GE 2015 Annual Report Download - page 146

RISK FACTORS
118 GE 2015 FORM 10-K
Supply chain - Significant raw material shortages, supplier capacity constraints, supplier production disruptions, supplier
quality and sourcing issues or price increases could increase our operating costs and adversely impact the competitive
positions of our products.
Our reliance on third-party suppliers, contract manufacturers and service providers, and commodity markets to secure raw materials,
parts, components and sub-systems used in our products exposes us to volatility in the prices and availability of these materials, parts,
components, systems and services. Some of these suppliers or their sub-suppliers are limited- or sole-source suppliers. A disruption in
deliveries from our third-party suppliers, contract manufacturers or service providers, capacity constraints, production disruptions, price
increases, or decreased availability of raw materials or commodities, including as a result of catastrophic events, could have an adverse
effect on our ability to meet our commitments to customers or increase our operating costs. Quality and sourcing issues experienced by
third-party providers can also adversely affect the quality and effectiveness of our products and services and result in liability and
reputational harm.
FINANCIAL RISKS
Financial risk relates to our ability to meet financial obligations and mitigate exposure to broad market risks, including volatility in foreign
currency exchange rates and interest rates and commodity prices; credit risk; and liquidity risk, including risk related to our credit ratings
and our availability and cost of funding. Credit risk is the risk of financial loss arising from a customer or counterparty failure to meet its
contractual obligations. We face credit risk in our industrial businesses, as well as in our GE Capital investing, lending and leasing
activities and derivative financial instruments activities. Liquidity risk refers to the potential inability to meet contractual or contingent
financial obligations (whether on- or off-balance sheet) as they arise, and could potentially impact an LQVWLWXWLRQ¶V financial condition or
overall safety and soundness.
Economy/counter-parties - A deterioration of conditions in the global economy, the major industries we serve or the financial
markets, or the soundness of financial institutions and governments we deal with, may adversely affect our business and
results of operations.
The business and operating results of our industrial businesses have been, and will continue to be, affected by worldwide economic
conditions, including conditions in the air and rail transportation, power generation, oil and gas, renewables, healthcare, home building
and other major industries we serve. Existing or potential customers may delay or cancel plans to purchase our products and services,
including large infrastructure projects, and may not be able to fulfill their obligations to us in a timely fashion as a result of business
deterioration, cash flow shortages, low oil prices or difficulty obtaining financing due to slower global economic growth and other
challenges affecting the global economy. In particular, the airline industry is highly cyclical, and the level of demand for air travel is
correlated to the strength of the U.S. and international economies. An extended period of slow growth in the U.S. or internationally that
results in the loss of business and leisure traffic could have a material adverse effect on our airline customers and the viability of their
business. Service contract cancellations or customer dynamics such as early aircraft retirements, reduced electricity demand in our
Power and Renewable Energy businesses or declines in orders, project commencement delays and pricing pressures on our Oil & Gas
business from low oil prices could affect our ability to fully recover our contract costs and estimated earnings. Further, our vendors may
be experiencing similar conditions, which may impact their ability to fulfill their obligations to us. If slower growth in the global economy
continues for a significant period or there is significant deterioration in the global economy, our results of operations, financial position
and cash flows could be materially adversely affected.
If conditions in the financial markets deteriorate, there can be no assurance that we will be able to recover fully the value of certain
assets, including goodwill, intangibles and tax assets. Deterioration in the economy and in default and recovery rates could require us
to increase allowances for loan losses, impairments or write-offs, which, depending on the amount of the increase, could have a
material adverse effect on our business, financial position and results of operations.
In addition, GE Capital has exposure to many different industries and counterparties, including sovereign governments, and routinely
executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks,
investment banks and other institutional clients. Many of these transactions expose GE Capital to credit risk in the event of default of its
counterparty or client. In addition, GE Capital¶V credit risk may be increased when the value of collateral held cannot be realized
through sale or is liquidated at prices insufficient to recover the full amount of the loan or derivative exposure due to it. GE Capital also
has exposure to these financial institutions in the form of cash on deposit and unsecured debt instruments held in its investment
portfolios. GE Capital has policies relating to credit rating requirements and to exposure limits to counterparties (as described in Notes
20 and 27to the consolidated financial statements), which are designed to limit credit and liquidity risk. There can be no assurance,
however, that any losses or impairments to the carrying value of financial assets would not materially and adversely affect *(¶V or GE
Capital¶V business, financial position and results of operations.
118 GE 2015 FORM 10-K