GE 2008 Annual Report Download - page 63

ge 2008 annual report 61
notes to consolidated financial statements
Note 2.
Discontinued Operations
Discontinued operations comprised our Japanese personal loan
business (Lake) and our Japanese mortgage and card businesses,
excluding our minority ownership in GE Nissen Credit Co., Ltd.
(GE Money Japan), our U.S. mortgage business (WMC), Plastics,
Advanced Materials, GE Life, Genworth Financial, Inc. (Genworth)
and most of GE Insurance Solutions Corporation (GE Insurance
Solutions). Associated results of operations, financial position and
cash flows are separately reported for all periods presented.
GE Money Japan
During the third quarter of 2007, we committed to a plan to sell
Lake upon determining that, despite restructuring, Japanese
regulatory limits for interest charges on unsecured personal
loans did not permit us to earn an acceptable return. As a result,
we recognized an after-tax loss of $908 million in 2007. During
2008, we completed the sale of GE Money Japan, which included
Lake, along with our Japanese mortgage and card businesses,
excluding our minority ownership in GE Nissen Credit Co., Ltd.
In connection with the transaction, GE Money Japan reduced the
proceeds on the sale for estimated interest refund claims in excess
of the statutory interest rate. Proceeds from the sale may be
increased or decreased based on the actual claims experienced
in accordance with terms specified in the agreement, and will not
be adjusted unless claims exceed approximately $3,000 million.
Estimated claims are not expected to exceed those levels and
are based on our historical claims experience and the estimated
future requests, taking into consideration the ability and likelihood
of customers to make claims and other industry risk factors.
However, uncertainties around the status of laws and regulations
and lack of certain information related to the individual custom-
ers make it difficult to develop a meaningful estimate of the
aggregate claims exposure. We review our estimated exposure
quarterly, and make adjustments when required. To date, there
have been no adjustments to sale proceeds for this matter. In
connection with this sale, and primarily related to our Japanese
mortgage and card businesses, we recorded an incremental
$361 million loss in 2008. GE Money Japan revenues from dis-
continued operations were $763 million, $1,307 million and
$1,715 million in 2008, 2007 and 2006, respectively. In total,
GE Money Japan losses from discontinued operations, net of
taxes, were $651 million and $1,220 million in 2008 and 2007,
respectively, compared with earnings of $247 million in 2006.
On January 1, 2007, we adopted SFAS 155, Accounting for
Certain Hybrid Financial Instruments. This statement amended
SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, to include within its scope prepayment
features in newly created or acquired retained interests related
to securitizations. SFAS 155 changed the basis on which we
recognize earnings on these retained interests from level yield to
fair value. See Notes 9 and 30.
We adopted SFAS 123 (Revised 2004), Share-Based Payment
(SFAS 123R) and related FSPs, effective January 1, 2006. Among
other things, SFAS 123R requires expensing the fair value of stock
options, a previously optional accounting method that we adopted
voluntarily in 2002, and classification of excess tax benefits asso-
ciated with share-based compensation deductions as cash from
financing activities rather than cash from operating activities.
We chose the modified prospective transition method, which
requires that the new guidance be applied to the unvested portion
of all outstanding stock option grants as of January 1, 2006, and
to new grants after that date. We further applied the alternative
transition method provided in FSP FAS 123(R)-3, Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment
Awards. The transitional effects of SFAS 123R and related FSPs
consisted of a reduction in net earnings of $10 million for the
year ended December 31, 2006, to expense the unvested portion
of options granted in 2001; and classification of $173 million
related to excess tax benefits from share-based compensation
deductions as cash from financing activities in our Statement of
Cash Flows beginning in 2006, which previously would have
been included in cash from operating activities.
SFAS 158, Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans, became effective for us as of
December 31, 2006, and requires recognition of an asset or liability
in the statement of financial position reflecting the funded status
of pension and other postretirement benefit plans such as retiree
health and life, with current-year changes in the funded status
recognized in shareowners’ equity. SFAS 158 did not change the
existing criteria for measurement of periodic benefit costs, plan
assets or benefit obligations. The incremental effect of the initial
adoption of SFAS 158 reduced our shareowners’ equity at
December 31, 2006, by $3,819 million.
On December 12, 2008, the FASB issued FSP EITF 99-20-1,
Amendments to the Impairment Guidance of EITF Issue No. 99-20.
The primary change in reporting that results from the FSP, which
we adopted in the fourth quarter of 2008, is the requirement
to estimate cash flows based on management’s best estimate
rather than based on market participant assumptions.