GE 2007 Annual Report Download - page 94

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92 ge 2007 annual report
$27.6 billion are 364-day lines that contain a term-out feature
that allows GE or GECS to extend the borrowings for one year
from the date of expiration of the lending agreement. We pay
banks for credit facilities, but amounts were insignifi cant in each
of the past three years.
INTEREST RATE AND CURRENCY RISK is managed through the
direct issuance of debt or use of derivatives. We take positions
in view of anticipated behavior of assets, including prepayment
behavior. We use a variety of instruments, including interest rate
and currency swaps and currency forwards, to achieve our interest
rate objectives.
The following table provides additional information about
derivatives designated as hedges of borrowings in accordance
with SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, as amended.
DERIVATIVE FAIR VALUES BY ACTIVITY/INSTRUMENT
December 31 (In millions) 2007 2006
Cash fl ow hedges $ 497 $ 763
Fair value hedges (75) (147)
Total
$ 422 $ 616
Interest rate swaps
$(1,559) $ (860)
Currency swaps 1,981 1,476
Total
$ 422 $ 616
We regularly assess the effectiveness of all hedge positions
where required using a variety of techniques, including cumula-
tive dollar offset and regression analysis, depending on which
method was selected at inception of the respective hedge.
Adjustments related to fair value hedges decreased the carrying
amount of debt outstanding at December 31, 2007, by $33 million.
At December 31, 2007, the maximum term of derivative instru-
ments that hedge forecasted transactions was 28 years and related
to hedges of long-term, non-U.S. dollar denominated fi xed rate
debt. See note 26.
Note 18
GECS Investment Contracts, Insurance Liabilities
and Insurance Annuity Benefits
December 31 (In millions) 2007 2006
Investment contracts $ 4,536 $ 5,089
Guaranteed investment contracts 11,705 11,870
Total investment contracts
16,241 16,959
Life insurance benefi ts
(a) 14,360 14,054
Unpaid claims and claims adjustment expenses 2,782 2,714
Unearned premiums 656 740
Universal life benefi ts 320 340
Total
$34,359 $34,807
(a) Life insurance benefi ts are accounted for mainly by a net-level-premium method
using estimated yields generally ranging from 3.0% to 8.5% in both 2007 and 2006.
When insurance affi liates cede insurance to third parties, they
are not relieved of their primary obligation to policyholders.
Losses on ceded risks give rise to claims for recovery; we estab-
lish allowances for probable losses on such receivables from
reinsurers as required.
We recognize reinsurance recoveries as a reduction of the
Statement of Earnings caption “Investment contracts, insurance
losses and insurance annuity benefi ts.” Reinsurance recoveries
were $104 million, $162 million and $183 million for the years
ended December 31, 2007, 2006 and 2005, respectively.
Note 19
All Other Liabilities
This caption includes liabilities for various items including non-
current compensation and benefi ts, deferred income, interest on
tax liabilities, unrecognized tax benefi ts, accrued participation
and residuals, environmental remediation, asset retirement obli-
gations, derivative instruments, product warranties and a variety
of sundry items.
Accruals for non-current compensation and benefi ts amounted
to $21,509 million and $16,997 million for year-end 2007 and
2006, respectively. These amounts include postretirement ben-
efi ts, international and supplemental pension benefi ts, and other
compensation and benefi t accruals such as deferred incentive
compensation. The increase in 2007 was primarily the result of
plan benefi t changes resulting from new U.S. labor agreements
and retiree health cost increases.
We are involved in numerous remediation actions to clean up
hazardous wastes as required by federal and state laws. Liabilities
for remediation costs, exclude possible insurance recoveries and,
when dates and amounts of such costs are not known, are not
discounted. When there appears to be a range of possible costs
with equal likelihood, liabilities are based on the low end of such
range. Uncertainties about the status of laws, regulations, tech-
nology and information related to individual sites make it diffi cult
to develop a meaningful estimate of the reasonably possible
aggregate environmental remediation exposure. However, even
in the unlikely event that remediation costs amounted to the high
end of the range of costs for each site, the resulting additional
liability would not be material to our fi nancial position, results of
operations or liquidity.