GE 2007 Annual Report Download - page 74

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72 ge 2007 annual report
Depreciation and amortization
The cost of GE manufacturing plant and equipment is depreciated
over its estimated economic life. U.S. assets are depreciated
using an accelerated method based on a sum-of-the-years digits
formula; non-U.S. assets are depreciated on a straight-line basis.
The cost of GECS equipment leased to others on operating
leases is amortized on a straight-line basis to estimated residual
value over the lease term or over the estimated economic life of
the equipment.
The cost of individually signifi cant customer relationships is
amortized in proportion to estimated total related sales; cost of
other intangible assets is amortized on a straight-line basis over
the asset’s estimated economic life. We review long-lived assets
for impairment whenever events or changes in circumstances
indicate that the related carrying amounts may not be recover-
able. See notes 14 and 15.
NBC Universal film and television costs
We defer fi lm and television production costs, including direct
costs, production overhead, development costs and interest.
We do not defer costs of exploitation, which principally comprise
costs of fi lm and television program marketing and distribution.
We amortize deferred fi lm and television production costs, as
well as associated participation and residual costs, on an individual
production basis using the ratio of the current period’s gross
revenues to estimated total remaining gross revenues from all
sources; we state such costs at the lower of amortized cost or
fair value. Estimates of total revenues and costs are based on
anticipated release patterns, public acceptance and historical
results for similar products. We defer the costs of acquired broad-
cast material, including rights to material for use on NBC Universal’s
broadcast and cable/satellite television networks, at the earlier
of acquisition or when the license period begins and the material
is available for use. We amortize acquired broadcast material and
rights when we broadcast the associated programs; we state
such costs at the lower of amortized cost or net realizable value.
Losses on financing receivables
Our allowance for losses on fi nancing receivables represents
our best estimate of probable losses inherent in the portfolio.
Our method of calculating estimated losses depends on the size,
type and risk characteristics of the related receivables. Write-offs
are deducted from the allowance for losses and subsequent
recoveries are added. Impaired fi nancing receivables are written
down to the extent that we judge principal to be uncollectible.
Our portfolio consists entirely of homogenous consumer
loans and of commercial loans and leases. The underlying
assumptions, estimates and assessments we use to provide for
losses are continually updated to refl ect our view of current
conditions. Changes in such estimates can signifi cantly affect the
allowance and provision for losses. It is possible to experience
credit losses that are different from our current estimates.
Our consumer loan portfolio consists of smaller balance,
homogenous loans including card receivables, installment loans,
auto loans and leases and residential mortgages. We collectively
evaluate each portfolio for impairment. The allowance for losses
on these receivables is established through a process that
estimates the probable losses inherent in the portfolio based
upon statistical analyses of portfolio data. These analyses include
migration analysis, in which historical delinquency and credit
loss experience is applied to the current aging of the portfolio,
together with other analyses that refl ect current trends and
conditions. We also consider overall portfolio indicators including
nonearning loans, trends in loan volume and lending terms, credit
policies and other observable environmental factors.
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. During 2007, we conformed our
reserving methodology in our residential mortgage loan portfolios.
Unsecured consumer loans in bankruptcy are written off within
60 days of notifi cation of fi ling 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 specifi c credit or collection
issues that might indicate an impairment. For larger balance,
non-homogenous loans and leases, this survey fi rst considers
the fi nancial 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 fi nancial 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 fl ows, fair value of collateral, net of disposal
costs, and the secondary market value of the fi nancing receivables.
After providing for specifi c incurred losses, we then determine
an allowance for losses that have been incurred in the balance
of the portfolio but cannot yet be identifi ed to a specifi c 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.