GE 2006 Annual Report Download - page 61

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.
We also hold collateralized investment securities issued by
various airlines, including those operating in bankruptcy. Total
amortized cost and fair value of these securities were $0.7 billion
at December 31, 2006. Unrealized losses associated with securities
in an unrealized loss position for more than 12 months were
insignificant, an improvement from the comparable $0.1 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, 2006, offering protection in
the event of foreclosure. Therefore, we expect full recovery of
our investment as well as our contractual returns. See note 10.
WORKING CAPITAL, representing GE inventories and receivables
from customers, less trade payables and progress collections,
was $7.6 billion at December 31, 2006, down $0.8 billion from
December 31, 2005.
We discuss current receivables and inventories, two important
elements of working capital, in the following paragraphs.
CURRENT RECEIVABLES for GE amounted to $14.3 billion at the
end of 2006 and $15.1 billion at the end of 2005, and included
$9.1 billion due from customers at the end of 2006 compared
with $10.3 billion at the end of 2005. Turnover of customer
receivables from sales of goods and services was 10.6 in 2006,
compared with 9.0 in 2005. Other current receivables are primarily
amounts that did not originate from sales of GE goods or services,
such as advances to suppliers in connection with large contracts.
The allowance for losses decreased $0.3 billion in 2006, primarily
reflecting write-offs of receivables for which losses were previously
provided. See note 11.
INVENTORIES for GE amounted to $11.3 billion at December 31,
2006, up $1.0 billion from the end of 2005. This increase refl ected
higher inventories at Infrastructure, which is in line with anticipated
growth. GE inventory turnover was 8.3 in both 2006 and 2005.
See note 12.
FINANCING RECEIVABLES is our largest category of assets and
represents one of our primary sources of revenues. The portfolio
of financing receivables, before allowance for losses, was
$338.9 billion at December 31, 2006, and $292.2 billion at
December 31, 2005. The related allowance for losses at
December 31, 2006, amounted to $4.7 billion, compared with
$4.6 billion at December 31, 2005, representing our best estimate
of probable losses inherent in the portfolio. The 2006 increase
reflected overall growth in our portfolio at GE Money and late-
year weakening of the U.S. dollar, primarily at GE Money; partially
offset by overall improvement in portfolio quality at Commercial
Finance and lower losses on commercial aviation loans and leases
in our Infrastructure segment. Balances at December 31, 2006
and 2005, included securitized, managed GE trade receivables of
$6.0 billion and $3.9 billion, respectively.
’   
A discussion of the quality of certain elements of the fi nanc-
ing receivables portfolio follows. For purposes of that discussion,
“delinquent” receivables are those that are 30 days or more past
due; and “nonearning” receivables are those that are 90 days or
more past due (or for which collection has otherwise become
doubtful).
Commercial Finance fi nancing receivables, before allowance
for losses, totaled $153.2 billion at December 31, 2006, compared
with $131.8 billion at December 31, 2005, and consisted of
loans and leases to the equipment and leasing, commercial and
industrial and real estate industries. This portfolio of receivables
increased primarily from core growth ($58.3 billion), acquisitions
($5.6 billion), and late-year weakening of the U.S. dollar
($2.4 billion), partially offset by securitizations and sales
($42.8 billion). Related nonearning receivables were $1.6 billion
(1.0% of outstanding receivables) at December 31, 2006, and
$1.3 billion (1.0% of outstanding receivables) at year-end 2005.
Commercial Finance financing receivables are generally backed
by assets and there is a broad spread of geographic and credit
risk in the portfolio.
GE Money financing receivables, before allowance for losses,
were $156.7 billion at December 31, 2006, compared with
$130.1 billion at December 31, 2005, and consisted primarily of
card receivables, installment loans, auto loans and leases, and
residential mortgages. This portfolio of receivables increased
primarily as a result of core growth ($17.7 billion), late-year
weakening of the U.S. dollar ($8.2 billion) and acquisitions
($3.2 billion), partially offset by loans transferred to assets held
for sale ($2.5 billion). Related nonearning receivables were
$3.3 billion at December 31, 2006, compared with $2.8 billion at
December 31, 2005, both representing 2.1% of outstanding
receivables. The increase was primarily related to the weaker U.S.
dollar at the end of the year and overall growth in the portfolio.
Infrastructure financing receivables, before allowance for
losses, were $21.2 billion at December 31, 2006, compared with
$19.1 billion at December 31, 2005, and consisted primarily of
loans and leases to the commercial aircraft and energy industries.
Related nonearning receivables were insignificant at December 31,
2006 and 2005.
Other financing receivables, before allowance for losses,
were $7.8 billion and $11.2 billion at December 31, 2006, and
December 31, 2005, respectively, and consisted primarily of
financing receivables in consolidated, liquidating securitization
entities. This portfolio of receivables decreased because we
have stopped transferring assets to these entities. Related non-
earning receivables at December 31, 2006, were $0.1 billion
(1.1% of outstanding receivables) compared with $0.1 billion
(0.7% of outstanding receivables) at December 31, 2005.
Delinquency rates on managed Commercial Finance
equipment loans and leases and managed GE Money fi nancing
receivables follow.
December 31 2006 2005 2004
Commercial Finance 1.22% 1.31% 1.40%
GE Money 5.05 5.08 4.85
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