UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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þ Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the fiscal year ended December 31, 2008
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or
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¨ Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the transition period from ___________to ___________
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Commission
file number 1-6461
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General
Electric Capital Corporation
(Exact
name of registrant as specified in
charter)
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Delaware
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13-1500700
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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3135
Easton Turnpike, Fairfield, CT
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06828-0001
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203/373-2211
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(Address
of principal executive offices)
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(Zip
Code)
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(Registrant’s
Telephone No., including area code)
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Securities
Registered Pursuant to Section 12(b) of the
Act:
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Title
of each class
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Name
of each exchange
on
which registered
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6.625%
Public Income Notes Due June 28, 2032
6.10%
Public Income Notes Due November 15, 2032
5.875%
Notes Due February 18, 2033
Step-Up
Public Income Notes Due January 28, 2035
6.45%
Notes Due June 15, 2046
6.00%
Public Income Notes Due April 24, 2047
6.50%
GE Capital InterNotes due August 15, 2048
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New
York Stock Exchange
New
York Stock Exchange
New
York Stock Exchange
New
York Stock Exchange
New
York Stock Exchange
New
York Stock Exchange
New
York Stock Exchange
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Securities
Registered Pursuant to Section 12(g) of the Act:
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(Title of each class)
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NONE
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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, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer” ,“accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer þ
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Smaller
reporting company ¨
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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 17, 2009, 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, 2008, 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
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Page
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PART
I
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Business
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3
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Risk
Factors
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7
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Unresolved
Staff Comments
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10
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Properties
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10
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Legal
Proceedings
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10
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Submission
of Matters to a Vote of Security Holders
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11
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PART
II
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and
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Issuer Purchases of Equity
Securities
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12
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Selected
Financial Data
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12
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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12
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Quantitative
and Qualitative Disclosures About Market Risk
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43
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Financial
Statements and Supplementary Data
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43
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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89
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Controls
and Procedures
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89
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Other
Information
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89
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PART
III
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Directors,
Executive Officers and Corporate Governance
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90
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Executive
Compensation
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90
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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90
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Certain
Relationships and Related Transactions, and Director
Independence
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90
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Principal
Accounting Fees and Services
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90
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PART
IV
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Exhibits,
Financial Statement Schedules
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91
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Signatures
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98
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PART
I
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 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 five segments described below. These operations are subject to a
variety of regulations in their respective jurisdictions. Our services are
offered primarily in North America, Europe and Asia.
Our
principal executive offices are located at 3135 Easton Turnpike, Fairfield, CT,
06828-0001. At December 31, 2008, our employment totaled approximately
73,000.
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. Information regarding the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. References to our
website addressed in this report are provided as a convenience and do not
constitute, or should be viewed as, an incorporation by reference of the
information contained on, or available through, the website. Therefore, such
information should not be considered part of this report.
Operating
Segments
A summary
description of each of our operating segments follows.
Within
our operating segments, we operate the businesses described below along product
lines. Additionally, in 2008, we increased our focus on core operations, ability
to self-fund and restructuring low return businesses.
We also
continue our longstanding practice of providing supplemental information for
certain businesses within the segments.
Commercial
Lending and Leasing (CLL)
CLL
(38.8%, 39.4% and 43.6% of total GECC revenues in 2008, 2007 and 2006,
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; vehicles; corporate aircraft; and
equipment used in many industries, including the construction, manufacturing,
transportation, telecommunications and healthcare industries. During 2008, we
made a number of acquisitions, the most significant of which were Merrill Lynch
Capital and CitiCapital. In January 2009, we acquired Interbanca S.p.A., a
leading Italian corporate bank.
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,
Europe, Asia and Latin America.
For
further information about revenues, segment profit and total assets for CLL, see
the Segment Operations section of Part II, Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and note 18 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Capital
Solutions
Capital
Solutions offers a broad range of financial services worldwide, and has
particular mid-market expertise, offering loans, leases, inventory finance,
transport solutions 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.
GE
Money
GE Money
(36.8%, 37.0% and 33.9% of total GECC revenues in 2008, 2007 and 2006,
respectively), through consolidated entities and associated companies, 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, on a global basis,
private-label credit cards; personal loans; bank cards; auto loans and leases;
mortgages; debt consolidation; home equity loans; deposit and other savings
products; and small and medium enterprise lending. In 2008, we acquired a
controlling interest in Bank BPH.
In
December 2007, we sold our U.S. mortgage business (WMC). In September 2007, we
committed to a plan to sell our Japanese personal loan business (Lake). During
the second quarter of 2008, this planned sale was expanded to GE Money Japan,
which comprises Lake and our Japanese mortgage and card businesses, excluding
our minority ownership in GE Nissen Credit Co., Ltd. This sale was completed in
the third quarter of 2008.
In June
2008, we committed to sell the GE Money businesses in Germany, Austria and
Finland, the credit card and auto businesses in the U.K., and the credit card
business in Ireland. In October 2008, we completed the sale of the GE Money
business in Germany. In January 2009, we completed the sale of the remaining
businesses, which are included in assets and liabilities of businesses held for
sale on the Statement of Financial Position at December 31, 2008.
In
December 2008, we committed to sell a portion of our Australian residential
mortgage business. This sale is expected to be executed during the first quarter
of 2009.
Our
operations are subject to a variety of bank and consumer protection regulations.
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 London, England 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 Part II, Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
note 18 to the consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K Report.
Real
Estate
Real
Estate (9.8%, 10.4% and 8.6% of total GECC revenues in 2008, 2007 and 2006,
respectively) 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, hotels, parking facilities and
industrial properties. Our typical real estate loans are intermediate term,
senior, fixed or floating-rate, and are secured by existing income-producing
commercial properties. 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.
We
operate in a highly competitive environment. Our competitors include banks,
financial institutions, real estate companies, real estate investment funds and
other financial companies. Competition in our equity investment business is
primarily based on price, and competition in our lending business is primarily
based on 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.
Our
headquarters are in Norwalk, Connecticut with offices throughout North America,
Mexico, Europe, Australia and Asia.
For
further information about revenues, segment profit and total assets for Real
Estate, see the Segment Operations section of Part II, Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
note 18 to the consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K Report.
Energy
Financial Services
Energy
Financial Services (5.4%, 3.6% and 2.9% of total GECC revenues in 2008, 2007 and
2006, respectively) 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.
Energy Financial Services also owns a controlling interest in Regency Energy
Partners LP, a midstream master limited partnership engaged in the gathering,
processing, transporting and marketing of natural gas and gas
liquids.
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.
Our
headquarters are in Stamford, Connecticut with offices throughout North America,
Europe, Asia and the Middle East.
For
further information about revenues, segment profit and total assets for Energy
Financial Services, see the Segment Operations section of Part II, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and note 18 to the consolidated financial statements in Part II,
Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
GE
Commercial Aviation Services (GECAS)
GECAS
(7.2%, 7.2% and 7.6% of total GECC revenues in 2008, 2007 and 2006,
respectively) is a global leader in commercial aircraft leasing and finance,
delivering fleet and financing solutions for commercial aircraft. Our airport
financing unit makes debt and equity investments, primarily in mid-sized
regional airports. We also co-sponsor an infrastructure private equity fund,
which invests in large infrastructure projects including gateway airports. GECAS
also has in its portfolio a wide array of products including leases, debt and
equity investments to the global transportation industry (marine, rail and
intermodal).
We
operate in a highly competitive environment. Our competitors include aircraft
manufacturers, banks, financial institutions, equity investors, and other
finance and leasing companies. Competition is based on lease rate financing
terms, aircraft delivery dates, condition and availability, as well as available
capital demand for financing.
Our
headquarters are in Stamford, Connecticut and Shannon, Ireland with offices
throughout North America, Europe, Middle East, Asia and South
America.
For
further information about revenues, segment profit and total assets for GECAS,
see the Segment Operations section of Part II, Item 7. “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and note 18 to
the consolidated financial statements in Part II, Item 8. “Financial Statements
and Supplementary Data” of this Form 10-K Report.
Discontinued
Operations
Discontinued
operations comprised GE Money Japan; WMC; 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.
For
further information about discontinued operations, see the Segment Operations
section of Part II, Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and note 2 to the consolidated financial
statements in Part II, Item 8. “Financial Statements and Supplementary Data” of
this Form 10-K Report.
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 financial
condition, 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 cause our actual results to be materially different
than those expressed in our forward-looking statements include: the severity and
duration of current economic and financial conditions, including volatility in
interest and exchange rates, commodity and equity prices and the value of
financial assets; the impact of U.S. and foreign government programs to restore
liquidity and stimulate national and global economies; the impact of conditions
in the financial and credit markets on the availability and cost of GE Capital’s
funding and on our ability to
reduce GE
Capital’s asset levels and commercial paper exposure as planned; the impact of
conditions in the housing market and unemployment rates on the level of
commercial and consumer credit defaults; our ability to maintain our current
credit rating and the impact on our funding costs and competitive position if we
do not do so; the soundness of other financial institutions with which GE
Capital does business; the adequacy of our cash flow and earnings and other
conditions which may affect GE’s ability to maintain GE’s quarterly dividend at
the current level; the level of demand and financial performance of the major
industries GE serves, including, without limitation, air and rail
transportation, energy generation, network television, real estate and
healthcare; the impact of regulation and regulatory, investigative and legal
proceedings and legal compliance risks; strategic actions, including
acquisitions and dispositions and our success in integrating acquired
businesses; and numerous other matters of national, regional and global scale,
including those of a political, economic, business and competitive nature. These
uncertainties are described in more detail in Part I, Item 1A. “Risk Factors” of
this Form 10-K Report. We do not undertake to update our forward-looking
statements.
The
following discussion of risk factors contains “forward-looking statements,” as
discussed in Item 1. “Business”. 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 Part II, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” (MD&A), and the consolidated financial statements and related
notes in Part II, Item 8. “Financial Statements and Supplementary Data” of this
Form 10-K 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 in Item 1. “Business” of this Form 10-K Report. Below, we describe
certain important operational and strategic risks. Our reactions to material
future developments as well as our competitors’ reactions to those developments
will affect our future results.
The
unprecedented conditions in the financial and credit markets may affect the
availability and cost of GE Capital’s funding.
The
financial and credit markets have been experiencing unprecedented levels of
volatility and disruption, putting downward pressure on financial and other
asset prices generally and on the credit availability for certain issuers. The
U.S. Government and the Federal Reserve Bank recently created a number of
programs to help stabilize credit markets and financial institutions and restore
liquidity. Many non-U.S. governments have also created or announced similar
measures for institutions in their respective countries. These programs have
improved conditions in the credit and financial markets, but there can be no
assurance that these programs, individually or collectively, will continue to
have beneficial effects on the markets overall, or will resolve the credit or
liquidity issues of companies that participate in the programs.
A large
portion of GE Capital’s borrowings have been issued in the commercial paper and
term debt markets. GE Capital has continued to issue commercial paper and, as
planned, has reduced its outstanding commercial paper balance to $67 billion at
the end of 2008. GE Capital has also issued term debt, mainly debt guaranteed by
the Federal Deposit Insurance Corporation under the Temporary Liquidity
Guarantee Program (TLGP) and, to a lesser extent, on a non-guaranteed basis.
Although the commercial paper and term debt markets have remained available to
GE Capital to fund its operations and debt maturities, there can be no assurance
that such markets will continue to be available or, if available, that the cost
of such finding will not substantially increase. If current levels of market
disruption and volatility continue or worsen, or if we cannot further reduce GE
Capital’s asset levels as planned in 2009, we would seek to repay commercial
paper and term debt as it becomes due or to meet our other liquidity needs by
using the Federal Reserve’s Commercial Paper Funding Facility (CPFF) and the
TLGP, applying the net proceeds of GE’s October 2008 equity offering and the
investment by Berkshire Hathaway Inc., drawing upon contractually committed
lending agreements primarily provided by global banks and/or seeking other
sources of funding. There can be no assurance, however, that the TLGP and the
CPFF will be extended beyond their scheduled expiration, or that, under such
extreme market conditions, contractually committed lending agreements and other
funding sources would be available or sufficient.
Our 2009
funding plan anticipates approximately $45 billion of senior, unsecured
long-term debt issuance. In January 2009, we completed issuances of $11.0
billion of funding under the TLGP. We also issued $5.1 billion in non-guaranteed
senior, unsecured debt with a maturity of 30 years under the non-guarantee
option of the TLGP. These issuances, along with the $13.4 billion of pre-funding
done in December 2008, bring our aggregate issuances to $29.5 billion or 66% of
our anticipated 2009 funding plan. Additionally, we anticipate that we will be
90% complete with our 2009 funding plan by June 30, 2009.
Difficult
conditions in the financial services markets have materially and adversely
affected the business and results of operations of GE Capital and we do not
expect these conditions to improve in the near future.
Dramatic
declines in the housing market, with falling home prices and increasing
foreclosures and unemployment, have resulted in significant write-downs of asset
values by financial institutions, including government-sponsored entities and
major commercial and investment banks. These write-downs, initially of
mortgage-backed securities but spreading to credit default swaps and other
derivative securities, have caused many financial institutions to seek
additional capital, to merge with other institutions and, in some cases, to
fail. Many lenders and institutional investors have reduced and, in some cases,
ceased to provide funding to borrowers including other financial institutions.
This market turmoil and tightening of credit have led to an increased level of
commercial and consumer delinquencies, lack of consumer confidence, increased
market volatility and widespread reduction of business activity generally. If
these conditions continue or worsen, there can be no assurance that we will be
able to recover fully the value of certain assets such as goodwill and
intangibles. In addition, although we have established
allowances for losses in our portfolio of financing receivables that we believe
are adequate, significant and unexpected further deterioration in the economy
and in default and recovery rates could require us to increase these allowances
and write-offs, which, depending on the amount of the increase, could have a
material adverse effect on our business, financial position and
results of operations.
The
soundness of other financial institutions could adversely affect GE
Capital.
GE
Capital has exposure to many different industries and counterparties, and
routinely executes transactions with counterparties in the financial services
industry, including brokers and dealers, commercial banks, investment banks and
other institutional clients. Many of these transactions expose GE Capital to
credit risk in the event of default of its counterparty or client. In addition,
GE Capital’s credit risk may be increased when the collateral held by it cannot
be realized upon sale or is liquidated at prices not sufficient to recover the
full amount of the loan or derivative exposure due to it. GE Capital also has
exposure to these financial institutions in the form of unsecured debt
instruments held in its investment portfolios. GE Capital has policies relating
to initial credit rating requirements and to exposure limits to counterparties
(as described in note 20 to the consolidated financial statements in Part II,
Item 8. “Financial Statements and Supplementary Data” of this Form 10-K Report),
which mitigate credit and liquidity risk. There can be no assurance, however,
that any losses or impairments to the carrying value of financial assets would
not materially and adversely affect GE Capital’s business, financial position
and results of operations.
The
real estate markets in which GE Capital participates are highly
uncertain.
GE
Capital participates in the commercial real estate market in two ways: it
provides financing for the acquisition, refinancing and renovation of various
types of properties and it also acquires an equity position in various types of
properties. The profitability of real estate investments is largely dependent
upon the specific geographic market in which the properties are located and the
perceived value of that market at the time of sale. Such activity may vary
significantly from one year to the next. Rising unemployment, a slowdown in
general business activity and recent disruptions in the credit markets have
adversely affected, and are expected to continue to adversely affect, the value
of real estate assets GE Capital holds. Under current market and credit
conditions, there can be no assurance as to the level of sales GE Capital will
complete or the net sales proceeds it will realize. Also, there can be no
assurance that occupancy rates and market rentals will continue at their current
levels given the current economic environment during the period in which GE
Capital continues to hold its equity investments in these properties which may
result in an impairment to the carrying value of those investments.
GE
Capital is also a residential mortgage lender in certain geographic markets,
particularly in the United Kingdom, that have been and may continue to be
adversely affected by declines in residential real estate values and home sale
volumes, job losses, consumer bankruptcies and other factors that may negatively
impact the credit performance of our mortgage loans. Our allowance for loan
losses on these mortgage loans is based on our analysis of current and
historical delinquency and loan performance, as well as other management
assumptions that may be inaccurate predictions of credit performance in this
environment. There can be no assurance that, in this environment, credit
performance will not be materially worse than anticipated and, as a result,
materially and adversely affect GE Capital’s business, financial position and
results of operations.
Failure
to maintain our “Triple-A” credit ratings could adversely affect our cost of
funds and related margins, liquidity, competitive position and access to capital
markets.
The major
debt rating agencies routinely evaluate our debt. This evaluation is based on a
number of factors, which include financial strength as well as transparency with
rating agencies and timeliness of financial reporting. In December 2008,
Standard & Poor’s Ratings Services affirmed GE and GE Capital’s “AAA”
long-term and “A-1+” short-term corporate credit ratings but revised its ratings
outlook from stable to negative based partly on the concerns regarding GE
Capital’s future performance and funding in light of capital market turmoil. On
January 24, 2009, Moody’s Investment Services placed the long-term ratings of GE
and GE Capital on review for possible downgrade. The firm’s “Prime-1” short-term
ratings were affirmed. Moody’s said the review for downgrade is based primarily
upon heightened uncertainty regarding GE Capital’s asset quality and earnings
performance in future periods. In light of the difficulties in the financial
services industry and the difficult financial markets, there can be no assurance
that GE will
successfully
implement its 2009 operational and funding plan for GE Capital or, in the event
of further deterioration in the financial markets, that completion of its plan
and any other steps GE might take in response will be sufficient to allow us to
maintain our “Triple-A” ratings. Failure to do so could adversely affect our
cost of funds and related margins, liquidity, competitive position and access to
capital markets. Various debt instruments, guarantees and covenants would
require posting additional capital or collateral in the event of a ratings
downgrade, but none are triggered if our ratings are reduced to AA-/Aa3 or
A-1+/P-1 or higher.
Current
conditions in the global economy and the major industries we serve also may
materially and adversely affect the business and results of operations of GE’s
non-financial businesses.
The
business and operating results of GE’s technology infrastructure, energy
infrastructure, consumer and industrial and media businesses have been and will
continue to be affected by worldwide economic conditions and, in particular,
conditions in the air and rail transportation, energy generation, healthcare,
network television and other major industries we serve. As a result of slowing
global economic growth, the credit market crisis, declining consumer and
business confidence, increased unemployment, reduced levels of capital
expenditures, fluctuating commodity prices, bankruptcies and other challenges
currently affecting the global economy, GE’s customers may experience
deterioration of their businesses, cash flow shortages, and difficulty obtaining
financing. As a result, existing or potential customers may delay or cancel
plans to purchase GE’s products and services, including large infrastructure
projects, and may not be able to fulfill their obligations to GE in a timely
fashion. Contract cancellations could affect GE’s ability to fully recover GE’s
contract costs and estimated earnings. Further, GE’s vendors may be experiencing
similar conditions, which may impact their ability to fulfill their obligations
to GE. Although the new Administration in the United States is expected to enact
various economic stimulus programs, there can be no assurance as to the timing
and effectiveness of these programs. If the global economic slowdown continues
for a significant period or there is significant further deterioration in the
global economy, GE’s results of operations, financial position and cash flows
could be materially adversely affected.
Our
global growth is subject to economic and political risks.
We
conduct our operations in virtually every part of the world. In 2008,
approximately 55% of our revenues were attributable to activities outside the
United States. Our operations are subject to the effects of global competition.
They are also 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, and our
ability to engage in such mitigation has decreased or become even more costly as
a result of recent market developments.
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 (as was the
case with GE’s Consumer & Industrial business in 2008), which could delay
the accomplishment of our strategic objectives. Alternatively, we may dispose of
a business at a price or on terms that are less than we had anticipated. These
difficulties have been exacerbated in the current financial and credit
environment because some potential sellers may hold onto assets pending a
rebound in prices and buyers may have difficulty obtaining the necessary
financing. In addition, there is a risk that we may sell a business whose
subsequent performance exceeds our expectations, in which case our decision
would have potentially sacrificed enterprise value.
We
are subject to a wide variety of laws and regulations.
Our
businesses are subject to regulation under a wide variety of U.S. federal, state
and foreign laws, regulations and policies. There can be no assurance that, in
response to current economic conditions, laws and regulations will not be
changed in ways that will require us to modify our business models and
objectives or affect our returns on investment by making existing practices more
restricted, subject to escalating costs or prohibited outright. In particular,
we expect U.S. and foreign governments to undertake a substantial review and
revision of the regulation and supervision of bank and non-bank financial
institutions and tax laws and regulation, which may have a significant effect on
GE Capital’s structure, operations and performance. We are also subject to
regulatory risks from laws that reduce the allowable lending rate or limit
consumer borrowing, local liquidity regulations that may increase the risk of
not being able to retrieve assets, and changes to tax law that may affect our
return on investments. For example, GE’s effective tax rate is reduced because
active business income earned and indefinitely reinvested outside the United
States is taxed at less than the U.S. rate. A significant portion of this
reduction depends upon a provision of U.S. tax law that defers the imposition of
U.S. tax on certain active financial services income until that income is
repatriated to the United States as a dividend. This provision is consistent
with international tax norms and permits U.S. financial services companies to
compete more effectively with foreign banks and other foreign financial
institutions in global
markets.
This provision, currently scheduled to expire at the end of 2009, has been
scheduled to expire and has been extended by Congress on five previous
occasions, including in October of 2008, but there can be no assurance that it
will continue to be extended. In the event this provision is not extended after
2009, the current U.S. tax imposed on active financial services income earned
outside the United States would increase, making it more difficult for U.S.
financial services companies to compete in global markets. If this provision is
not extended, we expect our effective tax rate to increase significantly after
2010.
We
are subject to legal proceedings and legal compliance risks.
We are
subject to a variety of legal proceedings and legal compliance risks. We and our
subsidiaries, our businesses and the industries in which we operate are 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. These include investigations by the Department of Justice Antitrust
Division and the U.S. Securities and Exchange Commission (SEC) of the marketing
and sales of guaranteed investment contracts, and other financial instruments,
to municipalities by certain subsidiaries of GE Capital and an investigation by
the SEC of possible violations of the securities laws with respect to certain
accounting issues, as described in Item 3. “Legal Proceedings” of this Form 10-K
Report. Additionally, GE and its subsidiaries are involved in a sizable number
of remediation actions to clean up hazardous wastes as required by federal and
state laws. These include the dredging of polychlorinated biphenyls from a
40-mile stretch of the upper Hudson River in New York State. We are also subject
to certain other legal proceedings described in Item 3. “Legal Proceedings” of
this Form 10-K Report. While we believe that we have adopted appropriate risk
management and compliance programs, the global and diverse nature of our
operations means that legal compliance risks will continue to exist and
additional legal proceedings and other contingencies, the outcome of which
cannot be predicted with certainty, will arise from time to time.
Significant
changes in actual investment return on pension assets, discount rates, and other
factors could affect our results of operations, equity, and pension
contributions in future periods.
Our
results of operations may be positively or negatively affected by the amount of
income or expense GE records for its defined benefit pension plans. U.S.
generally accepted accounting principles (GAAP) require that we calculate income
or expense for the plans using actuarial valuations. These valuations reflect
assumptions about financial market and other economic conditions, which may
change based on changes in key economic indicators. The most significant
year-end assumptions we used to estimate pension income or expense for 2009 are
the discount rate and the expected long-term rate of return on plan assets. In
addition, we are required to make an annual measurement of plan assets and
liabilities, which may result in a significant change to equity through a
reduction or increase to Accumulated gains (losses) – net, Benefit plans. At the
end of 2008, the projected benefit obligation of GE’s U.S. principal pension
plans was $45.1 billion and assets were $40.7 billion. Although GAAP expense and
pension funding contributions are not directly related, key economic factors
that affect GAAP expense would also likely affect the amount of cash GE would
contribute to pension plans as required under the Employee Retirement Income
Security Act (ERISA).
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” of this
Form 10-K Report.
We and GE
continue to cooperate with the ongoing SEC investigation and to discuss the
investigation and issues arising in that investigation and our internal review
of certain accounting matters with the SEC staff with a goal of completing our
review and resolving these matters. As part of this process, GE has had
discussions with the SEC staff concerning resolution of these matters. In
September 2008, the SEC staff issued a “Wells notice” advising GE that it is
considering recommending to the SEC that it bring a civil injunctive action
against GE for possible violations
of the
securities laws. GE has been informed that the issues the staff may recommend
that the SEC pursue relate to the application of SFAS 133 in 2002 and 2003 with
respect to accounting for derivatives formerly used to hedge the risk of
interest rate changes related to commercial paper and for certain derivatives in
which a fee was a part of the consideration for the derivative; a change in 2002
in GE’s accounting for profits on certain aftermarket spare parts primarily in
its Aviation business; certain 2003 and earlier transactions involving financial
intermediaries in its Rail business; and historical accounting for revenue
recognition on product sales subject to in-transit risk of damage, principally
in its Healthcare, Infrastructure and Industrial segments. We and GE have
already disclosed these items in previously filed SEC reports, including their
effects on particular periods and corrected our financial statements with
respect to each of them. The cumulative effect of these items on GE’s financial
statements was a reduction in net earnings by approximately $300 million in the
period from 2001 through December 31, 2007. We and GE have implemented a number
of remedial actions and internal control enhancements, also as described in our
SEC reports. All of these items were reviewed or discussed with KPMG, which
audited our financial statements throughout the periods in
question.
GE
disagrees with the SEC staff regarding this recommendation and have been in
discussions with the staff, including discussion of potential resolution of the
matter. We intend to continue these discussions and understand that we will have
the opportunity to address any disagreements with the SEC staff with respect to
its recommendation through the Wells process with the full Commission. If the
Commission were to authorize an action against GE, it could seek an injunction
against future violations of provisions of the federal securities laws,
including potentially Sections 13(a), 13(b), and 10(b) of the Exchange Act and
Section 17(a) of the Securities Act, the imposition of penalties, and other
relief within the Commission’s authority. If GE were to resolve the matter
through a settlement, it would neither admit nor deny the proposed allegations
but could agree to the resolution and entry of an injunction. There can be no
assurance that GE and the SEC would reach agreement on a proposed settlement as
a result of its discussions.
As
previously reported, the Antitrust Division of the Department of Justice (DOJ)
and the SEC are conducting an industry-wide investigation of marketing and sales
of guaranteed investment contracts, and other financial instruments, to
municipalities. In connection with this investigation, two of our subsidiaries
have received subpoenas and requests for information in connection with the
investigation: GE Funding CMS (Trinity Funding Co.) and GE Funding Capital
Market Services, Inc. (GE FCMS). We have cooperated and continue to cooperate
fully with the SEC and DOJ in this matter. In July 2008, GE FCMS received a
“Wells notice” advising that the SEC staff is considering recommending that the
SEC bring a civil injunctive action or institute an administrative proceeding in
connection with the bidding for various financial instruments associated with
municipal securities by certain former employees of GE FCMS. GE FCMS is one of
several industry participants that received Wells notices during 2008. GE FCMS
disagrees with the SEC staff regarding this recommendation and has been in
discussions with the staff, including discussion of potential resolution of the
matter. GE FCMS intends to continue these discussions and understands that it
will have the opportunity to address any disagreements with the SEC staff with
respect to its recommendation through the Wells process with the full
Commission. In March 2008, GE FCMS and Trinity Funding Co., LLC (Trinity
Funding) were served with a federal class action complaint asserting antitrust
violations. This action has been combined with other related actions in a
multidistrict litigation proceeding in the United States District Court for the
Southern District of New York. In addition, GE FCMS and Trinity Funding also
received subpoenas from the Attorneys General of the State of Connecticut and
Florida on behalf of a working group of State Attorneys General in June 2008. GE
FCMS and Trinity Funding are cooperating with those investigations.
In June
2008, the Environmental Protection Agency (EPA) issued a notice of violation
alleging non-compliance with the Clean Air Act at a power cogeneration plant in
Homer City, PA. The plant is operated exclusively by EME Homer City Generation
L.P., and is owned and leased to EME Homer City Generation L.P. by our
subsidiaries. The notice of violation does not indicate a specific penalty
amount but makes reference to statutory fines. We believe that we have
meritorious defenses and that EME Homer City Generation L.P. is obligated to
indemnify our subsidiaries and pay all costs associated with this
matter.
Item
4. Submission of Matters to a Vote of Security Holders.
Not
required by this form.
PART
II
See note
16 to the consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K Report. 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)
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
67,994
|
|
$
|
66,999
|
|
$
|
57,482
|
|
$
|
51,061
|
|
$
|
47,497
|
|
Earnings
from continuing operations
|
|
8,014
|
|
|
11,946
|
|
|
10,095
|
|
|
8,428
|
|
|
7,568
|
|
Earnings
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations, net of
taxes
|
|
(704
|
)
|
|
(2,131
|
)
|
|
291
|
|
|
1,498
|
|
|
1,022
|
|
Net
earnings
|
|
7,310
|
|
|
9,815
|
|
|
10,386
|
|
|
9,926
|
|
|
8,590
|
|
Shareowner’s
equity
|
|
58,229
|
|
|
61,230
|
|
|
56,585
|
|
|
50,190
|
|
|
54,038
|
|
Short-term
borrowings
|
|
188,601
|
|
|
186,769
|
|
|
168,893
|
|
|
149,669
|
|
|
147,279
|
|
Long-term
borrowings
|
|
321,755
|
|
|
309,231
|
|
|
256,804
|
|
|
206,188
|
|
|
201,370
|
|
Return
on average shareowner’s equity(a)
|
|
13.1
|
%
|
|
20.3
|
%
|
|
19.2
|
%
|
|
17.2
|
%
|
|
16.7
|
%
|
Ratio
of earnings to fixed charges
|
|
1.24
|
|
|
1.56
|
|
|
1.63
|
|
|
1.66
|
|
|
1.82
|
|
Ratio
of debt to equity
|
|
8.76:1
|
(b)
|
|
8.10:1
|
|
|
7.52:1
|
|
|
7.09:1
|
|
|
6.45:1
|
|
Financing
receivables – net
|
$
|
370,592
|
|
$
|
378,467
|
|
$
|
322,244
|
|
$
|
277,108
|
|
$
|
270,648
|
|
Total
assets
|
|
637,410
|
|
|
620,732
|
|
|
544,255
|
|
|
475,259
|
|
|
566,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2008, is described in the Supplemental Information
section in Part II, Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations" of this Form 10-K
Report.
|
|
(b)
|
7.07:1
net of cash and equivalents and with classification of hybrid debt as
equity.
|
|
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
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 2006 through 2008, Global Risk Management, Segment Operations and
Geographic Operations. 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.
Overview
of Our Earnings from 2006 through 2008
During
2008, we encountered unprecedented conditions in the world economy and financial
markets that affected all of our businesses. Our earnings fell 21% on a 18%
increase in revenues over this three-year period.
The
information that follows will show how our global diversification and risk
management strategies have helped us to grow revenues and to outperform our
peers. We also believe that the disposition of our less strategic businesses,
our restructuring actions and our investment in businesses with strong growth
potential have positioned us well for the future.
Commercial
Lending and Leasing (CLL) (40% and 28% of total three-year revenues and segment
profit, respectively) offers a broad range of financial services worldwide with
particular mid-market expertise. Earnings declined by $1.7 billion in 2008,
reflecting the continued weakening economic and credit environment, and
increased by $0.2 billion in 2007. CLL continues to originate at higher margins
and apply its disciplined risk management practices while integrating
acquisitions to the portfolio and reducing costs through technology and
productivity in order to grow in 2010 and beyond by reinvesting in higher
returning core businesses. The most significant acquisitions affecting CLL
results in 2008 were Merrill Lynch Capital; CitiCapital; Sanyo Electric Credit
Co., Ltd.; and Diskont und Kredit AG and Disko Leasing GmbH (DISKO) and ASL Auto
Service-Leasing GmbH (ASL), the leasing businesses of KG Allgemeine Leasing GmbH
& Co. The acquisitions collectively contributed $1.8 billion and $0.4
billion to 2008 revenues and net earnings, respectively.
GE Money
(36% and 37% of total three-year revenues and total segment profit,
respectively) earnings declined by $0.6 billion in 2008 as opposed to an
increase of $1.0 billion in 2007, reflecting the current U.S. and global
economic environments, rising delinquencies, tightening credit conditions and
limited liquidity. In response, GE Money continued to reassess strategic
alternatives, tighten underwriting and adjust reserve levels in response to when
it is probable that losses have been incurred in the respective portfolios.
During 2008, GE Money executed on its previously announced plan to sell GE Money
Japan, which comprises Lake and our Japanese mortgage and card businesses,
excluding our minority ownership in GE Nissen Credit Co., Ltd., and sold its
Germany business. In 2007, as a result of pressures in the U.S. subprime
mortgage industry, GE Money sold its U.S. mortgage business (WMC).
Real
Estate (10% and 17% of total three-year revenues and total segment profit,
respectively) has over $84.9 billion in assets. Real Estate’s earnings declined
by $1.1 billion in 2008 and grew by $0.4 billion in 2007.
Energy
Financial Services (4% and 7% of total three-year revenues and total segment
profit, respectively) has over $20 billion in energy and water investments,
often financed for 20 to 30 year terms, with over 12% of the assets held outside
of the U.S. In addition, in 2007, Energy Financial Services acquired a
controlling interest in Regency Energy Partners LP, a midstream master limited
partnership engaged in the gathering, processing, contract compression,
marketing and transporting of natural gas and natural gas liquids.
GE
Commercial Aviation Services (GECAS) (7% and 12% of total three-year revenues
and total segment profit, respectively) is a leader in commercial aircraft
leasing and finance. In a competitive and challenging environment, this
business’ earnings remained flat since 2006. At December 31, 2008, we owned
1,494 commercial aircraft, of which all but one was on lease, and we held $17.2
billion (list price) of multiple-year orders for various Boeing, Airbus and
other aircraft, including 53 aircraft ($4.6 billion list price) scheduled for
delivery in 2009, all under agreement to commence operations with commercial
airline customers.
Overall,
acquisitions contributed $4.4 billion, $3.6 billion and $2.0 billion to total
revenues in 2008, 2007 and 2006, respectively. Our earnings included
approximately $0.5 billion, $0.2 billion and $0.3 billion in 2008, 2007 and
2006, 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 higher
revenues of $0.2 billion in 2008 and lower revenues of $2.8 billion and $0.5
billion in 2007 and 2006, respectively. This resulted in higher earnings of $0.2
billion in 2008 and lower earnings of $0.1 billion in both 2007 and
2006.
Significant
matters relating to our Statement of Earnings are explained below.
Discontinued
Operations
In
September 2007, we committed to a plan to sell our Japanese personal loan
business (Lake) upon determining that, despite restructuring, Japanese
regulatory limits for interest charges on unsecured personal loans did not
permit us to earn an acceptable return. During 2008, we completed the sale of GE
Money Japan, which included Lake, along with our Japanese mortgage and card
businesses, excluding our minority ownership in GE Nissen Credit Co., Ltd. In
December 2007, we completed the exit of WMC as a result of continued pressures
in the U.S. subprime mortgage industry. Both of these businesses were previously
reported in the GE Money segment.
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), and the sale, through a secondary public
offering, 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 insurance
operations.
We
reported the businesses described above as discontinued operations for all
periods presented. For further information about discontinued operations, see
note 2 to the consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K Report.
Interest on borrowings
amounted to $24.9 billion, $22.3 billion and $17.5 billion in 2008, 2007 and
2006, respectively. Average borrowings increased over the three-year period.
Interest rates increased from 2006 to 2007 attributable to rising credit
spreads. Interest rates have decreased from 2007 to 2008 in line with general
market conditions. Our average borrowings were $514.6 billion, $448.2 billion
and $381.5 billion in 2008, 2007 and 2006, respectively. Our average composite
effective interest rate was 4.8% in 2008, 5.0% in 2007 and 4.6% in 2006. In
2008, our average assets of $648.9 billion were 12% higher than in 2007, which
in turn were 19% higher than in 2006. We anticipate that our composite rates
will continue to decline through 2009 as a result of decreased benchmark rates
globally. However, these decreases in benchmark rates will be partially offset
by higher credit spreads and fees associated with government guarantees and
higher cash balances resulting from pre-funding of debt maturities and the need
to maintain greater liquidity in the current environment. See the Liquidity and
Borrowings section for a discussion of liquidity, borrowings and interest rate
risk management.
Income taxes. Income tax was a
significant benefit in 2008 and a significant cost in prior years. As a global
commercial enterprise, our tax rates are affected by many factors, including our
global mix of earnings, the extent to which those global earnings are
indefinitely reinvested outside the United States, legislation, acquisitions,
dispositions and tax characteristics of our income. Our tax returns are
routinely audited and settlements of issues raised in these audits sometimes
affect our tax provisions.
Our
effective tax rate was negative 39.4% in 2008, compared with 5.8% in 2007 and
10.3% in 2006. GE and GECC file a consolidated U.S. federal income tax return
that enables GE to use GECC tax deductions and credits to reduce the tax that
otherwise would have been payable by GE. The GECC effective tax rate for each
period reflects the benefit of these tax reductions. GE makes cash payments to
GECC for these tax reductions at the time GE’s tax payments are
due.
Our rate
decreased from 2007 to 2008 primarily because of a reduction during 2008 of
income in higher-taxed jurisdictions. This increased the relative effect of tax
benefits from lower-taxed global operations on the tax rate, reducing the rate
27.5 percentage points. In addition, earnings from lower-taxed global operations
increased from 2007 to 2008, causing an additional 19.5 percentage point rate
reduction. The increase in the benefit from lower-taxed global operations
includes 6.1 percentage points from the 2008 decision to indefinitely reinvest,
outside the U.S., prior-year earnings because the use of foreign tax credits no
longer required the repatriation of those prior-year earnings.
Our
income tax rate decreased from 2006 to 2007 as the tax benefit on the
disposition of our investment in SES and growth in lower-taxed global earnings,
which decreased our effective tax rate 4.3 and 2.2 percentage points,
respectively, were partially offset by the absence of the 2006 benefit of the
reorganization, discussed below, of our aircraft leasing business, which
increased the rate 1.2 percentage points.
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 ruling, decreased our effective tax rate 1.2 percentage points in
2006.
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, geographic and
collateral-type levels, where appropriate.
The GE
Board of Directors maintains overall responsibility for risk oversight, with a
focus on the most significant risks facing GE. The Board's Audit Committee
oversees GE’s risk policies and processes relating to the financial statements
and financial reporting process. The Board's Public Responsibilities Committee
oversees risks involved in GE’s public policy initiatives, the environment and
similar matters. The Board’s Management Development and Compensation Committee
oversees risk related to compensation.
The GE
Board’s oversight process builds upon our management’s risk management and
assessment processes, which include long-term strategic planning, executive
development and evaluation, regulatory and litigation compliance reviews,
environmental compliance reviews, GECS Corporate Risk Function and the Corporate
Risk Committee. Each year, management and the GE Board jointly develop a list of
major risks that GE plans to address. Throughout the year, either the GE Board
or one of its committees dedicates a portion of their meetings to review and
discuss these risk topics in greater detail. Strategic and operational risks are
covered in the GE CEO’s report on operations to the GE Board at regularly
scheduled Board meetings. At least twice a year, the GE Audit Committee receives
a risk update from the GECS risk officer, which focuses on GECS risk strategy
and its financial services portfolio, including its processes for managing
credit and market risk within its portfolio. In addition, each year, and in some
years more frequently, the GE Audit Committee receives a comprehensive report
from GE’s Treasurer on GECS capital markets exposure and its liquidity and
funding risks and a comprehensive report from GE’s General Counsel covering
compliance issues. Each year, the Committee also reviews and discusses topics
related to the financial reporting process, including an update on information
technology, controllership, insurance, tax strategies and policies, accounting
and numerous reports on regulation, compliance, litigation and investigations
affecting GE businesses.
The GECS
Board of Directors oversees the risk management process, and approves all
significant acquisitions and dispositions as well as significant borrowings and
investments. All participants in the risk management process must comply with
approval limits established by the GECS Board.
The GECS
Chief Risk Officer is responsible, with 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
the GECS 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 Controllership, 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.
Dedicated
risk professionals across the businesses include underwriters, portfolio
managers, collectors, environmental and engineering specialists, and specialized
asset managers who evaluate leased asset residuals and remarket off-lease
equipment. The senior risk officers have, on average, over 25 years of
experience.
We manage
a variety of risks including liquidity, credit, market and government and
regulatory 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 of this Item and in notes 12 and 20 to the consolidated
financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K
Report.
|
·
|
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
investing, lending and leasing activities and derivative financial
instruments activities (see the Financial Resources and Liquidity and
Critical Accounting Estimates sections of this Item and notes 1, 5, 6, 7,
20 and 22 to the consolidated financial statements in Part II, Item 8.
“Financial Statements and Supplementary Data” of this Form 10-K
Report).
|
·
|
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 of this Item and in notes 5, 6, 8, 19 and 20 to the
consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K
Report.
|
·
|
Government
and regulatory risk is the risk that the government or regulatory
authorities will implement new laws or rules, amend existing laws or
rules, or interpret or enforce them in ways that would cause us to have to
change our business models or practices. We manage these risks through the
GECS Board, our Policy Compliance Review Board and our Corporate Risk
Committee.
|
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.
Our risk
management approach has the following major tenets: a broad spread of risk based
on managed exposure limits; senior, secured commercial financings, and a hold to
maturity model with transactions underwritten to our “on-book”
standards.
Our
financing portfolios comprise approximately 70% commercial and 30% consumer risk
activities, with 53% of the portfolio outside the U.S. Exposure to developing
markets is 11% of the portfolio and is primarily through our Eastern European
banking operations and Mexican commercial financing activities - where we have
operated for over 10 years - and various minority owned joint
ventures.
The
commercial portfolio has a maximum single industry concentration of 6%,
excluding the commercial aircraft financing and the commercial real estate
businesses, which are diversified separately within their respective portfolios.
67% of all commercial exposures are less than $100 million to any one customer,
while 55% are less than $50 million. Our commercial aircraft financing business
owns 1,494 aircraft – 56% are narrow body planes and predominantly newer,
high-demand models, while only 15% are smaller regional jets and older Boeing
737 classic aircraft. The average age of the fleet is 7 years and our customers
include over 230 airlines located in 70 countries. Leased collateral represents
asset types we have over 20 years experience managing.
The
commercial real estate business consists of a real estate investment portfolio,
a real estate lending portfolio, and a single tenant financing portfolio. The
real estate investment and lending portfolios are global and consist of
approximately 8,000 individual properties in 2,600 cities in 31 countries with
an average property investment of under $10 million.
·
|
Our
real estate investment portfolio includes approximately 3,200 properties
located in 900 cities and 22 countries, with 71% of this portfolio outside
the U.S., primarily located in Europe, the U.K., Asia, Canada and Mexico,
across a wide variety of property types including office,
industrial/warehouse, and
multifamily.
|
·
|
Our
real estate lending portfolio is secured by approximately 4,800 properties
in 1,900 cities and 25 countries, with 44% of the assets securing this
portfolio located outside the U.S., across a wide variety of property
types including office, multifamily and
hotel.
|
·
|
The
single tenant financing portfolio has approximately 4,200 properties and
1,360 cities in the U.S. and Canada, and an average loan size under $3
million.
|
The U.S
consumer portfolio includes private-label credit card and sales financing for
over 56 million accounts. The portfolio includes customers across the U.S. and
no metropolitan statistical area accounts for more than 4% of the portfolio. The
average credit line for the private label portfolio is $600. The non-U.S.
portfolio accounts for 80% of all consumer risk activities and includes consumer
mortgages, auto loans, personal loans and credit card financing in 43 countries.
Western Europe, the U.K., Eastern Europe and Australia/New Zealand are the
primary non-U.S. markets. Mortgages represent 43% of the total consumer
portfolio. The average loan-to-value (LTV) at origination of the total global
mortgage portfolio is approximately 74%. Western Europe, Australia and New
Zealand, Ireland and the U.K. account for approximately 80% of the mortgage
book. GE employees underwrite all mortgages and originate to hold all mortgages
on book. We exited the U.S. mortgage business in 2007.
The U.K.
mortgage business tightened underwriting criteria throughout 2008 and reduced
volume by 54% in response to the weakening home price environment in the U.K.
Since mid-2006, first mortgage loans originated in the U.K. that were greater
than 80% LTV are covered by private mortgage insurance for the mortgage balance
in excess of 80%. Insured mortgages account for approximately 73% of the
portfolio above 80% LTV at origination.
The
Australia/New Zealand mortgages are generally prime credit, and 94% of the
portfolio is covered by private mortgage insurance for the full amount of the
mortgage, which is customary in this market.
The
French mortgage portfolio is generally prime credit, and 29% is insured for
mortgage loans greater than 80% LTV (for the mortgage balance in excess of
80%).
Segment
Operations
Operating
segments comprise our five businesses focused on the broad markets they serve:
CLL, GE Money, Real Estate, Energy Financial Services and GECAS. The Chairman
allocates resources to, and assesses the performance of, these five businesses.
We also provide a one-line reconciliation to GECC-only results, the most
significant component of these reconciliations is the exclusion of the results
of businesses which are not subsidiaries of GECC but instead are direct
subsidiaries of GECS. In addition to providing information on GECS segments in
their entirety, we have also provided supplemental information for the Capital
Solutions business within the CLL segment for greater clarity. Our Chairman does
not separately assess the performance of, or allocate resources to, this
business.
GECC
corporate items and eliminations include the effects of eliminating transactions
between operating segments; results of our insurance activities remaining in
continuing operations; underabsorbed corporate overhead; certain non-allocated
amounts determined by the Chairman; 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.
Segment
profit is determined based on internal performance measures used by the Chairman
to assess the performance of each business in a given period. In connection with
that assessment, the Chairman may exclude matters such as charges for
restructuring; rationalization and other similar expenses; 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 includes
interest and other financial charges and income taxes, which we sometimes refer
to as “net earnings”.
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 18 to the consolidated financial statements in Part II, Item
8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Summary
of Operating Segments
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
26,742
|
|
$
|
27,267
|
|
$
|
25,833
|
|
GE
Money
|
|
25,012
|
|
|
24,769
|
|
|
19,508
|
|
Real
Estate
|
|
6,646
|
|
|
7,021
|
|
|
5,020
|
|
Energy
Financial Services
|
|
3,707
|
|
|
2,405
|
|
|
1,664
|
|
GECAS
|
|
4,901
|
|
|
4,839
|
|
|
4,353
|
|
Total segment
revenues
|
|
67,008
|
|
|
66,301
|
|
|
56,378
|
|
GECC
corporate items and eliminations
|
|
1,361
|
|
|
1,661
|
|
|
1,929
|
|
Less
portion of revenues not included in GECC
|
|
(375
|
)
|
|
(963
|
)
|
|
(825
|
)
|
Total
revenues in GECC
|
$
|
67,994
|
|
$
|
66,999
|
|
$
|
57,482
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
1,805
|
|
$
|
3,801
|
|
$
|
3,503
|
|
GE
Money
|
|
3,664
|
|
|
4,269
|
|
|
3,231
|
|
Real
Estate
|
|
1,144
|
|
|
2,285
|
|
|
1,841
|
|
Energy
Financial Services
|
|
825
|
|
|
677
|
|
|
648
|
|
GECAS
|
|
1,194
|
|
|
1,211
|
|
|
1,174
|
|
Total segment
profit
|
|
8,632
|
|
|
12,243
|
|
|
10,397
|
|
GECC
corporate items and eliminations(a)(b)
|
|
(510
|
)
|
|
192
|
|
|
55
|
|
Less
portion of segment profit not included in GECC
|
|
(108
|
)
|
|
(489
|
)
|
|
(357
|
)
|
Earnings
in GECC from continuing operations
|
|
8,014
|
|
|
11,946
|
|
|
10,095
|
|
Earnings
(loss) in GECC from discontinued operations,
|
|
|
|
|
|
|
|
|
|
net of taxes
|
|
(704
|
)
|
|
(2,131
|
)
|
|
291
|
|
Total
net earnings in GECC
|
$
|
7,310
|
|
$
|
9,815
|
|
$
|
10,386
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
restructuring and other charges for 2008 and 2007 of $0.5 billion and $0.4
billion, respectively; related to CLL ($0.3 billion and $0.2 billion),
primarily business exits and GE Money ($0.2 billion and $0.1 billion),
primarily planned business and portfolio exits.
|
|
(b)
|
Included
$0.5 billion and $0.2 billion during 2008 and 2007, respectively, of
net earnings related to our treasury operations.
|
|
See
accompanying notes to consolidated financial statements.
|
|
CLL
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
26,742
|
|
$
|
27,267
|
|
$
|
25,833
|
|
Less
portion of CLL not included in GECC
|
|
(376
|
)
|
|
(883
|
)
|
|
(758
|
)
|
Total revenues in
GECC
|
$
|
26,366
|
|
$
|
26,384
|
|
$
|
25,075
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
1,805
|
|
$
|
3,801
|
|
$
|
3,503
|
|
Less
portion of CLL not included in GECC
|
|
(120
|
)
|
|
(400
|
)
|
|
(270
|
)
|
Total segment profit in
GECC
|
$
|
1,685
|
|
$
|
3,401
|
|
$
|
3,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
232,486
|
|
$
|
229,608
|
|
|
|
|
Less
portion of CLL not included in GECC
|
|
(2,015
|
)
|
|
(3,174
|
)
|
|
|
|
Total assets in
GECC
|
$
|
230,471
|
|
$
|
226,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Capital
Solutions
|
$
|
14,626
|
|
$
|
14,354
|
|
$
|
14,169
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
Capital
Solutions
|
$
|
1,312
|
|
$
|
1,889
|
|
$
|
1,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
|
|
|
|
Capital
Solutions
|
$
|
119,051
|
|
$
|
122,527
|
|
|
|
|
CLL 2008
revenues decreased 2% and net earnings decreased 53% compared with 2007.
Revenues in 2008 and 2007 included $1.8 billion and $0.2 billion, respectively,
from acquisitions, and in 2008 were reduced by $0.3 billion as a result of
dispositions. Revenues in 2008 decreased $1.9 billion compared with 2007 as a
result of organic revenue declines ($2.3 billion), partially offset by the
weaker U.S. dollar ($0.5 billion). Net earnings decreased by $2.0 billion in
2008, resulting from core declines ($2.2 billion), including an increase of $0.5
billion in the provision for losses on financing receivables and lower
investment income ($0.3 billion), partially offset by acquisitions ($0.4
billion) and the effect of the weaker U.S. dollar ($0.1 billion). Net earnings
included mark-to-market losses and impairments ($0.8 billion), the absence of
the effects of the 2007 tax benefit on the disposition of our investment in SES
($0.5 billion) and SES gains ($0.1 billion), partially offset by Genpact
mark-to-market gains ($0.2 billion).
CLL 2007
revenues and net earnings increased 6% and 9%, respectively, compared with 2006.
Revenues in 2007 and 2006 included $2.1 billion and $0.1 billion, respectively,
from acquisitions, and in 2007 were reduced by $2.7 billion as a result of
dispositions. Revenues in 2007 also increased $1.9 billion as a result of
organic revenue growth ($1.2 billion) and the weaker U.S. dollar ($0.7 billion).
The increase in net earnings resulted from acquisitions ($0.2 billion), core
growth ($0.1 billion) and the weaker U.S. dollar ($0.1 billion), partially
offset by dispositions ($0.1 billion). Core growth included $0.5 billion
representing the total year’s tax benefit on the disposition of our investment
in SES, partially offset by $0.2 billion of higher credit losses and $0.1
billion in charges related to mark-to-market adjustments to loans held-for-sale.
Investment income included higher SES gains ($0.1 billion), offset by
impairments of securitization retained interests ($0.1 billion).
GE
Money
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
25,012
|
|
$
|
24,769
|
|
$
|
19,508
|
|
Less
portion of GE Money not included in GECC
|
|
−
|
|
|
–
|
|
|
–
|
|
Total revenues in
GECC
|
$
|
25,012
|
|
$
|
24,769
|
|
$
|
19,508
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
3,664
|
|
$
|
4,269
|
|
$
|
3,231
|
|
Less
portion of GE Money not included in GECC
|
|
(2
|
)
|
|
(47
|
)
|
|
(54
|
)
|
Total segment profit in
GECC
|
$
|
3,662
|
|
$
|
4,222
|
|
$
|
3,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 (In
millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
183,617
|
|
$
|
209,178
|
|
|
|
|
Less
portion of GE Money not included in GECC
|
|
(167
|
)
|
|
100
|
|
|
|
|
Total assets in
GECC
|
$
|
183,450
|
|
$
|
209,278
|
|
|
|
|
GE Money
2008 revenues increased 1% and net earnings decreased 14% compared with 2007.
Revenues for 2008 included $0.7 billion from acquisitions and $0.4 billion from
the gain on sale of our Corporate Payment Services (CPS) business and were
reduced by $0.2 billion from dispositions. Revenues in 2008 also decreased $0.6
billion compared with 2007 as a result of organic revenue declines ($1.2
billion), partially offset by the weaker U.S. dollar ($0.6 billion). The
decrease in net earnings resulted primarily from core declines ($0.5 billion)
and lower securitization income ($0.5 billion). The decreases were partially
offset by the gain on the sale of our CPS business ($0.2 billion), the weaker
U.S. dollar ($0.1 billion) and acquisitions ($0.1 billion). Core declines
primarily resulted from lower results in the U.S., reflecting the effects of
higher delinquencies ($1.2 billion), partially offset by growth in lower-taxed
earnings from global operations ($1.0 billion), including the decision to
indefinitely reinvest, outside the U.S., prior-year earnings.
GE Money
2007 revenues and net earnings increased 27% and 32%, respectively, compared
with 2006. Revenues in 2007 included $0.4 billion from acquisitions. Revenues in
2007 also increased $4.8 billion as a result of organic revenue growth ($3.5
billion) and the weaker U.S. dollar ($1.4 billion). The increase in net earnings
resulted primarily from core growth ($0.3 billion), higher securitization income
($0.4 billion), the sale of part of our Garanti investment ($0.2 billion) and
the weaker U.S. dollar ($0.2 billion). Core growth included growth in
lower-taxed earnings from global operations ($0.3 billion), partially offset by
lower results in the U.S., reflecting the effects of higher delinquencies ($0.4
billion).
Real
Estate
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
6,646
|
|
$
|
7,021
|
|
$
|
5,020
|
|
Less
portion of Real Estate not included in GECC
|
|
14
|
|
|
(71
|
)
|
|
(52
|
)
|
Total revenues in
GECC
|
$
|
6,660
|
|
$
|
6,950
|
|
$
|
4,968
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
1,144
|
|
$
|
2,285
|
|
$
|
1,841
|
|
Less
portion of Real Estate not included in GECC
|
|
23
|
|
|
(36
|
)
|
|
(23
|
)
|
Total segment profit in
GECC
|
$
|
1,167
|
|
$
|
2,249
|
|
$
|
1,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
85,266
|
|
$
|
79,285
|
|
|
|
|
Less
portion of Real Estate not included in GECC
|
|
(357
|
)
|
|
(279
|
)
|
|
|
|
Total assets in
GECC
|
$
|
84,909
|
|
$
|
79,006
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate 2008 revenues decreased 5% and net earnings decreased 50% compared with
2007. Revenues for 2008 included $0.3 billion from acquisitions. Revenues in
2008 also decreased $0.7 billion compared with 2007 as a result of organic
revenue declines ($0.8 billion), partially offset by the weaker U.S. dollar
($0.2 billion). Real Estate net earnings decreased $1.1 billion compared with
2007, primarily from a decline in net earnings from real estate equity
investments ($1.2 billion), partially offset by an increase in net earnings from
real estate lending. Net earnings from the sale of real estate equity
investments in 2008 were lower as a result of increasingly difficult market
conditions. 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 a result of deterioration in current and expected real estate
market liquidity and macroeconomic trends, it is difficult to predict with
certainty the level of future sales or sales prices.
Real
Estate assets at December 31, 2008, increased $6.0 billion, or 8%, from December
31, 2007, including $12.1 billion, or 34%, attributable to an increase in real
estate lending, partially offset by a $6.4 billion, or 16%, decline in real
estate equity investments. During 2008, we sold real estate equity investment
assets with a book value totaling $5.8 billion, which resulted in net earnings
of $1.3 billion that were partially offset by losses, impairments and
depreciation.
Real
Estate 2007 revenues and net earnings increased 40% and 24%, respectively,
compared with 2006. Revenues in 2007 included $0.3 billion from acquisitions.
Revenues in 2007 also increased $1.8 billion as a result of organic revenue
growth ($1.5 billion) and the weaker U.S. dollar ($0.2 billion). Real Estate net
earnings increased 24% compared with 2006, primarily as a result of a $0.5
billion increase in net earnings from sales of real estate
investments.
Real
Estate assets at December 31, 2007, increased $25.5 billion, or 47%, from
December 31, 2006, of which $12.6 billion was real estate investments, also up
47%. During 2007, we sold real estate assets with a book value totaling $7.0
billion, which resulted in net earnings of $2.1 billion.
Energy
Financial Services
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
3,707
|
|
$
|
2,405
|
|
$
|
1,664
|
|
Less
portion of Energy Financial Services not included in GECC
|
|
(11
|
)
|
|
(5
|
)
|
|
(10
|
)
|
Total revenues in
GECC
|
$
|
3,696
|
|
$
|
2,400
|
|
$
|
1,654
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
825
|
|
$
|
677
|
|
$
|
648
|
|
Less
portion of Energy Financial Services not included in GECC
|
|
(6
|
)
|
|
(2
|
)
|
|
(6
|
)
|
Total segment profit in
GECC
|
$
|
819
|
|
$
|
675
|
|
$
|
642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
22,079
|
|
$
|
18,705
|
|
|
|
|
Less
portion of Energy Financial Services not included in GECC
|
|
(54
|
)
|
|
(52
|
)
|
|
|
|
Total assets in
GECC
|
$
|
22,025
|
|
$
|
18,653
|
|
|
|
|
Energy
Financial Services 2008 revenues and net earnings increased 54% and 22%,
respectively, compared with 2007. Revenues in 2008 and 2007 included $1.6
billion and $0.3 billion, respectively, from acquisitions. The increase in net
earnings resulted primarily from core growth ($0.2 billion), partially offset by
lower investment income ($0.1 billion).
Energy
Financial Services 2007 revenues and net earnings increased 45% and 4%,
respectively, compared with 2006. The increase in revenues resulted primarily
from acquisitions ($0.6 billion) and organic revenue growth ($0.1 billion). The
increase in net earnings resulted primarily from core growth.
GECAS
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
4,901
|
|
$
|
4,839
|
|
$
|
4,353
|
|
Less
portion of GECAS not included in GECC
|
|
(2
|
)
|
|
(4
|
)
|
|
(5
|
)
|
Total revenues in
GECC
|
$
|
4,899
|
|
$
|
4,835
|
|
$
|
4,348
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
1,194
|
|
$
|
1,211
|
|
$
|
1,174
|
|
Less
portion of GECAS not included in GECC
|
|
(3
|
)
|
|
(4
|
)
|
|
(4
|
)
|
Total segment profit in
GECC
|
$
|
1,191
|
|
$
|
1,207
|
|
$
|
1,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
49,455
|
|
$
|
47,189
|
|
|
|
|
Less
portion of GECAS not included in GECC
|
|
(198
|
)
|
|
(219
|
)
|
|
|
|
Total assets in
GECC
|
$
|
49,257
|
|
$
|
46,970
|
|
|
|
|
GECAS
2008 revenues increased 1% and net earnings decreased 1% compared with 2007. The
increase in revenues is primarily a result of organic revenue growth ($0.1
billion), partially offset by lower investment income. The decrease in net
earnings resulted primarily from lower investment income, partially offset by
core growth.
GECAS
2007 revenues and net earnings increased 11% and 3%, respectively, compared with
2006. The increase in revenues resulted primarily from organic revenue growth
($0.4 billion) and acquisitions ($0.1 billion). The increase in net earnings
resulted primarily from core growth.
Discontinued
Operations
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) in GECC from discontinued operations,
|
|
|
|
|
|
|
|
|
|
net of taxes
|
$
|
(704
|
)
|
$
|
(2,131
|
)
|
$
|
291
|
|
Discontinued
operations comprised GE Money Japan; WMC; 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.
During
the third quarter of 2007, we committed to a plan to sell our Lake business and
recorded an after-tax loss of $0.9 billion, which represents the difference
between the net book value of our Lake business and the projected sale price.
During 2008, we completed the sale of GE Money Japan, which included Lake, along
with our Japanese mortgage and card businesses, excluding our minority ownership
interest in GE Nissen Credit Co., Ltd. In connection with this sale, and
primarily related to our Japanese mortgage and card businesses, we recorded an
incremental $0.4 billion loss in 2008.
In
December 2007, we completed the sale of our WMC business for $0.1 billion in
cash, recognizing an after-tax loss of $0.1 billion. In connection with the
transaction, certain contractual obligations and potential liabilities related
to previously sold loans were retained.
Loss from
discontinued operations, net of taxes, in 2008 was $0.7 billion, primarily
reflecting a loss from operations ($0.3 billion), and the estimated incremental
loss on disposal ($0.4 billion) at GE Money Japan.
Loss from
discontinued operations, net of taxes, in 2007 was $2.1 billion, reflecting a
loss from operations at WMC ($0.9 billion), an estimated after-tax loss on the
planned sale of Lake ($0.9 billion), a loss from operations at GE Money Japan
($0.3 billion), and an after-tax loss on the sale of our WMC business ($0.1
billion), partially offset by a tax adjustment related to the 2004 initial
public offering of Genworth ($0.1 billion).
Earnings
from discontinued operations, net of taxes, in 2006 were $0.3 billion,
reflecting earnings at GE Money Japan and WMC ($0.3 billion) and Genworth ($0.2
billion), partially offset by a loss at GE Life ($0.2 billion).
For
additional information related to discontinued operations, see note 2 to
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Geographic
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.
Revenues
are classified according to the region to which products and services are sold.
For purposes of this analysis, U.S. is presented separately from the remainder
of the Americas. We classify certain operations that cannot meaningfully be
associated with specific geographic areas as “Other Global” for this
purpose.
Geographic
Revenues
(In
billions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
$
|
30.7
|
|
$
|
30.8
|
|
$
|
29.6
|
|
Europe
|
|
21.0
|
|
|
19.9
|
|
|
15.5
|
|
Pacific
Basin
|
|
9.8
|
|
|
10.1
|
|
|
7.4
|
|
Americas
|
|
4.9
|
|
|
4.7
|
|
|
3.9
|
|
Middle
East and Africa
|
|
0.4
|
|
|
0.3
|
|
|
0.2
|
|
Other
Global
|
|
1.2
|
|
|
1.2
|
|
|
0.9
|
|
Total
|
$
|
68.0
|
|
$
|
67.0
|
|
$
|
57.5
|
|
Global
revenues rose 3% to $37.3 billion in 2008, compared with $36.2 billion and $27.9
billion in 2007 and 2006, respectively. Global revenues as a percentage of total
revenues were 55% in 2008, compared with 54% and 49% in 2007 and 2006,
respectively.
Revenues
in the Middle East and Africa grew 21% in 2008, primarily as a result of organic
revenue growth at GECAS. Revenues grew 6% in the Americas and 6% in Europe in
2008, primarily as a result of organic revenue growth, acquisitions and the
effects of the weaker U.S. dollar, primarily at GE Money and CLL. Revenues in
the Pacific Basin remained flat in 2008 from 2007.
Our
global assets on a continuing basis of $328.5 billion at the end of 2008 were
10% lower than at the end of 2007, reflecting core declines and the effects of
the stronger U.S. dollar in Europe, the Pacific Basin and the Americas,
partially offset by acquisitions, primarily at GE Money and CLL.
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 to our shareowner’s equity are discussed in the Statement of Changes in
Shareowner’s Equity section. In addition, other significant changes to balances
in our Statement of Financial Position follow.
Fair
Value Measurements
Effective
January 1, 2008, we adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements, for
all financial instruments and non-financial instruments accounted for at fair
value on a recurring basis. Adoption of SFAS 157 did not have a material effect
on our financial position or results of operations. During the fourth quarter,
our methodology remained consistent with prior quarters for measuring fair value
of financial instruments trading in volatile markets. Additional information
about our application of SFAS 157 is provided in note 19 to the consolidated
financial statements in Part II, Item 8. “Financial Statements and Supplementary
Data” of this Form 10-K Report.
Statement
of Financial Position
Investment securities comprise
mainly investment-grade debt securities supporting obligations to holders of
guaranteed investment contracts (GICs). Investment securities amounted to $19.3
billion at December 31, 2008, compared with $20.6 billion at December 31, 2007.
Of the amount at December 31, 2008, we held debt securities with an estimated
fair value of $12.6 billion, which included residential mortgage-backed
securities (RMBS) and commercial mortgage-backed securities (CMBS) with
estimated fair values of $3.3 billion and $1.2 billion, respectively. Unrealized
losses on debt securities were $2.9 billion and $0.4 billion at December 31,
2008, and December 31, 2007, respectively. This amount included unrealized
losses on RMBS and CMBS of $1.0 billion and $0.5 billion at the end of 2008, as
compared with $0.2 billion and an insignificant amount, respectively, at the end
of 2007. Unrealized losses increased as a result of continuing market
deterioration, and we believe primarily represent adjustments for liquidity on
investment-grade securities.
Of the
$3.3 billion of RMBS, our exposure to subprime credit was approximately $1.3
billion, and those securities are primarily held to support obligations to
holders of GICs. A majority of these securities have received investment-grade
credit ratings from the major rating agencies. We purchased no such securities
in 2008 and an insignificant amount of such securities in 2007. These investment
securities are collateralized primarily by pools of individual direct-mortgage
loans, and do not include structured products such as collateralized debt
obligations. Additionally, a majority of our exposure to residential subprime
credit related to investment securities backed by mortgage loans originated in
2006 and 2005.
We
regularly review investment securities for impairment using both quantitative
and qualitative criteria. Quantitative criteria include the length of time and
magnitude of the amount that each security is in an unrealized loss position
and, for securities with 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. In
addition, our evaluation at December 31, 2008, considered the continuing market
deterioration that resulted in the lack of liquidity and the historic levels of
price volatility and credit spreads. With respect to corporate bonds,
we placed greater emphasis on the credit quality of the issuers. With respect to
RMBS and CMBS, we placed greater emphasis on our expectations with respect to
cash flows from the underlying collateral and, with respect to RMBS, we
considered the availability of credit enhancements, principally monoline
insurance. Our other-than-temporary impairment reviews involve our finance, risk
and asset management functions as well as the portfolio management and research
capabilities of our internal and third-party asset managers.
When an
other-than-temporary impairment is recognized for a debt security, the charge
has two components: (1) the loss of contractual cash flows due to the inability
of the issuer (or the insurer, if applicable) to pay all amounts due; and (2)
the effects of current market conditions, exclusive of credit losses, on the
fair value of the security (principally liquidity discounts and interest rate
effects). If the expected loss due to credit remains unchanged for the remaining
term of the debt instrument, the latter portion of the impairment charge is
subsequently accreted to earnings as interest income over the remaining term of
the instrument. When a security is insured, a credit loss event is deemed to
have occurred if the insurer is expected to be unable to cover its obligations
under the related insurance contract.
Other-than-temporary
impairment losses totaled $0.7 billion in 2008 and an insignificant amount in
2007. In 2008, we recognized other-than-temporary impairments, primarily
relating to RMBS and corporate debt securities of infrastructure, financial
institutions and media companies. In 2007, we recognized other-than-temporary
impairments, primarily for our retained interests in our securitization
arrangements. Investments in retained interests in securitization arrangements
also decreased by $0.1 billion during 2008, reflecting declines in fair value
accounted for in accordance with a new accounting standard that became effective
at the beginning of 2007.
Monoline
insurers (Monolines) provide credit enhancement for certain of our investment
securities. At December 31, 2008, our investment securities insured by Monolines
totaled $2.5 billion, including $1.1 billion of our $1.3 billion investment in
subprime RMBS. Although several of the Monolines have been downgraded by the
rating agencies, a majority of the $2.5 billion is insured by investment-grade
Monolines. The Monoline industry continues to experience financial stress from
increasing delinquencies and defaults on the individual loans underlying insured
securities. We regularly monitor changes to the expected cash flows of the
securities we hold, and the ability of these insurers to pay claims on
securities with expected losses. At December 31, 2008, if the Monolines were
unable to pay our anticipated claims based on the expected future cash flows of
the securities, we would have recorded an impairment charge of $0.3 billion, of
which $0.1 billion would relate to expected credit losses and the remaining $0.2
billion would relate to other market factors.
Our
qualitative review attempts to identify issuers’ securities that are “at-risk”
of impairment, that is, with a possibility of other-than-temporary impairment
recognition in the following 12 months. Of securities with unrealized losses at
December 31, 2008, $0.6 billion of unrealized loss was at risk of being charged
to earnings assuming no further changes in price, and that amount primarily
related to investments in RMBS and CMBS securities, equity securities,
securitization retained interests, and corporate debt securities of financial
institutions and media companies. In addition, we had approximately $0.8 billion
of exposure to commercial, regional and foreign banks, primarily relating to
corporate debt securities, with associated unrealized losses of $0.1 billion.
Continued uncertainty in the capital markets may cause increased levels of
other-than-temporary impairments.
At
December 31, 2008, unrealized losses on investment securities totaled $3.2
billion, including $2.0 billion aged 12 months or longer, compared with
unrealized losses of $0.6 billion, including $0.1 billion aged 12 months or
longer at December 31, 2007. Of the amount aged 12 months or longer at December
31, 2008, more than 80% of our debt securities were considered to be
investment-grade by the major rating agencies. In addition, of the amount aged
12 months or longer, $1.6 billion and $0.3 billion related to structured
securities (mortgage-backed, asset-backed and securitization retained interests)
and corporate debt securities, respectively. With respect to our investment
securities
that are
in an unrealized loss position at December 31, 2008, we intend to hold them at
least until such time as their individual fair values exceed their amortized
cost and we have the ability to hold all such debt securities until their
maturities. The fair values used to determine these unrealized gains and losses
are those defined by relevant accounting standards and are not a forecast of
future gains or losses. For additional information, see note 5 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Financing receivables is our
largest category of assets and represents one of our primary sources of
revenues. 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).
Our
portfolio of financing receivables is diverse and not directly comparable to
major U.S. banks. Historically, we have had less consumer exposure, which over
time has had higher loss rates than commercial exposure. Our consumer exposure
is largely non-U.S. and primarily comprises mortgage, sales finance, auto and
personal loans in various European and Asian countries. Our U.S. consumer
financing receivables comprise 7% of our total portfolio. Of those,
approximately 42% relate primarily to credit cards, which are often subject to
profit and loss sharing arrangements with the retailer (the results of which are
reflected in GECC revenues), and have a smaller average balance and lower loss
severity as compared to bank cards. The remaining 58% are sales finance
receivables, which provide electronics, recreation, medical and home improvement
financing to customers. In 2007, we exited the U.S. mortgage business and we
have no U.S. auto or student loans.
Our
commercial portfolio primarily comprises senior, secured positions with
comparatively low loss history. The secured receivables in this portfolio are
collateralized by a variety of asset classes, including industrial-related
facilities and equipment; commercial and residential real estate; vehicles,
aircraft, and equipment used in many industries, including the construction,
manufacturing, transportation, telecommunications and healthcare industries. In
addition, 2% of this portfolio is unsecured corporate debt.
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 includes standards and policies for reviewing major risk
exposures and concentrations, and evaluates relevant data either for individual
loans or financing leases, or on a portfolio basis, as appropriate.
|
Financing
receivables
|
|
Nonearning
receivables
|
|
Allowance
for
losses
|
|
December
31 (In millions)
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
leasing
and other
|
$
|
98,957
|
|
$
|
94,970
|
|
$
|
1,496
|
|
$
|
914
|
|
$
|
875
|
|
$
|
641
|
|
Commercial
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
industrial
|
|
63,401
|
|
|
55,219
|
|
|
1,128
|
|
|
757
|
|
|
415
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Money
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
59,595
|
|
|
73,042
|
|
|
3,317
|
|
|
2,465
|
|
|
382
|
|
|
246
|
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
revolving credit
|
|
24,441
|
|
|
34,669
|
|
|
413
|
|
|
533
|
|
|
1,051
|
|
|
1,371
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
27,645
|
|
|
27,914
|
|
|
758
|
|
|
515
|
|
|
1,700
|
|
|
985
|
|
Non-U.S.
auto
|
|
18,168
|
|
|
27,368
|
|
|
83
|
|
|
75
|
|
|
222
|
|
|
324
|
|
Other
|
|
9,244
|
|
|
10,198
|
|
|
152
|
|
|
91
|
|
|
214
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate(a)
|
|
46,735
|
|
|
32,228
|
|
|
194
|
|
|
25
|
|
|
301
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
8,355
|
|
|
7,867
|
|
|
241
|
|
|
−
|
|
|
58
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
15,326
|
|
|
14,097
|
|
|
146
|
|
|
−
|
|
|
60
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
4,031
|
|
|
5,111
|
|
|
38
|
|
|
72
|
|
|
28
|
|
|
18
|
|
Total
|
$
|
375,898
|
|
$
|
382,683
|
|
$
|
7,966
|
|
$
|
5,447
|
|
$
|
5,306
|
|
$
|
4,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Financing
receivables included $731 million and $452 million of construction loans
at December 31, 2008 and 2007, respectively.
|
|
|
Nonearning
receivables
as
a
percent of financing
receivables
|
|
Allowance
for losses
as
a percent of
nonearning
receivables
|
|
Allowance
for losses
as
a percent of
total
financing
receivables
|
|
December
31
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
leasing
and other
|
|
1.5
|
%
|
|
1.0
|
%
|
|
58.5
|
%
|
|
70.1
|
%
|
|
0.9
|
%
|
|
0.7
|
%
|
Commercial
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
industrial
|
|
1.8
|
|
|
1.4
|
|
|
36.8
|
|
|
36.2
|
|
|
0.7
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Money
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
5.6
|
|
|
3.4
|
|
|
11.5
|
|
|
10.0
|
|
|
0.6
|
|
|
0.3
|
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
revolving credit
|
|
1.7
|
|
|
1.5
|
|
|
254.5
|
|
|
257.2
|
|
|
4.3
|
|
|
4.0
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
2.7
|
|
|
1.8
|
|
|
224.3
|
|
|
191.3
|
|
|
6.1
|
|
|
3.5
|
|
Non-U.S.
auto
|
|
0.5
|
|
|
0.3
|
|
|
267.5
|
|
|
432.0
|
|
|
1.2
|
|
|
1.2
|
|
Other
|
|
1.6
|
|
|
0.9
|
|
|
140.8
|
|
|
178.0
|
|
|
2.3
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
0.4
|
|
|
0.1
|
|
|
155.2
|
|
|
672.0
|
|
|
0.6
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
2.9
|
|
|
−
|
|
|
24.1
|
|
|
−
|
|
|
0.7
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
1.0
|
|
|
−
|
|
|
41.1
|
|
|
−
|
|
|
0.4
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
0.9
|
|
|
1.4
|
|
|
73.7
|
|
|
25.0
|
|
|
0.7
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2.1
|
|
|
1.4
|
|
|
66.6
|
|
|
77.4
|
|
|
1.4
|
|
|
1.1
|
|
The
majority of the allowance for losses of $5.3 billion at December 31, 2008, and
$4.2 billion at December 31, 2007, is determined based upon a formulaic
approach. Further information on the determination of the allowance for losses
on financing receivables is provided in the Critical Accounting Estimates
section in Part II, Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and notes 1 and 7 to the consolidated
financial statements in Part II, Item 8. “Financial Statements and Supplementary
Data” of this Form 10-K Report.
A portion
of the allowance for losses is related to specific reserves on loans that have
been determined to be individually impaired under SFAS 114, Accounting by Creditors for
Impairment of a Loan. Under SFAS 114, individually impaired loans are
defined 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. These specific reserves amount to $0.6
billion and $0.4 billion at December 31, 2008 and December 31, 2007,
respectively. Further information pertaining to specific reserves is included in
the table below.
December
31 (In millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Loans
requiring allowance for losses
|
$
|
2,712
|
|
$
|
986
|
|
Loans
expected to be fully recoverable
|
|
871
|
|
|
391
|
|
Total
impaired loans
|
$
|
3,583
|
|
$
|
1,377
|
|
|
|
|
|
|
|
|
Allowance
for losses
|
$
|
635
|
|
$
|
360
|
|
Average
investment during year
|
|
2,064
|
|
|
1,576
|
|
Interest
income earned while impaired(a)
|
|
27
|
|
|
19
|
|
|
|
|
|
|
|
|
(a)
|
Recognized
principally on cash basis.
|
The
portfolio of financing receivables, before allowance for losses, was $375.9
billion at December 31, 2008, and $382.7 billion at December 31, 2007. Financing
receivables, before allowance for losses, decreased $6.8 billion from December
31, 2007, primarily as a result of commercial and equipment securitization and
sales ($36.6 billion), the stronger U.S. dollar ($29.4 billion) and dispositions
($6.6 billion), partially offset by core growth ($43.4 billion) and acquisitions
($31.8 billion).
Related
nonearning receivables totaled $8.0 billion (2.1% of outstanding receivables) at
December 31, 2008, compared with $5.4 billion (1.4% of outstanding receivables)
at December 31, 2007. Related nonearning receivables increased from December 31,
2007, primarily because of rising unemployment, along with the increasingly
challenging global economic environment.
The
allowance for losses at December 31, 2008, totaled $5.3 billion compared with
$4.2 billion at December 31, 2007, representing our best estimate of probable
losses inherent in the portfolio and reflecting the then current credit and
economic environment. Allowance for losses increased $1.1 billion from December
31, 2007, primarily because of increasing delinquencies and nonearning
receivables reflecting the continued weakened economic and credit environment.
Coincident with the changes in the environment, we saw a significant increase in
delinquencies in the latter half of 2008, particularly in the fourth quarter. As
the environment worsened in the latter half of the year, we recognized
provisions accordingly.
CLL − Equipment and leasing and
other. Nonearning receivables of $1.5 billion represented 18.8% of total
nonearning receivables at December 31, 2008. The ratio of allowance for losses
as a percent of nonearning receivables declined from 70.1% at December 31, 2007,
to 58.5% at December 31, 2008, primarily from an increase in secured exposures
which did not require specific reserves based upon the strength of the
underlying collateral values.
CLL − Commercial and industrial.
Nonearning receivables of $1.1 billion represented 14.2% of total nonearning
receivables at December 31, 2008. The ratio of allowance for losses as a percent
of nonearning receivables increased from 36.2% at December 31, 2007, to 36.8% at
December 31, 2008. The ratio of nonearning receivables as a percentage of
financing receivables increased from 1.4% at December 31, 2007, to 1.8% at
December 31, 2008, primarily from an increase in nonearning receivables in
secured lending in media and communications, auto and transportation, and
consumer manufacturing companies.
GE Money − non-U.S. residential
mortgages. Nonearning receivables of $3.3 billion represented 41.6% of
total nonearning receivables at December 31, 2008. The ratio of allowance for
losses as a percent of nonearning receivables increased from 10.0% at December
31, 2007, to 11.5% at December 31, 2008. Our non-U.S. mortgage portfolio has a
loan-to-value of approximately 74% at origination and the vast majority are
first lien positions. In addition, we carry mortgage insurance on most first
mortgage loans originated at a loan-to-value above 80%. In 2008, our nonearning
receivables increased primarily as a result of the declining U.K. housing market
and our allowance increased accordingly. At December 31, 2008, we had foreclosed
on fewer than 1,000 houses in the U.K.
GE Money − U.S. installment and revolving
credit. Nonearning receivables of $0.8 billion represented 9.5% of total
nonearning receivables at December 31, 2008. The ratio of allowance for losses
as a percent of nonearning receivables increased from 191.3% at December 31,
2007, to 224.3% at December 31, 2008, reflecting the effects of the continued
deterioration in our U.S. portfolio in connection with rising
unemployment.
GE Money − non-U.S. auto. Nonearning
receivables of $0.1 billion represented 1% of total nonearning receivables at
December 31, 2008. The ratio of allowance for losses as a percent of nonearning
receivables decreased from 432.0% at December 31, 2007, to 267.5% at December
31, 2008. This is primarily a result of the disposition of our Thailand auto
business, the decision to dispose of our U.K. auto business, and the effects of
recoveries.
Delinquency
rates on managed equipment financing loans and leases and managed consumer
financing receivables follow.
December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
Financing
|
|
2.17
|
%
|
|
1.21
|
%
|
|
1.22
|
%
|
Consumer
|
|
7.47
|
|
|
5.38
|
|
|
5.22
|
|
U.S.
|
|
7.14
|
|
|
5.52
|
|
|
4.93
|
|
Non-U.S.
|
|
7.64
|
|
|
5.32
|
|
|
5.34
|
|
Delinquency
rates on equipment financing loans and leases increased from December 31, 2007,
and December 31, 2006, to December 31, 2008, primarily as a result of the
inclusion of the CitiCapital acquisition and Sanyo acquisition in Japan, which
contributed an additional 12 and 9 basis points, respectively, at December 31,
2008, as well as deterioration in our U.S. commercial middle market and certain
European portfolios. The current financial market turmoil and tight credit
conditions may continue to lead to a higher level of commercial delinquencies
and provisions for financing receivables and could adversely affect results of
operations at CLL.
Delinquency
rates on consumer financing receivables increased from December 31, 2007, and
December 31, 2006, to December 31, 2008, primarily because of rising
unemployment, an increasingly challenging economic environment and lower volume.
This has resulted in continued deterioration in our U.S. and U.K. portfolios. In
response, GE Money has continued to tighten underwriting standards globally,
increased focus on collection effectiveness and will continue its process of
regularly reviewing and adjusting reserve levels. We expect the global
environment, along with U.S. unemployment levels, to continue to deteriorate in
2009, which may result in higher provisions for loan losses and could adversely
affect results of operations at GE Money. At December 31, 2008, roughly 40% of
our U.S.-managed portfolio, which consisted of credit cards, installment and
revolving loans, was receivable from subprime borrowers. We had no U.S. subprime
residential mortgage loans at December 31, 2008. See notes 6 and 7 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Other receivables totaled
$22.2 billion at December 31, 2008, and $28.7 billion at December 31, 2007, and
consisted primarily of amounts due from GE (generally related to certain
material procurement programs of $3.0 billion at December 31, 2008 and $2.9
billion at December 31, 2007), amounts due from Qualified Special Purpose
Entities (QSPEs), nonfinancing customer receivables, amounts due under operating
leases, amounts accrued from investment income and various sundry
items.
Property, plant and equipment
totaled $64.0 billion at December 31, 2008, up $0.4 billion from 2007, primarily
reflecting acquisitions and additions of commercial aircraft at the Aviation
Financial Services business of GECAS. Property, plant and equipment consisted
primarily of equipment provided to third parties on operating leases. Details by
category of investment are presented in note 8 to the consolidated financial
statements in Part II, Item 8. “Financial Statements and Supplementary Data” of
this Form 10-K Report. Additions to property, plant and equipment were $13.2
billion and $15.0 billion during 2008 and 2007, respectively, primarily
reflecting acquisitions and additions of commercial aircraft at
GECAS.
Goodwill and other intangible
assets totaled $25.2 billion and $3.2 billion, respectively, at December
31, 2008. Goodwill decreased by an insignificant amount and other intangible
assets decreased $0.9 billion from 2007, primarily due to the effects of the
stronger U.S. dollar, partially offset by acquisitions – including Merrill Lynch
Capital at CLL, Energy Financial Services, Real Estate and GECAS, Bank BPH at GE
Money, CDM Resource Management Ltd., at Energy Financial Services and
CitiCapital at CLL. See note 9 to the consolidated financial statements in Part
II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Other assets totaled $84.2
billion at year-end 2008, an increase of $1.7 billion, reflecting increases in
derivative instruments and associated companies, partially offset by decreases
in assets held for sale and real estate. We recognized other-than-temporary
impairments of cost and equity method investments of $0.4 billion and $0.1
billion in 2008 and 2007, respectively, including $0.2 billion relating to our
cost method investment in FGIC Corporation during 2008. See note 10 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Liquidity
and Borrowings
We manage
our liquidity to help ensure access to sufficient funding at acceptable costs to
meet our business needs and financial obligations throughout business cycles. We
rely on cash generated through our operating activities as well as unsecured and
secured funding sources, including commercial paper, term debt, bank deposits,
bank borrowings, securitization and other retail funding products.
The
global credit markets have recently experienced unprecedented volatility, which
has affected both the availability and cost of our funding sources. In this
current volatile credit environment, GE, our ultimate parent, has taken a number
of initiatives to strengthen its liquidity, maintain its dividend, and maintain
the highest credit ratings. Specifically, GE has:
·
|
Reduced
the GECS dividend to GE from 40% to 10% of GECS earnings and suspended the
GE stock repurchase program.
|
·
|
Raised
$15 billion in cash through common and preferred stock offerings in
October 2008 and contributed $5.5 billion to GE Capital. In February 2009,
the GE Board authorized a capital contribution of up to $9.5 billion to GE
Capital, which is expected to be made in the first quarter of
2009.
|
·
|
Reduced
commercial paper borrowings at GECS to $72 billion at December 31,
2008.
|
·
|
Targeted
to further reduce GECS commercial paper borrowings to $50 billion by the
end of 2009 and to target committed credit lines equal to GECS commercial
paper borrowings going forward.
|
·
|
Grown
our alternative funding to $54 billion at December 31, 2008, including $36
billion of bank deposits.
|
·
|
Registered
to use the Federal Reserve’s Commercial Paper Funding Facility (CPFF) for
up to $98 billion, which is available through October 31,
2009.
|
·
|
Registered
to use the Federal Deposit Insurance Corporation’s (FDIC) Temporary
Liquidity Guarantee Program (TLGP) for approximately $126
billion.
|
·
|
We
are managing collections versus originations to help support liquidity
needs and are estimating $25 billion of excess collections in
2009.
|
Throughout
this period of volatility, we have been able to continue to meet our funding
needs at acceptable costs. We continue to access the commercial paper markets
without interruption.
During
2008, GECS and its affiliates issued $84.3 billion of senior, unsecured
long-term debt. This debt was both fixed and floating rate and was issued to
institutional and retail investors in the U.S. and 17 other global markets.
Maturities for these issuances ranged from one to 40 years.
During
the fourth quarter of 2008, the FDIC adopted the TLGP to address disruptions in
the credit market, particularly the interbank lending market, which reduced
banks' liquidity and impaired their ability to lend. The goal of the TLGP is to
decrease the cost of bank funding so that bank lending to consumers and
businesses will normalize. The TLGP guarantees certain newly issued senior,
unsecured debt of banks, thrifts, and certain holding companies. Under the
FDIC’s Final Rule adopted on November 21, 2008, certain senior, unsecured debt
issued before June 30, 2009, with a maturity of greater than 30 days that
matures on or prior to June 30, 2012, is automatically included in the program.
GECC has elected to participate in this program. The fees associated with this
program range from 50 to 100 basis points on an annualized basis and vary
according to the maturity of the debt issuance. GECC also pays an additional 10
basis points, as it is not an insured depository institution. On February 10,
2009, in a Joint Statement, the Secretary of the Treasury, the Chairman of the
Board of Governors of the Federal Reserve, the Chairman of the FDIC, the
Comptroller of the Currency and the Director of the Office of Thrift Supervision
(OTS) announced that, for an additional premium, the FDIC will extend the Debt
Guarantee Program of the TLGP through October 2009.
Included
in GECS issuances above is $13.4 billion of senior, unsecured long-term debt
issued by GECC in the fourth quarter of 2008 under the TLGP with varying
maturities up to June 30, 2012. Additionally, GECC had commercial paper of $21.8
billion outstanding at December 31, 2008, which was issued under the TLGP (which
is required for all commercial paper issuances with maturities greater than 30
days).
In the
fourth quarter of 2008, GE Capital extended $21.8 billion of credit to U.S.
customers, including 5 million new accounts, and $7.7 billion of credit
(including unfunded commitments of $2.5 billion) to U.S. companies, with an
average transaction size of $2.4 million.
During
the fourth quarter of 2008, GECS issued commercial paper into the CPFF. The last
tranche of this commercial paper matures in February 2009. Although we do not
anticipate further utilization of the CPFF, it remains available until October
31, 2009. We incurred $0.6 billion of fees for our participation in the TLGP and
CPFF programs through December 31, 2008.
Our 2009
funding plan anticipates approximately $45 billion of senior, unsecured
long-term debt issuance. In January 2009, we completed issuances of $11.0
billion funding under the TLGP. We also issued $5.1 billion in non-guaranteed
senior, unsecured debt with a maturity of 30 years under the non-guarantee
option of the TLGP. These issuances, along with the $13.4 billion of pre-funding
done in December 2008, bring our aggregate issuances to $29.5 billion or 66% of
our anticipated 2009 funding plan. Additionally, we anticipate that we will be
90% complete with our 2009 funding plan by June 30, 2009.
We
maintain securitization capability in most of the asset classes we have
traditionally securitized. However, these capabilities have been, and continue
to be, more limited than in 2007. We have continued to execute new
securitizations utilizing bank commercial paper conduits. Securitization
proceeds were $12.6 billion and $56.5 billion during the three months and the
year ended December 31, 2008, respectively. Comparable amounts were $18.3
billion and $76.4 billion, for the three months and the year ended December 31,
2007, respectively.
We have
successfully grown our alternative funding to $54 billion at December 31, 2008,
including $36 billion of bank deposits. Deposits increased by $24.8 billion
since January 1, 2008. We have deposit-taking capability at nine banks outside
of the U.S. and two banks in the U.S. − GE Money Bank
Inc., a Federal Savings Bank (FSB), and GE Capital Financial Inc., an industrial
bank (IB). The FSB and IB currently issue certificates of deposits (CDs)
distributed by brokers in maturity terms from three months to ten years. Total
outstanding CDs at these two banks at December 31, 2008, were $24.5 billion. We
expect deposits to continue to grow and constitute a greater percentage of our
total funding in the future.
In the
event we cannot sufficiently access our normal sources of funding, we have a
number of alternative sources of liquidity available, including cash balances
and collections, marketable securities and credit lines. In the event these
sources are not sufficient to repay commercial paper
and term debt as it becomes due or to meet our other liquidity needs, we can
access the CPFF and the TLGP and/or seek other sources of
funding.
Our cash
and equivalents were $36.4 billion at December 31, 2008. We anticipate that we
will continue to generate cash from operating activities in the future, which is
available to help meet our liquidity needs. We also generate substantial cash
from the principal collections of loans and rentals from leased assets, which
historically has been invested in asset growth. We are managing collections
versus originations to help support liquidity needs and are estimating $25
billion of excess collections in 2009.
Committed,
unused credit lines totaling $60.0 billion had been extended to us by 65
financial institutions at December 31, 2008. These lines include $37.4 billion
of revolving credit agreements under which we can borrow funds for periods
exceeding one year. Additionally, $21.3 billion are 364-day lines that contain a
term-out feature that allows us to extend borrowings for one year from the date
of expiration of the lending agreement.
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 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 of our borrowings match the
expected yields on our assets. To test the effectiveness of our positions,
we assumed that, on January 1, 2009, 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 2009. We
estimated, based on the year-end 2008 portfolio and holding everything
else constant, that our 2009 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 2008 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 2009 earnings of such a shift in exchange
rates.
|
Statement
of Changes in Shareowner’s Equity
Shareowner’s
equity decreased by $3.0 billion in 2008, compared with increases of $4.6
billion and $6.4 billion in 2007 and 2006, respectively.
Over the
three-year period, net earnings increased equity by $7.3 billion, $9.8 billion
and $10.4 billion, partially offset by dividends declared of $2.4 billion, $6.9
billion and $8.3 billion in 2008, 2007 and 2006, respectively.
Elements
of Other Comprehensive Income reduced shareowner’s equity by $13.5 billion in
2008, compared with increases of $1.7 billion and $2.2 billion in 2007 and 2006,
respectively, inclusive of changes in accounting principles. The components of
these changes are as follows:
·
|
Changes
in benefit plans reduced shareowner’s equity by $0.3 billion in 2008,
reflecting declines in the fair value of plan assets as a result of market
conditions and adverse changes in the economic environment. This compared
with increases of $0.2 billion and an insignificant amount in 2007 and
2006, respectively. In addition, adoption of SFAS 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, at December
31, 2006, reduced shareowner’s equity by $0.1
billion.
|
·
|
Currency
translation adjustments decreased shareowner’s equity by $8.7 billion in
2008 and increased equity by $2.6 billion and $2.5 billion in 2007 and
2006, respectively. 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. At the end of 2008, the U.S. dollar was stronger against most
major currencies, including the pound sterling, the Australian dollar and
the euro, compared with a weaker dollar against those currencies at the
end of 2007 and 2006. The dollar was weaker against the Japanese yen in
2008 and 2007.
|
·
|
Net
unrealized losses on investment securities reduced shareowner’s equity by
$2.0 billion in 2008, reflecting adverse market conditions on the fair
value of securities classified as available for sale, primarily corporate
debt and mortgage-backed securities. The change in fair value of
investment securities decreased shareowner’s equity by $0.5 billion and
$0.3 billion in 2007 and 2006, respectively. Further information about
investment securities is provided in note 5 to the consolidated financial
statements in Part II, Item 8. “Financial Statements and Supplementary
Data” of this Form 10-K Report.
|
·
|
Changes
in the fair value of derivatives designated as cash flow hedges decreased
shareowner’s equity by $2.5 billion in 2008, primarily reflecting the
effect of lower interest rates on interest rate and currency swaps. The
change in the fair value of derivatives designated as cash flow hedges
decreased equity by $0.6 billion in 2007 and increased equity by $0.2
billion in 2006. Further information about the fair value of derivatives
is provided in note 20 to the consolidated financial statements in Part
II, Item 8. “Financial Statements and Supplementary Data” of this Form
10-K Report.
|
As
discussed in the previous Liquidity and Borrowings section, in the fourth
quarter of 2008, GE raised $15 billion in cash through common and preferred
stock offerings and contributed $5.5 billion to GECC through GECS. As a result
of this action, additional paid-in capital increased by $5.5 billion in 2008,
compared with $0.1 billion and $2.0 billion in 2007 and 2006,
respectively.
Overview
of Our Cash Flow from 2006 through 2008
Our cash
and equivalents aggregated $36.4 billion at December 31, 2008, compared with
$8.6 billion at December 31, 2007. GECC cash from operating activities (CFOA)
totaled $30.5 billion in 2008, compared with $23.6 billion in 2007. The increase
is primarily the result of increased collections of interest from loans and
finance leases and rental income from operating leases, resulting primarily from
core growth and currency exchange; and increases in cash collateral received
from counterparties on derivative contracts. These increases were partially
offset by increases in interest payments resulting from increased borrowings and
taxes paid.
Our
principal use of cash has been investing in assets to grow our businesses. Of
the $29.3 billion that we invested during 2008, $19.9 billion was used for
additions to financing receivables; $13.2 billion was used to invest in new
equipment, principally for lease to others; and $25.0 billion was used for
acquisitions of new businesses, the largest of which were Merrill Lynch Capital,
CitiCapital and Bank BPH in 2008. This use of cash was partially offset by
proceeds from dispositions of property, plant and equipment of $10.7 billion and
proceeds from sales of discontinued operations and principal businesses of $9.9
billion.
We paid
dividends to General Electric Capital Services, Inc. (GECS), our parent, through
a distribution of our retained earnings, including special dividends from
proceeds of certain business sales. Dividends paid to GECS totaled $2.4 billion
in 2008, compared with $6.7 billion in 2007. There were no special dividends
paid to GECS in 2008, compared with $1.8 billion in 2007. During 2008, our
borrowings with maturities of 90 days or less decreased by $30.6 billion. New
borrowings of $122.3 billion having maturities longer than 90 days were added
during 2008, while $67.0 billion of such long-term borrowings were
retired.
Contractual
Obligations
As
defined by reporting regulations, our contractual obligations for future
payments as of December 31, 2008, follow.
|
Payments
due by period
|
|
(In
billions)
|
Total
|
|
2009
|
|
2010-2011
|
|
2012-2013
|
|
2014
and
thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
(note 12)
|
$
|
510.4
|
|
$
|
188.6
|
|
|
$
|
115.7
|
|
|
|
$
|
75.0
|
|
|
|
$
|
131.1
|
|
|
Interest
on borrowings
|
|
138.0
|
|
|
20.0
|
|
|
|
28.0
|
|
|
|
|
17.0
|
|
|
|
|
73.0
|
|
|
Operating
lease obligations (note 4)
|
|
3.6
|
|
|
0.8
|
|
|
|
1.1
|
|
|
|
|
0.7
|
|
|
|
|
1.0
|
|
|
Purchase
obligations(a)(b)
|
|
30.0
|
|
|
15.0
|
|
|
|
11.0
|
|
|
|
|
4.0
|
|
|
|
|
−
|
|
|
Insurance
liabilities (note
13)(c)
|
|
10.0
|
|
|
1.0
|
|
|
|
3.0
|
|
|
|
|
1.0
|
|
|
|
|
5.0
|
|
|
Other
liabilities(d)
|
|
33.0
|
|
|
27.0
|
|
|
|
3.0
|
|
|
|
|
−
|
|
|
|
|
3.0
|
|
|
Contractual
obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued operations(e)
|
|
1.0
|
|
|
1.0
|
|
|
|
−
|
|
|
|
|
−
|
|
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
all take-or-pay arrangements, capital expenditures, contractual
commitments to purchase equipment that will be 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 22 to the consolidated financial statements in Part II, Item 8.
“Financial Statements and Supplementary Data” of this Form 10-K
Report.
|
|
(c)
|
Included
guaranteed investment 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 14 and 20 to the consolidated financial statements in Part II, Item
8. “Financial Statements and Supplementary Data” of this Form 10-K Report
for further information on certain of these items.
|
|
(e)
|
Included
payments for other liabilities.
|
|
Variable
Interest Entities and Off-Balance Sheet Arrangements
We
securitize financial assets and arrange other forms of asset-backed financing in
the ordinary course of business to improve shareowner returns and as an
alternative source of funding. 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.
Our
securitization activities are conducted using Variable Interest Entities (VIEs),
principally QSPEs. Certain of our VIEs are consolidated because we are
considered to be the primary beneficiary of the entity. Our interests in other
VIEs, including QSPEs and VIEs for which we are not the primary beneficiary, are
accounted for as investment securities, financing receivables or equity method
investments depending on the nature of our involvement. At December 31, 2008,
consolidated variable interest entity assets and liabilities were $25.1 billion
and $20.2 billion, respectively, a decrease of $5.7 billion and $3.1 billion
from 2007, respectively. At December 31, 2008, variable interests in
unconsolidated VIEs other than QSPEs were $2.9 billion, an increase of $1.2
billion from 2007. Our maximum exposure to loss related to such entities at
December 31, 2008, was $4.0 billion, up $1.5 billion from 2007, and includes our
investment in the unconsolidated VIEs and our contractual obligations to fund
new investments by these entities.
QSPEs
that we use for securitization are funded with asset-backed commercial paper and
term debt. The assets we securitize include: receivables secured by equipment,
commercial real estate, credit card receivables, floorplan inventory
receivables, GE trade receivables and other assets originated and underwritten
by us in the ordinary course of business. At December 31, 2008, off-balance
sheet securitization entities held $50.1 billion in transferred financial
assets, down $2.8 billion from year-end 2007. Assets held by these entities are
of equivalent credit quality to our on-book assets. We monitor the underlying
credit quality in accordance with our role as servicer and apply rigorous
controls to the execution of securitization transactions. With the exception of
credit and liquidity support discussed below, investors in these entities have
recourse only to the underlying assets.
At
December 31, 2008, our Statement of Financial Position included $8.8 billion in
retained interests related to the transferred financial assets discussed above.
These retained interests are held by QSPEs and VIEs for which we are not the
primary beneficiary and take two forms: (1) sellers’ interests, which are
classified as financing receivables, and (2) subordinated interests, designed to
provide credit enhancement to senior interests, which are classified as
investment securities. The carrying value of our retained interests classified
as financing receivables was $3.8 billion at December 31, 2008, up $0.3 billion
from 2007. The carrying value of our retained interests classified as investment
securities was $5.0 billion at December 31, 2008, up $0.9 billion from 2007.
Certain of these retained interests are accounted for with changes in fair value
recorded in earnings. During both 2008 and 2007, we recognized declines in fair
value on those retained interests of $0.1 billion. For those retained interests
classified as investment securities, we recognized an insignificant amount of
other-than-temporary impairments in both 2008 and 2007. Our recourse liability
in these arrangements was an inconsequential amount in both 2008 and
2007.
We did
not provide support to consolidated VIEs, unconsolidated VIEs or QSPEs beyond
what we are contractually obligated to provide in either 2008 or 2007. We do not
have implicit support arrangements with any VIEs or QSPEs.
The FASB
currently has a project on its agenda that reconsiders the accounting for VIEs
and securitization. While final guidance has not yet been issued, it is likely
that the Board will eliminate the scope exclusion in FASB Interpretation (FIN)
46(R) related to QSPEs, which would result in consolidation of a majority of the
QSPEs we use for securitization. In addition, proposed changes in the criteria
for derecognition of financial assets will significantly reduce the number of
securitizations that qualify for off-balance sheet treatment and gain
recognition. A revised standard is expected to be issued later in 2009 and could
be effective for our 2010 financial statements. Further information about our
securitization activity and our involvement with QSPEs is provided in note 21 to
the consolidated financial statements in Part II, Item 8. “Financial Statements
and Supplementary Data” of this Form 10-K Report.
Debt
Instruments, Guarantees and Covenants
The major
debt rating agencies routinely evaluate our debt. This evaluation is based on a
number of factors, which include financial strength as well as transparency with
rating agencies and timeliness of financial reporting. In December 2008,
Standard & Poor’s Ratings Services affirmed GE and GE Capital’s “AAA”
long-term and “A-1+” short-term corporate credit ratings but revised its ratings
outlook from stable to negative based partly on the concerns regarding GE
Capital’s future performance and funding in light of capital market turmoil. On
January 24, 2009, Moody’s Investment Services placed the long-term ratings of GE
and GE Capital on review for possible downgrade. The firm’s “Prime-1” short-term
ratings were affirmed. Moody’s said the review for downgrade is based primarily
upon heightened uncertainty regarding GE Capital’s asset quality and earnings
performance in future periods. Various debt instruments, guarantees and
covenants would require posting additional capital or collateral in the event of
a ratings downgrade, but none are triggered if our ratings are reduced to
AA-/Aa3 or A-1+/P-1 or higher. Our objective is to maintain our Triple-A rating,
but we do not anticipate any major operational impacts should that
change.
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, retained cash flow to debt,
market access, back-up liquidity from banks and other sources, composition
of total debt and interest coverage
|
·
|
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
|
·
|
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.
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 standard
master agreements containing mutual downgrade provisions that provide the
ability of the counterparty to require assignment or termination if the
long-term credit rating of the applicable GE entity were to fall below
A-/A3. In certain of these master netting agreements, the counterparty
also has the ability to require assignment or termination if the
short-term rating of the applicable GE entity were to fall below A-1/P-1.
The fair value of our exposure after consideration of netting arrangements
and collateral under the agreements was estimated to be $2.9 billion at
December 31, 2008.
|
·
|
If
our ratio of earnings to fixed charges, which was 1.24:1 at the end of
2008, 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 at December 31, 2008 and
2007.
|
·
|
In
connection with certain subordinated debentures for which GECC receives
equity credit by rating agencies, GE has agreed to promptly return to GECC
dividends, distributions or other payments it receives from GECC during
events of default or interest deferral periods under such subordinated
debentures. There were $7.3 billion of such debentures outstanding at
December 31, 2008.
|
The
following conditions relate to consolidated entities:
·
|
If
our short-term credit rating or certain consolidated entities discussed
further in note 21 to the consolidated financial statements in Part II,
Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report 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 $3.8 billion at December 31,
2008.
|
·
|
One
group of consolidated entities holds investment securities funded by the
issuance of GICs. If the 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
would be required to provide approximately $3.5 billion of capital to such
entities as of December 31, 2008, pursuant to letters of credit issued by
GECC. To the extent that the entities’ liabilities exceed the ultimate
value of the proceeds from the sale of their assets and the amount drawn
under the letters of credit, GE Capital could be required to provide such
excess amount. As of December 31, 2008, the value of these entities’
liabilities was $10.7 billion and the fair value of their assets was $9.2
billion (which included unrealized losses on investment securities of $2.1
billion). With respect to these investment securities, we intend to hold
them at least until such time as their individual fair values exceed their
amortized cost and we have the ability to hold all such debt securities
until maturity.
|
·
|
Another
consolidated entity also issues GICs where proceeds are loaned to GE
Capital. If the long-term credit rating of GE Capital were to fall below
AA–/Aa3 or its short-term credit rating were to fall below A–1+/P–1, GE
Capital could be required to provide up to approximately $4.7 billion as
of December 31, 2008 to repay holders of
GICs.
|
In our
history, we have never violated any of the above conditions.
On
November 12, 2008, the FDIC approved GE Capital’s application for designation as
an eligible entity under the FDIC’s TLGP. Qualifying debt issued by GE Capital
is guaranteed under the Debt Guarantee Program of the FDIC’s TLGP and is backed
by the full faith and credit of the United States. The FDIC’s guarantee under
the TLGP is effective until the earlier of the maturity of the debt or June 30,
2012. The maximum amount of debt that GE Capital is permitted to have issued and
outstanding under the Debt Guarantee Program at any time is approximately $126
billion. At December 31, 2008, GE Capital had issued and outstanding, $35.2
billion of senior, unsecured debt that was guaranteed by the FDIC. GE Capital
and GE entered into an Eligible Entity Designation Agreement and GE Capital is
subject to the terms of a Master Agreement, each entered into with the FDIC. The
terms of these agreements include, among other things, a requirement that GE and
GE Capital reimburse the FDIC for any amounts that the FDIC pays to holders of
debt that is guaranteed by the FDIC.
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. All of these
estimates reflect our best judgment about current, and for some estimates
future, economic and market conditions and their effects based on information
available as of the date of these financial statements. If such conditions
persist longer or deteriorate further than expected, it is reasonably possible
that the judgments and estimates described below could change, which may result
in future impairments of investment securities, goodwill, intangibles and
long-lived assets, incremental losses on financing receivables, establishment of
valuation allowances on deferred tax assets and increased tax liabilities, among
other effects. Also see note 1, Summary of Significant Accounting Policies, in
Part II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report, which discusses the significant 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 includes
standards and policies for reviewing major risk exposures and concentrations,
and evaluates relevant data either for individual loans or financing leases, or
on a portfolio basis, as appropriate.
Further
information is provided in the Global Risk Management section and Financial
Resources and Liquidity – Financing Receivables section of this Item, the Asset
impairment section that follows and in notes 1, 6 and 7 to the consolidated
financial statements in Part II, Item 8. “Financial Statements and Supplementary
Data” of this Form 10-K Report.
Asset impairment assessment
involves various estimates and assumptions as follows:
Further
information about actual and potential impairment losses is provided in the
Financial Resources and Liquidity – Investment Securities section of this Item
and in notes 1, 5 and 10 to the consolidated financial statements in Part II,
Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
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 GECAS, 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 global demand
for commercial aircraft. 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 in both 2008 and 2007. Provision for losses on
financing receivables related to commercial aircraft were insignificant in 2008
and 2007.
Further
information on impairment losses and our exposure to the commercial aviation
industry is provided in the Operations – Overview section of this Item and in
notes 8 and 22 to the consolidated financial statements in Part II, Item 8.
“Financial Statements and Supplementary Data” of this Form 10-K
Report.
Real Estate. We review our
real estate investment portfolio for impairment routinely or when events or
circumstances indicate that the related carrying amounts may not be recoverable.
The cash flow estimates used for both estimating value and the recoverability
analysis are inherently judgmental, and reflect current and projected lease
profiles, available industry information about expected trends in rental,
occupancy and capitalization rates and expected business plans, which include
our estimated holding period for the asset. 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. At December 31, 2008, the carrying value of our Real Estate investments
exceeded the estimated value by about $4 billion. At December 31, 2007, the
estimated value exceeded the carrying value by about $3 billion. This decline in
the estimated value of the portfolio reflected sales of properties with a book
value of $5.8 billion, resulting in pre-tax gains of $1.9 billion, and also
reflected deterioration in current and expected real estate market liquidity and
macroeconomic trends throughout the year, resulting in declining market
occupancy rates and market rents as well as increases in our estimates of market
capitalization rates based on historical data. Declines in estimated value of
real estate below carrying value result in impairment losses when the aggregate
undiscounted cash flow estimates used in the estimated value measurement are
below carrying amount. As such, estimated losses in the portfolio will not
necessarily result in recognized impairment losses. When we recognize an
impairment, the impairment is measured based upon the fair value of the
underlying asset which is based upon current market data, including current
capitalization rates. During 2008, our Real Estate business recognized pre-tax
impairments of $0.3 billion in its real estate held for investment, as compared
to $0.2 billion in 2007. Continued deterioration in economic conditions or
prolonged market illiquidity may result in further impairments being recognized.
Furthermore, significant judgment and uncertainty related to forecasted
valuation trends, especially in illiquid markets, results in inherent
imprecision in real estate value estimates. Further information is provided in
the Global Risk Management section of this Item and in note 10 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Goodwill and other identified
intangible assets. We test goodwill for impairment annually and whenever
events or circumstances make it more likely than not that the fair value of a
reporting unit has fallen below its carrying amount, 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. For our reporting units, these cash flows are
reduced for estimated interest costs. Also, when determining the amount of
goodwill to be allocated to a business disposition, we reduce the cash proceeds
we receive from the sale by the amount of debt which is allocated to the sold
business in order to be consistent with the reporting unit valuation
methodology. 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.
Given the
significant changes in the business climate for financial services and our
stated strategy to reduce our ending net investment, we re-tested goodwill for
impairment at the reporting units during the fourth quarter of 2008. In
performing this analysis, we revised our estimated future cash flows and
discount rates, as appropriate, to reflect current market conditions in the
financial services industry. In each case, no impairment was
indicated.
We review
identified intangible assets with defined useful lives and subject to
amortization for impairment whenever events or changes in circumstances indicate
that the related carrying amounts may not be recoverable. Determining whether an
impairment loss occurred requires 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 – Goodwill and
Other Intangible Assets section of this Item and in notes 1 and 9 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
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, including evaluating
uncertainties under FIN 48, Accounting for Uncertainty in Income
Taxes. We review our tax positions quarterly and adjust the balances as
new information becomes available. Our income tax rate is significantly affected
by the tax rate on our global operations. In addition to local country tax laws
and regulations, this rate depends on the extent earnings are indefinitely
reinvested outside the United States. Indefinite reinvestment is determined by
management’s judgement about and intentions concerning the future operations of
the company. 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
carryforwards. We evaluate the recoverability of these future tax deductions and
credits 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 allowances, were $1.0
billion and $0.8 billion at December 31, 2008 and 2007, respectively. Such
year-end 2008 amounts are expected to be fully recoverable within the applicable
statutory expiration periods. To the extent we do not consider it more likely
than not that a deferred tax asset will be recovered, a valuation allowance is
established.
Further
information on income taxes is provided in the Operations – Overview section of
this Item and in note 14 to the consolidated financial statements in Part II,
Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
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.
In
evaluating whether a particular relationship qualifies for hedge accounting, we
test effectiveness at inception and each reporting period 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. 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, 2008, derivative assets and liabilities were $11.2 billion and $3.8
billion, respectively. Further information about our use of derivatives is
provided in notes 12, 16 and 20 to the consolidated financial statements in Part
II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Investments measured at fair value in
earnings include retained interests in securitizations accounted for
under SFAS 155, Accounting for
Certain Hybrid Financial Instruments, and equity investments of $2.6
billion at year-end 2008. The earnings effects of changes in fair value on these
assets, favorable and unfavorable, will be reflected in the period in which
those changes occur. As discussed in note 11 to the consolidated financial
statements in Part II, Item 8. “Financial Statements and Supplementary Data” of
this Form 10-K Report, we have businesses that are held for sale valued at $2.7
billion at year-end 2008, which represents the estimated fair value less costs
to sell. Those sales are expected to close in the first quarter of 2009. As
discussed in note 10 to the consolidated financial statements in Part II, Item
8. “Financial Statements and Supplementary Data” of this Form 10-K Report, we
also have assets that are classified as held for sale in the ordinary course of
business, primarily credit card receivables, loans and real estate properties,
carried at $5.0 billion at year-end 2008, which represents the lower of carrying
amount or estimated fair
value
less costs to sell. To the extent that the estimated fair value less costs to
sell is lower than carrying value, any favorable or unfavorable changes in fair
value will be reflected in earnings in the period in which such changes
occur.
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 22 to the consolidated financial statements in
Part II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Other
Information
New
Accounting Standards
On
September 15, 2006, the FASB issued SFAS 157, Fair Value Measurements,
which defines fair value, establishes a new framework for measuring that value
and expands disclosures about fair value measurements. The standard applied
prospectively to new fair value measurements performed after January 1, 2008,
for measurements of the fair values of financial instruments and recurring fair
value measurements of non-financial assets and liabilities; on January 1, 2009,
the standard applies to all remaining fair value measurements, including
non-recurring valuations of non-financial assets and liabilities such as those
used in measuring impairments of goodwill, other intangible assets and other
long-lived assets. It also applies to fair value measurements of non-financial
assets acquired and liabilities assumed in business combinations consummated
after January 1, 2009.
On
December 4, 2007, the FASB issued SFAS 141(R), Business Combinations, which
is effective for us on January 1, 2009. This standard will significantly change
the accounting for business acquisitions both during the period of the
acquisition and in subsequent periods. Among the more significant changes in the
accounting for acquisitions are the following:
·
|
In-process
research and development (IPR&D) will be accounted for as an asset,
with the cost recognized as the research and development is realized or
abandoned. IPR&D is presently expensed at the time of the
acquisition.
|
·
|
Contingent
consideration will generally be recorded at fair value with subsequent
adjustments recognized in operations. Contingent consideration is
presently accounted for as an adjustment of purchase
price.
|
·
|
Decreases
in valuation allowances on acquired deferred tax assets will be recognized
in operations. Such changes previously were considered to be subsequent
changes in consideration and were recorded as decreases in
goodwill.
|
·
|
Transaction
costs will generally be expensed. Certain such costs are presently treated
as costs of the acquisition.
|
Generally,
the effects of SFAS 141(R) will depend on future acquisitions. In the fourth
quarter of 2008, we expensed an insignificant amount of direct costs related to
business combinations that were in process, but not completed by the effective
date of SFAS 141(R). In December 2008, the FASB issued FASB Staff Position (FSP)
FAS 141(R)-a, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies, a proposed FSP which would amend the accounting in
SFAS 141(R) for assets and liabilities arising from contingencies in a business
combination. The proposed FSP would require that pre-acquisition contingencies
be recognized at fair value, if fair value can be reasonably determined. If fair
value cannot be reasonably determined, the proposed FSP requires measurement
based on the best estimate in accordance with SFAS 5, Accounting for
Contingencies.
Also on
December 4, 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51, which is
effective for us on January 1, 2009. This standard will significantly change the
accounting and reporting related to noncontrolling interests in our consolidated
financial statements. After adoption, noncontrolling interests ($2.4 billion and
$1.6 billion at December 31, 2008 and 2007, respectively) will be classified as
shareowner’s equity, a change from its current classification between
liabilities and shareowner’s equity. Earnings attributable to minority interests
($0.2 billion in both 2008 and 2007, compared to $0.3 billion in 2006) will be
included in net earnings. Purchases and sales of minority interests will be
reported in equity similar to treasury stock transactions. Gains on sales of
minority interests that would not have been reported in net earnings under SFAS
160 amounted to $0.1 billion in both 2008 and 2007.
On
December 12, 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue
07-1, Accounting for
Collaborative Arrangements. The consensus provides guidance on
presentation of the financial results of a collaborative arrangement, including
payments between the parties. The consensus requires us to present the results
of the collaborative arrangement in accordance with EITF Issue 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent, and, in the absence of applicable
authoritative literature, to adopt an accounting policy for
payments
between the participants that will be consistently applied. The consensus is
applied retrospectively to all collaborative arrangements existing as of January
1, 2009, and covers arrangements in several of our businesses. Adoption of this
standard will not affect our earnings, cash flows or financial
position.
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 U.S.
Securities and Exchange Commission rules. Specifically, we have referred
to:
·
|
Average
total shareowner’s equity, excluding effects of discontinued
operations
|
·
|
Ratio
of debt to equity at GE Capital, net of cash and equivalents and with
classification of hybrid debt as
equity
|
·
|
Delinquency
rates on managed equipment financing loans and leases and managed consumer
financing receivables for 2008, 2007 and
2006
|
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)
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
total shareowner’s equity(b)
|
$
|
61,159
|
|
$
|
58,560
|
|
$
|
53,769
|
|
$
|
53,460
|
|
$
|
49,403
|
|
Less
the effects of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative earnings
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations
|
|
−
|
|
|
–
|
|
|
–
|
|
|
2,725
|
|
|
4,131
|
|
Average net investment in
discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
(115
|
)
|
|
(158
|
)
|
|
1,243
|
|
|
1,780
|
|
|
–
|
|
Average
total shareowner’s equity, excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effects of discontinued
operations(a)
|
$
|
61,274
|
|
$
|
58,718
|
|
$
|
52,526
|
|
$
|
48,955
|
|
$
|
45,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Used
for computing return on average shareowner’s equity shown in the Selected
Financial Data section in Part II, Item 6. “Selected Financial
Data.”
|
|
(b)
|
On
an annual basis, calculated using a five-point average.
|
|
Our ROTC
calculation excludes earnings (losses) of discontinued operations from the
numerator because U.S. GAAP requires us to display those earnings (losses) in
the Statement of Earnings. We exclude the cumulative effect of earnings (losses)
of discontinued operations from the denominator in our ROTC calculation (1) for
each of the periods for which related discontinued operations were presented,
and (2) for our average net investment in discontinued operations since July 1,
2005. Had we disposed of these operations before July 1, 2005, we would have
applied the proceeds to reduce parent-supported debt at GE Capital. However,
since parent-supported debt at GE Capital was retired by June 30, 2005, we have
assumed that we would have distributed the proceeds after that time to our
shareowner through dividends, thus reducing average total shareowner’s equity.
Our calculation of average total shareowner's equity may not be directly
comparable to similarly titled measures reported by other companies. We believe
that it is a clearer way to measure the ongoing trend in return on total capital
for the continuing operations of our businesses given the extent that
discontinued operations have affected our reported results. We believe that this
results in a more relevant measure for management and investors to evaluate
performance of our continuing operations, on a consistent basis, and to evaluate
and compare the performance of our continuing operations with the ongoing
operations of other businesses and companies.
Ratio
of Debt to Equity at GE Capital, Net of Cash and Equivalents and
with
Classification
of Hybrid Debt as Equity
December
31 (Dollars in millions)
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
GE
Capital debt
|
|
|
|
$
|
510,356
|
|
Less
cash and equivalents
|
|
|
|
|
(36,430
|
)
|
Less
hybrid debt
|
|
|
|
|
(7,725
|
)
|
|
|
|
|
$
|
466,201
|
|
|
|
|
|
|
|
|
GE
Capital equity
|
|
|
|
$
|
58,229
|
|
Plus
hybrid debt
|
|
|
|
|
7,725
|
|
|
|
|
|
$
|
65,954
|
|
|
|
|
|
|
|
|
Ratio
|
|
|
|
|
7.07:1
|
|
We have
provided the GE Capital ratio of debt to equity on a basis that reflects the use
of cash and equivalents to reduce debt, and with long-term debt due in 2066 and
2067 classified as equity. We believe this is a useful comparison to
a GAAP-based ratio of debt to equity because cash balances may be used to reduce
debt and because this long-term debt has equity-like characteristics. The
usefulness of this supplemental measure may be limited, however, as the total
amount of cash and equivalents at any point in time may be different than the
amount that could practically be applied to reduce outstanding debt, and it may
not be advantageous or practical to replace debt that does not mature for more
than 50 years with equity. Also, in February 2009, the GE Board authorized a
capital contribution of up to $9.5 billion to GE Capital, which is expected to
be made in the first quarter of 2009. The effect of this capital contribution on
GE Capital equity is not reflected in the ratio above. Despite these potential
limitations, we believe that this measure, considered along with the
corresponding GAAP measure, provides investors with additional information that
may be more comparable to other financial institutions and
businesses.
Delinquency
Rates on Certain Financing Receivables
Delinquency
rates on managed equipment financing loans and leases and managed consumer
financing receivables follow.
Equipment
Financing
December
31
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
Managed
|
2.17
|
%
|
1.21
|
%
|
1.22
|
%
|
Off-book
|
1.20
|
|
0.71
|
|
0.52
|
|
On-book
|
2.34
|
|
1.33
|
|
1.42
|
|
Consumer
December
31
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
Managed
|
7.47
|
%
|
5.38
|
%
|
5.22
|
%
|
U.S.
|
7.14
|
|
5.52
|
|
4.93
|
|
Non-U.S.
|
7.64
|
|
5.32
|
|
5.34
|
|
Off–book
|
8.24
|
|
6.64
|
|
5.49
|
|
U.S.
|
8.24
|
|
6.64
|
|
5.49
|
|
Non-U.S.
|
(a
|
)
|
(a
|
)
|
(a
|
)
|
On–book
|
7.35
|
|
5.22
|
|
5.20
|
|
U.S.
|
6.39
|
|
4.78
|
|
4.70
|
|
Non-U.S.
|
7.64
|
|
5.32
|
|
5.34
|
|
Delinquency
rates on on-book and off-book equipment financing loans and leases increased
from December 31, 2007 to December 31, 2008, as a result of continuing weakness
in the economic and credit environment. In addition, delinquency rates on
on-book equipment financing loans and leases increased from December 31, 2007 to
December 31, 2008, as a result of the inclusion of the CitiCapital acquisition
and Sanyo acquisition in Japan, which contributed an additional 12 and 9 basis
points, respectively, at December 31, 2008.
The
increases in off-book and on-book delinquencies for consumer financing
receivables in the U.S. from December 31, 2007 to December 31, 2008, reflect the
continued rise in delinquencies across the U.S. credit card receivables
platforms. The increase in on-book delinquencies for consumer financing
receivables outside of the U.S. reflects the effects of the declining U.K.
housing market. The increase in off-book delinquencies for consumer financing
receivables in the U.S. from December 31, 2006 to December 31, 2007, reflected
both a change in the mix of the receivables securitized during 2007 – for
example, our Care Credit receivables which generally have a higher delinquency
rate than our core private label card portfolio – as well as the risk in the
delinquencies across the broader portfolio of U.S. credit card
receivables.
We
believe that delinquency rates on managed financing receivables provide a useful
perspective of our portfolio quality and are key indicators of financial
performance. We use this non-GAAP financial measure because it provides
information that enables management and investors to understand the underlying
operational performance and trends of certain financing receivables and
facilitates a comparison with the performance of our competitors. The same
underwriting standards and ongoing risk monitoring are used for both on-book and
off-book portfolios as the customer’s credit performance will affect both loans
retained on the Statement of Financial Position and securitized loans. We
believe that managed basis information is useful to management and investors,
enabling them to understand both the credit risks associated with the loans
reported on the Statement of Financial Position and our retained interests in
securitized loans.
Information
about our global risk management can be found in the Operations – Global Risk
Management and Financial Resources and Liquidity – Exchange Rate and Interest
Rate Risks sections of Part II, Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this Form 10-K
Report.
Item
8. Financial Statements and Supplementary Data.
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, 2008, based on the framework and criteria established in
Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Based on
this evaluation, our management has concluded that our internal control over
financial reporting was effective as of December 31, 2008.
Our
independent registered public accounting firm has issued an audit report on our
internal control over financial reporting. Their report follows.
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, 2008
and 2007, 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,
2008. 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 GECC’s internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). GECC’s 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 and an opinion on the Company'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 consolidated 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, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, the consolidated financial statements and schedule referred to above
present fairly, in all material respects, the financial position of GECC as of
December 31, 2008 and 2007, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2008, in
conformity with U.S. generally accepted accounting principles. Also, in our
opinion, GECC maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on criteria established
in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
As
discussed in note 1 to the consolidated financial statements, GECC, in 2008,
changed its method of accounting for fair value measurements and adopted the
fair value option for certain financial assets and financial liabilities and, in
2007, changed its method of accounting for a change or projected change in the
timing of cash flows relating to income taxes generated by leveraged lease
transactions. In 2006, GECC changed its method of accounting for pension and
other post retirement benefits.
/s/ KPMG LLP
KPMG
LLP
Stamford,
Connecticut
February
6, 2009
General
Electric Capital Corporation and consolidated affiliates
Statement
of Earnings
For
the years ended December 31 (In millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Revenues
from services (note 3)
|
$
|
66,221
|
|
$
|
66,281
|
|
$
|
55,098
|
|
Sales
of goods
|
|
1,773
|
|
|
718
|
|
|
2,384
|
|
Total revenues
|
|
67,994
|
|
|
66,999
|
|
|
57,482
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
Interest
|
|
24,859
|
|
|
22,280
|
|
|
17,514
|
|
Operating
and administrative (note 4)
|
|
18,335
|
|
|
17,914
|
|
|
16,150
|
|
Cost
of goods sold
|
|
1,517
|
|
|
628
|
|
|
2,204
|
|
Investment
contracts, insurance losses and insurance annuity
benefits
|
|
491
|
|
|
682
|
|
|
641
|
|
Provision
for losses on financing receivables (note 7)
|
|
7,498
|
|
|
4,488
|
|
|
2,998
|
|
Depreciation
and amortization (note 8)
|
|
9,303
|
|
|
8,093
|
|
|
6,453
|
|
Minority
interest in net earnings of consolidated affiliates
|
|
242
|
|
|
229
|
|
|
262
|
|
Total costs and
expenses
|
|
62,245
|
|
|
54,314
|
|
|
46,222
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before income taxes
|
|
5,749
|
|
|
12,685
|
|
|
11,260
|
|
Benefit
(provision) for income taxes (note 14)
|
|
2,265
|
|
|
(739
|
)
|
|
(1,165
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
8,014
|
|
|
11,946
|
|
|
10,095
|
|
Earnings
(loss) from discontinued operations, net of taxes (note 2)
|
|
(704
|
)
|
|
(2,131
|
)
|
|
291
|
|
Net
earnings
|
$
|
7,310
|
|
$
|
9,815
|
|
$
|
10,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Changes in Shareowner’s Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
Changes in shareowner’s
equity (note 16)
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
61,230
|
|
$
|
56,585
|
|
$
|
50,190
|
|
Dividends
and other transactions with shareowner
|
|
3,148
|
|
|
(6,769
|
)
|
|
(6,231
|
)
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
Investment securities –
net
|
|
(1,988
|
)
|
|
(506
|
)
|
|
(263
|
)
|
Currency translation adjustments
– net
|
|
(8,705
|
)
|
|
2,559
|
|
|
2,466
|
|
Cash flow hedges –
net
|
|
(2,504
|
)
|
|
(550
|
)
|
|
168
|
|
Benefit plans –
net
|
|
(262
|
)
|
|
173
|
|
|
(12
|
)
|
Total other comprehensive
income
|
|
(13,459
|
)
|
|
1,676
|
|
|
2,359
|
|
Increases
attributable to net earnings
|
|
7,310
|
|
|
9,815
|
|
|
10,386
|
|
Comprehensive
income
|
|
(6,149
|
)
|
|
11,491
|
|
|
12,745
|
|
Cumulative
effect of changes in accounting principles
|
|
−
|
|
|
(77
|
)
|
|
(119
|
)
|
Balance
at December 31
|
$
|
58,229
|
|
$
|
61,230
|
|
$
|
56,585
|
|
|
|
|
|
|
|
|
|
|
|
General
Electric Capital Corporation and consolidated affiliates
Statement
of Financial Position
At
December 31 (In millions, except share amounts)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
$
|
36,430
|
|
$
|
8,607
|
|
Investment
securities (note 5)
|
|
19,318
|
|
|
20,588
|
|
Inventories
|
|
77
|
|
|
63
|
|
Financing
receivables – net (notes 6 and 7)
|
|
370,592
|
|
|
378,467
|
|
Other
receivables
|
|
22,175
|
|
|
28,708
|
|
Property,
plant and equipment – net (note 8)
|
|
64,043
|
|
|
63,685
|
|
Goodwill
(note 9)
|
|
25,204
|
|
|
25,251
|
|
Other
intangible assets – net (note 9)
|
|
3,174
|
|
|
4,038
|
|
Other
assets (note 10)
|
|
84,201
|
|
|
82,502
|
|
Assets
of businesses held for sale (note 11)
|
|
10,556
|
|
|
−
|
|
Assets
of discontinued operations (note 2)
|
|
1,640
|
|
|
8,823
|
|
Total
assets
|
$
|
637,410
|
|
$
|
620,732
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
Short-term
borrowings (note 12)
|
$
|
188,601
|
|
$
|
186,769
|
|
Accounts
payable
|
|
14,863
|
|
|
14,515
|
|
Long-term
borrowings (note 12)
|
|
321,755
|
|
|
309,231
|
|
Investment
contracts, insurance liabilities and insurance
|
|
11,403
|
|
|
12,311
|
|
annuity benefits (note
13)
|
|
|
|
|
|
|
Other
liabilities
|
|
30,629
|
|
|
25,580
|
|
Deferred
income taxes (note 14)
|
|
8,112
|
|
|
7,983
|
|
Liabilities
of businesses held for sale (note 11)
|
|
636
|
|
|
−
|
|
Liabilities
of discontinued operations (note 2)
|
|
799
|
|
|
1,506
|
|
Total
liabilities
|
|
576,798
|
|
|
557,895
|
|
|
|
|
|
|
|
|
Minority
interest in equity of consolidated affiliates (note 15)
|
|
2,383
|
|
|
1,607
|
|
|
|
|
|
|
|
|
Common
stock, $14 par value (4,166,000 shares authorized at
|
|
|
|
|
|
|
December 31, 2008 and 2007, and
3,985,403 shares issued
|
|
|
|
|
|
|
and outstanding at December 31,
2008 and 2007)
|
|
56
|
|
|
56
|
|
Accumulated
gains (losses) – net
|
|
|
|
|
|
|
Investment
securities
|
|
(2,013
|
)
|
|
(25
|
)
|
Currency translation
adjustments
|
|
(1,337
|
)
|
|
7,368
|
|
Cash flow hedges
|
|
(3,253
|
)
|
|
(749
|
)
|
Benefit plans
|
|
(367
|
)
|
|
(105
|
)
|
Additional
paid-in capital
|
|
19,671
|
|
|
14,172
|
|
Retained
earnings
|
|
45,472
|
|
|
40,513
|
|
Total shareowner’s equity (note
16)
|
|
58,229
|
|
|
61,230
|
|
Total
liabilities and equity
|
$
|
637,410
|
|
$
|
620,732
|
|
|
|
|
|
|
|
|
The
sum of accumulated gains (losses) on investment securities, currency
translation adjustments, cash flow hedges and benefit plans constitutes
“Accumulated other comprehensive income,” as shown in note 16, and was
$(6,970) million and $6,489 million at December 31, 2008 and 2007,
respectively.
|
|
See
accompanying notes.
|
|
General
Electric Capital Corporation and consolidated affiliates
Statement
of Cash Flows
For
the years ended December 31 (In millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows – operating activities
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
7,310
|
|
$
|
9,815
|
|
$
|
10,386
|
|
Loss
(earnings) from discontinued operations
|
|
704
|
|
|
2,131
|
|
|
(291
|
)
|
Adjustments
to reconcile net earnings to cash provided
|
|
|
|
|
|
|
|
|
|
from operating
activities
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
of property, plant and equipment
|
|
9,303
|
|
|
8,093
|
|
|
6,453
|
|
Deferred income
taxes
|
|
(795
|
)
|
|
(278
|
)
|
|
519
|
|
Decrease (increase) in
inventories
|
|
(14
|
)
|
|
2
|
|
|
(23
|
)
|
Increase (decrease) in accounts
payable
|
|
129
|
|
|
(441
|
)
|
|
677
|
|
Provision for losses on
financing receivables
|
|
7,498
|
|
|
4,488
|
|
|
2,998
|
|
All other operating activities
(note 17)
|
|
6,367
|
|
|
(251
|
)
|
|
722
|
|
Cash
from operating activities – continuing operations
|
|
30,502
|
|
|
23,559
|
|
|
21,441
|
|
Cash
from (used for) operating activities – discontinued
operations
|
|
760
|
|
|
4,097
|
|
|
(1,911
|
)
|
Cash
from operating activities
|
|
31,262
|
|
|
27,656
|
|
|
19,530
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows – investing activities
|
|
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
(13,184
|
)
|
|
(15,004
|
)
|
|
(12,908
|
)
|
Dispositions
of property, plant and equipment
|
|
10,723
|
|
|
8,319
|
|
|
6,071
|
|
Net
increase in financing receivables (note 17)
|
|
(19,873
|
)
|
|
(44,572
|
)
|
|
(38,386
|
)
|
Proceeds
from sales of discontinued operations
|
|
5,220
|
|
|
117
|
|
|
3,663
|
|
Proceeds
from principal business dispositions
|
|
4,654
|
|
|
1,699
|
|
|
386
|
|
Payments
for principal businesses purchased
|
|
(24,961
|
)
|
|
(7,570
|
)
|
|
(7,299
|
)
|
All
other investing activities (note 17)
|
|
8,133
|
|
|
(2,029
|
)
|
|
(14,243
|
)
|
Cash
used for investing activities – continuing operations
|
|
(29,288
|
)
|
|
(59,040
|
)
|
|
(62,716
|
)
|
Cash
from (used for) investing activities – discontinued
operations
|
|
(876
|
)
|
|
(3,979
|
)
|
|
1,709
|
|
Cash
used for investing activities
|
|
(30,164
|
)
|
|
(63,019
|
)
|
|
(61,007
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows – financing activities
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in borrowings (maturities of 90 days or
less)
|
|
(30,602
|
)
|
|
2,145
|
|
|
10,031
|
|
Newly
issued debt (maturities longer than 90 days) (note 17)
|
|
122,312
|
|
|
92,049
|
|
|
90,042
|
|
Repayments
and other reductions (maturities longer
|
|
|
|
|
|
|
|
|
|
than 90 days) (note
17)
|
|
(66,953
|
)
|
|
(52,662
|
)
|
|
(48,932
|
)
|
Dividends
paid to shareowner
|
|
(2,351
|
)
|
|
(6,695
|
)
|
|
(7,904
|
)
|
All
other financing activities (note 17)
|
|
4,203
|
|
|
(408
|
)
|
|
1,918
|
|
Cash
from financing activities – continuing operations
|
|
26,609
|
|
|
34,429
|
|
|
45,155
|
|
Cash
used for financing activities – discontinued operations
|
|
(4
|
)
|
|
(8
|
)
|
|
(11
|
)
|
Cash
from financing activities
|
|
26,605
|
|
|
34,421
|
|
|
45,144
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents during year
|
|
27,703
|
|
|
(942
|
)
|
|
3,667
|
|
Cash
and equivalents at beginning of year
|
|
8,907
|
|
|
9,849
|
|
|
6,182
|
|
Cash
and equivalents at end of year
|
|
36,610
|
|
|
8,907
|
|
|
9,849
|
|
Less
cash and equivalents of discontinued operations at end of
year
|
|
180
|
|
|
300
|
|
|
190
|
|
Cash
and equivalents of continuing operations at end of year
|
$
|
36,430
|
|
$
|
8,607
|
|
$
|
9,659
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flows information
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
$
|
(24,402
|
)
|
$
|
(21,419
|
)
|
$
|
(14,879
|
)
|
Cash
recovered (paid) during the year for income taxes
|
|
(1,121
|
)
|
|
1,158
|
|
|
(886
|
)
|
|
|
|
|
|
|
|
|
|
|
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 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, giving effect to the
elimination of transactions between
affiliates.
|
·
|
Operating Segments These
comprise our five businesses, focused on the broad markets they serve:
Commercial Lending and Leasing (CLL), GE Money, Real Estate, Energy
Financial Services and GE Commercial Aviation Services (GECAS). Prior
period information has been reclassified to be consistent with the current
organization.
|
Unless
otherwise indicated, information in these notes to consolidated financial
statements relates to continuing operations. Certain of our operations have been
presented as discontinued. See note 2.
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.
Preparing
financial statements in conformity with U.S. GAAP requires us to make estimates
based on assumptions about current, and for some estimates future, economic and
market conditions (for example, unemployment, market liquidity, the real estate
market, etc.), which affect reported amounts and related disclosures in our
financial statements. Although our current estimates contemplate current
conditions and how we expect them to change in the future, as appropriate, it is
reasonably possible that in 2009 actual conditions could be worse than
anticipated in those estimates, which could materially affect our results of
operations and financial position. Among other effects, such changes could
result in future impairments of investment securities, goodwill, intangibles and
long-lived assets, incremental losses on financing receivables, establishment of
valuation allowances on deferred tax assets and increased tax
liabilities.
Sales
of goods
We record
all sales of goods only 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 goods 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 depreciated on a
straight-line basis to estimated residual value over the lease term or over the
estimated economic life of the equipment.
The cost
of acquired real estate investments is depreciated on a straight-line basis to
the estimated salvage value over the expected useful life or the estimated
proceeds upon sale of the investment at the end of the expected holding period
if that approach produces a higher measure of depreciation expense.
The cost
of other intangible assets is generally amortized on a straight-line basis over
the asset’s estimated economic life. We review long-lived assets for impairment
whenever events or changes in circumstances indicate that the related carrying
amounts may not be recoverable. See notes 8 and 9.
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 quarterly. 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 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. During 2007, we conformed our reserving methodology in
our residential mortgage loan portfolios. 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 evaluate
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, as well as our view on current market and economic
conditions.
Partial
sales of business interests
We record
gains or losses on sales of their own shares by affiliates except when
realization of gains is not reasonably assured, in which case we record the
results in shareowner’s equity.
Cash
and equivalents
Debt
securities and money market instruments 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. See note 19 for further information on
fair value. 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
using both quantitative and qualitative criteria. Quantitative criteria include
the length of time and magnitude of the amount that each security is in an
unrealized loss position and, for securities with fixed maturities, whether the
issuer is in compliance with terms and covenants of the security. Qualitative
criteria includes 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. Unrealized losses that are other than temporary are
recognized in earnings. Realized gains and losses are accounted for on the
specific identification method. Unrealized gains and losses on investment
securities classified as trading and certain retained interests are included in
earnings.
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 at least 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 if the carrying amount of a reporting unit exceeds its fair value and the
carrying amount of the reporting unit’s goodwill exceeds the implied fair value
of that goodwill. 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 based on
the relative fair values of the business disposed of and the portion of the
reporting unit that will be retained.
We
amortize the cost of other intangibles over their estimated useful lives. The
cost of intangible assets is generally amortized on a straight-line basis over
the asset’s estimated economic life. 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
entities, 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. Three product groups
are provided: traditional insurance contracts, investment contracts and
universal life insurance contracts. Insurance contracts are contracts with
significant mortality and/or morbidity risks, while investment contracts are
contracts without such risks. Universal life insurance contracts are a
particular type of long-duration insurance contract whose terms are not fixed
and guaranteed.
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) and universal life contracts 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 and universal life policies
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
changes
Effective
January 1, 2008, we adopted Statement of Financial Accounting Standards (SFAS)
157, Fair Value
Measurements, for all financial instruments and non-financial instruments
accounted for at fair value on a recurring basis. SFAS 157 establishes a new
framework for measuring fair value and expands related disclosures. See note
19.
Effective
January 1, 2008, we adopted SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities. Upon adoption, we elected to report
$172 million of commercial mortgage loans at fair value in order to recognize
them on the same accounting basis (measured at fair value through earnings) as
the derivatives economically hedging these loans. See note 19.
On
January 1, 2007, we adopted Financial Accounting Standards Board (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. FSP FAS 13-2 requires recalculation of returns
on leveraged leases when there is a change in the timing or projected timing of
cash flows relating to income taxes associated with such leases. The January 1,
2007 transition reduced our retained earnings by $77 million, all of which was
associated with FSP FAS 13-2 and decreased financing receivables –
net.
On
January 1, 2007, we adopted SFAS 155, Accounting for Certain Hybrid
Financial Instruments. This statement amended SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, to include within its
scope prepayment features in newly created or acquired retained interests
related to securitizations. SFAS 155 changed the basis on which we recognize
earnings on these retained interests from level yield to fair value. See notes 5
and 21.
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 incremental
effect of the initial adoption of SFAS 158 reduced our shareowner’s equity at
December 31, 2006, by $119 million.
On
December 12, 2008, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment
Guidance of EITF Issue No. 99-20. The primary change in reporting that
results from the FSP, which we adopted in the fourth quarter of 2008, is the
requirement to estimate cash flows based on management’s best estimate rather
than based on market participant assumptions.
Note
2. Discontinued Operations
Discontinued
operations comprised our Japanese personal loan business (Lake) and our Japanese
mortgage and card businesses, excluding our minority ownership in GE Nissen
Credit Co., Ltd. (GE Money Japan), our U.S. mortgage business (WMC), GE Life and
Genworth Financial, Inc. (Genworth). Associated results of operations, financial
position and cash flows are separately reported for all periods
presented.
GE
Money Japan
During
the third quarter of 2007, we committed to a plan to sell Lake upon determining
that, despite restructuring, Japanese regulatory limits for interest charges on
unsecured personal loans did not permit us to earn an acceptable return. As a
result, we recognized an after-tax loss of $908 million in 2007. During 2008, we
completed the sale of GE Money Japan, which included Lake, along with our
Japanese mortgage and card businesses, excluding our minority ownership in GE
Nissen Credit Co., Ltd. In connection with the transaction, GE Money Japan
reduced the proceeds on the sale for estimated interest refund claims in excess
of the statutory interest rate. Proceeds from the sale may be increased or
decreased based on the actual claims experienced in accordance with terms
specified in the agreement, and will not be adjusted unless claims exceed
approximately $3,000 million. Estimated claims are not expected to exceed those
levels and are based on our historical claims experience and the estimated
future requests, taking into consideration the ability and likelihood of
customers to make claims and other industry risk factors. However, uncertainties
around the status of laws and regulations and lack of certain information
related to the individual customers make it difficult to develop a meaningful
estimate of the aggregate claims exposure. We review our estimated exposure
quarterly, and make adjustments when required. To date, there have been no
adjustments to sale proceeds for this matter. In connection with this sale, and
primarily related to our Japanese mortgage and card businesses, we recorded an
incremental $361 million loss in 2008. GE Money Japan revenues from discontinued
operations were $763 million, $1,307 million and $1,715 million in 2008, 2007
and 2006, respectively. In total, GE Money Japan losses from discontinued
operations, net of taxes, were $651 million and $1,220 million in 2008 and 2007,
respectively, compared with earnings of $247 million in 2006.
WMC
During
the fourth quarter of 2007, we completed the sale of our U.S. mortgage business.
As a result, we recognized an after-tax loss of $62 million in 2007. In
connection with the transaction, WMC retained certain obligations related to
loans sold prior to the disposal of the business, including WMC’s contractual
obligations to repurchase previously sold loans as to which there was an early
payment default or with respect to which certain contractual representations and
warranties were not met. Reserves related to these obligations were $244 million
at December 31, 2008, and $265 million at December 31, 2007. The amount of these
reserves is based upon pending and estimated future loan repurchase requests,
the estimated percentage of loans validly tendered for repurchase, and our
estimated losses on loans repurchased. Based on our historical experience, we
estimate that a small percentage of the total loans we originated and sold will
be tendered for repurchase, and of those tendered, only a limited amount will
qualify as
“validly
tendered,” meaning the loans sold did not satisfy specified contractual
obligations. The amount of our current reserve represents our best estimate of
losses with respect to our repurchase obligations. However, actual losses could
exceed our reserve amount, if actual claim rates, valid tenders or losses we
incur on repurchased loans, are higher than historically observed. WMC revenues
from discontinued operations were $(71) million, $(1,424) million and $536
million in 2008, 2007 and 2006, respectively. In total, WMC’s losses from
discontinued operations, net of taxes, were $41 million and $987 million in 2008
and 2007, respectively, compared with earnings of $29 million in
2006.
GE
Life
During
the fourth quarter of 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 after-tax losses of $3 million in both 2008
and 2007, and $267 million in 2006. GE Life revenues from discontinued
operations were $2,096 million in 2006. In total, GE Life losses from
discontinued operations, net of taxes, were $3 million in both 2008 and 2007,
and $178 million in 2006.
Genworth
During
the first quarter of 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 $3 million, $85 million (primarily from a tax
adjustment related to the 2004 initial public offering) and $220 million in
2008, 2007 and 2006, respectively. Genworth revenues from discontinued
operations were $5 million in 2006. In total, Genworth loss from discontinued
operations, net of taxes, was $9 million in 2008, compared with earnings of $79
million and $193 million in 2007 and 2006, respectively.
Summarized
financial information for discontinued operations is shown below.
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
692
|
|
$
|
(117
|
)
|
$
|
4,352
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from discontinued operations before income taxes
|
$
|
(546
|
)
|
$
|
(2,223
|
)
|
$
|
282
|
|
Income
tax benefit
|
|
203
|
|
|
980
|
|
|
56
|
|
Earnings
(loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
before disposal,
net of taxes
|
$
|
(343
|
)
|
$
|
(1,243
|
)
|
$
|
338
|
|
|
|
|
|
|
|
|
|
|
|
Disposal
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on disposal before income taxes
|
$
|
(1,481
|
)
|
$
|
(1,477
|
)
|
$
|
234
|
|
Income
tax benefit (expense)
|
|
1,120
|
|
|
589
|
|
|
(281
|
)
|
Loss
on disposal, net of taxes
|
$
|
(361
|
)
|
$
|
(888
|
)
|
$
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from discontinued operations, net of taxes
|
$
|
(704
|
)
|
$
|
(2,131
|
)
|
$
|
291
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
|
|
$
|
180
|
|
$
|
300
|
|
|
Financing
receivables − net
|
|
|
|
|
−
|
|
|
6,675
|
|
|
Other
assets
|
|
|
|
|
19
|
|
|
129
|
|
|
Other
|
|
|
|
|
1,441
|
|
|
1,719
|
|
|
Assets
of discontinued operations
|
|
|
|
$
|
1,640
|
|
$
|
8,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Liabilities
of discontinued operations
|
|
|
|
$
|
799
|
|
$
|
1,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at
December 31, 2008 were primarily comprised of a deferred tax asset for a loss
carryforward, which expires in 2015, related to the sale of our GE Money Japan
business.
Note
3. Revenues from Services
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on loans
|
$
|
26,894
|
|
$
|
23,344
|
|
$
|
20,060
|
|
Equipment
leased to others
|
|
15,517
|
|
|
15,187
|
|
|
12,824
|
|
Fees
|
|
6,003
|
|
|
6,042
|
|
|
5,256
|
|
Financing
leases
|
|
4,351
|
|
|
4,646
|
|
|
4,230
|
|
Real
estate investments
|
|
3,488
|
|
|
4,653
|
|
|
3,127
|
|
Associated
companies
|
|
2,217
|
|
|
2,165
|
|
|
2,079
|
|
Investment income(a)
|
|
1,078
|
|
|
2,538
|
|
|
1,565
|
|
Net
securitization gains
|
|
963
|
|
|
1,759
|
|
|
1,187
|
|
Other
items
|
|
5,710
|
|
|
5,947
|
|
|
4,770
|
|
Total
|
$
|
66,221
|
|
$
|
66,281
|
|
$
|
55,098
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
other-than-temporary impairments on investment securities of $747 million,
$8 million and $79 million in 2008, 2007 and 2006,
respectively.
|
|
Note
4. Operating and Administrative Expenses
Our
employees and retirees are covered under a number of pension, stock
compensation, 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)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
Equipment
for sublease
|
$
|
358
|
|
$
|
364
|
|
$
|
346
|
|
Other
rental expense
|
|
631
|
|
|
588
|
|
|
515
|
|
At
December 31, 2008, minimum rental commitments under noncancellable operating
leases aggregated $3,565 million. Amounts payable over the next five years
follow.
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
$
|
774
|
|
$
|
621
|
|
$
|
508
|
|
$
|
435
|
|
$
|
303
|
|
Note
5. Investment Securities
Investment
securities comprise
mainly investment-grade debt securities supporting obligations to holders of
guaranteed investment contracts.
December
31 (In millions)
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated
fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate
|
$
|
4,456
|
|
$
|
54
|
|
$
|
(637
|
)
|
$
|
3,873
|
|
State and
municipal
|
|
915
|
|
|
5
|
|
|
(70
|
)
|
|
850
|
|
Residential mortgage-backed(a)
|
|
4,228
|
|
|
9
|
|
|
(976
|
)
|
|
3,261
|
|
Commercial
mortgage-backed
|
|
1,664
|
|
|
−
|
|
|
(509
|
)
|
|
1,155
|
|
Asset-backed
|
|
2,630
|
|
|
−
|
|
|
(668
|
)
|
|
1,962
|
|
Corporate –
non-U.S.
|
|
608
|
|
|
6
|
|
|
(23
|
)
|
|
591
|
|
Government –
non-U.S.
|
|
936
|
|
|
2
|
|
|
(15
|
)
|
|
923
|
|
U.S. government and federal
agency
|
|
26
|
|
|
3
|
|
|
−
|
|
|
29
|
|
Retained
interests(b)
|
|
5,144
|
|
|
73
|
|
|
(136
|
)
|
|
5,081
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
1,315
|
|
|
24
|
|
|
(134
|
)
|
|
1,205
|
|
Trading
|
|
388
|
|
|
−
|
|
|
−
|
|
|
388
|
|
Total
|
$
|
22,310
|
|
$
|
176
|
|
$
|
(3,168
|
)
|
$
|
19,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate
|
$
|
4,119
|
|
$
|
40
|
|
$
|
(126
|
)
|
$
|
4,033
|
|
State and
municipal
|
|
735
|
|
|
18
|
|
|
(8
|
)
|
|
745
|
|
Residential mortgage-backed(a)
|
|
4,504
|
|
|
7
|
|
|
(202
|
)
|
|
4,309
|
|
Commercial
mortgage-backed
|
|
1,711
|
|
|
7
|
|
|
(26
|
)
|
|
1,692
|
|
Asset-backed
|
|
1,880
|
|
|
1
|
|
|
(55
|
)
|
|
1,826
|
|
Corporate –
non-U.S.
|
|
725
|
|
|
3
|
|
|
(4
|
)
|
|
724
|
|
Government –
non-U.S.
|
|
596
|
|
|
1
|
|
|
(9
|
)
|
|
588
|
|
U.S. government and federal
agency
|
|
59
|
|
|
1
|
|
|
(2
|
)
|
|
58
|
|
Retained interests(b)(c)
|
|
4,109
|
|
|
107
|
|
|
(12
|
)
|
|
4,204
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
1,896
|
|
|
245
|
|
|
(118
|
)
|
|
2,023
|
|
Trading
|
|
386
|
|
|
–
|
|
|
–
|
|
|
386
|
|
Total
|
$
|
20,720
|
|
$
|
430
|
|
$
|
(562
|
)
|
$
|
20,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Substantially
collateralized by U.S. mortgages.
|
|
(b)
|
Included
$1,752 million and $2,227 million of retained interests at December 31,
2008 and 2007, respectively, accounted for in accordance with SFAS 155,
Accounting for Certain
Hybrid Financial Instruments. See note 21.
|
|
(c)
|
Amortized
cost and estimated fair value included $5 million of trading securities at
December 31, 2007.
|
|
|
|
|
The
following tables present the gross unrealized losses and estimated fair values
of our available-for-sale investment securities.
|
In
loss position for
|
|
|
Less
than 12 months
|
|
12
months or more
|
|
December
31 (In millions)
|
Estimated
fair
value
|
|
Gross
unrealized
losses
|
|
Estimated
fair
value
|
|
Gross
unrealized
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate
|
$
|
1,152
|
|
$
|
(397
|
)
|
$
|
1,253
|
|
$
|
(240
|
)
|
State and
municipal
|
|
302
|
|
|
(21
|
)
|
|
278
|
|
|
(49
|
)
|
Residential
mortgage-backed
|
|
1,216
|
|
|
(64
|
)
|
|
1,534
|
|
|
(912
|
)
|
Commercial
mortgage-backed
|
|
285
|
|
|
(85
|
)
|
|
870
|
|
|
(424
|
)
|
Asset-backed
|
|
903
|
|
|
(406
|
)
|
|
1,031
|
|
|
(262
|
)
|
Corporate –
non-U.S.
|
|
60
|
|
|
(7
|
)
|
|
265
|
|
|
(16
|
)
|
Government –
non-U.S.
|
|
−
|
|
|
−
|
|
|
275
|
|
|
(15
|
)
|
U.S. government and federal
agency
|
|
−
|
|
|
−
|
|
|
−
|
|
|
−
|
|
Retained
interests
|
|
1,246
|
|
|
(61
|
)
|
|
238
|
|
|
(75
|
)
|
Equity
|
|
200
|
|
|
(132
|
)
|
|
6
|
|
|
(2
|
)
|
Total
|
$
|
5,364
|
|
$
|
(1,173
|
)
|
$
|
(5,750
|
)
|
$
|
(1,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate
|
$
|
1,887
|
|
$
|
(88
|
)
|
$
|
649
|
|
$
|
(38
|
)
|
State and
municipal
|
|
120
|
|
|
(2
|
)
|
|
131
|
|
|
(6
|
)
|
Residential
mortgage-backed
|
|
3,092
|
|
|
(155
|
)
|
|
805
|
|
|
(47
|
)
|
Commercial
mortgage-backed
|
|
1,326
|
|
|
(25
|
)
|
|
15
|
|
|
(1
|
)
|
Asset-backed
|
|
1,396
|
|
|
(42
|
)
|
|
186
|
|
|
(13
|
)
|
Corporate –
non-U.S.
|
|
386
|
|
|
(3
|
)
|
|
61
|
|
|
(1
|
)
|
Government –
non-U.S.
|
|
–
|
|
|
–
|
|
|
302
|
|
|
(9
|
)
|
U.S. government and federal
agency
|
|
18
|
|
|
(2
|
)
|
|
–
|
|
|
–
|
|
Retained
interests
|
|
161
|
|
|
(12
|
)
|
|
–
|
|
|
–
|
|
Equity
|
|
441
|
|
|
(103
|
)
|
|
15
|
|
|
(15
|
)
|
Total
|
$
|
8,827
|
|
$
|
(432
|
)
|
$
|
2,164
|
|
$
|
(130
|
)
|
Investment
securities amounted to $19,318 million at December 31, 2008, compared with
$20,588 million at December 31, 2007. Most of our investment securities relate
to our issuances of guaranteed investment contracts.
Of our
residential mortgage-backed securities (RMBS) at December 31, 2008, we had
approximately $1,284 million of exposure to residential subprime credit,
primarily supporting our guaranteed investment contracts, a majority of which
have received investment-grade credit ratings from the major rating agencies. Of
the total residential subprime credit exposure, $1,089 million was insured by
monoline insurers. Our subprime investment securities were collateralized
primarily by pools of individual, direct mortgage loans, not other structured
products such as collateralized debt obligations. Additionally, a majority of
exposure to residential subprime credit was investment securities with
underlying loans originated in 2006 and 2005. At December 31, 2008, we had
approximately $783 million of exposure to commercial, regional and foreign
banks, primarily relating to corporate debt securities, with associated
unrealized losses of $105 million.
We
presently intend to hold our investment securities that are in an unrealized
loss position at December 31, 2008, at least until we can recover their
respective amortized cost. We have the ability to hold our debt securities until
their maturities. In reaching the conclusion that these investments are not
other-than-temporarily impaired, consideration was given to research by our
internal and third-party asset managers. With respect to corporate bonds, we
placed greater emphasis on the credit quality of the issuers. With respect to
RMBS and commercial mortgage-backed securities (CMBS), we placed greater
emphasis on our expectations with respect to cash flows from the underlying
collateral, and with respect to RMBS, we considered the availability of credit
enhancements, principally monoline insurance.
Contractual
Maturities of our Investment in Available-for-Sale Debt Securities (Excluding
Mortgage-Backed and Asset-Backed Securities)
(In
millions)
|
Amortized
cost
|
|
Estimated
fair
value
|
|
|
|
|
|
|
|
|
Due
in
|
|
|
|
|
|
|
2009
|
$
|
1,995
|
|
$
|
1,955
|
|
2010-2013
|
|
2,092
|
|
|
1,879
|
|
2014-2018
|
|
1,557
|
|
|
1,215
|
|
2019 and later
|
|
1,297
|
|
|
1,217
|
|
We expect
actual maturities to differ from contractual maturities because borrowers have
the right to call or prepay certain obligations.
Supplemental
information about gross realized gains and losses on available-for-sale
investment securities follows.
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
$
|
160
|
|
$
|
378
|
|
$
|
204
|
|
Losses,
including impairments
|
|
(792
|
)
|
|
(11
|
)
|
|
(91
|
)
|
Net
|
$
|
(632
|
)
|
$
|
367
|
|
$
|
113
|
|
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 $3,572 million, $13,890 million and
$9,964 million in 2008, 2007 and 2006, respectively, principally from the
short-term nature of the investments that support the guaranteed investment
contracts portfolio.
We
recognized pre-tax gains on trading securities of $108 million, $292 million and
$5 million in 2008, 2007 and 2006, respectively. Investments in retained
interests decreased by $113 million and $102 million during 2008 and 2007,
respectively, reflecting declines in fair value accounted for in accordance with
SFAS 155.
Note
6. Financing Receivables (investments in loans and financing
leases)
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Loans,
net of deferred income
|
$
|
308,821
|
|
$
|
308,601
|
|
Investment
in financing leases, net of deferred income
|
|
67,077
|
|
|
74,082
|
|
|
|
375,898
|
|
|
382,683
|
|
Less
allowance for losses (note 7)
|
|
(5,306
|
)
|
|
(4,216
|
)
|
Financing
receivables – net
|
$
|
370,592
|
|
$
|
378,467
|
|
Included
in the above are $6,461 million and $9,708 million of the financing receivables
of consolidated, liquidating securitization entities at December 31, 2008 and
2007, respectively. In addition, financing receivables at December 31, 2008,
included $2,736 million relating to loans that had been acquired and accounted
for in accordance with SOP 03-3, Accounting for Certain Loans or Debt
Securities Acquired in a Transfer.
Details
of financing receivables – net follow.
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
CLL
|
|
|
|
|
|
|
Equipment
and leasing and other
|
$
|
98,957
|
|
$
|
94,970
|
|
Commercial
and industrial
|
|
63,401
|
|
|
55,219
|
|
|
|
162,358
|
|
|
150,189
|
|
|
|
|
|
|
|
|
GE
Money
|
|
|
|
|
|
|
Non-U.S.
residential mortgages(a)
|
|
59,595
|
|
|
73,042
|
|
Non-U.S.
installment and revolving credit
|
|
24,441
|
|
|
34,669
|
|
U.S.
installment and revolving credit
|
|
27,645
|
|
|
27,914
|
|
Non-U.S.
auto
|
|
18,168
|
|
|
27,368
|
|
Other
|
|
9,244
|
|
|
10,198
|
|
|
|
139,093
|
|
|
173,191
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
46,735
|
|
|
32,228
|
|
|
|
|
|
|
|
|
Energy
Financial Services
|
|
8,355
|
|
|
7,867
|
|
|
|
|
|
|
|
|
GECAS(b)
|
|
15,326
|
|
|
14,097
|
|
|
|
|
|
|
|
|
Other(c)
|
|
4,031
|
|
|
5,111
|
|
|
|
375,898
|
|
|
382,683
|
|
Less
allowance for losses
|
|
(5,306
|
)
|
|
(4,216
|
)
|
Total
|
$
|
370,592
|
|
$
|
378,467
|
|
|
|
|
|
|
|
|
(a)
|
At
December 31, 2008, net of credit insurance, approximately 26% of this
portfolio comprised loans with introductory, below market rates that are
scheduled to adjust at future dates; with high loan-to-value ratios at
inception; whose terms permitted interest-only payments; or whose terms
resulted in negative amortization. At the origination date, loans with an
adjustable rate were underwritten to the reset value.
|
|
(b)
|
Included
loans and financing leases of $13,078 million and $11,685 million at
December 31, 2008 and 2007, respectively, related to commercial aircraft
at Aviation Financial Services.
|
|
(c)
|
Included
loans and financing leases of $4,031 million and $5,106 million at
December 31, 2008 and 2007, 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.
For
federal income tax purposes, the leveraged leases and the majority of the direct
financing leases are leases in which we depreciate the leased assets and is
taxed upon the accrual of rental income. Certain direct financing leases are
loans for federal income tax purposes. For these transactions, we are taxable
only on the portion of each payment that constitutes interest, unless the
interest is tax-exempt (e.g., certain obligations of state
governments).
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.
For
federal income tax purposes, we are entitled to deduct the interest expense
accruing on nonrecourse financing related to leveraged leases.
Net
Investment in Financing Leases
|
Total
financing leases
|
|
Direct financing
leases(a)
|
|
Leveraged leases(b)
|
|
December
31 (In millions)
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable
|
$
|
80,413
|
|
$
|
90,967
|
|
$
|
62,996
|
|
$
|
71,628
|
|
$
|
17,417
|
|
$
|
19,339
|
|
Less
principal and interest on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
third-party nonrecourse
debt
|
|
(12,416
|
)
|
|
(13,787
|
)
|
|
−
|
|
|
–
|
|
|
(12,416
|
)
|
|
(13,787
|
)
|
Net
rentals receivable
|
|
67,997
|
|
|
77,180
|
|
|
62,996
|
|
|
71,628
|
|
|
5,001
|
|
|
5,552
|
|
Estimated
unguaranteed residual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value of leased
assets
|
|
10,077
|
|
|
10,015
|
|
|
7,302
|
|
|
7,263
|
|
|
2,775
|
|
|
2,752
|
|
Less
deferred income
|
|
(10,997
|
)
|
|
(13,113
|
)
|
|
(8,694
|
)
|
|
(10,475
|
)
|
|
(2,303
|
)
|
|
(2,638
|
)
|
Investment
in financing leases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of deferred
income
|
|
67,077
|
|
|
74,082
|
|
|
61,604
|
|
|
68,416
|
|
|
5,473
|
|
|
5,666
|
|
Less
amounts to arrive at net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
losses
|
|
(495
|
)
|
|
(566
|
)
|
|
(437
|
)
|
|
(554
|
)
|
|
(58
|
)
|
|
(12
|
)
|
Deferred taxes
|
|
(6,964
|
)
|
|
(6,798
|
)
|
|
(2,820
|
)
|
|
(2,422
|
)
|
|
(4,144
|
)
|
|
(4,376
|
)
|
Net
investment in financing leases
|
$
|
59,618
|
|
$
|
66,718
|
|
$
|
58,347
|
|
$
|
65,440
|
|
$
|
1,271
|
|
$
|
1,278
|
|
|
|
(a)
|
Included
$824 million and $798 million of initial direct costs on direct financing
leases at December 31, 2008 and 2007, respectively.
|
|
(b)
|
Included
pre-tax income of $265 million and $409 million and income tax of $105
million and $155 million during 2008 and 2007, respectively. Net
investment credits recognized on leveraged leases during 2008 and 2007
were inconsequential.
|
|
Contractual
Maturities
(In
millions)
|
Total
loans
|
|
Net
rentals
receivable
|
|
|
|
|
|
|
|
|
Due
in
|
|
|
|
|
|
|
2009
|
$
|
85,693
|
|
$
|
19,633
|
|
2010
|
|
36,950
|
|
|
13,629
|
|
2011
|
|
30,878
|
|
|
10,593
|
|
2012
|
|
26,383
|
|
|
7,149
|
|
2013
|
|
21,612
|
|
|
4,752
|
|
2014 and later
|
|
107,305
|
|
|
12,241
|
|
Total
|
$
|
308,821
|
|
$
|
67,997
|
|
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)
|
2008
|
|
2007
|
|
|
|
|
|
|
Loans
requiring allowance for losses
|
$
|
2,712
|
|
$
|
986
|
|
Loans
expected to be fully recoverable
|
|
871
|
|
|
391
|
|
Total
impaired loans
|
$
|
3,583
|
|
$
|
1,377
|
|
|
|
|
|
|
|
|
Allowance
for losses
|
$
|
635
|
|
$
|
360
|
|
Average
investment during year
|
|
2,064
|
|
|
1,576
|
|
Interest
income earned while impaired(a)
|
|
27
|
|
|
19
|
|
|
|
|
|
|
|
|
(a)
|
Recognized
principally on cash basis.
|
|
Note
7. Allowance for Losses on Financing Receivables
|
Balance
January
1,
2008
|
|
Provision
charged
to
operations
|
|
Currency
exchange
|
|
Other(a)
|
|
Gross
write-offs
|
|
Recoveries
|
|
Balance
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
leasing
and other
|
$
|
641
|
|
$
|
816
|
|
$
|
24
|
|
$
|
94
|
|
$
|
(791
|
)
|
$
|
91
|
|
$
|
875
|
|
Commercial
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
industrial
|
|
274
|
|
|
546
|
|
|
(12
|
)
|
|
4
|
|
|
(416
|
)
|
|
19
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Money
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
246
|
|
|
323
|
|
|
(40
|
)
|
|
2
|
|
|
(218
|
)
|
|
69
|
|
|
382
|
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and revolving
credit
|
|
1,371
|
|
|
1,748
|
|
|
(194
|
)
|
|
(223
|
)
|
|
(2,551
|
)
|
|
900
|
|
|
1,051
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
985
|
|
|
3,217
|
|
|
−
|
|
|
(624
|
)
|
|
(2,173
|
)
|
|
295
|
|
|
1,700
|
|
Non-U.S.
auto
|
|
324
|
|
|
376
|
|
|
(48
|
)
|
|
(76
|
)
|
|
(637
|
)
|
|
283
|
|
|
222
|
|
Other
|
|
162
|
|
|
220
|
|
|
(17
|
)
|
|
28
|
|
|
(248
|
)
|
|
69
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
168
|
|
|
135
|
|
|
(7
|
)
|
|
16
|
|
|
(12
|
)
|
|
1
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
19
|
|
|
36
|
|
|
−
|
|
|
3
|
|
|
−
|
|
|
−
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
8
|
|
|
53
|
|
|
−
|
|
|
−
|
|
|
(1
|
)
|
|
−
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
18
|
|
|
28
|
|
|
−
|
|
|
−
|
|
|
(18
|
)
|
|
−
|
|
|
28
|
|
Total
|
$
|
4,216
|
|
$
|
7,498
|
|
$
|
(294
|
)
|
$
|
(776
|
)
|
$
|
(7,065
|
)
|
$
|
1,727
|
|
$
|
5,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Other
primarily included the effects of acquisitions, dispositions,
reclassifications to held for sale and securitization
activity.
|
|
Balance
January
1,
2007
|
|
Provision
charged
to
operations
|
|
Currency
exchange
|
|
Other(a)
|
|
Gross
write-offs
|
|
Recoveries
|
|
Balance
December
31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
leasing
and other
|
$
|
344
|
|
$
|
366
|
|
$
|
25
|
|
$
|
197
|
|
$
|
(402
|
)
|
$
|
111
|
|
$
|
641
|
|
Commercial
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
industrial
|
|
313
|
|
|
192
|
|
|
10
|
|
|
(37
|
)
|
|
(230
|
)
|
|
26
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Money
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
415
|
|
|
(139
|
)
|
|
10
|
|
|
(3
|
)
|
|
(129
|
)
|
|
92
|
|
|
246
|
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and revolving
credit
|
|
1,253
|
|
|
1,669
|
|
|
92
|
|
|
(115
|
)
|
|
(2,324
|
)
|
|
796
|
|
|
1,371
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
876
|
|
|
1,960
|
|
|
–
|
|
|
(703
|
)
|
|
(1,505
|
)
|
|
357
|
|
|
985
|
|
Non-U.S.
auto
|
|
279
|
|
|
279
|
|
|
23
|
|
|
34
|
|
|
(653
|
)
|
|
362
|
|
|
324
|
|
Other
|
|
158
|
|
|
122
|
|
|
4
|
|
|
6
|
|
|
(198
|
)
|
|
70
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
155
|
|
|
24
|
|
|
3
|
|
|
3
|
|
|
(25
|
)
|
|
8
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
28
|
|
|
(9
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
16
|
|
|
15
|
|
|
–
|
|
|
–
|
|
|
(23
|
)
|
|
−
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
24
|
|
|
9
|
|
|
–
|
|
|
–
|
|
|
(17
|
)
|
|
2
|
|
|
18
|
|
Total
|
$
|
3,861
|
|
$
|
4,488
|
|
$
|
167
|
|
$
|
(618
|
)
|
$
|
(5,506
|
)
|
$
|
1,824
|
|
$
|
4,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Other
primarily included the effects of acquisitions and securitization
activity.
|
|
Balance
January
1,
2006
|
|
Provision
charged
to
operations
|
|
Currency
exchange
|
|
Other(a)
|
|
Gross
write-offs
|
|
Recoveries
|
|
Balance
December
31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
leasing
and other
|
$
|
568
|
|
$
|
2
|
|
$
|
9
|
|
$
|
57
|
|
$
|
(354
|
)
|
$
|
62
|
|
$
|
344
|
|
Commercial
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
industrial
|
|
337
|
|
|
58
|
|
|
10
|
|
|
13
|
|
|
(156
|
)
|
|
51
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Money
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
397
|
|
|
69
|
|
|
34
|
|
|
(8
|
)
|
|
(177
|
)
|
|
100
|
|
|
415
|
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and revolving
credit
|
|
1,060
|
|
|
1,382
|
|
|
60
|
|
|
36
|
|
|
(2,010
|
)
|
|
725
|
|
|
1,253
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
701
|
|
|
1,175
|
|
|
−
|
|
|
(217
|
)
|
|
(1,045
|
)
|
|
262
|
|
|
876
|
|
Non-U.S.
auto
|
|
238
|
|
|
284
|
|
|
24
|
|
|
12
|
|
|
(591
|
)
|
|
312
|
|
|
279
|
|
Other
|
|
165
|
|
|
80
|
|
|
18
|
|
|
8
|
|
|
(184
|
)
|
|
71
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
189
|
|
|
(5
|
)
|
|
1
|
|
|
4
|
|
|
(39
|
)
|
|
5
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
40
|
|
|
(12
|
)
|
|
−
|
|
|
−
|
|
|
−
|
|
|
−
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
179
|
|
|
(51
|
)
|
|
−
|
|
|
−
|
|
|
(112
|
)
|
|
−
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
23
|
|
|
16
|
|
|
−
|
|
|
11
|
|
|
(29
|
)
|
|
3
|
|
|
24
|
|
Total
|
$
|
3,897
|
|
$
|
2,998
|
|
$
|
156
|
|
$
|
(84
|
)
|
$
|
(4,697
|
)
|
$
|
1,591
|
|
$
|
3,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Other
primarily included the effects of acquisitions and securitization
activity.
|
See note
6 for amounts related to consolidated, liquidating securitization
entities.
Note
8. Property, plant and equipment
December
31 (Dollars in millions)
|
Depreciable
lives-new
(in
years)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Original cost(a)
|
|
|
|
|
|
|
|
|
Land
and improvements, buildings, structures and
|
|
|
|
|
|
|
|
|
related
equipment
|
2–40
|
(b)
|
$
|
7,040
|
|
$
|
6,011
|
|
Equipment
leased to others
|
|
|
|
|
|
|
|
|
Aircraft
|
20
|
|
|
40,478
|
|
|
37,271
|
|
Vehicles
|
1–14
|
|
|
32,098
|
|
|
32,079
|
|
Railroad rolling
stock
|
5–36
|
|
|
4,402
|
|
|
3,866
|
|
Construction and
manufacturing
|
2–25
|
|
|
3,357
|
|
|
3,026
|
|
Mobile equipment
|
12–25
|
|
|
2,952
|
|
|
2,961
|
|
All other
|
2–40
|
|
|
2,742
|
|
|
2,914
|
|
Total
|
|
|
$
|
93,069
|
|
$
|
88,128
|
|
|
|
|
|
|
|
|
|
|
Net carrying value(a)
|
|
|
|
|
|
|
|
|
Land
and improvements, buildings, structures and
|
|
|
|
|
|
|
|
|
related
equipment
|
|
|
$
|
4,504
|
|
$
|
3,672
|
|
Equipment
leased to others
|
|
|
|
|
|
|
|
|
Aircraft(c)
|
|
|
|
32,288
|
|
|
30,414
|
|
Vehicles
|
|
|
|
18,149
|
|
|
20,704
|
|
Railroad rolling
stock
|
|
|
|
2,915
|
|
|
2,789
|
|
Construction and
manufacturing
|
|
|
|
2,328
|
|
|
2,050
|
|
Mobile equipment
|
|
|
|
2,021
|
|
|
1,974
|
|
All other
|
|
|
|
1,838
|
|
|
2,082
|
|
Total
|
|
|
$
|
64,043
|
|
$
|
63,685
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
$1,748 million and $1,513 million of original cost of assets leased to GE
with accumulated amortization of $491 million and $315 million at December
31, 2008 and 2007, respectively.
|
|
(b)
|
Depreciable
lives exclude land.
|
|
(c)
|
GECAS
recognized impairment losses of $72 million in 2008 and $110 million in
2007 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 $8,153 million, $7,192 million and $5,791
million in 2008, 2007 and 2006, respectively. Noncancellable future rentals due
from customers for equipment on operating leases at December 31, 2008, are as
follows:
(In
millions)
|
|
|
|
|
|
|
|
Due
in
|
|
|
|
2009
|
$
|
9,103
|
|
2010
|
|
7,396
|
|
2011
|
|
5,542
|
|
2012
|
|
4,157
|
|
2013
|
|
3,109
|
|
2014 and later
|
|
8,714
|
|
Total
|
$
|
38,021
|
|
Note
9. Goodwill and Other Intangible Assets
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
25,204
|
|
$
|
25,251
|
|
Intangible
assets subject to amortization
|
|
3,174
|
|
|
4,038
|
|
Total
|
$
|
28,378
|
|
$
|
29,289
|
|
Changes
in goodwill balances follow.
|
2008
|
|
(In
millions)
|
CLL
|
|
GE
Money
|
|
Real
Estate
|
|
Energy
Financial
Services
|
|
GECAS
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1
|
$
|
11,871
|
|
$
|
10,273
|
|
$
|
1,055
|
|
$
|
1,890
|
|
$
|
162
|
|
$
|
25,251
|
|
Acquisitions/purchase
accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
1,048
|
|
|
475
|
|
|
170
|
|
|
330
|
|
|
1
|
|
|
2,024
|
|
Dispositions,
currency exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
(272
|
)
|
|
(1,667
|
)
|
|
(66
|
)
|
|
(58
|
)
|
|
(8
|
)
|
|
(2,071
|
)
|
Balance
December 31
|
$
|
12,647
|
|
$
|
9,081
|
|
$
|
1,159
|
|
$
|
2,162
|
|
$
|
155
|
|
$
|
25,204
|
|
|
2007
|
|
(In
millions)
|
CLL
|
|
GE
Money
|
|
Real
Estate
|
|
Energy
Financial
Services
|
|
GECAS
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1
|
$
|
10,046
|
|
$
|
9,845
|
|
$
|
1,004
|
|
$
|
1,540
|
|
$
|
143
|
|
$
|
22,578
|
|
Acquisitions/purchase
accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
1,577
|
|
|
2
|
|
|
(9
|
)
|
|
350
|
|
|
18
|
|
|
1,938
|
|
Dispositions,
currency exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
248
|
|
|
426
|
|
|
60
|
|
|
–
|
|
|
1
|
|
|
735
|
|
Balance
December 31
|
$
|
11,871
|
|
$
|
10,273
|
|
$
|
1,055
|
|
$
|
1,890
|
|
$
|
162
|
|
$
|
25,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008,
goodwill balances decreased $1,514 million as a result of the stronger U.S.
dollar. Goodwill balances increased $1,527 million in 2008 from new
acquisitions. The most significant increases related to acquisitions of Merrill
Lynch Capital ($643 million) at CLL, Energy Financial Services, Real Estate and
GECAS, Bank BPH ($470 million) at GE Money, CDM Resource Management, Ltd. ($229
million) at Energy Financial Services and CitiCapital ($166 million) at CLL.
During 2008, the goodwill balance increased by $497 million related to purchase
accounting adjustments for prior-year acquisitions.
Goodwill
balances increased $2,056 million in 2007 from new acquisitions. The most
significant increases related to acquisitions of Diskont und Kredit AG and Disko
Leasing GmbH (DISKO) and ASL Auto Service-Leasing GmbH (ASL), the leasing
businesses of KG Allgemeine Leasing GmbH & Co. ($694 million), Sanyo
Electric Credit Co., Ltd. ($548 million) and Trustreet Properties, Inc. ($351
million) all by CLL. During 2007, the goodwill balance declined by $118 million
related to purchase accounting adjustments for prior-year
acquisitions.
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, then to adjust the acquired company’s accounting policies,
procedures, and 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.
We test
goodwill for impairment at least annually. Given the significant changes in the
business climate for financial services and our stated strategy to reduce our
ending net investment, we re-tested goodwill for impairment at the reporting
units during the fourth quarter of 2008. In performing this analysis, we revised
our estimated future cash flows and discount rates, as appropriate, to reflect
current market conditions in the financial services industry. In each case, no
impairment was indicated.
Intangible
Assets Subject to Amortization
|
2008
|
|
2007
|
|
December
31 (In millions)
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
|
$
|
1,746
|
|
|
$
|
(613
|
)
|
$
|
1,133
|
|
|
$
|
2,389
|
|
$
|
(866
|
)
|
$
|
1,523
|
|
|
Patents,
licenses and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trademarks
|
|
|
589
|
|
|
|
(460
|
)
|
|
129
|
|
|
|
427
|
|
|
(308
|
)
|
|
119
|
|
|
Capitalized
software
|
|
|
2,152
|
|
|
|
(1,463
|
)
|
|
689
|
|
|
|
1,806
|
|
|
(1,076
|
)
|
|
730
|
|
|
Lease
valuations
|
|
|
1,805
|
|
|
|
(594
|
)
|
|
1,211
|
|
|
|
1,841
|
|
|
(360
|
)
|
|
1,481
|
|
|
All
other
|
|
|
166
|
|
|
|
(154
|
)
|
|
12
|
|
|
|
330
|
|
|
(145
|
)
|
|
185
|
|
|
Total
|
|
$
|
6,458
|
|
|
$
|
(3,284
|
)
|
$
|
3,174
|
|
|
$
|
6,793
|
|
$
|
(2,755
|
)
|
$
|
4,038
|
|
|
During
2008, we recorded additions to intangible assets subject to amortization of $617
million. The components of finite-lived intangible assets acquired during 2008
and their respective weighted-average amortizable period are: $196 million –
Customer-related (15.3 years); $68 million – Patents, licenses and trademarks
(10.0 years); $294 million – Capitalized software (4.8 years); $38 million –
Lease valuations (8.7 years); and $21 million – All other (8.5
years).
Amortization
expense related to intangible assets subject to amortization was $926 million
and $773 million for 2008 and 2007, respectively. We estimate that annual
pre-tax amortization for intangible assets subject to amortization over the next
five calendar years to be as follows: 2009 – $673 million; 2010 – $542 million;
2011 – $444 million; 2012 – $343 million; 2013 – $287 million.
Note
10. Other Assets
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
Real estate(a)(b)
|
$
|
36,649
|
|
$
|
40,439
|
|
Associated
companies
|
|
19,289
|
|
|
17,388
|
|
Assets held for sale(c)
|
|
5,038
|
|
|
10,690
|
|
Cost method(b)
|
|
2,463
|
|
|
2,719
|
|
Other
|
|
1,836
|
|
|
1,285
|
|
|
|
65,275
|
|
|
72,521
|
|
|
|
|
|
|
|
|
Derivative
instruments
|
|
11,211
|
|
|
3,069
|
|
Advances
to suppliers
|
|
2,187
|
|
|
2,046
|
|
Deferred
acquisition costs
|
|
101
|
|
|
56
|
|
Other(d)
|
|
5,427
|
|
|
4,810
|
|
Total
|
$
|
84,201
|
|
$
|
82,502
|
|
|
|
|
|
|
|
|
(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, 2008: office buildings (45%), apartment buildings (17%), industrial
properties (11%), retail facilities (9%), franchise properties (7%),
parking facilities (2%) and other (9%). At December 31, 2008, investments
were located in the Americas (47%), Europe (31%) and Asia
(22%).
|
|
(b)
|
The
fair value of and unrealized loss on cost method investments in a
continuous loss position for less than 12 months at December 31, 2008,
were $565 million and $98 million, respectively. The fair value of and
unrealized loss on cost method investments in a continuous loss position
for 12 months or more at December 31, 2008, were $64 million and $4
million, respectively. The fair value of and unrealized loss on cost
method investments in a continuous loss position for less than 12 months
at December 31, 2007, were $543 million and $93 million, respectively. The
fair value of and unrealized loss on cost method investments in a
continuous loss position for 12 months or more at December 31, 2007, were
$14 million and $7 million, respectively.
|
|
(c)
|
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 credit card receivables, loans and real estate
properties, and were accounted for at the lower of carrying amount or
estimated fair value less costs to sell. These amounts are net of
valuation allowances of $112 million and $153 million at December 31, 2008
and 2007, respectively.
|
|
(d)
|
Included
$481 million at December 31, 2008, of unamortized fees related to our
participation in the Temporary Liquidity Guarantee Program and the
Commercial Paper Funding Facility.
|
|
Note
11. Assets and Liabilities of Businesses Held for Sale
On
January 7, 2009, we exchanged our GE Money businesses in Austria and Finland,
the credit card and auto businesses in the U.K., and the credit card business in
Ireland for a 100% ownership interest in Interbanca S.p.A., a leading Italian
corporate bank. Assets and liabilities of $7,887 million and $636 million,
respectively, were classified as held for sale at December 31, 2008; we
recognized a $184 million loss, net of tax, related to the classification of the
assets held for sale at the lower of carrying amount or estimated fair value
less costs to sell.
On
December 24, 2008, we committed to sell a portion of our Australian residential
mortgage business, including certain underlying mortgage receivables, and expect
to complete this sale during the first quarter of 2009. Assets of $2,669 million
were classified as held for sale at December 31, 2008 (liabilities were
insignificant); we recognized a $38 million loss, net of tax, related to the
classifications of the assets held for sale at the lower of carrying amount or
estimated fair value less costs to sell.
Summarized
financial information is shown below.
December
31 (In millions)
|
2008
|
|
|
|
|
|
Assets
|
|
|
|
Cash
and equivalents
|
$
|
35
|
|
Financing
receivables −net
|
|
9,915
|
|
Intangible
assets −
net
|
|
394
|
|
Other
|
|
212
|
|
Assets
of businesses held for sale
|
$
|
10,556
|
|
|
|
|
|
Liabilities
|
|
|
|
Liabilities
of businesses held for sale
|
$
|
636
|
|
|
|
|
|
Note
12. Borrowings
Short-term
Borrowings
|
2008
|
|
2007
|
|
|
|
|
Average
|
|
|
|
Average
|
|
December
31 (Dollars in millions)
|
Amount
|
|
rate
|
(a)
|
Amount
|
|
rate
|
(a)
|
|
|
|
|
|
|
|
|
|
Commercial
paper
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
Unsecured(b)
|
$
|
57,665
|
|
2.16
|
%
|
$
|
66,717
|
|
4.69
|
%
|
Asset-backed(c)
|
|
3,652
|
|
2.57
|
|
|
4,775
|
|
4.94
|
|
Non-U.S.
|
|
9,033
|
|
4.12
|
|
|
28,711
|
|
4.99
|
|
Current
portion of long-term debt(d)
|
|
69,680
|
|
3.83
|
|
|
56,301
|
|
5.01
|
|
Bank
deposits(e)
(f)
|
|
29,634
|
|
3.47
|
|
|
11,486
|
|
3.04
|
|
Bank
borrowings(g)
|
|
10,028
|
|
2.75
|
|
|
6,915
|
|
5.31
|
|
GE
Interest Plus notes(h)
|
|
5,633
|
|
3.58
|
|
|
9,590
|
|
5.23
|
|
Other
|
|
3,276
|
|
|
|
|
2,274
|
|
|
|
Total
|
$
|
188,601
|
|
|
|
$
|
186,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
At
December 31, 2008, GE Capital had issued and outstanding, $21,823 million
of senior, unsecured debt that was guaranteed by the Federal Deposit
Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee
Program. GE Capital and GE entered into an Eligible Entity Designation
Agreement and GE Capital is subject to the terms of a Master Agreement,
each entered into with the FDIC. The terms of these agreements include,
among other things, a requirement that GE and GE Capital reimburse the
FDIC for any amounts that the FDIC pays to holders of debt that is
guaranteed by the FDIC.
|
|
(c)
|
Consists
entirely of obligations of consolidated, liquidating securitization
entities. See note 6.
|
|
(d)
|
Included
$326 million and $1,106 million related to asset-backed senior notes,
issued by consolidated, liquidating securitization entities at December
31, 2008 and 2007, respectively.
|
|
(e)
|
Included
$11,793 million and $10,789 million of deposits in non-U.S. banks at
December 31, 2008 and 2007, respectively.
|
|
(f)
|
Included
certificates of deposits distributed by brokers of $17,841 million and
$697 million at December 31, 2008 and 2007, respectively.
|
|
(g)
|
Term
borrowings from banks with a remaining term to maturity of less than 12
months.
|
|
(h)
|
Entirely
variable denomination floating rate demand notes.
|
|
Long-term
Borrowings
|
2008
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
December
31 (Dollars in millions)
|
rate
|
(a)
|
Maturities
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
|
|
|
|
|
|
|
|
|
Unsecured(b)(c)
|
4.80
|
%
|
2010-2055
|
|
$
|
300,172
|
|
$
|
284,125
|
|
Asset-backed(d)
|
5.12
|
|
2010-2035
|
|
|
5,002
|
|
|
5,528
|
|
Extendible
notes
|
−
|
|
−
|
|
|
−
|
|
|
8,500
|
|
Subordinated
notes(e)
|
5.48
|
|
2012-2037
|
|
|
2,567
|
|
|
3,014
|
|
Subordinated
debentures(f)
|
6.00
|
|
2066-2067
|
|
|
7,315
|
|
|
8,064
|
|
Bank
deposits(g)
|
4.49
|
|
2010-2018
|
|
|
6,699
|
|
|
−
|
|
Total
|
|
|
$
|
321,755
|
|
$
|
309,231
|
|
|
|
|
|
|
|
|
|
|
(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)
|
At
December 31, 2008, GE Capital had issued and outstanding, $13,420 million
of senior, unsecured debt that was guaranteed by the FDIC under the
Temporary Liquidity Guarantee Program. GE Capital and GE entered into an
Eligible Entity Designation Agreement and GE Capital is subject to the
terms of a Master Agreement, each entered into with the FDIC. The terms of
these agreements include, among other things, a requirement that GE and GE
Capital reimburse the FDIC for any amounts that the FDIC pays to holders
of debt that is guaranteed by the FDIC.
|
(c)
|
Included
borrowings from GECS affiliates of $1,006 million and $874 million at
December 31, 2008 and 2007, respectively.
|
(d)
|
Included
$2,104 million and $3,410 million of asset-backed senior notes, issued by
consolidated, liquidating securitization entities at December 31, 2008 and
2007, respectively. See note 6.
|
(e)
|
Included
$450 million of subordinated notes guaranteed by GE at December 31, 2008
and 2007.
|
(f)
|
Subordinated
debentures receive rating agency equity credit and were hedged at issuance
to the U.S. dollar equivalent of $7,725 million.
|
(g)
|
Entirely
certificates of deposits with maturities greater than one
year.
|
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 20.
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,680
|
(a)
|
$
|
62,894
|
|
$
|
52,835
|
|
$
|
47,573
|
|
$
|
27,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Fixed
and floating rate notes of $734 million contain put options with exercise
dates in 2009, and which have final maturity beyond 2013.
|
|
Committed
credit lines totaling $60.0 billion had been extended to us by 65 banks at
year-end 2008. Availability of these lines is shared between GE and GECC with
$12.6 billion and $60.0 billion available to GE and GECC, respectively. Our
lines include $37.4 billion of revolving credit agreements under which we can
borrow funds for periods exceeding one year. Additionally, $21.3 billion are
364-day lines that 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 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)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
$
|
(4,529
|
)
|
$
|
497
|
|
Fair
value hedges
|
|
8,304
|
|
|
(75
|
)
|
Total
|
$
|
3,775
|
|
$
|
422
|
|
Interest
rate swaps
|
$
|
3,425
|
|
$
|
(1,559
|
)
|
Currency
swaps
|
|
350
|
|
|
1,981
|
|
Total
|
$
|
3,775
|
|
$
|
422
|
|
We
regularly assess the effectiveness of all hedge positions where required 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 increased the carrying amount of
debt outstanding at December 31, 2008, by $9,127 million. At December 31, 2008,
the maximum term of derivative instruments that hedge forecasted transactions
was 27 years. See note 20.
Note
13. Investment Contracts, Insurance Liabilities and Insurance Annuity
Benefits
Investment
contracts, insurance liabilities and insurance annuity benefits comprise mainly
obligations to holders of guaranteed investment contracts.
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
Guaranteed
investment contracts
|
$
|
10,828
|
|
$
|
11,705
|
|
Unpaid
claims and claims adjustment expenses
|
|
174
|
|
|
189
|
|
Unearned
premiums
|
|
401
|
|
|
417
|
|
Total
|
$
|
11,403
|
|
$
|
12,311
|
|
When
insurance affiliates cede insurance to third parties, such as reinsurers, 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. Reinsurance recoverables
are included in the caption “Other receivables” on our Statement of Financial
Position, and amounted to $159 million and $140 million at December 31, 2008 and
2007, respectively.
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, 2008, 2007 and
2006.
Note
14. Income Taxes
The
provision for income taxes is summarized in the following table.
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
Current
tax expense (benefit)
|
$
|
(1,470
|
)
|
$
|
1,017
|
|
$
|
646
|
|
Deferred
tax expense (benefit) from temporary differences
|
|
(795
|
)
|
|
(278
|
)
|
|
519
|
|
Total
|
$
|
(2,265
|
)
|
$
|
739
|
|
$
|
1,165
|
|
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. Our effect on the consolidated liability is settled in cash
as GE tax payments are due.
U.S.
earnings from continuing operations before income taxes were $(4,988) million in
2008, $66 million in 2007 and $3,000 million in 2006. The corresponding amounts
for non-U.S. based operations were $10,737 million in 2008, $12,619 million in
2007 and $8,260 million in 2006.
Current
tax expense includes amounts applicable to U.S. federal income taxes of $(2,674)
million, $(791) million and $(26) million in 2008, 2007 and 2006, respectively,
and amounts applicable to non-U.S. jurisdictions of $1,281 million, $1,600
million and $530 million in 2008, 2007 and 2006, respectively. Deferred taxes
related to U.S. federal income taxes were a benefit of $489 million in 2008 and
expenses of $81 million and $320 million in 2007 and 2006,
respectively.
Deferred
income tax balances reflect the effects of temporary differences between the
carrying amounts of assets and liabilities and their tax bases, as well as from
net operating loss and tax credit carryforwards, and are stated at enacted tax
rates expected to be in effect when taxes are actually paid or recovered.
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 and credits 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. To the extent we do not consider it more likely than not that a
deferred tax asset will be recovered, a valuation allowance is
established.
Our
businesses are subject to regulation under a wide variety of U.S. federal, state
and foreign tax laws, regulations and policies. Changes to these laws or
regulations may affect our tax liability, return on investments and business
operations. For example, GE’s effective tax rate is reduced because active
business income earned and indefinitely reinvested outside the United States is
taxed at less than the U.S. rate. A significant portion of this reduction
depends upon a provision of U.S. tax law that defers the imposition of U.S. tax
on certain active financial services income until that income is repatriated to
the United States as a dividend. This provision is consistent with international
tax norms and permits U.S. financial services companies to compete more
effectively with foreign banks and other foreign financial institutions in
global markets. This provision, currently scheduled to expire at the end of
2009, has been scheduled to expire on five previous occasions, including October
of 2008, but there can be no assurance that it will continue to be extended. In
the event this provision is not extended after 2009, the current U.S. tax
imposed on active financial services income earned outside the United States
would increase, making it more difficult for U.S. financial services companies
to compete in global markets. If this provision is not extended, we expect our
effective tax rate to increase significantly after 2010.
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, 2008, were approximately $50
billion. Most of these earnings have been reinvested in active non-U.S. business
operations and we do not intend to use these earnings as a source of funding for
U.S. operations. 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. During 2008, because the use of foreign tax
credits no longer required the repatriation of prior-year earnings, we increased
the amount of prior-year earnings that were indefinitely reinvested outside the
U.S. by approximately $1.0 billion, resulting in a decrease to the income tax
provision of approximately $350 million.
As
discussed in note 1, on January 1, 2007, we adopted a new accounting standard,
FIN 48, Accounting for
Uncertainty in Income Taxes, which had no effect on retained
earnings.
Annually,
GE files over 7,500 income tax returns in over 250 global taxing jurisdictions,
a substantial portion of which include our activities. We are under examination
or engaged in tax litigation in many of these jurisdictions. During 2007, the
IRS completed the audit of our consolidated U.S. income tax returns for
2000-2002. The IRS is currently auditing our consolidated U.S. income tax
returns for 2003-2005. In addition, certain other U.S. tax deficiency issues and
refund claims for previous years remain unresolved. It is reasonably possible
that the 2003-2005 U.S. audit cycle will be completed during the next 12 months,
which could result in a decrease in our balance of “unrecognized tax benefits” –
that is, the aggregate tax effect of differences between tax return positions
and the benefits recognized in our financial statements. We believe that there
are no other jurisdictions in which the outcome of unresolved issues or claims
is likely to be material to our results of operations, financial position or
cash flows. We further believe that we have made adequate provision for all
income tax uncertainties.
The
balance of unrecognized tax benefits, the amount of related interest and
penalties we have provided and what we believe to be the range of reasonably
possible changes in the next 12 months, were:
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Unrecognized
tax benefits
|
$
|
3,454
|
|
$
|
2,964
|
|
Portion that, if recognized,
would reduce tax expense and effective tax rate(a)
|
|
1,734
|
|
|
1,540
|
|
Accrued
interest on unrecognized tax benefits
|
|
693
|
|
|
548
|
|
Accrued
penalties on unrecognized tax benefits
|
|
65
|
|
|
55
|
|
Reasonably
possible reduction to the balance of unrecognized tax benefits
in
|
|
|
|
|
|
|
succeeding 12
months
|
|
0–350
|
|
|
0–350
|
|
Portion that, if recognized,
would reduce tax expense and effective tax rate(a)
|
|
0–50
|
|
|
0–100
|
|
|
|
|
|
|
|
|
(a)
|
Some
portion of such reduction might be reported as discontinued
operations.
|
|
A
reconciliation of the beginning and ending amounts of unrecognized tax benefits
is as follows:
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
2,964
|
|
$
|
2,835
|
|
Additions
for tax positions of the current year
|
|
420
|
|
|
71
|
|
Additions
for tax positions of prior years
|
|
329
|
|
|
774
|
|
Reductions
for tax positions of prior years
|
|
(169
|
)
|
|
(399
|
)
|
Settlements
with tax authorities
|
|
(74
|
)
|
|
(286
|
)
|
Expiration
of the statute of limitations
|
|
(16
|
)
|
|
(31
|
)
|
Balance
at December 31
|
$
|
3,454
|
|
$
|
2,964
|
|
|
|
|
|
|
|
|
We
classify interest on tax deficiencies as interest expense; we classify income
tax penalties as provision for income taxes. For the year ended December 31,
2008, $145 million of interest expense and $10 million of tax expense related to
penalties were recognized in the statement of earnings, compared with $(72)
million and $(41) million for the year ended December 31, 2007.
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
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
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(a)
|
(69.8
|
)
|
(22.8
|
)
|
(21.8
|
)
|
U.S. business
credits
|
(3.6
|
)
|
(1.6
|
)
|
(2.3
|
)
|
SES transaction
|
−
|
|
(4.3
|
)
|
–
|
|
All other – net
|
(1.0
|
)
|
(0.5
|
)
|
(0.6
|
)
|
|
(74.4
|
)
|
(29.2
|
)
|
(24.7
|
)
|
Actual
income tax rate
|
(39.4
|
)%
|
5.8
|
%
|
10.3
|
%
|
|
|
|
|
|
|
|
(a)
|
2008
included (6.1)% from indefinite reinvestment of prior-year
earnings.
|
|
Principal
components of our net liability representing deferred income tax balances are as
follows:
December
31 (In millions)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Allowance
for losses
|
$
|
2,382
|
|
$
|
1,595
|
|
Cash
flow hedges
|
|
2,315
|
|
|
474
|
|
Net
unrealized losses on securities
|
|
1,027
|
|
|
93
|
|
Non-U.S.
loss carryforwards(a) |
|
979
|
|
|
804
|
|
Other
– net
|
|
3,746
|
|
|
2,999
|
|
Total
deferred income tax assets
|
|
10,449
|
|
|
5,965
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Financing
leases
|
|
6,964
|
|
|
6,798
|
|
Operating
leases
|
|
4,859
|
|
|
4,504
|
|
Investment
in global subsidiaries
|
|
2,051
|
|
|
(1,318
|
)
|
Intangible
assets
|
|
1,289
|
|
|
1,343
|
|
Other
– net
|
|
3,398
|
|
|
2,621
|
|
Total
deferred income tax liabilities
|
|
18,561
|
|
|
13,948
|
|
|
|
|
|
|
|
|
Net
deferred income tax liability
|
$
|
8,112
|
|
$
|
7,983
|
|
|
|
|
|
|
|
|
(a)
|
Net
of valuation allowances of $260 million and $196 million for 2008 and
2007, respectively. Of the net deferred tax asset as of December 31, 2008,
of $979 million, $24 million relates to net operating loss carryforwards
that expire in various years ending from December 31, 2009, through
December 31, 2011; $73 million relates to net operating losses that expire
in various years ending from December 31, 2012, through December 31, 2023;
and $882 million relates to net operating loss carryforwards that may be
carried forward indefinitely.
|
|
Note
15. 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)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Minority
interest in consolidated affiliates(a)
|
$
|
2,106
|
|
$
|
1,326
|
|
Minority
interest in preferred stock(b)
|
|
277
|
|
|
281
|
|
|
$
|
2,383
|
|
$
|
1,607
|
|
|
|
|
|
|
|
|
(a)
|
Included
minority interest in partnerships and common shares of consolidated
affiliates.
|
|
(b)
|
The
preferred stock pays cumulative dividends at an average rate of
6.81%.
|
|
Note
16. Shareowner’s Equity
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued
|
$
|
56
|
|
$
|
56
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
6,489
|
|
$
|
4,813
|
|
$
|
2,573
|
|
Investment
securities – net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of $(1,568), $(190) and
$75
|
|
(2,152
|
)
|
|
(286
|
)
|
|
154
|
|
Currency
translation adjustments – net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of $4,167, $(1,427) and
$(1,506)
|
|
(8,586
|
)
|
|
2,572
|
|
|
2,629
|
|
Cash
flow hedges – net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of $(1,963), $(262) and
$78
|
|
(2,720
|
)
|
|
(27
|
)
|
|
590
|
|
Benefit
plans – net of deferred taxes
|
|
|
|
|
|
|
|
|
|
of $(116), $68 and $(29)(a)
|
|
(262
|
)
|
|
173
|
|
|
(12
|
)
|
Reclassification
adjustments
|
|
|
|
|
|
|
|
|
|
Investment securities – net of
deferred taxes
|
|
|
|
|
|
|
|
|
|
of $468, $(147) and
$(225)
|
|
164
|
|
|
(220
|
)
|
|
(417
|
)
|
Currency translation
adjustments
|
|
(119
|
)
|
|
(13
|
)
|
|
(163
|
)
|
Cash flow hedges – net of
deferred taxes
|
|
|
|
|
|
|
|
|
|
of $317, $(96) and
$(69)
|
|
216
|
|
|
(523
|
)
|
|
(422
|
)
|
Cumulative effect of change in
accounting principle -
|
|
|
|
|
|
|
|
|
|
net of deferred taxes of
$(58)
|
|
−
|
|
|
–
|
|
|
(119
|
)
|
Balance
at December 31(b)
|
$
|
(6,970
|
)
|
$
|
6,489
|
|
$
|
4,813
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
14,172
|
|
$
|
14,088
|
|
$
|
12,055
|
|
Contributions(c)
|
|
5,499
|
|
|
84
|
|
|
2,103
|
|
Redemption
of preferred stock(c)
|
|
−
|
|
|
–
|
|
|
(70
|
)
|
Balance
at December 31
|
$
|
19,671
|
|
$
|
14,172
|
|
$
|
14,088
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
|
|
|
|
|
Balance
at January 1(d)
|
$
|
40,513
|
|
$
|
37,551
|
|
$
|
35,506
|
|
Net
earnings
|
|
7,310
|
|
|
9,815
|
|
|
10,386
|
|
Dividends(c)
|
|
(2,351
|
)
|
|
(6,853
|
)
|
|
(8,264
|
)
|
Balance
at December 31
|
$
|
45,472
|
|
$
|
40,513
|
|
$
|
37,628
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
|
|
|
|
|
|
|
Balance
at December 31
|
$
|
58,229
|
|
$
|
61,230
|
|
$
|
56,585
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
For
2008, included $(270) million of gains (losses) arising during the year
and $8 million of amortization of gains (losses) – net of deferred taxes
of $(120) million and $4 million, respectively.
|
|
(b)
|
At
December 31, 2008, included additions to equity of $2,865 million related
to hedges of our investments in financial services subsidiaries that have
functional currencies other than the U.S. dollar and reductions of $3,253
million related to cash flow hedges of forecasted transactions, of which
we expect to transfer $1,851 million to earnings as an expense in 2009
along with the earnings effects of the related forecasted
transaction.
|
|
(c)
|
Total
dividends and other transactions with the shareowner increased equity by
$3,148 million in 2008, and reduced equity by $6,769 million in 2007 and
$6,231 million in 2006.
|
|
(d)
|
2007
opening balance change reflects cumulative effect of change in accounting
principle of $(77) million related to adoption of FSP FAS 13-2. The
cumulative effect of adopting SFAS 159 at January 1, 2008, was
insignificant. See note 1.
|
|
All
common stock is owned by GE Capital Services, all of the common stock of which
is in turn owned 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. Activities of certain of our financial services consolidated
affiliates are subject to regulation by various national authorities including
banking, financial services and insurance regulators. The activities of these
entities include lending, leasing, and other traditional financial services
transactions and relate to approximately $146.0 billion of our total assets.
National regulators routinely impose restrictions on the transfer of funds
across entities and/or borders in the form of dividends or loans as part of
their regulatory oversight. However, such funds are available for use by these
affiliates, without restriction, to repay borrowings, to fund new loans, or for
other normal business purposes. At December 31, 2008, the amount of restricted
net assets of these affiliates was $20.3 billion.
At
December 31, 2008 and 2007, the aggregate statutory capital and surplus of the
insurance activities totaled $0.6 billion for both years. Accounting practices
prescribed by statutory authorities are used in preparing statutory
statements.
Note
17. 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)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
All
other operating activities
|
|
|
|
|
|
|
|
|
|
Net
change in other assets
|
$
|
(1,588
|
)
|
$
|
(1,608
|
)
|
$
|
(1,936
|
)
|
Amortization
of intangible assets
|
|
926
|
|
|
773
|
|
|
521
|
|
Realized
losses (gains) on investment securities
|
|
632
|
|
|
(367
|
)
|
|
(113
|
)
|
Change
in other liabilities
|
|
4,507
|
|
|
3,365
|
|
|
3,675
|
|
Other
|
|
1,890
|
|
|
(2,414
|
)
|
|
(1,425
|
)
|
|
$
|
6,367
|
|
$
|
(251
|
)
|
$
|
722
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in financing receivables
|
|
|
|
|
|
|
|
|
|
Increase
in loans to customers
|
$
|
(408,965
|
)
|
$
|
(391,662
|
)
|
$
|
(362,873
|
)
|
Principal
collections from customers – loans
|
|
358,448
|
|
|
304,402
|
|
|
290,205
|
|
Investment
in equipment for financing leases
|
|
(21,690
|
)
|
|
(26,536
|
)
|
|
(25,667
|
)
|
Principal
collections from customers – financing leases
|
|
19,669
|
|
|
21,230
|
|
|
18,265
|
|
Net
change in credit card receivables
|
|
(34,498
|
)
|
|
(38,405
|
)
|
|
(25,787
|
)
|
Sales
of financing receivables
|
|
67,163
|
|
|
86,399
|
|
|
67,471
|
|
|
$
|
(19,873
|
)
|
$
|
(44,572
|
)
|
$
|
(38,386
|
)
|
|
|
|
|
|
|
|
|
|
|
All
other investing activities
|
|
|
|
|
|
|
|
|
|
Purchases
of securities by insurance activities
|
$
|
(1,346
|
)
|
$
|
(10,185
|
)
|
$
|
(8,762
|
)
|
Dispositions
and maturities of securities by insurance activities
|
|
2,623
|
|
|
10,255
|
|
|
8,302
|
|
Other
assets – investments
|
|
(92
|
)
|
|
(10,284
|
)
|
|
(4,938
|
)
|
Change
in other receivables
|
|
5,722
|
|
|
7,286
|
|
|
(8,775
|
)
|
Other
|
|
1,226
|
|
|
899
|
|
|
(70
|
)
|
|
$
|
8,133
|
|
$
|
(2,029
|
)
|
$
|
(14,243
|
)
|
|
|
|
|
|
|
|
|
|
|
Newly
issued debt having maturities longer than 90 days
|
|
|
|
|
|
|
|
|
|
Short-term
(91 to 365 days)
|
$
|
34,445
|
|
$
|
1,226
|
|
$
|
1,237
|
|
Long-term
(longer than one year)
|
|
87,754
|
|
|
90,799
|
|
|
87,790
|
|
Proceeds
– nonrecourse, leveraged lease
|
|
113
|
|
|
24
|
|
|
1,015
|
|
|
$
|
122,312
|
|
$
|
92,049
|
|
$
|
90,042
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
and other reductions of debt having maturities
|
|
|
|
|
|
|
|
|
|
longer than 90
days
|
|
|
|
|
|
|
|
|
|
Short-term
(91 to 365 days)
|
$
|
(65,985
|
)
|
$
|
(43,902
|
)
|
$
|
(42,251
|
)
|
Long-term
(longer than one year)
|
|
(331
|
)
|
|
(7,651
|
)
|
|
(5,277
|
)
|
Principal
payments – nonrecourse, leveraged lease
|
|
(637
|
)
|
|
(1,109
|
)
|
|
(1,404
|
)
|
|
$
|
(66,953
|
)
|
$
|
(52,662
|
)
|
$
|
(48,932
|
)
|
|
|
|
|
|
|
|
|
|
|
All
other financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales of investment contracts
|
$
|
11,397
|
|
$
|
12,611
|
|
$
|
16,392
|
|
Redemption
of investment contracts
|
|
(12,696
|
)
|
|
(13,036
|
)
|
|
(16,350
|
)
|
Redemption
of preferred stock
|
|
−
|
|
|
–
|
|
|
(70
|
)
|
Capital
contribution
|
|
5,500
|
|
|
−
|
|
|
1,946
|
|
Other
|
|
2
|
|
|
17
|
|
|
−
|
|
|
$
|
4,203
|
|
$
|
(408
|
)
|
$
|
1,918
|
|
|
|
|
|
|
|
|
|
|
|
Note
18. Operating Segments
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. Segment results
include an allocation for a portion of corporate overhead costs, which include
such items as employee compensation and benefits. Segment results reflect the
discrete tax effect of transactions, but the intraperiod tax allocation is
reflected outside of the segment unless otherwise noted in segment
results.
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, 2008 and 2007, financing receivables included $5,913 million and
$6,164 million, respectively, of receivables from GE customers. Other
receivables included $4,560 million and $4,093 million, respectively, of
receivables from GE. Property, plant and equipment included $1,257 million and
$1,198 million, respectively, of property, plant and equipment leased to GE, net
of accumulated depreciation. Borrowings included $2,490 million and $2,363
million, respectively, of amounts held by GE.
Details
of segment profit by operating segment can be found in the Summary of Operating
Segments table on page 18 of this Report.
Revenues
(In
millions)
|
Total
revenues
|
|
Intersegment
revenues(a)
|
|
External
revenues
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
|
CLL
|
$
|
26,366
|
|
$
|
26,384
|
|
$
|
25,075
|
|
$
|
47
|
|
$
|
74
|
|
$
|
116
|
|
$
|
26,319
|
|
$
|
26,310
|
|
$
|
24,959
|
|
|
GE
Money
|
|
25,012
|
|
|
24,769
|
|
|
19,508
|
|
|
32
|
|
|
–
|
|
|
24
|
|
|
24,980
|
|
|
24,769
|
|
|
19,484
|
|
|
Real
Estate
|
|
6,660
|
|
|
6,950
|
|
|
4,968
|
|
|
1
|
|
|
5
|
|
|
14
|
|
|
6,659
|
|
|
6,945
|
|
|
4,954
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
3,696
|
|
|
2,400
|
|
|
1,654
|
|
|
−
|
|
|
–
|
|
|
–
|
|
|
3,696
|
|
|
2,400
|
|
|
1,654
|
|
|
GECAS
|
|
4,899
|
|
|
4,835
|
|
|
4,348
|
|
|
−
|
|
|
–
|
|
|
6
|
|
|
4,899
|
|
|
4,835
|
|
|
4,342
|
|
|
GECC
corporate items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and eliminations
|
|
1,361
|
|
|
1,661
|
|
|
1,929
|
|
|
(80
|
)
|
|
(79
|
)
|
|
(160
|
)
|
|
1,441
|
|
|
1,740
|
|
|
2,089
|
|
|
Total
|
$
|
67,994
|
|
$
|
66,999
|
|
$
|
57,482
|
|
$
|
−
|
|
$
|
–
|
|
$
|
–
|
|
$
|
67,994
|
|
$
|
66,999
|
|
$
|
57,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Sales
from one component to another generally are priced at equivalent
commercial selling prices.
|
|
Revenues
from customers located in the United States were $30,672 million, $30,755
million and $29,582 million in 2008, 2007 and 2006, respectively. Revenues from
customers located outside the United States were $37,322 million, $36,244
million and $27,900 million in 2008, 2007 and 2006, respectively.
|
Depreciation
and amortization
For
the years ended December 31
|
|
Provision
(benefit) for
income
taxes
|
|
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
7,061
|
|
$
|
6,079
|
|
$
|
4,723
|
|
$
|
(373
|
)
|
$
|
(92
|
)
|
$
|
487
|
|
GE
Money
|
|
542
|
|
|
477
|
|
|
380
|
|
|
(1,440
|
)
|
|
514
|
|
|
391
|
|
Real
Estate
|
|
930
|
|
|
709
|
|
|
397
|
|
|
(380
|
)
|
|
250
|
|
|
296
|
|
Energy
Financial Services
|
|
156
|
|
|
78
|
|
|
38
|
|
|
105
|
|
|
184
|
|
|
220
|
|
GECAS
|
|
1,522
|
|
|
1,489
|
|
|
1,383
|
|
|
100
|
|
|
61
|
|
|
(59
|
)
|
GECC
corporate items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and eliminations
|
|
19
|
|
|
20
|
|
|
35
|
|
|
(277
|
)
|
|
(178
|
)
|
|
(170
|
)
|
Total
|
$
|
10,230
|
|
$
|
8,852
|
|
$
|
6,956
|
|
$
|
(2,265
|
)
|
$
|
739
|
|
$
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on loans(a)
|
|
Interest expense(b)
|
|
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
7,474
|
|
$
|
6,489
|
|
$
|
5,865
|
|
$
|
9,074
|
|
$
|
8,431
|
|
$
|
6,604
|
|
GE
Money
|
|
15,849
|
|
|
14,075
|
|
|
11,902
|
|
|
9,952
|
|
|
8,906
|
|
|
6,567
|
|
Real
Estate
|
|
2,598
|
|
|
1,802
|
|
|
1,296
|
|
|
3,548
|
|
|
2,669
|
|
|
1,630
|
|
Energy
Financial Services
|
|
340
|
|
|
246
|
|
|
171
|
|
|
764
|
|
|
694
|
|
|
597
|
|
GECAS
|
|
486
|
|
|
502
|
|
|
507
|
|
|
1,593
|
|
|
1,706
|
|
|
1,549
|
|
GECC
corporate items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and eliminations
|
|
147
|
|
|
230
|
|
|
319
|
|
|
(72
|
)
|
|
(126
|
)
|
|
567
|
|
Total
|
$
|
26,894
|
|
$
|
23,344
|
|
$
|
20,060
|
|
$
|
24,859
|
|
$
|
22,280
|
|
$
|
17,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents
one component of Revenues from services, see note 3.
|
(b)
|
Represents
total interest expense, see Statement of
Earnings.
|
|
Assets(a)(b)
At
December 31
|
|
Property,
plant and equipment
additions(c)
For
the years ended
December
31
|
|
(In
millions)
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
230,471
|
|
$
|
226,434
|
|
$
|
201,576
|
|
$
|
10,819
|
|
$
|
12,812
|
|
$
|
10,614
|
|
GE
Money
|
|
183,450
|
|
|
209,278
|
|
|
178,396
|
|
|
250
|
|
|
182
|
|
|
222
|
|
Real
Estate
|
|
84,909
|
|
|
79,006
|
|
|
53,495
|
|
|
6
|
|
|
26
|
|
|
19
|
|
Energy
Financial Services
|
|
22,025
|
|
|
18,653
|
|
|
15,215
|
|
|
944
|
|
|
1,273
|
|
|
(7
|
)
|
GECAS
|
|
49,257
|
|
|
46,970
|
|
|
46,655
|
|
|
3,157
|
|
|
3,327
|
|
|
3,382
|
|
GECC
corporate items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and eliminations
|
|
67,298
|
|
|
40,391
|
|
|
48,918
|
|
|
13
|
|
|
8
|
|
|
54
|
|
Total
|
$
|
637,410
|
|
$
|
620,732
|
|
$
|
544,255
|
|
$
|
15,189
|
|
$
|
17,628
|
|
$
|
14,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Assets
of discontinued operations are included in GECC corporate items and
eliminations for all periods presented.
|
(b)
|
Total
assets of the CLL, GE Money, Energy Financial Services and GECAS operating
segments at December 31, 2008, include investment in and advances to
associated companies of $2,441 million, $10,740 million, $5,518 million
and $590 million, respectively, which contributed approximately $101
million, $1,128 million, $931 million and $57 million, respectively, to
segment pre-tax income for the year ended December 31, 2008. Aggregate
summarized financial information for significant associated companies
assuming a 100% ownership interest included: total assets of $143,436
million, primarily financing receivables of $85,498 million; total
liabilities of $121,815 million, primarily bank deposits of $65,514
million; revenues totaling $13,745 million; and net earnings totaling
$2,774 million.
|
(c)
|
Additions
to property, plant and equipment include amounts relating to principal
businesses purchased.
|
Property,
plant and equipment – net associated with operations based in the United States
were $18,625 million, $18,276 million and $17,792 million at year-end 2008, 2007
and 2006, respectively. Property, plant and equipment – net associated with
operations based outside the United States were $45,418 million, $45,409 million
and $40,094 million at year-end 2008, 2007 and 2006, respectively.
Note
19. Fair Value Measurements
Effective
January 1, 2008, we adopted SFAS 157, Fair Value Measurements, for
all financial instruments and non-financial instruments accounted for at fair
value on a recurring basis. SFAS 157 establishes a new framework for measuring
fair value and expands related disclosures. Broadly, the SFAS 157 framework
requires fair value to be determined based on the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants. SFAS 157 establishes a three-level
valuation hierarchy based upon observable and non-observable
inputs.
For
financial assets and liabilities, fair value is the price we would receive to
sell an asset or pay to transfer a liability in an orderly transaction with a
market participant at the measurement date. In the absence of active markets for
the identical assets or liabilities, such measurements involve developing
assumptions based on market observable data and, in the absence of such data,
internal information that is consistent with what market participants would use
in a hypothetical transaction that occurs at the measurement date.
Observable
inputs reflect market data obtained from independent sources, while unobservable
inputs reflect our market assumptions. Preference is given to observable inputs.
These two types of inputs create the following fair value
hierarchy:
Level 1 –
|
Quoted
prices for identical instruments in active
markets.
|
Level 2 –
|
Quoted
prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant
value drivers are observable.
|
Level 3 –
|
Significant
inputs to the valuation model are
unobservable.
|
We
maintain policies and procedures to value instruments using the best and most
relevant data available. In addition, we have risk management teams that review
valuation, including independent price validation for certain instruments.
Further, in other instances, we retain independent pricing vendors to assist in
valuing certain instruments.
The
following section describes the valuation methodologies we use to measure
different financial instruments at fair value.
Investments
in debt and equity securities
When
available, we use quoted market prices to determine the fair value of investment
securities, and they are included in Level 1. Level 1 securities primarily
include publicly-traded equity securities.
When
quoted market prices are unobservable, we use quotes from independent pricing
vendors based on recent trading activity and other relevant information
including market interest rate curves, referenced credit spreads and estimated
prepayment rates where applicable. These investments are included in Level 2 and
primarily comprise our portfolio of corporate fixed income, and government,
mortgage and asset-backed securities. In infrequent circumstances, our pricing
vendors may provide us with valuations that are based on significant
unobservable inputs, and in those circumstances we classify the investment
securities in Level 3.
As part
of our adoption of SFAS 157 in the first quarter of 2008, we conducted a review
of our primary pricing vendor, with the assistance of an accounting firm, to
validate that the inputs used in that vendor’s pricing process are deemed to be
market observable as defined in the standard. More specifically, we used a
combination of approaches to validate that the process used by the pricing
vendor is consistent with the requirements of the standard and that the levels
assigned to these valuations are reasonable. While we were not provided access
to proprietary models of the vendor, our review included on-site walk-throughs
of the pricing process, methodologies and control procedures for each asset
class for which prices are provided. Our review also included an examination of
the underlying inputs and assumptions for a sample of individual securities, a
process we have continued to perform for each reporting period.
Based on
this examination, and the ongoing review performed, we believe that the
valuations used in our financial statements are reasonable and are appropriately
classified in the fair value hierarchy. As of December 31, 2008, the valuation
provided by pricing services was $6,926 million and was classified in Level 2.
The valuations provided by pricing services based on significant unobservable
inputs was insignificant, and those investment securities are classified as
Level 3.
Retained
interests in securitizations are valued using a discounted cash flow model that
considers the underlying structure of the securitization and estimated net
credit exposure, prepayment assumptions, discount rates and expected life.
Investment securities priced using non-binding broker quotes and retained
interests are included in Level 3. We use non-binding broker quotes as our
primary basis for valuation when there is limited, or no, relevant market
activity for a specific instrument or for other instruments that share similar
characteristics. We have not adjusted the prices we have obtained. Level 3
investment securities valued using non-binding broker quotes totaled $556
million at December 31, 2008, and were classified as available-for-sale
securities. Level 3 retained interests totaled $5,081 million at December 31,
2008.
We
receive one quote for Level 2 and Level 3 securities where third-party quotes
are used as our basis for fair value measurement. As is the case with our
primary pricing vendor, third-party providers of quotes do not provide access to
their proprietary valuation models, inputs and assumptions. Accordingly, our
risk management personnel conduct internal reviews of pricing for all such
investment securities at least quarterly to ensure reasonableness of valuations
used in our financial statements. These reviews are designed to identify prices
that appear stale, those that have changed significantly from prior valuations,
and other anomalies that may indicate that a price may not be accurate. We also
follow established routines for reviewing and reconfirming valuations with the
pricing provider, if deemed appropriate. In addition, the pricing vendor has an
established challenge process in place for all security valuations, which
facilitates identification and resolution of potentially erroneous prices. Based
on the information available, we believe that the fair values provided by the
brokers are consistent with the principles of SFAS 157.
Private
equity investments held in investment company affiliates are initially valued at
cost. Valuations are reviewed at the end of each quarter utilizing available
market data to determine whether or not any fair value adjustments are
necessary. Such market data include any comparable public company trading
multiples. Unobservable inputs include company-specific fundamentals and other
third-party transactions in that security. Our valuation methodology for private
equity investments is applied consistently, and these investments are generally
included in Level 3.
Derivatives
We use
closing prices for derivatives included in Level 1, which are traded either on
exchanges or liquid over-the-counter markets.
The
majority of our derivatives portfolio is valued using internal models. The
models maximize the use of market observable inputs including interest rate
curves and both forward and spot prices for currencies and commodities.
Derivative assets and liabilities included in Level 2 primarily represent
interest rate swaps, cross-currency swaps and foreign currency and commodity
forward and option contracts.
Derivative
assets and liabilities included in Level 3 primarily represent interest rate
products that contain embedded optionality or prepayment features.
Loans
When
available, we use observable market data, including pricing on recent closed
market transactions, to value loans which are included in Level 2. When this
data is unobservable, we use valuation methodologies using current market
interest rate data adjusted for inherent credit risk, and such loans are
included in Level 3. When appropriate, loans are valued using collateral values
as a practical expedient.
Effective
January 1, 2008, we adopted SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities. Upon adoption, we elected to report
$172 million of commercial mortgage loans at fair value in order to have them on
the same accounting basis (measured at fair value through earnings) as the
derivatives economically hedging these loans.
The
following table presents our assets and liabilities measured at fair value on a
recurring basis at December 31, 2008. Included in the table are investment
securities of $8,190 million supporting obligations to holders of guaranteed
investment contracts. Such securities are primarily investment grade. In
addition, the table includes $11,211 million and $3,756 million of derivative
assets and liabilities, respectively, with highly rated counterparties,
primarily used for risk management purposes. Also included are retained
interests in securitizations totaling $5,081 million.
(a)
|
FIN
39, Offsetting of
Amounts Related to Certain Contracts, permits the netting of
derivative receivables and derivative payables when a legally enforceable
master netting agreement exists. Included fair value adjustments related
to our own and counterparty credit risk.
|
(b)
|
The
fair value of derivatives included an adjustment for our non-performance
risk. At December 31, 2008, the adjustment for our non-performance risk
was a gain of $164 million.
|
(c)
|
Included
private equity investments and loans designated under the fair value
option.
|
The
following table presents the changes in Level 3 instruments measured on a
recurring basis for the year ended December 31, 2008. The majority of our Level
3 balances consist of investment securities classified as available-for-sale
with changes in fair value recorded in equity.
Changes
in Level 3 instruments for the year ended December 31, 2008
|
January
1, 2008
|
|
Net
realized/
unrealized
gains
(losses)
included
in
earnings(a)
|
|
Net
realized/
unrealized
gains
(losses)
included
in
accumulated
nonowner
changes
other
than
earnings
|
|
Purchases,
issuances
and
settlements
|
|
Transfers
in
and/or
out
of
Level
3(b)
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,329
|
|
$
|
750
|
|
$
|
(1,241
|
)
|
$
|
777
|
|
$
|
1,015
|
|
$
|
9,630
|
|
|
$
|
6
|
|
|
|
200
|
|
|
265
|
|
|
142
|
|
|
(193
|
|
|
|
|
|
401
|
|
|
|
89
|
|
|
|
689
|
|
|
(67
|
|
|
(29
|
|
|
(93
|
|
|
|
|
|
551
|
|
|
|
(67
|
|
|
|
9,218
|
|
|
948
|
|
|
(1,128
|
|
|
491
|
|
|
|
|
|
10,582
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Earnings
effects are primarily included in the “Revenues from services” and
“Interest” captions in the Statement of Earnings.
|
(b)
|
Transfers
in and out of Level 3 are considered to occur at the beginning of the
period. Transfers into Level 3 were a result of increased use of
non-binding broker quotes that could not be validated with other market
observable data, resulting from continued deterioration in the credit
markets.
|
(c)
|
Represented
the amount of total gains or losses for the period included in earnings
attributable to the change in unrealized gains (losses) relating to assets
and liabilities classified as Level 3 that are still held at December 31,
2008.
|
(d)
|
Earnings
from Derivatives were partially offset by $183 million in losses from
related derivatives included in Level 2 and $4 million in losses from
underlying debt obligations in qualifying fair value
hedges.
|
(e)
|
Represented
derivative assets net of derivative liabilities and included cash accruals
of $19 million not reflected in the fair value hierarchy
table.
|
Certain
assets that are carried on our Statement of Financial Position at historical
cost, require fair value charges to earnings when they are deemed to be
impaired. As these impairment charges are non-recurring, they are not included
in the preceding tables.
Included
in this category are certain loans that have been reduced for the fair value of
their underlying collateral when deemed impaired, and cost and equity method
investments that are written down to fair value when their declines are
determined to be other-than-temporary. At December 31, 2008, these amounts were
$48 million identified as Level 2 and $3,100 million identified as Level 3. Of
assets still held at December 31,2008, we recognized $583 million, pre-tax, of
losses related to non-recurring fair value measurements of loans, and $404
million, pre-tax, of other-than-temporary impairments of cost and equity method
investments during 2008.
Note
20. Financial Instruments
|
2008
|
|
2007
|
|
|
|
|
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)
|
|
$
|
304,010
|
|
$
|
291,465
|
|
$
|
(a)
|
|
$
|
304,951
|
|
$
|
302,694
|
|
Other commercial
mortgages
|
|
(a)
|
|
|
374
|
|
|
374
|
|
|
(a)
|
|
|
3,716
|
|
|
3,716
|
|
Loans held for
sale
|
|
(a)
|
|
|
3,640
|
|
|
3,670
|
|
|
(a)
|
|
|
3,808
|
|
|
3,809
|
|
Other financial instruments(b)
|
|
(a)
|
|
|
2,609
|
|
|
2,781
|
|
|
(a)
|
|
|
2,747
|
|
|
3,132
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings(c)(d)
|
|
(a)
|
|
|
(510,356
|
)
|
|
(500,205
|
)
|
|
(a)
|
|
|
(496,000
|
)
|
|
(498,622
|
)
|
Guaranteed
investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contracts
|
|
(a)
|
|
|
(10,828
|
)
|
|
(10,677
|
)
|
|
(a)
|
|
|
(11,705
|
)
|
|
(11,630
|
)
|
Insurance – credit life(e)
|
|
1,052
|
|
|
(46
|
)
|
|
(33
|
)
|
|
1,355
|
|
|
(39
|
)
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
These
financial instruments do not have notional amounts.
|
|
(b)
|
Principally
cost method investments.
|
|
(c)
|
Included
effects of interest rate and cross-currency derivatives.
|
|
(d)
|
See
note 12.
|
|
(e)
|
Net
of reinsurance of $3,100 million and $2,800 million at December 31, 2008
and 2007, respectively.
|
|
Assets
and liabilities not carried at fair value in our Statement of Financial Position
are discussed below. Consistent with SFAS 107, Disclosure about Fair Value of
Financial Instruments, the disclosure excludes finance leases and
non-financial assets and liabilities. 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.
A
description of how we estimate fair values follows. Estimates of fair value at
December 31, 2008, were determined in accordance with SFAS 107, as amended by
SFAS 157.
Loans
Based on
quoted market prices, recent transactions and/or discounted future cash flows,
using rates we would charge to similar borrowers with similar
maturities.
Borrowings
Valuation
methodologies using current market interest rate data which are comparable to
market quotes adjusted for our non-performance risk.
Guaranteed
investment contracts
Based on
valuation methodologies using current market interest rate data, adjusted for
our non-performance risk.
All
other instruments
Based on
observable market transactions, valuation methodologies using current market
interest rate data adjusted for inherent credit risk and/or quoted market
prices.
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.
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)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Ordinary course of business
lending commitments(a)(b)
|
$
|
8,507
|
|
$
|
11,731
|
|
Unused
revolving credit lines(c)
|
|
|
|
|
|
|
Commercial
|
|
25,011
|
|
|
24,554
|
|
Consumer – principally credit
cards
|
|
252,867
|
|
|
477,285
|
|
|
|
|
|
|
|
|
(a)
|
Excluded
investment commitments of $3,501 million and $4,864 million as of December
31, 2008 and 2007, respectively.
|
|
(b)
|
Included
a $1,067 million secured commitment associated with an arrangement that
can increase to a maximum of $4,943 million based on the asset volume
under the arrangement.
|
|
(c)
|
Excluded
inventory financing arrangements, which may be withdrawn at our option, of
$14,503 million and $14,654 million as of December 31, 2008 and 2007,
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 various techniques including issuing 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. By policy, we do not use derivatives for speculative purposes. 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 non-functional 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 economically 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
The
following table provides information about the earnings effects of derivatives
designated and qualifying as hedges.
Pre-tax
gains (losses)
December
31 (In millions)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
$
|
8
|
|
$
|
(3
|
)
|
$
|
10
|
|
Amounts
excluded from the measure of effectiveness
|
|
5
|
|
|
(17
|
)
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges
|
|
|
|
|
|
|
|
|
|
Ineffectiveness
|
|
(600
|
)
|
|
7
|
|
|
(47
|
)
|
Amounts
excluded from the measure of effectiveness
|
|
(26
|
)
|
|
(13
|
)
|
|
33
|
|
Ineffectiveness
primarily related to changes in the present value of the initial credit spread
over the benchmark interest rate associated with hedges of our fixed rate
borrowings.
In 2008,
2007 and 2006, we recognized insignificant gains and losses related to hedged
forecasted transactions and firm commitments that did not occur by the end of
the originally specified period.
Guarantees
of Derivatives
We do not
sell credit default swaps; however, as a part of our risk management services,
we provide performance guarantees to third-party financial institutions related
to plain vanilla interest rate swaps on behalf of certain customers related to
variable rate loans we have extended to them. The underwriting risk inherent in
these arrangements is essentially similar to that of a fixed rate loan. Under
these arrangements, the guarantee is secured, usually by the asset being
purchased or financed, or by other assets of the guaranteed party. In
addition, these agreements are underwritten to provide for collateral value that
exceeds the combination of the loan amount and the initial expected future
exposure of the derivative. These credit support arrangements mature
on the same date as the related financing arrangements or transactions and are
across a broad spectrum of diversified industries and companies. The fair value
of our guarantee is $28 million at December 31, 2008. Because we are
guaranteeing the performance of the customer under these arrangements, our
exposure to loss at any point in time is limited to the fair value of the
customer’s derivative contracts that are in a liability position. The aggregate
termination value of such contracts at December 31, 2008, was $386 million
before consideration of any offsetting effect of collateral. At December 31,
2008, collateral value was sufficient to cover the loan amount and the fair
value of the customer’s derivative, in the event we had been called upon to
perform under the guarantee. If we assumed that, on January 1, 2009, interest
rates moved unfavorably by 100 basis points across the yield curve (a “parallel
shift” in that curve), the effect on the fair value of such contracts, without
considering any potential offset of the underlying collateral, would have been
an increase of $161 million. Given our strict underwriting criteria, we believe
the likelihood that we will be required to perform under the guarantee is
remote.
Additional
information regarding our use of derivatives is provided in note 12 and note
16.
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 can change significantly from period to period based
on, among other factors, market movements and changes in our positions. At
December 31, 2008, 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. Exposure to a counterparty is determined net of
collateral.
|
|
Note
21. Off-Balance Sheet Arrangements
We
securitize financial assets and arrange other forms of asset-backed financing 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 Variable Interest Entities (VIEs) to execute off-balance sheet
securitization transactions funded in the commercial paper and term
markets.
Investors
in these entities only have recourse to the assets owned by the entity and not
to our general credit, unless noted below. We did not provide non-contractual
support to consolidated or unconsolidated VIEs in either 2008 or 2007. We do not
have implicit support arrangements with any VIEs.
Variable
Interest Entities
When
evaluating whether we are the primary beneficiary of a VIE and must therefore
consolidate the entity, we perform a qualitative analysis that considers the
design of the VIE, the nature of our involvement and the variable interests held
by other parties. If that evaluation is inconclusive as to which party absorbs a
majority of the entity’s expected losses or residual returns, a quantitative
analysis is performed to determine who is the primary beneficiary. The largest
single category of VIEs that we are involved with are Qualifying Special Purpose
Entities (QSPEs), which meet specific characteristics defined in U.S. GAAP that
exclude them from the scope of consolidation standards.
Consolidated
Variable Interest Entities
Upon
adoption of FIN 46 and FIN 46(R) on July 1, 2003 and January 1, 2004,
respectively, we consolidated certain VIEs with $54.0 billion of assets and
$52.6 billion of liabilities, which are further described below. At December 31,
2008, assets and liabilities of those VIEs, and additional VIEs consolidated as
a result of subsequent acquisitions of financial companies, totaled $25,139
million and $20,159 million, respectively (at December 31, 2007, assets and
liabilities were $30,841 million and $23,213 million,
respectively).
The VIEs
included in our consolidated financial statements include the
following:
·
|
Securitization
entities that hold financing receivables and other financial assets. Since
they were consolidated in 2003, these assets have continued to run off;
totaled $4,000 million at December 31, 2008; and are included in note 6
($5,013 million in 2007). There has been no significant difference between
the performance of these financing receivables and our on-book receivables
on a blended basis. The liabilities of these securitization entities,
which consist primarily of commercial paper, totaled $3,868 million at
December 31, 2008, and are included in note 12 ($4,834 million in 2007).
Contractually the cash flows from these financing receivables must first
be used to pay down outstanding commercial paper and interest thereon as
well as other expenses of the entity. Excess cash flows are available to
GE. The creditors of these entities have no claim on the other assets of
GE.
|
If the
short-term credit rating of GE Capital or these entities were 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 totaled $3,753 million at December 31, 2008. As the
borrowings of these entities are already reflected in our consolidated Statement
of Financial Position, there would be no change in our debt if this were to
occur.
·
|
Trinity,
a group of sponsored special purpose entities, which invests in a
portfolio of mainly investment-grade investment securities using proceeds
raised from guaranteed investment contracts (GICs) it issues to investors
(principally municipalities). At December 31, 2008, these entities held
$8,190 million of investment securities, included in note 5, and $1,002
million of cash and other assets ($11,101 million and $517 million,
respectively, at December 31, 2007). The associated guaranteed investment
contract liabilities, included in note 13, were $10,828 million and
$11,705 million at the end of December 31, 2008 and 2007,
respectively.
|
If the
long-term credit rating of GE Capital were to fall below AA–/Aa3 or its
short-term credit rating were to fall below A–1+/P–1, GE Capital would be
required to provide approximately $3,499 million of capital to such entities as
of December 31, 2008, pursuant to letters of credit issued by GECC. To the
extent that the entities’ liabilities exceed the ultimate value of the proceeds
from the sale of their assets and the amount drawn under the letters of credit,
GE Capital could be required to provide such excess amount. As of December 31,
2008, the value of these entities’ liabilities was $10,749 million and the fair
value of their assets was $9,191 million (which included unrealized losses on
investment securities of $2,055 million). With respect to these investment
securities, we intend to hold them at least until such time as their individual
fair values exceed their amortized cost and we have the ability to hold all such
debt securities until maturity. As the borrowings of these entities are already
reflected in our consolidated Statement of Financial Position, there would be no
change in our debt if this were to occur.
·
|
Penske
Truck Leasing Co., L.P. (Penske), a rental truck leasing joint venture.
The total consolidated assets and liabilities of Penske at December 31,
2008, were $7,444 million and $1,339 million, respectively, ($8,075
million and $1,482 million at December 31, 2007, respectively). Penske’s
main consolidated asset is property, plant and equipment leased to others,
included in note 8, which totaled $5,499 million at December 31, 2008,
($6,100 million at December 31, 2007). There are no recourse arrangements
between GE and Penske.
|
The
remaining assets and liabilities of VIEs that are included in our consolidated
financial statements were acquired in transactions subsequent to adoption of FIN
46(R) on January 1, 2004. Assets of these entities consist of amortizing
securitizations of financial assets originated by acquirees in Australia and
Japan, and real estate partnerships. There are no recourse arrangements
between GE and these entities.
Off-Balance
Sheet Entities
The vast
majority of our involvement with unconsolidated VIEs relates to our
securitization activities and is detailed in the table below.
Our
involvement with unconsolidated VIEs consists of the following activities:
assisting in the formation and financing of an entity, providing recourse and/or
liquidity support, servicing the assets and receiving variable fees for services
provided. The classification in our financial statements of our variable
interests in these entities depends on the nature of the entity. As described
below, our retained interests in securitization-related VIEs and QSPEs is
reported in financing receivables or investment securities depending on its
legal form. Variable interests in partnerships and corporate entities would be
classified as either equity method or cost method investments.
In the
ordinary course of business, we make equity investments in entities in which we
are not the primary beneficiary, but may hold a variable interest such as
limited partner equity interests or mezzanine debt investment. These investments
totaled $2,871 million at year-end 2008 and are classified in two captions in
our financial statements. At December 31, 2008, “Other assets” included
investments in entities accounted for under either the equity method or the cost
method, which totaled $1,897 million ($1,089 million at December 31, 2007). In
addition, at December 31, 2008, we held financing receivables, included in note
6, totaling $974 million ($567 million at December 31, 2007) representing debt
financing provided to these VIEs. Our maximum exposure to loss related to such
entities at December 31, 2008, was $4,030 million ($2,559 million at December
31, 2007), and includes our investment in the unconsolidated VIEs and our
contractual obligations to fund new investments by the entities. None of these
investments is individually significant.
We
transfer assets to QSPEs in the ordinary course of business as part of our
ongoing securitization activities. In our securitization transactions, we
transfer assets to a QSPE in exchange for cash, which is funded by beneficial
interests issued by the QSPE to third parties and our retained interests in the
assets transferred.
The
financing receivables in our QSPEs have similar risks and characteristics to our
on-book financing receivables and were underwritten to the same standard.
Accordingly, the performance of these assets has been similar to our on-book
financing receivables; however, the blended performance of the pools of
receivables in our QSPEs reflects the eligibility screening requirements that we
apply to determine which receivables are selected for sale. Therefore, the
blended performance can differ from the on-book performance.
When we
securitize financing receivables we retain interests in the transferred
receivables in two forms: a seller’s interest in the assets of the QSPE, which
we classify as financing receivables, and subordinated interests in the assets
of the QSPE, which we classify as investment securities.
Other
than those entities described above, we also hold passive investments in RMBS,
CMBS and asset-backed securities issued by entities that may be either VIEs or
QSPEs. Such investments were, by design, investment grade at issuance and held
by a diverse group of investors. As we have no formal involvement in such
entities beyond our investment, we believe that the likelihood is remote that we
would be required to consolidate them. Further information about such
investments is provided in note 5.
Financing
receivables transferred to securitization entities that remain outstanding and
our retained interests in those financing receivables at December 31, 2008 and
2007, follows.
December
31 (In millions)
|
Equipment
|
(a)
|
Commercial
real
estate
|
|
Credit
card
receivables
|
|
Other
assets
|
|
Total
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
amount outstanding
|
$
|
13,298
|
|
$
|
7,970
|
|
$
|
26,046
|
|
$
|
2,782
|
|
$
|
50,096
|
|
Included
within the amount above
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
are
retained interests of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables(b)
|
|
−
|
|
|
–
|
|
|
3,802
|
|
|
–
|
|
|
3,802
|
|
Investment
securities
|
|
148
|
|
|
16
|
|
|
4,806
|
|
|
61
|
|
|
5,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
amount outstanding
|
$
|
15,566
|
|
$
|
7,721
|
|
$
|
26,248
|
|
$
|
3,351
|
|
$
|
52,886
|
|
Included
within the amount above
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
are
retained interests of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables(b)
|
|
−
|
|
|
–
|
|
|
3,455
|
|
|
–
|
|
|
3,455
|
|
Investment
securities
|
|
112
|
|
|
113
|
|
|
3,922
|
|
|
32
|
|
|
4,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes
inventory floorplan receivables.
|
(b)
|
Uncertificated
sellers interests.
|
Retained
Interests in Securitization Transactions
When we
transfer financing receivables, we determine the fair value of retained
interests received as part of the securitization transaction in accordance with
SFAS 157. Further information about how fair value is determined is presented in
note 19. Retained interests in securitized receivables that are classified as
investment securities are reported at fair value in each reporting period. These
assets decrease as cash is received on the underlying financing receivables.
Retained interests classified as financing receivables are accounted for the
same as our on-book financing receivables.
Key
assumptions used in measuring the fair value of retained interests classified as
investment securities and the sensitivity of the current fair value to changes
in those assumptions related to all outstanding retained interests at December
31, 2008 and 2007 were:
(In
millions)
|
Equipment
|
|
Commercial
real
estate
|
|
Credit
card
receivables
|
|
Other
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate(a)
|
|
16.7
|
%
|
|
54.2
|
%
|
|
15.1
|
%
|
|
13.4
|
%
|
|
|
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
(6
|
)
|
$
|
(1
|
)
|
$
|
(53
|
)
|
$
|
−
|
|
|
|
|
20%
adverse change
|
|
(12
|
)
|
|
(2
|
)
|
|
(105
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment
rate(a)(b)
|
|
10.0
|
%
|
|
1.5
|
%
|
|
9.6
|
%
|
|
43.8
|
%
|
|
|
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
(1
|
)
|
$
|
−
|
|
$
|
(60
|
)
|
$
|
–
|
|
|
|
|
20%
adverse change
|
|
(1
|
)
|
|
−
|
|
|
(118
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimate
of credit losses(a)
|
|
0.4
|
%
|
|
4.9
|
%
|
|
16.2
|
%
|
|
0.1
|
%
|
|
|
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
(1
|
)
|
$
|
−
|
|
$
|
(223
|
)
|
$
|
–
|
|
|
|
|
20%
adverse change
|
|
(3
|
)
|
|
−
|
|
|
(440
|
)
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
asset
lives (in months)
|
|
20
|
|
|
70
|
|
|
10
|
|
|
3
|
|
|
|
|
Net
credit losses
|
$
|
4
|
|
$
|
−
|
|
$
|
1,815
|
|
$
|
−
|
|
|
|
|
Delinquencies
|
|
27
|
|
|
−
|
|
|
1,833
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate(a)
|
|
12.3
|
%
|
|
11.5
|
%
|
|
14.8
|
%
|
|
5.1
|
%
|
|
|
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
(3
|
)
|
$
|
(5
|
)
|
$
|
(36
|
)
|
$
|
−
|
|
|
|
|
20%
adverse change
|
|
(5
|
)
|
|
(10
|
)
|
|
(72
|
)
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment
rate(a)(b)
|
|
9.5
|
%
|
|
0.7
|
%
|
|
10.8
|
%
|
|
40.5
|
%
|
|
|
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
(1
|
)
|
$
|
−
|
|
$
|
(80
|
)
|
$
|
−
|
|
|
|
|
20%
adverse change
|
|
(1
|
)
|
|
−
|
|
|
(148
|
)
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimate
of credit losses(a)
|
|
0.3
|
%
|
|
0.4
|
%
|
|
9.0
|
%
|
|
−
|
%
|
|
|
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
(1
|
)
|
$
|
−
|
|
$
|
(110
|
)
|
$
|
−
|
|
|
|
|
20%
adverse change
|
|
(1
|
)
|
|
−
|
|
|
(222
|
)
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lives
(in months)
|
|
25
|
|
|
50
|
|
|
8
|
|
|
4
|
|
|
|
|
Net
credit losses
|
$
|
−
|
|
$
|
−
|
|
$
|
941
|
|
$
|
−
|
|
|
|
|
Delinquencies
|
|
−
|
|
|
−
|
|
|
1,514
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based
on weighted averages.
|
(b)
|
Represented
a payment rate on credit card receivables, inventory financing receivables
(included within equipment) and trade receivables (included within other
assets).
|
Activity
related to retained interests classified as investment securities in our
consolidated financial statements follows.
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows on transfers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from new transfers
|
$
|
6,655
|
|
$
|
20,502
|
|
$
|
19,288
|
|
Proceeds
from collections reinvested in revolving period transfers
|
|
49,868
|
|
|
55,894
|
|
|
46,944
|
|
Cash
flows on retained interests recorded as investment
securities
|
|
3,764
|
|
|
3,370
|
|
|
2,948
|
|
|
|
|
|
|
|
|
|
|
|
Effect
on GECC revenues from services
|
|
|
|
|
|
|
|
|
|
Net
gain on sale
|
$
|
963
|
|
$
|
1,759
|
|
$
|
1,187
|
|
Change
in fair value on SFAS 155 retained interests
|
|
(113
|
)
|
|
(102
|
)
|
|
–
|
|
Other-than-temporary
impairments
|
|
(29
|
)
|
|
(18
|
)
|
|
(37
|
)
|
Derivative
activities
The QSPEs
use derivatives to manage interest rate risk between the assets and liabilities.
At inception of the transaction, the QSPE will enter into derivative contracts
to receive a floating rate of interest and pay a fixed rate with terms that
effectively match those of the financial assets held. In some cases, we are the
counterparty to such derivative contracts, in which case a second derivative is
executed with a third party to substantially eliminate the exposure created by
the first derivative. At December 31, 2008, the fair value of such derivative
contracts was $205 million, ($72 million at December 31,2007). We have no other
derivatives arrangements with QSPEs or other VIEs.
Servicing
activities
As part
of a securitization transaction, we may provide servicing in exchange for a
market-based fee that is determined on principal balances. Where the fee does
not represent market-based compensation for these services, a servicing asset or
liability is recorded, as appropriate. The fair value of the servicing asset or
liability is subject to credit, prepayment and interest rate risk. Servicing
assets and liabilities are amortized to earnings in proportion to and over the
period of servicing activity. The amount of our servicing assets and liabilities
was insignificant at December 31, 2008 and 2007. We received servicing fees from
QSPEs of $642 million, $566 million and $381 million in 2008, 2007 and 2006,
respectively.
Where we
provide servicing as an “Aaa” rated provider we are contractually permitted to
commingle cash collected from customers on financing receivables sold to
investors with our own cash prior to payment to a QSPE. At December 31, 2008,
the balance owed to QSPEs from such collections and included in cash and
equivalents was $4,446 million ($5,121 million at December 31, 2007). Balances
owed by QSPE to GE at December 31, 2008, and included in other receivables, were
$2,346 million, principally for receivable purchases ($3,507 million at December
31, 2007).
Note
22. Commitments and Guarantees
Commitments,
including guarantees
GECAS had
placed multiple-year orders for various Boeing, Airbus and other aircraft with
list prices approximating $17,248 million and secondary orders with airlines for
used aircraft of approximately $1,653 million at December 31, 2008.
At
December 31, 2008, we were committed under the following guarantee arrangements
beyond those provided on behalf of securitization entities. See note
21.
·
|
Credit support. We have
provided $8,187 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 $65 million for
December 31, 2008.
|
·
|
Indemnification
agreements. These are agreements that require us to fund up to $401
million under residual value guarantees on a variety of leased equipment.
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 $325 million at December 31, 2008. We had
$1,703 million of other indemnification commitments arising primarily from
sales of businesses or assets.
|
·
|
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, 2008, we had total maximum exposure for future estimated
payments of $41 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.
At
December 31, 2008 and 2007, the likelihood that we will be called upon to
perform on these guarantees is remote.
Note
23. Quarterly Information (Unaudited)
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
|
(In
millions)
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
17,123
|
|
$
|
15,701
|
|
$
|
18,149
|
|
$
|
16,008
|
|
$
|
17,624
|
|
$
|
17,015
|
|
$
|
15,098
|
|
$
|
18,275
|
|
Earnings
(loss) from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before income
taxes
|
$
|
2,562
|
|
$
|
3,163
|
|
$
|
2,796
|
|
$
|
2,904
|
|
$
|
1,675
|
|
$
|
3,193
|
|
$
|
(1,284
|
)
|
$
|
3,425
|
|
Benefit
(provision) for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes
|
|
(81
|
)
|
|
(300
|
)
|
|
(46
|
)
|
|
(447
|
)
|
|
413
|
|
|
15
|
|
|
1,979
|
|
|
(7
|
)
|
Earnings
from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
2,481
|
|
|
2,863
|
|
|
2,750
|
|
|
2,457
|
|
|
2,088
|
|
|
3,208
|
|
|
695
|
|
|
3,418
|
|
Loss
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of taxes
|
|
(46
|
)
|
|
(384
|
)
|
|
(336
|
)
|
|
(249
|
)
|
|
(169
|
)
|
|
(1,367
|
)
|
|
(153
|
)
|
|
(131
|
)
|
Net
earnings
|
$
|
2,435
|
|
$
|
2,479
|
|
$
|
2,414
|
|
$
|
2,208
|
|
$
|
1,919
|
|
$
|
1,841
|
|
$
|
542
|
|
$
|
3,287
|
|
Not
applicable.
Item
9A. Controls and Procedures.
Under the
direction of our Chief Executive Officer and Chief Financial Officer, we
evaluated our disclosure controls and procedures and internal control over
financial reporting and concluded that (i) our disclosure controls and
procedures were effective as of December 31, 2008, and (ii) no change in
internal control over financial reporting occurred during the quarter ended
December 31, 2008, that has materially affected, or is reasonably likely to
materially affect, such internal control over financial reporting.
Management’s
annual report on internal control over financial reporting and the report of our
independent registered public accounting firm appears in Part II, Item 8.
“Financial Statements and Supplementary Data” of this Form 10-K
Report.
Item
9B. Other Information.
Not
applicable.
PART
III
Not
required by this form.
Not
required by this form.
Not
required by this form.
Not
required by this form.
The
aggregate fees billed for professional services by KPMG LLP, in 2008 and 2007
were:
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Type
of fees
|
|
|
|
|
|
|
Audit
fees
|
$
|
34.9
|
|
$
|
37.9
|
|
Audit-related
fees
|
|
10.0
|
|
|
9.3
|
|
Tax
fees
|
|
4.8
|
|
|
7.3
|
|
All
other fees
|
|
−
|
|
|
–
|
|
Total
|
$
|
49.7
|
|
$
|
54.5
|
|
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 the 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
(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,
2008
Statement
of Changes in Shareowner’s Equity for each of the years in the three-year
period ended December 31, 2008
Statement
of Financial Position at December 31, 2008 and 2007
Statement
of Cash Flows for each of the years in the three-year period
ended December 31,
2008
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, 2008 (pages 21 through
141), Exhibit 12(a) (Computation of Ratio of Earnings to Fixed Charges)
and Exhibit 12(b) (Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends) 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 U.S.
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 (Commission file number
1-6461)).
|
|
|
3(i)
|
|
A
complete copy of the Certificate of Incorporation of GECC filed with the
Office of the Secretary of State, State of Delaware on April 1, 2008
(Incorporated by reference to Exhibit 3(i) of GECC Form 10-Q Report for
the quarterly period March 31, 2008 (Commission file number
1-6461)).
|
|
|
3(ii)
|
|
A
complete copy of the Amended and Restated By-Laws of GECC as last amended
on February 21, 2008, and currently in effect (Incorporated by reference
to Exhibit 3(ii) of GECC’s Form 10-Q Report for the quarterly period ended
March 31, 2008 (Commission file number 1-6461)).
|
|
|
4(a)
|
|
Amended
and Restated General Electric Capital Corporation (GECC) 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 (Commission file number
1-6461)).
|
|
|
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 (Commission file number 1-6461)).
|
|
|
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 (Commission file
number 1-6461)).
|
|
|
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 (Commission file
number 1-6461)).
|
|
|
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 GECC's Post-Effective
Amendment No. 1 to Registration Statement on Form S-3, File No.
333-100527 (Commission file number 1-6461)).
|
|
|
4(f)
|
|
Fourth
Supplemental Indenture dated as of August 24, 2007, supplemental to Third
Amended and Restated Indenture dated as of February 27, 1997 (Incorporated
by reference to Exhibit 4(g) to GECC’s Registration Statement on Form S-3,
File No. 333-156929 (Commission file number 1-6461)).
|
|
|
|
4(g)
|
|
Fifth
Supplemental Indenture dated as of December 2, 2008, supplemental to Third
Amended and Restated Indenture dated as of February 27, 1997 (Incorporated
by reference to Exhibit 4(h) to GECC’s Registration Statement on Form S-3,
File No. 333-156929 (Commission file number 1-6461)).
|
|
|
|
4(h)
|
|
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 The Bank of New York, as
fiscal and paying agent, dated as of May 12, 2006 (Incorporated by
reference to Exhibit 4(q) to GECC’s Registration Statement on Form S-3,
File No. 333-156929 (Commission file number 1-6461)).
|
|
|
|
4(i)
|
|
Form
of Global Medium-Term Note, Series A, Fixed Rate Registered Note
(Incorporated by reference to Exhibit 4(r) to GECC’s Registration
Statement on Form S-3, File No. 333-156929 (Commission file number
1-6461)).
|
|
|
|
4(j)
|
|
Form
of Global Medium-Term Note, Series A, Floating Rate Registered Note
(Incorporated by reference to Exhibit 4(s) to GECC’s Registration
Statement on Form S-3, File No. 333-156929 (Commission file number
1-6461)).
|
|
|
|
4(k)
|
|
Form
of Global Medium-Term Note, Series G, Fixed Rate DTC Registered Note
(Incorporated by reference to Exhibit 4(bb) to GECC’s Registration
Statement on Form S-3, File No. 333-156929 (Commission file number
1-6461)).
|
|
|
|
4(l)
|
|
Form
of Global Medium-Term Note, Series G, Floating Rate DTC Registered Note
(Incorporated by reference to Exhibit 4(cc) to GECC’s Registration
Statement on Form S-3, File No. 333-156929 (Commission file number
1-6461)).
|
|
|
|
4(m)
|
|
Form
of GE Capital Fixed Rate InterNote (Incorporated by reference to Exhibit
4(pp) to GECC’s Registration Statement on Form S-3, File No. 333-156929
(Commission file number 1-6461)).
|
|
|
|
4(n)
|
|
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 (Commission file number 0-14804)).
|
|
|
|
4(o)
|
|
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 (Commission file number 0-14804)).
|
|
|
|
4(p)
|
|
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 (Commission file number 0-14804)).
|
|
|
|
4(q)
|
|
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 (Commission file number 0-14804)).
|
|
|
4(r)
|
|
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 (Commission file number 0-14804)).
|
|
|
|
|
|
|
4(s)
|
|
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 (Commission file number 0-14804)).
|
|
|
|
4(t)
|
|
Master
Agreement, Temporary Liquidity Guarantee Program dated December 1, 2008
between GECC and Federal Deposit Insurance Corporation (Incorporated by
reference to Exhibit 4(oo) to GECC’s Registration Statement on Form S-3,
File No. 333-156929 (Commission file number 1-6461)).
|
|
|
|
4(u)
|
|
Letter
from the Senior Vice President and Chief Financial Officer of General
Electric Company to General Electric Capital Corporation (GECC) dated
September 15, 2006, with respect to returning dividends, distributions or
other payments to GECC in certain circumstances described in the Indenture
for Subordinated Debentures dated September 1, 2006, between GECC and the
Bank of New York, as successor trustee. (Incorporated by reference to
Exhibit 4(c) to GECC’s Post-Effective Amendment No. 2 to Registration
Statement on Form S-3, File No. 333-132807 (Commission file number
1-6461)).
|
|
|
|
4(v)
|
|
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.*
|
|
|
|
10
|
|
Eligible
Entity Designation Agreement dated as of November 12, 2008 by and among
the Federal Deposit Insurance Corporation, GECC and General Electric
Company (Incorporated by reference to Exhibit 99(b) of General Electric
Company’s Annual Report on Form 10-K (Commission file number
001-00035)).
|
|
|
|
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 (Commission file number 1-6461)).
|
|
|
|
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, 2008, (pages 21 through
141) 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)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
5,753
|
|
$
|
6,578
|
|
$
|
6,023
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Interest
|
|
10,833
|
|
|
11,793
|
|
|
8,018
|
|
Operating
and administrative
|
|
5,344
|
|
|
3,166
|
|
|
3,543
|
|
Provision
for losses on financing receivables
|
|
642
|
|
|
323
|
|
|
(721
|
)
|
Depreciation
and amortization
|
|
332
|
|
|
302
|
|
|
361
|
|
Total expenses
|
|
17,151
|
|
|
15,584
|
|
|
11,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and equity in earnings of affiliates
|
|
(11,398
|
)
|
|
(9,006
|
)
|
|
(5,178
|
)
|
Income
tax benefit
|
|
4,446
|
|
|
3,385
|
|
|
1,428
|
|
Equity
in earnings of affiliates
|
|
14,262
|
|
|
15,436
|
|
|
14,136
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
7,310
|
|
|
9,815
|
|
|
10,386
|
|
Dividends
|
|
(2,351
|
)
|
|
(6,853
|
)
|
|
(8,264
|
)
|
Retained
earnings at January 1(a)
|
|
40,513
|
|
|
37,551
|
|
|
35,506
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings at December
31
|
$
|
45,472
|
|
$
|
40,513
|
|
$
|
37,628
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
2007
opening balance change reflects cumulative effect of change in accounting
principle of $(77) million related to adoption of FSP FAS
13-2.
|
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)
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
$
|
9,406
|
|
$
|
220
|
|
Investment
securities
|
|
3,324
|
|
|
1,561
|
|
Financing
receivables – net
|
|
74,472
|
|
|
70,079
|
|
Investment
in and advances to affiliates
|
|
293,530
|
|
|
307,846
|
|
Property,
plant and equipment – net
|
|
2,503
|
|
|
2,589
|
|
Other
assets
|
|
25,511
|
|
|
16,450
|
|
Total
assets
|
$
|
408,746
|
|
$
|
398,745
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
Borrowings
|
$
|
333,980
|
|
$
|
328,859
|
|
Other
liabilities
|
|
11,142
|
|
|
7,034
|
|
Deferred
income taxes
|
|
5,395
|
|
|
1,622
|
|
Total
liabilities
|
|
350,517
|
|
|
337,515
|
|
|
|
|
|
|
|
|
Common
stock, $14 par value (4,166,000 shares authorized at
December 31, 2008 and 2007, and
3,985,403 shares issued
and outstanding at December 31,
2008 and 2007)
|
|
56
|
|
|
56
|
|
Accumulated
gains (losses) – net
|
|
|
|
|
|
|
Investment
securities
|
|
(2,013
|
)
|
|
(25
|
)
|
Currency translation
adjustments
|
|
(1,337
|
)
|
|
7,368
|
|
Cash flow
hedges
|
|
(3,253
|
)
|
|
(749
|
)
|
Benefit plans
|
|
(367
|
)
|
|
(105
|
)
|
Additional
paid-in capital
|
|
19,671
|
|
|
14,172
|
|
Retained
earnings
|
|
45,472
|
|
|
40,513
|
|
Total shareowner's
equity
|
|
58,229
|
|
|
61,230
|
|
Total
liabilities and equity
|
$
|
408,746
|
|
$
|
398,745
|
|
|
|
|
|
|
|
|
The
sum of accumulated gains (losses) on investment securities, currency
translation adjustments, cash flow hedges and benefit plans constitutes
“Accumulated other comprehensive income,” and was $(6,970) million and
$6,489 million at December 31, 2008 and 2007,
respectively.
|
|
See
accompanying notes.
|
|
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)
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cash
used for operating activities
|
$
|
(2,656
|
)
|
$
|
(7,745
|
)
|
$
|
(8,539
|
)
|
Cash
flows -
investing activities
|
|
|
|
|
|
|
|
|
|
Increase
in loans to customers
|
|
(120,812
|
)
|
|
(124,551
|
)
|
|
(128,222
|
)
|
Principal
collections from customers – loans
|
|
117,749
|
|
|
112,554
|
|
|
120,373
|
|
Investment
in equipment for financing leases
|
|
(2,273
|
)
|
|
(2,916
|
)
|
|
(3,273
|
)
|
Principal
collections from customers – financing
leases
|
|
5,155
|
|
|
4,193
|
|
|
1,739
|
|
Net
change in credit card receivables
|
|
(648
|
)
|
|
31
|
|
|
(28
|
)
|
Additions
to property, plant and equipment
|
|
(1,674
|
)
|
|
(1,431
|
)
|
|
(1,308
|
)
|
Dispositions
of property, plant and equipment
|
|
1,295
|
|
|
1,380
|
|
|
1,076
|
|
Payments
for principal businesses purchased
|
|
(24,961
|
)
|
|
(7,570
|
)
|
|
(7,299
|
)
|
Proceeds
from principal business dispositions
|
|
4,654
|
|
|
1,699
|
|
|
386
|
|
Decrease
(increase) in investment in and advances to affiliates
|
|
37,264
|
|
|
(10,099
|
)
|
|
27
|
|
All
other investing activities
|
|
(8,046
|
)
|
|
1,809
|
|
|
(8,009
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
from (used for) investing activities
|
|
7,703
|
|
|
(24,901
|
)
|
|
(24,538
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows -
financing activities
|
|
|
|
|
|
|
|
|
|
Net
increase(decrease) in borrowings (maturities of 90 days or
less)
|
|
(14,782
|
)
|
|
8,747
|
|
|
3,173
|
|
Newly
issued debt:
|
|
|
|
|
|
|
|
|
|
Short-term (91-365
days)
|
|
13,080
|
|
|
820
|
|
|
750
|
|
Long-term (longer than one
year)
|
|
49,940
|
|
|
65,709
|
|
|
64,877
|
|
Non-recourse, leveraged
lease
|
|
−
|
|
|
12
|
|
|
247
|
|
Repayments
and other debt reductions:
|
|
|
|
|
|
|
|
|
|
Short-term (91-365
days)
|
|
(44,535
|
)
|
|
(36,164
|
)
|
|
(30,955
|
)
|
Long-term (longer than one
year)
|
|
(2,306
|
)
|
|
(318
|
)
|
|
(558
|
)
|
Non-recourse, leveraged
lease
|
|
(409
|
)
|
|
(431
|
)
|
|
(337
|
)
|
Dividends
paid to shareowner
|
|
(2,351
|
)
|
|
(6,695
|
)
|
|
(7,904
|
)
|
Redemption
of preferred stock
|
|
−
|
|
|
–
|
|
|
(70
|
)
|
Capital
contributions from GECS
|
|
5,500
|
|
|
−
|
|
|
1,946
|
|
Other
|
|
2
|
|
|
17
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
Cash
from financing activities
|
|
4,139
|
|
|
31,697
|
|
|
31,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents during year
|
|
9,186
|
|
|
(949
|
)
|
|
(1,908
|
)
|
Cash
and equivalents at beginning of year
|
|
220
|
|
|
1,169
|
|
|
3,077
|
|
Cash
and equivalents at end of year
|
$
|
9,406
|
|
$
|
220
|
|
$
|
1,169
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008 and 2007, are shown
below.
December
31 (Dollars in millions)
|
2008
Average
rate(a)
|
|
Maturities
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Senior
notes
|
4.49
|
%
|
2010-2055
|
|
$
|
204,663
|
|
$
|
195,062
|
Extendible
notes
|
−
|
|
−
|
|
|
−
|
|
|
8,500
|
Subordinated
notes(b)
|
5.48
|
|
2012-2037
|
|
|
2,567
|
|
|
3,014
|
Subordinated
debentures(c)
|
6.00
|
|
2066-2067
|
|
|
7,315
|
|
|
8,064
|
|
|
|
|
|
$
|
214,545
|
|
$
|
214,640
|
|
|
(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
$450 million of subordinated notes guaranteed by GE at December 31, 2008
and 2007.
|
(c)
|
Subordinated
debenture receive rating agency equity credit and were hedged at issuance
to USD equivalent of $7,725
million.
|
At
December 31, 2008, maturities of long-term borrowings during the next five
years, including the current portion of long-term debt, are $52,170 million in
2009, $45,317 million in 2010, $32,739 million in 2011, $34,436 million in 2012
and $17,227 million in 2013.
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 $4,350
million, $4,195 million and $5,216 million for 2008, 2007 and 2006,
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.
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
General
Electric Capital Corporation
|
|
|
|
February
18, 2009
|
|
By: /s/
Michael A. Neal
|
|
|
|
Michael
A. Neal
|
|
|
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/
Michael A. Neal
|
|
Chief
Executive Officer
|
|
February
18, 2009
|
Michael
A. Neal
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Jeffrey S. Bornstein
|
|
Chief
Financial Officer
|
|
February
18, 2009
|
Jeffrey
S. Bornstein
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
|
|
/s/
Jamie S. Miller
|
|
Senior
Vice President and Controller
|
|
February
18, 2009
|
Jamie
S. Miller
|
|
(Principal
Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
JEFFREY
S. BORNSTEIN*
|
|
Director
|
|
|
WILLIAM
H. CARY*
|
|
Director
|
|
|
KATHRYN
A. CASSIDY*
|
|
Director
|
|
|
JAMES
A. COLICA*
|
|
Director
|
|
|
PAMELA
DALEY*
|
|
Director
|
|
|
BRACKETT
B. DENNISTON*
|
|
Director
|
|
|
JEFFREY
R. IMMELT*
|
|
Director
|
|
|
JAMES
W. IRELAND*
|
|
Director
|
|
|
JOHN
KRENICKI, JR.*
|
|
Director
|
|
|
MICHAEL
A. NEAL*
|
|
Director
|
|
|
RONALD
R. PRESSMAN*
|
|
Director
|
|
|
JOHN
G. RICE*
|
|
Director
|
|
|
JOHN
M. SAMUELS*
|
|
Director
|
|
|
KEITH
S. SHERIN*
|
|
Director
|
|
|
|
|
|
|
|
A
MAJORITY OF THE BOARD OF DIRECTORS
|
|
|
|
|
|
|
|
*By:
|
/s/
Jamie S. Miller
|
|
|
February
18, 2009
|
|
Jamie
S. Miller
Attorney-in-fact
|
|
|
|