GE 2009 Annual Report Download - page 71

GE 2009 ANNUAL REPORT 69
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“Impaired” loans are defined as larger balance or restructured
loans for which it is probable that the lender will be unable to
collect all amounts due according to the original contractual
terms of the loan agreement. Troubled debt restructurings are
those loans in which we have granted a concession to a borrower
experiencing financial difficulties where we do not receive ade-
quate compensation. Such loans are classified as impaired, and
are individually reviewed for specific reserves.
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.
Partial Sales of Business Interests
On January 1, 2009, we adopted amendments to Accounting
Standards Codification (ASC) 810, Consolidation, which requires
that gains or losses on sales of affiliate shares where we retain
control be recorded in equity. Gains or losses on sales that result
in our loss of control are recorded in earnings along with remea-
surement gains or losses on any investments in the entity that we
retained. Prior to January 1, 2009, we recorded gains or losses
on sales of their own shares by affiliates except when realization
of gains was not reasonably assured, in which case we recorded
the results in shareowners’ equity. We recorded gains or losses on
sales of interests in commercial and military engine and aeroderiv-
ative equipment programs.
Cash and Equivalents
Debt securities and money market instruments with original
maturities of three months or less are included in cash equiva-
lents unless designated as available-for-sale and classified as
investment securities.
Investment Securities
We report investments in debt and marketable equity securities,
and certain other equity securities, at fair value. See Note 21 for
further information on fair value. Unrealized gains and losses on
available-for-sale investment securities are included in shareown-
ers’ equity, net of applicable taxes and other adjustments. We
regularly review investment securities for impairment using both
quantitative and qualitative criteria. Effective April 1, 2009, the
Financial Accounting Standards Board (FASB) amended ASC 320,
Investments — Debt and Equity Securities. This amendment
modified the existing model for recognition and measurement of
impairment for debt securities. The two principal changes to the
impairment model for securities are as follows:
• Recognition of an other-than-temporary impairment charge
for debt securities is required if any of these conditions are
met: (1) we do not expect to recover the entire amortized
cost basis of the security, (2) we intend to sell the security or
(3) it is more likely than not that we will be required to sell the
security before we recover its amortized cost basis.
• If the first condition above is met, but we do not intend to
sell and it is not more likely than not that we will be required
to sell the security before recovery of its amortized cost basis,
we are required to record the difference between the security’s
amortized cost basis and its recoverable amount in earnings
and the difference between the security’s recoverable amount
and fair value in other comprehensive income. If either the
second or third criterion is met, then we are required to recog-
nize the entire difference between the security’s amortized
cost basis and its fair value in earnings.
If we do not intend to sell the security or it is not more likely than
not that we will be required to sell the security before recovery
of our amortized cost, we evaluate other qualitative criteria to
determine whether a credit loss exists, such as the financial health
of and specific prospects for the issuer, including whether the
issuer is in compliance with the terms and covenants of the
security. Quantitative criteria include determining whether there
has been an adverse change in expected future cash flows.
Realized gains and losses are accounted for on the specific
identification method. Unrealized gains and losses on investment
securities classified as trading and certain retained interests are
included in earnings.
Inventories
All inventories are stated at the lower of cost or realizable values.
Cost for a significant portion of GE U.S. inventories is determined
on a last-in, first-out (LIFO) basis. Cost of other GE inventories is
determined on a first-in, first-out (FIFO) basis. LIFO was used for
39% and 40% of GE inventories at December 31, 2009 and 2008,
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 at least annually for
impairment 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 financial 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 if the carrying amount of a reporting unit
exceeds its fair value and the carrying amount of the reporting
unit’s goodwill exceeds the implied fair value of that goodwill. We
use discounted cash flows to establish fair values. When avail-
able and as appropriate, we use comparative market multiples to
corroborate discounted cash flow results. When all or a portion
of a reporting unit is disposed of, goodwill is allocated to the
gain or loss on disposition based on the relative fair values of
the business disposed of and the portion of the reporting unit
that will be retained.
We amortize the cost of other intangibles over their estimated
useful lives unless such lives are deemed indefinite. The cost of
intangible assets is generally amortized on a straight-line basis
over the asset’s estimated economic life, except that individually
significant customer-related intangible assets are amortized in
relation to total related sales. Amortizable intangible assets are
tested for impairment based on undiscounted cash flows and, if
impaired, written down to fair value based on either discounted
cash flows or appraised values. Intangible assets with indefinite
lives are tested annually for impairment and written down to fair
value as required.