gecc10q33109.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
(Mark
One)
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þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the quarterly period ended March
31, 2009
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OR
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¨
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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 its
charter)
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Delaware
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13-1500700
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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3135
Easton Turnpike, Fairfield, Connecticut
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06828-0001
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(Address
of principal executive offices)
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(Zip
Code)
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(Registrant’s
telephone number, including area code) (203)
373-2211
(Former
name, former address and former fiscal year,
if
changed since last report)
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 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 þ 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
the 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
At April
30, 2009, 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.
REGISTRANT
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF
FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT.
General
Electric Capital Corporation
Part
I – Financial Information
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Page
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Item
1.
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Financial
Statements
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Condensed Statement of Current
and Retained Earnings
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3
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Condensed Statement of Financial
Position
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4
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Condensed Statement of Cash
Flows
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5
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Notes to Condensed, Consolidated
Financial Statements (Unaudited)
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6
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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31
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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50
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Item
4.
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Controls
and Procedures
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50
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Part
II – Other Information
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Item
1.
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Legal
Proceedings
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51
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Item
1A.
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Risk
Factors
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51
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Item
6.
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Exhibits
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52
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Signatures
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53
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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
our funding and on our ability to reduce our asset levels and commercial paper
exposure as planned; the impact of conditions in the housing market and
unemployment rates on the level of commercial and consumer credit defaults; our
ability to maintain our current credit rating and the impact on our funding
costs and competitive position if we do not do so; the soundness of other
financial institutions with which we do 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; 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. We do not
undertake to update our forward-looking statements.
Part
I. Financial Information
Item
1. Financial Statements.
General
Electric Capital Corporation and consolidated affiliates
Condensed
Statement of Current and Retained Earnings
(Unaudited)
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Three
months ended
March
31
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(In
millions)
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2009
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2008
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Revenues
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Revenues
from services (Note 3)
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$
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13,336
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$
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16,756
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Sales
of goods
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273
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367
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Total revenues
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13,609
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17,123
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Costs
and expenses
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Interest
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5,090
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6,079
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Operating
and administrative
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3,858
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4,532
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Cost
of goods sold
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224
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317
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Investment
contracts, insurance losses and insurance annuity benefits
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73
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143
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Provision
for losses on financing receivables
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2,322
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1,333
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Depreciation
and amortization
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2,173
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2,121
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Total costs and
expenses
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13,740
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14,525
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Earnings
(loss) from continuing operations before income taxes
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(131
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)
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2,598
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Benefit
(provision) for income taxes
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1,155
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(81
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)
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Earnings
from continuing operations
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1,024
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2,517
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Loss
from discontinued operations, net of
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taxes (Note 2)
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(3
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)
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(46
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)
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Net
earnings
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1,021
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2,471
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Less
net earnings attributable to noncontrolling interests
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50
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36
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Net
earnings attributable to GECC
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971
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2,435
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Dividends
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−
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(1,130
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)
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Retained
earnings at beginning of period
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45,472
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40,513
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Retained
earnings at end of period
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$
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46,443
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$
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41,818
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Amounts
attributable to GECC
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Earnings
from continuing operations
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$
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974
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$
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2,481
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Loss
from discontinued operations, net of taxes
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(3
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)
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(46
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)
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Net
earnings attributable to GECC
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$
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971
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$
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2,435
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See
accompanying notes.
General
Electric Capital Corporation and consolidated affiliates
Condensed
Statement of Financial Position
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March
31,
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December
31,
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(In
millions)
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2009
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2008
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(Unaudited)
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Assets
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Cash
and equivalents
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$
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43,984
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$
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36,430
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Investment
securities (Note 5)
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20,584
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19,318
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Inventories
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65
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77
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Financing
receivables – net (Notes 6 and 7)
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352,697
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370,592
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Other
receivables
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21,145
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22,175
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Property,
plant and equipment, less accumulated amortization of
$25,564
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and $29,026
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58,153
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64,043
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Goodwill
(Note 8)
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24,278
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25,204
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Other
intangible assets – net (Note 8)
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2,982
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3,174
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Other
assets
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87,154
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84,201
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Assets
of businesses held for sale
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−
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10,556
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Assets
of discontinued operations (Note 2)
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1,464
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1,640
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Total
assets
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$
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612,506
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$
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637,410
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Liabilities
and equity
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Short-term
borrowings (Note 9)
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$
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170,884
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$
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188,601
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Accounts
payable
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12,371
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14,863
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Long-term
borrowings (Note 9)
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318,293
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321,755
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Investment
contracts, insurance liabilities and insurance annuity
benefits
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10,851
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11,403
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Other
liabilities
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22,811
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30,629
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Deferred
income taxes
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8,845
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8,112
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Liabilities
of businesses held for sale
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−
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636
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Liabilities
of discontinued operations (Note 2)
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737
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|
799
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Total
liabilities
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|
544,792
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|
576,798
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Capital
stock
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56
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56
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Accumulated other comprehensive
income – net(a)
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|
|
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Investment
securities
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|
(2,053
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)
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|
(2,013
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)
|
Currency translation
adjustments
|
|
(4,361
|
)
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|
(1,337
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)
|
Cash flow hedges
|
|
(2,530
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)
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|
(3,253
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)
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Benefit plans
|
|
(359
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)
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|
(367
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)
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Additional
paid-in capital
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28,421
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19,671
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Retained
earnings
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46,443
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45,472
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Total
GECC shareowner’s equity
|
|
65,617
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|
58,229
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Noncontrolling
interests(b)
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|
2,097
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2,383
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Total
equity
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67,714
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60,612
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Total
liabilities and equity
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$
|
612,506
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$
|
637,410
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|
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(a)
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The
sum of accumulated other comprehensive income − net was
$(9,303) million and $(6,970) million at March 31, 2009 and December 31,
2008, respectively.
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(b)
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Included
accumulated other comprehensive income attributable to noncontrolling
interests of $170 million and $204 million at March 31, 2009 and December
31, 2008, respectively.
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|
See
accompanying notes.
General
Electric Capital Corporation and consolidated affiliates
Condensed
Statement of Cash Flows
(Unaudited)
|
Three
months ended
March
31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
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Cash
flows – operating activities
|
|
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|
|
|
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Net
earnings attributable to GECC
|
$
|
971
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|
$
|
2,435
|
|
Loss
from discontinued operations
|
|
3
|
|
|
46
|
|
Adjustments
to reconcile net earnings attributable to GECC
|
|
|
|
|
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|
to cash provided from operating
activities
|
|
|
|
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Depreciation and amortization
of property, plant and equipment
|
|
2,173
|
|
|
2,121
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|
Increase (decrease) in accounts
payable
|
|
(2,241
|
)
|
|
780
|
|
Provision for losses on
financing receivables
|
|
2,322
|
|
|
1,333
|
|
All other operating
activities
|
|
(7,909
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)
|
|
(2,892
|
)
|
Cash
from (used for) operating activities – continuing
operations
|
|
(4,681
|
)
|
|
3,823
|
|
Cash
from (used for) operating activities – discontinued
operations
|
|
(28
|
)
|
|
348
|
|
Cash
from (used for) operating activities
|
|
(4,709
|
)
|
|
4,171
|
|
|
|
|
|
|
|
|
Cash
flows – investing activities
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
(1,889
|
)
|
|
(2,914
|
)
|
Dispositions
of property, plant and equipment
|
|
1,091
|
|
|
3,177
|
|
Increase
in loans to customers
|
|
(50,012
|
)
|
|
(88,376
|
)
|
Principal
collections from customers – loans
|
|
64,553
|
|
|
77,000
|
|
Investment
in equipment for financing leases
|
|
(2,505
|
)
|
|
(6,291
|
)
|
Principal
collections from customers – financing leases
|
|
4,332
|
|
|
4,581
|
|
Net
change in credit card receivables
|
|
2,491
|
|
|
2,128
|
|
Payments
for principal businesses purchased
|
|
(6,822
|
)
|
|
(12,652
|
)
|
Proceeds
from principal business dispositions
|
|
8,846
|
|
|
4,305
|
|
All
other investing activities
|
|
(1,457
|
)
|
|
(1,747
|
)
|
Cash
from (used for) investing activities – continuing
operations
|
|
18,628
|
|
|
(20,789
|
)
|
Cash
from (used for) investing activities – discontinued
operations
|
|
30
|
|
|
(339
|
)
|
Cash
from (used for) investing activities
|
|
18,658
|
|
|
(21,128
|
)
|
|
|
|
|
|
|
|
Cash
flows – financing activities
|
|
|
|
|
|
|
Net
increase (decrease) in borrowings (maturities of 90 days or
less)
|
|
(20,000
|
)
|
|
3,527
|
|
Newly
issued debt
|
|
|
|
|
|
|
Short-term (91 to 365
days)
|
|
1,031
|
|
|
331
|
|
Long-term (longer than one
year)
|
|
29,943
|
|
|
35,548
|
|
Non-recourse, leveraged
lease
|
|
−
|
|
|
57
|
|
Repayments
and other debt reductions
|
|
|
|
|
|
|
Short-term (91 to 365
days)
|
|
(23,491
|
)
|
|
(18,380
|
)
|
Long-term (longer than one
year)
|
|
(1,771
|
)
|
|
(2,336
|
)
|
Non-recourse, leveraged
lease
|
|
(395
|
)
|
|
(348
|
)
|
Dividends
paid to shareowner
|
|
−
|
|
|
(1,130
|
)
|
Capital
contribution and share issuance
|
|
8,750
|
|
|
−
|
|
All
other financing activities
|
|
(460
|
)
|
|
633
|
|
Cash
from (used for) financing activities – continuing
operations
|
|
(6,393
|
)
|
|
17,902
|
|
Cash
from (used for) financing activities – discontinued
operations
|
|
−
|
|
|
−
|
|
Cash
from (used for) financing activities
|
|
(6,393
|
)
|
|
17,902
|
|
|
|
|
|
|
|
|
Increase
in cash and equivalents
|
|
7,556
|
|
|
945
|
|
Cash
and equivalents at beginning of year
|
|
36,610
|
|
|
8,907
|
|
Cash
and equivalents at March 31
|
|
44,166
|
|
|
9,852
|
|
Less
cash and equivalents of discontinued operations at March
31
|
|
182
|
|
|
309
|
|
Cash
and equivalents of continuing operations at March 31
|
$
|
43,984
|
|
$
|
9,543
|
|
|
|
|
|
|
|
|
See
accompanying notes.
Notes
to Condensed, Consolidated Financial Statements (Unaudited)
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Our
financial statements are prepared in conformity with the U.S. generally accepted
accounting principles (GAAP). These statements include all adjustments
(consisting of normal recurring accruals) that we considered necessary to
present a fair statement of our results of operations, financial position and
cash flows. The results reported in these condensed, consolidated financial
statements should not be regarded as necessarily indicative of results that may
be expected for the entire year. It is suggested that these condensed,
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2008 (2008 Form 10-K). See Note 1 to the consolidated
financial statements in our 2008 Form 10-K which discusses our consolidation and
financial statement presentation. We have reclassified certain prior-period
amounts to conform to the current-period’s presentation.
All of
the outstanding common stock of General Electric Capital Corporation (GE Capital
or GECC) is owned by General Electric Capital Services, Inc. (GECS), all of
whose common stock is owned by General Electric Company (GE Company or GE). Our
financial statements consolidate all of our affiliates – companies that we
control and in which we hold a majority voting interest. 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. GECC includes
Commercial Lending and Leasing (CLL), Consumer (formerly GE Money), Real Estate,
Energy Financial Services and GE Commercial Aviation Services (GECAS). During
the first quarter of 2009, we transferred Banque Artesia Nederland N.V.
(Artesia) from CLL to Consumer. Details of total revenues and segment profit by
operating segment can be found on page 33 of this report.
Unless
otherwise indicated, information in these notes to condensed, consolidated
financial statements relates to continuing operations.
We label
our quarterly information using a calendar convention, that is, first quarter is
labeled as ending on March 31, second quarter as ending on June 30, and third
quarter as ending on September 30. It is our longstanding practice to establish
interim quarterly closing dates using a fiscal calendar, which requires our
businesses to close their books on either a Saturday or Sunday, depending on the
business. The effects of this practice are modest and only exist within a
reporting year. The fiscal closing calendar from 1993 through 2013 is available
on our website, www.ge.com/secreports.
Accounting
changes
Effective
January 1, 2008, we adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements, for
all financial instruments and non-financial instruments accounted for at fair
value on a recurring basis. Effective January 1, 2009, we adopted SFAS 157 for
all non-financial instruments accounted for at fair value on a non-recurring
basis. SFAS 157 establishes a new framework for measuring fair value and expands
related disclosures. See Note 10.
On
January 1, 2009, we adopted SFAS 141(R), Business Combinations. This
standard significantly changes 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:
·
|
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.
|
·
|
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.
|
·
|
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.
|
·
|
Transaction
costs are expensed. These costs were previously treated as costs of the
acquisition.
|
In April
2009, the FASB issued FASB Staff Position (FSP) FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies, which amends the accounting in SFAS 141(R) for assets and
liabilities arising from contingencies in a business combination. The FSP is
effective January 1, 2009, and requires pre-acquisition contingencies to be
recognized at fair value, if fair value can be reasonably determined during the
measurement period. If fair value cannot be reasonably determined, the FSP
requires measurement based on the recognition and measurement criteria of SFAS
5, Accounting for
Contingencies.
On
January 1, 2009, we adopted SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51, which
requires us to make certain changes to the presentation of our financial
statements. This standard requires us to classify noncontrolling interests
(previously referred to as “minority interest”) as part of consolidated net
earnings ($50 million and $36 million for the three months ended March 31, 2009
and 2008, respectively) and to include the accumulated amount of noncontrolling
interests as part of shareowner’s equity ($2,097 million and $2,383 million at
March 31, 2009 and December 31, 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. In addition to these financial
reporting changes, SFAS 160 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.
2.
DISCONTINUED OPERATIONS
Discontinued
operations comprised GE Money Japan (our Japanese personal loan business, Lake,
and our Japanese mortgage and card businesses, excluding our minority ownership
in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC), GE Life and
Genworth Financial, Inc. (Genworth). Associated results of operations, financial
position and cash flows are separately reported 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 minority ownership 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. In connection with the transaction, GE Money Japan reduced the
proceeds on the sale for estimated interest refund claims in excess of the
statutory interest rate. Proceeds from the sale may be increased or decreased
based on the actual claims experienced in accordance with terms specified in the
agreement, and will not be adjusted unless claims exceed approximately $2,800
million. Estimated claims are not expected to exceed those levels and are based
on our historical claims experience and the estimated future requests, taking
into consideration the ability and likelihood of customers to make claims and
other industry risk factors. However, uncertainties around the status of laws
and regulations and lack of certain information related to the individual
customers make it difficult to develop a meaningful estimate of the aggregate
claims exposure. We review our estimated exposure quarterly, and make
adjustments when required. To date, there have been no adjustments to sale
proceeds for this matter. GE Money Japan revenues from discontinued operations
were $1 million and $290 million in the first quarters of 2009 and 2008,
respectively. In total, GE Money Japan earnings (loss) from discontinued
operations, net of taxes, were $4 million and $(37) million in the first
quarters of 2009 and 2008, 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 $246 million
at March 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 $(7) million and $5 million in the
first quarters of 2009 and 2008, respectively. In total, WMC’s losses from
discontinued operations, net of taxes, were $6 million and $7 million in the
first quarters of 2009 and 2008, respectively.
Summarized
financial information for discontinued operations is shown below.
|
Three
months ended March 31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
Total
revenues
|
$
|
(6
|
)
|
$
|
295
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations before income taxes
|
$
|
(11
|
)
|
$
|
(78
|
)
|
Income
tax benefit
|
|
4
|
|
|
32
|
|
Loss
from discontinued operations, net of taxes
|
$
|
(7
|
)
|
$
|
(46
|
)
|
Disposal
|
|
|
|
|
|
|
Gain
on disposal before income taxes
|
$
|
7
|
|
$
|
−
|
|
Income
tax expense
|
|
(3
|
)
|
|
−
|
|
Gain
on disposal, net of taxes
|
$
|
4
|
|
$
|
−
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of taxes
|
$
|
(3
|
)
|
$
|
(46
|
)
|
|
At
|
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
$
|
182
|
|
$
|
180
|
|
Other
assets
|
|
14
|
|
|
19
|
|
Other
|
|
1,268
|
|
|
1,441
|
|
Assets
of discontinued operations
|
$
|
1,464
|
|
$
|
1,640
|
|
|
At
|
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Liabilities
of discontinued operations
|
$
|
737
|
|
$
|
799
|
|
Assets at
March 31, 2009 and December 31, 2008, were primarily comprised of a deferred tax
asset for a loss carryforward, which expires in 2015, related to the sale of our
GE Money Japan business.
3. REVENUES
FROM SERVICES
Revenues
from services are summarized in the following table.
(In
millions)
|
Three
months ended March 31
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Interest
on loans
|
$
|
5,045
|
|
$
|
6,430
|
|
Equipment
leased to others
|
|
3,473
|
|
|
3,795
|
|
Fees
|
|
1,159
|
|
|
1,332
|
|
Financing
leases
|
|
901
|
|
|
1,149
|
|
Real
estate investments
|
|
346
|
|
|
1,157
|
|
Associated
companies
|
|
165
|
|
|
469
|
|
Investment
income(a)
|
|
325
|
|
|
549
|
|
Net
securitization gains
|
|
280
|
|
|
349
|
|
Other items(b)
|
|
1,642
|
|
|
1,526
|
|
Total
|
$
|
13,336
|
|
$
|
16,756
|
|
|
|
|
|
|
|
|
(a)
|
Included
other-than-temporary impairments on investment securities of $141 million
and $35 million in the first quarters of 2009 and 2008,
respectively.
|
|
(b)
|
Included
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 investment to fair value totaling $296 million in the first
quarter of 2009. See Note 13.
|
|
4. INCOME
TAXES
During
the first quarter of 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 (to $52 billion), resulting in an income tax benefit of $700 million.
Under applicable accounting rules, this tax benefit is recorded entirely in the
first quarter tax provision and will not affect the tax provision for future
quarters of 2009.
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:
|
At
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
Unrecognized
tax benefits
|
$
|
3,538
|
|
$
|
3,454
|
|
Portion that, if recognized,
would reduce tax expense and
|
|
|
|
|
|
|
effective tax rate(a)
|
|
1,795
|
|
|
1,734
|
|
Accrued
interest on unrecognized tax benefits
|
|
730
|
|
|
693
|
|
Accrued
penalties on unrecognized tax benefits
|
|
65
|
|
|
65
|
|
Reasonably
possible reduction to the balance of unrecognized
|
|
|
|
|
|
|
tax benefits in succeeding 12
months
|
|
0−450
|
|
|
0−350
|
|
Portion that, if recognized,
would reduce tax expense
|
|
|
|
|
|
|
and effective tax rate(a)
|
|
0−150
|
|
|
0−50
|
|
|
|
|
|
|
|
|
(a)
|
Some
portion of such reduction might be reported as discontinued
operations.
|
|
The IRS
is currently auditing the GE consolidated income tax returns for 2003-2007, a
substantial portion of which include our activities. In addition, certain other
U.S. tax deficiency issues and refund claims for previous years remain
unresolved. It is reasonably possible that the 2003-2005 U.S. audit cycle will
be completed during the next 12 months, which could result in a decrease in our
balance of unrecognized tax benefits. 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.
GE and
GECC file a consolidated U.S. federal income tax return. The GECC provision for
current tax expense includes its effect on the consolidated return. The effect
of GECC on the consolidated liability is settled in cash as GE tax payments are
due.
5.
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.
(In
millions)
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Estimated
fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate
|
$
|
5,779
|
|
$
|
20
|
|
$
|
(693
|
)
|
$
|
5,106
|
|
State and
municipal
|
|
904
|
|
|
4
|
|
|
(269
|
)
|
|
639
|
|
Residential mortgage-backed(a)
|
|
3,789
|
|
|
16
|
|
|
(1,044
|
)
|
|
2,761
|
|
Commercial
mortgage-backed
|
|
1,655
|
|
|
−
|
|
|
(604
|
)
|
|
1,051
|
|
Asset-backed
|
|
2,561
|
|
|
1
|
|
|
(513
|
)
|
|
2,049
|
|
Corporate –
non-U.S.
|
|
705
|
|
|
7
|
|
|
(59
|
)
|
|
653
|
|
Government –
non-U.S.
|
|
1,195
|
|
|
4
|
|
|
(18
|
)
|
|
1,181
|
|
U.S. government and federal
agency
|
|
83
|
|
|
2
|
|
|
−
|
|
|
85
|
|
Retained interests(b)(c)
|
|
5,442
|
|
|
78
|
|
|
(100
|
)
|
|
5,420
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
1,262
|
|
|
32
|
|
|
(79
|
)
|
|
1,215
|
|
Trading
|
|
424
|
|
|
−
|
|
|
−
|
|
|
424
|
|
Total
|
$
|
23,799
|
|
$
|
164
|
|
$
|
(3,379
|
)
|
$
|
20,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate
|
$
|
4,456
|
|
$
|
54
|
|
$
|
(637
|
)
|
$
|
3,873
|
|
State and
municipal
|
|
915
|
|
|
5
|
|
|
(70
|
)
|
|
850
|
|
Residential mortgage-backed(a)
|
|
4,228
|
|
|
9
|
|
|
(976
|
)
|
|
3,261
|
|
Commercial
mortgage-backed
|
|
1,664
|
|
|
−
|
|
|
(509
|
)
|
|
1,155
|
|
Asset-backed
|
|
2,630
|
|
|
−
|
|
|
(668
|
)
|
|
1,962
|
|
Corporate –
non-U.S.
|
|
608
|
|
|
6
|
|
|
(23
|
)
|
|
591
|
|
Government –
non-U.S.
|
|
936
|
|
|
2
|
|
|
(15
|
)
|
|
923
|
|
U.S. government and federal
agency
|
|
26
|
|
|
3
|
|
|
−
|
|
|
29
|
|
Retained
interests(b)
|
|
5,144
|
|
|
73
|
|
|
(136
|
)
|
|
5,081
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
1,315
|
|
|
24
|
|
|
(134
|
)
|
|
1,205
|
|
Trading
|
|
388
|
|
|
−
|
|
|
−
|
|
|
388
|
|
Total
|
$
|
22,310
|
|
$
|
176
|
|
$
|
(3,168
|
)
|
$
|
19,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Substantially
collateralized by U.S. mortgages.
|
|
(b)
|
Included
$1,904 million and $1,752 million of retained interests at March 31, 2009
and December 31, 2008, respectively, accounted for in accordance with SFAS
155, Accounting for
Certain Hybrid Financial Instruments. See Note 13.
|
|
(c)
|
Amortized
cost and estimated fair value included $3 million of trading securities at
March 31, 2009.
|
|
|
|
|
The
following tables present the estimated fair values and gross unrealized losses
of our available-for-sale investment securities.
|
In
loss position for
|
|
|
Less
than 12 months
|
|
12
months or more
|
|
(In
millions)
|
Estimated
fair
value
|
|
Gross
unrealized
losses
|
|
Estimated
fair
value
|
|
Gross
unrealized
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. corporate
|
$
|
641
|
|
$
|
(111
|
)
|
$
|
1,399
|
|
$
|
(582
|
)
|
State and
municipal
|
|
309
|
|
|
(182
|
)
|
|
207
|
|
|
(87
|
)
|
Residential
mortgage-backed
|
|
260
|
|
|
(64
|
)
|
|
1,728
|
|
|
(980
|
)
|
Commercial
mortgage-backed
|
|
94
|
|
|
(40
|
)
|
|
955
|
|
|
(564
|
)
|
Asset-backed
|
|
1,049
|
|
|
(147
|
)
|
|
968
|
|
|
(366
|
)
|
Corporate –
non-U.S.
|
|
184
|
|
|
(32
|
)
|
|
237
|
|
|
(27
|
)
|
Government –
non-U.S.
|
|
140
|
|
|
(1
|
)
|
|
259
|
|
|
(17
|
)
|
U.S. government and federal
agency
|
|
−
|
|
|
−
|
|
|
−
|
|
|
−
|
|
Retained
interests
|
|
1,496
|
|
|
(33
|
)
|
|
325
|
|
|
(67
|
)
|
Equity
|
|
125
|
|
|
(76
|
)
|
|
4
|
|
|
(3
|
)
|
Total
|
$
|
4,298
|
|
$
|
(686
|
)
|
$
|
6,082
|
|
$
|
(2,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 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
|
)
|
Of our
residential mortgage-backed securities (RMBS) at March 31, 2009 and December 31,
2008, we had approximately $1,195 million and $1,284 million, respectively, of
exposure to residential subprime credit, primarily supporting our guaranteed
investment contracts, a majority of which have received investment-grade credit
ratings from the major rating agencies. Of the total residential subprime credit
exposure at March 31, 2009 and December 31, 2008, $1,027 million and $1,089
million, respectively, was insured by monoline insurers. Our subprime investment
securities were collateralized primarily by pools of individual, direct mortgage
loans, not other structured products such as collateralized debt obligations.
Additionally, a majority of exposure to residential subprime credit related to
investment securities with underlying loans originated in 2006 and 2005. At
March 31, 2009 and December 31, 2008, we had approximately $784 million and $783
million, respectively, of exposure to commercial, regional and foreign banks,
primarily relating to corporate debt securities, with associated unrealized
losses of $142 million and $105 million, respectively.
We
presently intend to hold our investment securities that are in an unrealized
loss position at March 31, 2009, at least until we can recover their respective
amortized cost. In reaching the conclusion that these investments are not
other-than-temporarily impaired, consideration was given to research by our
internal and third-party asset managers. With respect to corporate bonds, we
placed greater emphasis on the credit quality of the issuers. With respect to
RMBS and commercial mortgage-backed securities (CMBS), we placed greater
emphasis on our expectations with respect to cash flows from the underlying
collateral and, with respect to RMBS, we considered the availability of credit
enhancements, principally monoline insurance.
Supplemental
information about gross realized gains and losses on available-for-sale
investment securities follows.
|
Three
months ended March 31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Gains
|
$
|
8
|
|
$
|
52
|
|
Losses,
including impairments
|
|
(146
|
)
|
|
(38
|
)
|
Net
|
$
|
(138
|
)
|
$
|
14
|
|
In the
ordinary course of managing our investment securities portfolio, we may sell
securities prior to their maturities for a variety of reasons, including
diversification, credit quality, yield and liquidity requirements and the
funding of claims and obligations to policyholders.
Proceeds
from investment securities sales and early redemptions by the issuer totaled
$1,965 million and $310 million in the first quarters of 2009 and 2008,
respectively, principally from the sales of short-term securities in our bank
subsidiaries.
We
recognized pre-tax gains on trading securities of $40 million and $220 million
in the first quarters of 2009 and 2008, respectively. Investments in retained
interests increased by $87 million and decreased by $75 million during the first
quarters of 2009 and 2008, respectively, reflecting changes in fair value
accounted for in accordance with SFAS 155.
6. FINANCING
RECEIVABLES
Financing
receivables – net, consisted of the following.
|
At
|
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
Loans,
net of deferred income
|
$
|
297,142
|
|
$
|
308,821
|
|
Investment
in financing leases, net of deferred income
|
|
61,247
|
|
|
67,077
|
|
|
|
358,389
|
|
|
375,898
|
|
Less
allowance for losses (Note 7)
|
|
(5,692
|
)
|
|
(5,306
|
) |
Financing
receivables – net(a)
|
$
|
352,697
|
|
$
|
370,592
|
|
|
|
|
|
|
|
|
(a)
|
Included
$5,538 million and $6,461 million related to consolidated, liquidating
securitization entities at March 31, 2009, and December 31, 2008,
respectively. In addition, financing receivables at March 31, 2009 and
December 31, 2008, included $2,877 million and $2,736 million,
respectively, relating to loans that had been acquired and accounted for
in accordance with SOP 03-3, Accounting for Certain Loans
or Debt Securities Acquired in a Transfer.
|
|
We
adopted SFAS 141(R) on January 1, 2009. As a result of this adoption, 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.
|
At
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
CLL(a)
|
|
|
|
|
|
|
Americas
|
$
|
99,444
|
|
$
|
104,462
|
|
Europe
|
|
40,527
|
|
|
36,972
|
|
Asia
|
|
14,528
|
|
|
16,683
|
|
Other
|
|
764
|
|
|
786
|
|
|
|
155,263
|
|
|
158,903
|
|
Consumer(a)
|
|
|
|
|
|
|
Non-U.S.
residential mortgages(b)
|
|
56,974
|
|
|
60,753
|
|
Non-U.S.
installment and revolving credit
|
|
22,256
|
|
|
24,441
|
|
U.S.
installment and revolving credit
|
|
25,286
|
|
|
27,645
|
|
Non-U.S.
auto
|
|
15,343
|
|
|
18,168
|
|
Other
|
|
10,309
|
|
|
11,541
|
|
|
|
130,168
|
|
|
142,548
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
45,373
|
|
|
46,735
|
|
|
|
|
|
|
|
|
Energy
Financial Services
|
|
8,324
|
|
|
8,355
|
|
|
|
|
|
|
|
|
GECAS(c)
|
|
15,398
|
|
|
15,326
|
|
|
|
|
|
|
|
|
Other(d)
|
|
3,863
|
|
|
4,031
|
|
|
|
358,389
|
|
|
375,898
|
|
Less
allowance for losses
|
|
(5,692
|
)
|
|
(5,306
|
)
|
Total
|
$
|
352,697
|
|
$
|
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)
|
At
March 31, 2009, net of credit insurance, approximately 27% of this
portfolio comprised loans with introductory, below market rates that are
scheduled to adjust at future dates; with high loan-to-value ratios at
inception; whose terms permitted interest-only payments; or whose terms
resulted in negative amortization. At the origination date, loans with an
adjustable rate were underwritten to the reset value.
|
|
(c)
|
Included
loans and financing leases of $13,189 million and $13,078 million at March
31, 2009, and December 31, 2008, respectively, related to commercial
aircraft at Aviation Financial Services.
|
|
(d)
|
Consisted
of loans and financing leases related to certain consolidated, liquidating
securitization entities.
|
|
Individually
impaired loans are defined by GAAP as larger balance or restructured loans for
which it is probable that the lender will be unable to collect all amounts due
according to original contractual terms of the loan agreement. An analysis of
impaired loans follows.
|
At
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
Loans
requiring allowance for losses
|
$
|
4,138
|
|
$
|
2,712
|
|
Loans
expected to be fully recoverable
|
|
1,682
|
|
|
871
|
|
Total
impaired loans
|
$
|
5,820
|
|
$
|
3,583
|
|
|
|
|
|
|
|
|
Allowance
for losses
|
$
|
908
|
|
$
|
635
|
|
Average
investment during the period
|
|
4,665
|
|
|
2,064
|
|
Interest
income earned while impaired(a)
|
|
17
|
|
|
27
|
|
|
|
|
|
|
|
|
(a)
|
Recognized
principally on cash basis.
|
7. ALLOWANCE
FOR LOSSES ON FINANCING RECEIVABLES
|
Balance
January
1,
2009
|
|
Provision
charged
to
operations
|
|
Currency
exchange
|
|
Other(a)
|
|
Gross
write-offs
|
|
Recoveries
|
|
Balance
March
31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
824
|
|
$
|
257
|
|
$
|
(2
|
)
|
$
|
(8
|
)
|
$
|
(189
|
)
|
$
|
16
|
|
$
|
898
|
|
Europe
|
|
288
|
|
|
106
|
|
|
(10
|
)
|
|
(1
|
)
|
|
(59
|
)
|
|
3
|
|
|
327
|
|
Asia
|
|
163
|
|
|
50
|
|
|
(18
|
)
|
|
7
|
|
|
(28
|
)
|
|
4
|
|
|
178
|
|
Other
|
|
2
|
|
|
−
|
|
|
−
|
|
|
2
|
|
|
−
|
|
|
−
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
383
|
|
|
237
|
|
|
(41
|
)
|
|
4
|
|
|
(81
|
)
|
|
24
|
|
|
526
|
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and revolving
credit
|
|
1,051
|
|
|
433
|
|
|
(62
|
)
|
|
12
|
|
|
(493
|
)
|
|
97
|
|
|
1,038
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
1,700
|
|
|
905
|
|
|
−
|
|
|
(229
|
)
|
|
(695
|
)
|
|
37
|
|
|
1,718
|
|
Non-U.S.
auto
|
|
222
|
|
|
128
|
|
|
(12
|
)
|
|
19
|
|
|
(160
|
)
|
|
52
|
|
|
249
|
|
Other
|
|
226
|
|
|
73
|
|
|
(11
|
)
|
|
(23
|
)
|
|
(77
|
)
|
|
11
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
301
|
|
|
110
|
|
|
(6
|
)
|
|
−
|
|
|
(9
|
)
|
|
−
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
58
|
|
|
10
|
|
|
−
|
|
|
(2
|
)
|
|
−
|
|
|
−
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
60
|
|
|
−
|
|
|
−
|
|
|
1
|
|
|
−
|
|
|
−
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
28
|
|
|
13
|
|
|
−
|
|
|
1
|
|
|
(10
|
)
|
|
−
|
|
|
32
|
|
Total
|
$
|
5,306
|
|
$
|
2,322
|
|
$
|
(162
|
)
|
$
|
(217
|
)
|
$
|
(1,801
|
)
|
$
|
244
|
|
$
|
5,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Other
primarily included the effects of 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.
|
|
Balance
January
1,
2008
|
|
Provision
charged
to
operations
|
|
Currency
exchange
|
|
Other(a)
|
|
Gross
write-offs
|
|
Recoveries
|
|
Balance
March
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
451
|
|
$
|
88
|
|
$
|
1
|
|
$
|
72
|
|
$
|
(53
|
)
|
$
|
13
|
|
$
|
572
|
|
Europe
|
|
230
|
|
|
38
|
|
|
13
|
|
|
(37
|
)
|
|
(35
|
)
|
|
6
|
|
|
215
|
|
Asia
|
|
226
|
|
|
19
|
|
|
15
|
|
|
42
|
|
|
(187
|
)
|
|
2
|
|
|
117
|
|
Other
|
|
3
|
|
|
−
|
|
|
1
|
|
|
(1
|
)
|
|
−
|
|
|
−
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
246
|
|
|
31
|
|
|
10
|
|
|
1
|
|
|
(27
|
)
|
|
20
|
|
|
281
|
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and revolving
credit
|
|
1,371
|
|
|
429
|
|
|
78
|
|
|
(1
|
)
|
|
(617
|
)
|
|
200
|
|
|
1,460
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
985
|
|
|
585
|
|
|
−
|
|
|
(161
|
)
|
|
(505
|
)
|
|
61
|
|
|
965
|
|
Non-U.S.
auto
|
|
324
|
|
|
73
|
|
|
7
|
|
|
(39
|
)
|
|
(150
|
)
|
|
77
|
|
|
292
|
|
Other
|
|
167
|
|
|
54
|
|
|
14
|
|
|
−
|
|
|
(69
|
)
|
|
17
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
168
|
|
|
(1
|
)
|
|
2
|
|
|
15
|
|
|
(4
|
)
|
|
−
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
19
|
|
|
1
|
|
|
−
|
|
|
2
|
|
|
−
|
|
|
−
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
8
|
|
|
16
|
|
|
−
|
|
|
−
|
|
|
(1
|
)
|
|
−
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
18
|
|
|
−
|
|
|
−
|
|
|
1
|
|
|
(5
|
)
|
|
−
|
|
|
14
|
|
Total
|
$
|
4,216
|
|
$
|
1,333
|
|
$
|
141
|
|
$
|
(106
|
)
|
$
|
(1,653
|
)
|
$
|
396
|
|
$
|
4,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Other
primarily included the effects of securitization activity, 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.
|
8. GOODWILL
AND OTHER INTANGIBLE ASSETS
Goodwill
and other intangible assets – net, consisted of the following.
|
At
|
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
24,278
|
|
$
|
25,204
|
|
Intangible
assets subject to amortization
|
|
2,982
|
|
|
3,174
|
|
Total
|
$
|
27,260
|
|
$
|
28,378
|
|
|
|
|
|
|
|
|
Changes
in goodwill balances follow.
|
2009
|
|
(In
millions)
|
CLL
|
|
Consumer
|
|
Real
Estate
|
|
Energy
Financial
Services
|
|
GECAS
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1
|
$
|
12,321
|
(a)
|
$
|
9,407
|
(a)
|
$
|
1,159
|
|
$
|
2,162
|
|
$
|
155
|
|
$
|
25,204
|
|
Acquisitions/acquisition
accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
217
|
|
|
4
|
|
|
(7
|
)
|
|
(4
|
)
|
|
−
|
|
|
210
|
|
Dispositions,
currency exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
(649
|
)
|
|
(416
|
)
|
|
(31
|
)
|
|
(39
|
)
|
|
(1
|
)
|
|
(1,136
|
)
|
Balance
March 31
|
$
|
11,889
|
|
$
|
8,995
|
|
$
|
1,121
|
|
$
|
2,119
|
|
$
|
154
|
|
$
|
24,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Reflected
the transfer of Artesia during the first quarter of 2009, resulting in a
related movement of beginning goodwill balance of $326
million.
|
The
amount of goodwill related to new acquisitions recorded during the first quarter
of 2009 was $125 million, all related to the acquisition of Interbanca S.p.A.
(Interbanca) at CLL. During the first quarter of 2009, the goodwill balance
increased by $85 million related to acquisition accounting adjustments to
prior-year acquisitions. The most significant of these adjustments was an
increase of $70 million associated with the 2008 acquisition of CitiCapital at
CLL. Also during the first quarter of 2009, goodwill balances decreased $1,136
million, primarily as a result of the deconsolidation of PTL at CLL ($634
million) and the stronger U.S. dollar ($504 million).
We test
goodwill for impairment annually and more frequently if circumstances warrant.
Given the significant decline in GE’s stock price in the first quarter of 2009
and current market conditions in the financial services industry, we conducted
an additional impairment analysis of the reporting units during the first
quarter of 2009 using data as of December 31, 2008.
We
determined fair values for each of the reporting units using an income approach.
When available and as appropriate, we used comparative market multiples to
corroborate discounted cash flow results. For purposes of the income approach,
fair value was 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 used discount rates that are
commensurate with the risks and uncertainty inherent in the financial markets
generally and in our internally developed forecasts. Discount rates used in
these reporting unit valuations ranged from 11.5% to 13.0%. Valuations using the
market approach reflect prices and other relevant observable information
generated by market transactions involving financial services
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 states 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.
In
performing the valuations, we updated cash flows to reflect management’s
forecasts and adjusted discount rates to reflect the risks associated with the
current market. Based on the results of our testing, the fair values of these
reporting units exceeded their book values; therefore, the second step of the
impairment test (in which fair value of each of the reporting units assets and
liabilities are measured) was not required to be performed and no goodwill
impairment was recognized. 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, future business plans, economic
projections and market data. Actual results may differ from forecasted results.
While no impairment was noted in our step one impairment tests, goodwill in our
Real Estate reporting unit may be particularly sensitive to further
deterioration in economic conditions. If current conditions persist longer or
deteriorate further than expected, it is reasonably possible that the judgments
and estimates described above could change in future periods.
Intangible
assets subject to amortization
|
At
|
|
March
31, 2009
|
|
December
31, 2008
|
(In
millions)
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
$
|
2,005
|
|
$
|
(894
|
)
|
$
|
1,111
|
|
$
|
1,790
|
|
$
|
(616
|
)
|
$
|
1,174
|
Patents,
licenses and trademarks
|
|
563
|
|
|
(465
|
)
|
|
98
|
|
|
564
|
|
|
(460
|
)
|
|
104
|
Capitalized
software
|
|
2,188
|
|
|
(1,523
|
)
|
|
665
|
|
|
2,148
|
|
|
(1,463
|
)
|
|
685
|
Lease
valuations
|
|
1,716
|
|
|
(650
|
)
|
|
1,066
|
|
|
1,761
|
|
|
(594
|
)
|
|
1,167
|
All
other
|
|
238
|
|
|
(196
|
)
|
|
42
|
|
|
233
|
|
|
(189
|
)
|
|
44
|
Total
|
$
|
6,710
|
|
$
|
(3,728
|
)
|
$
|
2,982
|
|
$
|
6,496
|
|
$
|
(3,322
|
)
|
$
|
3,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense related to intangible assets subject to amortization was $174 million
and $195 million for the quarters ended March 31, 2009 and 2008,
respectively.
9. BORROWINGS
Borrowings
are summarized in the following table.
|
At
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
Unsecured(a)
|
$
|
44,632
|
|
$
|
57,665
|
|
Asset-backed(b)
|
|
3,518
|
|
|
3,652
|
|
Non-U.S.
|
|
7,772
|
|
|
9,033
|
|
Current
portion of long-term debt(a)(c)
|
|
79,017
|
|
|
69,680
|
|
Bank
deposits(d)(e)
|
|
25,770
|
|
|
29,634
|
|
Bank
borrowings(f)
|
|
2,462
|
|
|
10,028
|
|
GE
Interest Plus notes(g)
|
|
5,049
|
|
|
5,633
|
|
Other
|
|
2,664
|
|
|
3,276
|
|
Total
|
|
170,884
|
|
|
188,601
|
|
|
|
|
|
|
|
|
Long-term
borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
notes
|
|
|
|
|
|
|
Unsecured(a)(h)
|
|
296,475
|
|
|
300,172
|
|
Asset-backed(i)
|
|
4,518
|
|
|
5,002
|
|
Subordinated
notes(j)
|
|
2,440
|
|
|
2,567
|
|
Subordinated
debentures(k)
|
|
7,056
|
|
|
7,315
|
|
Bank
deposits(l)
|
|
7,804
|
|
|
6,699
|
|
Total
|
|
318,293
|
|
|
321,755
|
|
Total
borrowings
|
$
|
489,177
|
|
$
|
510,356
|
|
|
|
|
|
|
|
|
(a)
|
GE
Capital had issued and outstanding, $73,990 million ($36,965 million
commercial paper and $37,025 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 March 31, 2009 and December 31, 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 debt that is guaranteed by the
FDIC.
|
(b)
|
Consists
entirely of obligations of consolidated, liquidating securitization
entities. See Note 6.
|
(c)
|
Included
$283 million and $326 million of asset-backed senior notes, issued by
consolidated, liquidating securitization entities at March 31, 2009, and
December 31, 2008, respectively.
|
(d)
|
Included
$12,352 million and $11,793 million of deposits in non-U.S. banks at March
31, 2009, and December 31, 2008, respectively.
|
(e)
|
Included
certificates of deposits distributed by brokers of $13,418 million and
$17,841 million at March 31, 2009, and December 31, 2008,
respectively.
|
(f)
|
Term
borrowings from banks with a remaining term to maturity of less than 12
months.
|
(g)
|
Entirely
variable denomination floating rate demand notes.
|
(h)
|
Included
borrowings from GECS affiliates of $1,008 million and $1,006 million at
March 31, 2009, and December 31, 2008, respectively.
|
(i)
|
Included
$1,422 million and $2,104 million of asset-backed senior notes, issued by
consolidated, liquidating securitization entities at March 31, 2009, and
December 31, 2008, respectively. See Note 6.
|
(j)
|
Included
$450 million of subordinated notes guaranteed by GE at March 31, 2009, and
December 31, 2008.
|
(k)
|
Subordinated
debentures receive rating agency equity credit and were hedged at issuance
to the U.S. dollar equivalent of $7,725 million.
|
(l)
|
Entirely
certificates of deposits distributed by brokers with maturities greater
than one year.
|
10. FAIR
VALUE MEASUREMENTS
Effective
January 1, 2008, we adopted SFAS 157, Fair Value Measurements, for
all financial instruments and non-financial instruments accounted for at fair
value on a recurring basis. Effective January 1, 2009, we adopted SFAS 157 for
all non-financial instruments accounted for at fair value on a non-recurring
basis. SFAS 157 establishes a new framework for measuring fair value and expands
related disclosures. Broadly, the SFAS 157 framework requires fair value to be
determined based on the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants. SFAS 157 establishes a three-level valuation hierarchy
based upon observable and non-observable inputs.
The
following describes the valuation methodologies we use to measure non-financial
instruments accounted for at fair value on a non-recurring basis. For valuation
methodologies relating to financial instruments and non-financial instruments
accounted for at fair value on a recurring basis and financial instruments
accounted for on a non-recurring basis, see Note 19 to the consolidated
financial statements in our 2008 Form 10-K.
Investments
in subsidiaries and formerly consolidated subsidiaries
Upon a
change in control that results in consolidation or deconsolidation of a
subsidiary, a fair value measurement may be required if we held a noncontrolling
investment in the entity and obtain control or sell a controlling interest and
retain a noncontrolling stake in the entity. Such investments are valued using a
discounted cash flow model, comparative market multiples 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 and market data.
Long-lived
assets
Long-lived
assets, including aircraft and real estate, may be measured at fair value if
such assets are held for sale or when there is a determination that the asset is
impaired. The determination of fair value is based on the best information
available, including internal cash flow estimates discounted at an appropriate
interest rate, quoted market prices when available, market prices for similar
assets and 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.
The
following tables present our assets and liabilities measured at fair value on a
recurring basis. Included in the tables are investment securities of $7,790
million and $8,190 million at March 31, 2009 and December 31, 2008,
respectively, supporting obligations to holders of guaranteed investment
contracts. Such securities are mainly investment grade. Also included are
retained interests in securitizations totaling $5,420 million and $5,081 million
at March 31, 2009 and December 31, 2008, respectively.
(a)
|
FASB
Interpretation (FIN) 39, Offsetting of Amounts Related
to Certain Contracts, permits the netting of derivative receivables
and payables when a legally enforceable master netting agreement exists.
Included fair value adjustments related to our own and counterparty credit
risk.
|
(b)
|
The
fair value of derivatives included an adjustment for non-performance risk.
At March 31, 2009 and December 31, 2008, the cumulative adjustment was a
gain of $167 million and $164 million, respectively.
|
(c)
|
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 three months ended March 31, 2009 and 2008. The majority
of our Level 3 balances consist of investment securities classified as
available-for-sale with changes in fair value recorded in equity.
Changes
in Level 3 instruments for the three months ended March 31, 2009
|
January
1,
2009
|
|
Net
realized/
unrealized
gains
(losses)
included
in
earnings(a)
|
|
Net
realized/
unrealized
gains
(losses)
included
in
accumulated
other
comprehensive income
|
|
Purchases,
issuances
and
settlements
|
|
Transfers
in
and/or
out
of
Level
3(b)
|
|
March
31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,630
|
|
$
|
283
|
|
$
|
(210
|
)
|
$
|
7
|
|
$
|
(584
|
)
|
$
|
9,126
|
|
|
$
|
110
|
|
|
|
401
|
|
|
25
|
|
|
(44
|
|
|
(7
|
|
|
|
|
|
398
|
|
|
|
(15
|
|
|
|
551
|
|
|
(10
|
|
|
(18
|
|
|
(11
|
|
|
|
|
|
512
|
|
|
|
(19
|
|
|
|
10,582
|
|
|
298
|
|
|
(272
|
|
|
(11
|
|
|
|
|
|
10,036
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Earnings
effects are primarily included in the “Revenues from services” and
“Interest” captions in the Condensed Statement of Current and Retained
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)
|
Earnings
from Derivatives were more than offset by $30 million in losses from
related derivatives included in Level 2 and $10 million in losses from
qualifying fair value hedges.
|
(e)
|
Represented
derivative assets net of derivative liabilities and included cash accruals
of $48 million not reflected in the fair value hierarchy
table.
|
Changes
in Level 3 instruments for the three months ended March 31, 2008
|
January
1,
2008
|
|
Net
realized/
unrealized
gains
(losses)
included
in
earnings(a)
|
|
Net
realized/
unrealized
gains
(losses)
included
in
accumulated
other
comprehensive income
|
|
Purchases,
issuances
and
settlements
|
|
Transfers
in
and/or
out
of
Level
3(b)
|
|
March
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,329
|
|
$
|
154
|
|
$
|
(102
|
)
|
$
|
513
|
|
$
|
−
|
|
$
|
8,894
|
|
|
$
|
(37
|
)
|
|
|
200
|
|
|
275
|
|
|
57
|
|
|
(43
|
|
|
|
|
|
489
|
|
|
|
260
|
|
|
|
689
|
|
|
(18
|
|
|
33
|
|
|
10
|
|
|
|
|
|
714
|
|
|
|
(18
|
|
|
|
9,218
|
|
|
411
|
|
|
(12
|
|
|
480
|
|
|
|
|
|
10,097
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Earnings
effects are primarily included in the “Revenues from services” and
“Interest” captions in the Condensed Statement of Current and Retained
Earnings.
|
(b)
|
Transfers
in and out of Level 3 are considered to occur at the beginning of the
period. No transfers occurred during the first quarter of
2008.
|
(c)
|
Represented
the amount of unrealized gains or losses for the period included in
earnings.
|
(d)
|
Earnings
from Derivatives were more than offset by $141 million in losses from
related derivatives included in Level 2 and $148 million in losses from
qualifying fair value hedges.
|
(e)
|
Represented
derivative assets net of derivative liabilities and includes cash accruals
of $11 million not reflected in the fair value hierarchy
table.
|
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. Included in this category are certain
loans that are written down to fair value when they are held for sale or when
they are written down to the fair value of their underlying collateral when
deemed impaired, cost and equity method investments that are written down to
fair value when their declines are determined to be other-than-temporary,
long-lived assets that are written down to fair value when they are held for
sale or determined to be impaired, the remeasurement of retained investments in
former consolidated subsidiaries, and the remeasurement of previous equity
interests upon acquisition of a controlling interest. At March 31, 2009 and
December 31, 2008, these assets totaled $240 million and $48 million, identified
as Level 2, and $10,460 million and $3,100 million, identified as Level 3,
respectively.
The
following table represents the fair value adjustments to assets still held at
March 31, 2009 and March 31, 2008.
|
Three
months ended March 31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
receivables and loans held for sale
|
$
|
(324
|
)
|
$
|
(155
|
)
|
Cost
and equity method investments
|
|
(224
|
)
|
|
(66
|
)
|
Long-lived
assets(a)
|
|
(128
|
)
|
|
(26
|
)
|
Retained
investments in formerly consolidated subsidiaries(a)
|
|
226
|
|
|
–
|
|
Total
|
$
|
(450
|
)
|
$
|
(247
|
)
|
|
|
|
|
|
|
|
(a)
|
SFAS
157 was adopted for non-financial assets valued on a non-recurring basis
as of January 1, 2009.
|
11.
DERIVATIVES AND HEDGING
On
January 1, 2009, we adopted SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities – An Amendment of FASB Statement No.
133. The standard supplements the required disclosures provided under
SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, with
additional qualitative and quantitative information. Accordingly, the
disclosures that follow should be read in the context of our existing disclosure
in Note 20 to the consolidated financial statements in our 2008 Form
10-K.
We use
derivatives for risk management purposes. As a matter of policy, 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
ensuring 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 execute derivatives to adjust the
nature and tenor of debt funding to meet this objective. The determination of
whether a derivative is necessary to achieve this objective depends on customer
needs for specific types of financing and market factors affecting the type of
debt we can issue.
Of the
outstanding notional amount of $340,000 million, approximately 99%, or $338,000
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 derivatives activity primarily relates to
hedging against adverse changes in currency exchange rates and commodity prices
related to anticipated sales and purchases. These activities are designated as
hedges in accordance with SFAS 133, when practicable. When it is not possible to
apply hedge accounting, or when the derivative and the hedged item are both
recorded in earnings currently, the derivatives are accounted for as economic
hedges where 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 underlying, 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 under SFAS 133 and those
that are not.
|
At
March 31, 2009
|
|
|
Fair
value
|
|
(In
millions)
|
Assets
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives
accounted for as hedges under SFAS 133
|
|
|
|
|
|
|
Interest
rate contracts
|
$
|
7,789
|
|
$
|
4,622
|
|
Currency
exchange contracts
|
|
5,295
|
|
|
3,103
|
|
Other
contracts
|
|
71
|
|
|
−
|
|
|
|
13,155
|
|
|
7,725
|
|
|
|
|
|
|
|
|
Derivatives
not accounted for as hedges under SFAS 133
|
|
|
|
|
|
|
Interest
rate contracts
|
|
1,129
|
|
|
1,168
|
|
Currency
exchange contracts
|
|
1,660
|
|
|
739
|
|
Other
contracts
|
|
237
|
|
|
116
|
|
|
|
3,026
|
|
|
2,023
|
|
FIN
39 netting adjustment(a)
|
|
(6,357
|
)
|
|
(6,524
|
)
|
|
|
|
|
|
|
|
Total
|
$
|
9,824
|
|
$
|
3,224
|
|
|
|
|
|
|
|
|
Derivatives
are classified in the captions “Other assets” and “Other liabilities” in
our financial statements.
|
(a)
|
FIN
39 permits
the netting of derivative receivables and payables when a legally
enforceable master netting agreement exists. Amounts included fair value
adjustments related to our own and counterparty credit risk. At March 31,
2009 and December 31, 2008, the cumulative adjustment for non-performance
risk was a gain of $167 million and $164 million,
respectively.
|
Earnings
effects of derivatives on the Statement of Current and Retained
Earnings
For
relationships designated as fair value hedges, which relate entirely to hedges
of debt, changes in fair value of the derivatives are recorded in earnings along
with offsetting adjustments to the carrying amount of the hedged debt. Through
March 31, 2009, such adjustments increased the carrying amount of debt
outstanding by $7,181 million. The following table provides information about
the earnings effects of our fair value hedging relationships for the three
months ended March 31, 2009.
|
|
|
Three
months ended
March
31, 2009
|
|
(In
millions)
|
Financial
statement caption
|
|
Gain
(loss)
on
hedging
derivatives
|
|
Gain
(loss)
on
hedged
items
|
|
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
Interest
|
|
$
|
(937
|
)
|
$
|
986
|
|
Currency
exchange contracts
|
Interest
|
|
|
(967
|
)
|
|
949
|
|
|
|
|
|
|
|
|
|
|
Fair
value hedges resulted in $31 million of ineffectiveness of which $(27)
million reflects amounts excluded from the assessment of
effectiveness.
|
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 in
the cash flow hedges subaccount of accumulated other comprehensive income (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 Current and Retained
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.
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 in the currency
translation adjustments subaccount 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 tables provide additional information about the financial statement
effects related to our cash flow hedges and net investment hedges for the three
months ended March 31, 2009.
(In
millions)
|
Gain
(loss)
recognized
in
OCI
|
|
Financial
statement caption
|
|
Gain
(loss)
reclassified
from
AOCI
into
earnings
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
$
|
141
|
|
Interest
|
|
$
|
(487
|
)
|
Currency
exchange contracts
|
|
569
|
|
Interest
|
|
|
(1
|
)
|
|
|
|
|
Revenues
from services
|
|
|
(269
|
)
|
Commodity
contracts
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
711
|
|
|
|
$
|
(757
|
)
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss)
recognized
in
CTA
|
|
|
|
Gain
(loss)
reclassified
from
CTA
|
|
|
|
|
|
|
|
|
|
|
Net
investment hedges
|
|
|
|
|
|
|
|
|
Currency
exchange contracts
|
$
|
2,326
|
|
Revenues
from services
|
|
$
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
Of
the total pre-tax amount recorded in AOCI, $4,247 million related to cash
flow hedges of forecasted transactions of which we expect to transfer
$1,922 million to earnings as an expense in the next 12 months
contemporaneously with the earnings effects of the related forecasted
transactions. In the first quarter of 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 March 31, 2009, the maximum term of derivative instruments that
hedge forecasted transactions was 27 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 $(7) million for the three months ended March 31,
2009, and primarily appear in Revenues from services. Ineffectiveness from net
investment hedges was $(390) million, which primarily relates to changes in
value of the forward points that under our hedge accounting designations are
excluded from the assessment of effectiveness and recorded directly into
earnings. These amounts appear in the “Interest” caption in the Statement of
Current and Retained Earnings.
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 entered into
as economic hedges of changes in interest rates, currency exchange rates,
commodity prices and other market risks. Gains or losses related to the
derivative are recorded in predefined captions in the Statement of Current and
Retained Earnings, typically “Revenues from services”, based on our accounting
policy. In general, the earnings effects of the item that represents the
economic risk exposure is recorded in the same caption as the derivative. Losses
for the first quarter of 2009 on derivatives not designated as hedges, without
considering the offsetting earnings effects from the item representing the
economic risk exposure, were $(13) million, related to interest rate contracts
of $148 million, currency exchange contracts of $(206) million and equity,
credit and commodity derivatives of $45 million.
Counterparty
credit risk
To lower
our exposure to credit risk, our standard master agreements typically contain
mutual downgrade provisions that provide the ability of each party to require
assignment or 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 assignment or termination if the short-term rating of
the counterparty were to fall below A-1/P-1. The net derivative liability
subject to these provisions was approximately $1,810 million at March 31, 2009.
In addition to these provisions, we also have collateral arrangements that
provide us with the right to hold collateral (cash or U.S. Treasury or other
highly-rated securities) when the current market value of derivative contracts
exceeds a specified limit. We also have a limited number of such collateral
agreements under which we must post collateral. Under these agreements and in
the normal course of business, the fair value of collateral posted by
counterparties at March 31, 2009 was approximately $8,250 million, of which $131
million was held in cash and $8,119 million represented pledged securities. The
fair value of collateral posted by us was approximately $1,021 million, of
which $34 million was cash and $987 million represented securities
repledged.
More
information regarding our counterparty credit risk and master agreements can be
found in Note 20 to the consolidated financial statements in our 2008 Form
10-K.
Guarantees
of derivatives
We do not
sell credit default swaps; however, as part of our risk management services, we
provide certain performance guarantees to third-party financial institutions
related to plain vanilla interest rate swaps on behalf of some customers related
to variable rate loans we have extended to them. The fair value of such
guarantees was $30 million at March 31, 2009. The aggregate fair value of
customer derivative contracts in a liability position at March 31, 2009, was
$363 million before consideration of any offsetting effect of collateral. At
March 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. Given our strict underwriting criteria, we believe
the likelihood that we will be required to perform under these guarantees is
remote.
12. SHAREOWNER’S
EQUITY
A summary
of increases (decreases) in GECC shareowner’s equity that did not result
directly from transactions with the shareowner, net of income taxes,
follows.
|
Three
months ended March 31
|
|
(In
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
earnings attributable to GECC
|
$
|
971
|
|
$
|
2,435
|
|
Investment
securities – net
|
|
(40
|
)
|
|
(501
|
)
|
Currency
translation adjustments – net
|
|
(3,024
|
)
|
|
1,109
|
|
Cash
flow hedges – net
|
|
723
|
|
|
(1,678
|
)
|
Benefit
plans – net
|
|
8
|
|
|
13
|
|
Total
|
$
|
(1,362
|
)
|
$
|
1,378
|
|
Changes
to noncontrolling interests during the first quarter of 2009 resulted from net
earnings ($50 million), dividends ($(27) million), the effects of
deconsolidating PTL ($(331) million), accumulated other comprehensive income
($(34) million) and other ($56 million). Changes to the individual components of
accumulated other comprehensive income attributable to noncontrolling interests
were insignificant.
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.
13. OFF-BALANCE
SHEET ARRANGEMENTS
We
securitize financial assets and arrange other forms of asset-backed financing in
the ordinary course of business to improve shareowner returns. The
securitization transactions we engage in are similar to those used by many
financial institutions. Beyond improving returns, these securitization
transactions serve as funding sources for a variety of diversified lending and
securities transactions. Historically, we have used both GE-supported and
third-party Variable Interest Entities (VIEs) to execute off-balance sheet
securitization transactions funded in the commercial paper and term markets. The
largest single category of VIEs that we are involved with are Qualifying Special
Purpose Entities (QSPEs), which meet specific characteristics defined in U.S.
GAAP that exclude them from the scope of consolidation standards.
Investors
in these entities only have recourse to the assets owned by the entity and not
to our general credit, unless noted below. We did not provide non-contractual
support to any consolidated VIE, unconsolidated VIE or QSPE in the three months
ended March 31, 2009. We do not have implicit support arrangements with any VIE
or QSPE.
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.
Consolidated
Variable Interest Entities
For
additional information about our consolidated VIEs, see Note 21 to the
consolidated financial statements in our 2008 Form 10-K. Consolidated VIEs at
March 31, 2009 and December 31, 2008 follow:
|
At
|
|
|
March
31, 2009
|
|
December
31, 2008
|
|
(In
millions)
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated, liquidating
securitization entities(a)
|
$
|
3,813
|
|
$
|
3,665
|
|
$
|
4,000
|
|
$
|
3,868
|
|
Trinity(b)
|
|
8,348
|
|
|
10,747
|
|
|
9,192
|
|
|
11,623
|
|
Penske Truck Leasing Co., L.P.
(PTL)(c)
|
|
–
|
|
|
–
|
|
|
7,444
|
|
|
1,339
|
|
Other(d)
|
|
3,523
|
|
|
2,394
|
|
|
4,503
|
|
|
3,329
|
|
|
$
|
15,684
|
|
$
|
16,806
|
|
$
|
25,139
|
|
$
|
20,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
If
the short-term credit rating of GE Capital or these entities were reduced
below A–1/P–1, we could be required to provide substitute liquidity for
those entities or provide funds to retire the outstanding commercial
paper. The maximum net amount that we could be required to provide in the
event of such a downgrade is determined by contract, and totaled $3,420
million at March 31, 2009. The borrowings of these entities are reflected
in our Statement of Financial Position.
|
(b)
|
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 approximately $3,224 million to such entities as of
March 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. The borrowings of these entities are reflected in our Statement of
Financial Position.
|
(c)
|
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.
|
(d)
|
The
remaining assets and liabilities of VIEs that are included in our
consolidated financial statements were acquired in transactions subsequent
to adoption of FIN 46(R) on January 1, 2004. Assets of these entities
consist of amortizing securitizations of financial assets originated by
acquirees in Australia and Japan, and real estate partnerships. There are
no recourse arrangements between GE and these
entities.
|
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 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.
Investments
in unconsolidated VIEs at March 31, 2009 and December 31, 2008
follow:
|
At
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
Other assets(a)
|
$
|
8,257
|
|
$
|
1,897
|
|
Financing
receivables
|
|
642
|
|
|
974
|
|
Total
investment
|
|
8,899
|
|
|
2,871
|
|
Contractual
obligations to fund new investments
|
|
1,460
|
|
|
1,159
|
|
Maximum
exposure to loss
|
$
|
10,359
|
|
$
|
4,030
|
|
|
|
|
|
|
|
|
(a)
|
At
March 31, 2009, our remaining investment in PTL of $6,108 million
comprised a 49.9% partnership interest of $935 million and loans and
advances of $5,173 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 5.
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.
Financing
receivables transferred to securitization entities that remained outstanding and
our retained interests in those financing receivables at March 31, 2009 and
December 31, 2008 follow.
(In
millions)
|
Equipment
|
(a)
|
Commercial
real
estate
|
|
Credit
card
receivables
|
|
Other
assets
|
|
Total
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
amount outstanding
|
$
|
13,365
|
|
$
|
7,758
|
|
$
|
23,049
|
|
$
|
2,234
|
|
$
|
46,406
|
|
Included
within the amount above are
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
retained interests
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables(b)
|
|
−
|
|
|
−
|
|
|
2,364
|
|
|
−
|
|
|
2,364
|
|
Investment
securities
|
|
139
|
|
|
14
|
|
|
5,179
|
|
|
46
|
|
|
5,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
amount outstanding
|
$
|
13,298
|
|
$
|
7,970
|
|
$
|
26,046
|
|
$
|
2,782
|
|
$
|
50,096
|
|
Included
within the amount above are
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
retained interests
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing receivables(b)
|
|
−
|
|
|
–
|
|
|
3,802
|
|
|
–
|
|
|
3,802
|
|
Investment
securities
|
|
148
|
|
|
16
|
|
|
4,806
|
|
|
61
|
|
|
5,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Included
inventory floorplan receivables.
|
(b)
|
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 in accordance with
SFAS 157. Further information about how fair value is determined is presented in
Note 10. 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 March 31,
2009 and December 31, 2008 follow.
(In
millions)
|
Equipment
|
|
Commercial
real
estate
|
|
Credit
card
receivables
|
|
Other
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate(a)
|
|
14.0
|
%
|
|
58.9
|
%
|
|
13.9
|
%
|
|
8.7
|
%
|
|
|
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
(4
|
)
|
$
|
(1
|
)
|
$
|
(56
|
)
|
$
|
−
|
|
|
|
|
20%
adverse change
|
|
(7
|
)
|
|
(2
|
)
|
|
(110
|
)
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment
rate(a)(b)
|
|
9.5
|
%
|
|
1.6
|
%
|
|
9.2
|
%
|
|
40.7
|
%
|
|
|
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
−
|
|
$
|
−
|
|
$
|
(82
|
)
|
$
|
−
|
|
|
|
|
20%
adverse change
|
|
(1
|
)
|
|
−
|
|
|
(157
|
)
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimate
of credit losses(a)
|
|
0.5
|
%
|
|
5.4
|
%
|
|
13.9
|
%
|
|
0.2
|
%
|
|
|
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10%
adverse change
|
$
|
−
|
|
$
|
−
|
|
$
|
(189
|
)
|
$
|
−
|
|
|
|
|
20%
adverse change
|
|
(1
|
)
|
|
−
|
|
|
(371
|
)
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
asset
lives (in months)
|
|
19
|
|
|
81
|
|
|
10
|
|
|
2
|
|
|
|
|
Net
credit losses for the quarter
|
$
|
5
|
|
$
|
−
|
|
$
|
446
|
|
$
|
−
|
|
|
|
|
Delinquencies
|
|
54
|
|
|
−
|
|
|
1,326
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 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
|
|
$
|
−
|
|
$
|
1,512
|
|
$
|
−
|
|
|
|
|
Delinquencies
|
|
27
|
|
|
−
|
|
|
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 for the three months ended March 31, 2009 and
2008 follows.
|
Three
months ended
March
31
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Cash
flows on transfers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from new transfers
|
$
|
−
|
|
$
|
1,323
|
|
Proceeds
from collections reinvested in revolving period transfers
|
|
11,227
|
|
|
14,700
|
|
Cash
flows on retained interests recorded as investment
securities
|
|
879
|
|
|
849
|
|
|
|
|
|
|
|
|
Effect
on Revenues from services
|
|
|
|
|
|
|
Net
gain on sale
|
$
|
280
|
|
$
|
349
|
|
Change
in fair value on SFAS 155 retained interests
|
|
87
|
|
|
(75
|
)
|
Other-than-temporary
impairments
|
|
(8
|
)
|
|
(1
|
)
|
Derivative
activities
Our QSPEs
use derivatives to eliminate interest rate risk between the assets and
liabilities. At inception of the transaction, the QSPE will enter into
derivative contracts to receive a floating rate of interest and pay a fixed rate
with terms that effectively match those of the financial assets held. In some
cases, we are the counterparty to such derivative contracts, in which case a
second derivative is executed with a third party to substantially eliminate the
exposure created by the first derivative. At March 31, 2009, the fair value of
such derivative contracts was $189 million, ($205 million at December 31, 2008).
We have no other derivatives arrangements with QSPEs or other VIEs.
Servicing
activities
The
amount of our servicing assets and liabilities was insignificant at March 31,
2009 and December 31, 2008. We received servicing fees from QSPEs of $155
million and $164 million, respectively, for the three months ended March 31,
2009 and 2008.
At March
31, 2009 and December 31, 2008, accounts payables included $4,069 million and
$4,446 million, respectively, representing obligations to QSPEs for collections
received in our capacity as servicer from obligors of QSPEs.
Included
in other receivables at March 31, 2009 and December 31, 2008, were $2,564
million and $2,346 million, respectively, relating to amounts owed by QSPEs to
GE, principally for the purchase of financial assets.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
A.
Results of Operations
In the
accompanying analysis of financial information, we sometimes use information
derived from consolidated financial information but not presented in our
financial statements prepared in accordance with U.S. generally accepted
accounting principles (GAAP). Certain of these data are considered “non-GAAP
financial measures” under the U.S. Securities and Exchange Commission (SEC)
rules. For such measures, we have provided supplemental explanations and
reconciliations in Exhibit 99 to this Form 10-Q Report.
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 condensed, consolidated financial statements relates to
continuing operations unless otherwise indicated.
Overview
Revenues
for the first quarter of 2009 were $13.6 billion, a $3.5 billion (21%) decrease
from the first quarter of 2008. Revenues for the first quarters of 2009 and 2008
included $0.7 billion and $0.2 billion of revenue from acquisitions,
respectively, and in 2009 were reduced by $0.7 billion as a result of
dispositions. Revenues for the quarter also decreased $3.4 billion compared with
the first quarter of 2008 as a result of organic revenue declines and the
stronger U.S. dollar. Organic revenue growth excludes the effects of
acquisitions, business dispositions (other than dispositions of businesses
acquired for investment) and currency exchange rates. Earnings were $1.0
billion, down 61% from $2.5 billion in the first quarter of 2008.
Overall,
acquisitions contributed $0.7 billion and $1.1 billion to total revenues in the
first quarters of 2009 and 2008, respectively. Our earnings in both the first
quarter of 2009 and 2008 included approximately $0.1 billion, 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 operations through lower revenues of $0.1 billion in the first quarter of
2009 compared with higher revenues of $0.4 billion in the first quarter of 2008.
The effect of dispositions on earnings was an increase of $0.3 billion in both
the first quarter of 2009 and 2008.
The most
significant acquisitions affecting results in the first quarter of 2009 were
CitiCapital and Interbanca S.p.A. at Commercial Lending and Leasing (CLL) and
Bank BPH at Consumer (formerly GE Money).
The
provision for income taxes was a benefit of $1.2 billion for the first quarter
of 2009 (effective tax rate of 881.7%), compared with $0.1 billion expense for
the first quarter of 2008 (effective tax rate of 3.1%). The first quarter 2009
tax benefit when compared to the pre-tax loss results in a positive rate for the
quarter. The tax rate increased primarily because of a reduction of income in
higher-taxed jurisdictions. This had the effect of increasing the relative
impact of tax benefits from lower-taxed global operations. In addition, there
were increased benefits from lower taxed-global operations including
management’s decision (discussed below) in the first quarter to indefinitely
reinvest prior year earnings outside the U.S., partially offset by increased
expense to adjust the first quarter tax rate to the expected full year
rate.
During
the first quarter of 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 General Electric Capital Corporation (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 (to $52
billion), resulting in an income tax benefit of $0.7 billion. Under applicable
accounting rules, this tax benefit is recorded entirely in the first quarter tax
provision and will not affect the tax provision for future quarters of
2009.
Segment
Operations
Operating
segments comprise our five businesses focused on the broad markets they serve:
CLL, Consumer, Real Estate, Energy Financial Services and GE Commercial Aviation
Services (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 General Electric Capital Services (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
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.
Summary
of Operating Segments
|
Three
months ended
March
31
(Unaudited)
|
|
(In
millions)
|
2009
|
|
2008
|
|
Revenues
|
|
|
|
|
|
|
CLL(a)
|
$
|
5,578
|
|
$
|
6,606
|
|
Consumer(a)
|
|
4,747
|
|
|
6,440
|
|
Real
Estate
|
|
975
|
|
|
1,883
|
|
Energy
Financial Services
|
|
644
|
|
|
770
|
|
GECAS
|
|
1,144
|
|
|
1,270
|
|
Total segment
revenues
|
|
13,088
|
|
|
16,969
|
|
GECC
corporate items and eliminations
|
|
623
|
|
|
308
|
|
Total
revenues
|
|
13,711
|
|
|
17,277
|
|
Less
portion of revenues not included in GECC
|
|
(102
|
)
|
|
(154
|
)
|
Total
revenues in GECC
|
$
|
13,609
|
|
$
|
17,123
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
|
|
CLL(a)
|
$
|
222
|
|
$
|
688
|
|
Consumer(a)
|
|
727
|
|
|
991
|
|
Real
Estate
|
|
(173
|
)
|
|
476
|
|
Energy
Financial Services
|
|
75
|
|
|
133
|
|
GECAS
|
|
268
|
|
|
391
|
|
Total segment
profit
|
|
1,119
|
|
|
2,679
|
|
GECC
corporate items and eliminations(b)(c)
|
|
(108
|
)
|
|
(175
|
)
|
Less
portion of segment profit not included in GECC
|
|
(37
|
)
|
|
(23
|
)
|
Earnings
from continuing operations attributable to GECC
|
|
974
|
|
|
2,481
|
|
Loss
from discontinued operations, net of taxes, attributable to
GECC
|
|
(3
|
)
|
|
(46
|
)
|
Total
net earnings attributable to GECC
|
$
|
971
|
|
$
|
2,435
|
|
|
|
|
|
|
|
|
(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 of $0.1 billion in both the first three
months of 2009 and 2008, primarily related to CLL and
Consumer.
|
|
(c)
|
Included
$0.1 billion during the first three months of 2009, of net earnings
compared with an insignificant amount of losses during the first three
months of 2008, related to our treasury operations.
|
|
See
accompanying notes to consolidated financial statements.
|
|
CLL
|
Three
months ended
March
31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
5,578
|
|
$
|
6,606
|
|
Less
portion of CLL not included in GECC
|
|
(95
|
)
|
|
(160
|
)
|
Total revenues in
GECC
|
$
|
5,483
|
|
$
|
6,446
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
222
|
|
$
|
688
|
|
Less
portion of CLL not included in GECC
|
|
(35
|
)
|
|
(27
|
)
|
Total segment profit in
GECC
|
$
|
187
|
|
$
|
661
|
|
|
At
|
|
(In
millions)
|
March
31,
2009
|
|
March
31,
2008
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
222,878
|
|
$
|
243,928
|
|
$
|
228,176
|
|
Less
portion of CLL not included in GECC
|
|
(2,292
|
)
|
|
(2,850
|
)
|
|
(2,015
|
)
|
Total assets in
GECC
|
$
|
220,586
|
|
$
|
241,078
|
|
$
|
226,161
|
|
|
Three
months ended
March
31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
Americas
|
$
|
2,282
|
|
$
|
2,981
|
|
Europe
|
|
1,141
|
|
|
1,417
|
|
Asia
|
|
504
|
|
|
617
|
|
Other
|
|
1,651
|
|
|
1,591
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
|
|
Americas
|
$
|
(13
|
)
|
$
|
572
|
|
Europe
|
|
64
|
|
|
192
|
|
Asia
|
|
10
|
|
|
45
|
|
Other
|
|
161
|
|
|
(121
|
)
|
|
At
|
|
(In
millions)
|
March
31,
2009
|
|
March
31,
2008
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
130,614
|
|
$
|
137,670
|
|
$
|
135,253
|
|
Europe
|
|
52,711
|
|
|
59,473
|
|
|
49,734
|
|
Asia
|
|
20,456
|
|
|
25,347
|
|
|
23,127
|
|
Other
|
|
19,097
|
|
|
21,438
|
|
|
20,062
|
|
CLL
revenues decreased 16% and net earnings decreased 68% compared with the first
quarter of 2008. Revenues for the first quarters of 2009 and 2008 included $0.5
billion and $0.1 billion from acquisitions, respectively. Revenues for the first
quarter of 2009 also included $0.3 billion related to the partial sale of a
limited partnership interest in Penske Truck Leasing Co., L.P. (PTL) and
remeasurement of our retained investment. Revenues for the quarter decreased
$1.7 billion compared with the first quarter of 2008 as a result of organic
revenue declines ($1.4 billion) and the stronger U.S. dollar ($0.3 billion). Net
earnings decreased by $0.5 billion in the first quarter of 2009, resulting from
core declines related to the weakened economic environment ($0.8 billion), which
included an increase of $0.2 billion in the provision for losses on financing
receivables, and lower investment income of $0.1 billion, partially offset by
acquisitions ($0.1 billion). Net earnings included the effects of higher
mark-to-market losses and other-than-temporary impairments ($0.2 billion) and
the absence of the 2008 Genpact gain ($0.3 billion), partially offset by a gain
related to the partial sale of a limited partnership interest in PTL ($0.3
billion) and remeasurement of our retained investment.
Consumer
|
Three
months ended
March
31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
4,747
|
|
$
|
6,440
|
|
Less
portion of Consumer
|
|
|
|
|
|
|
not included in
GECC
|
|
−
|
|
|
−
|
|
Total revenues in
GECC
|
$
|
4,747
|
|
$
|
6,440
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
727
|
|
$
|
991
|
|
Less
portion of Consumer
|
|
|
|
|
|
|
not included in
GECC
|
|
(1
|
)
|
|
(2
|
)
|
Total segment profit in
GECC
|
$
|
726
|
|
$
|
989
|
|
|
At
|
|
(In
millions)
|
March
31,
2009
|
|
March
31,
2008
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
164,617
|
|
$
|
221,184
|
|
$
|
187,927
|
|
Less
portion of Consumer
|
|
|
|
|
|
|
|
|
|
not included in
GECC
|
|
(166
|
)
|
|
100
|
|
|
(167
|
)
|
Total assets in
GECC
|
$
|
164,451
|
|
$
|
221,284
|
|
$
|
187,760
|
|
Consumer
revenues decreased 26% and net earnings decreased 27% compared with the first
quarter of 2008. Revenues for the first quarter of 2009 included $0.1 billion
from acquisitions and were reduced by $0.5 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 for the
quarter also decreased $1.0 billion compared with the first quarter of 2008 as a
result of the stronger U.S. dollar ($0.7 billion) and organic revenue declines
($0.3 billion). The decrease in net earnings resulted primarily from core
declines ($0.2 billion) and the lack of a current-year counterpart to the 2008
gain on sale of our CPS business ($0.2 billion). The decreases were partially
offset by higher securitization income ($0.1 billion). Core declines primarily
resulted from lower results in the U.S., reflecting the effects of higher
delinquencies ($0.6 billion), partially offset by growth in lower-taxed earnings
from global operations ($0.4 billion). The first quarter of 2009 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.
Real
Estate
|
Three
months ended
March
31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
975
|
|
$
|
1,883
|
|
Less
portion of Real Estate not included in GECC
|
|
(6
|
)
|
|
7
|
|
Total revenues in
GECC
|
$
|
969
|
|
$
|
1,890
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
(173
|
)
|
$
|
476
|
|
Less
portion of Real Estate not included in GECC
|
|
(1
|
)
|
|
7
|
|
Total segment profit in
GECC
|
$
|
(174
|
)
|
$
|
483
|
|
|
At
|
|
(In
millions)
|
March
31,
2009
|
|
March
31,
2008
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
81,858
|
|
$
|
86,605
|
|
$
|
85,266
|
|
Less
portion of Real Estate not included in GECC
|
|
(281
|
)
|
|
(386
|
)
|
|
(357
|
)
|
Total assets in
GECC
|
$
|
81,577
|
|
$
|
86,219
|
|
$
|
84,909
|
|
Real
Estate revenues decreased 48% and net earnings decreased 136% compared with the
first quarter of 2008. Revenues for the quarter decreased $0.9 billion compared
with the first quarter of 2008 as a result of organic revenue declines ($0.8
billion), primarily as a result of a decrease in sales of properties, and the
stronger U.S. dollar ($0.1 billion). Real Estate net earnings decreased $0.6
billion compared with the first quarter of 2008, primarily from a decrease in
gains on sales of properties as compared to the prior period ($0.5 billion) and
a decline in real estate lending net earnings ($0.1 billion). Depreciation
expense on real estate properties totaled $0.2 billion in both the first quarter
of 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. However, as
real estate values are affected by certain forces beyond our control (e.g.
market fundamentals and demographic conditions), it is difficult to predict with
certainty the level of future sales or sale prices.
Energy
Financial Services
|
Three
months ended
March
31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
644
|
|
$
|
770
|
|
Less
portion of Energy Financial Services
|
|
|
|
|
|
|
not included in
GECC
|
|
(1
|
)
|
|
(1
|
)
|
Total revenues in
GECC
|
$
|
643
|
|
$
|
769
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
75
|
|
$
|
133
|
|
Less
portion of Energy Financial Services
|
|
|
|
|
|
|
not included in
GECC
|
|
−
|
|
|
−
|
|
Total segment profit in
GECC
|
$
|
75
|
|
$
|
133
|
|
|
At
|
|
(In
millions)
|
March
31,
2009
|
|
March
31,
2008
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
22,596
|
|
$
|
20,837
|
|
$
|
22,079
|
|
Less
portion of Energy Financial Services
|
|
|
|
|
|
|
|
|
|
not included in
GECC
|
|
(70
|
)
|
|
(53
|
)
|
|
(54
|
)
|
Total assets in
GECC
|
$
|
22,526
|
|
$
|
20,784
|
|
$
|
22,025
|
|
Energy
Financial Services revenues decreased 16% and net earnings decreased 44%
compared with the first quarter of 2008. Revenues for the first quarter of
2009 included $0.1 billion of gains from dispositions. Revenues for the
quarter also decreased $0.2 billion compared with the first quarter of 2008 as a
result of organic declines ($0.2 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.
GECAS
|
Three
months ended
March
31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,144
|
|
$
|
1,270
|
|
Less
portion of GECAS not included in GECC
|
|
−
|
|
|
−
|
|
Total revenues in
GECC
|
$
|
1,144
|
|
$
|
1,270
|
|
|
|
|
|
|
|
|
Segment
profit
|
$
|
268
|
|
$
|
391
|
|
Less
portion of GECAS not included in GECC
|
|
−
|
|
|
(1
|
)
|
Total segment profit in
GECC
|
$
|
268
|
|
$
|
390
|
|
|
At
|
|
(In
millions)
|
March
31,
2009
|
|
March
31,
2008
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
50,301
|
|
$
|
47,484
|
|
$
|
49,455
|
|
Less
portion of GECAS not included in GECC
|
|
(198
|
)
|
|
(221
|
)
|
|
(198
|
)
|
Total assets in
GECC
|
$
|
50,103
|
|
$
|
47,263
|
|
$
|
49,257
|
|
GECAS
revenues and net earnings decreased 10% and 31%, respectively, compared with the
first quarter of 2008. The decrease in revenues resulted primarily from organic
revenue declines ($0.1 billion) due to lower asset sales. The decrease in net
earnings resulted primarily from core declines due to lower asset
sales.
Discontinued
Operations
|
Three
months ended
March
31
|
|
(In
millions)
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of taxes
|
$
|
(3
|
)
|
$
|
(46
|
)
|
Discontinued
operations comprised GE Money Japan (our Japanese personal loan business, Lake,
and our Japanese mortgage and card businesses, excluding our minority ownership
in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC), GE Life, and
Genworth Financial, Inc. Results of these businesses are reported as
discontinued operations for all periods presented.
For
additional information related to discontinued operations, see Note 2 to the
condensed, consolidated financial statements.
B.
Statement of Financial Position
Overview
of Financial Position
Major
changes in our financial position in the first quarter of 2009 resulted from the
following:
·
|
We
completed the exchange 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 for a 100% ownership interest in Interbanca S.p.A., an
Italian corporate bank;
|
·
|
In
order to improve tangible capital and reduce leverage, General Electric
Company (GE), our ultimate parent, contributed $9.5 billion to GECS, of
which $8.8 billion was subsequently contributed to
us;
|
·
|
The
U.S. dollar was stronger at March 31, 2009, than at December 31, 2008,
decreasing the translated levels of our non-U.S. dollar assets and
liabilities;
|
·
|
We
deconsolidated PTL following our partial sale during the first quarter of
2009; and
|
·
|
Collections
on financing receivables exceeded
originations.
|
Cash
Flows
GECC cash
and equivalents aggregated $44.0 billion at March 31, 2009, compared with $9.5
billion at March 31, 2008. GECC cash used for operating activities totaled $4.7
billion for the first three months of 2009, compared with cash from operating
activities of $3.8 billion for the first three months of 2008. This decrease was
primarily due to an overall decline in net earnings, decreases in cash
collateral received from counterparties on derivative contracts and declines in
volume resulting in a reduction of accounts payables.
Consistent
with our plan to reduce GECC asset levels, cash from investing activities was
$18.6 billion during the first three months of 2009. $18.9 billion resulted from
a reduction in financing receivables, primarily from collections exceeding
originations, and $8.8 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
and a portion of our Australian residential mortgage business. These sources
were partially offset by cash used for the acquisition of Interbanca
S.p.A.
GECC cash
used for financing activities in the first quarter of 2009, related primarily to
a $14.3 billion reduction in commercial paper outstanding, repayments on
borrowings exceeding new issuances ($0.4 billion), offset by a capital
contribution and share issuance totaling $8.8 billion.
Fair
Value Measurements
Effective
January 1, 2008, we adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements, for
all financial instruments and non-financial instruments accounted for at fair
value on a recurring basis. Effective January 1, 2009, we adopted SFAS 157 for
all non-financial instruments accounted for at fair value on a non-recurring
basis. Adoption of SFAS 157 did not have a material effect on our financial
position or results of operations. During the first quarter of 2009, there were
no significant changes in our methodology for measuring fair value of financial
instruments as compared to prior quarters. Additional information about our
application of SFAS 157 is provided in Note 10 to the condensed, consolidated
financial statements.
At March
31, 2009, the aggregate amount of investments that are measured at fair value
through earnings totaled $7.0 billion and consisted primarily of retained
interests in securitizations, equity investments, as well as various assets held
for sale in the ordinary course of business, such as credit card
receivables.
C.
Financial Services Portfolio Quality
Investment securities comprise
mainly investment-grade debt securities supporting obligations to holders of
guaranteed investment contracts (GICs). Investment securities totaled $20.6
billion at March 31, 2009, compared with $19.3 billion at December 31, 2008. Of
the amount at March 31, 2009, we held debt securities with an estimated fair
value of $13.5 billion, which included residential mortgage-backed securities
(RMBS) and commercial mortgage-backed securities (CMBS) with estimated fair
values of $2.8 billion and $1.1 billion, respectively. Unrealized losses on debt
securities were $3.2 billion and $2.9 billion at March 31, 2009, and December
31, 2008, respectively. This amount included unrealized losses on RMBS and CMBS
of $1.0 billion and $0.6 billion at March 31, 2009, as compared with $1.0
billion and $0.5 billion at December 31, 2008, respectively. Unrealized losses
increased as a result of continuing market deterioration, and we believe
primarily represent adjustments for liquidity on investment-grade
securities.
Of the
$2.8 billion of RMBS, our exposure to subprime credit was approximately $1.2
billion, and those securities are primarily held to support obligations to
holders of GICs. A majority of these securities have received investment-grade
credit ratings from the major rating agencies. We purchased no such securities
in the first quarters of 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.
We
regularly review investment securities for impairment using both quantitative
and qualitative criteria. Quantitative criteria include the length of time and
magnitude of the amount that each security is in an unrealized loss position
and, for securities with fixed maturities, whether the issuer is in compliance
with terms and covenants of the security. Qualitative criteria include the
financial health of and specific prospects for the issuer, as well as our intent
and ability to hold the security to maturity or until forecasted recovery. In
addition, our evaluation at March 31, 2009 considered the continuing market
deterioration that resulted in the lack of liquidity and the historic levels of
price volatility and credit spreads. With respect to corporate bonds, we placed
greater emphasis on the credit quality of the issuers. With respect to RMBS and
CMBS, we placed greater emphasis on our expectations with respect to cash flows
from the underlying collateral and, with respect to RMBS, we considered the
availability of credit enhancements, principally monoline insurance. Our
other-than-temporary impairment reviews involve our finance, risk and asset
management functions as well as the portfolio management and research
capabilities of our internal and third-party asset managers. FASB Staff Position
(FSP) FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, modifies the requirements for
recognizing and measuring other-than-temporary impairment for securities. As
discussed in the New Accounting Standards section of this Item, we will adopt
this FSP in the second quarter of 2009.
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 March 31, 2009, our investment
securities insured by Monolines totaled $2.4 billion, including $1.0 billion of
our $1.2 billion investment in subprime RMBS. Although several of the Monolines
have been downgraded by the rating agencies, a majority of the $2.4 billion is
insured by Monolines rated as investment-grade by at least one of the major
rating agencies. 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 as determined in accordance
with EITF Issue 99-20, Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets. If
there has been an adverse change in estimated cash flows, we then evaluate the
overall credit worthiness 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 March 31, 2009, the unrealized loss associated with securities subject to
Monoline credit enhancement was $0.6 billion, of which $0.3 billion relates to
expected credit losses and the remaining $0.3 billion relates to other market
factors.
Other-than-temporary
impairment losses totaled $0.1 billion and an insignificant amount in the first
quarter of 2009 and 2008, respectively. In the first quarter of 2009, we
recognized other-than-temporary impairments, primarily relating to equity
securities, RMBS, retained interests in our securitization arrangements and
corporate debt securities across a broad range of industries. Investments in
retained interests in securitization arrangements also increased by $0.1 billion
during the first quarter of 2009, reflecting increases in fair value accounted
for in accordance with SFAS 155, Accounting for Certain Hybrid
Financial Instruments, that became effective at the beginning of
2007.
Our
qualitative review attempts to identify issuers’ securities that are “at-risk”
of impairment, that is, with a possibility of other-than-temporary impairment
recognition in the following 12 months. Of securities with unrealized losses at
March 31, 2009, $0.8 billion of unrealized loss was at risk of being charged to
earnings assuming no further changes in price, and before considering the effect
of the future adoption of FSP FAS 115-2 and FAS 124-2. This amount primarily
related to investments in RMBS and CMBS securities, equity securities, and
corporate debt securities across a broad range of industries. In addition, we
had approximately $0.8 billion of exposure to commercial, regional and foreign
banks, primarily relating to corporate debt securities, with associated
unrealized losses of $0.1 billion. Continued uncertainty in the capital markets
may cause increased levels of other-than-temporary impairments.
At March
31, 2009, unrealized losses on investment securities totaled $3.4 billion,
including $2.7 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 March 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, $2.0
billion and $0.6 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 March 31, 2009, the vast majority relate to
securities held to support obligations to holders of GICs. We intend to hold
them at least until such time as their individual fair values exceed their
amortized cost and we have the ability to hold all such debt securities until
their maturities. The fair values used to determine these unrealized gains and
losses are those defined by relevant accounting standards and are not a forecast
of future gains or losses. For additional information, see Note 5 to the
condensed, consolidated financial statements.
Financing receivables is our
largest category of assets and represents one of our primary sources of
revenues. A discussion of the quality of certain elements of the financing
receivables portfolio follows. For purposes of that discussion, “delinquent”
receivables are those that are 30 days or more past due 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 SOP 03-3, Accounting for Certain Loans or Debt
Securities Acquired in a Transfer, 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 which are paying currently under a cash accounting
basis, but classified as impaired under SFAS 114, Accounting by Creditors for
Impairment of a Loan.
Our
portfolio of financing receivables is diverse and not directly comparable to
major U.S. banks. Historically, we have had less consumer exposure, which over
time has had higher loss rates than commercial exposure. Our consumer exposure
is largely non-U.S. and primarily comprises mortgage, sales finance, auto and
personal loans in various European and Asian countries. Our U.S. consumer
financing receivables comprise 7% of our total portfolio. Of those,
approximately 43% 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 57% are sales finance
receivables, which provide electronics, recreation, medical and home improvement
financing to customers. In 2007, we exited the U.S. mortgage business and we
have no U.S. auto or student loans.
Our
commercial portfolio primarily comprises senior, secured positions with
comparatively low loss history. The secured receivables in this portfolio are
collateralized by a variety of asset classes, including industrial-related
facilities and equipment; commercial and residential real estate; vehicles,
aircraft, and equipment used in many industries, including the construction,
manufacturing, transportation, telecommunications and healthcare industries. In
addition, approximately 2% of this portfolio is unsecured corporate
debt.
Losses on
financing receivables are recognized when they are incurred, which requires us
to make our best estimate of probable losses inherent in the portfolio. Such
estimate requires consideration of historical loss experience, adjusted for
current conditions, and judgments about the probable effects of relevant
observable data, including present economic conditions such as delinquency
rates, financial health of specific customers and market sectors, collateral
values, and the present and expected future levels of interest rates. Our risk
management process includes standards and policies for reviewing major risk
exposures and concentrations, and evaluates relevant data either for individual
loans or financing leases, or on a portfolio basis, as appropriate. We adopted
SFAS 141(R) on January 1, 2009. As a result of this adoption, 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.
|
Financing
receivables at
|
|
Nonearning
receivables at
|
|
Allowance
for losses at
|
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
March
31,
2009
|
|
December
31,
2008
|
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
99,444
|
|
$
|
104,462
|
|
$
|
2,665
|
|
$
|
1,944
|
|
$
|
898
|
|
$
|
824
|
|
Europe
|
|
40,527
|
|
|
36,972
|
|
|
437
|
|
|
345
|
|
|
327
|
|
|
288
|
|
Asia
|
|
14,528
|
|
|
16,683
|
|
|
389
|
|
|
306
|
|
|
178
|
|
|
163
|
|
Other
|
|
764
|
|
|
786
|
|
|
11
|
|
|
2
|
|
|
4
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
56,974
|
|
|
60,753
|
|
|
3,874
|
|
|
3,321
|
|
|
526
|
|
|
383
|
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
revolving credit
|
|
22,256
|
|
|
24,441
|
|
|
445
|
|
|
413
|
|
|
1,038
|
|
|
1,051
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
25,286
|
|
|
27,645
|
|
|
833
|
|
|
758
|
|
|
1,718
|
|
|
1,700
|
|
Non-U.S.
auto
|
|
15,343
|
|
|
18,168
|
|
|
95
|
|
|
83
|
|
|
249
|
|
|
222
|
|
Other
|
|
10,309
|
|
|
11,541
|
|
|
212
|
|
|
175
|
|
|
199
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate(b)
|
|
45,373
|
|
|
46,735
|
|
|
554
|
|
|
194
|
|
|
396
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
8,324
|
|
|
8,355
|
|
|
241
|
|
|
241
|
|
|
66
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
15,398
|
|
|
15,326
|
|
|
191
|
|
|
146
|
|
|
61
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
3,863
|
|
|
4,031
|
|
|
61
|
|
|
38
|
|
|
32
|
|
|
28
|
|
Total
|
$
|
358,389
|
|
$
|
375,898
|
|
$
|
10,008
|
|
$
|
7,966
|
|
$
|
5,692
|
|
$
|
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)
|
Financing
receivables included $645 million and $731 million of construction loans
at March 31, 2009 and December 31, 2008, respectively.
|
|
|
Nonearning
receivables as
a
percent of financing receivables
|
|
Allowance
for losses as a percent of nonearning
receivables
|
|
Allowance
for losses as a percent of total financing
receivables
|
|
|
March
31,
2009
|
|
December
31,
2008
|
|
March
31,
2009
|
|
December
31,
2008
|
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
2.7
|
%
|
|
1.9
|
%
|
|
33.7
|
%
|
|
42.4
|
%
|
|
0.9
|
%
|
|
0.8
|
%
|
Europe
|
|
1.1
|
|
|
0.9
|
|
|
74.8
|
|
|
83.5
|
|
|
0.8
|
|
|
0.8
|
|
Asia
|
|
2.7
|
|
|
1.8
|
|
|
45.8
|
|
|
53.3
|
|
|
1.2
|
|
|
1.0
|
|
Other
|
|
1.4
|
|
|
0.3
|
|
|
36.4
|
|
|
100.0
|
|
|
0.5
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
6.8
|
|
|
5.5
|
|
|
13.6
|
|
|
11.5
|
|
|
0.9
|
|
|
0.6
|
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
revolving credit
|
|
2.0
|
|
|
1.7
|
|
|
233.3
|
|
|
254.5
|
|
|
4.7
|
|
|
4.3
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
3.3
|
|
|
2.7
|
|
|
206.2
|
|
|
224.3
|
|
|
6.8
|
|
|
6.1
|
|
Non-U.S.
auto
|
|
0.6
|
|
|
0.5
|
|
|
262.1
|
|
|
267.5
|
|
|
1.6
|
|
|
1.2
|
|
Other
|
|
2.1
|
|
|
1.5
|
|
|
93.9
|
|
|
129.1
|
|
|
1.9
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
|
|
1.2
|
|
|
0.4
|
|
|
71.5
|
|
|
155.2
|
|
|
0.9
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
2.9
|
|
|
2.9
|
|
|
27.4
|
|
|
24.1
|
|
|
0.8
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
1.2
|
|
|
1.0
|
|
|
31.9
|
|
|
41.1
|
|
|
0.4
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
1.6
|
|
|
0.9
|
|
|
52.5
|
|
|
73.7
|
|
|
0.8
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2.8
|
|
|
2.1
|
|
|
56.9
|
|
|
66.6
|
|
|
1.6
|
|
|
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.
|
|
The
majority of the allowance for losses of $5.7 billion at March 31, 2009, and $5.3
billion at December 31, 2008, is determined based upon a formulaic approach. A
portion of the allowance for losses is related to specific reserves on loans
that have been determined to be individually impaired under SFAS 114. Under SFAS
114, individually impaired loans are defined as larger balance or restructured
loans for which it is probable that the lender will be unable to collect all
amounts due according to original contractual terms of the loan agreement. These
specific reserves amount to $0.9 billion and $0.6 billion at March 31, 2009 and
December 31, 2008, respectively. Further information pertaining to specific
reserves is included in the table below.
Further
information on the determination of the allowance for losses on financing
receivables is provided in the Critical Accounting Estimates section in
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and Note 1 to the consolidated financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2008.
|
At
|
(In
millions)
|
March
31,
2009
|
|
December
31,
2008
|
|
|
|
|
|
|
|
Loans
requiring allowance for losses
|
$
|
4,138
|
|
$
|
2,712
|
|
Loans
expected to be fully recoverable
|
|
1,682
|
|
|
871
|
|
Total
impaired loans
|
$
|
5,820
|
|
$
|
3,583
|
|
|
|
|
|
|
|
|
Allowance
for losses
|
$
|
908
|
|
$
|
635
|
|
Average
investment during the period
|
|
4,665
|
|
|
2,064
|
|
Interest
income earned while impaired(a)
|
|
17
|
|
|
27
|
|
|
|
|
|
|
|
|
(a)
|
Recognized
principally on cash basis.
|
The
portfolio of financing receivables, before allowance for losses, was $358.4
billion at March 31, 2009, and $375.9 billion at December 31, 2008. Financing
receivables, before allowance for losses, decreased $17.5 billion from December
31, 2008, primarily as a result of core declines ($10.6 billion), the stronger
U.S. dollar ($9.7 billion) and commercial and equipment securitization and sales
($4.8 billion), partially offset by acquisitions ($8.4 billion).
Related
nonearning receivables totaled $10.0 billion (2.8% of outstanding receivables)
at March 31, 2009, compared with $8.0 billion (2.1% of outstanding receivables)
at December 31, 2008. Related 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 March 31, 2009, totaled $5.7 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 $0.4 billion from December 31, 2008,
primarily due to increasing delinquencies and nonearning receivables, reflecting
the continued weakened economic and credit environment.
CLL − Americas. Nonearning
receivables of $2.7 billion represented 26.6% of total nonearning receivables at
March 31, 2009. The ratio of allowance for losses as a percent of nonearning
receivables declined from 42.4% at December 31, 2008, to 33.7% at March 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 percentage of financing
receivables increased from 1.9% at December 31, 2008, to 2.7% at March 31, 2009,
primarily from an increase in nonearning receivables in our inventory finance,
franchise finance, and retail/publishing lending portfolios; and secured lending
in media and communications, auto and transportation, and consumer manufacturing
companies. Our corporate aircraft platform is also experiencing increased
delinquencies and nonearning receivables and more remarketing pressure, as a
result of lower demand, causing declining asset values.
CLL – Europe. Nonearning
receivables of $0.4 billion represented 4.4% of total nonearning receivables at
March 31, 2009. The ratio of allowance for losses as a percent of nonearning
receivables declined from 83.5% at December 31, 2008, to 74.8% at March 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 percentage of financing
receivables increased from 0.9% at December 31, 2008, to 1.1% at March 31, 2009,
primarily from an increase in nonearning receivables in secured lending in the
automotive industry, partially offset by the effect of the increase in
financing receivables from the acquisition of Interbanca S.p.A. in the first
quarter of 2009.
CLL – Asia. Nonearning
receivables of $0.4 billion represented 3.9% of total nonearning receivables at
March 31, 2009. The ratio of allowance for losses as a percent of nonearning
receivables declined from 53.3% at December 31, 2008, to 45.8% at March 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 percentage of financing receivables increased from 1.8% at
December 31, 2008, to 2.7% at March 31, 2009, primarily from an increase in
nonearning receivables at our secured financing businesses such
as corporate air, distribution finance and our corporate asset-based
lending platforms in Australia, New Zealand and Japan, and a lower
financing receivables balance.
Consumer − non-U.S. residential
mortgages. Nonearning receivables of $3.9 billion represented 38.7% of
total nonearning receivables at March 31, 2009. The ratio of allowance for
losses as a percent of nonearning receivables increased from 11.5% at December
31, 2008, to 13.6% at March 31, 2009. In the first quarter of 2009, our
nonearning receivables increased primarily as a result of continued decline in
the U.K. housing market and our allowance increased accordingly. Our non-U.S.
mortgage portfolio has a loan-to-value of approximately 75% at origination and
the vast majority are first lien positions. In addition, we carry mortgage
insurance on most of our first mortgage loans originated at a loan-to-value
above 80%. At March 31, 2009, we had foreclosed on approximately 1,100 houses in
the U.K. which had a value of $0.1 billion.
Consumer − non-U.S. installment and revolving
credit. Nonearning receivables of $0.4 billion represented 4.4% of total
nonearning receivables at March 31, 2009. The ratio of allowance for losses as a
percent of nonearning receivables declined from 254.5% at December 31, 2008, to
233.3% at March 31, 2009, reflecting the effects of loan repayments and reduced
originations.
Consumer − U.S. installment and revolving
credit. Nonearning receivables of $0.8 billion represented 8.3% of total
nonearning receivables at March 31, 2009. The ratio of allowance for losses as a
percent of nonearning receivables declined from 224.3% at December 31, 2008, to
206.2% at March 31, 2009, as increases in the allowance due to the effects of
the continued deterioration in our U.S. portfolio in connection with rising
unemployment were more than offset by the effects of loan repayments and reduced
originations.
Real Estate. Nonearning
receivables of $0.6 billion represented 5.5% of total nonearning receivables at
March 31, 2009. The ratio of allowance for losses as a percent of nonearning
receivables declined from 155.2% at December 31, 2008, to 71.5% at March 31,
2009, primarily due to an increase in nonearning assets which required lower
levels of specific reserves based on the strength of the underlying collateral
values. The ratio of nonearning receivables as a percentage of financing
receivables increased from 0.4% at December 31, 2008, to
1.2% at March 31, 2009, driven by a $1.4 billion decrease in
the overall balance of financing receivables and an increase in nonearning
receivables primarily attributable to continued economic deterioration in the
U.S. and U.K. markets. Allowance for losses as a percentage of financing
receivables increased from 0.6% at December 31, 2008, to 0.9% at March
31, 2009, driven by an increase in specific provisions.
Delinquency
rates on managed equipment financing loans and leases and managed consumer
financing receivables follow.
|
Delinquency
rates at
|
|
March
31,
2009(a)
|
|
December
31,
2008
|
|
March
31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
Financing
|
|
2.84
|
%
|
|
2.17
|
%
|
|
1.36
|
%
|
Consumer
|
|
8.20
|
|
|
7.43
|
|
|
5.66
|
|
U.S.
|
|
7.12
|
|
|
7.14
|
|
|
5.75
|
|
Non-U.S.
|
|
8.72
|
|
|
7.57
|
|
|
5.62
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency
rates on equipment financing loans and leases increased from December 31, 2008
and March 31, 2008, to March 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 March 31,
2008 to March 31, 2009, as a result of the inclusion of the CitiCapital and
Sanyo acquisitions. The current financial market turmoil and tight credit
conditions may continue to lead to a higher level of commercial delinquencies
and provisions for financing receivables and could adversely affect results of
operations at CLL.
Delinquency
rates on consumer financing receivables increased from December 31, 2008 and
March 31, 2008, to March 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 continue to deteriorate in 2009, which may result in higher
provisions for loan losses and could adversely affect results of operations at
Consumer. At March 31, 2009, roughly 44% of our U.S.-managed portfolio, which
consisted of credit cards, installment and revolving loans, was receivable from
subprime borrowers. We had no U.S. subprime residential mortgage loans at March
31, 2009. See Notes 6 and 7 to the condensed, consolidated financial
statements.
Other assets comprise mainly
real estate investments, equity and cost method investments, derivative
instruments and assets held for sale. Other assets totaled $87.2 billion at
March 31, 2009, including a $6.1 billion equity method investment in PTL
following our partial sale during the first quarter of 2009, compared with $84.2
billion at December 31, 2008. During the first quarter of 2009, we recognized
other-than-temporary
impairments of cost and equity method investments of $0.2 billion. Of the amount
at March 31, 2009, we had cost method investments totaling $2.4 billion. The
fair value of and unrealized loss on cost method investments in a continuous
unrealized loss position for less than 12 months at March 31, 2009, were $0.7
billion and $0.2 billion, respectively. The fair value of and unrealized loss on
cost method investments in a continuous unrealized loss position for 12 months
or more at March 31, 2009, were $0.1 billion and an insignificant amount,
respectively.
D.
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 and equipment and general obligations
such as collateral deposits held, payroll and general accruals. We rely on cash
generated through our operating activities as well as unsecured and secured
funding sources, including commercial paper, term debt, bank deposits, bank
borrowings, securitization and other retail funding products.
Sources
for payment of our obligations are determined through our annual financial and
strategic planning processes. GECS 2009 funding plan anticipates repayment
of principal on outstanding short-term borrowings ($194 billion at December 31,
2008) through commercial paper issuances; incremental deposit funding and
alternative sources of funding, in addition to deposits already on hand;
long-term debt issuances; collections of financing receivables exceeding
originations; and cash on hand.
Interest
on borrowings is funded using interest earned on existing financing
receivables. During the first quarter of 2009, GECS earned
interest income on financing receivables of $6 billion, which more than offset
interest expense of $5 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.
The
global credit markets have recently experienced unprecedented volatility, which
has affected both the availability and cost of our funding sources. Throughout
this period of volatility, we have been able to continue to meet our funding
needs at acceptable costs and we continue to access the commercial paper markets
without interruption.
Recent
Liquidity Actions
GE, our
ultimate parent, GECS and GECC have taken a number of initiatives to strengthen
their liquidity. Specifically:
·
|
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 in the third
quarter of 2009, which will save the company approximately $4 billion
during the remainder of 2009 and approximately $9 billion annually
thereafter;
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·
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In
September 2008, GECS reduced its dividend to GE from 40% to 10% of GECS
earnings and GE suspended its stock repurchase program. Effective
January 2009, GECS fully suspended its dividend to
GE;
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·
|
GECS completed
its funding related to its long-term funding target of $45 billion for
2009;
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·
|
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. We do
not anticipate additional contributions in
2009;
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·
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GECS
reduced its commercial paper borrowings to $58 billion at March 31,
2009;
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·
|
GECS
targeted to further reduce its commercial paper borrowings to $50 billion
by the end of 2009 and to maintain committed credit lines equal to GECS
commercial paper borrowings going
forward;
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·
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GECS
registered to use the Federal Reserve’s Commercial Paper Funding Facility
(CPFF) for up to $83 billion, which is available through October 31,
2009;
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·
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We
registered to use the Federal Deposit Insurance Corporation’s (FDIC)
Temporary Liquidity Guarantee Program (TLGP) for approximately $126
billion;
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·
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GECS
is managing collections versus originations to help support liquidity
needs and are estimating $25 billion of excess collections in 2009;
and
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·
|
We
have evaluated and are prepared, depending on market conditions and terms,
to securitize assets for which investors can use the Federal Reserve’s
Term Asset-Backed Securities Lending Facility
(TALF).
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Cash
and Equivalents
GE’s cash
and equivalents were $46.8 billion at March 31, 2009. GE anticipates that
it will continue to generate cash from operating activities in the future, which
is available to help meet our liquidity needs. We also generate substantial cash
from the principal collections of loans and rentals from leased assets, which
historically has been invested in asset growth.
We have
committed, unused credit lines totaling $58.3 billion that had been extended to
us by 60 financial institutions at March 31, 2009. These lines include $37.4
billion of revolving credit agreements under which we can borrow funds for
periods exceeding one year. Additionally, $19.6 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
Our 2009
funding plan anticipates approximately $45 billion of senior, unsecured
long-term debt issuance. In the first quarter of 2009, we completed issuances of
$23.6 billion of long-term debt under the TLGP. GE Capital has elected to
participate in this program, under which the FDIC guarantees certain senior,
unsecured debt issued before October 31, 2009 (with a maturity of greater than
30 days that matures on or prior to December 31, 2012). GE Capital pays
annualized fees associated with this program that range from 60 to 160 basis
points of the principal amount of each issuance and vary according to the
issuance date and maturity. We also issued $5.2 billion in non-guaranteed
senior, unsecured debt with maturities of up to 30 years. These issuances, along
with the $13.4 billion of pre-funding done in December 2008, brought our
aggregate issuances to $42 billion as of March 31, 2009. We subsequently
completed our anticipated 2009 long-term funding plan. In 2009, we also intend
to start pre-funding our 2010 long-term funding target of $35 to $40 billion
using the TLGP and non-guaranteed debt issuances.
During
the fourth quarter of 2008, GECS issued commercial paper into the CPFF. The last
tranche of this commercial paper matured in February 2009. Although we do not
anticipate further utilization of the CPFF, it remains available until October
31, 2009.
GECS
incurred $1.3 billion of fees for our participation in the TLGP and CPFF
programs through March 31, 2009. These fees are amortized over the terms of the
related borrowings.
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 using bank commercial paper conduits. Securitization
proceeds were $11.2 billion during the first quarter of 2009, compared to $16.0
billion in the first quarter of 2008. We have evaluated and are prepared,
depending on market conditions and terms, to securitize assets such as credit
card receivables, floorplan receivables and equipment loans, for which investors
can use the TALF.
We have
deposit-taking capability at nine banks outside of the U.S. and two banks in the
U.S. – GE Money Bank, Inc., a Federal Savings Bank (FSB), and GE Capital
Financial Inc., an industrial bank (IB). The FSB and IB currently issue
certificates of 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 $34 billion at March 31, 2009, including CDs of $21
billion. Total alternative funding decreased from $54 billion to $43 billion
during the first quarter as we reduced our reliance on short-term bank
borrowings. We expect deposits to grow and constitute a greater percentage of
our total funding as we grow assets at these banks.
During
the first quarter of 2009, GE Capital extended $68.5 billion of credit to
customers. Of this amount, $16.3 billion was extended to U.S. customers,
including 3 million new accounts, and $4.1 billion of credit (including unfunded
commitments of $1.4 billion) to U.S. companies, with an average transaction size
of $0.3 million.
After the
expiration of the TLGP, GE Capital’s commercial paper (with maturities greater
than 30 days) and long-term debt issuances will no longer be guaranteed by the
FDIC. The effect on our liquidity when the TLGP expires will depend on a number
of factors, including our funding needs and market conditions at that time. If
the current disruption in the credit markets continues after the expiration of
the TLGP, 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 sources of
liquidity available, including:
·
|
Controlling
new originations in GE Capital to reduce capital and funding
requirements;
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·
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Using
part of our available cash balance;
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·
|
Pursuing
alternative funding sources, including time deposits and asset-backed
fundings;
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·
|
Maintaining
availability of our bank credit lines equal to commercial paper
outstanding; and
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·
|
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 sources of
liquidity provide us with adequate liquidity to manage through the current
credit cycle.
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.
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
Corporation.
We do not
believe that the downgrades by S&P and Moody’s have had, or will have, a
material impact on our cost of funding or liquidity.
Income
Maintenance Agreement
If GE
Capital’s ratio of earnings to fixed charges deteriorates below 1.10:1 for any
fiscal year, GE has agreed to contribute capital to GE Capital sufficient to
bring the ratio to at least 1.10:1 for that year in accordance with the
agreement.
Ratio
of Earnings to Fixed Charges
As set
forth in Exhibit 12 hereto, GE Capital’s ratio of earnings to fixed charges
declined to 0.97:1 in the first quarter of 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.
GE made a $9.5 billion capital contribution 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
and GE does not anticipate additional contributions in 2009.
Variable
Interest Entities and Off-Balance Sheet Arrangement
In the
first quarter of 2009, we further reduced our investment in PTL by selling a 1%
limited partnership interest in PTL, a previously consolidated variable interest
entity, 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. As of March 31, 2009, our
remaining equity investment in PTL was 49.9% and is accounted for under the
equity method.
E.
New Accounting Standards
In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. The FSP modifies the existing model for
recognition and measurement of impairment for debt securities. We will adopt the
FSP in the second quarter of 2009. 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 is required if any of these
conditions are met: (1) we do not expect to recover the entire 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 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 are not
likely to be required to sell the security, we would be required to record
the difference between the security’s 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 criteria are met, then we would be required to recognize the
entire difference between the security’s cost basis and its
fair value in earnings.
|
We expect
that the effect of the new standard on earnings and financial position will be
modest; however, the effect will be dependent upon conditions and circumstances
at the time of adoption.
In April
2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. We do not expect that the
FSP will have a significant effect on our fair value measurement upon
adoption.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
There
have been no significant changes to our market risk since December 31, 2008. For
a discussion of our exposure to market risk, refer to Part II, Item 7A.
“Quantitative and Qualitative Disclosures about Market Risk,” contained in our
Annual Report on Form 10-K for the year ended December 31, 2008.
Item
4. 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 March 31, 2009, and (ii) no change in internal
control over financial reporting occurred during the quarter ended March 31,
2009, that has materially affected, or is reasonably likely to materially
affect, such internal control over financial reporting.
Part
II. Other Information
Item
1. Legal Proceedings.
In March
and April 2009, individual 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 (our ultimate parent), a number of
GE officers (including its chief executive officer and chief financial officer)
and its directors. The complaints seek unspecified damages. The complaints
principally allege that GE falsely stated that it would maintain its quarterly
$0.31 per share dividend, while allegedly concealing that GE did not have
sufficient cash on hand and cash flow to achieve that goal. One of the
complaints also alleges that GE made misrepresentations concerning projected
earnings and losses for GE Capital in 2009. GE expects to move to consolidate
these cases and intends to defend itself vigorously against these
allegations.
Item
1A. Risk Factors.
The risk
factor set forth below updates the corresponding risk factor in Part I, “Item
1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December
31, 2008. In addition to the risk factor below, you should carefully consider
the other risk factors discussed in our Annual Report on Form 10-K for the year
ended December 31, 2008, which could materially affect our business, financial
position and results of operations.
The
unprecedented conditions in the financial and credit markets may affect the
availability and cost of GE Capital’s funding.
The
financial and credit markets have been experiencing unprecedented levels of
volatility and disruption, putting downward pressure on financial and other
asset prices generally and on the credit availability for certain issuers. The
U.S. Government and the Federal Reserve Bank have created a number of programs
to help stabilize credit markets and financial institutions and restore
liquidity. Many non-U.S. governments have also created or announced similar
measures for institutions in their respective countries. These programs have
improved conditions in the credit and financial markets, but there can be no
assurance that these programs, individually or collectively, will continue to
have beneficial effects on the markets overall, or will resolve the credit or
liquidity issues of companies that participate in the programs.
A large
portion of GE Capital’s borrowings have been issued in the commercial paper and
term debt markets. GE Capital has continued to issue commercial paper and, as
planned, has reduced its outstanding commercial paper balance to $58 billion at
March 31, 2009. Since November 2008, GE Capital has also issued term debt,
mainly debt guaranteed by the Federal Deposit Insurance Corporation under the
Temporary Liquidity Guarantee Program (TLGP), which is scheduled to expire in
October 2009, and, to a lesser extent, on a non-guaranteed basis. Although the
commercial paper and term debt markets have remained available to GE Capital to
fund its operations and debt maturities, there can be no assurance that such
markets will continue to be available or, if available, that the cost of such
funding will not substantially increase. 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; market
conditions and debt spreads for our debt after expiration of the TLGP;
refinancing of funding that we have obtained under the TGLP 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.
If current levels of market disruption and volatility continue or worsen, or if
we cannot further reduce GE Capital’s asset levels as planned in 2009, we would
seek to repay commercial paper and term debt as it becomes due or to meet our
other liquidity needs by using the Federal Reserve’s Commercial Paper Funding
Facility (CPFF) and the TLGP, drawing upon contractually committed lending
agreements primarily provided by global banks and/or seeking other sources of
funding. There can be no assurance that the CPFF, which is scheduled to expire
in October 2009, and the TLGP will be extended beyond their scheduled
expiration, or that, under extreme market conditions, contractually committed
lending agreements and other funding sources would be available or sufficient.
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.
Our 2009
funding plan anticipates approximately $45 billion of senior, unsecured
long-term debt issuance. As of March 31, 2009,
we had funded $42 billion and subsequently completed our 2009 long-term funding
target. We have also announced that during 2009 we intend to use the TLGP to
start pre-funding our 2010 long-term funding target of $35 to $40 billion. As of
March 31, 2009, we had $74 billion of debt outstanding under the TLGP and have a
maximum capacity under the program of approximately $126 billion.
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Exhibit
12
|
Computation
of Ratio of Earnings to Fixed Charges.*
|
|
Exhibit
31(a)
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as Amended.*
|
|
Exhibit
31(b)
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as Amended.*
|
|
Exhibit
32
|
Certification
Pursuant to 18 U.S.C. Section 1350.*
|
|
Exhibit
99
|
Financial
Measures That Supplement Generally Accepted Accounting
Principles.*
|
|
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*
Filed electronically herewith.
|
Pursuant
to the requirements 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
(Registrant)
|
May
1, 2009
|
|
/s/Michael
A. Neal
|
|
Date
|
|
Michael
A. Neal
Chief
Executive Officer
|
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