Fair Value Measurements

6 Months Ended

Jun. 30, 2016

NOTE 14. FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

Our assets and liabilities measured at fair value on a recurring basis include investment securities primarily supporting obligations to annuitants and policyholders in our run-off insurance operations.

ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS

									Netting
(In millions)	Level 1		(a)	Level 2		(a)	Level 3		adjustment		(b)	Net balance
June 30, 2016
Assets
Investment securities
Debt
U.S. corporate	$	-		$	21,426		$	3,422	$	-		$	24,848
State and municipal		-			4,536			32		-			4,568
Mortgage and asset-backed		-			3,115			8		-			3,122
Corporate – non-U.S.		-			5,168			244		-			5,412
Government – non-U.S.		-			764			-		-			764
U.S. government and federal agency		-			532			307		-			839
Equity		143			16			8		-			167
Derivatives(c)		-			7,669			40		(6,821)			888
Total	$	143		$	43,226		$	4,060	$	(6,821)		$	40,608

Liabilities
Derivatives	$	-		$	4,474		$	3	$	(3,830)		$	646
Other(e)		-			1,132			-		-			1,132
Total	$	-		$	5,606		$	3	$	(3,830)		$	1,778

December 31, 2015
Assets
Investment securities
Debt
U.S. corporate	$	-		$	19,351		$	3,006	$	-		$	22,358
State and municipal		-			4,215			30		-			4,245
Mortgage and asset-backed		-			3,084			32		-			3,116
Corporate – non-U.S.		12			544			290		-			847
Government – non-U.S.		5			410			-		-			415
U.S. government and federal agency		49			404			323		-			776
Equity		194			9			13		-			217
Derivatives(c)		-			7,312			79		(6,110)			1,281
Other(d)		-			-			259		-			259
Total	$	260		$	35,331		$	4,033	$	(6,110)		$	33,512
Liabilities
Derivatives	$	-		$	5,677		$	4	$	(4,968)		$	713
Other(e)		-			1,182			-		-			1,182
Total	$	-		$	6,860		$	4	$	(4,968)		$	1,895

(a) There were $12 million of Corporate – non-U.S. securities and $50 million of U.S. Treasuries and federal agency securities transferred from Level 1 to Level 2 in the six months ended June 30, 2016 primarily attributable to changes in approach. There were no securities transferred between Level 1 and Level 2 in the year ended December 31, 2015.

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

(c) The fair value of derivatives includes an adjustment for non-performance risk. At June 30, 2016 and December 31, 2015, the cumulative adjustment for non-performance risk was $(9) million and insignificant, respectively. See Notes 15 and 19 for additional information on the composition of our derivative portfolio.

(d) Includes private equity investments.

(e) Primarily represents the liabilities associated with certain of our deferred incentive compensation plans.

Level 3 Instruments

The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowners’ equity.

CHANGES IN LEVEL 3 INSTRUMENTS FOR THE THREE MONTHS ENDED
																			Net
																			change in
			Net			Net													unrealized
			realized/			realized/													gains
			unrealized		unrealized														(losses)
			gains			gains													relating to
			(losses)			(losses)							Transfers		Transfers				instruments
	Balance at		included in			included							into		out of		Balance at		still held at
(In millions)	April 1		earnings(a)			in AOCI	Purchases		Sales		Settlements		Level 3(b)		Level 3(b)		June 30		June 30(c)
2016
Investment securities
Debt
U.S. corporate	$	3,143	$	4	$	132	$	173	$	-	$	(35)	$	8	$	(3)	$	3,422	$	-
State and municipal		31		-		1		-		-		-		-		-		32		-
Mortgage and
asset-backed		23		(10)		-		-		-		(5)		-		-		8		-
Corporate – non-U.S.		295		28		(5)		9		(82)		-		(1)		-		244		-
U.S. government and
federal agency		277		-		30		-		-		-		-		-		307		-
Equity		9		-		(1)		-		-		-		-		-		8		-
Derivatives(d)(e)		82		(26)		-		-		-		(41)		11		11		37		(24)
Total	$	3,859	$	(4)	$	158	$	183	$	(82)	$	(82)	$	18	$	8	$	4,057	$	(24)
2015
Investment securities
Debt
U.S. corporate	$	3,163	$	(10)	$	(145)	$	87	$	(38)	$	(20)	$	-	$	(13)	$	3,024	$	-
State and municipal		58		-		(3)		-		-		(8)		-		-		47		-
Mortgage and
asset-backed		114		(15)		(8)		-		-		-		-		(13)		78		-
Corporate – non-U.S.		290		-		(7)		-		-		-		-		-		283		-
Government – non-U.S.		2		-		-		-		-		-		-		-		2		-
U.S. government and
federal agency		291		-		2		-		-		-		-		-		293		-
Equity		6		-		-		6		(6)		-		-		-		6		-
Derivatives(d)(e)		33		(2)		-		-		-		(6)		40		-		65		33
Other		225		4		-		-		(7)		-		-		-		222		1
Total	$	4,183	$	(23)	$	(161)	$	92	$	(51)	$	(35)	$	40	$	(27)	$	4,020	$	34

Earnings effects are primarily included in the “GE Capital revenues from services” and “Interest and other financial charges” captions in the Statement of Earnings.
Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were primarily a result of increased use of quotes from independent pricing vendors based on recent trading activity.
Represents the amount of unrealized gains or losses for the period included in earnings.
Represents derivative assets net of derivative liabilities and includes cash accruals of none and $11 million not reflected in the fair value hierarchy table for the three months ended June 30, 2016 and 2015, respectively.
Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Notes 15 and 19.

CHANGES IN LEVEL 3 INSTRUMENTS FOR THE SIX MONTHS ENDED
																			Net
																			change in
			Net			Net													unrealized
			realized/			realized/													gains
			unrealized		unrealized														(losses)
			gains			gains													relating to
			(losses)			(losses)							Transfers		Transfers				instruments
	Balance at		included in			included							into		out of		Balance at		still held at
(In millions)	January 1		earnings(a)			in AOCI	Purchases		Sales		Settlements		Level 3(b)		Level 3(b)		June 30		June 30(c)
2016
Investment securities
Debt
U.S. corporate	$	3,006	$	8	$	232	$	233	$	(5)	$	(43)	$	8	$	(18)	$	3,422	$	-
State and municipal		30		-		2		-		-		-		-		-		32		-
Mortgage and
asset-backed		32		(19)		-		-		-		(6)		-		-		8		-
Corporate – non-U.S.		290		28		-		9		(82)		(1)		(1)		-		244		-
U.S. government and
federal agency		323		-		(15)		-		-		(1)		-		-		307		-
Equity		13		(6)		1		-		-		-		-		-		8		-
Derivatives(d)(e)		88		(22)		-		-		-		(39)		-		10		37		(20)
Other		259		-		-		-		-		-		-		(259)		-		-
Total	$	4,042	$	(12)	$	221	$	243	$	(87)	$	(90)	$	7	$	(267)	$	4,057	$	(20)
2015
Investment securities
Debt
U.S. corporate	$	3,053	$	(6)	$	(86)	$	181	$	(49)	$	(56)	$	-	$	(13)	$	3,024	$	-
State and municipal		58		-		(2)		-		-		(8)		-		-		47		-
Mortgage and
asset-backed		145		(9)		(9)		-		(32)		(3)		-		(13)		78		-
Corporate – non-U.S.		337		-		(4)		-		(49)		-		-		-		283		-
Government – non-U.S.		2		-		-		-		-		-		-		-		2		-
U.S. government and
federal agency		266		-		28		-		-		(1)		-		-		293		-
Equity		9		2		(2)		6		(6)		(4)		-		-		6		-
Derivatives(d)(e)		29		3		-		-		-		(8)		40		-		65		40
Other		277		(34)		-		-		(20)		-		-		-		222		(37)
Total	$	4,175	$	(44)	$	(74)	$	187	$	(157)	$	(80)	$	41	$	(27)	$	4,020	$	3

Earnings effects are primarily included in the “GE Capital revenues from services” and “Interest and other financial charges” captions in the Statement of Earnings.
Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 for the six months ended June 30, 2016 were primarily a result of the adoption of ASU 2015-02, Amendments to the Consolidation Analysis. See Note 1.
Represents the amount of unrealized gains or losses for the period included in earnings.
Represents derivative assets net of derivative liabilities and includes cash accruals of none and $11 million not reflected in the fair value hierarchy table for the six months ended June 30, 2016 and 2015, respectively.
Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Notes 15 and 19.

The following table represents non-recurring fair value amounts (as measured at the time of the adjustment) for those assets remeasured to fair value on a non-recurring basis during the fiscal year and still held at June 30, 2016 and December 31, 2015.

	Remeasured during				Remeasured during
	the six months ended				the year ended
	June 30, 2016				December 31, 2015
(In millions)	Level 2		Level 3		Level 2		Level 3

Financing receivables and financing receivables held for sale	$	-	$	33	$	-	$	154
Cost and equity method investments		-		226		1		436
Long-lived assets		32		634		2		882
Total	$	32	$	893	$	3	$	1,471

The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at June 30, 2016 and 2015.

	Three months ended June 30				Six months ended June 30
(In millions)	2016		2015		2016		2015

Financing receivables and financing receivables held for sale	$	-	$	(19)	$	(15)	$	(21)
Cost and equity method investments		(18)		(60)		(95)		(91)
Long-lived assets		(172)		(23)		(227)		(57)
Total	$	(190)	$	(103)	$	(337)	$	(168)

LEVEL 3 MEASUREMENTS - SIGNIFICANT UNOBSERVABLE INPUTS

					Range
(Dollars in millions)	Fair value		Valuation technique	Unobservable inputs	(weighted-average)

June 30, 2016
Recurring fair value measurements
Investment securities – Debt
U.S. corporate	$	897	Income approach	Discount rate(a)	1.7%-13.5% (8.0%)
Mortgage and asset-backed		8	Income approach	Discount rate(a)	2.0%-5.0% (4.7%)

Non-recurring fair value measurements
Financing receivables and
financing receivables held for sale	$	31	Income approach	Discount rate(a)	9.0%-30.0% (20.4%)

Cost and equity method investments		138	Income approach	Discount rate(a)	9.0%-20.0% (13.2%)

Long-lived assets		599	Income approach	Discount rate(a)	1.8%-25.0% (10.5%)

December 31, 2015
Recurring fair value measurements
Investment securities – Debt
U.S. corporate	$	834	Income approach	Discount rate(a)	1.7%-14.1% (8.6%)
Mortgage and asset-backed		31	Income approach	Discount rate(a)	5.0%-12.0% (10.5%)
Corporate – non-U.S.		236	Income approach	Discount rate(a)	6.5%-14.0% (7.5%)
Other financial assets		259	Income approach,	EBITDA multiple	6.1X-15.0X (9.9X)
			Market comparables	Capitalization rate	7.8%-7.8% (7.8%)

Non-recurring fair value measurements
Financing receivables and
financing receivables held for sale	$	146	Income approach	Discount rate(a)	6.5%-30.0% (10.7%)

Cost and equity method investments		293	Income approach,	Discount rate(a)	9.5%-35.0% (14.4%)

Long-lived assets		830	Income approach	Discount rate(a)	1.8%-11.7% (10.5%)

(a) Discount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value.

At June 30, 2016 and December 31, 2015, other Level 3 recurring fair value measurements of $3,130 million and $2,637 million, respectively, and non-recurring measurements of $122 million and $122 million, respectively, are valued using non-binding broker quotes or other third-party sources. At June 30, 2016 and December 31, 2015, other recurring fair value measurements of $22 million and $32 million, respectively, and non-recurring fair value measurements of $4 million and $80 million, respectively, were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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