GE 2010 Annual Report Download - page 78

76 GE 2010 ANNUAL REPORT
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Effective January 1, 2009, we adopted Accounting Standards
Update (ASU) 2010-02, Accounting and Reporting for Decreases in
Ownership of a Subsidiary, which clarified the scope of Topic 810,
Consolidation. Prior to January 1, 2009, we recorded gains or losses
on sales of their own shares by affili ates 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 aeroderivative
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.
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 recov-
ery of our amortized cost, we evaluate qualitative criteria to
determine whether we do not expect to recover the amortized
cost basis of the security, 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. We also
evaluate quantitative criteria including determining whether there
has been an adverse change in expected future cash flows. If we
do not expect to recover the entire amortized cost basis of the
security, we consider the security to be other-than-temporarily
impaired, and we 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 we intend to sell the
secur ity or it is more likely than not we will be required to sell the
security before recovery of its amortized cost basis, the security
is also considered other-than-temporarily impaired and we recog-
nize the entire difference between the security’s amortized cost
basis and its fair value in earnings.
Prior to April 1, 2009, unrealized losses that were other-than-
temporary were recognized in earnings at an amount equal to the
difference between the security’s amortized cost and fair value. In
determining whether the unrealized loss was other-than-tempo-
rary, we considered both quantitative and qualitative criteria.
Quantitative criteria included the length of time and magnitude of
the amount that each security was in an unrealized loss position
and, for securities with fixed maturities, whether the issuer was in
compliance with terms and covenants of the security. For struc-
tured securities, we evaluated whether there was an adverse
change in the timing or amount of expected cash flows. Qualitative
criteria included the financial health of and specific prospects for
the issuer, as well as our intent and ability to hold the security to
maturity or until forecasted recovery.
Experience is not available for 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.
Our loss mitigation strategy intends to minimize economic
loss and, at times, can result in rate reductions, principal forgive-
ness, extensions, forbearance or other actions, which may cause
the related loan to be classified as a TDR.
We utilize certain loan modification programs for borrowers
experiencing temporary financial difficulties in our Consumer loan
portfolio. These loan modification programs are primarily concen-
trated in our U.S. credit card and non-U.S. residential mortgage
portfolios and include short-term (12 months or less) interest rate
reductions and payment deferrals, which were not part of the
terms of the original contract. We sold our U.S. residential mort-
gage business in 2007 and as such, do not participate in the
U.S. government-sponsored mortgage modification programs.
Our allowance for losses on financing receivables on these
modified consumer loans is determined based upon a formulaic
approach that estimates the probable losses inherent in the
portfolio based upon statistical analyses of the portfolio. Data
related to redefault experience is also considered in our overall
reserve adequacy review. Once the loan has been modified, it
returns to current status (re-aged) only after receipt of at least
three consecutive minimum monthly payments or the equivalent
cumulative amount, subject to a re-aging limitation of once a year,
or twice in a five-year period in accordance with the Federal
Financial Institutions Examination Council guidelines on Uniform
Retail Credit Classification and Account Management policy issued
in June 2000. We believe that the allowance for losses would not
be materially different had we not re-aged these accounts.
For commercial loans, we evaluate changes in terms and
conditions to determine whether those changes meet the criteria
for classification as a TDR on a loan-by-loan basis. In CLL, these
changes primarily include: changes to covenants, short-term
payment deferrals and maturity extensions. For these changes,
we receive economic consideration, including additional fees and/
or increased interest rates, and evaluate them under our normal
underwriting standards and criteria. Changes to Real Estate’s
loans primarily include maturity extensions, principal payment
acceleration, changes to collateral terms, and cash sweeps, which
are in addition to, or sometimes in lieu of, fees and rate increases.
The determination of whether these changes to the terms and
conditions of our commercial loans meet the TDR criteria includes
our consideration of all of the relevant facts and circumstances.
When the borrower is experiencing financial difficulty, we care-
fully evaluate these changes to determine whether they meet the
form of a concession. In these circumstances, if the change is
deemed to be a concession, we classify the loan as a TDR.
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 a
controlling financial interest to be recorded in equity. Gains or
losses on sales that result in our loss of a controlling financial
interest are recorded in earnings along with remeasurement
gains or losses on any investments in the entity that we retained.