Discontinued Operations (Tables)

12 Months Ended

Dec. 31, 2017

Discontinued Operations and Disposal Groups [Abstract]

Condensed Balance Sheet, Statement Of Operations, And Cash Flows From Discontinued Operations

The following condensed balance sheet reflects the Business Air business as of December 31, 2017 and a combination of the Commercial Air and Business Air businesses as of December 31, 2016. The condensed statements of income include Commercial Air up to the sale on April 4, 2017, and Business Air for all periods. The Commercial Air sale price was $10.4 billion, and we recorded a pre-tax gain of $146 million ($106 million after tax), which is included in the Condensed Statement of Income below for the year ended December 31, 2017.

Business Air offered financing and leasing programs for corporate and private owners of business jets. Products included term loans, leases, pre-delivery financing, fractional share financing and vendor / manufacturer financing.

Condensed Balance Sheet — Aerospace Discontinued Operations (dollars in millions)

	December 31, 2017		December 31, 2016
Total cash and deposits	$	—	$	759.0
Net Loans	165.8		1,047.7
Operating lease equipment, net	18.4		9,677.6
Goodwill	—		126.8
Other assets(1)	—		1,161.5
Assets of discontinued operations	$	184.2	$	12,772.6
Secured borrowings	$	—	$	1,204.6
Other liabilities(2)	8.8		1,597.3
Liabilities of discontinued operations	$	8.8	$	2,801.9

⁽¹⁾ Amount includes deposits on commercial aerospace equipment of $1,013.7 million at December 31, 2016.

⁽²⁾ Amount includes commercial aerospace maintenance reserves of $1,084.9 million and security deposits of $167.0 million at December 31, 2016.

Condensed Statement of Income — Aerospace Discontinued Operations (dollars in millions)

	Years Ended December 31,
	2017		2016			2015
Interest income	$	29.3	$	72.8		$	70.2
Interest expense	99.6		369.3			366.5
Provision for credit losses	—		15.6			1.8
Rental income on operating leases	312.5		1,236.8			1,134.4
Other non-interest income(1)	9.0		22.5			56.5
Depreciation on operating lease equipment(2)	—		345.6			411.4
Maintenance and other operating lease expenses	4.2		32.1			45.8
Operating expenses(3)	39.6		101.9			68.2
Loss on debt extinguishment(4)	39.0		8.3			1.1
Income from discontinued operations before provision for income taxes	168.4		459.3			366.3
Provision for income taxes(5)	70.5		914.6			45.9
Gain on sale of discontinued operations, net of taxes	118.6		—			—
Income (loss) from discontinued operations, net of taxes	$	216.5	$	(455.3	)	$	320.4

⁽¹⁾  Other non-interest income includes impairment charges on assets transferred to AHFS of $32 million and $4 million for the years ended 2016 and 2015, respectively.

⁽²⁾  Depreciation on operating lease equipment is suspended when an operating lease asset is placed in Assets Held for Sale. Pre-tax income for 2016 benefited from $106 million of suspended depreciation related to operating lease equipment

⁽³⁾  Operating expenses include salaries and benefits and other operating expenses in prior quarters. Operating expenses included costs related to the commercial air separation initiative for the years ended December 31, 2017 and 2016.

⁽⁴⁾  The Company repaid approximately $1 billion of secured borrowings in the first quarter of 2017 within discontinued operations and recorded a loss of $39 million in relation to the extinguishment of those borrowings.

⁽⁵⁾  Provision for income taxes for the year ended December 31, 2016 includes $847 million net tax expense related to the Company's decision to no longer assert that it would indefinitely reinvest the unremitted earnings of Commercial Air. For the years ended December 31, 2017, 2016 and 2015, the Company's tax rate for discontinued operations was 42%, 199% and 12%, respectively.

The following tables reflect the combined results of discontinued operations. Details of balances are discussed in the prior tables.

Condensed Combined Balance Sheets of Discontinued Operations (dollars in millions)

	December 31, 2017		December 31, 2016
Total cash and deposits	$	7.7	$	764.8
Net Loans	438.6		1,421.7
Operating lease equipment, net	18.4		9,677.6
Goodwill	—		126.8
Other assets	36.6		1,229.8
Assets of discontinued operations	$	501.3	$	13,220.7
Secured borrowings	$	268.2	$	1,571.0
Other liabilities	241.1		2,166.7
Liabilities of discontinued operations	$	509.3	$	3,737.7

Condensed Combined Statements of Income of Discontinued Operations (dollars in millions)

	Years Ended December 31,
	2017			2016			2015
Interest income	$	39.5		$	84.4		$	74.5
Interest expense	109.1			380.0			370.9
Provision for credit losses	—			15.6			1.8
Rental income on operating leases	312.5			1,236.8			1,134.4
Other non-interest income (loss)	(13.9		)	37.9			73.2
Depreciation on operating lease equipment	—			345.6			411.4
Maintenance and other operating lease expenses	4.2			32.1			45.8
Operating expenses	30.0			432.0			101.9
Loss on debt extinguishment	39.0			8.3			1.1
Income from discontinued operations before provision for income taxes	155.8			145.5			349.2
Provision for income taxes	65.6			810.9			39.2
Gain on sale of discontinued operations, net of taxes	118.6			—			—
Income (loss) from discontinued operations, net of taxes	$	208.8		$	(665.4	)	$	310.0

Condensed Combined Statement of Cash Flows of Discontinued Operations (dollars in millions)

	Years Ended December 31,
	2017			2016			2015
Net cash flows (used in) provided by operations	$	(14.6	)	$	(4.3	)	$	960.6
Net cash flows provided by (used in) investing activities	10,925.3			(567.4		)	(721.7		)

The results from discontinued operations for the years ended December 31, 2017, 2016 and 2015, which includes approximately five months of activity, are presented below.

Condensed Statements of Income — Financial Freedom Discontinued Operation (dollars in millions)

	Years Ended December 31,
	2017			2016			2015
Interest income(1)	$	10.2		$	11.6		$	4.3
Interest expense(1)	9.5			10.7			4.4
Other non-interest income (loss)(2)	(22.9		)	15.4			16.7
Operating expenses (benefit)(3)	(9.6		)	330.1			33.7
Loss from discontinued operations before benefit for income taxes	(12.6		)	(313.8		)	(17.1		)
(Benefit) for income taxes(4)	(4.9		)	(103.7		)	(6.7		)
Loss from discontinued operations, net of taxes	$	(7.7	)	$	(210.1	)	$	(10.4	)

⁽¹⁾  Includes amortization for the premium associated with the HECM loans and related secured borrowings.

⁽²⁾  For the year ended December 31, 2017 and December 31, 2016, other non-interest income (loss) included an impairment charge of approximately $50 million and $19 million, respectively, on the mortgage servicing liability.

⁽³⁾  For the year ended December 31, 2017, 2016 and 2015, operating expense is comprised of approximately $19 million, $16 million and $11 million in salaries and benefits, $11 million, $27 million and $6 million in professional and legal services, and $17 million, $22 million and $16 million for other expenses such as data processing, premises and equipment, and miscellaneous charges, respectively. In addition, for the year ended December 31, 2017 operating expenses included a net release of the curtailment reserve of $111 million which is net of a corresponding decrease in the indemnification receivable from the FDIC, partially offset by an increase of $40 million in other servicing-related reserve. For the year ended December 31, 2016, operating expenses included an increase in servicing-related reserve of approximately $260 million net of a corresponding increase in the indemnification receivable from the FDIC.

⁽⁴⁾  For the years ended December 31, 2017, 2016 and 2015 the Company's tax rate for discontinued operations is 39%, 33% and 39%, respectively.

Condensed Statements of Cash Flow — Financial Freedom Discontinued Operation (dollars in millions)

	Years Ended December 31,
	2017			2016			2015
Net cash flows (used) in provided by operations	$	(47.0	)	$	(40.0	)	$	18.5
Net cash flows provided by investing activities	112.6			88.5			27.9

Condensed Statement of Cash Flows — Aerospace Discontinued Operations (dollars in millions)

	Years Ended December 31,
	2017		2016			2015
Net cash flows provided by operations	$	32.4	$	35.7		$	942.1
Net cash flows provided by (used in) investing activities	10,812.7		(655.9		)	(749.6		)

Further, the Company recognized an impairment of its mortgage servicing rights liability of approximately $50 million, included in Other liabilities.

Condensed Balance Sheet — Financial Freedom Discontinued Operation (dollars in millions)

	December 31, 2017		December 31, 2016
Total cash and deposits, all of which is restricted	$	7.7	$	5.8
Net Loans(1)	272.8		374.0
Other assets(2)	36.6		68.3
Assets of discontinued operations	$	317.1	$	448.1
Secured borrowings(1)	$	268.2	$	366.4
Other liabilities(3)	232.3		569.4
Liabilities of discontinued operations	$	500.5	$	935.8

⁽¹⁾  Net finance receivables include $267.2 million and $365.5 million of securitized balances at December 31, 2017 and December 31, 2016, respectively, and $5.6 million and $8.5 million of additional draws awaiting securitization respectively. Secured borrowings relate to those receivables.

⁽²⁾  Amount includes servicing advances, servicer receivables and property and equipment, net of accumulated depreciation. The loans serviced for others total $14.1 billion and $15.6 billion for reverse mortgage loans as of December 31, 2017 and 2016.

⁽³⁾  Other liabilities include $137.8 million and $518.2 million of contingent liabilities, $79.5 million and $28.8 million of reverse mortgage servicing liabilities and $15.0 million and $22.3 million of other accrued liabilities at December 31, 2017 and December 31, 2016, respectively.