UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
(Mark
One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended March
31, 2005
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from ____ to ____
Commission
file number 1-6461
GENERAL
ELECTRIC CAPITAL CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware |
|
13-1500700 |
(State
or other jurisdiction of incorporation or organization) |
|
(I.R.S.
Employer Identification No.) |
|
|
|
260
Long Ridge Road, Stamford, CT |
|
06927 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(Registrant’s
telephone number, including area code) (203)
357-4000
(Former
name, former address and former fiscal year,
if
changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
Yes [ ] No [X]
At May 6,
2005, 3,985,403 shares of voting common stock, which constitutes all of the
outstanding common equity, with a par value of $14 per share were
outstanding.
REGISTRANT
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF
FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT.
General
Electric Capital Corporation
Part
I - Financial Information |
|
Page |
|
|
|
Item
1. Financial Statements |
|
|
Condensed
Statement of Current and Retained Earnings |
|
3 |
Condensed
Statement of Financial Position |
|
4 |
Condensed
Statement of Cash Flows |
|
5 |
Notes
to Condensed, Consolidated Financial Statements
(Unaudited) |
|
6 |
Item
2. Management’s Discussion and Analysis of Results of Operations and
Financial Condition |
|
12 |
Item
4. Controls and Procedures |
|
22 |
|
|
|
Part
II - Other Information |
|
|
|
|
|
Item
1. Legal Proceedings |
|
22 |
Item
6. Exhibits |
|
23 |
Signatures |
|
24 |
|
|
|
Forward-Looking
Statements
This
document contains “forward-looking statements” - that is, statements related to
future, not past, events. In this context, forward-looking statements often
address our expected future business and financial performance, and often
contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”
“seeks,” or “will.” Forward-looking statements by their nature address matters
that are, to different degrees, uncertain. For us, particular uncertainties
arise from the behavior of financial markets, including fluctuations in interest
rates and commodity prices; from future integration of acquired businesses; from
future financial performance of major industries which we serve including,
without limitation, the air and rail transportation, energy generation, real
estate and healthcare industries; from unanticipated loss development in our
insurance businesses; and from numerous other matters of national, regional and
global scale, including those of a political, economic, business, competitive or
regulatory nature. These uncertainties may cause our actual future results to be
materially different than those expressed in our forward-looking statements. We
do not undertake to update our forward-looking statements.
2005
Restatement
As
described in our Annual Report on Form 10-K/A for the year ended December 31,
2004, we have restated our financial statements and other
information.
For
further discussion of the effects of the 2005 restatement see Part 1, Item 1.
Financial Statements, note 1 of Notes to Condensed, Consolidated Financial
Statements (Unaudited), Item 2. Management’s Discussion and Analysis of Results
of Operations and Financial Condition and Item 4. Controls and Procedures.
Part
I. Financial Information
Item
1. Financial Statements
General
Electric Capital Corporation and consolidated affiliates
Condensed
Statement of Current and Retained Earnings
(Unaudited)
|
Three
months ended |
|
|
March
31 |
|
(In
millions) |
2005 |
|
2004
(Restated) |
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
Revenues
from services (note 3) |
$ |
15,493 |
|
$ |
13,871 |
|
Sales
of goods |
|
674 |
|
|
576 |
|
|
|
|
|
|
|
|
Total
revenues |
|
16,167 |
|
|
14,447 |
|
|
|
|
|
|
|
|
Costs
and expenses |
|
|
|
|
|
|
Interest |
|
3,416 |
|
|
2,624 |
|
Operating
and administrative |
|
4,729 |
|
|
4,739 |
|
Cost
of goods sold |
|
635 |
|
|
551 |
|
Insurance
losses and policyholder and annuity benefits |
|
2,191 |
|
|
1,843 |
|
Provision
for losses on financing receivables |
|
928 |
|
|
953 |
|
Depreciation
and amortization |
|
1,626 |
|
|
1,418 |
|
Minority
interest in net earnings of consolidated affiliates |
|
120 |
|
|
38 |
|
|
|
|
|
|
|
|
Total
costs and expenses |
|
13,645 |
|
|
12,166 |
|
|
|
|
|
|
|
|
Earnings
before income taxes |
|
2,522 |
|
|
2,281 |
|
Provision
for income taxes |
|
(445 |
) |
|
(502 |
) |
|
|
|
|
|
|
|
Net
earnings |
|
2,077 |
|
|
1,779 |
|
Dividends |
|
(239 |
) |
|
(390 |
) |
Retained
earnings at beginning of period |
|
34,947 |
|
|
29,835 |
|
Retained
earnings at end of period |
$ |
36,785 |
|
$ |
31,224 |
|
|
|
|
|
|
|
|
See “Notes
to Condensed, Consolidated Financial Statements.”
General
Electric Capital Corporation and consolidated affiliates
Condensed
Statement of Financial Position
(In
millions) |
March
31, 2005 |
|
December
31, 2004 |
|
(Unaudited) |
|
|
Assets |
|
|
|
|
|
|
Cash
and equivalents |
$ |
8,987 |
|
$ |
9,840 |
|
Investment
securities |
|
85,165 |
|
|
86,932 |
|
Financing
receivables - net (note 4) |
|
279,534 |
|
|
279,588 |
|
Insurance
receivables - net |
|
27,329 |
|
|
27,183 |
|
Other
receivables |
|
25,784 |
|
|
21,968 |
|
Inventories |
|
196 |
|
|
189 |
|
Buildings
and equipment, less accumulated amortization of $20,577 |
|
|
|
|
|
|
and
$20,459 |
|
47,298 |
|
|
46,351 |
|
Intangible
assets - net (note 5) |
|
25,986 |
|
|
25,426 |
|
Other
assets |
|
68,586 |
|
|
69,408 |
|
Total
assets |
$ |
568,865 |
|
$ |
566,885 |
|
|
|
|
|
|
|
|
Liabilities
and equity |
|
|
|
|
|
|
Borrowings
(note 6) |
$ |
350,741 |
|
$ |
352,326 |
|
Accounts
payable |
|
16,689 |
|
|
17,083 |
|
Insurance
liabilities, reserves and annuity benefits |
|
104,210 |
|
|
103,890 |
|
Other
liabilities |
|
22,464 |
|
|
23,253 |
|
Deferred
income taxes |
|
10,413 |
|
|
10,270 |
|
Total
liabilities |
|
504,517 |
|
|
506,822 |
|
|
|
|
|
|
|
|
Minority
interest in equity of consolidated affiliates |
|
8,300 |
|
|
6,105 |
|
|
|
|
|
|
|
|
Capital
stock |
|
59 |
|
|
59 |
|
Accumulated
gains (losses) - net |
|
|
|
|
|
|
Investment
securities |
|
572 |
|
|
974 |
|
Currency
translation adjustments |
|
5,077 |
|
|
4,844 |
|
Cash
flow hedges |
|
(863 |
) |
|
(1,281 |
) |
Minimum
pension liabilities |
|
(130 |
) |
|
(124 |
) |
Additional
paid-in capital |
|
14,548 |
|
|
14,539 |
|
Retained
earnings |
|
36,785 |
|
|
34,947 |
|
Total
shareowner’s equity |
|
56,048 |
|
|
53,958 |
|
Total
liabilities and equity |
$ |
568,865 |
|
$ |
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,” and was $4,656 million and
$4,413 million at March 31, 2005, and December 31, 2004,
respectively.
See “Notes
to Condensed, Consolidated Financial Statements.”
General
Electric Capital Corporation and consolidated affiliates
Condensed
Statement of Cash Flows
(Unaudited)
|
Three
months ended |
|
|
March
31 |
|
(In
millions) |
2005 |
|
2004
(Restated) |
(a) |
|
|
|
|
|
|
|
Cash
flows - operating activities |
|
|
|
|
|
|
Net
earnings |
$ |
2,077 |
|
$ |
1,779 |
|
Adjustments
to reconcile net earnings to cash provided from operating
activities |
|
|
|
|
|
|
Depreciation
and amortization of buildings and equipment |
|
1,626 |
|
|
1,418 |
|
Decrease
in accounts payable |
|
(629 |
) |
|
(877 |
) |
Increase
in insurance liabilities, reserves and annuity benefits |
|
1,123 |
|
|
1,026 |
|
Provision
for losses on financing receivables |
|
928 |
|
|
953 |
|
All
other operating activities |
|
1,547 |
|
|
623 |
|
Cash
from operating activities |
|
6,672 |
|
|
4,922 |
|
|
|
|
|
|
|
|
Cash
flows - investing activities |
|
|
|
|
|
|
Increase
in loans to customers |
|
(75,616 |
) |
|
(62,298 |
) |
Principal
collections from customers - loans |
|
74,213 |
|
|
63,605 |
|
Investment
in equipment for financing leases |
|
(5,209 |
) |
|
(4,100 |
) |
Principal
collections from customers - financing leases |
|
5,712 |
|
|
5,211 |
|
Net
change in credit card receivables |
|
1,923 |
|
|
1,035 |
|
Additions
to buildings and equipment |
|
(2,410 |
) |
|
(1,951 |
) |
Dispositions
of buildings and equipment |
|
1,709 |
|
|
791 |
|
Payments
for principal businesses purchased |
|
(4,631 |
) |
|
(12,147 |
) |
Purchases
of securities by insurance and annuity businesses |
|
(3,720 |
) |
|
(3,952 |
) |
Dispositions
of securities by insurance and annuity businesses |
|
3,318 |
|
|
3,113 |
|
All
other investing activities |
|
(425 |
) |
|
1,980 |
|
Cash
used for investing activities |
|
(5,136 |
) |
|
(8,713 |
) |
|
|
|
|
|
|
|
Cash
flows - financing activities |
|
|
|
|
|
|
Net
increase (decrease) in borrowings (maturities 90 days or
less) |
|
(3,777 |
) |
|
1,218 |
|
Newly
issued debt: |
|
|
|
|
|
|
Short-term
(91-365 days) |
|
401 |
|
|
310 |
|
Long-term
senior |
|
22,891 |
|
|
9,988 |
|
Non-recourse,
leveraged lease |
|
47 |
|
|
220 |
|
Repayments
and other debt reductions: |
|
|
|
|
|
|
Short-term
(91-365 days) |
|
(14,667 |
) |
|
(8,791 |
) |
Long-term
senior |
|
(5,632 |
) |
|
(623 |
) |
Non-recourse,
leveraged lease |
|
(504 |
) |
|
(264 |
) |
Proceeds
from sales of investment contracts |
|
4,321 |
|
|
2,657 |
|
Redemption
of investment contracts |
|
(5,230 |
) |
|
(3,683 |
) |
Dividends
paid to shareowner |
|
(239 |
) |
|
(390 |
) |
Cash
from (used for) financing activities |
|
(2,389 |
) |
|
642 |
|
|
|
|
|
|
|
|
Decrease
in cash and equivalents |
|
(853 |
) |
|
(3,149 |
) |
|
|
|
|
|
|
|
Cash
and equivalents at beginning of year |
|
9,840 |
|
|
9,719 |
|
|
|
|
|
|
|
|
Cash
and equivalents at March 31 |
$ |
8,987 |
|
$ |
6,570 |
|
|
|
See “Notes
to Condensed, Consolidated Financial Statements.”
(a) |
Certain
individual line items within cash from operating activities have been
restated. |
Notes
to Condensed, Consolidated Financial Statements
(Unaudited)
1. The
accompanying condensed, consolidated quarterly financial statements represent
the consolidation of General Electric Capital Corporation and all of our
affiliates (GECC). We have reclassified certain prior-period amounts to conform
to the current period’s presentation.
2005
Restatement
As
described in our Annual Report on Form 10-K/A for the year ended December 31,
2004, we have restated our financial statements and other information. The
following table sets forth the effects of the 2005 restatement on certain line
items within our previously reported Statement of Earnings for the quarter ended
March 31, 2004.
|
Three
months ended
March
31, 2004 |
|
(In
millions) |
As
previously reported |
|
As
restated |
|
Statement
of Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from services (note 3) |
$ |
13,629 |
|
$ |
13,871 |
|
Interest |
|
2,591 |
|
|
2,624 |
|
Earnings
before income taxes |
|
2,072 |
|
|
2,281 |
|
Provision
for income taxes |
|
(419 |
) |
|
(502 |
) |
Net
earnings |
|
1,653 |
|
|
1,779 |
|
Retained
earnings at beginning of period |
|
29,445 |
|
|
29,835 |
|
Retained
earnings at end of period |
|
30,708 |
|
|
31,224 |
|
2. The
condensed, consolidated quarterly financial statements and notes thereto are
unaudited. These statements include all adjustments (consisting of normal
recurring accruals) that we considered necessary to present a fair statement of
our results of operations, financial position and cash flows. The results
reported in these condensed, consolidated quarterly financial statements should
not be regarded as necessarily indicative of results that may be expected for
the entire year. We label our quarterly information using a calendar convention,
that is, first quarter is labeled as ending on March 31, second quarter as
ending on June 30, and third quarter as ending on September 30. It is our
longstanding practice to establish interim quarterly closing dates using a
fiscal calendar, which requires our businesses to close their books on a
Saturday. The effects of this practice are modest and only exist within a
reporting year. The fiscal closing calendar from 1993 through 2013 is available
on our Web site, www.ge.com/secreports.
3. Revenues
from services are summarized in the following table.
|
Three
months ended
March
31 |
|
(In
millions) |
|
2005 |
|
|
2004
(Restated) |
|
|
|
|
|
|
|
|
Interest
on time sales and loans |
$ |
4,947 |
|
$ |
4,272 |
|
Premiums
earned by insurance businesses |
|
1,835 |
|
|
1,803 |
|
Operating
lease rentals |
|
2,803 |
|
|
2,463 |
|
Investment
income |
|
1,408 |
|
|
1,126 |
|
Financing
leases |
|
937 |
|
|
1,071 |
|
Fees |
|
1,055 |
|
|
864 |
|
Other
income(a) |
|
2,508 |
|
|
2,272 |
|
Total(b) |
$ |
15,493 |
|
$ |
13,871 |
|
|
|
|
|
|
|
|
(a)
|
Included
the gain on Genworth Financial, Inc. (Genworth) secondary public offering
and repurchase of $163 million for the first quarter of 2005.
|
(b)
|
Included
$370 million in 2005 ($157 million of which related to Australian
Financial Investments Group (AFIG), a 2004 acquisition) and $327 million
in 2004 related to consolidated, liquidating securitization
entities.
|
4.
Financing receivables - net, consisted of the following.
|
At |
|
(In
millions) |
3/31/05 |
|
12/31/04 |
|
|
|
|
|
|
|
|
Time
sales and loans, net of deferred income |
$ |
219,452 |
|
$ |
218,837 |
|
Investment
in financing leases, net of deferred income |
|
65,566 |
|
|
66,340 |
|
|
|
285,018 |
|
|
285,177 |
|
Less
allowance for losses |
|
(5,484 |
) |
|
(5,589 |
) |
Financing
receivables - net |
$ |
279,534 |
|
$ |
279,588 |
|
Included
in the above are the financing receivables of consolidated, liquidating
securitization entities as follows:
|
At |
|
(In
millions) |
3/31/05
|
|
12/31/04 |
|
|
|
|
|
|
|
|
Time
sales and loans, net of deferred income |
$ |
19,982 |
|
$ |
20,728 |
|
Investment
in financing leases, net of deferred income |
|
1,771 |
|
|
2,125 |
|
|
|
21,753 |
|
|
22,853 |
|
Less
allowance for losses |
|
(9 |
) |
|
(5 |
) |
Financing
receivables - net |
$ |
21,744 |
|
$ |
22,848 |
|
5.
Intangible assets - net, consisted of the following.
|
At |
|
(In
millions) |
3/31/05 |
|
12/31/04 |
|
|
|
|
|
|
|
|
Goodwill |
$ |
23,158 |
|
$ |
23,067 |
|
Present
value of future profits (PVFP) |
|
836 |
|
|
800 |
|
Capitalized
software |
|
689 |
|
|
658 |
|
Other
intangibles |
|
1,303 |
|
|
901 |
|
Total |
$ |
25,986 |
|
$ |
25,426 |
|
Intangible
assets were net of accumulated amortization of $6,129 million at March 31, 2005,
and $9,581 million at December 31, 2004.
Changes
in goodwill balances, net of accumulated amortization, follow.
|
2005 |
(In
millions) |
Commercial
Finance |
|
Consumer
Finance |
|
Equipment
&
Other
Services |
|
Insurance |
|
Portion
of goodwill not included in GECC |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1 |
$ |
10,271 |
|
$ |
9,860 |
|
$ |
1,459 |
|
$ |
3,826 |
|
$ |
(2,349 |
) |
$ |
23,067 |
|
Acquisitions/purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounting
adjustments |
|
199 |
|
|
(83 |
) |
|
(1 |
) |
|
(52 |
) |
|
6 |
|
|
69 |
|
Currency
exchange and other |
|
(2 |
) |
|
24 |
|
|
6 |
|
|
(11 |
) |
|
5 |
|
|
22 |
|
Balance
at March 31 |
$ |
10,468 |
|
$ |
9,801 |
|
$ |
1,464 |
|
$ |
3,763 |
|
$ |
(2,338 |
) |
$ |
23,158 |
|
The
amount of goodwill related to new acquisitions recorded during the first quarter
of 2005 was $228 million, which related to the acquisition of Transportation
Financial Services Group of CitiCapital by Commercial Finance. Upon closing an
acquisition, we estimate the fair values of assets and liabilities acquired and
consolidate the acquisition as quickly as possible. Given the time it takes to
obtain pertinent information to finalize the acquired company’s balance sheet
(frequently with implications for the price of the acquisition), then to adjust
the acquired company’s accounting policies, procedures, books and records to our
standards, it is often several quarters before we are able to finalize those
initial fair value estimates. Accordingly, subsequent revisions to our initial
estimates are not uncommon. During 2005, we decreased goodwill associated with
previous acquisitions by $159 million; the largest such adjustment was
associated with the 2004 acquisition of Australian Financial Investments Group
(AFIG) by Consumer Finance.
Intangible
Assets Subject to Amortization
|
At |
|
3/31/05 |
|
12/31/04 |
(In
millions) |
Gross
carrying
amount |
|
Accumulated
amortization |
|
Net |
|
Gross
carrying
amount |
|
Accumulated
amortization |
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PVFP |
$ |
2,372 |
|
$ |
(1,536 |
) |
$ |
836 |
|
$ |
2,334 |
|
$ |
(1,534 |
) |
$ |
800 |
Capitalized
software |
|
1,538 |
|
|
(849 |
) |
|
689 |
|
|
1,451 |
|
|
(793 |
) |
|
658 |
Patents,
licenses and other |
|
403 |
|
|
(237 |
) |
|
166 |
|
|
458 |
|
|
(241 |
) |
|
217 |
Servicing
assets and all other |
|
1,740 |
|
|
(603 |
) |
|
1,137 |
|
|
4,713 |
|
|
(4,029 |
) |
|
684 |
Total |
$ |
6,053 |
|
$ |
(3,225 |
) |
$ |
2,828 |
|
$ |
8,956 |
|
$ |
(6,597 |
) |
$ |
2,359 |
Amortization
expense related to intangible assets, subject to amortization, for the quarters
ended March 31, 2005 and 2004 was $139 million and $160 million, respectively.
Changes
in PVFP balances follow.
|
Three
months ended
March
31 |
|
(In
millions) |
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
Balance
at January 1 |
$ |
800 |
|
$ |
1,259 |
|
Accrued
interest(a) |
|
12 |
|
|
15 |
|
Amortization |
|
(28 |
) |
|
(48 |
) |
Other |
|
52 |
|
|
(58 |
) |
Balance
at March 31 |
$ |
836 |
|
$ |
1,168 |
|
|
|
|
|
|
|
|
(a)
|
Interest
was accrued at a rate of 7.3% and 6.1% for the quarters ended March 31,
2005 and 2004, respectively.
|
Recoverability
of PVFP is evaluated periodically by comparing the current estimate of the
present value of expected future gross profits with the unamortized asset
balance. If such
comparison indicates that the expected gross profits will not be sufficient to
recover PVFP, the difference is charged to expense. No such expense was recorded
in the first quarters of 2005
or
2004.
Amortization
expense for PVFP in future periods will be affected by acquisitions, realized
capital gains and losses or other factors affecting the ultimate amount of gross
profits realized from certain lines of business. Similarly, future amortization
expense for other intangibles will depend on acquisition activity and other
business transactions.
The
estimated percentage of the December 31, 2004, net PVFP balance to be amortized
over each of the next five years follows.
|
2005 |
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2008 |
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1 |
% |
|
|
10.5 |
% |
|
|
9.5 |
% |
|
|
8.2 |
% |
|
|
6.7 |
% |
6.
Borrowings are summarized in the following table.
|
At |
|
(In
millions) |
3/31/05 |
|
12/31/04 |
|
Short-term
borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper |
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
Unsecured |
$ |
56,068 |
|
$ |
55,644 |
|
Asset-backed(a) |
|
12,599 |
|
|
13,842 |
|
Non-U.S. |
|
20,038 |
|
|
20,835 |
|
Current
portion of long-term debt(b) |
|
39,502 |
|
|
37,426 |
|
Other |
|
17,960 |
|
|
20,045 |
|
Total |
|
146,167 |
|
|
147,792 |
|
|
|
|
|
|
|
|
Long-term
borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
notes |
|
|
|
|
|
|
Unsecured |
|
179,755 |
|
|
178,517 |
|
Asset-backed(c) |
|
9,782 |
|
|
10,939 |
|
Extendible
notes(d) |
|
14,217 |
|
|
14,258 |
|
Subordinated
notes(e) |
|
820 |
|
|
820 |
|
Total |
|
204,574 |
|
|
204,534 |
|
Total
borrowings |
$ |
350,741 |
|
$ |
352,326 |
|
|
|
|
|
|
|
|
(a)
|
Entirely
obligations of consolidated, liquidating securitization entities. See note
8.
|
(b)
|
Included
short-term borrowings by consolidated, liquidating securitization entities
of $847 million and $756 million at March 31, 2005, and December 31, 2004,
respectively.
|
(c)
|
Asset-backed
senior notes are all issued by consolidated, liquidating securitization
entities as discussed in note 8. The amount related to AFIG, a 2004
acquisition, was $8,804 million and $9,769 million at March 31, 2005, and
December 31, 2004, respectively.
|
(d)
|
Included
obligations of consolidated, liquidating securitization entities in the
amount of $226 million and $267 million at March 31, 2005, and December
31, 2004, respectively.
|
(e)
|
At
March 31, 2005, and December 31, 2004, $0.7 billion of subordinated notes,
issued in 1991 and 1992, were guaranteed by General Electric
Company.
|
7. A
summary of increases (decreases) in shareowner’s equity that did not result
directly from transactions with the shareowner, net of income taxes, follows.
|
Three
months ended
March
31 |
|
(In
millions) |
2005 |
|
2004
(Restated) |
|
|
|
|
|
|
|
|
Net
earnings |
$ |
2,077 |
|
$ |
1,779 |
|
Investment
securities - net changes in value |
|
(402 |
) |
|
1,436 |
|
Currency
translation adjustments - net |
|
233 |
|
|
(82 |
) |
Cash
flow hedges - net changes in value |
|
418 |
|
|
9 |
|
Minimum
pension liabilities - net |
|
(6 |
) |
|
(1 |
) |
Total |
$ |
2,320 |
|
$ |
3,141 |
|
8.
Securitized assets that are reported in our financial statements are held by
securitization-related special purpose entities that were consolidated in
accordance with Financial Accounting Standards Board (FASB) Interpretation No.
(FIN) 46, Consolidation
of Variable Interest Entities, as
amended. Although we do not control these entities, consolidation was required
because we provided a majority of the credit and liquidity support for their
activities. A majority of these entities were established to issue asset-backed
securities, using assets that were sold by us and by third parties. These
entities differ from others included in our consolidated financial statements
because the assets they hold are legally isolated and are unavailable to us
under any circumstances. Repayment of their liabilities depends primarily on
cash flows generated by their assets. Because we have ceased transferring assets
to these entities, balances will decrease as the assets repay. We refer to these
entities as “consolidated, liquidating securitization entities.”
In
December 2004, we acquired AFIG. Prior to our acquisition, AFIG had established
entities to securitize residential real estate mortgages, its primary assets.
These entities are required to be consolidated under U.S. accounting standards.
Similar to the entities discussed above, no new assets have been transferred to
them post-acquisition, and we intend to run off these assets. Because these
entities have characteristics similar to those we consolidated when we adopted
FIN 46, they are included in the disclosures about securitization entities
provided below.
The
following table represents assets in securitization entities, both consolidated
and off-balance sheet.
|
At |
|
(In
millions) |
3/31/05
|
|
12/31/04 |
|
|
|
|
|
|
|
|
Receivables
secured by: |
|
|
|
|
|
|
Equipment |
$ |
12,225 |
|
$ |
13,673 |
|
Commercial
real estate |
|
13,597 |
|
|
14,123 |
|
Residential
real estate - AFIG |
|
8,910 |
|
|
9,094 |
|
Other
assets |
|
11,413 |
|
|
11,723 |
|
Credit
card receivables |
|
7,698 |
|
|
7,075 |
|
Total
securitized assets |
$ |
53,843 |
|
$ |
55,688 |
|
|
At |
|
(In
millions) |
3/31/05 |
|
12/31/04 |
|
|
|
|
|
|
|
|
Off-balance
sheet(a)(b) |
$ |
28,478 |
|
$ |
28,950 |
|
On-balance
sheet - AFIG |
|
8,910 |
|
|
9,094 |
|
On-balance
sheet - other(c) |
|
16,455 |
|
|
17,644 |
|
Total
securitized assets |
$ |
53,843 |
|
$ |
55,688 |
|
|
|
|
|
|
|
|
(a)
|
At
March 31, 2005, and December 31, 2004, liquidity support amounted to
$1,700 million and $2,100 million, respectively. These amounts are net of
$2,800 million and $2,900 million, respectively, participated or deferred
beyond one year. Credit support amounted to $4,600 million and $5,000
million at March 31, 2005, and December 31, 2004,
respectively.
|
(b)
|
Liabilities
for recourse obligations related to off-balance sheet assets were $0.1
billion at both March 31, 2005, and December 31, 2004.
|
(c)
|
At
March 31, 2005, and December 31, 2004, liquidity support amounted to
$13,100 million and $14,400 million, respectively. These amounts are net
of $800 million and $1,200 million, respectively, participated or deferred
beyond one year. Credit support amounted to $5,400 million and $6,900
million at March 31, 2005, and December 31, 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.
|
At |
|
(In
millions) |
3/31/05
|
|
12/31/04 |
|
|
|
|
|
|
|
|
Investment
securities |
$ |
1,012 |
|
$ |
1,147 |
|
Financing
receivables - net (note 4)(a) |
|
21,744 |
|
|
22,848 |
|
Other
assets |
|
2,286 |
|
|
2,408 |
|
Other,
principally insurance receivables |
|
323 |
|
|
335 |
|
Total |
$ |
25,365 |
|
$ |
26,738 |
|
|
|
|
|
|
|
|
(a)
|
Included
$8,910 million and $9,094 million related to AFIG, a 2004 acquisition, at
March 31, 2005, and December 31, 2004, respectively.
|
9. In May
2004, we completed an initial public offering of Genworth Financial, Inc.
(Genworth), our formerly wholly-owned subsidiary that conducts most of our
consumer insurance business, including life and mortgage insurance operations.
In March 2005, we completed a secondary public offering of 80.5 million shares
of Class A Common Stock and, concurrently Genworth repurchased directly from us
approximately 19.4 million shares of Genworth Class B Common Stock. These
transactions resulted in a pre-tax gain of $156 million ($86 million
after tax) recognized in the Insurance segment and reduced our ownership of
Genworth to 51.7%.
10. On
May 5, 2005, we signed a letter of intent to sell the outstanding shares of
Medical Protective Corporation—an entity in our Insurance segment—to a
subsidiary of Berkshire Hathaway, Inc. Medical Protective Corporation is a
leading provider of primary medical malpractice insurance to physicians and
dentists. Total assets of Medical Protective Corporation were approximately $2.8
billion as of March 31, 2005. The proposed transaction is expected to close in
the second quarter of 2005, subject to certain regulatory
approvals.
Item
2. Management’s Discussion and Analysis of Results of Operations and Financial
Condition
A.
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 U.S. Securities and Exchange Commission (SEC) rules;
those rules require the supplemental explanations and reconciliations provided
in Exhibit 99 to this report on Form 10-Q.
See the
Segment Operations section below for a more detailed discussion of our
businesses.
2005
Restatement
As
discussed in the 2005 Restatement section on page 2 and further described in
note 1 of the Notes to Condensed, Consolidated Financial Statements (Unaudited),
we have restated our financial statements and other information.
In light
of the restatement, readers should no longer rely on our previously filed
financial statements and other financial information for the years and for each
of the quarters in the years 2004, 2003, 2002 and 2001.
Overview
Our first
quarter 2005 results reflected the continued benefits of our ongoing strategies.
Consumer Finance and Commercial Finance assets were up 18% in the first quarter
of 2005 compared with the first quarter of 2004. In addition, Commercial Finance
acquired the Transportation Financial Services Group of CitiCapital
during 2005.
In March
2005, we completed transactions that resulted in an after-tax gain of $0.1
billion recognized in the Insurance segment and reduced our ownership of
Genworth to 51.7%. At March 31, 2005, we held 243.2 million shares of Genworth’s
Class B Common Stock and our remaining investment was $5.7 billion. We expect
(subject to market conditions) to reduce our ownership over the next two years
as Genworth transitions to full independence.
Revenues
for the first quarter of 2005 were $16.2 billion, a $1.7 billion (12%) increase
over the first quarter of 2004. Revenues included $1.0 billion and $0.3 billion
of revenue from acquisitions for the first quarters of 2005 and 2004,
respectively, and $0.1 billion in 2005 from the effects of dispositions.
Revenues were reduced by $0.1 billion and included $0.2 billion in the
first quarters of 2005 and 2004, respectively, related to the 2005 restatement.
Revenues also increased $1.3 billion compared with the first quarter of 2004
primarily as a result of organic revenue growth and the effects of the weaker
U.S. dollar. Organic revenue growth excludes the effects of acquisitions,
dispositions and the effects of the weaker U.S. dollar, as well as the Insurance
segment.
Net
earnings for the first quarter of 2005 was $2.1 billion, compared with $1.8
billion for the first quarter of 2004. Two of our four businesses - Commercial
Finance and Consumer Finance - contributed double-digit improvements to earnings
during the first quarter of 2005.
We
integrate acquisitions as quickly as possible and only revenues and earnings
from the date we complete the acquisition through the end of the fourth
following quarter are attributed to such businesses.
Effects
of the acquisitions and dispositions on comparisons of our operations
follow.
|
Three
months ended March 31 |
|
(In
billions) |
2005 |
|
2004 |
|
Acquisitions |
|
|
|
|
|
|
Revenues |
$ |
1.0 |
|
$ |
0.9 |
|
Net
earnings |
|
0.1 |
|
|
0.1 |
|
|
|
|
|
|
|
|
Dispositions |
|
|
|
|
|
|
Revenues |
$ |
0.1 |
|
$ |
(0.8 |
) |
Net
earnings |
|
(0.1 |
) |
|
(0.1 |
) |
Provision
for income taxes was $445 million for the first quarter of 2005 (an effective
tax rate of 17.6%), compared with $502 million for the first quarter of 2004 (an
effective tax rate of 22.0%). The tax rate decreased primarily from the ongoing
reorganization of our foreign aircraft leasing operations, partially offset by
growth in our pre-tax earnings that was principally from sources subject to tax
at a rate higher than our average rate for 2004.
Segment
Operations
Revenues
and segment net earnings for operating segments of General Electric Capital
Services, Inc. (GECS), the sole owner of the common stock of GECC are summarized
and discussed below with a reconciliation to the GECC-only results, for the
first quarters ended March 31, 2005 and 2004. The most significant component of
these reconciliations is the exclusion from the Insurance segment at the GECC
level of the results of GE Insurance Solutions Corporation (GE Insurance
Solutions), which is not a subsidiary of GECC but is a direct subsidiary of
GECS. We have reclassified certain prior-period amounts to conform to the
current period’s presentation.
Segment
net earnings is determined based on internal performance measures used by the
Chairman to assess the performance of each business in a given period. In
connection with that assessment, the Chairman may exclude matters such as
charges for restructuring; rationalization and other similar expenses; certain
acquisition-related charges; certain gains and losses from dispositions; and
litigation settlements or other charges, responsibility for which precedes the
current management team.
Consolidated
|
Three
months ended
March
31 |
|
(In
millions) |
2005 |
|
2004
(Restated) |
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
Commercial
Finance |
$ |
6,040 |
|
$ |
5,391 |
|
Consumer
Finance |
|
4,689 |
|
|
3,589 |
|
Equipment
& Other Services |
|
1,919 |
|
|
2,252 |
|
Insurance |
|
6,333 |
|
|
5,953 |
|
Total
revenues |
|
18,981 |
|
|
17,185 |
|
Less
portion of revenues not included in GECC |
|
(2,814 |
) |
|
(2,738 |
) |
Total
revenues in GECC |
$ |
16,167 |
|
$ |
14,447 |
|
|
|
|
|
|
|
|
Net
earnings |
|
|
|
|
|
|
Commercial
Finance |
$ |
1,151 |
|
$ |
955 |
|
Consumer
Finance |
|
735 |
|
|
602 |
|
Equipment
& Other Services |
|
(1 |
) |
|
4 |
|
Insurance |
|
383 |
|
|
410 |
|
Total
net earnings |
|
2,268 |
|
|
1,971 |
|
Less
portion of net earnings not included in GECC |
|
(191 |
) |
|
(192 |
) |
Total
net earnings in GECC |
$ |
2,077 |
|
$ |
1,779 |
|
Commercial
Finance
|
Three
months ended
March
31 |
|
(In
millions) |
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Revenues |
$ |
6,040 |
|
$ |
5,391 |
|
Less
portion of Commercial Finance not included in GECC |
|
(146 |
) |
|
(83 |
) |
Total
revenues in GECC |
$ |
5,894 |
|
$ |
5,308 |
|
|
|
|
|
|
|
|
Net
revenues |
|
|
|
|
|
|
Total
revenues |
$ |
5,894 |
|
$ |
5,308 |
|
Interest
expense |
|
1,756 |
|
|
1,380 |
|
Total
net revenues |
$ |
4,138 |
|
$ |
3,928 |
|
|
|
|
|
|
|
|
Net
earnings |
$ |
1,151 |
|
$ |
955 |
|
Less
portion of Commercial Finance not included in GECC |
|
(74 |
) |
|
(25 |
) |
Total
net earnings in GECC |
$ |
1,077 |
|
$ |
930 |
|
|
At |
|
(In
millions) |
3/31/05 |
|
3/31/04 |
|
12/31/04 |
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
$ |
234,936 |
|
$ |
221,258 |
|
$ |
232,123 |
|
Less
portion of Commercial Finance not included in GECC |
|
1,281 |
|
|
(82 |
) |
|
288 |
|
Total
assets in GECC |
$ |
236,217 |
|
$ |
221,176 |
|
$ |
232,411 |
|
|
Three
months ended
March
31 |
|
(In
millions) |
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Real
Estate(a) |
|
|
|
|
|
|
Revenues
in GECS |
$ |
763 |
|
$ |
603 |
|
Net
earnings in GECS |
$ |
282 |
|
$ |
230 |
|
|
|
|
|
|
|
|
Aviation
Services(a) |
|
|
|
|
|
|
Revenue
in GECS |
$ |
817 |
|
$ |
715 |
|
Net
earnings in GECS |
$ |
163 |
|
$ |
144 |
|
|
At |
|
(In
millions) |
3/31/05 |
|
3/31/04 |
|
12/31/04 |
|
|
|
|
|
|
|
|
|
|
|
Real
Estate(a) |
|
|
|
|
|
|
|
|
|
Total
assets in GECS |
$ |
30,824 |
|
$ |
31,503 |
|
$ |
33,497 |
|
|
|
|
|
|
|
|
|
|
|
Aviation
Services(a) |
|
|
|
|
|
|
|
|
|
Total
assets in GECS |
$ |
37,488 |
|
$ |
34,353 |
|
$ |
37,384 |
|
|
|
|
|
|
|
|
|
|
|
(a)
|
We
provide additional information on two of our segment product lines, Real
Estate (commercial real estate financing) and Aviation Services
(commercial aircraft financing). Each of these product lines finances a
single form of collateral, and each has particular discrete concentrations
of risk and opportunities.
|
Commercial
Finance revenues and net earnings increased 12% and 21%, respectively, compared
with the first quarter of 2004. Revenues for the first quarters of 2005 and 2004
included $0.5 billion and $0.3 billion from acquisitions, respectively. Absent
the effect of these acquisitions, revenues increased $0.4 billion compared with
the first quarter of 2004 as a result of organic revenue growth ($0.3 billion)
and the effects of the weaker U.S. dollar ($0.1 billion). The increase in net
earnings resulted primarily from acquisitions ($0.1 billion) and core growth
($0.1 billion).
The most
significant acquisitions affecting Commercial Finance results in 2005 were the
Transportation Financial Services Group of CitiCapital, acquired during the
first quarter of 2005; the U.S. leasing business of IKON Office Solutions,
acquired during the second quarter of 2004; and the commercial lending business
of Transamerica Finance Corporation, and Sophia S.A., both acquired during the
first quarter of 2004. These businesses contributed $0.4 billion and $0.1
billion to first quarter 2005 revenues and net earnings, respectively.
Consumer
Finance
|
Three
months ended
March
31 |
|
(In
millions) |
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Revenues |
$ |
4,689 |
|
$ |
3,589 |
|
Less
portion of Consumer Finance not included in GECC |
|
- |
|
|
(9 |
) |
Total
revenues in GECC |
$ |
4,689 |
|
$ |
3,580 |
|
|
|
|
|
|
|
|
Net
revenues |
|
|
|
|
|
|
Total
revenues |
$ |
4,689 |
|
$ |
3,580 |
|
Interest
expense |
|
1,278 |
|
|
769 |
|
Total
net revenues |
$ |
3,411 |
|
$ |
2,811 |
|
|
|
|
|
|
|
|
Net
earnings |
$ |
735 |
|
$ |
602 |
|
Less
portion of Consumer Finance not included in GECC |
|
(4 |
) |
|
(15 |
) |
Total
net earnings in GECC |
$ |
731 |
|
$ |
587 |
|
|
At |
|
(In
millions) |
3/31/05 |
|
3/31/04 |
|
12/31/04 |
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
$ |
149,912 |
|
$ |
107,366 |
|
$ |
151,255 |
|
Less
portion of Consumer Finance not included in GECC |
|
(768 |
) |
|
(711 |
) |
|
(724 |
) |
Total
assets in GECC |
$ |
149,144 |
|
$ |
106,655 |
|
$ |
150,531 |
|
Consumer
Finance revenues and net earnings increased 31% and 22%, respectively, compared
with the first quarter of 2004. Revenues for the first quarter of 2005 included
$0.5 billion from acquisitions. Absent the effect of these acquisitions,
revenues increased $0.6 billion compared with the first quarter of 2004 as a
result of organic revenue growth ($0.5 billion) and the effects of the weaker
U.S. dollar ($0.1 billion). The increase in net earnings resulted primarily from
core growth ($0.1 billion).
The most
significant acquisitions affecting Consumer Finance results in 2005 were
Australian Financial Investments Group (AFIG), a residential mortgage lender in
Australia, the private-label credit card portfolio of Dillard’s Inc. and the
strategic joint venture with Hyundai Capital Services, Korea’s leading consumer
finance company, all acquired during the fourth quarter of 2004; and WMC Finance
Co. (WMC), a U.S. wholesale mortgage lender, acquired during the second quarter
of 2004. These businesses contributed $0.4 billion to first quarter 2005
revenues.
Equipment
& Other Services
|
Three
months ended
March
31 |
|
(In
millions) |
2005 |
|
2004
(Restated) |
|
|
|
|
|
|
|
|
Revenues |
$ |
1,919 |
|
$ |
2,252 |
|
Less
portion of Equipment & Other Services not included in
GECC |
|
144 |
|
|
193 |
|
Total
revenues in GECC |
$ |
2,063 |
|
$ |
2,445 |
|
|
|
|
|
|
|
|
Net
earnings |
$ |
(1 |
) |
$ |
4 |
|
Less
portion of Equipment & Other Services not included in
GECC |
|
30 |
|
|
19 |
|
Total
net earnings in GECC |
$ |
29 |
|
$ |
23 |
|
Equipment
& Other Services revenues decreased $0.3 billion compared with the first
quarter of 2004. Revenues for the first quarter of 2005 were reduced by $0.1
billion as a result of the 2005 restatement and by $0.1 billion as a result of
the 2004 ITS disposition. Revenues for the first quarter of 2004 included
$0.2 billion resulting from the 2005 restatement. Revenues also increased $0.1
billion compared with the first quarter of 2004 primarily as a result of organic
revenue growth ($0.1 billion) resulting from improved operating performance at
Equipment Services ($0.1 billion), and improved investment returns at GE Equity
($0.1 billion), partially offset by the results of consolidated, liquidating
securitization entities ($0.1 billion).
Insurance
|
Three
months ended
March
31 |
|
(In
millions) |
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Revenues |
$ |
6,333 |
|
$ |
5,953 |
|
Less
portion of Insurance not included in GECC |
|
(2,812 |
) |
|
(2,839 |
) |
Total
revenues in GECC |
$ |
3,521 |
|
$ |
3,114 |
|
|
|
|
|
|
|
|
Net
earnings |
$ |
383 |
|
$ |
410 |
|
Less
portion of Insurance not included in GECC |
|
(143 |
) |
|
(171 |
) |
Total
net earnings in GECC |
$ |
240 |
|
$ |
239 |
|
|
|
|
|
|
|
|
GE
Insurance Solutions |
|
|
|
|
|
|
Revenues
in GECS |
$ |
2,340 |
|
$ |
2,647 |
|
Net
earnings in GECS |
$ |
151 |
|
$ |
140 |
|
Insurance
revenues increased 6% and net earnings decreased 7% compared with the first
quarter of 2004. The increase in revenues resulted primarily from higher
investment income ($0.5 billion), the effects of the secondary public offering
and repurchase ($0.2 billion) at Genworth and the effects of the weaker U.S.
dollar ($0.1 billion). These increases were partially offset by net declines in
volume resulting from the strategic exit of certain business channels, primarily
at GE Insurance Solutions ($0.4 billion). Net earnings decreased primarily from
the after-tax effects of the Genworth public offerings ($0.1
billion).
B.
Statement of Financial Position
Overview
of Financial Position
Major
changes in our financial position resulted from the following.
· |
In
the first quarter of 2005, we completed the acquisition of the
Transportation Financial Services Group of CitiCapital. At the acquisition
date, this transaction resulted in an increase in total assets of $4.7
billion, of which $4.0 billion was financing receivables before
allowance for losses. |
· Minority
interest in equity of consolidated affiliates increased $2.2 billion during
2005, primarily because of our sale of an additional 18.4% of the common shares
of Genworth.
Investment
securities comprise
mainly available-for-sale investment-grade debt securities held by Insurance in
support of obligations to annuitants and policyholders, and debt and equity
securities designated as trading and associated with certain non-U.S.
contractholders who retain the related risks and rewards, except in the event of
our bankruptcy or liquidation. Investment securities were $85.2 billion at March
31, 2005,1.8 billion lower than at December 31, 2004. The decrease was primarily
the net result of investing premiums received and reinvesting investment income,
and a decrease in the estimated fair value of debt securities.
We
regularly review investment securities for impairment based on criteria that
include the extent to which cost exceeds market value, the duration of that
market decline, our intent and ability to hold to recovery and the financial
health and specific prospects for the issuer. Of available-for-sale securities
with unrealized losses at March 31, 2005, approximately $0.1 billion was at
risk of being charged to earnings in the next 12 months; more than half of this
amount related to commercial airlines.
Impairment
losses were insignificant for the first quarter of 2005 compared with $0.1
billion in the first quarter of 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 $2.5 billion and $0.8 billion, respectively, at
March 31, 2005, compared with $2.9 billion and $0.6 billion, respectively, at
December 31, 2004, primarily reflecting a decrease in the estimated fair value
of debt securities as interest rates increased. At March 31, 2005, available
accounting gains could be as much as $1.4 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.
At March
31, 2005, unrealized losses with a duration of 12 months or more related to
investment securities collateralized by commercial aircraft were $0.4 billion.
The aggregate amortized cost of these available-for-sale securities was $1.8
billion. We believe that our securities, which are current on all payment terms,
are in an unrealized loss position because of ongoing negative market reaction
to difficulties in the commercial airline industry. For these securities, we do
not anticipate changes in the timing and amount of estimated cash flows, and
expect full recovery of our amortized cost. Further, should our cash flow
expectation prove to be incorrect, the current aggregate market values of
aircraft collateral, based on information from independent appraisers, exceeded
totals of both the market values and the amortized cost of our securities at
March 31, 2005. See additional discussion of our positions in the commercial
aviation industry on page 20.
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,
decreased to $285.0 billion at March 31, 2005, from $285.2 billion at
December 31, 2004, as discussed in the following paragraphs. The related
allowance for losses at March 31, 2005, amounted to $5.5 billion compared with
$5.6 billion at December 31, 2004, representing our best estimate of probable
losses inherent in the portfolio.
A
discussion of the quality of certain elements of the financing receivables
portfolio follows. For purposes of that discussion, “delinquent” receivables are
those that are 30 days or more past due; “nonearning” receivables are those that
are 90 days or more past due (or for which collection has otherwise become
doubtful); and “reduced-earning” receivables are commercial receivables whose
terms have been restructured to a below-market yield.
Commercial
Finance financing receivables, before allowance for losses, totaled $143.7
billion at March 31, 2005, compared with $142.3 billion at December 31, 2004,
and consisted of loans and leases to the equipment, commercial and industrial,
real estate and commercial aircraft industries. This portfolio of receivables
increased primarily from core growth ($4.8 billion) and acquisitions ($4.5
billion), partially offset by securitizations and sales ($6.9 billion). Related
nonearning and reduced-earning receivables were $1.6 billion (1.1% of
outstanding receivables) at both March 31, 2005 and year-end 2004. Commercial
Finance financing receivables are generally backed by assets and there is a
broad spread of geographic and credit risk in the portfolio.
In the
fourth quarter of 2004, Consumer Finance adopted a global policy for
uncollectible receivables that accelerated write-offs to follow one consistent
basis. We now write off unsecured closed-end installment loans that become 120
days contractually past due and unsecured open-ended revolving loans that become
180 days contractually past due.
Consumer
Finance financing receivables, before allowance for losses, were
$127.3 billion at March 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 decreased primarily as a result of normal seasonal variations in
consumer spending in the U.S. ($1.6 billion) and whole loan sales and
securitization activity ($0.9 billion), partially offset by non-U.S. core growth
($1.4 billion) and by the effects of the weaker U.S. dollar
($0.6 billion).
Nonearning
consumer receivables were $2.7 billion at March 31, 2005 compared with
$2.5 billion at December 31, 2004 representing 2.1% and 2.0% of outstanding
receivables, respectively. The percentage increase is primarily related to
higher nonearnings 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. This increase is partially offset by decreases
in our U.S. portfolio resulting from an improving economic environment coupled
with collections effectiveness more than offsetting seasonality.
Equipment
& Other Services financing receivables, before allowance for losses,
amounted to $14.1 billion and $15.1 billion at March 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 were $0.2 billion at March 31, 2005 and December 31,
2004, representing 1.3% and 1.2% of outstanding receivables, respectively.
Approximate
delinquency rates on managed Commercial Finance equipment loans and leases and
managed Consumer Finance financing receivables follow.
|
Approximate
Delinquency Rates At |
|
|
3/31/05 |
|
12/31/04 |
|
3/31/04 |
|
|
|
|
|
|
|
|
|
|
|
Commercial
Finance |
1.54 |
% |
|
1.40 |
% |
|
1.38 |
% |
|
Consumer
Finance |
5.18 |
|
|
4.85 |
|
|
5.76 |
|
|
Approximate
delinquency rates at Commercial Finance increased from December 31, 2004 to
March 31, 2005, primarily resulting from delinquencies in certain larger balance
loans and leases, partially offset by improvements in the remaining core
portfolio. The increase from March 31, 2004 to March 31, 2005, reflected the
effect of certain acquired portfolios, partially offset by improvement in the
overall core portfolio.
Approximate
delinquency rates at Consumer Finance increased from December 31, 2004 to March
31, 2005, as a result of higher delinquencies 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. This increase is
partially offset by decreases in our U.S. portfolio resulting from an improving
economic environment coupled with collections effectiveness more than offsetting
seasonality. The decrease from March 31, 2004 to March 31, 2005, reflected the
results of the standardization of our write-off policy and the acquisition of
AFIG, a residential mortgage lender in Australia, partially offset by higher
delinquencies in our European secured financing business.
C.
Additional Considerations
Commercial
Aviation
Commercial
aviation is an industry in which we have a significant ongoing interest. Most
U.S. carriers have been operating under pressure from a variety of factors,
including higher jet fuel costs. However, demand in the global markets has been
strong and we continue to be confident in the global industry’s prospects.
During the first quarter of 2005, we recognized impairment charges of $0.2
billion compared with an insignificant amount of impairments in the first
quarter of 2004.
US
Airways filed for bankruptcy protection in the third quarter of 2004. In January
2005, US Airways and the Air Transportation Stabilization Board (ATSB) reached
an agreement that extended US Airways’ use of cash proceeds from its federally
guaranteed loan through June 30, 2005. US Airways’ management has stated
publicly that this agreement with the ATSB will enable continuation of
operations until Chapter 11 reorganization is completed in the summer of 2005.
On April 22, 2005, US Airways’ management announced that they have been in
discussions with America West Holdings Corp. regarding a potential strategic
transaction. We have been approached by US Airways regarding our role in such a
potential transaction. These discussions have been ongoing; however, no
definitive agreement has been reached. At March 31, 2005, our aggregate exposure
to US Airways was $2.8 billion, the largest component of which was $2.6 billion
of loans and leases. These loans and leases were substantially secured by
various equipment, including 45 regional jet aircraft; 49 Boeing narrow-body
aircraft,
primarily
737 type; and 55 Airbus narrow-body aircraft. We and US Airways have entered
into a memorandum of understanding to restructure a number of these loans and
leases and to continue regional jet financing subject to US Airways successfully
emerging from bankruptcy protection and achieving specified financial
milestones. In addition to our loans and leases, we hold $0.2 billion of secured
available-for-sale investment securities in our Commercial Finance business. We
have adjusted our estimates of cash flows and residual values to reflect the
current information available to us in this fluid situation.
Among our
customers, UAL Corp., ATA Holdings Corp. and Aloha Airgroup, Inc. have also
filed for bankruptcy protection. At March 31, 2005, our financial exposure with
three airlines, consisting primarily of loans and leases, was $1.4 billion,
$0.4 billion and $0.3 billion, respectively. Various Boeing and Airbus aircraft
secure substantially all of these financial exposures.
Other
Matters
In April
2005, Standard & Poor’s Rating Services reduced the counterparty credit and
financial strength ratings of Employers Reinsurance Corporation and GE
Reinsurance Corporation to A (Strong) from A+ (Strong) and reduced the senior
debt rating of GE Insurance Solutions Corporation to BBB+ (Good) from A-
(Strong). Also in April 2005, Moody's Investors Service reduced the financial
strength rating of Employers Reinsurance Corporation to A1 (Strong) from
Aa2 (Strong) and reduced the senior debt rating of GE Insurance Solutions
Corporation to Baa1 (Adequate) from A1 (Strong). We do not believe these
actions will have any material effect on our liquidity or capital resources or
ability to write future business.
D.
Debt Instruments
During
the first quarter of 2005, GECC and GECC affiliates issued $23 billion of
senior, unsecured long-term debt. This debt was both fixed and floating rate and
was issued to institutional and retail investors in the U.S. and 12 other global
markets. Maturities for these issuances ranged from two to 30 years. We used the
proceeds primarily for repayment of maturing long-term debt, but also to fund
acquisitions and asset growth. We anticipate that we will issue between $27
billion and $37 billion of additional long-term debt during the remainder of
2005, although the ultimate amount we issue will depend on our needs and on the
markets.
Following
is the composition of our debt obligations excluding debt of consolidated,
liquidating securitization entities, such as asset-backed debt obligations at
March 31, 2005, and December 31, 2004.
|
At |
|
|
3/31/05 |
|
12/31/04 |
|
|
|
|
|
|
|
|
|
|
Senior
notes and other long-term debt |
|
59 |
% |
|
|
59 |
% |
|
Commercial
paper |
|
23 |
|
|
|
24 |
|
|
Current
portion of long-term debt |
|
12 |
|
|
|
11 |
|
|
Other
- bank and other retail deposits |
|
6 |
|
|
|
6 |
|
|
Total
|
|
100 |
% |
|
|
100 |
% |
|
During
the first quarter of 2005, we paid down the remaining $3.2 billion of
“parent-supported debt.” The elimination was the result of the
following:
· |
Proceeds
from the Genworth secondary public offering and repurchase ($2.6
billion), |
· |
22%
of retained operating earnings ($0.5 billion),
and |
· |
Rationalization
of Equipment & Other Services related activities ($0.1
billion). |
There
were no special dividends paid to GE through GECS during the first quarter of
2005.
Item
4. Controls And Procedures
Under the
direction of our Chairman and Chief Financial Officer, we evaluated our
disclosure controls and procedures and internal control over financial reporting
and concluded that our disclosure controls and procedures were not effective as
of March 31, 2005 solely because of the following material weakness in internal
control over financial reporting with respect to accounting for hedge
transactions: a failure to ensure the correct application of SFAS 133 when
certain derivative transactions were entered into at GECC prior to August 2003
and failure to correct that error subsequently.
We are
confident that, as of the date of this filing, we have fully remediated this
material weakness in our internal control over financial reporting with respect
to accounting for derivatives transactions. The remedial actions
included:
· |
improving
training, education and accounting reviews designed to ensure that all
relevant personnel involved in derivatives transactions understand and
apply hedge accounting in compliance with SFAS 133;
and |
· |
retesting
our internal financial controls with respect to the types of hedging
transactions affected by the restatement to ensure compliance with SFAS
133. |
In
connection with this Form 10-Q, under the direction of our Chairman and Chief
Financial Officer, we have evaluated our disclosure controls and procedures as
currently in effect, including the remedial actions discussed above, and we have
concluded that, as of this date, our disclosure controls and procedures are
effective.
There was
no change in our internal control over financial reporting during the quarter
ended March 31, 2005, that materially affected, or is reasonably likely to
materially affect, such internal control over financial reporting. However,
subsequent to March 31, 2005, we took the remedial actions described
above.
Part
II. Other Information
Item
1. Legal Proceedings
On April
29, 2005, the Company received a subpoena from the Northeast Regional Office of
the U.S. Securities and Exchange Commission. This subpoena requires the Company
to produce documents related to “certain loss mitigation insurance products,”
such as finite risk reinsurance. The Company will cooperate fully with the SEC.
GE
Insurance Solutions has made limited use of reinsurance with finite risk
characteristics to manage the risks of catastrophic events, such as storms or
hurricanes, and to protect itself from the volatility inherent in its business.
Based on its numerous reviews of GE Insurance Solutions’ reinsurance agreements
with finite risk characteristics in the past several years, the Company believes
that the agreements have been properly structured and accounted for, with
appropriate risk transfer, and properly disclosed.
After GE
commenced the work for an internal audit in connection with GECC’s treasury
operations, we received a letter dated January 20, 2005 from the Boston District
Office of the U.S. Securities and Exchange Commission, indicating that it was
conducting an informal investigation and requesting that GE and GECC voluntarily
provide certain documents and information with respect to the use of hedge
accounting for derivatives by GE and GECC. In response to the staff’s request,
GE and GECC have voluntarily provided documents and other information and we
intend to continue to cooperate fully with them in their ongoing
investigation.
Item
6. Exhibits
|
Exhibit
3(ii)
|
By-laws
of General Electric Capital Corporation as amended on March 24,
2005.
|
|
Exhibit
12
|
Computation
of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings
to Combined Fixed Charges and Preferred Stock Dividends.
|
|
Exhibit
31(a)
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as Amended.
|
|
Exhibit
31(b)
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as Amended.
|
|
Exhibit
32
|
Certification
Pursuant to 18 U.S.C. Section 1350.
|
|
Exhibit
99
|
Financial
Measures that Supplement Generally Accepted Accounting
Principles.
|
Signatures
Pursuant
to the requirements 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
(Registrant)
|
May
6, 2005 |
|
/s/
Philip D. Ameen |
Date |
|
Philip
D. Ameen
Senior
Vice President and Controller
Duly
Authorized Officer and Principal Accounting
Officer |