|
Jan R. Hauser
|
Vice President and Controller | |
3135 Easton Turnpike
Fairfield, CT 06828
USA
|
|
T +1 203 373 3234
F +1 203 373 3757
|
|
jan.hauser@ge.com
|
Re: | General Electric Company Form 10-K for the Fiscal Year Ended December 31, 2014 Filed February 27, 2015 |
1. | You stated in your letter to us dated April 26, 2012 that you conducted "licensed business" with Sudan and Syria. Additionally, we are aware of news articles published after our 2012 review which report that you agreed to sell certain goods and services to the White Nile Sugar Company of Sudan. Sudan and Syria are designated by the State Department as state sponsors of terrorism, and are subject to U.S. economic sanctions and export controls. You do not describe in the Form 10-K contacts with Sudan or Syria. Please provide us with information regarding your contacts with Sudan and Syria since the referenced letter. You should describe any products, technology or services you have provided into Sudan and Syria, directly or indirectly, and any agreements, arrangements or other contacts you have had with the governments of Sudan and Syria or entities they control. |
|
Response:
|
2. | Please discuss the materiality of the contacts with Sudan and Syria you describe in response to the comment above, and whether the contacts constitute a material investment risk for your security holders. You should address materiality in quantitative terms, including the approximate dollar amounts of any revenues, assets and liabilities associated with Sudan and Syria for the last three fiscal years and the subsequent interim period. Also, address materiality in terms of qualitative factors that a reasonable investor would deem important in making an investment decision, including the potential impact of corporate activities upon a company's reputation and share value. As you know, various state and municipal governments, universities and other investors have proposed or adopted divestment or similar initiatives regarding investment in companies that do business with U.S.-designated state sponsors of terrorism. You should address the potential impact of the investor sentiment evidenced by such actions directed toward companies that have operations associated with Sudan and Syria. |
|
Response:
|
3. | We note your references to "growth markets," "shared services" and "global functions." In an appropriate location in your future filings, please expand your disclosure so that your investors will be able to better understand these terms. For example, please indicate the geographic areas or countries that you consider to be your growth markets and identify the shared services and global functions that the GE Store provides. |
|
Response:
|
4. | In the first graph on page 18 you disclose Pension and Healthcare plans pre-tax expense of $6.4 billion for the year ended December 31, 2014. You indicate that this includes expenses related to your global pension plans, U.S. Retirement Savings Plans and U.S. principal employee/retiree health plans. Please show us how you derived this amount. Identify each component and tell us where it is presented in your financial statements, including any amounts disclosed in Note 12 of your consolidated financial statements. |
|
Response:
|
|
The components of pre-tax expenses related to our global pension plans, U.S. principal employee/retiree health plans and U.S. Retirement Savings Plan are as follows.
|
(In millions)
|
||||
Global Pension Plans
|
||||
Principal Pension Plans
|
$
|
3,604
|
Footnote 12 – page 171
|
|
Other Pension Plans
|
412
|
Footnote 12 – page 171
|
||
U.S. Principal Employee/Retiree Health Plans
|
||||
U.S. Principal Employee Health Plans
|
1,145
|
Separate disclosure not
|
||
required
|
||||
Principal Retiree Benefit Plans
|
789
|
Footnote 12 – page 178
|
||
U.S. Retirement Savings Plan
|
478
|
Separate disclosure not
|
||
required
|
||||
$
|
6,428
|
|||
|
The above employee benefit plan costs are included as components of costs of goods sold, cost of services sold and other costs and expenses.
|
|
If used in future filings, we will provide investors with the components of social costs.
|
5. | We note the discussion on pages 12 and 28 about total Industrial service revenues of approximately $46.4 billion. Please reconcile this amount to the sales of services of $30.6 billion presented on the GE Statement of Earnings on page 129. |
|
Response:
|
6. | We note that you present the non-GAAP measures "total corporate costs (operating)" and "adjusted total corporate costs (operating)" in this section but note that you have not presented the disclosures required by Item 10(e) of Regulation S-K for these non-GAAP measures in the filing. Please revise future filings to include all of the disclosures required by Item 10(e) for these non-GAAP measures, including a discussion of the reasons why management believes the presentation provides useful information to investors and the additional purposes for which your management uses the non-GAAP measures. Provide us with a copy of your proposed disclosure. |
7. | Please describe for us how you have complied with FASB ASC 715-20-50-1(d)(5)(iv)(03) which requires a discussion of the valuation techniques and inputs and any changes in valuation techniques or inputs used to measure the fair value of your postretirement benefit plan assets. |
8. | We note that the first page of Exhibit 99.1 to this Form 8-K highlights several non-GAAP measures, including operating EPS excluding GE Capital exit impacts, operating EPS, operating EPS for Industrial and GE Capital, GE CFOA, GE Capital ENI and Industrial CFOA, without including the corresponding amounts as determined under GAAP. Please tell us how you believe the presentation of non-GAAP measures in Exhibit 99.1 complies with Item 10(e)(1)(i)(A) of Regulation S-K, which requires a presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with GAAP. Please see Instruction 2 to Item 2.02 of Form 8-K. |
|
Response:
|
|
Exhibit 99.1 includes a number of non-GAAP measures that we view as important for investors to track progress against the GE Capital Exit Plan, which is a transformational shift in the Company's strategy.
|
|
We believe that GAAP EPS is the most directly comparable GAAP measure to the following non-GAAP measures: operating EPS excluding GE Capital exit impacts, operating EPS, and operating EPS for Industrial and GE Capital. Accordingly, GAAP EPS was in the highlighted box at the top of the first page, thus having equal prominence with the other highlighted non-GAAP EPS figures.
|
|
We believe that GE CFOA is not a non-GAAP measure as it refers to the cash from operating activities figure found in the GE column of our Statement of Cash Flows, which is presented in accordance with GAAP.
|
|
Although GE Capital ENI is a non-GAAP measure, we believe that it has no directly comparable GAAP measure and, therefore, that there was no corresponding GAAP measure with which to provide equal or greater prominence. While we provide a reconciliation of GE Capital ENI to GECC total assets in order to show how we calculate GE Capital ENI, we do not believe that GECC total assets is a directly comparable measure to GE Capital ENI. As described in the glossary on page 120 of our 2014 Form 10-K, GE Capital ENI is a measure of the total capital we have invested in our financial services businesses, whereas GECC total assets is a measure of the size of GECC.
|
|
With respect to Industrial CFOA, we believe that GE CFOA is the most directly comparable GAAP measure. Accordingly, GE CFOA was near the top of the page, thus
|
|
having equal or greater prominence with Industrial CFOA at the bottom of the page. We advise the Staff that the only difference between the non-GAAP measure of Industrial CFOA and the GAAP measure of GE CFOA is the exclusion of dividends that GE has received from GECC in determining Industrial CFOA.
|
9. | We note the discussion of the estimated $23 billion in after-tax charges that will be incurred through 2016 in connection with the GE Capital exit plan. We also note that you have recorded $16.1 billion in after-tax charges during the first quarter of 2015. Please explain to us the nature of the amounts included in the $23 billion and clarify how these amounts were determined. You should specifically discuss the charges identified as "goodwill allocations (approximately $13 billion)" that are included in these charges. Please also explain to us which charges have already been incurred and where they are recorded in your financial statements. |
|
Response:
|
($ in billions)
|
After-tax charges
|
|
Continuing operations
|
|
|
Loss on Commercial Lending and Leasing (CLL) businesses transferred to held for sale
|
$ (3)
|
|
Lower of cost or fair value adjustments and asset impairments
|
(5)
|
|
Tax adjustments
|
(6)
|
|
|
(14)
|
|
Discontinued operations
|
||
Net loss on the disposal of the Real Estate business
|
(2)
|
|
Total charges recorded in the period ended March 31, 2015
|
(16)
|
|
Future estimated exit costs
|
(7)
|
|
Total charges recorded in the period ended March 31, 2015 and future estimated exit costs
|
$ (23)
|
|
The amounts included in the above table were determined as follows:
|
|
Loss on Commercial Lending and Leasing businesses transferred to held for sale ($3 billion):
|
|
The loss on Commercial Lending and Leasing businesses transferred to held for sale was determined based on the difference between estimates of the fair value less cost to sell of the businesses to be disposed of and their carrying amounts, inclusive of tax effects, currency translation adjustments and an allocation of reporting unit goodwill, in accordance with ASC 350-20-40-2. The amount of goodwill allocated to the group of businesses classified as held for sale under this guidance was approximately $5 billion. The reference to "goodwill allocations (approximately $13 billion)" in our disclosure on page 7 of the first quarter Form 10Q relates to the total amount of goodwill that we estimated would be allocated to disposals over the course of the plan in accordance with this guidance (inclusive of the $5 billion allocated to the Commercial Lending and Leasing businesses transferred to held for sale in the first quarter of 2015).
|
|
The pre-tax component of the charge is approximately $(2) billion and is recorded under the caption "GECC revenues from services" in the Statement of Earnings and as a valuation allowance under the caption "Assets of businesses held for sale" in the Statement of Financial Position. We provide additional financial information regarding assets and liabilities of businesses held for sale in Note 2, including separate presentation of the valuation allowance related to the disposal group classified as held for sale. The tax effect component of the charge was approximately $(1) billion and is recorded under the caption "Benefit (provision) for income taxes" in the Statement of Earnings.
|
|
Lower of cost or fair value adjustments and asset impairments ($5 billion)
|
|
These after-tax charges consisted primarily of two components: (1) amounts associated with the transfer of financing receivables from a held for investment basis to held for sale, which reflected them at the lower of cost or fair value less cost to sell and (2) impairments associated with certain equity method investments and assets subject to operating leases that were affected by the GE Capital Exit Plan, as discussed below.
|
|
Consistent with the plan, we had to shorten our holding period assumptions for certain financing receivables in the CLL and Consumer businesses and therefore no longer possessed the intent to hold them for the foreseeable future. This required us to classify these financing receivables as held for sale and measure them at the lower of cost or fair value less cost to sell. Additional information about this component of the charge is provided in our response to the Staff's Comment 12.
|
|
Similarly, execution of the plan called for us to dispose of certain equity method investments in our CLL and Consumer businesses, which caused us to assess whether the carrying amounts of these investments were recoverable. As discussed further in our response to the Staff's Comment 14, we determined that the carrying amounts of these investments exceeded their fair values. Based on our intent to dispose within the next 24-months, we concluded that the loss in value was other than temporary.
|
|
The pre-tax amount associated with the reclassification of financing receivables to held for sale was approximately $(4) billion and is recorded in the "Provision for losses on financing receivables" in the Statement of Earnings. The pre-tax amounts related to impairments of equity method investments and assets subject to operating leases were approximately $(1.4) billion and $(0.4) billion, which are recorded under the captions "GECC revenues from services" and "Other costs and expenses", respectively, in the Statement of Earnings. The tax benefit related to these charges was approximately $1 billion and was recorded under the caption "Benefit (provision) for income taxes" in the Statement of Earnings.
|
|
Tax adjustments ($6 billion)
|
|
Exclusive of the tax effects associated with the pre-tax charges described above, we recorded tax charges related to the repatriation of excess foreign cash and the write-off of certain deferred tax assets that were affected by the GE Capital Exit Plan. The estimated tax provisions associated with the repatriation of excess foreign cash ($3.6 billion) were determined based on the identification of legal entities that, in combination, provided a tax-efficient means by which the repatriation of the estimated $36 billion of excess foreign cash could be effected. The tax charges related to the write-off of deferred tax assets ($2.4 billion) were determined based on the identification of those deferred tax assets that we can no longer conclude recovery would be more likely than not because of changes in the scope of operations envisioned under the GE Capital Exit Plan.
|
|
All of the above amounts were recorded under the caption "Benefit (provision) for income taxes" in the Statement of Earnings.
|
|
Net loss on the disposal of the Real Estate business ($2 billion)
|
|
As disclosed in our first quarter Form 10-Q, we reached an agreement to sell substantially all of the Real Estate debt and equity portfolios. The net loss on the disposal of the business was determined based on the estimated proceeds compared with the associated carrying value, including associated taxes, currency translation adjustments and allocated reporting unit goodwill. Proceeds were estimated based on agreements with funds managed by The Blackstone Group and letters of intent from other buyers for the majority of the remaining commercial real estate assets.
|
|
This loss is recorded under the caption "Earnings (loss) from discontinued operations, net of taxes" in the Statement of Earnings and as a valuation allowance under the caption "Assets of discontinued operations" in the Statement of Financial Position. Note 2 provides additional information about discontinued operations, including separate presentation of the valuation allowance associated with the disposal group and the components of the loss from discontinued operations, net of taxes.
|
|
Future estimated exit costs ($7 billion)
|
|
Future estimated exit costs primarily consist of net losses of approximately $(5) billion associated with the disposal of additional CLL businesses and Consumer businesses in future periods that did not meet the held for sale criteria at March 31, 2015. These net losses were determined based on estimates of the fair value less cost to sell of the businesses and assets to be disposed of pursuant to the plan in comparison to the associated carrying amounts, including the effects of tax, currency translation adjustments and the aforementioned allocation of reporting unit goodwill.
|
|
We expect to incur after-tax costs of approximately $(1) billion related to restructuring activities (including retention, severance, facilities exit costs, medical and outplacement, among other items) in periods subsequent to March 31, 2015 related to the plan. Such costs were estimated in accordance with the guidance in ASC 420 and 712. Such initial estimates considered severance arrangements, the likelihood of employees either transferring with businesses to be disposed of in the future or becoming redundant and subject to a reduction in workforce, as well as employee retention programs.
|
|
In addition, we estimate after-tax charges of approximately $(1) billion will be incurred in the future relating to contemplated modifications to or exchanges of existing GECC debt and the consequential incentive premium we may pay to debt holders in conjunction with the plan. As of March 31, 2015, there were no modifications to or exchanges of GECC debt related to the GE Capital Exit Plan.
|
10. | Please reconcile the charges related to the exit plan discussed on page 8 with the amounts discussed on pages 28 and 34. |
|
On page 34 of the Form 10-Q, we provide further information about financing receivables held for sale. The third paragraph on that page states:
|
|
"Prior to transferring the financing receivables to financing receivables held for sale we recognized a pre-tax provision for losses on financing receivables of $4.0 billion ($3.3 billion after-tax) …"
|
|
We advise the Staff that the $3.3 billion after-tax amount includes the higher provisions for losses on financing receivables in CLL ($1.2 billion) and Consumer ($2.1 billion) as discussed above and disclosed on page 28. On page 34 we also disclosed the pre-tax charge of $1.8 billion ($2.8 billion after-tax) related to measuring the businesses held for sale at fair value less cost to sell, including amounts related to the allocation of goodwill.
|
11. | It appears that you may intend to incorporate by reference into your filing certain information from the General Electric Capital Corporation quarterly report on Form 10-Q for the three months ended March 31, 2015. In future filings, please include an express statement that the specified matter is incorporated by reference as contemplated by Rule 12b-23(b) of the Securities Exchange Act of 1934, as amended, and ensure that your incorporation by reference otherwise meets the requirements of Rule 12b-23. |
|
Response:
|
12. | We see the discussion on pages 8, 11 and 28 of impairment charges related to shortened hold periods. Please explain to us how the shortened hold periods resulted in the charges and the meaning of your discussion on page 34 that "the provisions for losses is largely attributable to credit loss exposures that are not incurred losses recognizable under GAAP but nevertheless affect fair value that would be determined by a market participant when pricing the portfolio." Please also describe for us in greater detail the significant changes to assumptions utilized in the valuation of your losses on finance receivables which resulted in the significant increase in the provisions for losses. |
|
Response:
|
|
We advise the Staff that prior to the first quarter of 2015, substantially all of our financing receivables were classified as held for investment with the related allowance for losses determined in accordance with ASC 310 and ASC 450. With the approval of the GE Capital Exit Plan, we concluded that these receivables required a change in classification to held for sale. Based on our stated intent to complete the plan over the next 24 months, we no longer possessed the intent to hold certain CLL and Consumer financing receivables for the foreseeable future or until maturity or payoff. Accordingly, the shortened holding periods for these financing receivables required them to be transferred to held for sale and reflected at the lower of cost or fair value in accordance with ASC 310-10-35-49, which resulted in a pre-tax provision for losses of $4.0 billion.
|
|
Our disclosure that "the provisions for losses is largely attributable to credit loss exposures that are not incurred losses recognizable under GAAP but nevertheless affect fair value that would be determined by a market participant when pricing the portfolio" refers to the financial impact of the change in classification from a Held for Investment basis to Held for Sale. Under the former basis, the financing receivables were carried at amortized cost less a valuation allowance determined on an incurred loss basis. Upon reclassification to loans held for sale, we were required to measure these receivables at fair value, an exit price notion determined in accordance with ASC 820. The new basis of measurement incorporated not only assumptions for incurred credit losses but also market participant assumptions related to expected credit losses over the life of the receivables, as well as non-credit-related factors such as current market interest rates and credit spreads, volatility and local regulatory risks. Of these factors, the impact of moving to expected lifetime credit losses was the most significant.
|
13. | We note that you recognized tax expense of $3.6 billion relating to the expected repatriation of excess foreign cash of $36 billion, a part of which represents earnings that prior to the approval of the GE Capital Exit Plan were considered indefinitely reinvested in GECC's international operations. Given that on page 74 of your Form 10-K you disclosed that as of December 31, 2014 only $12.2 billion of foreign cash was considered part of earnings indefinitely reinvested and not subject to domestic tax, please tell us the amount of earnings previously |
|
Response:
|
14. | In connection with GE Capital Exit Plan, we see that you recorded $1.4 billion of impairments related to equity method investments. Please describe for us in greater detail the nature of the impairments and how the amounts were determined. |
|
Response:
|
|
We advise the Staff that substantially all of the impairments related to equity method investments were attributable to [**] equity method investments whose securities are not publicly traded. We hold interests of approximately [**] these investments and [**]. These investments offer [**]. They hold approximately [**] in financing receivables as of March 31, 2015 and are profitable.
|
|
Given adoption of the GE Capital Exit Plan, it is our intent to dispose of these investments within the next 24 months, which required us to evaluate their carrying amounts for recoverability. As discussed below, we determined that the fair values were lower than the related book values. In accordance with ASC 323-10-35-32, we sought to determine whether the loss in value of the investments was other than temporary and should be recognized.
|
|
Our estimate of the fair value of the investments of [**] considered all relevant information pertinent to their value including: the limited number of market participants to which the equity method investments could be marketed (given the [**]), internal analyses, third-party reviews and [**], all of which took place in the first quarter of 2015.
|
|
Given our intent to dispose of these investments within the next 24 months and our current estimate of their fair value, we concluded that the loss in value of our investments was other than temporary. Accordingly, we reduced their [**] carrying value to our best estimate of fair value of [**] in the first quarter of 2015.
|
15. | In this regard, please also explain to us why the estimated losses on CLL businesses classified as assets of businesses held for sale noted here and on pages 28 and 34 of $1.8 billion were recorded as a reduction of revenue. |
|
Response:
|
|
We advise the Staff that our consistent practice has been to record both gains and loss on sales of businesses in the "Revenues and other income" category of our Statement of Earnings (Loss). Specifically, such gains and losses are presented in the "Other items" line of "GECC revenues from services (Note 12)", while supplemental disclosure of significant items is provided, in accordance with ASC 360-10-50-3, within an explanatory note beneath the table to Note 12.
|
|
We believe that this classification is appropriate as we record investment income and gains on sales of assets in revenue. As such, we believe that losses on sales of businesses should be reflected in a similar manner.
|
●
|
the Company is responsible for the adequacy and accuracy of the disclosure in the filing;
|
●
|
Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and
|
●
|
the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
|
cc: | J. R. Immelt, Chairman of the Board and Chief Executive Officer |
G#I7Y@6&G7\I"C3-
M:Y:9-S/1%-R$C<_ZCMF@U7L_KM-O+&2.^/J^[]+F8]7BGRE^A] QR1SQQS0R
M++'*H>*5"&5E85#*1L01T.: .OV5V!#,".B]H.W8Z#'P0-Y9
M8[!S<:?<.!4HLO%61Z GA(JL0*@4WSH^S>V-/KQ>*6XY@[2'P_2+
M<'/I9X?J&W>\9S:..[%78JJ12RP2Q3P2O#/"ZR0S1L5='4U5E8;@@[@C 0"*
M*@T_:?\ YP^_YR:'YJ:0OD+SK>C_ )6)H-O6UOI#0ZQ91 #UJGK/&/[T?M#]
MX*_'Q\M]I>POR<_&Q#]W(\OYI[O<>GR[GH-#J_%'#+ZA]K#?^GTF;
MQ<8/7J_(?_G(SR/>?D?^?FKKY>Y:9:K?V_FCR5<1#@(8YI/7C$8'06\Z/&OL
M@STCL35CM#0CCW-&,ON^T;_%TFKQG#FV]X?N1^7GG*R_,+R/Y5\ZZ> MKYET
MV"]]$&OI2.H]6(GQCD#(?<9Y/K=,=-GGB/.)(_4?B'H<H?CWV]+H<@GB%=-GU9FA3]7\V^=_RGN0(3Y1\G:I?>8-=1
MWI(]_!:&VTM42GQ!7N))":T' >.^?=5AMW0$ FSL"MU.P[_WJPJ:=F^@[SV/TGBZ
MLY#R@/M.P^RW$[2R<.*N\O,/^??\ B1%A+M/*>5!\K^;?
M//G+SYJ'Z4\Y^9]2\S7PJ(IM0N'F$08U*Q*QXQK_ )* #VSH=/I,.FCPXHB(
M\A^+)EED-R-L4S(:W8J[%4?I6EZCKFIZ?HVD6
0J[(]G<^O(D?1C_G'K_5'7W\ON3J=9
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M4>3\MOSX_P"<"[VR:]\S_DH[7]F2TMSY#NY1Z\0W)^HW$A_> =HY#R\&