GE 2007 Annual Report Download - page 57

ge 2007 annual report 55
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OTHER GECS RECEIVABLES totaled $22.1 billion at December 31,
2007, and $21.7 billion at December 31, 2006, and consisted
primarily of amounts due from GE (generally related to certain
material procurement programs), insurance receivables, nonfi nanc-
ing customer receivables, amounts due under operating leases,
receivables due on sale of securities and various sundry items.
PROPERTY, PLANT AND EQUIPMENT amounted to $77.9 billion at
December 31, 2007, up $7.2 billion from 2006, primarily refl ecting
acquisitions and additions of commercial aircraft at the Aviation
Financial Services business of Infrastructure and fl eet vehicles at
Commercial Finance. 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 14.
GE additions to property, plant and equipment during 2007
totaled $3.0 billion, compared with $2.9 billion in 2006. Total
expenditures, excluding equipment leased to others, for the past
fi ve years were $13.2 billion, of which 32% was investment for
growth through new capacity and product development; 33% was
investment in productivity through new equipment and process
improvements; and 35% was investment for other purposes
such as improvement of research and development facilities and
safety and environmental protection.
GECS additions to property, plant and equipment were
$15.2 billion and $13.2 billion during 2007 and 2006, respectively,
primarily refl ecting acquisitions and additions of vehicles at
Commercial Finance and commercial aircraft at the Aviation
Financial Services business of Infrastructure.
GOODWILL AND OTHER INTANGIBLE ASSETS amounted to $81.1 billion
and $16.2 billion, respectively, at December 31, 2007. Goodwill
increased $9.7 billion and other intangible assets increased
$3.3 billion from 2006, primarily from acquisitions — including
Smiths Aerospace Group Ltd. and Vetco Gray by Infrastructure,
DISKO and ASL and Sanyo Electric Credit Co., Ltd. by Commercial
Finance and Oxygen Media Corp. by NBC Universal — and from
the weaker U.S. dollar. See note 15.
ALL OTHER ASSETS totaled $122.9 billion at year-end 2007, an
increase of $31.2 billion, refl ecting increases from additional
investments and acquisitions in real estate, increases in associ-
ated companies, prepaid pension assets and assets held for sale.
See note 16.
BORROWINGS amounted to $514.1 billion at December 31, 2007,
compared with $432.8 billion at the end of 2006.
GE total borrowings were $15.8 billion at year-end 2007
($4.1 billion short term, $11.7 billion long term) compared with
$11.1 billion at December 31, 2006. The increase ($4.7 billion) is
mainly attributable to long-term borrowings and will partially be
used to repay maturing long-term debt in 2008. GE total debt at
the end of 2007 equaled 11.4% of total capital compared with
8.7% at the end of 2006.
GECS borrowings amounted to $500.9 billion at December 31,
2007, of which $192.4 billion is due in 2008 and $308.5 billion is
due in subsequent years. Comparable amounts at the end of
2006 were $426.3 billion in total, $173.3 billion due within one
year and $253.0 billion due thereafter. The increase in borrow-
ings primarily resulted from new issuances of GE Capital long-
term debt ($90.3 billion), the weaker U.S. dollar ($15.8 billion),
acquisitions ($11.0 billion) and increase in short-term borrowings
($6.4 billion), partially offset by maturities and other redemptions
of long-term debt ($47.9 billion). Included in GECS total borrow-
ings were borrowings of consolidated, liquidating securitization
entities amounting to $9.3 billion and $11.1 billion at December 31,
2007 and 2006, respectively. A large portion of GECS borrowings
($101.1 billion and $93.8 billion at the end of 2007 and 2006,
respectively) was issued in active unsecured commercial paper
markets that we believe will continue to be a reliable source of
short-term fi nancing. The average remaining terms and interest
rates of GE Capital commercial paper were 56 days and 4.79% at
the end of 2007, compared with 48 days and 5.09% at the end
of 2006. The GE Capital ratio of debt to equity was 8.10 to 1 at
the end of 2007 and 7.52 to 1 at the end of 2006. See note 17.
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 fi nancial and market risks because we conduct business
in diverse markets around the world and local funding is not
always effi cient. In addition, we use derivatives to adjust the debt
we are issuing to match the fi xed or fl oating nature of the assets
we are acquiring. We apply strict policies to manage each of
these risks, including prohibitions on derivatives trading, deriva-
tives 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 fi nancial 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, 2008, interest rates increased
by 100 basis points across the yield curve (a “parallel shift” in
that curve) and further assumed that the increase remained
in place for 2008. We estimated, based on the year-end 2007
portfolio and holding everything else constant, that our 2008
GE consolidated net earnings would decline by $0.1 billion.
• It is our policy to minimize currency exposures and to conduct
operations either within functional currencies or using the
protection of hedge strategies. We analyzed year-end 2007
consolidated currency exposures, including derivatives desig-
nated and effective as hedges, to identify assets and liabilities
denominated in other than their relevant functional currencies.
For such assets and liabilities, we then evaluated the effects
of a 10% shift in exchange rates between those currencies
and the U.S. dollar. This analysis indicated that there would
be an inconsequential effect on 2008 earnings of such a shift
in exchange rates.