GE 2005 Annual Report Download - page 85

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(85)
Investment securities
We report investments in debt and marketable equity securities, and equity securities in our insurance portfolio, at
fair value based on quoted market prices or, if quoted prices are not available, discounted expected cash flows using
market rates commensurate with the credit quality and maturity of the investment. Unrealized gains and losses on
available-for-sale investment securities are included in shareowners’ equity, net of applicable taxes and other
adjustments. We regularly review investment securities for impairment based on both quantitative and qualitative
criteria that include the extent to which cost exceeds market value, the duration of that market decline, our intent and
ability to hold to maturity or until forecasted recovery and the financial health of and specific prospects for the
issuer. Unrealized losses that are other than temporary are recognized in earnings. For investment securities
designated as trading, unrealized gains and losses are recognized currently in earnings. Realized gains and losses are
accounted for on the specific identification method.
Inventories
All inventories are stated at the lower of cost or realizable values. Cost for substantially all of GE’ s U.S. inventories
is determined on a last-in, first-out (LIFO) basis. Cost of other GE inventories is determined on a first-in, first-out
(FIFO) basis. GECS inventories consist of finished products held for sale, and cost is determined on a FIFO basis.
Intangible assets
We do not amortize goodwill, but test it annually for impairment using a fair value approach at the reporting unit
level. A reporting unit is the operating segment, or a business one level below that operating segment (the
component level) if discrete financial information is prepared and regularly reviewed by segment management.
However, components are aggregated as a single reporting unit if they have similar economic characteristics. We
recognize an impairment charge for any amount by which the carrying amount of a reporting unit’ s goodwill
exceeds its fair value. We use discounted cash flows to establish fair values. When available and as appropriate, we
use comparative market multiples to corroborate discounted cash flow results. When a business within a reporting
unit is disposed of, goodwill is allocated to the gain or loss on disposition using the relative fair value method.
We amortize the cost of other intangibles over their estimated useful lives unless such lives are deemed
indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if
impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets
with indefinite lives are tested annually for impairment and written down to fair value as required.
GECS investment contracts, insurance liabilities and insurance annuity benefits
Certain SPEs, which we consolidate, provide guaranteed investment contracts to states, municipalities and municipal
authorities.
Our insurance activities also include providing insurance and reinsurance for life and health risks and
providing certain annuity products. Three product groups are provided: traditional insurance contracts, investment
contracts and universal life insurance contracts. Insurance contracts are contracts with significant mortality and/or
morbidity risks, while investment contracts are contracts without such risks. Universal life insurance contracts are a
particular type of long-duration insurance contract whose terms are not fixed and guaranteed.