GE 2008 Annual Report Download - page 44

management’s discussion and analsis
42 ge 2008 annual report
from 2007, and includes our investment in the unconsolidated
VIEs and our contractual obligations to fund new investments by
these entities.
QSPEs that we use for securitization are funded with asset-
backed commercial paper and term debt. The assets we securitize
include receivables secured by equipment, commercial real estate,
credit card receivables, floorplan inventory receivables, GE trade
receivables and other assets originated and underwritten by us
in the ordinary course of business. At December 31, 2008, off-
balance sheet securitization entities held $52.6 billion in transferred
financial assets, down $3.6 billion from year-end 2007. Assets held
by these entities are of equivalent credit quality to our on-book
assets. We monitor the underlying credit quality in accordance
with our role as servicer and apply rigorous controls to the exe-
cution of securitization transactions. With the exception of credit
and liquidity support discussed below, investors in these entities
have recourse only to the underlying assets.
At December 31, 2008, our Statement of Financial Position
included $10.4 billion in retained interests related to the trans-
ferred financial assets discussed above. These retained interests
are held by QSPEs and VIEs for which we are not the primary
beneficiary and take two forms: (1) sellers’ interests, which are
classified as financing receivables, and (2) subordinated interests,
designed to provide credit enhancement to senior interests,
which are classified as investment securities. The carrying value
of our retained interests classified as financing receivables was
$4.1 billion at December 31, 2008, down $0.1 billion from 2007.
The carrying value of our retained interests classified as investment
securities was $6.3 billion at December 31, 2008, up $0.6 billion
from 2007. Certain of these retained interests are accounted for
with changes in fair value recorded in earnings. During both 2008
and 2007, we recognized declines in fair value on those retained
interests of $0.1 billion. For those retained interests classified
as investment securities, we recognized other-than-temporary
impairments of $0.3 billion in 2008, compared with $0.1 billion
in 2007. Our recourse liability in these arrangements was an
inconsequential amount in both 2008 and 2007.
We are party to various credit enhancement positions with
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, 2008. Should market
conditions deteriorate, actual losses could be higher. Our expo-
sure to loss under such agreements was limited to $2.1 billion at
December 31, 2008. Based on our experience, we believe that,
under any plausible future economic scenario, the likelihood is
remote that the financial support arrangement we provide to
securitization entities could have a material adverse effect on
our financial position or results of operations.
We did not provide support to consolidated VIEs, unconsoli-
dated VIEs or QSPEs beyond what we are contractually obligated
to provide in either 2008 or 2007. We do not have implicit sup-
port arrangements with any VIEs or QSPEs.
Contractual Obligations
As defined by reporting regulations, our contractual obligations
for future payments as of December 31, 2008, follow.
Payments due by period
2010 – 2012 – 2014 and
(In billions) Total 2009 2011 2013 thereafter
Borrowings (Note 18) $523.8 $193.7 $115.6 $79.8 $134.7
Interest on borrowings 142.0 20.0 29.0 18.0 75.0
Operating lease
obligations (Note 5) 6.6 1.3 2.2 1.6 1.5
Purchase obligations(a) (b) 63.0 40.0 16.0 6.0 1.0
Insurance liabilities
(Note 19) (c) 22.0 3.0 5.0 3.0 11.0
Other liabilities (d) 97.0 33.0 8.0 4.0 52.0
Contractual obligations of
discontinued operations (e) 1.0 1.0 — — —
(a) Included all take-or-pay arrangements, capital expenditures, contractual commit-
ments to purchase equipment that will be leased to others, software acquisition/
license commitments, contractual minimum programming commitments 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 31.
(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 21 and 29 for further infor-
mation on certain of these items.
(e) Included payments for other liabilities.
Variable Interest Entities and Off-Balance Sheet
Arrangements
We securitize financial assets and arrange other forms of asset-
backed financing in the ordinary course of business to improve
shareowner returns and as an alternative source of funding.
The securitization transactions we engage in are similar to those
used by many financial institutions. Beyond improving returns,
these securitization transactions serve as funding sources for a
variety of diversified lending and securities transactions.
Our securitization activities are conducted using Variable
Interest Entities (VIEs), principally QSPEs. Certain of our VIEs are
consolidated because we are considered to be the primary
beneficiary of the entity. Our interests in other VIEs, including
QSPEs and VIEs for which we are not the primary beneficiary,
are accounted for as investment securities, financing receivables
or equity method investments depending on the nature of our
involvement. At December 31, 2008, consolidated variable interest
entity assets and liabilities were $26.6 billion and $21.3 billion,
respectively, a decrease of $5.8 billion and $3.1 billion from 2007,
respectively. At December 31, 2008, variable interests in uncon-
solidated VIEs other than QSPEs were $2.9 billion, an increase of
$1.2 billion from 2007. Our maximum exposure to loss related to
such entities at December 31, 2008, was $4.0 billion, up $1.5 billion