2013 Annual Report on Form 10-K - Part 2 of 3

RNS Number : 2700B
General Electric Company
28 February 2014
 



 United States Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

 

Part 2 of 3

 

Revenue recognition on long-term product services agreements requires estimates of profits over the multiple-year terms of such agreements, considering factors such as the frequency and extent of future monitoring, maintenance and overhaul events; the amount of personnel, spare parts and other resources required to perform the services; and future billing rate and cost changes. We routinely review estimates under product services agreements and regularly revise them to adjust for changes in outlook. We also regularly assess customer credit risk inherent in the carrying amounts of receivables and contract costs and estimated earnings, including the risk that contractual penalties may not be sufficient to offset our accumulated investment in the event of customer termination. We gain insight into future utilization and cost trends, as well as credit risk, through our knowledge of the installed base of equipment and the close interaction with our customers that comes with supplying critical services and parts over extended periods. Revisions that affect a product services agreement's total estimated profitability result in an adjustment of earnings; such adjustments increased earnings by $0.3 billion, $0.4 billion and $0.4 billion in 2013, 2012 and 2011, respectively. We provide for probable losses when they become evident.

 

Further information is provided in Notes 1 and 9 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report.

 

Asset impairment assessment involves various estimates and assumptions as follows:

 

Investments. 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 and 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 a credit loss exists, 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. Quantitative criteria include determining whether there has been an adverse change in expected future cash flows. For equity securities, our criteria include the length of time and magnitude of the amount that each security is in an unrealized loss position. Our other-than-temporary impairment reviews involve our finance, risk and asset management functions as well as the portfolio management and research capabilities of our internal and third-party asset managers. See Note 1 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report, which discusses the determination of fair value of investment securities.

 

Further information about actual and potential impairment losses is provided in the Financial Resources and Liquidity - Investment Securities section of this Item and in Notes 1, 3 and 9 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report.

 

Long-Lived Assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset's residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We derive the required undiscounted cash flow estimates from our historical experience and our internal business plans. To determine fair value, we use quoted market prices when available, our internal cash flow estimates discounted at an appropriate interest rate and independent appraisals, as appropriate.

 

Our operating lease portfolio of commercial aircraft is a significant concentration of assets in GE Capital, and is particularly subject to market fluctuations. Therefore, we test recoverability of each aircraft in our operating lease portfolio at least annually. Additionally, we perform quarterly evaluations in circumstances such as when aircraft are re-leased, current lease terms have changed or a specific lessee's credit standing changes. We consider market conditions, such as global demand for commercial aircraft. Estimates of future rentals and residual values are based on historical experience and information received routinely from independent appraisers. Estimated cash flows from future leases are reduced for expected downtime between leases and for estimated technical costs required to prepare aircraft to be redeployed. Fair value used to measure impairment is based on management's best estimate. In determining its best estimate, management evaluates average current market values (obtained from third parties) of similar type and age aircraft, which are adjusted for the attributes of the specific aircraft under lease.

 

We recognized impairment losses on our operating lease portfolio of commercial aircraft of $0.7 billion and $0.2 billion in 2013 and 2012, respectively. Impairment losses in 2013 incorporated management's downward revisions to cash flow estimates based upon shorter useful lives and lower aircraft residual values from those indicated by our third-party appraisers, reflecting the introduction of newer technology, fleet retirements and high fuel prices and operating costs. These revised estimates primarily related to cargo aircraft ($0.3 billion), older technology narrow-body aircraft ($0.2 billion) and regional jets ($0.1 billion). The average age of aircrafts we impaired in 2013 was 15 years compared with 7 years for our total fleet. Provisions for losses on financing receivables related to commercial aircraft were an insignificant amount for both 2013 and 2012.

 

Further information on impairment losses and our exposure to the commercial aviation industry is provided in the Operations - Overview of Our Earnings from 2011 through 2013 and the Financial Resources and Liquidity - Property, plant and equipment sections of this Item and in Notes 7 and 24 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report.

 

Real Estate. We review the estimated value of our commercial real estate investments annually, or more frequently as conditions warrant. The cash flow estimates used for both estimating value and the recoverability analysis are inherently judgmental, and reflect current and projected lease profiles, available industry information about expected trends in rental, occupancy and capitalization rates and expected business plans, which include our estimated holding period for the asset. Our portfolio is diversified, both geographically and by asset type. However, the global real estate market is subject to periodic cycles that can cause significant fluctuations in market values. Based on the most recent valuation estimates available, the carrying value of our Real Estate investments exceeded their estimated value by about $2.1 billion. This amount is subject to variation dependent on the assumptions described above, changes in economic and market conditions and composition of our portfolio, including sales. Commercial real estate valuations have shown signs of improved stability and liquidity in certain markets, primarily in the U.S.; however, the pace of improvement varies significantly by asset class and market. Accordingly, there continues to be risk and uncertainty surrounding commercial real estate values. Declines in the estimated value of real estate below carrying amount result in impairment losses when the aggregate undiscounted cash flow estimates used in the estimated value measurement are below the carrying amount. As such, estimated losses in the portfolio will not necessarily result in recognized impairment losses. When we recognize an impairment, the impairment is measured using the estimated fair value of the underlying asset, which is based upon cash flow estimates that reflect current and projected lease profiles and available industry information about capitalization rates and expected trends in rents and occupancy and is corroborated by external appraisals. During 2013, Real Estate recognized pre-tax impairments of $0.3 billion in its real estate held for investment, as compared to $0.1 billion in 2012. Deterioration in economic conditions or prolonged market illiquidity may result in further impairments being recognized. Furthermore, significant judgment and uncertainty related to forecasted valuation trends, especially in illiquid markets, result in inherent imprecision in real estate value estimates. Further information is provided in the Global Risk Management and the All other assets sections of this Item and in Note 9 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report.

 

Goodwill and Other Identified Intangible Assets. We test goodwill for impairment annually in the third quarter of each year using data as of July 1 of that year. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit's assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.

 

Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have the characteristics similar to our businesses.

 

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations ranged from 8.0% to 16.5%.

 

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.

 

We review identified intangible assets with defined useful lives and subject to amortization for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. We test intangible assets with indefinite lives annually for impairment using a fair value method such as discounted cash flows. For our insurance activities remaining in continuing operations, we periodically test for impairment our deferred acquisition costs and present value of future profits.

 

Further information is provided in the Financial Resources and Liquidity - Goodwill and Other Intangible Assets section of this Item and in Notes 1 and 8 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report.

 

Pension assumptions are significant inputs to the actuarial models that measure pension benefit obligations and related effects on operations. Two assumptions - discount rate and expected return on assets - are important elements of plan expense and asset/liability measurement. We evaluate these critical assumptions at least annually on a plan and country-specific basis. We periodically evaluate other assumptions involving demographic factors such as retirement age, mortality and turnover, and update them to reflect our experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

 

Accumulated and projected benefit obligations are measured as the present value of expected payments. We discount those cash payments using the weighted average of market-observed yields for high-quality fixed-income securities with maturities that correspond to the payment of benefits. Lower discount rates increase present values and subsequent-year pension expense; higher discount rates decrease present values and subsequent-year pension expense.

 

Our discount rates for principal pension plans at December 31, 2013, 2012 and 2011 were 4.85%, 3.96% and 4.21%, respectively, reflecting market interest rates.

 

To determine the expected long-term rate of return on pension plan assets, we consider current and target asset allocations, as well as historical and expected returns on various categories of plan assets. In developing future long-term return expectations for our principal benefit plans' assets, we formulate views on the future economic environment, both in the U.S. and abroad. We evaluate general market trends and historical relationships among a number of key variables that impact asset class returns such as expected earnings growth, inflation, valuations, yields and spreads, using both internal and external sources. We also take into account expected volatility by asset class and diversification across classes to determine expected overall portfolio results given current and target allocations. Assets in our principal pension plans earned 14.6% in 2013, and had average annual returns of 6.5%, 5.9% and 8.9% per year in the 10-, 15- and 25-year periods ended December 31, 2013, respectively. These average historical returns were significantly affected by investment losses in 2008. Based on our analysis of future expectations of asset performance, past return results, and our current and target asset allocations, we have assumed a 7.5% long-term expected return on those assets for cost recognition in 2014. This is a reduction from the 8.0% we assumed in 2013, 2012 and 2011.

 

Changes in key assumptions for our principal pension plans would have the following effects.

 

·      Discount rate - A 25 basis point increase in discount rate would decrease pension cost in the following year by $0.2 billion and would decrease the pension benefit obligation at year-end by about $1.7 billion.
 

·      Expected return on assets - A 50 basis point decrease in the expected return on assets would increase pension cost in the following year by $0.2 billion.
 

Further information on our pension plans is provided in the Operations - Overview section of this Item and in Note 12 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report.

 

Income Taxes. Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions quarterly and adjust the balances as new information becomes available. Our income tax rate is significantly affected by the tax rate on our global operations. In addition to local country tax laws and regulations, this rate depends on the extent earnings are indefinitely reinvested outside the United States. Indefinite reinvestment is determined by management's judgment about and intentions concerning the future operations of the Company. At December 31, 2013 and 2012, approximately $110 billion and $108 billion of earnings, respectively, have been indefinitely reinvested outside the United States. 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 income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. 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. These sources of income rely heavily on estimates. We use our historical experience and our short- and long-range business forecasts to provide insight. Further, our global and diversified business portfolio gives us the opportunity to employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. Amounts recorded for deferred tax assets related to non-U.S. net operating losses, net of valuation allowances, were $5.5 billion and $4.8 billion at December 31, 2013 and 2012, respectively, including $0.8 billion at both December 31, 2013 and 2012 of deferred tax assets, net of valuation allowances, associated with losses reported in discontinued operations, primarily related to our loss on the sale of GE Money Japan. Such year-end 2013 amounts are expected to be fully recoverable within the applicable statutory expiration periods. 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.

 

Further information on income taxes is provided in the Operations - Overview section of this Item and in Note 14 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report.

 

Derivatives and Hedging. We use derivatives to manage a variety of risks, including risks related to interest rates, foreign exchange and commodity prices. Accounting for derivatives as hedges requires that, at inception and over the term of the arrangement, the hedged item and related derivative meet the requirements for hedge accounting. The rules and interpretations related to derivatives accounting are complex. Failure to apply this complex guidance correctly will result in all changes in the fair value of the derivative being reported in earnings, without regard to the offsetting changes in the fair value of the hedged item.

 

In evaluating whether a particular relationship qualifies for hedge accounting, we test effectiveness at inception and each reporting period thereafter by determining whether changes in the fair value of the derivative offset, within a specified range, changes in the fair value of the hedged item. If fair value changes fail this test, we discontinue applying hedge accounting to that relationship prospectively. Fair values of both the derivative instrument and the hedged item are calculated using internal valuation models incorporating market-based assumptions, subject to third-party confirmation, as applicable.

 

At December 31, 2013, derivative assets and liabilities were $1.0 billion and $1.3 billion, respectively. Further information about our use of derivatives is provided in Notes 1, 9, 21 and 22 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report.

 

Fair Value Measurements. Assets and liabilities measured at fair value every reporting period include investments in debt and equity securities and derivatives. Assets that are not measured at fair value every reporting period but that are subject to fair value measurements in certain circumstances 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.

 

A fair value measurement is determined as the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants 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. The determination of fair value often involves significant judgments about assumptions such as determining an appropriate discount rate that factors in both risk and liquidity premiums, identifying the similarities and differences in market transactions, weighting those differences accordingly and then making the appropriate adjustments to those market transactions to reflect the risks specific to our asset being valued. Further information on fair value measurements is provided in Notes 1, 21 and 22 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report.

 

Other loss contingencies are uncertain and unresolved matters that arise in the ordinary course of business and result from events or actions by others that have the potential to result in a future loss. Such contingencies include, but are not limited to environmental obligations, litigation, regulatory proceedings, product quality and losses resulting from other events and developments.

 

When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of such range. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be continuously evaluated to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure is provided.

 

Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. We regularly review all contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and low estimates.

 

Further information is provided in Notes 2, 13 and 24 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report.

 

Other Information

New Accounting Standards

In March 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 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. The ASU resolves conflicting guidance between Accounting Standards Codification (ASC) Subtopics 810-10, Consolidation, and 830-30, Foreign Currency Matters - Translation of Financial Statements, on whether accumulated currency translation adjustments should be released to earnings in certain circumstances. 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 ASU does not change the requirement to release a pro rata portion of the cumulative translation adjustment of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. The revised guidance applies prospectively to transactions or events occurring in fiscal years beginning after December 31, 2013.

 

Research and Development

GE-funded research and development expenditures were $4.7 billion, $4.5 billion and $4.6 billion in 2013, 2012 and 2011, respectively. In addition, research and development funding from customers, principally the U.S. government, totaled $0.7 billion, $0.7 billion and $0.8 billion in 2013, 2012 and 2011, respectively. Aviation accounts for the largest share of GE's research and development expenditures with funding from both GE and external funds. Power & Water and Healthcare also made significant expenditures funded primarily by GE.

 

Orders and Backlog

GE infrastructure equipment orders increased 14% to $60.6 billion and services orders increased 1% to $43.8 billion at December 31, 2013. Total GE infrastructure backlog increased 16% to $244.1 billion at December 31, 2013, composed of equipment backlog of $63.9 billion and services backlog of $180.2 billion. Orders constituting backlog may be cancelled or deferred by customers, subject in certain cases to penalties. See the Segment Operations section of this Item for further information.


 

Supplemental Information

 

Financial Measures that Supplement Generally Accepted Accounting Principles

We sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered "non-GAAP financial measures" under U.S. Securities and Exchange Commission rules. Specifically, we have referred, in various sections of this Form 10-K Report, to:

 

·      Industrial cash flows from operating activities (Industrial CFOA) and GE CFOA excluding the effects of NBCU deal-related taxes

 

·      Operating earnings, operating EPS, operating EPS excluding the effects of the 2011 preferred stock redemption and Industrial operating earnings

 

·      Operating and non-operating pension costs

 

·      Average GE shareowners' equity, excluding effects of discontinued operations
 

·      Ratio of adjusted debt to equity at GECC, net of adjusted cash and equivalents and with classification of hybrid debt as equity
  

·      GE Capital ending net investment (ENI), excluding cash and equivalents
 

·      GE pre-tax earnings from continuing operations, excluding GECC earnings from continuing operations, the corresponding effective tax rates and the reconciliation of the U.S. federal statutory income tax rate to GE effective tax rate, excluding GECC earnings
 

The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures follow.

Industrial Cash Flows from Operating Activities (Industrial CFOA) and GE CFOA Excluding the Effects of NBCU Deal-Related Taxes

(In millions)


2013 



2012 



2011 



2010 



2009 
















Cash from GE's operating















   activities, as reported

$

 14,255 


$

17,826 


$

12,057 


$

14,746 


$

16,405 

Less dividends from GECC


 5,985 



6,426 



 - 



 - 



 - 

Cash from GE's operating















   activities, excluding dividends















   from GECC (Industrial CFOA)

$

 8,270 


$

11,400 


$

12,057 


$

14,746 


$

16,405 
















Cash from GE's operating















    activities, as reported

$

14,255  













Adjustment: effects of NBCU















   deal-related taxes


3,184  













GE CFOA excluding effects of NBCU















   deal-related taxes

$

17,439  




























 

We refer to cash generated by our industrial businesses as "Industrial CFOA," which we define as GE's cash from continuing operating activities less the amount of dividends received by GE from GECC. This includes the effects of intercompany transactions, including GE customer receivables sold to GECC; GECC services for trade receivables management and material procurement; buildings and equipment (including automobiles) leased between GE and GECC; information technology (IT) and other services sold to GECC by GE; aircraft engines manufactured by GE that are installed on aircraft purchased by GECC from third-party producers for lease to others; and various investments, loans and allocations of GE corporate overhead costs. We believe that investors may find it useful to compare GE's operating cash flows without the effect of GECC dividends, since these dividends are not representative of the operating cash flows of our industrial businesses and can vary from period-to-period based upon the results of the financial services businesses. We also believe that investors may find it useful to compare Industrial CFOA excluding the effects of taxes paid related to the NBCU transaction. Management recognizes that these measures may not be comparable to cash flow results of companies that contain both industrial and financial services businesses, but believes that this comparison is aided by the provision of additional information about the amounts of dividends paid by our financial services business and the separate presentation in our financial statements of the Financial Services (GECC) cash flows. We believe that our measures of Industrial CFOA and CFOA excluding NBCU deal-related taxes provide management and investors with useful measures to compare the capacity of our industrial operations to generate operating cash flows with the operating cash flows of other non-financial businesses and companies and as such provide useful measures to supplement the reported GAAP CFOA measure.

 

Operating Earnings, Operating EPS and Operating EPS Excluding the Effects of the

2011 Preferred Stock Redemption






















(In millions; except earnings per share)

2013 


2012 


2011 



2010 


2009 
















Earnings from continuing operations attributable to GE

$

 15,177 


$

14,624 


$

14,122 


$

12,577 


$

10,993 

Adjustment (net of tax): non-operating pension costs (income)


 1,705 



1,386 



688 



(204)



(967)

Operating earnings

$

 16,882 


$

16,010 


$

14,810 


$

12,373 


$

10,026 
















Earnings per share - diluted(a)















Continuing earnings per share

$

1.47 


$

1.38 


$

1.23 


$

1.15 


$

1.00 

Adjustment (net of tax): non-operating pension costs (income)


0.16 



0.13 



0.06 



(0.02) 



(0.09) 

Operating earnings per share


1.64 



1.51 



1.30 



1.13 



0.91 
















Less: Effects of the 2011 preferred stock redemption


 - 



 - 



0.08 



 - 



 - 

Operating EPS excluding the effects of the 2011 preferred stock















   redemption

$

1.64 


$

1.51 


$

1.37 


$

1.13 


$

0.91 
















 

(a)         Earnings-per-share amounts are computed independently. As a result, the sum of per-share amounts may not equal the total.

 

Industrial Operating Earnings

(In millions)


2013 




Earnings from continuing operations attributable to GE

$

 15,177 

Adjustments (net of tax): non-operating pension costs (income)


 1,705 

Operating earnings


 16,882 




Less GECC earnings from continuing



   operations attributable to the Company


 8,258 

Less effect of GECC preferred stock dividends


 (298)




Operating earnings excluding GECC earnings



   from continuing operations and the effect of GECC preferred stock dividends



   (Industrial operating earnings)

$

 8,922 




Industrial operating earnings as a percentage of



   operating earnings


53%




 

 

Operating earnings excludes non-service-related pension costs of our principal pension plans comprising interest cost, expected return on plan assets and amortization of actuarial gains/losses. The service cost and prior service cost components of our principal pension plans are included in operating earnings. We believe that these components of pension cost better reflect the ongoing service-related costs of providing pension benefits to our employees. As such, we believe that our measure of operating earnings provides management and investors with a useful measure of the operational results of our business. Other components of GAAP pension cost are mainly driven by capital allocation decisions and market performance, and we manage these separately from the operational performance of our businesses. Neither GAAP nor operating pension costs are necessarily indicative of the current or future cash flow requirements related to our pension plan. We also believe that this measure, considered along with the corresponding GAAP measure, provides management and investors with additional information for comparison of our operating results to the operating results of other companies. We believe that presenting operating earnings separately for our industrial businesses also provides management and investors with useful information about the relative size of our industrial and financial services businesses in relation to the total company. We also believe that operating EPS excluding the effects of the $0.8 billion preferred dividend related to the redemption of our preferred stock (calculated as the difference between the carrying value and the redemption value of the preferred stock) is a meaningful measure because it increases the comparability of period-to-period results.

 

 

Operating and Non-Operating Pension Costs




(In millions)

2013 


2012 


2011 










Service cost for benefits earned

$

 1,535 


$

1,387 


$

1,195 

Prior service cost amortization


 246 



279 



194 

Operating pension costs


 1,781 



1,666 



1,389 










Expected return on plan assets


 (3,500)



(3,768)



(3,940)

Interest cost on benefit obligations


 2,460 



2,479 



2,662 

Net actuarial loss amortization


 3,664 



3,421 



2,335 

Non-operating pension costs


 2,624 



2,132 



1,057 










Total principal pension plans costs

$

 4,405 


$

3,798 


$

2,446 










 

We have provided the operating and non-operating components of cost for our principal pension plans. Operating pension costs comprise the service cost of benefits earned and prior service cost amortization for our principal pension plans. Non-operating pension costs comprise the expected return on plan assets, interest cost on benefit obligations and net actuarial loss amortization for our principal pension plans. We believe that the operating components of pension costs better reflect the ongoing service-related costs of providing pension benefits to our employees. We believe that the operating and non-operating components of cost for our principal pension plans, considered along with the corresponding GAAP measure, provide management and investors with additional information for comparison of our pension plan costs and operating results with the pension plan costs and operating results of other companies.

 

 

Average GE Shareowners' Equity, Excluding Effects of Discontinued Operations(a)

December 31 (In millions)


2013 



2012 



2011 



2010 



2009 
















Average GE shareowners'















   equity(b)

$

 124,501 


$

120,411 


$

122,289 


$

116,179 


$

110,535 

Less the effects of the















   average net investment in















   discontinued operations


 (167)



(478)



4,924 



13,819 



17,432 

Average GE shareowners'















   equity, excluding effects of















   discontinued operations(a)

$

 124,668 


$

120,889 


$

117,365 


$

102,360 


$

93,103 
















 

(a)         Used for computing return on average GE shareowners' equity and return on average total capital invested (ROTC).

(b)           On an annual basis, calculated using a five-point average.

 

Our ROTC calculation excludes earnings (losses) of discontinued operations from the numerator because U.S. GAAP requires us to display those earnings (losses) in the Statement of Earnings. Our calculation of average GE shareowners' equity may not be directly comparable to similarly titled measures reported by other companies. We believe that it is a clearer way to measure the ongoing trend in return on total capital for the continuing operations of our businesses given the extent that discontinued operations have affected our reported results. We believe that this results in a more relevant measure for management and investors to evaluate performance of our continuing operations, on a consistent basis, and to evaluate and compare the performance of our continuing operations with the ongoing operations of other businesses and companies.

 

Definitions indicating how the above-named ratios are calculated using average GE shareowners' equity, excluding effects of discontinued operations, can be found in the Glossary.

 

Ratio of Adjusted Debt to Equity at GECC, Net of Adjusted Cash and Equivalents and with Classification

of Hybrid Debt as Equity

December 31 (Dollars in millions)


2013 



2012 



2011 



2010 



2009 
















GECC debt

$

 371,062 


$

397,039 


$

442,830 


$

470,363 


$

493,224 

   Add debt of businesses held for sale















      and discontinued operations


 316 



403 



527 



575 



7,136 

Adjusted GECC debt


 371,378 



397,442 



443,357 



470,938 



500,360 

   Less cash and equivalents


 74,873 



61,853 



76,641 



60,231 



62,565 

   Less cash of businesses held for sale















      and discontinued operations


 236 



265 



332 



222 



1,975 

   Less hybrid debt


 7,725 



7,725 



7,725 



7,725 



7,725 


$

 288,544 


$

327,599 


$

358,659 


$

402,760 


$

428,095 
















GECC equity

$

 82,694 


$

81,890 


$

77,110 


$

68,984 


$

70,833 

   Plus hybrid debt


 7,725 



7,725 



7,725 



7,725 



7,725 


$

 90,419 


$

89,615 


$

84,835 


$

76,709 


$

78,558 
















Ratio


3.19:1



3.66:1



4.23:1



5.25:1



5.45:1

 

We have provided the GECC ratio of debt to equity on a basis that reflects the use of cash and equivalents as a reduction of debt, and long-term debt due in 2066 and 2067 classified as equity. For purposes of this ratio, we have also adjusted cash and debt balances to include amounts classified as assets and liabilities of businesses held for sale and discontinued operations. We believe that this is a useful comparison to a GAAP-based ratio of debt to equity because cash balances may be used to reduce debt and because this long-term debt has equity-like characteristics. The usefulness of this supplemental measure may be limited, however, as the total amount of cash and equivalents at any point in time may be different than the amount that could practically be applied to reduce outstanding debt, and it may not be advantageous or practical to replace certain long-term debt with equity. Despite these potential limitations, we believe that this measure, considered along with the corresponding GAAP measure, provides investors with additional information that may be more comparable to other financial institutions and businesses.

GE Capital Ending Net Investment (ENI), Excluding Cash and Equivalents


December 31,

(In billions)

2013 




Financial Services (GECC) total assets

$

512.0 

Adjustment: deferred income taxes


4.8 

GECC total assets


516.8 

   Less assets of discontinued operations


2.3 

   Less non-interest-bearing liabilities


59.3 

GE Capital ENI


455.2 

   Less cash and equivalents


74.9 

GE Capital ENI, excluding cash and equivalents

$

380.3 




 

We use ENI to measure the size of our GE Capital segment. We believe that this measure is a useful indicator of the capital (debt or equity) required to fund a business as it adjusts for non-interest-bearing current liabilities generated in the normal course of business that do not require a capital outlay. We also believe that by excluding cash and equivalents, we provide a meaningful measure of assets requiring capital to fund our GE Capital segment, as a substantial amount of this cash and equivalents resulted from debt issuances to pre-fund future debt maturities and will not be used to fund additional assets. Providing this measure will help investors measure how we are performing against our previously communicated goal to reduce the size of our financial services segment.

GE Pre-Tax Earnings from Continuing Operations, Excluding GECC Earnings from Continuing Operations

and the Corresponding Effective Tax Rates


(Dollars in millions)


2013 



2012 



2011 












GE earnings from continuing operations before income taxes

$

 17,090 


$

16,797 


$

19,126 


   Less GECC earnings from continuing operations


 8,258 



7,345 



6,480 


Total

$

 8,832 


$

9,452 


$

12,646 












GE provision for income taxes

$

 1,668 


$

2,013 


$

4,839 


GE effective tax rate, excluding GECC earnings


 18.9 

%


21.3 

%


38.3 

%

 

 

Reconciliation of U.S. Federal Statutory Income Tax Rate to GE Effective Tax Rate, Excluding GECC Earnings












2013 



2012 



2011 












U.S. federal statutory income tax rate


 35.0 

%


 35.0 

%


 35.0 

%

Reduction in rate resulting from










   Tax on global activities including exports


 (7.9)



 (7.6)



 (7.9)


   U.S. business credits


 (2.8)



 (1.2)



 (2.3)


   NBCU gain


 (1.3)



 - 



 14.9 


   All other - net


 (4.1)



 (4.9)



 (1.4)




 (16.1)



 (13.7)



 3.3 


GE effective tax rate, excluding GECC earnings


 18.9 

%


 21.3 

%


 38.3 

%

 

 

We believe that the GE effective tax rate is best analyzed in relation to GE earnings before income taxes excluding the GECC net earnings from continuing operations, as GE tax expense does not include taxes on GECC earnings. Management believes that in addition to the Consolidated and GECC tax rates shown in Note 14 to the consolidated financial statements in Part II, Item 8. "Financial Statements and Supplementary Data" of this Form 10-K Report, this supplemental measure provides investors with useful information as it presents the GE effective tax rate that can be used in comparing the GE results to other non-financial services businesses.

Glossary

 

BacklogUnfilled customer orders for products and product services (12 months for product services).

 

BorrowingFinancial liability (short or long-term) that obligates us to repay cash or another financial asset to another entity.

 

Borrowings as a percentage of total capital invested For GE, the sum of borrowings and mandatorily redeemable preferred stock, divided by the sum of borrowings, mandatorily redeemable preferred stock, noncontrolling interests and total shareowners' equity.

 

Cash equivalents Highly liquid debt instruments with original maturities of three months or less, such as commercial paper. Typically included with cash for reporting purposes, unless designated as available-for-sale and included with investment securities.

 

Cash flow hedges Qualifying derivative instruments that we use to protect ourselves against exposure to variability in future cash flows. The exposure may be associated with an existing asset or liability, or with a forecasted transaction. See "Hedge."

 

Commercial paper Unsecured, unregistered promise to repay borrowed funds in a specified period ranging from overnight to 270 days.

 

Comprehensive income The sum of Net Income and Other Comprehensive Income. See "Other Comprehensive Income."

 

Derivative instrument A financial instrument or contract with another party (counterparty) that is designed to meet any of a variety of risk management objectives, including those related to fluctuations in interest rates, currency exchange rates or commodity prices. Options, forwards and swaps are the most common derivative instruments we employ. See "Hedge."

 

Discontinued operations Certain businesses we have sold or committed to sell within the next year and therefore will no longer be part of our ongoing operations. The net earnings, assets and liabilities, and cash flows of such businesses are separately classified on our Statement of Earnings, Statement of Financial Position and Statement of Cash Flows, respectively, for all periods presented.

 

Effective tax rate Provision for income taxes as a percentage of earnings from continuing operations before income taxes and accounting changes. Does not represent cash paid for income taxes in the current accounting period. Also referred to as "actual tax rate" or "tax rate."

 

Ending Net Investment (ENI) The total capital we have invested in the financial services business. It is the sum of short-term borrowings, long-term borrowings and equity (excluding noncontrolling interests) adjusted for unrealized gains and losses on investment securities and hedging instruments. Alternatively, it is the amount of assets of continuing operations less the amount of non-interest-bearing liabilities.

 

Equipment leased to others Rental equipment we own that is available to rent and is stated at cost less accumulated depreciation.

 

Fair value hedge Qualifying derivative instruments that we use to reduce the risk of changes in the fair value of assets, liabilities or certain types of firm commitments. Changes in the fair values of derivative instruments that are designated and effective as fair value hedges are recorded in earnings, but are offset by corresponding changes in the fair values of the hedged items. See "Hedge."

 

Financing receivables Investment in contractual loans and leases due from customers (not investment securities).

 

Forward contract Fixed price contract for purchase or sale of a specified quantity of a commodity, security, currency or other financial instrument with delivery and settlement at a specified future date. Commonly used as a hedging tool. See "Hedge."

 

GoodwillThe premium paid for acquisition of a business. Calculated as the purchase price less the fair value of net assets acquired (net assets are identified tangible and intangible assets, less liabilities assumed).

 

Guaranteed investment contracts (GICs) Deposit-type products that guarantee a minimum rate of return, which may be fixed or floating.

 

Hedge A technique designed to eliminate risk. Often refers to the use of derivative financial instruments to offset changes in interest rates, currency exchange rates or commodity prices, although many business positions are "naturally hedged" - for example, funding a U.S. fixed-rate investment with U.S. fixed-rate borrowings is a natural interest rate hedge.

 

Intangible asset A non-financial asset lacking physical substance, such as goodwill, patents, licenses, trademarks and customer relationships.

 

Interest rate swap Agreement under which two counterparties agree to exchange one type of interest rate cash flow for another. In a typical arrangement, one party periodically will pay a fixed amount of interest, in exchange for which that party will receive variable payments computed using a published index. See "Hedge."

 

Investment securities Generally, an instrument that provides an ownership position in a corporation (a stock), a creditor relationship with a corporation or governmental body (a bond), rights to contractual cash flows backed by pools of financial assets or rights to ownership such as those represented by options, subscription rights and subscription warrants.

 

Match funding A risk control policy that provides funding for a particular financial asset having the same currency, maturity and interest rate characteristics as that asset. Match funding is executed directly, by issuing debt, or synthetically, through a combination of debt and derivative financial instruments. For example, when we lend at a fixed interest rate in the U.S., we can borrow those U.S. dollars either at a fixed rate of interest or at a floating rate executed concurrently with a pay-fixed interest rate swap. See "Hedge."

 

Monetization Sale of financial assets to a third party for cash. For example, we sell certain loans, credit card receivables and trade receivables to third-party financial buyers, typically providing at least some credit protection and often agreeing to provide collection and processing services for a fee. Monetization normally results in gains on interest-bearing assets and losses on non-interest-bearing assets. See "Securitization" and "Variable interest entity."

 

Noncontrolling interest Portion of shareowner's equity in a subsidiary that is not attributable to GE.

 

Operating profit GE earnings from continuing operations before interest and other financial charges, income taxes and effects of accounting changes.

 

Option The right, not the obligation, to execute a transaction at a designated price, generally involving equity interests, interest rates, currencies or commodities. See "Hedge."

 

Other Comprehensive Income Changes in assets and liabilities that do not result from transactions with shareowners and are not included in net income but are recognized in a separate component of shareowners' equity. Other Comprehensive Income includes the following components:

-       Investment securities - Unrealized gains and losses on securities classified as available-for-sale.

-       Currency translation adjustments - The result of translating into U.S. dollars those amounts denominated or measured in a different currency.

-       Cash flow hedges - The effective portion of the fair value of cash flow hedges. Such hedges relate to an exposure to variability in the cash flows of recognized assets, liabilities or forecasted transactions that are attributable to a specific risk.

-       Benefit plans - Unamortized prior service costs and net actuarial losses (gains) related to pension and retiree health and life benefits.

-       Reclassification adjustments - Amounts previously recognized in Other Comprehensive Income that are included in net income in the current period.

 

Product services For purposes of the financial statement display of sales and costs of sales in our Statement of Earnings, "goods" is required by U.S. Securities and Exchange Commission regulations to include all sales of tangible products, and "services" must include all other sales, including other services activities. In our Management's Discussion and Analysis of Operations, we refer to sales under product services agreements and sales of both goods (such as spare parts and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as sales of "product services," which is an important part of our operations.

 

Product services agreements Contractual commitments, with multiple-year terms, to provide specified services for products in our Power & Water, Oil & Gas, Aviation and Transportation installed base - for example, monitoring, maintenance, service and spare parts for a gas turbine/generator set installed in a customer's power plant.

 

Productivity The rate of increased output for a given level of input, with both output and input measured in constant currency.

 

Progress collections Billings and payments received on customer contracts before the related revenue is recognized.

 

Qualified special purpose entities (QSPEs) A type of variable interest entity whose activities are significantly limited and entirely specified in the legal documents that established it. There also are significant limitations on the types of assets and derivative instruments such entities may hold and the types and extent of activities and decision-making they may engage in.

 

Retained interest A portion of a transferred financial asset retained by the transferor that provides rights to receive portions of the cash inflows from that asset.

 

Return on average GE shareowners' equity Earnings from continuing operations before accounting changes divided by average GE shareowners' equity, excluding effects of discontinued operations (on an annual basis, calculated using a five-point average). Average GE shareowners' equity, excluding effects of discontinued operations, as of the end of each of the years in the five-year period ended December 31 of the year for which the ratio is calculated is described in the Supplemental Information section.

 

Return on average total capital invested For GE, earnings from continuing operations before accounting changes plus the sum of after-tax interest and other financial charges and noncontrolling interests, divided by the sum of the averages of total shareowners' equity (excluding effects of discontinued operations), borrowings, mandatorily redeemable preferred stock and noncontrolling interests (on an annual basis, calculated using a five-point average). Average total shareowners' equity, excluding effects of discontinued operations as of the end of each of the years in the five-year period ended December 31 of the year for which the ratio is calculated is described in the Supplemental Information section.

 

Securitization A process whereby loans or other receivables are packaged, underwritten and sold to investors. In a typical transaction, assets are sold to a special purpose entity, which purchases the assets with cash raised through issuance of beneficial interests (usually debt instruments) to third-party investors. Whether or not credit risk associated with the securitized assets is retained by the seller depends on the structure of the securitization. See "Monetization" and "Variable interest entity."

 

SubprimeFor purposes of Consumer-related discussion, subprime includes consumer finance products like mortgage, auto, cards, sales finance and personal loans to U.S. and global borrowers whose credit score implies a higher probability of default based upon GECC's proprietary scoring models and definitions, which add various qualitative and quantitative factors to a base credit score such as a FICO score or global bureau score. Although FICO and global bureau credit scores are a widely accepted rating of individual consumer creditworthiness, the internally modeled scores are more reflective of the behavior and default risks in the portfolio compared with stand-alone generic bureau scores.

 

TurnoverBroadly based on the number of times that working capital is replaced during a year. Current receivables turnover is total sales divided by the five-point average balance of GE current receivables. Inventory turnover is total sales divided by a five-point average balance of inventories. See "Working capital."

 

Variable interest entity An entity that must be consolidated by its primary beneficiary, the party that holds a controlling financial interest. A variable interest entity has one or both of the following characteristics: (1) its equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) as a group, the equity investors lack one or more of the following characteristics: (a) the power to direct the activities that most significantly affect the economic performance of the entity, (b) obligation to absorb expected losses, or (c) right to receive expected residual returns.

 

Working capital Represents GE current receivables and inventories, less GE accounts payable and progress collections.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Information about our global risk management can be found in the Operations - Global Risk Management, GE Capital Risk Management and Oversight and Financial Resources and Liquidity and Borrowings - Funding Plan - Exchange Rate and Interest Rate Risks sections in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K Report.


Item 8. Financial Statements and Supplementary Data.

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With our participation, an evaluation of the effectiveness of our internal control over financial reporting was conducted as of December 31, 2013, based on the framework and criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992.

Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2013.

Our independent registered public accounting firm has issued an audit report on our internal control over financial reporting. Their report follows.

/s/ Jeffrey R. Immelt

 

/s/ Jeffrey S. Bornstein

Jeffrey R. Immelt

 

Jeffrey S. Bornstein

Chairman of the Board and

Chief Executive Officer

 

February 27, 2014

 

Senior Vice President and

Chief Financial Officer

 


Report of Independent Registered Public Accounting Firm

 

 

 

 

To Shareowners and Board of Directors

of General Electric Company:

 

We have audited the accompanying statement of financial position of General Electric Company and consolidated affiliates (the "Company") as of December 31, 2013 and 2012, and the related statements of earnings, comprehensive income, changes in shareowners' equity and cash flows for each of the years in the three-year period ended December 31, 2013. We also have audited the Company's internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of General Electric Company and consolidated affiliates as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by COSO.

 

Our audits of the consolidated financial statements were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The accompanying consolidating information appearing on pages 95, 98 and 100 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, results of operations and cash flows of the individual entities. The consolidating information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

 

 

   /s/ KPMG LLP

 

 

Stamford, Connecticut
February 27, 2014


Audited Financial Statements and Notes

 

Statement of Earnings

94

Consolidated Statement of Comprehensive Income

96

Consolidated Statement of Changes in Shareowners' Equity

96

Statement of Financial Position

97

Statement of Cash Flows

99

Notes to Consolidated Financial Statements



1


Basis of Presentation and Summary of Significant Accounting Policies

101

 


2


Assets and Liabilities of Businesses Held for Sale and Discontinued Operations

113

 


3


Investment Securities

120

 


4


Current Receivables

124

 


5


Inventories

124

 


6


GECC Financing Receivables, Allowance for Losses on Financing Receivables and

  Supplemental Information on Credit Quality

125

 


7


Property, Plant and Equipment

139

 


8


Goodwill and Other Intangible Assets

140

 


9


All Other Assets

143

 


10


Borrowings and Bank Deposits

144

 


11


Investment Contracts, Insurance Liabilities and Insurance Annuity Benefits

146

 


12


Postretirement Benefit Plans

146

 


13


All Other Liabilities

156

 


14


Income Taxes

157

 


15


Shareowners' Equity

161

 


16


Other Stock-related Information

165

 


17


Other Income

168

 


18


GECC Revenues from Services

169

 


19


Supplemental Cost Information

169

 


20


Earnings Per Share Information

170

 


21


Fair Value Measurements

171

 


22


Financial Instruments

177

 


23


Variable Interest Entities

183

 


24


Commitments and Guarantees

186

 


25


Supplemental Cash Flows Information

187

 


26


Intercompany Transactions

188

 


27


Operating Segments

188

 


28


Quarterly Information (unaudited)

192

 


Statement of Earnings 










General Electric Company 


and consolidated affiliates 

For the years ended December 31 (In millions; per-share amounts in dollars) 

2013 



2012 



2011 










Revenues and other income 









Sales of goods 

$

 71,873 


$

72,991 


$

66,874 

Sales of services 


 28,669 



27,158 



27,648 

Other income (Note 17) 


 3,108 



2,563 



5,063 

GECC earnings from continuing operations 


 - 



 - 



 - 

GECC revenues from services (Note 18) 


 42,395 



43,972 



46,957 

   Total revenues and other income 


 146,045 



146,684 



146,542 

   









Costs and expenses (Note 19) 









Cost of goods sold 


 57,867 



56,785 



51,455 

Cost of services sold 


 19,274 



17,525 



16,823 

Interest and other financial charges 


 10,116 



12,407 



14,422 

Investment contracts, insurance losses and 









   insurance annuity benefits 


 2,676 



2,857 



2,912 

Provision for losses on financing 









   receivables (Note 6) 


 4,818 



3,832 



3,930 

Other costs and expenses 


 35,143 



35,897 



36,841 

   Total costs and expenses 


 129,894 



129,303 



126,383 










Earnings from continuing operations  









   before income taxes 


 16,151 



17,381 



20,159 

Benefit (provision) for income taxes (Note 14) 


 (676)



(2,534)



(5,745)

Earnings from continuing operations 


 15,475 



14,847 



14,414 

Earnings (loss) from discontinued operations, 









   net of taxes (Note 2) 


 (2,120)



(983)



29 

Net earnings 


 13,355 



13,864 



14,443 

Less net earnings attributable to 









   noncontrolling interests 


 298 



223 



292 

Net earnings attributable to the Company 


 13,057 



13,641 



14,151 

Preferred stock dividends declared 


 - 



 - 



(1,031)

Net earnings attributable to GE common 









   shareowners 

$

 13,057 


$

13,641 


$

13,120 



















Amounts attributable to the Company 









   Earnings from continuing operations 

$

 15,177 


$

14,624 


$

14,122 

   Earnings (loss) from discontinued operations, 









      net of taxes 


 (2,120)



(983)



29 

Net earnings attributable to the Company 

$

 13,057 


$

13,641 


$

 14,151 










Per-share amounts (Note 20) 









   Earnings from continuing operations 









      Diluted earnings per share 

$

 1.47 


$

 1.38 


$

 1.23 

      Basic earnings per share 


 1.48 



 1.39 



 1.23 










   Net earnings 









      Diluted earnings per share 


 1.27 



 1.29 



 1.23 

      Basic earnings per share 


 1.28 



 1.29 



 1.24 










Dividends declared per share 


 0.79 



 0.70 



 0.61 



















See Note 3 for other-than-temporary impairment amounts.

See accompanying notes.

 

Statement of Earnings (Continued)


















For the years ended December 31

GE(a)


GECC

(In millions; per-share amounts in dollars)

2013 


2012 


2011 


2013 


2012 


2011 



















Revenues and other income


















Sales of goods

$

 71,951 


$

 73,304 


$

 67,011 


$

 126 


$

 119 


$

 148 

Sales of services


 29,063 



 27,571 



 28,024 



 - 



 - 



 - 

Other income (Note 17)


 2,886 



 2,657 



 5,268 



 - 



 - 



 - 

GECC earnings from continuing operations


 8,258 



 7,345 



 6,480 



 - 



 - 



 - 

GECC revenues from services (Note 18)


 - 



 - 



 - 



 43,941 



 45,245 



 48,176 

   Total revenues and other income


 112,158 



 110,877 



 106,783 



 44,067 



 45,364 



 48,324 



















Costs and expenses (Note 19)


















Cost of goods sold


 57,962 



 57,118 



 51,605 



 108 



 99 



 135 

Cost of services sold


 19,668 



 17,938 



 17,199 



 - 



 - 



 - 

Interest and other financial charges


 1,333 



 1,353 



 1,299 



 9,267 



 11,596 



 13,760 

Investment contracts, insurance losses and


















   insurance annuity benefits


 - 



 - 



 - 



 2,779 



 2,984 



 3,059 

Provision for losses on financing


















   receivables (Note 6)


 - 



 - 



 - 



 4,818 



 3,832 



 3,930 

Other costs and expenses


 16,105 



 17,671 



 17,554 



 19,776 



 18,924 



 19,927 

   Total costs and expenses


 95,068 



 94,080 



 87,657 



 36,748 



 37,435 



 40,811 



















Earnings from continuing operations 


















   before income taxes


 17,090 



 16,797 



 19,126 



 7,319 



 7,929 



 7,513 

Benefit (provision) for income taxes (Note 14)


 (1,668)



 (2,013)



 (4,839)



 992 



 (521)



 (906)

Earnings from continuing operations


 15,422 



 14,784 



 14,287 



 8,311 



 7,408 



 6,607 

Earnings (loss) from discontinued operations,


















   net of taxes (Note 2)


 (2,120)



 (983)



 29 



 (2,054)



 (1,130)



 30 

Net earnings


 13,302 



 13,801 



 14,316 



 6,257 



 6,278 



 6,637 

Less net earnings attributable to


















   noncontrolling interests


 245 



 160 



 165 



 53 



 63 



 127 

Net earnings attributable to the Company


 13,057 



 13,641 



 14,151 



 6,204 



 6,215 



 6,510 

Preferred stock dividends declared


 - 



 - 



 (1,031)



 (298)



 (123)



 - 

Net earnings attributable to GE common


















   shareowners

$

 13,057 


$

 13,641 


$

 13,120 


$

 5,906 


$

 6,092 


$

 6,510 





































Amounts attributable to the Company


















   Earnings from continuing operations

$

 15,177 


$

 14,624 


$

 14,122 


$

 8,258 


$

 7,345 


$

 6,480 

   Earnings (loss) from discontinued operations,


















      net of taxes


 (2,120)



 (983)



 29 



 (2,054)



 (1,130)



 30 

   Net earnings attributable to the Company

$

 13,057 


$

 13,641 


$

 14,151 


$

 6,204 


$

 6,215 


$

 6,510 





































(a)           Represents the adding together of all affiliated companies except General Electric Capital Corporation (GECC or financial services), which is presented on a one-line basis. See Note 1.

In the consolidating data on this page, "GE" means the basis of consolidation as described in Note 1 to the consolidated financial statements; "GECC" means General Electric Capital Corporation and all of its affiliates and associated companies. Separate information is shown for "GE" and "GECC." Transactions between GE and GECC have been eliminated from the "General Electric Company and consolidated affiliates" columns on the prior page.


Consolidated Statement of Comprehensive Income


















For the years ended December 31 (In millions)


2013 



2012 



2011 










Net earnings

$

 13,355 


$

 13,864 


$

 14,443 

   Less: net earnings (loss) attributable to noncontrolling interests


 298 



 223 



 292 

Net earnings attributable to GE

$

 13,057 


$

 13,641 


$

 14,151 










Other comprehensive income (loss)









  Investment securities

$

 (374)


$

 705 


$

 608 

  Currency translation adjustments


 (308)



 300 



 180 

  Cash flow hedges


 467 



 453 



 118 

  Benefit plans


 11,300 



 2,299 



 (7,040)

Other comprehensive income (loss)


 11,085 



 3,757 



 (6,134)

  Less: other comprehensive income (loss) attributable to noncontrolling interests


 (25)



 13 



 (15)

Other comprehensive income (loss) attributable to GE

$

 11,110 


$

 3,744 


$

 (6,119)










Comprehensive income

$

 24,440 


$

 17,621 


$

 8,309 

Less: comprehensive income attributable to noncontrolling interests


 273 



 236 



 277 

Comprehensive income attributable to GE

$

 24,167 


$

 17,385 


$

 8,032 










 

Amounts presented net of taxes. See Note 15 for further information about other comprehensive income and noncontrolling interests.

 

See accompanying notes.

 

 

 

 

Consolidated Statement of Changes in Shareowners' Equity


















(In millions)


2013 



2012 



2011 










GE shareowners' equity balance at January 1

$

 123,026 


$

 116,438 


$

 118,936 

Increases from net earnings attributable to the Company


 13,057 



 13,641 



 14,151 

Dividends and other transactions with shareowners


 (8,061)



 (7,372)



 (7,502)

Other comprehensive income (loss) attributable to GE


 11,110 



 3,744 



 (6,119)

Net sales (purchases) of shares for treasury


 (7,990)



 (2,802)



 169 

Changes in other capital


 (576)



 (623)



 (3,197)

Ending balance at December 31


 130,566 



 123,026 



 116,438 

Noncontrolling interests


 6,217 



 5,444 



 1,696 

Total equity balance at December 31

$

 136,783 


$

 128,470 


$

 118,134 




























See Note 15 for further information about changes in shareowners' equity.

 

See accompanying notes.


Statement of Financial Position







General Electric Company


and consolidated affiliates

At December 31 (In millions, except share amounts)

2013 


2012 





Assets






Cash and equivalents

$

 88,555 


$

 77,268 

Investment securities (Note 3)


 43,981 



 48,510 

Current receivables (Note 4)


 21,388 



 19,902 

Inventories (Note 5)


 17,325 



 15,374 

Financing receivables - net (Note 6)


 241,940 



 257,238 

Other GECC receivables


 9,114 



 7,864 

Property, plant and equipment - net (Note 7)


 68,827 



 68,633 

Investment in GECC


 - 



 - 

Goodwill (Note 8)


 77,648 



 73,114 

Other intangible assets - net (Note 8)


 14,310 



 11,980 

All other assets (Note 9)


 70,808 



 101,644 

Deferred income taxes (Note 14)


 275 



 (54)

Assets of businesses held for sale (Note 2)


 50 



 211 

Assets of discontinued operations (Note 2)


 2,339 



 3,315 

Total assets(a)

$

 656,560 


$

 684,999 







Liabilities and equity






Short-term borrowings (Note 10)

$

 77,890 


$

 101,392 

Accounts payable, principally trade accounts


 16,471 



 15,654 

Progress collections and price adjustments






   accrued


 13,125 



 10,877 

Dividends payable


 2,220 



 1,980 

Other GE current liabilities


 13,381 



 14,895 

Non-recourse borrowings of consolidated






   securitization entities (Note 10)


 30,124 



 30,123 

Bank deposits (Note 10)


 53,361 



 46,200 

Long-term borrowings (Note 10)


 221,665 



 236,084 

Investment contracts, insurance liabilities






   and insurance annuity benefits (Note 11)


 26,544 



 28,268 

All other liabilities (Note 13)


 61,057 



 68,166 

Liabilities of businesses held for sale (Note 2)


 6 



 157 

Liabilities of discontinued operations (Note 2)


 3,933 



 2,733 

Total liabilities(a)


 519,777 



 556,529 







GECC preferred stock (50,000 and 40,000 shares outstanding at






    year-end 2013 and 2012, respectively)


 - 



 - 

Common stock (10,060,881,000 and 10,405,625,000






    shares outstanding at year-end 2013 and 2012, respectively)


 702 



 702 

Accumulated other comprehensive income attributable to GE(b)






    Investment securities


 307 



 677 

    Currency translation adjustments


 126 



 412 

    Cash flow hedges


 (257)



 (722)

    Benefit plans


 (9,296)



 (20,597)

Other capital


 32,494 



 33,070 

Retained earnings


 149,051 



 144,055 

Less common stock held in treasury


 (42,561)



 (34,571)







Total GE shareowners' equity


 130,566 



 123,026 

Noncontrolling interests(c)


 6,217 



 5,444 

Total equity (Notes 15 and 16)


 136,783 



 128,470 







Total liabilities and equity

$

 656,560 


$

 684,999 













(a)           Our consolidated assets at December 31, 2013 include total assets of $47,367 million of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs. These assets include net financing receivables of $41,420 million and investment securities of $3,830 million. Our consolidated liabilities at December 31, 2013 include liabilities of certain VIEs for which the VIE creditors do not have recourse to GE. These liabilities include non-recourse borrowings of consolidated securitization entities (CSEs) of $28,574 million. See Note 23.

(b)           The sum of accumulated other comprehensive income attributable to GE was $(9,120) million and $(20,230) million at December 31, 2013 and 2012, respectively. 

(c)           Included accumulated other comprehensive income attributable to noncontrolling interests of $(180) million and $(155) million at December 31, 2013 and 2012, respectively.

See accompanying notes.

 

Statement of Financial Position (Continued)

















GE(a)


GECC

At December 31 (In millions, except share amounts)

2013 


2012 


2013 


2012 









Assets












Cash and equivalents

$

 13,682 


$

 15,509 


$

 74,873 


$

 61,853 

Investment securities (Note 3)


 323 



 74 



 43,662 



 48,439 

Current receivables (Note 4)


 10,970 



 9,274 



 - 



 - 

Inventories (Note 5)


 17,257 



 15,295 



 68 



 79 

Financing receivables - net (Note 6)


 - 



 - 



 253,029 



 268,161 

Other GECC receivables


 - 



 - 



 16,513 



 13,891 

Property, plant and equipment - net (Note 7)


 17,574 



 16,033 



 51,607 



 52,967 

Investment in GECC


 77,745 



 77,930 



 - 



 - 

Goodwill (Note 8)


 51,453 



 46,143 



 26,195 



 26,971 

Other intangible assets - net (Note 8)


 13,180 



 10,700 



 1,136 



 1,287 

All other assets (Note 9)


 23,708 



 39,534 



 47,366 



 62,186 

Deferred income taxes (Note 14)


 5,061 



 5,946 



 (4,786)



 (6,000)

Assets of businesses held for sale (Note 2)


 - 



 - 



 50 



 211 

Assets of discontinued operations (Note 2)


 9 



 9 



 2,330 



 3,306 

Total assets

$

 230,962 


$

 236,447 


$

 512,043 


$

 533,351 













Liabilities and equity












Short-term borrowings (Note 10)

$

 1,841 


$

 6,041 


$

 77,298 


$

 95,940 

Accounts payable, principally trade accounts


 16,353 



 14,259 



 6,549 



 6,256 

Progress collections and price adjustments












   accrued


 13,152 



 10,877 



 - 



 - 

Dividends payable


 2,220 



 1,980 



 - 



 - 

Other GE current liabilities


 13,381 



 14,896 



 - 



 - 

Non-recourse borrowings of consolidated












   securitization entities (Note 10)


 - 



 - 



 30,124 



 30,123 

Bank deposits (Note 10)


 - 



 - 



 53,361 



 46,200 

Long-term borrowings (Note 10)


 11,515 



 11,428 



 210,279 



 224,776 

Investment contracts, insurance liabilities












   and insurance annuity benefits (Note 11)


 - 



 - 



 26,979 



 28,696 

All other liabilities (Note 13)


 40,955 



 53,093 



 20,531 



 15,943 

Liabilities of businesses held for sale (Note 2)


 - 



 - 



 6 



 157 

Liabilities of discontinued operations (Note 2)


 143 



 70 



 3,790 



 2,663 

Total liabilities


 99,560 



 112,644 



 428,917 



 450,754 













GECC preferred stock (50,000 shares and 40,000 shares outstanding at












  year-end 2013 and 2012, respectively)


 - 



 - 



 - 



 - 

Common stock (10,060,881,000 and 10,405,625,000












  shares outstanding at year-end 2013 and 2012, respectively)


 702 



 702 



 - 



 - 

Accumulated other comprehensive income attributable to GE












   Investment securities


 307 



 677 



 309 



 673 

   Currency translation adjustments


 126 



 412 



 (687)



 (131)

   Cash flow hedges


 (257)



 (722)



 (293)



 (746)

   Benefit plans


 (9,296)



 (20,597)



 (363)



 (736)

Other capital


 32,494 



 33,070 



 32,563 



 31,586 

Retained earnings


 149,051 



 144,055 



 51,165 



 51,244 

Less common stock held in treasury


 (42,561)



 (34,571)



 - 



 - 













Total GE shareowners' equity


 130,566 



 123,026 



 82,694 



 81,890 

Noncontrolling interests


 836 



 777 



 432 



 707 

Total equity (Notes 15 and 16)


 131,402 



 123,803 



 83,126 



 82,597 













Total liabilities and equity

$

 230,962 


$

 236,447 


$

 512,043 


$

 533,351 

























(a)           Represents the adding together of all affiliated companies except General Electric Capital Corporation (GECC or financial services), which is presented on a one-line basis. See Note 1.

 

In the consolidating data on this page, "GE" means the basis of consolidation as described in Note 1 to the consolidated financial statements; "GECC" means General Electric Capital Corporation and all of its affiliates and associated companies. Separate information is shown for "GE" and "GECC." Transactions between GE and GECC have been eliminated from the "General Electric Company and consolidated affiliates" columns on the prior page.











Statement of Cash Flows










General Electric Company and consolidated affiliates

For the years ended December 31 (In millions)

2013 


2012 


2011 

Cash flows - operating activities









Net earnings

$

 13,355 


$

 13,864 


$

 14,443 

Less net earnings attributable to noncontrolling interests


 298 



 223 



 292 

Net earnings attributable to the Company


 13,057 



 13,641 



 14,151 

(Earnings) loss from discontinued operations


 2,120 



 983 



 (29)

Adjustments to reconcile net earnings attributable to the









   Company to cash provided from operating activities









      Depreciation and amortization of property,









         plant and equipment


 9,762 



 9,192 



 8,986 

      Earnings from continuing operations retained by GECC


 - 



 - 



 - 

      Deferred income taxes


 (3,295)



 (1,152)



 (204)

      Decrease (increase) in GE current receivables


 (485)



 (879)



 (670)

      Decrease (increase) in inventories


 (1,368)



 (1,274)



 (1,168)

      Increase (decrease) in accounts payable


 360 



 (437)



 1,204 

      Increase (decrease) in GE progress collections


 1,893 



 (920)



 (1,146)

      Provision for losses on GECC financing receivables


 4,818 



 3,832 



 3,930 

      All other operating activities


 2,175 



 8,029 



 7,057 

Cash from (used for) operating activities - continuing









   operations


 29,037 



 31,015 



 32,111 

Cash from (used for) operating activities - discontinued









   operations


 (458)



 316 



 1,248 

Cash from (used for) operating activities


 28,579 



 31,331 



 33,359 










Cash flows - investing activities









Additions to property, plant and equipment


 (13,458)



 (15,119)



 (12,637)

Dispositions of property, plant and equipment


 5,883 



 6,184 



 5,867 

Net decrease (increase) in GECC financing receivables


 2,715 



 6,979 



 14,785 

Proceeds from sales of discontinued operations


 528 



 227 



 8,950 

Proceeds from principal business dispositions


 3,324 



 3,618 



 8,877 

Proceeds from sale of equity interest in NBCU LLC


 16,699 



 - 



 - 

Net cash from (payments for) principal businesses purchased


 (1,642)



 (1,456)



 (11,202)

All other investing activities


 14,625 



 11,157 



 6,527 

Cash from (used for) investing activities - continuing









   operations


 28,674 



 11,590 



 21,167 

Cash from (used for) investing activities - discontinued









   operations


 443 



 (288)



 (1,285)

Cash from (used for) investing activities


 29,117 



 11,302 



 19,882 










Cash flows - financing activities









Net increase (decrease) in borrowings (maturities of









   90 days or less)


 (14,230)



 (2,231)



 5,951 

Net increase (decrease) in bank deposits


 2,197 



 2,450 



 6,652 

Newly issued debt (maturities longer than 90 days)


 45,392 



 63,019 



 43,847 

Repayments and other reductions (maturities longer









   than 90 days)


 (61,461)



 (103,942)



 (85,706)

Proceeds from issuance of GECC preferred stock


 990 



 3,960 



 - 

Repayment of preferred stock


 - 



 - 



 (3,300)

Net dispositions (purchases) of GE shares for treasury


 (9,278)



 (4,164)



 (1,456)

Dividends paid to shareowners


 (7,821)



 (7,189)



 (6,458)

Purchases of subsidiary shares from noncontrolling interests


 - 



 - 



 (4,578)

All other financing activities


 (1,418)



 (2,958)



 (1,867)

Cash from (used for) financing activities - continuing









   operations


 (45,629)



 (51,055)



 (46,915)

Cash from (used for) financing activities - discontinued









   operations


 56 



 (19)



 52 

Cash from (used for) financing activities


 (45,573)



 (51,074)



 (46,863)

Effect of exchange rate changes on cash and equivalents


 (795)



 1,278 



 (841)

Increase (decrease) in cash and equivalents


 11,328 



 (7,163)



 5,537 

Cash and equivalents at beginning of year


 77,459 



 84,622 



 79,085 

Cash and equivalents at end of year


 88,787 



 77,459 



 84,622 

Less cash and equivalents of discontinued operations









   at end of year


 232 



 191 



 182 

Cash and equivalents of continuing operations









   at end of year

$

 88,555 


$

 77,268 


$

 84,440 

Supplemental disclosure of cash flows information









Cash paid during the year for interest

$

 (8,690)


$

 (12,717)


$

 (15,571)

Cash recovered (paid) during the year for income taxes


 (2,487)



 (3,237)



 (2,919)



















 

See accompanying notes.

 


















Statement of Cash Flows (Continued)



















GE(a)


GECC

For the years ended December 31 (In millions)

2013 


2012 


2011 


2013 


2012 


2011 

Cash flows - operating activities


















Net earnings

$

 13,302 


$

 13,801 


$

 14,316 


$

 6,257 


$

 6,278 


$

 6,637 

Less net earnings attributable to noncontrolling interests


 245 



 160 



 165 



 53 



 63 



 127 

Net earnings attributable to the Company


 13,057 



 13,641 



 14,151 



 6,204 



 6,215 



 6,510 

(Earnings) loss from discontinued operations


 2,120 



 983 



 (29)



 2,054 



 1,130 



 (30)

Adjustments to reconcile net earnings attributable to the


















   Company to cash provided from operating activities


















      Depreciation and amortization of property,


















         plant and equipment


 2,449 



 2,291 



 2,068 



 7,313 



 6,901 



 6,918 

      Earnings from continuing operations retained by GECC(b)


 (2,273)



 (919)



 (6,480)



 - 



 - 



 - 

      Deferred income taxes


 (2,571)



 (294)



 (327)



 (724)



 (858)



 123 

      Decrease (increase) in GE current receivables


 (1,432)



 1,105 



 (346)



 - 



 - 



 - 

      Decrease (increase) in inventories


 (1,351)



 (1,204)



 (1,122)



 33 



 (27)



 15 

      Increase (decrease) in accounts payable


 809 



 158 



 1,938 



 73 



 (880)



 19 

      Increase (decrease) in GE progress collections


 1,919 



 (920)



 (1,146)



 - 



 - 



 - 

      Provision for losses on GECC financing receivables


 - 



 - 



 - 



 4,818 



 3,832 



 3,930 

      All other operating activities


 1,528 



 2,985 



 3,350 



 99 



 5,418 



 3,127 

Cash from (used for) operating activities - continuing


















   operations


 14,255 



 17,826 



 12,057 



 19,870 



 21,731 



 20,612 

Cash from (used for) operating activities - discontinued


















   operations


 (2)



 - 



 - 



 (456)



 316 



 1,248 

Cash from (used for) operating activities


 14,253 



 17,826 



 12,057 



 19,414 



 22,047 



 21,860 



















Cash flows - investing activities


















Additions to property, plant and equipment


 (3,680)



 (3,937)



 (2,957)



 (9,978)



 (11,879)



 (9,869)

Dispositions of property, plant and equipment


 - 



 - 



 - 



 5,883 



 6,184 



 5,867 

Net decrease (increase) in GECC financing receivables


 - 



 - 



 - 



 3,589 



 5,490 



 14,525 

Proceeds from sales of discontinued operations


 - 



 - 



 - 



 528 



 227 



 8,950 

Proceeds from principal business dispositions


 1,316 



 540 



 6,254 



 1,983 



 2,863 



 2,623 

Proceeds from sale of equity interest in NBCU LLC


 16,699 



 - 



 - 



 - 



 - 



 - 

Net cash from (payments for) principal businesses purchased


 (8,026)



 (1,456)



 (11,152)



 6,384 



 - 



 (50)

All other investing activities


 (1,488)



 (564)



 (384)



 14,972 



 11,794 



 7,733 

Cash from (used for) investing activities - continuing


















   operations


 4,821 



 (5,417)



 (8,239)



 23,361 



 14,679 



 29,779 

Cash from (used for) investing activities - discontinued


















   operations


 2 



 - 



 - 



 441 



 (288)



 (1,285)

Cash from (used for) investing activities


 4,823 



 (5,417)



 (8,239)



 23,802 



 14,391 



 28,494 



















Cash flows - financing activities


















Net increase (decrease) in borrowings (maturities of


















   90 days or less)


 949 



 (890)



 1,058 



 (13,892)



 (1,401)



 4,393 

Net increase (decrease) in bank deposits


 - 



 - 



 - 



 2,197 



 2,450 



 6,652 

Newly issued debt (maturities longer than 90 days)


 512 



 6,961 



 177 



 44,888 



 55,841 



 43,267 

Repayments and other reductions (maturities longer


















   than 90 days)


 (5,032)



 (34)



 (270)



 (56,429)



 (103,908)



 (85,436)

Proceeds from issuance of GECC preferred stock


 - 



 - 



 - 



 990 



 3,960 



 - 

Repayment of preferred stock


 - 



 - 



 (3,300)



 - 



 - 



 - 

Net dispositions (purchases) of GE shares for treasury


 (9,278)



 (4,164)



 (1,456)



 - 



 - 



 - 

Dividends paid to shareowners


 (7,821)



 (7,189)



 (6,458)



 (6,283)



 (6,549)



 - 

Purchases of subsidiary shares from noncontrolling


















   interests


 - 



 - 



 (4,303)



 - 



 - 



 (275)

All other financing activities


 (211)



 32 



 (75)



 (909)



 (2,867)



 (1,792)

Cash from (used for) financing activities - continuing


















   operations


 (20,881)



 (5,284)



 (14,627)



 (29,438)



 (52,474)



 (33,191)

Cash from (used for) financing activities - discontinued


















   operations


 - 



 - 



 - 



 56 



 (19)



 52 

Cash from (used for) financing activities


 (20,881)



 (5,284)



 (14,627)



 (29,382)



 (52,493)



 (33,139)

Effect of exchange rate changes on cash and equivalents


 (22)



 2 



 (50)



 (773)



 1,276 



 (791)

Increase (decrease) in cash and equivalents


 (1,827)



 7,127 



 (10,859)



 13,061 



 (14,779)



 16,424 

Cash and equivalents at beginning of year


 15,509 



 8,382 



 19,241 



 62,044 



 76,823 



 60,399 

Cash and equivalents at end of year


 13,682 



 15,509 



 8,382 



 75,105 



 62,044 



 76,823 

Less cash and equivalents of discontinued operations


















   at end of year


 - 



 - 



 - 



 232 



 191 



 182 

Cash and equivalents of continuing operations


















   at end of year

$

 13,682 


$

 15,509 


$

 8,382 


$

 74,873 


$

 61,853 


$

 76,641 

Supplemental disclosure of cash flows information


















Cash paid during the year for interest

$

 (812)


$

 (1,182)


$

 (1,177)


$

 (8,146)


$

 (12,172)


$

 (15,018)

Cash recovered (paid) during the year for income taxes


 (4,753)



 (2,987)



 (2,303)



 2,266 



 (250)



 (616)





































(a)           Represents the adding together of all affiliated companies except General Electric Capital Corporation (GECC or financial services), which is presented on a one-line basis. See Note 1.

(b)           Represents GECC earnings from continuing operations attributable to the Company, net of GECC dividends paid to GE.

 

In the consolidating data on this page, "GE" means the basis of consolidation as described in Note 1 to the consolidated financial statements; "GECC" means General Electric Capital Corporation and all of its affiliates and associated companies. Separate information is shown for "GE" and "GECC." Transactions between GE and GECC have been eliminated from the "General Electric Company and consolidated affiliates" columns on the prior page and are discussed in Note 26.


Notes to Consolidated Financial Statements

NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Principles

Our financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP).

 

Consolidation

Our financial statements consolidate all of our affiliates - entities in which we have a controlling financial interest, most often because we hold a majority voting interest. To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity (VIE) model to the entity, otherwise the entity is evaluated under the voting interest model.

 

Where we hold current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE's economic performance combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in that VIE. Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally. When changes occur to the design of an entity, we reconsider whether it is subject to the VIE model. We continuously evaluate whether we have a controlling financial interest in a VIE.

 

We hold a controlling financial interest in other entities where we currently hold, directly or indirectly, more than 50% of the voting rights or where we exercise control through substantive participating rights or as a general partner. Where we are a general partner, we consider substantive removal rights held by other partners in determining if we hold a controlling financial interest. We reevaluate whether we have a controlling financial interest in these entities when our voting or substantive participating rights change.

 

Associated companies are unconsolidated VIEs and other entities in which we do not have a controlling financial interest, but over which we have significant influence, most often because we hold a voting interest of 20% to 50%. Associated companies are accounted for as equity method investments. Results of associated companies are presented on a one-line basis. Investments in, and advances to, associated companies are presented on a one-line basis in the caption "All other assets" in our Statement of Financial Position, net of allowance for losses, that 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.

 

Financial data and related measurements are presented in the following categories:

 

GE - This represents the adding together of all affiliates other than General Electric Capital Corporation (GECC), whose continuing operations are presented on a one-line basis, giving effect to the elimination of transactions among such affiliates.

 

GECC - This represents the adding together of all affiliates of GECC, giving effect to the elimination of transactions among such affiliates.

 

Consolidated - This represents the adding together of GE and GECC, giving effect to the elimination of transactions between GE and GECC.

 

Operating Segments - These comprise our eight businesses, focused on the broad markets they serve: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting (formerly Home & Business Solutions) and GE Capital. Prior-period information has been reclassified to be consistent with how we managed our businesses in 2013.

 

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. 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 2014 actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in future impairments of investment securities, goodwill, intangibles and long-lived assets, incremental losses on financing receivables, establishment of valuation allowances on deferred tax assets and increased tax liabilities.

 

Sales of Goods and Services

We record all sales of goods and services only when a firm sales agreement is in place, delivery has occurred or services have been rendered and collectibility of the fixed or determinable sales price is reasonably assured.

 

Arrangements for the sale of goods and services sometimes include multiple components. Most of our multiple component arrangements involve the sale of goods and services in the Healthcare segment. Our arrangements with multiple components usually involve an upfront deliverable of large machinery or equipment and future service deliverables such as installation, commissioning, training or the future delivery of ancillary products. In most cases, the relative values of the undelivered components are not significant to the overall arrangement and are typically delivered within three to six months after the core product has been delivered. In such agreements, selling price is determined for each component and any difference between the total of the separate selling prices and total contract consideration (i.e., discount) is allocated pro rata across each of the components in the arrangement. The value assigned to each component is objectively determined and obtained primarily from sources such as the separate selling price for that or a similar item or from competitor prices for similar items. If such evidence is not available, we use our best estimate of selling price, which is established consistent with the pricing strategy of the business and considers product configuration, geography, customer type, and other market specific factors.

 

Except for goods sold under long-term agreements, we recognize sales of goods under the provisions of U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition. We often sell consumer products and computer hardware and software products with a right of return. We use our accumulated experience to estimate and provide for such returns when we record the sale. In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have reliably demonstrated that all specified acceptance criteria have been met or when formal acceptance occurs, respectively. In arrangements where we provide goods for trial and evaluation purposes, we only recognize revenue after customer acceptance occurs. Unless otherwise noted, we do not provide for anticipated losses before we record sales.

 

We recognize revenue on agreements for sales of goods and services under power generation unit and uprate contracts, nuclear fuel assemblies, larger oil drilling equipment projects, aeroderivative unit contracts, military development contracts, locomotive production contracts, and long-term construction projects, using long-term construction and production contract accounting. We estimate total long-term contract revenue net of price concessions as well as total contract costs. For goods sold under power generation unit and uprate contracts, nuclear fuel assemblies, aeroderivative unit contracts, military development contracts and locomotive production contracts, we recognize sales as we complete major contract-specified deliverables, most often when customers receive title to the goods or accept the services as performed. For larger oil drilling equipment projects and long-term construction projects, we recognize sales based on our progress toward contract completion measured by actual costs incurred in relation to our estimate of total expected costs. We measure long-term contract revenues by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. We provide for any loss that we expect to incur on these agreements when that loss is probable.

 

We recognize revenue upon delivery for sales of aircraft engines, military propulsion equipment and related spare parts not sold under long-term product services agreements. Delivery of commercial engines, non-U.S. military equipment and all related spare parts occurs on shipment; delivery of military propulsion equipment sold to the U.S. government or agencies thereof occurs upon receipt of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of Shipment. Commercial aircraft engines are complex equipment manufactured to customer order under a variety of sometimes complex, long-term agreements. We measure sales of commercial aircraft engines by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future revenues and costs for commercial aircraft engine agreements in process and report any cumulative effects of such adjustments in current operations. Significant components of our revenue and cost estimates include price concessions and performance-related guarantees as well as material, labor and overhead costs. We measure revenue for military propulsion equipment and spare parts not subject to long-term product services agreements based on the specific contract on a specifically measured output basis. We provide for any loss that we expect to incur on these agreements when that loss is probable; consistent with industry practice, for commercial aircraft engines, we make such provision only if such losses are not recoverable from future highly probable sales of spare parts and services for those engines.

 

We sell product services under long-term product maintenance or extended warranty agreements in our Aviation, Power & Water, Oil & Gas and Transportation segments, where costs of performing services are incurred on other than a straight-line basis. We also sell product services in our Healthcare segment, where such costs generally are expected to be on a straight-line basis. For the Aviation, Power & Water, Oil & Gas and Transportation agreements, we recognize related sales based on the extent of our progress toward completion measured by actual costs incurred in relation to total expected costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. For the Healthcare agreements, we recognize revenues on a straight-line basis and expense related costs as incurred. We provide for any loss that we expect to incur on any of these agreements when that loss is probable.

 

GECC Revenues from Services (Earned Income)

We use the interest method to recognize income on loans. Interest on loans includes origination, commitment and other non-refundable fees related to funding (recorded in earned income on the interest method). We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due, with the exception of consumer credit card accounts. Beginning in the fourth quarter of 2013, we continue to accrue interest on consumer credit cards until the accounts are written off in the period the account becomes 180 days past due. Previously, we stopped accruing interest on consumer credit cards when the account became 90 days past due. Previously recognized interest income that was accrued but not collected from the borrower is reversed, unless the terms of the loan agreement permit capitalization of accrued interest to the principal balance. Although we stop accruing interest in advance of payments, we recognize interest income as cash is collected when appropriate, provided the amount does not exceed that which would have been earned at the historical effective interest rate; otherwise, payments received are applied to reduce the principal balance of the loan.

 

We resume accruing interest on nonaccrual, non-restructured commercial loans only when (a) payments are brought current according to the loan's original terms and (b) future payments are reasonably assured. When we agree to restructured terms with the borrower, we resume accruing interest only when it is reasonably assured that we will recover full contractual payments, and such loans pass underwriting reviews equivalent to those applied to new loans. We resume accruing interest on nonaccrual consumer loans when the customer's account is less than 90 days past due and collection of such amounts is probable. Interest accruals on modified consumer loans that are not considered to be troubled debt restructurings (TDRs) may return to current status (re-aged) only after receipt of at least three consecutive minimum monthly payments or the equivalent cumulative amount, subject to a re-aging limitation of once a year, or twice in a five-year period.

 

We recognize financing lease income on the interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values are based upon management's best estimates of the value of the leased asset at the end of the lease term. We use various sources of data in determining this estimate, including information obtained from third parties, which is adjusted for the attributes of the specific asset under lease. Guarantees of residual values by unrelated third parties are considered part of minimum lease payments. Significant assumptions we use in estimating residual values include estimated net cash flows over the remaining lease term, anticipated results of future remarketing, and estimated future component part and scrap metal prices, discounted at an appropriate rate.

 

We recognize operating lease income on a straight-line basis over the terms of underlying leases.

 

Fees include commitment fees related to loans that we do not expect to fund and line-of-credit fees. We record these fees in earned income on a straight-line basis over the period to which they relate. We record syndication fees in earned income at the time related services are performed, unless significant contingencies exist.

 

Depreciation and Amortization

The cost of GE manufacturing plant and equipment is depreciated over its estimated economic life. U.S. assets are depreciated using an accelerated method based on a sum-of-the-years digits formula; non-U.S. assets are generally depreciated on a straight-line basis.

 

The cost of GECC equipment leased to others on operating leases is depreciated on a straight-line basis to estimated residual value over the lease term or over the estimated economic life of the equipment.

 

The cost of GECC acquired real estate investments is depreciated on a straight-line basis to the estimated salvage value over the expected useful life or the estimated proceeds upon sale of the investment at the end of the expected holding period if that approach produces a higher measure of depreciation expense.

 

The cost of individually significant customer relationships is amortized in proportion to estimated total related sales; cost of other intangible assets is generally amortized on a straight-line basis over the asset's estimated economic life. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. See Notes 7 and 8.

 

Losses on Financing Receivables

Losses on financing receivables are recognized when they are incurred, which requires us to make our best estimate of probable losses inherent in the portfolio. The method for calculating the best estimate of losses depends on the size, type and risk characteristics of the related financing receivable. Such an estimate requires consideration of historical loss experience, adjusted for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates, financial health of specific customers and market sectors, collateral values (including housing price indices as applicable), and the present and expected future levels of interest rates. The underlying assumptions, estimates and assessments we use to provide for losses are updated periodically to reflect our view of current conditions and are subject to the regulatory examination process, which can result in changes to our assumptions. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that we will experience credit losses that are different from our current estimates. Write-offs are deducted from the allowance for losses when we judge the principal to be uncollectible and subsequent recoveries are added to the allowance at the time cash is received on a written-off account.

 

"Impaired" loans are defined as larger-balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to the original contractual terms of the loan agreement.

 

"Troubled debt restructurings" (TDRs) are those loans for which we have granted a concession to a borrower experiencing financial difficulties where we do not receive adequate compensation. Such loans are classified as impaired, and are individually reviewed for specific reserves.

 

"Nonaccrual financing receivables" are those on which we have stopped accruing interest. We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due, with the exception of consumer credit card accounts, for which we continue to accrue interest until the accounts are written off in the period that the account becomes 180 days past due. Although we stop accruing interest in advance of payments, we recognize interest income as cash is collected when appropriate provided the amount does not exceed that which would have been earned at the historical effective interest rate. Recently restructured financing receivables are not considered delinquent when payments are brought current according to the restructured terms, but may remain classified as nonaccrual until there has been a period of satisfactory payment performance by the borrower and future payments are reasonably assured of collection.

 

"Nonearning financing receivables" are a subset of nonaccrual financing receivables for which cash payments are not being received or for which we are on the cost recovery method of accounting (i.e., any payments are accounted for as a reduction of principal). This category excludes loans purchased at a discount (unless they have deteriorated post acquisition). These loans are initially recorded at fair value and accrete interest income over the estimated life of the loan based on reasonably estimable cash flows even if the underlying loans are contractually delinquent at acquisition.

 

Beginning in the fourth quarter of 2013, we revised our methods for classifying financing receivables as nonaccrual and nonearning to more closely align with regulatory guidance. Under the revised methods, we continue to accrue interest on consumer credit cards until the accounts are written off in the period the account becomes 180 days past due. Previously, we stopped accruing interest on consumer credit cards when the account became 90 days past due. In addition, the revised methods limit the use of the cash basis of accounting for nonaccrual financing receivables.

 

As a result of these revisions, consumer credit card receivables of $1,051 million that were previously classified as both nonaccrual and nonearning were returned to accrual status in the fourth quarter of 2013. In addition, $1,524 million of Real Estate and CLL financing receivables previously classified as nonaccrual, paying in accordance with contractual terms and accounted for on the cash basis, were returned to accrual status, while $2,174 million of financing receivables previously classified as nonaccrual and accounted for on the cash basis (primarily in Real Estate and CLL) were placed into the nonearning category based on our assessment of the short-term outlook for resolution through payoff or refinance.

 

Given that the revised methods result in nonaccrual and nonearning amounts that are substantially the same, we plan to discontinue the reporting of nonearning financing receivables, one of our internal performance metrics, and report selected ratios related to nonaccrual financing receivables, in the first quarter of 2014.

 

"Delinquent" receivables are those that are 30 days or more past due based on their contractual terms.

 

The same financing receivable may meet more than one of the definitions above. Accordingly, these categories are not mutually exclusive and it is possible for a particular loan to meet the definitions of a TDR, impaired loan, nonaccrual loan and nonearning loan and be included in each of these categories. The categorization of a particular loan also may not be indicative of the potential for loss.

 

Our consumer loan portfolio consists of smaller-balance, homogeneous loans, including credit card receivables, installment loans, auto loans and leases and residential mortgages. We collectively evaluate each portfolio for impairment quarterly. The allowance for losses on these receivables is established through a process that estimates the probable losses inherent in the portfolio based upon statistical analyses of portfolio data. These analyses include migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, together with other analyses that reflect current trends and conditions. We also consider our historical loss experience to date based on actual defaulted loans and overall portfolio indicators including nonearning loans, trends in loan volume and lending terms, credit policies and other observable environmental factors such as unemployment rates and home price indices.

 

Our commercial loan and lease portfolio consists of a variety of loans and leases, including both larger-balance, non-homogeneous loans and leases and smaller-balance homogeneous loans and leases. Losses on such loans and leases are recorded when probable and estimable. We routinely evaluate our entire portfolio for potential specific credit or collection issues that might indicate an impairment.

 

For larger-balance, non-homogeneous loans and leases, we consider the financial status, payment history, collateral value, industry conditions and guarantor support related to specific customers. Any delinquencies or bankruptcies are indications of potential impairment requiring further assessment of collectibility. We routinely receive financial as well as rating agency reports on our customers, and we elevate for further attention those customers whose operations we judge to be marginal or deteriorating. We also elevate customers for further attention when we observe a decline in collateral values for asset-based loans. While collateral values are not always available, when we observe such a decline, we evaluate relevant markets to assess recovery alternatives - for example, for real estate loans, relevant markets are local; for commercial aircraft loans, relevant markets are global.

 

Measurement of the loss on our impaired commercial loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of collateral, net of expected selling costs, if the loan is determined to be collateral dependent. We determine whether a loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. Our review process can often result in reserves being established in advance of a modification of terms or designation as a TDR. After providing for specific incurred losses, we then determine an allowance for losses that have been incurred in the balance of the portfolio but cannot yet be identified to a specific loan or lease. This estimate is based upon various statistical analyses considering historical and projected default rates and loss severity and aging, as well as our view on current market and economic conditions. It is prepared by each respective line of business. For Real Estate, this includes assessing the probability of default and the loss given default based on loss history of our portfolio for loans with similar loan metrics and attributes.

 

We consider multiple factors in evaluating the adequacy of our allowance for losses on Real Estate financing receivables, including loan-to-value ratios, collateral values at the individual loan level, debt service coverage ratios, delinquency status, and economic factors including interest rate and real estate market forecasts. In addition to these factors, we evaluate a Real Estate loan for impairment classification if its projected loan-to-value ratio at maturity is in excess of 100%, even if the loan is currently paying in accordance with its contractual terms. Substantially all of the loans in the Real Estate portfolio are considered collateral dependent and are measured for impairment based on the fair value of collateral. If foreclosure is deemed probable or if repayment is dependent solely on the sale of collateral, we also include estimated selling costs in our reserve. Collateral values for our Real Estate loans are determined based upon internal cash flow estimates discounted at an appropriate rate and corroborated by external appraisals, as appropriate. Collateral valuations are routinely monitored and updated annually, or more frequently for changes in collateral, market and economic conditions. Further discussion on determination of fair value is in the Fair Value Measurements section below.

 

Experience is not available for new products; therefore, while we are developing that experience, we set loss allowances based on our experience with the most closely analogous products in our portfolio.

 

Our loss mitigation strategy intends to minimize economic loss and, at times, can result in rate reductions, principal forgiveness, extensions, forbearance or other actions, which may cause the related loan to be classified as a TDR.

 

We utilize certain loan modification programs for borrowers experiencing temporary financial difficulties in our Consumer loan portfolio. These loan modification programs are primarily concentrated in our non-U.S. residential mortgage and non-U.S. installment and revolving portfolios and include short-term (three months or less) interest rate reductions and payment deferrals, which were not part of the terms of the original contract. We sold our U.S. residential mortgage business in 2007 and, as such, do not participate in the U.S. government-sponsored mortgage modification programs.

 

Our allowance for losses on financing receivables on these modified consumer loans is determined based upon a formulaic approach that estimates the probable losses inherent in the portfolio based upon statistical analyses of the portfolio. Data related to redefault experience is also considered in our overall reserve adequacy review. Once the loan has been modified, it returns to current status (re-aged) only after receipt of at least three consecutive minimum monthly payments or the equivalent cumulative amount, subject to a re-aging limitation of once a year, or twice in a five-year period in accordance with the Federal Financial Institutions Examination Council guidelines on Uniform Retail Credit Classification and Account Management policy issued in June 2000. We believe that the allowance for losses would not be materially different had we not re-aged these accounts.

 

For commercial loans, we evaluate changes in terms and conditions to determine whether those changes meet the criteria for classification as a TDR on a loan-by-loan basis. In Commercial Lending and Leasing (CLL), these changes primarily include: changes to covenants, short-term payment deferrals and maturity extensions. For these changes, we receive economic consideration, including additional fees and/or increased interest rates, and evaluate them under our normal underwriting standards and criteria. Changes to Real Estate's loans primarily include maturity extensions, principal payment acceleration, changes to collateral terms, and cash sweeps, which are in addition to, or sometimes in lieu of, fees and rate increases. The determination of whether these changes to the terms and conditions of our commercial loans meet the TDR criteria includes our consideration of all of the relevant facts and circumstances. When the borrower is experiencing financial difficulty, we carefully evaluate these changes to determine whether they meet the form of a concession. In these circumstances, if the change is deemed to be a concession, we classify the loan as a TDR.

 

When we repossess collateral in satisfaction of a loan, we write down the receivable against the allowance for losses. Repossessed collateral is included in the caption "All other assets" in the Statement of Financial Position and carried at the lower of cost or estimated fair value less costs to sell.

 

For Consumer loans, we write off unsecured closed-end installment loans when they are 120 days contractually past due and unsecured open-ended revolving loans at 180 days contractually past due. We write down consumer loans secured by collateral other than residential real estate when such loans are 120 days past due. Consumer loans secured by residential real estate (both revolving and closed-end loans) are written down to the fair value of collateral, less costs to sell, no later than when they become 180 days past due. Unsecured consumer loans in bankruptcy are written off within 60 days of notification of filing by the bankruptcy court or within contractual write-off periods, whichever occurs earlier.

 

Write-offs on larger-balance impaired commercial loans are based on amounts deemed uncollectible and are reviewed quarterly. Write-offs are determined based on the consideration of many factors, such as expectations of the workout plan or restructuring of the loan, valuation of the collateral and the prioritization of our claim in bankruptcy. Write-offs are recognized against the allowance for losses at the earlier of transaction confirmation (for example, discounted pay-off, restructuring, foreclosure, etc.) or not later than 360 days after initial recognition of a specific reserve for a collateral dependent loan. If foreclosure is probable, the write-off is determined based on the fair value of the collateral less costs to sell. Smaller-balance, homogeneous commercial loans are written off at the earlier of when deemed uncollectible or at 180 days past due.

 

Partial Sales of Business Interests

Gains or losses on sales of affiliate shares where we retain a controlling financial interest are recorded in equity. Gains or losses on sales that result in our loss of a controlling financial interest are recorded in earnings along with remeasurement gains or losses on any investments in the entity that we retained.

 

Cash and Equivalents

Debt securities and money market instruments with original maturities of three months or less are included in cash equivalents unless designated as available-for-sale and classified as investment securities.

 

Investment Securities

We report investments in debt and marketable equity securities, and certain other equity securities, at fair value. See Note 21 for further information on fair value. Unrealized gains and losses on available-for-sale investment securities are included in shareowners'equity, net of applicable taxes and other adjustments. We regularly review investment securities for impairment using both quantitative and qualitative criteria.

 

For debt securities, if we do not intend to sell the security or it is not more likely than not that we will be required to sell the security before recovery of our amortized cost, we evaluate other qualitative criteria to determine whether we do not expect to recover the amortized cost basis of the security, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. We also evaluate quantitative criteria including determining whether there has been an adverse change in expected future cash flows. If we do not expect to recover the entire amortized cost basis of the security, we consider the security to be other-than-temporarily impaired, and we record the difference between the security's amortized cost basis and its recoverable amount in earnings and the difference between the security's recoverable amount and fair value in other comprehensive income. If we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, the security is also considered other-than-temporarily impaired and we recognize the entire difference between the security's amortized cost basis and its fair value in earnings. For equity securities, we consider the length of time and magnitude of the amount that each security is in an unrealized loss position. If we do not expect to recover the entire amortized cost basis of the security, we consider the security to be other-than-temporarily impaired, and we record the difference between the security's amortized cost basis and its fair value in earnings.

 

Realized gains and losses are accounted for on the specific identification method. Unrealized gains and losses on investment securities classified as trading and certain retained interests are included in earnings.

 

Inventories

All inventories are stated at the lower of cost or realizable values. Cost for a significant portion of GE U.S. inventories is determined on a last-in, first-out (LIFO) basis. Cost of other GE inventories is determined on a first-in, first-out (FIFO) basis. LIFO was used for 39% and 37% of GE inventories at December 31, 2013 and 2012, respectively. GECC inventories consist of finished products held for sale; cost is determined on a FIFO basis.

 

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 tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested annually for impairment and written down to fair value as required.

 

GECC Investment Contracts, Insurance Liabilities and Insurance Annuity Benefits

Certain entities that we consolidate provide guaranteed investment contracts, primarily to states, municipalities and municipal authorities.

 

Our insurance activities include providing insurance and reinsurance for life and health risks and providing certain annuity products. Two primary product groups are provided: traditional insurance contracts and investment contracts. Insurance contracts are contracts with significant mortality and/or morbidity risks, while investment contracts are contracts without such risks.

 

For short-duration insurance contracts, including accident and health insurance, we report premiums as earned income over the terms of the related agreements, generally on a pro-rata basis. For traditional long-duration insurance contracts including long-term care, term, whole life and annuities payable for the life of the annuitant, we report premiums as earned income when due.

 

Premiums received on investment contracts (including annuities without significant mortality risk) are not reported as revenues but rather as deposit liabilities. We recognize revenues for charges and assessments on these contracts, mostly for mortality, contract initiation, administration and surrender. Amounts credited to policyholder accounts are charged to expense.

 

Liabilities for traditional long-duration insurance contracts represent the present value of such benefits less the present value of future net premiums based on mortality, morbidity, interest and other assumptions at the time the policies were issued or acquired. Liabilities for investment contracts equal the account value, that is, the amount that accrues to the benefit of the contract or policyholder including credited interest and assessments through the financial statement date. For guaranteed investment contracts, the liability is also adjusted as a result of fair value hedging activity.

 

Liabilities for unpaid claims and estimated claim settlement expenses represent our best estimate of the ultimate obligations for reported and incurred-but-not-reported claims and the related estimated claim settlement expenses. Liabilities for unpaid claims and estimated claim settlement expenses are continually reviewed and adjusted through current operations.

 

Fair Value Measurements

For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.

 

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:

 

Level 1 - Quoted prices for identical instruments in active markets.

 

Level 2 - Quoted 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 - Significant inputs to the valuation model are unobservable.

 

We maintain policies and procedures to value instruments using the best and most relevant data available. In addition, we have risk management teams that review valuation, including independent price validation for certain instruments. With regard to Level 3 valuations (including instruments valued by third parties), we perform a variety of procedures to assess the reasonableness of the valuations. Such reviews, which may be performed quarterly, monthly or weekly, include an evaluation of instruments whose fair value change exceeds predefined thresholds (and/or does not change) and consider the current interest rate, currency and credit environment, as well as other published data, such as rating agency market reports and current appraisals. These reviews are performed within each business by the asset and risk managers, pricing committees and valuation committees. A detailed review of methodologies and assumptions is performed by individuals independent of the business for individual measurements with a fair value exceeding predefined thresholds. This detailed review may include the use of a third-party valuation firm.

 

Recurring Fair Value Measurements

The following sections describe the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis.

 

Investments in Debt and Equity Securities. When available, we use quoted market prices to determine the fair value of investment securities, and they are included in Level 1. Level 1 securities primarily include publicly traded equity securities.

 

For large numbers of investment securities for which market prices are observable for identical or similar investment securities but not readily accessible for each of those investments individually (that is, it is difficult to obtain pricing information for each individual investment security at the measurement date), we obtain pricing information from an independent pricing vendor. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to the model of the pricing vendor are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many fixed income securities do not trade on a daily basis, the methodology of the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. The pricing vendor considers available market observable inputs in determining the evaluation for a security. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2 and primarily comprise our portfolio of corporate fixed income, and government, mortgage and asset-backed securities. In infrequent circumstances, our pricing vendors may provide us with valuations that are based on significant unobservable inputs, and in those circumstances we classify the investment securities in Level 3.

 

Annually, we conduct reviews of our primary pricing vendor to validate that the inputs used in that vendor's pricing process are deemed to be market observable as defined in the standard. While we are not provided access to proprietary models of the vendor, our reviews have included on-site walk-throughs of the pricing process, methodologies and control procedures for each asset class and level for which prices are provided. Our reviews also include an examination of the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels and various durations, a process we perform each reporting period. In addition, the pricing vendor has an established challenge process in place for all security valuations, which facilitates identification and resolution of potentially erroneous prices. We believe that the prices received from our pricing vendor are representative of prices that would be received to sell the assets at the measurement date (exit prices) and are classified appropriately in the hierarchy.

 

We use non-binding broker quotes and other third-party pricing services as our primary basis for valuation when there is limited, or no, relevant market activity for a specific instrument or for other instruments that share similar characteristics. We have not adjusted the prices we have obtained. Investment securities priced using non-binding broker quotes and other third-party pricing services are included in Level 3. As is the case with our primary pricing vendor, third-party brokers and other third-party pricing services do not provide access to their proprietary valuation models, inputs and assumptions. Accordingly, our risk management personnel conduct reviews of vendors, as applicable, similar to the reviews performed of our primary pricing vendor. In addition, we conduct internal reviews of pricing for all such investment securities quarterly to ensure reasonableness of valuations used in our financial statements. These reviews are designed to identify prices that appear stale, those that have changed significantly from prior valuations, and other anomalies that may indicate that a price may not be accurate. Based on the information available, we believe that the fair values provided by the brokers and other third-party pricing services are representative of prices that would be received to sell the assets at the measurement date (exit prices).

 

Derivatives. We use closing prices for derivatives included in Level 1, which are traded either on exchanges or liquid over-the-counter markets.

 

The majority of our derivatives are valued using internal models. The models maximize the use of market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent interest rate swaps, cross-currency swaps and foreign currency and commodity forward and option contracts.

 

Derivative assets and liabilities included in Level 3 primarily represent equity derivatives and interest rate products that contain embedded optionality or prepayment features.

 

Non-recurring Fair Value Measurements 

Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances. These assets can include loans and long-lived assets that have been reduced to fair value when they are held for sale, impaired loans that have been reduced based on the fair value of the underlying collateral, cost and equity method investments and long-lived assets that are written down to fair value when they are impaired and the remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of a subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.

 

The following sections describe the valuation methodologies we use to measure financial and non-financial instruments accounted for at fair value on a non-recurring basis and for certain assets within our pension plans and retiree benefit plans at each reporting period, as applicable.

 

Financing Receivables and Loans Held for Sale. When available, we use observable market data, including pricing on recent closed market transactions, to value loans that are included in Level 2. When this data is unobservable, we use valuation methodologies using current market interest rate data adjusted for inherent credit risk, and such loans are included in Level 3. When appropriate, loans may be valued using collateral values (see Long-Lived Assets below).

 

Cost and Equity Method Investments. Cost and equity method investments are valued using market observable data such as quoted prices when available. When market observable data is unavailable, investments are valued using a discounted cash flow model, comparative market multiples or a combination of both approaches as appropriate and other third-party pricing sources. These investments are generally included in Level 3.

 

Investments in private equity, real estate and collective funds are valued using net asset values. The net asset values are determined based on the fair values of the underlying investments in the funds. Investments in private equity and real estate funds are generally included in Level 3 because they are not redeemable at the measurement date. Investments in collective funds are included in Level 2.

 

Long-lived Assets, including Real Estate. Fair values of long-lived assets, including aircraft and real estate, are primarily derived internally and are based on observed sales transactions for similar assets. In other instances, for example, collateral types for which we do not have comparable observed sales transaction data, collateral values are developed internally and corroborated by external appraisal information. Adjustments to third-party valuations may be performed in circumstances where market comparables are not specific to the attributes of the specific collateral or appraisal information may not be reflective of current market conditions due to the passage of time and the occurrence of market events since receipt of the information. For real estate, fair values are based on discounted cash flow estimates that reflect current and projected lease profiles and available industry information about capitalization rates and expected trends in rents and occupancy and are corroborated by external appraisals. These investments are generally included in Level 2 or Level 3.

 

Retained Investments in Formerly Consolidated Subsidiaries. Upon a change in control that results in deconsolidation of a subsidiary, the fair value measurement of our retained noncontrolling stake is valued using market observable data such as quoted prices when available, or if not available, an income approach, a market approach, or a combination of both approaches as appropriate. In applying these methodologies, we rely on a number of factors, including actual operating results, future business plans, economic projections, market observable pricing multiples of similar businesses and comparable transactions, and possible control premium. These investments are generally included in Level 1 or Level 3, as appropriate, determined at the time of the transaction.

 

Accounting Changes

On January 1, 2012, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2011-05, an amendment to Accounting Standards Codification (ASC) 220, Comprehensive Income. ASU 2011-05 introduced a new statement, the Consolidated Statement of Comprehensive Income. The amendments affect only the display of those components of equity categorized as other comprehensive income and do not change existing recognition and measurement requirements that determine net earnings.

 

On January 1, 2012, we adopted FASB ASU 2011-04, an amendment to ASC 820, Fair Value Measurements. ASU 2011-04 clarifies or changes the application of existing fair value measurements, including: that the highest and best use valuation premise in a fair value measurement is relevant only when measuring the fair value of nonfinancial assets; that a reporting entity should measure the fair value of its own equity instrument from the perspective of a market participant that holds that instrument as an asset; to permit an entity to measure the fair value of certain financial instruments on a net basis rather than based on its gross exposure when the reporting entity manages its financial instruments on the basis of such net exposure; that in the absence of a Level 1 input, a reporting entity should apply premiums and discounts when market participants would do so when pricing the asset or liability consistent with the unit of account; and that premiums and discounts related to size as a characteristic of the reporting entity's holding are not permitted in a fair value measurement. Adopting these amendments had no effect on the financial statements.

 

On January 1, 2011, we adopted FASB ASU 2009-13 and ASU 2009-14, amendments to ASC 605, Revenue Recognition and ASC 985, Software, respectively, (ASU 2009-13 &14). ASU 2009-13 requires the allocation of consideration to separate components of an arrangement based on the relative selling price of each component. ASU 2009-14 requires certain software-enabled products to be accounted for under the general accounting standards for multiple component arrangements. These amendments were effective for new revenue arrangements entered into or materially modified on or subsequent to January 1, 2011.

 

Although the adoption of these amendments eliminated the allocation of consideration using residual values, which was applied primarily in our Healthcare segment, the overall impact of adoption was insignificant to our financial statements. In addition, there are no significant changes to the number of components or the pattern and timing of revenue recognition following adoption.

 

On July 1, 2011, we adopted FASB ASU 2011-02, an amendment to ASC 310, Receivables. This ASU provides guidance for determining whether the restructuring of a debt constitutes a TDR and requires that such actions be classified as a TDR when there is both a concession and the debtor is experiencing financial difficulties. The amendment also clarifies guidance on a creditor's evaluation of whether it has granted a concession. The amendment applies to restructurings that have occurred subsequent to January 1, 2011. As a result of adopting these amendments on July 1, 2011, we have classified an additional $271 million of financing receivables as TDRs and have recorded an increase of $77 million to our allowance for losses on financing receivables. See Note 6.


 

 

NOTE 2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS

Assets and Liabilities of Businesses Held for Sale

In the first quarter of 2013, we committed to sell certain of our machining and fabrication businesses at Aviation and our Consumer auto and personal loan business in Portugal. We completed the sale of our Consumer auto and personal loan business in Portugal on July 15, 2013 for proceeds of $83 million. We completed the sale of our machining & fabrication business on December 2, 2013 for proceeds of $108 million.

 

In the third quarter of 2012, we completed the sale of our CLL business in South Korea for proceeds of $168 million.

 

In the second quarter of 2012, we committed to sell a portion of our Business Properties portfolio (Business Property) in Real Estate, including certain commercial loans, the origination and servicing platforms and the servicing rights on loans previously securitized by GECC. We completed the sale of Business Property on October 1, 2012 for proceeds of $2,406 million. We deconsolidated substantially all Real Estate securitization entities in the fourth quarter of 2012 as servicing rights related to these entities were transferred to the buyer at closing.

 

NBCU

On January 28, 2011, we transferred the assets of the NBCU business and Comcast Corporation (Comcast) transferred certain of its assets to a newly formed entity, NBCUniversal LLC (NBCU LLC). In connection with the transaction, we received $6,176 million in cash from Comcast (which included $49 million of transaction-related cost reimbursements) and a 49% interest in NBCU LLC. Comcast held the remaining 51% interest in NBCU LLC. In connection with the transaction, we also entered into a number of agreements with Comcast governing the operation of the venture and transitional services, employee, tax and other matters. In addition, Comcast is obligated to share with us potential tax savings associated with their purchase of its 51% NBCU LLC member interest, if realized. We did not recognize these potential future payments as consideration for the sale, but record such payments in income as they are received.

 

Following the transaction, we deconsolidated NBCU and we accounted for our investment in NBCU LLC under the equity method. We recognized a pre-tax gain on the sale of $3,705 million ($526 million after tax). In connection with the sale, we recorded income tax expense of $3,179 million, reflecting the low tax basis in our investment in the NBCU business and the recognition of deferred tax liabilities related to our 49% investment in NBCU LLC. As our investment in NBCU LLC was structured as a partnership for U.S. tax purposes, U.S. taxes were recorded separately from the equity investment.

 

At December 31, 2012, the carrying amount of our equity investment in NBCU LLC was $18,887 million, reported in the "All other assets" caption in our Statement of Financial Position. At December 31, 2012, deferred tax liabilities related to our NBCU LLC investment were $4,937 million, and were reported in the "Deferred income taxes" caption in our Statement of Financial Position.

 

On March 19, 2013, we closed the transaction to sell our remaining 49% common equity interest in NBCU LLC to Comcast for total consideration of $16,722 million, consisting of $11,997 million in cash, $4,000 million in Comcast guaranteed debt and $725 million in preferred stock. The $4,000 million of debt and the $725 million of preferred shares were both issued by a wholly-owned subsidiary of Comcast. During the first quarter of 2013, we sold both of these investments at approximately par value. Consistent with the initial purchase of the 51% interest of NBCU LLC, Comcast is obligated to share with us potential tax savings associated with their purchase of our remaining 49% NBCU LLC interest, if realized. GECC also sold real estate comprising certain floors located at 30 Rockefeller Center, New York and the CNBC property located in Englewood Cliffs, New Jersey to affiliates of NBCU LLC for $1,430 million in cash.

 

As a result of the transactions, we recognized pre-tax gains of $1,096 million ($825 million after tax) on the sale of our 49% common equity interest in NBCU LLC and $921 million ($564 million after tax) on the sale of GECC's real estate properties.

 

Discontinued Operations

Discontinued operations primarily comprised GE Money Japan (our Japanese personal loan business, Lake, and our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC), our U.S. recreational vehicle and marine equipment financing business (Consumer RV Marine), Consumer Mexico, Consumer Singapore, our Consumer home lending operations in Australia and New Zealand (Australian Home Lending), our Consumer mortgage business in Ireland (Consumer Ireland), our CLL trailer services business in Europe (CLL Trailer Services) and our Consumer banking business in Russia (Consumer Russia). Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.

 

 

Summarized financial information for discontinued operations is shown below.

 

(In millions)

2013 


2012 


2011 










Operations









Total revenues and other income (loss)

$

 186 


$

 191 


$

 1,074 










Earnings (loss) from discontinued operations









   before income taxes

$

 (494)


$

 (586)


$

 (93)

Benefit (provision) for income taxes


 155 



 198 



 100 

Earnings (loss) from discontinued operations,









   net of taxes

$

 (339)


$

 (388)


$

 7 










Disposal









Gain (loss) on disposal before income taxes

$

 (2,027)


$

 (792)


$

 (329)

Benefit (provision) for income taxes


 246 



 197 



 351 

Gain (loss) on disposal, net of taxes

$

 (1,781)


$

 (595)


$

 22 










Earnings (loss) from discontinued operations,









   net of taxes(a)

$

 (2,120)


$

 (983)


$

 29 



















(a)           The sum of GE industrial earnings (loss) from discontinued operations, net of taxes, and GECC earnings (loss) from discontinued operations, net of taxes, is reported as GE earnings (loss) from discontinued operations, net of taxes, on the Statement of Earnings.

 

December 31 (In millions)

2013 


2012 







Assets


  



  

Cash and equivalents

$

 232 


$

 191 

Financing receivables - net


 711 



 793 

Property, plant and equipment - net


 6 



 706 

Other


 1,390 



 1,625 

Assets of discontinued operations

$

 2,339 


$

 3,315 







Liabilities


    



    

Deferred income taxes

$

 248 


$

 372 

Other


 3,685 



 2,361 

Liabilities of discontinued operations

$

 3,933 


$

 2,733 

 

 

Other assets at December 31, 2013 and 2012, primarily comprised a deferred tax asset for a loss carryforward, which expires principally in 2017 and in part in 2019, related to the sale of our GE Money Japan business.

 

GE Money Japan

During the third quarter of 2008, we completed the sale of GE Money Japan, which included our Japanese personal loan business. Under the terms of the sale, we reduced the proceeds from the sale for estimated refund claims in excess of the statutory interest rate. Proceeds from the sale were to be increased or decreased based on the actual claims experienced in accordance with loss-sharing terms specified in the sale agreement, with all claims in excess of 258 billion Japanese yen (approximately $3,000 million) remaining our responsibility. The underlying portfolio to which this obligation relates is in runoff status and interest rates were capped for all designated accounts by mid-2009. In the third quarter of 2010, we were required to begin making reimbursements under this arrangement.

 

Overall, excess interest refund claims activity has been difficult to predict and subject to several adverse factors, including the challenging global economic conditions over the last few years, the financial status of other Japanese personal lenders (including the 2010 bankruptcy of a large independent personal loan company), substantial ongoing legal advertising and consumer behavior. Since our disposition of the business, incoming claims have continued to decline; however, the pace and pattern of this decline are highly variable, difficult to predict and can have a significant effect on our estimate of this refund claims obligation.

 

The terms of the sale agreement provided us with a buyout option to extinguish this obligation at March 31, 2014, and on a biennial basis thereafter if we elected not to exercise our option in 2014. On February 26, 2014, we reached an agreement with the buyer in which we will pay 175 billion Japanese yen (approximately $1,700 million) to extinguish this obligation.

 

Our reserve for these refund claims increased from $700 million at December 31, 2012 to $1,836 million at December 31, 2013, as increases to the reserve of $1,645 million during 2013, including $1,440 million in the fourth quarter, primarily reflecting the February 26, 2014 agreement, were partially offset by refund claims payments of $361 million and the effects of a strengthening U.S. dollar against the Japanese yen of $148 million. Our reserve at December 31, 2013 represents the estimated required reimbursements for refund claims through March 31, 2014 in accordance with the 2008 sale agreement and the amount provided for under the 2014 agreement with the buyer.

 

GE Money Japan earnings (loss) from discontinued operations, net of taxes, were $(1,636) million, $(649) million and $(238) million in 2013, 2012 and 2011, 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 as to which there was an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued.

 

Pending repurchase claims based upon representations and warranties made in connection with loan sales were $5,643 million at December 31, 2013, $5,357 million at December 31, 2012 and $705 million at December 31, 2011. Pending claims represent those active repurchase claims that identify the specific loans tendered for repurchase and, for each loan, the alleged breach of a representation or warranty. As such, they do not include unspecified repurchase claims, such as the Litigation Claims discussed below, or claims relating to breaches of representations that were made more than six years before WMC was notified of the claim. WMC believes that these repurchase claims do not meet the substantive and procedural requirements for tender under the governing agreements, would be disallowed in legal proceedings under applicable statutes of limitations or are otherwise invalid. The amounts reported in pending claims reflect the purchase price or unpaid principal balances of the loans at the time of purchase and do not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. In the fourth quarter of 2013, WMC entered into settlements that reduce its exposure on claims asserted in certain securitizations. Pending claim and Litigation Claim amounts reported herein reflect the impact of these settlements. Historically, a small percentage of the total loans WMC originated and sold have been treated as "validly tendered," meaning the loan was subject to repurchase because there was a breach of a representation and warranty that materially and adversely affected the value of the loan, and the demanding party met all other procedural and substantive requirements for repurchase.

 

Reserves related to WMC pending and estimated future loan repurchase claims were $800 million at December 31, 2013, reflecting a net increase to reserves in the year ended December 31, 2013 of $167 million due to incremental claim activity and updates to WMC's estimate of future losses. The amount of the reserve is based upon pending loan repurchase requests, WMC's historical loss experience and evaluation of claim activity on loans tendered for repurchase.

 

The following table provides a roll forward of the reserve and pending repurchase claims.

 

Reserve



Pending claims

(In millions)


2013 



2012 


(In millions)


2013 



2012 














Balance at January 1

$

 633 


$

 143 


Balance at January 1

$

 5,357 


$

 705 

Provision


 354 



 500 


New claims


 1,259 



 4,838 

Claim resolutions/

  rescissions


 (187)


  

 (10)


Claim resolutions/

  rescissions


 (973)



 (186)

Balance at December 31

$

 800 


$

 633 


Balance at December 31

$

 5,643 


$

 5,357 














 

 

Given the significant recent activity in pending claims and related litigation filed in connection with such claims, 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 for pending and estimated future loan repurchase claims may result in an increase to these reserves. For example, a 100% increase in the estimated loss rate on loans tendered (and assuming settlements at current demands), would result in an increase to the reserves of approximately $525 million.

 

As of December 31, 2013, there were 17 lawsuits involving claims made against WMC arising from alleged breaches of representations and warranties on mortgage loans included in 15 securitizations. Subsequent to December 31, 2013, three of these lawsuits were dismissed leaving 14 lawsuits remaining. WMC initiated one of the cases as the plaintiff; in the other cases WMC is a defendant. The adverse parties in these cases are securitization trustees or parties claiming to act on their behalf. In 12 of these lawsuits, the adverse parties seek compensatory or other relief for mortgage loans beyond those included in WMC's previously discussed pending claims at December 31, 2013 (Litigation Claims). These Litigation Claims consist of sampling-based claims in two cases on approximately $600 million of mortgage loans and, in the other ten cases, claims for repurchase or damages based on the alleged failure to provide notice of defective loans, breach of a corporate representation and warranty, and/or non-specific claims for rescissionary damages on approximately $6,200 million of mortgage loans at December 31, 2013. The dismissal of a lawsuit subsequent to December 31, 2013 decreased the pending claims amount by $123 million and the Litigation Claims amount by $318 million. These claims reflect the purchase price or unpaid principal balances of the loans at the time of purchase and do not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. As noted above, WMC believes that the Litigation Claims conflict with the governing agreements and applicable law. As a result, WMC has not included the Litigation Claims in its pending claims or in its estimates of future loan repurchase requests and holds no related reserve as of December 31, 2013.

 

At this point, WMC is unable to develop a meaningful estimate of reasonably possible loss in connection with the Litigation Claims described above due to a number of factors, including the extent to which courts will agree with the theories supporting the Litigation Claims. The case law on these issues is unsettled, and while several courts have supported some of the theories underlying WMC's legal defenses, other courts have rejected them. There are a number of pending cases, including WMC cases, which, in the coming months, could provide more certainty regarding the legal status of these claims. An adverse court decision on any of the theories supporting the Litigation Claims could increase WMC's exposure in some or all of the 14 lawsuits, result in a reclassification of some or all of the Litigation Claims to pending claims and provoke new claims and lawsuits on additional loans. However, WMC continues to believe that it has defenses to all the claims asserted in litigation, including, for example, causation and materiality requirements, limitations on remedies for breach of representations and warranties, and the applicable statutes of limitations. 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. It is not possible to predict the outcome or impact of these defenses and other factors, any one of which could materially affect the amount of any loss ultimately incurred by WMC on these claims.

 

WMC has received claims on approximately $2,200 million of mortgage loans after the expiration of the statute of limitations as of December 31, 2013, $1,700 million of which are also included as Litigation Claims. WMC has also received unspecified indemnification demands from depositors/underwriters/sponsors of residential mortgage-backed securities (RMBS) in connection with lawsuits brought by RMBS investors concerning alleged misrepresentations in the securitization offering documents to which WMC is not a party. WMC believes that it has defenses to these demands.

 

The reserve estimates reflect judgment, based on currently available information, and a number of assumptions, including economic conditions, claim activity, pending and threatened litigation, indemnification demands, estimated repurchase rates, and other activity in the mortgage industry. Actual losses arising from claims against WMC could exceed the reserve amount and additional claims and lawsuits could result if actual claim rates, governmental actions, litigation and indemnification activity, adverse court decisions, settlement activity, actual repurchase rates or losses WMC incurs on repurchased loans differ from its assumptions. It is difficult to develop a meaningful estimate of aggregate possible claims exposure because of uncertainties surrounding economic conditions, the ability and propensity of mortgage loan holders to present and resolve valid claims, governmental actions, mortgage industry activity and litigation, court decisions affecting WMC's defenses, and pending and threatened litigation and indemnification demands against WMC.

 

WMC revenues and other income (loss) from discontinued operations were $(346) million, $(500) million and $(42) million in 2013, 2012 and 2011, respectively. In total, WMC's earnings (loss) from discontinued operations, net of taxes, were $(232) million, $(337) million and $(34) million in 2013, 2012 and 2011, respectively.

 

Other Financial Services

In the fourth quarter of 2013, we announced the planned disposition of Consumer Russia and classified the business as discontinued operations. Consumer Russia revenues and other income (loss) from discontinued operations were $260 million, $276 million and $280 million in 2013, 2012 and 2011, respectively. Consumer Russia earnings (loss) from discontinued operations, net of taxes, were $(193) million (including a $170 million loss on the planned disposal), $33 million and $87 million in 2013, 2012 and 2011, respectively.

 

In 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. CLL Trailer Services revenues and other income (loss) from discontinued operations were $271 million, $399 million and $464 million in 2013, 2012 and 2011, respectively. CLL Trailer Services earnings (loss) from discontinued operations, net of taxes, were $(2) million (including an $18 million gain on disposal), $22 million and $17 million in 2013, 2012 and 2011, respectively.

 

In the first quarter of 2012, we announced the planned disposition of Consumer Ireland and classified the business as discontinued operations. We completed the sale in the third quarter of 2012 for proceeds of $227 million. Consumer Ireland revenues and other income (loss) from discontinued operations were an insignificant amount, $7 million and $13 million in 2013, 2012 and 2011, respectively. Consumer Ireland earnings (loss) from discontinued operations, net of taxes, were $6 million, $(195) million (including a $121 million loss on disposal) and $(153) million in 2013, 2012 and 2011, respectively.

 

In the second quarter of 2011, we entered into an agreement to sell our Australian Home Lending operations and classified it as discontinued operations. As a result, we recognized an after-tax loss of $148 million in 2011. We completed the sale in the third quarter of 2011 for proceeds of approximately $4,577 million. Australian Home Lending revenues and other income (loss) from discontinued operations were an insignificant amount, $4 million and $250 million in 2013, 2012 and 2011, respectively. Australian Home Lending earnings (loss) from discontinued operations, net of taxes, were $14 million, $6 million and $(65) million in 2013, 2012 and 2011, respectively.

 

In the first quarter of 2011, we entered into an agreement to sell our Consumer Singapore business for $692 million. The sale was completed in the second quarter of 2011. Consumer Singapore revenues and other income (loss) from discontinued operations were $1 million, an insignificant amount and $30 million in 2013, 2012 and 2011, respectively. Consumer Singapore earnings (loss) from discontinued operations, net of taxes, were $1 million, $2 million and $333 million (including a $319 million gain on disposal) in 2013, 2012 and 2011, respectively.

 

The Consumer RV Marine and Consumer Mexico dispositions were completed during the first quarter and the second quarter of 2011, respectively, for proceeds of $2,365 million and $1,943 million, respectively. Consumer RV Marine revenues and other income (loss) from discontinued operations were an insignificant amount, $1 million and $11 million in 2013, 2012 and 2011, respectively. Consumer RV Marine earnings (loss) from discontinued operations, net of taxes, were $(1) million, an insignificant amount and $2 million in 2013, 2012 and 2011, respectively. Consumer Mexico revenues and other income (loss) from discontinued operations were an insignificant amount, $2 million and $67 million in 2013, 2012 and 2011, respectively. Consumer Mexico earnings (loss) from discontinued operations, net of taxes, were $(11) million, $(12) million and $30 million in 2013, 2012 and 2011, respectively.

 

GE Industrial

GE industrial earnings (loss) from discontinued operations, net of taxes, were $(66) million, $147 million and $(1) million in 2013, 2012 and 2011, respectively. During the fourth quarter of 2013, we recorded an increase to our tax reserve related to Spanish taxes for the years prior to our 2007 disposition of our Plastics business. During the third quarter of 2012, we resolved with the Internal Revenue Service the tax treatment of the 2007 disposition of our Plastics business, resulting in a tax benefit of $148 million. The sum of GE industrial earnings (loss) from discontinued operations, net of taxes, and GECC earnings (loss) from discontinued operations, net of taxes, is reported as GE industrial earnings (loss) from discontinued operations, net of taxes, on the Statement of Earnings.


NOTE 3. INVESTMENT SECURITIES

Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment-grade debt securities supporting obligations to annuitants and policyholders in our run-off insurance operations and supporting obligations to holders of guaranteed investment contracts (GICs) in Trinity and investments held in our CLL business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries. We do not have any securities classified as held-to-maturity.

2013 


2012 




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

$

 21 


$

 14 


$

 - 


$

 35 


$

 39 


$

 - 


$

 - 


$

 39 

      Corporate - non-U.S.


 13 



 - 



 (1)



 12 



 6 



 - 



 - 



 6 

   Equity
























      Available-for-sale


 302 



 9 



 (41)



 270 



 26 



 - 



 - 



 26 

      Trading


 6 



 - 



 - 



 6 



 3 



 - 



 - 



 3 



 342 



 23 



 (42)



 323 



 74 



 - 



 - 



 74 

GECC
























   Debt
























      U.S. corporate


 19,600 



 2,323 



 (217)



 21,706 



 20,233 



 4,201 



 (302)



 24,132 

      State and municipal


 4,245 



 235 



 (191)



 4,289 



 4,084 



 575 



 (113)



 4,546 

      Residential mortgage-
























         backed(a)


 1,819 



 139 



 (48)



 1,910 



 2,198 



 183 



 (119)



 2,262 

      Commercial mortgage-

         backed


 2,929 



 188 



 (82)



 3,035 



 2,930 



 259 



 (95)



 3,094 

      Asset-backed


 7,373 



 60 



 (46)



 7,387 



 5,784 



 31 



 (77)



 5,738 

      Corporate - non-U.S.


 1,741 



 103 



 (86)



 1,758 



 2,391 



 150 



 (126)



 2,415 

      Government - non-U.S.


 2,336 



 81 



 (7)



 2,410 



 1,617 



 149 



 (3)



 1,763 

      U.S. government and
























          federal agency


 752 



 45 



 (27)



 770 



 3,462 



 103 



 - 



 3,565 

   Retained interests


 64 



 8 



 - 



 72 



 76 



 7 



 - 



 83 

   Equity
























      Available-for-sale


 203 



 51 



 (3)



 251 



 513 



 86 



 (3)



 596 

      Trading


 74 



 - 



 - 



 74 



 245 



 - 



 - 



 245 



 41,136 



 3,233 



 (707)



 43,662 



 43,533 



 5,744 



 (838)



 48,439 

Eliminations


 (4)



 - 



 - 



 (4)



 (3)



 - 



 - 



 (3)

Total

$

 41,474 


$

 3,256 


$

 (749)


$

 43,981 


$

 43,604 


$

 5,744 


$

 (838)


$

 48,510 

















































(a)         Substantially collateralized by U.S. mortgages. Of our total RMBS portfolio at December 31, 2013, $1,224 million relates to securities issued by government-sponsored entities and $686 million relates 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 $43,981 million at December 31, 2013, from $48,510 million at December 31, 2012, primarily due to the sale of U.S. government and federal agency securities at our treasury operations and the impact of higher interest rates.

 

The following tables present the estimated fair values and gross unrealized losses of our available-for-sale investment securities.

In loss position for



Less than 12 months


12 months or more





Gross




Gross



Estimated


unrealized


Estimated


unrealized


December 31 (In millions)

fair value

(a)

losses

(a)(b)

fair value


losses

(b)














2013 













Debt













   U.S. corporate

$

 2,170 


$

 (122)


$

 598 


$

 (95)


   State and municipal


 1,076 



 (82)



 367 



 (109)


   Residential mortgage-backed


 232 



 (11)



 430 



 (37)


   Commercial mortgage-backed


 396 



 (24)



 780 



 (58)


   Asset-backed


 112 



 (2)



 359 



 (44)


   Corporate - non-U.S.


 108 



 (4)



 454 



 (83)


   Government - non-U.S.


 1,479 



 (6)



 42 



 (1)


   U.S. government and federal agency


 229 



 (27)



 254 



 - 


Retained interests


 2 



 - 



 - 



 - 


Equity


 253 



 (44)



 - 



 - 


Total

$

 6,057 


$

 (322)


$

 3,284 


$

 (427)















2012 













Debt













   U.S. corporate

$

 434 


$

 (7)


$

 813 


$

 (295)


   State and municipal


 146 



 (2)



 326 



 (111)


   Residential mortgage-backed


 98 



 (1)



 691 



 (118)


   Commercial mortgage-backed


 37 



 - 



 979 



 (95)


   Asset-backed


 18 



 (1)



 658 



 (76)


   Corporate - non-U.S.


 167 



 (8)



 602 



 (118)


   Government - non-U.S.


 201 



 (1)



 37 



 (2)


   U.S. government and federal agency


 - 



 - 



 - 



 - 


Retained interests


 3 



 - 



 - 



 - 


Equity


 26 



 (3)



 - 



 - 


Total

$

 1,130 


$

 (23)


$

 4,106 


$

 (815)




























(a)           The December 31, 2013 table includes the estimated fair value of and gross unrealized losses on Corporate-non-U.S. and Equity securities held by GE. The estimated fair value of and gross unrealized losses on Corporate-non-U.S. securities held by GE were $12 million and $(1) million, respectively. The estimated fair value of and gross unrealized losses on Equity securities held by GE were $222 million and $(41) million, respectively.

(b)           Includes gross unrealized losses at December 31, 2013 of $(99) million related to securities that had other-than-temporary impairments previously recognized.

 

We regularly review investment securities for impairment using both qualitative and quantitative criteria. 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 these securities before recovery of our amortized cost. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future.

 

Substantially all of our U.S. corporate debt securities are rated investment grade by the major rating agencies. We evaluate U.S. corporate debt securities based on a variety of factors, 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. In the event a U.S. corporate debt security is deemed to be other-than-temporarily impaired, we isolate the credit portion of the impairment by comparing the present value of our expectation of cash flows to the amortized cost of the security. We discount the cash flows using the original effective interest rate of the security.

 

The vast majority of our RMBS have investment-grade credit ratings from the major rating agencies and are in a senior position in the capital structure of the deals. Of our total RMBS at December 31, 2013 and 2012, approximately $378 million and $471 million, respectively, relate to residential subprime credit, primarily supporting our guaranteed investment contracts. These are collateralized primarily by pools of individual, direct mortgage loans (a majority of which were originated in 2006 and 2005), not other structured products such as collateralized debt obligations. In addition, of the total residential subprime credit exposure at December 31, 2013 and 2012, approximately $285 million and $219 million, respectively, was insured by Monoline insurers (Monolines) on which we continue to place reliance.

 

Our commercial mortgage-backed securities (CMBS) portfolio is collateralized by both diversified pools of mortgages that were originated for securitization (conduit CMBS) and pools of large loans backed by high-quality properties (large loan CMBS), a majority of which were originated in 2007 and 2006. The vast majority of the securities in our CMBS portfolio have investment-grade credit ratings and are in a senior position in the capital structure of the deals.

 

Our asset-backed securities (ABS) portfolio is collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries, as well as a variety of diversified pools of assets such as student loans and credit cards. The vast majority of our ABS are in a senior position in the capital structure of the deals. In addition, substantially all of the securities that are below investment-grade are in an unrealized gain position.

 

For ABS and RMBS, we estimate the portion of loss attributable to credit using a discounted cash flow model that considers estimates of cash flows generated from the underlying collateral. Estimates of cash flows consider credit risk, interest rate and prepayment assumptions that incorporate management's best estimate of key assumptions of the underlying collateral, including default rates, loss severity and prepayment rates. For CMBS, we estimate the portion of loss attributable to credit by evaluating potential losses on each of the underlying loans in the security. Collateral cash flows are considered in the context of our position in the capital structure of the deals. Assumptions can vary widely depending upon the collateral type, geographic concentrations and vintage.

 

If there has been an adverse change in cash flows for RMBS, management considers credit enhancements such as monoline insurance (which are features of a specific security). In evaluating the overall credit worthiness of the Monoline, we use an analysis that is similar to the approach we use for corporate bonds, including an evaluation of the sufficiency of the Monoline's cash reserves and capital, ratings activity, whether the Monoline is in default or default appears imminent, and the potential for intervention by an insurance or other regulator.

 

During 2013, we recorded pre-tax, other-than-temporary impairments of $798 million, of which $767 million was recorded through earnings ($15 million relates to equity securities) and $31 million was recorded in accumulated other comprehensive income (AOCI). At January 1, 2013, cumulative impairments recognized in earnings associated with debt securities still held were $588 million. During 2013, we recognized first-time impairments of $389 million and incremental charges on previously impaired securities of $336 million. Of these cumulative amounts recognized through December 31, 2013, $120 million related to securities that were subsequently sold before the end of 2013.

 

During 2012, we recorded pre-tax, other-than-temporary impairments of $193 million, of which $141 million was recorded through earnings ($39 million relates to equity securities) and $52 million was recorded in AOCI. At January 1, 2012, cumulative impairments recognized in earnings associated with debt securities still held were $726 million. During 2012, we recognized first-time impairments of $27 million and incremental charges on previously impaired securities of $40 million. Of these cumulative amounts recognized through December 31, 2012, $219 million related to securities that were subsequently sold before the end of 2012.

 

During 2011, we recorded pre-tax, other-than-temporary impairments of $467 million, of which $387 million was recorded through earnings ($81 million relates to equity securities) and $80 million was recorded in AOCI. At January 1, 2011, cumulative impairments recognized in earnings associated with debt securities still held were $500 million. During 2011, we recognized first-time impairments of $58 million and incremental charges on previously impaired securities of $230 million. Of these cumulative amounts recognized through December 31, 2011, $62 million related to securities that were subsequently sold before the end of 2011.

 

Contractual Maturities of Investment in Available-for-Sale Debt Securities (Excluding Mortgage-Backed

and Asset-Backed Securities)


Amortized


Estimated

(In millions)

cost


fair value







Due






   Within one year

$

 2,397 


$

 2,417 

   After one year through five years


 3,303 



 3,506 

   After five years through ten years


 4,984 



 5,156 

   After ten years


 18,024 



 19,901 

 

 

We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.

 

Supplemental information about gross realized gains and losses on available-for-sale investment securities follows.

(In millions) 


2013 



2012 



2011 

   









GE 


   



   



   

Gains 

$

 1 


$

 - 


$

 - 

Losses, including impairments 


 (20)



 (1)



 - 

Net 


 (19)



 (1)



 - 

GECC 









Gains 


 239 



 177 



 205 

Losses, including impairments 


 (762)



 (211)



 (402)

Net 


 (523)



 (34)



 (197)

Total 

$

 (542)


$

 (35)


$

 (197)

 

 

Although we generally do not have the intent to sell any specific securities at the end of the period, in the ordinary course of managing our investment securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. In some of our bank subsidiaries, we maintain a certain level of purchases and sales volume principally of non-U.S. government debt securities. In these situations, fair value approximates carrying value for these securities.

 

Proceeds from investment securities sales and early redemptions by issuers totaled $19,276 million, $12,745 million and $15,606 million in 2013, 2012 and 2011, respectively, principally from the sale of Comcast guaranteed debt and short-term securities in our bank subsidiaries and treasury operations.

 

We recognized pre-tax gains on trading securities of $48 million, $20 million and $22 million in 2013, 2012 and 2011, respectively.


NOTE 4. CURRENT RECEIVABLES

 

   


Consolidated(a) 



GE(b) 

December 31 (In millions) 


2013 



2012 



2013 



2012 













Power & Water 

$

 3,895 


$

 2,977 


$

 2,335 


$

 1,700 

Oil & Gas 


 5,444 



 4,656 



 3,134 



 1,872 

Energy Management 


 1,540 



 1,600 



 686 



 800 

Aviation 


 4,307 



 4,756 



 2,260 



 2,493 

Healthcare 


 4,398 



 4,253 



 2,029 



 2,012 

Transportation 


 526 



 485 



 318 



 324 

Appliances & Lighting 


 1,337 



 1,286 



 273 



 186 

Corporate items & eliminations 


 388 



 351 



 377 



 343 



 21,835 



 20,364 



 11,412 



 9,730 

Less Allowance for Losses 


 (447)



 (462)



 (442)



 (456)

Total 

$

 21,388 


$

 19,902 


$

 10,970 


$

 9,274 





































(a)           Included GE industrial customer receivables factored through a GECC affiliate and reported as financing receivables by GECC. See Note 26.

(b)           GE current receivables balances at December 31, 2013 and 2012, before allowance for losses, included $7,441 million and $6,283 million, respectively, from sales of goods and services to customers, and $37 million and $70 million at December 31, 2013 and 2012, respectively, from transactions with associated companies.

 

GE current receivables of $127 million and $114 million at December 31, 2013 and 2012, respectively, arose from sales, principally of Aviation goods and services, on open account to various agencies of the U.S. government. As a percentage of GE revenues, approximately 4% of GE sales of goods and services were to the U.S. government in 2013, 2012 and 2011.


 

 

NOTE 5. INVENTORIES

 

December 31 (In millions)


2013 



2012 







GE






Raw materials and work in process

$

 10,220 


$

 9,295 

Finished goods


 6,726 



 6,020 

Unbilled shipments


 584 



 378 



 17,530 



 15,693 

Less revaluation to LIFO


 (273)



 (398)



 17,257 



 15,295 

GECC






Finished goods


 68 



 79 

Total

$

 17,325 


$

 15,374 


NOTE 6. GECC FINANCING RECEIVABLES, ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES AND SUPPLEMENTAL INFORMATION ON CREDIT QUALITY

 






December 31 (In millions)

2013 


2012 







Loans, net of deferred income(a) 

$

 231,268 


$

240,634 

Investment in financing leases, net of deferred income 


 26,939 



32,471 

   


 258,207 



273,105 

Less allowance for losses  


 (5,178)



(4,944)

Financing receivables - net(b) 

$

 253,029 


$

268,161 







(a)           Deferred income was $2,013 million and $2,184 million at December 31, 2013 and 2012, respectively.

(b)           Financing receivables at December 31, 2013 and 2012 included $544 million and $750 million, respectively, relating to loans that had been acquired in a transfer but have been subject to credit deterioration since origination.

 

GECC financing receivables include both loans and financing leases. Loans represent transactions in a variety of forms, including revolving charge and credit, mortgages, installment loans, intermediate-term loans and revolving loans secured by business assets. The portfolio includes loans carried at the principal amount on which finance charges are billed periodically, and loans carried at gross book value, which includes finance charges.

Investment in financing leases consists of direct financing and leveraged leases of aircraft, railroad rolling stock, autos, other transportation equipment, data processing equipment, medical equipment, commercial real estate and other manufacturing, power generation, and commercial equipment and facilities.

For federal income tax purposes, the leveraged leases and the majority of the direct financing leases are leases in which GECC depreciates the leased assets and is taxed upon the accrual of rental income. Certain direct financing leases are loans for federal income tax purposes. For these transactions, GECC is taxed only on the portion of each payment that constitutes interest, unless the interest is tax-exempt (e.g., certain obligations of state governments).

Investment in direct financing and leveraged leases represents net unpaid rentals and estimated unguaranteed residual values of leased equipment, less related deferred income. GECC has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. The GECC share of rentals receivable on leveraged leases is subordinate to the share of other participants who also have security interests in the leased equipment. For federal income tax purposes, GECC is entitled to deduct the interest expense accruing on non-recourse financing related to leveraged leases.

 

Net Investment in Financing Leases

 

Total financing leases


Direct financing leases(a)


Leveraged leases(b)

December 31 (In millions)

2013 


2012 


2013 


2012 


2013 


2012 



















Total minimum lease payments receivable

$

29,970 


$

36,451 


$

24,571 


$

29,416 


$

5,399 


$

7,035 

 Less principal and interest on third-party


















    non-recourse debt


(3,480)



(4,662)



- 



- 



(3,480)



(4,662)

Net rentals receivables


 26,490 



 31,789 



 24,571 



 29,416 



 1,919 



 2,373 

Estimated unguaranteed residual value


















     of leased assets


5,073 



6,346 



3,067 



4,272 



2,006 



2,074 

Less deferred income


(4,624)



(5,664)



(3,560)



(4,453)



(1,064)



(1,211)

Investment in financing leases, net of


















    deferred income


26,939 



32,471 



24,078 



29,235 



2,861 



3,236 

Less amounts to arrive at net investment


















    Allowance for losses


(202)



(198)



(192)



(193)



(10)



(5)

    Deferred taxes


 (4,075)



 (4,506)



 (1,783)



 (2,245)



 (2,292)



 (2,261)

Net investment in financing leases

$

 22,662 


$

 27,767 


$

 22,103 


$

 26,797 


$

 559 


$

 970 



















(a)           Included $317 million and $330 million of initial direct costs on direct financing leases at December 31, 2013 and 2012, respectively.

(b)           Included pre-tax income of $31 million and $81 million and income tax of $11 million and $32 million during 2013 and 2012, respectively. Net investment credits recognized on leveraged leases during 2013 and 2012 were insignificant.

 

Contractual Maturities

 

Total


Net rentals

(In millions)

loans


receivable







Due in






    2014

$

 54,971 


$

 8,184 

    2015


 19,270 



 6,114 

    2016


 19,619 



 4,209 

    2017


 17,281 



 2,733 

    2018


 14,714 



 1,798 

    2019 and later


 43,121 



 3,452 



 168,976 



 26,490 

    Consumer revolving loans


 62,292 



 - 

Total

$

 231,268 


$

 26,490 







 

We expect actual maturities to differ from contractual maturities.

 

The following tables provide additional information about our financing receivables and related activity in the allowance for losses for our Commercial, Real Estate and Consumer portfolios.




December 31 (In millions)

2013 


2012 







Commercial






CLL






   Americas

$

 68,585 


$

72,517 

   Europe (a)


 37,962 



37,037 

   Asia


 9,469 



11,401 

   Other (a)


 451 



603 

Total CLL


 116,467 



121,558 







Energy Financial Services


 3,107 



4,851 







GE Capital Aviation Services (GECAS)


 9,377 



10,915 







Other


 318 



486 

Total Commercial


 129,269 



137,810 







Real Estate


 19,899 



20,946 







Consumer






   Non-U.S. residential mortgages


 30,501 



33,350 

   Non-U.S. installment and revolving credit


 13,677 



17,816 

   U.S. installment and revolving credit


 55,854 



50,853 

   Non-U.S. auto


 2,054 



4,260 

   Other


 6,953 



8,070 

Total Consumer


 109,039 



114,349 







Total financing receivables


 258,207 



273,105 







Less allowance for losses


 (5,178)



(4,944)

Total financing receivables - net

$

 253,029 


$

268,161 







 

(a)           During 2013, we transferred our European equipment services portfolio from CLL Other to CLL Europe. Prior-period amounts were reclassified to conform to the current period presentation.

 

 

Allowance for Losses on Financing Receivables

 

Balance at


Provision








Balance at


January 1,


charged to




Gross




December 31,

(In millions)

2013 


operations


Other

(a)

write-offs

(b)

Recoveries

(b)

2013 



















Commercial


















CLL


















   Americas

$

490 


$

 292 


$

 (1)


$

 (422)


$

 114 


$

 473 

   Europe


445 



 321 



 12 



 (441)



 78 



 415 

   Asia


80 



 124 



 (11)



 (115)



 12 



 90 

   Other


6 



 (3)



 - 



 (3)



 - 



 - 

Total CLL


1,021 



 734 



 - 



 (981)



 204 



 978 



















Energy Financial


















    Services


9 



 (1)



 - 



 - 



 - 



 8 



















GECAS


8 



 9 



 - 



 - 



 - 



 17 



















Other


3 



 (1)



 - 



 (2)



 2 



 2 

Total Commercial


1,041 



 741 



 - 



 (983)



 206 



 1,005 



















Real Estate


320 



 28 



 (4)



 (163)



 11 



 192 



















Consumer


















   Non-U.S. residential mortgages


480 



 269 



 10 



 (458)



 57 



 358 

   Non-U.S. installment


















      and revolving credit


582 



 589 



 (93)



 (967)



 483 



 594 

   U.S. installment and revolving credit


2,282 



 3,006 



 (51)



 (2,954)



 540 



 2,823 

   Non-U.S. auto


67 



 58 



 (13)



 (126)



 70 



 56 

   Other


172 



 127 



 11 



 (236)



 76 



 150 

Total Consumer


3,583 



 4,049 



 (136)



 (4,741)



 1,226 



 3,981 

Total

$

4,944 


$

 4,818 


$

 (140)


$

 (5,887)


$

 1,443 


$

 5,178 





































(a)           Other primarily included dispositions and the effects of currency exchange.

(b)           Net write-offs (gross write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as a result of losses that are incurred subsequent to the beginning of the fiscal year due to information becoming available during the current year, which may identify further deterioration on existing financing receivables. 

 

Balance at 


Provision 








Balance at 


January 1, 


charged to 




Gross 




December 31, 

(In millions) 

2012 


operations 


Other 

(a)

write-offs 

(b)

Recoveries 

(b)

2012 



















Commercial 


















CLL 


















   Americas 

$

889 


$

109 


$

(51)


$

(568)


$

111 


$

490 

   Europe 


400 



374 



(3)



(390)



64 



445 

   Asia 


157 



37 



(3)



(134)



23 



80 

   Other 


4 



13 



(1)



(10)



- 



6 

Total CLL 


1,450 



533 



(58)



(1,102)



198 



1,021 



















Energy Financial  


















   Services 


26 



4 



 - 



(24)



3 



9 



















GECAS 


17 



4 



 - 



(13)



 - 



8 



















Other 


37 



1 



(20)



(17)



2 



3 

Total Commercial 


1,530 



542 



(78)



(1,156)



203 



1,041 



















Real Estate 


1,089 



72 



(44)



(810)



13 



320 



















Consumer 


















   Non-U.S. residential mortgages 


545 



112 



8 



(261)



76 



480 

   Non-U.S. installment  


















      and revolving credit 


690 



290 



24 



(974)



552 



582 

   U.S. installment and revolving credit 


2,008 



2,666 



(24)



(2,906)



538 



2,282 

   Non-U.S. auto 


101 



18 



(4)



(146)



98 



67 

   Other 


199 



132 



18 



(257)



80 



172 

Total Consumer 


3,543 



3,218 



22 



(4,544)



1,344 



3,583 

Total 

$

6,162 


$

3,832 


$

(100)


$

(6,510)


$

1,560 


$

4,944 



















(a)           Other primarily included transfers to held-for-sale and the effects of currency exchange.

(b)           Net write-offs (gross write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as a result of losses that are incurred subsequent to the beginning of the fiscal year due to information becoming available during the current year, which may identify further deterioration on existing financing receivables.

 

Balance at


Provision








Balance at


January 1,


charged to




Gross




December 31,

(In millions)

2011


operations

(a)

Other

(b)

write-offs

(c)

Recoveries

(c)

2011



















Commercial


















CLL


















Americas

$

1,288 


$

281 


$

(96)


$

(700)


$

116 


$

889 

Europe


429 



195 



(5)



(286)



67 



400 

Asia


222 



105 



13 



(214)



31 



157 

Other


6 



3 



(3)



(2)



- 



4 

Total CLL


1,945 



584 



(91)



(1,202)



214 



1,450 





































Energy Financial


















    Services


22 



- 



(1)



(4)



9 



26 



















GECAS


20 



- 



- 



(3)



- 



17 



















Other


58 



23 



- 



(47)



3 



37 

Total Commercial


2,045 



607 



(92)



(1,256)



226 



1,530 





































Real Estate


1,488 



324 



2 



(747)



22 



1,089 



















Consumer


















Non-U.S. residential


















   mortgages


688 



116 



(13)



(295)



49 



545 

Non-U.S. installment


















   and revolving credit


898 



470 



(29)



(1,198)



549 



690 

U.S. installment and


















   revolving credit


2,333 



2,241 



1 



(3,095)



528 



2,008 

Non-U.S. auto


168 



30 



(4)



(216)



123 



101 

Other


259 



142 



(20)



(272)



90 



199 

Total Consumer


4,346 



2,999 



(65)



(5,076)



1,339 



3,543 

Total

$

7,879 


$

3,930 


$

(155)


$

(7,079)


$

1,587 


$

6,162 



















(a)           Included a provision of $77 million at Consumer related to the July 1, 2011 adoption of ASU 2011-02.

(b)           Other primarily included transfers to held-for-sale and the effects of currency exchange.

(c)           Net write-offs (gross write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as a result of losses that are incurred subsequent to the beginning of the fiscal year due to information becoming available during the current year, which may identify further deterioration on existing financing receivables.

Credit Quality Indicators

We provide further detailed information about the credit quality of our Commercial, Real Estate and Consumer financing receivables portfolios. For each portfolio, we describe the characteristics of the financing receivables and provide information about collateral, payment performance, credit quality indicators, and impairment. We manage these portfolios using delinquency and nonearning data as key performance indicators. The categories used within this section such as impaired loans, TDR and nonaccrual financing receivables are defined by the authoritative guidance and we base our categorization on the related scope and definitions contained in the related standards. The categories of nonearning and delinquent are defined by us and are used in our process for managing our financing receivables. Definitions of these categories are provided in Note 1.

 

Past Due Financing Receivables

The following tables display payment performance of Commercial, Real Estate, and Consumer financing receivables.

 

2013 


2012 



Over 30 days


Over 90 days


Over 30 days


Over 90 days


December 31

past due


past due(a)


past due


past due











Commercial









CLL









   Americas

 1.1 

%

 0.5 

%

 1.1 

%

 0.5 

%

   Europe

 3.8 


 2.1 


 3.7 


 2.1 


   Asia

 0.5 


 0.3 


 0.9 


 0.6 


   Other

 - 


 - 


 0.1 


 - 


Total CLL

 1.9 


 1.0 


 1.9 


 1.0 











Energy Financial Services

 - 


 - 


 - 


 - 











GECAS

 - 


 - 


 - 


 - 











Other

 0.1 


 0.1 


 2.8 


 2.8 











Total Commercial

 1.7 


 0.9 


 1.7 


 0.9 











Real Estate

 1.2 


 1.1 


 2.3 


 2.2 











Consumer









   Non-U.S. residential mortgages(b)

 11.2 


 6.9 


 12.0 


 7.5 


   Non-U.S. installment and revolving credit

 3.7 


 1.1 


 3.8 


 1.1 


   U.S. installment and revolving credit

 4.4 


 2.0 


 4.6 


 2.0 


   Non-U.S. auto

 4.4 


 0.7 


 3.1 


 0.5 


   Other

 2.5 


 1.4 


 2.8 


 1.7 


Total Consumer

 6.1 


 3.2 


 6.5 


 3.4 


Total

 3.5 

%

 1.9 

%

 3.7 

%

 2.1 

%










(a)           Included $1,197 million of Consumer loans at December 31, 2013, which are over 90 days past due and continue to accrue interest until the accounts are written off in the period that the account becomes 180 days past due.

(b)           Consumer loans secured by residential real estate (both revolving and closed-end loans) are written down to the fair value of collateral, less costs to sell, no later than when they become 180 days past due.

Nonaccrual Financing Receivables 

 

Nonaccrual financing


Nonearning financing



receivables(a)


receivables(a)


December 31 (Dollars in millions)

2013 


2012 


2013 


2012 















Commercial


























CLL













   Americas

$

 1,275 


$

 1,951 


$

 1,243 


$

 1,333 


   Europe


 1,046 



 1,740 



 1,046 



 1,299 


   Asia


 413 



 395 



 413 



 193 


   Other


 - 



 52 



 - 



 52 


Total CLL


 2,734 



 4,138 



 2,702 



 2,877 















Energy Financial Services


 4 



 - 



 4 



 - 















GECAS


 - 



 3 



 - 



 - 















Other


 6 



 25 



 6 



 13 


Total Commercial


 2,744 

(b)


 4,166 

(b)


 2,712 



 2,890 















Real Estate


 2,551 

(c)


 4,885 

(c)


 2,301 



 444 















Consumer













   Non-U.S. residential mortgages


 2,161 



 2,598 



 1,766 



 2,567 


   Non-U.S. installment and revolving credit


 88 



 213 



 88 



 213 


   U.S. installment and revolving credit


 2 



 1,026 



 2 



 1,026 


   Non-U.S. auto


 18 



 24 



 18 



 24 


   Other


 351 



 427 



 345 



 351 


Total Consumer


 2,620 

(d)


 4,288 

(d)


 2,219 



 4,181 


Total

$

 7,915 


$

 13,339 


$

 7,232 


$

 7,515 




























Allowance for losses percentage


























Commercial


 36.6 

%


 25.0 

%


 37.1 

%


 36.0 

%

Real Estate


 7.5 



 6.6 



 8.3 



 72.1 


Consumer


 151.9 



 83.6 



 179.4 



 85.7 















Total


 65.4 

%


 37.1 

%


 71.6 

%


 65.8 

%














(a)           During the fourth quarter of 2013, we revised our methods for classifying financing receivables as nonaccrual and nonearning to more closely align with regulatory guidance. Given that the revised methods result in nonaccrual and nonearning amounts that are substantially the same, we plan to discontinue the reporting of nonearning financing receivables in the first quarter of 2014. Further information on our nonaccrual and nonearning financing receivables is provided in Note 1 to the consolidated financial statements.

(b)           Included $1,397 million and $2,647 million at December 31, 2013 and 2012, respectively, that are currently paying in accordance with their contractual terms.

(c)           Included $2,308 million and $4,461 million at December 31, 2013 and 2012, respectively, that are currently paying in accordance with their contractual terms.

(d)           Included $527 million and $734 million at December 31, 2013 and 2012, respectively, that are currently paying in accordance with their contractual terms.

 

Impaired Loans

The following tables provide information about loans classified as impaired and specific reserves related to Commercial, Real Estate and Consumer.

With no specific allowance


With a specific allowance


Recorded


Unpaid


Average


Recorded


Unpaid




Average


investment


principal


investment in


investment


principal


Associated


investment

December 31 (In millions)

in loans


balance


loans


in loans


balance


allowance


in loans






















2013 










































Commercial





















CLL





















   Americas

$

 1,670 


$

 2,187 


$

 2,154 


$

 417 


$

 505 


$

 96 


$

 497 

   Europe


 802 



 1,589 



 956 



 580 



 921 



 211 



 536 

   Asia


 302 



 349 



 180 



 111 



 125 



 20 



 93 

   Other


 - 



 - 



 - 



 - 



 - 



 - 



 12 

Total CLL


 2,774 



 4,125 



 3,290 



 1,108 



 1,551 



 327 



 1,138 






















Energy Financial Services


 - 



 - 



 - 



 4 



 4 



 1 



 2 






















GECAS


 - 



 - 



 - 



 - 



 - 



 - 



 1 






















Other


 2 



 3 



 9 



 4 



 4 



 - 



 5 

Total Commercial(a)


 2,776 



 4,128 



 3,299 



 1,116 



 1,559 



 328 



 1,146 






















Real Estate(b)


 2,615 



 3,036 



 3,058 



 1,245 



 1,507 



 74 



 1,688 






















Consumer(c)


 109 



 153 



 98 



 2,879 



 2,948 



 567 



 3,058 

Total

$

 5,500 


$

 7,317 


$

 6,455 


$

 5,240 


$

 6,014 


$

 969 


$

 5,892 











































2012 










































Commercial





















CLL





















   Americas

$

 2,487 


$

 2,927 


$

 2,535 


$

 557 


$

 681 


$

 178 


$

 987 

   Europe


 1,131 



 1,901 



 1,009 



 643 



 978 



 278 



 805 

   Asia


 62 



 64 



 62 



 109 



 120 



 23 



 134 

   Other


 - 



 - 



 43 



 52 



 68 



 6 



 16 

Total CLL


 3,680 



 4,892 



 3,649 



 1,361 



 1,847 



 485 



 1,942 






















Energy Financial Services


 - 



 - 



2 



 - 



 - 



 - 



7 






















GECAS


 - 



 - 



17 



3 



3 



 - 



5 






















Other


 17 



28 



26 



8 



8 



2 



40 

Total Commercial(a)


 3,697 



 4,920 



 3,694 



 1,372 



 1,858 



 487 



 1,994 






















Real Estate(b)


 3,491 



 3,712 



 3,773 



 2,202 



 2,807 



 188 



 3,752 






















Consumer(c)


 105 



 117 



 100 



 3,103 



 3,141 



 673 



 2,949 

Total

$

 7,293 


$

 8,749 


$

 7,567 


$

 6,677 


$

 7,806 


$

 1,348 


$

 8,695 






















(a)           We recognized $218 million and $253 million of interest income, including $60 million and $92 million on a cash basis, for the years ended December 31, 2013 and 2012, respectively, principally in our CLL Americas business. The total average investment in impaired loans for the years ended December 31, 2013 and 2012 was $4,445 million and $5,688 million, respectively.

(b)           We recognized $187 million and $329 million of interest income, including $135 million and $237 million on a cash basis, for the years ended December 31, 2013 and 2012, respectively. The total average investment in impaired loans for the years ended December 31, 2013 and 2012 was $4,746 million and $7,525 million, respectively.

(c)           We recognized $221 million and $168 million of interest income, including $3 million and $4 million on a cash basis, for the years ended December 31, 2013 and 2012, respectively, principally in our Consumer-U.S. installment and revolving credit portfolios. The total average investment in impaired loans for the years ended December 31, 2013 and 2012 was $3,156 million and $3,049 million, respectively.

 



December 31 (In millions)

2013 


2012 









Commercial







Non-impaired financing receivables

$

125,377 


$

132,741 


General reserves


677 



554 









Impaired loans


3,892 



5,069 


Specific reserves


328 



487 









Real Estate







Non-impaired financing receivables

$

16,039 


$

15,253 


General reserves


118 



132 









Impaired loans


3,860 



5,693 


Specific reserves


74 



188 









Consumer







Non-impaired financing receivables

$

106,051 


$

111,141 


General reserves


3,414 



2,910 









Impaired loans


2,988 



3,208 


Specific reserves


567 



673 









Total







Non-impaired financing receivables

$

 247,467 


$

 259,135 


General reserves


 4,209 



 3,596 









Impaired loans


 10,740 



 13,970 


Specific reserves


 969 



 1,348 









 

Impaired loans classified as TDRs in our CLL business were $2,961 million and $3,872 million at December 31, 2013 and 2012, respectively, and were primarily attributable to CLL Americas ($1,770 million and $2,577 million, respectively). For the year ended December 31, 2013, we modified $1,509 million of loans classified as TDRs, primarily in CLL Americas ($737 million). Changes to these loans primarily included extensions, interest-only payment periods, debt to equity exchange and forbearance or other actions, which are in addition to, or sometimes in lieu of, fees and rate increases. Of our $1,509 million and $2,936 million of modifications classified as TDRs during 2013 and 2012, respectively, $71 million and $217 million have subsequently experienced a payment default in 2013 and 2012, respectively. 

 

Real Estate TDRs decreased from $5,146 million at December 31, 2012 to $3,625 million at December 31, 2013, primarily driven by resolution of TDRs through paydowns, partially offset by extensions of loans scheduled to mature during 2013, some of which were classified as TDRs upon modification. We deem loan modifications to be TDRs when we have granted a concession to a borrower experiencing financial difficulty and we do not receive adequate compensation in the form of an effective interest rate that is at current market rates of interest given the risk characteristics of the loan or other consideration that compensates us for the value of the concession. The limited liquidity and higher return requirements in the real estate market for loans with higher loan-to-value (LTV) ratios have typically resulted in the conclusion that the modified terms are not at current market rates of interest, even if the modified loans are expected to be fully recoverable. For the year ended December 31, 2013, we modified $1,595 million of loans classified as TDRs. Changes to these loans primarily included maturity extensions, principal payment acceleration, changes to collateral or covenant terms and cash sweeps, which are in addition to, or sometimes in lieu of, fees and rate increases. Of our $1,595 million and $4,351 million of modifications classified as TDRs during 2013 and 2012, respectively, $197 million and $210 million have subsequently experienced a payment default in 2013 and 2012, respectively.

 

The vast majority of our Consumer nonaccrual financing receivables are smaller-balance homogeneous loans evaluated collectively, by portfolio, for impairment and therefore are outside the scope of the disclosure requirement for impaired loans. Accordingly, impaired loans in our Consumer business represent restructured smaller-balance homogeneous loans meeting the definition of a TDR, and are therefore subject to the disclosure requirement for impaired loans, and commercial loans in our Consumer-Other portfolio. The recorded investment of these impaired loans totaled $2,988 million (with an unpaid principal balance of $3,101 million) and comprised $109 million with no specific allowance, primarily all in our Consumer-Other portfolio, and $2,879 million with a specific allowance of $567 million at December 31, 2013. The impaired loans with a specific allowance included $261 million with a specific allowance of $35 million in our Consumer-Other portfolio and $2,618 million with a specific allowance of $532 million across the remaining Consumer business and had an unpaid principal balance and average investment of $2,948 million and $3,058 million, respectively, at December 31, 2013.

 

Impaired loans classified as TDRs in our Consumer business were $2,874 million and $3,041 million at December 31, 2013 and 2012, respectively. We utilize certain loan modification programs for borrowers experiencing financial difficulties in our Consumer loan portfolio. These loan modification programs primarily include interest rate reductions and payment deferrals in excess of three months, which were not part of the terms of the original contract, and are primarily concentrated in our non-U.S. residential mortgage and U.S. credit card portfolios. For the year ended December 31, 2013, we modified $1,441 million of consumer loans for borrowers experiencing financial difficulties, which are classified as TDRs, and included $879 million of non-U.S. consumer loans, primarily residential mortgages, credit cards and personal loans and $562 million of U.S. consumer loans, primarily credit cards. We expect borrowers whose loans have been modified under these programs to continue to be able to meet their contractual obligations upon the conclusion of the modification. Of our $1,441 million and $1,751 million of modifications classified as TDRs during 2013 and 2012, respectively, $266 million and $334 million have subsequently experienced a payment default in 2013 and 2012, respectively.

 

SUPPLEMENTAL CREDIT QUALITY INFORMATION

Commercial

Substantially all of our Commercial financing receivables portfolio is secured lending and we assess the overall quality of the portfolio based on the potential risk of loss measure. The metric incorporates both the borrower's credit quality along with any related collateral protection.

 

Our internal risk ratings process is an important source of information in determining our allowance for losses and represents a comprehensive, statistically validated approach to evaluate risk in our financing receivables portfolios. In deriving our internal risk ratings, we stratify our Commercial portfolios into 21 categories of default risk and/or six categories of loss given default to group into three categories: A, B and C. Our process starts by developing an internal risk rating for our borrowers, which is based upon our proprietary models using data derived from borrower financial statements, agency ratings, payment history information, equity prices and other commercial borrower characteristics. We then evaluate the potential risk of loss for the specific lending transaction in the event of borrower default, which takes into account such factors as applicable collateral value, historical loss and recovery rates for similar transactions, and our collection capabilities. Our internal risk ratings process and the models we use are subject to regular monitoring and validation controls. The frequency of rating updates is set by our credit risk policy, which requires annual Risk Committee approval. The models are updated on a regular basis and statistically validated annually, or more frequently as circumstances warrant.

 

The table below summarizes our Commercial financing receivables by risk category. As described above, financing receivables are assigned one of 21 risk ratings based on our process and then these are grouped by similar characteristics into three categories in the table below. Category A is characterized by either high-credit-quality borrowers or transactions with significant collateral coverage that substantially reduces or eliminates the risk of loss in the event of borrower default. Category B is characterized by borrowers with weaker credit quality than those in Category A, or transactions with moderately strong collateral coverage that minimizes but may not fully mitigate the risk of loss in the event of default. Category C is characterized by borrowers with higher levels of default risk relative to our overall portfolio or transactions where collateral coverage may not fully mitigate a loss in the event of default.

 

Secured

December 31 (In millions)

A


B


C


Total













2013 
























CLL












   Americas

$

 65,444 


$

 1,587 


$

 1,554 


$

 68,585 

   Europe(a)


 35,968 



 479 



 1,019 



 37,466 

   Asia


 8,962 



 140 



 218 



 9,320 

   Other(a)


 101 



 - 



 - 



 101 

Total CLL


 110,475 



 2,206 



 2,791 



 115,472 













Energy Financial Services


 2,969 



 9 



 - 



 2,978 













GECAS


 9,175 



 50 



 152 



 9,377 













Other


 318 



 - 



 - 



 318 

Total

$

 122,937 


$

 2,265 


$

 2,943 


$

 128,145 













2012 
























CLL












   Americas

$

68,360 


$

1,775 


$

2,382 


$

72,517 

   Europe(a)


33,756 



1,188 



1,256 



36,200 

   Asia


10,732 



117 



372 



11,221 

   Other(a)


159 



 - 



94 



253 

Total CLL


113,007 



3,080 



4,104 



120,191 













Energy Financial Services


4,725 



 - 



 - 



4,725 













GECAS


10,681 



223 



11 



10,915 













Other


486 



 - 



 - 



486 

Total

$

128,899 


$

3,303 


$

4,115 


$

136,317 













(a)           During 2013, we transferred our European equipment services portfolio from CLL Other to CLL Europe. Prior-period amounts were reclassified to conform to the current period presentation.

 

For our secured financing receivables portfolio, our collateral position and ability to work out problem accounts mitigates our losses. Our asset managers have deep industry expertise that enables us to identify the optimum approach to default situations. We price risk premiums for weaker credits at origination, closely monitor changes in creditworthiness through our risk ratings and watch list process, and are engaged early with deteriorating credits to minimize economic loss. Secured financing receivables within risk Category C are predominantly in our CLL businesses and are primarily composed of senior term lending facilities and factoring programs secured by various asset types including inventory, accounts receivable, cash, equipment and related business facilities as well as franchise finance activities secured by underlying equipment.

 

Loans within Category C are reviewed and monitored regularly, and classified as impaired when it is probable that they will not pay in accordance with contractual terms. Our internal risk rating process identifies credits warranting closer monitoring; and as such, these loans are not necessarily classified as nonearning or impaired.

 

Our unsecured Commercial financing receivables portfolio is primarily attributable to our Interbanca S.p.A. and GE Sanyo Credit acquisitions in Europe and Asia, respectively. At December 31, 2013 and 2012, these financing receivables included $313 million and $458 million rated A, $580 million and $583 million rated B, and $231 million and $452 million rated C, respectively.

 

Real Estate

Due to the primarily non-recourse nature of our Debt portfolio, loan-to-value ratios provide the best indicators of the credit quality of the portfolio.

 



















Loan-to-value ratio


2013 


2012 



Less than



80% to



Greater than



Less than



80% to



Greater than

December 31 (In millions)

80%


95%


95%


80%


95%


95%



















Debt

$

 15,576 


$

 1,300 


$

 2,111 


$

 13,570 


$

 2,572 


$

 3,604 

 

By contrast, the credit quality of the owner occupied/credit tenant portfolio is primarily influenced by the strength of the borrower's general credit quality, which is reflected in our internal risk rating process, consistent with the process we use for our Commercial portfolio. At December 31, 2013, the internal risk rating of A, B and C for our owner occupied/credit tenant portfolio approximated $571 million, $179 million and $162 million, respectively, as compared to December 31, 2012, ratings of $956 million, $25 million and $219 million, respectively.

 

Within Real Estate-Debt, these financing receivables are primarily concentrated in our North American and European Lending platforms and are secured by various property types. A substantial majority of the Real Estate-Debt financing receivables with loan-to-value ratios greater than 95% are paying in accordance with contractual terms. Substantially all of these loans and the majority of our owner occupied/credit tenant financing receivables included in Category C are impaired loans that are subject to the specific reserve evaluation process described in Note 1. The ultimate recoverability of impaired loans is driven by collection strategies that do not necessarily depend on the sale of the underlying collateral and include full or partial repayments through third-party refinancing and restructurings.

 

Consumer

At December 31, 2013, our U.S. consumer financing receivables included private-label credit card and sales financing for approximately 61 million customers across the U.S. with no metropolitan area accounting for more than 6% of the portfolio. Of the total U.S. consumer financing receivables, approximately 67% relate to credit card loans that are often subject to profit and loss-sharing arrangements with the retailer (which are recorded in revenues), and the remaining 33% are sales finance receivables that provide financing to customers in areas such as electronics, recreation, medical and home improvement.

Our Consumer financing receivables portfolio comprises both secured and unsecured lending. Secured financing receivables comprise residential loans and lending to small and medium-sized enterprises predominantly secured by auto and equipment, inventory finance and cash flow loans. Unsecured financing receivables include private-label credit card financing. A substantial majority of these cards are not for general use and are limited to the products and services sold by the retailer. The private-label portfolio is diverse with no metropolitan area accounting for more than 6% of the related portfolio.

Non-U.S. residential mortgages

For our secured non-U.S. residential mortgage book, we assess the overall credit quality of the portfolio through loan-to-value ratios (the ratio of the outstanding debt on a property to the value of that property at origination). In the event of default and repossession of the underlying collateral, we have the ability to remarket and sell the properties to eliminate or mitigate the potential risk of loss. The table below provides additional information about our non-U.S. residential mortgages based on loan-to-value ratios.

 



















Loan-to-value ratio


2013 



2012 


80% or


Greater than


Greater than


80% or


Greater than


Greater than

December 31 (In millions)

less


80% to 90%


90%


less


80% to 90%


90%



















Non-U.S. residential mortgages

$

 17,224 


$

 5,130 


$

 8,147 


$

 18,568 


$

 5,699 


$

 9,083 

 

The majority of these financing receivables are in our U.K. and France portfolios and have re-indexed loan-to-value ratios of 77% and 56%, respectively. Re-indexed loan-to-value ratios may not reflect actual realizable values of future repossessions. We have third-party mortgage insurance for about 24% of the balance of Consumer non-U.S. residential mortgage loans with loan-to-value ratios greater than 90% at December 31, 2013. Such loans were primarily originated in France and the U.K.

 

Installment and Revolving Credit

For our unsecured lending products, including the non-U.S. and U.S. installment and revolving credit and non-U.S. auto portfolios, we assess overall credit quality using internal and external credit scores. Our internal credit scores imply a probability of default that we consistently translate into three approximate credit bureau equivalent credit score categories, including (a) 671 or higher, which are considered the strongest credits; (b) 626 to 670, which are considered moderate credit risk; and (c) 625 or less, which are considered weaker credits.

 

Internal ratings translated to approximate credit bureau equivalent score


2013 


2012 


671 or


626 to


625 or


671 or


626 to


625 or

December 31 (In millions)

higher


670 


less


higher


670 


less



















Non-U.S. installment and revolving credit

$

 8,310 


$

 2,855 


$

 2,512 


$

10,228 


$

4,267 


$

3,321 

U.S. installment and revolving credit


 36,723 



 11,101 



 8,030 



33,204 



9,753 



7,896 

Non-U.S. auto


 1,395 



 373 



 286 



3,141 



666 



453 

 

Of those financing receivable accounts with credit bureau equivalent scores of 625 or less at December 31, 2013, 97% relate to installment and revolving credit accounts. These smaller-balance accounts have an average outstanding balance less than one thousand U.S. dollars and are primarily concentrated in our retail card and sales finance receivables in the U.S. (which are often subject to profit and loss-sharing arrangements), and closed-end loans outside the U.S., which minimizes the potential for loss in the event of default. For lower credit scores, we adequately price for the incremental risk at origination and monitor credit migration through our risk ratings process. We continuously adjust our credit line underwriting management and collection strategies based on customer behavior and risk profile changes.

 

Consumer - Other

Secured lending in Consumer - Other comprises loans to small and medium-sized enterprises predominantly secured by auto and equipment, inventory finance and cash flow loans. We develop our internal risk ratings for this portfolio in a manner consistent with the process used to develop our Commercial credit quality indicators, described above. We use the borrower's credit quality and underlying collateral strength to determine the potential risk of loss from these activities.

 

At December 31, 2013, Consumer - Other financing receivables of $6,137 million, $315 million and $501 million were rated A, B and C, respectively. At December 31, 2012, Consumer - Other financing receivables of $6,873 million, $451 million and $746 million were rated A, B and C, respectively.


NOTE 7. PROPERTY, PLANT AND EQUIPMENT

 

Depreciable








lives-new







December 31 (Dollars in millions)

(in years)



2013 



2012 










Original cost









   GE









   Land and improvements


8 

(a)

$

707 


$

612 

   Buildings, structures and related equipment


8-40



8,910 



8,361 

   Machinery and equipment


4-20



25,323 



24,090 

   Leasehold costs and manufacturing plant under construction


1-10



3,309 



2,815 






38,249 



35,878 










   GECC(b)





  



  

   Land and improvements, buildings, structures and related equipment


1-35

(a)


2,504 



2,485 

   Equipment leased to others





  



  

      Aircraft


20 



50,337 



49,954 

      Vehicles


1-20



14,656 



15,952 

      Railroad rolling stock


4-50



4,636 



4,180 

      Construction and manufacturing


1-30



2,916 



3,055 

      All other


7-27



3,518 



3,427 






78,567 



79,053 

   Eliminations





(347)



(363)

Total




$

116,469 


$

114,568 










Net carrying value





  



  

   GE





  



  

   Land and improvements




$

671 


$

582 

   Buildings, structures and related equipment





4,205 



4,003 

   Machinery and equipment





9,701 



9,061 

   Leasehold costs and manufacturing plant under construction





2,997 



2,387 






17,574 



16,033 

   GECC(b)





  



  

   Land and improvements, buildings, structures and related equipment





1,025 



999 

   Equipment leased to others









      Aircraft(c)





34,938 



36,231 

      Vehicles





8,312 



8,634 

      Railroad rolling stock





3,129 



2,744 

      Construction and manufacturing





1,955 



2,069 

      All other





2,248 



2,290 






51,607 



52,967 

   Eliminations





(354)



(367)

Total




$

68,827 


$

68,633 




























(a)         Depreciable lives exclude land.

(b)         Included $1,353 million and $1,466 million of original cost of assets leased to GE with accumulated amortization of $342 million and $451 million at December 31, 2013 and 2012, respectively.

(c)         The GECAS business of GE Capital recognized impairment losses of $732 million and $242 million in 2013 and 2012, respectively. These losses are recorded in the caption "Other costs and expenses" in the Statement of Earnings to reflect adjustments to fair value based on an evaluation of average current market values (obtained from third parties) of similar type and age aircraft, which are adjusted for the attributes of the specific aircraft under lease.

 

Consolidated depreciation and amortization related to property, plant and equipment was $9,762 million, $9,192 million and $8,986 million in 2013, 2012 and 2011, respectively. Amortization of GECC equipment leased to others was $6,696 million, $6,097 million and $6,063 million in 2013, 2012 and 2011, respectively.

 

 

Noncancellable future rentals due from customers for equipment on operating leases at December 31, 2013, are as follows:

 

(In millions)






Due in



   2014

$

7,168 

   2015


5,925 

   2016


4,838 

   2017


3,823 

   2018


3,070 

   2019 and later


7,695 

Total

$

32,519 


 

 

NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS

 

December 31 (In millions)

2013 


2012 







Goodwill

$

 77,648 


$

73,114 

 

Other intangible assets - net






   Intangible assets subject to amortization

$

 14,150 


$

11,821 

   Indefinite-lived intangible assets(a)


 160 



159 

Total

$

 14,310 


$

11,980 







 

(a)           Indefinite-lived intangible assets principally comprised in-process research and development, trademarks and tradenames.

 

Upon closing an acquisition, we estimate the fair values of assets and liabilities acquired and consolidate the acquisition as quickly as possible. Given the time it takes to obtain pertinent information to finalize the acquired company's balance sheet, then to adjust the acquired company's accounting policies, procedures, and books and records to our standards, it is often several quarters before we are able to finalize those initial fair value estimates. Accordingly, it is not uncommon for our initial estimates to be subsequently revised.

 

In August 2013, we acquired the aviation business of Avio S.p.A. (Avio) for $4,449 million in cash. We recorded a pre-tax acquisition-related charge of $96 million related to the effective settlement of Avio's pre-existing contractual relationships with GE. Avio is a manufacturer of aviation propulsion components and systems and is included in our Aviation segment. The preliminary purchase price allocation resulted in goodwill of $3,043 million and amortizable intangible assets of $1,830 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.

 

In July 2013, we acquired Lufkin Industries, Inc. (Lufkin) for $3,309 million in cash. Lufkin is a leading provider of artificial lift technologies for the oil and gas industry and a manufacturer of industrial gears and is included in our Oil & Gas segment. The purchase price allocation resulted in goodwill of $2,027 million and amortizable intangible assets of $997 million. The allocation of the purchase price will be finalized upon completion of post-closing procedures.

 

On March 27, 2012, we contributed a portion of our civil avionics systems business to a newly formed joint venture in exchange for 50% of the new entity. This resulted in the deconsolidation of our civil avionics business and the recording of the interest in the new joint venture at fair value. As a result, we recognized a pre-tax gain of $274 million ($152 million after tax) in the first quarter of 2012.

 

On September 2, 2011, we purchased a 90% interest in Converteam for $3,586 million. In connection with the transaction, we entered into an arrangement to purchase the remaining 10% at the two-year anniversary of the acquisition date for 343 million euros (approximately $465 million). This amount was recorded as a liability at the date of acquisition and was paid out in October 2013.

 

 

Changes in goodwill balances follow.

 

2013 


2012 







Dispositions,









Dispositions,








currency








currency




Balance at




exchange


Balance at


Balance at




exchange


Balance at

(In millions)

January 1


Acquisitions


and other


December 31


January 1


Acquisitions


and other


December 31

























Power & Water

$

 8,821 

  

$

 - 

  

$

 1 


$

 8,822 

  

$

 8,769 

  

$

 - 

  

$

 52 


$

8,821 

Oil & Gas


 8,365 



 2,217 



 (66)



 10,516 



 8,233 



 113 



 19 



8,365 

Energy Management


 4,610 



 7 



 131 



 4,748 



 4,621 



 - 



 (11)



4,610 

Aviation


 5,975 

  


 3,043 

  


 85 



 9,103 

  


 5,996 

  


 55 

  


 (76)



5,975 

Healthcare


 16,762 

  

  

 45 

  

  

 (164)


  

 16,643 

  

  

 16,631 

  

  

 221 

  

  

 (90)



16,762 

Transportation


 999 



 - 



 13 



 1,012 



 551 



 445 



 3 



999 

Appliances & Lighting


 611 

  


 - 



 (5)



 606 

  


 594 

  


 11 



 6 



611 

GE Capital


 26,971 

  

  

 17 

  

  

 (793)


  

 26,195 

  

  

 26,902 

  

  

 - 

  

  

 69 



26,971 

Corporate


 - 

  

  

 4 

  

  

 (1)


  

 3 

  

  

 - 

  

  

 - 

  

  

 - 



 - 

Total

$

73,114 


$

5,333 


$

(799)


$

77,648 


$

72,297 


$

845 


$

(28)


$

73,114 

 

 

Goodwill balances increased $4,534 million in 2013, primarily as a result of the acquisitions of Avio ($3,043 million) and Lufkin ($2,027 million), partially offset by dispositions.

 

Goodwill balances increased $817 million in 2012, primarily as a result of the weaker U.S. dollar ($356 million) and acquisitions of Industrea Limited ($282 million) and Railcar Management, Inc. ($136 million) at Transportation.

 

We test goodwill for impairment annually in the third quarter of each year using data as of July 1 of that year. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit's assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. We determined fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation. If multiple valuation methodologies are used, the results are weighted appropriately.

 

Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. A market approach is limited to reporting units for which there are publicly traded companies that have the characteristics similar to our businesses. 

 

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations ranged from 8.0% to 16.5%.

 

During the third quarter of 2013, 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 and no goodwill impairment was recognized.

 

Our Real Estate reporting unit had a goodwill balance of $742 million at December 31, 2013. While the Real Estate reporting unit's book value was within the range of its fair value, we further substantiated our Real Estate goodwill balance by performing the second step analysis in which the implied fair value of goodwill exceeded its carrying value by approximately $3.7 billion. The estimated fair value of the Real Estate reporting unit is based on a number of assumptions about future business performance and investment, including loss estimates for the existing finance receivable and investment portfolio, new debt origination volume and margins, and the recent stabilization of the real estate market allowing for sales of real estate investments at normalized margins. Our assumed discount rate was 11.25% and was derived by applying a capital asset pricing model and corroborated using equity analyst research reports and implied cost of equity based on forecasted price to earnings per share multiples for similar companies. While we have seen stabilization in some markets, given the volatility and uncertainty in the current commercial real estate environment, there is uncertainty about a number of assumptions upon which the estimated fair value is based. Different loss estimates for the existing portfolio, changes in the new debt origination volume and margin assumptions, changes in the expected pace of the commercial real estate market recovery, or changes in the equity return expectation of market participants may result in changes in the estimated fair value of the Real Estate reporting unit.

 

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.

 

Intangible Assets Subject to Amortization













2013 


2012 



Gross









Gross








carrying


Accumulated




carrying


Accumulated



December 31 (In millions)

amount


amortization


Net


amount


amortization


Net



















Customer-related

$

 7,938 


$

 (2,312)


$

 5,626 


$

 6,977 


$

 (2,156)


$

 4,821 

Patents and technology


 6,602 



 (2,621)



 3,981 



 5,432 



 (2,406)



 3,026 

Capitalized software


 8,256 



 (5,252)



 3,004 



 7,514 



 (4,673)



 2,841 

Trademarks


 1,356 



 (295)



 1,061 



 995 



 (239)



 756 

Lease valuations


 703 



 (498)



 205 



 1,163 



 (792)



 371 

Present value of future profits(a)


 574 



 (574)



 - 



 530 



 (530)



 - 

All other


 632 



(359)



273 



375 



(369)



6 

Total

$

 26,061 


$

(11,911)


$

14,150 


$

22,986 


$

(11,165)


$

11,821 





































(a)           Balances at December 31, 2013 and 2012 reflect adjustments of $322 million and $353 million, respectively, to the present value of future profits 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.

 

 

During 2013, we recorded additions to intangible assets subject to amortization of $3,735 million, primarily from the acquisitions of Avio ($1,830 million) and Lufkin ($997 million) as well as the capitalization of new software across several business platforms. The components of finite-lived intangible assets acquired during 2013 and their respective weighted-average amortizable period are: $1,257 million - Customer-related (21.9 years); $1,255 million - Patents and technology (25.5 years); $732 million - Capitalized software (4.6 years); $363 million - Trademarks (28.1 years); $2 million - Lease valuations (5.0 years); and $126 million - All other (22.4 years).

 

Consolidated amortization related to intangible assets was $1,711 million, $1,612 million and $1,744 million for 2013, 2012 and 2011, respectively. We estimate annual pre-tax amortization for intangible assets over the next five calendar years to be as follows: 2014 - $1,588 million; 2015 - $1,473 million; 2016 - $1,336 million; 2017 - $1,185 million; and 2018 - $1,026 million.


NOTE 9. ALL OTHER ASSETS

 

December 31 (In millions)


2013 



2012 







GE






Investments






   Associated companies(a)

$

 3,937 


$

 22,169 

   Other


 626 



 445 



 4,563 



 22,614 

Contract costs and estimated earnings(b)


 12,522 



 11,041 

Long-term receivables, including notes


 993 



 714 

Derivative instruments


 623 



 383 

Other


 5,007 



 4,782 



 23,708 



 39,534 

GECC






Investments






   Associated companies


 17,348 



 19,119 

   Real estate(c)(d)


 16,163 



 25,154 

   Assets held for sale(e)


 2,571 



 4,194 

   Cost method(d)


 1,462 



 1,665 

   Other


 930 



 1,446 



 38,474 



 51,578 

Advances to suppliers


 2,328 



 1,805 

Derivative instruments


 1,117 



 3,557 

Deferred borrowing costs


 867 



 940 

Deferred acquisition costs(f)


 29 



 46 

Other


 4,551 



 4,260 



 47,366 



 62,186 

Eliminations


 (266)



 (76)

Total

$

 70,808 


$

 101,644 













(a)           Included our investment in NBCU LLC of $18,887 million at December 31, 2012. At December 31, 2012, we also had $4,937 million, of deferred tax liabilities related to this investment. See Note 14.

(b)           Contract costs and estimated earnings reflect revenues earned in excess of billings on our long-term contracts to construct technically complex equipment (such as power generation, aircraft engines and aeroderivative units) and long-term product maintenance or extended warranty arrangements. These amounts are presented net of related billings in excess of revenues of $1,842 million and $1,498 million at December 31, 2013 and 2012, respectively.

(c)         GECC investments in real estate consisted principally of two categories: real estate held for investment and equity method investments. Both categories contained a wide range of properties including the following at December 31, 2013: office buildings (52%), apartment buildings (14%), retail facilities (9%), industrial properties (7%), franchise properties (3%) and other (15%). At December 31, 2013, investments were located in the Americas (41%), Europe (35%) and Asia (24%).

(d)         The fair value of and unrealized loss on cost method investments in a continuous loss position for less than 12 months at December 31, 2013, were $17 million and an insignificant amount, respectively. There were no cost method investments in a continuous loss position for 12 months or more at December 31, 2013. The fair value of and unrealized loss on cost method investments in a continuous loss position for less than 12 months at December 31, 2012, were $142 million and $37 million, respectively. The fair value of and unrealized loss on cost method investments in a continuous loss position for 12 months or more at December 31, 2012, were $2 million and an insignificant amount, respectively.

(e)         Assets 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, 2013 and 2012, such assets consisted primarily of loans, aircraft, equipment and real estate properties, and were accounted for at the lower of carrying amount or estimated fair value less costs to sell. These amounts are net of valuation allowances of $127 million and $200 million at December 31, 2013 and 2012, respectively.

(f)            Balances at December 31, 2013 and 2012 reflect adjustments of $700 million and $764 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.


NOTE 10. BORROWINGS AND BANK DEPOSITS

 

Short-term Borrowings



2013 


2012 








Average 





Average 


December 31 (Dollars in millions)




Amount


rate(a) 



Amount


rate(a) 













  


GE











  


Commercial paper



$

 - 


 - 

%

$

352 


 0.28 

%

Payable to banks




346 


 3.38 



23 


 3.02 


Current portion of long-term













   borrowings




70 


 5.65 



5,068 


 5.11 


Other




1,425 





598 




Total GE short-term borrowings




1,841 





6,041 




GECC













Commercial paper













   U.S.




24,877 


 0.18 



33,686 


 0.22 


   Non-U.S.




4,168 


 0.33 



9,370 


 0.92 


Current portion of long-term













   borrowings(b)(c)(d)




39,215 


 2.70 



44,264 


 2.85 


GE Interest Plus notes(e)




8,699 


 1.11 



8,189 


 1.20 


Other(c)




339 





431 




Total GECC short-term borrowings




77,298 





95,940 

















Eliminations




(1,249)





(589)




Total short-term borrowings



$

77,890 




$

101,392 






























Long-term Borrowings



2013 


2012 








Average 





Average 


December 31 (Dollars in millions)

Maturities



Amount


rate(a) 



Amount


rate (a) 















GE













Senior notes

2015-2042


$

10,968 


 3.63 

%

$

10,963 


 3.63 

%

Payable to banks

2015-2023



10 


 1.10 



13 


 1.79 


Other




537 





452 




Total GE long-term borrowings




11,515 





11,428 




GECC













Senior unsecured notes(b)

2015-2054



186,433 


 2.97 



199,646 


 2.95 


Subordinated notes(d)

2021-2037



4,821 


 3.93 



4,965 


 2.92 


Subordinated debentures(f)

2066-2067



7,462 


 5.64 



7,286 


 5.78 


Other(c)




11,563 





12,879 




Total GECC long-term borrowings




210,279 





224,776 

















Eliminations




(129)





(120)




Total long-term borrowings



$

221,665 




$

236,084 











































Non-recourse borrowings of













   consolidated securitization













   entities(g)

2014-2019


$

30,124 


 1.05 

%

$

30,123 


 1.12 

%














Bank deposits(h)



$

53,361 




$

46,200 

















Total borrowings and bank













   deposits



$

383,040 




$

413,799 
































(a)           Based on year-end balances and year-end local currency effective interest rates, including the effects from hedging.

(b)           Included in total long-term borrowings were $481 million and $604 million of obligations to holders of GICs at December 31, 2013 and 2012, respectively. These obligations included conditions under which certain GIC holders could require immediate repayment of their investment should the long-term credit ratings of GECC fall below AA-/Aa3. Following the April 3, 2012 Moody's downgrade of GECC's long-term credit rating to A1, substantially all of these GICs became redeemable by their holders. In 2012, holders of $386 million in principal amount of GICs redeemed their holdings and GECC made related cash payments. The remaining outstanding GICs will continue to be subject to their scheduled maturities and individual terms, which may include provisions permitting redemption upon a downgrade of one or more of GECC's ratings, among other things.

(c)           Included $9,468 million and $9,757 million of funding secured by real estate, aircraft and other collateral at December 31, 2013 and 2012, respectively, of which $2,868 million and $3,294 million is non-recourse to GECC at December 31, 2013 and 2012, respectively.

(d)           Included $300 million of subordinated notes guaranteed by GE at both December 31, 2013 and 2012.

(e)           Entirely variable denomination floating-rate demand notes.   

(f)            Subordinated debentures receive rating agency equity credit and were hedged at issuance to the U.S. dollar equivalent of $7,725 million.  

(g)           Included at December 31, 2013 and 2012 were $9,047 million and $7,707 million of current portion of long-term borrowings, respectively, and $21,077 million and $22,416 million of long-term borrowings, respectively. See Note 23.

(h)           Included $13,614 million and $15,896 million of deposits in non-U.S. banks at December 31, 2013 and 2012, respectively, and $18,275 million and $17,291 million of certificates of deposits with maturities greater than one year at December 31, 2013 and 2012, respectively.

 

On October 9, 2012, GE issued $7,000 million of notes comprising $2,000 million of 0.850% notes due 2015, $3,000 million of 2.700% notes due 2022 and $2,000 million of 4.125% notes due 2042. On February 1, 2013, we repaid $5,000 million of 5.0% GE senior unsecured notes.

 

Additional information about borrowings and associated swaps can be found in Note 22.

 

Liquidity is affected by debt maturities and our ability to repay or refinance such debt. Long-term debt maturities over the next five years follow.

(In millions)


2014 



2015 



2016 



2017 



2018 
















GE

$

70 


$

2,189 


$

138 


$

4,023 


$

22 

GECC


39,215 

(a)


39,672 



31,987 



25,866 



18,183 































(a)         Fixed and floating rate notes of $443 million contain put options with exercise dates in 2014, and which have final maturity beyond 2018.

 

Committed credit lines totaling $47.8 billion had been extended to us by 50 banks at year-end 2013. GECC can borrow up to $47.8 billion under all of these credit lines. GE can borrow up to $13.9 billion under certain of these credit lines. The GECC lines include $26.5 billion of revolving credit agreements under which we can borrow funds for periods exceeding one year. Additionally, $21.3 billion are 364-day lines that contain a term-out feature that allows GE or GECC to extend the borrowings for two years from the date on which such borrowings would otherwise be due.


NOTE 11. INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS

Investment contracts, insurance liabilities and insurance annuity benefits comprise mainly obligations to annuitants and policyholders in our run-off insurance operations and holders of guaranteed investment contracts.

December 31 (In millions)


2013 



2012 







Investment contracts

$

3,144 


$

3,321 

Guaranteed investment contracts


1,471 



1,644 

  Total investment contracts


4,615 



4,965 

Life insurance benefits(a)


18,959 



20,427 

Other(b)


3,405 



3,304 



26,979 



28,696 

Eliminations


(435)



(428)

Total

$

26,544 


$

28,268 













(a)           Life insurance benefits are accounted for mainly by a net-level-premium method using estimated yields generally ranging from 3.0% to 8.5% in both 2013 and 2012.

(b)           Substantially all unpaid claims and claims adjustment expenses and unearned premiums.

 

When insurance affiliates cede insurance risk to third parties, such as reinsurers, they are not relieved of their primary obligation to policyholders. When losses on ceded risks give rise to claims for recovery, we establish allowances for probable losses on such receivables from reinsurers as required. Reinsurance recoverables are included in the caption "Other GECC receivables" on our Statement of Financial Position, and amounted to $1,685 million and $1,542 million at December 31, 2013 and 2012, 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 $250 million, $234 million and $224 million for the years ended December 31, 2013, 2012 and 2011, respectively.


 

 

 NOTE 12. POSTRETIREMENT BENEFIT PLANS

Pension Benefits

We sponsor a number of pension plans. Principal pension plans, together with affiliate and certain other pension plans (other pension plans) detailed in this note, represent about 99% of our total pension assets. We use a December 31 measurement date for our plans.

 

Principal Pension Plans are the GE Pension Plan and the GE Supplementary Pension Plan.

 

The GE Pension Plan provides benefits to certain U.S. employees based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Certain benefit provisions are subject to collective bargaining. Salaried employees who commence service on or after January 1, 2011 and any employee who commences service on or after January 1, 2012 will not be eligible to participate in the GE Pension Plan, but will participate in a defined contribution retirement program.

 

The GE Supplementary Pension Plan is an unfunded plan providing supplementary retirement benefits primarily to higher-level, longer-service U.S. employees.

 

End of Part 2 of 3 - for Part 3 please see announcement 2752B

 


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