GE 2008 Annual Report Download - page 34

management’s discussion and analsis
32 ge 2008 annual report
In November 2006, the United States Federal District Court
approved a consent decree, which had been agreed to by GE
and the United States Environmental Protection Agency (EPA),
that represents a comprehensive framework for implementation
of the EPA’s 2002 decision to dredge polychlorinated biphenyl
(PCB)-containing sediments in the upper Hudson River. The
dredging will be performed in two phases with an intervening
peer review of performance after the first phase. Under the
consent decree, we have committed to reimburse the EPA for its
past and future project oversight costs and to perform the first
phase of dredging, which is scheduled to proceed from May
through November of 2009. After completion of the peer review,
currently scheduled for 2010, we may be responsible for further
costs. Our Statement of Financial Position as of December 31,
2008 and 2007, included liabilities for the probable and estimable
costs of the agreed upon remediation activities.
Financial Resources and Liquidity
This discussion of financial resources and liquidity addresses the
Statement of Financial Position, the Statement of Changes in
Shareowners’ Equity, the Statement of Cash Flows, Contractual
Obligations, Off-Balance Sheet Arrangements, and Debt
Instruments, Guarantees and Covenants.
The fundamental differences between GE and GECS are
reflected in the measurements commonly used by investors,
rating agencies and financial analysts.
Overview of Financial Position
Major changes to our shareowners’ equity are discussed in the
Consolidated Statement of Changes in Shareowners’ Equity
section. In addition, other significant changes to balances in our
Statement of Financial Position follow.
Statement of Financial Position
Because GE and GECS share certain significant elements of their
Statements of Financial Position— property, plant and equipment
and borrowings, for example— the following discussion addresses
significant captions in the “consolidated” statement. Within the
following discussions, however, we distinguish between GE and
GECS activities in order to permit meaningful analysis of each
individual consolidating statement.
INVESTMENT SECURITIES comprise mainly investment-grade debt
securities supporting obligations to annuitants and policyholders
in our run-off insurance operations and holders of guaranteed
investment contracts (GICs). Investment securities amounted to
$41.4 billion at December 31, 2008, compared with $45.3 billion
at December 31, 2007. Of the amount at December 31, 2008, we
held debt securities with an estimated fair value of $33.9 billion,
which included residential mortgage-backed securities (RMBS) and
commercial mortgage-backed securities (CMBS) with estimated
fair values of $4.3 billion and $2.1 billion, respectively. Unrealized
losses on debt securities were $5.4 billion and $1.1 billion at
GECS global revenues rose 4% to $37.8 billion in 2008, com-
pared with $36.5 billion and $27.5 billion in 2007 and 2006,
respectively. GECS global revenues as a percentage of total GECS
revenues were 53% in 2008, compared with 51% and 45% in
2007 and 2006, respectively. The effects of currency fluctuations
on reported results were to increase revenues by $1.2 billion and
$2.3 billion in 2008 and 2007, respectively, compared with a
decrease of $0.1 billion in 2006.
GECS revenues in the Middle East and Africa grew 25% in 2008,
primarily as a result of organic revenue growth at GECAS. Revenues
grew 11% in the Americas and 6% in Europe in 2008, primarily as
a result of organic revenue growth, acquisitions and the effects of
the weaker U.S. dollar, primarily at GE Money and CLL. Revenues
in the Pacific Basin remained flat in 2008 from 2007.
TOTAL ASSETS (CONTINUING OPERATIONS)
December 31 (In billions) 2008 2007
U.S. $395.6 $364.5
Europe 228.0 236.5
Pacific Basin 75.0 87.8
Americas 40.9 42.6
Other Global 56.5 55.4
Total $796.0 $786.8
Total assets of global operations on a continuing basis were
$400.4 billion in 2008, a decrease of $21.9 billion, or 5%, from
2007. GECS global assets on a continuing basis of $328.4 billion
at the end of 2008 were 10% lower than at the end of 2007,
reflecting core declines and the effects of the stronger U.S. dollar
in Europe, the Pacific Basin and the Americas, partially offset by
acquisitions, primarily at GE Money and CLL.
Financial results of our global activities reported in U.S. dollars
are affected by currency exchange. We use a number of tech-
niques to manage the effects of currency exchange, including
selective borrowings in local currencies and selective hedging of
significant cross-currency transactions. Such principal currencies
are the pound sterling, the euro, the Japanese yen and the
Canadian dollar.
Environmental Matters
Our operations, like operations of other companies engaged in
similar businesses, involve the use, disposal and cleanup of sub-
stances regulated under environmental protection laws. We are
involved in a sizable number of remediation actions to clean up
hazardous wastes as required by federal and state laws. Such
statutes require that responsible parties fund remediation actions
regardless of fault, legality of original disposal or ownership of a
disposal site. Expenditures for site remediation actions amounted
to approximately $0.3 billion in 2008 and $0.2 billion in 2007. We
presently expect that such remediation actions will require average
annual expenditures in the range of $0.3 billion to $0.4 billion
over the next two years.