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GE 2009 ANNUAL REPORT 103
    
FAIR VALUE HEDGES
We use interest rate and currency exchange derivatives to hedge
the fair value effects of interest rate and currency exchange rate
changes on local and non-functional currency denominated fixed-
rate borrowings. For relationships designated as fair value hedges,
changes in fair value of the derivatives are recorded in earnings
along with offsetting adjustments to the carrying amount of the
hedged debt. Through December 31, 2009, such adjustments
increased the carrying amount of debt outstanding by $3,675 mil-
lion. The following table provides information about the earnings
effects of our fair value hedging relationships for the year ended
December 31, 2009.
Year ended December 31,
2009 (In millions) Financial statement caption
Gain (loss
on hedging
derivatives
)
Gain (loss
on hedged
items
)
Interest rate contracts Interest and other
financial charges $ (5,194) $ 4,998
Currency exchange
contracts
Interest and other
financial charges (1,106) 1,093
Fair value hedges resulted in $(209) million of ineffectiveness of which $(225) million
reflects amounts excluded from the assessment of effectiveness for the year ended
December 31, 2009.
CASH FLOW HEDGES AND NET INVESTMENT HEDGES IN
FOREIGN OPERATIONS
We use interest rate, currency exchange and commodity derivatives
to reduce the variability of expected future cash flows associated
with variable rate borrowings and commercial purchase and sale
transactions, including commodities. For derivatives that are desig-
nated in a cash flow hedging relationship, the effective portion of
the change in fair value of the derivative is reported as a compo-
nent of AOCI and reclassified into earnings contemporaneously
with the earnings effects of the hedged transaction. Earnings
effects of the derivative and the hedged item are reported in the
same caption in the Statement of Earnings. Hedge ineffectiveness
and components of changes in fair value of the derivative that are
excluded from the assessment of effectiveness are recognized in
earnings each reporting period.
We use currency exchange derivatives to protect our net
investments in global operations conducted in non-U.S. dollar
currencies. For derivatives that are designated as hedges of net
investment in a foreign operation, we assess effectiveness based
on changes in spot currency exchange rates. Changes in spot rates
on the derivative are recorded as a component of AOCI until
such time as the foreign entity is substantially liquidated or sold.
The change in fair value of the forward points, which reflects
the interest rate differential between the two countries on the
derivative, are excluded from the effectiveness assessment and
are recorded currently in earnings.
The following table provides information about the amounts recorded in the other comprehensive income component within share-
owners’ equity at December 31, 2009, as well as the amounts recorded in each caption in the Statement of Earnings when derivative
amounts are reclassified out of other comprehensive income related to our cash flow hedges and net investment hedges.
Year ended December 31, 2009 (In millions)
Gain (loss
recognized
in OCI
)
Financial statement caption
Gain (loss
reclassified
from AOCI
into earnings
)
CASH FLOW HEDGES
Interest rate contracts $ (854) Interest and other financial charges $(2,055)
GECS revenues from services 8
Currency exchange contracts 2,579 Interest and other financial charges 1,183
Other costs and expenses (167)
GECS revenues from services (119)
Sales of goods and services 76
Other income (1)
Commodity contracts (5) Other costs and expenses (5)
Total $ 1,720 $(1,080)
Gain (loss
recognized
in CTA
)
Gain (loss
reclassified
from CTA
)
NET INVESTMENT HEDGES
Currency exchange contracts $(6,240) GECS revenues from services $ (84)
Of the total pre-tax amount recorded in AOCI, $2,587 million related to cash flow hedges of forecasted transactions of which we expect to transfer $1,402 million to earnings as an
expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. In 2009, we recognized insignificant gains and losses related
to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At December 31, 2009, the maximum term of derivative
instruments that hedge forecasted transactions was 26 years and related to hedges of anticipated interest payments associated with external debt.