UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
(Mark One)
þ
|
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange
Act of 1934
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|
For
the fiscal year ended December 31, 2005
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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
_____________________________
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|
General
Electric Capital Corporation
(Exact
name of registrant as specified in its
charter)
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Delaware
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|
13-1500700
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(State
or other jurisdiction of incorporation or organization)
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|
(I.R.S.
Employer Identification No.)
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|
|
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260
Long Ridge Road, Stamford, Connecticut
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|
06927
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203/357-4000
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(Address
of principal executive offices)
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(Zip
Code)
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(Registrant’s
telephone number,
including
area code)
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Securities
Registered Pursuant to Section 12(b) of the
Act:
|
Title
of each class
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|
Name
of each exchange
on
which registered
|
|
|
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7.875%
Guaranteed Subordinated Notes Due December 1,
2006
|
|
New
York Stock Exchange
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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:
|
|
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Title
of each class
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None
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes þ No
¨
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act. Yes ¨ No
þ
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
Accelerated
filer ¨
Non-accelerated
filer þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). 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
March
2, 2006, 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, 2005 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
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Page
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PART
I
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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7
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Item
1B.
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Unresolved
Staff Comments
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9
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Item
2.
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Properties
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9
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Item
3.
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Legal
Proceedings
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9
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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9
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PART
II
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|
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Item
5.
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Market
for the Registrant’s Common Equity and Related Stockholder Matters
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9
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Item
6.
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Selected
Financial Data
|
10
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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11
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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34
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Item
8.
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Financial
Statements and Supplementary Data
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34
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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77
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Item
9A.
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Controls
and Procedures
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77
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Item
9B.
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Other
Information
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78
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PART
III
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Item
10.
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Directors
and Executive Officers of the Registrant
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78
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Item
11.
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Executive
Compensation
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78
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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78
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Item
13.
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Certain
Relationships and Related Transactions
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78
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Item
14.
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Principal
Accounting Fees and Services
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79
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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79
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Signatures
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88
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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 of GE’s 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, 2005, our employment totaled approximately
77,500.
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
In
the
fourth quarter of 2005, GE completed a Genworth Financial, Inc. (Genworth)
secondary public offering, which reduced our ownership in Genworth to 18%.
We
have reported Genworth as discontinued operations for all periods presented.
Genworth was previously reported in the GE Commercial Finance segment. Also,
during the fourth quarter of 2005, our insurance activities, previously reported
in the GE Commercial Finance segment, were transferred to GECC corporate
items
and eliminations for all periods presented.
For
purposes of our segment discussions throughout this document, the financial
services businesses (Equipment Services, Aviation Financial Services, Energy
Financial Services and Transportation Finance), are reported in the GE
Industrial and GE Infrastructure segments based on the approach management
uses
to allocate resources and assess performance. Although management’s approach to
segments combines industrial businesses with financial services businesses,
the
financial services businesses will continue to be reported in the GECC financial
statements. We will herein provide business descriptions for these specific
financial services businesses. We will also continue our longstanding practice
of providing supplemental information for certain businesses within the
segments.
GE
Commercial Finance
GE
Commercial Finance (36.1%, 38.1% and 40.0% of total GECC revenues in 2005,
2004
and 2003, respectively)
offers
a
broad range of financial services worldwide. We have particular mid-market
expertise 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-related facilities
and
equipment; commercial and residential real estate; vehicles; corporate aircraft;
and equipment used in many industries, including the construction,
manufacturing, telecommunications and healthcare industries.
During
2005, we made a number of acquisitions, the most significant of which were
the
Transportation Financial Services Group of CitiCapital; the Inventory Finance
division of Bombardier Capital; Antares Capital Corp., a unit of Massachusetts
Mutual Life Insurance Co.; and ING’s portion of Heller AG.
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 related to
our
lending and leasing operations 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.
Our
headquarters are in Stamford, Connecticut with offices throughout North America,
South America, Europe, Australia and Asia.
For
further information about revenues, segment profit and total assets for GE
Commercial Finance, see the Segment Operations section of Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations
and
note 17.
Capital
Solutions
Capital
Solutions offers a broad range of financial services worldwide, and has
particular mid-market expertise, offering loans, leases, inventory finance
and
other financial services to customers, including manufacturers, dealers and
end-users for a variety of equipment and major capital assets. These assets
include retail facilities; vehicles; corporate aircraft; and equipment used
in
many industries, including the construction, transportation, technology,
and
manufacturing industries.
Real
Estate
Real
Estate 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, 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.
GE
Consumer Finance
GE
Consumer Finance (35.0%, 31.4% and 30.6% of total GECC revenues in 2005,
2004
and 2003, respectively)
offers
credit and deposit products and services to consumers, retailers, brokers
and
auto dealers in over 50 countries. We offer a broad range of financial products,
including private-label credit cards; bank cards; Dual Cards™; corporate travel
and purchasing cards; personal loans; auto loans; leases and inventory
financing; residential mortgages; home equity loans; debt consolidation loans;
current and savings accounts and insurance products related to consumer finance
offerings for customers on a global basis.
In
2005,
as part of our continued global expansion, we made a number of acquisitions,
the
most significant of which was a 25.5 percent voting stake in Garanti Bank,
a
full service bank in Turkey.
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
from fluctuations in retail sales, interest and currency exchange rates,
and the
consumer’s capacity to repay debt.
Our
headquarters are in Stamford, Connecticut and our operations are located
in
North America, South America, Europe, Australia and Asia.
For
further information about revenues, segment profit and total assets for GE
Consumer Finance, see the Segment Operations section of Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations
and
note 17.
GE
Industrial
GE
Industrial (11.9%, 13.1% and 8.2% of total GECC revenues in 2005, 2004 and
2003,
respectively) produces and sells products including consumer appliances,
industrial equipment and plastics, and related services. We also finance
business equipment for a wide variety of customer applications.
Our
operations are located in North America, Europe, Asia and South
America.
For
further information about revenues and segment profit for GE Industrial,
see the
Segment Operations section of Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations and note 17.
Equipment
Services
Equipment
Services helps customers manage, finance and operate a wide variety of business
equipment worldwide. We provide rentals, leases, sales and asset management
services of commercial and transportation equipment, including tractors,
trailers, railroad rolling stock, modular space units, intermodal shipping
containers and, primarily through an associated company, 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.
GE
Infrastructure
GE
Infrastructure (9.1%, 8.6% and 9.1% of total GECC revenues in 2005, 2004
and
2003, respectively) produces, sells, finances and services equipment for
the air
transportation and energy generation industries. We also produce, sell and
service equipment for the rail transportation and water treatment
industries.
Our
operations are located in North America, Europe, Asia and South
America.
For
further information about revenues and segment profit for GE Infrastructure,
see
the Segment Operations section of Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operations and note 17.
Aviation
Financial Services
Aviation
Financial Services is a global commercial aviation financial services business
that offers a broad range of financial products to airlines, aircraft operators,
owners, lenders, investors and airport developers. Financial
products include leases, aircraft purchasing and trading, loans,
engine/spare parts financing, pilot training, fleet planning and financial
advisory services. We operate in a highly competitive environment. Our
competitors include aircraft manufacturers, banks, financial institutions,
and
other finance and leasing companies. Competition is based on lease rates
and
terms, as well as aircraft delivery dates, condition and
availability.
The
U.S.
commercial aviation industry continues to face challenges and financial pressure
that affect a portion of our commercial aviation business. Many carriers
are experiencing major restructuring and reorganization, including bankruptcies.
These companies have experienced marginal returns and in some cases losses
resulting from competitive pressures and increased fuel costs.
Energy
Financial Services
Energy
Financial Services offers structured equity, leveraged leasing, partnerships,
project finance and broad-based commercial finance to the global energy and
water industries. We operate in a highly competitive environment. Our
competitors include banks, financial institutions, energy companies, and
other
finance and leasing companies. Competition is based on price, that is interest
rates and fees, as well as deal structure and terms. As we compete globally,
our
success is sensitive to the economic and political environment of each country
in which we do business.
Discontinued
Operations
In
May
2004, we completed the initial public offering of Genworth, our formerly
wholly-owned subsidiary that conducted most of our consumer insurance business,
including life and mortgage insurance operations. Throughout 2005, we continued
to reduce our ownership in Genworth, currently at 18%. We intend to continue
to
dispose of our remaining shares in 2006, subject to market conditions. We
reported Genworth as discontinued operations for all periods
presented.
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 loan transactions,
installment
loans and revolving credit financing. Our insurance activities 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. 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 activities, 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
which could adversely or positively affect our future results include: the
behavior of financial markets, including fluctuations in interest rates and
commodity prices; strategic actions, including dispositions; future integration
of acquired businesses; future financial performance of major industries
which
we serve, including, without limitation, the air and rail transportation,
energy
generation, media, real estate and healthcare industries; and numerous other
matters of national, regional and global scale, including those of a political,
economic, business, competitive and 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.
The
following discussion of risk factors contains “forward-looking statements,” as
discussed in Item 1. These risk factors may be important to understanding
any
statement in this Annual Report on Form 10-K or elsewhere. The following
information should be read in conjunction with Management’s Discussion and
Analysis (MD&A), and the consolidated financial statements and related notes
included in this report.
Our
businesses routinely encounter and address risks, some of which will cause
our
future results to be different - sometimes materially different - than we
presently anticipate. Discussion about the important operational
risks
that our businesses encounter can be found in the MD&A section and in the
business descriptions included in the Business section of this Form 10-K.
Below,
we have described our present view of certain important strategic risks.
Our
reactions to material future developments as well as our competitors’ reactions
to those developments will determine our future results.
Our
global growth is subject to a number of economic, political and regulatory
risks
We
conduct our operations in virtually every part of the world. Global economic
and
regulatory developments affect businesses such as ours in many ways. Operations
are subject to the effects of global competition. Particular local
jurisdiction risks include regulatory risks arising from local laws and
from local liquidity regulations, including risks of not being able to retrieve
assets. Our global business is affected by local economic environments,
including inflation, recession and currency volatility. Political changes,
some
of which may be disruptive, can interfere with our supply chain, our customers
and all of our activities in a particular location. While some of these risks
can be hedged using derivatives or other financial instruments and some are
insurable, such attempts to mitigate these risks are costly and not always
successful.
Our
credit ratings are important to our cost of capital
The
major
debt agencies routinely evaluate our debt and have given their highest
debt
ratings to us. One of our strategic objectives is to maintain these “Triple A”
ratings as they serve to lower our borrowing costs and facilitate our access
to
a variety of lenders. Failure to maintain our Triple A debt rating could
adversely affect our cost of funds and related margins.
The
disposition of businesses that do not fit with our evolving strategy can
be
highly uncertain
We
will
continue to evaluate the potential disposition of assets and businesses
that may
no longer help us meet our objectives. Our decision to sell Genworth is
a recent
example of a disposition decision. When we decide to sell assets or a
business, we may encounter difficulty in finding buyers or alternative
exit
strategies on acceptable terms in a timely manner, which could delay the
accomplishment of our strategic objectives, or we may dispose of a business
at a
price or on terms which are less than we had anticipated. In addition,
there is
a risk that we sell a business whose subsequent performance exceeds our
expectations, in which case our decision would have potentially sacrificed
enterprise value. Correspondingly, we may be too optimistic about a particular
business's prospects, in which case we may be unable to find a buyer at
a price
acceptable to us and therefore may have potentially sacrificed enterprise
value.
Item
1B. Unresolved Staff Comments.
Not
applicable.
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.
In
January 2005, the Boston District Office of the U.S. Securities and Exchange
Commission (SEC) informed GE that it had commenced an investigation and
requested that GE and GECC voluntarily provide certain documents and information
with respect to the use of hedge accounting for derivatives by GE and GECC.
The
SEC Staff advised GE in August 2005 that the SEC had issued a formal order
of
investigation in connection with this matter, which GE believes to be a common
step in the process in such matters. GE and GECC have continued to voluntarily
provide documents and information to the SEC Staff and we are cooperating
fully
with its investigation.
On
June
14, 2005, GE received a subpoena from the U.S. Attorney’s Office for the
Southern District of New York seeking documents relating to finite risk
insurance. The subpoena is general in nature. GE received a similar subpoena
from the Northeast Regional Office of the SEC on April 29, 2005. We are
cooperating fully with the SEC and the U.S. Attorney’s Office.
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 and Related Stockholder
Matters.
See
note
15 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.
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
55,515
|
|
$
|
50,093
|
|
$
|
41,605
|
|
$
|
38,432
|
|
$
|
38,393
|
|
Earnings
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
accounting changes
|
|
8,666
|
|
|
7,818
|
|
|
6,070
|
|
|
5,339
|
|
|
4,716
|
|
Earnings
from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes
|
|
928
|
|
|
442
|
|
|
1,396
|
|
|
1,215
|
|
|
1,294
|
|
Earnings
before accounting changes
|
|
9,594
|
|
|
8,260
|
|
|
7,466
|
|
|
6,554
|
|
|
6,010
|
|
Cumulative
effect of accounting changes
|
|
-
|
|
|
-
|
|
|
(339
|
)
|
|
(1,015
|
)
|
|
(1
|
)
|
Net
earnings
|
|
9,594
|
|
|
8,260
|
|
|
7,127
|
|
|
5,539
|
|
|
6,009
|
|
Shareowner’s
equity
|
|
50,188
|
|
|
53,958
|
|
|
46,692
|
|
|
40,126
|
|
|
31,739
|
|
Minority
interest
|
|
2,212
|
|
|
2,325
|
|
|
2,512
|
|
|
1,834
|
|
|
1,650
|
|
Short-term
borrowings
|
|
149,679
|
|
|
147,293
|
|
|
146,865
|
|
|
120,859
|
|
|
152,626
|
|
Long-term
borrowings
|
|
206,206
|
|
|
201,392
|
|
|
162,541
|
|
|
138,452
|
|
|
76,140
|
|
Return
on average shareowner’s equity(a)
|
|
18.32
|
%
|
|
17.29
|
%
|
|
14.75
|
%
|
|
16.32
|
%
|
|
17.14
|
%
|
Ratio
of earnings to fixed charges
|
|
1.66
|
|
|
1.82
|
|
|
1.71
|
|
|
1.62
|
|
|
1.56
|
|
Ratio
of earnings to combined fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charges
and preferred stock dividends
|
|
1.66
|
|
|
1.81
|
|
|
1.71
|
|
|
1.61
|
|
|
1.55
|
|
Ratio
of debt to equity
|
|
7.09:1
|
|
|
6.46:1
|
|
|
6.63:1
|
|
|
6.46:1
|
|
|
7.21:1
|
|
Financing
receivables - net
|
$
|
284,567
|
|
$
|
279,588
|
|
$
|
245,503
|
|
$
|
195,322
|
|
$
|
169,615
|
|
Total
assets of continuing operations
|
|
472,292
|
|
|
462,837
|
|
|
407,194
|
|
|
350,080
|
|
|
298,852
|
|
Total
assets
|
|
475,273
|
|
|
566,885
|
|
|
506,773
|
|
|
439,434
|
|
|
381,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents
earnings from continuing operations before accounting changes divided
by
average total shareowner’s equity, excluding effects of discontinued
operations (on an annual basis, calculated using a five-point average).
Average total shareowner’s equity, excluding effects of discontinued
operations, as of the end of each of the years in the five-year
period
ended December 31, 2005, is described in the Supplemental Information
section.
|
|
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
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 U.S. Securities and Exchange Commission (SEC)
rules. For such measures, we have provided supplemental explanations and
reconciliations in the Supplemental Information section.
We
present Management’s Discussion of Operations in four parts: Overview of Our
Earnings from 2003 through 2005, Global Risk Management, Segment Operations
and
Global Operations.
Overview
of Our Earnings from 2003 through 2005
Our
results over the last several years reflect the global economic environment
in
which we operate. During these years, the economy has grown, but at a rate
that,
in historic terms, has been relatively modest. Long-term interest rates have
been stable. We also experienced a weaker, but recently strengthening, U.S.
dollar, escalating energy costs and higher fossil fuel-related raw material
prices. Market developments in the commercial aviation industry also had
significant effects on our results. We had 1,405 commercial aircraft on lease
at
December 31, 2005, an increase of 63 aircraft from last year. All of our
aircraft were on lease at the end of 2005, and at that time we held $10.6
billion (list price) of multiple-year orders for various Boeing, Airbus and
other aircraft, including 73 aircraft ($4.8 billion list price) scheduled
for
delivery in 2006, all under agreement to commence operations with commercial
airline customers. As the following pages show, our diversification and risk
management strategies enabled us to continue to grow revenues and earnings
to
record levels during this challenging time.
GE
Commercial Finance and GE Consumer Finance (together, 70% and 84% of total
three-year revenues and total segment profit, respectively) are large,
profitable growth businesses in which we continue to invest with confidence.
In
a challenging economic environment, these businesses grew earnings by a combined
$1.2 billion and $0.9 billion in 2005 and 2004, respectively. GE Commercial
Finance and GE Consumer Finance have delivered strong results through solid
core
growth, disciplined risk management and successful acquisitions. The most
significant acquisitions affecting GE Commercial Finance and GE Consumer
Finance
results in 2005 were the commercial lending business of Transamerica Finance
Corporation; WMC Finance Co. (WMC), a U.S. wholesale mortgage lender; Australian
Financial Investments Group (AFIG), a residential mortgage lender in Australia;
and the Transportation Financial Services Group of CitiCapital. These
acquisitions collectively contributed $1.9 billion and $0.2 billion to 2005
revenues and net earnings, respectively.
Overall,
acquisitions contributed $3.0 billion, $3.3 billion and $2.3 billion to total
revenues in 2005, 2004 and 2003, respectively. Our total net earnings in
2005,
2004 and 2003 included approximately $0.3 billion, $0.5 billion and $0.3
billion, respectively, from acquired businesses. We integrate acquisitions
as
quickly as possible. Only revenues and earnings from the date we complete
the
acquisition through the end of the fourth following quarter are attributed
to
such businesses. Dispositions also affected our operations through lower
revenues of $1.4 billion, $2.4 billion and $1.7 billion in 2005, 2004 and
2003,
respectively. This resulted in lower earnings of $0.4 billion and $0.3 billion
in 2005 and 2004, respectively, and higher earnings of $0.1 billion
in 2003.
Significant
matters relating to our Statement of Earnings are explained below.
Insurance
Exit.
In 2005,
we reduced our exposure to insurance in a disciplined fashion and our exit
is
now in sight.
In
May
2004, we completed the initial public offering of Genworth Financial, Inc.
(Genworth), our formerly wholly-owned subsidiary that conducted most of our
consumer insurance business, including life and mortgage insurance operations.
Throughout 2005, we continued to reduce our ownership in Genworth, currently
at
18%. We intend to continue to dispose of our remaining shares in 2006, subject
to market conditions. We reported Genworth as discontinued operations for
all
periods presented. Unless otherwise indicated, we refer to captions such
as
revenues and earnings from continuing operations simply as “revenues” and
“earnings” throughout this Management’s Discussion and Analysis. Similarly,
discussion of other matters in our consolidated financial statements relates
to
continuing operations unless otherwise indicated.
Interest
on borrowings
amounted
to $14.1 billion, $11.0 billion and $9.7 billion in 2005, 2004 and 2003,
respectively. Changes over the three-year period reflected increased average
borrowings and increased interest rates. Our average borrowings were $338.1
billion, $311.4 billion and $297.0 billion in 2005, 2004 and 2003, respectively.
Our average composite effective interest rate was 4.2% in 2005, compared
with
3.6% in 2004 and 3.3% in 2003. Proceeds of these borrowings were used in
part to
finance asset growth and acquisitions. In 2005, our average assets of $464.7
billion were 9% higher than in 2004, which in turn were 12% higher than in
2003.
See the Financial Resources and Liquidity section for a discussion of interest
rate risk management.
Income
taxes
are a
significant cost. As a global commercial enterprise, our tax rates are 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.
Our
effective tax rate decreased to 9.8% in 2005 from 15.3% in 2004 and 15.4%
in
2003. The 2005 rate reflects the net benefits, discussed below, of a
reorganization of our aircraft leasing business; and an increase in lower-taxed
earnings from global operations. Together, these items more than account
for the
8.0 percentage point decrease in rate from 2004 reflected in the line “Tax on
global activities including exports” in note 13. Partially offsetting these
benefits was the nonrecurrence of the benefits from 2004 favorable settlements
with the U.S. Internal Revenue Service (IRS) and the low-taxed disposition
of a
majority interest in Gecis, our business process outsourcing operation (now
Genpact). The lack of counterparts to these items increased the 2005 tax
rate by
2.2 percentage points.
The
effective tax rate of 15.3% in 2004 and 15.4% in 2003 also reflected the
net
benefits, discussed below, of a reorganization of our aircraft leasing business,
which decreased the 2004 effective tax rate 1.7 percentage points and is
included in the line “Tax on global activities including exports” in note 13;
tax benefits from favorable IRS settlements, which decreased the 2004 effective
tax rate 1.3 percentage points and is included in the line “All other - net” in
note 13; and the low-taxed disposition of a majority interest in Genpact
which
decreased the 2004 effective tax rate 0.9 percentage points, and is included
in
the line “Tax on global activities including exports” in note 13. Offsetting
these benefits was the effect of higher pre-tax income.
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), our aircraft leasing
business no longer qualifies for a reduced U.S. tax rate. However, the Act
also
extended to aircraft leasing, the U.S. tax deferral benefits that were already
available to other GE non-U.S. active operations. These legislative changes,
coupled with a reorganization of our aircraft leasing business and a favorable
Irish tax ruling, decreased our effective tax rate 3.2 percentage points
in 2005
and 1.7 percentage points in 2004.
Global
Risk Management
A
disciplined approach to risk 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 risk 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, and approves directly
or by
delegation all significant acquisitions and dispositions as well as borrowings
and investments. All participants in the risk management process must comply
with approval limits established by the Board.
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
financial 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 11,000 dedicated risk professionals, including 6,600 involved in
collection activities and 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 in the Financial Resources
and
Liquidity section and in notes 11 and
18.
|
•
|
Credit
risk is the risk of financial loss arising from a customer or counterparty
failure to meet its contractual obligations. We face credit risk
in our
lending and leasing activities (see the Financial Resources and
Liquidity
and Critical Accounting Estimates sections and notes 1, 6, 7 and
20) and
derivative financial instruments activities (see note 18).
|
•
|
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 selective 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 in the Financial Resources and Liquidity section and
in note
18.
|
•
|
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 certain event risk can be found in note 20.
|
Segment
Operations
Operating
segments comprise our four businesses focused on the broad markets they serve:
GE Commercial Finance, GE Consumer Finance, GE Industrial and GE Infrastructure.
For segment reporting purposes, certain financial services businesses are
included in the industrial operating segments that actively manage such
businesses and report their results for internal performance measurement
purposes. These include Aviation Financial Services, Energy Financial Services
and Transportation Finance reported in the GE Infrastructure segment, and
Equipment Services reported in the GE Industrial segment.
In
the
fourth quarter of 2005, we commenced reporting Genworth, which was previously
reported in the GE Commercial Finance segment, as discontinued operations
for
all periods presented. Also, during the fourth quarter of 2005, our insurance
activities, previously reported in the GE Commercial Finance segment, were
transferred to GECC corporate items and eliminations for all periods
presented.
GECC
corporate items and eliminations include the effects of eliminating transactions
between operating segments; results of our insurance activities remaining
in
continuing operations; results of liquidating businesses such as consolidated,
liquidating securitization entities; underabsorbed corporate overhead; certain
non-allocated amounts determined by the Chief Executive Officer; and a variety
of sundry items. GECC corporate items and eliminations is not an operating
segment. Rather, it is added to operating segment totals to reconcile to
consolidated totals on the financial statements.
The
Chief
Executive Officer allocates resources to, and assesses the performance of
operations at the consolidated GE-level. GECC operations are a portion of
those
segments. We present below in their entirety the four GE segments that include
financial services operations. We also provide a one-line reconciliation
to
GECC-only results, the most significant component of which is the elimination
of
GE businesses that are not financial services businesses. In addition to
providing information on GE segments in their entirety, we have also provided
supplemental information for certain businesses within the GE segments. Our
Chief Executive Officer does not separately assess the performance of, or
allocate resources among, these product lines.
Segment
profit is determined based on internal performance measures used by the Chief
Executive Officer to assess the performance of each business in a given period.
In connection with that assessment, the Chief Executive Officer may exclude
matters such as charges for restructuring; rationalization and other similar
expenses; in-process research and development and certain other
acquisition-related charges and balances; technology
development
costs; certain gains and losses from dispositions; and litigation settlements
or
other charges, responsibility for which preceded the current management
team.
Segment
profit always excludes the effects of principal pension plans and results
reported as discontinued operations and accounting changes. Segment profit
excludes or includes interest and other financial charges and income taxes
according to how a particular segment’s management is measured - excluded in
determining segment profit, which we refer to as “operating profit,” for GE
Healthcare, GE NBC Universal and the industrial businesses of the GE Industrial
and GE Infrastructure segments; included in determining segment profit, which
we
refer to as “net earnings,” for GE Commercial Finance, GE Consumer Finance, and
the financial services businesses of the GE Industrial segment (Equipment
Services) and the GE Infrastructure segment (Aviation Financial Services,
Energy
Financial Services and Transportation Finance).
For
additional information about our segments, see Item 1, Business and note
17.
Summary
of Operating Segments
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
20,646
|
|
$
|
19,524
|
|
$
|
16,927
|
|
GE
Consumer Finance
|
|
19,416
|
|
|
15,734
|
|
|
12,845
|
|
GE
Industrial
|
|
32,631
|
|
|
30,722
|
|
|
24,988
|
|
GE
Infrastructure
|
|
41,803
|
|
|
37,373
|
|
|
36,569
|
|
Total
segment revenues
|
|
114,496
|
|
|
103,353
|
|
|
91,329
|
|
GECC
corporate items and eliminations(a)
|
|
4,400
|
|
|
4,439
|
|
|
5,050
|
|
Total
revenues
|
|
118,896
|
|
|
107,792
|
|
|
96,379
|
|
Less
portion of GE revenues not included in GECC
|
|
(63,381
|
)
|
|
(57,699
|
)
|
|
(54,774
|
)
|
Total
revenues in GECC
|
$
|
55,515
|
|
$
|
50,093
|
|
$
|
41,605
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
4,290
|
|
$
|
3,570
|
|
$
|
2,907
|
|
GE
Consumer Finance
|
|
3,050
|
|
|
2,520
|
|
|
2,161
|
|
GE
Industrial
|
|
2,559
|
|
|
1,833
|
|
|
1,385
|
|
GE
Infrastructure
|
|
7,769
|
|
|
6,797
|
|
|
7,362
|
|
Total
segment profit
|
|
17,668
|
|
|
14,720
|
|
|
13,815
|
|
GECC
corporate items and eliminations
|
|
(55
|
)
|
|
880
|
|
|
271
|
|
Less
portion of GE segment profit not included in GECC
|
|
(8,947
|
)
|
|
(7,782
|
)
|
|
(8,016
|
)
|
Earnings
in GECC from continuing operations before
|
|
|
|
|
|
|
|
|
|
accounting
change
|
|
8,666
|
|
|
7,818
|
|
|
6,070
|
|
Earnings
in GECC from discontinued operations, net of taxes
|
|
928
|
|
|
442
|
|
|
1,396
|
|
Earnings
in GECC before accounting change
|
|
9,594
|
|
|
8,260
|
|
|
7,466
|
|
Cumulative
effect of accounting change
|
|
-
|
|
|
-
|
|
|
(339
|
)
|
Total
net earnings in GECC
|
$
|
9,594
|
|
$
|
8,260
|
|
$
|
7,127
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Primarily
revenues associated with our insurance activities remaining in
continuing
operations that were previously reported in the GE Commercial Finance
segment.
|
|
GE
Commercial Finance
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
20,646
|
|
$
|
19,524
|
|
$
|
16,927
|
|
Less
portion of GE Commercial Finance
|
|
|
|
|
|
|
|
|
|
not
included in GECC
|
|
(632
|
)
|
|
(456
|
)
|
|
(300
|
)
|
Total
revenues in GECC
|
$
|
20,014
|
|
$
|
19,068
|
|
$
|
16,627
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
4,290
|
|
$
|
3,570
|
|
$
|
2,907
|
|
Less
portion of GE Commercial Finance
|
|
|
|
|
|
|
|
|
|
not
included in GECC
|
|
(301
|
)
|
|
(177
|
)
|
|
(99
|
)
|
Total
segment profit in GECC
|
$
|
3,989
|
|
$
|
3,393
|
|
$
|
2,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In
millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
190,546
|
|
$
|
184,388
|
|
|
|
|
Less
portion of GE Commercial Finance
|
|
|
|
|
|
|
|
|
|
not
included in GECC
|
|
(1,408
|
)
|
|
508
|
|
|
|
|
Total
assets in GECC
|
$
|
189,138
|
|
$
|
184,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
in GE
|
|
|
|
|
|
|
|
|
|
Capital
Solutions
|
$
|
11,476
|
|
$
|
11,503
|
|
$
|
9,893
|
|
Real
Estate
|
|
3,492
|
|
|
3,084
|
|
|
2,956
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit in GE
|
|
|
|
|
|
|
|
|
|
Capital
Solutions
|
$
|
1,515
|
|
$
|
1,325
|
|
$
|
1,184
|
|
Real
Estate
|
|
1,282
|
|
|
1,124
|
|
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In
millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
in GE
|
|
|
|
|
|
|
|
|
|
Capital
Solutions
|
$
|
87,306
|
|
$
|
80,514
|
|
|
|
|
Real
Estate
|
|
35,323
|
|
|
39,515
|
|
|
|
|
GE
Commercial Finance revenues and net earnings increased 6% and 20%, respectively,
compared with 2004. Revenues during 2005 and 2004 included $1.0 billion and
$0.3
billion from acquisitions, respectively, and in 2005 were reduced by $0.7
billion as a result of dispositions. Revenues during 2005 also increased
$1.1
billion as a result of organic revenue growth ($0.8 billion) and the weaker
U.S.
dollar ($0.3 billion). The increase in net earnings resulted primarily from
core
growth ($0.6 billion), including growth in lower-taxed earnings from global
operations, acquisitions ($0.2 billion) and the weaker U.S. dollar ($0.1
billion), partially offset by lower securitizations ($0.1 billion).
GE
Commercial Finance revenues and net earnings increased 15% and 23%,
respectively, compared with 2003. The increase in revenues resulted primarily
from acquisitions ($2.2 billion) and the weaker U.S. dollar ($0.6 billion),
partially offset by lower securitizations ($0.2 billion). The increase in
net
earnings resulted primarily from
acquisitions
($0.4 billion), core growth ($0.3 billion) and the weaker U.S. dollar ($0.1
billion), partially offset by lower securitizations ($0.1 billion).
GE
Consumer Finance
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
19,416
|
|
$
|
15,734
|
|
$
|
12,845
|
|
Less
portion of GE Consumer Finance
|
|
|
|
|
|
|
|
|
|
not
included in GECC
|
|
-
|
|
|
(9
|
)
|
|
(111
|
)
|
Total
revenues in GECC
|
$
|
19,416
|
|
$
|
15,725
|
|
$
|
12,734
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
3,050
|
|
$
|
2,520
|
|
$
|
2,161
|
|
Less
portion of GE Consumer Finance
|
|
|
|
|
|
|
|
|
|
not
included in GECC
|
|
3
|
|
|
(25
|
)
|
|
50
|
|
Total
segment profit in GECC
|
$
|
3,053
|
|
$
|
2,495
|
|
$
|
2,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In
millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
158,829
|
|
$
|
151,255
|
|
|
|
|
Less
portion of GE Consumer Finance
|
|
|
|
|
|
|
|
|
|
not
included in GECC
|
|
763
|
|
|
(724
|
)
|
|
|
|
Total
assets in GECC
|
$
|
159,592
|
|
$
|
150,531
|
|
|
|
|
GE
Consumer Finance revenues and net earnings increased 23% and 21%, respectively,
compared with 2004. Revenues for 2005 included $1.9 billion from acquisitions.
Revenues during 2005 also increased $1.8 billion as a result of organic revenue
growth ($1.5 billion) and the weaker U.S. dollar ($0.3 billion). The increase
in
net earnings resulted primarily from core growth ($0.6 billion), including
growth in lower-taxed earnings from global operations, and acquisitions ($0.1
billion), partially offset by increased costs to launch new products and
promote
brand awareness ($0.2 billion).
GE
Consumer Finance revenues and net earnings increased 22% and 17%, respectively,
from 2003. The increase in revenues resulted primarily from organic revenue
growth ($1.0 billion), acquisitions ($1.0 billion) and the weaker U.S. dollar
($0.8 billion). Organic revenue growth was achieved despite the absence of
a
2004 counterpart to the 2003 gain on sale of The Home Depot private-label
credit
card receivables ($0.9 billion). The increase in net earnings resulted from
core
growth ($0.6 billion), including growth in lower-taxed earnings from global
operations, acquisitions ($0.1 billion), and 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).
GE
Industrial
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
32,631
|
|
$
|
30,722
|
|
$
|
24,988
|
|
Less
portion of GE Industrial not included in GECC
|
|
(26,004
|
)
|
|
(24,151
|
)
|
|
(21,560
|
)
|
Total
revenues in GECC
|
$
|
6,627
|
|
$
|
6,571
|
|
$
|
3,428
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
2,559
|
|
$
|
1,833
|
|
$
|
1,385
|
|
Less
portion of GE Industrial not included in GECC
|
|
(2,362
|
)
|
|
(1,752
|
)
|
|
(1,418
|
)
|
Total
segment profit in GECC
|
$
|
197
|
|
$
|
81
|
|
$
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
Revenues
in GE
|
|
|
|
|
|
|
|
|
|
Consumer
& Industrial
|
$
|
14,092
|
|
$
|
13,767
|
|
$
|
12,843
|
|
Equipment
Services
|
|
6,627
|
|
|
6,571
|
|
|
3,357
|
|
Plastics
|
|
6,606
|
|
|
6,066
|
|
|
5,501
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit in GE
|
|
|
|
|
|
|
|
|
|
Consumer
& Industrial
|
$
|
871
|
|
$
|
716
|
|
$
|
577
|
|
Equipment
Services
|
|
197
|
|
|
82
|
|
|
(76
|
)
|
Plastics
|
|
867
|
|
|
566
|
|
|
503
|
|
GE
Industrial revenues rose 6%, or $1.9 billion, in 2005 on higher prices ($1.5
billion), higher volume ($0.2 billion) and the weaker U.S. dollar ($0.2 billion)
at the industrial businesses in the segment. We realized price increases
primarily at Plastics and Consumer & Industrial. Volume increases related
primarily to the acquisitions of Edwards Systems Technology and InVision
Technologies, Inc. by our Security business, but were partially offset by
lower
volume at Plastics. Revenues at Equipment Services also increased as a result
of
organic revenue growth ($0.4 billion) and acquisitions ($0.1 billion), partially
offset by the effects of the 2004 disposition of IT Solutions ($0.4 billion).
Segment profit rose 35%, or $0.6 billion, at the industrial businesses in
the
segment in 2005 as price increases ($1.5 billion) and higher volume ($0.1
billion) more than offset higher material and other costs ($0.8 billion),
primarily from commodities such as benzene and natural gas at Plastics, and
lower productivity ($0.2 billion). Segment profit at Equipment Services also
increased as a result of improved operating performance, reflecting core
growth
($0.1 billion).
GE
Industrial revenues rose 23%, or $5.7 billion, in 2004 on higher volume ($2.0
billion), primarily at Consumer & Industrial and Plastics, the weaker U.S.
dollar ($0.5 billion) and higher prices ($0.1 billion) at the industrial
businesses in the segment. Higher prices at Plastics, as demand for plastic
resins increased, were partially offset by lower prices at Consumer &
Industrial. On January 1, 2004, we consolidated Penske Truck Leasing Co.,
L.P.
(Penske), previously accounted for using the equity method. As a result,
consolidated operating lease rentals and other income increased by $2.6 billion
and $0.6 billion, respectively, from 2003 levels. Segment profit rose 32%,
or
$0.4 billion in 2004, as productivity ($0.8 billion), primarily at Consumer
& Industrial and Plastics, higher volume ($0.1 billion) and higher prices
($0.1 billion) more than offset higher material and other costs ($0.8 billion),
primarily from commodities such as benzene and natural gas at Plastics. Segment
profit at Equipment Services also rose on improved operating performance
($0.2
billion).
GE
Infrastructure
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
41,803
|
|
$
|
37,373
|
|
$
|
36,569
|
|
Less
portion of GE Infrastructure not included in GECC
|
|
(36,745
|
)
|
|
(33,083
|
)
|
|
(32,803
|
)
|
Total
revenues in GECC
|
$
|
5,058
|
|
$
|
4,290
|
|
$
|
3,766
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
7,769
|
|
$
|
6,797
|
|
$
|
7,362
|
|
Less
portion of GE Infrastructure not included in GECC
|
|
(6,287
|
)
|
|
(5,828
|
)
|
|
(6,549
|
)
|
Total
segment profit in GECC
|
$
|
1,482
|
|
$
|
969
|
|
$
|
813
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
in GE
|
|
|
|
|
|
|
|
|
|
Aviation
|
$
|
11,904
|
|
$
|
11,094
|
|
$
|
9,808
|
|
Aviation
Financial Services
|
|
3,504
|
|
|
3,159
|
|
|
2,881
|
|
Energy
|
|
16,525
|
|
|
14,586
|
|
|
16,611
|
|
Energy
Financial Services
|
|
1,349
|
|
|
972
|
|
|
805
|
|
Oil
& Gas
|
|
3,598
|
|
|
3,135
|
|
|
2,842
|
|
Transportation
|
|
3,577
|
|
|
3,007
|
|
|
2,543
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit in GE
|
|
|
|
|
|
|
|
|
|
Aviation
|
$
|
2,573
|
|
$
|
2,238
|
|
$
|
1,809
|
|
Aviation
Financial Services
|
|
764
|
|
|
520
|
|
|
506
|
|
Energy
|
|
2,665
|
|
|
2,543
|
|
|
3,875
|
|
Energy
Financial Services
|
|
646
|
|
|
376
|
|
|
280
|
|
Oil
& Gas
|
|
411
|
|
|
331
|
|
|
264
|
|
Transportation
|
|
524
|
|
|
516
|
|
|
450
|
|
GE
Infrastructure revenues rose 12%, or $4.4 billion, in 2005 as higher volume
($4.3 billion) was partially offset by lower prices ($0.6 billion) at the
industrial businesses in the segment. The increase in volume was primarily
at
Energy, Aviation and Transportation. The decrease in prices was primarily
at
Energy, and was partially offset by increased prices at Transportation and
Aviation. Revenues also increased as a result of organic revenue growth at
Energy Financial Services ($0.4 billion) and Aviation Financial Services
($0.3
billion).
Segment
profit rose 14% to $7.8 billion, compared with $6.8 billion in 2004, as higher
volume ($1.0 billion) and productivity ($0.2 billion including customer
settlements and contract terminations) more than offset lower prices ($0.6
billion) and the effects of higher material and other costs ($0.3 billion)
at
the industrial businesses in the segment. The increase in volume primarily
related to Energy, Aviation and Transportation. Segment profit also increased
as
a result of increased net earnings at the financial services businesses.
This
increase reflected core growth at Energy Financial Services ($0.3 billion)
and
core growth at Aviation Financial Services ($0.2 billion), including growth
in
lower-taxed earnings from global operations related to a reorganization of
our
aircraft leasing operations.
GE
Infrastructure revenues increased 2%, or $0.8 billion, in 2004 as the weaker
U.S. dollar ($0.5 billion), primarily at Energy, and higher volume ($0.4
billion) were partially offset by lower prices ($0.6 billion) at the industrial
businesses of the segment, primarily at Energy. The increase in volume was
the
net result of increased sales in commercial services and military engines
at
Aviation and locomotives at Transportation, partially offset by lower sales
at
Energy. Energy sold 122 large heavy-duty gas turbines in 2004, compared with
175
in 2003. Financial services activity, primarily at Aviation Financial Services
and Energy Financial Services, increased revenues primarily from organic
revenue
growth ($0.4 billion) and acquisitions ($0.1 billion).
Segment
profit fell 8%, or $0.6 billion, in 2004 as lower material costs ($0.3 billion),
primarily at Energy, and higher volume ($0.1 billion) were more than offset
by
lower prices ($0.6 billion) and lower productivity ($0.6 billion) at the
industrial businesses of the segment. The lower productivity was the net
effect
of lower productivity at Energy, primarily from the anticipated decline in
higher margin gas turbine sales and a decrease in customer contract termination
fees, partially offset by higher productivity at Aviation. Segment profit
from
the financial services businesses, primarily Energy Financial Services,
increased $0.1 billion as a result of core growth.
GE
Infrastructure orders were $38.4 billion in 2005, up from $34.0 billion in
2004.
The $29.2 billion total backlog at year-end 2005 comprised unfilled product
orders of $18.8 billion (of which 65% was scheduled for delivery in 2006)
and
product service orders of $10.4 billion scheduled for 2006 delivery. Comparable
December 31, 2004, total backlog was $27.8 billion, of which $18.2 billion
was
for unfilled product orders and $9.6 billion for product services
orders.
Discontinued
Insurance Operations
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
in GECC from discontinued operations, net of taxes
|
$
|
928
|
|
$
|
442
|
|
$
|
1,396
|
|
Discontinued
operations comprise Genworth, our formerly wholly-owned subsidiary that
conducted most of our consumer insurance business, including life and mortgage
insurance operations. Results of Genworth are reported as discontinued
operations for all periods presented.
Earnings
from discontinued operations in 2005 reflected Genworth earnings ($0.9 billion).
Dividends we receive from Genworth and any gains or losses on sales of our
remaining 18% position in Genworth common stock will also be reported in
discontinued operations.
Earnings
from discontinued operations in 2004 reflected earnings of Genworth ($0.4
billion), including our share of 2004 earnings from operations ($0.8 billion),
partially offset by the loss on the Genworth initial public offering in May
2004
($0.3 billion).
For
additional information related to discontinued operations see note 2.
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 rose 18% to $29.7 billion in 2005 compared with $25.2 billion and
$21.3
billion in 2004 and 2003, respectively. Global revenues as a percentage of
total
revenues were 54% in 2005, compared with 50% and 51% in 2004 and 2003,
respectively.
Revenues
in the Pacific Basin increased 28% in 2005, primarily as a result of the
acquisition of AFIG at GE Consumer Finance and organic revenue growth at
GE
Consumer Finance and GE Commercial Finance. Revenues increased 25% in Europe
primarily as a result of higher investment income (largely offset by
policyholder dividends) at our insurance activities, and organic revenue
growth
and acquisitions at GE Consumer Finance and GE Commercial Finance. Revenues
in
Other Global decreased 3% primarily as a result of the absence of a current-year
counterpart to the 2004 gain on the sale of a majority interest in Genpact,
partially offset by organic revenue growth at GE Infrastructure.
Global
pre-tax earnings were $5.5 billion in 2005, an increase of 9% over 2004,
which
were 38% higher than in 2003. Pre-tax earnings in 2005 rose 28% in the Americas
and 27% in Europe as a result of core growth, primarily at GE Commercial
Finance
and GE Consumer Finance. These increases in pre-tax earnings were partially
offset by a 43% decrease in Other Global in 2005 as a result of the absence
of a
current-year counterpart to the 2004 gain on the sale of a majority interest
in
Genpact, and higher costs at GE Infrastructure.
Our
global assets on a continuing basis of $261.9 billion at the end of 2005
were 1%
higher than at the end of 2004, reflecting acquisitions and core growth,
almost
fully offset by the recently strengthening U.S. dollar.
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 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, the Statement of Changes in Shareowner’s Equity, the
Statement of Cash Flows, Contractual Obligations, Off-Balance Sheet
Arrangements, and Debt Instruments, Guarantees and Covenants.
Overview
of Financial Position
Major
changes in our financial position resulted from the following:
·
|
In
the fourth quarter of 2005, GE completed a Genworth secondary public
offering, which reduced our ownership in Genworth from 27% to 18%.
We have
separately reported the assets and liabilities related to Genworth
as
discontinued operations for all periods
presented.
|
·
|
Our
discontinued operations assets and liabilities decreased by $99.6
billion
on September 27, 2005, when we reduced our ownership of Genworth
to 27%, a
level of investment that is reported as an associated company.
As an
associated company, our ongoing interest in Genworth operating
results
were presented on a one-line basis. This deconsolidation had a
significant
effect on our assets and liabilities of discontinued operations.
|
·
|
During
2005, we completed acquisitions of the Transportation Financial
Services
Group of CitiCapital, the Inventory Finance division of Bombardier
Capital, Antares Capital Corp., a unit of Massachusetts Mutual
Life
Insurance Co., and ING’s portion of Heller AG.
|
·
|
The
U.S. dollar was stronger at December 31, 2005, than it was at December
31,
2004, reducing the translated levels of our non-U.S. dollar assets
and
liabilities. However, on average, the U.S. dollar in 2005 has been
weaker
than during the comparable 2004 period, resulting in increases
in reported
levels of non-U.S. dollar operations as noted in the preceding
Operations
section.
|
Statement
of Financial Position
Investment
securities
comprise
mainly available-for-sale investment-grade debt securities supporting
obligations to annuitants and policyholders, and debt and equity securities
designated as trading and associated with certain non-U.S. insurance
contractholders who retain the related investment risks and rewards except
in
the event of our bankruptcy or liquidation. Investment securities were $29.5
billion at December 31, 2005, compared with $32.9 billion at December 31,
2004.
We
regularly review investment securities for impairment based on both quantitative
and qualitative criteria. Quantitative criteria include length of time and
amount that each security is in an unrealized loss position and, for fixed
maturities whether the issuer is in compliance with terms and covenants of
the
security. Qualitative criteria include the financial health of and specific
prospects for the issuer, as well as our intent and ability to hold the security
to maturity or until forecasted recovery. Our impairment reviews involve
our
finance, risk and asset management teams as well as the portfolio management
and
research capabilities of our internal and third-party asset managers. Our
qualitative review attempts to identify those issuers with a greater than
50%
chance of default in the following 12 months. These securities are characterized
as “at-risk” of impairment. Of available-for-sale securities with unrealized
losses at December 31, 2005, an inconsequential amount was at risk of being
charged to earnings in the next 12 months.
Impairment
losses for 2005 were insignificant compared with $0.1 billion in 2004. 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 $0.6 billion and $0.2 billion, respectively,
at
December 31, 2005, compared with $0.8 billion and $0.4 billion, respectively,
at
December 31, 2004. At December 31, 2005, available accounting gains could
be as
much as $0.4 billion, net of consequential adjustments to certain insurance
assets that are amortized based on anticipated gross profits. 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 5.
We
also
hold collateralized investment securities issued by various airlines, including
those operating in bankruptcy. Total amortized cost of these securities was
$1.6
billion at December 31, 2005, and total fair value was $1.5 billion. Unrealized
losses totaling $0.1 billion were associated with securities in an unrealized
loss position for more than 12 months, an improvement from the comparable
$0.3
billion a year earlier. All of these securities have remained current on
all
payment terms; we do not expect the borrowers to default. Current appraised
market values of associated aircraft collateral exceeded both the market
value
and the amortized cost of our related securities at December 31, 2005, offering
protection in the event of foreclosure. Therefore, we expect full recovery
of
our investment as well as our contractual returns.
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,
was $289.1 billion at December 31, 2005, and $285.2 billion at December 31,
2004. The related allowance for losses at December 31, 2005, amounted to
$4.6
billion, compared with $5.6 billion at December 31, 2004, representing our
best
estimate of probable losses inherent in the portfolio. The allowance for
losses
decreased $1.0 billion from 2004. The 2005 decrease reflected write-offs
of
previously reserved financing receivables ($0.8 billion), principally commercial
aviation loans and leases in our GE Infrastructure segment, and the recently
strengthening U.S. dollar ($0.2 billion). During 2005, changes in U.S.
bankruptcy laws prompted certain customers to accelerate filing for bankruptcy
protection. These changes had an inconsequential effect on our allowance
and
earnings. Balances at December 31, 2005 and 2004, included securitized, managed
GE trade receivables of $3.9 billion and $3.5 billion, respectively. See
notes 6
and 7.
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.
GE
Commercial Finance financing receivables, before allowance for losses, totaled
$128.9 billion at December 31, 2005, compared with $121.5 billion at December
31, 2004, and consisted of loans and leases to the equipment and leasing,
commercial and industrial and real estate industries. This portfolio of
receivables increased primarily from core growth ($38.9 billion) and
acquisitions ($10.9 billion), partially offset by securitizations and sales
($36.0 billion) and the recently strengthening U.S. dollar ($2.0 billion).
Related nonearning and reduced-earning receivables were $1.3 billion (1.0%
of
outstanding receivables) at December 31, 2005, and $1.4 billion (1.2% of
outstanding receivables) at year-end 2004. GE Commercial Finance financing
receivables are generally backed by assets and there is a broad spread of
geographic and credit risk in the portfolio.
GE
Consumer Finance financing receivables, before allowance for losses, were
$130.1 billion at December 31, 2005, compared with $127.8 billion at
December 31, 2004, and consisted primarily of card receivables, installment
loans, auto loans and leases, and residential mortgages. This portfolio of
receivables increased primarily as a result of core growth ($11.3 billion)
and
acquisitions ($0.4 billion), partially offset by the recently strengthening
U.S.
dollar ($7.8 billion), securitizations ($0.7 billion), loans transferred
to
assets held for sale ($0.5 billion) and dispositions ($0.4 billion). Nonearning
consumer receivables were $2.8 billion at December 31, 2005, compared with
$2.5 billion at December 31, 2004, representing 2.1% and 2.0% of
outstanding receivables, respectively. The increase was primarily related
to
higher nonearning receivables in our European secured financing business,
a
business that tends to experience relatively higher delinquencies but lower
losses than the rest of our consumer portfolio.
GE
Infrastructure financing receivables, before allowance for losses, were $18.9
billion at December 31, 2005, compared with $20.8 billion at December 31,
2004,
and consisted primarily of loans and leases to the commercial aircraft and
energy industries. Related nonearning and reduced-earning receivables were
insignificant at December 31, 2005, down from $0.2 billion (0.8% of outstanding
receivables) at December 31, 2004.
Other
financing receivables, before allowance for losses, were $11.2 billion and
$15.1 billion at December 31, 2005 and December 31, 2004, 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, 2005, were $0.1 billion (0.7% of outstanding receivables) compared
with $0.2 billion (1.2% of outstanding receivables) at December 31,
2004.
Delinquency
rates on managed GE Commercial Finance equipment loans and leases and managed
GE
Consumer Finance financing receivables follow.
December
31
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
1.31
|
%
|
|
1.40
|
%
|
|
1.38
|
%
|
|
GE
Consumer Finance
|
5.08
|
|
|
4.85
|
|
|
5.62
|
|
|
Delinquency
rates at GE Commercial Finance decreased from December 31, 2004, to December
31,
2005, primarily resulting from improved credit quality across all portfolios.
The increase from December 31, 2003, to December 31, 2004, reflected the
effect
of certain acquired portfolios, partially offset by improvement in the overall
core portfolio.
Delinquency
rates at GE Consumer Finance increased from December 31, 2004, to December
31,
2005, as a result of higher delinquencies in our European secured financing
business, discussed above. The decrease from December 31, 2003, to December
31,
2004, reflected the results 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, discussed above.
See
notes 6 and 7.
Other
receivables
totaled
$25.7 billion at December 31, 2005, and $21.2 billion at December 31, 2004,
and
consisted primarily of nonfinancing customer receivables, insurance receivables,
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.
Buildings
and equipment
consisted primarily of equipment provided to third parties on operating leases.
Buildings and equipment amounted to $50.9 billion at December 31, 2005, up
$4.7
billion from 2004, primarily reflecting acquisitions of commercial aircraft
at
the Aviation Financial Services business of GE Infrastructure. Details by
category of investment are presented in note 8. Additions to buildings and
equipment were $11.2 billion and $10.3 billion during 2005 and 2004,
respectively, primarily reflecting additions of commercial aircraft at the
Aviation Financial Services business of GE Infrastructure and vehicles at
GE
Commercial Finance and the Equipment Services business of GE Industrial.
Borrowings
amounted
to $355.9 billion at December 31, 2005, of which $149.7 billion is due in
2006
and $206.2 billion is due in subsequent years. Comparable amounts at the
end of
2004 were $348.7 billion in total, $147.3 billion due within one year and
$201.4
billion due thereafter. Included in our total borrowings were borrowings
of
consolidated, liquidating securitization entities amounting to $16.8 billion
and
$25.8 billion at December 31, 2005 and 2004, respectively. A large portion
of
our borrowings ($90.4 billion and $89.8 billion at the end of 2005 and 2004,
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 45 days and 4.09% at
the
end of 2005, compared with 42 days and 2.39% at the end of 2004. Our ratio
of
debt to equity was 7.09 to 1 at the end of 2005 and 6.46 to 1 at the end of
2004. See note 11.
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.
•
|
It
is our policy to minimize exposure to interest rate changes. We
fund our
financial investments using debt or a combination of debt and hedging
instruments so that the interest rates and terms of our borrowings
match
the expected yields and terms on our assets. To test the effectiveness
of
our positions, we assumed that, on January 1, 2006, interest rates
increased by 100 basis points across the yield curve (a “parallel shift”
in that curve) and further assumed that the increase remained in
place for
2006. We estimated, based on that year-end 2005 portfolio and holding
everything else constant, that our 2006 net earnings would decline
by
$0.1 billion.
|
•
|
It
is our policy to minimize currency exposures and to conduct operations
either within functional currencies or using the protection of
hedge
strategies. We analyzed year-end 2005 consolidated currency exposures,
including derivatives designated and effective as hedges, to identify
assets and liabilities denominated in other than their relevant
functional
currencies. For such assets and liabilities, we then evaluated
the effects
of a 10% shift in exchange rates between those currencies and the
U.S.
dollar. This analysis indicated that there would be an inconsequential
effect on 2006 earnings of such a shift in exchange
rates.
|
Statement
of Changes in Shareowner’s Equity
Shareowner’s
equity decreased $3.8 billion in 2005, and increased $7.3 billion in 2004
and
$6.6 billion in 2003. Changes over the three-year period were largely
attributable to net earnings, partially offset by dividends declared of $8.6
billion, $3.1 billion and $4.5 billion in 2005, 2004 and 2003, respectively.
Also, a redemption of the preferred stock decreased shareowner’s equity by $2.5
billion in 2005. Currency translation adjustments decreased equity by $2.5
billion in 2005, compared with a $2.3 billion increase in 2004. Changes in
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 2005, the U.S. dollar
strengthened against the pound sterling and euro. In 2004, the pound sterling,
euro and, to a lesser extent, Asian currencies strengthened against the U.S.
dollar. See note 15. Accumulated currency translation adjustments affect
net
earnings only when all or a portion of an affiliate is disposed of or
substantially liquidated.
Overview
of Our Cash Flow from 2003 through 2005
Our
cash
and equivalents aggregated $6.2 billion at the end of 2005, reduced from
$8.4
billion at year-end 2004. Over the past three years, our borrowings with
maturities of 90 days or less have decreased by $17.9 billion. New borrowings
of
$184.5 billion having maturities longer than 90 days were added during those
years, while $137.1 billion of such long-term borrowings were
retired.
Our
principal use of cash has been investing in assets to grow our businesses.
Of
the $63.9 billion that we invested over the past three years, $36.8 billion
was
used for additions to financing receivables; $28.8 billion was used to invest
in
new equipment, principally for lease to others; and $31.5 billion was used
for
acquisitions of new businesses, the largest of which were the Transportation
Financial Services Group of CitiCapital and the Inventory Finance division
of
Bombardier Capital in 2005; the commercial lending business of Transamerica
Finance Corporation and Sophia S.A. in 2004; and First National Bank and
Conseco
in 2003.
Although
we generated $55.8 billion from operating activities over the last three
years,
our cash is not necessarily freely available for alternative uses. For example,
use of cash generated by our regulated activities is often restricted by
such
regulations. Further, any reinvestment in financing receivables is shown
in cash
used for investing activities, not operating activities. Therefore, maintaining
or growing our assets requires that we invest much of the cash we generate
from
operating activities in our earning assets.
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 that we are in a sound position to grow dividends and
continue making selective investments for long-term growth.
Contractual
Obligations
As
defined by reporting regulations, our contractual obligations for future
payments as of December 31, 2005, follow.
|
Payments
due by period
|
(In
billions)
|
Total
|
|
2006
|
|
2007-2008
|
|
2009-2010
|
|
2011
and
thereafter
|
|
|
|
|
|
|
|
|
|
|
Borrowings
(note 11)
|
$
|
355.9
|
|
$
|
149.7
|
|
|
$
|
84.6
|
|
|
|
$
|
47.1
|
|
|
|
$
|
74.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on borrowings
|
|
64.0
|
|
|
12.0
|
|
|
|
17.0
|
|
|
|
|
10.0
|
|
|
|
|
25.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations (note 4)
|
|
4.0
|
|
|
0.8
|
|
|
|
1.2
|
|
|
|
|
0.9
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations(a)(b)
|
|
22.0
|
|
|
15.0
|
|
|
|
6.0
|
|
|
|
|
1.0
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
liabilities (note
12)(c)
|
|
15.0
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
|
1.0
|
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities(d)
|
|
13.0
|
|
|
10.0
|
|
|
|
1.0
|
|
|
|
|
-
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
any
contractually required cash payments for acquisitions.
|
|
(b)
|
Excluded
funding commitments entered into in the ordinary course of business.
Further information on these commitments and other guarantees is
provided
in note 20.
|
|
(c)
|
Included
guaranteed investment contracts (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, 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. See
notes 13 and 18 for further information on certain of these
items.
|
|
Off-Balance
Sheet Arrangements
We
use
off-balance sheet arrangements in the ordinary course of business to improve
shareowner returns. These securitization transactions also 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 securitization transaction, we sell assets to a special purpose entity
(SPE), which has obtained cash by issuing beneficial interests, usually debt,
to
third parties. Securitization entities commonly use derivatives
such
as
interest rate swaps to match interest rate characteristics of the assets
with
characteristics of the related beneficial interests. An example is an interest
rate swap that serves to convert fixed rate assets to a variable rate, matching
the cash flows on SPE floating rate debt. An investor in a beneficial interest
usually has recourse to assets in the associated SPE, and often benefits
from
credit enhancements supporting those assets. The most common credit enhancement
is overcollateralization, where we securitize a greater principal amount
of
assets than debt issued by the SPE. Our other credit enhancements are in
the
form of liquidity and credit support agreements and guarantee and reimbursement
contracts. We have provided $0.1 billion at year-end 2005 representing our
best
estimate of the fair value of potential losses under these arrangements.
Historically,
we executed securitization transactions using entities sponsored by us and
by
third parties. Beginning in 2003, we only have executed securitization
transactions with third parties in the asset-backed commercial paper and
term
markets. Securitization entities hold receivables secured by equipment,
commercial and residential real estate, credit card receivables and other
assets. Our total securitized assets at year-end 2005 amounted to $56.2 billion,
a $3.5 billion increase from year-end 2004. Of that total, the off-balance
sheet
amount was $38.3 billion, up $11.5 billion from December 31, 2004, and the
amount in consolidated, liquidating securitization entities was $17.9 billion,
down $8.1 billion from December 31, 2004, reflecting repayments. See note
19 for
further information.
We
have
extensive experience in evaluating economic, liquidity and credit risk related
to the assets we securitize. Assets held by these entities are of high quality
and we actively monitor them in accordance with our servicing role. We apply
rigorous controls to the execution of securitization transactions and
continuously monitor developments affecting credit. In view of our experience
and taking into consideration the historical depth and liquidity of global
commercial paper markets, we believe that, under any plausible future economic
scenario, the likelihood is remote that the financial support arrangements
we
provide to securitization entities could have an adverse 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, 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.
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 segments was allocated
to GECC corporate items and eliminations. We refer to this as “parent-supported
debt.” As of December 31, 2004, $3.2 billion of such debt remained and was paid
down during the first quarter of 2005.
During
2005, we paid $3.9 billion of special dividends to GE through GECS, which
was a
portion of the proceeds from the Genworth secondary public
offerings.
During
2005, GECC and GECC affiliates issued $58 billion of senior, unsecured long-term
debt and $2 billion of subordinated debt. This debt was both fixed and floating
rate and was issued to institutional and retail investors in the U.S. and
15
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 $55 billion and $65 billion of additional long-term debt during
2006, mostly to repay maturing long-term debt. 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
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Senior
notes and other long-term debt
|
|
59
|
%
|
|
|
59
|
%
|
Commercial
paper
|
|
24
|
|
|
|
24
|
|
Current
portion of long-term debt
|
|
12
|
|
|
|
11
|
|
Other
- bank and other retail deposits
|
|
5
|
|
|
|
6
|
|
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 $57.2
billion of contractually committed lending agreements with 75 highly-rated
global banks and investment banks. Total credit lines extending beyond one
year
increased $0.3 billion to $57.1 billion at December 31, 2005. 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.
The
following two conditions relate to GECC:
•
|
Swap,
forward and option contracts are required to be executed under
master-netting agreements containing mutual down-grade provisions
that
provide the ability of the counterparty to require assignment or
termination if the long-term credit rating of GECC were to fall
below
A-/A3. Had this provision been triggered at December 31, 2005,
we could
have been required to disburse $1.9
billion.
|
•
|
If
our ratio of earnings to fixed charges, which was 1.66:1 at the
end of
2005, were to deteriorate to 1.10:1 or, upon redemption of certain
preferred stock, our ratio of debt to equity, which was 7.09:1
at the end
of 2005, were to exceed 8:1, GE has committed to contribute capital
to us.
GE also has guaranteed certain issuances of our subordinated debt
with a
face amount of $0.7 billion at December 31, 2005 and
2004.
|
The
following three conditions relate to consolidated, liquidating securitization
entities:
•
|
If
our short-term credit rating of certain consolidated, liquidating
securitization entities discussed further in note 19 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, 2006. Amounts related to non-consolidated SPEs were
$1.7
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, liquidating securitization entities. The maximum
amount that
we would be required to substitute in the event of such a downgrade
is
determined by contract, and amounted to $0.6 billion at December
31,
2005.
|
•
|
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 $2.0
billion
in the event of such a downgrade based on terms in effect at December
31,
2005.
|
One
group
of consolidated SPEs holds high quality investment securities funded by the
issuance of guaranteed investment contracts (GICs). 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 $3.6 billion of capital
to
such entities.
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.
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 proven reliable over time. Our actual loss
experience was in line with expectations for 2005, 2004 and 2003. While
prospective losses depend to a large degree on future economic conditions,
we do
not anticipate significant adverse credit development in 2006. Further
information is provided in the Financial Resources and Liquidity - Financing
Receivables section, the Asset impairment section given below and in notes
1, 6
and 7.
Asset
impairment assessment
involves various estimates and assumptions as follows:
Investments. We
regularly review investment securities for impairment based on both quantitative
and qualitative criteria that include the extent to which cost exceeds market
value, the duration of that market decline, our intent and ability to hold
to
maturity or until forecasted recovery and the financial health of 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 in the
Financial Resources and Liquidity - Investment Securities section and in
notes 1
and 5.
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 undiscounted 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 derive the required
undiscounted cash flow estimates from our historical experience and our internal
business plans. To determine fair value, we use our internal cash flow estimates
discounted at an appropriate interest rate, quoted market prices when available
and independent appraisals, as appropriate.
Commercial
aircraft are a significant concentration of assets in GE Infrastructure,
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.
We
recognized impairment losses on our operating lease portfolio of commercial
aircraft of $0.3 billion and $0.1 billion in 2005 and 2004, respectively.
In
addition to these impairment charges relating to operating leases, we recorded
provisions for losses on financing receivables related to commercial aircraft
of
$0.2 billion in 2005, primarily related to Northwest Airlines Corporation
(Northwest Airlines), and $0.3 billion in 2004, primarily related to US Airways
and ATA Holdings Corp.
Certain
of our commercial aviation customers are operating under bankruptcy protection
while they implement steps to return to profitable operations with a lower
cost
structure. At December 31, 2005, our largest exposures to carriers operating
in
bankruptcy were to Delta Air Lines, $2.3 billion; UAL Corp., $1.4 billion;
and
Northwest Airlines, $1.1 billion. Our financial exposures to these carriers
are
substantially secured by various Boeing, Airbus and Bombardier aircraft and
operating equipment. On February 1, 2006, UAL Corp. emerged from bankruptcy
protection.
Further
information on impairment losses and our exposure to the commercial aviation
industry is provided in the Operations - Overview section and in notes 5,
8 and
20.
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 in notes 1 and 9.
Derivatives
and Hedging. We
use
derivatives to manage a variety of risks, including risks related to interest
rates, foreign exchange and commodity prices. Accounting for derivatives
as
hedges requires that, at inception and over the term of the arrangement,
the
hedged item and related derivative meet the requirements for hedge accounting.
The accounting guidance related to derivatives accounting is complex. Failure
to
apply this complex guidance correctly will result in all changes in the fair
value of the derivative being reported in earnings, while offsetting changes
in
the fair value of the hedged item are reported in earnings only upon
realization, regardless of whether the hedging relationship is economically
effective.
In
evaluating whether a particular relationship qualifies for hedge accounting,
we
first determine whether the relationship meets the strict criteria to qualify
for exemption from ongoing effectiveness testing. For a relationship that
does
not meet these criteria, we test effectiveness at inception and quarterly
thereafter by determining whether changes in the fair value of the derivative
offset, within a specified range, changes in the fair value of the hedged
item.
This test is conducted on a cumulative basis each reporting period. If fair
value changes fail this test, we discontinue applying hedge accounting to
that
relationship prospectively. Fair values of both the derivative instrument
and
the hedged item are calculated using internal valuation models incorporating
market-based assumptions, subject to third party confirmation.
At
December 31, 2005, derivative assets and liabilities were $1.5 billion and
$1.9
billion, respectively. Further information about our use of derivatives is
provided in notes 11 and 18.
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 materially
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 20.
Supplemental
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 GAAP.
Certain of these data are considered “non-GAAP financial measures” under SEC
rules. Specifically, we have referred to:
•
|
Average
total shareowner’s equity, excluding effects of discontinued
operations
|
•
|
Delinquency
rates on certain financing receivables of the GE Commercial Finance
and GE
Consumer Finance segments for 2005, 2004 and 2003
|
The
reason we use these non-GAAP financial measures and their reconciliation
to
their most directly comparable GAAP financial measures follow.
Average
Total Shareowner’s Equity, Excluding Effects of Discontinued
Operations(a)
December
31 (In
millions)
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
total shareowner’s equity(b)
|
$
|
53,436
|
|
$
|
49,354
|
|
$
|
43,954
|
|
$
|
34,261
|
|
$
|
27,773
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of earnings from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations(c)
|
|
4,787
|
|
|
4,131
|
|
|
2,788
|
|
|
1,537
|
|
|
259
|
|
Average
net investment in discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations(d)
|
|
1,336
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Average
total shareowner’s equity, excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effects
of discontinued operations(a)
|
$
|
47,313
|
|
$
|
45,223
|
|
$
|
41,166
|
|
$
|
32,724
|
|
$
|
27,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Used
for computing return on average shareowner’s equity shown in the Selected
Financial Data section.
|
|
(b)
|
On
an annual basis, calculated using a five-point average.
|
|
(c)
|
Represented
the average cumulative net earnings effects of discontinued operations
from 2001 to 2005 (on an annual basis, calculated using a five-point
average).
|
|
(d)
|
Represented
the average net investment in discontinued operations for the second
half
of 2005 only - see below.
|
|
U.S.
GAAP
requires earnings of discontinued operations to be displayed separately in
the
Statement of Earnings. Accordingly, the numerators used in our calculations
of
returns on average shareowner’s equity presented in Selected Financial Data
section exclude those earnings. Further we believe it is appropriate to exclude
from the denominators, specifically the average total shareowner’s equity
component, the cumulative effect of those earnings since 2000 for each of
the
five years for which such returns are presented, as well as our average net
investment in discontinued operations for the second half of 2005 only. Had
we
disposed of these operations before mid-2005, proceeds would have been applied
to reduce parent-supported debt; however since parent-supported debt was
retired
in the first half of 2005, we have assumed that any proceeds after that time
would have been distributed to our shareowner by means of dividends, thus
reducing average total shareowner’s equity.
Delinquency
Rates on Certain Financing Receivables
Delinquency
rates on managed GE Commercial Finance equipment loans and leases and managed
GE
Consumer Finance financing receivables follow.
GE
Commercial Finance
December
31
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
Managed
|
1.31
|
%
|
1.40
|
%
|
1.38
|
%
|
Off-book
|
0.76
|
|
0.90
|
|
1.27
|
|
On-book
|
1.53
|
|
1.58
|
|
1.41
|
|
GE
Consumer Finance
December
31
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
Managed
|
5.08
|
%
|
4.85
|
%
|
5.62
|
%
|
Off-book
|
5.28
|
|
5.09
|
|
5.04
|
|
On-book
|
5.07
|
|
4.84
|
|
5.67
|
|
We
believe that delinquency rates on managed financing receivables provide a
useful
perspective on our on and off-book portfolio quality and are key indicators
of
financial performance.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
Information
about our global risk management can be found on page 13 of Item 7.
Item
8. Financial Statements and Supplementary Data.
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors of
General
Electric Capital Corporation:
We
have
audited the statement of financial position of General Electric Capital
Corporation and consolidated affiliates (“GECC”) as of December 31, 2005 and
2004, and the related statements of earnings, changes in shareowner’s equity and
cash flows for each of the years in the three-year period ended December
31,
2005. 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, 2005,
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 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 audits of 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 GECC
and
consolidated affiliates as of December 31, 2005 and 2004, and the results
of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2005, 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, 2005, 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, 2005,
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.
/s/
KPMG
LLP
Stamford,
Connecticut
February
10, 2006
General
Electric Capital Corporation and consolidated affiliates
Statement
of Earnings
For
the years ended December 31 (In millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Revenues
from services (note 3)
|
$
|
52,987
|
|
$
|
47,253
|
|
$
|
39,377
|
|
Sales
of goods
|
|
2,528
|
|
|
2,840
|
|
|
2,228
|
|
Total
revenues
|
|
55,515
|
|
|
50,093
|
|
|
41,605
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
Interest
|
|
14,094
|
|
|
10,960
|
|
|
9,741
|
|
Operating
and administrative (note 4)
|
|
16,412
|
|
|
15,916
|
|
|
12,484
|
|
Cost
of goods sold
|
|
2,369
|
|
|
2,741
|
|
|
2,119
|
|
Investment
contracts, insurance losses and insurance annuity
benefits
|
|
3,032
|
|
|
1,466
|
|
|
1,865
|
|
Provision
for losses on financing receivables (note 7)
|
|
3,864
|
|
|
3,868
|
|
|
3,612
|
|
Depreciation
and amortization (note 8)
|
|
5,983
|
|
|
5,755
|
|
|
4,529
|
|
Minority
interest in net earnings of consolidated affiliates
|
|
155
|
|
|
159
|
|
|
82
|
|
Total
costs and expenses
|
|
45,909
|
|
|
40,865
|
|
|
34,432
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
and
accounting change
|
|
9,606
|
|
|
9,228
|
|
|
7,173
|
|
Provision
for income taxes (note 13)
|
|
(940
|
)
|
|
(1,410
|
)
|
|
(1,103
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before accounting
change
|
|
8,666
|
|
|
7,818
|
|
|
6,070
|
|
Earnings
from discontinued operations, net of taxes (note 2)
|
|
928
|
|
|
442
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before accounting change
|
|
9,594
|
|
|
8,260
|
|
|
7,466
|
|
Cumulative
effect of accounting change (note 1)
|
|
-
|
|
|
-
|
|
|
(339
|
)
|
Net
earnings
|
$
|
9,594
|
|
$
|
8,260
|
|
$
|
7,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Changes in Shareowner’s Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
Changes
in shareowner’s equity
(note 15)
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
53,958
|
|
$
|
46,692
|
|
$
|
40,126
|
|
Dividends
and other transactions with shareowner
|
|
(11,101
|
)
|
|
(2,805
|
)
|
|
(4,466
|
)
|
Changes
other than transactions with shareowner
|
|
|
|
|
|
|
|
|
|
Increase
attributable to net earnings
|
|
9,594
|
|
|
8,260
|
|
|
7,127
|
|
Investment
securities - net
|
|
(230
|
)
|
|
(595
|
)
|
|
517
|
|
Currency
translation adjustments - net
|
|
(2,501
|
)
|
|
2,296
|
|
|
3,150
|
|
Cash
flow hedges - net
|
|
491
|
|
|
203
|
|
|
247
|
|
Minimum
pension liabilities - net
|
|
(23
|
)
|
|
(93
|
)
|
|
(9
|
)
|
Total
changes other than transactions with shareowner
|
|
7,331
|
|
|
10,071
|
|
|
11,032
|
|
Balance
at December 31
|
$
|
50,188
|
|
$
|
53,958
|
|
$
|
46,692
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to consolidated financial statements are an integral part
of these
statements.
|
|
General
Electric Capital Corporation and consolidated affiliates
Statement
of Financial Position
At
December 31 (In millions, except share amounts)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
$
|
6,182
|
|
$
|
8,433
|
|
Investment
securities (note 5)
|
|
29,463
|
|
|
32,868
|
|
Inventories
|
|
159
|
|
|
189
|
|
Financing
receivables - net (notes 6 and 7)
|
|
284,567
|
|
|
279,588
|
|
Other
receivables
|
|
25,685
|
|
|
21,215
|
|
Buildings
and equipment - net (note 8)
|
|
50,936
|
|
|
46,250
|
|
Intangible
assets - net (note 9)
|
|
23,182
|
|
|
22,996
|
|
Other
assets (note 10)
|
|
52,118
|
|
|
51,298
|
|
Assets
of discontinued operations (note 2)
|
|
2,981
|
|
|
104,048
|
|
Total
assets
|
$
|
475,273
|
|
$
|
566,885
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
Borrowings
(note 11)
|
$
|
355,885
|
|
$
|
348,685
|
|
Accounts
payable
|
|
14,435
|
|
|
14,138
|
|
Investment
contracts, insurance liabilities and insurance annuity benefits
(note
12)
|
|
24,429
|
|
|
25,835
|
|
Other
liabilities
|
|
16,935
|
|
|
18,073
|
|
Deferred
income taxes (note 13)
|
|
11,189
|
|
|
10,547
|
|
Liabilities
of and minority interest in discontinued operations (note
2)
|
|
-
|
|
|
93,324
|
|
Total
liabilities
|
|
422,873
|
|
|
510,602
|
|
|
|
|
|
|
|
|
Minority
interest in equity of consolidated affiliates (note 14)
|
|
2,212
|
|
|
2,325
|
|
|
|
|
|
|
|
|
Variable
cumulative preferred stock, $100 par value, liquidation preference
$100,000
per share (33,000 shares authorized; 700 shares issued
and
outstanding at December 31, 2005 and 26,000 shares issued and
outstanding
at December 31, 2004)
|
|
-
|
|
|
3
|
|
Common
stock, $14 par value (4,166,000 shares authorized at
December
31, 2005 and 2004, and 3,985,403 shares issued
and
outstanding at December 31, 2005 and 2004)
|
|
56
|
|
|
56
|
|
Accumulated
gains (losses) - net
|
|
|
|
|
|
|
Investment
securities
|
|
744
|
|
|
974
|
|
Currency
translation adjustments
|
|
2,343
|
|
|
4,844
|
|
Cash
flow hedges
|
|
(790
|
)
|
|
(1,281
|
)
|
Minimum
pension liabilities
|
|
(147
|
)
|
|
(124
|
)
|
Additional
paid-in capital
|
|
12,055
|
|
|
14,539
|
|
Retained
earnings
|
|
35,927
|
|
|
34,947
|
|
Total
shareowner’s equity (note 15)
|
|
50,188
|
|
|
53,958
|
|
Total
liabilities and equity
|
$
|
475,273
|
|
$
|
566,885
|
|
|
|
|
|
|
|
|
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 15, and was $2,150 million and $4,413 million at December
31, 2005
and 2004, respectively.
|
|
The
notes to consolidated financial statements 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)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows - operating activities
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
9,594
|
|
$
|
8,260
|
|
$
|
7,127
|
|
Earnings
from discontinued operations
|
|
(928
|
)
|
|
(442
|
)
|
|
(1,396
|
)
|
Adjustments
to reconcile net earnings to cash provided
|
|
|
|
|
|
|
|
|
|
from
operating activities
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of accounting change
|
|
-
|
|
|
-
|
|
|
339
|
|
Depreciation
and amortization of buildings and equipment
|
|
5,983
|
|
|
5,755
|
|
|
4,529
|
|
Deferred
income taxes
|
|
(963
|
)
|
|
116
|
|
|
965
|
|
Decrease
(increase) in inventories
|
|
30
|
|
|
(9
|
)
|
|
(35
|
)
|
Increase
(decrease) in accounts payable
|
|
(1,071
|
)
|
|
2,258
|
|
|
1,963
|
|
Increase
(decrease) in insurance liabilities
|
|
848
|
|
|
1,293
|
|
|
(1,186
|
)
|
Provision
for losses on financing receivables
|
|
3,864
|
|
|
3,868
|
|
|
3,612
|
|
All
other operating activities (note 16)
|
|
1,574
|
|
|
(703
|
)
|
|
537
|
|
Cash
from operating activities - continuing operations
|
|
18,931
|
|
|
20,396
|
|
|
16,455
|
|
Cash
from operating activities - discontinued operations
|
|
3,283
|
|
|
5,139
|
|
|
5,595
|
|
Cash
from operating activities
|
|
22,214
|
|
|
25,535
|
|
|
22,050
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows - investing activities
|
|
|
|
|
|
|
|
|
|
Additions
to buildings and equipment
|
|
(11,208
|
)
|
|
(10,304
|
)
|
|
(7,251
|
)
|
Dispositions
of buildings and equipment
|
|
5,519
|
|
|
5,488
|
|
|
4,619
|
|
Net
increase in financing receivables (note 16)
|
|
(17,156
|
)
|
|
(14,952
|
)
|
|
(4,736
|
)
|
Payments
for principal businesses purchased
|
|
(7,167
|
)
|
|
(13,888
|
)
|
|
(10,482
|
)
|
All
other investing activities (note 16)
|
|
8,119
|
|
|
5,767
|
|
|
3,781
|
|
Cash
used for investing activities - continuing operations
|
|
(21,893
|
)
|
|
(27,889
|
)
|
|
(14,069
|
)
|
Cash
used for investing activities - discontinued operations
|
|
(4,987
|
)
|
|
(7,558
|
)
|
|
(4,596
|
)
|
Cash
used for investing activities
|
|
(26,880
|
)
|
|
(35,447
|
)
|
|
(18,665
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows - financing activities
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in borrowings (maturities of 90 days or
less)
|
|
(5,086
|
)
|
|
130
|
|
|
(12,972
|
)
|
Newly
issued debt (maturities longer than 90 days) (note 16)
|
|
65,868
|
|
|
58,628
|
|
|
60,012
|
|
Repayments
and other reductions (maturities longer
|
|
|
|
|
|
|
|
|
|
than
90 days) (note 16)
|
|
(48,840
|
)
|
|
(45,115
|
)
|
|
(43,128
|
)
|
Dividends
paid to shareowner
|
|
(8,614
|
)
|
|
(3,148
|
)
|
|
(4,472
|
)
|
All
other financing activities (note 16)
|
|
(2,617
|
)
|
|
(2,864
|
)
|
|
593
|
|
Cash
from financing activities - continuing operations
|
|
711
|
|
|
7,631
|
|
|
33
|
|
Cash
from (used for) financing activities - discontinued
operations
|
|
297
|
|
|
2,402
|
|
|
(682
|
)
|
Cash
from (used for) financing activities
|
|
1,008
|
|
|
10,033
|
|
|
(649)
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents during year
|
|
(3,658
|
)
|
|
121
|
|
|
2,736
|
|
Cash
and equivalents at beginning of year
|
|
9,840
|
|
|
9,719
|
|
|
6,983
|
|
Cash
and equivalents at end of year
|
|
6,182
|
|
|
9,840
|
|
|
9,719
|
|
Less
cash and equivalents of discontinued operations at end of
year
|
|
-
|
|
|
1,407
|
|
|
1,424
|
|
Cash
and equivalents of continuing operations at end of
year
|
$
|
6,182
|
|
$
|
8,433
|
|
$
|
8,295
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flows information
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
$
|
(15,056
|
)
|
$
|
(10,995
|
)
|
$
|
(10,323
|
)
|
Cash
recovered (paid) during the year for income taxes
|
|
(2,459
|
)
|
|
785
|
|
|
726
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to consolidated financial statements 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. Investments in and
advances to associated companies are presented on a one-line basis in the
caption “Other assets” in our Statement of Financial Position, net of allowance
for losses that represents our best estimate of probable losses inherent
in such
assets.
Because
of new accounting requirements that became effective in 2004 and 2003, we
consolidated certain non-affiliates, including certain special purpose entities
(SPEs) and investments previously considered associated companies, in each
of
those years.
Financial
statement presentation
We
have
reclassified certain prior-year amounts to conform to the current year’s
presentation.
Operating
Segments
These
comprise our four businesses focused on the broad markets they serve: GE
Commercial Finance, GE Consumer Finance, GE Industrial and GE Infrastructure.
For segment reporting purposes, certain financial services businesses are
included in the industrial operating segments that actively manage such
businesses and report their results for internal performance measurement
purposes. These include Aviation Financial Services, Energy Financial Services
and Transportation Finance reported in the GE Infrastructure segment, and
Equipment Services reported in the GE Industrial segment.
Unless
otherwise indicated, information in these notes to consolidated financial
statements relates to continuing operations.
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.
Effects
of transactions between related companies are eliminated. As a wholly-owned
subsidiary, GECC enters into various operating and financing arrangements
with
GE. These arrangements are on terms that are commercially reasonable but
are
related party transactions and therefore require the following disclosures.
At
December
31, 2005 and 2004, Financing receivables included $3,904 million and $3,505
million, respectively, of receivables from GE customers. Other receivables
included $3,716 million and $3,159 million, respectively, of receivables
from
GE. Buildings and equipment included $1,637 million and $1,866 million,
respectively, of buildings and equipment leased to GE, net of accumulated
depreciation. Borrowings included $1,448 million and $1,104 million,
respectively, of amounts held by GE.
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, we record sales
only
upon formal customer acceptance.
Revenues
from services (earned income)
We
use
the interest method to recognize income on all loans. Interest on 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
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 loans when the customer’s
account is less than 90 days past due.
We
record
financing lease income on the interest method to produce a level yield on
funds
not yet recovered. Estimated unguaranteed residual values at the date of
lease
inception represent our initial estimates of the fair value of the leased
assets
at the expiration of the lease and are based primarily on independent
appraisals, which are updated periodically. Guarantees of residual values
by
unrelated third parties are considered part of minimum lease payments.
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
the
Investment securities and Investment contracts, insurance liabilities and
insurance annuity benefits sections of this note for a description of accounting
policies for these 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 we judge principal to be uncollectible.
Our
portfolio consists entirely of homogenous consumer loans and of commercial
loans
and leases. The underlying assumptions, estimates and assessments we use
to
provide for losses 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.
Our
consumer loan portfolio consists of smaller balance, homogenous loans including
card receivables, installment loans, auto loans and leases and residential
mortgages. We collectively evaluate each portfolio 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 analyses include migration analysis, in which historical
delinquency and credit loss experience is applied to the current aging of
the
portfolio, together with other 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, GE Consumer Finance adopted a global policy for uncollectible receivables
that accelerated write-offs to follow one consistent basis. We write off
unsecured closed-end installment loans at 120 days contractually past due
and
unsecured open-ended revolving loans at 180 days contractually past due.
We
write down loans secured by collateral other than real estate to the fair
value
of the collateral, less costs to sell, when such loans are 120 days past
due.
Consumer loans secured by residential real estate (both revolving and closed-end
loans) are written down to the fair value of collateral, less costs to sell,
no
later than when they become 360 days past due. Unsecured loans in bankruptcy
are
written off within 60 days of notification of filing by the bankruptcy court
or
within contractual write-off periods, whichever occurs earlier.
Our
commercial loan and lease portfolio consists of a variety of loans and leases,
including both larger balance, non-homogenous loans and leases and smaller
balance homogenous commercial and equipment loans and leases. Losses on such
loans and leases are recorded when probable and estimable. We routinely survey
our entire portfolio for potential specific credit or collection issues that
might indicate an impairment. For larger balance, non-homogenous loans and
leases, 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. We routinely receive 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. We provide
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 based on historical and projected
default rates and loss severity, and it is prepared by each respective line
of
business.
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 loan, we write down the receivable
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
remainder of our commercial loans and leases are portfolios of smaller balance
homogenous commercial and equipment positions that we evaluate collectively
for
impairment based upon various statistical analyses considering historical
losses
and aging.
Sales
of stock by affiliates
We
record
gains or losses on sales by an affiliate of its own shares as revenue unless
realization of gains is not reasonably assured, in which case we record the
results in shareowner’s equity.
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
in
our insurance portfolio, at fair value based on quoted market prices or,
if
quoted prices are not available, discounted expected cash flows using market
rates commensurate with the 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 both
quantitative and qualitative criteria that include the extent to which cost
exceeds market value, the duration of that market decline, our intent and
ability to hold to maturity or until forecasted recovery and the financial
health of 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.
Investment
contracts, insurance liabilities and insurance annuity
benefits
Certain
SPEs, which we consolidate, provide guaranteed investment contracts to states,
municipalities and municipal authorities.
Our
insurance activities also include providing insurance and reinsurance for
life
and health risks and providing certain annuity products. Two product groups
are
provided: traditional insurance contracts and investment contracts. Insurance
contracts are contracts with significant mortality and/or morbidity risks,
while
investment contracts are contracts without such risks.
For
short-duration insurance contracts, including accident and health insurance,
we
report premiums as earned income over the terms of the related agreements,
generally on a pro-rata basis. For traditional long-duration insurance contracts
including term, whole life and annuities payable for the life of the annuitant,
we report premiums as earned income when due.
Premiums
received on investment contracts (including annuities without significant
mortality risk) are not reported as revenues but rather as deposit liabilities.
We recognize revenues for charges and assessments on these contracts, mostly
for
mortality, contract initiation, administration and surrender. Amounts credited
to policyholder accounts are charged to expense.
Liabilities
for traditional long-duration insurance contracts represent the present value
of
such benefits less the present value of future net premiums based on mortality,
morbidity, interest and other assumptions at the time the policies were issued
or acquired. Liabilities for investment contracts equal the account value,
that
is, the amount that accrues to the benefit of the contract or policyholder
including credited interest and assessments through the financial statement
date.
Liabilities
for unpaid claims and claims adjustment expenses represent our best estimate
of
the ultimate obligations for reported and incurred-but-not-reported claims
and
the related estimated claim settlement expenses.
Liabilities
for unpaid claims and claims adjustment expenses are continually reviewed
and
adjusted through current operations.
Accounting
change
On
July
1, 2003, we adopted FIN 46, Consolidation
of Variable Interest Entities, and,
on
January 1, 2004, the related subsequent amendment (FIN 46R). Consequently,
in
2003 we recorded a $339 million after-tax charge related to the first-time
consolidation of certain SPEs, reported in the caption “Cumulative effect of
accounting change.” There was no earnings effect arising from our adoption of
FIN 46R. Additional information about entities consolidated under these rules
is
provided in note 19.
Note
2. Discontinued Operations
Sale
of Genworth
In
May
2004, we completed the initial public offering of Genworth Financial Inc.
(Genworth), our formerly wholly-owned subsidiary that conducted most of our
consumer insurance business, including life and mortgage insurance operations.
During 2005, we reduced our ownership in Genworth to 18% through further
sales
of stock in three secondary public offerings. Our remaining available-for-sale
investment in Genworth common stock is included in assets of discontinued
operations, and results of future sales will be reported in discontinued
operations.
Discontinued
operations
At
December 31, 2005, Genworth was classified as discontinued operations and
its
results of operations, financial position and cash flows are separately reported
for all periods presented. Summarized financial information for discontinued
operations is set forth below. Gain (loss) on disposal included actual effects
of the Genworth sale.
|
Genworth
|
|
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations Before Disposal
|
|
|
|
|
|
|
|
|
|
Revenues
from services
|
$
|
7,906
|
|
$
|
10,145
|
|
$
|
11,765
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from discontinued operations before
|
|
|
|
|
|
|
|
|
|
minority
interest and income taxes
|
$
|
1,387
|
|
$
|
1,543
|
|
$
|
2,038
|
|
Minority
interest
|
|
394
|
|
|
200
|
|
|
2
|
|
Earnings
from discontinued operations before income taxes
|
|
993
|
|
|
1,343
|
|
|
2,036
|
|
Income
tax expense
|
|
(617
|
)
|
|
(565
|
)
|
|
(640
|
)
|
Earnings
from discontinued operations before
|
|
|
|
|
|
|
|
|
|
disposal,
net of taxes
|
$
|
376
|
|
$
|
778
|
|
$
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
Disposal
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on disposal before income taxes
|
$
|
932
|
|
$
|
(570
|
)
|
$
|
-
|
|
Income
tax benefit (expense)
|
|
(380
|
)
|
|
234
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on disposal, net of taxes
|
$
|
552
|
|
$
|
(336
|
)
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from discontinued operations, net of taxes
|
$
|
928
|
|
$
|
442
|
|
$
|
1,396
|
|
|
Genworth
|
|
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
$
|
-
|
|
$
|
1,407
|
|
Investment
securities
|
|
2,981
|
|
|
54,064
|
|
Other
receivables
|
|
-
|
|
|
27,936
|
|
Other
|
|
-
|
|
|
20,641
|
|
Assets
of discontinued operations
|
$
|
2,981
|
|
$
|
104,048
|
|
|
|
|
|
|
|
|
Investment
contracts, insurance liabilities and insurance
|
|
|
|
|
|
|
annuity
benefits
|
$
|
-
|
|
$
|
78,055
|
|
Other
|
|
-
|
|
|
11,489
|
|
Minority
interest
|
|
-
|
|
|
3,780
|
|
Liabilities
of and minority interest in discontinued operations
|
$
|
-
|
|
$
|
93,324
|
|
|
|
|
|
|
|
|
Accumulated
gains - net
|
|
|
|
|
|
|
Investment
securities
|
$
|
465
|
|
$
|
707
|
|
Currency
translation adjustments
|
|
-
|
|
|
332
|
|
Cash
flow hedges
|
|
-
|
|
|
191
|
|
Total
accumulated nonowner changes other than earnings
|
$
|
465
|
|
$
|
1,230
|
|
Note
3. Revenues from Services
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on loans
|
$
|
19,895
|
|
$
|
17,114
|
|
$
|
15,357
|
|
Operating
lease rentals
|
|
11,476
|
|
|
10,654
|
|
|
7,123
|
|
Investment
income
|
|
2,623
|
|
|
1,698
|
|
|
1,313
|
|
Fees
|
|
4,049
|
|
|
3,284
|
|
|
2,436
|
|
Financing
leases
|
|
3,894
|
|
|
4,069
|
|
|
4,117
|
|
Premiums
earned by insurance activities
|
|
1,063
|
|
|
589
|
|
|
2,268
|
|
Other
income
|
|
9,987
|
|
|
9,845
|
|
|
6,763
|
|
Total(a)
|
$
|
52,987
|
|
$
|
47,253
|
|
$
|
39,377
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
$1,290 million, $945 million and $865 million from consolidated,
liquidating securitization entities in 2005, 2004 and 2003, respectively.
Of these amounts, $634 million in 2005 related to Australian Financial
Investments Group (AFIG), a December 2004 acquisition.
|
|
Note
4. 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 under operating leases is shown below.
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
Equipment
for sublease
|
$
|
385
|
|
$
|
383
|
|
$
|
338
|
|
Other
rental expense
|
|
606
|
|
|
542
|
|
|
487
|
|
At
December 31, 2005, minimum rental commitments under noncancelable operating
leases aggregated $4,000 million. Amounts payable over the next five years
follow.
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
$
|
771
|
|
$
|
672
|
|
$
|
576
|
|
$
|
515
|
|
$
|
384
|
|
Note
5. Investment Securities
|
Estimated
fair value
|
|
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
$
|
21,321
|
|
$
|
24,531
|
|
Trading
securities
|
|
8,142
|
|
|
8,337
|
|
Total
|
$
|
29,463
|
|
$
|
32,868
|
|
Available-for-sale
securities
December
31 (In millions)
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated
fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
5,751
|
|
$
|
46
|
|
$
|
(118
|
)
|
$
|
5,679
|
|
State
and municipal
|
|
611
|
|
|
34
|
|
|
(2
|
)
|
|
643
|
|
Mortgage-backed(a)
|
|
3,557
|
|
|
17
|
|
|
(17
|
)
|
|
3,557
|
|
Asset-backed
|
|
6,540
|
|
|
120
|
|
|
(7
|
)
|
|
6,653
|
|
Corporate
- non-U.S.
|
|
2,879
|
|
|
198
|
|
|
(2
|
)
|
|
3,075
|
|
Government
- non-U.S.
|
|
279
|
|
|
1
|
|
|
-
|
|
|
280
|
|
U.S.
government and federal agency
|
|
45
|
|
|
1
|
|
|
-
|
|
|
46
|
|
Equity
|
|
1,219
|
|
|
201
|
|
|
(32
|
)
|
|
1,388
|
|
Total
available-for-sale securities
|
$
|
20,881
|
|
$
|
618
|
|
$
|
(178
|
)
|
$
|
21,321
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
7,190
|
|
$
|
103
|
|
$
|
(294
|
)
|
$
|
6,999
|
|
State
and municipal
|
|
582
|
|
|
41
|
|
|
-
|
|
|
623
|
|
Mortgage-backed(a)
|
|
3,553
|
|
|
20
|
|
|
(10
|
)
|
|
3,563
|
|
Asset-backed
|
|
6,019
|
|
|
185
|
|
|
(39
|
)
|
|
6,165
|
|
Corporate
- non-U.S.
|
|
2,852
|
|
|
141
|
|
|
(6
|
)
|
|
2,987
|
|
Government
- non-U.S.
|
|
950
|
|
|
37
|
|
|
-
|
|
|
987
|
|
U.S.
government and federal agency
|
|
39
|
|
|
1
|
|
|
-
|
|
|
40
|
|
Equity
|
|
2,901
|
|
|
280
|
|
|
(14
|
)
|
|
3,167
|
|
Total
available-for-sale securities
|
$
|
24,086
|
|
$
|
808
|
|
$
|
(363
|
)
|
$
|
24,531
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Substantially
collateralized by U.S. residential mortgages.
|
|
(b)
|
Included
$16 million in 2005 and $684 million in 2004 of debt securities
related to
consolidated, liquidating securitization entities. See note
19.
|
|
The
following tables present the gross unrealized losses and estimated fair values
of 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
797
|
|
$
|
(12
|
)
|
$
|
1,769
|
|
$
|
(106
|
)
|
State
and municipal
|
|
77
|
|
|
(2
|
)
|
|
-
|
|
|
-
|
|
Mortgage-backed
|
|
844
|
|
|
(2
|
)
|
|
699
|
|
|
(15
|
)
|
Asset-backed
|
|
1,029
|
|
|
(1
|
)
|
|
166
|
|
|
(6
|
)
|
Corporate
- non-U.S.
|
|
83
|
|
|
(1
|
)
|
|
26
|
|
|
(1
|
)
|
Equity
|
|
76
|
|
|
(24
|
)
|
|
29
|
|
|
(8
|
)
|
Total
|
$
|
2,906
|
|
$
|
(42
|
)
|
$
|
2,689
|
|
$
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
1,393
|
|
$
|
(34
|
)
|
$
|
1,220
|
|
$
|
(260
|
)
|
Mortgage-backed
|
|
1,619
|
|
|
(7
|
)
|
|
134
|
|
|
(3
|
)
|
Asset-backed
|
|
1,079
|
|
|
(9
|
)
|
|
420
|
|
|
(30
|
)
|
Corporate
- non-U.S.
|
|
2,373
|
|
|
(1
|
)
|
|
164
|
|
|
(5
|
)
|
Equity
|
|
134
|
|
|
(13
|
)
|
|
30
|
|
|
(1
|
)
|
Total
|
$
|
6,598
|
|
$
|
(64
|
)
|
$
|
1,968
|
|
$
|
(299
|
)
|
Securities
in an unrealized loss position for 12 months or more at December 31, 2005
and
2004, included investment securities collateralized by commercial aircraft,
primarily Enhanced Equipment Trust Certificates, with unrealized losses of
$94
million and $254 million, respectively, and estimated fair values of $1,165
million and $782 million, respectively. We review all of our investment
securities routinely for other than temporary impairment as described in
note 1.
In accordance with that policy, we have provided for all amounts that we
did 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 included our
best
estimates of the securities’ cash flows and underlying collateral values, and
assessment of whether the borrower was in compliance with terms and conditions.
We believe that these securities, which are current on all payment terms,
were
trading at a discount to market value since the respective stated interest
rates
on the securities were below what was perceived as a market rate based on
the
ongoing negative market reaction to difficulties in the commercial airline
industry. 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 appraised market values
of
associated collateral exceeded both the market value and the amortized cost
of
our related securities at December 31, 2005.
We
presently intend to hold our investment securities in an unrealized loss
position at December 31, 2005, at least until we can recover their respective
amortized cost. We have the ability to hold our debt securities until their
maturities.
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
|
|
|
|
|
|
|
2006
|
$
|
2,031
|
|
$
|
2,013
|
|
2007-2010
|
|
2,818
|
|
|
2,803
|
|
2011-2015
|
|
1,826
|
|
|
1,815
|
|
2016
and later
|
|
2,890
|
|
|
3,092
|
|
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)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
$
|
251
|
|
$
|
346
|
|
$
|
497
|
|
Losses,
including impairments
|
|
(61
|
)
|
|
(174
|
)
|
|
(304
|
)
|
Net
|
$
|
190
|
|
$
|
172
|
|
$
|
193
|
|
Proceeds
from available-for-sale investment securities sales amounted to $9,028 million,
$8,003 million and $9,158 million in 2005, 2004 and 2003,
respectively.
Trading
securities
Gains
and
losses on trading securities are for the benefit of certain non-U.S. insurance
contractholders. In 2005 and 2004, we recognized net pre-tax gains on such
securities of $863 million and $284 million, respectively, and recognized
corresponding insurance losses of $860 million and $280 million, respectively,
reflecting the contractholders participation in the actual returns generated
by
these investments.
Note
6. Financing Receivables (investments in loans and financing leases)
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Loans,
net of deferred income
|
$
|
226,113
|
|
$
|
218,837
|
|
Investment
in financing leases, net of deferred income
|
|
63,024
|
|
|
66,340
|
|
|
|
289,137
|
|
|
285,177
|
|
Less
allowance for losses (note 7)
|
|
(4,570
|
)
|
|
(5,589
|
)
|
Financing
receivables - net
|
$
|
284,567
|
|
$
|
279,588
|
|
Included
in the above are the financing receivables of consolidated, liquidating
securitization entities as follows:
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Loans,
net of deferred income
|
$
|
15,868
|
|
$
|
20,728
|
|
Investment
in financing leases, net of deferred income
|
|
769
|
|
|
2,125
|
|
|
|
16,637
|
|
|
22,853
|
|
Less
allowance for losses
|
|
(22
|
)
|
|
(5
|
)
|
Financing
receivables - net
|
$
|
16,615
|
|
$
|
22,848
|
|
Details
of financing receivables - net follow.
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
|
|
|
|
|
|
Equipment
and leasing
|
$
|
68,374
|
|
$
|
61,821
|
|
Commercial
and industrial
|
|
40,955
|
|
|
39,251
|
|
Real
estate
|
|
19,555
|
|
|
20,470
|
|
|
|
128,884
|
|
|
121,542
|
|
|
|
|
|
|
|
|
GE
Consumer Finance
|
|
|
|
|
|
|
Non-U.S.
residential mortgages
|
|
46,205
|
|
|
42,201
|
|
Non-U.S.
installment and revolving credit
|
|
31,849
|
|
|
33,889
|
|
Non-U.S.
auto
|
|
22,803
|
|
|
23,517
|
|
U.S.
installment and revolving credit
|
|
21,963
|
|
|
21,385
|
|
Other
|
|
7,286
|
|
|
6,771
|
|
|
|
130,106
|
|
|
127,763
|
|
|
|
|
|
|
|
|
GE
Infrastructure(a)(b)
|
|
18,953
|
|
|
20,770
|
|
|
|
|
|
|
|
|
Other(c)
|
|
11,194
|
|
|
15,102
|
|
|
|
289,137
|
|
|
285,177
|
|
Less
allowance for losses
|
|
(4,570
|
)
|
|
(5,589
|
)
|
Total
|
$
|
284,567
|
|
$
|
279,588
|
|
|
|
|
|
|
|
|
(a)
|
Included
loans and financing leases of $11,192 million and $13,562 million
at
December 31, 2005 and 2004, respectively, related to commercial
aircraft
at Aviation Financial Services and loans and financing leases of
$5,341
million and $4,538 million at December 31, 2005 and 2004,
respectively, related to Energy Financial Services.
|
|
(b)
|
Included
only portions of the segment that are financial services
businesses.
|
|
(c)
|
Included
loans and financing leases of $10,160 million and $13,759 million
at
December 31, 2005 and 2004, respectively, related to certain consolidated,
liquidating securitization entities.
|
|
Financing
receivables include both loans and financing leases. Loans represent
transactions in a variety of forms, including revolving charge and credit,
mortgages, installment loans, intermediate-term loans and revolving loans
secured by business assets. The portfolio includes loans carried at the
principal amount on which finance charges are billed periodically, 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, medical equipment, commercial real estate and other
manufacturing, power generation, 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(a)
|
|
Leveraged
leases(b)
|
|
December
31 (In millions)
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable
|
$
|
85,404
|
|
$
|
90,790
|
|
$
|
59,983
|
|
$
|
63,128
|
|
$
|
25,421
|
|
$
|
27,662
|
|
Less
principal and interest on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third-party
nonrecourse debt
|
|
(18,723
|
)
|
|
(20,644
|
)
|
|
-
|
|
|
-
|
|
|
(18,723
|
)
|
|
(20,644
|
)
|
Net
rentals receivable
|
|
66,681
|
|
|
70,146
|
|
|
59,983
|
|
|
63,128
|
|
|
6,698
|
|
|
7,018
|
|
Estimated
unguaranteed residual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value
of leased assets
|
|
8,558
|
|
|
9,346
|
|
|
5,494
|
|
|
5,976
|
|
|
3,064
|
|
|
3,370
|
|
Less
deferred income
|
|
(12,215
|
)
|
|
(13,152
|
)
|
|
(9,120
|
)
|
|
(9,754
|
)
|
|
(3,095
|
)
|
|
(3,398
|
)
|
Investment
in financing leases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of deferred income
|
|
63,024
|
|
|
66,340
|
|
|
56,357
|
|
|
59,350
|
|
|
6,667
|
|
|
6,990
|
|
Less
amounts to arrive at net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for losses
|
|
(547
|
)
|
|
(1,059
|
)
|
|
(402
|
)
|
|
(872
|
)
|
|
(145
|
)
|
|
(187
|
)
|
Deferred
taxes
|
|
(7,991
|
)
|
|
(9,563
|
)
|
|
(3,477
|
)
|
|
(4,895
|
)
|
|
(4,514
|
)
|
|
(4,668
|
)
|
Net
investment in financing leases
|
$
|
54,486
|
|
$
|
55,718
|
|
$
|
52,478
|
|
$
|
53,583
|
|
$
|
2,008
|
|
$
|
2,135
|
|
|
|
(a)
|
Included
$465 million and $477 million of initial direct costs on direct
financing
leases at December 31, 2005 and 2004, respectively.
|
|
(b)
|
Included
pre-tax income of $241 million and $335 million and income tax
of $93
million and $128 million during 2005 and 2004, respectively. Net
investment credits recognized during 2005 and 2004 were
inconsequential.
|
|
Contractual
Maturities
(In
millions)
|
Total
loans
|
|
Net
rentals
receivable
|
|
|
|
|
|
|
|
|
Due
in
|
|
|
|
|
|
|
2006
|
$
|
73,175
|
|
$
|
17,622
|
|
2007
|
|
30,543
|
|
|
14,166
|
|
2008
|
|
23,575
|
|
|
10,643
|
|
2009
|
|
13,683
|
|
|
7,188
|
|
2010
|
|
14,147
|
|
|
4,102
|
|
2011
and later
|
|
70,990
|
|
|
12,960
|
|
Total
|
$
|
226,113
|
|
$
|
66,681
|
|
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)
|
2005
|
|
2004
|
|
|
|
|
|
|
Loans
requiring allowance for losses
|
$
|
1,474
|
|
$
|
1,687
|
|
Loans
expected to be fully recoverable
|
|
451
|
|
|
520
|
|
|
$
|
1,925
|
|
$
|
2,207
|
|
|
|
|
|
|
|
|
Allowance
for losses
|
$
|
626
|
|
$
|
747
|
|
Average
investment during year
|
|
2,116
|
|
|
2,398
|
|
Interest
income earned while impaired(a)
|
|
46
|
|
|
26
|
|
|
|
|
|
|
|
|
(a)
|
Recognized
principally on cash basis.
|
|
Note
7. Allowance for Losses on Financing Receivables
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
1,505
|
|
$
|
1,925
|
|
$
|
2,379
|
|
GE
Consumer Finance
|
|
3,473
|
|
|
3,959
|
|
|
2,762
|
|
GE
Infrastructure(a)
|
|
581
|
|
|
287
|
|
|
253
|
|
Other
|
|
30
|
|
|
27
|
|
|
53
|
|
|
|
5,589
|
|
|
6,198
|
|
|
5,447
|
|
|
|
|
|
|
|
|
|
|
|
Provision
charged to operations
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
|
315
|
|
|
302
|
|
|
849
|
|
GE
Consumer Finance
|
|
3,337
|
|
|
3,220
|
|
|
2,694
|
|
GE
Infrastructure(a)
|
|
211
|
|
|
328
|
|
|
27
|
|
Other
|
|
1
|
|
|
18
|
|
|
42
|
|
|
|
3,864
|
|
|
3,868
|
|
|
3,612
|
|
|
|
|
|
|
|
|
|
|
|
Other
additions (reductions)
|
|
(489
|
)
|
|
(59
|
)
|
|
717
|
|
|
|
|
|
|
|
|
|
|
|
Gross
write-offs
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
|
(875
|
)
|
|
(920
|
)
|
|
(1,281
|
)
|
GE
Consumer Finance(b)
|
|
(4,447
|
)
|
|
(4,425
|
)
|
|
(3,044
|
)
|
GE
Infrastructure(a)
|
|
(572
|
)
|
|
(27
|
)
|
|
(24
|
)
|
Other
|
|
(47
|
)
|
|
(73
|
)
|
|
(73
|
)
|
|
|
(5,941
|
)
|
|
(5,445
|
)
|
|
(4,422
|
)
|
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
|
177
|
|
|
158
|
|
|
120
|
|
GE
Consumer Finance
|
|
1,359
|
|
|
846
|
|
|
710
|
|
GE
Infrastructure(a)
|
|
-
|
|
|
2
|
|
|
2
|
|
Other
|
|
11
|
|
|
21
|
|
|
12
|
|
|
|
1,547
|
|
|
1,027
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
|
1,087
|
|
|
1,505
|
|
|
1,925
|
|
GE
Consumer Finance
|
|
3,234
|
|
|
3,473
|
|
|
3,959
|
|
GE
Infrastructure(a)
|
|
219
|
|
|
581
|
|
|
287
|
|
Other
|
|
30
|
|
|
30
|
|
|
27
|
|
Total
|
$
|
4,570
|
|
$
|
5,589
|
|
$
|
6,198
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
(b)
|
Included
$889 million in 2004 related to the standardization of our write-off
policy.
|
|
See
note
6 for amounts related to consolidated, liquidating securitization
entities.
Selected
Financing Receivables Ratios
December
31
|
2005
|
|
2004
|
|
|
|
|
|
|
Allowance
for losses on financing receivables as a percentage of total financing
|
|
|
|
|
receivables
|
|
|
|
|
GE
Commercial Finance
|
0.84
|
%
|
1.24
|
%
|
GE
Consumer Finance
|
2.49
|
|
2.72
|
|
GE
Infrastructure(a)
|
1.16
|
|
2.80
|
|
Other
|
0.27
|
|
0.20
|
|
Total
|
1.58
|
|
1.96
|
|
|
|
|
|
|
Nonearning
and reduced earning financing receivables as a percentage of total
|
|
|
|
|
financing
receivables
|
|
|
|
|
GE
Commercial Finance
|
1.0
|
%
|
1.2
|
%
|
GE
Consumer Finance
|
2.1
|
|
2.0
|
|
GE
Infrastructure(a)
|
0.1
|
|
0.8
|
|
Other
|
0.7
|
|
1.2
|
|
Total
|
1.4
|
|
1.5
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
Note
8. Buildings and Equipment
December
31 (Dollars in millions)
|
Estimated
useful
lives-new
(years)
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Original
cost(a)
|
|
|
|
|
|
|
|
|
Buildings
and equipment
|
2-40
|
|
$
|
5,501
|
|
$
|
5,632
|
|
Equipment
leased to others
|
|
|
|
|
|
|
|
|
Aircraft
|
20
|
|
|
32,941
|
|
|
26,837
|
|
Vehicles
|
1-14
|
|
|
23,206
|
|
|
23,056
|
|
Railroad
rolling stock
|
3-30
|
|
|
3,327
|
|
|
3,390
|
|
Mobile
and modular space
|
12-18
|
|
|
2,889
|
|
|
2,965
|
|
Construction
and manufacturing
|
5-25
|
|
|
1,594
|
|
|
1,762
|
|
All
other
|
2-33
|
|
|
2,752
|
|
|
2,902
|
|
Total
|
|
|
$
|
72,210
|
|
$
|
66,544
|
|
|
|
|
|
|
|
|
|
|
Net
carrying value(a)
|
|
|
|
|
|
|
|
|
Buildings
and equipment
|
|
|
$
|
3,085
|
|
$
|
3,260
|
|
Equipment
leased to others
|
|
|
|
|
|
|
|
|
Aircraft(b)
|
|
|
|
27,116
|
|
|
21,991
|
|
Vehicles
|
|
|
|
14,062
|
|
|
14,062
|
|
Railroad
rolling stock
|
|
|
|
2,189
|
|
|
2,193
|
|
Mobile
and modular space
|
|
|
|
1,496
|
|
|
1,635
|
|
Construction
and manufacturing
|
|
|
|
1,080
|
|
|
1,150
|
|
All
other
|
|
|
|
1,908
|
|
|
1,959
|
|
Total
|
|
|
$
|
50,936
|
|
$
|
46,250
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
$1,935 million and $2,243 million of original cost of assets leased
to GE
with accumulated amortization of $298 million and $377 million
at December
31, 2005 and 2004, respectively.
|
|
(b)
|
The
Aviation Financial Services business of GE Infrastructure recognized
impairment losses of $295 million in 2005 and $148 million in 2004
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 $5,591 million, $5,314 million and $4,162
million in 2005, 2004 and 2003, respectively. Noncancelable future rentals
due
from customers for equipment on operating leases at December 31, 2005, are
due
as follows:
(In
millions)
|
|
|
|
|
|
|
|
Due
in
|
|
|
|
2006
|
$
|
7,615
|
|
2007
|
|
6,099
|
|
2008
|
|
4,743
|
|
2009
|
|
3,375
|
|
2010
|
|
2,642
|
|
2011
and later
|
|
7,840
|
|
Total
|
$
|
32,314
|
|
Note
9. Intangible Assets
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
21,161
|
|
$
|
21,403
|
|
Intangible
assets subject to amortization
|
|
2,021
|
|
|
1,593
|
|
Total
|
$
|
23,182
|
|
$
|
22,996
|
|
Changes
in goodwill balances, net of accumulated amortization, follow.
|
2005
|
|
(In
millions)
|
GE
Commercial
Finance
|
|
GE
Consumer
Finance
|
|
GE
Industrial(a)
|
|
GE
Infrastructure(a)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1
|
$
|
9,960
|
|
$
|
9,854
|
|
$
|
1,459
|
|
$
|
130
|
|
$
|
21,403
|
|
Acquisitions/purchase
accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
771
|
|
|
(24
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
741
|
|
Currency
exchange and other
|
|
(286
|
)
|
|
(646
|
)
|
|
(51
|
)
|
|
-
|
|
|
(983
|
)
|
Balance
December 31
|
$
|
10,445
|
|
$
|
9,184
|
|
$
|
1,406
|
|
$
|
126
|
|
$
|
21,161
|
|
|
2004
|
|
(In
millions)
|
GE
Commercial
Finance
|
|
GE
Consumer
Finance
|
|
GE
Industrial(a)
|
|
GE
Infrastructure(a)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1
|
$
|
9,018
|
|
$
|
8,106
|
|
$
|
380
|
|
$
|
114
|
|
$
|
17,618
|
|
Acquisitions/purchase
accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
864
|
|
|
1,275
|
|
|
(11
|
)
|
|
9
|
|
|
2,137
|
|
Currency
exchange and other
|
|
78
|
|
|
473
|
|
|
1,090
|
(b)
|
|
7
|
|
|
1,648
|
|
Balance
December 31
|
$
|
9,960
|
|
$
|
9,854
|
|
$
|
1,459
|
|
$
|
130
|
|
$
|
21,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
(b)
|
Included
$1,055 million of goodwill associated with the consolidation of
Penske
effective January 1, 2004.
|
|
The
amount of goodwill related to new acquisitions recorded during 2005 was $950
million, the largest of which were Antares Capital Corp. ($407 million),
the
Transportation Financial Services Group of CitiCapital ($226 million) and
the
Inventory Finance division of Bombardier Capital ($191 million) by GE Commercial
Finance.
The
amount of goodwill related to purchase accounting adjustments to prior-year
acquisitions during 2005 was $209 million, primarily associated with the
2004
acquisitions of Australian Financial Investment Group (AFIG) by GE Consumer
Finance and Sophia S.A. by GE Commercial Finance.
The
amount of goodwill related to new acquisitions during 2004 was $1,904 million,
the largest of which were WMC Finance Co. ($520 million) and AFIG ($301 million)
by GE Consumer Finance, and Sophia S.A. ($511 million) and most of the
commercial lending business of Transamerica Finance Corporation ($294 million)
by GE 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
acquisition of Allbank and First National Bank at GE Consumer 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
|
2005
|
|
2004
|
|
December
31 (In millions)
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
software
|
$
|
1,454
|
|
|
$
|
(785
|
)
|
|
$
|
669
|
|
$
|
1,243
|
|
|
$
|
(660
|
)
|
|
$
|
583
|
|
Patents,
licenses and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trademarks
|
|
495
|
|
|
|
(272
|
)
|
|
|
223
|
|
|
437
|
|
|
|
(226
|
)
|
|
|
211
|
|
All
other
|
|
1,870
|
|
|
|
(741
|
)
|
|
|
1,129
|
|
|
1,401
|
|
|
|
(602
|
)
|
|
|
799
|
|
Total
|
$
|
3,819
|
|
|
$
|
(1,798
|
)
|
|
$
|
2,021
|
|
$
|
3,081
|
|
|
$
|
(1,488
|
)
|
|
$
|
1,593
|
|
Amortization
expense related to intangible assets subject to amortization was $400 million
and $452 million for 2005 and 2004, respectively.
Note
10. Other Assets
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
Associated
companies
|
$
|
15,177
|
|
$
|
11,075
|
|
Real
estate(a)
|
|
16,408
|
|
|
19,112
|
|
Assets
held for sale(b)
|
|
8,574
|
|
|
6,501
|
|
Cost
method(c)
|
|
2,235
|
|
|
2,234
|
|
Other
|
|
3,045
|
|
|
3,914
|
|
|
|
45,439
|
|
|
42,836
|
|
|
|
|
|
|
|
|
Deferred
acquisition costs
|
|
158
|
|
|
181
|
|
Derivative
instruments
|
|
1,499
|
|
|
2,954
|
|
Advances
to suppliers
|
|
1,762
|
|
|
1,754
|
|
Other
|
|
3,260
|
|
|
3,573
|
|
Total(d)
|
$
|
52,118
|
|
$
|
51,298
|
|
|
|
|
|
|
|
|
(a)
|
Our
investment in real estate consisted 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, 2005: office buildings (52%), apartment buildings (20%), retail
facilities (8%), industrial properties (6%), parking facilities
(5%),
franchise properties (3%) and other (6%). At December 31, 2005,
investments were located in Europe (46%), North America (35%) and
Asia
(19%).
|
|
(b)
|
Assets
were classified as held for sale on the date a decision was made
to
dispose of them through sale, securitization or other means. Such
assets
consisted primarily of real estate properties and mortgage and
credit card
receivables, and were accounted for at the lower of carrying amount
or
estimated fair value less costs to sell.
|
|
(c)
|
The
fair value of and unrealized loss on those investments in a continuous
loss position for less than 12 months in 2005 were $99 million
and $30
million, respectively. The fair value of and unrealized loss on
those
investments in a continuous loss position for 12 months or more
in 2005
were $22 million and $9 million, respectively. The fair value of
and
unrealized loss on those investments in a continuous loss position
for
less than 12 months in 2004 were $54 million and $25 million,
respectively. The fair value of and unrealized loss on those investments
in a continuous loss position for 12 months or more in 2004 were
$54
million and $41 million, respectively.
|
|
(d)
|
Included
$1,235 million in 2005 and $2,384 million in 2004 related to consolidated,
liquidating securitization entities. See note 19.
|
|
Note
11. Borrowings
Short-Term
Borrowings
|
2005
|
|
2004
|
|
December
31 (Dollars in millions)
|
Amount
|
|
Average
rate
|
(a)
|
Amount
|
|
Average
rate
|
(a)
|
|
|
|
|
|
|
|
|
|
Commercial
paper
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
$
|
60,640
|
|
4.30
|
%
|
$
|
55,145
|
|
2.23
|
%
|
Asset-backed(b)
|
|
9,267
|
|
4.21
|
|
|
13,842
|
|
2.17
|
|
Non-U.S.
|
|
20,456
|
|
3.47
|
|
|
20,835
|
|
2.97
|
|
Current
portion of long-term debt(c)(d)
|
|
41,744
|
|
4.05
|
|
|
37,426
|
|
4.11
|
|
Other
|
|
17,572
|
|
|
|
|
20,045
|
|
|
|
Total
|
$
|
149,679
|
|
|
|
$
|
147,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
19.
|
|
(c)
|
Included
short-term borrowings by consolidated, liquidating securitization
entities
of $697 million and $756 million at December 31, 2005 and 2004,
respectively. See note 19.
|
|
(d)
|
Included
$250 million of subordinated notes guaranteed by GE at December
31,
2005.
|
|
Long-Term
Borrowings
|
2005
|
|
|
|
December
31 (Dollars in millions)
|
Average
rate
|
(a)
|
Maturities
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
4.45
|
%
|
2007-2055
|
|
$
|
182,654
|
|
$
|
175,375
|
|
Asset-backed(b)
|
4.66
|
|
2007-2035
|
|
|
6,845
|
|
|
10,939
|
|
Extendible
notes(c)
|
4.38
|
|
2007-2009
|
|
|
14,022
|
|
|
14,258
|
|
Subordinated
notes(d)
|
5.83
|
|
2009-2037
|
|
|
2,685
|
|
|
820
|
|
Total
|
|
|
$
|
206,206
|
|
$
|
201,392
|
|
|
|
|
|
|
|
|
|
|
(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 were all issued by consolidated, liquidating securitization
entities. See note 19.
|
(c)
|
Included
obligations of consolidated, liquidating securitization entities
in the
amount of $38 million and $267 million at December 31, 2005 and
2004,
respectively. See note 19.
|
(d)
|
Included
$450 million and $700 million of subordinated notes guaranteed
by GE at
December 31, 2005 and 2004, respectively.
|
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 18.
Liquidity
is
affected by debt maturities and our ability to repay or refinance such debt.
Long-term debt maturities, including borrowings from GE, over the next five
years follow.
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,744
|
(a)
|
$
|
42,157
|
(b)
|
$
|
42,433
|
|
$
|
28,459
|
|
$
|
18,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Floating
rate extendible notes of $297 million are due in 2006, but are
extendible
at the option of the investors to a final maturity in 2008. Fixed
and
floating rate notes of $1,059 million contain put options with
exercise
dates in 2006, but have final maturity dates in 2007 ($250 million),
2008
($350 million) and beyond 2010 ($459 million).
|
|
(b)
|
Floating
rate extendible notes of $14,022 million are due in 2007, of which
$2,000
million are extendible at the option of the investors to a final
maturity
in 2009.
|
|
Committed
credit lines totaling $57.2 billion had been extended to us by 75 banks at
year-end 2005. Included in this amount was $47.7 billion provided directly
to us
and $9.5 billion provided by 19 banks to GE, to which we also have access.
Our
lines include $27.4 billion of revolving credit agreements under which we
can
borrow funds for periods exceeding one year. The remaining $29.8 billion
are
364-day lines of which $29.7 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
swaps
of currencies and interest rates.
Effective
Borrowings (Including Swaps)
|
2005
|
|
2004
|
|
December
31 (Dollars in millions)
|
Amount
|
|
Average
rate
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
Short-term(a)
|
$
|
90,258
|
|
3.94
|
%
|
$
|
84,860
|
|
Long-term
(including current portion)
|
|
|
|
|
|
|
|
|
|
Fixed
rate(b)
|
$
|
160,847
|
|
4.63
|
%
|
$
|
140,934
|
|
Floating
rate
|
|
104,780
|
|
4.32
|
|
|
122,891
|
|
Total
long-term
|
$
|
265,627
|
|
|
|
|
$
|
263,825
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
commercial paper and other short-term debt.
|
|
(b)
|
Included
fixed-rate borrowings and $15,868 million ($22,642 million in 2004)
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, 2005, interest rate swap maturities ranged from 2006 to 2041,
including swap maturities for hedges of commercial paper that ranged from
2006
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.
The
following table provides additional information about derivatives designated
as
hedges of borrowings in accordance with Statement of Financial Accounting
Standards (SFAS) 133, Accounting
for Derivative Instruments and Hedging Activities.
Derivative
Fair Values by Activity/Instrument
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
$
|
199
|
|
$
|
(969
|
)
|
Fair
value hedges
|
|
(39
|
)
|
|
1,864
|
|
Total
|
$
|
160
|
|
$
|
895
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
$
|
(950
|
)
|
$
|
(1,299
|
)
|
Currency
swaps
|
|
1,110
|
|
|
2,194
|
|
Total
|
$
|
160
|
|
$
|
895
|
|
At
December 31, 2005, approximately 49% of our interest rate swaps related to
borrowings were exempt from ongoing tests of their effectiveness as hedges.
We
regularly assess the effectiveness of all other hedge positions using a variety
of techniques, including cumulative dollar offset and regression analysis
depending on which method was selected at inception of the respective hedge.
See
note 18.
Note
12. Investment Contracts, Insurance Liabilities and Insurance Annuity
Benefits
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
Investment
contracts
|
$
|
10,005
|
|
$
|
11,576
|
|
Guaranteed
investment contracts of SPEs
|
|
11,685
|
|
|
11,648
|
|
Total
investment contracts
|
|
21,690
|
|
|
23,224
|
|
|
|
|
|
|
|
|
Life
insurance benefits(a)
|
|
2,324
|
|
|
2,237
|
|
Unpaid
claims and claims adjustment expenses
|
|
159
|
|
|
203
|
|
Unearned
premiums
|
|
256
|
|
|
171
|
|
Total
|
$
|
24,429
|
|
$
|
25,835
|
|
|
|
|
|
|
|
|
(a)
|
Life
insurance benefits are accounted for mainly by a net-level-premium
method
using estimated yields generally ranging from 4.4% to 6.0% in both
2005
and 2004.
|
|
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 “Investment contracts, insurance losses and insurance annuity benefits.”
Reinsurance recoveries were insignificant in each of the three years ended
December 31, 2005.
Note
13. Income Taxes
The
provision for income taxes is summarized in the following table.
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
Current
tax expense
|
$
|
1,903
|
|
$
|
1,294
|
|
$
|
138
|
|
Deferred
tax expense (benefit) from temporary differences
|
|
(963
|
)
|
|
116
|
|
|
965
|
|
|
$
|
940
|
|
$
|
1,410
|
|
$
|
1,103
|
|
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 includes amounts applicable to U.S. federal income taxes of $824
million, $(472) million and $(302) million in 2005, 2004 and 2003, respectively,
and amounts applicable to non-U.S. jurisdictions of $873 million, $1,577
million
and $718 million in 2005, 2004 and 2003, respectively. Deferred taxes related
to
U.S. federal income taxes were benefits of $529 million and $195 million
in 2005
and 2004, respectively, compared with an expense of $345 million in
2003.
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, 2005, were approximately
$24
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.
U.S.
earnings from continuing operations before income taxes and accounting change
were $1,827 million in 2005, $2,126 million in 2004 and $1,509 million in
2003.
The corresponding amounts for non-U.S.-based operations were $7,779 million
in
2005, $7,102 million in 2004 and $5,664 million in 2003.
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
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
U.S.
federal statutory income tax rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
Increase
(reduction) in rate resulting from:
|
|
|
|
|
|
|
Tax-exempt
income
|
(0.5
|
)
|
(0.5
|
)
|
(1.3
|
)
|
Tax
on global activities including exports
|
(23.7
|
)
|
(15.7
|
)
|
(12.9
|
)
|
Fuels
credits
|
(1.6
|
)
|
(1.4
|
)
|
(1.6
|
)
|
All
other - net
|
0.6
|
|
(2.1
|
)
|
(3.8
|
)
|
|
(25.2
|
)
|
(19.7
|
)
|
(19.6
|
)
|
Actual
income tax rate
|
9.8
|
%
|
15.3
|
%
|
15.4
|
%
|
Principal
components of our net liability representing deferred income tax balances
are as
follows:
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Allowance
for losses
|
$
|
2,019
|
|
$
|
2,196
|
|
Cash
flow hedges
|
|
334
|
|
|
918
|
|
Other
- net
|
|
4,212
|
|
|
3,852
|
|
Total
deferred income tax assets
|
|
6,565
|
|
|
6,966
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Financing
leases
|
|
7,991
|
|
|
9,563
|
|
Operating
leases
|
|
3,989
|
|
|
3,625
|
|
Intangible
assets
|
|
1,120
|
|
|
825
|
|
Other
- net
|
|
4,654
|
|
|
3,500
|
|
Total
deferred income tax liabilities
|
|
17,754
|
|
|
17,513
|
|
|
|
|
|
|
|
|
Net
deferred income tax liability
|
$
|
11,189
|
|
$
|
10,547
|
|
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. Preferred
shares that we are required to redeem at a specified or determinable date
are
classified as liabilities. The balance is summarized as follows:
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Minority
interest in consolidated affiliates(a)
|
$
|
898
|
|
$
|
1,007
|
|
Minority
interest in preferred stock(b)
|
|
1,314
|
|
|
1,318
|
|
|
$
|
2,212
|
|
$
|
2,325
|
|
|
|
|
|
|
|
|
(a)
|
Included
minority interest in consolidated, liquidating securitization entities,
partnerships and common shares of consolidated affiliates.
|
|
(b)
|
The
preferred stock primarily pays cumulative dividends at variable
rates.
Dividend rates in local currency on the preferred stock ranged
from 2.03%
to 5.38% during 2005 and 0.99% to 5.46% during 2004.
|
|
Note
15. Shareowner’s Equity
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
preferred stock issued
|
$
|
-
|
|
$
|
3
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued
|
$
|
56
|
|
$
|
56
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
nonowner changes other than earnings
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
4,413
|
|
$
|
2,602
|
|
$
|
(1,303
|
)
|
Investment
securities - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$(242), $(105) and $375
|
|
(114
|
)
|
|
(464
|
)
|
|
622
|
|
Currency
translation adjustments - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$695, $(1,285) and $(1,448)
|
|
(2,501
|
)
|
|
2,296
|
|
|
3,146
|
|
Cash
flow hedges - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$405, $(257) and $(403)
|
|
672
|
|
|
(340
|
)
|
|
(742
|
)
|
Minimum
pension liabilities - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$1, $(33) and $(4)
|
|
(23
|
)
|
|
(93
|
)
|
|
(9
|
)
|
Reclassification
adjustments
|
|
|
|
|
|
|
|
|
|
Investment
securities - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$(63), $(70) and $(56)
|
|
(116
|
)
|
|
(131
|
)
|
|
(105
|
)
|
Currency
translation adjustments
|
|
-
|
|
|
-
|
|
|
4
|
|
Cash
flow hedges - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$(81), $308 and $551
|
|
(181
|
)
|
|
543
|
|
|
989
|
|
Balance
at December 31(a)
|
$
|
2,150
|
|
$
|
4,413
|
|
$
|
2,602
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
14,539
|
|
$
|
14,196
|
|
$
|
14,192
|
|
Contributions
(b)
|
|
43
|
|
|
343
|
|
|
6
|
|
Redemption
of preferred stock(b)
|
|
(2,527
|
)
|
|
-
|
|
|
-
|
|
Common
stock issued(b)
|
|
-
|
|
|
-
|
|
|
(2
|
)
|
Balance
at December 31
|
$
|
12,055
|
|
$
|
14,539
|
|
$
|
14,196
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
34,947
|
|
$
|
29,835
|
|
$
|
27,180
|
|
Net
earnings
|
|
9,594
|
|
|
8,260
|
|
|
7,127
|
|
Dividends(b)
|
|
(8,614
|
)
|
|
(3,148
|
)
|
|
(4,472
|
)
|
Balance
at December 31
|
$
|
35,927
|
|
$
|
34,947
|
|
$
|
29,835
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareowner’s equity at December 31
|
$
|
50,188
|
|
$
|
53,958
|
|
$
|
46,692
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
accumulated nonowner changes related to discontinued operations
of $465
million, $1,230 million and $1,615 million at December 31, 2005,
2004 and
2003, respectively.
|
|
(b)
|
Total
dividends and other transactions with shareowner reduced equity
by $11,101
million, $2,805 million and $4,466 million in 2005, 2004 and 2003,
respectively.
|
|
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.
At
December 31, 2005 and 2004, the aggregate statutory capital and surplus of
the
insurance activities and discontinued insurance operations totaled $2.4 billion
and $12.6 billion, respectively. Accounting practices prescribed by statutory
authorities are used in preparing statutory statements.
Note
16. Supplemental Cash Flows Information
Changes
in operating assets and liabilities are net of acquisitions and dispositions
of
principal businesses.
Amounts
reported in the “Payments for principal businesses purchased” line in the
Statement of Cash Flows is net of cash acquired and included debt assumed
and
immediately repaid in acquisitions.
Amounts
reported in the “All other operating activities” line 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.
December
31 (In millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
All
other operating activities
|
|
|
|
|
|
|
|
|
|
Net
change in assets held for sale
|
$
|
2,192
|
|
$
|
84
|
|
$
|
1,168
|
|
Amortization
of intangible assets
|
|
400
|
|
|
452
|
|
|
588
|
|
Realized
gains on sale of investment securities
|
|
(190
|
)
|
|
(172
|
)
|
|
(193
|
)
|
Other
|
|
(828
|
)
|
|
(1,067
|
)
|
|
(1,026
|
)
|
|
$
|
1,574
|
|
$
|
(703
|
)
|
$
|
537
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in financing receivables
|
|
|
|
|
|
|
|
|
|
Increase
in loans to customers
|
$
|
(314,309
|
)
|
$
|
(340,747
|
)
|
$
|
(261,039
|
)
|
Principal
collections from customers - loans
|
|
266,371
|
|
|
305,374
|
|
|
235,434
|
|
Investment
in equipment for financing leases
|
|
(23,480
|
)
|
|
(22,048
|
)
|
|
(22,167
|
)
|
Principal
collections from customers - financing leases
|
|
21,509
|
|
|
19,238
|
|
|
18,406
|
|
Net
change in credit card receivables
|
|
(21,391
|
)
|
|
(21,312
|
)
|
|
(11,379
|
)
|
Sales
of financing receivables
|
|
54,144
|
|
|
44,543
|
|
|
36,009
|
|
|
$
|
(17,156
|
)
|
$
|
(14,952
|
)
|
$
|
(4,736
|
)
|
|
|
|
|
|
|
|
|
|
|
All
other investing activities
|
|
|
|
|
|
|
|
|
|
Purchases
of securities by insurance activities
|
$
|
(6,394
|
)
|
$
|
(5,078
|
)
|
$
|
(6,358
|
)
|
Dispositions
and maturities of securities by insurance activities
|
|
6,304
|
|
|
6,810
|
|
|
7,771
|
|
Proceeds
from principal business dispositions
|
|
209
|
|
|
472
|
|
|
3,193
|
|
Other
|
|
8,000
|
|
|
3,563
|
|
|
(825
|
)
|
|
$
|
8,119
|
|
$
|
5,767
|
|
$
|
3,781
|
|
December
31 (In millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Newly
issued debt having maturities longer than 90 days
|
|
|
|
|
|
|
|
|
|
Short-term
(91 to 365 days)
|
$
|
4,675
|
|
$
|
3,677
|
|
$
|
3,661
|
|
Long-term
(longer than one year)
|
|
60,990
|
|
|
54,632
|
|
|
55,560
|
|
Proceeds
- nonrecourse, leveraged lease
|
|
203
|
|
|
319
|
|
|
791
|
|
|
$
|
65,868
|
|
$
|
58,628
|
|
$
|
60,012
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
and other reductions of debt having maturities
|
|
|
|
|
|
|
|
|
|
longer
than 90 days
|
|
|
|
|
|
|
|
|
|
Short-term
(91 to 365 days)
|
$
|
(38,076
|
)
|
$
|
(41,085
|
)
|
$
|
(38,696
|
)
|
Long-term
(longer than one year)
|
|
(9,934
|
)
|
|
(3,378
|
)
|
|
(3,650
|
)
|
Principal
payments - nonrecourse, leveraged lease
|
|
(830
|
)
|
|
(652
|
)
|
|
(782
|
)
|
|
$
|
(48,840
|
)
|
$
|
(45,115
|
)
|
$
|
(43,128
|
)
|
|
|
|
|
|
|
|
|
|
|
All
other financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of investment contracts
|
$
|
15,774
|
|
$
|
10,914
|
|
$
|
784
|
|
Redemption
of investment contracts
|
|
(15,861
|
)
|
|
(13,778
|
)
|
|
(191
|
)
|
Redemption
of preferred stock
|
|
(2,530
|
)
|
|
-
|
|
|
-
|
|
|
$
|
(2,617
|
)
|
$
|
(2,864
|
)
|
$
|
593
|
|
Note
17. Operating Segments
Revenues
|
Total
revenues
|
|
Intersegment
revenues
|
|
External
revenues
|
|
(In
millions)
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
20,014
|
|
$
|
19,068
|
|
$
|
16,627
|
|
$
|
121
|
|
$
|
161
|
|
$
|
148
|
|
$
|
19,893
|
|
$
|
18,907
|
|
$
|
16,479
|
|
GE
Consumer Finance
|
|
19,416
|
|
|
15,725
|
|
|
12,734
|
|
|
35
|
|
|
13
|
|
|
17
|
|
|
19,381
|
|
|
15,712
|
|
|
12,717
|
|
GE
Industrial(a)
|
|
6,627
|
|
|
6,571
|
|
|
3,428
|
|
|
17
|
|
|
13
|
|
|
15
|
|
|
6,610
|
|
|
6,558
|
|
|
3,413
|
|
GE
Infrastructure(a)
|
|
5,058
|
|
|
4,290
|
|
|
3,766
|
|
|
-
|
|
|
2
|
|
|
1
|
|
|
5,058
|
|
|
4,288
|
|
|
3,765
|
|
GECC
corporate items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
eliminations
|
|
4,400
|
|
|
4,439
|
|
|
5,050
|
|
|
(173
|
)
|
|
(189
|
)
|
|
(181
|
)
|
|
4,573
|
|
|
4,628
|
|
|
5,231
|
|
Total
|
$
|
55,515
|
|
$
|
50,093
|
|
$
|
41,605
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
55,515
|
|
$
|
50,093
|
|
$
|
41,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
Revenues
originating from operations based in the United States were $25,794 million,
$24,933 million and $20,292 million in 2005, 2004 and 2003, respectively.
Revenues originating from operations based outside the United States were
$29,721 million, $25,160 million and $21,313 million in 2005, 2004 and 2003,
respectively. Revenues originating in the United Kingdom were $7,060 million,
$5,048 million and $3,624 million in 2005, 2004 and 2003,
respectively.
|
Depreciation
and amortization
For
the years ended December 31
|
|
Provision
for income taxes
|
|
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
2,596
|
|
$
|
2,719
|
|
$
|
2,381
|
|
$
|
767
|
|
$
|
1,025
|
|
$
|
428
|
|
GE
Consumer Finance
|
|
393
|
|
|
334
|
|
|
276
|
|
|
536
|
|
|
442
|
|
|
485
|
|
GE
Industrial(a)
|
|
1,912
|
|
|
1,876
|
|
|
996
|
|
|
64
|
|
|
(124
|
)
|
|
(137
|
)
|
GE
Infrastructure(a)
|
|
1,439
|
|
|
1,122
|
|
|
1,074
|
|
|
(195
|
)
|
|
58
|
|
|
237
|
|
GECC
corporate items and eliminations
|
|
25
|
|
|
70
|
|
|
214
|
|
|
(232
|
)
|
|
9
|
|
|
90
|
|
Total
|
$
|
6,365
|
|
$
|
6,121
|
|
$
|
4,941
|
|
$
|
940
|
|
$
|
1,410
|
|
$
|
1,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
|
Interest
on loans
|
|
Interest
expense
|
|
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
5,872
|
|
$
|
5,531
|
|
$
|
5,178
|
|
$
|
5,830
|
|
$
|
4,666
|
|
$
|
4,628
|
|
GE
Consumer Finance
|
|
13,086
|
|
|
10,619
|
|
|
9,105
|
|
|
5,425
|
|
|
3,560
|
|
|
2,683
|
|
GE
Industrial(a)
|
|
10
|
|
|
12
|
|
|
61
|
|
|
536
|
|
|
526
|
|
|
601
|
|
GE
Infrastructure(a)
|
|
536
|
|
|
389
|
|
|
413
|
|
|
1,706
|
|
|
1,428
|
|
|
1,230
|
|
GECC
corporate items and eliminations
|
|
391
|
|
|
563
|
|
|
600
|
|
|
597
|
|
|
780
|
|
|
599
|
|
Total
|
$
|
19,895
|
|
$
|
17,114
|
|
$
|
15,357
|
|
$
|
14,094
|
|
$
|
10,960
|
|
$
|
9,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
|
Assets(b)(c)
At
December 31
|
|
Buildings
and equipment
additions(d)
For
the years ended December 31
|
|
(In
millions)
|
2005
|
|
2004
|
|
2003
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
189,138
|
|
$
|
184,896
|
|
$
|
172,998
|
|
$
|
5,005
|
|
$
|
4,213
|
|
$
|
4,798
|
|
GE
Consumer Finance
|
|
159,592
|
|
|
150,531
|
|
|
105,935
|
|
|
189
|
|
|
217
|
|
|
191
|
|
GE
Industrial(a)
|
|
17,438
|
|
|
17,888
|
|
|
16,922
|
|
|
3,366
|
|
|
3,060
|
|
|
1,001
|
|
GE
Infrastructure(a)
|
|
53,548
|
|
|
50,550
|
|
|
45,512
|
|
|
2,874
|
|
|
3,121
|
|
|
2,345
|
|
GECC
corporate items and eliminations
|
|
55,557
|
|
|
163,020
|
|
|
165,406
|
|
|
13
|
|
|
39
|
|
|
73
|
|
Total
|
$
|
475,273
|
|
$
|
566,885
|
|
$
|
506,773
|
|
$
|
11,447
|
|
$
|
10,650
|
|
$
|
8,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
(b)
|
Total
assets of the GE Commercial Finance, GE Consumer Finance, GE Industrial
and GE Infrastructure segments at December 31, 2005, include investments
in and advances to associated companies of $4,457 million, $5,902
million,
$163 million and $3,447 million, respectively, which contributed
approximately $284 million, $295 million, $(13) million and $342
million,
respectively, to segment pre-tax income for the year ended December
31,
2005.
|
|
(c)
|
Assets
of discontinued operations are included in GECC corporate items
and
eliminations for all periods presented.
|
|
(d)
|
Additions
to buildings and equipment include amounts relating to principal
businesses purchased.
|
|
Buildings
and equipment associated with operations based in the United States were
$16,546
million, $16,094 million and $11,762 million at year-end 2005, 2004 and 2003,
respectively. Buildings and equipment associated
with
operations based outside the United States were $34,390 million, $30,156
million
and $26,752 million at year-end 2005, 2004 and 2003, respectively. Buildings
and
equipment associated with operations in the United Kingdom were $1,494 million,
$1,720 million and $1,730 million at year-end 2005, 2004 and 2003,
respectively.
Basis
for presentation
Our
operating businesses are organized based on the nature of markets and customers.
Segment accounting policies are the same as described in note 1.
Details
of total revenues and segment profit by operating segment can be found on
page
15 of this report.
Note
18. Derivatives and Other Financial Instruments
Derivatives
and hedging
We
conduct our business activities in diverse markets around the world, including
countries where obtaining local funding may not be efficient. The nature
of our
activities exposes us to risks of changes in interest rates, currency exchange
rates and commodity prices. We manage these risks using a variety of
straightforward techniques, including issuing debt funding that matches the
interest rate nature and currency denomination of the related asset. In
addition, we selectively use derivatives to reduce our exposure to interest
rate
and currency risk. For example, if we make a fixed rate loan and fund that
loan
with variable rate debt, we will enter into an interest rate swap to pay
a fixed
rate of interest and receive a variable rate of interest, and designate the
swap
as a hedge of the variable rate borrowing. 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, 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 to
be 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
assessed at the inception of the relationship. If specified criteria for
the
assumption of effectiveness are not met at hedge inception, effectiveness
is
assessed quarterly on a retrospective and prospective basis. Ineffectiveness
is
also measured quarterly, with the results recognized in earnings.
For
derivatives that are not exchange-traded instruments, we use internal valuation
models that incorporate market-based information. With the exception of foreign
currency forwards and commodity derivatives, we also obtain valuations from
our
derivative counterparties to validate the valuations produced by our own
models
and to value a limited number of products that our internal models do not
cover.
Cash
flow hedges
Our
cash
flow hedging arrangements use simple derivatives to offset the variability
of
expected future cash flows. We use interest rate and currency swaps to convert
variable rate borrowings to match the nature of the assets we acquire. We
use
currency forwards and options to manage exposures to changes in currency
exchange rates associated with commercial purchase and sale transactions,
including commodities. These instruments permit us to reduce the cash flow
variability, in local currency, of costs or selling prices denominated in
currencies other than the functional currency. For derivatives designated
as
cash flow hedges, we record changes in fair value in a separate component
of
equity to the extent effective, then release those changes to earnings
contemporaneously with the
earnings
effects of the hedged items. If the hedge relationship is terminated, then
the
change in fair value of the derivative recorded in equity is recognized
contemporaneously with the earnings effects of the hedged item, consistent
with
the original hedge strategy. For hedge relationships discontinued because
the
forecasted transaction is not expected to occur by the end of the originally
specified period, any related derivative amounts recorded in equity are
reclassified to earnings.
At
December 31, 2005, amounts related to derivatives qualifying as cash flow
hedges
amounted to a reduction of equity of $790 million, of which we expect to
transfer $183 million to earnings in 2006 along with the earnings effects
of the
related forecasted transactions. At December 31, 2005, the amount of
unrecognized losses related to cash flow hedges of short-term borrowings
was
$920 million. At that date, the maximum term of derivative instruments that
hedge forecasted transactions, other than interest rate swaps designated
as
hedges of commercial paper (discussed in note 11), was 16 years and related
to
hedges of debt.
Fair
value hedges
Fair
value hedges are hedges that reduce the risk of changes in the fair values
of
assets, liabilities and certain types of firm commitments. 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. We record changes in fair value of a derivative designated
and effective as a fair value hedge in earnings, offset by corresponding
changes
in the fair value of the hedged item.
Fair
value adjustments decreased the carrying amount of debt outstanding at December
31, 2005, by $114 million.
Net
investment hedges
Net
investment hedges consist of currency forwards and currency swaps that reduce
our exposure to changes in currency exchange rates on our investments in
non-U.S. financial services subsidiaries. For qualifying net investment hedges,
changes in the intrinsic value of the derivative are recorded in equity.
Amounts
excluded from the measure of effectiveness of net investment hedges are
recognized in earnings in the period in which they arise. Derivative gains
included in equity amounted to $977 million and $867 million at December
31,
2005 and 2004, respectively.
Derivatives
not designated as hedges
We
must
meet specific criteria in order to apply any of the three forms of hedge
accounting discussed above. For example, hedge accounting is not permitted
for
hedged items that are marked to market through earnings. However, 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. Derivatives that do
not
qualify for hedge accounting are marked to market through earnings.
We
use
swaps, futures and option contracts, including caps, floors and collars,
as
economic hedges of changes in interest rates, currency exchange rates and
equity
prices on certain types of assets and liabilities. We sometimes use credit
default swaps to hedge the credit risk of various counterparties with which
we
have entered into loan or leasing arrangements. We occasionally obtain equity
warrants as part of sourcing or financing transactions. Although these
instruments are considered to be derivatives, their economic risks are similar
to, and managed on the same basis as, risks of other equity instruments we
hold.
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. At December 31, 2005, approximately
35
percent of our total interest rate swaps were exempt from ongoing tests of
their
effectiveness as hedges. For derivatives designated and qualifying as hedges
but
not qualifying for the assumption of effectiveness, we use a variety of
techniques to assess effectiveness and measure ineffectiveness, including
cumulative dollar offset and regression analysis, depending on which method
was
selected at inception of the respective hedge. Certain elements of hedge
positions may be excluded from the measure of effectiveness, for example,
changes in the value of purchased options attributable to volatility and
passage
of time.
The
following table provides additional information about the earnings effects
of
derivatives.
Pre-tax
Gains (Losses)
December
31 (In millions)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
$
|
(31
|
)
|
$
|
3
|
|
$
|
(18
|
)
|
Amounts
excluded from the measure of effectiveness
|
|
(5
|
)
|
|
(6
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
4
|
|
|
13
|
|
|
1
|
|
Amounts
excluded from the measure of effectiveness
|
|
(8
|
)
|
|
3
|
|
|
-
|
|
Additional
information regarding the use of derivatives related to our financing activities
is provided in note 11.
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 and include the value of collateral to determine the amount
of
exposure to each counterparty. When the net exposure to a counterparty, based
on
the current market value of transactions, exceeds credit exposure limits
(see
table below), actions are taken to reduce exposure. Actions can include
prohibiting the counterparty from entering into additional transactions,
requiring collateral from the counterparty (as described below) and terminating
or restructuring transactions.
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 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 rights to cash or U.S. Treasury or other highly-rated securities
to
secure our exposure. Such collateral is available to us in the event that
a
counterparty defaults. We evaluate credit risk exposures and compliance with
credit exposure limits net of such collateral.
Fair
values of our derivatives 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, 2005, our exposure to counterparties, after
consideration of netting arrangements and collateral, was $416
million.
Following
is our policy relating to initial credit rating requirements and 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)
|
|
|
|
|
|
Minimum
rating
|
|
Exposure(a)
|
|
Moody’s
|
|
S&P
|
|
With
collateral arrangements
|
|
Without
collateral
arrangements
|
|
|
|
|
|
|
|
|
|
Aaa
|
|
AAA
|
|
$
|
100
|
|
$
|
75
|
|
Aa3
|
|
AA-
|
|
|
50
|
|
|
50
|
|
A3
|
|
A-
|
|
|
5
|
|
|
-
|
|
|
|
|
|
|
|
(a)
|
For
derivatives with maturities less than one year, counterparties
are
permitted to have unsecured exposure up to $150 million with a
minimum
rating of A-1/P-1.
|
|
Financial
Instruments
|
2005
|
|
2004
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
$
|
(a)
|
|
$
|
222,090
|
|
$
|
222,443
|
|
$
|
(a)
|
|
$
|
214,307
|
|
$
|
216,014
|
|
Other
commercial and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
residential
mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
held
for sale
|
|
(a)
|
|
|
5,683
|
|
|
5,736
|
|
|
(a)
|
|
|
4,577
|
|
|
4,577
|
|
Other
financial instruments
|
|
(a)
|
|
|
4,131
|
|
|
4,488
|
|
|
(a)
|
|
|
2,813
|
|
|
3,026
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings(b)(c)
|
|
(a)
|
|
|
(355,885
|
)
|
|
(363,562
|
)
|
|
(a)
|
|
|
(348,685
|
)
|
|
(355,849
|
)
|
Investment
contract benefits
|
|
(a)
|
|
|
(3,842
|
)
|
|
(3,842
|
)
|
|
(a)
|
|
|
(5,843
|
)
|
|
(5,843
|
)
|
Insurance
- credit life(d)
|
|
2,172
|
|
|
-
|
|
|
-
|
|
|
1,909
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
These
financial instruments do not have notional amounts.
|
|
(b)
|
Included
effects of interest rate and cross-currency swaps.
|
|
(c)
|
See
note 11.
|
|
(d)
|
Net
of reinsurance of $225 million at December 31, 2005.
|
|
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 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 financial models. There is no assurance that
such
estimates could actually have been realized at December 31, 2005 or
2004.
A
description of how we estimate fair values follows.
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 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.
Additional
information about certain categories in the table above follows.
Residential
mortgages
Residential
mortgage products amounting to $12,633 million at December 31, 2005, were
either
high loan-to-value loans or those permitting interest-only payments. We
originate such loans either for our portfolio or for sale in secondary markets.
In both cases, higher yields compensate for the increased risk. The portfolio
was geographically diverse, with Europe and North America the most significant
market segments.
Insurance
- credit life
Certain
insurance affiliates in GE Consumer Finance 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 our overall risk management process, we cede to third parties
a
portion of this associated risk, but are not relieved of our primary obligation
to policyholders.
Loan
Commitments
|
Notional
amount
|
|
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Ordinary
course of business lending commitments
|
|
|
|
|
|
|
Fixed
rate
|
$
|
4,648
|
|
$
|
2,260
|
|
Variable
rate
|
|
7,026
|
|
|
8,145
|
|
Unused
revolving credit lines(a)
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
Fixed
rate
|
|
779
|
|
|
1,210
|
|
Variable
rate
|
|
20,779
|
|
|
21,411
|
|
Consumer
- principally credit cards
|
|
|
|
|
|
|
Fixed
rate
|
|
170,367
|
|
|
141,965
|
|
Variable
rate
|
|
281,113
|
|
|
200,219
|
|
|
|
|
|
|
|
|
(a)
|
Excluded
inventory financing arrangements, which may be withdrawn at our
option, of
$11.4 billion and $8.9 billion as of December 31, 2005 and 2004,
respectively.
|
|
Note
19. 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
GE-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 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.”
The
following table represents assets in securitization entities, both consolidated
and off-balance sheet.
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
Receivables
secured by:
|
|
|
|
|
|
|
Equipment
|
$
|
12,949
|
|
$
|
13,673
|
|
Commercial
real estate
|
|
11,437
|
|
|
13,002
|
|
Residential
real estate
|
|
8,882
|
|
|
9,094
|
|
Other
assets
|
|
12,869
|
|
|
9,880
|
|
Credit
card receivables
|
|
10,039
|
|
|
7,075
|
|
Total
securitized assets
|
$
|
56,176
|
|
$
|
52,724
|
|
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Off-balance
sheet(a)(b)
|
$
|
38,272
|
|
$
|
26,738
|
|
On-balance
sheet(c)
|
|
17,904
|
|
|
25,986
|
|
Total
securitized assets
|
$
|
56,176
|
|
$
|
52,724
|
|
|
|
|
|
|
|
|
(a)
|
At
December 31, 2005 and 2004, liquidity support amounted to $2,000
million
and $2,100 million, respectively. These amounts are net of $2,400
million
and $2,900 million, respectively, participated or deferred beyond
one
year. Credit support amounted to $4,400 million and $5,000 million
at
December 31, 2005 and 2004, respectively.
|
(b)
|
Liabilities
for recourse obligations related to off-balance sheet assets were
$93
million and $64 million at December 31, 2005 and 2004,
respectively.
|
(c)
|
At
December 31, 2005 and 2004, liquidity support amounted to $10,000
million
and $14,400 million, respectively. These amounts are net of $100
million
and $1,200 million, respectively, participated or deferred beyond
one
year. Credit support amounted to $4,800 million and $6,900 million
at
December 31, 2005 and 2004, 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)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Financing
receivables - net (note 6)
|
$
|
16,615
|
|
$
|
22,848
|
|
Other
assets
|
|
1,235
|
|
|
2,384
|
|
Other,
principally investment securities
|
|
54
|
|
|
754
|
|
Total
|
$
|
17,904
|
|
$
|
25,986
|
|
Off-balance
sheet arrangements
We
engage
in off-balance sheet securitization transactions with third-party entities
and
use public market term securitizations. As discussed above, assets in
off-balance sheet securitization entities amounted to $38.3 billion and $26.7
billion at December 31, 2005 and 2004, respectively. Gross securitization
gains
amounted to $939 million in 2005 compared with $1,195 million in 2004 and
$1,351
million in 2003.
Amounts
recognized in our financial statements related to sales to off-balance sheet
securitization entities are as follows:
December
31 (In millions)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Retained
interests
|
$
|
3,871
|
|
$
|
2,916
|
|
Servicing
assets
|
|
29
|
|
|
33
|
|
Recourse
liability
|
|
(93
|
)
|
|
(64
|
)
|
Total
|
$
|
3,807
|
|
$
|
2,885
|
|
•
|
Retained
interests.
When we securitize receivables, we determine fair value of retained
interests based on discounted cash flow models that incorporate,
among
other things, assumptions about 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. We classify retained interests in securitized receivables
as
investment securities and mark them to fair value each reporting
period,
updating our models for current assumptions. These assets decrease
as cash
is received in payment. When the carrying amounts exceed fair value,
we
evaluate whether the unrealized loss is other than temporary and,
if so,
record any indicated loss in earnings currently.
|
•
|
Servicing
assets.
Following a securitization transaction, we also may provide servicing
for
a market-based fee based on remaining outstanding principal balances.
Servicing assets are primarily associated with residential mortgage
loans.
Their value is subject to credit, prepayment and interest rate
risk.
|
•
|
Recourse
liability.
Certain transactions involve credit support agreements. As a result,
we
provide for expected credit losses at amounts that approximate
fair
value.
|
The
following table summarizes data related to securitization sales that we
completed during 2005 and 2004.
(Dollars
in millions)
|
Equipment
|
|
Commercial
real
estate
|
|
Other
assets
|
|
Credit
card
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
proceeds from securitization
|
$
|
3,702
|
|
$
|
5,571
|
|
$
|
4,705
|
|
$
|
6,985
|
|
Proceeds
from collections
|
|
|
|
|
|
|
|
|
|
|
|
|
reinvested
in new receivables
|
|
-
|
|
|
-
|
|
|
27,697
|
|
|
10,067
|
|
Cash
received on retained interests
|
|
190
|
|
|
58
|
|
|
10
|
|
|
1,644
|
|
Cash
received from servicing and
|
|
|
|
|
|
|
|
|
|
|
|
|
other
sources
|
|
75
|
|
|
36
|
|
|
91
|
|
|
155
|
|
Weighted
average lives (in months)
|
|
37
|
|
|
80
|
|
|
35
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
as of sale date(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
8.8
|
%
|
|
13.4
|
%
|
|
12.6
|
%
|
|
11.7
|
%
|
Prepayment
rate
|
|
8.8
|
%
|
|
6.5
|
%
|
|
21.2
|
%
|
|
12.6
|
%
|
Estimate
of credit losses
|
|
2.3
|
%
|
|
0.8
|
%
|
|
0.6
|
%
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based
on weighted averages.
|
|
(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 interests
|
|
107
|
|
|
58
|
|
|
128
|
|
|
1,788
|
|
Cash
received from servicing and
|
|
|
|
|
|
|
|
|
|
|
|
|
other
sources
|
|
85
|
|
|
6
|
|
|
62
|
|
|
138
|
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 related to all outstanding retained
interests as of December 31, 2005, are noted in the following table.
(Dollars
in millions)
|
Equipment
|
|
Commercial
real
estate
|
|
Other
assets
|
|
Credit
card
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate(a)
|
|
6.4
|
%
|
|
11.2
|
%
|
|
5.5
|
%
|
|
11.1
|
%
|
Effect
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
Adverse change
|
$
|
(12
|
)
|
$
|
(13
|
)
|
$
|
(4
|
)
|
$
|
(10
|
)
|
20%
Adverse change
|
|
(24
|
)
|
|
(24
|
)
|
|
(8
|
)
|
|
(23
|
)
|
Prepayment
rate(a)
|
|
9.7
|
%
|
|
2.0
|
%
|
|
8.4
|
%
|
|
12.8
|
%
|
Effect
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
Adverse change
|
$
|
(6
|
)
|
$
|
(5
|
)
|
$
|
(7
|
)
|
$
|
(40
|
)
|
20%
Adverse change
|
|
(12
|
)
|
|
(10
|
)
|
|
(12
|
)
|
|
(77
|
)
|
Estimate
of credit losses(a)
|
|
2.0
|
%
|
|
1.2
|
%
|
|
0.5
|
%
|
|
7.1
|
%
|
Effect
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
Adverse change
|
$
|
(11
|
)
|
$
|
(7
|
)
|
$
|
(5
|
)
|
$
|
(39
|
)
|
20%
Adverse change
|
|
(22
|
)
|
|
(13
|
)
|
|
(9
|
)
|
|
(81
|
)
|
Remaining
weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
lives (in months)
|
|
27
|
|
|
51
|
|
|
15
|
|
|
7
|
|
Net
credit losses
|
$
|
63
|
|
$
|
-
|
|
$
|
8
|
|
$
|
588
|
|
Delinquencies
|
|
93
|
|
|
5
|
|
|
59
|
|
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 securitization entities but generally amortize in proportion
to the decline in underlying asset principal balances. At December 31, 2005,
the
notional amount of such support was $1,259 million and related assets and
liabilities were insignificant.
Note
20. Commitments and Guarantees
Commitments,
including guarantees
Our
Aviation Financial Services business of GE Infrastructure had placed
multiple-year orders for various Boeing, Airbus and other aircraft with list
prices approximating $10,595 million at December 31, 2005.
At
December 31, 2005, we were committed under the following guarantee arrangements
beyond those provided on behalf of securitization entities. See note
19.
•
|
Liquidity
support.
Liquidity support provided to holders of certain variable rate
bonds
issued by municipalities amounted to $2,510 million at December
31, 2005.
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 and our existing liquidity support
will
decrease $1,437 million in 2006 and the remaining $1,073 million
by the
end of 2008 as the underlying variable rate bonds reach their maturity
date. We are currently not providing any such new liquidity facilities.
|
•
|
Credit
support.
We
have provided $6,030 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 $101 million
at
December 31, 2005.
|
•
|
Indemnification
agreements.
These are agreements that require us to fund up to $503 million
under
residual value guarantees on a variety of leased equipment and
$206
million of other indemnification commitments arising primarily
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 $39 million
at December
31, 2005.
|
•
|
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, 2005, we had
recognized
no liabilities for our total exposure of $245
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
21. Quarterly Information (Unaudited)
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
|
(In
millions)
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
13,416
|
|
$
|
11,596
|
|
$
|
13,565
|
|
$
|
12,066
|
|
$
|
14,488
|
|
$
|
12,195
|
|
$
|
14,046
|
|
$
|
14,236
|
|
Earnings
from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
before income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
and accounting change
|
$
|
1,986
|
|
$
|
1,916
|
|
$
|
2,218
|
|
$
|
1,728
|
|
$
|
2,767
|
|
$
|
2,634
|
|
$
|
2,635
|
|
$
|
2,950
|
|
Provision
for income taxes
|
|
(156
|
)
|
|
(375
|
)
|
|
(184
|
)
|
|
(230
|
)
|
|
(370
|
)
|
|
(528
|
)
|
|
(230
|
)
|
|
(277
|
)
|
Earnings
from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
1,830
|
|
|
1,541
|
|
|
2,034
|
|
|
1,498
|
|
|
2,397
|
|
|
2,106
|
|
|
2,405
|
|
|
2,673
|
|
Earnings
(loss) from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes
|
|
247
|
|
|
238
|
|
|
89
|
|
|
(95
|
)
|
|
353
|
|
|
164
|
|
|
239
|
|
|
135
|
|
Net
earnings
|
$
|
2,077
|
|
$
|
1,779
|
|
$
|
2,123
|
|
$
|
1,403
|
|
$
|
2,750
|
|
$
|
2,270
|
|
$
|
2,644
|
|
$
|
2,808
|
|
Not
applicable.
Item
9A. Controls and Procedures.
Under
the
direction of our Chief 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, 2005 and (ii) no change in internal
control over financial reporting occurred during the quarter ended December
31,
2005 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 Chief Executive Officer 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, 2005.
General
Electric Capital Corporation’s auditor, KPMG LLP, an independent 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 34.
/s/
Jeffrey R. Immelt
|
|
/s/
Keith S. Sherin
|
Jeffrey
R. Immelt
Chief
Executive Officer
|
|
Keith
S. Sherin
Chief
Financial Officer
|
|
March
3, 2006
|
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 and Related
Stockholder Matters.
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 LLP, in 2005 and
2004
were:
(In
millions)
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
Type
of fees
|
|
|
|
|
|
|
Audit
fees
|
$
|
28.7
|
|
$
|
28.0
|
|
Audit-related
fees
|
|
3.6
|
|
|
7.2
|
|
Tax
fees
|
|
4.9
|
|
|
3.7
|
|
All
other fees
|
|
-
|
|
|
-
|
|
|
$
|
37.2
|
|
$
|
38.9
|
|
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, 2005
Statement
of Changes in Shareowner’s Equity for each of the years in the three-year
period
ended
December 31, 2005
Statement
of Financial Position at December 31, 2005 and 2004
Statement
of Cash Flows for each of the years in the three-year period ended
December 31, 2005
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, 2005 (pages 41 through
109)
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 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
(Incorporated by reference to Exhibit 3(i) of GECC’s Form 10-K Report for
the year ended December 31, 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 March 24,
2005,
and currently in effect.*
|
|
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)
|
|
Seventh
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. and J.P. Morgan Bank (Ireland) p.l.c. dated as of July 1,
2005
(Incorporated by reference to Exhibit 4(f) to General Electric
Capital
Services, Inc.’s Form 10-K Report for the year ended December 31,
2005).
|
|
|
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 to 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,
2005).
|
|
|
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, 2005).
|
|
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,
2005).
|
|
|
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, 2005).
|
|
|
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,
2005).
|
|
|
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,
2005).
|
|
|
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, 2005, (pages 41
through
109) 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)
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
5,886
|
|
$
|
6,408
|
|
$
|
5,575
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Interest
|
|
6,259
|
|
|
4,526
|
|
|
4,042
|
|
Operating
and administrative
|
|
3,006
|
|
|
3,284
|
|
|
3,036
|
|
Provision
for losses on financing receivables
|
|
601
|
|
|
687
|
|
|
504
|
|
Depreciation
and amortization
|
|
416
|
|
|
447
|
|
|
419
|
|
Total
expenses
|
|
10,282
|
|
|
8,944
|
|
|
8,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and equity in earnings of affiliates
|
|
(4,396
|
)
|
|
(2,536
|
)
|
|
(2,426
|
)
|
Income
tax benefit
|
|
1,910
|
|
|
705
|
|
|
625
|
|
Equity
in earnings of affiliates
|
|
12,080
|
|
|
10,091
|
|
|
9,267
|
|
Cumulative
effect of accounting change
|
|
-
|
|
|
-
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
9,594
|
|
|
8,260
|
|
|
7,127
|
|
Dividends
|
|
(8,614
|
)
|
|
(3,148
|
)
|
|
(4,472
|
)
|
Retained
earnings at January 1
|
|
34,947
|
|
|
29,835
|
|
|
27,180
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings at December 31
|
$
|
35,927
|
|
$
|
34,947
|
|
$
|
29,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to condensed financial statements are an integral part of
this
statement.
|
|
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, except share amounts)
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
$
|
3,077
|
|
$
|
280
|
|
Investment
securities
|
|
2,671
|
|
|
4,426
|
|
Financing
receivables - net
|
|
51,360
|
|
|
51,023
|
|
Investment
in and advances to affiliates
|
|
245,220
|
|
|
232,172
|
|
Buildings
and equipment - net
|
|
3,263
|
|
|
3,924
|
|
Other
assets
|
|
11,234
|
|
|
13,112
|
|
Total
assets
|
$
|
316,825
|
|
$
|
304,937
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
Borrowings
|
$
|
253,797
|
|
$
|
239,122
|
|
Other
liabilities
|
|
6,680
|
|
|
5,192
|
|
Deferred
income taxes
|
|
6,160
|
|
|
6,665
|
|
Total
liabilities
|
|
266,637
|
|
|
250,979
|
|
|
|
|
|
|
|
|
Variable
cumulative preferred stock, $100 par value, liquidation
preference
$100,000
per share (33,000 shares authorized; 700 shares issued
and
outstanding at December 31, 2005 and 26,000 shares issued
and
outstanding at December 31, 2004)
|
|
-
|
|
|
3
|
|
Common
stock, $14 par value (4,166,000 shares authorized at
December
31, 2005 and 2004, and 3,985,403 shares issued
and
outstanding at December 31, 2005 and 2004)
|
|
56
|
|
|
56
|
|
Accumulated
gains (losses) - net
|
|
|
|
|
|
|
|
|
744
|
|
|
974
|
|
Currency
translation adjustments
|
|
2,343
|
|
|
4,844
|
|
Cash
flow hedges
|
|
(790
|
)
|
|
(1,281
|
)
|
Minimum
pension liabilities
|
|
(147
|
)
|
|
(124
|
)
|
Additional
paid-in capital
|
|
12,055
|
|
|
14,539
|
|
Retained
earnings
|
|
35,927
|
|
|
34,947
|
|
Total
shareowner's equity
|
|
50,188
|
|
|
53,958
|
|
Total
liabilities and equity
|
$
|
316,825
|
|
$
|
304,937
|
|
|
|
|
|
|
|
|
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
$2,150 million and $4,413 million at December 31, 2005 and 2004,
respectively.
|
|
The
notes to condensed financial statements are an integral part of
this
statement.
|
|
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)
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
Cash
from (used for) operating activities
|
$
|
(843
|
)
|
$
|
231
|
|
$
|
(2,943
|
)
|
Cash
flows -
investing activities
|
|
|
|
|
|
|
|
|
|
Increase
in loans to customers
|
|
(103,006
|
)
|
|
(141,213
|
)
|
|
(140,053
|
)
|
Principal
collections from customers -
loans
|
|
100,689
|
|
|
141,022
|
|
|
142,687
|
|
Investment
in equipment for financing leases
|
|
(2,987
|
)
|
|
(3,550
|
)
|
|
(5,274
|
)
|
Principal
collections from customers -
financing leases
|
|
3,010
|
|
|
4,172
|
|
|
6,359
|
|
Net
change in credit card receivables
|
|
268
|
|
|
(66
|
)
|
|
(22
|
)
|
Additions
to buildings and equipment
|
|
(593
|
)
|
|
(594
|
)
|
|
(1,687
|
)
|
Dispositions
of buildings and equipment
|
|
797
|
|
|
1,102
|
|
|
1,016
|
|
Payments
for principal businesses purchased
|
|
(7,167
|
)
|
|
(13,888
|
)
|
|
(10,482
|
)
|
Proceeds
from principal business dispositions
|
|
209
|
|
|
472
|
|
|
3,193
|
|
Decrease
(increase) in investment in and advances to affiliates
|
|
4,455
|
|
|
(6,053
|
)
|
|
4,762
|
|
All
other investing activities
|
|
(2,049
|
)
|
|
374
|
|
|
(4,074
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
used for investing activities
|
|
(6,374
|
)
|
|
(18,222
|
)
|
|
(3,575
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows -
financing activities
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in borrowings (maturities of 90 days or less)
|
|
4,815
|
|
|
8,680
|
|
|
(2,189
|
)
|
Newly
issued debt:
|
|
|
|
|
|
|
|
|
|
Short-term
(91-365 days)
|
|
2,884
|
|
|
1,538
|
|
|
1,764
|
|
Long-term
senior
|
|
42,422
|
|
|
41,572
|
|
|
47,811
|
|
Non-recourse,
leveraged lease
|
|
166
|
|
|
206
|
|
|
80
|
|
Repayments
and other debt reductions:
|
|
|
|
|
|
|
|
|
|
Short-term
(91-365 days)
|
|
(28,426
|
)
|
|
(33,912
|
)
|
|
(31,811
|
)
|
Long-term
senior
|
|
(265
|
)
|
|
-
|
|
|
(694
|
)
|
Non-recourse,
leveraged lease
|
|
(438
|
)
|
|
(358
|
)
|
|
(417
|
)
|
Dividends
paid to shareowner
|
|
(8,614
|
)
|
|
(3,148
|
)
|
|
(4,472
|
)
|
Redemption
of preferred stock
|
|
(2,530
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Cash
from financing activities
|
|
10,014
|
|
|
14,578
|
|
|
10,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents during year
|
|
2,797
|
|
|
(3,413
|
)
|
|
3,554
|
|
Cash
and equivalents at beginning of year
|
|
280
|
|
|
3,693
|
|
|
139
|
|
Cash
and equivalents at end of year
|
$
|
3,077
|
|
$
|
280
|
|
$
|
3,693
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to condensed financial statements are an integral part of
this
statement.
|
|
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, 2005 and 2004, are shown
below.
(Dollars
in millions)
|
2005
Average
rate(a)
|
|
Maturities
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Senior
notes
|
4.69
|
%
|
2007-2055
|
|
$
|
136,785
|
|
$
|
131,153
|
Extendible
notes(b)
|
4.38
|
%
|
2007-2009
|
|
|
13,984
|
|
|
13,991
|
Subordinated
notes(c)
|
5.50
|
%
|
2012-2037
|
|
|
2,678
|
|
|
698
|
|
|
|
|
|
$
|
153,447
|
|
$
|
145,842
|
|
|
(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)
|
Fixed
and floating rate notes of $1,059 million contain put options with
exercise dates in 2006, but have final maturity dates in 2007 ($250
million), 2008 ($350 million) and beyond 2010 ($459 million). Floating
rate extendible notes of $13,984 million are due in 2007, of which
$2,000
million are extendible at the option of the investors to a final
maturity
in 2009.
|
(c)
|
Included
$450 million and $700 million of subordinates notes guaranteed
by GE at
December 31, 2005 and 2004,
respectively.
|
At
December 31, 2005, maturities of long-term borrowings during the next five
years, including the current portion of long-term debt, are $30,617 million
in
2006, $34,748 million in 2007, $34,359 million in 2008, $19,497 million in
2009
and $12,646 million in 2010.
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 $3,622
million, $3,242 million and $3,339 million for 2005, 2004 and 2003,
respectively.
Income
taxes
General
Electric Company files a consolidated U.S. federal income tax return which
includes General Electric Capital Corporation. Income tax benefit includes
our
effects on the consolidated return.
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
3, 2006
|
|
By: /s/
Jeffrey R. Immelt
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Jeffrey
R. Immelt
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Chief
Executive Officer
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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
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Title
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Date
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/s/
Jeffrey R. Immelt
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Chief
Executive Officer
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March
3, 2006
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Jeffrey
R. Immelt
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(Principal
Executive Officer)
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/s/
Keith
S. Sherin
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Chief
Financial Officer
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March
3, 2006
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Keith
S. Sherin
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(Principal
Financial Officer)
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/s/
Philip D. Ameen
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Senior
Vice President and Controller
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March
3, 2006
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Philip
D. Ameen
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(Principal
Accounting Officer)
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CHARLES
E. ALEXANDER*
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Director
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JEFFREY
S. BORNSTEIN*
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Director
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DAVID
L. CALHOUN*
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Director
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KATHRYN
A. CASSIDY*
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Director
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JAMES
A. COLICA*
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Director
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PAMELA
DALEY*
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Director
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BRACKETT
B. DENNISTON*
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Director
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JEFFREY
R. IMMELT*
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Director
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JOHN
H. MYERS*
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Director
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MICHAEL
A. NEAL*
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Director
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DAVID
R. NISSEN*
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Director
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RONALD
R. PRESSMAN*
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Director
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DEBORAH
M. REIF*
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Director
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JOHN
G. RICE*
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Director
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JOHN
M. SAMUELS*
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Director
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KEITH
S. SHERIN*
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Director
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ROBERT
C. WRIGHT*
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Director
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A
MAJORITY OF THE BOARD OF DIRECTORS
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*By:
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/s/
Philip D. Ameen
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March
3, 2006
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Philip
D. Ameen
Attorney-in-fact
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