10-Q 1 geform10q2q14.htm GE FORM 10Q 2Q 2014 geform10q2q14.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q
                                (Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2014
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 001-00035
 
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

 
New York
 
14-0689340
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
3135 Easton Turnpike, Fairfield, CT
 
06828-0001
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant’s telephone number, including area code) (203) 373-2211
 
_______________________________________________
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
Accelerated filer ¨
   
Non-accelerated filer ¨
Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
 
There were 10,033,903,754 shares of common stock with a par value of $0.06 per share outstanding at June 30, 2014.


 
(1)
 
 
 
General Electric Company
 
   
Page
PART I - FINANCIAL INFORMATION
   
Item 1.   Financial Statements
   
Condensed Statement of Earnings
 
4
Condensed, Consolidated Statement of Comprehensive Income
 
6
Condensed, Consolidated Statement of Changes in Shareowners’ Equity
 
6
Condensed Statement of Financial Position
 
7
Condensed Statement of Cash Flows
 
8
Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
9
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
51
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
 
77
Item 4.   Controls and Procedures
 
77
     
PART II - OTHER INFORMATION
   
Item 1.    Legal Proceedings
Item 2.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 6.    Exhibits
     Signatures
 
78
79
80
81
 

 

 
(2)
 
 
 
FORWARD-LOOKING STATEMENTS 


This document contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” or “target.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets; potential market disruptions or other impacts arising in the United States or Europe from developments in sovereign debt situations; the impact of conditions in the financial and credit markets on the availability and cost of General Electric Capital Corporation’s (GECC) funding and on our ability to reduce GECC’s asset levels as planned; the impact of conditions in the housing market and unemployment rates on the level of commercial and consumer credit defaults; pending and future mortgage securitization claims and litigation in connection with WMC, which may affect our estimates of liability, including possible loss estimates; our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; the adequacy of our cash flows and earnings and other conditions which may affect our ability to pay our quarterly dividend at the planned level or to repurchase shares at planned levels; GECC’s ability to pay dividends to GE at the planned level, which may be affected by GECC's cash flows and earnings, financial services regulation and oversight, and other factors; our ability to convert pre-order commitments/wins into orders; the price we realize on orders since commitments/wins are stated at list prices; the level of demand and financial performance of the major industries we serve, including, without limitation, air and rail transportation, power generation, oil and gas production, real estate and healthcare; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of financial services regulation; our capital allocation plans, as such plans may change including with respect to the timing and size of share repurchases, acquisitions, joint ventures, dispositions and other strategic actions; our success in completing announced transactions and integrating acquired businesses; adverse market conditions, timing of and ability to obtain required bank regulatory approvals, or other factors relating to us or Synchrony Financial could prevent us from completing the Synchrony IPO and split-off as planned; our ability to complete the proposed transactions and alliances with Alstom and realize anticipated earnings and savings; the impact of potential information technology or data security breaches; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.

This document includes certain forward-looking projected financial information that is based on current estimates and forecasts. Actual results could differ materially.

 
CORPORATE INFORMATION


GE’s Investor Relations website at www.ge.com/investor and our corporate blog at www.gereports.com, as well as GE’s Facebook page and Twitter accounts, contain a significant amount of information about GE, including financial and other information for investors. GE encourages investors to visit these websites from time to time, as information is updated and new information is posted.
 
 
 
(3)
 
 
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS.

 
General Electric Company and consolidated affiliates
Condensed Statement of Earnings
(Unaudited)
 
 
Three months ended June 30
 
Consolidated
   
GE(a)
 
Financial Services (GECC)
(In millions, except share amounts)
2014 
 
2013 
   
2014 
 
2013 
 
2014 
 
2013 
                                     
Revenues and other income
                                   
Sales of goods
$
 18,229 
 
$
 17,261 
   
$
 18,265 
 
$
 17,299 
 
$
 34 
 
$
 31 
Sales of services
 
 7,869 
   
 7,241 
     
 7,961 
   
 7,324 
   
 – 
   
 – 
Other income
 
 338 
   
 104 
     
 292 
   
 2 
   
 – 
   
 – 
GECC earnings from continuing operations
 
 – 
   
 – 
     
 1,864 
   
 1,924 
   
 – 
   
 – 
GECC revenues from services  (Note 12)
 
 9,797 
   
 10,453 
     
 – 
   
 – 
   
 10,213 
   
 10,885 
   Total revenues and other income
 
 36,233 
   
 35,059 
     
 28,382 
   
 26,549 
   
 10,247 
   
 10,916 
                                     
Costs and expenses
                                   
Cost of goods sold
 
 14,655 
   
 13,867 
     
 14,693 
   
 13,910 
   
 31 
   
 25 
Cost of services sold
 
 5,351 
   
 4,624 
     
 5,443 
   
 4,707 
   
 – 
   
 – 
Interest and other financial charges
 
 2,345 
   
 2,600 
     
 400 
   
 326 
   
 2,071 
   
 2,388 
Investment contracts, insurance losses and
                                   
   insurance annuity benefits
 
 658 
   
 687 
     
 – 
   
 – 
   
 698 
   
 728 
Provision for losses on financing receivables
 
 968 
   
 1,010 
     
 – 
   
 – 
   
 968 
   
 1,010 
Other costs and expenses
 
 8,477 
   
 8,538 
     
 3,861 
   
 3,903 
   
 4,821 
   
 4,811 
   Total costs and expenses
 
 32,454 
   
 31,326 
     
 24,397 
   
 22,846 
   
 8,589 
   
 8,962 
                                     
Earnings from continuing operations
                                   
   before income taxes
 
 3,779 
   
 3,733 
     
 3,985 
   
 3,703 
   
 1,658 
   
 1,954 
Benefit (provision) for income taxes
 
 (193)
   
 (310)
     
 (409)
   
 (297)
   
 216 
   
 (13)
Earnings from continuing operations
 
 3,586 
   
 3,423 
     
 3,576 
   
 3,406 
   
 1,874 
   
 1,941 
Earnings (loss) from discontinued operations,
                                   
   net of taxes
 
 (41)
   
 (124)
     
 (41)
   
 (124)
   
 (36)
   
 (123)
Net earnings
 
 3,545 
   
 3,299 
     
 3,535 
   
 3,282 
   
 1,838 
   
 1,818 
Less net earnings (loss) attributable
                                   
   to noncontrolling interests
 
 – 
   
 166 
     
 (10)
   
 149 
   
 10 
   
 17 
Net earnings attributable to the Company
 
 3,545 
   
 3,133 
     
 3,545 
   
 3,133 
   
 1,828 
   
 1,801 
Preferred stock dividends declared
 
 – 
   
 – 
     
 – 
   
 – 
   
 (161)
   
 (135)
Net earnings attributable to GE common
                                   
   shareowners
$
 3,545 
 
$
 3,133 
   
$
 3,545 
 
$
 3,133 
 
$
 1,667 
 
$
 1,666 
                                     
                                     
Amounts attributable to GE common shareowners:
                                   
   Earnings from continuing operations
$
 3,586 
   
 3,423 
     
 3,576 
   
 3,406 
   
 1,874 
   
 1,941 
   Less net earnings (loss) attributable
      to noncontrolling interests
 
 – 
   
 166 
     
 (10)
   
 149 
   
 10 
   
 17 
   Earnings from continuing operations attributable
                                   
      to the Company
 
 3,586 
   
 3,257 
     
 3,586 
   
 3,257 
   
 1,864 
   
 1,924 
   GECC preferred stock dividends declared
 
 – 
   
 – 
     
 – 
   
 – 
   
 (161)
   
 (135)
   Earnings from continuing operations attributable
                                   
      to GE common shareowners
 
 3,586 
   
 3,257 
     
 3,586 
   
 3,257 
   
 1,703 
   
 1,789 
   Earnings (loss) from discontinued operations,
                                   
      net of taxes
 
 (41)
   
 (124)
     
 (41)
   
 (124)
   
 (36)
   
 (123)
Net earnings attributable to GE common shareowners
$
 3,545 
 
$
 3,133 
   
$
 3,545 
 
$
 3,133 
 
$
 1,667 
 
$
 1,666 
                                     
Per-share amounts
                                   
   Earnings from continuing operations
                                   
      Diluted earnings per share
$
 0.35 
 
$
 0.31 
                         
      Basic earnings per share
$
 0.36 
 
$
 0.32 
                         
                                     
   Net earnings
                                   
      Diluted earnings per share
$
 0.35 
 
$
 0.30 
                         
      Basic earnings per share
$
 0.35 
 
$
 0.30 
                         
                                     
Dividends declared per common share
$
 0.22 
 
$
 0.19 
                         
                                     
(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 3 for other-than-temporary impairment amounts.
 
 
See accompanying notes. Separate information is shown for "GE" and "Financial Services (GECC)." Transactions between GE and GECC have been eliminated from the "Consolidated" columns.
 
 
(4)
 
 
General Electric Company and consolidated affiliates
Condensed Statement of Earnings
(Unaudited)
 
Six months ended June 30
 
Consolidated
   
GE(a)
 
Financial Services (GECC)
(In millions, except share amounts)
2014 
 
2013 
   
2014 
 
2013 
 
2014 
 
2013 
                                     
Revenues and other income
                                   
Sales of goods
$
 35,170 
 
$
 32,935 
   
$
 35,253 
 
$
 32,976 
 
$
 61 
 
$
 57 
Sales of services
 
 14,778 
   
 13,754 
     
 14,984 
   
 13,950 
   
 – 
   
 – 
Other income
 
 534 
   
 1,719 
     
 453 
   
 1,622 
   
 – 
   
 – 
GECC earnings from continuing operations
 
 – 
   
 – 
     
 3,797 
   
 3,862 
   
 – 
   
 – 
GECC revenues from services (Note 12)
 
 19,929 
   
 21,594 
     
 – 
   
 – 
   
 20,701 
   
 22,327 
   Total revenues and other income
 
 70,411 
   
 70,002 
     
 54,487 
   
 52,410 
   
 20,762 
   
 22,384 
                                     
Costs and expenses
                                   
Cost of goods sold
 
 28,368 
   
 26,733 
     
 28,455 
   
 26,784 
   
 56 
   
 46 
Cost of services sold
 
 10,160 
   
 9,073 
     
 10,366 
   
 9,269 
   
 – 
   
 – 
Interest and other financial charges
 
 4,759 
   
 5,203 
     
 765 
   
 650 
   
 4,232 
   
 4,770 
Investment contracts, insurance losses and
                                   
   insurance annuity benefits
 
 1,278 
   
 1,350 
     
 – 
   
 – 
   
 1,341 
   
 1,417 
Provision for losses on financing receivables
 
 1,938 
   
 2,467 
     
 – 
   
 – 
   
 1,938 
   
 2,467 
Other costs and expenses
 
 16,673 
   
 17,304 
     
 7,669 
   
 7,960 
   
 9,395 
   
 9,697 
   Total costs and expenses
 
 63,176 
   
 62,130 
     
 47,255 
   
 44,663 
   
 16,962 
   
 18,397 
                                     
Earnings from continuing operations
                                   
   before income taxes
 
 7,235 
   
 7,872 
     
 7,232 
   
 7,747 
   
 3,800 
   
 3,987 
Benefit (provision) for income taxes
 
 (709)
   
 (818)
     
 (727)
   
 (721)
   
 18 
   
 (97)
Earnings from continuing operations
 
 6,526 
   
 7,054 
     
 6,505 
   
 7,026 
   
 3,818 
   
 3,890 
Earnings (loss) from discontinued operations,
                                   
   net of taxes
 
 (29)
   
 (244)
     
 (29)
   
 (244)
   
 (24)
   
 (243)
Net earnings
 
 6,497 
   
 6,810 
     
 6,476 
   
 6,782 
   
 3,794 
   
 3,647 
Less net earnings (loss) attributable
                                   
   to noncontrolling interests
 
 (47)
   
 150 
     
 (68)
   
 122 
   
 21 
   
 28 
Net earnings attributable to the Company
$
 6,544 
 
$
 6,660 
   
$
 6,544 
 
$
 6,660 
 
$
 3,773 
 
$
 3,619 
Preferred stock dividends declared
 
 – 
   
 – 
     
 – 
   
 – 
   
 (161)
   
 (135)
Net earnings attributable to GE common
                                   
   shareowners
$
 6,544 
 
$
 6,660 
   
$
 6,544 
 
$
 6,660 
 
$
 3,612 
 
$
 3,484 
                                     
Amounts attributable to GE common shareowners:
                                   
   Earnings from continuing operations
$
 6,526 
 
$
 7,054 
   
$
 6,505 
 
$
 7,026 
 
$
 3,818 
 
$
 3,890 
   Less net earnings (loss) attributable
      to noncontrolling interests
 
 (47)
   
 150 
     
 (68)
   
 122 
   
 21 
   
 28 
   Earnings from continuing operations attributable
                                   
      to the Company
 
 6,573 
   
 6,904 
     
 6,573 
   
 6,904 
   
 3,797 
   
 3,862 
   GECC preferred stock dividends declared
 
 – 
   
 – 
     
 – 
   
 – 
   
 (161)
   
 (135)
   Earnings from continuing operations attributable
                                   
      to GE common shareowners
 
 6,573 
   
 6,904 
     
 6,573 
   
 6,904 
   
 3,636 
   
 3,727 
   Earnings (loss) from discontinued operations,
                                   
      net of taxes
 
 (29)
   
 (244)
     
 (29)
   
 (244)
   
 (24)
   
 (243)
Net earnings attributable to GE common shareowners
$
 6,544 
 
$
 6,660 
   
$
 6,544 
 
$
 6,660 
 
$
 3,612 
 
$
 3,484 
                                     
Per-share amounts
                                   
   Earnings from continuing operations
                                   
      Diluted earnings per share
$
0.65 
 
$
0.66 
                         
      Basic earnings per share
$
0.65 
 
$
0.67 
                         
                                     
   Net earnings
                                   
      Diluted earnings per share
$
0.65 
 
$
0.64 
                         
      Basic earnings per share
$
0.65 
 
$
0.65 
                         
                                     
Dividends declared per common share
$
0.44 
 
$
0.38 
                         

(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 3 for other-than-temporary impairment amounts.
 
See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECC).” Transactions between GE and GECC have been eliminated from the “Consolidated” columns.
 
 
(5)
 
 


General Electric Company and consolidated affiliates
           
Condensed, Consolidated Statement of Comprehensive Income
         
(Unaudited)
                         
                           
   
Three months ended June 30
 
Six months ended June 30
 
(In millions)
   
2014 
   
2013 
   
2014 
   
2013 
 
                           
Net earnings
 
$
 3,545 
 
$
 3,299 
 
$
 6,497 
 
$
 6,810 
 
Less net earnings (loss) attributable to
                         
   noncontrolling interests 
   
 - 
   
 166 
   
 (47)
   
 150 
 
Net earnings attributable to the Company
 
$
 3,545 
 
$
 3,133 
 
$
 6,544 
 
$
 6,660 
 
                           
Other comprehensive income (loss)
                         
   Investment securities
 
$
 277 
 
$
 (600)
 
$
 734 
 
$
 (532)
 
   Currency translation adjustments
   
 (108)
   
 373 
   
 (59)
   
 (86)
 
   Cash flow hedges
   
 13 
   
 191 
   
 81 
   
 293 
 
   Benefit plans
   
 518 
   
 1,208 
   
 1,213 
   
 2,061 
 
Other comprehensive income (loss)
   
 700 
   
 1,172 
   
 1,969 
   
 1,736 
 
Less other comprehensive income (loss) attributable to
                         
   noncontrolling interests
   
 9 
   
 (29)
   
 7 
   
 (31)
 
Other comprehensive income (loss) attributable to
   the Company
 
$
 691 
 
$
 1,201 
 
$
 1,962 
 
$
 1,767 
 
                           
Comprehensive income
 
$
 4,245 
 
$
 4,471 
 
$
 8,466 
 
$
 8,546 
 
Less comprehensive income (loss) attributable to
                         
   noncontrolling interests
   
 9 
   
 137 
   
 (40)
   
 119 
 
Comprehensive income attributable to the Company
 
$
 4,236 
 
$
 4,334 
 
$
 8,506 
 
$
 8,427 
 
                           
Amounts presented net of taxes. See Note 11 for further information about other comprehensive income and noncontrolling interests.
 
See accompanying notes.
 



General Electric Company and consolidated affiliates
           
Condensed, Consolidated Statement of Changes in Shareowners' Equity
         
(Unaudited)
                   
                     
     
Six months ended June 30
(In millions)
           
2014 
   
2013 
                 
GE shareowners' equity balance at January 1
         
$
 130,566 
 
$
 123,026 
Increases from net earnings attributable to the Company
           
 6,544 
   
 6,660 
Dividends and other transactions with shareowners
           
 (4,421)
   
 (3,915)
Other comprehensive income (loss) attributable to the Company
           
 1,962 
   
 1,767 
Net sales (purchases) of shares for treasury
           
 (673)
   
 (4,931)
Changes in other capital
           
 35 
   
 (98)
Ending balance at June 30
           
 134,013 
   
 122,509 
Noncontrolling interests
           
 6,054 
   
 6,302 
Total equity balance at June 30
         
$
 140,067 
 
$
 128,811 
                     
See Note 11 for further information about changes in shareowners’ equity.

See accompanying notes.
 
 
(6)
 
 
General Electric Company and consolidated affiliates
Condensed Statement of Financial Position
 
Consolidated
   
GE(a)
 
Financial Services (GECC)
 
June 30,
 
December 31,
   
June 30,
 
December 31,
 
June 30,
 
December 31,
(In millions, except share amounts)
2014 
 
2013 
   
2014 
 
2013 
 
2014 
 
2013 
 
(Unaudited)
       
(Unaudited)
     
(Unaudited)
   
Assets
                                   
Cash and equivalents
$
 86,570 
 
$
 88,555 
   
$
 10,235 
 
$
 13,682 
 
$
 76,335 
 
$
 74,873 
Investment securities (Note 3)
 
 46,754 
   
 43,981 
     
 258 
   
 323 
   
 46,500 
   
 43,662 
Current receivables
 
 21,432 
   
 21,388 
     
 11,332 
   
 10,970 
   
 - 
   
 - 
Inventories (Note 4)
 
 19,706 
   
 17,325 
     
 19,644 
   
 17,257 
   
 62 
   
 68 
Financing receivables – net (Note 5 and 18)
 
 231,084 
   
 241,940 
     
 - 
   
 - 
   
 241,696 
   
 253,029 
Other GECC receivables
 
 9,208 
   
 9,114 
     
 - 
   
 - 
   
 16,102 
   
 16,513 
Property, plant and equipment – net (Note 6)
 
 67,900 
   
 68,827 
     
 17,559 
   
 17,574 
   
 50,704 
   
 51,607 
Investment in GECC
 
 - 
   
 - 
     
 80,848 
   
 77,745 
   
 - 
   
 - 
Goodwill (Note 7)
 
 79,017 
   
 77,648 
     
 52,970 
   
 51,453 
   
 26,047 
   
 26,195 
Other intangible assets – net (Note 7)
 
 14,798 
   
 14,310 
     
 13,518 
   
 13,180 
   
 1,285 
   
 1,136 
All other assets
 
 70,627 
   
 70,808 
     
 25,057 
   
 23,708 
   
 46,073 
   
 47,366 
Assets of businesses held for sale (Note 2)
 
 3,294 
   
 50 
     
 - 
   
 - 
   
 3,294 
   
 50 
Assets of discontinued operations (Note 2)
 
 1,479 
   
 2,339 
     
 9 
   
 9 
   
 1,470 
   
 2,330 
Total assets(b)
$
 651,869 
 
$
 656,285 
   
$
 231,430 
 
$
 225,901 
 
$
 509,568 
 
$
 516,829 
                                     
Liabilities and equity
                                   
Short-term borrowings (Note 8)
$
 73,531 
 
$
 77,890 
   
$
 1,971 
 
$
 1,841 
 
$
 72,275 
 
$
 77,298 
Accounts payable, principally trade accounts
 
 17,561 
   
 16,471 
     
 16,334 
   
 16,353 
   
 7,669 
   
 6,549 
Progress collections and price adjustments accrued
 
 12,616 
   
 13,125 
     
 12,630 
   
 13,152 
   
 - 
   
 - 
Dividends payable
 
 2,208 
   
 2,220 
     
 2,208 
   
 2,220 
   
 - 
   
 - 
Other GE current liabilities
 
 12,626 
   
 13,381 
     
 12,625 
   
 13,381 
   
 - 
   
 - 
Non-recourse borrowings of consolidated
                                   
   securitization entities (Note 8)
 
 30,201 
   
 30,124 
     
 - 
   
 - 
   
 30,201 
   
 30,124 
Bank deposits (Note 8)
 
 58,140 
   
 53,361 
     
 - 
   
 - 
   
 58,140 
   
 53,361 
Long-term borrowings (Note 8)
 
 216,845 
   
 221,665 
     
 14,581 
   
 11,515 
   
 202,366 
   
 210,279 
Investment contracts, insurance liabilities
                                   
   and insurance annuity benefits
 
 27,365 
   
 26,544 
     
 - 
   
 - 
   
 27,908 
   
 26,979 
All other liabilities
 
 59,222 
   
 61,057 
     
 40,710 
   
 40,955 
   
 18,978 
   
 20,531 
Deferred income taxes
 
 96 
   
 (275)
     
 (4,544)
   
 (5,061)
   
 4,640 
   
 4,786 
Liabilities of businesses held for sale (Note 2)
 
 289 
   
 6 
     
 - 
   
 - 
   
 289 
   
 6 
Liabilities of discontinued operations (Note 2)
 
 1,102 
   
 3,933 
     
 148 
   
 143 
   
 954 
   
 3,790 
Total liabilities(b)
 
 511,802 
   
 519,502 
     
 96,663 
   
 94,499 
   
 423,420 
   
 433,703 
                                     
GECC preferred stock (50,000 shares outstanding
                                   
  at both June 30, 2014 and December 31, 2013)
 
 - 
   
 - 
     
 - 
   
 - 
   
 - 
   
 - 
Common stock (10,033,904,000 and 10,060,881,000
                                   
  shares outstanding at June 30, 2014 and
                                   
    December 31, 2013, respectively)
 
 702 
   
 702 
     
 702 
   
 702 
   
 - 
   
 - 
Accumulated other comprehensive income (loss) – net(c)
                                   
   Investment securities
 
 1,040 
   
 307 
     
 1,040 
   
 307 
   
 1,092 
   
 309 
   Currency translation adjustments
 
 61 
   
 126 
     
 61 
   
 126 
   
 (656)
   
 (687)
   Cash flow hedges
 
 (176)
   
 (257)
     
 (176)
   
 (257)
   
 (195)
   
 (293)
   Benefit plans
 
 (8,083)
   
 (9,296)
     
 (8,083)
   
 (9,296)
   
 (371)
   
 (363)
Other capital
 
 32,529 
   
 32,494 
     
 32,529 
   
 32,494 
   
 32,567 
   
 32,563 
Retained earnings
 
 151,174 
   
 149,051 
     
 151,174 
   
 149,051 
   
 53,361 
   
 51,165 
Less common stock held in treasury
 
 (43,234)
   
 (42,561)
     
 (43,234)
   
 (42,561)
   
 - 
   
 - 
                                     
Total GE shareowners’ equity
 
 134,013 
   
 130,566 
     
 134,013 
   
 130,566 
   
 85,798 
   
 82,694 
Noncontrolling interests(d) (Note 11)
 
 6,054 
   
 6,217 
     
 754 
   
 836 
   
 350 
   
 432 
Total equity
 
 140,067 
   
 136,783 
     
 134,767 
   
 131,402 
   
 86,148 
   
 83,126 
                                     
Total liabilities and equity
$
 651,869 
 
$
 656,285 
   
$
 231,430 
 
$
 225,901 
 
$
 509,568 
 
$
 516,829 
                                     
(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.
 
(b)
Our consolidated assets at June 30, 2014 included total assets of $49,501 million of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs. These assets included net financing receivables of $42,949 million and investment securities of $3,722 million. Our consolidated liabilities at June 30, 2014 included liabilities of certain VIEs for which the VIE creditors do not have recourse to GE. These liabilities included non-recourse borrowings of consolidated securitization entities (CSEs) of $28,651 million. See Note 16.
 
(c)
The sum of accumulated other comprehensive income (loss) (AOCI) attributable to the Company was $(7,158) million and $(9,120) million at June 30, 2014 and December 31, 2013, respectively.
 
(d)
Included AOCI attributable to noncontrolling interests of $(171) million and $(180) million at June 30, 2014 and December 31, 2013, respectively.
 
See accompanying notes. Separate information is shown for "GE" and "Financial Services (GECC)." Transactions between GE and GECC have been eliminated from the "Consolidated" columns.
 
(7)
 
 

General Electric Company and consolidated affiliates
Condensed Statement of Cash Flows
 
Six months ended June 30 (Unaudited)
 
Consolidated
   
GE(a)
 
Financial Services (GECC)
(In millions)
2014 
 
2013 
   
2014 
 
2013 
 
2014 
 
2013 
                                     
Cash flows – operating activities
                                   
Net earnings
$
 6,497 
 
$
 6,810 
   
$
 6,476 
 
$
 6,782 
 
$
 3,794 
 
$
 3,647 
Less net earnings (loss) attributable to noncontrolling
   interests
 
 (47)
   
 150 
     
 (68)
   
 122 
   
 21 
   
 28 
Net earnings attributable to the Company
 
 6,544 
   
 6,660 
     
 6,544 
   
 6,660 
   
 3,773 
   
 3,619 
(Earnings) loss from discontinued operations
 
 29 
   
 244 
     
 29 
   
 244 
   
 24 
   
 243 
Adjustments to reconcile net earnings attributable to the
                                   
   Company to cash provided from operating activities
                                   
      Depreciation and amortization of property,
                                   
         plant and equipment
 
 4,501 
   
 4,575 
     
 1,291 
   
 1,172 
   
 3,210 
   
 3,403 
      Earnings from continuing operations retained by GECC(b)
 - 
   
 - 
     
 (2,381)
   
 (1,915)
   
 - 
   
 - 
      Deferred income taxes
 
 (2,777)
   
 (1,776)
     
 (547)
   
 (2,337)
   
 (2,230)
   
 561 
      Decrease (increase) in GE current receivables
 
 24 
   
 223 
     
 (310)
   
 (1,234)
   
 - 
   
 - 
      Decrease (increase) in inventories
 
 (2,328)
   
 (1,452)
     
 (2,327)
   
 (1,414)
   
 14 
   
 (9)
      Increase (decrease) in accounts payable
 
 1,828 
   
 869 
     
 977 
   
 448 
   
 1,278 
   
 647 
      Increase (decrease) in GE progress collections
 
 (520)
   
 1,695 
     
 (533)
   
 1,695 
   
 - 
   
 - 
      Provision for losses on GECC financing receivables
 
 1,938 
   
 2,467 
     
 - 
   
 - 
   
 1,938 
   
 2,467 
      All other operating activities
 
 1,116 
   
 (1,420)
     
 628 
   
 378 
   
 390 
   
 (2,185)
Cash from (used for) operating activities – continuing
                                   
   operations
 
 10,355 
   
 12,085 
     
 3,371 
   
 3,697 
   
 8,397 
   
 8,746 
Cash from (used for) operating activities – discontinued
                                   
   operations
 
 (145)
   
 (154)
     
 (1)
   
 (2)
   
 (144)
   
 (152)
Cash from (used for) operating activities
 
 10,210 
   
 11,931 
     
 3,370 
   
 3,695 
   
 8,253 
   
 8,594 
                                     
Cash flows – investing activities
                                   
Additions to property, plant and equipment
 
 (6,864)
   
 (7,217)
     
 (2,022)
   
 (1,832)
   
 (5,008)
   
 (5,480)
Dispositions of property, plant and equipment
 
 3,155 
   
 2,560 
     
 - 
   
 - 
   
 3,177 
   
 2,560 
Net decrease (increase) in GECC financing receivables
 
 2,888 
   
 5,579 
     
 - 
   
 - 
   
 3,384 
   
 6,933 
Proceeds from sale of discontinued operations
 
 232 
   
 - 
     
 - 
   
 - 
   
 232 
   
 - 
Proceeds from principal business dispositions
 
 549 
   
 1,013 
     
 521 
   
 260 
   
 - 
   
 753 
Proceeds from sale of equity interest in NBCU LLC
 
 - 
   
 16,699 
     
 - 
   
 16,699 
   
 - 
   
 - 
Net cash from (payments for) principal businesses
                                   
  purchased
 
 (2,066)
   
 6,187 
     
 (2,066)
   
 (197)
   
 - 
   
 6,384 
All other investing activities
 
 1,930 
   
 12,044 
     
 (5)
   
 (351)
   
 2,697 
   
 12,260 
Cash from (used for) investing activities – continuing
                                   
   operations
 
 (176)
   
 36,865 
     
 (3,572)
   
 14,579 
   
 4,482 
   
 23,410 
Cash from (used for) investing activities – discontinued
                                   
   operations
 
 58 
   
 80 
     
 1 
   
 2 
   
 57 
   
 78 
Cash from (used for) investing activities
 
 (118)
   
 36,945 
     
 (3,571)
   
 14,581 
   
 4,539 
   
 23,488 
                                     
Cash flows – financing activities
                                   
Net increase (decrease) in borrowings (maturities of
                                   
   90 days or less)
 
 (3,852)
   
 (7,168)
     
 (432)
   
 28 
   
 (4,503)
   
 (6,815)
Net increase (decrease) in bank deposits
 
 4,988 
   
 (4,513)
     
 - 
   
 - 
   
 4,988 
   
 (4,513)
Newly issued debt (maturities longer than 90 days)
 
 19,216 
   
 30,484 
     
 3,043 
   
 38 
   
 16,173 
   
 30,450 
Repayments and other reductions (maturities longer
                                   
   than 90 days)
 
 (26,803)
   
 (46,621)
     
 (135)
   
 (5,032)
   
 (26,668)
   
 (41,589)
Proceeds from issuance of GECC preferred stock
 
 - 
   
 990 
     
 - 
   
 - 
   
 - 
   
 990 
Net dispositions (purchases) of GE shares for treasury
 
 (1,381)
   
 (5,600)
     
 (1,381)
   
 (5,600)
   
 - 
   
 - 
Dividends paid to shareowners
 
 (4,432)
   
 (3,955)
     
 (4,432)
   
 (3,955)
   
 (1,577)
   
 (2,082)
All other financing activities
 
 (96)
   
 (456)
     
 93 
   
 (17)
   
 (28)
   
 (304)
Cash from (used for) financing activities – continuing
                                   
   operations
 
 (12,360)
   
 (36,839)
     
 (3,244)
   
 (14,538)
   
 (11,615)
   
 (23,863)
Cash from (used for) financing activities – discontinued
                                   
   operations
 
 (6)
   
 21 
     
 - 
   
 - 
   
 (6)
   
 21 
Cash from (used for) financing activities
 
 (12,366)
   
 (36,818)
     
 (3,244)
   
 (14,538)
   
 (11,621)
   
 (23,842)
Effect of currency exchange rate changes on cash
                                   
   and equivalents
 
 196 
   
 (711)
     
 (2)
   
 (53)
   
 198 
   
 (658)
Increase (decrease) in cash and equivalents
 
 (2,078)
   
 11,347 
     
 (3,447)
   
 3,685 
   
 1,369 
   
 7,582 
Cash and equivalents at beginning of year
 
 88,787 
   
 77,459 
     
 13,682 
   
 15,509 
   
 75,105 
   
 62,044 
Cash and equivalents at June 30
 
 86,709 
   
 88,806 
     
 10,235 
   
 19,194 
   
 76,474 
   
 69,626 
Less cash and equivalents of discontinued operations
                                   
   at June 30
 
 139 
   
 138 
     
 - 
   
 - 
   
 139 
   
 138 
Cash and equivalents of continuing operations
                                   
   at June 30
$
 86,570 
 
$
 88,668 
   
$
 10,235 
 
$
 19,194 
 
$
 76,335 
 
$
 69,488 
                                     
(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.
 
(b)
Represents GECC earnings from continuing operations attributable to the Company, net of GECC dividends paid to GE.
 
See accompanying notes. Separate information is shown for "GE" and "Financial Services (GECC)." Transactions between GE and GECC have been eliminated from the "Consolidated" columns and are discussed in Note 17.
 
 
(8)
 
 

NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company (the Company) and all companies that we directly or indirectly control, either through majority ownership or otherwise. See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (2013 consolidated financial statements), which discusses our consolidation and financial statement presentation. As used in this report on Form 10-Q (Report), “GE” represents the adding together of all affiliated companies except General Electric Capital Corporation (GECC or Financial Services), whose continuing operations are presented on a one-line basis; GECC consists of General Electric Capital Corporation and all of its affiliates; and “Consolidated” represents the adding together of GE and GECC with the effects of transactions between the two eliminated. Unless otherwise indicated, we refer to the caption revenues and other income simply as “revenues” throughout Item 1 of this Form 10-Q.

We have reclassified certain prior-period amounts to conform to the current-period presentation. Unless otherwise indicated, information in these notes to the condensed, consolidated financial statements relates to continuing operations.

Interim Period Presentation
 
The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these condensed, consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our 2013 consolidated financial statements. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish interim quarterly closing dates using a fiscal calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar for 2014 is available on our website, www.ge.com/secreports.

Summary of Significant Accounting Policies
 
See the Notes in our 2013 consolidated financial statements for a summary of our significant accounting policies.

Accounting Changes
 
On January 1, 2014, we adopted Accounting Standards Update (ASU) 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. Under the revised guidance, the entire amount of the cumulative translation adjustment associated with the foreign entity will be released into earnings in the following circumstances: (a) the sale of a subsidiary or group of net assets within a foreign entity that represents a complete or substantially complete liquidation of that entity, (b) the loss of a controlling financial interest in an investment in a foreign entity, or (c) when the accounting for an investment in a foreign entity changes from the equity method to full consolidation. The revised guidance applies prospectively to transactions or events occurring on or after January 1, 2014.

On January 1, 2014, we adopted ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under the new guidance, an unrecognized tax benefit is required to be presented as a reduction to a deferred tax asset if the disallowance of the tax position would reduce the available tax loss or tax credit carryforward instead of resulting in a cash tax liability. The ASU applies prospectively to all unrecognized tax benefits that exist as of the adoption date and reduced both deferred tax assets and income tax liabilities by $1,224 million as of January 1, 2014.
 
 
 
(9)
 
 

 
In the second quarter of 2014, the Company elected to early adopt ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU changes the criteria for reporting discontinued operations. To be classified as a discontinued operation, the disposal of a component or group of components must represent a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The ASU also expands the disclosure requirements for those transactions that meet the new criteria to be classified as discontinued operations. The revised accounting guidance applies prospectively to all disposals (or classifications as held for sale) of components of an entity and for businesses that, upon acquisition, are classified as held for sale on or after adoption. Early adoption is permitted for disposals (or classifications as held for sale) that have not been previously reported in financial statements. The effects of applying the revised guidance will vary based upon the nature and size of future disposal transactions. It is expected that fewer disposal transactions will meet the new criteria to be reported as discontinued operations.


2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
 
Assets and Liabilities of Businesses Held for Sale
 
In the second quarter of 2014, we committed to sell GE Money Bank AB, our consumer finance business in Sweden, Denmark and Norway (GEMB-Nordic) with assets of $3,248 million and liabilities of $287 million.

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

Financial Information for Assets and Liabilities of Businesses Held for Sale

(In millions)
June 30, 2014
 
December 31, 2013
           
Assets
         
Cash and equivalents
$
 90 
   
$
 5 
Financing receivables – net
 
 2,842 
   
 
 - 
Goodwill
 
 284 
  
 
 24 
Other
 
 78 
   
 
 21 
Assets of businesses held for sale
$
 3,294 
   
$
 50 
     
   
   
Liabilities
   
   
   
Short-term borrowings
$
 235 
 
$
 - 
Other
 
 54 
  
 
 6 
Liabilities of businesses held for sale
$
 289 
  
$
 6 

NBCU
 
On March 19, 2013, we closed a transaction to sell our remaining 49% common equity interest in NBCUniversal LLC (NBCU LLC) to Comcast Corporation (Comcast) for total consideration of $16,722 million, consisting of $11,997 million in cash, $4,000 million in Comcast guaranteed debt and $725 million in preferred stock. The $4,000 million of debt and the $725 million of preferred shares were both issued by a wholly-owned subsidiary of Comcast. During the three months ended March 31, 2013, both of these instruments were sold at approximately par value. In addition, Comcast is obligated to share with us potential tax savings associated with Comcast’s purchase of our NBCU LLC interest, if realized. We did not recognize these potential future payments as consideration for the sale, but are recording such payments in income as they are received. GECC also sold real estate comprising certain floors located at 30 Rockefeller Center, New York and the CNBC property located in Englewood Cliffs, New Jersey to affiliates of NBCU LLC for $1,430 million in cash.

In the first quarter of 2013, as a result of the transactions, we recognized pre-tax gains of $1,096 million ($825 million after tax) on the sale of our 49% common equity interest in NBCU LLC and $921 million ($564 million after tax) on the sale of GECC’s real estate properties.

 
 
(10)
 
 
 
Discontinued Operations
 
Discontinued operations primarily comprised GE Money Japan (our Japanese personal loan business, Lake, and our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC), our Commercial Lending and Leasing (CLL) trailer services business in Europe (CLL Trailer Services) and our Consumer banking business in Russia (Consumer Russia). Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.

Financial Information for Discontinued Operations
 
 
Three months ended June 30
 
Six months ended June 30
(In millions)
 
2014 
   
2013 
   
2014 
   
2013 
                       
Operations
                     
Total revenues and other income (loss)
$
 (40)
  
$
 107 
 
$
 (11)
  
$
 161 
     
  
               
Earnings (loss) from discontinued operations
   
  
         
  
   
   before income taxes
$
 (55)
  
$
 (34)
 
$
 (69)
  
$
 (176)
Benefit (provision) for income taxes
 
 18 
  
 
 22 
   
 25 
  
 
 146 
Earnings (loss) from discontinued operations,
   
  
         
  
   
   net of taxes
$
 (37)
  
$
 (12)
 
$
 (44)
  
$
 (30)
     
  
         
  
   
Disposal
   
  
         
  
   
Gain (loss) on disposal before income taxes
$
 (4)
  
$
 (95)
 
$
 14 
  
$
 (282)
Benefit (provision) for income taxes
 
 - 
  
 
 (17)
   
 1 
  
 
 68 
Gain (loss) on disposal, net of taxes
$
 (4)
  
$
 (112)
 
$
 15 
  
$
 (214)
     
  
         
  
   
Earnings (loss) from discontinued operations,
   
  
         
  
   
   net of taxes(a)
$
 (41)
  
$
 (124)
 
$
 (29)
  
$
 (244)
                       
(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 Condensed Statement of Earnings.
 

(In millions)
     
June 30, 2014
 
December 31, 2013
                     
Assets
                   
Cash and equivalents
         
$
 139 
  
$
 232 
Financing receivables – net
           
 1 
   
 711 
Other
           
 1,339 
  
 
 1,396 
Assets of discontinued operations
         
$
 1,479 
  
$
 2,339 
             
  
  
 
  
Liabilities
           
  
  
 
  
Deferred income taxes
         
$
 119 
 
$
 248 
Other
           
 983 
  
 
 3,685 
Liabilities of discontinued operations
         
$
 1,102 
  
$
 3,933 
                     
 
Other assets at June 30, 2014 and December 31, 2013 primarily comprised a deferred tax asset for a loss carryforward, which expires principally in 2017 and in part in 2019, related to the sale of our GE Money Japan business.
 
 
GE Money Japan
 
During the third quarter of 2008, we completed the sale of GE Money Japan, which included our Japanese personal loan business. Under the terms of the sale, we reduced the proceeds from the sale for estimated refund claims in excess of the statutory interest rate. Proceeds from the sale were to be increased or decreased based on the actual claims experienced in accordance with loss-sharing terms specified in the sale agreement, with all claims in excess of 258 billion Japanese yen (approximately $3,000 million) remaining our responsibility. On February 26, 2014, we reached an agreement with the buyer to pay 175 billion Japanese yen (approximately $1,700 million) to extinguish this obligation. We have no remaining amount payable under the February 26, 2014 agreement as our reserve for refund claims of $1,836 million at December 31, 2013 was fully paid in the six months ended June 30, 2014.
 
 
(11)
 
 

GE Money Japan earnings (loss) from discontinued operations, net of taxes, were $(2) million and $(65) million in the three months ended June 30, 2014 and 2013, respectively, and $(3) million and $(116) million in the six months ended June 30, 2014 and 2013, respectively.

WMC
 
During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, and is not a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans that had an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued.
 
The remaining active claims have been brought by securitization trustees or administrators seeking recovery from WMC for alleged breaches of representations and warranties on mortgage loans that serve as collateral for residential mortgage-backed securities (RMBS). At June 30, 2014, such claims consisted of $3,759 million of individual claims generally submitted before the filing of a lawsuit (compared to $5,643 million at December 31, 2013) and $8,337 million of additional claims asserted against WMC in litigation without making a prior claim (Litigation Claims) (compared to $6,780 at December 31, 2013). The total amount of these claims, $12,096 million, reflects the purchase price or unpaid principal balances of the loans at the time of purchase and does not give effect to pay downs or potential recoveries based upon the underlying collateral, which in many cases are substantial, nor to accrued interest or fees. As of June 30, 2014, these amounts do not include approximately $1,000 million of repurchase claims relating to alleged breaches of representations that are not in litigation and that are beyond the applicable statute of limitations. WMC believes that repurchase claims brought based upon representations and warranties made more than six years before WMC was notified of the claim would be disallowed in legal proceedings under applicable statutes of limitations.

Reserves related to repurchase claims made against WMC were $549 million at June 30, 2014, reflecting a net decrease to reserves in the six months ended June 30, 2014 of $251 million due to settlement activity. The reserve estimate takes into account recent settlement activity that reduced WMC’s exposure on certain claims and is based upon WMC’s evaluation of the remaining exposures as a percentage of estimated mortgage loan losses within the pool of loans supporting each securitization.  Recent settlements reduced WMC’s exposure on claims asserted in certain securitizations and the claim amounts reported above give effect to these settlements.

Rollforward of the Reserve
 
 
Three months ended June 30
 
Six months ended June 30
(In millions)
 
2014
   
2013
   
2014
   
2013
                       
Balance, beginning of period
$
550 
 
$
 740 
  
$
 800 
  
$
 633 
Provision
 
102 
   
 47 
   
 102 
   
 154 
Claim resolutions / rescissions
 
 (103)
   
 - 
  
 
 (353)
  
 
 - 
Balance, end of period
$
549 
 
$
 787 
  
$
 549 
  
$
 787 
                       

Given the significant recent claim and related litigation activity and WMC’s continuing efforts to resolve the lawsuits involving claims made against WMC, it is difficult to assess whether future losses will be consistent with WMC’s past experience. Adverse changes to WMC’s assumptions supporting the reserve may result in an increase to these reserves. Taking into account both recent settlement activity and the potential variability of settlements, WMC estimates a range of reasonably possible loss from $0 to approximately $500 million over its recorded reserve at June 30, 2014. This estimate excludes any possible loss associated with an adverse court decision on the applicable statute of limitations, as WMC is unable at this time to develop such a meaningful estimate.
 
 
 
(12)
 
 

At June 30, 2014, there were 14 lawsuits involving claims made against WMC arising from alleged breaches of representations and warranties on mortgage loans included in 13 securitizations. The adverse parties in these cases are securitization trustees or parties claiming to act on their behalf. Although the alleged claims for relief vary from case to case, the complaints and counterclaims in these actions generally assert claims for breach of contract, indemnification, and/or declaratory judgment, and seek specific performance (repurchase of defective mortgage loan) and/or money damages. Adverse court decisions, including in cases not involving WMC, could result in new claims and lawsuits on additional loans. However, WMC continues to believe that it has defenses to the claims asserted in litigation, including, for example, based on causation and materiality requirements and applicable statutes of limitations. It is not possible to predict the outcome or impact of these defenses and other factors, any of which could materially affect the amount of any loss ultimately incurred by WMC on these claims.

WMC has also received indemnification demands, nearly all of which are unspecified, from depositors/underwriters/sponsors of RMBS in connection with lawsuits brought by RMBS investors concerning alleged misrepresentations in the securitization offering documents to which WMC is not a party. WMC believes that it has defenses to these demands.

To the extent WMC is required to repurchase loans, WMC’s loss also would be affected by several factors, including pay downs, accrued interest and fees, and the value of the underlying collateral. The reserve and estimate of possible loss reflect judgment, based on currently available information, and a number of assumptions, including economic conditions, claim and settlement activity, pending and threatened litigation, court decisions regarding WMC’s legal defenses, indemnification demands, government activity, and other variables in the mortgage industry. Actual losses arising from claims against WMC could exceed these amounts and additional claims and lawsuits could result if actual claim rates, governmental actions, litigation and indemnification activity, adverse court decisions, actual settlement rates or losses WMC incurs on repurchased loans differ from its assumptions.

WMC revenues and other income (loss) from discontinued operations were $(39) million and $(47) million in the three months ended June 30, 2014 and 2013, respectively, and $(35) million and $(154) million in the six months ended June 30, 2014 and 2013, respectively. WMC earnings (loss) from discontinued operations, net of taxes, were $(30) million and $(33) million in the three months ended June 30, 2014 and 2013, respectively, and $(32) million and $(105) million in the six months ended June 30, 2014 and 2013, 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. At that time, we recorded a $170 million loss on the planned disposal. We completed the sale in the first quarter of 2014 for proceeds of $232 million. Consumer Russia revenues and other income (loss) from discontinued operations were an insignificant amount and $64 million in the three months ended June 30, 2014 and 2013, respectively, and $24 million and $131 million in the six months ended June 30, 2014 and 2013, respectively. Consumer Russia earnings (loss) from discontinued operations, net of taxes, were $(1) million and $(2) million in the three months ended June 30, 2014 and 2013, respectively, and an insignificant amount (including a $4 million gain on disposal) and $(13) million in the six months ended June 30, 2014 and 2013, 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 had no revenues and other income (loss) from discontinued operations in the three months ended June 30, 2014 and $90 million of revenues and other income (loss) from discontinued operations in the three months ended 2013. CLL Trailer Services had $1 million and $183 million of revenues and other income (loss) from discontinued operations in the six months ended June 30, 2014 and 2013, respectively. CLL Trailer Services earnings (loss) from discontinued operations, net of taxes, were $(2) million and $(24) million in the three months ended June 30, 2014 and 2013, respectively, and $11 million and $(10) million (including a $98 million loss on disposal) in the six months ended June 30, 2014 and 2013, respectively.


 
(13)
 
 
 
 
3. INVESTMENT SECURITIES
 
Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment-grade debt securities supporting obligations to annuitants, policyholders in our run-off insurance operations and supporting obligations to holders of guaranteed investment contracts (GICs) in Trinity and investments held in our CLL business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries. We do not have any securities classified as held-to-maturity.
 
 
 
June 30, 2014
 
December 31, 2013
     
Gross
 
Gross
         
Gross
 
Gross
   
 
Amortized
 
unrealized
 
unrealized
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
Estimated
(In millions)
cost
 
gains
 
losses
 
fair value
 
cost
 
gains
 
losses
 
fair value
                                               
GE
                                             
Debt
                                             
    U.S. corporate
$
 22 
 
$
 7 
 
$
 - 
 
$
 29 
 
$
 21 
 
$
 14 
 
$
 - 
 
$
 35 
    Corporate – non-U.S.
 
 13 
   
 - 
   
 (1)
   
 12 
   
 13 
   
 - 
   
 (1)
   
 12 
Equity
                                             
    Available-for-sale
 
 305 
   
 9 
   
 (97)
   
 217 
   
 302 
   
 9 
   
 (41)
   
 270 
    Trading
 
 - 
   
 - 
   
 - 
   
 - 
   
 6 
   
 - 
   
 - 
   
 6 
   
 340 
   
 16 
   
 (98)
   
 258 
   
 342 
   
 23 
   
 (42)
   
 323 
                                               
GECC
                                             
Debt
                                             
    U.S. corporate
 
 19,800 
   
 3,510 
   
 (91)
   
 23,219 
   
 19,600 
   
 2,323 
   
 (217)
   
 21,706 
    State and municipal
 
 5,144 
   
 497 
   
 (96)
   
 5,545 
   
 4,245 
   
 235 
   
 (191)
   
 4,289 
    Residential mortgage-backed(a)
 
 1,755 
   
 153 
   
 (30)
   
 1,878 
   
 1,819 
   
 139 
   
 (48)
   
 1,910 
    Commercial mortgage-backed
 
 2,933 
   
 207 
   
 (42)
   
 3,098 
   
 2,929 
   
 188 
   
 (82)
   
 3,035 
    Asset-backed
 
 7,685 
   
 33 
   
 (36)
   
 7,682 
   
 7,373 
   
 60 
   
 (46)
   
 7,387 
    Corporate – non-U.S.
 
 1,666 
   
 179 
   
 (50)
   
 1,795 
   
 1,741 
   
 103 
   
 (86)
   
 1,758 
    Government – non-U.S.
 
 2,011 
   
 118 
   
 (3)
   
 2,126 
   
 2,336 
   
 81 
   
 (7)
   
 2,410 
    U.S. government and federal
                                             
       agency
 
 698 
   
 50 
   
 (1)
   
 747 
   
 752 
   
 45 
   
 (27)
   
 770 
Retained interests
 
 60 
   
 13 
   
 - 
   
 73 
   
 64 
   
 8 
   
 - 
   
 72 
Equity
                                             
    Available-for-sale
 
 215 
   
 71 
   
 (2)
   
 284 
   
 203 
   
 51 
   
 (3)
   
 251 
    Trading
 
 53 
   
 - 
   
 - 
   
 53 
   
 74 
   
 - 
   
 - 
   
 74 
   
 42,020 
   
 4,831 
   
 (351)
   
 46,500 
   
 41,136 
   
 3,233 
   
 (707)
   
 43,662 
                                               
Eliminations
 
 (4)
   
 - 
   
 - 
   
 (4)
   
 (4)
   
 - 
   
 - 
   
 (4)
Total
$
 42,356 
 
$
 4,847 
 
$
 (449)
 
$
 46,754 
 
$
 41,474 
 
$
 3,256 
 
$
 (749)
 
$
 43,981 
                                               
(a)
Substantially collateralized by U.S. mortgages. At June 30, 2014, $1,238 million related to securities issued by government-sponsored entities and $640 million related to securities of private-label issuers. Securities issued by private-label issuers are collateralized primarily by pools of individual direct mortgage loans of financial institutions.
 
 
(14)
 
 

Estimated Fair Value and Gross Unrealized Losses of Available-for-Sale Investment Securities
 
In loss position for
 
 
Less than 12 months
 
12 months or more
 
     
Gross
     
Gross
 
 
Estimated
 
unrealized
 
Estimated
 
unrealized
 
(In millions)
fair value
(a)
losses(a)(b)
 
fair value
 
losses(b)
 
                         
June 30, 2014
                       
Debt
                       
   U.S. corporate
$
 234 
 
$
 (4)
 
$
 1,523 
 
$
 (87)
 
   State and municipal
 
 115 
   
 (2)
   
 766 
   
 (94)
 
   Residential mortgage-backed
 
 47 
   
 (1)
   
 471 
   
 (29)
 
   Commercial mortgage-backed
 
 5 
   
 - 
   
 931 
   
 (42)
 
   Asset-backed
 
 3 
   
 - 
   
 321 
   
 (36)
 
   Corporate – non-U.S.
 
 32 
   
 (1)
   
 444 
   
 (50)
 
   Government – non-U.S.
 
 984 
   
 (3)
   
 89 
   
 - 
 
   U.S. government and federal agency
 
 - 
   
 - 
   
 255 
   
 (1)
 
Retained interests
 
 7 
   
 - 
   
 1 
   
 - 
 
Equity
 
 229 
   
 (99)
   
 - 
   
 - 
 
Total
$
 1,656 
 
$
 (110)
 
$
 4,801 
 
$
 (339)
(c)
                         
December 31, 2013
                       
Debt
                       
   U.S. corporate
$
 2,170 
  
$
 (122)
  
$
 598 
  
$
 (95)
 
   State and municipal
 
 1,076 
  
 
 (82)
  
 
 367 
  
 
 (109)
 
   Residential mortgage-backed
 
 232 
  
 
 (11)
  
 
 430 
  
 
 (37)
 
   Commercial mortgage-backed
 
 396 
  
 
 (24)
  
 
 780 
  
 
 (58)
 
   Asset-backed
 
 112 
  
 
 (2)
  
 
 359 
  
 
 (44)
 
   Corporate – non-U.S.
 
 108 
  
 
 (4)
  
 
 454 
  
 
 (83)
 
   Government – non-U.S.
 
 1,479 
  
 
 (6)
  
 
 42 
  
 
 (1)
 
   U.S. government and federal agency
 
 229 
  
 
 (27)
  
 
 254 
  
 
 - 
 
Retained interests
 
 2 
  
 
 - 
  
 
 - 
  
 
 - 
 
Equity
 
 253 
  
 
 (44)
  
 
 - 
  
 
 - 
 
Total
$
 6,057 
  
$
 (322)
  
$
 3,284 
  
$
 (427)
 
                         
(a)
Includes the estimated fair value of and gross unrealized losses on Corporate-non-U.S. and Equity securities held by GE. At June 30, 2014, the estimated fair value of and gross unrealized losses on Corporate-non-U.S. securities were $12 million and $(1) million, respectively. The estimated fair value of and gross unrealized losses on Equity securities were $183 million and $(97) million, respectively. At December 31, 2013, the estimated fair value of and gross unrealized losses on Corporate-non-U.S. securities were $12 million and $(1) million, respectively. The estimated fair value of and gross unrealized losses on Equity securities were $222 million and $(41) million, respectively.
 
(b)
Included gross unrealized losses related to securities that had other-than-temporary impairments previously recognized of $(66) million at June 30, 2014.
 
(c)
The majority relate to debt securities held to support obligations to holders of GICs and more than 70% are debt securities that were considered to be investment-grade by the major rating agencies at June 30, 2014.
 

 
 
 
 


We regularly review investment securities for other-than-temporary impairment (OTTI) using both qualitative and quantitative criteria. For debt securities, our qualitative review considers our ability and intent to hold the security and the financial condition of and near-term prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. Our quantitative review considers whether there has been an adverse change in expected future cash flows. Unrealized losses are not indicative of the amount of credit loss that would be recognized and at June 30, 2014 are primarily due to increases in market yields subsequent to our purchase of the securities. We presently do not intend to sell the vast majority of our debt securities that are in an unrealized loss position and believe that it is not more likely than not that we will be required to sell the vast majority of these securities before anticipated recovery of our amortized cost. The methodologies and significant inputs used to measure the amount of credit loss for our investment securities during the six months ended June 30, 2014 have not changed. For equity securities, we consider the duration and the severity of the unrealized loss. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future.

Our corporate debt portfolio comprises securities issued by public and private corporations in various industries, primarily in the U.S. Substantially all of our corporate debt securities are rated investment grade by the major rating agencies.
 
 
(15)
 
 
 
Our RMBS portfolio is collateralized primarily by pools of individual, direct mortgage loans, of which substantially all are in a senior position in the capital structure of the deals, not other structured products such as collateralized debt obligations. Of the total RMBS held at June 30, 2014, $1,238 million and $640 million related to agency and non-agency securities, respectively.  Additionally, $337 million was related to residential subprime credit securities, primarily supporting our guaranteed investment contracts. Substantially all of the subprime exposure is related to securities backed by mortgage loans originated in 2006 and prior. A majority of subprime RMBS have been downgraded to below investment grade and are insured by Monoline insurers (Monolines). We continue to place partial reliance on Monolines with adequate capital and claims paying resources depending on the extent of the Monoline’s anticipated ability to cover expected credit losses.
 
Our commercial mortgage-backed securities (CMBS) portfolio is collateralized by both diversified pools of mortgages that were originated for securitization (conduit CMBS) and pools of large loans backed by high-quality properties (large loan CMBS), a majority of which were originated in 2007 and prior. The vast majority of the securities in our CMBS portfolio have investment-grade credit ratings.

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

Pre-tax, Other-Than-Temporary Impairments on Investment Securities
                         
   
Three months ended June 30
 
Six months ended June 30
(In millions)
 
2014 
 
2013 
 
2014 
 
2013 
                         
Total pre-tax, OTTI recognized
 
$
 9 
 
$
 159 
 
$
 47 
 
$
 461 
Less pre-tax, OTTI recognized in AOCI
   
 - 
   
 (19)
   
 (4)
   
 (30)
Pre-tax, OTTI recognized in earnings(a)
 
$
 9 
 
$
 140 
 
$
 43 
 
$
 431 
                         
(a)
Included pre-tax, other-than-temporary impairments recorded in earnings related to equity securities of $2 million and an insignificant amount in the three months ended June 30, 2014 and 2013, respectively, and $3 million and $1 million in the six months ended June 30, 2014 and 2013, respectively.
 

Changes in Cumulative Credit Loss Impairments Recognized on Debt Securities Still Held
                         
   
Three months ended June 30
 
Six months ended June 30
(In millions)
 
2014 
 
2013 
 
2014 
 
2013 
                         
Cumulative credit loss impairments recognized,
                       
   beginning of period
 
$
 1,171 
 
$
 862 
 
$
 1,193 
 
$
 588 
Credit loss impairments recognized on securities
                       
   not previously impaired
   
 1 
   
 122 
   
 1 
   
 385 
Incremental credit loss impairments recognized
                       
   on securities previously impaired
   
 2 
   
 7 
   
 31 
   
 19 
Less credit loss impairments previously
                       
   recognized on securities sold during the period
   
 (3)
   
 (46)
   
 (54)
   
 (47)
Cumulative credit loss impairments recognized,
                       
   end of period
 
$
 1,171 
 
$
 945 
 
$
 1,171 
 
$
 945 
                         

 
 
(16)
 
 
 
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
           
$
 1,969 
 
$
 1,981 
  After one year through five years
             
 3,681 
   
 4,020 
  After five years through ten years
             
 5,241 
   
 5,592 
  After ten years
             
 18,463 
   
 21,880 
                       

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


Gross Realized Gains and Losses on Available-for-Sale Investment Securities
 
   
Three months ended June 30
 
Six months ended June 30
(In millions)
 
2014 
 
2013 
 
2014 
 
2013 
                         
GE
                       
Gains
 
$
 2 
 
$
 - 
 
$
 2 
 
$
 1 
Losses, including impairments
   
 - 
   
 (7)
   
 - 
   
 (20)
Net
   
 2 
   
 (7)
   
 2 
   
 (19)
                         
GECC
                       
Gains
   
 43 
   
 123 
   
 62 
   
 185 
Losses, including impairments
   
 (9)
   
 (139)
   
 (45)
   
 (417)
Net
   
 34 
   
 (16)
   
 17 
   
 (232)
Total
 
$
 36 
 
$
 (23)
 
$
 19 
 
$
 (251)
                         

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 $1,202 million and $2,551 million for the three and six months ended June 30, 2014, respectively, principally from sales of short-term government securities in our bank subsidiaries and Treasury operations and redemptions of non–U.S. corporate and asset-backed securities in our CLL business.

Proceeds from investment securities sales and early redemptions by issuers totaled $6,284 million and $13,938 million for the three and six months ended June 30, 2013, respectively, principally from the sale of Comcast guaranteed debt, sales of short-term securities in our bank subsidiaries and Treasury operations and redemptions of non–U.S. corporate and asset-backed securities in our CLL business.

We recognized pre-tax gains (losses) on trading securities of $1 million and $9 million in the three months ended June 30, 2014 and 2013, respectively, and $(4) million and $51 million in the six months ended June 30, 2014 and 2013, respectively.