GE 2009 Annual Report Download - page 31

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GE 2009 ANNUAL REPORT 29
rising unemployment. Throughout 2008 and 2009, we tightened
underwriting standards, shifted teams from origination to collec-
tion and maintained a proactive risk management focus. We also
reduced our ending net investment (ENI), excluding the effects
of currency exchange rates, from $525 billion at December 31,
2008 to $472 billion at December 31, 2009. The current credit
cycle has begun to show signs of stabilization and we expect
further signs of stabilization as we enter 2010. Our focus is to
continue to manage through the current challenging credit
environment and continue to reposition General Electric Capital
Corporation (GE Capital) as a diversely funded and smaller, more
focused finance company with strong positions in several mid-
market, corporate and consumer financing segments.
Consumer & Industrial (7% and 2% of consolidated three-year
revenues and total segment profit, respectively) is also sensitive
to changes in economic conditions. Reflective of the downturn in
the U.S. housing market, Consumer & Industrial revenues have
declined 17% in 2009 and 7% in 2008. Over the past two years,
Consumer & Industrial has worked to reposition its business by
eliminating capacity in its incandescent lighting manufacturing
sites and investing in energy efficient product manufacturing in
locations such as Louisville, Kentucky and Bloomington, Indiana.
Segment profit increased 10% in 2009 on higher prices and lower
material costs and reflects these cost reduction efforts after
declining 65% in 2008, primarily on higher material and other costs.
Overall, acquisitions contributed $3.4 billion, $7.4 billion and
$7.7 billion to consolidated revenues in 2009, 2008 and 2007,
respectively, excluding the effects of acquisition gains following
our adoption of an amendment to Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 810,
Consolidation. Our consolidated net earnings included approxi-
mately $0.5 billion, $0.8 billion and $0.5 billion in 2009, 2008 and
2007, respectively, from acquired businesses. We integrate
acquisitions as quickly as possible. Only revenues and earnings
from the date we complete the acquisition through the end of
the fourth following quarter are attributed to such businesses.
Dispositions also affected our ongoing results through lower
revenues of $4.7 billion in 2009, higher revenues of $0.1 billion
in 2008 and lower revenues of $3.6 billion in 2007. The effects
of dispositions on net earnings were increases of $0.6 billion in
2009 and $0.4 billion in both 2008 and 2007.
Significant matters relating to our Statement of Earnings are
explained below.
DISCONTINUED OPERATIONS. In September 2007, we committed
to a plan to sell our Japanese personal loan business (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. 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 December 2007, we
completed the exit of WMC as a result of continued pressures in
the U.S. subprime mortgage industry. Both of these businesses
were previously reported in the Capital Finance segment.
In August 2007, we completed the sale of our Plastics business.
We sold this business because of its cyclicality, rising costs of
natural gas and raw materials, and the decision to redeploy capital
resources into higher-growth businesses.
We reported the businesses described above as discontinued
operations for all periods presented. For further information about
discontinued operations, see Note 2.
WE DECLARED $6.8 BILLION IN DIVIDENDS IN 2009. Common per-
share dividends of $0.61 were down 51% from 2008, following
an 8% increase from the preceding year. In February 2009, we
announced the reduction of the quarterly GE stock dividend by
68% from $0.31 per share to $0.10 per share, effective with the
dividend approved by the Board in June 2009, which was paid
in the third quarter. This reduction had the effect of reducing
cash outflows of the company by approximately $4 billion in the
second half of 2009 and will save approximately $9 billion annually
thereafter. On February 12, 2010, our Board of Directors approved
a regular quarterly dividend of $0.10 per share of common stock,
which is payable April 26, 2010, to shareowners of record at close
of business on March 1, 2010. In 2009, we declared $0.3 billion in
preferred stock dividends compared with $0.1 billion in 2008.
Except as otherwise noted, the analysis in the remainder of this
section presents the results of GE (with GECS included on a one-
line basis) and GECS. See the Segment Operations section for a
more detailed discussion of the businesses within GE and GECS.
GE SALES OF PRODUCT SERVICES were $35.4 billion in 2009,
about flat compared with 2008. Increases in product services at
Energy Infrastructure were offset by decreases at Technology
Infrastructure and Consumer & Industrial. Operating profit from
product services was $10.0 billion in 2009, up 7% from 2008.
POSTRETIREMENT BENEFIT PLANS costs were $2.6 billion, $2.2 bil-
lion and $2.6 billion in 2009, 2008 and 2007, respectively. Costs
increased in 2009 primarily because of the effects of lower discount
rates (principal pension plans discount rate decreased from
6.34% at December 31, 2007 to 6.11% at December 31, 2008)
and increases in early retirements resulting from restructuring
activities and contractual requirements, partially offset by amor-
tization of prior-years’ investment gains and benefits from new
healthcare supplier contracts. Costs decreased in 2008 primarily
because of the effects of prior-years’ investment gains, higher
discount rates and benefits from new healthcare supplier contracts,
partially offset by additional costs of plan benefits resulting from
union negotiations and a pensioner increase in 2007.
Considering the current and expected asset allocations, as well
as historical and expected returns on various categories of assets
in which our plans are invested, we have assumed that long-
term returns on our principal pension plan assets will be 8.5% for
cost recognition in 2010, the same level as we assumed in 2009,
2008 and 2007. GAAP provides recognition of differences between
assumed and actual returns over a period no longer than the
average future service of employees.