GE 2010 Annual Report Download - page 81

GE 2010 ANNUAL REPORT 79
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On January 1, 2010, we adopted ASU 2009-16 and
ASU 2009-17, amendments to ASC 860, Transfers and Servicing,
and ASC 810, Consolidation, respectively (ASU 2009-16 & 17). ASU
2009-16 eliminated the qualified special purpose entity (QSPE)
concept, and ASU 2009-17 required that all such entities be evalu-
ated for consolidation as VIEs. Adoption of these amendments
resulted in the consolidation of all of our sponsored QSPEs. In
addition, we consolidated assets of VIEs related to direct invest-
ments in entities that hold loans and fixed income securities, a
media joint venture and a small number of companies to which
we have extended loans in the ordinary course of business and
subsequently were subject to a TDR.
We consolidated the assets and liabilities of these entities at
amounts at which they would have been reported in our financial
statements had we always consolidated them. We also deconsoli-
dated certain entities where we did not meet the definition of the
primary beneficiary under the revised guidance; however, the
effect was insignificant at January 1, 2010. The incremental effect
on total assets and liabilities, net of our investment in these enti-
ties, was an increase of $31,097 million and $33,042 million,
respectively, at January 1, 2010. The net reduction of total equity
(including noncontrolling interests) was $1,945 million at
January 1, 2010, principally related to the reversal of previously
recognized securitization gains as a cumulative effect adjustment
to retained earnings. See Note 24 for additional information.
On January 1, 2009, we adopted an amendment to ASC 805,
Business Combinations. This amendment significantly changed the
accounting for business acquisitions both during the period of the
acquisition and in subsequent periods. Among the more significant
changes in the accounting for acquisitions are the following:
• Acquired in-process research and development (IPR&D) is
accounted for as an asset, with the cost recognized as the
research and development is realized or abandoned. IPR&D
was previously expensed at the time of the acquisition.
• Contingent consideration is recorded at fair value as an
element of purchase price with subsequent adjustments
recognized in operations. Contingent consideration was
previously accounted for as a subsequent adjustment of
purchase price.
• Subsequent decreases in valuation allowances on acquired
deferred tax assets are recognized in operations after the
measurement period. Such changes were previously consid-
ered to be subsequent changes in consideration and were
recorded as decreases in goodwill.
• Transaction costs are expensed. These costs were previously
treated as costs of the acquisition.
• Upon gaining control of an entity in which an equity method
or cost basis investment was held, the carrying value of that
investment is adjusted to fair value with the related gain or
loss recorded in earnings. Previously, this fair value adjust-
ment would not have been made.
In April 2009, the FASB amended ASC 805 and changed the
previous accounting for assets and liabilities arising from contin-
gencies in a business combination. We adopted this amendment
retrospectively effective January 1, 2009. The amendment
COST AND EQUITY METHOD INVESTMENTS. Cost and equity method
investments are valued using market observable data such as
quoted prices when available. When market observable data is
unavailable, investments are valued using a discounted cash flow
model, comparative market multiples or a combination of both
approaches as appropriate. These investments are generally
included in Level 3.
Investments in private equity, real estate and collective funds
are valued using net asset values. The net asset values are deter-
mined based on the fair values of the underlying investments in
the funds. Investments in private equity and real estate funds are
generally included in Level 3 because they are not redeemable
at the measurement date. Investments in collective funds are
included in Level 2.
LONG-LIVED ASSETS. Fair values of long-lived assets, including
aircraft and real estate, are primarily derived internally and are
based on observed sales transactions for similar assets. In other
instances, for example, collateral types for which we do not have
comparable observed sales transaction data, collateral values are
developed internally and corroborated by external appraisal
information. Adjustments to third-party valuations may be per-
formed in circumstances where market comparables are not
specific to the attributes of the specific collateral or appraisal
information may not be reflective of current market conditions
due to the passage of time and the occurrence of market events
since receipt of the information. For real estate, fair values are
based on discounted cash flow estimates which reflect current
and projected lease profiles and available industry information
about capitalization rates and expected trends in rents and occu-
pancy and are corroborated by external appraisals. These
investments are generally included in Level 3.
RETAINED INVESTMENTS IN FORMERLY CONSOLIDATED
SUBSIDIARIES. Upon a change in control that results in deconsoli-
dation of a subsidiary, the fair value measurement of our retained
noncontrolling stake in the former subsidiary is valued using an
income approach, a market approach, or a combination of both
approaches as appropriate. In applying these methodologies, we
rely on a number of factors, including actual operating results,
future business plans, economic projections, market observable
pricing multiples of similar businesses and comparable transac-
tions, and possible control premium. These investments are
included in Level 3.
Accounting Changes
The Financial Accounting Standards Board (FASB) made the
Accounting Standards Codification (ASC) effective for financial
statements issued for interim and annual periods ending after
September 15, 2009. The ASC combines all previously issued
authoritative GAAP into one set of guidance codified by subject
area. In these financial statements, references to previously
issued accounting standards have been replaced with the rel-
evant ASC references. Subsequent revisions to GAAP by the FASB
are incorporated into the ASC through issuance of Accounting
Standards Updates (ASU).