GE 2007 Annual Report Download - page 46

44 ge 2007 annual report
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POSTRETIREMENT BENEFIT PLANS costs were $2.6 billion, $2.3 billion
and $1.7 billion in 2007, 2006 and 2005, respectively. The cost
increased in 2007 primarily because of plan benefi t changes
resulting from new U.S. labor agreements and increases in retiree
medical and drug costs, partially offset by increases in discount
rates for the year (principal pension plans’ discount rate increased
from 5.50% to 5.75%) and effects of recent investment gains.
The cost increased in 2006 and 2005 primarily because of the
effects of prior years’ investment losses and lower discount rates.
Considering the current and expected asset allocations, as
well as historical and expected returns on various categories of
assets in which our plans are invested, we have assumed that
long-term returns on our principal pension plan assets would be
8.5% for cost recognition in 2008, the same level as we assumed
in 2005, 2006 and 2007. GAAP provides recognition of differences
between assumed and actual returns over a period no longer
than the average future service of employees.
We expect the costs of our postretirement benefi t plans in
2008 to be about the same as the 2007 costs. The effects of
increasing discount rates (principal pension plans’ discount rate
increasing from 5.75% to 6.34%) and recent investment gains
will be offset by additional costs of plan benefi ts resulting from
union negotiations and a pensioner increase for eligible retirees
and surviving spouses.
Our principal pension plans had a surplus of $16.8 billion at
December 31, 2007. We will not make any contributions to the
GE Pension Plan in 2008. At December 31, 2007, the fair value
of assets for our other pension plans was $1.6 billion less than
the respective projected benefi t obligations. We expect to con-
tribute $0.5 billion to these plans in 2008, compared with actual
contributions of $0.7 billion and $0.5 billion in 2007 and 2006,
respectively. Our principal retiree health and life plans obligations
exceeded the fair value of related assets by $11.2 billion at
December 31, 2007. We fund our retiree health benefi ts on a pay-
as-you-go basis. We expect to contribute $0.7 billion to these
plans in 2008 compared with actual contributions of $0.6 billion
in 2007 and 2006.
The funded status of our postretirement benefi ts plans and
future effects on operating results depend on economic conditions
and investment performance. See note 6 for additional informa-
tion about funded status, components of earnings effects and
actuarial assumptions.
GE OTHER COSTS AND EXPENSES are selling, general and adminis-
trative expenses. These costs were 14.2%, 14.3% and 15.1% of
total GE sales in 2007, 2006 and 2005, respectively.
INTEREST ON BORROWINGS AND OTHER FINANCIAL CHARGES
amounted to $23.8 billion, $18.9 billion and $14.8 billion in 2007,
2006 and 2005, respectively. Substantially all of our borrowings
are in fi nancial services, where interest expense was $22.7 billion,
$17.9 billion and $14.0 billion in 2007, 2006 and 2005, respectively.
Changes over the three-year period refl ected increased average
borrowings and increased interest rates attributable to rising credit
spreads in line with general market conditions. GECS average
borrowings were $456.4 billion, $389.0 billion and $346.1 billion
in 2007, 2006 and 2005, respectively. GECS average composite
effective interest rate was 5.0% in 2007, 4.6% in 2006 and 4.1%
in 2005. Proceeds of these borrowings were used in part to fi nance
asset growth and acquisitions. In 2007, GECS average assets of
$591.1 billion were 17% higher than in 2006, which in turn were
9% higher than in 2005. See the Financial Resources and Liquidity
section for a discussion of interest rate risk management.
426
362
355
317
A. Senior notes
B. Other
C. Commercial paper
D. Subordinated notes
2003 2004 2005 2006 2007
501
GECS BORROWINGS
(In $ billions)
INCOME TAXES are a signifi cant cost. As a global commercial
enterprise, our tax rates are affected by many factors, including
our global mix of earnings, legislation, acquisitions, dispositions
and tax characteristics of our income. Our tax returns are routinely
audited and settlements of issues raised in these audits some-
times affect our tax provisions.
Income taxes on consolidated earnings from continuing oper-
ations before accounting changes were 15.5% in 2007 compared
with 16.9% in 2006 and 18.1% in 2005. Our consolidated income
tax rate decreased from 2006 to 2007 as the tax benefi t on the
disposition of our investment in SES and an increase in favorable
settlements with tax authorities more than offset a decrease in
the benefi t from lower-taxed earnings from global operations,
which in 2006 included one-time tax benefi ts from planning to
use non-U.S. tax net operating losses.
Our consolidated income tax rate decreased from 2005 to
2006 as growth in lower-taxed earnings from global operations,
including one-time tax benefi ts from planning to use non-U.S.
tax net operating losses, exceeded 2005 tax benefi ts from a
reorganization of our aircraft leasing business, a repatriation of
non-U.S. earnings at a reduced rate of U.S. tax, and favorable
settlements with tax authorities.