GE 2009 Annual Report Download - page 32

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30 GE 2009 ANNUAL REPORT
We expect the costs of our postretirement benefits, excluding
the effects of 2009 restructuring activities, to increase in 2010
by approximately $1.0 billion as compared to 2009, primarily
because of the effects of prior-year investment losses and lower
discount rates.
Our principal pension plans were underfunded by $6.0 billion
at the end of 2009 as compared to $4.4 billion at December 31,
2008. At December 31, 2009, the GE Pension Plan was under-
funded by $2.2 billion and the GE Supplementary Pension Plan,
which is an unfunded plan, had a projected benefit obligation of
$3.8 billion. The increase in underfunding from year-end 2008 was
primarily attributable to lower discount rates (principal pension
plans discount rate decreased from 6.11% at December 31, 2008
to 5.78% at December 31, 2009, which increased the pension
benefit obligation at year-end 2009 by approximately $1.7 billion).
Our principal pension plans’ assets increased from $40.7 billion
at the end of 2008 to $42.1 billion at December 31, 2009, a 10.0%
increase in investment values during the year, partially offset by
benefit payments. Assets of the GE Pension Plan are held in trust,
solely for the benefit of Plan participants, and are not available
for general company operations.
On an Employee Retirement Income Security Act (ERISA) basis,
the GE Pension Plan remains fully funded at January 1, 2010.
We will not make any contributions to the GE Pension Plan in 2010.
Assuming our 2010 actual experience is consistent with our
current benefit assumptions (e.g., expected return on assets and
interest rates), we will not be required to make contributions to
the GE Pension Plan in 2011.
At December 31, 2009, the fair value of assets for our other
pension plans was $2.7 billion less than the respective projected
benefit obligations. The comparable amount at December 31, 2008,
was $2.4 billion. We expect to contribute $0.6 billion to our other
pension plans in 2010, compared with actual contributions of
$0.7 billion and $0.6 billion in 2009 and 2008, respectively. We fund
our retiree health benefits on a pay-as-you-go basis. The unfunded
liability for our principal retiree health and life plans was $11.6 billion
and $10.8 billion at December 31, 2009 and 2008, respectively.
This increase was primarily attributable to lower discount rates
(retiree health and life plans discount rate decreased from 6.15%
at December 31, 2008, to 5.67% at December 31, 2009), which
increased the unfunded liability by approximately $0.6 billion. We
expect to contribute $0.7 billion to these plans in 2010 compared
with actual contributions of $0.6 billion in 2009 and 2008.
The funded status of our postretirement benefits plans and
future effects on operating results depend on economic condi-
tions and investment performance. See Note 12 for additional
information about funded status, components of earnings effects
and actuarial assumptions.
GE OTHER COSTS AND EXPENSES are selling, general and adminis-
trative expenses. These costs were 14.3%, 12.9% and 14.2% of
total GE sales in 2009, 2008 and 2007, respectively.
INTEREST ON BORROWINGS AND OTHER FINANCIAL CHARGES
amounted to $18.8 billion, $26.2 billion and $23.8 billion in 2009,
2008 and 2007, respectively. Substantially all of our borrowings
are in financial services, where interest expense was $17.9 billion,
$25.1 billion and $22.7 billion in 2009, 2008 and 2007, respec-
tively. GECS average borrowings declined from 2008 to 2009 after
increasing from 2007 to 2008, in line with changes in average
GECS assets. Interest rates have decreased over the three-year
period attributable to declining global benchmark interest rates,
partially offset by higher average credit spreads. GECS average
borrowings were $499.2 billion, $521.2 billion and $456.4 billion in
2009, 2008 and 2007, respectively. The GECS average composite
effective interest rate was 3.6% in 2009, 4.8% in 2008 and 5.0%
in 2007. In 2009, GECS average assets of $649.6 billion were 3%
lower than in 2008, which in turn were 13% higher than in 2007.
We anticipate that GECS composite effective rates will begin to
rise in 2010 as benchmark rates begin to rise globally. See the
Liquidity and Borrowings section for a discussion of liquidity,
borrowings and interest rate risk management.
INCOME TAXES have a significant effect on our net earnings. As
a global commercial enterprise, our tax rates are affected by
many factors, including our global mix of earnings, the extent to
which those global earnings are indefinitely reinvested outside
the United States, legislation, acquisitions, dispositions and tax
characteristics of our income. Our tax returns are routinely audited
and settlements of issues raised in these audits sometimes affect
our tax provisions.
Income taxes (benefit) on consolidated earnings from continu-
ing operations were (10.5)% in 2009 compared with 5.3% in 2008
and 15.1% in 2007. Our consolidated income tax rate is lower
than the U.S. statutory rate primarily because of benefits from
lower-taxed global operations, including the use of global funding
structures, and our 2009 and 2008 decisions to indefinitely
reinvest prior-year earnings outside the U.S.
Our consolidated income tax rate decreased from 2008 to
2009 primarily because of a reduction during 2009 of income in
higher-taxed jurisdictions. This increased the relative effect of
our tax benefits from lower-taxed global operations, including
the decision, discussed below, to indefinitely reinvest prior-year
earnings outside the U.S. These effects were partially offset by a
decrease from 2008 to 2009 in the benefit from lower-taxed
earnings from global operations.
Cash taxes paid in 2009 were $2.5 billion, reflecting the
effects of changes to temporary differences between the carry-
ing amount of assets and liabilities and their tax bases, including
the decision, discussed below, to indefinitely reinvest prior-year
earnings outside the U.S.
Our consolidated income tax rate decreased from 2007 to
2008 primarily because of a reduction during 2008 of income in
higher-taxed jurisdictions. This increased the relative effect of tax
benefits from lower-taxed global operations on the tax rate. In
addition, earnings from lower-taxed global operations increased
from 2007 to 2008. The increase in the benefit from lower-taxed
global operations includes a benefit from the 2008 decision to
indefinitely reinvest prior-year earnings outside the U.S., because
the use of foreign tax credits no longer required the repatriation
of those prior-year earnings.