GE 2009 Annual Report Download - page 44

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42 GE 2009 ANNUAL REPORT
We discuss current receivables and inventories, two important
elements of working capital, in the following paragraphs.
CURRENT RECEIVABLES for GE totaled to $9.8 billion at the end
of 2009 and $15.1 billion at the end of 2008, and included
$7.5 billion due from customers at the end of 2009 compared
with $11.3 billion at the end of 2008. GE current receivables
turnover, including NBCU, was 8.0 in 2009, compared with 7.5 in
2008. The overall reduction in current receivables was due to
the Operating Council initiatives and lower volume across our
industrial businesses and the classification of NBCU and our
Security business as held for sale. See Note 4.
INVENTORIES for GE totaled to $11.9 billion at December 31, 2009,
down $1.7 billion from the end of 2008. This decrease reflected
lower inventories at Technology Infrastructure and the classifica-
tion of our Security business and NBCU as held for sale, partially
offset by higher inventories at Energy Infrastructure supporting
the significant backlog. GE inventory turnover, including NBCU,
was 7.9 and 8.0 in 2009 and 2008, respectively. See Note 5.
FINANCING RECEIVABLES is our largest category of assets and
represents one of our primary sources of revenues. A discussion
of the quality of certain elements of the financing receivables
portfolio follows.
Our portfolio of financing receivables is diverse and not directly
comparable to major U.S. banks. Historically, we have had less
consumer exposure, which over time has had higher loss rates
than commercial exposure.
Our consumer portfolio is largely non-U.S. and primarily com-
prises mortgage, sales finance, auto and personal loans in various
European and Asian countries. Our U.S. consumer financing
receivables comprise 7% of our total portfolio. Of those, approxi-
mately 36% relate primarily to credit cards, which are often
subject to profit and loss sharing arrangements with the retailer
(the results of which are reflected in GECS revenues), and have
a smaller average balance and lower loss severity as compared
to bank cards. The remaining 64% are sales finance receivables,
which provide electronics, recreation, medical and home
improvement financing to customers. In 2007, we exited the U.S.
mortgage business and we have no U.S. auto or student loans.
Our commercial portfolio primarily comprises senior, secured
positions with comparatively low loss history. The secured receiv-
ables in this portfolio are collateralized by a variety of asset classes,
including industrial-related facilities and equipment; commercial
and residential real estate; vehicles, aircraft, and equipment used
in many industries, including the construction, manufacturing,
transportation, telecommunications and healthcare industries.
We are in a secured position for substantially all of this portfolio.
Overall, we believe that the global economic markets are
beginning to stabilize and we expect that our financing receiv-
ables portfolio will begin to reflect this over the course of 2010.
We believe that the commercial financing markets in which we
operate (excluding commercial real estate, discussed below) are
likewise becoming more stable, and loss severity remains within
an expected range. Delinquency and non-earnings rates in these
businesses are beginning to show signs of improvement and
originations, while down, are at generally higher margins. In our
Consumer businesses, we continued throughout 2009 to raise
underwriting standards, reduce open credit commitments and
maintain discipline in collections. The performance of this busi-
ness has historically been linked to the global economy and
unemployment levels and we expect 2010 losses to be about the
same as our experience in 2009. Real Estate continues to be under
pressure, with limited market liquidity and challenging economic
conditions. We have and continue to maintain an intense focus
on operations and risk management; however, we expect current
economic conditions to persist in 2010, which will likely result in
higher losses for Real Estate compared with 2009.
Losses on financing receivables are recognized when they
are incurred, which requires us to make our best estimate of
probable losses inherent in the portfolio. Such estimate requires
consideration of historical loss experience, adjusted for current
conditions, and judgments about the probable effects of relevant
observable data, including present economic conditions such as
delinquency rates, financial health of specific customers and
market sectors, collateral values (including housing price indices
as applicable), and the present and expected future levels of
interest rates. Our risk management process includes standards
and policies for reviewing major risk exposures and concentra-
tions, and evaluates relevant data either for individual loans or
financing leases, or on a portfolio basis, as appropriate. Effective
January 1, 2009, loans acquired in a business acquisition are
recorded at fair value, which incorporates our estimate at the
acquisition date of the credit losses over the remaining life of the
portfolio. As a result, the allowance for loan losses is not carried
over at acquisition. This may result in lower reserve coverage
ratios prospectively.
For purposes of the discussion that follows, “delinquent”
receivables are those that are 30 days or more past due based
on their contractual terms; and “nonearning” receivables are
those that are 90 days or more past due (or for which collection
has otherwise become doubtful). Nonearning receivables exclude
loans purchased at a discount (unless they have deteriorated
post acquisition). Under ASC 310, Receivables, these loans are
initially recorded at fair value and accrete interest income over
the estimated life of the loan based on reasonably estimable cash
flows even if the underlying loans are contractually delinquent
at acquisition. In addition, nonearning receivables exclude loans
that are paying currently under a cash accounting basis, but
classified as impaired. Recently restructured financing receivables
are not considered delinquent when payments are brought current
according to the restructured terms, but may remain classified
as nonearning until there has been a period of satisfactory
payment performance by the borrower and future payments are
reasonably assured of collection.