GENERAL ELECTRIC CO | 2013 | FY | 3


NOTE 21. FAIR VALUE MEASUREMENTS

For a description of how we estimate fair value, see Note 1.

 

The following tables present our assets and liabilities measured at fair value on a recurring basis. Included in the tables are investment securities primarily supporting obligations to annuitants and policyholders in our run-off insurance operations and supporting obligations to holders of GICs in Trinity and investment securities held in our CLL business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries.

       Netting  
(In millions)Level 1(a)Level 2(a)Level 3 adjustment(b)Net balance
               
December 31, 2013              
Assets              
Investment securities              
   Debt              
      U.S. corporate$ - $ 18,788 $ 2,953 $ - $ 21,741
      State and municipal  -   4,193   96   -   4,289
      Residential mortgage-backed  -   1,824   86   -   1,910
      Commercial mortgage-backed  -   3,025   10   -   3,035
      Asset-backed(c)  -   489   6,898   -   7,387
      Corporate – non-U.S.  61   645   1,064   -   1,770
      Government – non-U.S.  1,590   789   31   -   2,410
       U.S. government and federal              
         agency  -   545   225   -   770
   Retained interests  -   -   72   -   72
   Equity              
      Available-for-sale  475   31   11   -   517
      Trading  78   2   -   -   80
Derivatives(d)  -   8,304   175   (6,739)   1,740
Other(e)  -   -   494   -   494
Total $ 2,204 $ 38,635 $ 12,115 $ (6,739) $ 46,215
               
Liabilities              
Derivatives$ - $ 5,409 $ 20 $ (4,355) $ 1,074
Other(f)  -   1,170   -   -   1,170
Total $ - $ 6,579 $ 20 $ (4,355) $ 2,244
               
December 31, 2012              
Assets              
Investment securities              
   Debt              
      U.S. corporate$ - $ 20,580 $ 3,591 $ - $ 24,171
      State and municipal  -   4,469   77   -   4,546
      Residential mortgage-backed  -   2,162   100   -   2,262
      Commercial mortgage-backed  -   3,088   6   -   3,094
      Asset-backed(c)  -   715   5,023   -   5,738
      Corporate – non-U.S.  71   1,132   1,218   -   2,421
      Government – non-U.S.  702   1,019   42   -   1,763
      U.S. government and federal              
         agency  -   3,288   277   -   3,565
   Retained interests  -   -   83   -   83
   Equity              
      Available-for-sale  590   16   13   -   619
      Trading  248   -   -   -   248
Derivatives(d)  -   11,432   434   (7,926)   3,940
Other(e)  35   -   799   -   834
Total $ 1,646 $ 47,901 $ 11,663 $ (7,926) $ 53,284
               
Liabilities              
Derivatives$ - $ 3,434 $ 20 $ (3,177) $ 277
Other(f)  -   908   -   -   908
Total $ - $ 4,342 $ 20 $ (3,177) $ 1,185
               
               

(a)       The fair value of securities transferred between Level 1 and Level 2 was $2 million during 2013.

(b)       The netting of derivative receivables and payables (including the effects of any collateral posted or received) is permitted when a legally enforceable master netting agreement exists.

(c)       Includes investments in our CLL business in asset-backed securities collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries.

(d)       The fair value of derivatives included an adjustment for non-performance risk. The cumulative adjustment was a gain (loss) of $(7) million and $(15) million at December 31, 2013 and 2012, respectively. See Note 22 for additional information on the composition of our derivative portfolio.

(e)       Included private equity investments and loans designated under the fair value option.

(f)       Primarily represented the liability associated with certain of our deferred incentive compensation plans.

 

 

The following tables present the changes in Level 3 instruments measured on a recurring basis for the years ended December 31, 2013 and 2012, respectively. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowners' equity.

Changes in Level 3 Instruments for the Year Ended December 31, 2013 
                    Net 
(In millions)                    change in 
     Net realized/               unrealized 
    Net unrealized                    gains 
   realized/ gains (losses)               (losses) 
   unrealized included in               relating to 
 Balance gains accumulated            Balance  instruments 
 at (losses) other       Transfers Transfers at  still held at 
 January 1, included comprehensive        into out of December 31,  December 31, 
 2013 in earnings(a)income Purchases Sales Settlements Level 3(b)Level 3(b)2013  2013(c)
                                
Investment securities                                  
 Debt                               
U.S. corporate$ 3,591 $ (497) $ 135 $ 380 $ (424) $ (231) $ 108 $ (109) $ 2,953  $ - 
    State and municipal  77   -   (7)   21   -   (5)   10   -   96    - 
    Residential                                
       mortgage-backed  100   -   (5)   -   (2)   (7)   -   -   86    - 
    Commercial                               
       mortgage-backed  6   -   -   -   -   (6)   10   -   10    - 
    Asset-backed  5,023   5   32   2,632   (4)   (795)   12   (7)   6,898    - 
    Corporate – non-U.S.  1,218   (103)   49   5,814   (3)   (5,874)   21   (58)   1,064    - 
    Government                               
      – non-U.S.  42   1   (12)   -   -   -   -   -   31    - 
    U.S. government and                               
     federal agency  277   -   (52)   -   -   -   -   -   225    - 
  Retained interests  83   3   1   6   -   (21)   -   -   72    - 
  Equity                               
    Available-for-sale  13   -   -   -   -   -   -   (2)   11    - 
    Trading  -   -   -   -   -   -   -   -   -    - 
Derivatives(d)(e)  416   (66)   2   (2)   -   (226)   37   3   164    (30) 
Other   799   (68)   12   538   (779)   -   4   (12)   494    (102) 
Total $ 11,645 $ (725) $ 155 $ 9,389 $ (1,212) $ (7,165) $ 202 $ (185) $ 12,104  $ (132) 
                                
                                

(a)       Earnings effects are primarily included in the “GECC revenues from services” and “Interest and other financial charges” captions in the Statement of Earnings.

(b)       Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.

(c)       Represented the amount of unrealized gains or losses for the period included in earnings.

(d)       Represented derivative assets net of derivative liabilities and included cash accruals of $9 million not reflected in the fair value hierarchy table.

(e)       Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 22.

Changes in Level 3 Instruments for the Year Ended December 31, 2012 
                    Net 
(In millions)                    change in 
     Net realized/               unrealized 
    Net unrealized                    gains 
   realized/ gains (losses)               (losses) 
   unrealized included in               relating to 
 Balance gains accumulated            Balance  instruments 
 at (losses) other       Transfers Transfers at  still held at 
 January 1, included comprehensive        into out of December 31,  December 31, 
 2012 in earnings(a)income Purchases Sales Settlements Level 3(b)Level 3(b)2012  2012(c)
                                
Investment securities                                  
 Debt                               
    U.S. corporate$ 3,235 $ 66 $ 32 $ 483 $ (214) $ (110) $ 299 $ (200) $ 3,591  $ - 
    State and municipal  77   -   10   16   -   (1)   78   (103)   77    - 
    Residential                                
       mortgage-backed  41   (3)   1   6   -   (3)   135   (77)   100    - 
    Commercial                               
       mortgage-backed  4   -   (1)   -   -   -   6   (3)   6    - 
    Asset-backed  4,040   1   (25)   1,490   (502)   -   25   (6)   5,023    - 
    Corporate – non-U.S.  1,204   (11)   19   341   (51)   (172)   24   (136)   1,218    - 
    Government                               
       – non-U.S.  84   (33)   38   65   (72)   (40)   -   -   42    - 
    U.S. government and                               
      federal agency  253   -   24   -   -   -   -   -   277    - 
  Retained interests  35   (1)   (3)   16   (6)   (12)   54   -   83    - 
  Equity                               
    Available-for-sale  17   -   (1)   3   (3)   (1)   2   (4)   13    - 
    Trading  -   -   -   -   -   -   -   -   -    - 
Derivatives(d)(e)  369   29   (1)   (1)   -   (112)   190   (58)   416    160 
Other   817   50   2   159   (137)   -   -   (92)   799    43 
Total $ 10,176 $ 98 $ 95 $ 2,578 $ (985) $ (451) $ 813 $ (679) $ 11,645  $ 203 
                                
                                

(a)       Earnings effects are primarily included in the “GECC revenues from services” and “Interest and other financial charges” captions in the Statement of Earnings.

(b)       Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.

(c)       Represented the amount of unrealized gains or losses for the period included in earnings.

(d)       Represented derivative assets net of derivative liabilities and included cash accruals of $2 million not reflected in the fair value hierarchy table.

(e)       Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 22.

 

Non-Recurring Fair Value Measurements

The following table represents non-recurring fair value amounts (as measured at the time of the adjustment) for those assets remeasured to fair value on a non-recurring basis during the fiscal year and still held at December 31, 2013 and 2012. 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.

 

 Remeasured during the year ended December 31
 2013 2012
(In millions)Level 2 Level 3 Level 2 Level 3
            
Financing receivables and loans held for sale$ 210 $ 2,986 $ 366 $ 4,094
Cost and equity method investments(a)  -   690   8   313
Long-lived assets, including real estate  2,050   1,088   702   2,182
Total$ 2,260 $ 4,764 $ 1,076 $ 6,589
            
            

(a)       Includes the fair value of private equity and real estate funds included in Level 3 of $126 million and $84 million at December 31, 2013 and 2012, respectively.

 

 

The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at December 31, 2013 and 2012.

 Year ended December 31
(In millions) 2013  2012
      
Financing receivables and loans held for sale$(361) $(595)
Cost and equity method investments(a) (484)  (153)
Long-lived assets, including real estate(b) (1,188)  (624)
Total$(2,033) $(1,372)
      
      

(a)       Includes fair value adjustments associated with private equity and real estate funds of $(14) million and $(33) million during 2013 and 2012, respectively.

(b)       Includes impairments related to real estate equity properties and investments recorded in other costs and expenses of $108 million and $218 million during 2013 and 2012, respectively.

 

 

Level 3 Measurements

 

The following table presents information relating to the significant unobservable inputs of our Level 3 recurring and non-recurring measurements.

 

   Valuation Unobservable Range (weighted
(Dollars in millions)Fair value technique inputs average)
         
December 31, 2013        
         
Recurring fair value measurements         
         
Investment securities        
Debt        
         
U.S. corporate$898 Income approach Discount rate(a) 1.5%-13.3% (6.5%)
         
Asset-backed 6,854 Income approach Discount rate(a) 1.2%-10.5% (3.7%)
         
Corporate – non-U.S. 819 Income approach Discount rate(a) 1.4%-46.0% (15.1%)
         
Other financial assets 381 Income approach, Market comparables Weighted average cost of capital 9.3%-9.3% (9.3%)
         
      EBITDA multiple 5.4X-12.5X (9.5X)
         
      Discount rate(a) 5.2%-8.8% (5.3%)
         
      Capitalization rate(b) 6.3%-7.5% (7.2%)
         
Non-recurring fair value measurements        
         
Financing receivables and loans held for sale$1,937 Income approach, Business enterprise value Capitalization rate(b) 5.5%-16.7% (8.0%)
       
    EBITDA multiple 4.3X-5.5X (4.8X)
       
    Discount rate(a) 6.6%-6.6% (6.6%)
         
Cost and equity method investments 102 Income approach, Market comparables Discount rate(a) 5.7%-5.9% (5.8%)
        
     Capitalization rate(b) 8.5%-10.6% (10.0%)
        
     Weighted average cost of capital 9.3%-9.6% (9.4%)
         
      EBITDA multiple 7.1X-14.5X (11.3X)
         
      Revenue multiple 2.2X-12.6X (9.4X)
         
Long-lived assets, including real estate 694 Income approach Capitalization rate(b) 5.4%-14.5% (7.8%)
         
      Discount rate(a) 4.0%-23.0% (9.0%)
         
December 31, 2012       
         
Recurring fair value measurements         
         
Investment securities        
Debt        
U.S. corporate$1,652 Income approach Discount rate(a) 1.3%-29.9% (11.1%)
         
Asset-backed 4,977 Income approach Discount rate(a) 2.1%-13.1% (3.8%)
         
Corporate – non-U.S. 865 Income approach Discount rate(a) 1.5%-25.0% (13.2%)
         
Other financial assets 633 Income approach, Market comparables Weighted average cost of capital 8.7%-10.2% (8.7%)
       
    EBITDA multiple 4.9X-10.6X (7.9X)
         
Non-recurring fair value measurements        
         
Financing receivables and loans held for sale$2,835 Income approach, Business enterprise value Capitalization rate(b) 3.8%-14.0% (8.0%)
       
    EBITDA multiple 2.0X-6.0X (4.8X)
         
Cost and equity method investments 72 Income approach Capitalization rate(b) 9.2%-12.8% (12.0%)
         
Long-lived assets, including real estate 985 Income approach Capitalization rate(b) 4.8%-14.6% (7.3%)
         
         

 

At December 31, 2013 and December 31, 2012, other Level 3 recurring fair value measurements of $2,816 million and $3,146 million, respectively, and non-recurring measurements of $1,460 million and $2,412 million, respectively, are valued using non-binding broker quotes or other third-party sources. For a description of our process to evaluate third-party pricing servicers, see Note 1. At December 31, 2013 and December 31, 2012, other recurring fair value measurements of $327 million and $370 million, respectively, and non-recurring fair value measurements of $571 million and $285 million, respectively, were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation.


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