GE 2007 Annual Report Download - page 59

ge 2007 annual report 57
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Contractual Obligations
As defi ned by reporting regulations, our contractual obligations
for future payments as of December 31, 2007, follow.
Payments due by period
2009– 2011– 2013 and
(In billions) Total 2008 2010 2012 thereafter
Borrowings (note 17) $514.1 $195.1 $119.4 $71.4 $128.2
Interest on borrowings 149.0 23.0 33.0 21.0 72.0
Operating lease
obligations (note 5) 6.3 1.3 2.1 1.5 1.4
Purchase obligations (a)(b) 71.0 44.0 15.0 10.0 2.0
Insurance liabilities
(note 18) (c) 24.0 2.0 6.0 3.0 13.0
Other liabilities (d) 74.0 23.0 6.0 4.0 41.0
Contractual obligations of
discontinued operations (e) 1.0 1.0 — — —
(a) Included all take-or-pay arrangements, capital expenditures, contractual
commitments to purchase equipment that will be leased to others, software
acquisition/license commitments, contractual minimum programming commit-
ments 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 28.
(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 and included liabilities for unrecognized
tax benefits. 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 20 and 26 for further informa-
tion on certain of these items.
(e) Included payments for other liabilities.
Off-Balance Sheet Arrangements
Our securitization activity is primarily transacted through special
purpose vehicles funded in the asset-backed commercial paper
and term bond markets. The assets that we securitize include
receivables secured by equipment, commercial and residential
real estate, credit card receivables, trade receivables and other
assets originated and underwritten by us in the normal course of
business. At December 31, 2007, off-balance sheet securitization
entities held $55.1 billion in fi nancial assets, up $9.0 billion during
the year. Assets held by these entities are underwritten based on
the same criteria as our on-book assets. We monitor the underly-
ing credit quality in accordance with our servicing role and apply
rigorous controls to the execution of securitization. Based on our
experience, we believe that, under any plausible future economic
scenario, the likelihood is remote that the fi nancial support arrange-
ment we provide to securitization entities could have a material
adverse effect on our fi nancial position or results of operations.
Investors in these entities usually have recourse to the underly-
ing assets. In addition, we provide credit enhancements, most
often by retaining a subordinated interest; the carrying value of
our retained interests was $5.8 billion at December 31, 2007, up
$1.1 billion during the year. We recognized impairment losses on
retained interests of $0.1 billion in 2007, primarily at Commercial
Finance. Impairment losses on retained interests in 2006 were
insignifi cant. Investments in retained interests at GE Money also
decreased by $0.1 billion during 2007, refl ecting declines in fair
value accounted for in accordance with a new accounting stan-
dard that became effective at the beginning of 2007. We have
also entered into other various credit enhancement positions with
these securitization entities, including liquidity and credit support
agreements and guarantee and reimbursement contracts, and
have provided our best estimate of the fair value of estimated
losses on such positions. The estimate of fair value is based on
prevailing market conditions at December 31, 2007. Should market
conditions deteriorate, actual losses could be higher. Our exposure
to loss under such agreements was limited to $2.8 billion at
December 31, 2007.
Debt Instruments, Guarantees and Covenants
The major debt rating agencies routinely evaluate the debt of
GE, GECS and GE Capital, the major borrowing affi liate 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 profi tability, 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
• 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
• Financial reporting quality, including clarity, completeness and
transparency of all fi nancial performance communications
GE Capital’s ratings are supported contractually by a GE commit-
ment to maintain the ratio of earnings to fi xed charges at a
specifi ed level as described below.
During 2007, GECS paid $2.4 billion of special dividends to
GE, which were funded by the proceeds of the sale of Swiss Re
common stock and GE Life.