GE 2006 Annual Report Download - page 62

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Delinquency rates at Commercial Finance decreased from
December 31, 2004, through December 31, 2006, primarily
resulting from improved credit quality across all portfolios.
Delinquency rates at GE Money decreased from
December 31, 2005, to December 31, 2006, as a result of
improvements in our European secured fi nancing business,
partially offset by the weakening U.S. dollar at the end of the year.
The increase from December 31, 2004, to December 31, 2005,
reflected higher delinquencies in our European secured fi nancing
business, a business that tends to experience relatively higher
delinquencies but lower losses than the rest of the consumer
portfolio. See notes 13 and 14.
OTHER GECS RECEIVABLES totaled $21.9 billion at December 31,
2006, and $18.6 billion at December 31, 2005, and consisted pri-
marily of amounts due from GE (generally related to certain material
procurement programs), insurance receivables, nonfi nancing
customer receivables, amounts due under operating leases,
receivables due on sale of securities and various sundry items.
PROPERTY, PLANT AND EQUIPMENT amounted to $75.0 billion at
December 31, 2006, up $7.4 billion from 2005, primarily refl ecting
acquisitions of commercial aircraft at the Aviation Financial
Services business of Infrastructure and the consolidation of GE
SeaCo at the Equipment Services business of Industrial during
the second quarter of 2006. GE property, plant and equipment
consisted of investments for its own productive use, whereas
the largest element for GECS was equipment provided to third
parties on operating leases. Details by category of investment
are presented in note 15.
GE expenditures for plant and equipment during 2006 totaled
$3.4 billion, compared with $2.8 billion in 2005. Total expendi-
tures for the past five years were $13.1 billion, of which 30%
was investment for growth through new capacity and product
development; 35% was investment in productivity through new
equipment and process improvements; and 35% was investment
for other purposes such as improvement of research and devel-
opment facilities and safety and environmental protection.
GECS additions to property, plant and equipment were
$13.2 billion and $11.6 billion during 2006 and 2005, respectively,
primarily reflecting additions of vehicles at Commercial Finance
and the Equipment Services business of Industrial, and commercial
aircraft at the Aviation Financial Services business of Infrastructure.
INTANGIBLE ASSETS were $86.4 billion at the end of 2006, up from
$81.6 billion at the end of 2005. GE intangible assets increased
$2.6 billion from $57.8 billion at the end of 2005, principally as
a result of goodwill and other intangible assets related to the
IDX Systems Corporation and Biacore International AB acquisitions
by Healthcare, the ZENON Environmental Inc. acquisition by
Infrastructure, and the acquisition of iVillage Inc. by NBC Universal.
This increase to intangible assets was offset by dispositions of
$1.3 billion, principally as a result of the sale of Advanced
Materials by Industrial.
GECS intangible assets increased by $2.2 billion to $26.0 billion
at December 31, 2006, principally as a result of increases in good-
will and other intangible assets, primarily related to acquisitions
and the weaker U.S. dollar at the end of the year. See note 16.
ALL OTHER ASSETS totaled $97.1 billion at year-end 2006, an increase
of $12.3 billion, reflecting increases from additional investments
and acquisitions in real estate, increases in assets held for sale,
partially offset by decreases in associated companies and prepaid
pension assets. See note 17.
BORROWINGS amounted to $433.0 billion at December 31, 2006,
compared with $370.4 billion at the end of 2005.
GE total borrowings were $11.3 billion at year-end 2006
($2.2 billion short term, $9.1 billion long term) compared with
$10.2 billion at December 31, 2005. GE total debt at the end of
2006 equaled 8.7% of total capital compared with 8.1% at the
end of 2005.
GECS borrowings amounted to $426.3 billion at December 31,
2006, of which $173.3 billion is due in 2007 and $253.0 billion is
due in subsequent years. Comparable amounts at the end of 2005
were $362.1 billion in total, $157.7 billion due within one year and
$204.4 billion due thereafter. Included in GECS total borrowings
were borrowings of consolidated, liquidating securitization entities
amounting to $11.1 billion and $16.8 billion at December 31,
2006 and 2005, respectively. A large portion of GECS borrowings
($100.2 billion and $97.4 billion at the end of 2006 and 2005,
respectively) was issued in active commercial paper markets that
we believe will continue to be a reliable source of short-term
financing. The average remaining terms and interest rates of GE
Capital commercial paper were 48 days and 5.09% at the end
of 2006, compared with 45 days and 4.09% at the end of 2005.
The GE Capital ratio of debt to equity was 7.52 to 1 at the end
of 2006 and 7.09 to 1 at the end of 2005. See note 18.
EXCHANGE RATE AND INTEREST RATE RISKS are managed with a
variety of techniques, including match funding and selective
use of derivatives. We use derivatives to mitigate or eliminate
certain financial and market risks because we conduct business
in diverse markets around the world and local funding is not
always efficient. In addition, we use derivatives to adjust the debt
we are issuing to match the fixed or floating nature of the assets
we are acquiring. We apply strict policies to manage each of these
risks, including prohibitions on derivatives trading, derivatives
market-making or other speculative activities. Following is an
analysis of the potential effects of changes in interest rates
and currency exchange rates using so-called “shock” tests that
model effects of shifts in rates. These are not forecasts.
• It is our policy to minimize exposure to interest rate changes.
We fund our financial investments using debt or a combination
of debt and hedging instruments so that the interest rates
and terms of our borrowings match the expected yields and
terms on our assets. To test the effectiveness of our positions,
we assumed that, on January 1, 2007, interest rates increased
by 100 basis points across the yield curve (a “parallel shift” in
60 ge 2006 annual report