GECC Form 10K December 31 2006
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
(Mark
One)
|
|
|
|
|
þ
|
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
|
For
the fiscal year ended December 31, 2006
|
or
|
¨
|
Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
|
For
the transition period from ___________to
___________
|
_____________________________
Commission
file number 1-6461
_____________________________
|
|
General
Electric Capital Corporation
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
|
13-1500700
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
3135
Easton Turnpike, Fairfield, Connecticut
|
|
06828
|
|
203/373-2211
|
(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
|
|
|
|
6.625%
Public Income Notes Due June 28, 2032
|
|
New
York Stock Exchange
|
6.10%
Public Income Notes Due November 15, 2032
|
|
New
York Stock Exchange
|
5.875%
Notes Due February 18, 2033
|
|
New
York Stock Exchange
|
Step-Up
Public Income Notes Due January 28, 2035
|
|
New
York Stock Exchange
|
6.45%
Notes Due June 15, 2046
|
|
New
York Stock Exchange
|
Securities
Registered Pursuant to Section 12(g) of the
Act:
|
|
Title
of each class
|
|
None
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes þ No
¨
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No
þ
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes þ
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
þ
Aggregate
market value of the outstanding common equity held by nonaffiliates of the
registrant as of the last business day of the registrant’s recently completed
second fiscal quarter: None.
At
February 26, 2007, 3,985,403 shares of voting common stock, which constitute
all
of the outstanding common equity, with a par value of $14 were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The
consolidated financial statements of General Electric Company, set forth in
the
Annual Report on Form 10-K of General Electric Company for the year ended
December 31, 2006, are incorporated by reference into Part IV
hereof.
REGISTRANT
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM
10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.
TABLE
OF CONTENTS
|
|
|
|
|
Page
|
|
|
PART
I
|
|
|
|
|
|
Item
1.
|
Business
|
3
|
Item
1A.
|
Risk
Factors
|
7
|
Item
1B.
|
Unresolved
Staff Comments
|
9
|
Item
2.
|
Properties
|
9
|
Item
3.
|
Legal
Proceedings
|
9
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
9
|
|
|
|
PART
II
|
|
|
|
|
|
Item
5.
|
Market
for the Registrant’s Common Equity and Related Stockholder Matters
|
10
|
Item
6.
|
Selected
Financial Data
|
10
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
10
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
34
|
Item
8.
|
Financial
Statements and Supplementary Data
|
34
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
73
|
Item
9A.
|
Controls
and Procedures
|
73
|
Item
9B.
|
Other
Information
|
74
|
|
|
|
PART
III
|
|
|
|
|
|
Item
10.
|
Directors
and Executive Officers of the Registrant
|
74
|
Item
11.
|
Executive
Compensation
|
74
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
74
|
Item
13.
|
Certain
Relationships and Related Transactions
|
75
|
Item
14.
|
Principal
Accounting Fees and Services
|
75
|
|
|
|
PART
IV
|
|
|
|
|
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
76
|
|
Signatures
|
84
|
PART
I
Item
1. Business.
General
Electric Capital Corporation
General
Electric Capital Corporation (GE Capital or GECC) was incorporated in 1943
in
the State of New York under the provisions of the New York Banking Law relating
to investment companies, as successor to General Electric Contracts Corporation,
which was formed in 1932. Until November 1987, our name was General Electric
Credit Corporation. On July 2, 2001, we changed our state of incorporation
to
Delaware. All of our outstanding common stock is owned by General Electric
Capital Services, Inc. (GE Capital Services or GECS), formerly General Electric
Financial Services, Inc., the common stock of which is in turn wholly-owned,
directly or indirectly, by General Electric Company (GE Company or GE).
Financing and services offered by GE Capital are diversified, a significant
change from the original business of GE Capital, which was, financing
distribution and sale of consumer and other GE products. Currently, GE
manufactures few of the products financed by GE Capital.
We
operate in four of GE’s operating segments described below. These operations are
subject to a variety of regulations in their respective jurisdictions. Our
services are offered primarily in North America, Europe and Asia.
Our
principal offices are located at 901 Main Avenue, Norwalk, CT, 06851-1187;
we
also maintain executive offices at 3135 Easton Turnpike, Fairfield, CT,
06828-0001. At December 31, 2006, our employment totaled approximately
81,000.
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.
Operating
Segments
For
purposes of our segment discussions throughout this document, the financial
services businesses (Equipment Services, Aviation Financial Services, Energy
Financial Services and Transportation Finance), are reported in the GE
Industrial and GE Infrastructure segments based on the approach management
uses
to allocate resources and assess performance. Although management’s approach to
segments combines industrial businesses with financial services businesses,
the
financial services businesses will continue to be reported in the GECC financial
statements. We will herein provide business descriptions for these specific
financial services businesses. We will also continue our longstanding practice
of providing supplemental information for certain businesses within the
segments.
GE
Commercial Finance
GE
Commercial Finance (38.5%, 37.3% and 38.2% of total GECC revenues in 2006,
2005
and 2004, respectively) offers a broad range of financial services worldwide.
We
have particular mid-market expertise and offer loans, leases and other financial
services to customers, including manufacturers, distributors and end-users
for a
variety of equipment and major capital assets. These assets include
industrial-related facilities and equipment; commercial and residential real
estate; vehicles; corporate aircraft; and equipment used in many industries,
including the construction, manufacturing, telecommunications and healthcare
industries.
During
2006, we made a number of acquisitions, the most significant of which were
Arden
Realty, Inc., a commercial real estate company in the U.S.; Banque Artesia
Nederland N.V., a subsidiary of Dexia Group; the custom fleet business of
National Australia Bank Ltd.; and several senior housing portfolios from
Formation Capital LLC.
We
operate in a highly competitive environment. Our competitors include commercial
banks, investment banks, leasing companies, financing companies associated
with
manufacturers, and independent finance companies. Competition related to our
lending and leasing operations is based on price, that is interest rates and
fees, as well as deal structure and terms. Profitability is affected not only
by
broad economic conditions that affect customer credit quality and the
availability and cost of capital, but also by successful management of credit
risk, operating risk and market risks such as interest rate and currency
exchange risks. Success requires high quality risk management systems, customer
and industry specific knowledge, diversification, service and distribution
channels, strong collateral and asset management knowledge, deal structuring
expertise and the ability to reduce costs through technology and productivity.
Our
headquarters are in Norwalk, Connecticut with offices throughout North America,
South America, Europe, Australia and Asia.
For
further information about revenues, segment profit and total assets for GE
Commercial Finance, see the Segment Operations section of Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations and
note 17.
Capital
Solutions
Capital
Solutions offers a broad range of financial services worldwide, and has
particular mid-market expertise, offering loans, leases, inventory finance
and
other financial services to customers, including manufacturers, dealers and
end-users for a variety of equipment and major capital assets. These assets
include retail facilities; vehicles; corporate aircraft; and equipment used
in
many industries, including the construction, transportation, technology, and
manufacturing industries.
Real
Estate
Real
Estate offers a comprehensive range of capital and investment solutions,
including equity capital for acquisition or development, as well as fixed and
floating rate mortgages for new acquisitions or re-capitalizations of commercial
real estate worldwide. Our business finances, with both equity and loan
structures, the acquisition, refinancing and renovation of office buildings,
apartment buildings, retail facilities, parking facilities and industrial
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. Certain of our originations of low
loan-to-value loans are conducted for term securitization within one year;
certain of our equity investments, including properties we acquire for
investment, are sold under favorable market conditions. We invest in, and
provide restructuring financing for, portfolios of mortgage loans, limited
partnerships and tax-exempt bonds.
In
the
normal course of our business operations, we sell certain real estate equity
investments when it is economically advantageous for us to do so. However,
as
real estate values are affected by certain forces beyond our control (e.g.,
market fundamentals and demographic conditions), it is difficult to predict
with
certainty the level of future sales or sales prices. Rental income generally
approximates operating expenses, which include depreciation and
amortization.
GE
Money
GE
Money
(36.4%, 36.1% and 31.5% of total GECC revenues in 2006, 2005 and 2004,
respectively), formerly GE Consumer Finance, is a leading provider of financial
services to consumers and retailers in over 50 countries around the world.
We
offer a full range of innovative financial products to suit customers’ needs.
These products include private-label credit cards; personal loans; bank cards;
auto loans and leases; mortgages; corporate travel and purchasing cards; debt
consolidation; home equity loans; deposit and other savings products, and credit
insurance on a global basis.
In
2006,
as part of our continued global expansion, we made a number of acquisitions,
the
most significant of which was the private-label credit card portfolio of
Hudson’s Bay Company, the largest department store retailer in
Canada.
Our
operations are subject to a variety of bank and consumer protection regulations,
including regulations controlling data privacy. Further, a number of countries
have ceilings on rates chargeable to consumers in financial service
transactions. We are subject to competition from various types of financial
institutions including commercial banks, leasing companies, consumer loan
companies, independent finance companies, manufacturers’ captive finance
companies, and insurance companies. Industry participants compete on the basis
of price, servicing capability, promotional marketing, risk management, and
cross selling. The markets in which we operate are also subject to the risks
from fluctuations in retail sales, interest and currency exchange rates, and
the
consumer’s capacity to repay debt.
Our
headquarters are in Stamford, Connecticut and our operations are located in
North America, South America, Europe, Australia and Asia.
For
further information about revenues, segment profit and total assets for GE
Money, see the Segment Operations section of Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations and note
17.
GE
Industrial
GE
Industrial (11.8%, 12.3% and 13.2% of total GECC revenues in 2006, 2005 and
2004, respectively) produces and sells products including consumer appliances,
industrial equipment and plastics, and related services. We also provide asset
management services for the transportation industry.
Our
operations are located in North America, Europe, Asia and South
America.
For
further information about revenues and segment profit for GE Industrial, see
the
Segment Operations section of Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations and note 17.
Equipment
Services
Equipment
Services is a provider of transport solutions for domestic and international
supply chains. We offer a wide range of equipment leasing and intelligence-based
asset management and logistics services for commercial and transportation
equipment, including tractors, trailers, railroad rolling stock, modular space
units, and land and marine shipping 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 as well as providing our customers with solutions to
assist in asset and supply chain management.
GE
Infrastructure
GE
Infrastructure (10.0%, 9.4% and 8.6% of total GECC revenues in 2006, 2005 and
2004, respectively) produces, sells, finances and services equipment for the
air
transportation and energy generation industries. We also produce, sell and
service equipment for the rail transportation and water treatment
industries.
Our
operations are located in North America, Europe, Asia and South
America.
For
further information about revenues and segment profit for GE Infrastructure,
see
the Segment Operations section of Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operations and note 17.
Aviation
Financial Services
Aviation
Financial Services is a global commercial aviation financial services business
that offers a broad range of financial products to airlines, aircraft operators,
owners, lenders, investors and airport developers. Financial products include
leases, aircraft purchasing and trading, loans, engine/spare parts financing,
pilot training, fleet planning and financial advisory services. We operate
in a
highly competitive environment. Our competitors include aircraft manufacturers,
banks, financial institutions, and other finance and leasing companies.
Competition is based on lease rates and terms, as well as aircraft delivery
dates, condition and availability.
The
North
American commercial aviation industry improved during 2006 because of a strong
revenue environment and continued cost reduction efforts by the airlines,
despite rising fuel prices. Although these conditions have improved the overall
industry outlook, the airlines continue to face challenges and financial
pressure that affect a portion of our commercial aviation business. Several
airlines are experiencing major restructuring and reorganization, including
those who remain in, or recently emerged from, bankruptcy, while others could
be
candidates for further industry consolidation.
Energy
Financial Services
Energy
Financial Services offers structured equity, debt, leasing, partnership
financing, project finance and broad-based commercial finance to the global
energy and water industries and invests in operating assets in these industries.
We operate in a highly competitive environment. Our competitors include banks,
financial institutions, energy and water companies, and other finance and
leasing companies. Competition is primarily based on price, that is interest
rates and fees, as well as deal structure and terms. As we compete globally,
our
success is sensitive to the economic and political environment of each country
in which we do business.
Discontinued
Operations
Discontinued
operations includes the results of GE Life, our U.K.-based life insurance
operation; and Genworth Financial, Inc. (Genworth), our formerly wholly-owned
subsidiary that conducted most of our consumer insurance business, including
life and mortgage insurance operations.
Regulations
and Competition
Our
activities are subject to a variety of U.S. federal and state regulations
including, at the federal level, the Consumer Credit Protection Act, the Equal
Credit Opportunity Act and certain regulations issued by the Federal Trade
Commission. A majority of states have ceilings on rates chargeable to customers
on retail loan transactions,
installment
loans and revolving credit financing. Our insurance activities are regulated
by
various state insurance commissions and non-U.S. regulatory authorities. We
are
a unitary diversified savings and loan holding company by virtue of owning
a
federal savings bank in the U.S.; as such, we are subject to holding company
supervision by the Office of Thrift Supervision. Our global operations are
subject to regulation in their respective jurisdictions. To date, compliance
with such regulations has not had a material adverse effect on our financial
position or results of operations.
The
businesses in which we engage are highly competitive. We are subject to
competition from various types of financial institutions, including banks,
thrifts, investment banks, broker-dealers, credit unions, leasing companies,
consumer loan companies, independent finance companies, finance companies
associated with manufacturers and insurance and reinsurance
companies.
Business
and Economic Conditions
Our
businesses are generally affected by general business and economic conditions
in
countries in which we conduct business. When overall economic conditions
deteriorate in those countries, there generally are adverse effects on our
operations, although those effects are dynamic and complex. For example, a
downturn in employment or economic growth in a particular national or regional
economy will generally increase the pressure on customers, which generally
will
result in deterioration of repayment patterns and a reduction in the value
of
collateral. However, in such a downturn, demand for loans and other products
and
services we offer may actually increase. Interest rates, another macro-economic
factor, are important to our businesses. In the lending and leasing businesses,
higher real interest rates increase our cost to borrow funds, but also provide
higher levels of return on new investments. For our operations, such as the
insurance activities, that are linked less directly to interest rates, rate
changes generally affect returns on investment portfolios.
Forward-Looking
Statements
This
document contains “forward-looking statements” - that is, statements related to
future, not past, events. In this context, forward-looking statements often
address our expected future business and financial performance, and often
contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,”
“seek,” or “will.” Forward-looking statements by their nature address matters
that are, to different degrees, uncertain. For us, particular uncertainties
that
could adversely or positively affect our future results include: the behavior
of
financial markets, including fluctuations in interest and exchange rates and
commodity and equity prices; the commercial and consumer credit environment;
the
impact of regulation and regulatory, investigative and legal actions;
strategic actions, including acquisitions and dispositions; future integration
of acquired businesses; future financial performance of major industries which
we serve, including, without limitation, the air and rail transportation, energy
generation, media, real estate and healthcare industries; and numerous other
matters of national, regional and global scale, including those of a political,
economic, business and competitive 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
1A. Risk Factors.
The
following discussion of risk factors contains “forward-looking statements,” as
discussed in Item 1. These risk factors may be important to understanding any
statement in this Annual Report on Form 10-K or elsewhere. The
following
information should be read in conjunction with Management’s Discussion and
Analysis of Financial Condition and Results of Operations (MD&A), and the
consolidated financial statements and related notes included in this report.
Our
businesses routinely encounter and address risks, some of which will cause
our
future results to be different - sometimes materially different - than we
presently anticipate. Discussion about important operational risks that our
businesses encounter can be found in the MD&A section and in the business
descriptions included in the Business section of this Form 10-K. Below, we
have
described certain important strategic risks. Our reactions to material future
developments as well as our competitors’ reactions to those developments will
determine our future results.
Our
global growth is subject to a number of economic and political risks
We
conduct our operations in virtually every part of the world. Global economic
developments affect businesses such as ours in many ways. Operations are subject
to the effects of global competition. Our global business is affected by local
economic environments, including inflation, recession and currency volatility.
Political changes, some of which may be disruptive, can interfere with our
supply chain, our customers and all of our activities in a particular location.
While some of these risks can be hedged using derivatives or other financial
instruments and some are insurable, such attempts to mitigate these risks are
costly and not always successful.
Our
credit ratings are important to our cost of capital
The
major
debt agencies routinely evaluate our debt and have given their highest debt
ratings to us. One of our strategic objectives is to maintain these “Triple A”
ratings as they serve to lower our borrowing costs and facilitate our access
to
a variety of lenders. Failure to maintain our Triple A debt rating could
adversely affect our cost of funds and related margins.
The
success of our business depends on achieving our objectives for strategic
acquisitions and dispositions
With
respect to acquisitions and mergers, we may not be able to identify suitable
candidates at terms acceptable to us, or may not achieve expected returns and
other benefits as a result of integration challenges, such as personnel and
technology. We will continue to evaluate the potential disposition of assets
and
businesses that may no longer help us meet our objectives. When we decide to
sell assets or a business, we may encounter difficulty in finding buyers or
alternative exit strategies on acceptable terms in a timely manner, which could
delay the accomplishment of our strategic objectives, or we may dispose of
a
business at a price or on terms, which are less than we had anticipated. In
addition, there is a risk that we sell a business whose subsequent performance
exceeds our expectations, in which case our decision would have potentially
sacrificed enterprise value. Correspondingly, we may be too optimistic about
a
particular business’s prospects, in which case we may be unable to find a buyer
at a price acceptable to us and therefore may have potentially sacrificed
enterprise value.
We
are subject to a wide variety of laws and regulations
Our
businesses are subject to regulation by U.S. federal and state laws and foreign
laws, regulations and policies. Changes to laws or regulations may even require
us to modify our business objectives if existing practices become more
restricted, subject to escalating costs or prohibited outright. Particular
risks
include regulatory risks arising from local laws, such as laws which reduce
the
allowable lending rate or limit consumer borrowing, and from local liquidity
regulations, that may increase the risks of not being able to retrieve assets
and changes to tax law which may affect our return on investments. Our business
and the industries in which we operate are also at times being reviewed or
investigated by regulators, which could lead to enforcement actions, fines
and
penalties or the assertion of private litigation claims and
damages.
Changes
in the real estate markets are highly uncertain
We
provide financing for the acquisition, refinancing and renovation of various
types of properties. We also consider opportunities to buy and sell properties
which may result in significant outlays or proceeds of cash, either individually
or in the aggregate. The profitability of real estate investments is largely
dependent upon the specific geographic market in which they are located and
the
perceived value of that market at the time of sale. We may have difficulty
optimizing that mix and such activity may vary significantly from one year
to
the next.
Item
1B. Unresolved Staff Comments.
Not
applicable.
We
conduct our business from various facilities, most of which are leased. The
locations of our primary facilities are described in Item 1.
Business.
Item
3. Legal Proceedings.
As
previously reported, since January 2005, the U.S. Securities and Exchange
Commission (SEC) staff has been conducting an investigation of the use of hedge
accounting for derivatives by GE and GECC. In August 2005, the SEC staff advised
GE that the SEC had issued a formal order of investigation in the matter. The
SEC staff has continued to subpoenae documents and take testimony in this
matter. GE and GECC continue to cooperate fully with its investigation.
In the course of the SEC investigation, the SEC Enforcement staff raised certain
concerns about the accounting for the use of interest rate swaps to fix certain
otherwise variable interest costs in a portion of our commercial paper program
at GECC. The SEC Enforcement staff referred such concerns to the Office of
Chief
Accountant (OCA). We and our auditors determined that our accounting for the
commercial paper hedging program satisfied the requirements of Statement of
Financial Accounting Standards (SFAS) 133, Accounting
for Derivative Instruments and Hedging Activities, as
amended, and conveyed our views to the staff of OCA. Following our discussions,
however, OCA communicated its view to us that our commercial paper hedging
program as structured did not meet the SFAS 133 specificity requirement.
Accordingly, we restated our previously reported financial results to eliminate
hedge accounting for the interest rate swaps entered into as part of our
commercial paper hedging program from January 1, 2001.
As
previously disclosed, in August 2006, the New Jersey Department of Environmental
Protections (DEP) issued an Administrative Order seeking a penalty of $142,000
for violations of the Clean Air Act at GECC’s Linden, New Jersey facility. The
DEP has alleged that emissions from the facility exceeded thresholds established
in the site’s permit. GECC has requested a hearing to contest the fine, and DEP
has offered to settle the matter for 50% of the proposed penalty. GECC is
continuing to discuss the matter with the state of New Jersey.
Item
4. Submission of Matters to a Vote of Security Holders.
Not
required by this form.
PART
II
Item
5. Market for the Registrant’s Common Equity and Related Stockholder
Matters.
See
note
15 to the consolidated financial statements. Our common stock is owned entirely
by GE Capital Services and, therefore, there is no trading market in such stock.
Item
6. Selected Financial Data.
The
following selected financial data should be read in conjunction with our
financial statements and the related Notes to Consolidated Financial
Statements.
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
59,733
|
|
$
|
53,723
|
|
$
|
49,880
|
|
$
|
42,123
|
|
$
|
36,636
|
|
Earnings
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
accounting changes
|
|
10,371
|
|
|
9,026
|
|
|
8,123
|
|
|
6,388
|
|
|
4,235
|
|
Earnings
from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes
|
|
15
|
|
|
900
|
|
|
467
|
|
|
1,396
|
|
|
1,215
|
|
Earnings
before accounting changes
|
|
10,386
|
|
|
9,926
|
|
|
8,590
|
|
|
7,784
|
|
|
5,450
|
|
Net
earnings
|
|
10,386
|
|
|
9,926
|
|
|
8,590
|
|
|
7,445
|
|
|
4,435
|
|
Shareowner’s
equity
|
|
56,585
|
|
|
50,190
|
|
|
54,038
|
|
|
46,722
|
|
|
40,019
|
|
Short-term
borrowings
|
|
168,896
|
|
|
149,679
|
|
|
147,293
|
|
|
146,865
|
|
|
120,859
|
|
Long-term
borrowings
|
|
256,817
|
|
|
206,206
|
|
|
201,392
|
|
|
162,541
|
|
|
138,452
|
|
Return
on average shareowner’s equity(a)
|
|
19.7
|
%
|
|
18.4
|
%
|
|
17.9
|
%
|
|
15.5
|
%
|
|
12.9
|
%
|
Ratio
of earnings to fixed charges
|
|
1.64
|
|
|
1.70
|
|
|
1.87
|
|
|
1.77
|
|
|
1.43
|
|
Ratio
of earnings to combined fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charges
and preferred stock dividends
|
|
1.64
|
|
|
1.70
|
|
|
1.86
|
|
|
1.76
|
|
|
1.43
|
|
Ratio
of debt to equity
|
|
7.52:1
|
|
|
7.09:1
|
|
|
6.45:1
|
|
|
6.62:1
|
|
|
6.48:1
|
|
Financing
receivables - net
|
$
|
329,586
|
|
$
|
284,567
|
|
$
|
279,588
|
|
$
|
245,503
|
|
$
|
195,322
|
|
Total
assets
|
|
543,665
|
|
|
475,259
|
|
|
566,984
|
|
|
506,778
|
|
|
439,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents
earnings from continuing operations before accounting changes divided
by
average total shareowner’s equity, excluding effects of discontinued
operations (on an annual basis, calculated using a five-point average).
Average total shareowner’s equity, excluding effects of discontinued
operations, as of the end of each of the years in the five-year period
ended December 31, 2006, is described in the Supplemental Information
section.
|
|
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
In
the
accompanying analysis of financial information, we sometimes use information
derived from consolidated financial information but not presented in our
financial statements prepared in accordance with U.S. generally accepted
accounting principles (GAAP). Certain of these data are considered “non-GAAP
financial measures” under the U.S. Securities and Exchange Commission (SEC)
rules. For such measures, we have provided supplemental explanations and
reconciliations in the Supplemental Information section.
We
present Management’s Discussion of Operations in four parts: Overview of Our
Earnings from 2004 through 2006, Global Risk Management, Segment Operations
and
Global Operations.
Overview
of Our Earnings from 2004 through 2006
Our
results over the last several years reflect the global economic environment
in
which we operate. Global markets have been, and remain, strong. Emerging markets
continue to grow and to offer us new opportunities. Abundant global liquidity
is
providing us capital market opportunities, but reducing risk spreads. In these
highly competitive markets, we have, over the last three years, achieved
increased organic revenue growth and significantly accelerated our
globalization. Revenues from our operations located outside the United States
grew by more than 40% over this period. We also experienced a weaker U.S.
dollar, escalating energy costs and higher fossil fuel-related raw material
prices. Our debt continues to receive the highest ratings of the major rating
agencies. Market developments in the commercial aviation industry also had
significant effects on our results. At December 31, 2006, we had 1,419
commercial aircraft, of which all but one were on lease, and we held $14.0
billion (list price) of multiple-year orders for various Boeing, Airbus and
other aircraft, including 63 aircraft ($4.3 billion list price) scheduled for
delivery in 2007, all under agreement to commence operations with commercial
airline customers. As the following pages show, our diversification and risk
management strategies enabled us to continue to grow revenues and earnings
to
record levels during this challenging time.
GE
Commercial Finance and GE Money, formerly GE Consumer Finance, (together, 73%
and 81% of total three-year revenues and total segment profit, respectively)
are
large, profitable growth businesses in which we continue to invest with
confidence. In a competitive environment, these businesses grew earnings by
a
combined $1.1 billion and $1.2 billion in 2006 and 2005, respectively. GE
Commercial Finance and GE Money have delivered strong results through solid
core
growth, disciplined risk management and successful acquisitions. The most
significant acquisitions affecting GE Commercial Finance and GE Money results
in
2006 were the custom fleet business of National Australia Bank Ltd.; Antares
Capital Corp.; the Transportation Financial Services Group of CitiCapital;
and
joint ventures with Garanti Bank and Hyundai Card Company. These acquisitions
collectively contributed $0.9 billion and $0.3 billion to 2006 revenues and
net
earnings, respectively.
Overall,
acquisitions contributed $2.0 billion, $3.0 billion and $3.3 billion to total
revenues in 2006, 2005 and 2004, respectively. Our earnings in 2006, 2005 and
2004 included approximately $0.3 billion, $0.3 billion and $0.5 billion,
respectively, from acquired businesses. We integrate acquisitions as quickly
as
possible. Only revenues and earnings from the date we complete the acquisition
through the end of the fourth following quarter are attributed to such
businesses. Dispositions also affected our ongoing results through lower
revenues of $0.5 billion, $1.4 billion and $2.4 billion in 2006, 2005 and 2004,
respectively. This resulted in lower earnings of $0.1 billion, $0.4 billion
and
$0.3 billion in 2006, 2005 and 2004, respectively.
Significant
matters relating to our Statement of Earnings are explained below.
Insurance
Exit.
In
2006, we substantially completed our planned exit of the insurance businesses
through the sale of GE Life, our U.K.-based life insurance operation, to Swiss
Reinsurance Company (Swiss Re). Also during 2006, we completed the sale of
our
remaining 18% investment in Genworth Financial, Inc. (Genworth), our formerly
wholly-owned subsidiary that conducted most of our consumer insurance business,
including life and mortgage operations, through a secondary public offering.
We
reported the insurance businesses described above as discontinued operations
for
all periods presented. Unless otherwise indicated, we refer to captions such
as
revenues and earnings from continuing operations simply as “revenues” and
“earnings” throughout this Management’s Discussion and Analysis. Similarly,
discussion of other matters in our consolidated financial statements relates
to
continuing operations unless otherwise indicated.
Interest
on borrowings
amounted
to $17.8 billion, $14.0 billion and $10.9 billion in 2006, 2005 and 2004,
respectively. Changes over the three-year period reflected increased average
borrowings and increased interest rates. Our average borrowings were $381.5
billion, $338.1 billion and $311.4 billion in 2006, 2005 and 2004, respectively.
Our average composite effective interest rate was 4.7% in 2006, compared with
4.2% in 2005 and 3.6% in 2004. Proceeds of these borrowings were used in part
to
finance asset growth and acquisitions. In 2006, our average assets of $493.0
billion were 9% higher than in 2005, which in turn were 5% higher than in 2004.
See the Financial Resources and Liquidity section for a discussion of interest
rate risk management.
Income
taxes
are a
significant cost. As a global commercial enterprise, our tax rates are affected
by many factors, including our global mix of earnings, legislation,
acquisitions, dispositions and the tax characteristics of our income. Our tax
returns are routinely audited and settlements of issues raised in these audits
sometimes affect our tax provisions.
Our
effective tax rate was 10.0% in 2006, compared with 10.9% in 2005 and 16.6%
in
2004. The 2006 rate decreased, as compared with 2005, primarily from growth
in
lower-taxed earnings from global operations and disposal of an investment in
an
associated company, partially offset by a smaller benefit on the reorganization,
discussed below, of our aircraft leasing business. The increased benefits from
lower-taxed earnings from global operations (1.8 percentage points) and the
lower benefits from the reorganization of our aircraft leasing business (2.1
percentage points) are included in the line “Tax on global activities including
exports” in note 13.
The
2005
rate reflects the net benefits, discussed below, of a reorganization of our
aircraft leasing business and an increase in lower-taxed earnings from global
operations. Together, these items more than account for the 8.3 percentage
point
decrease in rate from 2004 reflected in the line “Tax on global activities
including exports” in note 13. Partially offsetting these benefits was the
nonrecurrence of the benefits from 2004 favorable settlements with the U.S.
Internal Revenue Service (IRS) and the low-taxed disposition of a majority
interest in Genpact. The lack of counterparts to these items increased the
2005
tax rate by 1.7 percentage points. The favorable settlements with the IRS are
included in the line “All other - net” and the benefit of the low-taxed
disposition of a majority interest in Genpact is included in the line “Tax on
global activities including exports” in note 13.
As
a
result of the repeal of the extraterritorial income (ETI) taxing regime as
part
of the American Jobs Creation Act of 2004 (the Act), our aircraft leasing
business no longer qualifies for a reduced U.S. tax rate. However, the Act
also
extended to aircraft leasing, the U.S. tax deferral benefits that were already
available to other GE non-U.S. active operations. These legislative changes,
coupled with a reorganization of our aircraft leasing business and a favorable
Irish tax ruling, decreased the effective tax rate 1.2 percentage points in
2006, compared with 3.3 and 1.6 percentage points in 2005 and 2004,
respectively.
Global
Risk Management
A
disciplined approach to risk is important in a diversified organization such
as
ours in order to ensure that we are executing according to our strategic
objectives and that we only accept risk for which we are adequately compensated.
It is necessary for us to manage risk at the individual transaction level,
and
to consider aggregate risk at the customer, industry, geography and
collateral-type levels, where appropriate.
Our
Board
of Directors oversees the risk management process, and approves all significant
acquisitions and dispositions as well as borrowings and investments. All
participants in the risk management process must comply with approval limits
established by the Board.
The
Chief
Risk Officer is responsible, through the Corporate Risk Function, for
establishing standards for the measurement, reporting and limiting of risk;
for
managing and evaluating risk managers; for approving risk management policies;
and for reviewing major risk exposures and concentrations across the
organization. Our Corporate Risk Function analyzes certain business risks and
assesses them in relation to aggregate risk appetite and approval limits set
by
our Board of Directors.
Threshold
responsibility for identifying, quantifying and mitigating risks is assigned
to
our individual businesses. We employ proprietary analytic models to allocate
capital to our financing activities, to identify the primary sources of risk
and
to measure the amount of risk we will take for each product line. This approach
allows us to develop early signals that monitor changes in risk affecting
portfolio performance and actively manage the portfolio. Other corporate
functions such as Financial Planning and Analysis, Treasury, Legal and our
Corporate Audit Staff support business-level risk management. Businesses that,
for example, hedge financial risk with derivative financial instruments must
do
so using our centrally-managed Treasury function, providing assurance that
the
business strategy complies with our corporate policies and achieves economies
of
scale. We review risks periodically with business-level risk managers, senior
management and our Board of Directors.
We
employ
about 18,000 dedicated risk professionals, including 11,400 involved in
collection activities and 680 specialized asset managers who evaluate leased
asset residuals and remarket off-lease equipment.
|
We
manage a variety of risks including liquidity, credit and market
risks.
|
•
|
Liquidity
risk is the risk of being unable to accommodate liability maturities,
fund
asset growth and meet contractual obligations through access to funding
at
reasonable market rates. Additional information about our liquidity
and
how we manage this risk can be found in the Financial Resources and
Liquidity section and in notes 11 and
18.
|
•
|
Credit
risk is the risk of financial loss arising from a customer or counterparty
failure to meet its contractual obligations. We face credit risk
in our
lending and leasing activities (see the Financial Resources and Liquidity
and Critical Accounting Estimates sections and notes 1, 6, 7 and
20) and
derivative financial instruments activities (see note 18).
|
•
|
Market
risk is the potential loss in value of investment and other asset
and
liability portfolios, including financial instruments and residual
values
of leased assets. This risk is 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.
Additional information can be found in the Financial Resources and
Liquidity section and in notes 8 and 18.
|
Other
risks include natural disasters, availability of necessary materials, guarantees
of product performance and business interruption. These types of risks are
often
insurable, and success in managing these risks is ultimately determined by
the
balance between the level of risk retained or assumed and the cost of
transferring risk to others.
Segment
Operations
Operating
segments comprise our four businesses focused on the broad markets they serve:
GE Commercial Finance, GE Money, GE Industrial and GE Infrastructure. For
segment reporting purposes, certain financial services businesses are included
in the industrial operating segments that actively manage such businesses and
report their
results
for internal performance measurement purposes. These include Aviation Financial
Services, Energy Financial Services and Transportation Finance reported in
the
GE Infrastructure segment, and Equipment Services reported in the GE Industrial
segment.
GECC
corporate items and eliminations include the effects of eliminating transactions
between operating segments; results of our insurance activities remaining in
continuing operations; results of liquidating businesses such as consolidated,
liquidating securitization entities; underabsorbed corporate overhead; certain
non-allocated amounts determined by the Chief Executive Officer; and a variety
of sundry items. GECC corporate items and eliminations is not an operating
segment. Rather, it is added to operating segment totals to reconcile to
consolidated totals on the financial statements.
The
Chief
Executive Officer allocates resources to, and assesses the performance of
operations at the consolidated GE-level. GECC operations are a portion of those
segments. We present below in their entirety the four GE segments that include
financial services operations. We also provide a one-line reconciliation to
GECC-only results, the most significant component of which is the elimination of
GE businesses that are not financial services businesses. In addition to
providing information on GE segments in their entirety, we have also provided
supplemental information for certain businesses within the GE segments. Our
Chief Executive Officer does not separately assess the performance of, or
allocate resources among, these product lines.
Segment
profit is determined based on internal performance measures used by the Chief
Executive Officer to assess the performance of each business in a given period.
In connection with that assessment, the Chief Executive Officer may exclude
matters such as charges for restructuring; rationalization and other similar
expenses; in-process research and development and certain other
acquisition-related charges and balances; technology and product development
costs; certain gains and losses from dispositions; and litigation settlements
or
other charges, responsibility for which preceded the current management
team.
Segment
profit always excludes the effects of principal pension plans, results reported
as discontinued operations and accounting changes. Segment profit excludes
or
includes interest and other financial charges and income taxes according to
how
a particular segment’s management is measured - excluded in determining segment
profit, which we refer to as “operating profit,” for GE Healthcare, GE NBC
Universal and the industrial businesses of the GE Infrastructure and GE
Industrial segments; included in determining segment profit, which we refer
to
as “net earnings,” for GE Commercial Finance, GE Money, and the financial
services businesses of the GE Infrastructure segment (Aviation Financial
Services, Energy Financial Services and Transportation Finance) and the GE
Industrial segment (Equipment Services).
We
have
reclassified certain prior-period amounts to conform to the current period’s
presentation. For additional information about our segments, see Item 1,
Business and note 17.
Summary
of Operating Segments
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
23,792
|
|
$
|
20,646
|
|
$
|
19,524
|
|
GE
Money
|
|
21,759
|
|
|
19,416
|
|
|
15,734
|
|
GE
Industrial
|
|
33,494
|
|
|
32,631
|
|
|
30,722
|
|
GE
Infrastructure
|
|
47,429
|
|
|
41,803
|
|
|
37,373
|
|
Total
segment revenues
|
|
126,474
|
|
|
114,496
|
|
|
103,353
|
|
GECC
corporate items and eliminations
|
|
1,929
|
|
|
2,608
|
|
|
4,226
|
|
Total
revenues
|
|
128,403
|
|
|
117,104
|
|
|
107,579
|
|
Less
portion of GE revenues not included in GECC
|
|
(68,670
|
)
|
|
(63,381
|
)
|
|
(57,699
|
)
|
Total
revenues in GECC
|
$
|
59,733
|
|
$
|
53,723
|
|
$
|
49,880
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
5,028
|
|
$
|
4,290
|
|
$
|
3,570
|
|
GE
Money
|
|
3,507
|
|
|
3,050
|
|
|
2,520
|
|
GE
Industrial
|
|
2,694
|
|
|
2,559
|
|
|
1,833
|
|
GE
Infrastructure
|
|
9,040
|
|
|
7,769
|
|
|
6,797
|
|
Total
segment profit
|
|
20,269
|
|
|
17,668
|
|
|
14,720
|
|
GECC
corporate items and eliminations
|
|
55
|
|
|
305
|
|
|
1,185
|
|
Less
portion of GE segment profit not included in GECC
|
|
(9,953
|
)
|
|
(8,947
|
)
|
|
(7,782
|
)
|
Earnings
in GECC from continuing operations
|
|
10,371
|
|
|
9,026
|
|
|
8,123
|
|
Earnings
in GECC from discontinued operations, net of taxes
|
|
15
|
|
|
900
|
|
|
467
|
|
Total
net earnings in GECC
|
$
|
10,386
|
|
$
|
9,926
|
|
$
|
8,590
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to consolidated financial statements are an integral part of
this
summary.
|
|
GE
Commercial Finance
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
23,792
|
|
$
|
20,646
|
|
$
|
19,524
|
|
Less
portion of GE Commercial Finance not included in GECC
|
|
(810
|
)
|
|
(632
|
)
|
|
(456
|
)
|
Total
revenues in GECC
|
$
|
22,982
|
|
$
|
20,014
|
|
$
|
19,068
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
5,028
|
|
$
|
4,290
|
|
$
|
3,570
|
|
Less
portion of GE Commercial Finance not included in GECC
|
|
(293
|
)
|
|
(301
|
)
|
|
(177
|
)
|
Total
segment profit in GECC
|
$
|
4,735
|
|
$
|
3,989
|
|
$
|
3,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In
millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
233,536
|
|
$
|
190,546
|
|
|
|
|
Less
portion of GE Commercial Finance not included in GECC
|
|
3,689
|
|
|
(1,408
|
)
|
|
|
|
Total
assets in GECC
|
$
|
237,225
|
|
$
|
189,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
in GE
|
|
|
|
|
|
|
|
|
|
Capital
Solutions
|
$
|
12,356
|
|
$
|
11,476
|
|
$
|
11,503
|
|
Real
Estate
|
|
5,020
|
|
|
3,492
|
|
|
3,084
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit in GE
|
|
|
|
|
|
|
|
|
|
Capital
Solutions
|
$
|
1,727
|
|
$
|
1,515
|
|
$
|
1,325
|
|
Real
Estate
|
|
1,841
|
|
|
1,282
|
|
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In
millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
in GE
|
|
|
|
|
|
|
|
|
|
Capital
Solutions
|
$
|
94,523
|
|
$
|
87,306
|
|
|
|
|
Real
Estate
|
|
53,786
|
|
|
35,323
|
|
|
|
|
GE
Commercial Finance revenues and net earnings increased 15% and 17% in 2006,
respectively, compared with 2005. Revenues during 2006 and 2005 included $1.0
billion and $0.1 billion from acquisitions, respectively, and in 2006 were
reduced by $0.1 billion as a result of dispositions. Revenues for 2006 also
increased as a result of organic revenue growth ($2.5 billion). The increase
in
net earnings resulted primarily from core growth ($0.6 billion), including
growth in lower-taxed earnings from global operations, and acquisitions ($0.1
billion).
Real
Estate assets increased $18.5 billion (52%), of which $12.4 billion was real
estate investments, up 76%. Real Estate net earnings increased 44% compared
with
2005, primarily as a result of a $0.6 billion increase in net earnings from
real
estate investments.
GE
Commercial Finance revenues and net earnings increased 6% and 20% in 2005,
respectively, compared with 2004. Revenues during 2005 and 2004 included $1.0
billion and $0.3 billion from acquisitions, respectively, and in 2005 were
reduced by $0.7 billion as a result of dispositions. Revenues during 2005 also
increased $1.1 billion as a result of organic revenue growth ($0.8 billion)
and
the weaker U.S. dollar ($0.3 billion). The increase in
net
earnings resulted primarily from core growth ($0.6 billion), including growth
in
lower-taxed earnings from global operations, acquisitions ($0.2 billion) and
the
weaker U.S. dollar ($0.1 billion), partially offset by lower securitizations
($0.1 billion).
GE
Money
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
21,759
|
|
$
|
19,416
|
|
$
|
15,734
|
|
Less
portion of GE Money not included in GECC
|
|
-
|
|
|
-
|
|
|
(9
|
)
|
Total
revenues in GECC
|
$
|
21,759
|
|
$
|
19,416
|
|
$
|
15,725
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
3,507
|
|
$
|
3,050
|
|
$
|
2,520
|
|
Less
portion of GE Money not included in GECC
|
|
(54
|
)
|
|
3
|
|
|
(25
|
)
|
Total
segment profit in GECC
|
$
|
3,453
|
|
$
|
3,053
|
|
$
|
2,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In
millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
190,403
|
|
$
|
158,829
|
|
|
|
|
Less
portion of GE Money not included in GECC
|
|
955
|
|
|
763
|
|
|
|
|
Total
assets in GECC
|
$
|
191,358
|
|
$
|
159,592
|
|
|
|
|
GE
Money
revenues and net earnings increased 12% and 15% in 2006, respectively, compared
with 2005. Revenues for 2006 included $0.9 billion from acquisitions. Revenues
in 2006 also increased as a result of organic revenue growth ($1.6 billion),
partially offset by the overall strengthening U.S. dollar ($0.2 billion). The
increase in net earnings resulted primarily from core growth ($0.4 billion),
including growth in lower-taxed earnings from global operations, acquisitions
($0.2 billion) and higher securitizations ($0.1 billion), partially offset
by
reduced earnings from our Japanese business ($0.2 billion), primarily related
to
higher customer claims for partial interest refunds under Japanese law. In
2006
and 2005, charges related to these claims totaled $0.4 billion and $0.2 billion
after tax, respectively.
On
December 13, 2006, a new lending law was passed in Japan. This law will
significantly affect the operating environment for the entire consumer lending
industry in Japan. This law will be phased in over three years and will reduce
the maximum allowable lending rate and limit individual consumer borrowing
by
2010. Our future revenues and provisions for losses in Japan continue to be
affected by both this legislation and the volume and amounts of claims. We
are
taking appropriate strategic actions to address these matters.
GE
Money
revenues and net earnings increased 23% and 21% in 2005, respectively, compared
with 2004. Revenues for 2005 included $1.9 billion from acquisitions. Revenues
during 2005 also increased $1.8 billion as a result of organic revenue growth
($1.5 billion) and the weaker U.S. dollar ($0.3 billion). The increase in net
earnings resulted primarily from core growth ($0.6 billion), including growth
in
lower-taxed earnings from global operations, and acquisitions ($0.1 billion),
partially offset by increased costs to launch new products and promote brand
awareness ($0.2 billion).
GE
Industrial
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
33,494
|
|
$
|
32,631
|
|
$
|
30,722
|
|
Less
portion of GE Industrial not included in GECC
|
|
(26,433
|
)
|
|
(26,004
|
)
|
|
(24,151
|
)
|
Total
revenues in GECC
|
$
|
7,061
|
|
$
|
6,627
|
|
$
|
6,571
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
2,694
|
|
$
|
2,559
|
|
$
|
1,833
|
|
Less
portion of GE Industrial not included in GECC
|
|
(2,425
|
)
|
|
(2,362
|
)
|
|
(1,752
|
)
|
Total
segment profit in GECC
|
$
|
269
|
|
$
|
197
|
|
$
|
81
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
in GE
|
|
|
|
|
|
|
|
|
|
Consumer
& Industrial
|
$
|
14,249
|
|
$
|
14,092
|
|
$
|
13,767
|
|
Equipment
Services
|
|
7,061
|
|
|
6,627
|
|
|
6,571
|
|
Plastics
|
|
6,649
|
|
|
6,606
|
|
|
6,066
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit in GE
|
|
|
|
|
|
|
|
|
|
Consumer
& Industrial
|
$
|
1,140
|
|
$
|
871
|
|
$
|
716
|
|
Equipment
Services
|
|
269
|
|
|
197
|
|
|
82
|
|
Plastics
|
|
674
|
|
|
867
|
|
|
566
|
|
GE
Industrial revenues rose 3%, or $0.9 billion, in 2006 as higher volume ($0.7
billion) was partially offset by lower prices ($0.2 billion) and the effects
of
the overall strengthening U.S. dollar ($0.1 billion) at the industrial
businesses in the segment. Volume increases and price decreases were primarily
at Plastics. Consumer & Industrial volume was unchanged as volume from
organic growth ($0.9 billion) was offset by the effects of lost volume from
GE
Supply, which was sold in the third quarter of 2006. Revenues increased at
Equipment Services as a result of the second quarter 2006 consolidation of
GE
SeaCo, an entity previously accounted for using the equity method ($0.2
billion), and organic revenue growth ($0.2 billion). Segment profit rose 5%
as
productivity ($0.9 billion), primarily at Consumer & Industrial and
Plastics, and higher volume ($0.1 billion) were partially offset by higher
material and other costs ($0.7 billion), primarily at Consumer & Industrial
and Plastics, and lower prices ($0.2 billion). Price increases were realized
at
Consumer & Industrial to offset commodity inflation, but these increases
were more than offset by price declines at Plastics. Segment profit at Equipment
Services increased as a result of core growth ($0.1 billion).
GE
Industrial revenues rose 6%, or $1.9 billion, in 2005 on higher prices ($1.5
billion), higher volume ($0.2 billion) and the weaker U.S. dollar ($0.2 billion)
at the industrial businesses in the segment. We realized price increases
primarily at Plastics and Consumer & Industrial. Volume increases related
primarily to the acquisitions of Edwards Systems Technology and InVision
Technologies, Inc. by our Security business, but were partially offset by lower
volume at Plastics. Revenues at Equipment Services also increased as a result
of
organic revenue growth ($0.4 billion) and acquisitions ($0.1 billion), partially
offset by the effects of the 2004 disposition of IT Solutions ($0.4 billion).
Segment profit rose 35%, or $0.6 billion, at the industrial businesses in the
segment in 2005 as price increases ($1.5 billion) and higher volume ($0.1
billion) more than offset higher material and other costs ($0.8 billion),
primarily from commodities such as benzene and natural gas at Plastics, and
lower productivity ($0.2 billion). Segment profit at Equipment Services also
increased as a result of improved operating performance, reflecting core growth
($0.1 billion).
GE
Infrastructure
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
47,429
|
|
$
|
41,803
|
|
$
|
37,373
|
|
Less
portion of GE Infrastructure not included in GECC
|
|
(41,427
|
)
|
|
(36,745
|
)
|
|
(33,083
|
)
|
Total
revenues in GECC
|
$
|
6,002
|
|
$
|
5,058
|
|
$
|
4,290
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
9,040
|
|
$
|
7,769
|
|
$
|
6,797
|
|
Less
portion of GE Infrastructure not included in GECC
|
|
(7,181
|
)
|
|
(6,287
|
)
|
|
(5,828
|
)
|
Total
segment profit in GECC
|
$
|
1,859
|
|
$
|
1,482
|
|
$
|
969
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
in GE
|
|
|
|
|
|
|
|
|
|
Aviation
|
$
|
13,152
|
|
$
|
11,904
|
|
$
|
11,094
|
|
Aviation
Financial Services
|
|
4,177
|
|
|
3,504
|
|
|
3,159
|
|
Energy
|
|
19,133
|
|
|
16,525
|
|
|
14,586
|
|
Energy
Financial Services
|
|
1,664
|
|
|
1,349
|
|
|
972
|
|
Oil
& Gas
|
|
4,340
|
|
|
3,598
|
|
|
3,135
|
|
Transportation
|
|
4,169
|
|
|
3,577
|
|
|
3,007
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit in GE
|
|
|
|
|
|
|
|
|
|
Aviation
|
$
|
2,909
|
|
$
|
2,573
|
|
$
|
2,238
|
|
Aviation
Financial Services
|
|
1,108
|
|
|
764
|
|
|
520
|
|
Energy
|
|
3,000
|
|
|
2,665
|
|
|
2,543
|
|
Energy
Financial Services
|
|
695
|
|
|
646
|
|
|
376
|
|
Oil
& Gas
|
|
548
|
|
|
411
|
|
|
331
|
|
Transportation
|
|
781
|
|
|
524
|
|
|
516
|
|
GE
Infrastructure revenues rose 13%, or $5.6 billion, in 2006 on higher volume
($4.8 billion), higher prices ($0.3 billion) and effects of late 2006 weakening
of the U.S. dollar ($0.1 billion) at the industrial businesses in the segment.
The increase in volume reflected increased sales of power generation equipment
at Energy, commercial and military services and commercial engines at Aviation,
equipment at Oil & Gas, and locomotives at Transportation. The increase in
price was primarily at Energy. Revenues also increased as a result of organic
revenue growth at Aviation Financial Services ($0.7 billion) and Energy
Financial Services ($0.3 billion). Intra-segment revenues, which increased
$0.5
billion, were eliminated from total GE Infrastructure revenues.
Segment
profit rose 16% to $9.0 billion, compared with $7.8 billion in 2005, as higher
volume ($0.7 billion), higher prices ($0.3 billion) and productivity ($0.3
billion) more than offset the effects of higher material and other costs ($0.4
billion) at the industrial businesses in the segment. The increase in volume
primarily related to Energy and Aviation. Segment profit from the financial
services businesses increased as a result of core growth at Aviation Financial
Services ($0.3 billion), including growth in lower-taxed earnings from global
operations that were more than offset by lower one-time benefits from our
aircraft leasing business reorganization, and core growth at Energy Financial
Services.
GE
Infrastructure revenues rose 12%, or $4.4 billion, in 2005 as higher volume
($4.3 billion) was partially offset by lower prices ($0.6 billion) at the
industrial businesses in the segment. The increase in volume was primarily
at
Energy, Aviation and Transportation. The decrease in prices was primarily at
Energy and was partially offset by increased prices at Transportation and
Aviation. Revenues also increased as a result of organic revenue growth at
Energy Financial Services ($0.4 billion) and Aviation Financial Services ($0.3
billion).
Segment
profit rose 14% to $7.8 billion in 2005, compared with $6.8 billion in 2004,
as
higher volume ($1.0 billion) and productivity ($0.2 billion including customer
settlements and contract terminations) more than offset lower prices ($0.6
billion) and the effects of higher material and other costs ($0.3 billion)
at
the industrial businesses in the segment. The increase in volume primarily
related to Energy, Aviation and Transportation. Segment profit also increased
as
a result of increased net earnings at the financial services businesses. This
increase reflected core growth at Energy Financial Services ($0.3 billion)
and
core growth at Aviation Financial Services ($0.2 billion), including growth
in
lower-taxed earnings from global operations related to a reorganization of
our
aircraft leasing operations.
GE
Infrastructure orders were $51.1 billion in 2006, up from $38.4 billion in
2005.
The $39.2 billion total backlog at year-end 2006 comprised unfilled product
orders of $27.0 billion (of which 59% was scheduled for delivery in 2007) and
product services orders of $12.2 billion scheduled for 2007 delivery. Comparable
December 31, 2005, total backlog was $29.2 billion, of which $18.8 billion
was
for unfilled product orders and $10.4 billion for product services
orders.
Discontinued
Insurance Operations
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
in GECC from discontinued operations, net of taxes
|
$
|
15
|
|
$
|
900
|
|
$
|
467
|
|
Discontinued
operations comprise GE Life, our U.K.-based life insurance operation and
Genworth, our formerly wholly-owned subsidiary that conducted most of our
consumer insurance business, including life and mortgage insurance operations.
Results of these businesses are reported as discontinued operations for all
periods presented.
In
December 2006, we completed the sale of GE Life to Swiss Re for $0.9 billion.
As
a result, we recognized a loss of $0.3 billion after tax during
2006.
In
May
2004, we completed the initial public offering of Genworth. Throughout 2005,
we
continued to reduce our ownership in Genworth. In March 2006, we completed
the
sale of our remaining 18% investment, through a secondary public offering of
71
million shares of Class A Common Stock and direct sale to Genworth of 15 million
shares of Class B Common Stock.
Earnings
from discontinued operations, net of taxes, in 2006 reflected the gain on the
sale of our remaining 18% investment in Genworth ($0.2 billion) and earnings
from GE Life through the date of disposal ($0.1 billion), partially offset
by
the loss on disposal of GE Life ($0.3 billion).
Earnings
from discontinued operations, net of taxes, in 2005 was $0.9 billion, reflecting
earnings from, and gains on the sale of Genworth.
Earnings
from discontinued operations, net of taxes, in 2004 were $0.5 billion,
reflecting earnings of Genworth ($0.4 billion), including our share of 2004
earnings from operations ($0.8 billion), partially offset by the loss on the
Genworth initial public offering in May 2004 ($0.3 billion).
For
additional information related to discontinued operations, see note
2.
Global
Operations
Our
global activities span all geographic regions and primarily encompass leasing
of
aircraft and provision of financial services within these regional economies.
Thus, when countries or regions experience currency and/or economic stress,
we
often have increased exposure to certain risks, but also often have new profit
opportunities. Potential increased risks include, among other things, higher
receivable delinquencies and bad debts, delays or cancellations of sales and
orders principally related to aircraft equipment, higher local currency
financing costs and slowdown in our established activities. New profit
opportunities include, among other things, more opportunities for lower cost
outsourcing, expansion of our activities through purchases of companies or
assets at reduced prices and lower U.S. debt financing costs.
Estimated
results of global activities include the results of our operations located
outside the United States. We classify certain operations that cannot
meaningfully be associated with specific geographic areas as “Other Global” for
this purpose.
Global
revenues rose 12% to $30.8 billion in 2006, compared with $27.4 billion and
$24.5 billion in 2005 and 2004, respectively. Global revenues as a percentage
of
total revenues were 52% in 2006, compared with 51% and 49% in 2005 and 2004,
respectively.
Revenues
in Other Global increased 20% in 2006, primarily as a result of organic revenue
growth at the Aviation Financial Services business of GE Infrastructure.
Revenues increased 19% in the Americas, primarily as a result of organic revenue
growth and acquisitions at GE Commercial Finance and GE Money, partially offset
by dispositions at GE Commercial Finance. Revenues increased 10% in Europe,
primarily as a result of organic revenue growth and acquisitions at GE
Commercial Finance and GE Money, partially offset by results of our remaining
insurance activities.
Global
pre-tax earnings were $6.7 billion in 2006, an increase of 22% over 2005, which
were 9% higher than in 2004. Pre-tax earnings in 2006 rose favorably in the
Other Global region as a result of core growth at the Aviation Financial
Services business of GE Infrastructure. Pre-tax earnings also rose 30% in
Europe, primarily as a result of core growth and acquisitions at GE Commercial
Finance and GE Money.
Our
global assets on a continuing basis of $305.9 billion at the end of 2006 were
24% higher than at the end of 2005, reflecting core growth and acquisitions
in
Europe, the Pacific Basin and the Americas, primarily at GE Commercial Finance
and GE Money.
Financial
results of our global activities reported in U.S. dollars are affected by
currency exchange. We use a number of techniques to manage the effects of
currency exchange, including selective borrowings in local currencies and
selective hedging of significant cross-currency transactions. Such principal
currencies are the pound sterling, the euro, the Japanese yen and the Canadian
dollar.
Financial
Resources and Liquidity
This
discussion of financial resources and liquidity addresses the Statement of
Financial Position, the Statement of Changes in Shareowner’s Equity, the
Statement of Cash Flows, Contractual Obligations, Off-Balance Sheet
Arrangements, and Debt Instruments, Guarantees and Covenants.
Overview
of Financial Position
Major
changes in our financial position resulted from the following:
·
|
During
2006, we substantially completed our insurance exit, which reduced
assets
and liabilities of discontinued operations by $17.3 billion and $13.0
billion, respectively.
|
·
|
During
2006, we completed the acquisitions of Banque Artesia Nederland N.V.,
Arden Realty, Inc., the custom fleet business of National Australia
Bank
Ltd., and the senior housing portfolios of Formation Capital LLC
at GE
Commercial Finance; and the private-label credit card portfolio of
Hudson’s Bay Company at GE Money.
|
·
|
The
U.S. dollar was weaker at December 31, 2006, than it was at December
31,
2005, increasing the translated levels of our non-U.S. dollar assets
and
liabilities. Overall, on average, the U.S. dollar in 2006 was slightly
stronger than during the comparable 2005 period; stronger in the
first
half and weaker in the second half of the year. Depending on the
timing of
our non-U.S. dollar operations, this resulted in either decreasing
or
increasing the translated levels of our operations as noted in the
preceding Operations section.
|
Statement
of Financial Position
Investment
securities
comprise
mainly investment-grade debt securities supporting obligations to annuitants
and
policyholders. Investment securities were $21.3 billion at December 31, 2006,
compared with $18.5 billion at December 31, 2005.
We
regularly review investment securities for impairment based on both quantitative
and qualitative criteria. Quantitative criteria include length of time and
amount that each security is in an unrealized loss position and, for fixed
maturities, whether the issuer is in compliance with terms and covenants of
the
security. Qualitative criteria include the financial health of and specific
prospects for the issuer, as well as our intent and ability to hold the security
to maturity or until forecasted recovery. Our impairment reviews involve our
finance, risk and asset management teams as well as the portfolio management
and
research capabilities of our internal and third-party asset managers. Our
qualitative review attempts to identify those issuers with a greater than 50%
chance of default in the following 12 months. These securities are characterized
as “at-risk” of impairment. Of investment securities with unrealized losses at
December 31, 2006, an insignificant amount was at risk of being charged to
earnings in the next 12 months.
Impairment
losses for 2006 were $0.1 billion compared with an insignificant amount in
2005.
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 totaled $0.9 billion and $0.1 billion, respectively,
at December 31, 2006, compared with $0.4 billion and $0.2 billion, respectively,
at December 31, 2005, primarily reflecting an increase in the estimated fair
value of equity securities. At December 31, 2006, available 2007 accounting
gains could be as much as $0.9 billion, net of consequential adjustments to
certain insurance assets that are amortized based on anticipated gross profits.
The market values we used in determining unrealized gains and losses are those
defined by relevant accounting standards and should not be viewed as a forecast
of future gains or losses.
We
also
hold collateralized investment securities issued by various airlines, including
those operating in bankruptcy. Total amortized cost and fair value of these
securities were $0.7 billion at December 31, 2006. Unrealized losses associated
with securities in an unrealized loss position for more than 12 months were
insignificant, an improvement from the comparable $0.1 billion a year earlier.
All of these securities have remained current on all payment terms; we do not
expect the borrowers to default. Current appraised market values of associated
aircraft collateral exceeded both the market value and the amortized cost of
our
related securities at December 31, 2006, offering protection in the event of
foreclosure. Therefore, we expect full recovery of our investment as well as
our
contractual returns. See note 5.
Financing
receivables is
our
largest category of assets and represents one of our primary sources of
revenues. The portfolio of financing receivables, before allowance for losses,
was $334.2 billion at December 31, 2006, and $289.1 billion at December 31,
2005. The related allowance for losses amounted to $4.6 billion at December
31,
2006 and 2005, representing our best estimate of probable losses inherent in
the
portfolio. The 2006 increase reflected overall growth in our portfolio at GE
Money and late-year weakening of the U.S. dollar, primarily at GE Money;
partially offset by overall improvement in portfolio quality at GE Commercial
Finance and lower losses on commercial aviation loans and leases in our GE
Infrastructure segment. Balances at December 31, 2006 and 2005, included
securitized, managed GE trade receivables of $6.0 billion and $3.9 billion,
respectively.
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; and “nonearning” receivables are those
that are 90 days or more past due (or for which collection has otherwise become
doubtful).
GE
Commercial Finance financing receivables, before allowance for losses, totaled
$148.7 billion at December 31, 2006, compared with $128.9 billion at December
31, 2005, and consisted of loans and leases to the equipment and leasing,
commercial and industrial and real estate industries. This portfolio of
receivables increased primarily from core growth ($55.8 billion), acquisitions
($5.6 billion), and late-year weakening of the U.S. dollar ($2.5 billion),
partially offset by securitizations and sales ($42.7 billion). Related
nonearning receivables were $1.6 billion (1.1% of outstanding receivables)
at
December 31, 2006, and $1.3 billion (1.0% of outstanding receivables) at
year-end 2005. GE Commercial Finance financing receivables are generally backed
by assets and there is a broad spread of geographic and credit risk in the
portfolio.
GE
Money
financing receivables, before allowance for losses, were $156.7 billion at
December 31, 2006, compared with $130.1 billion at December 31, 2005, and
consisted primarily of card receivables, installment loans, auto loans and
leases, and residential mortgages. This portfolio of receivables increased
primarily as a result of core growth ($17.7 billion), late-year weakening of
the
U.S. dollar ($8.2 billion) and acquisitions ($3.2 billion), partially offset
by
loans transferred to assets held for sale ($2.5 billion). Related nonearning
receivables were $3.3 billion at December 31, 2006, compared with $2.8 billion
at December 31, 2005, both representing 2.1% of outstanding receivables. The
increase was primarily related to the weaker U.S. dollar at the end of the
year
and overall growth in the portfolio.
GE
Infrastructure financing receivables, before allowance for losses, were $21.0
billion at December 31, 2006, compared with $18.9 billion at December 31, 2005,
and consisted primarily of loans and leases to the commercial aircraft and
energy industries. Related nonearning receivables were insignificant at December
31, 2006 and 2005.
Other
financing receivables, before allowance for losses, were $7.8 billion and $11.2
billion at December 31, 2006, and December 31, 2005, 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. Related nonearning receivables
at
December 31, 2006, were $0.1 billion (1.1% of outstanding receivables) compared
with $0.1 billion (0.7% of outstanding receivables) at December 31,
2005.
Delinquency
rates on managed GE Commercial Finance equipment loans and leases and managed
GE
Money financing receivables follow.
December
31
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
1.22
|
%
|
|
1.31
|
%
|
|
1.40
|
%
|
|
GE
Money
|
5.05
|
|
|
5.08
|
|
|
4.85
|
|
|
Delinquency
rates at GE Commercial Finance decreased from December 31, 2004, through
December 31, 2006, primarily resulting from improved credit quality across
all
portfolios.
Delinquency
rates at GE Money decreased from December 31, 2005, to December 31, 2006, as
a
result of improvements in our European secured financing business, partially
offset by the weakening U.S. dollar at the end of the year. The increase from
December 31, 2004, to December 31, 2005, reflected higher delinquencies in
our
European secured financing business, a business that tends to experience
relatively higher delinquencies but lower losses than the rest of the consumer
portfolio. See notes 6 and 7.
Other
receivables
totaled
$36.1 billion at December 31, 2006, and $25.3 billion at December 31, 2005,
and
consisted primarily of amounts due from GE (generally related to certain
material procurement programs), insurance receivables, nonfinancing customer
receivables, amounts due under operating leases, receivables due on sale of
securities and various sundry items.
Buildings
and equipment
amounted
to $58.2 billion at December 31, 2006, up $7.2 billion from 2005, primarily
reflecting acquisitions of commercial aircraft at the Aviation Financial
Services business of GE Infrastructure and the consolidation of GE SeaCo at
the
Equipment Services business of GE Industrial during the second quarter of 2006.
Buildings and equipment consisted primarily of equipment provided to third
parties on operating leases. Details by category of investment are presented
in
note 8. Additions to buildings and equipment were $12.9 billion and $11.2
billion during 2006 and 2005, respectively, primarily reflecting additions
of
vehicles at GE Commercial Finance and the Equipment Services business of GE
Industrial, and commercial aircraft at the Aviation Financial Services business
of GE Infrastructure.
Intangible
assets
increased by $2.2 billion to $25.2 billion at December 31, 2006, principally
as
a result of increases in goodwill and other intangible assets, primarily related
to acquisitions and the weaker U.S. dollar at the end of the year. See note
9.
Other
assets
totaled
$63.4 billion at year-end 2006, an increase of $13.9 billion, reflecting
increases from additional investments and acquisitions in real estate, increases
in assets held for sale, partially offset by decreases in associated companies.
See note 10.
Borrowings
amounted
to $425.7 billion at December 31, 2006, of which $168.9 billion is due in 2007
and $256.8 billion is due in subsequent years. Comparable amounts at the end
of
2005 were $355.9 billion in total, $149.7 billion due within one year and $206.2
billion due thereafter. Included in our total borrowings were borrowings of
consolidated, liquidating securitization entities amounting to $11.1 billion
and
$16.8 billion at December 31, 2006
and
2005,
respectively. A large portion of our borrowings ($92.9 billion and $90.4 billion
at the end of 2006 and 2005, respectively) was issued in active commercial
paper
markets that we believe will continue to be a reliable source of short-term
financing. The average remaining terms and interest rates of our commercial
paper were 48 days and 5.09% at the end of 2006, compared with 45 days and
4.09%
at the end of 2005. Our ratio of debt to equity was 7.52 to 1 at the end of
2006
and 7.09 to 1 at the end of 2005. See note 11.
Exchange
rate and interest rate risks are
managed with a variety of techniques, including match funding and selective
use
of derivatives. We use derivatives to mitigate or eliminate certain financial
and market risks because we conduct business in diverse markets around the
world
and local funding is not always efficient. In addition, we use derivatives
to
adjust the debt we are issuing to match the fixed or floating nature of the
assets we are acquiring. We apply strict policies to manage each of these risks,
including prohibitions on derivatives trading, derivatives market-making or
other speculative activities. Following is an analysis of the potential effects
of changes in interest rates and currency exchange rates using so-called “shock”
tests that model effects of shifts in rates. These are not
forecasts.
•
|
It
is our policy to minimize exposure to interest rate changes. We fund
our
financial investments using debt or a combination of debt and hedging
instruments so that the interest rates and terms of our borrowings
match
the expected yields and terms on our assets. To test the effectiveness
of
our positions, we assumed that, on January 1, 2007, interest rates
increased by 100 basis points across the yield curve (a “parallel shift”
in that curve) and further assumed that the increase remained in
place for
2007. We estimated, based on that year-end 2006 portfolio and holding
everything else constant, that our 2007 net earnings would decline
by $0.1
billion.
|
•
|
It
is our policy to minimize currency exposures and to conduct operations
either within functional currencies or using the protection of hedge
strategies. We analyzed year-end 2006 consolidated currency exposures,
including derivatives designated and effective as hedges, to identify
assets and liabilities denominated in other than their relevant functional
currencies. For such assets and liabilities, we then evaluated the
effects
of a 10% shift in exchange rates between those currencies and the
U.S.
dollar. This analysis indicated that there would be an inconsequential
effect on 2007 earnings of such a shift in exchange
rates.
|
Statement
of Changes in Shareowner’s Equity
Shareowner’s
equity increased by $6.4 billion and $7.3 billion in 2006 and 2004,
respectively, and decreased by $3.8 billion in 2005. Changes over the three-year
period were largely attributable to net earnings, partially offset by dividends
declared of $8.3 billion, $8.6 billion and $3.1 billion in 2006, 2005 and 2004,
respectively. In 2006, shareowner’s equity increased as a result of a capital
contribution from GECS of $1.9 billion. Preferred stock redemptions reduced
shareowner’s equity by $0.1 billion and $2.5 billion in 2006 and 2005,
respectively. Currency translation adjustments increased equity by $2.5 billion
in 2006 and $2.3 billion in 2004, compared with a $2.5 billion decrease in
2005.
Changes in currency translation adjustments reflect the effects of changes
in
currency exchange rates on our net investment in non-U.S. subsidiaries that
have
functional currencies other than the U.S. dollar. As of December 31, 2006,
the
U.S. dollar was weaker than the pound sterling and the euro and slightly
stronger than the Japanese yen. As of December 31, 2005, the U.S. dollar was
stronger than the pound sterling, the euro and the Japanese yen. As of December
31, 2004, the pound sterling, the euro and to a lesser extent, Asian currencies
were stronger than the U.S. dollar. See note 15. Accumulated currency
translation adjustments affect net earnings only when all or a portion of an
affiliate is disposed of or substantially liquidated.
Overview
of Our Cash Flow from 2004 through 2006
Our
cash
and equivalents aggregated $9.8 billion at the end of 2006, compared with $6.0
billion at year-end 2005. Over the past three years, our borrowings with
maturities of 90 days or less have increased by $5.1 billion. New borrowings
of
$214.5 billion having maturities longer than 90 days were added during those
years, while $142.9 billion of such long-term borrowings were
retired.
Our
principal use of cash has been investing in assets to grow our businesses.
Of
the $112.1 billion that we invested over the past three years, $71.3 billion
was
used for additions to financing receivables; $34.4 billion was used to invest
in
new equipment, principally for lease to others; and $28.4 billion was used
for
acquisitions of new businesses, the largest of which were Banque Artesia
Nederland N.V.; Arden Realty, Inc.; the custom fleet business of National
Australia Bank Ltd. and the senior housing portfolios of Formation Capital
LLC
in 2006; the Transportation Financial Services Group of CitiCapital and the
Inventory Finance division of Bombardier Capital in 2005; and the commercial
lending business of Transamerica Finance Corporation and Sophia S.A. in
2004.
Based
on
past performance and current expectations, in combination with the financial
flexibility that comes with a strong balance sheet and the highest credit
ratings, we believe that we are in a sound position to grow dividends and
continue making selective investments for long-term growth.
Contractual
Obligations
As
defined by reporting regulations, our contractual obligations for future
payments as of December 31, 2006, follow.
|
Payments
due by period
|
(In
billions)
|
Total
|
|
2007
|
|
2008-2009
|
|
2010-2011
|
|
2012
and
thereafter
|
|
|
|
|
|
|
|
|
|
|
Borrowings
(note 11)
|
$
|
425.7
|
|
$
|
168.9
|
|
|
$
|
97.5
|
|
|
|
$
|
55.3
|
|
|
|
$
|
104.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on borrowings
|
|
94.0
|
|
|
17.0
|
|
|
|
23.0
|
|
|
|
|
14.0
|
|
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations (note 4)
|
|
4.0
|
|
|
0.8
|
|
|
|
1.3
|
|
|
|
|
0.8
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations(a)(b)
|
|
35.0
|
|
|
24.0
|
|
|
|
8.0
|
|
|
|
|
3.0
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
liabilities (note
12)(c)
|
|
12.0
|
|
|
1.0
|
|
|
|
5.0
|
|
|
|
|
2.0
|
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities(d)
|
|
18.0
|
|
|
15.0
|
|
|
|
1.0
|
|
|
|
|
-
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
all take-or-pay arrangements, capital expenditures, contractual
commitments to purchase equipment that will be classified as equipment
leased to others, software acquisition/license commitments and any
contractually required cash payments for acquisitions.
|
|
(b)
|
Excluded
funding commitments entered into in the ordinary course of business.
Further information on these commitments and other guarantees is
provided
in note 20.
|
|
(c)
|
Included
guaranteed investment contracts, structured settlements and single
premium
immediate annuities based on scheduled payouts, as well as those
contracts
with reasonably determinable cash flows such as deferred annuities,
term
life, long-term care, whole life and other life insurance
contracts.
|
|
(d)
|
Included
an estimate of future expected funding requirements related to our
pension
benefit plans. Because their future cash outflows are uncertain,
the
following non-current liabilities are excluded from the table above:
deferred taxes, derivatives, deferred revenue and other sundry items.
See
notes 13 and 18 for further information on certain of these
items.
|
|
Off-Balance
Sheet Arrangements
Before
2003, we executed securitization transactions using entities sponsored by us
and
by third parties. Subsequently, we only have executed securitization
transactions with third parties in the asset-backed commercial paper and term
markets and we consolidated those we sponsored. Securitization entities held
receivables secured by a variety of high-quality assets totaling $54.6 billion
at December 31, 2006, down $1.6 billion during the year. Off-balance sheet
securitization entities held $42.9 billion of that total, up $4.6 billion during
the year. The remainder, in the consolidated entities we sponsored, decreased
$6.3 billion during 2006, reflecting collections. We have entered into various
credit enhancement positions with these securitization entities, including
overcollateralization, liquidity and credit support agreements and guarantee
and
reimbursement contracts. We have provided for our best estimate of the fair
value of estimated losses on such positions, $27 million at December 31,
2006.
Debt
Instruments, Guarantees and Covenants
The
major
debt rating agencies routinely evaluate our debt. These agencies have given
us
the highest debt ratings (long-term rating AAA/Aaa; short-term rating A-1+/P-1).
One of our strategic objectives is to maintain these ratings, as they serve
to
lower our cost of funds and to facilitate our access to a variety of lenders.
We
manage our businesses in a fashion that is consistent with maintaining these
ratings.
We
have
distinct business characteristics that the major debt rating agencies evaluate
both quantitatively and qualitatively.
Quantitative
measures include:
•
|
Earnings
and profitability, revenue growth, the breadth and diversity of sources
of
income and return on assets,
|
•
|
Asset
quality, including delinquency and write-off ratios and reserve
coverage,
|
•
|
Funding
and liquidity, including cash generated from operating activities,
leverage ratios such as debt-to-capital, market access, back-up liquidity
from banks and other sources, composition of total debt and interest
coverage, and
|
•
|
Capital
adequacy, including required capital and tangible leverage
ratios.
|
Qualitative
measures include:
•
|
Franchise
strength, including competitive advantage and market conditions and
position,
|
•
|
Strength
of management, including experience, corporate governance and strategic
thinking, and
|
•
|
Financial
reporting quality, including clarity, completeness and transparency
of all
financial performance
communications.
|
Our
ratings are supported contractually by a GE commitment to maintain the ratio
of
earnings to fixed charges at a specified level as described below.
During
2006, we paid $2.5 billion of special dividends to GE through GECS, which was
funded by the proceeds from the Genworth secondary public
offerings.
During
2006, GECC and GECC affiliates issued $82 billion of senior, unsecured long-term
debt and $2 billion of subordinated debt. This debt was both fixed and floating
rate and was issued to institutional and retail investors in the U.S. and 18
other global markets. Maturities for these issuances ranged from one to 60
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 approximately $75 billion of additional long-term debt during 2007. The
ultimate amount we issue will depend on our needs and on the
markets.
We
target
a ratio for commercial paper not to exceed 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 $59.9 billion of
contractually committed lending agreements with 75 highly-rated global banks
and
investment banks. Total credit lines extending beyond one year increased $2.7
billion to $59.8 billion at December 31, 2006. See note 11.
Beyond
contractually committed lending agreements, other sources of liquidity include
medium and long-term funding, monetization, asset securitization, cash receipts
from our lending and leasing activities, short-term secured funding on global
assets and potential sales of other assets.
Principal
debt conditions
are
described below.
The
following conditions relate to GECC:
•
|
Swap,
forward and option contracts are required to be executed under
master-netting agreements containing mutual downgrade provisions
that
provide the ability of the counterparty to require assignment or
termination if the long-term credit rating of GECC were to fall below
A-/A3. Had this provision been triggered at December 31, 2006, we
could
have been required to disburse $2.6
billion.
|
•
|
If
our ratio of earnings to fixed charges, which was 1.64:1 at the end
of
2006, were to deteriorate to 1.10:1, GE has committed to contribute
capital to us. GE also guaranteed certain issuances of our subordinated
debt having a face amount of $0.5 billion and $0.7 billion at December
31,
2006 and 2005, respectively.
|
The
following conditions relate to consolidated, liquidating securitization
entities:
•
|
If
our short-term credit rating or certain consolidated, liquidating
securitization entities discussed further in note 19 were to be reduced
below A-1/P-1, we would be required to provide substitute liquidity
for
those entities or provide funds to retire the outstanding commercial
paper. The maximum net amount that we would be required to provide
in the
event of such a downgrade is determined by contract, and amounted
to $8.0
billion at January 1, 2007. Amounts related to non-consolidated SPEs
were
$0.6 billion.
|
•
|
Under
terms of other agreements in effect at December 31, 2006, specified
downgrades in the credit ratings of GE Capital could cause us to
provide
up to $1.1 billion of funding.
|
One
group
of consolidated SPEs holds high quality investment securities funded by the
issuance of guaranteed investment contracts (GICs). If our long-term credit
rating were to fall below AA-/Aa3 or our short-term credit rating were to fall
below A-1+/P-1, we could be required to provide up to $4.2 billion of capital
to
such entities.
In
our
history, we have never violated any of the above conditions. We believe that
under any reasonable future economic developments, the likelihood that any
such
arrangements could have a significant effect on our operations, cash flows
or
financial position is remote.
Critical
Accounting Estimates
Accounting
estimates and assumptions discussed in this section are those that we consider
to be the most critical to an understanding of our financial statements because
they inherently involve significant judgments and uncertainties. For all of
these estimates, we caution that future events rarely develop exactly as
forecast, and the best estimates routinely require adjustment. Also see note
1,
Summary of Significant Accounting Policies, which discusses accounting policies
that we have selected from acceptable alternatives.
Losses
on financing receivables are
recognized when they are incurred, which requires us to make our best estimate
of probable losses inherent in the portfolio. Such estimate requires
consideration of historical loss experience, adjusted for current conditions,
and judgments about the probable effects of relevant observable data, including
present economic conditions such as delinquency rates, financial health of
specific customers and market sectors, collateral values, and the present and
expected future levels of interest rates. Our risk management process, which
includes standards and policies for reviewing major risk exposures and
concentrations, ensures that relevant data are identified and considered either
for individual loans or leases, or on a portfolio basis, as
appropriate.
Our
lending and leasing experience and the extensive data we accumulate and analyze
facilitate estimates that have proven reliable over time. Our actual loss
experience was in line with expectations for 2006, 2005 and 2004. While
prospective losses depend to a large degree on future economic conditions,
we do
not anticipate significant adverse credit development in 2007.
Further
information is provided in the Financial Resources and Liquidity - Financing
Receivables section, the Asset impairment section that follows and in notes
1, 6
and 7.
Asset
impairment assessment
involves various estimates and assumptions as follows:
Investments. We
regularly review investment securities for impairment based on both quantitative
and qualitative criteria that include the extent to which cost exceeds market
value, the duration of that market decline, our intent and ability to hold
to
maturity or until forecasted recovery, and the financial health of and specific
prospects for the issuer. We perform comprehensive market research and analysis
and monitor market conditions to identify potential impairments.
Further
information about actual and potential impairment losses is provided in the
Financial Resources and Liquidity - Investment Securities section and in notes
1
and 5.
Long-lived
assets.
We
review long-lived assets for impairment whenever events or changes in
circumstances indicate that the related carrying amounts may not be recoverable.
Determining whether an impairment has occurred typically requires various
estimates and assumptions, including determining which undiscounted cash flows
are directly related to the potentially impaired asset, the useful life over
which cash flows will occur, their amount, and the asset’s residual value, if
any. In turn, measurement of an impairment loss requires a determination of
fair
value,
which
is
based on the best information available. We derive the required undiscounted
cash flow estimates from our historical experience and our internal business
plans. To determine fair value, we use our internal cash flow estimates
discounted at an appropriate interest rate, quoted market prices when available
and independent appraisals, as appropriate.
Commercial
aircraft are a significant concentration of assets in GE Infrastructure, and
are
particularly subject to market fluctuations. Therefore, we test recoverability
of each aircraft in our operating lease portfolio at least annually.
Additionally, we perform quarterly evaluations in circumstances such as when
aircraft are re-leased, current lease terms have changed or a specific lessee’s
credit standing changes. We consider market conditions, such as the global
shortage of commercial aircraft in 2006. Estimates of future rentals and
residual values are based on historical experience and information received
routinely from independent appraisers. Estimated cash flows from future leases
are reduced for expected downtime between leases and for estimated technical
costs required to prepare aircraft to be redeployed. Fair value used to measure
impairment is based on current market values from independent appraisers.
We
recognized impairment losses on our operating lease portfolio of commercial
aircraft of $0.1 billion and $0.3 billion in 2006 and 2005, respectively. In
addition to these impairment charges relating to operating leases, provisions
for losses on financing receivables related to commercial aircraft were
insignificant in 2006 and $0.2 billion in 2005, primarily related to Northwest
Airlines Corporation (Northwest Airlines).
Certain
of our commercial aviation customers are operating under bankruptcy protection
while they implement steps to return to profitable operations with a lower
cost
structure. At December 31, 2006, our largest exposures to carriers operating
in
bankruptcy were to Delta Air Lines, Inc., $1.9 billion, and Northwest Airlines,
$1.0 billion. Our financial exposures to these carriers are substantially
secured by various Boeing, Airbus and Bombardier aircraft and operating
equipment.
Further
information on impairment losses and our exposure to the commercial aviation
industry is provided in the Operations - Overview section and in notes 5, 8
and
20.
Real
Estate. We
regularly review our real estate investment portfolio for impairment or when
events or circumstances indicate that the related carrying amounts may not
be
recoverable. Our portfolio is diversified, both geographically and by asset
type. However, the global real estate market is subject to periodic cycles
that
can cause significant fluctuations in market values. While the current estimated
value of our GE Commercial Finance Real Estate investments exceeds our carrying
value by about $3.0 billion, the same as last year, downward cycles could
adversely affect our ability to realize these gains in an orderly fashion in
the
future and may necessitate recording impairments.
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 all
or a
portion of a reporting unit. Determining whether an impairment has occurred
requires valuation of the respective reporting unit, which we estimate using
a
discounted cash flow method. When available and as appropriate, we use
comparative market multiples to corroborate discounted cash flow results. In
applying this methodology, we rely on a number of factors, including actual
operating results, future business plans, economic projections and market data.
If
this
analysis indicates goodwill is impaired, measuring the impairment requires
a
fair value estimate of each identified tangible and intangible asset. In this
case, we supplement the cash flow approach discussed above with independent
appraisals, as appropriate.
We
test
other identified intangible assets with defined useful lives and subject to
amortization by comparing the carrying amount to the sum of undiscounted cash
flows expected to be generated by the asset.
Further
information is provided in the Financial Resources and Liquidity - Intangible
Assets section and in notes 1 and 9.
Income
taxes.
Our
annual tax rate is based on our income, statutory tax rates and tax planning
opportunities available to us in the various jurisdictions in which we operate.
Tax laws are complex and subject to different interpretations by the taxpayer
and respective governmental taxing authorities. Significant judgment is required
in determining our tax expense and in evaluating our tax positions. We review
our tax positions quarterly and adjust the balances as new information becomes
available. Deferred income tax assets represent amounts available to reduce
income taxes payable on taxable income in future years. Such assets arise
because of temporary differences between the financial reporting and tax bases
of assets and liabilities, as well as from net operating loss and tax credit
carry forwards. We evaluate the recoverability of these future tax deductions
by
assessing the adequacy of future expected taxable income from all sources,
including reversal of taxable temporary differences, forecasted operating
earnings and available tax planning strategies. These sources of income
inherently rely heavily on estimates. We use our historical experience and
our
short and long-range business forecasts to provide insight. Further, our global
and diversified business portfolio gives us the opportunity to employ various
prudent and feasible tax planning strategies to facilitate the recoverability
of
future deductions. Amounts recorded for deferred tax assets related to non-U.S.
net operating losses, net of valuation allowance were $0.8 billion and $0.7
billion at December 31, 2006 and 2005, respectively. Such year-end 2006 amounts
are expected to be fully recoverable within the applicable statutory expiration
periods. To the extent we believe it is more likely than not that a deferred
tax
asset will not be recovered, a valuation allowance is established.
Further
information on income taxes is provided in the Operations - Overview section
and
in note 13.
Derivatives
and Hedging. We
use
derivatives to manage a variety of risks, including risks related to interest
rates, foreign exchange and commodity prices. Accounting for derivatives as
hedges requires that, at inception and over the term of the arrangement, the
hedged item and related derivative meet the requirements for hedge accounting.
The rules and interpretations related to derivatives accounting are complex.
Failure to apply this complex guidance correctly will result in all changes
in
the fair value of the derivative being reported in earnings, without regard
to
the offsetting changes in the fair value of the hedged item. The accompanying
financial statements reflect the consequences of loss of hedge accounting for
certain positions.
In
evaluating whether a particular relationship qualifies for hedge accounting,
we
first determine whether the relationship meets the strict criteria to qualify
for exemption from ongoing effectiveness testing. For a relationship that does
not meet these criteria, we test effectiveness at inception and quarterly
thereafter by determining whether changes in the fair value of the derivative
offset, within a specified range, changes in the fair value of the hedged item.
This test is conducted on a cumulative basis each reporting period. If fair
value changes fail this test, we discontinue applying hedge accounting to that
relationship prospectively. Fair values of both the derivative instrument and
the hedged item are calculated using internal valuation models incorporating
market-based assumptions, subject to third-party confirmation.
At
December 31, 2006, derivative assets and liabilities were $1.8 billion and
$2.6
billion, respectively. Further information about our use of derivatives is
provided in notes 11, 15 and 18.
Other
loss contingencies
are
recorded as liabilities when it is probable that a liability has been incurred
and the amount of the loss is reasonably estimable. Disclosure is required
when
there is a reasonable possibility that the ultimate loss will materially exceed
the recorded provision. Contingent liabilities are often resolved over long
time
periods. Estimating probable losses requires analysis of multiple forecasts
that
often depend on judgments about potential actions by third parties such as
regulators.
Further
information is provided in note 20.
Other
Information
New
Accounting Standards
In
July
2006, the Financial Accounting Standards Board (FASB) issued two related
standards that address accounting for income taxes: FASB Interpretation (FIN)
48, Accounting
for Uncertainty in Income Taxes,
and
FASB Staff Position (FSP) FAS 13-2, Accounting
for a Change or Projected Change in the Timing of Cash Flows Relating to Income
Taxes Generated by a Leveraged Lease Transaction.
Among
other things, FIN 48 requires application of a “more likely than not” threshold
to the recognition and derecognition of tax positions and that changes related
to prior years’ tax positions be recognized in the quarter of change. FSP FAS
13-2 requires a recalculation of returns on leveraged leases if there is a
change or projected change in the timing of cash flows relating to income taxes
generated by the leveraged lease. Both new standards became effective for us
on
January 1, 2007. The FASB is currently engaged in a project to provide
implementation guidance on FIN 48. While the effects of FIN 48 will depend
somewhat upon this implementation guidance, we expect the transition effects
of
these standards to be modest and consist of reclassification of certain
liabilities on our Statement of Financial Position and an adjustment to the
opening balance of retained earnings. Prior periods will not be restated as
a
result of these required accounting changes.
In
February 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) 155, Accounting
for Certain Hybrid Financial Instruments - an Amendment of FASB Statements
No.
133 and 140 (SFAS
155). This Statement amended SFAS 133 to include within its scope prepayment
features in newly created or acquired retained interests related to
securitizations. SFAS 155 will have the effect of changing, from level yield
to
fair value, the basis on which we recognize earnings on these retained
interests. We expect these effects to be immaterial to our 2007
operations.
Supplemental
Information
Financial
Measures that Supplement Generally Accepted Accounting
Principles
We
sometimes use information derived from consolidated financial information but
not presented in our financial statements prepared in accordance with GAAP.
Certain of these data are considered “non-GAAP financial measures” under SEC
rules. Specifically, we have referred to:
•
|
Average
total shareowner’s equity, excluding effects of discontinued
operations
|
•
|
Delinquency
rates on certain financing receivables of the GE Commercial Finance
and GE
Money segments for 2006, 2005 and 2004
|
The
reasons we use these non-GAAP financial measures and the reconciliations to
their most directly comparable GAAP financial measures follow.
Average
Total Shareowner’s Equity, Excluding Effects of Discontinued
Operations(a)
December
31 (In millions)
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
total shareowner’s equity(b)
|
$
|
53,769
|
|
$
|
53,460
|
|
$
|
49,403
|
|
$
|
43,954
|
|
$
|
34,241
|
|
Less
the effects of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
earnings from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations
|
|
-
|
|
|
2,725
|
|
|
4,131
|
|
|
2,788
|
|
|
1,537
|
|
Average
net investment in discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
1,243
|
|
|
1,780
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Average
total shareowner’s equity, excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effects
of discontinued operations(a)
|
$
|
52,526
|
|
$
|
48,955
|
|
$
|
45,272
|
|
$
|
41,166
|
|
$
|
32,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Used
for computing return on average shareowner’s equity shown in the Selected
Financial Data section.
|
|
(b)
|
On
an annual basis, calculated using a five-point average.
|
|
U.S.
GAAP
requires earnings of discontinued operations to be displayed separately in
the
Statement of Earnings. Accordingly, the numerators used in our calculations
of
returns on average shareowner’s equity presented in Selected Financial Data
section exclude those earnings. Further, we believe that it is appropriate
to
exclude from the denominators, specifically the average total shareowner’s
equity component, the cumulative effect of those earnings for each of the years
for which related discontinued operations were presented, as well as our average
net investment in discontinued operations since the second half of 2005. Had
we
disposed of these operations before mid-2005, proceeds would have been applied
to reduce parent-supported debt; however since parent-supported debt was retired
in the first half of 2005, we have assumed that any proceeds after that time
would have been distributed to our shareowner by means of dividends, thus
reducing average total shareowner’s equity.
Delinquency
Rates on Certain Financing Receivables
Delinquency
rates on managed GE Commercial Finance equipment loans and leases and managed
GE
Money financing receivables follow.
GE
Commercial Finance
December
31
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Managed
|
1.22
|
%
|
1.31
|
%
|
1.40
|
%
|
Off-book
|
0.52
|
|
0.76
|
|
0.90
|
|
On-book
|
1.42
|
|
1.53
|
|
1.58
|
|
GE
Money
December
31
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Managed
|
5.05
|
%
|
5.08
|
%
|
4.85
|
%
|
Off-book
|
5.49
|
|
5.28
|
|
5.09
|
|
On-book
|
5.01
|
|
5.07
|
|
4.84
|
|
We
believe that delinquency rates on managed financing receivables provide a useful
perspective on our on and off-book portfolio quality and are key indicators
of
financial performance.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
Information
about our global risk management can be found in the Operations - Global Risk
Management section of Item 7.
Item
8. Financial Statements and Supplementary Data.
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors of
General
Electric Capital Corporation:
We
have
audited the accompanying statement of financial position of General Electric
Capital Corporation and consolidated affiliates (“GECC”) as of December 31, 2006
and 2005, and the related statements of earnings, changes in shareowner’s equity
and cash flows for each of the years in the three-year period ended December
31,
2006. In connection with our audits of the consolidated financial statements,
we
also have audited the financial statement schedule as listed in Item 15. We
also
have audited management’s assessment, included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting, that GECC did not
maintain effective internal control over financial reporting as of December
31,
2006, based on criteria established in Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). GECC management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on these consolidated
financial statements, an opinion on management’s assessment, and an opinion on
the effectiveness of GECC’s internal control over financial reporting based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of 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.
A
material weakness is a control deficiency, or a combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. Management has identified and included in its assessment the
following material weakness as of December 31, 2006: the Company did not have
adequately designed procedures to designate each hedged commercial paper
transaction with the specificity required by Statement of Financial Accounting
Standards 133, Accounting
for Derivative Instruments and Hedging Activities, as
amended. This material weakness resulted in restatement of the Company’s
previously issued financial statements as of and for each of the interim periods
ended March 31, 2006, June 30, 2006 and September 30, 2006. The aforementioned
material weakness was considered in determining the nature, timing and extent
of
audit tests applied in our audit of the 2006 consolidated financial
statements.
In
our
opinion, the consolidated financial statements and schedule referred to above
present fairly, in all material respects, the financial position of GECC as
of
December 31, 2006 and 2005, and the results of its operations and its cash
flows
for each of the years in the three-year period ended December 31, 2006, in
conformity with U.S. generally accepted accounting principles. Also, in our
opinion, management’s assessment that GECC did not maintain effective internal
control over financial reporting as of December 31, 2006, is fairly stated,
in
all material respects, based on criteria established in Internal
Control—Integrated Framework
issued
by COSO. Furthermore, in our opinion, because of the effect of the material
weakness described above on the achievement of the objectives of the control
criteria, GECC did not maintain effective internal control over financial
reporting as of December 31, 2006, based on criteria established in Internal
Control—Integrated Framework
issued
by COSO.
As
discussed in note 1 to the consolidated financial statements, GECC in 2006
changed its method of accounting for pension and other postretirement
benefits.
/s/
KPMG LLP
KPMG
LLP
Stamford,
Connecticut
February
9, 2007
General
Electric Capital Corporation and consolidated affiliates
Statement
of Earnings
For
the years ended December 31 (In millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Revenues
from services (note 3)
|
$
|
57,180
|
|
$
|
50,700
|
|
$
|
46,544
|
|
Sales
of goods
|
|
2,384
|
|
|
2,528
|
|
|
2,840
|
|
Commercial
paper interest rate swap adjustment
|
|
169
|
|
|
495
|
|
|
496
|
|
Total
revenues
|
|
59,733
|
|
|
53,723
|
|
|
49,880
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
Interest
|
|
17,755
|
|
|
14,005
|
|
|
10,915
|
|
Operating
and administrative (note 4)
|
|
17,098
|
|
|
16,282
|
|
|
15,737
|
|
Cost
of goods sold
|
|
2,204
|
|
|
2,369
|
|
|
2,741
|
|
Investment
contracts, insurance losses and insurance annuity
benefits
|
|
641
|
|
|
933
|
|
|
969
|
|
Provision
for losses on financing receivables (note 7)
|
|
3,775
|
|
|
3,864
|
|
|
3,868
|
|
Depreciation
and amortization (note 8)
|
|
6,482
|
|
|
5,982
|
|
|
5,754
|
|
Minority
interest in net earnings of consolidated affiliates
|
|
260
|
|
|
155
|
|
|
159
|
|
Total
costs and expenses
|
|
48,215
|
|
|
43,590
|
|
|
40,143
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before income taxes
|
|
11,518
|
|
|
10,133
|
|
|
9,737
|
|
Provision
for income taxes (note 13)
|
|
(1,147
|
)
|
|
(1,107
|
)
|
|
(1,614
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
10,371
|
|
|
9,026
|
|
|
8,123
|
|
Earnings
from discontinued operations, net of taxes (note 2)
|
|
15
|
|
|
900
|
|
|
467
|
|
Net
earnings
|
$
|
10,386
|
|
$
|
9,926
|
|
$
|
8,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Changes in Shareowner’s Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
Changes
in shareowner’s equity
(note 15)
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
50,190
|
|
$
|
54,038
|
|
$
|
46,722
|
|
Dividends
and other transactions with shareowner
|
|
(6,231
|
)
|
|
(11,101
|
)
|
|
(2,805
|
)
|
Changes
other than transactions with shareowner
|
|
|
|
|
|
|
|
|
|
Increase
attributable to net earnings
|
|
10,386
|
|
|
9,926
|
|
|
8,590
|
|
Investment
securities - net
|
|
(263
|
)
|
|
(230
|
)
|
|
(595
|
)
|
Currency
translation adjustments - net
|
|
2,466
|
|
|
(2,501
|
)
|
|
2,296
|
|
Cash
flow hedges - net
|
|
168
|
|
|
81
|
|
|
(77
|
)
|
Benefit
plans - net
|
|
(131
|
)
|
|
(23
|
)
|
|
(93
|
)
|
Total
changes other than transactions with shareowner
|
|
12,626
|
|
|
7,253
|
|
|
10,121
|
|
Balance
at December 31
|
$
|
56,585
|
|
$
|
50,190
|
|
$
|
54,038
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to consolidated financial statements are an integral part of
these
statements.
|
|
General
Electric Capital Corporation and consolidated affiliates
Statement
of Financial Position
At
December 31 (In millions, except share amounts)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
$
|
9,849
|
|
$
|
5,996
|
|
Investment
securities (note 5)
|
|
21,345
|
|
|
18,467
|
|
Inventories
|
|
54
|
|
|
159
|
|
Financing
receivables - net (notes 6 and 7)
|
|
329,586
|
|
|
284,567
|
|
Other
receivables
|
|
36,059
|
|
|
25,250
|
|
Buildings
and equipment - net (note 8)
|
|
58,162
|
|
|
50,936
|
|
Intangible
assets - net (note 9)
|
|
25,243
|
|
|
23,086
|
|
Other
assets (note 10)
|
|
63,367
|
|
|
49,507
|
|
Assets
of discontinued operations (note 2)
|
|
-
|
|
|
17,291
|
|
Total
assets
|
$
|
543,665
|
|
$
|
475,259
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
Short-term
borrowings (note 11)
|
$
|
168,896
|
|
$
|
149,679
|
|
Accounts
payable
|
|
15,556
|
|
|
14,345
|
|
Long-term
borrowings (note 11)
|
|
256,817
|
|
|
206,206
|
|
Investment
contracts, insurance liabilities and insurance annuity benefits (note
12)
|
|
12,418
|
|
|
12,094
|
|
Other
liabilities
|
|
20,486
|
|
|
16,269
|
|
Deferred
income taxes (note 13)
|
|
10,727
|
|
|
11,069
|
|
Liabilities
of discontinued operations (note 2)
|
|
172
|
|
|
13,195
|
|
Total
liabilities
|
|
485,072
|
|
|
422,857
|
|
|
|
|
|
|
|
|
Minority
interest in equity of consolidated affiliates (note 14)
|
|
2,008
|
|
|
2,212
|
|
|
|
|
|
|
|
|
Variable
cumulative preferred stock, $100 par value, liquidation preference
$100,000
per share (33,000 shares authorized; 26,000 shares held in
treasury
at
December 31, 2006 and 700 shares issued and outstanding and 25,300
shares
held
in treasury at December 31, 2005)
|
|
-
|
|
|
-
|
|
Common
stock, $14 par value (4,166,000 shares authorized at
December
31, 2006 and 2005, and 3,985,403 shares issued
and
outstanding at December 31, 2006 and 2005)
|
|
56
|
|
|
56
|
|
Accumulated
gains (losses) - net
|
|
|
|
|
|
|
Investment
securities
|
|
481
|
|
|
744
|
|
Currency
translation adjustments
|
|
4,809
|
|
|
2,343
|
|
Cash
flow hedges
|
|
(199
|
)
|
|
(367
|
)
|
Benefit
plans
|
|
(278
|
)
|
|
(147
|
)
|
Additional
paid-in capital
|
|
14,088
|
|
|
12,055
|
|
Retained
earnings
|
|
37,628
|
|
|
35,506
|
|
Total
shareowner’s equity (note 15)
|
|
56,585
|
|
|
50,190
|
|
Total
liabilities and equity
|
$
|
543,665
|
|
$
|
475,259
|
|
|
|
|
|
|
|
|
The
sum of accumulated gains (losses) on investment securities, currency
translation adjustments, cash flow hedges and benefit plans constitutes
“Accumulated nonowner changes other than earnings,” as shown in note 15,
and was $4,813 million and $2,573 million at December 31, 2006 and
2005,
respectively.
|
|
The
notes to consolidated financial statements are an integral part of
this
statement.
|
|
General
Electric Capital Corporation and consolidated affiliates
Statement
of Cash Flows
For
the years ended December 31 (In millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows - operating activities
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
10,386
|
|
$
|
9,926
|
|
$
|
8,590
|
|
Earnings
from discontinued operations
|
|
(15
|
)
|
|
(900
|
)
|
|
(467
|
)
|
Adjustments
to reconcile net earnings to cash provided
|
|
|
|
|
|
|
|
|
|
from
operating activities
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of buildings and equipment
|
|
6,482
|
|
|
5,982
|
|
|
5,754
|
|
Deferred
income taxes
|
|
691
|
|
|
(796
|
)
|
|
333
|
|
Decrease
(increase) in inventories
|
|
(23
|
)
|
|
30
|
|
|
(9
|
)
|
Increase
(decrease) in accounts payable
|
|
887
|
|
|
(2,068
|
)
|
|
1,961
|
|
Provision
for losses on financing receivables
|
|
3,775
|
|
|
3,864
|
|
|
3,868
|
|
All
other operating activities (note 16)
|
|
(410
|
)
|
|
1,755
|
|
|
715
|
|
Cash
from operating activities - continuing operations
|
|
21,773
|
|
|
17,793
|
|
|
20,745
|
|
Cash
from (used for) operating activities - discontinued
operations
|
|
(2,243
|
)
|
|
4,575
|
|
|
4,579
|
|
Cash
from operating activities
|
|
19,530
|
|
|
22,368
|
|
|
25,324
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows - investing activities
|
|
|
|
|
|
|
|
|
|
Additions
to buildings and equipment
|
|
(12,924
|
)
|
|
(11,208
|
)
|
|
(10,304
|
)
|
Dispositions
of buildings and equipment
|
|
6,075
|
|
|
5,519
|
|
|
5,489
|
|
Net
increase in financing receivables (note 16)
|
|
(39,162
|
)
|
|
(17,156
|
)
|
|
(14,952
|
)
|
Proceeds
from sales of discontinued operations
|
|
3,663
|
|
|
7,281
|
|
|
3,437
|
|
Proceeds
from principal business dispositions
|
|
386
|
|
|
209
|
|
|
472
|
|
Payments
for principal businesses purchased
|
|
(7,299
|
)
|
|
(7,167
|
)
|
|
(13,888
|
)
|
All
other investing activities (note 16)
|
|
(13,803
|
)
|
|
1,608
|
|
|
1,578
|
|
Cash
used for investing activities - continuing operations
|
|
(63,064
|
)
|
|
(20,914
|
)
|
|
(28,168
|
)
|
Cash
from (used for) investing activities - discontinued
operations
|
|
2,057
|
|
|
(6,120
|
)
|
|
(7,068
|
)
|
Cash
used for investing activities
|
|
(61,007
|
)
|
|
(27,034
|
)
|
|
(35,236
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows - financing activities
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in borrowings (maturities of 90 days or
less)
|
|
10,022
|
|
|
(5,086
|
)
|
|
130
|
|
Newly
issued debt (maturities longer than 90 days) (note 16)
|
|
90,040
|
|
|
65,868
|
|
|
58,628
|
|
Repayments
and other reductions (maturities longer
|
|
|
|
|
|
|
|
|
|
than
90 days) (note 16)
|
|
(48,932
|
)
|
|
(48,840
|
)
|
|
(45,115
|
)
|
Dividends
paid to shareowner
|
|
(7,904
|
)
|
|
(8,614
|
)
|
|
(3,148
|
)
|
All
other financing activities (note 16)
|
|
1,918
|
|
|
(2,554
|
)
|
|
(2,771
|
)
|
Cash
from financing activities - continuing operations
|
|
45,144
|
|
|
774
|
|
|
7,724
|
|
Cash
from financing activities - discontinued operations
|
|
-
|
|
|
234
|
|
|
2,309
|
|
Cash
from financing activities
|
|
45,144
|
|
|
1,008
|
|
|
10,033
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents during year
|
|
3,667
|
|
|
(3,658
|
)
|
|
121
|
|
Cash
and equivalents at beginning of year
|
|
6,182
|
|
|
9,840
|
|
|
9,719
|
|
Cash
and equivalents at end of year
|
|
9,849
|
|
|
6,182
|
|
|
9,840
|
|
Less
cash and equivalents of discontinued operations at end of
year
|
|
-
|
|
|
186
|
|
|
1,497
|
|
Cash
and equivalents of continuing operations at end of
year
|
$
|
9,849
|
|
$
|
5,996
|
|
$
|
8,343
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flows information
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
$
|
(14,879
|
)
|
$
|
(15,056
|
)
|
$
|
(10,995
|
)
|
Cash
recovered (paid) during the year for income taxes
|
|
(886
|
)
|
|
(2,459
|
)
|
|
785
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to consolidated financial statements are an integral part of
this
statement.
|
General
Electric Capital Corporation and consolidated affiliates
Notes
to Consolidated Financial Statements
Note
1. Summary of Significant Accounting Policies
Accounting
principles
Our
financial statements are prepared in conformity with U.S. generally accepted
accounting principles (GAAP).
Consolidation
All
of
our outstanding common stock is owned by General Electric Capital Services,
Inc.
(GE Capital Services or GECS), all of whose common stock is owned, directly
or
indirectly, by General Electric Company (GE Company or GE). Our financial
statements consolidate all of our affiliates - companies that we control and
in
which we hold a majority voting interest. Associated companies are companies
that we do not control but over which we have significant influence, most often
because we hold a shareholder voting position of 20% to 50%. Results of
associated companies are presented on a one-line basis. Investments in and
advances to associated companies are presented on a one-line basis in the
caption “Other assets” in our Statement of Financial Position, net of allowance
for losses that represents our best estimate of probable losses inherent in
such
assets.
Financial
statement presentation
We
have
reclassified certain prior-year amounts to conform to the current year’s
presentation.
Financial
data and related measurements are presented in the following
categories:
•
|
Consolidated
This represents the adding together of all
affiliates.
|
•
|
Operating
Segments
These comprise our four businesses focused on the broad markets they
serve: GE Commercial Finance, GE Money (formerly GE Consumer Finance),
GE
Industrial and GE Infrastructure. For segment reporting purposes,
certain
financial services businesses are included in the industrial operating
segments that actively manage such businesses and report their results
for
internal performance measurement purposes. These include Aviation
Financial Services, Energy Financial Services and Transportation
Finance
reported in the GE Infrastructure segment, and Equipment Services
reported
in the GE Industrial segment.
|
Unless
otherwise indicated, information in these notes to consolidated financial
statements relates to continuing operations.
The
effects of translating to U.S. dollars the financial statements of non-U.S.
affiliates whose functional currency is the local currency are included in
shareowner’s equity. Asset and liability accounts are translated at year-end
exchange rates, while revenues and expenses are translated at average rates
for
the respective periods.
Effects
of transactions between related companies are eliminated. As a wholly-owned
subsidiary, GECC enters into various operating and financing arrangements with
GE. These arrangements are on terms that are commercially reasonable but are
related party transactions and therefore require the following disclosures.
At
December 31, 2006 and 2005, Financing receivables included $6,017 million and
$3,904 million, respectively, of receivables from GE customers. Other
receivables included $3,824 million and $3,716 million, respectively, of
receivables from GE. Buildings and equipment included $1,470 million and $1,637
million, respectively, of
buildings
and equipment leased to GE, net of accumulated depreciation. Borrowings included
$3,703 million and $1,448 million, respectively, of amounts held by
GE.
Preparing
financial statements in conformity with GAAP requires us to make estimates
and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates.
Sales
of goods
We
record
sales of goods when a firm sales agreement is in place, delivery has occurred,
and collectibility of the fixed or determinable sales price is reasonably
assured. If customer acceptance of products is not assured, we record sales
only
upon formal customer acceptance.
Revenues
from services (earned income)
We
use
the interest method to recognize income on all loans. Interest on loans includes
origination, commitment and other non-refundable fees related to funding
(recorded in earned income on the interest method). We stop accruing interest
at
the earlier of the time at which collection of an account becomes doubtful
or
the account becomes 90 days past due. We recognize interest income on nonearning
loans either as cash is collected or on a cost-recovery basis as conditions
warrant. We resume accruing interest on nonearning, non-restructured commercial
loans only when (a) payments are brought current according to the loan’s
original terms and (b) future payments are reasonably assured. When we agree
to
restructured terms with the borrower, we resume accruing interest only when
reasonably assured that we will recover full contractual payments, and such
loans pass underwriting reviews equivalent to those applied to new loans. We
resume accruing interest on nonearning consumer loans when the customer’s
account is less than 90 days past due.
We
recognize financing lease income on the interest method to produce a level
yield
on funds not yet recovered. Estimated unguaranteed residual values at the date
of lease inception represent our initial estimates of the fair value of the
leased assets at the expiration of the lease and are based primarily on
independent appraisals, which are updated periodically. Guarantees of residual
values by unrelated third parties are considered part of minimum lease payments.
Significant assumptions we use in estimating residual values include estimated
net cash flows over the remaining lease term, anticipated results of future
remarketing, and estimated 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.
Depreciation
and amortization
The
cost
of our equipment leased to others on operating leases is amortized on a
straight-line basis to estimated residual value over the lease term or over
the
estimated economic life of the equipment. See note 8.
Losses
on financing receivables
Our
allowance for losses on financing receivables represents our best estimate
of
probable losses inherent in the portfolio. Our method of calculating estimated
losses depends on the size, type and risk characteristics of the related
receivables.
Write-offs are deducted from the allowance for losses and subsequent recoveries
are added. Impaired financing receivables are written down to the extent that
we
judge principal to be uncollectible.
Our
portfolio consists entirely of homogenous consumer loans and of commercial
loans
and leases. The underlying assumptions, estimates and assessments we use to
provide for losses are continually updated to reflect our view of current
conditions. Changes in such estimates can significantly affect the allowance
and
provision for losses. It is possible to experience credit losses that are
different from our current estimates.
Our
consumer loan portfolio consists of smaller balance, homogenous loans including
card receivables, installment loans, auto loans and leases and residential
mortgages. We collectively evaluate each portfolio for impairment. The allowance
for losses on these receivables is established through a process that estimates
the probable losses inherent in the portfolio based upon statistical analyses
of
portfolio data. These analyses include migration analysis, in which historical
delinquency and credit loss experience is applied to the current aging of the
portfolio, together with other analyses that reflect current trends and
conditions. We also consider overall portfolio indicators including nonearning
loans, trends in loan volume and lending terms, credit policies and other
observable environmental factors.
We
write
off unsecured closed-end installment loans at 120 days contractually past due
and unsecured open-ended revolving loans at 180 days contractually past due.
We
write down consumer loans secured by collateral other than residential real
estate to the fair value of the collateral, less costs to sell, when such loans
are 120 days past due. Consumer loans secured by residential real estate (both
revolving and closed-end loans) are written down to the fair value of
collateral, less costs to sell, no later than when they become 360 days past
due. Unsecured consumer loans in bankruptcy are written off within 60 days
of
notification of filing by the bankruptcy court or within contractual write-off
periods, whichever occurs earlier.
Our
commercial loan and lease portfolio consists of a variety of loans and leases,
including both larger balance, non-homogenous loans and leases and smaller
balance homogenous commercial and equipment loans and leases. Losses on such
loans and leases are recorded when probable and estimable. We routinely survey
our entire portfolio for potential specific credit or collection issues that
might indicate an impairment. For larger balance, non-homogenous loans and
leases, this survey first considers the financial status, payment history,
collateral value, industry conditions and guarantor support related to specific
customers. Any delinquencies or bankruptcies are indications of potential
impairment requiring further assessment of collectibility. We routinely receive
financial, as well as rating agency reports, on our customers, and we elevate
for further attention those customers whose operations we judge to be marginal
or deteriorating. We also elevate customers for further attention when we
observe a decline in collateral values for asset-based loans. While collateral
values are not always available, when we observe such a decline, we evaluate
relevant markets to assess recovery alternatives - for example, for real estate
loans, relevant markets are local; for aircraft loans, relevant markets are
global. We provide allowances based on our evaluation of all available
information, including expected future cash flows, fair value of collateral,
net
of disposal costs, and the secondary market value of the financing receivables.
After providing for specific incurred losses, we then determine an allowance
for
losses that have been incurred in the balance of the portfolio but cannot yet
be
identified to a specific loan or lease. This estimate is based on historical
and
projected default rates and loss severity, and it is prepared by each respective
line of business.
Experience
is not available with new products; therefore, while we are developing that
experience, we set loss allowances based on our experience with the most closely
analogous products in our portfolio.
When
we
repossess collateral in satisfaction of a loan, we write down the receivable
against the allowance for losses. Repossessed collateral is included in the
caption “Other assets” in the Statement of Financial Position and carried at the
lower of cost or estimated fair value less costs to sell.
The
remainder of our commercial loans and leases are portfolios of smaller balance
homogenous commercial and equipment positions that we evaluate collectively
by
portfolio for impairment based upon various statistical analyses considering
historical losses and aging.
Sales
of stock by affiliates
We
record
gains or losses on sales by an affiliate of its own shares as revenue unless
realization of gains is not reasonably assured, in which case we record the
results in shareowner’s equity.
Cash
and equivalents
Debt
securities with original maturities of three months or less are included in
cash
equivalents unless designated as available-for-sale and classified as investment
securities.
Investment
securities
We
report
investments in debt and marketable equity securities, and equity securities
in
our insurance portfolio, at fair value based on quoted market prices or, if
quoted prices are not available, discounted expected cash flows using market
rates commensurate with the credit quality and maturity of the investment.
Unrealized gains and losses on available-for-sale investment securities are
included in shareowner’s equity, net of applicable taxes and other adjustments.
We regularly review investment securities for impairment based on both
quantitative and qualitative criteria that include the extent to which cost
exceeds market value, the duration of that market decline, our intent and
ability to hold to maturity or until forecasted recovery, and the financial
health of and specific prospects for the issuer. Unrealized losses that are
other than temporary are recognized in earnings. 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; 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 all or a portion of a reporting
unit is disposed of, goodwill is allocated to the gain or loss on disposition
using the relative fair value method.
We
amortize the cost of other intangibles over their estimated useful lives.
Amortizable intangible assets are tested for impairment based on undiscounted
cash flows and, if impaired, written down to fair value based on either
discounted cash flows or appraised values.
Investment
contracts, insurance liabilities and insurance annuity
benefits
Certain
SPEs, which we consolidate, provide guaranteed investment contracts to states,
municipalities and municipal authorities.
Our
insurance activities also include providing insurance and reinsurance for life
and health risks and providing certain annuity products. Two product groups
are
provided: traditional insurance contracts and investment contracts. Insurance
contracts are contracts with significant mortality and/or morbidity risks,
while
investment contracts are contracts without such risks.
For
short-duration insurance contracts, including accident and health insurance,
we
report premiums as earned income over the terms of the related agreements,
generally on a pro-rata basis. For traditional long-duration insurance contracts
including term, whole life and annuities payable for the life of the annuitant,
we report premiums as earned income when due.
Premiums
received on investment contracts (including annuities without significant
mortality risk) are not reported as revenues but rather as deposit liabilities.
We recognize revenues for charges and assessments on these contracts, mostly
for
mortality, contract initiation, administration and surrender. Amounts credited
to policyholder accounts are charged to expense.
Liabilities
for traditional long-duration insurance contracts represent the present value
of
such benefits less the present value of future net premiums based on mortality,
morbidity, interest and other assumptions at the time the policies were issued
or acquired. Liabilities for investment contracts equal the account value,
that
is, the amount that accrues to the benefit of the contract or policyholder
including credited interest and assessments through the financial statement
date.
Liabilities
for unpaid claims and claims adjustment expenses represent our best estimate
of
the ultimate obligations for reported and incurred-but-not-reported claims
and
the related estimated claim settlement expenses. Liabilities for unpaid claims
and claims adjustment expenses are continually reviewed and adjusted through
current operations.
Accounting
change
Statement
of Financial Accounting Standards (SFAS) 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans,
became
effective for us as of December 31, 2006, and requires recognition of an asset
or liability in the statement of financial position reflecting the funded status
of pension and other postretirement benefit plans such as retiree health and
life, with current-year changes in the funded status recognized in shareowner’s
equity. SFAS 158 did not change the existing criteria for measurement of
periodic benefit costs, plan assets or benefit obligations. The total effect
of
the adoption of SFAS 158 to GECC was to increase total liabilities and decrease
shareowner’s equity about $0.1 billion.
Note
2. Discontinued Operations
We
classified GE Life and Genworth Financial, Inc. (Genworth) as discontinued
operations. Associated results of operations, financial position and cash flows
are separately reported for all periods presented.
Sale
of GE Life
In
December 2006, we completed the sale of GE Life, our U.K.-based life insurance
operation, to Swiss Reinsurance Company (Swiss Re) for $910 million. As a
result, we recognized an after-tax loss of $267 million during 2006. GE Life
revenues from discontinued operations were $2,096 million, $2,286 million and
$708 million in 2006, 2005 and 2004, respectively. In total, GE Life loss from
discontinued operations, net of taxes, was $178 million and $28 million in
2006
and 2005, respectively, compared with earnings from discontinued operations
of
$25 million in 2004.
Sale
of Genworth
In
March
2006, we completed the sale of our remaining 18% investment in Genworth through
a secondary public offering of 71 million shares of Class A Common Stock and
direct sale to Genworth of 15 million shares of Genworth Class B Common Stock.
As a result of initial and secondary public offerings, we recognized after-tax
gains of $220 million and $552 million in 2006 and 2005, respectively, compared
with an after-tax loss of $336 million in 2004. Genworth revenues from
discontinued operations were $5 million, $7,906 million and $10,145 million
in
2006, 2005 and 2004, respectively. In total, Genworth earnings from discontinued
operations, net of taxes, were $193 million, $928 million and $442 million
in
2006, 2005 and 2004, respectively.
Summarized
financial information for discontinued operations is shown below.
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
Revenues
from services
|
$
|
2,101
|
|
$
|
10,192
|
|
$
|
10,853
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from discontinued operations before minority interest
|
|
|
|
|
|
|
|
|
|
and
income taxes
|
$
|
23
|
|
$
|
1,409
|
|
$
|
1,581
|
|
Minority
interest
|
|
-
|
|
|
394
|
|
|
200
|
|
Earnings
from discontinued operations before income taxes
|
|
23
|
|
|
1,015
|
|
|
1,381
|
|
Income
tax benefit (expense)
|
|
39
|
|
|
(667
|
)
|
|
(578
|
)
|
Earnings
from discontinued operations before disposal, net of taxes
|
$
|
62
|
|
$
|
348
|
|
$
|
803
|
|
|
|
|
|
|
|
|
|
|
|
Disposal
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on disposal before income taxes
|
$
|
234
|
|
$
|
932
|
|
$
|
(570
|
)
|
Income
tax benefit (expense)
|
|
(281
|
)
|
|
(380
|
)
|
|
234
|
|
Gain
(loss) on disposal, net of taxes
|
$
|
(47
|
)
|
$
|
552
|
|
$
|
(336
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings
from discontinued operations, net of taxes
|
$
|
15
|
|
$
|
900
|
|
$
|
467
|
|
December
31 (In millions)
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
|
|
$
|
186
|
|
|
|
|
Investment
securities
|
|
|
|
|
13,977
|
|
|
|
|
Other
receivables
|
|
|
|
|
435
|
|
|
|
|
Other
|
|
|
|
|
2,693
|
|
|
|
|
Assets
of discontinued operations
|
|
|
|
$
|
17,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
|
|
|
Investment
contracts, insurance liabilities and insurance annuity
benefits
|
|
|
|
$
|
12,335
|
|
|
|
|
Other
|
|
|
|
|
860
|
|
|
|
|
Liabilities
of discontinued operations
|
|
|
|
$
|
13,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accumulated nonowner changes other than earnings
|
|
|
|
$
|
633
|
|
|
|
|
Accrued
liabilities of $172 million as of December 31, 2006, will be settled beginning
in 2007.
Note
3. Revenues from Services
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on loans
|
$
|
22,270
|
|
$
|
19,895
|
|
$
|
17,114
|
|
Equipment
leased to others
|
|
12,824
|
|
|
11,476
|
|
|
10,654
|
|
Financing
leases
|
|
4,230
|
|
|
3,894
|
|
|
4,069
|
|
Fees
|
|
4,213
|
|
|
4,049
|
|
|
3,284
|
|
Real
estate investments
|
|
3,127
|
|
|
1,928
|
|
|
1,598
|
|
Investment
income
|
|
1,064
|
|
|
1,185
|
|
|
1,325
|
|
Associated
companies
|
|
2,079
|
|
|
1,320
|
|
|
708
|
|
Gross
securitization gains
|
|
1,199
|
|
|
939
|
|
|
1,195
|
|
Other
items
|
|
6,174
|
|
|
6,014
|
|
|
6,597
|
|
Total
|
$
|
57,180
|
|
$
|
50,700
|
|
$
|
46,544
|
|
Note
4. Operating and Administrative Expenses
Our
employees and retirees are covered under a number of pension, health and life
insurance plans. The principal pension plans are the GE Pension Plan, a defined
benefit plan for U.S. employees and the GE Supplementary Pension Plan, an
unfunded plan providing supplementary benefits to higher-level, longer-service
U.S. employees. Employees of certain affiliates are covered under separate
pension plans which are not significant individually or in the aggregate. We
provide health and life insurance benefits to certain of our retired employees,
principally through GE Company’s benefit program. The annual cost to us of
providing these benefits is not material.
Rental
expense under operating leases is shown below.
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Equipment
for sublease
|
$
|
405
|
|
$
|
385
|
|
$
|
383
|
|
Other
rental expense
|
|
585
|
|
|
605
|
|
|
542
|
|
At
December 31, 2006, minimum rental commitments under noncancellable operating
leases aggregated $4,005 million. Amounts payable over the next five years
follow.
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
$
|
757
|
|
$
|
677
|
|
$
|
615
|
|
$
|
461
|
|
$
|
369
|
|
Note
5. Investment Securities
December
31 (In millions)
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated
fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
5,420
|
|
$
|
43
|
|
$
|
(25
|
)
|
$
|
5,438
|
|
State
and municipal
|
|
737
|
|
|
28
|
|
|
(4
|
)
|
|
761
|
|
Mortgage-backed(a)
|
|
4,216
|
|
|
14
|
|
|
(12
|
)
|
|
4,218
|
|
Asset-backed
|
|
5,902
|
|
|
345
|
|
|
(5
|
)
|
|
6,242
|
|
Corporate
- non-U.S.
|
|
844
|
|
|
-
|
|
|
(2
|
)
|
|
842
|
|
Government
- non-U.S.
|
|
839
|
|
|
1
|
|
|
(3
|
)
|
|
837
|
|
U.S.
government and federal agency
|
|
33
|
|
|
1
|
|
|
-
|
|
|
34
|
|
Equity
|
|
2,569
|
|
|
418
|
|
|
(14
|
)
|
|
2,973
|
|
Total
|
$
|
20,560
|
|
$
|
850
|
|
$
|
(65
|
)
|
$
|
21,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
5,751
|
|
$
|
46
|
|
$
|
(119
|
)
|
$
|
5,678
|
|
State
and municipal
|
|
612
|
|
|
34
|
|
|
(2
|
)
|
|
644
|
|
Mortgage-backed(a)
|
|
3,628
|
|
|
17
|
|
|
(17
|
)
|
|
3,628
|
|
Asset-backed
|
|
6,540
|
|
|
120
|
|
|
(7
|
)
|
|
6,653
|
|
Corporate
- non-U.S.
|
|
125
|
|
|
3
|
|
|
(1
|
)
|
|
127
|
|
Government
- non-U.S.
|
|
260
|
|
|
-
|
|
|
-
|
|
|
260
|
|
U.S.
government and federal agency
|
|
45
|
|
|
1
|
|
|
-
|
|
|
46
|
|
Equity
|
|
1,260
|
|
|
203
|
|
|
(32
|
)
|
|
1,431
|
|
Total
|
$
|
18,221
|
|
$
|
424
|
|
$
|
(178
|
)
|
$
|
18,467
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Substantially
collateralized by U.S. residential mortgages.
|
|
(b)
|
Included
$16 million in 2005 of debt securities related to consolidated,
liquidating securitization entities. See note 19.
|
|
The
following tables present the gross unrealized losses and estimated fair values
of our 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
608
|
|
$
|
(4
|
)
|
$
|
1,242
|
|
$
|
(21
|
)
|
State
and municipal
|
|
139
|
|
|
(2
|
)
|
|
76
|
|
|
(2
|
)
|
Mortgage-backed
|
|
409
|
|
|
(1
|
)
|
|
584
|
|
|
(11
|
)
|
Asset-backed
|
|
995
|
|
|
(2
|
)
|
|
303
|
|
|
(3
|
)
|
Corporate
- non-U.S.
|
|
8
|
|
|
(1
|
)
|
|
27
|
|
|
(1
|
)
|
Government
- non-U.S.
|
|
12
|
|
|
(3
|
)
|
|
-
|
|
|
-
|
|
Equity
|
|
33
|
|
|
(12
|
)
|
|
3,891
|
|
|
(2
|
)
|
Total
|
$
|
2,204
|
|
$
|
(25
|
)
|
$
|
6,123
|
|
$
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
790
|
|
$
|
(12
|
)
|
$
|
1,769
|
|
$
|
(107
|
)
|
State
and municipal
|
|
77
|
|
|
(2
|
)
|
|
-
|
|
|
-
|
|
Mortgage-backed
|
|
843
|
|
|
(2
|
)
|
|
699
|
|
|
(15
|
)
|
Asset-backed
|
|
1,029
|
|
|
(1
|
)
|
|
166
|
|
|
(6
|
)
|
Corporate
- non-U.S.
|
|
-
|
|
|
-
|
|
|
6
|
|
|
(1
|
)
|
Equity
|
|
76
|
|
|
(24
|
)
|
|
29
|
|
|
(8
|
)
|
Total
|
$
|
2,815
|
|
$
|
(41
|
)
|
$
|
2,669
|
|
$
|
(137
|
)
|
Our
portfolio at December 31, 2006 and 2005, contained securities that had been,
for
12 months or more, in an unrealized loss position for reasons other than changes
in market interest rates. The level of this unrealized loss was insignificant,
individually and in the aggregate, at December 31, 2006, reflecting improved
pricing in the commercial aircraft Enhanced Equipment Trust Certificate market.
We review all of our investment securities routinely for other than temporary
impairment as described in note 1. In accordance with that policy, we have
provided for all amounts that we did not expect either to collect in accordance
with the contractual terms of the instruments or to recover based on underlying
collateral values. We presently intend to hold our investment securities in
an
unrealized loss position at December 31, 2006, at least until we can recover
their respective amortized cost and we have the ability to hold our debt
securities until their maturities.
Contractual
Maturities of our Investment in Debt Securities (Excluding Mortgage-Backed
and
Asset-Backed Securities)
(In
millions)
|
Amortized
cost
|
|
Estimated
fair
value
|
|
|
|
|
|
|
|
|
Due
in
|
|
|
|
|
|
|
2007
|
$
|
1,455
|
|
$
|
1,453
|
|
2008-2011
|
|
2,698
|
|
|
2,694
|
|
2012-2016
|
|
1,180
|
|
|
1,191
|
|
2017
and later
|
|
2,540
|
|
|
2,574
|
|
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 investment securities
follows.
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
$
|
204
|
|
$
|
245
|
|
$
|
304
|
|
Losses,
including impairments
|
|
(91
|
)
|
|
(59
|
)
|
|
(115
|
)
|
Net
|
$
|
113
|
|
$
|
186
|
|
$
|
189
|
|
In
the
ordinary course of managing our investment securities portfolio, we may sell
securities prior to their maturities for a variety of reasons, including
diversification, credit quality, yield and liquidity requirements and the
funding of claims and obligations to policyholders.
Proceeds
from investment securities sales amounted to $9,964 million, $8,951 million
and
$7,704 million in 2006, 2005 and 2004, respectively, principally from the
short-term nature of the investments that support the guaranteed investment
contracts portfolio.
Note
6. Financing Receivables (investments in loans and financing leases)
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Loans,
net of deferred income
|
$
|
266,290
|
|
$
|
226,113
|
|
Investment
in financing leases, net of deferred income
|
|
67,891
|
|
|
63,024
|
|
|
|
334,181
|
|
|
289,137
|
|
Less
allowance for losses (note 7)
|
|
(4,595
|
)
|
|
(4,570
|
)
|
Financing
receivables - net
|
$
|
329,586
|
|
$
|
284,567
|
|
Included
in the above are the financing receivables of consolidated, liquidating
securitization entities as follows:
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Loans,
net of deferred income
|
$
|
11,399
|
|
$
|
15,868
|
|
Investment
in financing leases, net of deferred income
|
|
134
|
|
|
769
|
|
|
|
11,533
|
|
|
16,637
|
|
Less
allowance for losses
|
|
(24
|
)
|
|
(22
|
)
|
Financing
receivables - net
|
$
|
11,509
|
|
$
|
16,615
|
|
Details
of financing receivables - net follow.
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
|
|
|
|
|
|
Equipment
and leasing
|
$
|
73,492
|
|
$
|
68,374
|
|
Commercial
and industrial
|
|
47,216
|
|
|
40,955
|
|
Real
estate
|
|
27,944
|
|
|
19,555
|
|
|
|
148,652
|
|
|
128,884
|
|
|
|
|
|
|
|
|
GE
Money
|
|
|
|
|
|
|
Non-U.S.
residential mortgages
|
|
58,237
|
|
|
46,205
|
|
Non-U.S.
installment and revolving credit
|
|
36,279
|
|
|
31,849
|
|
U.S.
installment and revolving credit
|
|
29,007
|
|
|
21,963
|
|
Non-U.S.
auto
|
|
25,088
|
|
|
22,803
|
|
Other
|
|
8,059
|
|
|
7,286
|
|
|
|
156,670
|
|
|
130,106
|
|
|
|
|
|
|
|
|
GE
Infrastructure(a)(b)
|
|
21,040
|
|
|
18,953
|
|
|
|
|
|
|
|
|
Other(c)
|
|
7,819
|
|
|
11,194
|
|
|
|
334,181
|
|
|
289,137
|
|
Less
allowance for losses
|
|
(4,595
|
)
|
|
(4,570
|
)
|
Total
|
$
|
329,586
|
|
$
|
284,567
|
|
|
|
|
|
|
|
|
(a)
|
Included
loans and financing leases of $11,165 million and $11,192 million
at
December 31, 2006 and 2005, respectively, related to commercial aircraft
at Aviation Financial Services and loans and financing leases of
$7,512
million and $5,341 million at December 31, 2006 and 2005, respectively,
related to Energy Financial Services.
|
|
(b)
|
Included
only portions of the segment that are financial services
businesses.
|
|
(c)
|
Included
loans and financing leases of $6,853 million and $10,160 million
at
December 31, 2006 and 2005, respectively, related to certain consolidated,
liquidating securitization entities.
|
|
Financing
receivables include both loans and financing leases. Loans represent
transactions in a variety of forms, including revolving charge and credit,
mortgages, installment loans, intermediate-term loans and revolving loans
secured by business assets. The portfolio includes loans carried at the
principal amount on which finance charges are billed periodically, and loans
carried at gross book value, which includes finance charges.
Investment
in financing leases consists of direct financing and leveraged leases of
aircraft, railroad rolling stock, autos, other transportation equipment, data
processing equipment, medical equipment, commercial real estate and other
manufacturing, power generation, and commercial equipment and
facilities.
As
the
sole owner of assets under direct financing leases and as the equity participant
in leveraged leases, we are taxed on total lease payments received and are
entitled to tax deductions based on the cost of leased assets and tax deductions
for interest paid to third-party participants. We are generally entitled to
any
residual value of leased assets.
Investment
in direct financing and leveraged leases represents net unpaid rentals and
estimated unguaranteed residual values of leased equipment, less related
deferred income. We have no general obligation for principal and interest on
notes and other instruments representing third-party participation related
to
leveraged leases; such notes and other instruments have not been included in
liabilities but have been offset against the related
rentals
receivable. Our share of rentals receivable on leveraged leases is subordinate
to the share of other participants who also have security interests in the
leased equipment.
Net
Investment in Financing Leases
|
Total
financing leases
|
|
Direct
financing leases(a)
|
|
Leveraged
leases(b)
|
|
December
31 (In millions)
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable
|
$
|
87,814
|
|
$
|
85,404
|
|
$
|
64,264
|
|
$
|
59,983
|
|
$
|
23,550
|
|
$
|
25,421
|
|
Less
principal and interest on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third-party
nonrecourse debt
|
|
(16,983
|
)
|
|
(18,723
|
)
|
|
-
|
|
|
-
|
|
|
(16,983
|
)
|
|
(18,723
|
)
|
Net
rentals receivable
|
|
70,831
|
|
|
66,681
|
|
|
64,264
|
|
|
59,983
|
|
|
6,567
|
|
|
6,698
|
|
Estimated
unguaranteed residual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value
of leased assets
|
|
9,582
|
|
|
8,558
|
|
|
6,643
|
|
|
5,494
|
|
|
2,939
|
|
|
3,064
|
|
Less
deferred income
|
|
(12,522
|
)
|
|
(12,215
|
)
|
|
(9,416
|
)
|
|
(9,120
|
)
|
|
(3,106
|
)
|
|
(3,095
|
)
|
Investment
in financing leases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of deferred income
|
|
67,891
|
|
|
63,024
|
|
|
61,491
|
|
|
56,357
|
|
|
6,400
|
|
|
6,667
|
|
Less
amounts to arrive at net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for losses
|
|
(332
|
)
|
|
(547
|
)
|
|
(310
|
)
|
|
(402
|
)
|
|
(22
|
)
|
|
(145
|
)
|
Deferred
taxes
|
|
(7,845
|
)
|
|
(7,991
|
)
|
|
(3,000
|
)
|
|
(3,477
|
)
|
|
(4,845
|
)
|
|
(4,514
|
)
|
Net
investment in financing leases
|
$
|
59,714
|
|
$
|
54,486
|
|
$
|
58,181
|
|
$
|
52,478
|
|
$
|
1,533
|
|
$
|
2,008
|
|
|
|
(a)
|
Included
$649 million and $465 million of initial direct costs on direct financing
leases at December 31, 2006 and 2005, respectively.
|
|
(b)
|
Included
pre-tax income of $302 million and $241 million and income tax of
$113
million and $93 million during 2006 and 2005, respectively. Net investment
credits recognized during 2006 and 2005 were
inconsequential.
|
|
Contractual
Maturities
(In
millions)
|
Total
loans
|
|
Net
rentals
receivable
|
|
|
|
|
|
|
|
|
Due
in
|
|
|
|
|
|
|
2007
|
$
|
86,290
|
|
$
|
18,278
|
|
2008
|
|
33,232
|
|
|
14,987
|
|
2009
|
|
25,577
|
|
|
11,568
|
|
2010
|
|
14,632
|
|
|
7,823
|
|
2011
|
|
17,794
|
|
|
5,231
|
|
2012
and later
|
|
88,765
|
|
|
12,944
|
|
Total
|
$
|
266,290
|
|
$
|
70,831
|
|
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)
|
2006
|
|
2005
|
|
|
|
|
|
|
Loans
requiring allowance for losses
|
$
|
1,346
|
|
$
|
1,474
|
|
Loans
expected to be fully recoverable
|
|
497
|
|
|
451
|
|
|
$
|
1,843
|
|
$
|
1,925
|
|
|
|
|
|
|
|
|
Allowance
for losses
|
$
|
446
|
|
$
|
626
|
|
Average
investment during year
|
|
1,856
|
|
|
2,116
|
|
Interest
income earned while impaired(a)
|
|
34
|
|
|
46
|
|
|
|
|
|
|
|
|
(a)
|
Recognized
principally on cash basis.
|
|
Note
7. Allowance for Losses on Financing Receivables
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
1,087
|
|
$
|
1,505
|
|
$
|
1,925
|
|
GE
Money
|
|
3,234
|
|
|
3,473
|
|
|
3,959
|
|
GE
Infrastructure(a)
|
|
219
|
|
|
581
|
|
|
287
|
|
Other
|
|
30
|
|
|
30
|
|
|
27
|
|
|
|
4,570
|
|
|
5,589
|
|
|
6,198
|
|
|
|
|
|
|
|
|
|
|
|
Provision
charged to operations
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
|
57
|
|
|
315
|
|
|
302
|
|
GE
Money
|
|
3,767
|
|
|
3,337
|
|
|
3,220
|
|
GE
Infrastructure(a)
|
|
(63
|
)
|
|
211
|
|
|
328
|
|
Other
|
|
14
|
|
|
1
|
|
|
18
|
|
|
|
3,775
|
|
|
3,864
|
|
|
3,868
|
|
|
|
|
|
|
|
|
|
|
|
Other
additions (reductions), net
|
|
59
|
|
|
(489
|
)
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
Gross
write-offs
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
|
(544
|
)
|
|
(875
|
)
|
|
(920
|
)
|
GE
Money
|
|
(4,773
|
)
|
|
(4,447
|
)
|
|
(4,425
|
)
|
GE
Infrastructure(a)
|
|
(112
|
)
|
|
(572
|
)
|
|
(27
|
)
|
Other
|
|
(34
|
)
|
|
(47
|
)
|
|
(73
|
)
|
|
|
(5,463
|
)
|
|
(5,941
|
)
|
|
(5,445
|
)
|
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
|
112
|
|
|
177
|
|
|
158
|
|
GE
Money
|
|
1,533
|
|
|
1,359
|
|
|
846
|
|
GE
Infrastructure(a)
|
|
-
|
|
|
-
|
|
|
2
|
|
Other
|
|
9
|
|
|
11
|
|
|
21
|
|
|
|
1,654
|
|
|
1,547
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
|
809
|
|
|
1,087
|
|
|
1,505
|
|
GE
Money
|
|
3,715
|
|
|
3,234
|
|
|
3,473
|
|
GE
Infrastructure(a)
|
|
44
|
|
|
219
|
|
|
581
|
|
Other
|
|
27
|
|
|
30
|
|
|
30
|
|
Total
|
$
|
4,595
|
|
$
|
4,570
|
|
$
|
5,589
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
See
note
6 for amounts related to consolidated, liquidating securitization
entities.
Selected
Financing Receivables Ratios
December
31
|
2006
|
|
2005
|
|
|
|
|
|
|
Allowance
for losses on financing receivables as a percentage of total financing
|
|
|
|
|
receivables
|
|
|
|
|
GE
Commercial Finance
|
0.54
|
%
|
0.84
|
%
|
GE
Money
|
2.37
|
|
2.49
|
|
GE
Infrastructure(a)
|
0.21
|
|
1.16
|
|
Other
|
0.35
|
|
0.27
|
|
Total
|
1.38
|
|
1.58
|
|
|
|
|
|
|
Nonearning
financing receivables as a percentage of total financing
receivables
|
|
|
|
|
GE
Commercial Finance
|
1.1
|
%
|
1.0
|
%
|
GE
Money
|
2.1
|
|
2.1
|
|
GE
Infrastructure(a)
|
-
|
|
0.1
|
|
Other
|
1.1
|
|
0.7
|
|
Total
|
1.5
|
|
1.4
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
Note
8. Buildings and Equipment
December
31 (Dollars in millions)
|
Estimated
useful
lives-new
(years)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
Original
cost(a)
|
|
|
|
|
|
|
|
|
Land,
buildings and equipment
|
1-40
|
(b)
|
$
|
5,403
|
|
$
|
5,498
|
|
Equipment
leased to others
|
|
|
|
|
|
|
|
|
Aircraft
|
20
|
|
|
36,146
|
|
|
32,941
|
|
Vehicles
|
1-14
|
|
|
26,937
|
|
|
23,206
|
|
Mobile
and modular space
|
12-25
|
|
|
4,059
|
|
|
2,889
|
|
Railroad
rolling stock
|
5-36
|
|
|
3,509
|
|
|
3,327
|
|
Construction
and manufacturing
|
2-25
|
|
|
1,927
|
|
|
1,594
|
|
All
other
|
2-33
|
|
|
2,709
|
|
|
2,752
|
|
Total
|
|
|
$
|
80,690
|
|
$
|
72,207
|
|
|
|
|
|
|
|
|
|
|
Net
carrying value(a)
|
|
|
|
|
|
|
|
|
Land,
buildings and equipment
|
|
|
$
|
2,984
|
|
$
|
3,085
|
|
Equipment
leased to others
|
|
|
|
|
|
|
|
|
Aircraft(c)
|
|
|
|
29,886
|
|
|
27,116
|
|
Vehicles
|
|
|
|
17,131
|
|
|
14,062
|
|
Mobile
and modular space
|
|
|
|
2,546
|
|
|
1,496
|
|
Railroad
rolling stock
|
|
|
|
2,395
|
|
|
2,189
|
|
Construction
and manufacturing
|
|
|
|
1,289
|
|
|
1,080
|
|
All
other
|
|
|
|
1,931
|
|
|
1,908
|
|
Total
|
|
|
$
|
58,162
|
|
$
|
50,936
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
$1,763 million and $1,935 million of original cost of assets leased
to GE
with accumulated amortization of $293 million and $298 million at
December
31, 2006 and 2005, respectively.
|
|
(b)
|
Estimated
useful lives exclude land.
|
|
(c)
|
The
Aviation Financial Services business of GE Infrastructure recognized
impairment losses of $51 million in 2006 and $295 million in 2005
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 $5,791 million, $5,591 million and $5,314
million in 2006, 2005 and 2004, respectively. Noncancellable future rentals
due
from customers for equipment on operating leases at December 31, 2006, are
as
follows:
(In
millions)
|
|
|
|
|
|
|
|
Due
in
|
|
|
|
2007
|
$
|
8,253
|
|
2008
|
|
7,013
|
|
2009
|
|
5,744
|
|
2010
|
|
4,550
|
|
2011
|
|
3,322
|
|
2012
and later
|
|
9,647
|
|
Total
|
$
|
38,529
|
|
Note
9. Intangible Assets
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
22,578
|
|
$
|
21,161
|
|
Intangible
assets subject to amortization
|
|
2,665
|
|
|
1,925
|
|
Total
|
$
|
25,243
|
|
$
|
23,086
|
|
Changes
in goodwill balances follow.
|
2006
|
|
(In
millions)
|
GE
Commercial
Finance
|
|
GE
Money
|
|
GE
Industrial(a)
|
|
GE
Infrastructure(a)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1
|
$
|
10,445
|
|
|
$
|
9,184
|
|
|
$
|
1,406
|
|
|
$
|
126
|
|
|
$
|
21,161
|
|
Acquisitions/purchase
accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
603
|
|
|
|
309
|
|
|
|
(37
|
)
|
|
|
39
|
|
|
|
914
|
|
Currency
exchange and other
|
|
91
|
|
|
|
352
|
|
|
|
61
|
|
|
|
(1
|
)
|
|
|
503
|
|
Balance
December 31
|
$
|
11,139
|
|
|
$
|
9,845
|
|
|
$
|
1,430
|
|
|
$
|
164
|
|
|
$
|
22,578
|
|
|
2005
|
|
(In
millions)
|
GE
Commercial
Finance
|
|
GE
Money
|
|
GE
Industrial(a)
|
|
GE
Infrastructure(a)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1
|
$
|
9,960
|
|
|
$
|
9,854
|
|
|
$
|
1,459
|
|
|
$
|
130
|
|
|
$
|
21,403
|
|
Acquisitions/purchase
accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
771
|
|
|
|
(24
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
741
|
|
Currency
exchange and other
|
|
(286
|
)
|
|
|
(646
|
)
|
|
|
(51
|
)
|
|
|
-
|
|
|
|
(983
|
)
|
Balance
December 31
|
$
|
10,445
|
|
|
$
|
9,184
|
|
|
$
|
1,406
|
|
|
$
|
126
|
|
|
$
|
21,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
Goodwill
balances increased $1,030 million in 2006 as a result of new acquisitions.
The
largest goodwill balance increases arose from acquisitions of Banque Artesia
Nederland N.V., a subsidiary of Dexia Group ($340 million) and the custom fleet
business of National Australia Bank Ltd. ($306 million) by GE Commercial
Finance. Goodwill declined by $116 million related to purchase accounting
adjustments to prior-year acquisitions during 2006.
Goodwill
balances increased $950 million in 2005 as a result of new acquisitions. The
largest goodwill balance increases arose from acquisitions of Antares Capital
Corp. ($407 million), the Transportation Financial Services Group of CitiCapital
($226 million) and the Inventory Finance division of Bombardier Capital ($191
million) by GE Commercial Finance. Goodwill declined by $209 million related
to
purchase accounting adjustments to prior-year acquisitions during 2005,
primarily associated with the 2004 acquisitions of Australian Financial
Investment Group (AFIG) by GE Money and Sophia S.A. by GE 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
|
2006
|
|
2005
|
|
December
31 (In millions)
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents,
licenses and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trademarks
|
$
|
466
|
|
|
$
|
(302
|
)
|
|
$
|
164
|
|
$
|
495
|
|
|
$
|
(272
|
)
|
|
$
|
223
|
|
Capitalized
software
|
|
1,659
|
|
|
|
(965
|
)
|
|
|
694
|
|
|
1,453
|
|
|
|
(784
|
)
|
|
|
669
|
|
All
other
|
|
2,744
|
|
|
|
(937
|
)
|
|
|
1,807
|
|
|
1,774
|
|
|
|
(741
|
)
|
|
|
1,033
|
|
Total
|
$
|
4,869
|
|
|
$
|
(2,204
|
)
|
|
$
|
2,665
|
|
$
|
3,722
|
|
|
$
|
(1,797
|
)
|
|
$
|
1,925
|
|
Amortization
expense related to intangible assets subject to amortization was $549 million
and $400 million for 2006 and 2005, respectively.
Note
10. Other Assets
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
Real
estate(a)
|
$
|
27,207
|
|
$
|
15,649
|
|
Assets
held for sale(b)
|
|
12,524
|
|
|
8,574
|
|
Associated
companies
|
|
12,534
|
|
|
15,177
|
|
Cost
method(c)
|
|
2,321
|
|
|
2,235
|
|
Other
|
|
1,191
|
|
|
1,303
|
|
|
|
55,777
|
|
|
42,938
|
|
|
|
|
|
|
|
|
Derivative
instruments
|
|
1,796
|
|
|
1,440
|
|
Advances
to suppliers
|
|
1,714
|
|
|
1,762
|
|
Deferred
acquisition costs
|
|
84
|
|
|
88
|
|
Other
|
|
3,996
|
|
|
3,279
|
|
Total(d)
|
$
|
63,367
|
|
$
|
49,507
|
|
|
|
|
|
|
|
|
(a)
|
Our
investment in real estate consisted principally of two categories:
real
estate held for investment and equity method investments. Both categories
contained a wide range of properties including the following at December
31, 2006: office buildings (55%), apartment buildings (16%), retail
facilities (10%), industrial properties (5%), parking facilities
(4%),
franchise properties (2%) and other (8%). At December 31, 2006,
investments were located in North America (39%), Europe (37%) and
Asia
(24%).
|
|
(b)
|
Assets
were classified as held for sale on the date a decision was made
to
dispose of them through sale, securitization or other means. Such
assets
consisted primarily of real estate properties and mortgage and credit
card
receivables, and were accounted for at the lower of carrying amount
or
estimated fair value less costs to sell.
|
|
(c)
|
The
fair value of and unrealized loss on those investments in a continuous
loss position for less than 12 months in 2006 were $111 million and
$26
million, respectively. The fair value of and unrealized loss on those
investments in a continuous loss position for 12 months or more in
2006
were $37 million and $8 million, respectively. The fair value of
and
unrealized loss on those investments in a continuous loss position
for
less than 12 months in 2005 were $99 million and $30 million,
respectively. The fair value of and unrealized loss on those investments
in a continuous loss position for 12 months or more in 2005 were
$22
million and $9 million, respectively.
|
|
(d)
|
Included
$98 million in 2006 and $1,235 million in 2005 related to consolidated,
liquidating securitization entities. See note 19.
|
|
Note
11. Borrowings
Short-Term
Borrowings
|
2006
|
|
2005
|
|
December
31 (Dollars in millions)
|
|
|
Average
|
|
|
|
Average
|
|
|
Amount
|
|
rate
|
(a)
|
Amount
|
|
rate
|
(a)
|
|
|
|
|
|
|
|
|
|
Commercial
paper
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
$
|
60,141
|
|
5.37
|
%
|
$
|
60,640
|
|
4.30
|
%
|
Asset-backed(b)
|
|
6,430
|
|
5.35
|
|
|
9,267
|
|
4.21
|
|
Non-U.S.
|
|
26,329
|
|
4.38
|
|
|
20,456
|
|
3.47
|
|
Current
portion of long-term debt(c)(d)
|
|
44,518
|
|
4.86
|
|
|
41,744
|
|
4.05
|
|
GE
Interest Plus notes(e)
|
|
9,161
|
|
5.43
|
|
|
7,708
|
|
4.35
|
|
Other
|
|
22,317
|
|
|
|
|
9,864
|
|
|
|
Total
|
$
|
168,896
|
|
|
|
$
|
149,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based
on year-end balances and year-end local currency interest rates.
Current
portion of long-term debt included the effects of related interest
rate
and currency swaps, if any, directly associated with the original
debt
issuance.
|
|
(b)
|
Entirely
obligations of consolidated, liquidating securitization entities.
See note
19.
|
|
(c)
|
Included
short-term borrowings by consolidated, liquidating securitization
entities
of $697 million at December 31, 2005, which matured in 2006. See
note
19.
|
|
(d)
|
Included
$250 million of subordinated notes guaranteed by GE at December 31,
2005,
which matured in 2006.
|
|
(e)
|
Entirely
variable denomination floating rate notes.
|
|
Long-Term
Borrowings
|
2006
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
December
31 (Dollars in millions)
|
rate
|
(a)
|
Maturities
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
|
|
|
|
|
|
|
|
|
Unsecured(b)
|
4.95
|
%
|
2008-2055
|
|
$
|
240,105
|
|
$
|
182,654
|
|
Asset-backed(c)
|
5.83
|
|
2008-2035
|
|
|
5,810
|
|
|
6,845
|
|
Extendible
notes
|
5.32
|
|
2009-2011
|
|
|
6,000
|
|
|
14,022
|
|
Subordinated
notes(d)
|
5.82
|
|
2009-2066
|
|
|
4,902
|
|
|
2,685
|
|
Total
|
|
|
$
|
256,817
|
|
$
|
206,206
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based
on year-end balances and year-end local currency interest rates,
including
the effects of related interest rate and currency swaps, if any,
directly
associated with the original debt issuance.
|
(b)
|
Included
borrowings from GECS affiliates of $3,226 million and $1,464 million
at
December 31, 2006 and 2005, respectively. See note 19.
|
(c)
|
Included
$4,684 million and $6,845 million of asset-backed senior notes, issued
by
consolidated, liquidating securitization entities at December 31,
2006 and
2005, respectively. See note 19.
|
(d)
|
Included
$450 million of subordinated notes guaranteed by GE at December 31, 2006
and 2005.
|
Our
borrowings are addressed below from the perspectives of liquidity, interest
rate
and currency risk management. Additional information about borrowings and
associated swaps can be found in note 18.
Liquidity
is
affected by debt maturities and our ability to repay or refinance such debt.
Long-term debt maturities, including borrowings from GE, over the next five
years follow.
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,518
|
(a)
|
$
|
53,397
|
(b)
|
$
|
44,144
|
|
$
|
34,282
|
|
$
|
21,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Floating
rate extendible notes of $256 million are due in 2007, but are extendible
at the option of the investors to a final maturity in 2008. Fixed
and
floating rate notes of $975 million contain put options with exercise
dates in 2007, and which have final maturity dates in 2008 ($350
million),
2009 ($100 million) and beyond 2012 ($525 million).
|
|
(b)
|
Floating
rate extendible notes of $6,000 million are due in 2008, of which
$2,000
million are extendible at the option of the investors to a final
maturity
in 2009, and $4,000 million are extendible to a final maturity in
2011.
|
|
Committed
credit lines totaling $59.9 billion had been extended to us by 75 banks at
year-end 2006. Included in this amount was $50.4 billion provided directly
to us
and $9.5 billion provided by 16 banks to GE, to which we also have access.
Our
lines include $28.6 billion of revolving credit agreements under which we can
borrow funds for periods exceeding one year. The remaining $31.3 billion are
364-day lines of which $31.2 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 provides additional information about derivatives designated
as
hedges of borrowings in accordance with SFAS 133, Accounting
for Derivative Instruments and Hedging Activities,
as
amended.
Derivative
Fair Values by Activity/Instrument
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
$
|
763
|
|
$
|
726
|
|
Fair
value hedges
|
|
(147
|
)
|
|
(39
|
)
|
Total
|
$
|
616
|
|
$
|
687
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
$
|
(860
|
)
|
$
|
(423
|
)
|
Currency
swaps
|
|
1,476
|
|
|
1,110
|
|
Total
|
$
|
616
|
|
$
|
687
|
|
We
regularly assess the effectiveness of all other hedge positions using a variety
of techniques, including cumulative dollar offset and regression analysis,
depending on which method was selected at inception of the respective hedge.
Adjustments related to fair value hedges decreased the carrying amount of debt
outstanding at December 31, 2006, by $111 million. At December 31, 2006, the
maximum term of derivative instruments that hedge forecasted transactions was
29
years and related to hedges of long-term, non-U.S. dollar denominated fixed
rate
debt. See note 18.
Note
12. Investment Contracts, Insurance Liabilities and Insurance Annuity
Benefits
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
Guaranteed
investment contracts of SPEs
|
$
|
11,870
|
|
$
|
11,685
|
|
Life
insurance benefits
|
|
6
|
|
|
6
|
|
Unpaid
claims and claims adjustment expenses
|
|
164
|
|
|
176
|
|
Unearned
premiums
|
|
378
|
|
|
227
|
|
Total
|
$
|
12,418
|
|
$
|
12,094
|
|
When
insurance affiliates cede insurance to third parties, they are not relieved
of
their primary obligation to policyholders. Losses on ceded risks give rise
to
claims for recovery; we establish allowances for probable losses on such
receivables from reinsurers as required.
We
recognize reinsurance recoveries as a reduction of the Statement of Earnings
caption “Investment contracts, insurance losses and insurance annuity benefits.”
We had no reinsurance recoveries for the years ended December 31, 2006 and
2005,
and an insignificant amount for the year ended December 31, 2004.
Note
13. Income Taxes
The
provision for income taxes is summarized in the following table.
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
Current
tax expense
|
$
|
456
|
|
$
|
1,903
|
|
$
|
1,281
|
|
Deferred
tax expense (benefit) from temporary differences
|
|
691
|
|
|
(796
|
)
|
|
333
|
|
|
$
|
1,147
|
|
$
|
1,107
|
|
$
|
1,614
|
|
We
are
included in the consolidated U.S. federal income tax return which GE Company
files. The provision for current tax expense includes our effect on the
consolidated return.
Current
tax expense includes amounts applicable to U.S. federal income taxes of $(238)
million, $841 million and $(429) million in 2006, 2005 and 2004, respectively,
and amounts applicable to non-U.S. jurisdictions of $550 million, $856 million
and $1,522 million in 2006, 2005 and 2004, respectively. Deferred taxes related
to U.S. federal income taxes were an expense of $433 million in 2006 and
benefits of $301 million and $16 million in 2005 and 2004,
respectively.
U.S.
earnings from continuing operations before income taxes were $3,051 million
in
2006, $2,784 million in 2005 and $2,612 million in 2004. The corresponding
amounts for non-U.S.-based operations were $8,467 million in 2006, $7,349
million in 2005 and $7,125 million in 2004.
Deferred
income tax balances reflect the effects of temporary differences between the
carrying amounts of assets and liabilities and their tax bases, as well as
from
net operating loss and tax credit carryforwards, and are stated at enacted
tax
rates expected to be in effect when taxes are actually paid or recovered.
Deferred income tax assets represent amounts available to reduce income taxes
payable on taxable income in future years. We evaluate the recoverability of
these future tax deductions by assessing the adequacy of future expected taxable
income from all sources, including reversal of taxable temporary differences,
forecasted operating earnings and available tax planning
strategies.
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, 2006, were approximately
$30
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.
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
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
U.S.
federal statutory income tax rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
Increase
(reduction) in rate resulting from
|
|
|
|
|
|
|
Tax
on global activities including exports
|
(22.3
|
)
|
(23.2
|
)
|
(14.9
|
)
|
U.S.
business credits
|
(2.2
|
)
|
(2.7
|
)
|
(2.3
|
)
|
All
other - net
|
(0.5
|
)
|
1.8
|
|
(1.2
|
)
|
|
(25.0
|
)
|
(24.1
|
)
|
(18.4
|
)
|
Actual
income tax rate
|
10.0
|
%
|
10.9
|
%
|
16.6
|
%
|
Principal
components of our net liability representing deferred income tax balances are
as
follows:
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Allowance
for losses
|
$
|
1,862
|
|
$
|
2,019
|
|
Non-U.S.
loss carryforwards(a)
|
|
834
|
|
|
688
|
|
Cash
flow hedges
|
|
198
|
|
|
350
|
|
Other
- net
|
|
5,756
|
|
|
3,327
|
|
Total
deferred income tax assets
|
|
8,650
|
|
|
6,384
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Financing
leases
|
|
7,845
|
|
|
7,991
|
|
Operating
leases
|
|
4,326
|
|
|
3,989
|
|
Intangible
assets
|
|
1,202
|
|
|
1,120
|
|
Other
- net
|
|
6,004
|
|
|
4,353
|
|
Total
deferred income tax liabilities
|
|
19,377
|
|
|
17,453
|
|
|
|
|
|
|
|
|
Net
deferred income tax liability
|
$
|
10,727
|
|
$
|
11,069
|
|
|
|
|
|
|
|
|
(a)
|
Net
of valuation allowances of $203 million and $132 million for 2006
and
2005, respectively. Of the net deferred tax asset as of December
31, 2006,
of $834 million, $24 million relates to net operating loss carryforwards
that expire in various years ending from December 31, 2007, through
December 31, 2009, $334 million relates to net operating losses that
expire in various years ending from December 31, 2010, through December
31, 2021, and $476 million relates to net operating loss carryforwards
that may be carried forward indefinitely.
|
|
Note
14. Minority Interest in Equity of Consolidated Affiliates
Minority
interest in equity of consolidated affiliates includes common shares in
consolidated affiliates and preferred stock issued by our affiliates. Preferred
shares that we are required to redeem at a specified or determinable date are
classified as liabilities. The balance is summarized as follows:
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Minority
interest in consolidated affiliates(a)
|
$
|
776
|
|
$
|
898
|
|
Minority
interest in preferred stock(b)
|
|
1,232
|
|
|
1,314
|
|
|
$
|
2,008
|
|
$
|
2,212
|
|
|
|
|
|
|
|
|
(a)
|
Included
minority interest in partnerships, common shares of consolidated
affiliates and consolidated, liquidating securitization entities.
|
|
(b)
|
The
preferred stock primarily pays cumulative dividends at variable rates.
Dividend rates in local currency on the preferred stock ranged from
3.28%
to 5.49% during 2006 and 2.03% to 5.38% during 2005.
|
|
Note
15. Shareowner’s Equity
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
preferred stock issued
|
$
|
-
|
|
$
|
-
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued
|
$
|
56
|
|
$
|
56
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
nonowner changes other than earnings
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
2,573
|
|
$
|
5,246
|
|
$
|
3,715
|
|
Investment
securities - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$75, $(242) and $(105)
|
|
154
|
|
|
(114
|
)
|
|
(464
|
)
|
Currency
translation adjustments - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$(1,506), $695 and $(1,285)
|
|
2,629
|
|
|
(2,501
|
)
|
|
2,296
|
|
Cash
flow hedges - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$78, $330 and $(102)
|
|
590
|
|
|
550
|
|
|
(87
|
)
|
Benefit
plans - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$(87), $1 and $(33)(a)
|
|
(131
|
)
|
|
(23
|
)
|
|
(93
|
)
|
Reclassification
adjustments
|
|
|
|
|
|
|
|
|
|
Investment
securities - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$(225), $(63), and $(70)
|
|
(417
|
)
|
|
(116
|
)
|
|
(131
|
)
|
Currency
translation adjustments
|
|
(163
|
)
|
|
-
|
|
|
-
|
|
Cash
flow hedges - net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of
$(69), $(258) and $(19)
|
|
(422
|
)
|
|
(469
|
)
|
|
10
|
|
Balance
at December 31(b)(c)
|
$
|
4,813
|
|
$
|
2,573
|
|
$
|
5,246
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
12,055
|
|
$
|
14,539
|
|
$
|
14,196
|
|
Contributions(d)
|
|
2,103
|
|
|
43
|
|
|
343
|
|
Redemption
of preferred stock(d)
|
|
(70
|
)
|
|
(2,527
|
)
|
|
-
|
|
Balance
at December 31
|
$
|
14,088
|
|
$
|
12,055
|
|
$
|
14,539
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
35,506
|
|
$
|
34,194
|
|
$
|
28,752
|
|
Net
earnings
|
|
10,386
|
|
|
9,926
|
|
|
8,590
|
|
Dividends(d)
|
|
(8,264
|
)
|
|
(8,614
|
)
|
|
(3,148
|
)
|
Balance
at December 31
|
$
|
37,628
|
|
$
|
35,506
|
|
$
|
34,194
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
|
|
|
|
|
|
|
Balance
at December 31
|
$
|
56,585
|
|
$
|
50,190
|
|
$
|
54,038
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The
2006 change includes transition effect related to adoption of SFAS
158 of
$(119) million, net of taxes of $(58) million. See note 1 for further
information regarding SFAS 158.
|
|
(b)
|
Included
accumulated nonowner changes related to discontinued operations of
$633
million and $1,459 million at December 31, 2005 and 2004,
respectively.
|
|
(c)
|
At
December 31, 2006, included reductions of equity of $838 million
related
to hedges of our investments in subsidiaries that have functional
currencies other than the U.S. dollar and $199 million related to
cash
flow hedges of forecasted transactions, of which we expect to transfer
$215 million to earnings in 2007 along with the earnings effects
of the
related forecasted transaction.
|
|
(d)
|
Total
dividends and other transactions with shareowner reduced equity by
$6,231
million, $11,101 million and $2,805 million in 2006, 2005 and 2004,
respectively.
|
|
All
common stock is owned by GE Capital Services, all of the common stock of which
is in turn owned, directly or indirectly by GE Company.
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 or statutory
requirements. At December 31, 2006, restricted net assets of these affiliates
amounted to $14.8 billion.
At
December 31, 2006 and 2005, the aggregate statutory capital and surplus of
the
insurance activities and discontinued insurance operations totaled $0.1 billion
and $2.4 billion, respectively. Accounting practices prescribed by statutory
authorities are used in preparing statutory statements.
Note
16. Supplemental Cash Flows Information
Changes
in operating assets and liabilities are net of acquisitions and dispositions
of
principal businesses.
Amounts
reported in the “Payments for principal businesses purchased” line in the
Statement of Cash Flows is net of cash acquired and included debt assumed and
immediately repaid in acquisitions.
Amounts
reported in the “All other operating activities” line in the Statement of Cash
Flows consists primarily of adjustments to current and noncurrent accruals
and
deferrals of costs and expenses, adjustments for gains and losses on assets,
increases and decreases in assets held for sale and adjustments to
assets.
Certain
supplemental information related to our cash flows is shown below.
December
31 (In millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
All
other operating activities
|
|
|
|
|
|
|
|
|
|
Net
change in assets held for sale
|
$
|
(1,578
|
)
|
$
|
2,192
|
|
$
|
84
|
|
Amortization
of intangible assets
|
|
549
|
|
|
400
|
|
|
452
|
|
Realized
gains on sale of investment securities
|
|
(127
|
)
|
|
(186
|
)
|
|
(190
|
)
|
Other
|
|
746
|
|
|
(651
|
)
|
|
369
|
|
|
$
|
(410
|
)
|
$
|
1,755
|
|
$
|
715
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in financing receivables
|
|
|
|
|
|
|
|
|
|
Increase
in loans to customers
|
$
|
(367,088
|
)
|
$
|
(314,309
|
)
|
$
|
(340,747
|
)
|
Principal
collections from customers - loans
|
|
293,647
|
|
|
266,371
|
|
|
305,374
|
|
Investment
in equipment for financing leases
|
|
(25,667
|
)
|
|
(23,480
|
)
|
|
(22,048
|
)
|
Principal
collections from customers - financing leases
|
|
18,265
|
|
|
21,509
|
|
|
19,238
|
|
Net
change in credit card receivables
|
|
(25,790
|
)
|
|
(21,391
|
)
|
|
(21,312
|
)
|
Sales
of financing receivables
|
|
67,471
|
|
|
54,144
|
|
|
44,543
|
|
|
$
|
(39,162
|
)
|
$
|
(17,156
|
)
|
$
|
(14,952
|
)
|
|
|
|
|
|
|
|
|
|
|
All
other investing activities
|
|
|
|
|
|
|
|
|
|
Purchases
of securities by insurance activities
|
$
|
(8,762
|
)
|
$
|
(5,955
|
)
|
$
|
(4,076
|
)
|
Dispositions
and maturities of securities by insurance activities
|
|
8,302
|
|
|
6,204
|
|
|
6,427
|
|
Other
assets - investments
|
|
(4,938
|
)
|
|
(2,218
|
)
|
|
(1,251
|
)
|
Other
|
|
(8,405
|
)
|
|
3,577
|
|
|
478
|
|
|
$
|
(13,803
|
)
|
$
|
1,608
|
|
$
|
1,578
|
|
December
31 (In millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Newly
issued debt having maturities longer than 90 days
|
|
|
|
|
|
|
|
|
|
Short-term
(91 to 365 days)
|
$
|
1,237
|
|
$
|
4,675
|
|
$
|
3,677
|
|
Long-term
(longer than one year)
|
|
87,788
|
|
|
60,990
|
|
|
54,632
|
|
Proceeds
- nonrecourse, leveraged lease
|
|
1,015
|
|
|
203
|
|
|
319
|
|
|
$
|
90,040
|
|
$
|
65,868
|
|
$
|
58,628
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
and other reductions of debt having maturities
|
|
|
|
|
|
|
|
|
|
longer
than 90 days
|
|
|
|
|
|
|
|
|
|
Short-term
(91 to 365 days)
|
$
|
(42,249
|
)
|
$
|
(38,076
|
)
|
$
|
(41,085
|
)
|
Long-term
(longer than one year)
|
|
(5,279
|
)
|
|
(9,934
|
)
|
|
(3,378
|
)
|
Principal
payments - nonrecourse, leveraged lease
|
|
(1,404
|
)
|
|
(830
|
)
|
|
(652
|
)
|
|
$
|
(48,932
|
)
|
$
|
(48,840
|
)
|
$
|
(45,115
|
)
|
|
|
|
|
|
|
|
|
|
|
All
other financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of investment contracts
|
$
|
16,392
|
|
$
|
15,837
|
|
$
|
11,005
|
|
Redemption
of investment contracts
|
|
(16,350
|
)
|
|
(15,861
|
)
|
|
(13,776
|
)
|
Redemption
of preferred stock
|
|
(70
|
)
|
|
(2,530
|
)
|
|
-
|
|
Capital
contribution from GECS
|
|
1,946
|
|
|
-
|
|
|
-
|
|
|
$
|
1,918
|
|
$
|
(2,554
|
)
|
$
|
(2,771
|
)
|
Note
17. Operating Segments
Revenues
|
Total
revenues
|
|
Intersegment
revenues
|
|
External
revenues
|
|
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
22,982
|
|
$
|
20,014
|
|
$
|
19,068
|
|
$
|
114
|
|
$
|
121
|
|
$
|
161
|
|
$
|
22,868
|
|
$
|
19,893
|
|
$
|
18,907
|
|
GE
Money
|
|
21,759
|
|
|
19,416
|
|
|
15,725
|
|
|
24
|
|
|
35
|
|
|
13
|
|
|
21,735
|
|
|
19,381
|
|
|
15,712
|
|
GE
Industrial(a)
|
|
7,061
|
|
|
6,627
|
|
|
6,571
|
|
|
16
|
|
|
17
|
|
|
13
|
|
|
7,045
|
|
|
6,610
|
|
|
6,558
|
|
GE
Infrastructure(a)
|
|
6,002
|
|
|
5,058
|
|
|
4,290
|
|
|
6
|
|
|
-
|
|
|
2
|
|
|
5,996
|
|
|
5,058
|
|
|
4,288
|
|
GECC
corporate items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
eliminations
|
|
1,929
|
|
|
2,608
|
|
|
4,226
|
|
|
(160
|
)
|
|
(173
|
)
|
|
(189
|
)
|
|
2,089
|
|
|
2,781
|
|
|
4,415
|
|
Total
|
$
|
59,733
|
|
$
|
53,723
|
|
$
|
49,880
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
59,733
|
|
$
|
53,723
|
|
$
|
49,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
Revenues
originating from operations based in the United States were $28,901 million,
$26,290 million and $25,429 million in 2006, 2005 and 2004, respectively.
Revenues originating from operations based outside the United States were
$30,832 million, $27,433 million and $24,451 million in 2006, 2005 and 2004,
respectively.
|
Depreciation
and amortization
For
the years ended December 31
|
|
Provision
for income taxes
|
|
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
3,138
|
|
$
|
2,596
|
|
$
|
2,719
|
|
$
|
691
|
|
$
|
767
|
|
$
|
1,025
|
|
GE
Money
|
|
438
|
|
|
393
|
|
|
334
|
|
|
373
|
|
|
536
|
|
|
442
|
|
GE
Industrial(a)
|
|
1,982
|
|
|
1,912
|
|
|
1,876
|
|
|
61
|
|
|
64
|
|
|
(124
|
)
|
GE
Infrastructure(a)
|
|
1,421
|
|
|
1,439
|
|
|
1,122
|
|
|
192
|
|
|
(195
|
)
|
|
58
|
|
GECC
corporate items and eliminations
|
|
35
|
|
|
25
|
|
|
70
|
|
|
(170
|
)
|
|
(65
|
)
|
|
213
|
|
Total
|
$
|
7,014
|
|
$
|
6,365
|
|
$
|
6,121
|
|
$
|
1,147
|
|
$
|
1,107
|
|
$
|
1,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
|
Interest
on loans
|
|
Interest
expense
|
|
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
7,151
|
|
$
|
5,872
|
|
$
|
5,531
|
|
$
|
7,702
|
|
$
|
5,830
|
|
$
|
4,666
|
|
GE
Money
|
|
14,112
|
|
|
13,086
|
|
|
10,619
|
|
|
6,808
|
|
|
5,425
|
|
|
3,560
|
|
GE
Industrial(a)
|
|
10
|
|
|
10
|
|
|
12
|
|
|
609
|
|
|
536
|
|
|
526
|
|
GE
Infrastructure(a)
|
|
678
|
|
|
536
|
|
|
389
|
|
|
2,069
|
|
|
1,706
|
|
|
1,428
|
|
GECC
corporate items and eliminations
|
|
319
|
|
|
391
|
|
|
563
|
|
|
567
|
|
|
508
|
|
|
735
|
|
Total
|
$
|
22,270
|
|
$
|
19,895
|
|
$
|
17,114
|
|
$
|
17,755
|
|
$
|
14,005
|
|
$
|
10,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
|
Assets(b)(c)
At
December 31
|
|
Buildings
and equipment
additions(d)
For
the years ended December 31
|
|
(In
millions)
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Commercial Finance
|
$
|
237,225
|
|
$
|
189,138
|
|
$
|
184,896
|
|
$
|
6,797
|
|
$
|
5,005
|
|
$
|
4,213
|
|
GE
Money
|
|
191,358
|
|
|
159,592
|
|
|
150,531
|
|
|
238
|
|
|
189
|
|
|
217
|
|
GE
Industrial(a)
|
|
19,365
|
|
|
17,438
|
|
|
17,888
|
|
|
3,836
|
|
|
3,366
|
|
|
3,060
|
|
GE
Infrastructure(a)
|
|
60,351
|
|
|
53,548
|
|
|
50,550
|
|
|
3,375
|
|
|
2,874
|
|
|
3,121
|
|
GECC
corporate items and eliminations
|
|
35,366
|
|
|
55,543
|
|
|
163,119
|
|
|
54
|
|
|
13
|
|
|
39
|
|
Total
|
$
|
543,665
|
|
$
|
475,259
|
|
$
|
566,984
|
|
$
|
14,300
|
|
$
|
11,447
|
|
$
|
10,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
only portions of the segment that are financial services
businesses.
|
|
(b)
|
Total
assets of the GE Commercial Finance, GE Money, GE Industrial and
GE
Infrastructure segments at December 31, 2006, include investments
in and
advances to associated companies of $1,995 million, $7,354 million,
$37
million and $3,148 million, respectively, which contributed approximately
$393 million, $745 million, an insignificant amount and $940 million,
respectively, to segment pre-tax income for the year ended December
31,
2006.
|
|
(c)
|
Assets
of discontinued operations are included in GECC corporate items and
eliminations for all periods presented.
|
|
(d)
|
Additions
to buildings and equipment include amounts relating to principal
businesses purchased.
|
|
Buildings
and equipment associated with operations based in the United States were $17,808
million, $16,546 million and $16,094 million at year-end 2006, 2005 and 2004,
respectively. Buildings and equipment associated
with
operations based outside the United States were $40,354 million, $34,390 million
and $30,156 million at year-end 2006, 2005 and 2004, respectively.
Basis
for presentation
Our
operating businesses are organized based on the nature of markets and customers.
Segment accounting policies are the same as described in note 1.
Details
of segment profit by operating segment can be found in the Summary of Operating
Segments table on page 15 of this report.
Note
18. Financial Instruments
|
2006
|
|
2005
|
|
|
|
|
Assets
(liabilities)
|
|
|
|
Assets
(liabilities)
|
|
December
31 (In millions)
|
Notional
amount
|
|
Carrying
amount
(net)
|
|
Estimated
fair
value
|
|
Notional
amount
|
|
Carrying
amount
(net)
|
|
Estimated
fair
value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
$
|
(a)
|
|
$
|
262,027
|
|
$
|
261,552
|
|
$
|
(a)
|
|
$
|
222,090
|
|
$
|
222,443
|
|
Other
commercial and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
residential
mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
held
for sale
|
|
(a)
|
|
|
6,220
|
|
|
6,304
|
|
|
(a)
|
|
|
5,683
|
|
|
5,736
|
|
Other
financial instruments(b)
|
|
(a)
|
|
|
3,686
|
|
|
4,130
|
|
|
(a)
|
|
|
4,131
|
|
|
4,488
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings(c)(d)
|
|
(a)
|
|
|
(425,713
|
)
|
|
(431,515
|
)
|
|
(a)
|
|
|
(355,885
|
)
|
|
(363,562
|
)
|
Insurance
- credit life(e)
|
|
2,474
|
|
|
(75
|
)
|
|
(55
|
)
|
|
2,172
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
These
financial instruments do not have notional amounts.
|
|
(b)
|
Principally
cost method investments.
|
|
(c)
|
Included
effects of interest rate and cross-currency swaps.
|
|
(d)
|
See
note 11.
|
|
(e)
|
Net
of reinsurance of $800 million and $225 million at December 31, 2006
and
2005, respectively.
|
|
Assets
and liabilities not carried at fair value in our Statement of Financial Position
are discussed below. Apart from certain of our borrowings and certain marketable
securities, few of the instruments discussed below are actively traded and
their
fair values must often be determined using financial models. Realization of
the
fair value of these instruments depends upon market forces beyond our control,
including marketplace liquidity. Therefore, the disclosed fair values may not
be
indicative of net realizable value or reflect future fair values.
A
description of how we estimate fair values follows.
Loans
Based
on
quoted market prices, recent transactions and/or discounted future cash flows,
using rates at which similar loans would have been made to similar
borrowers.
Borrowings
Based
on
discounted future cash flows using current market rates which are comparable
to
market quotes.
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. The fair values of our cost method investments that are not
exchange traded represent our best estimates of amounts we could have received
other than on a forced or liquidation basis.
Assets
and liabilities that are reflected in the accompanying financial statements
at
fair value are not included in the above disclosures; such items include cash
and equivalents, investment securities and derivative financial
instruments.
Additional
information about certain categories in the table above follows.
Residential
mortgages
Residential
mortgage products amounting to $13,325 million (23% of all residential
mortgages) and $12,633 million (27% of all residential mortgages) at December
31, 2006 and 2005, respectively, were either high loan-to-value, those
permitting interest-only payments or those with below market introductory rates.
We originate such loans either for our portfolio or for sale in secondary
markets. The portfolio was geographically diverse, with Europe and North America
the most significant market segments.
Insurance
- credit life
Certain
insurance affiliates, primarily in GE Money, issue credit life insurance
designed to pay the balance due on a loan if the borrower dies before the loan
is repaid. As part of our overall risk management process, we cede to third
parties a portion of this associated risk, but are not relieved of our primary
obligation to policyholders.
Loan
Commitments
|
Notional
amount
|
|
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Ordinary
course of business lending commitments(a)
|
|
|
|
|
|
|
Fixed
rate
|
$
|
3,186
|
|
$
|
4,188
|
|
Variable
rate
|
|
9,515
|
|
|
6,068
|
|
Unused
revolving credit lines(b)
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
Fixed
rate
|
|
868
|
|
|
779
|
|
Variable
rate
|
|
24,095
|
|
|
20,779
|
|
Consumer
- principally credit cards
|
|
|
|
|
|
|
Fixed
rate
|
|
136,920
|
|
|
170,367
|
|
Variable
rate
|
|
341,656
|
|
|
281,113
|
|
|
|
|
|
|
|
|
(a)
|
Excluded
investment commitments of $2,881 million and $1,418 million as of
December
31, 2006 and 2005, respectively.
|
|
(b)
|
Excluded
inventory financing arrangements, which may be withdrawn at our option,
of
$11,044 million and $11,383 million as of December 31, 2006 and 2005,
respectively.
|
|
Derivatives
and hedging
We
conduct our business activities in diverse markets around the world, including
countries where obtaining local funding is sometimes inefficient. The nature
of
our activities exposes us to changes in interest rates and currency exchange
rates. We manage such risks using straightforward techniques including debt
whose terms correspond to terms of the funded assets, as well as combinations
of
debt and derivatives that achieve our objectives. We also are exposed to various
commodity price risks and address certain of these risks with commodity
contracts. We value derivatives that are not exchange-traded with internal
market-based valuation models. When necessary, we also obtain information from
our derivative counterparties to validate our models and to value the few
products that our internal models do not address.
We
use
interest rate swaps, currency derivatives and commodity derivatives to reduce
the variability of expected future cash flows associated with variable rate
borrowings and commercial purchase and sale transactions, including commodities.
We use interest rate swaps, currency swaps and interest rate and currency
forwards to hedge the fair value effects of interest rate and currency exchange
rate changes on local and nonfunctional currency denominated fixed-rate
borrowings and certain types of fixed-rate assets. We use currency swaps and
forwards to protect our net investments in global operations conducted in
non-U.S. dollar currencies. We intend all of these positions to qualify as
hedges and to be accounted for as hedges.
We
use
swaps, futures and option contracts, including caps, floors and collars, as
economic hedges of changes in interest rates, currency exchange rates and equity
prices on certain types of assets and liabilities. We sometimes use credit
default swaps to hedge the credit risk of various counterparties with which
we
have entered into loan or leasing arrangements. We occasionally obtain equity
warrants as part of sourcing or financing transactions. Although these
instruments are derivatives, their economic risks are similar to, and managed
on
the same basis as, risks of other equity instruments we hold. These instruments
are marked to market through earnings.
Earnings
effects of derivatives designated as hedges
At
December 31, 2006, approximately 57% of our total interest rate swaps accounted
for as hedges were exempt from ongoing tests of effectiveness. The following
table provides information about the earnings effects of derivatives designated
and qualifying as hedges, but not qualifying for the assumption of no
ineffectiveness.
Pre-tax
Gains (Losses)
December
31 (In millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
$
|
10
|
|
$
|
(27
|
)
|
$
|
21
|
|
Amounts
excluded from the measure of effectiveness
|
|
(16
|
)
|
|
(5
|
)
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
(47
|
)
|
|
4
|
|
|
13
|
|
Amounts
excluded from the measure of effectiveness
|
|
33
|
|
|
(8
|
)
|
|
3
|
|
Additional
information regarding the use of derivatives is provided in note 11 and
note 15.
Counterparty
credit risk
We
manage
counterparty credit risk, the risk that counterparties will default and not
make
payments to us according to the terms of the agreements, on an individual
counterparty basis. Thus, when a legal right of offset exists, we net certain
exposures by counterparty and include the value of collateral to determine
the
amount of ensuing exposure. When net exposure to a counterparty, based on the
current market values of agreements and collateral, exceeds credit exposure
limits (see following table), we take action to reduce exposure. Such actions
include prohibiting additional transactions with the counterparty, requiring
collateral from the counterparty (as described below) and terminating or
restructuring transactions.
Swaps
are
required to be executed under master agreements containing mutual credit
downgrade provisions that provide the ability to require assignment or
termination in the event either party is downgraded below A3 or A-. In certain
cases we have entered into collateral arrangements that provide us with the
right to hold collateral (cash or U.S. Treasury or other highly-rated
securities) when the current market value of derivative contracts exceeds a
specified limit. We evaluate credit risk exposures and compliance with credit
exposure limits net of such collateral.
Fair
values of our derivatives assets and liabilities represent the replacement
value
of existing derivatives at market prices and can change significantly from
period to period based on, among other factors, market movements and changes
in
our positions. At December 31, 2006, our exposure to counterparties, after
consideration of netting arrangements and collateral, was about $1,100
million.
Following
is our policy relating to initial credit rating requirements and to exposure
limits to counterparties.
Counterparty
Credit Criteria
|
Credit
rating
|
|
Moody’s
|
|
S&P
|
|
|
|
|
Foreign
exchange forwards and other derivatives less than one year
|
P-1
|
|
A-1
|
All
derivatives between one and five years
|
Aa3(a)
|
|
AA-(a)
|
All
derivatives greater than five years
|
Aaa(a)
|
|
AAA(a)
|
|
|
|
|
(a)
|
Counterparties
that have an obligation to provide collateral to cover credit exposure
in
accordance with a credit support agreement must have a minimum A3/A-
rating.
|
Exposure
Limits
(In
millions)
|
|
|
|
|
|
Minimum
rating
|
|
Exposure(a)
|
|
Moody’s
|
|
S&P
|
|
With
collateral
arrangements
|
|
Without
collateral
arrangements
|
|
|
|
|
|
|
|
|
|
|
|
Aaa
|
|
AAA
|
|
$
|
100
|
|
$
|
75
|
|
Aa3
|
|
AA-
|
|
|
50
|
|
|
50
|
|
A3
|
|
A-
|
|
|
5
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
For
derivatives with maturities less than one year, counterparties are
permitted to have unsecured exposure up to $150 million with a minimum
rating
of A-1/P-1.
|
|
Note
19. Securitization Entities
We
securitize financial assets in the ordinary course of business to improve
shareowner returns. The securitization transactions we engage in are similar
to
those used by many financial institutions. Beyond improving returns, these
securitization transactions serve as funding sources for a variety of
diversified lending and securities transactions. Historically, we have used
both
GE-supported and third-party entities to execute securitization transactions
funded in the commercial paper and term bond markets.
Securitized
assets that are on-balance sheet include assets consolidated upon adoption
of
FIN 46, Consolidation
of Variable Interest Entities (the
predecessor to FIN 46R). Although we do not control these entities,
consolidation was required because we provided a majority of the credit and
liquidity support for their activities. A majority of these entities were
established to issue asset-backed securities, using assets that were sold by
us
and by third parties. These entities differ from others included in our
consolidated financial statements because the assets they hold are legally
isolated and are unavailable to us under any circumstances. Repayment of their
liabilities depends primarily on cash flows generated by their assets. Because
we have ceased transferring assets to these entities, balances will decrease
as
the assets repay. We refer to these entities as “consolidated, liquidating
securitization entities.”
The
following table represents assets in securitization entities, both consolidated
and off-balance sheet.
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
Receivables
secured by
|
|
|
|
|
|
|
Equipment
|
$
|
9,590
|
|
$
|
12,949
|
|
Commercial
real estate
|
|
9,765
|
|
|
11,437
|
|
Residential
real estate
|
|
7,329
|
|
|
8,882
|
|
Other
assets
|
|
14,743
|
|
|
12,869
|
|
Credit
card receivables
|
|
12,947
|
|
|
10,039
|
|
Trade
receivables
|
|
176
|
|
|
-
|
|
Total
securitized assets
|
$
|
54,550
|
|
$
|
56,176
|
|
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Off-balance
sheet(a)(b)
|
$
|
42,903
|
|
$
|
38,272
|
|
On-balance
sheet(c)
|
|
11,647
|
|
|
17,904
|
|
Total
securitized assets
|
$
|
54,550
|
|
$
|
56,176
|
|
|
|
|
|
|
|
|
(a)
|
At
December 31, 2006 and 2005, liquidity support amounted to $276 million
and
$1,931 million, respectively. These amounts are net of $1,936 million
and
$2,450 million, respectively, participated or deferred beyond one
year.
Credit support amounted to $2,240 million and $4,386 million at December
31, 2006 and 2005, respectively.
|
(b)
|
Liabilities
for recourse obligations related to off-balance sheet assets were
$27
million and $93 million at December 31, 2006 and 2005,
respectively.
|
(c)
|
At
December 31, 2006 and 2005, liquidity support amounted to $6,585
million
and $10,044 million, respectively. For December 31, 2005, this amount
is
net of $138 million participated or deferred beyond one year. No
amounts
have been participated or deferred beyond one year at December 31,
2006.
Credit support amounted to $2,926 million and $4,780 million at December
31, 2006 and 2005, respectively.
|
The
portfolio of financing receivables consisted of loans and financing lease
receivables secured by equipment, commercial and residential real estate and
other assets; credit card receivables; and trade 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)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Financing
receivables - net (note 6)
|
$
|
11,509
|
|
$
|
16,615
|
|
Other
|
|
138
|
|
|
1,289
|
|
Total
|
$
|
11,647
|
|
$
|
17,904
|
|
Off-balance
sheet arrangements
We
engage
in off-balance sheet securitization transactions with third-party entities
and
use public market term securitizations. As discussed above, assets in
off-balance sheet securitization entities amounted to $42.9 billion and $38.3
billion at December 31, 2006 and 2005, respectively. Gross securitization gains
amounted to $1,199 million in 2006 compared with $939 million in 2005 and $1,195
million in 2004.
Amounts
recognized in our financial statements related to sales to off-balance sheet
securitization entities are as follows:
December
31 (In millions)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Retained
interests
|
$
|
4,260
|
|
$
|
3,871
|
|
Servicing
assets
|
|
9
|
|
|
29
|
|
Recourse
liability
|
|
(27
|
)
|
|
(93
|
)
|
Total
|
$
|
4,242
|
|
$
|
3,807
|
|
•
|
Retained
interests.
When we securitize receivables, we determine fair value of retained
interests based on discounted cash flow models that incorporate,
among
other things, assumptions about loan pool credit losses, prepayment
speeds
and discount rates. These assumptions are based on our experience,
market
trends and anticipated performance related to the particular assets
securitized. We classify retained interests in securitized receivables
as
investment securities and mark them to fair value each reporting
period,
updating our models for current assumptions. These assets decrease
as cash
is received in payment. When the carrying amounts exceed fair value,
we
evaluate whether the unrealized loss is other than temporary and,
if so,
record any indicated loss in earnings currently.
|
•
|
Servicing
assets.
Following a securitization transaction, we also may provide servicing
for
a market-based fee based on remaining outstanding principal balances.
Servicing assets are primarily associated with residential mortgage
loans.
Their value is subject to credit, prepayment and interest rate risk.
|
•
|
Recourse
liability.
Certain transactions involve credit support agreements. As a result,
we
provide for expected credit losses at amounts that approximate fair
value.
|
The
following table summarizes data related to securitization sales that we
completed during 2006 and 2005.
(Dollars
in millions)
|
Equipment
|
|
Commercial
real
estate
|
|
Credit
card
receivables
|
|
Other
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
proceeds from securitization
|
$
|
2,784
|
|
$
|
4,427
|
|
$
|
5,251
|
|
$
|
7,782
|
|
Proceeds
from collections
|
|
|
|
|
|
|
|
|
|
|
|
|
reinvested
in new receivables
|
|
-
|
|
|
-
|
|
|
16,360
|
|
|
30,584
|
|
Cash
received on retained interests
|
|
236
|
|
|
73
|
|
|
2,307
|
|
|
341
|
|
Cash
received from servicing and
|
|
|
|
|
|
|
|
|
|
|
|
|
other
sources
|
|
45
|
|
|
26
|
|
|
219
|
|
|
126
|
|
Weighted
average lives (in months)
|
|
23
|
|
|
75
|
|
|
7
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
as of sale date(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
8.3
|
%
|
|
12.8
|
%
|
|
12.0
|
%
|
|
12.6
|
%
|
Prepayment
rate
|
|
10.4
|
|
|
7.6
|
|
|
12.5
|
|
|
20.2
|
|
Estimate
of credit losses
|
|
1.4
|
|
|
0.5
|
|
|
6.8
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based
on weighted averages.
|
|
(Dollars
in millions)
|
Equipment
|
|
Commercial
real
estate
|
|
Credit
card
receivables
|
|
Other
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
proceeds from securitization
|
$
|
3,702
|
|
$
|
5,571
|
|
$
|
6,985
|
|
$
|
4,705
|
|
Proceeds
from collections
|
|
|
|
|
|
|
|
|
|
|
|
|
reinvested
in new receivables
|
|
-
|
|
|
-
|
|
|
10,067
|
|
|
27,697
|
|
Cash
received on retained interests
|
|
190
|
|
|
58
|
|
|
1,644
|
|
|
10
|
|
Cash
received from servicing and
|
|
|
|
|
|
|
|
|
|
|
|
|
other
sources
|
|
75
|
|
|
36
|
|
|
155
|
|
|
91
|
|
Weighted
average lives (in months)
|
|
37
|
|
|
80
|
|
|
8
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
as of sale date(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
8.8
|
%
|
|
13.4
|
%
|
|
11.7
|
%
|
|
12.6
|
%
|
Prepayment
rate
|
|
8.8
|
|
|
6.5
|
|
|
12.6
|
|
|
21.2
|
|
Estimate
of credit losses
|
|
2.3
|
|
|
0.8
|
|
|
7.5
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based
on weighted averages.
|
|
Key
assumptions used in measuring the fair value of retained interests in
securitizations and the sensitivity of the current fair value of residual cash
flows to changes in those assumptions related to all outstanding retained
interests as of December 31, 2006, are noted in the following table.
(Dollars
in millions)
|
Equipment
|
|
Commercial
real
estate
|
|
Credit
card
receivables
|
|
Other
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate(a)
|
|
8.9
|
%
|
|
13.4
|
%
|
|
11.2
|
%
|
|
6.6
|
%
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
Adverse change
|
$
|
(10
|
)
|
$
|
(18
|
)
|
$
|
(15
|
)
|
$
|
(6
|
)
|
20%
Adverse change
|
|
(21
|
)
|
|
(33
|
)
|
|
(30
|
)
|
|
(13
|
)
|
Prepayment
rate(a)
|
|
11.7
|
%
|
|
3.2
|
%
|
|
12.0
|
%
|
|
13.2
|
%
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
Adverse change
|
$
|
(5
|
)
|
$
|
(7
|
)
|
$
|
(59
|
)
|
$
|
(13
|
)
|
20%
Adverse change
|
|
(9
|
)
|
|
(13
|
)
|
|
(110
|
)
|
|
(22
|
)
|
Estimate
of credit losses(a)
|
|
2.3
|
%
|
|
0.9
|
%
|
|
6.6
|
%
|
|
0.3
|
%
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
Adverse change
|
$
|
(7
|
)
|
$
|
(6
|
)
|
$
|
(48
|
)
|
$
|
(9
|
)
|
20%
Adverse change
|
|
(14
|
)
|
|
(8
|
)
|
|
(95
|
)
|
|
(17
|
)
|
Remaining
weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
lives (in months)
|
|
31
|
|
|
52
|
|
|
8
|
|
|
18
|
|
Net
credit losses
|
$
|
58
|
|
$
|
-
|
|
$
|
576
|
|
$
|
8
|
|
Delinquencies
|
|
121
|
|
|
13
|
|
|
437
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based
on weighted averages.
|
|
Note
20. Commitments and Guarantees
Commitments,
including guarantees
The
Aviation Financial Services business of GE Infrastructure had placed
multiple-year orders for various Boeing, Airbus and other aircraft with list
prices approximating $14,019 million at December 31, 2006.
At
December 31, 2006, we were committed under the following guarantee arrangements
beyond those provided on behalf of securitization entities. See note
19.
•
|
Liquidity
support.
Liquidity support provided to holders of certain variable rate bonds
issued by municipalities amounted to $1,093 million at December 31,
2006.
If holders elect to sell supported bonds that cannot be remarketed,
we are
obligated to repurchase them at par. If called upon, our position
would be
secured by the repurchased bonds. While we hold any such bonds, we
would
receive interest payments from the municipalities at a rate that
is in
excess of the stated rate on the bond. To date, we have not been
required
to perform under such arrangements and our existing liquidity support
will
decrease $1,033 million in 2007 and the remaining $60 million by
the end
of 2008 as the underlying variable rate bonds reach their maturity
date.
We are currently not providing any such new liquidity facilities.
|
•
|
Credit
support.
We
have provided $6,268 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 these 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 $8 million at December 31, 2006.
|
•
|
Indemnification
agreements.
These are agreements that require us to fund up to $413 million under
residual value guarantees on a variety of leased equipment and $816
million of other indemnification commitments arising primarily from
sales
of businesses or assets. Under most of our residual value guarantees,
our
commitment is secured by the leased asset at termination of the lease.
The
liability for these indemnification agreements was $21 million at
December
31, 2006.
|
•
|
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, 2006, we had total
maximum exposure for future estimated payments of $220 million, of
which
none was earned and payable.
|
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 expected recoveries from third parties are recorded as other
receivables; not netted against the liabilities.
Note
21. Quarterly Information (Unaudited)
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
|
(In
millions)
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
13,983
|
|
$
|
13,121
|
|
$
|
14,479
|
|
$
|
12,943
|
|
$
|
15,167
|
|
$
|
14,024
|
|
$
|
16,104
|
|
$
|
13,635
|
|
Earnings
from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
before income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
|
$
|
2,742
|
|
$
|
2,319
|
|
$
|
2,728
|
|
$
|
2,028
|
|
$
|
2,856
|
|
$
|
3,008
|
|
$
|
3,192
|
|
$
|
2,778
|
|
Provision
for income taxes
|
|
(398
|
)
|
|
(285
|
)
|
|
(231
|
)
|
|
(108
|
)
|
|
(248
|
)
|
|
(434
|
)
|
|
(270
|
)
|
|
(280
|
)
|
Earnings
from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
2,344
|
|
|
2,034
|
|
|
2,497
|
|
|
1,920
|
|
|
2,608
|
|
|
2,574
|
|
|
2,922
|
|
|
2,498
|
|
Earnings
(loss) from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes
|
|
128
|
|
|
249
|
|
|
(103
|
)
|
|
85
|
|
|
(70
|
)
|
|
330
|
|
|
60
|
|
|
236
|
|
Net
earnings
|
$
|
2,472
|
|
$
|
2,283
|
|
$
|
2,394
|
|
$
|
2,005
|
|
$
|
2,538
|
|
$
|
2,904
|
|
$
|
2,982
|
|
$
|
2,734
|
|
Not
applicable.
Item
9A. Controls and Procedures.
(a)
Evaluation of Disclosure Controls and Procedures
Under
the
direction of our Chief Executive Officer and Chief Financial Officer, we
evaluated our disclosure controls and procedures as of December 31, 2006. We
identified the following material weakness in our internal control over
financial
reporting - we did not have adequately designed procedures to designate each
hedged commercial paper transaction with the specificity required by Statement
of Financial Accounting Standards 133, Accounting
for Derivative Instruments and Hedging Activities,
as
amended. The restatement that resulted from this material weakness is discussed
in (b) below. Solely as a result of this material weakness, we concluded that
our disclosure controls and procedures were not effective as of December 31,
2006. Other than with respect to the identification of this material weakness,
there was no change in our internal control over financial reporting during
the
quarter ended December 31, 2006, that materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
(b)
Management’s Annual Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. With our participation, an evaluation
of
the effectiveness of our internal control over financial reporting was conducted
as of December 31, 2006, based on the framework and criteria established in
Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We
identified the following material weakness in our internal control over
financial reporting - we did not have adequately designed procedures to
designate each hedged commercial paper transaction with the specificity required
by Statement of Financial Accounting Standards 133, Accounting
for Derivative Instruments and Hedging Activities,
as
amended. This material weakness resulted in restatement, in January 2007, of
our
previously issued financial statements as of and for each of the interim periods
ended March 31, 2006, June 30, 2006 and September 30, 2006. Accordingly, we
concluded that our internal control over financial reporting was not effective
as of December 31, 2006.
Our
independent registered public accounting firm has issued an audit report on
our
management’s assessment of our internal control over financial reporting. Their
report appears in Item 8, Financial Statements and Supplementary
Data.
Item
9B. Other Information.
Not
applicable.
PART
III
Item
10. Directors and Executive Officers of the Registrant.
Not
required by this form.
Item
11. Executive Compensation.
Not
required by this form.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Not
required by this form.
Item
13. Certain Relationships and Related Transactions.
Not
required by this form.
Item
14. Principal Accounting Fees and Services.
The
aggregate fees billed for professional services by KPMG LLP, in 2006 and 2005
were:
(In
millions)
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
Type
of fees
|
|
|
|
|
|
|
Audit
fees
|
$
|
31.5
|
|
$
|
28.7
|
|
Audit-related
fees
|
|
6.5
|
|
|
3.6
|
|
Tax
fees
|
|
3.4
|
|
|
4.9
|
|
All
other fees
|
|
-
|
|
|
-
|
|
|
$
|
41.4
|
|
$
|
37.2
|
|
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 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, 2006
Statement
of Changes in Shareowner’s Equity for each of the years in the three-year
period ended
December
31, 2006
Statement
of Financial Position at December 31, 2006 and 2005
Statement
of Cash Flows for each of the years in the three-year period ended
December 31, 2006
Notes
to Consolidated Financial
Statements
|
|
Incorporated
by reference:
|
|
|
|
The
consolidated financial statements of General Electric Company, set
forth
in the Annual Report on Form 10-K of General Electric Company (S.E.C.
File
No. 001-00035) for the year ended December 31, 2006 (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.
|
|
|
|
|
|
All
other schedules are omitted because of the absence of conditions
under
which they are required or because the required information is shown
in
the financial statements or notes
thereto.
|
(a) 3.
|
Exhibit
Index
|
|
|
The
exhibits listed below, as part of Form 10-K, are numbered in conformity
with the numbering used in Item 601 of Regulation S-K of the Securities
and Exchange Commission.
|
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
2(a)
|
|
Agreement
and Plan of Merger dated June 25, 2001, between GECC and GECS Merger
Sub,
Inc. (Incorporated by reference to Exhibit 2.1 of GECC’s Current Report on
Form 8-K dated as of July 3, 2001).
|
|
|
3(i)
|
|
A
complete copy of the Certificate of Incorporation of GECC as last
amended
on December 20, 2006, and currently in effect, consisting of the
following: (a) the Restated Certificate of Incorporation of GECC
as in
effect immediately prior to the filing of a Certificate of Amendment
on
August 7, 2002 (Incorporated by reference to Exhibit 3(i) of GECC’s Form
10-K Report for the year ended December 31, 2001); and (b) a Certificate
of Amendment filed with the Office of the Secretary of State, State
of
Delaware on August 7, 2002 (Incorporated by reference to Exhibit
3(i) to
GECC’s Post-Effective Amendment No. 1 to Registration Statement on Form
S-3, File No. 333-100527); (c) a Certificate of Amendment filed
with the
Office of the Secretary of State, State of Delaware on January
27, 2003
(Incorporated by reference to Exhibit 3(i) to GECC’s Post-Effective
Amendment No. 1 to Registration Statement on Form S-3, File No.
333-100527); (d) a Certificate of Amendment filed with the Office
of the
Secretary of State, State of Delaware on November 23, 2004 (Incorporated
by reference to Exhibit 3(i) of GECC’s Form 10-K Report for the year ended
December 31, 2004); and (e) a Certificate of Amendment filed with
the
Office of the Secretary of State, State of Delaware on December
20, 2006
(Incorporated by reference to Exhibit 3.1 of GECC’s Form 8-K Report filed
on December 27, 2006). GECC’s Certificate of Merger filed with the Office
of the Secretary of State, State of Delaware on June 29, 2001
(Incorporated by reference to Exhibit 2(a) of GECC's Form 10-K
Report for
the year ended December 31, 2001).
|
|
|
3(ii)
|
|
A
complete copy of the By-Laws of GECC as last amended on March 24,
2005,
and currently in effect (Incorporated by reference to Exhibit 3(ii)
of
GECC’s Form 10-K Report for the year ended December 31,
2005).
|
|
|
|
|
|
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 The Bank of New York 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)
|
|
Eighth
Amended and Restated Fiscal and Paying Agency Agreement among GECC,
GE
Capital Australia Funding Pty Ltd, GE Capital European Funding, GE
Capital
Canada Funding Company, GE Capital UK Funding and JPMorgan Chase
Bank,
N.A. and J.P. Morgan Bank Luxembourg S.A. dated as of May 12, 2006
(Incorporated by reference to Exhibit 4(f) to General Electric Capital
Services, Inc.’s Form 10-K Report for the year ended December 31,
2006).
|
|
|
4(g)
|
|
Form
of Global Medium-Term Note, Series A, Fixed Rate Registered Note
(Incorporated by reference to Exhibit 4(m) to GECC’s Registration
Statement on Form S-3, File No. 333-100527).
|
|
|
4(h)
|
|
Form
of Global Medium-Term Note, Series A, Floating Rate Registered Note
(Incorporated by reference to Exhibit 4(n) to GECC’s Registration
Statement on Form S-3, File No. 333-100527).
|
|
|
4(i)
|
|
Form
of Euro Medium-Term Note and Debt Security - Permanent Global Fixed
Rate
Bearer Note (Incorporated by reference to Exhibit 4(i) to General
Electric
Capital Services, Inc.'s Form 10-K Report for the year ended December
31,
2006).
|
|
|
4(j)
|
|
Form
of Euro Medium-Term Note and Debt Security - Permanent Global Floating
Rate Bearer Note (Incorporated by reference to Exhibit 4(j) to General
Electric Capital Services, Inc.’s Form 10-K Report for the year ended
December 31, 2006).
|
|
4(k)
|
|
Form
of Euro Medium-Term Note and Debt Security - Temporary Global Fixed
Rate
Bearer Note (Incorporated by reference to Exhibit 4(k) to General
Electric
Capital Services, Inc.’s Form 10-K Report for the year ended December 31,
2006).
|
|
|
4(l)
|
|
Form
of Euro Medium-Term Note and Debt Security - Temporary Global Floating
Rate Bearer Note (Incorporated by reference to Exhibit 4(l) to General
Electric Capital Services, Inc.’s Form 10-K Report for the year ended
December 31, 2006).
|
|
|
4(m)
|
|
Form
of Euro Medium-Term Note and Debt Security - Definitive Fixed Rate
Bearer
Note (Incorporated by reference to Exhibit 4(m) to General Electric
Capital Services, Inc.’s Form 10-K Report for the year ended December 31,
2006).
|
|
|
4(n)
|
|
Form
of Euro Medium-Term Note and Debt Security - Definitive Floating
Rate
Bearer Note (Incorporated by reference to Exhibit 4(n) to General
Electric
Capital Services, Inc.’s Form 10-K Report for the year ended December 31,
2006).
|
|
|
4(o)
|
|
Agreement
to furnish to the Securities and Exchange Commission upon request
a copy
of instruments defining the rights of holders of certain long-term
debt of
the registrant and all subsidiaries for which consolidated or
unconsolidated financial statements are required to be filed.*
|
|
|
|
|
|
12(a)
|
|
Computation
of Ratio of Earnings to Fixed Charges.*
|
|
|
12(b)
|
|
Computation
of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.*
|
|
|
23(ii)
|
|
Consent
of KPMG LLP.*
|
|
|
24
|
|
Power
of Attorney.*
|
|
|
31(a)
|
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended.*
|
|
|
31(b)
|
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended.*
|
|
|
32
|
|
Certification
Pursuant to 18 U.S.C. Section 1350.*
|
|
|
99(a)
|
|
Income
Maintenance Agreement dated March 28, 1991, between General Electric
Company and General Electric Capital Corporation. (Incorporated by
reference to Exhibit 99(h) to GECC’s Registration Statement on Form S-3,
File No. 333-100527).
|
|
|
99(b)
|
|
The
consolidated financial statements of General Electric Company, set
forth
in the Annual Report on Form 10-K of General Electric Company (S.E.C.
File
No. 001-00035) for the year ended December 31, 2006, (pages 45 through
113) and Exhibit 12 (Ratio of Earnings to Fixed Charges) of General
Electric Company.
|
|
|
* Filed
electronically herewith.
|
General
Electric Capital Corporation and consolidated affiliates
Schedule
I - Condensed Financial Information of Registrant
General
Electric Capital Corporation
Condensed
Statement of Current and Retained Earnings
For
the years ended December 31 (In millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
6,023
|
|
$
|
6,811
|
|
$
|
6,593
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Interest
|
|
8,018
|
|
|
6,205
|
|
|
4,476
|
|
Operating
and administrative
|
|
3,543
|
|
|
3,006
|
|
|
3,284
|
|
Provision
for losses on financing receivables
|
|
(721
|
)
|
|
601
|
|
|
687
|
|
Depreciation
and amortization
|
|
361
|
|
|
416
|
|
|
447
|
|
Total
expenses
|
|
11,201
|
|
|
10,228
|
|
|
8,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and equity in earnings of affiliates
|
|
(5,178
|
)
|
|
(3,417
|
)
|
|
(2,301
|
)
|
Income
tax benefit
|
|
1,428
|
|
|
1,523
|
|
|
612
|
|
Equity
in earnings of affiliates
|
|
14,136
|
|
|
11,820
|
|
|
10,279
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
10,386
|
|
|
9,926
|
|
|
8,590
|
|
Dividends
|
|
(8,264
|
)
|
|
(8,614
|
)
|
|
(3,148
|
)
|
Retained
earnings at January 1
|
|
35,506
|
|
|
34,194
|
|
|
28,752
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings at December 31
|
$
|
37,628
|
|
$
|
35,506
|
|
$
|
34,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to condensed financial statements are an integral part of this
statement.
|
|
General
Electric Capital Corporation and consolidated affiliates
Schedule
I - Condensed Financial Information of Registrant -
(Continued)
General
Electric Capital Corporation
Condensed
Statement of Financial Position
At
December 31 (In millions, except share amounts)
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
$
|
1,169
|
|
$
|
3,077
|
|
Investment
securities
|
|
2,139
|
|
|
2,671
|
|
Financing
receivables - net
|
|
58,827
|
|
|
51,360
|
|
Investment
in and advances to affiliates
|
|
274,274
|
|
|
245,217
|
|
Buildings
and equipment - net
|
|
2,923
|
|
|
3,263
|
|
Other
assets
|
|
13,326
|
|
|
11,235
|
|
Total
assets
|
$
|
352,658
|
|
$
|
316,823
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
Borrowings
|
$
|
286,435
|
|
$
|
253,797
|
|
Other
liabilities
|
|
6,841
|
|
|
6,680
|
|
Deferred
income taxes
|
|
2,797
|
|
|
6,156
|
|
Total
liabilities
|
|
296,073
|
|
|
266,633
|
|
|
|
|
|
|
|
|
Variable
cumulative preferred stock, $100 par value, liquidation
preference
$100,000
per share (33,000 shares authorized; 26,000 shares held in
treasury
at
December 31, 2006 and 700 shares issued and outstanding
and
25,300 shares held at treasury at December 31, 2005)
|
|
-
|
|
|
-
|
|
Common
stock, $14 par value (4,166,000 shares authorized at
December
31, 2006 and 2005, and 3,985,403 shares issued
and
outstanding at December 31, 2006 and 2005)
|
|
56
|
|
|
56
|
|
Accumulated
gains (losses) - net
|
|
|
|
|
|
|
|
|
481
|
|
|
744
|
|
Currency
translation adjustments
|
|
4,809
|
|
|
2,343
|
|
Cash
flow hedges
|
|
(199
|
)
|
|
(367
|
)
|
Benefit
plans
|
|
(278
|
)
|
|
(147
|
)
|
Additional
paid-in capital
|
|
14,088
|
|
|
12,055
|
|
Retained
earnings
|
|
37,628
|
|
|
35,506
|
|
Total
shareowner's equity
|
|
56,585
|
|
|
50,190
|
|
Total
liabilities and equity
|
$
|
352,658
|
|
$
|
316,823
|
|
|
|
|
|
|
|
|
The
sum of accumulated gains (losses) on investment securities, currency
translation adjustments, cash flow hedges and benefit plans constitutes
“Accumulated nonowner changes other than earnings,” and was $4,813 million
and $2,573 million at December 31, 2006 and 2005,
respectively.
|
|
The
notes to condensed financial statements are an integral part of this
statement.
|
|
General
Electric Capital Corporation and consolidated affiliates
Schedule
I - Condensed Financial Information of Registrant -
(Continued)
General
Electric Capital Corporation
Condensed
Statement of Cash Flows
For
the years ended December 31 (In millions)
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Cash
from (used for) operating activities
|
$
|
(8,539
|
)
|
$
|
(843
|
)
|
$
|
231
|
|
Cash
flows -
investing activities
|
|
|
|
|
|
|
|
|
|
Increase
in loans to customers
|
|
(128,222
|
)
|
|
(103,006
|
)
|
|
(141,213
|
)
|
Principal
collections from customers -
loans
|
|
120,373
|
|
|
100,689
|
|
|
141,022
|
|
Investment
in equipment for financing leases
|
|
(3,273
|
)
|
|
(2,987
|
)
|
|
(3,550
|
)
|
Principal
collections from customers -
financing leases
|
|
1,739
|
|
|
3,010
|
|
|
4,172
|
|
Net
change in credit card receivables
|
|
(28
|
)
|
|
268
|
|
|
(66
|
)
|
Additions
to buildings and equipment
|
|
(1,308
|
)
|
|
(593
|
)
|
|
(594
|
)
|
Dispositions
of buildings and equipment
|
|
1,076
|
|
|
797
|
|
|
1,102
|
|
Payments
for principal businesses purchased
|
|
(7,299
|
)
|
|
(7,167
|
)
|
|
(13,888
|
)
|
Proceeds
from principal business dispositions
|
|
386
|
|
|
209
|
|
|
472
|
|
Decrease
(increase) in investment in and advances to affiliates
|
|
27
|
|
|
4,455
|
|
|
(6,053
|
)
|
All
other investing activities
|
|
(8,009
|
)
|
|
(2,049
|
)
|
|
374
|
|
|
|
|
|
|
|
|
|
|
|
Cash
used for investing activities
|
|
(24,538
|
)
|
|
(6,374
|
)
|
|
(18,222
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows -
financing activities
|
|
|
|
|
|
|
|
|
|
Net
increase in borrowings (maturities of 90 days or less)
|
|
3,173
|
|
|
4,815
|
|
|
8,680
|
|
Newly
issued debt:
|
|
|
|
|
|
|
|
|
|
Short-term
(91-365 days)
|
|
750
|
|
|
2,884
|
|
|
1,538
|
|
Long-term
senior
|
|
64,877
|
|
|
42,422
|
|
|
41,572
|
|
Non-recourse,
leveraged lease
|
|
247
|
|
|
166
|
|
|
206
|
|
Repayments
and other debt reductions:
|
|
|
|
|
|
|
|
|
|
Short-term
(91-365 days)
|
|
(30,954
|
)
|
|
(28,426
|
)
|
|
(33,912
|
)
|
Long-term
senior
|
|
(558
|
)
|
|
(265
|
)
|
|
-
|
|
Non-recourse,
leveraged lease
|
|
(337
|
)
|
|
(438
|
)
|
|
(358
|
)
|
Dividends
paid to shareowner
|
|
(7,905
|
)
|
|
(8,614
|
)
|
|
(3,148
|
)
|
Redemption
of preferred stock
|
|
(70
|
)
|
|
(2,530
|
)
|
|
-
|
|
Capital
contributions from GECS
|
|
1,946
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Cash
from financing activities
|
|
31,169
|
|
|
10,014
|
|
|
14,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents during year
|
|
(1,908
|
)
|
|
2,797
|
|
|
(3,413
|
)
|
Cash
and equivalents at beginning of year
|
|
3,077
|
|
|
280
|
|
|
3,693
|
|
Cash
and equivalents at end of year
|
$
|
1,169
|
|
$
|
3,077
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
The
notes to condensed financial statements are an integral part of this
statement.
|
|
General
Electric Capital Corporation and consolidated affiliates
Schedule
I - Condensed Financial Information of Registrant -
(Concluded)
General
Electric Capital Corporation
Notes
to Condensed Financial Statements
Financial
statements presentation
We
have
reclassified certain prior-year amounts to conform to the current year’s
presentation.
Borrowings
Total
long-term borrowings at December 31, 2006 and 2005, are shown
below.
(Dollars
in millions)
|
2006
Average
rate(a)
|
|
Maturities
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
Senior
notes
|
5.20
|
%
|
2008-2055
|
|
$
|
172,428
|
|
$
|
136,785
|
Extendible
notes(b)
|
5.32
|
%
|
2009-2011
|
|
|
6,000
|
|
|
13,984
|
Subordinated
notes(c)
|
5.48
|
%
|
2012-2066
|
|
|
4,930
|
|
|
2,678
|
|
|
|
|
|
$
|
183,358
|
|
$
|
153,447
|
|
|
(a)
|
Based
on year-end balances and year-end local currency interest rates,
including
the effects of related interest rate and currency swaps, if any,
directly
associated with the original debt issuance.
|
(b)
|
Fixed
and floating rate notes of $975 million contain put options with
exercise
dates in 2007, and which have final maturity dates in 2008 ($350
million),
2009 ($100 million) and beyond 2012 ($525 million). Floating rate
extendible notes of $6,000 million are due in 2008, of which $2,000
million are extendible at the option of the investors to a final
maturity
in 2009, and $4,000 million are extendible to a final maturity in
2011.
|
(c)
|
Included
$450 million of subordinated notes guaranteed by GE at December 31,
2006
and 2005.
|
At
December 31, 2006, maturities of long-term borrowings during the next five
years, including the current portion of long-term debt, are $35,142 million
in
2007, $40,911 million in 2008, $35,275 million in 2009, $25,691 million in
2010
and $11,958 million in 2011.
Interest
rate and currency risk is managed through the direct issuance of debt or use
of
derivatives. We take positions in view of anticipated behavior of assets,
including prepayment behavior. We use a variety of instruments, including
interest rate and currency swaps and currency forwards, to achieve our interest
rate objectives.
Interest
expense on the Condensed Statement of Current and Retained Earnings is net
of
interest income on loans and advances to majority owned affiliates of $5,216
million, $3,622 million and $3,242 million for 2006, 2005 and 2004,
respectively.
Income
taxes
General
Electric Company files a consolidated U.S. federal income tax return which
includes General Electric Capital Corporation. Income tax benefit includes
our
effect on the consolidated return.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
|
General
Electric Capital Corporation
|
|
|
|
February
27, 2007
|
|
By: /s/
Jeffrey R. Immelt
|
|
|
|
Jeffrey
R. Immelt
|
|
|
Chief
Executive Officer
|
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/
Jeffrey R. Immelt
|
|
Chief
Executive Officer
|
|
February
27, 2007
|
Jeffrey
R. Immelt
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Keith
S. Sherin
|
|
Chief
Financial Officer
|
|
February
27, 2007
|
Keith
S. Sherin
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
|
|
/s/
Philip D. Ameen
|
|
Senior
Vice President and Controller
|
|
February
27, 2007
|
Philip
D. Ameen
|
|
(Principal
Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
CHARLES
E. ALEXANDER*
|
|
Director
|
|
|
JEFFREY
S. BORNSTEIN*
|
|
Director
|
|
|
KATHRYN
A. CASSIDY*
|
|
Director
|
|
|
JAMES
A. COLICA*
|
|
Director
|
|
|
PAMELA
DALEY*
|
|
Director
|
|
|
BRACKETT
B. DENNISTON*
|
|
Director
|
|
|
JEFFREY
R. IMMELT*
|
|
Director
|
|
|
MICHAEL
A. NEAL*
|
|
Director
|
|
|
DAVID
R. NISSEN*
|
|
Director
|
|
|
RONALD
R. PRESSMAN*
|
|
Director
|
|
|
DEBORAH
M. REIF*
|
|
Director
|
|
|
JOHN
G. RICE*
|
|
Director
|
|
|
JOHN
M. SAMUELS*
|
|
Director
|
|
|
KEITH
S. SHERIN*
|
|
Director
|
|
|
LLOYD
G. TROTTER*
|
|
Director
|
|
|
ROBERT
C. WRIGHT*
|
|
Director
|
|
|
|
|
|
|
|
A
MAJORITY OF THE BOARD OF DIRECTORS
|
|
|
|
|
|
|
|
*By:
|
/s/
Philip D. Ameen
|
|
|
February
27, 2007
|
|
Philip
D. Ameen
Attorney-in-fact
|
|
|
|