| ASSETS AND LIABILITIES OF CONSOLIDATED VIEs | |||||||||||||||||
| Consolidated Securitization Entities | |||||||||||||||||
| Trade | |||||||||||||||||
| (In millions) | Trinity(a) | Credit cards | (b) | Equipment | (b) | receivables | Other | Total | |||||||||
| December 31, 2014 | |||||||||||||||||
| Assets(c) | |||||||||||||||||
| Financing receivables, net | $ | - | $ | 25,645 | $ | 12,843 | $ | - | $ | 3,064 | $ | 41,552 | |||||
| Current receivables | - | - | - | 3,028 | (d) | 509 | 3,537 | ||||||||||
| Investment securities | 2,369 | - | - | - | 1,005 | 3,374 | |||||||||||
| Other assets | 17 | 1,059 | 766 | 2 | 2,814 | 4,658 | |||||||||||
| Total | $ | 2,386 | $ | 26,704 | $ | 13,609 | $ | 3,030 | $ | 7,392 | $ | 53,121 | |||||
| Liabilities(c) | |||||||||||||||||
| Borrowings | $ | - | $ | - | $ | - | $ | - | $ | 523 | $ | 523 | |||||
| Non-recourse borrowings | - | 14,967 | 10,359 | 2,692 | 646 | 28,664 | |||||||||||
| Other liabilities | 1,022 | 332 | 593 | 26 | 1,548 | 3,521 | |||||||||||
| Total | $ | 1,022 | $ | 15,299 | $ | 10,952 | $ | 2,718 | $ | 2,717 | $ | 32,708 | |||||
| December 31, 2013 | |||||||||||||||||
| Assets(c) | |||||||||||||||||
| Financing receivables, net | $ | - | $ | 24,766 | $ | 12,928 | $ | - | $ | 2,044 | $ | 39,738 | |||||
| Current receivables | - | - | - | 2,509 | 349 | 2,858 | |||||||||||
| Investment securities | 2,786 | - | - | - | 1,044 | 3,830 | |||||||||||
| Other assets | 213 | 20 | 557 | - | 2,081 | 2,871 | |||||||||||
| Total | $ | 2,999 | $ | 24,786 | $ | 13,485 | $ | 2,509 | $ | 5,518 | $ | 49,297 | |||||
| Liabilities(c) | |||||||||||||||||
| Borrowings | $ | - | $ | - | $ | - | $ | - | $ | 598 | $ | 598 | |||||
| Non-recourse borrowings | - | 15,363 | 10,982 | 2,180 | 49 | 28,574 | |||||||||||
| Other liabilities | 1,482 | 228 | 248 | 25 | 1,351 | 3,334 | |||||||||||
| Total | $ | 1,482 | $ | 15,591 | $ | 11,230 | $ | 2,205 | $ | 1,998 | $ | 32,506 | |||||
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Investment securities | ||||||||
| Balance at January 1 | $ | 307 | $ | 677 | $ | (30) | ||
| Other comprehensive income (loss) (OCI) before reclassifications – | ||||||||
| net of deferred taxes of $353, $(407) and $387(a) | 562 | (692) | 683 | |||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $84, $222 and $13 | 146 | 318 | 22 | |||||
| Other comprehensive income (loss)(b) | 708 | (374) | 705 | |||||
| Less OCI attributable to noncontrolling interests | 2 | (4) | (2) | |||||
| Balance at December 31 | $ | 1,013 | $ | 307 | $ | 677 | ||
| Currency translation adjustments (CTA) | ||||||||
| Balance at January 1(c) | $ | 283 | $ | 412 | $ | 133 | ||
| OCI before reclassifications – net of deferred taxes | (2,600) | 510 | 474 | |||||
| of $(129), $(613) and $(266) | ||||||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $213, $793 and $54 | (129) | (818) | (174) | |||||
| Other comprehensive income (loss)(b) | (2,729) | (308) | 300 | |||||
| Less OCI attributable to noncontrolling interests | (19) | (22) | 21 | |||||
| Balance at December 31 | $ | (2,427) | $ | 126 | $ | 412 | ||
| Cash flow hedges | ||||||||
| Balance at January 1(c) | $ | (414) | $ | (722) | $ | (1,176) | ||
| OCI before reclassifications – net of deferred taxes | (610) | 738 | 385 | |||||
| of $23, $250 and $392 | ||||||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $34, $(177) and $(245) | 844 | (271) | 68 | |||||
| Other comprehensive income (loss)(b) | 234 | 467 | 453 | |||||
| Less OCI attributable to noncontrolling interests | - | 2 | (1) | |||||
| Balance at December 31 | $ | (180) | $ | (257) | $ | (722) | ||
| Benefit plans | ||||||||
| Balance at January 1 | $ | (9,296) | $ | (20,597) | $ | (22,901) | ||
| Prior service credit (costs) - net of deferred taxes | ||||||||
| of $219, $(5) and $304 | 396 | (6) | 534 | |||||
| Net actuarial gain (loss) – net of deferred taxes | ||||||||
| of $(5,332), $4,506 and $(574) | (9,849) | 8,269 | (1,396) | |||||
| Net curtailment/settlement - net of deferred taxes | ||||||||
| of $41, $0 and $123 | 72 | - | 174 | |||||
| Prior service cost amortization – net of deferred taxes | ||||||||
| of $241, $267 and $326 | 349 | 397 | 497 | |||||
| Net actuarial loss amortization – net of deferred taxes | ||||||||
| of $859, $1,343 and $1,278 | 1,753 | 2,640 | 2,490 | |||||
| Other comprehensive income (loss)(b) | (7,279) | 11,300 | 2,299 | |||||
| Less OCI attributable to noncontrolling interests | 3 | (1) | (5) | |||||
| Balance at December 31 | $ | (16,578) | $ | (9,296) | $ | (20,597) | ||
| Accumulated other comprehensive income (loss) at December 31 | $ | (18,172) | $ | (9,120) | $ | (20,230) | ||
(a)\tIncludes adjustments of $960 million, $(1,171) million and $527 million in 2014, 2013 and 2012, respectively, to deferred acquisition costs, present value of future profits, and investment contracts, insurance liabilities and insurance annuity benefits in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized.
(b)\tTotal other comprehensive income (loss) was $(9,066) million, $11,085 million and $3,757 million in 2014, 2013 and 2012, respectively.
(c)\tIncludes a $157 million reclassification between 2014 opening balances in Currency Translation Adjustments and Cash Flow Hedges.
note 3. INVESTMENT SECURITIES
Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment-grade debt securities supporting obligations to annuitants, policyholders in our run-off insurance operations and supporting obligations to holders of guaranteed investment contracts (GICs) in Trinity and investments held in our CLL business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries. We do not have any securities classified as held-to-maturity.
| 2014 | 2013 | ||||||||||||||||||||||
| Gross | Gross | Gross | Gross | ||||||||||||||||||||
| Amortized | unrealized | unrealized | Estimated | Amortized | unrealized | unrealized | Estimated | ||||||||||||||||
| December 31 (In millions) | cost | gains | losses | fair value | cost | gains | losses | fair value | |||||||||||||||
| GE | |||||||||||||||||||||||
| Debt | |||||||||||||||||||||||
| U.S. corporate | $ | 12 | $ | - | $ | - | $ | 12 | $ | 21 | $ | 14 | $ | - | $ | 35 | |||||||
| Corporate – non-U.S. | 1 | - | - | 1 | 13 | - | (1) | 12 | |||||||||||||||
| Equity | |||||||||||||||||||||||
| Available-for-sale | 69 | 4 | (2) | 71 | 302 | 9 | (41) | 270 | |||||||||||||||
| Trading | - | - | - | - | 6 | - | - | 6 | |||||||||||||||
| 82 | 4 | (2) | 84 | 342 | 23 | (42) | 323 | ||||||||||||||||
| GECC | |||||||||||||||||||||||
| Debt | |||||||||||||||||||||||
| U.S. corporate | 19,889 | 3,967 | (69) | 23,787 | 19,600 | 2,323 | (217) | 21,706 | |||||||||||||||
| State and municipal | 5,181 | 624 | (56) | 5,749 | 4,245 | 235 | (191) | 4,289 | |||||||||||||||
| Residential mortgage-backed(a) | 1,578 | 153 | (6) | 1,725 | 1,819 | 139 | (48) | 1,910 | |||||||||||||||
| Commercial mortgage-backed | 2,903 | 170 | (10) | 3,063 | 2,929 | 188 | (82) | 3,035 | |||||||||||||||
| Asset-backed | 8,084 | 9 | (175) | 7,918 | 7,373 | 60 | (46) | 7,387 | |||||||||||||||
| Corporate – non-U.S. | 1,380 | 126 | (30) | 1,476 | 1,741 | 103 | (86) | 1,758 | |||||||||||||||
| Government – non-U.S. | 1,646 | 152 | (2) | 1,796 | 2,336 | 81 | (7) | 2,410 | |||||||||||||||
| U.S. government and federal | |||||||||||||||||||||||
| agency | 1,957 | 56 | - | 2,013 | 752 | 45 | (27) | 770 | |||||||||||||||
| Retained interests | 20 | 4 | - | 24 | 64 | 8 | - | 72 | |||||||||||||||
| Equity | |||||||||||||||||||||||
| Available-for-sale | 197 | 58 | (1) | 254 | 203 | 51 | (3) | 251 | |||||||||||||||
| Trading | 22 | - | - | 22 | 74 | - | - | 74 | |||||||||||||||
| 42,857 | 5,319 | (349) | 47,827 | 41,136 | 3,233 | (707) | 43,662 | ||||||||||||||||
| Eliminations | (4) | - | - | (4) | (4) | - | - | (4) | |||||||||||||||
| Total | $ | 42,935 | $ | 5,323 | $ | (351) | $ | 47,907 | $ | 41,474 | $ | 3,256 | $ | (749) | $ | 43,981 | |||||||
(a)\tSubstantially collateralized by U.S. mortgages. At December 31, 2014, $1,191 million related to securities issued by government-sponsored entities and $534 million related to securities of private-label issuers. Securities issued by private-label issuers are collateralized primarily by pools of individual direct mortgage loans of financial institutions.
The fair value of investment securities increased to $47,907 million at December 31, 2014, from $43,981 million at December 31, 2013, primarily due to purchases of U.S. government and federal agency securities at Synchrony Financial, and higher net unrealized gains in U.S. corporate and State and municipal securities driven by lower interest rates in the U.S.
| ESTIMATED FAIR VALUE AND GROSS UNREALIZED LOSSES OF AVAILABLE-FOR-SALE INVESTMENT | ||||||||||||
| SECURITIES | ||||||||||||
| In loss position for | ||||||||||||
| Less than 12 months | 12 months or more | |||||||||||
| Gross | Gross | |||||||||||
| Estimated | unrealized | Estimated | unrealized | |||||||||
| December 31 (In millions) | fair value(a) | losses(a)(b) | fair value | losses(b) | ||||||||
| 2014 | ||||||||||||
| Debt | ||||||||||||
| U.S. corporate | $ | 554 | $ | (16) | $ | 836 | $ | (53) | ||||
| State and municipal | 81 | (1) | 348 | (55) | ||||||||
| Residential mortgage-backed | 30 | - | 159 | (6) | ||||||||
| Commercial mortgage-backed | 165 | (1) | 204 | (9) | ||||||||
| Asset-backed | 7,493 | (158) | 77 | (17) | ||||||||
| Corporate – non-U.S. | 42 | (1) | 237 | (29) | ||||||||
| Government – non-U.S. | 677 | (2) | 14 | - | ||||||||
| U.S. government and federal agency | 705 | - | 1 | - | ||||||||
| Equity | 18 | (3) | - | - | ||||||||
| Total | $ | 9,765 | $ | (182) | $ | 1,876 | $ | (169) | (c) | |||
| 2013 | ||||||||||||
| Debt | ||||||||||||
| U.S. corporate | $ | 2,170 | $ | (122) | $ | 598 | $ | (95) | ||||
| State and municipal | 1,076 | (82) | 367 | (109) | ||||||||
| Residential mortgage-backed | 232 | (11) | 430 | (37) | ||||||||
| Commercial mortgage-backed | 396 | (24) | 780 | (58) | ||||||||
| Asset-backed | 112 | (2) | 359 | (44) | ||||||||
| Corporate – non-U.S. | 108 | (4) | 454 | (83) | ||||||||
| Government – non-U.S. | 1,479 | (6) | 42 | (1) | ||||||||
| U.S. government and federal agency | 229 | (27) | 254 | - | ||||||||
| Retained interests | 2 | - | - | - | ||||||||
| Equity | 253 | (44) | - | - | ||||||||
| Total | $ | 6,057 | $ | (322) | $ | 3,284 | $ | (427) | ||||
Includes the estimated fair value of and gross unrealized losses on Corporate-non-U.S. and Equity securities held by GE. At December 31, 2014, there were no Corporate-non-U.S. securities held by GE in a loss position. At December 31, 2014, the estimated fair value of and gross unrealized losses on Equity securities were $4 million and $(2) million, respectively. At December 31, 2013, the estimated fair value of and gross unrealized losses on Corporate-non-U.S. securities were $12 million and $(1) million, respectively. At December 31, 2013 the estimated fair value of and gross unrealized losses on Equity securities were $222 million and $(41) million, respectively.
(b)\tIncluded gross unrealized losses related to securities that had other-than-temporary impairments previously recognized of $29 million at December 31, 2014.
(c)\tThe majority relate to debt securities held to support obligations to holders of GICs and more than 70% are debt securities that were considered to be investment-grade by the major rating agencies at December 31, 2014.
We regularly review investment securities for other-than-temporary impairment (OTTI) using both qualitative and quantitative criteria. For debt securities, our qualitative review considers our ability and intent to hold the security and the financial condition of and near-term prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. Our quantitative review considers whether there has been an adverse change in expected future cash flows. Unrealized losses are not indicative of the amount of credit loss that would be recognized and at December 31, 2014 are primarily due to increases in market yields subsequent to our purchase of the securities. We presently do not intend to sell the vast majority of our debt securities that are in an unrealized loss position and believe that it is not more likely than not that we will be required to sell the vast majority of these securities before anticipated recovery of our amortized cost. The methodologies and significant inputs used to measure the amount of credit loss for our investment securities during 2014 have not changed. For equity securities, we consider the duration and the severity of the unrealized loss. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future.
Our corporate debt portfolio comprises securities issued by public and private corporations in various industries, primarily in the U.S. Substantially all of our corporate debt securities are rated investment grade by the major rating agencies.
Our RMBS portfolio is collateralized primarily by pools of individual, direct mortgage loans, of which substantially all are in a senior position in the capital structure of the deals, not other structured products such as collateralized debt obligations. Of the total RMBS held at December 31, 2014, $1,191 million and $534 million related to agency and non-agency securities, respectively. Additionally, $287 million was related to residential subprime credit securities, primarily supporting our guaranteed investment contracts. Substantially all of the subprime exposure is related to securities backed by mortgage loans originated in 2006 and prior. A majority of subprime RMBS have been downgraded to below investment grade and are insured by Monoline insurers (Monolines). We continue to place partial reliance on Monolines with adequate capital and claims paying resources depending on the extent of the Monoline’s anticipated ability to cover expected credit losses.
Our commercial mortgage-backed securities (CMBS) portfolio is collateralized by both diversified pools of mortgages that were originated for securitization (conduit CMBS) and pools of large loans backed by high-quality properties (large loan CMBS), a majority of which were originated in 2007 and prior. The vast majority of the securities in our CMBS portfolio have investment-grade credit ratings.
Our asset-backed securities (ABS) portfolio is collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries, as well as a variety of diversified pools of assets such as student loans and credit cards. The vast majority of the securities in our ABS portfolio are in a senior position in the capital structure of the deals.
| PRE-TAX, OTHER-THAN-TEMPORARY IMPAIRMENTS ON INVESTMENT SECURITIES | |||||||||
| (In millions) | 2014 | 2013 | 2012 | ||||||
| Total pre-tax, OTTI recognized | $ | 407 | $ | 798 | $ | 193 | |||
| Pre-tax, OTTI recognized in AOCI | (16) | (31) | (52) | ||||||
| Pre-tax, OTTI recognized in earnings(a) | $ | 391 | $ | 767 | $ | 141 | |||
(a)\tIncluded pre-tax, other-than-temporary impairments recorded in earnings related to equity securities of $221 million, $15 million and $39 million in 2014, 2013 and 2012, respectively
| CHANGES IN CUMULATIVE CREDIT LOSS IMPAIRMENTS RECOGNIZED ON DEBT SECURITIES STILL HELD | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Cumulative credit loss impairments recognized, beginning of period | $ | 1,193 | $ | 588 | $ | 747 | ||
| Credit loss impairments recognized on securities not previously impaired | 4 | 389 | 27 | |||||
| Incremental credit loss impairments recognized | ||||||||
| on securities previously impaired | 77 | 336 | 40 | |||||
| Less credit loss impairments previously recognized on securities sold | ||||||||
| during the period or that we intend to sell | 304 | 120 | 226 | |||||
| Cumulative credit loss impairments recognized, end of period | $ | 970 | $ | 1,193 | $ | 588 | ||
| CONTRACTUAL MATURITIES OF INVESTMENT IN AVAILABLE-FOR-SALE DEBT SECURITIES | |||||
| (EXCLUDING MORTGAGE-BACKED AND ASSET-BACKED SECURITIES) | |||||
| Amortized | Estimated | ||||
| (In millions) | cost | fair value | |||
| Due | |||||
| Within one year | $ | 2,478 | $ | 2,492 | |
| After one year through five years | 3,521 | 3,768 | |||
| After five years through ten years | 5,285 | 5,686 | |||
| After ten years | 18,782 | 22,888 | |||
We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.
| GROSS REALIZED GAINS AND LOSSES ON AVAILABLE-FOR-SALE INVESTMENT SECURITIES | |||||||||
| (In millions) | 2014 | 2013 | 2012 | ||||||
| GE | |||||||||
| Gains | $ | 3 | $ | 1 | $ | - | |||
| Losses, including impairments | (218) | (20) | (1) | ||||||
| Net | (215) | (19) | (1) | ||||||
| GECC | |||||||||
| Gains | 169 | 239 | 177 | ||||||
| Losses, including impairments | (186) | (762) | (211) | ||||||
| Net | (17) | (523) | (34) | ||||||
| Total | $ | (232) | $ | (542) | $ | (35) | |||
Although we generally do not have the intent to sell any specific securities at the end of the period, in the ordinary course of managing our investment securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. In some of our bank subsidiaries, we maintain a certain level of purchases and sales volume principally of non-U.S. government debt securities. In these situations, fair value approximates carrying value for these securities.
Proceeds from investment securities sales and early redemptions by issuers totaled $6,549 million, $19,276 million and $12,745 million in 2014, 2013 and 2012, respectively, principally from sales of short-term government securities in our bank subsidiaries and redemptions of non-U.S. corporate and asset-backed securities in our CLL business. The 2013 amount also included proceeds from the sale of Comcast guaranteed debt and short-term securities in our Treasury operations.
We recognized pre-tax gains (losses) on trading securities of $10 million, $48 million and $20 million in 2014, 2013 and 2012, respectively.
NOTE 5. INVENTORIES
| December 31 (In millions) | 2014 | 2013 | |||
| GE | |||||
| Raw materials and work in process | $ | 9,820 | $ | 9,760 | |
| Finished goods | 7,126 | 7,161 | |||
| Unbilled shipments | 755 | 609 | |||
| 17,701 | 17,530 | ||||
| Less revaluation to LIFO | (62) | (273) | |||
| Total GE | 17,639 | 17,257 | |||
| GECC | |||||
| Finished goods | 50 | 68 | |||
| Total consolidated | $ | 17,689 | $ | 17,325 | |
| ROLLFORWARD OF THE RESERVE | ||||||
| December 31 (In millions) | 2014 | 2013 | ||||
| Balance, beginning of period | $ | 800 | $ | 633 | ||
| Provision | 365 | 354 | ||||
| Claim resolutions / rescissions | (356) | (187) | ||||
| Balance, end of period | $ | 809 | $ | 800 | ||
NOTE 26. INTERCOMPANY TRANSACTIONS
Transactions between related companies are made on an arms-length basis, are eliminated and consist primarily of GECC dividends to GE; GE customer receivables sold to GECC; GECC services for trade receivables management and material procurement; buildings and equipment (including automobiles) leased between GE and GECC; information technology (IT) and other services sold to GECC by GE; aircraft engines manufactured by GE that are installed on aircraft purchased by GECC from third-party producers for lease to others; and various investments, loans and allocations of GE corporate overhead costs.
These intercompany transactions are reported in the GE and GECC columns of our financial statements, but are eliminated in deriving our consolidated financial statements. Effects of these eliminations on our consolidated cash flows from operating, investing and financing activities are $(5,404) million, $1,978 million and $3,426 million for 2014, $(5,088) million, $492 million and $4,690 million for 2013 and $(8,542) million, $2,328 million and $6,703 million for 2012, respectively. Details of these eliminations are shown below.
| (In millions) | 2014 | 2013 | 2012 | ||||||
| Cash from (used for) operating activities-continuing operations | |||||||||
| Combined | $ | 32,919 | $ | 34,125 | $ | 39,557 | |||
| GE customer receivables sold to GECC | (1,918) | 360 | (1,809) | ||||||
| GECC dividends to GE | (3,000) | (5,985) | (6,426) | ||||||
| Other reclassifications and eliminations | (486) | 537 | (307) | ||||||
| $ | 27,515 | $ | 29,037 | $ | 31,015 | ||||
| Cash from (used for) investing activities-continuing operations | |||||||||
| Combined | $ | (6,720) | $ | 28,182 | $ | 9,262 | |||
| GE customer receivables sold to GECC | 1,766 | 262 | 2,005 | ||||||
| Other reclassifications and eliminations | 212 | 230 | 323 | ||||||
| $ | (4,742) | $ | 28,674 | $ | 11,590 | ||||
| Cash from (used for) financing activities-continuing operations | |||||||||
| Combined | $ | (20,378) | $ | (50,319) | $ | (57,758) | |||
| GE customer receivables sold to GECC | 152 | (622) | (196) | ||||||
| GECC dividends to GE | 3,000 | 5,985 | 6,426 | ||||||
| Other reclassifications and eliminations | 274 | (673) | 473 | ||||||
| $ | (16,952) | $ | (45,629) | $ | (51,055) | ||||
NOTE 22. FINANCIAL INSTRUMENTS
The following table provides information about assets and liabilities not carried at fair value. The table excludes finance leases and non-financial assets and liabilities. Substantially all of the assets discussed below are considered to be Level 3. The vast majority of our liabilities’ fair value can be determined based on significant observable inputs and thus considered Level 2. Few of the instruments are actively traded and their fair values must often be determined using financial models. Realization of the fair value of these instruments depends upon market forces beyond our control, including marketplace liquidity.
| 2014 | 2013 | ||||||||||||||||
| Assets (liabilities) | Assets (liabilities) | ||||||||||||||||
| Carrying | Carrying | ||||||||||||||||
| Notional | amount | Estimated | Notional | amount | Estimated | ||||||||||||
| December 31 (In millions) | amount | (net) | fair value | amount | (net) | fair value | |||||||||||
| GE | |||||||||||||||||
| Assets | |||||||||||||||||
| Investments and notes | |||||||||||||||||
| receivable | $ | (a) | $ | 502 | $ | 551 | $ | (a) | $ | 488 | $ | 512 | |||||
| Liabilities | |||||||||||||||||
| Borrowings(b) | (a) | (16,340) | (17,503) | (a) | (13,356) | (13,707) | |||||||||||
| GECC | |||||||||||||||||
| Assets | |||||||||||||||||
| Loans | (a) | 212,719 | 217,662 | (a) | 226,293 | 230,792 | |||||||||||
| Other commercial mortgages | (a) | 3,520 | 3,600 | (a) | 2,270 | 2,281 | |||||||||||
| Loans held for sale | (a) | 1,801 | 1,826 | (a) | 512 | 512 | |||||||||||
| Other financial instruments(c) | (a) | 691 | 1,015 | (a) | 1,622 | 2,203 | |||||||||||
| Liabilities | |||||||||||||||||
| Borrowings and bank | |||||||||||||||||
| deposits(b)(d) | (a) | (349,548) | (366,256) | (a) | (371,062) | (386,823) | |||||||||||
| Investment contract benefits | (a) | (2,970) | (3,565) | (a) | (3,144) | (3,644) | |||||||||||
| Guaranteed investment contracts | (a) | (1,000) | (1,031) | (a) | (1,471) | (1,459) | |||||||||||
| Insurance – credit life(e) | 1,843 | (90) | (77) | 2,149 | (108) | (94) | |||||||||||
a)\tThese financial instruments do not have notional amounts.
(b)\tSee Note 10.
(c)\tPrincipally comprises cost method investments.
(d)\tFair values exclude interest rate and currency derivatives designated as hedges of borrowings. Had they been included, the fair value of borrowings at December 31, 2014 and 2013 would have been reduced by $5,020 million and $2,284 million, respectively.
(e)\tNet of reinsurance of $964 million and $1,250 million at December 31, 2014 and 2013, respectively.
A description of how we estimate fair values follows:
Loans. Based on a discounted future cash flows methodology, using current market interest rate data adjusted for inherent credit risk or quoted market prices and recent transactions, if available.
Borrowings and bank deposits. Based on valuation methodologies using current market interest rate data that are comparable to market quotes adjusted for our non-performance risk.
Investment contract benefits. Based on expected future cash flows, discounted at currently offered rates for immediate annuity contracts or the income approach for single premium deferred annuities.
Guaranteed investment contracts. Based on valuation methodologies using current market interest rate data, adjusted for our non-performance risk.
Insurance – credit life. Certain insurance affiliates, primarily in Consumer, issue credit life insurance designed to pay the balance due on a loan if the borrower dies before the loan is repaid. As part of our overall risk management process, we cede to third parties a portion of this associated risk, but are not relieved of our primary obligation to the policy holders.
All other instruments. Based on observable market transaction and/or valuation methodologies using current market interest rate data adjusted for inherent credit risk.
Assets and liabilities that are reflected in the accompanying financial statements at fair value are not included in the above disclosures; such items include cash and equivalents, investment securities and derivative financial instruments.
Additional information about Notional Amounts of Loan Commitments follows.
| NOTIONAL AMOUNTS OF LOAN COMMITMENTS | |||||||||||
| December 31 (In millions) | 2014 | 2013 | |||||||||
| Ordinary course of business lending commitments(a) | $ | 4,282 | $ | 4,756 | |||||||
| Unused revolving credit lines(b) | |||||||||||
| Commercial(c) | 14,681 | 16,570 | |||||||||
| Consumer – principally credit cards | 306,188 | 290,662 | |||||||||
Securities Repurchase and Reverse Repurchase Arrangements
Our issuances of securities repurchase agreements are insignificant and are limited to activities at certain of our foreign banks primarily for purposes of liquidity management. At December 31, 2014, we were party to repurchase agreements totaling $169 million, which were reported in short-term borrowings on the financial statements. No repurchase agreements were accounted for as off-book financing and we do not engage in securities lending transactions.
We also enter into reverse securities repurchase agreements, primarily for short-term investment with maturities of 90 days or less. At December 31, 2014, we were party to reverse repurchase agreements totaling $11.5 billion, which were reported in cash and equivalents on the financial statements. Under these reverse securities repurchase agreements, we typically lend available cash at a specified rate of interest and hold U.S. or highly-rated European government securities as collateral during the term of the agreement. Collateral value is in excess of amounts loaned under the agreements.
Derivatives and Hedging
As a matter of policy, we use derivatives for risk management purposes and we do not use derivatives for speculative purposes. A key risk management objective for our financial services businesses is to mitigate interest rate and currency risk by seeking to ensure that the characteristics of the debt match the assets they are funding. If the form (fixed versus floating) and currency denomination of the debt we issue do not match the related assets, we typically execute derivatives to adjust the nature and tenor of funding to meet this objective within pre-defined limits. The determination of whether we enter into a derivative transaction or issue debt directly to achieve this objective depends on a number of factors, including market related factors that affect the type of debt we can issue.
The notional amounts of derivative contracts represent the basis upon which interest and other payments are calculated and are reported gross, except for offsetting foreign currency forward contracts that are executed in order to manage our currency risk of net investment in foreign subsidiaries. Of the outstanding notional amount of $297,000 million, approximately 87% or $258,000 million, is associated with reducing or eliminating the interest rate, currency or market risk between financial assets and liabilities in our financial services businesses. The remaining derivative activities primarily relate to hedging against adverse changes in currency exchange rates and commodity prices related to anticipated sales and purchases and contracts containing certain clauses that meet the accounting definition of a derivative. The instruments used in these activities are designated as hedges when practicable. When we are not able to apply hedge accounting, or when the derivative and the hedged item are both recorded in earnings concurrently, the derivatives are deemed economic hedges and hedge accounting is not applied. This most frequently occurs when we hedge a recognized foreign currency transaction (e.g., a receivable or payable) with a derivative. Since the effects of changes in exchange rates are reflected concurrently in earnings for both the derivative and the transaction, the economic hedge does not require hedge accounting.
| FAIR VALUE OF DERIVATIVES | |||||||||||
| 2014 | 2013 | ||||||||||
| December 31 (In millions) | Assets | Liabilities | Assets | Liabilities | |||||||
| Derivatives accounted for as hedges | |||||||||||
| Interest rate contracts | $ | 5,859 | $ | 461 | $ | 3,837 | $ | 1,989 | |||
| Currency exchange contracts | 2,579 | 884 | 1,830 | 984 | |||||||
| Other contracts | - | 2 | 1 | - | |||||||
| 8,438 | 1,347 | 5,668 | 2,973 | ||||||||
| Derivatives not accounted for as hedges | |||||||||||
| Interest rate contracts | 276 | 137 | 270 | 169 | |||||||
| Currency exchange contracts | 1,212 | 3,450 | 2,257 | 2,245 | |||||||
| Other contracts | 256 | 55 | 284 | 42 | |||||||
| 1,744 | 3,642 | 2,811 | 2,456 | ||||||||
| Gross derivatives recognized in statement of | |||||||||||
| financial position | |||||||||||
| Gross derivatives | 10,182 | 4,989 | 8,479 | 5,429 | |||||||
| Gross accrued interest | 1,401 | (18) | 1,227 | 241 | |||||||
| 11,583 | 4,971 | 9,706 | 5,670 | ||||||||
| Amounts offset in statement of financial position | |||||||||||
| Netting adjustments(a) | (3,896) | (3,905) | (4,120) | (4,113) | |||||||
| Cash collateral(b) | (3,709) | (502) | (2,619) | (242) | |||||||
| (7,605) | (4,407) | (6,739) | (4,355) | ||||||||
| Net derivatives recognized in statement of | |||||||||||
| financial position | |||||||||||
| Net derivatives | 3,978 | 564 | 2,967 | 1,315 | |||||||
| Amounts not offset in statement of | |||||||||||
| financial position | |||||||||||
| Securities held as collateral(c) | (3,361) | - | (1,962) | - | |||||||
| Net amount | $ | 617 | $ | 564 | $ | 1,005 | $ | 1,315 | |||
Derivatives are classified in the captions “All other assets” and “All other liabilities” and the related accrued interest is classified in “Other GECC receivables” and “All other liabilities” in our financial statements.
Fair value hedges
We use interest rate and currency exchange derivatives to hedge the fair value effects of interest rate and currency exchange rate changes on local and non-functional currency denominated fixed-rate debt. For relationships designated as fair value hedges, changes in fair value of the derivatives are recorded in earnings within interest and other financial charges, along with offsetting adjustments to the carrying amount of the hedged debt.
| EARNINGS EFFECTS OF FAIR VALUE HEDGING RELATIONSHIPS | |||||||||||
| 2014 | 2013 | ||||||||||
| Gain (loss) | Gain (loss) | Gain (loss) | Gain (loss) | ||||||||
| on hedging | on hedged | on hedging | on hedged | ||||||||
| (In millions) | derivatives | items | derivatives | items | |||||||
| Interest rate contracts | $ | 3,898 | $ | (3,973) | $ | (5,258) | $ | 5,180 | |||
| Currency exchange contracts | (19) | 17 | (7) | 6 | |||||||
Fair value hedges resulted in $(77) million and $(79) million of ineffectiveness in 2014 and 2013, respectively. In both 2014 and 2013, there were insignificant amounts excluded from the assessment of effectiveness.
Cash flow hedges
We use interest rate, currency exchange and commodity derivatives to reduce the variability of expected future cash flows associated with variable rate borrowings and commercial purchase and sale transactions, including commodities. For derivatives that are designated in a cash flow hedging relationship, the effective portion of the change in fair value of the derivative is reported as a component of AOCI and reclassified into earnings contemporaneously and in the same caption with the earnings effects of the hedged transaction.
| Gain (loss) reclassified | |||||||||||
| Gain (loss) recognized in AOCI | from AOCI into earnings | ||||||||||
| (In millions) | 2014 | 2013 | 2014 | 2013 | |||||||
| Interest rate contracts | $ | (1) | $ | (26) | $ | (234) | $ | (364) | |||
| Currency exchange contracts | (541) | 941 | (641) | 817 | |||||||
| Commodity contracts | (4) | (6) | (3) | (5) | |||||||
| Total(a) | $ | (546) | $ | 909 | $ | (878) | $ | 448 | |||
(a)\tGain (loss) is recorded in GECC revenues from services, interest and other financial charges, and other costs and expenses when reclassified to earnings.
The total pre-tax amount in AOCI related to cash flow hedges of forecasted transactions was a $213 million loss at December 31, 2014. We expect to transfer $212 million to earnings as an expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. In both 2014 and 2013, we recognized insignificant gains and losses related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At December 31, 2014 and 2013, the maximum term of derivative instruments that hedge forecasted transactions was 18 years and 19 years, respectively. See Note15 for additional information about reclassifications out of AOCI.
For cash flow hedges, the amount of ineffectiveness in the hedging relationship and amount of the changes in fair value of the derivatives that are not included in the measurement of ineffectiveness were insignificant for each reporting period.
\n
Net investment hedges in foreign operations
We use currency exchange derivatives to protect our net investments in global operations conducted in non-U.S. dollar currencies. For derivatives that are designated as hedges of net investment in a foreign operation, we assess effectiveness based on changes in spot currency exchange rates. Changes in spot rates on the derivative are recorded as a component of AOCI until such time as the foreign entity is substantially liquidated or sold, or upon the loss of a controlling interest in a foreign entity. The change in fair value of the forward points, which reflects the interest rate differential between the two countries on the derivative, is excluded from the effectiveness assessment.
| GAINS (LOSSES) RECOGNIZED THROUGH CTA | |||||||||||
| Gain (loss) recognized in CTA | Gain (loss) reclassified from CTA | ||||||||||
| (In millions) | 2014 | 2013 | 2014 | 2013 | |||||||
| Currency exchange contracts(a) | $ | 5,741 | $ | 2,322 | $ | 88 | $ | (1,525) | |||
(a)\tGain (loss) is recorded in GECC revenues from services when reclassified out of AOCI.
The amounts related to the change in the fair value of the forward points that are excluded from the measure of effectiveness were $(549) million and $(678) million for the years ended December 31, 2014 and 2013, respectively, and were recorded in interest and other financial charges.
Free-standing derivatives
Changes in the fair value of derivatives that are not designated as hedges are recorded in earnings each period. As discussed above, these derivatives are typically entered into as economic hedges of changes in interest rates, currency exchange rates, commodity prices and other risks. Gains or losses related to the derivative are typically recorded in GECC revenues from services or other income, based on our accounting policy. In general, the earnings effects of the item that represent the economic risk exposure are recorded in the same caption as the derivative. Gains (losses) for the year ended December 31, 2014 on derivatives not designated as hedges were $(2,045) million composed of amounts related to interest rate contracts of $(58) million, currency exchange contracts of $(2,034) million, and other derivatives of $47 million. These losses were more than offset by the earnings effects from the underlying items that were economically hedged. Gains (losses) for the year ended December 31, 2013 on derivatives not designated as hedges were $(449) million composed of amounts related to interest rate contracts of $(111) million, currency exchange contracts of $(595) million, and other derivatives of $257 million. These losses were more than offset by the earnings effects from the underlying items that were economically hedged.
Counterparty credit risk
Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we net our exposures with that counterparty and apply the value of collateral posted to us to determine the exposure. We actively monitor these net exposures against defined limits and take appropriate actions in response, including requiring additional collateral.
As discussed above, we have provisions in certain of our master agreements that require counterparties to post collateral (typically, cash or U.S. Treasury securities) when our receivable due from the counterparty, measured at current market value, exceeds a specified limit. The fair value of such collateral was $7,070 million at December 31, 2014, of which $3,709 million was cash and $3,361 million was in the form of securities held by a custodian for our benefit. Under certain of these same agreements, we post collateral to our counterparties for our derivative obligations, the fair value of which was $502 million at December 31, 2014. At December 31, 2014, our exposure to counterparties (including accrued interest), net of collateral we hold, was $487 million. This excludes exposure related to embedded derivatives.
Additionally, our master agreements typically contain mutual downgrade provisions that provide the ability of each party to require termination if the long-term credit rating of the counterparty were to fall below A-/A3. In certain of these master agreements, each party also has the ability to require termination if the short-term rating of the counterparty were to fall below A-1/P-1. Our master agreements also typically contain provisions that provide termination rights upon the occurrence of certain other events, such as a bankruptcy or events of default by one of the parties. If an agreement was terminated under any of these circumstances, the termination amount payable would be determined on a net basis and could also take into account any collateral posted. The net amount of our derivative liability, after consideration of collateral posted by us and outstanding interest payments was $514 million at December 31, 2014. This excludes embedded derivatives.
NOTE 23. VARIABLE INTEREST ENTITIES
We use variable interest entities primarily to securitize financial assets and arrange other forms of asset-backed financing in the ordinary course of business. Except as noted below, investors in these entities only have recourse to the assets owned by the entity and not to our general credit. We do not have implicit support arrangements with any VIE. We did not provide non-contractual support for previously transferred financing receivables to any VIE in 2014 or 2013.
In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important.
In determining whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, we evaluate all of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity’s design, including: the entity’s capital structure, contractual rights to earnings (losses), subordination of our interests relative to those of other investors, contingent payments, as well as other contractual arrangements that have the potential to be economically significant. The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment.
\n
Consolidated Variable Interest Entities
We consolidate VIEs because we have the power to direct the activities that significantly affect the VIE’s economic performance, typically because of our role as either servicer or manager for the VIE. Our consolidated VIEs fall into three main groups, which are further described below:
The financing receivables in these entities have similar risks and characteristics to our other financing receivables and were underwritten to the same standard. Accordingly, the performance of these assets has been similar to our other financing receivables; however, the blended performance of the pools of receivables in these entities reflects the eligibility criteria that we apply to determine which receivables are selected for transfer. Contractually the cash flows from these financing receivables must first be used to pay third-party debt holders as well as other expenses of the entity. Excess cash flows are available to GE. The creditors of these entities have no claim on other assets of GE.
| ASSETS AND LIABILITIES OF CONSOLIDATED VIEs | |||||||||||||||||
| Consolidated Securitization Entities | |||||||||||||||||
| Trade | |||||||||||||||||
| (In millions) | Trinity(a) | Credit cards | (b) | Equipment | (b) | receivables | Other | Total | |||||||||
| December 31, 2014 | |||||||||||||||||
| Assets(c) | |||||||||||||||||
| Financing receivables, net | $ | - | $ | 25,645 | $ | 12,843 | $ | - | $ | 3,064 | $ | 41,552 | |||||
| Current receivables | - | - | - | 3,028 | (d) | 509 | 3,537 | ||||||||||
| Investment securities | 2,369 | - | - | - | 1,005 | 3,374 | |||||||||||
| Other assets | 17 | 1,059 | 766 | 2 | 2,814 | 4,658 | |||||||||||
| Total | $ | 2,386 | $ | 26,704 | $ | 13,609 | $ | 3,030 | $ | 7,392 | $ | 53,121 | |||||
| Liabilities(c) | |||||||||||||||||
| Borrowings | $ | - | $ | - | $ | - | $ | - | $ | 523 | $ | 523 | |||||
| Non-recourse borrowings | - | 14,967 | 10,359 | 2,692 | 646 | 28,664 | |||||||||||
| Other liabilities | 1,022 | 332 | 593 | 26 | 1,548 | 3,521 | |||||||||||
| Total | $ | 1,022 | $ | 15,299 | $ | 10,952 | $ | 2,718 | $ | 2,717 | $ | 32,708 | |||||
| December 31, 2013 | |||||||||||||||||
| Assets(c) | |||||||||||||||||
| Financing receivables, net | $ | - | $ | 24,766 | $ | 12,928 | $ | - | $ | 2,044 | $ | 39,738 | |||||
| Current receivables | - | - | - | 2,509 | 349 | 2,858 | |||||||||||
| Investment securities | 2,786 | - | - | - | 1,044 | 3,830 | |||||||||||
| Other assets | 213 | 20 | 557 | - | 2,081 | 2,871 | |||||||||||
| Total | $ | 2,999 | $ | 24,786 | $ | 13,485 | $ | 2,509 | $ | 5,518 | $ | 49,297 | |||||
| Liabilities(c) | |||||||||||||||||
| Borrowings | $ | - | $ | - | $ | - | $ | - | $ | 598 | $ | 598 | |||||
| Non-recourse borrowings | - | 15,363 | 10,982 | 2,180 | 49 | 28,574 | |||||||||||
| Other liabilities | 1,482 | 228 | 248 | 25 | 1,351 | 3,334 | |||||||||||
| Total | $ | 1,482 | $ | 15,591 | $ | 11,230 | $ | 2,205 | $ | 1,998 | $ | 32,506 | |||||
Total revenues from our consolidated VIEs were $8,012 million, $7,540 million and $7,127 million in 2014, 2013 and 2012, respectively. Related expenses consisted primarily of provisions for losses of $1,186 million, $1,247 million and $1,171 million in 2014, 2013 and 2012, respectively, and interest and other financial charges of $358 million, $355 million and $541 million in 2014, 2013 and 2012, respectively. These amounts do not include intercompany revenues and costs, principally fees and interest between GE and the VIEs, which are eliminated in consolidation.
Investments in Unconsolidated Variable Interest Entities
Our involvement with unconsolidated VIEs consists of the following activities: assisting in the formation and financing of the entity; providing recourse and/or liquidity support; servicing the assets; and receiving variable fees for services provided. We are not required to consolidate these entities because the nature of our involvement with the activities of the VIEs does not give us power over decisions that significantly affect their economic performance.
Our largest exposure to any single unconsolidated VIE at December 31, 2014 is a $8,612 million investment in asset-backed securities issued by the Senior Secured Loan Program (“SSLP”), a fund that invests in high-quality senior secured debt of various middle-market companies. Other significant unconsolidated VIEs include investments in real estate entities ($1,564 million), which generally consist of passive limited partnership investments in tax-advantaged, multi-family real estate and investments in various European real estate entities; and exposures to joint ventures that purchase factored receivables ($2,166 million).
The classification of our variable interests in these entities in our financial statements is based on the nature of the entity and the type of investment we hold. Variable interests in partnerships and corporate entities are classified as either equity method or cost method investments. In the ordinary course of business, we also make investments in entities in which we are not the primary beneficiary but may hold a variable interest such as limited partner interests or mezzanine debt investments. These investments are classified in two captions in our financial statements: “All other assets” for investments accounted for under the equity method, and “Financing receivables – net” for debt financing provided to these entities.
| INVESTMENTS IN UNCONSOLIDATED VIEs | |||||||||||
| December 31 (In millions) | 2014 | 2013 | |||||||||
| Other assets and investment securities | $ | 9,500 | $ | 9,129 | |||||||
| Financing receivables – net | 2,942 | 3,346 | |||||||||
| Total investments | 12,442 | 12,475 | |||||||||
| Contractual obligations to fund investments or guarantees | 2,218 | 2,741 | |||||||||
| Revolving lines of credit | 168 | 31 | |||||||||
| Total | $ | 14,828 | $ | 15,247 | |||||||
In addition to the entities included in the table above, we also hold passive investments in RMBS, CMBS and ABS issued by VIEs. Such investments were, by design, investment-grade at issuance and held by a diverse group of investors. Further information about such investments is provided in Note 3.
| (In millions) | 2014 | 2013 | 2012 | |||||
| Interest on loans | $ | 17,324 | $ | 17,951 | $ | 18,843 | ||
| Equipment leased to others | 9,940 | 9,804 | 10,456 | |||||
| Fees | 4,618 | 4,720 | 4,709 | |||||
| Investment income(a) | 2,271 | 1,809 | 2,630 | |||||
| Financing leases | 1,416 | 1,667 | 1,888 | |||||
| Associated companies(b) | 1,182 | 1,809 | 1,538 | |||||
| Premiums earned by insurance activities | 1,509 | 1,573 | 1,715 | |||||
| Real estate investments(c) | 1,727 | 2,528 | 1,709 | |||||
| Other items(a)(d) | 2,617 | 2,080 | 1,757 | |||||
| 42,604 | 43,941 | 45,245 | ||||||
| Eliminations | (1,551) | (1,546) | (1,273) | |||||
| Total | $ | 41,053 | $ | 42,395 | $ | 43,972 | ||
(a)\tIncluded net other-than-temporary impairments on investment securities of $(173) million, $(747) million and $(140) million in 2014, 2013 and 2012, respectively, of which $96 million related to the impairment of an investment in a Brazilian company that was fully offset by the benefit of a guarantee provided by GE reflected as a component in other items for 2013. See Note 3.
(b)\tDuring 2013, we sold our remaining equity interest in the Bank of Ayudhya (Bay Bank) and recorded a pre-tax gain of $641 million. During 2012, we sold our remaining equity interest in Garanti Bank, which was classified as an available-for-sale security.
(c)\tDuring 2013, we sold real estate comprising certain floors located at 30 Rockefeller Center, New York for a pre-tax gain of $902 million.
(d)\tDuring 2014, we sold GEMB-Nordic and recorded a pre-tax gain of $473 million. During 2013, we sold a portion of Cembra through an initial public offering and recorded a pre-tax gain of $351 million.
NOTE 21. FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
Our assets and liabilities measured at fair value on a recurring basis include investment securities primarily supporting obligations to annuitants and policyholders in our run-off insurance operations and supporting obligations to holders of GICs in Trinity and investment securities held in our CLL business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries.
| ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS | ||||||||||||||
| Netting | ||||||||||||||
| (In millions) | Level 1 | (a) | Level 2 | (a) | Level 3 | adjustment | (b) | Net balance | ||||||
| December 31, 2014 | ||||||||||||||
| Assets | ||||||||||||||
| Investment securities | ||||||||||||||
| Debt | ||||||||||||||
| U.S. corporate | $ | - | $ | 20,659 | $ | 3,140 | $ | - | $ | 23,799 | ||||
| State and municipal | - | 5,171 | 578 | - | 5,749 | |||||||||
| Residential mortgage-backed | - | 1,709 | 16 | - | 1,725 | |||||||||
| Commercial mortgage-backed | - | 3,054 | 9 | - | 3,063 | |||||||||
| Asset-backed(c) | - | 343 | 7,575 | - | 7,918 | |||||||||
| Corporate – non-U.S. | - | 681 | 796 | - | 1,477 | |||||||||
| Government – non-U.S. | 56 | 1,738 | 2 | - | 1,796 | |||||||||
| U.S. government and federal agency | - | 1,747 | 266 | - | 2,013 | |||||||||
| Retained interests | - | - | 24 | - | 24 | |||||||||
| Equity | ||||||||||||||
| Available-for-sale | 293 | 19 | 9 | - | 321 | |||||||||
| Trading | 20 | 2 | - | - | 22 | |||||||||
| Derivatives(d) | - | 10,038 | 144 | (7,605) | 2,577 | |||||||||
| Other(e) | - | - | 324 | - | 324 | |||||||||
| Total | $ | 369 | $ | 45,161 | $ | 12,883 | $ | (7,605) | $ | 50,808 | ||||
| Liabilities | ||||||||||||||
| Derivatives | $ | - | $ | 4,971 | $ | 18 | $ | (4,407) | $ | 582 | ||||
| Other(f) | - | 1,180 | - | - | 1,180 | |||||||||
| Total | $ | - | $ | 6,151 | $ | 18 | $ | (4,407) | $ | 1,762 | ||||
| December 31, 2013 | ||||||||||||||
| Assets | ||||||||||||||
| Investment securities | ||||||||||||||
| Debt | ||||||||||||||
| U.S. corporate | $ | - | $ | 18,788 | $ | 2,953 | $ | - | $ | 21,741 | ||||
| State and municipal | - | 4,193 | 96 | - | 4,289 | |||||||||
| Residential mortgage-backed | - | 1,824 | 86 | - | 1,910 | |||||||||
| Commercial mortgage-backed | - | 3,025 | 10 | - | 3,035 | |||||||||
| Asset-backed(c) | - | 489 | 6,898 | - | 7,387 | |||||||||
| Corporate – non-U.S. | 61 | 645 | 1,064 | - | 1,770 | |||||||||
| Government – non-U.S. | 1,590 | 789 | 31 | - | 2,410 | |||||||||
| U.S. government and federal agency | - | 545 | 225 | - | 770 | |||||||||
| Retained interests | - | - | 72 | - | 72 | |||||||||
| Equity | ||||||||||||||
| Available-for-sale | 475 | 31 | 11 | - | 517 | |||||||||
| Trading | 78 | 2 | - | - | 80 | |||||||||
| Derivatives(d) | - | 8,304 | 175 | (6,739) | 1,740 | |||||||||
| Other(e) | - | - | 494 | - | 494 | |||||||||
| Total | $ | 2,204 | $ | 38,635 | $ | 12,115 | $ | (6,739) | $ | 46,215 | ||||
| Liabilities | ||||||||||||||
| Derivatives | $ | - | $ | 5,409 | $ | 20 | $ | (4,355) | $ | 1,074 | ||||
| Other(f) | - | 1,170 | - | - | 1,170 | |||||||||
| Total | $ | - | $ | 6,579 | $ | 20 | $ | (4,355) | $ | 2,244 | ||||
(a)\tIncluded $487 million of Government – non-U.S. and $13 million of Corporate – non-U.S. available-for-sale debt securities transferred from Level 1 to Level 2 primarily attributable to changes in market observable data during 2014. The fair value of securities transferred between Level 1 and Level 2 was $2 million during 2013.
(b)\tThe netting of derivative receivables and payables (including the effects of any collateral posted or received) is permitted when a legally enforceable master netting agreement exists.
(c)\tIncludes investments in our CLL business in asset-backed securities collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries.
(d)\tThe fair value of derivatives includes an adjustment for non-performance risk. The cumulative adjustment was a gain (loss) of $9 million and $(7) million at December 31, 2014 and 2013, respectively. See Note 22 for additional information on the composition of our derivative portfolio.
(e)\tIncludes private equity investments and loans designated under the fair value option.
(f)\tPrimarily represented the liability associated with certain of our deferred incentive compensation plans.
Level 3 Instruments
The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowners’ equity.
| CHANGES IN LEVEL 3 INSTRUMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 | |||||||||||||||||||||||||||
| Net | |||||||||||||||||||||||||||
| change in | |||||||||||||||||||||||||||
| Net | Net | unrealized | |||||||||||||||||||||||||
| realized/ | realized/ | gains | |||||||||||||||||||||||||
| unrealized | unrealized | (losses) | |||||||||||||||||||||||||
| gains | gains | relating to | |||||||||||||||||||||||||
| (losses) | (losses) | Transfers | Transfers | instruments | |||||||||||||||||||||||
| Balance at | included | included | into | out of | Balance at | still held at | |||||||||||||||||||||
| (In millions) | January 1 | in earnings(a) | in AOCI | Purchases | Sales | Settlements | Level 3(b) | Level 3(b) | December 31 | December 31(c) | |||||||||||||||||
| 2014 | |||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||
| Debt | |||||||||||||||||||||||||||
| U.S. corporate | $ | 2,953 | $ | 22 | $ | 121 | $ | 550 | $ | (234) | $ | (284) | $ | 175 | $ | (163) | $ | 3,140 | $ | - | |||||||
| State and municipal | 96 | - | 38 | 18 | (36) | (10) | 472 | - | 578 | - | |||||||||||||||||
| RMBS | 86 | - | 2 | - | (16) | (9) | - | (47) | 16 | - | |||||||||||||||||
| CMBS | 10 | - | - | - | - | (3) | 2 | - | 9 | - | |||||||||||||||||
| ABS | 6,898 | 3 | (206) | 2,249 | - | (1,359) | - | (10) | 7,575 | - | |||||||||||||||||
| Corporate – non-U.S. | 1,064 | 30 | 3 | 1,019 | (269) | (1,033) | 1 | (19) | 796 | - | |||||||||||||||||
| Government – non-U.S. | 31 | - | - | - | - | - | 2 | (31) | 2 | - | |||||||||||||||||
| U.S. government and | |||||||||||||||||||||||||||
| federal agency | 225 | - | 34 | - | - | - | 9 | (2) | 266 | - | |||||||||||||||||
| Retained interests | 72 | 29 | (4) | 3 | (66) | (10) | - | - | 24 | - | |||||||||||||||||
| Equity | |||||||||||||||||||||||||||
| Available-for-sale | 11 | - | - | 2 | (2) | - | - | (2) | 9 | - | |||||||||||||||||
| Derivatives(d)(e) | 164 | 60 | 1 | 5 | - | (93) | 2 | (1) | 138 | (26) | |||||||||||||||||
| Other | 494 | 86 | - | 646 | (617) | (6) | - | (279) | 324 | 73 | |||||||||||||||||
| Total | $ | 12,104 | $ | 230 | $ | (11) | $ | 4,492 | $ | (1,240) | $ | (2,807) | $ | 663 | $ | (554) | $ | 12,877 | $ | 47 | |||||||
| 2013 | |||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||
| Debt | |||||||||||||||||||||||||||
| U.S. corporate | $ | 3,591 | $ | (497) | $ | 135 | $ | 380 | $ | (424) | $ | (231) | $ | 108 | $ | (109) | $ | 2,953 | $ | - | |||||||
| State and municipal | 77 | - | (7) | 21 | - | (5) | 10 | - | 96 | - | |||||||||||||||||
| RMBS | 100 | - | (5) | - | (2) | (7) | - | - | 86 | - | |||||||||||||||||
| CMBS | 6 | - | - | - | - | (6) | 10 | - | 10 | - | |||||||||||||||||
| ABS | 5,023 | 5 | 32 | 2,632 | (4) | (795) | 12 | (7) | 6,898 | - | |||||||||||||||||
| Corporate – non-U.S. | 1,218 | (103) | 49 | 5,814 | (3) | (5,874) | 21 | (58) | 1,064 | - | |||||||||||||||||
| Government – non-U.S. | 42 | 1 | (12) | - | - | - | - | - | 31 | - | |||||||||||||||||
| U.S. government and | |||||||||||||||||||||||||||
| federal agency | 277 | - | (52) | - | - | - | - | - | 225 | - | |||||||||||||||||
| Retained interests | 83 | 3 | 1 | 6 | - | (21) | - | - | 72 | - | |||||||||||||||||
| Equity | |||||||||||||||||||||||||||
| Available-for-sale | 13 | - | - | - | - | - | - | (2) | 11 | - | |||||||||||||||||
| Derivatives(d)(e) | 416 | 43 | 2 | (2) | - | (335) | 37 | 3 | 164 | (30) | |||||||||||||||||
| Other | 799 | (68) | 12 | 538 | (779) | - | 4 | (12) | 494 | (102) | |||||||||||||||||
| Total | $ | 11,645 | $ | (616) | $ | 155 | $ | 9,389 | $ | (1,212) | $ | (7,274) | $ | 202 | $ | (185) | $ | 12,104 | $ | (132) | |||||||
\n
Non-Recurring Fair Value Measurements
The following table represents non-recurring fair value amounts (as measured at the time of the adjustment) for those assets remeasured to fair value on a non-recurring basis during the fiscal year and still held at December 31, 2014 and 2013.
| Remeasured during the years ended December 31 | |||||||||||
| 2014 | 2013 | ||||||||||
| (In millions) | Level 2 | Level 3 | Level 2 | Level 3 | |||||||
| Financing receivables and loans held for sale | $ | 49 | $ | 1,430 | $ | 210 | $ | 2,986 | |||
| Cost and equity method investments(a) | 11 | 404 | - | 690 | |||||||
| Long-lived assets, including real estate | 364 | 1,253 | 2,050 | 1,088 | |||||||
| Total | $ | 424 | $ | 3,087 | $ | 2,260 | $ | 4,764 | |||
The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at December 31, 2014 and 2013.
| Years ended December 31 | |||||||||||
| (In millions) | 2014 | 2013 | |||||||||
| Financing receivables and loans held for sale | $ | (317) | $ | (361) | |||||||
| Cost and equity method investments | (388) | (484) | |||||||||
| Long-lived assets, including real estate | (794) | (1,188) | |||||||||
| Total | $ | (1,499) | $ | (2,033) | |||||||
| LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS | |||||||||
| Range | |||||||||
| (Dollars in millions) | Fair value | Valuation technique | Unobservable inputs | (weighted average) | |||||
| December 31, 2014 | |||||||||
| Recurring fair value measurements | |||||||||
| Investment securities – Debt | |||||||||
| U.S. corporate | $ | 980 | Income approach | Discount rate(a) | 1.5%-14.8% (6.6%) | ||||
| State and municipal | 481 | Income approach | Discount rate(a) | 1.9%-5.9% (2.8%) | |||||
| Asset-backed | 7,554 | Income approach | Discount rate(a) | 2.2%-12.4% (5.0%) | |||||
| Corporate – non-U.S. | 724 | Income approach | Discount rate(a) | 0.4%-14.7% (7.6%) | |||||
| Other financial assets | 165 | Income approach, | EBITDA multiple | 5.4X-9.1X (7.7X) | |||||
| Market comparables | Discount rate(a) | 4.2%-4.7% (4.3%) | |||||||
| Capitalization rate(b) | 6.5%-7.8% (7.7%) | ||||||||
| Non-recurring fair value measurements | |||||||||
| Financing receivables and | $ | 666 | Income approach, | Capitalization rate(b) | 6.9%-11.0% (7.8%) | ||||
| loans held for sale | Business enterprise | EBITDA multiple | 4.3X-6.5X (6.2X) | ||||||
| value | |||||||||
| Cost and equity method investments | 346 | Income approach, | Discount rate(a) | 8.0%-10.0% (9.4%) | |||||
| Business enterprise | Capitalization rate(b) | 6.4%-6.4% (6.4%) | |||||||
| value, Market comparables | EBITDA multiple | 1.8X-10.5X (7.0X) | |||||||
| Long-lived assets, including real estate | 932 | Income approach | Capitalization rate(b) | 6.3%-15.3% (6.8%) | |||||
| Discount rate(a) | 2.0%-19.0% (6.8%) | ||||||||
| December 31, 2013 | |||||||||
| Recurring fair value measurements | |||||||||
| Investment securities – Debt | |||||||||
| U.S. corporate | $ | 898 | Income approach | Discount rate(a) | 1.5%-13.3% (6.5%) | ||||
| Asset-backed | 6,854 | Income approach | Discount rate(a) | 1.2%-10.5%(3.7%) | |||||
| Corporate – non-U.S. | 819 | Income approach | Discount rate(a) | 1.4%-46.0%(15.1%) | |||||
| Other financial assets | 381 | Income approach, | WACC(c) | 9.3%-9.3% (9.3%) | |||||
| Market comparables | EBITDA multiple | 5.4X-12.5X(9.5X) | |||||||
| Discount rate(a) | 5.2%-8.8%(5.3%) | ||||||||
| Capitalization rate(b) | 6.3%-7.5%(7.2%) | ||||||||
| Non-recurring fair value measurements | |||||||||
| Financing receivables and | $ | 1,937 | Income approach, | Capitalization rate(b) | 5.5%-16.7%(8.0%) | ||||
| loans held for sale | Business enterprise | EBITDA multiple | 4.3X-5.5X(4.8X) | ||||||
| value | Discount rate(a) | 6.6%-6.6% (6.6%) | |||||||
| Cost and equity method investments | 102 | Income approach, | Discount rate(a) | 5.7%-5.9%(5.8%) | |||||
| Market comparables | Capitalization rate(b) | 8.5%-10.6% (10.0%) | |||||||
| WACC(c) | 9.3%-9.6%(9.4%) | ||||||||
| EBITDA multiple | 7.1X-14.5X(11.3X) | ||||||||
| Revenue multiple | 2.2X-12.6X(9.4X) | ||||||||
| Long-lived assets, including real estate | 694 | Income approach | Capitalization rate(b) | 5.4%-14.5%(7.8%) | |||||
| Discount rate(a) | 4.0%-23.0%(9.0%) | ||||||||
At December 31, 2014 and 2013, other Level 3 recurring fair value measurements of $2,694 million and $2,816 million, respectively, and non-recurring measurements of $1,035 million and $1,460 million, respectively, are valued using non-binding broker quotes or other third-party sources. At December 31, 2014 and 2013, other recurring fair value measurements of $267 million and $327 million, respectively, and non-recurring fair value measurements of $108 million and $571 million, respectively, were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation.
| FAIR VALUE OF DERIVATIVES | |||||||||||
| 2014 | 2013 | ||||||||||
| December 31 (In millions) | Assets | Liabilities | Assets | Liabilities | |||||||
| Derivatives accounted for as hedges | |||||||||||
| Interest rate contracts | $ | 5,859 | $ | 461 | $ | 3,837 | $ | 1,989 | |||
| Currency exchange contracts | 2,579 | 884 | 1,830 | 984 | |||||||
| Other contracts | - | 2 | 1 | - | |||||||
| 8,438 | 1,347 | 5,668 | 2,973 | ||||||||
| Derivatives not accounted for as hedges | |||||||||||
| Interest rate contracts | 276 | 137 | 270 | 169 | |||||||
| Currency exchange contracts | 1,212 | 3,450 | 2,257 | 2,245 | |||||||
| Other contracts | 256 | 55 | 284 | 42 | |||||||
| 1,744 | 3,642 | 2,811 | 2,456 | ||||||||
| Gross derivatives recognized in statement of | |||||||||||
| financial position | |||||||||||
| Gross derivatives | 10,182 | 4,989 | 8,479 | 5,429 | |||||||
| Gross accrued interest | 1,401 | (18) | 1,227 | 241 | |||||||
| 11,583 | 4,971 | 9,706 | 5,670 | ||||||||
| Amounts offset in statement of financial position | |||||||||||
| Netting adjustments(a) | (3,896) | (3,905) | (4,120) | (4,113) | |||||||
| Cash collateral(b) | (3,709) | (502) | (2,619) | (242) | |||||||
| (7,605) | (4,407) | (6,739) | (4,355) | ||||||||
| Net derivatives recognized in statement of | |||||||||||
| financial position | |||||||||||
| Net derivatives | 3,978 | 564 | 2,967 | 1,315 | |||||||
| Amounts not offset in statement of | |||||||||||
| financial position | |||||||||||
| Securities held as collateral(c) | (3,361) | - | (1,962) | - | |||||||
| Net amount | $ | 617 | $ | 564 | $ | 1,005 | $ | 1,315 | |||
Derivatives are classified in the captions “All other assets” and “All other liabilities” and the related accrued interest is classified in “Other GECC receivables” and “All other liabilities” in our financial statements.
NOTE 27. SUPPLEMENTAL INFORMATION ABOUT THE CREDIT QUALITY OF FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
Credit Quality Indicators
Detailed information about the credit quality of our Commercial, Real Estate and Consumer financing receivables portfolios is provided below. For each portfolio, we describe the characteristics of the financing receivables and provide information about collateral, payment performance, credit quality indicators and impairment. We manage these portfolios using delinquency and nonaccrual data as key performance indicators. The categories used within this section such as impaired loans, troubled debt restructuring (TDR) and nonaccrual financing receivables are defined by the authoritative guidance and we base our categorization on the related scope and definitions contained in the related standards. The categories of nonaccrual and delinquent are used in our process for managing our financing receivables.
| PAST DUE AND NONACCRUAL FINANCING RECEIVABLES | ||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||
| Over 30 days | Over 90 days | Over 30 days | Over 90 days | |||||||||||||||
| December 31 (In millions) | past due | past due | Nonaccrual | past due | past due | Nonaccrual | ||||||||||||
| Commercial | ||||||||||||||||||
| CLL | ||||||||||||||||||
| Americas | $ | 503 | $ | 284 | $ | 1,054 | $ | 755 | $ | 359 | $ | 1,275 | ||||||
| International | 1,483 | 749 | 946 | 1,490 | 820 | 1,459 | ||||||||||||
| Total CLL | 1,986 | 1,033 | 2,000 | 2,245 | 1,179 | 2,734 | ||||||||||||
| Energy Financial Services | - | - | 68 | - | - | 4 | ||||||||||||
| GECAS | - | - | 419 | - | - | - | ||||||||||||
| Other | - | - | - | - | - | 6 | ||||||||||||
| Total Commercial | 1,986 | 1,033 | 2,487 | (a) | 2,245 | 1,179 | 2,744 | (a) | ||||||||||
| Real Estate | 242 | 183 | 1,254 | (b) | 247 | 212 | 2,551 | (b) | ||||||||||
| Consumer | ||||||||||||||||||
| Non-U.S. residential mortgages | 2,171 | 1,195 | 1,262 | 3,406 | 2,104 | 2,161 | ||||||||||||
| Non-U.S. installment and revolving credit | 333 | 89 | 53 | 601 | 159 | 106 | ||||||||||||
| U.S. installment and revolving credit | 2,492 | 1,147 | 2 | 2,442 | 1,105 | 2 | ||||||||||||
| Other | 141 | 64 | 167 | 172 | 99 | 351 | ||||||||||||
| Total Consumer | 5,137 | 2,495 | (c) | 1,484 | (d) | 6,621 | 3,467 | (c) | 2,620 | (d) | ||||||||
| Total | $ | 7,365 | $ | 3,711 | $ | 5,225 | $ | 9,113 | $ | 4,858 | $ | 7,915 | ||||||
| Total as a percent of financing receivables | 3.0 | % | 1.5 | % | 2.2 | % | 3.5 | % | 1.9 | % | 3.1 | % | ||||||
| IMPAIRED LOANS AND RELATED RESERVES | ||||||||||||||||||||
| With no specific allowance | With a specific allowance | |||||||||||||||||||
| Recorded | Unpaid | Average | Recorded | Unpaid | Average | |||||||||||||||
| investment | principal | investment | investment | principal | Associated | investment | ||||||||||||||
| December 31 (In millions) | in loans | balance | in loans | in loans | balance | allowance | in loans | |||||||||||||
| 2014 | ||||||||||||||||||||
| Commercial | ||||||||||||||||||||
| CLL | ||||||||||||||||||||
| Americas | $ | 1,352 | $ | 1,897 | $ | 1,626 | $ | 126 | $ | 160 | $ | 28 | $ | 254 | ||||||
| International(a) | 940 | 2,500 | 1,099 | 280 | 965 | 105 | 463 | |||||||||||||
| Total CLL | 2,292 | 4,397 | 2,725 | 406 | 1,125 | 133 | 717 | |||||||||||||
| Energy Financial Services | 53 | 54 | 26 | 15 | 15 | 12 | 24 | |||||||||||||
| GECAS | 329 | 337 | 88 | - | - | - | 15 | |||||||||||||
| Other | - | - | - | - | - | - | 1 | |||||||||||||
| Total Commercial(b) | 2,674 | 4,788 | 2,839 | 421 | 1,140 | 145 | 757 | |||||||||||||
| Real Estate(c) | 1,555 | 1,854 | 2,285 | 317 | 443 | 25 | 686 | |||||||||||||
| Consumer(d) | 138 | 179 | 120 | 2,042 | 2,092 | 408 | 2,547 | |||||||||||||
| Total | $ | 4,367 | $ | 6,821 | $ | 5,244 | $ | 2,780 | $ | 3,675 | $ | 578 | $ | 3,990 | ||||||
| 2013 | ||||||||||||||||||||
| Commercial | ||||||||||||||||||||
| CLL | ||||||||||||||||||||
| Americas | $ | 1,670 | $ | 2,187 | $ | 2,154 | $ | 417 | $ | 505 | $ | 96 | $ | 509 | ||||||
| International(a) | 1,104 | 3,082 | 1,136 | 691 | 1,059 | 231 | 629 | |||||||||||||
| Total CLL | 2,774 | 5,269 | 3,290 | 1,108 | 1,564 | 327 | 1,138 | |||||||||||||
| Energy Financial Services | - | - | - | 4 | 4 | 1 | 2 | |||||||||||||
| GECAS | - | - | - | - | - | - | 1 | |||||||||||||
| Other | 2 | 3 | 9 | 4 | 4 | - | 5 | |||||||||||||
| Total Commercial(b) | 2,776 | 5,272 | 3,299 | 1,116 | 1,572 | 328 | 1,146 | |||||||||||||
| Real Estate(c) | 2,615 | 3,036 | 3,058 | 1,245 | 1,507 | 74 | 1,688 | |||||||||||||
| Consumer(d) | 109 | 153 | 98 | 2,879 | 2,948 | 567 | 3,058 | |||||||||||||
| Total | $ | 5,500 | $ | 8,461 | $ | 6,455 | $ | 5,240 | $ | 6,027 | $ | 969 | $ | 5,892 | ||||||
| December 31 (In millions) | Non-impaired financing receivables | General reserves | Impaired loans | Specific reserves | |||||||
| 2014 | |||||||||||
| Commercial | $ | 118,381 | $ | 758 | $ | 3,095 | $ | 145 | |||
| Real Estate | 17,925 | 136 | 1,872 | 25 | |||||||
| Consumer | 98,640 | 3,603 | 2,180 | 408 | |||||||
| Total | $ | 234,946 | $ | 4,497 | $ | 7,147 | $ | 578 | |||
| 2013 | |||||||||||
| Commercial | $ | 125,377 | $ | 677 | $ | 3,892 | $ | 328 | |||
| Real Estate | 16,039 | 118 | 3,860 | 74 | |||||||
| Consumer | 106,051 | 3,414 | 2,988 | 567 | |||||||
| Total | $ | 247,467 | $ | 4,209 | $ | 10,740 | $ | 969 | |||
We regularly review our Real Estate loans for impairment using both quantitative and qualitative factors, such as debt service coverage and loan-to-value ratios. We evaluate a Real Estate loan for impairment when the most recent valuation reflects a projected loan-to-value ratio at maturity in excess of 100%, even if the loan is currently paying in accordance with its contractual terms.
Of our $1,872 million of impaired loans at Real Estate at December 31, 2014, $1,641 million are currently paying in accordance with the contractual terms of the loan and are typically loans where the borrower has adequate debt service coverage to meet contractual interest obligations. Impaired loans at CLL primarily represent senior secured lending positions.
| IMPAIRED LOAN BALANCE CLASSIFIED BY THE METHOD USED TO MEASURE IMPAIRMENT | |||||||||||
| December 31 (In millions) | 2014 | 2013 | |||||||||
| Discounted cash flow | $ | 3,994 | $ | 5,558 | |||||||
| Collateral value | 3,153 | 5,182 | |||||||||
| Total | $ | 7,147 | $ | 10,740 | |||||||
Our loss mitigation strategy is intended to minimize economic loss and, at times, can result in rate reductions, principal forgiveness, extensions, forbearance or other actions, which may cause the related loan to be classified as a troubled debt restructuring (TDR), and also as impaired. The determination of whether these changes to the terms and conditions of our commercial loans meet the TDR criteria includes our consideration of all relevant facts and circumstances. At December 31, 2014, TDRs included in impaired loans were $5,806 million, primarily relating to Consumer ($2,132 million), CLL ($1,869 million) and Real Estate ($1,757 million).
Impaired loans classified as TDRs in our CLL business were $1,869 million and $2,961 million at December 31, 2014 and 2013, respectively, and were primarily attributable to CLL Americas ($1,031 million and $1,770 million, respectively). At December 31, 2014, we modified $926 million of loans classified as TDRs, primarily in CLL Americas ($515 million). Changes to these loans primarily included extensions, interest only payment periods, debt to equity exchange and forbearance or other actions, which are in addition to, or sometimes in lieu of, fees and rate increases. Of our $926 million and $1,509 million of modifications classified as TDRs at December 31, 2014 and 2013, respectively, $36 million and $71 million have subsequently experienced a payment default at December 31, 2014 and 2013, respectively.
Real Estate TDRs decreased from $3,625 million at December 31, 2013 to $1,757 million at December 31, 2014, primarily driven by resolution of TDRs through paydowns. For borrowers with demonstrated operating capabilities, we work to restructure loans when the cash flow and projected value of the underlying collateral support repayment over the modified term. We deem loan modifications to be TDRs when we have granted a concession to a borrower experiencing financial difficulty and we do not receive adequate compensation in the form of an effective interest rate that is at current market rates of interest given the risk characteristics of the loan or other consideration that compensates us for the value of the concession. The limited liquidity and higher return requirements in the real estate market for loans with higher loan-to-value (LTV) ratios has typically resulted in the conclusion that the modified terms are not at current market rates of interest, even if the modified loans are expected to be fully recoverable. For the year ended December 31, 2014, we modified $672 million of loans classified as TDRs. Changes to these loans primarily included forbearance, maturity extensions and changes to collateral or covenant terms or other actions, which are in addition to, or sometimes in lieu of, fees and rate increases. We received the same or additional compensation in the form of rate increases and fees for the majority of these TDRs. Of our $672 million and $1,595 million of modifications classified as TDRs during 2014 and 2013, respectively, $252 million and $197 million have subsequently experienced a payment default in 2014 and 2013, respectively.
The substantial majority of the Real Estate TDRs have reserves determined based upon collateral value. Our specific reserves on Real Estate TDRs were $25 million and $70 million and were 1.4% and 1.9%, of Real Estate TDRs, respectively, at December 31, 2014 and 2013. In many situations these loans did not require a specific reserve as collateral value adequately covered our recorded investment in the loan. While these modified loans had adequate collateral coverage, we were still required to complete our TDR classification evaluation on each of the modifications without regard to collateral adequacy.
Impaired loans in our Consumer business represent restructured smaller balance homogeneous loans meeting the definition of a TDR, and are therefore subject to the disclosure requirement for impaired loans, and commercial loans in our Consumer–Other portfolio. The recorded investment of these impaired loans totaled $2,180 million (with an unpaid principal balance of $2,271 million) and comprised $138 million with no specific allowance, primarily all in our Consumer–Other portfolio, and $2,042 million with a specific allowance of $408 million at December 31, 2014. The impaired loans with a specific allowance included $70 million with a specific allowance of $7 million in our Consumer–Other portfolio and $1,972 million with a specific allowance of $401 million across the remaining Consumer business and had an unpaid principal balance and average investment of $2,092 million and $2,547 million, respectively, at December 31, 2014.
\n
Impaired loans classified as TDRs in our Consumer business were $2,132 million and $2,874 million at December 31, 2014 and 2013, respectively. We utilize certain loan modification programs for borrowers experiencing financial difficulties in our Consumer loan portfolio. These loan modification programs primarily include interest rate reductions and payment deferrals in excess of three months, which were not part of the terms of the original contract, and are primarily concentrated in our non-U.S. residential mortgage and U.S. credit card portfolios. For the year ended December 31, 2014, we modified $981 million of consumer loans for borrowers experiencing financial difficulties, which are classified as TDRs, and included $506 million of non-U.S. consumer loans, primarily residential mortgages, credit cards and personal loans and $475 million of U.S. consumer loans, primarily credit cards. We expect borrowers whose loans have been modified under these programs to continue to be able to meet their contractual obligations upon the conclusion of the modification. Of our $981 million and $1,441 million of modifications classified as TDRs during 2014 and 2013, respectively, $102 million and $266 million have subsequently experienced a payment default in 2014 and 2013, respectively.
We also utilize certain short-term (three months or less) loan modification programs for borrowers experiencing temporary financial difficulties in our Consumer loan portfolio, which are not classified as TDRs. These loan modification programs are primarily concentrated in our non-U.S. residential mortgage and non-U.S. installment and revolving portfolios. We sold our U.S. residential mortgage business in 2007 and, as such, do not participate in the U.S. government-sponsored mortgage modification programs. For the year ended December 31, 2014, we provided short-term modifications of $45 million of consumer loans for borrowers experiencing financial difficulties, substantially all in our non-U.S. residential mortgage, credit card and personal loan portfolios. For these modified loans, we provided insignificant interest rate reductions and payment deferrals, which were not part of the terms of the original contract. We expect borrowers whose loans have been modified under these short-term programs to continue to be able to meet their contractual obligations upon the conclusion of the short-term modification.
Supplemental Credit Quality Information
Commercial
Substantially all of our Commercial financing receivables portfolio is secured lending and we assess the overall quality of the portfolio based on the potential risk of loss measure. The metric incorporates both the borrower’s credit quality along with any related collateral protection.
Our internal risk ratings process is an important source of information in determining our allowance for losses and represents a comprehensive approach to evaluate risk in our financing receivables portfolios. In deriving our internal risk ratings, we stratify our Commercial portfolios into 21 categories of default risk and/or six categories of loss given default to group into three categories: A, B and C. Our process starts by developing an internal risk rating for our borrowers, which is based upon our proprietary models using data derived from borrower financial statements, agency ratings, payment history information, equity prices and other commercial borrower characteristics. We then evaluate the potential risk of loss for the specific lending transaction in the event of borrower default, which takes into account such factors as applicable collateral value, historical loss and recovery rates for similar transactions, and our collection capabilities. Our internal risk ratings process and the models we use are subject to regular monitoring and internal controls. The frequency of rating updates is set by our credit risk policy, which requires annual Risk Committee approval.
As described above, financing receivables are assigned one of 21 risk ratings based on our process and then these are grouped by similar characteristics into three categories in the table below. Category A is characterized by either high-credit-quality borrowers or transactions with significant collateral coverage that substantially reduces or eliminates the risk of loss in the event of borrower default. Category B is characterized by borrowers with weaker credit quality than those in Category A, or transactions with moderately strong collateral coverage that minimizes but may not fully mitigate the risk of loss in the event of default. Category C is characterized by borrowers with higher levels of default risk relative to our overall portfolio or transactions where collateral coverage may not fully mitigate a loss in the event of default.
| COMMERCIAL FINANCING RECEIVABLES BY RISK CATEGORY | |||||||||||
| Secured | |||||||||||
| December 31 (In millions) | A | B | C | Total | |||||||
| 2014 | |||||||||||
| CLL | |||||||||||
| Americas | $ | 63,754 | $ | 1,549 | $ | 1,443 | $ | 66,746 | |||
| International | 41,476 | 474 | 891 | 42,841 | |||||||
| Total CLL | 105,230 | 2,023 | 2,334 | 109,587 | |||||||
| Energy Financial Services | 2,479 | 60 | 16 | 2,555 | |||||||
| GECAS | 7,908 | 237 | 118 | 8,263 | |||||||
| Other | 130 | - | - | 130 | |||||||
| Total | $ | 115,747 | $ | 2,320 | $ | 2,468 | $ | 120,535 | |||
| 2013 | |||||||||||
| CLL | |||||||||||
| Americas | $ | 65,545 | $ | 1,587 | $ | 1,554 | $ | 68,686 | |||
| International | 44,930 | 619 | 1,237 | 46,786 | |||||||
| Total CLL | 110,475 | 2,206 | 2,791 | 115,472 | |||||||
| Energy Financial Services | 2,969 | 9 | - | 2,978 | |||||||
| GECAS | 9,175 | 50 | 152 | 9,377 | |||||||
| Other | 318 | - | - | 318 | |||||||
| Total | $ | 122,937 | $ | 2,265 | $ | 2,943 | $ | 128,145 | |||
For our secured financing receivables portfolio, our collateral position and ability to work out problem accounts mitigate our losses. Our asset managers have deep industry expertise that enables us to identify the optimum approach to default situations. We price risk premiums for weaker credits at origination, closely monitor changes in creditworthiness through our risk ratings and watch list process, and are engaged early with deteriorating credits to minimize economic loss. Secured financing receivables within risk Category C are predominantly in our CLL businesses and are primarily composed of senior term lending facilities and factoring programs secured by various asset types including inventory, accounts receivable, cash, equipment and related business facilities as well as franchise finance activities secured by underlying equipment.
Loans within Category C are reviewed and monitored regularly, and classified as impaired when it is probable that they will not pay in accordance with contractual terms. Our internal risk rating process identifies credits warranting closer monitoring; and as such, these loans are not necessarily classified as nonaccrual or impaired.
Our unsecured Commercial financing receivables portfolio is primarily attributable to our Interbanca S.p.A. and GE Sanyo Credit acquisitions in CLL International. At December 31, 2014 and 2013, these financing receivables included $332 million and $313 million rated A, $408 million and $580 million rated B, and $201 million and $231 million rated C, respectively.
Real Estate
Due to the primarily non-recourse nature of our Debt portfolio, loan-to-value ratios (the ratio of the outstanding debt on a property to the re-indexed value of that property) provide the best indicators of the credit quality of the portfolio.
| Loan-to-value ratio | |||||||||||||||||
| 2014 | 2013 | ||||||||||||||||
| Less than | 80% to | Greater than | Less than | 80% to | Greater than | ||||||||||||
| December 31 (In millions) | 80% | 95% | 95% | 80% | 95% | 95% | |||||||||||
| Debt | $ | 16,915 | $ | 1,175 | $ | 958 | $ | 15,576 | $ | 1,300 | $ | 2,111 | |||||
The credit quality of the owner occupied/credit tenant portfolio is primarily influenced by the strength of the borrower’s general credit quality, which is reflected in our internal risk rating process, consistent with the process we use for our Commercial portfolio. As of December 31, 2014, the balances of our owner occupied/credit tenant portfolio with an internal risk rating of A, B and C approximated $589 million, $70 million and $90 million, respectively, as compared to the December 31, 2013, balances of $571 million, $179 million and $162 million, respectively.
The financing receivables within our Debt portfolio are primarily concentrated in our North American and European Lending platforms and are secured by various property types. A substantial majority of our Debt financing receivables with loan-to-value ratios greater than 95% are paying in accordance with contractual terms. Substantially all of these loans and the majority of our owner occupied/credit tenant financing receivables included in Category C are impaired loans that are subject to the specific reserve evaluation process. The ultimate recoverability of impaired loans is driven by collection strategies that do not necessarily depend on the sale of the underlying collateral and include full or partial repayments through third-party refinancing and restructurings.
Consumer
At December 31, 2014, our U.S. consumer financing receivables included private-label credit card and sales financing for approximately 64 million customers across the U.S. with no metropolitan area accounting for more than 6% of the portfolio. Of the total U.S. consumer financing receivables, approximately 67% relate to credit card loans that are often subject to profit and loss sharing arrangements with the retailer (which are recorded in revenues), and the remaining 33% are sales finance receivables that provide financing to customers in areas such as electronics, recreation, medical and home improvement.
Our Consumer financing receivables portfolio comprises both secured and unsecured lending. Secured financing receivables comprise residential loans and lending to small and medium-sized enterprises predominantly secured by auto and equipment, inventory finance, and cash flow loans. Unsecured financing receivables include private-label credit card financing. A substantial majority of these cards are not for general use and are limited to the products and services sold by the retailer. The private-label portfolio is diverse with no metropolitan area accounting for more than 5% of the related portfolio.
Non-U.S. residential mortgages
For our secured non-U.S. residential mortgage book, we assess the overall credit quality of the portfolio through loan-to-value ratios (the ratio of the outstanding debt on a property to the value of that property at origination). In the event of default and repossession of the underlying collateral, we have the ability to remarket and sell the properties to eliminate or mitigate the potential risk of loss.
| Loan-to-value ratio | |||||||||||||||||
| 2014 | 2013 | ||||||||||||||||
| 80% or | Greater than | Greater than | 80% or | Greater than | Greater than | ||||||||||||
| December 31 (In millions) | less | 80% to 90% | 90% | less | 80% to 90% | 90% | |||||||||||
| Non-U.S. residential mortgages | $ | 13,964 | $ | 4,187 | $ | 6,742 | $ | 17,224 | $ | 5,130 | $ | 8,147 | |||||
The majority of these financing receivables are in our U.K. and France portfolios and have re-indexed loan-to-value ratios of 70% and 55%, respectively. Re-indexed loan-to-value ratios may not reflect actual realizable values of future repossessions. We have third-party mortgage insurance for about 21% of the balance of Consumer non-U.S. residential mortgage loans with loan-to-value ratios greater than 90% at December 31, 2014. Such loans were primarily originated in France and the U.K.
Installment and Revolving Credit
We assess overall credit quality using internal and external credit scores. For our U.S. installment and revolving credit portfolio we use Fair Isaac Corporation (“FICO”) scores. FICO scores are generally obtained at origination of the account and are refreshed at a minimum quarterly, but could be as often as weekly, to assist in predicting customer behavior. We categorize these credit scores into the following three categories; (a) 661 or higher, which are considered the strongest credits; (b) 601 to 660, which are considered moderate credit risk; and (c) 600 or less, which are considered weaker credits.
| Refreshed FICO score | |||||||||||||||||
| 2014 | 2013 | ||||||||||||||||
| 661 or | 601 to | 600 or | 661 or | 601 to | 600 or | ||||||||||||
| December 31 (In millions) | higher | 660 | less | higher | 660 | less | |||||||||||
| U.S. installment and | |||||||||||||||||
| revolving credit | $ | 43,466 | $ | 11,865 | $ | 4,532 | $ | 40,079 | $ | 11,142 | $ | 4,633 | |||||
For our non-U.S. installment and revolving credit, our internal credit scores imply a probability of default that we consistently translate into three approximate credit bureau equivalent credit score categories, including (a) 671 or higher, which are considered the strongest credits; (b) 626 to 670, which are considered moderate credit risk; and (c) 625 or less, which are considered weaker credits.
| Internal ratings translated to approximate credit bureau equivalent score | |||||||||||||||||
| 2014 | 2013 | ||||||||||||||||
| 671 or | 626 to | 625 or | 671 or | 626 to | 625 or | ||||||||||||
| December 31 (In millions) | higher | 670 | less | higher | 670 | less | |||||||||||
| Non-U.S. installment and | |||||||||||||||||
| revolving credit | $ | 6,599 | $ | 2,045 | $ | 1,756 | $ | 9,705 | $ | 3,228 | $ | 2,798 | |||||
U.S. installment and revolving credit accounts with FICO scores of 600 or less and non U.S. installment and revolving credit accounts with credit bureau equivalent scores of 625 or less have an average outstanding balance less than one thousand U.S. dollars and are primarily concentrated in our retail card and sales finance receivables in the U.S. and closed-end loans outside the U.S., which minimizes the potential for loss in the event of default. For lower credit scores, we adequately price for the incremental risk at origination and monitor credit migration through our risk ratings process. We continuously adjust our credit line underwriting management and collection strategies based on customer behavior and risk profile changes.
\t
Consumer – Other
We develop our internal risk ratings for this portfolio in a manner consistent with the process used to develop our Commercial credit quality indicators, described above. We use the borrower’s credit quality and underlying collateral strength to determine the potential risk of loss from these activities.
At December 31, 2014, Consumer – Other financing receivables of $5,006 million, $276 million and $382 million were rated A, B and C, respectively. At December 31, 2013, Consumer – Other financing receivables of $6,137 million, $315 million and $501 million were rated A, B and C, respectively.
| RECLASSIFICATION OUT OF AOCI | ||||||||||
| (In millions) | 2014 | 2013 | 2012 | Statement of Earnings Caption | ||||||
| Available-for-sale securities | ||||||||||
| Realized gains (losses) on | ||||||||||
| sale/impairment of securities | $ | (230) | $ | (540) | $ | (35) | Other income | |||
| 84 | 222 | 13 | Benefit (provision) for income taxes | |||||||
| $ | (146) | $ | (318) | $ | (22) | Net of tax | ||||
| Currency translation adjustments | ||||||||||
| Gains (losses) on dispositions | $ | (84) | $ | 25 | $ | 120 | Costs and expenses | |||
| 213 | 793 | 54 | Benefit (provision) for income taxes | |||||||
| $ | 129 | $ | 818 | $ | 174 | Net of tax | ||||
| Cash flow hedges | ||||||||||
| Gains (losses) on interest rate derivatives | $ | (234) | $ | (364) | $ | (499) | Interest and other financial charges | |||
| Foreign exchange contracts | (666) | 564 | 792 | (a) | ||||||
| Other | 22 | 248 | (116) | (b) | ||||||
| (878) | 448 | 177 | Total before tax | |||||||
| 34 | (177) | (245) | Benefit (provision) for income taxes | |||||||
| $ | (844) | $ | 271 | $ | (68) | Net of tax | ||||
| Benefit plan items | ||||||||||
| Curtailment loss | $ | (113) | $ | - | $ | - | (c) | |||
| Amortization of prior service costs | (590) | (664) | (823) | (c) | ||||||
| Amortization of actuarial gains (losses) | (2,612) | (3,983) | (3,768) | (c) | ||||||
| (3,315) | (4,647) | (4,591) | Total before tax | |||||||
| 1,141 | 1,610 | 1,604 | Benefit (provision) for income taxes | |||||||
| $ | (2,174) | $ | (3,037) | $ | (2,987) | Net of tax | ||||
| Total reclassification adjustments | $ | (3,035) | $ | (2,266) | $ | (2,903) | Net of tax | |||
| PAST DUE AND NONACCRUAL FINANCING RECEIVABLES | ||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||
| Over 30 days | Over 90 days | Over 30 days | Over 90 days | |||||||||||||||
| December 31 (In millions) | past due | past due | Nonaccrual | past due | past due | Nonaccrual | ||||||||||||
| Commercial | ||||||||||||||||||
| CLL | ||||||||||||||||||
| Americas | $ | 503 | $ | 284 | $ | 1,054 | $ | 755 | $ | 359 | $ | 1,275 | ||||||
| International | 1,483 | 749 | 946 | 1,490 | 820 | 1,459 | ||||||||||||
| Total CLL | 1,986 | 1,033 | 2,000 | 2,245 | 1,179 | 2,734 | ||||||||||||
| Energy Financial Services | - | - | 68 | - | - | 4 | ||||||||||||
| GECAS | - | - | 419 | - | - | - | ||||||||||||
| Other | - | - | - | - | - | 6 | ||||||||||||
| Total Commercial | 1,986 | 1,033 | 2,487 | (a) | 2,245 | 1,179 | 2,744 | (a) | ||||||||||
| Real Estate | 242 | 183 | 1,254 | (b) | 247 | 212 | 2,551 | (b) | ||||||||||
| Consumer | ||||||||||||||||||
| Non-U.S. residential mortgages | 2,171 | 1,195 | 1,262 | 3,406 | 2,104 | 2,161 | ||||||||||||
| Non-U.S. installment and revolving credit | 333 | 89 | 53 | 601 | 159 | 106 | ||||||||||||
| U.S. installment and revolving credit | 2,492 | 1,147 | 2 | 2,442 | 1,105 | 2 | ||||||||||||
| Other | 141 | 64 | 167 | 172 | 99 | 351 | ||||||||||||
| Total Consumer | 5,137 | 2,495 | (c) | 1,484 | (d) | 6,621 | 3,467 | (c) | 2,620 | (d) | ||||||||
| Total | $ | 7,365 | $ | 3,711 | $ | 5,225 | $ | 9,113 | $ | 4,858 | $ | 7,915 | ||||||
| Total as a percent of financing receivables | 3.0 | % | 1.5 | % | 2.2 | % | 3.5 | % | 1.9 | % | 3.1 | % | ||||||
| PRE-TAX, OTHER-THAN-TEMPORARY IMPAIRMENTS ON INVESTMENT SECURITIES | |||||||||
| (In millions) | 2014 | 2013 | 2012 | ||||||
| Total pre-tax, OTTI recognized | $ | 407 | $ | 798 | $ | 193 | |||
| Pre-tax, OTTI recognized in AOCI | (16) | (31) | (52) | ||||||
| Pre-tax, OTTI recognized in earnings(a) | $ | 391 | $ | 767 | $ | 141 | |||
(a)\tIncluded pre-tax, other-than-temporary impairments recorded in earnings related to equity securities of $221 million, $15 million and $39 million in 2014, 2013 and 2012, respectively
| FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| Assets | |||||
| Cash and equivalents | $ | 676 | $ | 5 | |
| Investment securities | 448 | 7 | |||
| Current receivables(a) | 180 | - | |||
| Inventories | 588 | - | |||
| Financing receivables – net | 2,144 | - | |||
| Property, plant, and equipment – net | 1,015 | - | |||
| Goodwill | 539 | 24 | |||
| Intangible assets – net | 170 | 2 | |||
| Other | 540 | 12 | |||
| Assets of businesses held for sale | $ | 6,300 | $ | 50 | |
| Liabilities | |||||
| Accounts payable(a) | $ | 510 | $ | 1 | |
| Other current liabilities | 348 | - | |||
| Bank deposits | 1,931 | - | |||
| Other | 586 | 5 | |||
| Liabilities of businesses held for sale | $ | 3,375 | $ | 6 | |
(a)\tCertain transactions at our Appliances and Signaling businesses are made on an arms-length basis with GECC, consisting primarily of GE customer receivables sold to GECC and GECC services for material procurement. These intercompany balances included within our held for sale businesses are reported in the GE and GECC columns of our financial statements, but are eliminated in deriving our consolidated financial statements.
| EARNINGS EFFECTS OF FAIR VALUE HEDGING RELATIONSHIPS | |||||||||||
| 2014 | 2013 | ||||||||||
| Gain (loss) | Gain (loss) | Gain (loss) | Gain (loss) | ||||||||
| on hedging | on hedged | on hedging | on hedged | ||||||||
| (In millions) | derivatives | items | derivatives | items | |||||||
| Interest rate contracts | $ | 3,898 | $ | (3,973) | $ | (5,258) | $ | 5,180 | |||
| Currency exchange contracts | (19) | 17 | (7) | 6 | |||||||
| NOTIONAL AMOUNTS OF LOAN COMMITMENTS | |||||||||||
| December 31 (In millions) | 2014 | 2013 | |||||||||
| Ordinary course of business lending commitments(a) | $ | 4,282 | $ | 4,756 | |||||||
| Unused revolving credit lines(b) | |||||||||||
| Commercial(c) | 14,681 | 16,570 | |||||||||
| Consumer – principally credit cards | 306,188 | 290,662 | |||||||||
Note 2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
Assets and Liabilities of Businesses Held for Sale\n
In the fourth quarter of 2014, we signed an agreement to sell our Signaling business at Transportation, with assets of $267 million and liabilities of $148 million to Alstom for approximately $800 million, and our consumer finance business Budapest Bank, with assets of $3,474 million and liabilities of $2,434 million to Hungary’s government. The transactions remain subject to customary closing conditions and regulatory approvals, and are targeted to close in 2015.
In the third quarter of 2014, we signed an agreement to sell our Appliances business with assets of $2,538 million and liabilities of $1,356 million to Electrolux for approximately $3,300 million. The transaction remains subject to customary closing conditions and regulatory approvals, and is targeted to close in 2015.
In the second quarter of 2014, we committed to sell GE Money Bank AB, our consumer finance business in Sweden, Denmark and Norway (GEMB-Nordic). We completed the sale on November 6, 2014 for proceeds of $2,320 million.
In the first quarter of 2013, we committed to sell certain of our machining & fabrication businesses at Aviation and our Consumer auto and personal loan business in Portugal. We completed the sale of our machining & fabrication business on December 2, 2013 for proceeds of $108 million. We completed the sale of our Consumer auto and personal loan business in Portugal on July 15, 2013 for proceeds of $83 million.
| FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| Assets | |||||
| Cash and equivalents | $ | 676 | $ | 5 | |
| Investment securities | 448 | 7 | |||
| Current receivables(a) | 180 | - | |||
| Inventories | 588 | - | |||
| Financing receivables – net | 2,144 | - | |||
| Property, plant, and equipment – net | 1,015 | - | |||
| Goodwill | 539 | 24 | |||
| Intangible assets – net | 170 | 2 | |||
| Other | 540 | 12 | |||
| Assets of businesses held for sale | $ | 6,300 | $ | 50 | |
| Liabilities | |||||
| Accounts payable(a) | $ | 510 | $ | 1 | |
| Other current liabilities | 348 | - | |||
| Bank deposits | 1,931 | - | |||
| Other | 586 | 5 | |||
| Liabilities of businesses held for sale | $ | 3,375 | $ | 6 | |
(a)\tCertain transactions at our Appliances and Signaling businesses are made on an arms-length basis with GECC, consisting primarily of GE customer receivables sold to GECC and GECC services for material procurement. These intercompany balances included within our held for sale businesses are reported in the GE and GECC columns of our financial statements, but are eliminated in deriving our consolidated financial statements.
NBCU
On March 19, 2013, we closed a transaction to sell our remaining 49% common equity interest in NBCUniversal LLC (NBCU LLC) to Comcast Corporation (Comcast) for total consideration of $16,722 million, consisting of $11,997 million in cash, $4,000 million in Comcast guaranteed debt and $725 million in preferred stock. The $4,000 million of debt and the $725 million of preferred shares were both issued by a wholly-owned subsidiary of Comcast. During the three months ended March 31, 2013, both of these instruments were sold at approximately par value. In addition, Comcast is obligated to share with us potential tax savings associated with Comcast’s purchase of our NBCU LLC interest, if realized. We did not recognize these potential future payments as consideration for the sale, but are recording such payments in income as they are received. GECC also sold real estate comprising certain floors located at 30 Rockefeller Center, New York and the CNBC property located in Englewood Cliffs, New Jersey to affiliates of NBCU LLC for $1,430 million in cash.
In the first quarter of 2013, as a result of the transactions, we recognized pre-tax gains of $1,096 million ($825 million after tax) on the sale of our 49% common equity interest in NBCU LLC and $921 million ($564 million after tax) on the sale of GECC’s real estate properties.
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), our Commercial Lending and Leasing (CLL) trailer services business in Europe (CLL Trailer Services), our Consumer banking business in Russia (Consumer Russia) and our Consumer mortgage lending business in Ireland (Consumer Ireland). Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.
| FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Operations | ||||||||
| Total revenues and other income (loss) | $ | (268) | $ | 186 | $ | 191 | ||
| Earnings (loss) from discontinued operations before income taxes | $ | (351) | $ | (494) | $ | (586) | ||
| Benefit (provision) for income taxes | 224 | 155 | 198 | |||||
| Earnings (loss) from discontinued operations, net of taxes | $ | (127) | $ | (339) | $ | (388) | ||
| Disposal | ||||||||
| Gain (loss) on disposal before income taxes | $ | 14 | $ | (2,027) | $ | (792) | ||
| Benefit (provision) for income taxes | 1 | 246 | 197 | |||||
| Gain (loss) on disposal, net of taxes | $ | 15 | $ | (1,781) | $ | (595) | ||
| Earnings (loss) from discontinued operations, net of taxes(a) | $ | (112) | $ | (2,120) | $ | (983) | ||
(a)\tThe 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 industrial earnings (loss) from discontinued operations, net of taxes, on the Consolidated Statement of Earnings.
| December 31 (In millions) | 2014 | 2013 | |||||||||
| Assets | |||||||||||
| Cash and equivalents | $ | 133 | $ | 232 | |||||||
| Financing receivables – net | - | 711 | |||||||||
| Other | 1,102 | 1,396 | |||||||||
| Assets of discontinued operations | $ | 1,235 | $ | 2,339 | |||||||
| Liabilities | |||||||||||
| Deferred income taxes | $ | 237 | $ | 248 | |||||||
| Other | 988 | 3,685 | |||||||||
| Liabilities of discontinued operations | $ | 1,225 | $ | 3,933 | |||||||
Other assets at December 31, 2014 and 2013 primarily comprised 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 2008, we completed the sale of GE Money Japan, which included our Japanese personal loan business. Under the terms of the sale, we reduced the proceeds from the sale for estimated 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. On February 26, 2014, we reached an agreement with the buyer to pay 175 billion Japanese yen (approximately $1,700 million) to extinguish this obligation. We have no remaining amount payable under the February 26, 2014 agreement as our reserve for refund claims of $1,836 million at December 31, 2013 was fully paid in the six months ended June 30, 2014.
| FINANCIAL INFORMATION FOR GE MONEY JAPAN | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Earnings (loss) from discontinued operations, net of taxes | $ | 59 | $ | (1,636) | $ | (649) | ||
WMC
During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, and is not a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans that had an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued.
The remaining active claims have been brought by securitization trustees or administrators seeking recovery from WMC for alleged breaches of representations and warranties on mortgage loans that serve as collateral for residential mortgage-backed securities (RMBS). At December 31, 2014, such claims consisted of $3,694 million of individual claims generally submitted before the filing of a lawsuit (compared to $5,643 million at December 31, 2013) and $9,225 million of additional claims asserted against WMC in litigation without making a prior claim (Litigation Claims) (compared to $6,780 million at December 31, 2013). The total amount of these claims, $12,919 million, reflects the purchase price or unpaid principal balances of the loans at the time of purchase and does not give effect to pay downs or potential recoveries based upon the underlying collateral, which in many cases are substantial, nor to accrued interest or fees. As of December 31, 2014, these amounts do not include approximately $1,070 million of repurchase claims relating to alleged breaches of representations that are not in litigation and that are beyond the applicable statute of limitations. WMC believes that repurchase claims brought based upon representations and warranties made more than six years before WMC was notified of the claim would be disallowed in legal proceedings under applicable statutes of limitations.
Reserves related to repurchase claims made against WMC were $809 million at December 31, 2014, reflecting a net increase to reserves in the twelve months ended December 31, 2014 of $9 million due to incremental provisions offset by settlement activity. The reserve estimate takes into account recent settlement activity and is based upon WMC’s evaluation of the remaining exposures as a percentage of estimated lifetime mortgage loan losses within the pool of loans supporting each securitization. Settlements in prior periods reduced WMC’s exposure on claims asserted in certain securitizations and the claim amounts reported above give effect to these settlements.
| ROLLFORWARD OF THE RESERVE | ||||||
| December 31 (In millions) | 2014 | 2013 | ||||
| Balance, beginning of period | $ | 800 | $ | 633 | ||
| Provision | 365 | 354 | ||||
| Claim resolutions / rescissions | (356) | (187) | ||||
| Balance, end of period | $ | 809 | $ | 800 | ||
Given the significant litigation activity and WMC’s continuing efforts to resolve the lawsuits involving claims made against WMC, it is difficult to assess whether future losses will be consistent with WMC’s past experience. Adverse changes to WMC’s assumptions supporting the reserve may result in an increase to these reserves. Taking into account both recent settlement activity and the potential variability of settlements, WMC estimates a range of reasonably possible loss from $0 to approximately $500 million over its recorded reserve at December 31, 2014. This estimate excludes any possible loss associated with an adverse court decision on the applicable statute of limitations, as WMC is unable at this time to develop such a meaningful estimate.
At December 31, 2014, there were 15 lawsuits involving claims made against WMC arising from alleged breaches of representations and warranties on mortgage loans included in 14 securitizations. The adverse parties in these cases are securitization trustees or parties claiming to act on their behalf. Although the alleged claims for relief vary from case to case, the complaints and counterclaims in these actions generally assert claims for breach of contract, indemnification, and/or declaratory judgment, and seek specific performance (repurchase of defective mortgage loan) and/or money damages. Adverse court decisions, including in cases not involving WMC (such as the New York Court of Appeals’ decision on statute of limitations, expected in 2015), could result in new claims and lawsuits on additional loans. However, WMC continues to believe that it has defenses to the claims asserted in litigation, including, for example, based on causation and materiality requirements and applicable statutes of limitations. It is not possible to predict the outcome or impact of these defenses and other factors, any of which could materially affect the amount of any loss ultimately incurred by WMC on these claims.
WMC has also received indemnification demands, nearly all of which are unspecified, from depositors/underwriters/sponsors of RMBS in connection with lawsuits brought by RMBS investors concerning alleged misrepresentations in the securitization offering documents to which WMC is not a party or, in two cases, involving mortgage loan repurchase claims made against RMBS sponsors. WMC believes that it has defenses to these demands.
To the extent WMC is required to repurchase loans, WMC’s loss also would be affected by several factors, including pay downs, accrued interest and fees, and the value of the underlying collateral. The reserve and estimate of possible loss reflect judgment, based on currently available information, and a number of assumptions, including economic conditions, claim and settlement activity, pending and threatened litigation, court decisions regarding WMC’s legal defenses, indemnification demands, government activity, and other variables in the mortgage industry. Actual losses arising from claims against WMC could exceed these amounts and additional claims and lawsuits could result if actual claim rates, governmental actions, litigation and indemnification activity, adverse court decisions, actual settlement rates or losses WMC incurs on repurchased loans differ from its assumptions.
| FINANCIAL INFORMATION FOR WMC | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Total revenues and other income (loss) | $ | (291) | $ | (346) | $ | (500) | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | (199) | $ | (232) | $ | (337) | ||
Other Financial Services
During the fourth quarter of 2013, we announced the planned disposition of Consumer Russia and classified the business as discontinued operations. We completed the sale in the first quarter of 2014 for proceeds of $232 million.
| FINANCIAL INFORMATION FOR CONSUMER RUSSIA | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Total revenues and other income (loss) | $ | 24 | $ | 260 | $ | 276 | ||
| Gain (loss) on disposal, net of taxes | $ | 4 | $ | (170) | $ | - | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | (2) | $ | (193) | $ | 33 | ||
During the first quarter of 2013, we announced the planned disposition of CLL Trailer Services and classified the business as discontinued operations. We completed the sale in the fourth quarter of 2013 for proceeds of $528 million.
| FINANCIAL INFORMATION FOR CLL TRAILER SERVICES | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Total revenues and other income (loss) | $ | 1 | $ | 271 | $ | 399 | ||
| Gain (loss) on disposal, net of taxes | $ | 12 | $ | 18 | $ | - | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | 37 | $ | (2) | $ | 22 | ||
During the first quarter of 2012, we announced the planned disposition of Consumer Ireland and classified the business as discontinued operations. We completed the sale in the third quarter of 2012 for proceeds of $227 million
| FINANCIAL INFORMATION FOR CONSUMER IRELAND | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Total revenues and other income (loss) | $ | - | $ | - | $ | 7 | ||
| Gain (loss) on disposal, net of taxes | $ | 1 | $ | 6 | $ | (121) | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | 1 | $ | 6 | $ | (195) | ||
GE Industrial
During the fourth quarter of 2013, we recorded an increase to our tax reserve related to Spanish taxes for the years prior to our 2007 disposition of our Plastics business. During the third quarter of 2012, we resolved with the Internal Revenue Service the tax treatment of the 2007 disposition of our Plastics business, resulting in a tax benefit of $148 million. 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 industrial earnings (loss) from discontinued operations, net of taxes, on the Statement of Earnings.
| FINANCIAL INFORMATION FOR GE INDUSTRIAL | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Earnings (loss) from discontinued operations, net of taxes | $ | (5) | $ | (66) | $ | 147 | ||
(a)\tThe 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 industrial earnings (loss) from discontinued operations, net of taxes, on the Consolidated Statement of Earnings.
| FINANCING RECEIVABLES | |||||
| (In millions) | 2014 | 2013 | |||
| Commercial | |||||
| CLL | |||||
| Americas | $ | 67,096 | $ | 69,036 | |
| International | 43,407 | 47,431 | |||
| Total CLL | 110,503 | 116,467 | |||
| Energy Financial Services | 2,580 | 3,107 | |||
| GE Capital Aviation Services (GECAS) | 8,263 | 9,377 | |||
| Other | 130 | 318 | |||
| Total Commercial | 121,476 | 129,269 | |||
| Real Estate | 19,797 | 19,899 | |||
| Consumer | |||||
| Non-U.S. residential mortgages | 24,893 | 30,501 | |||
| Non-U.S. installment and revolving credit | 10,400 | 15,731 | |||
| U.S. installment and revolving credit | 59,863 | 55,854 | |||
| Other | 5,664 | 6,953 | |||
| Total Consumer | 100,820 | 109,039 | |||
| Total financing receivables | 242,093 | 258,207 | |||
| Allowance for losses | (5,075) | (5,178) | |||
| Total financing receivables – net | $ | 237,018 | $ | 253,029 | |
| CONTRACTUAL MATURITIES OF INVESTMENT IN AVAILABLE-FOR-SALE DEBT SECURITIES | |||||
| (EXCLUDING MORTGAGE-BACKED AND ASSET-BACKED SECURITIES) | |||||
| Amortized | Estimated | ||||
| (In millions) | cost | fair value | |||
| Due | |||||
| Within one year | $ | 2,478 | $ | 2,492 | |
| After one year through five years | 3,521 | 3,768 | |||
| After five years through ten years | 5,285 | 5,686 | |||
| After ten years | 18,782 | 22,888 | |||
| 2014 | 2013 | 2012 | |||||||||||||||
| (In millions; per-share amounts in dollars) | Diluted | Basic | Diluted | Basic | Diluted | Basic | |||||||||||
| Amounts attributable to the Company: | |||||||||||||||||
| Consolidated | |||||||||||||||||
| Earnings from continuing operations attributable to | |||||||||||||||||
| common shareowners for per-share calculation(a)(b) | $ | 15,325 | $ | 15,324 | $ | 15,145 | $ | 15,157 | $ | 14,604 | $ | 14,603 | |||||
| Earnings (loss) from discontinued operations | |||||||||||||||||
| for per-share calculation(a)(b) | (111) | (111) | (2,128) | (2,116) | (980) | (980) | |||||||||||
| Net earnings attributable to GE common | |||||||||||||||||
| shareowners for per-share calculation(a)(b) | $ | 15,213 | $ | 15,212 | $ | 13,028 | $ | 13,040 | $ | 13,622 | $ | 13,622 | |||||
| Average equivalent shares | |||||||||||||||||
| Shares of GE common stock outstanding | 10,045 | 10,045 | 10,222 | 10,222 | 10,523 | 10,523 | |||||||||||
| Employee compensation-related shares (including | |||||||||||||||||
| stock options) and warrants | 78 | - | 67 | - | 41 | - | |||||||||||
| Total average equivalent shares | 10,123 | 10,045 | 10,289 | 10,222 | 10,564 | 10,523 | |||||||||||
| Per-share amounts | |||||||||||||||||
| Earnings from continuing operations | $ | 1.51 | $ | 1.53 | $ | 1.47 | $ | 1.48 | $ | 1.38 | $ | 1.39 | |||||
| Earnings (loss) from discontinued operations | (0.01) | (0.01) | (0.21) | (0.21) | (0.09) | (0.09) | |||||||||||
| Net earnings | 1.50 | 1.51 | 1.27 | 1.28 | 1.29 | 1.29 | |||||||||||
Our unvested restricted stock unit awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and, therefore, are included in the computation of earnings per share pursuant to the two-class method. Application of this treatment has an insignificant effect.
| FINANCING RECEIVABLES, NET | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| Loans, net of deferred income | $ | 217,614 | $ | 231,268 | |
| Investment in financing leases, net of deferred income | 24,479 | 26,939 | |||
| 242,093 | 258,207 | ||||
| Allowance for losses | (5,075) | (5,178) | |||
| Financing receivables – net(a) | $ | 237,018 | $ | 253,029 | |
(a)\tFinancing receivables at December 31, 2014 and 2013 included $264 million and $544 million, respectively, relating to loans that had been acquired in a transfer but have been subject to credit deterioration since origination.
| Remeasured during the years ended December 31 | |||||||||||
| 2014 | 2013 | ||||||||||
| (In millions) | Level 2 | Level 3 | Level 2 | Level 3 | |||||||
| Financing receivables and loans held for sale | $ | 49 | $ | 1,430 | $ | 210 | $ | 2,986 | |||
| Cost and equity method investments(a) | 11 | 404 | - | 690 | |||||||
| Long-lived assets, including real estate | 364 | 1,253 | 2,050 | 1,088 | |||||||
| Total | $ | 424 | $ | 3,087 | $ | 2,260 | $ | 4,764 | |||
| GAINS (LOSSES) RECOGNIZED THROUGH CTA | |||||||||||
| Gain (loss) recognized in CTA | Gain (loss) reclassified from CTA | ||||||||||
| (In millions) | 2014 | 2013 | 2014 | 2013 | |||||||
| Currency exchange contracts(a) | $ | 5,741 | $ | 2,322 | $ | 88 | $ | (1,525) | |||
(a)\tGain (loss) is recorded in GECC revenues from services when reclassified out of AOCI.
NOTE 14. INCOME TAXES
GE and GECC file a consolidated U.S. federal income tax return. This enables GE to use GECC tax deductions and credits to reduce the tax that otherwise would have been payable by GE. The GECC effective tax rate for each period reflects the benefit of these tax reductions in the consolidated return. GE makes cash payments to GECC for these tax reductions at the time GE’s tax payments are due.
| (BENEFIT) PROVISION FOR INCOME TAXES | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| GE | ||||||||
| Current tax expense | $ | 2,110 | $ | 4,239 | $ | 2,307 | ||
| Deferred tax expense (benefit) from temporary differences | (476) | (2,571) | (294) | |||||
| 1,634 | 1,668 | 2,013 | ||||||
| GECC | ||||||||
| Current tax expense (benefit) | 848 | (268) | 1,379 | |||||
| Deferred tax expense (benefit) from temporary differences | (710) | (724) | (858) | |||||
| 138 | (992) | 521 | ||||||
| Consolidated | ||||||||
| Current tax expense | 2,958 | 3,971 | 3,686 | |||||
| Deferred tax expense (benefit) from temporary differences | (1,186) | (3,295) | (1,152) | |||||
| Total | $ | 1,772 | $ | 676 | $ | 2,534 | ||
| CONSOLIDATED EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| U.S. earnings | $ | 5,421 | $ | 6,099 | $ | 8,309 | ||
| Non-U.S. earnings | 11,808 | 10,052 | 9,072 | |||||
| Total | $ | 17,229 | $ | 16,151 | $ | 17,381 | ||
| CONSOLIDATED (BENEFIT) PROVISION FOR INCOME TAXES | |||||||||
| (In millions) | 2014 | 2013 | 2012 | ||||||
| U.S. Federal | |||||||||
| Current(a) | $ | 51 | $ | 85 | $ | 685 | |||
| Deferred | (177) | (2,315) | (414) | ||||||
| Non - U.S. | |||||||||
| Current | 2,978 | 3,659 | 2,871 | ||||||
| Deferred | (849) | (1,038) | (773) | ||||||
| Other | (231) | 285 | 165 | ||||||
| Total | $ | 1,772 | $ | 676 | $ | 2,534 | |||
Includes the benefit from GECC deductions and credits applied against GE’s current U.S. tax expense.
Our businesses are subject to regulation under a wide variety of U.S. federal, state and foreign tax laws, regulations and policies. Changes to these laws or regulations may affect our tax liability, return on investments and business operations. For example, GE’s effective tax rate is reduced because active business income earned and indefinitely reinvested outside the United States is taxed at less than the U.S. rate. A significant portion of this reduction depends upon a provision of U.S. tax law that defers the imposition of U.S. tax on certain active financial services income until that income is repatriated to the United States as a dividend. This provision is consistent with international tax norms and permits U.S. financial services companies to compete more effectively with non-U.S. financial institutions in global markets. This provision, which had expired at the end of 2013, was reinstated in December 2014 retroactively for one year through the end of 2014. The provision also had been scheduled to expire and had been extended by Congress on seven previous occasions, but there can be no assurance that it will continue to be extended. In the event the provision is not extended after 2014, the current U.S. tax imposed on active financial services income earned outside the United States would increase, making it more difficult for U.S. financial services companies to compete in global markets. If this provision is not extended, we expect our effective tax rate to increase significantly after 2015.
| RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO ACTUAL INCOME TAX RATE | ||||||||||||||||||
| Consolidated | GE | GECC | ||||||||||||||||
| 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||
| U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % |
| Increase (reduction) in rate resulting from | ||||||||||||||||||
| inclusion of after-tax earnings of GECC in | ||||||||||||||||||
| before-tax earnings of GE | - | - | - | (15.2) | (16.9) | (15.3) | - | - | - | |||||||||
| Tax on global activities including exports(a) | (18.4) | (24.7) | (12.5) | (7.9) | (4.1) | (4.3) | (24.1) | (45.0) | (18.4) | |||||||||
| U.S. business credits(b) | (2.6) | (3.6) | (2.6) | (0.6) | (1.5) | (0.7) | (4.6) | (4.6) | (4.3) | |||||||||
| Business Property disposition | - | - | (1.9) | - | - | - | - | - | (4.2) | |||||||||
| All other – net | (3.7) | (2.5) | (3.4) | (1.6) | (2.7) | (2.7) | (4.5) | 1.0 | (1.5) | |||||||||
| (24.7) | (30.8) | (20.4) | (25.3) | (25.2) | (23.0) | (33.2) | (48.6) | (28.4) | ||||||||||
| Actual income tax rate | 10.3 | % | 4.2 | % | 14.6 | % | 9.7 | % | 9.8 | % | 12.0 | % | 1.8 | % | (13.6) | % | 6.6 | % |
UNRECOGNIZED TAX POSITIONS
Annually, we file over 5,500 income tax returns in over 250 global taxing jurisdictions. We are under examination or engaged in tax litigation in many of these jurisdictions. During 2013, the Internal Revenue Service (IRS) completed the audit of our consolidated U.S. income tax returns for 2008-2009, except for certain issues that remain under examination. At December 31, 2014, the IRS was auditing our consolidated U.S. income tax returns for 2010-2011. In addition, certain other U.S. tax deficiency issues and refund claims for previous years were unresolved. The IRS has disallowed the tax loss on our 2003 disposition of ERC Life Reinsurance Corporation. We have contested the disallowance of this loss. It is reasonably possible that the unresolved items could be resolved during the next 12 months, which could result in a decrease in our balance of “unrecognized tax benefits” – that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties. Resolution of audit matters, including the IRS audit of our consolidated U.S. income tax returns for 2008-2009, reduced our 2013 consolidated income tax rate by 2.8 percentage points. \n
The balance of unrecognized tax benefits, the amount of related interest and penalties we have provided and what we believe to be the range of reasonably possible changes in the next 12 months were:
| UNRECOGNIZED TAX BENEFITS | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| Unrecognized tax benefits | $ | 5,619 | $ | 5,816 | |
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 4,059 | 4,307 | |||
| Accrued interest on unrecognized tax benefits | 807 | 975 | |||
| Accrued penalties on unrecognized tax benefits | 103 | 164 | |||
| Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months | 0-900 | 0-900 | |||
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 0-300 | 0-350 | |||
(a)\tSome portion of such reduction may be reported as discontinued operations.
| UNRECOGNIZED TAX BENEFITS RECONCILIATION | |||||
| (In millions) | 2014 | 2013 | |||
| Balance at January 1, | $ | 5,816 | $ | 5,445 | |
| Additions for tax positions of the current year | 234 | 771 | |||
| Additions for tax positions of prior years | 673 | 872 | |||
| Reductions for tax positions of prior years | (761) | (1,140) | |||
| Settlements with tax authorities | (305) | (98) | |||
| Expiration of the statute of limitations | (38) | (34) | |||
| Balance at December 31 | $ | 5,619 | $ | 5,816 | |
We classify interest on tax deficiencies as interest expense; we classify income tax penalties as provision for income taxes. For the years ended December 31, 2014, 2013 and 2012, $(68) million, $22 million and $(45) million of interest expense (income), respectively, and $(45) million, an insignificant amount and $33 million of tax expense (income) related to penalties, respectively, were recognized in the Statement of Earnings.
DEFERRED INCOME TAXES
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carryforwards, and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.
We have not provided U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been reinvested indefinitely. These earnings relate to ongoing operations and, at December 31, 2014 and 2013, were approximately $119 billion and $110 billion, respectively. Most of these earnings have been reinvested in active non-U.S. business operations and we do not intend to repatriate these earnings to fund U.S. operations. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when we plan to remit those earnings.
\n
Aggregated deferred income tax amounts are summarized below.
| December 31 (In millions) | 2014 | 2013 | |||
| Assets | |||||
| GE | $ | 19,942 | $ | 15,284 | |
| GECC | 12,546 | 13,224 | |||
| 32,488 | 28,508 | ||||
| Liabilities | |||||
| GE | (11,170) | (10,223) | |||
| GECC | (18,777) | (18,010) | |||
| (29,947) | (28,233) | ||||
| Net deferred income tax asset (liability) | $ | 2,541 | $ | 275 | |
| COMPONENTS OF THE NET DEFERRED INCOME TAX ASSET (LIABILITY) | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| GE | |||||
| Principal pension plans | $ | 7,859 | $ | 3,436 | |
| Provision for expenses(a) | 6,192 | 5,934 | |||
| Retiree insurance plans | 3,462 | 3,154 | |||
| Non-U.S. loss carryforwards(b) | 738 | 874 | |||
| Contract costs and estimated earnings | (3,996) | (3,550) | |||
| Intangible assets | (2,364) | (2,268) | |||
| Depreciation | (1,226) | (1,079) | |||
| Investment in global subsidiaries | (979) | (1,077) | |||
| Other – net | (914) | (363) | |||
| 8,772 | 5,061 | ||||
| GECC | |||||
| Operating leases | (6,351) | (6,284) | |||
| Financing leases | (4,046) | (4,075) | |||
| Intangible assets | (1,963) | (1,943) | |||
| Net unrealized gains (losses) on securities | (507) | (145) | |||
| Cash flow hedges | (162) | (163) | |||
| Non-U.S. loss carryforwards(b) | 4,094 | 3,791 | |||
| Allowance for losses | 2,186 | 2,640 | |||
| Investment in global subsidiaries | 1,935 | 1,883 | |||
| Other – net | (1,417) | (490) | |||
| (6,231) | (4,786) | ||||
| Net deferred income tax asset (liability) | $ | 2,541 | $ | 275 | |
(a)\tRepresented the tax effects of temporary differences related to expense accruals for a wide variety of items, such as employee compensation and benefits, other pension plan liabilities, interest on tax liabilities, product warranties and other sundry items that are not currently deductible.
(b)\tNet of valuation allowances of $2,015 million and $2,089 million for GE and $880 million and $862 million for GECC, for 2014 and 2013, respectively. Of the net deferred tax asset as of December 31, 2014, of $4,832 million, $47 million relates to net operating loss carryforwards that expire in various years ending from December 31, 2015 through December 31, 2017; $166 million relates to net operating losses that expire in various years ending from December 31, 2018 through December 31, 2034 and $4,619 million relates to net operating loss carryforwards that may be carried forward indefinitely.
| IMPAIRED LOANS AND RELATED RESERVES | ||||||||||||||||||||
| With no specific allowance | With a specific allowance | |||||||||||||||||||
| Recorded | Unpaid | Average | Recorded | Unpaid | Average | |||||||||||||||
| investment | principal | investment | investment | principal | Associated | investment | ||||||||||||||
| December 31 (In millions) | in loans | balance | in loans | in loans | balance | allowance | in loans | |||||||||||||
| 2014 | ||||||||||||||||||||
| Commercial | ||||||||||||||||||||
| CLL | ||||||||||||||||||||
| Americas | $ | 1,352 | $ | 1,897 | $ | 1,626 | $ | 126 | $ | 160 | $ | 28 | $ | 254 | ||||||
| International(a) | 940 | 2,500 | 1,099 | 280 | 965 | 105 | 463 | |||||||||||||
| Total CLL | 2,292 | 4,397 | 2,725 | 406 | 1,125 | 133 | 717 | |||||||||||||
| Energy Financial Services | 53 | 54 | 26 | 15 | 15 | 12 | 24 | |||||||||||||
| GECAS | 329 | 337 | 88 | - | - | - | 15 | |||||||||||||
| Other | - | - | - | - | - | - | 1 | |||||||||||||
| Total Commercial(b) | 2,674 | 4,788 | 2,839 | 421 | 1,140 | 145 | 757 | |||||||||||||
| Real Estate(c) | 1,555 | 1,854 | 2,285 | 317 | 443 | 25 | 686 | |||||||||||||
| Consumer(d) | 138 | 179 | 120 | 2,042 | 2,092 | 408 | 2,547 | |||||||||||||
| Total | $ | 4,367 | $ | 6,821 | $ | 5,244 | $ | 2,780 | $ | 3,675 | $ | 578 | $ | 3,990 | ||||||
| 2013 | ||||||||||||||||||||
| Commercial | ||||||||||||||||||||
| CLL | ||||||||||||||||||||
| Americas | $ | 1,670 | $ | 2,187 | $ | 2,154 | $ | 417 | $ | 505 | $ | 96 | $ | 509 | ||||||
| International(a) | 1,104 | 3,082 | 1,136 | 691 | 1,059 | 231 | 629 | |||||||||||||
| Total CLL | 2,774 | 5,269 | 3,290 | 1,108 | 1,564 | 327 | 1,138 | |||||||||||||
| Energy Financial Services | - | - | - | 4 | 4 | 1 | 2 | |||||||||||||
| GECAS | - | - | - | - | - | - | 1 | |||||||||||||
| Other | 2 | 3 | 9 | 4 | 4 | - | 5 | |||||||||||||
| Total Commercial(b) | 2,776 | 5,272 | 3,299 | 1,116 | 1,572 | 328 | 1,146 | |||||||||||||
| Real Estate(c) | 2,615 | 3,036 | 3,058 | 1,245 | 1,507 | 74 | 1,688 | |||||||||||||
| Consumer(d) | 109 | 153 | 98 | 2,879 | 2,948 | 567 | 3,058 | |||||||||||||
| Total | $ | 5,500 | $ | 8,461 | $ | 6,455 | $ | 5,240 | $ | 6,027 | $ | 969 | $ | 5,892 | ||||||
NOTE 8. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Acquisitions
Upon closing an acquisition, we estimate the fair values of assets and liabilities acquired and consolidate the acquisition as quickly as possible. Given the time it takes to obtain pertinent information to finalize the acquired company’s balance sheet, then to adjust the acquired company’s accounting policies, procedures, and books and records to our standards, it is often several quarters before we are able to finalize those initial fair value estimates. Accordingly, it is not uncommon for our initial estimates to be subsequently revised.
On June 20, 2014, GE’s offer to acquire the Thermal, Renewables and Grid businesses of Alstom for approximately €12,350 million (to be adjusted for the assumed net cash or liability at closing) was positively recommended by Alstom’s board of directors. In addition, GE, Alstom and the French Government signed a memorandum of understanding for the formation of three joint ventures in grid technology, renewable energy, and global nuclear and French steam power and Alstom will invest approximately €2,600 million in these joint ventures. In the fourth quarter of 2014, Alstom completed its review of the proposed transaction with the works council and obtained approval from its shareholders. Also in the fourth quarter of 2014, GE and Alstom entered into an amendment to the original agreement where GE has agreed to pay Alstom a net amount of approximately €260 million of additional consideration at closing. In exchange for this funding, Alstom has agreed to extend the trademark licensing of the Alstom name from 5 years to 25 years as well as other contractual amendments. The proposed transaction continues to be subject to regulatory approvals. The transaction is targeted to close in 2015.
On June 2, 2014, we acquired Cameron’s Reciprocating Compression division for $550 million. The division provides reciprocating compression equipment and aftermarket services for oil and gas production, gas processing, gas distribution and independent power industries. The division is included in our Oil & Gas segment. The preliminary purchase price allocation resulted in goodwill of approximately $250 million and amortizable intangible assets of approximately $100 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.
In the first quarter of 2014, we acquired several businesses in our Healthcare segment. On February 12, 2014, we acquired API Healthcare (API) for $340 million in cash. API is a healthcare workforce management software and analytics solutions provider. The preliminary purchase price allocation resulted in goodwill of approximately $280 million and amortizable intangible assets of approximately $125 million. On March 21, 2014, we acquired certain Thermo Fisher Scientific Inc. life-science businesses for $1,065 million in cash. The primary business acquired, Hyclone, is a leading manufacturer of products used to support biopharmaceutical research and production. The preliminary purchase price allocation resulted in goodwill of approximately $700 million and amortizable intangible assets of approximately $320 million. The allocation of purchase prices will be finalized upon completion of post-closing procedures.
In August 2013, we acquired the aviation business of Avio S.p.A. (Avio) for $4,449 million in cash. We recorded a pre-tax acquisition-related charge of $96 million related to the effective settlement of Avio’s pre-existing contractual relationships with GE. Avio is a manufacturer of aviation propulsion components and systems and is included in our Aviation segment. The purchase price allocation resulted in goodwill of $3,230 million and amortizable intangible assets of $1,817 million.
In July 2013, we acquired Lufkin Industries, Inc. (Lufkin) for $3,309 million in cash. Lufkin is a leading provider of artificial lift technologies for the oil and gas industry and a manufacturer of industrial gears and is included in our Oil & Gas segment. The purchase price allocation resulted in goodwill of $2,120 million and amortizable intangible assets of $997 million.
\n
goodwill
| CHANGES IN GOODWILL BALANCES | |||||||||||||||||||||||
| 2014 | 2013 | ||||||||||||||||||||||
| Dispositions, | Dispositions, | ||||||||||||||||||||||
| currency | currency | ||||||||||||||||||||||
| Balance at | exchange | Balance at | Balance at | exchange | Balance at | ||||||||||||||||||
| (In millions) | January 1 | Acquisitions | and other | December 31 | January 1 | Acquisitions | and other | December 31 | |||||||||||||||
| Power & Water | $ | 8,822 | $ | 21 | $ | (89) | $ | 8,754 | $ | 8,821 | $ | - | $ | 1 | $ | 8,822 | |||||||
| Oil & Gas | 10,516 | 276 | (220) | 10,572 | 8,365 | 2,217 | (66) | 10,516 | |||||||||||||||
| Energy Management | 4,748 | - | (178) | 4,570 | 4,610 | 7 | 131 | 4,748 | |||||||||||||||
| Aviation | 9,103 | - | (151) | 8,952 | 5,975 | 3,043 | 85 | 9,103 | |||||||||||||||
| Healthcare | 16,643 | 1,004 | (115) | 17,532 | 16,762 | 45 | (164) | 16,643 | |||||||||||||||
| Transportation | 1,012 | 2 | (127) | 887 | 999 | - | 13 | 1,012 | |||||||||||||||
| Appliances & Lighting | 606 | - | (380) | 226 | 611 | - | (5) | 606 | |||||||||||||||
| GE Capital | 26,195 | - | (1,169) | 25,026 | 26,971 | 17 | (793) | 26,195 | |||||||||||||||
| Corporate | 3 | 31 | - | 34 | - | 4 | (1) | 3 | |||||||||||||||
| Total | $ | 77,648 | $ | 1,334 | $ | (2,429) | $ | 76,553 | $ | 73,114 | $ | 5,333 | $ | (799) | $ | 77,648 | |||||||
Goodwill balances decreased by $(1,095) million in 2014, primarily as a result of currency exchange effects of a stronger U.S. dollar, the reclassification of goodwill associated with Appliances and Budapest Bank to assets of businesses held for sale, and the sale of GEMB-Nordic and other dispositions, partially offset by acquisitions at Healthcare and Oil & Gas.
Goodwill balances increased $4,534 million in 2013, primarily as a result of the acquisitions of Avio and Lufkin, partially offset by dispositions.
We test goodwill for impairment annually in the third quarter of each year using data as of July 1 of that year. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit’s assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.
Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have the characteristics similar to our businesses.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations ranged from 9.0% to 16.0%.
During the third quarter of 2014, we performed our annual impairment test of goodwill for all of our reporting units. Based on the results of our step one testing, the fair values of each of the GE reporting units exceeded their carrying values; therefore, the second step of the impairment test was not required to be performed for any of our reporting units and no goodwill impairment was recognized.
While all of our reporting units passed step one of our annual impairment testing, we identified one reporting unit for which the fair value was not substantially in excess of its carrying value. Within our Energy Management operating segment, the Power Conversion reporting unit was determined to have a fair value in excess of its carrying value by approximately 10%. The goodwill associated with the Power Conversion reporting unit was $1.5 billion at December 31, 2014, representing approximately 2% of our total goodwill. While the goodwill of the reporting unit is not currently impaired, there could be an impairment in the future as a result of changes in certain estimates and assumptions. For example, the reporting unit’s fair value could be adversely affected and result in an impairment of goodwill if actual cash flows are below estimated cash flows, the estimated cash flows are discounted at a higher risk-adjusted rate or market multiples decrease.
As of December 31, 2014, we believe that the goodwill is recoverable for all of the reporting units; however, there can be no assurances that the goodwill will not be impaired in future periods.
In 2013, while the Real Estate reporting unit’s book value was within the range of its fair value, we further substantiated our Real Estate goodwill balance by performing the second step analysis in which the implied fair value of goodwill exceeded its carrying value by approximately $3.7 billion. In the current year, it was determined that the second step was not required, as the results of step one indicated that the fair value of the Real Estate reporting unit exceeded its book value.
Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.
oTHER INTANGIBLE ASSETS
| OTHER INTANGIBLE ASSETS - NET | |||||
| (In millions) | 2014 | 2013 | |||
| Intangible assets subject to amortization | $ | 14,026 | $ | 14,150 | |
| Indefinite-lived intangible assets(a) | 130 | 160 | |||
| Total | $ | 14,156 | $ | 14,310 | |
(a)\tIndefinite-lived intangible assets principally comprise trademarks and in-process research and development.
| INTANGIBLE ASSETS SUBJECT TO AMORTIZATION | |||||||||||||||||
| 2014 | 2013 | ||||||||||||||||
| Gross | Gross | ||||||||||||||||
| carrying | Accumulated | carrying | Accumulated | ||||||||||||||
| December 31 (In millions) | amount | amortization | Net | amount | amortization | Net | |||||||||||
| Customer-related | $ | 8,484 | $ | (2,617) | $ | 5,867 | $ | 7,938 | $ | (2,312) | $ | 5,626 | |||||
| Patents and technology | 6,772 | (2,977) | 3,795 | 6,602 | (2,621) | 3,981 | |||||||||||
| Capitalized software | 8,269 | (4,973) | 3,296 | 8,256 | (5,252) | 3,004 | |||||||||||
| Trademarks | 1,159 | (271) | 888 | 1,356 | (295) | 1,061 | |||||||||||
| Lease valuations | 485 | (377) | 108 | 703 | (498) | 205 | |||||||||||
| Present value of future profits(a) | 614 | (614) | - | 574 | (574) | - | |||||||||||
| All other | 503 | (431) | 72 | 632 | (359) | 273 | |||||||||||
| Total | $ | 26,286 | $ | (12,260) | $ | 14,026 | $ | 26,061 | $ | (11,911) | $ | 14,150 | |||||
(a)\tBalances at December 31, 2014 and 2013 reflect adjustments of $293 million and $322 million, respectively, to the present value of future profits in our run-off insurance operation to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized.
During 2014, we recorded additions to intangible assets subject to amortization of $2,090 million. The components of finite-lived intangible assets acquired during 2014 and their respective weighted average amortizable period follow.
| COMPONENTS OF FINITE-LIVED INTANGIBLE ASSETS ACQUIRED DURING 2014 | ||||||
| Weighted-average | ||||||
| Gross | amortizable period | |||||
| (In millions) | carrying value | (in years) | ||||
| Customer-related | $ | 731 | 14.1 | |||
| Patents and technology | 178 | 10.8 | ||||
| Capitalized software | 1,123 | 5.7 | ||||
| Trademarks | 52 | 17.2 | ||||
| Lease valuations | 1 | 7.0 | ||||
| All other | 6 | 2.5 | ||||
Consolidated amortization expense related to intangible assets subject to amortization was $1,789 million, $1,711 million and $1,612 million in 2014, 2013 and 2012, respectively. Estimated annual pre-tax amortization for intangible assets over the next five calendar years follows.
| ESTIMATED 5 YEAR CONSOLIDATED AMORTIZATION | ||||||||||||||
| (In millions) | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||
| Estimated annual pre-tax amortization | $ | 1,725 | $ | 1,566 | $ | 1,414 | $ | 1,249 | $ | 1,077 | ||||
| (In millions) | 2014 | 2013 | 2012 | ||||||
| Cash from (used for) operating activities-continuing operations | |||||||||
| Combined | $ | 32,919 | $ | 34,125 | $ | 39,557 | |||
| GE customer receivables sold to GECC | (1,918) | 360 | (1,809) | ||||||
| GECC dividends to GE | (3,000) | (5,985) | (6,426) | ||||||
| Other reclassifications and eliminations | (486) | 537 | (307) | ||||||
| $ | 27,515 | $ | 29,037 | $ | 31,015 | ||||
| Cash from (used for) investing activities-continuing operations | |||||||||
| Combined | $ | (6,720) | $ | 28,182 | $ | 9,262 | |||
| GE customer receivables sold to GECC | 1,766 | 262 | 2,005 | ||||||
| Other reclassifications and eliminations | 212 | 230 | 323 | ||||||
| $ | (4,742) | $ | 28,674 | $ | 11,590 | ||||
| Cash from (used for) financing activities-continuing operations | |||||||||
| Combined | $ | (20,378) | $ | (50,319) | $ | (57,758) | |||
| GE customer receivables sold to GECC | 152 | (622) | (196) | ||||||
| GECC dividends to GE | 3,000 | 5,985 | 6,426 | ||||||
| Other reclassifications and eliminations | 274 | (673) | 473 | ||||||
| $ | (16,952) | $ | (45,629) | $ | (51,055) | ||||
| INVESTMENTS IN UNCONSOLIDATED VIEs | |||||||||||
| December 31 (In millions) | 2014 | 2013 | |||||||||
| Other assets and investment securities | $ | 9,500 | $ | 9,129 | |||||||
| Financing receivables – net | 2,942 | 3,346 | |||||||||
| Total investments | 12,442 | 12,475 | |||||||||
| Contractual obligations to fund investments or guarantees | 2,218 | 2,741 | |||||||||
| Revolving lines of credit | 168 | 31 | |||||||||
| Total | $ | 14,828 | $ | 15,247 | |||||||
The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at December 31, 2014 and 2013.
| Years ended December 31 | |||||||||||
| (In millions) | 2014 | 2013 | |||||||||
| Financing receivables and loans held for sale | $ | (317) | $ | (361) | |||||||
| Cost and equity method investments | (388) | (484) | |||||||||
| Long-lived assets, including real estate | (794) | (1,188) | |||||||||
| Total | $ | (1,499) | $ | (2,033) | |||||||
| December 31 (In millions) | 2014 | 2013 | |||
| GE | |||||
| Raw materials and work in process | $ | 9,820 | $ | 9,760 | |
| Finished goods | 7,126 | 7,161 | |||
| Unbilled shipments | 755 | 609 | |||
| 17,701 | 17,530 | ||||
| Less revaluation to LIFO | (62) | (273) | |||
| Total GE | 17,639 | 17,257 | |||
| GECC | |||||
| Finished goods | 50 | 68 | |||
| Total consolidated | $ | 17,689 | $ | 17,325 | |
NOTE 18. GECC REVENUES FROM SERVICES
| (In millions) | 2014 | 2013 | 2012 | |||||
| Interest on loans | $ | 17,324 | $ | 17,951 | $ | 18,843 | ||
| Equipment leased to others | 9,940 | 9,804 | 10,456 | |||||
| Fees | 4,618 | 4,720 | 4,709 | |||||
| Investment income(a) | 2,271 | 1,809 | 2,630 | |||||
| Financing leases | 1,416 | 1,667 | 1,888 | |||||
| Associated companies(b) | 1,182 | 1,809 | 1,538 | |||||
| Premiums earned by insurance activities | 1,509 | 1,573 | 1,715 | |||||
| Real estate investments(c) | 1,727 | 2,528 | 1,709 | |||||
| Other items(a)(d) | 2,617 | 2,080 | 1,757 | |||||
| 42,604 | 43,941 | 45,245 | ||||||
| Eliminations | (1,551) | (1,546) | (1,273) | |||||
| Total | $ | 41,053 | $ | 42,395 | $ | 43,972 | ||
(a)\tIncluded net other-than-temporary impairments on investment securities of $(173) million, $(747) million and $(140) million in 2014, 2013 and 2012, respectively, of which $96 million related to the impairment of an investment in a Brazilian company that was fully offset by the benefit of a guarantee provided by GE reflected as a component in other items for 2013. See Note 3.
(b)\tDuring 2013, we sold our remaining equity interest in the Bank of Ayudhya (Bay Bank) and recorded a pre-tax gain of $641 million. During 2012, we sold our remaining equity interest in Garanti Bank, which was classified as an available-for-sale security.
(c)\tDuring 2013, we sold real estate comprising certain floors located at 30 Rockefeller Center, New York for a pre-tax gain of $902 million.
(d)\tDuring 2014, we sold GEMB-Nordic and recorded a pre-tax gain of $473 million. During 2013, we sold a portion of Cembra through an initial public offering and recorded a pre-tax gain of $351 million.
| 2014 | 2013 | ||||||||||||||||||||||
| Gross | Gross | Gross | Gross | ||||||||||||||||||||
| Amortized | unrealized | unrealized | Estimated | Amortized | unrealized | unrealized | Estimated | ||||||||||||||||
| December 31 (In millions) | cost | gains | losses | fair value | cost | gains | losses | fair value | |||||||||||||||
| GE | |||||||||||||||||||||||
| Debt | |||||||||||||||||||||||
| U.S. corporate | $ | 12 | $ | - | $ | - | $ | 12 | $ | 21 | $ | 14 | $ | - | $ | 35 | |||||||
| Corporate – non-U.S. | 1 | - | - | 1 | 13 | - | (1) | 12 | |||||||||||||||
| Equity | |||||||||||||||||||||||
| Available-for-sale | 69 | 4 | (2) | 71 | 302 | 9 | (41) | 270 | |||||||||||||||
| Trading | - | - | - | - | 6 | - | - | 6 | |||||||||||||||
| 82 | 4 | (2) | 84 | 342 | 23 | (42) | 323 | ||||||||||||||||
| GECC | |||||||||||||||||||||||
| Debt | |||||||||||||||||||||||
| U.S. corporate | 19,889 | 3,967 | (69) | 23,787 | 19,600 | 2,323 | (217) | 21,706 | |||||||||||||||
| State and municipal | 5,181 | 624 | (56) | 5,749 | 4,245 | 235 | (191) | 4,289 | |||||||||||||||
| Residential mortgage-backed(a) | 1,578 | 153 | (6) | 1,725 | 1,819 | 139 | (48) | 1,910 | |||||||||||||||
| Commercial mortgage-backed | 2,903 | 170 | (10) | 3,063 | 2,929 | 188 | (82) | 3,035 | |||||||||||||||
| Asset-backed | 8,084 | 9 | (175) | 7,918 | 7,373 | 60 | (46) | 7,387 | |||||||||||||||
| Corporate – non-U.S. | 1,380 | 126 | (30) | 1,476 | 1,741 | 103 | (86) | 1,758 | |||||||||||||||
| Government – non-U.S. | 1,646 | 152 | (2) | 1,796 | 2,336 | 81 | (7) | 2,410 | |||||||||||||||
| U.S. government and federal | |||||||||||||||||||||||
| agency | 1,957 | 56 | - | 2,013 | 752 | 45 | (27) | 770 | |||||||||||||||
| Retained interests | 20 | 4 | - | 24 | 64 | 8 | - | 72 | |||||||||||||||
| Equity | |||||||||||||||||||||||
| Available-for-sale | 197 | 58 | (1) | 254 | 203 | 51 | (3) | 251 | |||||||||||||||
| Trading | 22 | - | - | 22 | 74 | - | - | 74 | |||||||||||||||
| 42,857 | 5,319 | (349) | 47,827 | 41,136 | 3,233 | (707) | 43,662 | ||||||||||||||||
| Eliminations | (4) | - | - | (4) | (4) | - | - | (4) | |||||||||||||||
| Total | $ | 42,935 | $ | 5,323 | $ | (351) | $ | 47,907 | $ | 41,474 | $ | 3,256 | $ | (749) | $ | 43,981 | |||||||
(a)\tSubstantially collateralized by U.S. mortgages. At December 31, 2014, $1,191 million related to securities issued by government-sponsored entities and $534 million related to securities of private-label issuers. Securities issued by private-label issuers are collateralized primarily by pools of individual direct mortgage loans of financial institutions
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
Accounting Principles
Our financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP).
Consolidation
Our financial statements consolidate all of our affiliates – entities in which we have a controlling financial interest, most often because we hold a majority voting interest. To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity (VIE) model to the entity, otherwise the entity is evaluated under the voting interest model.
Where we hold current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in that VIE. Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally. When changes occur to the design of an entity, we reconsider whether it is subject to the VIE model. We continuously evaluate whether we have a controlling financial interest in a VIE.
We hold a controlling financial interest in other entities where we currently hold, directly or indirectly, more than 50% of the voting rights or where we exercise control through substantive participating rights or as a general partner. Where we are a general partner, we consider substantive removal rights held by other partners in determining if we hold a controlling financial interest. We reevaluate whether we have a controlling financial interest in these entities when our voting or substantive participating rights change.
Associated companies are unconsolidated VIEs and other entities in which we do not have a controlling financial interest, but over which we have significant influence, most often because we hold a voting interest of 20% to 50%. Associated companies are accounted for as equity method investments. Results of associated companies are presented on a one-line basis. Investments in, and advances to, associated companies are presented on a one-line basis in the caption “All other assets” in our Statement of Financial Position, net of allowance for losses, which represents our best estimate of probable losses inherent in such assets.
Synchrony Financial Initial Public Offering
On August 5, 2014, we completed the initial public offering (IPO) of our North American Retail Finance business, Synchrony Financial, as a first step in a planned, staged exit from that business. Synchrony Financial closed the IPO of 125 million shares of common stock at a price to the public of $23.00 per share and on September 3, 2014, Synchrony Financial issued an additional 3.5 million shares of common stock pursuant to an option granted to the underwriters in the IPO (Underwriters’ Option). We received net proceeds from the IPO and the Underwriters’ Option of $2,842 million, which remain at Synchrony Financial. Following the closing of the IPO and the Underwriters’ Option, we currently own approximately 85% of Synchrony Financial and as a result, GECC continues to consolidate the business. The 15% is presented as noncontrolling interests. In addition, in August 2014, Synchrony Financial completed issuances of $3,593 million of senior unsecured debt with maturities up to 10 years and $8,000 million of unsecured term loans maturing in 2019, and in October 2014 completed issuances of $750 million of unsecured term loans maturing in 2019 under the New Bank Term Loan Facility with third party lenders. Subsequent to December 31, 2014 through February 13, 2015, Synchrony Financial issued an additional $1,000 million of senior unsecured debt maturing in 2020.
Financial Statement Presentation
We have reclassified certain prior-year amounts to conform to the current-year’s presentation.
Financial data and related measurements are presented in the following categories:
GE. This represents the adding together of all affiliates other than General Electric Capital Corporation (GECC), whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates.
GECC. This represents the adding together of all affiliates of GECC, giving effect to the elimination of transactions among such affiliates.
Consolidated. This represents the adding together of GE and GECC, giving effect to the elimination of transactions between GE and GECC.
Operating Segments. These comprise our eight businesses, focused on the broad markets they serve: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and GE Capital.
Unless otherwise indicated, information in these notes to consolidated financial statements relates to continuing operations. Certain of our operations have been presented as discontinued. See Note 2.
The effects of translating to U.S. dollars the financial statements of non-U.S. affiliates whose functional currency is the local currency are included in shareowners’ equity. Asset and liability accounts are translated at year-end exchange rates, while revenues and expenses are translated at average rates for the respective periods.
Preparing financial statements in conformity with GAAP requires us to make estimates based on assumptions about current, and for some estimates future, economic and market conditions (for example, unemployment, market liquidity, the real estate market, etc.), which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, as appropriate, it is reasonably possible that in 2015 actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in future impairments of investment securities, goodwill, intangibles and long-lived assets, incremental losses on financing receivables, establishment of valuation allowances on deferred tax assets and increased tax liabilities.
Sales of Goods and Services
We record all sales of goods and services only when a firm sales agreement is in place, delivery has occurred or services have been rendered and collectability of the fixed or determinable sales price is reasonably assured.
Arrangements for the sale of goods and services sometimes include multiple components. Most of our multiple component arrangements involve the sale of goods and services in the Healthcare segment. Our arrangements with multiple components usually involve an upfront deliverable of large machinery or equipment and future service deliverables such as installation, commissioning, training or the future delivery of ancillary products. In most cases, the relative values of the undelivered components are not significant to the overall arrangement and are typically delivered within three to six months after the core product has been delivered. In such agreements, selling price is determined for each component and any difference between the total of the separate selling prices and total contract consideration (i.e., discount) is allocated pro rata across each of the components in the arrangement. The value assigned to each component is objectively determined and obtained primarily from sources such as the separate selling price for that or a similar item or from competitor prices for similar items. If such evidence is not available, we use our best estimate of selling price, which is established consistent with the pricing strategy of the business and considers product configuration, geography, customer type, and other market specific factors.
Except for goods sold under long-term agreements, we recognize sales of goods under the provisions of U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition. We often sell consumer products and computer hardware and software products with a right of return. We use our accumulated experience to estimate and provide for such returns when we record the sale. In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have reliably demonstrated that all specified acceptance criteria have been met or when formal acceptance occurs, respectively. In arrangements where we provide goods for trial and evaluation purposes, we only recognize revenue after customer acceptance occurs. Unless otherwise noted, we do not provide for anticipated losses before we record sales.
We recognize revenue on agreements for sales of goods and services under power generation unit and uprate contracts, nuclear fuel assemblies, larger oil drilling equipment projects, aeroderivative unit contracts, military development contracts, locomotive production contracts, and long-term construction projects, using long-term construction and production contract accounting. We estimate total long-term contract revenue net of price concessions as well as total contract costs. For goods sold under power generation unit and uprate contracts, nuclear fuel assemblies, aeroderivative unit contracts, military development contracts and locomotive production contracts, we recognize sales as we complete major contract-specified deliverables, most often when customers receive title to the goods or accept the services as performed. For larger oil drilling equipment projects and long-term construction projects, we recognize sales based on our progress toward contract completion measured by actual costs incurred in relation to our estimate of total expected costs. We measure long-term contract revenues by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. We provide for any loss that we expect to incur on these agreements when that loss is probable.
We recognize revenue upon delivery for sales of aircraft engines, military propulsion equipment and related spare parts not sold under long-term product services agreements. Delivery of commercial engines, non-U.S. military equipment and all related spare parts occurs on shipment; delivery of military propulsion equipment sold to the U.S. government or agencies thereof occurs upon receipt of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of Shipment. Commercial aircraft engines are complex equipment manufactured to customer order under a variety of sometimes complex, long-term agreements. We measure sales of commercial aircraft engines by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future revenues and costs for commercial aircraft engine agreements in process and report any cumulative effects of such adjustments in current operations. Significant components of our revenue and cost estimates include price concessions and performance-related guarantees as well as material, labor and overhead costs. We measure revenue for military propulsion equipment and spare parts not subject to long-term product services agreements based on the specific contract on a specifically measured output basis. We provide for any loss that we expect to incur on these agreements when that loss is probable; consistent with industry practice, for commercial aircraft engines, we make such provision only if such losses are not recoverable from future highly probable sales of spare parts and services for those engines.
We sell product services under long-term product maintenance or extended warranty agreements in our Aviation, Power & Water, Oil & Gas and Transportation segments, where costs of performing services are incurred on other than a straight-line basis. We also sell product services in our Healthcare segment, where such costs generally are expected to be on a straight-line basis. For the Aviation, Power & Water, Oil & Gas and Transportation agreements, we recognize related sales based on the extent of our progress toward completion measured by actual costs incurred in relation to total expected costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. For the Healthcare agreements, we recognize revenues on a straight-line basis and expense related costs as incurred. We provide for any loss that we expect to incur on any of these agreements when that loss is probable.
GECC Revenues from Services (Earned Income)
We use the interest method to recognize income on loans. Interest on loans includes origination, commitment and other non-refundable fees related to funding (recorded in earned income on the interest method). We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due, with the exception of consumer credit card accounts. Beginning in the fourth quarter of 2013, we continue to accrue interest on consumer credit cards until the accounts are written off in the period the account becomes 180 days past due. Previously, we stopped accruing interest on consumer credit cards when the account became 90 days past due. Previously recognized interest income that was accrued but not collected from the borrower is reversed, unless the terms of the loan agreement permit capitalization of accrued interest to the principal balance. Although we stop accruing interest in advance of payments, we recognize interest income as cash is collected when appropriate, provided the amount does not exceed that which would have been earned at the historical effective interest rate; otherwise, payments received are applied to reduce the principal balance of the loan.
We resume accruing interest on nonaccrual, non-restructured commercial loans only when (a) payments are brought current according to the loan’s original terms and (b) future payments are reasonably assured. When we agree to restructured terms with the borrower, we resume accruing interest only when it is reasonably assured that we will recover full contractual payments, and such loans pass underwriting reviews equivalent to those applied to new loans. We resume accruing interest on nonaccrual consumer loans when the customer’s account is less than 90 days past due and collection of such amounts is probable. Interest accruals on modified consumer loans that are not considered to be troubled debt restructurings (TDRs) may return to current status (re-aged) only after receipt of at least three consecutive minimum monthly payments or the equivalent cumulative amount, subject to a re-aging limitation of once a year, or twice in a five-year period.
We recognize financing lease income on the interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values are based upon management's best estimates of the value of the leased asset at the end of the lease term. We use various sources of data in determining this estimate, including information obtained from third parties, which is adjusted for the attributes of the specific asset under lease. Guarantees of residual values by unrelated third parties are considered part of minimum lease payments. Significant assumptions we use in estimating residual values include estimated net cash flows over the remaining lease term, anticipated results of future remarketing, and estimated future component part and scrap metal prices, discounted at an appropriate rate.
We recognize operating lease income on a straight-line basis over the terms of underlying leases.
Fees include commitment fees related to loans that we do not expect to fund and line-of-credit fees. We record these fees in earned income on a straight-line basis over the period to which they relate. We record syndication fees in earned income at the time related services are performed, unless significant contingencies exist.
Depreciation and Amortization
The cost of GE manufacturing plant and equipment is depreciated over its estimated economic life. U.S. assets are depreciated using an accelerated method based on a sum-of-the-years digits formula; non-U.S. assets are generally depreciated on a straight-line basis.
The cost of GECC equipment leased to others on operating leases is depreciated on a straight-line basis to estimated residual value over the lease term or over the estimated economic life of the equipment.
The cost of GECC acquired real estate investments is depreciated on a straight-line basis to the estimated salvage value over the expected useful life or the estimated proceeds upon sale of the investment at the end of the expected holding period if that approach produces a higher measure of depreciation expense.
The cost of individually significant customer relationships is amortized in proportion to estimated total related sales; cost of other intangible assets is generally amortized on a straight-line basis over the asset’s estimated economic life. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. See Notes 7 and 8.
Losses on Financing Receivables
Losses on financing receivables are recognized when they are incurred, which requires us to make our best estimate of probable losses inherent in the portfolio. The method for calculating the best estimate of losses depends on the size, type and risk characteristics of the related financing receivable. Such an estimate requires consideration of historical loss experience, adjusted for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates, financial health of specific customers and market sectors, collateral values (including housing price indices as applicable), and the present and expected future levels of interest rates. The underlying assumptions, estimates and assessments we use to provide for losses are updated periodically to reflect our view of current conditions and are subject to the regulatory examination process, which can result in changes to our assumptions. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that we will experience credit losses that are different from our current estimates. Write-offs are deducted from the allowance for losses when we judge the principal to be uncollectible and subsequent recoveries are added to the allowance at the time cash is received on a written-off account.
"Impaired" loans are defined as larger-balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to the original contractual terms of the loan agreement.
The vast majority of our Consumer and a portion of our Commercial Lending and Leasing (CLL) nonaccrual receivables are excluded from this definition, as they represent smaller-balance homogeneous loans that we evaluate collectively by portfolio for impairment.
Impaired loans include nonaccrual receivables on larger-balance or restructured loans, loans that are currently paying interest under the cash basis and loans paying currently that had been previously restructured.
Specific reserves are recorded for individually impaired loans to the extent we have determined that it is probable that we will be unable to collect all amounts due according to original contractual terms of the loan agreement. Certain loans classified as impaired may not require a reserve because we believe that we will ultimately collect the unpaid balance (through collection or collateral repossession).
“Troubled debt restructurings” (TDRs) are those loans for which we have granted a concession to a borrower experiencing financial difficulties where we do not receive adequate compensation. Such loans are classified as impaired, and are individually reviewed for specific reserves.
“Nonaccrual financing receivables” are those on which we have stopped accruing interest. We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due, with the exception of consumer credit card accounts, for which we continue to accrue interest until the accounts are written off in the period that the account becomes 180 days past due. Although we stop accruing interest in advance of payments, we recognize interest income as cash is collected when appropriate provided the amount does not exceed that which would have been earned at the historical effective interest rate. Recently restructured financing receivables are not considered delinquent when payments are brought current according to the restructured terms, but may remain classified as nonaccrual until there has been a period of satisfactory payment performance by the borrower and future payments are reasonably assured of collection.
“Delinquent” receivables are those that are 30 days or more past due based on their contractual terms.
The same financing receivable may meet more than one of the definitions above. Accordingly, these categories are not mutually exclusive and it is possible for a particular loan to meet the definitions of a TDR, impaired loan and nonaccrual loan and be included in each of these categories. The categorization of a particular loan also may not be indicative of the potential for loss.
Our consumer loan portfolio consists of smaller-balance, homogeneous loans, including credit card receivables, installment loans, auto loans and leases and residential mortgages. We collectively evaluate each portfolio for impairment quarterly. The allowance for losses on these receivables is established through a process that estimates the probable losses inherent in the portfolio based upon statistical analyses of portfolio data. These analyses include migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, together with other analyses that reflect current trends and conditions. We also consider our historical loss experience to date based on actual defaulted loans and overall portfolio indicators including nonaccrual loans, trends in loan volume and lending terms, credit policies and other observable environmental factors such as unemployment rates and home price indices.
Our commercial loan and lease portfolio consists of a variety of loans and leases, including both larger-balance, non-homogeneous loans and leases and smaller-balance homogeneous loans and leases. Losses on such loans and leases are recorded when probable and estimable. We routinely evaluate our entire portfolio for potential specific credit or collection issues that might indicate an impairment.
For larger-balance, non-homogeneous loans and leases, we consider the financial status, payment history, collateral value, industry conditions and guarantor support related to specific customers. Any delinquencies or bankruptcies are indications of potential impairment requiring further assessment of collectability. We routinely receive financial as well as rating agency reports on our customers, and we elevate for further attention those customers whose operations we judge to be marginal or deteriorating. We also elevate customers for further attention when we observe a decline in collateral values for asset-based loans. While collateral values are not always available, when we observe such a decline, we evaluate relevant markets to assess recovery alternatives – for example, for real estate loans, relevant markets are local; for commercial aircraft loans, relevant markets are global.
Measurement of the loss on our impaired commercial loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of collateral, net of expected selling costs, if the loan is determined to be collateral dependent. We determine whether a loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. Our review process can often result in reserves being established in advance of a modification of terms or designation as a TDR. After providing for specific incurred losses, we then determine an allowance for losses that have been incurred in the balance of the portfolio but cannot yet be identified to a specific loan or lease. This estimate is based upon various statistical analyses considering historical and projected default rates and loss severity and aging, as well as our view on current market and economic conditions. It is prepared by each respective line of business. For Real Estate, this includes assessing the probability of default and the loss given default based on loss history of our portfolio for loans with similar loan metrics and attributes.
We consider multiple factors in evaluating the adequacy of our allowance for losses on Real Estate financing receivables, including loan-to-value ratios, collateral values at the individual loan level, debt service coverage ratios, delinquency status, and economic factors including interest rate and real estate market forecasts. In addition to these factors, we evaluate a Real Estate loan for impairment classification if its projected loan-to-value ratio at maturity is in excess of 100%, even if the loan is currently paying in accordance with its contractual terms. Substantially all of the loans in the Real Estate portfolio are considered collateral dependent and are measured for impairment based on the fair value of collateral. If foreclosure is deemed probable or if repayment is dependent solely on the sale of collateral, we also include estimated selling costs in our reserve. Collateral values for our Real Estate loans are determined based upon internal cash flow estimates discounted at an appropriate rate and corroborated by external appraisals, as appropriate. Collateral valuations are routinely monitored and updated annually, or more frequently for changes in collateral, market and economic conditions. Further discussion on determination of fair value is in the Fair Value Measurements section below.
Experience is not available for new products; therefore, while we are developing that experience, we set loss allowances based on our experience with the most closely analogous products in our portfolio.
Our loss mitigation strategy intends to minimize economic loss and, at times, can result in rate reductions, principal forgiveness, extensions, forbearance or other actions, which may cause the related loan to be classified as a TDR.
We utilize certain loan modification programs for borrowers experiencing temporary financial difficulties in our Consumer loan portfolio. These loan modification programs are primarily concentrated in our non-U.S. residential mortgage and non-U.S. installment and revolving portfolios and include short-term (three months or less) interest rate reductions and payment deferrals, which were not part of the terms of the original contract. We sold our U.S. residential mortgage business in 2007 and, as such, do not participate in the U.S. government-sponsored mortgage modification programs.
Our allowance for losses on financing receivables on these modified consumer loans is determined based upon a formulaic approach that estimates the probable losses inherent in the portfolio based upon statistical analyses of the portfolio. Data related to redefault experience is also considered in our overall reserve adequacy review. Once the loan has been modified, it returns to current status (re-aged) only after receipt of at least three consecutive minimum monthly payments or the equivalent cumulative amount, subject to a re-aging limitation of once a year, or twice in a five-year period in accordance with the Federal Financial Institutions Examination Council guidelines on Uniform Retail Credit Classification and Account Management policy issued in June 2000. We believe that the allowance for losses would not be materially different had we not re-aged these accounts.
For commercial loans, we evaluate changes in terms and conditions to determine whether those changes meet the criteria for classification as a TDR on a loan-by-loan basis. In CLL, these changes primarily include: changes to covenants, short-term payment deferrals and maturity extensions. For these changes, we receive economic consideration, including additional fees and/or increased interest rates, and evaluate them under our normal underwriting standards and criteria. Changes to Real Estate’s loans primarily include maturity extensions, principal payment acceleration, changes to collateral terms, and cash sweeps, which are in addition to, or sometimes in lieu of, fees and rate increases. The determination of whether these changes to the terms and conditions of our commercial loans meet the TDR criteria includes our consideration of all of the relevant facts and circumstances. When the borrower is experiencing financial difficulty, we carefully evaluate these changes to determine whether they meet the form of a concession. In these circumstances, if the change is deemed to be a concession, we classify the loan as a TDR.
When we repossess collateral in satisfaction of a loan, we write down the receivable against the allowance for losses. Repossessed collateral is included in the caption “All other assets” in the Statement of Financial Position and carried at the lower of cost or estimated fair value less costs to sell.
For Consumer loans, we write off unsecured closed-end installment loans when they are 120 days contractually past due and unsecured open-ended revolving loans at 180 days contractually past due. We write down consumer loans secured by collateral other than residential real estate when such loans are 120 days past due. Consumer loans secured by residential real estate (both revolving and closed-end loans) are written down to the fair value of collateral, less costs to sell, no later than when they become 180 days past due. Unsecured consumer loans in bankruptcy are written off within 60 days of notification of filing by the bankruptcy court or within contractual write-off periods, whichever occurs earlier.
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Write-offs on larger-balance impaired commercial loans are based on amounts deemed uncollectible and are reviewed quarterly. Write-offs are determined based on the consideration of many factors, such as expectations of the workout plan or restructuring of the loan, valuation of the collateral and the prioritization of our claim in bankruptcy. Write-offs are recognized against the allowance for losses at the earlier of transaction confirmation (for example, discounted pay-off, restructuring, foreclosure, etc.) or not later than 360 days after initial recognition of a specific reserve for a collateral dependent loan. If foreclosure is probable, the write-off is determined based on the fair value of the collateral less costs to sell. Smaller-balance, homogeneous commercial loans are written off at the earlier of when deemed uncollectible or at 180 days past due.
Partial Sales of Business Interests
Gains or losses on sales of affiliate shares where we retain a controlling financial interest are recorded in equity. Gains or losses on sales that result in our loss of a controlling financial interest are recorded in earnings along with remeasurement gains or losses on any investments in the entity that we retained.
Cash and Equivalents
Debt securities and money market instruments with original maturities of three months or less are included in cash equivalents unless designated as available-for-sale and classified as investment securities.
Investment Securities
We report investments in debt and marketable equity securities, and certain other equity securities, at fair value. See Note 21 for further information on fair value. Unrealized gains and losses on available-for-sale investment securities are included in shareowners’ equity, net of applicable taxes and other adjustments. We regularly review investment securities for impairment using both quantitative and qualitative criteria.
For debt securities, if we do not intend to sell the security or it is not more likely than not that we will be required to sell the security before recovery of our amortized cost, we evaluate other qualitative criteria to determine whether we do not expect to recover the amortized cost basis of the security, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. We also evaluate quantitative criteria including determining whether there has been an adverse change in expected future cash flows. If we do not expect to recover the entire amortized cost basis of the security, we consider the security to be other-than-temporarily impaired, and we record the difference between the security’s amortized cost basis and its recoverable amount in earnings and the difference between the security’s recoverable amount and fair value in other comprehensive income. If we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, the security is also considered other-than-temporarily impaired and we recognize the entire difference between the security’s amortized cost basis and its fair value in earnings. For equity securities, we consider the length of time and magnitude of the amount that each security is in an unrealized loss position. If we do not expect to recover the entire amortized cost basis of the security, we consider the security to be other-than-temporarily impaired, and we record the difference between the security’s amortized cost basis and its fair value in earnings.
Realized gains and losses are accounted for on the specific identification method. Unrealized gains and losses on investment securities classified as trading and certain retained interests are included in earnings.
Inventories
All inventories are stated at the lower of cost or realizable values. Cost for a significant portion of GE U.S. inventories is determined on a last-in, first-out (LIFO) basis. Cost of other GE inventories is determined on a first-in, first-out (FIFO) basis. LIFO was used for 40% and 39% of GE inventories at 2014 and 2013, respectively.
Goodwill and Other Intangible Assets
We do not amortize goodwill, but test it at least annually for impairment at the reporting unit level. A reporting unit is the operating segment, or one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. We recognize an impairment charge if the carrying amount of a reporting unit exceeds its fair value and the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill. We use a market approach, when available and appropriate, or the income approach, or a combination of both to establish fair values. When a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will be retained.
We amortize the cost of other intangibles over their estimated useful lives unless such lives are deemed indefinite. The cost of intangible assets is generally amortized on a straight-line basis over the asset’s estimated economic life, except that individually significant customer-related intangible assets are amortized in relation to total related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested annually for impairment and written down to fair value as required.
GECC Investment Contracts, Insurance Liabilities and Insurance Annuity Benefits
Certain entities that we consolidate provide guaranteed investment contracts, primarily to states, municipalities and municipal authorities.
Our insurance activities include providing insurance and reinsurance for life and health risks and providing certain annuity products. Two primary product groups are provided: traditional insurance contracts and investment contracts. Insurance contracts are contracts with significant mortality and/or morbidity risks, while investment contracts are contracts without such risks.
For short-duration insurance contracts, including accident and health insurance, we report premiums as earned income over the terms of the related agreements, generally on a pro-rata basis. For traditional long-duration insurance contracts including long-term care, term, whole life and annuities payable for the life of the annuitant, we report premiums as earned income when due.
Premiums received on investment contracts (including annuities without significant mortality risk) are not reported as revenues but rather as deposit liabilities. We recognize revenues for charges and assessments on these contracts, mostly for mortality, contract initiation, administration and surrender. Amounts credited to policyholder accounts are charged to expense.
Liabilities for traditional long-duration insurance contracts represent the present value of such benefits less the present value of future net premiums based on mortality, morbidity, interest and other assumptions at the time the policies were issued or acquired. Liabilities for investment contracts equal the account value, that is, the amount that accrues to the benefit of the contract or policyholder including credited interest and assessments through the financial statement date. For guaranteed investment contracts, the liability is also adjusted as a result of fair value hedging activity.
Liabilities for unpaid claims and estimated claim settlement expenses represent our best estimate of the ultimate obligations for reported and incurred-but-not-reported claims and the related estimated claim settlement expenses. Liabilities for unpaid claims and estimated claim settlement expenses are continually reviewed and adjusted through current operations.
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Fair Value Measurements
For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
Level 1 –\tQuoted prices for identical instruments in active markets.
Level 2 –\tQuoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 –\tSignificant inputs to the valuation model are unobservable.
We maintain policies and procedures to value instruments using the best and most relevant data available. In addition, we have risk management teams that review valuation, including independent price validation for certain instruments. With regard to Level 3 valuations (including instruments valued by third parties), we perform a variety of procedures to assess the reasonableness of the valuations. Such reviews, which may be performed quarterly, monthly or weekly, include an evaluation of instruments whose fair value change exceeds predefined thresholds (and/or does not change) and consider the current interest rate, currency and credit environment, as well as other published data, such as rating agency market reports and current appraisals. These reviews are performed within each business by the asset and risk managers, pricing committees and valuation committees. A detailed review of methodologies and assumptions is performed by individuals independent of the business for individual measurements with a fair value exceeding predefined thresholds. This detailed review may include the use of a third-party valuation firm.
Recurring Fair Value Measurements
The following sections describe the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis.
Investments in Debt and Equity Securities. When available, we use quoted market prices to determine the fair value of investment securities, and they are included in Level 1. Level 1 securities primarily include publicly traded equity securities.
For large numbers of investment securities for which market prices are observable for identical or similar investment securities but not readily accessible for each of those investments individually (that is, it is difficult to obtain pricing information for each individual investment security at the measurement date), we obtain pricing information from an independent pricing vendor. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to the model of the pricing vendor are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many fixed income securities do not trade on a daily basis, the methodology of the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. The pricing vendor considers available market observable inputs in determining the evaluation for a security. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2 and primarily comprise our portfolio of corporate fixed income, and government, mortgage and asset-backed securities. In infrequent circumstances, our pricing vendors may provide us with valuations that are based on significant unobservable inputs, and in those circumstances we classify the investment securities in Level 3.
Annually, we conduct reviews of our primary pricing vendor to validate that the inputs used in that vendor’s pricing process are deemed to be market observable as defined in the standard. While we are not provided access to proprietary models of the vendor, our reviews have included on-site walk-throughs of the pricing process, methodologies and control procedures for each asset class and level for which prices are provided. Our reviews also include an examination of the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels and various durations, a process we perform each reporting period. In addition, the pricing vendor has an established challenge process in place for all security valuations, which facilitates identification and resolution of potentially erroneous prices. We believe that the prices received from our pricing vendor are representative of prices that would be received to sell the assets at the measurement date (exit prices) and are classified appropriately in the hierarchy.
We use non-binding broker quotes and other third-party pricing services as our primary basis for valuation when there is limited, or no, relevant market activity for a specific instrument or for other instruments that share similar characteristics. We have not adjusted the prices we have obtained. Investment securities priced using non-binding broker quotes and other third-party pricing services are included in Level 3. As is the case with our primary pricing vendor, third-party brokers and other third-party pricing services do not provide access to their proprietary valuation models, inputs and assumptions. Accordingly, our risk management personnel conduct reviews of vendors, as applicable, similar to the reviews performed of our primary pricing vendor. In addition, we conduct internal reviews of pricing for all such investment securities quarterly to ensure reasonableness of valuations used in our financial statements. These reviews are designed to identify prices that appear stale, those that have changed significantly from prior valuations, and other anomalies that may indicate that a price may not be accurate. Based on the information available, we believe that the fair values provided by the brokers and other third-party pricing services are representative of prices that would be received to sell the assets at the measurement date (exit prices).
Derivatives. We use closing prices for derivatives included in Level 1, which are traded either on exchanges or liquid over-the-counter markets.
The majority of our derivatives are valued using internal models. The models maximize the use of market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent interest rate swaps, cross-currency swaps and foreign currency and commodity forward and option contracts.
Derivative assets and liabilities included in Level 3 primarily represent equity derivatives and interest rate products that contain embedded optionality or prepayment features.
Non-recurring Fair Value Measurements
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances. These assets can include loans and long-lived assets that have been reduced to fair value when they are held for sale, impaired loans that have been reduced based on the fair value of the underlying collateral, cost and equity method investments and long-lived assets that are written down to fair value when they are impaired and the remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of a subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.
The following sections describe the valuation methodologies we use to measure financial and non-financial instruments accounted for at fair value on a non-recurring basis and for certain assets within our pension plans and retiree benefit plans at each reporting period, as applicable.
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Financing Receivables and Loans Held for Sale. When available, we use observable market data, including pricing on recent closed market transactions, to value loans that are included in Level 2. When this data is unobservable, we use valuation methodologies using current market interest rate data adjusted for inherent credit risk, and such loans are included in Level 3. When appropriate, loans may be valued using collateral values (see Long-Lived Assets below).
Cost and Equity Method Investments. Cost and equity method investments are valued using market observable data such as quoted prices when available. When market observable data is unavailable, investments are valued using a discounted cash flow model, comparative market multiples or a combination of both approaches as appropriate and other third-party pricing sources. These investments are generally included in Level 3.
Investments in private equity, real estate and collective funds are valued using net asset values. The net asset values are determined based on the fair values of the underlying investments in the funds. Investments in private equity and real estate funds are generally included in Level 3 because they are not redeemable at the measurement date. Investments in collective funds are included in Level 2.
Long-lived Assets, including Real Estate. Fair values of long-lived assets, including aircraft and real estate, are primarily derived internally and are based on observed sales transactions for similar assets. In other instances, for example, collateral types for which we do not have comparable observed sales transaction data, collateral values are developed internally and corroborated by external appraisal information. Adjustments to third-party valuations may be performed in circumstances where market comparables are not specific to the attributes of the specific collateral or appraisal information may not be reflective of current market conditions due to the passage of time and the occurrence of market events since receipt of the information. For real estate, fair values are based on discounted cash flow estimates that reflect current and projected lease profiles and available industry information about capitalization rates and expected trends in rents and occupancy and are corroborated by external appraisals. These investments are generally included in Level 2 or Level 3.
Retained Investments in Formerly Consolidated Subsidiaries. Upon a change in control that results in deconsolidation of a subsidiary, the fair value measurement of our retained noncontrolling stake is valued using market observable data such as quoted prices when available, or if not available, an income approach, a market approach, or a combination of both approaches as appropriate. In applying these methodologies, we rely on a number of factors, including actual operating results, future business plans, economic projections, market observable pricing multiples of similar businesses and comparable transactions, and possible control premium. These investments are generally included in Level 1 or Level 3, as appropriate, determined at the time of the transaction.
Accounting Changes
In the second quarter of 2014, the Company elected to early adopt Accounting Standards Update (ASU) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU changes the criteria for reporting discontinued operations. To be classified as a discontinued operation, the disposal of a component or group of components must represent a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The ASU also expands the disclosure requirements for those transactions that meet the new criteria to be classified as discontinued operations. The revised accounting guidance applies prospectively to all disposals (or classifications as held for sale) of components of an entity and for businesses that, upon acquisition, are classified as held for sale on or after adoption. Early adoption is permitted for disposals (or classifications as held for sale) that have not been previously reported in financial statements. The effects of applying the revised guidance will vary based upon the nature and size of future disposal transactions. It is expected that fewer disposal transactions will meet the new criteria to be reported as discontinued operations.
\n
On January 1, 2014, we adopted ASU 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. Under the revised guidance, the entire amount of the cumulative translation adjustment associated with the foreign entity will be released into earnings in the following circumstances: (a) the sale of a subsidiary or group of net assets within a foreign entity that represents a complete or substantially complete liquidation of that entity, (b) the loss of a controlling financial interest in an investment in a foreign entity, or (c) when the accounting for an investment in a foreign entity changes from the equity method to full consolidation. The revised guidance applies prospectively to transactions or events occurring on or after January 1, 2014.
On January 1, 2014, we adopted ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under the new guidance, an unrecognized tax benefit is required to be presented as a reduction to a deferred tax asset if the disallowance of the tax position would reduce the available tax loss or tax credit carryforward instead of resulting in a cash tax liability. The ASU applies prospectively to all unrecognized tax benefits that exist as of the adoption date and reduced both deferred tax assets and income tax liabilities by $1,224 million as of January 1, 2014.
On January 1, 2012, we adopted ASU 2011-05, an amendment to Accounting Standards Codification (ASC) 220, Comprehensive Income. ASU 2011-05 introduced a new statement, the Consolidated Statement of Comprehensive Income. The amendments affect only the display of those components of equity categorized as other comprehensive income and do not change existing recognition and measurement requirements that determine net earnings.
On January 1, 2012, we adopted ASU 2011-04, an amendment to ASC 820, Fair Value Measurements. ASU 2011-04 clarifies or changes the application of existing fair value measurements, including: that the highest and best use valuation premise in a fair value measurement is relevant only when measuring the fair value of nonfinancial assets; that a reporting entity should measure the fair value of its own equity instrument from the perspective of a market participant that holds that instrument as an asset; to permit an entity to measure the fair value of certain financial instruments on a net basis rather than based on its gross exposure when the reporting entity manages its financial instruments on the basis of such net exposure; that in the absence of a Level 1 input, a reporting entity should apply premiums and discounts when market participants would do so when pricing the asset or liability consistent with the unit of account; and that premiums and discounts related to size as a characteristic of the reporting entity’s holding are not permitted in a fair value measurement. Adopting these amendments had no effect on the financial statements.
| December 31 (In millions) | Non-impaired financing receivables | General reserves | Impaired loans | Specific reserves | |||||||
| 2014 | |||||||||||
| Commercial | $ | 118,381 | $ | 758 | $ | 3,095 | $ | 145 | |||
| Real Estate | 17,925 | 136 | 1,872 | 25 | |||||||
| Consumer | 98,640 | 3,603 | 2,180 | 408 | |||||||
| Total | $ | 234,946 | $ | 4,497 | $ | 7,147 | $ | 578 | |||
| 2013 | |||||||||||
| Commercial | $ | 125,377 | $ | 677 | $ | 3,892 | $ | 328 | |||
| Real Estate | 16,039 | 118 | 3,860 | 74 | |||||||
| Consumer | 106,051 | 3,414 | 2,988 | 567 | |||||||
| Total | $ | 247,467 | $ | 4,209 | $ | 10,740 | $ | 969 | |||
| GROSS REALIZED GAINS AND LOSSES ON AVAILABLE-FOR-SALE INVESTMENT SECURITIES | |||||||||
| (In millions) | 2014 | 2013 | 2012 | ||||||
| GE | |||||||||
| Gains | $ | 3 | $ | 1 | $ | - | |||
| Losses, including impairments | (218) | (20) | (1) | ||||||
| Net | (215) | (19) | (1) | ||||||
| GECC | |||||||||
| Gains | 169 | 239 | 177 | ||||||
| Losses, including impairments | (186) | (762) | (211) | ||||||
| Net | (17) | (523) | (34) | ||||||
| Total | $ | (232) | $ | (542) | $ | (35) | |||
NOTE 10. BORROWINGS AND BANK DEPOSITS
| December 31 (Dollars in millions) | 2014 | 2013 | ||||||||||
| Short-term borrowings | Amount | Average Rate(a) | Amount | Average Rate(a) | ||||||||
| GE | ||||||||||||
| Commercial paper | $ | 500 | 0.10 | % | $ | - | - | % | ||||
| Payable to banks | 343 | 1.32 | 346 | 3.38 | ||||||||
| Current portion of long-term borrowings | 2,068 | 1.05 | 70 | 5.65 | ||||||||
| Other | 961 | 1,425 | ||||||||||
| Total GE short-term borrowings | 3,872 | 1,841 | ||||||||||
| GECC | ||||||||||||
| Commercial paper | ||||||||||||
| U.S. | 22,019 | 0.19 | 24,877 | 0.18 | ||||||||
| Non-U.S. | 2,993 | 0.25 | 4,168 | 0.33 | ||||||||
| Current portion of long-term borrowings(b)(c)(f) | 37,989 | 2.54 | 39,215 | 2.70 | ||||||||
| GE Interest Plus notes(d) | 5,467 | 1.01 | 8,699 | 1.11 | ||||||||
| Other(c) | 312 | 339 | ||||||||||
| Total GECC short-term borrowings | 68,780 | 77,298 | ||||||||||
| Eliminations | (863) | (1,249) | ||||||||||
| Total short-term borrowings | $ | 71,789 | $ | 77,890 | ||||||||
| Long-term borrowings | Maturities | Amount | Average Rate(a) | Amount | Average Rate(a) | |||||||
| GE | ||||||||||||
| Senior notes | 2017-2044 | $ | 11,945 | 4.25 | % | $ | 10,968 | 3.63 | % | |||
| Payable to banks | 2016-2019 | 5 | 0.89 | 10 | 1.10 | |||||||
| Other | 518 | 537 | ||||||||||
| Total GE long-term borrowings | 12,468 | 11,515 | ||||||||||
| GECC | ||||||||||||
| Senior unsecured notes(b)(e) | 2016-2055 | 162,629 | 2.72 | 186,433 | 2.97 | |||||||
| Subordinated notes(f) | 2021-2037 | 4,804 | 3.36 | 4,821 | 3.93 | |||||||
| Subordinated debentures(g) | 2066-2067 | 7,085 | 5.88 | 7,462 | 5.64 | |||||||
| Other(c)(h) | 13,473 | 11,563 | ||||||||||
| Total GECC long-term borrowings | 187,991 | 210,279 | ||||||||||
| Eliminations | (45) | (129) | ||||||||||
| Total long-term borrowings | $ | 200,414 | $ | 221,665 | ||||||||
| Non-recourse borrowings of | ||||||||||||
| consolidated securitization entities(i) | 2015-2019 | $ | 29,938 | 1.04 | % | $ | 30,124 | 1.05 | % | |||
| Bank deposits(j) | $ | 62,839 | $ | 53,361 | ||||||||
| Total borrowings and bank deposits | $ | 364,980 | $ | 383,040 | ||||||||
(j)\tIncluded $10,258 million and $13,614 million of deposits in non-U.S. banks at December 31, 2014 and 2013, respectively, and $22,848 million and $18,275 million of certificates of deposits with maturities greater than one year at December 31, 2014 and 2013, respectively.
In the first quarter of 2014, GE issued $3,000 million senior unsecured debt, composed of $750 million aggregate principal amount of 3.375% Notes due 2024 and $2,250 million aggregate principal amount of 4.500% Notes due 2044.
Additional information about borrowings and associated swaps can be found in Note 22.
Liquidity is affected by debt maturities and our ability to repay or refinance such debt. Long-term debt maturities over the next five years follow.
| (In millions) | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||
| GE | $ | 2,068 | $ | 194 | $ | 4,052 | $ | 28 | $ | 29 | ||||
| GECC | 37,989 | (a) | 31,707 | 27,041 | 19,011 | 21,956 | ||||||||
(a)\tFixed and floating rate notes of $474 million contain put options with exercise dates in 2015, and which have final maturity beyond 2019.
Committed credit lines totaling $44.9 billion had been extended to us by 50 banks at year-end 2014. GECC can borrow up to $44.4 billion under these credit lines. GE can borrow up to $14.2 billion under certain of these credit lines. The GECC lines include $25.1 billion of revolving credit agreements under which we can borrow funds for periods exceeding one year. Additionally, $19.3 billion are 364-day lines that contain a term-out feature that allows us to extend the borrowings for two years from the date on which such borrowings would otherwise be due.
NOTE 20. EARNINGS PER SHARE INFORMATION
| 2014 | 2013 | 2012 | |||||||||||||||
| (In millions; per-share amounts in dollars) | Diluted | Basic | Diluted | Basic | Diluted | Basic | |||||||||||
| Amounts attributable to the Company: | |||||||||||||||||
| Consolidated | |||||||||||||||||
| Earnings from continuing operations attributable to | |||||||||||||||||
| common shareowners for per-share calculation(a)(b) | $ | 15,325 | $ | 15,324 | $ | 15,145 | $ | 15,157 | $ | 14,604 | $ | 14,603 | |||||
| Earnings (loss) from discontinued operations | |||||||||||||||||
| for per-share calculation(a)(b) | (111) | (111) | (2,128) | (2,116) | (980) | (980) | |||||||||||
| Net earnings attributable to GE common | |||||||||||||||||
| shareowners for per-share calculation(a)(b) | $ | 15,213 | $ | 15,212 | $ | 13,028 | $ | 13,040 | $ | 13,622 | $ | 13,622 | |||||
| Average equivalent shares | |||||||||||||||||
| Shares of GE common stock outstanding | 10,045 | 10,045 | 10,222 | 10,222 | 10,523 | 10,523 | |||||||||||
| Employee compensation-related shares (including | |||||||||||||||||
| stock options) and warrants | 78 | - | 67 | - | 41 | - | |||||||||||
| Total average equivalent shares | 10,123 | 10,045 | 10,289 | 10,222 | 10,564 | 10,523 | |||||||||||
| Per-share amounts | |||||||||||||||||
| Earnings from continuing operations | $ | 1.51 | $ | 1.53 | $ | 1.47 | $ | 1.48 | $ | 1.38 | $ | 1.39 | |||||
| Earnings (loss) from discontinued operations | (0.01) | (0.01) | (0.21) | (0.21) | (0.09) | (0.09) | |||||||||||
| Net earnings | 1.50 | 1.51 | 1.27 | 1.28 | 1.29 | 1.29 | |||||||||||
Our unvested restricted stock unit awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and, therefore, are included in the computation of earnings per share pursuant to the two-class method. Application of this treatment has an insignificant effect.
For the years ended December 31, 2014, 2013 and 2012, there were approximately 98 million, 121 million and 292 million, respectively, of outstanding stock awards that were not included in the computation of diluted earnings per share because their effect was antidilutive.
Earnings-per-share amounts are computed independently for earnings from continuing operations, earnings (loss) from discontinued operations and net earnings. As a result, the sum of per-share amounts from continuing operations and discontinued operations may not equal the total per-share amounts for net earnings.
| December 31 (Dollars in millions) | 2014 | 2013 | ||||||||||
| Short-term borrowings | Amount | Average Rate(a) | Amount | Average Rate(a) | ||||||||
| GE | ||||||||||||
| Commercial paper | $ | 500 | 0.10 | % | $ | - | - | % | ||||
| Payable to banks | 343 | 1.32 | 346 | 3.38 | ||||||||
| Current portion of long-term borrowings | 2,068 | 1.05 | 70 | 5.65 | ||||||||
| Other | 961 | 1,425 | ||||||||||
| Total GE short-term borrowings | 3,872 | 1,841 | ||||||||||
| GECC | ||||||||||||
| Commercial paper | ||||||||||||
| U.S. | 22,019 | 0.19 | 24,877 | 0.18 | ||||||||
| Non-U.S. | 2,993 | 0.25 | 4,168 | 0.33 | ||||||||
| Current portion of long-term borrowings(b)(c)(f) | 37,989 | 2.54 | 39,215 | 2.70 | ||||||||
| GE Interest Plus notes(d) | 5,467 | 1.01 | 8,699 | 1.11 | ||||||||
| Other(c) | 312 | 339 | ||||||||||
| Total GECC short-term borrowings | 68,780 | 77,298 | ||||||||||
| Eliminations | (863) | (1,249) | ||||||||||
| Total short-term borrowings | $ | 71,789 | $ | 77,890 | ||||||||
| Long-term borrowings | Maturities | Amount | Average Rate(a) | Amount | Average Rate(a) | |||||||
| GE | ||||||||||||
| Senior notes | 2017-2044 | $ | 11,945 | 4.25 | % | $ | 10,968 | 3.63 | % | |||
| Payable to banks | 2016-2019 | 5 | 0.89 | 10 | 1.10 | |||||||
| Other | 518 | 537 | ||||||||||
| Total GE long-term borrowings | 12,468 | 11,515 | ||||||||||
| GECC | ||||||||||||
| Senior unsecured notes(b)(e) | 2016-2055 | 162,629 | 2.72 | 186,433 | 2.97 | |||||||
| Subordinated notes(f) | 2021-2037 | 4,804 | 3.36 | 4,821 | 3.93 | |||||||
| Subordinated debentures(g) | 2066-2067 | 7,085 | 5.88 | 7,462 | 5.64 | |||||||
| Other(c)(h) | 13,473 | 11,563 | ||||||||||
| Total GECC long-term borrowings | 187,991 | 210,279 | ||||||||||
| Eliminations | (45) | (129) | ||||||||||
| Total long-term borrowings | $ | 200,414 | $ | 221,665 | ||||||||
| Non-recourse borrowings of | ||||||||||||
| consolidated securitization entities(i) | 2015-2019 | $ | 29,938 | 1.04 | % | $ | 30,124 | 1.05 | % | |||
| Bank deposits(j) | $ | 62,839 | $ | 53,361 | ||||||||
| Total borrowings and bank deposits | $ | 364,980 | $ | 383,040 | ||||||||
(j)\tIncluded $10,258 million and $13,614 million of deposits in non-U.S. banks at December 31, 2014 and 2013, respectively, and $22,848 million and $18,275 million of certificates of deposits with maturities greater than one year at December 31, 2014 and 2013, respectively.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
| Depreciable | ||||||||||||||||
| lives-new | Original Cost | Net Carrying Value | ||||||||||||||
| December 31 (Dollars in millions) | (in years) | 2014 | 2013 | 2014 | 2013 | |||||||||||
| GE | ||||||||||||||||
| Land and improvements | 8 | (a) | $ | 700 | $ | 707 | $ | 689 | $ | 671 | ||||||
| Buildings, structures and related equipment | 8-40 | 7,683 | 8,910 | 3,048 | 4,205 | |||||||||||
| Machinery and equipment | 4-20 | 23,437 | 25,323 | 9,085 | 9,701 | |||||||||||
| Leasehold costs and manufacturing plant under construction | 1-10 | 4,731 | 3,309 | 4,385 | 2,997 | |||||||||||
| 36,551 | 38,249 | 17,207 | 17,574 | |||||||||||||
| GECC(b) | ||||||||||||||||
| Land and improvements, buildings, structures and related equipment | 1-35 | (a) | 2,233 | 2,504 | 952 | 1,025 | ||||||||||
| Equipment leased to others | ||||||||||||||||
| Aircraft(c) | 20 | 49,280 | 50,337 | 32,795 | 34,938 | |||||||||||
| Vehicles | 1-20 | 14,251 | 14,656 | 8,144 | 8,312 | |||||||||||
| Railroad rolling stock | 4-50 | 4,379 | 4,636 | 2,998 | 3,129 | |||||||||||
| Construction and manufacturing | 1-20 | 3,411 | 2,916 | 2,321 | 1,955 | |||||||||||
| All other | 6-25 | 3,678 | 3,518 | 2,360 | 2,248 | |||||||||||
| 77,232 | 78,567 | 49,570 | 51,607 | |||||||||||||
| Eliminations | (462) | (419) | (390) | (354) | ||||||||||||
| Total | $ | 113,321 | $ | 116,397 | $ | 66,387 | $ | 68,827 | ||||||||
(a)\tDepreciable lives exclude land.
(b)\tIncluded $1,845 million and $1,353 million of original cost of assets leased to GE with accumulated amortization of $560 million and $342 million at December 31, 2014 and 2013, respectively.
(c)\tThe GECAS business of GE Capital recognized impairment losses of $445 million and $732 million in 2014 and 2013, respectively. These losses are recorded in the caption “Other costs and expenses” in the Statement of Earnings to reflect adjustments to fair value based on an evaluation of average current market values (obtained from third parties) of similar type and age aircraft, which are adjusted for the attributes of the specific aircraft under lease.
Consolidated depreciation and amortization related to property, plant and equipment was $9,283 million, $9,762 million and $9,192 million in 2014, 2013 and 2012, respectively. Amortization of GECC equipment leased to others was $6,245 million, $6,696 million and $6,097 million in 2014, 2013 and 2012, respectively.
Noncancellable future rentals due from customers for equipment on operating leases at December 31, 2014, are as follows:
| (In millions) | ||
| Due in | ||
| 2015 | $ | 6,953 |
| 2016 | 5,731 | |
| 2017 | 4,658 | |
| 2018 | 3,652 | |
| 2019 | 2,886 | |
| 2020 and later | 7,375 | |
| Total | $ | 31,255 |
| LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS | |||||||||
| Range | |||||||||
| (Dollars in millions) | Fair value | Valuation technique | Unobservable inputs | (weighted average) | |||||
| December 31, 2014 | |||||||||
| Recurring fair value measurements | |||||||||
| Investment securities – Debt | |||||||||
| U.S. corporate | $ | 980 | Income approach | Discount rate(a) | 1.5%-14.8% (6.6%) | ||||
| State and municipal | 481 | Income approach | Discount rate(a) | 1.9%-5.9% (2.8%) | |||||
| Asset-backed | 7,554 | Income approach | Discount rate(a) | 2.2%-12.4% (5.0%) | |||||
| Corporate – non-U.S. | 724 | Income approach | Discount rate(a) | 0.4%-14.7% (7.6%) | |||||
| Other financial assets | 165 | Income approach, | EBITDA multiple | 5.4X-9.1X (7.7X) | |||||
| Market comparables | Discount rate(a) | 4.2%-4.7% (4.3%) | |||||||
| Capitalization rate(b) | 6.5%-7.8% (7.7%) | ||||||||
| Non-recurring fair value measurements | |||||||||
| Financing receivables and | $ | 666 | Income approach, | Capitalization rate(b) | 6.9%-11.0% (7.8%) | ||||
| loans held for sale | Business enterprise | EBITDA multiple | 4.3X-6.5X (6.2X) | ||||||
| value | |||||||||
| Cost and equity method investments | 346 | Income approach, | Discount rate(a) | 8.0%-10.0% (9.4%) | |||||
| Business enterprise | Capitalization rate(b) | 6.4%-6.4% (6.4%) | |||||||
| value, Market comparables | EBITDA multiple | 1.8X-10.5X (7.0X) | |||||||
| Long-lived assets, including real estate | 932 | Income approach | Capitalization rate(b) | 6.3%-15.3% (6.8%) | |||||
| Discount rate(a) | 2.0%-19.0% (6.8%) | ||||||||
| December 31, 2013 | |||||||||
| Recurring fair value measurements | |||||||||
| Investment securities – Debt | |||||||||
| U.S. corporate | $ | 898 | Income approach | Discount rate(a) | 1.5%-13.3% (6.5%) | ||||
| Asset-backed | 6,854 | Income approach | Discount rate(a) | 1.2%-10.5%(3.7%) | |||||
| Corporate – non-U.S. | 819 | Income approach | Discount rate(a) | 1.4%-46.0%(15.1%) | |||||
| Other financial assets | 381 | Income approach, | WACC(c) | 9.3%-9.3% (9.3%) | |||||
| Market comparables | EBITDA multiple | 5.4X-12.5X(9.5X) | |||||||
| Discount rate(a) | 5.2%-8.8%(5.3%) | ||||||||
| Capitalization rate(b) | 6.3%-7.5%(7.2%) | ||||||||
| Non-recurring fair value measurements | |||||||||
| Financing receivables and | $ | 1,937 | Income approach, | Capitalization rate(b) | 5.5%-16.7%(8.0%) | ||||
| loans held for sale | Business enterprise | EBITDA multiple | 4.3X-5.5X(4.8X) | ||||||
| value | Discount rate(a) | 6.6%-6.6% (6.6%) | |||||||
| Cost and equity method investments | 102 | Income approach, | Discount rate(a) | 5.7%-5.9%(5.8%) | |||||
| Market comparables | Capitalization rate(b) | 8.5%-10.6% (10.0%) | |||||||
| WACC(c) | 9.3%-9.6%(9.4%) | ||||||||
| EBITDA multiple | 7.1X-14.5X(11.3X) | ||||||||
| Revenue multiple | 2.2X-12.6X(9.4X) | ||||||||
| Long-lived assets, including real estate | 694 | Income approach | Capitalization rate(b) | 5.4%-14.5%(7.8%) | |||||
| Discount rate(a) | 4.0%-23.0%(9.0%) | ||||||||
| ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS | ||||||||||||||
| Netting | ||||||||||||||
| (In millions) | Level 1 | (a) | Level 2 | (a) | Level 3 | adjustment | (b) | Net balance | ||||||
| December 31, 2014 | ||||||||||||||
| Assets | ||||||||||||||
| Investment securities | ||||||||||||||
| Debt | ||||||||||||||
| U.S. corporate | $ | - | $ | 20,659 | $ | 3,140 | $ | - | $ | 23,799 | ||||
| State and municipal | - | 5,171 | 578 | - | 5,749 | |||||||||
| Residential mortgage-backed | - | 1,709 | 16 | - | 1,725 | |||||||||
| Commercial mortgage-backed | - | 3,054 | 9 | - | 3,063 | |||||||||
| Asset-backed(c) | - | 343 | 7,575 | - | 7,918 | |||||||||
| Corporate – non-U.S. | - | 681 | 796 | - | 1,477 | |||||||||
| Government – non-U.S. | 56 | 1,738 | 2 | - | 1,796 | |||||||||
| U.S. government and federal agency | - | 1,747 | 266 | - | 2,013 | |||||||||
| Retained interests | - | - | 24 | - | 24 | |||||||||
| Equity | ||||||||||||||
| Available-for-sale | 293 | 19 | 9 | - | 321 | |||||||||
| Trading | 20 | 2 | - | - | 22 | |||||||||
| Derivatives(d) | - | 10,038 | 144 | (7,605) | 2,577 | |||||||||
| Other(e) | - | - | 324 | - | 324 | |||||||||
| Total | $ | 369 | $ | 45,161 | $ | 12,883 | $ | (7,605) | $ | 50,808 | ||||
| Liabilities | ||||||||||||||
| Derivatives | $ | - | $ | 4,971 | $ | 18 | $ | (4,407) | $ | 582 | ||||
| Other(f) | - | 1,180 | - | - | 1,180 | |||||||||
| Total | $ | - | $ | 6,151 | $ | 18 | $ | (4,407) | $ | 1,762 | ||||
| December 31, 2013 | ||||||||||||||
| Assets | ||||||||||||||
| Investment securities | ||||||||||||||
| Debt | ||||||||||||||
| U.S. corporate | $ | - | $ | 18,788 | $ | 2,953 | $ | - | $ | 21,741 | ||||
| State and municipal | - | 4,193 | 96 | - | 4,289 | |||||||||
| Residential mortgage-backed | - | 1,824 | 86 | - | 1,910 | |||||||||
| Commercial mortgage-backed | - | 3,025 | 10 | - | 3,035 | |||||||||
| Asset-backed(c) | - | 489 | 6,898 | - | 7,387 | |||||||||
| Corporate – non-U.S. | 61 | 645 | 1,064 | - | 1,770 | |||||||||
| Government – non-U.S. | 1,590 | 789 | 31 | - | 2,410 | |||||||||
| U.S. government and federal agency | - | 545 | 225 | - | 770 | |||||||||
| Retained interests | - | - | 72 | - | 72 | |||||||||
| Equity | ||||||||||||||
| Available-for-sale | 475 | 31 | 11 | - | 517 | |||||||||
| Trading | 78 | 2 | - | - | 80 | |||||||||
| Derivatives(d) | - | 8,304 | 175 | (6,739) | 1,740 | |||||||||
| Other(e) | - | - | 494 | - | 494 | |||||||||
| Total | $ | 2,204 | $ | 38,635 | $ | 12,115 | $ | (6,739) | $ | 46,215 | ||||
| Liabilities | ||||||||||||||
| Derivatives | $ | - | $ | 5,409 | $ | 20 | $ | (4,355) | $ | 1,074 | ||||
| Other(f) | - | 1,170 | - | - | 1,170 | |||||||||
| Total | $ | - | $ | 6,579 | $ | 20 | $ | (4,355) | $ | 2,244 | ||||
Included $487 million of Government – non-U.S. and $13 million of Corporate – non-U.S. available-for-sale debt securities transferred from Level 1 to Level 2 primarily attributable to changes in market observable data during 2014. The fair value of securities transferred between Level 1 and Level 2 was $2 million during 2013.
(b)\tThe netting of derivative receivables and payables (including the effects of any collateral posted or received) is permitted when a legally enforceable master netting agreement exists.
(c)\tIncludes investments in our CLL business in asset-backed securities collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries.
(d)\tThe fair value of derivatives includes an adjustment for non-performance risk. The cumulative adjustment was a gain (loss) of $9 million and $(7) million at December 31, 2014 and 2013, respectively. See Note 22 for additional information on the composition of our derivative portfolio.
(e)\tIncludes private equity investments and loans designated under the fair value option.
(f)\tPrimarily represented the liability associated with certain of our deferred incentive compensation plans.
| CHANGES IN LEVEL 3 INSTRUMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 | |||||||||||||||||||||||||||
| Net | |||||||||||||||||||||||||||
| change in | |||||||||||||||||||||||||||
| Net | Net | unrealized | |||||||||||||||||||||||||
| realized/ | realized/ | gains | |||||||||||||||||||||||||
| unrealized | unrealized | (losses) | |||||||||||||||||||||||||
| gains | gains | relating to | |||||||||||||||||||||||||
| (losses) | (losses) | Transfers | Transfers | instruments | |||||||||||||||||||||||
| Balance at | included | included | into | out of | Balance at | still held at | |||||||||||||||||||||
| (In millions) | January 1 | in earnings(a) | in AOCI | Purchases | Sales | Settlements | Level 3(b) | Level 3(b) | December 31 | December 31(c) | |||||||||||||||||
| 2014 | |||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||
| Debt | |||||||||||||||||||||||||||
| U.S. corporate | $ | 2,953 | $ | 22 | $ | 121 | $ | 550 | $ | (234) | $ | (284) | $ | 175 | $ | (163) | $ | 3,140 | $ | - | |||||||
| State and municipal | 96 | - | 38 | 18 | (36) | (10) | 472 | - | 578 | - | |||||||||||||||||
| RMBS | 86 | - | 2 | - | (16) | (9) | - | (47) | 16 | - | |||||||||||||||||
| CMBS | 10 | - | - | - | - | (3) | 2 | - | 9 | - | |||||||||||||||||
| ABS | 6,898 | 3 | (206) | 2,249 | - | (1,359) | - | (10) | 7,575 | - | |||||||||||||||||
| Corporate – non-U.S. | 1,064 | 30 | 3 | 1,019 | (269) | (1,033) | 1 | (19) | 796 | - | |||||||||||||||||
| Government – non-U.S. | 31 | - | - | - | - | - | 2 | (31) | 2 | - | |||||||||||||||||
| U.S. government and | |||||||||||||||||||||||||||
| federal agency | 225 | - | 34 | - | - | - | 9 | (2) | 266 | - | |||||||||||||||||
| Retained interests | 72 | 29 | (4) | 3 | (66) | (10) | - | - | 24 | - | |||||||||||||||||
| Equity | |||||||||||||||||||||||||||
| Available-for-sale | 11 | - | - | 2 | (2) | - | - | (2) | 9 | - | |||||||||||||||||
| Derivatives(d)(e) | 164 | 60 | 1 | 5 | - | (93) | 2 | (1) | 138 | (26) | |||||||||||||||||
| Other | 494 | 86 | - | 646 | (617) | (6) | - | (279) | 324 | 73 | |||||||||||||||||
| Total | $ | 12,104 | $ | 230 | $ | (11) | $ | 4,492 | $ | (1,240) | $ | (2,807) | $ | 663 | $ | (554) | $ | 12,877 | $ | 47 | |||||||
| 2013 | |||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||
| Debt | |||||||||||||||||||||||||||
| U.S. corporate | $ | 3,591 | $ | (497) | $ | 135 | $ | 380 | $ | (424) | $ | (231) | $ | 108 | $ | (109) | $ | 2,953 | $ | - | |||||||
| State and municipal | 77 | - | (7) | 21 | - | (5) | 10 | - | 96 | - | |||||||||||||||||
| RMBS | 100 | - | (5) | - | (2) | (7) | - | - | 86 | - | |||||||||||||||||
| CMBS | 6 | - | - | - | - | (6) | 10 | - | 10 | - | |||||||||||||||||
| ABS | 5,023 | 5 | 32 | 2,632 | (4) | (795) | 12 | (7) | 6,898 | - | |||||||||||||||||
| Corporate – non-U.S. | 1,218 | (103) | 49 | 5,814 | (3) | (5,874) | 21 | (58) | 1,064 | - | |||||||||||||||||
| Government – non-U.S. | 42 | 1 | (12) | - | - | - | - | - | 31 | - | |||||||||||||||||
| U.S. government and | |||||||||||||||||||||||||||
| federal agency | 277 | - | (52) | - | - | - | - | - | 225 | - | |||||||||||||||||
| Retained interests | 83 | 3 | 1 | 6 | - | (21) | - | - | 72 | - | |||||||||||||||||
| Equity | |||||||||||||||||||||||||||
| Available-for-sale | 13 | - | - | - | - | - | - | (2) | 11 | - | |||||||||||||||||
| Derivatives(d)(e) | 416 | 43 | 2 | (2) | - | (335) | 37 | 3 | 164 | (30) | |||||||||||||||||
| Other | 799 | (68) | 12 | 538 | (779) | - | 4 | (12) | 494 | (102) | |||||||||||||||||
| Total | $ | 11,645 | $ | (616) | $ | 155 | $ | 9,389 | $ | (1,212) | $ | (7,274) | $ | 202 | $ | (185) | $ | 12,104 | $ | (132) | |||||||
NOTE 6. GECC FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
| FINANCING RECEIVABLES, NET | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| Loans, net of deferred income | $ | 217,614 | $ | 231,268 | |
| Investment in financing leases, net of deferred income | 24,479 | 26,939 | |||
| 242,093 | 258,207 | ||||
| Allowance for losses | (5,075) | (5,178) | |||
| Financing receivables – net(a) | $ | 237,018 | $ | 253,029 | |
(a)\tFinancing receivables at December 31, 2014 and 2013 included $264 million and $544 million, respectively, relating to loans that had been acquired in a transfer but have been subject to credit deterioration since origination.
GECC financing receivables include both loans and financing leases. Loans represent transactions in a variety of forms, including revolving charge and credit, mortgages, installment loans, intermediate-term loans and revolving loans secured by business 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, medical 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 federal 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 leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals 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) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||
| Total minimum lease payments receivable | $ | 26,701 | $ | 29,970 | $ | 22,133 | $ | 24,571 | $ | 4,568 | $ | 5,399 | |||||
| Less principal and interest on third-party | |||||||||||||||||
| non-recourse debt | (2,812) | (3,480) | - | - | (2,812) | (3,480) | |||||||||||
| Net rentals receivables | 23,889 | 26,490 | 22,133 | 24,571 | 1,756 | 1,919 | |||||||||||
| Estimated unguaranteed residual value | |||||||||||||||||
| of leased assets | 4,268 | 5,073 | 2,529 | 3,067 | 1,739 | 2,006 | |||||||||||
| Less deferred income | (3,678) | (4,624) | (2,759) | (3,560) | (919) | (1,064) | |||||||||||
| Investment in financing leases, net of | |||||||||||||||||
| deferred income | 24,479 | 26,939 | 21,903 | 24,078 | 2,576 | 2,861 | |||||||||||
| Less amounts to arrive at net investment | |||||||||||||||||
| Allowance for losses | (181) | (202) | (166) | (192) | (15) | (10) | |||||||||||
| Deferred taxes | (4,046) | (4,075) | (2,250) | (1,783) | (1,796) | (2,292) | |||||||||||
| Net investment in financing leases | $ | 20,252 | $ | 22,662 | $ | 19,487 | $ | 22,103 | $ | 765 | $ | 559 | |||||
| CONTRACTUAL MATURITIES | |||||
| Total | Net rentals | ||||
| (In millions) | loans | receivable | |||
| Due in | |||||
| 2015 | $ | 52,175 | $ | 8,012 | |
| 2016 | 18,663 | 5,440 | |||
| 2017 | 19,712 | 3,752 | |||
| 2018 | 14,034 | 2,564 | |||
| 2019 | 13,097 | 1,513 | |||
| 2020 and later | 35,069 | 2,608 | |||
| 152,750 | 23,889 | ||||
| Consumer revolving loans | 64,864 | - | |||
| Total | $ | 217,614 | $ | 23,889 | |
We expect actual maturities to differ from contractual maturities.
Financing Receivables by Portfolio and Allowance for Losses
During the first quarter of 2014, we combined our CLL Europe and CLL Asia portfolios into CLL International and we transferred our CLL Other portfolio to the CLL Americas portfolio. During the fourth quarter of 2014, we combined our Consumer Non-U.S. auto portfolio into our Consumer Non-U.S. installment and revolving credit portfolio. Prior-period amounts were reclassified to conform to the current-period presentation.
| FINANCING RECEIVABLES | |||||
| (In millions) | 2014 | 2013 | |||
| Commercial | |||||
| CLL | |||||
| Americas | $ | 67,096 | $ | 69,036 | |
| International | 43,407 | 47,431 | |||
| Total CLL | 110,503 | 116,467 | |||
| Energy Financial Services | 2,580 | 3,107 | |||
| GE Capital Aviation Services (GECAS) | 8,263 | 9,377 | |||
| Other | 130 | 318 | |||
| Total Commercial | 121,476 | 129,269 | |||
| Real Estate | 19,797 | 19,899 | |||
| Consumer | |||||
| Non-U.S. residential mortgages | 24,893 | 30,501 | |||
| Non-U.S. installment and revolving credit | 10,400 | 15,731 | |||
| U.S. installment and revolving credit | 59,863 | 55,854 | |||
| Other | 5,664 | 6,953 | |||
| Total Consumer | 100,820 | 109,039 | |||
| Total financing receivables | 242,093 | 258,207 | |||
| Allowance for losses | (5,075) | (5,178) | |||
| Total financing receivables – net | $ | 237,018 | $ | 253,029 | |
| ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES | |||||||||||||||||
| Provision | |||||||||||||||||
| Balance at | charged to | Gross | Balance at | ||||||||||||||
| (In millions) | January 1 | operations | Other | (a) | write-offs | (b) | Recoveries | (b) | December 31 | ||||||||
| 2014 | |||||||||||||||||
| Commercial | |||||||||||||||||
| CLL | |||||||||||||||||
| Americas | $ | 473 | $ | 307 | $ | (3) | $ | (422) | $ | 100 | $ | 455 | |||||
| International | 505 | 159 | (37) | (351) | 100 | 376 | |||||||||||
| Total CLL | 978 | 466 | (40) | (773) | 200 | 831 | |||||||||||
| Energy Financial Services | 8 | 30 | (1) | (17) | 6 | 26 | |||||||||||
| GECAS | 17 | 39 | - | (10) | - | 46 | |||||||||||
| Other | 2 | - | (2) | - | - | - | |||||||||||
| Total Commercial | 1,005 | 535 | (43) | (800) | 206 | 903 | |||||||||||
| Real Estate | 192 | (86) | (1) | (59) | 115 | 161 | |||||||||||
| Consumer | |||||||||||||||||
| Non-U.S. residential mortgages | 358 | 256 | (151) | (207) | 69 | 325 | |||||||||||
| Non-U.S. installment and revolving credit | 650 | 338 | (260) | (787) | 458 | 399 | |||||||||||
| U.S. installment and revolving credit | 2,823 | 2,875 | 19 | (3,138) | 607 | 3,186 | |||||||||||
| Other | 150 | 75 | (33) | (151) | 60 | 101 | |||||||||||
| Total Consumer | 3,981 | 3,544 | (425) | (4,283) | 1,194 | 4,011 | |||||||||||
| Total | $ | 5,178 | $ | 3,993 | $ | (469) | $ | (5,142) | $ | 1,515 | $ | 5,075 | |||||
| 2013 | |||||||||||||||||
| Commercial | |||||||||||||||||
| CLL | |||||||||||||||||
| Americas | $ | 496 | $ | 289 | $ | (1) | $ | (425) | $ | 114 | $ | 473 | |||||
| International | 525 | 445 | 1 | (556) | 90 | 505 | |||||||||||
| Total CLL | 1,021 | 734 | - | (981) | 204 | 978 | |||||||||||
| Energy Financial Services | 9 | (1) | - | - | - | 8 | |||||||||||
| GECAS | 8 | 9 | - | - | - | 17 | |||||||||||
| Other | 3 | (1) | - | (2) | 2 | 2 | |||||||||||
| Total Commercial | 1,041 | 741 | - | (983) | 206 | 1,005 | |||||||||||
| Real Estate | 320 | 28 | (4) | (163) | 11 | 192 | |||||||||||
| Consumer | |||||||||||||||||
| Non-U.S. residential mortgages | 480 | 269 | 10 | (458) | 57 | 358 | |||||||||||
| Non-U.S. installment and revolving credit | 649 | 647 | (106) | (1,093) | 553 | 650 | |||||||||||
| U.S. installment and revolving credit | 2,282 | 3,006 | (51) | (2,954) | 540 | 2,823 | |||||||||||
| Other | 172 | 127 | 11 | (236) | 76 | 150 | |||||||||||
| Total Consumer | 3,583 | 4,049 | (136) | (4,741) | 1,226 | 3,981 | |||||||||||
| Total | $ | 4,944 | $ | 4,818 | $ | (140) | $ | (5,887) | $ | 1,443 | $ | 5,178 | |||||
| ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES | |||||||||||||||||
| Provision | |||||||||||||||||
| Balance at | charged to | Gross | Balance at | ||||||||||||||
| (In millions) | January 1 | operations | Other | (a) | write-offs | (b) | Recoveries | (b) | December 31 | ||||||||
| 2012 | |||||||||||||||||
| Commercial | |||||||||||||||||
| CLL | |||||||||||||||||
| Americas | $ | 893 | $ | 122 | $ | (52) | $ | (578) | $ | 111 | $ | 496 | |||||
| International | 557 | 411 | (6) | (524) | 87 | 525 | |||||||||||
| Total CLL | 1,450 | 533 | (58) | (1,102) | 198 | 1,021 | |||||||||||
| Energy Financial Services | 26 | 4 | - | (24) | 3 | 9 | |||||||||||
| GECAS | 17 | 4 | - | (13) | - | 8 | |||||||||||
| Other | 37 | 1 | (20) | (17) | 2 | 3 | |||||||||||
| Total Commercial | 1,530 | 542 | (78) | (1,156) | 203 | 1,041 | |||||||||||
| Real Estate | 1,089 | 72 | (44) | (810) | 13 | 320 | |||||||||||
| Consumer | |||||||||||||||||
| Non-U.S. residential mortgages | 545 | 112 | 8 | (261) | 76 | 480 | |||||||||||
| Non-U.S. installment and revolving credit | 791 | 308 | 20 | (1,120) | 650 | 649 | |||||||||||
| U.S. installment and revolving credit | 2,008 | 2,666 | (24) | (2,906) | 538 | 2,282 | |||||||||||
| Other | 199 | 132 | 18 | (257) | 80 | 172 | |||||||||||
| Total Consumer | 3,543 | 3,218 | 22 | (4,544) | 1,344 | 3,583 | |||||||||||
| Total | $ | 6,162 | $ | 3,832 | $ | (100) | $ | (6,510) | $ | 1,560 | $ | 4,944 | |||||
| ESTIMATED FAIR VALUE AND GROSS UNREALIZED LOSSES OF AVAILABLE-FOR-SALE INVESTMENT | ||||||||||||
| SECURITIES | ||||||||||||
| In loss position for | ||||||||||||
| Less than 12 months | 12 months or more | |||||||||||
| Gross | Gross | |||||||||||
| Estimated | unrealized | Estimated | unrealized | |||||||||
| December 31 (In millions) | fair value(a) | losses(a)(b) | fair value | losses(b) | ||||||||
| 2014 | ||||||||||||
| Debt | ||||||||||||
| U.S. corporate | $ | 554 | $ | (16) | $ | 836 | $ | (53) | ||||
| State and municipal | 81 | (1) | 348 | (55) | ||||||||
| Residential mortgage-backed | 30 | - | 159 | (6) | ||||||||
| Commercial mortgage-backed | 165 | (1) | 204 | (9) | ||||||||
| Asset-backed | 7,493 | (158) | 77 | (17) | ||||||||
| Corporate – non-U.S. | 42 | (1) | 237 | (29) | ||||||||
| Government – non-U.S. | 677 | (2) | 14 | - | ||||||||
| U.S. government and federal agency | 705 | - | 1 | - | ||||||||
| Equity | 18 | (3) | - | - | ||||||||
| Total | $ | 9,765 | $ | (182) | $ | 1,876 | $ | (169) | (c) | |||
| 2013 | ||||||||||||
| Debt | ||||||||||||
| U.S. corporate | $ | 2,170 | $ | (122) | $ | 598 | $ | (95) | ||||
| State and municipal | 1,076 | (82) | 367 | (109) | ||||||||
| Residential mortgage-backed | 232 | (11) | 430 | (37) | ||||||||
| Commercial mortgage-backed | 396 | (24) | 780 | (58) | ||||||||
| Asset-backed | 112 | (2) | 359 | (44) | ||||||||
| Corporate – non-U.S. | 108 | (4) | 454 | (83) | ||||||||
| Government – non-U.S. | 1,479 | (6) | 42 | (1) | ||||||||
| U.S. government and federal agency | 229 | (27) | 254 | - | ||||||||
| Retained interests | 2 | - | - | - | ||||||||
| Equity | 253 | (44) | - | - | ||||||||
| Total | $ | 6,057 | $ | (322) | $ | 3,284 | $ | (427) | ||||
(a)\tIncludes the estimated fair value of and gross unrealized losses on Corporate-non-U.S. and Equity securities held by GE. At December 31, 2014, there were no Corporate-non-U.S. securities held by GE in a loss position. At December 31, 2014, the estimated fair value of and gross unrealized losses on Equity securities were $4 million and $(2) million, respectively. At December 31, 2013, the estimated fair value of and gross unrealized losses on Corporate-non-U.S. securities were $12 million and $(1) million, respectively. At December 31, 2013 the estimated fair value of and gross unrealized losses on Equity securities were $222 million and $(41) million, respectively.
(b)\tIncluded gross unrealized losses related to securities that had other-than-temporary impairments previously recognized of $29 million at December 31, 2014.
(c)\tThe majority relate to debt securities held to support obligations to holders of GICs and more than 70% are debt securities that were considered to be investment-grade by the major rating agencies at December 31, 2014.
| Gain (loss) reclassified | |||||||||||
| Gain (loss) recognized in AOCI | from AOCI into earnings | ||||||||||
| (In millions) | 2014 | 2013 | 2014 | 2013 | |||||||
| Interest rate contracts | $ | (1) | $ | (26) | $ | (234) | $ | (364) | |||
| Currency exchange contracts | (541) | 941 | (641) | 817 | |||||||
| Commodity contracts | (4) | (6) | (3) | (5) | |||||||
| Total(a) | $ | (546) | $ | 909 | $ | (878) | $ | 448 | |||
(a)\tGain (loss) is recorded in GECC revenues from services, interest and other financial charges, and other costs and expenses when reclassified to earnings.
| OTHER INTANGIBLE ASSETS - NET | |||||
| (In millions) | 2014 | 2013 | |||
| Intangible assets subject to amortization | $ | 14,026 | $ | 14,150 | |
| Indefinite-lived intangible assets(a) | 130 | 160 | |||
| Total | $ | 14,156 | $ | 14,310 | |
(a)\tIndefinite-lived intangible assets principally comprise trademarks and in-process research and development.
| INTANGIBLE ASSETS SUBJECT TO AMORTIZATION | |||||||||||||||||
| 2014 | 2013 | ||||||||||||||||
| Gross | Gross | ||||||||||||||||
| carrying | Accumulated | carrying | Accumulated | ||||||||||||||
| December 31 (In millions) | amount | amortization | Net | amount | amortization | Net | |||||||||||
| Customer-related | $ | 8,484 | $ | (2,617) | $ | 5,867 | $ | 7,938 | $ | (2,312) | $ | 5,626 | |||||
| Patents and technology | 6,772 | (2,977) | 3,795 | 6,602 | (2,621) | 3,981 | |||||||||||
| Capitalized software | 8,269 | (4,973) | 3,296 | 8,256 | (5,252) | 3,004 | |||||||||||
| Trademarks | 1,159 | (271) | 888 | 1,356 | (295) | 1,061 | |||||||||||
| Lease valuations | 485 | (377) | 108 | 703 | (498) | 205 | |||||||||||
| Present value of future profits(a) | 614 | (614) | - | 574 | (574) | - | |||||||||||
| All other | 503 | (431) | 72 | 632 | (359) | 273 | |||||||||||
| Total | $ | 26,286 | $ | (12,260) | $ | 14,026 | $ | 26,061 | $ | (11,911) | $ | 14,150 | |||||
(a)\tBalances at December 31, 2014 and 2013 reflect adjustments of $293 million and $322 million, respectively, to the present value of future profits in our run-off insurance operation to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized.
NOTE 15. SHAREOWNERS’ EQUITY
| (In millions) | 2014 | 2013 | 2012 | |||||
| Preferred stock issued | $ | - | $ | - | $ | - | ||
| Common stock issued | $ | 702 | $ | 702 | $ | 702 | ||
| Accumulated other comprehensive income | ||||||||
| Balance at January 1 | $ | (9,120) | $ | (20,230) | $ | (23,974) | ||
| Other comprehensive income before reclassifications | (12,087) | 8,844 | 841 | |||||
| Reclassifications from other comprehensive income | 3,035 | 2,266 | 2,903 | |||||
| Other comprehensive income, net, attributable to GE | (9,052) | 11,110 | 3,744 | |||||
| Balance at December 31 | $ | (18,172) | $ | (9,120) | $ | (20,230) | ||
| Other capital | ||||||||
| Balance at January 1 | $ | 32,494 | $ | 33,070 | $ | 33,693 | ||
| Gains (losses) on treasury stock dispositions and other(a) | 395 | (576) | (623) | |||||
| Balance at December 31 | $ | 32,889 | $ | 32,494 | $ | 33,070 | ||
| Retained earnings | ||||||||
| Balance at January 1 | $ | 149,051 | $ | 144,055 | $ | 137,786 | ||
| Net earnings attributable to the Company | 15,233 | 13,057 | 13,641 | |||||
| Dividends and other transactions with shareowners | (8,951) | (8,061) | (7,372) | |||||
| Balance at December 31 | $ | 155,333 | $ | 149,051 | $ | 144,055 | ||
| Common stock held in treasury | ||||||||
| Balance at January 1 | $ | (42,561) | $ | (34,571) | $ | (31,769) | ||
| Purchases | (1,950) | (10,466) | (5,295) | |||||
| Dispositions | 1,918 | 2,476 | 2,493 | |||||
| Balance at December 31 | $ | (42,593) | $ | (42,561) | $ | (34,571) | ||
| Total equity | ||||||||
| GE shareowners' equity balance at December 31 | $ | 128,159 | $ | 130,566 | $ | 123,026 | ||
| Noncontrolling interests balance at December 31 | 8,674 | 6,217 | 5,444 | |||||
| Total equity balance at December 31 | $ | 136,833 | $ | 136,783 | $ | 128,470 | ||
(a)\t2014 included $440 million related to the excess of the net proceeds from the Synchrony Financial IPO over the carrying value of the interest sold.
Shares of GE Preferred Stock
On October 16, 2008, we issued 30,000 shares of 10% cumulative perpetual preferred stock (par value $1.00 per share) having an aggregate liquidation value of $3,000 million, and warrants to purchase 134,831,460 shares of common stock (par value $0.06 per share) to Berkshire Hathaway Inc. (Berkshire Hathaway) for net proceeds of $2,965 million in cash. The proceeds were allocated to the preferred shares ($2,494 million) and the warrants ($471 million) on a relative fair value basis and recorded in other capital. The warrants were exercisable through October 16, 2013, at an exercise price of $22.25 per share of common stock and were to be settled through physical share issuance. The terms of the warrants were amended in January 2013 to allow for net share settlement where the total number of issued shares is based on the amount by which the average market price of GE common stock over the 20 trading days preceding the date of exercise exceeds the exercise price of $22.25. On October 16, 2013, Berkshire Hathaway Inc. (Berkshire Hathaway) exercised in full their warrants to purchase shares of GE common stock and on October 17, 2013, GE delivered 10.7 million shares to Berkshire Hathaway. The transaction had equal and offsetting effects on other capital and common stock held in treasury.
The preferred stock was redeemable at our option three years after issuance at a price of 110% of liquidation value plus accrued and unpaid dividends. On September 13, 2011, we provided notice to Berkshire Hathaway that we would redeem the shares for the stated redemption price of $3,300 million, plus accrued and unpaid dividends. In connection with this notice, we recognized a preferred dividend of $806 million (calculated as the difference between the carrying value and redemption value of the preferred stock), which was recorded as a reduction to earnings attributable to common shareowners and common shareowners’ equity. The preferred shares were redeemed on October 17, 2011.
GE has 50 million authorized shares of preferred stock ($1.00 par value). No shares were issued and outstanding as of December 31, 2014 and 2013.
Shares of GE Common Stock
On December 14, 2012, we increased the existing authorization by $10 billion to $25 billion for our share repurchase program and extended the program (which would have otherwise expired on December 31, 2013) through 2015. On February 12, 2013, we increased the existing authorization by an additional $10 billion resulting in authorization to repurchase up to a total of $35 billion of our common stock through 2015. Under this program, on a book basis, we repurchased shares of 73.6 million, 432.6 million and 248.6 million for a total of $1,901 million, $10,375 million and $5,185 million for the years ended 2014, 2013 and 2012 respectively.
GE’s authorized common stock consists of 13,200,000,000 shares having a par value of $0.06 each.
Common shares issued and outstanding are summarized in the following table.
| December 31 (In thousands) | 2014 | 2013 | 2012 | |||
| Issued | 11,693,841 | 11,693,841 | 11,693,841 | |||
| In treasury | (1,636,461) | (1,632,960) | (1,288,216) | |||
| Outstanding | 10,057,380 | 10,060,881 | 10,405,625 | |||
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Investment securities | ||||||||
| Balance at January 1 | $ | 307 | $ | 677 | $ | (30) | ||
| Other comprehensive income (loss) (OCI) before reclassifications – | ||||||||
| net of deferred taxes of $353, $(407) and $387(a) | 562 | (692) | 683 | |||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $84, $222 and $13 | 146 | 318 | 22 | |||||
| Other comprehensive income (loss)(b) | 708 | (374) | 705 | |||||
| Less OCI attributable to noncontrolling interests | 2 | (4) | (2) | |||||
| Balance at December 31 | $ | 1,013 | $ | 307 | $ | 677 | ||
| Currency translation adjustments (CTA) | ||||||||
| Balance at January 1(c) | $ | 283 | $ | 412 | $ | 133 | ||
| OCI before reclassifications – net of deferred taxes | (2,600) | 510 | 474 | |||||
| of $(129), $(613) and $(266) | ||||||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $213, $793 and $54 | (129) | (818) | (174) | |||||
| Other comprehensive income (loss)(b) | (2,729) | (308) | 300 | |||||
| Less OCI attributable to noncontrolling interests | (19) | (22) | 21 | |||||
| Balance at December 31 | $ | (2,427) | $ | 126 | $ | 412 | ||
| Cash flow hedges | ||||||||
| Balance at January 1(c) | $ | (414) | $ | (722) | $ | (1,176) | ||
| OCI before reclassifications – net of deferred taxes | (610) | 738 | 385 | |||||
| of $23, $250 and $392 | ||||||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $34, $(177) and $(245) | 844 | (271) | 68 | |||||
| Other comprehensive income (loss)(b) | 234 | 467 | 453 | |||||
| Less OCI attributable to noncontrolling interests | - | 2 | (1) | |||||
| Balance at December 31 | $ | (180) | $ | (257) | $ | (722) | ||
| Benefit plans | ||||||||
| Balance at January 1 | $ | (9,296) | $ | (20,597) | $ | (22,901) | ||
| Prior service credit (costs) - net of deferred taxes | ||||||||
| of $219, $(5) and $304 | 396 | (6) | 534 | |||||
| Net actuarial gain (loss) – net of deferred taxes | ||||||||
| of $(5,332), $4,506 and $(574) | (9,849) | 8,269 | (1,396) | |||||
| Net curtailment/settlement - net of deferred taxes | ||||||||
| of $41, $0 and $123 | 72 | - | 174 | |||||
| Prior service cost amortization – net of deferred taxes | ||||||||
| of $241, $267 and $326 | 349 | 397 | 497 | |||||
| Net actuarial loss amortization – net of deferred taxes | ||||||||
| of $859, $1,343 and $1,278 | 1,753 | 2,640 | 2,490 | |||||
| Other comprehensive income (loss)(b) | (7,279) | 11,300 | 2,299 | |||||
| Less OCI attributable to noncontrolling interests | 3 | (1) | (5) | |||||
| Balance at December 31 | $ | (16,578) | $ | (9,296) | $ | (20,597) | ||
| Accumulated other comprehensive income (loss) at December 31 | $ | (18,172) | $ | (9,120) | $ | (20,230) | ||
(a)\tIncludes adjustments of $960 million, $(1,171) million and $527 million in 2014, 2013 and 2012, respectively, to deferred acquisition costs, present value of future profits, and investment contracts, insurance liabilities and insurance annuity benefits in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized.
(b)\tTotal other comprehensive income (loss) was $(9,066) million, $11,085 million and $3,757 million in 2014, 2013 and 2012, respectively.
(c)\tIncludes a $157 million reclassification between 2014 opening balances in Currency Translation Adjustments and Cash Flow Hedges.
| RECLASSIFICATION OUT OF AOCI | ||||||||||
| (In millions) | 2014 | 2013 | 2012 | Statement of Earnings Caption | ||||||
| Available-for-sale securities | ||||||||||
| Realized gains (losses) on | ||||||||||
| sale/impairment of securities | $ | (230) | $ | (540) | $ | (35) | Other income | |||
| 84 | 222 | 13 | Benefit (provision) for income taxes | |||||||
| $ | (146) | $ | (318) | $ | (22) | Net of tax | ||||
| Currency translation adjustments | ||||||||||
| Gains (losses) on dispositions | $ | (84) | $ | 25 | $ | 120 | Costs and expenses | |||
| 213 | 793 | 54 | Benefit (provision) for income taxes | |||||||
| $ | 129 | $ | 818 | $ | 174 | Net of tax | ||||
| Cash flow hedges | ||||||||||
| Gains (losses) on interest rate derivatives | $ | (234) | $ | (364) | $ | (499) | Interest and other financial charges | |||
| Foreign exchange contracts | (666) | 564 | 792 | (a) | ||||||
| Other | 22 | 248 | (116) | (b) | ||||||
| (878) | 448 | 177 | Total before tax | |||||||
| 34 | (177) | (245) | Benefit (provision) for income taxes | |||||||
| $ | (844) | $ | 271 | $ | (68) | Net of tax | ||||
| Benefit plan items | ||||||||||
| Curtailment loss | $ | (113) | $ | - | $ | - | (c) | |||
| Amortization of prior service costs | (590) | (664) | (823) | (c) | ||||||
| Amortization of actuarial gains (losses) | (2,612) | (3,983) | (3,768) | (c) | ||||||
| (3,315) | (4,647) | (4,591) | Total before tax | |||||||
| 1,141 | 1,610 | 1,604 | Benefit (provision) for income taxes | |||||||
| $ | (2,174) | $ | (3,037) | $ | (2,987) | Net of tax | ||||
| Total reclassification adjustments | $ | (3,035) | $ | (2,266) | $ | (2,903) | Net of tax | |||
Noncontrolling Interests
Noncontrolling interests in equity of consolidated affiliates includes common shares in consolidated affiliates and preferred stock issued by our affiliates.
GECC preferred stock is presented as noncontrolling interests in the GE consolidated Statement of Financial Position. GECC preferred stock dividends are presented as noncontrolling interests in the GE consolidated Statement of Earnings. The balance is summarized as follows.
| December 31 (In millions) | 2014 | 2013 | |||
| GECC preferred stock | $ | 4,950 | $ | 4,950 | |
| Synchrony Financial | 2,531 | - | |||
| Other noncontrolling interests in consolidated affiliates(a) | 1,193 | 1,267 | |||
| Total | $ | 8,674 | $ | 6,217 | |
(a)\tConsisted of a number of individually insignificant noncontrolling interests in partnerships and consolidated affiliates.
| CHANGES TO NONCONTROLLING INTERESTS | |||||||||
| (In millions) | 2014 | 2013 | 2012 | ||||||
| Beginning balance | $ | 6,217 | $ | 5,444 | $ | 1,696 | |||
| Net earnings | 183 | 298 | 223 | ||||||
| GECC issuance of preferred stock | - | 990 | 3,960 | ||||||
| GECC preferred stock dividend | (322) | (298) | (123) | ||||||
| Dividends | (74) | (80) | (42) | ||||||
| Dispositions | (81) | (175) | - | ||||||
| Synchrony Financial IPO | 2,393 | - | - | ||||||
| Other (including AOCI)(a) | 358 | 38 | (270) | ||||||
| Ending balance | $ | 8,674 | $ | 6,217 | $ | 5,444 | |||
(a)\tIncludes research & development partner funding arrangements, acquisitions and eliminations.
Other
During the second quarter of 2013, GECC issued 10,000 shares of non-cumulative perpetual preferred stock with a $0.01 par value for proceeds of $990 million. The preferred shares bear an initial fixed interest rate of 5.25% through June 15, 2023, bear a floating rate equal to three-month LIBOR plus 2.967% thereafter and are callable on June 15, 2023. Dividends on the GECC preferred stock are payable semiannually, in June and December, with the first payment on this issuance made in December 2013.
During 2012, GECC issued 40,000 shares of non-cumulative perpetual preferred stock with a $0.01 par value for proceeds of $3,960 million. Of these shares, 22,500 bear an initial fixed interest rate of 7.125% through June 15, 2022, bear a floating rate equal to three-month LIBOR plus 5.296% thereafter and are callable on June 15, 2022, and 17,500 shares bear an initial fixed interest rate of 6.25% through December 15, 2022, bear a floating rate equal to three-month LIBOR plus 4.704% thereafter and are callable on December 15, 2022. Dividends on the GECC preferred stock are payable semi-annually, in June and December, with the first payment made in December 2012.
GECC paid quarterly dividends of $2,000 million, $1,930 million and $1,926 million and special dividends of $1,000 million, $4,055 million and $4,500 million to GE for the years ended 2014, 2013 and 2012, respectively.
| CHANGES IN CUMULATIVE CREDIT LOSS IMPAIRMENTS RECOGNIZED ON DEBT SECURITIES STILL HELD | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Cumulative credit loss impairments recognized, beginning of period | $ | 1,193 | $ | 588 | $ | 747 | ||
| Credit loss impairments recognized on securities not previously impaired | 4 | 389 | 27 | |||||
| Incremental credit loss impairments recognized | ||||||||
| on securities previously impaired | 77 | 336 | 40 | |||||
| Less credit loss impairments previously recognized on securities sold | ||||||||
| during the period or that we intend to sell | 304 | 120 | 226 | |||||
| Cumulative credit loss impairments recognized, end of period | $ | 970 | $ | 1,193 | $ | 588 | ||
| CHANGES TO NONCONTROLLING INTERESTS | |||||||||
| (In millions) | 2014 | 2013 | 2012 | ||||||
| Beginning balance | $ | 6,217 | $ | 5,444 | $ | 1,696 | |||
| Net earnings | 183 | 298 | 223 | ||||||
| GECC issuance of preferred stock | - | 990 | 3,960 | ||||||
| GECC preferred stock dividend | (322) | (298) | (123) | ||||||
| Dividends | (74) | (80) | (42) | ||||||
| Dispositions | (81) | (175) | - | ||||||
| Synchrony Financial IPO | 2,393 | - | - | ||||||
| Other (including AOCI)(a) | 358 | 38 | (270) | ||||||
| Ending balance | $ | 8,674 | $ | 6,217 | $ | 5,444 | |||
(a)\tIncludes research & development partner funding arrangements, acquisitions and eliminations.
| UNRECOGNIZED TAX BENEFITS | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| Unrecognized tax benefits | $ | 5,619 | $ | 5,816 | |
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 4,059 | 4,307 | |||
| Accrued interest on unrecognized tax benefits | 807 | 975 | |||
| Accrued penalties on unrecognized tax benefits | 103 | 164 | |||
| Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months | 0-900 | 0-900 | |||
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 0-300 | 0-350 | |||
(a)\tSome portion of such reduction may be reported as discontinued operations.
| CHANGES IN GOODWILL BALANCES | |||||||||||||||||||||||
| 2014 | 2013 | ||||||||||||||||||||||
| Dispositions, | Dispositions, | ||||||||||||||||||||||
| currency | currency | ||||||||||||||||||||||
| Balance at | exchange | Balance at | Balance at | exchange | Balance at | ||||||||||||||||||
| (In millions) | January 1 | Acquisitions | and other | December 31 | January 1 | Acquisitions | and other | December 31 | |||||||||||||||
| Power & Water | $ | 8,822 | $ | 21 | $ | (89) | $ | 8,754 | $ | 8,821 | $ | - | $ | 1 | $ | 8,822 | |||||||
| Oil & Gas | 10,516 | 276 | (220) | 10,572 | 8,365 | 2,217 | (66) | 10,516 | |||||||||||||||
| Energy Management | 4,748 | - | (178) | 4,570 | 4,610 | 7 | 131 | 4,748 | |||||||||||||||
| Aviation | 9,103 | - | (151) | 8,952 | 5,975 | 3,043 | 85 | 9,103 | |||||||||||||||
| Healthcare | 16,643 | 1,004 | (115) | 17,532 | 16,762 | 45 | (164) | 16,643 | |||||||||||||||
| Transportation | 1,012 | 2 | (127) | 887 | 999 | - | 13 | 1,012 | |||||||||||||||
| Appliances & Lighting | 606 | - | (380) | 226 | 611 | - | (5) | 606 | |||||||||||||||
| GE Capital | 26,195 | - | (1,169) | 25,026 | 26,971 | 17 | (793) | 26,195 | |||||||||||||||
| Corporate | 3 | 31 | - | 34 | - | 4 | (1) | 3 | |||||||||||||||
| Total | $ | 77,648 | $ | 1,334 | $ | (2,429) | $ | 76,553 | $ | 73,114 | $ | 5,333 | $ | (799) | $ | 77,648 | |||||||
NOTE 4. CURRENT RECEIVABLES
| Consolidated(a) | GE(b) | ||||||||||
| December 31 (In millions) | 2014 | 2013 | 2014 | 2013 | |||||||
| Power & Water | $ | 4,984 | $ | 3,895 | $ | 2,783 | $ | 2,335 | |||
| Oil & Gas | 5,775 | 5,444 | 3,215 | 3,134 | |||||||
| Energy Management | 1,655 | 1,540 | 731 | 686 | |||||||
| Aviation | 4,656 | 4,307 | 1,997 | 2,260 | |||||||
| Healthcare | 4,350 | 4,398 | 2,241 | 2,029 | |||||||
| Transportation | 454 | 526 | 351 | 318 | |||||||
| Appliances & Lighting | 1,468 | 1,337 | 216 | 273 | |||||||
| Corporate items and eliminations | 390 | 388 | 464 | 377 | |||||||
| 23,732 | 21,835 | 11,998 | 11,412 | ||||||||
| Less Allowance for Losses | (495) | (447) | (485) | (442) | |||||||
| Total | $ | 23,237 | $ | 21,388 | $ | 11,513 | $ | 10,970 | |||
GE current receivables balances at December 31, 2014 and 2013, before allowance for losses, included $7,808 million and $7,441 million, respectively, from sales of goods and services to customers, and $22 million and $37 million at December 31, 2014 and 2013, respectively, from transactions with associated companies. The remainder of the balances primarily relate to revenue sharing programs and other non-income taxes.
| Consolidated(a) | GE(b) | ||||||||||
| December 31 (In millions) | 2014 | 2013 | 2014 | 2013 | |||||||
| Power & Water | $ | 4,984 | $ | 3,895 | $ | 2,783 | $ | 2,335 | |||
| Oil & Gas | 5,775 | 5,444 | 3,215 | 3,134 | |||||||
| Energy Management | 1,655 | 1,540 | 731 | 686 | |||||||
| Aviation | 4,656 | 4,307 | 1,997 | 2,260 | |||||||
| Healthcare | 4,350 | 4,398 | 2,241 | 2,029 | |||||||
| Transportation | 454 | 526 | 351 | 318 | |||||||
| Appliances & Lighting | 1,468 | 1,337 | 216 | 273 | |||||||
| Corporate items and eliminations | 390 | 388 | 464 | 377 | |||||||
| 23,732 | 21,835 | 11,998 | 11,412 | ||||||||
| Less Allowance for Losses | (495) | (447) | (485) | (442) | |||||||
| Total | $ | 23,237 | $ | 21,388 | $ | 11,513 | $ | 10,970 | |||
| Depreciable | ||||||||||||||||
| lives-new | Original Cost | Net Carrying Value | ||||||||||||||
| December 31 (Dollars in millions) | (in years) | 2014 | 2013 | 2014 | 2013 | |||||||||||
| GE | ||||||||||||||||
| Land and improvements | 8 | (a) | $ | 700 | $ | 707 | $ | 689 | $ | 671 | ||||||
| Buildings, structures and related equipment | 8-40 | 7,683 | 8,910 | 3,048 | 4,205 | |||||||||||
| Machinery and equipment | 4-20 | 23,437 | 25,323 | 9,085 | 9,701 | |||||||||||
| Leasehold costs and manufacturing plant under construction | 1-10 | 4,731 | 3,309 | 4,385 | 2,997 | |||||||||||
| 36,551 | 38,249 | 17,207 | 17,574 | |||||||||||||
| GECC(b) | ||||||||||||||||
| Land and improvements, buildings, structures and related equipment | 1-35 | (a) | 2,233 | 2,504 | 952 | 1,025 | ||||||||||
| Equipment leased to others | ||||||||||||||||
| Aircraft(c) | 20 | 49,280 | 50,337 | 32,795 | 34,938 | |||||||||||
| Vehicles | 1-20 | 14,251 | 14,656 | 8,144 | 8,312 | |||||||||||
| Railroad rolling stock | 4-50 | 4,379 | 4,636 | 2,998 | 3,129 | |||||||||||
| Construction and manufacturing | 1-20 | 3,411 | 2,916 | 2,321 | 1,955 | |||||||||||
| All other | 6-25 | 3,678 | 3,518 | 2,360 | 2,248 | |||||||||||
| 77,232 | 78,567 | 49,570 | 51,607 | |||||||||||||
| Eliminations | (462) | (419) | (390) | (354) | ||||||||||||
| Total | $ | 113,321 | $ | 116,397 | $ | 66,387 | $ | 68,827 | ||||||||
(a)\tDepreciable lives exclude land.
(b)\tIncluded $1,845 million and $1,353 million of original cost of assets leased to GE with accumulated amortization of $560 million and $342 million at December 31, 2014 and 2013, respectively.
(c)\tThe GECAS business of GE Capital recognized impairment losses of $445 million and $732 million in 2014 and 2013, respectively. These losses are recorded in the caption “Other costs and expenses” in the Statement of Earnings to reflect adjustments to fair value based on an evaluation of average current market values (obtained from third parties) of similar type and age aircraft, which are adjusted for the attributes of the specific aircraft under lease.
| (In millions) | ||
| Due in | ||
| 2015 | $ | 6,953 |
| 2016 | 5,731 | |
| 2017 | 4,658 | |
| 2018 | 3,652 | |
| 2019 | 2,886 | |
| 2020 and later | 7,375 | |
| Total | $ | 31,255 |
| (In millions) | 2014 | 2013 | 2012 | |||||
| Preferred stock issued | $ | - | $ | - | $ | - | ||
| Common stock issued | $ | 702 | $ | 702 | $ | 702 | ||
| Accumulated other comprehensive income | ||||||||
| Balance at January 1 | $ | (9,120) | $ | (20,230) | $ | (23,974) | ||
| Other comprehensive income before reclassifications | (12,087) | 8,844 | 841 | |||||
| Reclassifications from other comprehensive income | 3,035 | 2,266 | 2,903 | |||||
| Other comprehensive income, net, attributable to GE | (9,052) | 11,110 | 3,744 | |||||
| Balance at December 31 | $ | (18,172) | $ | (9,120) | $ | (20,230) | ||
| Other capital | ||||||||
| Balance at January 1 | $ | 32,494 | $ | 33,070 | $ | 33,693 | ||
| Gains (losses) on treasury stock dispositions and other(a) | 395 | (576) | (623) | |||||
| Balance at December 31 | $ | 32,889 | $ | 32,494 | $ | 33,070 | ||
| Retained earnings | ||||||||
| Balance at January 1 | $ | 149,051 | $ | 144,055 | $ | 137,786 | ||
| Net earnings attributable to the Company | 15,233 | 13,057 | 13,641 | |||||
| Dividends and other transactions with shareowners | (8,951) | (8,061) | (7,372) | |||||
| Balance at December 31 | $ | 155,333 | $ | 149,051 | $ | 144,055 | ||
| Common stock held in treasury | ||||||||
| Balance at January 1 | $ | (42,561) | $ | (34,571) | $ | (31,769) | ||
| Purchases | (1,950) | (10,466) | (5,295) | |||||
| Dispositions | 1,918 | 2,476 | 2,493 | |||||
| Balance at December 31 | $ | (42,593) | $ | (42,561) | $ | (34,571) | ||
| Total equity | ||||||||
| GE shareowners' equity balance at December 31 | $ | 128,159 | $ | 130,566 | $ | 123,026 | ||
| Noncontrolling interests balance at December 31 | 8,674 | 6,217 | 5,444 | |||||
| Total equity balance at December 31 | $ | 136,833 | $ | 136,783 | $ | 128,470 | ||
(a)\t2014 included $440 million related to the excess of the net proceeds from the Synchrony Financial IPO over the carrying value of the interest sold.
| December 31 (In thousands) | 2014 | 2013 | 2012 | |||
| Issued | 11,693,841 | 11,693,841 | 11,693,841 | |||
| In treasury | (1,636,461) | (1,632,960) | (1,288,216) | |||
| Outstanding | 10,057,380 | 10,060,881 | 10,405,625 | |||
| December 31 (In millions) | 2014 | 2013 | |||
| GECC preferred stock | $ | 4,950 | $ | 4,950 | |
| Synchrony Financial | 2,531 | - | |||
| Other noncontrolling interests in consolidated affiliates(a) | 1,193 | 1,267 | |||
| Total | $ | 8,674 | $ | 6,217 | |
(a)\tConsisted of a number of individually insignificant noncontrolling interests in partnerships and consolidated affiliates.
NOTE 29. QUARTERLY INFORMATION (UNAUDITED)
| First quarter | Second quarter | Third quarter | Fourth quarter | ||||||||||||||||||||
| (In millions; per-share amounts in dollars) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||
| Consolidated operations | |||||||||||||||||||||||
| Earnings from continuing operations | $ | 2,940 | $ | 3,631 | $ | 3,586 | $ | 3,423 | $ | 3,452 | $ | 3,272 | $ | 5,479 | $ | 5,149 | |||||||
| Earnings (loss) from discontinued | |||||||||||||||||||||||
| operations | 12 | (120) | (41) | (124) | 57 | (91) | (140) | (1,785) | |||||||||||||||
| Net earnings | 2,952 | 3,511 | 3,545 | 3,299 | 3,509 | 3,181 | 5,339 | 3,364 | |||||||||||||||
| Less net earnings (loss) attributable to | |||||||||||||||||||||||
| noncontrolling interests | (47) | (16) | - | 166 | (28) | (10) | 187 | 158 | |||||||||||||||
| Net earnings attributable to | |||||||||||||||||||||||
| the Company | $ | 2,999 | $ | 3,527 | $ | 3,545 | $ | 3,133 | $ | 3,537 | $ | 3,191 | $ | 5,152 | $ | 3,206 | |||||||
| Per-share amounts – earnings from | |||||||||||||||||||||||
| continuing operations | |||||||||||||||||||||||
| Diluted earnings per share | $ | 0.29 | $ | 0.35 | $ | 0.35 | $ | 0.31 | $ | 0.34 | $ | 0.32 | $ | 0.52 | $ | 0.49 | |||||||
| Basic earnings per share | 0.30 | 0.35 | 0.36 | 0.32 | 0.35 | 0.32 | 0.53 | 0.49 | |||||||||||||||
| Per-share amounts – earnings (loss) | |||||||||||||||||||||||
| from discontinued operations | |||||||||||||||||||||||
| Diluted earnings per share | - | (0.01) | - | (0.01) | 0.01 | (0.01) | (0.01) | (0.18) | |||||||||||||||
| Basic earnings per share | - | (0.01) | - | (0.01) | 0.01 | (0.01) | (0.01) | (0.18) | |||||||||||||||
| Per-share amounts – net earnings | |||||||||||||||||||||||
| Diluted earnings per share | 0.30 | 0.34 | 0.35 | 0.30 | 0.35 | 0.31 | 0.51 | 0.32 | |||||||||||||||
| Basic earnings per share | 0.30 | 0.34 | 0.35 | 0.30 | 0.35 | 0.31 | 0.51 | 0.32 | |||||||||||||||
| Selected data | |||||||||||||||||||||||
| GE | |||||||||||||||||||||||
| Sales of goods and services | $ | 24,011 | $ | 22,303 | $ | 26,226 | $ | 24,623 | $ | 26,025 | $ | 25,262 | $ | 31,046 | $ | 28,826 | |||||||
| Gross profit from sales | 5,326 | 4,867 | 6,090 | 6,006 | 6,148 | 5,691 | 7,867 | 6,820 | |||||||||||||||
| GECC | |||||||||||||||||||||||
| Total revenues | 10,515 | 11,468 | 10,247 | 10,916 | 10,451 | 10,606 | 11,512 | 11,077 | |||||||||||||||
| Earnings from continuing operations | |||||||||||||||||||||||
| attributable to the Company | 1,933 | 1,938 | 1,864 | 1,924 | 1,492 | 1,903 | 2,052 | 2,493 | |||||||||||||||
For GE, gross profit from sales is sales of goods and services less costs of goods and services sold.
Earnings-per-share amounts are computed independently each quarter for earnings from continuing operations, earnings (loss) from discontinued operations and net earnings. As a result, the sum of each quarter’s per-share amount may not equal the total per-share amount for the respective year; and the sum of per-share amounts from continuing operations and discontinued operations may not equal the total per-share amounts for net earnings for the respective quarters.
| First quarter | Second quarter | Third quarter | Fourth quarter | ||||||||||||||||||||
| (In millions; per-share amounts in dollars) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||
| Consolidated operations | |||||||||||||||||||||||
| Earnings from continuing operations | $ | 2,940 | $ | 3,631 | $ | 3,586 | $ | 3,423 | $ | 3,452 | $ | 3,272 | $ | 5,479 | $ | 5,149 | |||||||
| Earnings (loss) from discontinued | |||||||||||||||||||||||
| operations | 12 | (120) | (41) | (124) | 57 | (91) | (140) | (1,785) | |||||||||||||||
| Net earnings | 2,952 | 3,511 | 3,545 | 3,299 | 3,509 | 3,181 | 5,339 | 3,364 | |||||||||||||||
| Less net earnings (loss) attributable to | |||||||||||||||||||||||
| noncontrolling interests | (47) | (16) | - | 166 | (28) | (10) | 187 | 158 | |||||||||||||||
| Net earnings attributable to | |||||||||||||||||||||||
| the Company | $ | 2,999 | $ | 3,527 | $ | 3,545 | $ | 3,133 | $ | 3,537 | $ | 3,191 | $ | 5,152 | $ | 3,206 | |||||||
| Per-share amounts – earnings from | |||||||||||||||||||||||
| continuing operations | |||||||||||||||||||||||
| Diluted earnings per share | $ | 0.29 | $ | 0.35 | $ | 0.35 | $ | 0.31 | $ | 0.34 | $ | 0.32 | $ | 0.52 | $ | 0.49 | |||||||
| Basic earnings per share | 0.30 | 0.35 | 0.36 | 0.32 | 0.35 | 0.32 | 0.53 | 0.49 | |||||||||||||||
| Per-share amounts – earnings (loss) | |||||||||||||||||||||||
| from discontinued operations | |||||||||||||||||||||||
| Diluted earnings per share | - | (0.01) | - | (0.01) | 0.01 | (0.01) | (0.01) | (0.18) | |||||||||||||||
| Basic earnings per share | - | (0.01) | - | (0.01) | 0.01 | (0.01) | (0.01) | (0.18) | |||||||||||||||
| Per-share amounts – net earnings | |||||||||||||||||||||||
| Diluted earnings per share | 0.30 | 0.34 | 0.35 | 0.30 | 0.35 | 0.31 | 0.51 | 0.32 | |||||||||||||||
| Basic earnings per share | 0.30 | 0.34 | 0.35 | 0.30 | 0.35 | 0.31 | 0.51 | 0.32 | |||||||||||||||
| Selected data | |||||||||||||||||||||||
| GE | |||||||||||||||||||||||
| Sales of goods and services | $ | 24,011 | $ | 22,303 | $ | 26,226 | $ | 24,623 | $ | 26,025 | $ | 25,262 | $ | 31,046 | $ | 28,826 | |||||||
| Gross profit from sales | 5,326 | 4,867 | 6,090 | 6,006 | 6,148 | 5,691 | 7,867 | 6,820 | |||||||||||||||
| GECC | |||||||||||||||||||||||
| Total revenues | 10,515 | 11,468 | 10,247 | 10,916 | 10,451 | 10,606 | 11,512 | 11,077 | |||||||||||||||
| Earnings from continuing operations | |||||||||||||||||||||||
| attributable to the Company | 1,933 | 1,938 | 1,864 | 1,924 | 1,492 | 1,903 | 2,052 | 2,493 | |||||||||||||||
| COMPONENTS OF FINITE-LIVED INTANGIBLE ASSETS ACQUIRED DURING 2014 | ||||||
| Weighted-average | ||||||
| Gross | amortizable period | |||||
| (In millions) | carrying value | (in years) | ||||
| Customer-related | $ | 731 | 14.1 | |||
| Patents and technology | 178 | 10.8 | ||||
| Capitalized software | 1,123 | 5.7 | ||||
| Trademarks | 52 | 17.2 | ||||
| Lease valuations | 1 | 7.0 | ||||
| All other | 6 | 2.5 | ||||
| ESTIMATED 5 YEAR CONSOLIDATED AMORTIZATION | ||||||||||||||
| (In millions) | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||
| Estimated annual pre-tax amortization | $ | 1,725 | $ | 1,566 | $ | 1,414 | $ | 1,249 | $ | 1,077 | ||||
NOTE 12. POSTRETIREMENT BENEFIT PLANS
Pension Benefits
We sponsor a number of pension plans. Principal pension plans, together with affiliate and certain other pension plans (other pension plans) detailed in this note, represent about 99% of our total pension assets. We use a December 31 measurement date for our plans.
Principal Pension Plans are the GE Pension Plan and the GE Supplementary Pension Plan.
The GE Pension Plan provides benefits to certain U.S. employees based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Certain benefit provisions are subject to collective bargaining. Salaried employees who commence service on or after January 1, 2011 and any employee who commences service on or after January 1, 2012 will not be eligible to participate in the GE Pension Plan, but will participate in a defined contribution retirement program.
The GE Supplementary Pension Plan is an unfunded plan providing supplementary retirement benefits primarily to higher-level, longer-service U.S. employees.
Other Pension Plans in 2014 included 40 U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million. These defined benefit plans generally provide benefits to employees based on formulas recognizing length of service and earnings.
| PENSION PLAN PARTICIPANTS | |||||
| Principal | Other | ||||
| pension | pension | ||||
| December 31, 2014 | Total | plans | plans | ||
| Active employees | 117,000 | 86,000 | 31,000 | ||
| Vested former employees | 225,000 | 179,000 | 46,000 | ||
| Retirees and beneficiaries | 267,000 | 232,000 | 35,000 | ||
| Total | 609,000 | 497,000 | 112,000 | ||
| COST OF PENSION PLANS | |||||||||||||||||||||||||||
| Total | Principal pension plans | Other pension plans | |||||||||||||||||||||||||
| (In millions) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||
| Service cost for benefits earned | $ | 1,608 | $ | 1,970 | $ | 1,779 | $ | 1,205 | $ | 1,535 | $ | 1,387 | $ | 403 | $ | 435 | $ | 392 | |||||||||
| Prior service cost amortization | 220 | 253 | 287 | 214 | 246 | 279 | 6 | 7 | 8 | ||||||||||||||||||
| Expected return on plan assets | (3,979) | (4,163) | (4,394) | (3,190) | (3,500) | (3,768) | (789) | (663) | (626) | ||||||||||||||||||
| Interest cost on benefit obligations | 3,332 | 2,983 | 2,993 | 2,745 | 2,460 | 2,479 | 587 | 523 | 514 | ||||||||||||||||||
| Net actuarial loss amortization | 2,770 | 4,007 | 3,701 | 2,565 | 3,664 | 3,421 | 205 | 343 | 280 | ||||||||||||||||||
| Curtailment loss | 65 | - | - | 65 | (a) | - | - | - | - | - | |||||||||||||||||
| Pension plans cost | $ | 4,016 | $ | 5,050 | $ | 4,366 | $ | 3,604 | $ | 4,405 | $ | 3,798 | $ | 412 | $ | 645 | $ | 568 | |||||||||
Loss resulting from our agreement with Electrolux to sell the GE Appliances business.
\n
Actuarial assumptions
The actuarial assumptions at December 31 are used to measure the year-end benefit obligations and the pension costs for the subsequent year.
| Principal pension plans | Other pension plans (weighted average) | ||||||||||||||||
| December 31 | 2014 | 2013 | 2012 | 2011 | 2014 | 2013 | 2012 | 2011 | |||||||||
| Discount rate | 4.02 | % | 4.85 | % | 3.96 | % | 4.21 | % | 3.53 | % | 4.39 | % | 3.92 | % | 4.42 | % | |
| Compensation increases | 4.10 | 4.00 | 3.90 | 3.75 | 3.60 | 3.76 | 3.30 | 4.31 | |||||||||
| Expected return on assets | 7.50 | 7.50 | 8.00 | 8.00 | 6.95 | 6.92 | 6.82 | 7.09 | |||||||||
To determine the expected long-term rate of return on pension plan assets, we consider current and target asset allocations, as well as historical and expected returns on various categories of plan assets. In developing future return expectations for our principal pension plans' assets, we formulate views on the future economic environment, both in the U.S. and abroad. We evaluate general market trends and historical relationships among a number of key variables that impact asset class returns such as expected earnings growth, inflation, valuations, yields and spreads, using both internal and external sources. We also take into account expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and target allocations. Based on our analysis of future expectations of asset performance, past return results, and our current and target asset allocations, we have assumed a 7.5% long-term expected return on those assets for cost recognition in 2015. For the principal pension plans, we apply our expected rate of return to a market-related value of assets, which stabilizes variability in the amounts to which we apply that expected return.
The Society of Actuaries recently issued new mortality tables projecting longer life expectancies that will result in higher postretirement benefit obligations for U.S. companies. We updated our mortality assumptions at December 31, 2014. The new mortality assumptions increased our principal pension plans’ benefit obligations by $3,953 million at December 31, 2014.
We amortize experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, over a period no longer than the average future service of employees.
Funding policy
The funding policy for the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as we may determine to be appropriate. We did not make contributions to the GE Pension Plan in 2014 and 2013. The ERISA minimum funding requirements do not require a contribution in 2015. We expect to pay approximately $265 million for benefit payments under our GE Supplementary Pension Plan and administrative expenses of our principal pension plans and expect to contribute approximately $540 million to other pension plans in 2015. In 2014, comparative amounts were $236 million and $726 million, respectively.
Benefit obligations
Benefit obligations are described in the following tables. Accumulated and projected benefit obligations (ABO and PBO) represent the obligations of a pension plan for past service as of the measurement date. ABO is the present value of benefits earned to date with benefits computed based on current compensation levels. PBO is ABO increased to reflect expected future compensation.
| PROJECTED BENEFIT OBLIGATION | ||||||||||||
| Principal pension plans | Other pension plans | |||||||||||
| (In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||
| Balance at January 1 | $ | 58,113 | $ | 63,502 | $ | 13,535 | $ | 13,584 | ||||
| Service cost for benefits earned | 1,205 | 1,535 | 403 | 435 | ||||||||
| Interest cost on benefit obligations | 2,745 | 2,460 | 587 | 523 | ||||||||
| Participant contributions | 153 | 156 | 9 | 14 | ||||||||
| Plan amendments | - | - | (29) | 11 | ||||||||
| Actuarial loss (gain) | 11,718 | (a) | (6,406) | (b) | 2,170 | (b) | (575) | (b) | ||||
| Benefits paid | (3,199) | (3,134) | (493) | (477) | ||||||||
| Acquisitions (dispositions) / other - net | - | - | 48 | 46 | ||||||||
| Exchange rate adjustments | - | - | (641) | (26) | ||||||||
| Balance at December 31(c) | $ | 70,735 | $ | 58,113 | $ | 15,589 | $ | 13,535 | ||||
| ACCUMULATED BENEFIT OBLIGATION | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| GE Pension Plan | $ | 61,631 | $ | 50,967 | |
| GE Supplementary Pension Plan | 5,070 | 3,946 | |||
| Other pension plans | 14,790 | 12,629 | |||
| PLANS WITH ASSETS LESS THAN ABO | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| Funded plans with assets less than ABO | |||||
| Plan assets | $ | 53,126 | $ | 57,430 | |
| Accumulated benefit obligations | 67,676 | 60,715 | |||
| Projected benefit obligations | 70,354 | 63,532 | |||
| Unfunded plans(a) | |||||
| Accumulated benefit obligations | 6,719 | 5,243 | |||
| Projected benefit obligations | 8,342 | 6,512 | |||
(a)\tPrimarily related to the GE Supplementary Pension Plan.
Plan Assets
The fair value of the classes of the pension plans' investments is presented below. The inputs and valuation techniques used to measure the fair value of the assets are consistently applied and described in Note 1.
| FAIR VALUE OF PLAN ASSETS | |||||||||||
| Principal pension plans | Other pension plans | ||||||||||
| (In millions) | 2014 | 2013 | 2014 | 2013 | |||||||
| Balance at January 1 | $ | 48,297 | $ | 44,738 | $ | 11,059 | $ | 9,702 | |||
| Actual gain on plan assets | 2,793 | 6,312 | 1,537 | 1,212 | |||||||
| Employer contributions | 236 | 225 | 726 | 673 | |||||||
| Participant contributions | 153 | 156 | 9 | 14 | |||||||
| Benefits paid | (3,199) | (3,134) | (493) | (477) | |||||||
| Acquisitions (dispositions) / other - net | - | - | - | (31) | |||||||
| Exchange rate adjustments | - | - | (452) | (34) | |||||||
| Balance at December 31 | $ | 48,280 | $ | 48,297 | $ | 12,386 | $ | 11,059 | |||
| ASSET ALLOCATION | |||||||||||
| Other pension plans | |||||||||||
| Principal pension plans | (weighted average) | ||||||||||
| 2014 | 2014 | 2014 | 2014 | ||||||||
| Target | Actual | Target | Actual | ||||||||
| allocation | allocation | allocation | allocation | ||||||||
| Equity securities(a) | 17 - 57 | % (b) | 45 | % (c) | 39 | % | 48 | % | |||
| Debt securities (including cash equivalents) | 13 - 53 | 31 | 35 | 38 | |||||||
| Private equities | 8 - 18 | 11 | 7 | 2 | |||||||
| Real estate | 2 - 12 | 7 | 9 | 6 | |||||||
| Other investments(d) | 3 - 13 | 6 | 10 | 6 | |||||||
Plan fiduciaries of the GE Pension Plan set investment policies and strategies for the GE Pension Trust and oversee its investment allocation, which includes selecting investment managers, commissioning periodic asset-liability studies and setting long-term strategic targets. Long-term strategic investment objectives take into consideration a number of factors, including the funded status of the plan, a balance between risk and return and the plan’s liquidity needs. Target allocation percentages are established at an asset class level by plan fiduciaries. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.
Plan fiduciaries monitor the GE Pension Plan’s liquidity position in order to meet the near-term benefit payment and other cash needs. The GE Pension Plan holds short-term debt securities to meet its liquidity needs.
GE Pension Trust assets are invested subject to the following additional guidelines:
According to statute, the aggregate holdings of all qualifying employer securities (e.g., GE common stock) and qualifying employer real property may not exceed 10% of the fair value of trust assets at the time of purchase. GE securities represented 3.8% and 4.5% of trust assets at year-end 2014 and 2013, respectively.
The GE Pension Plan has a broadly diversified portfolio of investments in equities, fixed income, private equities, real estate and hedge funds; these investments are both U.S. and non-U.S. in nature. As of December 31, 2014, U.S. government direct and indirect obligations represented 16% of total GE Pension Plan assets. No other sector concentration of assets exceeded 15% of total GE Pension Plan assets.
The following tables present GE Pension Plan investments measured at fair value.
| (In millions) | Level 1 | Level 2 | Level 3 | Total | |||||||
| December 31, 2014 | |||||||||||
| Equity securities | |||||||||||
| U.S. equity securities(a) | $ | 11,493 | $ | 1,463 | $ | - | $ | 12,956 | |||
| Non-U.S. equity securities(a) | 7,021 | 2,132 | - | 9,153 | |||||||
| Debt securities | |||||||||||
| Fixed income and cash investment funds | 245 | 4,255 | - | 4,500 | |||||||
| U.S. corporate(b) | - | 5,153 | 2 | 5,155 | |||||||
| Residential mortgage-backed | - | 1,118 | 1 | 1,119 | |||||||
| Non-U.S. Corporate | - | 1,097 | 3 | 1,100 | |||||||
| U.S. government and federal agency | - | 2,468 | - | 2,468 | |||||||
| Other debt securities(c) | - | 1,042 | - | 1,042 | |||||||
| Private equities(a) | - | 32 | 5,217 | 5,249 | |||||||
| Real estate(a) | - | - | 3,129 | 3,129 | |||||||
| Other investments(d) | - | 70 | 2,248 | 2,318 | |||||||
| Total investments | $ | 18,759 | $ | 18,830 | $ | 10,600 | $ | 48,189 | |||
| Other(e) | 91 | ||||||||||
| Total assets | $ | 48,280 | |||||||||
| December 31, 2013 | |||||||||||
| Equity securities | |||||||||||
| U.S. equity securities(a) | $ | 11,067 | $ | 1,568 | $ | - | $ | 12,635 | |||
| Non-U.S. equity securities(a) | 7,832 | 1,292 | - | 9,124 | |||||||
| Debt securities | |||||||||||
| Fixed income and cash investment funds | - | 2,078 | - | 2,078 | |||||||
| U.S. corporate(b) | - | 4,555 | - | 4,555 | |||||||
| Residential mortgage-backed | - | 1,093 | - | 1,093 | |||||||
| Non-U.S. Corporate | - | 1,269 | - | 1,269 | |||||||
| U.S. government and federal agency | - | 5,253 | - | 5,253 | |||||||
| Other debt securities(c) | - | 1,048 | - | 1,048 | |||||||
| Private equities(a) | - | - | 6,269 | 6,269 | |||||||
| Real estate(a) | - | - | 3,354 | 3,354 | |||||||
| Other investments(d) | - | 169 | 1,622 | 1,791 | |||||||
| Total investments | $ | 18,899 | $ | 18,325 | $ | 11,245 | $ | 48,469 | |||
| Other(e) | (172) | ||||||||||
| Total assets | $ | 48,297 | |||||||||
(a)\tIncluded direct investments and investment funds.
(b)\tPrimarily represented investment-grade bonds of U.S. issuers from diverse industries.
(c)\tPrimarily represented investments in state and municipal debt, non-U.S. government bonds and commercial mortgage-backed securities.
(d)\tSubstantially all represented hedge fund investments.
(e)\tPrimarily represented net unsettled transactions related investment activity and cash balances.
\n
The following tables present the changes in Level 3 investments for the GE Pension Plan.
| CHANGES IN LEVEL 3 INVESTMENTS FOR THE YEAR ENDED DECEMBER 31, 2014 | |||||||||||||||||
| Purchases, | Transfers | ||||||||||||||||
| issuances | in and/or | ||||||||||||||||
| January 1, | Net realized | Net unrealized | and | out of | December 31, | ||||||||||||
| (In millions) | 2014 | gains (losses) | (a) | gains (losses) | (a) | settlements | Level 3 | (b) | 2014 | ||||||||
| Debt securities | $ | - | $ | (9) | $ | 11 | $ | 4 | $ | - | $ | 6 | |||||
| Private equities | 6,269 | 592 | (54) | (1,565) | (25) | 5,217 | |||||||||||
| Real estate | 3,354 | 36 | 334 | (595) | - | 3,129 | |||||||||||
| Other investments | 1,622 | 47 | 86 | 194 | 299 | 2,248 | |||||||||||
| $ | 11,245 | $ | 666 | $ | 377 | $ | (1,962) | $ | 274 | $ | 10,600 | ||||||
| CHANGES IN LEVEL 3 INVESTMENTS FOR THE YEAR ENDED DECEMBER 31, 2013 | |||||||||||||||||
| Purchases, | Transfers | ||||||||||||||||
| issuances | in and/or | ||||||||||||||||
| January 1, | Net realized | Net unrealized | and | out of | December 31, | ||||||||||||
| (In millions) | 2013 | gains (losses) | (a) | gains (losses) | (a) | settlements | Level 3 | (b) | 2013 | ||||||||
| Debt securities | $ | 75 | $ | (7) | $ | - | $ | (65) | $ | (3) | $ | - | |||||
| Private equities | 6,878 | 525 | 588 | (1,675) | (47) | 6,269 | |||||||||||
| Real estate | 3,356 | 23 | 330 | (355) | - | 3,354 | |||||||||||
| Other investments | 1,694 | (1) | 200 | (77) | (194) | 1,622 | |||||||||||
| $ | 12,003 | $ | 540 | $ | 1,118 | $ | (2,172) | $ | (244) | $ | 11,245 | ||||||
Other pension plans’ assets were $12,386 million and $11,059 million at December 31, 2014 and 2013, respectively. Public equity and debt securities amounting to $10,578 million and $9,781 million represented approximately 86% and 89% of total investments at December 31, 2014 and 2013, respectively. The plans’ investments were classified as 9% Level 1, 77% Level 2 and 14% Level 3 at December 31, 2014. The plans’ investments were classified as 11% Level 1, 78% Level 2 and 11% Level 3 at December 31, 2013. The changes in Level 3 investments between the years ended December 31, 2014 and 2013 were primarily due to investments in hedge funds and real estate. Other changes in Level 3 investments were insignificant for the years ended December 31, 2014 and 2013.
| PENSION ASSET (LIABILITY) | |||||||||||
| Principal pension plans | Other pension plans | ||||||||||
| December 31 (In millions) | 2014 | 2013 | 2014 | 2013 | |||||||
| Funded status(a)(b) | $ | (22,455) | $ | (9,816) | $ | (3,203) | $ | (2,476) | |||
| Pension asset (liability) recorded in the | |||||||||||
| Statement of Financial Position | |||||||||||
| Pension asset | $ | - | $ | - | $ | 295 | $ | 325 | |||
| Pension liabilities | |||||||||||
| Due within one year(c) | (190) | (170) | (72) | (67) | |||||||
| Due after one year | (22,265) | (9,646) | (3,426) | (2,734) | |||||||
| Net amount recognized | $ | (22,455) | $ | (9,816) | $ | (3,203) | $ | (2,476) | |||
| Amounts recorded in shareowners’ | |||||||||||
| equity (unamortized) | |||||||||||
| Prior service cost (credit) | $ | 881 | $ | 1,160 | $ | (23) | $ | 9 | |||
| Net actuarial loss | 21,105 | 11,555 | 3,533 | 2,459 | |||||||
| Total | $ | 21,986 | $ | 12,715 | $ | 3,510 | $ | 2,468 | |||
Fair value of assets less PBO, as shown in the preceding tables.
(b)\tThe GE Pension Plan was underfunded by $15.8 billion and $4.7 billion at December 31, 2014 and 2013, respectively.
(c)\tFor principal pension plans, represents the GE Supplementary Pension Plan liability.
In 2015, we estimate that we will amortize $210 million of prior service cost and $3,300 million of net actuarial loss for the principal pension plans from shareowners’ equity into pension cost. For other pension plans, the estimated prior service cost and net actuarial loss to be amortized in 2015 will be $5 million and $305 million, respectively. Comparable amortized amounts in 2014, respectively, were $214 million and $2,565 million for the principal pension plans and $6 million and $205 million for other pension plans.
| ESTIMATED FUTURE BENEFIT PAYMENTS | |||||||||||||||||
| 2020 - | |||||||||||||||||
| (In millions) | 2015 | 2016 | 2017 | 2018 | 2019 | 2024 | |||||||||||
| Principal pension plans | $ | 3,225 | $ | 3,300 | $ | 3,380 | $ | 3,465 | $ | 3,560 | $ | 19,430 | |||||
| Other pension plans | $ | 505 | $ | 510 | $ | 520 | $ | 530 | $ | 540 | $ | 2,925 | |||||
Retiree Health and Life Benefits
We sponsor a number of retiree health and life insurance benefit plans (retiree benefit plans). Principal retiree benefit plans are discussed below; other such plans are not significant individually or in the aggregate. We use a December 31 measurement date for our plans.
Principal Retiree Benefit Plans provide health and life insurance benefits to eligible participants and these participants share in the cost of healthcare benefits. These plans cover approximately 193,000 retirees and dependents. In 2012, we amended our principal retiree benefit plans such that, effective January 1, 2015, our post-65 retiree health plans will be closed to certain salaried and retired salaried employees who are not enrolled in the plans as of that date, and we will no longer offer company-provided life insurance in retirement for certain salaried employees who retire after that date. In 2014, we amended our post-65 retiree health plans for certain former salaried employees and eligible dependents. Effective January 1, 2015, the Company will provide eligible participants with a Retiree Reimbursement Account to help pay for coverage purchased through a private exchange instead of offering our current post-65 retiree health plans.
| COST OF PRINCIPAL RETIREE BENEFIT PLANS | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Service cost for benefits earned | $ | 164 | $ | 229 | $ | 219 | ||
| Prior service cost amortization | 353 | 393 | 518 | |||||
| Expected return on plan assets | (50) | (60) | (73) | |||||
| Interest cost on benefit obligations | 424 | 410 | 491 | |||||
| Net actuarial loss (gain) amortization | (150) | (45) | 32 | |||||
| Net curtailment/settlement loss (gain) | 48 | (a) | - | (101) | ||||
| Retiree benefit plans cost | $ | 789 | $ | 927 | $ | 1,086 | ||
(a)\tLoss resulting from our agreement with Electrolux to sell the GE Appliances business.
Actuarial assumptions
The actuarial assumptions at December 31 are used to measure the year-end benefit obligations and the retiree benefit plan costs for the subsequent year.
| December 31 | 2014 | 2013 | 2012 | 2011 | ||||
| Discount rate | 3.89 | % | 4.61 | %(a) | 3.74 | %(a) | 4.09 | %(a) |
| Compensation increases | 4.10 | 4.00 | 3.90 | 3.75 | ||||
| Expected return on assets | 7.00 | 7.00 | 7.00 | 7.00 | ||||
| Initial healthcare trend rate(b) | 6.00 | 6.00 | 6.50 | 7.00 | ||||
To determine the expected long-term rate of return on retiree life plan assets, we consider current and target asset allocations, historical and expected returns on various categories of plan assets, as well as expected benefit payments and resulting asset levels. In developing future return expectations for retiree benefit plan assets, we formulate views on the future economic environment, both in the U.S. and abroad. We evaluate general market trends and historical relationships among a number of key variables that impact asset class returns such as expected earnings growth, inflation, valuations, yields and spreads, using both internal and external sources. We also take into account expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and target allocations. Based on our analysis of future expectations of asset performance, past return results, our current and target asset allocations as well as a shorter time horizon for retiree life plan assets, we have assumed a 7.0% long-term expected return on those assets for cost recognition in 2015. We apply our expected rate of return to a market-related value of assets, which stabilizes variability in the amounts to which we apply that expected return.
The Society of Actuaries recently issued new mortality tables projecting longer life expectancies that will result in higher postretirement obligations for U.S. companies. We updated our mortality assumptions at December 31, 2014. The new mortality assumptions increased our principal retiree benefit plans’ benefit obligations by $612 million at December 31, 2014.
We amortize experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, over a period no longer than the average future service of employees.
Funding Policy
We fund retiree health benefits on a pay-as-you-go basis. We expect to contribute approximately $540 million in 2015 to fund such benefits. We fund the retiree life insurance trust at our discretion.
\n
Changes in the accumulated postretirement benefit obligation for retiree benefit plans follow.
| ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION (APBO) | ||||||
| (In millions) | 2014 | 2013 | ||||
| Balance at January 1 | $ | 9,913 | $ | 11,804 | ||
| Service cost for benefits earned | 164 | 229 | ||||
| Interest cost on benefit obligations | 424 | 410 | ||||
| Participant contributions | 52 | 52 | ||||
| Plan amendments | (586) | - | ||||
| Actuarial loss (gain) | 1,440 | (a) | (1,836) | (b) | ||
| Benefits paid | (704) | (746) | ||||
| Balance at December 31(c) | $ | 10,703 | $ | 9,913 | ||
A one percentage point change in the assumed healthcare cost trend rate would have the following effects.
| 1% | 1% | ||||
| (In millions) | Increase | Decrease | |||
| APBO at December 31, 2014 | $ | 977 | $ | (810) | |
| Service and interest cost in 2014 | 56 | (47) | |||
Plan Assets
The fair value of the classes of retiree benefit plans' investments is presented below. The inputs and valuation techniques used to measure the fair value of assets are consistently applied and described in Note 1.
| FAIR VALUE OF PLAN ASSETS | |||||
| (In millions) | 2014 | 2013 | |||
| Balance at January 1 | $ | 903 | $ | 946 | |
| Actual gain on plan assets | 44 | 118 | |||
| Employer contributions | 518 | 533 | |||
| Participant contributions | 52 | 52 | |||
| Benefits paid | (704) | (746) | |||
| Balance at December 31 | $ | 813 | $ | 903 | |
| ASSET ALLOCATION | ||||
| 2014 | 2014 | |||
| Target | Actual | |||
| December 31 | allocation | allocation | ||
| Equity securities(a) | 35 - 75 | %(b) | 50 | %(c) |
| Debt securities (including cash equivalents) | 11 - 46 | 26 | ||
| Private equities | 0 - 25 | 13 | ||
| Real estate | 0 - 12 | 9 | ||
| Other investments(d) | 0 - 10 | 2 | ||
Plan fiduciaries set investment policies and strategies for the trust and oversee its investment allocation, which includes selecting investment managers and setting long-term strategic targets. The primary strategic investment objectives are balancing investment risk and return and monitoring the plan’s liquidity position in order to meet the near-term benefit payment and other cash needs. Target allocation percentages are established at an asset class level by plan fiduciaries. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.
Short-term securities purchased must generally be rated A-1/P-1 or better, except for 15% of such securities that may be rated A-2/P-2 and other short-term securities as may be approved by the plan fiduciaries. According to statute, the aggregate holdings of all qualifying employer securities (e.g., GE common stock) and qualifying employer real property may not exceed 10% of the fair value of trust assets at the time of purchase. GE securities represented 3.9% and 4.0% of trust assets at year-end 2014 and 2013, respectively.
Retiree life plan assets were $813 million and $903 million at December 31, 2014 and 2013, respectively. Public equity and debt securities amounting to $615 million and $727 million represented approximately 78% and 77% of total investments at December 31, 2014 and 2013, respectively. The plans’ investments were classified as 37% Level 1, 41% Level 2 and 22% Level 3 at December 31, 2014. The plans’ investments were classified as 33% Level 1, 43% Level 2 and 24% Level 3 at December 31, 2013. The changes in Level 3 investments were insignificant for the years ended December 31, 2014 and 2013.
| RETIREE BENEFIT ASSET(LIABILITY) | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| Funded status(a) | $ | (9,890) | $ | (9,010) | |
| Liability recorded in the Statement of Financial Position | |||||
| Retiree health plans | |||||
| Due within one year | $ | (518) | $ | (531) | |
| Due after one year | (7,927) | (7,095) | |||
| Retiree life plans | (1,445) | (1,384) | |||
| Net liability recognized | $ | (9,890) | $ | (9,010) | |
| Amounts recorded in shareowners' equity (unamortized) | |||||
| Prior service cost (credit) | $ | (24) | $ | 963 | |
| Net actuarial gain | (71) | (1,667) | |||
| Total | $ | (95) | $ | (704) | |
Fair value of assets less APBO, as shown in the preceding tables.
In 2015, we estimate that we will amortize $125 million of prior service cost and $5 million of net actuarial loss from shareowners’ equity into retiree benefit plans cost. Comparable amortized amounts in 2014 were $353 million of prior service cost and $150 million of net actuarial gain.
| ESTIMATED FUTURE BENEFIT PAYMENTS | ||||||||||||||||||
| 2020 - | ||||||||||||||||||
| (In millions) | 2015 | 2016 | 2017 | 2018 | 2019 | 2024 | ||||||||||||
| $ | 680 | $ | 665 | $ | 670 | $ | 675 | $ | 685 | $ | 3,285 | |||||||
| POSTRETIREMENT BENEFIT PLANS | |||||||||||
| 2014 COST OF POSTRETIREMENT BENEFIT PLANS AND CHANGES IN OTHER COMPREHENSIVE INCOME | |||||||||||
| Total | Principal | Other | Retiree | ||||||||
| postretirement | pension | pension | benefit | ||||||||
| (In millions) | benefit plans | plans | plans | plans | |||||||
| Cost of postretirement benefit plans | $ | 4,805 | $ | 3,604 | $ | 412 | $ | 789 | |||
| Changes in other comprehensive income | |||||||||||
| Prior service cost – current year | (615) | - | (29) | (586) | |||||||
| Net actuarial loss – current year(a) | 14,843 | 12,115 | 1,282 | 1,446 | |||||||
| Net curtailment/settlement | (113) | (65) | - | (48) | |||||||
| Prior service cost amortization | (573) | (214) | (6) | (353) | |||||||
| Net actuarial gain (loss) amortization | (2,620) | (2,565) | (205) | 150 | |||||||
| Total changes in other comprehensive income | 10,922 | 9,271 | 1,042 | 609 | |||||||
| Cost of postretirement benefit plans and | |||||||||||
| changes in other comprehensive income | $ | 15,727 | $ | 12,875 | $ | 1,454 | $ | 1,398 | |||
Principally associated with discount rate and mortality assumption changes.
| PENSION PLAN PARTICIPANTS | |||||
| Principal | Other | ||||
| pension | pension | ||||
| December 31, 2014 | Total | plans | plans | ||
| Active employees | 117,000 | 86,000 | 31,000 | ||
| Vested former employees | 225,000 | 179,000 | 46,000 | ||
| Retirees and beneficiaries | 267,000 | 232,000 | 35,000 | ||
| Total | 609,000 | 497,000 | 112,000 | ||
| Principal pension plans | Other pension plans (weighted average) | ||||||||||||||||
| December 31 | 2014 | 2013 | 2012 | 2011 | 2014 | 2013 | 2012 | 2011 | |||||||||
| Discount rate | 4.02 | % | 4.85 | % | 3.96 | % | 4.21 | % | 3.53 | % | 4.39 | % | 3.92 | % | 4.42 | % | |
| Compensation increases | 4.10 | 4.00 | 3.90 | 3.75 | 3.60 | 3.76 | 3.30 | 4.31 | |||||||||
| Expected return on assets | 7.50 | 7.50 | 8.00 | 8.00 | 6.95 | 6.92 | 6.82 | 7.09 | |||||||||
| PROJECTED BENEFIT OBLIGATION | ||||||||||||
| Principal pension plans | Other pension plans | |||||||||||
| (In millions) | 2014 | 2013 | 2014 | 2013 | ||||||||
| Balance at January 1 | $ | 58,113 | $ | 63,502 | $ | 13,535 | $ | 13,584 | ||||
| Service cost for benefits earned | 1,205 | 1,535 | 403 | 435 | ||||||||
| Interest cost on benefit obligations | 2,745 | 2,460 | 587 | 523 | ||||||||
| Participant contributions | 153 | 156 | 9 | 14 | ||||||||
| Plan amendments | - | - | (29) | 11 | ||||||||
| Actuarial loss (gain) | 11,718 | (a) | (6,406) | (b) | 2,170 | (b) | (575) | (b) | ||||
| Benefits paid | (3,199) | (3,134) | (493) | (477) | ||||||||
| Acquisitions (dispositions) / other - net | - | - | 48 | 46 | ||||||||
| Exchange rate adjustments | - | - | (641) | (26) | ||||||||
| Balance at December 31(c) | $ | 70,735 | $ | 58,113 | $ | 15,589 | $ | 13,535 | ||||
| ACCUMULATED BENEFIT OBLIGATION | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| GE Pension Plan | $ | 61,631 | $ | 50,967 | |
| GE Supplementary Pension Plan | 5,070 | 3,946 | |||
| Other pension plans | 14,790 | 12,629 | |||
| PLANS WITH ASSETS LESS THAN ABO | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| Funded plans with assets less than ABO | |||||
| Plan assets | $ | 53,126 | $ | 57,430 | |
| Accumulated benefit obligations | 67,676 | 60,715 | |||
| Projected benefit obligations | 70,354 | 63,532 | |||
| Unfunded plans(a) | |||||
| Accumulated benefit obligations | 6,719 | 5,243 | |||
| Projected benefit obligations | 8,342 | 6,512 | |||
Primarily related to the GE Supplementary Pension Plan.
\n
| FAIR VALUE OF PLAN ASSETS | |||||||||||
| Principal pension plans | Other pension plans | ||||||||||
| (In millions) | 2014 | 2013 | 2014 | 2013 | |||||||
| Balance at January 1 | $ | 48,297 | $ | 44,738 | $ | 11,059 | $ | 9,702 | |||
| Actual gain on plan assets | 2,793 | 6,312 | 1,537 | 1,212 | |||||||
| Employer contributions | 236 | 225 | 726 | 673 | |||||||
| Participant contributions | 153 | 156 | 9 | 14 | |||||||
| Benefits paid | (3,199) | (3,134) | (493) | (477) | |||||||
| Acquisitions (dispositions) / other - net | - | - | - | (31) | |||||||
| Exchange rate adjustments | - | - | (452) | (34) | |||||||
| Balance at December 31 | $ | 48,280 | $ | 48,297 | $ | 12,386 | $ | 11,059 | |||
| ASSET ALLOCATION | |||||||||||
| Other pension plans | |||||||||||
| Principal pension plans | (weighted average) | ||||||||||
| 2014 | 2014 | 2014 | 2014 | ||||||||
| Target | Actual | Target | Actual | ||||||||
| allocation | allocation | allocation | allocation | ||||||||
| Equity securities(a) | 17 - 57 | % (b) | 45 | % (c) | 39 | % | 48 | % | |||
| Debt securities (including cash equivalents) | 13 - 53 | 31 | 35 | 38 | |||||||
| Private equities | 8 - 18 | 11 | 7 | 2 | |||||||
| Real estate | 2 - 12 | 7 | 9 | 6 | |||||||
| Other investments(d) | 3 - 13 | 6 | 10 | 6 | |||||||
| (In millions) | Level 1 | Level 2 | Level 3 | Total | |||||||
| December 31, 2014 | |||||||||||
| Equity securities | |||||||||||
| U.S. equity securities(a) | $ | 11,493 | $ | 1,463 | $ | - | $ | 12,956 | |||
| Non-U.S. equity securities(a) | 7,021 | 2,132 | - | 9,153 | |||||||
| Debt securities | |||||||||||
| Fixed income and cash investment funds | 245 | 4,255 | - | 4,500 | |||||||
| U.S. corporate(b) | - | 5,153 | 2 | 5,155 | |||||||
| Residential mortgage-backed | - | 1,118 | 1 | 1,119 | |||||||
| Non-U.S. Corporate | - | 1,097 | 3 | 1,100 | |||||||
| U.S. government and federal agency | - | 2,468 | - | 2,468 | |||||||
| Other debt securities(c) | - | 1,042 | - | 1,042 | |||||||
| Private equities(a) | - | 32 | 5,217 | 5,249 | |||||||
| Real estate(a) | - | - | 3,129 | 3,129 | |||||||
| Other investments(d) | - | 70 | 2,248 | 2,318 | |||||||
| Total investments | $ | 18,759 | $ | 18,830 | $ | 10,600 | $ | 48,189 | |||
| Other(e) | 91 | ||||||||||
| Total assets | $ | 48,280 | |||||||||
| December 31, 2013 | |||||||||||
| Equity securities | |||||||||||
| U.S. equity securities(a) | $ | 11,067 | $ | 1,568 | $ | - | $ | 12,635 | |||
| Non-U.S. equity securities(a) | 7,832 | 1,292 | - | 9,124 | |||||||
| Debt securities | |||||||||||
| Fixed income and cash investment funds | - | 2,078 | - | 2,078 | |||||||
| U.S. corporate(b) | - | 4,555 | - | 4,555 | |||||||
| Residential mortgage-backed | - | 1,093 | - | 1,093 | |||||||
| Non-U.S. Corporate | - | 1,269 | - | 1,269 | |||||||
| U.S. government and federal agency | - | 5,253 | - | 5,253 | |||||||
| Other debt securities(c) | - | 1,048 | - | 1,048 | |||||||
| Private equities(a) | - | - | 6,269 | 6,269 | |||||||
| Real estate(a) | - | - | 3,354 | 3,354 | |||||||
| Other investments(d) | - | 169 | 1,622 | 1,791 | |||||||
| Total investments | $ | 18,899 | $ | 18,325 | $ | 11,245 | $ | 48,469 | |||
| Other(e) | (172) | ||||||||||
| Total assets | $ | 48,297 | |||||||||
Included direct investments and investment funds.
(b)\tPrimarily represented investment-grade bonds of U.S. issuers from diverse industries.
(c)\tPrimarily represented investments in state and municipal debt, non-U.S. government bonds and commercial mortgage-backed securities.
(d)\tSubstantially all represented hedge fund investments.
(e)\tPrimarily represented net unsettled transactions related investment activity and cash balances.
| CHANGES IN LEVEL 3 INVESTMENTS FOR THE YEAR ENDED DECEMBER 31, 2014 | |||||||||||||||||
| Purchases, | Transfers | ||||||||||||||||
| issuances | in and/or | ||||||||||||||||
| January 1, | Net realized | Net unrealized | and | out of | December 31, | ||||||||||||
| (In millions) | 2014 | gains (losses) | (a) | gains (losses) | (a) | settlements | Level 3 | (b) | 2014 | ||||||||
| Debt securities | $ | - | $ | (9) | $ | 11 | $ | 4 | $ | - | $ | 6 | |||||
| Private equities | 6,269 | 592 | (54) | (1,565) | (25) | 5,217 | |||||||||||
| Real estate | 3,354 | 36 | 334 | (595) | - | 3,129 | |||||||||||
| Other investments | 1,622 | 47 | 86 | 194 | 299 | 2,248 | |||||||||||
| $ | 11,245 | $ | 666 | $ | 377 | $ | (1,962) | $ | 274 | $ | 10,600 | ||||||
| CHANGES IN LEVEL 3 INVESTMENTS FOR THE YEAR ENDED DECEMBER 31, 2013 | |||||||||||||||||
| Purchases, | Transfers | ||||||||||||||||
| issuances | in and/or | ||||||||||||||||
| January 1, | Net realized | Net unrealized | and | out of | December 31, | ||||||||||||
| (In millions) | 2013 | gains (losses) | (a) | gains (losses) | (a) | settlements | Level 3 | (b) | 2013 | ||||||||
| Debt securities | $ | 75 | $ | (7) | $ | - | $ | (65) | $ | (3) | $ | - | |||||
| Private equities | 6,878 | 525 | 588 | (1,675) | (47) | 6,269 | |||||||||||
| Real estate | 3,356 | 23 | 330 | (355) | - | 3,354 | |||||||||||
| Other investments | 1,694 | (1) | 200 | (77) | (194) | 1,622 | |||||||||||
| $ | 12,003 | $ | 540 | $ | 1,118 | $ | (2,172) | $ | (244) | $ | 11,245 | ||||||
| PENSION ASSET (LIABILITY) | |||||||||||
| Principal pension plans | Other pension plans | ||||||||||
| December 31 (In millions) | 2014 | 2013 | 2014 | 2013 | |||||||
| Funded status(a)(b) | $ | (22,455) | $ | (9,816) | $ | (3,203) | $ | (2,476) | |||
| Pension asset (liability) recorded in the | |||||||||||
| Statement of Financial Position | |||||||||||
| Pension asset | $ | - | $ | - | $ | 295 | $ | 325 | |||
| Pension liabilities | |||||||||||
| Due within one year(c) | (190) | (170) | (72) | (67) | |||||||
| Due after one year | (22,265) | (9,646) | (3,426) | (2,734) | |||||||
| Net amount recognized | $ | (22,455) | $ | (9,816) | $ | (3,203) | $ | (2,476) | |||
| Amounts recorded in shareowners’ | |||||||||||
| equity (unamortized) | |||||||||||
| Prior service cost (credit) | $ | 881 | $ | 1,160 | $ | (23) | $ | 9 | |||
| Net actuarial loss | 21,105 | 11,555 | 3,533 | 2,459 | |||||||
| Total | $ | 21,986 | $ | 12,715 | $ | 3,510 | $ | 2,468 | |||
Fair value of assets less PBO, as shown in the preceding tables.
(b)\tThe GE Pension Plan was underfunded by $15.8 billion and $4.7 billion at December 31, 2014 and 2013, respectively.
(c)\tFor principal pension plans, represents the GE Supplementary Pension Plan liability.
| ESTIMATED FUTURE BENEFIT PAYMENTS | |||||||||||||||||
| 2020 - | |||||||||||||||||
| (In millions) | 2015 | 2016 | 2017 | 2018 | 2019 | 2024 | |||||||||||
| Principal pension plans | $ | 3,225 | $ | 3,300 | $ | 3,380 | $ | 3,465 | $ | 3,560 | $ | 19,430 | |||||
| Other pension plans | $ | 505 | $ | 510 | $ | 520 | $ | 530 | $ | 540 | $ | 2,925 | |||||
| December 31 | 2014 | 2013 | 2012 | 2011 | ||||
| Discount rate | 3.89 | % | 4.61 | %(a) | 3.74 | %(a) | 4.09 | %(a) |
| Compensation increases | 4.10 | 4.00 | 3.90 | 3.75 | ||||
| Expected return on assets | 7.00 | 7.00 | 7.00 | 7.00 | ||||
| Initial healthcare trend rate(b) | 6.00 | 6.00 | 6.50 | 7.00 | ||||
| ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION (APBO) | ||||||
| (In millions) | 2014 | 2013 | ||||
| Balance at January 1 | $ | 9,913 | $ | 11,804 | ||
| Service cost for benefits earned | 164 | 229 | ||||
| Interest cost on benefit obligations | 424 | 410 | ||||
| Participant contributions | 52 | 52 | ||||
| Plan amendments | (586) | - | ||||
| Actuarial loss (gain) | 1,440 | (a) | (1,836) | (b) | ||
| Benefits paid | (704) | (746) | ||||
| Balance at December 31(c) | $ | 10,703 | $ | 9,913 | ||
| 1% | 1% | ||||
| (In millions) | Increase | Decrease | |||
| APBO at December 31, 2014 | $ | 977 | $ | (810) | |
| Service and interest cost in 2014 | 56 | (47) | |||
| FAIR VALUE OF PLAN ASSETS | |||||
| (In millions) | 2014 | 2013 | |||
| Balance at January 1 | $ | 903 | $ | 946 | |
| Actual gain on plan assets | 44 | 118 | |||
| Employer contributions | 518 | 533 | |||
| Participant contributions | 52 | 52 | |||
| Benefits paid | (704) | (746) | |||
| Balance at December 31 | $ | 813 | $ | 903 | |
| ASSET ALLOCATION | ||||
| 2014 | 2014 | |||
| Target | Actual | |||
| December 31 | allocation | allocation | ||
| Equity securities(a) | 35 - 75 | %(b) | 50 | %(c) |
| Debt securities (including cash equivalents) | 11 - 46 | 26 | ||
| Private equities | 0 - 25 | 13 | ||
| Real estate | 0 - 12 | 9 | ||
| Other investments(d) | 0 - 10 | 2 | ||
| ESTIMATED FUTURE BENEFIT PAYMENTS | ||||||||||||||||||
| 2020 - | ||||||||||||||||||
| (In millions) | 2015 | 2016 | 2017 | 2018 | 2019 | 2024 | ||||||||||||
| $ | 680 | $ | 665 | $ | 670 | $ | 675 | $ | 685 | $ | 3,285 | |||||||
| POSTRETIREMENT BENEFIT PLANS | |||||||||||
| 2014 COST OF POSTRETIREMENT BENEFIT PLANS AND CHANGES IN OTHER COMPREHENSIVE INCOME | |||||||||||
| Total | Principal | Other | Retiree | ||||||||
| postretirement | pension | pension | benefit | ||||||||
| (In millions) | benefit plans | plans | plans | plans | |||||||
| Cost of postretirement benefit plans | $ | 4,805 | $ | 3,604 | $ | 412 | $ | 789 | |||
| Changes in other comprehensive income | |||||||||||
| Prior service cost – current year | (615) | - | (29) | (586) | |||||||
| Net actuarial loss – current year(a) | 14,843 | 12,115 | 1,282 | 1,446 | |||||||
| Net curtailment/settlement | (113) | (65) | - | (48) | |||||||
| Prior service cost amortization | (573) | (214) | (6) | (353) | |||||||
| Net actuarial gain (loss) amortization | (2,620) | (2,565) | (205) | 150 | |||||||
| Total changes in other comprehensive income | 10,922 | 9,271 | 1,042 | 609 | |||||||
| Cost of postretirement benefit plans and | |||||||||||
| changes in other comprehensive income | $ | 15,727 | $ | 12,875 | $ | 1,454 | $ | 1,398 | |||
NOTE 9. ALL OTHER ASSETS
| December 31 (In millions) | 2014 | 2013 | |||
| GE | |||||
| Investments | |||||
| Associated companies | $ | 3,384 | $ | 3,937 | |
| Other | 613 | 626 | |||
| 3,997 | 4,563 | ||||
| Contract costs and estimated earnings(a) | 13,990 | 12,522 | |||
| Long-term receivables, including notes | 766 | 993 | |||
| Derivative instruments | 783 | 623 | |||
| Other | 5,144 | 5,007 | |||
| 24,680 | 23,708 | ||||
| GECC | |||||
| Investments | |||||
| Associated companies | 16,747 | 17,348 | |||
| Real estate(b)(c) | 10,891 | 16,163 | |||
| Assets held for sale(d) | 5,549 | 2,571 | |||
| Cost method(c) | 566 | 1,462 | |||
| Other | 1,621 | 930 | |||
| 35,374 | 38,474 | ||||
| Derivative instruments | 1,794 | 1,117 | |||
| Advances to suppliers | 1,406 | 2,328 | |||
| Deferred borrowing costs | 849 | 867 | |||
| Deferred acquisition costs(e) | 17 | 29 | |||
| Other | 4,435 | 4,551 | |||
| 43,875 | 47,366 | ||||
| Eliminations | (330) | (266) | |||
| Total | $ | 68,225 | $ | 70,808 | |
(a)\tContract costs and estimated earnings reflect revenues earned in excess of billings on our long-term contracts to construct technically complex equipment (such as power generation, aircraft engines and aeroderivative units) and long-term product maintenance or extended warranty arrangements. These amounts are presented net of related billings in excess of revenues relating to long-term product maintenance or extended warranty arrangements of $2,329 million and $1,842 million at December 31, 2014 and 2013, respectively.
(b)\tGECC investments in real estate consisted principally of two categories: real estate held for investment and equity method investments. Both categories contained a wide range of properties including the following at December 31, 2014: office buildings (57%), retail facilities (9%), apartment buildings (5%), industrial properties (3%), franchise properties (3%) and other (23%). At December 31, 2014, investments were located in the Americas (46%), Europe (37%) and Asia (17%).
(c)\tThe fair value of and unrealized loss on cost method investments in a continuous loss position for less than 12 months at December 31, 2014, were $5 million and $1 million, respectively. The fair value of and unrealized loss on cost method investments in a continuous loss position for 12 months or more at December 31, 2014, were an insignificant amount and $1 million, respectively. The fair value of and unrealized loss on cost method investments in a continuous loss position for less than 12 months at December 31, 2013, were $17 million and an insignificant amount, respectively. There were no cost method investments in a continuous loss position for 12 months or more at December 31, 2013.
(d)\tAssets were classified as held for sale on the date a decision was made to dispose of them through sale or other means. At December 31, 2014 and 2013, such assets consisted primarily of loans, aircraft, equipment and real estate properties, and were accounted for at the lower of carrying amount or estimated fair value less costs to sell. These amounts are net of valuation allowances of $142 million and $127 million at December 31, 2014 and 2013, respectively. Assets held for sale increased $2,978 million from December 31, 2013 as a result of net increases in held for sale loans and aircraft, partially offset by net decreases in held for sale real estate, primarily due to sales.
(e)\tBalances at December 31, 2014 and 2013 reflect adjustments of $624 million and $700 million, respectively, to deferred acquisition costs in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized.
| December 31 (In millions) | 2014 | 2013 | |||
| GE | |||||
| Investments | |||||
| Associated companies | $ | 3,384 | $ | 3,937 | |
| Other | 613 | 626 | |||
| 3,997 | 4,563 | ||||
| Contract costs and estimated earnings(a) | 13,990 | 12,522 | |||
| Long-term receivables, including notes | 766 | 993 | |||
| Derivative instruments | 783 | 623 | |||
| Other | 5,144 | 5,007 | |||
| 24,680 | 23,708 | ||||
| GECC | |||||
| Investments | |||||
| Associated companies | 16,747 | 17,348 | |||
| Real estate(b)(c) | 10,891 | 16,163 | |||
| Assets held for sale(d) | 5,549 | 2,571 | |||
| Cost method(c) | 566 | 1,462 | |||
| Other | 1,621 | 930 | |||
| 35,374 | 38,474 | ||||
| Derivative instruments | 1,794 | 1,117 | |||
| Advances to suppliers | 1,406 | 2,328 | |||
| Deferred borrowing costs | 849 | 867 | |||
| Deferred acquisition costs(e) | 17 | 29 | |||
| Other | 4,435 | 4,551 | |||
| 43,875 | 47,366 | ||||
| Eliminations | (330) | (266) | |||
| Total | $ | 68,225 | $ | 70,808 | |
(a)\tContract costs and estimated earnings reflect revenues earned in excess of billings on our long-term contracts to construct technically complex equipment (such as power generation, aircraft engines and aeroderivative units) and long-term product maintenance or extended warranty arrangements. These amounts are presented net of related billings in excess of revenues relating to long-term product maintenance or extended warranty arrangements of $2,329 million and $1,842 million at December 31, 2014 and 2013, respectively.
(b)\tGECC investments in real estate consisted principally of two categories: real estate held for investment and equity method investments. Both categories contained a wide range of properties including the following at December 31, 2014: office buildings (57%), retail facilities (9%), apartment buildings (5%), industrial properties (3%), franchise properties (3%) and other (23%). At December 31, 2014, investments were located in the Americas (46%), Europe (37%) and Asia (17%).
(c)\tThe fair value of and unrealized loss on cost method investments in a continuous loss position for less than 12 months at December 31, 2014, were $5 million and $1 million, respectively. The fair value of and unrealized loss on cost method investments in a continuous loss position for 12 months or more at December 31, 2014, were an insignificant amount and $1 million, respectively. The fair value of and unrealized loss on cost method investments in a continuous loss position for less than 12 months at December 31, 2013, were $17 million and an insignificant amount, respectively. There were no cost method investments in a continuous loss position for 12 months or more at December 31, 2013.
(d)\tAssets were classified as held for sale on the date a decision was made to dispose of them through sale or other means. At December 31, 2014 and 2013, such assets consisted primarily of loans, aircraft, equipment and real estate properties, and were accounted for at the lower of carrying amount or estimated fair value less costs to sell. These amounts are net of valuation allowances of $142 million and $127 million at December 31, 2014 and 2013, respectively. Assets held for sale increased $2,978 million from December 31, 2013 as a result of net increases in held for sale loans and aircraft, partially offset by net decreases in held for sale real estate, primarily due to sales.
(e)\tBalances at December 31, 2014 and 2013 reflect adjustments of $624 million and $700 million, respectively, to deferred acquisition costs in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized.
| 2014 | 2013 | ||||||||||||||||
| Assets (liabilities) | Assets (liabilities) | ||||||||||||||||
| Carrying | Carrying | ||||||||||||||||
| Notional | amount | Estimated | Notional | amount | Estimated | ||||||||||||
| December 31 (In millions) | amount | (net) | fair value | amount | (net) | fair value | |||||||||||
| GE | |||||||||||||||||
| Assets | |||||||||||||||||
| Investments and notes | |||||||||||||||||
| receivable | $ | (a) | $ | 502 | $ | 551 | $ | (a) | $ | 488 | $ | 512 | |||||
| Liabilities | |||||||||||||||||
| Borrowings(b) | (a) | (16,340) | (17,503) | (a) | (13,356) | (13,707) | |||||||||||
| GECC | |||||||||||||||||
| Assets | |||||||||||||||||
| Loans | (a) | 212,719 | 217,662 | (a) | 226,293 | 230,792 | |||||||||||
| Other commercial mortgages | (a) | 3,520 | 3,600 | (a) | 2,270 | 2,281 | |||||||||||
| Loans held for sale | (a) | 1,801 | 1,826 | (a) | 512 | 512 | |||||||||||
| Other financial instruments(c) | (a) | 691 | 1,015 | (a) | 1,622 | 2,203 | |||||||||||
| Liabilities | |||||||||||||||||
| Borrowings and bank | |||||||||||||||||
| deposits(b)(d) | (a) | (349,548) | (366,256) | (a) | (371,062) | (386,823) | |||||||||||
| Investment contract benefits | (a) | (2,970) | (3,565) | (a) | (3,144) | (3,644) | |||||||||||
| Guaranteed investment contracts | (a) | (1,000) | (1,031) | (a) | (1,471) | (1,459) | |||||||||||
| Insurance – credit life(e) | 1,843 | (90) | (77) | 2,149 | (108) | (94) | |||||||||||
(a)\tThese financial instruments do not have notional amounts.
(b)\tSee Note 10.
(c)\tPrincipally comprises cost method investments.
(d)\tFair values exclude interest rate and currency derivatives designated as hedges of borrowings. Had they been included, the fair value of borrowings at December 31, 2014 and 2013 would have been reduced by $5,020 million and $2,284 million, respectively.
(e)\tNet of reinsurance of $964 million and $1,250 million at December 31, 2014 and 2013, respectively.
| (In millions) | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||
| GE | $ | 2,068 | $ | 194 | $ | 4,052 | $ | 28 | $ | 29 | ||||
| GECC | 37,989 | (a) | 31,707 | 27,041 | 19,011 | 21,956 | ||||||||
(a)\tFixed and floating rate notes of $474 million contain put options with exercise dates in 2015, and which have final maturity beyond 2019.
| (BENEFIT) PROVISION FOR INCOME TAXES | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| GE | ||||||||
| Current tax expense | $ | 2,110 | $ | 4,239 | $ | 2,307 | ||
| Deferred tax expense (benefit) from temporary differences | (476) | (2,571) | (294) | |||||
| 1,634 | 1,668 | 2,013 | ||||||
| GECC | ||||||||
| Current tax expense (benefit) | 848 | (268) | 1,379 | |||||
| Deferred tax expense (benefit) from temporary differences | (710) | (724) | (858) | |||||
| 138 | (992) | 521 | ||||||
| Consolidated | ||||||||
| Current tax expense | 2,958 | 3,971 | 3,686 | |||||
| Deferred tax expense (benefit) from temporary differences | (1,186) | (3,295) | (1,152) | |||||
| Total | $ | 1,772 | $ | 676 | $ | 2,534 | ||
| CONSOLIDATED EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| U.S. earnings | $ | 5,421 | $ | 6,099 | $ | 8,309 | ||
| Non-U.S. earnings | 11,808 | 10,052 | 9,072 | |||||
| Total | $ | 17,229 | $ | 16,151 | $ | 17,381 | ||
| CONSOLIDATED (BENEFIT) PROVISION FOR INCOME TAXES | |||||||||
| (In millions) | 2014 | 2013 | 2012 | ||||||
| U.S. Federal | |||||||||
| Current(a) | $ | 51 | $ | 85 | $ | 685 | |||
| Deferred | (177) | (2,315) | (414) | ||||||
| Non - U.S. | |||||||||
| Current | 2,978 | 3,659 | 2,871 | ||||||
| Deferred | (849) | (1,038) | (773) | ||||||
| Other | (231) | 285 | 165 | ||||||
| Total | $ | 1,772 | $ | 676 | $ | 2,534 | |||
Includes the benefit from GECC deductions and credits applied against GE’s current U.S. tax expense.
| RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO ACTUAL INCOME TAX RATE | ||||||||||||||||||
| Consolidated | GE | GECC | ||||||||||||||||
| 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||
| U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % |
| Increase (reduction) in rate resulting from | ||||||||||||||||||
| inclusion of after-tax earnings of GECC in | ||||||||||||||||||
| before-tax earnings of GE | - | - | - | (15.2) | (16.9) | (15.3) | - | - | - | |||||||||
| Tax on global activities including exports(a) | (18.4) | (24.7) | (12.5) | (7.9) | (4.1) | (4.3) | (24.1) | (45.0) | (18.4) | |||||||||
| U.S. business credits(b) | (2.6) | (3.6) | (2.6) | (0.6) | (1.5) | (0.7) | (4.6) | (4.6) | (4.3) | |||||||||
| Business Property disposition | - | - | (1.9) | - | - | - | - | - | (4.2) | |||||||||
| All other – net | (3.7) | (2.5) | (3.4) | (1.6) | (2.7) | (2.7) | (4.5) | 1.0 | (1.5) | |||||||||
| (24.7) | (30.8) | (20.4) | (25.3) | (25.2) | (23.0) | (33.2) | (48.6) | (28.4) | ||||||||||
| Actual income tax rate | 10.3 | % | 4.2 | % | 14.6 | % | 9.7 | % | 9.8 | % | 12.0 | % | 1.8 | % | (13.6) | % | 6.6 | % |
| UNRECOGNIZED TAX BENEFITS RECONCILIATION | |||||
| (In millions) | 2014 | 2013 | |||
| Balance at January 1, | $ | 5,816 | $ | 5,445 | |
| Additions for tax positions of the current year | 234 | 771 | |||
| Additions for tax positions of prior years | 673 | 872 | |||
| Reductions for tax positions of prior years | (761) | (1,140) | |||
| Settlements with tax authorities | (305) | (98) | |||
| Expiration of the statute of limitations | (38) | (34) | |||
| Balance at December 31 | $ | 5,619 | $ | 5,816 | |
| December 31 (In millions) | 2014 | 2013 | |||
| Assets | |||||
| GE | $ | 19,942 | $ | 15,284 | |
| GECC | 12,546 | 13,224 | |||
| 32,488 | 28,508 | ||||
| Liabilities | |||||
| GE | (11,170) | (10,223) | |||
| GECC | (18,777) | (18,010) | |||
| (29,947) | (28,233) | ||||
| Net deferred income tax asset (liability) | $ | 2,541 | $ | 275 | |
| COMPONENTS OF THE NET DEFERRED INCOME TAX ASSET (LIABILITY) | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| GE | |||||
| Principal pension plans | $ | 7,859 | $ | 3,436 | |
| Provision for expenses(a) | 6,192 | 5,934 | |||
| Retiree insurance plans | 3,462 | 3,154 | |||
| Non-U.S. loss carryforwards(b) | 738 | 874 | |||
| Contract costs and estimated earnings | (3,996) | (3,550) | |||
| Intangible assets | (2,364) | (2,268) | |||
| Depreciation | (1,226) | (1,079) | |||
| Investment in global subsidiaries | (979) | (1,077) | |||
| Other – net | (914) | (363) | |||
| 8,772 | 5,061 | ||||
| GECC | |||||
| Operating leases | (6,351) | (6,284) | |||
| Financing leases | (4,046) | (4,075) | |||
| Intangible assets | (1,963) | (1,943) | |||
| Net unrealized gains (losses) on securities | (507) | (145) | |||
| Cash flow hedges | (162) | (163) | |||
| Non-U.S. loss carryforwards(b) | 4,094 | 3,791 | |||
| Allowance for losses | 2,186 | 2,640 | |||
| Investment in global subsidiaries | 1,935 | 1,883 | |||
| Other – net | (1,417) | (490) | |||
| (6,231) | (4,786) | ||||
| Net deferred income tax asset (liability) | $ | 2,541 | $ | 275 | |
(a)\tRepresented the tax effects of temporary differences related to expense accruals for a wide variety of items, such as employee compensation and benefits, other pension plan liabilities, interest on tax liabilities, product warranties and other sundry items that are not currently deductible.
(b)\tNet of valuation allowances of $2,015 million and $2,089 million for GE and $880 million and $862 million for GECC, for 2014 and 2013, respectively. Of the net deferred tax asset as of December 31, 2014, of $4,832 million, $47 million relates to net operating loss carryforwards that expire in various years ending from December 31, 2015 through December 31, 2017; $166 million relates to net operating losses that expire in various years ending from December 31, 2018 through December 31, 2034 and $4,619 million relates to net operating loss carryforwards that may be carried forward indefinitely.
| NET INVESTMENT IN FINANCING LEASES | |||||||||||||||||
| Total financing leases | Direct financing leases(a) | Leveraged leases(b) | |||||||||||||||
| December 31 (In millions) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||
| Total minimum lease payments receivable | $ | 26,701 | $ | 29,970 | $ | 22,133 | $ | 24,571 | $ | 4,568 | $ | 5,399 | |||||
| Less principal and interest on third-party | |||||||||||||||||
| non-recourse debt | (2,812) | (3,480) | - | - | (2,812) | (3,480) | |||||||||||
| Net rentals receivables | 23,889 | 26,490 | 22,133 | 24,571 | 1,756 | 1,919 | |||||||||||
| Estimated unguaranteed residual value | |||||||||||||||||
| of leased assets | 4,268 | 5,073 | 2,529 | 3,067 | 1,739 | 2,006 | |||||||||||
| Less deferred income | (3,678) | (4,624) | (2,759) | (3,560) | (919) | (1,064) | |||||||||||
| Investment in financing leases, net of | |||||||||||||||||
| deferred income | 24,479 | 26,939 | 21,903 | 24,078 | 2,576 | 2,861 | |||||||||||
| Less amounts to arrive at net investment | |||||||||||||||||
| Allowance for losses | (181) | (202) | (166) | (192) | (15) | (10) | |||||||||||
| Deferred taxes | (4,046) | (4,075) | (2,250) | (1,783) | (1,796) | (2,292) | |||||||||||
| Net investment in financing leases | $ | 20,252 | $ | 22,662 | $ | 19,487 | $ | 22,103 | $ | 765 | $ | 559 | |||||
| CONTRACTUAL MATURITIES | |||||
| Total | Net rentals | ||||
| (In millions) | loans | receivable | |||
| Due in | |||||
| 2015 | $ | 52,175 | $ | 8,012 | |
| 2016 | 18,663 | 5,440 | |||
| 2017 | 19,712 | 3,752 | |||
| 2018 | 14,034 | 2,564 | |||
| 2019 | 13,097 | 1,513 | |||
| 2020 and later | 35,069 | 2,608 | |||
| 152,750 | 23,889 | ||||
| Consumer revolving loans | 64,864 | - | |||
| Total | $ | 217,614 | $ | 23,889 | |
| ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES | |||||||||||||||||
| Provision | |||||||||||||||||
| Balance at | charged to | Gross | Balance at | ||||||||||||||
| (In millions) | January 1 | operations | Other | (a) | write-offs | (b) | Recoveries | (b) | December 31 | ||||||||
| 2014 | |||||||||||||||||
| Commercial | |||||||||||||||||
| CLL | |||||||||||||||||
| Americas | $ | 473 | $ | 307 | $ | (3) | $ | (422) | $ | 100 | $ | 455 | |||||
| International | 505 | 159 | (37) | (351) | 100 | 376 | |||||||||||
| Total CLL | 978 | 466 | (40) | (773) | 200 | 831 | |||||||||||
| Energy Financial Services | 8 | 30 | (1) | (17) | 6 | 26 | |||||||||||
| GECAS | 17 | 39 | - | (10) | - | 46 | |||||||||||
| Other | 2 | - | (2) | - | - | - | |||||||||||
| Total Commercial | 1,005 | 535 | (43) | (800) | 206 | 903 | |||||||||||
| Real Estate | 192 | (86) | (1) | (59) | 115 | 161 | |||||||||||
| Consumer | |||||||||||||||||
| Non-U.S. residential mortgages | 358 | 256 | (151) | (207) | 69 | 325 | |||||||||||
| Non-U.S. installment and revolving credit | 650 | 338 | (260) | (787) | 458 | 399 | |||||||||||
| U.S. installment and revolving credit | 2,823 | 2,875 | 19 | (3,138) | 607 | 3,186 | |||||||||||
| Other | 150 | 75 | (33) | (151) | 60 | 101 | |||||||||||
| Total Consumer | 3,981 | 3,544 | (425) | (4,283) | 1,194 | 4,011 | |||||||||||
| Total | $ | 5,178 | $ | 3,993 | $ | (469) | $ | (5,142) | $ | 1,515 | $ | 5,075 | |||||
| 2013 | |||||||||||||||||
| Commercial | |||||||||||||||||
| CLL | |||||||||||||||||
| Americas | $ | 496 | $ | 289 | $ | (1) | $ | (425) | $ | 114 | $ | 473 | |||||
| International | 525 | 445 | 1 | (556) | 90 | 505 | |||||||||||
| Total CLL | 1,021 | 734 | - | (981) | 204 | 978 | |||||||||||
| Energy Financial Services | 9 | (1) | - | - | - | 8 | |||||||||||
| GECAS | 8 | 9 | - | - | - | 17 | |||||||||||
| Other | 3 | (1) | - | (2) | 2 | 2 | |||||||||||
| Total Commercial | 1,041 | 741 | - | (983) | 206 | 1,005 | |||||||||||
| Real Estate | 320 | 28 | (4) | (163) | 11 | 192 | |||||||||||
| Consumer | |||||||||||||||||
| Non-U.S. residential mortgages | 480 | 269 | 10 | (458) | 57 | 358 | |||||||||||
| Non-U.S. installment and revolving credit | 649 | 647 | (106) | (1,093) | 553 | 650 | |||||||||||
| U.S. installment and revolving credit | 2,282 | 3,006 | (51) | (2,954) | 540 | 2,823 | |||||||||||
| Other | 172 | 127 | 11 | (236) | 76 | 150 | |||||||||||
| Total Consumer | 3,583 | 4,049 | (136) | (4,741) | 1,226 | 3,981 | |||||||||||
| Total | $ | 4,944 | $ | 4,818 | $ | (140) | $ | (5,887) | $ | 1,443 | $ | 5,178 | |||||
| ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES | |||||||||||||||||
| Provision | |||||||||||||||||
| Balance at | charged to | Gross | Balance at | ||||||||||||||
| (In millions) | January 1 | operations | Other | (a) | write-offs | (b) | Recoveries | (b) | December 31 | ||||||||
| 2012 | |||||||||||||||||
| Commercial | |||||||||||||||||
| CLL | |||||||||||||||||
| Americas | $ | 893 | $ | 122 | $ | (52) | $ | (578) | $ | 111 | $ | 496 | |||||
| International | 557 | 411 | (6) | (524) | 87 | 525 | |||||||||||
| Total CLL | 1,450 | 533 | (58) | (1,102) | 198 | 1,021 | |||||||||||
| Energy Financial Services | 26 | 4 | - | (24) | 3 | 9 | |||||||||||
| GECAS | 17 | 4 | - | (13) | - | 8 | |||||||||||
| Other | 37 | 1 | (20) | (17) | 2 | 3 | |||||||||||
| Total Commercial | 1,530 | 542 | (78) | (1,156) | 203 | 1,041 | |||||||||||
| Real Estate | 1,089 | 72 | (44) | (810) | 13 | 320 | |||||||||||
| Consumer | |||||||||||||||||
| Non-U.S. residential mortgages | 545 | 112 | 8 | (261) | 76 | 480 | |||||||||||
| Non-U.S. installment and revolving credit | 791 | 308 | 20 | (1,120) | 650 | 649 | |||||||||||
| U.S. installment and revolving credit | 2,008 | 2,666 | (24) | (2,906) | 538 | 2,282 | |||||||||||
| Other | 199 | 132 | 18 | (257) | 80 | 172 | |||||||||||
| Total Consumer | 3,543 | 3,218 | 22 | (4,544) | 1,344 | 3,583 | |||||||||||
| Total | $ | 6,162 | $ | 3,832 | $ | (100) | $ | (6,510) | $ | 1,560 | $ | 4,944 | |||||
| COMMERCIAL FINANCING RECEIVABLES BY RISK CATEGORY | |||||||||||
| Secured | |||||||||||
| December 31 (In millions) | A | B | C | Total | |||||||
| 2014 | |||||||||||
| CLL | |||||||||||
| Americas | $ | 63,754 | $ | 1,549 | $ | 1,443 | $ | 66,746 | |||
| International | 41,476 | 474 | 891 | 42,841 | |||||||
| Total CLL | 105,230 | 2,023 | 2,334 | 109,587 | |||||||
| Energy Financial Services | 2,479 | 60 | 16 | 2,555 | |||||||
| GECAS | 7,908 | 237 | 118 | 8,263 | |||||||
| Other | 130 | - | - | 130 | |||||||
| Total | $ | 115,747 | $ | 2,320 | $ | 2,468 | $ | 120,535 | |||
| 2013 | |||||||||||
| CLL | |||||||||||
| Americas | $ | 65,545 | $ | 1,587 | $ | 1,554 | $ | 68,686 | |||
| International | 44,930 | 619 | 1,237 | 46,786 | |||||||
| Total CLL | 110,475 | 2,206 | 2,791 | 115,472 | |||||||
| Energy Financial Services | 2,969 | 9 | - | 2,978 | |||||||
| GECAS | 9,175 | 50 | 152 | 9,377 | |||||||
| Other | 318 | - | - | 318 | |||||||
| Total | $ | 122,937 | $ | 2,265 | $ | 2,943 | $ | 128,145 | |||
| Loan-to-value ratio | |||||||||||||||||
| 2014 | 2013 | ||||||||||||||||
| Less than | 80% to | Greater than | Less than | 80% to | Greater than | ||||||||||||
| December 31 (In millions) | 80% | 95% | 95% | 80% | 95% | 95% | |||||||||||
| Debt | $ | 16,915 | $ | 1,175 | $ | 958 | $ | 15,576 | $ | 1,300 | $ | 2,111 | |||||
| Loan-to-value ratio | |||||||||||||||||
| 2014 | 2013 | ||||||||||||||||
| 80% or | Greater than | Greater than | 80% or | Greater than | Greater than | ||||||||||||
| December 31 (In millions) | less | 80% to 90% | 90% | less | 80% to 90% | 90% | |||||||||||
| Non-U.S. residential mortgages | $ | 13,964 | $ | 4,187 | $ | 6,742 | $ | 17,224 | $ | 5,130 | $ | 8,147 | |||||
| Refreshed FICO score | |||||||||||||||||
| 2014 | 2013 | ||||||||||||||||
| 661 or | 601 to | 600 or | 661 or | 601 to | 600 or | ||||||||||||
| December 31 (In millions) | higher | 660 | less | higher | 660 | less | |||||||||||
| U.S. installment and | |||||||||||||||||
| revolving credit | $ | 43,466 | $ | 11,865 | $ | 4,532 | $ | 40,079 | $ | 11,142 | $ | 4,633 | |||||
| Internal ratings translated to approximate credit bureau equivalent score | |||||||||||||||||
| 2014 | 2013 | ||||||||||||||||
| 671 or | 626 to | 625 or | 671 or | 626 to | 625 or | ||||||||||||
| December 31 (In millions) | higher | 670 | less | higher | 670 | less | |||||||||||
| Non-U.S. installment and | |||||||||||||||||
| revolving credit | $ | 6,599 | $ | 2,045 | $ | 1,756 | $ | 9,705 | $ | 3,228 | $ | 2,798 | |||||
| IMPAIRED LOAN BALANCE CLASSIFIED BY THE METHOD USED TO MEASURE IMPAIRMENT | |||||||||||
| December 31 (In millions) | 2014 | 2013 | |||||||||
| Discounted cash flow | $ | 3,994 | $ | 5,558 | |||||||
| Collateral value | 3,153 | 5,182 | |||||||||
| Total | $ | 7,147 | $ | 10,740 | |||||||
NOTE 28. OPERATING SEGMENTS
Basis for presentation
Our operating businesses are organized based on the nature of markets and customers. Segment accounting policies are the same as described in Note 1. Segment results for our financial services businesses reflect the discrete tax effect of transactions.
Results of our formerly consolidated subsidiary, NBCU, and our equity method investment in NBCU LLC, which we sold in the first quarter of 2013 are reported in the Corporate items and eliminations line on the Summary of Operating Segments.
A description of our operating segments as of December 31, 2014, can be found below, and details of segment profit by operating segment can be found in the Summary of Operating Segments table in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
Power & Water
Power plant products and services, including design, installation, operation and maintenance services are sold into global markets. Gas, steam and aeroderivative turbines, nuclear reactors, generators, combined cycle systems, controls and related services, including total asset optimization solutions, equipment upgrades and long-term maintenance service agreements are sold to power generation and other industrial customers. Renewable energy solutions include wind turbines. Water treatment services and equipment include specialty chemical treatment programs, water purification equipment, mobile treatment systems and desalination processes.
Oil & Gas
Oil & Gas supplies mission critical equipment for the global oil and gas industry, used in applications spanning the entire value chain from drilling and completion through production, liquefied natural gas (LNG) and pipeline compression, pipeline inspection, and including downstream processing in refineries and petrochemical plants. The business designs and manufactures surface and subsea drilling and production systems, equipment for floating production platforms, compressors, turbines, turboexpanders, high pressure reactors, industrial power generation and a broad portfolio of auxiliary equipment.
Energy Management
Energy Management is GE’s electrification business. Global teams design leading technology solutions for the delivery, management, conversion and optimization of electrical power for customers across multiple energy-intensive industries. GE has invested in our Energy Management capabilities, with strategic acquisitions and joint ventures that enable GE to increase its offerings to the utility, industrial, renewables, oil and gas, marine, metals and mining industries. Plant automation hardware, software and embedded computing systems including controllers, embedded systems, advanced software, motion control, operator interfaces and industrial computers are also provided by Energy Management.
Aviation
Aviation products and services include jet engines, aerospace systems and equipment, replacement parts and repair and maintenance services for all categories of commercial aircraft; for a wide variety of military aircraft, including fighters, bombers, tankers and helicopters; for marine applications; and for executive and regional aircraft. Products and services are sold worldwide to airframe manufacturers, airlines and government agencies.
Healthcare
Healthcare products include diagnostic imaging systems such as magnetic resonance (MR), computed tomography (CT) and positron emission tomography (PET) scanners, X-ray, nuclear imaging, digital mammography and molecular imaging technologies. Healthcare-manufactured technologies include patient and resident monitoring, diagnostic cardiology, ultrasound, bone densitometry, anesthesiology and oxygen therapy, and neonatal and critical care devices. Related services include equipment monitoring and repair, information technologies and customer productivity services. Products also include diagnostic imaging agents used in medical scanning procedures, drug discovery, biopharmaceutical manufacturing and purification, and tools for protein and cellular analysis for pharmaceutical and academic research, including a pipeline of precision molecular diagnostics in development for neurology, cardiology and oncology applications. Products and services are sold worldwide to hospitals, medical facilities, pharmaceutical and biotechnology companies, and to the life science research market.
Transportation
Transportation is a global technology leader and supplier to the railroad, mining, marine and drilling industries. GE provides freight and passenger locomotives, diesel engines for rail, marine and stationary power applications, railway signaling and communications systems, underground mining equipment, motorized drive systems for mining trucks, information technology solutions, high-quality replacement parts and value added services.
Appliances & Lighting
Products include major appliances and related services for products such as refrigerators, freezers, electric and gas ranges, cooktops, dishwashers, clothes washers and dryers, microwave ovens, room air conditioners, residential water systems for filtration, softening and heating, and hybrid water heaters. These products are distributed both to retail outlets and direct to consumers, mainly for the replacement market, and to building contractors and distributors for new installations. Lighting products include a wide variety of lamps and lighting fixtures, including light-emitting diodes. Products and services are sold in North America and in global markets under various GE and private-label brands.
GE Capital
GE Capital businesses offer a broad range of financial services and products worldwide for businesses of all sizes. Services include commercial loans and leases, fleet management, financial programs, credit cards, personal loans and other financial services. GE Capital also develops strategic partnerships and joint ventures that utilize GE’s industry-specific expertise in aviation, energy, infrastructure and healthcare to capitalize on market-specific opportunities. Products and services are offered in North America and in global markets through the following businesses: CLL, Consumer, Real Estate, Energy Financial Services and GECAS.
| REVENUES | ||||||||||||||||||||||||||
| Total revenues(a) | Intersegment revenues(b) | External revenues | ||||||||||||||||||||||||
| (In millions) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||
| Power & Water | $ | 27,564 | $ | 24,724 | $ | 28,299 | $ | 969 | $ | 947 | $ | 1,119 | $ | 26,595 | $ | 23,777 | $ | 27,180 | ||||||||
| Oil & Gas | 18,676 | 16,975 | 15,241 | 401 | 360 | 314 | 18,275 | 16,615 | 14,927 | |||||||||||||||||
| Energy Management | 7,319 | 7,569 | 7,412 | 890 | 848 | 487 | 6,429 | 6,721 | 6,925 | |||||||||||||||||
| Aviation | 23,990 | 21,911 | 19,994 | 692 | 500 | 672 | 23,298 | 21,411 | 19,322 | |||||||||||||||||
| Healthcare | 18,299 | 18,200 | 18,290 | 6 | 14 | 37 | 18,293 | 18,186 | 18,253 | |||||||||||||||||
| Transportation | 5,650 | 5,885 | 5,608 | (2) | 12 | 11 | 5,652 | 5,873 | 5,597 | |||||||||||||||||
| Appliances & Lighting | 8,404 | 8,338 | 7,967 | 22 | 25 | 23 | 8,382 | 8,313 | 7,944 | |||||||||||||||||
| Total industrial | 109,902 | 103,602 | 102,811 | 2,978 | 2,706 | 2,663 | 106,924 | 100,896 | 100,148 | |||||||||||||||||
| GE Capital | 42,725 | 44,067 | 45,364 | 1,348 | 1,150 | 1,037 | 41,377 | 42,917 | 44,327 | |||||||||||||||||
| Corporate items | ||||||||||||||||||||||||||
| and eliminations(c) | (4,038) | (1,624) | (1,491) | (4,326) | (3,856) | (3,700) | 288 | 2,232 | 2,209 | |||||||||||||||||
| Total | $ | 148,589 | $ | 146,045 | $ | 146,684 | $ | - | $ | - | $ | - | $ | 148,589 | $ | 146,045 | $ | 146,684 | ||||||||
(a)\tRevenues of GE businesses include income from sales of goods and services to customers and other income.
(b)\tSales from one component to another generally are priced at equivalent commercial selling prices.
(c)\tIncludes the results of NBCU (our formerly consolidated subsidiary) and our former equity method investment in NBCUniversal LLC.
Revenues from customers located in the United States were $70,622 million, $68,617 million and $70,466 million in 2014, 2013 and 2012, respectively. Revenues from customers located outside the United States were $77,967 million, $77,428 million and $76,218 million in 2014, 2013 and 2012, respectively.
| Property, plant and | ||||||||||||||||||||||||||
| Assets(a)(b) | equipment additions(c) | Depreciation and amortization | ||||||||||||||||||||||||
| At December 31 | For the years ended December 31 | For the years ended December 31 | ||||||||||||||||||||||||
| (In millions) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||
| Power & Water | $ | 30,338 | $ | 29,494 | $ | 27,143 | $ | 622 | $ | 714 | $ | 661 | $ | 678 | $ | 668 | $ | 647 | ||||||||
| Oil & Gas | 27,260 | 26,193 | 20,111 | 653 | 1,185 | 467 | 583 | 479 | 426 | |||||||||||||||||
| Energy Management | 10,976 | 10,305 | 9,594 | 176 | 137 | 155 | 313 | 323 | 287 | |||||||||||||||||
| Aviation | 33,716 | 32,273 | 25,145 | 1,197 | 1,178 | 781 | 824 | 677 | 644 | |||||||||||||||||
| Healthcare | 29,227 | 27,858 | 28,369 | 405 | 316 | 322 | 843 | 861 | 879 | |||||||||||||||||
| Transportation | 4,449 | 4,418 | 4,335 | 128 | 282 | 724 | 168 | 167 | 90 | |||||||||||||||||
| Appliances & Lighting | 4,560 | 4,306 | 4,201 | 359 | 405 | 485 | 235 | 300 | 265 | |||||||||||||||||
| GE Capital | 500,216 | 516,829 | 539,351 | 10,410 | 9,978 | 11,879 | 7,262 | 7,738 | 7,348 | |||||||||||||||||
| Corporate items | ||||||||||||||||||||||||||
| and eliminations(d) | 7,607 | 4,884 | 26,750 | (110) | 194 | (99) | 166 | 260 | 218 | |||||||||||||||||
| Total | $ | 648,349 | $ | 656,560 | $ | 684,999 | $ | 13,840 | $ | 14,389 | $ | 15,375 | $ | 11,072 | $ | 11,473 | $ | 10,804 | ||||||||
(a)\tAssets of discontinued operations, NBCU (our formerly consolidated subsidiary) and our former equity method investment in NBCUniversal LLC are included in Corporate items and eliminations for all periods presented.
(b)\tTotal assets of Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and GE Capital operating segments at December 31, 2014, include investment in and advances to associated companies of $357 million, $146 million, $824 million, $1,378 million, $511 million, $6 million, $57 million and $16,747 million, respectively. Investments in and advances to associated companies contributed approximately $(7) million, $20 million, $29 million, $94 million, $(33) million, an insignificant amount , $70 million and $1,182 million to segment pre-tax income of Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and GE Capital operating segments, respectively, for the year ended December 31, 2014. Aggregate summarized financial information for significant associated companies assuming a 100% ownership interest at December 31, 2014 included: total assets of $93,624 million, primarily financing receivables of $46,481 million; total liabilities of $64,872 million, primarily debt of $40,244 million; revenues totaled $46,087 million; and net loss totaled $(1,295) million.
(c)\tAdditions to property, plant and equipment include amounts relating to principal businesses purchased.
(d)\tIncludes deferred income taxes that are presented as assets for purposes of our consolidating balance sheet presentation.
| Interest and other financial charges | Provision (benefit) for income taxes | ||||||||||||||||
| (In millions) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||
| GE Capital | $ | 8,397 | $ | 9,267 | $ | 11,596 | $ | 138 | $ | (992) | $ | 521 | |||||
| Corporate items and eliminations(a) | 1,085 | 849 | 811 | 1,634 | 1,668 | 2,013 | |||||||||||
| Total | $ | 9,482 | $ | 10,116 | $ | 12,407 | $ | 1,772 | $ | 676 | $ | 2,534 | |||||
(a)\tIncluded amounts for Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation and Appliances & Lighting, for which our measure of segment profit excludes interest and other financial charges and income taxes.
Property, plant and equipment – net associated with operations based in the United States were $28,186 million, $28,657 million and $27,192 million at year-end 2014, 2013 and 2012, respectively. Property, plant and equipment – net associated with operations based outside the United States were $38,201 million, $40,170 million and $41,441 million at year-end 2014, 2013 and 2012, respectively.
| Property, plant and | ||||||||||||||||||||||||||
| Assets(a)(b) | equipment additions(c) | Depreciation and amortization | ||||||||||||||||||||||||
| At December 31 | For the years ended December 31 | For the years ended December 31 | ||||||||||||||||||||||||
| (In millions) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||
| Power & Water | $ | 30,338 | $ | 29,494 | $ | 27,143 | $ | 622 | $ | 714 | $ | 661 | $ | 678 | $ | 668 | $ | 647 | ||||||||
| Oil & Gas | 27,260 | 26,193 | 20,111 | 653 | 1,185 | 467 | 583 | 479 | 426 | |||||||||||||||||
| Energy Management | 10,976 | 10,305 | 9,594 | 176 | 137 | 155 | 313 | 323 | 287 | |||||||||||||||||
| Aviation | 33,716 | 32,273 | 25,145 | 1,197 | 1,178 | 781 | 824 | 677 | 644 | |||||||||||||||||
| Healthcare | 29,227 | 27,858 | 28,369 | 405 | 316 | 322 | 843 | 861 | 879 | |||||||||||||||||
| Transportation | 4,449 | 4,418 | 4,335 | 128 | 282 | 724 | 168 | 167 | 90 | |||||||||||||||||
| Appliances & Lighting | 4,560 | 4,306 | 4,201 | 359 | 405 | 485 | 235 | 300 | 265 | |||||||||||||||||
| GE Capital | 500,216 | 516,829 | 539,351 | 10,410 | 9,978 | 11,879 | 7,262 | 7,738 | 7,348 | |||||||||||||||||
| Corporate items | ||||||||||||||||||||||||||
| and eliminations(d) | 7,607 | 4,884 | 26,750 | (110) | 194 | (99) | 166 | 260 | 218 | |||||||||||||||||
| Total | $ | 648,349 | $ | 656,560 | $ | 684,999 | $ | 13,840 | $ | 14,389 | $ | 15,375 | $ | 11,072 | $ | 11,473 | $ | 10,804 | ||||||||
(a)\tAssets of discontinued operations, NBCU (our formerly consolidated subsidiary) and our former equity method investment in NBCUniversal LLC are included in Corporate items and eliminations for all periods presented.
(b)\tTotal assets of Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and GE Capital operating segments at December 31, 2014, include investment in and advances to associated companies of $357 million, $146 million, $824 million, $1,378 million, $511 million, $6 million, $57 million and $16,747 million, respectively. Investments in and advances to associated companies contributed approximately $(7) million, $20 million, $29 million, $94 million, $(33) million, an insignificant amount , $70 million and $1,182 million to segment pre-tax income of Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and GE Capital operating segments, respectively, for the year ended December 31, 2014. Aggregate summarized financial information for significant associated companies assuming a 100% ownership interest at December 31, 2014 included: total assets of $93,624 million, primarily financing receivables of $46,481 million; total liabilities of $64,872 million, primarily debt of $40,244 million; revenues totaled $46,087 million; and net loss totaled $(1,295) million.
(c)\tAdditions to property, plant and equipment include amounts relating to principal businesses purchased.
(d)\tIncludes deferred income taxes that are presented as assets for purposes of our consolidating balance sheet presentation.
| Interest and other financial charges | Provision (benefit) for income taxes | ||||||||||||||||
| (In millions) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||
| GE Capital | $ | 8,397 | $ | 9,267 | $ | 11,596 | $ | 138 | $ | (992) | $ | 521 | |||||
| Corporate items and eliminations(a) | 1,085 | 849 | 811 | 1,634 | 1,668 | 2,013 | |||||||||||
| Total | $ | 9,482 | $ | 10,116 | $ | 12,407 | $ | 1,772 | $ | 676 | $ | 2,534 | |||||
(a)\tIncluded amounts for Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation and Appliances & Lighting, for which our measure of segment profit excludes interest and other financial charges and income taxes.
NOTE 13. ALL OTHER LIABILITIES
This caption includes liabilities for various items including non-current compensation and benefits, deferred income, interest on tax liabilities, unrecognized tax benefits, environmental remediation, asset retirement obligations, derivative instruments, product warranties and a variety of sundry items.
Accruals for non-current compensation and benefits amounted to $42,354 million and $27,853 million at December 31, 2014 and 2013, respectively. These amounts include compensation and benefit liabilities, such as postretirement benefits and deferred incentive compensation. See Note 12.
We are involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs exclude possible insurance recoveries and, when dates and amounts of such costs are not known, are not discounted. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low end of such range. It is reasonably possible that our environmental remediation exposure will exceed amounts accrued. However, due to uncertainties about the status of laws, regulations, technology and information related to individual sites, such amounts are not reasonably estimable. Total reserves related to environmental remediation and asbestos claims, were $2,182 million at December 31, 2014.
NOTE 16. OTHER STOCK-RELATED INFORMATION
We grant stock options, restricted stock units (RSUs) and performance share units (PSUs) to employees under the 2007 Long-Term Incentive Plan. This plan replaced the 1990 Long-Term Incentive Plan. In addition, we grant options and RSUs in limited circumstances to consultants, advisors and independent contractors under a plan approved by our Board of Directors in 1997 (the Consultants’ Plan). Share requirements for all plans may be met from either unissued or treasury shares. Stock options expire 10 years from the date they are granted and vest over service periods that range from one to five years. RSUs give the recipients the right to receive shares of our stock upon the vesting of their related restrictions. Restrictions on RSUs vest in various increments and at various dates, beginning after one year from date of grant through grantee retirement. Although the plan permits us to issue RSUs settleable in cash, we have only issued RSUs settleable in shares of our stock. PSUs give recipients the right to receive shares of our stock upon the achievement of certain performance targets.
All grants of GE options under all plans must be approved by the Management Development and Compensation Committee, which consists entirely of independent directors.
| STOCK COMPENSATION PLANS | ||||||||
| Securities | ||||||||
| to be | Weighted | Securities | ||||||
| issued | average | available | ||||||
| upon | exercise | for future | ||||||
| December 31, 2014 (Shares in thousands) | exercise | price | issuance | |||||
| Approved by shareowners | ||||||||
| Options | 500,948 | $ | 20.92 | (a) | ||||
| RSUs | 14,896 | (b) | (a) | |||||
| PSUs | 1,000 | (b) | (a) | |||||
| Not approved by shareowners (Consultants’ Plan) | ||||||||
| Options | 338 | 25.32 | (c) | |||||
| RSUs | - | (b) | (c) | |||||
| Total | 517,182 | $ | 20.92 | 327,525 | ||||
(a)\tIn 2007, the Board of Directors approved the 2007 Long-Term Incentive Plan (the Plan), which replaced the 1990 Long-Term Incentive Plan. During 2012, an amendment was approved to increase the number of shares authorized for issuance under the Plan from 500 million shares to 925 million shares. No more than 230 million of the total number of authorized shares may be available for awards granted in any form provided under the Plan other than options or stock appreciation rights. Total shares available for future issuance under the Plan amounted to 299.3 million shares at December 31, 2014.
(b)\tNot applicable.
(c)\tTotal shares available for future issuance under the Consultants’ Plan amount to 28.2 million shares.
Outstanding options expire on various dates through December 12, 2024.
\n
The following table summarizes information about stock options outstanding at December 31, 2014.
| STOCK OPTIONS OUTSTANDING | ||||||||||||||
| Outstanding | Exercisable | |||||||||||||
| Average | Average | |||||||||||||
| Shares | Average | exercise | Shares | exercise | ||||||||||
| Exercise price range | (In thousands) | life(a) | price | (In thousands) | price | |||||||||
| Under $10.00 | 28,484 | 3.9 | $ | 9.57 | 28,484 | $ | 9.57 | |||||||
| 10.01-15.00 | 46,905 | 4.2 | 11.98 | 46,905 | 11.98 | |||||||||
| 15.01-20.00 | 158,534 | 5.7 | 17.46 | 113,286 | 17.32 | |||||||||
| 20.01-25.00 | 132,295 | 7.9 | 22.55 | 50,587 | 22.25 | |||||||||
| 25.01-30.00 | 100,668 | 8.5 | 26.51 | 19,039 | 28.22 | |||||||||
| 30.01-35.00 | 21,712 | 1.2 | 34.10 | 21,712 | 34.10 | |||||||||
| Over $35.00 | 12,688 | 2.4 | 38.67 | 12,688 | 38.57 | |||||||||
| Total | 501,286 | 6.3 | $ | 20.92 | 292,701 | $ | 19.44 | |||||||
(a)\tWeighted average contractual life remaining in years.
At year-end 2013, options with a weighted average exercise price of $20.15 were exercisable on 254 million shares.
| STOCK OPTION ACTIVITY | |||||||||||
| Weighted | |||||||||||
| Weighted | average | Aggregate | |||||||||
| average | remaining | intrinsic | |||||||||
| Shares | exercise | contractual | value | ||||||||
| (In thousands) | price | term (In years) | (In millions) | ||||||||
| Outstanding at January 1, 2014 | 473,611 | $ | 20.02 | ||||||||
| Granted | 82,142 | 26.11 | |||||||||
| Exercised | (30,433) | 14.42 | |||||||||
| Forfeited | (7,414) | 21.89 | |||||||||
| Expired | (16,620) | 32.40 | |||||||||
| Outstanding at December 31, 2014 | 501,286 | $ | 20.92 | 6.3 | $ | 2,668 | |||||
| Exercisable at December 31, 2014 | 292,701 | $ | 19.44 | 4.9 | $ | 2,124 | |||||
| Options expected to vest | 189,186 | $ | 22.97 | 8.3 | $ | 496 | |||||
We measure the fair value of each stock option grant at the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value of options granted during 2014, 2013 and 2012 was $5.26, $4.52 and $3.80, respectively. The following assumptions were used in arriving at the fair value of options granted during 2014, 2013 and 2012, respectively: risk-free interest rates of 2.3%, 2.5 % and 1.3%; dividend yields of 3.1%, 4.0% and 4.0%; expected volatility of 26%, 28% and 29%; and expected lives of 7.3 years, 7.5 years and 7.8 years. Risk-free interest rates reflect the yield on zero-coupon U.S. Treasury securities. Expected dividend yields presume a set dividend rate and we used a historical five-year average for the dividend yield. Expected volatilities are based on implied volatilities from traded options and historical volatility of our stock. The expected option lives are based on our historical experience of employee exercise behavior.
The total intrinsic value of options exercised during 2014, 2013 and 2012 amounted to $360 million, $392 million and $265 million, respectively. As of December 31, 2014, there was $739 million of total unrecognized compensation cost related to non-vested options. That cost is expected to be recognized over a weighted average period of 2 years, of which approximately $185 million after tax is expected to be recognized in 2015.
Stock option expense recognized in net earnings during 2014, 2013 and 2012 amounted to $215 million, $231 million and $220 million, respectively. Cash received from option exercises during 2014, 2013 and 2012 was $439 million, $490 million and $355 million, respectively. The tax benefit realized from stock options exercised during 2014, 2013 and 2012 was $118 million, $128 million and $88 million, respectively.
\n
| OTHER STOCK-BASED COMPENSATION | |||||||||||
| Weighted | |||||||||||
| Weighted | average | Aggregate | |||||||||
| average | remaining | intrinsic | |||||||||
| Shares | grant date | contractual | value | ||||||||
| (In thousands) | fair value | term (In years) | (In millions) | ||||||||
| RSUs outstanding at January 1, 2014 | 13,572 | $ | 22.58 | ||||||||
| Granted | 5,016 | 26.08 | |||||||||
| Vested | (3,305) | 21.70 | |||||||||
| Forfeited | (387) | 22.31 | |||||||||
| RSUs outstanding at December 31, 2014 | 14,896 | $ | 24.00 | 2.5 | $ | 376 | |||||
| RSUs expected to vest | 13,667 | $ | 21.94 | 2.2 | $ | 345 | |||||
The fair value of each restricted stock unit is the market price of our stock on the date of grant. The weighted average grant date fair value of RSUs granted during 2014, 2013 and 2012 was $26.08, $24.54 and $20.79, respectively. The total intrinsic value of RSUs vested during 2014, 2013 and 2012 amounted to $86 million, $109 million and $116 million, respectively. As of December 31, 2014, there was $233 million of total unrecognized compensation cost related to non-vested RSUs. That cost is expected to be recognized over a weighted average period of 2 years, of which approximately $54 million after tax is expected to be recognized in 2015. As of December 31, 2014, 1 million PSUs with a weighted average remaining contractual term of 1.5 years, an aggregate intrinsic value of $25 million and $9 million of unrecognized compensation cost were outstanding. Other share-based compensation expense for RSUs and PSUs recognized in net earnings amounted to $56 million, $62 million and $79 million in 2014, 2013 and 2012, respectively.
The income tax benefit recognized in earnings based on the compensation expense recognized for all share-based compensation arrangements amounted to $147 million, $145 million and $153 million in 2014, 2013 and 2012, respectively. The excess of actual tax deductions over amounts assumed, which are recognized in shareowners’ equity, were $86 million $86 million and $53 million in 2014, 2013 and 2012, respectively.
When stock options are exercised and restricted stock vests, the difference between the assumed tax benefit and the actual tax benefit must be recognized in our financial statements. In circumstances in which the actual tax benefit is lower than the estimated tax benefit, that difference is recorded in equity, to the extent there are sufficient accumulated excess tax benefits. At December 31, 2014, our accumulated excess tax benefits are sufficient to absorb any future differences between actual and estimated tax benefits for all of our outstanding option and restricted stock grants.
| STOCK COMPENSATION PLANS | ||||||||
| Securities | ||||||||
| to be | Weighted | Securities | ||||||
| issued | average | available | ||||||
| upon | exercise | for future | ||||||
| December 31, 2014 (Shares in thousands) | exercise | price | issuance | |||||
| Approved by shareowners | ||||||||
| Options | 500,948 | $ | 20.92 | (a) | ||||
| RSUs | 14,896 | (b) | (a) | |||||
| PSUs | 1,000 | (b) | (a) | |||||
| Not approved by shareowners (Consultants’ Plan) | ||||||||
| Options | 338 | 25.32 | (c) | |||||
| RSUs | - | (b) | (c) | |||||
| Total | 517,182 | $ | 20.92 | 327,525 | ||||
(a)\tIn 2007, the Board of Directors approved the 2007 Long-Term Incentive Plan (the Plan), which replaced the 1990 Long-Term Incentive Plan. During 2012, an amendment was approved to increase the number of shares authorized for issuance under the Plan from 500 million shares to 925 million shares. No more than 230 million of the total number of authorized shares may be available for awards granted in any form provided under the Plan other than options or stock appreciation rights. Total shares available for future issuance under the Plan amounted to 299.3 million shares at December 31, 2014.
(b)\tNot applicable.
(c)\tTotal shares available for future issuance under the Consultants’ Plan amount to 28.2 million shares.
| STOCK OPTIONS OUTSTANDING | ||||||||||||||
| Outstanding | Exercisable | |||||||||||||
| Average | Average | |||||||||||||
| Shares | Average | exercise | Shares | exercise | ||||||||||
| Exercise price range | (In thousands) | life(a) | price | (In thousands) | price | |||||||||
| Under $10.00 | 28,484 | 3.9 | $ | 9.57 | 28,484 | $ | 9.57 | |||||||
| 10.01-15.00 | 46,905 | 4.2 | 11.98 | 46,905 | 11.98 | |||||||||
| 15.01-20.00 | 158,534 | 5.7 | 17.46 | 113,286 | 17.32 | |||||||||
| 20.01-25.00 | 132,295 | 7.9 | 22.55 | 50,587 | 22.25 | |||||||||
| 25.01-30.00 | 100,668 | 8.5 | 26.51 | 19,039 | 28.22 | |||||||||
| 30.01-35.00 | 21,712 | 1.2 | 34.10 | 21,712 | 34.10 | |||||||||
| Over $35.00 | 12,688 | 2.4 | 38.67 | 12,688 | 38.57 | |||||||||
| Total | 501,286 | 6.3 | $ | 20.92 | 292,701 | $ | 19.44 | |||||||
(a)\tWeighted average contractual life remaining in years.
| STOCK OPTION ACTIVITY | |||||||||||
| Weighted | |||||||||||
| Weighted | average | Aggregate | |||||||||
| average | remaining | intrinsic | |||||||||
| Shares | exercise | contractual | value | ||||||||
| (In thousands) | price | term (In years) | (In millions) | ||||||||
| Outstanding at January 1, 2014 | 473,611 | $ | 20.02 | ||||||||
| Granted | 82,142 | 26.11 | |||||||||
| Exercised | (30,433) | 14.42 | |||||||||
| Forfeited | (7,414) | 21.89 | |||||||||
| Expired | (16,620) | 32.40 | |||||||||
| Outstanding at December 31, 2014 | 501,286 | $ | 20.92 | 6.3 | $ | 2,668 | |||||
| Exercisable at December 31, 2014 | 292,701 | $ | 19.44 | 4.9 | $ | 2,124 | |||||
| Options expected to vest | 189,186 | $ | 22.97 | 8.3 | $ | 496 | |||||
| OTHER STOCK-BASED COMPENSATION | |||||||||||
| Weighted | |||||||||||
| Weighted | average | Aggregate | |||||||||
| average | remaining | intrinsic | |||||||||
| Shares | grant date | contractual | value | ||||||||
| (In thousands) | fair value | term (In years) | (In millions) | ||||||||
| RSUs outstanding at January 1, 2014 | 13,572 | $ | 22.58 | ||||||||
| Granted | 5,016 | 26.08 | |||||||||
| Vested | (3,305) | 21.70 | |||||||||
| Forfeited | (387) | 22.31 | |||||||||
| RSUs outstanding at December 31, 2014 | 14,896 | $ | 24.00 | 2.5 | $ | 376 | |||||
| RSUs expected to vest | 13,667 | $ | 21.94 | 2.2 | $ | 345 | |||||
| REVENUES | ||||||||||||||||||||||||||
| Total revenues(a) | Intersegment revenues(b) | External revenues | ||||||||||||||||||||||||
| (In millions) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||
| Power & Water | $ | 27,564 | $ | 24,724 | $ | 28,299 | $ | 969 | $ | 947 | $ | 1,119 | $ | 26,595 | $ | 23,777 | $ | 27,180 | ||||||||
| Oil & Gas | 18,676 | 16,975 | 15,241 | 401 | 360 | 314 | 18,275 | 16,615 | 14,927 | |||||||||||||||||
| Energy Management | 7,319 | 7,569 | 7,412 | 890 | 848 | 487 | 6,429 | 6,721 | 6,925 | |||||||||||||||||
| Aviation | 23,990 | 21,911 | 19,994 | 692 | 500 | 672 | 23,298 | 21,411 | 19,322 | |||||||||||||||||
| Healthcare | 18,299 | 18,200 | 18,290 | 6 | 14 | 37 | 18,293 | 18,186 | 18,253 | |||||||||||||||||
| Transportation | 5,650 | 5,885 | 5,608 | (2) | 12 | 11 | 5,652 | 5,873 | 5,597 | |||||||||||||||||
| Appliances & Lighting | 8,404 | 8,338 | 7,967 | 22 | 25 | 23 | 8,382 | 8,313 | 7,944 | |||||||||||||||||
| Total industrial | 109,902 | 103,602 | 102,811 | 2,978 | 2,706 | 2,663 | 106,924 | 100,896 | 100,148 | |||||||||||||||||
| GE Capital | 42,725 | 44,067 | 45,364 | 1,348 | 1,150 | 1,037 | 41,377 | 42,917 | 44,327 | |||||||||||||||||
| Corporate items | ||||||||||||||||||||||||||
| and eliminations(c) | (4,038) | (1,624) | (1,491) | (4,326) | (3,856) | (3,700) | 288 | 2,232 | 2,209 | |||||||||||||||||
| Total | $ | 148,589 | $ | 146,045 | $ | 146,684 | $ | - | $ | - | $ | - | $ | 148,589 | $ | 146,045 | $ | 146,684 | ||||||||
(a)\tRevenues of GE businesses include income from sales of goods and services to customers and other income.
(b)\tSales from one component to another generally are priced at equivalent commercial selling prices.
(c)\tIncludes the results of NBCU (our formerly consolidated subsidiary) and our former equity method investment in NBCUniversal LLC.
NOTE 25. SUPPLEMENTAL CASH FLOWS INFORMATION
Changes in operating assets and liabilities are net of acquisitions and dispositions of principal businesses.
Amounts reported in the “Proceeds from sales of discontinued operations” and “Proceeds from principal business dispositions” lines in the Statement of Cash Flows are net of cash disposed and included certain deal-related costs. Amounts reported in the “Net cash from (payments for) principal businesses purchased” line is net of cash acquired and included certain deal-related costs and debt assumed and immediately repaid in acquisitions. Amounts reported in the “Proceeds from sale of equity interest in NBCU LLC” line included certain deal-related costs.
Amounts reported in the “All other operating activities” line in the Statement of Cash Flows consist primarily of adjustments to current and noncurrent accruals, deferrals of costs and expenses and adjustments to assets. GECC had non-cash transactions related to foreclosed properties and repossessed assets totaling $218 million, $482 million and $839 million in 2014, 2013 and 2012, respectively. Certain supplemental information related to our cash flows is shown below.
| For the years ended December 31 (In millions) | 2014 | 2013 | 2012 | |||||
| GE | ||||||||
| Net dispositions (purchases) of GE shares for treasury | ||||||||
| Open market purchases under share repurchase program | $ | (2,211) | $ | (10,225) | $ | (5,005) | ||
| Other purchases | (49) | (91) | (110) | |||||
| Dispositions | 1,042 | 1,038 | 951 | |||||
| $ | (1,218) | $ | (9,278) | $ | (4,164) | |||
| GECC | ||||||||
| All other operating activities | ||||||||
| Amortization of intangible assets | $ | 408 | $ | 425 | $ | 447 | ||
| Net realized losses on investment securities | 17 | 523 | 34 | |||||
| Cash collateral on derivative contracts | 745 | (2,271) | 2,900 | |||||
| Increase (decrease) in other liabilities | (1,771) | 2,334 | 560 | |||||
| Other | 841 | (912) | 1,477 | |||||
| $ | 240 | $ | 99 | $ | 5,418 | |||
| Net decrease (increase) in GECC financing receivables | ||||||||
| Increase in loans to customers | $ | (323,050) | $ | (311,860) | $ | (308,156) | ||
| Principal collections from customers - loans | 302,618 | 307,849 | 307,250 | |||||
| Investment in equipment for financing leases | (8,120) | (8,652) | (9,192) | |||||
| Principal collections from customers - financing leases | 8,421 | 9,646 | 10,976 | |||||
| Net change in credit card receivables | (5,571) | (8,058) | (8,030) | |||||
| Sales of financing receivables | 20,013 | 14,664 | 12,642 | |||||
| $ | (5,689) | $ | 3,589 | $ | 5,490 | |||
| All other investing activities | ||||||||
| Purchases of investment securities | $ | (10,346) | $ | (16,422) | $ | (15,666) | ||
| Dispositions and maturities of investment securities | 9,289 | 18,139 | 17,010 | |||||
| Decrease (increase) in other assets - investments | (476) | 1,089 | 4,338 | |||||
| Proceeds from sales of real estate properties | 5,920 | 10,680 | 3,381 | |||||
| Other | 2,610 | 1,486 | 2,731 | |||||
| $ | 6,997 | $ | 14,972 | $ | 11,794 | |||
| Newly issued debt (maturities longer than 90 days) | ||||||||
| Short-term (91 to 365 days) | $ | 29 | $ | 55 | $ | 59 | ||
| Long-term (longer than one year) | 34,435 | 44,833 | 55,782 | |||||
| $ | 34,464 | $ | 44,888 | $ | 55,841 | |||
| Repayments and other reductions (maturities longer than 90 days) | ||||||||
| Short-term (91 to 365 days) | $ | (47,694) | $ | (52,553) | $ | (94,114) | ||
| Long-term (longer than one year) | (4,909) | (3,291) | (9,368) | |||||
| Principal payments - non-recourse, leveraged leases | (454) | (585) | (426) | |||||
| $ | (53,057) | $ | (56,429) | $ | (103,908) | |||
| All other financing activities | ||||||||
| Proceeds from sales of investment contracts | $ | 322 | $ | 491 | $ | 2,697 | ||
| Redemption of investment contracts | (1,113) | (980) | (5,515) | |||||
| Other | (300) | (420) | (49) | |||||
| $ | (1,091) | $ | (909) | $ | (2,867) | |||
| For the years ended December 31 (In millions) | 2014 | 2013 | 2012 | |||||
| GE | ||||||||
| Net dispositions (purchases) of GE shares for treasury | ||||||||
| Open market purchases under share repurchase program | $ | (2,211) | $ | (10,225) | $ | (5,005) | ||
| Other purchases | (49) | (91) | (110) | |||||
| Dispositions | 1,042 | 1,038 | 951 | |||||
| $ | (1,218) | $ | (9,278) | $ | (4,164) | |||
| GECC | ||||||||
| All other operating activities | ||||||||
| Amortization of intangible assets | $ | 408 | $ | 425 | $ | 447 | ||
| Net realized losses on investment securities | 17 | 523 | 34 | |||||
| Cash collateral on derivative contracts | 745 | (2,271) | 2,900 | |||||
| Increase (decrease) in other liabilities | (1,771) | 2,334 | 560 | |||||
| Other | 841 | (912) | 1,477 | |||||
| $ | 240 | $ | 99 | $ | 5,418 | |||
| Net decrease (increase) in GECC financing receivables | ||||||||
| Increase in loans to customers | $ | (323,050) | $ | (311,860) | $ | (308,156) | ||
| Principal collections from customers - loans | 302,618 | 307,849 | 307,250 | |||||
| Investment in equipment for financing leases | (8,120) | (8,652) | (9,192) | |||||
| Principal collections from customers - financing leases | 8,421 | 9,646 | 10,976 | |||||
| Net change in credit card receivables | (5,571) | (8,058) | (8,030) | |||||
| Sales of financing receivables | 20,013 | 14,664 | 12,642 | |||||
| $ | (5,689) | $ | 3,589 | $ | 5,490 | |||
| All other investing activities | ||||||||
| Purchases of investment securities | $ | (10,346) | $ | (16,422) | $ | (15,666) | ||
| Dispositions and maturities of investment securities | 9,289 | 18,139 | 17,010 | |||||
| Decrease (increase) in other assets - investments | (476) | 1,089 | 4,338 | |||||
| Proceeds from sales of real estate properties | 5,920 | 10,680 | 3,381 | |||||
| Other | 2,610 | 1,486 | 2,731 | |||||
| $ | 6,997 | $ | 14,972 | $ | 11,794 | |||
| Newly issued debt (maturities longer than 90 days) | ||||||||
| Short-term (91 to 365 days) | $ | 29 | $ | 55 | $ | 59 | ||
| Long-term (longer than one year) | 34,435 | 44,833 | 55,782 | |||||
| $ | 34,464 | $ | 44,888 | $ | 55,841 | |||
| Repayments and other reductions (maturities longer than 90 days) | ||||||||
| Short-term (91 to 365 days) | $ | (47,694) | $ | (52,553) | $ | (94,114) | ||
| Long-term (longer than one year) | (4,909) | (3,291) | (9,368) | |||||
| Principal payments - non-recourse, leveraged leases | (454) | (585) | (426) | |||||
| $ | (53,057) | $ | (56,429) | $ | (103,908) | |||
| All other financing activities | ||||||||
| Proceeds from sales of investment contracts | $ | 322 | $ | 491 | $ | 2,697 | ||
| Redemption of investment contracts | (1,113) | (980) | (5,515) | |||||
| Other | (300) | (420) | (49) | |||||
| $ | (1,091) | $ | (909) | $ | (2,867) | |||
| FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Operations | ||||||||
| Total revenues and other income (loss) | $ | (268) | $ | 186 | $ | 191 | ||
| Earnings (loss) from discontinued operations before income taxes | $ | (351) | $ | (494) | $ | (586) | ||
| Benefit (provision) for income taxes | 224 | 155 | 198 | |||||
| Earnings (loss) from discontinued operations, net of taxes | $ | (127) | $ | (339) | $ | (388) | ||
| Disposal | ||||||||
| Gain (loss) on disposal before income taxes | $ | 14 | $ | (2,027) | $ | (792) | ||
| Benefit (provision) for income taxes | 1 | 246 | 197 | |||||
| Gain (loss) on disposal, net of taxes | $ | 15 | $ | (1,781) | $ | (595) | ||
| Earnings (loss) from discontinued operations, net of taxes(a) | $ | (112) | $ | (2,120) | $ | (983) | ||
(a)\tThe 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 industrial earnings (loss) from discontinued operations, net of taxes, on the Consolidated Statement of Earnings.
| December 31 (In millions) | 2014 | 2013 | |||||||||
| Assets | |||||||||||
| Cash and equivalents | $ | 133 | $ | 232 | |||||||
| Financing receivables – net | - | 711 | |||||||||
| Other | 1,102 | 1,396 | |||||||||
| Assets of discontinued operations | $ | 1,235 | $ | 2,339 | |||||||
| Liabilities | |||||||||||
| Deferred income taxes | $ | 237 | $ | 248 | |||||||
| Other | 988 | 3,685 | |||||||||
| Liabilities of discontinued operations | $ | 1,225 | $ | 3,933 | |||||||
| FINANCIAL INFORMATION FOR GE MONEY JAPAN | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Earnings (loss) from discontinued operations, net of taxes | $ | 59 | $ | (1,636) | $ | (649) | ||
| FINANCIAL INFORMATION FOR CONSUMER RUSSIA | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Total revenues and other income (loss) | $ | 24 | $ | 260 | $ | 276 | ||
| Gain (loss) on disposal, net of taxes | $ | 4 | $ | (170) | $ | - | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | (2) | $ | (193) | $ | 33 | ||
| FINANCIAL INFORMATION FOR CLL TRAILER SERVICES | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Total revenues and other income (loss) | $ | 1 | $ | 271 | $ | 399 | ||
| Gain (loss) on disposal, net of taxes | $ | 12 | $ | 18 | $ | - | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | 37 | $ | (2) | $ | 22 | ||
| FINANCIAL INFORMATION FOR WMC | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Total revenues and other income (loss) | $ | (291) | $ | (346) | $ | (500) | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | (199) | $ | (232) | $ | (337) | ||
| FINANCIAL INFORMATION FOR CONSUMER IRELAND | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Total revenues and other income (loss) | $ | - | $ | - | $ | 7 | ||
| Gain (loss) on disposal, net of taxes | $ | 1 | $ | 6 | $ | (121) | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | 1 | $ | 6 | $ | (195) | ||
NOTE 17. OTHER INCOME
| (In millions) | 2014 | 2013 | 2012 | |||||
| GE | ||||||||
| Licensing and royalty income | $ | 288 | $ | 320 | $ | 290 | ||
| Purchases and sales of business interests(a) | 188 | 1,750 | 574 | |||||
| Associated companies(b) | 176 | 40 | 1,545 | |||||
| Net interest and investment income(c) | (77) | 116 | 196 | |||||
| Other items(d) | 132 | 660 | 52 | |||||
| 707 | 2,886 | 2,657 | ||||||
| Eliminations | 71 | 222 | (94) | |||||
| Total | $ | 778 | $ | 3,108 | $ | 2,563 | ||
(a)\tIncluded a pre-tax gain of $1,096 million on the sale of our 49% common equity interest in NBCU LLC in 2013. See Note 2.
(b)\tIncluded income of $1,416 million from our former equity method investment in NBCU LLC in 2012.
(c)\tIncluded other-than-temporary impairments on investment securities of $217 million in 2014.\t
(d)\tIncluded net gains on asset sales of $127 million in 2014 and $357 million in 2013.
| (In millions) | 2014 | 2013 | 2012 | |||||
| GE | ||||||||
| Licensing and royalty income | $ | 288 | $ | 320 | $ | 290 | ||
| Purchases and sales of business interests(a) | 188 | 1,750 | 574 | |||||
| Associated companies(b) | 176 | 40 | 1,545 | |||||
| Net interest and investment income(c) | (77) | 116 | 196 | |||||
| Other items(d) | 132 | 660 | 52 | |||||
| 707 | 2,886 | 2,657 | ||||||
| Eliminations | 71 | 222 | (94) | |||||
| Total | $ | 778 | $ | 3,108 | $ | 2,563 | ||
(a)\tIncluded a pre-tax gain of $1,096 million on the sale of our 49% common equity interest in NBCU LLC in 2013. See Note 2.
(b)\tIncluded income of $1,416 million from our former equity method investment in NBCU LLC in 2012.
(c)\tIncluded other-than-temporary impairments on investment securities of $217 million in 2014.\t
(d)\tIncluded net gains on asset sales of $127 million in 2014 and $357 million in 2013.
| December 31 (In millions) | 2014 | 2013 | |||
| Investment contracts | $ | 2,970 | $ | 3,144 | |
| Guaranteed investment contracts | 1,000 | 1,471 | |||
| Total investment contracts | 3,970 | 4,615 | |||
| Life insurance benefits(a) | 20,688 | 18,959 | |||
| Other(b) | 3,369 | 3,405 | |||
| 28,027 | 26,979 | ||||
| Eliminations | (449) | (435) | |||
| Total | $ | 27,578 | $ | 26,544 | |
NOTE 24. COMMITMENTS, Product warranties AND GUARANTEES
Commitments
In our Aviation segment, we had committed to provide financing assistance on $2,887 million of future customer acquisitions of aircraft equipped with our engines, including commitments made to airlines in 2014 for future sales under our GE90 and GEnx engine campaigns. The GECAS business of GE Capital had placed multiple-year orders for various Boeing, Airbus and other aircraft with list prices approximating $25,232 million and secondary orders with airlines for used aircraft of approximately $2,144 million at December 31, 2014.
\n
Product Warranties
We provide for estimated product warranty expenses when we sell the related products. Because warranty estimates are forecasts that are based on the best available information – mostly historical claims experience – claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties follows.
| (In millions) | 2014 | 2013 | 2012 | |||||
| Balance at January 1 | $ | 1,370 | $ | 1,429 | $ | 1,553 | ||
| Current-year provisions | 593 | 798 | 645 | |||||
| Expenditures | (714) | (867) | (757) | |||||
| Other changes | (50) | 10 | (12) | |||||
| Balance at December 31 | $ | 1,199 | $ | 1,370 | $ | 1,429 | ||
Guarantees
Our guarantees are provided in the ordinary course of business. We underwrite these guarantees considering economic, liquidity and credit risk of the counterparty. We believe that the likelihood is remote that any such arrangements could have a significant adverse effect on our financial position, results of operations or liquidity. We record liabilities for guarantees at estimated fair value, generally the amount of the premium received, or if we do not receive a premium, the amount based on appraisal, observed market values or discounted cash flows. Any associated expected recoveries from third parties are recorded as other receivables, not netted against the liabilities.
At December 31, 2014, we were committed under the following guarantee arrangements beyond those provided on behalf of VIEs. See Note 23.
Credit Support. We have provided $2,531 million of credit support on behalf of certain customers or associated companies, predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. These arrangements enable these customers and associated companies to execute transactions or obtain desired financing arrangements with third parties. Should the customer or associated company fail to perform under the terms of the transaction or financing arrangement, we would be required to perform on their behalf. Under most such arrangements, our guarantee is secured, usually by the asset being purchased or financed, or possibly by certain other assets of the customer or associated company. The length of these credit support arrangements parallels the length of the related financing arrangements or transactions. The liability for such credit support was $38 million at December 31, 2014.
Indemnification Agreements. We have agreements that require us to fund up to $28 million at December 31, 2014 under residual value guarantees on a variety of leased equipment. Under most of our residual value guarantees, our commitment is secured by the leased asset. The liability for these indemnification agreements was $10 million at December 31, 2014.
At December 31, 2014, we also had $923 million of other indemnification commitments, substantially all of which relate to representations and warranties in sales of businesses or assets.
Contingent Consideration. These are agreements to provide additional consideration to a buyer or seller in a business combination if contractually specified conditions r
| (In millions) | 2014 | 2013 | 2012 | |||||
| Balance at January 1 | $ | 1,370 | $ | 1,429 | $ | 1,553 | ||
| Current-year provisions | 593 | 798 | 645 | |||||
| Expenditures | (714) | (867) | (757) | |||||
| Other changes | (50) | 10 | (12) | |||||
| Balance at December 31 | $ | 1,199 | $ | 1,370 | $ | 1,429 | ||
NOTE 11. INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS
Investment contracts, insurance liabilities and insurance annuity benefits comprise mainly obligations to annuitants and policyholders in our run-off insurance operations and holders of guaranteed investment contracts.
| December 31 (In millions) | 2014 | 2013 | |||
| Investment contracts | $ | 2,970 | $ | 3,144 | |
| Guaranteed investment contracts | 1,000 | 1,471 | |||
| Total investment contracts | 3,970 | 4,615 | |||
| Life insurance benefits(a) | 20,688 | 18,959 | |||
| Other(b) | 3,369 | 3,405 | |||
| 28,027 | 26,979 | ||||
| Eliminations | (449) | (435) | |||
| Total | $ | 27,578 | $ | 26,544 | |
When insurance affiliates cede insurance risk to third parties, such as reinsurers, they are not relieved of their primary obligation to policyholders. When losses on ceded risks give rise to claims for recovery, we establish allowances for probable losses on such receivables from reinsurers as required. Reinsurance recoverables are included in the caption “Other GECC receivables" on our Statement of Financial Position, and amounted to $1,759 million and $1,685 million at December 31, 2014 and 2013, respectively.
We recognize reinsurance recoveries as a reduction of the Statement of Earnings caption “Investment contracts, insurance losses and insurance annuity benefits.” Reinsurance recoveries were $240 million, $250 million and $234 million in December 31, 2014, 2013 and 2012, respectively.
| FINANCIAL INFORMATION FOR GE INDUSTRIAL | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Earnings (loss) from discontinued operations, net of taxes | $ | (5) | $ | (66) | $ | 147 | ||
Consolidation
Our financial statements consolidate all of our affiliates – entities in which we have a controlling financial interest, most often because we hold a majority voting interest. To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity (VIE) model to the entity, otherwise the entity is evaluated under the voting interest model.
Where we hold current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in that VIE. Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally. When changes occur to the design of an entity, we reconsider whether it is subject to the VIE model. We continuously evaluate whether we have a controlling financial interest in a VIE.
We hold a controlling financial interest in other entities where we currently hold, directly or indirectly, more than 50% of the voting rights or where we exercise control through substantive participating rights or as a general partner. Where we are a general partner, we consider substantive removal rights held by other partners in determining if we hold a controlling financial interest. We reevaluate whether we have a controlling financial interest in these entities when our voting or substantive participating rights change.
Associated companies are unconsolidated VIEs and other entities in which we do not have a controlling financial interest, but over which we have significant influence, most often because we hold a voting interest of 20% to 50%. Associated companies are accounted for as equity method investments. Results of associated companies are presented on a one-line basis. Investments in, and advances to, associated companies are presented on a one-line basis in the caption “All other assets” in our Statement of Financial Position, net of allowance for losses, which represents our best estimate of probable losses inherent in such assets.
million of unsecured term loans maturing in 2019 under the New Bank Term Loan Facility with third party lenders. Subsequent to December 31, 2014 through February 13, 2015, Synchrony Financial issued an additional $1,000 million of senior unsecured debt maturing in 2020.
Financial Statement Presentation
We have reclassified certain prior-year amounts to conform to the current-year’s presentation.
Financial data and related measurements are presented in the following categories:
GE. This represents the adding together of all affiliates other than General Electric Capital Corporation (GECC), whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates.
GECC. This represents the adding together of all affiliates of GECC, giving effect to the elimination of transactions among such affiliates.
Consolidated. This represents the adding together of GE and GECC, giving effect to the elimination of transactions between GE and GECC.
Operating Segments. These comprise our eight businesses, focused on the broad markets they serve: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and GE Capital.
Unless otherwise indicated, information in these notes to consolidated financial statements relates to continuing operations. Certain of our operations have been presented as discontinued. See Note 2.
The effects of translating to U.S. dollars the financial statements of non-U.S. affiliates whose functional currency is the local currency are included in shareowners’ equity. Asset and liability accounts are translated at year-end exchange rates, while revenues and expenses are translated at average rates for the respective periods.
Preparing financial statements in conformity with GAAP requires us to make estimates based on assumptions about current, and for some estimates future, economic and market conditions (for example, unemployment, market liquidity, the real estate market, etc.), which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, as appropriate, it is reasonably possible that in 2015 actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in future impairments of investment securities, goodwill, intangibles and long-lived assets, incremental losses on financing receivables, establishment of valuation allowances on deferred tax assets and increased tax liabilities.
Sales of Goods and Services
We record all sales of goods and services only when a firm sales agreement is in place, delivery has occurred or services have been rendered and collectability of the fixed or determinable sales price is reasonably assured.
Arrangements for the sale of goods and services sometimes include multiple components. Most of our multiple component arrangements involve the sale of goods and services in the Healthcare segment. Our arrangements with multiple components usually involve an upfront deliverable of large machinery or equipment and future service deliverables such as installation, commissioning, training or the future delivery of ancillary products. In most cases, the relative values of the undelivered components are not significant to the overall arrangement and are typically delivered within three to six months after the core product has been delivered. In such agreements, selling price is determined for each component and any difference between the total of the separate selling prices and total contract consideration (i.e., discount) is allocated pro rata across each of the components in the arrangement. The value assigned to each component is objectively determined and obtained primarily from sources such as the separate selling price for that or a similar item or from competitor prices for similar items. If such evidence is not available, we use our best estimate of selling price, which is established consistent with the pricing strategy of the business and considers product configuration, geography, customer type, and other market specific factors.
Except for goods sold under long-term agreements, we recognize sales of goods under the provisions of U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition. We often sell consumer products and computer hardware and software products with a right of return. We use our accumulated experience to estimate and provide for such returns when we record the sale. In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have reliably demonstrated that all specified acceptance criteria have been met or when formal acceptance occurs, respectively. In arrangements where we provide goods for trial and evaluation purposes, we only recognize revenue after customer acceptance occurs. Unless otherwise noted, we do not provide for anticipated losses before we record sales.
We recognize revenue on agreements for sales of goods and services under power generation unit and uprate contracts, nuclear fuel assemblies, larger oil drilling equipment projects, aeroderivative unit contracts, military development contracts, locomotive production contracts, and long-term construction projects, using long-term construction and production contract accounting. We estimate total long-term contract revenue net of price concessions as well as total contract costs. For goods sold under power generation unit and uprate contracts, nuclear fuel assemblies, aeroderivative unit contracts, military development contracts and locomotive production contracts, we recognize sales as we complete major contract-specified deliverables, most often when customers receive title to the goods or accept the services as performed. For larger oil drilling equipment projects and long-term construction projects, we recognize sales based on our progress toward contract completion measured by actual costs incurred in relation to our estimate of total expected costs. We measure long-term contract revenues by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. We provide for any loss that we expect to incur on these agreements when that loss is probable.
We recognize revenue upon delivery for sales of aircraft engines, military propulsion equipment and related spare parts not sold under long-term product services agreements. Delivery of commercial engines, non-U.S. military equipment and all related spare parts occurs on shipment; delivery of military propulsion equipment sold to the U.S. government or agencies thereof occurs upon receipt of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of Shipment. Commercial aircraft engines are complex equipment manufactured to customer order under a variety of sometimes complex, long-term agreements. We measure sales of commercial aircraft engines by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future revenues and costs for commercial aircraft engine agreements in process and report any cumulative effects of such adjustments in current operations. Significant components of our revenue and cost estimates include price concessions and performance-related guarantees as well as material, labor and overhead costs. We measure revenue for military propulsion equipment and spare parts not subject to long-term product services agreements based on the specific contract on a specifically measured output basis. We provide for any loss that we expect to incur on these agreements when that loss is probable; consistent with industry practice, for commercial aircraft engines, we make such provision only if such losses are not recoverable from future highly probable sales of spare parts and services for those engines.
We sell product services under long-term product maintenance or extended warranty agreements in our Aviation, Power & Water, Oil & Gas and Transportation segments, where costs of performing services are incurred on other than a straight-line basis. We also sell product services in our Healthcare segment, where such costs generally are expected to be on a straight-line basis. For the Aviation, Power & Water, Oil & Gas and Transportation agreements, we recognize related sales based on the extent of our progress toward completion measured by actual costs incurred in relation to total expected costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. For the Healthcare agreements, we recognize revenues on a straight-line basis and expense related costs as incurred. We provide for any loss that we expect to incur on any of these agreements when that loss is probable.
GECC Revenues from Services (Earned Income)
We use the interest method to recognize income on loans. Interest on loans includes origination, commitment and other non-refundable fees related to funding (recorded in earned income on the interest method). We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due, with the exception of consumer credit card accounts. Beginning in the fourth quarter of 2013, we continue to accrue interest on consumer credit cards until the accounts are written off in the period the account becomes 180 days past due. Previously, we stopped accruing interest on consumer credit cards when the account became 90 days past due. Previously recognized interest income that was accrued but not collected from the borrower is reversed, unless the terms of the loan agreement permit capitalization of accrued interest to the principal balance. Although we stop accruing interest in advance of payments, we recognize interest income as cash is collected when appropriate, provided the amount does not exceed that which would have been earned at the historical effective interest rate; otherwise, payments received are applied to reduce the principal balance of the loan.
We resume accruing interest on nonaccrual, non-restructured commercial loans only when (a) payments are brought current according to the loan’s original terms and (b) future payments are reasonably assured. When we agree to restructured terms with the borrower, we resume accruing interest only when it is reasonably assured that we will recover full contractual payments, and such loans pass underwriting reviews equivalent to those applied to new loans. We resume accruing interest on nonaccrual consumer loans when the customer’s account is less than 90 days past due and collection of such amounts is probable. Interest accruals on modified consumer loans that are not considered to be troubled debt restructurings (TDRs) may return to current status (re-aged) only after receipt of at least three consecutive minimum monthly payments or the equivalent cumulative amount, subject to a re-aging limitation of once a year, or twice in a five-year period.
We recognize financing lease income on the interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values are based upon management's best estimates of the value of the leased asset at the end of the lease term. We use various sources of data in determining this estimate, including information obtained from third parties, which is adjusted for the attributes of the specific asset under lease. Guarantees of residual values by unrelated third parties are considered part of minimum lease payments. Significant assumptions we use in estimating residual values include estimated net cash flows over the remaining lease term, anticipated results of future remarketing, and estimated future component part and scrap metal prices, discounted at an appropriate rate.
We recognize operating lease income on a straight-line basis over the terms of underlying leases.
Fees include commitment fees related to loans that we do not expect to fund and line-of-credit fees. We record these fees in earned income on a straight-line basis over the period to which they relate. We record syndication fees in earned income at the time related services are performed, unless significant contingencies exist.
Depreciation and Amortization
The cost of GE manufacturing plant and equipment is depreciated over its estimated economic life. U.S. assets are depreciated using an accelerated method based on a sum-of-the-years digits formula; non-U.S. assets are generally depreciated on a straight-line basis.
The cost of GECC equipment leased to others on operating leases is depreciated on a straight-line basis to estimated residual value over the lease term or over the estimated economic life of the equipment.
The cost of GECC acquired real estate investments is depreciated on a straight-line basis to the estimated salvage value over the expected useful life or the estimated proceeds upon sale of the investment at the end of the expected holding period if that approach produces a higher measure of depreciation expense.
The cost of individually significant customer relationships is amortized in proportion to estimated total related sales; cost of other intangible assets is generally amortized on a straight-line basis over the asset’s estimated economic life. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. See Notes 7 and 8.
Losses on Financing Receivables
Losses on financing receivables are recognized when they are incurred, which requires us to make our best estimate of probable losses inherent in the portfolio. The method for calculating the best estimate of losses depends on the size, type and risk characteristics of the related financing receivable. Such an estimate requires consideration of historical loss experience, adjusted for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates, financial health of specific customers and market sectors, collateral values (including housing price indices as applicable), and the present and expected future levels of interest rates. The underlying assumptions, estimates and assessments we use to provide for losses are updated periodically to reflect our view of current conditions and are subject to the regulatory examination process, which can result in changes to our assumptions. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that we will experience credit losses that are different from our current estimates. Write-offs are deducted from the allowance for losses when we judge the principal to be uncollectible and subsequent recoveries are added to the allowance at the time cash is received on a written-off account.
"Impaired" loans are defined as larger-balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to the original contractual terms of the loan agreement.
The vast majority of our Consumer and a portion of our Commercial Lending and Leasing (CLL) nonaccrual receivables are excluded from this definition, as they represent smaller-balance homogeneous loans that we evaluate collectively by portfolio for impairment.
Impaired loans include nonaccrual receivables on larger-balance or restructured loans, loans that are currently paying interest under the cash basis and loans paying currently that had been previously restructured.
Specific reserves are recorded for individually impaired loans to the extent we have determined that it is probable that we will be unable to collect all amounts due according to original contractual terms of the loan agreement. Certain loans classified as impaired may not require a reserve because we believe that we will ultimately collect the unpaid balance (through collection or collateral repossession).
“Troubled debt restructurings” (TDRs) are those loans for which we have granted a concession to a borrower experiencing financial difficulties where we do not receive adequate compensation. Such loans are classified as impaired, and are individually reviewed for specific reserves.
“Nonaccrual financing receivables” are those on which we have stopped accruing interest. We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due, with the exception of consumer credit card accounts, for which we continue to accrue interest until the accounts are written off in the period that the account becomes 180 days past due. Although we stop accruing interest in advance of payments, we recognize interest income as cash is collected when appropriate provided the amount does not exceed that which would have been earned at the historical effective interest rate. Recently restructured financing receivables are not considered delinquent when payments are brought current according to the restructured terms, but may remain classified as nonaccrual until there has been a period of satisfactory payment performance by the borrower and future payments are reasonably assured of collection.
“Delinquent” receivables are those that are 30 days or more past due based on their contractual terms.
The same financing receivable may meet more than one of the definitions above. Accordingly, these categories are not mutually exclusive and it is possible for a particular loan to meet the definitions of a TDR, impaired loan and nonaccrual loan and be included in each of these categories. The categorization of a particular loan also may not be indicative of the potential for loss.
Our consumer loan portfolio consists of smaller-balance, homogeneous loans, including credit card receivables, installment loans, auto loans and leases and residential mortgages. We collectively evaluate each portfolio for impairment quarterly. The allowance for losses on these receivables is established through a process that estimates the probable losses inherent in the portfolio based upon statistical analyses of portfolio data. These analyses include migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, together with other analyses that reflect current trends and conditions. We also consider our historical loss experience to date based on actual defaulted loans and overall portfolio indicators including nonaccrual loans, trends in loan volume and lending terms, credit policies and other observable environmental factors such as unemployment rates and home price indices.
Our commercial loan and lease portfolio consists of a variety of loans and leases, including both larger-balance, non-homogeneous loans and leases and smaller-balance homogeneous loans and leases. Losses on such loans and leases are recorded when probable and estimable. We routinely evaluate our entire portfolio for potential specific credit or collection issues that might indicate an impairment.
For larger-balance, non-homogeneous loans and leases, we consider the financial status, payment history, collateral value, industry conditions and guarantor support related to specific customers. Any delinquencies or bankruptcies are indications of potential impairment requiring further assessment of collectability. We routinely receive financial as well as rating agency reports on our customers, and we elevate for further attention those customers whose operations we judge to be marginal or deteriorating. We also elevate customers for further attention when we observe a decline in collateral values for asset-based loans. While collateral values are not always available, when we observe such a decline, we evaluate relevant markets to assess recovery alternatives – for example, for real estate loans, relevant markets are local; for commercial aircraft loans, relevant markets are global.
Measurement of the loss on our impaired commercial loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of collateral, net of expected selling costs, if the loan is determined to be collateral dependent. We determine whether a loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. Our review process can often result in reserves being established in advance of a modification of terms or designation as a TDR. After providing for specific incurred losses, we then determine an allowance for losses that have been incurred in the balance of the portfolio but cannot yet be identified to a specific loan or lease. This estimate is based upon various statistical analyses considering historical and projected default rates and loss severity and aging, as well as our view on current market and economic conditions. It is prepared by each respective line of business. For Real Estate, this includes assessing the probability of default and the loss given default based on loss history of our portfolio for loans with similar loan metrics and attributes.
We consider multiple factors in evaluating the adequacy of our allowance for losses on Real Estate financing receivables, including loan-to-value ratios, collateral values at the individual loan level, debt service coverage ratios, delinquency status, and economic factors including interest rate and real estate market forecasts. In addition to these factors, we evaluate a Real Estate loan for impairment classification if its projected loan-to-value ratio at maturity is in excess of 100%, even if the loan is currently paying in accordance with its contractual terms. Substantially all of the loans in the Real Estate portfolio are considered collateral dependent and are measured for impairment based on the fair value of collateral. If foreclosure is deemed probable or if repayment is dependent solely on the sale of collateral, we also include estimated selling costs in our reserve. Collateral values for our Real Estate loans are determined based upon internal cash flow estimates discounted at an appropriate rate and corroborated by external appraisals, as appropriate. Collateral valuations are routinely monitored and updated annually, or more frequently for changes in collateral, market and economic conditions. Further discussion on determination of fair value is in the Fair Value Measurements section below.
Experience is not available for new products; therefore, while we are developing that experience, we set loss allowances based on our experience with the most closely analogous products in our portfolio.
Our loss mitigation strategy intends to minimize economic loss and, at times, can result in rate reductions, principal forgiveness, extensions, forbearance or other actions, which may cause the related loan to be classified as a TDR.
We utilize certain loan modification programs for borrowers experiencing temporary financial difficulties in our Consumer loan portfolio. These loan modification programs are primarily concentrated in our non-U.S. residential mortgage and non-U.S. installment and revolving portfolios and include short-term (three months or less) interest rate reductions and payment deferrals, which were not part of the terms of the original contract. We sold our U.S. residential mortgage business in 2007 and, as such, do not participate in the U.S. government-sponsored mortgage modification programs.
Our allowance for losses on financing receivables on these modified consumer loans is determined based upon a formulaic approach that estimates the probable losses inherent in the portfolio based upon statistical analyses of the portfolio. Data related to redefault experience is also considered in our overall reserve adequacy review. Once the loan has been modified, it returns to current status (re-aged) only after receipt of at least three consecutive minimum monthly payments or the equivalent cumulative amount, subject to a re-aging limitation of once a year, or twice in a five-year period in accordance with the Federal Financial Institutions Examination Council guidelines on Uniform Retail Credit Classification and Account Management policy issued in June 2000. We believe that the allowance for losses would not be materially different had we not re-aged these accounts.
For commercial loans, we evaluate changes in terms and conditions to determine whether those changes meet the criteria for classification as a TDR on a loan-by-loan basis. In CLL, these changes primarily include: changes to covenants, short-term payment deferrals and maturity extensions. For these changes, we receive economic consideration, including additional fees and/or increased interest rates, and evaluate them under our normal underwriting standards and criteria. Changes to Real Estate’s loans primarily include maturity extensions, principal payment acceleration, changes to collateral terms, and cash sweeps, which are in addition to, or sometimes in lieu of, fees and rate increases. The determination of whether these changes to the terms and conditions of our commercial loans meet the TDR criteria includes our consideration of all of the relevant facts and circumstances. When the borrower is experiencing financial difficulty, we carefully evaluate these changes to determine whether they meet the form of a concession. In these circumstances, if the change is deemed to be a concession, we classify the loan as a TDR.
When we repossess collateral in satisfaction of a loan, we write down the receivable against the allowance for losses. Repossessed collateral is included in the caption “All other assets” in the Statement of Financial Position and carried at the lower of cost or estimated fair value less costs to sell.
For Consumer loans, we write off unsecured closed-end installment loans when they are 120 days contractually past due and unsecured open-ended revolving loans at 180 days contractually past due. We write down consumer loans secured by collateral other than residential real estate when such loans are 120 days past due. Consumer loans secured by residential real estate (both revolving and closed-end loans) are written down to the fair value of collateral, less costs to sell, no later than when they become 180 days past due. Unsecured consumer loans in bankruptcy are written off within 60 days of notification of filing by the bankruptcy court or within contractual write-off periods, whichever occurs earlier.
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Write-offs on larger-balance impaired commercial loans are based on amounts deemed uncollectible and are reviewed quarterly. Write-offs are determined based on the consideration of many factors, such as expectations of the workout plan or restructuring of the loan, valuation of the collateral and the prioritization of our claim in bankruptcy. Write-offs are recognized against the allowance for losses at the earlier of transaction confirmation (for example, discounted pay-off, restructuring, foreclosure, etc.) or not later than 360 days after initial recognition of a specific reserve for a collateral dependent loan. If foreclosure is probable, the write-off is determined based on the fair value of the collateral less costs to sell. Smaller-balance, homogeneous commercial loans are written off at the earlier of when deemed uncollectible or at 180 days past due.
Cash and Equivalents
Debt securities and money market instruments with original maturities of three months or less are included in cash equivalents unless designated as available-for-sale and classified as investment securities.
Investment Securities
We report investments in debt and marketable equity securities, and certain other equity securities, at fair value. See Note 21 for further information on fair value. Unrealized gains and losses on available-for-sale investment securities are included in shareowners’ equity, net of applicable taxes and other adjustments. We regularly review investment securities for impairment using both quantitative and qualitative criteria.
For debt securities, if we do not intend to sell the security or it is not more likely than not that we will be required to sell the security before recovery of our amortized cost, we evaluate other qualitative criteria to determine whether we do not expect to recover the amortized cost basis of the security, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. We also evaluate quantitative criteria including determining whether there has been an adverse change in expected future cash flows. If we do not expect to recover the entire amortized cost basis of the security, we consider the security to be other-than-temporarily impaired, and we record the difference between the security’s amortized cost basis and its recoverable amount in earnings and the difference between the security’s recoverable amount and fair value in other comprehensive income. If we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, the security is also considered other-than-temporarily impaired and we recognize the entire difference between the security’s amortized cost basis and its fair value in earnings. For equity securities, we consider the length of time and magnitude of the amount that each security is in an unrealized loss position. If we do not expect to recover the entire amortized cost basis of the security, we consider the security to be other-than-temporarily impaired, and we record the difference between the security’s amortized cost basis and its fair value in earnings.
Realized gains and losses are accounted for on the specific identification method. Unrealized gains and losses on investment securities classified as trading and certain retained interests are included in earnings.
Goodwill and Other Intangible Assets
We do not amortize goodwill, but test it at least annually for impairment at the reporting unit level. A reporting unit is the operating segment, or one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. We recognize an impairment charge if the carrying amount of a reporting unit exceeds its fair value and the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill. We use a market approach, when available and appropriate, or the income approach, or a combination of both to establish fair values. When a portion of a reporting unit is disposed, goodwill is allocated to the gain or loss on disposition based on the relative fair values of the business or businesses disposed and the portion of the reporting unit that will be retained.
We amortize the cost of other intangibles over their estimated useful lives unless such lives are deemed indefinite. The cost of intangible assets is generally amortized on a straight-line basis over the asset’s estimated economic life, except that individually significant customer-related intangible assets are amortized in relation to total related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested annually for impairment and written down to fair value as required.
GECC Investment Contracts, Insurance Liabilities and Insurance Annuity Benefits
Certain entities that we consolidate provide guaranteed investment contracts, primarily to states, municipalities and municipal authorities.
Our insurance activities include providing insurance and reinsurance for life and health risks and providing certain annuity products. Two primary product groups are provided: traditional insurance contracts and investment contracts. Insurance contracts are contracts with significant mortality and/or morbidity risks, while investment contracts are contracts without such risks.
For short-duration insurance contracts, including accident and health insurance, we report premiums as earned income over the terms of the related agreements, generally on a pro-rata basis. For traditional long-duration insurance contracts including long-term care, term, whole life and annuities payable for the life of the annuitant, we report premiums as earned income when due.
Premiums received on investment contracts (including annuities without significant mortality risk) are not reported as revenues but rather as deposit liabilities. We recognize revenues for charges and assessments on these contracts, mostly for mortality, contract initiation, administration and surrender. Amounts credited to policyholder accounts are charged to expense.
Liabilities for traditional long-duration insurance contracts represent the present value of such benefits less the present value of future net premiums based on mortality, morbidity, interest and other assumptions at the time the policies were issued or acquired. Liabilities for investment contracts equal the account value, that is, the amount that accrues to the benefit of the contract or policyholder including credited interest and assessments through the financial statement date. For guaranteed investment contracts, the liability is also adjusted as a result of fair value hedging activity.
Liabilities for unpaid claims and estimated claim settlement expenses represent our best estimate of the ultimate obligations for reported and incurred-but-not-reported claims and the related estimated claim settlement expenses. Liabilities for unpaid claims and estimated claim settlement expenses are continually reviewed and adjusted through current operations.
Fair Value Measurements
For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
Level 1 –\tQuoted prices for identical instruments in active markets.
Level 2 –\tQuoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 –\tSignificant inputs to the valuation model are unobservable.
We maintain policies and procedures to value instruments using the best and most relevant data available. In addition, we have risk management teams that review valuation, including independent price validation for certain instruments. With regard to Level 3 valuations (including instruments valued by third parties), we perform a variety of procedures to assess the reasonableness of the valuations. Such reviews, which may be performed quarterly, monthly or weekly, include an evaluation of instruments whose fair value change exceeds predefined thresholds (and/or does not change) and consider the current interest rate, currency and credit environment, as well as other published data, such as rating agency market reports and current appraisals. These reviews are performed within each business by the asset and risk managers, pricing committees and valuation committees. A detailed review of methodologies and assumptions is performed by individuals independent of the business for individual measurements with a fair value exceeding predefined thresholds. This detailed review may include the use of a third-party valuation firm.
Recurring Fair Value Measurements
The following sections describe the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis.
Investments in Debt and Equity Securities. When available, we use quoted market prices to determine the fair value of investment securities, and they are included in Level 1. Level 1 securities primarily include publicly traded equity securities.
For large numbers of investment securities for which market prices are observable for identical or similar investment securities but not readily accessible for each of those investments individually (that is, it is difficult to obtain pricing information for each individual investment security at the measurement date), we obtain pricing information from an independent pricing vendor. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to the model of the pricing vendor are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many fixed income securities do not trade on a daily basis, the methodology of the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. The pricing vendor considers available market observable inputs in determining the evaluation for a security. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2 and primarily comprise our portfolio of corporate fixed income, and government, mortgage and asset-backed securities. In infrequent circumstances, our pricing vendors may provide us with valuations that are based on significant unobservable inputs, and in those circumstances we classify the investment securities in Level 3.
Annually, we conduct reviews of our primary pricing vendor to validate that the inputs used in that vendor’s pricing process are deemed to be market observable as defined in the standard. While we are not provided access to proprietary models of the vendor, our reviews have included on-site walk-throughs of the pricing process, methodologies and control procedures for each asset class and level for which prices are provided. Our reviews also include an examination of the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels and various durations, a process we perform each reporting period. In addition, the pricing vendor has an established challenge process in place for all security valuations, which facilitates identification and resolution of potentially erroneous prices. We believe that the prices received from our pricing vendor are representative of prices that would be received to sell the assets at the measurement date (exit prices) and are classified appropriately in the hierarchy.
We use non-binding broker quotes and other third-party pricing services as our primary basis for valuation when there is limited, or no, relevant market activity for a specific instrument or for other instruments that share similar characteristics. We have not adjusted the prices we have obtained. Investment securities priced using non-binding broker quotes and other third-party pricing services are included in Level 3. As is the case with our primary pricing vendor, third-party brokers and other third-party pricing services do not provide access to their proprietary valuation models, inputs and assumptions. Accordingly, our risk management personnel conduct reviews of vendors, as applicable, similar to the reviews performed of our primary pricing vendor. In addition, we conduct internal reviews of pricing for all such investment securities quarterly to ensure reasonableness of valuations used in our financial statements. These reviews are designed to identify prices that appear stale, those that have changed significantly from prior valuations, and other anomalies that may indicate that a price may not be accurate. Based on the information available, we believe that the fair values provided by the brokers and other third-party pricing services are representative of prices that would be received to sell the assets at the measurement date (exit prices).
Derivatives. We use closing prices for derivatives included in Level 1, which are traded either on exchanges or liquid over-the-counter markets.
The majority of our derivatives are valued using internal models. The models maximize the use of market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent interest rate swaps, cross-currency swaps and foreign currency and commodity forward and option contracts.
Derivative assets and liabilities included in Level 3 primarily represent equity derivatives and interest rate products that contain embedded optionality or prepayment features.
Non-recurring Fair Value Measurements
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances. These assets can include loans and long-lived assets that have been reduced to fair value when they are held for sale, impaired loans that have been reduced based on the fair value of the underlying collateral, cost and equity method investments and long-lived assets that are written down to fair value when they are impaired and the remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of a subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.
The following sections describe the valuation methodologies we use to measure financial and non-financial instruments accounted for at fair value on a non-recurring basis and for certain assets within our pension plans and retiree benefit plans at each reporting period, as applicable.
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Financing Receivables and Loans Held for Sale. When available, we use observable market data, including pricing on recent closed market transactions, to value loans that are included in Level 2. When this data is unobservable, we use valuation methodologies using current market interest rate data adjusted for inherent credit risk, and such loans are included in Level 3. When appropriate, loans may be valued using collateral values (see Long-Lived Assets below).
Cost and Equity Method Investments. Cost and equity method investments are valued using market observable data such as quoted prices when available. When market observable data is unavailable, investments are valued using a discounted cash flow model, comparative market multiples or a combination of both approaches as appropriate and other third-party pricing sources. These investments are generally included in Level 3.
Investments in private equity, real estate and collective funds are valued using net asset values. The net asset values are determined based on the fair values of the underlying investments in the funds. Investments in private equity and real estate funds are generally included in Level 3 because they are not redeemable at the measurement date. Investments in collective funds are included in Level 2.
Long-lived Assets, including Real Estate. Fair values of long-lived assets, including aircraft and real estate, are primarily derived internally and are based on observed sales transactions for similar assets. In other instances, for example, collateral types for which we do not have comparable observed sales transaction data, collateral values are developed internally and corroborated by external appraisal information. Adjustments to third-party valuations may be performed in circumstances where market comparables are not specific to the attributes of the specific collateral or appraisal information may not be reflective of current market conditions due to the passage of time and the occurrence of market events since receipt of the information. For real estate, fair values are based on discounted cash flow estimates that reflect current and projected lease profiles and available industry information about capitalization rates and expected trends in rents and occupancy and are corroborated by external appraisals. These investments are generally included in Level 2 or Level 3.
Retained Investments in Formerly Consolidated Subsidiaries. Upon a change in control that results in deconsolidation of a subsidiary, the fair value measurement of our retained noncontrolling stake is valued using market observable data such as quoted prices when available, or if not available, an income approach, a market approach, or a combination of both approaches as appropriate. In applying these methodologies, we rely on a number of factors, including actual operating results, future business plans, economic projections, market observable pricing multiples of similar businesses and comparable transactions, and possible control premium. These investments are generally included in Level 1 or Level 3, as appropriate, determined at the time of the transaction.
Accounting Changes
In the second quarter of 2014, the Company elected to early adopt Accounting Standards Update (ASU) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU changes the criteria for reporting discontinued operations. To be classified as a discontinued operation, the disposal of a component or group of components must represent a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The ASU also expands the disclosure requirements for those transactions that meet the new criteria to be classified as discontinued operations. The revised accounting guidance applies prospectively to all disposals (or classifications as held for sale) of components of an entity and for businesses that, upon acquisition, are classified as held for sale on or after adoption. Early adoption is permitted for disposals (or classifications as held for sale) that have not been previously reported in financial statements. The effects of applying the revised guidance will vary based upon the nature and size of future disposal transactions. It is expected that fewer disposal transactions will meet the new criteria to be reported as discontinued operations.
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On January 1, 2014, we adopted ASU 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. Under the revised guidance, the entire amount of the cumulative translation adjustment associated with the foreign entity will be released into earnings in the following circumstances: (a) the sale of a subsidiary or group of net assets within a foreign entity that represents a complete or substantially complete liquidation of that entity, (b) the loss of a controlling financial interest in an investment in a foreign entity, or (c) when the accounting for an investment in a foreign entity changes from the equity method to full consolidation. The revised guidance applies prospectively to transactions or events occurring on or after January 1, 2014.
On January 1, 2014, we adopted ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under the new guidance, an unrecognized tax benefit is required to be presented as a reduction to a deferred tax asset if the disallowance of the tax position would reduce the available tax loss or tax credit carryforward instead of resulting in a cash tax liability. The ASU applies prospectively to all unrecognized tax benefits that exist as of the adoption date and reduced both deferred tax assets and income tax liabilities by $1,224 million as of January 1, 2014.
On January 1, 2012, we adopted ASU 2011-05, an amendment to Accounting Standards Codification (ASC) 220, Comprehensive Income. ASU 2011-05 introduced a new statement, the Consolidated Statement of Comprehensive Income. The amendments affect only the display of those components of equity categorized as other comprehensive income and do not change existing recognition and measurement requirements that determine net earnings.
On January 1, 2012, we adopted ASU 2011-04, an amendment to ASC 820, Fair Value Measurements. ASU 2011-04 clarifies or changes the application of existing fair value measurements, including: that the highest and best use valuation premise in a fair value measurement is relevant only when measuring the fair value of nonfinancial assets; that a reporting entity should measure the fair value of its own equity instrument from the perspective of a market participant that holds that instrument as an asset; to permit an entity to measure the fair value of certain financial instruments on a net basis rather than based on its gross exposure when the reporting entity manages its financial instruments on the basis of such net exposure; that in the absence of a Level 1 input, a reporting entity should apply premiums and discounts when market participants would do so when pricing the asset or liability consistent with the unit of account; and that premiums and discounts related to size as a characteristic of the reporting entity’s holding are not permitted in a fair value measurement. Adopting these amendments had no effect on the financial statements.
Partial Sales of Business Interests
Gains or losses on sales of affiliate shares where we retain a controlling financial interest are recorded in equity. Gains or losses on sales that result in our loss of a controlling financial interest are recorded in earnings along with remeasurement gains or losses on any investments in the entity that we retained.
| (In millions) | 2014 | 2013 | 2012 | |||||
| Total R&D | $ | 5,273 | $ | 5,461 | $ | 5,200 | ||
| Less customer funded R&D (principally the U.S. Government) | (721) | (711) | (680) | |||||
| Less partner funded R&D | (319) | (107) | (6) | |||||
| GE funded R&D | $ | 4,233 | $ | 4,643 | $ | 4,514 | ||
| CONSOLIDATED OTHER COSTS AND EXPENSES | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| GE SG&A | $ | 14,971 | $ | 16,105 | $ | 17,671 | ||
| GECC operating and administrative costs | 13,053 | 12,463 | 12,023 | |||||
| GECC depreciation and amortization | 6,859 | 7,313 | 6,901 | |||||
| 34,883 | 35,881 | 36,595 | ||||||
| Eliminations | (857) | (738) | (698) | |||||
| Total | $ | 34,026 | $ | 35,143 | $ | 35,897 | ||
| (In millions) | 2014 | 2013 | 2012 | |||||
| GE | $ | 1,186 | $ | 1,220 | $ | 1,134 | ||
| GECC | 382 | 428 | 539 | |||||
| 1,568 | 1,648 | 1,673 | ||||||
| Eliminations | (149) | (135) | (142) | |||||
| Total | $ | 1,419 | $ | 1,513 | $ | 1,531 | ||
| (In millions) | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||
| GE | $ | 634 | $ | 528 | $ | 432 | $ | 371 | $ | 337 | ||||
| GECC | 238 | 203 | 177 | 141 | 120 | |||||||||
| 872 | 731 | 609 | 512 | 457 | ||||||||||
| Eliminations | (73) | (44) | (28) | (20) | (18) | |||||||||
| Total | $ | 799 | $ | 687 | $ | 581 | $ | 492 | $ | 439 | ||||
| COST OF PENSION PLANS | |||||||||||||||||||||||||||
| Total | Principal pension plans | Other pension plans | |||||||||||||||||||||||||
| (In millions) | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||
| Service cost for benefits earned | $ | 1,608 | $ | 1,970 | $ | 1,779 | $ | 1,205 | $ | 1,535 | $ | 1,387 | $ | 403 | $ | 435 | $ | 392 | |||||||||
| Prior service cost amortization | 220 | 253 | 287 | 214 | 246 | 279 | 6 | 7 | 8 | ||||||||||||||||||
| Expected return on plan assets | (3,979) | (4,163) | (4,394) | (3,190) | (3,500) | (3,768) | (789) | (663) | (626) | ||||||||||||||||||
| Interest cost on benefit obligations | 3,332 | 2,983 | 2,993 | 2,745 | 2,460 | 2,479 | 587 | 523 | 514 | ||||||||||||||||||
| Net actuarial loss amortization | 2,770 | 4,007 | 3,701 | 2,565 | 3,664 | 3,421 | 205 | 343 | 280 | ||||||||||||||||||
| Curtailment loss | 65 | - | - | 65 | (a) | - | - | - | - | - | |||||||||||||||||
| Pension plans cost | $ | 4,016 | $ | 5,050 | $ | 4,366 | $ | 3,604 | $ | 4,405 | $ | 3,798 | $ | 412 | $ | 645 | $ | 568 | |||||||||
| COST OF PRINCIPAL RETIREE BENEFIT PLANS | ||||||||
| (In millions) | 2014 | 2013 | 2012 | |||||
| Service cost for benefits earned | $ | 164 | $ | 229 | $ | 219 | ||
| Prior service cost amortization | 353 | 393 | 518 | |||||
| Expected return on plan assets | (50) | (60) | (73) | |||||
| Interest cost on benefit obligations | 424 | 410 | 491 | |||||
| Net actuarial loss (gain) amortization | (150) | (45) | 32 | |||||
| Net curtailment/settlement loss (gain) | 48 | (a) | - | (101) | ||||
| Retiree benefit plans cost | $ | 789 | $ | 927 | $ | 1,086 | ||
| RETIREE BENEFIT ASSET(LIABILITY) | |||||
| December 31 (In millions) | 2014 | 2013 | |||
| Funded status(a) | $ | (9,890) | $ | (9,010) | |
| Liability recorded in the Statement of Financial Position | |||||
| Retiree health plans | |||||
| Due within one year | $ | (518) | $ | (531) | |
| Due after one year | (7,927) | (7,095) | |||
| Retiree life plans | (1,445) | (1,384) | |||
| Net liability recognized | $ | (9,890) | $ | (9,010) | |
| Amounts recorded in shareowners' equity (unamortized) | |||||
| Prior service cost (credit) | $ | (24) | $ | 963 | |
| Net actuarial gain | (71) | (1,667) | |||
| Total | $ | (95) | $ | (704) | |