GE 2006 Annual Report Download - page 64

’   
Based on past performance and current expectations, in
combination with the fi nancial flexibility that comes with a strong
balance sheet and the highest credit ratings, we believe that we
are in a sound position to grow dividends, continue making
selective investments for long-term growth and, depending on
proceeds from a potential business disposition, continue to execute
our $25 billion share repurchase program.
Contractual Obligations
As defined by reporting regulations, our contractual obligations
for future payments as of December 31, 2006, follow.
Payments due by period
2008–
2009
2010–
2011
2012 and
thereafter(In billions) Total 2007
Borrowings (note 18) $433.0 $172.2 $100.6 $55.1 $105.1
Interest on borrowings 98.0 17.0 25.0 15.0 41.0
Operating lease
obligations (note 5) 6.6 1.3 2.1 1.4 1.8
Purchase obligations(a)(b) 72.0 47.0 15.0 7.0 3.0
Insurance liabilities
(note 19)(c) 24.0 2.0 7.0 4.0 11.0
Other liabilities(d) 68.0 21.0 6.0 4.0 37.0
(a) Included all take-or-pay arrangements, capital expenditures, contractual commit-
ments to purchase equipment that will be classified as equipment leased to others,
software acquisition/license commitments, contractual minimum programming
commitments and any contractually required cash payments for acquisitions.
(b) Excluded funding commitments entered into in the ordinary course of business
by our financial services businesses. Further information on these commitments
and other guarantees is provided in note 29.
(c) Included guaranteed investment contracts, structured settlements and single
premium immediate annuities based on scheduled payouts, as well as those
contracts with reasonably determinable cash flows such as deferred annuities,
universal life, term life, long-term care, whole life and other life insurance contracts.
(d) Included an estimate of future expected funding requirements related to our
pension and postretirement benefit plans. Because their future cash outflows are
uncertain, the following non-current liabilities are excluded from the table above:
deferred taxes, derivatives, deferred revenue and other sundry items. See notes
21 and 27 for further information on certain of these items.
Off-Balance Sheet Arrangements
Before 2003, we executed securitization transactions using enti-
ties sponsored by us and by third parties. Subsequently, we only
have executed securitization transactions with third parties in
the asset-backed commercial paper and term markets and we
consolidated those we sponsored. Securitization entities held
receivables secured by a variety of high-quality assets totaling
$59.9 billion at December 31, 2006, down $1.9 billion during the
year. Off-balance sheet securitization entities held $48.2 billion of
that total, up $4.4 billion during the year. The remainder, in the
consolidated entities we sponsored, decreased $6.3 billion during
2006, reflecting collections. We have entered into various credit
enhancement positions with these securitization entities, includ-
ing overcollateralization, liquidity and credit support agreements
and guarantee and reimbursement contracts. We have provided
for our best estimate of the fair value of estimated losses on
such positions, $27 million at December 31, 2006.
Debt Instruments, Guarantees and Covenants
The major debt rating agencies routinely evaluate the debt of
GE, GECS and GE Capital, the major borrowing affiliate of GECS.
These agencies have given the highest debt ratings to GE and GE
Capital (long-term rating AAA/Aaa; short-term rating A–1+/P–1).
One of our strategic objectives is to maintain these ratings, as
they serve to lower our cost of funds and to facilitate our access
to a variety of lenders. We manage our businesses in a fashion
that is consistent with maintaining these ratings.
GE, GECS and GE Capital have distinct business characteristics
that the major debt rating agencies evaluate both quantitatively
and qualitatively.
Quantitative measures include:
• Earnings and profitability, revenue growth, the breadth and
diversity of sources of income and return on assets,
• Asset quality, including delinquency and write-off ratios and
reserve coverage,
• Funding and liquidity, including cash generated from operating
activities, leverage ratios such as debt-to-capital, market access,
back-up liquidity from banks and other sources, composition
of total debt and interest coverage, and
• Capital adequacy, including required capital and tangible
leverage ratios.
Qualitative measures include:
• Franchise strength, including competitive advantage and
market conditions and position,
• Strength of management, including experience, corporate
governance and strategic thinking, and
• Financial reporting quality, including clarity, completeness and
transparency of all financial performance communications.
GE Capital’s ratings are supported contractually by a GE commit-
ment to maintain the ratio of earnings to fixed charges at a
specified level as described below.
During 2006, GECS paid $5.7 billion of special dividends to
GE, of which $3.2 billion and $2.5 billion, respectively, were
funded by the proceeds of the sale of GE Insurance Solutions
and from the Genworth secondary public offerings.
During 2006, GECS and GECS affiliates issued $82 billion of
senior, unsecured long-term debt and $2 billion of subordinated
debt. This debt was both fixed and floating rate and was issued
to institutional and retail investors in the U.S. and 18 other global
markets. Maturities for these issuances ranged from one to 60
years. We used the proceeds primarily for repayment of maturing
long-term debt, but also to fund acquisitions and organic growth.
We anticipate that we will issue approximately $75 billion of
additional long-term debt during 2007. The ultimate amount we
issue will depend on our needs and on the markets.
We target a ratio for commercial paper not to exceed 35% of
outstanding debt based on the anticipated composition of our
assets and the liquidity profile of our debt. GE Capital is the most
widely held name in global commercial paper markets.
62 ge 2006 annual report