GE 2015 Annual Report Download - page 174

FINANCIAL STATEMENTS PRESENTATION & POLICIES
146 GE 2015 FORM 10-K
NON-RECURRING FAIR VALUE MEASUREMENTS
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis,
but are subject to fair value adjustments only in certain circumstances. These assets can include loans and long-lived assets that have
been reduced to fair value when they are held for sale, impaired loans that have been reduced based on the fair value of the underlying
collateral, cost and equity method investments and long-lived assets that are written down to fair value when they are impaired and the
remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of
a subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair value
when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.
The following sections describe the valuation methodologies we use to measure financial and non-financial instruments accounted for
at fair value on a non-recurring basis and for certain assets within our pension plans and retiree benefit plans at each reporting period,
as applicable.
Financing Receivables and Loans Held for Sale. When available, we use observable market data, including pricing on recent closed
market transactions, to value loans that are included in Level 2. When this data is unobservable, we use valuation methodologies using
current market interest rate data adjusted for inherent credit risk, and such loans are included in Level 3. When appropriate, loans may
be valued using collateral values (see Long-Lived Assets below).
Cost and Equity Method Investments. Cost and equity method investments are valued using market observable data such as quoted
prices when available. When market observable data is unavailable, investments are valued using a discounted cash flow model,
comparative market multiples or a combination of both approaches as appropriate and other third-party pricing sources. These
investments are generally included in Level 3.
Investments in private equity, real estate and collective funds are valued using net asset values. The net asset values are determined
based on the fair values of the underlying investments in the funds. Investments in private equity and real estate funds are generally
included in Level 3 because they are not redeemable at the measurement date. Investments in collective funds are included in Level 2.
Long-lived Assets. Fair values of long-lived assets, including aircraft and real estate, are primarily derived internally and are based on
observed sales transactions for similar assets. In other instances, for example, collateral types for which we do not have comparable
observed sales transaction data, collateral values are developed internally and corroborated by external appraisal information.
Adjustments to third-party valuations may be performed in circumstances where market comparables are not specific to the attributes of
the specific collateral or appraisal information may not be reflective of current market conditions due to the passage of time and the
occurrence of market events since receipt of the information.
Retained Investments in Formerly Consolidated Subsidiaries. Upon a change in control that results in deconsolidation of a
subsidiary, the fair value measurement of our retained noncontrolling stake is valued using market observable data such as quoted
prices when available, or if not available, an income approach, a market approach, or a combination of both approaches as appropriate.
In applying these methodologies, we rely on a number of factors, including actual operating results, future business plans, economic
projections, market observable pricing multiples of similar businesses and comparable transactions, and possible control premium.
These investments are generally included in Level 1 or Level 3, as appropriate, determined at the time of the transaction.
ACCOUNTING CHANGES
In the second quarter of 2014, the Company elected to early adopt Accounting Standards Update (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 changed 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 HQWLW\¶V operations and financial results. The ASU also expanded 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 was permitted for disposals (or classifications as held for sale) that had not been previously
146 GE 2015 FORM 10-K