnings in GECC |
$ |
759 |
|
$ |
(378 |
) |
$ |
(127 |
) |
Equipment
& Other Services revenues and net earnings increased $4.1 billion and $1.0
billion, respectively, from 2003. Adoption of a January 1, 2004, required
accounting change caused revenues to increase $3.2 billion, as a result
of consolidating operating lease rentals ($2.6 billion) and other income ($0.6
billion). See note 1. The most significant entity consolidated as a result of
this change was Penske Truck Leasing Co., L.P. (Penske), which was previously
accounted for using the equity method. Revenue also increased reflecting the
sale of a majority interest in Gecis ($0.4 billion), improved investment returns
at GE Equity ($0.4 billion), the results of consolidated, liquidating
securitization entities ($0.3 billion) and the effects of the weaker U.S. dollar
($0.1 billion). These increases were partially offset by the absence of the U.S.
Auto and Home business that was disposed of in 2003 ($0.4 billion). Contributing
to the increase in net earnings were improved investment returns at GE Equity
($0.3 billion), the gain on sale of a majority interest in Gecis ($0.3 billion),
improved operating performance at Equipment Services ($0.2 billion), and the
results of consolidated, liquidating securitization entities ($0.1
billion).
Equipment
& Other Services revenues and net earnings in 2003 decreased 20% and 8%,
respectively, compared with 2002. More specifically, revenues decreased as a
result of the following:
• |
The
exit of certain European operations at IT Solutions ($1.3 billion) in
response to intense competition and transition of the computer equipment
market to a direct distribution model, |
• |
Continued
poor market conditions and ongoing dispositions and run-offs of IT
Solutions and the Auto Financial Services business ($0.3 billion),
and |
• |
Lower
asset utilization and price ($0.2 billion), an effect of industry-wide
excess equipment capacity reflective of the then current conditions in the
road and rail transportation sector. |
These
decreases were partially offset by the overall improvement in equity markets and
lower level of investment losses in 2003 at GE Equity ($0.2 billion) and the
consolidation of certain securitization entities in our financial statements
($0.7 billion) as a result of our July 1, 2003, required accounting change. See
notes 1 and 20. The decrease in net earnings resulted primarily from lower asset
utilization and price ($0.1 billion) and the absence of a 2002 tax settlement
related to Kidder Peabody ($0.2 billion), offset by improved performance in 2003
at GE Equity ($0.2 billion) and the tax benefit related to the sale of ERC Life
Reinsurance Corporation (ERC Life) ($0.1 billion).
Insurance
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
23,070 |
|
$ |
26,194 |
|
$ |
23,296 |
|
Less
portion of Insurance not included in GECC |
|
(11,637 |
) |
|
(11,531 |
) |
|
(9,275 |
) |
Total
revenues in GECC |
$ |
11,433 |
|
$ |
14,663 |
|
$ |
14,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings |
$ |
569 |
|
$ |
2,102 |
|
$ |
(95 |
) |
Less
portion of Insurance not included in GECC |
|
(59 |
) |
|
(509 |
) |
|
1,782 |
|
Total
net earnings in GECC |
$ |
510 |
|
$ |
1,593 |
|
$ |
1,687 |
|
|
|
|
|
|
|
|
GE
Insurance Solutions(a) |
|
|
|
|
|
|
|
|
|
Revenues
in GECS |
$ |
10,005 |
|
$ |
11,600 |
|
$ |
9,432 |
|
Net
Earnings in GECS |
$ |
36 |
|
$ |
481 |
|
$ |
(1,794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Formerly
GE Global Insurance Holding Corporation, the parent of Employers
Reinsurance Corporation (ERC).
|
|
Insurance
revenues and net earnings decreased 12% and 73%, respectively, from 2003. The
decrease in revenues resulted primarily from the 2003 dispositions ($2.5
billion), including GE Edison Life Insurance Company (Edison Life), Financial
Guaranty Insurance Company (FGIC) and ERC Life; net declines in volume resulting
from strategic exits of certain business channels, primarily at GE Insurance
Solutions ($1.3 billion) and the effects of the Genworth initial public offering
($0.4 billion). These decreases were partially offset by the effects of the
weaker U.S. dollar ($0.6 billion). Net earnings decreased primarily from the
full-year after-tax earnings effects of the Genworth initial public offering
($0.7 billion), the 2003 dispositions ($0.5 billion) and the 2004 U.S.
hurricane-related losses ($0.3 billion) at GE Insurance Solutions. Also
contributing to the net earnings decrease were reserve actions taken at GE
Insurance Solutions related to continued adverse development on
liability-related exposures underwritten in 1997-2001 (discussed below). These
decreases in net earnings were partially offset by improved core performance at
GE Insurance Solutions reflecting the continued favorable premium pricing
environment.
Revenues
in 2003 increased $2.9 billion (12%) on increased premium revenues ($2.2
billion), a gain of $0.6 billion on the sale of Edison Life, higher investment
income ($0.4 billion) and the effects of the weaker U.S. dollar ($0.7 billion).
The premium revenue increase reflected continued favorable pricing at GE
Insurance Solutions ($0.5 billion), net volume growth at GE Insurance Solutions
and certain other insurance businesses ($0.8 billion), absence of prior year
loss adjustments ($0.4 billion), adjustment of current year premium accruals to
actual ($0.3 billion) and lower levels of ceded premiums resulting from a
decline in prior-year loss events ($0.1 billion). Partial revenue offsets
resulted from the absence of revenues following the sale of Edison Life ($0.7
billion) and a $0.2 billion loss on the disposition of FGIC at the end of 2003.
Net
earnings in 2003 increased $2.2 billion, primarily from the substantial
improvement in current operating results at GE Insurance Solutions ($2.3
billion) reflecting improved underwriting, lower adverse development (discussed
below) and generally favorable industry pricing conditions during the year. Net
earnings also benefited from the gain on the sale of Edison Life ($0.3 billion).
These increases were partially offset by the absence of a current year
counterpart to the favorable tax settlement with the IRS in 2002 ($0.2 billion)
and the loss on the sale of FGIC ($0.1 billion after tax).
As
described on page 30 under the caption “Insurance liabilities and reserves,” we
routinely update our insurance loss provisions to reflect our best estimates of
losses. At year-end 2004, our best estimate of outstanding net property and
casualty claim-related liabilities at GE Insurance Solutions was $17.4 billion.
Few losses in an underwriting year are known exactly at the end of that year; an
insurer cannot know a year’s exact losses before customers have submitted claims
and those claims have been evaluated, adjudicated and settled. This process
routinely spans years, and sometimes decades. Like much of the property and
casualty insurance industry, GE Insurance Solution’s recent operating results
have absorbed charges from updates to loss estimates associated with policies
written in prior years. This adverse loss development has been most pronounced
for certain liability-related risk policies underwritten from 1997 through 2001,
principally hospital and professional liability, workers compensation, product
liability and asbestos and environmental exposures. Adverse development on
prior-years claims and expenses for the three years ended December 31, 2004,
amounted to $5.5 billion. Business that we subsequently exited accounted for 84%
of the most recent adverse development. Although we do not anticipate further
provisions related to this risk, we observe that the associated losses have not
yet fully matured.
In
2002, in light of our adverse loss development, we modified our underwriting
processes, rejecting both risks that failed to meet our standards of price,
terms or conditions as well as risks for which sufficient historical data did
not exist to permit us to make a satisfactory pricing evaluation. Consequently,
we curtailed and exited business in particular property and casualty business
channels. Higher underwriting standards have yielded substantial improvement in
operating results in more recent underwriting years, improvement that is most
clearly indicated by our “combined ratio” - the ratio, expressed as a
percentage, of claims-related losses and related underwriting expenses to earned
premiums. In 2004, GE Insurance Solutions’ property and casualty combined ratio
was 120%, that is, $1.20 of costs and losses for each $1.00 of earned premium.
However, as an early indication of the effectiveness of our revised underwriting
standards, the combined ratio for the 2004 underwriting year was 100%, even with
extensive 2004 natural catastrophe losses - breakeven underwriting even before
the contribution of investment income.
Global
Operations
Our
global activities span all geographic regions and primarily encompass leasing of
aircraft and provision of financial services within these regional economies.
Thus, when countries or regions experience currency and/or economic stress, we
often have increased exposure to certain risks, but also often have new profit
opportunities. Potential increased risks include, among other things, higher
receivable delinquencies and bad debts, delays or cancelations of sales and
orders principally related to aircraft equipment, higher local currency
financing costs and slowdown in our established activities. New profit
opportunities include, among other things, more opportunities for lower cost
outsourcing, expansion of our activities through purchases of companies or
assets at reduced prices and lower U.S. debt financing costs.
Estimated
results of global activities include the results of our operations located
outside the United States. We classify certain operations that cannot
meaningfully be associated with specific geographic areas as “Other global” for
this purpose.
Global
revenues were $26.1 billion, $23.1 billion and $21.3 billion in 2004, 2003 and
2002, respectively. Global revenues as a percentage of total revenues were 44%
in 2004, 2003 and 2002.
Revenues
in the Americas increased 47% in 2004, primarily as a result of the acquisition
of the commercial lending business of Transamerica Finance Corporation at
Commercial Finance. Revenues increased 31% in “Other global” as a result of
growth at Commercial Finance and the gain on the sale of a majority interest in
Gecis. Revenues in the Pacific Basin decreased 13% primarily as a result of the
2003 divestiture of Edison Life at Insurance. This decrease was partially offset
by the effects of the weaker U.S. dollar, acquisitions, primarily GC Card at
Consumer Finance, and core growth at Consumer Finance and Commercial
Finance.
Global
pre-tax earnings were $5.5 billion in 2004, an increase of 39% over 2003, which
were 16% higher than in 2002. Pre-tax earnings in 2004 rose 45% in Europe,
primarily as a result of core growth and acquisitions at Consumer Finance and
Commercial Finance. Pre-tax earnings rose 93% in “Other global” primarily as a
result of the gain on the sale of a majority interest in Gecis and core growth
at Commercial Finance.
Our
global assets grew 26% from $212.2 billion at the end of 2003 to $266.9 billion
at the end of 2004. Our assets increased 21% in Europe as a result of the
effects of the weaker U.S. dollar ($11.7 billion), acquisitions ($9.2 billion),
primarily at Commercial Finance and Consumer Finance, and growth at Consumer
Finance. Our assets increased 46% in the Pacific Basin, primarily as a result of
acquisitions at Consumer Finance.
Financial
results of our global activities reported in U.S. dollars are affected by
currency exchange. We use a number of techniques to manage the effects of
currency exchange, including selective borrowings in local currencies and
selective hedging of significant cross-currency transactions. Such principal
currencies are the British pound sterling, the euro, the Japanese yen and the
Canadian dollar.
Financial
Resources and Liquidity
This
discussion of financial resources and liquidity addresses the Statement of
Financial Position (page 35), Statement of Changes in Shareowner’s Equity (page
34) and the Statement of Cash Flows (page 36).
Overview
of Financial Position
Major
changes in our financial position resulted from the following:
• |
During
2004, we completed acquisitions of the commercial lending business of
Transamerica Finance Corporation; Sophia S.A., a real estate company in
France; the U.S. leasing business of IKON Office Solutions; and Benchmark
Group PLC, a U.K.-listed real estate property company at Commercial
Finance. Consumer Finance completed acquisitions of AFIG and WMC. At their
respective acquisition dates, these transactions resulted in a combined
increase in total assets of $32.1 billion, of which $23.0 billion was
financing receivables before allowance for losses, and a combined increase
in total liabilities of approximately $20.5 billion, of which $18.9
billion was debt. |
• |
Minority
interest in equity of consolidated affiliates increased $3.6 billion
during 2004, primarily because of our sale of approximately 30% of the
common shares of Genworth, our formerly wholly-owned subsidiary that
conducts most of our consumer insurance business, including life and
mortgage insurance operations. |
• |
We
adopted Financial Accounting Standards Board (FASB) Interpretation No.
(FIN) 46R, Consolidation
of Variable Interest Entities (Revised),
on January 1, 2004, adding $1.5 billion of assets and $1.1 billion of
liabilities to our consolidated balance sheet as of that date, relating to
Penske. |
Statement
of Financial Position (page 35)
Investment
securities
comprise mainly available-for-sale investment-grade debt securities held by
Insurance in support of obligations to annuitants and policyholders, and debt
and equity securities designated as trading and associated with certain non-U.S.
separate accounts for which contractholders retain the related risks and
rewards, except in the event of our bankruptcy or liquidation. Investment
securities were $86.9 billion at the end of 2004, compared with $100.8 billion
at the end of 2003. The decrease of $13.9 billion was primarily the result of a
business reorganization completed in conjunction with the Genworth initial
public offering which resulted in the transfer of Union Fidelity Life Insurance
Company (UFLIC) from GECC to GECS ($17.2 billion). This decrease was partially
offset by the net result of investing premiums received, reinvesting investment
income, improvements in debt markets and the effects of the weaker U.S.
dollar.
We
regularly review investment securities for impairment based on criteria that
include the extent to which cost exceeds market value, the duration of that
market decline, our intent and ability to hold to recovery and the financial
health and specific prospects for the issuer. Of available-for-sale securities
with unrealized losses at December 31, 2004, approximately $0.1 billion was at
risk of being charged to earnings in the next 12 months; almost two-thirds of
this amount related to commercial airlines.
Impairment
losses for 2004 totaled $0.2 billion compared with $0.4 billion in 2003. We
recognized impairments in both periods for issuers in a variety of industries;
we do not believe that any of the impairments indicate likely future impairments
in the remaining portfolio.
Gross
unrealized gains and losses were $2.9 billion and $0.6 billion, respectively, at
December 31, 2004, compared with $3.9 billion and $1.0 billion, respectively, at
December 31, 2003, primarily reflecting the transfer of UFLIC as previously
discussed, partially offset by an increase in the estimated fair value of debt
securities as interest rates declined. We estimate that available gains, net of
estimated impairment of insurance intangible assets, could be as much as $1.7
billion at December 31, 2004. The market values we used in determining
unrealized gains and losses are those defined by relevant accounting standards
and should not be viewed as a forecast of future gains or losses. See note
4.
At
December 31, 2004, unrealized losses with a duration of 12 months or more
related to investment securities collateralized by commercial aircraft were $0.3
billion. The aggregate amortized cost of these available-for-sale securities was
$1.1 billion. We believe that our securities, which are current on all payment
terms, are in an unrealized loss position because of ongoing negative market
reaction to difficulties in the commercial airline industry. For these
securities, we do not anticipate changes in the timing and amount of estimated
cash flows, and expect full recovery of our amortized cost. Further, should our
cash flow expectation prove to be incorrect, the current aggregate market values
of aircraft collateral, based on information from independent appraisers,
exceeded totals of both the market values and the amortized cost of our
securities at December 31, 2004. See additional discussion of our positions in
the commercial aviation industry on page 28.
Financing
receivables is
our largest category of assets and represents one of our primary sources of
revenues. The portfolio of financing receivables, before allowance for losses,
increased to $284.9 billion at December 31, 2004, from $251.5 billion at the end
of 2003, as discussed in the following paragraphs. The related allowance for
losses at the end of 2004 amounted to $5.6 billion compared with $6.2 billion at
December 31, 2003, representing our best estimate of probable losses inherent in
the portfolio.
A
discussion of the quality of certain elements of the financing receivables
portfolio follows. For purposes of that discussion, “delinquent” receivables are
those that are 30 days or more past due; “nonearning” receivables are those that
are 90 days or more past due (or for which collection has otherwise become
doubtful); and “reduced-earning” receivables are commercial receivables whose
terms have been restructured to a below-market yield.
Commercial
Finance financing receivables, before allowance for losses, totaled $142.3
billion at December 31, 2004, compared with $133.7 billion at December 31, 2003,
and consisted of loans and leases to the equipment, commercial and industrial,
real estate and commercial aircraft industries. This portfolio of receivables
increased primarily from core growth ($27.2 billion) and acquisitions ($12.7
billion), partially offset by securitizations and sales ($31.2 billion). Related
nonearning and reduced-earning receivables were $1.6 billion (1.1% of
outstanding receivables) at December 31, 2004, compared with $1.7 billion (1.3%
of outstanding receivables) at year-end 2003. Commercial Finance financing
receivables are generally backed by assets and there is a broad spread of
geographic and credit risk in the portfolio.
During
2004, Consumer Finance adopted a global policy for uncollectible receivables
that accelerated write-offs to follow one consistent basis. We now write off
unsecured closed-end installment loans that become 120 days contractually past
due and unsecured open-ended revolving loans that become 180 days contractually
past due.
Consumer
Finance financing receivables, before allowance for losses, were $127.8 billion
at December 31, 2004, compared with $94.0 billion at December 31, 2003, and
consisted primarily of card receivables, installment loans, auto loans and
leases, and residential mortgages. This portfolio of receivables increased as a
result of acquisitions ($15.6 billion), core growth ($13.8 billion) and the
effects of the weaker U.S. dollar ($7.3 billion). These increases were partially
offset by whole loan sales and securitization activity ($2.0 billion) and the
standardization of our write-off policy, which resulted in an increase in
write-offs ($0.9 billion) but had an inconsequential effect on
earnings.
Nonearning
consumer receivables were $2.5 billion at December 31, 2004 and 2003,
representing 2.0% and 2.6% of outstanding receivables, respectively. The
percentage decrease is primarily related to the standardization of our write-off
policy and the acquisition of AFIG, which obtains credit insurance for certain
receivables, partially offset by higher nonearnings in our European secured
financing business.
Equipment
& Other Services financing receivables, before allowance for losses,
amounted to $14.9 billion and $23.8 billion at December 31, 2004 and 2003,
respectively, and consisted primarily of financing receivables in consolidated,
liquidating securitization entities. This portfolio of receivables decreased
because we have stopped transferring assets to these entities. Nonearning
receivables at December 31, 2004, were $0.2 billion (1.2% of outstanding
receivables) compared with $0.1 billion (0.6% of outstanding receivables) at
December 31, 2003.
Delinquency
rates on managed Commercial Finance equipment loans and leases and managed
Consumer Finance financing receivables follow.
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Finance |
1.40 |
% |
|
1.38 |
% |
|
1.75 |
% |
|
Consumer
Finance |
4.85 |
|
|
5.62 |
|
|
5.62 |
|
|
Delinquency
rates at Commercial Finance increased slightly from December 31, 2003 to
December 31, 2004, reflecting the effect of certain acquired portfolios,
partially offset by improvement in the overall core portfolio. The decline from
December 31, 2002 to December 31, 2003, reflected improved economic conditions
and collection results.
Delinquency
rates at Consumer Finance decreased from December 31, 2003 to December 31, 2004,
as a result of the standardization of our write-off policy, the acquisition of
AFIG, and the U.S. acquisition of WMC, with lower relative delinquencies as a
result of whole loan sales, partially offset by higher delinquencies in our
European secured financing business. See notes 5 and 6.
Other
receivables
totaled $22.0 billion at December 31, 2004, and $16.6 billion at December 31,
2003, and consisted primarily of nonfinancing customer receivables, accrued
investment income, amounts due from GE (generally related to certain material
procurement programs), amounts due under operating leases, receivables due on
sale of securities and various sundry items. Balances at December 31, 2004 and
2003, included securitized, managed GE trade receivables of $3.1 billion and
$2.7 billion, respectively.
Buildings
and equipment
was $46.4 billion at December 31, 2004, up $7.7 billion from 2003, primarily
reflecting the consolidation of Penske effective January 1, 2004, and
acquisitions of commercial aircraft at Commercial Finance. Details by category
of investment are presented in note 8. Additions to buildings and equipment were
$10.3
billion
and $7.3 billion during 2004 and 2003, respectively, primarily reflecting
additions of commercial aircraft and vehicles at Commercial Finance and of
vehicles at Equipment & Other Services.
Intangible
assets
increased $2.8 billion to $25.4 billion, reflecting goodwill associated with
acquisitions, goodwill associated with the consolidation of Penske effective
January 1, 2004, and the effects of the weaker U.S. dollar. See note 9.
Other
assets
totaled $69.5 billion at year-end 2004, an increase of $9.1 billion. This
increase resulted principally from acquisitions affecting real estate and assets
held for sale, and additional investments in associated companies, partially
offset by the consolidation of Penske, which was previously accounted for using
the equity method. See note 10.
Borrowings
were $352.9 billion at December 31, 2004, of which $147.9 billion is due in 2005
and $205.0 billion is due in subsequent years. Comparable amounts at the end of
2003 were $311.5 billion in total, $148.6 billion due within one year and $162.9
billion due thereafter. Included in our total borrowings were borrowings of
consolidated, liquidating securitization entities amounting to $25.8 billion at
December 31, 2004, of which $9.8 billion was asset-backed senior notes of AFIG,
and $24.8 billion at December 31, 2003. A large portion of our borrowings ($90.3
billion and $95.9 billion at the end of 2004 and 2003, respectively) was issued
in active commercial paper markets that we believe will continue to be a
reliable source of short-term financing. The average remaining terms and
interest rates of our commercial paper were 42 days and 2.39% at the end of
2004, compared with 47 days and 1.40% at the end of 2003. Our ratio of debt to
equity was 6.61 to 1 at the end of 2004 and 6.74 to 1 at the end of
2003. See note 11.
Insurance
liabilities, reserves and annuity benefits
were $103.9 billion at December 31, 2004, $3.3 billion higher than in 2003. The
increase is primarily attributable to growth in annuities, long-term care
insurance, structured settlements, and the effects of the weaker U.S. dollar.
These increases were partially offset by maturities of guaranteed investment
contracts (GICs). See note 12.
Exchange
rate and interest rate risks are
managed with a variety of straightforward techniques, including match funding
and selective use of derivatives. We use derivatives to mitigate or eliminate
certain financial and market risks because we conduct business in diverse
markets around the world and local funding is not always efficient. In addition,
we use derivatives to adjust the debt we are issuing to match the fixed or
floating nature of the assets we are acquiring. We apply strict policies to
manage each of these risks, including prohibitions on derivatives trading,
derivatives market-making or other speculative activities. Following is an
analysis of the potential effects of changes in interest rates and currency
exchange rates using so-called “shock” tests that model effects of shifts in
rates. These are not forecasts.
• |
If,
on January 1, 2005, interest rates had increased 100 basis points across
the yield curve (a “parallel shift” in that curve) and that increase
remained in place for 2005, we estimate, based on our year-end 2004
portfolio and holding everything else constant, that our 2005 net earnings
would decline pro-forma by $0.1 billion. |
• |
If,
on January 1, 2005, currency exchange rates were to decline by 10% against
the U.S. dollar and that decline remained in place for 2005, we estimate,
based on our year-end 2004 portfolio and holding everything else constant,
that the effect on our 2005 net earnings would be insignificant.
|
Statement
of Changes in Shareowner’s Equity (page 34)
Shareowner’s
equity increased $7.2 billion in 2004, $6.5 billion in 2003 and $8.2 billion in
2002. These increases were largely attributable to net earnings but were
partially offset by dividends declared of $3.1 billion, $4.5 billion and $2.0
billion in 2004, 2003 and 2002, respectively. Also, a capital contribution
increased shareowner’s equity by $4.5 billion in 2002. Currency translation
adjustments increased equity by $2.3 billion in 2004, compared with $3.2 billion
in 2003. Changes in the currency translation adjustments reflect the effects of
changes in currency exchange rates on our net investment in non-U.S.
subsidiaries that have functional currencies other than the U.S. dollar. In
2004, the pound sterling, euro and, to a lesser extent, Asian currencies
strengthened against the U.S. dollar. In 2003 and 2002, the euro and, to a
lesser extent, Asian currencies strengthened against the U.S. dollar.
Accumulated currency translation adjustments affect net earnings only when all
or a portion of an affiliate is disposed of or substantially liquidated. See
note 16.
Overview
of Our Cash Flow from 2002 through 2004 (page 36)
Our
cash and equivalents aggregated $9.8 billion at the end of 2004, up from $9.7
billion at year-end 2003. Over the past three years, our borrowings with
maturities of 90 days or less have decreased by $49.3 billion. New borrowings of
$217.6 billion having maturities longer than 90 days were added during those
years, while $126.8 billion of such longer-term borrowings were
retired.
Our
principal use of cash has been investing in assets to grow our businesses. Of
the $102.2 billion that we invested over the past three years, $38.0 billion was
used for additions to financing receivables; $28.9 billion was used to invest in
new equipment, principally for lease to others; and $36.7 billion was used for
acquisitions of new businesses, the largest of which were the commercial lending
business of Transamerica Finance Corporation and Sophia S.A. in 2004; First
National Bank and Conseco in 2003; and Australian Guarantee Corporation,
Security Capital and the commercial inventory financing business of Deutsche
Financial Services in 2002.
Although
we generated $67.6 billion from operating activities over the last three years,
our cash is not necessarily freely available for alternative uses. For example,
certain cash generated by our Insurance businesses is restricted by various
insurance regulations. See note 15. Further, any reinvestment in financing
receivables is shown in cash used for investing, not operating activities.
Therefore, maintaining or growing Commercial and Consumer Finance assets
requires that we invest much of the cash they generate from operating activities
in their earning assets. Also, we have been increasing the equity of our
businesses as discussed on page 26.
Based
on past performance and current expectations, in combination with the financial
flexibility that comes with a strong balance sheet and the highest credit
ratings, we believe we are in a sound position to grow dividends and continue
making selective investments for long-term growth. With the financial
flexibility that comes with excellent credit ratings, we believe that we should
be well positioned to meet the global needs of our customers for capital and to
continue providing our shareowner with good returns.
Contractual
Obligations
As
defined by reporting regulations, our contractual obligations for future
payments as of December 31, 2004, follow:
|
Payments
due by period |
(In
millions) |
Total |
|
2005 |
|
2006-2007 |
|
2008-2009 |
|
2010
and
thereafter |
|
|
|
|
|
|
|
|
|
|
Borrowings
(note 11) |
$ |
352,869 |
|
$ |
147,844 |
|
|
$ |
83,109 |
|
|
|
$ |
47,687 |
|
|
|
$ |
74,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on borrowings |
|
55,000 |
|
|
11,000 |
|
|
|
15,000 |
|
|
|
|
9,000 |
|
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations (note 3) |
|
4,407 |
|
|
704 |
|
|
|
1,281 |
|
|
|
|
959 |
|
|
|
|
1,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations(a)(b) |
|
23,000 |
|
|
16,000 |
|
|
|
6,000 |
|
|
|
|
1,000 |
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
liabilities (note
12)(c) |
|
86,000 |
|
|
14,000 |
|
|
|
18,000 |
|
|
|
|
12,000 |
|
|
|
|
42,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities(d) |
|
15,000 |
|
|
13,000 |
|
|
|
1,000 |
|
|
|
|
- |
|
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Included
all take-or-pay arrangements, capital expenditures, contractual
commitments to purchase equipment that will be classified as equipment
leased to others, software acquisition/license commitments and
contractually required cash payments for acquisitions.
|
|
(b) |
Excluded
funding commitments entered into in the ordinary course of business.
Further information on these commitments is provided in note
21.
|
|
(c) |
Included
GICs, structured settlements and single premium immediate annuities based
on scheduled payouts, as well as those contracts with reasonably
determinable cash flows such as deferred annuities, universal life, term
life, long-term care, whole life and other life insurance
contracts.
|
|
(d) |
Included
an estimate of future expected funding requirements related to our pension
benefit plans. Because their future cash outflows are uncertain, the
following non-current liabilities are excluded from the table above:
deferred taxes, derivatives, deferred revenue and other sundry items.
Refer to notes 13 and 19 for further information on these
items. |
|
Off-Balance
Sheet Arrangements
We
use off-balance sheet arrangements in the ordinary course of business to improve
shareowner returns. Beyond improving returns, these securitization transactions
serve as funding sources for a variety of diversified lending and securities
transactions. Our securitization transactions are similar to those used by many
financial institutions. In a typical transaction, assets are sold by the
transferor to a special purpose entity (SPE), which purchases the assets with
cash raised through issuance of beneficial interests (usually debt instruments)
to third-party investors. Investors in the beneficial interests usually have
recourse to the assets in the SPEs and often benefit from credit enhancements
supporting the assets (such as overcollateralization). The SPE may also hold
derivatives, such as interest rate swaps, in order to match the interest rate
characteristics of the assets with those of the beneficial interests. An example
is an interest rate swap converting fixed rate assets to variable rates to match
floating rate debt instruments issued by the SPE.
Historically,
we have used both sponsored and third-party entities to execute securitization
transactions in the commercial paper and term markets. With our adoption of FIN
46, Consolidation
of Variable Interest Entities,
on July 1, 2003, we consolidated $36.3 billion of assets and $35.8 billion of
liabilities in certain sponsored entities and stopped executing new
securitization transactions with those entities. We continue to engage in
securitization transactions with third-party conduits and through public, market
term securitizations. In December 2004, we acquired AFIG which added $9.1
billion of securitized mortgage loans in consolidated, liquidating
securitization
entities.
Without AFIG, assets in consolidated, liquidating securitization entities were
$17.4 billion, down $9.1 billion. See note 20.
Assets held
by SPEs include: receivables secured by equipment, commercial and residential
real estate and other assets; and credit card receivables. Examples of these
receivables include loans and leases on manufacturing and transportation
equipment, residential mortgages, loans on commercial property, commercial
loans, and balances of high credit quality accounts from sales of a broad range
of products and services to a diversified customer base. In certain
transactions, the credit quality of assets transferred is enhanced by providing
credit support. Securitized off-balance sheet assets totaled $29.0 billion and
$21.9 billion at December 31, 2004 and 2003, respectively.
We
provide financial support related to assets held by certain off-balance sheet
SPEs through liquidity agreements, credit support, and guarantee and
reimbursement contracts. Net liquidity support amounted to $2.1 billion at
December 31, 2004, down from $2.9 billion a year earlier. Credit support, in
which we provide recourse for credit losses in off-balance sheet SPEs, was $5.0
billion as of December 31, 2004. Potential credit losses are provided for in our
financial statements. Based on management’s best estimate of probable losses
inherent in the portfolio of assets that remain off-balance sheet, our financial
statements included $0.1 billion representing the fair value of recourse
obligations at year-end 2004. See note 20.
We
periodically enter into guarantees and other similar arrangements as part of
transactions in the ordinary course of business. These are described further in
note 21.
We
have extensive experience in evaluating economic, liquidity and credit risk. In
view of this experience, the high quality of assets in these entities, the
historically robust quality of commercial paper markets, and the historical
reliability of controls applied to both asset servicing and to activities in the
credit markets, we believe that, under any reasonable future economic
developments, the likelihood is remote that any financial support arrangements
could have an adverse economic effect on our financial position or results of
operations.
Debt
Instruments, Guarantees and Covenants
The
major debt rating agencies routinely evaluate our debt. These agencies have
given us the highest debt ratings (long-term rating AAA/Aaa; short-term rating
A-1+/P-1). One of our strategic objectives is to maintain these ratings as they
serve to lower our cost of funds and to facilitate our access to a variety of
lenders. We manage our businesses in a fashion that is consistent with
maintaining these ratings.
We
have distinct business characteristics that the major debt rating agencies
evaluate both quantitatively and qualitatively.
Quantitative
measures include:
• |
Earnings
and profitability, including earnings quality, revenue growth, the breadth
and diversity of sources of income and return on
assets, |
• |
Asset
quality, including delinquency and write-off ratios and reserve
coverage, |
• |
Funding
and liquidity, including cash generated from operating activities,
leverage ratios such as debt-to-capital, market access, back-up liquidity
from banks and other sources, composition of total debt and interest
coverage, and |
• |
Capital
adequacy, including required capital and tangible leverage
ratios. |
Qualitative
measures include:
• |
Franchise
strength, including competitive advantage and market conditions and
position, |
• |
Strength
of management, including experience, corporate governance and strategic
thinking, and |
• |
Financial
reporting quality, including clarity, completeness and transparency of all
financial performance communications. |
Our
ratings are supported contractually by a GE commitment to maintain the ratio of
earnings to fixed charges at a specified level as described below.
Before
2003, we maintained a capital structure that included about $8 of debt for each
$1 of equity - a “leverage ratio” of 8:1. For purposes of measuring segment
profit, each of our businesses was also assigned debt and interest costs on the
basis of that consolidated 8:1 leverage ratio. As of January 1, 2003, we
extended a business-specific, market-based leverage to the performance
measurement of each of our businesses. As a result, at January 1, 2003, debt of
$12.5 billion previously allocated to our other segments was allocated to the
Equipment & Other Services segment. We refer to this as “parent-supported
debt.” During 2004, a total of $4.7 billion of such debt was eliminated,
compared with $4.6 billion in 2003. The 2004 reduction was the result of the
following:
• |
22%
of retained operating earnings ($1.8
billion), |
• |
Proceeds
from the Genworth initial public offering less dividend payments to GE
through GECS ($1.6 billion), |
• |
Mortgage
Insurance contingent note payment ($0.5
billion), |
• |
Sale
of a majority interest of Gecis ($0.5 billion),
and |
• |
Rationalization
of Insurance and Equipment & Other Services related activities ($0.3
billion). |
The
remaining $3.2 billion of such debt is expected to be eliminated in
2005.
During
2004, we paid $2.3 billion of special dividends to GE through GECS, of which
$1.3 billion was a portion of proceeds from the Genworth initial public
offering, $0.8 billion was surplus equity related to portfolio restructurings in
Insurance and run-offs in Equipment & Other Services and $0.2 billion was
related to Insurance dispositions.
During
2004, GECC and GECC affiliates issued $57 billion of senior, unsecured long-term
debt, including $3 billion issued by Genworth in connection with the initial
public equity offering described on page 9. This debt was both fixed and
floating rate and was issued to institutional and retail investors in the U.S.
and 17 other global markets. Maturities for these issuances ranged from one to
40 years. We used the proceeds primarily for repayment of maturing long-term
debt, but also to fund acquisitions and organic growth. We anticipate that we
will issue between $50 billion and $60 billion of additional long-term debt
during 2005, although the ultimate amount we issue will depend on our needs and
on the markets.
Following
is the composition of our debt obligations excluding any asset-backed debt
obligations, such as debt of consolidated, liquidating securitization
entities.
December
31 |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Senior
notes and other long-term debt |
|
59 |
% |
|
|
56 |
% |
Commercial
paper |
|
24 |
|
|
|
26 |
|
Current
portion of long-term debt |
|
11 |
|
|
|
13 |
|
Other
- bank and other retail deposits |
|
6 |
|
|
|
5 |
|
Total
|
|
100 |
% |
|
|
100 |
% |
We
target a ratio for commercial paper of 25% to 35% of outstanding debt based on
the anticipated composition of our assets and the liquidity profile of our debt.
GE Capital is the most widely held name in global commercial paper markets.
We
believe that alternative sources of liquidity are sufficient to permit an
orderly transition from commercial paper in the unlikely event of impaired
access to those markets. Funding sources on which we would rely would depend on
the nature of such a hypothetical event, but include $57.3 billion of
contractually committed lending agreements with 83 highly-rated global banks and
investment banks. Total credit lines extending beyond one year increased $10.0
billion to $56.8 billion at December 31, 2004. See note 11.
Beyond
contractually committed lending agreements, other sources of liquidity include
medium and long-term funding, monetization, asset securitization, cash receipts
from our lending and leasing activities, short-term secured funding on global
assets, and potential sales of other assets.
Principal
debt conditions
are described below.
• |
Under
certain swap, forward and option contracts, if our long-term credit rating
were to fall below A-/A3, certain remedies are required as discussed in
note 19. |
• |
If
our ratio of earnings to fixed charges, which was 1.87:1 at the end of
2004, were to deteriorate to 1.10:1 or, upon redemption of certain
preferred stock, our ratio of debt to equity, which was 6.61:1 at the end
of 2004, were to exceed 8:1, GE has committed to contribute capital to us.
GE also has guaranteed our subordinated debt with a face amount of $0.7
billion at December 31, 2004 and 2003. |
The
following three conditions relate to securitization SPEs that were consolidated
upon adoption of FIN 46 on July 1, 2003:
• |
If
our short-term credit rating or certain consolidated SPEs discussed
further in note 20 were to fall below A-1/P-1, we would be required to
provide substitute liquidity for those entities or provide funds to retire
the outstanding commercial paper. The maximum net amount that we would be
required to provide in the event of such a downgrade is determined by
contract, and amounted to $12.8 billion at January 1, 2005. Amounts
related to non-consolidated SPEs were $1.4
billion. |
• |
If
our long-term credit rating were to fall below AA/Aa2, we would be
required to provide substitute credit support or liquidate the
consolidated SPEs. The maximum amount that we would be required to
substitute in the event of such a downgrade is determined by contract, and
amounted to $0.9 billion at December 31,
2004. |
• |
For
certain transactions, if our long-term credit rating were to fall below
A/A2 or BBB+/Baa1 or our short-term credit rating were to fall below
A-2/P-2, we could be required to provide substitute credit support or fund
the undrawn commitment. We could be required to provide up to $2.3 billion
in the event of such a downgrade based on terms in effect at December 31,
2004. |
One
group of consolidated SPEs, the Trinities and GE Funding CMS, hold assets that
are reported in “Investment securities” and issue GICs that are reported in
“Insurance liabilities, reserves and annuity benefits.” If our long-term credit
rating were to fall below AA-/Aa3 or our short-term credit rating were to fall
below A-1+/P-1, we could be required to provide up to $0.9 billion of capital to
the Trinities. Further, we could be required to repay up to $3.1 billion of GICs
issued by GE Funding CMS.
In our history, we have never violated any of the above conditions. We believe
that under any reasonable future economic developments, the likelihood that any
such arrangements could have a significant effect on our operations, cash flows
or financial position is remote.
Commercial
aviation
is an industry in which we have a significant ongoing interest. Although some
U.S. carriers have been operating under pressure, our interest in this industry
is global, and demand in the global markets has been strong. September 11, 2001,
was a significant test for this industry. But since that date, 119 carriers
around the world have placed 709 of our aircraft into service, 415 of which were
Boeing and Airbus narrow-body aircraft. We continue to be confident in the
global industry’s ongoing prospects.
At
December 31, 2004, our global commercial aviation exposure in our Commercial
Finance segment amounted to $37.8 billion, principally loans and leases of $33.0
billion. We had 1,342 commercial aircraft on lease, an increase of 106 aircraft
from last year reflecting acquired leases and on-time delivery of open 2003
order positions. At the end of 2004 and 2003, an insignificant number of our
aircraft were not on lease - 2 and 3 aircraft, respectively. At December 31,
2004, we also had $10.2 billion (list price) of multiple-year orders for various
Boeing, Airbus and other aircraft, including 56 aircraft ($4.3 billion)
scheduled for delivery in 2005, all under agreement to commence operations with
commercial airline customers.
US
Airways filed for bankruptcy protection in the third quarter of 2004. In January
2005, US Airways and the Air Transportation Stabilization Board (ATSB) reached
an agreement extending the airline’s use of cash proceeds from its federally
guaranteed loan through June 30, 2005. US Airways’ management has stated
publicly that this agreement with the ATSB will allow US Airways to continue
operations while it completes its restructuring and planned emergence from
Chapter 11 in the summer of 2005. US Airways’ management also has indicated in
its public statements that labor savings will be an important factor affecting
the success of that reorganization. At December 31, 2004, our aggregate exposure
to US Airways was $2.8 billion, the largest component of which was $2.6 billion
of loans and leases, substantially secured by various equipment, including 39
regional jet aircraft, 54 Boeing narrow-body aircraft (primarily 737 type), and
57 Airbus narrow-body aircraft. We and the airline have entered into a
memorandum of understanding to restructure a number of loans and leases. We also
agreed to continue regional jet financing conditioned on the airline
successfully emerging from bankruptcy protection and achieving specified
financial milestones. We have adjusted our estimates of cash flows and residual
values to reflect
the
current information available to us in this fluid situation. In addition to our
loans and leases, we hold $0.2 billion of available-for-sale investment
securities in US Airways that are secured by various other aircraft in the
fleet. In addition to US Airways, both ATA Holdings Corp. and Aloha Airgroup,
Inc. filed for bankruptcy during 2004. UAL Corp. filed for bankruptcy in 2002.
At December 31, 2004, our exposure was $1.4 billion to UAL Corp., $0.8 billion
to ATA Holdings Corp., and $0.3 billion to Aloha Airgroup, Inc., consisting
primarily of loans and leases. Various Boeing and Airbus aircraft secure
substantially all of these financial exposures.
Commercial
Finance regularly tests the recoverability of its commercial aircraft operating
lease portfolio as described on page 30, and recognized impairment losses of
$0.1 billion and $0.2 billion in 2004 and 2003, respectively. In addition to
these impairment charges relating to operating leases, Commercial Finance
recorded provisions for losses on financing receivables related to commercial
aircraft of $0.3 billion in 2004, primarily related to US Airways and ATA
Holdings Corp.; an insignificant amount was recognized in 2003.
See
pages 19-20 and notes 4 and 8 for further information on our commercial aviation
positions.
Critical
Accounting Estimates
Accounting
estimates and assumptions discussed in this section are those that we consider
to be the most critical to an understanding of our financial statements because
they inherently involve significant judgments and uncertainties. For all of
these estimates, we caution that future events rarely develop exactly as
forecast, and the best estimates routinely require adjustment. Also see note 1,
Summary of Significant Accounting Policies, which discusses accounting policies
that we have selected from acceptable alternatives.
Losses
on financing receivables are
recognized when they are incurred, which requires us to make our best estimate
of probable losses inherent in the portfolio. Such estimate requires
consideration of historical loss experience, adjusted for current conditions,
and judgments about the probable effects of relevant observable data, including
present economic conditions such as delinquency rates, financial health of
specific customers and market sectors, collateral values, and the present and
expected future levels of interest rates. Our risk management process, which
includes standards and policies for reviewing major risk exposures and
concentrations, ensures that relevant data are identified and considered either
for individual loans or leases, or on a portfolio basis, as
appropriate.
Our
lending and leasing experience and the extensive data we accumulate and analyze
facilitate estimates that have been reliable over time. Our actual loss
experience was in line with expectations for 2004 (adjusting for the effects of
Consumer Finance’s standardization of its write-off policy), 2003 and 2002.
While losses depend to a large degree on future economic conditions, we do not
anticipate significant adverse credit development in 2005. Further information
is provided in the financing receivables section on page 20, and in notes 1, 5
and 6.
Asset
impairment assessment
involves various estimates and assumptions as follows:
Investments We
regularly review investment securities for impairment based on criteria that
include the extent to which cost exceeds market value, the duration of that
market decline, our intent and ability to hold to recovery and the financial
health and specific prospects for the issuer. We perform comprehensive market
research and analysis and monitor market conditions to identify potential
impairments. Further information about actual and potential impairment losses is
provided on page 19 and in notes 1 and 4.
Long-lived
assets
We review long-lived assets for impairment whenever events or changes in
circumstances indicate that the related carrying amounts may not be recoverable.
Determining whether an impairment has occurred typically requires various
estimates and assumptions, including determining which cash flows are directly
related to the potentially impaired asset, the useful life over which cash flows
will occur, their amount, and the asset’s residual value, if any. In turn,
measurement of an impairment loss requires a determination of fair value, which
is based on the best information available. We use internal discounted cash flow
estimates, quoted market prices when available and independent appraisals as
appropriate to determine fair value. We derive the required cash flow estimates
from our historical experience and our internal business plans and apply an
appropriate discount rate.
Commercial
aircraft are a significant concentration of assets in our Commercial Finance
business, and are particularly subject to market fluctuations. Therefore, we
test recoverability of each aircraft in our operating lease portfolio at least
annually. Additionally, we perform quarterly evaluations in circumstances such
as when aircraft are re-leased, current lease terms have changed or a specific
lessee’s credit standing changes. Future rentals and residual values are based
on historical experience and information received routinely from independent
appraisers. Estimated cash flows from future leases are reduced for expected
downtime between leases and for estimated technical costs required to prepare
aircraft to be redeployed. Fair value used to measure impairment is based on
current market values from independent appraisers. Further information on
impairment losses and our overall exposure to the commercial aviation industry
is provided on pages 28-29 and in notes 4 and 8.
Goodwill
and other identified intangible assets
We test goodwill for impairment annually and whenever events or circumstances
make it more likely than not that an impairment may have occurred, such as a
significant adverse change in the business climate or a decision to sell or
dispose of a reporting unit. Determining whether an impairment has occurred
requires valuation of the respective reporting unit, which we estimate using a
discounted cash flow method. When available and as appropriate, we use
comparative market multiples to corroborate discounted cash flow results. In
applying this methodology, we rely on a number of factors, including actual
operating results, future business plans, economic projections and market data.
If
this analysis indicates goodwill is impaired, measuring the impairment requires
a fair value estimate of each identified tangible and intangible asset. In this
case we supplement the cash flow approach discussed above with independent
appraisals, as appropriate.
We
test other identified intangible assets with defined useful lives and subject to
amortization by comparing the carrying amount to the sum of undiscounted cash
flows expected to be generated by the asset.
Further
information is provided on page 22 and in notes 1 and 9.
Insurance
liabilities and reserves
differ for short- and long-duration insurance contracts. Short-duration
contracts such as property and casualty policies are accounted for based on
actuarial estimates of losses inherent in that period’s claims, including losses
for which claims have not yet been reported. Short-duration contract loss
estimates rely on actuarial observations of ultimate loss experience for similar
historical events. Measurement of long-duration insurance liabilities (such as
guaranteed renewable term, whole life and long-term care insurance policies)
also is based on approved actuarial methods that include assumptions about
expenses, mortality, morbidity, lapse rates and future yield on related
investments. Historical insurance industry experience indicates that a greater
degree of inherent variability exists in assessing the ultimate amount of losses
under short-duration property and casualty contracts than exists for
long-duration mortality exposures. This inherent variability is particularly
significant for liability-related exposures, including latent claims issues
(such as asbestos and environmental related coverage disputes), because of the
extended period of time - often many years - that transpires between when a
given claim
event
occurs and the ultimate full settlement of such claim. This situation is then
further exacerbated for reinsurance entities (as opposed to primary insurers)
because of coverage often being provided on an “excess-of-loss” basis and the
resulting lags in receiving current claims data.
We
continually evaluate the potential for changes in loss estimates with the
support of qualified reserving actuaries and use the results of these
evaluations both to adjust recorded reserves and to proactively modify
underwriting criteria and product offerings. For actuarial analysis purposes,
reported and paid claims activity is segregated into several hundred reserving
segments, each having differing historical settlement trends. A variety of
actuarial methods are then applied to the underlying data for each of these
reserving segments in arriving at an estimated range of “reasonably possible”
loss scenarios. Factors such as line of business, length of historical
settlement pattern, recent changes in underwriting standards and unusual trends
in reported claims activity will generally affect which actuarial methods are
given more weight for purposes of determining the “best estimate” of ultimate
losses in a particular reserving segment.
Other
loss contingencies
are recorded as liabilities when it is probable that a liability has been
incurred and the amount of the loss is reasonably estimable. Disclosure is
required when there is a reasonable possibility that the ultimate loss will
exceed the recorded provision. Contingent liabilities are often resolved over
long time periods. Estimating probable losses requires analysis of multiple
forecasts that often depend on judgments about potential actions by third
parties such as regulators. Further information is provided in note
21.
Other
Information
Financial
Measures that Supplement Generally Accepted Accounting
Principles
We
sometimes use information derived from consolidated financial information but
not presented in our financial statements prepared in accordance with U.S.
generally accepted accounting principles (GAAP). Certain of these data are
considered “non-GAAP financial measures” under SEC rules. Specifically, we have
referred, in various sections of this report, to:
• |
Net
revenues (revenues from services less interest) of the Commercial Finance
and Consumer Finance segments for the three years ended December 31, 2004,
and |
• |
Delinquency
rates on financing receivables of the Commercial Finance and Consumer
Finance segments for 2004, 2003 and 2002. |
The
reasons we use these non-GAAP financial measures and their reconciliation to
their most directly comparable GAAP financial measures follow.
Net
Revenues
We
provided reconciliations of net revenues to reported revenues for these segments
on pages 13-14. Because net revenues is a common industry measure of margin,
these disclosures enable investors to compare the results of our businesses with
results of others in the same industry.
Delinquency
Rates on Financing Receivables
Delinquency
rates on financing receivables follow.
Commercial
Finance
|
|
|
December
31 |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
Managed |
1.40 |
% |
1.38 |
% |
1.75 |
% |
Off-book |
0.90 |
|
1.27 |
|
0.09 |
|
On-book |
1.58 |
|
1.41 |
|
2.16 |
|
Consumer
Finance
|
|
|
December
31 |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
Managed |
4.85 |
% |
5.62 |
% |
5.62 |
% |
Off-book |
5.09 |
|
5.04 |
|
4.84 |
|
On-book |
4.84 |
|
5.67 |
|
5.76 |
|
We
believe that delinquency rates on managed financing receivables provide a useful
perspective of our portfolio quality and are key indicators of financial
performance. Further, investors use such information, including the results of
both the on-book and securitized portfolios, which are relevant to our overall
performance.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
Information
about our global risk management can be found on page 10 of Item 7.
Item
8. Financial Statements and Supplementary Data.
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors
General
Electric Capital Corporation:
We
have audited the consolidated financial statements of General Electric Capital
Corporation (“GECC”) and consolidated affiliates as listed in Item 15. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in Item 15. We also have
audited management’s assessment, included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting, that GECC maintained
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal
Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). GECC management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on these consolidated
financial statements, an opinion on management’s assessment, and an opinion on
the effectiveness of the GECC’s internal control over financial reporting based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the
accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our opinion, the consolidated financial statements and schedule referred to
above present fairly, in all material respects, the financial position of
General Electric Capital Corporation and consolidated affiliates as of December
31, 2004 and 2003, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles. Also, in our
opinion, management’s assessment that GECC maintained effective internal control
over financial reporting as of December 31, 2004 is fairly stated, in all
material respects, based on criteria established in Internal
Control - Integrated Framework issued
by COSO. Furthermore, in our opinion, GECC maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal
Control - Integrated Framework issued
by COSO.
As
discussed in note 1 to the consolidated financial statements, GECC in 2004 and
2003 changed its method of accounting for variable interest entities and in 2002
changed its method of accounting for goodwill and other intangible
assets.
/s/
KPMG LLP
Stamford,
Connecticut
February
11, 2005
General
Electric Capital Corporation and consolidated affiliates
Statement
of Earnings
For
the years ended December 31 (In millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
Revenues
from services (note 2) |
$ |
56,507 |
|
$ |
50,688 |
|
$ |
45,523 |
|
Sales
of goods |
|
2,840 |
|
|
2,228 |
|
|
3,296 |
|
Total
revenues |
|
59,347 |
|
|
52,916 |
|
|
48,819 |
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses |
|
|
|
|
|
|
|
|
|
Interest
|
|
11,029 |
|
|
9,932 |
|
|
9,544 |
|
Operating
and administrative (note 3) |
|
18,810 |
|
|
15,243 |
|
|
13,175 |
|
Cost
of goods sold |
|
2,741 |
|
|
2,119 |
|
|
3,039 |
|
Insurance
losses and policyholder and annuity benefits |
|
7,139 |
|
|
8,510 |
|
|
8,275 |
|
Provision
for losses on financing receivables (note 6) |
|
3,868 |
|
|
3,612 |
|
|
2,978 |
|
Depreciation
and amortization (note 8) |
|
5,774 |
|
|
4,594 |
|
|
4,248 |
|
Minority
interest in net earnings of consolidated affiliates |
|
359 |
|
|
84 |
|
|
95 |
|
Total
costs and expenses |
|
49,720 |
|
|
44,094 |
|
|
41,354 |
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes and accounting changes |
|
9,627 |
|
|
8,822 |
|
|
7,465 |
|
Provision
for income taxes (note 13) |
|
(1,593 |
) |
|
(1,590 |
) |
|
(960 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings
before accounting changes |
|
8,034 |
|
|
7,232 |
|
|
6,505 |
|
Cumulative
effect of accounting changes (note 1) |
|
- |
|
|
(339 |
) |
|
(1,015 |
) |
Net
earnings |
$ |
8,034 |
|
$ |
6,893 |
|
$ |
5,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Changes in Shareowner’s Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
Changes
in shareowner’s equity
(note 16) |
|
|
|
|
|
|
|
|
|
Balance
at January 1 |
$ |
46,241 |
|
$ |
39,753 |
|
$ |
31,563 |
|
Dividends
and other transactions with shareowner |
|
(2,805 |
) |
|
(4,466 |
) |
|
2,462 |
|
Changes
other than transactions with shareowner |
|
|
|
|
|
|
|
|
|
Increase
attributable to net earnings |
|
8,034 |
|
|
6,893 |
|
|
5,490 |
|
Investment
securities - net |
|
(595 |
) |
|
517 |
|
|
1,414 |
|
Currency
translation adjustments - net |
|
2,302 |
|
|
3,212 |
|
|
(27 |
) |
Cash
flow hedges - net |
|
337 |
|
|
341 |
|
|
(1,127 |
) |
Minimum
pension liabilities - net |
|
(93 |
) |
|
(9 |
) |
|
(22 |
) |
Total
changes other than transactions with shareowner |
|
9,985 |
|
|
10,954 |
|
|
5,728 |
|
Balance
at December 31 |
$ |
53,421 |
|
$ |
46,241 |
|
$ |
39,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to consolidated financial statements on pages 37-74 are an integral
part of these statements. |
|
General
Electric Capital Corporation and consolidated affiliates
Statement
of Financial Position
At
December 31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Cash
and equivalents |
$ |
9,840 |
|
$ |
9,719 |
|
Investment
securities (note 4) |
|
86,932 |
|
|
100,782 |
|
Financing
receivables - net (notes 5 and 6) |
|
279,356 |
|
|
245,295 |
|
Insurance
receivables - net (note 7) |
|
27,183 |
|
|
12,440 |
|
Other
receivables |
|
21,968 |
|
|
16,553 |
|
Inventories |
|
189 |
|
|
197 |
|
Buildings
and equipment, less accumulated amortization of $20,459 |
|
|
|
|
|
|
and
$16,587 (note 8) |
|
46,351 |
|
|
38,621 |
|
Intangible
assets - net (note 9) |
|
25,426 |
|
|
22,610 |
|
Other
assets (note 10) |
|
69,463 |
|
|
60,373 |
|
Total
assets |
$ |
566,708 |
|
$ |
506,590 |
|
|
|
|
|
|
|
|
Liabilities
and equity |
|
|
|
|
|
|
Borrowings
(note 11) |
$ |
352,869 |
|
$ |
311,474 |
|
Accounts
payable |
|
17,083 |
|
|
14,250 |
|
Insurance
liabilities, reserves and annuity benefits (note 12) |
|
103,890 |
|
|
100,613 |
|
Other
liabilities |
|
23,425 |
|
|
21,089 |
|
Deferred
income taxes (note 13) |
|
9,915 |
|
|
10,411 |
|
Total
liabilities |
|
507,182 |
|
|
457,837 |
|
|
|
|
|
|
|
|
Minority
interest in equity of consolidated affiliates (note 14) |
|
6,105 |
|
|
2,512 |
|
|
|
|
|
|
|
|
Variable
cumulative preferred stock, $100 par value, liquidation preference
$100,000
per share (33,000 shares authorized; 26,000 shares issued
and
outstanding at December 31, 2004 and 2003) |
|
3 |
|
|
3 |
|
Common
stock, $14 par value (4,166,000 shares authorized at
December
31, 2004 and 2003, and 3,985,403 shares
issued
and outstanding at December 31, 2004 and 2003) |
|
56 |
|
|
56 |
|
Accumulated
gains (losses) - net |
|
|
|
|
|
|
Investment
securities |
|
974 |
|
|
1,569 |
|
Currency
translation adjustments |
|
4,923 |
|
|
2,621 |
|
Cash
flow hedges |
|
(1,281 |
) |
|
(1,618 |
) |
Minimum
pension liabilities |
|
(124 |
) |
|
(31 |
) |
Additional
paid-in capital |
|
14,539 |
|
|
14,196 |
|
Retained
earnings |
|
34,331 |
|
|
29,445 |
|
Total
shareowner’s equity (note 16) |
|
53,421 |
|
|
46,241 |
|
Total
liabilities and equity |
$ |
566,708 |
|
$ |
506,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
sum of accumulated gains (losses) on investment securities, currency
translation adjustments, cash flow hedges and minimum pension liabilities
constitutes “Accumulated nonowner changes other than earnings,” as shown
in note 16, and was $4,492 million and $2,541 million at year-end 2004 and
2003, respectively. |
|
|
|
The
notes to consolidated financial statements on pages 37-74 are an integral
part of this statement.
|
|
General
Electric Capital Corporation and consolidated affiliates
Statement
of Cash Flows
For
the years ended December 31 (In millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows - operating activities |
|
|
|
|
|
|
|
|
|
Net
earnings |
$ |
8,034 |
|
$ |
6,893 |
|
$ |
5,490 |
|
Adjustments
to reconcile net earnings to cash provided
from
operating activities |
|
|
|
|
|
|
|
|
|
Cumulative
effect of accounting changes |
|
- |
|
|
339 |
|
|
1,015 |
|
Depreciation
and amortization of buildings and equipment |
|
5,774 |
|
|
4,594 |
|
|
4,248 |
|
Deferred
income taxes |
|
(1,494 |
) |
|
683 |
|
|
1,277 |
|
Decrease
(increase) in inventories |
|
(9 |
) |
|
(35 |
) |
|
62 |
|
Increase
(decrease) in accounts payable |
|
3,744 |
|
|
2,793 |
|
|
(2,120 |
) |
Increase
in insurance liabilities and reserves |
|
4,439 |
|
|
1,372 |
|
|
5,539 |
|
Provision
for losses on financing receivables |
|
3,868 |
|
|
3,612 |
|
|
2,978 |
|
All
other operating activities (note 17) |
|
1,179 |
|
|
1,799 |
|
|
1,536 |
|
Cash
from operating activities |
|
25,535 |
|
|
22,050 |
|
|
20,025 |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows - investing activities |
|
|
|
|
|
|
|
|
|
Net
increase in financing receivables (note 17) |
|
(14,952 |
) |
|
(4,736 |
) |
|
(18,285 |
) |
Additions
to buildings and equipment |
|
(10,317 |
) |
|
(7,255 |
) |
|
(11,346 |
) |
Dispositions
of buildings and equipment |
|
5,493 |
|
|
4,622 |
|
|
6,227 |
|
Payments
for principal businesses purchased |
|
(13,888 |
) |
|
(10,537 |
) |
|
(12,300 |
) |
All
other investing activities (note 17) |
|
(1,783 |
) |
|
(759 |
) |
|
(12,368 |
) |
Cash
used for investing activities |
|
(35,447 |
) |
|
(18,665 |
) |
|
(48,072 |
) |
|
|
|
|
|
|
|
|
|
|
Cash
flows - financing activities |
|
|
|
|
|
|
|
|
|
Net
decrease in borrowings (maturities of 90 days or less) |
|
(1,040 |
) |
|
(12,957 |
) |
|
(35,348 |
) |
Newly
issued debt (maturities longer than 90 days) (note 17) |
|
61,748 |
|
|
59,838 |
|
|
96,044 |
|
Repayments
and other reductions (maturities longer |
|
|
|
|
|
|
|
|
|
than
90 days) (note 17) |
|
(45,115 |
) |
|
(43,128 |
) |
|
(38,586 |
) |
Dividends
paid to shareowner |
|
(3,148 |
) |
|
(4,472 |
) |
|
(2,020 |
) |
All
other financing activities (note 17) |
|
(2,412 |
) |
|
70 |
|
|
8,156 |
|
Cash
from (used for) financing activities |
|
10,033 |
|
|
(649) |
|
|
28,246 |
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and equivalents during year |
|
121 |
|
|
2,736 |
|
|
199 |
|
Cash
and equivalents at beginning of year |
|
9,719 |
|
|
6,983 |
|
|
6,784 |
|
Cash
and equivalents at end of year |
$ |
9,840 |
|
$ |
9,719 |
|
$ |
6,983 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flows information |
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest |
$ |
(10,995 |
) |
$ |
(10,323 |
) |
$ |
(9,114 |
) |
Cash
recovered during the year for income taxes |
|
785 |
|
|
726 |
|
|
1,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to consolidated financial statements on pages 37-74 are an integral
part of this statement. |
|
General
Electric Capital Corporation and consolidated affiliates
Notes
to Consolidated Financial Statements
Note
1. Summary of Significant Accounting Policies
Accounting
principles
Our
financial statements are prepared in conformity with U.S. generally accepted
accounting principles (GAAP).
Consolidation
All of
our outstanding common stock is owned by General Electric Capital Services, Inc.
(GE Capital Services or GECS), all of whose common stock is owned, directly or
indirectly, by General Electric Company (GE Company or GE). Our financial
statements consolidate all of our affiliates - companies that we control and in
which we hold a majority voting interest. Associated companies are companies
that we do not control but over which we have significant influence, most often
because we hold a shareholder voting position of 20% to 50%. Results of
associated companies are presented on a one-line basis.
In 2004 and 2003, as we describe on
page 42, we consolidated certain non-affiliates, including certain special
purpose entities (SPEs) and investments previously considered associated
companies, because of new accounting requirements that became effective in each
of those years.
Financial
statement presentation
We
have reclassified certain prior-year amounts to conform to the current year’s
presentation. Effects of transactions between related companies are
eliminated.
In
November 2004, we changed the par value of our common stock from $4.00 per share
to $14.00 per share to conform with certain non-U.S. regulatory requirements.
The consolidated financial statements contained herein give retroactive effect
to this change in par value.
Preparing
financial statements in conformity with GAAP requires us to make estimates and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates.
Sales
of goods
We
record sales of goods when a firm sales agreement is in place, delivery has
occurred and collectibility of the fixed or determinable sales price is
reasonably assured. If customer acceptance of products is not assured, sales are
recorded only upon formal customer acceptance.
Revenues
from services (earned income)
We
use the interest method to recognize income on all loans. Interest on time sales
and loans includes origination, commitment and other non-refundable fees related
to funding (recorded in earned income on the interest method). We stop accruing
interest at the earlier of the time at which collection of an account becomes
doubtful or the account becomes 90 days past due. We recognize interest income
on nonearning loans either as cash is collected or on a cost-recovery basis as
conditions warrant. We resume accruing interest on nonearning, non-restructured
Commercial Finance loans only when (a) payments are brought current according to
the loan’s original terms and (b) future payments are reasonably assured. When
we agree to restructured terms with the borrower, we resume accruing interest
only when reasonably assured that we will recover full contractual payments, and
such loans pass
underwriting
reviews equivalent to those applied to new loans. We resume accruing interest on
nonearning Consumer Finance loans upon receipt of the third consecutive minimum
monthly payment or the equivalent. Specific limits for each type of loan
restrict the number of times any particular delinquent loan may be categorized
as non-delinquent and interest accrual resumed.
We
record financing lease income on the interest method to produce a level yield on
funds not yet recovered. Estimated unguaranteed residual values of leased assets
are based primarily on periodic independent appraisals of the values of leased
assets remaining at expiration of the lease terms. Significant assumptions we
use in estimating residual values include estimated net cash flows over the
remaining lease term, results of future remarketing, and future component part
and scrap metal prices, discounted at an appropriate rate.
We
recognize operating lease income on a straight-line basis over the terms of
underlying leases.
Fees
include commitment fees related to loans that we do not expect to fund and
line-of-credit fees. We record these fees in earned income on a straight-line
basis over the period to which they relate. We record syndication fees in earned
income at the time related services are performed unless significant
contingencies exist.
See
pages 39-41 for a discussion of income from investment and insurance
activities.
Depreciation
and amortization
The
cost of our equipment leased to others on operating leases is amortized on a
straight-line basis to estimated residual value over the lease term or over the
estimated economic life of the equipment. See note 8.
Losses
on financing receivables
Our
allowance for losses on financing receivables represents our best estimate of
probable losses inherent in the portfolio. Our method of calculating estimated
losses depends on the size, type and risk characteristics of the related
receivables. Write-offs are deducted from the allowance for losses and
subsequent recoveries are added. Impaired financing receivables are written down
to the extent that principal is judged to be uncollectible.
Our
consumer loan portfolio consists of smaller balance, homogeneous loans including
card receivables, installment loans, auto loans and leases and residential
mortgages. Each portfolio is collectively evaluated for impairment. The
allowance for losses on these receivables is established through a process that
estimates the probable losses inherent in the portfolio, based upon statistical
analyses of portfolio data. These include migration analysis, in which
historical delinquency and credit loss experience is applied to the current
aging of the portfolio, together with analyses that reflect current trends and
conditions. We also consider overall portfolio indicators including nonearning
loans, trends in loan volume and lending terms, credit policies and other
observable environmental factors.
During
2004, Consumer Finance adopted a global policy for uncollectible receivables
that accelerated write-offs to follow one consistent basis. We now write off
unsecured closed-end installment loans that become 120 days contractually past
due and unsecured open-ended revolving loans that become 180 days contractually
past due. Loans secured with non-real-estate collateral are written down to the
estimated value of the collateral, less costs to sell, at 120 days contractually
past due. Real estate secured loans (both revolving and closed-end) are written
down to a percentage of the estimated fair value of the property, less costs to
sell, no later than 360 days past due.
The
first step in establishing our quarterly allowances for losses on larger balance
non-homogenous commercial and equipment loans and leases is to survey the entire
portfolio for potential specific credit or collection issues indicating an
impairment. This survey first considers the financial status, payment history,
collateral value, industry conditions and guarantor support related to specific
customers. Any delinquencies or bankruptcies are indications of potential
impairment requiring further assessment of collectibility. Our risk function
routinely receives financial as well as rating agency reports on our customers,
and we elevate for further attention those customers whose operations we judge
to be marginal or deteriorating. We also elevate customers for further attention
when we observe a decline in collateral values for asset-based loans. While
collateral values are not always available, when we observe such a decline, we
evaluate relevant markets to assess recovery alternatives - for example, for
real estate loans, relevant markets are local; for aircraft loans, relevant
markets are global. Our risk function reports to senior management its
evaluation of any balances that it has identified as impaired, and we make
allowances based on our evaluation of all available information, including
expected future cash flows, fair value of collateral net of disposal costs and
the secondary market value of the financing receivables. After providing for
specific incurred losses, we then determine an allowance for losses that have
been incurred in the balance of the portfolio but cannot yet be identified to a
specific loan or lease. This estimate is prepared by each line of business every
quarter and reviewed by senior management. Within each business unit, portfolio
level modeling is applied where deemed appropriate, for example, by collateral
type. As a result, several different statistical analyses requiring judgment are
employed as part of this process. These analyses include consideration of
historical and projected default rate and loss severity.
Portfolios
of smaller balance homogenous commercial and equipment loans which are not
individually evaluated for impairment are evaluated collectively for impairment.
This evaluation is based upon various statistical analyses which consider
historical losses and the current aging of the portfolio.
For
homogeneous loans and leases, delinquencies are an important indication of a
developing loss, and we monitor delinquency rates closely in all of our
portfolios.
Experience
is not available with new products; therefore, while we are developing that
experience, we set loss allowances based on our experience with the most closely
analogous products in our portfolio.
When
we repossess collateral in satisfaction of a commercial loan, we write the
receivable down against the allowance for losses. Repossessed collateral is
included in “Other assets” in the Statement of Financial Position and carried at
the lower of cost or estimated fair value less costs to sell.
The
underlying assumptions, estimates and assessments we use are continually updated
to reflect our view of current conditions. Changes in such estimates can
significantly affect the allowance and provision for losses. It is possible to
experience credit losses that are different from our current
estimates.
Cash
and equivalents
Debt
securities with original maturities of three months or less are included in cash
equivalents unless designated as available-for-sale and classified as investment
securities.
Investment
securities
We
report investments in debt and marketable equity securities, and equity
securities at our insurance affiliates, at fair value based on quoted market
prices or, if quoted prices are not available, discounted expected cash flows
using market rates commensurate with credit quality and maturity of the
investment. Unrealized gains and losses on
available-for-sale
investment securities are included in shareowner's equity, net of applicable
taxes and other adjustments. We regularly review investment securities for
impairment based on criteria that include the extent to which cost exceeds
market value, the duration of that market decline, our intent and ability to
hold to recovery and the financial health and specific prospects for the issuer.
Unrealized losses that are other than temporary are recognized in earnings. For
investment securities designated as trading, unrealized gains and losses are
recognized currently in earnings. Realized gains and losses are accounted for on
the specific identification method.
Inventories
All
inventories are stated at the lower of cost or realizable values. Our
inventories consist of finished products held for sale, and cost is determined
on a first-in, first-out basis.
Intangible
assets
We
do not amortize goodwill, but test it annually for impairment using a fair value
approach at the “reporting unit” level. A reporting unit is the operating
segment, or a business one level below that operating segment (the “component”
level) if discrete financial information is prepared and regularly reviewed by
segment management. However, components are aggregated as a single reporting
unit if they have similar economic characteristics. We recognize an impairment
charge for any amount by which the carrying amount of a reporting unit’s
goodwill exceeds its fair value. We use discounted cash flows to establish fair
values. When available and as appropriate, we use comparative market multiples
to corroborate discounted cash flow results. When a business within a reporting
unit is disposed of, goodwill is allocated to the gain or loss on disposition
using the relative fair value method.
We
amortize the cost of other intangibles over their estimated useful lives.
Amortizable intangible assets are tested for impairment based on undiscounted
cash flows and, if impaired, written down to fair value based on either
discounted cash flows or appraised values.
Insurance
accounting policies
Accounting
policies for our insurance businesses follow.
Premium
income We
report insurance premiums as earned income as follows:
• |
For
short-duration insurance contracts (including property and casualty, and
accident and health insurance), we report premiums as earned income,
generally on a pro-rata basis, over the terms of the related agreements.
For retrospectively rated reinsurance contracts, we record premium
adjustments based on estimated losses and loss expenses, taking into
consideration both case and incurred-but-not-reported (IBNR)
reserves. |
• |
For
traditional long-duration insurance contracts (including term and whole
life contracts and annuities payable for the life of the annuitant), we
report premiums as earned income when due. |
• |
For
investment contracts and universal life contracts, we report premiums
received as liabilities, not as revenues. Universal life contracts are
long-duration insurance contracts with terms that are not fixed and
guaranteed; for these contracts, we recognize revenues for assessments
against the policyholder’s account, mostly for mortality, contract
initiation, administration and surrender. Investment contracts are
contracts that have neither significant mortality nor significant
morbidity risk, including annuities payable for a determined period; for
these contracts, we recognize revenues on the associated investments, and
amounts credited to policyholder accounts are charged to expense.
|
Liabilities
for unpaid claims and claims adjustment expenses represent
our best estimate of the ultimate obligations for reported claims plus those
IBNR and the related estimated claim settlement expenses for all claims incurred
through December 31 of each year. Specific reserves - also referred to as case
reserves - are established for reported claims using case-basis evaluations of
the underlying claim data and are updated as further information becomes known.
IBNR reserves are determined using generally accepted actuarial reserving
methods that take into account historical loss experience data and, as
appropriate, certain qualitative factors. IBNR reserves are adjusted to take
into account certain additional factors that can be expected to affect the
liability for claims over time, such as changes in the volume and mix of
business written, revisions to contract terms and conditions, changes in legal
precedents or developed case law, trends in healthcare and medical costs, and
general inflation levels. Settlement of complex claims routinely involves
threatened or pending litigation to resolve disputes as to coverage,
interpretation of contract terms and conditions or fair compensation for damages
suffered. These disputes are settled through negotiation, arbitration or actual
litigation. Recorded reserves incorporate our best estimate of the effect that
ultimate resolution of such disputes has on both claims payments and related
settlement expenses. Liabilities for unpaid claims and claims adjustment
expenses are continually reviewed and adjusted; such adjustments are included in
current operations and accounted for as changes in estimates.
Deferred
acquisition costs Costs
that vary with and are directly related to the acquisition of new and renewal
insurance and investment contracts are deferred and amortized as
follows:
• |
Short-duration
contracts - Acquisition costs consist of commissions, brokerage expenses
and premium taxes and are amortized ratably over the contract periods in
which the related premiums are earned. |
• |
Long-duration
contracts - Acquisition costs consist of first-year commissions in excess
of recurring renewal commissions, certain variable sales expenses and
certain support costs such as underwriting and policy issue expenses. For
traditional long-duration insurance contracts, we amortize these costs
over the respective contract periods in proportion to either anticipated
premium income, or, in the case of limited-payment contracts, estimated
benefit payments. For investment contracts and universal life contracts,
amortization of these costs is based on estimated gross profits and is
adjusted as those estimates are revised. |
We
review deferred acquisition costs periodically for recoverability considering
anticipated investment income.
Present
value of future profits The
actuarially determined present value of anticipated net cash flows to be
realized from insurance, annuity and investment contracts in force at the date
of acquisition of life insurance policies is recorded as the present value of
future profits and is amortized over the respective policy terms in a manner
similar to deferred acquisition costs. We adjust unamortized balances to reflect
experience and impairment, if any.
Accounting
changes
We
adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN)
46R, Consolidation
of Variable Interest Entities (Revised),
on January 1, 2004. This accounting change added $1.5 billion of assets and $1.1
billion of liabilities to our consolidated balance sheet as of that date
resulting from the consolidation of Penske Truck Leasing Co., L.P. (Penske),
which was previously accounted for using the equity method. Penske provides
full-service commercial truck leasing, truck rental and logistics services,
primarily in North America. This accounting change did not require an adjustment
to earnings and will not affect future earnings or cash flows.
We
adopted FIN 46, Consolidation
of Variable Interest Entities,
on July 1, 2003, and for the first time consolidated certain special purpose
entities. In total, transition resulted in a $339 million after-tax accounting
charge to our third quarter 2003 net earnings, which is reported in the caption
“Cumulative effect of accounting changes.”
• |
FIN
46 required that, if practicable, we consolidate assets and liabilities of
FIN 46 entities based on their carrying amounts. For us, such transition
losses were primarily associated with interest rate swaps that did not
qualify for hedge accounting before transition. Additional transition
losses arose from recording carrying amounts of assets and liabilities as
we eliminated certain previously recognized gains.
|
• |
When
it was impracticable to determine carrying amounts, as defined, FIN 46
required assets and liabilities to be consolidated at their July 1, 2003,
fair values. We recognized a loss on consolidation of certain of these
entities because the fair value of associated liabilities, including the
fair values of interest rate swaps, exceeded independently appraised fair
values of their related assets. |
• |
For
assets that had been securitized using qualifying special purpose entities
(QSPEs), transition carrying amounts were based on hypothetical repurchase
of the assets at fair value. Transition effects associated with
consolidation of these assets and liabilities were insignificant, as were
transition effects of consolidating assets and liabilities associated with
issuance of guaranteed investment contracts
(GICs). |
Further
information about these entities is provided in note 20.
In
2002, we adopted SFAS 142, Goodwill
and Other Intangible Assets,
under which goodwill is no longer amortized but is tested for impairment using a
fair value method. Using the required reporting unit basis, we tested all of our
goodwill for impairment as of January 1, 2002, and recorded a non-cash charge of
$1.204 billion ($1.015 billion after tax). All of the charge related to
Equipment & Other Services. Factors contributing to the impairment charge
were the difficult economic environment in the information technology sector and
heightened price competition in the auto insurance industry. No impairment
charge had been required under our previous goodwill impairment policy, which
was based on undiscounted cash flows.
Note
2. Revenues from Services
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Interest
on time sales and loans |
$ |
18,756 |
|
$ |
17,103 |
|
$ |
13,723 |
|
Premiums
earned by insurance businesses |
|
6,967 |
|
|
8,633 |
|
|
8,655 |
|
Operating
lease rentals |
|
10,654 |
(a) |
|
7,123 |
|
|
6,812 |
|
Investment
income |
|
4,502 |
|
|
5,024 |
|
|
4,224 |
|
Financing
leases |
|
4,069 |
|
|
4,117 |
|
|
4,334 |
|
Fees
|
|
3,890 |
|
|
3,104 |
|
|
2,777 |
|
Other
income |
|
7,669 |
(b) |
|
5,584 |
|
|
4,998 |
|
Total(c) |
$ |
56,507 |
|
$ |
50,688 |
|
$ |
45,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Included
$2,593 million relating to the consolidation of Penske. |
|
(b) |
Included
other operating revenue of Penske of $977 million and gain on sale of
Gecis of $396 million, partially offset by the loss on Genworth Financial,
Inc. (Genworth) initial public offering of $388 million. |
|
(c) |
Included
$985 million in 2004 and $693 million in 2003 related to consolidated,
liquidating securitization entities. |
|
For
insurance businesses, the effects of reinsurance on premiums written and
premiums earned were as follows:
|
Premiums
written |
|
Premiums
earned |
|
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
$ |
6,343 |
|
$ |
8,669 |
|
$ |
8,972 |
|
$ |
6,939 |
|
$ |
8,665 |
|
$ |
8,525 |
|
Assumed |
|
1,409 |
|
|
1,028 |
|
|
1,125 |
|
|
1,410 |
|
|
1,089 |
|
|
1,133 |
|
Ceded |
|
(1,405 |
) |
|
(949 |
)
|
|
(980 |
) |
|
(1,382 |
) |
|
(1,121 |
) |
|
(1,003 |
)
|
Total |
$ |
6,347 |
|
$ |
8,748 |
|
$ |
9,117 |
|
$ |
6,967 |
|
$ |
8,633 |
|
$ |
8,655 |
|
Note
3. Operating and Administrative Expenses
Our
employees and retirees are covered under a number of pension, health and life
insurance plans. The principal pension plans are the GE Pension Plan, a defined
benefit plan for U.S. employees and the GE Supplementary Pension Plan, an
unfunded plan providing supplementary benefits to higher level, longer service
U.S. employees. Employees of certain affiliates are covered under separate
pension plans which are not significant individually or in the aggregate. We
provide health and life insurance benefits to certain of our retired employees,
principally through GE Company’s benefit program. The annual cost to us of
providing these benefits is not material.
Rental
expense relating to equipment we lease from others for the purpose of subleasing
was $383 million in 2004, $338 million in 2003 and $378 million in 2002. Other
rental expense was $576 million in 2004, $527 million in 2003, and $571 million
in 2002, principally for the rental of office space and data processing
equipment. At December 31, 2004, minimum rental commitments under noncancelable
operating leases aggregated $4,407 million. Amounts payable over the next five
years were; $704 million in 2005; $700 million in 2006; $581 million in 2007;
$495 million in 2008; $464 million in 2009. As a lessee, we have no material
lease agreements classified as capital leases.
Amortization
of deferred acquisition costs charged to operations in 2004, 2003 and 2002 was
$954 million, $1,206 million and $1,104 million, respectively.
Note
4. Investment Securities
(In
millions) |
Amortized
cost |
|
Gross
unrealized
gains |
|
Gross
unrealized
losses |
|
Estimated
fair
value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities |
|
|
|
|
|
|
|
|
|
|
|
|
Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate |
$ |
34,112 |
|
$ |
1,422 |
|
$ |
(463 |
) |
$ |
35,071 |
|
State
and municipal |
|
3,490 |
|
|
165 |
|
|
(1 |
) |
|
3,654 |
|
Mortgage-backed |
|
11,974 |
|
|
173 |
|
|
(51 |
) |
|
12,096 |
|
Asset-backed |
|
9,363 |
|
|
205 |
|
|
(45 |
) |
|
9,523 |
|
Corporate
- non-U.S. |
|
10,694 |
|
|
451 |
|
|
(28 |
) |
|
11,117 |
|
Government
- non-U.S. |
|
2,695 |
|
|
103 |
|
|
(3 |
) |
|
2,795 |
|
U.S.
government and federal agency |
|
597 |
|
|
23 |
|
|
(1 |
) |
|
619 |
|
Equity |
|
3,385 |
|
|
353 |
|
|
(18 |
) |
|
3,720 |
|
Trading
securities |
|
(a) |
|
|
(a) |
|
|
(a) |
|
|
8,337 |
|
Total |
$ |
76,310 |
|
$ |
2,895 |
|
$ |
(610 |
) |
$ |
86,932 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities |
|
|
|
|
|
|
|
|
|
|
|
|
Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate |
$ |
46,767 |
|
$ |
2,336 |
|
$ |
(630 |
) |
$ |
48,473 |
|
State
and municipal |
|
3,794 |
|
|
185 |
|
|
(2 |
) |
|
3,977 |
|
Mortgage-backed |
|
11,274 |
|
|
219 |
|
|
(76 |
) |
|
11,417 |
|
Asset-backed |
|
11,574 |
|
|
185 |
|
|
(74 |
) |
|
11,685 |
|
Corporate
- non-U.S. |
|
10,371 |
|
|
453 |
|
|
(65 |
) |
|
10,759 |
|
Government
- non-U.S. |
|
2,312 |
|
|
67 |
|
|
(9 |
) |
|
2,370 |
|
U.S.
government and federal agency |
|
1,391 |
|
|
50 |
|
|
(18 |
) |
|
1,423 |
|
Equity |
|
3,589 |
|
|
363 |
|
|
(77 |
) |
|
3,875 |
|
Trading
securities |
|
(a) |
|
|
(a) |
|
|
(a) |
|
|
6,803 |
|
Total |
$ |
91,072 |
|
$ |
3,858 |
|
$ |
(951 |
) |
$ |
100,782 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Not
applicable. |
|
(b) |
Included
$1,147 million in 2004 and $1,566 million in 2003 of debt securities
related to consolidated, liquidating securitization
entities. |
|
Investment
securities included in our general account portfolio above and designated as
trading represent actively managed debt and equity securities of certain
non-U.S. insurance contractholders who retain the related risks and rewards,
except in the event of our bankruptcy or liquidation. Changes in unrealized
gains and losses on these securities are recognized currently in earnings.
During 2004, the net gain on investment securities classified as trading and
included in earnings was $284 million.
A
substantial portion of our mortgage-backed securities are collateralized by U.S.
residential mortgages.
Following
are estimated fair value of, and gross unrealized losses on, our
available-for-sale investment securities.
|
Less
than 12 months |
|
12
months or more |
|
December
31 (In millions) |
Estimated
fair
value |
|
Gross
unrealized
losses |
|
Estimated
fair
value |
|
Gross
unrealized
losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate |
|
$ |
5,048 |
|
|
|
$ |
(134 |
) |
|
|
$ |
1,983 |
|
|
|
$ |
(329 |
) |
|
State
and municipal |
|
|
108 |
|
|
|
|
(1 |
) |
|
|
|
4 |
|
|
|
|
- |
|
|
Mortgage-backed |
|
|
4,388 |
|
|
|
|
(37 |
) |
|
|
|
367 |
|
|
|
|
(14 |
) |
|
Asset-backed |
|
|
1,939 |
|
|
|
|
(14 |
) |
|
|
|
474 |
|
|
|
|
(31 |
) |
|
Corporate
- non-U.S. |
|
|
3,507 |
|
|
|
|
(17 |
) |
|
|
|
408 |
|
|
|
|
(11 |
) |
|
Government
- non-U.S. |
|
|
440 |
|
|
|
|
(3 |
) |
|
|
|
35 |
|
|
|
|
- |
|
|
U.S.
government and federal agency |
|
|
104 |
|
|
|
|
(1 |
) |
|
|
|
13 |
|
|
|
|
- |
|
|
Equity |
|
|
141 |
|
|
|
|
(13 |
) |
|
|
|
51 |
|
|
|
|
(5 |
) |
|
Total |
|
$ |
15,675 |
|
|
|
$ |
(220 |
) |
|
|
$ |
3,335 |
|
|
|
$ |
(390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate |
|
$ |
6,320 |
|
|
|
$ |
(219 |
) |
|
|
$ |
1,882 |
|
|
|
$ |
(411 |
) |
|
State
and municipal |
|
|
213 |
|
|
|
|
(2 |
) |
|
|
|
2 |
|
|
|
|
- |
|
|
Mortgage-backed |
|
|
3,375 |
|
|
|
|
(70 |
) |
|
|
|
127 |
|
|
|
|
(6 |
) |
|
Asset-backed |
|
|
1,982 |
|
|
|
|
(18 |
) |
|
|
|
1,476 |
|
|
|
|
(56 |
) |
|
Corporate
- non-U.S. |
|
|
1,341 |
|
|
|
|
(49 |
) |
|
|
|
97 |
|
|
|
|
(16 |
) |
|
Government
- non-U.S. |
|
|
67 |
|
|
|
|
(5 |
) |
|
|
|
10 |
|
|
|
|
(4 |
) |
|
U.S.
government and federal agency |
|
|
210 |
|
|
|
|
(18 |
) |
|
|
|
- |
|
|
|
|
- |
|
|
Equity |
|
|
203 |
|
|
|
|
(45 |
) |
|
|
|
44 |
|
|
|
|
(32 |
) |
|
Total |
|
$ |
13,711 |
|
|
|
$ |
(426 |
) |
|
|
$ |
3,638 |
|
|
|
$ |
(525 |
) |
|
Securities
in an unrealized loss position for 12 months or more at December 31, 2004 and
2003, included investment securities collateralized by commercial aircraft,
primarily Enhanced Equipment Trust Certificates, with unrealized losses of $280
million and $342 million, respectively, and estimated fair values of $864
million and $979 million, respectively. We review all of our investment
securities routinely for other than temporary impairment as described on page
39. In accordance with that policy, we provide for all amounts that we do not
expect either to collect in accordance with the contractual terms of the
instruments or to recover based on underlying collateral values. For our
securities collateralized by commercial aircraft, that review includes our best
estimates of the securities' cash flows, underlying collateral values, and
assessment of whether the borrower is in compliance with terms and conditions.
We believe that our securities, which are current on all payment terms, are in
an unrealized loss position because of ongoing negative market reaction to
commercial airline industry difficulties. We do not anticipate changes in the
timing and amount of estimated cash flows and we expect full recovery of our
amortized cost. Should our cash flow expectation prove to be incorrect, the
current aggregate market values of aircraft collateral, based on information
from independent appraisers, exceeded totals of both the market values and the
amortized cost of our securities at December 31, 2004.
Contractual
Maturities of our Investment in Available-for-Sale Debt Securities (Excluding
Mortgage-Backed and Asset-Backed Securities)
(In
millions) |
Amortized
cost |
|
Estimated
fair
value |
|
|
|
|
|
|
|
|
Due
in |
|
|
|
|
|
|
2005 |
$ |
5,503 |
|
$ |
5,566 |
|
2006-2009 |
|
14,458 |
|
|
14,651 |
|
2010-2014 |
|
14,716 |
|
|
15,113 |
|
2015
and later |
|
16,911 |
|
|
17,926 |
|
We
expect actual maturities to differ from contractual maturities because borrowers
have the right to call or prepay certain obligations.
Supplemental
information about gross realized gains and losses on available-for-sale
investment securities follows.
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Gains
|
$ |
436 |
|
$ |
890 |
|
$ |
1,143 |
|
Losses,
including impairments |
|
(235 |
) |
|
(729 |
) |
|
(1,120 |
) |
Net |
$ |
201 |
|
$ |
161 |
|
$ |
23 |
|
Proceeds
from available-for-sale securities sales amounted to $12,903 million, $20,721
million and $31,344 million in 2004, 2003 and 2002, respectively.
Note
5. Financing Receivables (investments in time sales, loans and financing
leases)
December
31 (In millions) |
2004
|
|
2003 |
|
|
|
|
|
|
|
|
Time
sales and loans, net of deferred income |
$ |
218,605 |
|
$ |
187,733 |
|
Investment
in financing leases, net of deferred income |
|
66,340 |
|
|
63,760 |
|
|
|
284,945 |
|
|
251,493 |
|
Less
allowance for losses (note 6) |
|
(5,589 |
) |
|
(6,198 |
) |
Financing
receivables - net |
$ |
279,356 |
|
$ |
245,295 |
|
Included
in the above are the financing receivables of consolidated, liquidating
securitization entities as follows:
December
31 (In millions) |
2004
|
|
2003 |
|
|
|
|
|
|
|
|
Time
sales and loans, net of deferred income |
$ |
20,496 |
|
$ |
18,050 |
|
Investment
in financing leases, net of deferred income |
|
2,125 |
|
|
3,827 |
|
|
|
22,621 |
|
|
21,877 |
|
Less
allowance for losses |
|
(5 |
) |
|
- |
|
Financing
receivables - net |
$ |
22,616 |
|
$ |
21,877 |
|
Details
by segment follow.
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Commercial
Finance |
|
|
|
|
|
|
Equipment |
$ |
72,053 |
|
$ |
66,516 |
|
Commercial
and industrial |
|
36,190 |
|
|
34,597 |
|
Real
estate |
|
20,470 |
|
|
20,171 |
|
Commercial
aircraft |
|
13,562 |
|
|
12,424 |
|
|
|
142,275 |
|
|
133,708 |
|
|
|
|
|
|
|
|
Consumer
Finance |
|
|
|
|
|
|
Non-U.S.
residential mortgages |
|
42,201 |
|
|
19,593 |
|
Non-U.S.
installment and revolving credit |
|
33,889 |
|
|
31,954 |
|
Non-U.S.
auto |
|
23,517 |
|
|
20,729 |
|
U.S.
installment and revolving credit |
|
21,385 |
|
|
15,883 |
|
Other |
|
6,771 |
|
|
5,856 |
|
|
|
127,763 |
|
|
94,015 |
|
|
|
|
|
|
|
|
Equipment
& Other Services |
|
14,907 |
|
|
23,770 |
|
|
|
284,945 |
|
|
251,493 |
|
Less
allowance for losses |
|
(5,589 |
) |
|
(6,198 |
) |
Total |
$ |
279,356 |
|
$ |
245,295 |
|
Our
financing receivables include both time sales and loans and financing leases.
Time sales and loans represent transactions 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 carried at
gross book value, which includes finance charges.
Investment
in financing leases consists of direct financing and leveraged leases of
aircraft, railroad rolling stock, autos, other transportation equipment, data
processing equipment and medical equipment, as well as other manufacturing,
power generation, commercial real estate, and commercial equipment and
facilities.
As
the sole owner of assets under direct financing leases and as the equity
participant in leveraged leases, we are taxed on total lease payments received
and are entitled to tax deductions based on the cost of leased assets and tax
deductions for interest paid to third-party participants. We are generally
entitled to any residual value of leased assets.
Investment
in direct financing and leveraged leases represents net unpaid rentals and
estimated unguaranteed residual values of leased equipment, less related
deferred income. We have no general obligation for principal and interest 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. Our
share of rentals receivable on leveraged leases is subordinate to the share of
other participants who also have security interests in the leased
equipment.
Net
Investment in Financing Leases
|
Total
financing leases |
|
Direct
financing leases |
|
Leveraged
leases |
|
December
31 (In millions) |
2004 |
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
minimum lease payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable |
$ |
90,790 |
|
$ |
90,365 |
|
$ |
63,128 |
|
$ |
60,894 |
|
$ |
27,662 |
|
$ |
29,471 |
|
Less
principal and interest on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third-party
nonrecourse debt |
|
(20,644 |
) |
|
(22,144 |
) |
|
- |
|
|
- |
|
|
(20,644 |
) |
|
(22,144 |
) |
Net
rentals receivable |
|
70,146 |
|
|
68,221 |
|
|
63,128 |
|
|
60,894 |
|
|
7,018 |
|
|
7,327 |
|
Estimated
unguaranteed residual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value
of leased assets |
|
9,346 |
|
|
8,824 |
|
|
5,976 |
|
|
5,149 |
|
|
3,370 |
|
|
3,675 |
|
Less
deferred income |
|
(13,152 |
) |
|
(13,285 |
) |
|
(9,754 |
) |
|
(9,509 |
) |
|
(3,398 |
) |
|
(3,776 |
) |
Investment
in financing leases,
net
of deferred income |
|
66,340 |
|
|
63,760 |
|
|
59,350 |
|
|
56,534 |
|
|
6,990 |
|
|
7,226 |
|
Less
amounts to arrive at net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for losses |
|
(1,059 |
) |
|
(803 |
) |
|
(872 |
) |
|
(707 |
) |
|
(187 |
) |
|
(96 |
) |
Deferred
taxes |
|
(9,563 |
) |
|
(9,815 |
) |
|
(4,895 |
) |
|
(5,314 |
) |
|
(4,668 |
) |
|
(4,501 |
) |
Net
investment in financing leases |
$ |
55,718 |
|
$ |
53,142 |
|
$ |
53,583 |
|
$ |
50,513 |
|
$ |
2,135 |
|
$ |
2,629 |
|
Contractual
Maturities
(In
millions) |
Total
time
sales
and
loans |
|
Net
rentals
receivable |
|
|
|
|
|
|
|
|
Due
in |
|
|
|
|
|
|
2005 |
$ |
65,066 |
|
$ |
17,518 |
|
2006 |
|
31,319 |
|
|
14,451 |
|
2007 |
|
25,369 |
|
|
10,772 |
|
2008 |
|
13,647 |
|
|
7,800 |
|
2009 |
|
13,653 |
|
|
5,046 |
|
2010
and later |
|
69,551 |
|
|
14,559 |
|
Total |
$ |
218,605 |
|
$ |
70,146 |
|
We
expect actual maturities to differ from contractual maturities.
Individually
“impaired” loans are defined by GAAP as larger balance or restructured loans for
which it is probable that the lender will be unable to collect all amounts due
according to original contractual terms of the loan agreement. An analysis of
impaired loans follows.
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
Loans
requiring allowance for losses |
$ |
1,687 |
|
$ |
1,054 |
|
Loans
expected to be fully recoverable |
|
520 |
|
|
1,430 |
|
|
$ |
2,207 |
|
$ |
2,484 |
|
|
|
|
|
|
|
|
Allowance
for losses |
$ |
747 |
|
$ |
434 |
|
Average
investment during year |
|
2,398 |
|
|
2,312 |
|
Interest
income earned while impaired(a) |
|
26 |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
(a) |
Recognized
principally on cash basis. |
|
Note
6. Allowance for Losses on Financing Receivables
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1 |
|
|
|
|
|
|
|
|
|
Commercial
Finance |
$ |
2,211 |
|
$ |
2,631 |
|
$ |
2,510 |
|
Consumer
Finance |
|
3,959 |
|
|
2,762 |
|
|
2,137 |
|
Equipment
& Other Services |
|
28 |
|
|
54 |
|
|
87 |
|
|
|
6,198 |
|
|
5,447 |
|
|
4,734 |
|
|
|
|
|
|
|
|
|
|
|
Provision
charged to operations |
|
|
|
|
|
|
|
|
|
Commercial
Finance |
|
630 |
|
|
861 |
|
|
1,092 |
|
Consumer
Finance |
|
3,220 |
|
|
2,694 |
|
|
1,861 |
|
Equipment
& Other Services |
|
18 |
|
|
57 |
|
|
25 |
|
|
|
3,868 |
|
|
3,612 |
|
|
2,978 |
|
|
|
|
|
|
|
|
|
|
|
Other
additions (reductions)(a) |
|
(59 |
) |
|
717 |
|
|
693 |
|
|
|
|
|
|
|
|
|
|
|
Gross
write-offs |
|
|
|
|
|
|
|
|
|
Commercial
Finance |
|
(945 |
) |
|
(1,290 |
) |
|
(1,241 |
) |
Consumer
Finance(b) |
|
(4,425 |
) |
|
(3,044 |
) |
|
(2,278 |
) |
Equipment
& Other Services |
|
(75 |
) |
|
(88 |
) |
|
(77 |
) |
|
|
(5,445 |
) |
|
(4,422 |
) |
|
(3,596 |
) |
|
|
|
|
|
|
|
|
|
|
Recoveries |
|
|
|
|
|
|
|
|
|
Commercial
Finance |
|
160 |
|
|
122 |
|
|
91 |
|
Consumer
Finance |
|
846 |
|
|
710 |
|
|
534 |
|
Equipment
& Other Services |
|
21 |
|
|
12 |
|
|
13 |
|
|
|
1,027 |
|
|
844 |
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31 |
|
|
|
|
|
|
|
|
|
Commercial
Finance |
|
2,081 |
|
|
2,211 |
|
|
2,631 |
|
Consumer
Finance |
|
3,473 |
|
|
3,959 |
|
|
2,762 |
|
Equipment
& Other Services |
|
35 |
|
|
28 |
|
|
54 |
|
Balance
at December 31 |
$ |
5,589 |
|
$ |
6,198 |
|
$ |
5,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Other
additions (reductions) primarily included the effects of acquisitions,
securitization activity and the effects of exchange rates. These additions
(reductions) included $294 million, $480 million and $487 million related
to acquisitions and $(461) million, $(335) million and $(80) million
related to securitization activity in 2004, 2003 and 2002,
respectively.
|
|
(b) |
Included
$889 million in 2004 related to the standardization of our write-off
policy. |
|
See
note 5 for amounts related to consolidated, liquidating securitization
entities.
Selected
Financing Receivables Ratios
December
31 |
2004 |
|
|
2003 |
|
|
|
|
|
|
|
Allowance
for losses on financing receivables as a percentage of total financing
receivables |
|
|
|
|
|
Commercial
Finance |
1.46 |
% |
|
1.65 |
% |
Consumer
Finance(a) |
2.72 |
|
|
4.21 |
|
Equipment
& Other Services |
0.23 |
|
|
0.12 |
|
Total |
1.96 |
|
|
2.46 |
|
Nonearning
and reduced earning financing receivables as a percentage of total
financing
receivables |
|
|
|
|
|
Commercial
Finance |
1.1 |
% |
|
1.3 |
% |
Consumer
Finance(a) |
2.0 |
|
|
2.6 |
|
Equipment
& Other Services |
1.2 |
|
|
0.6 |
|
Total |
1.5 |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
The
standardization of our write-off policy in 2004 reduced the allowance for
losses on financing receivables as a percentage of total financing
receivables by 74 basis points, and nonearning and reduced earning
financing receivables as a percentage of total financing receivables by 57
basis points. |
Note
7. Insurance Receivables
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Reinsurance
recoverables |
$ |
18,620 |
|
$ |
2,381 |
|
Commercial
mortgage loans |
|
6,433 |
|
|
6,649 |
|
Premiums
receivable |
|
494 |
|
|
507 |
|
Policy
loans |
|
1,266 |
|
|
1,138 |
|
Funds
on deposit with reinsurers |
|
7 |
|
|
4 |
|
Other |
|
430 |
|
|
1,858 |
|
Allowance
for losses |
|
(67 |
) |
|
(97 |
|
Total(a) |
$ |
27,183 |
|
$ |
12,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Included
$342 million in 2004 and $484 million in 2003 related to consolidated,
liquidating securitization entities. |
|
Note
8. Buildings and Equipment
December
31 (Dollars in millions) |
Estimated
useful lives-new (years) |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
Original
cost(a) |
|
|
|
|
|
|
|
|
Buildings
and equipment |
1-40 |
|
$ |
5,898 |
|
$ |
4,574 |
|
Equipment
leased to others |
|
|
|
|
|
|
|
|
Aircraft |
20 |
|
|
26,837 |
|
|
23,069 |
|
Vehicles |
4-14 |
|
|
23,056 |
|
|
16,600 |
|
Railroad
rolling stock |
9-30 |
|
|
3,390 |
|
|
3,356 |
|
Mobile
and modular space |
12-20 |
|
|
2,965 |
|
|
3,164 |
|
Construction
and manufacturing |
3-25 |
|
|
1,762 |
|
|
1,563 |
|
All
other |
3-33 |
|
|
2,902 |
|
|
2,882 |
|
Total |
|
|
$ |
66,810 |
|
$ |
55,208 |
|
|
|
|
|
|
|
|
|
|
Net
carrying value(a) |
|
|
|
|
|
|
|
|
Buildings
and equipment |
|
|
$ |
3,361 |
|
$ |
2,695 |
|
Equipment
leased to others |
|
|
|
|
|
|
|
|
Aircraft(b) |
|
|
|
21,991 |
|
|
19,097 |
|
Vehicles |
|
|
|
14,062 |
|
|
9,745 |
|
Railroad
rolling stock |
|
|
|
2,193 |
|
|
2,220 |
|
Mobile
and modular space |
|
|
|
1,635 |
|
|
1,814 |
|
Construction
and manufacturing |
|
|
|
1,150 |
|
|
1,121 |
|
All
other |
|
|
|
1,959 |
|
|
1,929 |
|
Total |
|
|
$ |
46,351 |
|
$ |
38,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Included
$2.2 billion and $2.1 billion of original cost of assets leased to GE with
accumulated amortization of $0.4 billion and $0.3 billion at December 31,
2004 and 2003, respectively.
|
|
(b) |
Commercial
Finance recognized impairment losses of $0.1 billion in 2004 and $0.2
billion in 2003 recorded in the caption “Depreciation and amortization” in
the Statement of Earnings to reflect adjustments to fair value based on
current market values from independent appraisers.
|
|
Amortization
of equipment leased to others was $5,314 million, $4,162 million and $3,868
million in 2004, 2003 and 2002, respectively. Noncancelable future rentals due
from customers for equipment on operating leases at December 31, 2004, are due
as follows:
(In
millions) |
|
|
|
|
|
|
|
Due
in |
|
|
|
2005 |
$ |
6,999 |
|
2006 |
|
5,537 |
|
2007 |
|
4,155 |
|
2008 |
|
2,971 |
|
2009 |
|
2,056 |
|
2010
and later |
|
6,272 |
|
Total |
$ |
27,990 |
|
Note
9. Intangible Assets
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Goodwill |
$ |
23,067 |
|
$ |
19,741 |
|
Present
value of future profits (PVFP) |
|
800 |
|
|
1,259 |
|
Capitalized
software |
|
658 |
|
|
695 |
|
Other
intangibles |
|
901 |
|
|
915 |
|
Total |
$ |
25,426 |
|
$ |
22,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets were net
of accumulated amortization of $9,581 million in 2004 and $9,424 million
in 2003. |
|
Changes
in goodwill balances, net of accumulated amortization, follow.
|
2004 |
|
(In
millions) |
Commercial
Finance |
|
Consumer
Finance |
|
Equipment
&
Other
Services |
|
Insurance |
|
Portion
of
goodwill
not
included
in
GECC |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1 |
|
$ |
8,736 |
|
|
|
$ |
7,779 |
|
|
|
$ |
920 |
|
|
|
$ |
4,092 |
|
|
|
$ |
(1,786 |
) |
|
$ |
19,741 |
|
Acquisitions/purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounting
adjustments |
|
|
938 |
|
|
|
|
1,275 |
|
|
|
|
(11 |
) |
|
|
|
10 |
|
|
|
|
(65 |
) |
|
|
2,147 |
|
Inter-segment
transfers |
|
|
523 |
|
|
|
|
384 |
|
|
|
|
(523 |
) |
|
|
|
(384 |
) |
|
|
|
- |
|
|
|
- |
|
Currency
exchange and other |
|
|
74 |
|
|
|
|
422 |
|
|
|
|
1,073 |
(a) |
|
|
|
108 |
|
|
|
|
(498 |
) |
|
|
1,179 |
|
Balance
at December 31 |
|
$ |
10,271 |
|
|
|
$ |
9,860 |
|
|
|
$ |
1,459 |
|
|
|
$ |
3,826 |
|
|
|
$ |
(2,349 |
) |
|
$ |
23,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
(In
millions) |
Commercial
Finance |
|
Consumer
Finance |
|
Equipment
&
Other
Services |
|
Insurance |
|
Portion
of
goodwill
not
included
in
GECC |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1 |
|
$ |
8,469 |
|
|
|
$ |
5,562 |
|
|
|
$ |
887 |
|
|
|
$ |
4,176 |
|
|
|
$ |
(1,695 |
) |
|
$ |
17,399 |
|
Acquisitions/purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounting
adjustments |
|
|
183 |
|
|
|
|
1,294 |
|
|
|
|
29 |
|
|
|
|
12 |
|
|
|
|
- |
|
|
|
1,518 |
|
Currency
exchange and other |
|
|
84 |
|
|
|
|
923 |
|
|
|
|
4 |
|
|
|
|
(96 |
) |
|
|
|
(91 |
) |
|
|
824 |
|
Balance
at December 31 |
|
$ |
8,736 |
|
|
|
$ |
7,779 |
|
|
|
$ |
920 |
|
|
|
$ |
4,092 |
|
|
|
$ |
(1,786 |
) |
|
$ |
19,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Included
$1,055 million of goodwill associated with the consolidation of Penske
effective January 1, 2004. |
|
The
amount of goodwill related to new acquisitions during 2004 was $1,914 million,
the largest of which were WMC Finance Co. ($520 million) and Australian
Financial Investments Group (AFIG) ($301 million) by Consumer Finance and Sophia
S.A. ($511 million) and most of the commercial lending business of Transamerica
Finance Corporation ($294 million) by Commercial Finance.
The
amount of goodwill related to purchase accounting adjustments to prior-year
acquisitions during 2004 was $233 million, primarily associated with the 2003
acquisitions of Allbank and First National Bank at Consumer Finance.
The
amount of goodwill related to new acquisitions recorded during 2003 was $1,382
million, the largest of which was First National Bank ($680 million) by Consumer
Finance.
The
amount of goodwill related to purchase accounting adjustments to prior-year
acquisitions during 2003 was $136 million, primarily associated with the 2002
acquisitions of Australian Guarantee Corporation at Consumer Finance and
Security Capital Group at Commercial Finance.
Upon
closing an acquisition, we estimate the fair values of assets and liabilities
acquired and consolidate the acquisition as quickly as possible. Given the time
it takes to obtain pertinent information to finalize the acquired company’s
balance sheet (frequently with implications for the price of the acquisition),
then to adjust the acquired company’s accounting policies, procedures, books and
records to our standards, it is often several quarters before we are able to
finalize those initial fair value estimates. Accordingly, it is not uncommon for
our initial estimates to be subsequently revised.
Intangible
Assets Subject to Amortization
|
2004 |
|
2003 |
|
December
31 (In millions) |
Gross
carrying
amount |
|
Accumulated
amortization |
|
Net |
|
Gross
carrying
amount |
|
Accumulated
amortization |
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PVFP |
$ |
2,334 |
|
|
$ |
(1,534 |
) |
|
$ |
800 |
|
$ |
2,900 |
|
|
$ |
(1,641 |
) |
|
$ |
1,259 |
|
Capitalized
software |
|
1,451 |
|
|
|
(793 |
) |
|
|
658 |
|
|
1,348 |
|
|
|
(653 |
) |
|
|
695 |
|
Patents,
licenses and other |
|
458 |
|
|
|
(241 |
) |
|
|
217 |
|
|
308 |
|
|
|
(201 |
) |
|
|
107 |
|
Servicing
assets and all |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
4,713 |
|
|
|
(4,029 |
) |
|
|
684 |
|
|
4,612 |
|
|
|
(3,804 |
) |
|
|
808 |
|
Total |
$ |
8,956 |
|
|
$ |
(6,597 |
) |
|
$ |
2,359 |
|
$ |
9,168 |
|
|
$ |
(6,299 |
) |
|
$ |
2,869 |
|
Amortization
expense related to intangible assets, subject to amortization, for 2004 and 2003
was $669 million and $852 million, respectively.
Changes
in PVFP balances follow.
(In
millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Balance
at January 1 |
$ |
1,259 |
|
$ |
2,078 |
|
Acquisitions |
|
- |
|
|
20 |
|
Dispositions |
|
- |
|
|
(574 |
) |
Accrued
interest(a) |
|
52 |
|
|
91 |
|
Amortization |
|
(144 |
) |
|
(295 |
) |
Other |
|
(367 |
) |
|
(61 |
) |
Balance
at December 31 |
$ |
800 |
|
$ |
1,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Interest
was accrued at a rate of 6.8% and 3.8% for 2004 and 2003,
respectively. |
|
Recoverability
of PVFP is evaluated periodically by comparing the current estimate of expected
future gross profits with the unamortized asset balance. If such comparison
indicates that the expected gross profits will not be sufficient to recover
PVFP, the difference is charged to expense. No such expense was recorded in 2004
or 2003.
Amortization
expense for PVFP in future periods will be affected by acquisitions, realized
capital gains/losses or other factors affecting the ultimate amount of gross
profits realized from certain lines of business. Similarly, future amortization
expense for other intangibles will depend on acquisition activity and other
business transactions.
The
estimated percentage of the December 31, 2004, net PVFP balance to be amortized
over each of the next five years follows.
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1 |
% |
|
10.5 |
% |
|
9.5 |
% |
|
8.2 |
% |
|
6.7 |
% |
Note
10. Other Assets
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
Associated
companies(a) |
$ |
11,462 |
|
$ |
13,372 |
|
Real
estate(b) |
|
19,112 |
|
|
15,463 |
|
Assets
held for sale(c) |
|
6,501 |
|
|
1,856 |
|
Securities
lending transactions |
|
3,202 |
|
|
3,026 |
|
Other(d) |
|
6,355 |
|
|
5,904 |
|
|
|
46,632 |
|
|
39,621 |
|
|
|
|
|
|
|
|
Separate
accounts |
|
8,884 |
|
|
8,243 |
|
Deferred
acquisition costs |
|
5,263 |
|
|
5,966 |
|
Derivative
instruments(e) |
|
3,039 |
|
|
1,904 |
|
Other |
|
5,645 |
|
|
4,639 |
|
Total(f) |
$ |
69,463 |
|
$ |
60,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Included
advances to associated companies, which are non-controlled,
non-consolidated equity investments. |
|
(b) |
Our
investment in real estate consists principally of two categories: real
estate held for investment and equity method investments. Both categories
contained a wide range of properties including the following at December
31, 2004: office buildings (46%), apartment buildings (16%), self storage
facilities (11%), retail facilities (10%), industrial properties (6%),
parking facilities (5%), franchise properties (3%) and other (3%). At
December 31, 2004, investments were located in Europe (45%), North America
(41%) and Asia (14%). |
|
(c) |
These
assets held for sale were accounted for at the lower of carrying amount or
each asset’s estimated fair value less costs to sell. |
|
(d) |
Included
cost method investments of $2,362 million in 2004, of which the fair value
and unrealized loss of those in a continuous loss position for less than
12 months was $90 million and $28 million, respectively. The fair value
and unrealized loss of those in a continuous loss position for 12 months
or more was $54 million and $41 million, respectively. Cost method
investments were each evaluated for impairment. |
|
(e) |
Amounts
are stated at fair value in accordance with SFAS 133, Accounting
for Derivative Instruments and Hedging Activities,
as amended. We discuss types of derivative instruments and how we use them
in note 19. |
|
(f) |
Included
$2,408 million in 2004 and $2,357 million in 2003 related to consolidated,
liquidating securitization entities. |
|
Separate
accounts represent investments controlled by policyholders and are associated
with identical amounts reported as insurance liabilities in note
12.
Note
11. Borrowings
Short-Term
Borrowings
|
2004 |
|
2003 |
|
December
31 (Dollars in millions) |
Amount |
|
Average
rate |
(a) |
Amount |
|
Average
rate |
(a) |
|
|
|
|
|
|
|
|
|
Commercial
paper |
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
Unsecured |
$ |
55,644 |
|
2.23 |
% |
$ |
58,801 |
|
1.11 |
% |
Asset-backed(b) |
|
13,842 |
|
2.17 |
|
|
21,998 |
|
1.12 |
|
Non-U.S. |
|
20,835 |
|
2.96 |
|
|
15,062 |
|
2.93 |
|
Current
portion of long-term debt(c) |
|
37,478 |
|
4.10 |
|
|
38,362 |
|
3.30 |
|
Other |
|
20,045 |
|
|
|
|
14,362 |
|
|
|
Total |
$ |
147,844 |
|
|
|
$ |
148,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Based
on year-end balances and year-end local currency interest rates. Current
portion of long-term debt included the effects of interest rate and
currency swaps, if any, directly associated with the original debt
issuance. |
|
(b) |
Entirely
obligations of consolidated, liquidating securitization entities. See note
20. |
|
(c) |
Included
short-term borrowings by consolidated, liquidating securitization entities
of $756 million and $482 million at December 31, 2004 and 2003,
respectively. |
|
Long-Term
Borrowings
|
2004 |
|
|
|
December
31 (Dollars in millions) |
Average
rate |
(a) |
Maturities |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
Senior
notes |
|
|
|
|
|
|
|
|
|
|
Unsecured
|
3.72 |
% |
2006-2055 |
|
$ |
179,008 |
|
$ |
147,387 |
|
Asset-backed(b) |
4.15 |
|
2006-2035 |
|
|
10,939 |
|
|
1,948 |
|
Extendible
notes(c) |
2.40 |
|
2007-2009 |
|
|
14,258 |
|
|
12,591 |
|
Subordinated
notes(d) |
7.42 |
|
2006-2014 |
|
|
820 |
|
|
963 |
|
Total |
|
|
$ |
205,025 |
|
$ |
162,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Based
on year-end balances and year-end local currency interest rates, including
the effects of interest rate and currency swaps, if any, directly
associated with the original debt issuance. |
(b) |
Asset-backed
senior notes are all issued by consolidated, liquidating securitization
entities as discussed in note 20. The amount related to AFIG, a 2004
acquisition, was $9,769 million. |
(c) |
Included
obligations of consolidated, liquidating securitization entities in the
amount of $267 million and $362 million at December 31, 2004 and 2003,
respectively. |
(d) |
At
year-end 2004 and 2003, $0.7 billion of subordinated notes were guaranteed
by GE. |
Our
borrowings are addressed below from the perspectives of liquidity, interest rate
and currency risk management. Additional information about borrowings and
associated swaps can be found in note 19.
Liquidity
is
affected by debt maturities and our ability to repay or refinance such debt.
Long-term debt maturities over the next five years follow.
(In
millions) |
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
37,478 |
(a) |
$ |
53,994 |
(b) |
$ |
29,115 |
|
$ |
20,884 |
|
$ |
26,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Floating
rate extendible notes of $244 million are due in 2005, but are extendible
at the investors’ option to a final maturity in 2008. Floating rate notes
of $482 million contain put options with exercise dates in 2005, but have
final maturity dates greater than 2010. |
|
(b) |
Floating
rate extendible notes of $14.0 billion are due in 2006, but are extendible
at the investors’ option to a final maturity in 2007 ($12.0 billion) and
2009 ($2.0 billion). |
|
Committed
credit lines totaling $57.3 billion had been extended to us by 83 banks at
year-end 2004. Included in this amount was $47.4 billion provided directly to us
and $9.9 billion provided by 21 banks to GE, to which we also have access. Our
lines include $19.2 billion of revolving credit agreements under which we can
borrow funds for periods exceeding one year. The remaining $38.1 billion are
364-day lines of which $37.6 billion contain a term-out feature that allows us
to extend the borrowings for one year from the date of expiration of the lending
agreement. We pay banks for credit facilities, but compensation amounts were
insignificant in each of the past three years.
Interest
rate and currency risk
is managed through the direct issuance of debt or use of derivatives. We take
positions in view of anticipated behavior of assets, including prepayment
behavior. We use a variety of instruments, including interest rate and currency
swaps and currency forwards, to achieve our interest rate objectives. The
following table shows our borrowing positions considering the effects of
currency and interest rate swaps.
Effective
Borrowings (Including Swaps)
|
2004 |
|
2003 |
|
December
31 (Dollars in millions) |
Amount |
|
Average
rate |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
Short-term(a) |
$ |
85,359 |
|
2.54 |
% |
|
$ |
82,621 |
|
Long-term
(including current portion) |
|
|
|
|
|
|
|
|
|
Fixed
rate(b) |
$ |
146,770 |
|
4.55 |
% |
|
$ |
118,712 |
|
Floating
rate |
|
120,740 |
|
2.97 |
|
|
|
110,141 |
|
Total
long-term |
$ |
267,510 |
|
|
|
|
$ |
228,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Included
commercial paper and other short-term debt.
|
|
(b) |
Included
fixed-rate borrowings and $22.6 billion ($25.5 billion in 2003) notional
long-term interest rate swaps that effectively convert the floating-rate
nature of short-term borrowings to fixed rates of
interest. |
|
At
December 31, 2004, interest rate swap maturities ranged from 2005 to 2048,
including swap maturities for hedges of commercial paper that ranged from 2005
to 2024. The use of commercial paper swaps allows us to match our actual asset
profile more efficiently and provides more flexibility as it does not depend on
investor demand for particular maturities.
Note
12. Insurance Liabilities, Reserves and Annuity Benefits
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
Investment
contracts and universal life benefits |
$ |
60,876 |
|
$ |
61,027 |
|
Life
insurance benefits(a) |
|
26,872 |
|
|
24,240 |
|
Unpaid
claims and claims adjustment expenses(b) |
|
3,569 |
|
|
3,232 |
|
Unearned
premiums |
|
3,689 |
|
|
3,871 |
|
Separate
accounts (see note 10) |
|
8,884 |
|
|
8,243 |
|
Total |
$ |
103,890 |
|
$ |
100,613 |
|
|
|
|
|
|
|
|
|
(a) |
Life
insurance benefits are accounted for mainly by a net-level-premium method
using estimated yields generally ranging from 2.0% to 7.5% in 2004 and
1.2% to 7.5% in 2003. |
|
(b) |
Principally
property and casualty reserves amounting to $0.7 billion and $0.6 billion
at December 31, 2004 and 2003, respectively. Included amounts for both
reported and IBNR claims, reduced by anticipated salvage and subrogation
recoveries. Estimates of liabilities are reviewed and updated continually,
with changes in estimated losses reflected in operations. |
|
When
insurance affiliates cede insurance to third parties, they are not relieved of
their primary obligation to policyholders. Losses on ceded risks give rise to
claims for recovery; we establish allowances for probable losses on such
receivables from reinsurers as required.
We
recognize reinsurance recoveries as a reduction of the Statement of Earnings
caption “Insurance losses and policyholder and annuity benefits.” Reinsurance
recoveries were $2,729 million, $816 million and $664 million for the years
ended December 31, 2004, 2003 and 2002, respectively.
The
insurance liability for unpaid claims and claims adjustment expenses related to
policies that may cover environmental and asbestos exposures is based on known
facts and an assessment of applicable law and coverage litigation. Liabilities
are recognized for both known and unasserted claims (including the cost of
related litigation) when sufficient information has been developed to indicate
that a claim has been incurred and a range of potential losses can be reasonably
estimated. Developed case law and adequate claim history do not exist for
certain claims, principally because of significant uncertainties as to both the
level of ultimate losses that will occur and what portion, if any, will be
deemed to be insured amounts.
A
summary of activity affecting unpaid claims and claims adjustment expenses,
principally in property and casualty lines, follows.
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
Balance
at January 1 - gross |
$ |
3,232 |
|
$ |
4,604 |
|
$ |
4,299 |
|
Less
reinsurance recoverables |
|
(408 |
) |
|
(604 |
) |
|
(557 |
) |
Balance
at January 1 - net |
|
2,824 |
|
|
4,000 |
|
|
3,742 |
|
|
|
|
|
|
|
|
|
|
|
Claims
and expenses incurred |
|
|
|
|
|
|
|
|
|
Current
year |
|
2,085 |
|
|
2,257 |
|
|
3,818 |
|
Prior
years |
|
(124 |
) |
|
(112 |
) |
|
(145 |
) |
Claims
and expenses paid |
|
|
|
|
|
|
|
|
|
Current
year |
|
(1,035 |
) |
|
(1,394 |
) |
|
(2,069 |
) |
Prior
years |
|
(821 |
) |
|
(847 |
) |
|
(1,336 |
) |
Other |
|
(293 |
) |
|
(1,080 |
) |
|
(10 |
) |
Balance
at December 31 - net |
|
2,636 |
|
|
2,824 |
|
|
4,000 |
|
Add
reinsurance recoverables |
|
933 |
|
|
408 |
|
|
604 |
|
Balance
at December 31 - gross |
$ |
3,569 |
|
$ |
3,232 |
|
$ |
4,604 |
|
Claims
and expenses incurred-prior years represents additional losses (adverse
development) recognized in any year for loss events that occurred before the
beginning of that year. Our mortgage insurance business experienced favorable
development during the three-year period, primarily reflecting continued
strength in certain real estate markets and the success of our loss containment
initiatives.
Financial
guarantees and credit life risk of insurance affiliates are summarized
below.
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
Mortgage
insurance risk in force |
$ |
194,600 |
|
$ |
146,627 |
|
Credit
life insurance risk in force |
|
29,500 |
|
|
25,728 |
|
Less
reinsurance |
|
(2,292 |
) |
|
(2,207 |
) |
Total |
$ |
221,808 |
|
$ |
170,148 |
|
Certain
insurance affiliates provide insurance to protect residential mortgage lenders
from severe financial loss caused by the non-payment of loans and issue credit
life insurance designed to pay the balance due on a loan if the borrower dies
before the loan is repaid. As part of their overall risk management process,
insurance affiliates cede to third parties a portion of their risk associated
with these guarantees. In doing so, they are not relieved of their primary
obligation to policyholders.
Note
13. Income Taxes
The
provision for income taxes is summarized in the following table.
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
Current
tax expense (benefit) |
$ |
3,087 |
|
$ |
907 |
|
$ |
(317 |
) |
Deferred
tax expense (benefit) from temporary differences |
|
(1,494 |
) |
|
683 |
|
|
1,277 |
|
|
$ |
1,593 |
|
$ |
1,590 |
|
$ |
960 |
|
We
are included in the consolidated U.S. federal income tax return which GE Company
files. The provision for current tax expense includes our effect on the
consolidated return.
Current
tax expense (benefit) includes amounts applicable to U.S. federal income taxes
of $1,244 million, $150 million and ($932) million in 2004, 2003 and 2002,
respectively, and amounts applicable to non-U.S. jurisdictions of $1,906
million, $754 million and $606 million in 2004, 2003 and 2002, respectively.
Deferred taxes related to U.S. federal income taxes was income of $1,982 million
in 2004 compared with expense of $319 million and $846 million in 2003 and 2002,
respectively.
Deferred
income tax balances reflect the effects of temporary differences between the
carrying amounts of assets and liabilities and their tax bases as well as from
net operating loss and tax credit carryforwards, and are stated at enacted tax
rates expected to be in effect when taxes are actually paid or
recovered.
Deferred
income tax assets represent amounts available to reduce income taxes payable on
taxable income in future years. We evaluate the recoverability of these future
tax deductions by assessing the adequacy of future
expected
taxable income from all sources, including reversal of temporary differences and
forecasted operating earnings.
We
have not provided U.S. deferred taxes on cumulative earnings of non-U.S.
affiliates and associated companies that have been reinvested indefinitely.
These earnings relate to ongoing operations and, at December 31, 2004, were
approximately $19 billion. Because of the availability of U.S. foreign tax
credits, it is not practicable to determine the U.S. federal income tax
liability that would be payable if such earnings were not reinvested
indefinitely. Deferred taxes are provided for earnings of non-U.S. affiliates
and associated companies when we plan to remit those earnings.
The
American Jobs Creation Act of 2004 (the Act) allows U.S. companies a one-time
opportunity to repatriate non-U.S. earnings through 2005 at a 5.25% rate of tax
rather than the normal U.S. tax rate of 35%, provided that certain criteria,
including qualified U.S. reinvestment, are met. Available tax credits related to
the repatriation would be reduced under provisions of the Act. While GE
continues to evaluate the Act, because the vast majority of its permanently
reinvested non-U.S. earnings have been deployed in active business operations,
and it is therefore unlikely that GE will repatriate any material portion of its
permanently reinvested non-U.S. earnings, no incremental tax provision effect
has been recorded through December 31, 2004. If GE were to repatriate up to
$3,000 million of indefinitely reinvested earnings in 2005, incremental taxes
would be provided at less than a 5% rate. If GE were to repatriate any earnings,
it has not yet determined the portion of earnings, if any, that would be
allocable to our activity.
U.S.
income before taxes and the cumulative effect of accounting changes was $2.5
billion in 2004, $3.1 billion in 2003 and $2.0 billion in 2002. The
corresponding amounts for non-U.S.-based operations were $7.1 billion in 2004,
$5.7 billion in 2003 and $5.5 billion in 2002.
A
reconciliation of the U.S. federal statutory income tax rate to the actual
income tax rate is provided below.
Reconciliation
of U.S. Federal Statutory Income Tax Rate to Actual Income Tax
Rate
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
U.S.
federal statutory income tax rate |
35.0 |
% |
35.0 |
% |
35.0 |
% |
Reduction
in rate resulting from: |
|
|
|
|
|
|
Tax-exempt
income |
(0.9 |
) |
(1.5 |
) |
(2.0 |
) |
Tax
on global activities including exports |
(14.8 |
) |
(11.3 |
) |
(13.5 |
) |
Kidder
Peabody tax settlement |
- |
|
- |
|
(2.2 |
) |
Insurance
tax settlement |
- |
|
- |
|
(2.0 |
) |
Fuels
credits |
(1.3 |
) |
(1.3 |
) |
(1.9 |
) |
All
other - net |
(1.5 |
) |
(2.9 |
) |
(0.5 |
) |
|
(18.5 |
) |
(17.0 |
) |
(22.1 |
) |
Actual
income tax rate |
16.5 |
% |
18.0 |
% |
12.9 |
% |
Principal
components of our net liability representing deferred income tax balances are as
follows:
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Allowance
for losses |
$ |
2,244 |
|
$ |
2,024 |
|
Insurance
reserves |
|
730 |
|
|
619 |
|
Cash
flow hedges |
|
866 |
|
|
969 |
|
AMT
credit carryforward |
|
203 |
|
|
351 |
|
Other
- net |
|
4,432 |
|
|
5,160 |
|
Total
deferred income tax assets |
|
8,475 |
|
|
9,123 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Financing
leases |
|
9,563 |
|
|
9,815 |
|
Operating
leases |
|
3,625 |
|
|
3,494 |
|
Deferred
acquisition costs |
|
1,052 |
|
|
1,233 |
|
Other
- net |
|
4,150 |
|
|
4,992 |
|
Total
deferred income tax liabilities |
|
18,390 |
|
|
19,534 |
|
|
|
|
|
|
|
|
Net
deferred income tax liability |
$ |
9,915 |
|
$ |
10,411 |
|
Note
14. Minority Interest in Equity of Consolidated Affiliates
Minority
interest in equity of consolidated affiliates includes common shares in
consolidated affiliates and preferred stock issued by our affiliates. The
balance is summarized as follows:
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Minority
interest in consolidated affiliates |
|
|
|
|
|
|
Genworth
Financial, Inc.(a) |
$ |
3,778 |
|
$ |
- |
|
Others(b) |
|
1,009 |
|
|
671 |
|
|
|
|
|
|
|
|
Minority
interest in preferred stock(c) |
|
|
|
|
|
|
GE
Capital affiliates |
|
1,318 |
|
|
1,841 |
|
|
$ |
6,105 |
|
$ |
2,512 |
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Resulted
from the sale of approximately 30% of the common shares of our previously
wholly-owned subsidiary.
|
|
(b) |
Included
minority interest in consolidated, liquidating securitization entities,
partnerships and common shares of consolidated affiliates.
|
|
(c)
|
The
preferred stock primarily pays cumulative dividends at variable rates.
Dividend rates in local currency on the preferred stock ranged from 0.99%
to 5.46% during 2004 and 0.98% to 5.65% during 2003.
|
|
Note
15. Restricted Net Assets of Affiliates
Certain
of our consolidated affiliates are restricted from remitting certain funds to us
in the form of dividends or loans by a variety of regulations, the purpose of
which is to protect affected insurance policyholders, depositors or investors.
At December 31, 2004 and 2003, net assets of our regulated affiliates amounted
to $45.7 billion and $35.5 billion, respectively, of which $26.9 billion and
$26.0 billion, respectively, was restricted.
At
December 31, 2004 and 2003, the aggregate statutory capital and surplus of the
insurance businesses totaled $12.6 billion and $9.8 billion, respectively.
Accounting practices prescribed by statutory authorities are used in preparing
statutory statements.
Note
16. Shareowner’s Equity
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Total
shareowner’s equity at December 31 |
$ |
53,421 |
|
$ |
46,241 |
|
$ |
39,753 |
|
|
|
|
|
|
|
|
|
|
|
Cumulative
preferred stock issued |
$ |
3 |
|
$ |
3 |
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued |
$ |
56 |
|
$ |
56 |
|
$ |
54 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated
nonowner changes other than earnings |
|
|
|
|
|
|
|
|
|
Balance
at January 1 |
$ |
2,541 |
|
$ |
(1,520 |
) |
$ |
(1,758 |
) |
Investment
securities - net of deferred taxes of $(105), $375 |
|
|
|
|
|
|
|
|
|
and
$739 |
|
(464 |
) |
|
622 |
|
|
1,429 |
|
Currency
translation adjustments - net of deferred taxes |
|
|
|
|
|
|
|
|
|
of
$(1,281), $(1,410) and $(15) |
|
2,302 |
|
|
3,208 |
|
|
(27 |
) |
Cash
flow hedges - net of deferred taxes |
|
|
|
|
|
|
|
|
|
of
$(202), $(387) and $(805) |
|
(250 |
) |
|
(717 |
) |
|
(1,999 |
) |
Minimum
pension liabilities - net of deferred taxes |
|
|
|
|
|
|
|
|
|
of
$(33), $(4) and $(14) |
|
(93 |
) |
|
(9 |
) |
|
(22 |
) |
Reclassification
adjustments |
|
|
|
|
|
|
|
|
|
Investment
securities - net of deferred taxes of $(70), |
|
|
|
|
|
|
|
|
|
$(56)
and $(8) |
|
(131 |
) |
|
(105 |
) |
|
(15 |
) |
Currency
translation adjustments |
|
- |
|
|
4 |
|
|
- |
|
Cash
flow hedges - net of deferred taxes |
|
|
|
|
|
|
|
|
|
of
$335, $593 and $190 |
|
587 |
|
|
1,058 |
|
|
872 |
|
Balance
at December 31 |
$ |
4,492 |
|
$ |
2,541 |
|
$ |
(1,520 |
) |
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital |
|
|
|
|
|
|
|
|
|
Balance
at January 1 |
$ |
14,196 |
|
$ |
14,192 |
|
$ |
9,710 |
|
Contributions(a) |
|
343 |
|
|
6 |
|
|
4,482 |
|
Common
stock issued |
|
- |
|
|
(2 |
) |
|
- |
|
Balance
at December 31 |
$ |
14,539 |
|
$ |
14,196 |
|
$ |
14,192 |
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings |
|
|
|
|
|
|
|
|
|
Balance
at January 1 |
$ |
29,445 |
|
$ |
27,024 |
|
$ |
23,554 |
|
Net
earnings |
|
8,034 |
|
|
6,893 |
|
|
5,490 |
|
Dividends(a) |
|
(3,148 |
) |
|
(4,472 |
) |
|
(2,020 |
) |
Balance
at December 31 |
$ |
34,331 |
|
$ |
29,445 |
|
$ |
27,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Total
dividends and other transactions with the shareowner reduced equity by
$2,805 million and $4,466 million in 2004 and 2003, respectively, and
increased equity by $2,462 million in 2002. |
|
All
common stock is owned by GE Capital Services, all of the common stock of which
is in turn owned, directly or indirectly by GE Company.
The
effects of translating to U.S. dollars the financial statements of non-U.S.
affiliates whose functional currency is the local currency are included in
shareowner’s equity. Asset and liability accounts are translated at year-end
exchange rates, while revenues and expenses are translated at average rates for
the period.
Note
17. Supplemental Cash Flows Information
Changes
in operating assets and liabilities are net of acquisitions and dispositions of
principal businesses.
“Payments
for principal businesses purchased” in the Statement of Cash Flows is net of
cash acquired and includes debt assumed and immediately repaid in
acquisitions.
“All
other operating activities” in the Statement of Cash Flows consists primarily of
adjustments to current and noncurrent accruals and deferrals of costs and
expenses, adjustments for gains and losses on assets, increases and decreases in
assets held for sale and adjustments to assets.
Certain
supplemental information related to our cash flows is shown below.
For
the years ended December 31 (In millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
All
other operating activities |
|
|
|
|
|
|
|
|
|
Proceeds
from assets held for sale |
$ |
84 |
|
$ |
1,168 |
|
$ |
25 |
|
Amortization
of intangible assets |
|
669 |
|
|
852 |
|
|
1,502 |
|
Realized
gains on sale of investment securities |
|
(201 |
) |
|
(161 |
) |
|
(23 |
) |
Other |
|
627 |
|
|
(60) |
|
|
32 |
|
|
$ |
1,179 |
|
$ |
1,799 |
|
$ |
1,536 |
|
|
|
|
|
|
|
|
|
|
|
Net
increase in financing receivables |
|
|
|
|
|
|
|
|
|
Increase
in loans to customers |
$ |
(340,747 |
) |
$ |
(261,039 |
) |
$ |
(205,634 |
) |
Principal
collections from customers - loans |
|
305,374 |
|
|
235,434 |
|
|
181,604 |
|
Investment
in equipment for financing leases |
|
(22,048 |
) |
|
(22,167 |
) |
|
(19,382 |
) |
Principal
collections from customers - financing leases |
|
19,238 |
|
|
18,406 |
|
|
15,319 |
|
Net
change in credit card receivables |
|
(7,983 |
) |
|
(11,379 |
) |
|
(19,843 |
) |
Sales
of financing receivables |
|
31,214 |
|
|
36,009 |
|
|
29,651 |
|
|
$ |
(14,952 |
) |
$ |
(4,736 |
) |
$ |
(18,285 |
) |
|
|
|
|
|
|
|
|
|
|
All
other investing activities |
|
|
|
|
|
|
|
|
|
Purchases
of securities by insurance and annuity businesses |
$ |
(19,889 |
) |
$ |
(27,777 |
) |
$ |
(46,148 |
) |
Dispositions
and maturities of securities by insurance and annuity
businesses |
|
17,438 |
|
|
25,760 |
|
|
37,219 |
|
Proceeds
from principal business dispositions |
|
472 |
|
|
3,193 |
|
|
- |
|
Other |
|
196 |
|
|
(1,935) |
|
|
(3,439 |
) |
|
$ |
(1,783 |
) |
$ |
(759 |
) |
$ |
(12,368 |
) |
|
|
|
|
|
|
|
|
|
|
Newly
issued debt having maturities longer than 90 days |
|
|
|
|
|
|
|
|
|
Short-term
(91 to 365 days) |
$ |
1,504 |
|
$ |
1,576 |
|
$ |
1,796 |
|
Long-term
(longer than one year) |
|
59,925 |
|
|
57,471 |
|
|
93,026 |
|
Proceeds
- nonrecourse, leveraged lease |
|
319 |
|
|
791 |
|
|
1,222 |
|
|
$ |
61,748 |
|
$ |
59,838 |
|
$ |
96,044 |
|
|
|
|
|
|
|
|
|
|
|
Repayments
and other reductions of debt having maturities
longer
than 90 days |
|
|
|
|
|
|
|
|
|
Short-term
(91 to 365 days) |
$ |
(41,085 |
) |
$ |
(38,696 |
) |
$ |
(32,950 |
) |
Long-term
(longer than one year) |
|
(3,378 |
) |
|
(3,650 |
) |
|
(5,297 |
) |
Principal
payments - nonrecourse, leveraged lease |
|
(652 |
) |
|
(782 |
) |
|
(339 |
) |
|
$ |
(45,115 |
) |
$ |
(43,128 |
) |
$ |
(38,586 |
) |
|
|
|
|
|
|
|
|
|
|
All
other financing activities |
|
|
|
|
|
|
|
|
|
Proceeds
from sales of investment contracts |
$ |
17,938 |
|
$ |
9,337 |
|
$ |
7,806 |
|
Redemption
of investment contracts |
|
(20,350 |
) |
|
(9,267 |
) |
|
(6,556 |
) |
Capital
contributions from GE Capital Services |
|
- |
|
|
- |
|
|
4,500 |
|
Cash
received upon assumption of insurance liabilities |
|
- |
|
|
- |
|
|
2,406 |
|
|
$ |
(2,412 |
) |
$ |
70 |
|
$ |
8,156 |
|
Note
18. Operating Segments
Our
operating businesses are organized based on the nature of products and services
provided. Segment accounting policies are the same as described in note 1.
Details
of total revenues and earnings before accounting changes by operating segment
can be found on page 12 of this report. Other specific information is provided
as follows.
For
the years ended
December
31 (In millions) |
Total
revenues |
|
Intersegment
revenues |
|
External
revenues |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Finance |
$ |
23,000 |
|
$ |
20,497 |
|
$ |
19,302 |
|
$ |
162 |
|
$ |
146 |
|
$ |
74 |
|
$ |
22,838 |
|
$ |
20,351 |
|
$ |
19,228 |
|
Consumer
Finance |
|
15,725 |
|
|
12,734 |
|
|
9,833 |
|
|
13 |
|
|
17 |
|
|
12 |
|
|
15,712 |
|
|
12,717 |
|
|
9,821 |
|
Equipment
& |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Services |
|
9,189 |
|
|
5,022 |
|
|
5,663 |
|
|
(221 |
) |
|
(191 |
) |
|
(94 |
) |
|
9,410 |
|
|
5,213 |
|
|
5,757 |
|
Insurance |
|
11,433 |
|
|
14,663 |
|
|
14,021 |
|
|
46 |
|
|
28 |
|
|
8 |
|
|
11,387 |
|
|
14,635 |
|
|
14,013 |
|
Total |
$ |
59,347 |
|
$ |
52,916 |
|
$ |
48,819 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
59,347 |
|
$ |
52,916 |
|
$ |
48,819 |
|
|
Depreciation
and amortization |
|
Provision
for income taxes |
|
For
the years ended December 31 (In millions) |
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Finance |
$ |
3,773 |
|
$ |
3,403 |
|
$ |
3,080 |
|
$ |
1,015 |
|
$ |
778 |
|
$ |
769 |
|
Consumer
Finance |
|
334 |
|
|
276 |
|
|
232 |
|
|
442 |
|
|
485 |
|
|
457 |
|
Equipment
& Other Services |
|
1,995 |
|
|
1,126 |
|
|
1,036 |
|
|
(128 |
) |
|
(435 |
) |
|
(635 |
) |
Insurance |
|
256 |
|
|
466 |
|
|
399 |
|
|
264 |
|
|
762 |
|
|
369 |
|
Total |
$ |
6,358 |
|
$ |
5,271 |
|
$ |
4,747 |
|
$ |
1,593 |
|
$ |
1,590 |
|
$ |
960 |
|
|
Interest
on time sales and loans |
|
Interest
expense |
|
For
the years ended December 31 (In millions) |
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Finance |
$ |
5,825 |
|
$ |
5,587 |
|
$ |
5,212 |
|
$ |
6,022 |
|
$ |
5,780 |
|
$ |
5,965 |
|
Consumer
Finance |
|
11,856 |
|
|
10,445 |
|
|
7,957 |
|
|
3,560 |
|
|
2,683 |
|
|
2,105 |
|
Equipment
& Other Services |
|
698 |
|
|
576 |
|
|
109 |
|
|
1,163 |
(a) |
|
1,101 |
(a) |
|
1,149 |
|
Insurance |
|
377 |
|
|
495 |
|
|
445 |
|
|
284 |
|
|
368 |
|
|
325 |
|
Total |
$ |
18,756 |
|
$ |
17,103 |
|
$ |
13,723 |
|
$ |
11,029 |
|
$ |
9,932 |
|
$ |
9,544 |
|
|
Assets
At
December 31 |
|
Buildings
and equipment additions(b)
For
the years ended December 31 |
|
(In
millions) |
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Finance(c) |
$ |
232,411 |
|
$ |
214,811 |
|
$ |
201,653 |
|
$ |
7,222 |
|
$ |
7,062 |
|
$ |
8,702 |
|
Consumer
Finance(c) |
|
150,531 |
|
|
105,935 |
|
|
75,885 |
|
|
217 |
|
|
191 |
|
|
221 |
|
Equipment
& Other Services(c) |
|
59,969 |
|
|
67,649 |
|
|
30,705 |
|
|
3,215 |
|
|
1,148 |
|
|
2,418 |
|
Insurance |
|
123,797 |
|
|
118,195 |
|
|
131,199 |
|
|
9 |
|
|
11 |
|
|
41 |
|
Total |
$ |
566,708 |
|
$ |
506,590 |
|
$ |
439,442 |
|
$ |
10,663 |
|
$ |
8,412 |
|
$ |
11,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Included
$530 million in 2004 and $386 million in 2003 related to consolidated,
liquidating securitization entities. |
|
(b) |
Additions
to buildings and equipment include amounts relating to principal
businesses purchased. |
|
(c) |
Total
assets of the Commercial Finance, Consumer Finance and Equipment &
Other Services segments at December 31, 2004, include investments in and
advances to non-consolidated affiliates of $8,506 million, $2,180 million
and $776 million, respectively, which contributed approximately $436
million, $65 million and $82 million, respectively, to segment pre-tax
income for the year ended December 31, 2004. |
|
Revenues
originating from operations based in the United States were $33,278 million,
$29,786 million and $27,511 million in 2004, 2003 and 2002, respectively.
Revenues originating from operations based outside the United States were
$26,069 million, $23,130 million and $21,308 million in 2004, 2003 and 2002,
respectively.
Buildings
and equipment associated with operations based in the United States were $16,186
million, $11,860 million and $10,894 million at year-end 2004, 2003 and 2002,
respectively. Buildings and equipment associated with operations based outside
the United States were $30,165 million, $26,761 million and $24,166 million at
year-end 2004, 2003 and 2002, respectively.
Note
19. Derivatives and Other Financial Instruments
Derivatives
and hedging
Exchange
rate and interest rate risks are managed with a variety of straightforward
techniques, including match funding and selective use of derivatives. We use
derivatives to mitigate or eliminate certain financial and market risks because
we conduct business in diverse markets around the world and local funding is not
always efficient. In addition, we use derivatives to adjust the debt we are
issuing to match the fixed or floating nature of the assets we are acquiring. We
apply strict policies to manage each of these risks, including prohibitions on
derivatives trading, derivatives market-making or other speculative
activities.
To
qualify for hedge accounting, the details of the hedging relationship must be
formally documented at inception of the arrangement, including the risk
management objective, hedging strategy, hedged item, specific risks that are
being hedged, the derivative instrument and how effectiveness is being assessed.
The derivative must be highly effective in offsetting either changes in fair
value or cash flows, as appropriate, for the risk being hedged. Effectiveness is
evaluated on a retrospective and prospective basis. If a hedge relationship
becomes ineffective, it no longer qualifies as a hedge. Any excess gains or
losses attributable to such ineffectiveness, as well as subsequent changes in
the fair value of the derivative, are recognized in earnings.
Cash
flow hedges
Cash
flow hedges are hedges that use simple derivatives to offset the variability of
expected future cash flows. Variability can appear in floating rate assets,
floating rate liabilities or from certain types of forecasted transactions,
and
can arise from changes in interest rates or currency exchange rates. For
example, we often borrow at a variable rate of interest to fund our businesses.
If Commercial Finance needs the funds to make a floating rate loan, there is no
exposure to interest rate changes, and no hedge is necessary. However, upon
making a fixed rate loan, we will contractually commit to pay a fixed rate of
interest to a counterparty who will pay us a variable rate of interest (an
“interest rate swap”). We then designate this swap as a cash flow hedge of the
associated variable-rate borrowing. If, as expected, the derivative is perfectly
effective in offsetting variable interest in the borrowing, we record changes in
its fair value in a separate component in equity, then release those changes to
earnings contemporaneously with the earnings effects of the hedged item. Further
information about hedge effectiveness is provided on page 66.
We
use currency forwards and options to manage exposures to changes in currency
exchange rates associated with commercial purchase and sale transactions. These
instruments permit us to eliminate the cash flow variability, in local currency,
of costs or selling prices denominated in currencies other than the functional
currency. In addition, we use these instruments, along with interest rate and
currency swaps, to convert borrowings into the currency of the local market in
which we do business.
At
December 31, 2004, amounts related to derivatives qualifying as cash flow hedges
amounted to a reduction of equity of $1,281 million, of which we expect to
transfer $478 million to earnings in 2005 along with the earnings effects of the
related forecasted transactions. At December 31, 2004, the amount of
unrecognized losses related to cash flow hedges of short-term borrowings was
$1,659 million. In 2004, there were no forecasted transactions that failed to
occur. At December 31, 2004, the maximum term of derivative instruments that
hedge forecasted transactions was 23 years and related to hedges of anticipated
bond purchases in the Insurance business.
Fair
value hedges
Fair
value hedges are hedges that eliminate the risk of changes in the fair values of
assets, liabilities and certain types of firm commitments. For example, we will
use an interest rate swap in which we receive a fixed rate of interest and pay a
variable rate of interest to change the cash flow profile of a fixed-rate
borrowing to match the variable rate financial asset that it is funding. We
record changes in fair value of derivatives designated and effective as fair
value hedges in earnings, offset by corresponding changes in the fair value of
the hedged item.
We
use interest rate swaps, currency swaps and interest rate and currency forwards
to hedge the effects of interest rate and currency exchange rate changes on
local and nonfunctional currency denominated fixed-rate borrowings and certain
types of fixed rate assets. Fair value adjustments increased the carrying amount
of debt outstanding at December 31, 2004, by $2,282 million. We use equity
options to hedge price changes in investment
securities
Net
investment hedges
Net
investment hedges are hedges that use derivative contracts or cash instruments
to hedge the foreign currency exposure of a net investment in a foreign
operation. We manage currency exposures that result from net investments in
affiliates principally by funding assets denominated in local currency with debt
denominated
in that same currency. In certain circumstances, we manage such exposures with
currency forwards and currency swaps.
Derivatives
not designated as hedges
We
must meet specific criteria in order to apply any of the three forms of hedge
accounting. For example, hedge accounting is not permitted for hedged items that
are marked to market through earnings. We use derivatives to hedge exposures
when it makes economic sense to do so, including circumstances in which the
hedging relationship
does
not qualify for hedge accounting as described in the following paragraph. We
also will occasionally receive derivatives, such as equity warrants, in the
ordinary course of business. Derivatives that do not qualify for hedge
accounting are marked to market through earnings.
We
use swaps and option contracts, including caps, floors and collars, as an
economic hedge of changes in interest rates, currency exchange rates and equity
prices on certain types of assets and liabilities. We occasionally obtain equity
warrants as part of sourcing or financing transactions. Although these
instruments are considered to be derivatives, their economic risk is similar to,
and managed on the same basis as, other equity instruments we hold.
Earnings
effects of derivatives
The
table that follows provides additional information about the earnings effects of
derivatives. In the context of hedging relationships, “effectiveness” refers to
the degree to which fair value changes in the hedging instrument offset the
corresponding expected earnings effects of the hedged item. Certain elements of
hedge positions cannot qualify for hedge accounting under SFAS 133 whether
effective or not, and must therefore be marked to market through earnings. Time
value of purchased options is the most common example of such elements in
instruments we use. Pre-tax earnings effects of such items are shown in the
following table as “Amounts excluded from the measure of
effectiveness.”
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
Cash
flow hedges |
|
|
|
|
|
|
Ineffectiveness |
$ |
3 |
|
$ |
(18 |
) |
Amounts
excluded from the measure of effectiveness |
|
(6 |
) |
|
- |
|
|
|
|
|
|
|
|
Fair
value hedges |
|
|
|
|
|
|
Ineffectiveness |
|
13 |
|
|
1 |
|
Amounts
excluded from the measure of effectiveness |
|
3 |
|
|
- |
|
Counterparty
credit risk
The
risk that counterparties to derivative contracts will default and not make
payments to us according to the terms of the agreements is counterparty credit
risk. We manage counterparty credit risk on an individual counterparty basis,
which means that we net exposures on transactions by counterparty where legal
right of offset exists to determine the amount of exposure to each counterparty.
When a counterparty exceeds credit exposure limits (see table on page 67), as
measured by current market value of the derivative contract, no additional
transactions are permitted to be executed until the exposure with that
counterparty is reduced to an amount that is within the established limits.
Swaps are required to be executed under master agreements containing mutual
credit downgrade provisions that provide the ability to require assignment or
termination in the event either party is downgraded below A3 or A-.
To
further mitigate credit risk, in certain cases we have entered into collateral
arrangements that provide us with the right to hold collateral when the current
market value of derivative contracts exceeds an exposure threshold. Under these
arrangements, we may receive U.S. Treasury and other highly-rated securities or
cash to secure our exposure to counterparties; such collateral is available to
us in the event that a counterparty defaults. From an economic standpoint, we
evaluate credit risk exposures and compliance with credit exposure limits net of
such collateral. If the downgrade provisions had been triggered at December 31,
2004, we could have been required to
disburse
up to $5.4 billion and could have claimed $4.2 billion from counterparties,
including $2.1 billion of collateral that has been pledged to us.
Fair
values of our derivative assets and liabilities represent the replacement value
of existing derivatives at market prices and can change significantly from
period to period based on, among other factors, market movements and changes in
our positions. At December 31, 2004 and 2003, gross fair value gains amounted to
$5.9 billion and $4.6 billion, respectively. At December 31, 2004 and 2003,
gross fair value losses amounted to $7.1 billion and $6.4 billion,
respectively.
The
following tables illustrate our policy relating to exposure limits to
counterparties.
Counterparty
Credit Criteria
|
Credit
rating |
|
Moody’s |
|
S&P |
|
|
|
|
Foreign
exchange forwards and other derivatives less than one year |
P-1 |
|
A-1 |
All
derivatives between one and five years |
Aa3(a) |
|
AA-(a) |
All
derivatives greater than five years |
Aaa(a) |
|
AAA(a) |
|
|
|
|
|
|
|
|
(a) |
Counterparties
that have an obligation to provide collateral to cover credit exposure in
accordance with a credit support agreement must have a minimum A3/A-
rating. |
Exposure
Limits
(In
millions) |
Exposure |
|
|
|
|
Greater
than one year |
|
|
Less
than
one
year |
|
With
collateral |
|
Without
collateral |
|
Minimum
rating |
|
|
|
|
|
|
|
|
|
Aaa/AAA |
$ |
150 |
|
$ |
100 |
|
$ |
75 |
|
Aa3/AA- |
|
150 |
|
|
50 |
|
|
50 |
|
A3/A- |
|
150 |
|
|
5 |
Not
allowed |
|
Financial
Instruments
|
2004 |
|
2003 |
|
|
|
Assets
(liabilities) |
|
|
|
Assets
(liabilities) |
December
31 (In millions) |
Notional
amount |
|
Carrying
amount
(net) |
|
Estimated
fair
value |
|
Notional
amount |
|
Carrying
amount
(net) |
|
Estimated
fair
value |
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
sales and loans |
$ |
(a) |
|
$ |
214,075 |
|
$ |
215,782 |
|
$ |
(a) |
|
$ |
182,338 |
|
$ |
181,870 |
|
Other
commercial and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
residential
mortgages |
|
(a) |
|
|
10,604 |
|
|
10,823 |
|
|
(a) |
|
|
8,759 |
|
|
9,085 |
|
Other
financial instruments |
|
(a) |
|
|
2,941 |
|
|
3,153 |
|
|
(a) |
|
|
2,472 |
|
|
2,473 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings(b)(c)
|
|
(a) |
|
|
(352,869 |
) |
|
(361,217 |
) |
|
(a) |
|
|
(311,474 |
) |
|
(322,190 |
) |
Investment
contract benefits |
|
(a) |
|
|
(32,027 |
) |
|
(32,071 |
) |
|
(a) |
|
|
(32,718 |
) |
|
(32,525 |
) |
Insurance
- financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
guarantees
and credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
life(d) |
|
221,808 |
|
|
(3,575 |
) |
|
(3,575 |
) |
|
170,148 |
|
|
(3,928 |
) |
|
(3,928 |
) |
Other
firm commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
course of business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lending
commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate |
|
2,503 |
|
|
- |
|
|
- |
|
|
2,158 |
|
|
- |
|
|
- |
|
Variable
rate |
|
8,156 |
|
|
- |
|
|
- |
|
|
8,923 |
|
|
- |
|
|
- |
|
Unused
revolving credit lines(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate |
|
1,210 |
|
|
- |
|
|
- |
|
|
896 |
|
|
- |
|
|
- |
|
Variable
rate |
|
21,411 |
|
|
- |
|
|
- |
|
|
15,953 |
|
|
- |
|
|
- |
|
Consumer
- principally |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
credit
cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate |
|
141,965 |
|
|
- |
|
|
- |
|
|
107,892 |
|
|
- |
|
|
- |
|
Variable
rate |
|
200,219 |
|
|
- |
|
|
- |
|
|
131,106 |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
These
financial instruments do not have notional amounts. |
|
(b) |
Included
effects of interest rate swaps and cross currency swaps. |
|
(c) |
See
note 11. |
|
(d) |
See
note 12. |
|
(e) |
Excluded
inventory financing arrangements, which may be withdrawn at our option, of
$8.9 billion and $4.2 billion as of December 31, 2004 and 2003,
respectively. |
|
Assets
and liabilities that are reflected in the accompanying financial statements at
fair value are not included in the above disclosures; such items include cash
and equivalents, investment securities, separate accounts and derivative
financial instruments. Other assets and liabilities - those not carried at fair
value - are discussed below. Apart from certain of our borrowings and certain
marketable securities, few of the instruments discussed below are actively
traded and their fair values must often be determined using models. Although we
have made every effort to represent accurate estimated fair values in this
section, there is no assurance that such estimates could actually have been
realized at December 31, 2004 or 2003.
A
description of how we estimate fair values follows.
Time
sales and loans
Based
on quoted market prices, recent transactions and/or discounted future cash
flows, using rates at which similar loans would have been made to similar
borrowers.
Borrowings
Based
on discounted future cash flows using current market rates which are comparable
to market quotes.
Investment
contract benefits
Based
on expected future cash flows, discounted at currently offered discount rates
for immediate annuity contracts or cash surrender values for single premium
deferred annuities.
All
other instruments
Based
on comparable market transactions, discounted future cash flows, quoted market
prices, and/or estimates of the cost to terminate or otherwise settle
obligations.
Note
20. Securitization Entities
We
securitize financial assets in the ordinary course of business to improve
shareowner returns. The securitization transactions we engage in are similar to
those used by many financial institutions. Beyond improving returns, these
securitization transactions serve as funding sources for a variety of
diversified lending and securities transactions. Historically, we have used both
supported and third-party entities to execute securitization transactions funded
in the commercial paper and term bond markets.
Securitized
assets that are on-balance sheet include assets consolidated on July 1, 2003,
upon adoption of FIN 46. Although we do not control these entities,
consolidation was required because we provided a majority of the credit and
liquidity support for their activities. A majority of these entities were
established to issue asset-backed securities, using assets that were sold by us
and by third parties. These entities differ from others included in our
consolidated financial statements because the assets they hold are legally
isolated and are unavailable to us under any circumstances. Repayment of their
liabilities depends primarily on cash flows generated by their assets. Because
we have ceased transferring assets to these entities, balances will decrease as
the assets repay. We refer to these entities as “consolidated, liquidating
securitization entities.”
In
December 2004, we acquired AFIG. Securitization entities used by AFIG before our
acquisition to transfer its assets, residential real estate mortgages, are
required by U.S. accounting standards to be consolidated. These entities have
characteristics similar to those we consolidated when we adopted FIN 46, and we
intend to run off their assets. Therefore, we refer to them as consolidated,
liquidating securitization entities.
The
following table represents assets in securitization entities, both consolidated
and off-balance sheet.
|
|
|
December
31 (In millions) |
2004
|
|
2003 |
|
|
|
|
|
|
Receivables
secured by: |
|
|
|
|
|
|
Equipment |
$ |
13,650 |
|
$ |
15,616 |
|
Commercial
real estate |
|
13,914 |
|
|
15,046 |
|
Residential real estate - AFIG |
|
9,094 |
|
|
- |
|
Other
assets |
|
11,723 |
|
|
9,119 |
|
Credit
card receivables |
|
7,075 |
|
|
8,581 |
|
Total
securitized assets |
$ |
55,456 |
|
$ |
48,362 |
|
|
|
|
December
31 (In millions) |
2004
|
|
2003 |
|
|
|
|
|
|
|
|
Off-balance
sheet(a)(b) |
$ |
28,950 |
|
$ |
21,894 |
|
On-balance
sheet - AFIG |
|
9,094 |
|
|
-
|
|
On-balance
sheet - other(c) |
|
17,412 |
|
|
26,468 |
|
Total
securitized assets |
$ |
55,456 |
|
$ |
48,362 |
|
|
|
|
|
|
|
|
(a) |
At
December 31, 2004 and 2003, liquidity support amounted to $2,100 million
and $2,900 million, respectively. These amounts are net of $2,900 million
and $1,000 million, respectively, participated or deferred beyond one
year. Credit support amounted to $5,000 million and $3,900 million at
December 31, 2004 and 2003, respectively. |
(b) |
Liabilities
for recourse obligations related to off-balance sheet assets were $0.1
billion at both December 31, 2004 and 2003. |
(c) |
At
December 31, 2004 and 2003, liquidity support amounted to $14,400 million
and $18,400 million, respectively. These amounts are net of $1,200 million
and $5,300 million, respectively, participated or deferred beyond one
year. Credit support amounted to $6,900 million and $8,600 million at
December 31, 2004 and 2003, respectively. |
The
portfolio of financing receivables consisted of loans and financing lease
receivables secured by equipment, commercial and residential real estate and
other assets; and credit card receivables. Examples of these assets include
loans and leases on manufacturing and transportation equipment, loans on
commercial property, commercial loans, and balances of high credit quality
accounts from sales of a broad range of products and services to a diversified
customer base.
Assets
in consolidated, liquidating securitization entities are shown in the following
captions in the Statement of Financial Position.
December
31 (In millions) |
2004
|
|
2003 |
|
|
|
|
|
|
|
|
Investment
securities |
$ |
1,147 |
|
$ |
1,566 |
|
Financing
receivables - net (note 5)(a) |
|
22,616 |
|
|
21,877 |
|
Other
assets |
|
2,408 |
|
|
2,357 |
|
Other,
principally insurance receivables |
|
335 |
|
|
668 |
|
Total |
$ |
26,506 |
|
$ |
26,468 |
|
|
|
|
|
|
|
|
(a)
Included $9,094 million related to AFIG. |
|
|
|
|
|
|
Off-balance
sheet arrangements
We
continue to engage in off-balance sheet securitization transactions with
third-party entities and to use public market term securitizations. As discussed
above, assets in off-balance sheet securitization entities amounted to $28.9
billion and $21.9 billion at December 31, 2004 and 2003, respectively. Gross
securitization gains amounted to $1,179 million in 2004 compared with $1,394
million in 2003 and $1,796 million in 2002.
Amounts
recognized in our financial statements related to sales to off-balance sheet
securitization entities are as follows:
December
31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Retained
interests |
$ |
3,288 |
|
$ |
2,417 |
|
Servicing
assets(a) |
|
33 |
|
|
150 |
|
Recourse
liability |
|
(64 |
) |
|
(75 |
) |
Total |
$ |
3,257 |
|
$ |
2,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
2003
included $115 million of mortgage servicing rights sold in
2004.
|
|
• |
Retained
interests
When we securitize receivables, we determine fair value based on
discounted cash flow models that incorporate, among other things,
assumptions including loan pool credit losses, prepayment speeds and
discount rates. These assumptions are based on our experience, market
trends and anticipated performance related to the particular assets
securitized. Subsequent to recording retained interests, we review
recorded values quarterly in the same manner and using current
assumptions. We recognize impairments when carrying amounts exceed current
fair values. |
• |
Servicing
assets
Following a securitization transaction, we retain responsibility for
servicing the receivables, and are therefore entitled to an ongoing fee
based on the outstanding principal balances of the receivables. Servicing
assets are primarily associated with residential mortgage loans. Their
value is subject to credit, prepayment and interest rate risk.
|
• |
Recourse
liability
Certain transactions require credit support agreements. As a result, we
provide for expected credit losses under these agreements and such amounts
approximate fair value. |
The
following table summarizes data related to securitization sales that we
completed during 2004 and 2003.
(Dollars
in millions) |
Equipment |
|
Commercial
real
estate |
|
Other
assets |
|
Credit
card
receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
proceeds from securitization |
$ |
5,367 |
|
$ |
4,093 |
|
$ |
- |
|
$ |
8,121 |
|
Proceeds
from collections |
|
|
|
|
|
|
|
|
|
|
|
|
reinvested
in new receivables |
|
- |
|
|
- |
|
|
21,389 |
|
|
5,208 |
|
Cash
received on retained interest |
|
107 |
|
|
58 |
|
|
128 |
|
|
1,788 |
|
Weighted
average lives (in months) |
|
37 |
|
|
68 |
|
|
- |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
as of sale date(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate |
|
8.2 |
% |
|
13.0 |
% |
|
- |
|
|
12.2 |
% |
Prepayment
rate |
|
9.1 |
% |
|
11.2 |
% |
|
- |
|
|
14.9 |
% |
Estimate
of credit losses |
|
1.9 |
% |
|
1.1 |
% |
|
- |
|
|
8.9 |
% |
(Dollars
in millions) |
Equipment |
|
Commercial
real
estate |
|
Other
assets |
|
Credit
card
receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
proceeds from securitization |
$ |
5,416 |
|
$ |
3,082 |
|
$ |
2,009 |
|
$ |
- |
|
Proceeds
from collections |
|
|
|
|
|
|
|
|
|
|
|
|
reinvested
in new receivables |
|
- |
|
|
- |
|
|
14,047 |
|
|
10,685 |
|
Weighted
average lives (in months) |
|
29 |
|
|
72 |
|
|
106 |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
as of sale date(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate |
|
6.6 |
% |
|
11.5 |
% |
|
6.4 |
% |
|
11.2 |
% |
Prepayment
rate |
|
10.1 |
% |
|
10.8 |
% |
|
4.6 |
% |
|
15.0 |
% |
Estimate
of credit losses |
|
1.6 |
% |
|
1.6 |
% |
|
0.2 |
% |
|
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
receipts related to servicing and other sources were less than $300
million in 2004. |
|
(a) |
Based
on weighted averages. |
|
Key
assumptions used in measuring the fair value of retained interests in
securitizations and the sensitivity of the current fair value of residual cash
flows to changes in those assumptions are noted in the following table. These
assumptions may differ from those in the previous table as these related to all
outstanding retained interests as of December 31, 2004.
(Dollars
in millions) |
Equipment |
|
Commercial
real
estate |
|
Other
assets |
|
Credit
card
receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate(a) |
|
7.3 |
% |
|
8.3 |
% |
|
6.7 |
% |
|
11.3 |
% |
Effect
of: |
|
|
|
|
|
|
|
|
|
|
|
|
10%
Adverse change |
$
|
(10 |
) |
$ |
(11 |
) |
$ |
(19 |
) |
$ |
(9 |
) |
20%
Adverse change |
|
(20 |
) |
|
(21 |
) |
|
(37 |
) |
|
(17 |
) |
Prepayment
rate(a) |
|
9.4 |
% |
|
3.6 |
% |
|
1.1 |
% |
|
12.2 |
% |
Effect
of: |
|
|
|
|
|
|
|
|
|
|
|
|
10%
Adverse change |
$ |
(6 |
) |
$ |
(4 |
) |
$ |
(9 |
) |
$ |
(35 |
) |
20%
Adverse change |
|
(12 |
) |
|
(9 |
) |
|
(19 |
) |
|
(65 |
) |
Estimate
of credit losses(a) |
|
1.8 |
% |
|
0.5 |
% |
|
0.5 |
% |
|
8.0 |
% |
Effect
of: |
|
|
|
|
|
|
|
|
|
|
|
|
10%
Adverse change |
$ |
(11 |
) |
$ |
(4 |
) |
$ |
- |
|
$ |
(34 |
) |
20%
Adverse change |
|
(23 |
) |
|
(8 |
) |
|
(2 |
) |
|
(67 |
) |
Remaining
weighted |
|
|
|
|
|
|
|
|
|
|
|
|
average
lives (in months) |
|
35 |
|
|
108 |
|
|
62 |
|
|
8 |
|
Net
credit losses |
$ |
54 |
|
$ |
7 |
|
$ |
25 |
|
$ |
465 |
|
Delinquencies |
|
78 |
|
|
38 |
|
|
10 |
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based
on weighted averages.
|
|
Guarantee
and reimbursement contracts We
provide protection to certain counterparties of interest rate swaps entered into
by securitization-related entities related to changes in the relationship
between commercial paper interest rates and the timing and amount of the payment
streams. These arrangements provide protection for the life of the assets held
by the SPE but generally amortize in proportion to the decline in underlying
asset principal balances. At December 31, 2004, the notional amount of such
support was $1.8 billion and related assets and liabilities were
insignificant.
Note
21. Commitments and Guarantees
Commitments,
including guarantees
Our
Commercial Finance business had placed multiple-year orders for various Boeing,
Airbus and other aircraft with list prices approximating $10.2 billion at
December 31, 2004.
At
December 31, 2004, we were committed under the following guarantee arrangements
beyond those provided on behalf of SPEs. See note 20.
• |
Liquidity
support
Liquidity support provided to holders of certain variable rate bonds
issued by municipalities amounted to $3,612 million at December 31, 2004.
If holders elect to sell supported bonds that cannot be remarketed, we are
obligated to repurchase them at par. If called upon, our position would be
secured by the repurchased bonds. While we hold any such bonds, we would
receive interest payments from the municipalities at a rate that is in
excess of the stated rate on the bond. To date, we have not been required
to perform under such arrangements. In addition, we are currently not
providing any new liquidity facilities. |
• |
Credit
support
We have provided $5,617 million of credit support on behalf of certain
customers or associated companies, predominantly joint ventures and
partnerships, using arrangements such as standby letters of credit and
performance guarantees. These arrangements enable our customers and
associated companies to execute transactions or obtain desired financing
arrangements with third parties. Should the customer or associated company
fail to perform under the terms of the transaction or financing
arrangement, we would be required to perform on their behalf. Under most
such arrangements, our guarantee is secured, usually by the asset being
purchased or financed but possibly by certain other assets of the customer
or associated company. The length of these credit support arrangements
parallels the length of the related financing arrangements or
transactions. The liability for such credit support was $72 million at
December 31, 2004. |
• |
Indemnification
agreements
These are agreements that require us to fund up to $605 million under
residual value guarantees on a variety of leased equipment and $156
million of other indemnification commitments arising from sales of
businesses or assets. Under most of our residual value guarantees, our
commitment is secured by the leased asset at termination of the lease. The
liability for these indemnification agreements was $59 million at December
31, 2004. |
• |
Contingent
consideration
These are agreements to provide additional consideration in a business
combination to the seller if contractually specified conditions related to
the acquired entity are achieved. At December 31, 2004, we had recognized
no liabilities for our total exposure of $232
million. |
Our
guarantees are provided in the ordinary course of business. We underwrite these
guarantees considering economic, liquidity and credit risk of the counterparty.
We believe that the likelihood is remote that any such arrangements could have a
significant adverse effect on our financial position, results of operations or
liquidity. We record liabilities for guarantees at estimated fair value,
generally the amount of the premium received, or if we do not receive a premium,
the amount based on appraisal, observed market values or discounted cash flows.
Any associated recoveries from third parties are recorded as other receivables;
not netted against the liabilities.
Note
22. Quarterly Information (Unaudited)
|
First
quarter |
|
Second
quarter |
|
Third
quarter |
|
Fourth
quarter |
|
(In
millions) |
|
2004 |
|
|
2003 |
|
|
2004 |
|
|
2003 |
|
|
2004 |
|
|
2003 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues |
$ |
14,205 |
|
$ |
12,161 |
|
$ |
14,136 |
|
$ |
12,830 |
|
$ |
14,656 |
|
$ |
14,081 |
|
$ |
16,350 |
|
$ |
13,844 |
|
Earnings
before income taxes |
|
2,072 |
|
|
1,916 |
|
|
1,860 |
|
|
1,910 |
|
|
2,910 |
|
|
2,574 |
|
|
2,785 |
|
|
2,422 |
|
Provision
for income taxes |
|
(419 |
) |
|
(298 |
) |
|
(284 |
) |
|
(306 |
) |
|
(660 |
) |
|
(573 |
) |
|
(230 |
) |
|
(413 |
) |
Earnings
before accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
changes
|
|
1,653 |
|
|
1,618 |
|
|
1,576 |
|
|
1,604 |
|
|
2,250 |
|
|
2,001 |
|
|
2,555 |
|
|
2,009 |
|
Cumulative
effect of
accounting
changes |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(339 |
) |
|
- |
|
|
- |
|
Net
earnings |
$ |
1,653 |
|
$ |
1,618 |
|
$ |
1,576 |
|
$ |
1,604 |
|
$ |
2,250 |
|
$ |
1,662 |
|
$ |
2,555 |
|
$ |
2,009 |
|
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
Not
applicable.
Item
9A. Controls and Procedures
Under
the direction of our Chairman of the Board (serving as the principal executive
officer) and Chief Financial Officer, we evaluated our disclosure controls and
procedures and internal control over financial reporting and concluded that (i)
our disclosure controls and procedures were effective as of December 31, 2004
and (ii) no change in internal control over financial reporting occurred during
the quarter ended December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, such internal control over financial
reporting.
Management’s
Annual Report on Internal Control Over Financial
Reporting
The
management of General Electric Capital Corporation is responsible for
establishing and maintaining adequate internal control over financial reporting
for the company. With the participation of the Chairman and the Chief Financial
Officer, our management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework and criteria
established in Internal
Control - Integrated Framework,
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, our management has concluded that our internal control
over financial reporting was effective as of December 31, 2004.
General
Electric Capital Corporation’s independent auditor, KPMG LLP, a registered
public accounting firm, has issued an audit report on our management’s
assessment of our internal control over financial reporting. This audit report
appears on page 32.
/s/
Dennis D. Dammerman |
|
/s/
James A. Parke |
Dennis
D. Dammerman
Chairman
of the Board |
|
James
A. Parke
Vice
Chairman and Chief Financial Officer |
|
February
11, 2005 |
Item
9B. Other Information
Not
applicable.
PART
III
Item
10. Directors and Executive Officers of the Registrant.
Not
required by this form.
Item
11. Executive Compensation.
Not
required by this form.
Item
12. Security Ownership of Certain Beneficial Owners and
Management.
Not
required by this form.
Item
13. Certain Relationships and Related Transactions.
Not
required by this form.
Item
14. Principal Accounting Fees and Services.
The
aggregate fees billed for professional services by KPMG in 2004 and 2003
were:
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
Type
of fees |
|
|
|
|
|
|
Audit
fees |
$ |
28.0 |
|
$ |
20.8 |
|
Audit-related
fees |
|
7.2 |
|
|
7.6 |
|
Tax
fees |
|
3.7 |
|
|
5.7 |
|
All
other fees |
|
- |
|
|
0.5 |
|
|
$ |
38.9 |
|
$ |
34.6 |
|
In
the above table, in accordance with the SEC’s definitions and rules, “Audit
fees” are fees we paid KPMG for professional services for the audit of our
annual financial statements included in Form 10-K and review of financial
statements included in the Form 10-Qs; for the audit of our internal control
over financial reporting with the objective of obtaining reasonable assurance
about whether effective internal control over financial reporting was maintained
in all material respects; for the attestation of management’s report on the
effectiveness of internal control over financial reporting; and for services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements. “Audit-related fees” are fees for assurance
and related services that are reasonably related to the performance of the audit
or the review of our financial statements and internal control over financial
reporting, including services in connection with assisting the company in its
compliance with its obligations under Section 404 of the Sarbanes-Oxley Act and
related regulations; “Tax fees” are fees for tax
compliance,
tax advice and tax planning; and “All other fees” are fees for any services not
included in the first three categories.
PART
IV
Item
15. Exhibits and Financial Statement Schedules.
(a) 1.
|
Financial
Statements |
|
|
Included
in Part II of this report: |
|
|
|
Report
of Independent Registered Public Accounting Firm
Statement
of Earnings for each of the years in the three-year period ended December
31, 2004
Statement
of Changes in Shareowner’s Equity for each of the years in the three-year
period
ended
December 31, 2004
Statement
of Financial Position at December 31, 2004 and 2003
Statement
of Cash Flows for each of the years in the three-year period ended
December 31, 2004
Notes
to Consolidated Financial Statements |
|
|
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 (S.E.C. File
No. 001-00035) for the year ended December 31, 2004 (pages 45 through 113)
and Exhibit 12 (Ratio of Earnings to Fixed Charges) of General Electric
Company. |
|
(a) 2.
|
Financial
Statement Schedules |
|
|
|
|
Schedule
I |
Condensed
financial information of registrant. |
|
|
|
|
|
|
All
other schedules are omitted because of the absence of conditions under
which they are required or because the required information is shown in
the financial statements or notes thereto. |
|
(a) 3.
|
Exhibit
Index |
|
|
The
exhibits listed below, as part of Form 10-K, are numbered in conformity
with the numbering used in Item 601 of Regulation S-K of the Securities
and Exchange Commission. |
|
|
Exhibit
Number |
|
Description |
|
|
|
|
|
2
(a) |
|
Agreement
and Plan of Merger dated June 25, 2001, between GECC and GECS Merger Sub,
Inc. (Incorporated by reference to Exhibit 2.1 of GECC’s Current Report on
Form 8-K dated as of July 3, 2001). |
|
|
3
(i) |
|
A
complete copy of the Certificate of Incorporation of GECC as last amended
on November 23, 2004 and currently in effect, consisting of the following:
(a) the Restated Certificate of Incorporation of GECC as in effect
immediately prior to the filing of a Certificate of Amendment on August 7,
2002 (Incorporated by reference to Exhibit 3(i) of the GECC’s Form 10-K
Report for the year ended December 31, 2001); and (b) a Certificate of
Amendment filed with the Office of the Secretary of State, State of
Delaware on August 7, 2002 (Incorporated by reference to Exhibit 3(i) to
GECC’s Post-Effective Amendment No. 1 to Registration Statement on Form
S-3, File No. 333-100527); (c) a Certificate of Amendment filed with the
Office of the Secretary of State, State of Delaware on January 27, 2003
(Incorporated by reference to Exhibit 3(i) to GECC’s Post-Effective
Amendment No. 1 to Registration Statement on Form S-3, File No.
333-100527); and (d) a Certificate of Amendment filed with the Office of
the Secretary of State, State of Delaware on November 23, 2004.* GECC’s
Certificate of Merger filed with the Office of the Secretary of State,
State of Delaware on June 29, 2001 (Incorporated by reference to Exhibit
2(a) of GECC's Form 10-K Report for the year ended December 31,
2001). |
|
|
3
(ii) |
|
A
complete copy of the By-Laws of GECC as last amended on September 19,
2002, and currently in effect (Incorporated by reference to Exhibit 3(ii)
of GECC’s Post-Effective Amendment No. 1 to Registration Statement of Form
S-3, File No. 333-100527). |
|
|
4
(a) |
|
Amended
and Restated General Electric Capital Corporation Standard Global Multiple
Series Indenture Provisions dated as of February 27, 1997 (Incorporated by
reference to Exhibit 4(a) to GECC’s Registration Statement on Form S-3,
File No. 333-59707). |
|
|
4
(b) |
|
Third
Amended and Restated Indenture dated as of February 27, 1997 between GECC
and JPMorgan Chase Bank, N.A., (formerly known as The Chase Manhattan
Bank) as successor trustee (Incorporated by reference to Exhibit 4(c) to
GECC’s Registration Statement on Form S-3, File No.
333-59707). |
|
|
4
(c) |
|
First
Supplemental Indenture dated as of May 3, 1999, supplemental to Third
Amended and Restated Indenture dated as of February 27, 1997 (Incorporated
by reference to Exhibit 4(dd) to GECC’s Post-Effective Amendment No. 1 to
Registration Statement on Form S-3, File No.
333-76479). |
|
|
4
(d) |
|
Second
Supplemental Indenture dated as of July 2, 2001, supplemental to Third
Amended and Restated Indenture dated as of February 27, 1997 (Incorporated
by reference to Exhibit 4 (f) to GECC’s Post-Effective Amendment No. 1 to
Registration Statement on Form S-3, File No.
333-40880). |
|
|
4
(e) |
|
Third
Supplemental Indenture dated as of November 22, 2002, supplemental to
Third Amended and Restated Indenture dated as of February 27, 1997
(Incorporated by reference to Exhibit 4 (cc) to Post-Effective Amendment
No. 1 to GECC’s Registration Statement on Form S-3, File No.
333-100527). |
|
|
4
(f) |
|
Fifth
Amended and Restated Fiscal and Paying Agency Agreement among GECC, GE
Capital Australia Funding Pty Ltd, GE Capital European Funding, GE Capital
Canada Funding Company, GE Capital UK Funding and JPMorgan Chase Bank,
N.A., J.P. Morgan Bank Luxembourg, S.A. and J.P. Morgan Bank (Ireland)
p.l.c. dated as of May 21, 2004 (Incorporated by reference to Exhibit 4(f)
to General Electric Capital Services, Inc.’s Form 10-K Report for the year
ended December 31, 2004). |
|
|
4
(g) |
|
Form
of Global Medium-Term Note, Series A, Fixed Rate Registered Note
(Incorporated by reference to Exhibit 4(m) to GECC’s Registration
Statement on Form S-3, File No. 333-100527). |
|
|
4
(h) |
|
Form
of Global Medium-Term Note, Series A, Floating Rate Registered Note
(Incorporated by reference Exhibit 4(n) to GECC’s Registration Statement
on Form S-3, File No. 333-100527). |
|
|
4
(i) |
|
Form
of Euro Medium-Term Note and Debt Security - Permanent Global Fixed Rate
Bearer Note (Incorporated by reference to Exhibit 4(i) to General Electric
Capital Services, Inc.'s Form 10-K Report for the year ended December 31,
2004). |
|
|
4
(j) |
|
Form
of Euro Medium-Term Note and Debt Security - Permanent Global Floating
Rate Bearer Note (Incorporated by reference to Exhibit 4(j) to General
Electric Capital Services, Inc.’s Form 10-K Report for the year ended
December 31, 2004). |
|
|
4
(k) |
|
Form
of Euro Medium-Term Note and Debt Security - Temporary Global Fixed Rate
Bearer Note (Incorporated by reference to Exhibit 4(k) to General Electric
Capital Services, Inc.’s Form 10-K Report for the year ended December 31,
2004). |
|
|
4
(l) |
|
Form
of Euro Medium-Term Note and Debt Security - Temporary Global Floating
Rate Bearer Note (Incorporated by reference to Exhibit 4(l) to General
Electric Capital Services, Inc.’s Form 10-K Report for the year ended
December 31, 2004). |
|
|
4
(m) |
|
Form
of Euro Medium-Term Note and Debt Security - Definitive Fixed Rate Bearer
Note (Incorporated by reference to Exhibit 4(m) to General Electric
Capital Services, Inc.’s Form 10-K Report for the year ended December 31,
2004). |
|
|
4
(n) |
|
Form
of Euro Medium-Term Note and Debt Security - Definitive Floating Rate
Bearer Note (Incorporated by reference to Exhibit 4(n) to General Electric
Capital Services, Inc.’s Form 10-K Report for the year ended December 31,
2004). |
|
|
4
(o) |
|
Agreement
to furnish to the Securities and Exchange Commission upon request a copy
of instruments defining the rights of holders of certain long-term debt of
the registrant and all subsidiaries for which consolidated or
unconsolidated financial statements are required to be
filed.* |
|
|
12
(a) |
|
Computation
of Ratio of Earnings to Fixed Charges.* |
|
|
12
(b) |
|
Computation
of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.* |
|
|
23
(ii) |
|
Consent
of KPMG LLP.* |
|
|
24 |
|
Power
of Attorney.* |
|
|
31(a) |
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended.* |
|
|
31(b) |
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended.* |
|
|
32 |
|
Certification
Pursuant to 18 U.S.C. Section 1350.* |
|
|
99
(a) |
|
Income
Maintenance Agreement dated March 28, 1991, between General Electric
Company and General Electric Capital Corporation. (Incorporated by
reference to Exhibit 99(h) to GECC’s Registration Statement on Form S-3,
File No. 333-100527). |
|
|
99
(b) |
|
The
consolidated financial statements of General Electric Company, set forth
in the Annual Report on Form 10-K of General Electric Company (S.E.C. File
No. 001-00035) for the year ended December 31, 2004, (pages 45 through
113) and Exhibit 12 (Ratio of Earnings to Fixed Charges) of General
Electric Company. |
|
|
99
(c) |
|
Letter,
dated February 4, 1999, from Dennis D. Dammerman of General Electric
Company to Denis J. Nayden of General Electric Capital Corporation
pursuant to which General Electric Company agrees to provide additional
equity to General Electric Capital Corporation in conjunction with certain
redemptions by General Electric Capital Corporation of shares of its
Variable Cumulative Preferred Stock. (Incorporated by reference to Exhibit
99 (g) to General Electric Capital Corporation’s Post-Effective Amendment
No. 1 to Registration Statement on Form S-3, File No.
333-59707). |
|
|
* Filed
electronically herewith. |
General
Electric Capital Corporation and consolidated affiliates
Schedule
I - Condensed Financial Information of Registrant
General
Electric Capital Corporation
Condensed
Statement of Current and Retained Earnings
For
the years ended December 31 (In millions) |
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
5,887 |
|
$ |
5,073 |
|
$ |
5,335 |
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
Interest
|
|
4,414 |
|
|
3,971 |
|
|
5,175 |
|
Operating
and administrative |
|
3,284 |
|
|
3,036 |
|
|
2,363 |
|
Provision
for losses on financing receivables |
|
687 |
|
|
504 |
|
|
415 |
|
Depreciation
and amortization |
|
447 |
|
|
419 |
|
|
506 |
|
Total
expenses |
|
8,832 |
|
|
7,930 |
|
|
8,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and equity in earnings of affiliates |
|
(2,945 |
) |
|
(2,857 |
) |
|
(3,124) |
|
Income
tax benefit |
|
867 |
|
|
796 |
|
|
922 |
|
Equity
in earnings of affiliates |
|
10,112 |
|
|
9,293 |
|
|
8,707 |
|
Cumulative
effect of accounting changes |
|
- |
|
|
(339 |
) |
|
(1,015 |
) |
|
|
|
|
|
|
|
|
|
|
Net
earnings |
|
8,034 |
|
|
6,893 |
|
|
5,490 |
|
Dividends
|
|
(3,148 |
) |
|
(4,472 |
) |
|
(2,020 |
) |
Retained
earnings at January 1 |
|
29,445 |
|
|
27,024 |
|
|
23,554 |
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings at December 31 |
$ |
34,331 |
|
$ |
29,445 |
|
$ |
27,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to condensed financial statements on page 83 are an integral part of
these statements. |
|
General
Electric Capital Corporation and consolidated affiliates
Schedule
I - Condensed Financial Information of Registrant -
(Continued)
General
Electric Capital Corporation
Condensed
Statement of Financial Position
At
December 31 (In millions) |
2004 |
|
2003 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Cash
and equivalents |
$ |
280 |
|
$ |
3,693 |
|
Investment
securities |
|
4,426 |
|
|
4,814 |
|
Financing
receivables - net |
|
50,791 |
|
|
50,609 |
|
Investment
in and advances to affiliates |
|
232,171 |
|
|
202,011 |
|
Buildings
and equipment - net |
|
3,924 |
|
|
4,801 |
|
Other
assets |
|
13,173 |
|
|
13,631 |
|
Total
assets |
$ |
304,765 |
|
$ |
279,559 |
|
|
|
|
|
|
|
|
Liabilities
and equity |
|
|
|
|
|
|
Borrowings
|
$ |
239,665 |
|
$ |
221,366 |
|
Other
liabilities |
|
5,367 |
|
|
8,218 |
|
Deferred
income taxes |
|
6,312 |
|
|
3,734 |
|
Total
liabilities |
|
251,344 |
|
|
233,318 |
|
|
|
|
|
|
|
|
Variable
cumulative preferred stock, $100 par value, liquidation
preference
$100,000
per share (33,000 shares authorized; 26,000 shares issued
and
outstanding at December 31, 2004 and 2003) |
|
3 |
|
|
3 |
|
Common
stock, $14 par value (4,166,000 shares authorized at
December
31, 2004 and 2003, and 3,985,403
shares issued
and outstanding at December 31, 2004 and 2003) |
|
56 |
|
|
56 |
|
Accumulated
gains (losses) - net |
|
|
|
|
|
|
Investment securities |
|
974 |
|
|
1,569 |
|
Currency
translation adjustments |
|
4,923 |
|
|
2,621 |
|
Cash flow hedges |
|
(1,281 |
) |
|
(1,618 |
) |
Minimum pension liabilities |
|
(124 |
) |
|
(31 |
) |
Additional
paid-in capital |
|
14,539 |
|
|
14,196 |
|
Retained
earnings |
|
34,331 |
|
|
29,445 |
|
Total
shareowner's equity |
|
53,421 |
|
|
46,241 |
|
Total
liabilities and equity |
$ |
304,765 |
|
$ |
279,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
sum of accumulated gains (losses) on investment securities, currency
translation adjustments, cash flow hedges and minimum pension liabilities
constitutes “Accumulated nonowner changes other than earnings,” and was
$4,492 million and $2,541 million at year-end 2004 and 2003,
respectively. |
|
The
notes to condensed financial statements on page 83 are an integral part of
these statements. |
|
General
Electric Capital Corporation and consolidated affiliates
Schedule
I - Condensed Financial Information of Registrant -
(Continued)
General
Electric Capital Corporation
Condensed
Statement of Cash Flows
For
the years ended December 31 (In millions) |
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
Cash
flows -
operating activities |
$ |
231 |
|
$ |
(2,943 |
) |
$ |
(1,354 |
) |
Cash
flows -
investing activities |
|
|
|
|
|
|
|
|
|
Increase
in loans to customers |
|
(141,213 |
) |
|
(140,053 |
) |
|
(127,423 |
) |
Principal
collections from customers -
loans
|
|
141,022 |
|
|
142,687 |
|
|
121,687 |
|
Investment
in equipment for financing leases |
|
(3,550 |
) |
|
(5,274 |
) |
|
(3,052 |
) |
Principal
collections from customers -
financing leases |
|
4,172 |
|
|
6,359 |
|
|
3,537 |
|
Net
change in credit card receivables |
|
(66 |
) |
|
(22 |
) |
|
(107 |
) |
Additions
to buildings and equipment |
|
(594 |
) |
|
(1,687 |
) |
|
(1,941 |
) |
Dispositions
of buildings and equipment |
|
1,102 |
|
|
1,016 |
|
|
495 |
|
Payments
for principal businesses purchased |
|
(13,888 |
) |
|
(10,537 |
) |
|
(12,300 |
) |
Proceeds
from principal business dispositions |
|
472 |
|
|
3,193 |
|
|
- |
|
Decrease
(increase) in investment in and advances to affiliates |
|
(6,053 |
) |
|
4,817 |
|
|
(4,574 |
) |
All
other investing activities |
|
374 |
|
|
(4,074 |
) |
|
4,846 |
|
|
|
|
|
|
|
|
|
|
|
Cash
used for investing activities |
|
(18,222 |
) |
|
(3,575 |
) |
|
(18,832 |
) |
|
|
|
|
|
|
|
|
|
|
Cash
flows -
financing activities |
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in borrowings (maturities of 90 days or less)
|
|
8,680 |
|
|
(2,189 |
) |
|
(60,339 |
) |
Newly
issued debt: |
|
|
|
|
|
|
|
|
|
Short-term
(91-365 days) |
|
1,504 |
|
|
1,576 |
|
|
2,457 |
|
Long-term
senior |
|
41,606 |
|
|
47,999 |
|
|
80,319 |
|
Non-recourse,
leveraged lease |
|
206 |
|
|
80 |
|
|
785 |
|
Repayments
and other debt reductions: |
|
|
|
|
|
|
|
|
|
Short-term
|
|
(33,912 |
) |
|
(31,811 |
) |
|
(4,967 |
) |
Long-term
senior |
|
- |
|
|
(694 |
) |
|
(581 |
) |
Non-recourse,
leveraged lease |
|
(358 |
) |
|
(417 |
) |
|
(548 |
) |
Dividends
paid to shareowner |
|
(3,148 |
) |
|
(4,472 |
) |
|
(2,020 |
) |
Capital
contributions from GE Capital Services |
|
- |
|
|
- |
|
|
4,500 |
|
|
|
|
|
|
|
|
|
|
|
Cash
from financing activities |
|
14,578 |
|
|
10,072 |
|
|
19,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents during year |
|
(3,413 |
) |
|
3,554 |
|
|
(580 |
) |
Cash
and equivalents at beginning of year |
|
3,693 |
|
|
139 |
|
|
719 |
|
Cash
and equivalents at end of year |
$ |
280 |
|
$ |
3,693 |
|
$ |
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to condensed financial statements on page 83 are an integral part of
these statements. |
|
General
Electric Capital Corporation and consolidated affiliates
Schedule
I - Condensed Financial Information of Registrant -
(Concluded)
General
Electric Capital Corporation
Notes
to Condensed Financial Statements
Financial
statements presentation
We have
reclassified certain prior-year amounts to conform to the current year’s
presentation.
Borrowings
Total
long-term borrowings at December 31, 2004 and 2003, are shown
below.
|
|
|
|
|
|
(Dollars
in millions) |
2004
Average
rate |
(a) |
Maturities |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
Senior
notes |
3.79 |
% |
2006-2055 |
|
$ |
131,644 |
|
$ |
119,365 |
Extendible
notes(c) |
2.41 |
% |
2007-2009 |
|
|
13,991 |
|
|
12,000 |
Subordinated
notes(b) |
8.04 |
% |
2006-2012 |
|
|
698 |
|
|
698 |
|
|
|
|
|
$ |
146,333 |
|
$ |
132,063 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Based
on year-end balances and year-end local currency interest rates, including
the effects of interest rate and currency swaps, if any, directly
associated with the original debt issuance |
(b) |
At
year-end 2004 and 2003, $0.7 billion of subordinated notes were guaranteed
by GE. |
(c) |
Floating
rate extendible notes of $14.0 billion are due in 2006, but are extendible
at the investors' option to a final maturity in 2007 ($12.0 billion) and
2009 ($2.0 billion). |
At
December 31, 2004, maturities of long-term borrowings during the next five
years, including the current portion of long-term debt, are $28,112 million in
2005, $43,163 million in 2006, $22,028 million in 2007, $16,371 million in 2008
and $15,100 million in 2009.
Interest
rate and currency risk is managed through the direct issuance of debt or use of
derivatives. We take positions in view of anticipated behavior of assets,
including prepayment behavior. We use a variety of instruments, including
interest rate and currency swaps and currency forwards, to achieve our interest
rate objectives.
Interest
expense on the Condensed Statement of Current and Retained Earnings is net of
interest income on loans and advances to majority owned affiliates of $3,242
million, $3,339 million and $2,270 million for 2004, 2003 and 2002,
respectively.
Income
taxes
General
Electric Company files a consolidated U.S. federal income tax return which
includes General Electric Capital Corporation (GE Capital). Income tax benefit
includes the effect of GE Capital on the consolidated return.
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
General
Electric Capital Corporation |
|
|
|
March
1, 2005 |
|
By: /s/
Dennis D. Dammerman |
|
|
(Dennis
D. Dammerman) |
|
|
Chairman
of the Board |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/
Dennis D. Dammerman |
|
Chairman
of the Board |
|
March
1, 2005 |
Dennis
D. Dammerman |
|
(Principal
Executive Officer) |
|
|
|
|
|
|
|
/s/
James A. Parke |
|
Vice
Chairman and |
|
March
1, 2005 |
James
A. Parke |
|
Chief
Financial Officer
(Principal
Financial Officer) |
|
|
|
|
|
|
|
/s/
Philip D. Ameen |
|
Senior
Vice President and Controller |
|
March
1, 2005 |
Philip
D. Ameen |
|
(Principal
Accounting Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
CHARLES
E. ALEXANDER* |
|
Director |
|
|
DAVID
L. CALHOUN* |
|
Director |
|
|
JAMES
A. COLICA* |
|
Director |
|
|
PAMELA
DALEY* |
|
Director |
|
|
DENNIS
D. DAMMERMAN* |
|
Director |
|
|
BRACKETT
B. DENNISTON* |
|
Director |
|
|
ARTHUR
H. HARPER* |
|
Director |
|
|
JEFFREY
R. IMMELT* |
|
Director |
|
|
JOHN
H. MYERS* |
|
Director |
|
|
MICHAEL
A. NEAL* |
|
Director |
|
|
DAVID
R. NISSEN* |
|
Director |
|
|
JAMES
A. PARKE* |
|
Director |
|
|
RONALD
R. PRESSMAN* |
|
Director |
|
|
JOHN
M. SAMUELS* |
|
Director |
|
|
KEITH
S. SHERIN* |
|
Director |
|
|
ROBERT
C. WRIGHT* |
|
Director |
|
|
|
|
|
|
|
A
MAJORITY OF THE BOARD OF DIRECTORS |
|
|
|
|
|
|
|
*By: |
/s/
Philip D. Ameen |
|
|
March
1, 2005 |
|
(Philip
D. Ameen)
Attorney-in-fact |
|
|
|