GE 2011 Annual Report Download - page 39

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GE 2011 ANNUAL REPORT 37
GE OTHER COSTS AND EXPENSES are selling, general and adminis-
trative expenses. These costs were 18.5%, 16.3% and 14.3% of
total GE sales in 2011, 2010 and 2009, respectively. The vast major-
ity of this 2011 increase was driven by higher pension costs and
increased research and development spending. The increase in
2010 was primarily due to higher research and development
spending, increased selling expenses to support global
growth and higher pension costs, partially offset by lower restruc-
turing and other charges.
INTEREST ON BORROWINGS AND OTHER FINANCIAL CHARGES
amounted to $14.5 billion, $15.6 billion and $17.7 billion in 2011,
2010 and 2009, respectively. Substantially all of our borrowings
are in fi nancial services, where interest expense was $13.9 billion,
$14.5 billion and $16.9 billion in 2011, 2010 and 2009, respectively.
GECS average borrowings declined from 2010 to 2011 and from
2009 to 2010, in line with changes in average GECS assets.
Interest rates have decreased over the three-year period primar-
ily attributable to declining global benchmark interest rates. GECS
average borrowings were $453.2 billion, $472.6 billion and
$484.9 billion in 2011, 2010 and 2009, respectively. The GECS
average composite effective interest rate was 3.1% in 2011, 3.1%
in 2010 and 3.5% in 2009. In 2011, GECS average assets of
$592.9 billion were 3% lower than in 2010, which in turn were
3% lower than in 2009. See the Liquidity and Borrowings
section for a discussion of liquidity, borrowings and interest
rate risk management.
INCOME TAXES have a signifi cant 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 indefi nitely reinvested outside the
United States, legislation, acquisitions, dispositions and tax char-
acteristics of our income. Our tax rates are also affected by tax
incentives introduced in the U.S. and other countries to encour-
age and support certain types of activity. Our tax returns are
routinely audited and settlements of issues raised in these audits
sometimes affect our tax provisions.
GE and GECS fi le a consolidated U.S. federal income tax return.
This enables GE to use GECS tax deductions and credits to reduce
the tax that otherwise would have been payable by GE.
Our consolidated income tax rate is lower than the U.S. statu-
tory rate primarily because of benefi ts from lower-taxed global
operations, including the use of global funding structures, and
our 2009 decision to indefi nitely reinvest prior-year earnings out-
side the U.S. There is a benefi t from global operations as non-U.S.
income is subject to local country tax rates that are signifi cantly
below the 35% U.S. statutory rate. These non-U.S. earnings have
been indefi nitely reinvested outside the U.S. and are not subject
to current U.S. income tax. The rate of tax on our indefi nitely rein-
vested non-U.S. earnings is below the 35% U.S. statutory rate
because we have signifi cant business operations subject to tax
in countries where the tax on that income is lower than the U.S.
statutory rate and because GE funds the majority of its non-U.S.
operations through foreign companies that are subject to low
foreign taxes.
Income taxes (benefi t) on consolidated earnings from continu-
ing operations were 28.5% in 2011 compared with 7.3% in 2010
and (11.6)% in 2009.
We expect our ability to benefi t from non-U.S. income taxed
at less than the U.S. rate to continue, subject to changes of U.S. or
foreign law, including, as discussed in Note 14, the expiration of
the U.S. tax law provision deferring tax on active fi nancial services
income. In addition, since this benefi t depends on management’s
intention to indefi nitely reinvest amounts outside the U.S., our tax
provision will increase to the extent we no longer indefi nitely rein-
vest foreign earnings.
Our benefi ts from lower taxed global operations declined to
$2.1 billion in 2011 from $2.8 billion in 2010 and from $3.9 billion
in 2009 principally because of lower earnings in our operations
subject to tax in countries where the tax on that income is lower
than the U.S. statutory rate, and from losses for which there was
not a full tax benefi t. These decreases also refl ected manage-
ment’s decision in 2009 to indefi nitely reinvest prior year earnings
outside the U.S. The benefi t from lower taxed global operations
increased in 2011 by $0.1 billion and in 2010 by $0.4 billion due
to audit resolutions. To the extent global interest rates and non-
U.S. operating income increase we would expect tax benefi ts to
increase, subject to management’s intention to indefi nitely rein-
vest those earnings.
Our benefi t from lower taxed global operations included the
effect of the lower foreign tax rate on our indefi nitely reinvested
non-U.S. earnings which provided a tax benefi t of $1.5 billion in
2011, $2.0 billion in 2010 and $3.0 billion in 2009. The tax benefi t
from non-U.S. income taxed at a local country rather than the U.S.
statutory tax rate is reported in the effective tax rate reconcilia-
tion in the line “Tax on global earnings including exports.”
The increase in the consolidated effective tax rate from 2010
to 2011 was due in signifi cant part to the high effective tax rate
on the pre-tax gain on the NBC Universal (NBCU) transaction
with Comcast Corporation (Comcast) discussed in Note 2. This
gain increased the consolidated effective tax rate by 12.9 per-
centage points. The effective tax rate was also higher because
of the increase in 2011 of income in higher taxed jurisdictions.
This decreased the relative effect of our tax benefi ts from lower-
taxed global operations. In addition, the consolidated income tax
rate increased from 2010 to 2011 due to the decrease, discussed
above, in the benefi t from lower-taxed global operations and the
lower benefi t from audit resolutions.
Cash income taxes paid in 2011 were $2.9 billion, refl ecting
the effects of changes to temporary differences between the car-
rying amount of assets and liabilities and their tax bases and the
timing of tax payments to governments.