GE 2006 Annual Report Download - page 66

’   
Carrying amounts for product services agreements in progress
at December 31, 2006 and 2005, were $5.6 billion and $4.4 billion,
respectively, and are included in the line, “Contract costs and
estimated earnings” in note 17. Adjustments to earnings result-
ing from revisions to estimates on product services agreements
have been insignificant for each of the years in the three-year
period ended December 31, 2006.
Further information is provided in note 1.
ASSET IMPAIRMENT assessment involves various estimates and
assumptions as follows:
INVESTMENTS. 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. We perform comprehensive
market research and analysis and monitor market conditions to
identify potential impairments.
Further information about actual and potential impairment
losses is provided in the Financial Resources and Liquidity —
Investment Securities section and in notes 1 and 10.
LONG-LIVED ASSETS. We review long-lived assets for impairment
whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. Determining
whether an impairment has occurred typically requires various
estimates and assumptions, including determining which undis-
counted cash flows are directly related to the potentially
impaired asset, the useful life over which cash flows will occur,
their amount, and the asset’s residual value, if any. In turn,
measurement of an impairment loss requires a determination
of fair value, which is based on the best information available.
We derive the required undiscounted cash flow estimates from
our historical experience and our internal business plans.
To determine fair value, we use our internal cash fl ow estimates
discounted at an appropriate interest rate, quoted market prices
when available and independent appraisals, as appropriate.
Commercial aircraft are a significant concentration of assets in
Infrastructure, and are particularly subject to market fl uctuations.
Therefore, we test recoverability of each aircraft in our operating
lease portfolio at least annually. Additionally, we perform quarterly
evaluations in circumstances such as when aircraft are re-leased,
current lease terms have changed or a specifi c lessee’s credit
standing changes. We consider market conditions, such as the
global shortage of commercial aircraft in 2006. Estimates of future
rentals and residual values are based on historical experience
and information received routinely from independent appraisers.
Estimated cash flows from future leases are reduced for
expected downtime between leases and for estimated technical
costs required to prepare aircraft to be redeployed. Fair value
used to measure impairment is based on current market values
from independent appraisers.
We recognized impairment losses on our operating lease
portfolio of commercial aircraft of $0.1 billion and $0.3 billion in
2006 and 2005, respectively. In addition to these impairment
charges relating to operating leases, provisions for losses on
financing receivables related to commercial aircraft were insig-
nificant in 2006 and $0.2 billion in 2005, primarily related to
Northwest Airlines Corporation (Northwest Airlines).
Certain of our commercial aviation customers are operating
under bankruptcy protection while they implement steps to
return to profitable operations with a lower cost structure.
At December 31, 2006, our largest exposures to carriers operating
in bankruptcy were to Delta Air Lines, Inc., $1.9 billion, and
Northwest Airlines, $1.1 billion. Our financial exposures to these
carriers are substantially secured by various Boeing, Airbus and
Bombardier aircraft and operating equipment.
Further information on impairment losses and our exposure
to the commercial aviation industry is provided in the
Operations — Overview section and in notes 10, 15 and 29.
REAL ESTATE. We regularly review our real estate investment
portfolio for impairment or when events or circumstances indi-
cate that the related carrying amounts may not be recoverable.
Our portfolio is diversified, both geographically and by asset
type. However, the global real estate market is subject to periodic
cycles that can cause signifi cant fluctuations in market values.
While the current estimated value of our Commercial Finance
Real Estate investments exceeds our carrying value by about
$3.0 billion, the same as last year, downward cycles could
adversely affect our ability to realize these gains in an orderly
fashion in the future and may necessitate recording impairments.
GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS. We test
goodwill for impairment annually and whenever events or
circumstances make it more likely than not that an impairment
may have occurred, such as a significant adverse change in the
business climate or a decision to sell or dispose all or a portion of
a reporting unit. Determining whether an impairment has occurred
requires valuation of the respective reporting unit, which we
estimate using a discounted cash flow method. When available and
as appropriate, we use comparative market multiples to corrobo-
rate discounted cash flow results. In applying this methodology,
we rely on a number of factors, including actual operating results,
future business plans, economic projections and market data.
If this analysis indicates goodwill is impaired, measuring the
impairment requires a fair value estimate of each identifi ed
tangible and intangible asset. In this case, we supplement the
cash flow approach discussed above with independent appraisals,
as appropriate.
We test other identified intangible assets with defi ned useful
lives and subject to amortization by comparing the carrying
amount to the sum of undiscounted cash flows expected to be
generated by the asset. We test intangible assets with indefi nite
lives annually for impairment using a fair value method such as
discounted cash fl ows.
Further information is provided in the Financial Resources
and Liquidity — Intangible Assets section and in notes 1 and 16.
64 ge 2006 annual report