NOTE 13. ALL OTHER LIABILITIES
This caption includes liabilities for various items including deferred income, interest on tax liabilities, unrecognized tax benefits, environmental remediation, asset retirement obligations, derivative instruments, product warranties and a variety of sundry items.
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 $1,869 million at December 31, 2015.
NOTE 17. OTHER INCOME
| (In millions) | 2015 | 2014 | 2013 | |||||
| GE | ||||||||
| Purchases and sales of business interests(a) | $ | 1,020 | $ | 188 | $ | 1,750 | ||
| Licensing and royalty income | 168 | 288 | 320 | |||||
| Associated companies | 45 | 176 | 40 | |||||
| Net interest and investment income(b) | 65 | (77) | 116 | |||||
| Other items(c) | 868 | 132 | 660 | |||||
| 2,165 | 707 | 2,886 | ||||||
| Eliminations | 62 | 71 | 221 | |||||
| Total | $ | 2,227 | $ | 778 | $ | 3,107 | ||
(a)\tIncluded a pre-tax gain of $623 million on the sale of our Signaling business in 2015 and 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 other-than-temporary impairments on investment securities of $(217) million in 2014.\t
(c)\tIncluded the $450 million NBCU tax settlement and the $175 million break-up fee from Electrolux in 2015. Included net gains on asset sales of $90 million, $127 million and $357 million in 2015, 2014
| (In millions) | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||
| GE | $ | 909 | $ | 819 | $ | 699 | $ | 615 | $ | 547 | ||||
| GE Capital | 29 | 24 | 20 | 19 | 18 | |||||||||
| 938 | 843 | 719 | 634 | 565 | ||||||||||
| Eliminations | (144) | (136) | (128) | (115) | (109) | |||||||||
| Total | $ | 794 | $ | 707 | $ | 591 | $ | 519 | $ | 456 | ||||
| 2015 | 2014 | |||||||||||
| Assets (liabilities) | Assets (liabilities) | |||||||||||
| Carrying | Carrying | |||||||||||
| amount | Estimated | amount | Estimated | |||||||||
| December 31 (In millions) | (net) | fair value | (net) | fair value | ||||||||
| GE | ||||||||||||
| Assets | ||||||||||||
| Investments and notes receivable | $ | 1,104 | $ | 1,174 | $ | 502 | $ | 551 | ||||
| Liabilities | ||||||||||||
| Borrowings(a)(b) | (18,455) | (19,011) | (16,340) | (17,503) | ||||||||
| Borrowings (debt assumed)(a)(c) | (85,114) | (92,641) | - | - | ||||||||
| GE Capital | ||||||||||||
| Assets | ||||||||||||
| Loans | 20,061 | 19,774 | 20,153 | 20,182 | ||||||||
| Time deposits(d) | 10,386 | 10,386 | - | - | ||||||||
| Other commercial mortgages | 1,381 | 1,447 | 1,427 | 1,508 | ||||||||
| Loans held for sale | 342 | 342 | 419 | 419 | ||||||||
| Other financial instruments(e) | 94 | 110 | 103 | 113 | ||||||||
| Liabilities | ||||||||||||
| Borrowings(a)(f)(g)(h) | (95,681) | (99,602) | (245,993) | (261,569) | ||||||||
| Investment contracts | (2,955) | (3,441) | (3,970) | (4,596) | ||||||||
(a)\tSee Note 10.
(b) Included $116 million and $94 million of accrued interest in estimated fair value at December 31, 2015 and December 31, 2014, respectively.
(c) \tIncluded $1,006 million of accrued interest in estimated fair value at December 31, 2015.
(d)\tBalances at December 31, 2015 included $10,386 million of high quality interest bearing deposits with European branches of global banks, predominantly in the UK, that mature in April 2016.
(e)\tPrincipally comprises cost method investments.
(f)\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, 2015 and 2014 would have been reduced by $3,001 million and $5,020 million, respectively.
(g)\tIncluded $1,103 million and $2,888 million of accrued interest in estimated fair value at December 31, 2015 and 2014, respectively.
(h)\tExcluded $85,114 million of intercompany payable to GE related to the debt assumption at December 31, 2015.
NOTE 28. QUARTERLY INFORMATION (UNAUDITED)
| First quarter | Second quarter | Third quarter | Fourth quarter | ||||||||||||||||||||
| (In millions; per-share amounts in dollars) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||
| Consolidated operations | |||||||||||||||||||||||
| Earnings (loss) from continuing operations | $ | (4,673) | $ | 1,491 | $ | 1,813 | $ | 2,180 | $ | 1,915 | $ | 2,130 | $ | 2,645 | $ | 3,690 | |||||||
| Earnings (loss) from discontinued | |||||||||||||||||||||||
| operations | (8,936) | 1,461 | (2,947) | 1,367 | 629 | 1,378 | 3,758 | 1,649 | |||||||||||||||
| Net earnings (loss) | (13,608) | 2,952 | (1,134) | 3,546 | 2,545 | 3,508 | 6,403 | 5,339 | |||||||||||||||
| Less net earnings (loss) attributable to | |||||||||||||||||||||||
| noncontrolling interests | (35) | (47) | 225 | - | 39 | (29) | 103 | 187 | |||||||||||||||
| Net earnings (loss) attributable to | |||||||||||||||||||||||
| the Company | $ | (13,573) | $ | 2,999 | $ | (1,360) | $ | 3,546 | $ | 2,506 | $ | 3,536 | $ | 6,301 | $ | 5,152 | |||||||
| Per-share amounts – earnings (loss) from | |||||||||||||||||||||||
| continuing operations | |||||||||||||||||||||||
| Diluted earnings (loss) per share | $ | (0.45) | $ | 0.15 | $ | 0.17 | $ | 0.22 | $ | 0.19 | $ | 0.22 | $ | 0.26 | $ | 0.35 | |||||||
| Basic earnings (loss) per share | (0.45) | 0.15 | 0.17 | 0.22 | 0.19 | 0.22 | 0.26 | 0.36 | |||||||||||||||
| Per-share amounts – earnings (loss) | |||||||||||||||||||||||
| from discontinued operations | |||||||||||||||||||||||
| Diluted earnings (loss) per share | (0.90) | 0.14 | (0.30) | 0.13 | 0.05 | 0.13 | 0.38 | 0.15 | |||||||||||||||
| Basic earnings (loss) per share | (0.90) | 0.14 | (0.30) | 0.14 | 0.05 | 0.13 | 0.38 | 0.16 | |||||||||||||||
| Per-share amounts – net earnings (loss) | |||||||||||||||||||||||
| Diluted earnings (loss) per share | (1.35) | 0.30 | (0.13) | 0.35 | 0.25 | 0.35 | 0.64 | 0.51 | |||||||||||||||
| Basic earnings (loss) per share | (1.35) | 0.30 | (0.13) | 0.35 | 0.25 | 0.35 | 0.64 | 0.51 | |||||||||||||||
| Selected data | |||||||||||||||||||||||
| GE | |||||||||||||||||||||||
| Sales of goods and services | $ | 23,839 | $ | 24,011 | $ | 26,141 | $ | 26,225 | $ | 25,612 | $ | 26,025 | $ | 30,614 | $ | 31,046 | |||||||
| Gross profit from sales | 5,514 | 5,327 | 6,033 | 6,089 | 6,275 | 6,146 | 7,556 | 7,870 | |||||||||||||||
| GE Capital | |||||||||||||||||||||||
| Total revenues | 2,866 | 2,963 | 2,690 | 2,676 | 2,660 | 2,763 | 2,585 | 2,919 | |||||||||||||||
| Earnings (loss) from continuing operations | |||||||||||||||||||||||
| attributable to the Company | (5,721) | 489 | (332) | 468 | (154) | 226 | (1,447) | 348 | |||||||||||||||
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 (loss) 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 (loss) for the respective quarters.
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.
| December 31 (In millions) | 2015 | 2014 | |||
| Life insurance benefits(a) | $ | 19,978 | $ | 20,688 | |
| Investment contracts | 2,955 | 3,970 | |||
| Other(b) | 3,223 | 3,224 | |||
| 26,155 | 27,881 | ||||
| Eliminations | (463) | (449) | |||
| Total | $ | 25,692 | $ | 27,432 | |
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 GE Capital receivables" on our Statement of Financial Position, and amounted to $1,880 million and $1,742 million at December 31, 2015 and 2014 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 $295 million, $240 million and $250 million in 2015, 2014 and 2013, respectively.
| ROLLFORWARD OF THE RESERVE | ||||||
| December 31 (In millions) | 2015 | 2014 | ||||
| Balance, beginning of period | $ | 809 | $ | 800 | ||
| Provision | 212 | 365 | ||||
| Claim resolutions / rescissions | (146) | (356) | ||||
| Balance, end of period | $ | 875 | $ | 809 | ||
| CHANGES IN GOODWILL BALANCES | |||||||||||||||||||||||
| 2015 | 2014 | ||||||||||||||||||||||
| Dispositions, | Dispositions, | ||||||||||||||||||||||
| currency | currency | ||||||||||||||||||||||
| Balance at | exchange | Balance at | Balance at | exchange | Balance at | ||||||||||||||||||
| (In millions) | January 1 | Acquisitions(a) | and other | December 31 | January 1 | Acquisitions | and other | December 31 | |||||||||||||||
| Power | $ | 7,769 | $ | 9,582 | $ | (615) | $ | 16,736 | $ | 7,852 | $ | 21 | $ | (104) | $ | 7,769 | |||||||
| Renewable Energy | 984 | 1,631 | (35) | 2,580 | 970 | - | 14 | 984 | |||||||||||||||
| Oil & Gas | 10,572 | 22 | - | 10,594 | 10,516 | 276 | (220) | 10,572 | |||||||||||||||
| Energy Management | 4,570 | 2,314 | (657) | 6,227 | 4,748 | - | (178) | 4,570 | |||||||||||||||
| Aviation | 8,952 | - | (385) | 8,567 | 9,103 | - | (151) | 8,952 | |||||||||||||||
| Healthcare | 17,532 | 11 | (190) | 17,353 | 16,643 | 1,004 | (115) | 17,532 | |||||||||||||||
| Transportation | 887 | - | (36) | 851 | 1,012 | 2 | (127) | 887 | |||||||||||||||
| Appliances & Lighting | 226 | - | (12) | 214 | 606 | - | (380) | 226 | |||||||||||||||
| Capital | 1,680 | 728 | (37) | 2,370 | 1,684 | - | (3) | 1,680 | |||||||||||||||
| Corporate | 34 | - | - | 34 | 3 | 31 | - | 34 | |||||||||||||||
| Total | $ | 53,207 | $ | 14,287 | $ | (1,968) | $ | 65,526 | $ | 53,137 | $ | 1,334 | $ | (1,264) | $ | 53,207 | |||||||
(a)\tIndefinite-lived intangible assets principally comprise trademarks and in-process research and development.
NOTE 5. INVENTORIES
| December 31 (In millions) | 2015 | 2014 | |||
| GE | |||||
| Raw materials and work in process | $ | 13,415 | $ | 9,963 | |
| Finished goods | 8,199 | 6,982 | |||
| Unbilled shipments | 628 | 755 | |||
| 22,243 | 17,701 | ||||
| Revaluation to LIFO | 207 | (62) | |||
| Total GE | 22,449 | 17,639 | |||
| GE Capital | |||||
| Finished goods | 66 | 50 | |||
| Total consolidated | $ | 22,515 | $ | 17,689 | |
Inventory increased $4,826 million in 2015 primarily due to the Alstom acquisition of $4,298 million.
| December 31 (Dollars in millions) | 2015 | 2014 | ||||||||||
| Short-term borrowings | Amount | Average Rate(a) | Amount | Average Rate(a) | ||||||||
| GE | ||||||||||||
| Commercial paper | $ | 500 | 0.15 | % | $ | 500 | 0.10 | % | ||||
| Current portion of long-term borrowings | 17,777 | 2.10 | 2,068 | 1.05 | ||||||||
| Other | 1,522 | 1,304 | ||||||||||
| Total GE short-term borrowings(b) | 19,799 | 3,872 | ||||||||||
| GE Capital | ||||||||||||
| Commercial paper | ||||||||||||
| U.S. | 650 | 0.46 | 22,019 | 0.19 | ||||||||
| Non-U.S. | 4,351 | 0.01 | 2,993 | 0.25 | ||||||||
| Current portion of long-term borrowings(c) | 24,996 | 4.28 | 36,920 | 2.15 | ||||||||
| Intercompany payable to GE(d) | 17,649 | - | ||||||||||
| GE interest plus notes(f) | - | 5,467 | 1.01 | |||||||||
| Other(e) | 1,005 | 16 | ||||||||||
| Total GE Capital short-term borrowings | 48,650 | 67,416 | ||||||||||
| Eliminations(d) | (18,556) | (863) | ||||||||||
| Total short-term borrowings | $ | 49,892 | $ | 70,425 | ||||||||
| Long-term borrowings | Maturities | Amount | Average Rate(a) | Amount | Average Rate(a) | |||||||
| GE | ||||||||||||
| Senior notes | 2017-2055 | $ | 72,840 | 3.23 | % | $ | 11,945 | 4.25 | % | |||
| Subordinated notes | 2021-2037 | 2,954 | 3.68 | - | ||||||||
| Subordinated debentures(g) | 2066-2067 | 6,678 | 6.14 | - | ||||||||
| Other | 1,298 | 523 | ||||||||||
| Total GE long-term borrowings(b) | 83,770 | 12,468 | ||||||||||
| GE Capital | ||||||||||||
| Senior notes(c) | 2017-2039 | 59,254 | 2.54 | 158,600 | 2.65 | |||||||
| Subordinated notes | 249 | 4,804 | 3.36 | |||||||||
| Subordinated debentures(g) | - | 7,085 | 5.88 | |||||||||
| Intercompany payable to GE(d) | 67,465 | - | ||||||||||
| Other(e) | 2,094 | 3,686 | ||||||||||
| Total GE Capital long-term borrowings | 129,062 | 174,174 | ||||||||||
| Eliminations(d) | (67,531) | (46) | ||||||||||
| Total long-term borrowings | $ | 145,301 | $ | 186,596 | ||||||||
| Non-recourse borrowings of | ||||||||||||
| consolidated securitization entities(h) | 2016-2017 | $ | 3,083 | 1.00 | % | $ | 4,403 | 0.97 | % | |||
| Total borrowings | $ | 198,276 | $ | 261,424 | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Balance at January 1 | $ | 1,199 | $ | 1,370 | $ | 1,429 | ||
| Current-year provisions | 649 | 593 | 798 | |||||
| Expenditures | (718) | (714) | (867) | |||||
| Other changes (a) | 593 | (50) | 10 | |||||
| Balance at December 31 | $ | 1,723 | $ | 1,199 | $ | 1,370 | ||
(a)\t2015 included $634 million related to Alstom acquisition.
| NET INVESTMENT IN FINANCING LEASES | |||||||||||||||||
| Total financing leases | Direct financing leases(a) | Leveraged leases(b) | |||||||||||||||
| December 31 (In millions) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||
| Total minimum lease payments receivable | $ | 5,901 | $ | 6,755 | $ | 3,251 | $ | 3,669 | $ | 2,649 | $ | 3,086 | |||||
| Less principal and interest on third-party | |||||||||||||||||
| non-recourse debt | (1,482) | (1,868) | - | - | (1,482) | (1,868) | |||||||||||
| Net rentals receivables | 4,419 | 4,887 | 3,251 | 3,669 | 1,167 | 1,218 | |||||||||||
| Estimated unguaranteed residual value | |||||||||||||||||
| of leased assets | 2,057 | 2,371 | 928 | 1,138 | 1,129 | 1,233 | |||||||||||
| Less deferred income | (1,507) | (1,787) | (913) | (1,101) | (593) | (686) | |||||||||||
| Investment in financing leases, net of | |||||||||||||||||
| deferred income | 4,969 | 5,471 | 3,266 | 3,706 | 1,703 | 1,765 | |||||||||||
| Less amounts to arrive at net investment | |||||||||||||||||
| Allowance for losses | (27) | (29) | (15) | (14) | (13) | (15) | |||||||||||
| Deferred taxes | (1,665) | (1,899) | (593) | (697) | (1,071) | (1,202) | |||||||||||
| Net investment in financing leases | $ | 3,277 | $ | 3,543 | $ | 2,658 | $ | 2,995 | $ | 619 | $ | 548 | |||||
| RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO ACTUAL INCOME TAX RATE | ||||||||||||||||||
| Consolidated | GE | GE Capital | ||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||
| 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 GE Capital in | ||||||||||||||||||
| before-tax earnings of GE | - | - | - | 82.4 | (4.8) | (2.6) | - | - | - | |||||||||
| Tax on global activities including exports(a) | 54.1 | (17.7) | (11.4) | (52.8) | (12.0) | (7.4) | (224.5) | (72.0) | (126.9) | |||||||||
| U.S. business credits(b) | (4.7) | (3.3) | (4.9) | (4.1) | (1.0) | (2.6) | 9.2 | (34.5) | (74.3) | |||||||||
| All other – net(c) | (5.2) | (6.5) | (5.3) | (14.2) | (2.5) | (4.9) | (1.5) | (55.9) | (1.0) | |||||||||
| 44.2 | (27.5) | (21.6) | 11.3 | (20.3) | (17.5) | (216.8) | (162.4) | (202.2) | ||||||||||
| Actual income tax rate | 79.2 | % | 7.5 | % | 13.4 | % | 46.3 | % | 14.7 | % | 17.5 | % | (181.8) | % | (127.4) | % | (167.2) | % |
| Remeasured during the years ended December 31 | |||||||||||
| 2015 | 2014 | ||||||||||
| (In millions) | Level 2 | Level 3 | Level 2 | Level 3 | |||||||
| Financing receivables and financing receivables held for sale | $ | - | $ | 154 | $ | 1 | $ | 8 | |||
| Cost and equity method investments | 1 | 436 | - | 346 | |||||||
| Long-lived assets | 2 | 882 | 102 | 689 | |||||||
| Total | $ | 3 | $ | 1,471 | $ | 103 | $ | 1,044 | |||
| COMPONENTS OF FINITE-LIVED INTANGIBLE ASSETS ACQUIRED DURING 2015 | ||||||
| Weighted-average | ||||||
| Gross | amortizable period | |||||
| (In millions) | carrying value | (in years) | ||||
| Customer-related | $ | 1,737 | 8.5 | |||
| Patents and technology | 2,213 | 10.2 | ||||
| Capitalized software | 1,196 | 7.0 | ||||
| Trademarks | 223 | 6.3 | ||||
| Lease valuations | 167 | 4.7 | ||||
| All other | 227 | 9.5 | ||||
| (In millions) | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||
| GE(a) | $ | 17,777 | $ | 16,723 | $ | 7,953 | $ | 3,749 | $ | 7,306 | ||||
| GE Capital | 24,996 | (b) | 8,520 | 7,681 | 5,714 | 11,419 | ||||||||
| CONTRACTUAL MATURITIES | |||||
| Total | Net rentals | ||||
| (In millions) | loans | receivable | |||
| Due in | |||||
| 2016 | $ | 13,937 | $ | 821 | |
| 2017 | 1,299 | 719 | |||
| 2018 | 769 | 715 | |||
| 2019 | 1,428 | 564 | |||
| 2020 | 722 | 425 | |||
| 2021 and later | 1,959 | 1,174 | |||
| Total | $ | 20,115 | $ | 4,419 | |
| Depreciable | ||||||||||||||||
| lives-new | Original Cost | Net Carrying Value | ||||||||||||||
| December 31 (Dollars in millions) | (in years) | 2015 | 2014 | 2015 | 2014 | |||||||||||
| GE | ||||||||||||||||
| Land and improvements | 8 | (a) | $ | 888 | $ | 690 | $ | 870 | $ | 698 | ||||||
| Buildings, structures and related equipment | 8-40 | 10,050 | 8,740 | 5,440 | 4,131 | |||||||||||
| Machinery and equipment | 4-20 | 24,515 | 23,370 | 9,986 | 9,040 | |||||||||||
| Leasehold costs and manufacturing plant under construction | 1-10 | 4,359 | 3,751 | 3,849 | 3,338 | |||||||||||
| 39,812 | 36,551 | 20,145 | 17,207 | |||||||||||||
| GE Capital(b) | ||||||||||||||||
| Land and improvements, buildings, structures and related equipment | 1-35 | (a) | 267 | 318 | 101 | 142 | ||||||||||
| Equipment leased to others | ||||||||||||||||
| Aircraft(c) | 15-20 | 50,339 | 46,017 | 34,316 | 30,573 | |||||||||||
| All other | 3-35 | 543 | 767 | 364 | 539 | |||||||||||
| 51,149 | 47,102 | 34,781 | 31,253 | |||||||||||||
| Eliminations | (939) | (462) | (831) | (390) | ||||||||||||
| Total | $ | 90,022 | $ | 83,191 | $ | 54,095 | $ | 48,070 | ||||||||
(a)\tDepreciable lives exclude land.
(b)\tIncluded $1,024 million and $731 million of original cost of assets leased to GE with accumulated amortization of $83 million and $60 million at December 31, 2015 and 2014, respectively.
(c)\tThe GECAS business of Capital recognized impairment losses of $168 million and $445 million in 2015 and 2014, respectively. These losses are recorded in the caption “Cost of services sold” in the Statement of Earnings to reflect adjustments to fair value based on management’s best estimates, which are benchmarked against third-party appraiser current market values for aircraft of similar type and age.
| 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, 2015 | ||||||||||||||
| Assets | ||||||||||||||
| Investment securities | ||||||||||||||
| Debt | ||||||||||||||
| U.S. corporate | $ | - | $ | 19,351 | $ | 3,006 | $ | - | $ | 22,358 | ||||
| State and municipal | - | 4,215 | 30 | - | 4,245 | |||||||||
| Mortgage and asset-backed | - | 3,084 | 32 | - | 3,116 | |||||||||
| Corporate – non-U.S. | 12 | 544 | 290 | - | 847 | |||||||||
| Government – non-U.S. | 5 | 410 | - | - | 415 | |||||||||
| U.S. government and federal agency | 49 | 404 | 323 | - | 776 | |||||||||
| Equity | 194 | 9 | 13 | - | 216 | |||||||||
| Derivatives(c) | - | 7,312 | 79 | (6,110) | 1,281 | |||||||||
| Other(d) | - | - | 259 | - | 259 | |||||||||
| Total | $ | 260 | $ | 35,331 | $ | 4,033 | $ | (6,110) | $ | 33,512 | ||||
| Liabilities | ||||||||||||||
| Derivatives | $ | - | $ | 5,677 | $ | 4 | $ | (4,968) | $ | 713 | ||||
| Other(e) | - | 1,182 | - | - | 1,182 | |||||||||
| Total | $ | - | $ | 6,860 | $ | 4 | $ | (4,968) | $ | 1,895 | ||||
| December 31, 2014 | ||||||||||||||
| Assets | ||||||||||||||
| Investment securities | ||||||||||||||
| Debt | ||||||||||||||
| U.S. corporate | $ | - | $ | 20,651 | $ | 3,053 | $ | - | $ | 23,704 | ||||
| State and municipal | - | 4,560 | 58 | - | 4,618 | |||||||||
| Mortgage and asset-backed | - | 4,632 | 146 | - | 4,777 | |||||||||
| Corporate – non-U.S. | - | 615 | 337 | - | 953 | |||||||||
| Government – non-U.S. | - | 489 | 2 | - | 491 | |||||||||
| U.S. government and federal agency | - | 496 | 266 | - | 761 | |||||||||
| Equity | 176 | 16 | 9 | - | 201 | |||||||||
| Derivatives(c) | - | 9,881 | 30 | (7,570) | 2,341 | |||||||||
| Other(d) | - | - | 277 | - | 277 | |||||||||
| Total | $ | 176 | $ | 41,340 | $ | 4,177 | $ | (7,570) | $ | 38,122 | ||||
| Liabilities | ||||||||||||||
| Derivatives | $ | - | $ | 4,840 | $ | 11 | $ | (4,337) | $ | 514 | ||||
| Other(e) | - | 1,179 | - | - | 1,179 | |||||||||
| Total | $ | - | $ | 6,018 | $ | 11 | $ | (4,337) | $ | 1,692 | ||||
(a)\tThere were no securities transferred between Level 1 and Level 2 for the years ended December 31, 2015 and 2014.
(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)\tThe fair value of derivatives includes an adjustment for non-performance risk. At December 31, 2015 and 2014, the cumulative adjustment for non-performance risk was insignificant and $16 million, respectively. See Notes 20 and 27 for additional information on the composition of our derivative portfolio.
(d)\tIncludes private equity investments.
(e)\tPrimarily represented the liability associated with certain of our deferred incentive compensation plans
| SUMMARY OF OPERATING SEGMENTS | ||||||||||||||
| General Electric Company and consolidated affiliates | ||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||
| Revenues | ||||||||||||||
| Power | $ | 21,490 | $ | 20,580 | $ | 19,315 | $ | 20,364 | $ | 20,335 | ||||
| Renewable Energy | 6,273 | 6,399 | 4,824 | 7,373 | 4,924 | |||||||||
| Oil & Gas | 16,450 | 19,085 | 17,341 | 15,539 | 13,874 | |||||||||
| Energy Management | 7,600 | 7,319 | 7,569 | 7,412 | 6,422 | |||||||||
| Aviation | 24,660 | 23,990 | 21,911 | 19,994 | 18,859 | |||||||||
| Healthcare | 17,639 | 18,299 | 18,200 | 18,290 | 18,083 | |||||||||
| Transportation | 5,933 | 5,650 | 5,885 | 5,608 | 4,885 | |||||||||
| Appliances & Lighting | 8,751 | 8,404 | 8,338 | 7,967 | 7,692 | |||||||||
| Total industrial segment revenues | 108,796 | 109,727 | 103,383 | 102,548 | 95,074 | |||||||||
| Capital | 10,801 | 11,320 | 11,267 | 11,268 | 11,843 | |||||||||
| Total segment revenues | 119,597 | 121,047 | 114,650 | 113,816 | 106,918 | |||||||||
| Corporate items and eliminations | (2,211) | (3,863) | (1,405) | (1,228) | 3,145 | |||||||||
| Consolidated revenues | $ | 117,386 | $ | 117,184 | $ | 113,245 | $ | 112,588 | $ | 110,062 | ||||
| Segment profit | ||||||||||||||
| Power | $ | 4,502 | $ | 4,486 | $ | 4,328 | $ | 4,368 | $ | 4,213 | ||||
| Renewable Energy | 431 | 694 | 485 | 914 | 714 | |||||||||
| Oil & Gas | 2,427 | 2,758 | 2,357 | 2,064 | 1,754 | |||||||||
| Energy Management | 270 | 246 | 110 | 131 | 78 | |||||||||
| Aviation | 5,507 | 4,973 | 4,345 | 3,747 | 3,512 | |||||||||
| Healthcare | 2,882 | 3,047 | 3,048 | 2,920 | 2,803 | |||||||||
| Transportation | 1,273 | 1,130 | 1,166 | 1,031 | 757 | |||||||||
| Appliances & Lighting | 674 | 431 | 381 | 311 | 237 | |||||||||
| Total industrial segment profit | 17,966 | 17,764 | 16,220 | 15,487 | 14,067 | |||||||||
| Capital | (7,983) | 1,209 | 401 | 1,245 | 1,469 | |||||||||
| Total segment profit | 9,983 | 18,973 | 16,621 | 16,731 | 15,536 | |||||||||
| Corporate items and eliminations | (5,108) | (6,225) | (6,002) | (4,719) | (1,317) | |||||||||
| GE interest and other financial charges | (1,706) | (1,579) | (1,333) | (1,353) | (1,299) | |||||||||
| GE provision for income taxes | (1,506) | (1,634) | (1,667) | (2,013) | (4,839) | |||||||||
| Earnings from continuing operations | ||||||||||||||
| attributable to GE common shareowners | 1,663 | 9,535 | 7,618 | 8,646 | 8,081 | |||||||||
| Earnings (loss) from discontinued | ||||||||||||||
| operations, net of taxes | (7,495) | 5,855 | 5,475 | 5,047 | 5,143 | |||||||||
| Less net earnings (loss) attributable to | ||||||||||||||
| noncontrolling interests, discontinued operations | 312 | 157 | 36 | 53 | 104 | |||||||||
| Earnings (loss) from discontinued operations, | ||||||||||||||
| net of tax and noncontrolling interest | (7,807) | 5,698 | 5,439 | 4,995 | 5,039 | |||||||||
| Consolidated net earnings (loss) | ||||||||||||||
| attributable to GE common shareowners | $ | (6,145) | $ | 15,233 | $ | 13,057 | $ | 13,641 | $ | 13,120 | ||||
NOTE 24. 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 and referenced 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, 2015, 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
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. Water treatment services and equipment include specialty chemical treatment programs, water purification equipment, mobile treatment systems and desalination processes.
renewable energy
Renewable Energy makes power from renewable sources affordable, accessible, and reliable for the benefit of people everywhere. With one of the broadest technology portfolios in the industry, Renewable Energy creates value for customers by providing technology and services in the Onshore Wind Power industry, high-yield offshore wind turbines as well as a full range of solutions, products and services to serve the hydropower industry, from initial design to final commissioning.
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, renewable energy, 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, surgical & interventional imaging, 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 manufactures, sources and sells a variety of energy-efficient solutions for commercial, industrial, municipal and consumer applications, utilizing light-emitting diode (LED), fluorescent, halogen and high-intensity discharge (HID) technologies. Products and services are sold in North America and in global markets under various GE and private-label brands.
Capital
Capital’s continuing financial services businesses and products are geared to utilize GE’s industry-specific expertise in aviation, energy, infrastructure and healthcare to capitalize on market-specific opportunities. In addition, we continue to operate our run-off insurance activities as part of our continuing operations. Products and services are primarily offered in North America and in global markets through its Vertical financing businesses.
| REVENUES | ||||||||||||||||||||||||||
| Total revenues(a) | Intersegment revenues(b) | External revenues | ||||||||||||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||
| Power | $ | 21,490 | $ | 20,580 | $ | 19,315 | $ | 762 | $ | 778 | $ | 700 | $ | 20,728 | $ | 19,802 | $ | 18,615 | ||||||||
| Renewable Energy | 6,273 | 6,399 | 4,824 | 12 | 14 | 17 | 6,261 | 6,386 | 4,807 | |||||||||||||||||
| Oil & Gas | 16,450 | 19,085 | 17,341 | 387 | 402 | 371 | 16,063 | 18,683 | 16,970 | |||||||||||||||||
| Energy Management | 7,600 | 7,319 | 7,569 | 1,000 | 890 | 848 | 6,600 | 6,429 | 6,720 | |||||||||||||||||
| Aviation | 24,660 | 23,990 | 21,911 | 418 | 692 | 500 | 24,242 | 23,298 | 21,411 | |||||||||||||||||
| Healthcare | 17,639 | 18,299 | 18,200 | 7 | 6 | 14 | 17,633 | 18,293 | 18,186 | |||||||||||||||||
| Transportation | 5,933 | 5,650 | 5,885 | 1 | (2) | 12 | 5,932 | 5,652 | 5,874 | |||||||||||||||||
| Appliances & Lighting | 8,751 | 8,404 | 8,338 | 22 | 22 | 25 | 8,729 | 8,383 | 8,313 | |||||||||||||||||
| Total industrial | 108,796 | 109,727 | 103,383 | 2,608 | 2,801 | 2,486 | 106,188 | 106,926 | 100,896 | |||||||||||||||||
| Capital | 10,801 | 11,320 | 11,267 | 1,151 | 1,037 | 841 | 9,650 | 10,283 | 10,427 | |||||||||||||||||
| Corporate items | ||||||||||||||||||||||||||
| and eliminations(c) | (2,211) | (3,863) | (1,405) | (3,759) | (3,838) | (3,327) | 1,548 | (25) | 1,922 | |||||||||||||||||
| Total | $ | 117,386 | $ | 117,184 | $ | 113,245 | $ | - | $ | - | $ | - | $ | 117,386 | $ | 117,184 | $ | 113,245 | ||||||||
(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 $53,238 million, $51,147 million and $49,356 million in 2015, 2014 and 2013, respectively. Revenues from customers located outside the United States were $64,148 million, $66,038 million and $63,888 million in 2015, 2014 and 2013, 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) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||
| Power | $ | 51,674 | $ | 26,698 | $ | 26,168 | $ | 2,122 | $ | 578 | $ | 685 | $ | 712 | $ | 563 | $ | 593 | ||||||||
| Renewable Energy | 8,726 | 3,572 | 3,269 | 999 | 41 | 23 | 116 | 113 | 73 | |||||||||||||||||
| Oil & Gas | 26,126 | 27,329 | 26,250 | 422 | 656 | 1,191 | 596 | 585 | 481 | |||||||||||||||||
| Energy Management | 16,808 | 10,976 | 10,305 | 1,073 | 176 | 137 | 322 | 313 | 323 | |||||||||||||||||
| Aviation | 34,524 | 33,716 | 32,273 | 1,260 | 1,197 | 1,178 | 855 | 824 | 677 | |||||||||||||||||
| Healthcare | 28,162 | 29,227 | 27,858 | 284 | 405 | 316 | 799 | 843 | 861 | |||||||||||||||||
| Transportation | 4,368 | 4,449 | 4,418 | 202 | 128 | 282 | 179 | 169 | 166 | |||||||||||||||||
| Appliances & Lighting | 4,702 | 4,560 | 4,306 | 275 | 359 | 405 | 103 | 235 | 300 | |||||||||||||||||
| Capital(d) | 316,686 | 503,179 | 520,399 | 7,570 | 3,818 | 3,274 | 2,584 | 2,612 | 2,847 | |||||||||||||||||
| Corporate items | ||||||||||||||||||||||||||
| and eliminations(e) | 916 | 11,249 | 8,001 | (297) | (111) | 194 | 231 | 164 | 258 | |||||||||||||||||
| Total | $ | 492,692 | $ | 654,954 | $ | 663,247 | $ | 13,911 | $ | 7,247 | $ | 7,685 | $ | 6,499 | $ | 6,421 | $ | 6,581 | ||||||||
| Interest and other financial charges | Provision (benefit) for income taxes | ||||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||
| Capital | $ | 2,301 | $ | 1,638 | $ | 2,021 | $ | 4,979 | $ | (861) | $ | (448) | |||||
| Corporate items and eliminations(a) | 1,162 | 1,085 | 849 | 1,506 | 1,634 | 1,667 | |||||||||||
| Total | $ | 3,463 | $ | 2,723 | $ | 2,870 | $ | 6,485 | $ | 773 | $ | 1,219 | |||||
(a)\tIncluded amounts for Power, Renewable Energy, 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 $14,273 million, $9,868 million and $10,065 million at year-end 2015, 2014 and 2013, respectively. Property, plant and equipment – net associated with operations based outside the United States were $39,822 million, $38,202 million and $40,165 million at year-end 2015, 2014 and 2013, respectively.
| December 31 (In thousands) | 2015 | 2014 | 2013 | |||
| Issued | 11,693,841 | 11,693,841 | 11,693,841 | |||
| In treasury(a) | (2,314,553) | (1,636,461) | (1,632,960) | |||
| Outstanding | 9,379,288 | 10,057,380 | 10,060,881 | |||
(a)\t2015 included (671,366,809) shares related to the split-off of Synchrony Financial from GE, where GE shares were exchanged for shares of Synchrony Financial.
| December 31 (In millions) | 2015 | 2014 | |||
| Life insurance benefits(a) | $ | 19,978 | $ | 20,688 | |
| Investment contracts | 2,955 | 3,970 | |||
| Other(b) | 3,223 | 3,224 | |||
| 26,155 | 27,881 | ||||
| Eliminations | (463) | (449) | |||
| Total | $ | 25,692 | $ | 27,432 | |
| CHANGES IN LEVEL 3 INSTRUMENTS FOR THE YEARS ENDED DECEMBER 31 | |||||||||||||||||||||||||||
| Net | |||||||||||||||||||||||||||
| change in | |||||||||||||||||||||||||||
| Net | Net | unrealized | |||||||||||||||||||||||||
| realized/ | realized/ | gains | |||||||||||||||||||||||||
| unrealized | unrealized | (losses) | |||||||||||||||||||||||||
| gains | gains | relating to | |||||||||||||||||||||||||
| (losses) | (losses) | Transfers | Transfers | instruments | |||||||||||||||||||||||
| Balance at | included in | included | into | out of | Balance at | still held at | |||||||||||||||||||||
| (In millions) | January 1 | earnings(a) | in AOCI | Purchases | Sales | Settlements | Level 3(b) | Level 3(b) | December 31 | December 31(c) | |||||||||||||||||
| 2015 | |||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||
| Debt | |||||||||||||||||||||||||||
| U.S. corporate | $ | 3,053 | $ | 3 | $ | (165) | $ | 362 | $ | (80) | $ | (137) | $ | - | $ | (30) | $ | 3,006 | $ | - | |||||||
| State and municipal | 58 | - | (2) | - | - | (9) | - | (17) | 30 | - | |||||||||||||||||
| Mortgage and | |||||||||||||||||||||||||||
| asset-backed | 146 | (19) | (9) | - | (32) | (4) | - | (49) | 32 | - | |||||||||||||||||
| Corporate – non-U.S. | 337 | - | (6) | 9 | (49) | (1) | - | - | 290 | - | |||||||||||||||||
| Government – non-U.S. | 2 | - | - | - | - | - | - | (2) | - | - | |||||||||||||||||
| U.S. government and | |||||||||||||||||||||||||||
| federal agency | 266 | - | 58 | - | - | (1) | - | - | 323 | - | |||||||||||||||||
| Equity | 9 | 2 | (5) | - | - | (4) | 10 | - | 13 | - | |||||||||||||||||
| Derivatives(d)(e) | 29 | 25 | - | - | - | (6) | 40 | - | 88 | 22 | |||||||||||||||||
| Other | 277 | 8 | - | - | (26) | - | - | - | 259 | 5 | |||||||||||||||||
| Total | $ | 4,175 | $ | 19 | $ | (128) | $ | 370 | $ | (187) | $ | (161) | $ | 51 | $ | (98) | $ | 4,042 | $ | 27 | |||||||
| 2014 | |||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||
| Debt | |||||||||||||||||||||||||||
| U.S. corporate | $ | 2,787 | $ | 18 | $ | 131 | $ | 541 | $ | (227) | $ | (212) | $ | 175 | $ | (159) | $ | 3,053 | $ | - | |||||||
| State and municipal | 50 | - | 6 | 3 | - | (1) | - | - | 58 | - | |||||||||||||||||
| Mortgage and | |||||||||||||||||||||||||||
| asset-backed | 238 | 3 | 6 | - | (16) | (31) | 2 | (57) | 146 | - | |||||||||||||||||
| Corporate – non-U.S. | 515 | 64 | 4 | 167 | (248) | (149) | 1 | (19) | 337 | - | |||||||||||||||||
| Government – non-U.S. | 30 | - | - | - | - | - | 2 | (30) | 2 | - | |||||||||||||||||
| U.S. government and | |||||||||||||||||||||||||||
| federal agency | 225 | - | 34 | - | - | - | 9 | (2) | 266 | - | |||||||||||||||||
| Equity | 11 | - | - | 2 | (2) | - | - | (2) | 9 | - | |||||||||||||||||
| Derivatives(d)(e) | 11 | 13 | - | (1) | - | 3 | 3 | (1) | 29 | 12 | |||||||||||||||||
| Other | 201 | 85 | - | 33 | (41) | - | - | - | 277 | 73 | |||||||||||||||||
| Total | $ | 4,068 | $ | 182 | $ | 181 | $ | 744 | $ | (534) | $ | (390) | $ | 192 | $ | (269) | $ | 4,175 | $ | 85 | |||||||
NOTE 16. OTHER STOCK-RELATED INFORMATION
Share-Based Compensation
We grant stock options, restricted stock units and performance share units to employees under the 2007 Long-Term Incentive Plan. Grants made under all plans must be approved by the Management Development and Compensation Committee of GE’s Board of Directors, which is composed entirely of independent directors.
Stock options
Under our stock option program, an employee receives an award that provides the opportunity in the future to purchase GE shares at the market price of our stock on the date the award is granted (the strike price). The options become exercisable in equal amounts over a five-year vesting period and expire 10 years from the grant date if they are not exercised. Stock options have no financial statement effect on the date they are granted but rather are reflected over time through recording compensation expense and increasing shareowners’ equity. We record compensation expense based on the estimated fair value of the awards expected to vest, and that amount is amortized as compensation expense on a straight-line basis over the five-year vesting period. Accordingly, total expense related to the award is reduced by the fair value of options that are expected to be forfeited by employees that leave GE prior to vesting. We estimate forfeitures based on our experience and adjust the expense to reflect actual forfeitures over the vesting period. The offset to the expense we record is reflected as an increase in the “Other capital” component of shareowners’ equity.
| (In millions, after tax) | 2015 | 2014 | 2013 | |||||
| Compensation Expense | $ | 234 | $ | 215 | $ | 231 | ||
We estimate the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. The table below provides the weighted average grant date fair values, key assumptions and other inputs into the pricing model. With the exception of the dividend yield assumption, an increase in any individual assumption will increase the estimated fair value of the option, all other things being equal.
| 2015 | 2014 | 2013 | |||||||
| Weighted average grant-date fair value of stock options | $ | 4.64 | $ | 5.26 | $ | 4.52 | |||
| Stock Option Valuation Assumptions: | |||||||||
| Risk-free interest rate | 2.0 | % | 2.3 | % | 2.5 | % | |||
| Dividend yield | 3.4 | % | 3.1 | % | 4.0 | % | |||
| Expected volatility | 25.0 | % | 26.0 | % | 28.0 | % | |||
| Expected option life (in years) | 6.8 | 7.3 | 7.5 | ||||||
| Other pricing model inputs: | |||||||||
| Weighted average grant-date market price of GE stock (strike price) | $ | 25.79 | $ | 26.11 | $ | 23.80 | |||
The table below shows the amount and weighted average strike price of options granted during 2015, as well as those outstanding and exercisable at year-end 2015.
| As of December 31, 2015 unless, otherwise stated (in thousands, except per share data) | ||
| Stock options granted during 2015 | 52,561 | |
| Weighted average strike price of awards granted in 2015 | $ | 25.79 |
| Stock options outstanding | 467,922 | |
| Weighted average strike price of stock options outstanding | $ | 21.72 |
| Stock options exercisable | 298,199 | |
| Weighted average strike price of stock options exercisable | $ | 20.14 |
When an employee exercises an option, we issue treasury shares to satisfy the requirements of the option.
| 2015 | 2014 | 2013 | |||||||
| Stock options exercised (in thousands) | 65,764 | 30,433 | 36,191 | ||||||
| Cash received from stock options exercised (in millions) | $ | 1,098 | $ | 439 | $ | 490 | |||
Outstanding stock option awards may be dilutive to earnings per share when they are in the money (the market price of GE stock is greater than the strike price of the option). When an option is dilutive, it increases the number of shares used in the diluted earnings per share calculation, which will decrease earnings per share. However, the effect stock options have on the number of shares added to the diluted earnings per share calculation is not one for one. The average amount of unrecognized compensation expense (the portion of the fair value of these option awards not yet amortized), potential option-related excess tax benefits and the market price of GE stock during the reporting period affect how many of these potential shares are included in the calculation. The calculation assumes that the proceeds received from the exercise, the unrecognized compensation expense and any potential excess tax benefits are used to buy back shares, which reduces the dilutive impact.
As of December 31, 2015, there was $628 million of unrecognized compensation expense related to unvested options, which will be amortized over the remaining vesting period (the weighted average period is approximately 2 years). Of that total, approximately $159 million, after tax, is estimated to be recorded as compensation expense in 2016.
The dilutive effect of in the money options on our earnings per share from continuing operations has been $0.01 or less per share (1% or less) for the last three years. For additional information about earnings per share see Note 18.
Restricted Stock
A restricted stock award provides an employee with the right to receive shares of GE stock when the restrictions lapse, which occurs in equal amounts over the vesting period. Upon vesting, each unit of restricted stock is converted into GE common stock on a one for one basis using treasury stock shares. The expense to be recognized on restricted stock is based upon the market price on the grant date (which is its fair value) times the number of units expected to vest. Accordingly, total expense related to the award is reduced by the fair value of restricted stock units that are expected to be forfeited by employees that leave GE prior to lapse of the restrictions. That amount is amortized as compensation expense on a straight-line basis over the five-year vesting period. We estimate forfeitures based on our experience and adjust the expense to reflect actual forfeitures over the vesting period. The offset to compensation expense is an increase in the “Other capital” component of shareowners’ equity.
| (In millions, after tax) | 2015 | 2014 | 2013 | ||||||
| Compensation expense(a) | $ | 72 | $ | 56 | $ | 62 | |||
(a)\tIncludes $5.7 million of compensation expense related to performance share units.
\n
The fair value of a restricted stock unit at the grant date is equal to the market price of our stock on the grant date.
| 2015 | 2014 | 2013 | |||||||
| Weighted average grant-date fair value of restricted stock awards | $ | 26.74 | $ | 26.08 | $ | 24.54 | |||
| As of December 31, 2015, unless otherwise stated (in thousands, except per share data) | |||
| Restricted stock granted during 2015 | 3,756 | ||
| Non-vested restricted stock outstanding | 13,941 | ||
| Weighted average fair value at grant date of non-vested stock | $ | 25.05 | |
The table below provides information about the units of restricted stock that vested for each of the years presented.
| (In thousands) | 2015 | 2014 | 2013 | ||||||
| Restricted stock vested during the year ended | 3,899 | 3,305 | 4,583 | ||||||
As of December 31, 2015, there was $221 million of total unrecognized compensation expense related to unvested restricted stock, which will be amortized over the remaining vesting period (the weighted average period is approximately 2 years). Of that total, approximately $55 million, after tax, is estimated to be recorded as compensation expense in 2016.
Other Information
When options are exercised and restricted stock vests, we issue shares from treasury stock, which increases shares outstanding. The “Other capital” component of shareowners’ equity is adjusted for differences between the strike price of GE stock and the average cost of our treasury stock. We also record the difference between the tax benefits assumed (based on the fair value of the award on the grant date) and the actual tax benefit in the “Other capital” component of shareowners’ equity. Any excess tax benefit is recorded as a cash flow from financing activities in our statement of cash flows. The table below provides information about tax benefits related to all share-based compensation arrangements.
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Income tax benefit recognized in earnings | $ | 148 | $ | 147 | $ | 145 | |||
| Excess of actual tax deductions over amounts assumed recognized in equity | 167 | 86 | 86 | ||||||
Share based compensation programs serve as a means to attract and retain talented employees and are an important element of their total compensation. The intrinsic value of a stock option award is the amount by which the award is in the money and represents the potential value to the employee upon exercise of the option. The intrinsic value of restricted stock is the value of the shares awarded at the current market price. The table below provides information about the intrinsic value of option and restricted stock awards.
| Aggregate | |||
| intrinsic | |||
| As of December 31, 2015, unless otherwise stated (in millions) | value | ||
| Stock options outstanding | $ | 4,534 | |
| Stock options exercised in 2015 | 746 | ||
| Non-vested restricted stock outstanding | 434 | ||
| Restricted stock vested in 2015 | 102 | ||
| (In millions) | ||
| Due in | ||
| 2016 | $ | 4,162 |
| 2017 | 3,876 | |
| 2018 | 3,378 | |
| 2019 | 2,920 | |
| 2020 | 2,455 | |
| 2021 and later | 7,128 | |
| Total | $ | 23,919 |
| (BENEFIT) PROVISION FOR INCOME TAXES | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| GE | ||||||||
| Current tax expense | $ | 3,307 | $ | 2,110 | $ | 4,238 | ||
| Deferred tax expense (benefit) from temporary differences | (1,800) | (476) | (2,571) | |||||
| 1,506 | 1,634 | 1,667 | ||||||
| GE Capital | ||||||||
| Current tax expense (benefit) | 2,796 | (455) | 521 | |||||
| Deferred tax expense (benefit) from temporary differences | 2,183 | (406) | (969) | |||||
| 4,979 | (861) | (448) | ||||||
| Consolidated | ||||||||
| Current tax expense | 6,103 | 1,655 | 4,759 | |||||
| Deferred tax expense (benefit) from temporary differences | 383 | (882) | (3,540) | |||||
| Total | $ | 6,485 | $ | 773 | $ | 1,219 | ||
| CONSOLIDATED EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| U.S. earnings | $ | (309) | $ | 3,176 | $ | 6,066 | ||
| Non-U.S. earnings | 8,495 | 7,087 | 3,034 | |||||
| Total | $ | 8,186 | $ | 10,263 | $ | 9,100 | ||
| CONSOLIDATED (BENEFIT) PROVISION FOR INCOME TAXES | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| U.S. Federal | |||||||||
| Current | $ | 1,549 | $ | (122) | $ | 2,005 | |||
| Deferred | 492 | 261 | (2,571) | ||||||
| Non - U.S. | |||||||||
| Current | 4,867 | 2,035 | 2,703 | ||||||
| Deferred | (121) | (982) | (1,004) | ||||||
| Other | (302) | (419) | 86 | ||||||
| Total | $ | 6,485 | $ | 773 | $ | 1,219 | |||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Total R&D | $ | 5,278 | $ | 5,273 | $ | 5,461 | ||
| Less customer funded R&D (principally the U.S. Government) | (803) | (721) | (711) | |||||
| Less partner funded R&D | (226) | (319) | (107) | |||||
| GE funded R&D | $ | 4,249 | $ | 4,233 | $ | 4,643 | ||
| December 31 (In millions) | 2015 | 2014 | |||
| GECC preferred stock | $ | - | $ | 4,949 | |
| Synchrony Financial | - | 2,531 | |||
| Other noncontrolling interests in consolidated affiliates(a) | 1,864 | 1,194 | |||
| Total | $ | 1,864 | $ | 8,674 | |
(a)\tConsisted of a number of individually insignificant noncontrolling interests in partnerships and consolidated affiliates. 2015 included $695 million related to the Alstom acquisition.
| CONTRACTUAL MATURITIES OF INVESTMENT IN AVAILABLE-FOR-SALE DEBT SECURITIES | |||||
| (EXCLUDING MORTGAGE AND ASSET-BACKED SECURITIES) | |||||
| Amortized | Estimated | ||||
| (In millions) | cost | fair value | |||
| Due | |||||
| Within one year | $ | 495 | $ | 501 | |
| After one year through five years | 2,556 | 2,745 | |||
| After five years through ten years | 4,846 | 5,097 | |||
| After ten years | 17,648 | 20,248 | |||
| OTHER INTANGIBLE ASSETS - NET | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| Intangible assets subject to amortization | $ | 16,634 | $ | 13,052 | |
| Indefinite-lived intangible assets(a) | 109 | 130 | |||
| Total | $ | 16,744 | $ | 13,182 | |
(a)\tIndefinite-lived intangible assets principally comprise trademarks and in-process research and development.
| December 31 (In millions) | 2015 | 2014 | |||
| Assets | |||||
| GE | $ | 20,539 | $ | 19,942 | |
| GE Capital | 4,643 | 8,048 | |||
| 25,182 | 27,990 | ||||
| Liabilities | |||||
| GE | (12,873) | (11,170) | |||
| GE Capital | (9,204) | (10,638) | |||
| (22,077) | (21,808) | ||||
| Net deferred income tax asset (liability) | $ | 3,105 | $ | 6,183 | |
| COMPONENTS OF THE NET DEFERRED INCOME TAX ASSET (LIABILITY) | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| GE | |||||
| Principal pension plans | $ | 8,051 | $ | 7,859 | |
| Other non-current compensation and benefits | 4,133 | 3,427 | |||
| Provision for expenses | 2,827 | 2,765 | |||
| Retiree insurance plans | 2,122 | 3,462 | |||
| Non-U.S. loss carryforwards(a) | 1,940 | 738 | |||
| Contract assets | (5,143) | (4,539) | |||
| Intangible assets | (3,192) | (2,364) | |||
| Depreciation | (1,688) | (1,226) | |||
| Investment in global subsidiaries | (915) | (979) | |||
| Other – net | (469) | (371) | |||
| 7,666 | 8,772 | ||||
| GE Capital | |||||
| Operating leases | (3,863) | (3,763) | |||
| Financing leases | (1,665) | (1,899) | |||
| Intangible assets | (103) | (53) | |||
| Non-U.S. loss carryforwards(a) | 2,262 | 2,974 | |||
| Investment in global subsidiaries | 5 | 2,060 | |||
| Other – net | (1,197) | (1,909) | |||
| (4,561) | (2,590) | ||||
| Net deferred income tax asset (liability) | $ | 3,105 | $ | 6,183 | |
(a)\tNet of valuation allowances of $2,184 million and $2,015 million for GE and $109 million and $19 million for GE Capital, for 2015 and 2014, respectively. Of the net deferred tax asset as of December 31, 2015, of $4,202 million, $10 million relates to net operating loss carryforwards that expire in various years ending from December 31, 2016 through December 31, 2018; $472 million relates to net operating losses that expire in various years ending from December 31, 2019 through December 31, 2035 and $3,720 million relates to net operating loss carryforwards that may be carried forward indefinitely.
| (In millions) | 2015 | 2014 | 2013 | |||||
| GE | ||||||||
| Purchases and sales of business interests(a) | $ | 1,020 | $ | 188 | $ | 1,750 | ||
| Licensing and royalty income | 168 | 288 | 320 | |||||
| Associated companies | 45 | 176 | 40 | |||||
| Net interest and investment income(b) | 65 | (77) | 116 | |||||
| Other items(c) | 868 | 132 | 660 | |||||
| 2,165 | 707 | 2,886 | ||||||
| Eliminations | 62 | 71 | 221 | |||||
| Total | $ | 2,227 | $ | 778 | $ | 3,107 | ||
(a)\tIncluded a pre-tax gain of $623 million on the sale of our Signaling business in 2015 and 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 other-than-temporary impairments on investment securities of $(217) million in 2014.\t
(c)\tIncluded the $450 million NBCU tax settlement and the $175 million break-up fee from Electrolux in 2015. Included net gains on asset sales of $90 million, $127 million and $357 million in 2015, 2014
| 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) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||
| Power | $ | 51,674 | $ | 26,698 | $ | 26,168 | $ | 2,122 | $ | 578 | $ | 685 | $ | 712 | $ | 563 | $ | 593 | ||||||||
| Renewable Energy | 8,726 | 3,572 | 3,269 | 999 | 41 | 23 | 116 | 113 | 73 | |||||||||||||||||
| Oil & Gas | 26,126 | 27,329 | 26,250 | 422 | 656 | 1,191 | 596 | 585 | 481 | |||||||||||||||||
| Energy Management | 16,808 | 10,976 | 10,305 | 1,073 | 176 | 137 | 322 | 313 | 323 | |||||||||||||||||
| Aviation | 34,524 | 33,716 | 32,273 | 1,260 | 1,197 | 1,178 | 855 | 824 | 677 | |||||||||||||||||
| Healthcare | 28,162 | 29,227 | 27,858 | 284 | 405 | 316 | 799 | 843 | 861 | |||||||||||||||||
| Transportation | 4,368 | 4,449 | 4,418 | 202 | 128 | 282 | 179 | 169 | 166 | |||||||||||||||||
| Appliances & Lighting | 4,702 | 4,560 | 4,306 | 275 | 359 | 405 | 103 | 235 | 300 | |||||||||||||||||
| Capital(d) | 316,686 | 503,179 | 520,399 | 7,570 | 3,818 | 3,274 | 2,584 | 2,612 | 2,847 | |||||||||||||||||
| Corporate items | ||||||||||||||||||||||||||
| and eliminations(e) | 916 | 11,249 | 8,001 | (297) | (111) | 194 | 231 | 164 | 258 | |||||||||||||||||
| Total | $ | 492,692 | $ | 654,954 | $ | 663,247 | $ | 13,911 | $ | 7,247 | $ | 7,685 | $ | 6,499 | $ | 6,421 | $ | 6,581 | ||||||||
| ALLOWANCE FOR LOSSES | |||||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||||||||||
| Beginning balance | $ | 93 | $ | 44 | $ | 43 | |||||||||||
| Provision | 48 | 79 | 4 | ||||||||||||||
| Net write-offs(a) | (60) | (27) | (4) | ||||||||||||||
| Other(b) | (1) | (3) | 1 | ||||||||||||||
| Ending balance | $ | 81 | $ | 93 | $ | 44 | |||||||||||
| December 31 (In millions) | 2015 | 2014 | |||
| GE | |||||
| Raw materials and work in process | $ | 13,415 | $ | 9,963 | |
| Finished goods | 8,199 | 6,982 | |||
| Unbilled shipments | 628 | 755 | |||
| 22,243 | 17,701 | ||||
| Revaluation to LIFO | 207 | (62) | |||
| Total GE | 22,449 | 17,639 | |||
| GE Capital | |||||
| Finished goods | 66 | 50 | |||
| Total consolidated | $ | 22,515 | $ | 17,689 | |
NOTE 14. INCOME TAXES
GE and GE Capital file a consolidated U.S. federal income tax return. This enables GE and GE Capital to use tax deductions and credits of one member of the group to reduce the tax that otherwise would have been payable by another member of the group. The GE Capital effective tax rate reflects the benefit of these tax reductions in the consolidated return. GE makes cash payments to GE Capital for tax reductions and GE Capital pays for tax increases at the time GE’s tax payments are due.
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.
THE GE Capital Exit Plan
In conjunction with the GE Capital Exit Plan, GE Capital will significantly reduce its non-U.S. assets while continuing to operate appropriately capitalized non-U.S. businesses with substantial assets related to GE Capital’s vertical financing businesses, Energy Financial Services, GECAS and Healthcare Equipment Finance. As a result of the GE Capital Exit Plan, GE Capital recognized a tax expense of $6,327 million in continuing operations during 2015. This primarily consisted of $3,548 million of tax expense related to the repatriation of excess foreign cash and the write-off of deferred tax assets of $2,779 million that will no longer be supported under this plan.
The repatriation of cash includes approximately $10 billion of foreign earnings that, prior to the approval of the GE Capital Exit Plan, were indefinitely reinvested in GE Capital’s international operations. GE Capital’s indefinitely reinvested earnings have also been reduced by charges recognized in connection with the disposition of international assets. The remainder of the indefinitely reinvested earnings will continue to be reinvested in the significant international base of assets that will remain after the GE Capital Exit Plan is fully executed. The write-off of deferred tax assets largely relates to our Treasury operations in Ireland where the tax benefits will no longer be apparent to be realized upon implementation of the GE Capital Exit Plan. These charges, which increase the 2015 Consolidated effective tax rate by 77.3 percentage points, are reported in the lines “Tax on global activities including exports”, and “All other-net” in the Reconciliation of U.S. federal statutory income tax rate to actual income tax rate.”
| (BENEFIT) PROVISION FOR INCOME TAXES | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| GE | ||||||||
| Current tax expense | $ | 3,307 | $ | 2,110 | $ | 4,238 | ||
| Deferred tax expense (benefit) from temporary differences | (1,800) | (476) | (2,571) | |||||
| 1,506 | 1,634 | 1,667 | ||||||
| GE Capital | ||||||||
| Current tax expense (benefit) | 2,796 | (455) | 521 | |||||
| Deferred tax expense (benefit) from temporary differences | 2,183 | (406) | (969) | |||||
| 4,979 | (861) | (448) | ||||||
| Consolidated | ||||||||
| Current tax expense | 6,103 | 1,655 | 4,759 | |||||
| Deferred tax expense (benefit) from temporary differences | 383 | (882) | (3,540) | |||||
| Total | $ | 6,485 | $ | 773 | $ | 1,219 | ||
| CONSOLIDATED EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| U.S. earnings | $ | (309) | $ | 3,176 | $ | 6,066 | ||
| Non-U.S. earnings | 8,495 | 7,087 | 3,034 | |||||
| Total | $ | 8,186 | $ | 10,263 | $ | 9,100 | ||
| CONSOLIDATED (BENEFIT) PROVISION FOR INCOME TAXES | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| U.S. Federal | |||||||||
| Current | $ | 1,549 | $ | (122) | $ | 2,005 | |||
| Deferred | 492 | 261 | (2,571) | ||||||
| Non - U.S. | |||||||||
| Current | 4,867 | 2,035 | 2,703 | ||||||
| Deferred | (121) | (982) | (1,004) | ||||||
| Other | (302) | (419) | 86 | ||||||
| Total | $ | 6,485 | $ | 773 | $ | 1,219 | |||
| RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO ACTUAL INCOME TAX RATE | ||||||||||||||||||
| Consolidated | GE | GE Capital | ||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||
| 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 GE Capital in | ||||||||||||||||||
| before-tax earnings of GE | - | - | - | 82.4 | (4.8) | (2.6) | - | - | - | |||||||||
| Tax on global activities including exports(a) | 54.1 | (17.7) | (11.4) | (52.8) | (12.0) | (7.4) | (224.5) | (72.0) | (126.9) | |||||||||
| U.S. business credits(b) | (4.7) | (3.3) | (4.9) | (4.1) | (1.0) | (2.6) | 9.2 | (34.5) | (74.3) | |||||||||
| All other – net(c) | (5.2) | (6.5) | (5.3) | (14.2) | (2.5) | (4.9) | (1.5) | (55.9) | (1.0) | |||||||||
| 44.2 | (27.5) | (21.6) | 11.3 | (20.3) | (17.5) | (216.8) | (162.4) | (202.2) | ||||||||||
| Actual income tax rate | 79.2 | % | 7.5 | % | 13.4 | % | 46.3 | % | 14.7 | % | 17.5 | % | (181.8) | % | (127.4) | % | (167.2) | % |
UNRECOGNIZED TAX POSITIONS
Annually, we file over 5,500 income tax returns in over 300 global taxing jurisdictions. We are under examination or engaged in tax litigation in many of these jurisdictions. During 2015, the Internal Revenue Service (IRS) completed the audit of our consolidated U.S. income tax returns for 2010-2011, except for certain issues that remain under examination. During 2013, the IRS completed the audit of our consolidated U.S. income tax returns for 2008-2009, except for certain issues that remain under examination. 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 2008-2011, reduced our 2015 and 2013 consolidated income tax rates by 4.4 and 1.9 percentage points, respectively. \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) | 2015 | 2014 | |||
| Unrecognized tax benefits | $ | 6,778 | $ | 5,619 | |
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 4,723 | 4,059 | |||
| Accrued interest on unrecognized tax benefits | 805 | 807 | |||
| Accrued penalties on unrecognized tax benefits | 98 | 103 | |||
| Reasonably possible reduction to the balance of unrecognized tax benefits | |||||
| in succeeding 12 months | 0-700 | 0-900 | |||
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 0-200 | 0-300 | |||
(a)\tSome portion of such reduction may be reported as discontinued operations.
| UNRECOGNIZED TAX BENEFITS RECONCILIATION | |||||
| (In millions) | 2015 | 2014 | |||
| Balance at January 1 | $ | 5,619 | $ | 5,816 | |
| Additions for tax positions of the current year | 720 | 234 | |||
| Additions for tax positions of prior years | 1,296 | 673 | |||
| Reductions for tax positions of prior years | (754) | (761) | |||
| Settlements with tax authorities | (70) | (305) | |||
| Expiration of the statute of limitations | (33) | (38) | |||
| Balance at December 31 | $ | 6,778 | $ | 5,619 | |
For 2015, the amount shown as “additions for tax positions of prior years” relates primarily ($1,054 million) to the preliminary estimate of uncertain tax liabilities for acquired Alstom businesses. Of the total 2015 additions for tax positions of prior years, $445 million relates to amounts that would not affect tax expense if recognized.
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, 2015, 2014 and 2013, $48 million, $(68) million and $22 million of interest expense (income), respectively, and $(4) million, $(45) million and an insignificant amount 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, 2015 and 2014, were approximately $104 billion and $119 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) | 2015 | 2014 | |||
| Assets | |||||
| GE | $ | 20,539 | $ | 19,942 | |
| GE Capital | 4,643 | 8,048 | |||
| 25,182 | 27,990 | ||||
| Liabilities | |||||
| GE | (12,873) | (11,170) | |||
| GE Capital | (9,204) | (10,638) | |||
| (22,077) | (21,808) | ||||
| Net deferred income tax asset (liability) | $ | 3,105 | $ | 6,183 | |
| COMPONENTS OF THE NET DEFERRED INCOME TAX ASSET (LIABILITY) | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| GE | |||||
| Principal pension plans | $ | 8,051 | $ | 7,859 | |
| Other non-current compensation and benefits | 4,133 | 3,427 | |||
| Provision for expenses | 2,827 | 2,765 | |||
| Retiree insurance plans | 2,122 | 3,462 | |||
| Non-U.S. loss carryforwards(a) | 1,940 | 738 | |||
| Contract assets | (5,143) | (4,539) | |||
| Intangible assets | (3,192) | (2,364) | |||
| Depreciation | (1,688) | (1,226) | |||
| Investment in global subsidiaries | (915) | (979) | |||
| Other – net | (469) | (371) | |||
| 7,666 | 8,772 | ||||
| GE Capital | |||||
| Operating leases | (3,863) | (3,763) | |||
| Financing leases | (1,665) | (1,899) | |||
| Intangible assets | (103) | (53) | |||
| Non-U.S. loss carryforwards(a) | 2,262 | 2,974 | |||
| Investment in global subsidiaries | 5 | 2,060 | |||
| Other – net | (1,197) | (1,909) | |||
| (4,561) | (2,590) | ||||
| Net deferred income tax asset (liability) | $ | 3,105 | $ | 6,183 | |
(a)\tNet of valuation allowances of $2,184 million and $2,015 million for GE and $109 million and $19 million for GE Capital, for 2015 and 2014, respectively. Of the net deferred tax asset as of December 31, 2015, of $4,202 million, $10 million relates to net operating loss carryforwards that expire in various years ending from December 31, 2016 through December 31, 2018; $472 million relates to net operating losses that expire in various years ending from December 31, 2019 through December 31, 2035 and $3,720 million relates to net operating loss carryforwards that may be carried forward indefinitely.
| Years ended December 31 | |||||
| (In millions) | 2015 | 2014 | |||
| Financing receivables and financing receivables held for sale | $ | (69) | $ | (16) | |
| Cost and equity method investments | (506) | (286) | |||
| Long-lived assets | (1,603) | (427) | |||
| Total | $ | (2,177) | $ | (729) | |
| (In millions) | 2015 | 2014 | 2013 | |||||
| GE | $ | 1,258 | $ | 1,356 | $ | 1,380 | ||
| GE Capital | 107 | 123 | 124 | |||||
| 1,365 | 1,479 | 1,504 | ||||||
| Eliminations | (169) | (223) | (198) | |||||
| Total | $ | 1,196 | $ | 1,256 | $ | 1,306 | ||
| INVESTMENTS IN UNCONSOLIDATED VIEs | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| Other assets and investment securities | $ | 745 | $ | 704 | |
| Financing receivables – net | 13 | 109 | |||
| Total investments | 758 | 813 | |||
| Contractual obligations to fund investments, guarantees or revolving lines of credit | 29 | 11 | |||
| Total | $ | 787 | $ | 824 | |
| FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Operations | ||||||||
| Total revenues and other income (loss) | $ | 23,003 | $ | 31,136 | $ | 32,987 | ||
| Earnings (loss) from discontinued operations before income taxes | $ | 887 | $ | 6,615 | $ | 6,558 | ||
| Benefit (provision) for income taxes | (791) | (776) | 699 | |||||
| Earnings (loss) from discontinued operations, net of taxes | $ | 96 | $ | 5,839 | $ | 7,257 | ||
| Disposal | ||||||||
| Gain (loss) on disposal before income taxes | $ | (6,612) | $ | 14 | $ | (2,027) | ||
| Benefit (provision) for income taxes | (979) | 1 | 246 | |||||
| Gain (loss) on disposal, net of taxes | $ | (7,591) | $ | 15 | $ | (1,781) | ||
| Earnings (loss) from discontinued operations, net of taxes(a)(b) | $ | (7,495) | $ | 5,855 | $ | 5,475 | ||
| December 31 (In millions) | 2015 | 2014 | |||||||||
| Assets | |||||||||||
| Cash and equivalents | $ | 20,395 | $ | 20,991 | |||||||
| Investment securities | 8,478 | 13,349 | |||||||||
| Financing receivables – net | 3,205 | 213,514 | |||||||||
| Other receivables | 1,221 | 2,896 | |||||||||
| Property, plant and equipment – net | 7,537 | 18,354 | |||||||||
| Goodwill | 7,764 | 23,452 | |||||||||
| Other intangible assets - net | 80 | 987 | |||||||||
| Deferred income taxes | 2,447 | 3,530 | |||||||||
| Financing receivables held for sale | 69,847 | 3,475 | |||||||||
| Valuation allowance on disposal group classified as discontinued operations | (6,374) | - | |||||||||
| Other | 6,350 | 22,980 | |||||||||
| Assets of discontinued operations | $ | 120,951 | $ | 323,529 | |||||||
| Liabilities | |||||||||||
| Short-term borrowings | $ | 739 | $ | 3,780 | |||||||
| Accounts payable | 2,870 | 4,280 | |||||||||
| Non-recourse borrowings | 3,994 | 25,536 | |||||||||
| Bank deposits | 25,613 | 62,839 | |||||||||
| Long-term borrowings | 730 | 13,767 | |||||||||
| All other liabilities | 11,053 | 11,046 | |||||||||
| Deferred income taxes | 1,437 | 6,810 | |||||||||
| Other | 52 | 174 | |||||||||
| Liabilities of discontinued operations | $ | 46,487 | $ | 128,233 | |||||||
NOTE 10. BORROWINGS
| December 31 (Dollars in millions) | 2015 | 2014 | ||||||||||
| Short-term borrowings | Amount | Average Rate(a) | Amount | Average Rate(a) | ||||||||
| GE | ||||||||||||
| Commercial paper | $ | 500 | 0.15 | % | $ | 500 | 0.10 | % | ||||
| Current portion of long-term borrowings | 17,777 | 2.10 | 2,068 | 1.05 | ||||||||
| Other | 1,522 | 1,304 | ||||||||||
| Total GE short-term borrowings(b) | 19,799 | 3,872 | ||||||||||
| GE Capital | ||||||||||||
| Commercial paper | ||||||||||||
| U.S. | 650 | 0.46 | 22,019 | 0.19 | ||||||||
| Non-U.S. | 4,351 | 0.01 | 2,993 | 0.25 | ||||||||
| Current portion of long-term borrowings(c) | 24,996 | 4.28 | 36,920 | 2.15 | ||||||||
| Intercompany payable to GE(d) | 17,649 | - | ||||||||||
| GE interest plus notes(f) | - | 5,467 | 1.01 | |||||||||
| Other(e) | 1,005 | 16 | ||||||||||
| Total GE Capital short-term borrowings | 48,650 | 67,416 | ||||||||||
| Eliminations(d) | (18,556) | (863) | ||||||||||
| Total short-term borrowings | $ | 49,892 | $ | 70,425 | ||||||||
| Long-term borrowings | Maturities | Amount | Average Rate(a) | Amount | Average Rate(a) | |||||||
| GE | ||||||||||||
| Senior notes | 2017-2055 | $ | 72,840 | 3.23 | % | $ | 11,945 | 4.25 | % | |||
| Subordinated notes | 2021-2037 | 2,954 | 3.68 | - | ||||||||
| Subordinated debentures(g) | 2066-2067 | 6,678 | 6.14 | - | ||||||||
| Other | 1,298 | 523 | ||||||||||
| Total GE long-term borrowings(b) | 83,770 | 12,468 | ||||||||||
| GE Capital | ||||||||||||
| Senior notes(c) | 2017-2039 | 59,254 | 2.54 | 158,600 | 2.65 | |||||||
| Subordinated notes | 249 | 4,804 | 3.36 | |||||||||
| Subordinated debentures(g) | - | 7,085 | 5.88 | |||||||||
| Intercompany payable to GE(d) | 67,465 | - | ||||||||||
| Other(e) | 2,094 | 3,686 | ||||||||||
| Total GE Capital long-term borrowings | 129,062 | 174,174 | ||||||||||
| Eliminations(d) | (67,531) | (46) | ||||||||||
| Total long-term borrowings | $ | 145,301 | $ | 186,596 | ||||||||
| Non-recourse borrowings of | ||||||||||||
| consolidated securitization entities(h) | 2016-2017 | $ | 3,083 | 1.00 | % | $ | 4,403 | 0.97 | % | |||
| Total borrowings | $ | 198,276 | $ | 261,424 | ||||||||
On May 28, 2015, GE issued €3,150 million senior unsecured debt, composed of €650 million of Floating Rate Notes due 2020, €1,250 million of 1.250% Notes due 2023 and €1,250 million of 1.875% Notes due 2027. On October 9, 2015, $2.0 billion of long-term debt issued by GE matured.
On April 10, 2015, GE provided a full and unconditional guarantee on the payment of the principal and interest on all tradable senior and subordinated outstanding long-term debt securities and all commercial paper issued or guaranteed by GE Capital. $92.6 billion of such debt was assumed by GE on December 2, 2015 upon its merger with GE Capital resulting in an intercompany payable to GE. Prior to the merger $36 billion notional of GE Capital debt was exchanged into a new GE Capital international entity, including $16.2 billion which was exchanged into Six Month Notes and of which $14.9 billion was classified in long-term borrowings prior to exchange.
As part of the GE Capital Exit Plan, on September 21, 2015 GE Capital commenced private offers to exchange up to $30 billion of certain outstanding debt for new notes with maturities of six months, five years, ten years or twenty years. On October 19, 2015, given the high level of participation, the offering was increased by $6 billion with the aggregate principal amount of $36 billion of outstanding notes (representing $31 billion of outstanding principal and $5 billion of premium) being tendered for exchange and settled on October 26, 2015. The new notes that were issued at closing are composed of $15.3 billion of 0.964% Six Month Notes due April 2016, £0.8 billion of 1.363% Six Month Notes due April 2016, $6.1 billion of 2.342% Notes due 2020, $2.0 billion of 3.373% Notes due 2025 and $11.5 billion of 4.418% Notes due 2035.
| December 31 (in millions) | 2015 | |||||
| Borrowings from debt exchange(a) | Borrowings assumed by GE | Borrowings guaranteed by GE | ||||
| Short-term borrowings | ||||||
| GE | ||||||
| Current portion of long-term borrowings | $ | - | $ | 17,649 | $ | - |
| GE Capital | ||||||
| Commercial paper-Non U.S. | - | - | 4,351 | |||
| Current portion of long-term borrowings | 15,430 | - | 24,334 | |||
| Other | 789 | - | 789 | |||
| Total short-term borrowings | $ | 16,219 | $ | 17,649 | $ | 29,474 |
| Long-term borrowings | ||||||
| GE | ||||||
| Senior unsecured notes | $ | - | $ | 57,433 | $ | - |
| Subordinated notes | - | 2,954 | - | |||
| Subordinated debentures | - | 6,678 | - | |||
| Other | - | 400 | - | |||
| GE Capital | ||||||
| Senior unsecured notes | 16,756 | - | 56,355 | |||
| Other | - | - | - | |||
| Total long-term borrowings | $ | 16,756 | $ | 67,465 | $ | 56,355 |
| Total borrowings | $ | 32,975 | $ | 85,114 | $ | 85,829 |
(a) \tIncluded $4.5 billion in additional bonds issued as a premium that will accrete up to face value ($36 billion) to the maturity date.
Additional information about borrowings and associated swaps can be found in Notes 20 and 27
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) | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||
| GE(a) | $ | 17,777 | $ | 16,723 | $ | 7,953 | $ | 3,749 | $ | 7,306 | ||||
| GE Capital | 24,996 | (b) | 8,520 | 7,681 | 5,714 | 11,419 | ||||||||
Committed credit lines totaling $45.6 billion had been extended to us by 48 banks at year-end 2015. $45.6 billion under these credit lines can be on-lent to GE Capital. The GE lines include $24.5 billion of revolving credit agreements under which we can borrow funds for periods exceeding one year. Additionally, $20.9 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.
| LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS | |||||||||
| Range | |||||||||
| (Dollars in millions) | Fair value | Valuation technique | Unobservable inputs | (weighted average) | |||||
| December 31, 2015 | |||||||||
| Recurring fair value measurements | |||||||||
| Investment securities – Debt | |||||||||
| U.S. corporate | $ | 834 | Income approach | Discount rate(a) | 1.7%-14.1% (8.6%) | ||||
| Mortgage and asset-backed | 31 | Income approach | Discount rate(a) | 5.0%-12.0% (10.5%) | |||||
| Corporate – non-U.S. | 236 | Income approach | Discount rate(a) | 6.5%-14.0% (7.5%) | |||||
| Other financial assets | 259 | Income approach, | EBITDA multiple | 6.1X-15.0X (9.9X) | |||||
| Market comparables | Capitalization rate | 7.8%-7.8% (7.8%) | |||||||
| Non-recurring fair value measurements | |||||||||
| Financing receivables and | $ | 146 | Income approach | Discount rate(a) | 6.5%-30.0% (10.7%) | ||||
| financing receivables held for sale | |||||||||
| Cost and equity method investments | 293 | Income approach | Discount rate(a) | 9.5%-35.0% (14.4%) | |||||
| Long-lived assets | 830 | Income approach | Discount rate(a) | 1.8%-11.7% (10.5%) | |||||
| December 31, 2014 | |||||||||
| Recurring fair value measurements | |||||||||
| Investment securities – Debt | |||||||||
| U.S. corporate | $ | 917 | Income approach | Discount rate(a) | 1.5%-14.8% (6.6%) | ||||
| State and municipal | 17 | Income approach | Discount rate(a) | 4.9%-4.9% (4.9%) | |||||
| Mortgage and asset-backed | 102 | Income approach | Discount rate(a) | 4.3%-9.0% (5.6%) | |||||
| Corporate – non-U.S. | 278 | Income approach | Discount rate(a) | 3.3%-14.0% (6.5%) | |||||
| Other financial assets | 117 | Income approach, | EBITDA multiple | 5.4X-9.1X (7.7X) | |||||
| Market comparables | Capitalization rate | 6.5%-7.8% (7.7%) | |||||||
| Non-recurring fair value measurements | |||||||||
| Cost and equity method investments | $ | 309 | Income approach, | Discount rate(a) | 8.0%-10.0% (9.4%) | ||||
| Market comparables | EBITDA multiple | 1.8X-5.2X (4.8X) | |||||||
| Long-lived assets | 664 | Income approach | Discount rate(a) | 2.0%-10.8% (6.7%) | |||||
(a) \tDiscount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value.
NOTE 22. COMMITMENTS, GUARANTEES and Product warranties
Commitments
The GECAS business in Capital had placed multiple-year orders for various Boeing, Airbus and other aircraft manufacturers with list prices approximating $27,115 million and secondary orders with airlines for used aircraft of approximately $766 million at December 31, 2015. In our Aviation segment, we had committed to provide financing assistance on $2,565 million of future customer acquisitions of aircraft equipped with our engines, including commitments made to airlines in 2015 for future sales under our GE90 and GEnx engine campaigns.
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, 2015, we were committed under the following guarantee arrangements beyond those provided on behalf of VIEs. See Note 21.
Credit Support. We have provided $816 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 $36 million at December 31, 2015.
Indemnification Agreements. We have agreements that require us to fund up to $23 million at December 31, 2015 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, 2015.
At December 31, 2015, we also had $449 million of other indemnification commitments, substantially all of which relate to representations and warranties in sales of businesses or assets. The liability for these indemnification commitments was $347 million at December 31, 2015.
Contingent Consideration. These are agreements to provide additional consideration to a buyer or seller in a business combination if contractually specified conditions related to the acquisition or disposition are achieved. Amount of contingent consideration was insignificant at December 31, 2015.
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) | 2015 | 2014 | 2013 | |||||
| Balance at January 1 | $ | 1,199 | $ | 1,370 | $ | 1,429 | ||
| Current-year provisions | 649 | 593 | 798 | |||||
| Expenditures | (718) | (714) | (867) | |||||
| Other changes (a) | 593 | (50) | 10 | |||||
| Balance at December 31 | $ | 1,723 | $ | 1,199 | $ | 1,370 | ||
(a)\t2015 included $634 million related to Alstom acquisition.
NOTE 25. 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. Certain supplemental information related to our cash flows is shown below.
| For the years ended December 31 (In millions) | 2015 | 2014 | 2013 | |||||
| GE | ||||||||
| Net dispositions (purchases) of GE shares for treasury | ||||||||
| Open market purchases under share repurchase program | $ | (2,709) | $ | (2,211) | $ | (10,225) | ||
| Other purchases | (58) | (49) | (91) | |||||
| Dispositions | 1,668 | 1042 | 1,038 | |||||
| $ | (1,099) | $ | (1,218) | $ | (9,278) | |||
| GE Capital | ||||||||
| All other operating activities | ||||||||
| Cash collateral on derivative contracts | (1,936) | 738 | (2,285) | |||||
| Increase (decrease) in other liabilities | 4,860 | (3,331) | 1,886 | |||||
| Other | 2,163 | 5,073 | 2,995 | |||||
| $ | 5,087 | $ | 2,480 | $ | 2,596 | |||
| Net decrease (increase) in GE Capital financing receivables | ||||||||
| Increase in loans to customers | $ | (65,306) | $ | (64,843) | $ | (58,535) | ||
| Principal collections from customers - loans | 60,292 | 60,764 | 58,667 | |||||
| Investment in equipment for financing leases | (417) | (535) | (592) | |||||
| Principal collections from customers - financing leases | 734 | 841 | 1,335 | |||||
| Sales of financing receivables | 4,923 | 3,612 | 2,147 | |||||
| $ | 226 | $ | (161) | $ | 3,022 | |||
| All other investing activities | ||||||||
| Purchases of investment securities | $ | (7,790) | $ | (2,008) | $ | (3,293) | ||
| Dispositions and maturities of investment securities | 9,587 | 2,723 | 7,360 | |||||
| Decrease (increase) in other assets - investments | (1,439) | (287) | 183 | |||||
| Other(a) | (5,048) | 24,146 | 31,506 | |||||
| $ | (4,690) | $ | 24,574 | $ | 35,756 | |||
| Repayments and other reductions (maturities longer than 90 days) | ||||||||
| Short-term (91 to 365 days) | $ | (42,110) | $ | (36,919) | $ | (44,296) | ||
| Long-term (longer than one year) | (2,455) | (864) | (3,862) | |||||
| Principal payments - non-recourse, leveraged leases | (283) | (304) | (434) | |||||
| $ | (44,848) | $ | (38,087) | $ | (48,592) | |||
| All other financing activities | ||||||||
| Proceeds from sales of investment contracts | $ | 163 | $ | 322 | $ | 491 | ||
| Redemption of investment contracts | (1,235) | (1,113) | (980) | |||||
| Other | (290) | 112 | (389) | |||||
| $ | (1,362) | $ | (679) | $ | (878) | |||
(a) \tOther primarily included net activity related to settlements between our continuing operations (primarily our treasury operations) and businesses in discontinued operations.
| FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| Assets | |||||
| Current receivables(a) | $ | 79 | $ | 180 | |
| Inventories | 583 | 588 | |||
| Property, plant, and equipment – net | 1,208 | 979 | |||
| Goodwill | 370 | 433 | |||
| Other intangible assets – net | 162 | 157 | |||
| Other | 416 | 489 | |||
| Assets of businesses held for sale | $ | 2,818 | $ | 2,826 | |
| Liabilities | |||||
| Accounts payable(a) | $ | 503 | $ | 506 | |
| Other current liabilities | 325 | 346 | |||
| Other | 33 | 89 | |||
| Liabilities of businesses held for sale | $ | 861 | $ | 941 | |
(a) \tCertain transactions at our Appliances and Signaling businesses are made on an arms-length basis with GE Capital, consisting primarily of GE customer receivables sold to GE Capital and GE Capital services for material procurement. These intercompany balances included within our held for sale businesses are reported in the GE and GE Capital columns of our financial statements, but are eliminated in deriving our consolidated financial statements.
| ASSETS AND LIABILITIES OF CONSOLIDATED VIEs | |||||||||||
| Trade | |||||||||||
| receivables | |||||||||||
| (In millions) | Trinity(a) | securitization(b) | Other | Total | |||||||
| December 31, 2015 | |||||||||||
| Assets(c) | |||||||||||
| Financing receivables, net | $ | - | $ | - | $ | 882 | $ | 882 | |||
| Current receivables | - | 3,506 | (d) | 361 | 3,867 | ||||||
| Investment securities | 409 | - | 995 | 1,404 | |||||||
| Other assets | 46 | 24 | 2,934 | 3,004 | |||||||
| Total | $ | 455 | $ | 3,530 | $ | 5,172 | $ | 9,157 | |||
| Liabilities(c) | |||||||||||
| Borrowings | $ | - | $ | - | $ | 1,297 | $ | 1,297 | |||
| Non-recourse borrowings | - | 3,022 | 61 | 3,083 | |||||||
| Other liabilities | 184 | 34 | 1,654 | 1,872 | |||||||
| Total | $ | 184 | $ | 3,056 | $ | 3,012 | $ | 6,252 | |||
| December 31, 2014 | |||||||||||
| Assets(c) | |||||||||||
| Financing receivables, net | $ | - | $ | - | $ | 1,030 | $ | 1,030 | |||
| Current receivables | - | 3,028 | (d) | 278 | 3,306 | ||||||
| Investment securities | 2,369 | - | 1,005 | 3,374 | |||||||
| Other assets | 17 | 2 | 2,259 | 2,278 | |||||||
| Total | $ | 2,386 | $ | 3,030 | $ | 4,572 | $ | 9,988 | |||
| Liabilities(c) | |||||||||||
| Borrowings | $ | - | $ | - | $ | 517 | $ | 517 | |||
| Non-recourse borrowings | - | 2,692 | 436 | 3,128 | |||||||
| Other liabilities | 1,022 | 26 | 1,325 | 2,373 | |||||||
| Total | $ | 1,022 | $ | 2,718 | $ | 2,278 | $ | 6,018 | |||
NOTE 23. INTERCOMPANY TRANSACTIONS
Transactions between related companies are made on an arms-length basis, are eliminated and consist primarily of GE Capital dividends to GE; GE customer receivables sold to GE Capital; GE Capital services for trade receivables management and material procurement; buildings and equipment leased between GE and GE Capital; information technology (IT) and other services sold to GE Capital by GE; aircraft engines manufactured by GE that are installed on aircraft purchased by GE Capital from third-party producers for lease to others; expenses related to parent-subsidiary pension plans, and various investments, loans and allocations of GE corporate overhead costs.
These intercompany transactions are reported in the GE and GE Capital 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 $(6,035) million, $2,097 million and $3,937 million in the twelve months ended December 31, 2015, and $(5,404) million, $1,978 million and $3,426 million in the twelve months ended December 31, 2014, $(5,088) million, $492 million and $4,690 million for 2013, respectively. Details of these eliminations are shown below.
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Cash from (used for) operating activities-continuing operations | |||||||||
| Combined | $ | 17,891 | $ | 21,434 | $ | 19,487 | |||
| GE customer receivables sold to GE Capital | (914) | (1,918) | 360 | ||||||
| GE Capital dividends to GE | (4,300) | (3,000) | (5,985) | ||||||
| Other reclassifications and eliminations | (821) | (486) | 537 | ||||||
| $ | 11,856 | $ | 16,033 | $ | 14,398 | ||||
| Cash from (used for) investing activities-continuing operations | |||||||||
| Combined | $ | 59,516 | $ | 17,252 | $ | 43,666 | |||
| GE customer receivables sold to GE Capital | 1,319 | 1,766 | 262 | ||||||
| Other reclassifications and eliminations | 778 | 212 | 230 | ||||||
| $ | 61,613 | $ | 19,229 | $ | 44,159 | ||||
| Cash from (used for) financing activities-continuing operations | |||||||||
| Combined | $ | (73,484) | $ | (44,340) | $ | (51,502) | |||
| GE customer receivables sold to GE Capital | (405) | 152 | (622) | ||||||
| GE Capital dividends to GE | 4,300 | 3,000 | 5,985 | ||||||
| Other reclassifications and eliminations | 42 | 274 | (673) | ||||||
| $ | (69,547) | $ | (40,912) | $ | (46,813) | ||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Preferred stock issued | $ | 6 | $ | - | $ | - | ||
| Common stock issued | $ | 702 | $ | 702 | $ | 702 | ||
| Accumulated other comprehensive income | ||||||||
| Balance at January 1 | $ | (18,172) | $ | (9,119) | $ | (20,229) | ||
| Other comprehensive income before reclassifications | (3,312) | (12,088) | 8,844 | |||||
| Reclassifications from other comprehensive income | 4,956 | 3,035 | 2,265 | |||||
| Other comprehensive income, net, attributable to GE | 1,644 | (9,053) | 11,109 | |||||
| Balance at December 31 | $ | (16,529) | $ | (18,172) | $ | (9,119) | ||
| Other capital | ||||||||
| Balance at January 1 | $ | 32,889 | $ | 32,494 | $ | 33,070 | ||
| Gains (losses) on treasury stock dispositions and other(a)(b) | 4,724 | 396 | (576) | |||||
| Balance at December 31 | $ | 37,613 | $ | 32,889 | $ | 32,494 | ||
| Retained earnings | ||||||||
| Balance at January 1 | $ | 155,333 | $ | 149,051 | $ | 144,055 | ||
| Net earnings (loss) attributable to the Company | (6,126) | 15,233 | 13,057 | |||||
| Dividends and other transactions with shareowners | (9,161) | (8,948) | (8,060) | |||||
| Redemption value adjustment on redeemable noncontrolling interests | (25) | (2) | (1) | |||||
| Balance at December 31 | $ | 140,020 | $ | 155,333 | $ | 149,051 | ||
| Common stock held in treasury | ||||||||
| Balance at January 1 | $ | (42,593) | $ | (42,561) | $ | (34,571) | ||
| Purchases(c) | (23,762) | (1,950) | (10,466) | |||||
| Dispositions | 2,816 | 1,917 | 2,477 | |||||
| Balance at December 31 | $ | (63,539) | $ | (42,593) | $ | (42,561) | ||
| Total equity | ||||||||
| GE shareowners' equity balance at December 31 | $ | 98,274 | $ | 128,159 | $ | 130,566 | ||
| Noncontrolling interests balance at December 31 | 1,864 | 8,674 | 6,217 | |||||
| Total equity balance at December 31 | $ | 100,138 | $ | 136,833 | $ | 136,783 | ||
| CHANGES TO NONCONTROLLING INTERESTS | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Beginning balance | $ | 8,674 | $ | 6,217 | $ | 5,444 | |||
| Net earnings | 377 | 183 | 312 | ||||||
| GECC preferred stock(a) | (4,949) | - | 990 | ||||||
| GECC preferred stock dividend | (311) | (322) | (298) | ||||||
| Dividends | (43) | (74) | (80) | ||||||
| Dispositions | 189 | (81) | (175) | ||||||
| Synchrony Financial(b) | (2,840) | 2,393 | - | ||||||
| Other (including AOCI)(c)(d) | 767 | 358 | 24 | ||||||
| Ending balance | $ | 1,864 | $ | 8,674 | $ | 6,217 | |||
(a) \t2015 included $(4,949) million related to the issuance of GE preferred stock in exchange for existing GECC preferred stock. GE preferred stock is reflected in shareowners’ equity in the consolidated Statement of Financial Position.
(b) \t2015 related to the split-off on Synchrony Financial from GE, where GE shares were exchanged for shares of Synchrony Financial; 2014 related to the Synchrony Financial IPO.
(c)\tIncludes research & development partner funding arrangements, acquisitions and eliminations.
(d) \t2015 included $695 million related to the Alstom acquisition.
NOTE 19. 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 derivatives.
| 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, 2015 | ||||||||||||||
| Assets | ||||||||||||||
| Investment securities | ||||||||||||||
| Debt | ||||||||||||||
| U.S. corporate | $ | - | $ | 19,351 | $ | 3,006 | $ | - | $ | 22,358 | ||||
| State and municipal | - | 4,215 | 30 | - | 4,245 | |||||||||
| Mortgage and asset-backed | - | 3,084 | 32 | - | 3,116 | |||||||||
| Corporate – non-U.S. | 12 | 544 | 290 | - | 847 | |||||||||
| Government – non-U.S. | 5 | 410 | - | - | 415 | |||||||||
| U.S. government and federal agency | 49 | 404 | 323 | - | 776 | |||||||||
| Equity | 194 | 9 | 13 | - | 216 | |||||||||
| Derivatives(c) | - | 7,312 | 79 | (6,110) | 1,281 | |||||||||
| Other(d) | - | - | 259 | - | 259 | |||||||||
| Total | $ | 260 | $ | 35,331 | $ | 4,033 | $ | (6,110) | $ | 33,512 | ||||
| Liabilities | ||||||||||||||
| Derivatives | $ | - | $ | 5,677 | $ | 4 | $ | (4,968) | $ | 713 | ||||
| Other(e) | - | 1,182 | - | - | 1,182 | |||||||||
| Total | $ | - | $ | 6,860 | $ | 4 | $ | (4,968) | $ | 1,895 | ||||
| December 31, 2014 | ||||||||||||||
| Assets | ||||||||||||||
| Investment securities | ||||||||||||||
| Debt | ||||||||||||||
| U.S. corporate | $ | - | $ | 20,651 | $ | 3,053 | $ | - | $ | 23,704 | ||||
| State and municipal | - | 4,560 | 58 | - | 4,618 | |||||||||
| Mortgage and asset-backed | - | 4,632 | 146 | - | 4,777 | |||||||||
| Corporate – non-U.S. | - | 615 | 337 | - | 953 | |||||||||
| Government – non-U.S. | - | 489 | 2 | - | 491 | |||||||||
| U.S. government and federal agency | - | 496 | 266 | - | 761 | |||||||||
| Equity | 176 | 16 | 9 | - | 201 | |||||||||
| Derivatives(c) | - | 9,881 | 30 | (7,570) | 2,341 | |||||||||
| Other(d) | - | - | 277 | - | 277 | |||||||||
| Total | $ | 176 | $ | 41,340 | $ | 4,177 | $ | (7,570) | $ | 38,122 | ||||
| Liabilities | ||||||||||||||
| Derivatives | $ | - | $ | 4,840 | $ | 11 | $ | (4,337) | $ | 514 | ||||
| Other(e) | - | 1,179 | - | - | 1,179 | |||||||||
| Total | $ | - | $ | 6,018 | $ | 11 | $ | (4,337) | $ | 1,692 | ||||
(a)\tThere were no securities transferred between Level 1 and Level 2 for the years ended December 31, 2015 and 2014.
(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)\tThe fair value of derivatives includes an adjustment for non-performance risk. At December 31, 2015 and 2014, the cumulative adjustment for non-performance risk was insignificant and $16 million, respectively. See Notes 20 and 27 for additional information on the composition of our derivative portfolio.
(d)\tIncludes private equity investments.
(e)\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 | |||||||||||||||||||||||||||
| Net | |||||||||||||||||||||||||||
| change in | |||||||||||||||||||||||||||
| Net | Net | unrealized | |||||||||||||||||||||||||
| realized/ | realized/ | gains | |||||||||||||||||||||||||
| unrealized | unrealized | (losses) | |||||||||||||||||||||||||
| gains | gains | relating to | |||||||||||||||||||||||||
| (losses) | (losses) | Transfers | Transfers | instruments | |||||||||||||||||||||||
| Balance at | included in | included | into | out of | Balance at | still held at | |||||||||||||||||||||
| (In millions) | January 1 | earnings(a) | in AOCI | Purchases | Sales | Settlements | Level 3(b) | Level 3(b) | December 31 | December 31(c) | |||||||||||||||||
| 2015 | |||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||
| Debt | |||||||||||||||||||||||||||
| U.S. corporate | $ | 3,053 | $ | 3 | $ | (165) | $ | 362 | $ | (80) | $ | (137) | $ | - | $ | (30) | $ | 3,006 | $ | - | |||||||
| State and municipal | 58 | - | (2) | - | - | (9) | - | (17) | 30 | - | |||||||||||||||||
| Mortgage and | |||||||||||||||||||||||||||
| asset-backed | 146 | (19) | (9) | - | (32) | (4) | - | (49) | 32 | - | |||||||||||||||||
| Corporate – non-U.S. | 337 | - | (6) | 9 | (49) | (1) | - | - | 290 | - | |||||||||||||||||
| Government – non-U.S. | 2 | - | - | - | - | - | - | (2) | - | - | |||||||||||||||||
| U.S. government and | |||||||||||||||||||||||||||
| federal agency | 266 | - | 58 | - | - | (1) | - | - | 323 | - | |||||||||||||||||
| Equity | 9 | 2 | (5) | - | - | (4) | 10 | - | 13 | - | |||||||||||||||||
| Derivatives(d)(e) | 29 | 25 | - | - | - | (6) | 40 | - | 88 | 22 | |||||||||||||||||
| Other | 277 | 8 | - | - | (26) | - | - | - | 259 | 5 | |||||||||||||||||
| Total | $ | 4,175 | $ | 19 | $ | (128) | $ | 370 | $ | (187) | $ | (161) | $ | 51 | $ | (98) | $ | 4,042 | $ | 27 | |||||||
| 2014 | |||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||
| Debt | |||||||||||||||||||||||||||
| U.S. corporate | $ | 2,787 | $ | 18 | $ | 131 | $ | 541 | $ | (227) | $ | (212) | $ | 175 | $ | (159) | $ | 3,053 | $ | - | |||||||
| State and municipal | 50 | - | 6 | 3 | - | (1) | - | - | 58 | - | |||||||||||||||||
| Mortgage and | |||||||||||||||||||||||||||
| asset-backed | 238 | 3 | 6 | - | (16) | (31) | 2 | (57) | 146 | - | |||||||||||||||||
| Corporate – non-U.S. | 515 | 64 | 4 | 167 | (248) | (149) | 1 | (19) | 337 | - | |||||||||||||||||
| Government – non-U.S. | 30 | - | - | - | - | - | 2 | (30) | 2 | - | |||||||||||||||||
| U.S. government and | |||||||||||||||||||||||||||
| federal agency | 225 | - | 34 | - | - | - | 9 | (2) | 266 | - | |||||||||||||||||
| Equity | 11 | - | - | 2 | (2) | - | - | (2) | 9 | - | |||||||||||||||||
| Derivatives(d)(e) | 11 | 13 | - | (1) | - | 3 | 3 | (1) | 29 | 12 | |||||||||||||||||
| Other | 201 | 85 | - | 33 | (41) | - | - | - | 277 | 73 | |||||||||||||||||
| Total | $ | 4,068 | $ | 182 | $ | 181 | $ | 744 | $ | (534) | $ | (390) | $ | 192 | $ | (269) | $ | 4,175 | $ | 85 | |||||||
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, 2015 and 2014.
| Remeasured during the years ended December 31 | |||||||||||
| 2015 | 2014 | ||||||||||
| (In millions) | Level 2 | Level 3 | Level 2 | Level 3 | |||||||
| Financing receivables and financing receivables held for sale | $ | - | $ | 154 | $ | 1 | $ | 8 | |||
| Cost and equity method investments | 1 | 436 | - | 346 | |||||||
| Long-lived assets | 2 | 882 | 102 | 689 | |||||||
| Total | $ | 3 | $ | 1,471 | $ | 103 | $ | 1,044 | |||
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, 2015 and 2014.
| Years ended December 31 | |||||
| (In millions) | 2015 | 2014 | |||
| Financing receivables and financing receivables held for sale | $ | (69) | $ | (16) | |
| Cost and equity method investments | (506) | (286) | |||
| Long-lived assets | (1,603) | (427) | |||
| Total | $ | (2,177) | $ | (729) | |
| LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS | |||||||||
| Range | |||||||||
| (Dollars in millions) | Fair value | Valuation technique | Unobservable inputs | (weighted average) | |||||
| December 31, 2015 | |||||||||
| Recurring fair value measurements | |||||||||
| Investment securities – Debt | |||||||||
| U.S. corporate | $ | 834 | Income approach | Discount rate(a) | 1.7%-14.1% (8.6%) | ||||
| Mortgage and asset-backed | 31 | Income approach | Discount rate(a) | 5.0%-12.0% (10.5%) | |||||
| Corporate – non-U.S. | 236 | Income approach | Discount rate(a) | 6.5%-14.0% (7.5%) | |||||
| Other financial assets | 259 | Income approach, | EBITDA multiple | 6.1X-15.0X (9.9X) | |||||
| Market comparables | Capitalization rate | 7.8%-7.8% (7.8%) | |||||||
| Non-recurring fair value measurements | |||||||||
| Financing receivables and | $ | 146 | Income approach | Discount rate(a) | 6.5%-30.0% (10.7%) | ||||
| financing receivables held for sale | |||||||||
| Cost and equity method investments | 293 | Income approach | Discount rate(a) | 9.5%-35.0% (14.4%) | |||||
| Long-lived assets | 830 | Income approach | Discount rate(a) | 1.8%-11.7% (10.5%) | |||||
| December 31, 2014 | |||||||||
| Recurring fair value measurements | |||||||||
| Investment securities – Debt | |||||||||
| U.S. corporate | $ | 917 | Income approach | Discount rate(a) | 1.5%-14.8% (6.6%) | ||||
| State and municipal | 17 | Income approach | Discount rate(a) | 4.9%-4.9% (4.9%) | |||||
| Mortgage and asset-backed | 102 | Income approach | Discount rate(a) | 4.3%-9.0% (5.6%) | |||||
| Corporate – non-U.S. | 278 | Income approach | Discount rate(a) | 3.3%-14.0% (6.5%) | |||||
| Other financial assets | 117 | Income approach, | EBITDA multiple | 5.4X-9.1X (7.7X) | |||||
| Market comparables | Capitalization rate | 6.5%-7.8% (7.7%) | |||||||
| Non-recurring fair value measurements | |||||||||
| Cost and equity method investments | $ | 309 | Income approach, | Discount rate(a) | 8.0%-10.0% (9.4%) | ||||
| Market comparables | EBITDA multiple | 1.8X-5.2X (4.8X) | |||||||
| Long-lived assets | 664 | Income approach | Discount rate(a) | 2.0%-10.8% (6.7%) | |||||
(a) \tDiscount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value.
At December 31, 2015 and 2014, other Level 3 recurring fair value measurements of $2,637 million and $2,532 million, respectively, and non-recurring measurements of $122 million and $55 million, respectively, are valued using non-binding broker quotes or other third-party sources. At December 31, 2015 and 2014, other recurring fair value measurements of $32 million and $203 million, respectively, and non-recurring fair value measurements of $80 million and $16 million, respectively, were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation.
| December 31 (In millions) | 2015 | 2014 | |||
| GE | |||||
| Contract assets | $ | 21,156 | $ | 16,960 | |
| December 31 (In millions) | 2015 | 2014 | |||
| Investments | |||||
| Associated companies | $ | 3,582 | $ | 3,384 | |
| Other | 718 | 613 | |||
| 4,300 | 3,997 | ||||
| Long-term receivables, including notes | 2,310 | 766 | |||
| Derivative instruments | 733 | 783 | |||
| Other | 5,937 | 2,175 | |||
| 13,281 | 7,722 | ||||
| GE Capital | |||||
| Investments | |||||
| Associated companies | 8,373 | 8,651 | |||
| Assets held for sale(a) | 857 | 1,414 | |||
| Time deposits(b) | 10,386 | - | |||
| Other | 543 | 138 | |||
| 20,159 | 10,203 | ||||
| Derivative instruments | 549 | 1,434 | |||
| Advances to suppliers | 1,809 | 1,372 | |||
| Deferred borrowing costs | 199 | 662 | |||
| Other(c) | 2,571 | 3,774 | |||
| 25,287 | 17,445 | ||||
| Eliminations | (1,097) | (331) | |||
| All Other Assets | $ | 37,471 | $ | 24,836 | |
(a)\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, 2015 and 2014, such assets consisted primarily of loans, aircraft and equipment, and were accounted for at the lower of carrying amount or estimated fair value less costs to sell.
(b)\tBalances at December 31, 2015 included $10,386 million of high quality interest bearing deposits with European branches of global banks, predominantly in the UK, that mature in April 2016.
(c)\tBalances at December 31, 2015 and 2014 included $6 million and $7 million, respectively of deferred acquisition cost that reflect adjustments of $544 million and $624 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.
| For the years ended December 31 (In millions) | 2015 | 2014 | 2013 | |||||
| GE | ||||||||
| Net dispositions (purchases) of GE shares for treasury | ||||||||
| Open market purchases under share repurchase program | $ | (2,709) | $ | (2,211) | $ | (10,225) | ||
| Other purchases | (58) | (49) | (91) | |||||
| Dispositions | 1,668 | 1042 | 1,038 | |||||
| $ | (1,099) | $ | (1,218) | $ | (9,278) | |||
| GE Capital | ||||||||
| All other operating activities | ||||||||
| Cash collateral on derivative contracts | (1,936) | 738 | (2,285) | |||||
| Increase (decrease) in other liabilities | 4,860 | (3,331) | 1,886 | |||||
| Other | 2,163 | 5,073 | 2,995 | |||||
| $ | 5,087 | $ | 2,480 | $ | 2,596 | |||
| Net decrease (increase) in GE Capital financing receivables | ||||||||
| Increase in loans to customers | $ | (65,306) | $ | (64,843) | $ | (58,535) | ||
| Principal collections from customers - loans | 60,292 | 60,764 | 58,667 | |||||
| Investment in equipment for financing leases | (417) | (535) | (592) | |||||
| Principal collections from customers - financing leases | 734 | 841 | 1,335 | |||||
| Sales of financing receivables | 4,923 | 3,612 | 2,147 | |||||
| $ | 226 | $ | (161) | $ | 3,022 | |||
| All other investing activities | ||||||||
| Purchases of investment securities | $ | (7,790) | $ | (2,008) | $ | (3,293) | ||
| Dispositions and maturities of investment securities | 9,587 | 2,723 | 7,360 | |||||
| Decrease (increase) in other assets - investments | (1,439) | (287) | 183 | |||||
| Other(a) | (5,048) | 24,146 | 31,506 | |||||
| $ | (4,690) | $ | 24,574 | $ | 35,756 | |||
| Repayments and other reductions (maturities longer than 90 days) | ||||||||
| Short-term (91 to 365 days) | $ | (42,110) | $ | (36,919) | $ | (44,296) | ||
| Long-term (longer than one year) | (2,455) | (864) | (3,862) | |||||
| Principal payments - non-recourse, leveraged leases | (283) | (304) | (434) | |||||
| $ | (44,848) | $ | (38,087) | $ | (48,592) | |||
| All other financing activities | ||||||||
| Proceeds from sales of investment contracts | $ | 163 | $ | 322 | $ | 491 | ||
| Redemption of investment contracts | (1,235) | (1,113) | (980) | |||||
| Other | (290) | 112 | (389) | |||||
| $ | (1,362) | $ | (679) | $ | (878) | |||
(a) \tOther primarily included net activity related to settlements between our continuing operations (primarily our treasury operations) and businesses in discontinued operations.
| 2015 | 2014 | 2013 | |||||||||||||||
| (In millions; per-share amounts in dollars) | Diluted | Basic | Diluted | Basic | Diluted | Basic | |||||||||||
| Amounts attributable to the Company: | |||||||||||||||||
| Consolidated | |||||||||||||||||
| Earnings (loss) from continuing operations for | |||||||||||||||||
| per-share calculation(a) | $ | 1,680 | $ | 1,679 | $ | 9,523 | $ | 9,523 | $ | 7,596 | $ | 7,609 | |||||
| Preferred stock dividends declared | (18) | (18) | - | - | - | - | |||||||||||
| Earnings (loss) from continuing operations attributable to | |||||||||||||||||
| common shareowners for per-share calculation(a)(b) | $ | 1,662 | $ | 1,661 | $ | 9,523 | $ | 9,523 | $ | 7,596 | $ | 7,609 | |||||
| Earnings (loss) from discontinued operations | |||||||||||||||||
| for per-share calculation(a)(b) | (7,795) | (7,795) | 5,691 | 5,691 | 5,420 | 5,432 | |||||||||||
| Net earnings (loss) attributable to GE common | |||||||||||||||||
| shareowners for per-share calculation(a)(b) | $ | (6,135) | $ | (6,135) | $ | 15,213 | $ | 15,212 | $ | 13,028 | $ | 13,040 | |||||
| Average equivalent shares | |||||||||||||||||
| Shares of GE common stock outstanding | 9,944 | 9,944 | 10,045 | 10,045 | 10,222 | 10,222 | |||||||||||
| Employee compensation-related shares (including | |||||||||||||||||
| stock options) and warrants | 72 | - | 78 | - | 67 | - | |||||||||||
| Total average equivalent shares | 10,016 | 9,944 | 10,123 | 10,045 | 10,289 | 10,222 | |||||||||||
| Per-share amounts | |||||||||||||||||
| Earnings (loss) from continuing operations | $ | 0.17 | $ | 0.17 | $ | 0.94 | $ | 0.95 | $ | 0.74 | $ | 0.74 | |||||
| Earnings (loss) from discontinued operations | (0.78) | (0.78) | 0.56 | 0.57 | 0.53 | 0.53 | |||||||||||
| Net earnings (loss) | (0.61) | (0.62) | 1.50 | 1.51 | 1.27 | 1.28 | |||||||||||
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 had an insignificant effect.
| CHANGES IN CUMULATIVE CREDIT LOSS IMPAIRMENTS RECOGNIZED ON DEBT SECURITIES STILL HELD | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Cumulative credit loss impairments recognized, beginning of period | $ | 176 | $ | 473 | $ | 391 | ||
| Credit loss impairments recognized on securities not previously impaired | 31 | 1 | 120 | |||||
| Incremental credit loss impairments recognized | ||||||||
| on securities previously impaired | - | 4 | 25 | |||||
| Less credit loss impairments previously recognized on securities sold | ||||||||
| during the period or that we intend to sell | 3 | 301 | 63 | |||||
| Cumulative credit loss impairments recognized, end of period | $ | 205 | $ | 176 | $ | 473 | ||
NOTE 9. CONTRACT ASSETS AND ALL OTHER ASSETS
| December 31 (In millions) | 2015 | 2014 | |||
| GE | |||||
| Contract assets | $ | 21,156 | $ | 16,960 | |
Contract assets reflect revenues earned in excess of billings on our long-term contracts to construct technically complex equipment (such as gas power systems and aircraft engines), long-term product maintenance or extended warranty arrangements and other deferred contract related costs. Long-term product maintenance amounts are presented net of related billings in excess of revenues of $2,602 million and $2,329 million at December 31, 2015 and 2014, respectively. Included in contract assets at December 31, 2015, is $1,979 million related to the Alstom acquisition.
| December 31 (In millions) | 2015 | 2014 | |||
| Investments | |||||
| Associated companies | $ | 3,582 | $ | 3,384 | |
| Other | 718 | 613 | |||
| 4,300 | 3,997 | ||||
| Long-term receivables, including notes | 2,310 | 766 | |||
| Derivative instruments | 733 | 783 | |||
| Other | 5,937 | 2,175 | |||
| 13,281 | 7,722 | ||||
| GE Capital | |||||
| Investments | |||||
| Associated companies | 8,373 | 8,651 | |||
| Assets held for sale(a) | 857 | 1,414 | |||
| Time deposits(b) | 10,386 | - | |||
| Other | 543 | 138 | |||
| 20,159 | 10,203 | ||||
| Derivative instruments | 549 | 1,434 | |||
| Advances to suppliers | 1,809 | 1,372 | |||
| Deferred borrowing costs | 199 | 662 | |||
| Other(c) | 2,571 | 3,774 | |||
| 25,287 | 17,445 | ||||
| Eliminations | (1,097) | (331) | |||
| All Other Assets | $ | 37,471 | $ | 24,836 | |
(a)\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, 2015 and 2014, such assets consisted primarily of loans, aircraft and equipment, and were accounted for at the lower of carrying amount or estimated fair value less costs to sell.
(b)\tBalances at December 31, 2015 included $10,386 million of high quality interest bearing deposits with European branches of global banks, predominantly in the UK, that mature in April 2016.
(c)\tBalances at December 31, 2015 and 2014 included $6 million and $7 million, respectively of deferred acquisition cost that reflect adjustments of $544 million and $624 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.
| FINANCING RECEIVABLES, NET | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| Loans, net of deferred income | $ | 20,115 | $ | 20,270 | |
| Investment in financing leases, net of deferred income | 4,969 | 5,471 | |||
| 25,084 | 25,741 | ||||
| Allowance for losses | (81) | (93) | |||
| Financing receivables – net | $ | 25,003 | $ | 25,647 | |
| ESTIMATED 5 YEAR CONSOLIDATED AMORTIZATION | ||||||||||||||
| (In millions) | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||
| Estimated annual pre-tax amortization | $ | 1,952 | $ | 1,853 | $ | 1,851 | $ | 1,725 | $ | 1,591 | ||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Cash from (used for) operating activities-continuing operations | |||||||||
| Combined | $ | 17,891 | $ | 21,434 | $ | 19,487 | |||
| GE customer receivables sold to GE Capital | (914) | (1,918) | 360 | ||||||
| GE Capital dividends to GE | (4,300) | (3,000) | (5,985) | ||||||
| Other reclassifications and eliminations | (821) | (486) | 537 | ||||||
| $ | 11,856 | $ | 16,033 | $ | 14,398 | ||||
| Cash from (used for) investing activities-continuing operations | |||||||||
| Combined | $ | 59,516 | $ | 17,252 | $ | 43,666 | |||
| GE customer receivables sold to GE Capital | 1,319 | 1,766 | 262 | ||||||
| Other reclassifications and eliminations | 778 | 212 | 230 | ||||||
| $ | 61,613 | $ | 19,229 | $ | 44,159 | ||||
| Cash from (used for) financing activities-continuing operations | |||||||||
| Combined | $ | (73,484) | $ | (44,340) | $ | (51,502) | |||
| GE customer receivables sold to GE Capital | (405) | 152 | (622) | ||||||
| GE Capital dividends to GE | 4,300 | 3,000 | 5,985 | ||||||
| Other reclassifications and eliminations | 42 | 274 | (673) | ||||||
| $ | (69,547) | $ | (40,912) | $ | (46,813) | ||||
| PRE-TAX, OTHER-THAN-TEMPORARY IMPAIRMENTS ON INVESTMENT SECURITIES | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Total pre-tax, OTTI recognized | $ | 64 | $ | 316 | $ | 201 | |||
| Pre-tax, OTTI recognized in AOCI | - | (4) | (31) | ||||||
| Pre-tax, OTTI recognized in earnings(a) | $ | 64 | $ | 312 | $ | 170 | |||
(a)\tIncluded pre-tax, other-than-temporary impairments recorded in earnings related to equity securities of $5 million, $219 million and an insignificant amount in 2015, 2014 and 2013, respectively
| First quarter | Second quarter | Third quarter | Fourth quarter | ||||||||||||||||||||
| (In millions; per-share amounts in dollars) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||
| Consolidated operations | |||||||||||||||||||||||
| Earnings (loss) from continuing operations | $ | (4,673) | $ | 1,491 | $ | 1,813 | $ | 2,180 | $ | 1,915 | $ | 2,130 | $ | 2,645 | $ | 3,690 | |||||||
| Earnings (loss) from discontinued | |||||||||||||||||||||||
| operations | (8,936) | 1,461 | (2,947) | 1,367 | 629 | 1,378 | 3,758 | 1,649 | |||||||||||||||
| Net earnings (loss) | (13,608) | 2,952 | (1,134) | 3,546 | 2,545 | 3,508 | 6,403 | 5,339 | |||||||||||||||
| Less net earnings (loss) attributable to | |||||||||||||||||||||||
| noncontrolling interests | (35) | (47) | 225 | - | 39 | (29) | 103 | 187 | |||||||||||||||
| Net earnings (loss) attributable to | |||||||||||||||||||||||
| the Company | $ | (13,573) | $ | 2,999 | $ | (1,360) | $ | 3,546 | $ | 2,506 | $ | 3,536 | $ | 6,301 | $ | 5,152 | |||||||
| Per-share amounts – earnings (loss) from | |||||||||||||||||||||||
| continuing operations | |||||||||||||||||||||||
| Diluted earnings (loss) per share | $ | (0.45) | $ | 0.15 | $ | 0.17 | $ | 0.22 | $ | 0.19 | $ | 0.22 | $ | 0.26 | $ | 0.35 | |||||||
| Basic earnings (loss) per share | (0.45) | 0.15 | 0.17 | 0.22 | 0.19 | 0.22 | 0.26 | 0.36 | |||||||||||||||
| Per-share amounts – earnings (loss) | |||||||||||||||||||||||
| from discontinued operations | |||||||||||||||||||||||
| Diluted earnings (loss) per share | (0.90) | 0.14 | (0.30) | 0.13 | 0.05 | 0.13 | 0.38 | 0.15 | |||||||||||||||
| Basic earnings (loss) per share | (0.90) | 0.14 | (0.30) | 0.14 | 0.05 | 0.13 | 0.38 | 0.16 | |||||||||||||||
| Per-share amounts – net earnings (loss) | |||||||||||||||||||||||
| Diluted earnings (loss) per share | (1.35) | 0.30 | (0.13) | 0.35 | 0.25 | 0.35 | 0.64 | 0.51 | |||||||||||||||
| Basic earnings (loss) per share | (1.35) | 0.30 | (0.13) | 0.35 | 0.25 | 0.35 | 0.64 | 0.51 | |||||||||||||||
| Selected data | |||||||||||||||||||||||
| GE | |||||||||||||||||||||||
| Sales of goods and services | $ | 23,839 | $ | 24,011 | $ | 26,141 | $ | 26,225 | $ | 25,612 | $ | 26,025 | $ | 30,614 | $ | 31,046 | |||||||
| Gross profit from sales | 5,514 | 5,327 | 6,033 | 6,089 | 6,275 | 6,146 | 7,556 | 7,870 | |||||||||||||||
| GE Capital | |||||||||||||||||||||||
| Total revenues | 2,866 | 2,963 | 2,690 | 2,676 | 2,660 | 2,763 | 2,585 | 2,919 | |||||||||||||||
| Earnings (loss) from continuing operations | |||||||||||||||||||||||
| attributable to the Company | (5,721) | 489 | (332) | 468 | (154) | 226 | (1,447) | 348 | |||||||||||||||
NOTE 15. SHAREOWNERS’ EQUITY
| (In millions) | 2015 | 2014 | 2013 | |||||
| Preferred stock issued | $ | 6 | $ | - | $ | - | ||
| Common stock issued | $ | 702 | $ | 702 | $ | 702 | ||
| Accumulated other comprehensive income | ||||||||
| Balance at January 1 | $ | (18,172) | $ | (9,119) | $ | (20,229) | ||
| Other comprehensive income before reclassifications | (3,312) | (12,088) | 8,844 | |||||
| Reclassifications from other comprehensive income | 4,956 | 3,035 | 2,265 | |||||
| Other comprehensive income, net, attributable to GE | 1,644 | (9,053) | 11,109 | |||||
| Balance at December 31 | $ | (16,529) | $ | (18,172) | $ | (9,119) | ||
| Other capital | ||||||||
| Balance at January 1 | $ | 32,889 | $ | 32,494 | $ | 33,070 | ||
| Gains (losses) on treasury stock dispositions and other(a)(b) | 4,724 | 396 | (576) | |||||
| Balance at December 31 | $ | 37,613 | $ | 32,889 | $ | 32,494 | ||
| Retained earnings | ||||||||
| Balance at January 1 | $ | 155,333 | $ | 149,051 | $ | 144,055 | ||
| Net earnings (loss) attributable to the Company | (6,126) | 15,233 | 13,057 | |||||
| Dividends and other transactions with shareowners | (9,161) | (8,948) | (8,060) | |||||
| Redemption value adjustment on redeemable noncontrolling interests | (25) | (2) | (1) | |||||
| Balance at December 31 | $ | 140,020 | $ | 155,333 | $ | 149,051 | ||
| Common stock held in treasury | ||||||||
| Balance at January 1 | $ | (42,593) | $ | (42,561) | $ | (34,571) | ||
| Purchases(c) | (23,762) | (1,950) | (10,466) | |||||
| Dispositions | 2,816 | 1,917 | 2,477 | |||||
| Balance at December 31 | $ | (63,539) | $ | (42,593) | $ | (42,561) | ||
| Total equity | ||||||||
| GE shareowners' equity balance at December 31 | $ | 98,274 | $ | 128,159 | $ | 130,566 | ||
| Noncontrolling interests balance at December 31 | 1,864 | 8,674 | 6,217 | |||||
| Total equity balance at December 31 | $ | 100,138 | $ | 136,833 | $ | 136,783 | ||
Shares of GE Preferred Stock
At December 31, 2014 GECC had outstanding 50,000 shares of non-cumulative A, B and C Series perpetual preferred stock at an average dividend rate of 6.44% with a face value of $5,000 million. In connection with the GE Capital Exit Plan, on December 3, 2015, these shares were converted into a corresponding Series A, B, and C of fixed-to-floating rate non-cumulative perpetual preferred stock issued by GE with face value of $2,778 million, $2,073 million, $1,094 million, respectively, for a cumulative face value of $5,944 million with terms as follows:
Series A: 2,777,625 shares bearing an initial fixed interest rate of 4.00% through June 15, 2022, and a floating rate equal to three-month LIBOR plus 2.28% thereafter, callable on June 15, 2022.
Series B: 2,072,525 shares bearing an initial fixed interest rate of 4.10% through June 15, 2022, and a floating rate equal to three-month LIBOR plus 2.32% thereafter, callable on December 15, 2022.
Series C: 1,094,100 shares bearing an initial fixed interest rate of 4.20% through June 15, 2022, and a floating rate equal to three-month LIBOR plus 2.37% thereafter, callable on June 15, 2023.
The incremental shares were issued in order to compensate preferred holders for the lower dividend rate.
In conjunction with the exchange of the GE Capital Preferred stock into GE Preferred stock, GE Capital issued preferred stock to GE for which the amount and terms mirror the GE preferred stock held by external investors ($4,949 million carrying value at exchange).
Subsequent to the issuance of the preferred stock on December 3, 2015, in response to investor feedback, GE launched an exchange offer on December 18, 2015 that allowed GE preferred stock investors to exchange their existing Series A, B and C preferred stock into a Series D GE preferred stock. These Series D instruments bear an initial fixed interest rate of 5.00% through January 21, 2021, will bear a floating rate equal to three-month LIBOR plus 3.33% thereafter and are callable on January 21, 2021. On January 20, 2016, $2,687 million of Series A, $2,008 million of Series B and $999 million of Series C were exchanged into $5,694 million Series D GE preferred stock. Post exchange, $91 million of Series A, $64 million of Series B and $95 million of Series C GE preferred stock remain outstanding. The carrying value of the GE preferred stock at December 31, 2015 was $4,960 million and will increase to $5,944 million through periodic accretion to the respective call dates of each series. Principal and accretion for the preferred stock is recorded in other capital in the consolidated Statement of Financial Position.
On October 16, 2008, we issued 30,000 shares of 10% cumulative perpetual preferred stock and warrants to purchase 134,831,460 shares of common stock to Berkshire Hathaway Inc. (Berkshire Hathaway). On October 16, 2013, Berkshire Hathaway exercised their warrants and 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.
GE has 50 million authorized shares of preferred stock ($1.00 par value). 5,944,250 shares were issued and outstanding as of December 31, 2015. No shares were issued and outstanding as of December 31, 2014 and 2013.
Shares of GE Common Stock
On April 10, 2015, the GE Board has authorized a new repurchase program of up to $50 billion in common stock, excluding the Synchrony Financial exchange. On November 17, 2015, we completed the split-off of Synchrony Financial through which we acquired 671,366,809 shares of GE common stock from our shareholders in exchange for 705,270,833 shares of Synchrony Financial stock we held. Under our share purchase programs, on a book basis, we repurchased shares of 109.8 million, 73.6 million and 432.6 million for a total of $3,320 million, $1,901 million and $10,375 million for the years ended 2015, 2014 and 2013, 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) | 2015 | 2014 | 2013 | |||
| Issued | 11,693,841 | 11,693,841 | 11,693,841 | |||
| In treasury(a) | (2,314,553) | (1,636,461) | (1,632,960) | |||
| Outstanding | 9,379,288 | 10,057,380 | 10,060,881 | |||
(a)\t2015 included (671,366,809) shares related to the split-off of Synchrony Financial from GE, where GE shares were exchanged for shares of Synchrony Financial.
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Investment securities | ||||||||
| Balance at January 1 | $ | 1,013 | $ | 307 | $ | 677 | ||
| Other comprehensive income (loss) (OCI) before reclassifications – | ||||||||
| net of deferred taxes of $(270), $352 and $(408)(a) | (486) | 562 | (692) | |||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $(36), $85 and $223 | (67) | 146 | 318 | |||||
| Other comprehensive income (loss)(b) | (553) | 708 | (374) | |||||
| Less OCI attributable to noncontrolling interests | (1) | 2 | (4) | |||||
| Balance at December 31 | $ | 460 | $ | 1,013 | $ | 307 | ||
| Currency translation adjustments (CTA) | ||||||||
| Balance at January 1(c) | $ | (2,428) | $ | 283 | $ | 413 | ||
| OCI before reclassifications – net of deferred taxes | (4,932) | (2,600) | 510 | |||||
| of $1,348, $(129) and $(613) | ||||||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $(1,489), $213 and $793 | 1,794 | (129) | (818) | |||||
| Other comprehensive income (loss)(b) | (3,137) | (2,730) | (308) | |||||
| Less OCI attributable to noncontrolling interests | (66) | (19) | (22) | |||||
| Balance at December 31 | $ | (5,499) | $ | (2,428) | $ | 126 | ||
| Cash flow hedges | ||||||||
| Balance at January 1(c) | $ | (180) | $ | (414) | $ | (722) | ||
| OCI before reclassifications – net of deferred taxes | (732) | (609) | 737 | |||||
| of $(21), $22 and $251 | ||||||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $86, $34 and $(176) | 831 | 844 | (271) | |||||
| Other comprehensive income (loss)(b) | 99 | 234 | 466 | |||||
| Less OCI attributable to noncontrolling interests | - | - | 2 | |||||
| Balance at December 31 | $ | (80) | $ | (180) | $ | (257) | ||
| Benefit plans | ||||||||
| Balance at January 1 | $ | (16,578) | $ | (9,296) | $ | (20,597) | ||
| Prior service credit (costs) - net of deferred taxes | ||||||||
| of $859, $219 and $(5) | 1,541 | 396 | (6) | |||||
| Net actuarial gain (loss) – net of deferred taxes | ||||||||
| of $647, $(5,332) and $4,506 | 1,227 | (9,849) | 8,269 | |||||
| Net curtailment/settlement - net of deferred taxes | ||||||||
| of $(42), $41 and $0 | (76) | 72 | - | |||||
| Prior service cost amortization – net of deferred taxes | ||||||||
| of $103, $241 and $267 | 100 | 349 | 397 | |||||
| Net actuarial loss amortization – net of deferred taxes | ||||||||
| of $1,199, $859 and $1,343 | 2,373 | 1,753 | 2,640 | |||||
| Other comprehensive income (loss)(b) | 5,165 | (7,278) | 11,300 | |||||
| Less OCI attributable to noncontrolling interests | (3) | 3 | (1) | |||||
| Balance at December 31 | $ | (11,410) | $ | (16,578) | $ | (9,296) | ||
| Accumulated other comprehensive income (loss) at December 31 | $ | (16,529) | $ | (18,172) | $ | (9,119) | ||
(a)\tIncluded adjustments of $(611) million, $960 million and $(1,171) million in 2015, 2014 and 2013, 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 $1,575 million, $(9,066) million and $11,084 million in 2015, 2014 and 2013, respectively.
(c)\tIncluded a $157 million reclassification between 2014 opening balances in Currency Translation Adjustments and Cash Flow Hedges.
| RECLASSIFICATION OUT OF AOCI | ||||||||||
| (In millions) | 2015 | 2014 | 2013 | Statement of earnings caption | ||||||
| Available-for-sale securities | ||||||||||
| Realized gains (losses) on | ||||||||||
| sale/impairment of securities | $ | 103 | $ | (231) | $ | (541) | Total revenue and other income (a) | |||
| (36) | 85 | 223 | Benefit (provision) for income taxes (b) | |||||||
| $ | 67 | $ | (146) | $ | (318) | Net of tax | ||||
| Currency translation adjustments | ||||||||||
| Gains (losses) on dispositions | $ | (305) | $ | (85) | $ | 25 | Total revenues and other income(c) | |||
| (1,489) | 213 | 793 | Benefit (provision) for income taxes(d) | |||||||
| $ | (1,794) | $ | 129 | $ | 818 | Net of tax | ||||
| Cash flow hedges | ||||||||||
| Gains (losses) on interest rate derivatives | $ | (130) | $ | (234) | $ | (364) | Interest and other financial charges | |||
| Foreign exchange contracts | (801) | (666) | 564 | (e) | ||||||
| Other | 13 | 22 | 248 | (f) | ||||||
| (918) | (878) | 447 | Total before tax | |||||||
| 86 | 34 | (176) | Benefit (provision) for income taxes | |||||||
| $ | (831) | $ | (844) | $ | 271 | Net of tax | ||||
| Benefit plan items | ||||||||||
| Curtailment gain (loss) | $ | 118 | $ | (113) | $ | - | (g) | |||
| Amortization of prior service costs | (203) | (590) | (664) | (g) | ||||||
| Amortization of actuarial gains (losses) | (3,572) | (2,612) | (3,983) | (g) | ||||||
| (3,657) | (3,315) | (4,647) | Total before tax | |||||||
| 1,260 | 1,141 | 1,610 | Benefit (provision) for income taxes | |||||||
| $ | (2,397) | $ | (2,174) | $ | (3,037) | Net of tax | ||||
| Total reclassification adjustments | $ | (4,956) | $ | (3,035) | $ | (2,266) | 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.
Prior to the fourth quarter of 2015, the preferred stock issued by GECC was classified as noncontrolling interests in our consolidated Statement of Financial Position, with dividends presented as noncontrolling interest in our consolidated Statement of Earnings. As discussed previously in this note, this preferred stock was converted to a corresponding series of preferred stock issued by GE and on January 20, 2016 a substantial majority of those shares were exchanged into GE Series D preferred stock. Effective with these changes, the preferred stock issued by GE is reflected in our shareowners’ equity and dividends are presented as a reduction of net earnings attributable to GE in the statement of earnings (under the caption “Preferred stock dividends”) for the year ended December 31, 2015 and subsequently.
| December 31 (In millions) | 2015 | 2014 | |||
| GECC preferred stock | $ | - | $ | 4,949 | |
| Synchrony Financial | - | 2,531 | |||
| Other noncontrolling interests in consolidated affiliates(a) | 1,864 | 1,194 | |||
| Total | $ | 1,864 | $ | 8,674 | |
(a)\tConsisted of a number of individually insignificant noncontrolling interests in partnerships and consolidated affiliates. 2015 included $695 million related to the Alstom acquisition.
| CHANGES TO NONCONTROLLING INTERESTS | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Beginning balance | $ | 8,674 | $ | 6,217 | $ | 5,444 | |||
| Net earnings | 377 | 183 | 312 | ||||||
| GECC preferred stock(a) | (4,949) | - | 990 | ||||||
| GECC preferred stock dividend | (311) | (322) | (298) | ||||||
| Dividends | (43) | (74) | (80) | ||||||
| Dispositions | 189 | (81) | (175) | ||||||
| Synchrony Financial(b) | (2,840) | 2,393 | - | ||||||
| Other (including AOCI)(c)(d) | 767 | 358 | 24 | ||||||
| Ending balance | $ | 1,864 | $ | 8,674 | $ | 6,217 | |||
(a) \t2015 included $(4,949) million related to the issuance of GE preferred stock in exchange for existing GECC preferred stock. GE preferred stock is reflected in shareowners’ equity in the consolidated Statement of Financial Position.
(b) \t2015 related to the split-off on Synchrony Financial from GE, where GE shares were exchanged for shares of Synchrony Financial; 2014 related to the Synchrony Financial IPO.
(c)\tIncludes research & development partner funding arrangements, acquisitions and eliminations.
(d) \t2015 included $695 million related to the Alstom acquisition.
redeemable noncontrolling interest
Redeemable noncontrolling interest presented in our statement of financial position includes common shares issued by our affiliates that are redeemable at the option of the holder of those interests.
As part of the Alstom acquisition, we formed three joint ventures in which the noncontrolling interests hold certain redemption rights. These joint ventures and the associated redemption rights are discussed in Note 8. Our retained earnings will be adjusted for subsequent changes in the redemption value of the noncontrolling interest in these entities to the extent that the redemption value exceeds the carrying amount of the noncontrolling interest.
| (In millions) | 2015 | 2014 | 2013 | |||||
| Beginning balance | $ | 98 | $ | 178 | $ | 214 | ||
| Net earnings | (46) | (71) | (14) | |||||
| Dividends | (11) | (12) | (14) | |||||
| Dispositions | 1 | - | - | |||||
| Redemption value adjustment | 25 | 2 | 1 | |||||
| Other(a) | 2,905 | 1 | (8) | |||||
| Ending balance | $ | 2,972 | $ | 98 | $ | 178 | ||
(a)\t2015 included $2,875 million related to joint ventures formed by GE and Alstom as part of the Alstom acquisition.
\nOther
Common dividends from GE Capital totaled $4,311 million, $2,000 million and $1,930 million to GE during 2015, 2014 and 2013, respectively. GE Capital did not pay any special dividends to GE during 2015. GE Capital paid special dividends of $1,000 million and $4,055 million to GE during 2014 and 2013, respectively.
| RECLASSIFICATION OUT OF AOCI | ||||||||||
| (In millions) | 2015 | 2014 | 2013 | Statement of earnings caption | ||||||
| Available-for-sale securities | ||||||||||
| Realized gains (losses) on | ||||||||||
| sale/impairment of securities | $ | 103 | $ | (231) | $ | (541) | Total revenue and other income (a) | |||
| (36) | 85 | 223 | Benefit (provision) for income taxes (b) | |||||||
| $ | 67 | $ | (146) | $ | (318) | Net of tax | ||||
| Currency translation adjustments | ||||||||||
| Gains (losses) on dispositions | $ | (305) | $ | (85) | $ | 25 | Total revenues and other income(c) | |||
| (1,489) | 213 | 793 | Benefit (provision) for income taxes(d) | |||||||
| $ | (1,794) | $ | 129 | $ | 818 | Net of tax | ||||
| Cash flow hedges | ||||||||||
| Gains (losses) on interest rate derivatives | $ | (130) | $ | (234) | $ | (364) | Interest and other financial charges | |||
| Foreign exchange contracts | (801) | (666) | 564 | (e) | ||||||
| Other | 13 | 22 | 248 | (f) | ||||||
| (918) | (878) | 447 | Total before tax | |||||||
| 86 | 34 | (176) | Benefit (provision) for income taxes | |||||||
| $ | (831) | $ | (844) | $ | 271 | Net of tax | ||||
| Benefit plan items | ||||||||||
| Curtailment gain (loss) | $ | 118 | $ | (113) | $ | - | (g) | |||
| Amortization of prior service costs | (203) | (590) | (664) | (g) | ||||||
| Amortization of actuarial gains (losses) | (3,572) | (2,612) | (3,983) | (g) | ||||||
| (3,657) | (3,315) | (4,647) | Total before tax | |||||||
| 1,260 | 1,141 | 1,610 | Benefit (provision) for income taxes | |||||||
| $ | (2,397) | $ | (2,174) | $ | (3,037) | Net of tax | ||||
| Total reclassification adjustments | $ | (4,956) | $ | (3,035) | $ | (2,266) | Net of tax | |||
Note 2. BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
NBCU
As previously disclosed, Comcast Corporation was obligated to share with us potential tax savings associated with its purchase of our interest in NBCU LLC. During the second quarter of 2015, we recognized $450 million of pre-tax income related to the settlement of this obligation.
Assets and Liabilities of Businesses Held for Sale
In the fourth quarter of 2015, we signed an agreement to sell our Electricity Meters business within our Energy Management segment to Aclara Technologies, LLC and our Clarient business within our Healthcare segment to NeoGenomics, Inc. The sale of our Electricity Meters business was completed on December 21, 2015 for proceeds of $220 million. The sale of our Clarient business was completed on December 30, 2015 for proceeds of $255 million.
In the third quarter of 2015, we signed an agreement to sell our Intelligent Platforms Embedded Systems Products business within our Energy Management segment to Veritas Capital. The sale was completed on December 7, 2015 for proceeds of $515 million.
In the fourth quarter of 2014, we signed an agreement to sell our Signaling business within our Transportation segment to Alstom. The transaction closed on November 2, 2015 for proceeds of $800 million.
In the third quarter of 2014, we signed an agreement to sell our Appliances business to Electrolux. On July 1, 2015, we were notified that the Department of Justice had initiated court proceedings seeking to enjoin the sale of Appliances to Electrolux. On December 7, 2015, we announced the termination of our agreement to sell our Appliances business to Electrolux. We received a break-up fee of $175 million from Electrolux, which is recorded under the caption “Other income” in the consolidated Statement of Earnings.
On January 15, 2016, we announced the signing of a definitive agreement to sell our Appliances business with assets of $2,818 million and liabilities of $1,409 million, to Qingdao Haier Co., Ltd. (Haier) for approximately $5,400 million. The transaction has been approved by the board of directors of GE and Haier and remains subject to customary closing conditions, including Haier shareholder approval and regulatory approvals. The transaction is targeted to close in mid-2016.
| FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| Assets | |||||
| Current receivables(a) | $ | 79 | $ | 180 | |
| Inventories | 583 | 588 | |||
| Property, plant, and equipment – net | 1,208 | 979 | |||
| Goodwill | 370 | 433 | |||
| Other intangible assets – net | 162 | 157 | |||
| Other | 416 | 489 | |||
| Assets of businesses held for sale | $ | 2,818 | $ | 2,826 | |
| Liabilities | |||||
| Accounts payable(a) | $ | 503 | $ | 506 | |
| Other current liabilities | 325 | 346 | |||
| Other | 33 | 89 | |||
| Liabilities of businesses held for sale | $ | 861 | $ | 941 | |
(a) \tCertain transactions at our Appliances and Signaling businesses are made on an arms-length basis with GE Capital, consisting primarily of GE customer receivables sold to GE Capital and GE Capital services for material procurement. These intercompany balances included within our held for sale businesses are reported in the GE and GE Capital columns of our financial statements, but are eliminated in deriving our consolidated financial statements.
Discontinued Operations
Discontinued operations primarily included our Consumer business, most of our CLL business, our Real Estate business, and our U.S. mortgage business (WMC). Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.
We have entered into Transitional Service Agreements (TSA) with and provided certain indemnifications to buyers of GE Capital’s assets. Under the TSAs, GE Capital provides various services for terms generally between 12 and 24 months and receives a level of cost reimbursement from the buyers.
Indemnifications amount to $1,543 million, for which we have recognized related liabilities of $62 million at December 31, 2015. In addition, we provided $736 million of credit support, the vast majority on behalf of certain CLL customers aligned with signed disposal transactions scheduled to close in 2016, and recognized an insignificant liability at December 31, 2015.
| FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Operations | ||||||||
| Total revenues and other income (loss) | $ | 23,003 | $ | 31,136 | $ | 32,987 | ||
| Earnings (loss) from discontinued operations before income taxes | $ | 887 | $ | 6,615 | $ | 6,558 | ||
| Benefit (provision) for income taxes | (791) | (776) | 699 | |||||
| Earnings (loss) from discontinued operations, net of taxes | $ | 96 | $ | 5,839 | $ | 7,257 | ||
| Disposal | ||||||||
| Gain (loss) on disposal before income taxes | $ | (6,612) | $ | 14 | $ | (2,027) | ||
| Benefit (provision) for income taxes | (979) | 1 | 246 | |||||
| Gain (loss) on disposal, net of taxes | $ | (7,591) | $ | 15 | $ | (1,781) | ||
| Earnings (loss) from discontinued operations, net of taxes(a)(b) | $ | (7,495) | $ | 5,855 | $ | 5,475 | ||
| December 31 (In millions) | 2015 | 2014 | |||||||||
| Assets | |||||||||||
| Cash and equivalents | $ | 20,395 | $ | 20,991 | |||||||
| Investment securities | 8,478 | 13,349 | |||||||||
| Financing receivables – net | 3,205 | 213,514 | |||||||||
| Other receivables | 1,221 | 2,896 | |||||||||
| Property, plant and equipment – net | 7,537 | 18,354 | |||||||||
| Goodwill | 7,764 | 23,452 | |||||||||
| Other intangible assets - net | 80 | 987 | |||||||||
| Deferred income taxes | 2,447 | 3,530 | |||||||||
| Financing receivables held for sale | 69,847 | 3,475 | |||||||||
| Valuation allowance on disposal group classified as discontinued operations | (6,374) | - | |||||||||
| Other | 6,350 | 22,980 | |||||||||
| Assets of discontinued operations | $ | 120,951 | $ | 323,529 | |||||||
| Liabilities | |||||||||||
| Short-term borrowings | $ | 739 | $ | 3,780 | |||||||
| Accounts payable | 2,870 | 4,280 | |||||||||
| Non-recourse borrowings | 3,994 | 25,536 | |||||||||
| Bank deposits | 25,613 | 62,839 | |||||||||
| Long-term borrowings | 730 | 13,767 | |||||||||
| All other liabilities | 11,053 | 11,046 | |||||||||
| Deferred income taxes | 1,437 | 6,810 | |||||||||
| Other | 52 | 174 | |||||||||
| Liabilities of discontinued operations | $ | 46,487 | $ | 128,233 | |||||||
Consumer
In connection with the GE Capital Exit Plan, we announced the planned disposition of our Consumer business (including Synchrony Financial) and classified the business as discontinued operations. On November 17, 2015, we completed the split-off of Synchrony Financial through which GE accepted 671,366,809 shares of GE common stock from its shareholders in exchange for 705,270,833 shares of Synchrony Financial common stock that it owned. We closed certain of our other Consumer business dispositions for proceeds of $17,550 million (excluding Synchrony Financial) for the year ended December 31, 2015. We expect to dispose of substantially all of the remaining Consumer business in 2016.
| FINANCIAL INFORMATION FOR CONSUMER | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Operations | ||||||||
| Total revenues and other income (loss) | $ | 11,690 | $ | 15,023 | $ | 15,741 | ||
| Interest | $ | (2,081) | $ | (2,611) | $ | (2,669) | ||
| Selling, general, and administrative expenses | (3,940) | (4,572) | (4,349) | |||||
| Cost of services sold | (1) | - | (1) | |||||
| Provision for losses on financing receivables | (5,029) | (3,544) | (4,048) | |||||
| Investment contracts, insurance losses and insurance annuity benefits | (12) | (18) | (15) | |||||
| Other costs and expenses | (392) | (388) | (337) | |||||
| Earnings (loss) from discontinued operations, | ||||||||
| before income taxes | 236 | 3,891 | 4,324 | |||||
| Benefit (provision) for income taxes | (878) | (736) | 7 | |||||
| Earnings (loss) from discontinued operations, net of taxes | $ | (642) | $ | 3,155 | $ | 4,330 | ||
| Disposal | ||||||||
| Gain (loss) on disposal before income taxes | $ | 2,739 | $ | - | $ | - | ||
| Benefit (provision) for income taxes | 363 | - | - | |||||
| Gain (loss) on disposal, net of taxes(a) | $ | 3,102 | $ | - | $ | - | ||
| Earnings (loss) from discontinued operations, net of taxes(b) | $ | 2,460 | $ | 3,155 | $ | 4,330 | ||
Commercial lending and leasing
In connection with the GE Capital Exit Plan, we announced the planned disposition of most of our CLL business and classified this portion of the business as discontinued operations. We closed certain of our CLL business dispositions for proceeds of $48,068 million for the year ended December 31, 2015. We expect to dispose of substantially all of the remaining CLL business in 2016.
| FINANCIAL INFORMATION FOR COMMERCIAL LENDING AND LEASING | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Operations | |||||||||
| Total revenues and other income (loss) | $ | 10,580 | $ | 13,413 | $ | 13,144 | |||
| Interest | $ | (2,365) | $ | (3,069) | $ | (3,300) | |||
| Selling, general and administrative expenses | (3,576) | (3,598) | (3,538) | ||||||
| Cost of services sold | (1,735) | (3,859) | (4,002) | ||||||
| Provision for losses on financing receivables | (1,753) | (456) | (736) | ||||||
| Other costs and expenses | (127) | (135) | (94) | ||||||
| Earnings (loss) from discontinued operations, before income taxes | 1,024 | 2,296 | 1,474 | ||||||
| Benefit (provision) for income taxes | (186) | (487) | 65 | ||||||
| Earnings (loss) from discontinued operations, net of taxes | $ | 838 | $ | 1,808 | $ | 1,539 | |||
| Disposal | |||||||||
| Gain (loss) on disposal before income taxes | $ | (8,013) | $ | - | $ | - | |||
| Benefit (provision) for income taxes | (698) | - | - | ||||||
| Gain (loss) on disposal, net of taxes | $ | (8,711) | $ | - | $ | - | |||
| Earnings (loss) from discontinued operations, net of taxes(a) | $ | (7,873) | $ | 1,808 | $ | 1,539 | |||
(a)\tEarnings (loss) from discontinued operations attributable to the Company, before income taxes, was $(6,996) million, $2,279 million and $1,457 million for the years ended December 31, 2015, 2014 and 2013, respectively.
REAL ESTATE
In connection with the GE Capital Exit Plan, we announced the planned disposition of our Real Estate business and classified the business as discontinued operations. We closed certain of our Real Estate business dispositions for proceeds of $31,601 million for the year ended December 31, 2015. We expect to dispose of substantially all of the remaining Real Estate business in 2016.
| FINANCIAL INFORMATION FOR REAL ESTATE | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Operations | |||||||||
| Total revenues and other income (loss) | $ | 911 | $ | 2,969 | $ | 3,915 | |||
| Interest | $ | (457) | $ | (1,079) | $ | (1,278) | |||
| Selling, general and administrative | (444) | (484) | (568) | ||||||
| Cost of services sold | (5) | - | - | ||||||
| Provision for losses on financing receivables | 5 | 86 | (28) | ||||||
| Other costs and expenses | (158) | (712) | (788) | ||||||
| Earnings (loss) from discontinued operations, | |||||||||
| before income taxes | (149) | 780 | 1,253 | ||||||
| Benefit (provision) for income taxes | 168 | 224 | 472 | ||||||
| Earnings (loss) from discontinued operations, net of taxes | $ | 19 | $ | 1,003 | $ | 1,725 | |||
| Disposal | |||||||||
| Gain (loss) on disposal before income taxes | $ | (1,338) | $ | - | $ | - | |||
| Benefit (provision) for income taxes | (639) | - | - | ||||||
| Gain (loss) on disposal, net of taxes | $ | (1,977) | $ | - | $ | - | |||
| Earnings (loss) from discontinued operations, net of taxes(a) | $ | (1,958) | $ | 1,003 | $ | 1,725 | |||
(a)\tEarnings (loss) from discontinued operations attributable to the Company, before income taxes, was $(1,486) million, $778 million and $1,246 million for the years ended December 31, 2015, 2014 and 2013, respectively.
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, 2015, such claims consisted of $2,887 million of individual claims generally submitted before the filing of a lawsuit (compared to $3,694 million at December 31, 2014) and $8,047 million of additional claims asserted against WMC in litigation without making a prior claim (Litigation Claims) (compared to $9,225 million at December 31, 2014). The total amount of these claims, $10,934 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, 2015, these amounts do not include approximately $112 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 law and the June 11, 2015 decision of the New York Court of Appeals in ACE Securities Corp. v. DB Structured Products, Inc., on the statute of limitations period governing such claims.
Reserves related to repurchase claims made against WMC were $875 million at December 31, 2015, reflecting a net increase to reserves in the year December 31, 2015 of $66 million due to incremental provisions net of settlements. 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 for which timely claims have been asserted in litigation against WMC. 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) | 2015 | 2014 | ||||
| Balance, beginning of period | $ | 809 | $ | 800 | ||
| Provision | 212 | 365 | ||||
| Claim resolutions / rescissions | (146) | (356) | ||||
| Balance, end of period | $ | 875 | $ | 809 | ||
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. WMC estimates a range of reasonably possible loss from $0 to approximately $500 million over its recorded reserve at December 31, 2015. This estimate involves significant judgment and may not reflect the range of uncertainties and unpredictable outcomes inherent in litigation, including the matters discussed in Legal Proceedings and potential changes in WMC’s legal strategy. This estimate excludes any possible loss associated with an adverse court decision on the applicable statute of limitations or an adverse outcome in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) investigation discussed in Legal Proceedings, as WMC is unable at this time to develop such a meaningful estimate.
At December 31, 2015, there were 14 lawsuits involving claims made against WMC arising from alleged breaches of representations and warranties on mortgage loans included in 13 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, 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) | 2015 | 2014 | 2013 | |||||
| Total revenues and other income (loss) | $ | (184) | $ | (291) | $ | (346) | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | (146) | $ | (199) | $ | (232) | ||
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.
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 OTHER FINANCIAL SERVICES | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Total revenues and other income (loss) | $ | 8 | $ | 23 | $ | 532 | |||
| Gain (loss) on disposal, net of taxes | $ | - | $ | 15 | $ | (1,781) | (a) | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | 32 | $ | 92 | $ | (1,823) | |||
(a)\tPrimarily reflects agreement with the buyer of GE Money Japan to extinguish an obligation under terms specified in the 2008 sale agreement.
GE Industrial
The sum of GE industrial earnings (loss) from discontinued operations, net of taxes, was $(10) million, $(5) million, and $(66) million for the years ended December 31, 2015, 2014, 2013, respectively. During the fourth quarter of 2013, we recorded an increase to our tax reserve related to Spanish taxes for the years prior to 2007 disposition of our Plastics business. GE Capital earnings (loss) from discontinued operations, net of taxes, after adjusting for earnings (loss) attributable to noncontrolling interests related to discontinued operations, is reported within GE industrial earnings (loss) from discontinued operations, net of taxes, on the Statement of Earnings.
| GROSS REALIZED GAINS AND LOSSES ON AVAILABLE-FOR-SALE INVESTMENT SECURITIES | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| GE | |||||||||
| Gains | $ | 7 | $ | 3 | $ | 1 | |||
| Losses, including impairments | (36) | (218) | (20) | ||||||
| Net | (29) | (215) | (19) | ||||||
| GE Capital | |||||||||
| Gains | 121 | 87 | 128 | ||||||
| Losses, including impairments | (51) | (104) | (156) | ||||||
| Net | 70 | (16) | (28) | ||||||
| Total | $ | 41 | $ | (231) | $ | (47) | |||
NOTE 8. ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Acquisitions
On November 2, 2015, we acquired the Thermal, Renewables and Grid businesses from Alstom. The purchase price was €9,200 million ($10,135 million), net of cash acquired of approximately €1,600 million ($1,765 million). As further discussed below and elsewhere in this report, the acquired Alstom businesses had a significant impact on our industrial businesses, directly affecting accounting and reporting related to three of our operating segments, as well as the creation of several new, jointly-owned entities. Given the timing and complexity of the acquisition, the presentation of these businesses in our financial statements, including the allocation of the purchase price, is preliminary and likely to change in future reporting periods. We will complete our post-closing procedures and purchase price allocation no later than the fourth quarter of 2016.
As noted above, we formed three consolidated joint ventures with Alstom in grid technology, renewable energy, and global nuclear and French steam power. In addition, GE contributed its Digital Energy business to the grid technology joint venture.
Alstom holds redemption rights with respect to its interest in each joint venture, which, if exercised, would require us to purchase all of their interest during September 2018 or September 2019 for the grid technology and renewable energy joint ventures. Alstom also holds similar redemption rights for the global nuclear and French steam power joint venture, that are exercisable during the first full calendar quarter immediately following the fifth or sixth anniversary of the acquisition date. The redemption price would generally be equal to Alstom’s initial investment plus annual accretion of 3% for the grid technology and renewable energy joint ventures and plus annual accretion of 2% for the nuclear and French steam power joint venture, with potential upside sharing based on an EBITDA multiple. Alstom also holds additional redemption rights in other limited circumstances as well as a call option to require GE to sell all of its interests in the renewable energy joint venture at the higher of fair value or Alstom’s initial investment plus annual accretion of 3% during the month of May in the years 2016 through 2019 and also upon a decision to IPO the joint venture.
GE holds a call option on Alstom’s interest in the global nuclear and French steam power joint venture at the same amount as Alstom’s redemption price in the event that Alstom exercises its put option in the grid technology or renewable energy joint ventures. GE also has call options on Alstom’s interest in the three joint ventures in other limited circumstances. In addition, the French Government holds a preferred interest in the global nuclear and French steam power joint venture, giving it certain protective rights.
The acquisition and alliances with Alstom affected our Power, Energy Management and Renewable Energy segments. The financial impact of acquired businesses on individual segments will be affected by a number of variables, including operating performance, purchase accounting effects and expected synergies. In addition, due to the amount of time that elapsed between signing and closing, the commercial operations of the businesses were negatively affected primarily as a result of uncertainty among Alstom customers regarding the execution of the transaction. This affected the overall valuation of the acquired businesses at the time of close and, accordingly, is reflected in the amounts assigned to the assets and liabilities recorded in purchase accounting. The fair value of the acquired businesses, including a preliminary valuation of non-controlling interest, at the time of close was approximately $13,700 million, net of cash acquired. The preliminary purchase price allocation resulted in approximately $13,500 million of goodwill and $4,065 million of amortizable intangible assets. The preliminary fair value of the associated non-controlling interest is approximately $3,600 million, which consists of approximately $2,900 million for Alstom’s redeemable non-controlling interest in the three joint ventures (presented separately from total equity in the consolidated balance sheet) and $700 million for all other non-controlling interest.
In order to obtain approval by the European Commission and the Department of Justice, GE pledged to sell certain of Alstom’s gas-turbine assets and its Power Systems Manufacturing subsidiary to Ansaldo Energia SpA (Ansaldo) after the close of the transaction for approximately €120 million. The purchase price will be paid by Ansaldo over a period of five years. We expect the transaction to close in the first quarter of 2016.
On January 30, 2015, we acquired Milestone Aviation Group (Milestone Aviation), a helicopter leasing business, for approximately $1,750 million, which is included in our Capital segment. The purchase price allocation resulted in goodwill of approximately $730 million and amortizable intangible assets of approximately $345 million.
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 purchase price allocation resulted in goodwill of approximately $280 million and amortizable intangible assets of approximately $95 million.
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 purchase price allocation resulted in goodwill of approximately $270 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 purchase price allocation resulted in goodwill of approximately $695 million and amortizable intangible assets of approximately $320 million.
GOODWILL
| CHANGES IN GOODWILL BALANCES | |||||||||||||||||||||||
| 2015 | 2014 | ||||||||||||||||||||||
| Dispositions, | Dispositions, | ||||||||||||||||||||||
| currency | currency | ||||||||||||||||||||||
| Balance at | exchange | Balance at | Balance at | exchange | Balance at | ||||||||||||||||||
| (In millions) | January 1 | Acquisitions(a) | and other | December 31 | January 1 | Acquisitions | and other | December 31 | |||||||||||||||
| Power | $ | 7,769 | $ | 9,582 | $ | (615) | $ | 16,736 | $ | 7,852 | $ | 21 | $ | (104) | $ | 7,769 | |||||||
| Renewable Energy | 984 | 1,631 | (35) | 2,580 | 970 | - | 14 | 984 | |||||||||||||||
| Oil & Gas | 10,572 | 22 | - | 10,594 | 10,516 | 276 | (220) | 10,572 | |||||||||||||||
| Energy Management | 4,570 | 2,314 | (657) | 6,227 | 4,748 | - | (178) | 4,570 | |||||||||||||||
| Aviation | 8,952 | - | (385) | 8,567 | 9,103 | - | (151) | 8,952 | |||||||||||||||
| Healthcare | 17,532 | 11 | (190) | 17,353 | 16,643 | 1,004 | (115) | 17,532 | |||||||||||||||
| Transportation | 887 | - | (36) | 851 | 1,012 | 2 | (127) | 887 | |||||||||||||||
| Appliances & Lighting | 226 | - | (12) | 214 | 606 | - | (380) | 226 | |||||||||||||||
| Capital | 1,680 | 728 | (37) | 2,370 | 1,684 | - | (3) | 1,680 | |||||||||||||||
| Corporate | 34 | - | - | 34 | 3 | 31 | - | 34 | |||||||||||||||
| Total | $ | 53,207 | $ | 14,287 | $ | (1,968) | $ | 65,526 | $ | 53,137 | $ | 1,334 | $ | (1,264) | $ | 53,207 | |||||||
(a)\tGoodwill balances associated with Alstom and their allocations to segments are preliminary. \n
Goodwill balances increased by $12,319 million in 2015, primarily as a result of the Alstom and Milestone Aviation acquisitions, partially offset by currency exchange effects of the stronger U.S dollar and disposals.
Goodwill balances increased $70 million in 2014, primarily as a result of acquisitions at Healthcare and Oil & Gas partially offset by currency exchange effects of a stronger U.S. dollar.
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.
\n
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 10.0% to 15.5%.
During the third quarter of 2015, 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 in 2015, we identified one reporting unit for which the fair value was not substantially in excess of its carrying value. Due to the sharp decline experienced in oil prices and the prospect of a continuation of prevailing oil prices, the fair value of our Energy Financial Services reporting unit, within our Capital operating segment, has been impacted and was in excess of its carrying value by approximately 13%. Due to the continued decline in oil prices, we performed an impairment test in the fourth quarter using data as of December 31, 2015, which resulted in the fair value of our Energy Financial Services reporting unit being in excess of its carrying value by approximately 12%. The goodwill associated with our Energy Financial Services reporting unit was $1,386 million at December 31, 2015, representing approximately 2% of our total goodwill. Our Oil & Gas business has also experienced declines in orders, project commencement delays and pricing pressures, which affect the fair value of our Oil & Gas reporting units. While the goodwill of these reporting units is not currently impaired, we will continue to monitor the oil & gas industry and the impact it may have on these businesses.
As of December 31, 2015, 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 2014, 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%. In the current year, the fair value of the Power Conversion reporting unit significantly exceeded its carrying value. The increase in fair value over its carrying value was driven primarily by a stabilization of the business and cost cutting measures. In addition, our carrying value has decreased due to currency effects of a stronger U.S. dollar.
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 | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| Intangible assets subject to amortization | $ | 16,634 | $ | 13,052 | |
| Indefinite-lived intangible assets(a) | 109 | 130 | |||
| Total | $ | 16,744 | $ | 13,182 | |
(a)\tIndefinite-lived intangible assets principally comprise trademarks and in-process research and development.
| INTANGIBLE ASSETS SUBJECT TO AMORTIZATION | |||||||||||||||||
| 2015 | 2014 | ||||||||||||||||
| Gross | Gross | ||||||||||||||||
| carrying | Accumulated | carrying | Accumulated | ||||||||||||||
| December 31 (In millions) | amount | amortization | Net | amount | amortization | Net | |||||||||||
| Customer-related | $ | 8,650 | $ | (2,059) | $ | 6,591 | $ | 7,139 | $ | (1,772) | $ | 5,367 | |||||
| Patents and technology | 8,543 | (3,096) | 5,447 | 6,685 | (2,894) | 3,791 | |||||||||||
| Capitalized software | 7,375 | (4,136) | 3,239 | 6,509 | (3,547) | 2,962 | |||||||||||
| Trademarks | 1,337 | (282) | 1,055 | 1,129 | (251) | 878 | |||||||||||
| Lease valuations | 167 | (22) | 145 | - | - | - | |||||||||||
| Present value of future profits(a) | 651 | (651) | - | 614 | (614) | - | |||||||||||
| All other | 267 | (108) | 159 | 107 | (53) | 54 | |||||||||||
| Total | $ | 26,990 | $ | (10,354) | $ | 16,634 | $ | 22,183 | $ | (9,131) | $ | 13,052 | |||||
(a)\tBalances at December 31, 2015 and 2014 reflect adjustments of $266 million and $293 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 2015, we recorded additions to intangible assets subject to amortization of $5,764 million, primarily driven by Alstom, capitalized software across all business lines and Milestone Aviation. The components of finite-lived intangible assets acquired during 2015 and their respective weighted average amortizable period follow.
| COMPONENTS OF FINITE-LIVED INTANGIBLE ASSETS ACQUIRED DURING 2015 | ||||||
| Weighted-average | ||||||
| Gross | amortizable period | |||||
| (In millions) | carrying value | (in years) | ||||
| Customer-related | $ | 1,737 | 8.5 | |||
| Patents and technology | 2,213 | 10.2 | ||||
| Capitalized software | 1,196 | 7.0 | ||||
| Trademarks | 223 | 6.3 | ||||
| Lease valuations | 167 | 4.7 | ||||
| All other | 227 | 9.5 | ||||
GE amortization expense related to intangible assets subject to amortization was $1,505 million, $1,386 million and $1,286 million in 2015, 2014 and 2013, respectively. GE Capital amortization expense related to intangible assets subject to amortization was $148 million, $84 million and $93 million in 2015, 2014 and 2013, respectively. Estimated GE Consolidated annual pre-tax amortization for intangible assets over the next five calendar years follows.
| ESTIMATED 5 YEAR CONSOLIDATED AMORTIZATION | ||||||||||||||
| (In millions) | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||
| Estimated annual pre-tax amortization | $ | 1,952 | $ | 1,853 | $ | 1,851 | $ | 1,725 | $ | 1,591 | ||||
| INTANGIBLE ASSETS SUBJECT TO AMORTIZATION | |||||||||||||||||
| 2015 | 2014 | ||||||||||||||||
| Gross | Gross | ||||||||||||||||
| carrying | Accumulated | carrying | Accumulated | ||||||||||||||
| December 31 (In millions) | amount | amortization | Net | amount | amortization | Net | |||||||||||
| Customer-related | $ | 8,650 | $ | (2,059) | $ | 6,591 | $ | 7,139 | $ | (1,772) | $ | 5,367 | |||||
| Patents and technology | 8,543 | (3,096) | 5,447 | 6,685 | (2,894) | 3,791 | |||||||||||
| Capitalized software | 7,375 | (4,136) | 3,239 | 6,509 | (3,547) | 2,962 | |||||||||||
| Trademarks | 1,337 | (282) | 1,055 | 1,129 | (251) | 878 | |||||||||||
| Lease valuations | 167 | (22) | 145 | - | - | - | |||||||||||
| Present value of future profits(a) | 651 | (651) | - | 614 | (614) | - | |||||||||||
| All other | 267 | (108) | 159 | 107 | (53) | 54 | |||||||||||
| Total | $ | 26,990 | $ | (10,354) | $ | 16,634 | $ | 22,183 | $ | (9,131) | $ | 13,052 | |||||
(a)\tBalances at December 31, 2015 and 2014 reflect adjustments of $266 million and $293 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 6. GE Capital FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
| FINANCING RECEIVABLES, NET | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| Loans, net of deferred income | $ | 20,115 | $ | 20,270 | |
| Investment in financing leases, net of deferred income | 4,969 | 5,471 | |||
| 25,084 | 25,741 | ||||
| Allowance for losses | (81) | (93) | |||
| Financing receivables – net | $ | 25,003 | $ | 25,647 | |
| NET INVESTMENT IN FINANCING LEASES | |||||||||||||||||
| Total financing leases | Direct financing leases(a) | Leveraged leases(b) | |||||||||||||||
| December 31 (In millions) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||
| Total minimum lease payments receivable | $ | 5,901 | $ | 6,755 | $ | 3,251 | $ | 3,669 | $ | 2,649 | $ | 3,086 | |||||
| Less principal and interest on third-party | |||||||||||||||||
| non-recourse debt | (1,482) | (1,868) | - | - | (1,482) | (1,868) | |||||||||||
| Net rentals receivables | 4,419 | 4,887 | 3,251 | 3,669 | 1,167 | 1,218 | |||||||||||
| Estimated unguaranteed residual value | |||||||||||||||||
| of leased assets | 2,057 | 2,371 | 928 | 1,138 | 1,129 | 1,233 | |||||||||||
| Less deferred income | (1,507) | (1,787) | (913) | (1,101) | (593) | (686) | |||||||||||
| Investment in financing leases, net of | |||||||||||||||||
| deferred income | 4,969 | 5,471 | 3,266 | 3,706 | 1,703 | 1,765 | |||||||||||
| Less amounts to arrive at net investment | |||||||||||||||||
| Allowance for losses | (27) | (29) | (15) | (14) | (13) | (15) | |||||||||||
| Deferred taxes | (1,665) | (1,899) | (593) | (697) | (1,071) | (1,202) | |||||||||||
| Net investment in financing leases | $ | 3,277 | $ | 3,543 | $ | 2,658 | $ | 2,995 | $ | 619 | $ | 548 | |||||
| CONTRACTUAL MATURITIES | |||||
| Total | Net rentals | ||||
| (In millions) | loans | receivable | |||
| Due in | |||||
| 2016 | $ | 13,937 | $ | 821 | |
| 2017 | 1,299 | 719 | |||
| 2018 | 769 | 715 | |||
| 2019 | 1,428 | 564 | |||
| 2020 | 722 | 425 | |||
| 2021 and later | 1,959 | 1,174 | |||
| Total | $ | 20,115 | $ | 4,419 | |
We expect actual maturities to differ from contractual maturities.
| ALLOWANCE FOR LOSSES | |||||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||||||||||
| Beginning balance | $ | 93 | $ | 44 | $ | 43 | |||||||||||
| Provision | 48 | 79 | 4 | ||||||||||||||
| Net write-offs(a) | (60) | (27) | (4) | ||||||||||||||
| Other(b) | (1) | (3) | 1 | ||||||||||||||
| Ending balance | $ | 81 | $ | 93 | $ | 44 | |||||||||||
We manage our financing receivable portfolios using delinquency and nonaccrual data as key performance indicators. Substantially all of our financing receivables are secured at December 31, 2015 and 2014.
At December 31, 2015, $622 million (2.5%), $201 million (0.8%) and $256 million (1.0%) of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively. At December 31, 2014, $610 million (2.4%), $131 million (0.5%) and $512 million (2.0%) of financing receivables were over 30 days past due, over 90 days past due and on nonaccrual, respectively. The vast majority of nonaccrual loans at December 31, 2015 and 2014, which are primarily at GECAS, are currently paying in accordance with their contractual terms.
The recorded investment in impaired loans at December 31, 2015 and 2014 was $175 million and $412 million, respectively, primarily in GECAS, and included $2 million and $20 million of impaired loans with specific allowances of $1 and $16 million, respectively, primarily at EFS. The method used to measure impairment for these loans is primarily based on collateral value. At December 31, 2015, troubled debt restructurings included in impaired loans were $116 million, the vast majority at GECAS.
| CASH FLOW HEDGE ACTIVITY | |||||||||||
| Gain (loss) reclassified | |||||||||||
| Gain (loss) recognized in AOCI | from AOCI into earnings | ||||||||||
| (In millions) | 2015 | 2014 | 2015 | 2014 | |||||||
| Interest rate contracts | $ | (1) | $ | (1) | $ | (130) | $ | (234) | |||
| Currency exchange contracts | (907) | (541) | (784) | (641) | |||||||
| Commodity contracts | (5) | (4) | (4) | (3) | |||||||
| Total(a) | $ | (913) | $ | (546) | $ | (918) | $ | (878) | |||
(a)\tGain (loss) is recorded in GE Capital revenues from services, interest and other financial charges, and other costs and expenses when reclassified to earnings.
NOTE 21. 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. 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 2015 or 2014.
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.
Consolidated Variable Interest Entities
Our most significant consolidated VIEs are the three joint ventures we formed with Alstom to facilitate the Alstom acquisition. These joint ventures include grid technology, renewable energy, and global nuclear and French steam power. The assets, liabilities and redeemable non-controlling interest in the joint ventures as of December 31, 2015 was $11,536 million, $8,739 million and $2,859 million, respectively. Further information about the formation of the Alstom joint ventures is provided in Note 8. These joint ventures are VIEs due to the nature of the exit mechanisms held by Alstom and are consolidated by GE because we control all significant activities of the joint ventures. As these joint ventures are businesses, would otherwise be consolidated under the voting model and their assets can be used for purposes other than settlement of the joint ventures’ obligations, there is no continuing VIE disclosure requirement for these consolidated joint ventures.
The Consolidated VIEs for which we have continuing disclosure requirements fall into three main groups. 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, which are further described below:
The trade receivables in this entity have similar risks and characteristics to our other trade receivables and were underwritten to the same standard. Accordingly, the performance of these assets has been similar to our other trade receivables; however, the blended performance of the pools of receivables in this entity reflects the eligibility criteria that we apply to determine which receivables are selected for transfer. Contractually the cash flows from these trade 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 this entity have no claim on other assets of GE.
| ASSETS AND LIABILITIES OF CONSOLIDATED VIEs | |||||||||||
| Trade | |||||||||||
| receivables | |||||||||||
| (In millions) | Trinity(a) | securitization(b) | Other | Total | |||||||
| December 31, 2015 | |||||||||||
| Assets(c) | |||||||||||
| Financing receivables, net | $ | - | $ | - | $ | 882 | $ | 882 | |||
| Current receivables | - | 3,506 | (d) | 361 | 3,867 | ||||||
| Investment securities | 409 | - | 995 | 1,404 | |||||||
| Other assets | 46 | 24 | 2,934 | 3,004 | |||||||
| Total | $ | 455 | $ | 3,530 | $ | 5,172 | $ | 9,157 | |||
| Liabilities(c) | |||||||||||
| Borrowings | $ | - | $ | - | $ | 1,297 | $ | 1,297 | |||
| Non-recourse borrowings | - | 3,022 | 61 | 3,083 | |||||||
| Other liabilities | 184 | 34 | 1,654 | 1,872 | |||||||
| Total | $ | 184 | $ | 3,056 | $ | 3,012 | $ | 6,252 | |||
| December 31, 2014 | |||||||||||
| Assets(c) | |||||||||||
| Financing receivables, net | $ | - | $ | - | $ | 1,030 | $ | 1,030 | |||
| Current receivables | - | 3,028 | (d) | 278 | 3,306 | ||||||
| Investment securities | 2,369 | - | 1,005 | 3,374 | |||||||
| Other assets | 17 | 2 | 2,259 | 2,278 | |||||||
| Total | $ | 2,386 | $ | 3,030 | $ | 4,572 | $ | 9,988 | |||
| Liabilities(c) | |||||||||||
| Borrowings | $ | - | $ | - | $ | 517 | $ | 517 | |||
| Non-recourse borrowings | - | 2,692 | 436 | 3,128 | |||||||
| Other liabilities | 1,022 | 26 | 1,325 | 2,373 | |||||||
| Total | $ | 1,022 | $ | 2,718 | $ | 2,278 | $ | 6,018 | |||
Total revenues from our consolidated VIEs were $1,638 million, $1,457 million and $994 million in 2015, 2014 and 2013, respectively. Related expenses consisted primarily of cost of goods and services of $1,232 million, $823 million and $675 million in 2015, 2014 and 2013, respectively. These amounts do not include intercompany revenues and costs, 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.
The classification of our variable interests in these entities in our financial statements is based on the nature of the entity and the characteristics of the investment we hold.
| INVESTMENTS IN UNCONSOLIDATED VIEs | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| Other assets and investment securities | $ | 745 | $ | 704 | |
| Financing receivables – net | 13 | 109 | |||
| Total investments | 758 | 813 | |||
| Contractual obligations to fund investments, guarantees or revolving lines of credit | 29 | 11 | |||
| Total | $ | 787 | $ | 824 | |
In addition to the entities included in the table above, we also hold passive investments in investment securities 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.
| 2015 | 2014 | ||||||||||||||||||||||
| 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 | $ | 2 | $ | - | $ | - | $ | 3 | $ | 12 | $ | - | $ | - | $ | 12 | |||||||
| Corporate – non-U.S. | 1 | - | - | 1 | 1 | - | - | 1 | |||||||||||||||
| U.S. government and federal | |||||||||||||||||||||||
| agency | 49 | - | - | 49 | - | - | - | - | |||||||||||||||
| Equity | 87 | 13 | (2) | 98 | 69 | 4 | (2) | 71 | |||||||||||||||
| 139 | 14 | (2) | 151 | 82 | 4 | (2) | 84 | ||||||||||||||||
| GE Capital | |||||||||||||||||||||||
| Debt | |||||||||||||||||||||||
| U.S. corporate | 19,971 | 2,669 | (285) | 22,355 | 19,801 | 3,961 | (70) | 23,692 | |||||||||||||||
| State and municipal | 3,910 | 407 | (73) | 4,245 | 4,116 | 554 | (52) | 4,618 | |||||||||||||||
| Mortgage and asset-backed(a) | 2,995 | 157 | (35) | 3,116 | 4,478 | 328 | (29) | 4,777 | |||||||||||||||
| Corporate – non-U.S. | 759 | 96 | (9) | 846 | 844 | 109 | (1) | 952 | |||||||||||||||
| Government – non-U.S. | 279 | 136 | - | 415 | 362 | 129 | - | 491 | |||||||||||||||
| U.S. government and federal | |||||||||||||||||||||||
| agency | 623 | 104 | - | 727 | 705 | 56 | - | 761 | |||||||||||||||
| Equity | 112 | 16 | (4) | 123 | 112 | 23 | (1) | 134 | |||||||||||||||
| 28,648 | 3,585 | (407) | 31,827 | 30,417 | 5,160 | (153) | 35,425 | ||||||||||||||||
| Eliminations | (4) | - | - | (4) | (4) | - | - | (4) | |||||||||||||||
| Total | $ | 28,783 | $ | 3,599 | $ | (409) | $ | 31,973 | $ | 30,496 | $ | 5,164 | $ | (155) | $ | 35,505 | |||||||
(a)\tIncluded residential mortgage-backed securities substantially collateralized by U.S. mortgages. At December 31, 2015, $587 million related to securities issued by government-sponsored entities and $30 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.
note 3. INVESTMENT SECURITIES
| 2015 | 2014 | ||||||||||||||||||||||
| 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 | $ | 2 | $ | - | $ | - | $ | 3 | $ | 12 | $ | - | $ | - | $ | 12 | |||||||
| Corporate – non-U.S. | 1 | - | - | 1 | 1 | - | - | 1 | |||||||||||||||
| U.S. government and federal | |||||||||||||||||||||||
| agency | 49 | - | - | 49 | - | - | - | - | |||||||||||||||
| Equity | 87 | 13 | (2) | 98 | 69 | 4 | (2) | 71 | |||||||||||||||
| 139 | 14 | (2) | 151 | 82 | 4 | (2) | 84 | ||||||||||||||||
| GE Capital | |||||||||||||||||||||||
| Debt | |||||||||||||||||||||||
| U.S. corporate | 19,971 | 2,669 | (285) | 22,355 | 19,801 | 3,961 | (70) | 23,692 | |||||||||||||||
| State and municipal | 3,910 | 407 | (73) | 4,245 | 4,116 | 554 | (52) | 4,618 | |||||||||||||||
| Mortgage and asset-backed(a) | 2,995 | 157 | (35) | 3,116 | 4,478 | 328 | (29) | 4,777 | |||||||||||||||
| Corporate – non-U.S. | 759 | 96 | (9) | 846 | 844 | 109 | (1) | 952 | |||||||||||||||
| Government – non-U.S. | 279 | 136 | - | 415 | 362 | 129 | - | 491 | |||||||||||||||
| U.S. government and federal | |||||||||||||||||||||||
| agency | 623 | 104 | - | 727 | 705 | 56 | - | 761 | |||||||||||||||
| Equity | 112 | 16 | (4) | 123 | 112 | 23 | (1) | 134 | |||||||||||||||
| 28,648 | 3,585 | (407) | 31,827 | 30,417 | 5,160 | (153) | 35,425 | ||||||||||||||||
| Eliminations | (4) | - | - | (4) | (4) | - | - | (4) | |||||||||||||||
| Total | $ | 28,783 | $ | 3,599 | $ | (409) | $ | 31,973 | $ | 30,496 | $ | 5,164 | $ | (155) | $ | 35,505 | |||||||
(a)\tIncluded residential mortgage-backed securities substantially collateralized by U.S. mortgages. At December 31, 2015, $587 million related to securities issued by government-sponsored entities and $30 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 decreased to $31,973 million at December 31, 2015, from $35,505 million at December 31, 2014, primarily due to a decline in unrealized gains resulting from higher interest rates, and net sales, primarily related to mortgage-backed securities.
| 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 | |||||||||
| (In millions) | fair value(a) | losses(a)(b) | fair value | losses(b) | ||||||||
| December 31, 2015 | ||||||||||||
| Debt | ||||||||||||
| U.S. corporate | $ | 2,966 | $ | (218) | $ | 433 | $ | (67) | ||||
| State and municipal | 494 | (20) | 155 | (53) | ||||||||
| Mortgage and asset-backed | 719 | (20) | 84 | (16) | ||||||||
| Corporate – non-U.S. | 56 | (4) | 14 | (4) | ||||||||
| Equity | 36 | (6) | - | - | ||||||||
| Total | $ | 4,273 | $ | (269) | $ | 686 | $ | (140) | (c) | |||
| December 31, 2014 | ||||||||||||
| Debt | ||||||||||||
| U.S. corporate | $ | 556 | $ | (17) | $ | 836 | $ | (53) | ||||
| State and municipal | 67 | (1) | 274 | (51) | ||||||||
| Mortgage and asset-backed | 174 | (1) | 307 | (28) | ||||||||
| Corporate – non-U.S. | 39 | (1) | - | - | ||||||||
| Equity | 10 | (3) | - | - | ||||||||
| Total | $ | 846 | $ | (22) | $ | 1,417 | $ | (132) | ||||
(a)\tIncludes the estimated fair value of and gross unrealized losses on equity securities held by GE. At December 31, 2015, the estimated fair value of and gross unrealized losses on equity securities were $6 million and $(2) million, respectively. At December 31, 2014, the estimated fair value of and gross unrealized losses on equity securities were $4 million and $(2) million, respectively.
(b)\tIncluded gross unrealized losses of $(1) million related to securities that had other-than-temporary impairments previously recognized at December 31, 2015.
(c)\tIncludes debt securities held to support obligations to holders of Guaranteed Investment Contracts (GICs) all of which are considered to be investment-grade by the major rating agencies at December 31, 2015.
Unrealized losses are not indicative of the amount of credit loss that would be recognized and at December 31, 2015 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 2015 have not changed.
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.
Mortgage and asset-backed securities primarily comprise commercial and residential mortgage-backed securities.
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), about half of which were originated in 2008 and prior. The vast majority of the securities in our CMBS portfolio have investment-grade credit ratings.
Our residential mortgage-backed securities (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, 2015, $587 million and $30 million related to agency and non-agency securities, respectively. Additionally, $57 million was related to residential subprime credit securities, primarily supporting obligations to annuitants and policyholders in our run-off insurance operations. Substantially all of the subprime exposure is related to securities backed by mortgage loans originated in 2005 and prior and are investment grade.
| PRE-TAX, OTHER-THAN-TEMPORARY IMPAIRMENTS ON INVESTMENT SECURITIES | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Total pre-tax, OTTI recognized | $ | 64 | $ | 316 | $ | 201 | |||
| Pre-tax, OTTI recognized in AOCI | - | (4) | (31) | ||||||
| Pre-tax, OTTI recognized in earnings(a) | $ | 64 | $ | 312 | $ | 170 | |||
(a)\tIncluded pre-tax, other-than-temporary impairments recorded in earnings related to equity securities of $5 million, $219 million and an insignificant amount in 2015, 2014 and 2013, respectively
| CHANGES IN CUMULATIVE CREDIT LOSS IMPAIRMENTS RECOGNIZED ON DEBT SECURITIES STILL HELD | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Cumulative credit loss impairments recognized, beginning of period | $ | 176 | $ | 473 | $ | 391 | ||
| Credit loss impairments recognized on securities not previously impaired | 31 | 1 | 120 | |||||
| Incremental credit loss impairments recognized | ||||||||
| on securities previously impaired | - | 4 | 25 | |||||
| Less credit loss impairments previously recognized on securities sold | ||||||||
| during the period or that we intend to sell | 3 | 301 | 63 | |||||
| Cumulative credit loss impairments recognized, end of period | $ | 205 | $ | 176 | $ | 473 | ||
| CONTRACTUAL MATURITIES OF INVESTMENT IN AVAILABLE-FOR-SALE DEBT SECURITIES | |||||
| (EXCLUDING MORTGAGE AND ASSET-BACKED SECURITIES) | |||||
| Amortized | Estimated | ||||
| (In millions) | cost | fair value | |||
| Due | |||||
| Within one year | $ | 495 | $ | 501 | |
| After one year through five years | 2,556 | 2,745 | |||
| After five years through ten years | 4,846 | 5,097 | |||
| After ten years | 17,648 | 20,248 | |||
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) | 2015 | 2014 | 2013 | ||||||
| GE | |||||||||
| Gains | $ | 7 | $ | 3 | $ | 1 | |||
| Losses, including impairments | (36) | (218) | (20) | ||||||
| Net | (29) | (215) | (19) | ||||||
| GE Capital | |||||||||
| Gains | 121 | 87 | 128 | ||||||
| Losses, including impairments | (51) | (104) | (156) | ||||||
| Net | 70 | (16) | (28) | ||||||
| Total | $ | 41 | $ | (231) | $ | (47) | |||
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.
Proceeds from investment securities sales and early redemptions by issuers totaled $5,746 million, $1,898 million and $6,406 million for the years ended 2015, 2014 and 2013, respectively. In 2015, investment securities sales of U.S. government and federal agency securities, CMBS, and RMBS at Trinity totaled $4,254 million.
| FINANCIAL INFORMATION FOR REAL ESTATE | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Operations | |||||||||
| Total revenues and other income (loss) | $ | 911 | $ | 2,969 | $ | 3,915 | |||
| Interest | $ | (457) | $ | (1,079) | $ | (1,278) | |||
| Selling, general and administrative | (444) | (484) | (568) | ||||||
| Cost of services sold | (5) | - | - | ||||||
| Provision for losses on financing receivables | 5 | 86 | (28) | ||||||
| Other costs and expenses | (158) | (712) | (788) | ||||||
| Earnings (loss) from discontinued operations, | |||||||||
| before income taxes | (149) | 780 | 1,253 | ||||||
| Benefit (provision) for income taxes | 168 | 224 | 472 | ||||||
| Earnings (loss) from discontinued operations, net of taxes | $ | 19 | $ | 1,003 | $ | 1,725 | |||
| Disposal | |||||||||
| Gain (loss) on disposal before income taxes | $ | (1,338) | $ | - | $ | - | |||
| Benefit (provision) for income taxes | (639) | - | - | ||||||
| Gain (loss) on disposal, net of taxes | $ | (1,977) | $ | - | $ | - | |||
| Earnings (loss) from discontinued operations, net of taxes(a) | $ | (1,958) | $ | 1,003 | $ | 1,725 | |||
(a)\tEarnings (loss) from discontinued operations attributable to the Company, before income taxes, was $(1,486) million, $778 million and $1,246 million for the years ended December 31, 2015, 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) | 2015 | 2014 | 2015 | 2014 | |||||||||||
| GE | ||||||||||||||||
| Land and improvements | 8 | (a) | $ | 888 | $ | 690 | $ | 870 | $ | 698 | ||||||
| Buildings, structures and related equipment | 8-40 | 10,050 | 8,740 | 5,440 | 4,131 | |||||||||||
| Machinery and equipment | 4-20 | 24,515 | 23,370 | 9,986 | 9,040 | |||||||||||
| Leasehold costs and manufacturing plant under construction | 1-10 | 4,359 | 3,751 | 3,849 | 3,338 | |||||||||||
| 39,812 | 36,551 | 20,145 | 17,207 | |||||||||||||
| GE Capital(b) | ||||||||||||||||
| Land and improvements, buildings, structures and related equipment | 1-35 | (a) | 267 | 318 | 101 | 142 | ||||||||||
| Equipment leased to others | ||||||||||||||||
| Aircraft(c) | 15-20 | 50,339 | 46,017 | 34,316 | 30,573 | |||||||||||
| All other | 3-35 | 543 | 767 | 364 | 539 | |||||||||||
| 51,149 | 47,102 | 34,781 | 31,253 | |||||||||||||
| Eliminations | (939) | (462) | (831) | (390) | ||||||||||||
| Total | $ | 90,022 | $ | 83,191 | $ | 54,095 | $ | 48,070 | ||||||||
(a)\tDepreciable lives exclude land.
(b)\tIncluded $1,024 million and $731 million of original cost of assets leased to GE with accumulated amortization of $83 million and $60 million at December 31, 2015 and 2014, respectively.
(c)\tThe GECAS business of Capital recognized impairment losses of $168 million and $445 million in 2015 and 2014, respectively. These losses are recorded in the caption “Cost of services sold” in the Statement of Earnings to reflect adjustments to fair value based on management’s best estimates, which are benchmarked against third-party appraiser current market values for aircraft of similar type and age.
Consolidated depreciation and amortization related to property, plant and equipment was $4,847 million, $4,953 million and $5,202 million in 2015, 2014 and 2013, respectively. Amortization of GE Capital equipment leased to others was $2,266 million, $2,386 million and $2,693 million in 2015, 2014 and 2013, respectively.
Noncancellable future rentals due from customers for equipment on operating leases at December 31, 2015, are as follows:
| (In millions) | ||
| Due in | ||
| 2016 | $ | 4,162 |
| 2017 | 3,876 | |
| 2018 | 3,378 | |
| 2019 | 2,920 | |
| 2020 | 2,455 | |
| 2021 and later | 7,128 | |
| Total | $ | 23,919 |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Investment securities | ||||||||
| Balance at January 1 | $ | 1,013 | $ | 307 | $ | 677 | ||
| Other comprehensive income (loss) (OCI) before reclassifications – | ||||||||
| net of deferred taxes of $(270), $352 and $(408)(a) | (486) | 562 | (692) | |||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $(36), $85 and $223 | (67) | 146 | 318 | |||||
| Other comprehensive income (loss)(b) | (553) | 708 | (374) | |||||
| Less OCI attributable to noncontrolling interests | (1) | 2 | (4) | |||||
| Balance at December 31 | $ | 460 | $ | 1,013 | $ | 307 | ||
| Currency translation adjustments (CTA) | ||||||||
| Balance at January 1(c) | $ | (2,428) | $ | 283 | $ | 413 | ||
| OCI before reclassifications – net of deferred taxes | (4,932) | (2,600) | 510 | |||||
| of $1,348, $(129) and $(613) | ||||||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $(1,489), $213 and $793 | 1,794 | (129) | (818) | |||||
| Other comprehensive income (loss)(b) | (3,137) | (2,730) | (308) | |||||
| Less OCI attributable to noncontrolling interests | (66) | (19) | (22) | |||||
| Balance at December 31 | $ | (5,499) | $ | (2,428) | $ | 126 | ||
| Cash flow hedges | ||||||||
| Balance at January 1(c) | $ | (180) | $ | (414) | $ | (722) | ||
| OCI before reclassifications – net of deferred taxes | (732) | (609) | 737 | |||||
| of $(21), $22 and $251 | ||||||||
| Reclassifications from OCI – net of deferred taxes | ||||||||
| of $86, $34 and $(176) | 831 | 844 | (271) | |||||
| Other comprehensive income (loss)(b) | 99 | 234 | 466 | |||||
| Less OCI attributable to noncontrolling interests | - | - | 2 | |||||
| Balance at December 31 | $ | (80) | $ | (180) | $ | (257) | ||
| Benefit plans | ||||||||
| Balance at January 1 | $ | (16,578) | $ | (9,296) | $ | (20,597) | ||
| Prior service credit (costs) - net of deferred taxes | ||||||||
| of $859, $219 and $(5) | 1,541 | 396 | (6) | |||||
| Net actuarial gain (loss) – net of deferred taxes | ||||||||
| of $647, $(5,332) and $4,506 | 1,227 | (9,849) | 8,269 | |||||
| Net curtailment/settlement - net of deferred taxes | ||||||||
| of $(42), $41 and $0 | (76) | 72 | - | |||||
| Prior service cost amortization – net of deferred taxes | ||||||||
| of $103, $241 and $267 | 100 | 349 | 397 | |||||
| Net actuarial loss amortization – net of deferred taxes | ||||||||
| of $1,199, $859 and $1,343 | 2,373 | 1,753 | 2,640 | |||||
| Other comprehensive income (loss)(b) | 5,165 | (7,278) | 11,300 | |||||
| Less OCI attributable to noncontrolling interests | (3) | 3 | (1) | |||||
| Balance at December 31 | $ | (11,410) | $ | (16,578) | $ | (9,296) | ||
| Accumulated other comprehensive income (loss) at December 31 | $ | (16,529) | $ | (18,172) | $ | (9,119) | ||
(a)\tIncluded adjustments of $(611) million, $960 million and $(1,171) million in 2015, 2014 and 2013, 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 $1,575 million, $(9,066) million and $11,084 million in 2015, 2014 and 2013, respectively.
(c)\tIncluded a $157 million reclassification between 2014 opening balances in Currency Translation Adjustments and Cash Flow Hedges.
BUSINESSES AND ASSETS HELD FOR SALE
Businesses held for sale represent components that meet accounting requirements to be classified as held for sale and are presented as single asset and liability amounts in our financial statements with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less cost to sell. Financing receivables that no longer qualify to be presented as held for investment must be classified as held for sale and recognized in our financial statements at the lower of cost or fair value, less cost to sell, with that amount representing a new cost basis at the date of transfer.
The determination of fair value for businesses and portfolios of financing receivables involves significant judgments and assumptions. Development of estimates of fair values in this circumstance is complex and is dependent upon, among other factors, the nature of the potential sales transaction (for example, asset sale versus sale of legal entity), composition of assets and/or businesses in the disposal group, the comparability of the disposal group to market transactions, negotiations with third party purchasers etc. Such factors bear directly on the range of potential fair values and the selection of the best estimates. Key assumptions were developed 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.
We review all businesses and assets held for sale each reporting period to determine whether the existing carrying amounts are fully recoverable in comparison to estimated fair values.
| 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 | |||||||||
| (In millions) | fair value(a) | losses(a)(b) | fair value | losses(b) | ||||||||
| December 31, 2015 | ||||||||||||
| Debt | ||||||||||||
| U.S. corporate | $ | 2,966 | $ | (218) | $ | 433 | $ | (67) | ||||
| State and municipal | 494 | (20) | 155 | (53) | ||||||||
| Mortgage and asset-backed | 719 | (20) | 84 | (16) | ||||||||
| Corporate – non-U.S. | 56 | (4) | 14 | (4) | ||||||||
| Equity | 36 | (6) | - | - | ||||||||
| Total | $ | 4,273 | $ | (269) | $ | 686 | $ | (140) | (c) | |||
| December 31, 2014 | ||||||||||||
| Debt | ||||||||||||
| U.S. corporate | $ | 556 | $ | (17) | $ | 836 | $ | (53) | ||||
| State and municipal | 67 | (1) | 274 | (51) | ||||||||
| Mortgage and asset-backed | 174 | (1) | 307 | (28) | ||||||||
| Corporate – non-U.S. | 39 | (1) | - | - | ||||||||
| Equity | 10 | (3) | - | - | ||||||||
| Total | $ | 846 | $ | (22) | $ | 1,417 | $ | (132) | ||||
(a)\tIncludes the estimated fair value of and gross unrealized losses on equity securities held by GE. At December 31, 2015, the estimated fair value of and gross unrealized losses on equity securities were $6 million and $(2) million, respectively. At December 31, 2014, the estimated fair value of and gross unrealized losses on equity securities were $4 million and $(2) million, respectively.
(b)\tIncluded gross unrealized losses of $(1) million related to securities that had other-than-temporary impairments previously recognized at December 31, 2015.
(c)\tIncludes debt securities held to support obligations to holders of Guaranteed Investment Contracts (GICs) all of which are considered to be investment-grade by the major rating agencies at December 31, 2015.
| FINANCIAL INFORMATION FOR COMMERCIAL LENDING AND LEASING | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Operations | |||||||||
| Total revenues and other income (loss) | $ | 10,580 | $ | 13,413 | $ | 13,144 | |||
| Interest | $ | (2,365) | $ | (3,069) | $ | (3,300) | |||
| Selling, general and administrative expenses | (3,576) | (3,598) | (3,538) | ||||||
| Cost of services sold | (1,735) | (3,859) | (4,002) | ||||||
| Provision for losses on financing receivables | (1,753) | (456) | (736) | ||||||
| Other costs and expenses | (127) | (135) | (94) | ||||||
| Earnings (loss) from discontinued operations, before income taxes | 1,024 | 2,296 | 1,474 | ||||||
| Benefit (provision) for income taxes | (186) | (487) | 65 | ||||||
| Earnings (loss) from discontinued operations, net of taxes | $ | 838 | $ | 1,808 | $ | 1,539 | |||
| Disposal | |||||||||
| Gain (loss) on disposal before income taxes | $ | (8,013) | $ | - | $ | - | |||
| Benefit (provision) for income taxes | (698) | - | - | ||||||
| Gain (loss) on disposal, net of taxes | $ | (8,711) | $ | - | $ | - | |||
| Earnings (loss) from discontinued operations, net of taxes(a) | $ | (7,873) | $ | 1,808 | $ | 1,539 | |||
(a)\tEarnings (loss) from discontinued operations attributable to the Company, before income taxes, was $(6,996) million, $2,279 million and $1,457 million for the years ended December 31, 2015, 2014 and 2013, respectively.
| 2015 | 2014 | 2013 | |||||||||||||||
| (In millions; per-share amounts in dollars) | Diluted | Basic | Diluted | Basic | Diluted | Basic | |||||||||||
| Amounts attributable to the Company: | |||||||||||||||||
| Consolidated | |||||||||||||||||
| Earnings (loss) from continuing operations for | |||||||||||||||||
| per-share calculation(a) | $ | 1,680 | $ | 1,679 | $ | 9,523 | $ | 9,523 | $ | 7,596 | $ | 7,609 | |||||
| Preferred stock dividends declared | (18) | (18) | - | - | - | - | |||||||||||
| Earnings (loss) from continuing operations attributable to | |||||||||||||||||
| common shareowners for per-share calculation(a)(b) | $ | 1,662 | $ | 1,661 | $ | 9,523 | $ | 9,523 | $ | 7,596 | $ | 7,609 | |||||
| Earnings (loss) from discontinued operations | |||||||||||||||||
| for per-share calculation(a)(b) | (7,795) | (7,795) | 5,691 | 5,691 | 5,420 | 5,432 | |||||||||||
| Net earnings (loss) attributable to GE common | |||||||||||||||||
| shareowners for per-share calculation(a)(b) | $ | (6,135) | $ | (6,135) | $ | 15,213 | $ | 15,212 | $ | 13,028 | $ | 13,040 | |||||
| Average equivalent shares | |||||||||||||||||
| Shares of GE common stock outstanding | 9,944 | 9,944 | 10,045 | 10,045 | 10,222 | 10,222 | |||||||||||
| Employee compensation-related shares (including | |||||||||||||||||
| stock options) and warrants | 72 | - | 78 | - | 67 | - | |||||||||||
| Total average equivalent shares | 10,016 | 9,944 | 10,123 | 10,045 | 10,289 | 10,222 | |||||||||||
| Per-share amounts | |||||||||||||||||
| Earnings (loss) from continuing operations | $ | 0.17 | $ | 0.17 | $ | 0.94 | $ | 0.95 | $ | 0.74 | $ | 0.74 | |||||
| Earnings (loss) from discontinued operations | (0.78) | (0.78) | 0.56 | 0.57 | 0.53 | 0.53 | |||||||||||
| Net earnings (loss) | (0.61) | (0.62) | 1.50 | 1.51 | 1.27 | 1.28 | |||||||||||
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 had an insignificant effect.
For the years ended December 31, 2015, 2014 and 2013, there were approximately 97 million, 98 million and 121 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.
| FINANCIAL INFORMATION FOR WMC | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Total revenues and other income (loss) | $ | (184) | $ | (291) | $ | (346) | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | (146) | $ | (199) | $ | (232) | ||
NOTE 4. CURRENT RECEIVABLES
| Consolidated(a) | GE(b) | ||||||||||
| December 31 (In millions) | 2015 | 2014 | 2015 | 2014 | |||||||
| Power | $ | 6,675 | $ | 4,071 | $ | 4,377 | $ | 2,149 | |||
| Renewable Energy | 2,336 | 895 | 1,418 | 616 | |||||||
| Oil & Gas | 4,958 | 5,793 | 2,764 | 3,233 | |||||||
| Energy Management | 2,930 | 1,655 | 1,980 | 731 | |||||||
| Aviation | 4,133 | 4,656 | 1,876 | 1,997 | |||||||
| Healthcare | 4,022 | 4,350 | 1,943 | 2,241 | |||||||
| Transportation | 609 | 454 | 193 | 351 | |||||||
| Appliances & Lighting | 1,502 | 1,466 | 194 | 214 | |||||||
| Corporate items and eliminations | 372 | 391 | 464 | 466 | |||||||
| 27,538 | 23,732 | 15,209 | 11,998 | ||||||||
| Less Allowance for Losses | (515) | (495) | (502) | (485) | |||||||
| Total | $ | 27,022 | $ | 23,237 | $ | 14,707 | $ | 11,513 | |||
GE current receivables balances at December 31, 2015 and 2014, before allowance for losses, included $10,535 million and $7,808 million, respectively, from sales of goods and services to customers, and $17 million and $22 million at December 31, 2015 and 2014, respectively, from transactions with associated companies. The remainder of the balances primarily relates to supplier advances, revenue sharing programs and other non-income based tax receivables.
NOTE 12. POSTRETIREMENT BENEFIT PLANS
About our plans
We sponsor a number of pension plans, including our two principal pension plans for certain U.S. employees as well as other affiliate pension plans. Our principal pension plans, the GE Pension Plan and the GE Supplementary Pension Plan, are discussed below. A summary of other postretirement plans is also provided.
The GE Pension Plan is a defined benefit plan that covers 231,000 retirees and beneficiaries, 167,000 vested former employees and 75,000 active employees. This plan is closed to new participants. The GE Supplementary Pension Plan is an unfunded plan that provides supplementary benefits to higher-level, longer-service employees. The GE Supplementary Pension Plan annuity benefit is closed to new participants and has been replaced by an installment benefit. We use a December 31 measurement date for these plans.
On our balance sheet, we measure our plan assets at fair value and the obligations at the present value of the estimated payments to plan participants. Participants earn benefits based on their service and pay. Those estimated payment amounts are determined based on assumptions. Differences between our actual results and what we assumed are recorded in a separate component of equity each period. These differences are amortized into earnings over the remaining average future service of active employees or the expected life of participants, as applicable, who participate in the plan.
The cost of our plans
The amount we report in our earnings as pension cost consists of the following components:
Pension cost components follow.
| COST OF PENSION PLANS | ||||||||||
| Principal pension plans | ||||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||||
| Service cost for benefits earned | $ | 1,424 | $ | 1,205 | $ | 1,535 | ||||
| Prior service cost amortization | 205 | 214 | 246 | |||||||
| Expected return on plan assets | (3,302) | (3,190) | (3,500) | |||||||
| Interest cost on benefit obligations | 2,778 | 2,745 | 2,460 | |||||||
| Net actuarial loss amortization | 3,288 | 2,565 | 3,664 | |||||||
| Curtailment loss | 105 | 65 | - | |||||||
| Pension cost | $ | 4,498 | $ | 3,604 | $ | 4,405 | ||||
assumptions used in pension calculations
Accounting requirements necessitate the use of assumptions to reflect the uncertainties and the length of time over which the pension obligations will be paid. The actual amount of future benefit payments will depend upon when participants retire, the amount of their benefit at retirement and how long they live. To reflect the obligation in today’s dollars, we discount the future payments using a rate that matches the time frame over which the payments will be made. We also need to assume a long-term rate of return that will be earned on investments used to fund these payments.
\n
The assumptions used to measure our pension benefit obligations (PBO) follow.
| ASSUMPTIONS USED TO MEASURE PENSION BENEFIT OBLIGATIONS | ||||||
| Principal pension plans | ||||||
| December 31 | 2015 | 2014 | 2013 | |||
| Discount rate | 4.38 | % | 4.02 | % | 4.85 | % |
| Compensation increases | 3.80 | 4.10 | 4.00 | |||
The discount rate used to measure the pension obligation at the end of the year is also used to measure pension cost in the following year. The assumptions used to measure pension costs follow.
| ASSUMPTIONS USED TO MEASURE PENSION COST | ||||||
| Principal pension plans | ||||||
| December 31 | 2015 | 2014 | 2013 | |||
| Discount rate | 4.02 | % | 4.85 | % | 3.96 | % |
| Expected return on assets | 7.50 | 7.50 | 8.00 | |||
We evaluate these assumptions annually. We evaluate other assumptions periodically, such as retirement age, mortality and turnover, and update them as necessary to reflect our actual experience and expectations for the future.
The Society of Actuaries issued new mortality tables in 2014 projecting longer life expectancies that resulted in higher postretirement benefit obligations for U.S. companies. We updated our mortality assumptions as of December 31, 2014, which resulted in an increase of $3,953 million in our principal pension plans’ benefit obligations.
We determine the discount rate using the weighted average yields on high-quality fixed-income securities that have maturities consistent with the timing of benefit payments. Lower discount rates increase the size of the benefit obligation and pension expense in the following year; higher discount rates reduce the size of the benefit obligation and subsequent-year pension expense.
The expected return on plan assets is the estimated long-term rate of return that will be earned on the investments used to fund the pension obligation. To determine this rate, we consider the current and target composition of plan investments, our historical returns earned, and our expectations about the future.
The compensation assumption is used to estimate the annual rate at which pay of plan participants will grow. If the rate of growth assumed increases, the size of the pension obligation will increase, as will the amount recorded in shareowners’ equity and amortized to earnings in subsequent periods.
Further information about our pension assumptions, including a sensitivity analysis of certain assumptions, can be found in the Critical Accounting Estimates – Pension Assumptions within Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
| FUNDED STATUS | |||||
| Principal pension plans | |||||
| December 31 (in millions) | 2015 | 2014 | |||
| Projected benefit obligations | $ | 68,722 | $ | 70,735 | |
| Fair value of plan assets | 45,720 | 48,280 | |||
| Underfunded | $ | 23,002 | $ | 22,455 | |
| PROJECTED BENEFIT OBLIGATIONS | ||||||
| Principal pension plans | ||||||
| (In millions) | 2015 | 2014 | ||||
| Balance at January 1 | $ | 70,735 | $ | 58,113 | ||
| Service cost for benefits earned | 1,424 | 1,205 | ||||
| Interest cost on benefit obligations | 2,778 | 2,745 | ||||
| Participant contributions | 155 | 153 | ||||
| Plan amendments | 902 | - | ||||
| Actuarial loss (gain) | (4,017) | (a) | 11,718 | (b) | ||
| Benefits paid | (3,255) | (3,199) | ||||
| Balance at December 31(c) | $ | 68,722 | $ | 70,735 | ||
The composition of our plan assets
The fair value of our pension plans' investments is presented below. The inputs and valuation techniques used to measure the fair value of these assets are described in Note 1 and have been applied consistently.
| Principal pension plans | |||||
| December 31 (in millions) | 2015 | 2014 | |||
| Equity securities | |||||
| U.S. equity securities(a) | $ | 12,447 | $ | 12,956 | |
| Non-U.S. equity securities(a) | 9,088 | 9,153 | |||
| Debt securities | |||||
| Fixed income and cash investment funds | 3,252 | 4,500 | |||
| U.S. corporate(b) | 5,529 | 5,155 | |||
| Other debt securities(c) | 5,131 | 5,729 | |||
| Private equities(a) | 4,885 | 5,249 | |||
| Real estate(a) | 3,186 | 3,129 | |||
| Other investments(d) | 2,202 | 2,409 | |||
| Total plan assets | $ | 45,720 | $ | 48,280 | |
(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 residential and commercial mortgage-backed securities, non-U.S. corporate and government bonds and U.S. government, federal agency, state and municipal debt.
(d)\tSubstantially all represented hedge fund investments.
Virtually all of the private equity, real estate and other investments are considered Level 3 investments. The remaining investments are substantially all considered Level 1 or Level 2. A description of the fair value leveling hierarchy is provided in the Accounting Principles and Policy section of Note 1.
| FAIR VALUE OF PLAN ASSETS | |||||
| Principal pension plans | |||||
| (In millions) | 2015 | 2014 | |||
| Balance at January 1 | $ | 48,280 | $ | 48,297 | |
| Actual gain on plan assets | 307 | 2,793 | |||
| Employer contributions | 233 | 236 | |||
| Participant contributions | 155 | 153 | |||
| Benefits paid | (3,255) | (3,199) | |||
| Balance at December 31 | $ | 45,720 | $ | 48,280 | |
amounts included in shareowners’ equity
Amounts included in shareowners’ equity that will be amortized in future reporting periods follow.
| Principal pension plans | |||||
| December 31 (in millions) | 2015 | 2014 | |||
| Prior service cost | $ | 1,473 | $ | 881 | |
| Net actuarial loss | 16,795 | 21,105 | |||
| Total | $ | 18,268 | $ | 21,986 | |
In 2016, we estimate that we will amortize $300 million of prior service cost and $2,450 million of net actuarial loss from shareowners’ equity into pension cost. Comparable amounts amortized in 2015 were $205 million and $3,288 million, respectively.
Other pension and postretirement plans
We also administer other pension plans, including legacy plans that were part of acquisitions. Other pension plans in 2015 included 53 U.S. and non-U.S. pension plans with assets or obligations greater than $50 million. These other pension plans cover 60,000 retirees and beneficiaries, 58,000 vested former employees and 39,000 active employees. We also sponsor a number of postretirement health and life insurance benefit plans (retiree benefit plans). Principal retiree benefit plans cover approximately 189,000 retirees and dependents.
In June 2015, we amended our principal retiree benefit plans such that, effective January 1, 2016, our current post-65 retiree health plans will be closed to certain production retirees, employees, and their eligible dependents. In lieu of current post-65 retiree health benefits, current retired production participants and their eligible dependents who are 65 on or before January 1, 2018, will receive a Retirement Reimbursement Account (RRA) to help pay for eligible expenses incurred for coverage purchased through a private exchange. In addition, production employees eligible for current post-65 retiree healthcare benefits who retire by June 23, 2019 and their eligible dependents will also receive the RRA when they turn age 65 and enroll in individual Medicare coverage purchased through a private exchange. Also, in June 2015, we amended our company-provided retiree life insurance so that it will be closed to production employees who retire after June 23, 2019. These plan amendments reduced our principal retiree benefit obligations by approximately $3,300 million.
Summarized information about these plans follows.
| COST OF BENEFIT PLANS | ||||||||||||||||||
| Other pension plans | Principal retiree benefit plans | |||||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||
| Benefit plan cost | $ | 373 | $ | 412 | $ | 645 | $ | 174 | $ | 789 | $ | 927 | ||||||
| FUNDED STATUS | ||||||||||||
| Principal retiree | ||||||||||||
| Other pension plans | benefit plans | |||||||||||
| (In millions) | 2015 | 2014 | 2015 | 2014 | ||||||||
| Benefit obligations | $ | 21,618 | $ | 15,589 | $ | 6,757 | $ | 10,703 | ||||
| Fair value of plan assets | 17,368 | 12,386 | 695 | 813 | ||||||||
| Underfunded | $ | 4,250 | $ | 3,203 | $ | 6,062 | $ | 9,890 | ||||
amounts included in shareowners’ equity
Amounts included in shareowners’ equity that will be amortized in future reporting periods follow.
| Principal retiree | ||||||||||||
| Other pension plans | benefit plans | |||||||||||
| December 31 (In millions) | 2015 | 2014 | 2015 | 2014 | ||||||||
| Prior service cost (credit) | $ | (29) | $ | (23) | $ | (3,132) | $ | (24) | ||||
| Net actuarial loss (gain) | 3,080 | 3,533 | (464) | (71) | ||||||||
| Total | $ | 3,051 | $ | 3,510 | $ | (3,596) | $ | (95) | ||||
In 2016, we estimate that we will amortize $1 million of prior service cost and $275 million of net actuarial loss for the other pension plans from shareowners’ equity into pension cost. For principal retiree benefit plans, the estimated prior service credit and net actuarial gain to be amortized in 2016 will be $165 million and $55 million, respectively. Comparable amounts amortized in 2015, respectively, were an insignificant amount and $289 million of net actuarial loss for the other pension plans and $8 million of prior service credit and $25 million of net actuarial gain for the principal retiree benefit plans.
Our funding policy
Our policy for funding the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements under employee benefit and tax laws. We may decide to contribute additional amounts beyond this level. We did not make contributions to the GE Pension Plan in 2015 and 2014. The minimum funding requirements under U.S. law do not require a contribution to be made in 2016.
We expect to pay approximately $250 million for benefit payments under our GE Supplementary Pension Plan and administrative expenses of our principal pension plans and expect to contribute approximately $930 million to other pension plans in 2016. In 2015, comparative amounts were $233 million and $549 million, respectively.
We fund retiree health benefits on a pay-as-you-go basis and the retiree life insurance trust at our discretion. We expect to contribute approximately $490 million in 2016 to fund such benefits. In 2015, we contributed $501 million for these plans.
Further information about our pension plans and principal retiree benefit plans can be found in Note 27.
| UNRECOGNIZED TAX BENEFITS | |||||
| December 31 (In millions) | 2015 | 2014 | |||
| Unrecognized tax benefits | $ | 6,778 | $ | 5,619 | |
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 4,723 | 4,059 | |||
| Accrued interest on unrecognized tax benefits | 805 | 807 | |||
| Accrued penalties on unrecognized tax benefits | 98 | 103 | |||
| Reasonably possible reduction to the balance of unrecognized tax benefits | |||||
| in succeeding 12 months | 0-700 | 0-900 | |||
| Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 0-200 | 0-300 | |||
(a)\tSome portion of such reduction may be reported as discontinued operations.
| UNRECOGNIZED TAX BENEFITS RECONCILIATION | |||||
| (In millions) | 2015 | 2014 | |||
| Balance at January 1 | $ | 5,619 | $ | 5,816 | |
| Additions for tax positions of the current year | 720 | 234 | |||
| Additions for tax positions of prior years | 1,296 | 673 | |||
| Reductions for tax positions of prior years | (754) | (761) | |||
| Settlements with tax authorities | (70) | (305) | |||
| Expiration of the statute of limitations | (33) | (38) | |||
| Balance at December 31 | $ | 6,778 | $ | 5,619 | |
| Consolidated(a) | GE(b) | ||||||||||
| December 31 (In millions) | 2015 | 2014 | 2015 | 2014 | |||||||
| Power | $ | 6,675 | $ | 4,071 | $ | 4,377 | $ | 2,149 | |||
| Renewable Energy | 2,336 | 895 | 1,418 | 616 | |||||||
| Oil & Gas | 4,958 | 5,793 | 2,764 | 3,233 | |||||||
| Energy Management | 2,930 | 1,655 | 1,980 | 731 | |||||||
| Aviation | 4,133 | 4,656 | 1,876 | 1,997 | |||||||
| Healthcare | 4,022 | 4,350 | 1,943 | 2,241 | |||||||
| Transportation | 609 | 454 | 193 | 351 | |||||||
| Appliances & Lighting | 1,502 | 1,466 | 194 | 214 | |||||||
| Corporate items and eliminations | 372 | 391 | 464 | 466 | |||||||
| 27,538 | 23,732 | 15,209 | 11,998 | ||||||||
| Less Allowance for Losses | (515) | (495) | (502) | (485) | |||||||
| Total | $ | 27,022 | $ | 23,237 | $ | 14,707 | $ | 11,513 | |||
| COST OF PENSION PLANS | ||||||||||
| Principal pension plans | ||||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||||
| Service cost for benefits earned | $ | 1,424 | $ | 1,205 | $ | 1,535 | ||||
| Prior service cost amortization | 205 | 214 | 246 | |||||||
| Expected return on plan assets | (3,302) | (3,190) | (3,500) | |||||||
| Interest cost on benefit obligations | 2,778 | 2,745 | 2,460 | |||||||
| Net actuarial loss amortization | 3,288 | 2,565 | 3,664 | |||||||
| Curtailment loss | 105 | 65 | - | |||||||
| Pension cost | $ | 4,498 | $ | 3,604 | $ | 4,405 | ||||
| ASSUMPTIONS USED TO MEASURE PENSION COST | ||||||
| Principal pension plans | ||||||
| December 31 | 2015 | 2014 | 2013 | |||
| Discount rate | 4.02 | % | 4.85 | % | 3.96 | % |
| Expected return on assets | 7.50 | 7.50 | 8.00 | |||
| FUNDED STATUS | |||||
| Principal pension plans | |||||
| December 31 (in millions) | 2015 | 2014 | |||
| Projected benefit obligations | $ | 68,722 | $ | 70,735 | |
| Fair value of plan assets | 45,720 | 48,280 | |||
| Underfunded | $ | 23,002 | $ | 22,455 | |
| PROJECTED BENEFIT OBLIGATIONS | ||||||
| Principal pension plans | ||||||
| (In millions) | 2015 | 2014 | ||||
| Balance at January 1 | $ | 70,735 | $ | 58,113 | ||
| Service cost for benefits earned | 1,424 | 1,205 | ||||
| Interest cost on benefit obligations | 2,778 | 2,745 | ||||
| Participant contributions | 155 | 153 | ||||
| Plan amendments | 902 | - | ||||
| Actuarial loss (gain) | (4,017) | (a) | 11,718 | (b) | ||
| Benefits paid | (3,255) | (3,199) | ||||
| Balance at December 31(c) | $ | 68,722 | $ | 70,735 | ||
| FAIR VALUE OF PLAN ASSETS | |||||
| Principal pension plans | |||||
| (In millions) | 2015 | 2014 | |||
| Balance at January 1 | $ | 48,280 | $ | 48,297 | |
| Actual gain on plan assets | 307 | 2,793 | |||
| Employer contributions | 233 | 236 | |||
| Participant contributions | 155 | 153 | |||
| Benefits paid | (3,255) | (3,199) | |||
| Balance at December 31 | $ | 45,720 | $ | 48,280 | |
| Principal pension plans | |||||
| December 31 (in millions) | 2015 | 2014 | |||
| Prior service cost | $ | 1,473 | $ | 881 | |
| Net actuarial loss | 16,795 | 21,105 | |||
| Total | $ | 18,268 | $ | 21,986 | |
| Principal pension plans | |||||
| December 31 (in millions) | 2015 | 2014 | |||
| Equity securities | |||||
| U.S. equity securities(a) | $ | 12,447 | $ | 12,956 | |
| Non-U.S. equity securities(a) | 9,088 | 9,153 | |||
| Debt securities | |||||
| Fixed income and cash investment funds | 3,252 | 4,500 | |||
| U.S. corporate(b) | 5,529 | 5,155 | |||
| Other debt securities(c) | 5,131 | 5,729 | |||
| Private equities(a) | 4,885 | 5,249 | |||
| Real estate(a) | 3,186 | 3,129 | |||
| Other investments(d) | 2,202 | 2,409 | |||
| Total plan assets | $ | 45,720 | $ | 48,280 | |
(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 residential and commercial mortgage-backed securities, non-U.S. corporate and government bonds and U.S. government, federal agency, state and municipal debt.
(d)\tSubstantially all represented hedge fund investments.
| COST OF BENEFIT PLANS | ||||||||||||||||||
| Other pension plans | Principal retiree benefit plans | |||||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||
| Benefit plan cost | $ | 373 | $ | 412 | $ | 645 | $ | 174 | $ | 789 | $ | 927 | ||||||
| FUNDED STATUS | ||||||||||||
| Principal retiree | ||||||||||||
| Other pension plans | benefit plans | |||||||||||
| (In millions) | 2015 | 2014 | 2015 | 2014 | ||||||||
| Benefit obligations | $ | 21,618 | $ | 15,589 | $ | 6,757 | $ | 10,703 | ||||
| Fair value of plan assets | 17,368 | 12,386 | 695 | 813 | ||||||||
| Underfunded | $ | 4,250 | $ | 3,203 | $ | 6,062 | $ | 9,890 | ||||
NOTE 27. SUPPLEMENTAL INFORMATION
POSTRETIREMENT BENEFIT PLANS
As discussed in Note 12, we sponsor a number of pension plans which consist of the two principal pension plans for certain U.S. employees as well as other affiliate pension plans. In addition, we sponsor a number of postretirement health and life insurance benefit plans (retiree benefit plans).
The accounting requirements and concepts discussed in Note 12 Postretirement Benefit Plans are the same for other pension plans and principal retiree benefit plans and are consistently applied.
The following disclosures provide additional information with respect to our pension plans and principal retiree benefit plans.
Other pension plans in 2015 included 53 U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million.
Principal Retiree Benefit Plans provide health and life insurance benefits to eligible participants and these participants share in the cost of healthcare benefits.
| COST OF BENEFIT PLANS | |||||||||||||||||
| Other pension plans | Principal retiree benefit plans | ||||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||
| Service cost for benefits earned | $ | 416 | $ | 403 | $ | 435 | $ | 145 | $ | 164 | $ | 229 | |||||
| Prior service cost (credit) amortization | - | 6 | 7 | (8) | 353 | 393 | |||||||||||
| Expected return on plan assets | (881) | (789) | (663) | (48) | (50) | (60) | |||||||||||
| Interest cost on benefit obligations | 555 | 587 | 523 | 335 | 424 | 410 | |||||||||||
| Net actuarial loss (gain) amortization | 289 | 205 | 343 | (25) | (150) | (45) | |||||||||||
| Curtailment loss (gain) | (6) | - | - | (225) | (a) | 48 | - | ||||||||||
| Benefit plans cost | $ | 373 | $ | 412 | $ | 645 | $ | 174 | $ | 789 | $ | 927 | |||||
(a) \tGain principally resulting from life insurance amendment.
Assumption used in benefit calculations
The accounting assumptions in the table below are those that are significant to the measurement of our benefit obligations.
| ASSUMPTIONS USED TO MEASURE BENEFIT OBLIGATIONS | |||||||||||||
| Other pension plans (weighted average) | Principal retiree benefit plans | ||||||||||||
| December 31 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||
| Discount rate | 3.33 | % | 3.53 | % | 4.39 | % | 3.93 | % | 3.89 | % | 4.61 | % | |
| Compensation increases | 3.32 | 3.60 | 3.76 | 3.80 | 4.10 | 4.00 | |||||||
| Initial healthcare trend rate | N/A | N/A | N/A | 6.00 | (a) | 6.00 | 6.00 | ||||||
(a)\tFor 2015, ultimately declining to 5% for 2030 and thereafter.
The healthcare trend assumptions for 2015 apply to our pre-65 retiree medical plans. Our post-65 retiree plan has a fixed subsidy and therefore is not subject to healthcare inflation.
The discount rate used to measure the benefit obligation at the end of the year is also used to measure benefit cost in the following year. The assumptions used to measure benefit cost follow.
| ASSUMPTIONS USED TO MEASURE BENEFIT COST | ||||||||||||||||
| Other pension plans (weighted average) | Principal retiree benefit plans | |||||||||||||||
| December 31 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||
| Discount rate | 3.53 | % | 4.39 | % | 3.92 | % | 3.89 | % | (a) | 4.61 | % | (a) | 3.74 | % | (a) | |
| Expected return on assets | 6.95 | 6.92 | 6.82 | 7.00 | 7.00 | 7.00 | ||||||||||
(a)\tWeighted average discount rates of 3.92%, 4.47% and 3.77% were used for determination of costs in 2015, 2014 and 2013, respectively.
The Society of Actuaries issued new mortality tables in 2014 projecting longer life expectancies that resulted in higher postretirement obligations for U.S. companies. We updated our mortality assumptions as of December 31, 2014, which resulted in an increase of $612 million in our principal retiree benefit obligations.
| BENEFIT OBLIGATIONS | ||||||||||||
| Other pension plans | Principal retiree benefit plans | |||||||||||
| (In millions) | 2015 | 2014 | 2015 | 2014 | ||||||||
| Balance at January 1 | $ | 15,589 | $ | 13,535 | $ | 10,703 | $ | 9,913 | ||||
| Service cost for benefits earned | 416 | 403 | 145 | 164 | ||||||||
| Interest cost on benefit obligations | 555 | 587 | 335 | 424 | ||||||||
| Participant contributions | 15 | 9 | 50 | 52 | ||||||||
| Plan amendments | (12) | (29) | (3,291) | (a) | (586) | |||||||
| Actuarial loss (gain) | (406) | (b) | 2,170 | (b) | (444) | (b) | 1,440 | (c) | ||||
| Benefits paid | (576) | (493) | (691) | (704) | ||||||||
| Acquisitions (dispositions)/ other - net | 6,859 | (d) | 48 | (50) | - | |||||||
| Exchange rate adjustments | (822) | (641) | - | - | ||||||||
| Balance at December 31(e) | $ | 21,618 | $ | 15,589 | $ | 6,757 | $ | 10,703 | ||||
the composition of our Plan Assets
The fair value of other pension plans' and principal retiree benefit 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.
| Other pension plans | Principal retiree benefit plans | ||||||||||
| December 31 (in millions) | 2015 | 2014 | 2015 | 2014 | |||||||
| Equity securities | |||||||||||
| U.S. equity securities | $ | 667 | $ | 635 | $ | 203 | $ | 205 | |||
| Non-U.S. equity securities | 6,323 | 5,285 | 162 | 125 | |||||||
| Debt securities | |||||||||||
| Fixed income and cash investment funds | 6,258 | 4,071 | 84 | 133 | |||||||
| U.S. corporate | 242 | 222 | 52 | 47 | |||||||
| Other debt securities | 551 | 365 | 93 | 103 | |||||||
| Private equities | 703 | 262 | 75 | 94 | |||||||
| Real estate | 1,358 | 690 | 6 | 64 | |||||||
| Other investments | 1,266 | 856 | 20 | 42 | |||||||
| Total plan assets | $ | 17,368 | $ | 12,386 | $ | 695 | $ | 813 | |||
Virtually all of the private equity, real estate and the majority of other investments are considered level 3 investments. The remaining investments are substantially all considered level 1 or level 2. A description of the fair value leveling hierarchy is provided in the Accounting Principles and Policy section of Note 1.
| FAIR VALUE OF PLAN ASSETS | |||||||||||
| Other pension plans | Principal retiree benefit plans | ||||||||||
| (In millions) | 2015 | 2014 | 2015 | 2014 | |||||||
| Balance at January 1 | $ | 12,386 | $ | 11,059 | $ | 813 | $ | 903 | |||
| Actual gain on plan assets | 381 | 1,537 | 22 | 44 | |||||||
| Employer contributions | 549 | 726 | 501 | 518 | |||||||
| Participant contributions | 15 | 9 | 50 | 52 | |||||||
| Benefits paid | (576) | (493) | (691) | (704) | |||||||
| Acquisitions (dispositions) / other - net | 5,207 | (a) | - | - | - | ||||||
| Exchange rate adjustments | (594) | (452) | - | - | |||||||
| Balance at December 31 | $ | 17,368 | $ | 12,386 | $ | 695 | $ | 813 | |||
(a)\tSubstantially all related to Alstom acquisition.
| ASSET ALLOCATION | ||||||||||||
| Other pension plans | Principal retiree | |||||||||||
| Principal pension plans | (weighted average) | benefit plans | ||||||||||
| 2015 | 2015 | 2015 | 2015 | 2015 | 2015 | |||||||
| Target | Actual | Target | Actual | Target | Actual | |||||||
| December 31 | allocation | allocation | allocation | allocation | allocation | allocation | ||||||
| Equity securities | 17 - 57 | % | 47 | % | 37 | % | 40 | % | 35 - 75 | % | 59 | % |
| Debt securities (including cash equivalents) | 13 - 53 | 29 | 37 | 40 | 11 - 46 | 27 | ||||||
| Private equities | 8 - 18 | 11 | 5 | 4 | 0 - 25 | 11 | ||||||
| Real estate | 2 - 12 | 7 | 9 | 8 | 0 - 12 | 1 | ||||||
| Other investments | 3 - 13 | 6 | 12 | 8 | 0 - 10 | 2 | ||||||
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 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.
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 3.7% and 3.8% of the GE Pension Trust assets at year-end 2015 and 2014, 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, 2015, no sector concentration of assets exceeded 15% of total GE Pension Plan assets.
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, 2015 | |||||||||||||||||
| Purchases, | Transfers | ||||||||||||||||
| issuances | in and/or | ||||||||||||||||
| January 1, | Net realized | Net unrealized | and | out of | December 31, | ||||||||||||
| (In millions) | 2015 | gains (losses) | gains (losses) | settlements | Level 3 | 2015 | |||||||||||
| Debt securities | $ | 6 | $ | (3) | $ | 3 | $ | (3) | $ | (1) | $ | 2 | |||||
| Private equities | 5,217 | 432 | 189 | (968) | - | 4,870 | |||||||||||
| Real estate | 3,129 | 122 | 246 | (360) | 49 | 3,186 | |||||||||||
| Other investments | 2,248 | 22 | (52) | 71 | 6 | 2,295 | |||||||||||
| $ | 10,600 | $ | 573 | $ | 386 | $ | (1,260) | $ | 54 | $ | 10,353 | ||||||
| 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) | gains (losses) | settlements | Level 3 | 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 | ||||||
| ESTIMATED FUTURE BENEFIT PAYMENTS | ||||||||||||||||||
| 2021 - | ||||||||||||||||||
| (In millions) | 2016 | 2017 | 2018 | 2019 | 2020 | 2025 | ||||||||||||
| Principal pension plans | $ | 3,395 | $ | 3,485 | $ | 3,610 | $ | 3,705 | $ | 3,785 | $ | 20,145 | ||||||
| Other pension plans | 855 | 870 | 875 | 885 | 905 | 4,835 | ||||||||||||
| Principal retiree benefit plans | 625 | 600 | 590 | 575 | 560 | 2,500 | ||||||||||||
| 2015 COST OF POSTRETIREMENT BENEFIT PLANS AND CHANGES IN OTHER COMPREHENSIVE INCOME | |||||||||||
| Principal | |||||||||||
| Total | Principal | Other | retiree | ||||||||
| postretirement | pension | pension | benefit | ||||||||
| (In millions) | benefit plans | plans | plans | plans | |||||||
| Cost of postretirement benefit plans | $ | 5,045 | $ | 4,498 | $ | 373 | $ | 174 | |||
| Changes in other comprehensive income | |||||||||||
| Prior service cost (credit) – current year | (2,401) | 902 | (12) | (3,291) | |||||||
| Net actuarial loss (gain) – current year | (1,604) | (1,022) | (164) | (418) | |||||||
| Net curtailment/gain (loss) | 76 | (105) | 6 | 175 | |||||||
| Prior service credit (cost) amortization | (197) | (205) | - | 8 | |||||||
| Net actuarial gain (loss) amortization | (3,552) | (3,288) | (289) | 25 | |||||||
| Total changes in other comprehensive income | (7,678) | (3,718) | (459) | (3,501) | |||||||
| Cost of postretirement benefit plans and | |||||||||||
| changes in other comprehensive income | $ | (2,633) | $ | 780 | $ | (86) | $ | (3,327) | |||
| COST OF BENEFIT PLANS | |||||||||||||||||
| Other pension plans | Principal retiree benefit plans | ||||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||
| Service cost for benefits earned | $ | 416 | $ | 403 | $ | 435 | $ | 145 | $ | 164 | $ | 229 | |||||
| Prior service cost (credit) amortization | - | 6 | 7 | (8) | 353 | 393 | |||||||||||
| Expected return on plan assets | (881) | (789) | (663) | (48) | (50) | (60) | |||||||||||
| Interest cost on benefit obligations | 555 | 587 | 523 | 335 | 424 | 410 | |||||||||||
| Net actuarial loss (gain) amortization | 289 | 205 | 343 | (25) | (150) | (45) | |||||||||||
| Curtailment loss (gain) | (6) | - | - | (225) | (a) | 48 | - | ||||||||||
| Benefit plans cost | $ | 373 | $ | 412 | $ | 645 | $ | 174 | $ | 789 | $ | 927 | |||||
(a) \tGain principally resulting from life insurance amendment.
| ASSUMPTIONS USED TO MEASURE BENEFIT OBLIGATIONS | |||||||||||||
| Other pension plans (weighted average) | Principal retiree benefit plans | ||||||||||||
| December 31 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||
| Discount rate | 3.33 | % | 3.53 | % | 4.39 | % | 3.93 | % | 3.89 | % | 4.61 | % | |
| Compensation increases | 3.32 | 3.60 | 3.76 | 3.80 | 4.10 | 4.00 | |||||||
| Initial healthcare trend rate | N/A | N/A | N/A | 6.00 | (a) | 6.00 | 6.00 | ||||||
(a)\tFor 2015, ultimately declining to 5% for 2030 and thereafter.
| ASSUMPTIONS USED TO MEASURE BENEFIT COST | ||||||||||||||||
| Other pension plans (weighted average) | Principal retiree benefit plans | |||||||||||||||
| December 31 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||
| Discount rate | 3.53 | % | 4.39 | % | 3.92 | % | 3.89 | % | (a) | 4.61 | % | (a) | 3.74 | % | (a) | |
| Expected return on assets | 6.95 | 6.92 | 6.82 | 7.00 | 7.00 | 7.00 | ||||||||||
(a)\tWeighted average discount rates of 3.92%, 4.47% and 3.77% were used for determination of costs in 2015, 2014 and 2013, respectively.
| BENEFIT OBLIGATIONS | ||||||||||||
| Other pension plans | Principal retiree benefit plans | |||||||||||
| (In millions) | 2015 | 2014 | 2015 | 2014 | ||||||||
| Balance at January 1 | $ | 15,589 | $ | 13,535 | $ | 10,703 | $ | 9,913 | ||||
| Service cost for benefits earned | 416 | 403 | 145 | 164 | ||||||||
| Interest cost on benefit obligations | 555 | 587 | 335 | 424 | ||||||||
| Participant contributions | 15 | 9 | 50 | 52 | ||||||||
| Plan amendments | (12) | (29) | (3,291) | (a) | (586) | |||||||
| Actuarial loss (gain) | (406) | (b) | 2,170 | (b) | (444) | (b) | 1,440 | (c) | ||||
| Benefits paid | (576) | (493) | (691) | (704) | ||||||||
| Acquisitions (dispositions)/ other - net | 6,859 | (d) | 48 | (50) | - | |||||||
| Exchange rate adjustments | (822) | (641) | - | - | ||||||||
| Balance at December 31(e) | $ | 21,618 | $ | 15,589 | $ | 6,757 | $ | 10,703 | ||||
| Other pension plans | Principal retiree benefit plans | ||||||||||
| December 31 (in millions) | 2015 | 2014 | 2015 | 2014 | |||||||
| Equity securities | |||||||||||
| U.S. equity securities | $ | 667 | $ | 635 | $ | 203 | $ | 205 | |||
| Non-U.S. equity securities | 6,323 | 5,285 | 162 | 125 | |||||||
| Debt securities | |||||||||||
| Fixed income and cash investment funds | 6,258 | 4,071 | 84 | 133 | |||||||
| U.S. corporate | 242 | 222 | 52 | 47 | |||||||
| Other debt securities | 551 | 365 | 93 | 103 | |||||||
| Private equities | 703 | 262 | 75 | 94 | |||||||
| Real estate | 1,358 | 690 | 6 | 64 | |||||||
| Other investments | 1,266 | 856 | 20 | 42 | |||||||
| Total plan assets | $ | 17,368 | $ | 12,386 | $ | 695 | $ | 813 | |||
| FAIR VALUE OF PLAN ASSETS | |||||||||||
| Other pension plans | Principal retiree benefit plans | ||||||||||
| (In millions) | 2015 | 2014 | 2015 | 2014 | |||||||
| Balance at January 1 | $ | 12,386 | $ | 11,059 | $ | 813 | $ | 903 | |||
| Actual gain on plan assets | 381 | 1,537 | 22 | 44 | |||||||
| Employer contributions | 549 | 726 | 501 | 518 | |||||||
| Participant contributions | 15 | 9 | 50 | 52 | |||||||
| Benefits paid | (576) | (493) | (691) | (704) | |||||||
| Acquisitions (dispositions) / other - net | 5,207 | (a) | - | - | - | ||||||
| Exchange rate adjustments | (594) | (452) | - | - | |||||||
| Balance at December 31 | $ | 17,368 | $ | 12,386 | $ | 695 | $ | 813 | |||
| ASSET ALLOCATION | ||||||||||||
| Other pension plans | Principal retiree | |||||||||||
| Principal pension plans | (weighted average) | benefit plans | ||||||||||
| 2015 | 2015 | 2015 | 2015 | 2015 | 2015 | |||||||
| Target | Actual | Target | Actual | Target | Actual | |||||||
| December 31 | allocation | allocation | allocation | allocation | allocation | allocation | ||||||
| Equity securities | 17 - 57 | % | 47 | % | 37 | % | 40 | % | 35 - 75 | % | 59 | % |
| Debt securities (including cash equivalents) | 13 - 53 | 29 | 37 | 40 | 11 - 46 | 27 | ||||||
| Private equities | 8 - 18 | 11 | 5 | 4 | 0 - 25 | 11 | ||||||
| Real estate | 2 - 12 | 7 | 9 | 8 | 0 - 12 | 1 | ||||||
| Other investments | 3 - 13 | 6 | 12 | 8 | 0 - 10 | 2 | ||||||
| CHANGES IN LEVEL 3 INVESTMENTS FOR THE YEAR ENDED DECEMBER 31, 2015 | |||||||||||||||||
| Purchases, | Transfers | ||||||||||||||||
| issuances | in and/or | ||||||||||||||||
| January 1, | Net realized | Net unrealized | and | out of | December 31, | ||||||||||||
| (In millions) | 2015 | gains (losses) | gains (losses) | settlements | Level 3 | 2015 | |||||||||||
| Debt securities | $ | 6 | $ | (3) | $ | 3 | $ | (3) | $ | (1) | $ | 2 | |||||
| Private equities | 5,217 | 432 | 189 | (968) | - | 4,870 | |||||||||||
| Real estate | 3,129 | 122 | 246 | (360) | 49 | 3,186 | |||||||||||
| Other investments | 2,248 | 22 | (52) | 71 | 6 | 2,295 | |||||||||||
| $ | 10,600 | $ | 573 | $ | 386 | $ | (1,260) | $ | 54 | $ | 10,353 | ||||||
| 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) | gains (losses) | settlements | Level 3 | 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 | ||||||
| ESTIMATED FUTURE BENEFIT PAYMENTS | ||||||||||||||||||
| 2021 - | ||||||||||||||||||
| (In millions) | 2016 | 2017 | 2018 | 2019 | 2020 | 2025 | ||||||||||||
| Principal pension plans | $ | 3,395 | $ | 3,485 | $ | 3,610 | $ | 3,705 | $ | 3,785 | $ | 20,145 | ||||||
| Other pension plans | 855 | 870 | 875 | 885 | 905 | 4,835 | ||||||||||||
| Principal retiree benefit plans | 625 | 600 | 590 | 575 | 560 | 2,500 | ||||||||||||
| 2015 COST OF POSTRETIREMENT BENEFIT PLANS AND CHANGES IN OTHER COMPREHENSIVE INCOME | |||||||||||
| Principal | |||||||||||
| Total | Principal | Other | retiree | ||||||||
| postretirement | pension | pension | benefit | ||||||||
| (In millions) | benefit plans | plans | plans | plans | |||||||
| Cost of postretirement benefit plans | $ | 5,045 | $ | 4,498 | $ | 373 | $ | 174 | |||
| Changes in other comprehensive income | |||||||||||
| Prior service cost (credit) – current year | (2,401) | 902 | (12) | (3,291) | |||||||
| Net actuarial loss (gain) – current year | (1,604) | (1,022) | (164) | (418) | |||||||
| Net curtailment/gain (loss) | 76 | (105) | 6 | 175 | |||||||
| Prior service credit (cost) amortization | (197) | (205) | - | 8 | |||||||
| Net actuarial gain (loss) amortization | (3,552) | (3,288) | (289) | 25 | |||||||
| Total changes in other comprehensive income | (7,678) | (3,718) | (459) | (3,501) | |||||||
| Cost of postretirement benefit plans and | |||||||||||
| changes in other comprehensive income | $ | (2,633) | $ | 780 | $ | (86) | $ | (3,327) | |||
| Principal retiree | ||||||||||||
| Other pension plans | benefit plans | |||||||||||
| December 31 (In millions) | 2015 | 2014 | 2015 | 2014 | ||||||||
| Prior service cost (credit) | $ | (29) | $ | (23) | $ | (3,132) | $ | (24) | ||||
| Net actuarial loss (gain) | 3,080 | 3,533 | (464) | (71) | ||||||||
| Total | $ | 3,051 | $ | 3,510 | $ | (3,596) | $ | (95) | ||||
NOTE 20. 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. For those instruments that are not actively traded 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.
| 2015 | 2014 | |||||||||||
| Assets (liabilities) | Assets (liabilities) | |||||||||||
| Carrying | Carrying | |||||||||||
| amount | Estimated | amount | Estimated | |||||||||
| December 31 (In millions) | (net) | fair value | (net) | fair value | ||||||||
| GE | ||||||||||||
| Assets | ||||||||||||
| Investments and notes receivable | $ | 1,104 | $ | 1,174 | $ | 502 | $ | 551 | ||||
| Liabilities | ||||||||||||
| Borrowings(a)(b) | (18,455) | (19,011) | (16,340) | (17,503) | ||||||||
| Borrowings (debt assumed)(a)(c) | (85,114) | (92,641) | - | - | ||||||||
| GE Capital | ||||||||||||
| Assets | ||||||||||||
| Loans | 20,061 | 19,774 | 20,153 | 20,182 | ||||||||
| Time deposits(d) | 10,386 | 10,386 | - | - | ||||||||
| Other commercial mortgages | 1,381 | 1,447 | 1,427 | 1,508 | ||||||||
| Loans held for sale | 342 | 342 | 419 | 419 | ||||||||
| Other financial instruments(e) | 94 | 110 | 103 | 113 | ||||||||
| Liabilities | ||||||||||||
| Borrowings(a)(f)(g)(h) | (95,681) | (99,602) | (245,993) | (261,569) | ||||||||
| Investment contracts | (2,955) | (3,441) | (3,970) | (4,596) | ||||||||
(a)\tSee Note 10.
(b) Included $116 million and $94 million of accrued interest in estimated fair value at December 31, 2015 and December 31, 2014, respectively.
(c) \tIncluded $1,006 million of accrued interest in estimated fair value at December 31, 2015.
(d)\tBalances at December 31, 2015 included $10,386 million of high quality interest bearing deposits with European branches of global banks, predominantly in the UK, that mature in April 2016.
(e)\tPrincipally comprises cost method investments.
(f)\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, 2015 and 2014 would have been reduced by $3,001 million and $5,020 million, respectively.
(g)\tIncluded $1,103 million and $2,888 million of accrued interest in estimated fair value at December 31, 2015 and 2014, respectively.
(h)\tExcluded $85,114 million of intercompany payable to GE related to the debt assumption at December 31, 2015.
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. Based on valuation methodologies using current market interest rate data that are comparable to market quotes adjusted for our non-performance risk.
Investment contracts. Based on expected future cash flows, discounted at currently offered rates for immediate annuity contracts or the income approach for single premium deferred annuities.
Time deposits. Carrying value approximates fair value as these financial instruments have limited credit risk, short-term maturities and interest rates that approximate market.
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) | 2015 | 2014 | ||||
| Ordinary course of business lending commitments(a) | $ | 531 | $ | 762 | ||
| Unused revolving credit lines Commercial | 279 | 282 | ||||
(a) \tExcluded investment commitments of $782 million and $812 million at December 31, 2015 and 2014, respectively.
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. Any such agreements are 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. At December 31, 2015, we were party to no repurchase agreements.
We also enter into reverse securities repurchase agreements, primarily for short-term investment with maturities of 90 days or less. At December 31, 2015, we were party to reverse repurchase agreements totaling $11.3 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
In this section, we explain how we use derivatives to manage our risks and how these financial instruments are reflected in our financial statements. Our use of derivatives relates solely to risk management; we do not use derivatives for speculation. As discussed elsewhere in this report, we are executing a plan to reduce the size and scope of our financial services business, with the intention of principally retaining those activities that support our industrial businesses. The affected businesses have either been sold or are held for sale and are presented as discontinued operations in our financial statements as of December 31, 2015. As a result of these actions, the significance of financial services hedging activity will diminish significantly in the future.
Risk management strategy
In our industrial businesses, we buy, manufacture and sell components and products across global markets. These activities expose us to changes in foreign currency exchange rates and commodity prices, which can adversely affect revenues earned and costs of operating our industrial businesses. When the currency in which we sell equipment differs from the primary currency of one of our industrial businesses (known as its functional currency) and the exchange rate fluctuates, it will affect the revenue we earn on the sale. These sales and purchase transactions also create receivables and payables denominated in foreign currencies, which expose us to foreign currency gains and losses based on changes in exchange rates. Changes in the price of a raw material that we use in manufacturing can affect the cost of manufacturing. We use derivatives to mitigate or eliminate these exposures.
With respect to our ongoing financial services activities, our key exposures relate to interest rate and currency risk. To the extent feasible, we seek to ensure that the characteristics of the debt we have issued align with the assets being funded. The form (fixed rate or floating rate) and currency denomination of the debt we issue depends on a number of considerations, the most important of which are market factors (demand, pricing, etc.) that affect the economics of the issuance. If the form and currency denomination of the debt does not match the assets being funded, we typically execute derivatives to meet this objective within defined limits.
\n
Forms of hedging
In this section we explain the hedging methods we use and their effects on our financial statements.
Cash flow hedges – We use cash flow hedging primarily to reduce or eliminate the effects of foreign exchange rate changes on purchase and sale contracts in our industrial businesses and to convert foreign currency debt that we have issued in our financial services business back to our functional currency. Accordingly, the vast majority of our derivative activity in this category consists of currency exchange contracts. As a result of acquisitions in our industrial businesses, we expect to significantly expand our foreign currency hedging activity related to long-term contracts. We also use commodity derivatives to reduce or eliminate price risk on raw materials purchased for use in manufacturing.
Under hedge accounting, the derivative carrying amount is measured at fair value each period and any resulting gain or loss is recorded in a separate component of shareowners’ equity. Differences between the derivative and the hedged item may cause changes in their fair values to not offset completely, which is referred to as ineffectiveness. When the hedged transaction occurs, these amounts are released from shareowners’ equity, in order that the transaction will be reflected in earnings at the rate locked in by the derivative. The effect of the hedge is reported in the same financial statement line item as the earnings effects of the hedged transaction. The table below summarizes how the derivative is reflected in the balance sheet and in earnings under hedge accounting. The effect of the hedged forecasted transaction is not presented in this table but offsets the earnings effect of the derivative.
| FINANCIAL STATEMENT EFFECTS - CASH FLOW HEDGES | |||||
| (In millions) | 2015 | 2014 | |||
| Balance sheet changes | |||||
| Fair value of derivatives increase (decrease) | $ | (911) | $ | (546) | |
| Shareowners' equity (increase) decrease | 913 | 546 | |||
| Earnings (loss) related to ineffectiveness | 2 | 1 | |||
| Earnings (loss) effect of derivatives(a) | (918) | (878) | |||
| (a) Offsets earnings effect of the hedged forecasted transaction | |||||
The following table explains the effect of changes in market rates on the fair value of derivatives we use most commonly in cash flow hedging arrangements.
| Interest rate forwards/swaps | Interest rate increases | Interest rate decreases | ||
| Pay fixed rate/receive floating rate | Fair value increases | Fair value decreases | ||
| Currency forwards/swaps | U.S. dollar strengthens | U.S. dollar weakens | ||
| Pay U.S. dollars/receive foreign currency | Fair value decreases | Fair value increases | ||
| Commodity derivatives | Price increases | Price decreases | ||
| Receive commodity/ pay fixed price | Fair value increases | Fair value decreases | ||
Fair value hedges – These derivatives are used to hedge the effects of interest rate and currency exchange rate changes on debt that we have issued. We have issued mostly fixed rate debt that is used to fund both fixed and floating rate assets. In instances where fixed rate debt is funding floating rate assets, we have an exposure to changes in interest rates. We enter into interest rate swaps that receive a fixed rate and pay a floating rate of interest to align with that portion of our debt which funds floating rate assets. These swaps typically match the maturity of the associated debt being hedged.
Under hedge accounting, the derivative is measured at fair value and the carrying amount of the hedged debt is adjusted for the change in value related to the exposure being hedged, with both adjustments offset to earnings as interest expense. For example, the earnings effect of an increase in the fair value of the derivative will be largely offset by the earnings effect of an increase in the carrying amount of the hedged debt. Differences between the terms of the derivative and the hedged debt may cause changes in their fair values to not offset completely, which is referred to as ineffectiveness. The table below summarizes how the derivative and the hedged debt are reflected in the balance sheet and in earnings under hedge accounting. The effect on interest expense of changing from the fixed rate on the debt to the floating rate on the swap is not shown in this table.
| FINANCIAL STATEMENT EFFECTS - FAIR VALUE HEDGES | |||||
| (In millions) | 2015 | 2014 | |||
| Balance sheet changes | |||||
| Fair value of derivative increase (decrease) | $ | (151) | $ | 3,863 | |
| Adjustment to carrying amount of hedged debt (increase) decrease | 75 | (3,939) | |||
| Earnings (loss) related to hedge ineffectiveness | (75) | (76) | |||
The effect of changes in market interest rates on the fair value of derivatives we use most commonly in fair value hedging arrangements is presented below.
| Interest rate forwards/swaps | Interest rate increases | Interest rate decreases | ||
| Pay floating rate/receive fixed rate | Fair value decreases | Fair value increases | ||
Net investment hedges – We invest in foreign operations that conduct their financial services activities in currencies other than the US dollar. We hedge the currency risk associated with those investments primarily using short-term currency exchange contracts under which we receive US dollars and pay foreign currency and non-derivatives instruments such as debt denominated in a foreign currency.
Under hedge accounting, the portion of the fair value change of the derivative or debt instrument that relates to changes in spot currency exchange rates is offset in a separate component of shareowners’ equity. For example, an increase in the fair value of the derivative related to changes in spot exchange rates will be offset by a corresponding increase in the currency translation component of shareowners’ equity. The portion of the fair value change of the derivative related to differences between spot and forward rates, which primarily relates to the interest component, is recorded in earnings each period as interest expense. As a result of this hedging strategy, the investments in foreign operations of our financial services business are largely unaffected by changes in currency exchange rates. The amounts recorded in shareowners’ equity only affect earnings if the hedged investment is sold, substantially liquidated, or control is lost.
| FINANCIAL STATEMENT EFFECTS - NET INVESTMENT HEDGES | |||||
| (In millions) | 2015 | 2014 | |||
| Balance sheet changes | |||||
| Fair value of derivatives increase (decrease) | $ | 4,871 | $ | 5,192 | |
| Fair value of non-derivatives (increase) decrease | (849) | - | |||
| Shareowners' equity (increase) decrease | (4,131) | (5,741) | |||
| Earnings (loss) related to spot-forward differences | (109) | (549) | |||
| Earnings (loss) related to reclassification upon sale or liquidation(a) | 4,547 | 88 | |||
(a) \tIncluded $4,549 million gain and $88 million gain recorded in discontinued operations in 2015 and 2014, respectively.
The effect of changes in currency exchange rates on the fair value of derivatives we use in net investment hedging arrangements is presented below.
| Currency forwards/swaps | U.S. dollar strengthens | U.S. dollar weakens | ||
| Receive U.S. dollars/pay foreign currency | Fair value increases | Fair value decreases | ||
Economic Hedges - These derivatives are not designated as hedges from an accounting standpoint (and therefore we do not apply hedge accounting to the relationship) but otherwise serve the same economic purpose as other hedging arrangements. Economic hedges are used when changes in the carrying amount of the hedged item are already recorded in earnings in the same period as the derivative, making hedge accounting unnecessary. For example, in our Industrial businesses we record the effects of spot exchange rate changes on our foreign currency payables and receivables in earnings each period along with the fair value changes on the foreign currency forward contracts used as economic hedges. In these cases, the earnings effects of the derivative and hedged item largely offset. We also use economic hedges when we have exposures to currency exchange risk for which we are unable to meet the requirements for hedge accounting. For example, we use currency forwards as an economic hedge of forecasted foreign currency cash flows under long-term contracts. In this case, the forecast period is so long that it is difficult to meet the hedge accounting requirement that the occurrence of the hedged transactions is probable. For these types of economic hedges, changes in the fair value of the derivative are recorded in earnings currently but changes in the value of the forecasted foreign currency cash flows are only recognized in earnings when they occur. As a result, even though the derivative is an effective economic hedge, there is a net effect on earnings in each period due to differences in the timing of earnings recognition between the derivative and the hedged item.
The table below provides information about the earnings effects of all derivatives that serve as economic hedges. These derivatives are marked to fair value through earnings each period. For our financial services business, these gains and losses are reported in “GE Capital revenues from services”. For our industrial businesses, the effects are reported in “Other income” or “Other costs and expenses”. The offsetting earnings effects associated with hedged assets and liabilities are also displayed in the table below. In general, the earnings effects of the hedged item are recorded in the same financial statement line as the derivative. The earnings effect of economic hedges, after considering offsets related to earnings effects of hedged assets and liabilities, is substantially offset by changes in the fair value of forecasted transactions that have not yet affected earnings.
| FINANCIAL STATEMENT EFFECTS - ECONOMIC HEDGES | |||||
| (In millions) | 2015 | 2014 | |||
| Balance sheet changes | |||||
| Change in fair value of economic hedge increase (decrease) | $ | (2,720) | $ | (2,198) | |
| Change in carrying amount of item being hedged increase (decrease) | 2,543 | 2,083 | |||
| Earnings (loss) effect of economic hedges(a) | (177) | (116) | |||
(a)\tOffset by the future earnings effects of economically hedged item.
The table below explains the effects of market rate changes on the fair value of derivatives we use most commonly as economic hedges.
| Interest rate forwards/swaps interest rate | Interest rate increases | Interest rate decreases | ||
| Pay floating rate/receive fixed rate | Fair value decreases | Fair value increases | ||
| Currency forwards/swaps | U.S. dollar strengthens | U.S. dollar weakens | ||
| Pay U.S. dollars/receive foreign currency | Fair value decreases | Fair value increases | ||
| Receive U.S. dollars/pay foreign currency | Fair value increases | Fair value decreases | ||
| Commodity derivatives | Price increases | Price decreases | ||
| Receive commodity/ pay fixed price | Fair value increases | Fair value decreases | ||
Notional amount of Derivatives
The notional amount of a derivative is the number of units of the underlying (for example, the notional principal amount of the debt in an interest rate swap). The notional amount is used to compute interest or other payment streams to be made under the contract and is a measure of our level of activity. We generally disclose derivative notional amounts on a gross basis. A substantial majority of the outstanding notional amount of $245 billion at December 31, 2015 is related to managing interest rate and currency risk between financial assets and liabilities in our financial services business. The remaining derivative notional primarily relates to hedges of anticipated sales and purchases in foreign currency, commodity purchases and contractual terms in contracts that are considered embedded derivatives.
The table below provides additional information about how derivatives are reflected in our financial statements. Derivative assets and liabilities are recorded at fair value exclusive of interest earned or owed on interest rate derivatives, which is presented separately on our balance sheet. Cash collateral and securities held as collateral represent assets that have been provided by our derivative counterparties as security for amounts they owe us (derivatives that are in an asset position).
| CARRYING AMOUNTS RELATED TO DERIVATIVES | |||||
| December 31 (in millions) | 2015 | 2014 | |||
| Derivative assets | $ | 7,391 | $ | 9,911 | |
| Derivative liabilities | (5,681) | (4,851) | |||
| Accrued interest | 1,014 | 1,419 | |||
| Cash collateral & credit valuation adjustment | (1,141) | (3,233) | |||
| Net Derivatives | 1,583 | 3,246 | |||
| Securities held as collateral | (1,277) | (3,114) | |||
| Net carrying amount | $ | 306 | $ | 132 | |
Effects of derivatives on Earnings
All derivatives are marked to fair value on our balance sheet, whether they are designated in a hedging relationship for accounting purposes or are used as economic hedges. As discussed in the previous sections, each type of hedge affects the financial statements differently. In fair value and economic hedges, both the hedged item and the hedging derivative largely offset in earnings each period. In cash flow and net investment hedges, the effective portion of the hedging derivative is offset in separate components of shareowners’ equity and ineffectiveness is recognized in earnings. The table below summarizes these offsets and the net effect on earnings.
| (In millions) | Effect on hedging instrument | Effect on underlying | Effect on earnings | |||||
| 2015 | ||||||||
| Cash flow hedges | $ | (911) | $ | 913 | $ | 2 | ||
| Fair value hedges | (151) | 75 | (75) | |||||
| Net investment hedges(a) | 4,022 | (4,131) | (109) | |||||
| Economic hedges(b) | (2,720) | 2,543 | (177) | |||||
| Total | $ | (359) | ||||||
| 2014 | ||||||||
| Cash flow hedges | $ | (546) | $ | 546 | $ | 1 | ||
| Fair value hedges | 3,863 | (3,939) | (76) | |||||
| Net investment hedges(a) | 5,192 | (5,741) | (549) | |||||
| Economic hedges(b) | (2,198) | 2,083 | (116) | |||||
| Total | $ | (740) | ||||||
The amounts in the table above generally do not include associated derivative accruals in income or expense.
(a) Both derivatives and non-derivatives hedging instruments are included.
(b) Net effect is substantially offset by the change in fair value of the hedged item that will affect earnings in future periods.
Note 15 provides additional information about changes in shareowners’ equity related to hedging and amounts released to earnings. Other supplemental information about derivatives and hedging can be found in Note 27.
| FINANCIAL STATEMENT EFFECTS - CASH FLOW HEDGES | |||||
| (In millions) | 2015 | 2014 | |||
| Balance sheet changes | |||||
| Fair value of derivatives increase (decrease) | $ | (911) | $ | (546) | |
| Shareowners' equity (increase) decrease | 913 | 546 | |||
| Earnings (loss) related to ineffectiveness | 2 | 1 | |||
| Earnings (loss) effect of derivatives(a) | (918) | (878) | |||
| (a) Offsets earnings effect of the hedged forecasted transaction | |||||
| Interest rate forwards/swaps | Interest rate increases | Interest rate decreases | ||
| Pay fixed rate/receive floating rate | Fair value increases | Fair value decreases | ||
| Currency forwards/swaps | U.S. dollar strengthens | U.S. dollar weakens | ||
| Pay U.S. dollars/receive foreign currency | Fair value decreases | Fair value increases | ||
| Commodity derivatives | Price increases | Price decreases | ||
| Receive commodity/ pay fixed price | Fair value increases | Fair value decreases | ||
| FINANCIAL STATEMENT EFFECTS - FAIR VALUE HEDGES | |||||
| (In millions) | 2015 | 2014 | |||
| Balance sheet changes | |||||
| Fair value of derivative increase (decrease) | $ | (151) | $ | 3,863 | |
| Adjustment to carrying amount of hedged debt (increase) decrease | 75 | (3,939) | |||
| Earnings (loss) related to hedge ineffectiveness | (75) | (76) | |||
| Interest rate forwards/swaps | Interest rate increases | Interest rate decreases | ||
| Pay floating rate/receive fixed rate | Fair value decreases | Fair value increases | ||
| CARRYING AMOUNTS RELATED TO DERIVATIVES | |||||
| December 31 (in millions) | 2015 | 2014 | |||
| Derivative assets | $ | 7,391 | $ | 9,911 | |
| Derivative liabilities | (5,681) | (4,851) | |||
| Accrued interest | 1,014 | 1,419 | |||
| Cash collateral & credit valuation adjustment | (1,141) | (3,233) | |||
| Net Derivatives | 1,583 | 3,246 | |||
| Securities held as collateral | (1,277) | (3,114) | |||
| Net carrying amount | $ | 306 | $ | 132 | |
| FINANCIAL STATEMENT EFFECTS - ECONOMIC HEDGES | |||||
| (In millions) | 2015 | 2014 | |||
| Balance sheet changes | |||||
| Change in fair value of economic hedge increase (decrease) | $ | (2,720) | $ | (2,198) | |
| Change in carrying amount of item being hedged increase (decrease) | 2,543 | 2,083 | |||
| Earnings (loss) effect of economic hedges(a) | (177) | (116) | |||
| Interest rate forwards/swaps interest rate | Interest rate increases | Interest rate decreases | ||
| Pay floating rate/receive fixed rate | Fair value decreases | Fair value increases | ||
| Currency forwards/swaps | U.S. dollar strengthens | U.S. dollar weakens | ||
| Pay U.S. dollars/receive foreign currency | Fair value decreases | Fair value increases | ||
| Receive U.S. dollars/pay foreign currency | Fair value increases | Fair value decreases | ||
| Commodity derivatives | Price increases | Price decreases | ||
| Receive commodity/ pay fixed price | Fair value increases | Fair value decreases | ||
| FINANCIAL STATEMENT EFFECTS - NET INVESTMENT HEDGES | |||||
| (In millions) | 2015 | 2014 | |||
| Balance sheet changes | |||||
| Fair value of derivatives increase (decrease) | $ | 4,871 | $ | 5,192 | |
| Fair value of non-derivatives (increase) decrease | (849) | - | |||
| Shareowners' equity (increase) decrease | (4,131) | (5,741) | |||
| Earnings (loss) related to spot-forward differences | (109) | (549) | |||
| Earnings (loss) related to reclassification upon sale or liquidation(a) | 4,547 | 88 | |||
| Currency forwards/swaps | U.S. dollar strengthens | U.S. dollar weakens | ||
| Receive U.S. dollars/pay foreign currency | Fair value increases | Fair value decreases | ||
| NOTIONAL AMOUNTS OF LOAN COMMITMENTS | ||||||
| December 31 (In millions) | 2015 | 2014 | ||||
| Ordinary course of business lending commitments(a) | $ | 531 | $ | 762 | ||
| Unused revolving credit lines Commercial | 279 | 282 | ||||
(a) \tExcluded investment commitments of $782 million and $812 million at December 31, 2015 and 2014, respectively.
| December 31 (in millions) | 2015 | |||||
| Borrowings from debt exchange(a) | Borrowings assumed by GE | Borrowings guaranteed by GE | ||||
| Short-term borrowings | ||||||
| GE | ||||||
| Current portion of long-term borrowings | $ | - | $ | 17,649 | $ | - |
| GE Capital | ||||||
| Commercial paper-Non U.S. | - | - | 4,351 | |||
| Current portion of long-term borrowings | 15,430 | - | 24,334 | |||
| Other | 789 | - | 789 | |||
| Total short-term borrowings | $ | 16,219 | $ | 17,649 | $ | 29,474 |
| Long-term borrowings | ||||||
| GE | ||||||
| Senior unsecured notes | $ | - | $ | 57,433 | $ | - |
| Subordinated notes | - | 2,954 | - | |||
| Subordinated debentures | - | 6,678 | - | |||
| Other | - | 400 | - | |||
| GE Capital | ||||||
| Senior unsecured notes | 16,756 | - | 56,355 | |||
| Other | - | - | - | |||
| Total long-term borrowings | $ | 16,756 | $ | 67,465 | $ | 56,355 |
| Total borrowings | $ | 32,975 | $ | 85,114 | $ | 85,829 |
(a) \tIncluded $4.5 billion in additional bonds issued as a premium that will accrete up to face value ($36 billion) to the maturity date
| (In millions, after tax) | 2015 | 2014 | 2013 | |||||
| Compensation Expense | $ | 234 | $ | 215 | $ | 231 | ||
| 2015 | 2014 | 2013 | |||||||
| Weighted average grant-date fair value of stock options | $ | 4.64 | $ | 5.26 | $ | 4.52 | |||
| Stock Option Valuation Assumptions: | |||||||||
| Risk-free interest rate | 2.0 | % | 2.3 | % | 2.5 | % | |||
| Dividend yield | 3.4 | % | 3.1 | % | 4.0 | % | |||
| Expected volatility | 25.0 | % | 26.0 | % | 28.0 | % | |||
| Expected option life (in years) | 6.8 | 7.3 | 7.5 | ||||||
| Other pricing model inputs: | |||||||||
| Weighted average grant-date market price of GE stock (strike price) | $ | 25.79 | $ | 26.11 | $ | 23.80 | |||
| As of December 31, 2015 unless, otherwise stated (in thousands, except per share data) | ||
| Stock options granted during 2015 | 52,561 | |
| Weighted average strike price of awards granted in 2015 | $ | 25.79 |
| Stock options outstanding | 467,922 | |
| Weighted average strike price of stock options outstanding | $ | 21.72 |
| Stock options exercisable | 298,199 | |
| Weighted average strike price of stock options exercisable | $ | 20.14 |
| 2015 | 2014 | 2013 | |||||||
| Stock options exercised (in thousands) | 65,764 | 30,433 | 36,191 | ||||||
| Cash received from stock options exercised (in millions) | $ | 1,098 | $ | 439 | $ | 490 | |||
| (In millions, after tax) | 2015 | 2014 | 2013 | ||||||
| Compensation expense(a) | $ | 72 | $ | 56 | $ | 62 | |||
(a)\tIncludes $5.7 million of compensation expense related to performance share units.
| 2015 | 2014 | 2013 | |||||||
| Weighted average grant-date fair value of restricted stock awards | $ | 26.74 | $ | 26.08 | $ | 24.54 | |||
| As of December 31, 2015, unless otherwise stated (in thousands, except per share data) | |||
| Restricted stock granted during 2015 | 3,756 | ||
| Non-vested restricted stock outstanding | 13,941 | ||
| Weighted average fair value at grant date of non-vested stock | $ | 25.05 | |
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Income tax benefit recognized in earnings | $ | 148 | $ | 147 | $ | 145 | |||
| Excess of actual tax deductions over amounts assumed recognized in equity | 167 | 86 | 86 | ||||||
| Aggregate | |||
| intrinsic | |||
| As of December 31, 2015, unless otherwise stated (in millions) | value | ||
| Stock options outstanding | $ | 4,534 | |
| Stock options exercised in 2015 | 746 | ||
| Non-vested restricted stock outstanding | 434 | ||
| Restricted stock vested in 2015 | 102 | ||
| FINANCIAL INFORMATION FOR OTHER FINANCIAL SERVICES | |||||||||
| (In millions) | 2015 | 2014 | 2013 | ||||||
| Total revenues and other income (loss) | $ | 8 | $ | 23 | $ | 532 | |||
| Gain (loss) on disposal, net of taxes | $ | - | $ | 15 | $ | (1,781) | (a) | ||
| Earnings (loss) from discontinued operations, net of taxes | $ | 32 | $ | 92 | $ | (1,823) | |||
(a)\tPrimarily reflects agreement with the buyer of GE Money Japan to extinguish an obligation under terms specified in the 2008 sale agreement.
| (In thousands) | 2015 | 2014 | 2013 | ||||||
| Restricted stock vested during the year ended | 3,899 | 3,305 | 4,583 | ||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Beginning balance | $ | 98 | $ | 178 | $ | 214 | ||
| Net earnings | (46) | (71) | (14) | |||||
| Dividends | (11) | (12) | (14) | |||||
| Dispositions | 1 | - | - | |||||
| Redemption value adjustment | 25 | 2 | 1 | |||||
| Other(a) | 2,905 | 1 | (8) | |||||
| Ending balance | $ | 2,972 | $ | 98 | $ | 178 | ||
(a)\t2015 included $2,875 million related to joint ventures formed by GE and Alstom as part of the Alstom acquisition.
| Interest and other financial charges | Provision (benefit) for income taxes | ||||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||
| Capital | $ | 2,301 | $ | 1,638 | $ | 2,021 | $ | 4,979 | $ | (861) | $ | (448) | |||||
| Corporate items and eliminations(a) | 1,162 | 1,085 | 849 | 1,506 | 1,634 | 1,667 | |||||||||||
| Total | $ | 3,463 | $ | 2,723 | $ | 2,870 | $ | 6,485 | $ | 773 | $ | 1,219 | |||||
(a)\tIncluded amounts for Power, Renewable Energy, 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.
| SUMMARY OF OPERATING SEGMENTS | ||||||||||||||
| General Electric Company and consolidated affiliates | ||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||
| Revenues | ||||||||||||||
| Power | $ | 21,490 | $ | 20,580 | $ | 19,315 | $ | 20,364 | $ | 20,335 | ||||
| Renewable Energy | 6,273 | 6,399 | 4,824 | 7,373 | 4,924 | |||||||||
| Oil & Gas | 16,450 | 19,085 | 17,341 | 15,539 | 13,874 | |||||||||
| Energy Management | 7,600 | 7,319 | 7,569 | 7,412 | 6,422 | |||||||||
| Aviation | 24,660 | 23,990 | 21,911 | 19,994 | 18,859 | |||||||||
| Healthcare | 17,639 | 18,299 | 18,200 | 18,290 | 18,083 | |||||||||
| Transportation | 5,933 | 5,650 | 5,885 | 5,608 | 4,885 | |||||||||
| Appliances & Lighting | 8,751 | 8,404 | 8,338 | 7,967 | 7,692 | |||||||||
| Total industrial segment revenues | 108,796 | 109,727 | 103,383 | 102,548 | 95,074 | |||||||||
| Capital | 10,801 | 11,320 | 11,267 | 11,268 | 11,843 | |||||||||
| Total segment revenues | 119,597 | 121,047 | 114,650 | 113,816 | 106,918 | |||||||||
| Corporate items and eliminations | (2,211) | (3,863) | (1,405) | (1,228) | 3,145 | |||||||||
| Consolidated revenues | $ | 117,386 | $ | 117,184 | $ | 113,245 | $ | 112,588 | $ | 110,062 | ||||
| Segment profit | ||||||||||||||
| Power | $ | 4,502 | $ | 4,486 | $ | 4,328 | $ | 4,368 | $ | 4,213 | ||||
| Renewable Energy | 431 | 694 | 485 | 914 | 714 | |||||||||
| Oil & Gas | 2,427 | 2,758 | 2,357 | 2,064 | 1,754 | |||||||||
| Energy Management | 270 | 246 | 110 | 131 | 78 | |||||||||
| Aviation | 5,507 | 4,973 | 4,345 | 3,747 | 3,512 | |||||||||
| Healthcare | 2,882 | 3,047 | 3,048 | 2,920 | 2,803 | |||||||||
| Transportation | 1,273 | 1,130 | 1,166 | 1,031 | 757 | |||||||||
| Appliances & Lighting | 674 | 431 | 381 | 311 | 237 | |||||||||
| Total industrial segment profit | 17,966 | 17,764 | 16,220 | 15,487 | 14,067 | |||||||||
| Capital | (7,983) | 1,209 | 401 | 1,245 | 1,469 | |||||||||
| Total segment profit | 9,983 | 18,973 | 16,621 | 16,731 | 15,536 | |||||||||
| Corporate items and eliminations | (5,108) | (6,225) | (6,002) | (4,719) | (1,317) | |||||||||
| GE interest and other financial charges | (1,706) | (1,579) | (1,333) | (1,353) | (1,299) | |||||||||
| GE provision for income taxes | (1,506) | (1,634) | (1,667) | (2,013) | (4,839) | |||||||||
| Earnings from continuing operations | ||||||||||||||
| attributable to GE common shareowners | 1,663 | 9,535 | 7,618 | 8,646 | 8,081 | |||||||||
| Earnings (loss) from discontinued | ||||||||||||||
| operations, net of taxes | (7,495) | 5,855 | 5,475 | 5,047 | 5,143 | |||||||||
| Less net earnings (loss) attributable to | ||||||||||||||
| noncontrolling interests, discontinued operations | 312 | 157 | 36 | 53 | 104 | |||||||||
| Earnings (loss) from discontinued operations, | ||||||||||||||
| net of tax and noncontrolling interest | (7,807) | 5,698 | 5,439 | 4,995 | 5,039 | |||||||||
| Consolidated net earnings (loss) | ||||||||||||||
| attributable to GE common shareowners | $ | (6,145) | $ | 15,233 | $ | 13,057 | $ | 13,641 | $ | 13,120 | ||||
| REVENUES | ||||||||||||||||||||||||||
| Total revenues(a) | Intersegment revenues(b) | External revenues | ||||||||||||||||||||||||
| (In millions) | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||
| Power | $ | 21,490 | $ | 20,580 | $ | 19,315 | $ | 762 | $ | 778 | $ | 700 | $ | 20,728 | $ | 19,802 | $ | 18,615 | ||||||||
| Renewable Energy | 6,273 | 6,399 | 4,824 | 12 | 14 | 17 | 6,261 | 6,386 | 4,807 | |||||||||||||||||
| Oil & Gas | 16,450 | 19,085 | 17,341 | 387 | 402 | 371 | 16,063 | 18,683 | 16,970 | |||||||||||||||||
| Energy Management | 7,600 | 7,319 | 7,569 | 1,000 | 890 | 848 | 6,600 | 6,429 | 6,720 | |||||||||||||||||
| Aviation | 24,660 | 23,990 | 21,911 | 418 | 692 | 500 | 24,242 | 23,298 | 21,411 | |||||||||||||||||
| Healthcare | 17,639 | 18,299 | 18,200 | 7 | 6 | 14 | 17,633 | 18,293 | 18,186 | |||||||||||||||||
| Transportation | 5,933 | 5,650 | 5,885 | 1 | (2) | 12 | 5,932 | 5,652 | 5,874 | |||||||||||||||||
| Appliances & Lighting | 8,751 | 8,404 | 8,338 | 22 | 22 | 25 | 8,729 | 8,383 | 8,313 | |||||||||||||||||
| Total industrial | 108,796 | 109,727 | 103,383 | 2,608 | 2,801 | 2,486 | 106,188 | 106,926 | 100,896 | |||||||||||||||||
| Capital | 10,801 | 11,320 | 11,267 | 1,151 | 1,037 | 841 | 9,650 | 10,283 | 10,427 | |||||||||||||||||
| Corporate items | ||||||||||||||||||||||||||
| and eliminations(c) | (2,211) | (3,863) | (1,405) | (3,759) | (3,838) | (3,327) | 1,548 | (25) | 1,922 | |||||||||||||||||
| Total | $ | 117,386 | $ | 117,184 | $ | 113,245 | $ | - | $ | - | $ | - | $ | 117,386 | $ | 117,184 | $ | 113,245 | ||||||||
(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.
| ASSUMPTIONS USED TO MEASURE PENSION BENEFIT OBLIGATIONS | ||||||
| Principal pension plans | ||||||
| December 31 | 2015 | 2014 | 2013 | |||
| Discount rate | 4.38 | % | 4.02 | % | 4.85 | % |
| Compensation increases | 3.80 | 4.10 | 4.00 | |||
DERIVATIVES AND HEDGING
Note 20 provides the primary information related to our derivatives and hedging activity. This section provides certain supplemental information about this topic.
As described in Note 20, changes in the fair value of derivatives are recorded in a separate component of equity (referred to below as Accumulated Other Comprehensive Income, or AOCI) and are recorded in earnings in the period in which the hedged transaction occurs. The table below summarizes this activity by hedging instrument.
| FAIR VALUE OF DERIVATIVES | |||||||||||
| 2015 | 2014 | ||||||||||
| December 31 (In millions) | Assets | Liabilities | Assets | Liabilities | |||||||
| Derivatives accounted for as hedges | |||||||||||
| Interest rate contracts | $ | 4,132 | $ | 158 | $ | 5,835 | $ | 461 | |||
| Currency exchange contracts | 1,109 | 1,383 | 2,579 | 884 | |||||||
| Other contracts | - | - | - | 2 | |||||||
| 5,241 | 1,541 | 8,414 | 1,347 | ||||||||
| Derivatives not accounted for as hedges | |||||||||||
| Interest rate contracts | 119 | 44 | 79 | 24 | |||||||
| Currency exchange contracts | 1,715 | 4,048 | 1,182 | 3,439 | |||||||
| Other contracts | 315 | 49 | 237 | 40 | |||||||
| 2,149 | 4,141 | 1,498 | 3,503 | ||||||||
| Gross derivatives recognized in statement of | |||||||||||
| financial position | |||||||||||
| Gross derivatives | 7,391 | 5,681 | 9,911 | 4,851 | |||||||
| Gross accrued interest | 1,001 | (13) | 1,389 | (30) | |||||||
| 8,392 | 5,668 | 11,300 | 4,821 | ||||||||
| Amounts offset in statement of financial position | |||||||||||
| Netting adjustments(a) | (4,326) | (4,326) | (3,875) | (3,892) | |||||||
| Cash collateral(b) | (1,784) | (642) | (3,695) | (445) | |||||||
| (6,110) | (4,968) | (7,570) | (4,337) | ||||||||
| Net derivatives recognized in statement of | |||||||||||
| financial position | |||||||||||
| Net derivatives | 2,282 | 700 | 3,731 | 485 | |||||||
| Amounts not offset in statement of | |||||||||||
| financial position | |||||||||||
| Securities held as collateral(c) | (1,277) | - | (3,114) | - | |||||||
| Net amount | $ | 1,005 | $ | 700 | $ | 617 | $ | 485 | |||
Derivatives are classified in the captions “All other assets” and “All other liabilities” and the related accrued interest is classified in “Other GE Capital receivables” and “All other liabilities” in our financial statements.
(a) The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Amounts include fair value adjustments related to our own and counterparty non-performance risk. At December 31, 2015 and 2014, the cumulative adjustment for non-performance risk was insignificant and $16 million, respectively.
(b) Excluded excess cash collateral received and posted of $48 million and $379 million at December 31, 2015, respectively, and $63 million and $195 million at December 31, 2014, respectively.
(c) Excluded excess securities collateral received of $107 million and $471 million at December 31, 2015 and 2014, respectively.
| CASH FLOW HEDGE ACTIVITY | |||||||||||
| Gain (loss) reclassified | |||||||||||
| Gain (loss) recognized in AOCI | from AOCI into earnings | ||||||||||
| (In millions) | 2015 | 2014 | 2015 | 2014 | |||||||
| Interest rate contracts | $ | (1) | $ | (1) | $ | (130) | $ | (234) | |||
| Currency exchange contracts | (907) | (541) | (784) | (641) | |||||||
| Commodity contracts | (5) | (4) | (4) | (3) | |||||||
| Total(a) | $ | (913) | $ | (546) | $ | (918) | $ | (878) | |||
(a)\tGain (loss) is recorded in GE Capital 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 $49 million loss at December 31, 2015. We expect to transfer $134 million to earnings as an expense in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. In both 2015 and 2014, 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, 2015 and 2014, the maximum term of derivative instruments that hedge forecasted transactions was 17 years and 18 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.
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 $3,061 million at December 31, 2015, of which $1,784 million was cash and $1,277 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 $642 million at December 31, 2015. At December 31, 2015, our exposure to counterparties (including accrued interest), net of collateral we hold, was $836 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 or other ratings levels agreed upon with the counterparty. 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 $690 million at December 31, 2015. This excludes embedded derivatives.
| FINANCIAL INFORMATION FOR CONSUMER | ||||||||
| (In millions) | 2015 | 2014 | 2013 | |||||
| Operations | ||||||||
| Total revenues and other income (loss) | $ | 11,690 | $ | 15,023 | $ | 15,741 | ||
| Interest | $ | (2,081) | $ | (2,611) | $ | (2,669) | ||
| Selling, general, and administrative expenses | (3,940) | (4,572) | (4,349) | |||||
| Cost of services sold | (1) | - | (1) | |||||
| Provision for losses on financing receivables | (5,029) | (3,544) | (4,048) | |||||
| Investment contracts, insurance losses and insurance annuity benefits | (12) | (18) | (15) | |||||
| Other costs and expenses | (392) | (388) | (337) | |||||
| Earnings (loss) from discontinued operations, | ||||||||
| before income taxes | 236 | 3,891 | 4,324 | |||||
| Benefit (provision) for income taxes | (878) | (736) | 7 | |||||
| Earnings (loss) from discontinued operations, net of taxes | $ | (642) | $ | 3,155 | $ | 4,330 | ||
| Disposal | ||||||||
| Gain (loss) on disposal before income taxes | $ | 2,739 | $ | - | $ | - | ||
| Benefit (provision) for income taxes | 363 | - | - | |||||
| Gain (loss) on disposal, net of taxes(a) | $ | 3,102 | $ | - | $ | - | ||
| Earnings (loss) from discontinued operations, net of taxes(b) | $ | 2,460 | $ | 3,155 | $ | 4,330 | ||
(a)\tSubstantially all related to Alstom acquisition.
| (In millions) | Effect on hedging instrument | Effect on underlying | Effect on earnings | |||||
| 2015 | ||||||||
| Cash flow hedges | $ | (911) | $ | 913 | $ | 2 | ||
| Fair value hedges | (151) | 75 | (75) | |||||
| Net investment hedges(a) | 4,022 | (4,131) | (109) | |||||
| Economic hedges(b) | (2,720) | 2,543 | (177) | |||||
| Total | $ | (359) | ||||||
| 2014 | ||||||||
| Cash flow hedges | $ | (546) | $ | 546 | $ | 1 | ||
| Fair value hedges | 3,863 | (3,939) | (76) | |||||
| Net investment hedges(a) | 5,192 | (5,741) | (549) | |||||
| Economic hedges(b) | (2,198) | 2,083 | (116) | |||||
| Total | $ | (740) | ||||||
(a) Both derivatives and non-derivatives hedging instruments are included.
(b) Net effect is substantially offset by the change in fair value of the hedged item that will affect earnings in future periods.
| FAIR VALUE OF DERIVATIVES | |||||||||||
| 2015 | 2014 | ||||||||||
| December 31 (In millions) | Assets | Liabilities | Assets | Liabilities | |||||||
| Derivatives accounted for as hedges | |||||||||||
| Interest rate contracts | $ | 4,132 | $ | 158 | $ | 5,835 | $ | 461 | |||
| Currency exchange contracts | 1,109 | 1,383 | 2,579 | 884 | |||||||
| Other contracts | - | - | - | 2 | |||||||
| 5,241 | 1,541 | 8,414 | 1,347 | ||||||||
| Derivatives not accounted for as hedges | |||||||||||
| Interest rate contracts | 119 | 44 | 79 | 24 | |||||||
| Currency exchange contracts | 1,715 | 4,048 | 1,182 | 3,439 | |||||||
| Other contracts | 315 | 49 | 237 | 40 | |||||||
| 2,149 | 4,141 | 1,498 | 3,503 | ||||||||
| Gross derivatives recognized in statement of | |||||||||||
| financial position | |||||||||||
| Gross derivatives | 7,391 | 5,681 | 9,911 | 4,851 | |||||||
| Gross accrued interest | 1,001 | (13) | 1,389 | (30) | |||||||
| 8,392 | 5,668 | 11,300 | 4,821 | ||||||||
| Amounts offset in statement of financial position | |||||||||||
| Netting adjustments(a) | (4,326) | (4,326) | (3,875) | (3,892) | |||||||
| Cash collateral(b) | (1,784) | (642) | (3,695) | (445) | |||||||
| (6,110) | (4,968) | (7,570) | (4,337) | ||||||||
| Net derivatives recognized in statement of | |||||||||||
| financial position | |||||||||||
| Net derivatives | 2,282 | 700 | 3,731 | 485 | |||||||
| Amounts not offset in statement of | |||||||||||
| financial position | |||||||||||
| Securities held as collateral(c) | (1,277) | - | (3,114) | - | |||||||
| Net amount | $ | 1,005 | $ | 700 | $ | 617 | $ | 485 | |||
(a) The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Amounts include fair value adjustments related to our own and counterparty non-performance risk. At December 31, 2015 and 2014, the cumulative adjustment for non-performance risk was insignificant and $16 million, respectively.
(b) Excluded excess cash collateral received and posted of $48 million and $379 million at December 31, 2015, respectively, and $63 million and $195 million at December 31, 2014, respectively.
(c) Excluded excess securities collateral received of $107 million and $471 million at December 31, 2015 and 2014, respectively.
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
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.
Financial Statement Presentation
We have reclassified certain prior-year amounts to conform to the current-year’s presentation. Certain columns and rows may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions.
Upon closing an acquisition, we consolidate the acquired business as soon as practicable. The size, scope and complexity of an acquisition can affect the time necessary to adjust the acquired company’s accounting policies, procedures, and books and records to our standards. Accordingly, it is possible that changes will be necessary to the carrying amounts and presentation of assets and liabilities in our financial statements as the acquired company is fully assimilated.
Financial data and related measurements are presented in the following categories:
GE. This represents the adding together of all affiliates other than GE Capital, whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates.
GE Capital. This refers to General Electric Capital Corporation (GECC), or its successor GE Capital Global Holdings, LLC (GECGH), and is the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates.
Consolidated. This represents the adding together of GE and GE Capital, giving effect to the elimination of transactions between GE and GE Capital.
Operating Segments. These comprise our nine businesses, focused on the broad markets they serve: Power, Renewable Energy, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and 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 U.S. generally accepted accounting principles (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 2016 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, incremental fair value marks on businesses and assets held for sale carried at lower of cost or market, and increased tax liabilities.
THE GE Capital Exit Plan
On April 10, 2015, the Company announced its plan (the GE Capital Exit Plan) to reduce the size of its financial services businesses through the sale of most of the assets of GE Capital over the following 24 months, and to focus on continued investment and growth in the Company’s industrial businesses. Under the GE Capital Exit Plan, which was approved on April 2, 2015 and aspects of which were approved on March 31, 2015, the Company will retain certain GE Capital businesses, principally its vertical financing businesses—GE Capital Aviation Services (GECAS), Energy Financial Services (EFS) and Healthcare Equipment Finance—that directly relate to the Company’s core industrial domain and other operations, including Working Capital Solutions, our run-off insurance activities, and allocated corporate costs (together referred to as GE Capital Verticals or Verticals). The assets planned for disposition include Real Estate, most of Commercial Lending and Leasing (CLL) and all Consumer platforms (including all U.S. banking assets).
AFTER-TAX CHARGES RELATED TO THE GE CAPITAL EXIT PLAN
In connection with the announcement of the GE Capital Exit Plan, the Company estimated that it would incur approximately $23 billion in after-tax charges through 2016, approximately $6 billion of which were expected to result in future net cash expenditures. These charges relate to: business dispositions, including goodwill allocations (approximately $13 billion), tax expense related to expected repatriation of foreign earnings and write-off of deferred tax assets (approximately $7 billion), and restructuring and other charges (approximately $3 billion).
During 2015, GE recorded $22,030 million of after-tax charges related to the GE Capital Exit Plan, of which $7,687 million was recorded in continuing operations and $14,343 million was recorded in discontinued operations. A description of after-tax charges for 2015 is provided below.
Reorganization and Exchange Offers
During December 2015, General Electric Capital Corporation merged into GE. The merger and creation of a new intermediate holding company was part of a reorganization of GE Capital’s businesses (the Reorganization) pursuant to which GE separated GE Capital’s international and U.S. operations. GE Capital’s international operations have been consolidated under a new international holding company (GE Capital International Holdings Limited), which has a separate capital structure and will be supervised by the U.K. Prudential Regulation Authority. The Reorganization, debt exchange offers (as described below) and establishment of GE Capital International Holdings Limited were intended, among other things, to establish an efficient and simplified capital structure that is satisfactory to GE Capital’s regulators, a key step in terminating the nonbank systemically important financial institution designation for GE Capital. In addition, the debt exchange offers were designed to align the liabilities of GE Capital International Holdings Limited to its assets from a maturity profile and liquidity standpoint, taking into consideration asset sales, and where appropriate, shortening the maturity profile of targeted liabilities.
As part of the GE Capital Exit Plan, on September 21, 2015 GE Capital commenced private offers to exchange up to approximately $30,000 million of certain outstanding debt for new notes with maturities of six months, five years, ten years or twenty years. On October 19, 2015, given the high level of participation, the offering was increased by approximately $6,000 million with the aggregate principal amount of approximately $36,000 million (representing $31,000 million of outstanding principal and $5,000 million of premium) of outstanding notes being tendered for exchange and settled on October 26, 2015. The new notes that were issued at closing are composed of $15,268 million of 0.964% Six Month Notes due April 2016, £778 million of 1.363% Six Month Notes due April 2016, $6,107 million of 2.342% Notes due 2020, $1,979 million of 3.373% Notes due 2025 and $11,465 million of 4.418% Notes due 2035. Of the $16,160 million exchanged into the Six Month Notes, $1,297 million had been previously classified in short-term borrowings. GE Capital will continue to evaluate the opportunity to repurchase debt while maintaining our liquidity at the levels communicated as part of the GE Capital Exit Plan. The new notes have been fully, irrevocably and unconditionally guaranteed by GE.
Immediately prior to the Reorganization, GE Capital had $5,000 million in aggregate liquidation preference of Series A, B and C preferred stock outstanding. In connection with the Reorganization, on December 3, 2015, holders who previously held GE Capital preferred stock were issued an aggregate liquidation preference of $5,950 million of new GE Series A, B and C preferred stock. The Series A, B and C preferred stock bear an initial fixed interest rate of 4.00%, 4.10% and 4.20%, respectively, through their initial call date and are callable on June 15, 2022, December 15, 2022 and June 15, 2023, respectively. Subsequent to the call date, the Series A, B and C preferred stock will bear a floating interest rate equal to three-month LIBOR plus 2.28%, 2.32% and 2.37%, respectively, thereafter.
Subsequent to the issuance of the preferred stock on December 3, 2015, in response to investor feedback, GE launched an exchange offer on December 18, 2015 that allowed GE preferred stock investors to exchange their existing Series A, B and C preferred stock into a Series D GE preferred stock. These Series D instruments bear an initial fixed interest rate of 5.00% through January 21, 2021, will bear a floating rate equal to three-month LIBOR plus 3.33% thereafter and are callable on January 21, 2021. On January 20, 2016, $2,687 million of Series A, $2,008 million of Series B and $999 million of Series C were exchanged into $5,694 million Series D GE preferred stock. Post exchange, $91 million of Series A, $64 million of Series B and $95 million of Series C GE preferred stock remain outstanding.
GUARANTEE
As part of the GE Capital Exit Plan, the Company and GE Capital entered into an amendment to their existing financial support agreement. Under this amendment (the Amendment), the Company has provided a full and unconditional guarantee (the Guarantee) of the payment of principal and interest on all tradable senior and subordinated outstanding long-term debt securities and all commercial paper issued or guaranteed by GE Capital identified in the Amendment. In the aggregate, the Guarantee applied to approximately $85,829 million of GE Capital debt as of December 31, 2015. The Guarantee replaced the requirement that the Company make certain income maintenance payments to GE Capital in certain circumstances. GE Capital’s U.S. public indentures were concurrently amended to provide the full and unconditional guarantee by the Company set forth in the Guarantee.
SYNCHRONY FINANCIAL EXCHANGE OFFER
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. We received net proceeds from the IPO and Underwriter’s Option of $2.8 billion and retained 84.6% of Synchrony Financial.
On October 19, 2015, GE commenced an offer to exchange GE common stock for common stock of GE Capital’s approximately 84.6% owned subsidiary, Synchrony Financial. On November 17, 2015, we completed the split-off of Synchrony Financial, through which the Company accepted 671,366,809 shares of GE common stock from its shareholders in exchange for 705,270,833 shares of Synchrony Financial common stock that it owned and recorded an after-tax gain of $3,429 million within discontinued operations. In connection with the public offering and sale of Synchrony Financial, GE Capital indemnified Synchrony Financial and its directors, officers, and employees against the liabilities of GECC’s businesses other than historical liabilities of the businesses that are part of Synchrony Financial’s ongoing operations. With the completion of the split-off and the Federal Reserve Board’s (FRB) subsequent approval of GE Capital’s application to deregister as a savings and loan holding company, GE Capital is no longer a savings and loan holding company.
Accounting Principles and Policies
Our financial statements are prepared in conformity with GAAP.
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 and military propulsion equipment. Delivery of commercial engines and non-U.S. military equipment 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, Oil & Gas and Transportation segments, where costs of performing services are incurred on other than a straight-line basis. We also sell similar long-term product services in our Healthcare and Renewable Energy segments, where such costs generally are expected to be on a straight-line basis. For the Aviation, Power, 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 and Renewable Energy 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.
GE CAPITAL 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. 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. Payments received on nonaccrual loans 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 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 these estimates, 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.
BUSINESSES AND ASSETS HELD FOR SALE
Businesses held for sale represent components that meet accounting requirements to be classified as held for sale and are presented as single asset and liability amounts in our financial statements with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less cost to sell. Financing receivables that no longer qualify to be presented as held for investment must be classified as held for sale and recognized in our financial statements at the lower of cost or fair value, less cost to sell, with that amount representing a new cost basis at the date of transfer.
The determination of fair value for businesses and portfolios of financing receivables involves significant judgments and assumptions. Development of estimates of fair values in this circumstance is complex and is dependent upon, among other factors, the nature of the potential sales transaction (for example, asset sale versus sale of legal entity), composition of assets and/or businesses in the disposal group, the comparability of the disposal group to market transactions, negotiations with third party purchasers etc. Such factors bear directly on the range of potential fair values and the selection of the best estimates. Key assumptions were developed 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.
We review all businesses and assets held for sale each reporting period to determine whether the existing carrying amounts are fully recoverable in comparison to estimated fair values.
DEPRECIATION AND AMORTIZATION
The cost of GE manufacturing plant and equipment is depreciated over its estimated economic life. In 2015, we changed the method of depreciating its U.S. assets from an accelerated method based on a sum-of-the-years digits formula to a straight-line basis in order to align and harmonize our methodology for manufacturing plant and equipment. This change in estimate was made prospectively as of October 1, 2015, and had an immaterial impact for 2015. As a result, as of October 1, 2015, GE manufacturing plant and equipment is generally depreciated on a straight-line basis.
The cost of GE Capital 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.
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, 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. A portion of our CLL nonaccrual receivables are excluded from this definition, as they represent smaller-balance homogeneous loans that we evaluate collectively by portfolio for impairment.
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).
“Delinquent” receivables are those that are 30 days or more past due based on their contractual terms. 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.
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.
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. 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.
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.
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 primarily in the reporting period in which management has deemed all or a portion of the financing receivable to be uncollectible. 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.
\n
INVESTMENT SECURITIES
We report investments in debt and marketable equity securities, and certain other equity securities, at fair value. See Note 19 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 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 34% and 40% of GE inventories at 2015 and 2014, 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.
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.
\n
INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS
Our run-off insurance activities include providing insurance and reinsurance for life and health risks and providing certain annuity products. Two primary product types 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.
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
The following sections describe the valuation methodologies we use to measure financial and non-financial instruments accounted for at fair value including certain assets within our pension plans and retiree benefit plans.
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.
\n
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.
\n
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.
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. 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.
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 changed 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 expanded 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 was permitted for disposals (or classifications as held for sale) that had 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.
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 (including amounts reported in assets and liabilities of discontinued operations) by $1,224 million as of January 1, 2014.
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.
Financial Statement Presentation
We have reclassified certain prior-year amounts to conform to the current-year’s presentation. Certain columns and rows may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions.
Upon closing an acquisition, we consolidate the acquired business as soon as practicable. The size, scope and complexity of an acquisition can affect the time necessary to adjust the acquired company’s accounting policies, procedures, and books and records to our standards. Accordingly, it is possible that changes will be necessary to the carrying amounts and presentation of assets and liabilities in our financial statements as the acquired company is fully assimilated.
Financial data and related measurements are presented in the following categories:
GE. This represents the adding together of all affiliates other than GE Capital, whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates.
GE Capital. This refers to General Electric Capital Corporation (GECC), or its successor GE Capital Global Holdings, LLC (GECGH), and is the adding together of all affiliates of GE Capital giving effect to the elimination of transactions among such affiliates.
Consolidated. This represents the adding together of GE and GE Capital, giving effect to the elimination of transactions between GE and GE Capital.
Operating Segments. These comprise our nine businesses, focused on the broad markets they serve: Power, Renewable Energy, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and 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 U.S. generally accepted accounting principles (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 2016 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, incremental fair value marks on businesses and assets held for sale carried at lower of cost or market, 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 and military propulsion equipment. Delivery of commercial engines and non-U.S. military equipment 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, Oil & Gas and Transportation segments, where costs of performing services are incurred on other than a straight-line basis. We also sell similar long-term product services in our Healthcare and Renewable Energy segments, where such costs generally are expected to be on a straight-line basis. For the Aviation, Power, 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 and Renewable Energy 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.
GE CAPITAL 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. 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. Payments received on nonaccrual loans 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 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 these estimates, 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.
DEPRECIATION AND AMORTIZATION
The cost of GE manufacturing plant and equipment is depreciated over its estimated economic life. In 2015, we changed the method of depreciating its U.S. assets from an accelerated method based on a sum-of-the-years digits formula to a straight-line basis in order to align and harmonize our methodology for manufacturing plant and equipment. This change in estimate was made prospectively as of October 1, 2015, and had an immaterial impact for 2015. As a result, as of October 1, 2015, GE manufacturing plant and equipment is generally depreciated on a straight-line basis.
The cost of GE Capital 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.
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, 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. A portion of our CLL nonaccrual receivables are excluded from this definition, as they represent smaller-balance homogeneous loans that we evaluate collectively by portfolio for impairment.
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).
“Delinquent” receivables are those that are 30 days or more past due based on their contractual terms. 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.
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.
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. 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.
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.
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 primarily in the reporting period in which management has deemed all or a portion of the financing receivable to be uncollectible. 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 19 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 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 34% and 40% of GE inventories at 2015 and 2014, 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.
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.
INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS
Our run-off insurance activities include providing insurance and reinsurance for life and health risks and providing certain annuity products. Two primary product types 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.
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
The following sections describe the valuation methodologies we use to measure financial and non-financial instruments accounted for at fair value including certain assets within our pension plans and retiree benefit plans.
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.
\n
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.
\n
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.
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. 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.
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 changed 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 expanded 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 was permitted for disposals (or classifications as held for sale) that had 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.
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 (including amounts reported in assets and liabilities of discontinued operations) by $1,224 million as of January 1, 2014.
NOTE 26. COST INFORMATION
RESEARCH & DEVELOPMENT
We conduct research and development (R&D) activities to continually enhance our existing products and services, develop new product and services to meet our customer’s changing needs and requirements, and address new market opportunities.
Research and development expenses are classified in cost of goods and services sold in the Statement of Earnings. In addition, research and development funding from customers, principally the U.S. government, is recorded as an offset to such costs. We also enter into research and development arrangements with unrelated investors, which are generally formed through partnerships and consolidated within GE’s financial statements. Research and development funded through consolidated partnerships is classified within net earnings/loss attributable to noncontrolling interests.
| (In millions) | 2015 | 2014 | 2013 | |||||
| Total R&D | $ | 5,278 | $ | 5,273 | $ | 5,461 | ||
| Less customer funded R&D (principally the U.S. Government) | (803) | (721) | (711) | |||||
| Less partner funded R&D | (226) | (319) | (107) | |||||
| GE funded R&D | $ | 4,249 | $ | 4,233 | $ | 4,643 | ||
COLLABORATIVE ARRANGEMENTS
Our businesses enter into collaborative arrangements primarily with manufacturers and suppliers of components used to build and maintain certain engines, under which GE and these participants share in risks and rewards of these product programs. GE’s payments to participants are recorded as cost of services sold ($788 million, $873 million and $820 million for the years 2015, 2014 and 2013, respectively) or as cost of goods sold ($2,736 million, $2,660 million and $2,613 million for the years 2015, 2014 and 2013, respectively).
RENTAL EXPENSE
Rental expense under operating leases is shown below.
| (In millions) | 2015 | 2014 | 2013 | |||||
| GE | $ | 1,258 | $ | 1,356 | $ | 1,380 | ||
| GE Capital | 107 | 123 | 124 | |||||
| 1,365 | 1,479 | 1,504 | ||||||
| Eliminations | (169) | (223) | (198) | |||||
| Total | $ | 1,196 | $ | 1,256 | $ | 1,306 | ||
At December 31, 2015, minimum rental commitments under noncancellable operating leases aggregated $4,946 million and $310 million for GE and GE Capital, respectively. Amounts payable over the next five years follow.
| (In millions) | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||
| GE | $ | 909 | $ | 819 | $ | 699 | $ | 615 | $ | 547 | ||||
| GE Capital | 29 | 24 | 20 | 19 | 18 | |||||||||
| 938 | 843 | 719 | 634 | 565 | ||||||||||
| Eliminations | (144) | (136) | (128) | (115) | (109) | |||||||||
| Total | $ | 794 | $ | 707 | $ | 591 | $ | 519 | $ | 456 | ||||