GENERAL ELECTRIC CREDIT CORPORATION AND CONSOLIDATED AFFILIATES NOTES TO FINANCIAL STATEMENTS (Information as of June 28, 1975 and June 26, 1976 and for the six-month periods then ended is unaudited.) 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING PRINCIPLES AND POLICIES: The following paragraphs summarize significant accounting and reporting principles and policies followed by General Electric Credit Corporation (the "Company"). Principles of ConsolidationThe financial statements represent a consolidation of General Electric Credit Corporation and all its subsidiary companies. All significant intercompany transactions have been eliminated. Methods of Recording Earned IncomeFor large-balance, long-term contracts and certain other contracts on which finance charges are precomputed, the finance charge is deferred at the time of contract acquisition and recorded as earned on a collection basis in proportion to funds employed. For most small-balance, short-term contracts, on which finance charges are precomputed, a portion of the finance charge approximately equal to acquisition costs is recorded in earned income when contracts are acquired and the remainder of the finance charge is deferred and recorded as earned on a straight-line basis in relation to amounts collected. For consumer and commercial and industrial receivables on which finance charges are not precomputed, but are billed to customers, income is recorded when earned. Lease income, which includes related investment tax credits, is reported in accordance with the financing method of accounting which provides an approximate level rate of return on funds not yet recovered, plus a portion of the estimated residual value of certain leased equipment. In 1973, the Company began recognizing residuals on certain transportation equipment based on reports from an independent consultant estimating significant values remaining at the expiration of the lease terms. Residual values recognized are recorded in income over the remaining maturity of the lease either on a straight-line basis or under procedures which recognize a greater proportion of the residual during the later periods of the lease. The Company may recognize residuals on other equipment in future years, if appropriate. Building and EquipmentThe Company follows the practice of recording the depreciation on equipment and the administrative office building located in Stamford, Connecticut on a sum-of-the-years-digits basis over the lives of the assets. Income TaxesIncome taxes have been calculated in accordance with recommendations of the American Institute of Certified Public Accountants on the basis of income and expenses included in the. income statement rather than income and expenses recorded in the tax return for the year. Under this practice, timing differences between statement income and taxable income arise primarily in connection with leasing transactions and provision for losses on receivables. Allowance for Losses on ReceivablesThe Company maintains an allowance for losses on receivables at an amount evaluated as sufficient to provide adequate protection against future losses in the portfolio. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for losses on receivables. Small balance ($5,000 or less) consumer financing accounts and certain other small balance accounts are progressively written down from 10% when more than three months delinquent to 100% when more than twelve months delinquent to recognize estimated realizable value. Marketable and Investment SecuritiesMarketable equity securities are carried at the lower of aggregate cost or market. Marketable debt securities and preferred stocks included in other assets are carried at cost. Insurance SubsidiariesThe accounts of the insurance subsidiaries have been adjusted from the accounting practices prescribed by state insurance regulatory authorities to a generally accepted accounting principles basis. The principal adjustment defers costs of acquiring new business, primarily commissions, and amortizes such costs over the premium paying period of the related policy, thus matching income and expense. Liabilities for individual life and annuities benefits are computed by the net level premium method based upon estimated future investment yield, mortality and withdrawals. F-22 GENERAL ELECTRIC CREDIT CORPORATION AND CONSOLIDATED AFFILIATES NOTES TO FINANCIAL STATEMENTS-(Continued) 2. MARKETABLE SECURITIES AT DECEMBER 31, 1975 AND JUNE 26, 1976 are shown in the following table: . December 31, 1975 June 26, 1976 Carrying Market Carrying Market Value Value Value Value (Amounts in millions) Equity securities ............................ $ 5.3 $ 5.5 $ 7.8 $ 8.4 Debt securities.............................93.4 92.1 114.7 113.1 $98.7 $97.6 $122.5 $121.5 3. RECEIVABLES AT DECEMBER 31, 1975 AND JUNE 26, 1976 and maximum maturities by principal category are shown in the following table: Receivables Maximum Terms-Months December 31, June 26, December 31, June 26, 1975 1976 1975 1976 (Dollar amounts in millions) Time sales, loans and leases: Consumer financing: Special products, principally mobile homes $1,467.4 $1,438.9 144 144 HOME............. 893.l 865.4 60 60 2,672.3 2,669.3 Commercial and industrial financing: Equipment sales financing............... 776.6 793.5 120 120 Leasing and industrial loans............ 689.2 775.9 300 300 Commercial loans............................ 390.4 410.6 36 36 Real estate........................................ 152.5 181.4 20 20 Other................................................. 68.9 63.8 180 180 2,077.6 2,225.2 Inventory financing......................................... 226.3 251.5 22 22 Sundry receivables.......................................... 40.8 41.0 12 U Total receivables.............................. $5,017.0 $5,187.0 Contractual maturities of receivables at December 31, 1975 are shown in the following table: 1980 and Total 1976 1977 1978 1979 after (Amounts in millions) Time sales, loans and leases: Consumer financing: Special products................. $1,467.4 $ 228.6 $215.1 $197.1 $177.5 $ 649. Home products................... 893.1 579.7 229.8 79.8 2.7 U Installment loans................ 311.8 _95.1 74.1 49.9 31.0 _61.7 2,672.3 903.4 519.0 326.8 211.2 711.9 Commercial and industrial Equipment sales financing. 776.6 329.1 209.2 120.5 59.3 58.5 Leasing and industrial loans................................ 689.2 117.9 57.3 64.1 53.0 396.9 Commercial loans.............. 390.4 367.8 22.6 Real estate.......................... 152.5 52.8 26.6 45.9 8.2 19.0 Other................................... 68.9 11.0 11.2 10.5 10.4 25.8 2,077.6 878.6 326.9 241.0 130.9 500.2 Inventory financing........................... 226.3 226.3 _ Sundry receivables............................. 40.8 40.8 - _ - Total receivables........ $5,017.0 $2,049.1 $845.9 $567.8 $342.1 $1,212.1 F-23