GE 2015 Annual Report Download - page 223

FINANCIAL STATEMENTS VARIABLE INTEREST ENTITIES
GE 2015 FORM 10-K 195
NOTE 21. VARIABLE INTEREST ENTITIES
We use variable interest entities primarily to securitize financial assets and arrange other forms of asset-backed financing in the
ordinary course of business. Investors in these entities only have recourse to the assets owned by the entity and not to our general
credit. We do not have implicit support arrangements with any VIE. We did not provide non-contractual support for previously
transferred financing receivables to any VIE in 2015 or 2014.
In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we
consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-
PDNLQJUROHLIDQ\LQWKRVHDFWLYLWLHVWKDWVLJQLILFDQWO\GHWHUPLQHWKHHQWLW\¶VHFRQRPLFSHUIRUPDQFHDVFRPSDUHGWRRWKHUeconomic
interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the
HQWLW\¶VIXWXUHSHUIRUPDQFHDQGWKHH[HUFLVHRISURIHVVLRQDOMXGJPHQWLQGHFLGLQJZKLFKGHFLVLRQ-making rights are most important.
In determining whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the
VIE, we evaluate all of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other
FRQWUDFWXDODUUDQJHPHQWV7KLVHYDOXDWLRQFRQVLGHUVDOOUHOHYDQWIDFWRUVRIWKHHQWLW\¶VGHVLJQLQFOXGLQJWKHHQWLW\¶VFDSital structure,
contractual rights to earnings (losses), subordination of our interests relative to those of other investors, contingent payments, as well
as other contractual arrangements that have the potential to be economically significant. The evaluation of each of these factors in
reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional
judgment.
CONSOLIDATED VARIABLE INTEREST ENTITIES
Our most significant consolidated VIEs are the three joint ventures we formed with Alstom to facilitate the Alstom acquisition. These
joint ventures include grid technology, renewable energy, and global nuclear and French steam power. The assets, liabilities and
redeemable non-controlling interest in the joint ventures as of December 31, 2015 was $11,536 million, $8,739 million and $2,859
million, respectively. Further information about the formation of the Alstom joint ventures is provided in Note 8. These joint ventures are
VIEs due to the nature of the exit mechanisms held by Alstom and are consolidated by GE because we control all significant activities
of the joint ventures. As these joint ventures are businesses, would otherwise be consolidated under the voting model and their assets
can be used for purposes other than settlement of WKHMRLQWYHQWXUHV¶ obligations, there is no continuing VIE disclosure requirement for
these consolidated joint ventures.
The Consolidated VIEs for which we have continuing disclosure requirements fall into three main groups. We consolidate VIEs because
ZHKDYHWKHSRZHUWRGLUHFWWKHDFWLYLWLHVWKDWVLJQLILFDQWO\DIIHFWWKH9,(¶VHFonomic performance, typically because of our role as either
servicer or manager for the VIE, which are further described below:
x Trinity comprises two consolidated entities that hold investment securities, the majority of which are investment-grade, and were
funded by the issuance of GICs. The GICs include conditions under which certain holders could require immediate repayment of
their investment should the long-term credit ratings of GE Capital fall below AA-/Aa3 or the short-term credit ratings fall below A-
1+/P-1. The outstanding GICs are subject to their scheduled maturities and individual terms, which may include provisions
permitting redemption upon a downgrade of one or more of GE Capital¶VUDWLQJVDPRQJRWKHUWKLQJVDQGDUHUHSRUWHGLQ
investment contracts, insurance liabilities and insurance annuity benefits.
x A Securitization Entity was created to facilitate securitization of trade receivables that serve as an alternative funding source by
providing access to variable funding notes and term markets. The securitization transactions executed with this entity are similar to
those used by many financial institutions and all are non-recourse. We provide servicing for substantially all of the assets in this
entity.
The trade receivables in this entity have similar risks and characteristics to our other trade receivables and were underwritten to the
same standard. Accordingly, the performance of these assets has been similar to our other trade receivables; however, the
blended performance of the pools of receivables in this entity reflects the eligibility criteria that we apply to determine which
receivables are selected for transfer. Contractually the cash flows from these trade receivables must first be used to pay third-party
debt holders as well as other expenses of the entity. Excess cash flows are available to GE. The creditors of this entity have no
claim on other assets of GE.
GE 2015 FORM 10-K 195