72 GE 2010 ANNUAL REPORT Note 1. Summary of Significant Accounting Policies Accounting Principles Our financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP). Consolidation Our financial statements consolidate all of our affiliates—entities in which we have a controlling financial interest, most often because we hold a majority voting interest. To determine if we hold a controlling financial interest in an entity we first evaluate if we are required to apply the variable interest entity (VIE) model to the entity, otherwise the entity is evaluated under the voting interest model. Where we hold current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in that VIE. Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally. When changes occur to the design of an entity we reconsider whether it is subject to the VIE model. We continuously evaluate whether we have a controlling financial interest in a VIE. We hold a controlling financial interest in other entities where we currently hold, directly or indirectly, more than 50% of the voting rights or where we exercise control through substantive participating rights or as a general partner. Where we are a gen- eral partner we consider substantive removal rights held by other partners in determining if we hold a controlling financial interest. We evaluate whether we have a controlling financial interest in these entities when our voting or substantive participating rights change. Associated companies are unconsolidated VIEs and other entities in which we do not have a controlling financial interest, but over which we have significant influence, most often because we hold a voting interest of 20% to 50%. Associated companies are accounted for as equity method investments. Results of associated companies are presented on a one-line basis. Invest- ments in, and advances to, associated companies are presented on a one-line basis in the caption “All other assets” in our Statement of Financial Position, net of allowance for losses that represents our best estimate of probable losses inherent in such assets. Financial Statement Presentation We have reclassified certain prior-year amounts to conform to the current-year’s presentation. Financial data and related measurements are presented in the following categories: • GE—This represents the adding together of all affiliates other than General Electric Capital Services, Inc. (GECS), whose operations are presented on a one-line basis. • GECS—This affiliate owns all of the common stock of General Electric Capital Corporation (GECC). GECC and its respective affiliates are consolidated in the accompanying GECS columns and constitute the majority of its business. • CONSOLIDATED—This represents the adding together of GE and GECS, giving effect to the elimination of transactions between GE and GECS. • OPERATING SEGMENTS—These comprise our five businesses, focused on the broad markets they serve: Energy Infrastructure, Technology Infrastructure, NBC Universal (NBCU), GE Capital and Home & Business Solutions. Prior-period information has been reclassified to be consistent with how we managed our busi- nesses in 2010. Unless otherwise indicated, information in these notes to consoli- dated financial statements relates to continuing operations. Certain of our operations have been presented as discontinued. See Note 2. The effects of translating to U.S. dollars the financial state- ments of non-U.S. affiliates whose functional currency is the local currency are included in shareowners’ equity. Asset and liability accounts are translated at year-end exchange rates, while rev- enues and expenses are translated at average rates for the respective periods. Preparing financial statements in conformity with U.S. GAAP requires us to make estimates based on assumptions about current, and for some estimates future, economic and market conditions (for example, unemployment, market liquidity, the real estate market, etc.), which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, as appropriate, it is reasonably possible that in 2011 actual conditions could be worse than antici- pated in those estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in future impairments of investment securi- ties, goodwill, intangibles and long-lived assets, incremental losses on financing receivables, establishment of valuation allow- ances on deferred tax assets and increased tax liabilities. Sales of Goods and Services We record all sales of goods and services only when a firm sales agreement is in place, delivery has occurred or services have been rendered and collectibility of the fixed or determinable sales price is reasonably assured. Arrangements for the sale of goods and services sometimes include multiple components. Most of our multiple component arrangements involve the sale of goods and services in the Technology Infrastructure segment. Our arrangements with multiple components usually involve future service deliverables such as installation, training or the future delivery of ancillary equipment. In such agreements, the amount assigned to each component is based on the total price and the undelivered com- ponent’s objectively determined fair value, determined from sources such as the separate selling price for that or a similar component or from competitor prices for similar components. If fair value of an undelivered component cannot be satisfactorily notes to consolidated financial statements
59
Embed
Summary of Significant Accounting Policies - GE.com
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
72 GE 2010 ANNUAL REPORT
Note 1.
Summary of Significant Accounting Policies
Accounting PrinciplesOur financial statements are prepared in conformity with U.S.
generally accepted accounting principles (GAAP).
ConsolidationOur financial statements consolidate all of our affiliates—entities
in which we have a controlling financial interest, most often
because we hold a majority voting interest. To determine if we
hold a controlling financial interest in an entity we first evaluate if
we are required to apply the variable interest entity (VIE) model
to the entity, otherwise the entity is evaluated under the voting
interest model.
Where we hold current or potential rights that give us the
power to direct the activities of a VIE that most significantly impact
the VIE’s economic performance combined with a variable interest
that gives us the right to receive potentially significant benefits or
the obligation to absorb potentially significant losses, we have a
controlling financial interest in that VIE. Rights held by others to
remove the party with power over the VIE are not considered
unless one party can exercise those rights unilaterally. When
changes occur to the design of an entity we reconsider whether it is
subject to the VIE model. We continuously evaluate whether we
have a controlling financial interest in a VIE.
We hold a controlling financial interest in other entities where
we currently hold, directly or indirectly, more than 50% of the
voting rights or where we exercise control through substantive
participating rights or as a general partner. Where we are a gen-
eral partner we consider substantive removal rights held by other
partners in determining if we hold a controlling financial interest.
We evaluate whether we have a controlling financial interest in
these entities when our voting or substantive participating
rights change.
Associated companies are unconsolidated VIEs and other
entities in which we do not have a controlling financial interest,
but over which we have significant influence, most often because
we hold a voting interest of 20% to 50%. Associated companies
are accounted for as equity method investments. Results of
associated companies are presented on a one-line basis. Invest-
ments in, and advances to, associated companies are presented on
a one-line basis in the caption “All other assets” in our Statement
of Financial Position, net of allowance for losses that represents
our best estimate of probable losses inherent in such assets.
Financial Statement PresentationWe have reclassified certain prior-year amounts to conform to the
current-year’s presentation.
Financial data and related measurements are presented in
the following categories:
• GE—This represents the adding together of all affiliates other
than General Electric Capital Services, Inc. (GECS), whose
operations are presented on a one-line basis.
• GECS—This affiliate owns all of the common stock of General
Electric Capital Corporation (GECC). GECC and its respective
affiliates are consolidated in the accompanying GECS columns
and constitute the majority of its business.
• CONSOLIDATED—This represents the adding together of GE and
GECS, giving effect to the elimination of transactions between
GE and GECS.
• OPERATING SEGMENTS—These comprise our five businesses,
focused on the broad markets they serve: Energy Infrastructure,
Technology Infrastructure, NBC Universal (NBCU), GE Capital and
Home & Business Solutions. Prior-period information has been
reclassified to be consistent with how we managed our busi-
nesses in 2010.
Unless otherwise indicated, information in these notes to consoli-
dated financial statements relates to continuing operations.
Certain of our operations have been presented as discontinued.
See Note 2.
The effects of translating to U.S. dollars the financial state-
ments of non-U.S. affiliates whose functional currency is the local
currency are included in shareowners’ equity. Asset and liability
accounts are translated at year-end exchange rates, while rev-
enues and expenses are translated at average rates for the
respective periods.
Preparing financial statements in conformity with U.S. GAAP
requires us to make estimates based on assumptions about
current, and for some estimates future, economic and market
conditions (for example, unemployment, market liquidity, the real
estate market, etc.), which affect reported amounts and related
disclosures in our financial statements. Although our current
estimates contemplate current conditions and how we expect
them to change in the future, as appropriate, it is reasonably
possible that in 2011 actual conditions could be worse than antici-
pated in those estimates, which could materially affect our results
of operations and financial position. Among other effects, such
changes could result in future impairments of investment securi-
ties, goodwill, intangibles and long-lived assets, incremental
losses on financing receivables, establishment of valuation allow-
ances on deferred tax assets and increased tax liabilities.
Sales of Goods and ServicesWe record all sales of goods and services only when a firm sales
agreement is in place, delivery has occurred or services have
been rendered and collectibility of the fixed or determinable
sales price is reasonably assured.
Arrangements for the sale of goods and services sometimes
include multiple components. Most of our multiple component
arrangements involve the sale of goods and services in the
Technology Infrastructure segment. Our arrangements with
multiple components usually involve future service deliverables
such as installation, training or the future delivery of ancillary
equipment. In such agreements, the amount assigned to each
component is based on the total price and the undelivered com-
ponent’s objectively determined fair value, determined from
sources such as the separate selling price for that or a similar
component or from competitor prices for similar components. If
fair value of an undelivered component cannot be satisfactorily
notes to consolidated financial statements
GE 2010 ANNUAL REPORT 73
notes to consolidated financial statements
engines by applying our contract-specific estimated margin rates
to incurred costs. We routinely update our estimates of future
revenues and costs for commercial aircraft engine agreements in
process and report any cumulative effects of such adjustments
in current operations. Significant components of our revenue and
cost estimates include price concessions, performance-related
guarantees as well as material, labor and overhead costs. We
measure revenue for military propulsion equipment and spare
parts not subject to long-term product services agreements
based on the specific contract on a specifically-measured output
basis. We provide for any loss that we expect to incur on these
agreements when that loss is probable; consistent with industry
practice, for commercial aircraft engines, we make such provision
only if such losses are not recoverable from future highly probable
sales of spare parts for those engines.
We sell product services under long-term product mainte-
nance or extended warranty agreements in our Technology
Infrastructure and Energy Infrastructure segments, principally in
Aviation, Energy and Transportation, where costs of performing
services are incurred on other than a straight-line basis. We also
sell product services in Healthcare, where such costs generally are
expected to be on a straight-line basis. For the Aviation, Energy
and Transportation agreements, we recognize related sales based
on the extent of our progress towards completion measured by
actual costs incurred in relation to total expected costs. We rou-
tinely update our estimates of future costs for agreements in
process and report any cumulative effects of such adjustments in
current operations. For the Healthcare agreements, we recognize
revenues on a straight-line basis and expense related costs as
incurred. We provide for any loss that we expect to incur on any
of these agreements when that loss is probable.
NBC Universal records broadcast and cable television and
Internet advertising sales when advertisements are aired, net of
provision for any viewer shortfalls (make goods). We record sales
from theatrical distribution of films as the films are exhibited;
sales of home videos, net of a return provision, when the videos
are delivered to and available for sale by retailers; fees from cable/
satellite operators when services are provided; and licensing of
film and television programming when we make the material
available for airing.
GECS Revenues from Services (Earned Income)We use the interest method to recognize income on loans.
Interest on loans includes origination, commitment and other
non-refundable fees related to funding (recorded in earned
income on the interest method). We stop accruing interest at the
earlier of the time at which collection of an account becomes
doubtful or the account becomes 90 days past due. Previously
recognized interest income that was accrued but not collected
from the borrower is evaluated as part of the overall receivable in
determining the adequacy of the allowance for losses. Although
we stop accruing interest in advance of payments, we recognize
interest income as cash is collected when appropriate, provided
the amount does not exceed that which would have been earned
at the historical effective interest rate; otherwise, payments
received are applied to reduce the principal balance of the loan.
We resume accruing interest on nonaccrual, non-restructured
commercial loans only when (a) payments are brought current
determined, we defer revenue until all components of an arrange-
ment are delivered.
Except for goods sold under long-term agreements, we recog-
nize sales of goods under the provisions of U.S. Securities and
GECF Inc. (BAC) (our Central American bank and card business),
GE Money Japan (our Japanese personal loan business, Lake,
and our Japanese mortgage and card businesses, excluding our
investment in GE Nissen Credit Co., Ltd.), our U.S. mortgage busi-
ness (WMC), our U.S. recreational vehicle and marine equipment
financing business (Consumer RV Marine), Consumer Mexico
and Plastics. Associated results of operations, financial position
and cash flows are separately reported as discontinued opera-
tions for all periods presented.
With respect to our 49% interest in NBCU LLC, we hold
redemption rights, which, if exercised, cause NBCU LLC or
Comcast to purchase half of our ownership interest after three
and a half years and the remaining half after seven years (either
directly or through the transfer of common stock of the corporate
owner of NBCU LLC) subject to certain exceptions, conditions and
limitations. Our interest in NBCU LLC is also subject to call provi-
sions, which, if exercised, allow Comcast to purchase our interest
(either directly or through the transfer of common stock of the
corporate owner of NBCU LLC) at specified times subject to cer-
tain exceptions. The redemption prices for such transactions are
determined pursuant to a contractually specified formula.
In connection with the transaction, we also entered into a
number of agreements with Comcast governing the operation of
the venture and transitional services, employee, tax and other
matters. Under the operating agreement, excess cash generated
by the operations of NBCU LLC will be used to reduce borrowings
rather than to pay distributions to us, except for distributions
under a formula to enable us to pay taxes on NBCU LLC’s profits.
In addition, Comcast is obligated to make payments to us for a
share of tax savings associated with Comcast’s purchase of its
NBCU LLC member interest.
As part of the transfer, we provided guarantees and indemnifi-
cations related to certain pre-existing contractual arrangements
entered into by NBCU. We have provided guarantees, on behalf
of NBCU LLC, for the acquisition of sports programming in the
amount of $3,258 million, triggered only in the event NBCU LLC
fails to meet its payment commitments. We also have agreed to
indemnify Comcast against any loss (after giving consideration
to underlying collateral) related to a pre-existing credit support
agreement covering $815 million of debt plus accrued interest
owed by a joint venture of NBCU LLC.
At December 31, 2010, we classified the NBCU assets and
liabilities of $33,758 million and $15,455 million, respectively, as
held for sale. The major classes of assets at December 31, 2010
were current receivables ($2,572 million), property, plant and
equipment—net ($2,082 million), goodwill and other intangible
assets—net ($22,263 million) and all other assets ($6,841 million),
including film and television production costs of $4,423 million.
The major classes of liabilities at December 31, 2010 were
accounts payable ($492 million), other GE current liabilities
($3,983 million), long-term debt ($9,906 million) and all other
liabilities ($1,073 million).
At December 31, 2009, we classified the NBCU assets and
liabilities of $32,150 million and $5,751 million, respectively, as
held for sale. The major classes of assets at December 31, 2009
were current receivables ($2,136 million), property, plant and
equipment—net ($1,805 million), goodwill and other intangible
assets—net ($21, 574 million) and all other assets ($6,514 million),
including film and television production costs of $4,507 million.
The major classes of liabilities at December 31, 2009 were
accounts payable ($398 million), other GE current liabilities
($4,051 million) and all other liabilities ($1,300 million).
82 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
GE MONEY JAPAN
During the third quarter of 2007, we committed to a plan to sell
our Japanese personal loan business, Lake, upon determining
that, despite restructuring, Japanese regulatory limits for inter-
est charges on unsecured personal loans did not permit us to
earn an acceptable return. During the third quarter of 2008, we
completed the sale of GE Money Japan, which included Lake,
along with our Japanese mortgage and card businesses, exclud-
ing our investment in GE Nissen Credit Co., Ltd. As a result, we
recognized an after-tax loss of $908 million in 2007 and an incre-
mental loss of $361 million in 2008. In connection with the sale,
we reduced the proceeds on the sale for estimated interest
refund claims in excess of the statutory interest rate. Proceeds
from the sale were to be increased or decreased based on the
actual claims experienced in accordance with loss-sharing terms
specified in the sale agreement, with all claims in excess of
258 billion Japanese yen (approximately $3,000 million) remain-
ing our responsibility. The underlying portfolio to which this
obligation relates is in runoff and interest rates were capped for
all designated accounts by mid-2009. In the third quarter of 2010,
we began making reimbursements under this arrangement.
Our overall claims experience developed unfavorably through
2010. While our average daily claims continued to decline
through August 2010, the pace of the decline was slower than
expected, and claims severity increased. We believe that the
level of excess interest refund claims has been impacted by the
challenging global economic conditions, in addition to Japanese
legislative and regulatory changes. We accrued $566 million of
incremental reserves for these claims during the first six months
of 2010, in addition to the third quarter charge discussed below.
Significantly, in September 2010, a large independent per-
sonal loan company in Japan filed for bankruptcy, which
precipitated a significant amount of publicity surrounding excess
interest refund claims in the Japanese marketplace, along with
substantial legal advertising. We observed an increase in claims
during September 2010 and higher average daily claims in the
fourth quarter of 2010. Based on these factors and additional
analysis, we recorded an adjustment to our reserves of
$1,100 million in the third quarter of 2010 to bring the reserve to
a better estimate of our probable loss. This adjustment primarily
reflects revisions in our assumptions and calculations of the
number of estimated probable future incoming claims, increases
in claims severity assumptions, reflecting recent trends in
amounts paid per claim, and higher estimates of loss for claims in
process of settlement. As of December 31, 2010, our reserve for
reimbursement of claims in excess of the statutory interest rate
was $1,465 million.
Summarized financial information for discontinued operations
is shown below.
(In millions) 2010 2009 2008
OPERATIONS
Total revenues $ 1,417 $1,502 $ 1,626
Earnings (loss) from discontinued operations before income taxes $ 92 $ 208 $ (560)
Benefit (provision) for income taxes 113 (23) 282
Earnings (loss) from discontinued operations, net of taxes $ 205 $ 185 $ (278)
DISPOSAL
Loss on disposal before income taxes $(1,420) $ (196) $(1,458)
Benefit for income taxes 236 93 1,119
Loss on disposal, net of taxes $(1,184) $ (103) $ (339)
Earnings (loss) from discontinued operations, net of taxes (a) $ (979) $ 82 $ (617)
(a) The sum of GE industrial earnings (loss) from discontinued operations, net of taxes,
and GECS earnings (loss) from discontinued operations, net of taxes, is reported as
GE industrial earnings (loss) from discontinued operations, net of taxes, on the
Statement of Earnings.
December 31 (In millions) 2010 2009
ASSETS
Cash and equivalents $ 126 $ 1,956
Financing receivables—net 3,546 9,985
All other assets 42 142
Other 1,564 3,045
Assets of discontinued operations $5,278 $15,128
LIABILITIES
Short-term borrowings $ — $ 5,314
Long-term borrowings — 1,434
All other liabilities 1,933 1,394
Other 374 344
Liabilities of discontinued operations $2,307 $ 8,486
Assets at December 31, 2010 and 2009 primarily comprised cash,
financing receivables and a deferred tax asset for a loss carryfor-
ward, which expires in 2015, related to the sale of our GE Money
Japan business.
BAC CREDOMATIC GECF INC.
During the fourth quarter of 2010, we classified BAC as discontin-
ued operations and completed the sale of BAC for $1,920 million.
Immediately prior to the sale, and in accordance with terms of a
previous agreement, we increased our ownership interest in BAC
from 75% to 100% for a purchase price of $633 million. As a result
of the sale of our interest in BAC, we recognized an after-tax gain
of $780 million in 2010.
BAC revenues from discontinued operations were $983 million,
$943 million and $159 million in 2010, 2009 and 2008, respectively.
In total, BAC earnings from discontinued operations, net of taxes,
were $854 million, $292 million and $89 million in 2010, 2009 and
2008, respectively.
GE 2010 ANNUAL REPORT 83
notes to consolidated financial statements
total loans WMC originated and sold will be tendered for repur-
chase, and of those tendered, only a limited amount will qualify as
“validly tendered,” meaning the loans sold did not satisfy specified
contractual obligations. New claims received over the past three
years have declined from $859 million in 2008 to $320 million in
2010. WMC’s current reserve represents our best estimate of
losses with respect to WMC’s repurchase obligations. Actual losses
could exceed the reserve amount if actual claim rates, valid ten-
ders or losses WMC incurs on repurchased loans are higher than
historically observed.
WMC revenues from discontinued operations were $(4) million,
$2 million and $(71) million in 2010, 2009 and 2008, respectively.
In total, WMC’s losses from discontinued operations, net of taxes,
were $7 million, $1 million and $41 million in 2010, 2009 and
2008, respectively.
OTHER FINANCIAL SERVICES
In the fourth quarter of 2010, we entered into agreements to
sell our Consumer RV Marine portfolio and Consumer Mexico
business. Consumer RV Marine revenues from discontinued
operations were $210 million, $260 million and $296 million in
2010, 2009 and 2008, respectively. Consumer RV Marine losses
from discontinued operations, net of taxes, were $99 million,
$83 million and $58 million in 2010, 2009 and 2008, respectively.
Consumer Mexico revenues from discontinued operations were
$228 million, $303 million and $479 million in 2010, 2009 and
2008, respectively. Consumer Mexico earnings (loss) from discon-
tinued operations, net of taxes, were $(59) million, $66 million and
$31 million in 2010, 2009 and 2008, respectively.
GE INDUSTRIAL
GE industrial earnings (loss) from discontinued operations, net of
taxes, were $(4) million, $(18) million and $40 million in 2010, 2009
and 2008, respectively. The sum of GE industrial earnings (loss)
from discontinued operations, net of taxes, and GECS earnings
(loss) from discontinued operations, net of taxes, is reported as
GE industrial earnings (loss) from discontinued operations, net
of taxes, on the Statement of Earnings.
Assets of GE industrial discontinued operations were $50 mil-
lion at both December 31, 2010 and 2009. Liabilities of GE industrial
discontinued operations were $164 million and $163 million at
December 31, 2010 and 2009, respectively, and primarily represent
taxes payable and pension liabilities related to the sale of our
Plastics business in 2007.
The amount of these reserves is based on analyses of recent
and historical claims experience, pending and estimated future
excess interest refund requests, the estimated percentage of
customers who present valid requests, and our estimated pay-
ments related to those requests. Our estimated liability for
excess interest refund claims at December 31, 2010 assumes the
pace of incoming claims will decelerate, average exposure per
claim remains consistent with recent experience, and we see the
impact of our loss mitigation efforts. Estimating the pace of
decline in incoming claims can have a significant effect on the
total amount of our liability. For example, our third quarter 2010
estimate assumes incoming average daily claims will decline at a
long-term average rate of 4% monthly. Holding all other assump-
tions constant, if claims declined at a rate of one percent higher
or lower than assumed, our liability estimate would change by
approximately $250 million.
Uncertainties around the impact of laws and regulations,
challenging economic conditions, the runoff status of the under-
lying book of business and the effects of our mitigation efforts
make it difficult to develop a meaningful estimate of the aggre-
gate possible claims exposure. Recent trends, including the effect
of governmental actions, market activity regarding other personal
loan companies and consumer activity, may continue to have an
adverse effect on claims development.
GE Money Japan revenues from discontinued operations were
an insignificant amount in both 2010 and 2009, and $763 million in
2008. In total, GE Money Japan losses from discontinued operations,
net of taxes, were $1,671 million, $158 million and $651 million for
2010, 2009 and 2008, respectively.
WMC
During the fourth quarter of 2007, we completed the sale of
WMC, our U.S. mortgage business. WMC substantially discontin-
ued all new loan originations by the second quarter of 2007, and
is not a loan servicer. In connection with the sale, WMC retained
certain obligations related to loans sold prior to the disposal of
the business, including WMC’s contractual obligations to repur-
chase previously sold loans as to which there was an early
payment default or with respect to which certain contractual
representations and warranties were not met. All claims received
for early payment default have either been resolved or are no
longer being pursued.
Pending claims for unmet representations and warranties
have declined from approximately $800 million at December 31,
2009 to approximately $350 million at December 31, 2010.
Reserves related to these contractual representations and war-
ranties were $101 million at December 31, 2010, and $205 million
at December 31, 2009. The amount of these reserves is based
upon pending and estimated future loan repurchase requests, the
estimated percentage of loans validly tendered for repurchase,
and our estimated losses on loans repurchased. Based on our
historical experience, we estimate that a small percentage of the
84 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
Note 3.
Investment SecuritiesSubstantially all of our investment securities are classified as available-for-sale. These comprise mainly investment grade debt securities
supporting obligations to annuitants and policyholders in our run-off insurance operations and holders of guaranteed investment con-
tracts (GICs) in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010), and investment securities
held at our global banks. We do not have any securities classified as held-to-maturity.
2010 2009
Gross Gross Gross Gross Amortized unrealized unrealized Estimated Amortized unrealized unrealized Estimated December 31 (In millions) cost gains losses fair value cost gains losses fair value
Total $42,971 $2,395 $(1,428) $43,938 $51,948 $2,031 $(2,636) $51,343
(a) Substantially collateralized by U.S. mortgages. Of our total residential mortgage-backed securities (RMBS) portfolio at December 31, 2010, $1,318 million relates to securities
issued by government-sponsored entities and $1,491 million relates to securities of private label issuers. Securities issued by private label issuers are collateralized primarily by
pools of individual direct mortgage loans of financial institutions.
(b) Included $1,918 million of retained interests at December 31, 2009 accounted for at fair value in accordance with ASC 815, Derivatives and Hedging. See Note 24.
The fair value of investment securities decreased to $43,938 million at December 31, 2010, from $51,343 million at December 31, 2009,
primarily driven by a decrease in retained interests that were consolidated as a result of our adoption of ASU 2009-16 & 17 and maturities,
partially offset by improved market conditions.
The following tables present the gross unrealized losses and estimated fair values of our available-for-sale investment securities.
2010 2009
In loss position for
Less than 12 months 12 months or more Less than 12 months 12 months or more
Gross Gross Gross Gross Estimated unrealized Estimated unrealized Estimated unrealized Estimated unrealized December 31 (In millions) fair value losses (a) fair value losses (a) fair value losses fair value losses
U.S. government and federal agency 1,822 (47) — — — — — —
Retained interests — — 34 (26) 208 (16) 27 (24)
Equity 49 (8) — — 92 (2) 10 (3)
Total $6,408 $(191) $ 5,785 $(1,237) $5,117 $(285) $10,471 $(2,351)
(a) At December 31, 2010, other-than-temporary impairments previously recognized through other comprehensive income (OCI) on securities still held amounted to $(478) million, of
which $(368) million related to RMBS. Gross unrealized losses related to those securities at December 31, 2010, amounted to $(328) million, of which $(232) million related to
RMBS.
GE 2010 ANNUAL REPORT 85
notes to consolidated financial statements
If there has been an adverse change in cash flows for RMBS,
management considers credit enhancements such as monoline
insurance (which are features of a specific security). In evaluating
the overall creditworthiness of the Monoline, we use an analysis that
is similar to the approach we use for corporate bonds, including an
evaluation of the sufficiency of the Monoline’s cash reserves and
capital, ratings activity, whether the Monoline is in default or default
appears imminent, and the potential for intervention by an insurer
or other regulator.
During 2010, we recorded other-than-temporary impairments
of $460 million, of which $253 million was recorded through
earnings ($35 million relates to equity securities) and $207 million
was recorded in accumulated other comprehensive income (AOCI).
At January 1, 2010, cumulative impairments recognized in earn-
ings associated with debt securities still held were $340 million.
During 2010, we recognized first-time impairments of $164 million
and incremental charges on previously impaired securities of
$38 million. These amounts included $41 million related to securi-
ties that were subsequently sold.
During 2009, we recorded other-than-temporary impairments
of $1,078 million, of which $753 million was recorded through
earnings ($42 million relates to equity securities), and $325 million
was recorded in AOCI.
During 2009, we recorded other-than-temporary impairments
of $1,078 million, of which $33 million was reclassified to retained
earnings at April 1, 2009, as a result of the amendments to ASC 320.
Subsequent to April 1, 2009, first-time and incremental credit impair-
ments were $109 million and $257 million, respectively. Previous
credit impairments related to securities sold were $124 million.
CONTRACTUAL MATURITIES OF GECS INVESTMENT IN AVAILABLE-
FOR-SALE DEBT SECURITIES (EXCLUDING MORTGAGE-BACKED AND
ASSET-BACKED SECURITIES)
Amortized Estimated (In millions) cost fair value
Due in
2011 $ 3,072 $ 3,169
2012–2015 7,433 7,683
2016–2020 4,371 4,516
2021 and later 17,732 18,429
We expect actual maturities to differ from contractual maturities
because borrowers have the right to call or prepay certain
obligations.
Supplemental information about gross realized gains and
losses on available-for-sale investment securities follows.
(In millions) 2010 2009 2008
GE
Gains $ — $ 4 $ —
Losses, including impairments — (173) (148)
Net — (169) (148)
GECS
Gains 190 164 212
Losses, including impairments (281) (637) (1,472)
Net (91) (473) (1,260)
Total $ (91) $(642) $(1,408)
Although we generally do not have the intent to sell any specific
securities at the end of the period, in the ordinary course of manag-
ing our investment securities portfolio, we may sell securities prior
We adopted amendments to ASC 320 and recorded a cumulative
effect adjustment to increase retained earnings by $62 million as
of April 1, 2009.
We regularly review investment securities for impairment
using both qualitative and quantitative criteria. We presently do
not intend to sell our debt securities and believe that it is not more
likely than not that we will be required to sell these securities that
are in an unrealized loss position before recovery of our amortized
cost. We believe that the unrealized loss associated with our
equity securities will be recovered within the foreseeable future.
The vast majority of our U.S. corporate debt securities are rated
investment grade by the major rating agencies. We evaluate U.S.
corporate debt securities based on a variety of factors, such as the
financial health of and specific prospects for the issuer, including
whether the issuer is in compliance with the terms and covenants of
the security. In the event a U.S. corporate debt security is deemed to
be other-than-temporarily impaired, we isolate the credit portion of
the impairment by comparing the present value of our expectation
of cash flows to the amortized cost of the security. We discount the
cash flows using the original effective interest rate of the security.
The vast majority of our RMBS have investment grade credit
ratings from the major rating agencies and are in a senior position in
the capital structure of the deal. Of our total RMBS at December 31,
2010 and 2009, approximately $673 million and $897 million, respec-
tively, relate to residential subprime credit, primarily supporting our
guaranteed investment contracts. These are collateralized primarily
by pools of individual, direct mortgage loans (a majority of which were
originated in 2006 and 2005), not other structured products such as
collateralized debt obligations. In addition, of the total residential
subprime credit exposure at December 31, 2010 and 2009, approxi-
mately $343 million and $456 million, respectively, was insured by
Monoline insurers (Monolines) on which we continue to place reliance.
The vast majority of our commercial mortgage-backed securities
(CMBS) also have investment grade credit ratings from the major rating
agencies and are in a senior position in the capital structure of the deal.
Our CMBS investments are collateralized by both diversified pools of
mortgages that were originated for securitization (conduit CMBS)
and pools of large loans backed by high-quality properties (large
loan CMBS), a majority of which were originated in 2006 and 2007.
Our asset-backed securities (ABS) portfolio is collateralized by a
variety of diversified pools of assets such as student loans and
credit cards, as well as large senior secured loans targeting high-
quality, middle-market companies in a variety of industries. The vast
majority of our ABS securities are in a senior position in the capital
structure of the deal. In addition, substantially all of the securities
that are below investment grade are in an unrealized gain position.
For ABS, including RMBS, we estimate the portion of loss attrib-
utable to credit using a discounted cash flow model that considers
estimates of cash flows generated from the underlying collateral.
Estimates of cash flows consider internal credit risk, interest rate
and prepayment assumptions that incorporate management’s
best estimate of key assumptions, including default rates, loss
severity and prepayment rates. For CMBS, we estimate the portion
of loss attributable to credit by evaluating potential losses on each
of the underlying loans in the security. Collateral cash flows are
considered in the context of our position in the capital structure
of the deal. Assumptions can vary widely depending upon the
collateral type, geographic concentrations and vintage.
86 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
Note 6.
GECS Financing Receivables and Allowance for Losses on Financing Receivables
At
December 31, January 1, December 31,(In millions) 2010 2010 (a) 2009
Loans, net of deferred income (b) $281,639 $321,589 $280,465
Investment in financing leases, net of deferred income 45,710 55,096 54,332
Net investment in financing leases $39,140 $47,468 $38,260 $46,151 $ 880 $ 1,317
(a) Included $520 million and $599 million of initial direct costs on direct financing leases at December 31, 2010 and 2009, respectively.
(b) Included pre-tax income of $133 million and $164 million and income tax of $51 million and $64 million during 2010 and 2009, respectively. Net investment credits recognized
on leveraged leases during 2010 and 2009 were insignificant.
FINANCING RECEIVABLES—NET
The following table displays our financing receivables balances.
December 31, January 1, December 31,(In millions) 2010 2010 (a) 2009
COMMERCIAL
CLL (b)
Americas $ 86,596 $ 99,666 $ 87,496
Europe 37,498 43,403 41,455
Asia 11,943 13,159 13,202
Other 2,626 2,836 2,836
Total CLL 138,663 159,064 144,989
Energy Financial Services 7,011 7,790 7,790
GECAS (b) 12,615 13,254 13,254
Other (c) 1,788 2,614 2,614
Total Commercial financing receivables 160,077 182,722 168,647
REAL ESTATE
Debt 30,249 36,257 36,565
Business properties 9,962 12,416 8,276
Total Real Estate financing receivables 40,211 48,673 44,841
Non-U.S. installment and revolving credit 20,368 23,443 23,443
U.S. installment and revolving credit 43,974 44,008 20,027
Non-U.S. auto 8,877 12,762 12,762
Other 8,306 10,156 10,156
Total Consumer financing receivables 127,061 145,290 121,309
Total financing receivables 327,349 376,685 334,797
Less allowance for losses (8,072) (9,556) (7,856)
Total financing receivables—net $319,277 $367,129 $326,941
(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) During the first quarter of 2010, we transferred the Transportation Financial
Services business from GE Capital Aviation Services (GECAS) to CLL and the
Consumer business in Italy from Consumer to CLL. Prior-period amounts were
reclassified to conform to the current-period presentation.
(c) Primarily consisted of loans and financing leases in former consolidated,
liquidating, securitization entities, which became wholly owned affiliates
in December 2010.
88 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
The following tables provide a roll-forward of our allowance for losses on financing receivables.
Balance at Adoption of Balance at Provision Balance at December 31, ASU 2009 January 1, charged to Gross December 31, (In millions) 2009 16 & 17 (a) 2010 operations Other (b) write-offs (c) Recoveries (c) 2010
U.S. installment and revolving credit 1,551 1,602 3,153 3,018 (6) (4,300) 468 2,333
Non-U.S. auto 303 — 303 85 (60) (324) 170 174
Other 291 — 291 265 7 (394) 90 259
Total Consumer 4,187 1,602 5,789 4,693 (169) (7,171) 1,397 4,539
Total $7,856 $1,700 $9,556 $7,191 $(222) $(10,070) $1,617 $8,072
(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) Other primarily included the effects of currency exchange.
(c) Net write-offs (write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as our revolving credit portfolios turn over more than once per
year or, in all portfolios, can reflect losses that are incurred subsequent to the beginning of the fiscal year due to information becoming available during the current year,
which may identify further deterioration on existing financing receivables.
(d) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL.
Prior-period amounts were reclassified to conform to the current-period presentation.
Balance at Provision Balance at January 1, charged to Gross December 31, (In millions) 2009 operations Other (a) write-offs (b) Recoveries (b) 2009
U.S. installment and revolving credit 1,616 3,367 (975) (2,612) 155 1,551
Non-U.S. auto 197 395 31 (530) 210 303
Other 225 346 44 (389) 65 291
Total Consumer 3,394 6,768 (771) (6,291) 1,087 4,187
Total $5,160 $10,627 $(805) $(8,417) $1,291 $7,856
(a) Other primarily included the effects of securitization activity and currency exchange.
(b) Net write-offs (write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as our revolving credit portfolios turn over more than once per
year or, in all portfolios, can reflect losses that are incurred subsequent to the beginning of the fiscal year due to information becoming available during the current year,
which may identify further deterioration on existing financing receivables.
(c) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL.
Prior-period amounts were reclassified to conform to the current-period presentation.
GE 2010 ANNUAL REPORT 89
notes to consolidated financial statements
Balance at Provision Balance at January 1, charged to Gross December 31, (In millions) 2008 operations Other (a) write-offs (b) Recoveries (b) 2008
COMMERCIAL
CLL (c)
Americas $ 471 $ 909 $ 111 $ (728) $ 80 $ 843
Europe 256 344 (34) (334) 79 311
Asia 226 152 34 (256) 7 163
Other 3 4 (3) — — 4
Total CLL 956 1,409 108 (1,318) 166 1,321
Energy Financial Services 19 36 3 — — 58
GECAS (c) 8 51 — (1) — 58
Other 18 28 (1) (18) 1 28
Total Commercial 1,001 1,524 110 (1,337) 167 1,465
U.S. installment and revolving credit 937 3,050 (624) (2,056) 309 1,616
Non-U.S. auto 298 335 (121) (544) 229 197
Other 165 229 9 (247) 69 225
Total Consumer 2,910 5,574 (1,185) (5,449) 1,544 3,394
Total $4,079 $7,233 $(1,066) $(6,798) $1,712 $5,160
(a) Other primarily included the effects of securitization activity and currency exchange.
(b) Net write-offs (write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as our revolving credit portfolios turn over more than once per
year or, in all portfolios, can reflect losses that are incurred subsequent to the beginning of the fiscal year due to information becoming available during the current year, which
may identify further deterioration on existing financing receivables.
(c) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL.
Prior-period amounts were reclassified to conform to the current-period presentation.
See Note 23 for supplemental information about the credit
quality of financing receivables and allowance for losses on
financing receivables.
90 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
Consolidated depreciation and amortization related to property,
plant and equipment was $10,013 million, $10,619 million and
$11,481 million in 2010, 2009 and 2008, respectively.
Amortization of GECS equipment leased to others was
$6,786 million, $7,179 million and $8,173 million in 2010, 2009 and
2008, respectively. Noncancellable future rentals due from cus-
tomers for equipment on operating leases at December 31, 2010,
are as follows:
(In millions)
Due in
2011 $ 7,242
2012 5,846
2013 4,686
2014 3,840
2015 2,964
2016 and later 9,170
Total $33,748
Note 8.
Goodwill and Other Intangible Assets
December 31 (In millions) 2010 2009
GOODWILL
GE $36,880 $36,613
GECS 27,593 28,463
Total $64,473 $65,076
December 31 (In millions) 2010 2009
OTHER INTANGIBLE ASSETS
GE
Intangible assets subject to amortization $ 7,984 $ 8,345
Indefinite-lived intangible assets 104 105
8,088 8,450
GECS
Intangible assets subject to amortization 1,885 3,301
Total $ 9,973 $11,751
Note 7.
Property, Plant and Equipment
Depreciable lives—new December 31 (Dollars in millions) (in years) 2010 2009
ORIGINAL COST
GE
Land and improvements 8 (a) $ 573 $ 562
Buildings, structures and related equipment 8–40 7,468 7,569
Machinery and equipment 4–20 20,833 20,714
Leasehold costs and manufacturing plant under construction 1–10 1,986 1,431
30,860 30,276
GECS (b)
Land and improvements, buildings, structures and related equipment 1–37 (a) 3,523 5,713
Equipment leased to others
Aircraft 19–21 45,674 42,634
Vehicles 1–23 17,216 21,589
Railroad rolling stock 5–50 4,331 4,290
Marine shipping containers 3–30 2,748 2,727
Construction and manufacturing 1–30 2,586 2,759
All other 4–25 3,107 2,921
79,185 82,633
Total $110,045 $112,909
NET CARRYING VALUE
GE
Land and improvements $ 550 $ 527
Buildings, structures and related equipment 3,617 3,812
Machinery and equipment 6,551 6,932
Leasehold costs and manufacturing plant under construction 1,726 1,224
12,444 12,495
GECS (b)
Land and improvements, buildings, structures and related equipment 1,667 3,543
Equipment leased to others
Aircraft (c) 34,665 32,983
Vehicles 9,077 11,519
Railroad rolling stock 2,960 2,887
Marine shipping containers 1,924 1,894
Construction and manufacturing 1,454 1,697
All other 2,023 1,952
53,770 56,475
Total $ 66,214 $ 68,970
(a) Depreciable lives exclude land.
(b) Included $1,571 million and $1,609 million of original cost of assets leased to GE
with accumulated amortization of $531 million and $572 million at December 31,
2010 and 2009, respectively.
(c) The GECAS business of GE Capital recognized impairment losses of $438 million in
2010 and $127 million in 2009 recorded in the caption “Other costs and expenses”
in the Statement of Earnings to reflect adjustments to fair value based on an
evaluation of average current market values (obtained from third parties) of similar
type and age aircraft, which are adjusted for the attributes of the specific aircraft
under lease.
GE 2010 ANNUAL REPORT 91
notes to consolidated financial statements
On June 25, 2009, we increased our ownership in BAC from
49.99% to 75% for a purchase price of $623 million following the
terms of our 2006 investment agreement (BAC Investment
Agreement) with the then controlling shareholder. At that time,
we remeasured our previously held equity investment to fair
value, resulting in a pre-tax gain of $343 million. This transaction
required us to consolidate BAC, which was previously accounted
for under the equity method.
In accordance with our stated plan to reduce GE Capital end-
ing net investment, we exited this business during 2010, and
completed the sale of BAC for $1,920 million in December 2010. In
accordance with the terms of the BAC Investment Agreement and
prior to completing the sale, we acquired the remaining 25%
interest in BAC for a purchase price of $633 million. As a result of
the sale of our 100% ownership interest in BAC, we recognized an
after-tax gain of $780 million in 2010, which was recorded in
discontinued operations. Goodwill related to new acquisitions in
2009 includes $1,083 million related to BAC, which represents the
difference between the amount of goodwill initially recorded in
2009 upon BAC consolidation ($1,605 million), and the amount of
goodwill reclassified to discontinued operations based on a
relative fair value allocation ($522 million), as required under
ASC 350-20-35.
On March 20, 2009, we increased our ownership in ATI-
Singapore from 49% to 100% and concurrently acquired from the
same seller a controlling financial interest in certain affiliates. We
remeasured our previous equity interests to fair value, resulting in
a pre-tax gain of $254 million, which is reported in other income.
We test goodwill for impairment annually and more frequently
if circumstances warrant. We determine fair values for each of the
reporting units using an income approach. When available and
appropriate, we use comparative market multiples to corroborate
discounted cash flow results. For purposes of the income
approach, fair value is determined based on the present value of
estimated future cash flows, discounted at an appropriate risk-
adjusted rate. We use our internal forecasts to estimate future
cash flows and include an estimate of long-term future growth
rates based on our most recent views of the long-term outlook for
Upon closing an acquisition, we estimate the fair values of assets
and liabilities acquired and consolidate the acquisition as quickly
as possible. Given the time it takes to obtain pertinent information
to finalize the acquired company’s balance sheet, then to adjust
the acquired company’s accounting policies, procedures, and
books and records to our standards, it is often several quarters
before we are able to finalize those initial fair value estimates.
Accordingly, it is not uncommon for our initial estimates to be
subsequently revised.
Goodwill related to new acquisitions in 2010 was $507 million
and included the acquisition of Clarient, Inc. ($425 million) at
$603 million during 2010, primarily as a result of the deconsoli-
dation of Regency Energy Partners L.P. (Regency) at GE Capital
($557 million) and the stronger U.S. dollar ($260 million).
Goodwill related to new acquisitions in 2009 was $3,418 million
and included acquisitions of Interbanca S.p.A. ($1,394 million) and
BAC ($1,083 million) at GE Capital and Airfoils Technologies
International—Singapore Pte. Ltd. (ATI-Singapore) ($342 million) at
Technology Infrastructure. During 2009, the goodwill balance
increased by $128 million related to acquisition accounting adjust-
ments for prior-year acquisitions. The most significant of these
adjustments was an increase of $180 million associated with the
2008 acquisition of CitiCapital at GE Capital, partially offset by a
decrease of $141 million associated with the 2008 acquisition of
Hydril Pressure Control by Energy Infrastructure. Also during 2009,
goodwill balances decreased $20,094 million, primarily as a result
of NBCU and our Security business being classified as held for sale
($19,001 million) and ($1,077 million), respectively, by the decon-
solidation of Penske Truck Leasing Co., L.P. (PTL) ($634 million) at
GE Capital and the disposition of 81% of GE Homeland Protection,
Inc. ($423 million), partially offset by the weaker U.S. dollar
($1,666 million).
On May 26, 2010, we sold our general partnership interest in
Regency, a midstream natural gas services provider, and retained
a 21% limited partnership interest. This resulted in the deconsoli-
dation of Regency and the remeasurement of our limited
partner ship interest to fair value. We recorded a pre-tax gain of
$119 million, which is reported in GECS revenues from services.
Changes in goodwill balances follow.
2010 2009
Dispositions, Dispositions, currency currency Balance at exchange Balance at Balance at exchange Balance at (In millions) January 1 Acquisitions and other December 31 January 1 Acquisitions and other December 31
TOTAL BORROWINGS AND BANK DEPOSITS $478,640 $503,443
(a) Based on year-end balances and year-end local currency interest rates. Current portion of long-term debt included the effects of related fair value interest rate and currency
hedges, if any, directly associated with the original debt issuance.
(b) GECC had issued and outstanding $53,495 million and $59,336 million of senior, unsecured debt that was guaranteed by the Federal Deposit Insurance Corporation (FDIC) under
the Temporary Liquidity Guarantee Program at December 31, 2010 and 2009, respectively. Of the above amounts, $18,455 million and $5,841 million are included in current
portion of long-term borrowings at December 31, 2010 and 2009, respectively.
(c) Included in total long-term borrowings were $2,395 million and $3,138 million of obligations to holders of GICs at December 31, 2010 and 2009, respectively. If the long-term
credit rating of GECC were to fall below AA-/Aa3 or its short-term credit rating were to fall below A-1+/P-1, GECC could be required to provide up to approximately $2,300 million
as of December 31, 2010, to repay holders of GICs.
(d) Included $11,135 million and $10,604 million of funding secured by real estate, aircraft and other collateral at December 31, 2010 and 2009, respectively, of which $4,671 million
and $5,667 million is non-recourse to GECS at December 31, 2010 and 2009, respectively.
(f) Included $417 million of subordinated notes guaranteed by GE at both December 31, 2010 and 2009.
(g) Subordinated debentures receive rating agency equity credit and were hedged at issuance to the U.S. dollar equivalent of $7,725 million.
(h) Included $1,984 million and $1,649 million of covered bonds at December 31, 2010 and 2009, respectively. If the short-term credit rating of GECC were reduced below A-1/P-1,
GECC would be required to partially cash collateralize these bonds in an amount up to $764 million at December 31, 2010.
(i) Included at December 31, 2010 was $10,499 million of current portion of long-term borrowings and $19,561 million of long-term borrowings related to former QSPEs
consolidated on January 1, 2010 upon our adoption of ASU 2009-16 & 17, previously consolidated liquidating securitization entities and other on-book securitization borrowings.
Included at December 31, 2009, was $2,424 million of commercial paper, $378 million of current portion of long-term borrowings and $1,081 million of long-term borrowings
issued by consolidated liquidating securitization entities. See Note 24.
(j) Included $18,781 million and $15,848 million of deposits in non-U.S. banks at December 31, 2010 and 2009, respectively, and $11,329 million and $10,476 million of certificates
of deposits distributed by brokers with maturities greater than one year at December 31, 2010 and 2009, respectively.
Additional information about borrowings and associated swaps can be found in Note 22.
GE 2010 ANNUAL REPORT 95
notes to consolidated financial statements
are included in the caption “Other GECS receivables” on our
Statement of Financial Position, and amounted to $1,284 million
and $1,188 million at December 31, 2010 and 2009, respectively.
We recognize reinsurance recoveries as a reduction of the
Statement of Earnings caption “Investment contracts, insurance
losses and insurance annuity benefits.” Reinsurance recoveries
were $174 million, $219 million and $221 million for the years
ended December 31, 2010, 2009 and 2008, respectively.
Note 12.
Postretirement Benefit Plans
Pension BenefitsWe sponsor a number of pension plans. Principal pension plans,
together with affiliate and certain other pension plans (other
pension plans) detailed in this note, represent about 99% of our
total pension assets. We use a December 31 measurement date
for our plans.
PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE
Supplementary Pension Plan.
The GE Pension Plan provides benefits to certain U.S. employ-
ees based on the greater of a formula recognizing career earnings
or a formula recognizing length of service and final average
earnings. Certain benefit provisions are subject to collective
bargaining. Effective January 1, 2011, salaried employees who
commence service on or after that date will not be eligible to
participate in the GE Pension Plan, but will participate in a defined
contribution retirement plan.
The GE Supplementary Pension Plan is an unfunded plan
providing supplementary retirement benefits primarily to higher-
level, longer-service U.S. employees.
OTHER PENSION PLANS in 2010 included 33 U.S. and non-U.S.
pension plans with pension assets or obligations greater than
$50 million. These defined benefit plans provide benefits to
employees based on formulas recognizing length of service
and earnings.
PENSION PLAN PARTICIPANTS
Principal Other pension pension December 31, 2010 Total plans plans
Active employees 154,000 120,000 34,000
Vested former employees 230,000 190,000 40,000
Retirees and beneficiaries 256,000 230,000 26,000
Total 640,000 540,000 100,000
LIQUIDITY is affected by debt maturities and our ability to repay or
refinance such debt. Long-term debt maturities over the next five
years follow.
(In millions) 2011 2012 2013 2014 2015
GE $ 21 $ 414 $ 5,033 $ 24 $ 25
GECS 65,612 (a) 83,299 35,004 29,619 21,755
(a) Fixed and floating rate notes of $710 million contain put options with exercise
dates in 2011, and which have final maturity beyond 2015.
Committed credit lines totaling $51.8 billion had been extended
to us by 58 banks at year-end 2010. Availability of these lines is
shared between GE and GECS with $10.6 billion and $51.8 billion
available to GE and GECS, respectively. The GECS lines include
$35.6 billion of revolving credit agreements under which we
can borrow funds for periods exceeding one year. Additionally,
$16.2 billion are 364-day lines that contain a term-out feature that
allows GE or GECS to extend the borrowings for one year from the
date of expiration of the lending agreement. We pay banks for
credit facilities, but amounts were insignificant in each of the
past three years.
Note 11.
GECS Investment Contracts, Insurance Liabilities and Insurance Annuity Benefits
GECS investment contracts, insurance liabilities and insurance
annuity benefits comprise mainly obligations to annuitants and
policyholders in our run-off insurance operations and holders of
guaranteed investment contracts.
December 31 (In millions) 2010 2009
Investment contracts $ 3,726 $ 3,940
Guaranteed investment contracts 5,502 8,310
Total investment contracts 9,228 12,250
Life insurance benefits (a) 17,640 16,847
Unpaid claims and claims adjustment expenses 2,437 2,102
Unearned premiums 426 532
Universal life benefits 262 278
Total $29,993 $32,009
(a) Life insurance benefits are accounted for mainly by a net-level-premium method
using estimated yields generally ranging from 3.0% to 8.5% in both 2010 and 2009.
When insurance affiliates cede insurance to third parties, such
as reinsurers, they are not relieved of their primary obligation
to policyholders. Losses on ceded risks give rise to claims for
recovery; we establish allowances for probable losses on such
receivables from reinsurers as required. Reinsurance recoverables
96 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
PROJECTED BENEFIT OBLIGATION
Principal pension plans Other pension plans
(In millions) 2010 2009 2010 2009
Balance at January 1 $48,117 $45,168 $9,597 $7,748
Service cost for benefits earned 1,149 1,609 277 297
Interest cost on benefit obligations 2,693 2,669 486 460
Participant contributions 166 167 33 35
Plan amendments — — 23 3
Actuarial loss (gain) 2,799 (a) 1,331 (a) (12) 1,113
Benefits paid (2,925) (2,827) (421) (398)
Acquisitions (dispositions)—net — — 50 (219)
Exchange rate adjustments — — (126) 558
Balance at December 31 (b) $51,999 $48,117 $9,907 $9,597
(a) Principally associated with discount rate changes.
(b) The PBO for the GE Supplementary Pension Plan, which is an unfunded plan, was
$4,430 million and $3,828 million at year-end 2010 and 2009, respectively.
ACCUMULATED BENEFIT OBLIGATION
December 31 (In millions) 2010 2009
GE Pension Plan $46,046 $42,917
GE Supplementary Pension Plan 3,296 2,901
Other pension plans 9,134 8,947
PLANS WITH ASSETS LESS THAN ABO
December 31 (In millions) 2010 2009
Funded plans with assets less than ABO
Plan assets $51,286 $47,740
Accumulated benefit obligations 53,350 49,948
Projected benefit obligations 55,502 51,837
Unfunded plans (a)
Accumulated benefit obligations $ 4,086 $ 3,725
Projected benefit obligations 5,247 4,675
(a) Primarily related to the GE Supplementary Pension Plan.
To determine the expected long-term rate of return on pension
plan assets, we consider current and expected asset allocations,
as well as historical and expected returns on various categories
of plan assets. In developing future return expectations for our
principal benefit plans’ assets, we evaluate general market trends
as well as key elements of asset class returns such as expected
earnings growth, yields and spreads. Based on our analysis of
future expectations of asset performance, past return results, and
our current and expected asset allocations, we have assumed an
8.0% long-term expected return on those assets for cost recogni-
tion in 2011. This is a reduction from the 8.5% we had assumed in
2010, 2009 and 2008. For the principal pension plans, we apply
our expected rate of return to a market-related value of assets,
which stabilizes variability in the amounts to which we apply that
expected return.
We amortize experience gains and losses as well as the effects
of changes in actuarial assumptions and plan provisions over a
period no longer than the average future service of employees.
FUNDING POLICY for the GE Pension Plan is to contribute amounts
sufficient to meet minimum funding requirements as set forth in
employee benefit and tax laws plus such additional amounts as
we may determine to be appropriate. We have not made contri-
butions to the GE Pension Plan since 1987 and will not make any
such contributions in 2011. In 2011, we expect to pay approxi-
mately $200 million for benefit payments under our GE
Supplementary Pension Plan and administrative expenses of our
principal pension plans and expect to contribute approximately
$670 million to other pension plans. In 2010, comparative
amounts were $183 million and $573 million, respectively.
BENEFIT OBLIGATIONS are described in the following tables.
Accumulated and projected benefit obligations (ABO and PBO)
represent the obligations of a pension plan for past service as
of the measurement date. ABO is the present value of benefits
earned to date with benefits computed based on current com-
pensation levels. PBO is ABO increased to reflect expected
(a) In 2009, included a $103 million loss as a result of our agreement with Comcast Corporation to transfer the NBCU business to a newly formed entity in which we will own
a 49% interest.
ACTUARIAL ASSUMPTIONS are described below. The actuarial assumptions at December 31 are used to measure the year-end benefit
obligations and the pension costs for the subsequent year.
Principal pension plans Other pension plans (weighted average)
December 31 2010 2009 2008 2007 2010 2009 2008 2007
include preserving the funded status of the plan and balancing
risk and return. Target allocation percentages are established at
an asset class level by plan fiduciaries. Target allocation ranges
are guidelines, not limitations, and occasionally plan fiduciaries
will approve allocations above or below a target range.
GE Pension Trust assets are invested subject to the following
additional guidelines:
• Short-term securities must generally be rated A1/P1 or better,
except for 15% of such securities that may be rated A2/P2 and
other short-term securities as may be approved by the plan
fiduciaries.
• Real estate investments may not exceed 25% of total assets.
• Investments in restricted securities (excluding real estate invest-
ments) that are not freely tradable may not exceed 30% of total
assets (actual was 18% of trust assets at December 31, 2010).
98 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
The following tables present the changes in Level 3 investments for the GE Pension Plan.
CHANGES IN LEVEL 3 INVESTMENTS FOR THE YEAR ENDED DECEMBER 31, 2010
Net change in unrealized gains (losses) relating to Purchases, Transfers investments Net realized/ issuances in and/or still held at January 1, unrealized and out of December 31, December 31, (In millions) 2010 gains (losses) settlements Level 3 (a) 2010 2010 (b)
DEBT SECURITIES
Fixed income and cash investment funds $ 46 $ 16 $ 3 $ — $ 65 $ 15
U.S. corporate 6 7 (9) 1 5 1
Residential mortgage-backed 220 6 (211) 6 21 1
Other debt securities 231 17 41 (6) 283 15
PRIVATE EQUITIES 5,339 748 (73) — 6,014 694
REAL ESTATE 2,775 381 217 — 3,373 251
OTHER INVESTMENTS 1,537 132 65 (47) 1,687 156
$10,154 $1,307 $ 33 $(46) $11,448 $1,133
(a) Transfers in and out of Level 3 are considered to occur at the beginning of the period.
(b) The net change in unrealized gains (losses) was included in the year-end asset value.
CHANGES IN LEVEL 3 INVESTMENTS FOR THE YEAR ENDED DECEMBER 31, 2009
Net change in unrealized gains (losses) relating to Purchases, Transfers investments Net realized/ issuances in and/or still held at January 1, unrealized and out of December 31, December 31, (In millions) 2009 gains (losses) settlements Level 3 (a) 2009 2009 (b)
Actual income tax rate 7.4% (11.5)% 5.6% 13.3% 19.8% 15.7% (44.8)% 152.0% (41.4)%
(a) 2009 included (7.0)% and 27.4% from indefinite reinvestment of prior-year earnings for consolidated and GECS, respectively.
(b) 2008 included (1.8)% and (6.2)% from indefinite reinvestment of prior-year earnings for consolidated and GECS, respectively.
104 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
Note 15.
Shareowners’ Equity
(In millions) 2010 2009 2008
PREFERRED STOCK ISSUED (a) (b) (c) $ — $ — $ —
COMMON STOCK ISSUED (a) (b) $ 702 $ 702 $ 702
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at January 1 (d) $ (15,530) $ (21,853) $ 8,324
Investment securities—net of deferred taxes of $72, $1,001 and $(2,528) (e) (43) 2,678 (3,813)
Currency translation adjustments—net of deferred taxes of $3,742, $(611) and $4,082 (3,879) 4,174 (10,890)
Cash flow hedges—net of deferred taxes of $(515), $933 and $(2,307) (603) 986 (4,907)
Benefit plans—net of deferred taxes of $572, $(5) and $(7,379) (f) 1,079 (1,804) (13,288)
Reclassification adjustments
Investment securities—net of deferred taxes of $32, $494 and $734 59 (19) 595
Currency translation adjustments 5 (39) (117)
Cash flow hedges—net of deferred taxes of $706, $428 and $620 1,057 612 2,243
Balance at December 31 $ (17,855) $ (15,265) $ (21,853)
OTHER CAPITAL
Balance at January 1 $ 37,729 $ 40,390 $ 26,100
Common stock issuance (b) — — 11,972
Preferred stock and warrant issuance (b) — — 2,965
Gains (losses) on treasury stock dispositions and other (b) (839) (2,661) (647)
Balance at December 31 $ 36,890 $ 37,729 $ 40,390
RETAINED EARNINGS
Balance at January 1 (g) $124,655 $122,185 $117,362
Net earnings attributable to the Company 11,644 11,025 17,410
Dividends (b) (h) (5,212) (6,785) (12,649)
Other (b) (i) 50 (62) —
Balance at December 31 $131,137 $126,363 $122,123
COMMON STOCK HELD IN TREASURY
Balance at January 1 $ (32,238) $ (36,697) $ (36,896)
Purchases (b) (1,890) (214) (3,508)
Dispositions (b) 2,190 4,673 3,707
Balance at December 31 $ (31,938) $ (32,238) $ (36,697)
TOTAL EQUITY
GE shareowners’ equity balance at December 31 $118,936 $117,291 $104,665
Noncontrolling interests balance at December 31 5,262 7,845 8,947
Total equity balance at December 31 $124,198 $125,136 $113,612
(a) Additions resulting from issuances in 2008 were inconsequential for preferred stock and $33 million for common stock.
(b) Total dividends and other transactions with shareowners, inclusive of additions to par value discussed in note (a), decreased equity by $(5,701) million in 2010, decreased equity
by $(5,049) million in 2009 and increased equity by $1,873 million in 2008.
(c) GE has 50 million authorized shares of preferred stock ($1.00 par value) and has issued 30 thousand shares as of December 31, 2010.
(d) The 2010 opening balance was adjusted as of January 1, 2010, for the cumulative effect of changes in accounting principles of $265 million related to the adoption of
ASU 2009-16 & 17.
(e) Includes adjustments of $1,171 million as of December 31, 2010 to deferred acquisition costs, present value of future profits, and investment contracts, insurance liabilities and
insurance annuity benefits in our run-off insurance operation to reflect the effects that would have been recognized had the related unrealized investment securities holding
gains and losses actually been realized in accordance with ASC 320-10-S99-2.
(f) For 2010, included $(3) million of prior service costs for plan amendments, $513 million of amortization of prior service costs, $(487) million of gains (losses) arising during the
year and $1,056 million of amortization of gains (losses)—net of deferred taxes of $1 million, $346 million, $(261) million and $486 million, respectively. For 2009, included
$(9) million of prior service costs for plan amendments, $814 million of amortization of prior service costs, $(2,793) million of gains (losses) arising during the year and
$184 million of amortization of gains (losses)—net of deferred taxes of $(10) million, $434 million, $(528) million and $99 million, respectively. For 2008, included $(43) million of
prior service costs for plan amendments, $534 million of amortization of prior service costs, $(13,980) million of gains (losses) arising during the year and $201 million of
amortization of gains (losses)—net of deferred taxes of $(24) million, $441 million, $(7,893) million and $97 million, respectively.
(g) The 2010 opening balance was adjusted as of January 1, 2010, for the cumulative effect of changes in accounting principles of $1,708 million related to the adoption of
ASU 2009-16 & 17. The 2009 opening balance was adjusted as of April 1, 2009, for the cumulative effect of changes in accounting principles of $62 million related to adopting
amendments on impairment guidance in ASC 320, Investments—Debt and Equity Securities. The cumulative effect of adopting ASC 825, Financial Instruments, at January 1,
2008, was insignificant.
(h) Included $300 million, $300 million and $75 million of dividends on preferred stock in 2010, 2009 and 2008, respectively.
(i) Included the effects of accretion of redeemable securities to their redemption value of $38 million and $(62) million in 2010 and 2009, respectively.
GE 2010 ANNUAL REPORT 105
notes to consolidated financial statements
SHARES OF GE PREFERRED STOCK
On October 16, 2008, we issued 30,000 shares of 10% cumulative
perpetual preferred stock (par value $1.00 per share) having an
aggregate liquidation value of $3.0 billion, and warrants to pur-
chase 134,831,460 shares of common stock (par value $0.06 per
share) for aggregate proceeds of $3.0 billion in cash. The proceeds
were allocated to the preferred shares ($2.5 billion) and the war-
rants ($0.5 billion) on a relative fair value basis and recorded in
other capital. The preferred stock is redeemable at our option
three years after issuance at a price of 110% of liquidation value
plus accrued and unpaid dividends. The warrants are exercisable
for five years at an exercise price of $22.25 per share of common
stock and are settled through physical share issuance. Upon
redemption of the preferred shares, the difference between
the redemption amount and the carrying amount of the preferred
stock will be recorded as a reduction of retained earnings and
considered a deemed dividend for purposes of computing earn-
ings per share.
SHARES OF GE COMMON STOCK
On September 25, 2008, we suspended our three-year, $15 billion
share repurchase program, which was initiated in December 2007.
On July 23, 2010, we extended the program, which would have
otherwise expired on December 31, 2010, through 2013 and we
resumed purchases under the program in the third quarter of
2010. Under this program, on a book basis, we repurchased
111.2 million shares for a total of $1,814 million during 2010.
On October 7, 2008, GE completed an offering of 547.8 million
shares of common stock at a price of $22.25 per share.
GE has 13.2 billion authorized shares of common stock
($0.06 par value).
Common shares issued and outstanding are summarized in
the following table.
December 31 (In thousands) 2010 2009 2008
Issued 11,693,841 11,693,833 11,693,829
In treasury (1,078,465) (1,030,758) (1,156,932)
Outstanding 10,615,376 10,663,075 10,536,897
NONCONTROLLING INTERESTS
Noncontrolling interests in equity of consolidated affiliates
includes common shares in consolidated affiliates and preferred
stock issued by affiliates of GECC. Preferred shares that we are
required to redeem at a specified or determinable date are classi-
fied as liabilities. The balance is summarized as follows:
December 31 (In millions) 2010 2009
Noncontrolling interests in consolidated affiliates
NBC Universal $3,040 $4,937
Others (a) 1,945 2,631
Preferred stock (b)
GECC affiliates 277 277
Total $5,262 $7,845
(a) Included noncontrolling interests in partnerships and common shares of
consolidated affiliates.
(b) The preferred stock pays cumulative dividends at an average rate of 6.81%.
Changes to noncontrolling interests are as follows.
Years ended December 31
(In millions) 2010 2009
Beginning balance $ 7,845 $8,947
Net earnings 535 200
Repurchase of NBCU shares (a) (1,878) —
Dispositions (b) (979) (707)
Dividends (317) (548)
AOCI and other (c) 56 (47)
Ending balance $ 5,262 $7,845
(a) On September 26, 2010, we acquired 7.7% of NBCU’s outstanding shares from
Vivendi for $2,000 million, of which $1,878 million was recorded as a reduction in
noncontrolling interests and $151 million was recorded as a reduction in additional
paid-in capital reflecting the amount paid in excess of the carrying value of the
noncontrolling interest.
(b) Includes the effects of deconsolidating both Regency $(979) million during the
second quarter of 2010 and PTL $(331) million during the first quarter of 2009.
(c) Changes to the individual components of AOCI attributable to noncontrolling
interests were insignificant.
Note 16.
Other Stock-Related Information
We grant stock options, restricted stock units (RSUs) and
performance share units (PSUs) to employees under the 2007
Long-Term Incentive Plan. This plan replaced the 1990 Long-Term
Incentive Plan. In addition, we grant options and RSUs in limited
circumstances to consultants, advisors and independent contrac-
tors (primarily non-employee talent at NBC Universal) under a
plan approved by our Board of Directors in 1997 (the consultants’
plan). There are outstanding grants under one shareowner-
approved option plan for non-employee directors. Share
requirements for all plans may be met from either unissued
or treasury shares. Stock options expire 10 years from the date
they are granted and vest over service periods that range from
one to five years. RSUs give the recipients the right to receive
shares of our stock upon the vesting of their related restrictions.
Restrictions on RSUs vest in various increments and at various
dates, beginning after one year from date of grant through
grantee retirement. Although the plan permits us to issue RSUs
settleable in cash, we have only issued RSUs settleable in shares
of our stock. PSUs give recipients the right to receive shares of
our stock upon the achievement of certain performance targets.
All grants of GE options under all plans must be approved by
the Management Development and Compensation Committee,
which consists entirely of independent directors.
106 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
We measure the fair value of each stock option grant at the date
of grant using a Black-Scholes option pricing model. The weighted
average grant-date fair value of options granted during 2010,
2009 and 2008 was $4.11, $3.81 and $5.26, respectively. The
following assumptions were used in arriving at the fair value of
options granted during 2010, 2009 and 2008, respectively: risk-
free interest rates of 2.9%, 3.2% and 3.4%; dividend yields of 3.9%,
3.9% and 4.4%; expected volatility of 35%, 49% and 27%; and
expected lives of six years and eleven months, six years and ten
months, and six years and nine months. Risk-free interest rates
reflect the yield on zero-coupon U.S. Treasury securities. Expected
dividend yields presume a set dividend rate. For stock options
granted in 2010, 2009 and the fourth quarter of 2008, we used a
historical five-year average for the dividend yield. Expected vola-
tilities are based on implied volatilities from traded options and
historical volatility of our stock. The expected option lives are
based on our historical experience of employee exercise behavior.
The total intrinsic value of options exercised during 2010, 2009
and 2008 amounted to $23 million, an insignificant amount and
$45 million, respectively. As of December 31, 2010, there was
$697 million of total unrecognized compensation cost related to
nonvested options. That cost is expected to be recognized over a
weighted average period of two years, of which approximately
$236 million, pre tax, is expected to be recognized in 2011.
Stock option expense recognized in net earnings amounted to
$178 million in 2010, $120 million in 2009 and $69 million in 2008.
Cash received from option exercises during 2010, 2009 and 2008
was $37 million, an insignificant amount and $353 million, respec-
tively. The tax benefit realized from stock options exercised during
2010, 2009 and 2008 was $7 million, an insignificant amount and
$15 million, respectively.
OTHER STOCK-BASED COMPENSATION
Weighted Weighted average Aggregate average remaining intrinsic Shares grant date contractual value (In thousands) fair value term (In years) (In millions)
RSUs outstanding at January 1, 2010 25,861 $31.98
Granted 3,245 15.89
Vested (6,754) 33.38
Forfeited (781) 30.98
RSUs outstanding at December 31, 2010 21,571 $29.16 2.5 $395
RSUs expected to vest 19,773 $29.24 2.4 $362
STOCK COMPENSATION PLANS Securities to be Weighted Securities issued average available upon exercise for future December 31, 2010 (Shares in thousands) exercise price issuance
APPROVED BY SHAREOWNERS
Options 399,991 $20.81 (a)
RSUs 21,468 (b) (a)
PSUs 700 (b) (a)
NOT APPROVED BY SHAREOWNERS
(CONSULTANTS’ PLAN)
Options 448 29.39 (c)
RSUs 103 (b) (c)
Total 422,710 $20.82 213,047
(a) In 2007, the Board of Directors approved the 2007 Long-Term Incentive Plan (the
Plan). The Plan replaced the 1990 Long-Term Incentive Plan. The maximum number
of shares that may be granted under the Plan is 500 million shares, of which no
more than 250 million may be available for awards granted in any form provided
under the Plan other than options or stock appreciation rights. The approximate
105.9 million shares available for grant under the 1990 Plan were retired upon
approval of the 2007 Plan. Total shares available for future issuance under the
2007 Plan amounted to 184.8 million shares at December 31, 2010.
(b) Not applicable.
(c) Total shares available for future issuance under the consultants’ plan amount to
28.2 million shares.
Outstanding options expire on various dates through
December 9, 2020.
The following table summarizes information about stock
options outstanding at December 31, 2010.
STOCK OPTIONS OUTSTANDING
(Shares in thousands) Outstanding Exercisable
Average Average Average exercise exercise Exercise price range Shares life (a) price Shares price
Under $10.00 64,595 8.1 $ 9.57 13,061 $ 9.57
10.01–15.00 83,081 8.5 11.97 17,093 11.97
15.01–20.00 104,149 9.4 16.22 173 17.56
20.01–25.00 55 1.9 22.49 55 22.49
25.01–30.00 47,745 4.4 27.62 35,404 27.40
30.01–35.00 49,487 4.1 33.21 46,629 33.16
Over $35.00 51,327 2.3 40.38 45,872 40.57
Total 400,439 6.8 $20.82 158,287 $29.76
At year-end 2009, options with an average exercise price of $36.94 were exercisable
on 147 million shares.
(a) Average contractual life remaining in years.
STOCK OPTION ACTIVITY Weighted Weighted average Aggregate average remaining intrinsic Shares exercise contractual value (In thousands) price term (In years) (In millions)
Outstanding at January 1, 2010 338,163 $24.41
Granted 105,227 16.22
Exercised (3,449) 10.65
Forfeited (8,223) 15.26
Expired (31,279) 46.66
Outstanding at December 31, 2010 400,439 $20.82 6.8 $1,312
Exercisable at December 31, 2010 158,287 $29.76 4.0 $ 222
Options expected to vest 213,267 $15.04 8.7 $ 962
GE 2010 ANNUAL REPORT 107
notes to consolidated financial statements
Note 18.
GECS Revenues from Services
(In millions) 2010 2009 2008
Interest on loans (a) $21,344 $19,205 $26,378
Equipment leased to others 11,116 12,231 15,568
Fees (a) 4,785 4,516 6,062
Financing leases (a) 2,805 3,317 4,374
Investment income (a)(b) 2,185 3,379 2,189
Associated companies 2,035 1,007 2,058
Premiums earned by insurance activities 2,014 2,065 2,255
Real estate investments 1,240 1,543 3,505
Net securitization gains (a) — 1,589 1,133
Other items (c) 2,442 2,836 5,058
Total $49,966 $51,688 $68,580
(a) On January 1, 2010, we adopted ASU 2009-16 & 17, which required us to
consolidate substantially all of our former QSPEs. As a result, 2010 GECS revenues
from services include interest, investment and fee income from these entities,
which were not presented on a consolidated basis in 2009. During 2010, we
recognized no gains from securitization transactions, as they were recorded
as on-book financings. See Note 24.
(b) Included net other-than-temporary impairments on investment securities of
$253 million and $581 million in 2010 and 2009, respectively. See Note 3.
(c) Included a gain on the sale of a limited partnership interest in PTL and a related
gain on the remeasurement of the retained investment to fair value totaling
$296 million in the first quarter of 2009. See Note 24.
Note 19.
Supplemental Cost Information
We funded research and development expenditures of $3,939 mil-
lion in 2010, $3,288 million in 2009 and $3,113 million in 2008.
Research and development costs are classified in cost of goods
sold in the Statement of Earnings. In addition, research and devel-
opment funding from customers, principally the U.S. government,
totaled $979 million, $1,050 million and $1,287 million in 2010,
2009 and 2008, respectively.
Rental expense under operating leases is shown below.
(In millions) 2010 2009 2008
GE $1,073 $1,012 $912
GECS 640 802 992
At December 31, 2010, minimum rental commitments under
noncancellable operating leases aggregated $2,397 million and
$2,380 million for GE and GECS, respectively. Amounts payable
over the next five years follow.
(In millions) 2011 2012 2013 2014 2015
GE $613 $470 $355 $286 $212
GECS 517 466 306 223 180
The fair value of each restricted stock unit is the market price of
our stock on the date of grant. The weighted average grant date
fair value of RSUs granted during 2010, 2009 and 2008 was
$15.89, $13.63 and $28.74, respectively. The total intrinsic value
of RSUs vested during 2010, 2009 and 2008 amounted to
$111 million, $139 million and $274 million, respectively. As of
December 31, 2010, there was $334 million of total unrecognized
compensation cost related to nonvested RSUs. That cost is
expected to be recognized over a weighted average period of two
years, of which approximately $147 million, pre tax, is expected to
be recognized in 2011. As of December 31, 2010, 0.7 million PSUs
with a weighted average remaining contractual term of two years,
an aggregate intrinsic value of $13 million and $2 million of unrec-
ognized compensation cost were outstanding. Other share-based
compensation expense for RSUs and PSUs recognized in net
earnings amounted to $116 million, $127 million and $155 million
in 2010, 2009 and 2008, respectively.
The total income tax benefit recognized in earnings for all share-
based compensation arrangements amounted to $143 million,
$118 million and $106 million in 2010, 2009 and 2008, respectively.
When stock options are exercised and restricted stock vests,
the difference between the assumed tax benefit and the actual
tax benefit must be recognized in our financial statements. In
circumstances in which the actual tax benefit is lower than the
estimated tax benefit, that difference is recorded in equity, to
the extent there are sufficient accumulated excess tax benefits.
At December 31, 2010, our accumulated excess tax benefits are
sufficient to absorb any future differences between actual and
estimated tax benefits for all of our outstanding option and
restricted stock grants.
Note 17.
Other Income
(In millions) 2010 2009 2008
GE
Associated companies (a) $ 413 $ 667 $ 332
Licensing and royalty income 364 217 291
Purchases and sales of business interests 319 363 891
Interest income from GECS 133 173 371
Marketable securities and bank deposits 40 54 196
Other items 16 (295) (116)
1,285 1,179 1,965
ELIMINATIONS (134) (173) (379)
Total $1,151 $1,006 $1,586
(a) Included a gain of $552 million related to dilution of our interest in A&E Television
Network from 25% to 15.8% in 2009.
108 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
Note 20.
Earnings Per Share Information
2010 2009 2008
(In millions; per-share amounts in dollars) Diluted Basic Diluted Basic Diluted Basic
AMOUNTS ATTRIBUTABLE TO THE COMPANY:
CONSOLIDATED
Earnings from continuing operations for per-share calculation (a) (b) $12,599 $12,598 $10,914 $10,913 $18,028 $18,027
Effective January 1, 2009, our unvested restricted stock unit awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities
and, therefore, are included in the computation of earnings per share pursuant to the two-class method. Application of this treatment had an insignificant effect.
(a) Included an insignificant amount of dividend equivalents in each of the three years presented.
(b) Included an insignificant amount related to accretion of redeemable securities in 2010 and 2009.
For the years ended December 31, 2010, 2009 and 2008, there
were approximately 344 million, 328 million and 204 million,
respectively, of outstanding stock awards that were not included
in the computation of diluted earnings per share because their
effect was antidilutive.
Earnings-per-share amounts are computed independently
for earnings from continuing operations, earnings (loss) from
discontinued operations and net earnings. As a result, the sum
of per-share amounts from continuing operations and discontin-
ued operations may not equal the total per-share amounts for
net earnings.
GE’s selling, general and administrative expenses totaled
$16,341 million in 2010, $14,842 million in 2009 and $14,401 mil-
lion in 2008. The increase in 2010 is primarily due to increased
selling expenses to support global growth and higher pension
costs, partially offset by lower restructuring and other charges.
Our Technology Infrastructure and Energy Infrastructure
segments enter into collaborative arrangements with manufac-
turers and suppliers of components used to build and maintain
certain engines, aeroderivatives and turbines, under which GE
Note 21.
Fair Value Measurements
For a description of how we estimate fair value, see Note 1.
The following tables present our assets and liabilities mea-
sured at fair value on a recurring basis. Included in the tables are
investment securities of $27,141 million and $25,729 million at
December 31, 2010 and 2009, respectively, primarily supporting
obligations to annuitants and policyholders in our run-off
insurance operations, and $5,706 million and $6,629 million at
December 31, 2010 and 2009, respectively, supporting obligations
to holders of GICs in Trinity (which ceased issuing new investment
contracts beginning in the first quarter of 2010), and investment
securities held at our global banks. Such securities are mainly
investment grade.
and these participants share in risks and rewards of these prod-
uct programs. Under these arrangements, participation fees
earned and recorded as other income totaled $4 million, $1 mil-
lion and $394 million for the years 2010, 2009 and 2008,
respectively. Payments to participants are recorded as costs of
services sold ($563 million, $504 million and $423 million for the
years 2010, 2009 and 2008, respectively) or as cost of goods sold
($1,751 million, $1,731 million and $1,882 million for the years
U.S. government and federal agency — 3,158 210 — 3,368
Retained interests (d) — — 39 — 39
Equity
Available-for-sale 677 20 24 — 721
Trading 417 — — — 417
Derivatives (e) — 10,997 359 (3,867) 7,489
Other (f) — — 906 — 906
Total $2,007 $44,934 $ 9,259 $(3,867) $52,333
LIABILITIES
Derivatives $ — $ 6,553 $ 103 $(3,857) $ 2,799
Other (g) — 920 — — 920
Total $ — $ 7,473 $ 103 $(3,857) $ 3,719
DECEMBER 31, 2009
ASSETS
Investment securities
Debt
U.S. corporate $ 555 $19,033 $ 3,068 $ — $22,656
State and municipal — 2,189 205 — 2,394
Residential mortgage-backed — 3,195 123 — 3,318
Commercial mortgage-backed — 2,647 58 — 2,705
Asset-backed — 860 1,874 — 2,734
Corporate—non-U.S. 154 755 1,114 — 2,023
Government—non-U.S. 1,114 1,374 163 — 2,651
U.S. government and federal agency 9 2,307 256 — 2,572
Retained interests — — 8,831 — 8,831
Equity
Available-for-sale 536 184 19 — 739
Trading 720 — — — 720
Derivatives (e) — 11,053 804 (3,851) 8,006
Other (f) — — 965 — 965
Total $3,088 $43,597 $17,480 $(3,851) $60,314
LIABILITIES
Derivatives $ — $ 7,298 $ 222 $(3,860) $ 3,660
Other (g) — 798 — — 798
Total $ — $ 8,096 $ 222 $(3,860) $ 4,458
(a) Included in Level 1 at December 31, 2010 was $76 million of available-for-sale equity transferred from Level 2 due to the expiration of sale restrictions on the security.
Additionally, $110 million of government non-U.S. bonds were reclassified from Level 1 to Level 2. Other transfers to and from Level 1 and Level 2 were insignificant.
(b) Level 3 investment securities valued using non-binding broker quotes totaled $1,054 million and $1,042 million at December 31, 2010 and 2009, respectively, and were
classified as available-for-sale securities.
(c) The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Included fair value adjustments related to our
own and counterparty credit risk.
(d) Substantially all of our retained interests were consolidated in connection with our adoption of ASU 2009-16 & 17 on January 1, 2010.
(e) The fair value of derivatives included an adjustment for non-performance risk. At December 31, 2010 and 2009, the cumulative adjustment was a loss of $10 million and a
gain of $9 million, respectively. See Note 22 for additional information on the composition of our derivative portfolio.
(f) Included private equity investments and loans designated under the fair value option.
(g) Primarily represented the liability associated with certain of our deferred incentive compensation plans.
110 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
The following tables present the changes in Level 3 instruments measured on a recurring basis for the years ended December 31, 2010
and 2009, respectively. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes
in fair value recorded in shareowners’ equity.
CHANGES IN LEVEL 3 INSTRUMENTS FOR THE YEAR ENDED DECEMBER 31, 2010
Net realized/ Net change unrealized in unrealized gains (losses) gains (losses) Net realized/ included in relating to unrealized accumulated Purchases, Transfers instruments gains (losses) other issuances in and/or still held at January 1, included in comprehensive and out of December 31, December 31, (In millions) 2010 (a) earnings (b) income settlements Level 3 (c) 2010 2010 (d)
U.S. government and federal agency 256 — (44) (2) — 210 —
Retained interests 45 (1) 3 (8) — 39 —
Equity
Available-for-sale 19 — 3 — 2 24 1
Trading — — — — — — —
Derivatives(e)(f) 236 220 15 (79) (127) 265 41
Other 891 5 (30) 40 — 906 3
Total $9,250 $319 $226 $ (301) $(329) $9,165 $45
(a) Included $1,015 million in debt securities, a reduction in retained interests of $8,782 million and a reduction in derivatives of $365 million related to adoption of
ASU 2009-16 & 17.
(b) Earnings effects are primarily included in the “GECS revenues from services” and “Interest and other financial charges” captions in the Statement of Earnings.
(c) Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent
pricing vendors based on recent trading activity.
(d) Represented the amount of unrealized gains or losses for the period included in earnings.
(e) Represented derivative assets net of derivative liabilities and included cash accruals of $9 million not reflected in the fair value hierarchy table.
(f) Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically
hedged. See Note 22.
GE 2010 ANNUAL REPORT 111
notes to consolidated financial statements
CHANGES IN LEVEL 3 INSTRUMENTS FOR THE YEAR ENDED DECEMBER 31, 2009
Net realized/ Net change unrealized in unrealized gains (losses) gains (losses) Net realized/ included in relating to unrealized accumulated Purchases, Transfers instruments gains (losses) other issuances in and/or still held at January 1, included in comprehensive and out of December 31, December 31, (In millions) 2009 earnings (a) income settlements Level 3 (b) 2009 2009 (c)
Total $15,064 $1,075 $1,101 $ 337 $(300) $17,277 $ 212
(a) Earnings effects are primarily included in the “GECS revenues from services” and “Interest and other financial charges” captions in the Statement of Earnings.
(b) Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing
vendors based on recent trading activity.
(c) Represented the amount of unrealized gains or losses for the period included in earnings.
(d) Primarily comprised of interest accretion.
(e) Represented derivative assets net of derivative liabilities and included cash accruals of $19 million not reflected in the fair value hierarchy table.
The following table represents the fair value adjustments to
assets measured at fair value on a non-recurring basis and still
held at December 31, 2010 and 2009.
Year ended December 31
(In millions) 2010 2009
Financing receivables and loans held for sale $(1,745) $(1,683)
Cost and equity method investments (a) (274) (921)
Long-lived assets, including real estate (b) (2,958) (1,107)
Retained investments in formerly consolidated subsidiaries 184 237
Total $(4,793) $(3,474)
(a) Includes fair value adjustments associated with private equity and real estate
funds of $(198) million and $(238) million during 2010 and 2009, respectively.
(b) Includes $2,089 million of impairments related to real estate equity properties and
investments recorded in other costs and expenses during 2010.
Non-Recurring Fair Value MeasurementsThe following table represents non-recurring fair value amounts
(as measured at the time of the adjustment) for those assets
remeasured to fair value on a non-recurring basis during the fiscal
year and still held at December 31, 2010 and 2009. These assets
can include loans and long-lived assets that have been reduced to
fair value when they are held for sale, impaired loans that have
been reduced based on the fair value of the underlying collateral,
cost and equity method investments and long-lived assets that
are written down to fair value when they are impaired and the
remeasurement of retained investments in formerly consolidated
subsidiaries upon a change in control that results in deconsolida-
tion of a subsidiary, if we sell a controlling interest and retain a
noncontrolling stake in the entity. Assets that are written down to
fair value when impaired and retained investments are not subse-
quently adjusted to fair value unless further impairment occurs.
Remeasured during the year ended December 31
2010 2009
(In millions) Level 2 Level 3 Level 2 Level 3
Financing receivables and loans held for sale $ 54 $ 6,833 $ 81 $ 5,352
Cost and equity method investments(a) — 510 — 1,006
Long-lived assets, including real estate 1,025 5,811 435 5,074
Retained investments in formerly consolidated subsidiaries(b) — 113 — 5,903
Total $1,079 $13,267 $516 $17,335
(a) Includes the fair value of private equity and real estate funds included in Level 3
of $296 million and $409 million at December 31, 2010 and 2009, respectively.
(b) During 2010, our retained investment in Regency, a formerly consolidated
subsidiary, was remeasured to a Level 1 fair value of $549 million.
112 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
Note 22.
Financial Instruments
The following table provides information about the assets and liabilities not carried at fair value in our Statement of Financial Position.
Consistent with ASC 825, Financial Instruments, the table excludes finance leases and non-financial assets and liabilities. Apart from
certain of our borrowings and certain marketable securities, few of the instruments discussed below are actively traded and their fair
values must often be determined using financial models. Realization of the fair value of these instruments depends upon market
forces beyond our control, including marketplace liquidity.
2010 2009
Assets (liabilities) Assets (liabilities)
Notional Carrying Estimated Notional Carrying Estimated December 31 (In millions) amount amount (net) fair value amount amount (net) fair value
(a) These financial instruments do not have notional amounts.
(b) Amounts at December 31, 2010 reflect our adoption of ASU 2009-16 & 17 on January 1, 2010. See Notes 6, 10, 23 and 24.
(c) See Note 10.
(d) Principally cost method investments.
(e) Fair values exclude interest rate and currency derivatives designated as hedges of borrowings. Had they been included, the fair value of borrowings at December 31, 2010 and
2009 would have been reduced by $4,298 million and $2,856 million, respectively.
(f) Net of reinsurance of $2,800 million at both December 31, 2010 and 2009.
All other instrumentsBased on observable market transactions, valuation methodolo-
gies using current market interest rate data adjusted for inherent
credit risk and/or quoted market prices.
Assets and liabilities that are reflected in the accompanying
financial statements at fair value are not included in the above
disclosures; such items include cash and equivalents, investment
securities and derivative financial instruments.
Additional information about certain categories in the table
above follows.
INSURANCE—CREDIT LIFE
Certain insurance affiliates, primarily in Consumer, issue credit life
insurance designed to pay the balance due on a loan if the bor-
rower dies before the loan is repaid. As part of our overall risk
management process, we cede to third parties a portion of this
associated risk, but are not relieved of our primary obligation
to policyholders.
A description of how we estimate fair values follows.
LoansBased on quoted market prices and recent transactions when
available. When this data is unobservable, we use a discounted
future cash flows methodology, using current market interest rate
data adjusted for inherent credit risk.
Borrowings and bank depositsBased on valuation methodologies using current market interest
rate data which are comparable to market quotes adjusted for our
non-performance risk.
Investment contract benefitsBased on expected future cash flows, discounted at currently
offered rates for immediate annuity contracts or the income
approach for single premium deferred annuities.
Guaranteed investment contractsBased on valuation methodologies using current market interest
rate data, adjusted for our non-performance risk.
GE 2010 ANNUAL REPORT 113
notes to consolidated financial statements
The following table provides information about the fair value
of our derivatives, by contract type, separating those accounted
for as hedges and those that are not.
2010 2009
Fair value Fair value
December 31 (In millions) Assets Liabilities Assets Liabilities
Derivatives are classified in the captions “All other assets” and “All other liabilities” in
our financial statements.
(a) The netting of derivative receivables and payables is permitted when a legally
enforceable master netting agreement exists. Amounts included fair value
adjustments related to our own and counterparty non-performance risk. At
December 31, 2010 and 2009, the cumulative adjustment for non-performance
risk was a loss of $10 million and a gain of $9 million, respectively.
FAIR VALUE HEDGES
We use interest rate and currency exchange derivatives to hedge
the fair value effects of interest rate and currency exchange rate
changes on local and non-functional currency denominated
fixed-rate debt. For relationships designated as fair value hedges,
changes in fair value of the derivatives are recorded in earnings
within interest and other financial charges, along with offsetting
adjustments to the carrying amount of the hedged debt. The
following table provides information about the earnings effects
of our fair value hedging relationships for the years ended
December 31, 2010 and 2009.
2010 2009
Gain (loss) Gain (loss) Gain (loss) Gain (loss) Year ended on hedging on hedged on hedging on hedged December 31 (In millions) derivatives items derivatives items
Allowance for losses percentage 37.4% 35.8% 36.5% 46.6% 38.7% 39.6%
(a) During the first quarter of 2010, we transferred the Consumer business in Italy from Consumer to CLL. Prior period amounts were reclassified to conform to the current-
period presentation.
(b) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
IMPAIRED LOANS
The following table provides information about loans classified as impaired and specific reserves related to Commercial.
COMMERCIAL (a)
With no specific allowance With a specific allowance
Recorded Unpaid Average Recorded Unpaid Average investment principal investment in investment principal Associated investment in December 31, 2010 (In millions) in loans balance loans in loans balance allowance loans
Total $3,087 $3,060 $2,458 $2,733 $2,736 $1,031 $2,834
(a) We recognized $88 million of interest income for the year ended December 31, 2010, principally on a cash basis. A substantial majority of this amount was related to income
recognized in our CLL—Americas business.
CREDIT QUALITY INDICATORS
Substantially all of our Commercial financing receivables portfolio
is secured lending and we assess the overall quality of the port-
folio based on the potential risk of loss measure. The metric
incorporates both the borrower’s credit quality along with any
related collateral protection.
Our internal risk ratings process is an important source of
information in determining our allowance for losses and repre-
sents a comprehensive, statistically validated approach to
evaluate risk in our financing receivables portfolios. In deriving
our internal risk ratings, we stratify our Commercial portfolios
into twenty-one categories of default risk and/or six categories of
loss given default to group into three categories: A, B and C. Our
process starts by developing an internal risk rating for our
borrowers, which is based upon our proprietary models using
data derived from borrower financial statements, agency ratings,
payment history information, equity prices and other commercial
borrower characteristics. We then evaluate the potential risk of
loss for the specific lending transaction in the event of borrower
default, which takes into account such factors as applicable
collateral value, historical loss and recovery rates for similar
transactions, and our collection capabilities. Our internal risk
ratings process and the models we use are subject to regular
monitoring and validation controls. The frequency of rating
updates is set by our credit risk policy, which requires annual
Audit Committee approval. The models are updated on a regular
basis and statistically validated annually, or more frequently as
circumstances warrant.
118 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
such, these loans are not necessarily classified as nonearning
or impaired.
At December 31, 2010, our unsecured Commercial financing
receivables portfolio of $208 million, $964 million and $783 million
was rated A, B and C, respectively. Substantially all of these financ-
ing receivables are attributable to our Interbanca S.p.A. and
GE Sanyo Credit acquisitions in Europe and Asia, respectively.
Real EstateOur real estate portfolio primarily comprises fixed and floating
loans secured by commercial real estate. Our Debt portfolio is
underwritten based on the cash flows generated by underlying
income-producing commercial properties and secured by first
mortgages. Our Business properties portfolio is underwritten
primarily by the credit quality of the borrower and secured by
tenant and owner-occupied commercial properties.
FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES
The following table provides further information about general and
specific reserves related to Real Estate financing receivables.
REAL ESTATE
Financing receivables at
December 31, January 1, December 31,(In millions) 2010 2010 (a) 2009
Debt $30,249 $36,257 $36,565
Business properties 9,962 12,416 8,276
Total Real Estate financing receivables, before allowance for losses $40,211 $48,673 $44,841
(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
PAST DUE FINANCING RECEIVABLES
The following table displays payment performance of Real Estate
financing receivables.
REAL ESTATE
2010 2009
Over 30 days Over 90 days Over 30 days Over 90 days December 31 past due past due past due past due
Debt 4.3 % 4.1 % 4.3 % 3.0 %
Business properties 4.6 3.9 4.4 3.8
Total 4.4 4.0 4.3 3.1
The table below summarizes our Commercial financing receiv-
ables by risk category. As described above, financing receivables
are assigned one of twenty-one risk ratings based on our process
and then these are grouped by similar characteristics into three
categories in the table below. Category A is characterized by
either high credit quality borrowers or transactions with signifi-
cant collateral coverage which substantially reduces or eliminates
the risk of loss in the event of borrower default. Category B is
characterized by borrowers with weaker credit quality than those
in Category A, or transactions with moderately strong collateral
coverage which minimizes but may not fully mitigate the risk of
loss in the event of default. Category C is characterized by bor-
rowers with higher levels of default risk relative to our overall
portfolio or transactions where collateral coverage may not fully
mitigate a loss in the event of default.
COMMERCIAL
Secured
December 31, 2010 (In millions) A B C Total
CLL
Americas $ 76,977 $4,103 $5,516 $ 86,596
Europe 33,642 840 1,262 35,744
Asia 10,777 199 766 11,742
Other 2,506 66 54 2,626
Total CLL 123,902 5,208 7,598 136,708
Energy Financial Services 6,775 183 53 7,011
GECAS 12,089 277 249 12,615
Other 1,788 — — 1,788
Total $144,554 $5,668 $7,900 $158,122
For our secured financing receivables portfolio, our collateral
position and ability to work out problem accounts mitigates our
losses. Our asset managers have deep industry expertise that
enables us to identify the optimum approach to default situa-
tions. We price risk premiums for weaker credits at origination,
closely monitor changes in creditworthiness through our risk
ratings and watch list process, and are engaged early with dete-
riorating credits to minimize economic loss. Secured financing
receivables within risk Category C are predominantly in our CLL
businesses and primarily comprises senior term lending facilities
and factoring programs secured by various asset types including
inventory, accounts receivable, cash, equipment and related
business facilities as well as franchise finance activities secured
by underlying equipment.
Loans within Category C are reviewed and monitored regularly,
and classified as impaired when it is probable that they will not pay
in accordance with contractual terms. Our internal risk rating
process identifies credits warranting closer monitoring; and as
GE 2010 ANNUAL REPORT 119
notes to consolidated financial statements
with loan-to-value ratios greater than 95% are paying in accor-
dance with contractual terms. Substantially all of these loans and
substantially all of the Real Estate—Business properties financing
receivables included in Category C are impaired loans which are
subject to the specific reserve evaluation process described in
Note 1. The ultimate recoverability of impaired loans is driven by
collection strategies that do not necessarily depend on the sale of
the underlying collateral and include full or partial repayments
through third-party refinancing and restructurings.
ConsumerOur Consumer portfolio is largely non-U.S. and primarily comprises
residential mortgage, sales finance, and auto and personal loans in
various European and Asian countries. At December 31, 2010, our
U.S. consumer financing receivables included private-label credit
card and sales financing for over 51 million customers across the
U.S. with no metropolitan area accounting for more than 6% of the
portfolio. Of the total U.S. consumer financing receivables, approxi-
mately 63% relate to credit card loans, which are often subject to
profit and loss sharing arrangements with the retailer (which are
recorded in revenues), and the remaining 37% are sales finance
receivables, which provide financing to customers in areas such
as electronics, recreation, medical and home improvement.
CREDIT QUALITY INDICATORS
Due to the primarily non-recourse nature of our Debt portfolio,
loan-to-value ratios provide the best indicators of the credit
quality of the portfolio. By contrast, the credit quality of the
Business properties portfolio is primarily influenced by the
strength of the borrower’s general credit quality, which is
reflected in our internal risk rating process, consistent with the
process we use for our Commercial portfolio.
Loan-to-value ratio
Less than 80% to Greater than December 31, 2010 (In millions) 80% 95% 95%
Debt $12,362 $9,392 $8,495
Internal risk rating
December 31, 2010 (In millions) A B C
Business properties $ 8,746 $ 437 $ 779
Within Real Estate, these financing receivables are primarily
concentrated in our North American and European Lending
platforms and are secured by various property types. Collateral
values for Real Estate—Debt financing receivables are updated at
least semi-annually, or more frequently for higher risk loans. A
substantial majority of the Real Estate—Debt financing receivables
NONACCRUAL FINANCING RECEIVABLES
The following table provides further information about Real Estate financing receivables that are classified as nonaccrual. Of our $9,719 mil-
lion of nonaccrual financing receivables at December 31, 2010, $7,888 million are currently paying in accordance with their contractual terms.
REAL ESTATE
Nonaccrual financing receivables at Nonearning financing receivables at
December 31, January 1, December 31, December 31, January 1, December 31,(Dollars in millions) 2010 2010 (a) 2009 2010 2010 (a) 2009
Debt $9,039 $6,342 $6,649 $ 961 $ 939 $ 939
Business properties 680 493 388 386 419 313
Total $9,719 $6,835 $7,037 $1,347 $1,358 $1,252
Allowance for losses percentage 15.3% 22.5% 21.2% 110.5% 113.1% 119.3%
(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
IMPAIRED LOANS
The following table provides information about loans classified as impaired and specific reserves related to Real Estate.
REAL ESTATE (a)
With no specific allowance With a specific allowance
Recorded Unpaid Average Recorded Unpaid Average investment principal investment investment principal Associated investment December 31, 2010 (In millions) in loans balance in loans in loans balance allowance in loans
Total $3,005 $3,086 $1,739 $6,812 $6,974 $1,150 $6,498
(a) We recognized $189 million of interest income for the year ended December 31, 2010, principally on a cash basis. A substantial majority of this amount related to our
Real Estate—Debt business.
120 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
IMPAIRED LOANS
The vast majority of our Consumer nonaccrual financing receiv-
ables are smaller-balance homogeneous loans evaluated
collectively, by portfolio, for impairment and therefore are outside
the scope of the disclosure requirement for impaired loans.
Accordingly, impaired loans in our Consumer business represent
restructured smaller-balance homogeneous loans meeting the
definition of a TDR, and therefore subject to the disclosure
requirement for impaired loans, and commercial loans in our
Consumer—Other portfolio. The recorded investment of these
impaired loans totaled $2,554 million (with an unpaid principal
balance of $2,244 million) and comprised $106 million with no
specific allowance, primarily all in our Consumer—Other portfolio,
and $2,448 million with a specific allowance of $555 million at
December 31, 2010. The impaired loans with a specific allowance
included $428 million with a specific allowance of $114 million in
our Consumer—Other portfolio and $2,020 million with a specific
allowance of $441 million across the remaining Consumer busi-
ness and had an unpaid principal balance and average investment
of $2,139 million and $1,771 million, respectively, at December 31,
2010. We recognized $115 million of interest income for the year
ended December 31, 2010, principally on a cash basis. A substan-
tial majority of this amount related to income recognized in our
Consumer—U.S. installment and revolving credit business.
CREDIT QUALITY INDICATORS
Our Consumer financing receivables portfolio comprises both
secured and unsecured lending. Secured financing receivables
comprise residential loans and lending to small and medium-
sized enterprises predominantly secured by auto and equipment,
inventory finance, and cash flow loans. Unsecured financing
receivables include private-label credit card financing. A substan-
tial majority of these cards are not for general use and are limited
to the products and services sold by the retailer. The private-label
portfolio is diverse, with no metropolitan area accounting for
more than 6% of the related portfolio.
FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES
The following table provides further information about general
and specific reserves related to Consumer financing receivables.
CONSUMER (a)
Financing receivables at
December 31, January 1, December 31,(In millions) 2010 2010 (b) 2009
(a) During the first quarter of 2010, we transferred the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.
(b) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
GE 2010 ANNUAL REPORT 121
notes to consolidated financial statements
collection efforts to mitigate the potential risk of loss in these
portfolios and we have experienced an improvement in nonearn-
ing assets.
CONSUMER—OTHER
Secured lending in Consumer—Other comprises loans to small and
medium-sized enterprises predominantly secured by auto and
equipment, inventory finance, and cash flow loans. We develop our
internal risk ratings for this portfolio in a manner consistent with
the process used to develop our Commercial credit quality indica-
tors, described above. We use the borrower’s credit quality and
underlying collateral strength to determine the potential risk of
loss from these activities.
At December 31, 2010, Consumer—Other financing receivables
of $6,417 million, $822 million and $1,067 million were rated A, B,
and C, respectively.
Note 24.
Variable Interest Entities
We securitize financial assets and arrange other forms of asset-
backed financing in the ordinary course of business. These
transactions are similar to those used by many financial institu-
tions. Beyond improving returns, these transactions serve as
alternative funding sources for a variety of diversified lending
and securities transactions. Historically, we have used both
GE-supported and third-party VIEs to execute off-balance sheet
securitization transactions funded in the commercial paper and
term markets. The largest group of VIEs that we are involved
with are former QSPEs, which under guidance in effect through
December 31, 2009 were excluded from the scope of consolida-
tion standards based on their characteristics. Except as noted
below, investors in these entities only have recourse to the assets
owned by the entity and not to our general credit. We do not have
implicit support arrangements with any VIE. We did not provide
non-contractual support for previously transferred financing
receivables to any VIE in 2010 or 2009.
On January 1, 2010, we adopted ASU 2009-16 & 17, which
amended ASC 860, Transfers and Servicing, and ASC 810,
Consolidation, respectively. These amendments eliminated the
scope exception for QSPEs and required that all such entities be
evaluated for consolidation as VIEs, which resulted in the consoli-
dation of all of our sponsored QSPEs. Among other changes, the
amendments to ASC 810 replaced the existing quantitative
approach for identifying the party that should consolidate a VIE,
which was based on exposure to a majority of the risks and
rewards, with a qualitative approach, based on determination of
which party has the power to direct the most economically sig-
nificant activities of the entity. The revised guidance will
sometimes change the composition of entities that meet the
definition of a VIE and the determination about which party
should consolidate a VIE, as well as requiring the latter to be
evaluated continuously.
In evaluating whether we have the power to direct, as defined
in the standard, we consider the purpose for which the VIE was
created, the importance of each of the activities in which it is
engaged and our decision-making role, if any, in those activities
NON-U.S. RESIDENTIAL MORTGAGES
For our secured non-U.S. residential mortgage book, we assess
the overall credit quality of the portfolio through loan-to-value
ratios (the ratio of the outstanding debt on a property to the value
of that property at origination). In the event of default and repos-
session of the underlying collateral, we have the ability to remarket
and sell the properties to eliminate or mitigate the potential risk of
loss. The table below provides additional information about our
non-U.S. residential mortgages based on loan-to-value ratios.
Loan-to-value ratio
80% or Greater than Greater than December 31, 2010 (In millions) less 80% to 90% 90%
(a) Entities consolidated on July 1, 2003 or January 1, 2004 as a result of amendments to U.S. GAAP. During 2010, the capital structure of the consolidated liquidating securitization
entities changed and they are now consolidated under the voting interest model.
(b) Entities consolidated on January 1, 2010 by the initial application of ASU 2009-16 & 17.
(c) In certain transactions entered into prior to December 31, 2004, we provided contractual credit and liquidity support to third parties who funded the purchase of securitized or
participated interests in assets. We have not entered into additional arrangements since that date. Liquidity and credit support was $936 million at December 31, 2010 and
$2,088 million at December 31, 2009.
(d) Other assets, borrowings and other liabilities exclude intercompany balances that are eliminated in consolidation.
GECS revenues from services from our consolidated VIEs were $6,914 million in 2010. Related expenses consisted primarily of provisions
for losses of $1,596 million and interest and other financial charges of $767 million in 2010. These amounts do not include intercompany
revenues and costs, principally fees and interest between GE and the VIEs, which are eliminated in consolidation.
The gross financing receivables and outstanding debt, which is substantially all non-recourse, in Securitization QSPEs at December 31,
2010 and December 31, 2009 is provided below.
Credit card (In millions) receivables Real estate Equipment (a) Other (b) Total
(b) Asset amounts exclude intercompany receivables for cash collected on behalf of the entities by GE as servicer, which are eliminated in consolidation. Such receivables provide
the cash to repay the entities’ liabilities. If these intercompany receivables were included in the table above, assets would exceed the outstanding debt shown.
124 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
Investments in Unconsolidated Variable Interest EntitiesOur involvement with unconsolidated VIEs consists of the follow-
ing activities: assisting in the formation and financing of the entity,
providing recourse and/or liquidity support, servicing the assets and
receiving variable fees for services provided. We are not required to
consolidate these entities because the nature of our involvement
with the activities of the VIEs does not give us power over decisions
that significantly affect their economic performance.
Unconsolidated VIEs at December 31, 2010 include our non-
controlling stake in PTL ($5,790 million); investments in real estate
entities ($2,071 million), which generally consist of passive limited
partnership investments in tax-advantaged, multi-family real estate
and investments in various European real estate entities; debt
investment fund ($1,877 million); and exposures to joint ventures
that purchase factored receivables ($1,596 million). Substantially all
of our other unconsolidated entities consist of passive investments
in various asset-backed financing entities.
The largest unconsolidated VIE with which we are involved
is PTL, which is a truck rental and leasing joint venture. The total
consolidated assets and liabilities of PTL at December 31, 2008 were
$7,444 million and $1,339 million, respectively. As part of our strategy
to reduce our investment in the equipment management market, we
reduced our partnership interest in PTL from 79% at December 31,
2005 to 50.9% at December 31, 2008 through a series of dispositions
to Penske Truck Leasing Corporation (PTLC), the general partner of
PTL, and an entity affiliated with PTLC. In addition, in the first quarter
of 2009, we sold a 1% partnership interest in PTL, a previously con-
solidated VIE, to PTLC. The disposition of this partnership interest,
coupled with our resulting minority position on the PTL advisory
committee and related changes in our contractual rights, resulted in
the deconsolidation of PTL. We recognized a pre-tax gain on the sale
of $296 million, including a gain on the remeasurement of our
retained investment of $189 million. The transaction price was
determined on an arm’s-length basis and GE obtained a fairness
opinion from a third-party financial advisor because of the related-
party nature of the transaction. The measurement of the fair value of
our retained investment in PTL was based on a methodology that
incorporated both discounted cash flow information and market
data. In applying this methodology, we utilized different sources of
information, including actual operating results, future business plans,
economic projections and market observable pricing multiples of
similar businesses. The resulting fair value of our retained interest
reflected our position as a noncontrolling shareowner at the conclu-
sion of the transaction. At December 31, 2010, our remaining
investment in PTL of $5,790 million comprised a 49.9% partnership
interest of $935 million and loans and advances of $4,855 million.
GECC continues to provide loans under long-term revolving credit
and letter of credit facilities to PTL.
The classification of our variable interests in these entities in our
financial statements is based on the nature of the entity and the
type of investment we hold. Variable interests in partnerships and
corporate entities are classified as either equity method or cost
method investments. In the ordinary course of business, we also
make investments in entities in which we are not the primary ben-
eficiary but may hold a variable interest such as limited partner
interests or mezzanine debt investments. These investments are
classified in two captions in our financial statements: “All other
assets” for investments accounted for under the equity method,
and “Financing receivables—net” for debt financing provided to
these entities. Our investments in unconsolidated VIEs at
December 31, 2010 and 2009 follow.
At
December 31, December 31,(In millions) 2010 2009
Other assets and investment securities $10,375 $ 8,911
Financing receivables—net 2,240 769
Total investment 12,615 9,680
Contractual obligations to fund new investments 1,990 1,396
Total $14,605 $11,076
In addition to the entities included in the table above, we also hold
passive investments in RMBS, CMBS and ABS issued by VIEs. Such
investments were, by design, investment grade at issuance and
held by a diverse group of investors. Further information about
such investments is provided in Note 3.
Note 25.
Commitments and Guarantees
CommitmentsIn our Aviation business of Technology Infrastructure, we had
committed to provide financing assistance on $1,128 million
of future customer acquisitions of aircraft equipped with our
engines, including commitments made to airlines in 2010 for
future sales under our GE90 and GEnx engine campaigns. The
GECAS business of GE Capital had placed multiple-year orders for
various Boeing, Airbus and other aircraft with list prices approxi-
mating $14,574 million and secondary orders with airlines for
used aircraft of approximately $790 million at December 31, 2010.
As of December 31, 2010, NBC Universal had certain commit-
ments to acquire film and television programming. On January 28,
2011, we transferred the NBCU business to a newly formed entity
and, as a result, these commitments are no longer ours. See
Note 2 for further discussion of the NBCU transaction.
GE 2010 ANNUAL REPORT 125
notes to consolidated financial statements
substantially all of which relate to standard representations
and warranties in sales of businesses or assets.
• CONTINGENT CONSIDERATION. These are agreements to provide
additional consideration to a buyer or seller in a business
combination if contractually specified conditions related to
the acquisition or disposition are achieved. Adjustments to the
proceeds from our sale of GE Money Japan are further dis-
cussed in Note 2. All other potential payments related to
contingent consideration are insignificant.
Our guarantees are provided in the ordinary course of business.
We underwrite these guarantees considering economic, liquidity
and credit risk of the counterparty. We believe that the likelihood
is remote that any such arrangements could have a significant
adverse effect on our financial position, results of operations or
liquidity. We record liabilities for guarantees at estimated fair
value, generally the amount of the premium received, or if we do
not receive a premium, the amount based on appraisal, observed
market values or discounted cash flows. Any associated expected
recoveries from third parties are recorded as other receivables,
not netted against the liabilities.
Note 26.
Supplemental Cash Flows Information
Changes in operating assets and liabilities are net of acquisitions
and dispositions of principal businesses.
Amounts reported in the “Payments for principal businesses
purchased” line in the Statement of Cash Flows is net of cash
acquired and included debt assumed and immediately repaid
in acquisitions.
Amounts reported in the “All other operating activities” line
in the Statement of Cash Flows consists primarily of adjustments
to current and noncurrent accruals and deferrals of costs and
expenses, adjustments for gains and losses on assets and adjust-
ments to assets. GECS had non-cash transactions related to
foreclosed properties and repossessed assets totaling $1,915 mil-
lion and $1,364 million in 2010 and 2009, respectively. In 2008,
GE received $300 million (12.7 million shares) worth of its shares in
connection with the disposition of NBC Universal’s 57% interest
in the Sundance Channel.
Product WarrantiesWe provide for estimated product warranty expenses when we
sell the related products. Because warranty estimates are fore-
casts that are based on the best available information—mostly
historical claims experience—claims costs may differ from
amounts provided. An analysis of changes in the liability for
product warranties follows.
(In millions) 2010 2009 2008
Balance at January 1 $1,641 $1,675 $1,541
Current-year provisions 583 780 1,038
Expenditures (a) (710) (794) (917)
Other changes (17) (20) 13
Balance at December 31 $1,497 $1,641 $1,675
(a) Primarily related to Technology Infrastructure and Energy Infrastructure.
GuaranteesAt December 31, 2010, we were committed under the following
guarantee arrangements beyond those provided on behalf of
QSPEs and VIEs. See Note 24.
• CREDIT SUPPORT. We have provided $8,327 million of credit
support on behalf of certain customers or associated compa-
nies, predominantly joint ventures and partnerships, using
arrangements such as standby letters of credit and perfor-
mance guarantees. These arrangements enable these
customers and associated companies to execute transactions
or obtain desired financing arrangements with third parties.
Should the customer or associated company fail to perform
under the terms of the transaction or financing arrangement,
we would be required to perform on their behalf. Under most
such arrangements, our guarantee is secured, usually by the
asset being purchased or financed, or possibly by certain
other assets of the customer or associated company. The length
of these credit support arrangements parallels the length of the
related financing arrangements or transactions. The liability
for such credit support was $53 million at December 31, 2010.
• INDEMNIFICATION AGREEMENTS. These are agreements that require
us to fund up to $228 million at December 31, 2010 under
residual value guarantees on a variety of leased equipment.
Under most of our residual value guarantees, our commitment
is secured by the leased asset. The liability for these indemnifi-
cation agreements was $47 million at December 31, 2010. We
also had $2,502 million of other indemnification commitments,
126 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
Certain supplemental information related to GE and GECS cash flows is shown below.
December 31 (In millions) 2010 2009 2008
GE
NET DISPOSITIONS (PURCHASES) OF GE SHARES FOR TREASURY
Open market purchases under share repurchase program $ (1,715) $ (85) $ (3,222)
Other purchases (77) (129) (286)
Dispositions 529 837 2,259
$ (1,263) $ 623 $ (1,249)
GECS
ALL OTHER OPERATING ACTIVITIES
Net change in other assets $ 28 $ (344) $ (1,370)
Amortization of intangible assets 654 906 981
Realized losses on investment securities 91 473 1,260
Cash collateral on derivative contracts — (6,858) 7,769
Change in other liabilities (3,397) (4,919) (3,238)
Other 4,486 578 3,248
$ 1,862 $ (10,164) $ 8,650
NET DECREASE (INCREASE) IN GECS FINANCING RECEIVABLES
Increase in loans to customers $(310,581) $(278,536) $(409,308)
Principal collections from customers—loans 331,214 283,743 361,384
Investment in equipment for financing leases (10,225) (9,509) (21,671)
Principal collections from customers—financing leases 15,118 17,460 20,159
Net change in credit card receivables (4,559) (28,534) (34,691)
Sales of financing receivables 5,331 58,555 67,093
$ 26,298 $ 43,179 $ (17,034)
ALL OTHER INVESTING ACTIVITIES
Purchases of securities by insurance activities $ (1,712) $ (3,106) $ (4,190)
Dispositions and maturities of securities by insurance activities 3,136 3,962 4,690
Other assets—investments 2,690 (258) (228)
Change in other receivables 482 821 3,313
Other 2,805 (2,655) 2,867
$ 7,401 $ (1,236) $ 6,452
NEWLY ISSUED DEBT (MATURITIES LONGER THAN 90 DAYS)
Total $751,216 $781,901 $797,841 $9,821 $8,668 $18,629 $11,762 $12,675 $13,537
(a) Assets of discontinued operations are included in Corporate items and eliminations for all periods presented.
(b) Total assets of the Energy Infrastructure, Technology Infrastructure, GE Capital and Home & Business Solutions operating segments at December 31, 2010, include investments
in, and advances to, associated companies of $667 million, $856 million, $25,662 million and $430 million, respectively. Investments in, and advances to, associated companies
contributed approximately $58 million, $40 million, $284 million, $2,035 million and $30 million to segment pre-tax income of Energy Infrastructure, Technology Infrastructure,
NBC Universal, GE Capital and Home & Business Solutions operating segments, respectively, for the year ended December 31, 2010. Aggregate summarized financial
information for significant associated companies assuming a 100% ownership interest included: total assets of $198,571 million, primarily financing receivables of
$97,561 million; total liabilities of $152,812 million, primarily bank deposits of $75,661 million; revenues totaling $15,659 million; and net earnings totaling $2,895 million.
(c) Additions to property, plant and equipment include amounts relating to principal businesses purchased.
Property, plant and equipment—net associated with operations based in the United States were $17,596 million, $19,798 million and
$27,667 million at year-end 2010, 2009 and 2008, respectively. Property, plant and equipment—net associated with operations based
outside the United States were $48,618 million, $49,172 million and $50,861 million at year-end 2010, 2009 and 2008, respectively.
Interest and other financial charges Provision (benefit) for income taxes
(In millions) 2010 2009 2008 2010 2009 2008
GE Capital $14,924 $17,491 $24,570 $ (932) $(3,812) $(2,137)
Total $15,983 $18,309 $25,758 $1,050 $(1,148) $ 1,102
(a) Included amounts for Energy Infrastructure, Technology Infrastructure, NBC Universal and Home & Business Solutions for which our measure of segment profit excludes
interest and other financial charges and income taxes.
130 GE 2010 ANNUAL REPORT
notes to consolidated financial statements
Note 29.
Quarterly Information (Unaudited)
First quarter Second quarter Third quarter Fourth quarter
(In millions; per-share amounts in dollars) 2010 2009 2010 2009 2010 2009 2010 2009