GE 2011 Annual Report Download - page 63

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GE 2011 ANNUAL REPORT 61
collateral posted by us under these master agreements was esti-
mated to be $1.2 billion at December 31, 2011. See Note 22.
Other debt and derivative agreements of consolidated entities:
• Trinity comprises two consolidated entities that hold invest-
ment securities, the majority of which are investment grade,
and are funded by the issuance of GICs. Since 2004, GECC
has fully guaranteed repayment of these entities’ GIC obliga-
tions. If the long-term credit rating of GECC were to fall below
AA-/Aa3 or its short-term credit rating were to fall below
A-1+/P-1, certain GIC holders could require immediate repay-
ment of their investment. To the extent that amounts due
exceed the ultimate value of proceeds realized from Trinity
assets, GECC would be required to provide such excess
amount. As of December 31, 2011, the carrying value of the
liabilities of these entities was $5.6 billion and the fair value
of their assets was $4.7 billion (which included net unrealized
losses on investment securities of $0.7 billion). With respect
to these investment securities, we intend to hold them at
least until such time as their individual fair values exceed their
amortized cost. We have the ability to hold all such debt secu-
rities until maturity.
• Another consolidated entity also had issued GICs where pro-
ceeds are loaned to GECC. If the long-term credit rating of
GECC were to fall below AA-/Aa3 or its short-term credit rat-
ing were to fall below A-1+/P-1, GECC could be required to
provide up to approximately $1.7 billion as of December 31,
2011, to repay holders of GICs, compared to $2.3 billion at
December 31, 2010. These obligations are included in long-
term borrowings in our Statement of Financial Position.
• If the short-term credit rating of GECC were reduced below
A-1/P-1, GECC would be required to partially cash collateral-
ize certain covered bonds. The maximum amount that would
be required to be provided in the event of such a downgrade
is determined by contract and amounted to $0.7 billion and
$0.8 billion at December 31, 2011 and December 31, 2010,
respectively. These obligations are included in long-term bor-
rowings in our Statement of Financial Position.
RATIO OF EARNINGS TO FIXED CHARGES, INCOME MAINTENANCE
AGREEMENT AND SUBORDINATED DEBENTURES.
On March 28,
1991, GE entered into an agreement with GECC to make payments
to GECC, constituting additions to pre-tax income under the
agreement, to the extent necessary to cause the ratio of earnings
to fi xed charges of GECC and consolidated affi liates (determined
on a consolidated basis) to be not less than 1.10:1 for the period,
as a single aggregation, of each GECC fi scal year commencing
with fi scal year 1991. GECC’s ratio of earnings to fi xed charges
was 1.52:1 for 2011. No payment is required in 2012 pursuant to
this agreement.
Any payment made under the Income Maintenance Agreement
will not affect the ratio of earnings to fi xed charges as determined
in accordance with current SEC rules because it does not constitute
an addition to pre-tax income under current U.S. GAAP.
In addition, in connection with certain subordinated deben-
tures for which GECC receives equity credit by rating agencies, GE
has agreed to promptly return dividends, distributions or other
payments it receives from GECC during events of default or inter-
est deferral periods under such subordinated debentures. There
were $7.2 billion of such debentures outstanding at December 31,
2011. See Note 10.
Consolidated Statement of Changes in Shareowners’ Equity
GE shareowners’ equity decreased by $2.5 billion in 2011, com-
pared with an increase of $1.6 billion in 2010 and an increase of
$12.6 billion in 2009.
Net earnings increased GE shareowners’ equity by $14.2 bil-
lion, $11.6 billion and $11.0 billion, partially offset by dividends
declared of $7.5 billion (including $0.8 billion related to our pre-
ferred stock redemption), $5.2 billion and $6.8 billion in 2011, 2010
and 2009, respectively.
Elements of other comprehensive income (OCI) decreased
shareowners’ equity by $6.1 billion in 2011 and $2.3 billion in 2010,
respectively, compared with an increase of $6.6 billion in 2009,
inclusive of changes in accounting principles. The components of
these changes are as follows:
• Changes in benefi t plans decreased shareowners’ equity by
$7.0 billion in 2011, primarily refl ecting lower discount rates
used to measure pension and postretirement benefi t obliga-
tions and lower asset values, partially offset by amortization
of actuarial losses and prior service costs out of accumulated
other comprehensive income (AOCI). This compared with
an increase of $1.1 billion and a decrease of $1.8 billion in
2010 and 2009, respectively. The increase in 2010 primarily
refl ected prior service cost and net actuarial loss amortiza-
tion out of AOCI and higher fair value of plans assets, partially
offset by lower discount rates used to measure pension and
postretirement benefi t obligations. The decrease in 2009
primarily related to lower discount rates used to measure
pension and postretirement benefi t obligations. Further infor-
mation about changes in benefi t plans is provided in Note 12.
• Currency translation adjustments increased shareowners’
equity by $0.2 billion in 2011, decreased equity by $3.9 billion
in 2010 and increased equity by $4.1 billion in 2009. Changes
in currency translation adjustments refl ect 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 year end 2011 and 2010, the U.S. dol-
lar strengthened against most major currencies, including
the pound sterling and the euro, and weakened against the
Australian dollar and the Japanese yen. Releases from AOCI
related to dispositions and changes in deferred taxes more
than offset the effect in 2011. At year end 2009, the dollar
weakened against most major currencies.
• The change in fair value of investment securities increased
shareowners’ equity by $0.6 billion in 2011, refl ecting lower
interest rates and improved market conditions related to U.S.
corporate securities, partially offset by adjustments to refl ect
the effect of the unrealized gains on insurance-related assets
and equity. The change in fair value of investment securities
increased shareowners’ equity by an insignifi cant amount and
$2.7 billion in 2010 and 2009, respectively. Further information
about investment securities is provided in Note 3.