gecc10k2009.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
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FORM
10-K
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(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, 2009
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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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901
Main Avenue, Norwalk, CT
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06851-1168
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203/840-6300
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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
6.05%
Notes Due February 6, 2047
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
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨
No ¨
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
definitions 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 18, 2010, 3,985,404 shares of voting common stock, which constitute all
of the outstanding common equity, with a par value of $14 per share 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, 2009, 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.
General
Electric Capital Corporation
Table
of Contents
Part
I
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Page
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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7
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Item
1B.
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Unresolved
Staff Comments
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12
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Item
2.
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Properties
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12
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Item
3.
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Legal
Proceedings
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12
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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13
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Part
II
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Item
5.
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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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14
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Item
6.
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Selected
Financial Data
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14
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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54
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Item
8.
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Financial
Statements and Supplementary Data
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54
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Item
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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112
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Item
9A.
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Controls
and Procedures
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112
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Item
9B.
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Other
Information
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112
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Part
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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112
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Item
11.
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Executive
Compensation
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112
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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112
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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113
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Item
14.
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Principal
Accounting Fees and Services
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113
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Part
IV
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Item
15.
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Exhibits,
Financial Statement Schedules
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113
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Signatures
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121
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PART
I
Item
1. Business.
General
Electric Capital Corporation
General
Electric Capital Corporation (GE Capital or GECC) was incorporated in 1943 in
the State of New York under the provisions of the New York Banking Law relating
to investment companies, as successor to General Electric Contracts Corporation,
which was formed in 1932. Until November 1987, our name was General Electric
Credit Corporation. On July 2, 2001, we changed our state of incorporation to
Delaware. All of our outstanding common stock is owned by General Electric
Capital Services, Inc. (GE Capital Services or GECS), formerly General Electric
Financial Services, Inc., the common stock of which is in turn wholly-owned 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 901 Main Avenue, Norwalk, CT
06851-1168. At December 31, 2009, our employment totaled approximately
75,000.
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 not 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.
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,” “see” 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 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 level of demand and financial performance of
the major industries we serve, including, without limitation, real estate and
healthcare; the impact of regulation and regulatory, investigative and legal
proceedings and legal compliance risks, including the impact of proposed
financial services regulation; 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 may
cause our actual future results to be materially different than those expressed
in our forward-looking statements. 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.
Operating
Segments
Segment
revenue and profit information and additional financial data and commentary on
recent financial results for operating segments are provided in the Segment
Operations section in Part II, Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and in Note 19 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Operating
businesses that are reported as segments include Commercial Lending and Leasing
(CLL), Consumer, Real Estate, Energy Financial Services and GE Capital Aviation
Services (GECAS). A summary description of each of our operating segments
follows.
During
2009, GE Capital provided $72 billion of new financings in the U.S. to various
companies, infrastructure projects and municipalities. Additionally, we extended
$74 billion of credit to approximately 54 million U.S. consumers. GE Capital
provided credit to approximately 14,200 new commercial customers and 40,000 new
small businesses during 2009 in the U.S. and ended the period with outstanding
credit to more than 346,000 commercial customers and 174,000 small businesses
through retail programs in the U.S.
We have
communicated our goal of reducing our ending net investment (ENI) over the next
three years. To achieve this goal, we are more aggressively focusing our
businesses on selective financial services products where we have domain
knowledge, broad distribution, and the ability to earn a consistent return on
capital, while managing our overall balance sheet size and risk. We have a
strategy of exiting those businesses where we are underperforming or that
are deemed to be non-strategic. We have completed a number of dispositions in
our businesses in the past and will continue to evaluate options going
forward.
Effective
January 1, 2010, GE expanded the GE Capital Finance segment to include all of
the continuing operations of GECC and renamed it GE Capital. In addition, the
Transportation Financial Services business, previously reported in GECAS, will
be included in CLL and our Consumer business in Italy, previously reported in
Consumer, will be included in CLL. Results for 2009 and prior periods are
reported on the basis under which we managed our business in 2009 and do not
reflect the January 2010 reorganization.
We also
continue our longstanding practice of providing supplemental information for
certain businesses within the segments.
Commercial
Lending and Leasing
CLL
(39.7%, 38.3% and 39.0% of total GECC revenues in 2009, 2008 and 2007,
respectively) provides customers around the world with a broad range of
financing solutions. 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, media, communications,
entertainment and healthcare industries. During 2009, we acquired a 100%
ownership interest in Interbanca S.p.A., an Italian corporate bank in exchange
for the Consumer businesses in Austria and Finland, the credit card and auto
businesses in the U.K. and the credit card business in Ireland.
Historically,
we have operated 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. More recently,
competition has been affected by disruption in the capital markets, access to
and availability of capital and a reduced number of competitors. 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.
In the
first quarter of 2009, we deconsolidated Penske Truck Leasing, Co. L.P. (PTL)
following our sale of a partial interest in a limited partnership in
PTL.
Our
headquarters are in Norwalk, Connecticut with offices throughout North America,
Europe, Asia, Australia and Latin America.
Consumer
Consumer
(38.0%, 37.2% and 37.4% of total GECC revenues in 2009, 2008 and 2007,
respectively), through consolidated entities and associated companies, is a
leading provider of financial services to consumers and retailers in over 40
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
December 2007, we sold our U.S. mortgage business (WMC). In the third quarter of
2008, we completed the sale of GE Money Japan, which comprised our Japanese
personal loan business (Lake) and our Japanese mortgage and card businesses,
excluding our minority ownership in GE Nissen Credit Co., Ltd.
In
October 2008, we completed the sale of the Consumer business in Germany. In
early 2009, we completed the sale of our Consumer businesses in Austria and
Finland, the credit card and auto businesses in the U.K., and the credit card
business in Ireland in exchange for a 100% ownership in Interbanca S.p.A., which
were included in assets and liabilities of businesses held for sale on the
Statement of Financial Position at December 31, 2008.
In the
first quarter of 2009, we completed the sale of a portion of our Australian
residential mortgage business.
In June
2008, we acquired a controlling interest in Bank BPH. In June 2009, we acquired
a controlling interest in BAC Credomatic GECF Inc. (BAC).
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 Norwalk, Connecticut and our operations are located in North
America, South America, Europe, Australia and Asia.
Real
Estate
Real
Estate (7.9%, 9.8% and 10.4% of total GECC revenues in 2009, 2008 and 2007,
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 commercial mortgage loans, limited partnerships and tax-exempt
bonds.
We own
and operate a global portfolio of real estate with the objective of maximizing
property cash flows and asset values. 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, sales prices, impairments or write-offs.
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,
Europe, Australia and Asia.
Energy
Financial Services
Energy
Financial Services (4.2%, 5.4% and 3.6% of total GECC revenues in 2009, 2008 and
2007, 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.
GE
Capital Aviation Services
GECAS
(9.3%, 7.2% and 7.2% of total GECC revenues in 2009, 2008 and 2007,
respectively) engages in commercial aircraft leasing and finance, delivering
fleet and financing solutions to companies across the spectrum of the aviation
industry. Our product offerings include leases and secured loans on commercial
passenger aircraft, freighters and regional jets; engine leasing and financing
solutions; aircraft parts solutions; and airport equity and debt financing. 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.
Discontinued
Operations
Discontinued
operations primarily comprised GE Money Japan and WMC.
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.
Geographic
Data
Geographic
data are reported in Note 19 to the consolidated financial statements in Part
II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Additional
financial data about our geographic operations is provided in the Geographic
Operations section in Part II, Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” 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 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.
Item
1A. Risk Factors.
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.
Our
global growth is subject to economic and political risks.
We
conduct our operations in virtually every part of the world. In 2009,
approximately 54% of our revenues was 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 current market conditions.
We
are subject to a wide variety of laws and regulations that may change in
significant ways.
Our
businesses are subject to regulation under a wide variety of U.S. federal and
state and non-U.S. laws, regulations and policies.
There can
be no assurance that 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
investments by making existing practices more restricted, subject to escalating
costs or prohibited outright. In particular, U.S. and non-U.S. governments are
undertaking a substantial review and revision of the regulation and supervision
of bank and non-bank financial institutions, consumer lending, the
over-the-counter derivatives market and tax laws and regulations, which may have
a significant effect on GE Capital’s structure, operations, liquidity and
performance. We are also subject to a number of trade control laws and
regulations that may affect our ability to sell our products in global markets.
In addition, we are subject to regulatory risks from laws that reduce the
allowable lending rate or limit consumer borrowing, local capital requirements
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 non-U.S. banks and other
non-U.S. financial institutions in global markets. This provision, which expired
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. A one-year
extension was passed by the House of Representatives in 2009 and the Senate
Finance Committee Chairman and Ranking Member have indicated an intention to
extend the provision for one year retroactive to the beginning of 2010, but
there can be no assurance that it will be extended. In the event the 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. The executive branch of the U.S. government recently
proposed the Financial Responsibility Crisis Fee, which would require us to pay
a fee at an annual rate of 15 basis points based on the amount of covered
liabilities (defined as assets less the sum of Tier 1 capital and Federal
Deposit Insurance Corporation (FDIC) - assessed deposits). This proposal is at
an early stage, and its impact on the company, if any, will depend on a number
of factors that are subject to congressional review and approval. If adopted,
this fee could result in a reduction of our earnings going forward. In addition,
the U.S. government is currently considering broad–based legislation to change
healthcare coverage, that includes provisions for a fee on medical devices,
which could adversely affect the profitability of GE’s Healthcare business and
increase the costs of providing healthcare to GE’s employees. Furthermore, we
have been, and expect to continue, participating in U.S. and international
economic stimulus programs, which require us to comply with strict governmental
regulations. Inability to comply with these regulations could adversely affect
our status in these projects and adversely affect our results of operations,
financial position and cash flows.
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. 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 and 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.
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 various factors, including integration challenges,
such as personnel and technology. We will continue to evaluate the potential
disposition of assets and businesses that may no longer help us meet our
objectives. When we decide to sell assets or a business, we may encounter
difficulty in finding buyers or alternative exit strategies on acceptable terms
in a timely manner, which could delay the accomplishment of our strategic
objectives. Alternatively, we may dispose of a business at a price or on terms
that are less than we had anticipated. Even upon reaching an agreement with a
buyer or seller for the acquisition or disposition of a business, we are subject
to necessary regulatory and governmental approvals on acceptable terms, which
may prevent us from completing the transaction. For example, our ultimate
parent, GE, recently entered into an agreement with Comcast Corporation to
transfer the assets of the NBCU business to a newly formed entity, pursuant to
which GE will receive cash and will own a 49% interest in the newly formed
entity. The transaction is subject to receipt of various regulatory approvals.
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.
Sustained
increases in costs of pension and healthcare benefits may reduce GE’s
profitability.
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 GE used to estimate pension income or expense for 2010 are
the discount rate and the expected long-term rate of return on plans 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 2009, the projected benefit obligation of GE’s U.S. principal pension
plans was $48.1 billion and assets were $42.1 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 we would
contribute to pension plans as required under the Employee Retirement Income
Security Act (ERISA). Failure to achieve expected returns on plan assets could
also result in an increase to the amount of cash GE would be required to
contribute to pension plans. In addition, upward pressure on the cost of
providing healthcare benefits to current employees and retirees may increase
future funding obligations. Although GE has actively sought to control increases
in these costs, there can be no assurance that GE will succeed in limiting cost
increases, and continued upward pressure could reduce GE’s
profitability.
Conditions
in the financial and credit markets may affect the availability and cost of GE
Capital’s funding.
A large
portion of GE Capital’s borrowings is in the form of commercial paper and
long-term debt. GE Capital’s outstanding commercial paper and long-term debt was
$42 billion and $399 billion as of December 31, 2009, respectively. While we
have fully prefunded our planned 2010 long-term debt requirements, we continue
to rely on the availability of the unsecured debt markets to access funding for
term maturities beyond 2010. In addition, we rely on the availability
of the commercial paper markets to refinance maturing short-term commercial
paper debt throughout the year. In order to further diversify our funding
sources, we also plan to expand our reliance on alternative sources of funding,
including bank deposits, securitizations and other asset-based funding. There
can be no assurance that we will succeed in diversifying our funding sources or
that the short and long-term credit markets will be available or, if available,
that the cost of funding will not substantially increase and affect the overall
profitability of GE Capital. Factors that may cause an increase in our funding
costs include: a decreased reliance on short-term funding, such as commercial
paper, in favor of longer-term funding arrangements; refinancing of funding that
we have obtained under the FDIC Temporary Liquidity Guarantee Program (TLGP) at
market rates at the time such funding matures; decreased capacity and increased
competition among debt issuers; and our credit ratings in effect at the time of
refinancing. If GE Capital’s cost of funding were to increase, it may adversely
affect its competitive position and result in lower lending margins, earnings
and cash flows as well as lower returns on its shareowner’s equity and invested
capital. While GE currently does not anticipate any equity offerings, other
sources of funding that involve the issuance of additional equity securities
would be dilutive to GE’s existing shareowners.
Difficult
conditions in the financial services markets have materially and adversely
affected the business and results of operations of GE Capital and these
conditions may persist.
Declines
in the real estate markets, increased payment defaults and foreclosures and
sustained levels of high unemployment have resulted in significant write-downs
of asset values by financial institutions, including GE Capital. If these
conditions continue or worsen, there can be no assurance that we will be able to
recover fully the value of certain assets, including goodwill, intangibles and
tax assets. In addition, although we have established
allowances for losses in GE Capital’s portfolio of financing receivables that we
believe are adequate, 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. To reduce GE’s exposure to volatile conditions in the
financial markets and rebalance the relative size of its financial and
industrial businesses, we have decided to reduce the size of GE Capital, as
measured by its ending net investment. There can be no assurance that
we will be able to timely execute on our reduction targets and failure to do so
would result in greater exposure to financial markets than contemplated under
our strategic funding plan or may result in the need for GE to make additional
contributions to GE Capital.
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 our counterparty or client. In addition,
GE Capital’s credit risk may be increased when the collateral held 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 us. 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 15 to the consolidated financial statements in Part II,
Item 8. “Financial Statements and Supplementary Data” of this Form 10-K Report),
which are designed to limit 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: we
provide financing for the acquisition, refinancing and renovation of various
types of properties, and we also acquire equity positions in various types of
properties. The profitability of real estate investments is largely dependent
upon the economic conditions in specific geographic markets in which the
properties are located and the perceived value of those markets at the time of
sale. The level of transactions for real estate assets may vary significantly
from one year to the next. Continued high levels of unemployment, slowdown in
business activity, excess inventory capacity and limited availability of credit
are expected to continue to adversely affect the value of real estate assets and
collateral to real estate loans 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, occupancy rates
and market rentals may worsen, which may result in impairments to the carrying
value of equity investments or increases in the allowance for loan losses on
commercial real estate loans.
GE
Capital is also a residential mortgage lender in certain geographic markets
outside the United States that have been, and may continue to be, adversely
affected by declines in 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 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 March 2009, Standard
& Poor’s (S&P) downgraded GE and GE Capital’s long-term rating by one
notch from “AAA” to “AA+” and, at the same time, revised the outlook from
negative to stable. In addition, Moody’s Investors Service (Moody’s) downgraded
GE and GE Capital’s long-term rating by two notches from “Aaa” to “Aa2” with a
stable outlook. The short-term ratings of “A-1+/P-1” were affirmed by both
rating agencies at the same time with respect to GE, GE Capital Services and GE
Capital. There can be no assurance that we will be able to maintain our credit
ratings and 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, which,
depending on the extent of the downgrade, could have a material adverse effect
on our liquidity and capital position.
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, including conditions
in the air and rail transportation, energy generation, healthcare, media and
other major industries GE serves. 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, some of GE’s customers have experienced 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. In particular,
the airline industry is highly cyclical, and the level of demand for air travel
is correlated to the strength of the U.S. and international economies. A
prolonged economic downturn in the U.S. or internationally that continues to
result in the loss of business and leisure traffic could have a material adverse
effect on our airline customers and the viability of their business. Service
contract cancellations could affect GE’s ability to fully recover its contract
costs and estimated earnings. Further, our vendors may be experiencing similar
conditions, which may impact their ability to fulfill their obligations to GE.
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.
We
are dependent on market acceptance of new product introductions and product
innovations for continued revenue growth.
The
markets in which we operate are subject to technological change. Our long-term
operating results depend substantially upon our ability to continually develop,
introduce, and market new and innovative products, to modify existing products,
to respond to technological change, and to customize certain products to meet
customer requirements. There are numerous risks inherent in this process,
including the risks that we will be unable to anticipate the direction of
technological change or that we will be unable to develop and market new
products and applications in a timely fashion to satisfy customer
demands.
Our
Intellectual property portfolio may not prevent competitors from independently
developing products and services similar to or duplicative to GE, and GE may not
be able to obtain necessary licenses.
Our
patents and other intellectual property may not prevent competitors from
independently developing products and services similar to or duplicative of
GE’s, and there can be no assurance that the resources invested by us to protect
our intellectual property will be sufficient or that our intellectual property
portfolio will adequately deter misappropriation or improper use of our
technology. In addition, we may be the target of aggressive and opportunistic
enforcement of patents by third-parties, including non-practicing entities.
Regardless of the merit of such claims, responding to infringement claims can be
expensive and time-consuming. If GE is found to infringe any third party rights,
GE could be required to pay substantial damages or GE could be enjoined from
offering some of its products and services. Also, there can be no assurances
that we will be able to obtain or re-new from third parties the licenses we need
in the future, and there is no assurance that such licenses can be obtained on
reasonable terms.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Properties.
We
conduct our business from various facilities, most of which are leased. The
locations of our primary facilities are described in Item 1. “Business” of this
Form 10-K Report.
Item
3. Legal Proceedings.
As
previously reported, in July and September 2008, GE shareholders filed two
purported class actions under the federal securities laws in the United States
District Court for the District of Connecticut naming as defendant GE (our
ultimate parent), as well as its chief executive officer and chief financial
officer. These two actions have been consolidated, and in January 2009, a
consolidated complaint was filed alleging that GE and its chief executive
officer made false and misleading statements that artificially inflated GE’s
stock price between March 12, 2008 and April 10, 2008, when GE announced that
its results for the first quarter of 2008 would not meet its previous guidance
and GE also lowered its full year guidance for 2008. The case seeks unspecified
damages. GE’s motion to dismiss the consolidated complaint was filed in March
2009 and is currently under consideration by the court. GE intends to defend
itself vigorously.
As
previously reported, in October 2008, GE shareholders filed a purported class
action under the federal securities laws in the United States District Court for
the Southern District of New York naming as defendant GE, as well as its chief
executive officer and chief financial officer. The complaint alleges that during
a conference call with analysts on September 25, 2008, defendants made false and
misleading statements concerning (i) the state of GE’s funding, cash flows, and
liquidity and (ii) the question of issuing additional equity, which caused
economic loss to those shareholders who purchased GE stock between September 25,
2008 and October 2, 2008, when GE announced the pricing of a common stock
offering. The case seeks unspecified damages. GE’s motion to dismiss the second
amended complaint was filed in January 2010 and is currently under consideration
by the court. GE intends to defend itself vigorously.
As
previously reported, in March and April 2009, GE shareholders filed purported
class actions under the federal securities laws in the United States District
Court for the Southern District of New York naming as defendants GE, a number of
GE officers (including its chief executive officer and chief financial officer)
and GE directors. The complaints, which have now been consolidated, seek
unspecified damages based on allegations related to statements regarding the GE
dividend and projected losses and earnings for GE Capital in 2009. GE’s motion
to dismiss the consolidated complaint was filed in November 2009 and is
currently under consideration by the court. A shareholder derivative action has
been filed in federal court in Connecticut in May 2009 making essentially the
same allegations as the New York actions. GE has moved to consolidate the
Connecticut derivative action with the recently consolidated New York actions.
GE intends to defend itself vigorously.
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 subsidiaries of GE
Capital 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). GE Capital has cooperated and continues 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.
As
previously reported, and in compliance with SEC requirements to disclose
environmental proceedings potentially involving monetary sanctions of $100,000
or greater, 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 subsidiaries of GE Capital. 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 GE Capital’s 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
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases Of Equity Securities.
See Note
11 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)
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
50,673
|
|
$
|
67,994
|
|
$
|
66,999
|
|
$
|
57,482
|
|
$
|
51,061
|
|
Earnings
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable
to GECC
|
|
1,579
|
|
|
8,014
|
|
|
11,946
|
|
|
10,095
|
|
|
8,428
|
|
Earnings
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of taxes attributable to GECC
|
|
(124)
|
|
|
(704)
|
|
|
(2,131)
|
|
|
291
|
|
|
1,498
|
|
Net
earnings attributable to GECC
|
|
1,455
|
|
|
7,310
|
|
|
9,815
|
|
|
10,386
|
|
|
9,926
|
|
GECC
Shareowner's equity
|
|
73,718
|
|
|
58,229
|
|
|
61,230
|
|
|
56,585
|
|
|
50,190
|
|
Short-term
borrowings
|
|
129,221
|
|
|
158,967
|
|
|
175,283
|
|
|
159,162
|
|
|
143,312
|
|
Bank
deposits
|
|
38,923
|
|
|
36,854
|
|
|
11,968
|
|
|
9,824
|
|
|
6,442
|
|
Long-term
borrowings
|
|
328,414
|
|
|
314,535
|
|
|
308,749
|
|
|
256,711
|
|
|
206,103
|
|
Return
on average GECC shareowner's equity(a)
|
|
2.3
|
%
|
|
13.1
|
%
|
|
20.3
|
%
|
|
19.2
|
%
|
|
17.2
|
%
|
Ratio
of earnings to fixed charges
|
|
0.85
|
|
|
1.24
|
|
|
1.56
|
|
|
1.63
|
|
|
1.66
|
|
Ratio
of debt to equity
|
|
6.74:1
|
(b)
|
|
8.76:1
|
(b)
|
|
8.10:1
|
|
|
7.52:1
|
|
|
7.09:1
|
|
Financing
receivables - net
|
|
335,288
|
|
|
370,592
|
|
|
378,467
|
|
|
322,244
|
|
|
277,108
|
|
Total
assets
|
$
|
623,097
|
|
$
|
637,410
|
|
$
|
620,732
|
|
$
|
544,255
|
|
$
|
475,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2009, 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)
|
Ratios
of 5.22:1 and 7.07:1 for 2009 and 2008, respectively, 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 2007 through 2009, Global Risk Management, Segment Operations and
Geographic Operations. Unless otherwise indicated, we refer to captions such as
revenues and earnings from continuing operations attributable to GECC 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.
Effective
January 1, 2010, General Electric Company (GE) expanded the GE Capital Finance
segment to include all of the continuing operations of General Electric Capital
Corporation and renamed it GE Capital. In addition, the Transportation Financial
Services business, previously reported in GE Capital Aviation Services (GECAS),
will be included in Commercial Lending and Leasing (CLL) and our Consumer
business in Italy, previously reported in Consumer, will be included in
CLL.
Results
for 2009 and prior periods are reported on the basis under which we managed our
business in 2009 and do not reflect the January 2010 reorganization described
above.
Overview
of Our Earnings from 2007 through 2009
Our
earnings declined to $1.6 billion and $8.0 billion in 2009 and 2008,
respectively, in a challenging economic environment, including disruptions in
capital markets, challenging credit markets and rising unemployment. Throughout
2008 and 2009, we tightened underwriting standards, shifted teams from
origination to collection and maintained a proactive risk management focus. GE
also reduced the GE Capital Finance ending net investment (ENI), excluding the
effects of currency exchange rates, from $525 billion at December 31, 2008 to
$472 billion at December 31, 2009. The current credit cycle has begun to show
signs of stabilization and we expect further signs of stabilization as we enter
2010. Our focus is to continue to manage through the current challenging credit
environment and continue to reposition ourselves as a diversely funded and
smaller, more focused finance company with strong positions in several
mid-market, corporate and consumer financing segments.
CLL (39%
and 26% 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 $0.8 billion and $1.7 billion in 2009 and 2008,
reflecting the continued weakening economic and credit environment. 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 2009 were CitiCapital and Interbanca
S.p.A. The acquisitions collectively contributed $1.7 billion and $0.4 billion
to 2009 revenues and net earnings, respectively. Also during 2009, we recorded a
gain on the sale of a limited partnership interest in Penske Truck Leasing Co.,
L.P. (PTL) and a related gain on the remeasurement of the retained interest to
fair value totaling $0.3 billion.
Consumer
(38% and 43% of total three-year revenues and total segment profit,
respectively) earnings declined by $2.0 billion and $0.6 billion in 2009 and
2008, respectively, reflecting the current U.S. and global economic
environments, rising delinquencies and lower volume. In response, Consumer has
continued to reassess strategic alternatives and tighten underwriting, increased
focus on collection effectiveness and adjusted reserve levels in response to
when it is probable that losses have been incurred in the respective portfolios.
During 2009, we completed the sale of our Consumer businesses in Austria and
Finland, the credit card and auto businesses in the U.K., the credit card
business in Ireland and acquired a controlling interest in BAC Credomatic GECF
Inc. (BAC). During 2008, Consumer executed on its previously announced plan to
sell GE Money Japan, which comprised our Japanese personal loan business (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, Consumer sold its
U.S. mortgage business (WMC).
Real
Estate (9% and 8% of total three-year revenues and total segment profit,
respectively) earnings declined by $2.7 billion and $1.1 billion in 2009 and
2008, respectively, reflecting the current global economic environment, rising
unemployment and continued challenging conditions in the real estate and credit
markets. In response to the current environment, Real Estate has re-aligned its
business strategy to a longer term hold model utilizing its operating skills and
global asset management resources to maximize existing portfolio value. Given
the current and expected challenging market conditions, there continues to be
risk and uncertainty surrounding commercial real estate values, as such,
continued deterioration in economic conditions or prolonged market illiquidity
may result in further earnings declines.
Energy
Financial Services (4% and 8% of total three-year revenues and total segment
profit, respectively) has over $22 billion in energy and water investments,
often financed for 20 to 30 year terms, about 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.
GECAS (8%
and 15% 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 in 2008 and
declined 14% in 2009. At December 31, 2009, we owned 1,549 commercial aircraft,
of which all but three were on lease, and we held $14.8 billion (list price) of
multiple-year orders for various Boeing, Airbus and other aircraft, including 97
aircraft ($7.3 billion list price) scheduled for delivery in 2010, all under
agreement to commence operations with commercial airline customers.
Overall,
acquisitions contributed $2.6 billion, $4.4 billion and $3.6 billion to total
revenues in 2009, 2008 and 2007, respectively, excluding the effects of
acquisition gains following our adoption of an amendment to Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) 810, Consolidation. Our earnings
included approximately $0.4 billion, $0.5 billion and $0.2 billion in 2009, 2008
and 2007, respectively, from acquired businesses. We integrate acquisitions as
quickly as possible. Only revenues and earnings from the date we complete the
acquisition through the end of the fourth following quarter are attributed to
such businesses. Dispositions also affected our ongoing results through lower
revenues of $4.5 billion in 2009, higher revenues of $0.2 billion in 2008 and
lower revenues of $2.8 billion in 2007. This resulted in higher earnings of $0.3
billion and $0.2 billion in 2009 and 2008, respectively, and lower earnings of
$0.1 billion in 2007.
During
2009, General Electric Capital Corporation (GE Capital or GECC) provided $72
billion of new financings in the U.S. to various companies, infrastructure
projects and municipalities. Additionally, we extended $74 billion of credit to
approximately 54 million U.S. consumers. GE Capital provided credit to
approximately 14,200 new commercial customers and 40,000 new small businesses
during 2009 in the U.S. and ended the period with outstanding credit to more
than 346,000 commercial customers and 174,000 small businesses through retail
programs in the U.S.
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 Consumer segment.
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 $17.9 billion, $24.9 billion and $22.3 billion in 2009, 2008 and
2007, respectively. Average borrowings declined from 2008 to 2009 after
increasing from 2007 to 2008, in line with changes in average assets. Interest
rates have decreased over the three-year period attributable to declining global
benchmark interest rates, partially offset by higher average credit spreads. Our
average borrowings were $492.8 billion, $514.6 billion and $448.2 billion in
2009, 2008 and 2007, respectively. Our average composite effective interest rate
was 3.6 % in 2009, 4.8% in 2008 and 5.0% in 2007. In 2009, our average assets of
$624.3 billion were 3% lower than in 2008, which in turn were 13% higher than in
2007. We anticipate that our composite effective rates will begin to rise in
2010 as benchmark rates begin to rise globally. See the Liquidity and Borrowings
section for a discussion of liquidity, borrowings and interest rate risk
management.
Income taxes have a
significant effect on our net earnings. 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 173.0% in 2009, compared with (37.8)% in 2008 and 5.7% in
2007. 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.
Comparing
a tax benefit to pre-tax income resulted in a negative tax rate in 2008 and
comparing a tax benefit to pre-tax loss results in the positive tax rate in
2009. Our tax rate increased from 2008 to 2009 primarily because of a reduction
during 2009 of income in higher-taxed jurisdictions. This had the effect of
increasing the relative impact on the rate of tax benefits from lower-taxed
global operations, increasing the rate 245.9 percentage points. This more than
offset the decline in those benefits decreasing the rate 66.0 percentage points.
The decline in tax benefits from lower-taxed global operations includes an
offset of 15.7 percentage points for increased benefits from management’s
decision (discussed below) in 2009 to indefinitely reinvest prior-year earnings
outside the U.S. that was larger than the 2008 decision to indefinitely reinvest
prior-year earnings outside the U.S.
During
2009, following the change in our external credit ratings, funding actions taken
and our continued review of our operations, liquidity and funding, we determined
that undistributed prior-year earnings of non-U.S. subsidiaries of GECC, on
which we had previously provided deferred U.S. taxes, would now be indefinitely
reinvested outside the U.S. This change increased the amount of prior-year
earnings indefinitely reinvested outside the U.S. by approximately $2 billion,
resulting in an income tax benefit of $0.7 billion in 2009.
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
25.9 percentage points. In addition, earnings from lower-taxed global operations
increased from 2007 to 2008, causing an additional 18.7 percentage point rate
reduction. The increase in the benefit from lower taxed global operations
includes 5.8 percentage points from the 2008 decision to indefinitely reinvest
prior-year earnings outside the U.S. because the use of foreign tax credits no
longer required the repatriation of those prior-year earnings.
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.
We evaluate risk at the individual transaction level, and evaluate aggregate
risk at the customer, industry, geographic and collateral-type levels, where
appropriate.
The GE
Board of Directors (Board) has overall responsibility for risk oversight with a
focus on the most significant risks facing the company. At the end of each year,
management and the GE Board jointly develop a list of major risks that GE plans
to prioritize in the next year. Throughout the year, the GE Board and the
committees to which it has delegated responsibility dedicate a portion of their
meetings to review and discuss specific risk topics in greater detail. Strategic
and operational risks are presented and discussed in the context of the GE CEO’s
report on operations to the GE Board at regularly scheduled GE Board meetings
and at presentations to the GE Board and its committees by the vice chairmen,
general counsel and other officers. The GE Board has delegated responsibility
for the oversight of specific risks to GE Board committees as
follows:
·
|
The
GE Audit Committee oversees GE’s risk policies and processes relating to
the financial statements and financial reporting processes, and key credit
risks, liquidity risks, markets risks, compliance and the guidelines,
policies and processes for monitoring and mitigating those risks. As part
of its risk oversight responsibilities for GE overall, the GE Audit
Committee also oversees risks related to General Electric Capital
Services, Inc. (GECS). At least two times a year, the GE Audit Committee
receives a risk update, which focuses on the principal risks affecting GE
as well as reporting on the company’s risk assessment and risk management
guidelines, policies and processes; and the GE Audit Committee annually
conducts an assessment of compliance issues and
programs.
|
·
|
The
Public Responsibilities Committee oversees risks related to GE’s public
policy initiatives, the environment and similar
matters.
|
·
|
The
Management Development and Compensation Committee monitors the risks
associated with management resources, structure, succession planning,
development and selection processes, including evaluating the effect
compensation structure may have on risk
decisions.
|
·
|
The
Nominating and Corporate Governance Committee oversees risks related to
the company’s governance structure and processes and risks arising from
related person transactions.
|
The GE
Board’s risk oversight process builds upon management’s risk assessment and
mitigation processes, which include standardized reviews of long-term strategic
and operational planning; executive development and evaluation; regulatory and
litigation compliance; health, safety and environmental compliance; financial
reporting and controllership; and information technology and security. In August
2009, GE appointed a chief risk officer (CRO) with responsibility for overseeing
and coordinating risk assessment and mitigation on an enterprise-wide basis. The
GE CRO leads the Corporate Risk Function and is responsible for the
identification of key business risks, ensuring appropriate management of these
risks within stated limits, and enforcement through policies and procedures.
Management has two committees to further assist it in assessing and mitigating
risk. The Policy Compliance Review Board (PCRB) meets between 12 and 14 times a
year, is chaired by the company’s general counsel and includes the chief
financial officer and other senior level functional leaders. It has principal
responsibility for monitoring compliance matters across the company. The
Corporate Risk Committee (CRC) meets at least four times a year, is chaired by
the GE CRO and comprises the Chairman and CEO of GE and other senior level
business and functional leaders. It has principal responsibility for evaluating
and addressing risks escalated to the GE CRO and Corporate Risk Function and
also reports to the GE Board on risk.
GE’s
Corporate Risk Function leverages the risk infrastructures in each of our
businesses, which have adopted an approach that corresponds to the company’s
overall risk policies, guidelines and review mechanisms. Our risk
infrastructure is designed to identify, evaluate and mitigate risks within each
of the following categories:
·
|
Strategic. Strategic
risk relates to the company’s future business plans and strategies,
including the risks associated with the markets and industries in which we
operate, demand for our products and services, competitive threats,
technology and product innovation, mergers and acquisitions and public
policy.
|
·
|
Operational. Operational
risk relates to the effectiveness of our people, integrity of our internal
systems and processes, as well as external events that affect the
operation of our businesses. It includes product life cycle and execution,
product performance, information management and data security, business
disruption, human resources and
reputation.
|
·
|
Financial. Financial
risk relates to our ability to meet financial obligations and mitigate
credit risk, liquidity risk and exposure to broad market risks, including
volatility in foreign currency exchange and interest rates and commodity
prices. 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 and credit risk is
the risk of financial loss arising from a customer or counterparty failure
to meet its contractual obligations. GE faces credit risk in its
industrial businesses, as well as in GECS investing, lending and leasing
activities and derivative financial instruments
activities.
|
·
|
Legal and Compliance.
Legal and compliance risk relates to changes in the government and
regulatory environment, compliance requirements with policies and
procedures, including those relating to financial reporting, environmental
health and safety, and intellectual property risks. Government and
regulatory risk is the risk that the government or regulatory actions will
cause us to have to change our business models or
practices.
|
Risks
identified through our risk management processes are prioritized and, depending
on the probability and severity of the risk, escalated to the GE CRO. The GE
CRO, in coordination with the CRC, assigns responsibility of the risks to the
business or functional leader most suited to manage the
risk. Assigned owners are required to continually monitor, evaluate
and report on risks for which they bear responsibility. We have
general response strategies for managing risks, which categorize risks according
to whether the company will avoid, transfer, reduce or accept the risk. These
response strategies are tailored to ensure that risks are within acceptable GE
Board tolerance levels.
Depending
on the nature of the risk involved and the particular business or function
affected, we use a wide variety of risk mitigation strategies, including
hedging, standardized processes, approvals and operating reviews, insurance and
strategic planning reviews. As a matter of policy, we generally hedge the risk
of fluctuations in foreign currency exchange rates, interest rates and commodity
prices. GE’s service businesses employ a comprehensive tollgate process leading
up to and through the execution of a contractual service agreement to mitigate
legal, financial and operational risks. Furthermore, we centrally
manage certain risks through insurance determined by the balance between the
level of risk retained or assumed and the cost of transferring risk to others.
We counteract the risk of fluctuations in economic activity and customer demand
by monitoring industry dynamics and responding accordingly, including by
adjusting capacity, implementing cost reductions and engaging in mergers and
acquisitions.
GECS
Risk Management and Oversight
GECS has
developed a robust risk infrastructure and processes to manage risks related to
its businesses and the GE Corporate Risk Function relies upon them in
fulfillment of its mission. As discussed above, the GE Audit Committee oversees
GECS’ risk assessment and management processes.
At the
GECS level, the GECS Board of Directors oversees the GECS risk management
process, and approves all significant acquisitions and dispositions as well as
significant borrowings and investments. All participants in the GECS risk
management process must comply with approval limits established by the GECS
Board.
GE
Capital established an Enterprise Risk Management Committee (ERMC), comprising
the most senior leaders in GE Capital, which has oversight responsibility for
identifying, assessing, mitigating and monitoring risk across the entire GE
Capital enterprise, including credit, market, operational, legal &
compliance, liquidity and funding risk. GE Capital, in coordination with and
under the oversight of the GE CRO, provides comprehensive risk
reports to the GE Audit Committee. At these meetings, which will occur at least
four times a year, GE Capital senior management will focus on the risk strategy
and financial services portfolio, including the risk oversight processes used to
manage all the elements of risk managed by the ERMC.
GE
Capital’s risk management approach rests upon three 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 “on-book”
standards.
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.
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 8 and 15 to
the consolidated financial statements in Part II, Item 8. “Financial Statements
and Supplementary Data” of this Form 10-K Report. Additional information about
our credit risk and GECS portfolio can be found in the Financial Resources and
Liquidity and Critical Accounting Estimates sections of this Item and Notes 1,
3, 4, 15 and 17 to the consolidated financial statements in Part II, Item 8.
“Financial Statements and Supplementary Data” of this Form 10-K
Report.
Segment
Operations
Our five
segments are focused on the broad markets they serve: CLL, Consumer, 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 geographic regions within the CLL
segment for greater clarity.
GECC
corporate items and eliminations include the effects of eliminating transactions
between operating segments; results of our run-off insurance operations
remaining in continuing operations attributable to GECC; 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
acquisitions or 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, earnings attributable to noncontrolling interests of
consolidated subsidiaries and accounting changes. Segment profit, which we
sometimes refer to as “net earnings”, includes interest and income
taxes.
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” in Part I and Note 19 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)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
CLL(a)
|
$
|
20,523
|
|
$
|
26,443
|
|
$
|
26,982
|
Consumer(a)
|
|
19,268
|
|
|
25,311
|
|
|
25,054
|
Real
Estate
|
|
4,009
|
|
|
6,646
|
|
|
7,021
|
Energy
Financial Services
|
|
2,117
|
|
|
3,707
|
|
|
2,405
|
GECAS
|
|
4,705
|
|
|
4,901
|
|
|
4,839
|
Total
segment revenues
|
|
50,622
|
|
|
67,008
|
|
|
66,301
|
GECC
corporate items and eliminations
|
|
484
|
|
|
1,361
|
|
|
1,661
|
Total
revenues
|
|
51,106
|
|
|
68,369
|
|
|
67,962
|
Less
portion of revenues not included in GECC
|
|
(433)
|
|
|
(375)
|
|
|
(963)
|
Total
revenues in GECC
|
$
|
50,673
|
|
$
|
67,994
|
|
$
|
66,999
|
|
|
|
|
|
|
|
|
|
Segment
profit (loss)
|
|
|
|
|
|
|
|
|
CLL(a)
|
$
|
987
|
|
$
|
1,785
|
|
$
|
3,787
|
Consumer(a)
|
|
1,663
|
|
|
3,684
|
|
|
4,283
|
Real
Estate
|
|
(1,541)
|
|
|
1,144
|
|
|
2,285
|
Energy
Financial Services
|
|
212
|
|
|
825
|
|
|
677
|
GECAS
|
|
1,023
|
|
|
1,194
|
|
|
1,211
|
Total
segment profit
|
|
2,344
|
|
|
8,632
|
|
|
12,243
|
GECC
corporate items and eliminations(b)(c)
|
|
(607)
|
|
|
(510)
|
|
|
192
|
Less
portion of segment profit not included in GECC
|
|
(158)
|
|
|
(108)
|
|
|
(489)
|
Earnings
from continuing operations attributable to GECC
|
|
1,579
|
|
|
8,014
|
|
|
11,946
|
Loss
from discontinued operations, net of taxes,
|
|
|
|
|
|
|
|
|
attributable
to GECC
|
|
(124)
|
|
|
(704)
|
|
|
(2,131)
|
Total
net earnings attributable to GECC
|
$
|
1,455
|
|
$
|
7,310
|
|
$
|
9,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
During
the first quarter of 2009, we transferred Banque Artesia Nederland N.V.
(Artesia) from CLL to Consumer. Prior-period amounts were reclassified to
conform to the current-period’s
presentation.
|
(b)
|
Included
restructuring and other charges for 2009 and 2008 of $0.4 billion and $0.5
billion, respectively; related to CLL ($0.3 billion and $0.3 billion),
primarily business exits and Consumer ($0.1 billion and $0.2 billion),
primarily planned business and portfolio
exits.
|
(c)
|
Included
$0.1 billion of net losses compared with $0.5 billion of net earnings
during 2009 and 2008, respectively, related to our treasury
operations.
|
See
accompanying notes to consolidated financial statements.
CLL
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
20,523
|
|
$
|
26,443
|
|
$
|
26,982
|
Less
portion of CLL not included in GECC
|
|
(416)
|
|
|
(376)
|
|
|
(883)
|
Total
revenues in GECC
|
$
|
20,107
|
|
$
|
26,067
|
|
$
|
26,099
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
987
|
|
$
|
1,785
|
|
$
|
3,787
|
Less
portion of CLL not included in GECC
|
|
(157)
|
|
|
(120)
|
|
|
(400)
|
Total
segment profit in GECC
|
$
|
830
|
|
$
|
1,665
|
|
$
|
3,387
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
205,827
|
|
$
|
228,176
|
|
|
|
Less
portion of CLL not included in GECC
|
|
(2,231)
|
|
|
(2,015)
|
|
|
|
Total
assets in GECC
|
$
|
203,596
|
|
$
|
226,161
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Americas
|
$
|
10,191
|
|
$
|
11,594
|
|
$
|
12,066
|
Europe
|
|
4,811
|
|
|
5,812
|
|
|
5,327
|
Asia
|
|
2,157
|
|
|
2,400
|
|
|
2,462
|
Other
|
|
3,364
|
|
|
6,637
|
|
|
7,127
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
Americas
|
$
|
659
|
|
$
|
1,195
|
|
$
|
2,737
|
Europe
|
|
394
|
|
|
725
|
|
|
779
|
Asia
|
|
132
|
|
|
147
|
|
|
462
|
Other
|
|
(198)
|
|
|
(282)
|
|
|
(191)
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
|
|
|
Americas
|
$
|
115,628
|
|
$
|
135,253
|
|
|
|
Europe
|
|
52,624
|
|
|
49,734
|
|
|
|
Asia
|
|
19,451
|
|
|
23,127
|
|
|
|
Other
|
|
18,124
|
|
|
20,062
|
|
|
|
CLL 2009
revenues decreased 22% and net earnings decreased 45% compared with 2008.
Revenues in 2009 and 2008 included $1.9 billion and $0.3 billion from
acquisitions, respectively, and were reduced by $3.2 billion from dispositions,
primarily related to the deconsolidation of PTL. Revenues in 2009 also included
$0.3 billion related to a gain on the sale of a partial interest in a limited
partnership in PTL and remeasurement of our retained investment. Revenues in
2009 decreased $4.6 billion compared with 2008 as a result of organic revenue
declines ($3.9 billion) and the stronger U.S. dollar ($0.7 billion). Net
earnings decreased by $0.8 billion in 2009, reflecting higher provisions for
losses on financing receivables ($0.5 billion), lower gains ($0.5 billion) and
declines in lower-taxed earnings from global operations ($0.4 billion),
partially offset by acquisitions ($0.4 billion) and higher investment income
($0.3 billion). Net earnings also included the gain on PTL sale and
remeasurement ($0.3 billion) and higher Genpact gains ($0.1 billion), partially
offset by mark-to-market losses and other-than-temporary impairments ($0.1
billion).
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 ($0.4 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).
Consumer
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
19,268
|
|
$
|
25,311
|
|
$
|
25,054
|
Less
portion of Consumer not included in GECC
|
|
–
|
|
|
–
|
|
|
–
|
Total
revenue in GECC
|
$
|
19,268
|
|
$
|
25,311
|
|
$
|
25,054
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
1,663
|
|
$
|
3,684
|
|
$
|
4,283
|
Less
portion of Consumer not included in GECC
|
|
(14)
|
|
|
(2)
|
|
|
(47)
|
Total
segment profit in GECC
|
$
|
1,649
|
|
$
|
3,682
|
|
$
|
4,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
176,046
|
|
$
|
187,927
|
|
|
|
Less
portion of Consumer not included in GECC
|
|
(814)
|
|
|
(167)
|
|
|
|
Total
assets in GECC
|
$
|
175,232
|
|
$
|
187,760
|
|
|
|
Consumer
2009 revenues decreased 24% and net earnings decreased 55% compared with 2008.
Revenues in 2009 included $1.0 billion from acquisitions (including a gain of
$0.3 billion on the remeasurement of our previously held equity investment in
BAC Credomatic GECF Inc. (BAC) related to the acquisition of a controlling
interest (BAC acquisition gain)) and were reduced by $1.7 billion as a result of
dispositions, and the lack of a current-year counterpart to the 2008 gain on
sale of our Corporate Payment Services (CPS) business ($0.4 billion). Revenues
in 2009 decreased $5.0 billion compared with 2008 as a result of organic revenue
declines ($3.4 billion) and the stronger U.S. dollar ($1.6 billion). The
decrease in net earnings resulted primarily from core declines ($2.4 billion)
and the lack of a current-year counterpart to the 2008 gain on sale of our CPS
business ($0.2 billion). These decreases were partially offset by higher
securitization income ($0.3 billion), the BAC acquisition gain ($0.2 billion)
and the stronger U.S. dollar ($0.1 billion). Core declines primarily resulted
from lower results in the U.S., U.K., and our banks in Eastern Europe,
reflecting higher provisions for losses on financing receivables ($1.3 billion)
and declines in lower-taxed earnings from global operations ($0.7 billion). The
benefit from lower-taxed earnings from global operations included $0.5 billion
from the decision to indefinitely reinvest prior-year earnings outside the
U.S.
Consumer
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 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 prior-year earnings
outside the U.S.
Real
Estate
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
4,009
|
|
$
|
6,646
|
|
$
|
7,021
|
Less
portion of Real Estate not included in GECC
|
|
(13)
|
|
|
14
|
|
|
(71)
|
Total
revenues in GECC
|
$
|
3,996
|
|
$
|
6,660
|
|
$
|
6,950
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
(1,541)
|
|
$
|
1,144
|
|
$
|
2,285
|
Less
portion of Real Estate not included in GECC
|
|
15
|
|
|
23
|
|
|
(36)
|
Total
segment profit in GECC
|
$
|
(1,526)
|
|
$
|
1,167
|
|
$
|
2,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
81,505
|
|
$
|
85,266
|
|
|
|
Less
portion of Real Estate not included in GECC
|
|
(127)
|
|
|
(357)
|
|
|
|
Total
assets in GECC
|
$
|
81,378
|
|
$
|
84,909
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate 2009 revenues decreased 40% and net earnings decreased $2.7 billion
compared with 2008. Revenues in 2009 decreased $2.6 billion compared with 2008
as a result of organic revenue declines ($2.4 billion), primarily as a result of
a decrease in sales of properties, and the stronger U.S. dollar ($0.2 billion).
Real Estate net earnings decreased $2.7 billion compared with 2008, primarily
from an increase in provisions for losses on financing receivables and
impairments ($1.2 billion) and a decrease in gains on sales of properties as
compared to the prior period ($1.1 billion). Depreciation expense on real estate
equity investments totaled $1.2 billion in both 2009 and 2008. 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.
Real
Estate assets at December 31, 2009, decreased $3.8 billion, or 4%, from December
31, 2008, including $2.7 billion, or 6%, attributable to a decline in real
estate lending reflecting lower originations, principal repayments, and
increased loan reserves, and $0.7 billion, or 2%, attributable to a decline in
real estate investments principally due to depreciation expense and impairments,
partially offset by foreclosures. During 2009, we sold real estate equity
investment assets with a book value totaling $1.5 billion, which resulted in net
earnings of $0.1 billion that were more than offset by losses, impairments and
depreciation.
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.
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.
Energy
Financial Services
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
2,117
|
|
$
|
3,707
|
|
$
|
2,405
|
Less
portion of Energy Financial Services
|
|
|
|
|
|
|
|
|
not
included in GECC
|
|
(2)
|
|
|
(11)
|
|
|
(5)
|
Total
revenues in GECC
|
$
|
2,115
|
|
$
|
3,696
|
|
$
|
2,400
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
212
|
|
$
|
825
|
|
$
|
677
|
Less
portion of Energy Financial Services
|
|
|
|
|
|
|
|
|
not
included in GECC
|
|
(1)
|
|
|
(6)
|
|
|
(2)
|
Total
segment profit in GECC
|
$
|
211
|
|
$
|
819
|
|
$
|
675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
22,616
|
|
$
|
22,079
|
|
|
|
Less
portion of Energy Financial Services
|
|
|
|
|
|
|
|
|
not
included in GECC
|
|
(76)
|
|
|
(54)
|
|
|
|
Total
assets in GECC
|
$
|
22,540
|
|
$
|
22,025
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial Services 2009 revenues decreased 43% and net earnings decreased 74%
compared with 2008. Revenues in 2009 included $0.1 billion of gains from
dispositions. Revenues in 2009 also decreased $1.7 billion compared with 2008 as
a result of organic declines ($1.7 billion), primarily as a result of the
effects of lower energy commodity prices and a decrease in gains on sales of
assets. The decrease in net earnings resulted primarily from core declines,
including a decrease in gains on sales of assets as compared to the prior period
and the effects of lower energy commodity prices.
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).
GECAS
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
4,705
|
|
$
|
4,901
|
|
$
|
4,839
|
Less
portion of GECAS not included in GECC
|
|
(2)
|
|
|
(2)
|
|
|
(4)
|
Total
revenues in GECC
|
$
|
4,703
|
|
$
|
4,899
|
|
$
|
4,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
1,023
|
|
$
|
1,194
|
|
$
|
1,211
|
Less
portion of GECAS not included in GECC
|
|
(1)
|
|
|
(3)
|
|
|
(4)
|
Total
segment profit in GECC
|
$
|
1,022
|
|
$
|
1,191
|
|
$
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
51,066
|
|
$
|
49,455
|
|
|
|
Less
portion of GECAS not included in GECC
|
|
(210)
|
|
|
(198)
|
|
|
|
Total
assets in GECC
|
$
|
50,856
|
|
$
|
49,257
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
2009 revenues decreased 4% and net earnings decreased 14% compared with 2008.
The decrease in revenues resulted primarily from lower asset sales ($0.2
billion). The decrease in net earnings resulted primarily from lower asset sales
($0.2 billion) and core declines reflecting higher credit losses and
impairments.
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.
Discontinued
Operations
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations,
|
|
|
|
|
|
|
|
|
|
net
of taxes
|
$
|
(124)
|
|
$
|
(704)
|
|
$
|
(2,131)
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations primarily comprised GE Money Japan and WMC. 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 2009, primarily reflected the
incremental loss on disposal of GE Money Japan ($0.1 billion).
Loss from
discontinued operations, net of taxes, in 2008 was $0.7 billion, primarily
reflected loss from operations ($0.3 billion), and the estimated incremental
loss on disposal of GE Money Japan ($0.4 billion).
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).
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)
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
U.S.
|
$
|
23.2
|
|
$
|
30.7
|
|
$
|
30.8
|
Europe
|
|
14.7
|
|
|
21.0
|
|
|
19.9
|
Pacific
Basin
|
|
7.0
|
|
|
9.8
|
|
|
10.1
|
Americas
|
|
4.6
|
|
|
4.9
|
|
|
4.7
|
Middle
East and Africa
|
|
0.5
|
|
|
0.4
|
|
|
0.3
|
Other
Global
|
|
0.7
|
|
|
1.2
|
|
|
1.2
|
Total
|
$
|
50.7
|
|
$
|
68.0
|
|
$
|
67.0
|
|
|
|
|
|
|
|
|
|
Global
revenues decreased 26% to $27.5 billion in 2009, compared with $37.3 billion and
$36.2 billion in 2008 and 2007, respectively, primarily as a result of
dispositions in Europe and the Pacific Basin. Global revenues as a percentage of
total revenues were 54% in 2009, compared with 55% and 54% in 2008 and 2007,
respectively.
Our
global assets on a continuing basis of $319.1 billion at the end of 2009 were 3%
lower than at the end of 2008, reflecting core declines in the Pacific Basin and
Europe, partially offset by acquisitions, and the effects of the weaker U.S.
dollar, primarily at Consumer 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, Liquidity and Borrowings, Debt Instruments, Guarantees and
Covenants, the Statement of Changes in Shareowner’s Equity, the Statement of
Cash Flows, Contractual Obligations, and Variable Interest Entities and
Off-Balance Sheet Arrangements.
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.
Statement
of Financial Position
Investment securities comprise
mainly investment-grade debt securities supporting obligations to holders of
guaranteed investment contracts (GICs) and retained interests in securitization
entities. The fair value of investment securities increased to $26.3 billion at
December 31, 2009, from $19.3 billion at December 31, 2008, primarily driven by
decreases in unrealized losses due to market improvements, investment of cash
into short-term investments such as money market funds and certificates of
deposits, and an increase in our retained interests in securitization entities.
Of the amount at December 31, 2009, we held debt securities with an estimated
fair value of $16.9 billion, which included corporate debt securities,
residential mortgage-backed securities (RMBS) and commercial mortgage-backed
securities (CMBS) with estimated fair values of $5.8 billion, $2.3 billion and
$1.3 billion, respectively. Unrealized losses on debt securities were $1.8
billion and $2.9 billion at December 31, 2009 and December 31, 2008,
respectively. This amount included unrealized losses on corporate debt
securities, RMBS and CMBS of $0.3 billion, $0.7 billion and $0.3 billion,
respectively, at December 31, 2009, as compared with $0.7 billion, $1.0 billion
and $0.5 billion, respectively, at December 31, 2008.
Of the
$2.3 billion of RMBS, our exposure to subprime credit was approximately $0.9
billion. These securities are primarily held to support obligations to holders
of GICs. We purchased no such securities in 2009 and 2008. 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 exposure to residential subprime credit
related to investment securities backed by mortgage loans originated in 2006 and
2005.
The vast
majority of our CMBS have investment-grade credit ratings from the major rating
agencies and are in a senior position in the capital structure of the deal. Our
CMBS investments are collateralized by both diversified pools of mortgages that
were originated for securitization (conduit CMBS) and pools of large loans
backed by high quality properties (large loan CMBS), a majority of which were
originated in 2006 and 2007.
We
regularly review investment securities for impairment. Our review uses both
qualitative and quantitative criteria. Effective April 1, 2009, the FASB amended
ASC 320, Investments – Debt
and Equity Securities, and modified the requirements for recognizing and
measuring other-than-temporary impairment for debt securities. This did not have
a material impact on our results of operations. We presently do not intend to
sell our debt securities and believe that it is not more likely than not that we
will be required to sell these securities that are in an unrealized loss
position before recovery of our amortized cost. If we do not intend to sell the
security and it is not more likely than not that we will be required to sell the
security before recovery of our amortized cost, we evaluate other qualitative
criteria to determine whether a credit loss exists, such as the financial health
of and specific prospects for the issuer, including whether the issuer is in
compliance with the terms and covenants of the security. Quantitative criteria
include determining whether there has been an adverse change in expected future
cash flows. With respect to corporate bonds, we placed greater emphasis on the
credit quality of the issuer. 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 other features of the
security, principally monoline insurance. For equity securities, our criteria
include the length of time and magnitude of the amount that each security is in
an unrealized loss position. 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.
Monoline
insurers (Monolines) provide credit enhancement for certain of our investment
securities. The credit enhancement is a feature of each specific security that
guarantees the payment of all contractual cash flows, and is not purchased
separately by GE. At December 31, 2009, our investment securities insured by
Monolines totaled $2.1 billion, including $0.8 billion of our $0.9 billion
investment in subprime RMBS. The Monoline industry continues to experience
financial stress from increasing delinquencies and defaults on the individual
loans underlying insured securities. In evaluating whether a security with
Monoline credit enhancement is other-than-temporarily impaired, we first
evaluate whether there has been an adverse change in estimated cash flows. If
there has been an adverse change in estimated cash flows, we then evaluate the
overall creditworthiness of the Monoline using an analysis that is similar to
the approach we use for corporate bonds. This includes an evaluation of the
following factors: sufficiency of the Monoline’s cash reserves and capital,
ratings activity, whether the Monoline is in default or default appears
imminent, and the potential for intervention by an insurance or other regulator.
At December 31, 2009, the unrealized loss associated with securities subject to
Monoline credit enhancement for which there is an expected loss was $0.3
billion, of which $0.2 billion relates to expected credit losses and the
remaining $0.1 billion relates to other market factors.
Total
pre-tax other-than-temporary impairment losses during the period April 1, 2009,
through December 31, 2009, were $0.5 billion, of which $0.2 billion was
recognized in earnings and primarily relates to credit losses on RMBS and
retained interests in our securitization arrangements, and $0.3 billion
primarily relates to non-credit related losses on RMBS and is included within
accumulated other comprehensive income.
Our
qualitative review attempts to identify issuers’ securities that are “at-risk”
of other-than-temporary impairment, that is, for securities that we do not
intend to sell and it is not more likely than not that we will be required to
sell before recovery of our amortized cost, whether there is a possibility of
credit loss that would result in an other-than-temporary impairment recognition
in the following 12 months. Securities we have identified as “at-risk” primarily
relate to investments in RMBS securities and corporate debt securities across a
broad range of industries. The amount of associated unrealized loss on these
securities at December 31, 2009, is $0.6 billion. Credit losses that would be
recognized in earnings are calculated when we determine the security to be
other-than-temporarily impaired. Continued uncertainty in the capital markets
may cause increased levels of other-than-temporary impairments.
At
December 31, 2009, unrealized losses on investment securities totaled $1.8
billion, including $1.7 billion aged 12 months or longer, compared with
unrealized losses of $3.2 billion, including $2.0 billion aged 12 months or
longer, at December 31, 2008. Of the amount aged 12 months or longer at December
31, 2009, more than 70% 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, $1.3 billion and $0.2 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, 2009, the
vast majority relate to debt securities held to support obligations to holders
of GICs. We presently do not intend to sell our debt securities and believe that
it is not more likely than not that we will be required to sell these securities
that are in an unrealized loss position before recovery of our amortized cost.
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 3 to the consolidated financial
statements in Part II, Item 8. “Financial Statement and Supplementary Data” of
this Form 10-K Report.
Fair Value Measurements. We
adopted ASC 820, Fair Value
Measurements and Disclosures, in two steps; effective January 1, 2008, we
adopted it for all financial instruments and non-financial instruments accounted
for at fair value on a recurring basis and effective January 1, 2009, for all
non-financial instruments accounted for at fair value on a non-recurring basis.
Adoption of this did not have a material effect on our financial position or
results of operations. Additional information about our application of this
guidance is provided in Note 14 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 at fair value and equity investments of $3.1 billion at year-end
2009. 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 7 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 $3.7 billion at year-end 2009, 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.
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.
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 portfolio 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 36% 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 64% 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. We
are in a secured position for substantially all of this portfolio.
Overall,
we believe that the global economic markets are beginning to stabilize and we
expect that our financing receivables portfolio will begin to reflect this over
the course of 2010. We believe that the commercial financing markets in which we
operate (excluding commercial real estate, discussed below) are likewise
becoming more stable, and loss severity remains within an expected range.
Delinquency and non-earnings rates in these businesses are beginning to show
signs of improvement and originations, while down, are at generally higher
margins. In our Consumer businesses, we continued throughout 2009 to raise
underwriting standards, reduce open credit commitments and maintain discipline
in collections. The performance of this business has historically
been linked to the global economy and unemployment levels and we expect 2010
losses to be about the same as our experience in 2009. Real Estate continues to
be under pressure, with limited market liquidity and challenging economic
conditions. We have and continue to maintain an intense focus on operations and
risk management; however, we expect current economic conditions to persist in
2010, which will likely result in higher losses for Real Estate compared with
2009.
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 (including housing price indices as applicable), 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. Effective January 1, 2009, loans acquired
in a business acquisition are recorded at fair value, which incorporates our
estimate at the acquisition date of the credit losses over the remaining life of
the portfolio. As a result, the allowance for loan losses is not carried over at
acquisition. This may result in lower reserve coverage ratios
prospectively.
For
purposes of the discussion that follows, “delinquent” receivables are those that
are 30 days or more past due based on their contractual terms; and “nonearning”
receivables are those that are 90 days or more past due (or for which collection
has otherwise become doubtful). Nonearning receivables exclude loans purchased
at a discount (unless they have deteriorated post acquisition). Under ASC 310,
Receivables, these
loans are initially recorded at fair value and accrete interest income over the
estimated life of the loan based on reasonably estimable cash flows even if the
underlying loans are contractually delinquent at acquisition. In addition,
nonearning receivables exclude loans that are paying currently under a cash
accounting basis, but classified as impaired. Recently restructured
financing receivables are not considered delinquent when payments are brought
current according to the restructured terms, but may remain classified as
nonearning until there has been a period of satisfactory payment performance by
the borrower and future payments are reasonably assured of
collection.
|
Financing
receivables at
|
|
Nonearning
receivables at
|
|
Allowance
for losses at
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
(In
millions)
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
86,721
|
|
$
|
104,462
|
|
$
|
3,135
|
|
$
|
1,944
|
|
$
|
1,165
|
|
$
|
824
|
Europe
|
|
38,737
|
|
|
36,972
|
|
|
1,380
|
|
|
345
|
|
|
544
|
|
|
288
|
Asia
|
|
13,202
|
|
|
16,683
|
|
|
576
|
|
|
306
|
|
|
244
|
|
|
163
|
Other
|
|
771
|
|
|
786
|
|
|
10
|
|
|
2
|
|
|
8
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages(b)
|
|
58,831
|
|
|
60,753
|
|
|
4,552
|
|
|
3,321
|
|
|
952
|
|
|
383
|
Non-U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
25,208
|
|
|
24,441
|
|
|
454
|
|
|
413
|
|
|
1,187
|
|
|
1,051
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
23,190
|
|
|
27,645
|
|
|
841
|
|
|
758
|
|
|
1,698
|
|
|
1,700
|
Non-U.S.
auto
|
|
13,485
|
|
|
18,168
|
|
|
73
|
|
|
83
|
|
|
312
|
|
|
222
|
Other
|
|
12,808
|
|
|
11,541
|
|
|
645
|
|
|
175
|
|
|
318
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate(c)
|
|
44,841
|
|
|
46,735
|
|
|
1,252
|
|
|
194
|
|
|
1,494
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial Services
|
|
7,756
|
|
|
8,355
|
|
|
78
|
|
|
241
|
|
|
28
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
15,215
|
|
|
15,326
|
|
|
167
|
|
|
146
|
|
|
107
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(d)
|
|
2,614
|
|
|
4,031
|
|
|
72
|
|
|
38
|
|
|
34
|
|
|
28
|
Total
|
$
|
343,379
|
|
$
|
375,898
|
|
$
|
13,235
|
|
$
|
7,966
|
|
$
|
8,091
|
|
$
|
5,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
During
the first quarter of 2009, we transferred Artesia from CLL to Consumer.
Prior-period amounts were reclassified to conform to the current-period’s
presentation.
|
(b)
|
At
December 31, 2009, net of credit insurance, approximately 24% 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 origination, we underwrite loans
with an adjustable rate to the reset value. 82% of these loans are in our
U.K. and France portfolios, which comprise mainly loans with interest-only
payments and introductory below-market rates, have a delinquency rate of
18.3% and have loan-to-value ratio at origination of 74%. At December 31,
2009, 1% (based on dollar values) of these loans in our U.K. and France
portfolios have been restructured.
|
(c)
|
Financing
receivables included $317 million and $731 million of construction loans
at December 31, 2009 and 2008,
respectively.
|
(d)
|
Consisted
of loans and financing leases related to certain consolidated, liquidating
securitization entities.
|
|
|
|
Allowance
for losses as
|
|
Allowance
for losses as a
|
|
|
Nonearning
receivable as a
|
|
a
percent of nonearnings
|
|
percent
of total financing
|
|
|
percent
of financing receivables
|
|
receivables
|
|
receivables
|
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
3.6
|
%
|
|
1.9
|
%
|
|
37.2
|
%
|
|
42.4
|
%
|
|
1.3
|
%
|
|
0.8
|
%
|
Europe
|
|
3.6
|
|
|
0.9
|
|
|
39.4
|
|
|
83.5
|
|
|
1.4
|
|
|
0.8
|
|
Asia
|
|
4.4
|
|
|
1.8
|
|
|
42.4
|
|
|
53.3
|
|
|
1.8
|
|
|
1.0
|
|
Other
|
|
1.3
|
|
|
0.3
|
|
|
80.0
|
|
|
100.0
|
|
|
1.0
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
7.7
|
|
|
5.5
|
|
|
20.9
|
|
|
11.5
|
|
|
1.6
|
|
|
0.6
|
|
Non-U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
1.8
|
|
|
1.7
|
|
|
261.5
|
|
|
254.5
|
|
|
4.7
|
|
|
4.3
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
3.6
|
|
|
2.7
|
|
|
201.9
|
|
|
224.3
|
|
|
7.3
|
|
|
6.1
|
|
Non-U.S.
auto
|
|
0.5
|
|
|
0.5
|
|
|
427.4
|
|
|
267.5
|
|
|
2.3
|
|
|
1.2
|
|
Other
|
|
5.0
|
|
|
1.5
|
|
|
49.3
|
|
|
129.1
|
|
|
2.5
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
2.8
|
|
|
0.4
|
|
|
119.3
|
|
|
155.2
|
|
|
3.3
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial Services
|
|
1.0
|
|
|
2.9
|
|
|
35.9
|
|
|
24.1
|
|
|
0.4
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
1.1
|
|
|
1.0
|
|
|
64.1
|
|
|
41.1
|
|
|
0.7
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
2.8
|
|
|
0.9
|
|
|
47.2
|
|
|
73.7
|
|
|
1.3
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
3.9
|
|
|
2.1
|
|
|
61.1
|
|
|
66.6
|
|
|
2.4
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
During
the first quarter of 2009, we transferred Artesia from CLL to Consumer.
Prior-period amounts were reclassified to conform to the current-period’s
presentation.
|
Further
information on the determination of the allowance for losses on financing
receivables is provided in the Critical Accounting Estimates section of this
item and Note 1 to the consolidated financial statements in Part II, Item 8.
“Financial Statements and Supplementary Data” of this Form 10-K
Report.
The
portfolio of financing receivables, before allowance for losses, was $343.4
billion at December 31, 2009, and $375.9 billion at December 31, 2008. Financing
receivables, before allowance for losses, decreased $32.5 billion from December
31, 2008, primarily as a result of core declines of $51.8 billion mainly from
collections exceeding originations ($43.5 billion) (which includes
securitization and sales), partially offset by the weaker U.S. dollar ($17.8
billion) and acquisitions ($11.9 billion).
Related
nonearning receivables totaled $13.2 billion (3.9% of outstanding receivables)
at December 31, 2009, compared with $8.0 billion (2.1% of outstanding
receivables) at December 31, 2008. Nonearning receivables increased from
December 31, 2008, primarily in connection with the challenging global economic
environment, increased deterioration in the real estate markets and rising
unemployment.
The
allowance for losses at December 31, 2009, totaled $8.1 billion compared with
$5.3 billion at December 31, 2008, representing our best estimate of probable
losses inherent in the portfolio and reflecting the then-current credit and
economic environment. Allowance for losses increased $2.8 billion from December
31, 2008, primarily due to increasing delinquencies and nonearning receivables,
reflecting the continued weakened economic and credit environment.
“Impaired”
loans in the table below 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. The vast majority
of our consumer and a portion of our CLL nonearning receivables are excluded
from this definition, as they represent smaller balance homogenous loans that we
evaluate collectively by portfolio for impairment.
Impaired
loans include nonearning receivables on larger balance or restructured loans,
loans which are currently paying interest under the cash basis (but are excluded
from the nonearning category), and loans paying currently but which have been
previously restructured.
Specific
reserves are recorded for individually impaired loans to the extent we judge
principal to be uncollectible. Certain loans classified as impaired may not
require a reserve. In these circumstances, we believe that we will ultimately
collect the unpaid balance (through collection or collateral
repossession).
Further
information pertaining to loans classified as impaired and specific reserves is
included in the table below.
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
Loans
requiring allowance for losses
|
$
|
9,145
|
|
$
|
2,712
|
Loans
expected to be fully recoverable
|
|
3,741
|
|
|
871
|
Total
impaired loans
|
$
|
12,886
|
|
$
|
3,583
|
|
|
|
|
|
|
Allowance
for losses (specific reserves)
|
$
|
2,331
|
|
$
|
635
|
Average
investment during the period
|
|
8,493
|
|
|
2,064
|
Interest
income earned while impaired(a)
|
|
227
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Recognized
principally on cash basis.
|
Impaired
loans increased by $9.3 billion from December 31, 2008, to December 31, 2009,
primarily relating to increases at Real Estate ($5.7 billion) and CLL ($2.7
billion). We regularly review our Real Estate loans for impairment using both
quantitative and qualitative factors, such as debt service coverage and
loan-to-value ratios. We classify Real Estate loans as impaired when the most
recent valuation reflects a projected loan-to-value ratio at maturity in excess
of 100%, even if the loan is currently paying in accordance with contractual
terms. The increase in impaired loans and related specific reserves at Real
Estate reflects our current estimate of collateral values of the underlying
properties, and our estimate of loans which are not past due, but for which it
is probable that we will be unable to collect the full principal balance at
maturity due to a decline in the underlying value of the collateral. Of our $6.5
billion impaired loans at Real Estate at December 31, 2009, approximately $4.4
billion are currently paying in accordance with the contractual terms of the
loan. Impaired loans at CLL primarily represent senior secured lending
positions.
Our loss
mitigation strategy intends to minimize economic loss and, at times, can result
in rate reductions, principal forgiveness, extensions, forbearance or other
actions, which may cause the related loan to be classified as a troubled debt
restructuring (TDR). As required by GAAP, TDRs are included in impaired loans.
As of December 31, 2009, TDRs included in impaired loans were $3.0 billion,
primarily relating to Real Estate ($1.1 billion), CLL ($1.0 billion) and
Consumer ($0.9 billion).
CLL − Americas. Nonearning
receivables of $3.1 billion represented 23.7% of total nonearning receivables at
December 31, 2009. The ratio of allowance for losses as a percent of nonearning
receivables declined from 42.4% at December 31, 2008, to 37.2% at December 31,
2009, primarily from an increase in secured exposures requiring relatively lower
specific reserve levels, based upon the strength of the underlying collateral
values. The ratio of nonearning receivables as a percent of financing
receivables increased from 1.9% at December 31, 2008, to 3.6% at December 31,
2009, primarily from an increase in nonearning receivables in our senior secured
lending portfolio concentrated in the following industries: media,
communications, corporate aircraft, auto, transportation, retail/publishing,
inventory finance, and franchise finance.
CLL – Europe. Nonearning
receivables of $1.4 billion represented 10.4% of total nonearning receivables at
December 31, 2009. The ratio of allowance for losses as a percent of nonearning
receivables declined from 83.5% at December 31, 2008, to 39.4% at December 31,
2009, primarily from the increase in nonearning receivables related to the
acquisition of Interbanca S.p.A. The ratio of nonearning receivables as a
percent of financing receivables increased from 0.9% at December 31, 2008, to
3.6% at December 31, 2009, primarily from the increase in nonearning receivables
related to the acquisition of Interbanca S.p.A. and an increase in nonearning
receivables in secured lending in the automotive industry. Excluding the effects
of the Interbanca S.p.A. acquisition, the ratio of allowance for losses as a
percent of financing receivables would have been 1.5%.
CLL – Asia. Nonearning
receivables of $0.6 billion represented 4.4% of total nonearning receivables at
December 31, 2009. The ratio of allowance for losses as a percent of nonearning
receivables declined from 53.3% at December 31, 2008, to 42.4% at December 31,
2009, primarily due to an increase in nonearning receivables in secured
exposures, which did not require significant specific reserves based upon the
strength of the underlying collateral values. The ratio of nonearning
receivables as a percent of financing receivables increased from 1.8% at
December 31, 2008, to 4.4% at December 31, 2009, primarily from an increase in
nonearning receivables at our corporate asset-based, distribution finance
and corporate air secured financing businesses in Japan, Australia, New Zealand
and India and a lower financing receivables balance.
Consumer − Non-U.S. residential
mortgages. Nonearning receivables of $4.6 billion represented 34.4% of
total nonearning receivables at December 31, 2009. The ratio of allowance for
losses as a percent of nonearning receivables increased from 11.5% at December
31, 2008, to 20.9% at December 31, 2009. In 2009, our nonearning receivables
increased primarily as a result of the continued decline in the U.K. housing
market, partially offset by increased foreclosures. Our non-U.S. mortgage
portfolio has a loan-to-value ratio of approximately 75% at origination and the
vast majority are first lien positions. Our U.K. and France portfolios, which
comprise a majority of our total mortgage portfolio, have reindexed
loan-to-value ratios of 82% and 68%, respectively. Less than 4% of these loans
are without mortgage insurance and have a reindexed loan-to-value ratio equal to
or greater than 100%. Loan-to-value information is updated on a quarterly basis
for a majority of our loans and considers economic factors such as the housing
price index. At December 31, 2009, we had in repossession stock approximately
1,200 houses in the U.K., which had a value of approximately $0.2
billion.
Consumer − Non-U.S. installment and revolving
credit. Nonearning receivables of $0.5 billion represented 3.4% of total
nonearning receivables at December 31, 2009. The ratio of allowance for losses
as a percent of nonearning receivables increased from 254.5% at December 31,
2008, to 261.5% at December 31, 2009, reflecting increases in allowance for loan
losses, partially offset by the effects of loan repayments and reduced
originations. Allowance for losses as a percent of financing receivables
increased from 4.3% at December 31, 2008, to 4.7% at December 31,
2009, as increases in allowance for loan losses were driven by the effects of
increased delinquencies in Europe and Australia, partially offset by the effects
of business dispositions.
Consumer − U.S. installment and revolving
credit. Nonearning receivables of $0.8 billion represented 6.4% of total
nonearning receivables at December 31, 2009. The ratio of allowance for losses
as a percent of nonearning receivables declined from 224.3% at December 31,
2008, to 201.9% at December 31, 2009, as a result of the effects of loan
repayments and better entry rates, partially offset by increases in the
allowance for loan losses due to the effects of the continued deterioration in
our U.S. portfolio in connection with rising unemployment.
Real Estate. Nonearning
receivables of $1.3 billion represented 9.5% of total nonearning receivables at
December 31, 2009. The $1.1 billion increase in nonearning receivables from
December 31, 2008, was driven primarily by increased delinquencies in the U.S.
apartment and office loan portfolios, which have been adversely affected by rent
and occupancy declines. The ratio of allowance for losses as a percent of total
financing receivables increased from 0.6% at December 31, 2008, to 3.3% at
December 31, 2009, driven primarily by continued economic deterioration in the
U.S. and the U.K. markets, which resulted in an increase in both specific and
general credit loss provisions. The ratio of allowance for losses as a percent
of nonearning receivables declined from 155.2% at December 31, 2008, to 119.3%
at December 31, 2009, reflecting a higher proportion of the allowance being
attributable to specific reserves and our estimate of underlying collateral
values. The allowance for losses on our real estate receivables may continue to
be adversely affected as the overall challenging economic environment continues
to pressure underlying property values. At December 31, 2009, real estate held
for investment included $0.8 billion representing 82 foreclosed commercial real
estate properties.
Delinquency
Rates
Delinquency
rates on managed equipment financing loans and leases and managed consumer
financing receivables follow.
|
Delinquency
rates at
|
|
|
December
31
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
Financing
|
|
2.81
|
%
|
|
2.17
|
%
|
|
1.21
|
%
|
|
Consumer
|
|
8.82
|
|
|
7.43
|
|
|
5.38
|
|
|
U.S.
|
|
7.66
|
|
|
7.14
|
|
|
5.52
|
|
|
Non-U.S.
|
|
9.34
|
|
|
7.57
|
|
|
5.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency
rates on equipment financing loans and leases increased from December 31, 2008
and 2007, to December 31, 2009, as a result of the continuing weakness in the
global economic and credit environment. In addition, delinquency rates on
equipment financing loans and leases increased nine basis points from December
31, 2008, to December 31, 2009, as a result of the inclusion of the CitiCapital
acquisition. The challenging credit environment 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, 2008 and
2007, to December 31, 2009, primarily because of rising unemployment, a
challenging economic environment and lower volume. In response, we continued to
tighten underwriting standards globally, increased focus on collection
effectiveness and will continue the process of regularly reviewing and adjusting
reserve levels. We expect the global environment, along with U.S. unemployment
levels, to further show signs of stabilization in 2010; however, a continued
challenging economic environment may continue to result in higher provisions for
loan losses and could adversely affect results of operations at Consumer. At
December 31, 2009, roughly 39% of our U.S. managed portfolio (excluding
delinquent or impaired), 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, 2009. See Note 4 to the consolidated
financial statements in Part II, Item 8. “Financial Statements and Supplementary
Data” of this Form 10-K Report.
Other receivables totaled
$21.1 billion at December 31, 2009, and $22.2 billion at December 31, 2008, and
consisted primarily of amounts due from GE (generally related to material
procurement programs of $2.5 billion and $3.0 billion at December 31, 2009 and
2008, respectively), 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 $56.7 billion at December 31, 2009, down $7.4 billion from 2008,
primarily reflecting the deconsolidation of PTL. Property, plant and equipment
consisted primarily of equipment provided to third parties on operating leases.
Details by category of investment are presented in Note 5 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
$6.4 billion and $13.2 billion during 2009 and 2008, respectively, primarily
reflecting acquisitions and additions of commercial aircraft at
GECAS.
Goodwill and other intangible
assets totaled $28.8 billion and $3.0 billion, respectively, at December
31, 2009. Goodwill increased $3.6 billion from 2008, primarily due to
acquisitions including BAC at Consumer and Interbanca S.p.A. at CLL, and the
effects of the weaker U.S. dollar, partially offset by the PTL deconsolidation.
Other intangible assets decreased $0.2 billion from 2008, primarily from
amortization expense. See Note 6 to the consolidated financial statements in
Part II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Other assets totaled $86.5
billion at December 31, 2009, an increase of $2.3 billion, reflecting a $5.8
billion equity method investment in PTL following our partial sale in the first
quarter of 2009, partially offset by decreases in the fair value of derivative
instruments, assets held for sale and cost method investments. We recognized
other-than-temporary impairments of cost and equity method investments of $0.6
billion and $0.4 billion in 2009 and 2008, respectively. See Note 7 to the
consolidated financial statements in Part II, Item8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Included
in other assets are Real Estate equity investments of $32.2 billion and $32.8
billion at December 31, 2009 and 2008, respectively. 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 value. Throughout the year, these markets
have been increasingly affected by rising unemployment, a slowdown in general
business activity and continued challenging conditions in the credit markets. We
expect these markets will continue to be affected while the economic environment
remains challenging.
We review
the estimated values of our commercial real estate investments semi-annually. As
of our most recent estimate performed in 2009, the carrying value of our Real
Estate investments exceeded their estimated value by about $7 billion. The
estimated value of the portfolio reflects the continued deteriorating real
estate values and market fundamentals, including reduced market occupancy rates
and market rents as well as the effects of limited real estate market liquidity.
Given the current and expected challenging market conditions, there continues to
be risk and uncertainty surrounding commercial real estate values and our
unrealized loss on real estate equity properties may continue to increase.
Declines in estimated value of real estate below carrying amount result in
impairment losses when the aggregate undiscounted cash flow estimates used in
the estimated value measurement are below the 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 2009, Real Estate
recognized pre-tax impairments of $0.8 billion in its real estate investments,
compared with $0.3 billion for the comparable period in 2008. Continued
deterioration in economic and market conditions may result in further
impairments being recognized.
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.
Our obligations include principal payments on outstanding borrowings, interest
on borrowings, purchase obligations for equipment and general obligations such
as collateral deposits held or collateral required to be posted to
counterparties, payroll and general expenses. We rely on cash generated through
our operating activities as well as unsecured and secured funding sources,
including commercial paper, term debt, bank borrowings, securitization and other
retail funding products.
Sources
for payment of our obligations are determined through our annual financial and
strategic planning processes. GECS 2010 funding plan anticipates repayment of
principal on outstanding short-term borrowings ($133.9 billion at December 31,
2009) through commercial paper issuances; cash on hand; long-term debt
issuances; collections of financing receivables exceeding originations; and
deposit funding and alternative sources of funding.
Interest
on borrowings is primarily funded through interest earned on existing financing
receivables. During 2009, GECS earned interest income on financing receivables
of $23.4 billion, which more than offset interest expense of $17.9 billion.
Purchase obligations and other general obligations are funded through collection
of principal on our existing portfolio of loans and leases, cash on hand and
operating cash flow.
GE, our
ultimate parent, GECS and GECC maintain a strong focus on their liquidity. Since
the fourth quarter of 2008, GE has taken a number of actions to strengthen and
maintain liquidity, including:
·
|
At
December 31, 2009, GE’s cash and equivalents were $72.3 billion and
committed credit lines were $51.7 billion, which in the aggregate were
more than twice GECS commercial paper borrowings balance. GECS intends to
maintain committed credit lines and cash in excess of GECS commercial
paper borrowings going forward.
|
·
|
In
2009, GE reduced its ENI (excluding the effects of currency exchange
rates) in the GE Capital Finance business by approximately $53 billion,
primarily through slowing
originations.
|
·
|
GECS
commercial paper borrowings were $47.3 billion at December 31, 2009,
compared with $71.8 billion at December 31,
2008.
|
·
|
We
have completed our long-term debt funding target of $38 billion for 2010,
and in 2010 have issued $5.1 billion (through February 15, 2010) towards
our long-term debt funding target for
2011.
|
·
|
During
2009, we issued an aggregate of $23.2 billion of long-term debt (including
$3.2 billion in the fourth quarter) that is not guaranteed under the
Federal Deposit Insurance Corporation’s (FDIC) Temporary Liquidity
Guarantee Program (TLGP).
|
·
|
GECS
is managing collections versus originations to help support liquidity
needs. In 2009, collections exceeded originations by approximately $44.0
billion.
|
·
|
As
of December 31, 2009, we had issued notes from our securitization
platforms in an aggregate amount of $14.0 billion; $4.3 billion of these
notes were eligible for investors to use as collateral under the Federal
Reserve Bank of New York’s Term Asset-Backed Securities Loan Facility
(TALF).
|
·
|
In
February 2009, GE announced the reduction of its quarterly stock dividend
by 68%, from $0.31 per share to $0.10 per share, effective with the
dividend approved by the Board in June 2009, which was paid in the third
quarter. This reduction had the effect of reducing cash outflows of GE by
approximately $4 billion in the second half of 2009 and will save
approximately $9 billion annually
thereafter.
|
·
|
In
September 2008, GECS reduced its dividend to GE and GE suspended its stock
repurchase program. Effective January 2009, GECS fully suspended its
dividend to GE.
|
·
|
In
October 2008, GE raised $15 billion in cash through common and preferred
stock offerings and contributed $15 billion to GECS, including $9.5
billion in the first quarter of 2009 (of which $8.8 billion was further
contributed to GE Capital through capital contribution and share
issuance), in order to improve tangible capital and reduce
leverage.
|
Cash
and Equivalents
GE had
cash and equivalents of $72.3 billion at December 31, 2009, which is available
to meet its needs. A substantial portion of this is freely available. About $8
billion is in regulated entities and is subject to regulatory restrictions.
About $9 billion is held outside the U.S. and is available to fund operations
and other growth of non-U.S. subsidiaries; it is also available to fund its
needs in the U.S. on a short-term basis (without being subject to U.S. tax). GE
anticipates that it will continue to generate cash from operating activities in
the future, which will be available to help meet GE’s liquidity needs. We also
generate substantial cash from the principal collections of loans and rentals
from leased assets.
We have
committed, unused credit lines totaling $51.7 billion that had been extended to
us by 59 financial institutions at December 31, 2009. These lines include $36.8
billion of revolving credit agreements under which we can borrow funds for
periods exceeding one year. Additionally, $14.4 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.
Funding
Plan
In 2009,
we issued $69.7 billion of long-term debt, including $46.5 billion issued under
the TLGP and $23.2 billion in non-guaranteed senior, unsecured debt with
maturities up to 30 years. Included in our 2009 issuances is $38 billion, that
represents the pre-funding of our 2010 long-term debt funding plan. In 2010, we
have issued $5.1 billion (through February 15, 2010) toward our 2011 long-term
funding plan.
Under the
TLGP, the FDIC guaranteed certain senior, unsecured debt issued on or before
October 31, 2009. Our TLGP-guaranteed debt matures in 2010 ($6 billion), 2011
($18 billion) and 2012 ($35 billion). We anticipate funding of these and our
other long-term debt maturities through a combination of new debt issuances,
collections excluding originations, alternative funding sources and use of
existing cash.
We
currently expect that the expiration of the TLGP will not have a significant
effect on our liquidity. If, however, significant disruption in the credit
markets were to return or if the challenging market conditions continue, our
ability to issue unsecured long-term debt may be affected. In the event we
cannot sufficiently access our normal sources of funding as a result of the
ongoing credit market turmoil, we have a number of alternative means to enhance
liquidity, including:
·
|
Controlling
new originations in GE Capital to reduce capital and funding
requirements
|
·
|
Using
part of our available cash balance
|
·
|
Pursuing
alternative funding sources, including bank deposits and asset-backed
fundings
|
·
|
Using
our bank credit lines which, with our cash, we intend to maintain in
excess of our outstanding commercial
paper
|
·
|
Obtaining
additional capital from GE, including from funds retained as a result of
the reduction in GE’s dividend announced in February 2009 or future
dividend reductions
|
We
believe that our existing funds, combined with our alternative means to enhance
liquidity, provide us with sufficient funds to meet our needs and financial
obligations.
We
maintain securitization capability in most of the asset classes we have
traditionally securitized. However, in 2008 and 2009 these capabilities have
been, and continue to be, more limited than in 2007. We have continued to
execute new securitizations throughout this period using bank administered
commercial paper conduits, and more recently have executed new securitizations
in both the public term markets and in the private markets. In 2009, we have
completed issuances from these platforms in an aggregate amount of $14.0
billion. $4.3 billion of these issuances were eligible for investors to use as
collateral under TALF. GECS total proceeds, including sales to revolving
facilities, from our securitizations were $18.7 billion and $71.4 billion during
the three months and year-ended December 31, 2009, respectively. GECS comparable
amounts for 2008 were $17.8 billion and $76.8 billion,
respectively.
We have
deposit-taking capability at 18 banks outside of the U.S. and two banks in the
U.S. – GE Money Bank, a Federal Savings Bank (FSB), and GE Capital Financial
Inc., an industrial bank (IB). The FSB and IB currently issue certificates of
deposit (CDs) distributed by brokers in maturity terms from three months to ten
years. Bank deposits, which are a large component of our alternative funding,
were $38.9 billion at December 31, 2009, including CDs of $17.7 billion. Total
alternative funding increased from $55 billion to $57 billion during 2009,
primarily resulting from an increase in bank deposits mainly from the
acquisitions of BAC and Interbanca S.p.A., partially offset by a planned
reduction in bank borrowings.
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 originating. We apply strict policies to
manage each of these risks, including prohibitions on 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, 2010, 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 2010. We
estimated, based on the year-end 2009 portfolio and holding all other
assumptions constant, that our 2010 net earnings would decline by $0.1
billion as a result of this parallel shift in the yield
curve.
|
·
|
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 2009 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 2010 earnings of such a shift in exchange
rates.
|
Debt
Instruments, Guarantees and Covenants
Credit
Ratings
The major
debt rating agencies routinely evaluate GE’s and 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. On
March 12, 2009, Standard & Poor’s (S&P) downgraded GE and GE Capital’s
long-term rating by one notch from “AAA” to “AA+” and, at the same time, revised
the outlook from negative to stable. Under S&P’s definitions, an obligation
rated “AAA” has the highest rating assigned by S&P. The obligor's capacity
to meet its financial commitment on the obligation is extremely strong. An
obligation rated “AA” differs from an obligation rated “AAA” only to a small
degree in that the obligor's capacity to meet its financial commitment on the
obligation is very strong. An S&P rating outlook assesses the potential
direction of a long-term credit rating over the intermediate term. In
determining a rating outlook, consideration is given to any changes in the
economic and/or fundamental business conditions. Stable means that a rating is
not likely to change in the next six months to two years.
On March
23, 2009, Moody’s Investors Service (Moody’s) downgraded GE and GE Capital’s
long-term rating by two notches from “Aaa” to “Aa2” with a stable outlook and
removed GE and GE Capital from review for possible downgrade. Under Moody’s
definitions, obligations rated “Aaa” are judged to be of the highest quality,
with minimal credit risk. Obligations rated “Aa” are judged to be of high
quality and are subject to very low credit risk.
In 2009,
the short-term ratings of “A-1+/P-1” were affirmed by both rating agencies at
the same time with respect to GE, GE Capital Services and GE Capital. These
short-term ratings are in the highest rating categories available from S&P
and Moody’s. Under the S&P definitions, a short-term obligation rated “A-1+”
indicates that the obligor’s capacity to meet its financial commitment is
extremely strong. Under the Moody’s definitions, an issuer that is rated “P-1”
has a superior ability to repay short-term debt obligations.
We do not
believe that the downgrades by S&P and Moody’s have had a material impact on
our cost of funding or liquidity as the downgrades had been widely anticipated
in the market and were already reflected in the spreads on our
debt.
GECS and
GE Capital 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.
|
Principal
debt conditions are described
below.
The
following conditions relate to GECC:
·
|
Swap,
forward and option contracts are executed under standard master agreements
that typically contain mutual downgrade provisions that provide the
ability of the counterparty to require termination if the long-term credit
rating of the applicable entity were to fall below A-/A3. In certain of
these master agreements, the counterparty also has the ability to require
termination if the short-term rating of the applicable entity were to fall
below A-1/P-1. The net derivative liability after consideration of netting
arrangements and collateral posted by us under these master agreements was
estimated to be $1.0 billion at December 31, 2009. See Note 15 to the
consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K
Report.
|
·
|
If
GE Capital’s ratio of earnings to fixed charges were to deteriorate to
below 1.10:1, GE has committed to make payments to GE Capital. See Income
Maintenance Agreement section of this Item for further discussion. GE also
guaranteed certain issuances of GECS subordinated debt having a face
amount of $0.4 billion at December 31, 2009 and
2008.
|
·
|
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 $7.6 billion of such debentures outstanding at
December 31, 2009. See Note 8 to the consolidated financial statements in
Part II, Item 8. “Financial Statements and Supplementary Data” of this
Form 10-K Report.
|
The
following conditions relate to consolidated entities:
·
|
If
our short-term credit rating of certain consolidated entities 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 $2.5 billion at December 31, 2009. See Note 16 to the
consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K
Report.
|
·
|
One
group of consolidated entities holds investment securities funded by the
issuance of GICs. If our long-term credit rating were to fall below
AA-/Aa3 or our short-term credit rating were to fall below A-1+/P-1, we
would be required to provide approximately $2.4 billion to such entities
as of December 31, 2009, pursuant to letters of credit issued by GE
Capital. 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, 2009, the value of these entities’
liabilities was $8.5 billion and the fair value of their assets was $7.3
billion (which included unrealized losses on investment securities of $1.4
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 $3.0 billion as
of December 31, 2009, to repay holders of GICs. These obligations are
included in Long-term borrowings in our Statement of Financial
Position.
|
·
|
If
the short-term credit rating of GE Capital were reduced below A-1/P-1, GE
Capital would be required to partially cash collateralize certain covered
bonds. The maximum amount that would be required to be provided in the
event of such a downgrade is determined by contract and amounted to $0.8
billion at December 31, 2009. These obligations are included in long-term
borrowings in our Statement of Financial
Position.
|
Ratio
of Earnings to Fixed Charges
As set
forth in Exhibit 12(a) hereto, GE Capital’s ratio of earnings to fixed charges
declined to 0.85:1 during 2009 due to lower pre-tax earnings at GE Capital,
which were primarily driven by higher provisions for losses on financing
receivables in connection with the challenging economic
environment.
Income
Maintenance Agreement
On March
28, 1991, GE entered into an agreement with GE Capital to make payments to GE
Capital, constituting additions to pre-tax income under the agreement, to the
extent necessary to cause the ratio of earnings to fixed charges of GE Capital
and consolidated affiliates (determined on a consolidated basis) to be not less
than 1.10:1 for the period, as a single aggregation, of each GE Capital fiscal
year commencing with fiscal year 1991. On October 29, 2009, GE and GE Capital
amended this agreement (which is filed as Exhibit 10(b) hereto) to
extend the notice period for termination from three years to five years. It was
further amended to provide that any future amendments to the agreement that
could adversely affect GE Capital require the consent of the majority of the
holders of the aggregate outstanding principal amount of senior unsecured debt
securities issued or guaranteed by GE Capital (with an original stated maturity
in excess of 270 days), unless the amendment does not trigger a downgrade of GE
Capital’s long-term ratings.
GE made a
$9.5 billion payment to GECS in the first quarter of 2009 (of which $8.8 billion
was further contributed to GE Capital through capital contribution and share
issuance) to improve tangible capital and reduce leverage. This payment
constitutes an addition to pre-tax income under the agreement and therefore
increased the ratio of earnings to fixed charges of GE Capital for the fiscal
year 2009 for purposes of the agreement to 1.33:1. As a result, no further
payments under the agreement in 2010 are required related to 2009. Should this
ratio fall below 1.10:1 for the fiscal year 2010, further payments would be
required by GE to GE Capital. GE currently expects to make a payment from GE to
GE Capital in 2011 of about $2 billion pursuant to this agreement.
Any
payment made under the Income Maintenance Agreement will not affect the ratio of
earnings to fixed charges as determined in accordance with current SEC rules
because it does not constitute an addition to pre-tax income under current U.S.
GAAP.
TLGP
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
on or before October 31, 2009, is guaranteed under the Debt Guarantee Program of
the 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 December 31, 2012. At December 31, 2009, GE Capital had issued
and outstanding, $59.3 billion of senior, unsecured debt that was guaranteed by
the FDIC under the TLGP. We have incurred $2.3 billion of fees for our
participation in the TLGP through December 31, 2009. These fees are amortized
into interest expense over the terms of the related borrowings. GE Capital and
GE are parties to 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
GE Capital debt that is guaranteed by the FDIC.
Statement
of Changes in Shareowner’s Equity
Shareowner’s
equity increased by $15.5 billion in 2009, compared with a decrease of $3.0
billion in 2008 and an increase of $4.6 billion in 2007.
Net
earnings increased GECC shareowner’s equity by $1.5 billion, $7.3 billion and
$9.8 billion, partially offset by dividends declared of $2.4 billion and $6.9
billion in 2008 and 2007, respectively. There were no dividends declared in
2009.
Elements
of Other Comprehensive Income increased shareowner’s equity by $5.3 billion in
2009, compared with a decrease of $13.5 billion in 2008 and an increase of $1.6
billion in 2007, inclusive of changes in accounting principles. The components
of these changes are as follows:
·
|
Changes
in benefit plans reduced shareowner’s equity by an insignificant amount in
2009, primarily reflecting a decrease in the discount rate used to value
pension and postretirement benefit obligations. This compared with a
decrease of $0.3 billion and an increase of $0.2 billion in 2008 and 2007,
respectively. The decrease in 2008 primarily related to declines in the
fair value of plan assets as a result of market conditions and adverse
changes in the economic
environment.
|
·
|
Currency
translation adjustments increased shareowner’s equity by $2.6 billion in
2009, decreased equity by $8.7 billion in 2008 and increased equity by
$2.6 billion in 2007. 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 2009, the U.S. dollar was weaker against most major
currencies, including the pound sterling, the Australian dollar and the
euro, compared with a stronger dollar against those currencies at the end
of 2008 and a weaker dollar against those currencies at the end of 2007.
The dollar was weaker against the Japanese yen in 2008 and
2007.
|
·
|
The
change in fair value of investment securities increased shareowner’s
equity by $1.3 billion in 2009, reflecting improved market conditions
related to 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 $2.0 billion and
$0.5 billion in 2008 and 2007, respectively. Further information about
investment securities is provided in Note 3 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 increased
shareowner’s equity by $1.4 billion in 2009, primarily related to the
effect of higher U.S. interest rates on interest rate swaps and lower
foreign rates on cross-currency swaps. The change in the fair value of
derivatives designated as cash flow hedges decreased equity by $2.5
billion and $0.6 billion in 2008 and 2007, respectively. Further
information about the fair value of derivatives is provided in Note 15 to
the consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K
Report.
|
As
discussed previously in the Liquidity and Borrowings section of this Item, in
the fourth quarter of 2008, GE raised $15 billion to GECS in cash through common
and preferred stock offerings and contributed $15.0 billion to GECS, including
$9.5 billion in the first quarter of 2009 (of which $8.8 billion was further
contributed to us through capital contribution and share issuance). As a result
of this action, additional paid-in capital increased by $8.8 billion and $5.5
billion in 2009 and 2008, respectively, compared with $0.1 billion in
2007.
Overview
of Our Cash Flow from 2007 through 2009
GECC cash
and equivalents were $63.7 billion at December 31, 2009, compared with $36.4
billion at December 31, 2008. GECC cash from operating activities totaled $5.1
billion in 2009, compared with cash from operating activities of $30.5 billion
in 2008. This decrease was primarily due to an overall decline in net earnings,
a current-year reduction in cash collateral held from counterparties on
derivative contracts of $6.9 billion and declines in taxes payable ($2.7
billion). In addition, 2008 GECC cash from operating activities benefited from
an increase in cash collateral posted by counterparties.
Consistent
with our plan to reduce GECC asset levels, cash from investing activities was
$48.3 billion in 2009; $43.5 billion resulted from a reduction in financing
receivables, primarily from collections exceeding originations and $9.1 billion
resulted from proceeds from business dispositions, including the consumer
businesses in Austria and Finland, the credit card and auto businesses in the
U.K., the credit card business in Ireland, a portion of our Australian
residential mortgage business and the Thailand business. These sources were
partially offset by cash used for acquisitions of $5.7 billion, primarily for
the acquisition of Interbanca S.p.A.
GECC cash
used for financing activities in 2009 reflected our continued reduction in
ending net investment. Cash used for financing activities of $26.2 billion
related primarily to a $26.7 billion reduction in borrowings (maturities 90 days
or less), primarily commercial paper, reductions in long-term borrowings
partially offset by the pre-funding of our 2010 long-term debt maturities and a
$4.0 billion decrease in bank deposits, partially offset by a capital
contribution and share issuance totaling $8.8 billion.
We pay
dividends to GECS, our parent, through a distribution of our retained earnings,
including special dividends from proceeds of certain business sales. There were
no dividends paid to GECS in 2009 compared with $2.4 billion and $6.7 billion in
2008 and 2007, respectively. There were no special dividends paid to GECS in
2009 and 2008, compared with $1.8 billion in 2007.
Contractual
Obligations
As
defined by reporting regulations, our contractual obligations for future
payments as of December 31, 2009, follow.
|
Payments
due by period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
and
|
(In
billions)
|
Total
|
|
2010
|
|
2011-2012
|
|
2013-2014
|
|
thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
and bank deposits (Note 8)
|
$
|
496.6
|
|
$
|
156.9
|
|
$
|
156.1
|
|
$
|
60.6
|
|
$
|
123.0
|
Interest
on borrowings and bank deposits
|
|
127.0
|
|
|
15.0
|
|
|
26.0
|
|
|
17.0
|
|
|
69.0
|
Operating
lease obligations (Note 13)
|
|
2.9
|
|
|
0.6
|
|
|
0.9
|
|
|
0.5
|
|
|
0.9
|
Purchase
obligations(a)(b)
|
|
25.0
|
|
|
16.0
|
|
|
8.0
|
|
|
1.0
|
|
|
–
|
Insurance
liabilities (Note 9)(c)
|
|
8.0
|
|
|
1.0
|
|
|
2.0
|
|
|
1.0
|
|
|
4.0
|
Other
liabilities(d)
|
|
24.0
|
|
|
19.0
|
|
|
3.0
|
|
|
1.0
|
|
|
1.0
|
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,
contractual commitments related to factoring agreements, 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 17 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 and included liabilities for unrecognized tax benefits.
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 10 and 15
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. 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 for which we are not the
primary beneficiary and QSPEs are accounted for as investment securities,
financing receivables or equity method investments depending on the nature of
our involvement. At December 31, 2009, consolidated variable interest entity
assets and liabilities were $15.1 billion and $13.9 billion, respectively, a
decrease of $10.1 billion and $6.3 billion from 2008, respectively. In the first
quarter of 2009, we deconsolidated PTL and removed $7.0 billion of assets and
$0.8 billion of liabilities from our balance sheet. The deconsolidation was a
result of our reducing our investment in PTL by selling a 1% limited partnership
interest to Penske Truck Leasing Corporation, the general partner of PTL, whose
majority shareowner is a member of GE’s Board of Directors, coupled with our
resulting minority position on the PTL advisory committee and related changes in
our contractual rights. We recognized a pre-tax gain on the sale of $0.3
billion, including a gain on the remeasurement of our retained investment of
$0.2 billion.
At
December 31, 2009, variable interests in unconsolidated VIEs other than QSPEs
were $9.7 billion, an increase of $5.7 billion from 2008, primarily related to
the deconsolidation of PTL. In addition to our existing investments, we have
contractual obligations to fund additional investments in the unconsolidated
VIEs of $1.4 billion, an increase of $0.2 billion from 2008. Together, these
represent our maximum exposure to loss if the assets of the unconsolidated VIEs
were to have no value.
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, 2009, securitization
entities held $44.5 billion in transferred financial assets, a decrease of $5.6
billion from year-end 2008. 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, 2009, our Statement of Financial Position included $10.0 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 $2.5 billion at December 31, 2009, a decrease of
$1.3 billion from 2008. The carrying value of our retained interests classified
as investment securities was $7.6 billion at December 31, 2009, an increase of
$2.5 billion from 2008. Certain of these retained interests are accounted for
with changes in fair value recorded in earnings. During 2009, we recognized
increases in fair value on these retained interests of $0.3 billion compared
with declines in fair value on these retained interests of $0.1 billion in 2008.
For those retained interests classified as investment securities, we recognized
an insignificant amount of other-than-temporary impairments in both 2009 and
2008. Our recourse liability in these arrangements was an inconsequential amount
in both 2009 and 2008.
We do not
have implicit support arrangements with any VIE or QSPE. We did not provide
non-contractual support for previously transferred financing receivables to any
VIE or QSPE in 2009 or 2008.
In 2009,
the FASB issued ASU 2009-16 and ASU 2009-17 amendments to ASC 860, Transfers and Servicing, and
ASC 810, Consolidation,
respectively, which are effective for us on January 1, 2010. ASU 2009-16 will
eliminate the QSPE concept, and ASU 2009-17 will require that all such entities
be evaluated for consolidation as VIEs, which will result in our consolidating
substantially all of our former QSPEs. Upon adoption we will record
assets and liabilities of these entities at carrying amounts consistent as if
they had always been consolidated, which will require the reversal of a portion
of previously recognized securitization gains as a cumulative effect adjustment
to retained earnings. See the New Accounting Standards section of this Item for
further discussion.
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 involve significant judgments and uncertainties. Many of these estimates
include determining fair value. 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 these conditions change from those 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. This 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 we evaluate 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 and 4 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, 3 and 7 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 quoted market prices when available, our
internal cash flow estimates discounted at an appropriate interest rate and
independent appraisals, as appropriate.
Our
operating lease portfolio of commercial aircraft is a significant concentration
of assets in GECAS, and is 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 management’s best estimate. In determining its
best estimate, management evaluates average current market values (obtained from
third parties) of similar type and age aircraft, which are adjusted for the
attributes of the specific aircraft under lease.
We
recognized impairment losses on our operating lease portfolio of commercial
aircraft of $0.1 billion in both 2009 and 2008. Provision for losses on
financing receivables related to commercial aircraft were $0.1 billion in 2009
and insignificant in 2008.
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 5 and 17 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 the
estimated value of our commercial real estate investments semi-annually. 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. As of our most recent estimate performed in 2009, the carrying value of
our Real Estate investments exceeded their estimated value by about $7 billion.
The estimated value of the portfolio reflects the continued deteriorating real
estate values and market fundamentals, including reduced market occupancy rates
and market rents as well as the effects of limited real estate market liquidity.
Given the current and expected challenging market conditions, there continues to
be risk and uncertainty surrounding commercial real estate values and our
unrealized loss on real estate equity properties may continue to increase.
Declines in the estimated value of real estate below carrying amount result in
impairment losses when the aggregate undiscounted cash flow estimates used in
the estimated value measurement are below the 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 2009, our Real
Estate business recognized pre-tax impairments of $0.8 billion in its real
estate held for investment, as compared to $0.3 billion in 2008. 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 7 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 more
frequently if circumstances warrant. We determine fair values for each of the
reporting units using an income approach. When available and as appropriate, we
use comparative market multiples to corroborate discounted cash flow results.
For purposes of the income approach, fair value is determined based on the
present value of estimated future cash flows, discounted at an appropriate
risk-adjusted rate. We use our internal forecasts to estimate future cash flows
and include an estimate of long-term future growth rates based on our most
recent views of the long-term outlook for each business. Actual results may
differ from those assumed in our forecasts. We derive our discount rates by
applying the capital asset pricing model (i.e., to estimate the cost of equity
financing) and analyzing published rates for industries relevant to our
reporting units. We use discount rates that are commensurate with the risks and
uncertainty inherent in the respective businesses and in our internally
developed forecasts. Valuations using the market approach reflect prices and
other relevant observable information generated by market transactions involving
comparable businesses.
Compared
to the market approach, the income approach more closely aligns the reporting
unit valuation to a company’s or business’ specific business model, geographic
markets and product offerings, as it is based on specific projections of the
business. Required rates of return, along with uncertainty inherent in the
forecasts of future cash flows, are reflected in the selection of the discount
rate. Equally important, under this approach, reasonably likely scenarios and
associated sensitivities can be developed for alternative future circumstances
that may not be reflected in an observable market price. A market approach
allows for comparison to actual market transactions and multiples. It can be
somewhat more limited in its application because the population of potential
comparables (or pure plays) is often limited to publicly-traded companies where
the characteristics of the comparative business and ours can be significantly
different, market data is usually not available for divisions within larger
conglomerates or non-public subsidiaries that could otherwise qualify as
comparable, and the specific circumstances surrounding a market transaction
(e.g., synergies between the parties, terms and conditions of the transaction,
etc.) may be different or irrelevant with respect to our business. It can also
be difficult under the current market conditions to identify orderly
transactions between market participants in similar financial services
businesses. We assess the valuation methodology based upon the relevance and
availability of data at the time of performing the valuation and weight the
methodologies appropriately.
Given the
significant decline in GE’s stock price in the first quarter of 2009 and market
conditions in the financial services industry at that time, we conducted an
additional impairment analysis of the reporting units during the first quarter
of 2009 using data as of January 1, 2009. As a result of these tests, no
goodwill impairment was recognized.
We
performed our annual impairment test for goodwill at all of our reporting units
in the third quarter using data as of July 1, 2009. In performing the
valuations, we used cash flows, which reflected management’s forecasts and
discount rates which reflect the risks associated with the current market. Based
on the results of our testing, the fair values of the CLL, Consumer, Energy
Financial Services and GECAS reporting units exceeded their book values;
therefore, the second step of the impairment test (in which fair value of each
of the reporting unit’s assets and liabilities is measured) was not required to
be performed and no goodwill impairment was recognized. Due to the volatility
and uncertainties in the current commercial real estate environment, we used a
range of valuations to determine the fair value for our Real Estate reporting
unit. While the Real Estate reporting unit’s book value was within the range of
its fair value, we further substantiated our Real Estate goodwill balance by
performing the second step analysis described above. As a result of our tests
for Real Estate, no goodwill impairment was recognized. Our Real Estate
reporting unit had a goodwill balance of $1.2 billion at December 31,
2009.
Estimating
the fair value of reporting units involves the use of estimates and significant
judgments that are based on a number of factors including actual operating
results. If current conditions change from those expected, it is reasonably
possible that the judgments and estimates described above could change in future
periods.
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. For our insurance
activities remaining in continuing operations, we periodically test for
impairment our deferred acquisition costs and present value of future
profits.
Further
information is provided in the Financial Resources and Liquidity – Goodwill and
Other Intangible Assets section of this Item and in Notes 1 and 6 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. 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 judgment about and intentions concerning the future operations of
the company. At December 31, 2009, $56 billion of earnings have been
indefinitely reinvested outside the United States. Most of these earnings have
been reinvested in active non-U.S. business operations and we do not intend to
repatriate these earnings to fund U.S. operations. 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 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 $2.5 billion and $2.3 billion at December 31, 2009 and 2008,
respectively, including $1.2 billion and $1.3 billion at December 31, 2009 and
2008, respectively, reported in assets of discontinued operations, primarily
related to our loss on the sale of GE Money Japan. Such year-end 2009 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 10 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, 2009, derivative assets and liabilities were $7.3 billion and $3.4
billion, respectively. Further information about our use of derivatives is
provided in Notes 1, 7, 14 and 15 to the consolidated financial statements in
Part II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Fair Value
Measurements. Assets and liabilities measured at fair value
every reporting period include investments in debt and equity securities and
derivatives. Assets that are not measured at fair value every
reporting period but that are subject to fair value measurements in certain
circumstances include loans and long-lived assets that have been reduced to fair
value when they are held for sale, impaired loans that have been reduced based
on the fair value of the underlying collateral, cost and equity method
investments and long-lived assets that are written down to fair value when they
are impaired and the remeasurement of retained investments in formerly
consolidated subsidiaries upon a change in control that results in
deconsolidation of a subsidiary, if we sell a controlling interest and retain a
noncontrolling stake in the entity. Assets that are written down to fair value
when impaired and retained investments are not subsequently adjusted to fair
value unless further impairment occurs.
A fair
value measurement is determined as the price we would receive to sell an asset
or pay to transfer a liability in an orderly transaction between market
participants 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. The
determination of fair value often involves significant judgments about
assumptions such as determining an appropriate discount rate that factors in
both risk and liquidity premiums, identifying the similarities and differences
in market transactions, weighting those differences accordingly and then
making the appropriate adjustments to those market transactions to reflect the
risks specific to our asset being valued. Further information on fair value
measurements is provided in Notes 1, 14 and 15 to the consolidated financial
statements in Part II, Item 8. “Financial Statements and Supplementary Data” of
this Form 10-K Report.
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 17 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
In 2009,
the FASB issued ASU 2009-16 and ASU 2009-17, which amended ASC 860, Transfers and Servicing, and
ASC 810, Consolidation,
respectively, and are effective for us on January 1, 2010. ASU 2009-16 will
eliminate the QSPE concept, and ASU 2009-17 will require that all such entities
be evaluated for consolidation as VIEs, which will result in our consolidating
substantially all of our former QSPEs.
Among
other changes, the amendments to ASC 810 replace the existing quantitative
approach for identifying the party that should consolidate a VIE, which was
based on exposure to a majority of the risks and rewards, with a qualitative
approach, based on determination of which party has the power to direct the most
economically significant activities of the entity. The revised guidance will
sometimes change the composition of entities that meet the definition of a VIE
and the determination about which party should consolidate a VIE, as well as
requiring the latter to be evaluated continuously.
We have
evaluated all entities that fall within the scope of the amended ASC 810 to
determine whether we will be required to consolidate or deconsolidate these
entities on January 1, 2010. In addition to the former QSPEs described above, we
will consolidate assets of VIEs related to direct investments in entities that
hold loans and fixed income securities, and a small number of companies to which
we have extended loans in the ordinary course of business and have subsequently
been subject to a troubled debt restructuring.
Upon
adoption of the amendments on January 1, 2010, we will consolidate the assets
and liabilities of these entities at the amount they would have been reported in
our financial statements had we always consolidated them. We will also
deconsolidate certain entities where we do not meet the definition of primary
beneficiary under the revised guidance, the effect of which will be
insignificant. The incremental effect of consolidation on total assets and
liabilities, net of our investment in these entities, will be an increase of
approximately $27 billion and $29 billion, respectively. There also will be a
net reduction of equity of approximately $2 billion, principally related to the
reversal of previously recognized securitization gains as a cumulative effect
adjustment to retained earnings, which will be earned back over the life of the
assets.
The
assets of QSPEs that we will be required to consolidate will be approximately
$26 billion, net of our existing retained interests of approximately $8 billion,
and liabilities will be $27 billion at January 1, 2010. Significant
assets of the QSPEs will include net financing receivables of approximately $34
billion and investment securities of approximately $1 billion. Significant
liabilities will include short-term and long-term borrowings of $17 billion and
$13 billion, respectively. The assets and liabilities of other VIEs we will
consolidate will be approximately $1 billion each.
The
amended guidance on ASC 860 also modifies existing derecognition criteria in a
manner that will significantly narrow the types of transactions that will
qualify as sales. The revised criteria will apply prospectively to transfers of
financial assets occurring after December 31, 2009.
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, in
various sections of this Form 10-K Report, to:
·
|
Average
total GECC shareowner’s equity, excluding effects of discontinued
operations
|
·
|
Ratio
of debt to equity, net of cash and equivalents and with classification of
hybrid debt as equity
|
·
|
GE
Capital Finance ending net investment (ENI), excluding the effects of
currency exchange rates, at December 31, 2009 and
2008
|
·
|
Delinquency
rates on managed equipment financing loans and leases and managed consumer
financing receivables for 2009, 2008 and
2007
|
The
reasons we use these non-GAAP financial measures and the reconciliations to
their most directly comparable GAAP financial measures follow.
Average
Total GECC Shareowner’s Equity, Excluding Effects of Discontinued
Operations(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
total GECC shareowner's equity(b)
|
$
|
68,494
|
|
$
|
61,159
|
|
$
|
58,560
|
|
$
|
53,769
|
|
$
|
53,460
|
Less
the effects of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
earnings from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,725
|
Average
net investment in discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
(136)
|
|
|
(115)
|
|
|
(158)
|
|
|
1,243
|
|
|
1,780
|
Average
total GECC shareowner's equity,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excluding
effects of discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations(a)
|
$
|
68,630
|
|
$
|
61,274
|
|
$
|
58,718
|
|
$
|
52,526
|
|
$
|
48,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 GECC shareowner’s
equity. Our calculation of average total GECC 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, Net of Cash and Equivalents and with
Classification
of Hybrid Debt as Equity
December
31 (Dollars in millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
GE
Capital debt
|
$
|
496,558
|
|
$
|
510,356
|
Less
cash and equivalents
|
|
63,693
|
|
|
36,430
|
Less
hybrid debt
|
|
7,725
|
|
|
7,725
|
|
$
|
425,140
|
|
$
|
466,201
|
|
|
|
|
|
|
GE
Capital equity
|
$
|
73,718
|
|
$
|
58,229
|
Plus
hybrid debt
|
|
7,725
|
|
|
7,725
|
|
$
|
81,443
|
|
$
|
65,954
|
Ratio
|
|
|
|
|
|
|
|
5.22:1
|
|
|
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 that 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 certain
long-term debt with equity. In the first quarter of 2009, GE made a $9.5 billion
payment to GECS (of which $8.8 billion was further contributed to GE Capital
through capital contribution and share issuance). 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.
GE
Capital Finance Ending Net Investment (ENI), Excluding the Effect of Currency
Exchange Rates
December
31 (In billions)
|
2009
|
|
2008
|
|
|
|
|
|
|
GECS
total assets
|
$
|
650.2
|
|
$
|
660.9
|
Less
assets of discontinued operations
|
|
1.5
|
|
|
1.7
|
Less
non-interest bearing liabilities
|
|
75.7
|
|
|
85.5
|
Less
GECS headquarter ENI
|
|
79.4
|
|
|
48.5
|
GE
Capital Finance ENI
|
|
493.6
|
|
|
525.2
|
Less
effects of currency exchange rates
|
|
21.4
|
|
|
–
|
GE
Capital Finance ENI, excluding the effects of currency exchange
rates
|
$
|
472.2
|
|
$
|
525.2
|
|
|
|
|
|
|
GE uses
ENI to measure the size of its financial services business. GE believes that
this measure is a better indicator of the capital (debt or equity) required to
fund a business as it adjusts for non-interest bearing current liabilities
generated in the normal course of business that do not require a capital outlay.
GE also believes that by excluding the impact of GECS discontinued operations,
GECS headquarters items and the effects of currency exchange movements during
the year, it provides a more meaningful measure for the GE Capital Finance
segment.
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
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
2.81
|
%
|
|
2.17
|
%
|
|
1.21
|
%
|
Off-book
|
|
2.29
|
|
|
1.20
|
|
|
0.71
|
|
On-book
|
|
2.91
|
|
|
2.34
|
|
|
1.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
8.82
|
%
|
|
7.43
|
%
|
|
5.38
|
%
|
U.S.
|
|
7.66
|
|
|
7.14
|
|
|
5.52
|
|
Non-U.S.
|
|
9.34
|
|
|
7.57
|
|
|
5.32
|
|
Off-book
|
|
7.20
|
|
|
8.24
|
|
|
6.64
|
|
U.S.
|
|
7.20
|
|
|
8.24
|
|
|
6.64
|
|
Non-U.S.
|
|
(a)
|
|
|
(a)
|
|
|
(a)
|
|
On-book
|
|
9.10
|
|
|
7.31
|
|
|
5.22
|
|
U.S.
|
|
8.08
|
|
|
6.39
|
|
|
4.78
|
|
Non-U.S.
|
|
9.34
|
|
|
7.57
|
|
|
5.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency
rates on on-book and off-book equipment financing loans and leases increased
from December 31, 2008 and December 31, 2007, to December 31, 2009, as a result
of continuing weakness in the global economic and credit environment. In
addition, delinquency rates on on-book equipment financing loans and leases
increased nine basis points from December 31, 2008 to December 31, 2009, as a
result of the inclusion of the CitiCapital acquisition.
The
increase in on-book delinquencies for consumer financing receivables in the U.S.
from December 31, 2008 and December 31, 2007, to December 31, 2009, primarily
reflects 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. from December 31, 2008 and December
31, 2007, to December 31, 2009, 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, 2007 to December 31, 2008, primarily
reflects the rise in delinquencies across the U.S. credit card receivables
platform. The decrease in off-book delinquencies for consumer financing
receivables in the U.S. from December 31, 2008 to December 31, 2009, reflected
the replacement of certain lower-credit quality receivables from a
securitization trust in 2009.
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.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
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 in 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, 2009, 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, 2009.
Our
independent registered public accounting firm has issued an audit report on our
internal control over financial reporting. Their report follows.
/s/
Michael A. Neal
|
|
/s/
Jeffrey S. Bornstein
|
Michael
A. Neal
|
|
Jeffrey
S. Bornstein
|
Chief
Executive Officer
|
|
Chief
Financial Officer
|
February
19, 2010
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,
2009 and 2008, 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, 2009. 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, 2009, 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, 2009 and 2008, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2009, 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, 2009, 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 2009,
changed its method of accounting for impairment of debt securities, business
combinations and noncontrolling interests; 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.
/s/ KPMG
LLP
KPMG
LLP
Stamford,
Connecticut
February
19, 2010
General
Electric Capital Corporation and consolidated affiliates
Statement
of Earnings
|
|
For
the years ended December 31 (In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Revenues
from services (Note 12)
|
$
|
49,704
|
|
$
|
66,221
|
|
$
|
66,281
|
Sales
of goods
|
|
969
|
|
|
1,773
|
|
|
718
|
Total
revenues
|
|
50,673
|
|
|
67,994
|
|
|
66,999
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
Interest
|
|
17,862
|
|
|
24,859
|
|
|
22,280
|
Operating
and administrative (Note 13)
|
|
14,850
|
|
|
18,335
|
|
|
17,914
|
Cost
of goods sold
|
|
808
|
|
|
1,517
|
|
|
628
|
Investment
contracts, insurance losses and insurance annuity benefits
|
|
210
|
|
|
491
|
|
|
682
|
Provision
for losses on financing receivables (Note 4)
|
|
10,887
|
|
|
7,498
|
|
|
4,488
|
Depreciation
and amortization (Note 5)
|
|
8,300
|
|
|
9,303
|
|
|
8,093
|
Total
costs and expenses
|
|
52,917
|
|
|
62,003
|
|
|
54,085
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from continuing operations before income taxes
|
|
(2,244)
|
|
|
5,991
|
|
|
12,914
|
Benefit
(provision) for income taxes (Note 10)
|
|
3,881
|
|
|
2,265
|
|
|
(739)
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
1,637
|
|
|
8,256
|
|
|
12,175
|
Loss
from discontinued operations, net of taxes (Note 2)
|
|
(124)
|
|
|
(704)
|
|
|
(2,131)
|
Net
earnings
|
|
1,513
|
|
|
7,552
|
|
|
10,044
|
Less
net earnings attributable to noncontrolling interests
|
|
58
|
|
|
242
|
|
|
229
|
Net
earnings attributable to GECC
|
$
|
1,455
|
|
$
|
7,310
|
|
$
|
9,815
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to GECC
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
$
|
1,579
|
|
$
|
8,014
|
|
$
|
11,946
|
Loss
from discontinued operations, net of taxes
|
|
(124)
|
|
|
(704)
|
|
|
(2,131)
|
Net
earnings attributable to GECC
|
$
|
1,455
|
|
$
|
7,310
|
|
$
|
9,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the period April 1, 2009 through December 31, 2009, we recorded pre-tax,
other-than-temporary impairments of $489 million, of which $185 million was
recorded through earnings ($28 million relates to equity securities), and $304
million was recorded in Accumulated Other Comprehensive Income.
See
accompanying notes.
Statement
of Changes in Shareowner’s Equity
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Changes
in shareowner's equity (Note 11)
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
58,229
|
|
$
|
61,230
|
|
$
|
56,585
|
Dividends
and other transactions with shareowner
|
|
8,737
|
|
|
3,148
|
|
|
(6,769)
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Investment
securities - net
|
|
1,337
|
|
|
(1,988)
|
|
|
(506)
|
Currency
translation adjustments - net
|
|
2,565
|
|
|
(8,705)
|
|
|
2,559
|
Cash
flow hedges - net
|
|
1,437
|
|
|
(2,504)
|
|
|
(550)
|
Benefit
plans - net
|
|
(67)
|
|
|
(262)
|
|
|
173
|
Total
other comprehensive income (loss)
|
|
5,272
|
|
|
(13,459)
|
|
|
1,676
|
Increases
from net earnings attributable to GECC
|
|
1,455
|
|
|
7,310
|
|
|
9,815
|
Comprehensive
income (loss)
|
|
6,727
|
|
|
(6,149)
|
|
|
11,491
|
Cumulative
effect of changes in accounting principles(a)
|
|
25
|
|
|
–
|
|
|
(77)
|
Balance
at December 31
|
|
73,718
|
|
|
58,229
|
|
|
61,230
|
Noncontrolling
interests(b)
|
|
2,204
|
|
|
2,383
|
|
|
1,607
|
Total
equity balance at December 31
|
$
|
75,922
|
|
$
|
60,612
|
|
$
|
62,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
January 1, 2009, we adopted an amendment to ASC 810, Consolidation, that requires
certain changes to the presentation of our financial statements. This amendment
requires us to classify noncontrolling interests (previously referred to as
“minority interest”) as part of shareowner’s equity.
(a)
|
We
adopted amendments to ASC 320, Investments – Debt and Equity Securities,
and recorded a cumulative effect adjustment to increase retained
earnings as of April 1, 2009. See Note 11.
|
(b)
|
See
Note 11 for an explanation of the change in noncontrolling interests for
2009.
|
General
Electric Capital Corporation and consolidated affiliates
At
December 31 (In millions, except share amounts)
|
|
2009
|
|
2008
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
63,693
|
|
$
|
36,430
|
Investment
securities (Note 3)
|
|
|
26,336
|
|
|
19,318
|
Inventories
|
|
|
71
|
|
|
77
|
Financing
receivables – net (Note 4)
|
|
|
335,288
|
|
|
370,592
|
Other
receivables
|
|
|
21,062
|
|
|
22,175
|
Property,
plant and equipment– net (Note 5)
|
|
|
56,691
|
|
|
64,043
|
Goodwill
(Note 6)
|
|
|
28,820
|
|
|
25,204
|
Other
intangible assets – net (Note 6)
|
|
|
3,018
|
|
|
3,174
|
Other
assets (Note 7)
|
|
|
86,523
|
|
|
84,201
|
Assets
of businesses held for sale (Note 2)
|
|
|
125
|
|
|
10,556
|
Assets
of discontinued operations (Note 2)
|
|
|
1,470
|
|
|
1,640
|
Total
assets
|
|
$
|
623,097
|
|
$
|
637,410
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
Short-term
borrowings (Note 8)
|
|
$
|
129,221
|
|
$
|
158,967
|
Accounts
payable
|
|
|
12,865
|
|
|
14,863
|
Bank
deposits (Note 8)
|
|
|
38,923
|
|
|
36,854
|
Long-term
borrowings (Note 8)
|
|
|
328,414
|
|
|
314,535
|
Investment
contracts, insurance liabilities and insurance annuity benefits (Note
9)
|
|
|
8,687
|
|
|
11,403
|
Other
liabilities
|
|
|
22,538
|
|
|
30,629
|
Deferred
income taxes (Note 10)
|
|
|
5,619
|
|
|
8,112
|
Liabilities
of businesses held for sale (Note 2)
|
|
|
55
|
|
|
636
|
Liabilities
of discontinued operations (Note 2)
|
|
|
853
|
|
|
799
|
Total
liabilities
|
|
|
547,175
|
|
|
576,798
|
|
|
|
|
|
|
|
Common
stock, $14 par value (4,166,000 shares authorized at December 31, 2009 and
2008,
|
|
|
56
|
|
|
56
|
and
3,985,404 shares issued and outstanding at December 31, 2009 and 2008,
respectively)
|
|
|
|
|
|
|
Accumulated
other comprehensive income – net(a)
|
|
|
|
|
|
|
Investment
securities
|
|
|
(676)
|
|
|
(2,013)
|
Currency
translation adjustments
|
|
|
1,228
|
|
|
(1,337)
|
Cash
flow hedges
|
|
|
(1,816)
|
|
|
(3,253)
|
Benefit
plans
|
|
|
(434)
|
|
|
(367)
|
Additional
paid-in capital
|
|
|
28,431
|
|
|
19,671
|
Retained
earnings
|
|
|
46,929
|
|
|
45,472
|
Total
GECC shareowner's equity
|
|
|
73,718
|
|
|
58,229
|
Noncontrolling
interests(b)
|
|
|
2,204
|
|
|
2,383
|
Total
equity (Note 11)
|
|
|
75,922
|
|
|
60,612
|
Total
liabilities and equity
|
|
$
|
623,097
|
|
$
|
637,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The
sum of accumulated other comprehensive income – net was $(1,698) million
and $(6,970) million at December 31, 2009 and 2008,
respectively.
|
(b)
|
Included
accumulated other comprehensive income – net attributable to
noncontrolling interests of $(191) million and $(181) million at December
31, 2009 and 2008, respectively.
|
See
accompanying notes.
General
Electric Capital Corporation and consolidated affiliates
Statement
of Cash Flows
For
the years ended December 31 (In millions)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Cash
flows – operating activities
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
1,513
|
|
$
|
7,552
|
|
$
|
10,044
|
Less
net earnings attributable to noncontrolling interests
|
|
58
|
|
|
242
|
|
|
229
|
Net
earnings attributable to GECC
|
|
1,455
|
|
|
7,310
|
|
|
9,815
|
Loss
from discontinued operations
|
|
124
|
|
|
704
|
|
|
2,131
|
Adjustments
to reconcile net earnings attributable to GECC
|
|
|
|
|
|
|
|
|
to
cash provided from operating activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of property, plant and equipment
|
|
8,300
|
|
|
9,303
|
|
|
8,093
|
Deferred
income taxes
|
|
(2,247)
|
|
|
(795)
|
|
|
(278)
|
Decrease
(increase) in inventories
|
|
(6)
|
|
|
(14)
|
|
|
2
|
Increase
(decrease) in accounts payable
|
|
(2,021)
|
|
|
129
|
|
|
(441)
|
Provision for losses on financing receivables
|
|
10,887
|
|
|
7,498
|
|
|
4,488
|
All
other operating activities (Note 18)
|
|
(11,370)
|
|
|
6,367
|
|
|
(251)
|
Cash
from (used for) operating activities – continuing
operations
|
|
5,122
|
|
|
30,502
|
|
|
23,559
|
Cash
from (used for) operating activities – discontinued
operations
|
|
39
|
|
|
760
|
|
|
4,097
|
Cash
from (used for) operating activities
|
|
5,161
|
|
|
31,262
|
|
|
27,656
|
|
|
|
|
|
|
|
|
|
Cash
flows – investing activities
|
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
(6,383)
|
|
|
(13,184)
|
|
|
(15,004)
|
Dispositions
of property, plant and equipment
|
|
6,671
|
|
|
10,723
|
|
|
8,319
|
Net
decrease (increase) in financing receivables (Note 18)
|
|
43,519
|
|
|
(19,873)
|
|
|
(44,572)
|
Proceeds
from sale of discontinued operations
|
|
–
|
|
|
5,220
|
|
|
117
|
Proceeds
from principal business dispositions
|
|
9,088
|
|
|
4,654
|
|
|
1,699
|
Payments
for principal businesses purchased
|
|
(5,702)
|
|
|
(24,961)
|
|
|
(7,570)
|
All
other investing activities (Note 18)
|
|
1,130
|
|
|
8,133
|
|
|
(2,029)
|
Cash
from (used for) investing activities – continuing
operations
|
|
48,323
|
|
|
(29,288)
|
|
|
(59,040)
|
Cash
from (used for) investing activities – discontinued
operations
|
|
(36)
|
|
|
(876)
|
|
|
(3,979)
|
Cash
from (used for) investing activities
|
|
48,287
|
|
|
(30,164)
|
|
|
(63,019)
|
|
|
|
|
|
|
|
|
|
Cash
flows – financing activities
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in borrowings (maturities of 90 days or
less)
|
|
(26,668)
|
|
|
(44,835)
|
|
|
390
|
Net
increase (decrease) in bank deposits
|
|
(3,986)
|
|
|
20,623
|
|
|
2,144
|
Newly
issued debt (maturities longer than 90 days) (Note 18)
|
|
81,441
|
|
|
115,922
|
|
|
91,709
|
Repayments
and other debt reductions (maturities longer than 90 days) (Note
18)
|
|
(83,503)
|
|
|
(66,953)
|
|
|
(52,711)
|
Dividends
paid to shareowner
|
|
–
|
|
|
(2,351)
|
|
|
(6,695)
|
Capital
contribution and share issuance
|
|
8,750
|
|
|
5,500
|
|
|
–
|
All
other financing activities (Note 18)
|
|
(2,215)
|
|
|
(1,297)
|
|
|
(408)
|
Cash
from (used for) financing activities – continuing
operations
|
|
(26,181)
|
|
|
26,609
|
|
|
34,429
|
Cash
from (used for) financing activities – discontinued
operations
|
|
–
|
|
|
(4)
|
|
|
(8)
|
Cash
from (used for) financing activities
|
|
(26,181)
|
|
|
26,605
|
|
|
34,421
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents
|
|
27,267
|
|
|
27,703
|
|
|
(942)
|
Cash
and equivalents at beginning of year
|
|
36,610
|
|
|
8,907
|
|
|
9,849
|
Cash
and equivalents at end of year
|
|
63,877
|
|
|
36,610
|
|
|
8,907
|
Less
cash and equivalents of discontinued operations at end of
year
|
|
184
|
|
|
180
|
|
|
300
|
Cash
and equivalents of continuing operations at end of year
|
$
|
63,693
|
|
$
|
36,430
|
|
$
|
8,607
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flows information
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
$
|
(18,742)
|
|
$
|
(24,402)
|
|
$
|
(21,419)
|
Cash
recovered (paid) during the year for income taxes
|
|
207
|
|
|
(1,121)
|
|
|
1,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
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 – entities that we control, most often because we hold a majority
voting interest. We also
consolidate the economic interests we hold in certain businesses within
companies in which we hold a voting equity interest and are majority owned by
our ultimate parent, but which we have agreed to actively manage and control.
Associated companies are entities that we do not control but over which
we have significant influence, most often because we hold a voting interest 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), Consumer, Real Estate, Energy Financial
Services and GE Capital 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 2010 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 are based
upon management’s best estimates of the value of the leased asset at the end of
the lease term. We use various sources of data in determining this estimate,
including information obtained from third parties, which is adjusted for the
attributes of the specific asset under lease. 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 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 5 and 6.
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 such as unemployment rates and home price
indices.
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. 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 commercial 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 expected 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.
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.
Experience
is not available for 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.
“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
the original contractual terms of the loan agreement. Troubled debt
restructurings are those loans in which we have granted a concession to a
borrower experiencing financial difficulties where we do not receive adequate
compensation. Such loans are classified as impaired, and are individually
reviewed for specific reserves.
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.
Partial
sales of business interests
On
January 1, 2009, we adopted amendments to Accounting Standards Codification
(ASC) 810, Consolidation,
which requires that gains or losses on sales of affiliate shares where we
retain control be recorded in equity. Gains or losses on sales that result in
our loss of control are recorded in earnings along with remeasurement gains or
losses on any investments in the entity that we retained. Prior to January 1,
2009, we recorded gains or losses on sales of their own shares by affiliates
except when realization of gains was not reasonably assured, in which case we
recorded 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 certain other equity
securities, at fair value. See Note 14 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. Effective April 1, 2009, the Financial Accounting
Standards Board (FASB) amended ASC 320, Investments – Debt and Equity
Securities. This amendment modified the existing model for recognition
and measurement of impairment for debt securities. The two principal changes to
the impairment model for securities are as follows:
·
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Recognition
of an other-than-temporary impairment charge for debt securities is
required if any of these conditions are met: (1) we do not expect to
recover the entire amortized cost basis of the security, (2) we intend to
sell the security or (3) it is more likely than not that we will be
required to sell the security before we recover its amortized cost
basis.
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·
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If
the first condition above is met, but we do not intend to sell and it is
not more likely than not that we will be required to sell the security
before recovery of its amortized cost basis, we are required to record the
difference between the security’s amortized cost basis and its recoverable
amount in earnings and the difference between the security’s recoverable
amount and fair value in other comprehensive income. If either the second
or third criterion is met, then we are required to recognize the entire
difference between the security’s amortized cost basis and its fair value
in earnings.
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If we do
not intend to sell the security or it is not more likely than not that we will
be required to sell the security before recovery of our amortized cost, we
evaluate other qualitative criteria to determine whether a credit loss exists,
such as the financial health of and specific prospects for the issuer, including
whether the issuer is in compliance with the terms and covenants of the
security. Quantitative criteria include determining whether there has been an
adverse change in expected future cash flows.
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 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.
Fair
Value Measurements
We
adopted ASC 820 in two steps; effective January 1, 2008, we adopted it for all
financial instruments and non-financial instruments accounted for at fair value
on a recurring basis and effective January 1, 2009, for all non-financial
instruments accounted for at fair value on a non-recurring basis.
For
financial assets and liabilities fair valued on a recurring basis, 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 –
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Quoted
prices for identical instruments in active
markets.
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Level 2 –
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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.
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Level 3 –
|
Significant
inputs to the valuation model are
unobservable.
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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 on a recurring basis.
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 obtain pricing information from an
independent pricing vendor. The pricing vendor uses various pricing models for
each asset class that are consistent with what other market participants would
use. The inputs and assumptions to the model of the pricing vendor are derived
from market observable sources including: benchmark yields, reported trades,
broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and
other market-related data. Since many fixed income securities do not trade on a
daily basis, the methodology of the pricing vendor uses available information as
applicable such as benchmark curves, benchmarking of like securities, sector
groupings, and matrix pricing. The pricing vendor considers available market
observable inputs in determining the evaluation for a security. Thus, certain
securities may not be priced using quoted prices, but rather determined from
market observable information. 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.
Annually,
we conduct reviews of our primary pricing vendor, to validate that the inputs
used in that vendor’s pricing process are deemed to be market observable as
defined in the standard. While we were not provided access to proprietary models
of the vendor, our reviews have included on-site walk-throughs of the pricing
process, methodologies and control procedures for each asset class and level for
which prices are provided. Our review also included an examination of the
underlying inputs and assumptions for a sample of individual securities across
asset classes, credit rating levels and various durations, a process we continue
to perform for each reporting period. 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. We
believe that the prices received from our pricing vendor are representative of
prices that would be received to sell the assets at the measurement date (exit
prices) and are classified appropriately in the hierarchy.
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. Investment securities priced using non-binding broker quotes
are included in Level 3. As is the case with our primary pricing vendor,
third-party brokers 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 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. Based on the information available,
we believe that the fair values provided by the brokers are representative of
prices that would be received to sell the assets at the measurement date (exit
prices).
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.
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 are 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.
Non-Recurring Fair Value
Measurements. Certain assets are measured at fair value on a
non-recurring basis. These assets are not measured at fair value on an ongoing
basis but are subject to fair value adjustments only in certain circumstances.
These assets can include loans and long-lived assets that have been reduced to
fair value when they are held for sale, impaired loans that have been reduced
based on the fair value of the underlying collateral, cost and equity method
investments and long-lived assets that are written down to fair value when they
are impaired and the remeasurement of retained investments in formerly
consolidated subsidiaries upon a change in control that results in
deconsolidation of a subsidiary, if we sell a controlling interest and retain a
noncontrolling stake in the entity. Assets that are written down to fair value
when impaired and retained investments are not subsequently adjusted to fair
value unless further impairment occurs.
The
following describes the valuation methodologies we use to measure financial and
non-financial instruments accounted for at fair value on a non-recurring
basis.
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.
Cost and Equity Method Investments.
Cost and equity method investments are valued using market observable
data such as quoted prices when available. When market observable data is
unavailable, investments are valued using a discounted cash flow model,
comparative market multiples or a combination of both approaches as appropriate.
These investments are generally included in Level 3.
Investments
in private equity, real estate and collective funds are valued using net asset
values. The net asset values are determined based on the fair values of the
underlying investments in the funds. Investments in private equity and real
estate funds are generally included in Level 3 because they are not redeemable
at the measurement date. Investments in collective funds are included in Level
2.
Long-lived Assets. Long-lived
assets, including aircraft and real estate, are valued using the best
information available, including quoted market prices or market prices for
similar assets when available or internal cash flow estimates discounted at an
appropriate interest rate or independent appraisals, as appropriate. For real
estate, cash flow estimates are based on current market estimates that reflect
current and projected lease profiles and available industry information about
expected trends in rental, occupancy and capitalization rates. These investments
are generally included in Level 3.
Investments in Subsidiaries and
Formerly Consolidated Subsidiaries. Upon a change in control that results
in either consolidation or deconsolidation of a subsidiary, the fair value
measurement of our previous equity investment or retained noncontrolling stake
in the former subsidiary, respectively, are valued using an income approach, a
market approach, or a combination of both approaches as appropriate. In applying
these methodologies, we rely on a number of factors, including actual operating
results, future business plans, economic projections, market observable pricing
multiples of similar businesses and comparable transactions, and possible
control premium. These investments are included in Level 3.
Accounting
Changes
The FASB
has made the Accounting Standards Codification (ASC) effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The ASC combines all previously issued authoritative GAAP into one
codified set of guidance organized by subject area. In these financial
statements, references to previously issued accounting standards have been
replaced with the relevant ASC references. Subsequent revisions to GAAP by the
FASB will be incorporated into the ASC through issuance of Accounting Standards
Updates (ASU).
We
adopted ASC 820, Fair Value
Measurements and Disclosures, in two steps; effective January 1, 2008, we
adopted it for all financial instruments and non-financial instruments accounted
for at fair value on a recurring basis and effective January 1, 2009, for all
non-financial instruments accounted for at fair value on a non-recurring basis.
This guidance establishes a new framework for measuring fair value and expands
related disclosures. See Note 14.
Effective
January 1, 2008, we adopted ASC 825, Financial Instruments. 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 14.
On
January 1, 2009, we adopted an amendment to ASC 805, Business Combinations. This
amendment significantly changed 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:
·
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Acquired
in-process research and development (IPR&D) is accounted for as an
asset, with the cost recognized as the research and development is
realized or abandoned. IPR&D was previously expensed at the time of
the acquisition.
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·
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Contingent
consideration is recorded at fair value as an element of purchase price
with subsequent adjustments recognized in operations. Contingent
consideration was previously accounted for as a subsequent adjustment of
purchase price.
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·
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Subsequent
decreases in valuation allowances on acquired deferred tax assets are
recognized in operations after the measurement period. Such changes were
previously considered to be subsequent changes in consideration and were
recorded as decreases in goodwill.
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·
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Transaction
costs are expensed. These costs were previously treated as costs of the
acquisition.
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·
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Upon
gaining control of an entity in which an equity method or cost basis
investment was held, the carrying value of that investment is adjusted to
fair value with the related gain or loss recorded in earnings. Previously,
this fair value adjustment would not have been
made.
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In April
2009, the FASB amended ASC 805 and changed the previous accounting for assets
and liabilities arising from contingencies in a business combination. We adopted
this amendment retrospectively effective January 1, 2009. The amendment requires
pre-acquisition contingencies to be recognized at fair value, if fair value can
be determined or reasonably estimated during the measurement period. If fair
value cannot be determined or reasonably estimated, the standard requires
measurement based on the recognition and measurement criteria of ASC 450, Contingencies.
On
January 1, 2009, we adopted an amendment to ASC 810, which requires us to make
certain changes to the presentation of our financial statements. This amendment
requires us to classify earnings attributable to noncontrolling interests
(previously referred to as “minority interest”) as part of consolidated net
earnings ($58 million and $242 million for 2009 and 2008, respectively) and to
include the accumulated amount of noncontrolling interests as part of
shareowner’s equity ($2,204 million and $2,383 million at December 31, 2009 and
2008, respectively). The net earnings amounts we have previously reported are
now presented as "Net earnings attributable to GECC". Similarly, in our
presentation of shareowner’s equity, we distinguish between equity amounts
attributable to GECC shareowner and amounts attributable to the noncontrolling
interests – previously classified as minority interest outside of shareowner’s
equity. Beginning January 1, 2009, dividends to noncontrolling interests ($11
million in 2009) are classified as financing cash flows. In addition to these
financial reporting changes, this guidance provides for significant changes in
accounting related to noncontrolling interests; specifically, increases and
decreases in our controlling financial interests in consolidated subsidiaries
will be reported in equity similar to treasury stock transactions. If a change
in ownership of a consolidated subsidiary results in loss of control and
deconsolidation, any retained ownership interests are remeasured with the gain
or loss reported in net earnings.
We
adopted amendments to ASC 320, Investments – Debt and Equity
Securities, and recorded a cumulative effect adjustment to increase
retained earnings as of April 1, 2009, of $25 million.
On
January 1, 2007, we adopted amendments to ASC 740, Income Taxes. Among other
things, the amendment requires application of a “more likely than not” threshold
to the recognition and derecognition of tax positions and require 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 the recalculation of returns on leverage leases. There
was a decrease in financing receivables-net by this amount.
NOTE
2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED
OPERATIONS
Assets
and Liabilities of Businesses Held for Sale
On
January 7, 2009, we exchanged our Consumer 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., an 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
completed 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 for businesses held for sale is shown below.
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Cash
and equivalents
|
$
|
–
|
|
$
|
35
|
Financing
receivables - net
|
|
42
|
|
|
9,915
|
Intangible
assets - net
|
|
10
|
|
|
394
|
Other
|
|
73
|
|
|
212
|
Assets
of businesses held for sale
|
$
|
125
|
|
$
|
10,556
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Liabilities
of businesses held for sale
|
$
|
55
|
|
$
|
636
|
|
|
|
|
|
|
Discontinued
Operations
Discontinued
operations primarily comprised GE Money Japan (our Japanese personal loan
business, Lake, and our Japanese mortgage and card businesses, excluding our
investment in GE Nissen Credit Co., Ltd.) and our U.S. mortgage business (WMC).
Associated results of operations, financial position and cash flows are
separately reported as discontinued operations 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. During
the third quarter of 2008, we completed the sale of GE Money Japan, which
included Lake, along with our Japanese mortgage and card businesses, excluding
our investment in GE Nissen Credit Co., Ltd. As a result, we recognized an
after-tax loss of $908 million in 2007 and an incremental loss in 2008 of $361
million. GE Money Japan revenues from discontinued operations were $1 million,
$763 million and $1,307 million in 2009, 2008 and 2007, respectively. In total,
GE Money Japan losses from discontinued operations, net of taxes, were $158
million, $651 million and $1,220 million in 2009, 2008 and 2007,
respectively.
WMC
During
the fourth quarter of 2007, we completed the sale of our U.S. mortgage business.
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 $205 million
at December 31, 2009, and $244 million at December 31, 2008. 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 $2 million, $(71) million and
$(1,424) million in 2009, 2008 and 2007, respectively. In total, WMC’s loss from
discontinued operations, net of taxes, were $1 million, $41 million and $987
million in 2009, 2008 and 2007, respectively.
Summarized
financial information for discontinued operations is shown below.
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
3
|
|
$
|
692
|
|
$
|
(117)
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations before income taxes
|
$
|
(114)
|
|
$
|
(546)
|
|
$
|
(2,223)
|
Income
tax benefit
|
|
32
|
|
|
203
|
|
|
980
|
Loss
from discontinued operations, net of taxes
|
$
|
(82)
|
|
$
|
(343)
|
|
$
|
(1,243)
|
|
|
|
|
|
|
|
|
|
Disposal
|
|
|
|
|
|
|
|
|
Loss
on disposal before income taxes
|
$
|
(37)
|
|
$
|
(1,481)
|
|
$
|
(1,477)
|
Income
tax benefit (expense)
|
|
(5)
|
|
|
1,120
|
|
|
589
|
Loss
on disposal, net of taxes
|
$
|
(42)
|
|
$
|
(361)
|
|
$
|
(888)
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of taxes
|
$
|
(124)
|
|
$
|
(704)
|
|
$
|
(2,131)
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
|
|
$
|
184
|
|
$
|
180
|
Other
assets
|
|
|
|
|
12
|
|
|
19
|
Other
|
|
|
|
|
1,274
|
|
|
1,441
|
Assets
of discontinued operations
|
|
|
|
$
|
1,470
|
|
$
|
1,640
|
|
|
|
|
|
|
|
|
|
December
31 (In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
Liabilities
|
|
|
|
|
|
|
|
|
Liabilities
of discontinued operations
|
|
|
|
$
|
853
|
|
$
|
799
|
|
|
|
|
|
|
|
|
|
Assets at
December 31, 2009 and 2008, primarily comprised a deferred tax asset for a loss
carryforward, which expires in 2015, related to the sale of our GE Money Japan
business.
NOTE
3. INVESTMENT SECURITIES
The vast
majority of our investment securities are classified as available-for-sale and
comprise mainly investment-grade debt securities supporting obligations to
holders of guaranteed investment contracts and retained interests in
securitization entities.
|
2009
|
|
2008
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
Amortized
|
|
unrealized
|
|
unrealized
|
|
Estimated
|
|
Amortized
|
|
unrealized
|
|
unrealized
|
|
Estimated
|
December
31 (In millions)
|
cost
|
|
gains
|
|
losses
|
|
fair
value
|
|
cost
|
|
gains
|
|
losses
|
|
fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
4,954
|
|
$
|
83
|
|
$
|
(236)
|
|
$
|
4,801
|
|
$
|
4,456
|
|
$
|
54
|
|
$
|
(637)
|
|
$
|
3,873
|
State
and municipal
|
|
887
|
|
|
3
|
|
|
(216)
|
|
|
674
|
|
|
915
|
|
|
5
|
|
|
(70)
|
|
|
850
|
Residential
|
|
2,999
|
|
|
21
|
|
|
(722)
|
|
|
2,298
|
|
|
4,228
|
|
|
9
|
|
|
(976)
|
|
|
3,261
|
mortgage-backed(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
1,599
|
|
|
5
|
|
|
(302)
|
|
|
1,302
|
|
|
1,664
|
|
|
-
|
|
|
(509)
|
|
|
1,155
|
mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
|
|
2,786
|
|
|
37
|
|
|
(298)
|
|
|
2,525
|
|
|
2,922
|
|
|
2
|
|
|
(668)
|
|
|
2,256
|
Corporate
– non-U.S.
|
|
994
|
|
|
18
|
|
|
(26)
|
|
|
986
|
|
|
608
|
|
|
6
|
|
|
(23)
|
|
|
591
|
Government
– non-U.S.
|
|
2,461
|
|
|
15
|
|
|
(25)
|
|
|
2,451
|
|
|
936
|
|
|
2
|
|
|
(15)
|
|
|
923
|
U.S.
government and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
federal
agency
|
|
1,865
|
|
|
–
|
|
|
–
|
|
|
1,865
|
|
|
26
|
|
|
3
|
|
|
-
|
|
|
29
|
Retained
interests(b)
|
|
7,252
|
|
|
362
|
|
|
(21)
|
|
|
7,593
|
|
|
5,144
|
|
|
73
|
|
|
(136)
|
|
|
5,081
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
885
|
|
|
239
|
|
|
(3)
|
|
|
1,121
|
|
|
1,023
|
|
|
22
|
|
|
(134)
|
|
|
911
|
Trading
|
|
720
|
|
|
–
|
|
|
–
|
|
|
720
|
|
|
388
|
|
|
-
|
|
|
-
|
|
|
388
|
Total
|
$
|
27,402
|
|
$
|
783
|
|
$
|
(1,849)
|
|
$
|
26,336
|
|
$
|
22,310
|
|
$
|
176
|
|
$
|
(3,168)
|
|
$
|
19,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Substantially
collateralized by U.S. mortgages.
|
(b)
|
Included
$1,918 million and $1,752 million of retained interests at December 31,
2009 and 2008, respectively, accounted for at fair value in accordance
with ASC 815, Derivatives and
Hedging. See Note 16.
|
The fair
value of investment securities increased to $26.3 billion at December 31, 2009,
from $19.3 billion at December 31, 2008, primarily driven by decreases in
unrealized losses due to market improvements, investment of cash into short-term
investments such as money market funds and certificates of deposits, and an
increase in our retained interests in securitization entities.
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
|
|
|
|
Gross
|
|
|
|
Gross
|
|
Estimated
|
unrealized
|
Estimated
|
unrealized
|
December
31 (In millions)
|
fair
value
|
losses
|
fair
value
|
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
601
|
|
$
|
(20)
|
|
$
|
1,365
|
|
$
|
(216)
|
State
and municipal
|
|
229
|
|
|
(120)
|
|
|
421
|
|
|
(96)
|
Residential
mortgage-backed
|
|
70
|
|
|
(4)
|
|
|
1,561
|
|
|
(718)
|
Commercial
mortgage-backed
|
|
–
|
|
|
–
|
|
|
1,015
|
|
|
(302)
|
Asset-backed
|
|
60
|
|
|
(7)
|
|
|
1,311
|
|
|
(291)
|
Corporate
– non-U.S.
|
|
310
|
|
|
(14)
|
|
|
346
|
|
|
(12)
|
Government
– non-U.S.
|
|
368
|
|
|
(3)
|
|
|
193
|
|
|
(22)
|
U.S.
government and federal agency
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
Retained
interests
|
|
13
|
|
|
(1)
|
|
|
4
|
|
|
(20)
|
Equity
|
|
22
|
|
|
(2)
|
|
|
8
|
|
|
(1)
|
Total
|
$
|
1,673
|
|
$
|
(171)
|
|
$
|
6,224
|
|
$
|
(1,678)
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
We
adopted amendments to ASC 320 and recorded a cumulative effect adjustment to
increase retained earnings as of April 1, 2009, of $25 million.
We
regularly review investment securities for impairment using both qualitative and
quantitative criteria. We presently do not intend to sell our debt securities
and believe that it is not more likely than not that we will be required to sell
these securities that are in an unrealized loss position before recovery of our
amortized cost. We believe that the unrealized loss associated with our equity
securities will be recovered within the foreseeable future.
The vast
majority of our U.S. corporate debt securities are rated investment grade by the
major rating agencies. We evaluate U.S. corporate debt securities based on a
variety of factors such as the financial health of and specific prospects for
the issuer, including whether the issuer is in compliance with the terms and
covenants of the security. In the event a U.S. corporate debt security is deemed
to be other-than-temporarily impaired, we isolate the credit portion of the
impairment by comparing the present value of our expectation of cash flows to
the amortized cost of the security. We discount the cash flows using the
original effective interest rate of the security.
The vast
majority of our residential mortgage-backed securities (RMBS) have
investment-grade credit ratings from the major rating agencies and are in a
senior position in the capital structure of the deal. Of our total RMBS at
December 31, 2009 and 2008, approximately $883 million and $1,284 million,
respectively, relate to residential subprime credit, primarily supporting our
guaranteed investment contracts. These are collateralized primarily by pools of
individual, direct mortgage loans (a majority of which were originated in 2006
and 2005), not other structured products such as collateralized debt
obligations. In addition, of the total residential subprime credit exposure at
December 31, 2009 and 2008, approximately $765 million and $1,089 million,
respectively, was insured by Monoline insurers (Monolines).
The vast
majority of our commercial mortgage-backed securities (CMBS) also have
investment-grade credit ratings from the major rating agencies and are in a
senior position in the capital structure of the deal. Our CMBS investments are
collateralized by both diversified pools of mortgages that were originated for
securitization (conduit CMBS) and pools of large loans backed by high quality
properties (large loan CMBS), a majority of which were originated in 2006 and
2007.
For
asset-backed securities, including RMBS, we estimate the portion of loss
attributable to credit using a discounted cash flow model that considers
estimates of cash flows generated from the underlying collateral. Estimates of
cash flows consider internal credit risk, interest rate and prepayment
assumptions that incorporate management’s best estimate of key assumptions,
including default rates, loss severity and prepayment rates. For CMBS, we
estimate the portion of loss attributable to credit by evaluating potential
losses on each of the underlying loans in the security. Collateral cash flows
are considered in the context of our position in the capital structure of the
deal. Assumptions can vary widely depending upon the collateral type, geographic
concentrations and vintage.
If there
has been an adverse change in cash flows for RMBS, management considers credit
enhancements such as monoline insurance (which are features of a specific
security). In evaluating the overall credit worthiness of the Monoline, we use
an analysis that is similar to the approach we use for corporate bonds,
including an evaluation of the sufficiency of the Monoline’s cash reserves and
capital, ratings activity, whether the Monoline is in default or default appears
imminent, and the potential for intervention by an insurance or other
regulator.
During
the period April 1, 2009, through December 31, 2009, we recorded pre-tax,
other-than-temporary impairments of $489 million, of which $185 million was
recorded through earnings ($28 million relates to equity securities), and $304
million was recorded in accumulated other comprehensive income
(AOCI).
Prior to
April 1, 2009, we recognized impairments in earnings of $157 million associated
with debt securities still held. As of April 1, 2009, we reversed previously
recognized impairments of $40 million ($25 million after tax) as an adjustment
to retained earnings in accordance with the amendments to ASC 320. Subsequent to
April 1, 2009, we recognized first time impairments of $74 million and
incremental charges on previously impaired securities of $78 million. These
amounts included $84 million related to securities that were subsequently
sold.
Contractual
Maturities of our Investment in Available-for-Sale Debt Securities (Excluding
Mortgage-Backed and Asset-Backed Securities)
|
Amortized
|
|
Estimated
|
(In
millions)
|
cost
|
|
fair
value
|
|
|
|
|
|
|
Due
in
|
|
|
|
|
|
2010
|
$
|
5,978
|
|
$
|
5,975
|
2011-2014
|
|
2,660
|
|
|
2,685
|
2015-2019
|
|
1,753
|
|
|
1,511
|
2020
and later
|
|
770
|
|
|
606
|
|
|
|
|
|
|
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)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Gains
|
$
|
105
|
|
$
|
160
|
|
$
|
378
|
Losses,
including impairments
|
|
(356)
|
|
|
(792)
|
|
|
(11)
|
Net
|
$
|
(251)
|
|
$
|
(632)
|
|
$
|
367
|
|
|
|
|
|
|
|
|
|
Although
we generally do not have the intent to sell any specific securities at the end
of the period, 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. In some
of our bank subsidiaries we maintain a certain level of purchases and sales
volume principally of non-U.S. government debt securities. In these situations,
fair value approximates carrying value for these securities.
Proceeds
from investment securities sales and early redemptions by the issuer totaled
$6,842 million, $3,174 million and $13,451 million in 2009, 2008 and 2007,
respectively, principally from the sales and early redemptions of securities in
our bank subsidiaries in 2009 and securities that support the guaranteed
investment contract portfolio in 2008.
We
recognized pre-tax gains on trading securities of $408 million, $108 million and
$292 million in 2009, 2008 and 2007, respectively. Investments in retained
interests increased by $291 million during 2009, decreased $113 million and $102
million during 2008 and 2007, respectively, reflecting changes in fair
value.
NOTE
4. FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING
RECEIVABLES
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
Loans,
net of deferred income
|
$
|
289,206
|
|
$
|
308,821
|
Investment
in financing leases, net of deferred income
|
|
54,173
|
|
|
67,077
|
|
|
343,379
|
|
|
375,898
|
Less
allowance for losses
|
|
(8,091)
|
|
|
(5,306)
|
Financing
receivables – net(a)
|
$
|
335,288
|
|
$
|
370,592
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
$3,444 million and $6,461 million primarily related to consolidated,
liquidating securitization entities at December 31, 2009 and 2008,
respectively. In addition, financing receivables at December 31, 2009 and
2008, included $2,704 million and $2,736 million, respectively, relating
to loans that had been acquired in a transfer but have been subject to
credit deterioration since origination per ASC 310, Receivables.
|
Effective
January 1, 2009, loans acquired in a business acquisition are recorded at fair
value, which incorporates our estimate at the acquisition date of the credit
losses over the remaining life of the portfolio. As a result, the allowance for
loan losses is not carried over at acquisition. This may result in lower reserve
coverage ratios prospectively. Details of financing receivables – net
follow.
|
|
|
|
|
|
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
CLL(a)
|
|
|
|
|
|
Americas
|
$
|
86,721
|
|
$
|
104,462
|
Europe
|
|
38,737
|
|
|
36,972
|
Asia
|
|
13,202
|
|
|
16,683
|
Other
|
|
771
|
|
|
786
|
|
|
139,431
|
|
|
158,903
|
Consumer(a)
|
|
|
|
|
|
Non-U.S.
residential mortgages
|
|
58,831
|
|
|
60,753
|
Non-U.S.
installment and revolving credit
|
|
25,208
|
|
|
24,441
|
U.S.
installment and revolving credit
|
|
23,190
|
|
|
27,645
|
Non-U.S.
auto
|
|
13,485
|
|
|
18,168
|
Other
|
|
12,808
|
|
|
11,541
|
|
|
133,522
|
|
|
142,548
|
|
|
|
|
|
|
Real
Estate
|
|
44,841
|
|
|
46,735
|
|
|
|
|
|
|
Energy
Financial Services
|
|
7,756
|
|
|
8,355
|
|
|
|
|
|
|
GECAS(b)
|
|
15,215
|
|
|
15,326
|
|
|
|
|
|
|
Other(c)
|
|
2,614
|
|
|
4,031
|
|
|
343,379
|
|
|
375,898
|
Less
allowance for losses
|
|
(8,091)
|
|
|
(5,306)
|
Total
|
$
|
335,288
|
|
$
|
370,592
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
During
the first quarter of 2009, we transferred Artesia from CLL to Consumer.
Prior-period amounts were reclassified to conform to the current-period’s
presentation.
|
(b)
|
Included
loans and financing leases of $13,254 million and $13,078 million at
December 31, 2009 and 2008, respectively, related to commercial aircraft
at Aviation Financial Services.
|
(c)
|
Consisted
of loans and financing leases 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 are
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)
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
minimum lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payments
receivable
|
$
|
63,609
|
|
$
|
80,413
|
|
$
|
49,974
|
|
$
|
62,996
|
|
$
|
13,635
|
|
$
|
17,417
|
Less
principal and interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
third-party nonrecourse debt
|
|
(9,367)
|
|
|
(12,416)
|
|
|
-
|
|
|
-
|
|
|
(9,367)
|
|
|
(12,416)
|
Net
rentals receivable
|
|
54,242
|
|
|
67,997
|
|
|
49,974
|
|
|
62,996
|
|
|
4,268
|
|
|
5,001
|
Estimated
unguaranteed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
residual
value of leased assets
|
|
9,494
|
|
|
10,077
|
|
|
6,760
|
|
|
7,302
|
|
|
2,734
|
|
|
2,775
|
Less
deferred income
|
|
(9,563)
|
|
|
(10,997)
|
|
|
(7,619)
|
|
|
(8,694)
|
|
|
(1,944)
|
|
|
(2,303)
|
Investment
in financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
leases,
net of deferred income
|
|
54,173
|
|
|
67,077
|
|
|
49,115
|
|
|
61,604
|
|
|
5,058
|
|
|
5,473
|
Less
amounts to arrive at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for losses
|
|
(652)
|
|
|
(495)
|
|
|
(532)
|
|
|
(437)
|
|
|
(120)
|
|
|
(58)
|
Deferred
taxes
|
|
(5,928)
|
|
|
(6,964)
|
|
|
(2,290)
|
|
|
(2,820)
|
|
|
(3,638)
|
|
|
(4,144)
|
Net
investment in financing
|
$
|
47,593
|
|
$
|
59,618
|
|
$
|
46,293
|
|
$
|
58,347
|
|
$
|
1,300
|
|
$
|
1,271
|
leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
$615 million and $824 million of initial direct costs on direct financing
leases at December 31, 2009 and 2008,
respectively.
|
(b)
|
Included
pre-tax income of $162 million and $265 million and income tax of $64
million and $105 million during 2009 and 2008, respectively. Net
investment credits recognized on leveraged leases during 2009 and 2008
were inconsequential.
|
Contractual
Maturities
|
|
Total
|
|
|
Net
rentals
|
(In
millions)
|
loans
|
|
receivables
|
|
|
|
|
|
|
Due
in
|
|
|
|
|
|
2010
|
$
|
84,141
|
|
$
|
15,890
|
2011
|
|
40,021
|
|
|
11,031
|
2012
|
|
32,187
|
|
|
7,944
|
2013
|
|
25,374
|
|
|
5,584
|
2014
|
|
22,792
|
|
|
3,217
|
2015
and later
|
|
84,691
|
|
|
10,576
|
Total
|
$
|
289,206
|
|
$
|
54,242
|
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 and specific reserves follows. The vast majority of our consumer
and a portion of our CLL nonearning receivables are excluded from this
definition, as they represent smaller balance homogeneous loans that we evaluate
collectively by portfolio for impairment.
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
Loans
requiring allowance for losses
|
$
|
9,145
|
|
$
|
2,712
|
Loans
expected to be fully recoverable
|
|
3,741
|
|
|
871
|
Total
impaired loans
|
$
|
12,886
|
|
$
|
3,583
|
|
|
|
|
|
|
Allowance
for losses (specific reserves)
|
$
|
2,331
|
|
$
|
635
|
Average
investment during the period
|
|
8,493
|
|
|
2,064
|
Interest
income earned while impaired(a)
|
|
227
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Recognized
principally on cash basis.
|
Impaired
loans increased by $9,303 million from December 31, 2008, to December 31, 2009
primarily relating to increases at Real Estate ($5,678 million) and CLL ($2,697
million). We regularly review our Real Estate loans for impairment using both
quantitative and qualitative factors, such as debt service coverage and
loan-to-value ratios. We classify Real Estate loans as impaired when the most
recent valuation reflects a projected loan-to-value ratio at maturity in excess
of 100%, even if the loan is currently paying in accordance with contractual
terms. The increase in impaired loans and related specific reserves at Real
Estate reflects our current estimate of collateral values of the underlying
properties, and our estimate of loans which are not past due, but for which it
is probable that we will be unable to collect the full principal balance at
maturity due to a decline in the underlying value of the collateral. Of our
$6,519 million impaired loans at Real Estate at December 31, 2009, $4,396
million are currently paying in accordance with the contractual terms of the
loan. Impaired loans at CLL primarily represent senior secured lending
positions.
Allowance
for Losses on Financing Receivables
|
Balance
|
|
Provision
|
|
|
|
|
|
|
|
Balance
|
|
January
1,
|
|
charged
to
|
|
|
|
Gross
|
|
|
|
December
31,
|
(In
millions)
|
2009
|
|
operations
|
|
Other(a)
|
|
write-offs
|
|
Recoveries
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
824
|
|
$
|
1,358
|
|
$
|
(30)
|
|
$
|
(1,077)
|
|
$
|
90
|
|
$
|
1,165
|
Europe
|
|
288
|
|
|
570
|
|
|
(16)
|
|
|
(331)
|
|
|
33
|
|
|
544
|
Asia
|
|
163
|
|
|
257
|
|
|
3
|
|
|
(203)
|
|
|
24
|
|
|
244
|
Other
|
|
2
|
|
|
6
|
|
|
1
|
|
|
(1)
|
|
|
–
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
383
|
|
|
915
|
|
|
78
|
|
|
(519)
|
|
|
95
|
|
|
952
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
revolving credit
|
|
1,051
|
|
|
1,835
|
|
|
42
|
|
|
(2,320)
|
|
|
579
|
|
|
1,187
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
1,700
|
|
|
3,576
|
|
|
(974)
|
|
|
(2,817)
|
|
|
213
|
|
|
1,698
|
Non-U.S.
auto
|
|
222
|
|
|
408
|
|
|
18
|
|
|
(556)
|
|
|
220
|
|
|
312
|
Other
|
|
226
|
|
|
389
|
|
|
57
|
|
|
(465)
|
|
|
111
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
301
|
|
|
1,442
|
|
|
13
|
|
|
(264)
|
|
|
2
|
|
|
1,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
58
|
|
|
33
|
|
|
4
|
|
|
(67)
|
|
|
–
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
60
|
|
|
69
|
|
|
(4)
|
|
|
(18)
|
|
|
–
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
28
|
|
|
29
|
|
|
–
|
|
|
(24)
|
|
|
1
|
|
|
34
|
Total
|
$
|
5,306
|
|
$
|
10,887
|
|
$
|
(808)
|
|
$
|
(8,662)
|
|
$
|
1,368
|
|
$
|
8,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Other
primarily included the effects of securitization activity, currency
exchange and dispositions.
|
(b)
|
During
the first quarter of 2009, we transferred Artesia from CLL to Consumer.
Prior-period amounts were reclassified to conform to the current-period’s
presentation.
|
|
Balance
|
|
Provision
|
|
|
|
|
|
|
|
Balance
|
|
January
1,
|
|
charged
to
|
|
|
|
Gross
|
|
|
|
December
31,
|
(In
millions)
|
2008
|
|
operations
|
|
Other(a)
|
|
write-offs
|
|
Recoveries
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
451
|
|
$
|
888
|
|
$
|
112
|
|
$
|
(703)
|
|
$
|
76
|
|
$
|
824
|
Europe
|
|
230
|
|
|
310
|
|
|
(31)
|
|
|
(247)
|
|
|
26
|
|
|
288
|
Asia
|
|
226
|
|
|
152
|
|
|
34
|
|
|
(256)
|
|
|
7
|
|
|
163
|
Other
|
|
3
|
|
|
2
|
|
|
(3)
|
|
|
(1)
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
246
|
|
|
324
|
|
|
(38)
|
|
|
(218)
|
|
|
69
|
|
|
383
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
revolving credit
|
|
1,371
|
|
|
1,748
|
|
|
(417)
|
|
|
(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
|
|
|
(124)
|
|
|
(637)
|
|
|
283
|
|
|
222
|
Other
|
|
167
|
|
|
229
|
|
|
9
|
|
|
(248)
|
|
|
69
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
168
|
|
|
135
|
|
|
9
|
|
|
(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
|
|
$
|
(1,070)
|
|
$
|
(7,065)
|
|
$
|
1,727
|
|
$
|
5,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Other
primarily included the effects of securitization activity, currency
exchange, dispositions and
acquisitions.
|
(b)
|
During
the first quarter of 2009, we transferred Artesia from CLL to Consumer.
Prior-period amounts were reclassified to conform to the current-period’s
presentation.
|
|
Balance
|
|
Provision
|
|
|
|
|
|
|
|
Balance
|
|
January
1,
|
|
charged
to
|
|
|
|
Gross
|
|
|
|
December
31,
|
(In
millions)
|
2007
|
|
operations
|
|
Other(a)
|
|
write-offs
|
|
Recoveries
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
385
|
|
$
|
402
|
|
$
|
(21)
|
|
$
|
(406)
|
|
$
|
91
|
|
$
|
451
|
Europe
|
|
204
|
|
|
114
|
|
|
44
|
|
|
(171)
|
|
|
39
|
|
|
230
|
Asia
|
|
48
|
|
|
40
|
|
|
186
|
|
|
(55)
|
|
|
7
|
|
|
226
|
Other
|
|
1
|
|
|
1
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
417
|
|
|
(139)
|
|
|
5
|
|
|
(129)
|
|
|
92
|
|
|
246
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
revolving credit
|
|
1,253
|
|
|
1,669
|
|
|
(23)
|
|
|
(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
|
|
|
57
|
|
|
(653)
|
|
|
362
|
|
|
324
|
Other
|
|
175
|
|
|
123
|
|
|
(3)
|
|
|
(198)
|
|
|
70
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
155
|
|
|
24
|
|
|
6
|
|
|
(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
|
|
$
|
(451)
|
|
$
|
(5,506)
|
|
$
|
1,824
|
|
$
|
4,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Other
primarily included the effects of acquisitions, currency exchange and
securitization activity.
|
(b)
|
During
the first quarter of 2009, we transferred Artesia from CLL to Consumer.
Prior-period amounts were reclassified to conform to the current-period’s
presentation.
|
NOTE
5. PROPERTY, PLANT AND EQUIPMENT
|
Depreciable
|
|
|
|
|
|
lives-new
|
|
|
|
|
December
31 (Dollars in millions)
|
(in
years)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Original
cost(a)
|
|
|
|
|
|
|
|
|
Land
and improvements, buildings, structures and
|
|
|
|
|
|
|
|
|
related
equipment
|
|
2-40
|
(b)
|
$
|
6,083
|
|
$
|
7,040
|
Equipment
leased to others
|
|
|
|
|
|
|
|
|
Aircraft
|
|
20
|
|
|
42,634
|
|
|
40,478
|
Vehicles(c)
|
|
1-14
|
|
|
21,589
|
|
|
32,098
|
Railroad
rolling stock
|
|
5-36
|
|
|
4,290
|
|
|
4,402
|
Construction
and manufacturing
|
|
2-24
|
|
|
2,758
|
|
|
3,357
|
Mobile
equipment
|
|
12-25
|
|
|
2,786
|
|
|
2,952
|
All
other
|
|
2-40
|
|
|
2,847
|
|
|
2,742
|
Total
|
|
|
|
$
|
82,987
|
|
$
|
93,069
|
|
|
|
|
|
|
|
|
|
Net
carrying value(a)
|
|
|
|
|
|
|
|
|
Land
and improvements, buildings, structures and
|
|
|
|
|
|
|
|
|
related
equipment
|
|
|
|
$
|
3,764
|
|
$
|
4,504
|
Equipment
leased to others
|
|
|
|
|
|
|
|
|
Aircraft(d)
|
|
|
|
|
32,983
|
|
|
32,288
|
Vehicles(c)
|
|
|
|
|
11,519
|
|
|
18,149
|
Railroad
rolling stock
|
|
|
|
|
2,887
|
|
|
2,915
|
Construction
and manufacturing
|
|
|
|
|
1,696
|
|
|
2,328
|
Mobile
equipment
|
|
|
|
|
1,913
|
|
|
2,021
|
All
other
|
|
|
|
|
1,929
|
|
|
1,838
|
Total
|
|
|
|
$
|
56,691
|
|
$
|
64,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
$1,609 million and $1,748 million of original cost of assets leased to GE
with accumulated amortization of $572 million and $491 million at December
31, 2009 and 2008, respectively.
|
(b)
|
Depreciable
lives exclude land.
|
(c)
|
At
December 31, 2008, included $7,774 million of original cost assets and
$4,737 million net carrying value related to Penske Truck Leasing Co.,
L.P. (PTL), which was deconsolidated in
2009.
|
(d)
|
GECAS
recognized impairment losses of $127 million in 2009 and $72 million in
2008 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 $7,157 million, $8,153 million and $7,192
million in 2009, 2008 and 2007, respectively. Noncancellable future rentals due
from customers for equipment on operating leases at December 31, 2009, are as
follows:
(In
millions)
|
|
|
|
|
|
Due
in
|
|
|
2010
|
$
|
7,812
|
2011
|
|
6,110
|
2012
|
|
4,724
|
2013
|
|
3,729
|
2014
|
|
3,046
|
2015
and later
|
|
8,820
|
Total
|
$
|
34,241
|
|
|
|
NOTE
6. GOODWILL AND OTHER INTANGIBLE ASSETS
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
Goodwill
|
$
|
28,820
|
|
$
|
25,204
|
|
|
|
|
|
|
Other
intangible assets
|
|
|
|
|
|
Intangible
assets subject to amortization
|
$
|
3,018
|
|
$
|
3,174
|
|
|
|
|
|
|
Changes
in goodwill balances follow.
|
2009
|
|
2008
|
|
|
|
Acquisitions/
|
|
Dispositions,
|
|
|
|
|
|
Acquisitions/
|
|
Dispositions,
|
|
|
|
|
|
|
acquisition
|
|
currency
|
|
|
|
|
|
|
|
acquisition
|
|
currency
|
|
|
|
Balance
|
accounting
|
|
exchange
|
|
Balance
|
Balance
|
|
accounting
|
|
exchange
|
|
Balance
|
(In
millions)
|
January
1
|
|
adjustments
|
|
and
other
|
|
December
31
|
|
January
1
|
|
adjustments
|
|
and
other
|
|
December
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
12,321
|
(a)
|
$
|
1,588
|
|
$
|
(15)
|
|
$
|
13,894
|
|
$
|
11,521
|
(a)
|
$
|
1,048
|
|
$
|
(248)
|
|
$
|
12,321
|
Consumer
|
|
9,407
|
(a)
|
|
1,648
|
|
|
406
|
|
|
11,461
|
|
|
10,623
|
(a)
|
|
475
|
|
|
(1,691)
|
|
|
9,407
|
Real
Estate
|
|
1,159
|
|
|
(7)
|
|
|
37
|
|
|
1,189
|
|
|
1,055
|
|
|
170
|
|
|
(66)
|
|
|
1,159
|
Energy
Financial Services
|
|
2,162
|
|
|
(4)
|
|
|
(39)
|
|
|
2,119
|
|
|
1,890
|
|
|
330
|
|
|
(58)
|
|
|
2,162
|
GECAS
|
|
155
|
|
|
–
|
|
|
2
|
|
|
157
|
|
|
162
|
|
|
1
|
|
|
(8)
|
|
|
155
|
Total
|
$
|
25,204
|
|
$
|
3,225
|
|
$
|
391
|
|
$
|
28,820
|
|
$
|
25,251
|
|
$
|
2,024
|
|
$
|
(2,071)
|
|
$
|
25,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Reflected
the transfer of Artesia during the first quarter of 2009, resulting in a
related movement of beginning goodwill balance of $326 million in 2009 and
$350 million in 2008.
|
Goodwill
related to new acquisitions in 2009 was $3,004 million and included acquisitions
of BAC Credomatic GECF Inc. (BAC) ($1,605 million) at Consumer and Interbanca
S.p.A. ($1,394 million) at CLL. During 2009, the goodwill balance increased by
$221 million related to acquisition accounting adjustments for prior-year
acquisitions. The most significant of these adjustments was an increase of $180
million associated with the 2008 acquisition of CitiCapital at CLL. Also during
2009, goodwill balances increased $391 million, primarily as a result of the
weaker U.S. dollar ($1,148 million), partially offset by the deconsolidation of
PTL ($634 million) at CLL.
On June
25, 2009, we increased our ownership in BAC from 49.99% to 75% for a purchase
price of $623 million, in accordance with terms of a previous agreement. We
remeasured our previously held equity investment to fair value, resulting in a
pre-tax gain of $343 million, which is reported in Revenues from
services.
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 Consumer, 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
acquisition 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.
Given the
significant decline in GE’s stock price in the first quarter of 2009 and market
conditions in the financial services industry at that time, we conducted an
additional impairment analysis of the reporting units during the first quarter
of 2009 using data as of January 1, 2009. As a result of these tests, no
goodwill impairment was recognized.
We
performed our annual impairment test for goodwill at all of our reporting units
in the third quarter using data as of July 1, 2009. In performing the
valuations, we used cash flows that reflected management’s forecasts and
discount rates that reflect the risks associated with the current market. Based
on the results of our testing, the fair values of CLL, Consumer, Energy
Financial Services and GECAS reporting units exceeded their book values;
therefore, the second step of the impairment test (in which fair value of each
of the reporting unit’s assets and liabilities are measured) was not required to
be performed and no goodwill impairment was recognized. Due to the volatility
and uncertainties in the current commercial real estate environment, we used a
range of valuations to determine the fair value for our Real Estate reporting
unit. While the Real Estate reporting unit’s book value was within the range of
its fair value, we further substantiated our Real Estate goodwill balance by
performing the second step analysis described above. As a result of our tests
for Real Estate, no goodwill impairment was recognized. Our Real Estate
reporting unit had a goodwill balance of $1,189 million at December 31,
2009.
Estimating
the fair value of reporting units involves the use of estimates and significant
judgments that are based on a number of factors including actual operating
results. If current conditions change from those expected, it is reasonably
possible that the judgments and estimates described above could change in future
periods.
Intangible
Assets Subject to Amortization
|
2009
|
|
2008
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
carrying
|
|
Accumulated
|
|
|
|
carrying
|
|
Accumulated
|
|
|
December
31 (In millions)
|
amount
|
|
amortization
|
|
Net
|
|
amount
|
|
amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
$
|
1,831
|
|
$
|
(690)
|
|
$
|
1,141
|
|
$
|
1,790
|
|
$
|
(616)
|
|
$
|
1,174
|
Patents,
licenses and trademarks
|
|
630
|
|
|
(461)
|
|
|
169
|
|
|
564
|
|
|
(460)
|
|
|
104
|
Capitalized
software
|
|
2,169
|
|
|
(1,558)
|
|
|
611
|
|
|
2,148
|
|
|
(1,463)
|
|
|
685
|
Lease
valuations
|
|
1,754
|
|
|
(793)
|
|
|
961
|
|
|
1,761
|
|
|
(594)
|
|
|
1,167
|
All
other
|
|
475
|
|
|
(339)
|
|
|
136
|
|
|
233
|
|
|
(189)
|
|
|
44
|
Total
|
$
|
6,859
|
|
$
|
(3,841)
|
|
$
|
3,018
|
|
$
|
6,496
|
|
$
|
(3,322)
|
|
$
|
3,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
2009, we recorded additions to intangible assets subject to amortization of $668
million. The components of finite-lived intangible assets acquired during 2009
and their respective weighted-average amortizable period are: $160 million –
Customer-related (11.5 years); $53 million – Patents, licenses and trademarks
(9.9 years); $192 million – Capitalized software (4.6 years); $4 million – Lease
valuations (5.2 years); and $259 million – All other (4.0 years).
Amortization
expense related to intangible assets subject to amortization was $888 million
and $926 million for 2009 and 2008, respectively. We estimate annual pre-tax
amortization for intangible assets subject to amortization over the next five
calendar years to be as follows: 2010 - $710 million; 2011 - $533 million; 2012
- $399 million; 2013 - $297 million; 2014 - $437 million.
NOTE
7. OTHER ASSETS
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
Real
estate(a)(b)
|
$
|
36,933
|
|
$
|
36,713
|
Associated
companies
|
|
26,000
|
|
|
19,289
|
Assets
held for sale(c)
|
|
3,692
|
|
|
5,038
|
Cost
method(b)
|
|
1,946
|
|
|
2,463
|
Other
|
|
1,984
|
|
|
1,836
|
|
|
70,555
|
|
|
65,339
|
|
|
|
|
|
|
Derivative
instruments
|
|
7,251
|
|
|
11,211
|
Advances
to suppliers
|
|
2,224
|
|
|
2,187
|
Deferred
acquisition costs
|
|
77
|
|
|
101
|
Deferred
borrowing costs(d)
|
|
2,559
|
|
|
1,497
|
Other
|
|
3,857
|
|
|
3,866
|
Total
|
$
|
86,523
|
|
$
|
84,201
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2009: office buildings (45%), apartment buildings (13%), industrial
properties (11%), retail facilities (9%), franchise properties (7%),
parking facilities (2%) and other (13%). At December 31, 2009, investments
were located in the Americas (46%), Europe (32%) 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, 2009,
were $417 million and $66 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, 2009, were $48 million and $13
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, 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.
|
(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, aircraft, equipment
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 $145 million and $112 million at
December 31, 2009 and 2008,
respectively.
|
(d)
|
Included
$1,642 million and $434 million at December 31, 2009 and 2008,
respectively, of unamortized fees related to our participation in the
Temporary Liquidity Guarantee
Program.
|
NOTE
8. BORROWINGS AND BANK DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
Borrowings
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
December
31 (Dollars in millions)
|
|
|
Amount
|
|
rate(a)
|
|
Amount
|
|
rate(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Paper
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured(b)
|
|
|
$
|
32,637
|
|
0.20
|
%
|
$
|
57,665
|
|
2.16
|
%
|
Asset-backed(c)
|
|
|
|
2,424
|
|
0.29
|
|
|
3,652
|
|
2.57
|
|
Non-U.S.
|
|
|
|
9,525
|
|
0.86
|
|
|
9,033
|
|
4.12
|
|
Current
portion of long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
borrowings(b)(d)(e)
|
|
|
|
70,260
|
|
3.39
|
|
|
69,680
|
|
3.83
|
|
GE
Interest Plus notes(f)
|
|
|
|
7,541
|
|
2.40
|
|
|
5,633
|
|
3.58
|
|
Other
|
|
|
|
6,834
|
|
|
|
|
13,304
|
|
|
|
Total
short-term borrowings
|
|
|
$
|
129,221
|
|
|
|
$
|
158,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Borrowings
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
December
31 (Dollars in millions)
|
Maturities
|
|
|
Amount
|
|
rate(a)
|
|
|
Amount
|
|
rate(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured(b)(e)(g)
|
2011-2055
|
|
$
|
313,079
|
|
3.23
|
%
|
$
|
296,740
|
|
4.82
|
|
Asset-backed(h)
|
2011-2035
|
|
|
3,390
|
|
4.01
|
|
|
5,002
|
|
5.12
|
|
Subordinated
notes(i)
|
2012-2037
|
|
|
2,388
|
|
5.51
|
|
|
2,567
|
|
5.48
|
|
Subordinated
debentures(j)
|
2066-2067
|
|
|
7,647
|
|
6.48
|
|
|
7,315
|
|
6.20
|
|
Other(k)
|
|
|
|
1,910
|
|
|
|
|
2,911
|
|
|
|
Total
long-term borrowings
|
|
|
$
|
328,414
|
|
|
|
$
|
314,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
deposits(l)
|
|
|
$
|
38,923
|
|
|
|
$
|
36,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
borrowings and bank deposits
|
|
|
$
|
496,558
|
|
|
|
$
|
510,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Based
on year-end balances and year-end local currency interest rates. Current
portion of long-term debt included the effects of related fair value
interest rate and currency hedges, if any, directly associated with the
original debt issuance.
|
(b)
|
GE
Capital had issued and outstanding $59,336 million (long-term borrowings)
and $35,243 million ($21,823 million commercial paper and $13,420 million
long-term borrowings) of senior, unsecured debt that was guaranteed by the
Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity
Guarantee Program at December 31, 2009 and 2008, respectively. GE Capital
and GE are parties to 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 GE Capital debt that is guaranteed by the
FDIC.
|
(c)
|
Consists
entirely of obligations of consolidated, liquidating securitization
entities. See Note 16.
|
(d)
|
Included
$204 million and $326 million of asset-backed senior notes, issued by
consolidated, liquidating securitization entities at December 31, 2009 and
2008, respectively.
|
(e)
|
Included
in total long-term borrowings was $3,138 million of obligations to holders
of guaranteed investment contracts at December 31, 2009, of which GE
Capital could be required to repay up to approximately $3,000 million if
our long-term credit rating were to fall below AA-/Aa3 or our short-term
credit rating were to fall below
A-1+/P-1.
|
(f)
|
Entirely
variable denomination floating rate demand
notes.
|
(g)
|
Included
$1,649 million of covered bonds at December 31, 2009. If the short-term
credit rating of GE Capital were reduced below A-1/P-1, GE Capital would
be required to partially cash collateralize these bonds in an amount up to
$775 million.
|
(h)
|
Included
$452 million and $2,104 million of asset-backed senior notes, issued by
consolidated, liquidating securitization entities at December 31, 2009 and
2008, respectively. See Note 16.
|
(i)
|
Included
$117 million and $450 million of subordinated notes guaranteed by GE at
December 31, 2009 and 2008,
respectively.
|
(j)
|
Subordinated
debentures receive rating agency equity credit and were hedged at issuance
to the U.S. dollar equivalent of $7,725
million.
|
(k)
|
Included
borrowings from GECS affiliates of $1,013 million and $1,006 million at
December 31, 2009 and 2008,
respectively.
|
(l)
|
Included
$21,252 million and $12,314 million of deposits in non-U.S. banks at
December 31, 2009 and 2008, respectively, and $10,476 million and $6,699
million of certificates of deposits distributed by brokers with maturities
greater than one year at December 31, 2009 and 2008,
respectively.
|
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 15.
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)
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,260
|
(a)
|
$
|
65,745
|
|
$
|
83,507
|
|
$
|
29,660
|
|
$
|
27,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Fixed
and floating rate notes of $632 million contain put options with exercise
dates in 2010, and which have final maturity beyond
2014.
|
Committed
credit lines totaling $51.7 billion had been extended to us by 59 banks at
year-end 2009. Availability of these lines is shared between GE and GECC with
$9.0 billion and $51.7 billion available to GE and GECC, respectively. Our lines
include $36.8 billion of revolving credit agreements under which we can borrow
funds for periods exceeding one year. Additionally, $14.4 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.
NOTE
9. 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)
|
2009
|
|
2008
|
|
|
|
|
|
|
Guaranteed
investment contracts
|
$
|
8,310
|
|
$
|
10,828
|
Unpaid
claims and claims adjustment expenses
|
|
69
|
|
|
174
|
Unearned
premiums
|
|
308
|
|
|
401
|
Total
|
$
|
8,687
|
|
$
|
11,403
|
|
|
|
|
|
|
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 $45 million and $159 million at December 31, 2009 and
2008, 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, 2009, 2008 and
2007.
NOTE
10. INCOME TAXES
Provision
for Income Taxes
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Current
tax expense (benefit)
|
$
|
(1,634)
|
|
$
|
(1,470)
|
|
$
|
1,017
|
Deferred
tax expense (benefit) from temporary differences
|
|
(2,247)
|
|
|
(795)
|
|
|
(278)
|
Total
|
$
|
(3,881)
|
|
$
|
(2,265)
|
|
$
|
739
|
|
|
|
|
|
|
|
|
|
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 (loss) from continuing operations before income taxes were $(6,575)
million in 2009, $(4,788) million in 2008 and $192 million in 2007. The
corresponding amounts for non-U.S. based operations were $4,331 million in 2009,
$10,779 million in 2008 and $12,722 million in 2007.
Current
tax expense (benefit) includes amounts applicable to U.S. federal income taxes
of $(2,080) million, $(2,674) million and $(791) million in 2009, 2008 and 2007,
respectively, and amounts applicable to non-U.S. jurisdictions of $657 million,
$1,281 million and $1,600 million in 2009, 2008 and 2007, respectively. Deferred
taxes related to U.S. federal income taxes were a benefit of $2,142 million and
$489 million in 2009 and 2008, respectively, and an expense of $81 million
in 2007.
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, which expired 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. A one-year extension was passed by the
House of Representatives in 2009 and the Senate Finance Committee Chairman and
Ranking Member have indicated an intention to extend the provision for one year
retroactive to the beginning of 2010, but there can be no assurance that it will
be extended. In the event the 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, 2009, were approximately $56
billion. Most of these earnings have been reinvested in active non-U.S. business
operations and we do not intend to repatriate these earnings to fund 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
2009, following the change in our external credit ratings, funding actions taken
and review of our operations, liquidity and funding, we determined that
undistributed prior-year earnings of non-U.S. subsidiaries of GECC, on which we
had previously provided deferred U.S. taxes, would be indefinitely reinvested
outside the U.S. This change increased the amount of prior-year earnings
indefinitely reinvested outside the U.S. by approximately $2 billion, resulting
in an income tax benefit of $700 million in 2009.
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 amendments to ASC 740, which
had no effect on retained earnings.
Annually,
GE files over 7,000 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. At December 31, 2009, the IRS was 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 were 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)
|
2009
|
|
2008
|
|
|
|
|
|
|
Unrecognized
tax benefits
|
$
|
3,820
|
|
$
|
3,454
|
Portion
that, if recognized, would reduce tax expense and effective tax
rate(a)
|
|
1,792
|
|
|
1,734
|
Accrued
interest on unrecognized tax benefits
|
|
713
|
|
|
693
|
Accrued
penalties on unrecognized tax benefits
|
|
73
|
|
|
65
|
Reasonably
possible reduction to the balance of unrecognized
|
|
|
|
|
|
tax
benefits in succeeding 12 months
|
|
0-650
|
|
|
0-350
|
Portion
that, if recognized, would reduce tax expense and effective tax
rate(a)
|
|
0-250
|
|
|
0-50
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
2009
|
|
2008
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
3,454
|
|
$
|
2,964
|
Additions
for tax positions of the current year
|
|
517
|
|
|
420
|
Additions
for tax positions of prior years
|
|
86
|
|
|
329
|
Reductions
for tax positions of prior years
|
|
(174)
|
|
|
(169)
|
Settlements
with tax authorities
|
|
(57)
|
|
|
(74)
|
Expiration
of the statute of limitations
|
|
(6)
|
|
|
(16)
|
Balance
at December 31
|
$
|
3,820
|
|
$
|
3,454
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2009, $20 million of interest expense and $8 million of tax expense related to
penalties were recognized in the statement of earnings, compared with $145
million and $10 million for the year ended December 31, 2008 and $(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
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
113.0
|
|
|
(67.0)
|
|
|
(22.4)
|
|
U.S.
business credits
|
|
14.2
|
|
|
(3.5)
|
|
|
(1.6)
|
|
SES
transaction
|
|
–
|
|
|
–
|
|
|
(4.3)
|
|
All
other - net
|
|
10.8
|
|
|
(2.3)
|
|
|
(1.0)
|
|
|
|
138.0
|
|
|
(72.8)
|
|
|
(29.3)
|
|
Actual
income tax rate
|
|
173.0
|
%
|
|
(37.8)
|
%
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
2009
and 2008 included 31.2% and (5.8)%, respectively, from indefinite
reinvestment of prior-year
earnings.
|
Deferred
Income Taxes
Principal
components of our net liability representing deferred income tax balances are as
follows:
December
31 (In millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Allowance
for losses
|
$
|
3,100
|
|
$
|
2,382
|
Cash
flow hedges
|
|
906
|
|
|
2,315
|
Net
unrealized losses on securities
|
|
331
|
|
|
1,027
|
Non-U.S.
loss carryforwards(a)
|
|
1,299
|
|
|
979
|
Other
- net
|
|
5,620
|
|
|
3,746
|
Total
deferred income tax assets
|
|
11,256
|
|
|
10,449
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Financing
leases
|
|
5,928
|
|
|
6,964
|
Operating
leases
|
|
5,525
|
|
|
4,859
|
Investment
in global subsidiaries
|
|
369
|
|
|
2,051
|
Intangible
assets
|
|
1,521
|
|
|
1,289
|
Other
- net
|
|
3,532
|
|
|
3,398
|
Total
deferred income tax liabilities
|
|
16,875
|
|
|
18,561
|
|
|
|
|
|
|
Net
deferred income tax liability
|
$
|
5,619
|
|
$
|
8,112
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Net
of valuation allowances of $344 million and $260 million for 2009 and
2008, respectively. Of the net deferred tax asset as of December 31, 2009,
of $1,299 million, $14 million relates to net operating loss carryforwards
that expire in various years ending from December 31, 2010, through
December 31, 2012; $191 million relates to net operating losses that
expire in various years ending from December 31, 2013, through December
31, 2024; and $1,094 million relates to net operating loss carryforwards
that may be carried forward
indefinitely.
|
NOTE
11. SHAREOWNER’S EQUITY
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Common
stock issued
|
$
|
56
|
|
$
|
56
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
(6,970)
|
|
$
|
6,489
|
|
$
|
4,813
|
Investment
securities - net of deferred taxes
|
|
|
|
|
|
|
|
|
of
$494, $(1,568) and $(190)
|
|
1,341
|
|
|
(2,152)
|
|
|
(286)
|
Currency
translation adjustments - net of deferred taxes
|
|
|
|
|
|
|
|
|
of
$(717), $4,167 and $(1,427)
|
|
2,565
|
|
|
(8,586)
|
|
|
2,572
|
Cash
flow hedges - net of deferred taxes
|
|
|
|
|
|
|
|
|
of
$917, $(2,288) and $(274)
|
|
896
|
|
|
(4,846)
|
|
|
376
|
Benefit
plans - net of deferred taxes
|
|
|
|
|
|
|
|
|
of
$(14), $(116) and $68(a)
|
|
(67)
|
|
|
(262)
|
|
|
173
|
Reclassification
adjustments
|
|
|
|
|
|
|
|
|
Investment
securities - net of deferred taxes
|
|
|
|
|
|
|
|
|
of
$255, $468 and $(147)
|
|
(4)
|
|
|
164
|
|
|
(220)
|
Currency
translation adjustments
|
|
–
|
|
|
(119)
|
|
|
(13)
|
Cash
flow hedges - net of deferred taxes
|
|
|
|
|
|
|
|
|
$399,
$642 and $(632)
|
|
541
|
|
|
2,342
|
|
|
(926)
|
Balance
at December 31
|
$
|
(1,698)
|
|
$
|
(6,970)
|
|
$
|
6,489
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
|
|
Balance
at January 1
|
$
|
19,671
|
|
$
|
14,172
|
|
$
|
14,088
|
Contributions(b)
|
|
8,760
|
|
|
5,499
|
|
|
84
|
Balance
at December 31
|
$
|
28,431
|
|
$
|
19,671
|
|
$
|
14,172
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
|
|
|
|
Balance
at January 1(c)
|
$
|
45,497
|
|
$
|
40,513
|
|
$
|
37,551
|
Net
earnings
|
|
1,455
|
|
|
7,310
|
|
|
9,815
|
Dividends
(b)
|
|
–
|
|
|
(2,351)
|
|
|
(6,853)
|
Other(b)(d)
|
|
(23)
|
|
|
–
|
|
|
–
|
Balance
at December 31
|
$
|
46,929
|
|
$
|
45,472
|
|
$
|
40,513
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
|
|
|
|
|
|
GECC
shareowner's equity balance at December 31
|
$
|
73,718
|
|
$
|
58,229
|
|
$
|
61,230
|
Noncontrolling
interests balance at December 31(e)
|
|
2,204
|
|
|
2,383
|
|
|
1,607
|
Total
equity balance at December 31
|
$
|
75,922
|
|
$
|
60,612
|
|
$
|
62,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
For
2009, included $93 million of gains (losses) arising during the year and
$(26) million of amortization of gains (losses) – net of deferred taxes of
$(25) million and $11 million, respectively. 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)
|
Total
dividends and other transactions with the shareowner increased equity by
$8,737 million in 2009 and $3,148 million in 2008 and decreased equity by
$6,769 million in 2007.
|
(c)
|
The
2009 opening balance was adjusted as of April 1, 2009, for the cumulative
effect of changes in accounting principles of $25 million related to
adopting amendments on impairment guidance in ASC 320, Investments – Debt and Equity
Securities. The cumulative effect of adopting ASC 825 at January 1,
2008, was insignificant. The 2007 opening balance change reflects
cumulative effect of change in accounting principle of $(77) million
related to adopting amendments to ASC 740. See note 1 for further
information.
|
(d)
|
Related
to accretion of redeemable securities to their redemption
value.
|
(e)
|
On
January 1, 2009, we adopted an amendment to ASC 810, Consolidation, that
requires us to classify noncontrolling interests (previously referred to
as “minority interest”) as part of shareowner’s equity and to disclose the
amount of other comprehensive income attributable to noncontrolling
interests. Changes to noncontrolling interests during 2009 resulted from
net earnings $58 million, dividends paid $(11) million, deconsolidation of
PTL $(331) million, other AOCI $(111) million and other changes of $216
million. Changes to the individual components of other AOCI attributable
to noncontrolling interests were primarily related to currency translation
adjustments $(69) million.
|
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 $148.2 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, 2009, the amount of restricted
net assets of these affiliates was $19.3 billion.
At
December 31, 2009 and 2008, the aggregate statutory capital and surplus of the
insurance activities totaled $0.8 billion and $0.6 billion, respectively.
Accounting practices prescribed by statutory authorities are used in preparing
statutory statements.
Noncontrolling
Interests
Noncontrolling
interests 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)
|
2009
|
|
2008
|
|
|
|
|
|
|
Noncontrolling
interests in consolidated affiliates(a)
|
$
|
1,927
|
|
$
|
2,106
|
Preferred
stock(b)
|
|
277
|
|
|
277
|
|
$
|
2,204
|
|
$
|
2,383
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
noncontrolling interests in partnerships and common shares of consolidated
affiliates.
|
(b)
|
The
preferred stock pays cumulative dividends at an average rate of
6.81%.
|
During
the first quarter of 2009, GE made a $9,500 million capital contribution to
GECS, of which GECS subsequently contributed $8,250 million to us. In addition,
we issued one share of common stock (par value $14) to GECS for $500
million.
NOTE
12. REVENUES FROM SERVICES
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on loans
|
$
|
19,941
|
|
$
|
26,894
|
|
$
|
23,344
|
|
Equipment
leased to others
|
|
12,192
|
|
|
15,517
|
|
|
15,187
|
|
Fees
|
|
4,631
|
|
|
6,003
|
|
|
6,042
|
|
Investment
income(a)
|
|
1,882
|
|
|
1,078
|
|
|
2,538
|
|
Financing
leases
|
|
3,302
|
|
|
4,351
|
|
|
4,646
|
|
Net
securitization gains
|
|
1,413
|
|
|
963
|
|
|
1,759
|
|
Real
estate investments
|
|
1,539
|
|
|
3,488
|
|
|
4,653
|
|
Associated
companies
|
|
1,059
|
|
|
2,217
|
|
|
2,165
|
|
Other
items(b)(c)
|
|
3,745
|
|
|
5,710
|
|
|
5,947
|
|
Total
|
$
|
49,704
|
|
$
|
66,221
|
|
$
|
66,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
net other-than-temporary impairments on investment securities of $327
million, $747 million and $8 million in 2009, 2008 and 2007, respectively.
Of the $327 million, $25 million related to impairments recognized in the
first quarter of 2009 that were reclassified to retained earnings as a
result of the amendments to ASC 320. See Note
3.
|
(b)
|
Included
a gain on the sale of a partial interest in a limited partnership in PTL
and a related gain on the remeasurement of the retained investment to fair
value totaling $296 million in the first quarter of 2009. See Note
16.
|
(c)
|
Included
a gain of $343 million on the remeasurement to fair value of our equity
method investment in BAC, following our acquisition of a controlling
interest in the second quarter of 2009. See Note
6.
|
NOTE
13. 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)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Equipment
for sublease
|
$
|
280
|
|
$
|
358
|
|
$
|
364
|
Other
rental expense
|
|
535
|
|
|
631
|
|
|
588
|
|
|
|
|
|
|
|
|
|
At
December 31, 2009, minimum rental commitments under noncancellable operating
leases aggregated $2,885 million. Amounts payable over the next five years
follow.
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
$
|
608
|
|
$
|
497
|
|
$
|
436
|
|
$
|
288
|
|
$
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
14. FAIR VALUE MEASUREMENTS
We
adopted ASC 820 in two steps; effective January 1, 2008, we adopted it for all
financial instruments and non-financial instruments accounted for at fair value
on a recurring basis and effective January 1, 2009, for all non-financial
instruments accounted for at fair value on a non-recurring basis. This guidance
establishes a new framework for measuring fair value and expands related
disclosures. Broadly, the 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. It
also establishes a three-level valuation hierarchy based upon observable and
non-observable inputs.
The
following tables present our assets and liabilities measured at fair value on a
recurring basis. Included in the tables are investment securities of $6,629
million and $8,190 million at December 31, 2009 and 2008, respectively,
supporting obligations to holders of guaranteed investment contracts. Such
securities are mainly investment grade.
|
|
|
|
|
|
|
|
|
|
Netting
|
|
|
|
(In
millions)
|
Level
1
|
|
Level
2
|
|
Level
3
|
(a)
|
|
adjustment
|
(b)
|
Net
balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
1,276
|
|
$
|
1,871
|
|
$
|
1,654
|
|
$
|
–
|
|
$
|
4,801
|
State
and municipal
|
|
–
|
|
|
501
|
|
|
173
|
|
|
–
|
|
|
674
|
Residential
mortgage-backed
|
|
–
|
|
|
2,254
|
|
|
44
|
|
|
–
|
|
|
2,298
|
Commercial
mortgage-backed
|
|
–
|
|
|
1,251
|
|
|
51
|
|
|
–
|
|
|
1,302
|
Asset-backed
|
|
–
|
|
|
719
|
|
|
1,806
|
|
|
–
|
|
|
2,525
|
Corporate
- non-U.S.
|
|
159
|
|
|
51
|
|
|
776
|
|
|
–
|
|
|
986
|
Government
- non-U.S.
|
|
1,277
|
|
|
1,023
|
|
|
151
|
|
|
–
|
|
|
2,451
|
U.S.
government and federal agency
|
|
85
|
|
|
1,780
|
|
|
–
|
|
|
–
|
|
|
1,865
|
Retained
interests
|
|
–
|
|
|
–
|
|
|
7,593
|
|
|
–
|
|
|
7,593
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
437
|
|
|
667
|
|
|
17
|
|
|
–
|
|
|
1,121
|
Trading
|
|
720
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
720
|
Derivatives(c)
|
|
–
|
|
|
10,411
|
|
|
451
|
|
|
(3,611)
|
|
|
7,251
|
Other(d)
|
|
–
|
|
|
–
|
|
|
595
|
|
|
–
|
|
|
595
|
Total
|
$
|
3,954
|
|
$
|
20,528
|
|
$
|
13,311
|
|
$
|
(3,611)
|
|
$
|
34,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
$
|
–
|
|
$
|
6,838
|
|
$
|
219
|
|
$
|
(3,623)
|
|
$
|
3,434
|
Other
|
|
–
|
|
|
32
|
|
|
–
|
|
|
–
|
|
|
32
|
Total
|
$
|
–
|
|
$
|
6,870
|
|
$
|
219
|
|
$
|
(3,623)
|
|
$
|
3,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
525
|
|
$
|
1,708
|
|
$
|
1,640
|
|
$
|
–
|
|
$
|
3,873
|
State
and municipal
|
|
–
|
|
|
603
|
|
|
247
|
|
|
–
|
|
|
850
|
Residential
mortgage-backed
|
|
30
|
|
|
3,113
|
|
|
118
|
|
|
–
|
|
|
3,261
|
Commercial
mortgage-backed
|
|
–
|
|
|
1,098
|
|
|
57
|
|
|
–
|
|
|
1,155
|
Asset-backed
|
|
–
|
|
|
676
|
|
|
1,580
|
|
|
–
|
|
|
2,256
|
Corporate
- non-U.S.
|
|
69
|
|
|
50
|
|
|
472
|
|
|
–
|
|
|
591
|
Government
- non-U.S.
|
|
495
|
|
|
11
|
|
|
417
|
|
|
–
|
|
|
923
|
U.S.
government and federal agency
|
|
5
|
|
|
24
|
|
|
–
|
|
|
–
|
|
|
29
|
Retained
interests
|
|
–
|
|
|
–
|
|
|
5,081
|
|
|
–
|
|
|
5,081
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
395
|
|
|
498
|
|
|
18
|
|
|
–
|
|
|
911
|
Trading
|
|
83
|
|
|
305
|
|
|
–
|
|
|
–
|
|
|
388
|
Derivatives(c)
|
|
–
|
|
|
17,721
|
|
|
544
|
|
|
(7,054)
|
|
|
11,211
|
Other(d)
|
|
–
|
|
|
288
|
|
|
551
|
|
|
–
|
|
|
839
|
Total
|
$
|
1,602
|
|
$
|
26,095
|
|
$
|
10,725
|
|
$
|
(7,054)
|
|
$
|
31,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
$
|
2
|
|
$
|
10,810
|
|
$
|
162
|
|
$
|
(7,218)
|
|
$
|
3,756
|
Derivatives
|
|
–
|
|
|
323
|
|
|
–
|
|
|
–
|
|
|
323
|
Other
|
$
|
2
|
|
$
|
11,133
|
|
$
|
162
|
|
$
|
(7,218)
|
|
$
|
4,079
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Level
3 investment securities valued using non-binding broker quotes totaled
$618 million and $556 million at December 31, 2009 and 2008, respectively,
and were classified as available-for-sale
securities.
|
(b)
|
The
netting of derivative receivables and payables is permitted when a legally
enforceable master netting agreement exists. Included fair value
adjustments related to our own and counterparty credit
risk.
|
|
(c)
|
The
fair value of derivatives included an adjustment for non-performance risk.
At December 31, 2009 and 2008, the cumulative adjustment was a gain of $12
million and $164 million,
respectively.
|
(d)
|
Included
private equity investments and loans designated under the fair value
option.
|
The
following tables present the changes in Level 3 instruments measured on a
recurring basis for the years ended December 31, 2009 and 2008, respectively.
The majority of our Level 3 balances consist of investment securities classified
as available-for-sale with changes in fair value recorded in shareowner’s
equity.
Changes
in Level 3 Instruments for the Year Ended December 31, 2009
|
|
|
|
|
Net
realized/
|
|
|
|
|
|
|
|
|
Net
change
|
|
|
|
|
|
|
unrealized
|
|
|
|
|
|
|
|
|
in
unrealized
|
|
|
|
|
|
|
gains
(losses)
|
|
|
|
|
|
|
|
|
gains
(losses)
|
|
|
|
|
Net
realized/
|
|
included
in
|
|
|
|
|
|
|
|
|
relating
to
|
|
|
|
|
unrealized
|
|
accumulated
|
|
Purchases,
|
|
Transfers
|
|
|
|
|
instruments
|
|
|
|
|
gains(losses)
|
|
other
|
|
issuances
|
|
in
and/or
|
|
|
|
|
still
held at
|
|
|
January
1,
|
|
included
in
|
|
comprehensive
|
|
and
|
|
out
of
|
|
December
31,
|
|
|
December
31,
|
|
(In
millions)
|
2009
|
|
earnings
|
(a)
|
income
|
|
settlements
|
|
Level
3
|
(b)
|
2009
|
|
|
2009
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
corporate
|
$
|
1,640
|
|
$
|
10
|
|
$
|
135
|
|
$
|
(195)
|
|
$
|
64
|
|
$
|
1,654
|
|
|
$
|
–
|
|
State
and municipal
|
|
247
|
|
|
–
|
|
|
(100)
|
|
|
(10)
|
|
|
36
|
|
|
173
|
|
|
|
–
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-backed
|
|
118
|
|
|
–
|
|
|
(4)
|
|
|
(20)
|
|
|
(50)
|
|
|
44
|
|
|
|
–
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-backed
|
|
57
|
|
|
–
|
|
|
(6)
|
|
|
–
|
|
|
–
|
|
|
51
|
|
|
|
–
|
|
Asset-backed
|
|
1,580
|
|
|
2
|
|
|
231
|
|
|
68
|
|
|
(75)
|
|
|
1,806
|
|
|
|
–
|
|
Corporate
- non-U.S.
|
|
472
|
|
|
(7)
|
|
|
35
|
|
|
90
|
|
|
186
|
|
|
776
|
|
|
|
–
|
|
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
non-U.S.
|
|
418
|
|
|
–
|
|
|
3
|
|
|
4
|
|
|
(274)
|
|
|
151
|
|
|
|
–
|
|
U.S.
government and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
federal
agency
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
–
|
|
Retained
interests
|
|
5,081
|
|
|
1,185
|
(d)
|
|
400
|
|
|
927
|
|
|
–
|
|
|
7,593
|
|
|
|
254
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
17
|
|
|
–
|
|
|
1
|
|
|
(1)
|
|
|
–
|
|
|
17
|
|
|
|
–
|
|
Trading
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
–
|
|
Derivatives(e)
|
|
401
|
|
|
93
|
|
|
(31)
|
|
|
(82)
|
|
|
(139)
|
|
|
242
|
|
|
|
80
|
|
Other
|
|
551
|
|
|
1
|
|
|
30
|
|
|
13
|
|
|
–
|
|
|
595
|
|
|
|
3
|
|
Total
|
$
|
10,582
|
|
$
|
1,284
|
|
$
|
694
|
|
$
|
794
|
|
$
|
(252)
|
|
$
|
13,102
|
|
|
$
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 out of Level 3 were a result of increased use of quotes
from independent pricing vendors based on recent trading
activity.
|
(c)
|
Represented
the amount of unrealized gains or losses for the period included in
earnings.
|
(d)
|
Primarily
comprised of interest accretion.
|
(e)
|
Represented
derivative assets net of derivative liabilities and included cash accruals
of $10 million not reflected in the fair value hierarchy
table.
|
Changes
in Level 3 Instruments for the Year Ended December 31, 2008
|
|
|
|
|
Net
realized/
|
|
|
|
|
|
|
|
|
Net
change
|
|
|
|
|
|
|
unrealized
|
|
|
|
|
|
|
|
|
in
unrealized
|
|
|
|
|
|
|
gains
(losses)
|
|
|
|
|
|
|
|
|
gains
(losses)
|
|
|
|
|
Net
realized/
|
|
included
in
|
|
|
|
|
|
|
|
|
relating
to
|
|
|
|
|
unrealized
|
|
accumulated
|
|
Purchases,
|
|
Transfers
|
|
|
|
|
instruments
|
|
|
|
|
gains(losses)
|
|
other
|
|
issuances
|
|
in
and/or
|
|
|
|
|
still
held at
|
|
|
January
1,
|
|
included
in
|
|
comprehensive
|
|
and
|
|
out
of
|
|
December
31,
|
|
|
December
31,
|
|
(In
millions)
|
2008
|
|
earnings
|
(a)
|
income
|
|
settlements
|
|
Level
3
|
(b)
|
2008
|
|
|
2008
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
$
|
8,329
|
|
$
|
750
|
|
$
|
(1,241)
|
|
$
|
777
|
|
$
|
1,015
|
|
$
|
9,630
|
|
|
$
|
6
|
|
Derivatives(d)(e)
|
|
200
|
|
|
265
|
|
|
142
|
|
|
(193)
|
|
|
(13)
|
|
|
401
|
|
|
|
89
|
|
Other
|
|
689
|
|
|
(67)
|
|
|
(29)
|
|
|
(93)
|
|
|
51
|
|
|
551
|
|
|
|
(67)
|
|
Total
|
$
|
9,218
|
|
$
|
948
|
|
$
|
(1,128)
|
|
$
|
491
|
|
$
|
1,053
|
|
$
|
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 unrealized gains or losses for the period included in
earnings.
|
(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.
|
Non-Recurring
Fair Value Measurements
Non-recurring
fair value amounts (as measured at the time of the adjustment) for assets still
held at December 31, 2009 and 2008, totaled $513 million and $48 million,
identified as Level 2, and $17,373 million and $3,100 million, identified as
Level 3, respectively. The increase in Level 3 amounts related primarily to our
retained investment in PTL ($5,751 million), financing receivables and loans
held for sale ($5,420 million), long-lived assets ($5,044 million), primarily
real estate held for investment, equipment leased to others and equipment held
for sale, and cost and equity method investments ($1,006
million).
The
following table represents the fair value adjustments to assets measured at fair
value on a non-recurring basis and still held at December 31, 2009 and
2008.
|
Year
ended December 31
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
Financing
receivables and loans held for sale
|
$
|
(1,694)
|
|
$
|
(583)
|
Cost
and equity method investments(a)
|
|
(921)
|
|
|
(404)
|
Long-lived
assets(b)
|
|
(1,004)
|
|
|
(227)
|
Retained
investments in formerly consolidated subsidiaries(b)
|
|
237
|
|
|
–
|
Other(b)
|
|
(29)
|
|
|
(222)
|
Total
|
$
|
(3,411)
|
|
$
|
(1,436)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes
fair value adjustments associated with private equity and real estate
funds of $(238) million and $(45) million during 2009 and 2008,
respectively.
|
(b)
|
ASC
820 was adopted for non-financial assets valued on a non-recurring basis
as of January 1, 2009.
|
NOTE
15. FINANCIAL INSTRUMENTS
The
following table provides information about the assets and liabilities not
carried at fair value in our Statement of Financial Position. Consistent with
ASC 825, Financial
Instruments, the table 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.
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Assets
(liabilities)
|
|
|
|
|
|
Assets
(liabilities)
|
|
|
Notional
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Notional
|
|
|
Carrying
|
|
|
Estimated
|
December
31 (In millions)
|
|
amount
|
|
|
amount(net)
|
|
|
fair
value
|
|
|
amount
|
|
|
amount(net)
|
|
|
fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
$
|
(a)
|
|
$
|
281,767
|
|
$
|
267,927
|
|
$
|
(a)
|
|
$
|
304,010
|
|
$
|
291,465
|
Other
commercial mortgages
|
|
(a)
|
|
|
120
|
|
|
120
|
|
|
(a)
|
|
|
374
|
|
|
374
|
Loans
held for sale
|
|
(a)
|
|
|
1,303
|
|
|
1,343
|
|
|
(a)
|
|
|
3,640
|
|
|
3,670
|
Other
financial instruments(b)
|
|
(a)
|
|
|
2,070
|
|
|
2,360
|
|
|
(a)
|
|
|
2,609
|
|
|
2,781
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bank
deposits(c)(d)
|
|
(a)
|
|
|
(496,558)
|
|
|
(502,297)
|
|
|
(a)
|
|
|
(510,356)
|
|
|
(491,240)
|
Guaranteed
investment contracts
|
|
(a)
|
|
|
(8,310)
|
|
|
(8,394)
|
|
|
(a)
|
|
|
(10,828)
|
|
|
(10,677)
|
Insurance
- credit life(e)
|
|
1,574
|
|
|
(79)
|
|
|
(52)
|
|
|
1,052
|
|
|
(46)
|
|
|
(33)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
These
financial instruments do not have notional
amounts.
|
(b)
|
Principally
cost method investments.
|
(d)
|
Fair
values exclude interest rate and currency derivatives designated as hedges
of borrowings. Had they been included, the fair value of borrowings at
December 31, 2009 and 2008 would have been reduced by $2,856 million and
$3,776 million, respectively.
|
(e)
|
Net
of reinsurance of $2,800 million and $3,100 million at December 31, 2009
and 2008, respectively.
|
A
description of how we estimate fair values follows.
Loans
Based on
quoted market prices, recent transactions and/or discounted future cash flows,
using rates we would charge to similar borrowers with similar
maturities.
Borrowings
and bank deposits
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 Consumer, 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)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Ordinary
course of business lending commitments(a)(b)
|
$
|
6,676
|
|
$
|
8,507
|
Unused
revolving credit lines(c)
|
|
|
|
|
|
Commercial
|
|
31,803
|
|
|
26,300
|
Consumer
- principally credit cards
|
|
231,880
|
|
|
252,867
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Excluded
investment commitments of $2,659 million and $3,501 million as of December
31, 2009 and 2008, respectively.
|
(b)
|
Included
a $972 million and $1,067 million commitment as of December 31, 2009 and
2008, respectively, associated with a secured financing arrangement that
can increase to a maximum of $4,998 million and $4,943 million based on
the asset volume under the arrangement as of December 31, 2009 and 2008,
respectively.
|
(c)
|
Excluded
inventory financing arrangements, which may be withdrawn at our option, of
$13,889 million and $14,503 million as of December 31, 2009 and 2008,
respectively.
|
Derivatives
and Hedging
As a
matter of policy, we use derivatives for risk management purposes, and we do not
use derivatives for speculative purposes. A key risk management objective for
our financial services businesses is to mitigate interest rate and currency risk
by seeking to ensure that the characteristics of the debt match the assets they
are funding. If the form (fixed versus floating) and currency denomination of
the debt we issue do not match the related assets, we typically execute
derivatives to adjust the nature and tenor of funding to meet this objective.
The determination of whether we enter into a derivative transaction or issue
debt directly to achieve this objective depends on a number of factors,
including customer needs for specific types of financing, and market related
factors that affect the type of debt we can issue.
Of the
outstanding notional amount of $314,000 million, approximately 93%, or $293,000
million, is associated with reducing or eliminating the interest rate, currency
or market risk between financial assets and liabilities in our financial
services businesses. The remaining derivative activities primarily relate to
hedging against adverse changes in currency exchange rates and commodity prices
related to anticipated sales and purchases, providing certain derivatives and/or
support arrangements to our customers, and contracts containing certain clauses
which meet the accounting definition of a derivative. The instruments used in
these activities are designated as hedges when practicable. When we are not able
to apply hedge accounting, or when the derivative and the hedged item are both
recorded in earnings currently, the derivatives are deemed economic hedges and
hedge accounting is not applied. This most frequently occurs when we hedge a
recognized foreign currency transaction (e.g., a receivable or payable) with a
derivative. Since the effects of changes in exchange rates are reflected
currently in earnings for both the derivative and the transaction, the economic
hedge does not require hedge accounting.
The
following table provides information about the fair value of our derivatives, by
contract type, separating those accounted for as hedges and those that are
not.
December
31 (In millions)
|
2009
|
|
Assets
|
|
Liabilities
|
Derivatives
accounted for as hedges
|
|
|
|
|
|
Interest
rate contracts
|
$
|
4,421
|
|
$
|
3,468
|
Currency
exchange contracts
|
|
4,199
|
|
|
2,316
|
Other
contracts
|
|
10
|
|
|
4
|
|
|
8,630
|
|
|
5,788
|
Derivatives
not accounted for as hedges
|
|
|
|
|
|
Interest
rate contracts
|
|
584
|
|
|
702
|
Currency
exchange contracts
|
|
1,319
|
|
|
462
|
Other
contracts
|
|
329
|
|
|
105
|
|
|
2,232
|
|
|
1,269
|
Netting
adjustment(a)
|
|
(3,611)
|
|
|
(3,623)
|
|
|
|
|
|
|
Total
|
$
|
7,251
|
|
$
|
3,434
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
are classified in the captions “Other assets” and “Other liabilities” in our
financial statements.
(a)
|
The
netting of derivative receivables and payables is permitted when a legally
enforceable master netting agreement exists. Amounts included fair value
adjustments related to our own and counterparty non-performance risk. At
December 31, 2009 and 2008, the cumulative adjustment for non-performance
risk was a gain of $12 million and $164 million,
respectively.
|
Fair
value hedges
We use
interest rate and currency exchange derivatives to hedge the fair value effects
of interest rate and currency exchange rate changes on local and non-functional
currency denominated fixed-rate borrowings. For relationships designated as fair
value hedges, changes in fair value of the derivatives are recorded in earnings
along with offsetting adjustments to the carrying amount of the hedged debt.
Through December 31, 2009, such adjustments increased the carrying amount of
debt outstanding by $3,675 million. The following table provides information
about the earnings effects of our fair value hedging relationships for the year
ended December 31, 2009.
|
|
|
|
Year
ended
|
|
December
31, 2009
|
(In
millions)
|
|
Financial
statement caption
|
|
Gain
(loss)
|
|
Gain
(loss)
|
|
on
hedging
|
on
hedged
|
|
derivatives
|
items
|
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
|
Interest
|
|
$
|
(5,194)
|
|
$
|
4,998
|
Currency
exchange contracts
|
|
Interest
|
|
|
(1,106)
|
|
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges resulted in $(209) million of ineffectiveness of which $(225)
million reflects amounts excluded from the assessment of effectiveness for the
year ended December 31, 2009.
Cash
flow hedges and net investment hedges in foreign operations
We use
interest rate, currency exchange 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.
For derivatives that are designated in a cash flow hedging relationship, the
effective portion of the change in fair value of the derivative is reported as a
component of AOCI and reclassified into earnings contemporaneously with the
earnings effects of the hedged transaction. Earnings effects of the derivative
and the hedged item are reported in the same caption in the Statement of
Earnings. Hedge ineffectiveness and components of changes in fair value of the
derivative that are excluded from the assessment of effectiveness are recognized
in earnings each reporting period.
We use
currency exchange derivatives to protect our net investments in global
operations conducted in non-U.S. dollar currencies. For derivatives that are
designated as hedges of net investment in a foreign operation, we assess
effectiveness based on changes in spot currency exchange rates. Changes in spot
rates on the derivative are recorded as a component of AOCI until such time as
the foreign entity is substantially liquidated or sold. The change in fair value
of the forward points, which reflects the interest rate differential between the
two countries on the derivative, are excluded from the effectiveness assessment
and are recorded currently in earnings.
The
following table provides information about the amounts recorded in the other
comprehensive income component within shareowner’s equity at December 31, 2009,
as well as the amounts recorded in each caption in the Statement of Earnings
when derivative amounts are reclassified out of other comprehensive income
related to our cash flow hedges and net investment hedges.
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
Gain
(loss)
|
|
|
|
|
|
|
|
|
reclassified
|
|
|
|
Gain
(loss)
|
|
|
|
|
from
|
|
|
|
recognized
|
|
|
|
|
AOCI
into
|
Year
ended December 31, 2009
|
|
|
in
OCI
|
|
Financial
statement caption
|
|
|
earnings
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
|
$
|
(747)
|
|
Interest
|
|
$
|
(2,051)
|
Currency
exchange contracts
|
|
|
2,390
|
|
Interest
|
|
|
1,190
|
|
|
|
|
|
Revenues
from services
|
|
|
(119)
|
Commodity
contracts
|
|
|
(25)
|
|
Revenues
from services
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,618
|
|
|
|
$
|
(980)
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss)
|
|
|
|
Gain
(loss)
|
|
recognized
|
reclassified
|
|
in
CTA
|
from
CTA
|
|
|
|
|
|
|
|
|
|
Net
investment hedges
|
|
|
|
|
|
|
|
|
Currency
exchange contracts
|
|
$
|
(5,994)
|
|
Revenues
from services
|
|
$
|
(84)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the
total pre-tax amount recorded in AOCI, $2,727 million related to cash flow
hedges of forecasted transactions of which we expect to transfer $1,434 million
to earnings as an expense in the next 12 months contemporaneously with the
earnings effects of the related forecasted transactions. In 2009, 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. At December 31, 2009, the maximum term of derivative instruments that
hedge forecasted transactions was 26 years and related to hedges of anticipated
interest payments associated with external debt.
For cash
flow hedges, the amount of ineffectiveness in the hedging relationship and
amount of the changes in fair value of the derivative that are not included in
the measurement of ineffectiveness are both reflected in earnings each reporting
period. These amounts totaled $50 million, of which $(18) million represents
amounts excluded from the assessment of effectiveness for the year ended
December 31, 2009, and primarily appear in Revenues from services.
Ineffectiveness from net investment hedges was $(899) million for the year ended
December 31, 2009, which primarily related to changes in value of the forward
points. These amounts appear in the “Interest” caption in the Statement of
Earnings.
Free-Standing
Derivatives
Changes
in the fair value of derivatives that are not designated as hedges are recorded
in earnings each period. As discussed above, these derivatives are typically
entered into as economic hedges of changes in interest rates, currency exchange
rates, commodity prices and other risks. Gains or losses related to the
derivative are recorded in predefined captions in the Statement of Earnings,
typically “Revenues from services”, based on our accounting policy. In general,
the earnings effects of the item that represent the economic risk exposure are
recorded in the same caption as the derivative. Gains for 2009 on derivatives
not designated as hedges were $662 million and related to interest rate
contracts of $195 million, currency exchange contracts of $353 million, and
commodity derivatives and other of $114 million. The vast majority of the $662
million was offset by the earnings effects from the underlying items that were
economically hedged.
Counterparty
Credit Risk
Fair
values of our derivatives can change significantly from period to period based
on, among other factors, market movements and changes in our
positions. Accordingly, we actively monitor these exposures and take
appropriate actions in response. We manage counterparty credit risk
(the risk that counterparties will default and not make payments to us according
to the terms of our standard master agreements) on an individual counterparty
basis. Where we have agreed to netting of derivative exposures with a
counterparty, we offset our exposures with that counterparty and apply the value
of collateral posted to us to determine the 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 typically take action
to reduce such exposures. These actions may include prohibiting additional
transactions with the counterparty, requiring additional collateral from the
counterparty (as described below) and terminating or restructuring
transactions.
As
discussed above, we have provisions in certain of our master agreements that
require counterparties to post collateral (typically, cash or U.S. Treasuries)
when our receivable due from the counterparty, measured at current market value,
exceeds a specified limit. At December 31, 2009, our exposure to counterparties,
net of collateral we hold, was $813 million. The fair value of such collateral
was $8,262 million, of which $2,387 million was cash and $5,875 million was in
the form of securities held by a custodian for our benefit. Under certain of
these same agreements, we post collateral to our counterparties for our
derivative obligations, the fair value of which was $1,855 million at December
31, 2009.
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 (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 typically have a minimum
A3/A-rating.
|
Exposure
Limits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
rating
|
|
|
Exposure(a)
|
|
|
|
|
|
With
collateral
|
|
|
Without
collateral
|
Moody's
|
|
S
& P
|
|
|
arrangements
|
|
|
arrangements
|
|
|
|
|
|
|
|
|
|
Aaa
|
|
AAA
|
|
$
|
100
|
|
$
|
75
|
Aa3
|
|
AA-
|
|
|
50
|
|
|
50
|
A3
|
|
A-
|
|
|
5
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
For
derivatives with exposures 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.
|
Additionally,
our standard master agreements typically contain mutual downgrade provisions
that provide the ability of each party to require termination if the long-term
credit rating of the counterparty were to fall below A-/A3. In certain of these
master agreements, each party also has the ability to require termination if the
short-term rating of the counterparty were to fall below A-1/P-1. The net amount
relating to our derivative liability of $3,434 million subject to these
provisions, after consideration of collateral posted by us, was $1,003 million
at December 31, 2009.
Support
of Customer Derivatives
We do not
sell protection under credit default swaps; however, as part of our risk
management services, we provide certain support agreements to third-party
financial institutions providing plain vanilla interest rate derivatives to our
customers in connection with variable rate loans we have extended to them. The
underwriting risk to our customers inherent in these arrangements, together with
the related loans, is essentially similar to that of a fixed rate loan. Under
these arrangements, the customer’s obligation to us is secured, usually by the
asset being purchased or financed, or by other assets of the customer. In
addition, these arrangements 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 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 such support
agreements was $24 million at December 31, 2009. Because we are supporting 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 fair value of customer
derivative contracts in a liability position at December 31, 2009, was $260
million before consideration of any offsetting effect of collateral. At December
31, 2009, 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 derivative. If we assumed that, on January 1, 2010, 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 $120 million. Given our underwriting criteria, we believe that
the likelihood that we will be required to perform under these arrangements is
remote.
NOTE
16. 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 alternative 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. The largest single category of VIEs that we are involved with are
Qualifying Special Purpose Entities (QSPEs), which have specific characteristics
that exclude them from the scope of consolidation standards. Investors in these
entities only have recourse to the assets owned by the entity and not to our
general credit, unless noted below. We do not have implicit support arrangements
with any VIE or QSPE. We did not provide non-contractual support for previously
transferred financing receivables to any VIE or QSPE in 2009 or
2008.
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.
In 2009,
the FASB issued ASU 2009-16 and ASU 2009-17 amendments to ASC 860, Transfers and Servicing, and
ASC 810, Consolidation,
respectively, which are effective for us on January 1, 2010. ASU 2009-16 will
eliminate the QSPE concept, and ASU 2009-17 will require that all such entities
be evaluated for consolidation as VIEs, which will result in our consolidating
substantially all of our former QSPEs. Upon adoption we will record
assets and liabilities of these entities at carrying amounts consistent as if
they had always been consolidated, which will require the reversal of a portion
of previously recognized securitization gains as a cumulative effect adjustment
to retained earnings.
Consolidated
Variable Interest Entities
On July
1, 2003 and January 1, 2004, we were required, as a result of amendments to U.S.
GAAP, to consolidate certain VIEs with aggregate assets and liabilities of $54.0
billion and $52.6 billion, respectively, which are further described below. At
December 31, 2009, assets and liabilities of those VIEs, and additional VIEs
consolidated as a result of subsequent acquisitions of financial companies,
totaled $15,136 million and $13,892 million, respectively (at December 31, 2008,
assets and liabilities were $25,210 million and $20,165 million,
respectively).
The
consolidated VIEs included in our 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 $2,608 million at December 31, 2009; and are primarily included in
Note 4 ($4,000 million in 2008). 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 $2,494
million at December 31, 2009, and are included in Note 8 ($3,868 million
in 2008). 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 $2,497 million at December 31, 2009. The
borrowings of these entities are reflected in our Statement of Financial
Position.
·
|
Trinity,
a group of sponsored special purpose entities, holds investment
securities, the majority of which are investment grade, funded by the
issuance of guaranteed investment contracts. At December 31, 2009, these
entities held $6,629 million of investment securities, included in Note 3,
and $716 million of cash and other assets ($8,190 million and $1,001
million, respectively, at December 31, 2008). The associated guaranteed
investment contract liabilities, included in Note 9, were $8,310 million
and $10,828 million at the end of December 31, 2009 and 2008,
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 $2,383 million to such entities as of December
31, 2009 pursuant to letters of credit issued by GE Capital. 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 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. As of
December 31, 2009, the value of these entities’ liabilities was $8,519 million
and the fair value of their assets was $7,345 million (which included unrealized
losses on investment securities of $1,448 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.
The
remaining assets ($5,183 million) and liabilities ($2,879 million) of
consolidated VIEs are primarily the result of transactions by acquired entities
and asset-backed financing involving commercial real estate and equipment
collateral. We have no recourse arrangements with these entities.
Unconsolidated
Variable Interest Entities
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 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
$9,664 million at year-end 2009 and are classified in two captions in
our financial statements: “Other assets” for investments accounted for under the
equity method, and “Financing receivables” for debt financing provided to these
entities. At December 31, 2009, “Other assets” totaled $8,895 million ($2,919
million at December 31, 2008) and financing receivables, included in Note 4,
totaled $769 million ($1,045 million at December 31, 2008). In addition to our
existing investments, we have contractual obligations to fund additional
investments in the unconsolidated VIEs of $1,387 million ($1,159 million at
December 31, 2008). Together, these represent our maximum exposure to loss if
the assets of the unconsolidated VIEs were to have no value
The
largest unconsolidated VIE with which we are involved is PTL, which is a rental
truck leasing joint venture. The total consolidated assets and liabilities of
PTL at December 31, 2008, were $7,444 million and $1,339 million, respectively.
In the first quarter of 2009, we sold a 1% limited partnership interest in PTL,
a previously consolidated VIE, to Penske Truck Leasing Corporation, the general
partner of PTL, whose majority shareowner is a member of GE’s Board of
Directors. The disposition of the shares, coupled with our resulting minority
position on the PTL advisory committee and related changes in our contractual
rights, resulted in the deconsolidation of PTL. We recognized a pre-tax gain on
the sale of $296 million, including a gain on the remeasurement of our retained
investment of $189 million. The measurement of the fair value of our retained
investment in PTL was based on a methodology that incorporated both discounted
cash flow information and market data. In applying this methodology, we utilized
different sources of information, including actual operating results, future
business plans, economic projections and market observable pricing multiples of
similar businesses. The resulting fair value reflected our position as a
noncontrolling shareowner at the conclusion of the transaction. At December 31,
2009, our remaining investment in PTL of $5,751 million comprised a 49.9%
partnership interest of $923 million and loans and advances of $4,828
million.
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 3.
Securitization
Activities
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 and receive a combination of cash and retained
interests in the assets transferred. The QSPE sells beneficial interests in the
assets transferred to third-party investors, to fund the purchase of the
assets.
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. In certain credit card
receivables trusts, we are required to maintain minimum free equity
(subordinated interest) of 4% or 7% depending on the credit rating of GE
Capital.
Financing
receivables transferred to securitization entities that remained outstanding and
our retained interests in those financing receivables at December 31, 2009 and
2008 follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Credit
card
|
|
|
Other
|
|
|
Total
|
December
31 (In millions)
|
|
Equipment
|
(a)(b)
|
|
real
estate
|
|
|
receivables
|
(b)
|
|
assets
|
|
|
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
amount outstanding
|
$
|
9,918
|
|
$
|
7,381
|
|
$
|
25,573
|
|
$
|
1,590
|
|
$
|
44,462
|
Included
within the amount above are
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
retained
interests of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
receivables(c)
|
|
–
|
|
|
–
|
|
|
2,471
|
|
|
–
|
|
|
2,471
|
Investment
securities
|
|
329
|
|
|
20
|
|
|
7,156
|
|
|
50
|
|
|
7,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(c)
|
|
–
|
|
|
–
|
|
|
3,802
|
|
|
–
|
|
|
3,802
|
Investment
securities
|
|
148
|
|
|
16
|
|
|
4,806
|
|
|
61
|
|
|
5,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
inventory floorplan receivables.
|
(b)
|
As
permitted by the terms of the applicable trust documents, in the second
and third quarters of 2009, we transferred $268 million of floorplan
financing receivables to the GE Dealer Floorplan Master Note Trust and
$328 million of credit card receivables to the GE Capital Credit Card
Master Note Trust in exchange for additional subordinated interests. These
actions had the effect of maintaining the AAA ratings of certain
securities issued by these
entities.
|
(c)
|
Uncertificated
seller’s 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. Further
information about how fair value is determined is presented in Note 14. 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 in a similar
manner to 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, 2009 and 2008 follow.
(Dollars
In millions)
|
Equipment
|
|
Commercial
|
|
Credit
card
|
|
Other
|
|
real
estate
|
receivables
|
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate(a)
|
|
7.6
|
%
|
|
27.8
|
%
|
|
9.1
|
%
|
|
3.5
|
%
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
(4)
|
|
$
|
(1)
|
|
$
|
(58)
|
|
$
|
−
|
|
20%
adverse change
|
|
(7)
|
|
|
(2)
|
|
|
(115)
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment
rate(a)(b)
|
|
3.8
|
%
|
|
0.8
|
%
|
|
9.9
|
%
|
|
57.9
|
%
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
−
|
|
$
|
−
|
|
$
|
(54)
|
|
$
|
−
|
|
20%
adverse change
|
|
−
|
|
|
−
|
|
|
(101)
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimate
of credit losses(a)
|
|
0.7
|
%
|
|
7.8
|
%
|
|
15.0
|
%
|
|
−
|
%
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
−
|
|
$
|
(2)
|
|
$
|
(207)
|
|
$
|
−
|
|
20%
adverse change
|
|
(1)
|
|
|
(4)
|
|
|
(413)
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
asset
lives (in months)
|
|
7
|
|
|
74
|
|
|
9
|
|
|
2
|
|
Net
credit losses for the year
|
$
|
−
|
|
$
|
15
|
|
$
|
1,914
|
|
$
|
−
|
|
Delinquencies
|
|
−
|
|
|
24
|
|
|
1,663
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 for the year
|
$
|
4
|
|
$
|
7
|
|
$
|
1,512
|
|
$
|
−
|
|
Delinquencies
|
|
27
|
|
|
58
|
|
|
1,833
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Cash
flows on transfers
|
|
|
|
|
|
|
|
|
Proceeds
from new transfers
|
$
|
10,013
|
|
$
|
6,655
|
|
$
|
20,502
|
Proceeds
from collections reinvested
|
|
|
|
|
|
|
|
|
in
revolving period transfers
|
|
42,517
|
|
|
49,868
|
|
|
55,894
|
Cash
flows on retained interests recorded
|
|
|
|
|
|
|
|
|
as
investment securities
|
|
4,510
|
|
|
3,764
|
|
|
3,370
|
|
|
|
|
|
|
|
|
|
Effect
on Revenues from services
|
|
|
|
|
|
|
|
|
Net
gain on sale
|
$
|
1,413
|
|
$
|
963
|
|
$
|
1759
|
Change
in fair value of retained interests
|
|
|
|
|
|
|
|
|
recorded
in earnings
|
|
291
|
|
|
(113)
|
|
|
(102)
|
Other-than-temporary
impairments
|
|
(36)
|
|
|
(29)
|
|
|
(18)
|
|
|
|
|
|
|
|
|
|
Derivative
Activities
In
connection with some securitization transactions, the QSPEs use derivatives to
manage interest rate risk between the assets they own and liabilities they
issue. In such instances, at the inception of the transaction, the QSPE will
enter into a derivative that generally requires the payment of a fixed rate of
interest to a counterparty in exchange for a floating rate of interest in order
to eliminate interest rate, and in certain instances, payment speed volatility.
In some cases, a GE entity is the counterparty to a QSPE’s derivative; the fair
value of these derivatives was a net asset of $136 million and $205 million at
December 31, 2009 and 2008, respectively. In such cases, a second derivative is
executed with a third party to minimize or eliminate the exposure created by the
first derivative.
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, 2009 and 2008. We received servicing fees from
QSPEs of $608 million, $642 million and $566 million in 2009, 2008 and 2007,
respectively.
Where we
provide servicing 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 provided our credit rating does not fall below levels
specified in each of our securitization agreements. Based on our current rating
we do not anticipate any restriction to commingling cash under these agreements.
At December 31, 2009 and 2008, accounts payable included $4,138 million and
$3,456 million, respectively, representing obligations to QSPEs for collections
received in our capacity as servicer from obligors of the QSPEs.
Included
in other receivables at December 31, 2009 and 2008, were $3,502 million and
$2,346 million, respectively, relating to amounts owed by QSPEs to GECC,
principally for the purchase of financial assets.
NOTE
17. COMMITMENTS AND GUARANTEES
Commitments
GECAS had
placed multiple-year orders for various Boeing, Airbus and other aircraft with
list prices approximating $12,603 million and secondary orders with airlines for
used aircraft of approximately $2,165 million at December 31, 2009.
Guarantees
At
December 31, 2009, we were committed under the following guarantee arrangements
beyond those provided on behalf of QSPEs and VIEs. See Note 16.
·
|
Credit support. We have
provided $6,902 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, or 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 $38 million for
December 31, 2009.
|
·
|
Indemnification
agreements. These are agreements that require us to fund up to $101
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 December 31, 2009. The liability for these
indemnification agreements was $20 million at December 31, 2009. We had
$1,493 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, 2009, we had total maximum exposure for future estimated
payments of $7 million, of which none was earned and
payable.
|
|
In
connection with the sale of GE Money Japan, we 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 total claims as calculated
under the terms of the agreement exceed approximately $3,000 million.
During the second quarter of 2009, we accrued $132 million, which
represents the amount by which we expect claims to exceed those levels and
is based on our historical and recent claims experience and the estimated
future requests, taking into consideration the ability and likelihood of
customers to make claims and other industry risk factors. 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 possible claims exposure. We will
continue to review our estimated exposure quarterly, and make adjustments
when required.
|
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, 2009 and 2008, the likelihood that we will be called upon to
perform on these guarantees is remote.
NOTE
18. 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 and
adjustments to assets. In 2009, we had non-cash transactions related to
foreclosed properties and repossessed assets totaling $1,364
million.
Certain
supplemental information related to our cash flows is shown below.
December
31 (In millions)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
All
other operating activities
|
|
|
|
|
|
|
|
|
Net
change in other assets
|
$
|
(285)
|
|
$
|
(1,588)
|
|
$
|
(1,608)
|
Amortization
of intangible assets
|
|
888
|
|
|
926
|
|
|
773
|
Realized
losses (gains) on investment securities
|
|
251
|
|
|
632
|
|
|
(367)
|
Cash
collateral on derivative contracts
|
|
(6,858)
|
|
|
7,769
|
|
|
-
|
Change
in other liabilities
|
|
(5,404)
|
|
|
(3,262)
|
|
|
3,365
|
Other
|
|
38
|
|
|
1,890
|
|
|
(2,414)
|
|
$
|
(11,370)
|
|
$
|
6,367
|
|
$
|
(251)
|
|
|
|
|
|
|
|
|
|
Net
decrease (increase) in financing receivables
|
|
|
|
|
|
|
|
|
Increase
in loans to customers
|
$
|
(278,372)
|
|
$
|
(408,965)
|
|
$
|
(391,662)
|
Principal
collections from customers - loans
|
|
285,138
|
|
|
358,448
|
|
|
304,402
|
Investment
in equipment for financing leases
|
|
(9,511)
|
|
|
(21,690)
|
|
|
(26,536)
|
Principal
collections from customers - financing leases
|
|
17,490
|
|
|
19,669
|
|
|
21,230
|
Net
change in credit card receivables
|
|
(28,508)
|
|
|
(34,498)
|
|
|
(38,405)
|
Sales
of financing receivables
|
|
57,282
|
|
|
67,163
|
|
|
86,399
|
|
$
|
43,519
|
|
$
|
(19,873)
|
|
$
|
(44,572)
|
All
other investing activities
|
|
|
|
|
|
|
|
|
Purchases
of securities by insurance activities
|
$
|
(32)
|
|
$
|
(1,346)
|
|
$
|
(10,185)
|
Dispositions
and maturities of securities by insurance activities
|
|
2,182
|
|
|
2,623
|
|
|
10,255
|
Other
assets - investments
|
|
(225)
|
|
|
(92)
|
|
|
(10,284)
|
Change
in other receivables
|
|
2,045
|
|
|
5,722
|
|
|
7,286
|
Other
|
|
(2,840)
|
|
|
1,226
|
|
|
899
|
|
$
|
1,130
|
|
$
|
8,133
|
|
$
|
(2,029)
|
Newly
issued debt having maturities longer than 90 days
|
|
|
|
|
|
|
|
|
Short-term
(91 to 365 days)
|
$
|
5,801
|
|
$
|
34,445
|
|
$
|
1,226
|
Long-term
(longer than one year)
|
|
75,592
|
|
|
81,364
|
|
|
90,459
|
Proceeds
- nonrecourse, leveraged lease
|
|
48
|
|
|
113
|
|
|
24
|
|
$
|
81,441
|
|
$
|
115,922
|
|
$
|
91,709
|
Repayments
and other reductions of debt having maturities
|
|
|
|
|
|
|
|
|
longer
than 90 days
|
|
|
|
|
|
|
|
|
Short-term
(91 to 365 days)
|
$
|
(77,444)
|
|
$
|
(65,985)
|
|
$
|
(43,902)
|
Long-term
(longer than one year)
|
|
(5,379)
|
|
|
(331)
|
|
|
(7,700)
|
Principal
payments - nonrecourse, leveraged lease
|
|
(680)
|
|
|
(637)
|
|
|
(1,109)
|
|
$
|
(83,503)
|
|
$
|
(66,953)
|
|
$
|
(52,711)
|
All
other financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from sales of investment contracts
|
$
|
7,818
|
|
$
|
11,397
|
|
$
|
12,611
|
Redemption
of investment contracts
|
|
(10,213)
|
|
|
(12,696)
|
|
|
(13,036)
|
Other
|
|
180
|
|
|
2
|
|
|
17
|
|
$
|
(2,215)
|
|
$
|
(1,297)
|
|
$
|
(408)
|
|
|
|
|
|
|
|
|
|
NOTE
19. 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, 2009 and 2008, financing receivables included $6,175 million and
$5,913 million, respectively, of receivables from GE customers. Other
receivables included $3,901 million and $4,560 million, respectively, of
receivables from GE. Property, plant and equipment included $1,037 million and
$1,257 million, respectively, of property, plant and equipment leased to GE, net
of accumulated depreciation. Borrowings included $2,327 million and $2,490
million, respectively, of amounts held by GE.
Effective
January 1, 2010, General Electric Company (GE) expanded the GE Capital Finance
segment to include all of the continuing operations of GECC and renamed it GE
Capital. In addition, the Transportation Financial Services business, previously
reported in GECAS, will be included in CLL and our Consumer business in Italy,
previously reported in Consumer, will be included in CLL.
Results
for 2009 and prior periods are reported on the basis under which we managed our
business in 2009 and do not reflect the January 2010 reorganization described
above.
Details
of segment profit by operating segment can be found in the Summary of Operating
Segments table on page 21 of this Report.
Revenues
|
Total
revenues
|
|
Intersegment
revenues(a)
|
|
External
revenues
|
(In millions)
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
20,107
|
|
$
|
26,067
|
|
$
|
26,099
|
|
$
|
30
|
|
$
|
47
|
|
$
|
74
|
|
$
|
20,077
|
|
$
|
26,020
|
|
$
|
26,025
|
Consumer
|
|
19,268
|
|
|
25,311
|
|
|
25,054
|
|
|
8
|
|
|
32
|
|
|
–
|
|
|
19,260
|
|
|
25,279
|
|
|
25,054
|
Real
Estate
|
|
3,996
|
|
|
6,660
|
|
|
6,950
|
|
|
2
|
|
|
1
|
|
|
5
|
|
|
3,994
|
|
|
6,659
|
|
|
6,945
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
2,115
|
|
|
3,696
|
|
|
2,400
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,115
|
|
|
3,696
|
|
|
2,400
|
GECAS
|
|
4,703
|
|
|
4,899
|
|
|
4,835
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
4,703
|
|
|
4,899
|
|
|
4,835
|
GECC
corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
items
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
eliminations
|
|
484
|
|
|
1,361
|
|
|
1,661
|
|
|
(40)
|
|
|
(80)
|
|
|
(79)
|
|
|
524
|
|
|
1,441
|
|
|
1,740
|
Total
|
$
|
50,673
|
|
$
|
67,994
|
|
$
|
66,999
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
50,673
|
|
$
|
67,994
|
|
$
|
66,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Sales
from one component to another generally are priced at equivalent
commercial selling prices.
|
Revenues
from customers located in the United States were $23,172 million, $30,672
million and $30,755 million in 2009, 2008 and 2007, respectively. Revenues from
customers located outside the United States were $27,501 million, $37,322
million and $36,244 million in 2009, 2008 and 2007,
respectively.
|
Depreciation
and amortization
|
|
Provision
(benefit) for
|
|
For
the years ended December 31
|
|
income
taxes
|
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
5,950
|
|
$
|
7,053
|
|
$
|
6,073
|
|
$
|
(666)
|
|
$
|
(371)
|
|
$
|
(96)
|
Consumer
|
|
397
|
|
|
550
|
|
|
483
|
|
|
(1,267)
|
|
|
(1,442)
|
|
|
518
|
Real
Estate
|
|
919
|
|
|
930
|
|
|
709
|
|
|
(1,322)
|
|
|
(380)
|
|
|
250
|
Energy
Financial Services
|
|
173
|
|
|
156
|
|
|
78
|
|
|
(177)
|
|
|
105
|
|
|
184
|
GECAS
|
|
1,721
|
|
|
1,522
|
|
|
1,489
|
|
|
(9)
|
|
|
100
|
|
|
61
|
GECC
corporate items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
eliminations
|
|
29
|
|
|
19
|
|
|
20
|
|
|
(440)
|
|
|
(277)
|
|
|
(178)
|
Total
|
$
|
9,189
|
|
$
|
10,230
|
|
$
|
8,852
|
|
$
|
(3,881)
|
|
$
|
(2,265)
|
|
$
|
739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on Loans(a)
|
|
Interest
expense(b)
|
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
5,713
|
|
$
|
7,219
|
|
$
|
6,251
|
|
$
|
6,496
|
|
$
|
8,876
|
|
$
|
8,230
|
Consumer
|
|
11,411
|
|
|
16,104
|
|
|
14,313
|
|
|
6,183
|
|
|
10,150
|
|
|
9,107
|
Real
Estate
|
|
2,099
|
|
|
2,598
|
|
|
1,802
|
|
|
2,911
|
|
|
3,548
|
|
|
2,669
|
Energy
Financial Services
|
|
238
|
|
|
340
|
|
|
246
|
|
|
743
|
|
|
764
|
|
|
694
|
GECAS
|
|
389
|
|
|
486
|
|
|
502
|
|
|
1,453
|
|
|
1,593
|
|
|
1,706
|
GECC
corporate items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
eliminations
|
|
91
|
|
|
147
|
|
|
230
|
|
|
76
|
|
|
(72)
|
|
|
(126)
|
Total
|
$
|
19,941
|
|
$
|
26,894
|
|
$
|
23,344
|
|
$
|
17,862
|
|
$
|
24,859
|
|
$
|
22,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents
one component of Revenues from services, see Note
12.
|
(b)
|
Represents
total interest expense, see Statement of
Earnings.
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
|
additions(d)
|
|
Assets(a)(b)(c)
|
|
For
the years ended
|
|
At
December 31
|
|
December
31
|
(In
millions)
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
203,596
|
|
$
|
226,161
|
|
$
|
221,338
|
|
$
|
2,965
|
|
$
|
10,818
|
|
$
|
12,781
|
Consumer
|
|
175,232
|
|
|
187,760
|
|
|
214,374
|
|
|
146
|
|
|
251
|
|
|
213
|
Real
Estate
|
|
81,378
|
|
|
84,909
|
|
|
79,006
|
|
|
5
|
|
|
6
|
|
|
26
|
Energy
Financial Services
|
|
22,540
|
|
|
22,025
|
|
|
18,653
|
|
|
191
|
|
|
944
|
|
|
1,273
|
GECAS
|
|
50,856
|
|
|
49,257
|
|
|
46,970
|
|
|
3,062
|
|
|
3,157
|
|
|
3,327
|
GECC
corporate items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
eliminations
|
|
89,495
|
|
|
67,298
|
|
|
40,391
|
|
|
14
|
|
|
13
|
|
|
8
|
Total
|
$
|
623,097
|
|
$
|
637,410
|
|
$
|
620,732
|
|
$
|
6,383
|
|
$
|
15,189
|
|
$
|
17,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Assets
of discontinued operations are included in GECC corporate items and
eliminations for all periods
presented.
|
(b)
|
Total
assets of the CLL, Consumer, Energy Financial Services and GECAS operating
segments at December 31, 2009, include investment in and advances to
associated companies of $8,117 million, $10,299 million, $6,806 million
and $778 million, respectively. Investments in and advances to associated
companies contributed approximately $56 million, $794 million, $173
million and $36 million, respectively, to segment pre-tax income for the
year ended December 31, 2009.
|
(c)
|
Aggregate
summarized financial information for significant associated companies
assuming a 100% ownership interest included total assets in 2009 and 2008
of $137,705 million and $141,902 million, respectively. Assets
were primarily financing receivables of $82,873 million in 2009 and
$86,341 in 2008. Total liabilities in 2009 and 2008 were
$118,708 million and $119,631 million, respectively, consisted primarily
of bank deposits of $69,573 million in 2009 and $65,822 million in 2008
and debt of $48,677 million in 2009 and $43,003 million in 2008. Revenues
in 2009, 2008, and 2007 totaled $17,579 million, $12,596 million, $5,381
million respectively, and net earnings in 2009, 2008 and 2007 totaled
$3,429 million, $2,642 million $1,298 million,
respectively.
|
(d)
|
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 $12,585 million, $18,625 million and $18,276 million at year-end 2009, 2008
and 2007, respectively. Property, plant and equipment – net associated with
operations based outside the United States were $44,106 million, $45,418 million
and $45,409 million at year-end 2009, 2008 and 2007, respectively.
NOTE
20. QUARTERLY INFORMATION (UNAUDITED)
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
(In
millions)
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
|
13,636
|
|
$
|
17,123
|
|
$
|
12,588
|
|
$
|
18,149
|
|
$
|
11,865
|
|
$
|
17,624
|
|
$
|
12,584
|
|
$
|
15,098
|
Earnings
(loss) from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
income taxes
|
|
(104)
|
|
|
2,598
|
|
|
(265)
|
|
|
2,859
|
|
|
(1,042)
|
|
|
1,786
|
|
|
(833)
|
|
|
(1,252)
|
Benefit
(provision) for income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
|
|
1,146
|
|
|
(81)
|
|
|
687
|
|
|
(46)
|
|
|
1,145
|
|
|
413
|
|
|
903
|
|
|
1,979
|
Earnings
from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
1,042
|
|
|
2,517
|
|
|
422
|
|
|
2,813
|
|
|
103
|
|
|
2,199
|
|
|
70
|
|
|
727
|
Loss
from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of taxes
|
|
(3)
|
|
|
(46)
|
|
|
(194)
|
|
|
(336)
|
|
|
84
|
|
|
(169)
|
|
|
(11)
|
|
|
(153)
|
Net
earnings
|
|
1,039
|
|
|
2,471
|
|
|
228
|
|
|
2,477
|
|
|
187
|
|
|
2,030
|
|
|
59
|
|
|
574
|
Less
net earnings attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling
interests
|
|
50
|
|
|
36
|
|
|
29
|
|
|
63
|
|
|
16
|
|
|
111
|
|
|
(37)
|
|
|
32
|
Net
earnings attributable to GECC
|
$
|
989
|
|
$
|
2,435
|
|
$
|
199
|
|
$
|
2,414
|
|
$
|
171
|
|
$
|
1,919
|
|
$
|
96
|
|
$
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
Not
applicable.
Item
9A. Controls and Procedures.
Under the
direction of our 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, 2009, and (ii) no change in
internal control over financial reporting occurred during the quarter ended
December 31, 2009, 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
Item
10. Directors, Executive Officers and Corporate Governance.
Not
required by this form.
Item
11. Executive Compensation.
Not
required by this form.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Not
required by this form.
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
Not
required by this form.
Item
14. Principal Accounting Fees and Services.
The
aggregate fees billed for professional services by KPMG LLP, in 2009 and 2008
were:
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
Type
of fees
|
|
|
|
|
|
Audit
fees
|
$
|
36.4
|
|
$
|
34.9
|
Audit-related
fees
|
|
4.6
|
|
|
10
|
Tax
fees
|
|
6.0
|
|
|
4.8
|
Total
|
$
|
47.0
|
|
$
|
49.7
|
|
|
|
|
|
|
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; 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.
“Audit-related fees” also include merger and acquisition due diligence and audit
services and employee benefit plan audits. “Tax fees” are fees for tax
compliance, tax advice and tax planning.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
(a) 1.
|
Financial
Statements
|
|
|
Included
in Part II of this report:
|
|
|
|
Report
of Independent Registered Public Accounting Firm
Management’s
Annual Report on Internal Control over Financial Reporting
Statement
of Earnings for each of the years in the three-year period
ended December 31,
2009
Statement
of Changes in Shareowner’s Equity for each of the years in the three-year
period ended December 31, 2009
Statement
of Financial Position at December 31, 2009 and 2008
Statement
of Cash Flows for each of the years in the three-year period
ended December 31,
2009
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, 2009 (pages 25 through
167), 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
001-06461)).
|
|
|
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 ended March 31, 2008 (Commission file number
001-06461)).
|
|
|
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 001-06461)).
|
|
|
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
001-06461)).
|
|
|
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 001-06461)).
|
|
|
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 001-06461)).
|
|
|
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 001-06461)).
|
|
|
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 001-06461)).
|
|
|
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 001-06461)).
|
|
|
|
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 001-06461)).
|
|
|
|
4(h)
|
|
Sixth
Supplemental Indenture dated as of April 2, 2009, supplemental to Third
Amended and Restated Indenture dated as of February 27,
1997.*
|
|
|
|
4(i)
|
|
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 001-06461)).
|
|
|
|
4(j)
|
|
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
001-06461)).
|
|
|
|
4(k)
|
|
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
001-06461)).
|
|
|
|
4(l)
|
|
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
001-06461)).
|
|
|
|
4(m)
|
|
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
001-06461)).
|
|
|
|
4(n)
|
|
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 001-06461)).
|
|
|
|
4(o)
|
|
Form
of Euro Medium-Term Note and Debt Security – Permanent Global Fixed Rate
Bearer Note (Incorporated by reference to Exhibit 4(i) to GECS’ Form 10-K
Report for the year ended December 31, 2006 (Commission file number
000-14804)).
|
|
|
|
4(p)
|
|
Form
of Euro Medium-Term Note and Debt Security – Permanent Global Floating
Rate Bearer Note (Incorporated by reference to Exhibit 4(j) to GECS’ Form
10-K Report for the year ended December 31, 2006 (Commission file number
000-14804)).
|
|
|
|
4(q)
|
|
Form
of Euro Medium-Term Note and Debt Security – Temporary Global Fixed Rate
Bearer Note (Incorporated by reference to Exhibit 4(k) to GECS’ Form 10-K
Report for the year ended December 31, 2006 (Commission file number
000-14804)).
|
|
|
|
4(r)
|
|
Form
of Euro Medium-Term Note and Debt Security – Temporary Global Floating
Rate Bearer Note (Incorporated by reference to Exhibit 4(l) to GECS’ Form
10-K Report for the year ended December 31, 2006 (Commission file number
000-14804)).
|
|
|
4(s)
|
|
Form
of Euro Medium-Term Note and Debt Security – Definitive Fixed Rate Bearer
Note (Incorporated by reference to Exhibit 4(m) to GECS’ Form 10-K Report
for the year ended December 31, 2006 (Commission file number
000-14804)).
|
|
|
|
|
|
|
4(t)
|
|
Form
of Euro Medium-Term Note and Debt Security – Definitive Floating Rate
Bearer Note (Incorporated by reference to Exhibit 4(n) to GECS’ Form 10-K
Report for the year ended December 31, 2006 (Commission file number
000-14804)).
|
|
|
|
4(u)
|
|
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 001-06461)).
|
|
|
|
4(v)
|
|
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
001-06461)).
|
|
|
|
4(w)
|
|
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 consolidated subsidiaries.*
|
|
|
|
|
10(a)
|
|
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)).
|
|
|
10(b)
|
|
Amended
and Restated Income Maintenance Agreement, dated October 29, 2009, between
General Electric Company and General Electric Capital Corporation
(Incorporated by reference to Exhibit 10 of GECC’s Form
10-Q Report for the quarterly period ended September 30, 2009 (Commission
file number 001-06461)).
|
|
|
|
|
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)
|
|
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, 2009, (pages 25 through
167) 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)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
4,820
|
|
$
|
5,753
|
|
$
|
6,578
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
9,179
|
|
|
10,833
|
|
|
11,793
|
Interest
|
|
3,419
|
|
|
5,344
|
|
|
3,166
|
Operating
and administrative
|
|
1,672
|
|
|
642
|
|
|
323
|
Provision
for losses on financing receivables
|
|
374
|
|
|
332
|
|
|
302
|
Depreciation
and amortization
|
|
14,644
|
|
|
17,151
|
|
|
15,584
|
Total
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes and equity in earnings of affiliates
|
|
(9,824)
|
|
|
(11,398)
|
|
|
(9,006)
|
Income
tax benefit
|
|
4,339
|
|
|
4,446
|
|
|
3,385
|
Equity
in earnings of affiliates
|
|
6,940
|
|
|
14,262
|
|
|
15,436
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
1,455
|
|
|
7,310
|
|
|
9,815
|
Dividends
|
|
–
|
|
|
(2,351)
|
|
|
(6,853)
|
Others(a)
|
|
(23)
|
|
|
–
|
|
|
–
|
Retained
earnings at January 1(b)
|
|
45,497
|
|
|
40,513
|
|
|
37,551
|
|
|
|
|
|
|
|
|
|
Retained
earnings at December 31
|
$
|
46,929
|
|
$
|
45,472
|
|
$
|
40,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Related
to accretion of redeemable securities to their redemption
value.
|
(b)
|
The
2009 opening balance was adjusted as of April 1, 2009, for the cumulative
effect of changes in accounting principles of $25 million related to
adopting amendments on impairment guidance in Accounting Standards
Codification (ASC) 320, Investments – Debt and
Equity
Securities. The cumulative effect of adopting ASC 825, Financial Instruments,
at January 1, 2008, was insignificant. The 2007 opening balance
change reflects cumulative effect of change in accounting principle of
$(77) million related to adoption of amendments to ASC 740, Income
Taxes.
|
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)
|
2009
|
|
2008
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Cash
and equivalents
|
$
|
30,117
|
|
$
|
9,406
|
Investment
securities
|
|
6,994
|
|
|
3,324
|
Financing
receivables - net
|
|
69,725
|
|
|
74,472
|
Investment
in and advances to affiliates
|
|
273,318
|
|
|
293,530
|
Property,
plant and equipment - net
|
|
1,560
|
|
|
2,503
|
Other
assets
|
|
21,417
|
|
|
25,511
|
Total
assets
|
$
|
403,131
|
|
$
|
408,746
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
Borrowings
|
$
|
314,823
|
|
$
|
333,980
|
Other
liabilities
|
|
12,375
|
|
|
11,142
|
Deferred
income taxes
|
|
2,215
|
|
|
5,395
|
Total
liabilities
|
|
329,413
|
|
|
350,517
|
|
|
|
|
|
|
Common
stock, $14 par value (4,166,000 shares authorized at
|
|
|
|
|
|
December
31, 2009 and 2008 and 3,985,404 shares issued and
|
|
56
|
|
|
56
|
outstanding
at December 31, 2009 and 2008)
|
|
|
|
|
|
Accumulated
gains (losses) - net
|
|
|
|
|
|
Investment
securities
|
|
(676)
|
|
|
(2,013)
|
Currency
translation adjustments
|
|
1,228
|
|
|
(1,337)
|
Cash
flow hedges
|
|
(1,816)
|
|
|
(3,253)
|
Benefit
plans
|
|
(434)
|
|
|
(367)
|
Additional
paid-in capital
|
|
28,431
|
|
|
19,671
|
Retained
earnings
|
|
46,929
|
|
|
45,472
|
Total
shareowner's equity
|
|
73,718
|
|
|
58,229
|
Total
liabilities and equity
|
$
|
403,131
|
|
$
|
408,746
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $(1,698) million and $(6,970) million at December
31, 2009 and 2008, 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)
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Cash
used for operating activities
|
$
|
(2,768)
|
|
$
|
(2,656)
|
|
$
|
(7,745)
|
Cash
flows - investing activities
|
|
|
|
|
|
|
|
|
Increase
in loans to customers
|
|
(96,837)
|
|
|
(120,812)
|
|
|
(124,551)
|
Principal
collections from customers - loans
|
|
99,779
|
|
|
117,749
|
|
|
112,554
|
Investment
in equipment for financing leases
|
|
(1,239)
|
|
|
(2,273)
|
|
|
(2,916)
|
Principal
collections from customers - financing leases
|
|
1,814
|
|
|
5,155
|
|
|
4,193
|
Net
change in credit card receivables
|
|
5
|
|
|
(648)
|
|
|
31
|
Additions
to property, plant and equipment
|
|
(158)
|
|
|
(1,674)
|
|
|
(1,431)
|
Dispositions
of property, plant and equipment
|
|
780
|
|
|
1,295
|
|
|
1,380
|
Payments
for principal businesses purchased
|
|
(5,702)
|
|
|
(24,961)
|
|
|
(7,570)
|
Proceeds
from principal business dispositions
|
|
9,088
|
|
|
4,654
|
|
|
1,699
|
Decrease
(increase) in investment in and advances to affiliates
|
|
27,161
|
|
|
37,264
|
|
|
(10,099)
|
All
other investing activities
|
|
(1,210)
|
|
|
(8,046)
|
|
|
1,809
|
|
|
|
|
|
|
|
|
|
Cash
from (used for) investing activities
|
|
33,481
|
|
|
7,703
|
|
|
(24,901)
|
|
|
|
|
|
|
|
|
|
Cash
flows - financing activities
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in borrowings (maturities of 90 days or
less)
|
|
(25,520)
|
|
|
(14,782)
|
|
|
8,747
|
Newly
issued debt
|
|
|
|
|
|
|
|
|
Short-term
(91-365 days)
|
|
3,310
|
|
|
13,080
|
|
|
820
|
Long-term
(longer than one year)
|
|
62,240
|
|
|
49,940
|
|
|
65,709
|
Non-recourse,
leveraged lease
|
|
|
|
|
–
|
|
|
12
|
Repayments
and other debt reductions:
|
|
|
|
|
|
|
|
|
Short-term
(91-365 days)
|
|
(57,941)
|
|
|
(44,535)
|
|
|
(36,164)
|
Long-term
(longer than one year)
|
|
(533)
|
|
|
(2,306)
|
|
|
(318)
|
Non-recourse,
leveraged lease
|
|
(317)
|
|
|
(409)
|
|
|
(431)
|
Dividends
paid to shareowner
|
|
–
|
|
|
(2,351)
|
|
|
(6,695)
|
Capital
contributions from GECS
|
|
8,750
|
|
|
5,500
|
|
|
–
|
Other
|
|
9
|
|
|
2
|
|
|
17
|
|
|
|
|
|
|
|
|
|
Cash
from (used for) financing activities
|
|
(10,002)
|
|
|
4,139
|
|
|
31,697
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents during year
|
|
20,711
|
|
|
9,186
|
|
|
(949)
|
Cash
and equivalents at beginning of year
|
|
9,406
|
|
|
220
|
|
|
1,169
|
Cash
and equivalents at end of year
|
$
|
30,117
|
|
$
|
9,406
|
|
$
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2009 and 2008, are shown
below.
|
2009
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
December
31 (Dollars in millions)
|
rate(a)
|
|
Maturities
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
3.23
|
|
2011-2055
|
|
$
|
210,881
|
|
$
|
200,079
|
Subordinated
notes(b)
|
|
5.51
|
|
2012-2037
|
|
|
2,388
|
|
|
2,567
|
Subordinated
debentures(c)
|
|
6.48
|
|
2066-2067
|
|
|
7,647
|
|
|
7,315
|
Other
|
|
|
|
|
|
|
4,693
|
|
|
4,584
|
|
|
|
|
|
|
$
|
225,609
|
|
$
|
214,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
$117 million and $450 million of subordinated notes guaranteed by GE at
December 31, 2009 and 2008,
respectively.
|
(c)
|
Subordinated
debenture receive rating agency equity credit and were hedged at issuance
to USD equivalent of $7,725
million.
|
At
December 31, 2009, maturities of long-term borrowings during the next five
years, including the current portion of long-term debt, are $49,908 million in
2010, $43,519 million in 2011, $68,308 million in 2012, $16,854 million in 2013
and $12,384 million in 2014.
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 $2,956
million, $4,350 million and $4,195 million for 2009, 2008 and 2007,
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
19, 2010
|
|
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
19, 2010
|
|
Michael
A. Neal
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Jeffrey S. Bornstein
|
|
Chief
Financial Officer
|
|
February
19, 2010
|
|
Jeffrey
S. Bornstein
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Jamie S. Miller
|
|
Senior
Vice President and Controller
|
|
February
19, 2010
|
|
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
|
|
|
|
RICHARD
D’AVINO*
|
|
Director
|
|
|
|
BRACKETT
B. DENNISTON*
|
|
Director
|
|
|
|
JEFFREY
R. IMMELT*
|
|
Director
|
|
|
|
MARK
KRAKOWIAK*
|
|
Director
|
|
|
|
JOHN
KRENICKI, JR.*
|
|
Director
|
|
|
|
J.
KEITH MORGAN*
|
|
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
19, 2010 |
|
Jamie
S. Miller
Attorney-in-fact
|
|
|
|