United
States Securities and Exchange Commission
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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þ Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the fiscal year ended December 31, 2008
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or
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¨ Transition
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the transition period from ___________to ___________
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Commission
file number 001-00035
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General
Electric Company
(Exact
name of registrant as specified in
charter)
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New
York
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14-0689340
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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3135
Easton Turnpike, Fairfield, CT
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06828-0001
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203/373-2211
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(Address
of principal executive offices)
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(Zip
Code)
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(Telephone
No.)
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Securities
Registered Pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
stock, par value $0.06 per share
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New
York Stock Exchange
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Securities
Registered Pursuant to Section 12(g) of the Act:
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(Title
of class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes þ No ¨
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer þ
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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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 Act). Yes ¨ No þ
The
aggregate market value of the outstanding common equity of the registrant as of
the last business day of the registrant’s most recently completed second fiscal
quarter was $265.5 billion. Affiliates of the Company beneficially own, in the
aggregate, less than one-tenth of one percent of such shares. There were
10,560,425,000 shares of voting common stock with a par value of $0.06
outstanding at January 30, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
The
definitive proxy statement relating to the registrant’s Annual Meeting of
Shareowners, to be held April 22, 2009, is incorporated by reference in Part III
to the extent described therein.
Table
of Contents
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Page
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Part I
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Business
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3
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Risk
Factors
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12
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Unresolved
Staff Comments
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16
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Properties
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17
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Legal
Proceedings
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17
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Submission
of Matters to a Vote of Security Holders
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19
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Part II
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Market
for Registrant’s Common Equity, Related Stockholder Matters and
Issuer
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Purchases
of Equity Securities
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19
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Selected
Financial Data
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21
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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22
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Quantitative
and Qualitative Disclosures About Market Risk
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67
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Financial
Statements and Supplementary Data
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67
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Changes
in and Disagreements With Accountants on Accounting
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and
Financial Disclosure
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141
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Controls
and Procedures
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141
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Other
Information
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142
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Part III
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Directors,
Executive Officers and Corporate Governance
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142
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Executive
Compensation
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143
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Security
Ownership of Certain Beneficial Owners and Management and
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Related
Stockholder Matters
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143
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Certain
Relationships and Related Transactions, and Director
Independence
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143
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Principal
Accounting Fees and Services
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143
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Part IV
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Exhibits,
Financial Statement Schedules
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143
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148
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Part
I
General
Unless
otherwise indicated by the context, we use the terms “GE,” “GECS” and “GE
Capital” on the basis of consolidation described in Note 1 to the consolidated
financial statements in Part II, Item 8. “Financial Statements and Supplementary
Data” of this Form 10-K Report. Also, unless otherwise indicated by the context,
“General Electric” means the parent company, General Electric Company (the
Company).
General
Electric’s address is 1 River Road, Schenectady, NY 12345-6999; we also maintain
executive offices at 3135 Easton Turnpike, Fairfield, CT
06828-0001.
We are
one of the largest and most diversified technology, media, and financial
services corporations in the world. With products and services ranging from
aircraft engines, power generation, water processing, and security technology to
medical imaging, business and consumer financing, media content and industrial
products, we serve customers in more than 100 countries and employ more than
300,000 people worldwide. Since our incorporation in 1892, we have
developed or acquired new technologies and services that have broadened
considerably the scope of our activities.
In
virtually all of our global business activities, we encounter aggressive and
able competition. In many instances, the competitive climate is characterized by
changing technology that requires continuing research and development, as well
as customer commitments. With respect to manufacturing operations, we believe
that, in general, we are one of the leading firms in most of the major
industries in which we participate. The NBC Television Network is one of four
major U.S. commercial broadcast television networks. NBC Universal also competes
with other film and television programming producers and distributors,
cable/satellite television networks and theme park operators. The businesses in
which GECS engages are subject to competition from various types of financial
institutions, including commercial banks, thrifts, investment banks,
broker-dealers, credit unions, leasing companies, consumer loan companies,
independent finance companies and finance companies associated with
manufacturers.
This
document contains “forward-looking statements”- that is, statements related to
future, not past, events. In this context, forward-looking statements often
address our expected future business and financial performance and financial
condition, and often contain words such as “expect,” “anticipate,” “intend,”
“plan,” believe,” “seek,” or “will.” Forward-looking statements by their nature
address matters that are, to different degrees, uncertain. For us, particular
uncertainties that could cause our actual results to be materially different
than those expressed in our forward-looking statements include: the severity and
duration of current economic and financial conditions, including volatility in
interest and exchange rates, commodity and equity prices and the value of
financial assets; the impact of U.S. and foreign government programs to restore
liquidity and stimulate national and global economies; the impact of conditions
in the financial and credit markets on the availability and cost of GE Capital’s
funding and on our ability to reduce GE Capital’s asset levels and commercial
paper exposure as planned; the impact of conditions in the housing market and
unemployment rates on the level of commercial and consumer credit defaults; our
ability to maintain our current credit rating and the impact on our funding
costs and competitive position if we do not do so; the soundness of other
financial institutions with which GE Capital does business; the adequacy of our
cash flow and earnings and other conditions which may affect our ability to
maintain our quarterly dividend at the current level; the level of demand and
financial performance of the major industries we serve, including, without
limitation, air and rail transportation, energy generation, network television,
real estate and healthcare; the impact of regulation and regulatory,
investigative and legal proceedings and legal compliance risks; strategic
actions, including acquisitions and dispositions and our success in integrating
acquired businesses; and numerous other matters of national, regional and global
scale, including those of a political, economic, business and competitive
nature. These uncertainties are described in more detail in Part I, Item 1A.
“Risk Factors” of this Form 10-K Report. We do not undertake to update our
forward-looking statements.
Our
consolidated global revenues increased to $97.2 billion in 2008, compared with
$86.3 billion in 2007 and $70.5 billion in 2006. For additional information
about our geographic operations, see the Geographic Operations section in Part
II, Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of this Form 10-K Report.
Segment
revenue and profit information and additional financial data and commentary on
recent financial results for operating segments are provided in the Segment
Operations section in Part II, Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and in Note 27 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Operating
businesses that are reported as segments include Energy Infrastructure,
Technology Infrastructure, NBC Universal, Capital Finance and Consumer &
Industrial. Net earnings of GECS and the effect of transactions between segments
are eliminated to arrive at total consolidated data. A summary description of
each of our operating segments follows.
We also
continue our longstanding practice of providing supplemental information for
certain businesses within the segments.
Energy
Infrastructure
Energy
Infrastructure (21.1%, 17.8% and 16.6% of consolidated revenues in 2008, 2007
and 2006, respectively) is a leader in the field of development, implementation
and improvement of products and technologies that harness resources such as
wind, oil, gas and water.
Our
operations are located in North America, Europe, Asia, South America and
Africa.
Energy
Energy
serves power generation, industrial, government and other customers worldwide
with products and services related to energy production, distribution and
management. We offer wind turbines as part of our renewable energy portfolio,
which also includes solar technology. We also sell aircraft engine derivatives
for use as industrial power sources. Gas turbines and generators are used
principally in power plants for generation of electricity and for industrial
cogeneration and mechanical drive applications. We are a leading provider of
Integrated Gasification Combined Cycle (IGCC) technology design and development.
IGCC systems convert coal and other hydrocarbons into synthetic gas that, after
cleanup, is used as the primary fuel for gas turbines in combined-cycle systems.
IGCC systems produce fewer air pollutants compared with traditional pulverized
coal power plants. We sell steam turbines and generators to the electric utility
industry and to private industrial customers for cogeneration applications.
Nuclear reactors, fuel and support services for both new and installed boiling
water reactors are offered through joint ventures with Hitachi and Toshiba. In
addition, we design and manufacture motors and control systems used in
industrial applications primarily for oil and gas extraction and mining. We
provide our customers with total solutions to meet their needs through a
complete portfolio of aftermarket services, including equipment upgrades,
long-term maintenance service agreements, repairs, equipment installation,
monitoring and diagnostics, asset management and performance optimization tools,
remote performance testing and Dry Low NOx (DLN) tuning. We continue to invest
in advanced technology development that will provide more value to our customers
and more efficient solutions that comply with today’s strict environmental
regulations.
Energy
is party to revenue sharing programs that share the financial results of certain
aero-derivative lines. These businesses are controlled by Energy, but
counterparties have an agreed share of revenues as well as development and
component production responsibilities. At December 31, 2008, such counterparty
interests ranged from 5% to 49% of various programs; associated distributions to
such counterparties are accounted for as costs of production.
Worldwide
competition for power generation products and services is intense. Demand for
power generation is global and, as a result, is sensitive to the economic and
political environment of each country in which we do business. The balance of
regional growth and demand side management are important factors to evaluate as
we plan for future development.
Oil
& Gas
Our
technology helps oil and gas companies make more efficient and sustainable use
of the world's energy resources.
Oil
& Gas supplies mission critical equipment for the global oil and gas
industry, used in applications spanning the entire value chain from drilling and
completion through production, transportation and pipeline inspection and
including downstream processing in refineries and petrochemical plants. The
business designs and manufactures surface and subsea drilling and production
systems, equipment for floating production platforms, compressors, turbines,
turboexpanders, high pressure reactors, industrial power generation and a broad
portfolio of ancillary equipment.
To
ensure that the installed base is maintained at peak condition, our service
business has over 40 service centers and workshops in all of the world's main
oil and gas extraction and production regions. The business also provides
upgrades to customers’ machines, using the latest available technology, to
extend production capability and environmental performance.
In April
2008, Oil & Gas completed the acquisition of the Hydril Pressure Controls
business from Tenaris. This addition to the portfolio further extends GE's
capabilities in oil and gas drilling systems and opens further opportunities in
the technically challenging deep and ultra-deep subsea
applications.
Water
& Process Technologies
Water
& Process Technologies offers water treatment solutions for industrial and
municipal water systems including the supply and related services of specialty
chemicals, water purification systems, pumps, valves, filters and fluid handling
equipment for improving the performance of water, wastewater and process
systems, including mobile treatment systems and desalination
processes.
For
information about orders and backlog, see the Segment Operations section in Part
II, Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of this Form 10-K Report.
Technology
Infrastructure
Technology
Infrastructure (25.4%, 24.8% and 24.9% of consolidated revenues in 2008, 2007
and 2006, respectively) is one of the world’s leading providers of essential
technologies to developed, developing and emerging countries. Around the world,
we are helping build healthcare, transportation and technology
infrastructure.
Our
operations are located in North America, Europe, Asia and South
America.
Aviation
Aviation
produces, sells and services jet engines, turboprop and turbo shaft engines, and
related replacement parts for use in military and commercial aircraft. Our
military engines are used in a wide variety of aircraft including fighters,
bombers, tankers, helicopters and surveillance aircraft, as well as marine
applications, and our commercial engines power aircraft in all categories of
range: short/medium, intermediate and long-range, as well as executive and
regional aircraft. We also produce and market engines through CFM International,
a company jointly owned by GE and Snecma, a subsidiary of SAFRAN of France, and
Engine Alliance, LLC, a company jointly owned by GE and the Pratt & Whitney
division of United Technologies Corporation. New engines are also being designed
and marketed in joint ventures with Rolls-Royce Group plc and Honda Aero, Inc.,
a division of Honda Motor Co., Ltd.
Aviation
is party to agreements that share the financial results of certain aircraft and
marine engine lines. These agreements take the form of both joint ventures and
revenue sharing programs.
Joint
ventures market and sell particular aircraft engine lines, but require
negligible direct investment because the venture parties conduct essentially all
of the development, production, assembly and aftermarket support activities.
Under these agreements, Aviation supplies certain engine components and retains
related intellectual property rights. The CFM56 engine line is the product of
CFM International and the GP7000 engine line is the product of Engine Alliance,
LLC.
Revenue
sharing programs are a standard form of cooperation for specific product
programs in the aviation industry. These businesses are controlled by Aviation,
but counterparties have an agreed share of revenues as well as development and
component production responsibilities. At December 31, 2008, such counterparty
interests ranged from 2% to 49% of various programs; associated distributions to
such counterparties are accounted for as costs of production.
Aviation
also produces global aerospace systems and equipment, including airborne
platform computing systems, power generation and distribution products,
mechanical actuation products and landing gear, plus various engine components
for use in both military and commercial aircraft.
We
provide maintenance, component repair and overhaul services (MRO), including
sales of replacement parts for many models of engines and repair and overhaul of
engines manufactured by competitors. These MRO services are often provided under
long-term maintenance contracts.
The
worldwide competition in aircraft jet engines and MRO (including parts sales) is
intense. Both U.S. and export markets are important. Product development cycles
are long and product quality and efficiency are critical to success. Research
and development expenditures are important in this business, as are focused
intellectual property strategies and protection of key aircraft engine design,
manufacture, repair and product upgrade technologies. Our products and services
are subject to a number of regulatory standards.
Potential
sales for any engine are limited by, among other things, its technological
lifetime, which may vary considerably depending upon the rate of advance in
technology, the small number of potential customers and the limited number of
relevant airframe applications. Aircraft engine orders tend to follow military
and airline procurement cycles, although these cycles differ from each
other.
Enterprise
Solutions
Enterprise
Solutions delivers integrated solutions that improve customers’ productivity and
profitability. We offer integrated solutions using sensors and non-destructive
testing, security and life safety technologies, power system protection and
control, and plant automation and embedded computing systems. From home to
industry to national security, our technology covers the full spectrum of
security solutions, including card access systems, high-tech video monitoring,
intrusion and fire detection, real estate and property control, and explosives
and narcotics detection. We design and manufacture equipment and systems that
enable customers to monitor, protect, control and ensure the safety of their
critical applications. These products include sensing instruments that measure
temperature, pressure, moisture, gas and flow rate for demanding customer
applications. Enterprise Solutions also designs, manufactures and services
inspection equipment, including radiographic, ultrasonic, remote visual and eddy
current, that monitors and tests materials without disassembling, deforming or
damaging them. We deliver automation hardware, software and embedded computing
systems designed to help users reduce costs, increase efficiency and enhance
profitability through a diverse array of capabilities and products, including
controllers, embedded systems, advanced software, motion control, computer
numerical controls, operator interfaces, industrial computers, and lasers. We
also provide protection & control, communications, power sensing and power
quality products and services that increase the reliability of electrical power
networks and critical equipment for utility, industrial and large commercial
customers. We protect and optimize assets such as generators, transmission lines
and motors, to ensure secure wireless data transmission and uninterruptible
power.
Healthcare
Healthcare
has expertise in medical imaging and information technologies, medical
diagnostics, patient monitoring systems, disease research, drug discovery and
biopharmaceutical manufacturing technologies. We are dedicated to predicting and
detecting disease earlier, monitoring its progress and informing physicians,
helping them to tailor treatment for individual patients. Healthcare
manufactures, sells and services a wide range of medical equipment that helps
provide a fast, non-invasive way for doctors to see broken bones, diagnose
trauma cases in the ER, view the heart and its function, and identify early
stages of cancers or brain disorders. With X-ray, digital mammography, Computed
Tomography (CT), Magnetic Resonance (MR) and Molecular Imaging technologies,
Healthcare creates industry-leading products that allow clinicians to see inside
the human body more clearly than ever. In addition, Healthcare manufactured
technologies include patient monitoring, diagnostic cardiology, ultrasound, bone
densitometry, anesthesiology and oxygen therapy, and neonatal and critical care
devices. Medical diagnostics and life sciences products include diagnostic
imaging agents used in medical scanning procedures, drug discovery,
biopharmaceutical manufacturing and the latest in cellular technologies.
During 2008, we acquired Whatman plc, a global supplier of filtration products
and technologies and Vital Signs, Inc., a global provider of medical products
applicable to a wide range of care areas such as anesthesia, respiratory, sleep
therapy and emergency medicine.
Our
product services include remote diagnostic and repair services for medical
equipment manufactured by GE and by others, as well as computerized data
management and customer productivity services.
We
compete with a variety of U.S. and non-U.S. manufacturers and services
operations. Technological competence and innovation, excellence in design, high
product performance, quality of services and competitive pricing are among the
key factors affecting competition for these products and services. Throughout
the world, we play a critical role in delivering new technology to improve
patient outcomes and productivity tools to help control healthcare
costs.
Our
products are subject to regulation by numerous government agencies, including
the FDA, as well as various laws that apply to claims submitted under Medicare,
Medicaid or other government funded healthcare programs.
Transportation
Transportation
provides technology solutions for customers in a variety of industries including
railroad, transit, mining, oil and gas, power generation and marine. We serve
customers in more than 100 countries.
Transportation
manufactures high-horsepower diesel-electric locomotives, including the
Evolution Series™, the most technologically advanced and most fuel efficient
locomotive, which meets or exceeds the U.S. Environmental Protection Agency’s
Tier II requirements. We also offer leading drive technology solutions to the
mining, transit, marine and stationary, and drilling industries. Our motors
operate in thousands of applications, from electrical drive systems for large
haulage trucks used in the mining industry to transit cars and drilling rigs,
and our engines are used for marine power as well as stationary power generation
applications. We also provide gearing technology for critical applications such
as wind turbines.
Transportation
also provides a portfolio of service offerings designed to improve fleet
efficiency and reduce operating expenses, including repair services, locomotive
enhancements, modernizations, and information-based services like remote
monitoring and diagnostics. We provide train control products, railway
management services, and signaling systems to increase service levels, optimize
asset utilization, and streamline operations for railroad owners and operators.
We deliver leading edge tools that improve asset availability and reliability,
optimize network planning, and control network execution to plan.
For
information about orders and backlog, see the Segment Operations section in Part
II, Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of this Form 10-K Report.
NBC
Universal (9.3%, 8.9% and 10.7% of consolidated revenues in 2008, 2007 and 2006,
respectively) is a diversified media and entertainment company focused on the
development, production and marketing of entertainment, news and information to
a global audience. NBC Universal, which is 80-percent owned by General Electric
and 20-percent owned by Vivendi S.A., is engaged in the production and
distribution of film and television programming; the operation of leading
cable/satellite television networks around the world; the broadcast of network
television through owned and affiliated television stations within the United
States; and investment and programming activities in digital media and the
Internet. Our premier film company, Universal Pictures, is engaged in the
production and world-wide distribution of theatrical, home entertainment and
television programming. We own the world-renowned theme park Universal Studios
Hollywood, operate and hold an ownership interest in the Universal Studios
Florida theme parks and brand, design and develop international theme parks
under exclusive licenses. Our cable/satellite television networks provide
produced and acquired entertainment, news and information programming to
households world-wide. Our cable/satellite television networks include the USA
Network, Bravo, CNBC, the SciFi Channel, MSNBC, Oxygen, UniHD, Chiller, Sleuth,
mun2 and branded channels across Europe, Asia and Latin America. The NBC
television network is one of four major U.S. commercial broadcast television
networks. Together, the NBC television network and Telemundo, our U.S.
Spanish-language broadcast television network, serve 210 affiliated stations
within the United States. At December 31, 2008, we owned and operated 26
television stations each subject to U.S. Federal Communications Commission
regulation. We have exclusive U.S. television rights to the 2010 and 2012
Olympic Games, National Football League Sunday Night Football and the Super Bowl
in 2012.
NBC
Universal is subject to a wide range of factors, which could adversely affect
our operations. Our broadcast networks, cable television networks and television
stations are subject to advertising patterns and changes in viewer taste and
preference that can be unpredictable or unforeseen. In addition, future revenues
in these properties are dependent upon our ability to obtain, renew or
renegotiate long-term programming contracts, including event-based sports
programming and contracts for the distribution of our programming to
cable/satellite operators. Our television and film production and distribution
businesses are affected by the timing and performance of releases in the
theatrical, home entertainment and television markets. Technological advances
like digital video recorders, Internet streaming and electronic sell-through
offer entertainment options through new media, introducing uncertainty to our
operations. Other technologies enable the unauthorized copying and distribution
of our film and television programming, increasing the risk of piracy. We
continue to devote substantial resources to protect our intellectual property
against unauthorized use.
NBC
Universal’s headquarters are in New York, New York, with operations throughout
North America, Europe, South America and Asia.
Capital
Finance
Capital
Finance (36.7%, 38.4% and 37.2% of consolidated revenues in 2008, 2007 and 2006,
respectively) offers a broad range of financial products and services worldwide.
Services include commercial loans, operating leases, fleet management, financial
programs, home loans, credit cards, personal loans and other financial
services.
Within
our Capital Finance operating segment, we operate the businesses described below
along product lines. Additionally, in 2008, we have increased our focus on core
operations, ability to self-fund and restructuring low return
businesses.
Our
operations are located in North America, South America, Europe, Australia and
Asia.
Commercial
Lending and Leasing (CLL)
CLL
offers a broad range of financial services worldwide. We have particular
mid-market expertise, and offer loans, leases and other financial services to
customers, including manufacturers, distributors and end-users for a variety of
equipment and major capital assets. These assets include industrial-related
facilities and equipment; vehicles; corporate aircraft; and equipment used in
many industries, including the construction, manufacturing, transportation,
telecommunications and healthcare industries. During 2008, we made a number of
acquisitions, the most significant of which were Merrill Lynch Capital and
CitiCapital. In January 2009, we acquired Interbanca S.p.A., a leading Italian
corporate bank.
We
operate in a highly competitive environment. Our competitors include commercial
banks, investment banks, leasing companies, financing companies associated with
manufacturers, and independent finance companies. Competition related to our
lending and leasing operations is based on price, that is interest rates and
fees, as well as deal structure and terms. Profitability is affected not only by
broad economic conditions that affect customer credit quality and the
availability and cost of capital, but also by successful management of credit
risk, operating risk and market risks such as interest rate and currency
exchange risks. Success requires high quality risk management systems, customer
and industry specific knowledge, diversification, service and distribution
channels, strong collateral and asset management knowledge, deal structuring
expertise and the ability to reduce costs through technology and
productivity.
GE
Money
GE
Money, through consolidated entities and associated companies, is a leading
provider of financial services to consumers and retailers in over 50 countries
around the world. We offer a full range of innovative financial products to suit
customers’ needs. These products include, on a global basis, private-label
credit cards; personal loans; bank cards; auto loans and leases; mortgages; debt
consolidation; home equity loans; deposit and other savings products; and small
and medium enterprise lending. In 2008, we acquired a controlling interest in
Bank BPH.
In
December 2007, we sold our U.S. mortgage business (WMC). In September 2007, we
committed to a plan to sell our Japanese personal loan business (Lake). During
the second quarter of 2008, this planned sale was expanded to GE Money Japan,
which comprises Lake and our Japanese mortgage and card businesses, excluding
our minority ownership in GE Nissen Credit Co., Ltd. This sale was completed in
the third quarter of 2008.
In June
2008, we committed to sell the GE Money businesses in Germany, Austria and
Finland, the credit card and auto businesses in the U.K., and the credit card
business in Ireland. In October 2008, we completed the sale of the GE Money
business in Germany. In January 2009, we completed the sale of the remaining
businesses, which are included in assets and liabilities of businesses held for
sale on the Statement of Financial Position at December 31, 2008.
In
December 2008, we committed to sell a portion of our Australian residential
mortgage business. This sale is expected to be executed during the first quarter
of 2009.
Our
operations are subject to a variety of bank and consumer protection regulations.
Further, a number of countries have ceilings on rates chargeable to consumers in
financial service transactions. We are subject to competition from various types
of financial institutions including commercial banks, leasing companies,
consumer loan companies, independent finance companies, manufacturers’ captive
finance companies, and insurance companies. Industry participants compete on the
basis of price, servicing capability, promotional marketing, risk management,
and cross selling. The markets in which we operate are also subject to the risks
from fluctuations in retail sales, interest and currency exchange rates, and the
consumer’s capacity to repay debt.
Real
Estate
Real
Estate offers a comprehensive range of capital and investment solutions,
including equity capital for acquisition or development, as well as fixed and
floating rate mortgages for new acquisitions or re-capitalizations of commercial
real estate worldwide. Our business finances, with both equity and loan
structures, the acquisition, refinancing and renovation of office buildings,
apartment buildings, retail facilities, hotels, parking facilities and
industrial properties. Our typical real estate loans are intermediate term,
senior, fixed or floating-rate, and are secured by existing income-producing
commercial properties. We invest in, and provide restructuring financing for,
portfolios of mortgage loans, limited partnerships and tax-exempt
bonds.
In the
normal course of our business operations, we sell certain real estate equity
investments when it is economically advantageous for us to do so. However, as
real estate values are affected by certain forces beyond our control (e.g.,
market fundamentals and demographic conditions), it is difficult to predict with
certainty the level of future sales or sales prices.
We
operate in a highly competitive environment. Our competitors include banks,
financial institutions, real estate companies, real estate investment funds and
other financial companies. Competition in our equity investment business is
primarily based on price, and competition in our lending business is primarily
based on interest rates and fees, as well as deal structure and terms. As we
compete globally, our success is sensitive to the economic and political
environment of each country in which we do business.
Energy
Financial Services
Energy
Financial Services offers structured equity, debt, leasing, partnership
financing, project finance and broad-based commercial finance to the global
energy and water industries and invests in operating assets in these industries.
Energy Financial Services also owns a controlling interest in Regency Energy
Partners LP, a midstream master limited partnership engaged in the gathering,
processing, transporting and marketing of natural gas and gas
liquids.
We
operate in a highly competitive environment. Our competitors include banks,
financial institutions, energy and water companies, and other finance and
leasing companies. Competition is primarily based on price, that is interest
rates and fees, as well as deal structure and terms. As we compete globally, our
success is sensitive to the economic and political environment of each country
in which we do business.
GE
Commercial Aviation Services (GECAS)
GECAS is
a global leader in commercial aircraft leasing and finance, delivering fleet and
financing solutions for commercial aircraft. Our airport financing unit makes
debt and equity investments primarily in mid-sized regional airports. We also
co-sponsor an infrastructure private equity fund, which invests in large
infrastructure projects including gateway airports. GECAS also has in its
portfolio a wide array of products including leases, debt and equity investments
to the global transportation industry (marine, rail and
intermodal).
We
operate in a highly competitive environment. Our competitors include aircraft
manufacturers, banks, financial institutions, equity investors, and other
finance and leasing companies. Competition is based on lease rate financing
terms, aircraft delivery dates, condition and availability, as well as available
capital demand for financing.
Consumer
& Industrial
Consumer
& Industrial (6.4%, 7.3% and 8.7% of consolidated revenues in 2008, 2007 and
2006, respectively) sells products that share several characteristics −
competitive design, efficient manufacturing and effective distribution and
service. Strong global competition rarely permits premium pricing, so cost
control, including productivity, is key. Despite pricing pressures on many of
our products, we also invest in the development of differentiated, premium
products that are more profitable. While some Consumer & Industrial products
are primarily directed to consumer applications (major appliances, for example),
and some primarily to industrial applications (switchgear, for example), others
are directed to both markets (lighting, for example).
We sell
and service major home appliances including refrigerators, freezers, electric
and gas ranges, cooktops, dishwashers, clothes washers and dryers, microwave
ovens, room air conditioners, and residential water systems for filtration,
softening and heating. Brands are GE Monogram®, GE Profile™, GE®, Hotpoint® and
GE Café™.
We
manufacture certain products, and also source finished product and component
parts from third-party global manufacturers. A large portion of our appliances
sales are through a variety of retail outlets for replacement of installed
units. Residential building contractors installing units in new construction is
our second major U.S. channel. We offer one of the largest original equipment
manufacturer (OEM) service organizations in the appliances industry, providing
in-home repair, aftermarket parts and warranty administration. We also
manufacture and sell a variety of lamp products for commercial, industrial and
consumer markets, including full lines of incandescent, halogen, fluorescent,
high-intensity discharge, light-emitting diode, automotive and miniature
products.
Consumer
& Industrial also provides integrated electrical equipment and systems used
to distribute, protect and control energy and equipment. We manufacture and
distribute electrical distribution and control products, lighting and power
panels, switchgear and circuit breakers that are used to distribute and manage
power in a variety of residential, commercial, consumer and industrial
applications. We also provide customer-focused solutions centered on the
delivery and control of electric power, and market a wide variety of commercial
lighting systems.
The
aggregate level of economic activity in markets for such products and services
generally lags overall economic slowdowns as well as subsequent recoveries. In
the U.S., industrial markets are undergoing significant structural changes
reflecting, among other factors, increased international competition and
continued commodity cost pressures.
Our
headquarters are in Louisville, Kentucky and our operations are located in North
America, Europe, Asia and Latin America.
Discontinued
Operations
Discontinued
operations comprised GE Money Japan; WMC; Plastics; Advanced Materials; GE Life,
our U.K.-based life insurance operation; the property and casualty insurance and
reinsurance businesses and the European life and health operations of GE
Insurance Solutions Corporation (GE Insurance Solutions); and Genworth
Financial, Inc. (Genworth), our formerly wholly-owned subsidiary that conducted
most of our consumer insurance business, including life and mortgage insurance
operations.
For
further information about discontinued operations, see Part II, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and Note 2 to the consolidated financial statements in Part II, Item
8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Geographic
Data
Geographic
data are reported in Note 27 to the consolidated financial statements in Part
II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Additional
financial data about our geographic operations is provided in the Geographic
Operations section in Part II, Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this Form 10-K
Report.
Orders
Backlog
Research
and Development
GE-funded
research and development expenditures were $3.0 billion in both 2008 and 2007,
and $2.8 billion in 2006. In addition, research and development funding from
customers, principally the U.S. government, totaled $1.3 billion, $1.1 billion
and $0.7 billion in 2008, 2007 and 2006, respectively. Technology
Infrastructure’s Aviation business accounts for the largest share of GE’s
research and development expenditures with funding from both GE and customer
funds. Technology Infrastructure’s Healthcare business and Energy
Infrastructure’s Energy business also made significant expenditures funded
primarily by GE.
Expenditures
reported above reflect the definition of research and development required by
U.S. generally accepted accounting principles. For operating and management
purposes, we consider amounts spent on product and services technology to
include our reported research and development expenditures, but also amounts for
improving our existing products and services, and the productivity of our plant,
equipment and processes. On this basis, our technology expenditures in 2008 were
$5.3 billion.
Environmental
Matters
Our
operations, like operations of other companies engaged in similar businesses,
involve the use, disposal and cleanup of substances regulated under
environmental protection laws. We are involved in a sizable number of
remediation actions to clean up hazardous wastes as required by federal and
state laws. Such statutes require that responsible parties fund remediation
actions regardless of fault, legality of original disposal or ownership of a
disposal site. Expenditures for site remediation actions amounted to
approximately $0.3 billion in 2008 and $0.2 billion in 2007. We presently expect
that such remediation actions will require average annual expenditures in the
range of $0.3 billion to $0.4 billion over the next two years.
In
November 2006, the United States Federal District Court approved a consent
decree, which had been agreed to by GE and the United States Environmental
Protection Agency (EPA), that represents a comprehensive framework for
implementation of the EPA’s 2002 decision to dredge polychlorinated biphenyl
(PCB)-containing sediments in the upper Hudson River. The dredging will be
performed in two phases with an intervening peer review of performance after the
first phase. Under the consent decree, we have committed to reimburse the EPA
for its past and future project oversight costs and to perform the first phase
of dredging, which is scheduled to proceed from May through November of 2009.
After completion of the peer review, currently scheduled for 2010, we may be
responsible for further costs. Our Statement of Financial Position as of
December 31, 2008 and 2007, included liabilities for the probable and estimable
costs of the agreed upon remediation activities.
Employee
Relations
At
year-end 2008, General Electric Company and consolidated affiliates employed
approximately 323,000 persons, of whom approximately 152,000 were employed in
the United States. For further information about employees, see Part II, Item 6.
“Selected Financial Data” of this Form 10-K Report.
Approximately
19,250 GE manufacturing and service employees in the United States are
represented for collective bargaining purposes by a total of approximately 125
different union locals. A majority of such employees are represented by union
locals that are affiliated with, and bargain in coordination with, the IUE-CWA,
The Industrial Division of the Communication Workers of America, AFL-CIO, CLC.
During 2007, General Electric Company negotiated four-year contracts with unions
representing a substantial majority of the unionized employees in the United
States. Most of these contracts will terminate in June 2011.
Approximately
3,500 staff employees (and a large number of freelance employees) in the United
States are covered by about 160 labor agreements to which NBC Universal is a
party. These agreements are with various labor unions, expire at various dates
and are generally for a term ranging from three to five years.
Executive
Officers
See Part
III, Item 10. “Directors, Executive Officers and Corporate Governance” of this
Form 10-K Report for information about Executive Officers of the
Registrant.
Other
Because
of the diversity of our products and services, as well as the wide geographic
dispersion of our production facilities, we use numerous sources for the wide
variety of raw materials needed for our operations. We have not been adversely
affected by the inability to obtain raw materials.
We own,
or hold licenses to use, numerous patents. New patents are continuously being
obtained through our research and development activities as existing patents
expire. Patented inventions are used both within the Company and are licensed to
others, but no operating segment is substantially dependent on any single patent
or group of related patents.
Agencies
of the U.S. Government constitute our largest single customer. An analysis of
sales of goods and services as a percentage of revenues follows:
|
%
of Consolidated Revenues
|
|
%
of GE Revenues
|
|
2008
|
|
2007
|
|
2006
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales to U.S. Government Agencies
|
3
|
%
|
|
2
|
%
|
|
2
|
%
|
|
4
|
%
|
|
3
|
%
|
|
4
|
%
|
Technology
Infrastructure segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
defense-related
sales
|
2
|
|
|
2
|
|
|
2
|
|
|
3
|
|
|
3
|
|
|
3
|
|
GE is a
trademark and service mark of General Electric Company.
The
Company’s Internet address is www.ge.com. Our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments
to those reports are available, without charge, on our website,
www.ge.com/en/company/investor/secfilings.htm, as soon as reasonably practicable
after they are filed electronically with the U.S. Securities and Exchange
Commission (SEC). Copies are also available, without charge, from GE Corporate
Investor Communications, 3135 Easton Turnpike, Fairfield, CT 06828. Reports
filed with the SEC may be viewed at www.sec.gov or obtained at the SEC Public
Reference Room in Washington, D.C. Information regarding the operation of the
Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
References to our website addressed in this report are provided as a convenience
and do not constitute, or should be viewed as, an incorporation by reference of
the information contained on, or available through, the website. Therefore, such
information should not be considered part of this report.
The
following discussion of risk factors contains “forward-looking statements,” as
discussed in Item 1. “Business”. These risk factors may be important to
understanding any statement in this Annual Report on Form 10-K or elsewhere. The
following information should be read in conjunction with Part II, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” (MD&A), and the consolidated financial statements and related
notes in Part II, Item 8. “Financial Statements and Supplementary Data” of this
Form 10-K Report.
Our
businesses routinely encounter and address risks, some of which will cause our
future results to be different - sometimes materially different - than we
presently anticipate. Discussion about important operational risks that our
businesses encounter can be found in the MD&A section and in the business
descriptions in Item 1. “Business” of this Form 10-K Report. Below, we describe
certain important operational and strategic risks. Our reactions to material
future developments as well as our competitors’ reactions to those developments
will affect our future results.
The
unprecedented conditions in the financial and credit markets may affect the
availability and cost of GE Capital’s funding.
The
financial and credit markets have been experiencing unprecedented levels of
volatility and disruption, putting downward pressure on financial and other
asset prices generally and on the credit availability for certain issuers. The
U.S. Government and the Federal Reserve Bank recently created a number of
programs to help stabilize credit markets and financial institutions and restore
liquidity. Many non-U.S. governments have also created or announced similar
measures for institutions in their respective countries. These programs have
improved conditions in the credit and financial markets, but there can be no
assurance that these programs, individually or collectively, will continue to
have beneficial effects on the markets overall, or will resolve the credit or
liquidity issues of companies that participate in the programs.
A large
portion of GE Capital’s borrowings have been issued in the commercial paper and
term debt markets. GE Capital has continued to issue commercial paper and, as
planned, has reduced its outstanding commercial paper balance to $67 billion at
the end of 2008. GE Capital has also issued term debt, mainly debt guaranteed by
the Federal Deposit Insurance Corporation under the Temporary Liquidity
Guarantee Program (TLGP) and, to a lesser extent, on a non-guaranteed basis.
Although the commercial paper and term debt markets have remained available to
GE Capital to fund its operations and debt maturities, there can be no assurance
that such markets will continue to be available or, if available, that the cost
of such funding will not substantially increase. If current levels of market
disruption and volatility continue or worsen, or if we cannot further reduce GE
Capital’s asset levels as planned in 2009, we would seek to repay commercial
paper and term debt as it becomes due or to meet our other liquidity needs by
using the Federal Reserve’s Commercial Paper Funding Facility (CPFF) and the
TLGP, applying the net proceeds of our October 2008 equity offering and the
investment by Berkshire Hathaway Inc., drawing upon contractually committed
lending agreements primarily provided by global banks and/or seeking other
sources of funding. There can be no assurance, however, that the TLGP and the
CPFF will be extended beyond their scheduled expiration, or that, under such
extreme market conditions, contractually committed lending agreements and other
funding sources would be available or sufficient.
Our 2009
funding plan anticipates approximately $45 billion of senior, unsecured
long-term debt issuance. In January 2009, we completed issuances of $11.0
billion of funding under the TLGP. We also issued $5.1 billion in non-guaranteed
senior, unsecured debt with a maturity of 30 years under the non-guarantee
option of the TLGP. These issuances, along with the $13.4 billion of pre-funding
done in December 2008, bring our aggregate issuances to $29.5 billion or 66% of
our anticipated 2009 funding plan. Additionally, we anticipate that we will be
90% complete with our 2009 funding plan by June 30, 2009.
Difficult
conditions in the financial services markets have materially and adversely
affected the business and results of operations of GE Capital and we do not
expect these conditions to improve in the near future.
Dramatic
declines in the housing market, with falling home prices and increasing
foreclosures and unemployment, have resulted in significant write-downs of asset
values by financial institutions, including government-sponsored entities and
major commercial and investment banks. These write-downs, initially of
mortgage-backed securities but spreading to credit default swaps and other
derivative securities, have caused many financial institutions to seek
additional capital, to merge with other institutions and, in some cases, to
fail. Many lenders and institutional investors have reduced and, in some cases,
ceased to provide funding to borrowers including other financial institutions.
This market turmoil and tightening of credit have led to an increased level of
commercial and consumer delinquencies, lack of consumer confidence, increased
market volatility and widespread reduction of business activity generally. If
these conditions continue or worsen, there can be no assurance that we will be
able to recover fully the value of certain assets such as goodwill and
intangibles. In addition, although we have established
allowances for losses in GE Capital’s portfolio of financing receivables that we
believe are adequate, significant and unexpected further deterioration in the
economy and in default and recovery rates could require us to increase these
allowances and write-offs, which, depending on the amount of the increase, could
have a material adverse effect on our business, financial position and
results of operations.
The
soundness of other financial institutions could adversely affect GE
Capital.
GE
Capital has exposure to many different industries and counterparties, and
routinely executes transactions with counterparties in the financial services
industry, including brokers and dealers, commercial banks, investment banks and
other institutional clients. Many of these transactions expose GE Capital to
credit risk in the event of default of its counterparty or client. In addition,
GE Capital’s credit risk may be increased when the collateral held by it cannot
be realized upon sale or is liquidated at prices not sufficient to recover the
full amount of the loan or derivative exposure due to it. GE Capital also has
exposure to these financial institutions in the form of unsecured debt
instruments held in its investment portfolios. GE Capital has policies relating
to initial credit rating requirements and to exposure limits to counterparties
(as described in Note 29 to the consolidated financial statements in Part II,
Item 8. “Financial Statements and Supplementary Data” of this Form 10-K Report),
which mitigate credit and liquidity risk. There can be no assurance, however,
that any losses or impairments to the carrying value of financial assets would
not materially and adversely affect GE Capital’s business, financial position
and results of operations.
The
real estate markets in which GE Capital participates are highly
uncertain.
GE
Capital participates in the commercial real estate market in two ways: it
provides financing for the acquisition, refinancing and renovation of various
types of properties and it also acquires an equity position in various types of
properties. The profitability of real estate investments is largely dependent
upon the specific geographic market in which the properties are located and the
perceived value of that market at the time of sale. Such activity may vary
significantly from one year to the next. Rising unemployment, a slowdown in
general business activity and recent disruptions in the credit markets have
adversely affected, and are expected to continue to adversely affect, the value
of real estate assets GE Capital holds. Under current market and credit
conditions, there can be no assurance as to the level of sales GE Capital will
complete or the net sales proceeds it will realize. Also, there can be no
assurance that occupancy rates and market rentals will continue at their current
levels given the current economic environment during the period in which GE
Capital continues to hold its equity investments in these properties which may
result in an impairment to the carrying value of those investments.
GE
Capital is also a residential mortgage lender in certain geographic markets,
particularly in the United Kingdom, that have been and may continue to be
adversely affected by declines in residential real estate values and home sale
volumes, job losses, consumer bankruptcies and other factors that may negatively
impact the credit performance of our mortgage loans. Our allowance for loan
losses on these mortgage loans is based on our analysis of current and
historical delinquency and loan performance, as well as other management
assumptions that may be inaccurate predictions of credit performance in this
environment. There can be no assurance that, in this environment, credit
performance will not be materially worse than anticipated and, as a result,
materially and adversely affect GE Capital’s business, financial position and
results of operations.
Failure
to maintain our “Triple-A” credit ratings could adversely affect our cost of
funds and related margins, liquidity, competitive position and access to capital
markets.
The
major debt rating agencies routinely evaluate our debt. This evaluation is based
on a number of factors, which include financial strength as well as transparency
with rating agencies and timeliness of financial reporting. In December 2008,
Standard & Poor’s Ratings Services affirmed our and GE Capital’s “AAA”
long-term and “A-1+” short-term corporate credit ratings but revised its ratings
outlook from stable to negative based partly on the concerns regarding GE
Capital’s future performance and funding in light of capital market turmoil. On
January 24, 2009, Moody’s Investment Services placed the long-term ratings of GE
and GE Capital on review for possible downgrade. The firm’s “Prime-1” short-term
ratings were affirmed. Moody’s said the review for downgrade is based primarily
upon heightened uncertainty regarding GE Capital’s asset quality and earnings
performance in future periods. In light of the difficulties in the financial
services industry and the difficult financial markets, there can be no assurance
that we will successfully implement our 2009 operational and funding plan for GE
Capital or, in the event of further deterioration in the financial markets, that
completion of our plan and any other steps we might take in response will be
sufficient to allow us to maintain our “Triple-A” ratings. Failure to do so
could adversely affect our cost of funds and related margins, liquidity,
competitive position and access to capital markets. Various debt instruments,
guarantees and covenants would require posting additional capital or collateral
in the event of a ratings downgrade, but none are triggered if our ratings are
reduced to AA-/Aa3 or A-1+/P-1 or higher.
Current
conditions in the global economy and the major industries we serve also may
materially and adversely affect the business and results of operations of our
non-financial businesses.
The
business and operating results of our technology infrastructure, energy
infrastructure, consumer and industrial and media businesses have been and will
continue to be affected by worldwide economic conditions and, in particular,
conditions in the air and rail transportation, energy generation, healthcare,
network television and other major industries we serve. As a result of slowing
global economic growth, the credit market crisis, declining consumer and
business confidence, increased unemployment, reduced levels of capital
expenditures, fluctuating commodity prices, bankruptcies and other challenges
currently affecting the global economy, our customers may experience
deterioration of their businesses, cash flow shortages, and difficulty obtaining
financing. As a result, existing or potential customers may delay or cancel
plans to purchase our products and services, including large infrastructure
projects, and may not be able to fulfill their obligations to us in a timely
fashion. Contract cancellations could affect our ability to fully recover our
contract costs and estimated earnings. Further, our vendors may be experiencing
similar conditions, which may impact their ability to fulfill their obligations
to us. Although the new Administration in the United States is expected to enact
various economic stimulus programs, there can be no assurance as to the timing
and effectiveness of these programs. If the global economic slowdown continues
for a significant period or there is significant further deterioration in the
global economy, our results of operations, financial position and cash flows
could be materially adversely affected.
Our
global growth is subject to economic and political risks.
We
conduct our operations in virtually every part of the world. In 2008,
approximately 53% of our revenues were attributable to activities outside the
United States. Our operations are subject to the effects of global competition.
They are also affected by local economic environments, including inflation,
recession and currency volatility. Political changes, some of which may be
disruptive, can interfere with our supply chain, our customers and all of our
activities in a particular location. While some of these risks can be hedged
using derivatives or other financial instruments and some are insurable, such
attempts to mitigate these risks are costly and not always successful, and our
ability to engage in such mitigation has decreased or become even more costly as
a result of recent market developments.
The
success of our business depends on achieving our objectives for strategic
acquisitions and dispositions.
With
respect to acquisitions and mergers, we may not be able to identify suitable
candidates at terms acceptable to us, or may not achieve expected returns and
other benefits as a result of integration challenges, such as personnel and
technology. We will continue to evaluate the potential disposition of assets and
businesses that may no longer help us meet our objectives. When we decide to
sell assets or a business, we may encounter difficulty in finding buyers or
alternative exit strategies on acceptable terms in a timely manner (as was the
case with our Consumer & Industrial business in 2008), which could delay the
accomplishment of our strategic objectives. Alternatively, we may dispose of a
business at a price or on terms that are less than we had anticipated. These
difficulties have been exacerbated in the current financial and credit
environment because some potential sellers may hold onto assets pending a
rebound in prices and buyers may have difficulty obtaining the necessary
financing. In addition, there is a risk that we may sell a business whose
subsequent performance exceeds our expectations, in which case our decision
would have potentially sacrificed enterprise value.
There
are risks inherent in owning our common stock.
The
market price and volume of our common stock have been, and may continue to be,
subject to significant fluctuations. These may arise from general stock market
conditions, the impact of the risk factors described above on our financial
condition and results of operations, a change in sentiment in the market
regarding us or our business prospects or from other factors. Changes in the
amounts and frequency of share repurchases or dividends could adversely affect
the value of our common stock.
We
are subject to a wide variety of laws and regulations.
Our
businesses are subject to regulation under a wide variety of U.S. federal, state
and foreign laws, regulations and policies. There can be no assurance that, in
response to current economic conditions, laws and regulations will not be
changed in ways that will require us to modify our business models and
objectives or affect our returns on investment by making existing practices more
restricted, subject to escalating costs or prohibited outright. In particular,
we expect U.S. and foreign governments to undertake a substantial review and
revision of the regulation and supervision of bank and non-bank financial
institutions and tax laws and regulation, which may have a significant effect on
GE Capital’s structure, operations and performance. We are also subject to
regulatory risks from laws that reduce the allowable lending rate or limit
consumer borrowing, local liquidity regulations that may increase the risk of
not being able to retrieve assets, and changes to tax law that may affect our
return on investments. For example, GE’s effective tax rate is reduced because
active business income earned and indefinitely reinvested outside the United
States is taxed at less than the U.S. rate. A significant portion of this
reduction depends upon a provision of U.S. tax law that defers the imposition of
U.S. tax on certain active financial services income until that income is
repatriated to the United States as a dividend. This provision is consistent
with international tax norms and permits U.S. financial services companies to
compete more effectively with foreign banks and other foreign financial
institutions in global markets. This provision, currently scheduled to expire at
the end of 2009, has been scheduled to expire and has been extended by Congress
on five previous occasions, including in October of 2008, but there can be no
assurance that it will continue to be extended. In the event this provision is
not extended after 2009, the current U.S. tax imposed on active financial
services income earned outside the United States would increase, making it more
difficult for U.S. financial services companies to compete in global markets. If
this provision is not extended, we expect our effective tax rate to increase
significantly after 2010.
We
are subject to legal proceedings and legal compliance risks.
We are
subject to a variety of legal proceedings and legal compliance risks. We and our
subsidiaries, our businesses and the industries in which we operate are at times
being reviewed or investigated by regulators, which could lead to enforcement
actions, fines and penalties or the assertion of private litigation claims and
damages. These include investigations by the Department of Justice Antitrust
Division and the U.S. Securities and Exchange Commission (SEC) of the marketing
and sales of guaranteed investment contracts, and other financial instruments,
to municipalities by certain subsidiaries of GE Capital and an investigation by
the SEC of possible violations of the securities laws with respect to certain
accounting issues, as described in Item 3. “Legal Proceedings” of this Form 10-K
Report. Additionally, we and our subsidiaries are involved in a sizable number
of remediation actions to clean up hazardous wastes as required by federal and
state laws. These include the dredging of polychlorinated biphenyls from a
40-mile stretch of the upper Hudson River in New York State, as described in
Item 1. “Business” of this Form 10-K Report. We are also subject to certain
other legal proceedings described in Item 3. “Legal Proceedings” of this Form
10-K Report. While we believe that we have adopted appropriate risk management
and compliance programs, the global and diverse nature of our operations means
that legal compliance risks will continue to exist and additional legal
proceedings and other contingencies, the outcome of which cannot be predicted
with certainty, will arise from time to time.
Significant
changes in actual investment return on pension assets, discount rates, and other
factors could affect our results of operations, equity, and pension
contributions in future periods.
Our
results of operations may be positively or negatively affected by the amount of
income or expense we record for our defined benefit pension plans. U.S.
generally accepted accounting principles (GAAP) require that we calculate income
or expense for the plans using actuarial valuations. These valuations reflect
assumptions about financial market and other economic conditions, which may
change based on changes in key economic indicators. The most significant
year-end assumptions we used to estimate pension income or expense for 2009 are
the discount rate and the expected long-term rate of return on plans assets. In
addition, we are required to make an annual measurement of plan assets and
liabilities, which may result in a significant change to equity through a
reduction or increase to Accumulated gains (losses) – net, Benefit plans. At the
end of 2008, the projected benefit obligation of our U.S. principal pension
plans was $45.1 billion and assets were $40.7 billion. For a discussion
regarding how our financial statements can be affected by pension plan
accounting policies, see Critical Accounting Estimates – Pension Assumptions in
Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and Note 6 to the consolidated financial statements
in Part II, Item 8. “Financial Statements and Supplementary Data” of this Form
10-K Report. Although GAAP expense and pension funding contributions are not
directly related, key economic factors that affect GAAP expense would also
likely affect the amount of cash we would contribute to pension plans as
required under the Employee Retirement Income Security Act (ERISA).
Item
1B. Unresolved Staff Comments.
Not
applicable.
Manufacturing
operations are carried out at approximately 285 manufacturing plants located in
40 states in the United States and Puerto Rico and at approximately 245
manufacturing plants located in 41 other countries.
Item
3. Legal Proceedings.
As
previously reported, in January 2005, the staff of the U.S. Securities and
Exchange Commission (SEC) informed us that it had commenced an investigation and
requested certain documents and information with respect to the use of hedge
accounting for derivatives by us and General Electric Capital Corporation. In
August 2005, the SEC staff advised us that the SEC had issued a formal order of
investigation in the matter. The SEC investigation is continuing and the SEC
staff has taken testimony in this matter and has requested information about
other GE accounting policies and practices, including items related to revenue
recognition and our cash flow presentations.
We
continue to cooperate with the ongoing SEC investigation and to discuss the
investigation and issues arising in that investigation and our internal review
of certain accounting matters with the SEC staff with a goal of completing our
review and resolving these matters. As part of this process, we have had
discussions with the SEC staff concerning resolution of these matters. In
September 2008, the SEC staff issued a “Wells notice” advising us that it is
considering recommending to the SEC that it bring a civil injunctive action
against GE for possible violations of the securities laws. We have been informed
that the issues the staff may recommend that the SEC pursue relate to the
application of SFAS 133 in 2002 and 2003 with respect to accounting for
derivatives formerly used to hedge the risk of interest rate changes related to
commercial paper and for certain derivatives in which a fee was a part of the
consideration for the derivative; a change in 2002 in our accounting for profits
on certain aftermarket spare parts primarily in our Aviation business; certain
2003 and earlier transactions involving financial intermediaries in our Rail
business; and historical accounting for revenue recognition on product sales
subject to in-transit risk of damage, principally in our Healthcare,
Infrastructure and Industrial segments. We have already disclosed these items in
previously filed SEC reports, including their effects on particular periods and
corrected our financial statements with respect to each of them. The cumulative
effect of these items on our financial statements was a reduction in net
earnings by approximately $300 million in the period from 2001 through December
31, 2007. We have implemented a number of remedial actions and internal control
enhancements, also as described in our SEC reports. All of these items were
reviewed or discussed with KPMG, which audited our financial statements
throughout the periods in question.
We
disagree with the SEC staff regarding this recommendation and have been in
discussions with the staff, including discussion of potential resolution of the
matter. We intend to continue these discussions and understand that we will have
the opportunity to address any disagreements with the SEC staff with respect to
its recommendation through the Wells process with the full Commission. If the
Commission were to authorize an action against GE, it could seek an injunction
against future violations of provisions of the federal securities laws,
including potentially Sections 13(a), 13(b), and 10(b) of the Exchange Act and
Section 17(a) of the Securities Act, the imposition of penalties, and other
relief within the Commission’s authority. If we were to resolve the matter
through a settlement, we would neither admit nor deny the proposed allegations
but could agree to the resolution and entry of an injunction. There can be no
assurance that we and the SEC would reach agreement on a proposed settlement as
a result of our discussions.
In July
and September 2008, shareholders filed two purported class actions under the
federal securities laws in the United States District Court for the District of
Connecticut naming us as defendant, as well as our chief executive officer and
chief financial officer. These two actions have been consolidated and in January
2009, a consolidated complaint was filed alleging that we and our chief
executive officer made false and misleading statements that artificially
inflated our stock price between March 12, 2008 and April 10, 2008, when we
announced that our results for the first quarter of 2008 would not meet our
previous guidance and we also lowered our full year guidance for 2008. This
case, which seeks unspecified damages, is at an early stage and we intend to
defend ourselves vigorously. In addition, in August 2008, shareholders filed two
purported derivative actions in New York State court against our chief executive
officer and chief financial officer, the members of our board and us (as nominal
defendant) for alleged breach of fiduciary duty and other claims in connection
with these events. In December 2008, the plaintiffs in these derivative actions
entered into a stipulation to dismiss the actions without
prejudice.
In
October 2008, shareholders filed a purported class action under the federal
securities laws in the United States District Court for the Southern District of
New York naming us as defendant, as well as our chief executive officer and
chief financial officer. The complaint alleges that during a conference call
with analysts on September 25, 2008, defendants made false and misleading
statements concerning (i) the state of GE’s funding, cash flows, and liquidity
and (ii) the question of issuing additional equity, which caused economic loss
to those shareholders who purchased GE stock between September 25, 2008 and
October 2, 2008, when we announced the pricing of a common stock offering. This
case, which seeks unspecified damages, is at the earliest stage and we intend to
defend ourselves vigorously.
As
previously reported, the Antitrust Division of the Department of Justice (DOJ)
and the SEC are conducting an industry-wide investigation of marketing and sales
of guaranteed investment contracts, and other financial instruments, to
municipalities. In connection with this investigation, two subsidiaries of GE
Capital have received subpoenas and requests for information in connection with
the investigation: GE Funding CMS (Trinity Funding Co.) and GE Funding Capital
Market Services, Inc. (GE FCMS). GE Capital has cooperated and continues to
cooperate fully with the SEC and DOJ in this matter. In July 2008, GE FCMS
received a “Wells notice” advising that the SEC staff is considering
recommending that the SEC bring a civil injunctive action or institute an
administrative proceeding in connection with the bidding for various financial
instruments associated with municipal securities by certain former employees of
GE FCMS. GE FCMS is one of several industry participants that received Wells
notices during 2008. GE FCMS disagrees with the SEC staff regarding this
recommendation and has been in discussions with the staff, including discussion
of potential resolution of the matter. GE FCMS intends to continue these
discussions and understands that it will have the opportunity to address any
disagreements with the SEC staff with respect to its recommendation through the
Wells process with the full Commission. In March 2008, GE FCMS and Trinity
Funding Co., LLC (Trinity Funding) were served with a federal class action
complaint asserting antitrust violations. This action has been combined with
other related actions in a multidistrict litigation proceeding in the United
States District Court for the Southern District of New York. In addition, GE
FCMS and Trinity Funding also received subpoenas from the Attorneys General of
the State of Connecticut and Florida on behalf of a working group of State
Attorneys General in June 2008. GE FCMS and Trinity Funding are cooperating with
those investigations.
In June
2008, the Environmental Protection Agency (EPA) issued a notice of violation
alleging non-compliance with the Clean Air Act at a power cogeneration plant in
Homer City, PA. The plant is operated exclusively by EME Homer City Generation
L.P., and is owned and leased to EME Homer City Generation L.P. by subsidiaries
of GE Capital. The notice of violation does not indicate a specific penalty
amount but makes reference to statutory fines. We believe that we have
meritorious defenses and that EME Homer City Generation L.P. is obligated to
indemnify GE Capital’s subsidiaries and pay all costs associated with this
matter.
As
previously reported, in April 2006 the EPA informed the company that it was
contemplating seeking $990,000 in penalties for violations of the Clean Air Act
at its Mt. Vernon, Indiana Plastics facility. The EPA asserted that the company
failed to adequately control emissions from valves and inlet pipes in an
underground piping system. We disagreed with those assertions, and the EPA
modified its position to reduce the number of potential violations. In August
2007, ownership of the facility was transferred to Sabic Innovative Plastics as
part of the sale of GE's Plastics business. Pursuant to the terms of the sale,
Sabic has agreed to take full responsibility for any civil sanctions or
corrective actions that may be required pursuant to this matter.
Item
4. Submission of Matters to a Vote of Security Holders.
Not
applicable.
Part
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
With
respect to “Market Information,” in the United States, GE common stock is listed
on the New York Stock Exchange (its principal market). GE common stock is also
listed on the London Stock Exchange and on Euronext Paris. Trading prices, as
reported on the New York Stock Exchange, Inc., Composite Transactions Tape, and
dividend information follow:
|
Common
stock market price
|
|
Dividends
|
(In
dollars)
|
High
|
|
Low
|
|
declared
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
Fourth
quarter
|
$25.75
|
|
$12.58
|
|
$0.31
|
Third
quarter
|
30.39
|
|
22.16
|
|
0.31
|
Second
quarter
|
38.52
|
|
26.15
|
|
0.31
|
First
quarter
|
37.74
|
|
31.65
|
|
0.31
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
Fourth
quarter
|
$42.15
|
|
$36.07
|
|
$0.31
|
Third
quarter
|
42.07
|
|
36.20
|
|
0.28
|
Second
quarter
|
39.77
|
|
34.55
|
|
0.28
|
First
quarter
|
38.28
|
|
33.90
|
|
0.28
|
As of
January 31, 2009, there were approximately 605,000 shareowner accounts of
record.
During
the fourth quarter of 2008, we purchased shares of our common stock as
follows.
Period(a)
|
|
Total
number
of
shares
purchased(a)(b)
|
|
Average
price
paid
per
share
|
|
Total
number of
shares
purchased
as
part of our
share
repurchase
programs(a)(c)(d)
|
|
Approximate
dollar
value
of shares that
may
yet be purchased
under
our share
repurchase program(d)
|
(Shares
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
|
|
|
651
|
|
|
|
$20.45
|
|
|
|
567
|
|
|
|
|
|
|
November
|
|
|
704
|
|
|
|
$16.96
|
|
|
|
509
|
|
|
|
|
|
|
December
|
|
|
1,855
|
|
|
|
$16.59
|
|
|
|
527
|
|
|
|
|
|
|
Total
|
|
|
3,210
|
|
|
|
$17.45
|
|
|
|
1,603
|
|
|
|
$
|
11.8
billion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Information
is presented on a fiscal calendar basis, consistent with our quarterly
financial reporting.
|
(b)
|
This
category includes 1,607 thousand shares repurchased from our various
benefit plans, primarily the GE Savings and Security Program (the
S&SP). Through the S&SP, a defined contribution plan with Internal
Revenue Service Code 401(k) features, we repurchase shares resulting from
changes in investment options by plan participants.
|
(c)
|
This
balance represents the number of shares that were repurchased through the
2007 GE Share Repurchase Program (the Program) under which we are
authorized to repurchase up to $15 billion of our common stock through
2010. The Program is flexible and shares are acquired with a combination
of borrowings and free cash flow from the public markets and other
sources, including GE Stock Direct, a stock purchase plan that is
available to the public. As major acquisitions or other circumstances
warrant, we modify the frequency and amount of share repurchases under the
Program.
|
(d)
|
Effective
September 25, 2008, we suspended our share repurchase program for
purchases other than for the GE Stock Direct
Plan.
|
For
information regarding compensation plans under which equity securities are
authorized for issuance, see Note 24 to the consolidated financial statements in
Part II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Five-year
financial performance graph: 2004-2008
Comparison
of five-year cumulative return among GE, S&P 500 and Dow Jones Industrial
Average
The
annual changes for the five-year period shown in the graph on this page are
based on the assumption that $100 had been invested in GE stock, the Standard
& Poor’s 500 Stock Index and the Dow Jones Industrial Average on December
31, 2003, and that all quarterly dividends were reinvested. The total cumulative
dollar returns shown on the graph represent the value that such investments
would have had on December 31, 2008.
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
|
$
|
100
|
|
$
|
121
|
|
$
|
119
|
|
$
|
130
|
|
$
|
134
|
|
$
|
61
|
|
S&P
500
|
|
100
|
|
|
111
|
|
|
116
|
|
|
135
|
|
|
142
|
|
|
89
|
|
DJIA
|
|
100
|
|
|
106
|
|
|
107
|
|
|
128
|
|
|
139
|
|
|
95
|
|
Item
6. Selected Financial Data.
The
following table provides key information for Consolidated, GE and
GECS.
(Dollars
in millions; per-share amounts in dollars)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Electric Company and Consolidated Affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
182,515
|
|
$
|
172,488
|
|
$
|
151,568
|
|
$
|
136,262
|
|
$
|
123,814
|
|
Earnings
from continuing operations
|
|
18,089
|
|
|
22,457
|
|
|
19,344
|
|
|
17,279
|
|
|
15,591
|
|
Earnings
(loss) from discontinued operations, net of taxes
|
|
(679
|
)
|
|
(249
|
)
|
|
1,398
|
|
|
(559
|
)
|
|
1,631
|
|
Net
earnings
|
|
17,410
|
|
|
22,208
|
|
|
20,742
|
|
|
16,720
|
|
|
17,222
|
|
Dividends
declared(a)
|
|
12,649
|
|
|
11,713
|
|
|
10,675
|
|
|
9,647
|
|
|
8,594
|
|
Return
on average shareowners’ equity(b)
|
|
15.9
|
%
|
|
20.4
|
%
|
|
19.8
|
%
|
|
18.1
|
%
|
|
18.8
|
%
|
Per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations – diluted
|
$
|
1.78
|
|
$
|
2.20
|
|
$
|
1.86
|
|
$
|
1.63
|
|
$
|
1.49
|
|
Earnings
(loss) from discontinued operations – diluted
|
|
(0.07
|
)
|
|
(0.02
|
)
|
|
0.13
|
|
|
(0.05
|
)
|
|
0.16
|
|
Net
earnings – diluted
|
|
1.72
|
|
|
2.17
|
|
|
2.00
|
|
|
1.57
|
|
|
1.65
|
|
Earnings
from continuing operations – basic
|
|
1.79
|
|
|
2.21
|
|
|
1.87
|
|
|
1.63
|
|
|
1.50
|
|
Earnings
(loss) from discontinued operations – basic
|
|
(0.07
|
)
|
|
(0.02
|
)
|
|
0.14
|
|
|
(0.05
|
)
|
|
0.16
|
|
Net
earnings – basic
|
|
1.72
|
|
|
2.18
|
|
|
2.00
|
|
|
1.58
|
|
|
1.66
|
|
Dividends
declared
|
|
1.24
|
|
|
1.15
|
|
|
1.03
|
|
|
0.91
|
|
|
0.82
|
|
Stock
price range
|
38.52-12.58
|
|
42.15-33.90
|
|
38.49-32.06
|
|
37.34-32.67
|
|
37.75-28.88
|
|
Year-end
closing stock price
|
|
16.20
|
|
|
37.07
|
|
|
37.21
|
|
|
35.05
|
|
|
36.50
|
|
Cash
and equivalents
|
|
48,187
|
|
|
15,731
|
|
|
14,086
|
|
|
8,608
|
|
|
11,833
|
|
Total
assets of continuing operations
|
|
796,046
|
|
|
786,794
|
|
|
674,966
|
|
|
588,821
|
|
|
578,560
|
|
Total
assets
|
|
797,769
|
|
|
795,683
|
|
|
697,273
|
|
|
673,210
|
|
|
750,252
|
|
Long-term
borrowings
|
|
330,067
|
|
|
319,013
|
|
|
260,749
|
|
|
212,167
|
|
|
207,784
|
|
Common
shares outstanding – average (in thousands)
|
10,079,923
|
|
10,182,083
|
|
10,359,320
|
|
10,569,805
|
|
10,399,629
|
|
Common
shareowner accounts – average
|
|
604,000
|
|
|
608,000
|
|
|
624,000
|
|
|
634,000
|
|
|
658,000
|
|
Employees
at year end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
152,000
|
|
|
155,000
|
|
|
155,000
|
|
|
161,000
|
|
|
165,000
|
|
Other
countries
|
|
171,000
|
|
|
172,000
|
|
|
164,000
|
|
|
155,000
|
|
|
142,000
|
|
Total
employees
|
|
323,000
|
|
|
327,000
|
|
|
319,000
|
|
|
316,000
|
|
|
307,000
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
$
|
2,375
|
|
$
|
4,106
|
|
$
|
2,076
|
|
$
|
972
|
|
$
|
3,252
|
|
Long-term
borrowings
|
|
9,827
|
|
|
11,656
|
|
|
9,043
|
|
|
8,986
|
|
|
7,561
|
|
Minority
interest
|
|
6,678
|
|
|
6,503
|
|
|
5,544
|
|
|
5,308
|
|
|
7,236
|
|
Shareowners’
equity
|
|
104,665
|
|
|
115,559
|
|
|
111,509
|
|
|
108,633
|
|
|
110,181
|
|
Total
capital invested
|
$
|
123,545
|
|
$
|
137,824
|
|
$
|
128,172
|
|
$
|
123,899
|
|
$
|
128,230
|
|
Return
on average total capital invested(b)
|
|
14.8
|
%
|
|
18.9
|
%
|
|
18.5
|
%
|
|
16.7
|
%
|
|
16.9
|
%
|
Borrowings
as a percentage of total capital invested(b)
|
|
9.9
|
%
|
|
11.4
|
%
|
|
8.7
|
%
|
|
8.0
|
%
|
|
9.0
|
%
|
Working
capital(b)
|
$
|
3,904
|
|
$
|
6,433
|
|
$
|
7,527
|
|
$
|
7,853
|
|
$
|
7,788
|
|
GECS
data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
71,287
|
|
$
|
71,936
|
|
$
|
61,351
|
|
$
|
54,889
|
|
$
|
50,320
|
|
Earnings
from continuing operations
|
|
7,774
|
|
|
12,417
|
|
|
10,219
|
|
|
8,929
|
|
|
7,614
|
|
Earnings
(loss) from discontinued operations, net of taxes
|
|
(719
|
)
|
|
(2,116
|
)
|
|
439
|
|
|
(1,352
|
)
|
|
1,114
|
|
Net
earnings
|
|
7,055
|
|
|
10,301
|
|
|
10,658
|
|
|
7,577
|
|
|
8,728
|
|
Shareowner’s
equity
|
|
53,279
|
|
|
57,676
|
|
|
54,097
|
|
|
50,812
|
|
|
54,379
|
|
Total
borrowings
|
|
514,601
|
|
|
500,922
|
|
|
426,262
|
|
|
362,042
|
|
|
355,463
|
|
Ratio
of debt to equity at GE Capital
|
|
8.76:1
|
(d)
|
|
8.10:1
|
|
|
7.52:1
|
|
|
7.09:1
|
|
|
6.45:1
|
|
Total
assets
|
$
|
660,902
|
|
$
|
646,485
|
|
$
|
565,258
|
|
$
|
540,584
|
|
$
|
618,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions
between GE and GECS have been eliminated from the consolidated
information.
|
(a)
|
Includes
$75 million of preferred stock dividends in 2008.
|
(b)
|
Indicates
terms are defined in the Glossary.
|
(c)
|
Includes
employees of Genworth, which was subsequently deconsolidated in
2005.
|
(d)
|
7.07:1
net of cash and equivalents and with classification of hybrid debt as
equity.
|
Operations
Our
consolidated financial statements combine the industrial manufacturing, services
and media businesses of General Electric Company (GE) with the financial
services businesses of General Electric Capital Services, Inc. (GECS or
financial services).
In the
accompanying analysis of financial information, we sometimes use information
derived from consolidated financial information but not presented in our
financial statements prepared in accordance with U.S. generally accepted
accounting principles (GAAP). Certain of these data are considered “non-GAAP
financial measures” under the U.S. Securities and Exchange Commission (SEC)
rules. For such measures, we have provided supplemental explanations and
reconciliations in the Supplemental Information section.
We
present Management’s Discussion of Operations in five parts: Overview of Our
Earnings from 2006 through 2008, Global Risk Management, Segment Operations,
Geographic Operations and Environmental Matters. Unless otherwise indicated, we
refer to captions such as revenues and earnings from continuing operations
simply as “revenues” and “earnings” throughout this Management’s Discussion and
Analysis. Similarly, discussion of other matters in our consolidated financial
statements relates to continuing operations unless otherwise
indicated.
Overview
of Our Earnings from 2006 through 2008
Our
results for the last three years reflect our strategy to strengthen our position
as a worldwide growth company operating in diverse industries in which we
maintain strong market-leader positions. During 2008, we encountered
unprecedented conditions in the world economy and financial markets that
affected all of our businesses. Over the three-year period our consolidated
revenues grew 20% on organic growth that averaged 6% per year, yet earnings
declined 6%. Our financial services businesses were most significantly affected
as earnings fell 24% on a 16% increase in revenues over this three-year
period.
The
information that follows will show how our global diversification and risk
management strategies have helped us to grow revenues and industrial earnings to
record levels and to outperform our peers in financial services businesses. We
also believe that the disposition of our less strategic businesses, our
restructuring actions and our investment in businesses with strong growth
potential have positioned us well for the future.
Energy
Infrastructure (19% and 18% of consolidated three-year revenues and total
segment profit, respectively) was well positioned to grow significantly over the
last several years as the worldwide demand for energy, and for alternative
sources of power, such as wind and thermal, rose to new levels. This resulted in
a 53% increase in revenues and a 73% increase in segment profit over the
three-year period. We continued to invest in market-leading technology and
services at Energy, Oil & Gas and Water.
Technology
Infrastructure (25% and 29% of consolidated three-year revenues and total
segment profit, respectively) grew revenues 23% and earnings 12% over the
three-year period as we continued to invest in market-leading technologies and
services at Aviation and Transportation and strategic acquisitions at
Healthcare. Aviation continued to grow revenues and earnings to record levels as
one of the world’s leading providers of aircraft engines and services. The
Aviation orders backlog also continued to grow, positioning us well for the
future. Product services and sales of our Evolution Series locomotives
contributed to Transportation’s growth over the last three years and we have
invested heavily in expanding our global platform. Healthcare realized benefits
from the acquisition of IDX Systems Corporation in 2006, expanding the breadth
of our product and service offerings to the healthcare industry. Healthcare was
adversely affected by the effects of the Deficit Reduction Act on U.S. equipment
sales. In addition, lower sales of surgical imaging equipment resulted from a
regulatory suspension on shipments at one of our facilities. We began shipping
some of these products in the first half of 2008. Enterprise Solutions offers
protection and productivity solutions such as safe facilities, plant automation,
power control and sensing applications.
NBC
Universal (10% and 11% of consolidated three-year revenues and total segment
profit, respectively) is a diversified media and entertainment company that has
grown through business and geographic diversity. While the television business
continues to be challenged by the effects of a difficult economy, our cable
business continues to grow and become more profitable. Our film business also
continues to perform well, with consistent contributions to
earnings.
Capital
Finance (37% and 39% of consolidated three-year revenues and total segment
profit, respectively) is a strong, focused business with leading positions in
several mid-market, corporate and consumer financing segments. Our performance
has been strong over the long-term, with solid risk management and underwriting
through various credit cycles. More recently, we have been affected by economic
changes, specifically the disruptions in capital markets, challenging credit
market environment and rising unemployment. Our earnings in 2008 and 2007 were
$8.6 billion and $12.2 billion, respectively. We expect the current challenging
credit and economic environment to continue to affect our earnings in 2009.
Throughout 2008, we tightened underwriting standards, shifted teams from
origination to collection and maintained a proactive risk management focus. Our
focus is to manage through the current challenging credit environment and
reposition GE Capital as a diversely funded and smaller finance
company.
Consumer
& Industrial (7% and 3% of consolidated three-year revenues and total
segment profit, respectively) is particularly sensitive to changes in economic
conditions. Reflective of the downturn in the U.S. housing market, Consumer
& Industrial revenues have declined over the three-year period. In response
to these tough economic conditions, in 2007, Consumer & Industrial began a
restructuring plan focused on reducing manufacturing capacity and transferring
work to lower-cost countries. Despite these cost reduction efforts, segment
profit declined on higher material and other costs.
Overall,
acquisitions contributed $7.4 billion, $7.7 billion and $3.9 billion to
consolidated revenues in 2008, 2007 and 2006, respectively. Our consolidated
earnings included approximately $0.8 billion in 2008, and $0.5 billion in both
2007 and 2006, from acquired businesses. We integrate acquisitions as quickly as
possible. Only revenues and earnings from the date we complete the acquisition
through the end of the fourth following quarter are attributed to such
businesses. Dispositions also affected our ongoing results through higher
revenues of $0.1 billion in 2008 and lower revenues of $3.6 billion and $1.3
billion in 2007 and 2006, respectively. This resulted in higher earnings of $0.4
billion in both 2008 and 2007, and $0.1 billion in 2006.
Significant
matters relating to our Statement of Earnings are explained below.
Discontinued
Operations. In September 2007, we committed to a plan to sell our
Japanese personal loan business (Lake) upon determining that, despite
restructuring, Japanese regulatory limits for interest charges on unsecured
personal loans did not permit us to earn an acceptable return. During 2008, we
completed the sale of GE Money Japan, which included Lake, along with our
Japanese mortgage and card businesses, excluding our minority ownership in GE
Nissen Credit Co., Ltd. In December 2007, we completed the exit of WMC as a
result of continued pressures in the U.S. subprime mortgage industry. Both of
these businesses were previously reported in the Capital Finance
segment.
In
August 2007, we completed the sale of our Plastics business. We sold this
business because of its cyclicality, rising costs of natural gas and raw
materials, and the decision to redeploy capital resources into higher-growth
businesses. During 2006, we sold our Advanced Materials business.
In 2006,
we substantially completed our planned exit of the insurance businesses through
the sale of the property and casualty insurance and reinsurance businesses and
the European life and health operations of GE Insurance Solutions Corporation
(GE Insurance Solutions) and the sale of GE Life, our U.K.-based life insurance
operation, to Swiss Reinsurance Company (Swiss Re), and the sale, through a
secondary public offering, of our remaining 18% investment in Genworth
Financial, Inc. (Genworth), our formerly wholly-owned subsidiary that conducted
most of our consumer insurance business, including life and mortgage insurance
operations.
We
reported the businesses described above as discontinued operations for all
periods presented. For further information about discontinued operations, see
Note 2 to the consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K Report.
We declared $12.6 billion in
dividends in 2008. Common per-share dividends of $1.24 were up 8% from
2007, following a 12% increase from the preceding year. On February 6, 2009, our
Board of Directors approved a regular quarterly dividend of $0.31 per share of
common stock, which is payable April 27, 2009, to shareowners of record at close
of business on February 23, 2009. This payment will complete the dividend for
the first half of 2009. The Board will continue to evaluate the Company’s
dividend level for the second half of 2009 in light of the growing uncertainty
in the economy, including U.S. government actions, rising unemployment and the
recent announcements by the rating agencies. In 2008, we declared $0.1 billion
in preferred stock dividends.
Except
as otherwise noted, the analysis in the remainder of this section presents the
results of GE (with GECS included on a one-line basis) and GECS. See the Segment
Operations section for a more detailed discussion of the businesses within GE
and GECS.
GE sales of product services
were $35.5 billion in 2008, a 10% increase from 2007. Increases in product
services in 2008 and 2007 were led by growth at Energy Infrastructure and
Technology Infrastructure. Operating profit from product services was $9.3
billion in 2008, up 3% from 2007.
Postretirement benefit plans
costs were $2.2 billion, $2.6 billion and $2.3 billion in 2008, 2007 and 2006,
respectively. The cost decreased in 2008 primarily because of the effects of
prior years’ investment gains, higher discount rates and benefits from new
healthcare supplier contracts, partially offset by additional costs of plan
benefits resulting from union negotiations and a pensioner increase in 2007. The
cost increased in 2007 primarily because of plan benefit changes resulting from
new U.S. labor agreements and increases in retiree medical and drug costs,
partially offset by increases in discount rates for the year and effects of
recent investment gains. The cost increased in 2006 primarily because of the
effects of prior-years’ investment losses and lower discount rates.
Considering
the current and expected asset allocations, as well as historical and expected
returns on various categories of assets in which our plans are invested, we have
assumed that long-term returns on our principal pension plan assets will be 8.5%
for cost recognition in 2009, the same level as we assumed in 2008, 2007 and
2006. GAAP provides recognition of differences between assumed and actual
returns over a period no longer than the average future service of
employees.
We
expect the costs of our postretirement benefits in 2009 to be about the same as
the 2008 costs. The effects of decreasing discount rates (principal pension
plans’ discount rate decreasing from 6.34% to 6.11%) will be largely offset by
prior-years’ investment gains and benefits from new healthcare supplier
contracts. Assuming our 2009 actual experience is consistent with our current
benefit assumptions (e.g., expected return on assets, discount rates and
healthcare trend rates), we expect that costs of our postretirement benefits
will increase by approximately $1.0 billion in 2010 as compared to 2009,
primarily due to amortization of our unamortized losses relating to our
principal pension plans.
Our
principal pension plans were underfunded by $4.4 billion at the end of 2008 as
compared to overfunded by $16.8 billion at December 31, 2007. At December 31,
2008, the GE Pension Plan was underfunded by $0.9 billion and the GE
Supplementary Pension Plan, which is an unfunded plan, had a projected benefit
obligation of $3.5 billion. The reduction in surplus from year-end 2007 was
primarily attributable to asset investment performance resulting from the
deteriorating market conditions and economic environment in 2008. Our principal
pension plans’ assets decreased from $59.7 billion at the end of 2007 to $40.7
billion at December 31, 2008, a 28.2% decline in investment values during the
year. Assets of the GE Pension Plan are held in trust, solely for the benefit of
Plan participants, and are not available for general Company operations.
Although the reduction in pension plan assets in 2008 will impact future pension
plan costs, the Company’s requirement to make future cash contributions to the
Trust will depend on future market and economic conditions.
On an
Employee Retirement Income Security Act (ERISA) basis, the GE Pension Plan
remains fully funded at January 1, 2009. We will not make any contributions to
the GE Pension Plan in 2009. Assuming our 2009 actual experience is consistent
with our current benefit assumptions (e.g., expected return on assets and
interest rates), we will not be required to make contributions to the GE Pension
Plan in 2010.
At
December 31, 2008, the fair value of assets for our other pension plans was
$2.4 billion less than the respective projected benefit obligations. The
comparable amount at December 31, 2007 was $1.6 billion. We expect to contribute
$0.7 billion to our other pension plans in 2009, compared with actual
contributions of $0.6 billion and $0.7 billion in 2008 and 2007, respectively.
Our principal retiree health and life plans obligations exceeded the fair value
of related assets by $10.8 billion and $11.2 billion at December 31, 2008
and 2007, respectively. We fund our retiree health benefits on a pay-as-you-go
basis. We expect to contribute $0.7 billion to these plans in 2009 compared with
actual contributions of $0.6 billion in 2008 and 2007.
The
funded status of our postretirement benefits plans and future effects on
operating results depend on economic conditions and investment performance. See
Note 6 to the consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K Report for additional
information about funded status, components of earnings effects and actuarial
assumptions.
GE other costs and expenses
are selling, general and administrative expenses. These costs were 12.9%, 14.2%
and 14.3% of total GE sales in 2008, 2007 and 2006, respectively.
Interest on borrowings and other
financial charges amounted to $26.2 billion, $23.8 billion and $18.9
billion in 2008, 2007 and 2006, respectively. Substantially all of our
borrowings are in financial services, where interest expense was $25.1 billion,
$22.7 billion and $17.8 billion in 2008, 2007 and 2006, respectively. Average
borrowings increased over the three-year period. Interest rates increased from
2006 to 2007 attributable to rising credit spreads. Interest rates have
decreased from 2007 to 2008 in line with general market conditions. GECS average
borrowings were $521.2 billion, $456.4 billion and $389.0 billion in 2008, 2007
and 2006, respectively. GECS average composite effective interest rate was 4.8%
in 2008, 5.0% in 2007 and 4.6% in 2006. In 2008, GECS average assets of $667.2
billion were 13% higher than in 2007, which in turn were 17% higher than in
2006. We anticipate that our composite rates will continue to decline through
2009 as a result of decreased benchmark rates globally. However, these decreases
in benchmark rates will be partially offset by higher credit spreads and fees
associated with government guarantees and higher cash balances resulting from
pre-funding of debt maturities and the need to maintain greater liquidity in the
current environment. See the Liquidity and Borrowings section for a discussion
of liquidity, borrowings and interest rate risk management.
Income taxes are a significant
cost. As a global commercial enterprise, our tax rates are affected by many
factors, including our global mix of earnings, the extent to which those global
earnings are indefinitely reinvested outside the United States, legislation,
acquisitions, dispositions and tax characteristics of our income. Our tax
returns are routinely audited and settlements of issues raised in these audits
sometimes affect our tax provisions.
Income
taxes on consolidated earnings from continuing operations were 5.5% in 2008
compared with 15.6% in 2007 and 16.9% in 2006. Our consolidated income tax rate
decreased from 2007 to 2008 primarily because of a reduction during 2008 of
income in higher-taxed jurisdictions. This increased the relative effect of tax
benefits from lower-taxed global operations on the tax rate. In addition,
earnings from lower-taxed global operations increased from 2007 to 2008. The
increase in the benefit from lower-taxed global operations includes a benefit
from the 2008 decision to indefinitely reinvest, outside the U.S., prior-year
earnings because the use of foreign tax credits no longer required the
repatriation of those prior-year earnings.
Our
consolidated income tax rate decreased from 2006 to 2007 as the tax benefit on
the disposition of our investment in SES and an increase in favorable
settlements with tax authorities more than offset a decrease in the benefit from
lower-taxed earnings from global operations, which in 2006 included one-time tax
benefits from planning to use non-U.S. tax net operating losses.
A more
detailed analysis of differences between the U.S. federal statutory rate and the
consolidated rate, as well as other information about our income tax provisions,
is provided in Note 7 to the consolidated financial statements in Part II, Item
8. “Financial Statements and Supplementary Data” of this Form 10-K Report. The
nature of business activities and associated income taxes differ for GE and for
GECS and a separate analysis of each is presented in the paragraphs that
follow.
Because
GE tax expense does not include taxes on GECS earnings, the GE effective tax
rate is best analyzed in relation to GE earnings excluding GECS. GE pre-tax
earnings from continuing operations, excluding GECS earnings from continuing
operations, were $13.7 billion, $12.8 billion and $11.7 billion for 2008, 2007
and 2006, respectively. On this basis, GE’s effective tax rate was 24.9% in
2008, 21.8% in 2007 and 21.9% in 2006.
Resolution
of audit matters reduced the GE effective tax rate throughout this period. The
effects of such resolutions are included in the following captions in Note 7 to
the consolidated financial statements in Part II, Item 8. “Financial Statements
and Supplementary Data” of this Form 10-K Report.
|
Audit
resolutions –
effect
on GE excluding GECS tax rate
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Tax
on global activities including exports
|
|
–
|
%
|
|
(2.7
|
)%
|
|
(0.8
|
)%
|
All
other – net
|
|
(0.6
|
)
|
|
(2.4
|
)
|
|
(0.8
|
)
|
|
|
(0.6
|
)%
|
|
(5.1
|
)%
|
|
(1.6
|
)%
|
The GE
effective tax rate increased from 2007 to 2008 because of the 4.5 percentage
point lower 2008 benefit from favorable audit resolutions, partially offset by a
1.0 percentage point increase in the benefit in lower-taxed earnings from global
operations, excluding audit resolutions.
The GE
effective tax rate declined slightly from 2006 to 2007 because the 3.5
percentage point higher 2007 benefit from favorable audit resolutions was
largely offset by a 3.3 percentage point decrease in the benefit in lower-taxed
earnings from global operations, excluding audit resolutions and the effect of
tax law changes. The 2006 benefit from global operations included tax benefits
from planning to use non-U.S. net operating losses against profitable
operations.
The 2006
GE rate reflects the favorable audit resolutions shown above and the benefit of
lower-taxed earnings from global operations including tax benefits from planning
to use non-U.S. net operating losses against profitable operations.
The GECS
effective tax rate was (44.0)% in 2008, compared with 9.9% in 2007 and 12.0% in
2006. GE and GECS file a consolidated U.S. federal income tax return that
enables GE to use GECS tax deductions and credits to reduce the tax that
otherwise would have been payable by GE. The GECS effective tax rate for each
period reflects the benefit of these tax reductions. GE makes cash payments to
GECS for these tax reductions at the time GE’s tax payments are
due.
The GECS
rate decreased from 2007 to 2008 primarily because of a reduction during 2008 of
income in higher-taxed jurisdictions. This increased the relative effect of tax
benefits from lower-taxed global operations on the tax rate, reducing the rate
32.7 percentage points. In addition, earnings from lower-taxed global operations
increased from 2007 to 2008, causing an additional 20.7 percentage point rate
reduction. The increase in the benefit from lower-taxed global operations
includes 6.5 percentage points from the 2008 decision to indefinitely reinvest,
outside the U.S., prior-year earnings because the use of foreign tax credits no
longer required the repatriation of those prior-year earnings.
The GECS
income tax rate decreased from 2006 to 2007 as the tax benefit on the
disposition of its investment in SES and growth in lower-taxed global earnings,
which decreased the GECS effective tax rate 4.0 and 1.0 percentage points,
respectively, were partially offset by higher net tax expense related to U.S.
and non-U.S. audit activity and from the absence of the 2006 benefit of the
reorganization, discussed below, of our aircraft leasing business, which
increased the rate 1.6 and 1.1 percentage points, respectively.
As a
result of the repeal of the extraterritorial income (ETI) taxing regime as part
of the American Jobs Creation Act of 2004 (the Act), our aircraft leasing
business no longer qualifies for a reduced U.S. tax rate. However, the Act also
extended to aircraft leasing the U.S. tax deferral benefits that were already
available to other GE non-U.S. active operations. These legislative changes,
coupled with a reorganization of our aircraft leasing business and a favorable
Irish ruling, decreased the GECS effective tax rate 1.1 percentage points in
2006.
Global
Risk Management
A
disciplined approach to risk is important in a diversified organization such as
ours in order to ensure that we are executing according to our strategic
objectives and that we only accept risk for which we are adequately compensated.
It is necessary for us to manage risk at the individual transaction level, and
to consider aggregate risk at the customer, industry, geographic and
collateral-type levels, where appropriate.
The GE
Board of Directors maintains overall responsibility for risk oversight, with a
focus on the most significant risks facing GE. The Board's Audit Committee
oversees GE’s risk policies and processes relating to the financial statements
and financial reporting process. The Board's Public Responsibilities Committee
oversees risks involved in GE’s public policy initiatives, the environment and
similar matters. The Board’s Management Development and Compensation Committee
oversees risk related to compensation.
The
Board’s oversight process builds upon our management’s risk management and
assessment processes, which include long-term strategic planning, executive
development and evaluation, regulatory and litigation compliance reviews,
environmental compliance reviews, GECS Corporate Risk Function and the Corporate
Risk Committee. Each year, management and the Board jointly develop a list of
major risks that GE plans to address. Throughout the year, either the Board or
one of its committees dedicates a portion of their meetings to review and
discuss these risk topics in greater detail. Strategic and operational risks are
covered in the CEO’s report on operations to the Board at regularly scheduled
Board meetings. At least twice a year, the Audit Committee receives a risk
update from the GECS risk officer, which focuses on GECS risk strategy and its
financial services portfolio, including its processes for managing credit and
market risk within its portfolio. In addition, each year, and in some years more
frequently, the Audit Committee receives a comprehensive report from GE’s
Treasurer on GECS capital markets exposure and its liquidity and funding risks
and a comprehensive report from GE’s General Counsel covering compliance issues.
Each year, the Committee also reviews and discusses topics related to the
financial reporting process, including an update on information technology,
controllership, insurance, tax strategies and policies, accounting and numerous
reports on regulation, compliance, litigation and investigations affecting GE
businesses.
The GECS
Board of Directors oversees the risk management process, and approves all
significant acquisitions and dispositions as well as significant borrowings and
investments. All participants in the risk management process must comply with
approval limits established by the GECS Board.
The GECS
Chief Risk Officer is responsible, with the Corporate Risk Function, for
establishing standards for the measurement, reporting and limiting of risk; for
managing and evaluating risk managers; for approving risk management policies;
and for reviewing major risk exposures and concentrations across the
organization. The GECS Corporate Risk Function analyzes certain business risks
and assesses them in relation to aggregate risk appetite and approval limits set
by the GECS Board of Directors.
Threshold
responsibility for identifying, quantifying and mitigating risks is assigned to
our individual businesses. We employ proprietary analytic models to allocate
capital to our financing activities, to identify the primary sources of risk and
to measure the amount of risk we will take for each product line. This approach
allows us to develop early signals that monitor changes in risk affecting
portfolio performance and actively manage the portfolio. Other corporate
functions such as Controllership, Financial Planning and Analysis, Treasury,
Legal and our Corporate Audit Staff support business-level risk management.
Businesses that, for example, hedge financial risk with derivative financial
instruments must do so using our centrally managed Treasury function, providing
assurance that the business strategy complies with our corporate policies and
achieves economies of scale. We review risks periodically with business-level
risk managers, senior management and our Board of Directors.
Dedicated
risk professionals across the businesses include underwriters, portfolio
managers, collectors, environmental and engineering specialists, and specialized
asset managers who evaluate leased asset residuals and remarket off-lease
equipment. The senior risk officers have, on average, over 25 years of
experience.
We
manage a variety of risks including liquidity, credit, market and government and
regulatory risks.
·
|
Liquidity
risk is the risk of being unable to accommodate liability maturities, fund
asset growth and meet contractual obligations through access to funding at
reasonable market rates. Additional information about our liquidity and
how we manage this risk can be found in the Financial Resources and
Liquidity section of this Item and in Notes 18 and 29 to the consolidated
financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K
Report.
|
·
|
Credit
risk is the risk of financial loss arising from a customer or counterparty
failure to meet its contractual obligations. We face credit risk in our
investing, lending and leasing activities and derivative financial
instruments activities (see the Financial Resources and Liquidity and
Critical Accounting Estimates sections of this Item and Notes 1, 9, 12,
13, 29 and 31 to the consolidated financial statements in Part II, Item 8.
“Financial Statements and Supplementary Data” of this Form 10-K
Report).
|
·
|
Market
risk is the potential loss in value of investment and other asset and
liability portfolios, including financial instruments and residual values
of leased assets. This risk is caused by changes in market variables, such
as interest and currency exchange rates and equity and commodity prices.
We are exposed to market risk in the normal course of our business
operations as a result of our ongoing investing and funding activities.
Additional information can be found in the Financial Resources and
Liquidity section of this Item and in Notes 6, 9, 12, 14, 28 and 29 to the
consolidated financial statements in Part II, Item 8. “Financial
Statements and Supplementary Data” of this Form 10-K
Report.
|
·
|
Government
and regulatory risk is the risk that the government or regulatory
authorities will implement new laws or rules, amend existing laws or
rules, or interpret or enforce them in ways that would cause us to have to
change our business models or practices. We manage these risks through the
GECS Board, our Policy Compliance Review Board and our Corporate Risk
Committee.
|
Other
risks include natural disasters, availability of necessary materials, guarantees
of product performance and business interruption. These types of risks are often
insurable, and success in managing these risks is ultimately determined by the
balance between the level of risk retained or assumed and the cost of
transferring risk to others.
Our risk
management approach has the following major tenets: a broad spread of risk based
on managed exposure limits; senior, secured commercial financings; and a hold to
maturity model with transactions underwritten to our “on-book”
standards.
The GECC
financing portfolios comprise approximately 70% commercial and 30% consumer risk
activities, with 53% of the portfolio outside the U.S. Exposure to developing
markets is 11% of the portfolio and is primarily through our Eastern European
banking operations and Mexican commercial financing activities - where we have
operated for over 10 years - and various minority owned joint
ventures.
The
commercial portfolio has a maximum single industry concentration of 6%,
excluding the commercial aircraft financing and the commercial real estate
businesses, which are diversified separately within their respective portfolios.
67% of all commercial exposures are less than $100 million to any one customer,
while 55% are less than $50 million. Our commercial aircraft financing business
owns 1,494 aircraft – 56% are narrow body planes and predominantly newer,
high-demand models, while only 15% are smaller regional jets and older Boeing
737 classic aircraft. The average age of the fleet is 7 years and our customers
include over 230 airlines located in 70 countries. Leased collateral represents
asset types we have over 20 years experience managing.
The
commercial real estate business consists of a real estate investment portfolio,
a real estate lending portfolio, and a single tenant financing portfolio. The
real estate investment and lending portfolios are global and consist of
approximately 8,000 individual properties in 2,600 cities in 31 countries with
an average property investment of under $10 million.
·
|
Our
real estate investment portfolio includes approximately 3,200 properties
located in 900 cities and 22 countries, with 71% of this portfolio outside
the U.S., primarily located in Europe, the U.K., Asia, Canada and Mexico,
across a wide variety of property types including office,
industrial/warehouse, and
multifamily.
|
·
|
Our
real estate lending portfolio is secured by approximately 4,800 properties
in 1,900 cities and 25 countries, with 44% of the assets securing this
portfolio located outside the U.S., across a wide variety of property
types including office, multifamily and
hotel.
|
·
|
The
single tenant financing portfolio has approximately 4,200 properties in
1,360 cities in the U.S. and Canada, and an average loan size under $3
million.
|
The U.S.
consumer portfolio includes private-label credit card and sales financing for
over 56 million consumers. The portfolio includes customers across the U.S. and
no metropolitan statistical area accounts for more than 4% of the portfolio. The
average credit line for the private label portfolio is $600. The non-U.S.
portfolio accounts for 80% of all consumer risk activities and includes consumer
mortgages, auto loans, personal loans and credit card financing in 43 countries.
Western Europe, the U.K., Eastern Europe and Australia/New Zealand are the
primary non-U.S. markets. Mortgages represent 43% of the total consumer
portfolio. The average loan-to-value (LTV) at origination of the total global
mortgage portfolio is approximately 74%. Western Europe, Australia and New
Zealand, Ireland and the U.K. account for approximately 80% of the mortgage
book. GE employees underwrite all mortgages and originate to hold all mortgages
on book. We exited the U.S. mortgage business in 2007.
The U.K.
mortgage business tightened underwriting criteria throughout 2008 and reduced
volume by 54% in response to the weakening home price environment in the U.K.
Since mid-2006, the first mortgage loans originated in the U.K. that were
greater than 80% LTV are covered by private mortgage insurance for the mortgage
balance in excess of 80%. Insured mortgages account for approximately 73% of the
portfolio above 80% LTV at origination.
The
Australia/New Zealand mortgages are generally prime credit, and 94% of the
portfolio is covered by private mortgage insurance for the full amount of the
mortgage, which is customary in this market.
The
French mortgage portfolio is generally prime credit, and 29% is insured for
mortgage loans greater than 80% LTV (for the mortgage balance in excess of
80%).
Our five
segments are focused on the broad markets they serve: Energy Infrastructure,
Technology Infrastructure, NBC Universal, Capital Finance and Consumer &
Industrial. In addition to providing information on segments in their entirety,
we have also provided supplemental information for certain businesses within the
segments for greater clarity.
Segment
profit is determined based on internal performance measures used by the Chief
Executive Officer to assess the performance of each business in a given period.
In connection with that assessment, the Chief Executive Officer may exclude
matters such as charges for restructuring; rationalization and other similar
expenses; in-process research and development and certain other
acquisition-related charges and balances; technology and product development
costs; certain gains and losses from dispositions; and litigation settlements or
other charges, responsibility for which preceded the current management
team.
Segment
profit always excludes the effects of principal pension plans, results reported
as discontinued operations and accounting changes. Segment profit excludes or
includes interest and other financial charges and income taxes according to how
a particular segment’s management is measured – excluded in determining segment
profit, which we sometimes refer to as “operating profit,” for Energy
Infrastructure, Technology Infrastructure, NBC Universal and Consumer &
Industrial; included in determining segment profit, which we sometimes refer to
as “net earnings,” for Capital Finance.
We have
reclassified certain prior-period amounts to conform to the current period’s
presentation. For additional information about our segments, see Note 27 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Summary
of Operating Segments
|
General
Electric Company and consolidated affiliates
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Infrastructure
|
$
|
38,571
|
|
$
|
30,698
|
|
$
|
25,221
|
|
$
|
21,921
|
|
$
|
19,841
|
|
Technology
Infrastructure
|
|
46,316
|
|
|
42,801
|
|
|
37,687
|
|
|
33,873
|
|
|
30,142
|
|
NBC
Universal
|
|
16,969
|
|
|
15,416
|
|
|
16,188
|
|
|
14,689
|
|
|
12,886
|
|
Capital
Finance
|
|
67,008
|
|
|
66,301
|
|
|
56,378
|
|
|
49,071
|
|
|
43,750
|
|
Consumer
& Industrial
|
|
11,737
|
|
|
12,663
|
|
|
13,202
|
|
|
13,040
|
|
|
12,408
|
|
Total
segment revenues
|
|
180,601
|
|
|
167,879
|
|
|
148,676
|
|
|
132,594
|
|
|
119,027
|
|
Corporate
items and eliminations
|
|
1,914
|
|
|
4,609
|
|
|
2,892
|
|
|
3,668
|
|
|
4,787
|
|
Consolidated
revenues
|
$
|
182,515
|
|
$
|
172,488
|
|
$
|
151,568
|
|
$
|
136,262
|
|
$
|
123,814
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Infrastructure
|
$
|
6,080
|
|
$
|
4,817
|
|
$
|
3,518
|
|
$
|
3,222
|
|
$
|
3,100
|
|
Technology
Infrastructure
|
|
8,152
|
|
|
7,883
|
|
|
7,308
|
|
|
6,188
|
|
|
5,412
|
|
NBC
Universal
|
|
3,131
|
|
|
3,107
|
|
|
2,919
|
|
|
3,092
|
|
|
2,558
|
|
Capital
Finance
|
|
8,632
|
|
|
12,243
|
|
|
10,397
|
|
|
8,414
|
|
|
6,593
|
|
Consumer
& Industrial
|
|
365
|
|
|
1,034
|
|
|
970
|
|
|
732
|
|
|
601
|
|
Total
segment profit
|
|
26,360
|
|
|
29,084
|
|
|
25,112
|
|
|
21,648
|
|
|
18,264
|
|
Corporate
items and eliminations
|
|
(2,691
|
)
|
|
(1,840
|
)
|
|
(1,548
|
)
|
|
(372
|
)
|
|
165
|
|
GE
interest and other financial charges
|
|
(2,153
|
)
|
|
(1,993
|
)
|
|
(1,668
|
)
|
|
(1,319
|
)
|
|
(901
|
)
|
GE
provision for income taxes
|
|
(3,427
|
)
|
|
(2,794
|
)
|
|
(2,552
|
)
|
|
(2,678
|
)
|
|
(1,937
|
)
|
Earnings
from continuing operations
|
|
18,089
|
|
|
22,457
|
|
|
19,344
|
|
|
17,279
|
|
|
15,591
|
|
Earnings
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of taxes
|
|
(679
|
)
|
|
(249
|
)
|
|
1,398
|
|
|
(559
|
)
|
|
1,631
|
|
Consolidated net
earnings
|
$
|
17,410
|
|
$
|
22,208
|
|
$
|
20,742
|
|
$
|
16,720
|
|
$
|
17,222
|
|
See
accompanying notes to consolidated financial
statements.
|
Energy
Infrastructure
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
38,571
|
|
$
|
30,698
|
|
$
|
25,221
|
|
Segment
profit
|
$
|
6,080
|
|
$
|
4,817
|
|
$
|
3,518
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Energy
|
$
|
29,309
|
|
$
|
22,456
|
|
$
|
19,406
|
|
Oil
& Gas
|
|
7,417
|
|
|
6,849
|
|
|
4,340
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
Energy
|
$
|
4,880
|
|
$
|
3,835
|
|
$
|
2,918
|
|
Oil
& Gas
|
|
1,127
|
|
|
860
|
|
|
548
|
|
Energy
Infrastructure revenues rose 26%, or $7.9 billion, in 2008 on higher volume
($6.0 billion), higher prices ($1.4 billion) and the effects of the weaker U.S.
dollar ($0.5 billion). The increase in volume reflected increased sales of
thermal and wind equipment at Energy, and the effects of acquisitions and
increased sales of services at Oil & Gas. The increase in price was
primarily at Energy, while the effects of the weaker U.S. dollar were primarily
at Energy and Oil & Gas.
Segment
profit rose 26% to $6.1 billion in 2008, compared with $4.8 billion in 2007, as
higher prices ($1.4 billion), higher volume ($1.0 billion) and the effects of
the weaker U.S. dollar ($0.1 billion) more than offset the effects of higher
material and other costs ($0.7 billion) and lower productivity ($0.5 billion).
Volume and material and other costs increased across all businesses of the
segment. The effects of productivity were primarily at Energy.
Energy
Infrastructure revenues rose 22%, or $5.5 billion, in 2007 on higher volume
($4.0 billion), higher prices ($0.8 billion) and the effects of the weaker U.S.
dollar ($0.7 billion). The increase in volume reflected increased sales of
thermal and wind equipment at Energy, and the effects of acquisitions and
increased sales of equipment and services at Oil & Gas. The increase in
price was primarily at Energy, while the effects of the weaker U.S. dollar were
primarily at Oil & Gas and Energy.
Segment
profit rose 37% to $4.8 billion in 2007, compared with $3.5 billion in 2006, as
higher prices ($0.8 billion), higher volume ($0.7 billion) and productivity
($0.1 billion) more than offset the effects of higher material and other costs
($0.4 billion). The increase in volume primarily related to Energy and Oil &
Gas.
Technology
Infrastructure
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
46,316
|
|
$
|
42,801
|
|
$
|
37,687
|
|
Segment
profit
|
$
|
8,152
|
|
$
|
7,883
|
|
$
|
7,308
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Aviation
|
$
|
19,239
|
|
$
|
16,819
|
|
$
|
13,017
|
|
Enterprise
Solutions
|
|
4,710
|
|
|
4,462
|
|
|
3,951
|
|
Healthcare
|
|
17,392
|
|
|
16,997
|
|
|
16,560
|
|
Transportation
|
|
5,016
|
|
|
4,523
|
|
|
4,159
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
Aviation
|
$
|
3,684
|
|
$
|
3,222
|
|
$
|
2,802
|
|
Enterprise
Solutions
|
|
691
|
|
|
697
|
|
|
620
|
|
Healthcare
|
|
2,851
|
|
|
3,056
|
|
|
3,142
|
|
Transportation
|
|
962
|
|
|
936
|
|
|
774
|
|
Technology
Infrastructure revenues rose 8%, or $3.5 billion, in 2008 on higher volume ($3.0
billion), the effects of the weaker U.S. dollar ($0.3 billion) and higher prices
($0.2 billion). The increase in volume reflected the effects of acquisitions and
increased sales of military and commercial engines and services at Aviation;
increased sales in the international diagnostic imaging, clinical systems and
life sciences businesses of Healthcare; increased equipment sales at
Transportation; and increases at Sensing and Inspection Technologies and Digital
Energy at Enterprise Solutions. The effects of the weaker U.S. dollar were
primarily at Healthcare and Enterprise Solutions. Higher prices were primarily
at Aviation and Transportation, partially offset by lower prices at
Healthcare.
Segment
profit rose 3% to $8.2 billion in 2008, compared with $7.9 billion in 2007, as
the effects of productivity ($0.5 billion), higher volume ($0.4 billion) and
higher prices ($0.2 billion) more than offset the effects of higher material and
other costs ($0.9 billion). The effects of productivity were primarily at
Healthcare and Aviation. Volume increases were primarily at Aviation and
Transportation. The increase in material costs was primarily at Aviation and
Transportation, partially offset by a decrease at Healthcare. Labor and other
costs increased across all businesses of the segment.
Technology
Infrastructure revenues rose 14%, or $5.1 billion, in 2007 on higher volume
($4.6 billion) and the effects of the weaker U.S. dollar ($0.6 billion),
partially offset by lower prices ($0.1 billion). The increase in volume
reflected the effects of acquisitions and increased sales of commercial engines
and services at Aviation; increased sales in the international diagnostic
imaging, clinical systems and life sciences businesses of Healthcare; primarily
the effects of acquisitions at Enterprise Solutions; and increased sales of
equipment and services at Transportation. The effects of the weaker U.S. dollar
were primarily at Healthcare and Enterprise Solutions.
Segment
profit rose 8% to $7.9 billion in 2007, compared with $7.3 billion in 2006, as
higher volume ($0.8 billion), productivity ($0.4 billion) and higher sales of
minority interests in engine programs ($0.1 billion) more than offset the
effects of higher material and other costs ($0.7 billion) and lower prices ($0.1
billion). The increase in volume primarily related to Aviation, Healthcare and
Enterprise Solutions. The effects of productivity were primarily at Healthcare
and Transportation. The increase in material costs was primarily at Aviation,
partially offset by a decrease at Healthcare, and labor and other costs
increased across all businesses of the segment.
NBC Universal revenues
increased $1.6 billion, or 10%, to $17.0 billion in 2008, as revenues from the
Olympics broadcasts ($1.0 billion) and higher revenues in cable ($0.6 billion)
and film ($0.4 billion) were partially offset by lower earnings and impairments
related to associated companies and investment securities ($0.3 billion) and
lower revenues from our television business ($0.1 billion). Segment profit of
$3.1 billion in 2008 was flat compared with 2007, as higher earnings from cable
($0.3 billion) and proceeds from insurance claims ($0.4 billion) were offset by
lower earnings and impairments related to associated companies and investment
securities ($0.3 billion), losses from the Olympics broadcasts ($0.2 billion),
and lower earnings from our television business ($0.1 billion) and film ($0.1
billion).
NBC
Universal revenues declined 5%, or $0.8 billion, in 2007, primarily from the
lack of current-year counterparts to the 2006 Olympics broadcasts ($0.7 billion)
and 2006 sale of television stations ($0.2 billion), lower revenues in our
broadcast network and television stations as a result of lower advertising sales
($0.5 billion) and lower film revenues ($0.1 billion), partially offset by
higher revenues for cable ($0.4 billion) and television production and
distribution ($0.3 billion). Segment profit rose 6%, or $0.2 billion, in 2007 as
improvements in cable ($0.2 billion), television production and distribution
($0.2 billion), film ($0.1 billion) and the absence of Olympics broadcasts in
2007 ($0.1 billion) were partially offset by the lack of a current-year
counterpart to the 2006 sale of four television stations ($0.2 billion) and
lower earnings from our broadcast network and television stations ($0.2
billion). See Corporate Items and Eliminations for a discussion of items not
allocated to this segment.
Capital
Finance
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
67,008
|
|
$
|
66,301
|
|
$
|
56,378
|
|
Segment
profit
|
$
|
8,632
|
|
$
|
12,243
|
|
$
|
10,397
|
|
December
31 (In millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
572,903
|
|
$
|
583,965
|
|
|
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Commercial
Lending and Leasing (CLL)
|
$
|
26,742
|
|
$
|
27,267
|
|
$
|
25,833
|
|
GE
Money
|
|
25,012
|
|
|
24,769
|
|
|
19,508
|
|
Real
Estate
|
|
6,646
|
|
|
7,021
|
|
|
5,020
|
|
Energy
Financial Services
|
|
3,707
|
|
|
2,405
|
|
|
1,664
|
|
GE
Commercial Aviation Services (GECAS)
|
|
4,901
|
|
|
4,839
|
|
|
4,353
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
1,805
|
|
$
|
3,801
|
|
$
|
3,503
|
|
GE
Money
|
|
3,664
|
|
|
4,269
|
|
|
3,231
|
|
Real
Estate
|
|
1,144
|
|
|
2,285
|
|
|
1,841
|
|
Energy
Financial Services
|
|
825
|
|
|
677
|
|
|
648
|
|
GECAS
|
|
1,194
|
|
|
1,211
|
|
|
1,174
|
|
December
31 (In millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
|
|
|
|
CLL
|
$
|
232,486
|
|
$
|
229,608
|
|
|
|
|
GE
Money
|
|
183,617
|
|
|
209,178
|
|
|
|
|
Real
Estate
|
|
85,266
|
|
|
79,285
|
|
|
|
|
Energy
Financial Services
|
|
22,079
|
|
|
18,705
|
|
|
|
|
GECAS
|
|
49,455
|
|
|
47,189
|
|
|
|
|
Capital
Finance 2008 revenues increased by 1%, and net earnings decreased 29%, compared
with 2007. Revenues in 2008 and 2007 included $4.4 billion and $0.5 billion from
acquisitions, respectively, and in 2008 were benefited by $0.1 billion as a
result of dispositions. Revenues in 2008 also decreased $3.3 billion as a result
of organic revenue declines ($4.5 billion), partially offset by the weaker U.S.
dollar ($1.2 billion). Net earnings decreased by $3.6 billion in 2008, resulting
from core declines ($3.5 billion), including an increase of $1.9 billion in the
provision for losses on financing receivables, lower investment income ($0.6
billion) and lower securitization income ($0.4 billion), offset by acquisitions
($0.5 billion), the weaker U.S. dollar ($0.3 billion) and dispositions ($0.1
billion). Net earnings included mark-to-market losses and impairments ($1.4
billion), partially offset by increased tax benefits from lower-taxed earnings
from global operations ($0.7 billion) and Genpact mark-to-market gains ($0.2
billion).
Capital
Finance 2007 revenues and net earnings both increased 18%, compared with 2006.
Revenues in 2007 included $3.5 billion from acquisitions and were reduced by
$2.7 billion as a result of dispositions. Revenues in 2007 also increased $9.1
billion as a result of organic revenue growth ($6.8 billion) and the weaker U.S.
dollar ($2.3 billion). The increase in net earnings resulted primarily from core
growth ($1.0 billion), higher securitization income ($0.4 billion) and the
weaker U.S. dollar ($0.3 billion). Core growth included $0.5 billion
representing the total year’s tax benefit on the disposition of our investment
in SES, growth in lower-taxed earnings from global operations ($0.4 billion) and
the sale of part of our Garanti investment ($0.2 billion), partially offset by
declines in fair value of retained interests in securitizations ($0.2 billion).
See Corporate Items and Eliminations for a discussion of items not allocated to
this segment.
Additional
information about certain Capital Finance businesses follows.
CLL 2008
revenues decreased 2% and net earnings decreased 53% compared with 2007.
Revenues in 2008 and 2007 included $1.8 billion and $0.2 billion, respectively,
from acquisitions and in 2008 were reduced by $0.3 billion as a result of
dispositions. Revenues in 2008 decreased $1.9 billion compared with 2007 as a
result of organic revenue declines ($2.3 billion), partially offset by the
weaker U.S. dollar ($0.5 billion). Net earnings decreased by $2.0 billion in
2008, resulting from core declines ($2.2 billion), including an increase of $0.5
billion in the provision for losses on financing receivables and lower
investment income ($0.3 billion), partially offset by acquisitions ($0.4
billion) and the effect of the weaker U.S. dollar ($0.1 billion). Net earnings
included mark-to-market losses and impairments ($0.8 billion), the absence of
the effects of the 2007 tax benefit on the disposition of our investment in SES
($0.5 billion) and SES gains ($0.1 billion), partially offset by Genpact
mark-to-market gains ($0.2 billion).
CLL 2007
revenues and net earnings increased 6% and 9%, respectively, compared with 2006.
Revenues in 2007 and 2006 included $2.1 billion and $0.1 billion, respectively,
from acquisitions, and in 2007 were reduced by $2.7 billion as a result of
dispositions. Revenues in 2007 also increased $1.9 billion as a result of
organic revenue growth ($1.2 billion) and the weaker U.S. dollar ($0.7 billion).
The increase in net earnings resulted from acquisitions ($0.2 billion), core
growth ($0.1 billion) and the weaker U.S. dollar ($0.1 billion), partially
offset by dispositions ($0.1 billion). Core growth included $0.5 billion
representing the total year’s tax benefit on the disposition of our investment
in SES, partially offset by $0.2 billion of higher credit losses and $0.1
billion in charges related to mark-to-market adjustments to loans held-for-sale.
Investment income included higher SES gains ($0.1 billion), offset by
impairments of securitization retained interests ($0.1 billion).
GE Money
2008 revenues increased 1% and net earnings decreased 14% compared with 2007.
Revenues for 2008 included $0.7 billion from acquisitions and $0.4 billion from
the gain on sale of our Corporate Payment Services (CPS) business and were
reduced by $0.2 billion from dispositions. Revenues in 2008 also decreased $0.6
billion compared with 2007 as a result of organic revenue declines ($1.2
billion), partially offset by the weaker U.S. dollar ($0.6 billion). The
decrease in net earnings resulted primarily from core declines ($0.5 billion)
and lower securitization income ($0.5 billion). The decreases were partially
offset by the gain on the sale of our CPS business ($0.2 billion), the weaker
U.S. dollar ($0.1 billion) and acquisitions ($0.1 billion). Core declines
primarily resulted from lower results in the U.S., reflecting the effects of
higher delinquencies ($1.2 billion), partially offset by growth in lower-taxed
earnings from global operations ($1.0 billion), including the decision to
indefinitely reinvest, outside the U.S., prior-year earnings.
GE Money
2007 revenues and net earnings increased 27% and 32%, respectively, compared
with 2006. Revenues in 2007 included $0.4 billion from acquisitions. Revenues in
2007 also increased $4.8 billion as a result of organic revenue growth ($3.5
billion) and the weaker U.S. dollar ($1.4 billion). The increase in net earnings
resulted primarily from core growth ($0.3 billion), higher securitization income
($0.4 billion), the sale of part of our Garanti investment ($0.2 billion) and
the weaker U.S. dollar ($0.2 billion). Core growth included growth in
lower-taxed earnings from global operations ($0.3 billion), partially offset by
lower results in the U.S., reflecting the effects of higher delinquencies ($0.4
billion).
Real
Estate 2008 revenues decreased 5% and net earnings decreased 50% compared with
2007. Revenues for 2008 included $0.3 billion from acquisitions. Revenues in
2008 also decreased $0.7 billion compared with 2007 as a result of organic
revenue declines ($0.8 billion), partially offset by the weaker U.S. dollar
($0.2 billion). Real Estate net earnings decreased $1.1 billion compared with
2007, primarily from a decline in net earnings from real estate equity
investments ($1.2 billion), partially offset by an increase in net earnings from
real estate lending. Net earnings from the sale of real estate equity
investments in 2008 were lower as a result of increasingly difficult market
conditions. In the normal course of our business operations, we sell certain
real estate equity investments when it is economically advantageous for us to do
so. However, as a result of deterioration in current and expected real estate
market liquidity and macroeconomic trends, it is difficult to predict with
certainty the level of future sales or sales prices.
Real
Estate assets at December 31, 2008, increased $6.0 billion, or 8%, from December
31, 2007, including $12.1 billion, or 34%, attributable to an increase in real
estate lending, partially offset by a $6.4 billion, or 16%, decline in real
estate equity investments. During 2008, we sold real estate equity investment
assets with a book value totaling $5.8 billion, which resulted in net earnings
of $1.3 billion that were partially offset by losses, impairments and
depreciation.
Real
Estate 2007 revenues and net earnings increased 40% and 24%, respectively,
compared with 2006. Revenues in 2007 included $0.3 billion from acquisitions.
Revenues in 2007 also increased $1.8 billion as a result of organic revenue
growth ($1.5 billion) and the weaker U.S. dollar ($0.2 billion). Real Estate net
earnings increased 24% compared with 2006, primarily as a result of a $0.5
billion increase in net earnings from sales of real estate
investments.
Real
Estate assets at December 31, 2007, increased $25.5 billion, or 47%, from
December 31, 2006, of which $12.6 billion was real estate investments, also up
47%. During 2007, we sold real estate assets with a book value totaling $7.0
billion, which resulted in net earnings of $2.1 billion.
Energy
Financial Services 2008 revenues and net earnings increased 54% and 22%,
respectively, compared with 2007. Revenues in 2008 and 2007 included $1.6
billion and $0.3 billion, respectively, from acquisitions. The increase in net
earnings resulted primarily from core growth ($0.2 billion), partially offset by
lower investment income ($0.1 billion).
Energy
Financial Services 2007 revenues and net earnings increased 45% and 4%,
respectively, compared with 2006. The increase in revenues resulted primarily
from acquisitions ($0.6 billion) and organic revenue growth ($0.1 billion). The
increase in net earnings resulted primarily from core growth.
GECAS
2008 revenues increased 1% and net earnings decreased 1% compared with 2007. The
increase in revenues is primarily a result of organic revenue growth ($0.1
billion), partially offset by lower investment income. The decrease in net
earnings resulted primarily from lower investment income, partially offset by
core growth.
GECAS
2007 revenues and net earnings increased 11% and 3%, respectively, compared with
2006. The increase in revenues resulted primarily from organic revenue growth
($0.4 billion) and acquisitions ($0.1 billion). The increase in net earnings
resulted primarily from core growth.
Consumer & Industrial
revenues decreased 7%, or $0.9 billion, to $11.7 billion in 2008 compared with
2007 as lower volume ($1.2 billion) was partially offset by higher prices ($0.2
billion) and the effects of the weaker U.S. dollar ($0.1 billion). The decrease
in volume reflected tightened spending in the U.S. market. Segment profit
decreased 65%, or $0.7 billion, to $0.4 billion as higher material and other
costs ($0.4 billion), lower volume ($0.2 billion), lower productivity ($0.1
billion) and the effects of the weaker U.S. dollar on manufacturing costs ($0.1
billion) were partially offset by higher prices ($0.2 billion).
Consumer
& Industrial revenues decreased 4%, or $0.5 billion, in 2007 compared with
2006 as lower volume ($0.8 billion) was partially offset by the effects of the
weaker U.S. dollar ($0.2 billion) and higher prices ($0.1 billion). The decrease
in volume reflects the sale of GE Supply in the third quarter of 2006. Segment
profit rose 7%, or $0.1 billion, as productivity ($0.3 billion) and higher
prices ($0.1 billion) were partially offset by higher material and other costs
($0.4 billion). See Corporate Items and Eliminations for a discussion of items
not allocated to this segment.
Corporate
Items and Eliminations
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Insurance
activities
|
$
|
3,335
|
|
$
|
3,962
|
|
$
|
3,692
|
|
Eliminations
and other
|
|
(1,421
|
)
|
|
647
|
|
|
(800
|
)
|
Total
|
$
|
1,914
|
|
$
|
4,609
|
|
$
|
2,892
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit (cost)
|
|
|
|
|
|
|
|
|
|
Insurance
activities
|
$
|
(202
|
)
|
$
|
145
|
|
$
|
57
|
|
Principal
pension plans
|
|
(244
|
)
|
|
(755
|
)
|
|
(877
|
)
|
Underabsorbed
corporate overhead
|
|
(341
|
)
|
|
(437
|
)
|
|
(266
|
)
|
Other
|
|
(1,904
|
)
|
|
(793
|
)
|
|
(462
|
)
|
Total
|
$
|
(2,691
|
)
|
$
|
(1,840
|
)
|
$
|
(1,548
|
)
|
Corporate
Items and Eliminations include the effects of eliminating transactions between
operating segments; results of our insurance activities remaining in continuing
operations; certain items in our treasury operations; cost of, and cost
reductions from, our principal pension plans; underabsorbed corporate overhead;
certain non-allocated amounts described below; and a variety of sundry items.
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.
Certain
amounts included in the line “Other” above are not allocated to segment results
for internal measurement purposes. In 2008, amounts primarily related to
restructuring, rationalization and other charges were $0.5 billion at each of
Capital Finance and NBC Universal, $0.4 billion at Technology Infrastructure and
$0.3 billion at each of Energy Infrastructure and Consumer & Industrial.
Included in these amounts in 2008 were technology and product development costs
of $0.2 billion at NBC Universal and $0.1 billion at Technology Infrastructure
and net losses on business exits of $0.2 billion at Capital Finance. In 2007,
amounts primarily related to restructuring, rationalization and other charges
were $0.5 billion at Technology Infrastructure, $0.4 billion at each of Consumer
& Industrial (including $0.1 billion of product quality issues) and Capital
Finance, $0.3 billion at NBC Universal, and $0.2 billion at Energy
Infrastructure. Included in these amounts in 2007 were technology and product
development costs of $0.1 billion at NBC Universal. GECS amounts are on an
after-tax basis.
Corporate
Items and Eliminations include the elimination of transactions between our
segments. In 2007, revenues, eliminations and other included a $0.9 billion gain
on sale of a business interest to Hitachi by the Energy business and a $0.6
billion gain on sale of Swiss Re common stock.
Other
operating profit (cost) reflects a $0.9 billion gain on sale of a business
interest to Hitachi by the Energy business and a $0.3 billion (after-tax basis)
gain on sale of Swiss Re common stock in 2007 and gains from sales of business
interests of $0.4 billion in 2006, principally GE Supply.
Discontinued
Operations
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
operations,
net of taxes
|
$
|
(679
|
)
|
$
|
(249
|
)
|
$
|
1,398
|
|
Discontinued
operations comprised GE Money Japan; WMC; Plastics; Advanced Materials; GE Life,
our U.K.-based life insurance operation; the property and casualty insurance and
reinsurance businesses and the European life and health operations of GE
Insurance Solutions and most of its affiliates; and Genworth, our formerly
wholly-owned subsidiary that conducted most of our consumer insurance business,
including life and mortgage insurance operations. Results of these businesses
are reported as discontinued operations for all periods presented.
During
the third quarter of 2007, we committed to a plan to sell our Lake business and
recorded an after-tax loss of $0.9 billion, which represents the difference
between the net book value of our Lake business and the projected sale price.
During 2008, we completed the sale of GE Money Japan, which included Lake, along
with our Japanese mortgage and card businesses, excluding our minority ownership
interest in GE Nissen Credit Co., Ltd. In connection with this sale, and
primarily related to our Japanese mortgage and card businesses, we recorded an
incremental $0.4 billion loss in 2008.
In
December 2007, we completed the sale of our WMC business for $0.1 billion in
cash, recognizing an after-tax loss of $0.1 billion. In connection with the
transaction, certain contractual obligations and potential liabilities related
to previously sold loans were retained.
In
August 2007, we completed the sale of our Plastics business to Saudi Basic
Industries Corporation for $11.6 billion in cash. As a result, we recognized an
after-tax gain of $1.6 billion.
Loss
from discontinued operations, net of taxes, in 2008 was $0.7 billion, primarily
reflecting a loss from operations ($0.3 billion), and the estimated incremental
loss on disposal ($0.4 billion) at GE Money Japan.
Loss
from discontinued operations, net of taxes, in 2007 was $0.2 billion, reflecting
a loss from operations at WMC ($0.9 billion), an estimated after-tax loss on the
planned sale of Lake ($0.9 billion), a loss from operations at GE Money Japan
($0.3 billion), and an after-tax loss on the sale of our WMC business ($0.1
billion), partially offset by a tax adjustment related to the 2004 initial
public offering of Genworth ($0.1 billion). This was partially offset by an
after-tax gain on sale of our Plastics business ($1.6 billion) and earnings from
Plastics operations ($0.3 billion).
Earnings
from discontinued operations, net of taxes, in 2006 were $1.4 billion,
reflecting earnings at our Plastics and Advanced Materials businesses ($1.0
billion). Also included in these earnings were earnings at GE Money Japan and
WMC ($0.3 billion), Genworth ($0.2 billion) and GE Insurance Solutions ($0.1
billion), partially offset by a loss at GE Life ($0.2 billion).
For
additional information related to discontinued operations, see Note 2 to the
consolidated financial statements in Part II, Item 8. “Financial Statements and
Supplementary Data” of this Form 10-K Report.
Our
global activities span all geographic regions and primarily encompass
manufacturing for local and export markets, import and sale of products produced
in other regions, leasing of aircraft, sourcing for our plants domiciled in
other global regions and provision of financial services within these regional
economies. Thus, when countries or regions experience currency and/or economic
stress, we often have increased exposure to certain risks, but also often have
new profit opportunities. Potential increased risks include, among other things,
higher receivable delinquencies and bad debts, delays or cancellations of sales
and orders principally related to power and aircraft equipment, higher local
currency financing costs and slowdown in established financial services
activities. New profit opportunities include, among other things, more
opportunities for lower cost outsourcing, expansion of industrial and financial
services activities through purchases of companies or assets at reduced prices
and lower U.S. debt financing costs.
Revenues
are classified according to the region to which products and services are sold.
For purposes of this analysis, U.S. is presented separately from the remainder
of the Americas. We classify certain operations that cannot meaningfully be
associated with specific geographic areas as “Other Global” for this
purpose.
Geographic
Revenues
(In
billions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
$
|
85.3
|
|
$
|
86.2
|
|
$
|
81.1
|
|
Europe
|
|
44.0
|
|
|
39.9
|
|
|
32.6
|
|
Pacific
Basin
|
|
23.6
|
|
|
21.8
|
|
|
17.7
|
|
Americas
|
|
14.8
|
|
|
12.6
|
|
|
11.5
|
|
Middle
East and Africa
|
|
10.1
|
|
|
8.0
|
|
|
5.5
|
|
Other
Global
|
|
4.7
|
|
|
4.0
|
|
|
3.2
|
|
Total
|
$
|
182.5
|
|
$
|
172.5
|
|
$
|
151.6
|
|
Global
revenues rose 13% to $97.2 billion in 2008, compared with $86.3 billion and
$70.5 billion in 2007 and 2006, respectively. Global revenues to external
customers as a percentage of consolidated revenues were 53% in 2008, compared
with 50% and 47% in 2007 and 2006, respectively. The effects of currency
fluctuations on reported results were to increase revenues by $2.0 billion, $4.0
billion and $0.1 billion in 2008, 2007 and 2006, respectively.
GE
global revenues in 2008 were $59.4 billion, up 19% over 2007, led by increases
at Energy Infrastructure and Technology Infrastructure, primarily in the Middle
East and Africa, Europe and the Pacific Basin. GE global revenues as a
percentage of total GE revenues was 53% in 2008, compared with 50% and 48% in
2007 and 2006, respectively. GE global revenues were $49.8 billion in 2007, up
16% over 2006, led by increases at Energy Infrastructure and Technology
Infrastructure, primarily in the Middle East and Africa, Europe and the Pacific
Basin.
GECS
global revenues rose 4% to $37.8 billion in 2008, compared with $36.5 billion
and $27.5 billion in 2007 and 2006, respectively. GECS global revenues as a
percentage of total GECS revenues were 53% in 2008, compared with 51% and 45% in
2007 and 2006, respectively. The effects of currency fluctuations on reported
results were to increase revenues by $1.2 billion and $2.3 billion in 2008 and
2007, respectively, compared with a decrease of $0.1 billion in
2006.
GECS
revenues in the Middle East and Africa grew 25% in 2008, primarily as a result
of organic revenue growth at GECAS. Revenues grew 11% in the Americas and 6% in
Europe in 2008, primarily as a result of organic revenue growth, acquisitions
and the effects of the weaker U.S. dollar, primarily at GE Money and CLL.
Revenues in the Pacific Basin remained flat in 2008 from 2007.
Total
Assets (continuing operations)
December
31 (In billions)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
U.S.
|
$
|
395.6
|
|
$
|
364.5
|
|
Europe
|
|
228.0
|
|
|
236.5
|
|
Pacific
Basin
|
|
75.0
|
|
|
87.8
|
|
Americas
|
|
40.9
|
|
|
42.6
|
|
Other
Global
|
|
56.5
|
|
|
55.4
|
|
Total
|
$
|
796.0
|
|
$
|
786.8
|
|
Total
assets of global operations on a continuing basis were $400.4 billion in 2008, a
decrease of $21.9 billion, or 5%, from 2007. GECS global assets on a continuing
basis of $328.4 billion at the end of 2008 were 10% lower than at the end of
2007, reflecting core declines and the effects of the stronger U.S. dollar in
Europe, the Pacific Basin and the Americas, partially offset by acquisitions,
primarily at GE Money and CLL.
Financial
results of our global activities reported in U.S. dollars are affected by
currency exchange. We use a number of techniques to manage the effects of
currency exchange, including selective borrowings in local currencies and
selective hedging of significant cross-currency transactions. Such principal
currencies are the pound sterling, the euro, the Japanese yen and the Canadian
dollar.
Environmental
Matters
Our
operations, like operations of other companies engaged in similar businesses,
involve the use, disposal and cleanup of substances regulated under
environmental protection laws. We are involved in a sizable number of
remediation actions to clean up hazardous wastes as required by federal and
state laws. Such statutes require that responsible parties fund remediation
actions regardless of fault, legality of original disposal or ownership of a
disposal site. Expenditures for site remediation actions amounted to
approximately $0.3 billion in 2008 and $0.2 billion in 2007. We presently expect
that such remediation actions will require average annual expenditures in the
range of $0.3 billion to $0.4 billion over the next two years.
In
November 2006, the United States Federal District Court approved a consent
decree, which had been agreed to by GE and the United States Environmental
Protection Agency (EPA), that represents a comprehensive framework for
implementation of the EPA’s 2002 decision to dredge polychlorinated biphenyl
(PCB)-containing sediments in the upper Hudson River. The dredging will be
performed in two phases with an intervening peer review of performance after the
first phase. Under the consent decree, we have committed to reimburse the EPA
for its past and future project oversight costs and to perform the first phase
of dredging, which is scheduled to proceed from May through November of 2009.
After completion of the peer review, currently scheduled for 2010, we may be
responsible for further costs. Our Statement of Financial Position as of
December 31, 2008 and 2007, included liabilities for the probable and estimable
costs of the agreed upon remediation activities.
Financial
Resources and Liquidity
This
discussion of financial resources and liquidity addresses the Statement of
Financial Position, the Statement of Changes in Shareowners’ Equity, the
Statement of Cash Flows, Contractual Obligations, Off-Balance Sheet
Arrangements, and Debt Instruments, Guarantees and Covenants.
The
fundamental differences between GE and GECS are reflected in the measurements
commonly used by investors, rating agencies and financial analysts.
Overview
of Financial Position
Major
changes to our shareowners’ equity are discussed in the Consolidated Statement
of Changes in Shareowners’ Equity section. In addition, other significant
changes to balances in our Statement of Financial Position follow.
Statement
of Financial Position
Because
GE and GECS share certain significant elements of their Statements of Financial
Position – property, plant and equipment and borrowings, for example – the
following discussion addresses significant captions in the “consolidated”
statement. Within the following discussions, however, we distinguish between GE
and GECS activities in order to permit meaningful analysis of each individual
consolidating statement.
Investment securities comprise
mainly investment-grade debt securities supporting obligations to annuitants and
policyholders in our run-off insurance operations and holders of guaranteed
investment contracts (GICs). Investment securities amounted to $41.4 billion at
December 31, 2008, compared with $45.3 billion at December 31, 2007. Of the
amount at December 31, 2008, we held debt securities with an estimated fair
value of $33.9 billion, which included residential mortgage-backed securities
(RMBS) and commercial mortgage-backed securities (CMBS) with estimated fair
values of $4.3 billion and $2.1 billion, respectively. Unrealized losses on debt
securities were $5.4 billion and $1.1 billion at December 31, 2008, and December
31, 2007, respectively. This amount included unrealized losses on RMBS and CMBS
of $1.1 billion and $0.8 billion at the end of 2008, as compared with $0.2
billion and an insignificant amount, respectively, at the end of 2007.
Unrealized losses increased as a result of continuing market deterioration, and
we believe primarily represent adjustments for liquidity on investment-grade
securities.
Of the
$4.3 billion of RMBS, our exposure to subprime credit was approximately $1.3
billion, and those securities are primarily held to support obligations to
holders of GICs. A majority of these securities have received investment-grade
credit ratings from the major rating agencies. We purchased no such securities
in 2008 and an insignificant amount of such securities in 2007. These investment
securities are collateralized primarily by pools of individual direct-mortgage
loans, and do not include structured products such as collateralized debt
obligations. Additionally, a majority of our exposure to residential subprime
credit related to investment securities backed by mortgage loans originated in
2006 and 2005.
We
regularly review investment securities for impairment using both quantitative
and qualitative criteria. Quantitative criteria include the length of time and
magnitude of the amount that each security is in an unrealized loss position
and, for securities with fixed maturities, whether the issuer is in compliance
with terms and covenants of the security. Qualitative criteria include the
financial health of and specific prospects for the issuer, as well as our intent
and ability to hold the security to maturity or until forecasted recovery. In
addition, our evaluation at December 31, 2008, considered the continuing market
deterioration that resulted in the lack of liquidity and the historic levels of
price volatility and credit spreads. With respect to corporate bonds, we placed
greater emphasis on the credit quality of the issuers. With respect to RMBS and
CMBS, we placed greater emphasis on our expectations with respect to cash flows
from the underlying collateral and, with respect to RMBS, we considered the
availability of credit enhancements, principally monoline insurance. Our
other-than-temporary impairment reviews involve our finance, risk and asset
management functions as well as the portfolio management and research
capabilities of our internal and third-party asset managers.
When an
other-than-temporary impairment is recognized for a debt security, the charge
has two components: (1) the loss of contractual cash flows due to the inability
of the issuer (or the insurer, if applicable) to pay all amounts due; and (2)
the effects of current market conditions, exclusive of credit losses, on the
fair value of the security (principally liquidity discounts and interest rate
effects). If the expected loss due to credit remains unchanged for the remaining
term of the debt instrument, the latter portion of the impairment charge is
subsequently accreted to earnings as interest income over the remaining term of
the instrument. When a security is insured, a credit loss event is deemed to
have occurred if the insurer is expected to be unable to cover its obligations
under the related insurance contract.
Other-than-temporary
impairment losses totaled $1.6 billion in 2008 and $0.1 billion in 2007. In
2008, we recognized other-than-temporary impairments, primarily relating to
retained interests in our securitization arrangements, RMBS and corporate debt
securities of infrastructure, financial institutions and media companies. In
2007, we recognized other-than-temporary impairments, primarily for our retained
interests in our securitization arrangements. Investments in retained interests
in securitization arrangements also decreased by $0.1 billion during 2008,
reflecting declines in fair value accounted for in accordance with a new
accounting standard that became effective at the beginning of 2007.
Monoline
insurers (Monolines) provide credit enhancement for certain of our investment
securities. At December 31, 2008, our investment securities insured by Monolines
totaled $3.1 billion, including $1.1 billion of our $1.3 billion investment in
subprime RMBS. Although several of the Monolines have been downgraded by the
rating agencies, a majority of the $3.1 billion is insured by investment-grade
Monolines. The Monoline industry continues to experience financial stress from
increasing delinquencies and defaults on the individual loans underlying insured
securities. We regularly monitor changes to the expected cash flows of the
securities we hold, and the ability of these insurers to pay claims on
securities with expected losses. At December 31, 2008, if the Monolines were
unable to pay our anticipated claims based on the expected future cash flows of
the securities, we would have recorded an impairment charge of $0.3 billion, of
which $0.1 billion would relate to expected credit losses and the remaining $0.2
billion would relate to other market factors.
Our
qualitative review attempts to identify issuers’ securities that are “at-risk”
of impairment, that is, with a possibility of other-than-temporary impairment
recognition in the following 12 months. Of securities with unrealized losses at
December 31, 2008, $0.7 billion of unrealized loss was at risk of being charged
to earnings assuming no further changes in price, and that amount primarily
related to investments in RMBS and CMBS securities, equity securities,
securitization retained interests, and corporate debt securities of financial
institutions and media companies. In addition, we had approximately $2.9 billion
of exposure to commercial, regional and foreign banks, primarily relating to
corporate debt securities, with associated unrealized losses of $0.4 billion.
Continued uncertainty in the capital markets may cause increased levels of
other-than-temporary impairments.
At
December 31, 2008, unrealized losses on investment securities totaled $5.7
billion, including $3.5 billion aged 12 months or longer, compared with
unrealized losses of $1.3 billion, including $0.5 billion aged 12 months or
longer at December 31, 2007. Of the amount aged 12 months or longer at December
31, 2008, more than 80% of our debt securities were considered to be
investment-grade by the major rating agencies. In addition, of the amount aged
12 months or longer, $1.9 billion and $1.4 billion related to structured
securities (mortgage-backed, asset-backed and securitization retained interests)
and corporate debt securities, respectively. With respect to our investment
securities that are in an unrealized loss position at December 31, 2008, we
intend to hold them at least until such time as their individual fair values
exceed their amortized cost and we have the ability to hold all such debt
securities until their maturities. The fair values used to determine these
unrealized gains and losses are those defined by relevant accounting standards
and are not a forecast of future gains or losses. For additional information,
see Note 9 to the consolidated financial statements in Part II, Item 8.
“Financial Statements and Supplementary Data” of this Form 10-K
Report.
Fair Value Measurements.
Effective January 1, 2008, we adopted Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements, for
all financial instruments and non-financial instruments accounted for at fair
value on a recurring basis. Adoption of SFAS 157 did not have a material effect
on our financial position or results of operations. During the fourth quarter,
our methodology remained consistent with prior quarters for measuring fair value
of financial instruments trading in volatile markets. Additional information
about our application of SFAS 157 is provided in Note 28 to the consolidated
financial statements in Part II, Item 8. “Financial Statements and Supplementary
Data” of this Form 10-K Report.
Working capital, representing
GE current receivables and inventories, less GE accounts payable and progress
collections, was $3.9 billion at December 31, 2008, down $2.5 billion from
December 31, 2007, reflecting higher progress collections at Energy. As
Energy delivers units out of its backlog over the next few years, progress
collections of $13.1 billion at December 31, 2008, will be earned, affecting
working capital adversely. Nonetheless, our performance is expected to improve
in 2009 as a result of our Operating Council’s initiatives (e.g., lean projects
on cycle time), which will significantly offset the decrease in progress
collections.
We
discuss current receivables and inventories, two important elements of working
capital, in the following paragraphs.
Current receivables for GE
amounted to $15.1 billion at both the end of 2008 and 2007, and included $11.3
billion due from customers at the end of 2008 compared with $11.0 billion at the
end of 2007. GE current receivables turnover was 7.5 in 2008, compared with 7.3
in 2007. See Note 10 to the consolidated financial statements in Part II, Item
8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Inventories for GE amounted to
$13.6 billion at December 31, 2008, up $0.8 billion from the end of 2007.
This increase reflected higher inventories from purchases at Energy
Infrastructure. GE inventory turnover was 8.0 and 8.3 in 2008 and 2007,
respectively. See Note 11 to the consolidated financial statements in Part II,
Item 8. “Financial Statements and Supplementary Data” of this Form 10-K
Report.
Financing receivables is our
largest category of assets and represents one of our primary sources of
revenues. A discussion of the quality of certain elements of the financing
receivables portfolio follows. For purposes of that discussion, “delinquent”
receivables are those that are 30 days or more past due; and “nonearning”
receivables are those that are 90 days or more past due (or for which collection
has otherwise become doubtful).
Our
portfolio of financing receivables is diverse and not directly comparable to
major U.S. banks. Historically, we have had less consumer exposure, which over
time has had higher loss rates than commercial exposure. Our consumer exposure
is largely non-U.S. and primarily comprises mortgage, sales finance, auto and
personal loans in various European and Asian countries. Our U.S. consumer
financing receivables comprise 7% of our total portfolio. Of those,
approximately 42% relate primarily to credit cards, which are often subject to
profit and loss sharing arrangements with the retailer (the results of which are
reflected in GECS revenues), and have a smaller average balance and lower loss
severity as compared to bank cards. The remaining 58% are sales finance
receivables, which provide electronics, recreation, medical and home improvement
financing to customers. In 2007, we exited the U.S. mortgage business and we
have no U.S. auto or student loans.
Our
commercial portfolio primarily comprises senior, secured positions with
comparatively low loss history. The secured receivables in this portfolio are
collateralized by a variety of asset classes, including industrial-related
facilities and equipment; commercial and residential real estate; vehicles,
aircraft, and equipment used in many industries, including the construction,
manufacturing, transportation, telecommunications and healthcare industries. In
addition, 2% of this portfolio is unsecured corporate debt.
Losses
on financing receivables are recognized when they are incurred, which requires
us to make our best estimate of probable losses inherent in the portfolio. Such
estimate requires consideration of historical loss experience, adjusted for
current conditions, and judgments about the probable effects of relevant
observable data, including present economic conditions such as delinquency
rates, financial health of specific customers and market sectors, collateral
values, and the present and expected future levels of interest rates. Our risk
management process includes standards and policies for reviewing major risk
exposures and concentrations, and evaluates relevant data either for individual
loans or financing leases, or on a portfolio basis, as appropriate.
|
Financing
receivables
|
|
Nonearning
receivables
|
|
Allowance
for
losses
|
|
December
31 (In millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
leasing
and other
|
$
|
99,769
|
|
$
|
96,817
|
|
$
|
1,526
|
|
$
|
939
|
|
$
|
894
|
|
$
|
661
|
|
Commercial
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
industrial
|
|
64,332
|
|
|
58,863
|
|
|
1,128
|
|
|
757
|
|
|
415
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE
Money
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgages
|
|
59,595
|
|
|
73,042
|
|
|
3,317
|
|
|
2,465
|
|
|
382
|
|
|
246
|
|
Non-U.S.
installment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
revolving credit
|
|
24,441
|
|
|
34,669
|
|
|
413
|
|
|
533
|
|
|
1,051
|
|
|
1,371
|
|
U.S.
installment and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
revolving
credit
|
|
27,645
|
|
|
27,914
|
|
|
758
|
|
|
515
|
|
|
1,700
|
|
|
985
|
|
Non-U.S.
auto
|
|
18,168
|
|
|
27,368
|
|
|
83
|
|
|
75
|
|
|
222
|
|
|
324
|
|
Other
|
|
9,244
|
|
|
10,198
|
|
|
152
|
|
|
91
|
|
|
214
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate(a)
|
|
46,735
|
|
|
32,228
|
|
|
194
|
|
|
25
|
|
|
301
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
8,392
|
|
|
7,898
|
|
|
241
|
|
|
–
|
|
|
58
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GECAS
|
|
15,429
|
|
|
14,197
|
|
|
146
|
|
|
–
|
|
|
60
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
4,031
|
|
|
5,111
|
|
|
38
|
|
|
71
|
|
|
28
|
|
|
18
|
|
Total
|
$
|
377,781
|
|
$
|
388,305
|
|
$
|
7,996
|
|
$
|
5,471
|
|
$
|
5,325
|
|
$
|
4,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Financing
receivables included $731 million and $452 million of construction loans
at December 31, 2008 and 2007,
respectively.
|
|
Nonearning
receivables
as
a
percent of financing
receivables
|
|
Allowance
for losses
as
a percent of
nonearning
receivables
|
|
Allowance
for losses
as
a percent of total
financing
receivables
|
|
December
31
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|