GE 2006 Annual Report Download - page 78

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We write off unsecured closed-end installment loans at
120 days contractually past due and unsecured open-ended
revolving loans at 180 days contractually past due. We write
down consumer loans secured by collateral other than residential
real estate to the fair value of the collateral, less costs to sell,
when such loans are 120 days past due. Consumer loans
secured by residential real estate (both revolving and closed-end
loans) are written down to the fair value of collateral, less costs
to sell, no later than when they become 360 days past due.
Unsecured consumer loans in bankruptcy are written off within
60 days of notification of filing by the bankruptcy court or within
contractual write-off periods, whichever occurs earlier.
Our commercial loan and lease portfolio consists of a variety
of loans and leases, including both larger balance, non-homogenous
loans and leases and smaller balance homogenous commercial
and equipment loans and leases. Losses on such loans and
leases are recorded when probable and estimable. We routinely
survey our entire portfolio for potential specific credit or collec-
tion issues that might indicate an impairment. For larger balance,
non-homogenous loans and leases, this survey fi rst considers
the financial status, payment history, collateral value, industry
conditions and guarantor support related to specifi c customers.
Any delinquencies or bankruptcies are indications of potential
impairment requiring further assessment of collectibility. We rou-
tinely receive financial, as well as rating agency reports, on our
customers, and we elevate for further attention those customers
whose operations we judge to be marginal or deteriorating. We
also elevate customers for further attention when we observe a
decline in collateral values for asset-based loans. While collateral
values are not always available, when we observe such a decline,
we evaluate relevant markets to assess recovery alternatives —
for example, for real estate loans, relevant markets are local; for
aircraft loans, relevant markets are global. We provide allowances
based on our evaluation of all available information, including
expected future cash flows, fair value of collateral, net of disposal
costs, and the secondary market value of the fi nancing receivables.
After providing for specific incurred losses, we then determine an
allowance for losses that have been incurred in the balance of the
portfolio but cannot yet be identified to a specific loan or lease.
This estimate is based on historical and projected default rates and
loss severity, and it is prepared by each respective line of business.
Experience is not available with new products; therefore, while
we are developing that experience, we set loss allowances based
on our experience with the most closely analogous products in
our portfolio.
When we repossess collateral in satisfaction of a loan, we
write down the receivable against the allowance for losses.
Repossessed collateral is included in the caption “All other assets”
in the Statement of Financial Position and carried at the lower of
cost or estimated fair value less costs to sell.
The remainder of our commercial loans and leases are portfolios
of smaller balance homogenous commercial and equipment
positions that we evaluate collectively by portfolio for impairment
based upon various statistical analyses considering historical
losses and aging.
Sales of stock by affiliates
We record gains or losses on sales by an affiliate of its own shares
as revenue unless realization of gains is not reasonably assured,
in which case we record the results in shareowners’ equity.
Cash and equivalents
Debt securities with original maturities of three months or less
are included in cash equivalents unless designated as available-
for-sale and classified as investment securities.
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. Realized gains
and losses are accounted for on the specifi c identifi cation method.
Inventories
All inventories are stated at the lower of cost or realizable values.
Cost for a significant portion 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 fi rst-in, first-out (FIFO) basis. LIFO was used for
48% and 50% of GE inventories at December 31, 2006 and 2005,
respectively. GECS inventories consist of finished products held
for sale; 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 fi nancial
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 fl ow results.
When all or a portion of a reporting unit is disposed of, goodwill
is allocated to the gain or loss on disposition using the relative
fair value method.
76 ge 2006 annual report