GE 2005 Annual Report Download - page 48

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INVESTMENT SECURITIES comprise mainly available-for-sale investment-grade debt securities supporting
obligations to annuitants and policyholders, and debt and equity securities designated as trading and associated with
certain non-U.S. insurance contract-holders who retain the related investment risks and rewards except in the event
of our bankruptcy or liquidation. Investment securities were $53.1 billion at December 31, 2005, compared with
$56.9 billion at December 31, 2004.
We regularly review investment securities for impairment based on both quantitative and qualitative
criteria. Quantitative criteria include length of time and amount that each security is in an unrealized loss position
and, for fixed maturities whether the issuer is in compliance with terms and covenants of the security. Qualitative
criteria include the financial health of and specific prospects for the issuer, as well as our intent and ability to hold
the security to maturity or until forecasted recovery. Our impairment reviews involve our finance, risk and asset
management teams as well as the portfolio management and research capabilities of our internal and third-party
asset managers. Our qualitative review attempts to identify those issuers with a greater than 50% chance of default
in the following 12 months. These securities are characterized as “at-risk” of impairment. Of available-for-sale
securities with unrealized losses at December 31, 2005, approximately $0.1 billion was at risk of being charged to
earnings in the next 12 months; substantially all of this amount related to the automotive and commercial aviation
industries.
Impairment losses for 2005 totaled $0.1 billion compared with $0.2 billion in 2004. We recognized
impairments in both periods for issuers in a variety of industries; we do not believe that any of the impairments
indicate likely future impairments in the remaining portfolio.
Gross unrealized gains and losses were $2.5 billion and $0.5 billion, respectively, at December 31, 2005,
compared with $2.9 billion and $0.5 billion, respectively, at December 31, 2004, primarily reflecting a decrease in
the estimated fair value of debt securities as interest rates increased. At December 31, 2005, available accounting
gains could be as much as $0.7 billion, net of consequential adjustments to certain insurance assets that are
amortized based on anticipated gross profits. The market values we used in determining unrealized gains and losses
are those defined by relevant accounting standards and should not be viewed as a forecast of future gains or losses.
See note 10.
We also hold collateralized investment securities issued by various airlines, including those operating in
bankruptcy. Total amortized cost of these securities was $1.7 billion at December 31, 2005, and total fair value was
$1.6 billion. Unrealized losses totaling $0.1 billion were associated with securities in an unrealized loss position for
more than 12 months, an improvement from the comparable $0.3 billion a year earlier. All of these securities have
remained current on all payment terms; we do not expect the borrowers to default. Current appraised market values
of associated aircraft collateral exceeded both the market value and the amortized cost of our related securities at
December 31, 2005, offering protection in the event of foreclosure. Therefore, we expect full recovery of our
investment as well as our contractual returns.
WORKING CAPITAL, representing GE inventories and receivables from customers, less trade payables and
progress collections, was $8.4 billion at December 31, 2005, up $0.1 billion from December 31, 2004, reflecting the
effects of 2005 acquisitions.
We discuss current receivables and inventories, two important elements of working capital, in the following
paragraphs.