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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Information about our global risk management can be found in the Operations – Global Risk Management and Financial Resources and Liquidity – Exchange Rate and Interest Rate Risks sections in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K Report.

 

Item 8. Financial Statements and Supplementary Data.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With our participation, an evaluation of the effectiveness of our internal control over financial reporting was conducted as of December 31, 2009, based on the framework and criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2009.

Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting. Their report follows.

 

/s/ Michael A. Neal		/s/ Jeffrey S. Bornstein
Michael A. Neal		Jeffrey S. Bornstein
Chief Executive Officer		Chief Financial Officer

 

February 19, 2010

 

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Report of Independent Registered Public Accounting Firm

To the Board of Directors of

General Electric Capital Corporation:

We have audited the accompanying statement of financial position of General Electric Capital Corporation and consolidated affiliates (“GECC”) as of December 31, 2009 and 2008, and the related statements of earnings, changes in shareowner’s equity and cash flows for each of the years in the three-year period ended December 31, 2009. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in Item 15. We also have audited GECC’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). GECC’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

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In our opinion, the consolidated financial statements and schedule referred to above present fairly, in all material respects, the financial position of GECC as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, GECC maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in Note 1 to the consolidated financial statements, GECC, in 2009, changed its method of accounting for impairment of debt securities, business combinations and noncontrolling interests; in 2008, changed its method of accounting for fair value measurements and adopted the fair value option for certain financial assets and financial liabilities; and, in 2007, changed its method of accounting for a change or projected change in the timing of cash flows relating to income taxes generated by leveraged lease transactions.

/s/ KPMG LLP                                           

KPMG LLP

Stamford, Connecticut

February 19, 2010

 

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Statement of Earnings

 

For the years ended December 31 (In millions)		2009			2008			2007
Revenues
Revenues from services (Note 12)	$	49,704		$	66,221		$	66,281
Sales of goods		969			1,773			718
Total revenues		50,673			67,994			66,999
Costs and expenses
Interest		17,862			24,859			22,280
Operating and administrative (Note 13)		14,850			18,335			17,914
Cost of goods sold		808			1,517			628
Investment contracts, insurance losses and insurance annuity benefits		210			491			682
Provision for losses on financing receivables (Note 4)		10,887			7,498			4,488
Depreciation and amortization (Note 5)		8,300			9,303			8,093
Total costs and expenses		52,917			62,003			54,085
Earnings (loss) from continuing operations before income taxes		(2,244)			5,991			12,914
Benefit (provision) for income taxes (Note 10)		3,881			2,265			(739)
Earnings from continuing operations		1,637			8,256			12,175
Loss from discontinued operations, net of taxes (Note 2)		(124)			(704)			(2,131)
Net earnings		1,513			7,552			10,044
Less net earnings attributable to noncontrolling interests		58			242			229
Net earnings attributable to GECC	$	1,455		$	7,310		$	9,815
Amounts attributable to GECC
Earnings from continuing operations	$	1,579		$	8,014		$	11,946
Loss from discontinued operations, net of taxes		(124)			(704)			(2,131)
Net earnings attributable to GECC	$	1,455		$	7,310		$	9,815

During the period April 1, 2009 through December 31, 2009, we recorded pre-tax, other-than-temporary impairments of $489 million, of which $185 million was recorded through earnings ($28 million relates to equity securities), and $304 million was recorded in Accumulated Other Comprehensive Income.

 

See accompanying notes.

 

 

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Statement of Changes in Shareowner’s Equity

 

(In millions)	2009			2008			2007
Changes in shareowner's equity (Note 11)
Balance at January 1	$	58,229		$	61,230		$	56,585
Dividends and other transactions with shareowner		8,737			3,148			(6,769)
Other comprehensive income (loss)
Investment securities - net		1,337			(1,988)			(506)
Currency translation adjustments - net		2,565			(8,705)			2,559
Cash flow hedges - net		1,437			(2,504)			(550)
Benefit plans - net		(67)			(262)			173
Total other comprehensive income (loss)		5,272			(13,459)			1,676
Increases from net earnings attributable to GECC		1,455			7,310			9,815
Comprehensive income (loss)		6,727			(6,149)			11,491
Cumulative effect of changes in accounting principles(a)		25			–			(77)
Balance at December 31		73,718			58,229			61,230
Noncontrolling interests(b)		2,204			2,383			1,607
Total equity balance at December 31	$	75,922		$	60,612		$	62,837

On January 1, 2009, we adopted an amendment to ASC 810, Consolidation, that requires certain changes to the presentation of our financial statements. This amendment requires us to classify noncontrolling interests (previously referred to as “minority interest”) as part of shareowner’s equity.

 

 

(a)	We adopted amendments to ASC 320, Investments – Debt and Equity Securities, and recorded a cumulative effect adjustment to increase retained earnings as of April 1, 2009. See Note 11.

 

(b)	See Note 11 for an explanation of the change in noncontrolling interests for 2009.

 

 

See accompanying notes.

 

 

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General Electric Capital Corporation and consolidated affiliates

 

 

Statement of Cash Flows

 

For the years ended December 31 (In millions)		2009		2008			2007
Cash flows – operating activities
Net earnings	$	1,513		$	7,552		$	10,044
Less net earnings attributable to noncontrolling interests		58			242			229
Net earnings attributable to GECC		1,455			7,310			9,815
Loss from discontinued operations		124			704			2,131
Adjustments to reconcile net earnings attributable to GECC
to cash provided from operating activities
Depreciation and amortization of property, plant and equipment		8,300			9,303			8,093
Deferred income taxes		(2,247)			(795)			(278)
Decrease (increase) in inventories		(6)			(14)			2
Increase (decrease) in accounts payable		(2,021)			129			(441)
Provision for losses on financing receivables		10,887			7,498			4,488
All other operating activities (Note 18)		(11,370)			6,367			(251)
Cash from (used for) operating activities – continuing operations		5,122			30,502			23,559
Cash from (used for) operating activities – discontinued operations		39			760			4,097
Cash from (used for) operating activities		5,161			31,262			27,656
Cash flows – investing activities
Additions to property, plant and equipment		(6,383)			(13,184)			(15,004)
Dispositions of property, plant and equipment		6,671			10,723			8,319
Net decrease (increase) in financing receivables (Note 18)		43,519			(19,873)			(44,572)
Proceeds from sale of discontinued operations		–			5,220			117
Proceeds from principal business dispositions		9,088			4,654			1,699
Payments for principal businesses purchased		(5,702)			(24,961)			(7,570)
All other investing activities (Note 18)		1,130			8,133			(2,029)
Cash from (used for) investing activities – continuing operations		48,323			(29,288)			(59,040)
Cash from (used for) investing activities – discontinued operations		(36)			(876)			(3,979)
Cash from (used for) investing activities		48,287			(30,164)			(63,019)
Cash flows – financing activities
Net increase (decrease) in borrowings (maturities of 90 days or less)		(26,668)			(44,835)			390
Net increase (decrease) in bank deposits		(3,986)			20,623			2,144
Newly issued debt (maturities longer than 90 days) (Note 18)		81,441			115,922			91,709
Repayments and other debt reductions (maturities longer than 90 days) (Note 18)		(83,503)			(66,953)			(52,711)
Dividends paid to shareowner		–			(2,351)			(6,695)
Capital contribution and share issuance		8,750			5,500			–
All other financing activities (Note 18)		(2,215)			(1,297)			(408)
Cash from (used for) financing activities – continuing operations		(26,181)			26,609			34,429
Cash from (used for) financing activities – discontinued operations		–			(4)			(8)
Cash from (used for) financing activities		(26,181)			26,605			34,421
Increase (decrease) in cash and equivalents		27,267			27,703			(942)
Cash and equivalents at beginning of year		36,610			8,907			9,849
Cash and equivalents at end of year		63,877			36,610			8,907
Less cash and equivalents of discontinued operations at end of year		184			180			300
Cash and equivalents of continuing operations at end of year	$	63,693		$	36,430		$	8,607
Supplemental disclosure of cash flows information
Cash paid during the year for interest	$	(18,742)		$	(24,402)		$	(21,419)
Cash recovered (paid) during the year for income taxes		207			(1,121)			1,158

 

See accompanying notes.

 

 

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General Electric Capital Corporation and consolidated affiliates

 

Notes to Consolidated Financial Statements

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Accounting Principles

 

Our financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP).

Consolidation

 

All of our outstanding common stock is owned by General Electric Capital Services, Inc. (GE Capital Services or GECS), all of whose common stock is owned by General Electric Company (GE Company or GE). Our financial statements consolidate all of our affiliates – entities that we control, most often because we hold a majority voting interest. We also consolidate the economic interests we hold in certain businesses within companies in which we hold a voting equity interest and are majority owned by our ultimate parent, but which we have agreed to actively manage and control. Associated companies are entities that we do not control but over which we have significant influence, most often because we hold a voting interest of 20% to 50%. Results of associated companies are presented on a one-line basis. Investments in and advances to associated companies are presented on a one-line basis in the caption “Other assets” in our Statement of Financial Position, net of allowance for losses that represents our best estimate of probable losses inherent in such assets.

Financial Statement Presentation

 

We have reclassified certain prior-year amounts to conform to the current-year’s presentation.

Financial data and related measurements are presented in the following categories:

Consolidated - This represents the adding together of all affiliates, giving effect to the elimination of transactions between affiliates.

Operating Segments - These comprise our five businesses, focused on the broad markets they serve: Commercial Lending and Leasing (CLL), Consumer, Real Estate, Energy Financial Services and GE Capital Aviation Services (GECAS). Prior-period information has been reclassified to be consistent with the current organization.

Unless otherwise indicated, information in these notes to consolidated financial statements relates to continuing operations. Certain of our operations have been presented as discontinued. See Note 2.

The effects of translating to U.S. dollars the financial statements of non-U.S. affiliates whose functional currency is the local currency are included in shareowner’s equity. Asset and liability accounts are translated at year-end exchange rates, while revenues and expenses are translated at average rates for the respective periods.

Preparing financial statements in conformity with U.S. GAAP requires us to make estimates based on assumptions about current, and for some estimates future, economic and market conditions (for example, unemployment, market liquidity, the real estate market, etc.), which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, as appropriate, it is reasonably possible that in 2010 actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in future impairments of investment securities, goodwill, intangibles and long-lived assets, incremental losses on financing receivables, establishment of valuation allowances on deferred tax assets and increased tax liabilities.

Sales of goods

 

We record all sales of goods only when a firm sales agreement is in place, delivery has occurred and collectibility of the fixed or determinable sales price is reasonably assured. If customer acceptance of goods is not assured, we record sales only upon formal customer acceptance.

 

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Revenues from services (earned income)

 

We use the interest method to recognize income on all loans. Interest on loans includes origination, commitment and other non-refundable fees related to funding (recorded in earned income on the interest method). We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due. We recognize interest income on nonearning loans either as cash is collected or on a cost-recovery basis as conditions warrant. We resume accruing interest on nonearning, non-restructured commercial loans only when (a) payments are brought current according to the loan’s original terms and (b) future payments are reasonably assured. When we agree to restructured terms with the borrower, we resume accruing interest only when reasonably assured that we will recover full contractual payments, and such loans pass underwriting reviews equivalent to those applied to new loans. We resume accruing interest on nonearning consumer loans when the customer’s account is less than 90 days past due.

We recognize financing lease income on the interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values are based upon management’s best estimates of the value of the leased asset at the end of the lease term. We use various sources of data in determining this estimate, including information obtained from third parties, which is adjusted for the attributes of the specific asset under lease. Guarantees of residual values by unrelated third parties are considered part of minimum lease payments. Significant assumptions we use in estimating residual values include estimated net cash flows over the remaining lease term, anticipated results of future remarketing, and estimated future component part and scrap metal prices, discounted at an appropriate rate.

We recognize operating lease income on a straight-line basis over the terms of underlying leases.

Fees include commitment fees related to loans that we do not expect to fund and line-of-credit fees. We record these fees in earned income on a straight-line basis over the period to which they relate. We record syndication fees in earned income at the time related services are performed, unless significant contingencies exist.

Depreciation and amortization

 

The cost of our equipment leased to others on operating leases is depreciated on a straight-line basis to estimated residual value over the lease term or over the estimated economic life of the equipment.

The cost of acquired real estate investments is depreciated on a straight-line basis to the estimated salvage value over the expected useful life or the estimated proceeds upon sale of the investment at the end of the expected holding period if that approach produces a higher measure of depreciation expense.

The cost of intangible assets is generally amortized on a straight-line basis over the asset’s estimated economic life. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. See Notes 5 and 6.

Losses on financing receivables

 

Our allowance for losses on financing receivables represents our best estimate of probable losses inherent in the portfolio. Our method of calculating estimated losses depends on the size, type and risk characteristics of the related receivables. Write-offs are deducted from the allowance for losses and subsequent recoveries are added. Impaired financing receivables are written down to the extent that we judge principal to be uncollectible.

Our portfolio consists entirely of homogenous consumer loans and of commercial loans and leases. The underlying assumptions, estimates and assessments we use to provide for losses are continually updated to reflect our view of current conditions. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible to experience credit losses that are different from our current estimates.

 

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Our consumer loan portfolio consists of smaller balance, homogenous loans including card receivables, installment loans, auto loans and leases and residential mortgages. We collectively evaluate each portfolio for impairment quarterly. The allowance for losses on these receivables is established through a process that estimates the probable losses inherent in the portfolio based upon statistical analyses of portfolio data. These analyses include migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, together with other analyses that reflect current trends and conditions. We also consider overall portfolio indicators including nonearning loans, trends in loan volume and lending terms, credit policies and other observable environmental factors such as unemployment rates and home price indices.

We write off unsecured closed-end installment loans at 120 days contractually past due and unsecured open-ended revolving loans at 180 days contractually past due. We write down consumer loans secured by collateral other than residential real estate when such loans are 120 days past due. Consumer loans secured by residential real estate (both revolving and closed-end loans) are written down to the fair value of collateral, less costs to sell, no later than when they become 360 days past due. Unsecured consumer loans in bankruptcy are written off within 60 days of notification of filing by the bankruptcy court or within contractual write-off periods, whichever occurs earlier.

Our commercial loan and lease portfolio consists of a variety of loans and leases, including both larger balance, non-homogenous loans and leases and smaller balance homogenous commercial and equipment loans and leases. Losses on such loans and leases are recorded when probable and estimable. We routinely evaluate our entire portfolio for potential specific credit or collection issues that might indicate an impairment. For larger balance, non-homogenous loans and leases, this survey first considers the financial status, payment history, collateral value, industry conditions and guarantor support related to specific customers. Any delinquencies or bankruptcies are indications of potential impairment requiring further assessment of collectibility. We routinely receive financial as well as rating agency reports on our customers, and we elevate for further attention those customers whose operations we judge to be marginal or deteriorating. We also elevate customers for further attention when we observe a decline in collateral values for asset-based loans. While collateral values are not always available, when we observe such a decline, we evaluate relevant markets to assess recovery alternatives – for example, for real estate loans, relevant markets are local; for commercial aircraft loans, relevant markets are global. We provide allowances based on our evaluation of all available information, including expected future cash flows, fair value of collateral, net of expected disposal costs, and the secondary market value of the financing receivables. After providing for specific incurred losses, we then determine an allowance for losses that have been incurred in the balance of the portfolio but cannot yet be identified to a specific loan or lease. This estimate is based on historical and projected default rates and loss severity, and it is prepared by each respective line of business.

The remainder of our commercial loans and leases are portfolios of smaller balance homogenous commercial and equipment positions that we evaluate collectively by portfolio for impairment based upon various statistical analyses considering historical losses and aging, as well as our view on current market and economic conditions.

Experience is not available for new products; therefore, while we are developing that experience, we set loss allowances based on our experience with the most closely analogous products in our portfolio.

“Impaired” loans are defined as larger balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to the original contractual terms of the loan agreement. Troubled debt restructurings are those loans in which we have granted a concession to a borrower experiencing financial difficulties where we do not receive adequate compensation. Such loans are classified as impaired, and are individually reviewed for specific reserves.

When we repossess collateral in satisfaction of a loan, we write down the receivable against the allowance for losses. Repossessed collateral is included in the caption “Other assets” in the Statement of Financial Position and carried at the lower of cost or estimated fair value less costs to sell.

Partial sales of business interests

 

On January 1, 2009, we adopted amendments to Accounting Standards Codification (ASC) 810, Consolidation, which requires that gains or losses on sales of affiliate shares where we retain control be recorded in equity. Gains or losses on sales that result in our loss of control are recorded in earnings along with remeasurement gains or losses on any investments in the entity that we retained. Prior to January 1, 2009, we recorded gains or losses on sales of their own shares by affiliates except when realization of gains was not reasonably assured, in which case we recorded the results in shareowner’s equity.

 

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Cash and equivalents

 

Debt securities and money market instruments with original maturities of three months or less are included in cash equivalents unless designated as available-for-sale and classified as investment securities.

Investment securities

 

We report investments in debt and marketable equity securities, and certain other equity securities, at fair value. See Note 14 for further information on fair value. Unrealized gains and losses on available-for-sale investment securities are included in shareowner’s equity, net of applicable taxes and other adjustments. We regularly review investment securities for impairment using both quantitative and qualitative criteria. Effective April 1, 2009, the Financial Accounting Standards Board (FASB) amended ASC 320, Investments – Debt and Equity Securities. This amendment modified the existing model for recognition and measurement of impairment for debt securities. The two principal changes to the impairment model for securities are as follows:

·

Recognition of an other-than-temporary impairment charge for debt securities is required if any of these conditions are met: (1) we do not expect to recover the entire amortized cost basis of the security, (2) we intend to sell the security or (3) it is more likely than not that we will be required to sell the security before we recover its amortized cost basis.

·

If the first condition above is met, but we do not intend to sell and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis, we are required to record the difference between the security’s amortized cost basis and its recoverable amount in earnings and the difference between the security’s recoverable amount and fair value in other comprehensive income. If either the second or third criterion is met, then we are required to recognize the entire difference between the security’s amortized cost basis and its fair value in earnings.

If we do not intend to sell the security or it is not more likely than not that we will be required to sell the security before recovery of our amortized cost, we evaluate other qualitative criteria to determine whether a credit loss exists, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. Quantitative criteria include determining whether there has been an adverse change in expected future cash flows.

Realized gains and losses are accounted for on the specific identification method. Unrealized gains and losses on investment securities classified as trading and certain retained interests are included in earnings.

Inventories

 

All inventories are stated at the lower of cost or realizable values. Our inventories consist of finished products held for sale; cost is determined on a first-in, first-out basis.

Intangible assets

 

We do not amortize goodwill, but test it at least annually for impairment at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. We recognize an impairment charge if the carrying amount of a reporting unit exceeds its fair value and the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill. We use discounted cash flows to establish fair values. When available and as appropriate, we use comparative market multiples to corroborate discounted cash flow results. When all or a portion of a reporting unit is disposed of, goodwill is allocated to the gain or loss on disposition based on the relative fair values of the business disposed of and the portion of the reporting unit that will be retained.

We amortize the cost of other intangibles over their estimated useful lives. The cost of intangible assets is generally amortized on a straight-line basis over the asset’s estimated economic life. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values.

 

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Investment contracts, insurance liabilities and insurance annuity benefits

 

Certain entities, which we consolidate, provide guaranteed investment contracts to states, municipalities and municipal authorities.

Our insurance activities also include providing insurance and reinsurance for life and health risks and providing certain annuity products. Three product groups are provided: traditional insurance contracts, investment contracts and universal life insurance contracts. Insurance contracts are contracts with significant mortality and/or morbidity risks, while investment contracts are contracts without such risks. Universal life insurance contracts are a particular type of long-duration insurance contract whose terms are not fixed and guaranteed.

For short-duration insurance contracts, including accident and health insurance, we report premiums as earned income over the terms of the related agreements, generally on a pro-rata basis. For traditional long-duration insurance contracts including term, whole life and annuities payable for the life of the annuitant, we report premiums as earned income when due.

Premiums received on investment contracts (including annuities without significant mortality risk) and universal life contracts are not reported as revenues but rather as deposit liabilities. We recognize revenues for charges and assessments on these contracts, mostly for mortality, contract initiation, administration and surrender. Amounts credited to policyholder accounts are charged to expense.

Liabilities for traditional long-duration insurance contracts represent the present value of such benefits less the present value of future net premiums based on mortality, morbidity, interest and other assumptions at the time the policies were issued or acquired. Liabilities for investment contracts and universal life policies equal the account value, that is, the amount that accrues to the benefit of the contract or policyholder including credited interest and assessments through the financial statement date.

Liabilities for unpaid claims and claims adjustment expenses represent our best estimate of the ultimate obligations for reported and incurred-but-not-reported claims and the related estimated claim settlement expenses. Liabilities for unpaid claims and claims adjustment expenses are continually reviewed and adjusted through current operations.

Fair Value Measurements

 

We adopted ASC 820 in two steps; effective January 1, 2008, we adopted it for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis and effective January 1, 2009, for all non-financial instruments accounted for at fair value on a non-recurring basis.

For financial assets and liabilities fair valued on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:

Level 1  –

Quoted prices for identical instruments in active markets.

Level 2  –

Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3  –

Significant inputs to the valuation model are unobservable.

We maintain policies and procedures to value instruments using the best and most relevant data available. In addition, we have risk management teams that review valuation, including independent price validation for certain instruments. Further, in other instances, we retain independent pricing vendors to assist in valuing certain instruments.

 

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The following section describes the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis.

Investments in Debt and Equity Securities. When available, we use quoted market prices to determine the fair value of investment securities, and they are included in Level 1. Level 1 securities primarily include publicly-traded equity securities.

 

When quoted market prices are unobservable, we obtain pricing information from an independent pricing vendor. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to the model of the pricing vendor are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many fixed income securities do not trade on a daily basis, the methodology of the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. The pricing vendor considers available market observable inputs in determining the evaluation for a security. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2 and primarily comprise our portfolio of corporate fixed income, and government, mortgage and asset-backed securities. In infrequent circumstances, our pricing vendors may provide us with valuations that are based on significant unobservable inputs, and in those circumstances we classify the investment securities in Level 3.

Annually, we conduct reviews of our primary pricing vendor, to validate that the inputs used in that vendor’s pricing process are deemed to be market observable as defined in the standard. While we were not provided access to proprietary models of the vendor, our reviews have included on-site walk-throughs of the pricing process, methodologies and control procedures for each asset class and level for which prices are provided. Our review also included an examination of the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels and various durations, a process we continue to perform for each reporting period. In addition, the pricing vendor has an established challenge process in place for all security valuations, which facilitates identification and resolution of potentially erroneous prices. We believe that the prices received from our pricing vendor are representative of prices that would be received to sell the assets at the measurement date (exit prices) and are classified appropriately in the hierarchy.

We use non-binding broker quotes as our primary basis for valuation when there is limited, or no, relevant market activity for a specific instrument or for other instruments that share similar characteristics. We have not adjusted the prices we have obtained. Investment securities priced using non-binding broker quotes are included in Level 3. As is the case with our primary pricing vendor, third-party brokers do not provide access to their proprietary valuation models, inputs and assumptions. Accordingly, our risk management personnel conduct internal reviews of pricing for all such investment securities quarterly to ensure reasonableness of valuations used in our financial statements. These reviews are designed to identify prices that appear stale, those that have changed significantly from prior valuations, and other anomalies that may indicate that a price may not be accurate. Based on the information available, we believe that the fair values provided by the brokers are representative of prices that would be received to sell the assets at the measurement date (exit prices).

Retained interests in securitizations are valued using a discounted cash flow model that considers the underlying structure of the securitization and estimated net credit exposure, prepayment assumptions, discount rates and expected life.

Derivatives. We use closing prices for derivatives included in Level 1, which are traded either on exchanges or liquid over-the-counter markets.

The majority of our derivatives are valued using internal models. The models maximize the use of market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent interest rate swaps, cross-currency swaps and foreign currency and commodity forward and option contracts.

Derivative assets and liabilities included in Level 3 primarily represent interest rate products that contain embedded optionality or prepayment features.

 

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Non-Recurring Fair Value Measurements. Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These assets can include loans and long-lived assets that have been reduced to fair value when they are held for sale, impaired loans that have been reduced based on the fair value of the underlying collateral, cost and equity method investments and long-lived assets that are written down to fair value when they are impaired and the remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of a subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.

The following describes the valuation methodologies we use to measure financial and non-financial instruments accounted for at fair value on a non-recurring basis.

Loans. When available, we use observable market data, including pricing on recent closed market transactions, to value loans which are included in Level 2. When this data is unobservable, we use valuation methodologies using current market interest rate data adjusted for inherent credit risk, and such loans are included in Level 3. When appropriate, loans are valued using collateral values as a practical expedient.

Cost and Equity Method Investments. Cost and equity method investments are valued using market observable data such as quoted prices when available. When market observable data is unavailable, investments are valued using a discounted cash flow model, comparative market multiples or a combination of both approaches as appropriate. These investments are generally included in Level 3.

Investments in private equity, real estate and collective funds are valued using net asset values. The net asset values are determined based on the fair values of the underlying investments in the funds. Investments in private equity and real estate funds are generally included in Level 3 because they are not redeemable at the measurement date. Investments in collective funds are included in Level 2.

Long-lived Assets. Long-lived assets, including aircraft and real estate, are valued using the best information available, including quoted market prices or market prices for similar assets when available or internal cash flow estimates discounted at an appropriate interest rate or independent appraisals, as appropriate. For real estate, cash flow estimates are based on current market estimates that reflect current and projected lease profiles and available industry information about expected trends in rental, occupancy and capitalization rates. These investments are generally included in Level 3.

Investments in Subsidiaries and Formerly Consolidated Subsidiaries. Upon a change in control that results in either consolidation or deconsolidation of a subsidiary, the fair value measurement of our previous equity investment or retained noncontrolling stake in the former subsidiary, respectively, are valued using an income approach, a market approach, or a combination of both approaches as appropriate. In applying these methodologies, we rely on a number of factors, including actual operating results, future business plans, economic projections, market observable pricing multiples of similar businesses and comparable transactions, and possible control premium. These investments are included in Level 3.

Accounting Changes

 

The FASB has made the Accounting Standards Codification (ASC) effective for financial statements issued for interim and annual periods ending after September 15, 2009. The ASC combines all previously issued authoritative GAAP into one codified set of guidance organized by subject area. In these financial statements, references to previously issued accounting standards have been replaced with the relevant ASC references. Subsequent revisions to GAAP by the FASB will be incorporated into the ASC through issuance of Accounting Standards Updates (ASU).

We adopted ASC 820, Fair Value Measurements and Disclosures, in two steps; effective January 1, 2008, we adopted it for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis and effective January 1, 2009, for all non-financial instruments accounted for at fair value on a non-recurring basis. This guidance establishes a new framework for measuring fair value and expands related disclosures. See Note 14.

 

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Effective January 1, 2008, we adopted ASC 825, Financial Instruments. Upon adoption, we elected to report $172 million of commercial mortgage loans at fair value in order to recognize them on the same accounting basis (measured at fair value through earnings) as the derivatives economically hedging these loans. See Note 14.

On January 1, 2009, we adopted an amendment to ASC 805, Business Combinations. This amendment significantly changed the accounting for business acquisitions both during the period of the acquisition and in subsequent periods. Among the more significant changes in the accounting for acquisitions are the following:

·	Acquired in-process research and development (IPR&D) is accounted for as an asset, with the cost recognized as the research and development is realized or abandoned. IPR&D was previously expensed at the time of the acquisition.

·	Contingent consideration is recorded at fair value as an element of purchase price with subsequent adjustments recognized in operations. Contingent consideration was previously accounted for as a subsequent adjustment of purchase price.

·	Subsequent decreases in valuation allowances on acquired deferred tax assets are recognized in operations after the measurement period. Such changes were previously considered to be subsequent changes in consideration and were recorded as decreases in goodwill.

·	Transaction costs are expensed. These costs were previously treated as costs of the acquisition.

·	Upon gaining control of an entity in which an equity method or cost basis investment was held, the carrying value of that investment is adjusted to fair value with the related gain or loss recorded in earnings. Previously, this fair value adjustment would not have been made.

In April 2009, the FASB amended ASC 805 and changed the previous accounting for assets and liabilities arising from contingencies in a business combination. We adopted this amendment retrospectively effective January 1, 2009. The amendment requires pre-acquisition contingencies to be recognized at fair value, if fair value can be determined or reasonably estimated during the measurement period. If fair value cannot be determined or reasonably estimated, the standard requires measurement based on the recognition and measurement criteria of ASC 450, Contingencies.

On January 1, 2009, we adopted an amendment to ASC 810, which requires us to make certain changes to the presentation of our financial statements. This amendment requires us to classify earnings attributable to noncontrolling interests (previously referred to as “minority interest”) as part of consolidated net earnings ($58 million and $242 million for 2009 and 2008, respectively) and to include the accumulated amount of noncontrolling interests as part of shareowner’s equity ($2,204 million and $2,383 million at December 31, 2009 and 2008, respectively). The net earnings amounts we have previously reported are now presented as "Net earnings attributable to GECC". Similarly, in our presentation of shareowner’s equity, we distinguish between equity amounts attributable to GECC shareowner and amounts attributable to the noncontrolling interests – previously classified as minority interest outside of shareowner’s equity. Beginning January 1, 2009, dividends to noncontrolling interests ($11 million in 2009) are classified as financing cash flows. In addition to these financial reporting changes, this guidance provides for significant changes in accounting related to noncontrolling interests; specifically, increases and decreases in our controlling financial interests in consolidated subsidiaries will be reported in equity similar to treasury stock transactions. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net earnings.

We adopted amendments to ASC 320, Investments – Debt and Equity Securities, and recorded a cumulative effect adjustment to increase retained earnings as of April 1, 2009, of $25 million.

On January 1, 2007, we adopted amendments to ASC 740, Income Taxes. Among other things, the amendment requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions and require recalculation of returns on leveraged leases when there is a change in the timing or projected timing of cash flows relating to income taxes associated with such leases. The January 1, 2007 transition reduced our retained earnings by $77 million, all of which was associated with the recalculation of returns on leverage leases. There was a decrease in financing receivables-net by this amount.

 

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NOTE 2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS

 

Assets and Liabilities of Businesses Held for Sale

 

On January 7, 2009, we exchanged our Consumer businesses in Austria and Finland, the credit card and auto businesses in the U.K., and the credit card business in Ireland for a 100% ownership interest in Interbanca S.p.A., an Italian corporate bank. Assets and liabilities of $7,887 million and $636 million, respectively, were classified as held for sale at December 31, 2008; we recognized a $184 million loss, net of tax, related to the classification of the assets held for sale at the lower of carrying amount or estimated fair value less costs to sell.

On December 24, 2008, we committed to sell a portion of our Australian residential mortgage business, including certain underlying mortgage receivables, and completed this sale during the first quarter of 2009. Assets of $2,669 million were classified as held for sale at December 31, 2008 (liabilities were insignificant); we recognized a $38 million loss, net of tax, related to the classifications of the assets held for sale at the lower of carrying amount or estimated fair value less costs to sell.

Summarized financial information for businesses held for sale is shown below.

December 31 (In millions)	2009			2008
Assets
Cash and equivalents	$	–		$	35
Financing receivables - net		42			9,915
Intangible assets - net		10			394
Other		73			212
Assets of businesses held for sale	$	125		$	10,556
Liabilities
Liabilities of businesses held for sale	$	55		$	636

Discontinued Operations

 

Discontinued operations primarily comprised GE Money Japan (our Japanese personal loan business, Lake, and our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd.) and our U.S. mortgage business (WMC). Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.

GE Money Japan

 

During the third quarter of 2007, we committed to a plan to sell Lake upon determining that, despite restructuring, Japanese regulatory limits for interest charges on unsecured personal loans did not permit us to earn an acceptable return. During the third quarter of 2008, we completed the sale of GE Money Japan, which included Lake, along with our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd. As a result, we recognized an after-tax loss of $908 million in 2007 and an incremental loss in 2008 of $361 million. GE Money Japan revenues from discontinued operations were $1 million, $763 million and $1,307 million in 2009, 2008 and 2007, respectively. In total, GE Money Japan losses from discontinued operations, net of taxes, were $158 million, $651 million and $1,220 million in 2009, 2008 and 2007, respectively.

 

 

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WMC

 

During the fourth quarter of 2007, we completed the sale of our U.S. mortgage business. In connection with the transaction, WMC retained certain obligations related to loans sold prior to the disposal of the business, including WMC’s contractual obligations to repurchase previously sold loans as to which there was an early payment default or with respect to which certain contractual representations and warranties were not met. Reserves related to these obligations were $205 million at December 31, 2009, and $244 million at December 31, 2008. The amount of these reserves is based upon pending and estimated future loan repurchase requests, the estimated percentage of loans validly tendered for repurchase, and our estimated losses on loans repurchased. Based on our historical experience, we estimate that a small percentage of the total loans we originated and sold will be tendered for repurchase, and of those tendered, only a limited amount will qualify as “validly tendered,” meaning the loans sold did not satisfy specified contractual obligations. The amount of our current reserve represents our best estimate of losses with respect to our repurchase obligations. However, actual losses could exceed our reserve amount if actual claim rates, valid tenders or losses we incur on repurchased loans are higher than historically observed. WMC revenues from discontinued operations were $2 million, $(71) million and $(1,424) million in 2009, 2008 and 2007, respectively. In total, WMC’s loss from discontinued operations, net of taxes, were $1 million, $41 million and $987 million in 2009, 2008 and 2007, respectively.

 

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Summarized financial information for discontinued operations is shown below.

(In millions)	2009			2008			2007
Operations
Total revenues	$	3		$	692		$	(117)
Loss from discontinued operations before income taxes	$	(114)		$	(546)		$	(2,223)
Income tax benefit		32			203			980
Loss from discontinued operations, net of taxes	$	(82)		$	(343)		$	(1,243)
Disposal
Loss on disposal before income taxes	$	(37)		$	(1,481)		$	(1,477)
Income tax benefit (expense)		(5)			1,120			589
Loss on disposal, net of taxes	$	(42)		$	(361)		$	(888)
Loss from discontinued operations, net of taxes	$	(124)		$	(704)		$	(2,131)
December 31 (In millions)				2009			2008
Assets
Cash and equivalents				$	184		$	180
Other assets					12			19
Other					1,274			1,441
Assets of discontinued operations				$	1,470		$	1,640
December 31 (In millions)
				2009			2008
Liabilities
Liabilities of discontinued operations				$	853		$	799

Assets at December 31, 2009 and 2008, primarily comprised a deferred tax asset for a loss carryforward, which expires in 2015, related to the sale of our GE Money Japan business.

 

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NOTE 3. INVESTMENT SECURITIES

 

The vast majority of our investment securities are classified as available-for-sale and comprise mainly investment-grade debt securities supporting obligations to holders of guaranteed investment contracts and retained interests in securitization entities.

	2009												2008
				Gross			Gross									Gross			Gross
	Amortized			unrealized			unrealized			Estimated			Amortized			unrealized			unrealized			Estimated
December 31 (In millions)	cost			gains			losses			fair value			cost			gains			losses			fair value
Debt
U.S. corporate	$	4,954		$	83		$	(236)		$	4,801		$	4,456		$	54		$	(637)		$	3,873
State and municipal		887			3			(216)			674			915			5			(70)			850
Residential		2,999			21			(722)			2,298			4,228			9			(976)			3,261
mortgage-backed(a)
Commercial		1,599			5			(302)			1,302			1,664			-			(509)			1,155
mortgage-backed
Asset-backed		2,786			37			(298)			2,525			2,922			2			(668)			2,256
Corporate – non-U.S.		994			18			(26)			986			608			6			(23)			591
Government – non-U.S.		2,461			15			(25)			2,451			936			2			(15)			923
U.S. government and
federal agency		1,865			–			–			1,865			26			3			-			29
Retained interests(b)		7,252			362			(21)			7,593			5,144			73			(136)			5,081
Equity
Available-for-sale		885			239			(3)			1,121			1,023			22			(134)			911
Trading		720			–			–			720			388			-			-			388
Total	$	27,402		$	783		$	(1,849)		$	26,336		$	22,310		$	176		$	(3,168)		$	19,318

(a)	Substantially collateralized by U.S. mortgages.

 

(b)	Included $1,918 million and $1,752 million of retained interests at December 31, 2009 and 2008, respectively, accounted for at fair value in accordance with ASC 815, Derivatives and Hedging. See Note 16.

 

The fair value of investment securities increased to $26.3 billion at December 31, 2009, from $19.3 billion at December 31, 2008, primarily driven by decreases in unrealized losses due to market improvements, investment of cash into short-term investments such as money market funds and certificates of deposits, and an increase in our retained interests in securitization entities.

 

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The following tables present the gross unrealized losses and estimated fair values of our available-for-sale investment securities.

	In loss position for
	Less than 12 months						12 months or more
				Gross						Gross
	Estimated			unrealized			Estimated			unrealized
December 31 (In millions)	fair value			losses			fair value			losses
2009
Debt
U.S. corporate	$	601		$	(20)		$	1,365		$	(216)
State and municipal		229			(120)			421			(96)
Residential mortgage-backed		70			(4)			1,561			(718)
Commercial mortgage-backed		–			–			1,015			(302)
Asset-backed		60			(7)			1,311			(291)
Corporate – non-U.S.		310			(14)			346			(12)
Government – non-U.S.		368			(3)			193			(22)
U.S. government and federal agency		–			–			–			–
Retained interests		13			(1)			4			(20)
Equity		22			(2)			8			(1)
Total	$	1,673		$	(171)		$	6,224		$	(1,678)
2008
Debt
U.S. corporate	$	1,152		$	(397)		$	1,253		$	(240)
State and municipal		302			(21)			278			(49)
Residential mortgage-backed		1,216			(64)			1,534			(912)
Commercial mortgage-backed		285			(85)			870			(424)
Asset-backed		903			(406)			1,031			(262)
Corporate – non-U.S.		60			(7)			265			(16)
Government – non-U.S.		–			–			275			(15)
U.S. government and federal agency		–			–			–			–
Retained interests		1,246			(61)			238			(75)
Equity		200			(132)			6			(2)
Total	$	5,364		$	(1,173)		$	5,750		$	(1,995)

We adopted amendments to ASC 320 and recorded a cumulative effect adjustment to increase retained earnings as of April 1, 2009, of $25 million.

We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell our debt securities and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position before recovery of our amortized cost. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future.

The vast majority of our U.S. corporate debt securities are rated investment grade by the major rating agencies. We evaluate U.S. corporate debt securities based on a variety of factors such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. In the event a U.S. corporate debt security is deemed to be other-than-temporarily impaired, we isolate the credit portion of the impairment by comparing the present value of our expectation of cash flows to the amortized cost of the security. We discount the cash flows using the original effective interest rate of the security.

The vast majority of our residential mortgage-backed securities (RMBS) have investment-grade credit ratings from the major rating agencies and are in a senior position in the capital structure of the deal. Of our total RMBS at December 31, 2009 and 2008, approximately $883 million and $1,284 million, respectively, relate to residential subprime credit, primarily supporting our guaranteed investment contracts. These are collateralized primarily by pools of individual, direct mortgage loans (a majority of which were originated in 2006 and 2005), not other structured products such as collateralized debt obligations. In addition, of the total residential subprime credit exposure at December 31, 2009 and 2008, approximately $765 million and $1,089 million, respectively, was insured by Monoline insurers (Monolines).

 

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The vast majority of our commercial mortgage-backed securities (CMBS) also have investment-grade credit ratings from the major rating agencies and are in a senior position in the capital structure of the deal. Our CMBS investments are collateralized by both diversified pools of mortgages that were originated for securitization (conduit CMBS) and pools of large loans backed by high quality properties (large loan CMBS), a majority of which were originated in 2006 and 2007.

For asset-backed securities, including RMBS, we estimate the portion of loss attributable to credit using a discounted cash flow model that considers estimates of cash flows generated from the underlying collateral. Estimates of cash flows consider internal credit risk, interest rate and prepayment assumptions that incorporate management’s best estimate of key assumptions, including default rates, loss severity and prepayment rates. For CMBS, we estimate the portion of loss attributable to credit by evaluating potential losses on each of the underlying loans in the security. Collateral cash flows are considered in the context of our position in the capital structure of the deal. Assumptions can vary widely depending upon the collateral type, geographic concentrations and vintage.

If there has been an adverse change in cash flows for RMBS, management considers credit enhancements such as monoline insurance (which are features of a specific security). In evaluating the overall credit worthiness of the Monoline, we use an analysis that is similar to the approach we use for corporate bonds, including an evaluation of the sufficiency of the Monoline’s cash reserves and capital, ratings activity, whether the Monoline is in default or default appears imminent, and the potential for intervention by an insurance or other regulator.

During the period April 1, 2009, through December 31, 2009, we recorded pre-tax, other-than-temporary impairments of $489 million, of which $185 million was recorded through earnings ($28 million relates to equity securities), and $304 million was recorded in accumulated other comprehensive income (AOCI).

Prior to April 1, 2009, we recognized impairments in earnings of $157 million associated with debt securities still held. As of April 1, 2009, we reversed previously recognized impairments of $40 million ($25 million after tax) as an adjustment to retained earnings in accordance with the amendments to ASC 320. Subsequent to April 1, 2009, we recognized first time impairments of $74 million and incremental charges on previously impaired securities of $78 million. These amounts included $84 million related to securities that were subsequently sold.

Contractual Maturities of our Investment in Available-for-Sale Debt Securities (Excluding Mortgage-Backed and Asset-Backed Securities)

 

	Amortized			Estimated
(In millions)	cost			fair value
Due in
2010	$	5,978		$	5,975
2011-2014		2,660			2,685
2015-2019		1,753			1,511
2020 and later		770			606

We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.

Supplemental information about gross realized gains and losses on available-for-sale investment securities follows.

(In millions)	2009			2008			2007
Gains	$	105		$	160		$	378
Losses, including impairments		(356)			(792)			(11)
Net	$	(251)		$	(632)		$	367

 

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Although we generally do not have the intent to sell any specific securities at the end of the period, in the ordinary course of managing our investment securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. In some of our bank subsidiaries we maintain a certain level of purchases and sales volume principally of non-U.S. government debt securities. In these situations, fair value approximates carrying value for these securities.

Proceeds from investment securities sales and early redemptions by the issuer totaled $6,842 million, $3,174 million and $13,451 million in 2009, 2008 and 2007, respectively, principally from the sales and early redemptions of securities in our bank subsidiaries in 2009 and securities that support the guaranteed investment contract portfolio in 2008.

We recognized pre-tax gains on trading securities of $408 million, $108 million and $292 million in 2009, 2008 and 2007, respectively. Investments in retained interests increased by $291 million during 2009, decreased $113 million and $102 million during 2008 and 2007, respectively, reflecting changes in fair value.

NOTE 4. FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES

 

December 31 (In millions)	2009			2008
Loans, net of deferred income	$	289,206		$	308,821
Investment in financing leases, net of deferred income		54,173			67,077
		343,379			375,898
Less allowance for losses		(8,091)			(5,306)
Financing receivables – net(a)	$	335,288		$	370,592

(a)

Included $3,444 million and $6,461 million primarily related to consolidated, liquidating securitization entities at December 31, 2009 and 2008, respectively. In addition, financing receivables at December 31, 2009 and 2008, included $2,704 million and $2,736 million, respectively, relating to loans that had been acquired in a transfer but have been subject to credit deterioration since origination per ASC 310, Receivables.

 

Effective January 1, 2009, loans acquired in a business acquisition are recorded at fair value, which incorporates our estimate at the acquisition date of the credit losses over the remaining life of the portfolio. As a result, the allowance for loan losses is not carried over at acquisition. This may result in lower reserve coverage ratios prospectively. Details of financing receivables – net follow.

 

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December 31 (In millions)	2009			2008
CLL(a)
Americas	$	86,721		$	104,462
Europe		38,737			36,972
Asia		13,202			16,683
Other		771			786
		139,431			158,903
Consumer(a)
Non-U.S. residential mortgages		58,831			60,753
Non-U.S. installment and revolving credit		25,208			24,441
U.S. installment and revolving credit		23,190			27,645
Non-U.S. auto		13,485			18,168
Other		12,808			11,541
		133,522			142,548
Real Estate		44,841			46,735
Energy Financial Services		7,756			8,355
GECAS(b)		15,215			15,326
Other(c)		2,614			4,031
		343,379			375,898
Less allowance for losses		(8,091)			(5,306)
Total	$	335,288		$	370,592

(a)	During the first quarter of 2009, we transferred Artesia from CLL to Consumer. Prior-period amounts were reclassified to conform to the current-period’s presentation.

 

(b)	Included loans and financing leases of $13,254 million and $13,078 million at December 31, 2009 and 2008, respectively, related to commercial aircraft at Aviation Financial Services.

 

(c)	Consisted of loans and financing leases related to certain consolidated, liquidating securitization entities.

 

Financing receivables include both loans and financing leases. Loans represent transactions in a variety of forms, including revolving charge and credit, mortgages, installment loans, intermediate-term loans and revolving loans secured by business assets. The portfolio includes loans carried at the principal amount on which finance charges are billed periodically, and loans carried at gross book value, which includes finance charges.

Investment in financing leases consists of direct financing and leveraged leases of aircraft, railroad rolling stock, autos, other transportation equipment, data processing equipment, medical equipment, commercial real estate and other manufacturing, power generation, and commercial equipment and facilities.

For federal income tax purposes, the leveraged leases and the majority of the direct financing leases are leases in which we depreciate the leased assets and are taxed upon the accrual of rental income. Certain direct financing leases are loans for federal income tax purposes. For these transactions, we are taxable only on the portion of each payment that constitutes interest, unless the interest is tax-exempt (e.g., certain obligations of state governments).

Investment in direct financing and leveraged leases represents net unpaid rentals and estimated unguaranteed residual values of leased equipment, less related deferred income. We have no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. Our share of rentals receivable on leveraged leases is subordinate to the share of other participants who also have security interests in the leased equipment.

For federal income tax purposes, we are entitled to deduct the interest expense accruing on nonrecourse financing related to leveraged leases.

 

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Net Investment in Financing Leases

	Total financing leases						Direct financing leases(a)						Leveraged leases(b)
December 31 (In millions)	2009			2008			2009			2008			2009			2008
Total minimum lease
payments receivable	$	63,609		$	80,413		$	49,974		$	62,996		$	13,635		$	17,417
Less principal and interest
on third-party nonrecourse debt		(9,367)			(12,416)			-			-			(9,367)			(12,416)
Net rentals receivable		54,242			67,997			49,974			62,996			4,268			5,001
Estimated unguaranteed
residual value of leased assets		9,494			10,077			6,760			7,302			2,734			2,775
Less deferred income		(9,563)			(10,997)			(7,619)			(8,694)			(1,944)			(2,303)
Investment in financing
leases, net of deferred income		54,173			67,077			49,115			61,604			5,058			5,473
Less amounts to arrive at
net investment
Allowance for losses		(652)			(495)			(532)			(437)			(120)			(58)
Deferred taxes		(5,928)			(6,964)			(2,290)			(2,820)			(3,638)			(4,144)
Net investment in financing	$	47,593		$	59,618		$	46,293		$	58,347		$	1,300		$	1,271
leases

(a)	Included $615 million and $824 million of initial direct costs on direct financing leases at December 31, 2009 and 2008, respectively.

 

(b)	Included pre-tax income of $162 million and $265 million and income tax of $64 million and $105 million during 2009 and 2008, respectively. Net investment credits recognized on leveraged leases during 2009 and 2008 were inconsequential.

 

Contractual Maturities

 

		Total			Net rentals
(In millions)	loans			receivables
Due in
2010	$	84,141		$	15,890
2011		40,021			11,031
2012		32,187			7,944
2013		25,374			5,584
2014		22,792			3,217
2015 and later		84,691			10,576
Total	$	289,206		$	54,242

We expect actual maturities to differ from contractual maturities.

Individually impaired loans are defined by GAAP as larger balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. An analysis of impaired loans and specific reserves follows. The vast majority of our consumer and a portion of our CLL nonearning receivables are excluded from this definition, as they represent smaller balance homogeneous loans that we evaluate collectively by portfolio for impairment.

 

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December 31 (In millions)	2009			2008
Loans requiring allowance for losses	$	9,145		$	2,712
Loans expected to be fully recoverable		3,741			871
Total impaired loans	$	12,886		$	3,583
Allowance for losses (specific reserves)	$	2,331		$	635
Average investment during the period		8,493			2,064
Interest income earned while impaired(a)		227			48

(a)	Recognized principally on cash basis.

 

Impaired loans increased by $9,303 million from December 31, 2008, to December 31, 2009 primarily relating to increases at Real Estate ($5,678 million) and CLL ($2,697 million). We regularly review our Real Estate loans for impairment using both quantitative and qualitative factors, such as debt service coverage and loan-to-value ratios. We classify Real Estate loans as impaired when the most recent valuation reflects a projected loan-to-value ratio at maturity in excess of 100%, even if the loan is currently paying in accordance with contractual terms. The increase in impaired loans and related specific reserves at Real Estate reflects our current estimate of collateral values of the underlying properties, and our estimate of loans which are not past due, but for which it is probable that we will be unable to collect the full principal balance at maturity due to a decline in the underlying value of the collateral. Of our $6,519 million impaired loans at Real Estate at December 31, 2009, $4,396 million are currently paying in accordance with the contractual terms of the loan. Impaired loans at CLL primarily represent senior secured lending positions.

 

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Allowance for Losses on Financing Receivables

 

	Balance			Provision												Balance
	January 1,			charged to						Gross						December 31,
(In millions)	2009			operations			Other(a)			write-offs			Recoveries			2009
CLL(b)
Americas	$	824		$	1,358		$	(30)		$	(1,077)		$	90		$	1,165
Europe		288			570			(16)			(331)			33			544
Asia		163			257			3			(203)			24			244
Other		2			6			1			(1)			–			8
Consumer(b)
Non-U.S. residential
mortgages		383			915			78			(519)			95			952
Non-U.S. installment
and revolving credit		1,051			1,835			42			(2,320)			579			1,187
U.S. installment and
revolving credit		1,700			3,576			(974)			(2,817)			213			1,698
Non-U.S. auto		222			408			18			(556)			220			312
Other		226			389			57			(465)			111			318
Real Estate		301			1,442			13			(264)			2			1,494
Energy Financial
Services		58			33			4			(67)			–			28
GECAS		60			69			(4)			(18)			–			107
Other		28			29			–			(24)			1			34
Total	$	5,306		$	10,887		$	(808)		$	(8,662)		$	1,368		$	8,091

(a)	Other primarily included the effects of securitization activity, currency exchange and dispositions.

 

(b)	During the first quarter of 2009, we transferred Artesia from CLL to Consumer. Prior-period amounts were reclassified to conform to the current-period’s presentation.

 

 

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	Balance			Provision												Balance
	January 1,			charged to						Gross						December 31,
(In millions)	2008			operations			Other(a)			write-offs			Recoveries			2008
CLL(b)
Americas	$	451		$	888		$	112		$	(703)		$	76		$	824
Europe		230			310			(31)			(247)			26			288
Asia		226			152			34			(256)			7			163
Other		3			2			(3)			(1)			1			2
Consumer(b)
Non-U.S. residential
mortgages		246			324			(38)			(218)			69			383
Non-U.S. installment
and revolving credit		1,371			1,748			(417)			(2,551)			900			1,051
U.S. installment and
revolving credit		985			3,217			(624)			(2,173)			295			1,700
Non-U.S. auto		324			376			(124)			(637)			283			222
Other		167			229			9			(248)			69			226
Real Estate		168			135			9			(12)			1			301
Energy Financial
Services		19			36			3			–			–			58
GECAS		8			53			–			(1)			–			60
Other		18			28			–			(18)			–			28
Total	$	4,216		$	7,498		$	(1,070)		$	(7,065)		$	1,727		$	5,306

(a)	Other primarily included the effects of securitization activity, currency exchange, dispositions and acquisitions.

 

(b)	During the first quarter of 2009, we transferred Artesia from CLL to Consumer. Prior-period amounts were reclassified to conform to the current-period’s presentation.

 

 

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	Balance			Provision												Balance
	January 1,			charged to						Gross						December 31,
(In millions)	2007			operations			Other(a)			write-offs			Recoveries			2007
CLL(b)
Americas	$	385		$	402		$	(21)		$	(406)		$	91		$	451
Europe		204			114			44			(171)			39			230
Asia		48			40			186			(55)			7			226
Other		1			1			1			–			–			3
Consumer(b)
Non-U.S. residential
mortgages		417			(139)			5			(129)			92			246
Non-U.S. installment
and revolving credit		1,253			1,669			(23)			(2,324)			796			1,371
U.S. installment and
revolving credit		876			1,960			(703)			(1,505)			357			985
Non-U.S. auto		279			279			57			(653)			362			324
Other		175			123			(3)			(198)			70			167
Real Estate		155			24			6			(25)			8			168
Energy Financial
Services		28			(9)			–			–			–			19
GECAS		16			15			–			(23)			–			8
Other		24			9			–			(17)			2			18
Total	$	3,861		$	4,488		$	(451)		$	(5,506)		$	1,824		$	4,216

(a)	Other primarily included the effects of acquisitions, currency exchange and securitization activity.

 

(b)	During the first quarter of 2009, we transferred Artesia from CLL to Consumer. Prior-period amounts were reclassified to conform to the current-period’s presentation.

 

 

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NOTE 5. PROPERTY, PLANT AND EQUIPMENT

 

	Depreciable
	lives-new
December 31 (Dollars in millions)	(in years)			2009			2008
Original cost(a)
Land and improvements, buildings, structures and
related equipment		2-40	(b)	$	6,083		$	7,040
Equipment leased to others
Aircraft		20			42,634			40,478
Vehicles(c)		1-14			21,589			32,098
Railroad rolling stock		5-36			4,290			4,402
Construction and manufacturing		2-24			2,758			3,357
Mobile equipment		12-25			2,786			2,952
All other		2-40			2,847			2,742
Total				$	82,987		$	93,069
Net carrying value(a)
Land and improvements, buildings, structures and
related equipment				$	3,764		$	4,504
Equipment leased to others
Aircraft(d)					32,983			32,288
Vehicles(c)					11,519			18,149
Railroad rolling stock					2,887			2,915
Construction and manufacturing					1,696			2,328
Mobile equipment					1,913			2,021
All other					1,929			1,838
Total				$	56,691		$	64,043

(a)	Included $1,609 million and $1,748 million of original cost of assets leased to GE with accumulated amortization of $572 million and $491 million at December 31, 2009 and 2008, respectively.

 

(b)	Depreciable lives exclude land.

 

(c)	At December 31, 2008, included $7,774 million of original cost assets and $4,737 million net carrying value related to Penske Truck Leasing Co., L.P. (PTL), which was deconsolidated in 2009.

 

(d)	GECAS recognized impairment losses of $127 million in 2009 and $72 million in 2008 recorded in the caption “Depreciation and amortization” in the Statement of Earnings to reflect adjustments to fair value based on current market values from independent appraisers.

 

Amortization of equipment leased to others was $7,157 million, $8,153 million and $7,192 million in 2009, 2008 and 2007, respectively. Noncancellable future rentals due from customers for equipment on operating leases at December 31, 2009, are as follows:

(In millions)
Due in
2010	$	7,812
2011		6,110
2012		4,724
2013		3,729
2014		3,046
2015 and later		8,820
Total	$	34,241

 

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NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS

 

December 31 (In millions)	2009			2008
Goodwill	$	28,820		$	25,204
Other intangible assets
Intangible assets subject to amortization	$	3,018		$	3,174

Changes in goodwill balances follow.

	2009												2008
				Acquisitions/			Dispositions,									Acquisitions/			Dispositions,
				acquisition			currency									acquisition			currency
	Balance			accounting			exchange			Balance			Balance			accounting			exchange			Balance
(In millions)	January 1			adjustments			and other			December 31			January 1			adjustments			and other			December 31
CLL	$	12,321	(a)	$	1,588		$	(15)		$	13,894		$	11,521	(a)	$	1,048		$	(248)		$	12,321
Consumer		9,407	(a)		1,648			406			11,461			10,623	(a)		475			(1,691)			9,407
Real Estate		1,159			(7)			37			1,189			1,055			170			(66)			1,159
Energy Financial Services		2,162			(4)			(39)			2,119			1,890			330			(58)			2,162
GECAS		155			–			2			157			162			1			(8)			155
Total	$	25,204		$	3,225		$	391		$	28,820		$	25,251		$	2,024		$	(2,071)		$	25,204

(a)	Reflected the transfer of Artesia during the first quarter of 2009, resulting in a related movement of beginning goodwill balance of $326 million in 2009 and $350 million in 2008.

 

Goodwill related to new acquisitions in 2009 was $3,004 million and included acquisitions of BAC Credomatic GECF Inc. (BAC) ($1,605 million) at Consumer and Interbanca S.p.A. ($1,394 million) at CLL. During 2009, the goodwill balance increased by $221 million related to acquisition accounting adjustments for prior-year acquisitions. The most significant of these adjustments was an increase of $180 million associated with the 2008 acquisition of CitiCapital at CLL. Also during 2009, goodwill balances increased $391 million, primarily as a result of the weaker U.S. dollar ($1,148 million), partially offset by the deconsolidation of PTL ($634 million) at CLL.

On June 25, 2009, we increased our ownership in BAC from 49.99% to 75% for a purchase price of $623 million, in accordance with terms of a previous agreement. We remeasured our previously held equity investment to fair value, resulting in a pre-tax gain of $343 million, which is reported in Revenues from services.

In 2008, goodwill balances decreased $1,514 million as a result of the stronger U.S. dollar. Goodwill balances increased $1,527 million in 2008 from new acquisitions. The most significant increases related to acquisitions of Merrill Lynch Capital ($643 million) at CLL, Energy Financial Services, Real Estate and GECAS, Bank BPH ($470 million) at Consumer, CDM Resource Management, Ltd. ($229 million) at Energy Financial Services and CitiCapital ($166 million) at CLL. During 2008, the goodwill balance increased by $497 million related to acquisition accounting adjustments for prior-year acquisitions.

Upon closing an acquisition, we estimate the fair values of assets and liabilities acquired and consolidate the acquisition as quickly as possible. Given the time it takes to obtain pertinent information to finalize the acquired company’s balance sheet, then to adjust the acquired company’s accounting policies, procedures, and books and records to our standards, it is often several quarters before we are able to finalize those initial fair value estimates. Accordingly, it is not uncommon for our initial estimates to be subsequently revised.

Given the significant decline in GE’s stock price in the first quarter of 2009 and market conditions in the financial services industry at that time, we conducted an additional impairment analysis of the reporting units during the first quarter of 2009 using data as of January 1, 2009. As a result of these tests, no goodwill impairment was recognized.

 

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We performed our annual impairment test for goodwill at all of our reporting units in the third quarter using data as of July 1, 2009. In performing the valuations, we used cash flows that reflected management’s forecasts and discount rates that reflect the risks associated with the current market. Based on the results of our testing, the fair values of CLL, Consumer, Energy Financial Services and GECAS reporting units exceeded their book values; therefore, the second step of the impairment test (in which fair value of each of the reporting unit’s assets and liabilities are measured) was not required to be performed and no goodwill impairment was recognized. Due to the volatility and uncertainties in the current commercial real estate environment, we used a range of valuations to determine the fair value for our Real Estate reporting unit. While the Real Estate reporting unit’s book value was within the range of its fair value, we further substantiated our Real Estate goodwill balance by performing the second step analysis described above. As a result of our tests for Real Estate, no goodwill impairment was recognized. Our Real Estate reporting unit had a goodwill balance of $1,189 million at December 31, 2009.

Estimating the fair value of reporting units involves the use of estimates and significant judgments that are based on a number of factors including actual operating results. If current conditions change from those expected, it is reasonably possible that the judgments and estimates described above could change in future periods.

Intangible Assets Subject to Amortization

 

	2009									2008
	Gross									Gross
	carrying			Accumulated						carrying			Accumulated
December 31 (In millions)	amount			amortization			Net			amount			amortization			Net
Customer-related	$	1,831		$	(690)		$	1,141		$	1,790		$	(616)		$	1,174
Patents, licenses and trademarks		630			(461)			169			564			(460)			104
Capitalized software		2,169			(1,558)			611			2,148			(1,463)			685
Lease valuations		1,754			(793)			961			1,761			(594)			1,167
All other		475			(339)			136			233			(189)			44
Total	$	6,859		$	(3,841)		$	3,018		$	6,496		$	(3,322)		$	3,174

During 2009, we recorded additions to intangible assets subject to amortization of $668 million. The components of finite-lived intangible assets acquired during 2009 and their respective weighted-average amortizable period are: $160 million – Customer-related (11.5 years); $53 million – Patents, licenses and trademarks (9.9 years); $192 million – Capitalized software (4.6 years); $4 million – Lease valuations (5.2 years); and $259 million – All other (4.0 years).

Amortization expense related to intangible assets subject to amortization was $888 million and $926 million for 2009 and 2008, respectively. We estimate annual pre-tax amortization for intangible assets subject to amortization over the next five calendar years to be as follows: 2010 - $710 million; 2011 - $533 million; 2012 - $399 million; 2013 - $297 million; 2014 - $437 million.

 

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NOTE 7. OTHER ASSETS

 

December 31 (In millions)	2009			2008
Investments
Real estate(a)(b)	$	36,933		$	36,713
Associated companies		26,000			19,289
Assets held for sale(c)		3,692			5,038
Cost method(b)		1,946			2,463
Other		1,984			1,836
		70,555			65,339
Derivative instruments		7,251			11,211
Advances to suppliers		2,224			2,187
Deferred acquisition costs		77			101
Deferred borrowing costs(d)		2,559			1,497
Other		3,857			3,866
Total	$	86,523		$	84,201

(a)

Our investment in real estate consisted principally of two categories: real estate held for investment and equity method investments. Both categories contained a wide range of properties including the following at December 31, 2009: office buildings (45%), apartment buildings (13%), industrial properties (11%), retail facilities (9%), franchise properties (7%), parking facilities (2%) and other (13%). At December 31, 2009, investments were located in the Americas (46%), Europe (32%) and Asia (22%).

 

(b)

The fair value of and unrealized loss on cost method investments in a continuous loss position for less than 12 months at December 31, 2009, were $417 million and $66 million, respectively. The fair value of and unrealized loss on cost method investments in a continuous loss position for 12 months or more at December 31, 2009, were $48 million and $13 million, respectively. The fair value of and unrealized loss on cost method investments in a continuous loss position for less than 12 months at December 31, 2008, were $565 million and $98 million, respectively. The fair value of and unrealized loss on cost method investments in a continuous loss position for 12 months or more at December 31, 2008, were $64 million and $4 million, respectively.

 

(c)

Assets were classified as held for sale on the date a decision was made to dispose of them through sale, securitization or other means. Such assets consisted primarily of credit card receivables, loans, aircraft, equipment and real estate properties, and were accounted for at the lower of carrying amount or estimated fair value less costs to sell. These amounts are net of valuation allowances of $145 million and $112 million at December 31, 2009 and 2008, respectively.

 

(d)	Included $1,642 million and $434 million at December 31, 2009 and 2008, respectively, of unamortized fees related to our participation in the Temporary Liquidity Guarantee Program.

 

 

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NOTE 8. BORROWINGS AND BANK DEPOSITS

 

Short-term Borrowings			2009					2008
						Average					Average
December 31 (Dollars in millions)			Amount			rate(a)		Amount			rate(a)
Commercial Paper
U.S.
Unsecured(b)			$	32,637		0.20	%	$	57,665		2.16	%
Asset-backed(c)				2,424		0.29			3,652		2.57
Non-U.S.				9,525		0.86			9,033		4.12
Current portion of long-term
borrowings(b)(d)(e)				70,260		3.39			69,680		3.83
GE Interest Plus notes(f)				7,541		2.40			5,633		3.58
Other				6,834					13,304
Total short-term borrowings			$	129,221				$	158,967
Long-term Borrowings			2009					2008
						Average					Average
December 31 (Dollars in millions)	Maturities			Amount		rate(a)			Amount		rate(a)
Senior notes
Unsecured(b)(e)(g)	2011-2055		$	313,079		3.23	%	$	296,740		4.82
Asset-backed(h)	2011-2035			3,390		4.01			5,002		5.12
Subordinated notes(i)	2012-2037			2,388		5.51			2,567		5.48
Subordinated debentures(j)	2066-2067			7,647		6.48			7,315		6.20
Other(k)				1,910					2,911
Total long-term borrowings			$	328,414				$	314,535
Bank deposits(l)			$	38,923				$	36,854
Total borrowings and bank deposits			$	496,558				$	510,356

(a)	Based on year-end balances and year-end local currency interest rates. Current portion of long-term debt included the effects of related fair value interest rate and currency hedges, if any, directly associated with the original debt issuance.

 

(b)

GE Capital had issued and outstanding $59,336 million (long-term borrowings) and $35,243 million ($21,823 million commercial paper and $13,420 million long-term borrowings) of senior, unsecured debt that was guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program at December 31, 2009 and 2008, respectively. GE Capital and GE are parties to an Eligible Entity Designation Agreement and GE Capital is subject to the terms of a Master Agreement, each entered into with the FDIC. The terms of these agreements include, among other things, a requirement that GE and GE Capital reimburse the FDIC for any amounts that the FDIC pays to holders of GE Capital debt that is guaranteed by the FDIC.

 

(c)	Consists entirely of obligations of consolidated, liquidating securitization entities. See Note 16.

 

(d)	Included $204 million and $326 million of asset-backed senior notes, issued by consolidated, liquidating securitization entities at December 31, 2009 and 2008, respectively.

 

(e)

Included in total long-term borrowings was $3,138 million of obligations to holders of guaranteed investment contracts at December 31, 2009, of which GE Capital could be required to repay up to approximately $3,000 million if our long-term credit rating were to fall below AA-/Aa3 or our short-term credit rating were to fall below A-1+/P-1.

 

(f)	Entirely variable denomination floating rate demand notes.

 

(g)	Included $1,649 million of covered bonds at December 31, 2009. If the short-term credit rating of GE Capital were reduced below A-1/P-1, GE Capital would be required to partially cash collateralize these bonds in an amount up to $775 million.

 

(h)	Included $452 million and $2,104 million of asset-backed senior notes, issued by consolidated, liquidating securitization entities at December 31, 2009 and 2008, respectively. See Note 16.

 

(i)	Included $117 million and $450 million of subordinated notes guaranteed by GE at December 31, 2009 and 2008, respectively.

 

(j)	Subordinated debentures receive rating agency equity credit and were hedged at issuance to the U.S. dollar equivalent of $7,725 million.

 

(k)	Included borrowings from GECS affiliates of $1,013 million and $1,006 million at December 31, 2009 and 2008, respectively.

 

(l)	Included $21,252 million and $12,314 million of deposits in non-U.S. banks at December 31, 2009 and 2008, respectively, and $10,476 million and $6,699 million of certificates of deposits distributed by brokers with maturities greater than one year at December 31, 2009 and 2008, respectively.

 

 

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Our borrowings are addressed below from the perspectives of liquidity, interest rate and currency risk management. Additional information about borrowings and associated swaps can be found in Note 15.

Liquidity is affected by debt maturities and our ability to repay or refinance such debt. Long-term debt maturities, including borrowings from GE, over the next five years follow.

(In millions)	2010			2011			2012			2013			2014
	$	70,260	(a)	$	65,745		$	83,507		$	29,660		$	27,674

(a)	Fixed and floating rate notes of $632 million contain put options with exercise dates in 2010, and which have final maturity beyond 2014.

 

Committed credit lines totaling $51.7 billion had been extended to us by 59 banks at year-end 2009. Availability of these lines is shared between GE and GECC with $9.0 billion and $51.7 billion available to GE and GECC, respectively. Our lines include $36.8 billion of revolving credit agreements under which we can borrow funds for periods exceeding one year. Additionally, $14.4 billion are 364-day lines that contain a term-out feature that allows us to extend the borrowings for one year from the date of expiration of the lending agreement. We pay banks for credit facilities, but amounts were insignificant in each of the past three years.

NOTE 9. INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS

 

Investment contracts, insurance liabilities and insurance annuity benefits comprise mainly obligations to holders of guaranteed investment contracts.

December 31 (In millions)	2009			2008
Guaranteed investment contracts	$	8,310		$	10,828
Unpaid claims and claims adjustment expenses		69			174
Unearned premiums		308			401
Total	$	8,687		$	11,403

When insurance affiliates cede insurance to third parties, such as reinsurers, they are not relieved of their primary obligation to policyholders. Losses on ceded risks give rise to claims for recovery; we establish allowances for probable losses on such receivables from reinsurers as required. Reinsurance recoverables are included in the caption “Other receivables” on our Statement of Financial Position, and amounted to $45 million and $159 million at December 31, 2009 and 2008, respectively.

We recognize reinsurance recoveries as a reduction of the Statement of Earnings caption “Investment contracts, insurance losses and insurance annuity benefits.” We had no reinsurance recoveries for the years ended December 31, 2009, 2008 and 2007.

NOTE 10. INCOME TAXES

 

Provision for Income Taxes

 

(In millions)	2009			2008			2007
Current tax expense (benefit)	$	(1,634)		$	(1,470)		$	1,017
Deferred tax expense (benefit) from temporary differences		(2,247)			(795)			(278)
Total	$	(3,881)		$	(2,265)		$	739

We are included in the consolidated U.S. federal income tax return which GE Company files. The provision for current tax expense includes our effect on the consolidated return. Our effect on the consolidated liability is settled in cash as GE tax payments are due.

 

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U.S. earnings (loss) from continuing operations before income taxes were $(6,575) million in 2009, $(4,788) million in 2008 and $192 million in 2007. The corresponding amounts for non-U.S. based operations were $4,331 million in 2009, $10,779 million in 2008 and $12,722 million in 2007.

Current tax expense (benefit) includes amounts applicable to U.S. federal income taxes of $(2,080) million, $(2,674) million and $(791) million in 2009, 2008 and 2007, respectively, and amounts applicable to non-U.S. jurisdictions of $657 million, $1,281 million and $1,600 million in 2009, 2008 and 2007, respectively. Deferred taxes related to U.S. federal income taxes were a benefit of $2,142 million and $489 million in 2009 and 2008, respectively, and an expense of $81 million in 2007.

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carryforwards, and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.

Our businesses are subject to regulation under a wide variety of U.S. federal, state and foreign tax laws, regulations and policies. Changes to these laws or regulations may affect our tax liability, return on investments and business operations. For example, GE’s effective tax rate is reduced because active business income earned and indefinitely reinvested outside the United States is taxed at less than the U.S. rate. A significant portion of this reduction depends upon a provision of U.S. tax law that defers the imposition of U.S. tax on certain active financial services income until that income is repatriated to the United States as a dividend. This provision is consistent with international tax norms and permits U.S. financial services companies to compete more effectively with foreign banks and other foreign financial institutions in global markets. This provision, which expired at the end of 2009, has been scheduled to expire and has been extended by Congress on five previous occasions, including in October of 2008. A one-year extension was passed by the House of Representatives in 2009 and the Senate Finance Committee Chairman and Ranking Member have indicated an intention to extend the provision for one year retroactive to the beginning of 2010, but there can be no assurance that it will be extended. In the event the provision is not extended after 2009, the current U.S. tax imposed on active financial services income earned outside the United States would increase, making it more difficult for U.S. financial services companies to compete in global markets. If this provision is not extended, we expect our effective tax rate to increase significantly after 2010.

We have not provided U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been reinvested indefinitely. These earnings relate to ongoing operations and, at December 31, 2009, were approximately $56 billion. Most of these earnings have been reinvested in active non-U.S. business operations and we do not intend to repatriate these earnings to fund U.S. operations. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when we plan to remit those earnings.

During 2009, following the change in our external credit ratings, funding actions taken and review of our operations, liquidity and funding, we determined that undistributed prior-year earnings of non-U.S. subsidiaries of GECC, on which we had previously provided deferred U.S. taxes, would be indefinitely reinvested outside the U.S. This change increased the amount of prior-year earnings indefinitely reinvested outside the U.S. by approximately $2 billion, resulting in an income tax benefit of $700 million in 2009.

During 2008, because the use of foreign tax credits no longer required the repatriation of prior-year earnings, we increased the amount of prior-year earnings that were indefinitely reinvested outside the U.S. by approximately $1.0 billion, resulting in a decrease to the income tax provision of approximately $350 million.

As discussed in Note 1, on January 1, 2007, we adopted amendments to ASC 740, which had no effect on retained earnings.

 

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Annually, GE files over 7,000 income tax returns in over 250 global taxing jurisdictions, a substantial portion of which include our activities. We are under examination or engaged in tax litigation in many of these jurisdictions. During 2007, the IRS completed the audit of our consolidated U.S. income tax returns for 2000-2002. At December 31, 2009, the IRS was auditing our consolidated U.S. income tax returns for 2003-2005. In addition, certain other U.S. tax deficiency issues and refund claims for previous years were unresolved. It is reasonably possible that the 2003-2005 U.S. audit cycle will be completed during the next 12 months, which could result in a decrease in our balance of “unrecognized tax benefits” – that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.

The balance of unrecognized tax benefits, the amount of related interest and penalties we have provided and what we believe to be the range of reasonably possible changes in the next 12 months, were:

December 31 (In millions)	2009			2008
Unrecognized tax benefits	$	3,820		$	3,454
Portion that, if recognized, would reduce tax expense and effective tax rate(a)		1,792			1,734
Accrued interest on unrecognized tax benefits		713			693
Accrued penalties on unrecognized tax benefits		73			65
Reasonably possible reduction to the balance of unrecognized
tax benefits in succeeding 12 months		0-650			0-350
Portion that, if recognized, would reduce tax expense and effective tax rate(a)		0-250			0-50

(a)	Some portion of such reduction might be reported as discontinued operations.

 

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

(In millions)	2009			2008
Balance at January 1	$	3,454		$	2,964
Additions for tax positions of the current year		517			420
Additions for tax positions of prior years		86			329
Reductions for tax positions of prior years		(174)			(169)
Settlements with tax authorities		(57)			(74)
Expiration of the statute of limitations		(6)			(16)
Balance at December 31	$	3,820		$	3,454

We classify interest on tax deficiencies as interest expense; we classify income tax penalties as provision for income taxes. For the year ended December 31, 2009, $20 million of interest expense and $8 million of tax expense related to penalties were recognized in the statement of earnings, compared with $145 million and $10 million for the year ended December 31, 2008 and $(72) million and $(41) million for the year ended December 31, 2007.

 

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A reconciliation of the U.S. federal statutory income tax rate to the actual income tax rate is provided below.

Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate

 

	2009			2008			2007
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Increase (reduction) in rate resulting from
Tax on global activities including exports(a)		113.0			(67.0)			(22.4)
U.S. business credits		14.2			(3.5)			(1.6)
SES transaction		–			–			(4.3)
All other - net		10.8			(2.3)			(1.0)
		138.0			(72.8)			(29.3)
Actual income tax rate		173.0	%		(37.8)	%		5.7	%

(a)	2009 and 2008 included 31.2% and (5.8)%, respectively, from indefinite reinvestment of prior-year earnings.

 

Deferred Income Taxes

 

Principal components of our net liability representing deferred income tax balances are as follows:

December 31 (In millions)	2009			2008
Assets
Allowance for losses	$	3,100		$	2,382
Cash flow hedges		906			2,315
Net unrealized losses on securities		331			1,027
Non-U.S. loss carryforwards(a)		1,299			979
Other - net		5,620			3,746
Total deferred income tax assets		11,256			10,449
Liabilities
Financing leases		5,928			6,964
Operating leases		5,525			4,859
Investment in global subsidiaries		369			2,051
Intangible assets		1,521			1,289
Other - net		3,532			3,398
Total deferred income tax liabilities		16,875			18,561
Net deferred income tax liability	$	5,619		$	8,112

(a)

Net of valuation allowances of $344 million and $260 million for 2009 and 2008, respectively. Of the net deferred tax asset as of December 31, 2009, of $1,299 million, $14 million relates to net operating loss carryforwards that expire in various years ending from December 31, 2010, through December 31, 2012; $191 million relates to net operating losses that expire in various years ending from December 31, 2013, through December 31, 2024; and $1,094 million relates to net operating loss carryforwards that may be carried forward indefinitely.

 

 

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NOTE 11. SHAREOWNER’S EQUITY

 

(In millions)	2009			2008			2007
Common stock issued	$	56		$	56		$	56
Accumulated other comprehensive income
Balance at January 1	$	(6,970)		$	6,489		$	4,813
Investment securities - net of deferred taxes
of $494, $(1,568) and $(190)		1,341			(2,152)			(286)
Currency translation adjustments - net of deferred taxes
of $(717), $4,167 and $(1,427)		2,565			(8,586)			2,572
Cash flow hedges - net of deferred taxes
of $917, $(2,288) and $(274)		896			(4,846)			376
Benefit plans - net of deferred taxes
of $(14), $(116) and $68(a)		(67)			(262)			173
Reclassification adjustments
Investment securities - net of deferred taxes
of $255, $468 and $(147)		(4)			164			(220)
Currency translation adjustments		–			(119)			(13)
Cash flow hedges - net of deferred taxes
$399, $642 and $(632)		541			2,342			(926)
Balance at December 31	$	(1,698)		$	(6,970)		$	6,489
Additional paid-in capital
Balance at January 1	$	19,671		$	14,172		$	14,088
Contributions(b)		8,760			5,499			84
Balance at December 31	$	28,431		$	19,671		$	14,172
Retained earnings
Balance at January 1(c)	$	45,497		$	40,513		$	37,551
Net earnings		1,455			7,310			9,815
Dividends (b)		–			(2,351)			(6,853)
Other(b)(d)		(23)			–			–
Balance at December 31	$	46,929		$	45,472		$	40,513
Total equity
GECC shareowner's equity balance at December 31	$	73,718		$	58,229		$	61,230
Noncontrolling interests balance at December 31(e)		2,204			2,383			1,607
Total equity balance at December 31	$	75,922		$	60,612		$	62,837

(a)

For 2009, included $93 million of gains (losses) arising during the year and $(26) million of amortization of gains (losses) – net of deferred taxes of $(25) million and $11 million, respectively. For 2008, included $(270) million of gains (losses) arising during the year and $8 million of amortization of gains (losses) – net of deferred taxes of $(120) million and $4 million, respectively.

 

(b)	Total dividends and other transactions with the shareowner increased equity by $8,737 million in 2009 and $3,148 million in 2008 and decreased equity by $6,769 million in 2007.

 

(c)

The 2009 opening balance was adjusted as of April 1, 2009, for the cumulative effect of changes in accounting principles of $25 million related to adopting amendments on impairment guidance in ASC 320, Investments – Debt and Equity Securities. The cumulative effect of adopting ASC 825 at January 1, 2008, was insignificant. The 2007 opening balance change reflects cumulative effect of change in accounting principle of $(77) million related to adopting amendments to ASC 740. See note 1 for further information.

 

(d)	Related to accretion of redeemable securities to their redemption value.

 

(e)

On January 1, 2009, we adopted an amendment to ASC 810, Consolidation, that requires us to classify noncontrolling interests (previously referred to as “minority interest”) as part of shareowner’s equity and to disclose the amount of other comprehensive income attributable to noncontrolling interests. Changes to noncontrolling interests during 2009 resulted from net earnings $58 million, dividends paid $(11) million, deconsolidation of PTL $(331) million, other AOCI $(111) million and other changes of $216 million. Changes to the individual components of other AOCI attributable to noncontrolling interests were primarily related to currency translation adjustments $(69) million.

 

 

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All common stock is owned by GE Capital Services, all of the common stock of which is in turn owned by GE Company.

Certain of our consolidated affiliates are restricted from remitting certain funds to us in the form of dividends or loans by a variety of regulations or statutory requirements. Activities of certain of our financial services consolidated affiliates are subject to regulation by various national authorities including banking, financial services and insurance regulators. The activities of these entities include lending, leasing, and other traditional financial services transactions and relate to approximately $148.2 billion of our total assets. National regulators routinely impose restrictions on the transfer of funds across entities and/or borders in the form of dividends or loans as part of their regulatory oversight. However, such funds are available for use by these affiliates, without restriction, to repay borrowings, to fund new loans, or for other normal business purposes. At December 31, 2009, the amount of restricted net assets of these affiliates was $19.3 billion.

At December 31, 2009 and 2008, the aggregate statutory capital and surplus of the insurance activities totaled $0.8 billion and $0.6 billion, respectively. Accounting practices prescribed by statutory authorities are used in preparing statutory statements.

Noncontrolling Interests

 

Noncontrolling interests in equity of consolidated affiliates includes common shares in consolidated affiliates and preferred stock issued by our affiliates. Preferred shares that we are required to redeem at a specified or determinable date are classified as liabilities. The balance is summarized as follows:

 

December 31 (In millions)	2009			2008
Noncontrolling interests in consolidated affiliates(a)	$	1,927		$	2,106
Preferred stock(b)		277			277
	$	2,204		$	2,383

(a)	Included noncontrolling interests in partnerships and common shares of consolidated affiliates.

 

(b)	The preferred stock pays cumulative dividends at an average rate of 6.81%.

 

During the first quarter of 2009, GE made a $9,500 million capital contribution to GECS, of which GECS subsequently contributed $8,250 million to us. In addition, we issued one share of common stock (par value $14) to GECS for $500 million.

NOTE 12. REVENUES FROM SERVICES

 

(In millions)	2009			2008			2007
Interest on loans	$	19,941		$	26,894		$	23,344
Equipment leased to others		12,192			15,517			15,187
Fees		4,631			6,003			6,042
Investment income(a)		1,882			1,078			2,538
Financing leases		3,302			4,351			4,646
Net securitization gains		1,413			963			1,759
Real estate investments		1,539			3,488			4,653
Associated companies		1,059			2,217			2,165
Other items(b)(c)		3,745			5,710			5,947
Total	$	49,704		$	66,221		$	66,281

(a)

Included net other-than-temporary impairments on investment securities of $327 million, $747 million and $8 million in 2009, 2008 and 2007, respectively. Of the $327 million, $25 million related to impairments recognized in the first quarter of 2009 that were reclassified to retained earnings as a result of the amendments to ASC 320. See Note 3.

 

(b)	Included a gain on the sale of a partial interest in a limited partnership in PTL and a related gain on the remeasurement of the retained investment to fair value totaling $296 million in the first quarter of 2009. See Note 16.

 

(c)	Included a gain of $343 million on the remeasurement to fair value of our equity method investment in BAC, following our acquisition of a controlling interest in the second quarter of 2009. See Note 6.

 

 

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NOTE 13. OPERATING AND ADMINISTRATIVE EXPENSES

 

Our employees and retirees are covered under a number of pension, stock compensation, health and life insurance plans. The principal pension plans are the GE Pension Plan, a defined benefit plan for U.S. employees and the GE Supplementary Pension Plan, an unfunded plan providing supplementary benefits to higher-level, longer-service U.S. employees. Employees of certain affiliates are covered under separate pension plans which are not significant individually or in the aggregate. We provide health and life insurance benefits to certain of our retired employees, principally through GE Company’s benefit program. The annual cost to us of providing these benefits is not material.

Rental expense under operating leases is shown below.

(In millions)	2009			2008			2007
Equipment for sublease	$	280		$	358		$	364
Other rental expense		535			631			588

At December 31, 2009, minimum rental commitments under noncancellable operating leases aggregated $2,885 million. Amounts payable over the next five years follow.

(In millions)
2010			2011			2012			2013			2014
$	608		$	497		$	436		$	288		$	211

NOTE 14. FAIR VALUE MEASUREMENTS

 

We adopted ASC 820 in two steps; effective January 1, 2008, we adopted it for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis and effective January 1, 2009, for all non-financial instruments accounted for at fair value on a non-recurring basis. This guidance establishes a new framework for measuring fair value and expands related disclosures. Broadly, the framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. It also establishes a three-level valuation hierarchy based upon observable and non-observable inputs.

The following tables present our assets and liabilities measured at fair value on a recurring basis. Included in the tables are investment securities of $6,629 million and $8,190 million at December 31, 2009 and 2008, respectively, supporting obligations to holders of guaranteed investment contracts. Such securities are mainly investment grade.

 

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										Netting
(In millions)	Level 1			Level 2			Level 3		(a)		adjustment	(b)	Net balance
December 31, 2009
Assets
Investment securities
Debt
U.S. corporate	$	1,276		$	1,871		$	1,654		$	–		$	4,801
State and municipal		–			501			173			–			674
Residential mortgage-backed		–			2,254			44			–			2,298
Commercial mortgage-backed		–			1,251			51			–			1,302
Asset-backed		–			719			1,806			–			2,525
Corporate - non-U.S.		159			51			776			–			986
Government - non-U.S.		1,277			1,023			151			–			2,451
U.S. government and federal agency		85			1,780			–			–			1,865
Retained interests		–			–			7,593			–			7,593
Equity
Available-for-sale		437			667			17			–			1,121
Trading		720			–			–			–			720
Derivatives(c)		–			10,411			451			(3,611)			7,251
Other(d)		–			–			595			–			595
Total	$	3,954		$	20,528		$	13,311		$	(3,611)		$	34,182
Liabilities
Derivatives	$	–		$	6,838		$	219		$	(3,623)		$	3,434
Other		–			32			–			–			32
Total	$	–		$	6,870		$	219		$	(3,623)		$	3,466
December 31, 2008
Assets
Investment securities
Debt
U.S. corporate	$	525		$	1,708		$	1,640		$	–		$	3,873
State and municipal		–			603			247			–			850
Residential mortgage-backed		30			3,113			118			–			3,261
Commercial mortgage-backed		–			1,098			57			–			1,155
Asset-backed		–			676			1,580			–			2,256
Corporate - non-U.S.		69			50			472			–			591
Government - non-U.S.		495			11			417			–			923
U.S. government and federal agency		5			24			–			–			29
Retained interests		–			–			5,081			–			5,081
Equity
Available-for-sale		395			498			18			–			911
Trading		83			305			–			–			388
Derivatives(c)		–			17,721			544			(7,054)			11,211
Other(d)		–			288			551			–			839
Total	$	1,602		$	26,095		$	10,725		$	(7,054)		$	31,368
Liabilities	$	2		$	10,810		$	162		$	(7,218)		$	3,756
Derivatives		–			323			–			–			323
Other	$	2		$	11,133		$	162		$	(7,218)		$	4,079
Total

(a)

Level 3 investment securities valued using non-binding broker quotes totaled $618 million and $556 million at December 31, 2009 and 2008, respectively, and were classified as available-for-sale securities.

 

(b)	The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Included fair value adjustments related to our own and counterparty credit risk.

 

(c)

The fair value of derivatives included an adjustment for non-performance risk. At December 31, 2009 and 2008, the cumulative adjustment was a gain of $12 million and $164 million, respectively.

 

(d)	Included private equity investments and loans designated under the fair value option.

 

 

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The following tables present the changes in Level 3 instruments measured on a recurring basis for the years ended December 31, 2009 and 2008, respectively. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowner’s equity.

Changes in Level 3 Instruments for the Year Ended December 31, 2009

 

							Net realized/													Net change
							unrealized													in unrealized
							gains (losses)													gains (losses)
				Net realized/			included in													relating to
				unrealized			accumulated			Purchases,			Transfers							instruments
				gains(losses)			other			issuances			in and/or							still held at
	January 1,			included in			comprehensive			and			out of			December 31,				December 31,
(In millions)	2009			earnings		(a)	income			settlements			Level 3		(b)	2009				2009		(c)
Investment securities
Debt
U.S. corporate	$	1,640		$	10		$	135		$	(195)		$	64		$	1,654			$	–
State and municipal		247			–			(100)			(10)			36			173				–
Residential
mortgage-backed		118			–			(4)			(20)			(50)			44				–
Commercial
mortgage-backed		57			–			(6)			–			–			51				–
Asset-backed		1,580			2			231			68			(75)			1,806				–
Corporate - non-U.S.		472			(7)			35			90			186			776				–
Government
- non-U.S.		418			–			3			4			(274)			151				–
U.S. government and
federal agency		–			–			–			–			–			–				–
Retained interests		5,081			1,185	(d)		400			927			–			7,593				254
Equity
Available-for-sale		17			–			1			(1)			–			17				–
Trading		–			–			–			–			–			–				–
Derivatives(e)		401			93			(31)			(82)			(139)			242				80
Other		551			1			30			13			–			595				3
Total	$	10,582		$	1,284		$	694		$	794		$	(252)		$	13,102			$	337

(a)	Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the Statement of Earnings.

 

(b)	Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.

 

(c)	Represented the amount of unrealized gains or losses for the period included in earnings.

 

(d)	Primarily comprised of interest accretion.

 

(e)	Represented derivative assets net of derivative liabilities and included cash accruals of $10 million not reflected in the fair value hierarchy table.

 

 

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Changes in Level 3 Instruments for the Year Ended December 31, 2008

 

							Net realized/													Net change
							unrealized													in unrealized
							gains (losses)													gains (losses)
				Net realized/			included in													relating to
				unrealized			accumulated			Purchases,			Transfers							instruments
				gains(losses)			other			issuances			in and/or							still held at
	January 1,			included in			comprehensive			and			out of			December 31,				December 31,
(In millions)	2008			earnings		(a)	income			settlements			Level 3		(b)	2008				2008		(c)
Investment securities	$	8,329		$	750		$	(1,241)		$	777		$	1,015		$	9,630			$	6
Derivatives(d)(e)		200			265			142			(193)			(13)			401				89
Other		689			(67)			(29)			(93)			51			551				(67)
Total	$	9,218		$	948		$	(1,128)		$	491		$	1,053		$	10,582			$	28

(a)	Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the “Statement of Earnings”.

 

(b)	Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers into Level 3 were a result of increased use of non-binding broker quotes that could not be validated with other market observable data, resulting from continued deterioration in the credit markets.

 

(c)	Represented the amount of unrealized gains or losses for the period included in earnings.

 

(d)	Earnings from derivatives were partially offset by $183 million in losses from related derivatives included in Level 2 and $4 million in losses from underlying debt obligations in qualifying fair value hedges.

 

(e)	Represented derivative assets net of derivative liabilities and included cash accruals of $19 million not reflected in the fair value hierarchy table.

 

Non-Recurring Fair Value Measurements

 

Non-recurring fair value amounts (as measured at the time of the adjustment) for assets still held at December 31, 2009 and 2008, totaled $513 million and $48 million, identified as Level 2, and $17,373 million and $3,100 million, identified as Level 3, respectively. The increase in Level 3 amounts related primarily to our retained investment in PTL ($5,751 million), financing receivables and loans held for sale ($5,420 million), long-lived assets ($5,044 million), primarily real estate held for investment, equipment leased to others and equipment held for sale, and cost and equity method investments ($1,006 million).

 

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The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at December 31, 2009 and 2008.

	Year ended December 31
(In millions)	2009			2008
Financing receivables and loans held for sale	$	(1,694)		$	(583)
Cost and equity method investments(a)		(921)			(404)
Long-lived assets(b)		(1,004)			(227)
Retained investments in formerly consolidated subsidiaries(b)		237			–
Other(b)		(29)			(222)
Total	$	(3,411)		$	(1,436)

(a)	Includes fair value adjustments associated with private equity and real estate funds of $(238) million and $(45) million during 2009 and 2008, respectively.

 

(b)	ASC 820 was adopted for non-financial assets valued on a non-recurring basis as of January 1, 2009.

 

NOTE 15. FINANCIAL INSTRUMENTS

 

The following table provides information about the assets and liabilities not carried at fair value in our Statement of Financial Position. Consistent with ASC 825, Financial Instruments, the table excludes finance leases and non-financial assets and liabilities. Apart from certain of our borrowings and certain marketable securities, few of the instruments discussed below are actively traded and their fair values must often be determined using financial models. Realization of the fair value of these instruments depends upon market forces beyond our control, including marketplace liquidity.

		2009									2008
					Assets (liabilities)									Assets (liabilities)
		Notional			Carrying			Estimated			Notional			Carrying			Estimated
December 31 (In millions)		amount			amount(net)			fair value			amount			amount(net)			fair value
Assets
Loans	$	(a)		$	281,767		$	267,927		$	(a)		$	304,010		$	291,465
Other commercial mortgages		(a)			120			120			(a)			374			374
Loans held for sale		(a)			1,303			1,343			(a)			3,640			3,670
Other financial instruments(b)		(a)			2,070			2,360			(a)			2,609			2,781
Liabilities
Borrowings and
bank deposits(c)(d)		(a)			(496,558)			(502,297)			(a)			(510,356)			(491,240)
Guaranteed investment contracts		(a)			(8,310)			(8,394)			(a)			(10,828)			(10,677)
Insurance - credit life(e)		1,574			(79)			(52)			1,052			(46)			(33)

(a)	These financial instruments do not have notional amounts.

 

(b)	Principally cost method investments.

 

(c)	See Note 8.

 

(d)	Fair values exclude interest rate and currency derivatives designated as hedges of borrowings. Had they been included, the fair value of borrowings at December 31, 2009 and 2008 would have been reduced by $2,856 million and $3,776 million, respectively.

 

(e)	Net of reinsurance of $2,800 million and $3,100 million at December 31, 2009 and 2008, respectively.

 

A description of how we estimate fair values follows.

Loans

 

Based on quoted market prices, recent transactions and/or discounted future cash flows, using rates we would charge to similar borrowers with similar maturities.

Borrowings and bank deposits

 

Valuation methodologies using current market interest rate data which are comparable to market quotes adjusted for our non-performance risk.

 

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Guaranteed investment contracts

 

Based on valuation methodologies using current market interest rate data, adjusted for our non-performance risk.

All other instruments

 

Based on observable market transactions, valuation methodologies using current market interest rate data adjusted for inherent credit risk and/or quoted market prices.

Assets and liabilities that are reflected in the accompanying financial statements at fair value are not included in the above disclosures; such items include cash and equivalents, investment securities and derivative financial instruments.

Additional information about certain categories in the table above follows.

Insurance – credit life

 

Certain insurance affiliates, primarily in Consumer, issue credit life insurance designed to pay the balance due on a loan if the borrower dies before the loan is repaid. As part of our overall risk management process, we cede to third parties a portion of this associated risk, but are not relieved of our primary obligation to policyholders.

Loan Commitments

 

		Notional amount
December 31 (In millions)		2009			2008
Ordinary course of business lending commitments(a)(b)	$	6,676		$	8,507
Unused revolving credit lines(c)
Commercial		31,803			26,300
Consumer - principally credit cards		231,880			252,867

(a)	Excluded investment commitments of $2,659 million and $3,501 million as of December 31, 2009 and 2008, respectively.

 

(b)

Included a $972 million and $1,067 million commitment as of December 31, 2009 and 2008, respectively, associated with a secured financing arrangement that can increase to a maximum of $4,998 million and $4,943 million based on the asset volume under the arrangement as of December 31, 2009 and 2008, respectively.

 

(c)	Excluded inventory financing arrangements, which may be withdrawn at our option, of $13,889 million and $14,503 million as of December 31, 2009 and 2008, respectively.

 

Derivatives and Hedging

 

As a matter of policy, we use derivatives for risk management purposes, and we do not use derivatives for speculative purposes. A key risk management objective for our financial services businesses is to mitigate interest rate and currency risk by seeking to ensure that the characteristics of the debt match the assets they are funding. If the form (fixed versus floating) and currency denomination of the debt we issue do not match the related assets, we typically execute derivatives to adjust the nature and tenor of funding to meet this objective. The determination of whether we enter into a derivative transaction or issue debt directly to achieve this objective depends on a number of factors, including customer needs for specific types of financing, and market related factors that affect the type of debt we can issue.

Of the outstanding notional amount of $314,000 million, approximately 93%, or $293,000 million, is associated with reducing or eliminating the interest rate, currency or market risk between financial assets and liabilities in our financial services businesses. The remaining derivative activities primarily relate to hedging against adverse changes in currency exchange rates and commodity prices related to anticipated sales and purchases, providing certain derivatives and/or support arrangements to our customers, and contracts containing certain clauses which meet the accounting definition of a derivative. The instruments used in these activities are designated as hedges when practicable. When we are not able to apply hedge accounting, or when the derivative and the hedged item are both recorded in earnings currently, the derivatives are deemed economic hedges and hedge accounting is not applied. This most frequently occurs when we hedge a recognized foreign currency transaction (e.g., a receivable or payable) with a derivative. Since the effects of changes in exchange rates are reflected currently in earnings for both the derivative and the transaction, the economic hedge does not require hedge accounting.

 

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The following table provides information about the fair value of our derivatives, by contract type, separating those accounted for as hedges and those that are not.

December 31 (In millions)	2009
	Assets			Liabilities
Derivatives accounted for as hedges
Interest rate contracts	$	4,421		$	3,468
Currency exchange contracts		4,199			2,316
Other contracts		10			4
		8,630			5,788
Derivatives not accounted for as hedges
Interest rate contracts		584			702
Currency exchange contracts		1,319			462
Other contracts		329			105
		2,232			1,269
Netting adjustment(a)		(3,611)			(3,623)
Total	$	7,251		$	3,434

Derivatives are classified in the captions “Other assets” and “Other liabilities” in our financial statements.

 

 

(a)

The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Amounts included fair value adjustments related to our own and counterparty non-performance risk. At December 31, 2009 and 2008, the cumulative adjustment for non-performance risk was a gain of $12 million and $164 million, respectively.

 

Fair value hedges

 

We use interest rate and currency exchange derivatives to hedge the fair value effects of interest rate and currency exchange rate changes on local and non-functional currency denominated fixed-rate borrowings. For relationships designated as fair value hedges, changes in fair value of the derivatives are recorded in earnings along with offsetting adjustments to the carrying amount of the hedged debt. Through December 31, 2009, such adjustments increased the carrying amount of debt outstanding by $3,675 million. The following table provides information about the earnings effects of our fair value hedging relationships for the year ended December 31, 2009.

				Year ended
				December 31, 2009
(In millions)		Financial statement caption		Gain (loss)			Gain (loss)
				on hedging			on hedged
				derivatives			items
Interest rate contracts		Interest		$	(5,194)		$	4,998
Currency exchange contracts		Interest			(1,106)			1,093

Fair value hedges resulted in $(209) million of ineffectiveness of which $(225) million reflects amounts excluded from the assessment of effectiveness for the year ended December 31, 2009.

 

Cash flow hedges and net investment hedges in foreign operations

 

We use interest rate, currency exchange and commodity derivatives to reduce the variability of expected future cash flows associated with variable rate borrowings and commercial purchase and sale transactions, including commodities. For derivatives that are designated in a cash flow hedging relationship, the effective portion of the change in fair value of the derivative is reported as a component of AOCI and reclassified into earnings contemporaneously with the earnings effects of the hedged transaction. Earnings effects of the derivative and the hedged item are reported in the same caption in the Statement of Earnings. Hedge ineffectiveness and components of changes in fair value of the derivative that are excluded from the assessment of effectiveness are recognized in earnings each reporting period.

 

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We use currency exchange derivatives to protect our net investments in global operations conducted in non-U.S. dollar currencies. For derivatives that are designated as hedges of net investment in a foreign operation, we assess effectiveness based on changes in spot currency exchange rates. Changes in spot rates on the derivative are recorded as a component of AOCI until such time as the foreign entity is substantially liquidated or sold. The change in fair value of the forward points, which reflects the interest rate differential between the two countries on the derivative, are excluded from the effectiveness assessment and are recorded currently in earnings.

The following table provides information about the amounts recorded in the other comprehensive income component within shareowner’s equity at December 31, 2009, as well as the amounts recorded in each caption in the Statement of Earnings when derivative amounts are reclassified out of other comprehensive income related to our cash flow hedges and net investment hedges.

(In millions)								Gain (loss)
								reclassified
			Gain (loss)					from
			recognized					AOCI into
Year ended December 31, 2009			in OCI		Financial statement caption			earnings
Cash flow hedges
Interest rate contracts		$	(747)		Interest		$	(2,051)
Currency exchange contracts			2,390		Interest			1,190
					Revenues from services			(119)
Commodity contracts			(25)		Revenues from services			–
Total		$	1,618				$	(980)
		Gain (loss)					Gain (loss)
		recognized					reclassified
		in CTA					from CTA
Net investment hedges
Currency exchange contracts		$	(5,994)		Revenues from services		$	(84)

Of the total pre-tax amount recorded in AOCI, $2,727 million related to cash flow hedges of forecasted transactions of which we expect to transfer $1,434 million to earnings as an expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. In 2009, we recognized insignificant gains and losses related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At December 31, 2009, the maximum term of derivative instruments that hedge forecasted transactions was 26 years and related to hedges of anticipated interest payments associated with external debt.

 

For cash flow hedges, the amount of ineffectiveness in the hedging relationship and amount of the changes in fair value of the derivative that are not included in the measurement of ineffectiveness are both reflected in earnings each reporting period. These amounts totaled $50 million, of which $(18) million represents amounts excluded from the assessment of effectiveness for the year ended December 31, 2009, and primarily appear in Revenues from services. Ineffectiveness from net investment hedges was $(899) million for the year ended December 31, 2009, which primarily related to changes in value of the forward points. These amounts appear in the “Interest” caption in the Statement of Earnings.

Free-Standing Derivatives

 

Changes in the fair value of derivatives that are not designated as hedges are recorded in earnings each period. As discussed above, these derivatives are typically entered into as economic hedges of changes in interest rates, currency exchange rates, commodity prices and other risks. Gains or losses related to the derivative are recorded in predefined captions in the Statement of Earnings, typically “Revenues from services”, based on our accounting policy. In general, the earnings effects of the item that represent the economic risk exposure are recorded in the same caption as the derivative. Gains for 2009 on derivatives not designated as hedges were $662 million and related to interest rate contracts of $195 million, currency exchange contracts of $353 million, and commodity derivatives and other of $114 million. The vast majority of the $662 million was offset by the earnings effects from the underlying items that were economically hedged.

 

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Counterparty Credit Risk

 

Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions.  Accordingly, we actively monitor these exposures and take appropriate actions in response.  We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our standard master agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we offset our exposures with that counterparty and apply the value of collateral posted to us to determine the exposure. When net exposure to a counterparty, based on the current market values of agreements and collateral, exceeds credit exposure limits (see following table), we typically take action to reduce such exposures. These actions may include prohibiting additional transactions with the counterparty, requiring additional collateral from the counterparty (as described below) and terminating or restructuring transactions.

As discussed above, we have provisions in certain of our master agreements that require counterparties to post collateral (typically, cash or U.S. Treasuries) when our receivable due from the counterparty, measured at current market value, exceeds a specified limit. At December 31, 2009, our exposure to counterparties, net of collateral we hold, was $813 million. The fair value of such collateral was $8,262 million, of which $2,387 million was cash and $5,875 million was in the form of securities held by a custodian for our benefit. Under certain of these same agreements, we post collateral to our counterparties for our derivative obligations, the fair value of which was $1,855 million at December 31, 2009.

Following is our policy relating to initial credit rating requirements and to exposure limits to counterparties.

Counterparty Credit Criteria
	Credit rating
	Moody's		S & P
Foreign exchange forwards (less than one year)	P-1		A-1
All derivatives between one and five years	Aa3(a)		AA-(a)
All derivatives greater than five years	Aaa(a)		AAA(a)

(a)	Counterparties that have an obligation to provide collateral to cover credit exposure in accordance with a credit support agreement typically have a minimum A3/A-rating.

 

Exposure Limits
(In millions)
Minimum rating					Exposure(a)
					With collateral			Without collateral
Moody's		S & P			arrangements			arrangements
Aaa		AAA		$	100		$	75
Aa3		AA-			50			50
A3		A-			5			–

(a)	For derivatives with exposures less than one year, counterparties are permitted to have unsecured exposure up to $150 million with a minimum rating of A-1/P-1. Exposure to a counterparty is determined net of collateral.

 

Additionally, our standard master agreements typically contain mutual downgrade provisions that provide the ability of each party to require termination if the long-term credit rating of the counterparty were to fall below A-/A3. In certain of these master agreements, each party also has the ability to require termination if the short-term rating of the counterparty were to fall below A-1/P-1. The net amount relating to our derivative liability of $3,434 million subject to these provisions, after consideration of collateral posted by us, was $1,003 million at December 31, 2009.

 

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Support of Customer Derivatives

 

We do not sell protection under credit default swaps; however, as part of our risk management services, we provide certain support agreements to third-party financial institutions providing plain vanilla interest rate derivatives to our customers in connection with variable rate loans we have extended to them. The underwriting risk to our customers inherent in these arrangements, together with the related loans, is essentially similar to that of a fixed rate loan. Under these arrangements, the customer’s obligation to us is secured, usually by the asset being purchased or financed, or by other assets of the customer. In addition, these arrangements are underwritten to provide for collateral value that exceeds the combination of the loan amount and the initial expected future exposure of the derivative. These support arrangements mature on the same date as the related financing arrangements or transactions and are across a broad spectrum of diversified industries and companies. The fair value of such support agreements was $24 million at December 31, 2009. Because we are supporting the performance of the customer under these arrangements, our exposure to loss at any point in time is limited to the fair value of the customer’s derivative contracts that are in a liability position. The aggregate fair value of customer derivative contracts in a liability position at December 31, 2009, was $260 million before consideration of any offsetting effect of collateral. At December 31, 2009, collateral value was sufficient to cover the loan amount and the fair value of the customer’s derivative, in the event we had been called upon to perform under the derivative. If we assumed that, on January 1, 2010, interest rates moved unfavorably by 100 basis points across the yield curve (a “parallel shift” in that curve), the effect on the fair value of such contracts, without considering any potential offset of the underlying collateral, would have been an increase of $120 million. Given our underwriting criteria, we believe that the likelihood that we will be required to perform under these arrangements is remote.

NOTE 16. OFF-BALANCE SHEET ARRANGEMENTS

 

We securitize financial assets and arrange other forms of asset-backed financing in the ordinary course of business to improve shareowner returns. The securitization transactions we engage in are similar to those used by many financial institutions. Beyond improving returns, these securitization transactions serve as alternative funding sources for a variety of diversified lending and securities transactions. Historically, we have used both GE-supported and third-party Variable Interest Entities (VIEs) to execute off-balance sheet securitization transactions funded in the commercial paper and term markets. The largest single category of VIEs that we are involved with are Qualifying Special Purpose Entities (QSPEs), which have specific characteristics that exclude them from the scope of consolidation standards. Investors in these entities only have recourse to the assets owned by the entity and not to our general credit, unless noted below. We do not have implicit support arrangements with any VIE or QSPE. We did not provide non-contractual support for previously transferred financing receivables to any VIE or QSPE in 2009 or 2008.

Variable Interest Entities

 

When evaluating whether we are the primary beneficiary of a VIE, and must therefore consolidate the entity, we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties. If that evaluation is inconclusive as to which party absorbs a majority of the entity’s expected losses or residual returns, a quantitative analysis is performed to determine who is the primary beneficiary.

In 2009, the FASB issued ASU 2009-16 and ASU 2009-17 amendments to ASC 860, Transfers and Servicing, and ASC 810, Consolidation, respectively, which are effective for us on January 1, 2010. ASU 2009-16 will eliminate the QSPE concept, and ASU 2009-17 will require that all such entities be evaluated for consolidation as VIEs, which will result in our consolidating substantially all of our former QSPEs.  Upon adoption we will record assets and liabilities of these entities at carrying amounts consistent as if they had always been consolidated, which will require the reversal of a portion of previously recognized securitization gains as a cumulative effect adjustment to retained earnings.

Consolidated Variable Interest Entities

 

On July 1, 2003 and January 1, 2004, we were required, as a result of amendments to U.S. GAAP, to consolidate certain VIEs with aggregate assets and liabilities of $54.0 billion and $52.6 billion, respectively, which are further described below. At December 31, 2009, assets and liabilities of those VIEs, and additional VIEs consolidated as a result of subsequent acquisitions of financial companies, totaled $15,136 million and $13,892 million, respectively (at December 31, 2008, assets and liabilities were $25,210 million and $20,165 million, respectively).

 

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The consolidated VIEs included in our financial statements include the following:

·

Securitization entities that hold financing receivables and other financial assets. Since they were consolidated in 2003, these assets have continued to run off; totaled $2,608 million at December 31, 2009; and are primarily included in Note 4 ($4,000 million in 2008). There has been no significant difference between the performance of these financing receivables and our on-book receivables on a blended basis. The liabilities of these securitization entities, which consist primarily of commercial paper, totaled $2,494 million at December 31, 2009, and are included in Note 8 ($3,868 million in 2008). Contractually the cash flows from these financing receivables must first be used to pay down outstanding commercial paper and interest thereon as well as other expenses of the entity. Excess cash flows are available to GE. The creditors of these entities have no claim on the other assets of GE.

If the short-term credit rating of GE Capital or these entities were reduced below A–1/P–1, we would be required to provide substitute liquidity for those entities or provide funds to retire the outstanding commercial paper. The maximum net amount that we would be required to provide in the event of such a downgrade is determined by contract, and totaled $2,497 million at December 31, 2009. The borrowings of these entities are reflected in our Statement of Financial Position.

·

Trinity, a group of sponsored special purpose entities, holds investment securities, the majority of which are investment grade, funded by the issuance of guaranteed investment contracts. At December 31, 2009, these entities held $6,629 million of investment securities, included in Note 3, and $716 million of cash and other assets ($8,190 million and $1,001 million, respectively, at December 31, 2008). The associated guaranteed investment contract liabilities, included in Note 9, were $8,310 million and $10,828 million at the end of December 31, 2009 and 2008, respectively.

If the long-term credit rating of GE Capital were to fall below AA-/Aa3 or its short-term credit rating were to fall below A-1+/P-1, GE Capital would be required to provide approximately $2,383 million to such entities as of December 31, 2009 pursuant to letters of credit issued by GE Capital. To the extent that the entities’ liabilities exceed the ultimate value of the proceeds from the sale of their assets and the amount drawn under the letters of credit, GE Capital could be required to provide such excess amount. As the borrowings of these entities are already reflected in our consolidated Statement of Financial Position, there would be no change in our debt if this were to occur. As of December 31, 2009, the value of these entities’ liabilities was $8,519 million and the fair value of their assets was $7,345 million (which included unrealized losses on investment securities of $1,448 million). With respect to these investment securities, we intend to hold them at least until such time as their individual fair values exceed their amortized cost and we have the ability to hold all such debt securities until maturity.

The remaining assets ($5,183 million) and liabilities ($2,879 million) of consolidated VIEs are primarily the result of transactions by acquired entities and asset-backed financing involving commercial real estate and equipment collateral. We have no recourse arrangements with these entities.

Unconsolidated Variable Interest Entities

 

Our involvement with unconsolidated VIEs consists of the following activities: assisting in the formation and financing of an entity, providing recourse and/or liquidity support, servicing the assets and receiving variable fees for services provided. The classification in our financial statements of our variable interests in these entities depends on the nature of the entity. As described below, our retained interests in securitization-related VIEs and QSPEs is reported in financing receivables or investment securities depending on its legal form. Variable interests in partnerships and corporate entities would be classified as either equity method or cost method investments.

In the ordinary course of business, we make investments in entities in which we are not the primary beneficiary, but may hold a variable interest such as limited partner equity interests or mezzanine debt investment. These investments totaled $9,664 million at year-end 2009 and  are classified in two captions in our financial statements: “Other assets” for investments accounted for under the equity method, and “Financing receivables” for debt financing provided to these entities. At December 31, 2009, “Other assets” totaled $8,895 million ($2,919 million at December 31, 2008) and financing receivables, included in Note 4, totaled $769 million ($1,045 million at December 31, 2008). In addition to our existing investments, we have contractual obligations to fund additional investments in the unconsolidated VIEs of $1,387 million ($1,159 million at December 31, 2008). Together, these represent our maximum exposure to loss if the assets of the unconsolidated VIEs were to have no value

 

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The largest unconsolidated VIE with which we are involved is PTL, which is a rental truck leasing joint venture. The total consolidated assets and liabilities of PTL at December 31, 2008, were $7,444 million and $1,339 million, respectively. In the first quarter of 2009, we sold a 1% limited partnership interest in PTL, a previously consolidated VIE, to Penske Truck Leasing Corporation, the general partner of PTL, whose majority shareowner is a member of GE’s Board of Directors. The disposition of the shares, coupled with our resulting minority position on the PTL advisory committee and related changes in our contractual rights, resulted in the deconsolidation of PTL. We recognized a pre-tax gain on the sale of $296 million, including a gain on the remeasurement of our retained investment of $189 million. The measurement of the fair value of our retained investment in PTL was based on a methodology that incorporated both discounted cash flow information and market data. In applying this methodology, we utilized different sources of information, including actual operating results, future business plans, economic projections and market observable pricing multiples of similar businesses. The resulting fair value reflected our position as a noncontrolling shareowner at the conclusion of the transaction. At December 31, 2009, our remaining investment in PTL of $5,751 million comprised a 49.9% partnership interest of $923 million and loans and advances of $4,828 million.

Other than those entities described above, we also hold passive investments in RMBS, CMBS and asset-backed securities issued by entities that may be either VIEs or QSPEs. Such investments were, by design, investment grade at issuance and held by a diverse group of investors. As we have no formal involvement in such entities beyond our investment, we believe that the likelihood is remote that we would be required to consolidate them. Further information about such investments is provided in Note 3.

Securitization Activities

 

We transfer assets to QSPEs in the ordinary course of business as part of our ongoing securitization activities. In our securitization transactions, we transfer assets to a QSPE and receive a combination of cash and retained interests in the assets transferred. The QSPE sells beneficial interests in the assets transferred to third-party investors, to fund the purchase of the assets.

 

The financing receivables in our QSPEs have similar risks and characteristics to our on-book financing receivables and were underwritten to the same standard. Accordingly, the performance of these assets has been similar to our on-book financing receivables; however, the blended performance of the pools of receivables in our QSPEs reflects the eligibility screening requirements that we apply to determine which receivables are selected for sale. Therefore, the blended performance can differ from the on-book performance.

 

When we securitize financing receivables we retain interests in the transferred receivables in two forms: a seller’s interest in the assets of the QSPE, which we classify as financing receivables, and subordinated interests in the assets of the QSPE, which we classify as investment securities. In certain credit card receivables trusts, we are required to maintain minimum free equity (subordinated interest) of 4% or 7% depending on the credit rating of GE Capital.

 

Financing receivables transferred to securitization entities that remained outstanding and our retained interests in those financing receivables at December 31, 2009 and 2008 follows.

 

 

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					Commercial			Credit card			Other			Total
December 31 (In millions)		Equipment	(a)(b)		real estate			receivables	(b)		assets			assets
2009
Asset amount outstanding	$	9,918		$	7,381		$	25,573		$	1,590		$	44,462
Included within the amount above are
retained interests of:
Financing receivables(c)		–			–			2,471			–			2,471
Investment securities		329			20			7,156			50			7,555
2008
Asset amount outstanding	$	13,298		$	7,970		$	26,046		$	2,782		$	50,096
Included within the amount above are
retained interests of:
Financing receivables(c)		–			–			3,802			–			3,802
Investment securities		148			16			4,806			61			5,031

(a)	Included inventory floorplan receivables.

 

(b)

As permitted by the terms of the applicable trust documents, in the second and third quarters of 2009, we transferred $268 million of floorplan financing receivables to the GE Dealer Floorplan Master Note Trust and $328 million of credit card receivables to the GE Capital Credit Card Master Note Trust in exchange for additional subordinated interests. These actions had the effect of maintaining the AAA ratings of certain securities issued by these entities.

 

(c)	Uncertificated seller’s interests.

 

Retained Interests in Securitization Transactions

 

When we transfer financing receivables, we determine the fair value of retained interests received as part of the securitization transaction. Further information about how fair value is determined is presented in Note 14. Retained interests in securitized receivables that are classified as investment securities are reported at fair value in each reporting period. These assets decrease as cash is received on the underlying financing receivables. Retained interests classified as financing receivables are accounted for in a similar manner to our on-book financing receivables.

Key assumptions used in measuring the fair value of retained interests classified as investment securities and the sensitivity of the current fair value to changes in those assumptions related to all outstanding retained interests at December 31, 2009 and 2008 follow.

 

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(Dollars In millions)	Equipment			Commercial			Credit card			Other
				real estate			receivables			assets
2009
Discount rate(a)		7.6	%		27.8	%		9.1	%		3.5	%
Effect of
10% adverse change	$	(4)		$	(1)		$	(58)		$	−
20% adverse change		(7)			(2)			(115)			−
Prepayment rate(a)(b)		3.8	%		0.8	%		9.9	%		57.9	%
Effect of
10% adverse change	$	−		$	−		$	(54)		$	−
20% adverse change		−			−			(101)			−
Estimate of credit losses(a)		0.7	%		7.8	%		15.0	%		−	%
Effect of
10% adverse change	$	−		$	(2)		$	(207)		$	−
20% adverse change		(1)			(4)			(413)			−
Remaining weighted average
asset lives (in months)		7			74			9			2
Net credit losses for the year	$	−		$	15		$	1,914		$	−
Delinquencies		−			24			1,663			−
2008
Discount rate(a)		16.7	%		54.2	%		15.1	%		13.4	%
Effect of
10% adverse change	$	(6)		$	(1)		$	(53)		$	−
20% adverse change		(12)			(2)			(105)			(1)
Prepayment rate(a)(b)		10.0	%		1.5	%		9.6	%		43.8	%
Effect of
10% adverse change	$	(1)		$	−		$	(60)		$	–
20% adverse change		(1)			−			(118)			(1)
Estimate of credit losses(a)		0.4	%		4.9	%		16.2	%		0.1	%
Effect of
10% adverse change	$	(1)		$	−		$	(223)		$	–
20% adverse change		(3)			−			(440)			–
Remaining weighted average
asset lives (in months)		20			70			10			3
Net credit losses for the year	$	4		$	7		$	1,512		$	−
Delinquencies		27			58			1,833			8

(a)	Based on weighted averages.

 

(b)	Represented a payment rate on credit card receivables, inventory financing receivables (included within equipment) and trade receivables (included within other assets).

 

 

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Activity related to retained interests classified as investment securities in our consolidated financial statements follows.

(In millions)	2009			2008			2007
Cash flows on transfers
Proceeds from new transfers	$	10,013		$	6,655		$	20,502
Proceeds from collections reinvested
in revolving period transfers		42,517			49,868			55,894
Cash flows on retained interests recorded
as investment securities		4,510			3,764			3,370
Effect on Revenues from services
Net gain on sale	$	1,413		$	963		$	1759
Change in fair value of retained interests
recorded in earnings		291			(113)			(102)
Other-than-temporary impairments		(36)			(29)			(18)

Derivative Activities

 

In connection with some securitization transactions, the QSPEs use derivatives to manage interest rate risk between the assets they own and liabilities they issue. In such instances, at the inception of the transaction, the QSPE will enter into a derivative that generally requires the payment of a fixed rate of interest to a counterparty in exchange for a floating rate of interest in order to eliminate interest rate, and in certain instances, payment speed volatility. In some cases, a GE entity is the counterparty to a QSPE’s derivative; the fair value of these derivatives was a net asset of $136 million and $205 million at December 31, 2009 and 2008, respectively. In such cases, a second derivative is executed with a third party to minimize or eliminate the exposure created by the first derivative.

Servicing Activities

 

As part of a securitization transaction, we may provide servicing in exchange for a market-based fee that is determined on principal balances. Where the fee does not represent market-based compensation for these services, a servicing asset or liability is recorded, as appropriate. The fair value of the servicing asset or liability is subject to credit, prepayment and interest rate risk. Servicing assets and liabilities are amortized to earnings in proportion to and over the period of servicing activity. The amount of our servicing assets and liabilities was insignificant at December 31, 2009 and 2008. We received servicing fees from QSPEs of $608 million, $642 million and $566 million in 2009, 2008 and 2007, respectively.

Where we provide servicing we are contractually permitted to commingle cash collected from customers on financing receivables sold to investors with our own cash prior to payment to a QSPE provided our credit rating does not fall below levels specified in each of our securitization agreements. Based on our current rating we do not anticipate any restriction to commingling cash under these agreements. At December 31, 2009 and 2008, accounts payable included $4,138 million and $3,456 million, respectively, representing obligations to QSPEs for collections received in our capacity as servicer from obligors of the QSPEs.

Included in other receivables at December 31, 2009 and 2008, were $3,502 million and $2,346 million, respectively, relating to amounts owed by QSPEs to GECC, principally for the purchase of financial assets.

 

 

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NOTE 17. COMMITMENTS AND GUARANTEES

 

Commitments

 

GECAS had placed multiple-year orders for various Boeing, Airbus and other aircraft with list prices approximating $12,603 million and secondary orders with airlines for used aircraft of approximately $2,165 million at December 31, 2009.

Guarantees

 

At December 31, 2009, we were committed under the following guarantee arrangements beyond those provided on behalf of QSPEs and VIEs. See Note 16.

·

Credit support. We have provided $6,902 million of credit support on behalf of certain customers or associated companies, predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. These arrangements enable these customers and associated companies to execute transactions or obtain desired financing arrangements with third parties. Should the customer or associated company fail to perform under the terms of the transaction or financing arrangement, we would be required to perform on their behalf. Under most such arrangements, our guarantee is secured, usually by the asset being purchased or financed, or possibly by certain other assets of the customer or associated company. The length of these credit support arrangements parallels the length of the related financing arrangements or transactions. The liability for such credit support was $38 million for December 31, 2009.

·

Indemnification agreements. These are agreements that require us to fund up to $101 million under residual value guarantees on a variety of leased equipment. Under most of our residual value guarantees, our commitment is secured by the leased asset at December 31, 2009. The liability for these indemnification agreements was $20 million at December 31, 2009. We had $1,493 million of other indemnification commitments arising primarily from sales of businesses or assets.

·

Contingent consideration. These are agreements to provide additional consideration in a business combination to the seller if contractually specified conditions related to the acquired entity are achieved. At December 31, 2009, we had total maximum exposure for future estimated payments of $7 million, of which none was earned and payable.

In connection with the sale of GE Money Japan, we reduced the proceeds on the sale for estimated interest refund claims in excess of the statutory interest rate. Proceeds from the sale may be increased or decreased based on the actual claims experienced in accordance with terms specified in the agreement, and will not be adjusted unless total claims as calculated under the terms of the agreement exceed approximately $3,000 million. During the second quarter of 2009, we accrued $132 million, which represents the amount by which we expect claims to exceed those levels and is based on our historical and recent claims experience and the estimated future requests, taking into consideration the ability and likelihood of customers to make claims and other industry risk factors. Uncertainties around the status of laws and regulations and lack of certain information related to the individual customers make it difficult to develop a meaningful estimate of the aggregate possible claims exposure. We will continue to review our estimated exposure quarterly, and make adjustments when required.

Our guarantees are provided in the ordinary course of business. We underwrite these guarantees considering economic, liquidity and credit risk of the counterparty. We believe that the likelihood is remote that any such arrangements could have a significant adverse effect on our financial position, results of operations or liquidity. We record liabilities for guarantees at estimated fair value, generally the amount of the premium received, or if we do not receive a premium, the amount based on appraisal, observed market values or discounted cash flows. Any associated expected recoveries from third parties are recorded as other receivables, not netted against the liabilities.

At December 31, 2009 and 2008, the likelihood that we will be called upon to perform on these guarantees is remote.

 

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NOTE 18. SUPPLEMENTAL CASH FLOWS INFORMATION

 

Changes in operating assets and liabilities are net of acquisitions and dispositions of principal businesses.

Amounts reported in the “Payments for principal businesses purchased” line in the Statement of Cash Flows is net of cash acquired and included debt assumed and immediately repaid in acquisitions.

Amounts reported in the “All other operating activities” line in the Statement of Cash Flows consists primarily of adjustments to current and noncurrent accruals and deferrals of costs and expenses, adjustments for gains and losses on assets and adjustments to assets. In 2009, we had non-cash transactions related to foreclosed properties and repossessed assets totaling $1,364 million.

Certain supplemental information related to our cash flows is shown below.

December 31 (In millions)	2009			2008			2007
All other operating activities
Net change in other assets	$	(285)		$	(1,588)		$	(1,608)
Amortization of intangible assets		888			926			773
Realized losses (gains) on investment securities		251			632			(367)
Cash collateral on derivative contracts		(6,858)			7,769			-
Change in other liabilities		(5,404)			(3,262)			3,365
Other		38			1,890			(2,414)
	$	(11,370)		$	6,367		$	(251)
Net decrease (increase) in financing receivables
Increase in loans to customers	$	(278,372)		$	(408,965)		$	(391,662)
Principal collections from customers - loans		285,138			358,448			304,402
Investment in equipment for financing leases		(9,511)			(21,690)			(26,536)
Principal collections from customers - financing leases		17,490			19,669			21,230
Net change in credit card receivables		(28,508)			(34,498)			(38,405)
Sales of financing receivables		57,282			67,163			86,399
	$	43,519		$	(19,873)		$	(44,572)
All other investing activities
Purchases of securities by insurance activities	$	(32)		$	(1,346)		$	(10,185)
Dispositions and maturities of securities by insurance activities		2,182			2,623			10,255
Other assets - investments		(225)			(92)			(10,284)
Change in other receivables		2,045			5,722			7,286
Other		(2,840)			1,226			899
	$	1,130		$	8,133		$	(2,029)
Newly issued debt having maturities longer than 90 days
Short-term (91 to 365 days)	$	5,801		$	34,445		$	1,226
Long-term (longer than one year)		75,592			81,364			90,459
Proceeds - nonrecourse, leveraged lease		48			113			24
	$	81,441		$	115,922		$	91,709
Repayments and other reductions of debt having maturities
longer than 90 days
Short-term (91 to 365 days)	$	(77,444)		$	(65,985)		$	(43,902)
Long-term (longer than one year)		(5,379)			(331)			(7,700)
Principal payments - nonrecourse, leveraged lease		(680)			(637)			(1,109)
	$	(83,503)		$	(66,953)		$	(52,711)
All other financing activities
Proceeds from sales of investment contracts	$	7,818		$	11,397		$	12,611
Redemption of investment contracts		(10,213)			(12,696)			(13,036)
Other		180			2			17
	$	(2,215)		$	(1,297)		$	(408)

 

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NOTE 19. OPERATING SEGMENTS

 

Basis for presentation

 

Our operating businesses are organized based on the nature of markets and customers. Segment accounting policies are the same as described in Note 1. Segment results include an allocation for a portion of corporate overhead costs, which include such items as employee compensation and benefits. Segment results reflect the discrete tax effect of transactions, but the intraperiod tax allocation is reflected outside of the segment unless otherwise noted in segment results.

Effects of transactions between related companies are eliminated. As a wholly-owned subsidiary, GECC enters into various operating and financing arrangements with GE. These arrangements are on terms that are commercially reasonable but are related party transactions and therefore require the following disclosures. At December 31, 2009 and 2008, financing receivables included $6,175 million and $5,913 million, respectively, of receivables from GE customers. Other receivables included $3,901 million and $4,560 million, respectively, of receivables from GE. Property, plant and equipment included $1,037 million and $1,257 million, respectively, of property, plant and equipment leased to GE, net of accumulated depreciation. Borrowings included $2,327 million and $2,490 million, respectively, of amounts held by GE.

Effective January 1, 2010, General Electric Company (GE) expanded the GE Capital Finance segment to include all of the continuing operations of GECC and renamed it GE Capital. In addition, the Transportation Financial Services business, previously reported in GECAS, will be included in CLL and our Consumer business in Italy, previously reported in Consumer, will be included in CLL.

Results for 2009 and prior periods are reported on the basis under which we managed our business in 2009 and do not reflect the January 2010 reorganization described above.

Details of segment profit by operating segment can be found in the Summary of Operating Segments table on page 21 of this Report.

Revenues

 

	Total revenues									Intersegment revenues(a)									External revenues
(In  millions)	2009			2008			2007			2009			2008			2007			2009			2008			2007
CLL	$	20,107		$	26,067		$	26,099		$	30		$	47		$	74		$	20,077		$	26,020		$	26,025
Consumer		19,268			25,311			25,054			8			32			–			19,260			25,279			25,054
Real Estate		3,996			6,660			6,950			2			1			5			3,994			6,659			6,945
Energy Financial
Services		2,115			3,696			2,400			–			–			–			2,115			3,696			2,400
GECAS		4,703			4,899			4,835			–			–			–			4,703			4,899			4,835
GECC corporate
items and
eliminations		484			1,361			1,661			(40)			(80)			(79)			524			1,441			1,740
Total	$	50,673		$	67,994		$	66,999		$	–		$	–		$	–		$	50,673		$	67,994		$	66,999

(a)	Sales from one component to another generally are priced at equivalent commercial selling prices.

 

Revenues from customers located in the United States were $23,172 million, $30,672 million and $30,755 million in 2009, 2008 and 2007, respectively. Revenues from customers located outside the United States were $27,501 million, $37,322 million and $36,244 million in 2009, 2008 and 2007, respectively.

 

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	Depreciation and amortization									Provision (benefit) for
	For the years ended December 31									income taxes
(In millions)	2009			2008			2007			2009			2008			2007
CLL	$	5,950		$	7,053		$	6,073		$	(666)		$	(371)		$	(96)
Consumer		397			550			483			(1,267)			(1,442)			518
Real Estate		919			930			709			(1,322)			(380)			250
Energy Financial Services		173			156			78			(177)			105			184
GECAS		1,721			1,522			1,489			(9)			100			61
GECC corporate items
and eliminations		29			19			20			(440)			(277)			(178)
Total	$	9,189		$	10,230		$	8,852		$	(3,881)		$	(2,265)		$	739
	Interest on Loans(a)									Interest expense(b)
(In millions)	2009			2008			2007			2009			2008			2007
CLL	$	5,713		$	7,219		$	6,251		$	6,496		$	8,876		$	8,230
Consumer		11,411			16,104			14,313			6,183			10,150			9,107
Real Estate		2,099			2,598			1,802			2,911			3,548			2,669
Energy Financial Services		238			340			246			743			764			694
GECAS		389			486			502			1,453			1,593			1,706
GECC corporate items
and eliminations		91			147			230			76			(72)			(126)
Total	$	19,941		$	26,894		$	23,344		$	17,862		$	24,859		$	22,280

(a)	Represents one component of Revenues from services, see Note 12.

 

(b)	Represents total interest expense, see Statement of Earnings.

 

									Property, plant and equipment
									additions(d)
	Assets(a)(b)(c)									For the years ended
	At December 31									December 31
(In millions)	2009			2008			2007			2009			2008			2007
CLL	$	203,596		$	226,161		$	221,338		$	2,965		$	10,818		$	12,781
Consumer		175,232			187,760			214,374			146			251			213
Real Estate		81,378			84,909			79,006			5			6			26
Energy Financial Services		22,540			22,025			18,653			191			944			1,273
GECAS		50,856			49,257			46,970			3,062			3,157			3,327
GECC corporate items
and eliminations		89,495			67,298			40,391			14			13			8
Total	$	623,097		$	637,410		$	620,732		$	6,383		$	15,189		$	17,628

(a)	Assets of discontinued operations are included in GECC corporate items and eliminations for all periods presented.

 

(b)

Total assets of the CLL, Consumer, Energy Financial Services and GECAS operating segments at December 31, 2009, include investment in and advances to associated companies of $8,117 million, $10,299 million, $6,806 million and $778 million, respectively. Investments in and advances to associated companies contributed approximately $56 million, $794 million, $173 million and $36 million, respectively, to segment pre-tax income for the year ended December 31, 2009.

 

(c)

Aggregate summarized financial information for significant associated companies assuming a 100% ownership interest included total assets in 2009 and 2008 of $137,705 million and $141,902 million, respectively.  Assets were primarily financing receivables of $82,873 million in 2009 and $86,341 in 2008.  Total liabilities in 2009 and 2008 were $118,708 million and $119,631 million, respectively, consisted primarily of bank deposits of $69,573 million in 2009 and $65,822 million in 2008 and debt of $48,677 million in 2009 and $43,003 million in 2008. Revenues in 2009, 2008, and 2007 totaled $17,579 million, $12,596 million, $5,381 million respectively, and net earnings in 2009, 2008 and 2007 totaled $3,429 million, $2,642 million $1,298 million, respectively.

 

(d)	Additions to property, plant and equipment include amounts relating to principal businesses purchased.

 

 

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Property, plant and equipment – net associated with operations based in the United States were $12,585 million, $18,625 million and $18,276 million at year-end 2009, 2008 and 2007, respectively. Property, plant and equipment – net associated with operations based outside the United States were $44,106 million, $45,418 million and $45,409 million at year-end 2009, 2008 and 2007, respectively.

NOTE 20. QUARTERLY INFORMATION (UNAUDITED)

	First quarter						Second quarter						Third quarter						Fourth quarter
(In millions)	2009			2008			2009			2008			2009			2008			2009			2008
Total revenues	$	13,636		$	17,123		$	12,588		$	18,149		$	11,865		$	17,624		$	12,584		$	15,098
Earnings (loss) from continuing
operations
before income taxes		(104)			2,598			(265)			2,859			(1,042)			1,786			(833)			(1,252)
Benefit (provision) for income
taxes		1,146			(81)			687			(46)			1,145			413			903			1,979
Earnings from continuing
operations		1,042			2,517			422			2,813			103			2,199			70			727
Loss from discontinued
operations, net of taxes		(3)			(46)			(194)			(336)			84			(169)			(11)			(153)
Net earnings		1,039			2,471			228			2,477			187			2,030			59			574
Less net earnings attributable to
noncontrolling interests		50			36			29			63			16			111			(37)			32
Net earnings attributable to GECC	$	989		$	2,435		$	199		$	2,414		$	171		$	1,919		$	96		$	542

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

Not applicable.

Item 9A. Controls and Procedures.

 

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of December 31, 2009, and (ii) no change in internal control over financial reporting occurred during the quarter ended December 31, 2009, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

Management’s annual report on internal control over financial reporting and the report of our independent registered public accounting firm appears in Part II, Item 8. “Financial Statements and Supplementary Data” of this Form 10-K Report.

Item 9B. Other Information.

 

Not applicable.

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Not required by this form.

Item 11. Executive Compensation.

 

Not required by this form.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Not required by this form.

 

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Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Not required by this form.

Item 14. Principal Accounting Fees and Services.

 

The aggregate fees billed for professional services by KPMG LLP, in 2009 and 2008 were:

(In millions)	2009			2008
Type of fees
Audit fees	$	36.4		$	34.9
Audit-related fees		4.6			10
Tax fees		6.0			4.8
Total	$	47.0		$	49.7

In the above table, in accordance with the SEC’s definitions and rules, “Audit fees” are fees we paid KPMG for professional services for the audit of our annual financial statements included in the Form 10-K and review of financial statements included in the Form 10-Qs; for the audit of our internal control over financial reporting with the objective of obtaining reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects; and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. “Audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the audit or the review of our financial statements and internal control over financial reporting, including services in connection with assisting the company in its compliance with its obligations under Section 404 of the Sarbanes-Oxley Act and related regulations. “Audit-related fees” also include merger and acquisition due diligence and audit services and employee benefit plan audits. “Tax fees” are fees for tax compliance, tax advice and tax planning.

PART IV

 

 

Item 15. Exhibits, Financial Statement Schedules.

 

(a) 1.	Financial Statements
	Included in Part II of this report:
		Report of Independent Registered Public Accounting Firm Management’s Annual Report on Internal Control over Financial Reporting Statement of Earnings for each of the years in the three-year period ended December 31, 2009 Statement of Changes in Shareowner’s Equity for each of the years in the three-year period ended December 31, 2009 Statement of Financial Position at December 31, 2009 and 2008 Statement of Cash Flows for each of the years in the three-year period ended December 31, 2009 Notes to Consolidated Financial Statements
	Incorporated by reference:
		The consolidated financial statements of General Electric Company, set forth in the Annual Report on Form 10-K of General Electric Company (S.E.C. File No. 001-00035) for the year ended December 31, 2009 (pages 25 through 167), Exhibit 12(a) (Computation of Ratio of Earnings to Fixed Charges) and Exhibit 12(b) (Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends) of General Electric Company.
(a) 2.	Financial Statement Schedules
	Schedule I	Condensed financial information of registrant.
		All other schedules are omitted because of the absence of conditions under which they are required or because the required information is shown in the financial statements or notes thereto.

 

 

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(a) 3.	Exhibit Index
	The exhibits listed below, as part of Form 10-K, are numbered in conformity with the numbering used in Item 601 of Regulation S-K of the U.S. Securities and Exchange Commission.
	Exhibit Number		Description
	2(a)		Agreement and Plan of Merger dated June 25, 2001, between GECC and GECS Merger Sub, Inc. (Incorporated by reference to Exhibit 2.1 of GECC’s Current Report on Form 8-K dated as of July 3, 2001 (Commission file number 001-06461)).
	3(i)		A complete copy of the Certificate of Incorporation of GECC filed with the Office of the Secretary of State, State of Delaware on April 1, 2008 (Incorporated by reference to Exhibit 3(i) of GECC Form 10-Q Report for the quarterly period ended March 31, 2008 (Commission file number 001-06461)).
	3(ii)		A complete copy of the Amended and Restated By-Laws of GECC as last amended on February 21, 2008, and currently in effect (Incorporated by reference to Exhibit 3(ii) of GECC’s Form 10-Q Report for the quarterly period ended March 31, 2008 (Commission file number 001-06461)).
	4(a)		Amended and Restated General Electric Capital Corporation (GECC) Standard Global Multiple Series Indenture Provisions dated as of February 27, 1997 (Incorporated by reference to Exhibit 4(a) to GECC’s Registration Statement on Form S-3, File No. 333-59707 (Commission file number 001-06461)).
	4(b)		Third Amended and Restated Indenture dated as of February 27, 1997, between GECC and The Bank of New York, as successor trustee (Incorporated by reference to Exhibit 4(c) to GECC’s Registration Statement on Form S-3, File No. 333-59707 (Commission file number 001-06461)).
	4(c)		First Supplemental Indenture dated as of May 3, 1999, supplemental to Third Amended and Restated Indenture dated as of February 27, 1997 (Incorporated by reference to Exhibit 4(dd) to GECC’s Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File No. 333-76479 (Commission file number 001-06461)).
	4(d)		Second Supplemental Indenture dated as of July 2, 2001, supplemental to Third Amended and Restated Indenture dated as of February 27, 1997 (Incorporated by reference to Exhibit 4(f) to GECC’s Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File No. 333-40880 (Commission file number 001-06461)).
	4(e)		Third Supplemental Indenture dated as of November 22, 2002, supplemental to Third Amended and Restated Indenture dated as of February 27, 1997 (Incorporated by reference to Exhibit 4(cc) to GECC’s Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File No. 333-100527 (Commission file number 001-06461)).
	4(f)		Fourth Supplemental Indenture dated as of August 24, 2007, supplemental to Third Amended and Restated Indenture dated as of February 27, 1997 (Incorporated by reference to Exhibit 4(g) to GECC’s Registration Statement on Form S-3, File No. 333-156929 (Commission file number 001-06461)).
	4(g)		Fifth Supplemental Indenture dated as of December 2, 2008, supplemental to Third Amended and Restated Indenture dated as of February 27, 1997 (Incorporated by reference to Exhibit 4(h) to GECC’s Registration Statement on Form S-3, File No. 333-156929 (Commission file number 001-06461)).
	4(h)		Sixth Supplemental Indenture dated as of April 2, 2009, supplemental to Third Amended and Restated Indenture dated as of February 27, 1997.*
	4(i)		Eighth Amended and Restated Fiscal and Paying Agency Agreement among GECC, GE Capital Australia Funding Pty Ltd, GE Capital European Funding, GE Capital Canada Funding Company, GE Capital UK Funding and The Bank of New York, as fiscal and paying agent, dated as of May 12, 2006 (Incorporated by reference to Exhibit 4(q) to GECC’s Registration Statement on Form S-3, File No. 333-156929 (Commission file number 001-06461)).

 

 

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	4(j)		Form of Global Medium-Term Note, Series A, Fixed Rate Registered Note (Incorporated by reference to Exhibit 4(r) to GECC’s Registration Statement on Form S-3, File No. 333-156929 (Commission file number 001-06461)).
	4(k)		Form of Global Medium-Term Note, Series A, Floating Rate Registered Note (Incorporated by reference to Exhibit 4(s) to GECC’s Registration Statement on Form S-3, File No. 333-156929 (Commission file number 001-06461)).
	4(l)		Form of Global Medium-Term Note, Series G, Fixed Rate DTC Registered Note (Incorporated by reference to Exhibit 4(bb) to GECC’s Registration Statement on Form S-3, File No. 333-156929 (Commission file number 001-06461)).
	4(m)		Form of Global Medium-Term Note, Series G, Floating Rate DTC Registered Note (Incorporated by reference to Exhibit 4(cc) to GECC’s Registration Statement on Form S-3, File No. 333-156929 (Commission file number 001-06461)).
	4(n)		Form of GE Capital Fixed Rate InterNote (Incorporated by reference to Exhibit 4(pp) to GECC’s Registration Statement on Form S-3, File No. 333-156929 (Commission file number 001-06461)).
	4(o)		Form of Euro Medium-Term Note and Debt Security – Permanent Global Fixed Rate Bearer Note (Incorporated by reference to Exhibit 4(i) to GECS’ Form 10-K Report for the year ended December 31, 2006 (Commission file number 000-14804)).
	4(p)		Form of Euro Medium-Term Note and Debt Security – Permanent Global Floating Rate Bearer Note (Incorporated by reference to Exhibit 4(j) to GECS’ Form 10-K Report for the year ended December 31, 2006 (Commission file number 000-14804)).
	4(q)		Form of Euro Medium-Term Note and Debt Security – Temporary Global Fixed Rate Bearer Note (Incorporated by reference to Exhibit 4(k) to GECS’ Form 10-K Report for the year ended December 31, 2006 (Commission file number 000-14804)).
	4(r)		Form of Euro Medium-Term Note and Debt Security – Temporary Global Floating Rate Bearer Note (Incorporated by reference to Exhibit 4(l) to GECS’ Form 10-K Report for the year ended December 31, 2006 (Commission file number 000-14804)).
	4(s)		Form of Euro Medium-Term Note and Debt Security – Definitive Fixed Rate Bearer Note (Incorporated by reference to Exhibit 4(m) to GECS’ Form 10-K Report for the year ended December 31, 2006 (Commission file number 000-14804)).
	4(t)		Form of Euro Medium-Term Note and Debt Security – Definitive Floating Rate Bearer Note (Incorporated by reference to Exhibit 4(n) to GECS’ Form 10-K Report for the year ended December 31, 2006 (Commission file number 000-14804)).
	4(u)		Master Agreement, Temporary Liquidity Guarantee Program dated December 1, 2008 between GECC and Federal Deposit Insurance Corporation (Incorporated by reference to Exhibit 4(oo) to GECC’s Registration Statement on Form S-3, File No. 333-156929 (Commission file number 001-06461)).
	4(v)		Letter from the Senior Vice President and Chief Financial Officer of General Electric Company to General Electric Capital Corporation (GECC) dated September 15, 2006, with respect to returning dividends, distributions or other payments to GECC in certain circumstances described in the Indenture for Subordinated Debentures dated September 1, 2006, between GECC and the Bank of New York, as successor trustee. (Incorporated by reference to Exhibit 4(c) to GECC’s Post-Effective Amendment No. 2 to Registration Statement on Form S-3, File No. 333-132807 (Commission file number 001-06461)).
	4(w)		Agreement to furnish to the Securities and Exchange Commission upon request a copy of instruments defining the rights of holders of certain long-term debt of the registrant and consolidated subsidiaries.*

 

 

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	10(a)		Eligible Entity Designation Agreement dated as of November 12, 2008 by and among the Federal Deposit Insurance Corporation, GECC and General Electric Company (Incorporated by reference to Exhibit 99(b) of General Electric Company’s Annual Report on Form 10-K (Commission file number 001-00035)).

 

	10(b)		Amended and Restated Income Maintenance Agreement, dated October 29, 2009, between General Electric Company and General Electric Capital Corporation (Incorporated by reference to Exhibit 10 of GECC’s Form 10-Q Report for the quarterly period ended September 30, 2009 (Commission file number 001-06461)).
	12(a)		Computation of Ratio of Earnings to Fixed Charges.*
	12(b)		Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.*
	23(ii)		Consent of KPMG LLP.*
	24		Power of Attorney.*
	31(a)		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.*
	31(b)		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.*
	32		Certification Pursuant to 18 U.S.C. Section 1350.*
	99(a)		The consolidated financial statements of General Electric Company, set forth in the Annual Report on Form 10-K of General Electric Company (S.E.C. File No. 001-00035) for the year ended December 31, 2009, (pages 25 through 167) and Exhibit 12 (Ratio of Earnings to Fixed Charges) of General Electric Company.
	*     Filed electronically herewith.

 

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General Electric Capital Corporation and consolidated affiliates

 

Schedule I – Condensed Financial Information of Registrant

 

General Electric Capital Corporation

 

Condensed Statement of Current and Retained Earnings

 

For the years ended December 31 (In millions)	2009			2008			2007
Revenues	$	4,820		$	5,753		$	6,578
Expenses		9,179			10,833			11,793
Interest		3,419			5,344			3,166
Operating and administrative		1,672			642			323
Provision for losses on financing receivables		374			332			302
Depreciation and amortization		14,644			17,151			15,584
Total expenses
Loss before income taxes and equity in earnings of affiliates		(9,824)			(11,398)			(9,006)
Income tax benefit		4,339			4,446			3,385
Equity in earnings of affiliates		6,940			14,262			15,436
Net earnings		1,455			7,310			9,815
Dividends		–			(2,351)			(6,853)
Others(a)		(23)			–			–
Retained earnings at January 1(b)		45,497			40,513			37,551
Retained earnings at December 31	$	46,929		$	45,472		$	40,513

(a)	Related to accretion of redeemable securities to their redemption value.

 

(b)

The 2009 opening balance was adjusted as of April 1, 2009, for the cumulative effect of changes in accounting principles of $25 million related to adopting amendments on impairment guidance in Accounting Standards Codification (ASC) 320, Investments – Debt and Equity Securities. The cumulative effect of adopting ASC 825, Financial Instruments, at January 1, 2008, was insignificant. The 2007 opening balance change reflects cumulative effect of change in accounting principle of $(77) million related to adoption of amendments to ASC 740, Income Taxes.

 

 

See accompanying notes.

 

 

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General Electric Capital Corporation and consolidated affiliates

 

Schedule I – Condensed Financial Information of Registrant – (Continued)

 

General Electric Capital Corporation

 

Condensed Statement of Financial Position

 

At December 31 (In millions, except share amounts)	2009			2008
Assets
Cash and equivalents	$	30,117		$	9,406
Investment securities		6,994			3,324
Financing receivables - net		69,725			74,472
Investment in and advances to affiliates		273,318			293,530
Property, plant and equipment - net		1,560			2,503
Other assets		21,417			25,511
Total assets	$	403,131		$	408,746
Liabilities and equity
Borrowings	$	314,823		$	333,980
Other liabilities		12,375			11,142
Deferred income taxes		2,215			5,395
Total liabilities		329,413			350,517
Common stock, $14 par value (4,166,000 shares authorized at
December 31, 2009 and 2008 and 3,985,404 shares issued and		56			56
outstanding at December 31, 2009 and 2008)
Accumulated gains (losses) - net
Investment securities		(676)			(2,013)
Currency translation adjustments		1,228			(1,337)
Cash flow hedges		(1,816)			(3,253)
Benefit plans		(434)			(367)
Additional paid-in capital		28,431			19,671
Retained earnings		46,929			45,472
Total shareowner's equity		73,718			58,229
Total liabilities and equity	$	403,131		$	408,746

The sum of accumulated gains (losses) on investment securities, currency translation adjustments, cash flow hedges and benefit plans constitutes “Accumulated other comprehensive income,” and was $(1,698) million and $(6,970) million at December 31, 2009 and 2008, respectively.

 

 

See accompanying notes.

 

 

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General Electric Capital Corporation and consolidated affiliates

 

Schedule I – Condensed Financial Information of Registrant – (Continued)

 

General Electric Capital Corporation

 

Condensed Statement of Cash Flows

 

For the years ended December 31 (In millions)	2009			2008			2007
Cash used for operating activities	$	(2,768)		$	(2,656)		$	(7,745)
Cash flows - investing activities
Increase in loans to customers		(96,837)			(120,812)			(124,551)
Principal collections from customers - loans		99,779			117,749			112,554
Investment in equipment for financing leases		(1,239)			(2,273)			(2,916)
Principal collections from customers - financing leases		1,814			5,155			4,193
Net change in credit card receivables		5			(648)			31
Additions to property, plant and equipment		(158)			(1,674)			(1,431)
Dispositions of property, plant and equipment		780			1,295			1,380
Payments for principal businesses purchased		(5,702)			(24,961)			(7,570)
Proceeds from principal business dispositions		9,088			4,654			1,699
Decrease (increase) in investment in and advances to affiliates		27,161			37,264			(10,099)
All other investing activities		(1,210)			(8,046)			1,809
Cash from (used for) investing activities		33,481			7,703			(24,901)
Cash flows - financing activities
Net increase (decrease) in borrowings (maturities of 90 days or less)		(25,520)			(14,782)			8,747
Newly issued debt
Short-term (91-365 days)		3,310			13,080			820
Long-term (longer than one year)		62,240			49,940			65,709
Non-recourse, leveraged lease					–			12
Repayments and other debt reductions:
Short-term (91-365 days)		(57,941)			(44,535)			(36,164)
Long-term (longer than one year)		(533)			(2,306)			(318)
Non-recourse, leveraged lease		(317)			(409)			(431)
Dividends paid to shareowner		–			(2,351)			(6,695)
Capital contributions from GECS		8,750			5,500			–
Other		9			2			17
Cash from (used for) financing activities		(10,002)			4,139			31,697
Increase (decrease) in cash and equivalents during year		20,711			9,186			(949)
Cash and equivalents at beginning of year		9,406			220			1,169
Cash and equivalents at end of year	$	30,117		$	9,406		$	220

See accompanying notes.

 

 

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General Electric Capital Corporation and consolidated affiliates

 

Schedule I – Condensed Financial Information of Registrant – (Concluded)

 

General Electric Capital Corporation

 

Notes to Condensed Financial Statements

 

 

Financial statements presentation

 

We have reclassified certain prior-year amounts to conform to the current year’s presentation.

Borrowings

 

Total long-term borrowings at December 31, 2009 and 2008, are shown below.

	2009
	Average
December 31 (Dollars in millions)	rate(a)			Maturities		2009			2008
Senior notes		3.23		2011-2055		$	210,881		$	200,079
Subordinated notes(b)		5.51		2012-2037			2,388			2,567
Subordinated debentures(c)		6.48		2066-2067			7,647			7,315
Other							4,693			4,584
						$	225,609		$	214,545

(a)	Based on year-end balances and year-end local currency interest rates, including the effects of related interest rate and currency swaps, if any, directly associated with the original debt issuance.

 

(b)	Included $117 million and $450 million of subordinated notes guaranteed by GE at December 31, 2009 and 2008, respectively.

 

(c)	Subordinated debenture receive rating agency equity credit and were hedged at issuance to USD equivalent of $7,725 million.

 

 

At December 31, 2009, maturities of long-term borrowings during the next five years, including the current portion of long-term debt, are $49,908 million in 2010, $43,519 million in 2011, $68,308 million in 2012, $16,854 million in 2013 and $12,384 million in 2014.

Interest rate and currency risk is managed through the direct issuance of debt or use of derivatives. We take positions in view of anticipated behavior of assets, including prepayment behavior. We use a variety of instruments, including interest rate and currency swaps and currency forwards, to achieve our interest rate objectives.

Interest expense on the Condensed Statement of Current and Retained Earnings is net of interest income on loans and advances to majority owned affiliates of $2,956 million, $4,350 million and $4,195 million for 2009, 2008 and 2007, respectively.

Income taxes

 

General Electric Company files a consolidated U.S. federal income tax return which includes General Electric Capital Corporation. Income tax benefit includes our effect on the consolidated return.

 

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Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		General Electric Capital Corporation
February 19, 2010		By: /s/ Michael A. Neal
		Michael A. Neal
		Chief Executive Officer

 

 

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

 

Signature			Title		Date
/s/ Michael A. Neal			Chief Executive Officer		February 19, 2010
Michael A. Neal			(Principal Executive Officer)
/s/ Jeffrey S. Bornstein			Chief Financial Officer		February 19, 2010
Jeffrey S. Bornstein			(Principal Financial Officer)
/s/ Jamie S. Miller			Senior Vice President and Controller		February 19, 2010
Jamie S. Miller			(Principal Accounting Officer)
JEFFREY S. BORNSTEIN*			Director
WILLIAM H. CARY*			Director
KATHRYN A. CASSIDY*			Director
JAMES A. COLICA*			Director
PAMELA DALEY*			Director
RICHARD D’AVINO*			Director
BRACKETT B. DENNISTON*			Director
JEFFREY R. IMMELT*			Director
MARK KRAKOWIAK*			Director
JOHN KRENICKI, JR.*			Director
J. KEITH MORGAN*			Director
MICHAEL A. NEAL*			Director
RONALD R. PRESSMAN*			Director
JOHN G. RICE*			Director
JOHN M. SAMUELS*			Director
KEITH S. SHERIN*			Director
A MAJORITY OF THE BOARD OF DIRECTORS
*By:	/s/ Jamie S. Miller			February 19, 2010
	Jamie S. Miller Attorney-in-fact

 

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