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92 GE 2012 ANNUAL REPORT
notes to consolidated financial statements
Note 6.
GECC Financing Receivables and Allowance for Losses
on Financing Receivables
December 31 (In millions) 2012 2011
Loans, net of deferred income (a) $241,465 $256,895
Investment in financing leases, net of
deferred income 32,471 38,142
273,936 295,037
Less allowance for losses (4,985) (6,190)
Financing receivables—net (b) $268,951 $288,847
(a) Deferred income was $2,182 million and $2,329 million at December 31, 2012 and
2011, respectively.
(b) Financing receivables at December 31, 2012 and 2011 included $750 million
and $1,062 million, respectively, relating to loans that had been acquired in a
transfer but have been subject to credit deterioration since origination per
ASC 310, Receivables.
GECC financing receivables include both loans and financing
leases. Loans represent transactions in a variety of forms, includ-
ing revolving charge and credit, mortgages, installment loans,
intermediate-term loans and revolving loans secured by busi-
ness assets. The portfolio includes loans carried at the principal
amount on which finance charges are billed periodically, and
loans carried at gross book value, which includes finance charges.
Investment in financing leases consists of direct financing and
leveraged leases of aircraft, railroad rolling stock, autos, other
transportation equipment, data processing equipment, medi-
cal equipment, commercial real estate and other manufacturing,
power generation, and commercial equipment and facilities.
For federal income tax purposes, the leveraged leases and
the majority of the direct financing leases are leases in which
GECC depreciates the leased assets and is taxed upon the accrual
of rental income. Certain direct financing leases are loans for fed-
eral income tax purposes. For these transactions, GECC is taxed
only on the portion of each payment that constitutes interest,
unless the interest is tax-exempt (e.g., certain obligations of state
governments).
Investment in direct financing and leveraged leases represents
net unpaid rentals and estimated unguaranteed residual values
of leased equipment, less related deferred income. GECC has no
general obligation for principal and interest on notes and other
instruments representing third-party participation related to lev-
eraged leases; such notes and other instruments have not been
included in liabilities but have been offset against the related rent-
als receivable. The GECC share of rentals receivable on leveraged
leases is subordinate to the share of other participants who also
have security interests in the leased equipment. For federal income
tax purposes, GECC is entitled to deduct the interest expense
accruing on non-recourse financing related to leveraged leases.
NET INVESTMENT IN FINANCING LEASES
Total financing leases Direct financing leases (a) Leveraged leases (b)
December 31 (In millions) 2012 2011 2012 2011 2012 2011
Total minimum lease payments receivable $36,451 $44,157 $29,416 $33,667 $ 7,035 $10,490
Less principal and interest on third-party non-recourse debt (4,662) (6,812) ——(4,662) (6,812)
Net rentals receivables 31,789 37,345 29,416 33,667 2,373 3,678
Estimated unguaranteed residual value of leased assets 6,346 7,592 4,272 5,140 2,074 2,452
Less deferred income (5,664) (6,795) (4,453) (5,219) (1,211) (1,576)
Investment in financing leases, net of deferred income 32,471 38,142 29,235 33,588 3,236 4,554
Less amounts to arrive at net investment
Allowance for losses (198) (294) (193) (281) (5) (13)
Deferred taxes (4,506) (6,718) (2,245) (2,938) (2,261) (3,780)
Net investment in financing leases $27,767 $31,130 $26,797 $30,369 $ 970 $ 761
(a) Included $330 million and $413 million of initial direct costs on direct financing leases at December 31, 2012 and 2011, respectively.
(b) Included pre-tax income of $81 million and $116 million and income tax of $32 million and $45 million during 2012 and 2011, respectively. Net investment credits
recognized on leveraged leases during 2012 and 2011 were insignificant.