GE 2010 Annual Report Download - page 84

82 GE 2010 ANNUAL REPORT
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GE MONEY JAPAN
During the third quarter of 2007, we committed to a plan to sell
our Japanese personal loan business, Lake, upon determining
that, despite restructuring, Japanese regulatory limits for inter-
est charges on unsecured personal loans did not permit us to
earn an acceptable return. During the third quarter of 2008, we
completed the sale of GE Money Japan, which included Lake,
along with our Japanese mortgage and card businesses, exclud-
ing our investment in GE Nissen Credit Co., Ltd. As a result, we
recognized an after-tax loss of $908 million in 2007 and an incre-
mental loss of $361 million in 2008. In connection with the sale,
we reduced the proceeds on the sale for estimated interest
refund claims in excess of the statutory interest rate. Proceeds
from the sale were to be increased or decreased based on the
actual claims experienced in accordance with loss-sharing terms
specified in the sale agreement, with all claims in excess of
258 billion Japanese yen (approximately $3,000 million) remain-
ing our responsibility. The underlying portfolio to which this
obligation relates is in runoff and interest rates were capped for
all designated accounts by mid-2009. In the third quarter of 2010,
we began making reimbursements under this arrangement.
Our overall claims experience developed unfavorably through
2010. While our average daily claims continued to decline
through August 2010, the pace of the decline was slower than
expected, and claims severity increased. We believe that the
level of excess interest refund claims has been impacted by the
challenging global economic conditions, in addition to Japanese
legislative and regulatory changes. We accrued $566 million of
incremental reserves for these claims during the first six months
of 2010, in addition to the third quarter charge discussed below.
Significantly, in September 2010, a large independent per-
sonal loan company in Japan filed for bankruptcy, which
precipitated a significant amount of publicity surrounding excess
interest refund claims in the Japanese marketplace, along with
substantial legal advertising. We observed an increase in claims
during September 2010 and higher average daily claims in the
fourth quarter of 2010. Based on these factors and additional
analysis, we recorded an adjustment to our reserves of
$1,100 million in the third quarter of 2010 to bring the reserve to
a better estimate of our probable loss. This adjustment primarily
reflects revisions in our assumptions and calculations of the
number of estimated probable future incoming claims, increases
in claims severity assumptions, reflecting recent trends in
amounts paid per claim, and higher estimates of loss for claims in
process of settlement. As of December 31, 2010, our reserve for
reimbursement of claims in excess of the statutory interest rate
was $1,465 million.
Summarized financial information for discontinued operations
is shown below.
(In millions) 2010 2009 2008
OPERATIONS
Total revenues $ 1,417 $1,502 $ 1,626
Earnings (loss) from discontinued
operations before income taxes $ 92 $ 208 $ (560)
Benefit (provision) for income taxes 113 (23) 282
Earnings (loss) from discontinued
operations, net of taxes $ 205 $ 185 $ (278)
DISPOSAL
Loss on disposal before
income taxes $(1,420) $ (196) $(1,458)
Benefit for income taxes 236 93 1,119
Loss on disposal, net of taxes $(1,184) $ (103) $ (339)
Earnings (loss) from discontinued
operations, net of taxes
(a) $ (979) $ 82 $ (617)
(a) The sum of GE industrial earnings (loss) from discontinued operations, net of taxes,
and GECS earnings (loss) from discontinued operations, net of taxes, is reported as
GE industrial earnings (loss) from discontinued operations, net of taxes, on the
Statement of Earnings.
December 31 (In millions) 2010 2009
ASSETS
Cash and equivalents $ 126 $ 1,956
Financing receivables—net 3,546 9,985
All other assets 42 142
Other 1,564 3,045
Assets of discontinued operations $5,278 $15,128
LIABILITIES
Short-term borrowings $ — $ 5,314
Long-term borrowings — 1,434
All other liabilities 1,933 1,394
Other 374 344
Liabilities of discontinued operations $2,307 $ 8,486
Assets at December 31, 2010 and 2009 primarily comprised cash,
financing receivables and a deferred tax asset for a loss carryfor-
ward, which expires in 2015, related to the sale of our GE Money
Japan business.
BAC CREDOMATIC GECF INC.
During the fourth quarter of 2010, we classified BAC as discontin-
ued operations and completed the sale of BAC for $1,920 million.
Immediately prior to the sale, and in accordance with terms of a
previous agreement, we increased our ownership interest in BAC
from 75% to 100% for a purchase price of $633 million. As a result
of the sale of our interest in BAC, we recognized an after-tax gain
of $780 million in 2010.
BAC revenues from discontinued operations were $983 million,
$943 million and $159 million in 2010, 2009 and 2008, respectively.
In total, BAC earnings from discontinued operations, net of taxes,
were $854 million, $292 million and $89 million in 2010, 2009 and
2008, respectively.