UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

****FORM      10-K
 [ x ]  ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

[     ]   TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____
**Commission      file number 0-14804
General Electric Capital Services, Inc.

(Exact name of registrant as specified in its charter)

**Delaware**
****06-1109503**

(State        or other jurisdiction of incorporation or organization)
****
(I.R.S.        Employer Identification No.)
****
**260 Long        Ridge Road, Stamford, Connecticut**

**06927**

**(203)        357-4000**

(Address        of principal executive offices)

(Zip        Code)

(Registrant's        telephone number, including area code)
**SECURITIES  REGISTERED PURSUANT

TO  SECTION 12(b) OF THE ACT:
**Title of each class**Name of each******exchange        on which registered**
 
 **7.50%        Guaranteed Subordinated Notes Due August 21, 2035**New        York Stock Exchange
SECURITIES  REGISTERED PURSUANT

TO  SECTION 12(g) OF THE ACT:

Title of each class

Common Stock, par value $1,000 per share

Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes  X   No  __
Indicate by check mark if disclosure of delinquent filerspursuant to Item 405 of Regulation S - K is not contained herein, and will notbe contained, to the best of registrant's knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10 - Kor any amendment to this Form 10 - K.   X

Indicate by check mark whether the registrant is an acceleratedfiler (as defined in Exchange Act Rule 12b - 2). Yes _ No X

At March 6, 2003, 1,064 shares of voting common stock, whichconstitute all of the outstanding common equity, with a par value of $1,000 wereoutstanding.

Aggregate market value of the outstanding common equity held bynonaffiliates of the registrant at March 6, 2003. None.
**DOCUMENTS INCORPORATED BY REFERENCE**
The consolidated financial statements of GeneralElectric Company, set forth in the Annual Report on Form 10 - K of GeneralElectric Company for the year ended December 31, 2002 are incorporated byreference into Part IV hereof.
Item 1. Business - Property and Casualty Reserves for UnpaidClaims and Claim Expenses, set forth in the Annual Report on Form 10 - K of GEGlobal Insurance Holding Corporation for the year ended December 31, 2002 isincorporated by reference into Part I hereof.

**REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERALINSTRUCTION I(1)(a) AND (b) OF FORM 10 - K AND IS THEREFORE FILING THIS FORM 10- K WITH THE REDUCED DISCLOSURE FORMAT.**
****TABLE OF CONTENTS** ****Page****PART I**   Item 1. Business**1**Item 2. Properties**9**Item 3. Legal Proceedings**9**Item 4. Submission of Matters to a    Vote of Security Holders**9**  **PART II**   Item 5. Market for the Registrant's    Common Equity and Related Stockholder Matters**10**Item 6. Selected Financial Data**10**Item 7. Management's Discussion and    Analysis of Results of Operations**11**Item 7A. Quantitative and    Qualitative Disclosures About Market Risk**30**Item 8. Financial Statements and    Supplementary Data**31**Item 9. Changes in and    Disagreements with Accountants on Accounting and Financial Disclosure**62**  **PART III**   Item 10. Directors and Executive    Officers of the Registrant**62**Item 11. Executive Compensation**62**Item 12. Security Ownership of    Certain Beneficial Owners and Management**62**Item 13. Certain Relationships and    Related Transactions**62**Item 14. Controls and Procedures**62** **PART IV**   Item 15. Exhibits, Financial    Statement Schedules, and Reports on Form 8-K**63**Signatures **71**Certifications Pursuant to Section    302 of the Sarbanes-Oxley Act Of 2002**72**
**PART I**

**Item 1. Business.**

**GENERAL ELECTRIC CAPITAL SERVICES, INC.**

General Electric Capital Services, Inc. (herein, together withits consolidated affiliates, called we, us or our unless the context otherwiserequires) was incorporated in 1984 in the State of Delaware. Until February1993, our name was General Electric Financial Services, Inc. All of ouroutstanding common stock is owned directly or indirectly by General ElectricCompany, a New York corporation (GE Company or GE). Our business consists ofownership of two principal subsidiaries which, together with their affiliates,constitute GE Company's principal financial services businesses. We are the soleowner of the common stock of General Electric Capital Corporation (GE Capital orGECC) and GE Global Insurance Holding Corporation (GE Global Insurance Holding),the parent of Employers Reinsurance Corporation. Our principal executive officesare at 260 Long Ridge Road, Stamford, Connecticut 06927 (Telephone number (203)357-4000). At December 31, 2002, we and our affiliates employed approximately96,000 persons.

           Our financial information, including the information contained in this reportfiled on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K;and any amendments to the above mentioned reports, may be viewed on the Internetat www.ge.com/en/company/investor/secfilings.htm.  Copies are alsoavailable, without charge, from GE Corporate Investor Communications, 3135Easton Turnpike, Fairfield, CT, 06431.  Alternatively, reports filed withthe SEC may be viewed or obtained at the SEC Public Reference Room inWashington, D.C., or at the SEC's Internet site at www.sec.gov.
**GENERAL ELECTRIC CAPITAL CORPORATION**
GE Capital was incorporated in 1943 in the State of New Yorkunder the provisions of the New York Banking Law relating to investmentcompanies, as successor to General Electric Contracts Corporation, which wasformed in 1932. The capital stock of GE Capital was contributed to us by GECompany in June 1984. Until November 1987, their name was General ElectricCredit Corporation.  On July 2, 2001, GE Capital changed its state ofincorporation to Delaware. The business of GE Capital originally relatedprincipally to financing the distribution and sale of consumer and otherproducts of GE Company. Currently, however, the types and brands of productsfinanced and the services offered are significantly more diversified. GE Companymanufactures few of the products financed by GE Capital.

           GE Capital operates in four key operating segments that are described below.These operations are subject to a variety of regulations in their respectivejurisdictions.

           Services of GE Capital are offered primarily in the United States, Canada,Europe and the Pacific Basin. GE Capital's principal executive offices are at260 Long Ridge Road, Stamford, Connecticut 06927. At December 31, 2002, GECapital and affiliates employed approximately 93,000 persons.
**GE GLOBAL INSURANCE HOLDING CORPORATION**
GE Global Insurance Holding, together with its affiliates, operates in the GE Insurancesegment described below and its operations are regulated by a variety ofinsurance and other regulators.

           GE Global Insurance Holding and its affiliates conduct business throughout theworld using a network of local offices. The world headquarters of GE GlobalInsurance Holding are at 5200 Metcalf Avenue, Overland Park, Kansas 66201. AtDecember 31, 2002, GE Global Insurance Holding and affiliates employedapproximately 3,300 persons.  

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**OPERATING SEGMENTS**
On July 26, 2002, General Electric Company issued a pressrelease announcing organization changes that resulted in our becoming fourseparate GE financial services businesses. These businesses, GE CommercialFinance, GE Consumer Finance, GE Equipment Management, and GE Insurance, providea wide variety of financing, asset management, and insurance products andservices. Refer to Item 7, "Management's Discussion and Analysis of Resultsof Operations," in this Annual Report on Form 10-K for a discussion of ourprincipal businesses by operating segment.  Item 1. Business - Property andCasualty Reserves for Unpaid Claims and Claim Expenses, which is set forth inthe Annual Report on Form 10-K of GE Global Insurance Holding for the year endedDecember 31, 2002, is incorporated herein by reference. 
**GE COMMERCIAL FINANCE**
GE Commercial Finance offers businesses of all sizes an array offinancial services and products worldwide. With a particular expertise in themid-market segment, GE Commercial Finance provides loans, financing andoperating leases, and other services for customers, including manufacturers,distributors and end-users, for a variety of equipment and major capital assetsincluding industrial facilities and equipment, energy-related facilities,commercial real estate loans and investments, vehicles, aircraft, and equipmentused in construction, manufacturing, data processing and office applications,electronics and telecommunications, and healthcare. A description of GECommercial Finance's principal businesses follows.
*Commercial Equipment Financing*
Commercial Equipment Financing (CEF) offers large and smallcompanies a broad line of leases and loans. Customers include manufacturers,distributors, dealers, end-users, and municipalities. Financial products includefinancing for construction equipment, corporate aircraft, medical equipment,trucks and trailers. CEF also furnishes customers with direct-source tax-exemptfinance programs, as well as lease and sale/leaseback offerings. Products areeither held for CEF's own account or brokered to third parties. Transactionsrange in size from $50 thousand to $50 million, with financing terms from 36 to180 months. CEF also maintains an asset management operation that redeploysoff-lease and repossessed equipment and other assets. During 2002, CEF purchasedcertain assets and liabilities from Finova Corporation, Comdisco Corporation andAustralian Guarantee Corporation.

           The global commercial equipment financing industry continues to be highlyfragmented and intensely competitive. Competitors in the U.S. domestic andinternational markets include independent financing companies, financingsubsidiaries of equipment manufacturers, and banks (national, regional, andlocal). Industry participants compete not only on the basis of monthly payments,interest rates and fees charged customers but also on deal structures and creditterms. The profitability of CEF is affected not only by broad economicconditions that impact customer credit quality and the availability and cost ofcapital, but also by successful management of credit risk, operating risk andsuch market risks as interest rate and currency exchange risk. Important factorsto continued success include maintaining strong risk management systems, diverseportfolios, service and distribution channels, strong collateral and assetmanagement knowledge, deal structuring expertise and the reduction of coststhrough enhanced use of technology.

           CEF operates from offices throughout the Americas, Europe, Asia and Australiaand through joint ventures in Indonesia and China. CEF headquarters are inDanbury, Connecticut.

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*Real Estate*
Real Estate is one of the world's leading providers of debt andequity capital to the global commercial real estate market.  Real Estateprovides funds for the acquisition, refinancing and renovation of real estateassets as well as making equity investments in real estate throughout the UnitedStates, Canada, Mexico, Europe and Asia. Lending is a major portion of RealEstate's business in the form of intermediate-term senior and subordinated fixedand floating-rate loans secured by existing income-producing commercialproperties such as office buildings, apartment buildings, retail centers,warehouses and hotels. Loans range from single-property mortgages typically notless than $1 million to multi-property portfolios of several hundred milliondollars.  Real Estate's business also includes the origination andsubsequent securitization of low leverage real estate loans, which are intendedto be held less than one year before sale.  Additionally, Real Estatepurchases and provides restructuring financing for portfolios of real estate,mortgage loans, limited partnerships, and tax-exempt bonds.

           Real Estate holds equity positions in a diversified portfolio of real estateassets via direct real estate ownership and joint venture interests. Property types include apartment buildings, self-storage facilities, warehouses,parking facilities, retail centers and office properties. Real Estate's equityholdings increased in 2002 with the acquisition of Security Capital GroupIncorporated, an international real estate operating company. Thisacquisition provided Real Estate with ownership positions in self-storagefacilities, parking facilities, grocery-anchored neighborhood retail centers,warehouse facilities and distribution services, senior assisted livingfacilities, office properties and real estate investment advisory businesses.Also in 2002, Real Estate purchased the commercial real estate and asset-basedlending portfolios from DaimlerChrysler Capital Services.

           Competition is intense in each of Real Estate's areas and across all productlines.  Competitors include local, regional and, increasingly,multi-national lenders and investors.  Important competitive factors inReal Estate's lending activities include financing rates, loan proceeds, loanstructure, the ability to fund transactions efficiently, and the outlook oflocal real estate markets.  Where Real Estate provides equity capital,principal competitive factors include the valuation of underlying properties andinvestment structure as well as transaction cycle time.

           Real Estate has offices throughout the United States, as well as in Canada,Mexico, Europe and Asia. Real Estate headquarters are in Stamford, Connecticut.
*Commercial Finance*
Commercial Finance (CF) is a leading global provider ofrevolving and term debt and equity to finance acquisitions, business expansion,bank refinancings, recapitalizations and other special situations. Products alsoinclude asset securitization facilities, capital expenditure lines andbankruptcy-related facilities, as well as factoring services. Loan transactionsrange in size from under $5 million to over $200 million. CF's clients areowners, managers and buyers of both public and private companies, principallymanufacturers, distributors, retailers and diversified service providers. CF hasindustry specialists focused on the retail, and media and communicationsindustries. CF also provides senior debt, subordinated debt and bridge financingto buyout and private equity firms.

           The corporate financing business is characterized by intense competition from avariety of lenders and factoring services providers, including local, regional,national and international banks and non-bank financing institutions. Competition is based on interest rates, fees, credit terms, and transactionstructures.  In addition to these factors, successful management of creditrisks within the existing customer loan portfolio also affects profitability.Important factors to continued success include maintaining deal structuringexpertise, strong risk management systems, and collateral management knowledge.

           CF headquarters are in Stamford, Connecticut.  CF has lending operations in25 cities, including international offices in Canada, Mexico, Thailand, Korea,Singapore, The Netherlands, and the United Kingdom, and also has significantfactoring operations in the U.S., France, Mexico, the United Kingdom and Italyserving U.S. and European companies.
*Structured Finance Group*
Structured Finance Group (SFG) provides equity, debt andstructured investments to clients throughout the world. SFG's clients areprimarily in the global energy, telecommunications, industrial andtransportation sectors and range from household names to early stage businesses.SFG combines industry and technical expertise to deliver a full range ofsophisticated financial services and products. Services include corporatefinance, acquisition finance and project finance (construction and term).

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Products include a variety of debt and equity instruments, aswell as structured transactions, including leases and partnerships. In November2002, SFG acquired part of the structured finance unit of Asea Brown Boveri(ABB).  The acquired structured finance business includes globalinfrastructure financing, equipment leasing and financing businesses.  Thisacquisition will increase SFG's presence in the project and trade financemarkets.

           SFG's competition is diverse and global, ranging from large financialinstitutions to small niche capital providers. Additionally, two of SFG's clientindustry segments, telecommunications and energy, are faced with extraordinarychallenges fostered by deregulation, globalization and technical innovation.Both of these industries have been recently experiencing significant volatilityin demand for their products and services. For SFG to remain competitive, SFGmust provide capital to borrowers in innovative and unique ways based onindustry knowledge and competitive pricing and properly assess credit risks andeffectively manage portfolios.

           SFG headquarters are in Stamford, Connecticut, and it has offices in Chicago,Illinois; Houston, Texas; New York, New York; Denver, Colorado; and SanFrancisco, California. Internationally, SFG is represented in London, England;Zurich, Switzerland; Stockholm, Sweden; Oslo, Norway; and Tokyo, Japan.
*Aviation Services*
Aviation Services, the world's foremost aircraft leasingcompany, is a global commercial aviation financial services business that offersa broad range of financial products to airlines, aircraft operators, owners,lenders and investors. Financial products include leases, aircraft purchasingand trading, loans, engine/spare parts financing, pilot training, fleet planningand financial advisory services.

           Following the events of September 11, 2001, many of our airline customers haveexperienced financial difficulties. In face of declining traffic, they haveresponded by curtailing flight schedules and deferring and canceling deliveriesof commercial aircraft. Deteriorating aircraft utilization and pricing affectsAviation Services, which owned 1,161 commercial aircraft at December 31, 2002,when, despite pressure on the industry, 1,149, or 99% were on lease. We believe,however, that the financial difficulties of our airline customers will continueto weigh on the airline industry in 2003.

           Aviation Services headquarters are in Stamford, Connecticut, with regionaloffices in Shannon, Republic of Ireland; New York, New York; Miami, Florida;Chicago, Illinois; Vienna, Austria; Toulouse, France; Luxembourg; Beijing andHong Kong, China; Tokyo, Japan; and Singapore*.*
*Vendor Financial Services*
Vendor Financial Services (VFS) provides financial services toover 100 equipment manufacturers and more than 4,500 dealers/distributors inNorth America, Europe and Asia (including Japan). Customers include major U.S.and non-U.S. manufacturers in a variety of industries including informationtechnology, office equipment, healthcare, telecommunications, energy andindustrial equipment. VFS establishes sales financing in two ways - by formingcaptive partnerships with manufacturers that do not have them, and byoutsourcing captive partnerships from manufacturers that do (captivepartnerships provide sales financing solely for products of a givenmanufacturer). VFS offers industry-specific knowledge, leading edge technology,leasing and equipment expertise, and global capabilities. In addition, VFSprovides an expanding array of related financial services to customers,including trade payables services. In November 2002, VFS acquired the stock ofDeutsche Financial Services which became a VFS business line, CommercialDistribution Finance (CDF).  CDF is a leading global provider ofspecialized distribution financing programs and services including inventoryfinancing, accounts receivable financing, formula based lending, private labelfinancing, rental finance, warranty and collateral management services.

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           A further economic slowdown could impact the equipment financing industry,intensifying a competitive pricing environment, pressure delinquencies andresidual realizations, and pressure any recourse obligations from vendorrelationships. For VFS to remain competitive VFS must, among other things, drivedown costs through significant investment in productivity initiatives andcontinue to manage effectively its spread of risk in industry sectors andequipment categories in conjunction with vendor partners.

           VFS has sales offices throughout the United States, Canada, Europe, Asia(including Japan), and Australia. VFS headquarters are in Danbury, Connecticut.
**GE CONSUMER FINANCE**
GE Consumer Finance is a leading provider of credit services toconsumers, retailers and auto dealers in 35 countries around the world. GEConsumer Finance provides private-label credit card loans, personal loans, timesales and revolving credit, residential mortgage financing, inventory financingfor retail merchants, and auto leasing and inventory financing. A description ofGE Consumer Finance's principal businesses follows.
*Global Consumer Finance*
Global Consumer Finance (GCF) is a leading provider of creditand insurance products and services to non-U.S. retailers and consumers. GCFprovides private-label credit cards and proprietary credit services to retailersin Europe, Asia and, to a lesser extent, Central and South America, includingTesco, Metro and Wal-Mart, as well as offering a variety of direct-to-consumercredit programs such as consumer loans, auto loans and finance leases,mortgages, debt consolidation, bankcards and the distribution of creditinsurance. In May 2002, GCF acquired 100% of the Australian GuaranteeCorporation (AGC) from Westpac Banking Corporation Limited.  AGC, based inSydney, Australia, is a leading provider of consumer auto lending and retailsales finance in Australia and New Zealand. Also in 2002, GCF acquired 100% ofTime Retail Finance.

           GCF's operations are subject to a variety of bank and consumer protectionregulations in their respective jurisdictions and a number of countries haveceilings on rates chargeable to consumers in financial service transactions. Theconsumer lending market is also subject to the risk of declining retail sales,changes in interest and currency exchange rates, increases in personalbankruptcy filings and payment delinquencies.

           The businesses in which GCF engages are subject to competition from varioustypes of financial institutions including commercial banks, leasing companies,consumer loan companies, independent finance companies, manufacturers' captivefinance companies, and insurance companies. Cross selling multiple products intoits customer base is a critical success factor for GCF.

           GCF provides financing to consumers through operations in countries includingArgentina, Australia, Austria, Brazil, the Caribbean countries, the CzechRepublic, Denmark, France, Germany, Hong Kong, Hungary, India, Indonesia, Italy,Japan, Korea, Mexico, New Zealand, Norway, Poland, Portugal, Republic ofIreland, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan,Thailand, and the United Kingdom.  GCF headquarters are in Stamford,Connecticut.
*Card Services*
Card Services (CS) is a leading provider of sales financingservices to North American retailers in a broad range of consumer industries. CSoffers customized private-label credit card solutions designed to attract andretain customers for retailers such as JC Penney, ExxonMobil, Wal-Mart, Sam'sClub, Macy's and Lowe's. CS provides financing directly to customers ofretailers or purchases the retailers' customer receivables. The terms for thesefinancing plans differ according to the size of contract and credit standing ofthe customer.  Financing is provided to consumers under contractualarrangements, both with and without recourse to retailers. CS' wide range offinancial services includes application processing, sales authorization,statement billings, customer services and collection services. Additionally, CSissues and services the GE Capital Corporate Card product, providing payment andinformation systems which help medium and large-sized companies reduce travelcosts, and the GE Capital Purchasing Card product, which helps customersstreamline their purchasing and accounts payable processes.  In June 2002,CS acquired the remaining 50% of the Monogram Credit Services, LLC (MCS) jointventure from Banc One, for $531 million. 

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          CS'operations are subject to a variety of bank and consumer protectionregulations.  The unsecured consumer lending market's principal methods ofcompetition are price, servicing capability including Internet value addede-services, promotional marketing, and risk management capability.  Theunsecured consumer lending market is subject to various risks includingdeclining retail sales, increases in personal bankruptcy filings, increasingpayment delinquencies and rising interest rates.
           CS operates principally in the United States and Canada.  CS headquartersare in Stamford, Connecticut.
**GE EQUIPMENT MANAGEMENT**
GE Equipment Management helps customers manage, finance andoperate a wide variety of business equipment worldwide. With assets of more than$26 billion, GE Equipment Management provides leases, loans, sales and assetmanagement services for portfolios of commercial and transportation equipment,including tractors, trailers, auto fleets, railroad rolling stock, intermodalshipping containers and modular space units.

           GE Equipment Management operates in highly competitive markets. Economicconditions, geographic location, pricing and equipment availability areimportant factors in this business. Future success will depend upon the abilityto maintain a large and diverse customer portfolio, optimize asset mix, maximizeasset utilization and effectively manage credit risk. In addition, GE EquipmentManagement seeks to understand and deliver unique product and service offeringsto its customers in the most efficient and cost effective manner.
**GE INSURANCE**
GE Insurance offers a broad range of insurance and investmentproducts. GE Insurance helps consumers create and preserve personal wealth,protect assets and enhance their life styles. For businesses, it providesreinsurance and primary commercial insurance products to insurance companies,Fortune 100 companies, self-insurers and healthcare providers. For state andlocal governments and other public entities, it offers financial guarantees fora variety of debt securities. GE Insurance headquarters are in Richmond,Virginia. A description of GE Insurance's principal businesses follows.
*GE Financial Assurance*
GE Financial Assurance (GEFA) provides a wide variety ofinsurance and protection products to help consumers achieve financial securityat every stage of life. GEFA's strategy is to provide dependable products toaddress consumers' needs for wealth accumulation, retirement income, personalprotection, and wealth transfer needs. These products are sold through a familyof regulated insurance and annuity affiliates. GEFA's principal product lines inNorth America and Asia are annuities (deferred and immediate, fixed andvariable), life insurance (universal, term, ordinary and group), guaranteedinvestment contracts including funding agreements, long-term care insurance,supplementary accident and health insurance and consumer club memberships.GEFA's principal product lines and services in Europe are payment protectioninsurance (designed to protect customers' loan repayment obligations), personalinvestment products, and travel and personal accident insurance. GEFA's productdistribution in North America, Europe and Asia is accomplished primarily throughfour channels: intermediaries (brokerage general agencies, banks and securitiesbrokerage and financial planning firms), dedicated sales forces and financialadvisors, worksite distribution, and direct and affinity marketing.

           GEFA recognizes that consolidation in the financial services industry willcreate fewer but larger competitors. GEFA believes that the principalcompetitive factors in the sale of insurance and investment products are productfeatures, distribution strength, commission structure, perceived stability ofthe insurer, claims paying ability ratings, service, name recognition, price andcost efficiency, and strong compliance practices. GEFA's ability to compete isaffected by its ability to provide competitive products and quality service tothe consumer, general agents, licensed insurance agents and brokers; to maintainoperating scale; and to continually reduce its expenses through the eliminationof duplicate functions and enhanced technology.

           Many of GEFA's activities are regulated by a variety of insurance and otherregulators. GEFA headquarters are in Richmond, Virginia.

6*Mortgage Insurance*
Mortgage Insurance protects lenders and investors against therisks of default on low-down-payment mortgages. More than a quarter millioncustomers per year obtain low-down-payment mortgages and Mortgage Insurance nowhas a no-down-payment product as well. Mortgage Insurance is engaged principallyin providing residential mortgage guaranty insurance in the United States,United Kingdom, Canada and Australia. At December 31, 2002, Mortgage Insurancewas the mortgage insurance carrier for over 2.1 million residential homes, withtotal insurance in force aggregating approximately $212.6 billion and total riskin force aggregating approximately $101.5 billion. When a valid claim isreceived, Mortgage Insurance either pays up to a guaranteed percentage based onthe specified coverage, or pays the mortgage and delinquent interest, takingtitle to the property and arranging for its sale.

           The mortgage insurance industry is sensitive to the interest rate environmentand housing market conditions. The mortgage insurance industry is intenselycompetitive as excess market capacity seeks to underwrite business beinggenerated from a consolidating customer base.  In addition, considerableinfluence is exerted on the industry by two government-sponsored enterprises,which buy the majority of the loans insured by mortgage insurers. MortgageInsurance headquarters are in Raleigh, North Carolina.
*GE Global Insurance Holding (Employers Reinsurance Corporation)*
Through its principal insurance and reinsurance companyaffiliates--Employers Reinsurance Corporation, GE Reinsurance Corporation andthe Medical Protective Corporation--GE Global Insurance Holding writessubstantially all lines of reinsurance (where the insured party is anotherinsurance company) and select lines of direct property and casualty insurance(where the insured party is a non-insurance company or an individual).

           The reinsurance operations include the reinsurance of property and casualtyrisks written by more than 1,000 insurers around the world. The direct insuranceoperations are focused on niche lines of business, principally medicalmalpractice coverage for physicians and dentists, medical professional liabilityfor hospitals, errors and omissions coverage for insurance agents and brokers,professional liability insurance for attorneys, excess indemnity forself-insurers of medical benefits and excess workers' compensation forself-insurers. The life reinsurance affiliates are engaged in the reinsurance oflife insurance products, including term, whole and universal life, annuities,certain health-related coverages and the provision of financial reinsurance tolife insurers. Employers Reinsurance Corporation has recently announced itsintent to explore the sale of its life reinsurance operations.

           Management believes it competes in the reinsurance marketplace principally onthe basis of its expertise, relationships, financial strength, price andcreativity in developing customized solutions to customer needs. Within thedirect insurance marketplace, management believes it competes principally on thebasis of its product offerings, established relationships with customers and keydistribution partners, price and ease of doing business.

           Employers Reinsurance Corporation is one of the largest competitors in itsmarketplace. Its property and casualty reinsurance operations are ranked fourthin the world in terms of net premiums written and it competes with the world'slargest reinsurers as well as dozens of smaller niche competitors. EmployersReinsurance Corporation is the third largest life reinsurer in the world, and isranked 12th among U.S. primary commercial insurers.

           Maintaining strong financial strength ratings is an important factor inremaining competitive in both the reinsurance and direct insurance markets inwhich GE Global Insurance Holding competes. During 2002, certain external creditrating agencies announced the lowering of financial strength ratings withrespect to GE Global Insurance Holding and subsidiaries. Those rating agenciesmade similar announcements with regard to other property and casualty insuranceand reinsurance entities at about the same time. Debt ratings for GE GlobalInsurance Holding affect $1.7 billion of outstanding debt. These ratings wereadjusted negatively in 2002, but remained investment grade. We do not believethese actions will materially affect GE Global Insurance Holding liquidity orcapital resources or the ability to write future business.

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**ALL OTHER GECS**
All Other GECS includes activities and businesses that we do notmeasure within one of the four operating segments.  A description of AllOther GECS principal businesses follows.
*Information Technology Solutions*
Information Technology Solutions (IT Solutions) is a provider ofa broad array of information technology products and services, including fulllife cycle services that provide customers with cost-effective control andmanagement of their information systems. Products offered include desktoppersonal computers, client server systems, UNIX systems, local and wide areanetwork hardware, and software. Services offered include remote network/servermonitoring and management, client support covering asset management, help deskand desk side support and program management and professional services. ITSolutions serves commercial, educational and governmental customers. During2002, IT Solutions finalized sale agreements for its business units in Germany,Austria and Portugal.  The transactions closed in January 2003.

           The worldwide competition in information technology products and services isintense.  Competition is very active in all solutions and services andcomes from a number of principal manufacturers and other distributors andresellers of information technology solutions and services. Markets forsolutions and services are highly price competitive. Additionally, manyinformation technology product manufacturers are bypassing traditionalinformation technology resellers in favor of direct manufacturer relationshipswith the ultimate end-users. IT Solutions' North American headquarters are inNewport, Kentucky; its European headquarters are in Munich, Germany.
*GE Equity*
GE Equity manages equity investments in early-stage, earlygrowth, pre-IPO companies. GE Equity's portfolio consists primarily of directinvestments in convertible preferred and common stocks in both public andprivate companies; GE Equity also participates in certain investment limitedpartnerships. The portfolio includes investments in the technology andcommunications, media and entertainment, business services, financial servicesand healthcare sectors. The portfolio is geographically diversified withinvestments located throughout the United States, as well as in Latin America,Europe and Asia. Effective in the fourth quarter of 2002, GE Equity will nolonger make new investments in private companies.  GE Equity will continueto give financial support to companies within its existing portfolio.  Theexisting portfolio will be managed for maximum value over time, eventuallywinding down. GE Equity headquarters are in Stamford, Connecticut.
*American Communications*
American Communications (Americom) engaged primarily as asatellite service supplier to a diverse array of customers, including thebroadcast and cable TV industries, as well as broadcast radio. It also suppliedintegrated communications services for government and commercial customers.Americom also operated communications satellites and maintained a supportingnetwork of earth stations, central terminal offices, and telemetry, tracking andcontrol facilities. On November 9, 2001, we exchanged our satellite operations,comprising the stock of Americom and other related assets and liabilities, for acombination of cash and 31% of the publicly-traded stock of SES Global, aleading satellite company, in order to create the world's largest satelliteservices provider.  Our investment in SES Global is accounted for on theequity method within GE Commercial Finance.
*Wards*
We acquired control of Montgomery Ward, LLC (Wards) from August2, 1999, upon Wards emergence from bankruptcy reorganization, to December 28,2000, when Wards again filed for bankruptcy protection. Wards is substantiallyliquidated.

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**REGULATIONS AND COMPETITION**
Our activities are subject to a variety of federal and stateregulations including, at the federal level, the Consumer Credit Protection Act,the Equal Credit Opportunity Act and certain regulations issued by the FederalTrade Commission. A majority of states have ceilings on rates chargeable tocustomers in retail time sales transactions, installment loans and revolvingcredit financing. Insurance and reinsurance operations are subject to regulationby various state insurance commissions or foreign regulatory authorities, asapplicable. Our international operations are subject to regulation in theirrespective jurisdictions. To date, compliance with such regulations has not hada material adverse effect on our financial position or results of operations.

           The businesses in which we engage are highly competitive. We are subject tocompetition from various types of financial institutions, including banks,thrifts, investment banks, broker-dealers, credit unions, leasing companies,consumer loan companies, independent finance companies, finance companiesassociated with manufacturers and insurance and reinsurance companies.
**BUSINESS AND ECONOMIC CONDITIONS**
Our businesses are generally affected by general business andeconomic conditions in countries in which we conduct business. When overalleconomic conditions deteriorate in those countries, there generally are adverseeffects on our operations, although those effects are dynamic and complex. Forexample, a downturn in employment or economic growth in a particular national orregional economy will generally increase the pressure on customers, whichgenerally will result in deterioration of repayment patterns and a reduction inthe value of collateral. However, in such a downturn, demand for loans and otherproducts and services we offer may actually increase. Interest rates, anothermacro-economic factor, are important to our businesses. In the lending andleasing businesses, higher real interest rates increase our cost to borrowfunds, but also provide higher levels of return on new investments. For ouroperations that are less directly linked to interest rates, such as theinsurance operations, rate changes generally affect returns on investmentportfolios.
**FORWARD LOOKING STATEMENTS**
This document includes certain forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995. Thesestatements are based on our management's current expectations and are subject touncertainty and changes in circumstances.  Actual results may differmaterially from these expectations due to changes in global political, economic,business, competitive, market and regulatory factors.
**Item 2.    Properties.**
We conduct our business from various facilities, most of whichare leased. The locations of our primary facilities are described in Item 1.Business.
**Item 3.    Legal Proceedings.**
We are not involved in any material pending legal proceedings.
**Item 4.    Submission of Matters to a Voteof Security Holders.**
Omitted
** **
9
**PART II****Item 5.     Market for the Registrant'sCommon Equity and Related Stockholder Matters.**
See note 15 to the consolidated financial statements. Our commonstock is owned entirely by GE Company and an affiliate and, therefore, there isno trading market in such stock.
**Item 6.     Selected FinancialData. **
The following selected financial datashould be read in conjunction with our financial statements and the relatedNotes to Consolidated Financial Statements.

 

**Year      ended December 31***(Dollars in millions)* 
**2002**** **** **
**2001**** **** **
**2000**** **** **
**1999**** **** **
**1998**Revenues$58,187$58,353$66,177$55,749$48,694Earnings before accounting      changes4,626 5,586 5,192 4,443 3,796Cumulative effect of accounting      changes
(1,015)(169)- - -Net earnings3,611 5,417 5,192 4,443 3,796Return on common equity (a) 14.46% 21.84% 24.05% 23.74% 23.46%GECS ratio of earnings to fixed      charges 1.35  1.62  1.61  1.62  1.55GECC ratio of earnings to fixed      charges 1.65  1.72  1.52  1.60  1.50GECC ratio of debt to equity 
6.58:1
  
7.31:1
 
7.53:1
  
8.44:1
  
7.86:1
Financing receivables - net$
199,917
 $
174,140
$
143,299
 $
134,215
 $
118,606
Total assets489,828425,484370,636345,018303,297Short-term borrowings130,126160,844123,992129,259113,162Long-term senior notes139,57377,92080,38369,77058,042Long-term subordinated notes1,2631,171996996996Minority interest4,4454,2673,9684,3913,459Share owners' equity36,92928,59023,02220,32119,727      Insurance premiums written for      the year
16,999

15,843

16,461

13,624

11,865

(a)  Common    equity excludes unrealized gains and losses on investment securities and    derivatives qualifying as hedges, net of tax. Return on common equity is    calculated using earnings that are adjusted for preferred stock dividends    and common equity excludes preferred stock.

10
**Item 7.     Management's Discussion andAnalysis of Results of Operations.

Overview**
Despite good growth in underlying operations, our earningsbefore accounting changes of $4.6 billion in 2002 were down 17% from 2001. TheGE Insurance segment more than accounted for the decline, with $2.3 billionafter tax of adverse development and adjustments to estimates of prior-year lossevents. Realized investment gains and gains on asset securitization declined by$0.8 billion after tax. Partial offsets were goodwill amortization that ceasedat the beginning of 2002 ($0.6 billion in 2001) and lower taxes ($0.6 billion).

           GECS earnings before accounting changes in 2001 increased 8% from 2000.Principal factors in the 2001 increase were strong productivity ($0.7 billion)and lower taxes ($0.5 billion) partially offset by reduced earnings at GE GlobalInsurance Holding Corporation (GE Global Insurance Holding), the parent ofEmployers Reinsurance Corporation ($0.5 billion) reflecting the events ofSeptember 11, 2001, losses and lower realized gains on financial instruments.Excluding effects of Paine Webber Group, Inc. (PaineWebber) in 2000 and Americomin 2001, such pre-tax gains were lower in 2001 by $0.5 billion ($0.3 billionafter tax). Pre-tax gains on sales of investment securities declined in 2001 by$0.5 billion, of which $0.4 billion related to GE Equity; other GE Equity gainswere $0.8 billion lower; while gains on securitizations were up $0.8 billionfrom 2000.

           Contributions from acquisitions affect earnings comparisons. Our net earnings in2002, 2001 and 2000 included approximately $423 million, $204 million and $355million, respectively, from acquired businesses. We integrate acquisitions asquickly as possible and only earnings during the first 12 months following thequarter in which we complete the acquisition are considered to be related toacquired businesses.
**Operating Results
*Total Revenues decreased slightly to $58.2 billion in2002, following a 12% decrease to $58.4 billion in 2001. The largest singlefactor affecting 2002 revenues was growth from increases in acquisitions andoriginations - primarily at GE Commercial Finance. This growth was more thanoffset by the absence of revenues from Americom after its sale in late 2001($1.7 billion), increased estimates of prior-year loss events and lowerinvestment gains at GE Insurance ($0.9 billion), lower securitization activityin all segments ($0.6 billion), and lower market interest rates.

           The three principal reasons for the decrease in revenues in 2001 compared with2000 were: the deconsolidation of Montgomery Ward LLC (Wards) and resultingabsence of sales in 2001 ($3.2 billion); the effects of rationalization ofoperations and market conditions at IT Solutions ($2.9 billion); and reducedsurrender fees ($1.2 billion) associated with the planned run-off ofrestructured insurance policies of Toho Mutual Life Insurance Company (Toho) atGE Financial Assurance. Additional information about other revenue items isprovided in the Operating Segments section on page 14.
***Interest expense on borrowings in 2002 was $9.9 billion,compared with $10.6 billion in 2001 and $11.1 billion in 2000. Changes in bothyears reflected the effects of lower interest rates, partially offset by theeffects of higher average borrowings used to finance acquisitions and assetgrowth. The average composite effective interest rate was 4.07% in 2002,compared with 5.11% in 2001 and 5.89% in 2000. In 2002, average assets of $455.2billion were 18% higher than in 2001, which in turn were 7% higher than in 2000.See page 23 for a discussion of interest rate risk management.
***Operating and administrative expenses were $16.0billion, $16.4 billion and $19.5 billion in 2002, 2001 and 2000, respectively.The 2002 decrease reflected productivity gains and the absence of amortizationexpense related to goodwill, as in accordance with SFAS 142, we ceasedamortizing goodwill effective January 1, 2002. These decreases were partiallyoffset by operating and administrative expenses associated with recentacquisitions primarily at GE Commercial Finance and GE Consumer Finance. The2001 decrease reflects lower costs in businesses that were acquired and lowerunusual charges in 2001.  Costs and expenses in 2002 included $0.9 billionof costs in businesses that were acquired after January 1, 2002. Similarly, 2001included $0.4 billion of costs in businesses that were acquired after January 1,2001, as well as $0.3 billion of costs discussed in the analysis of the AllOther GECS operating segment.

11
***Insurance losses and policyholder and annuity benefitsincreased to $17.6 billion in 2002, compared with $15.1 billion in 2001 and$14.4 billion in 2000. This increase reflected adverse development on prior-yearloss events at GE Global Insurance Holding in 2002. This increase also reflectedthe effects of growth in premium volume and business acquisitions at GEFinancial Assurance throughout the period, and costs discussed in the analysisof GE Insurance and the All Other GECS operating segment, partially offset by theplanned run-off of restructured insurance policies at Toho.
***Cost of goods sold declined to $3.0 billion in 2002,compared with $3.3 billion in 2001 and $8.5 billion in 2000, reflecting volumedeclines at IT Solutions. The 2001 decline also reflected the deconsolidation ofWards on December 28, 2000, when Wards commenced liquidation proceedings.
***Provision for losses on financing receivables was $3.1billion in 2002, compared with $2.5 billion in 2001 and $2.0 billion in 2000.These provisions relate to GE Consumer Finance financing receivables(installment loans, auto loans and leases, and residential mortgages), GECommercial Finance financing receivables (loans and leases to the equipment,commercial and industrial, real estate and commercial aircraft industries) and"Other, principally GE Equipment Management" financing receivables,all of which are discussed on pages 22 and 23. The provisions throughout thethree-year period reflected higher average receivable balances. The increase in2002 also reflected higher credit losses in the GE Commercial Financebusinesses. The increase in 2001 also reflected increased reserve requirementsin the GE Commercial Finance businesses, consistent with economic trends, theeffects of higher consumer delinquency rates, consistent with industryexperience, and reduced losses at Auto Financial Services (AFS), reflecting thecontinued run-off of the liquidating AFS portfolio. Additional information ondelinquency rates is provided on page 23.
***Depreciation and amortization of equipment on operating leases(including buildings and equipment) increased 9% to $3.8 billion in2002, compared with $3.5 billion in 2001, a 4% increase over 2000. The increasein both years was primarily the result of higher levels of equipment onoperating leases at GE Commercial Finance, primarily reflecting originationgrowth and acquisitions, partially offset by the divestiture of Americom.
***Provision for income taxes - Our effective tax ratedecreased to negative 1.7% in 2002 from 19.8% in 2001 and 26.9% in 2000. The2002 effective tax rate reflects effects of pre-tax losses at GE GlobalInsurance Holding (ERC) and GE Equity, the effects of lower taxed earnings frominternational operations and favorable tax settlements with the Internal RevenueService (IRS) discussed below. Pre-tax losses of $2.9 billion at ERC and $0.6billion at GE Equity reduced our effective tax rate by approximately 17percentage points.

           During 2002, as a result of revised IRS regulations, we reached a settlementwith the IRS allowing the deduction of previously realized losses associatedwith the prior disposition of Kidder Peabody. Also during 2002, a settlement wasreached with the IRS regarding the treatment of certain reserves for obligationsto policyholders on life insurance contracts in the GE Financial Assurancebusiness.

           The 2001 effective tax rate reflected the effects of lower taxed earnings frominternational operations and certain other transactions (see note 12). That ratealso included effects of about $0.6 billion pre-tax charge related to the eventsof September 11, 2001, principally at ERC, which reduced our effective tax rateby one percentage point.
***Financing spreads - Over the last three years, marketinterest rates have been more volatile than our average composite effectiveinterest rates, principally because of the mix of effectively fixed-rateborrowings in our financing structure. Yields on our portfolio of fixed andfloating-rate financial products have behaved similarly; consequently, financingspreads have remained relatively flat over the three-year period.

12

**New Accounting Standards**
The Financial Accounting Standards Board's (FASB) Statement ofFinancial Accounting Standards (SFAS) 142, *Goodwill and Other IntangibleAssets*, generally became effective for us on January 1, 2002. Under SFAS142, goodwill is no longer amortized but is tested for impairment using a fairvalue methodology. We stopped amortizing goodwill effective January 1, 2002.

           The result of our applying the new rules as of January 1, 2002, was a non-cashcharge of $1.2 billion ($1.0 billion after tax), which we reported in thecaption "Cumulative effect of accounting changes." Substantially allof the charge relates to the IT Solutions business and the GE Auto and Homebusiness. Factors contributing to the impairment charge were the difficulteconomic environment in the information technology sector and heightened pricecompetition in the auto insurance industry.

           The cumulative effect of accounting changes in 2001 related to the adoption, asof January 1, 2001, of SFAS 133, *Accounting for Derivative Instruments andHedging Activities*, as amended, and the consensus of the FASB's EmergingIssues Task Force on Issue 99-20, *Recognition of Interest Income andImpairment on Purchased and Retained Beneficial Interests in SecuritizedFinancial Assets*. Adoption of these standards resulted in a one-time,non-cash charge that reduced our 2001 earnings by $169 million.
**Major provisions of new accounting standards that willaffect us follow.

           In November 2002, the FASB issued Interpretation No. (FIN) 45, *Guarantor'sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others*. Among other things, the Interpretationrequires guarantors to recognize, at fair value, their obligations to standready to perform under certain guarantees. FIN 45 is effective for guaranteesissued or modified on or after January 1, 2003. It will have an inconsequentialeffect on our financial position and future results of operations.

           In January 2003, the FASB issued FIN 46, *Consolidation of Variable InterestEntities*, which we intend to adopt on July 1, 2003. FIN 46's consolidationcriteria are based on analysis of risks and rewards, not control, and representa significant and complex modification of previous accounting principles. FIN 46represents an accounting change, not a change in the underlying economics ofasset sales. Under its provisions, certain assets previously sold to our specialpurpose entities (SPEs) could be consolidated on our books, and, ifconsolidated, any assets and liabilities now on our books related to those SPEswould be removed. In the event we consolidated these assets, we would notreacquire their legal ownership, nor would our legal rights and obligationschange. Any consolidated assets would earn returns substantially like thereturns we would have earned had we never sold them. Even assuming the legalprovisions controlling these SPEs are not changed between now and the July 1effective date of FIN 46, the very complexity of the new consolidation rules andtheir evolving clarification make forecasting that July 1 effect impracticable.It is also clear that many alternative structures for sales of financial assetswould continue to be reported as sales under FIN 46 with the assets qualifyingfor sale not consolidated. We are evaluating whether characteristics of thosestructures can cost-beneficially be applied to our arrangements before the July1 effective date. Further information about entities that potentially fallwithin the scope of FIN 46 is provided in note 20.

13

**Operating Segments**
Revenues and earnings before accounting changes, byoperating segment, for the past three years are summarized and discussed below.

           Net earnings are determined based on internal performance measures used by theChief Executive Officer to assess performance of each business. Generally, theresults of decisions made by the Chief Executive Officer regarding unusualmatters are excluded from internal business measurements. Historically, suchmatters have included charges for restructuring; rationalization or othersimilar expenses; and litigation settlements or other losses, responsibility forwhich precedes the current business management team.

           All years presented have been reclassified to conform to the new businesssegments formed as a consequence of the reorganization of our businesses asannounced by our parent, GE Company on July 26, 2002, and changes in theamortization of goodwill, effective as of January 1, 2002. For additionalinformation, see note 17 to the consolidated financial statements.
**Consolidated***(In millions)*
**2002**** **
**2001**
** **
**2000**
 **Revenues**  GE Commercial Finance$16,040 $13,880 
$11,982 GE Consumer Finance 10,266  9,508  9,320 GE Equipment Management 4,254  4,401  4,969 GE Insurance 23,296  23,890  24,766 All Other GECS 
4,331
  
6,674
  
15,140
 
Total revenues
$
58,187
 $
58,353
 $
66,177
 **Net earnings**         GE Commercial Finance$3,185 $2,724 $2,294 GE Consumer Finance 1,930  1,702  1,376 GE Equipment Management 311  359  465 GE Insurance (509) 1,334  1,642 All Other GECS 
(291
) 
19
  
35
 Total earnings before accounting      changes 4,626  6,138  5,812 Cumulative effect of accounting      changes 
(1,015
) 
(169
) 
-
 
Total net earnings
 3,611  5,969  5,812 Amortization of goodwill 
-
  
(552
) 
(620)
Total net earnings - as reported
$
3,611
 $
5,417
 $
5,192
 
Following is a discussion of revenues and earnings beforeaccounting changes from operating segments. For purposes of this discussion,earnings before accounting changes is referred to as net earnings.

14
**GE Commercial Finance***(In millions)* 
**2002**  
**2001**
  
**2000**
 **Revenues**         Commercial Equipment Financing$
5,005
 $4,535 $3,634 Real Estate 2,160  1,919  1,977 Commercial Finance (CF) 2,350  1,786  1,617 Structured Finance Group 1,243  1,093  999 Aviation Services  2,694  2,173  1,962 Vendor Financial Services 2,342  2,095  1,792 Other GE Commercial Finance 
246
  
279
  
1
 
 Total revenues
$
16,040
 $
13,880
 $
11,982
           **Net earnings**         Commercial Equipment Financing$786 $642 $537 Real Estate 618  489  374 Commercial Finance (CF) 587  368  290 Structured Finance Group 479  386  344 Aviation Services  439  475  479 Vendor Financial Services 369  320  274 Other GE Commercial Finance 
(93
) 
44
  
(4
)
Total net earnings
$
3,185
 $
2,724
 $
2,294
  Charges      of $85 million in 2001 were not allocated to this segment because we did      not include these costs in measuring the performance of businesses in this      segment for internal purposes. Such charges, included in All Other GECS,      related to restructuring various global operations and to provisions for      disposition of assets.****
 

 

December 31 *(In millions)*

 

**2002**

 ****

 ****

**2001**

 

**Total Assets**

 

 

 

 

 

 

Commercial Equipment Financing

$

57,764

 

$

53,386

 

Real Estate

 

30,041

 

 

23,861

 

Commercial Finance (CF)

 

26,897

 

 

25,668

 

Structured Finance Group

 

19,293

 

 

17,130

 

Aviation Services

 

30,512

 

 

24,546

 

Vendor Financial Services

 

23,761

 

 

20,941

 

Other GE Commercial Finance

 

7,498

 

 

5,723

 

Total assets

$

195,766

 

$

171,255

 

Financing receivables - net

$

128,277

 

$

117,540

 
*GE Commercial Finance revenuesincreased 16% in both 2002 and 2001. The 2002 increase principally reflectedacquisitions and increased originations across substantially all businesses,partially offset by reduced market interest rates and lower securitizationactivity at CF and Commercial Equipment Financing. The 2001 increase resultedfrom acquisition and volume growth at Commercial Equipment Financing, VendorFinancial Services, Aviation Services and CF, including the acquisition ofHeller Financial, Inc. in October, volume growth at Structured Finance Group andincreased securitization activity. Net earnings increased 17% in 2002 and 19% in2001. The 2002 increase in net earnings resulted from acquisitions andorigination growth, productivity across all businesses and growth in lower taxedearnings from international operations, partially offset by increased creditlosses and lower securitization activity at CF and Commercial EquipmentFinancing. The 2001 increase reflected securitization gains, asset growth fromacquisitions at Commercial Equipment Financing, CF and Vendor FinancialServices, origination growth at Structured Finance Group, and higher asset gainsand productivity at Real Estate. Other Commercial Finance principally includes2002 revenues of $246 million and net earnings of $62 million of the HealthcareFinancial Services business that we acquired in October 2001, offset by certaincosts related to our acquisition of Heller Financial, Inc.

15
**GE ConsumerFinance***(In millions)* 
**2002**
  
**2001**

 

**2000**

 

**Revenues**

 

 

 

 

 

 

 

 

Global Consumer Finance

$

6,489

 

$

5,561

 

$

5,429

 

Card Services

 

3,777

 

 

3,947

 

 

3,891

 

             Total revenues

$

10,266

 

$

9,508

 

$

9,320

 

 

 

 

 

 

 

 

 

 

 

**Net earnings**

 

 

 

 

 

 

 

 

 

Global Consumer Finance

$

1,255

 

$

1,033

 

$

856

 

Card Services

 

675

 

 

669

 

 

520

 

      Total      net earnings

$

1,930

 

$

1,702

 

$

1,376

 
 
Charges of $57 million in 2001 were not allocated to this      segment because we did not include these costs in measuring the      performance of businesses in this segment for internal purposes. Such      charges, included in All Other GECS, related to unprofitable financing      product lines that have been exited.
 December      31*(In millions)*
 

**2002**

 ****

 ****

**2001**

 

**Total Assets**

 

 

 

 

 

 

Global Consumer Finance

$

58,310

 

$

43,893

 

Card Services

 

18,655

 

 

19,085

 

      Total assets

$

76,965

 

$

62,978

 

      Financing      receivables - net

$

63,254

 

$

47,891

 
*GE Consumer Finance revenues increased8% following a 2% increase in 2001. Revenues increased in 2002 primarily as aresult of acquisitions and increased international originations, partiallyoffset by lower securitization activity at Card Services. The revenueperformance in 2001 reflected the post-acquisition revenues from acquiredbusinesses and volume growth. Net earnings increased 13% following a 24%increase in 2001, as a result of origination growth, acquisitions, growth inlower taxed earnings from international operations and productivity benefits,partially offset by lower securitization activity at Card Services. The 2001increase reflected productivity at Global Consumer Finance and volume growth atCard Services.**GE Equipment Management**
 *(In millions)*
** 

**2002**

 ****

 ****

**2001**

 ****

 ****

**2000**

 

 

 

 

 

 

 

 **
Revenues

$

4,254

 

$

4,401

 

$

4,969

 

 

 

 

 

 

 

 

 

Net earnings

$

311

 

$

359

 

$

465
 Charges      of $17 million in 2001 were not allocated to this segment because we did      not include these costs in measuring the performance of businesses in this      segment for internal purposes. Such charges, included in All Other GECS,      related to the restructuring of various global operations.
 

December 31 *(In millions)*

 

**2002**

 ****

 ****

**2001**

 

 

 

 

 

 

 

 

Total assets

$

26,117

 

$

25,410

 

Equipment leased to others

$

9,416

 

$

9,749

 
*GE Equipment Management businessesexperienced business-wide declining utilization rates throughout the period,resulting in both lower revenues and lower earnings. GE Equipment Managementrealized productivity benefits in 2002, partially offsetting the utilization'seffect on earnings. In 2001, GE Equipment Management realized tax benefits froma restructuring of the Penske joint venture, and recognized asset impairments atTransport International Pool/Modular Space and GE European Equipment Management.

16**GE Insurance***(In millions) **2002  **2001  **2000**Revenues        
GE Financial Assurance
$
12,317
 
$
12,826
 
$
12,888
Mortgage Insurance
 
1,090
 
 
1,075
 
 
973
GE Global Insurance Holding (ERC)
 
9,432
 
 
9,453
 
 
10,223
Other GE Insurance
 
457
 
 
536
 
 
682
Total revenues
$
23,296
 
$
23,890
 
$
24,766         **Net earnings        
GE Financial Assurance
$
644
 
$
726
 
$
672
Mortgage Insurance
 
460
 
 
407
 
 
356
GE Global Insurance Holding (ERC)
 
(1,827
)
 
32
 
 
505
Other GE Insurance
 
214

 
169
 
 
109
Total net earnings
$
(509
)
$
1,334
 
$
1,642 Charges of $306 million in 2001 were not      allocated to this segment because we did not include these costs in      measuring the performance of businesses in this segment for internal      purposes. Such charges, included in All Other GECS, related to      unprofitable insurance products and lines that have been exited and to      provisions for disposition of nonstrategic investments.*GE Insurance revenues decreased 2% in2002, because of the ongoing planned run-off of acquired policies at Toho andlower realized investment gains. Segment revenues declined 4% in 2001 on reducednet premiums earned at ERC, reflecting the events of September 11, 2001,decreased investment income, and the planned run-off of restructured insurancepolicies at Toho. These factors were partially offset by increased premiumincome associated with origination volume at ERC and by post-acquisitionrevenues from acquired businesses and volume growth at GE Financial Assurance.
           Net pre-tax realized investment gains in the equity and debt securitiesportfolios amounted to $413 million, $972 million and $818 million in 2002, 2001and 2000, respectively.    

           Net earnings decreased $1.8 billion in 2002, following a $0.3 billion decreasein 2001. The 2002 decrease was primarily attributable to the recognition ofadverse development related to prior-year loss events at ERC, discussed below.With retrocession coverages previously purchased by ERC, the recording of thisadverse development both increased policyholder losses and, to a lesser extent,decreased premium revenues (principally because of higher levels of contingentceded premiums following these reserve adjustments). Also contributing to thereduction in 2002 net earnings were lower investment gains across allbusinesses, including a $110 million after-tax impairment on WorldCom, Inc.bonds at GE Financial Assurance. These decreases were partially offset by corepremium growth, including higher premium pricing at ERC and the $152 millionbenefit from recognition of a favorable tax settlement with the IRS related tothe treatment of certain reserves for obligations to policyholders on lifeinsurance contracts at GE Financial Assurance.

           The level of reported claims activity at ERC related to prior-year loss events,particularly for liability-related exposures underwritten in 1997 through 2001,accelerated at a rate higher than we had anticipated. In 2002, considering thecontinued acceleration in reported claims activity, we concluded that our bestestimate of ultimate losses was higher in the range of reasonably possible lossscenarios than previously estimated. Accordingly, we recognized a fourth quarterpre-tax charge of $2.5 billion to increase recorded reserves to reflect therevised indications of remaining liability. The more significant adversedevelopment was in hospital medical malpractice ($300 million), productliability ($300 million), professional liability ($250 million), umbrellaliability ($200 million), workers compensation ($200 million), individualliability ($150 million) and asbestos ($150 million). With amounts recognized inprevious quarters of 2002, our overall 2002 pre-tax charge for adversedevelopment amounted to $3.5 billion. Insurance loss provisions are based on thebest available estimates at a given time. As described on page 29 under thecaption "Insurance Liabilities and Reserves," these estimates will beadjusted in the future as required. 

           We have continued our rigorous commitment to improved underwriting initiativesat ERC aimed at ensuring that consistent and diligent underwriting standards areapplied to all risks. Throughout 2002, we have been disciplined in rejectingrisks that either fail to meet the established standards of price or terms andconditions, or that involve areas for which sufficient historical data do notexist to evaluate the risk adequately. For risks that pass our criteria, we havesought to retain or even

17

judiciously expand our business. On the other hand, we havecurtailed or exited business in particular property and casualty businesschannels when expected returns do not appear to justify the risks. 

           Net earnings decreased $0.3 billion in 2001, reflecting underwriting results atERC, which were partially offset by productivity benefits at GE FinancialAssurance. Net earnings in 2001 at ERC were adversely affected by approximately$575 million ($386 million after tax) related to the insurance losses arisingfrom the events of September 11, 2001. This amount primarily resulted fromcontingent premium payment provisions contained in certain retrocessionagreements. After these particular losses, total losses exceeded retrocessionpolicy limits in place at ERC. Substantially all of the September 11, 2001,losses are recoverable under reinsurance policies that require additionalpremiums to those retrocessionaires. Therefore, the 2001 Statement of Earningsreflects a $698 million reduction in net premiums earned and $78 million ofincreased losses, partially offset by $201 million in lower insuranceacquisition costs. Historical experience related to large catastrophic eventshas shown that a broad range of total insurance industry loss estimates oftenexists following such an event, and it is not unusual for there to besignificant subsequent revisions to such estimates. Our best estimate of theexisting liability, net of estimated recoveries under retrocession arrangements,has not changed significantly from our initial estimate.

           Excluding events of September 11, 2001, net earnings in 2001 and 2000 were alsoadversely affected by the continued general deterioration of underwritingresults at ERC, reflecting higher property and casualty-related losses(principally as a result of adverse development relating to prior-year lossevents) and the continued effects of low premiums in the property and casualtyinsurance/reinsurance industry. ERC underwriting results in 2001 trackedperformance in the global property and casualty industry. 

           The majority of the adverse development at ERC in 2001, and to a lesser extentin 2000, related to higher projected ultimate losses for liability coverages,especially in the hospital liability, nonstandard automobile (automobileinsurance extended to higher-risk drivers) and commercial and public entitygeneral liability lines of business. Results in 2000 also reflected an increasein industry-wide loss estimates related to certain large property loss events,with the largest effect resulting from the European windstorms occurring in late1999. 

           Our Mortgage Insurance business had favorable loss experience throughout thethree years ended December 31, 2002, reflecting continued strength in certainreal estate markets and the success of our loss containment initiatives.

18
**All Other GECS*****(In millions)*

 ****

**2002**

 ****

 ****

**2001**

 ****

 ****

**2000**

 

**Revenues**

 

 

 

 

 

 

 

 

 

IT Solutions

$

3,733

 

$

4,180

 

$

7,072

 

GE Equity

 

(384

)

 

(126

)

 

1,079

 

Americom gain

 

-

 

 

1,158

 

 

-

 

Americom

 

-

 

 

540

 

 

594

 

Asset impairments

 

-

 

 

(383

)

 

(238

)

Product line exits

 

-

 

 

(53

)

 

-

 

PaineWebber gain

 

-

 

 

-

 

 

1,366

 

Wards

 

-

 

 

  -

 

 

3,234

 

Other - All Other GECS

 

982

 

 

1,358

 

 

2,033

  

      Total      revenues

$

4,331

 

$

6,674

 

$

15,140

 

 

 

 

 

 

 

 

 

 

 

**Net earnings**

 

 

 

 

 

 

 

 

 

IT Solutions

$

(24

)

$

47

 

$

(152

)

GE Equity

 

(377

)

 

(270

)

 

525

 

Americom gain

 

-

 

 

642

 

 

-

 

Americom

 

-

 

 

256

 

 

197

 

Asset impairments

 

-

 

 

(310

)

 

(49

)

Product line exits

 

-

 

 

(180

)

 

-

 

Restructuring

 

-

 

 

(144

)

 

(298

)

PaineWebber gain

 

-

 

 

-

 

 

848

 

Wards

 

-

 

 

(22

)

 

(782

)

Other - All Other GECS

 

110

 

 

-

 

 

(254

)

      Total      net earnings

$

(291

)

$

19

 

$

35

 ***All Other GECS includes our activitiesand businesses that we do not measure within one of the other financial servicessegments.
In addition to comments on All Other GECS elsewhere in thisreport, the following comments relate to the table above:
IT Solutions (ITS) - Revenues and net    earnings in 2002 decreased primarily as a result of market conditions and    2001 product line and geographic market exits. During 2001 and 2000, in    response to intense competition and transition of the computer equipment    market to a direct distribution model, ITS exited its underperforming    operations in the United Kingdom, France, Brazil and Mexico and    significantly reduced its reseller role in the United States.  Costs    for involuntary termination benefits, asset impairments, facilities exit    costs and losses on sales of portions of the business amounted to $45    million ($43 million after tax) and $246 million ($191 million after tax) in    2001 and 2000, respectively and are included in restructuring in the table    above. The number of employees was reduced from a 2000 peak of 11,000 to    6,600 at the end of 2002.*GE Equity - GE Equity manages equity    investments in early-stage, early growth, pre-IPO companies. GE Equity    revenues include income, gains and losses on such investments. Revenues and    net earnings during 2002 reflected increased losses on investments,    including losses in the telecommunications and software industries, and    lower gains. Effective in the fourth quarter of 2002, GE Equity will no    longer make new investments in private companies. GE Equity will continue to    give financial support to companies within its existing portfolio. The    existing portfolio will be managed for maximum value over time, eventually    winding down.  During 2001, losses on GE Equity's investments exceeded    gains and other investment income, resulting in negative revenues and a $270    million net loss, which increased over the prior year principally from    reduced asset gains.*Americom - On November 9, 2001, we    exchanged our satellite operations, comprising the stock of Americom and    other related assets and liabilities, for a combination of cash and 31% of    the publicly-traded stock of SES Global, a leading satellite company, in    order to create the world's largest satellite services provider. The    transaction resulted in a gain of $1,158 million ($642 million after tax),    representing the difference between the carrying value of the 69% investment    in Americom and the amount of cash plus the market value of SES Global    shares received at the closing date. No gain was recorded on the 31%    interest in Americom that was indirectly retained by us. Our investment in    SES Global is accounted for on the equity method in GE Commercial Finance.
 

19
2001 Asset impairments and    product line exits - Operations included $656 million of after tax    charges related to disposing of and providing for disposition of several    nonstrategic investments and other assets, to certain unprofitable insurance    and financing product lines that were exited, and to restructuring various    global operations.  These costs, not allocated to the related    businesses as we did not include these costs in measuring the performance of    those businesses for internal purposes, included $478 million ($310 million    after tax) for other-than-temporary impairments of investments, the largest    of which were held by GE Financial Assurance, GE Equity and ERC. These    losses, $383 million of which were charged to revenues, included $130    million ($84 million after tax) of losses on Enron bonds; such bonds were    written down to a cost basis of $32 million at December 31, 2001. Such    losses also included investment impairment charges of $199 million ($130    million after tax) on non-U.S. mutual funds and the technology sector.
In response to  escalating losses, we in 2001 decided to cease further underwriting and exit  certain insurance and financing product lines.  Charges associated with  such loss events and the resulting exits totaled $180 million after tax, of  which $149 million related to the loss events in ERC product lines, primarily  nonstandard automobile and higher limit industrial property insurance  coverages.

Restructuring of  several of our global businesses included consolidation of several European GE  Equipment Management businesses and rationalization of European GE  Equipment Finance businesses.  Costs related to the exit of these  activities amounted to $144 million after tax and consisted of involuntary  termination benefits, facilities exit costs, and asset impairments.
2000 Losses from Ward's bankruptcy, asset    impairments and restructurings - Net earnings included operating    losses from Wards amounting to $245 million as well as a charge, primarily    to other costs and expenses, of $537 million related to the Ward's    bankruptcy and strategic rationalization costs of $347 million related to IT    Solutions, Mortgage Services, GE Equity and Auto Financial Services (AFS),    primarily for asset write-downs, employee severance and lease terminations,    which were not allocated to those businesses because our management did not    include these costs in measuring the performance of those businesses for    internal purposes.*Other-All Other GECS includes our corporate    function expenses, liquidating businesses and other non-segment aligned    operations, the most significant of which were AFS, and GE Auto and Home.    The decrease in revenues in 2002 and 2001 resulted from AFS, which stopped    accepting new business in 2000. Net earnings increased in 2002 primarily    because of a favorable tax settlement with the IRS allowing the deduction of    previously realized losses associated with the prior disposition of Kidder    Peabody and tax benefits from growth in lower taxed earnings from    international operations.**January 1, 2003, Reclassification of Financial Services SegmentProfit

Historically we have issued about $8 of debt for each $1 ofequity - a "leverage ratio" of 8:1. For purposes of measuringsegment profit, each of our financial services businesses was also assigned debtand interest costs on the basis of that consolidated 8:1 leverage ratio. Inevaluating expected returns on potential investments, however, we also usedbusiness-specific, market-based leverage ratios. As of January 1, 2003, weextended the business-specific, market-based leverage to the performancemeasurement of each of our financial services businesses, and consequently tothe definition of segment profit. As a result, at January 1, 2003, debt of $12.5billion previously allocated to the segments was allocated to the All Other GECSsegment. At the same time, we revised our historical techniques for allocatingshared costs and unusual items to financial services businesses. In this report,the results of our financial services segments are presented on the historic 8:1leverage ratio basis. Beginning in 2003, the recast comparative historical resultswill be as follows:

20

 

*(Dollars in millions)*

 

**2002**

 ****

 ****

**2001**

 ****

 ****

**2000**
 ****
 ****

**1999**
 
**GE Commercial Finance**

 

 

 

 

 

 

 

 
 
 

 
 
Leverage ratio

 

7.4:1
 
 

7.5:1
 
 

7.4:1
 
 

7.5:1
 
Adjusted net earnings

$

3,189
 
$

2,788
 
$

2,416
 
$

1,834
  
 

 
 
 

 
 
 

 
 
 

 
 
**GE Consumer Finance**

 

 

 

 

 

 

 

 
 
 

 
 
Leverage ratio

 

12.4:1
 
 

12.3:1
 
 

12.3:1
 
 

12.4:1
 
Adjusted net earnings

$

1,799
 
$

1,602
 
$

1,295
 
$

848
  
 

 
 
 

 
 
 

 
 
 

 
 
**GE Equipment Management**

 

 

 

 

 

 

 

 
 
 

 
 
Leverage ratio

 

5.0:1
 
 

5.1:1
 
 

5.1:1
 
 

4.9:1
 
Adjusted net earnings

$

313
 
$

377
 
$

484
 
$

416
  
 

 
 
 

 
 
 

 
 
 

 
 
**GE Insurance**

 

 

 

 

 

 

 

 
 
 

 
 
Leverage ratio

 

0.4:1
 
 

0.4:1
 
 

0.4:1
 
 

0.4:1
 
Adjusted net earnings

$

(95

)

$

1,879
 
$

2,201
 
$

2,142
  
 

 
 
 

 
 
 

 
 
 

 
 
**All Other GECS**

 

 

 

 

 

 

 

 
 
 

 
 
Adjusted net earnings

$

(580

)

$

(508

)

$

(584

)

$

(285
)
 

 

 

 

 

 

 

 

 
 
 

 
 **International Operations**
Estimated results of international activities include theresults of our operations located outside the United States and certain of ouroperations that cannot be meaningfully associated with specific geographic areas(for example, commercial aircraft).

           Our international revenues were $23.9 billion in 2002, an increase of 3% from$23.1 billion in 2001. Revenues in the Pacific Basin increased 9% in 2002, as aresult of acquisitions and origination growth primarily at GE Consumer Financeand GE Commercial Finance. Global revenues increased 21% in 2002 primarily as aresult of origination growth at Aviation Services. Revenues in Europe decreased2% as a result of lower investment gains and adjustments to estimates of prioryear loss events at GE Insurance, the 2001 divestiture of Americom, and marketconditions and geographic market exits at IT Solutions, partially offset byacquisitions at GE Consumer Finance and GE Commercial Finance. Our internationalassets grew 28% from $161.6 billion at year-end 2001 to $207.5 billion at theend of 2002. Our assets increased 41% and 26% in the Pacific Basin and Europe,respectively, resulting from acquisitions and origination growth.

           Our international activities span all global regions and primarily encompassleasing of aircraft and provision of financial services within these regionaleconomies. Thus, when countries or regions experience currency and/or economicstress, we may have increased exposure to certain risks but also may have newprofit opportunities. Potential increased risks include, among other things,higher receivables delinquencies and bad debts, delays or cancellation of salesand orders principally related to aircraft equipment, higher local currencyfinancing costs and a slowdown in established financial services activities. Newprofit opportunities include, among other things, more opportunities for lowercost outsourcing, expansion of financial services activities through purchasesof companies or assets at reduced prices and lower U.S. debt financing costs.

           Financial results of our international activities reported in U.S. dollars areaffected by currency exchange. We use a number of techniques to manage theeffects of currency exchange, including selective borrowings in local currenciesand selective hedging of significant cross-currency transactions. Principalcurrencies are the euro, the Japanese yen and the Canadian dollar.

21
**Capital Resources and Liquidity
*Statement of Financial Position (page 33)
*Investment securities for each of the past two yearscomprised mainly investment-grade debt securities held by GE Insurance insupport of obligations to annuitants and policyholders. Investment securitieswere $116.5 billion in 2002, compared with $100.1 billion in 2001. The increaseof $16.4 billion resulted from investment of premiums received, reinvestment ofinvestment income, the addition of investment securities from acquired companiesand increases in fair value, primarily debt securities, partially offset bysales and maturities as well as impairments and losses related to certain debtand equity securities.

           Gross unrealized gains and losses were $4.4 billion and $2.4 billion,respectively, at December 31, 2002 (gross unrealized gains and losses of $2.1billion and $2.7 billion, respectively, as of December 31, 2001). Market valuefor these purposes is defined by relevant accounting standards and should not beviewed as a forecast of future gains or losses. We estimate that availablegains, net of hedging positions and estimated impairment of insurance intangibleassets, could be as much as $1.4 billion.

           We regularly review investment securities for impairment based on criteria thatinclude the extent to which cost exceeds market value, the duration of thatmarket decline and the financial health and specific prospects for the issuer.Of securities with unrealized losses at December 31, 2002, approximately $800million of portfolio value is at risk of being charged to earnings in 2003.Impairment losses recognized for 2002 were $759 million, including $348 millionfrom the telecommunications and cable industries, of which $167 million wasrecognized in the second quarter of 2002 following the events relating toWorldCom, Inc.
*Inventories were $208 million and $270 million at December31, 2002 and 2001, respectively. The decrease in 2002 primarily reflectedreduced sales volume and improved inventory management at IT Solutions.
*Financing Receivables is our largest category of assets andrepresents one of our primary sources of revenues. The portfolio of financingreceivables, before allowance for losses, increased to $205.4 billion atDecember 31, 2002, from $178.9 billion at the end of 2001, as discussed in thefollowing paragraphs. The related allowance for losses at the end of 2002,amounted to $5.5 billion ($4.8 billion at the end of 2001), representing ourbest estimate of probable losses inherent in the portfolio.

           A discussion of the quality of certain elements of the financing receivablesportfolio follows. "Nonearning" receivables are those that are 90 daysor more delinquent (or for which collection has otherwise become doubtful) and"reduced-earning" receivables are commercial receivables whose termshave been restructured to a below-market yield.

           GE Commercial Finance financing receivables before allowance for losses totaled$130.9 billion at December 31, 2002 ($120.1 billion at December 31, 2001) andconsisted of loans and leases to the equipment, commercial and industrial, realestate and commercial aircraft industries. This portfolio of receivablesincreased primarily from increased acquisitions and originations growth,partially offset by sales and securitizations. Related nonearning andreduced-earning receivables were $2.2 billion at December 31, 2002, about 1.7%of outstandings, compared with $2.0 billion, about 1.7% of outstandings atyear-end 2001. GE Commercial Finance receivables are generally backed by assetsand there is a broad spread of geographic and credit risk in the portfolio.

           GE Consumer Finance financing receivables before allowance for losses, primarilyinstallment loans, auto loans and leases, and residential mortgages, were $66.0billion at December 31, 2002, an increase of $16.0 billion from year-end 2001.This portfolio of receivables increased primarily from increased originations,acquisition growth and the net effects of foreign currency translation,partially offset by sales and securitizations. Nonearning consumer receivablesat December 31, 2002, were $1.6 billion, about 2.4% of outstandings, comparedwith $1.3 billion, about 2.7% of outstandings at year-end 2001.

           "Other, principally GE Equipment Management" financing receivablesbefore allowance for losses amounted to $8.5 billion at December 31, 2002, adecrease of $0.3 billion from year-end 2001, primarily as a result of therun-off of the liquidating Auto Financial Services portfolio. Nonearningreceivables at December 31, 2002, were $0.1 billion, about 1.0% of outstandings,compared with $0.2 billion, about 1.8% of outstandings at year-end 2001.

22

           Delinquency rates on consumer financing receivables at December 31, 2002, were5.34%; at year-end 2001 were 5.21%; and at year-end 2000 were 4.53% on a managedbasis. Increased 2002 and 2001 delinquencies reflected our secured financingbusiness acquired in 2001 and volume growth in that business in 2002. Whendelinquent, these loans have relatively lower losses than the rest of ourconsumer portfolio. Delinquencies on GE Commercial Finance equipment loans andleases were at 1.72%, 2.16% and 1.68% at year-end 2002, 2001 and 2000,respectively, on a managed basis. The decline at December 31, 2002, primarilyreflected a higher concentration of Vendor Financial Services receivablescoupled with improved collection results at Commercial Equipment Finance. Theincrease at December 31, 2001, reflected the acquisition of Heller Financial,Inc. Future provisions for losses will depend primarily on the size of theportfolio, which is expected to continue to grow, and on associated business andeconomic conditions.
*Insurance receivables were $31.6 billion at year-end 2002,an increase of $3.3 billion that was primarily attributable to acquisitions andcore growth at GE Financial Assurance, increased recoveries under existingretrocession agreements at ERC and an increase in mortgages held for investmentat Mortgage Insurance (see note 6).
*Other receivables totaled $13.0 billion at December 31,2002, and $13.3 billion at December 31, 2001, and consist primarily ofnonfinancing customer receivables, accrued investment income, amounts due fromGE (generally related to certain trade payable programs), amounts due underoperating leases, receivables due on sales of securities and various sundryitems.
*Equipment on operating leases (including buildings andequipment) was $33.5 billion at December 31, 2002, an increase of $4.1billion from 2001. Details by category of investment can be found in note 7 tothe consolidated financial statements. Additions to equipment on operatingleases (including buildings and equipment) were $11.0 billion and $12.6 billionduring 2002 and 2001, respectively, primarily reflecting acquisitions ofcommercial aircraft at GE Commercial Finance.
*Intangible assets were $23.1 billion at year-end 2002, anincrease of $2.4 billion. The increase in intangible assets reflected goodwilland other intangibles associated with acquisitions and purchase accountingadjustments primarily related to the 2001 acquisition of Heller Financial, Inc.,partially offset by the impairment of goodwill from adopting SFAS 142 (see notes1 and 8).
*Other assets totaled $64.1 billion at year-end 2002,increased $12.1 billion, principally the result of acquisitions affecting realestate and separate accounts (investments controlled by policyholders); thetransfer of Home Depot private label credit card receivables (assets held forsale) in preparation for their sale when that contract is terminated in 2003;and increasing deferred acquisition costs in connection with ongoing insuranceoperations, partially offset by a reduction in our investment in associatedcompanies reflecting the consolidation of the Banc One joint venture (see note9).
*Borrowings were $270.9 billion at December 31, 2002, ofwhich $130.1 billion is due in 2003 and $140.8 billion is due in subsequentyears. Comparable amounts at the end of 2001 were $239.9 billion in total,$160.8 billion due within one year and $79.1 billion due thereafter. A largeportion of our borrowings ($84.2 billion and $117.5 billion at the end of 2002and 2001, respectively) was issued in active commercial paper markets that webelieve will continue to be a reliable source of short-term financing. Most ofthis commercial paper was issued by GE Capital. The average remaining terms andinterest rates of GE Capital commercial paper were 47 days and 1.95% at the endof 2002, compared with 46 days and 2.37% at the end of 2001. The GE Capitalratio of debt to equity was 6.58 to 1 at the end of 2002 and 7.31 to 1 at theend of 2001.
*Insurance liabilities, reserves and annuity benefits of$135.9 billion at December 31, 2002, were $21.6 billion higher than in 2001. Theincrease was primarily attributable to acquisitions, growth in deferredannuities and guaranteed investment contracts at GE Financial Assurance andadverse development at ERC. For additional information on these liabilities, seenote 11.
***Interest Rate and Currency Risk Management

Interest rate and currency risk management is important in ournormal business activities. We use derivative financial instruments to mitigateor eliminate certain financial and market risks, including those related tochanges in interest rates and currency exchange rates. As a matter of policy, wedo not engage in derivatives trading, derivatives market-making, or otherspeculative activities.

23

           The U.S. Securities and Exchange Commission requires that registrants provideinformation about potential effects of changes in interest and currency exchangerates. The following discussion is based on so-called "shock-tests,"which model effects of interest rates and currency shifts on the reportingcompany. While the following results of shock tests for changes in interestrates and currency exchange rates may have some limited use as benchmarks, theyshould not be viewed as forecasts.
-  One means of assessing exposure to interest rate    changes is a duration-based analysis that measures the potential loss in net    earnings resulting from a hypothetical increase in interest rates of 100    basis points across all maturities (sometimes referred to as a    "parallel shift in the yield curve"). Under this model, with all    else held constant, we estimate that such an increase, including repricing    in the securities portfolio, would reduce our 2003 net earnings based on    year-end 2002 positions by approximately $184 million. Based on positions at    year-end 2001, the pro-forma effect on 2002 net earnings of such an increase    in interest rates was estimated to be a decrease of approximately $189    million.Our geographic distribution of operations is    diverse. One means of assessing exposure to changes in currency exchange    rates is to model effects on reported earnings using a sensitivity analysis.    We analyzed year-end 2002 consolidated currency exposures, including    financial instruments designated and effective as hedges, to identify assets    and liabilities denominated in other than their relevant functional    currency. Net unhedged exposures in each currency were then remeasured    generally assuming a 10% decrease (substantially greater decreases for    hyperinflationary currencies) in currency exchange rates compared with the    U.S. dollar. Under this model, we estimated at year-end 2002 that such a    decrease would have an insignificant effect on our 2003 earnings.***Statement of Changes in Share Owners' Equity (page 32)

Share owners' equity increased $8.3 billion to $36.9 billion atyear-end 2002. The increase was largely attributable to net earnings during theperiod of $3.6 billion and capital contributions of $6.3 billion, partiallyoffset by dividends declared of $2.0 billion.

           Currency translation adjustments increased equity by $58 million and $117million in 2002 and 2001, respectively, compared with reduction of $573 millionin 2000. Changes in the currency translation adjustment reflect the effects ofchanges in currency exchange rates on our net investment in non-U.S.subsidiaries that have functional currencies other than the U.S. dollar.Accumulated currency translation adjustments affect net earnings only when allor a portion of an affiliate is disposed of or substantially liquidated.

           Adoption of SFAS 133 in 2001 reduced equity by $890 million, including $849million at the date of adoption. Further information about this accountingchange is provided in note 1.
***Statement of Cash Flows (page 34)

Our cash and equivalents aggregated $7.9 billion at the end of2002, up from $7.3 billion at year-end 2001. Over the past three years, ourborrowings with maturities of 90 days or less have decreased by $13.2 billion.New borrowings of $173.7 billion having maturities longer than 90 days wereadded during those years, while $107.2 billion of such longer-term borrowingswere retired. We also generated $48.1 billion from operating activities over thelast three years, which benefited in 2002 and 2001 from increases in insuranceliabilities and reserves.

           Our principal use of cash has been investing in assets to grow our businesses.Of the $122.9 billion that we invested over the past three years, $48.0 billionwas used for additions to financing receivables; $35.0 billion was used toinvest in new equipment, principally for lease to others; and $24.8 billion wasused for acquisitions of new businesses, the largest of which were AustralianGuarantee Corporation, Security Capital and Deutsche Financial Services in 2002and Heller Financial, Inc. and Mellon Leasing in 2001.

           With the financial flexibility that comes with excellent credit ratings, webelieve that we should be well positioned to meet the global needs of ourcustomers for capital and to continue providing our share owners with goodreturns.

24
***Additional Considerations****Commercial Airlines*
Following the events of September 11, 2001, many of our airlinecustomers have experienced financial difficulties. In face of declining traffic,they have responded by curtailing flight schedules and deferring and cancelingdeliveries of commercial aircraft. Deteriorating aircraft utilization andpricing affects GE Commercial Finance, which owned 1,161 commercial aircraft atDecember 31, 2002, when, despite pressure on the industry, 1,149, or 99% were onlease. We believe, however, that the financial difficulties of our airlinecustomers will continue to weigh on the airline industry in 2003.

           At year-end 2002, GE Commercial Finance had provided loans and leases of $26.6billion and combined with our insurance business had $1.9 billion of investmentsecurities related to the airline industry. In addition, GE Commercial Financehad funding commitments of $0.5 billion and had placed multi-year orders forvarious Boeing, Airbus and other aircraft with list prices approximating $15.4billion at year-end 2002. GE Commercial Finance held placement agreements withcommercial airlines for 40 of the 42 aircraft scheduled for delivery in2003. 

           Two of our major airline customers, US Airways Group Inc. and UAL Corp, theparent companies of US Airways and United Airlines, respectively, areexperiencing significant financial difficulties and both filed forreorganization in bankruptcy in 2002. At December 31, 2002, our exposure relatedto these airlines amounted to $3.5 billion, including loans, leases, investmentsecurities, guarantees and commitments as discussed above. Various Boeing andAirbus aircraft secure these financial exposures. We have provided for our bestestimate of probable losses under these particular arrangements in light ofestimated amounts recoverable under recourse provisions.

           In December 2002, GE Commercial Finance and US Airways Group Inc. agreed on aglobal restructuring plan that was approved by the cognizant Bankruptcy Court inJanuary 2003. The plan will provide the airline with up to $120 milliondebtor-in-possession financing, which will be subsequently refinanced as part ofa $360 million facility being provided by us upon US Airways Group Inc.'sexiting from Chapter 11, and $350 million of future lease financing for regionaljet aircraft. Upon US Airways Group Inc.'s emergence from bankruptcy we wouldreceive warrants to buy five percent of the Class A shares of the reorganized USAirways Group Inc. along with 3.8 million shares of its Class A preferredstock. 

           Commercial aviation is important to us, as it is to the global economy, and weare pleased that our proactive partnering and our financial strength have earnedus the loyalty of our customer base in that industry. At the same time, we arepleased to have served the needs of our global investors with prudent managementof our exposure to the industry's risks. Our underwriting establishes positionsthat are secured by tangible assets; our risk management protects ourinvestments; and we record losses in accordance with the applicablerequirements.
*Telecommunications*
Financial services investments in and contractual commitments tocustomers in the telecommunications and cable industries amounted to $9.2billion and $2.9 billion, respectively, as of December 31, 2002, and primarilycomprised financing receivables and investment securities. Included in thetelecommunications amount is GE Commercial Finance's equity method investment inSES Global of $1.7 billion. Like all financial services positions, thesereceivables and investments have been entered into subject to strict risk andunderwriting criteria, are diversified, and financing receivables are generallysecured. During recent declines in the values of these portfolios, the positionshave been routinely reviewed for credit and impairment losses, and actions havebeen taken to mitigate exposures. We have made provision for probable losses.Future losses, if any, will depend upon business and economic developments aswell as the success of risk mitigation actions. 

25
***Liquidity

The major debt-rating agencies evaluate the financial conditionof GE Capital Corporation (GE Capital), our major public borrowing entity.Factors that are important to the ratings of GE Capital include the following:cash generating ability - including cash generated from operating activities;earnings quality - including revenue growth and the breadth and diversity ofsources of income; leverage ratios - such as debt to total capital andinterest coverage; and asset utilization, including return on assets and assetturnover ratios. Considering those factors the major rating agencies continue togive the highest ratings to debt of GE Capital (long term credit rating AAA/Aaa;short-term credit rating A-1+/P-1).

           One of our strategic objectives is to maintain these ratings on debt issued byGE Capital. Our Triple-A rating lowers our cost of borrowings and facilitatesaccess to a variety of lenders. We manage our businesses in a manner consistentwith maintaining these Triple-A ratings.

           To support the GE Capital rating, at the end of 2002, GE was contractuallycommitted to maintain the ratios of earnings to fixed charges at GE Capital at aspecified level. To build equity, our Board of Directors intends to reduce ourdividend payments to GE to 10% of operating earnings. GE contributed $6.3billion of cash in 2002, of which $1.8 billion funded certain loss developmentat ERC. See also "January 1, 2003, Reclassification of Financial ServicesSegment Profit" on page 20. Our plans are to reduce the level of debt andincrease equity in financial services, targeting 2005 elimination of the $12.5billion of debt allocated to All Other GECS as of January 1, 2003. Proceeds fromany strategic dispositions will be evaluated when and if they are received, butwe anticipate using at least some of those proceeds to reduce financial servicesdebt.

           During 2002, certain external credit rating agencies announced the lowering offinancial strength ratings with respect to GE Global Insurance Holding andsubsidiaries. Those rating agencies made similar announcements with regard toother property and casualty insurance and reinsurance entities at about the sametime. Debt ratings for GE Global Insurance Holding affect $1.7 billion ofoutstanding debt. These ratings were adjusted negatively in 2002, but remainedinvestment grade. We do not believe these actions will materially affect GEGlobal Insurance Holding liquidity or capital resources or the ability to writefuture business.
***Global commercial paper markets are also a primarysource of liquidity for us. GE Capital is the most widely-held name in thosemarkets and is the principal issuer of financial services debt. Financialservices debt composition as of December 31, 2002 and 2001, follows.

December 31

**2002**

 ****

**2001**

Senior Notes

52

%

 

33
%

Commercial Paper

31

 
 
49 Other      - principally current portion of long-term debt
17
 
18

Total

100%

 

           100%

During 2002, GE Capital issued approximately $88 billion oflong-term debt in U.S. and international markets. These funds were usedprimarily to reduce the amount of commercial paper outstanding by $33 billionand to fund acquisitions and new asset growth. We target a ratio for commercialpaper of 25% to 35% of outstanding debt based on the anticipated composition ofour assets. GE Capital anticipates issuing approximately $60 billion oflong-term debt using both U.S. and international markets during 2003. Theproceeds from such issuances will be used to fund maturing long-term debt,additional acquisitions and asset growth. The ultimate amount of debt issuanceswill depend on the growth in assets, acquisition activity, availability ofmarkets and movements in interest rates.

           We believe that alternative sources of liquidity are sufficient to permit anorderly transition from commercial paper in the unlikely event of impairedaccess to those markets. Funding sources on which we would rely would depend onthe nature of such a hypothetical event, but includes $54 billion ofcontractually committed lending agreements with highly-rated global banks andinvestment banks, an increase of $21 billion since December 31, 2001, as well asother sources of liquidity, including medium and long-term funding,monetization, asset securitization, cash receipts from our lending and leasingactivities, short-term secured funding on global assets, and potential assetsales.

26
***Off Balance Sheet arrangements are used in the ordinarycourse of business to achieve improved share owner returns. One of the mostcommon forms of off balance sheet arrangements is asset securitization. Thesecuritization transactions we engage in are similar to those used by manyfinancial institutions and are part of a $700 billion annual market forasset-backed commercial paper. We use sponsored and third-party entities toexecute securitization transactions funded in the commercial paper and termmarkets. As part of this program, we consider the relative risks and returns ofeach alternative and predominantly use sponsored entities. We believe that thesetransactions could be readily executed through non-sponsored entities or termsecuritization at modest incremental cost. Beyond improved returns, thesesecuritization transactions serve as funding sources for a variety ofdiversified lending and securities transactions, transfer selected credit riskand improve cash flows while enhancing the ability to provide a full range ofcompetitive products for customers.

           Simply stated, in a typical securitization transaction, we sell high-quality,financial assets to entities that have financed those purchases using low-cost,highly-rated commercial paper. In the following paragraphs, we describe in moredetail how these transactions with such entities typically work. 

           The first step in the securitization process uses entities that meet theaccounting criteria for Qualifying Special Purpose Entities (qualifyingentities). Among other criteria, a qualifying entity's activities must berestricted to passive investment in financial assets and issuance of retainedinterests in those assets. Under generally accepted accounting principles,entities meeting these criteria are not consolidated in the sponsor's financialstatements. We sell selected financial assets to qualifying entities. Examplesinclude financing and credit card receivables and trade receivables. On thewhole, the credit quality of such assets is equal to or higher than the creditquality of similar assets we own.

           Qualifying entities raise cash by issuing retained interests--rights to cashflows from the assets--to other SPEs we sponsor that issue highly-ratedcommercial paper to third-party institutional investors. These SPEs usecommercial paper proceeds to obtain retained interests in the financial assetsof qualifying entities, as well as financial assets originated by multiple thirdparties. We provide credit support for certain of these assets, as well asliquidity support for the commercial paper. In accordance with our contractualcommitments to the qualifying entities, we rigorously underwrite and service theassociated assets, both those we originate and those originated by otherparticipants. All of the qualifying entities' assets serve as collateral for thecommercial paper. Support activities include credit reviews at acquisition andongoing review, billing and collection activities--the same support activitiesthat we employ for our own financing receivables. These entities are notconsolidated in the accompanying financial statements. 

           Our sponsored SPEs are routinely evaluated by the major credit rating agencies,including monthly reviews of key performance indicators and annual reviews ofasset quality. Commercial paper issued by these entities has always received thehighest available ratings from the major credit rating agencies and at year-end2002 was rated A-1+/P-1. 

           Assets held by SPEs include: receivables secured by equipment, commercial realestate and other assets; credit card receivables; and trade receivables. Inaddition to being of high credit quality, these assets are diversified to avoidconcentrations of risk. Examples of these assets include loans and leases onmanufacturing and transportation equipment, loans on commercial property,commercial loans, and balances of high credit quality accounts from sales of abroad range of products and services to a diversified customer base. Such assetstotaled $42.2 billion and $43.0 billion at December 31, 2002 and 2001,respectively.

           Sales of securitized assets to SPEs result in a gain or loss amounting to thenet of sales proceeds, the carrying amount of net assets sold, the fair value ofretained interest and servicing rights and an allowance for losses. Totalsecuritization sales resulted in gains of $0.8 billion and $1.3 billion in 2002and 2001, respectively, and are included in revenues net of any effects ofreplenishing securitized credit card balances.

           In addition to the securitization activities discussed previously, FinancialGuaranty Insurance Company (FGIC), an affiliate that is a leader in themunicipal bond insurance market, uses SPEs that offer municipalities guaranteedinvestment contracts with interests in high-quality, fixed maturity, investmentgrade assets. FGIC actively manages these assets under strict investmentcriteria and GE Capital also provides certain performance guarantees. Totalassets in sponsored FGIC entities amounted to $13.7 billion and $13.4 billion atDecember 31, 2002 and 2001, respectively. 

27

           We provide financial support related to assets held by certain SPEs throughliquidity agreements, credit support, performance guarantees and guarantee andreimbursement contracts. Net credit and liquidity support amounted to $27.2billion after consideration of participated liquidity and arrangements thatdefer liquidity draws beyond 2003, a reduction of $15.9 billion from 2001. Thisamount includes credit support, in which we provide recourse for a maximum of$16.6 billion of credit losses in SPEs. Potential credit losses are provided forin our financial statements. Based on management's best estimate of probablelosses inherent in the portfolio, we provided an allowance of $233 million forrecourse obligations at year-end 2002. Performance guarantees relate to lettersof credit and liquidity support for guaranteed investment contracts and aresubject to a maximum of $3.8 billion at December 31, 2002.

           None of the sponsored SPEs is permitted to hold GE stock and there are nocommitments or guarantees that provide for the potential issuance of GE stock.These entities do not engage in speculative activities of any description, arenot used to hedge our asset positions, and under GE integrity policies, no GEemployee, officer or director is permitted to invest in any sponsored SPE.

           We have extensive experience in evaluating economic, liquidity and credit risk.In view of this experience, the high quality of assets in these entities, thehistorically robust quality of commercial paper markets, and the historicalreliability of controls applied to both asset servicing and to activities in thecredit markets, we believe that, under any reasonable future economicdevelopments, the likelihood is remote that any such arrangements could have anadverse economic effect on us. 

           Under FIN 46, *Consolidation of Variable Interest Entities*, newconsolidation criteria will be applied to certain SPEs, which it defines as"Variable Interest Entities." Additional information about entitiesthat fall within the scope of FIN 46 is provided in note 20.
***Principal debt conditions that could automaticallyresult in remedies, such as acceleration of our debt, are described below.
-  If the short-term credit rating of GE Capital or    certain SPEs discussed further in note 20 were to fall below A-1/P-1, GE    Capital would be required to provide substitute liquidity for those entities    or provide funds to retire the outstanding commercial paper. The maximum    amount (net of participated liquidity and arrangements that defer liquidity    to 2004) that GE Capital would be required to provide in the event of such a    downgrade is determined by contract, and amounted to $22.6 billion at    December 31, 2002.If the long-term credit rating of GE Capital    were to fall below AA/Aa2, GE Capital would be required to provide    substitute credit support or liquidate the SPEs. The maximum amount that GE    Capital would be required to substitute in the event of such a downgrade is    determined by contract, and amounted to $2.7 billion at December 31, 2002.If the long-term credit rating of GE Capital    were to fall below AA-/Aa3 or its short-term credit rating were to fall    below A-1+/P-1, GE Capital could be required to provide up to $1.1 billion    to the FGIC SPEs and could be required to repay an amount of FGIC's    guaranteed investment contracts specified by contract: at December 31, 2002,    that maximum repayment was $3.6 billion.If GE Capital's long-term credit rating under    certain swap, forward and option contracts falls below A-/A3, certain    remedies are required as discussed in note 19.If GE Capital's ratio of earnings to fixed    charges, which was 1.65:1 at the end of 2002 were to deteriorate to 1.10:1    or, upon redemption of certain preferred stock, its ratio of debt to equity,    which was 6.58:1 at the end of 2002, were to exceed 8:1, GE has committed to    contribute capital to GE Capital. GE also has guaranteed our subordinated    debt with a face amount of $1.0 billion at December 31, 2002, and 2001.
None of these conditions has been met in our history, and webelieve that under any reasonable future economic developments, the likelihoodis remote that any such arrangements could have a significant effect on ouroperations, cash flows or financial position.

28
***Timing of contractual commitments during the next fiveyears related to leases and debt, follows.

*(In billions)*

 

**2003**

 

 

**2004**

 

 

**2005**

 

 

**2006**

**2007**
Commercial paper

$

84.2

 

$

--

 

$

--

 

$

--

$

--

Other

 

46.6

 

 

47.5

(a)

 

22.3

 

 

10.3

 

14.8
 
(a)       Extendible notes amounting to $12 billion are floating rate securities      with an initial maturity of 13 months, which can be extended on a rolling      basis, at the investor's option to a final maturity of five years ending      in 2007. We expect substantially all of the notes will remain outstanding      until final maturity, but have included their face amount in 2004      commitments.***Critical Accounting Policies***
Accounting policies discussed in this section are those that weconsider to be critical to an understanding of our financial statements becausetheir application places the most significant demands on our ability to judgethe effect of inherently uncertain matters on our financial results. For all ofthese policies, we caution that future events rarely develop exactly asforecast, and the best estimates routinely require adjustment.
***Losses on financing receivables are recognized when theyare incurred. Measurement of such losses requires consideration of historicalloss experience, including the need to adjust for current conditions, andjudgments about the probable effects of relevant observable data, includingpresent economic conditions such as delinquency rates, financial health ofspecific customers and market sectors, collateral values, and the present andexpected future levels of interest rates. Exposure to losses on financingreceivables at year-end 2002 was $222.0 billion, including credit support forspecial purpose entities, against which an allowance for losses of $5.8 billionwas provided. Further information is provided on pages 22 and 23, and in notes1, 4, 5 and, for special purpose entities, in note 20. While losses depend to alarge degree on future economic conditions, we do not anticipate significantadverse credit development in 2003.
***Impairment of investment securities results in a chargeto operations when a market decline below cost is other than temporary. Weregularly review each investment security for impairment based on criteria thatinclude the extent to which cost exceeds market value, the duration of thatmarket decline and the financial health of and specific prospects for theissuer. Our investment securities amounted to $116.5 billion at year-end 2002.Gross unrealized gains and losses included in that carrying amount related todebt securities were $4.2 billion and $1.9 billion, respectively. Grossunrealized gains and losses on equity securities were $0.2 billion and $0.5billion, respectively. Of securities with unrealized losses at year-end 2002,and based on application of our accounting policy for impairment, approximately$800 million of portfolio value, including approximately $200 million from thetelecommunications and cable industries is at risk of being charged to earningsin 2003. We actively perform comprehensive market research, monitor marketconditions and segment our investments by credit risk in order to minimizeimpairment risks. Further information is provided in notes 1 and 3 and on page22, which discusses the investment securities portfolio.
***Insurance liabilities and reserves differ for short andlong-duration insurance contracts. Short-duration contracts such as property andcasualty policies are accounted for based on actuarial estimates of lossesinherent in that period's claims, including losses for which claims have not yetbeen reported. Short-duration contract loss estimates rely on actuarialobservations of ultimate loss experience for similar historical events.Measurement of long-duration insurance liabilities (such as term and whole lifeinsurance policies) is also based on approved actuarial techniques that includeassumptions about mortality, lapse rates and future yield on relatedinvestments. Historical insurance industry experience indicates that a greaterdegree of inherent variability exists in assessing the ultimate amount of lossesunder short-duration property and casualty contracts than exists forlong-duration mortality exposures. This inherent variability is particularlysignificant for liability-related exposures, including latent claims issues(such as asbestos and environmental related coverage disputes), because of theextended period of time--often many years--that transpires between when agiven claim event occurs and the ultimate full settlement of such claim. Thissituation is then further exacerbated for reinsurance entities (as opposed toprimary insurers) due to coverage often being provided on an"excess-of-loss" basis and the resulting lags in receiving currentclaims data. Our insurance liabilities, reserves and annuity benefits within theInsurance segment totaled $135.9 billion at year-end 2002. Of that total, $30.6billion ($20.9 billion net of reinsurance recoverables) related to unpaid claimsand claims adjustment expenses under short-duration insurance contracts of whichERC's share approximated $26.6 billion ($17.4 billion net of reinsurancerecoverables).

29

           We continually evaluate the potential for changes in loss estimates with thesupport of qualified reserving actuaries and use the results of theseevaluations both to adjust recorded reserves and to proactively modifyunderwriting criteria and product offerings. For actuarial analysis purposes,reported and paid claims activity is segregated into several hundred reservingsegments, each having differing historical settlement trends. A variety ofactuarial methodologies are then applied to the underlying data for each ofthese reserving segments in arriving at an estimated range of "reasonablypossible" loss scenarios. Factors such as line of business, length ofhistorical settlement pattern, recent changes in underwriting standards andunusual trends in reported claims activity will generally affect which actuarialmethodologies are given more weight for purposes of determining the "bestestimate" of ultimate losses in a particular reserving segment. Asdiscussed on pages 17-18, in recent periods and continuing throughout 2002, thelevel of reported claims activity related to prior year loss events,particularly for liability-related exposures underwritten in 1997 through 2001at ERC, has been significantly higher than anticipated. Full consideration ofthese trends was incorporated into a comprehensive reserve study completed inthe fourth quarter of 2002.
***Other loss contingencies are recorded as liabilitieswhen it is probable that a liability has been incurred and the amount of theloss is reasonably estimable. Disclosure is required when there is a reasonablepossibility that the ultimate loss will exceed the recorded provision.Contingent liabilities are often resolved over long time periods. Estimatingprobable losses requires analysis of multiple forecasts that often depend onjudgments about potential actions by third parties such as regulators.
***Other significant accounting policies, not involving thesame level of measurement uncertainties as those discussed above, arenevertheless important to an understanding of the financial statements. Policiesrelated to revenue recognition, financial instruments and business combinationsrequire difficult judgments on complex matters that are often subject tomultiple sources of authoritative guidance. Certain of these matters are amongtopics currently under re-examination by accounting standard setters andregulators. Although no specific conclusions reached by these standard settersappear likely to cause a material change in our accounting policies, outcomescannot be predicted with confidence. Also see note 1, Summary of SignificantAccounting Policies, which discusses accounting policies that we have selectedfrom acceptable alternatives.

**Item 7A.  Quantitative and Qualitative Disclosures AboutMarket Risk.**
Information about potential effects of changes in interest ratesand currency exchange on us is discussed in the Interest Rate and Currency RiskManagement section of Item 7.

30
**Item 8.   Financial Statements and Supplementary Data.****INDEPENDENT AUDITORS' REPORT**
 
*To the Board ofDirectors

General ElectricCapital Services, Inc.:

 *
We have audited theconsolidated financial statements of General Electric Capital Services, Inc.("GECS") and consolidated affiliates as listed in Item 15. Inconnection with our audits of the consolidated financial statements, we alsohave audited the financial statement schedules as listed in Item 15. Theseconsolidated financial statements and financial statement schedules are theresponsibility of GECS management. Our responsibility is to express an opinionon these consolidated financial statements and financial statement schedulesbased on our audits.

We conducted our audits in accordance with auditing standardsgenerally accepted in the United States of America. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referredto above present fairly, in all material respects, the financial position ofGeneral Electric Capital Services, Inc. and consolidated affiliates at December31, 2002 and 2001, and the results of their operations and their cash flows foreach of the years in the three-year period ended December 31, 2002, inconformity with accounting principles generally accepted in the United States ofAmerica. Also in our opinion, the related financial statement schedules, whenconsidered in relation to the basic consolidated financial statements taken as awhole, present fairly, in all material respects, the information set forththerein.

As discussed in note 1 to the consolidated financial statements,GECS in 2002 changed its method of accounting for goodwill and other intangibleassets and in 2001 changed its methods of accounting for derivative instrumentsand hedging activities and impairment of certain beneficial interests insecuritized assets.

 

/s/ KPMG LLP

 

Stamford, Connecticut

February 7, 2003

31
**GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATEDAFFILIATES

Statement of Earnings

 ****For the years ended December 31*(In millions)*

 

**2002**

 ****

 ****

**2001**

 ****

 ****

**2000**

 
**REVENUES**
 

 

 

 

 

 

 

 

 

Time sales, loan and other income

$

22,030

 

 $

21,894

 

 $

22,002

 

Operating lease rentals

 

6,191

 

 

6,088

 

 

6,183

 

Financing leases

 

4,616

 

 

4,517

 

 

4,012

 

Investment income

 

5,570

 

 

6,593

 

 

8,479

 

Premium and commission income of      insurance affiliates       (note 11)

 

16,484

 

 

15,634

 

 

16,093

 

Sales of goods

 

3,296

 

 

3,627

 

 

9,408

 

      Total      revenues

$

58,187 

 

$

58,353

 

$

66,177

 
**EXPENSES**
 

 

 

 

 

 

 

 

 

Interest

$

9,935

 

$

10,598

 

$

11,111

 

Operating and administrative (note 2)

 

16,029
 
 

16,366
 
 

19,453
 
Insurance losses and policyholder and      annuity benefits 

 

17,608

 

 

15,062

 

 

14,399

 

Cost of goods sold

 

3,039

 

 

3,266

 

 

8,537

 

Provision for losses on financing      receivables (note 5)

 

3,087

 

 

2,481

 

 

2,045

 

Depreciation and amortization of      equipment on operating leases (including buildings and equipment) (note 7)

 

 

 3,799
 
 

3,451
 
 

3,314
 
Minority interest in net earnings of      consolidated affiliates

 

143

 

 

163

 

 

214

 

            Total expenses

 

53,640

 

 

51,387

 

 

59,073

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes and      accounting changes

 

 4,547

 

 

6,966

 

 

7,104

 

Provision for income taxes (note 12)

 

79 

 

 

(1,380

)

 

(1,912

)

 

 

 

 

 

 

 

 

 

 

Earnings before accounting changes

 

 4,626

 

 

5,586

 

 

5,192

 

Cumulative effect of accounting      changes (note 1)

 

 (1,015

)

 

(169

)

 

-

 

 

 

 

 

 

 

 

 

 

 
**NET      EARNINGS**
$

3,611

 

 $

5,417

 

 $

5,192

 

 

Statement of Changes in Share Owners' Equity

 

*(In millions)*

 

**2002**

 

 

**2001**

 

 

**2000**

 

**CHANGES IN SHARE OWNERS' EQUITY**(note      15)

Balance at January 1

$

 

28,590

 

 

$

 

23,022

 

$

20,321

 

 

 

 

 

 

 

 

 

 

 

Transactions with share owners

 

4,317

 

 

1,276

 

 

(1,752

)

Changes other than transactions with      share owners:

 

 

 

 

 

 

 

 

 

Increases attributable to net      earnings

 

 3,611

 

 

5,417

 

 

5,192

 

Investment securities - net

 

 1,539

 

 

(352

)

 

(166

)

Currency translation adjustments

 

 58

 

 

117

 

 

(573

)

Derivatives qualifying as hedges

 

 (1,186

)

 

(890

)

 

-

 

      Total      changes other than transactions with share owners

 

 4,022

 

 

4 ,292

 
 
4,453
 ****Balance      at December 31
$

 36,929

 $

28,590

 

 $

23,022

 
 
See Notes to Consolidated Financial Statements.

32
**GENERAL ELECTRIC CAPITAL SERVICES, INC. ANDCONSOLIDATED AFFILIATES

Statement of Financial Position

 ****At      December 31 *(In millions)*

 ****

**2002**

 ****

 ****

**2001**

 ****
**ASSETS**

 

 

**** 

 

 

 

Cash      and equivalents

$

7,918

$

7,314

 

Investment      securities (note 3)

 

 116,530

 

 

100,138

 

Financing      receivables (note 4):

 

 

 

 

 

 

Time      sales and loans, net of deferred income

 

 143,309

 

 

119,797

 

Investment      in financing leases, net of deferred income

 

62,120

 

 

59,144

 

 

 

205,429

 

 

178,941

 

Allowance      for losses on financing receivables (note 5)

 

 (5,512

)

 

(4,801

)

Financing      receivables - net

 

 199,917

 

174,140

 

Insurance      receivables (note 6)

 

31,585

 

 

28,312

 

Other      receivables

 

12,996

 

 

13,267

 

Inventories

 

 208

 

 

270

 

Equipment      on operating leases (including buildings and equipment) (note 7)

 

33,461

 

 

29,341

 

Intangible      assets - net (note 8)

 

 23,131

 

 

20,757

 

Other      assets (note 9)

 

 64,082

 

 

51,945

 

Total      assets

$

 489,828

 

$

425,484

 

 

 

 

 

 

 

 

**LIABILITIES AND      SHARE OWNERS' EQUITY**

 

 

 

 

 

 

Short-term      borrowings (note 10)

$

 130,126

 

$

160,844

 

Long-term      borrowings (note 10)

 

       140,836

 

 

79,091

 

Total      borrowings

 

270,962

 

 

239,935

 

Accounts      payable

 

12,608

 

 

13,705

 

Insurance      liabilities, reserves and annuity benefits (note 11)

 

135,853

 

 

       114,223

 

Other      liabilities

 

18,441

 

 

       16,647

 

Deferred      income taxes (note 12)

 

 10,590

 

 

       8,117

 

Total      liabilities

 

 448,454

 

 

392,627

 

 

 

 

 

 

 

 

Minority      interest in equity of consolidated affiliates (note 13)

 

 4,445

 

 

 4,267

 

 

 

 

 

 

 

 

Cumulative      preferred stock, $10,000 par value (80,000 shares authorized;  51,000      shares issued and held primarily by consolidated affiliates at      December 31, 2002 and 2001)

 

 

 

 10

 

 

 

 

10

 

Common      stock, $1,000 par value ( 1,260 shares authorized at December 31, 2002 and      2001 and 1,012 shares outstanding at December 31, 2002 and 2001)

 

 1

 

 

1

 

Additional      paid-in capital

 

 12,261

 

 

5,979

 

Retained      earnings

 

 26,324

 

 

24,678

 

Accumulated      gains/(losses) - net:

 

 

 

 

 

 

           Investment securities (a)

 

 1,191

 

 

(348

)

           Currency translation adjustments (a)

 

 (782

)

 

(840

)

           Derivatives qualifying as hedges (a)

 

 (2,076

)

 

(890

)

Total      share owners' equity (note 15)

 

       36,929

 

 

28,590

 

Total      liabilities and share owners' equity

$

 489,828

 

$

425,484

 
(a)        The sum of accumulated gains/(losses) on investment securities, currency      translation adjustments and derivatives qualifying as hedges constitutes      "Accumulated nonowner changes other than earnings," as shown in note      15, and was ($1,667) million and ($2,078) million at year - end 2002 and      2001, respectively.   ****
 

See Notes to ConsolidatedFinancial Statements.

33
** 

GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATEDAFFILIATES

Statement of Cash Flows

 ****For the years ended December 31*(In      millions)* 
**2002**

 ****

** **

**2001**

 ****

** **

**2000**

 
**CASH FLOWS - OPERATING ACTIVITIES**  
 

 

 

 

 

 

Net earnings

$

3,611

 

$

5,417

 

$

5,192

 

Adjustments to reconcile net earnings      to cash provided from operating activities:

 

 

 

 

 

 

 

 

 

Cumulative effect of accounting      changes

 

 1,015

 

 

169

 

 

-

 

Depreciation and amortization of      equipment on operating leases (including buildings and equipment)

 

 3,799

 

 

3,451

 

 

3,314

 

Provision for losses on financing      receivables

 

 3,087

 

 

2,481

 

 

2,045

 

Amortization of goodwill

 

-

 

 

707

 

 

860

 

Deferred income taxes

 

 1,409

 

 

862

 

 

683

 

Decrease (increase) in inventories

 

 62

 

 

396

 

 

(261

)

Increase (decrease) in accounts      payable

 

 (880

) 

 

4,804

 

 

3,047

 

Increase (decrease) in insurance      liabilities and reserves

 

  9,454

 

 

8,194

 

 

(1,009

)

All other operating activities

(559
)

 

(8,688

)

 

(4,587

)

Cash from operating activities

 

20,998

 

 

       17,793

 

 

9,284

 

 

 

 

 

 

 

 

 

 

 
**CASH FLOWS - INVESTING ACTIVITIES**
 

 

 

 

 

 

 

 

 

Net increase in financing receivables      (note 16)

 

(17,945

)

 

(13,952

)

 

(16,076

)

Equipment on operating leases      (including buildings and equipment)

 

 

 

 

 

 

 

 

 

- additions

 

  (10,965

) 

 

(12,644

)

 

(11,431

)

- dispositions

 

  6,007

 

 

7,345

 

 

6,714

 

Payments for principal businesses      purchased, net of cash acquired
 

 (12,618

) 

 

(10,993

)

 

(1,176

)

All other investing activities (note      16)

 

(15,213

)

 

(7,751

)

 

(12,173

)

Cash used for investing activities

 

(50,734

)

 

(37,995

)

 

(34,142

)

 

 

 

 

 

 

 

 

 

 
**CASH FLOWS - FINANCING ACTIVITIES**
 

 

 

 

 

 

 

 

 

Net increase (decrease) in borrowings      (maturities of 90 days or less)

 

(34,687

)

 

23,634

 

 

(2,121

)

Newly issued debt (maturities longer      than 90 days) (note 16)

 

  96,044

 

 

30,752

 

 

46,887

 

Repayments and other reductions      (maturities longer than 90 days) (note 16)

 

(39,225

) 

 

(36,051

)

 

(31,907

)

Dividends paid

 

(1,965

) 

 

(1,961

)

 

(1,822

)

All other financing activities (note      16)

 

10,173

 

 

5,090

 

 

12,942

 

 

 

 

 

 

 

 

 

 

 

Cash from financing activities

 

30,340

 

 

21,464

 

 

23,979

 

 

 

 

 

 

 

 

 

 

 
 **INCREASE (DECREASE) IN CASH AND EQUIVALENTS DURING      YEAR** 
604

 

 

1,262

 

 

(879

)
 CASH AND EQUIVALENTS AT BEGINNING OF YEAR 
7,314
  
6,052
**** 
6,931
  CASH AND EQUIVALENTS AT END OF YEAR
$

7,918

$

7,314

 

$

6,052

 
 
See Notes to Consolidated Financial Statements.

34
**GENERAL ELECTRIC CAPITAL SERVICES, INC. AND CONSOLIDATEDAFFILIATES

Notes to Consolidated Financial Statements

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation**-** GeneralElectric Capital Services, Inc. owns all of the common stock of General ElectricCapital Corporation (GE Capital) and GE Global Insurance Holding Corporation (GEGlobal Insurance Holding), the parent of Employers Reinsurance Corporation. Allof our outstanding common stock is owned by General Electric Company (GE Companyor GE) and an affiliate of GE Company. Our consolidated financial statementsrepresent the adding together of all affiliates - companies that we directlyor indirectly control (consolidated affiliates), including GE Capital and GEGlobal Insurance Holding. Results of associated companies - generallycompanies in which we own 20% to 50% and over which we, directly or indirectly,have significant influence - are included in the financial statements on a"one-line" basis.**Financial statement presentation - We have reclassifiedcertain prior-year amounts to conform to this year's presentation. The effectsof transactions among related companies within and between each of theabove-mentioned groups are eliminated.

           Preparing financial statements in conformity with generally accepted accountingprinciples requires us to make estimates and assumptions that affect reportedamounts and related disclosures. Actual results could differ from thoseestimates.**Sales of Goods**-** We record sales of goods when afirm sales agreement is in place, delivery has occurred and collectibility ofthe fixed or determinable sales price is reasonably assured. If customeracceptance of products is not assured, sales are recorded only upon formalcustomer acceptance.
**Revenues from Services (Earned Income)**-** We use theinterest method to recognize income on all loans. We stop accruing interestincome at the earlier of the time at which collection of an account becomesdoubtful or the account becomes 90 days delinquent. We recognize interest incomeon impaired loans either as cash is collected or on a cost-recovery basis asconditions warrant.

           We record financing lease income on the interest method to produce a level yieldon funds not yet recovered. Estimated unguaranteed residual values of leasedassets are based primarily on periodic independent appraisals of the values ofleased assets remaining at expiration of the lease terms. Significantassumptions we use in estimating residual values include estimated net cashflows over the remaining lease term, results of future remarketing and futurecomponent part and scrap metal prices, discounted at an appropriate rate.

           We recognize operating lease income on a straight-line basis over the terms ofunderlying leases.

           We defer origination, commitment and other nonrefundable fees related tofundings and record them in earned income on the interest method. We defercommitment fees related to loans that we do not expect to fund and online-of-credit fees and record them in earned income on a straight-line basisover the period to which the fees relate. We record syndication fees in earnedincome at the time related services are performed unless significantcontingencies exist.

           See pages 36 and 37 for our discussion of income from investment and insuranceactivities.
**Depreciation and amortization - The cost of our equipmentleased to others on operating leases is amortized, principally on astraight-line basis, to estimated residual value over the lease term or over theestimated economic life of the equipment. Depreciation of property and equipmentwe use is recorded on either a sum-of-the-years digits formula or astraight-line basis over the lives of the assets.
**Losses on Financing Receivables - The allowance for losseson small-balance receivables reflects our best estimate of probable lossesinherent in the portfolio determined principally on the basis of historicalexperience. For other receivables, principally the larger loans and leases, theallowance for losses is determined primarily on the basis of our best estimateof probable losses, including specific allowances for known troubled accounts.Small balance receivables consist of consumer loans, primarily credit cardreceivables, and certain homogenous leases and secured loans. Large balancereceivables comprise all other commercial loans and leases.

 35

           Losses on financing receivables are recognized when they are incurred.Measurement of such losses requires consideration of historical loss experience,including the need to adjust for current conditions and judgments about theprobable effects of relevant observable data, including present economicconditions such as delinquency rates, financial health of specific customers andmarket sectors, collateral value, and the present and expected levels ofinterest rates. For large balance, non-homogenous loans, the following sourcesof value are used to determine recoverability, as appropriate in thecircumstances: present value of expected future cash flows discounted at theloan's effective interest rate, the loan's observable market price, or the fairvalue of the collateral.

           All accounts or portions thereof that are deemed to be uncollectible or torequire an excessive collection cost are written off to the allowance forlosses. Small-balance accounts generally are written off when 6 to 12 monthsdelinquent, although any such balance judged to be uncollectible, such as anaccount in bankruptcy, is written down immediately to estimated realizablevalue. Large-balance accounts are reviewed at least quarterly, and thoseaccounts with amounts that are judged to be uncollectible are written down toestimated realizable value.

           When collateral is repossessed in satisfaction of a loan, the receivable iswritten down against the allowance for losses to estimated fair value of theasset less costs to sell, transferred to other assets and subsequently carriedat the lower of cost or estimated fair value less costs to sell. This accountingmethod has been employed principally for commercial lending transactions.
**Cash and Equivalents**-** Debt securities withoriginal maturities of three months or less are included in cash equivalentsunless designated as available for sale and classified as investment securities.
**Investment Securities - We report investments in debt and,marketable equity securities, and equity securities at our insurance affiliatesat fair value based primarily on quoted market prices or, if quoted prices arenot available, discounted expected cash flows using market rates commensuratewith credit quality and maturity of the investment. Substantially all investmentsecurities are designated as available for sale, with unrealized gains andlosses included in share owners' equity, net of applicable taxes and otheradjustments. We regularly review investment securities for impairment based oncriteria that include the extent to which cost exceeds market value, theduration of the market decline, and the financial health of and specificprospects for the issuer. Unrealized losses that are other than temporary arerecognized in earnings. Realized gains and losses are accounted for on thespecific identification method.
**Inventories - Inventories consist primarily of finishedproducts held for sale. All inventories are stated at the lower of cost orrealizable values. Cost is primarily determined on a first-in, first-out basis.
**Intangible Assets - As of January 1, 2002, we completedadoption of Statement of Financial Accounting Standards (SFAS) 142*, Goodwilland Other Intangible Assets*. Under SFAS 142, goodwill is no longer amortizedbut is tested for impairment using a fair value approach, at the "reportingunit" level. A reporting unit is the operating segment or a business onelevel below that operating segment (the "component" level) if discretefinancial information is prepared and regularly reviewed by management at thecomponent level. We recognize an impairment charge for any amount by which thecarrying amount of a reporting unit's goodwill exceeds its fair value. We usediscounted cash flows to establish fair values. When available and asappropriate, we use comparative market multiples to corroborate discounted cashflow results. When a business within a reporting unit is disposed of, goodwillis allocated to the gain or loss on disposition using the relative fair valuemethodology.

           We amortize the cost of other intangibles over their estimated useful livesunless such lives are deemed indefinite. Amortizable intangible assets aretested for impairment based on undiscounted cash flows and, if impaired, writtendown to fair value based on either discounted cash flows or appraised values.Intangible assets with indefinite lives are tested for impairment and writtendown to fair value as required.

           Before January 1, 2002, we amortized goodwill over its estimated period ofbenefit on a straight-line basis; we amortized other intangible assets onappropriate bases over their estimated lives. No amortization period exceeded 40years. When an intangible asset's carrying value exceeded associated expectedoperating cash flows, we considered it to be impaired and wrote it down to fairvalue, which we determined based on either discounted future cash flows orappraised values.

36
**Insurance Accounting Policies - Accountingpolicies for insurance businesses follow.***Premium income. We report insurance premiums as earnedincome as follows:
-  For short-duration insurance contracts    (including property and casualty, accident and health, and financial    guaranty insurance), we report premiums as earned income, generally on a    pro-rata basis, over the terms of the related agreements. For    retrospectively rated reinsurance contracts, we record premium adjustments    based on estimated losses and loss expenses, taking into consideration both    case and incurred-but-not-reported (IBNR) reserves.For traditional long-duration insurance    contracts (including term and whole life contracts and annuities payable for    the life of the annuitant), we report premiums as earned income when due.For investment contracts and universal life    contracts, we report premiums received as liabilities, not as revenues.    Universal life contracts are long-duration insurance contracts with terms    that are not fixed and guaranteed; for these contracts, we recognize    revenues for assessments against the policyholder's account, mostly for    mortality, contract initiation, administration and surrender. Investment    contracts are contracts that have neither significant mortality nor    significant morbidity risk, including annuities payable for a determined    period; for these contracts, we recognize revenues on the associated    investments and amounts credited to policyholder accounts are charged to    expense.**Liabilities for unpaid claims and claims adjustment expensesrepresent our best estimate of the ultimate obligations for reported claims plusthose IBNR and the related estimated claim settlement expenses for all claimsincurred through December 31 of each year. Specific reserves - also referredto as case reserves - are established for reported claims using case-basisevaluations of the underlying claim data and are updated as further informationbecomes known.  IBNR reserves are determined using generally acceptedactuarial reserving techniques that take into account historical loss experiencedata and, as appropriate, certain qualitative factors. IBNR reserves areadjusted to take into account certain additional factors that can be expected toaffect the liability for claims over time, such as changes in the volume and mixof business written, revisions to contract terms and conditions, changes inlegal precedence or developed case law, trends in healthcare and medical costs,and general inflation levels. Settlement of complex claims routinely involvesthreatened or pending litigation to resolve disputes as to coverage,interpretation of contract terms and conditions or fair compensation for damagessuffered. These disputes are settled through negotiation, arbitration, or actuallitigation. Recorded reserves incorporate our best estimate of the effect thatultimate resolution of such disputes have on both claims payments and relatedsettlement expenses. Liabilities for unpaid claims and claims adjustmentexpenses are continually reviewed and adjusted; such adjustments are included incurrent operations and accounted for as changes in estimates.
***Deferred policy acquisition costs. Costs that vary withand are primarily related to the acquisition of new and renewal insurance andinvestment contracts are deferred and amortized over the respective policyterms. For short-duration insurance contracts, acquisition costs consistprimarily of commissions, brokerage expenses and premium taxes. Forlong-duration insurance contracts, these costs consist primarily of first-yearcommissions in excess of recurring renewal commissions, certain variable salesexpenses and certain support costs such as underwriting and policy issueexpenses.
-  For short-duration insurance contracts, we    amortize these costs on a pro-rata basis over the contract periods in which the    related premiums are earned.For traditional long-duration insurance    contracts, we amortize these costs over the respective contract periods in    proportion to either anticipated premium income or, in the case of    limited-payment contracts, estimated benefit payments.For investment contracts and universal life    contracts, we amortize these costs on the basis of anticipated gross    profits.
We review deferred policy acquisition costs periodically forrecoverability considering anticipated investment income.
***Present value of future profits. The actuariallydetermined present value of anticipated net cash flows to be realized frominsurance, annuity and investment contracts in force at the date of acquisitionof life insurance enterprises is recorded as the present value of future profitsand is amortized over the respective policy terms in a manner similar todeferred policy acquisition costs. We adjust unamortized balances to reflectexperience and impairment, if any.

37
**Accounting Changes**
Under SFAS 142, goodwill is no longer amortized but is testedfor impairment using a fair value methodology. We stopped amortizing goodwilleffective January 1, 2002.

           Under SFAS 142, we were required to test all existing goodwill for impairment asof January 1, 2002, on a reporting unit basis, and recorded a non-cash charge of$1.2 billion ($1.0 billion after tax), which we reported in the caption"Cumulative effect of accounting changes." Substantially all of thecharge relates to the IT Solutions business and the GE Auto and Home business.Factors contributing to the impairment charge were the difficult economicenvironment in the information technology sector and heightened pricecompetition in the auto insurance industry. No impairment charge had beenrequired under our previous goodwill impairment policy, which was based onundiscounted cash flows.

           In November 2002, the Financial Accounting Standards Board (FASB) issuedInterpretation No. (FIN) 45, *Guarantor's Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers*. The resulting disclosure provisions are effective for year-end 2002and such disclosures are provided in notes 20 and 21. Recognition andmeasurement provisions of FIN 45 become effective for guarantees issued ormodified on or after January 1, 2003.

           In January 2003, the FASB issued FIN 46, *Consolidation of Variable InterestEntities*, an Interpretation of Accounting Research Bulletin No. 51. FIN 46'sdisclosure requirements are effective for year-end 2002 and such disclosures areprovided in note 20. We plan to adopt FIN 46's accounting provisions on July 1,2003.

           At January 1, 2001, we adopted SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities*, as amended. Under SFAS 133, allderivative instruments are recognized in the balance sheet at their fair values.Further information about derivatives and hedging is provided in note 19.

           The cumulative effect of adopting this accounting change at January 1, 2001,follows.
*(In millions)*
 

 

**Earnings (a)**

 

 

**Share owners' equity**

 
Adjustment        to fair value of derivatives

 

$

(77

)

 

$

(1,374

)

Income        tax effects

 

 

28

 

 

 

525

 

Total

 

$

(49

)

 

$

(849

)
 (a)   For      earnings effect, amount shown is net of adjustment to hedged items.
The cumulative effect on earnings of adopting SFAS 133 comprisedtwo significant elements. One element represented the fair value of equityoptions embedded in loans that provided both us and the borrower the right, butnot the obligation, to convert the loans into shares of the borrower's stock.The second element of the transition effect was a portion of the effect ofmarking to market options and currency contracts used for hedging. Thecumulative effect on share owners' equity was primarily attributable to markingto market forward and swap contracts used to hedge variable-rate borrowings.Decreases in the fair values of these instruments were attributable to declinesin interest rates since inception of the hedging arrangements. As a matter ofpolicy, we ensure that, including the effect of derivatives, lending andfinancing asset positions are substantially matched in character (e.g., fixedvs. floating) and duration. As a result, declines in the fair values of theseeffective derivatives are offset by unrecognized gains on the related financingassets and hedged items, and future earnings will not be subject to volatilityfrom interest rate changes.

           In November 2000, the Emerging Issues Task Force (EITF) of the FASB reached aconsensus on accounting for impairment of retained beneficial interests (EITF99-20). Under this consensus, impairment of certain retained interests insecuritized assets must be recognized when (1) the asset's fair value is belowits carrying value, and (2) it is probable that there has been an adverse changein estimated cash flows. The cumulative effect of adopting EITF 99-20 at January1, 2001, was a one-time reduction of net earnings of $120 million.

           These 2001 accounting changes did not involve cash, and we expect that they willhave no more than a modest effect on future results.

38
**NOTE 2. OPERATING AND ADMINISTRATIVE EXPENSES**
Our employees and retirees are covered under a number ofpension, health and life insurance plans. The principal pension plan is the GECompany Pension Plan, a defined benefit plan. Employees of certain affiliatesare covered under separate pension plans which are not significant individuallyor in the aggregate. We provide health and life insurance benefits to certain ofour retired employees, principally through GE Company's benefit program, as wellas through plans sponsored by other affiliates. The annual cost to us ofproviding these benefits is not material.

           Rental expense relating to equipment we lease from others for the purpose ofsubleasing was $378 million in 2002, $400 million in 2001 and $496 million in2000. Other rental expense was $599 million in 2002, $606 million in 2001 and$680 million in 2000, principally for the rental of office space and dataprocessing equipment. On December 31, 2002, minimum rental commitments undernoncancelable operating leases aggregated $4,449 million; $738 million in 2003;$674 million in 2004; $533 million in 2005; $457 million in 2006; $556 millionin 2007 and $1,491 million thereafter. As a lessee, we have no material leaseagreements classified as capital leases.

           Amortization of deferred insurance acquisition costs charged to operations in2002, 2001 and 2000 was $2,390 million, $2,490 million and $2,787 million,respectively.
**NOTE 3. INVESTMENT SECURITIES*****(In      millions)*
 

**Amortized cost**

 

 

**Gross**

**Unrealized gains**

 

 

**Gross**

**Unrealized losses**

 

 

**Estimated**

**fair value**

**December 31, 2002**

 

 

 

 

 

 

 

 

 

 

 

Debt:

 

 

 

 

 

 

 

 

 

 

 

U.S. corporate

$

55,489

 

$

2,416

 

$

(1,490

)

$

56,415

State and municipal

 

12,147

 

 

358

 

 

(45

)

 

12,460

Mortgage - backed

 

12,285

 

 

438

 

 

(46

)

 

12,677

Asset - backed

 

7,081

 

 

126

 

 

(32

)

 

7,175

Corporate - non-U.S.

 

13,396

 

 

529

 

 

(230

)

 

13,695

Government - non-U.S.

 

8,147

 

 

291

 

 

(62

)

 

8,376

U.S. government and federal agency

 

1,678

 

 

67

 

 

(18

)

 

1,727

Equity

 

4,333

 

 

165

 

 

(493

)

 

4,005

 

$

114,556

 

$

4,390

 

$

(2,416

)

$

116,530

**December 31, 2001**

 

 

 

 

 

 

 

 

 

 

 

Debt:

 

 

 

 

 

 

 

 

 

 

 

U.S. corporate

$

47,391

 

$

880

 

$

(1,626

)

$

46,645

State and municipal

 

12,518

 

 

180

 

 

(136

)

 

12,562

Mortgage - backed

 

10,024

 

 

210

 

 

(57

)

 

10,177

Asset - backed

 

6,418

 

 

214

 

 

(33

)

 

6,599

Corporate - non-U.S.

 

13,088

 

 

232

 

 

(277

)

 

13,043

Government - non-U.S.

 

6,104

 

 

183

 

 

(124

)

 

6,163

U.S. government and federal agency

 

1,233

 

 

25

 

 

(32

)

 

1,226

Equity

 

3,926

 

 

178

 

 

(381

)

 

3,723

 

$

100,702

 

$

2,102

 

$

(2,666

)

$

100,138

A substantial portion of mortgage-backed securities shown in thetable above are collateralized by U.S. residential mortgages.

39

At December 31, 2002, contractual maturities of our investmentin debt securities (excluding mortgage-backed and asset-backed securities) wereas follows:
*(In millions)*
**Amortized      cost**** **
**Estimated      fair value**Due in:   
2003
$7,795 $7,833
2004-2007
19,648 19,947
2008-2012
23,260 23,821
2013 and later
40,154 41,072
We expect actual maturities to differ from contractualmaturities because borrowers have the right to call or prepay certainobligations.

           Proceeds from securities sales amounted to $46,183 million in 2002, $39,512million in 2001 and $24,711 million in 2000.

Supplemental information about gross realized gains and losseson investment securities follows.
*(In millions)* 
**2002**

 

 

**2001**

 

**2000**

 

Gains (a)

$

1,578

 

$

1,800

 

$

3,581

 

Losses, including impairments

 

(1,277

)

 

(838

)

 

(714

)

      Total

$

301

 

$

962

 

$

2,867

 
  (a)         Includes $1,366 million, in 2000, from the sale of our investment in      common stock of Paine Webber Group, Inc.**NOTE 4. FINANCING RECEIVABLES (INVESTMENTS IN TIME SALES, LOANS AND FINANCINGLEASES)**
December 31 *(In millions)* 
**2002**
  
**2001**
 **COMMERCIAL FINANCE 
   
 
 
Equipment
$
61,961 
$
54,842 
Commercial and industrial 
36,512  
35,239 
Real estate 
21,041  
20,891 
Commercial aircraft 
11,397  
9,081   
130,911  
120,053 **CONSUMER FINANCE 
   
  
Non U.S. installment, revolving credit and other 
23,655  
18,371 
Non U.S.--Auto 
15,113  
11,938 
U.S.--installment, revolving credit and other 
14,312  
11,465 
Non U.S. residential 
9,731  
5,820 
Other 
3,225  
2,470   
66,036  
50,064        
Other, principally Equipment Management 
8,482  
8,824   
205,429  
178,941        
Less allowance for losses (note 5) 
(5,512)  
(4,801)  
$
199,917 
$
174,140 
Our financing receivables include both time sales and loans andfinancing leases. Time sales and loans represents transactions in a variety offorms, including time sales, revolving charge and credit, mortgages, installmentloans, intermediate-term loans and revolving loans secured by business assets.The portfolio includes time sales and loans carried at the principal amount onwhich finance charges are billed periodically, and time sales and loans carriedat gross book value, which includes finance charges.

40

           Investment in financing leases consists of direct financing andleveraged leases of aircraft, railroad rolling stock, autos, othertransportation equipment, data processing equipment and medical equipment, aswell as other manufacturing, power generation, commercial real estate, andcommercial equipment and facilities.
           As the sole owner of assets under direct financing leases and asthe equity participant in leveraged leases, we are taxed on total lease paymentsreceived and are entitled to tax deductions based on the cost of leased assetsand tax deductions for interest paid to third-party participants. We aregenerally entitled to any residual value of leased assets.
           Investment in direct financing and leveraged leases representsnet unpaid rentals and estimated unguaranteed residual values of leasedequipment, less related deferred income. We have no general obligation forprincipal and interest on notes and other instruments representing third-partyparticipation related to leveraged leases; such notes and other instruments havenot been included in liabilities but have been offset against the relatedrentals receivable. Our share of rentals receivable on leveraged leases issubordinate to the share of other participants who also have security interestsin the leased equipment.
           Third-party debt financing provided in leveragedlease transactions takes the form of various lending arrangements that arenonrecourse to us and are secured by both the assets underlying the leases andthe amounts of future lease payments receivable. Since this third-party debt isnonrecourse to us, the related principal and interest is deducted from the leasereceivables in determining our net investment in leveraged leases.**Net investment in financing leases**  **Total      financing leases  **Direct      financing **leases** **Leveraged    leases 
December 31*(In millions*) **2002  **2001  **2002  **2001  **2002  **2001 
Total    minimum lease payments

 receivable
$
90,452 
$
86,689 
$
58,591 
$
57,243 
$
31,861 
$
29,446 
Less    principal and interest on

 third-party    nonrecourse debt   
(24,249
) 
(22,588
) 
-  
-  
(24,249
) 
(22,588
)
Net    rentals receivable 
66,203  
64,101  
58,591  
57,243  
7,612  
6,858 
                   
Estimated    unguaranteed residual

 value    of leased assets 
10,067  
8,996  
6,292  
5,544  
3,775  
3,452 
Less deferred income 
(14,150
) 
(13,953
) 
(10,201
) 
(10,378
) 
(3,949
) 
(3,575
)
Investment    in financing leases 
62,120  
59,144  
54,682  
52,409  
7,438  
6,735 
                   
Less    amounts to arrive at net

 investment                  
Allowance    for losses 
(873
) 
(757
) 
(771
) 
(684
) 
(102
) 
(73
)
Deferred    taxes 
(9,763
) 
(9,168
) 
(5,559
) 
(4,643
) 
(4,204
) 
(4,525
)
Net investment in financing leases
$
51,484 
$
49,219 
$
48,352 
$
47,082 
$
3,132 
$
2,137 **Contractual Maturities***(In millions)**Total      time sales and **loans (a)****Net    rentals **receivable (a)**
Due in:     
2003
$
47,887 
$
16,705
2004 
25,120  
14,479
2005 
21,225  
10,314
2006 
11,686  
6,741
2007 
9,308  
3,888
2008 and later 
28,083  
14,076
Total
$
143,309 
$
66,203 
(a)     Experience has shown that a substantial portion of receivables will be paid    prior to contractual maturity, and these amounts should not be regarded as    forecasts of future cash flows.

41

"Impaired" loans are defined by generally acceptedaccounting principles as large balance loans for which it is probable that thelender will be unable to collect all amounts due according to originalcontractual terms of the loan agreement. An analysis of impaired loans follows.

 
December 31*(In millions)* **2002  **2001        
Loans requiring allowance for losses
$
1,140 
$
1,041 
Loans expected to be fully recoverable 
845  
574  
$
1,985 
$
1,615 
Allowance for losses
$
397 
$
422 
Average investment during year 
1,747  
1,121 
Interest income earned while impaired (a) 
16  
17  (a)       Recognized principally on cash basis.**NOTE 5. ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES***(In millions) **2002  **2001  **2000 **Balance At January 1         
Commercial Finance
$
2,513 
$
1,682 
$
1,435 
Consumer Finance 
2,173  
2,149  
2,025 
Other 
115  
203  
248   
4,801  
4,034  
3,708 **Provision Charged To Operations         
Commercial Finance 
1,092  
756  
453 
Consumer Finance 
1,950  
1,646  
1,471 
Other 
45  
79  
121   
3,087  
2,481  
2,045 **Other Additions - Principally Acquisitions 
704  
564  
22 **Net Write-offs         
Commercial Finance 
(1,152
)
 
(485) 
(369)
Consumer Finance 
(1,849) 
(1,659) 
(1,245)
Other 
(79) 
(134) 
(127)  
(3,080) 
(2,278) 
(1,741)**Balance At December 31         
Commercial Finance 
2,634  
2,513  
1,682 
Consumer Finance 
2,782  
2,173  
2,149 
Other 
96  
115  
203 
Balance at December 31
$
5,512 
$
4,801 
$
4,034 
42
**Selected Financing Receivables Ratios**
December 31 **2002  **2001 **Allowance For      Losses On Financing Receivables As A Percentage      Of Total Financing Receivables
      
Commercial Finance 
2.01
% 
2.09
%
Consumer Finance 
4.21  
4.34 
Total 
2.68  
2.68        **Nonearning    And Reduced Earning Financing Receivables**As    A Percentage Of Total Financing Receivables**
      
Commercial Finance 
1.7
% 
1.7
%
Consumer Finance 
2.4  
2.7 
Total 
1.9  
2.0 **NOTE 6. INSURANCE RECEIVABLES**
December 31 *(In millions)* **2002  ***********************************************************************************************************************************************************************************************************************************