GE 2009 Annual Report Download - page 52

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50 GE 2009 ANNUAL REPORT
• Another consolidated entity also issues GICs where proceeds
are loaned to GE Capital. If the long-term credit rating of
GE Capital were to fall below AA–/Aa3 or its short-term credit
rating were to fall below A–1+/P–1, GE Capital could be required
to provide up to approximately $3.0 billion as of December 31,
2009, to repay holders of GICs. These obligations are included
in Long-term borrowings in our Statement of Financial Position.
• If the short-term credit rating of GE Capital were reduced
below A–1/P–1, GE Capital would be required to partially cash
collateralize certain covered bonds. The maximum amount that
would be required to be provided in the event of such a down-
grade is determined by contract and amounted to $0.8 billion
at December 31, 2009. These obligations are included in Long-
term borrowings in our Statement of Financial Position.
RATIO OF EARNINGS TO FIXED CHARGES. GE Capital’s ratio of earn-
ings to fixed charges declined to 0.85:1 during 2009 due to lower
pre-tax earnings at GE Capital, which were primarily driven by
higher provisions for losses on financing receivables in connec-
tion with the challenging economic environment.
INCOME MAINTENANCE AGREEMENT. On March 28, 1991, GE
entered into an agreement with GE Capital to make payments to
GE Capital, constituting additions to pre-tax income under the
agreement, to the extent necessary to cause the ratio of earn-
ings to fixed charges of GE Capital and consolidated affiliates
(determined on a consolidated basis) to be not less than 1.10:1 for
the period, as a single aggregation, of each GE Capital fiscal year
commencing with fiscal year 1991. On October 29, 2009, GE and
GE Capital amended this agreement to extend the notice period for
termination from three years to five years. It was further amended
to provide that any future amendments to the agreement that
could adversely affect GE Capital require the consent of the
majority of the holders of the aggregate outstanding principal
amount of senior unsecured debt securities issued or guaranteed
by GE Capital (with an original stated maturity in excess of 270
days), unless the amendment does not trigger a downgrade of
GE Capital’s long-term ratings.
GE made a $9.5 billion payment to GECS in the first quarter of
2009 (of which $8.8 billion was further contributed to GE Capital
through capital contribution and share issuance) to improve
tangible capital and reduce leverage. This payment constitutes an
addition to pre-tax income under the agreement and therefore
increased the ratio of earnings to fixed charges of GE Capital for
the fiscal year 2009 for purposes of the agreement to 1.33:1. As a
result, no further payments under the agreement in 2010 are
required related to 2009. Should this ratio fall below 1.10:1 for the
fiscal year 2010, further payments would be required by GE to
GE Capital. We currently expect to make a payment from GE to
GE Capital in 2011 of about $2 billion pursuant to this agreement.
Any payment made under the Income Maintenance Agreement
will not affect the ratio of earnings to fixed charges as determined
in accordance with current SEC rules because it does not consti-
tute an addition to pre-tax income under current U.S. GAAP.
TLGP. On November 12, 2008, the FDIC approved GE Capital’s
application for designation as an eligible entity under the FDIC’s
TLGP. Qualifying debt issued by GE Capital on or before October 31,
2009, is guaranteed under the Debt Guarantee Program of the
TLGP and is backed by the full faith and credit of the United
States. The FDIC’s guarantee under the TLGP is effective until
the earlier of the maturity of the debt or December 31, 2012.
At December 31, 2009, GE Capital had issued and outstanding,
$59.3 billion of senior, unsecured debt that was guaranteed by
the FDIC under the TLGP. We have incurred $2.3 billion of fees
for our participation in the TLGP through December 31, 2009.
These fees are amortized into interest expense over the terms
of the related borrowings. GE Capital and GE are parties to an
Eligible Entity Designation Agreement and GE Capital is subject
to the terms of a Master Agreement, each entered into with the
FDIC. The terms of these agreements include, among other
things, a requirement that GE and GE Capital reimburse the FDIC
for any amounts that the FDIC pays to holders of GE Capital debt
that is guaranteed by the FDIC.
Consolidated Statement of Changes in Shareowners’ Equity
GE shareowners’ equity increased by $12.6 billion in 2009, com-
pared with a decrease of $10.9 billion in 2008 and an increase of
$4.1 billion in 2007.
Net earnings increased GE shareowners’ equity by $11.0 bil-
lion, $17.4 billion and $22.2 billion, partially offset by dividends
declared of $6.8 billion, $12.6 billion and $11.7 billion in 2009,
2008, 2007, respectively.
Elements of Other Comprehensive Income increased share-
owners’ equity by $6.7 billion in 2009, compared with a decrease
of $30.2 billion in 2008 and an increase of $4.9 billion in 2007,
inclusive of changes in accounting principles. The components
of these changes are as follows:
• Changes in benefit plans reduced shareowners’ equity by
$1.8 billion in 2009, primarily reflecting a decrease in the
discount rate used to value pension and postretirement ben-
efit obligations. This compared with a decrease of $13.3 billion
and an increase of $2.6 billion in 2008 and 2007, respectively.
The decrease in 2008 primarily related to declines in the fair
value of plan assets as a result of market conditions and
adverse changes in the economic environment. Further infor-
mation about changes in benefit plans is provided in Note 12.
• Currency translation adjustments increased shareowners’
equity by $4.1 billion in 2009, decreased equity by $11.0 billion
in 2008 and increased equity by $4.5 billion in 2007. Changes
in currency translation adjustments reflect the effects of
changes in currency exchange rates on our net investment in
non-U.S. subsidiaries that have functional currencies other
than the U.S. dollar. At the end of 2009, the U.S. dollar was
weaker against most major currencies, including the pound
sterling, the Australian dollar and the euro, compared with a
stronger dollar against those currencies at the end of 2008
and a weaker dollar against those currencies at the end of
2007. The dollar was weaker against the Japanese yen in 2008
and 2007.