GE 2014 Annual Report Download - page 96

76 GE 2014 FORM 10-K
MD&A FINANCIAL RESOURCES AND LIQUIDITY
x It is our policy to minimize currency exposures and to conduct operations either within functional currencies or using the
protection of hedge strategies. We analyzed year-end 2014 consolidated currency exposures, including derivatives
designated and effective as hedges, to identify assets and liabilities denominated in other than their relevant functional
currencies. For such assets and liabilities, we then evaluated the effects of a 10% shift in exchange rates between those
currencies and the U.S. dollar, holding all other assumptions constant. This analysis indicated that our 2015 consolidated
net earnings would decline by less than $0.1 billion as a result of such a shift in exchange rates. This analysis excludes
any translation impact from changes in exchange rates on our financial results.
DEBT AND DERIVATIVE INSTRUMENTS, GUARANTEES AND COVENANTS
CREDIT RATINGS
As of December 31, 2014, GE’s and GECC’s long-term unsecured debt ratings from Standard and Poor’s Ratings Service
(S&P) were AA+ with a stable outlook and their short-term funding ratings from S&P were A-1+. We are disclosing these
ratings to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Although we
currently do not expect a downgrade in the credit ratings, our ratings may be subject to a revision or withdrawal at any time by
the assigning rating organization, and each rating should be evaluated independently of any other rating.
PRINCIPAL DEBT AND DERIVATIVE CONDITIONS
Certain of our derivative instruments can be terminated if specified credit ratings are not maintained and certain debt and
derivatives agreements of other consolidated entities have provisions that are affected by these credit ratings.
Fair values of our derivatives can change significantly from period to period based on, among other factors, market
movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not
make payments to us according to the terms of our standard master agreements) on an individual counterparty basis. Where
we have agreed to netting of derivative exposures with a counterparty, we offset our exposures with that counterparty and
apply the value of collateral posted to us to determine the net exposure. We actively monitor these net exposures against
defined limits and take appropriate actions in response, including requiring additional collateral.
Swap, forward and option contracts are executed under standard master agreements that typically contain mutual downgrade
provisions that provide the ability of the counterparty to require termination if the long-term credit ratings of the applicable GE
entity were to fall below A-/A3. In certain of these master agreements, the counterparty also has the ability to require
termination if the short-term ratings of the applicable GE entity were to fall below A-1/P-1. The net derivative liability after
consideration of netting arrangements, outstanding interest payments and collateral posted by us under these master
agreements was estimated to be $0.5 billion at December 31, 2014. See Note 22 to the consolidated financial statements in
this Form 10-K Report.
Other debt and derivative agreements of consolidated entities include Trinity, which comprises two entities that hold
investment securities, the majority of which are investment grade, and were funded by the issuance of guaranteed investment
contracts (GICs). These GICs include conditions under which certain holders could require immediate repayment of their
investment should the long-term credit ratings of GECC fall below AA-/Aa3 or the short-term credit ratings fall below A-1+/P-1,
and are reported in investment contracts, insurance liabilities and insurance annuity benefits. The Trinity assets and liabilities
are disclosed in note (a) on our Statement of Financial Position in the consolidated financial statements of this Form 10-K
Report. Another consolidated entity also had issued GICs where proceeds are loaned to GECC. These GICs included
conditions under which certain holders could require immediate repayment of their investment should the long-term credit
ratings of GECC fall below AA-/Aa3. These obligations are included in the caption “long-term borrowings” on our Statement of
Financial Position in the consolidated financial statements in this Form 10-K Report. These three consolidated entities ceased
issuing GICs in 2010.