GE 2012 Annual Report Download - page 88

86 GE 2012 ANNUAL REPORT
notes to consolidated financial statements
Comcast’s purchase of our NBCU LLC interest. GECC also entered
into a transaction to sell real estate comprising certain floors
located at 30 Rockefeller Center, New York and the CNBC prop-
erty located in Englewood Cliffs, New Jersey to affiliates of NBCU
for $1.4 billion in cash. Both transactions are subject to custom-
ary closing conditions and we expect to close by the end of the
first quarter of 2013.
Discontinued Operations
Discontinued operations primarily comprised GE Money Japan
(our Japanese personal loan business, Lake, and our Japanese
mortgage and card businesses, excluding our investment in GE
Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC), BAC
Credomatic GECF Inc. (BAC) (our Central American bank and card
business), our U.S. recreational vehicle and marine equipment
financing business (Consumer RV Marine), Consumer Mexico,
Consumer Singapore, our Consumer home lending operations
in Australia and New Zealand (Australian Home Lending) and
Consumer Ireland. Associated results of operations, financial
position and cash flows are separately reported as discontinued
operations for all periods presented.
Summarized financial information for discontinued operations
is shown below.
(In millions) 2012 2011 2010
OPERATIONS
Total revenues and other
income (expense) $ (485) $ 329 $ 2,060
Earnings (loss) from discontinued
operations before income taxes $ (612) $(189) $ 114
Benefit (provision) for income taxes 169 91 101
Earnings (loss) from discontinued
operations, net of taxes $ (443) $ (98) $ 215
DISPOSAL
Gain (loss) on disposal before
income taxes $ (792) $(329) $(1,420)
Benefit (provision) for income taxes 197 351 236
Gain (loss) on disposal, net of taxes $ (595) $ 22 $(1,184)
Earnings (loss) from discontinued
operations, net of taxes (a) $(1,038) $ (76) $ (969)
(a) The sum of GE industrial earnings (loss) from discontinued operations, net of
taxes, and GECC earnings (loss) from discontinued operations, net of taxes, is
reported as GE earnings (loss) from discontinued operations, net of taxes, on the
Statement of Earnings.
December 31 (In millions) 2012 2011
ASSETS
Cash and equivalents $ 103 $ 121
Financing receivables—net 3521
Other 1,029 1,079
Assets of discontinued operations $1,135 $1,721
LIABILITIES
Deferred income taxes $ 372 $ 205
Other 1,973 1,424
Liabilities of discontinued operations $2,345 $1,629
Assets at December 31, 2012 and December 31, 2011, primarily
comprised cash, financing receivables and a deferred tax asset
for a loss carryforward, which expires principally in 2017 and in
part in 2019, related to the sale of our GE Money Japan business.
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 interest
charges on unsecured personal loans did not permit us to earn
an acceptable return. During the third quarter of 2008, we com-
pleted the sale of GE Money Japan, which included Lake, along
with our Japanese mortgage and card businesses, excluding
our investment in GE Nissen Credit Co., Ltd. In connection with
the sale, we reduced the proceeds from 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) remaining
our responsibility. The underlying portfolio to which this obliga-
tion 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.
Overall, excess interest refund claims experience has devel-
oped unfavorably. We believe that the level of excess interest
refund claims has been affected by the challenging global eco-
nomic conditions over the last few years, in addition to the
financial status of other Japanese personal lenders and consumer
behavior. In 2010, a large independent personal 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 ongoing legal
advertising. These factors led to substantial increases in claims in
2010 and early 2011 and significant volatility in claims patterns.
We recorded a provision of $630 million during 2012, including
$286 million in the fourth quarter, as a result of an excess of claims
activity over our previous estimates and revisions to our assump-
tions about the level of future claim activity. At December 31,
2012, our reserve for these claims was $700 million. In determin-
ing reserve levels, we consider analyses of recent and historical
claims experience, as well as pending and estimated future refund
requests, adjusted for the estimated percentage of customers
who present valid requests and associated estimated payments.
We determined our reserve assuming the pace of incoming claims
will decelerate, that average exposure per claim remains con-
sistent with recent experience, and that we continue to see the
impact of loss mitigation efforts. Since our disposition of the busi-
ness, incoming claims have continued to decline, however, it is
highly variable and difficult to predict the pace and pattern of that
decline and such assumptions have a significant effect on the total
amount of our liability. Holding all other assumptions constant, an
adverse change of 20% and 50% in assumed incoming daily claim
rate reduction (resulting in an extension of the claim period and
higher incoming claims), would result in an increase to our reserve
of approximately $75 million and $400 million, respectively. We
continue to closely monitor and evaluate claims activity.