**UNITED
STATES SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
D.C. 20549**
 
 **FORM
      10-K**
 
 **þ******
    **Annual
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934****For
      the fiscal year ended December 31, 2004****or**** ̈******
    **Transition
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934****For
      the transition period from ___________to
    ___________****_____________________________**
      
      **Commission
      file number 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
      1⁄2% 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 the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes **þ** No ** ̈**
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. **þ**
  Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2). Yes ** ̈** **** No **þ**
  Aggregate
market value of the outstanding common equity held by nonaffiliates of the
registrant as of the last business day of the registrant’s recently completed
second fiscal quarter: None.
  At
February 28, 2005, 1,064 shares of voting common stock, which constitute all of
the outstanding common equity, with a par value of $1,000 were outstanding.
  **DOCUMENTS
INCORPORATED BY REFERENCE**
  The
consolidated financial statements of General Electric Company, set forth in the
Annual Report on Form 10-K of General Electric Company for the year ended
December 31, 2004 are incorporated by reference into Part IV
hereof.
  **REGISTRANT
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM
10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.**
 
  (1)
  
 **TABLE
      OF CONTENTS**Page**PART
      I**Item
      1.
    Business
    3Item
      2.
    Properties
    9Item
      3.
    Legal
      Proceedings
    9Item
      4.
    Submission
      of Matters to a Vote of Security Holders
    9**PART
      II**Item
      5.
    Market
      for the Registrant’s Common Equity, Related Stockholder Matters andIssuer
      Purchases of Equity Securities
    9Item
      6.
    Selected
      Financial Data
    10Item
      7.
    Management’s
      Discussion and Analysis of Results of Operations and Financial
      Condition
    10Item
      7A.
    Quantitative
      and Qualitative Disclosures About Market Risk
    33Item
      8.
    Financial
      Statements and Supplementary Data
    34Item
      9.
    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
    78Item
      9A.
    Controls
      and Procedures
    78Item
      9B.
    Other
      Information
    79**PART
      III**Item
      10.
    Directors
      and Executive Officers of the Registrant
    79Item
      11.
    Executive
      Compensation
    79Item
      12.
    Security
      Ownership of Certain Beneficial Owners and Management
    79Item
      13.
    Certain
      Relationships and Related Transactions
    79Item
      14.
    Principal
      Accounting Fees and Services
    79**PART
      IV**Item
      15.
    Exhibits
      and Financial Statement Schedules
    80Signatures
    89
 
  (2)
  **PART
I**
  **Item
1. Business.**
  **General
Electric Capital Services, Inc.**
  General
Electric Capital Services, Inc. (GECS) was incorporated in 1984 in Delaware. All
of our outstanding common stock is owned, directly or indirectly, by General
Electric Company (GE Company or GE). Our two principal subsidiaries conduct most
of GE’s financial services operations. Those subsidiaries, which we wholly own,
are General Electric Capital Corporation (GE Capital or GECC) and GE Insurance
Solutions Corporation (GE Insurance Solutions), formerly GE Global Insurance
Holding Corporation, the parent of Employers Reinsurance Corporation (ERC).
  We
operate in four key operating segments described below. These operations are
subject to a variety of regulations in their respective
jurisdictions.
  Our
services are offered primarily in North America, Europe and Asia. Our principal
executive offices are located at 260 Long Ridge Road, Stamford, Connecticut
06927-1600. At December 31, 2004, our employment totaled approximately
80,000.
  Our
financial information, including filings with the U.S. Securities and Exchange
Commission (SEC), is available at www.ge.com/secreports. Copies are also
available, without charge, from GE Corporate Investor Communications, 3135
Easton Turnpike, Fairfield, CT, 06828-0001. Reports filed with the SEC may be
viewed at www.sec.gov or obtained at the SEC Public Reference Room in
Washington, D.C.
  **General
Electric Capital Corporation**
  GE
Capital was incorporated in 1943 as successor to a 1932 company in the State of
New York under the provisions of the New York Banking Law relating to investment
companies. GE contributed all of GE Capital’s stock to us in June 1984 upon its
formation. On July 2, 2001, GE Capital changed its state of incorporation to
Delaware. Financing and services offered by GE Capital are diversified, a
significant change from the original business of GE Capital, that is, financing
distribution and sale of consumer and other GE products. GE manufactures few of
the products financed by GE Capital.
  **GE
Insurance Solutions Corporation**
  GE
Insurance Solutions, together with its affiliates, operates in the Insurance
segment described on page 6 and its operations are regulated by insurance and
other regulators.
  GE
Insurance Solutions and its affiliates conduct business throughout the world
using a network of local offices. Principal executive offices are located at
9201 State Line Road, Kansas City, Missouri 64114-3234. At December 31,
2004, employment totaled approximately 3,200.
  **Operating
Segments**
  **2004
was a year of portfolio transition** .
As described in our report last year, we simplified our organization on January
1, 2004, by realigning certain businesses within our segment structure. Certain
prior-period amounts in this financial section have been reclassified to reflect
this reorganization.
   (3)
  **Commercial
Finance**
  Commercial
Finance (33.2%, 32.4% and 33.4% of total revenue in 2004, 2003 and 2002,
respectively) offers a broad range of financial services worldwide. We have
particular expertise in the mid-market, and offer loans, leases and other
financial services to customers, including manufacturers, distributors and
end-users for a variety of equipment and major capital assets. These assets
include industrial and energy-related facilities and equipment; commercial and
residential real estate; vehicles; aircraft; and equipment used in many
industries, including the construction, manufacturing, telecommunications and
healthcare industries.
  During
2004, we acquired the commercial lending business of Transamerica Finance
Corporation; the U.S. leasing business of IKON Office Solutions; Sophia S.A., a
real estate company in France; and Benchmark Group PLC, a U.K.-listed real
estate property company.
  We
operate in a highly competitive environment. Our competitors include commercial
banks, investment banks, leasing companies, financing companies associated with
manufacturers and independent finance companies. Competition is based on price,
that is interest rates and fees, as well as deal structure and terms.
Profitability is affected not only by broad economic conditions that affect
customer credit quality and the availability and cost of capital, but also by
successful management of credit risk, operating risk and market risks such as
interest rate and currency exchange risks. Success requires high quality risk
management systems, customer and industry specific knowledge, diversification,
service and distribution channels, strong collateral and asset management
knowledge, deal structuring expertise and the ability to reduce costs through
technology and productivity.
  For
further information about revenues, net earnings and assets for Commercial
Finance, see page 14 and note 18.
  We
provide additional information on two of our segment product lines, Real Estate
(commercial real estate financing) and Aviation Services (commercial aircraft
financing). Each of these product lines finances a single form of collateral,
and each has understandable concentrations of risk and opportunities.
  *Real
Estate*
  Our
Real Estate product line operates globally, both directly and through joint
ventures. Our Real Estate business finances, with both equity and loan
structures, the acquisition, refinancing and renovation of office
buildings, apartment buildings, self storage facilities, retail facilities,
industrial properties, parking facilities and franchise properties. Our typical
Real Estate loans are intermediate term, may be either senior or subordinated,
fixed or floating-rate, and are secured by existing income-producing commercial
properties. Our originations of low loan-to-value loans are conducted for term
securitization within one year. We invest in, and provide restructuring
financing for, portfolios of mortgage loans, limited partnerships and tax-exempt
bonds.
  *Aviation
Services*
  Our
Aviation Services product line is a global commercial aviation financial
services business that offers a broad range of financial products to airlines,
aircraft operators, owners, lenders and investors. Financial products include
leases, aircraft purchasing and trading, loans, engine/spare parts financing,
pilot training, fleet planning and financial advisory services.
  Our
headquarters are in Stamford, Connecticut with offices throughout North America,
South America, Europe and Asia.
   (4)
  **Consumer
Finance**
  Consumer
Finance (22.2%, 20.0% and 17.5% of total revenue in 2004, 2003 and 2002,
respectively) is a leading provider of credit products and services to
consumers, retailers and auto dealers in 41 countries. We offer a broad range of
financial products, including private-label credit cards; personal loans; bank
cards; auto loans, leases and inventory financing; residential mortgages;
corporate travel and purchasing cards; debt consolidation loans; home equity
loans; and credit and other insurance products for customers on a global basis.
  In
2004, as part of our continued global expansion, we acquired Australian
Financial Investments Group (AFIG), a residential mortgage lender in Australia;
WMC Finance Co. (WMC), a U.S. wholesale mortgage lender; and the private-label
credit card portfolio of Dillard’s Inc.
  Our
operations are subject to a variety of bank and consumer protection regulations,
including regulations controlling data privacy. Further, a number of countries
have ceilings on rates chargeable to consumers in financial service
transactions. We are subject to competition from various types of financial
institutions including commercial banks, leasing companies, consumer loan
companies, independent finance companies, manufacturers’ captive finance
companies, and insurance companies. Industry participants compete on the basis
of price, servicing capability, promotional marketing, risk management, and
cross selling. The markets in which we operate are also subject to the risks of
declining retail sales, changes in interest and currency exchange rates, and
increases in personal bankruptcy filings.
  Our
headquarters are in Stamford, Connecticut and our operations are located in
North America, Europe, Asia, South America and Australia.
  For
further information about revenues, net earnings and assets for Consumer
Finance, see page 16 and note 18.
  **Equipment
& Other Services**
  Equipment
& Other Services (12.0%, 6.8% and 9.4% of total revenue in 2004, 2003 and
2002, respectively) helps customers manage, finance and operate a wide variety
of business equipment worldwide. We provide rentals, leases, sales, asset
management services and loans for portfolios of commercial and transportation
equipment, including tractors, trailers, railroad rolling stock, modular space
units, intermodal shipping containers and marine containers. Our operations are
conducted in highly competitive markets. Economic conditions, geographic
location, pricing and equipment availability are important factors in this
business. Future success will depend upon our ability to maintain a large and
diverse customer portfolio, optimize asset mix, maximize asset utilization and
manage credit risk. In addition, we seek to understand our customers and to meet
their needs with unique, efficient and cost effective product and service
offerings.
  In
December 2004, we sold a majority interest in Gecis, our global business
processing operation, to two leading private investment firms. We retained a 40%
investment in Gecis.
  Also
included in the segment are activities and businesses that are not measured
within one of our other segments - for example, corporate expenses, liquidating
businesses and other non-segment aligned operations.
  Our
headquarters are in Stamford, Connecticut with offices throughout North America,
South America and Europe.
   (5)
  For
further information about revenues, net earnings and assets for Equipment &
Other Services, see page 17 and note 18.
  **Insurance**
  Insurance
(32.6%, 40.8% and 39.7% of total revenue in 2004, 2003 and 2002, respectively)
offers a broad range of insurance and investment products that provide
reinsurance and primary commercial insurance products to insurance companies,
Fortune 100 companies, self-insurers and healthcare providers, and help
consumers create and preserve personal wealth, protect assets and enhance their
life styles. For lenders and investors, we provide protection against the risks
of default on low-down-payment mortgages.
  Our
Insurance businesses are subject to intense competition. We believe the
principal competitive factors in the sale of our products are service, brand,
product features, price, commission structure, marketing and distribution
arrangements, reputation and financial strength ratings. In the commercial
sector, we are well positioned to compete in select niche insurance and
reinsurance segments given our expertise, analytics capabilities and service. In
the consumer sector, we are well positioned to benefit from developing
demographic, governmental and market trends, including aging U.S. populations
with growing retirement income needs, growing lifestyle protection gaps and
increasing global opportunities for mortgage insurance.
  Our
headquarters are in Kansas City, Missouri with offices throughout North America,
Europe, South America, Australia and Asia.
  In
May 2004, we completed an initial public offering of Genworth Financial, Inc.
(Genworth), our formerly wholly-owned subsidiary that conducts most of our
consumer insurance business, including life and mortgage insurance operations.
We sold approximately 30% of the common shares of Genworth to the public, and we
expect (subject to market conditions) to reduce our ownership over the next two
years as Genworth transitions to full independence.
  For
further information about revenues, net earnings and assets for Insurance, see
page 18 and note 18.
  *GE
Insurance Solutions Corporation*
  Through
our principal insurance and reinsurance company affiliates, ERC, GE Reinsurance
Corporation, the GE Frankona Group and the Medical Protective Corporation, we
protect people, property and reputations by writing substantially all lines of
reinsurance, where the insured party is another insurance company, and select
lines of direct property and casualty insurance for non-insurance companies and
individuals.
  Our
property and casualty reinsurance customers comprise more than 1,000 insurers
around the world. Our direct insurance operations are selected lines principally
comprising medical malpractice coverage for physicians and dentists, medical
professional liability for hospitals, errors and omissions coverage for
insurance agents and brokers, professional liability insurance for attorneys,
excess indemnity for self-insurers of medical benefits, excess workers
compensation for self-insurers, as well as coverage for airlines, airline
manufacturers and marine enterprises.
  Our
life reinsurance affiliates write life reinsurance products, including term,
whole and universal life, annuities, certain health-related coverages and
provide financial reinsurance to life insurers. During 2003, we announced our
intent to scale back our life reinsurance operations. Consequently, we ceased
writing new life
   (6)
  reinsurance
business in the United States and sold one of our United States life reinsurance
businesses, ERC Life Reinsurance Corporation (ERC Life).
  In
managing our overall risks, we routinely cede selected risks to other
reinsurers. Before 2004, we had also obtained coverage under aggregate
excess-of-loss treaties. At the end of 2004, no remaining coverage and only
modest annual payments were open under these agreements.
  GE
Insurance Solutions is one of the largest competitors in its marketplace. Our
property and casualty reinsurance operations are ranked fourth in the world in
terms of net premiums written and we compete with the world’s largest reinsurers
as well as dozens of smaller niche competitors.
  *GE
Insurance Solutions - Property and Casualty Reserves for Unpaid Claims and
Claims Adjustment Expenses*
 
 **Reserve
Development** The development of our net balance sheet property and casualty liabilities for
unpaid claims and claims adjustment expenses for accident years from 1994 to
2004 is summarized in the following table.
  **Changes
in Historical Reserves for Unpaid Claims and Claims Adjustment
Expenses**
 **For
the Last Ten Years - GAAP Basis as of December 31, 2004 (Property & Casualty
Operations)**
 
 **Year
      ended December 31***(In
      millions)*
    
    **1994**
    ****
    
    **1995**
    ****
    
    **1996**
    ****
    
    **1997**
    ****
    
    **1998**
    ****
    
    **1999**
    ****
    
    **2000**
    ****
    
    **2001**
    ****
    
    **2002**
    ****
    
    **2003**
    ****
    
    **2004**Net
      liability for unpaid claimsand
      claims adjustment expenses
    $
    5,071
    
    $
    9,351
    
    $
    9,458
    
    $
    9,114
    
    $
    12,495
    
    $
    13,210
    
    $
    12,202
    
    $
    12,303
    
    $
    15,140
    
    $
    16,324
    
    $
    17,649Cumulative
      paid as of:One
      year later
    
    1,115
    
    
    1,964
    
    
    1,949
    
    
    2,176
    
    
    2,867
    
    
    4,811
    
    
    4,758
    
    
    4,798
    
    
    4,947
    
    
    4,252
    
    
    -Two
      years later
    
    1,804
    
    
    3,130
    
    
    3,189
    
    
    3,241
    
    
    5,803
    
    
    7,782
    
    
    8,035
    
    
    8,350
    
    
    8,294
    
    
    -
    
    
    -Three
      years later
    
    2,341
    
    
    3,933
    
    
    3,881
    
    
    4,863
    
    
    7,263
    
    
    9,962
    
    
    10,577
    
    
    10,888
    
    
    -
    
    
    -
    
    
    -Four
      years later
    
    2,708
    
    
    4,464
    
    
    5,294
    
    
    5,648
    
    
    8,648
    
    
    11,701
    
    
    12,362
    
    
    -
    
    
    -
    
    
    -
    
    
    -Five
      years later
    
    2,988
    
    
    5,686
    
    
    5,919
    
    
    6,245
    
    
    9,537
    
    
    12,900
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Six
      years later
    
    3,318
    
    
    6,151
    
    
    6,350
    
    
    6,696
    
    
    10,246
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Seven
      years later
    
    3,540
    
    
    6,488
    
    
    6,642
    
    
    7,104
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Eight
      years later
    
    3,771
    
    
    6,741
    
    
    6,919
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Nine
      years later
    
    3,948
    
    
    6,961
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Ten
      years later
    
    4,139
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Net
      liability re-estimated as of:One
      year later
    $
    5,173
    
    $
    9,192
    
    $
    9,229
    
    $
    9,179
    
    $
    12,410
    
    $
    13,749
    
    $
    13,314
    
    $
    16,341
    
    $
    16,543
    
    $
    18,145
    
    $
    -Two
      years later
    
    5,313
    
    
    8,959
    
    
    9,127
    
    
    8,655
    
    
    12,115
    
    
    14,504
    
    
    16,798
    
    
    17,438
    
    
    18,556
    
    
    -
    
    
    -Three
      years later
    
    5,256
    
    
    8,907
    
    
    8,549
    
    
    8,543
    
    
    11,987
    
    
    17,001
    
    
    17,710
    
    
    19,172
    
    
    -
    
    
    -
    
    
    -Four
      years later
    
    5,155
    
    
    8,392
    
    
    8,252
    
    
    8,601
    
    
    13,708
    
    
    17,471
    
    
    18,933
    
    
    -
    
    
    -
    
    
    -
    
    
    -Five
      years later
    
    4,902
    
    
    8,029
    
    
    8,389
    
    
    9,231
    
    
    14,122
    
    
    18,294
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Six
      years later
    
    4,804
    
    
    8,180
    
    
    8,707
    
    
    9,474
    
    
    14,765
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Seven
      years later
    
    4,854
    
    
    8,454
    
    
    8,873
    
    
    9,768
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Eight
      years later
    
    5,159
    
    
    8,620
    
    
    9,107
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Nine
      years later
    
    5,260
    
    
    8,806
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Ten
      years later
    
    5,405
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Cumulative
      favorable (adverse)development
    
    (334
    )
    
    545
    
    
    351
    
    
    (654
    )
    
    (2,270
    )
    
    (5,084
    )
    
    (6,731
    )
    
    (6,869
    )
    
    (3,416
    )
    
    (1,821
    )
    
    -Effect
      of currency exchange(a)
    
    24
    
    
    (418
    )
    
    (356
    )
    
    (59
    )
    
    (161
    )
    
    177
    
    
    1,225
    
    
    1,156
    
    
    789
    
    
    372
    
    
    -Cumulative
      favorable (adverse)development,
      excludingcurrency
      exchange
    $
    (310
    )
    $
    127
    
    $
    (5
    )
    $
    (713
    )
    $
    (2,431
    )
    $
    (4,907
    )
    $
    (5,506
    )
    $
    (5,713
    )
    $
    (2,627
    )
    $
    (1,449
    )
    $
    -(a)
    The
      results of our global operations translated from functional currencies
      into U.S. dollars are included with our underwriting operations in this
      table. The effects of currency translation on the cumulative redundancy
      (deficiency) arises from the difference between reserve developments
      translated at the exchange rates at the end of the year in which the
      liabilities were originally estimated and the exchange rates at the end of
      the year in which the liabilities were re-estimated.
  (7)
  **Gross
development and effects of reinsurance**
 *(In
      millions)*
    
    
    
    
    **1995**
    
    
    **1996**
    
    
    **1997**
    
    
    **1998**
    
    
    **1999**
    
    
    **2000**
    
    
    **2001**
    
    
    **2002**
    
    
    **2003**
    
    
    **2004**Balance
      at December 31 - gross
    
    
    
    $
    11,145
    
    $
    10,869
    
    $
    10,936
    
    $
    15,342
    
    $
    17,435
    
    $
    16,932
    
    $
    20,882
    
    $
    23,839
    
    $
    24,226
    
    $
    23,884Less
      reinsurance recoverables
    
    
    
    
    (1,794
    )
    
    (1,411
    )
    
    (1,822
    )
    
    (2,847
    )
    
    (4,225
    )
    
    (4,730
    )
    
    (8,579
    )
    
    (8,699
    )
    
    (7,902
    )
    
    (6,235
    )Balance
      at December 31 - net
    
    
    
    
    9,351
    
    
    9,458
    
    
    9,114
    
    
    12,495
    
    
    13,210
    
    
    12,202
    
    
    12,303
    
    
    15,140
    
    
    16,324
    
    
    17,649Latest
      re-estimated liability -
      gross
    
    
    
    
    10,610
    
    
    11,036
    
    
    11,946
    
    
    18,865
    
    
    25,354
    
    
    26,726
    
    
    31,241
    
    
    29,310
    
    
    27,486
    
    
    -Less
      re-estimated reinsurancerecoverables
    
    
    
    
    (1,804
    )
    
    (1,929
    )
    
    (2,178
    )
    
    (4,100
    )
    
    (7,060
    )
    
    (7,793
    )
    
    (12,069
    )
    
    (10,754
    )
    
    (9,341
    )
    
    -Latest
      re-estimated liability - net
    
    
    
    
    8,806
    
    
    9,107
    
    
    9,768
    
    
    14,765
    
    
    18,294
    
    
    18,933
    
    
    19,172
    
    
    18,556
    
    
    18,145
    
    
    -Gross
      cumulative development
    
    
    
    
    535
    
    
    (167
    )
    
    (1,010
    )
    
    (3,523
    )
    
    (7,919
    )
    
    (9,794
    )
    
    (10,359
    )
    
    (5,471
    )
    
    (3,260
    )
    
    -Effect
      of currency exchange(a)
    
    
    
    
    (513
    )
    
    (420
    )
    
    (57
    )
    
    (238
    )
    
    244
    
    
    1,774
    
    
    2,218
    
    
    1,638
    
    
    641
    
    
    -Gross
      cumulative development,excluding
      currency exchange
    
    
    
    $
    22
    
    $
    (587
    )
    $
    (1,067
    )
    $
    (3,761
    )
    $
    (7,675
    )
    $
    (8,020
    )
    $
    (8,141
    )
    $
    (3,833
    )
    $
    (2,619
    )
    $
    -(a)
    The
      results of our global operations translated from functional currencies
      into U.S. dollars are included with our underwriting operations in this
      table. The effects of currency translation on the cumulative redundancy
      (deficiency) arises from the difference between reserve developments
      translated at the exchange rates at the end of the year in which the
      liabilities were originally estimated and the exchange rates at the end of
      the year in which the liabilities were re-estimated.
 The
development - either favorable or adverse - reflected in the preceding table
reflects only the subsequent revisions to ultimate losses and related settlement
costs and does not include the effect of offsetting premium adjustments that
occur in certain situations. Two of the more significant premium adjustments
arise when: (1) recorded loss development relates only to adjustments to prior
year premium accrual estimates and (2) we have commuted ceded reinsurance
arrangements, increasing our retained share of both losses and premiums. For
example, the $1.4 billion of adverse development related to the 2003 recorded
reserve levels included offsetting premium adjustments of approximately $0.3
billion - with the net pre-tax effect on reported operating results amounting to
$1.1 billion.
  For
additional information on adjustments to prior-year loss reserves, our insurance
liabilities and reserves and related accounting policies, see pages 18 and 31
and note 12.
  **Regulations
and Competition**
  Our
activities are subject to a variety of U.S. federal and state regulations
including, at the federal level, the Consumer Credit Protection Act, the Equal
Credit Opportunity Act and certain regulations issued by the Federal Trade
Commission. A majority of states have ceilings on rates chargeable to customers
on retail time sales transactions, installment loans and revolving credit
financing. Our insurance operations are regulated by various state insurance
commissions and non-U.S. regulatory authorities. We are a unitary diversified
savings and loan holding company by virtue of owning a federal savings bank in
the U.S.; as such, we are subject to holding company supervision by the Office
of Thrift Supervision, which is also our consolidated supervisor under the EU
Financial Conglomerates Directive. Our global operations are subject to
regulation in their respective jurisdictions. To date, compliance with such
regulations has not had a material adverse effect on our financial position or
results of operations.
  The
businesses in which we engage are highly competitive. We are subject to
competition from various types of financial institutions, including banks,
thrifts, investment banks, broker-dealers, credit unions, leasing companies,
consumer loan companies, independent finance companies, finance companies
associated with manufacturers and insurance and reinsurance
companies.
   (8)
  **Business
and Economic Conditions**
  Our
businesses are generally affected by general business and economic conditions in
countries in which we conduct business. When overall economic conditions
deteriorate in those countries, there generally are adverse effects on our
operations, although those effects are dynamic and complex. For example, a
downturn in employment or economic growth in a particular national or regional
economy will generally increase the pressure on customers, which generally will
result in deterioration of repayment patterns and a reduction in the value of
collateral. However, in such a downturn, demand for loans and other products and
services we offer may actually increase. Interest rates, another macro-economic
factor, are important to our businesses. In the lending and leasing businesses,
higher real interest rates increase our cost to borrow funds, but also provide
higher levels of return on new investments. For our operations, such as the
insurance operations, that are linked less directly to interest rates, rate
changes generally affect returns on investment portfolios.
  **Forward-looking
Statements**
  This
document contains “forward-looking statements” - that is, statements related to
future, not past, events. In this context, forward-looking statements often
address our expected future business and financial performance, and often
contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”
“seeks,” or “will.” Forward-looking statements by their nature address matters
that are, to different degrees, uncertain. For us, particular uncertainties
arise from the behavior of financial markets, including fluctuations in interest
rates and commodity prices, from future integration of acquired businesses, from
future financial performance of major industries which we serve, including,
without limitation, the air and rail transportation, energy generation and
healthcare industries, from unanticipated loss development in our insurance
businesses, and from numerous other matters of national, regional and global
scale, including those of a political, economic, business, competitive or
regulatory nature. These uncertainties may cause our actual future results to be
materially different than those expressed in our forward-looking statements. We
do not undertake to update our forward-looking statements.
  **Item
2. Properties.**
  We
conduct our business from various facilities, most of which are leased. The
locations of our primary facilities are described in Item 1.
Business.
  **Item
3. Legal Proceedings.**
  We
are not involved in any material pending legal proceedings.
   **Item
4. Submission of Matters to a Vote of Security Holders.**
  Not
required by this form.
  **PART
II**
   **Item
5. Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.**
  See
note 16 to the consolidated financial statements. Our common stock is owned
entirely by GE and an affiliate and, therefore, there is no trading market in
such stock.
   (9)
  **Item
6. Selected Financial Data.**
  The
following selected financial data should be read in conjunction with our
financial statements and the related Notes to Consolidated Financial
Statements.
  **Year
      ended December 31***(In
      millions)*
    **2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000**Revenues
    $
    70,776
    
    $
    64,279
    
    $
    58,699
    
    $
    58,856
    
    $
    66,709Earnings
      before accounting changes
    
    8,161
    
    
    7,754
    
    
    4,626
    
    
    5,586
    
    
    5,192Cumulative
      effect of accounting changes
    
    -
    
    
    (339
    )
    
    (1,015
    )
    
    (169
    )
    
    -Net
      earnings
    
    8,161
    
    
    7,415
    
    
    3,611
    
    
    5,417
    
    
    5,192Return
      on average shareowner’s equity
    
    16.83
    %
    
    18.74
    %
    
    14.91
    %
    
    22.47
    %
    
    24.15
    %GECS
      ratio of earnings to fixed charges
    
    1.85
    
    
    1.84
    
    
    1.35
    
    
    1.62
    
    
    1.61GECC
      ratio of debt to equity
    
    6.61:1
    
    
    6.74:1
    
    
    6.58:1
    
    
    7.31:1
    
    
    7.53:1Financing
      receivables - net
    $
    282,467
    
    $
    247,906
    
    $
    198,060
    
    $
    172,346
    
    $
    141,631Total
      assets
    
    618,327
    
    
    554,688
    
    
    489,828
    
    
    425,484
    
    
    370,636Borrowings
    
    361,342
    
    
    320,318
    
    
    270,962
    
    
    239,935
    
    
    205,371Minority
      interest
    
    8,682
    
    
    5,115
    
    
    4,445
    
    
    4,267
    
    
    3,968Shareowner’s
      equity
    
    53,755
    
    
    45,308
    
    
    36,929
    
    
    28,590
    
    
    23,022Insurance
      premiums written
    
    15,250
    
    
    18,602
    
    
    16,999
    
    
    15,843
    
    
    16,461
  **Item
7. Management’s Discussion and Analysis of Results of Operations and Financial
Condition.**
  **Operations**
  We
present Management’s Discussion of Operations in four parts: Overview of Our
Earnings from 2002 through 2004, Global Risk Management, Segment Operations and
Global Operations.
  In
the accompanying analysis of financial information, we sometimes use information
derived from consolidated financial information but not presented in our
financial statements prepared in accordance with U.S. generally accepted
accounting principles (GAAP). Certain of these data are considered “non-GAAP
financial measures” under the SEC rules; those rules require the supplemental
explanations and reconciliations provided on page 32.
  **2004
was a year of portfolio transition** . As described in our report last year, we simplified our organization on January
1, 2004, by realigning certain businesses within our segment structure. Certain
prior-period amounts in this financial section have been reclassified to reflect
this reorganization.
  In
May 2004, we completed an initial public offering of Genworth Financial, Inc.
(Genworth), our formerly wholly-owned subsidiary that conducts most of our
consumer insurance business, including life and mortgage insurance operations.
We sold approximately 30% of the common shares of Genworth to the public, and we
expect (subject to market conditions) to reduce our ownership over the next two
years as Genworth transitions to full independence. This transaction resulted in
a second quarter pre-tax loss of $0.6 billion ($0.3 billion after tax),
recognized in the Insurance segment.
   (10)
  In
December 2004, we sold a majority interest in Gecis, our global business
processing operation, to two leading private investment firms. We received cash
proceeds of $0.5 billion and retained a 40% investment in Gecis. This
transaction resulted in a fourth quarter pre-tax gain of $0.4 billion ($0.3
billion after tax), recognized in the Equipment & Other Services segment.
  **Overview
of Our Earnings from 2002 through 2004**
  The
global economic environment must be considered when evaluating our results over
the last several years. Important factors for us included slow global economic
growth, a weakening U.S. dollar, lower global interest rates, a mild U.S.
recession that did not cause significantly higher credit losses and developments
in two industries - property and casualty insurance and commercial aviation - that are significant
to us. As the following pages show in detail, our diversification and risk
management strategies enabled us to continue to grow during this challenging
time. Our results were affected by a combination of factors, both positive and
negative, as follows:
  •
    Insurance
      (37% and 13% of total three-year revenues and earnings before accounting
      changes, respectively) was much like most of the property and casualty
      reinsurance industry, facing volatility throughout the period. In 2002, we
      recognized losses on our 1997-2001 business, increasing related reserves
      by $3.5 billion before tax. In 2003, our turnaround efforts started to pay
      off and we realized benefits from improved operations as earnings
      increased by $2.3 billion to a profit of $0.5 billion at GE Insurance
      Solutions. In 2004, improved core performance at GE Insurance Solutions
      reflecting the favorable pricing environment was more than offset by U.S.
      hurricane-related losses and continued adverse loss development,
      essentially all related to the 1997 through 2001 underwriting
      years.
 
 •
    Commercial
      and Consumer Finance (in total, 53% and 88% of total three-year revenues
      and earnings before accounting changes, respectively) are large,
      profitable growth businesses in which we continue to invest with
      confidence. In a challenging economic environment, these businesses grew
      earnings by $0.9 billion and $1.0 billion in 2004 and 2003, respectively.
      Solid core growth, disciplined risk management and successful acquisitions
      have delivered these strong results.
 
 •
    Equipment
      & Other Services (10% and negative 1% of total three-year revenues and
      earnings before accounting changes, respectively) is particularly
      sensitive to economic conditions and consequently was affected adversely
      by the U.S. recession in 2002 and by slow global growth in developed
      countries. Higher capacity, in combination with declining or weak volume
      growth in many of these industries serviced by this business, resulted in
      fierce competitive price pressures.
 
 Acquisitions
and dispositions played an important role in our growth strategy. We integrate
acquisitions as quickly as possible and only revenues and earnings from the date
we complete the acquisition through the end of the fourth following quarter are
attributed to such businesses. Acquisitions contributed $3.4 billion, $2.3
billion and $3.7 billion to consolidated revenues in 2004, 2003 and 2002,
respectively. Our consolidated net earnings in 2004, 2003 and 2002 included
approximately $0.5 billion, $0.3 billion and $0.4 billion, respectively, from
acquired businesses. Dispositions affected our operations through lower revenues
and earnings in 2004 of $2.9 billion and $1.1 billion, respectively, and in 2003
through lower revenues of $1.8 billion and higher earnings of $0.3
billion.
  Significant
matters relating to our Statement of Earnings, which appears on page 36, are
explained below.
  **Interest
on borrowings** amounted
to $11.4 billion, $10.3 billion and $9.9 billion in 2004, 2003 and 2002,
respectively. Changes over the three-year period reflected increased average
borrowings, partially offset by the
   (11)
  effects
of lower interest rates. Average borrowings were $322.6 billion, $309.0 billion
and $250.1 billion in 2004, 2003 and 2002, respectively. Our average composite
effective interest rate was 3.6% in 2004, compared with 3.3% in 2003 and 4.1% in
2002. Proceeds of these borrowings were used in part to finance asset growth and
acquisitions. In 2004, average assets of $577.3 billion were 11% higher than in
2003, which in turn were 15% higher than in 2002. See page 23 for a discussion
of interest rate risk management.
  **Income
taxes** are
a significant cost. As a global commercial enterprise, our tax rates are
strongly affected by many factors, including our global mix of earnings,
legislation, acquisitions, dispositions and tax characteristics of our income.
Our tax returns are routinely audited and settlements of issues raised in these
audits sometimes affect our tax provisions. Because of the number of variables
affecting our reported tax results, we have prepared this section to facilitate
an understanding of our income tax rates.
  Income
taxes **** on
earnings before accounting changes increased to 15.9% in 2004, from 15.8% in
2003 and negative 1.7% in 2002. The 2004 rate reflects the net benefits,
discussed below, of legislation and a partial reorganization of our aircraft
leasing operation, which decreased the effective tax rate 1.6 percentage points
and is included in the line “Tax on global activities including exports” in note
13; tax benefits from favorable U.S. Internal Revenue Service (IRS) settlements,
which decreased the effective tax rate 1.2 percentage points and are included in
the line “All other - net” in note 13; and the low-taxed disposition of a
majority interest in Gecis which decreased the effective tax rate 0.9 percentage
points, and is included in the line “Tax
on global activities including exports” in note 13 .
Offsetting these benefits was the nonrecurrence of the 2003 tax benefit on the
disposition of shares of ERC Life.
  As
a result of the repeal of the extraterritorial income (ETI) taxing regime as
part of the American Jobs Creation Act of 2004 (the Act), the aircraft leasing
operations of Commercial Finance no longer qualify for a reduced U.S. tax rate.
However, the Act also extended to foreign aircraft leasing, the U.S. tax
deferral benefits that were already available to GE’s other active foreign
operations. As stated above, these legislative changes, coupled with a partial
reorganization of our aircraft leasing business and a favorable Irish tax
ruling, decreased our effective tax rate 1.6 percentage points.
  The
increase in the effective tax rate from 2002 to 2003 reflects the nonrecurrence
of the 2002 losses at GE Insurance Solutions and GE Equity as well as certain
2002 IRS settlements discussed below, partially offset by a 2.7 percentage point
decrease because of the 2003 tax benefit on the disposition of shares of ERC
Life.
  The
2002 effective tax rate reflects the effects of pre-tax losses at GE Insurance
Solutions and GE Equity, which reduced our effective tax rate by 16.7 percentage
points, the effects of lower taxed earnings from global operations and favorable
tax settlements with the IRS. The benefits of these settlements, which reduced
our rate 4.0 percentage points (excluding the GE Insurance Solutions and GE
Equity losses), are included in the line “All other - net” in note
13.
  **Global
Risk Management**
  A
disciplined approach to risks is important in a diversified organization such as
ours in order to ensure that we are executing according to our strategic
objectives and that we only accept risks for which we are adequately
compensated. It is necessary for us to manage risk at the individual transaction
level, and to consider aggregate risk at the customer, industry, geography and
collateral-type levels, where appropriate.
   (12)
  Our
Board of Directors oversees the risk management process, including the approval
of all significant acquisitions and dispositions and the establishment of
borrowing and investment approval limits delegated to the Investment Committee
of the Board, the Chairman, the Chief Financial Officer and the Chief Risk
Officer. All participants in the risk management process must comply with these
approval limits.
  The
Chief Risk Officer is responsible, through the Corporate Risk Function, for
establishing standards for the measurement, reporting and limiting of risk; for
managing and evaluating risk managers; for approving risk management policies
and for reviewing major risk exposures and concentrations across the
organization. Our Corporate Risk Function analyzes certain business risks and
assesses them in relation to aggregate risk appetite and approval limits set by
our Board of Directors.
  Threshold
responsibility for identifying, quantifying and mitigating risks is assigned to
our individual businesses. Because the risks and their interdependencies are
complex, we apply a Six Sigma-based analytical approach to each major product
line that monitors performance against external benchmarks, proactively manages
changing circumstances, provides early warning detection of risk and facilitates
communication to all levels of authority. Other corporate functions such as
Financial Planning and Analysis, Treasury, Legal and our Corporate Audit Staff
support business-level risk management. Businesses that, for example, hedge risk
with derivative financial instruments must do so using our centrally-managed
Treasury function, providing assurance that the business strategy complies with
our corporate policies and achieves economies of scale. We review risks
periodically with business-level risk managers, senior management and our Board
of Directors.
  We
employ about 10,000 dedicated risk professionals, including 2,700 involved in
collection activities and 1,400 specialized asset managers who evaluate leased
asset residuals and remarket off-lease equipment.
  We
manage a variety of risks including liquidity, credit, market and event risks.
  •
    Liquidity
      risk is the risk of being unable to accommodate liability maturities, fund
      asset growth and meet contractual obligations through access to funding at
      reasonable market rates. Additional information about our liquidity and
      how we manage this risk can be found on page 20 and in notes 11 and
      19.
 
 •
    Credit
      risk is the risk of financial loss arising from a customer or
      counterparty’s failure to meet its contractual obligations. We face credit
      risk in our lending and leasing activities (see pages 20 and 30 and notes
      1, 5, 6 and 21) and derivative financial instruments activities (see note
      19).
 
 •
    Market
      risk is the potential loss in value of investment and other asset and
      liability portfolios, including financial instruments, caused by changes
      in market variables, such as interest and currency exchange rates and
      equity and commodity prices. We are exposed to market risk in the normal
      course of our business operations as a result of our ongoing investing and
      funding activities. We attempt to mitigate the risks to our various
      portfolios arising from changes in interest and currency exchange rates in
      a variety of ways that often include offsetting positions in local
      currencies or use of derivatives. Additional information about how we
      mitigate the risks to our various portfolios from changes in interest and
      currency exchange rates can be found on page 23 and in note 19.
  •
    Event
      risk is that body of risk beyond liquidity, credit and market risk. Event
      risk includes the possibility of adverse occurrences both within and
      beyond our control. Examples of event risk include natural disasters,
      availability of necessary materials, guarantees of product performance and
      business interruption. This type of risk is often insurable, and success
      in managing this risk is ultimately determined by the balance between
   (13)
  the
level of risk retained or assumed and the cost of transferring the risk to
others. The decision as to the appropriate level of event risk to retain or cede
is evaluated in the framework of business decisions. Additional information
about how we mitigate event risk can be found in note 21.
  **Segment
Operations**
  Revenues
and segment net earnings for operating segments **** are
shown below. Effective January 1, 2004, we made changes to the way we report our
segments. We have reclassified certain prior-period amounts to conform to the
current period’s presentation. For additional information, including a
description of the products and services included in each segment, see page
3.
  Segment
net earnings is determined based on internal performance measures used by the
Chairman to assess the performance of each business in a given period. In
connection with that assessment, the Chairman may exclude matters such as
charges for restructuring; rationalization and other similar expenses; certain
acquisition-related charges; certain gains and losses from dispositions; and
litigation settlements or other charges, responsibility for which precedes the
current management team.
  **Consolidated**
  *For
      the years ended December 31 (In millions)*
    **2004**
    
    **2003**
    
    **2002****Revenues**Commercial
      Finance
    $
    23,489
    
    $
    20,813
    
    $
    19,592Consumer
      Finance
    
    15,734
    
    
    12,845
    
    
    10,266Equipment
      & Other Services
    
    8,483
    
    
    4,427
    
    
    5,545Insurance
    
    23,070
    
    
    26,194
    
    
    23,296Total
      revenues
    $
    70,776
    
    $
    64,279
    
    $
    58,699**Net
      earnings**Commercial
      Finance
    $
    4,465
    
    $
    3,910
    
    $
    3,310Consumer
      Finance
    
    2,520
    
    
    2,161
    
    
    1,799Equipment
      & Other Services
    
    607
    
    
    (419
    )
    
    (388
    )Insurance
    
    569
    
    
    2,102
    
    
    (95
    )Total
      earnings before accounting changes
    
    8,161
    
    
    7,754
    
    
    4,626Cumulative
      effect of accounting changes
    
    -
    
    
    (339
    )
    
    (1,015
    )Total
      net earnings
    $
    8,161
    
    $
    7,415
    
    $
    3,611
 
  **Commercial
Finance**
  *(In
      millions)*
    **2004**
    
    **2003**
    
    **2002****Revenues**
    $
    23,489
    
    $
    20,813
    
    $
    19,592**Net
      revenues**Total
      revenues
    $
    23,489
    
    $
    20,813
    
    $
    19,592Interest
      expense
    
    6,083
    
    
    5,789
    
    
    5,979Total
      net revenues
    $
    17,406
    
    $
    15,024
    
    $
    13,613**Net
      earnings**
    $
    4,465
    
    $
    3,910
    
    $
    3,310
  (14)
  
 **At***December
      31**(In
      millions)*
    **2004**
    
    **2003****Total
      assets**
    $
    232,123
    
    $
    214,125*(In
      millions)*
    **2004**
    
    **2003**
    
    **2002**Real
      Estate(a)Revenues
    $
    2,519
    
    $
    2,386
    
    $
    2,124Net
      Earnings
    $
    957
    
    $
    834
    
    $
    650Aviation
      Services(a)Revenues
    $
    3,159
    
    $
    2,881
    
    $
    2,694Net
      Earnings
    $
    520
    
    $
    506
    
    $
    454**At***December
      31**(In
      millions)*
    **2004**
    
    **2003**Real
      Estate(a)Total
      assets
    $
    33,497
    
    $
    27,767Aviation
      Services(a)Total
      assets
    $
    37,384
    
    $
    33,271(a)
    We
      provide additional information on two of our segment product lines, Real
      Estate (commercial real estate financing) and Aviation Services
      (commercial aircraft financing). Each of these product lines finances a
      single form of collateral, and each has understandable concentrations of
      risk and opportunities.
 Commercial
Finance revenues and net earnings increased 13% and 14%, respectively, compared
with 2003. The increase in revenues resulted primarily from acquisitions ($2.3
billion), the effects of the weaker U.S. dollar ($0.6 billion) and core growth
($0.1 billion), partially offset by lower securitization activity ($0.2 billion)
and lower investment gains ($0.1 billion). The increase in net earnings resulted
primarily from acquisitions ($0.4 billion), core growth ($0.3 billion) and the
effects of the weaker U.S. dollar ($0.1 billion), partially offset by lower
securitization activity ($0.1 billion).
  The
most significant acquisitions affecting Commercial Finance results in 2004 were
the U.S. leasing business of IKON Office Solutions, acquired during the second
quarter of 2004; the commercial lending business of Transamerica Finance
Corporation, and Sophia S.A., a real estate company in France, both acquired
during the first quarter of 2004; and the assets of CitiCapital Fleet Services,
acquired during the fourth quarter of 2003. These acquisitions contributed $1.9
billion and $0.3 billion to 2004 revenues and net earnings,
respectively.
  The
2003 increase in revenues of 6% resulted primarily from acquisitions across
substantially all businesses ($1.1 billion), higher investment gains at Real
Estate ($0.1 billion) and core growth, partially offset by lower securitization
activity ($0.1 billion). The 2003 increase in net earnings of 18% resulted
primarily from core growth, acquisitions across substantially all businesses
($0.2 billion), higher investment gains at Real Estate as a result of the sale
of properties and our investments in Regency Centers and Prologis ($0.1
billion), lower credit losses ($0.1 billion) resulting from continued
improvement in overall portfolio credit quality as reflected by lower
delinquencies and nonearning receivables, and growth in lower taxed earnings
from global operations ($0.1 billion).
   (15)
  The
most significant acquisitions affecting Commercial Finance 2003 results were the
commercial inventory financing business of Deutsche Financial Services and the
structured finance business of ABB, both of which were acquired during the
fourth quarter of 2002. These two acquisitions contributed $0.5 billion and $0.1
billion to 2003 revenues and net earnings, respectively.
  **Consumer
Finance**
  *(In
      millions)*
    **2004**
    
    **2003**
    
    **2002****Revenues**
    $
    15,734
    
    $
    12,845
    
    $
    10,266**Net
      revenues**Total
      revenues
    $
    15,734
    
    $
    12,845
    
    $
    10,266Interest
      expense
    
    3,564
    
    
    2,696
    
    
    2,143Total
      net revenues
    $
    12,170
    
    $
    10,149
    
    $
    8,123**Net
      earnings**
    $
    2,520
    
    $
    2,161
    
    $
    1,799**At***December
      31**(In
      millions)*
    **2004**
    
    **2003****Total
      assets**
    $
    151,255
    
    $
    106,530
 
  Consumer
Finance revenues and net earnings increased 22% and 17%, respectively, from
2003. The increase in revenues resulted primarily from core growth ($1.8
billion), as a result of continued global expansion, acquisitions ($1.0
billion), the effects of the weaker U.S. dollar ($0.8 billion) and higher
securitization activity ($0.1 billion), partially offset by the absence of The
Home Depot private-label credit card receivables that were sold for a gain in
2003 ($0.9 billion). The increase in net earnings resulted from core growth,
including growth in lower taxed earnings from global operations ($0.6 billion),
acquisitions ($0.1 billion), and the effects of the weaker U.S. dollar ($0.1
billion), partially offset by the effects of The Home Depot private-label credit
card receivables ($0.4 billion) and increased costs to launch new products and
promote brand awareness in 2004 ($0.1 billion).
  The
most significant acquisitions affecting Consumer Finance results in 2004 were
WMC, a U.S. wholesale mortgage lender, acquired during the second quarter of
2004; GC Corporation (GC Card), which provides credit card and sales finance
products in Japan, acquired during the third quarter of 2003; and First National
Bank, which provides mortgage and sales finance products in the United Kingdom,
and the U.S. retail sales finance unit of Conseco Finance Corp. (Conseco), both
acquired during the second quarter of 2003. These acquisitions contributed $0.7
billion and $0.1 billion to 2004 revenues and net earnings,
respectively.
  In
December 2004, we acquired AFIG, a residential mortgage lender in Australia,
with $13.2 billion in assets and an insignificant effect on 2004 revenues and
earnings. We expect this acquisition to be accretive to earnings in
2005.
  Revenues
increased 25% in 2003 as a result of acquisitions ($1.1 billion), the effects of
the weaker U.S. dollar ($0.7 billion), core growth as a result of continued
global expansion and the premium on the sale of The Home Depot private-label
credit card receivables ($0.1 billion). Net earnings increased 20% in 2003 as a
result of core growth, growth in lower taxed earnings from global operations,
the premium on the sale of The Home Depot
   (16)
  private-label
credit card receivables ($0.1 billion) and acquisitions. These increases were
partially offset by lower securitization activity ($0.2 billion) and lower
earnings in Japan, principally as a result of increased personal
bankruptcies.
  The
most significant acquisitions affecting Consumer Finance 2003 results were First
National Bank and Conseco, both of which were acquired during the second quarter
of 2003. These acquisitions contributed $0.7 billion and $0.1 billion to 2003
revenues and net earnings, respectively.
  **Equipment
& Other Services**
  *(In
      millions)***
    **2004**
    
    **2003**
    
    **2002****Revenues**
    $
    8,483
    
    $
    4,427
    
    $
    5,545**Net
      earnings**
    $
    607
    
    $
    (419
    )
    $
    (388
    )
 
  Equipment
& Other Services revenues and net earnings increased $4.1 billion and $1.0
billion, respectively, from 2003. Adoption of a January 1, 2004, required
accounting change caused revenues to increase $3.2 billion, as a result of
consolidating operating lease rentals ($2.6 billion) and other income ($0.6
billion). See note 1. The most significant entity consolidated as a result of
this change was Penske Truck Leasing Co., L.P. (Penske), which was previously
accounted for using the equity method. Revenue also increased reflecting the
sale of a majority interest in Gecis ($0.4 billion), improved investment returns
at GE Equity ($0.4 billion), the results of consolidated, liquidating
securitization entities ($0.3 billion) and the effects of the weaker U.S. dollar
($0.1 billion). These increases were partially offset by the absence of the U.S.
Auto and Home business that was disposed of in 2003 ($0.4 billion). Contributing
to the increase in net earnings were improved investment returns at GE Equity
($0.3 billion), the gain on sale of a majority interest in Gecis ($0.3 billion),
improved operating performance at Equipment Services ($0.2 billion), and the
results of consolidated, liquidating securitization entities ($0.1
billion).
  Equipment
& Other Services revenues and net earnings in 2003 decreased 20% and 8%,
respectively, compared with 2002. More specifically, revenues decreased as a
result of the following:
  •
    The
      exit of certain European operations at IT Solutions ($1.3 billion) in
      response to intense competition and transition of the computer equipment
      market to a direct distribution model,
 
 •
    Continued
      poor market conditions and ongoing dispositions and run-offs of IT
      Solutions and the Auto Financial Services business ($0.3 billion),
      and
 
 •
    Lower
      asset utilization and price ($0.2 billion), an effect of industry-wide
      excess equipment capacity reflective of the then current conditions in the
      road and rail transportation sector.
 
 These
decreases were partially offset by the overall improvement in equity markets and
lower level of investment losses in 2003 at GE Equity ($0.2 billion) and the
consolidation of certain securitization entities in our financial statements
($0.7 billion) as a result of our July 1, 2003, required accounting change. See
notes 1 and 20. The decrease in net earnings resulted primarily from lower asset
utilization and price ($0.1 billion) and the absence of a 2002 tax settlement
related to Kidder Peabody ($0.2 billion), offset by improved performance in 2003
at GE Equity ($0.2 billion) and the tax benefit related to the sale of ERC Life
($0.1 billion).
   (17)
  **Insurance**
  *(In
      millions)*
    **2004**
    
    **2003**
    
    **2002****Revenues**
    $
    23,070
    
    $
    26,194
    
    $
    23,296**Net
      earnings**
    $
    569
    
    $
    2,102
    
    $
    (95
    )GE
      Insurance Solutions(a)Revenues
    $
    10,005
    
    $
    11,600
    
    $
    9,432Net
      Earnings
    $
    36
    
    $
    481
    
    $
    (1,794
    )(a)
    Formerly
      GE Global Insurance Holding Corporation, the parent of Employers
      Reinsurance Corporation (ERC).
 
  Insurance
revenues and net earnings decreased 12% and 73%, respectively, from 2003. The
decrease in revenues resulted primarily from the 2003 dispositions ($2.5
billion), including GE Edison Life Insurance Company (Edison Life), Financial
Guaranty Insurance Company (FGIC) and ERC Life; net declines in volume resulting
from strategic exits of certain business channels, primarily at GE Insurance
Solutions ($1.3 billion) and the effects of the Genworth initial public offering
($0.4 billion). These decreases were partially offset by the effects of the
weaker U.S. dollar ($0.6 billion). Net earnings decreased primarily from the
full-year after-tax earnings effects of the Genworth initial public offering
($0.7 billion), the 2003 dispositions ($0.5 billion) and the 2004 U.S.
hurricane-related losses ($0.3 billion) at GE Insurance Solutions. Also
contributing to the net earnings decrease were reserve actions taken at GE
Insurance Solutions related to continued adverse development on
liability-related exposures underwritten in 1997-2001 (discussed below). These
decreases in net earnings were partially offset by improved core performance at
GE Insurance Solutions reflecting the continued favorable premium pricing
environment.
  Revenues
in 2003 increased $2.9 billion (12%) on increased premium revenues ($2.2
billion), a gain of $0.6 billion on the sale of Edison Life, higher investment
income ($0.4 billion) and the effects of the weaker U.S. dollar ($0.7 billion).
The premium revenue increase reflected continued favorable pricing at GE
Insurance Solutions ($0.5 billion), net volume growth at GE Insurance Solutions
and certain other insurance businesses ($0.8 billion), absence of prior year
loss adjustments ($0.4 billion), adjustment of current year premium accruals to
actual ($0.3 billion) and lower levels of ceded premiums resulting from a
decline in prior-year loss events ($0.1 billion). Partial revenue offsets
resulted from the absence of revenues following the sale of Edison Life ($0.7
billion) and a $0.2 billion loss on the disposition of FGIC at the end of 2003.
  Net
earnings in 2003 increased $2.2 billion, primarily from the substantial
improvement in current operating results at GE Insurance Solutions ($2.3
billion) reflecting improved underwriting, lower adverse development (discussed
below) and generally favorable industry pricing conditions during the year. Net
earnings also benefited from the gain on the sale of Edison Life ($0.3 billion).
These increases were partially offset by the absence of a current year
counterpart to the favorable tax settlement with the IRS in 2002 ($0.2 billion)
and the loss on the sale of FGIC ($0.1 billion after tax).
  As
described on page 31 under the caption “Insurance liabilities and reserves,” we
routinely update our insurance loss provisions to reflect our best estimates of
losses. At year-end 2004, our best estimate of outstanding net property and
casualty claim-related liabilities at GE Insurance Solutions was $17.4 billion.
Few losses in an underwriting year are known exactly at the end of that year; an
insurer cannot know a year’s exact losses before customers have submitted claims
and those claims have been evaluated, adjudicated and settled. This process
   (18)
  routinely
spans years, and sometimes decades. Like much of the property and casualty
insurance industry, GE Insurance Solution’s recent operating results have
absorbed charges from updates to loss estimates associated with policies written
in prior years. This adverse loss development has been most pronounced for
certain liability-related risk policies underwritten from 1997 through 2001,
principally hospital and professional liability, workers compensation, product
liability and asbestos and environmental exposures. Adverse development on
prior-years claims and expenses for the three years ended December 31, 2004,
amounted to $5.5 billion. Business that we subsequently exited accounted for 84%
of the most recent adverse development. Although we do not anticipate further
provisions related to this risk, we observe that the associated losses have not
yet fully matured.
  In
2002, in light of our adverse loss development, we modified our underwriting
processes, rejecting both risks that failed to meet our standards of price,
terms or conditions as well as risks for which sufficient historical data did
not exist to permit us to make a satisfactory pricing evaluation. Consequently,
we curtailed and exited business in particular property and casualty business
channels. Higher underwriting standards have yielded substantial improvement in
operating results in more recent underwriting years, improvement that is most
clearly indicated by our “combined ratio” - the ratio, expressed as a
percentage, of claims-related losses and related underwriting expenses to earned
premiums. In 2004, GE Insurance Solutions’ property and casualty combined ratio
was 120%, that is, $1.20 of costs and losses for each $1.00 of earned premium.
However, as an early indication of the effectiveness of our revised underwriting
standards, the combined ratio for the 2004 underwriting year was 100%, even with
extensive 2004 natural catastrophe losses - breakeven underwriting even before
the contribution of investment income.
  **Global
Operations**
  Our
global activities span all geographic regions and primarily encompass leasing of
aircraft and provision of financial services within these regional economies.
Thus, when countries or regions experience currency and/or economic stress, we
often have increased exposure to certain risks, but also often have new profit
opportunities. Potential increased risks include, among other things, higher
receivable delinquencies and bad debts, delays or cancelations of sales and
orders principally related to aircraft equipment, higher local currency
financing costs and slowdown in our established activities. New profit
opportunities include, among other things, more opportunities for lower cost
outsourcing, expansion of our activities through purchases of companies or
assets at reduced prices and lower U.S. debt financing costs.
  Estimated
results of global activities include the results of our operations located
outside the United States. We classify certain operations that cannot
meaningfully be associated with specific geographic areas as “Other global” for
this purpose.
  Global
revenues were $29.4 billion, $27.8 billion and $24.4 billion in 2004, 2003 and
2002, respectively. Global revenues as a percentage of total revenues were 42%
in 2004, compared with 43% and 42% in 2003 and 2002, respectively. The effects
of exchange rates on reported results were to increase revenues by $2.1 billion
in 2004 and 2003 compared with $0.2 billion in 2002, and increase earnings by
$0.1 billion in 2004 and 2003 and had an inconsequential effect in
2002.
  Revenues
in the Americas increased 47% in 2004, primarily as a result of the acquisition
of the commercial lending business of Transamerica Finance Corporation at
Commercial Finance. Revenues increased 31% in “Other global” as a result of
growth at Commercial Finance and the gain on the sale of a majority interest in
Gecis. Revenues in the Pacific Basin decreased 13% primarily as a result of the
2003 divestiture of Edison Life at
   (19)
  Insurance.
This decrease was partially offset by the effects of the weaker U.S. dollar,
acquisitions, primarily GC Card at Consumer Finance, and core growth at Consumer
Finance and Commercial Finance.
  Global
pre-tax earnings were $6.3 billion in 2004, an increase of 37% over 2003, which
were 69% higher than in 2002. Pre-tax earnings in 2004 rose 39% in Europe,
primarily as a result of core growth and acquisitions at Consumer Finance and
Commercial Finance. Pre-tax earnings rose 91% in “Other global” primarily as a
result of the gain on the sale of a majority interest in Gecis and core growth
at Commercial Finance.
  Our
global assets grew 24% from $232.0 billion at the end of 2003 to $287.7 billion
at the end of 2004. Our assets increased 18% in Europe as a result of the
effects of the weaker U.S. dollar ($13.7 billion), acquisitions ($9.2 billion),
primarily at Commercial Finance and Consumer Finance, and growth at Consumer
Finance. Our assets increased 46% in the Pacific Basin, primarily as a result of
acquisitions at Consumer Finance.
  Financial
results of our global activities reported in U.S. dollars are affected by
currency exchange. We use a number of techniques to manage the effects of
currency exchange, including selective borrowings in local currencies and
selective hedging of significant cross-currency transactions. Such principal
currencies are the British pound sterling, the euro, the Japanese yen and the
Canadian dollar.
  **Financial
Resources and Liquidity**
  This
discussion of financial resources and liquidity addresses the Statement of
Financial Position (page 37), Statement of Changes in Shareowner’s Equity (page
36) and the Statement of Cash Flows (page 38).
  **Overview
of Financial Position**
  Major
changes in our financial position resulted from the following:
  •
    During
      2004, we completed acquisitions of the commercial lending business of
      Transamerica Finance Corporation; Sophia S.A., a real estate company in
      France; the U.S. leasing business of IKON Office Solutions; and Benchmark
      Group PLC, a U.K.-listed real estate property company at Commercial
      Finance. Consumer Finance completed acquisitions of AFIG and WMC. At their
      respective acquisition dates, these transactions resulted in a combined
      increase in total assets of $32.1 billion, of which $23.0 billion was
      financing receivables before allowance for losses, and a combined increase
      in total liabilities of approximately $20.5 billion, of which $18.9
      billion was debt.
 
 •
    Minority
      interest in equity of consolidated affiliates increased $3.6 billion
      during 2004, primarily because of our sale of approximately 30% of the
      common shares of Genworth, our formerly wholly-owned subsidiary that
      conducts most of our consumer insurance business, including life and
      mortgage insurance operations.
 
 •
    We
      adopted Financial Accounting Standards Board (FASB) Interpretation No.
      (FIN) 46R,*Consolidation
      of Variable Interest Entities (Revised),*on January 1, 2004, adding $2.6 billion of assets and $2.1 billion of
      liabilities to our consolidated balance sheet as of that date, primarily
      relating to Penske.
 
 **Statement
of Financial Position (page 37)**
  **Investment
securities** comprise mainly available-for-sale investment-grade debt securities held by
Insurance in support of obligations to annuitants and policyholders, and debt
and equity securities designated as trading and
   (20)
  associated
with certain non-U.S. separate accounts for which contractholders retain the
related risks and rewards, except in the event of our bankruptcy or liquidation.
Investment securities were $135.2 billion at the end of 2004, compared with
$128.9 billion at the end of 2003. The increase of $6.3 billion was primarily
the net result of investing premiums received, reinvesting investment income,
improvements in debt markets and the effects of the weaker U.S.
dollar.
  We
regularly review investment securities for impairment based on criteria that
include the extent to which cost exceeds market value, the duration of that
market decline, our intent and ability to hold to recovery and the financial
health and specific prospects for the issuer. Of available-for-sale securities
with unrealized losses at December 31, 2004, approximately $0.1 billion was at
risk of being charged to earnings in the next 12 months; almost two-thirds of
this amount related to commercial airlines.
  Impairment
losses for 2004 totaled $0.2 billion compared with $0.5 billion in 2003. We
recognized impairments in both periods for issuers in a variety of industries;
we do not believe that any of the impairments indicate likely future impairments
in the remaining portfolio.
  Gross
unrealized gains and losses were $5.3 billion and $0.8 billion, respectively, at
December 31, 2004, compared with $4.6 billion and $1.2 billion, respectively, at
December 31, 2003, primarily reflecting an increase in the estimated fair value
of debt securities as interest rates declined. We estimate that available gains,
net of estimated impairment of insurance intangible assets, could be as much as
$2.2 billion at December 31, 2004. The market values we used in determining
unrealized gains and losses are those defined by relevant accounting standards
and should not be viewed as a forecast of future gains or losses. See note
4.
  At
December 31, 2004, unrealized losses with a duration of 12 months or more
related to investment securities collateralized by commercial aircraft were $0.3
billion. The aggregate amortized cost of these available-for-sale securities was
$1.2 billion. We believe that our securities, which are current on all payment
terms, are in an unrealized loss position because of ongoing negative market
reaction to difficulties in the commercial airline industry. For these
securities, we do not anticipate changes in the timing and amount of estimated
cash flows, and expect full recovery of our amortized cost. Further, should our
cash flow expectation prove to be incorrect, the current aggregate market values
of aircraft collateral, based on information from independent appraisers,
exceeded totals of both the market values and the amortized cost of our
securities at December 31, 2004. See additional discussion of our positions in
the commercial aviation industry on page 29.
  **Financing
receivables** is
our largest category of assets and represents one of our primary sources of
revenues. The portfolio of financing receivables, before allowance for losses,
increased to $288.1 billion at December 31, 2004, from $254.2 billion at the end
of 2003, as discussed in the following paragraphs. The related allowance for
losses at the end of 2004 amounted to $5.6 billion compared with $6.3 billion at
December 31, 2003, representing our best estimate of probable losses inherent in
the portfolio.
  A
discussion of the quality of certain elements of the financing receivables
portfolio follows. For purposes of that discussion, “delinquent” receivables are
those that are 30 days or more past due; “nonearning” receivables are those that
are 90 days or more past due (or for which collection has otherwise become
doubtful); and “reduced-earning” receivables are commercial receivables whose
terms have been restructured to a below-market yield.
  Commercial
Finance financing receivables, before allowance for losses, totaled $145.4
billion at December 31, 2004, compared with $135.7 billion at December 31, 2003,
and consisted of loans and leases to the equipment, commercial and industrial,
real estate and commercial aircraft industries. This portfolio of receivables
increased
   (21)
  primarily
from core growth ($28.0 billion) and acquisitions ($13.5 billion), partially
offset by securitizations and sales ($31.5 billion). Related nonearning and
reduced-earning receivables were $1.6 billion (1.1% of outstanding receivables)
at December 31, 2004, compared with $1.7 billion (1.3% of outstanding
receivables) at year-end 2003. Commercial Finance financing receivables are
generally backed by assets and there is a broad spread of geographic and credit
risk in the portfolio.
  During
2004, Consumer Finance adopted a global policy for uncollectible receivables
that accelerated write-offs to follow one consistent basis. We now write off
unsecured closed-end installment loans that become 120 days contractually past
due and unsecured open-ended revolving loans that become 180 days contractually
past due.
  Consumer
Finance financing receivables, before allowance for losses, were $127.8 billion
at December 31, 2004, compared with $94.7 billion at December 31, 2003, and
consisted primarily of card receivables, installment loans, auto loans and
leases, and residential mortgages. This portfolio of receivables increased as a
result of acquisitions ($15.6 billion), core growth ($13.1 billion) and the
effects of the weaker U.S. dollar ($7.3 billion). These increases were partially
offset by whole loan sales and securitization activity ($2.0 billion) and the
standardization of our write-off policy, which resulted in an increase in
write-offs ($0.9 billion) but had an inconsequential effect on
earnings.
  Nonearning
consumer receivables were $2.5 billion at December 31, 2004 and 2003,
representing 2.0% and 2.6% of outstanding receivables, respectively. The
percentage decrease is primarily related to the standardization of our write-off
policy and the acquisition of AFIG, which obtains credit insurance for certain
receivables, partially offset by higher nonearnings in our European secured
financing business.
  Equipment
& Other Services financing receivables, before allowance for losses,
amounted to $14.9 billion and $23.8 billion at December 31, 2004 and 2003,
respectively, and consisted primarily of financing receivables in consolidated,
liquidating securitization entities. This portfolio of receivables decreased
because we have stopped transferring assets to these entities. Nonearning
receivables at December 31, 2004, were $0.2 billion (1.2% of outstanding
receivables) compared with $0.1 billion (0.6% of outstanding receivables) at
December 31, 2003.
  Delinquency
rates on managed Commercial Finance equipment loans and leases and managed
Consumer Finance financing receivables follow.
  **2004**
    
    
    **2003**
    
    
    **2002**Commercial
      Finance
    1.40
    %
    
    1.38
    %
    
    1.75
    %Consumer
      Finance
    4.85
    
    
    5.62
    
    
    5.62
 
  Delinquency
rates at Commercial Finance increased slightly from December 31, 2003 to
December 31, 2004, reflecting the effect of certain acquired portfolios,
partially offset by improvement in the overall core portfolio. The decline from
December 31, 2002 to December 31, 2003, reflected improved economic conditions
and collection results.
  Delinquency
rates at Consumer Finance decreased from December 31, 2003 to December 31, 2004,
as a result of the standardization of our write-off policy, the acquisition of
AFIG, and the U.S. acquisition of WMC, with lower relative delinquencies as a
result of whole loan sales, partially offset by higher delinquencies in our
European secured financing business. See notes 5 and 6.
   (22)
  **Other
receivables** totaled $14.1 billion at December 31, 2004, and $12.1 billion at December 31,
2003, and consisted primarily of nonfinancing customer receivables, accrued
investment income, amounts due from GE (generally related to certain material
procurement programs), amounts due under operating leases, receivables due on
sale of securities and various sundry items. Balances at December 31, 2004 and
2003, included securitized, managed GE trade receivables of $3.1 billion and
$2.7 billion, respectively.
  **Buildings
and equipment** was $46.6 billion at December 31, 2004, up $7.8 billion from 2003, primarily
reflecting the consolidation of Penske effective January 1, 2004, and
acquisitions of commercial aircraft at Commercial Finance. Details by category
of investment are presented in note 8. Additions to buildings and equipment were
$10.7 billion and $7.6 billion during 2004 and 2003, respectively, primarily
reflecting additions of commercial aircraft and vehicles at Commercial Finance
and of vehicles at Equipment & Other Services.
  **Intangible
assets** increased $3.7 billion to $28.5 billion, reflecting goodwill associated with
acquisitions, goodwill associated with the consolidation of Penske effective
January 1, 2004, and the effects of the weaker U.S. dollar. See note 9.
  **Other
assets** totaled $72.9 billion at year-end 2004, an increase of $9.8 billion. This
increase resulted principally from acquisitions affecting real estate and assets
held for sale, and additional investments in associated companies, partially
offset by the consolidation of Penske, which was previously accounted for using
the equity method. See note 10.
  **Borrowings** were $361.3 billion at December 31, 2004, of which $154.8 billion is due in 2005
and $206.5 billion is due in subsequent years. Comparable amounts at the end of
2003 were $320.3 billion in total, $155.5 billion due within one year and $164.8
billion due thereafter. Included in our total borrowings were borrowings of
consolidated, liquidating securitization entities amounting to $25.8 billion at
December 31, 2004, of which $9.8 billion was asset-backed senior notes of AFIG,
and $24.8 billion at December 31, 2003. A large portion of our borrowings ($97.4
billion and $102.6 billion at the end of 2004 and 2003, respectively) was issued
in active commercial paper markets that we believe will continue to be a
reliable source of short-term financing. The average remaining terms and
interest rates of GE Capital commercial paper were 42 days and 2.39% at the end
of 2004, compared with 47 days and 1.40% at the end of 2003. The GE Capital
ratio of debt to equity was 6.61 to 1 at the end of 2004 and 6.74 to 1 at the
end of 2003. See note 11.
  **Insurance
liabilities, reserves and annuity benefits** were $140.9 billion at December 31, 2004, $4.5 billion higher than in 2003. The
increase is primarily attributable to growth in annuities, long-term care
insurance, structured settlements, the effects of the weaker U.S. dollar,
increases in loss reserves for policies written in prior years and 2004 U.S.
hurricane-related losses. These increases were partially offset by claim
settlements and maturities of guaranteed investment contracts (GICs). See note
12.
  **Exchange
rate and interest rate risks** are
managed with a variety of straightforward techniques, including match funding
and selective use of derivatives. We use derivatives to mitigate or eliminate
certain financial and market risks because we conduct business in diverse
markets around the world and local funding is not always efficient. In addition,
we use derivatives to adjust the debt we are issuing to match the fixed or
floating nature of the assets we are acquiring. We apply strict policies to
manage each of these risks, including prohibitions on derivatives trading,
derivatives market-making or other speculative activities. Following is an
analysis of the potential effects of changes in interest rates and currency
exchange rates using so-called “shock” tests that model effects of shifts in
rates. These are not forecasts.
   (23)
  •
    If,
      on January 1, 2005, interest rates had increased 100 basis points across
      the yield curve (a “parallel shift” in that curve) and that increase
      remained in place for 2005, we estimate, based on our year-end 2004
      portfolio and holding everything else constant, that our 2005 net earnings
      would decline pro-forma by $0.2
billion.
  •
    If,
      on January 1, 2005, currency exchange rates were to decline by 10% against
      the U.S. dollar and that decline remained in place for 2005, we estimate,
      based on our year-end 2004 portfolio and holding everything else constant,
      that the effect on our 2005 net earnings would be insignificant.
  **Statement
of Changes in Shareowner’s Equity (page 36)**
  Shareowner’s
equity increased $8.4 billion in 2004 and 2003, and $8.3 billion in 2002. These
increases were largely attributable to net earnings but were partially offset by
dividends declared of $3.1 billion, $3.4 billion and $2.0 billion in 2004, 2003
and 2002, respectively. Also, a capital contribution increased shareowner’s
equity by $6.3 billion in 2002. Currency translation adjustments increased
equity by $2.5 billion in 2004, compared with $3.4 billion in 2003. Changes in
the currency translation adjustments reflect the effects of changes in currency
exchange rates on our net investment in non-U.S. subsidiaries that have
functional currencies other than the U.S. dollar. In 2004, the pound sterling,
euro and, to a lesser extent, Asian currencies strengthened against the U.S.
dollar. In 2003 and 2002, the euro and, to a lesser extent, Asian currencies
strengthened against the U.S. dollar. Accumulated currency translation
adjustments affect net earnings only when all or a portion of an affiliate is
disposed of or substantially liquidated. See note 16.
  **Overview
of Our Cash Flow from 2002 through 2004 (page 38)**
  Our
cash and equivalents aggregated $12.4 billion at the end of 2004, up from $11.3
billion at year-end 2003. Over the past three years, our borrowings with
maturities of 90 days or less have decreased by $49.3 billion. New borrowings of
$217.2 billion having maturities longer than 90 days were added during those
years, while $128.0 billion of such longer-term borrowings were
retired.
  Our
principal use of cash has been investing in assets to grow our businesses. Of
the $102.5 billion that we invested over the past three years, $38.0 billion was
used for additions to financing receivables; $30.0 billion was used to invest in
new equipment, principally for lease to others; and $37.0 billion was used for
acquisitions of new businesses, the largest of which were the commercial lending
business of Transamerica Finance Corporation and Sophia S.A. in 2004; First
National Bank and Conseco in 2003; and Australian Guarantee Corporation,
Security Capital and the commercial inventory financing business of Deutsche
Financial Services in 2002.
  Although
we generated $69.1 billion from operating activities over the last three years,
our cash is not necessarily freely available for alternative uses. For example,
certain cash generated by our Insurance businesses is restricted by various
insurance regulations. See note 15. Further, any reinvestment in financing
receivables is shown in cash used for investing, not operating activities.
Therefore, maintaining or growing Commercial and Consumer Finance assets
requires that we invest much of the cash they generate from operating activities
in their earning assets. Also, we have been increasing the equity of our
businesses as discussed on page 27.
  Based
on past performance and current expectations, in combination with the financial
flexibility that comes with a strong balance sheet and the highest credit
ratings, we believe we are in a sound position to grow dividends and continue
making selective investments for long-term growth. With the financial
flexibility that comes with excellent credit ratings, we believe that we should
be well positioned to meet the global needs of our customers for capital and to
continue providing our shareowner with good returns.
   (24)
  **Contractual
Obligations**
  As
defined by reporting regulations, our contractual obligations for future
payments as of December 31, 2004, follow:
  **Payments
      due by period***(In
      millions)*
    **Total**
    
    **2005**
    
    **2006-2007**
    
    **2008-2009**
    
    **2010
      and**
      **thereafter**Borrowings
      (note 11)
    $
    361,342
    
    $
    154,843
    
    
    $
    83,127
    
    
    
    $
    47,835
    
    
    
    $
    75,537Interest
      on borrowings
    
    56,000
    
    
    11,000
    
    
    
    15,000
    
    
    
    
    9,000
    
    
    
    
    21,000Operating
      lease obligations (note 3)
    
    4,838
    
    
    782
    
    
    
    1,401
    
    
    
    
    1,052
    
    
    
    
    1,603Purchase
      obligations(a)(b)
    
    23,000
    
    
    16,000
    
    
    
    6,000
    
    
    
    
    1,000
    
    
    
    
    -Insurance
      liabilities(note
      12)(c)
    
    92,000
    
    
    14,000
    
    
    
    19,000
    
    
    
    
    13,000
    
    
    
    
    46,000Other
      liabilities(d)
    
    17,000
    
    
    15,000
    
    
    
    1,000
    
    
    
    
    -
    
    
    
    
    1,000(a)
    Included
      all take-or-pay arrangements, capital expenditures, contractual
      commitments to purchase equipment that will be classified as equipment
      leased to others, software acquisition/license commitments and
      contractually required cash payments for acquisitions.(b)
    Excluded
      funding commitments entered into in the ordinary course of business.
      Further information on these commitments is provided in note
      21.(c)
    Included
      GICs, structured settlements and single premium immediate annuities based
      on scheduled payouts, as well as those contracts with reasonably
      determinable cash flows such as deferred annuities, universal life, term
      life, long-term care, whole life and other life insurance contracts as
      well as workers compensation tabular indemnity loan and long-term
      liability claims.(d)
    Included
      an estimate of future expected funding requirements related to our pension
      benefit plans. Because their future cash outflows are uncertain, the
      following non-current liabilities are excluded from the table above:
      deferred taxes, derivatives, deferred revenue and other sundry items.
      Refer to notes 13 and 19 for further information on these
      items.
  **Off-Balance
Sheet Arrangements**
  We
use off-balance sheet arrangements in the ordinary course of business to improve
shareowner returns. Beyond improving returns, these securitization transactions
serve as funding sources for a variety of diversified lending and securities
transactions. Our securitization transactions are similar to those used by many
financial institutions. In a typical transaction, assets are sold by the
transferor to a special purpose entity (SPE), which purchases the assets with
cash raised through issuance of beneficial interests (usually debt instruments)
to third-party investors. Investors in the beneficial interests usually have
recourse to the assets in the SPEs and often benefit from credit enhancements
supporting the assets (such as overcollateralization). The SPE may also hold
derivatives, such as interest rate swaps, in order to match the interest rate
characteristics of the assets with those of the beneficial interests. An example
is an interest rate swap converting fixed rate assets to variable rates to match
floating rate debt instruments issued by the SPE.
   (25)
  Historically,
we have used both sponsored and third-party entities to execute securitization
transactions in the commercial paper and term markets. With our adoption of FIN
46, *Consolidation
of Variable Interest Entities* ,
on July 1, 2003, we consolidated $36.3 billion of assets and $35.8 billion of
liabilities in certain sponsored entities and stopped executing new
securitization transactions with those entities. We continue to engage in
securitization transactions with third-party conduits and through public, market
term securitizations. In December 2004, we acquired AFIG which added $9.1
billion of securitized mortgage loans in consolidated, liquidating
securitization entities. Without AFIG, assets in consolidated, liquidating
securitization entities were $17.4 billion, down $9.0 billion. See note
20.
  Assets
held by SPEs include: receivables secured by equipment, commercial and
residential real estate and other assets; and credit card receivables. Examples
of these receivables include loans and leases on manufacturing and
transportation equipment, residential mortgages, loans on commercial property,
commercial loans, and balances of high credit quality accounts from sales of a
broad range of products and services to a diversified customer base. In certain
transactions, the credit quality of assets transferred is enhanced by providing
credit support. Securitized off-balance sheet assets totaled $30.8 billion and
$23.6 billion at December 31, 2004 and 2003, respectively.
  We
provide financial support related to assets held by certain off-balance sheet
SPEs through liquidity agreements, credit support, and guarantee and
reimbursement contracts. Net liquidity support amounted to $2.3 billion at
December 31, 2004, down from $3.1 billion a year earlier. Credit support, in
which we provide recourse for credit losses in off-balance sheet SPEs, was $6.6
billion as of December 31, 2004. Potential credit losses are provided for in our
financial statements. Based on management’s best estimate of probable losses
inherent in the portfolio of assets that remain off-balance sheet, our financial
statements included $0.1 billion representing the fair value of recourse
obligations at year-end 2004. See note 20.
  We
periodically enter into guarantees and other similar arrangements as part of
transactions in the ordinary course of business. These are described further in
note 21.
  We
have extensive experience in evaluating economic, liquidity and credit risk. In
view of this experience, the high quality of assets in these entities, the
historically robust quality of commercial paper markets, and the historical
reliability of controls applied to both asset servicing and to activities in the
credit markets, we believe that, under any reasonable future economic
developments, the likelihood is remote that any financial support arrangements
could have an adverse economic effect on our financial position or results of
operations.
  **Debt
Instruments, Guarantees and Covenants**
  The
major debt rating agencies routinely evaluate the debt of GECS and GE Capital,
our major borrowing affiliate. These agencies have given the highest debt
ratings to GE Capital (long-term rating AAA/Aaa; short-term rating A-1+/P-1).
One of our strategic objectives is to maintain these ratings as they serve to
lower our cost of funds and to facilitate our access to a variety of lenders. We
manage our businesses in a fashion that is consistent with maintaining these
ratings.
  GECS
and GE Capital have distinct business characteristics that the major debt rating
agencies evaluate both quantitatively and qualitatively.
   (26)
  Quantitative
measures include:
  •
    Earnings
      and profitability, including earnings quality, revenue growth, the breadth
      and diversity of sources of income and return on
assets,
 
 •
    Asset
      quality, including delinquency and write-off ratios and reserve
      coverage,
 
 •
    Funding
      and liquidity, including cash generated from operating activities,
      leverage ratios such as debt-to-capital, market access, back-up liquidity
      from banks and other sources, composition of total debt and interest
      coverage, and
 
 •
    Capital
      adequacy, including required capital and tangible leverage
      ratios.
 
 Qualitative
measures include:
  •
    Franchise
      strength, including competitive advantage and market conditions and
      position,
 
 •
    Strength
      of management, including experience, corporate governance and strategic
      thinking, and
 
 •
    Financial
      reporting quality, including clarity, completeness and transparency of all
      financial performance communications.
 
 GE
Capital’s ratings are supported contractually by a GE commitment to maintain the
ratio of earnings to fixed charges at a specified level as described below.
  Before
2003, GE Capital maintained a capital structure that included about $8 of debt
for each $1 of equity - a “leverage ratio” of 8:1. For purposes of
measuring segment profit, each of our businesses was also assigned debt and
interest costs on the basis of that consolidated 8:1 leverage ratio. As of
January 1, 2003, we extended a business-specific, market-based leverage to the
performance measurement of each of our businesses. As a result, at January 1,
2003, debt of $12.5 billion previously allocated to our other segments was
allocated to the Equipment & Other Services segment. We refer to this as
“parent-supported debt.” During 2004, a total of $4.7 billion of such debt was
eliminated, compared with $4.6 billion in 2003. The 2004 reduction was the
result of the following:
  •
    22%
      of retained operating earnings ($1.8
billion),
 
 •
    Proceeds
      from the Genworth initial public offering less dividend payments to GE
      ($1.6 billion),
 
 •
    Mortgage
      Insurance contingent note payment ($0.5
billion),
 
 •
    Sale
      of a majority interest of Gecis ($0.5 billion),
and
 
 •
    Rationalization
      of Insurance and Equipment & Other Services related activities ($0.3
      billion).
 
 The
remaining $3.2 billion of such debt is expected to be eliminated in
2005.
   (27)
  During
2004, we paid $2.3 billion of special dividends to GE, of which $1.3 billion was
a portion of proceeds from the Genworth initial public offering, $0.8 billion
was surplus equity related to portfolio restructurings in Insurance and run-offs
in Equipment & Other Services and $0.2 billion was related to Insurance
dispositions.
  During
2004, GECS and GECS affiliates issued $57 billion of senior, unsecured long-term
debt, including $3 billion issued by Genworth in connection with the initial
public equity offering described on page 10. This debt was both fixed and
floating rate and was issued to institutional and retail investors in the U.S.
and 17 other global markets. Maturities for these issuances ranged from one to
40 years. We used the proceeds primarily for repayment of maturing long-term
debt, but also to fund acquisitions and organic growth. We anticipate that we
will issue between $50 billion and $60 billion of additional long-term debt
during 2005, although the ultimate amount we issue will depend on our needs and
on the markets.
  Following
is the composition of our debt obligations excluding any asset-backed debt
obligations, such as debt of consolidated, liquidating securitization
entities.
  *December
      31*
    **2004**
    
    **2003**Senior
      notes and other long-term debt
    
    58
    %
    
    
    55
    %Commercial
      paper
    
    25
    
    
    
    27Current
      portion of long-term debt
    
    11
    
    
    
    13Other
      - bank and other retail deposits
    
    6
    
    
    
    5Total
    
    100
    %
    
    
    100
    %
 
  We
target a ratio for commercial paper of 25% to 35% of outstanding debt based on
the anticipated composition of our assets and the liquidity profile of our debt.
GE Capital is the most widely held name in global commercial paper markets.
  We
believe that alternative sources of liquidity are sufficient to permit an
orderly transition from commercial paper in the unlikely event of impaired
access to those markets. Funding sources on which we would rely would depend on
the nature of such a hypothetical event, but include $57.3 billion of
contractually committed lending agreements with 83 highly-rated global banks and
investment banks. Total credit lines extending beyond one year increased $10.0
billion to $56.8 billion at December 31, 2004. See note 11.
  Beyond
contractually committed lending agreements, other sources of liquidity include
medium and long-term funding, monetization, asset securitization, cash receipts
from our lending and leasing activities, short-term secured funding on global
assets, and potential sales of other assets.
  **Principal
debt conditions** are described below.
  •
    Under
      certain swap, forward and option contracts, if our long-term credit rating
      were to fall below A-/A3, certain remedies are required as discussed in
      note 19.
 
 •
    If
      GE Capital’s ratio of earnings to fixed charges, which was 1.87:1 at the
      end of 2004, were to deteriorate to 1.10:1 or, upon redemption of certain
      preferred stock, its ratio of debt to equity, which was 6.61:1 at the end
      of 2004, were to exceed 8:1, GE has committed to contribute capital to GE
      Capital. GE also has guaranteed our subordinated debt with a face amount
      of $1.0 billion at December 31, 2004 and
2003.
  (28)
  The
following three conditions relate to securitization SPEs that were consolidated
upon adoption of FIN 46 on July 1, 2003:
  •
    If
      the short-term credit rating of GE Capital or certain consolidated 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 net amount
      that GE Capital would be required to provide in the event of such a
      downgrade is determined by contract, and amounted to $12.8 billion at
      January 1, 2005. Amounts related to non-consolidated SPEs were $1.4
      billion.
 
 •
    If
      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 consolidated 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 $0.9 billion at December 31,
      2004.
 
 •
    For
      certain transactions, if the long-term credit rating of GE Capital were to
      fall below A/A2 or BBB+/Baa1 or its short-term credit rating were to fall
      below A-2/P-2, GE Capital could be required to provide substitute credit
      support or fund the undrawn commitment. GE Capital could be required to
      provide up to $2.3 billion in the event of such a downgrade based on terms
      in effect at December 31, 2004.
 
 One
group of consolidated SPEs, the Trinities and GE Funding CMS, hold assets that
are reported in “Investment securities” and issue GICs that are reported in
“Insurance liabilities, reserves and annuity benefits.” If 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 $0.9
billion of capital to the Trinities. Further, GE Capital could be required to
repay up to $3.1 billion of GICs issued by GE Funding CMS.
  In
our history, we have never violated any of the above conditions. We believe that
under any reasonable future economic developments, the likelihood that any such
arrangements could have a significant effect on our operations, cash flows or
financial position is remote.
  **Commercial
aviation** is
an industry in which we have a significant ongoing interest. Although some U.S.
carriers have been operating under pressure, our interest in this industry is
global, and demand in the global markets has been strong. September 11, 2001,
was a significant test for this industry. But since that date, 119 carriers
around the world have placed 709 of our aircraft into service, 415 of which were
Boeing and Airbus narrow-body aircraft. We continue to be confident in the
global industry’s ongoing prospects.
  At
December 31, 2004, our global commercial aviation exposure in our Commercial
Finance segment amounted to $37.8 billion, principally loans and leases of $33.0
billion. We had 1,342 commercial aircraft on lease, an increase of 106 aircraft
from last year reflecting acquired leases and on-time delivery of open 2003
order positions. At the end of 2004 and 2003, an insignificant number of our
aircraft were not on lease - 2 and 3 aircraft, respectively. At December 31,
2004, we also had $10.2 billion (list price) of multiple-year orders for various
Boeing, Airbus and other aircraft, including 56 aircraft ($4.3 billion)
scheduled for delivery in 2005, all under agreement to commence operations with
commercial airline customers.
  US
Airways filed for bankruptcy protection in the third quarter of 2004. In January
2005, US Airways and the Air Transportation Stabilization Board (ATSB) reached
an agreement extending the airline’s use of cash proceeds from its federally
guaranteed loan through June 30, 2005. US Airways’ management has stated
publicly that this agreement with the ATSB will allow US Airways to continue
operations while it completes its restructuring
   (29)
  and
planned emergence from Chapter 11 in the summer of 2005. US Airways’ management
also has indicated in its public statements that labor savings will be an
important factor affecting the success of that reorganization. At December 31,
2004, our aggregate exposure to US Airways was $2.8 billion, the largest
component of which was $2.6 billion of loans and leases, substantially secured
by various equipment, including 39 regional jet aircraft, 54 Boeing narrow-body
aircraft (primarily 737 type), and 57 Airbus narrow-body aircraft. We and the
airline have entered into a memorandum of understanding to restructure a number
of loans and leases. We also agreed to continue regional jet financing
conditioned on the airline successfully emerging from bankruptcy protection and
achieving specified financial milestones. We have adjusted our estimates of cash
flows and residual values to reflect the current information available to us in
this fluid situation. In addition to our loans and leases, we hold $0.2 billion
of available-for-sale investment securities in US Airways that are secured by
various other aircraft in the fleet. In addition to US Airways, both ATA
Holdings Corp. and Aloha Airgroup, Inc. filed for bankruptcy during 2004. UAL
Corp. filed for bankruptcy in 2002. At December 31, 2004, our exposure was $1.4
billion to UAL Corp., $0.8 billion to ATA Holdings Corp., and $0.3 billion to
Aloha Airgroup, Inc., consisting primarily of loans and leases. Various Boeing
and Airbus aircraft secure substantially all of these financial
exposures.
  Commercial
Finance regularly tests the recoverability of its commercial aircraft operating
lease portfolio as described on page 31, and recognized impairment losses of
$0.1 billion and $0.2 billion in 2004 and 2003, respectively. In addition to
these impairment charges relating to operating leases, Commercial Finance
recorded provisions for losses on financing receivables related to commercial
aircraft of $0.3 billion in 2004, primarily related to US Airways and ATA
Holdings Corp.; an insignificant amount was recognized in 2003.
  See
pages 20-21 and notes 4 and 8 for further information on our commercial aviation
positions.
  **Critical
Accounting Estimates**
  Accounting
estimates and assumptions discussed in this section are those that we consider
to be the most critical to an understanding of our financial statements because
they inherently involve significant judgments and uncertainties. For all of
these estimates, we caution that future events rarely develop exactly as
forecast, and the best estimates routinely require adjustment. Also see note 1,
Summary of Significant Accounting Policies, which discusses accounting policies
that we have selected from acceptable alternatives.
  **Losses
on financing receivables** are
recognized when they are incurred, which requires us to make our best estimate
of probable losses inherent in the portfolio. Such estimate requires
consideration of historical loss experience, adjusted for current conditions,
and judgments about the probable effects of relevant observable data, including
present economic conditions such as delinquency rates, financial health of
specific customers and market sectors, collateral values, and the present and
expected future levels of interest rates. Our risk management process, which
includes standards and policies for reviewing major risk exposures and
concentrations, ensures that relevant data are identified and considered either
for individual loans or leases, or on a portfolio basis, as
appropriate.
  Our
lending and leasing experience and the extensive data we accumulate and analyze
facilitate estimates that have been reliable over time. Our actual loss
experience was in line with expectations for 2004 (adjusting for the effects of
Consumer Finance’s standardization of its write-off policy), 2003 and 2002.
While losses depend to a large degree on future economic conditions, we do not
anticipate significant adverse credit development in 2005. Further information
is provided in the financing receivables section on page 21, and in notes 1, 5
and 6.
   (30)
  **Asset
impairment** assessment
involves various estimates and assumptions as follows:
  **Investments**  We
regularly review investment securities for impairment based on criteria that
include the extent to which cost exceeds market value, the duration of that
market decline, our intent and ability to hold to recovery and the financial
health and specific prospects for the issuer. We perform comprehensive market
research and analysis and monitor market conditions to identify potential
impairments. Further information about actual and potential impairment losses is
provided on page 21 and in notes 1 and 4.
  **Long-lived
assets** We review long-lived assets for impairment whenever events or changes in
circumstances indicate that the related carrying amounts may not be recoverable.
Determining whether an impairment has occurred typically requires various
estimates and assumptions, including determining which cash flows are directly
related to the potentially impaired asset, the useful life over which cash flows
will occur, their amount, and the asset’s residual value, if any. In turn,
measurement of an impairment loss requires a determination of fair value, which
is based on the best information available. We use internal discounted cash flow
estimates, quoted market prices when available and independent appraisals as
appropriate to determine fair value. We derive the required cash flow estimates
from our historical experience and our internal business plans and apply an
appropriate discount rate.
  Commercial
aircraft are a significant concentration of assets in our Commercial Finance
business, and are particularly subject to market fluctuations. Therefore, we
test recoverability of each aircraft in our operating lease portfolio at least
annually. Additionally, we perform quarterly evaluations in circumstances such
as when aircraft are re-leased, current lease terms have changed or a specific
lessee’s credit standing changes. Future rentals and residual values are based
on historical experience and information received routinely from independent
appraisers. Estimated cash flows from future leases are reduced for expected
downtime between leases and for estimated technical costs required to prepare
aircraft to be redeployed. Fair value used to measure impairment is based on
current market values from independent appraisers. Further information on
impairment losses and our overall exposure to the commercial aviation industry
is provided on pages 29-30 and in notes 4 and 8.
  **Goodwill
and other identified intangible assets** We test goodwill for impairment annually and whenever events or circumstances
make it more likely than not that an impairment may have occurred, such as a
significant adverse change in the business climate or a decision to sell or
dispose of a reporting unit. Determining whether an impairment has occurred
requires valuation of the respective reporting unit, which we estimate using a
discounted cash flow method. When available and as appropriate, we use
comparative market multiples to corroborate discounted cash flow results. In
applying this methodology, we rely on a number of factors, including actual
operating results, future business plans, economic projections and market data.
  If
this analysis indicates goodwill is impaired, measuring the impairment requires
a fair value estimate of each identified tangible and intangible asset. In this
case we supplement the cash flow approach discussed above with independent
appraisals, as appropriate.
  We
test other identified intangible assets with defined useful lives and subject to
amortization by comparing the carrying amount to the sum of undiscounted cash
flows expected to be generated by the asset.
  Further
information is provided on page 23 and in notes 1 and 9.
  **Insurance
liabilities and reserves** differ for short- and long-duration insurance contracts. Short-duration
contracts such as property and casualty policies are accounted for based on
actuarial estimates of losses inherent in that period’s claims, including losses
for which claims have not yet been reported. Short-duration contract loss
estimates
   (31)
  rely
on actuarial observations of ultimate loss experience for similar historical
events. Measurement of long-duration insurance liabilities (such as guaranteed
renewable term, whole life and long-term care insurance policies) also is based
on approved actuarial methods that include assumptions about expenses,
mortality, morbidity, lapse rates and future yield on related investments.
Historical insurance industry experience indicates that a greater degree of
inherent variability exists in assessing the ultimate amount of losses under
short-duration property and casualty contracts than exists for long-duration
mortality exposures. This inherent variability is particularly significant for
liability-related exposures, including latent claims issues (such as asbestos
and environmental related coverage disputes), because of the extended period of
time - often many years - that transpires between when a given claim event
occurs and the ultimate full settlement of such claim. This situation is then
further exacerbated for reinsurance entities (as opposed to primary insurers)
because of coverage often being provided on an “excess-of-loss” basis and the
resulting lags in receiving current claims data.
  We
continually evaluate the potential for changes in loss estimates with the
support of qualified reserving actuaries and use the results of these
evaluations both to adjust recorded reserves and to proactively modify
underwriting criteria and product offerings. For actuarial analysis purposes,
reported and paid claims activity is segregated into several hundred reserving
segments, each having differing historical settlement trends. A variety of
actuarial methods are then applied to the underlying data for each of these
reserving segments in arriving at an estimated range of “reasonably possible”
loss scenarios. Factors such as line of business, length of historical
settlement pattern, recent changes in underwriting standards and unusual trends
in reported claims activity will generally affect which actuarial methods are
given more weight for purposes of determining the “best estimate” of ultimate
losses in a particular reserving segment. As discussed on pages 18 and 19 and in
note 12, in recent years, reported claims activity at GE Insurance Solutions
related to prior-year loss events, particularly for liability-related exposures
underwritten in 1997 through 2001, have continued to develop adversely to
previous expectations. This trend was considered in the actuarial reserve study
completed in the fourth quarter of 2002, resulting in a significant increase in
recorded reserves. In 2003, we continued to monitor our reported claims activity
compared with our revised expected loss levels. While for the majority of our
lines of business, reported claims activity in 2003 was reasonably close to
expected amounts, for certain lines the reported claims volumes exceeded our
revised loss expectations. In response to these new data, we further increased
our loss reserves in 2003. In 2004, as part of our comprehensive annual
assessment of recorded claim-related liabilities, we observed that reported
claims activity in certain product lines, substantially related to the 1997
through 2001 underwriting years, continued to exceed previous established
expectations and we again increased our loss reserves.
  **Other
loss contingencies** are recorded as liabilities when it is probable that a liability has been
incurred and the amount of the loss is reasonably estimable. Disclosure is
required when there is a reasonable possibility that the ultimate loss will
exceed the recorded provision. Contingent liabilities are often resolved over
long time periods. Estimating probable losses requires analysis of multiple
forecasts that often depend on judgments about potential actions by third
parties such as regulators. Further information is provided in note
21.
  **Other
Information**
  **Financial
Measures that Supplement Generally Accepted Accounting
Principles**
  We
sometimes use information derived from consolidated financial information but
not presented in our financial statements prepared in accordance with U.S.
generally accepted accounting principles (GAAP). Certain of these data are
considered “non-GAAP financial measures” under SEC rules. Specifically, we have
referred, in various sections of this report, to:
   (32)
  •
    Net
      revenues (revenues from services less interest) of the Commercial Finance
      and Consumer Finance segments for the three years ended December 31, 2004,
      and
  •
    Delinquency
      rates on financing receivables of the Commercial Finance and Consumer
      Finance segments for 2004, 2003 and 2002.
 
 The
reasons we use these non-GAAP financial measures and their reconciliation to
their most directly comparable GAAP financial measures follow.
  **Net
Revenues**
  We
provided reconciliations of net revenues to reported revenues for these segments
on pages 14-16. Because net revenues is a common industry measure of margin,
these disclosures enable investors to compare the results of our businesses with
results of others in the same industry.
  **Delinquency
Rates on Financing Receivables**
  Delinquency
rates on financing receivables follow.
  **Commercial
Finance**
  *December
      31*
    **2004**
    
    **2003**
    
    **2002**Managed
    1.40
    %
    1.38
    %
    1.75
    %Off-book
    0.90
    
    1.27
    
    0.09On-book
    1.58
    
    1.41
    
    2.16
 
  **Consumer
Finance**
  *December
      31*
    **2004**
    
    **2003**
    
    **2002**Managed
    4.85
    %
    5.62
    %
    5.62
    %Off-book
    5.09
    
    5.04
    
    4.84On-book
    4.84
    
    5.67
    
    5.76
 
  We
believe that delinquency rates on managed financing receivables provide a useful
perspective of our portfolio quality and are key indicators of financial
performance. Further, investors use such information, including the results of
both the on-book and securitized portfolios, which are relevant to our overall
performance.
  **Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.**
  Information
about our global risk management can be found on page 12 of Item 7.
   (33)
  **Item
8. Financial Statements and Supplementary Data.**
  
  **Report
of Independent Registered Public Accounting Firm**
  *To
the Board of Directors*
 *General
Electric Capital Services, Inc.:*
  We
have audited the consolidated financial statements of General Electric Capital
Services, Inc. (“GECS”) and consolidated affiliates as listed in Item 15. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in Item 15. We also
have audited management’s assessment, included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting, that GECS maintained
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in *Internal
Control - Integrated Framework* issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). GECS management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on these consolidated
financial statements, an opinion on management’s assessment, and an opinion on
the effectiveness of the GECS’ internal control over financial reporting based
on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
  A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  In
our opinion, the consolidated financial statements and schedules referred to
above present fairly, in all material respects, the financial position of
General Electric Capital Services, Inc. and consolidated affiliates as of
December 31, 2004 and 2003, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles. Also, in our
opinion, management’s assessment that GECS maintained effective internal control
over financial reporting as of December 31, 2004 is fairly stated, in all
material respects, based on criteria established in *Internal
Control - Integrated Framework* issued by COSO. Furthermore, in our opinion, GECS maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2004, based on criteria established in *Internal
Control - Integrated Framework* issued by COSO.
   (34)
  As
discussed in note 1 to the consolidated financial statements, GECS in 2004 and
2003 changed its method of accounting for variable interest entities and in 2002
changed its method of accounting for goodwill and other intangible
assets.
  
  /s/
KPMG LLP
 Stamford,
Connecticut
 February
11, 2005
  (35)
  **General
Electric Capital Services, Inc. and consolidated
affiliates**
 **Statement
of Earnings**
 
 *For
      the years ended December 31 (In millions)*
    **2004**
    
    **2003**
    
    **2002****Revenues**Revenues
      from services (note 2)
    $
    67,936
    
    $
    62,051
    
    $
    55,403Sales
      of goods
    
    2,840
    
    
    2,228
    
    
    3,296Total
      revenues
    
    70,776
    
    
    64,279
    
    
    58,699**Costs
      and expenses**Interest
    
    11,372
    
    
    10,262
    
    
    9,935Operating
      and administrative (note 3)
    
    20,988
    
    
    17,757
    
    
    16,031Cost
      of goods sold
    
    2,741
    
    
    2,119
    
    
    3,039Insurance
      losses and policyholder and annuity benefits
    
    15,844
    
    
    16,369
    
    
    17,608Provision
      for losses on financing receivables (note 6)
    
    3,888
    
    
    3,752
    
    
    3,084Depreciation
      and amortization (note 8)
    
    5,852
    
    
    4,679
    
    
    4,312Minority
      interest in net earnings of consolidated affiliates
    
    390
    
    
    129
    
    
    143Total
      costs and expenses
    
    61,075
    
    
    55,067
    
    
    54,152**Earnings
      before income taxes and accounting changes**
    
    9,701
    
    
    9,212
    
    
    4,547Provision
      for income taxes (note 13)
    
    (1,540
    )
    
    (1,458
    )
    
    79**Earnings
      before accounting changes**
    
    8,161
    
    
    7,754
    
    
    4,626Cumulative
      effect of accounting changes (note 1)
    
    -
    
    
    (339
    )
    
    (1,015
    )**Net
      earnings**
    $
    8,161
    
    $
    7,415
    
    $
    3,611**Statement
      of Changes in Shareowner’s Equity***(In
      millions)*
    **2004**
    
    **2003**
    
    **2002****Changes
      in shareowner’s equity**(note 16)Balance
      at January 1
    $
    45,308
    
    $
    36,929
    
    $
    28,590Dividends
      and other transactions with shareowner
    
    (3,003
    )
    
    (3,438
    )
    
    4,317Changes
      other than transactions with shareownerIncrease
      attributable to net earnings
    
    8,161
    
    
    7,415
    
    
    3,611Investment
      securities - net
    
    481
    
    
    651
    
    
    1,561Currency
      translation adjustments - net
    
    2,544
    
    
    3,421
    
    
    58Cash
      flow hedges - net
    
    373
    
    
    349
    
    
    (1,186
    )Minimum
      pension liabilities - net
    
    (109
    )
    
    (19
    )
    
    (22
    )Total
      changes other than transactions with shareowner
    
    11,450
    
    
    11,817
    
    
    4,022Balance
      at December 31
    $
    53,755
    
    $
    45,308
    
    $
    36,929The
      notes to consolidated financial statements on pages 39-78 are an integral
      part of these statements.
 
   (36)
  **General
Electric Capital Services, Inc. and consolidated
affiliates**
 **Statement
of Financial Position**
  *At
      December 31 (In millions)*
    **2004**
    
    **2003****Assets**Cash
      and equivalents
    $
    12,367
    
    $
    11,273Investment
      securities (note 4)
    
    135,152
    
    
    128,889Financing
      receivables - net (notes 5 and 6)
    
    282,467
    
    
    247,906Insurance
      receivables - net (note 7)
    
    25,971
    
    
    27,541Other
      receivables
    
    14,134
    
    
    12,103Inventories
    
    189
    
    
    197Buildings
      and equipment, less accumulated amortization of $20,630and
      $16,748 (note 8)
    
    46,578
    
    
    38,822Intangible
      assets - net (note 9)
    
    28,520
    
    
    24,821Other
      assets (note 10)
    
    72,949
    
    
    63,136Total
      assets
    $
    618,327
    
    $
    554,688**Liabilities
      and equity**Borrowings
      (note 11)
    $
    361,342
    
    $
    320,318Accounts
      payable
    
    17,104
    
    
    13,566Insurance
      liabilities, reserves and annuity benefits (note 12)
    
    140,902
    
    
    136,428Other
      liabilities
    
    25,744
    
    
    23,217Deferred
      income taxes (note 13)
    
    10,798
    
    
    10,736Total
      liabilities
    
    555,890
    
    
    504,265Minority
      interest in equity of consolidated affiliates (note 14)
    
    8,682
    
    
    5,115Cumulative
      preferred stock, $10,000 par value (80,000 shares authorized;
      51,000
      shares issued and held primarily by consolidated
      affiliates
      at December 31, 2004 and 2003)
    
    10
    
    
    10Common
      stock, $1,000 par value (1,260 shares authorized at December 31, 2004
      and
      2003, and 1,064 shares issued and outstanding at
      December
      31, 2004 and 2003)
    
    1
    
    
    1Accumulated
      gains (losses) - netInvestment
      securities
    
    2,345
    
    
    1,864Currency
      translation adjustments
    
    5,183
    
    
    2,639Cash
      flow hedges
    
    (1,354
    )
    
    (1,727
    )Minimum
      pension liabilities
    
    (150
    )
    
    (41
    )Additional
      paid-in capital
    
    12,360
    
    
    12,258Retained
      earnings
    
    35,360
    
    
    30,304Total
      shareowner’s equity (note 16)
    
    53,755
    
    
    45,308Total
      liabilities and equity
    $
    618,327
    
    $
    554,688The
      sum of accumulated gains (losses) on investment securities, currency
      translation adjustments, cash flow hedges and minimum pension liabilities
      constitutes “Accumulated nonowner changes other than earnings,” as shown
      in note 16, and was $6,024 million and $2,735 million at year-end 2004 and
      2003, respectively.The
      notes to consolidated financial statements on pages 39-78 are an integral
      part of this statement.
 
   (37)
  **General
Electric Capital Services, Inc. and consolidated
affiliates**
  **Statement
of Cash Flows**
  *For
      the years ended December 31 (In millions)*
    **2004**
    
    **2003**
    
    **2002****Cash
      flows - operating activities**Net
      earnings
    $
    8,161
    
    $
    7,415
    
    $
    3,611Adjustments
      to reconcile net earnings to cash provided
      from
      operating activitiesCumulative
      effect of accounting changes
    
    -
    
    
    339
    
    
    1,015Depreciation
      and amortization of buildings and equipment
    
    5,852
    
    
    4,679
    
    
    4,312Deferred
      income taxes
    
    (1,527
    )
    
    738
    
    
    1,409Decrease
      (increase) in inventories
    
    (9
    )
    
    (35
    )
    
    62Increase
      (decrease) in accounts payable
    
    4,207
    
    
    666
    
    
    (880
    )Increase
      in insurance liabilities and reserves
    
    4,961
    
    
    1,679
    
    
    9,454Provision
      for losses on financing receivables
    
    3,888
    
    
    3,752
    
    
    3,084All
      other operating activities (note 17)
    
    594
    
    
    2,215
    
    
    (556
    )**Cash
      from operating activities**
    
    26,127
    
    
    21,448
    
    
    21,511**Cash
      flows - investing activities**Net
      increase in financing receivables (note 17)
    
    (15,280
    )
    
    (4,687
    )
    
    (18,082
    )Additions
      to buildings and equipment
    
    (10,691
    )
    
    (7,621
    )
    
    (11,670
    )Dispositions
      of buildings and equipment
    
    5,845
    
    
    4,952
    
    
    6,357Payments
      for principal businesses purchased
    
    (13,888
    )
    
    (10,537
    )
    
    (12,618
    )All
      other investing activities (note 17)
    
    443
    
    
    207
    
    
    (15,234
    )**Cash
      used for investing activities**
    
    (33,571
    )
    
    (17,686
    )
    
    (51,247
    )**Cash
      flows - financing activities**Net
      decrease in borrowings (maturities of 90 days or less)
    
    (1,138
    )
    
    (13,472
    )
    
    (34,687
    )Newly
      issued debt (maturities longer than 90 days) (note 17)
    
    61,264
    
    
    59,939
    
    
    96,044Repayments
      and other reductions (maturities longerthan
      90 days) (note 17)
    
    (45,538
    )
    
    (43,202
    )
    
    (39,225
    )Dividends
      paid to shareowner
    
    (3,105
    )
    
    (3,435
    )
    
    (1,965
    )All
      other financing activities (note 17)
    
    (2,945
    )
    
    (237
    )
    
    10,173**Cash
      from (used for) financing activities**
    
    8,538
    
    
    (407
    )
    
    30,340**Increase
      in cash and equivalents during year**
    
    1,094
    
    
    3,355
    
    
    604Cash
      and equivalents at beginning of year
    
    11,273
    
    
    7,918
    
    
    7,314Cash
      and equivalents at end of year
    $
    12,367
    
    $
    11,273
    
    $
    7,918**Supplemental
      disclosure of cash flows information**Cash
      paid during the year for interest
    $
    (11,304
    )
    $
    (10,662
    )
    $
    (9,499
    )Cash
      recovered during the year for income taxes
    
    922
    
    
    1,146
    
    
    1,383The
      notes to consolidated financial statements on pages 39-78 are an integral
      part of this statement.
 
   (38)
  **General
Electric Capital Services, Inc. and consolidated
affiliates**
  **Notes
to Consolidated Financial Statements**
  **Note
1. Summary of Significant Accounting Policies**
  **Accounting
principles**
  Our
financial statements are prepared in conformity with U.S. generally accepted
accounting principles (GAAP).
  **Consolidation**
  General
Electric Capital Services, Inc. owns all of the common stock of General Electric
Capital Corporation (GE Capital) and GE Insurance Solutions Corporation (GE
Insurance Solutions), the parent of Employers Reinsurance Corporation (ERC). All
of our outstanding common stock is owned by General Electric Company (GE Company
or GE) and an affiliate of GE Company. Our financial statements consolidate all
of our affiliates - companies that we control and in which we hold a majority
voting interest. Associated companies are companies that we do not control but
over which we have significant influence, most often because we hold a
shareholder voting position of 20% to 50%. Results of associated companies are
presented on a one-line basis.
  In
2004 and 2003, as we describe on page 43, we consolidated certain
non-affiliates, including certain special purpose entities (SPEs) and
investments previously considered associated companies, because of new
accounting requirements that became effective in each of those
years.
  **Financial
statement presentation**
  We
have reclassified certain prior-year amounts to conform to the current year’s
presentation. Effects of transactions between related companies are
eliminated.
  Preparing
financial statements in conformity with GAAP requires us to make estimates and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates.
  **Sales
of goods**
  We
record sales of goods when a firm sales agreement is in place, delivery has
occurred and collectibility of the fixed or determinable sales price is
reasonably assured. If customer acceptance of products is not assured, sales are
recorded only upon formal customer acceptance.
  **Revenues
from services (earned income)**
  We
use the interest method to recognize income on all loans. Interest on time sales
and loans includes origination, commitment and other non-refundable fees related
to funding (recorded in earned income on the interest method). We stop accruing
interest at the earlier of the time at which collection of an account becomes
doubtful or the account becomes 90 days past due. We recognize interest income
on nonearning loans either as cash is collected or on a cost-recovery basis as
conditions warrant. We resume accruing interest on nonearning, non-restructured
Commercial Finance loans only when (a) payments are brought current according to
the loan’s original terms and (b) future payments are reasonably assured. When
we agree to restructured terms with the borrower, we resume accruing interest
only when reasonably assured that we will recover full contractual payments, and
such loans pass underwriting reviews equivalent to those applied to new loans.
We resume accruing interest on nonearning Consumer Finance loans upon receipt of
the third consecutive minimum monthly payment or the equivalent.
   (39)
  Specific
limits for each type of loan restrict the number of times any particular
delinquent loan may be categorized as non-delinquent and interest accrual
resumed.
  We
record financing lease income on the interest method to produce a level yield on
funds not yet recovered. Estimated unguaranteed residual values of leased assets
are based primarily on periodic independent appraisals of the values of leased
assets remaining at expiration of the lease terms. Significant assumptions we
use in estimating residual values include estimated net cash flows over the
remaining lease term, results of future remarketing, and future component part
and scrap metal prices, discounted at an appropriate rate.
  We
recognize operating lease income on a straight-line basis over the terms of
underlying leases.
  Fees
include commitment fees related to loans that we do not expect to fund and
line-of-credit fees. We record these fees in earned income on a straight-line
basis over the period to which they relate. We record syndication fees in earned
income at the time related services are performed unless significant
contingencies exist.
  See
pages 41-42 for a discussion of income from investment and insurance
activities.
  **Depreciation
and amortization**
  The
cost of our equipment leased to others on operating leases is amortized on a
straight-line basis to estimated residual value over the lease term or over the
estimated economic life of the equipment. See note 8.
  **Losses
on financing receivables** ****
  Our
allowance for losses on financing receivables represents our best estimate of
probable losses inherent in the portfolio. Our method of calculating estimated
losses depends on the size, type and risk characteristics of the related
receivables. Write-offs are deducted from the allowance for losses and
subsequent recoveries are added. Impaired financing receivables are written down
to the extent that principal is judged to be uncollectible.
  Our
consumer loan portfolio consists of smaller balance, homogeneous loans including
card receivables, installment loans, auto loans and leases and residential
mortgages. Each portfolio is collectively evaluated for impairment. The
allowance for losses on these receivables is established through a process that
estimates the probable losses inherent in the portfolio, based upon statistical
analyses of portfolio data. These include migration analysis, in which
historical delinquency and credit loss experience is applied to the current
aging of the portfolio, together with analyses that reflect current trends and
conditions. We also consider overall portfolio indicators including nonearning
loans, trends in loan volume and lending terms, credit policies and other
observable environmental factors.
  During
2004, Consumer Finance adopted a global policy for uncollectible receivables
that accelerated write-offs to follow one consistent basis. We now write off
unsecured closed-end installment loans that become 120 days contractually past
due and unsecured open-ended revolving loans that become 180 days contractually
past due. Loans secured with non-real-estate collateral are written down to the
estimated value of the collateral, less costs to sell, at 120 days contractually
past due. Real estate secured loans (both revolving and closed-end) are written
down to a percentage of the estimated fair value of the property, less costs to
sell, no later than 360 days past due.
  The
first step in establishing our quarterly allowances for losses on larger balance
non-homogenous commercial and equipment loans and leases is to survey the entire
portfolio for potential specific credit or collection issues indicating an
impairment. This survey first considers the financial status, payment history,
collateral value,
   (40)
  industry
conditions and guarantor support related to specific customers. Any
delinquencies or bankruptcies are indications of potential impairment requiring
further assessment of collectibility. Our risk function routinely receives
financial as well as rating agency reports on our customers, and we elevate for
further attention those customers whose operations we judge to be marginal or
deteriorating. We also elevate customers for further attention when we observe a
decline in collateral values for asset-based loans. While collateral values are
not always available, when we observe such a decline, we evaluate relevant
markets to assess recovery alternatives - for example, for real estate loans,
relevant markets are local; for aircraft loans, relevant markets are global. Our
risk function reports to senior management its evaluation of any balances that
it has identified as impaired, and we make allowances based on our evaluation of
all available information, including expected future cash flows, fair value of
collateral net of disposal costs and the secondary market value of the financing
receivables. After providing for specific incurred losses, we then determine an
allowance for losses that have been incurred in the balance of the portfolio but
cannot yet be identified to a specific loan or lease. This estimate is prepared
by each line of business every quarter and reviewed by senior management. Within
each business unit, portfolio level modeling is applied where deemed
appropriate, for example, by collateral type. As a result, several different
statistical analyses requiring judgment are employed as part of this process.
These analyses include consideration of historical and projected default rate
and loss severity.
  Portfolios
of smaller balance homogenous commercial and equipment loans which are not
individually evaluated for impairment are evaluated collectively for impairment.
This evaluation is based upon various statistical analyses which consider
historical losses and the current aging of the portfolio.
  For
homogeneous loans and leases, delinquencies are an important indication of a
developing loss, and we monitor delinquency rates closely in all of our
portfolios.
  Experience
is not available with new products; therefore, while we are developing that
experience, we set loss allowances based on our experience with the most closely
analogous products in our portfolio.
  When
we repossess collateral in satisfaction of a commercial loan, we write the
receivable down against the allowance for losses. Repossessed collateral is
included in “Other assets” in the Statement of Financial Position and carried at
the lower of cost or estimated fair value less costs to sell.
  The
underlying assumptions, estimates and assessments we use are continually updated
to reflect our view of current conditions. Changes in such estimates can
significantly affect the allowance and provision for losses. It is possible to
experience credit losses that are different from our current
estimates.
  **Cash
and equivalents**
  Debt
securities with original maturities of three months or less are included in cash
equivalents unless designated as available-for-sale and classified as investment
securities.
  **Investment
securities**
  We
report investments in debt and marketable equity securities, and equity
securities at our insurance affiliates, at fair value based on quoted market
prices or, if quoted prices are not available, discounted expected cash flows
using market rates commensurate with credit quality and maturity of the
investment. Unrealized gains and losses on available-for-sale investment
securities are included in shareowner's equity, net of applicable taxes and
other adjustments. We regularly review investment securities for impairment
based on criteria that include the extent to which cost exceeds market value,
the duration of that market decline, our intent and ability to hold to recovery
and
   (41)
  the
financial health and specific prospects for the issuer. Unrealized losses that
are other than temporary are recognized in earnings. For investment securities
designated as trading, unrealized gains and losses are recognized currently in
earnings. Realized gains and losses are accounted for on the specific
identification method.
  **Inventories**
  All
inventories are stated at the lower of cost or realizable values. Our
inventories consist of finished products held for sale, and cost is determined
on a first-in, first-out basis.
  **Intangible
assets**
  We
do not amortize goodwill, but test it annually for impairment using a fair value
approach at the “reporting unit” level. A reporting unit is the operating
segment, or a business one level below that operating segment (the “component”
level) if discrete financial information is prepared and regularly reviewed by
segment management. However, components are aggregated as a single reporting
unit if they have similar economic characteristics. We recognize an impairment
charge for any amount by which the carrying amount of a reporting unit’s
goodwill exceeds its fair value. We use discounted cash flows to establish fair
values. When available and as appropriate, we use comparative market multiples
to corroborate discounted cash flow results. When a business within a reporting
unit is disposed of, goodwill is allocated to the gain or loss on disposition
using the relative fair value method.
  We
amortize the cost of other intangibles over their estimated useful lives.
Amortizable intangible assets are tested for impairment based on undiscounted
cash flows and, if impaired, written down to fair value based on either
discounted cash flows or appraised values.
  **Insurance
accounting policies**
  Accounting
policies for our insurance businesses follow.
  **Premium
income** ** We
report insurance premiums as earned income as follows:
  •
    For
      short-duration insurance contracts (including property and casualty, and
      accident and health insurance), we report premiums as earned income,
      generally on a pro-rata basis, over the terms of the related agreements.
      For retrospectively rated reinsurance contracts, we record premium
      adjustments based on estimated losses and loss expenses, taking into
      consideration both case and incurred-but-not-reported (IBNR)
      reserves.
 
 •
    For
      traditional long-duration insurance contracts (including term and whole
      life contracts and annuities payable for the life of the annuitant), we
      report premiums as earned income when due.
 
 •
    For
      investment contracts and universal life contracts, we report premiums
      received as liabilities, not as revenues. Universal life contracts are
      long-duration insurance contracts with terms that are not fixed and
      guaranteed; for these contracts, we recognize revenues for assessments
      against the policyholder’s account, mostly for mortality, contract
      initiation, administration and surrender. Investment contracts are
      contracts that have neither significant mortality nor significant
      morbidity risk, including annuities payable for a determined period; for
      these contracts, we recognize revenues on the associated investments, and
      amounts credited to policyholder accounts are charged to expense.
 
  (42)
  **Liabilities
for unpaid claims and claims adjustment expenses** represent
our best estimate of the ultimate obligations for reported claims plus those
IBNR and the related estimated claim settlement expenses for all claims incurred
through December 31 of each year. Specific reserves - also referred to as case
reserves - are established for reported claims using case-basis evaluations of
the underlying claim data and are updated as further information becomes known.
IBNR reserves are determined using generally accepted actuarial reserving
methods that take into account historical loss experience data and, as
appropriate, certain qualitative factors. IBNR reserves are adjusted to take
into account certain additional factors that can be expected to affect the
liability for claims over time, such as changes in the volume and mix of
business written, revisions to contract terms and conditions, changes in legal
precedents or developed case law, trends in healthcare and medical costs, and
general inflation levels. Settlement of complex claims routinely involves
threatened or pending litigation to resolve disputes as to coverage,
interpretation of contract terms and conditions or fair compensation for damages
suffered. These disputes are settled through negotiation, arbitration or actual
litigation. Recorded reserves incorporate our best estimate of the effect that
ultimate resolution of such disputes has on both claims payments and related
settlement expenses. Liabilities for unpaid claims and claims adjustment
expenses are continually reviewed and adjusted; such adjustments are included in
current operations and accounted for as changes in estimates.
  **Deferred
acquisition costs** ** Costs
that vary with and are directly related to the acquisition of new and renewal
insurance and investment contracts are deferred and amortized as
follows:
  •
    Short-duration
      contracts - Acquisition costs consist of commissions, brokerage expenses
      and premium taxes and are amortized ratably over the contract periods in
      which the related premiums are earned.
 
 •
    Long-duration
      contracts - Acquisition costs consist of first-year commissions in excess
      of recurring renewal commissions, certain variable sales expenses and
      certain support costs such as underwriting and policy issue expenses. For
      traditional long-duration insurance contracts, we amortize these costs
      over the respective contract periods in proportion to either anticipated
      premium income, or, in the case of limited-payment contracts, estimated
      benefit payments. For investment contracts and universal life contracts,
      amortization of these costs is based on estimated gross profits and is
      adjusted as those estimates are revised.
 
 We
review deferred acquisition costs periodically for recoverability considering
anticipated investment income.
  **Present
value of future profits** ** The
actuarially determined present value of anticipated net cash flows to be
realized from insurance, annuity and investment contracts in force at the date
of acquisition of life insurance policies is recorded as the present value of
future profits and is amortized over the respective policy terms in a manner
similar to deferred acquisition costs. We adjust unamortized balances to reflect
experience and impairment, if any *.*
  **Accounting
changes**
  We
adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN)
46R, *Consolidation
of Variable Interest Entities (Revised)* ,
on January 1, 2004, adding $2.6 billion of assets and $2.1 billion of
liabilities to our consolidated balance sheet as of that date. The most
significant entity consolidated was Penske Truck Leasing Co., L.P. (Penske),
which was previously accounted for using the equity method. Penske provides
full-service commercial truck leasing, truck rental and logistics services,
primarily in North America. This accounting change did not require an adjustment
to earnings and will not affect future earnings or cash flows.
  We
adopted FIN 46, *Consolidation
of Variable Interest Entities* ,
on July 1, 2003, and for the first time consolidated certain special purpose
entities. In total, transition resulted in a $339 million after-tax accounting
   (43)
  charge
to our third quarter 2003 net earnings, which is reported in the caption
“Cumulative effect of accounting changes.”
  •
    FIN
      46 required that, if practicable, we consolidate assets and liabilities of
      FIN 46 entities based on their carrying amounts. For us, such transition
      losses were primarily associated with interest rate swaps that did not
      qualify for hedge accounting before transition. Additional transition
      losses arose from recording carrying amounts of assets and liabilities as
      we eliminated certain previously recognized gains.
 
 •
    When
      it was impracticable to determine carrying amounts, as defined, FIN 46
      required assets and liabilities to be consolidated at their July 1, 2003,
      fair values. We recognized a loss on consolidation of certain of these
      entities because the fair value of associated liabilities, including the
      fair values of interest rate swaps, exceeded independently appraised fair
      values of their related assets.
 
 •
    For
      assets that had been securitized using qualifying special purpose entities
      (QSPEs), transition carrying amounts were based on hypothetical repurchase
      of the assets at fair value. Transition effects associated with
      consolidation of these assets and liabilities were insignificant, as were
      transition effects of consolidating assets and liabilities associated with
      issuance of guaranteed investment contracts
(GICs).
 
 Further
information about these entities is provided in note 20.
  In
2002, we adopted SFAS 142, *Goodwill
and Other Intangible Assets* ,
under which goodwill is no longer amortized but is tested for impairment using a
fair value method. Using the required reporting unit basis, we tested all of our
goodwill for impairment as of January 1, 2002, and recorded a non-cash charge of
$1.204 billion ($1.015 billion after tax). All of the charge related to
Equipment & Other Services. Factors contributing to the impairment charge
were the difficult economic environment in the information technology sector and
heightened price competition in the auto insurance industry. No impairment
charge had been required under our previous goodwill impairment policy, which
was based on undiscounted cash flows.
  **Note
2. Revenues from Services**
  *(In
      millions)*
    **2004**
    
    **2003**
    
    **2002**Interest
      on time sales and loans
    $
    18,956
    
    $
    17,196
    
    $
    14,068Premiums
      earned by insurance businesses
    
    16,126
    
    
    18,661
    
    
    16,484Operating
      lease rentals
    
    10,744
    (a)
    
    7,199
    
    
    6,879Investment
      income
    
    6,764
    
    
    6,489
    
    
    5,570Financing
      leases
    
    4,160
    
    
    4,206
    
    
    4,441Fees
    
    3,860
    
    
    3,162
    
    
    2,943Other
      income
    
    7,326
    (b)
    
    5,138
    
    
    5,018Total(c)
    $
    67,936
    
    $
    62,051
    
    $
    55,403(a)
    Included
      $2,593 million relating to the consolidation of Penske.(b)
    Included
      other operating revenue of Penske of $977 million and gain on sale of
      Gecis of $396 million, partially offset by the loss on Genworth Financial,
      Inc. (Genworth) initial public offering of $388 million.(c)
    Included
      $1,002 million in 2004 and $695 million in 2003 related to consolidated,
      liquidating securitization entities.
 
   (44)
  For
insurance businesses, the effects of reinsurance on premiums written and
premiums earned were as follows:
  **Premiums
      written**
    
    **Premiums
      earned***(In
      millions)*
    **2004**
    
    **2003**
    
    **2002**
    
    **2004**
    
    **2003**
    
    **2002**Direct
    $
    9,463
    
    $
    11,640
    
    $
    11,659
    
    $
    10,235
    
    $
    11,448
    
    $
    10,922Assumed
    
    8,666
    
    
    9,616
    
    
    9,409
    
    
    8,455
    
    
    9,964
    
    
    9,569Ceded
    
    (2,879
    )
    
    (2,654
    )
    
    (4,069
    )
    
    (2,564
    )
    
    (2,751
    )
    
    (4,007
    )Total
    $
    15,250
    
    $
    18,602
    
    $
    16,999
    
    $
    16,126
    
    $
    18,661
    
    $
    16,484
 
  **Note
3. Operating and Administrative Expenses**
  Our
employees and retirees are covered under a number of pension, health and life
insurance plans. The principal pension plans are the GE Pension Plan, a defined
benefit plan for U.S. employees and the GE Supplementary Pension Plan, an
unfunded plan providing supplementary benefits to higher level, longer service
U.S. employees. Employees of certain affiliates are covered under separate
pension plans which are not significant individually or in the aggregate. We
provide health and life insurance benefits to certain of our retired employees,
principally through GE Company’s benefit program. The annual cost to us of
providing these benefits is not material.
  Rental
expense relating to equipment we lease from others for the purpose of subleasing
was $383 million in 2004, $338 million in 2003 and $378 million in 2002. Other
rental expense was $614 million in 2004, $555 million in 2003, and $599 million
in 2002, principally for the rental of office space and data processing
equipment. At December 31, 2004, minimum rental commitments under noncancelable
operating leases aggregated $4,838 million. Amounts payable over the next five
years were; $782 million in 2005; $768 million in 2006; $633 million in 2007;
$543 million in 2008; $509 million in 2009. As a lessee, we have no material
lease agreements classified as capital leases.
  Amortization
of deferred acquisition costs charged to operations in 2004, 2003 and 2002 was
$2,275 million, $2,646 million and $2,390 million, respectively.
   (45)
  **Note
4. Investment Securities**
  *(In
      millions)*
    **Amortized**
      **cost**
    
    **Gross**
      **unrealized**
      **gains**
    
    **Gross**
      **unrealized**
      **losses**
    
    **Estimated**
      **fair
      value****December
      31, 2004**Available-for-sale
      securitiesDebt:U.S.
      corporate
    $
    51,739
    
    $
    2,921
    
    $
    (565
    )
    $
    54,095State
      and municipal
    
    12,779
    
    
    337
    
    
    (35
    )
    
    13,081Mortgage-backed
    
    15,314
    
    
    235
    
    
    (75
    )
    
    15,474Asset-backed
    
    11,584
    
    
    291
    
    
    (52
    )
    
    11,823Corporate
      - non-U.S.
    
    17,431
    
    
    788
    
    
    (45
    )
    
    18,174Government
      - non-U.S.
    
    9,722
    
    
    274
    
    
    (27
    )
    
    9,969U.S.
      government and federal agency
    
    1,448
    
    
    84
    
    
    (3
    )
    
    1,529Equity
    
    2,059
    
    
    413
    
    
    (25
    )
    
    2,447Trading
      securities
    
    (a)
    
    
    (a)
    
    
    (a)
    
    
    8,560Total
    $
    122,076
    
    $
    5,343
    
    $
    (827
    )
    $
    135,152
    (b)**December
      31, 2003**Available-for-sale
      securitiesDebt:U.S.
      corporate
    $
    52,299
    
    $
    2,558
    
    $
    (684
    )
    $
    54,173State
      and municipal
    
    12,707
    
    
    382
    
    
    (23
    )
    
    13,066Mortgage-backed
    
    13,441
    
    
    271
    
    
    (93
    )
    
    13,619Asset-backed
    
    12,503
    
    
    250
    
    
    (84
    )
    
    12,669Corporate
      - non-U.S.
    
    14,720
    
    
    557
    
    
    (89
    )
    
    15,188Government
      - non-U.S.
    
    8,558
    
    
    169
    
    
    (65
    )
    
    8,662U.S.
      government and federal agency
    
    1,616
    
    
    58
    
    
    (19
    )
    
    1,655Equity
    
    2,526
    
    
    393
    
    
    (117
    )
    
    2,802Trading
      securities
    
    (a)
    
    
    (a)
    
    
    (a)
    
    
    7,055Total
    $
    118,370
    
    $
    4,638
    
    $
    (1,174
    )
    $
    128,889
    (b)(a)
    Not
      applicable.(b)
    Included
      $1,147 million in 2004 and $1,566 million in 2003 of debt securities
      related to consolidated, liquidating securitization
    entities.
 
  Investment
securities included in our general account portfolio above and designated as
trading represent actively managed debt and equity securities of certain
non-U.S. insurance contractholders who retain the related risks and rewards,
except in the event of our bankruptcy or liquidation. Changes in unrealized
gains and losses on these securities are recognized currently in earnings.
During 2004, the net gain on investment securities classified as trading and
included in earnings was $293 million.
  A
substantial portion of our mortgage-backed securities are collateralized by U.S.
residential mortgages.
   (46)
  Following
are estimated fair value of, and gross unrealized losses on, our
available-for-sale investment securities.
  **Less
      than 12 months**
    
    **12
      months or more***December
      31 (In millions)*
    **Estimated**
      **fair
      value**
    
    **Gross**
      **unrealized**
      **losses**
    
    **Estimated**
      **fair
      value**
    
    **Gross**
      **unrealized**
      **losses****2004**Debt:U.S.
      corporate
    
    $
    8,092
    
    
    
    $
    (212
    )
    
    
    $
    2,347
    
    
    
    $
    (353
    )State
      and municipal
    
    
    3,603
    
    
    
    
    (33
    )
    
    
    
    63
    
    
    
    
    (2
    )Mortgage-backed
    
    
    5,572
    
    
    
    
    (55
    )
    
    
    
    563
    
    
    
    
    (20
    )Asset-backed
    
    
    2,501
    
    
    
    
    (20
    )
    
    
    
    485
    
    
    
    
    (32
    )Corporate
      - non-U.S.
    
    
    4,235
    
    
    
    
    (26
    )
    
    
    
    822
    
    
    
    
    (19
    )Government
      - non-U.S.
    
    
    1,370
    
    
    
    
    (10
    )
    
    
    
    1,142
    
    
    
    
    (17
    )U.S.
      government and federal agency
    
    
    237
    
    
    
    
    (2
    )
    
    
    
    43
    
    
    
    
    (1
    )Equity
    
    
    240
    
    
    
    
    (19
    )
    
    
    
    54
    
    
    
    
    (6
    )Total
    
    $
    25,850
    
    
    
    $
    (377
    )
    
    
    $
    5,519
    
    
    
    $
    (450
    )
 
 **2003**Debt:U.S.
      corporate
    
    $
    7,915
    
    
    
    $
    (255
    )
    
    
    $
    2,010
    
    
    
    $
    (429
    )State
      and municipal
    
    
    1,620
    
    
    
    
    (23
    )
    
    
    
    2
    
    
    
    
    -Mortgage-backed
    
    
    4,299
    
    
    
    
    (86
    )
    
    
    
    135
    
    
    
    
    (7
    )Asset-backed
    
    
    2,279
    
    
    
    
    (26
    )
    
    
    
    1,523
    
    
    
    
    (58
    )Corporate
      - non-U.S.
    
    
    2,925
    
    
    
    
    (71
    )
    
    
    
    123
    
    
    
    
    (18
    )Government
      - non-U.S.
    
    
    3,317
    
    
    
    
    (60
    )
    
    
    
    24
    
    
    
    
    (5
    )U.S.
      government and federal agency
    
    
    256
    
    
    
    
    (19
    )
    
    
    
    -
    
    
    
    
    -Equity
    
    
    394
    
    
    
    
    (79
    )
    
    
    
    105
    
    
    
    
    (38
    )Total
    
    $
    23,005
    
    
    
    $
    (619
    )
    
    
    $
    3,922
    
    
    
    $
    (555
    )
 
  Securities
in an unrealized loss position for 12 months or more at December 31, 2004 and
2003, included investment securities collateralized by commercial aircraft,
primarily Enhanced Equipment Trust Certificates, with unrealized losses of $291
million and $355 million, respectively, and estimated fair values of $941
million and $1,072 million, respectively. We review all of our investment
securities routinely for other than temporary impairment as described on page
41. In accordance with that policy, we provide for all amounts that we do not
expect either to collect in accordance with the contractual terms of the
instruments or to recover based on underlying collateral values. For our
securities collateralized by commercial aircraft, that review includes our best
estimates of the securities' cash flows, underlying collateral values, and
assessment of whether the borrower is in compliance with terms and conditions.
We believe that our securities, which are current on all payment terms, are in
an unrealized loss position because of ongoing negative market reaction to
commercial airline industry difficulties. We do not anticipate changes in the
timing and amount of estimated cash flows and we expect full recovery of our
amortized cost. Should our cash flow expectation prove to be incorrect, the
current aggregate market values of aircraft collateral, based on information
from independent appraisers, exceeded totals of both the market values and the
amortized cost of our securities at December 31, 2004.
   (47)
  **Contractual
Maturities of our Investment in Available-for-Sale Debt Securities (Excluding
Mortgage-Backed and Asset-Backed Securities)**
  *(In
      millions)*
    **Amortized**
      **cost**
    
    **Estimated**
      **fair
      value**Due
      in2005
    $
    7,802
    
    $
    7,9062006-2009
    
    22,305
    
    
    22,5932010-2014
    
    26,947
    
    
    27,6392015
      and later
    
    36,065
    
    
    38,710
 
  We
expect actual maturities to differ from contractual maturities because borrowers
have the right to call or prepay certain obligations.
  Supplemental
information about gross realized gains and losses on available-for-sale
investment securities follows.
  *(In
      millions)*
    **2004**
    
    **2003**
    
    **2002**Gains
    $
    749
    
    $
    1,322
    
    $
    1,578Losses,
      including impairments
    
    (342
    )
    
    (914
    )
    
    (1,277
    )Net
    $
    407
    
    $
    408
    
    $
    301
 
  Proceeds
from available-for-sale securities sales amounted to $24,473 million, $34,322
million and $46,183 million in 2004, 2003 and 2002, respectively.
  **Note
5. Financing Receivables (investments in time sales, loans and financing
leases)**
  *December
      31 (In millions)*
    **2004**
    
    **2003**Time
      sales and loans, net of deferred income
    $
    220,361
    
    $
    188,842Investment
      in financing leases, net of deferred income
    
    67,754
    
    
    65,320288,115
    
    
    254,162Less
      allowance for losses (note 6)
    
    (5,648
    )
    
    (6,256
    )Financing
      receivables - net
    $
    282,467
    
    $
    247,906
 
  Included
in the above are the financing receivables of consolidated, liquidating
securitization entities as follows:
  *December
      31 (In millions)*
    **2004**
    
    **2003**Time
      sales and loans, net of deferred income
    $
    20,496
    
    $
    18,050Investment
      in financing leases, net of deferred income
    
    2,125
    
    
    3,82722,621
    
    
    21,877Less
      allowance for losses
    
    (5
    )
    
    -Financing
      receivables - net
    $
    22,616
    
    $
    21,877
 
   (48)
  Details
by segment follow.
  *December
      31 (In millions)*
    **2004**
    
    **2003****Commercial
      Finance**Equipment
    $
    74,970
    
    $
    68,085Commercial
      and industrial
    
    36,443
    
    
    35,035Real
      estate
    
    20,470
    
    
    20,171Commercial
      aircraft
    
    13,562
    
    
    12,424145,445
    
    
    135,715**Consumer
      Finance**Non-U.S.
      residential mortgages
    
    42,201
    
    
    19,593Non-U.S.
      installment and revolving credit
    
    33,889
    
    
    31,954Non-U.S.
      auto
    
    23,517
    
    
    20,729U.S.
      installment and revolving credit
    
    21,385
    
    
    16,545Other
    
    6,771
    
    
    5,856127,763
    
    
    94,677**Equipment
      & Other Services**
    
    14,907
    
    
    23,770288,115
    
    
    254,162Less
      allowance for losses
    
    (5,648
    )
    
    (6,256
    )Total
    $
    282,467
    
    $
    247,906
 
  Our
financing receivables include both time sales and loans and financing leases.
Time sales and loans represent transactions in a variety of forms, including
time sales, revolving charge and credit, mortgages, installment loans,
intermediate-term loans and revolving loans secured by business assets. The
portfolio includes time sales and loans carried at the principal amount on which
finance charges are billed periodically, and time sales and loans carried at
gross book value, which includes finance charges.
  Investment
in financing leases consists of direct financing and leveraged leases of
aircraft, railroad rolling stock, autos, other transportation equipment, data
processing equipment and medical equipment, as well as other manufacturing,
power generation, commercial real estate, and commercial equipment and
facilities.
  As
the sole owner of assets under direct financing leases and as the equity
participant in leveraged leases, we are taxed on total lease payments received
and are entitled to tax deductions based on the cost of leased assets and tax
deductions for interest paid to third-party participants. We are generally
entitled to any residual value of leased assets.
  Investment
in direct financing and leveraged leases represents net unpaid rentals and
estimated unguaranteed residual values of leased equipment, less related
deferred income. We have no general obligation for principal and interest on
notes and other instruments representing third-party participation related to
leveraged leases; such notes and other instruments have not been included in
liabilities but have been offset against the related rentals receivable. Our
share of rentals receivable on leveraged leases is subordinate to the share of
other participants who also have security interests in the leased
equipment.
   (49)
  **Net
Investment in Financing Leases**
  **Total
      financing leases**
    
    **Direct
      financing leases**
    
    **Leveraged
      leases***December
      31 (In millions)*
    **2004**
    
    **2003**
    
    **2004**
    
    **2003**
    
    **2004**
    
    **2003**Total
      minimum lease paymentsreceivable
    $
    91,840
    
    $
    91,592
    
    $
    63,733
    
    $
    62,121
    
    $
    28,107
    
    $
    29,471Less
      principal and interest onthird-party
      nonrecourse debt
    
    (20,992
    )
    
    (22,144
    )
    
    -
    
    
    -
    
    
    (20,992
    )
    
    (22,144
    )Net
      rentals receivable
    
    70,848
    
    
    69,448
    
    
    63,733
    
    
    62,121
    
    
    7,115
    
    
    7,327Estimated
      unguaranteed residualvalue
      of leased assets
    
    10,323
    
    
    9,747
    
    
    6,898
    
    
    6,072
    
    
    3,425
    
    
    3,675Less
      deferred income
    
    (13,417
    )
    
    (13,875
    )
    
    (9,966
    )
    
    (10,099
    )
    
    (3,451
    )
    
    (3,776
    )Investment
      in financing leases,net
      of deferred income
    
    67,754
    
    
    65,320
    
    
    60,665
    
    
    58,094
    
    
    7,089
    
    
    7,226Less
      amounts to arrive at netinvestmentAllowance
      for losses
    
    (1,090
    )
    
    (830
    )
    
    (903
    )
    
    (734
    )
    
    (187
    )
    
    (96
    )Deferred
      taxes
    
    (9,767
    )
    
    (10,250
    )
    
    (5,099
    )
    
    (5,793
    )
    
    (4,668
    )
    
    (4,457
    )Net
      investment in financing leases
    $
    56,897
    
    $
    54,240
    
    $
    54,663
    
    $
    51,567
    
    $
    2,234
    
    $
    2,673
 
  **Contractual
Maturities**
  *(In
      millions)*
    **Total**
      **time
      sales**
      **and
      loans**
    
    **Net
      rentals**
      **receivable**Due
      in2005
    $
    66,085
    
    $
    17,7672006
    
    31,394
    
    
    14,5952007
    
    25,461
    
    
    10,9002008
    
    13,770
    
    
    7,9082009
    
    13,796
    
    
    5,0972010
      and later
    
    69,855
    
    
    14,581Total
    $
    220,361
    
    $
    70,848
  We
expect actual maturities to differ from contractual maturities.
  Individually
“impaired” loans are defined by GAAP as larger balance or restructured loans for
which it is probable that the lender will be unable to collect all amounts due
according to original contractual terms of the loan agreement. An analysis of
impaired loans follows.
  *December
      31 (In millions)*
    **2004**
    
    **2003**Loans
      requiring allowance for losses
    $
    1,689
    
    $
    1,062Loans
      expected to be fully recoverable
    
    520
    
    
    1,430$
    2,209
    
    $
    2,492Allowance
      for losses
    $
    749
    
    $
    434Average
      investment during year
    
    2,403
    
    
    2,318Interest
      income earned while impaired(a)
    
    26
    
    
    33(a)
    Recognized
      principally on cash basis.
  (50)
  **Note
6. Allowance for Losses on Financing Receivables**
  *(In
      millions)*
    **2004**
    
    **2003**
    
    **2002**
    ******Balance
      at January 1**Commercial
      Finance
    $
    2,244
    
    $
    2,664
    
    $
    2,532Consumer
      Finance
    
    3,984
    
    
    2,782
    
    
    2,173Equipment
      & Other Services
    
    28
    
    
    54
    
    
    876,256
    
    
    5,500
    
    
    4,792**Provision
      charged to operations**Commercial
      Finance
    
    651
    
    
    887
    
    
    1,110Consumer
      Finance
    
    3,219
    
    
    2,808
    
    
    1,950Equipment
      & Other Services
    
    18
    
    
    57
    
    
    243,888
    
    
    3,752
    
    
    3,084**Other
      additions (reductions)**(a)
    
    (74
    )
    
    679
    
    
    704**Gross
      write-offs**Commercial
      Finance
    
    (954
    )
    
    (1,321
    )
    
    (1,262
    )Consumer
      Finance(b)
    
    (4,423
    )
    
    (3,114
    )
    
    (2,383
    )Equipment
      & Other Services
    
    (75
    )
    
    (88
    )
    
    (77
    )(5,452
    )
    
    (4,523
    )
    
    (3,722
    )**Recoveries**Commercial
      Finance
    
    163
    
    
    126
    
    
    95Consumer
      Finance
    
    846
    
    
    710
    
    
    534Equipment
      & Other Services
    
    21
    
    
    12
    
    
    131,030
    
    
    848
    
    
    642**Balance
      at December 31**Commercial
      Finance
    
    2,140
    
    
    2,244
    
    
    2,664Consumer
      Finance
    
    3,473
    
    
    3,984
    
    
    2,782Equipment
      & Other Services
    
    35
    
    
    28
    
    
    54Balance
      at December 31
    $
    5,648
    
    $
    6,256
    
    $
    5,500(a)
    Other
      additions (reductions) primarily included the effects of acquisitions,
      securitization activity and the effects of exchange rates. These additions
      (reductions) included $314 million, $480 million and $487 million related
      to acquisitions and $(461) million, $(335) million and $(80) million
      related to securitization activity in 2004, 2003 and 2002, respectively.(b)
    Included
      $889 million in 2004 related to the standardization of our write-off
      policy.
 
  See
note 5 for amounts related to consolidated, liquidating securitization
entities.
   (51)
  **Selected
Financing Receivables Ratios**
  *December
      31*
    **2004**
    
    
    **2003****Allowance
      for losses on financing receivables as a percentage of total financing****receivables**Commercial
      Finance
    1.47
    %
    
    1.65
    %Consumer
      Finance(a)
    2.72
    
    
    4.21Equipment
      & Other Services
    0.23
    
    
    0.12Total
    1.96
    
    
    2.46**Nonearning
      and reduced earning financing receivables as a percentage of total****financing
           receivables**Commercial
      Finance
    1.1
    %
    
    1.3
    %Consumer
      Finance(a)
    2.0
    
    
    2.6Equipment
      & Other Services
    1.2
    
    
    0.6Total
    1.5
    
    
    1.7(a)
    The
      standardization of our write-off policy in 2004 reduced the allowance for
      losses on financing receivables as a percentage of total financing
      receivables by 74 basis points, and nonearning and reduced earning
      financing receivables as a percentage of total financing receivables by 57
      basis points.
 
  **Note
7. Insurance Receivables**
  *December
      31 (In millions)*
    **2004**
    
    **2003**Reinsurance
      recoverables
    $
    11,509
    
    $
    12,067Commercial
      mortgage loans
    
    6,993
    
    
    6,648Premiums
      receivable
    
    4,479
    
    
    4,510Policy
      loans
    
    1,378
    
    
    1,245Funds
      on deposit with reinsurers
    
    590
    
    
    623Other
    
    1,240
    
    
    2,669Allowance
      for losses
    
    (218
    )
    
    (221
    )Total(a)
    $
    25,971
    
    $
    27,541(a)
    Included
      $342 million in 2004 and $484 million in 2003 related to consolidated,
      liquidating securitization entities.
 
   (52)
  **Note
8. Buildings and Equipment**
  *December
      31 (Dollars in millions)*
    Estimated
      useful lives-new (years)
    
    **2004**
    
    **2003****Original
      cost**(a)Buildings
      and equipment
    1-40
    
    $
    6,167
    
    $
    4,792Equipment
      leased to othersAircraft
    20
    
    
    26,837
    
    
    23,069Vehicles
    4-14
    
    
    23,056
    
    
    16,600Railroad
      rolling stock
    9-30
    
    
    3,390
    
    
    3,356Mobile
      and modular space
    12-20
    
    
    2,965
    
    
    3,164Construction
      and manufacturing
    3-25
    
    
    1,772
    
    
    1,563All
      other
    3-33
    
    
    3,021
    
    
    3,026Total
    
    
    $
    67,208
    
    $
    55,570**Net
      carrying value**(a)Buildings
      and equipment
    
    
    $
    3,526
    
    $
    2,827Equipment
      leased to othersAircraft(b)
    
    
    
    21,991
    
    
    19,097Vehicles
    
    
    
    14,062
    
    
    9,745Railroad
      rolling stock
    
    
    
    2,193
    
    
    2,220Mobile
      and modular space
    
    
    
    1,636
    
    
    1,814Construction
      and manufacturing
    
    
    
    1,157
    
    
    1,121All
      other
    
    
    
    2,013
    
    
    1,998Total
    
    
    $
    46,578
    
    $
    38,822(a)
    Included
      $2.2 billion and $2.1 billion of original cost of assets leased to GE with
      accumulated amortization of $0.4 billion and $0.3 billion at December 31,
      2004 and 2003, respectively.(b)
    Commercial
      Finance recognized impairment losses of $0.1 billion in 2004 and $0.2
      billion in 2003 recorded in the caption “Depreciation and amortization” in
      the Statement of Earnings to reflect adjustments to fair value based on
      current market values from independent appraisers.
 
  Amortization
of equipment leased to others was $5,365 million, $4,224 million and $3,919
million in 2004, 2003 and 2002, respectively. Noncancelable future rentals due
from customers for equipment on operating leases at December 31, 2004, are due
as follows:
  *(In
      millions)*Due
      in2005
    $
    7,0012006
    
    5,5372007
    
    4,1552008
    
    2,9712009
    
    2,0562010
      and later
    
    6,272Total
    $
    27,992
 
   (53)
  **Note
9. Intangible Assets**
  *December
      31 (In millions)*
    **2004**
    
    **2003**Goodwill
    $
    25,416
    
    $
    21,527Present
      value of future profits (PVFP)
    
    1,426
    
    
    1,562Capitalized
      software
    
    758
    
    
    800Other
      intangibles
    
    920
    
    
    932Total
    $
    28,520
    
    $
    24,821Intangible
      assets were****net
      of accumulated amortization of $10,876 million in 2004 and $10,292 million
      in 2003.
 
  Changes
in goodwill balances, net of accumulated amortization, follow.
  **2004***(In
      millions)*
    **Commercial**
      **Finance**
    ****
    **Consumer**
      **Finance**
    ****
    **Equipment**
      **&
      Other**
      **Services**
    ****
    **Insurance**
    ****
    **Total**Balance
      at January 1
    
    $
    8,736
    
    
    
    $
    7,779
    
    
    
    $
    920
    
    
    
    $
    4,092
    
    
    $
    21,527Acquisitions/purchaseaccounting
      adjustments
    
    
    938
    
    
    
    
    1,275
    
    
    
    
    (11
    )
    
    
    
    10
    
    
    
    2,212Inter-segment
      transfers
    
    
    523
    
    
    
    
    384
    
    
    
    
    (523
    )
    
    
    
    (384
    )
    
    
    -Currency
      exchange and other
    
    
    74
    
    
    
    
    422
    
    
    
    
    1,073
    (a)
    
    
    
    108
    
    
    
    1,677Balance
      at December 31
    
    $
    10,271
    
    
    
    $
    9,860
    
    
    
    $
    1,459
    
    
    
    $
    3,826
    
    
    $
    25,416**2003***(In
      millions)*
    **Commercial**
      **Finance**
    ****
    **Consumer**
      **Finance**
    ****
    **Equipment**
      **&
      Other**
      **Services**
    ****
    **Insurance**
    ****
    **Total**Balance
      at January 1
    
    $
    8,469
    
    
    
    $
    5,562
    
    
    
    $
    887
    
    
    
    $
    4,176
    
    
    $
    19,094Acquisitions/purchaseaccounting
      adjustments
    
    
    183
    
    
    
    
    1,294
    
    
    
    
    29
    
    
    
    
    12
    
    
    
    1,518Currency
      exchange and other
    
    
    84
    
    
    
    
    923
    
    
    
    
    4
    
    
    
    
    (96
    )
    
    
    915Balance
      at December 31
    
    $
    8,736
    
    
    
    $
    7,779
    
    
    
    $
    920
    
    
    
    $
    4,092
    
    
    $
    21,527(a)
    Included
      $1,055 million of goodwill associated with the consolidation of Penske
      effective January 1, 2004.
 
  The
amount of goodwill related to new acquisitions during 2004 was $1,979 million,
the largest of which were WMC Finance Co. ($520 million) and Australian
Financial Investments Group (AFIG) ($301 million) by Consumer Finance and Sophia
S.A. ($511 million) and most of the commercial lending business of Transamerica
Finance Corporation ($294 million) by Commercial Finance.
  The
amount of goodwill related to purchase accounting adjustments to prior-year
acquisitions during 2004 was $233 million, primarily associated with the 2003
acquisitions of Allbank and First National Bank at Consumer Finance.
   (54)
  The
amount of goodwill related to new acquisitions recorded during 2003 was $1,382
million, the largest of which was First National Bank ($680 million) by Consumer
Finance.
  The
amount of goodwill related to purchase accounting adjustments to prior-year
acquisitions during 2003 was $136 million, primarily associated with the 2002
acquisitions of Australian Guarantee Corporation at Consumer Finance and
Security Capital Group at Commercial Finance.
  Upon
closing an acquisition, we estimate the fair values of assets and liabilities
acquired and consolidate the acquisition as quickly as possible. Given the time
it takes to obtain pertinent information to finalize the acquired company’s
balance sheet (frequently with implications for the price of the acquisition),
then to adjust the acquired company’s accounting policies, procedures, books and
records to our standards, it is often several quarters before we are able to
finalize those initial fair value estimates. Accordingly, it is not uncommon for
our initial estimates to be subsequently revised.
  **Intangible
Assets Subject to Amortization**
  **2004**
    
    **2003***December
      31 (In millions)*
    **Gross**
      **carrying**
      **amount**
    
    **Accumulated**
      **amortization**
    
    **Net**
    
    **Gross**
      **carrying**
      **amount**
    
    **Accumulated**
      **amortization**
    
    **Net**PVFP
    $
    3,382
    
    
    $
    (1,956
    )
    
    $
    1,426
    
    $
    3,348
    
    
    $
    (1,786
    )
    
    $
    1,562Capitalized
      software
    
    1,703
    
    
    
    (945
    )
    
    
    758
    
    
    1,560
    
    
    
    (760
    )
    
    
    800Patents,
      licenses and other
    
    459
    
    
    
    (241
    )
    
    
    218
    
    
    308
    
    
    
    (201
    )
    
    
    107Servicing
      assets and allother
    
    4,739
    
    
    
    (4,037
    )
    
    
    702
    
    
    4,634
    
    
    
    (3,809
    )
    
    
    825Total
    $
    10,283
    
    
    $
    (7,179
    )
    
    $
    3,104
    
    $
    9,850
    
    
    $
    (6,556
    )
    
    $
    3,294
  Amortization
expense related to intangible assets, subject to amortization, for 2004 and 2003
was $800 million and $947 million, respectively.
  Changes
in PVFP balances follow.
  *(In
      millions)*
    **2004**
    
    **2003**Balance
      at January 1
    $
    1,562
    
    $
    2,457Acquisitions
    
    -
    
    
    46Dispositions
    
    -
    
    
    (658
    )Accrued
      interest(a)
    
    90
    
    
    113Amortization
    
    (221
    )
    
    (351
    )Other
    
    (5
    )
    
    (45
    )Balance
      at December 31
    $
    1,426
    
    $
    1,562(a)
    Interest
      was accrued at a rate of 6.3% and 4.3% for 2004 and 2003,
      respectively.
 
  Recoverability
of PVFP is evaluated periodically by comparing the current estimate of expected
future gross profits with the unamortized asset balance. If such comparison
indicates that the expected gross profits will not be sufficient to recover
PVFP, the difference is charged to expense. No such expense was recorded in 2004
or 2003.
   (55)
  Amortization
expense for PVFP in future periods will be affected by acquisitions, realized
capital gains/losses or other factors affecting the ultimate amount of gross
profits realized from certain lines of business. Similarly, future amortization
expense for other intangibles will depend on acquisition activity and other
business transactions.
  The
estimated percentage of the December 31, 2004, net PVFP balance to be amortized
over each of the next five years follows.
  **2005**
    
    
    **2006**
    
    
    **2007**
    
    
    **2008**
    
    
    **2009**8.9
    %
    
    8.3
    %
    
    7.2
    %
    
    6.3
    %
    
    5.3
    %
 
  **Note
10. Other Assets**
  *December
      31 (In millions)*
    **2004**
    
    **2003**InvestmentsAssociated
      companies(a)
    $
    11,048
    
    $
    13,218Real
      estate(b)
    
    19,190
    
    
    15,573Assets
      held for sale(c)
    
    6,501
    
    
    1,856Securities
      lending transactions
    
    3,202
    
    
    3,026Other(d)
    
    6,699
    
    
    6,26346,640
    
    
    39,936Separate
      accounts
    
    8,959
    
    
    8,316Deferred
      acquisition costs
    
    8,180
    
    
    7,879Derivative
      instruments(e)
    
    3,062
    
    
    1,913Other
    
    6,108
    
    
    5,092Total(f)
    $
    72,949
    
    $
    63,136(a)
    Included
      advances to associated companies, which are non-controlled,
      non-consolidated equity investments.(b)
    Our
      investment in real estate consists principally of two categories: real
      estate held for investment and equity method investments. Both categories
      contained a wide range of properties including the following at December
      31, 2004: office buildings (46%), apartment buildings (16%), self storage
      facilities (11%), retail facilities (10%), industrial properties (6%),
      parking facilities (5%), franchise properties (3%) and other (3%). At
      December 31, 2004, investments were located in Europe (45%), North America
      (41%) and Asia (14%).(c)
    These
      assets held for sale were accounted for at the lower of carrying amount or
      each asset’s estimated fair value less costs to sell.(d)
    Included
      cost method investments of $2,626 million in 2004, of which the fair value
      and unrealized loss of those in a continuous loss position for less than
      12 months was $111 million and $31 million, respectively. The fair value
      and unrealized loss of those in a continuous loss position for 12 months
      or more was $56 million and $42 million, respectively. Cost method
      investments were each evaluated for impairment.(e)
    Amounts
      are stated at fair value in accordance with SFAS 133,*Accounting
      for Derivative Instruments and Hedging Activities*,
      as amended. We discuss types of derivative instruments and how we use them
      in note 19.(f)
    Included
      $2,408 million in 2004 and $2,352 million in 2003 related to consolidated,
      liquidating securitization entities.
 
  Separate
accounts represent investments controlled by policyholders and are associated
with identical amounts reported as insurance liabilities in note
12.
   (56)
  **Note
11. Borrowings**
  **Short-Term
Borrowings**
  **2004**
    
    **2003***December
      31 (Dollars in millions)*
    Amount
    
    Average
      rate
    (a)
    Amount
    
    Average
      rate
    (a)Commercial
      paperU.S.Unsecured
    $
    62,694
    
    2.24
    %
    $
    65,536
    
    1.11
    %Asset-backed(b)
    
    13,842
    
    2.17
    
    
    21,998
    
    1.12Non-U.S.
    
    20,835
    
    2.96
    
    
    15,062
    
    2.93Current
      portion of long-term debt(c)
    
    37,582
    
    4.10
    
    
    38,367
    
    3.30Other
    
    19,890
    
    
    
    
    14,505Total
    $
    154,843
    
    
    
    $
    155,468(a)
    Based
      on year-end balances and year-end local currency interest rates. Current
      portion of long-term debt included the effects of interest rate and
      currency swaps, if any, directly associated with the original debt
      issuance.(b)
    Entirely
      obligations of consolidated, liquidating securitization entities. See note
      20.(c)
    Included
      short-term borrowings by consolidated, liquidating securitization entities
      of $756 million and $482 million at December 31, 2004 and 2003,
      respectively.
 
  **Long-Term
Borrowings**
  2004*December
      31 (Dollars in millions)*
    Average
      rate
    (a)
    Maturities
    
    **2004**
    
    **2003**Senior
      notesUnsecured
    3.74
    %
    2006-2055
    
    $
    180,183
    
    $
    149,049Asset-backed(b)
    4.15
    
    2006-2035
    
    
    10,939
    
    
    1,948Extendible
      notes(c)
    2.40
    
    2007-2009
    
    
    14,258
    
    
    12,591Subordinated
      notes(d)
    7.44
    
    2006-2035
    
    
    1,119
    
    
    1,262Total
    
    
    $
    206,499
    
    $
    164,850(a)
    Based
      on year-end balances and year-end local currency interest rates, including
      the effects of interest rate and currency swaps, if any, directly
      associated with the original debt issuance.(b)
    Asset-backed
      senior notes are all issued by consolidated, liquidating securitization
      entities as discussed in note 20. The amount related to AFIG, a 2004
      acquisition, was $9,769 million.(c)
    Included
      obligations of consolidated, liquidating securitization entities in the
      amount of $267 million and $362 million at December 31, 2004 and 2003,
      respectively.(d)
    At
      year-end 2004 and 2003, $1.0 billion of subordinated notes were guaranteed
      by GE.
 
  Our
borrowings are addressed below from the perspectives of liquidity, interest rate
and currency risk management. Additional information about borrowings and
associated swaps can be found in note 19.
   (57)
  **Liquidity** is
affected by debt maturities and our ability to repay or refinance such debt.
Long-term debt maturities, including borrowings from GE, over the next five
years follow.
  *(In
      millions)*
    **2005**
    
    **2006**
    
    **2007**
    
    **2008**
    
    **2009**$
    37,582
    (a)
    $
    54,012
    (b)
    $
    29,115
    
    $
    21,032
    
    $
    26,803(a)
    Floating
      rate extendible notes of $244 million are due in 2005, but are extendible
      at the investors’ option to a final maturity in 2008. Floating rate notes
      of $482 million contain put options with exercise dates in 2005, but have
      final maturity dates greater than 2010.(b)
    Floating
      rate extendible notes of $14.0 billion are due in 2006, but are extendible
      at the investors’ option to a final maturity in 2007 ($12.0 billion) and
      2009 ($2.0 billion).
 
  Committed
credit lines totaling $57.3 billion had been extended to us by 83 banks at
year-end 2004. Included in this amount was $47.4 billion provided directly to us
and $9.9 billion provided by 21 banks to GE, to which we also have access. Our
lines include $19.2 billion of revolving credit agreements under which we can
borrow funds for periods exceeding one year. The remaining $38.1 billion are
364-day lines of which $37.6 billion contain a term-out feature that allows us
to extend the borrowings for one year from the date of expiration of the lending
agreement. We pay banks for credit facilities, but compensation amounts were
insignificant in each of the past three years.
  **Interest
rate and currency risk** is managed through the direct issuance of debt or use of derivatives. We take
positions in view of anticipated behavior of assets, including prepayment
behavior. We use a variety of instruments, including interest rate and currency
swaps and currency forwards, to achieve our interest rate objectives. The
following table shows our borrowing positions considering the effects of
currency and interest rate swaps.
  **Effective
Borrowings (Including Swaps)**
  **2004**
    
    **2003***December
      31 (Dollars in millions)*
    Amount
    
    Average
      rate
    
    AmountShort-term(a)
    $
    91,253
    
    2.52
    %
    
    $
    88,499Long-term
      (including current portion)Fixed
      rate(b)
    $
    148,344
    
    4.57
    %
    
    $
    121,677Floating
      rate
    
    121,745
    
    3.02
    
    
    
    110,142Total
      long-term
    $
    270,089
    
    
    
    
    $
    231,819(a)
    Included
      commercial paper and other short-term debt.(b)
    Included
      fixed-rate borrowings and $23.6 billion ($26.5 billion in 2003) notional
      long-term interest rate swaps that effectively convert the floating-rate
      nature of short-term borrowings to fixed rates of
interest.
 
  At
December 31, 2004, interest rate swap maturities ranged from 2005 to 2048,
including swap maturities for hedges of commercial paper that ranged from 2005
to 2024. The use of commercial paper swaps allows us to match our actual asset
profile more efficiently and provides more flexibility as it does not depend on
investor demand for particular maturities.
   (58)
  **Note
12. Insurance Liabilities, Reserves and Annuity Benefits**
  *December
      31 (In millions)*
    **2004**
    
    **2003**Investment
      contracts and universal life benefits
    $
    63,136
    
    $
    63,787Life
      insurance benefits(a)
    
    31,660
    
    
    28,040Unpaid
      claims and claims adjustment expenses(b)
    
    30,288
    
    
    29,176Unearned
      premiums
    
    6,859
    
    
    7,109Separate
      accounts (see note 10)
    
    8,959
    
    
    8,316Total
    $
    140,902
    
    $
    136,428(a)
    Life
      insurance benefits are accounted for mainly by a net-level-premium method
      using estimated yields generally ranging from 2.0% to 8.5% in 2004 and
      1.2% to 8.5% in 2003.(b)
    Principally
      property and casualty reserves amounting to $25.0 billion and $24.9
      billion at December 31, 2004 and 2003, respectively. Included amounts for
      both reported and IBNR claims, reduced by anticipated salvage and
      subrogation recoveries. Estimates of liabilities are reviewed and updated
      continually, with changes in estimated losses reflected in
      operations.
 
  When
insurance affiliates cede insurance to third parties, they are not relieved of
their primary obligation to policyholders. Losses on ceded risks give rise to
claims for recovery; we establish allowances for probable losses on such
receivables from reinsurers as required.
  We
recognize reinsurance recoveries as a reduction of the Statement of Earnings
caption “Insurance losses and policyholder and annuity benefits.” Reinsurance
recoveries were $1,369 million, $1,781 million and $2,234 million for the years
ended December 31, 2004, 2003 and 2002, respectively.
  The
insurance liability for unpaid claims and claims adjustment expenses related to
policies that may cover environmental and asbestos exposures is based on known
facts and an assessment of applicable law and coverage litigation. Liabilities
are recognized for both known and unasserted claims (including the cost of
related litigation) when sufficient information has been developed to indicate
that a claim has been incurred and a range of potential losses can be reasonably
estimated. Developed case law and adequate claim history do not exist for
certain claims, principally because of significant uncertainties as to both the
level of ultimate losses that will occur and what portion, if any, will be
deemed to be insured amounts.
   (59)
  A
summary of activity affecting unpaid claims and claims adjustment expenses,
principally in property and casualty lines, follows.
  *(In
      millions)*
    **2004**
    
    **2003**
    
    **2002**Balance
      at January 1 - gross
    $
    29,176
    
    $
    30,571
    
    $
    27,233Less
      reinsurance recoverables
    
    (8,313
    )
    
    (9,646
    )
    
    (9,400
    )Balance
      at January 1 - net
    
    20,863
    
    
    20,925
    
    
    17,833Claims
      and expenses incurredCurrent
      year
    
    8,641
    
    
    9,002
    
    
    9,505Prior
      years
    
    1,098
    
    
    740
    
    
    3,188Claims
      and expenses paidCurrent
      year
    
    (1,985
    )
    
    (2,565
    )
    
    (3,173
    )Prior
      years
    
    (6,967
    )
    
    (7,079
    )
    
    (6,918
    )Other(a)
    
    1,110
    
    
    (160
    )
    
    490Balance
      at December 31 - net
    
    22,760
    
    
    20,863
    
    
    20,925Add
      reinsurance recoverables
    
    7,528
    
    
    8,313
    
    
    9,646Balance
      at December 31 - gross
    $
    30,288
    
    $
    29,176
    
    $
    30,571(a)
    Included
      $633 million in 2004 related to the adoption of FIN
46R.
 
  Claims
and expenses incurred - prior years represents additional losses (adverse
development) recognized in any year for loss events that occurred before the
beginning of that year. Adverse development, which amounted to 5%, 4% and 18% of
beginning of year loss reserves in 2004, 2003 and 2002, respectively, was
primarily encountered at GE Insurance Solutions.
  Reported
claims activity at GE Insurance Solutions related to prior-year loss events,
particularly for liability-related exposures underwritten in 1997 through 2001,
has continued to develop adversely to previous expectations. More specifically,
reported claims activity for these underwriting years accelerated dramatically
in 2002, affecting much of our liability-related product exposures, including
hospital medical malpractice, product liability, professional liability,
umbrella liability, workers compensation, individual liability and asbestos. In
response to these data, we adjusted our best estimate of ultimate losses to be
higher in the range of what were viewed as reasonably possible loss scenarios at
that time, increasing recorded reserves by $2.5 billion in the fourth quarter of
2002, for a total of $3.5 billion adverse development at GE Insurance Solutions
for the year.
  For
a majority of our lines of business, reported claims activity in 2003 was
reasonably close to expected amounts. However, for certain lines - principally
medical malpractice, product liability and certain director and officer related
coverage - the reported claims volumes exceeded our revised loss expectations.
Accordingly, we increased our loss reserves to the newly-indicated ultimate
levels, recording adverse development of $0.9 billion in 2003.
  In
2004, as part of our comprehensive annual assessment of recorded claim-related
liabilities, we observed that reported claims activity in certain product lines,
substantially related to the 1997 through 2001 underwriting years, continued to
exceed previously established loss expectations. The more significant lines of
business affected were workers compensation, hospital and professional
liability, and asbestos and environmental exposures. Incorporating this updated
information into our reserving process led to an increase in ultimate loss
projections and corresponding reserve levels by $1.1 billion for the year. We
will continue to monitor reported claims activity for all
   (60)
  lines
of business in the future and take necessary reserve actions - either to
increase or decrease reserves - as our estimates continue to
mature.
  Our
mortgage insurance business experienced favorable development during the
three-year period, primarily reflecting continued strength in certain real
estate markets and the success of our loss containment initiatives.
  Financial
guarantees and credit life risk of insurance affiliates are summarized
below.
  *December
      31 (In millions)*
    **2004**
    
    **2003**Guarantees,
      principally on municipal bonds
    $
    1,190
    
    $
    1,190Mortgage
      insurance risk in force
    
    194,600
    
    
    146,627Credit
      life insurance risk in force
    
    29,906
    
    
    25,728Less
      reinsurance
    
    (2,397
    )
    
    (2,207
    )Total
    $
    223,299
    
    $
    171,338
 
  Certain
insurance affiliates offer insurance guaranteeing the timely payment of
scheduled principal and interest on municipal bonds. Other insurance affiliates
provide insurance to protect residential mortgage lenders from severe financial
loss caused by the non-payment of loans and issue credit life insurance designed
to pay the balance due on a loan if the borrower dies before the loan is repaid.
As part of their overall risk management process, insurance affiliates cede to
third parties a portion of their risk associated with these guarantees. In doing
so, they are not relieved of their primary obligation to policyholders.
  **Note
13. Income Taxes**
  The
provision for income taxes is summarized in the following table.
  *(In
      millions)*
    **2004**
    
    **2003**
    
    **2002**Current
      tax expense (benefit)
    $
    3,067
    
    $
    720
    
    $
    (1,488
    )Deferred
      tax expense (benefit) from temporary differences
    
    (1,527
    )
    
    738
    
    
    1,409$
    1,540
    
    $
    1,458
    
    $
    (79
    )
 
  We
are included in the consolidated U.S. federal income tax return which GE Company
files. The provision for current tax expense includes our effect on the
consolidated return.
  Current
tax expense (benefit) includes amounts applicable to U.S. federal income taxes
of $893 million, ($56) million and ($1,881) million in 2004, 2003 and 2002,
respectively, and amounts applicable to non-U.S. jurisdictions of $2,152
million, $744 million and $407 million in 2004, 2003 and 2002, respectively.
Deferred taxes related to U.S. federal income taxes was income of $2,012 million
in 2004 compared with expense of $254 million and $971 million in 2003 and 2002,
respectively.
  Deferred
income tax balances reflect the effects of temporary differences between the
carrying amounts of assets and liabilities and their tax bases as well as from
net operating loss and tax credit carryforwards, and are stated at enacted tax
rates expected to be in effect when taxes are actually paid or
recovered.
   (61)
  Deferred
income tax assets represent amounts available to reduce income taxes payable on
taxable income in future years. We evaluate the recoverability of these future
tax deductions by assessing the adequacy of future expected taxable income from
all sources, including reversal of temporary differences and forecasted
operating earnings.
  We
have not provided U.S. deferred taxes on cumulative earnings of non-U.S.
affiliates and associated companies that have been reinvested indefinitely.
These earnings relate to ongoing operations and, at December 31, 2004, were
approximately $19 billion. Because of the availability of U.S. foreign tax
credits, it is not practicable to determine the U.S. federal income tax
liability that would be payable if such earnings were not reinvested
indefinitely. Deferred taxes are provided for earnings of non-U.S. affiliates
and associated companies when we plan to remit those earnings.
  The
American Jobs Creation Act of 2004 (the Act) allows U.S. companies a one-time
opportunity to repatriate non-U.S. earnings through 2005 at a 5.25% rate of tax
rather than the normal U.S. tax rate of 35%, provided that certain criteria,
including qualified U.S. reinvestment, are met. Available tax credits related to
the repatriation would be reduced under provisions of the Act. While GE
continues to evaluate the Act, because the vast majority of its permanently
reinvested non-U.S. earnings have been deployed in active business operations,
and it is therefore unlikely that GE will repatriate any material portion of its
permanently reinvested non-U.S. earnings, no incremental tax provision effect
has been recorded through December 31, 2004. If GE were to repatriate up to
$3,000 million of indefinitely reinvested earnings in 2005, incremental taxes
would be provided at less than a 5% rate. If GE were to repatriate any earnings,
it has not yet determined the portion of earnings, if any, that would be
allocable to our activity.
  U.S.
income before taxes and the cumulative effect of accounting changes was $1.8
billion in 2004, $2.9 billion in 2003 and negative $0.4 billion in 2002. The
corresponding amounts for non-U.S.-based operations were $7.9 billion in 2004,
$6.3 billion in 2003 and $4.9 billion in 2002.
  A
reconciliation of the U.S. federal statutory income tax rate to the actual
income tax rate is provided below.
  **Reconciliation
of U.S. Federal Statutory Income Tax Rate to Actual Income Tax
Rate**
  **2004**
    
    **2003**
    
    **2002**U.S.
      federal statutory income tax rate
    35.0
    %
    35.0
    %
    35.0
    %Increase
      (reduction) in rate resulting from:Tax-exempt
      income
    (2.0
    )
    (2.4
    )
    (5.1
    )Tax
      on global activities including exports
    (14.6
    )
    (10.8
    )
    (22.5
    )Kidder
      Peabody tax settlement
    -
    
    -
    
    (3.6
    )Insurance
      tax settlement
    -
    
    -
    
    (3.4
    )Fuels
      credits
    (1.3
    )
    (1.2
    )
    (3.1
    )Sale
      of ERC Life Reinsurance Corporation
    -
    
    (2.4
    )
    -All
      other - net
    (1.2
    )
    (2.4
    )
    1.0(19.1
    )
    (19.2
    )
    (36.7
    )Actual
      income tax rate
    15.9
    %
    15.8
    %
    (1.7
    )%
 
   (62)
  Principal
components of our net liability representing deferred income tax balances are as
follows:
  *December
      31 (In millions)*
    **2004**
    
    **2003****Assets**Allowance
      for losses
    $
    2,208
    
    $
    2,036Insurance
      reserves
    
    1,184
    
    
    1,109Cash
      flow hedges
    
    909
    
    
    1,029AMT
      credit carryforward
    
    203
    
    
    351Other
      - net
    
    4,003
    
    
    5,423Total
      deferred income tax assets
    
    8,507
    
    
    9,948**Liabilities**Financing
      leases
    
    9,767
    
    
    10,250Operating
      leases
    
    3,716
    
    
    3,523Deferred
      acquisition costs
    
    1,567
    
    
    1,501Other
      - net
    
    4,255
    
    
    5,410Total
      deferred income tax liabilities
    
    19,305
    
    
    20,684Net
      deferred income tax liability
    $
    10,798
    
    $
    10,736
 
  **Note
14. Minority Interest in Equity of Consolidated Affiliates**
  Minority
interest in equity of consolidated affiliates includes common shares in
consolidated affiliates and preferred stock issued by GE Capital and by
affiliates of GE Capital. The balance is summarized as follows:
 *December
      31 (In millions)*
    **2004**
    
    **2003**Minority
      interest in consolidated affiliatesGenworth
      Financial, Inc.(a)
    $
    3,778
    
    $
    -Others(b)
    
    986
    
    
    674Minority
      interest in preferred stock(c)GE
      Capital
    
    2,600
    
    
    2,600GE
      Capital affiliates
    
    1,318
    
    
    1,841$
    8,682
    
    $
    5,115(a)
    Resulted
      from the sale of approximately 30% of the common shares of our previously
      wholly-owned subsidiary.(b)
    Included
      minority interest in consolidated, liquidating securitization entities,
      partnerships and common shares of consolidated affiliates.(c)
    The
      preferred stock primarily pays cumulative dividends at variable rates.
      Dividend rates in local currency on the preferred stock ranged from 0.99%
      to 5.46% during 2004 and 0.91% to 5.65% during 2003.
  **Note
15. Restricted Net Assets of Affiliates**
  Certain
of our consolidated affiliates are restricted from remitting certain funds to us
in the form of dividends or loans by a variety of regulations, the purpose of
which is to protect affected insurance policyholders, depositors or investors.
At December 31, 2004 and 2003, net assets of our regulated affiliates amounted
to $60.4 billion and $46.7 billion, respectively, of which $41.4 billion and
$37.0 billion, respectively, was restricted.
   (63)
  At
December 31, 2004 and 2003, the aggregate statutory capital and surplus of the
insurance businesses totaled $19.4 billion and $15.9 billion, respectively.
Accounting practices prescribed by statutory authorities are used in preparing
statutory statements.
  **Note
16. Shareowner’s Equity**
  *(In
      millions)*
    **2004**
    
    **2003**
    
    **2002****Total
      shareowner’s equity at December 31**
    $
    53,755
    
    $
    45,308
    
    $
    36,929**Cumulative
      preferred stock issued**
    $
    10
    
    $
    10
    
    $
    10**Common
      stock issued**
    $
    1
    
    $
    1
    
    $
    1**Accumulated
      nonowner changes other than earnings**Balance
      at January 1
    $
    2,735
    
    $
    (1,667
    )
    $
    (2,078
    )Investment
      securities - net of deferred taxes of $537, $566and
      $916
    
    746
    
    
    916
    
    
    1,757Currency
      translation adjustments - net of deferred taxesof
      $(1,267), $(1,361) and $31
    
    2,544
    
    
    3,417
    
    
    58Cash
      flow hedges - net of deferred taxesof
      $(186), $(400) and $(855)
    
    (249
    )
    
    (750
    )
    
    (2,131
    )Minimum
      pension liabilities - net of deferred taxesof
      $(42), $(9) and $(14)
    
    (109
    )
    
    (19
    )
    
    (22
    )Reclassification
      adjustmentsInvestment
      securities - net of deferred taxes of $(142),$(143)
      and $(105)
    
    (265
    )
    
    (265
    )
    
    (196
    )Currency
      translation adjustments
    
    -
    
    
    4
    
    
    -Cash
      flow hedges - net of deferred taxesof
      $339, $619 and $217
    
    622
    
    
    1,099
    
    
    945Balance
      at December 31
    $
    6,024
    
    $
    2,735
    
    $
    (1,667
    )**Additional
      paid-in capital**Balance
      at January 1
    $
    12,258
    
    $
    12,261
    
    $
    5,979Contributions(a)
    
    102
    
    
    (3
    )
    
    6,282Balance
      at December 31
    $
    12,360
    
    $
    12,258
    
    $
    12,261**Retained
      earnings**Balance
      at January 1
    $
    30,304
    
    $
    26,324
    
    $
    24,678Net
      earnings
    
    8,161
    
    
    7,415
    
    
    3,611Dividends(a)
    
    (3,105
    )
    
    (3,435
    )
    
    (1,965
    )Balance
      at December 31
    $
    35,360
    
    $
    30,304
    
    $
    26,324(a)
    Total
      dividends and other transactions with the shareowner reduced equity by
      $3,003 million and $3,438 million in 2004 and 2003, respectively, and
      increased equity by $4,317 million in 2002.
 
  Our
outstanding preferred stock amounted to $510 million at December 31, 2004, all
of which was held by consolidated affiliates with the exception of $10 million
of such shares, which were dividended to GE Company in 1994. All other equity is
owned entirely by GE Company and an affiliate.
   (64)
  The
effects of translating to U.S. dollars the financial statements of non-U.S.
affiliates whose functional currency is the local currency are included in
shareowner’s equity. Asset and liability accounts are translated at year-end
exchange rates, while revenues and expenses are translated at average rates for
the period.
  **Note
17. Supplemental Cash Flows Information**
  Changes
in operating assets and liabilities are net of acquisitions and dispositions of
principal businesses.
  “Payments
for principal businesses purchased” in the Statement of Cash Flows is net of
cash acquired and includes debt assumed and immediately repaid in
acquisitions.
  “All
other operating activities” in the Statement of Cash Flows consists primarily of
adjustments to current and noncurrent accruals and deferrals of costs and
expenses, adjustments for gains and losses on assets, increases and decreases in
assets held for sale and adjustments to assets.
   (65)
  Certain
supplemental information related to our cash flows is shown below.
  *For
      the years ended December 31 (In millions)*
    **2004**
    
    **2003**
    
    **2002****All
      other operating activities**Proceeds
      from assets held for sale
    $
    84
    
    $
    1,168
    
    $
    25Amortization
      of intangible assets
    
    800
    
    
    947
    
    
    1,558Realized
      gains on sale of investment securities
    
    (407
    )
    
    (408
    )
    
    (301
    )Other
    
    117
    
    
    508
    
    
    (1,838
    )$
    594
    
    $
    2,215
    
    $
    (556
    )**Net
      increase in financing receivables**Increase
      in loans to customers
    $
    (342,357
    )
    $
    (263,815
    )
    $
    (209,431
    )Principal
      collections from customers - loans
    
    305,846
    
    
    238,518
    
    
    185,329Investment
      in equipment for financing leases
    
    (22,649
    )
    
    (22,825
    )
    
    (19,828
    )Principal
      collections from customers - financing leases
    
    19,715
    
    
    18,909
    
    
    15,305Net
      change in credit card receivables
    
    (7,322
    )
    
    (11,483
    )
    
    (19,108
    )Sales
      of financing receivables
    
    31,487
    
    
    36,009
    
    
    29,651$
    (15,280
    )
    $
    (4,687
    )
    $
    (18,082
    )**All
      other investing activities**Purchases
      of securities by insurance and annuity businesses
    $
    (34,164
    )
    $
    (50,127
    )
    $
    (64,721
    )Dispositions
      and maturities of securities by insurance and annuitybusinesses
    
    32,668
    
    
    43,720
    
    
    54,423Proceeds
      from principal business dispositions
    
    472
    
    
    3,337
    
    
    -Other
    
    1,467
    
    
    3,277
    
    
    (4,936
    )$
    443
    
    $
    207
    
    $
    (15,234
    )**Newly
      issued debt having maturities longer than 90 days**Short-term
      (91 to 365 days)
    $
    1,504
    
    $
    1,576
    
    $
    1,796Long-term
      (longer than one year)
    
    59,198
    
    
    57,572
    
    
    93,026Proceeds
      - nonrecourse, leveraged lease
    
    562
    
    
    791
    
    
    1,222$
    61,264
    
    $
    59,939
    
    $
    96,044**Repayments
      and other reductions of debt having maturities****longer
      than 90 days**Short-term
      (91 to 365 days)
    $
    (41,443
    )
    $
    (38,756
    )
    $
    (32,950
    )Long-term
      (longer than one year)
    
    (3,443
    )
    
    (3,664
    )
    
    (5,936
    )Principal
      payments - nonrecourse, leveraged lease
    
    (652
    )
    
    (782
    )
    
    (339
    )$
    (45,538
    )
    $
    (43,202
    )
    $
    (39,225
    )**All
      other financing activities**Proceeds
      from sales of investment contracts
    $
    18,103
    
    $
    9,319
    
    $
    7,894Redemption
      of investment contracts
    
    (21,048
    )
    
    (9,556
    )
    
    (6,834
    )Capital
      contributions from GE
    
    -
    
    
    -
    
    
    6,300Cash
      received upon assumption of insurance liabilities
    
    -
    
    
    -
    
    
    2,813$
    (2,945
    )
    $
    (237
    )
    $
    10,173
 
  **Note
18. Operating Segments**
  Our
operating businesses are organized based on the nature of products and services
provided. Segment accounting policies are the same as described in note 1.
   (66)
  Details
of total revenues and earnings before accounting changes by operating segment
can be found on page 14 of this report. Other specific information is provided
as follows.
  *For
      the years ended*
      *December
      31 (In millions)*
    **Total
      revenues**
    
    **Intersegment
      revenues**
    
    **External
      revenues****2004**
    
    **2003**
    
    **2002**
    
    **2004**
    
    **2003**
    
    **2002**
    
    **2004**
    
    **2003**
    
    **2002**Commercial
      Finance
    $
    23,489
    
    $
    20,813
    
    $
    19,592
    
    $
    279
    
    $
    195
    
    $
    128
    
    $
    23,210
    
    $
    20,618
    
    $
    19,464Consumer
      Finance
    
    15,734
    
    
    12,845
    
    
    10,266
    
    
    33
    
    
    23
    
    
    12
    
    
    15,701
    
    
    12,822
    
    
    10,254Equipment
      &Other
      Services
    
    8,483
    
    
    4,427
    
    
    5,545
    
    
    (354
    )
    
    (241
    )
    
    (142
    )
    
    8,837
    
    
    4,668
    
    
    5,687Insurance
    
    23,070
    
    
    26,194
    
    
    23,296
    
    
    42
    
    
    23
    
    
    2
    
    
    23,028
    
    
    26,171
    
    
    23,294Total
    $
    70,776
    
    $
    64,279
    
    $
    58,699
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    70,776
    
    $
    64,279
    
    $
    58,699
 
  **Depreciation
      and amortization**
    
    **Provision
      for income taxes***For
      the years ended December 31 (In millions)*
    **2004**
    
    **2003**
    
    **2002**
    
    **2004**
    
    **2003**
    
    **2002**Commercial
      Finance
    $
    3,827
    
    $
    3,466
    
    $
    3,133
    
    $
    1,145
    
    $
    846
    
    $
    800Consumer
      Finance
    
    334
    
    
    276
    
    
    232
    
    
    449
    
    
    458
    
    
    527Equipment
      & Other Services
    
    1,995
    
    
    1,126
    
    
    1,034
    
    
    (168
    )
    
    (774
    )
    
    (730
    )Insurance
    
    411
    
    
    583
    
    
    469
    
    
    114
    
    
    928
    
    
    (676
    )Total
    $
    6,567
    
    $
    5,451
    
    $
    4,868
    
    $
    1,540
    
    $
    1,458
    
    $
    (79
    )
 
  **Interest
      on time sales and loans**
    
    **Interest
      expense***For
      the years ended December 31 (In millions)*
    **2004**
    
    **2003**
    
    **2002**
    
    **2004**
    
    **2003**
    
    **2002**Commercial
      Finance
    $
    6,000
    
    $
    5,669
    
    $
    5,260
    
    $
    6,083
    
    $
    5,789
    
    $
    5,979Consumer
      Finance
    
    11,856
    
    
    10,454
    
    
    8,254
    
    
    3,564
    
    
    2,696
    
    
    2,143Equipment
      & Other Services
    
    699
    
    
    578
    
    
    109
    
    
    1,265
    (a)
    
    1,246
    (a)
    
    1,332Insurance
    
    401
    
    
    495
    
    
    445
    
    
    460
    
    
    531
    
    
    481Total
    $
    18,956
    
    $
    17,196
    
    $
    14,068
    
    $
    11,372
    
    $
    10,262
    
    $
    9,935
 
  **Assets**
      **At
      December 31**
    
    **Buildings
      and equipment additions**(b)
      **For
      the years ended December 31***(In
      millions)*
    **2004**
    
    **2003**
    
    **2002**
    
    **2004**
    
    **2003**
    
    **2002**Commercial
      Finance(c)
    $
    232,123
    
    $
    214,125
    
    $
    202,571
    
    $
    7,582
    
    $
    7,405
    
    $
    8,999Consumer
      Finance(c)
    
    151,255
    
    
    106,530
    
    
    76,965
    
    
    217
    
    
    191
    
    
    221Equipment
      & Other Services(c)
    
    55,744
    
    
    63,989
    
    
    27,995
    
    
    3,215
    
    
    1,148
    
    
    2,417Insurance
    
    179,205
    
    
    170,044
    
    
    182,297
    
    
    23
    
    
    35
    
    
    71Total
    $
    618,327
    
    $
    554,688
    
    $
    489,828
    
    $
    11,037
    
    $
    8,779
    
    $
    11,708(a)
    Included
      $529 million in 2004 and $393 million in 2003 related to consolidated,
      liquidating securitization entities.(b)
    Additions
      to buildings and equipment include amounts relating to principal
      businesses purchased.(c)
    Total
      assets of the Commercial Finance, Consumer Finance and Equipment &
      Other Services segments at December 31, 2004, include investments in and
      advances to non-consolidated affiliates of $8,050 million, $2,180 million
      and $776 million, respectively, which contributed approximately $436
      million, $65 million and $82 million, respectively, to segment pre-tax
      income for the year ended December 31, 2004.
 
   (67)
  Revenues
originating from operations based in the United States were $41,376 million,
$36,442 million and $34,341 million in 2004, 2003 and 2002, respectively.
Revenues originating from operations based outside the United States were
$29,400 million, $27,837 million and $24,358 million in 2004, 2003 and 2002,
respectively.
  Buildings
and equipment associated with operations based in the United States were $16,317
million, $11,970 million and $11,078 million at year-end 2004, 2003 and 2002,
respectively. Buildings and equipment associated with operations based outside
the United States were $30,261 million, $26,852 million and $24,252 million at
year-end 2004, 2003 and 2002, respectively.
  **Note
19. Derivatives and Other Financial Instruments**
  **Derivatives
and hedging**
  Exchange
rate and interest rate risks are managed with a variety of straightforward
techniques, including match funding and selective use of derivatives. We use
derivatives to mitigate or eliminate certain financial and market risks because
we conduct business in diverse markets around the world and local funding is not
always efficient. In addition, we use derivatives to adjust the debt we are
issuing to match the fixed or floating nature of the assets we are acquiring. We
apply strict policies to manage each of these risks, including prohibitions on
derivatives trading, derivatives market-making or other speculative
activities.
  To
qualify for hedge accounting, the details of the hedging relationship must be
formally documented at inception of the arrangement, including the risk
management objective, hedging strategy, hedged item, specific risks that are
being hedged, the derivative instrument and how effectiveness is being assessed.
The derivative must be highly effective in offsetting either changes in fair
value or cash flows, as appropriate, for the risk being hedged. Effectiveness is
evaluated on a retrospective and prospective basis. If a hedge relationship
becomes ineffective, it no longer qualifies as a hedge. Any excess gains or
losses attributable to such ineffectiveness, as well as subsequent changes in
the fair value of the derivative, are recognized in earnings.
  **Cash
flow hedges**
  Cash
flow hedges are hedges that use simple derivatives to offset the variability of
expected future cash flows. Variability can appear in floating rate assets,
floating rate liabilities or from certain types of forecasted transactions, and
can arise from changes in interest rates or currency exchange rates. For
example, we often borrow at a variable rate of interest to fund our businesses.
If Commercial Finance needs the funds to make a floating rate loan, there is no
exposure to interest rate changes, and no hedge is necessary. However, upon
making a fixed rate loan, we will contractually commit to pay a fixed rate of
interest to a counterparty who will pay us a variable rate of interest (an
“interest rate swap”). We then designate this swap as a cash flow hedge of the
associated variable-rate borrowing. If, as expected, the derivative is perfectly
effective in offsetting variable interest in the borrowing, we record changes in
its fair value in a separate component in equity, then release those changes to
earnings contemporaneously with the earnings effects of the hedged item. Further
information about hedge effectiveness is provided on page 70.
  We
use currency forwards and options to manage exposures to changes in currency
exchange rates associated with commercial purchase and sale transactions. These
instruments permit us to eliminate the cash flow variability, in local currency,
of costs or selling prices denominated in currencies other than the functional
currency. In addition, we use these instruments, along with interest rate and
currency swaps, to convert borrowings into the currency of the local market in
which we do business.
   (68)
  At
December 31, 2004, amounts related to derivatives qualifying as cash flow hedges
amounted to a reduction of equity of $1,354 million, of which we expect to
transfer $478 million to earnings in 2005 along with the earnings effects of the
related forecasted transactions. At December 31, 2004, the amount of
unrecognized losses related to cash flow hedges of short-term borrowings was
$1,823 million. In 2004, there were no forecasted transactions that failed to
occur. At December 31, 2004, the maximum term of derivative instruments that
hedge forecasted transactions was 23 years and related to hedges of anticipated
bond purchases in the Insurance business.
  **Fair
value hedges**
  Fair
value hedges are hedges that eliminate the risk of changes in the fair values of
assets, liabilities and certain types of firm commitments. For example, we will
use an interest rate swap in which we receive a fixed rate of interest and pay a
variable rate of interest to change the cash flow profile of a fixed-rate
borrowing to match the variable rate financial asset that it is funding. We
record changes in fair value of derivatives designated and effective as fair
value hedges in earnings, offset by corresponding changes in the fair value of
the hedged item.
  We
use interest rate swaps, currency swaps and interest rate and currency forwards
to hedge the effects of interest rate and currency exchange rate changes on
local and nonfunctional currency denominated fixed-rate borrowings and certain
types of fixed rate assets. Fair value adjustments increased the carrying amount
of debt outstanding at December 31, 2004, by $2,282 million. We use equity
options to hedge price changes in investment securities.
  **Net
investment hedges**
  Net
investment hedges are hedges that use derivative contracts or cash instruments
to hedge the foreign currency exposure of a net investment in a foreign
operation. We manage currency exposures that result from net investments in
affiliates principally by funding assets denominated in local currency with debt
denominated in that same currency. In certain circumstances, we manage such
exposures with currency forwards and currency swaps.
  **Derivatives
not designated as hedges**
  We
must meet specific criteria in order to apply any of the three forms of hedge
accounting. For example, hedge accounting is not permitted for hedged items that
are marked to market through earnings. We use derivatives to hedge exposures
when it makes economic sense to do so, including circumstances in which the
hedging relationship does not qualify for hedge accounting as described in the
following paragraph. We also will occasionally receive derivatives, such as
equity warrants, in the ordinary course of business. Derivatives that do not
qualify for hedge accounting are marked to market through earnings.
  We
use swaps and option contracts, including caps, floors and collars, as an
economic hedge of changes in interest rates, currency exchange rates and equity
prices on certain types of assets and liabilities. We occasionally obtain equity
warrants as part of sourcing or financing transactions. Although these
instruments are considered to be derivatives, their economic risk is similar to,
and managed on the same basis as, other equity instruments we hold.
   (69)
  **Earnings
effects of derivatives**
  The
table that follows provides additional information about the earnings effects of
derivatives. In the context of hedging relationships, “effectiveness” refers to
the degree to which fair value changes in the hedging instrument offset the
corresponding expected earnings effects of the hedged item. Certain elements of
hedge positions cannot qualify for hedge accounting under SFAS 133 whether
effective or not, and must therefore be marked to market through earnings. Time
value of purchased options is the most common example of such elements in
instruments we use. Pre-tax earnings effects of such items are shown in the
following table as “Amounts excluded from the measure of
effectiveness.”
  *December
      31 (In millions)*
    **2004**
    
    **2003****Cash
      flow hedges**Ineffectiveness
    $
    3
    
    $
    (18
    )Amounts
      excluded from the measure of effectiveness
    
    (6
    )
    
    -******Fair
      value hedges**Ineffectiveness
    
    13
    
    
    1Amounts
      excluded from the measure of effectiveness
    
    3
    
    
    -
 
  **Counterparty
credit risk**
  The
risk that counterparties to derivative contracts will default and not make
payments to us according to the terms of the agreements is counterparty credit
risk. We manage counterparty credit risk on an individual counterparty basis,
which means that we net exposures on transactions by counterparty where legal
right of offset exists to determine the amount of exposure to each counterparty.
When a counterparty exceeds credit exposure limits (see table on page 71), as
measured by current market value of the derivative contract, no additional
transactions are permitted to be executed until the exposure with that
counterparty is reduced to an amount that is within the established limits.
Swaps are required to be executed under master agreements containing mutual
credit downgrade provisions that provide the ability to require assignment or
termination in the event either party is downgraded below A3 or A-.
  To
further mitigate credit risk, in certain cases we have entered into collateral
arrangements that provide us with the right to hold collateral when the current
market value of derivative contracts exceeds an exposure threshold. Under these
arrangements, we may receive U.S. Treasury and other highly-rated securities or
cash to secure our exposure to counterparties; such collateral is available to
us in the event that a counterparty defaults. From an economic standpoint, we
evaluate credit risk exposures and compliance with credit exposure limits net of
such collateral. If the downgrade provisions had been triggered at December 31,
2004, we could have been required to disburse up to $5.4 billion and could have
claimed $4.2 billion from counterparties, including $2.4 billion of collateral
that has been pledged to us.
  Fair
values of our derivative assets and liabilities represent the replacement value
of existing derivatives at market prices and can change significantly from
period to period based on, among other factors, market movements and changes in
our positions. At December 31, 2004 and 2003, gross fair value gains amounted to
$5.9 billion and $4.6 billion, respectively. At December 31, 2004 and 2003,
gross fair value losses amounted to $7.1 billion and $6.4 billion,
respectively.
   (70)
  The
following tables illustrate our policy relating to exposure limits to
counterparties.
  **Counterparty
Credit Criteria**
  **Credit
      rating**Moody’s
    
    S&PForeign
      exchange forwards and other derivatives less than one year
    P-1
    
    A-1All
      derivatives between one and five years
    Aa3(a)
    
    AA-(a)All
      derivatives greater than five years
    Aaa(a)
    
    AAA(a)(a)
    Counterparties
      that have an obligation to provide collateral to cover credit exposure in
      accordance with a credit support agreement must have a minimum A3/A-
      rating.
 
  **Exposure
Limits**
  *(In
      millions)*
    **Exposure**Greater
      than one yearLess
      than
      one
      year
    
    With
      collateral
    
    Without
      collateralMinimum
      ratingAaa/AAA
    $
    150
    
    $
    100
    
    $
    75Aa3/AA-
    
    150
    
    
    50
    
    
    50A3/A-
    
    150
    
    
    5
    Not
      allowed
 
   (71)
  **Financial
Instruments**
  **2004**
    
    **2003**Assets
      (liabilities)
    
    
    
    
    Assets
      (liabilities)*December
      31 (In millions)*
    Notional
      amount
    
    Carrying
      amount
      (net)
    
    Estimated
      fair
      value
    
    Notional
      amount
    
    
    Carrying
      amount
      (net)
    
    Estimated
      fair
      valueAssetsTime
      sales and loans
    $
    (a)
    
    $
    215,803
    
    $
    216,923
    
    $
    (a)
    
    $
    183,416
    
    $
    182,961Other
      commercial andresidential
      mortgages
    
    (a)
    
    
    11,213
    
    
    11,402
    
    
    (a)
    
    
    8,759
    
    
    9,085Other
      financial instruments
    
    (a)
    
    
    3,206
    
    
    3,420
    
    
    (a)
    
    
    2,701
    
    
    2,701LiabilitiesBorrowings(b)(c)
    
    (a)
    
    
    (361,342
    )
    
    (370,641
    )
    
    (a)
    
    
    (320,318
    )
    
    (331,381
    )Investment
      contract benefits
    
    (a)
    
    
    (35,312
    )
    
    (35,337
    )
    
    (a)
    
    
    (34,224
    )
    
    (34,035
    )Insurance
      - financialguarantees
      and creditlife(d)
    
    223,299
    
    
    (3,582
    )
    
    (3,582
    )
    
    171,338
    
    
    (3,935
    )
    
    (3,935
    )Other
      firm commitmentsOrdinary
      course of businesslending
      commitmentsFixed
      rate
    
    2,503
    
    
    -
    
    
    -
    
    
    2,158
    
    
    -
    
    
    -Variable
      rate
    
    8,156
    
    
    -
    
    
    -
    
    
    8,923
    
    
    -
    
    
    -Unused
      revolving creditlines(e)CommercialFixed
      rate
    
    1,210
    
    
    -
    
    
    -
    
    
    896
    
    
    -
    
    
    -Variable
      rate
    
    21,411
    
    
    -
    
    
    -
    
    
    15,953
    
    
    -
    
    
    -Consumer
      - principallycredit
      cardsFixed
      rate
    
    141,965
    
    
    -
    
    
    -
    
    
    107,892
    
    
    -
    
    
    -Variable
      rate
    
    200,219
    
    
    -
    
    
    -
    
    
    131,106
    
    
    -
    
    
    -(a)
    These
      financial instruments do not have notional amounts.(b)
    Included
      effects of interest rate swaps and cross currency swaps.(c)
    See
      note 11.(d)
    See
      note 12.(e)
    Excluded
      inventory financing arrangements, which may be withdrawn at our option, of
      $8.9 billion and $4.2 billion as of December 31, 2004 and 2003,
      respectively.
 
  Assets
and liabilities that are reflected in the accompanying financial statements at
fair value are not included in the above disclosures; such items include cash
and equivalents, investment securities, separate accounts and derivative
financial instruments. Other assets and liabilities - those not carried at fair
value - are discussed below. Apart from certain of our borrowings and certain
marketable securities, few of the instruments discussed below are actively
traded and their fair values must often be determined using models. Although we
have made every effort to represent accurate estimated fair values in this
section, there is no assurance that such estimates could actually have been
realized at December 31, 2004 or 2003.
  A
description of how we estimate fair values follows.
  **Time
sales and loans**
  Based
on quoted market prices, recent transactions and/or discounted future cash
flows, using rates at which similar loans would have been made to similar
borrowers.
   (72)
  **Borrowings**
  Based
on discounted future cash flows using current market rates which are comparable
to market quotes.
  **Investment
contract benefits**
  Based
on expected future cash flows, discounted at currently offered discount rates
for immediate annuity contracts or cash surrender values for single premium
deferred annuities.
  **All
other instruments**
  Based
on comparable market transactions, discounted future cash flows, quoted market
prices, and/or estimates of the cost to terminate or otherwise settle
obligations.
  **Note
20. Securitization Entities**
  We
securitize financial assets in the ordinary course of business to improve
shareowner returns. The securitization transactions we engage in are similar to
those used by many financial institutions. Beyond improving returns, these
securitization transactions serve as funding sources for a variety of
diversified lending and securities transactions. Historically, we have used both
supported and third-party entities to execute securitization transactions funded
in the commercial paper and term bond markets.
  Securitized
assets that are on-balance sheet include assets consolidated on July 1, 2003,
upon adoption of FIN 46. Although we do not control these entities,
consolidation was required because we provided a majority of the credit and
liquidity support for their activities. A majority of these entities were
established to issue asset-backed securities, using assets that were sold by us
and by third parties. These entities differ from others included in our
consolidated financial statements because the assets they hold are legally
isolated and are unavailable to us under any circumstances. Repayment of their
liabilities depends primarily on cash flows generated by their assets. Because
we have ceased transferring assets to these entities, balances will decrease as
the assets repay. We refer to these entities as “consolidated, liquidating
securitization entities.”
  In
December 2004, we acquired AFIG. Securitization entities used by AFIG before our
acquisition to transfer its assets, residential real estate mortgages, are
required by U.S. accounting standards to be consolidated. These entities have
characteristics similar to those we consolidated when we adopted FIN 46, and we
intend to run off their assets. Therefore, we refer to them as consolidated,
liquidating securitization entities.
  The
following table represents assets in securitization entities, both consolidated
and off-balance sheet.
  *December
      31 (In millions)*
    **2004**
    
    **2003**Receivables
      secured by:Equipment
    $
    13,918
    
    $
    15,616Commercial
      real estate
    
    15,538
    
    
    16,713Residential
      real estate - AFIG
    
    9,094
    
    
    -Other
      assets
    
    11,723
    
    
    9,114Credit
      card receivables
    
    7,075
    
    
    8,581Total
      securitized assets
    $
    57,348
    
    $
    50,024
 
   (73)
 
 *December
      31 (In millions)*
    **2004**
    
    **2003**Off-balance
      sheet(a)(b)
    $
    30,835
    
    $
    23,561On-balance
      sheet - AFIG
    
    9,094
    
    
    -On-balance
      sheet - other(c)
    
    17,419
    
    
    26,463Total
      securitized assets
    $
    57,348
    
    $
    50,024(a)
    At
      December 31, 2004 and 2003, liquidity support amounted to $2,300 million
      and $3,100 million, respectively. These amounts are net of $4,300 million
      and $2,400 million, respectively, participated or deferred beyond one
      year. Credit support amounted to $6,600 million and $5,500 million at
      December 31, 2004 and 2003, respectively.(b)
    Liabilities
      for recourse obligations related to off-balance sheet assets were $0.1
      billion at both December 31, 2004 and 2003.(c)
    At
      December 31, 2004 and 2003, liquidity support amounted to $14,400 million
      and $18,400 million, respectively. These amounts are net of $1,200 million
      and $5,300 million, respectively, participated or deferred beyond one
      year. Credit support amounted to $6,900 million and $8,600 million at
      December 31, 2004 and 2003, respectively.
 The
portfolio of financing receivables consisted of loans and financing lease
receivables secured by equipment, commercial and residential real estate and
other assets; and credit card receivables. Examples of these assets include
loans and leases on manufacturing and transportation equipment, loans on
commercial property, commercial loans, and balances of high credit quality
accounts from sales of a broad range of products and services to a diversified
customer base.
  Assets
in consolidated, liquidating securitization entities are shown in the following
captions in the Statement of Financial Position.
  *December
      31 (In millions)*
    **2004**
    
    **2003**Investment
      securities
    $
    1,147
    
    $
    1,566Financing
      receivables - net (note 5)(a)
    
    22,616
    
    
    21,877Other
      assets
    
    2,408
    
    
    2,352Other,
      principally insurance receivables
    
    342
    
    
    668Total
    $
    26,513
    
    $
    26,463(a)
    Included
      $9,094 million related to AFIG.
 **Off-balance
sheet arrangements**
  We
continue to engage in off-balance sheet securitization transactions with
third-party entities and to use public market term securitizations. As discussed
above, assets in off-balance sheet securitization entities amounted to $30.8
billion and $23.6 billion at December 31, 2004 and 2003, respectively. Gross
securitization gains amounted to $1,195 million in 2004 compared with $1,394
million in 2003 and $1,796 million in 2002.
   (74)
  Amounts
recognized in our financial statements related to sales to off-balance sheet
securitization entities are as follows:
  *December
      31 (In millions)*
    **2004**
    
    **2003**Retained
      interests
    $
    3,363
    
    $
    2,479Servicing
      assets(a)
    
    33
    
    
    150Recourse
      liability
    
    (64
    )
    
    (75
    )Total
    $
    3,332
    
    $
    2,554(a)
    2003
      included $115 million of mortgage servicing rights sold in
      2004.
 
  •
    **Retained
      interests**When we securitize receivables, we determine fair value based on
      discounted cash flow models that incorporate, among other things,
      assumptions including loan pool credit losses, prepayment speeds and
      discount rates. These assumptions are based on our experience, market
      trends and anticipated performance related to the particular assets
      securitized. Subsequent to recording retained interests, we review
      recorded values quarterly in the same manner and using current
      assumptions. We recognize impairments when carrying amounts exceed current
      fair values.
 
 •
    **Servicing
      assets**Following a securitization transaction, we retain responsibility for
      servicing the receivables, and are therefore entitled to an ongoing fee
      based on the outstanding principal balances of the receivables. Servicing
      assets are primarily associated with residential mortgage loans. Their
      value is subject to credit, prepayment and interest rate risk.
 
 •
    **Recourse
      liability**Certain transactions require credit support agreements. As a result, we
      provide for expected credit losses under these agreements and such amounts
      approximate fair value.
 
 The
following table summarizes data related to securitization sales that we
completed during 2004 and 2003.
  *(Dollars
      in millions)*
    **Equipment**
    
    **Commercial
      real estate**
    
    **Other
      assets**
    
    **Credit
      card**
      **receivables****2004**Cash
      proceeds from securitization
    $
    5,367
    
    $
    4,578
    
    $
    -
    
    $
    8,121Proceeds
      from collectionsreinvested
      in new receivables
    
    -
    
    
    -
    
    
    21,389
    
    
    5,208Cash
      received on retained interest
    
    107
    
    
    70
    
    
    128
    
    
    1,788Weighted
      average lives (in months)
    
    37
    
    
    68
    
    
    -
    
    
    7**Assumptions
      as of sale date**(a)Discount
      rate
    
    8.2
    %
    
    13.0
    %
    
    -
    
    
    12.2
    %Prepayment
      rate
    
    9.1
    %
    
    11.2
    %
    
    -
    
    
    14.9
    %Estimate
      of credit losses
    
    1.9
    %
    
    1.1
    %
    
    -
    
    
    8.9
    %
 (75)
 *(Dollars
      in millions)*
    **Equipment**
    
    **Commercial
      real estate**
    
    **Other
      assets**
    
    **Credit
      card**
      **receivables****2003**Cash
      proceeds from securitization
    $
    5,416
    
    $
    3,082
    
    $
    2,009
    
    $
    -Proceeds
      from collectionsreinvested
      in new receivables
    
    -
    
    
    -
    
    
    14,047
    
    
    11,453Weighted
      average lives (in months)
    
    29
    
    
    72
    
    
    106
    
    
    7**Assumptions
      as of sale date**(a)Discount
      rate
    
    6.6
    %
    
    11.5
    %
    
    6.4
    %
    
    11.2
    %Prepayment
      rate
    
    10.1
    %
    
    10.8
    %
    
    4.6
    %
    
    15.0
    %Estimate
      of credit losses
    
    1.6
    %
    
    1.6
    %
    
    0.2
    %
    
    10.8
    %Cash
      receipts related to servicing and other sources were less than $300
      million in 2004.(a)
    Based
      on weighted averages.
 
  Key
assumptions used in measuring the fair value of retained interests in
securitizations and the sensitivity of the current fair value of residual cash
flows to changes in those assumptions are noted in the following table. These
assumptions may differ from those in the previous table as these related to all
outstanding retained interests as of December 31, 2004.
  *(Dollars
      in millions)*
    **Equipment**
    
    **Commercial**
      **real
      estate**
    
    **Other
      assets**
    
    **Credit
      card**
      **receivables****Discount
      rate**(a)
    
    7.3
    %
    
    8.6
    %
    
    6.7
    %
    
    11.3
    %Effect
      of:10%
      Adverse change
    $
    (10
    )
    $
    (13
    )
    $
    (19
    )
    $
    (9
    )20%
      Adverse change
    
    (20
    )
    
    (26
    )
    
    (37
    )
    
    (17
    )**Prepayment
      rate**(a)
    
    9.4
    %
    
    3.2
    %
    
    1.1
    %
    
    12.2
    %Effect
      of:10%
      Adverse change
    $
    (6
    )
    $
    (4
    )
    $
    (9
    )
    $
    (35
    )20%
      Adverse change
    
    (12
    )
    
    (9
    )
    
    (19
    )
    
    (65
    )**Estimate
      of credit losses**(a)
    
    1.8
    %
    
    0.4
    %
    
    0.5
    %
    
    8.0
    %Effect
      of:10%
      Adverse change
    $
    (11
    )
    $
    (8
    )
    $
    -
    
    $
    (34
    )20%
      Adverse change
    
    (23
    )
    
    (17
    )
    
    (2
    )
    
    (67
    )Remaining
      weightedaverage
      lives (in months)
    
    35
    
    
    101
    
    
    62
    
    
    8Net
      credit losses
    $
    54
    
    $
    7
    
    $
    25
    
    $
    465Delinquencies
    
    78
    
    
    38
    
    
    10
    
    
    256(a)
    Based
      on weighted averages.
 
  **Guarantee
and reimbursement contracts**  We
provide protection to certain counterparties of interest rate swaps entered into
by securitization-related entities related to changes in the relationship
between commercial paper interest rates and the timing and amount of the payment
streams. These arrangements provide protection for the life of the assets held
by the SPE but generally amortize in proportion to the decline in underlying
asset principal balances. At December 31, 2004, the notional amount of such
support was $1.8 billion and related assets and liabilities were insignificant.
   (76)
  **Note
21. Commitments and Guarantees**
  **Commitments,
including guarantees**
  Our
Commercial Finance business had placed multiple-year orders for various Boeing,
Airbus and other aircraft with list prices approximating $10.2 billion at
December 31, 2004.
 
 At
December 31, 2004, we were committed under the following guarantee arrangements
beyond those provided on behalf of SPEs. See note 20.
  •
    **Liquidity
      support**Liquidity support provided to holders of certain variable rate bonds
      issued by municipalities amounted to $3,612 million at December 31, 2004.
      If holders elect to sell supported bonds that cannot be remarketed, we are
      obligated to repurchase them at par. If called upon, our position would be
      secured by the repurchased bonds. While we hold any such bonds, we would
      receive interest payments from the municipalities at a rate that is in
      excess of the stated rate on the bond. To date, we have not been required
      to perform under such arrangements. In addition, we are currently not
      providing any new liquidity facilities.
 
 •
    **Credit
      support**We have provided $5,617 million of credit support on behalf of certain
      customers or associated companies, predominantly joint ventures and
      partnerships, using arrangements such as standby letters of credit and
      performance guarantees. These arrangements enable our customers and
      associated companies to execute transactions or obtain desired financing
      arrangements with third parties. Should the customer or associated company
      fail to perform under the terms of the transaction or financing
      arrangement, we would be required to perform on their behalf. Under most
      such arrangements, our guarantee is secured, usually by the asset being
      purchased or financed but possibly by certain other assets of the customer
      or associated company. The length of these credit support arrangements
      parallels the length of the related financing arrangements or
      transactions. The liability for such credit support was $72 million at
      December 31, 2004.
 
 •
    **Indemnification
      agreements**These are agreements that require us to fund up to $605 million under
      residual value guarantees on a variety of leased equipment and $156
      million of other indemnification commitments arising from sales of
      businesses or assets. Under most of our residual value guarantees, our
      commitment is secured by the leased asset at termination of the lease. The
      liability for these indemnification agreements was $59 million at December
      31, 2004.
 
 •
    **Contingent
      consideration**These are agreements to provide additional consideration in a business
      combination to the seller if contractually specified conditions related to
      the acquired entity are achieved. At December 31, 2004, we had recognized
      no liabilities for our total exposure of $232
million.
 
  Our
guarantees are provided in the ordinary course of business. We underwrite these
guarantees considering economic, liquidity and credit risk of the counterparty.
We believe that the likelihood is remote that any such arrangements could have a
significant adverse effect on our financial position, results of operations or
liquidity. We record liabilities for guarantees at estimated fair value,
generally the amount of the premium received, or if we do not receive a premium,
the amount based on appraisal, observed market values or discounted cash flows.
Any associated recoveries from third parties are recorded as other receivables;
not netted against the liabilities.
   (77)
   **Note
22. Quarterly Information (Unaudited)**
  **First
      quarter**
    
    **Second
      quarter**
    
    **Third
      quarter**
    
    **Fourth
      quarter***(In
      millions)*
    
    **2004**
    
    
    **2003**
    
    
    **2004**
    
    
    **2003**
    
    
    **2004**
    
    
    **2003**
    
    
    **2004**
    
    
    **2003**Total
      revenues
    $
    16,943
    
    $
    14,867
    
    $
    17,133
    
    $
    15,887
    
    $
    17,549
    
    $
    17,007
    
    $
    19,151
    
    $
    16,518Earnings
      before income taxes
    
    2,360
    
    
    1,990
    
    
    2,057
    
    
    1,899
    
    
    2,821
    
    
    2,884
    
    
    2,463
    
    
    2,439Provision
      for income taxes
    
    (515
    )
    
    (320
    )
    
    (361
    )
    
    (297
    )
    
    (588
    )
    
    (677
    )
    
    (76
    )
    
    (164
    )Earnings
      before accountingchanges
    
    1,845
    
    
    1,670
    
    
    1,696
    
    
    1,602
    
    
    2,233
    
    
    2,207
    
    
    2,387
    
    
    2,275Cumulative
      effect ofaccounting
      changes
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (339
    )
    
    -
    
    
    -Net
      earnings
    $
    1,845
    
    $
    1,670
    
    $
    1,696
    
    $
    1,602
    
    $
    2,233
    
    $
    1,868
    
    $
    2,387
    
    $
    2,275
 
  **Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.**
  Not
applicable.
   **Item
9A. Controls and Procedures**
  Under
the direction of our Chairman of the Board (serving as the principal executive
officer) and Chief Financial Officer, we evaluated our disclosure controls and
procedures and internal control over financial reporting and concluded that (i)
our disclosure controls and procedures were effective as of December 31, 2004
and (ii) no change in internal control over financial reporting occurred during
the quarter ended December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, such internal control over financial
reporting.
  **Management’s
Annual Report on Internal Control Over Financial
Reporting**
  The
management of General Electric Capital Services, Inc. is responsible for
establishing and maintaining adequate internal control over financial reporting
for the company. With the participation of the Chairman and the Chief Financial
Officer, our management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework and criteria
established in *Internal
Control - Integrated Framework* , issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation, our management has concluded that our internal control over
financial reporting was effective as of December 31, 2004.
  General
Electric Capital Services, Inc.’s independent auditor, KPMG LLP, a registered
public accounting firm, has issued an audit report on our management’s
assessment of our internal control over financial reporting. This audit report
appears on page 34.
  
  /s/
      Dennis D. Dammerman
    
    /s/
      James A. ParkeDennis
      D. Dammerman
      Chairman
      of the Board
    
    James
      A. Parke
      Vice
      Chairman and Chief Financial OfficerFebruary
      11, 2005
 
   (78)
  **Item
9B. Other Information**
  Not
applicable.
   **PART
III**
   **Item
10. Directors and Executive Officers of the Registrant.**
  Not
required by this form.
   **Item
11. Executive Compensation.**
  Not
required by this form.
   **Item
12. Security Ownership of Certain Beneficial Owners and
Management.**
  Not
required by this form.
   **Item
13. Certain Relationships and Related Transactions.**
  Not
required by this form.
   **Item
14. Principal Accounting Fees and Services.**
  The
aggregate fees billed for professional services by KPMG in 2004 and 2003
were:
  *(In
      millions)*
    
    **2004**
    
    
    **2003****Type
      of fees**Audit
      fees
    $
    38.7
    
    $
    26.3Audit-related
      fees
    
    9.2
    
    
    7.6Tax
      fees
    
    4.9
    
    
    5.8All
      other fees
    
    -
    
    
    0.5$
    52.8
    
    $
    40.2
 
  In
the above table, in accordance with the SEC’s definitions and rules, “Audit
fees” are fees we paid KPMG for professional services for the audit of our
annual financial statements included in Form 10-K and review of financial
statements included in the Form 10-Qs; for the audit of our internal control
over financial reporting with the objective of obtaining reasonable assurance
about whether effective internal control over financial reporting was maintained
in all material respects; for the attestation of management’s report on the
effectiveness of internal control over financial reporting; and for services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements. “Audit-related fees” are fees for assurance
and related services that are reasonably related to the performance of the audit
or the review of our financial statements and internal control over financial
reporting, including services in connection with assisting the company in its
compliance with its obligations under Section 404 of the Sarbanes-Oxley Act and
related regulations; “Tax fees” are fees for tax
   (79)
  compliance,
tax advice and tax planning; and “All other fees” are fees for any services not
included in the first three categories.
   **PART
IV**
   **Item
15. Exhibits and Financial Statement Schedules.**
  (a) 1.
    **Financial
      Statements**Included
      in Part II of this report:Report
      of Independent Registered Public Accounting Firm
      Statement
      of Earnings for each of the years in the three-year period ended December
      31, 2004
      Statement
      of Changes in Shareowner’s Equity for each of the years in the three-year
      period endedDecember
      31, 2004
      Statement
      of Financial Position at December 31, 2004 and 2003
      Statement
      of Cash Flows for each of the years in the three-year period ended
      December 31, 2004
      Notes
      to Consolidated Financial StatementsIncorporated
      by reference:The
      consolidated financial statements of General Electric Company, set forth
      in the Annual Report on Form 10-K of General Electric Company (S.E.C. File
      No. 001-00035) for the year ended December 31, 2004 (pages 45 through 113)
      and Exhibit 12 (Ratio of Earnings to Fixed Charges) of General Electric
      Company.(a) 2.
    **Financial
      Statement Schedules**Schedule
      I
    Condensed
      financial information of registrant.Schedule
      V
    Supplemental
      information concerning property and casualty insurance
      operations.All
      other schedules are omitted because of the absence of conditions under
      which they are required or because the required information is shown in
      the financial statements or notes thereto.(a) 3.
    **Exhibit
      Index**The
      exhibits listed below, as part of Form 10-K, are numbered in conformity
      with the numbering used in Item 601 of Regulation S-K of the Securities
      and Exchange Commission.
 
  (80)
  
 **Exhibit**
      **Number**
    
    **Description**3
      (i)
    
    A
      complete copy of the Certificate of Incorporation of GECS as last amended
      on July 22, 1999 and currently in effect, consisting of the following: (a)
      the Certificate of Incorporation of GECS as in effect immediately prior to
      the filing of a Certificate of Amendment on July 22, 1999 (Incorporated by
      reference to Exhibit 3(i) of the GECS’ Form 10-K Report for the year ended
      December 31, 1993); and (b) a Certificate of Amendment filed with the
      Office of the Secretary of State, State of Delaware on July 22, 1999
      (Incorporated by reference to Exhibit 3(i) of GECS’ Form 10-Q Report for
      the quarter ended June 26, 1999).3
      (ii)
    
    A
      complete copy of the By-Laws of GECS as last amended on September 19,
      2002, and currently in effect (Incorporated by reference to Exhibit 3(ii)
      of GECS’ Form 10-K Report for the year ended December 31,
      2003).4
      (a)
    
    Amended
      and Restated General Electric Capital Corporation Standard Global Multiple
      Series Indenture Provisions dated as of February 27, 1997 (Incorporated by
      reference to Exhibit 4(a) to GECC’s Registration Statement on Form S-3,
      File No. 333-59707).4
      (b)
    
    Third
      Amended and Restated Indenture dated as of February 27, 1997 between GECC
      and JPMorgan Chase Bank, N.A., (formerly known as The Chase Manhattan
      Bank) as successor trustee (Incorporated by reference to Exhibit 4(c) to
      GECC’s Registration Statement on Form S-3, File No.
      333-59707).4
      (c)
    
    First
      Supplemental Indenture dated as of May 3, 1999, supplemental to Third
      Amended and Restated Indenture dated as of February 27, 1997 (Incorporated
      by reference to Exhibit 4(dd) to GECC’s Post-Effective Amendment No. 1 to
      Registration Statement on Form S-3, File No.
333-76479).4
      (d)
    
    Second
      Supplemental Indenture dated as of July 2, 2001, supplemental to Third
      Amended and Restated Indenture dated as of February 27, 1997 (Incorporated
      by reference to Exhibit 4 (f) to GECC’s Post-Effective Amendment No. 1 to
      Registration Statement on Form S-3, File No.
333-40880).4
      (e)
    
    Third
      Supplemental Indenture dated as of November 22, 2002, supplemental to
      Third Amended and Restated Indenture dated as of February 27, 1997
      (Incorporated by reference to Exhibit 4 (cc) to Post-Effective Amendment
      No. 1 to GECC’s Registration Statement on Form S-3, File No.
      333-100527).4
      (f)
    
    Fifth
      Amended and Restated Fiscal and Paying Agency Agreement among GECC, GE
      Capital Australia Funding Pty Ltd, GE Capital European Funding, GE Capital
      Canada Funding Company, GE Capital UK Funding and JPMorgan Chase Bank,
      N.A., J.P. Morgan Bank Luxembourg, S.A. and J.P. Morgan Bank (Ireland)
      p.l.c. dated as of May 21, 2004.*
 
  (81)
  
 4
      (g)
    
    Form
      of Global Medium-Term Note, Series A, Fixed Rate Registered Note
      (Incorporated by reference to Exhibit 4(m) to GECC’s Registration
      Statement on Form S-3, File No. 333-100527).4
      (h)
    
    Form
      of Global Medium-Term Note, Series A, Floating Rate Registered Note
      (Incorporated by reference Exhibit 4(n) to GECC’s Registration Statement
      on Form S-3, File No. 333-100527).4
      (i)
    
    Form
      of Euro Medium-Term Note and Debt Security - Permanent Global Fixed Rate
      Bearer Note.*4
      (j)
    
    Form
      of Euro Medium-Term Note and Debt Security - Permanent Global Floating
      Rate Bearer Note.*4
      (k)
    
    Form
      of Euro Medium-Term Note and Debt Security - Temporary Global Fixed Rate
      Bearer Note.*4
      (l)
    
    Form
      of Euro Medium-Term Note and Debt Security - Temporary Global Floating
      Rate Bearer Note.*4
      (m)
    
    Form
      of Euro Medium-Term Note and Debt Security - Definitive Fixed Rate Bearer
      Note.*4
      (n)
    
    Form
      of Euro Medium-Term Note and Debt Security - Definitive Floating Rate
      Bearer Note.*4
      (o)
    
    Agreement
      to furnish to the Securities and Exchange Commission upon request a copy
      of instruments defining the rights of holders of certain long-term debt of
      the registrant and all subsidiaries for which consolidated or
      unconsolidated financial statements are required to be
    filed.*12
      (a)
    
    Computation
      of Ratio of Earnings to Fixed Charges.*12
      (b)
    
    Computation
      of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
      Dividends.*23
      (ii)
    
    Consent
      of KPMG LLP.*24
    
    Power
      of Attorney.*31(a)
    
    Certification
      Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
      Act of 1934, as amended.*31(b)
    
    Certification
      Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
      Act of 1934, as amended.*32
    
    Certification
      Pursuant to 18 U.S.C. Section 1350.*
 
  (82)
  
 99
      (a)
    
    Income
      Maintenance Agreement dated March 28, 1991, between General Electric
      Company and General Electric Capital Corporation. (Incorporated by
      reference to Exhibit 99(h) to GECC’s Registration Statement on Form S-3,
      File No. 333-100527).99
      (b)
    
    The
      consolidated financial statements of General Electric Company, set forth
      in the Annual Report on Form 10-K of General Electric Company (S.E.C. File
      No. 001-00035) for the year ended December 31, 2004, (pages 45 through
      113) and Exhibit 12 (Ratio of Earnings to Fixed Charges) of General
      Electric Company.99
      (c)
    
    Letter,
      dated February 4, 1999, from Dennis D. Dammerman of General Electric
      Company to Denis J. Nayden of General Electric Capital Corporation
      pursuant to which General Electric Company agrees to provide additional
      equity to General Electric Capital Corporation in conjunction with certain
      redemptions by General Electric Capital Corporation of shares of its
      Variable Cumulative Preferred Stock. (Incorporated by reference to Exhibit
      99 (g) to General Electric Capital Corporation’s Post-Effective Amendment
      No. 1 to Registration Statement on Form S-3, File No.
      333-59707).*Filed
      electronically herewith.
 
   (83)
  **General
Electric Capital Services, Inc. and consolidated
affiliates**
  **Schedule
I - Condensed Financial Information of Registrant**
  **General
Electric Capital Services, Inc.**
  **Condensed
Statement of Current and Retained Earnings**
  
  *For
      the years ended December 31 (In millions)*
    
    **2004**
    
    
    **2003**
    
    
    **2002****Revenues**
    $
    109
    
    $
    (47
    )
    $
    28**Expenses**Interest
    
    212
    
    
    183
    
    
    231Operating
      and administrative
    
    174
    
    
    112
    
    
    349Total
      expenses
    
    386
    
    
    295
    
    
    580Loss
      before income taxes and equity in earnings of affiliates
    
    (277
    )
    
    (342
    )
    
    (552
    )Income
      tax benefit
    
    45
    
    
    79
    
    
    145Equity
      in earnings of affiliates
    
    8,393
    
    
    8,017
    
    
    5,033Cumulative
      effect of accounting changes
    
    -
    
    
    (339
    )
    
    (1,015
    )**Net
      earnings**
    
    8,161
    
    
    7,415
    
    
    3,611Dividends
    
    (3,105
    )
    
    (3,435
    )
    
    (1,965
    )Retained
      earnings at January 1
    
    30,304
    
    
    26,324
    
    
    24,678**Retained
      earnings at December 31**
    $
    35,360
    
    $
    30,304
    
    $
    26,324The
      notes to condensed financial statements on page 87 are an integral part of
      these statements.
 
   (84)
  **General
Electric Capital Services, Inc. and consolidated
affiliates**
  **Schedule
I - Condensed Financial Information of Registrant -
(Continued)**
  **General
Electric Capital Services, Inc.**
  **Condensed
Statement of Financial Position**
   *At
      December 31 (In millions)*
    
    **2004**
    
    
    **2003****Assets**Cash
      and equivalents
    $
    45
    
    $
    525Investment
      in and advances to affiliates
    
    61,838
    
    
    52,407Other
      assets
    
    517
    
    
    379Total
      assets
    $
    62,400
    
    $
    53,311**Liabilities
      and equity**Borrowings
    $
    7,756
    
    $
    7,257Other
      liabilities
    
    389
    
    
    246Total
      liabilities
    
    8,145
    
    
    7,503Cumulative
      preferred stock, $10,000 par value (80,000 shares authorized;
      51,000
      shares issued and held primarily by consolidated affiliates at
      December
      31, 2004 and 2003)
    
    510
    
    
    510Common
      stock, $1,000 par value (1,260 shares authorized at December 31, 2004
      and
      2003, and 1,064 shares issued and outstanding at
      December
      31, 2004 and 2003)
    
    1
    
    
    1Accumulated
      gains (losses) - netInvestment
      securities
    
    2,345
    
    
    1,864Currency
      translation adjustments
    
    5,183
    
    
    2,639Cash
      flow hedges
    
    (1,354
    )
    
    (1,727
    )Minimum
      pension liabilities
    
    (150
    )
    
    (41
    )Additional
      paid-in capital
    
    12,360
    
    
    12,258Retained
      earnings
    
    35,360
    
    
    30,304Total
      shareowner’s equity
    
    54,255
    
    
    45,808Total
      liabilities and equity
    $
    62,400
    
    $
    53,311The
      sum of accumulated gains (losses) on investment securities, currency
      translation adjustments, cash flow hedges and minimum pension liabilities
      constitutes “Accumulated nonowner changes other than earnings,” and was
      $6,024 million and $2,735 million at year-end 2004 and 2003,
      respectively.The
      notes to condensed financial statements on page 87 are an integral part of
      these statements.
  (85)
  **General
Electric Capital Services, Inc. and consolidated
affiliates**
  **Schedule
I - Condensed Financial Information of Registrant -
(Continued)**
  **General
Electric Capital Services, Inc.**
  **Condensed
Statement of Cash Flows**
 
 *For
      the years ended December 31 (In millions)*
    **2004**
    
    **2003**
    
    **2002****Cash
      flows****-****operating activities**
    $
    3,122
    
    $
    4,114
    
    $
    2,073**Cash
      flows****-****investing activities**Decrease
      (increase) in investment in and advances to affiliates
    
    (1,120
    )
    
    388
    
    
    (6,736
    )Net
      decrease (increase) in other assets
    
    124
    
    
    457
    
    
    (802
    )**Cash
      from (used for) investing activities**
    
    (996
    )
    
    845
    
    
    (7,538
    )**Cash
      flows****-****financing activities**Net
      increase (decrease) in borrowings (maturities of 90 days or less)
    
    499
    
    
    (1,013
    )
    
    1,141Dividends
      paid to shareowner
    
    (3,105
    )
    
    (3,435
    )
    
    (1,965
    )Capital
      contributions from GE
    
    -
    
    
    -
    
    
    6,300**Cash
      from (used for) financing activities**
    
    (2,606
    )
    
    (4,448
    )
    
    5,476**Increase
      (decrease) in cash and equivalents during year**
    
    (480
    )
    
    511
    
    
    11Cash
      and equivalents at beginning of year
    
    525
    
    
    14
    
    
    3Cash
      and equivalents at end of year
    $
    45
    
    $
    525
    
    $
    14The
      notes to condensed financial statements on page 87 are an integral part of
      these statements.
  (86)
  **General
Electric Capital Services, Inc. and consolidated
affiliates**
  **Schedule
I - Condensed Financial Information of Registrant -
(Concluded)**
  **General
Electric Capital Services, Inc.**
  **Notes
to Condensed Financial Statements**
  **Income
taxes**
  General
Electric Company files a consolidated U.S. federal income tax return which
includes General Electric Capital Services, Inc. (GE Capital Services). Income
tax benefit includes the effect of GE Capital Services on the consolidated
return.
  **Dividends
from affiliates**
  In
2004, we received dividends of $3,104 million from General Electric Capital
Corporation (GE Capital) and $5 million from other affiliates. In 2003, we
received dividends of $4,431 million from GE Capital and $54 million from other
affiliates.
  
    (87)
   **General
Electric Capital Services, Inc. and consolidated
affiliates**
  **Schedule
V - Supplemental Information Concerning**
  **Property
and Casualty Insurance Operations**
  *(In
millions)*
 **At
      December 31**
    
    **Years
      ended December 31****Deferred**
      **acquisition**
      **costs**
    
    **Liability**
      **for
      unpaid**
      **claims**
      **and
      claims**
      **adjustment**
      **expenses**
    
    **Discount**
      **deducted**
      **from**
      **liability**
      **for
      unpaid**
      **claims
      and**
      **claims**
      **adjustment**
      **expenses**
    
    **Unearned**
      **premiums**
    
    **Earned**
      **premiums**
      **and**
      **commissions**
    
    **Net**
      **investment**
      **income**
    
    **Claims
      and**
      **claims**
      **adjustment**
      **expenses**
      **incurred**
      **related
      to:**
    
    **Amortization**
      **of
      deferred**
      **acquisition**
      **costs**
    
    **Paid**
      **claims
      and**
      **claims**
      **adjustment**
      **expenses**
    
    **Premiums**
      **written****Current**
      **year**
    
    **Prior**
      **years**2004
    
    
    $
    873
    
    
    
    $
    24,961
    
    
    
    $
    647
    
    
    
    $
    4,909
    
    
    
    $
    7,910
    
    
    
    $
    1,221
    
    
    $
    4,808
    
    $
    1,216
    
    
    $
    1,489
    
    
    
    $
    5,927
    
    
    
    $
    7,0072003
    
    
    
    964
    
    
    
    
    24,897
    
    
    
    
    596
    
    
    
    
    4,914
    
    
    
    
    8,852
    
    
    
    
    1,403
    
    
    
    5,342
    
    
    876
    
    
    
    1,619
    
    
    
    
    6,279
    
    
    
    
    9,2092002
    
    
    
    1,053
    
    
    
    
    26,126
    
    
    
    
    553
    
    
    
    
    5,468
    
    
    
    
    8,017
    
    
    
    
    1,237
    
    
    
    5,167
    
    
    3,553
    
    
    
    1,588
    
    
    
    
    6,707
    
    
    
    
    8,219
 
  
    (88)
   **Signatures**
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
  General
      Electric Capital Services, Inc.March
      1, 2005
    
    By: /s/
      Dennis D. Dammerman(Dennis
      D. Dammerman)Chairman
      of the Board
 
   (89)
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
  Signature
    
    Title
    
    Date/s/
      Dennis D. Dammerman
    
    Chairman
      of the Board
    
    March
      1, 2005Dennis
      D. Dammerman
    
    (Principal
      Executive Officer)/s/
      James A. Parke
    
    Vice
      Chairman and
    
    March
      1, 2005James
      A. Parke
    
    Chief
      Financial Officer
      (Principal
      Financial Officer)/s/
      Philip D. Ameen
    
    Senior
      Vice President and Controller
    
    March
      1, 2005Philip
      D. Ameen
    
    (Principal
      Accounting Officer)CHARLES
      E. ALEXANDER*
    
    DirectorDAVID
      L. CALHOUN*
    
    DirectorJAMES
      A. COLICA*
    
    DirectorPAMELA
      DALEY*
    
    DirectorDENNIS
      D. DAMMERMAN*
    
    DirectorBRACKETT
      B. DENNISTON*
    
    DirectorARTHUR
      H. HARPER*
    
    DirectorJEFFREY
      R. IMMELT*
    
    DirectorJOHN
      H. MYERS*
    
    DirectorMICHAEL
      A. NEAL*
    
    DirectorDAVID
      R. NISSEN*
    
    DirectorJAMES
      A. PARKE*
    
    DirectorRONALD
      R. PRESSMAN*
    
    DirectorJOHN
      M. SAMUELS*
    
    DirectorKEITH
      S. SHERIN*
    
    DirectorROBERT
      C. WRIGHT*
    
    DirectorA
      MAJORITY OF THE BOARD OF DIRECTORS*By:
    /s/
      Philip D. Ameen
    
    
    March
      1, 2005(Philip
      D. Ameen)
      Attorney-in-fact
 
  (90)