GE 2011 Annual Report Download - page 83

GE 2011 ANNUAL REPORT 81
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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 classifi ed 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.
For debt securities, 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 secu-
rity before recovery 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 fi nancial health of
and specifi c 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 fl ows.
If we do not expect to recover the entire amortized cost basis of
the security, we consider the security to be other-than-temporar-
ily 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
security 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 rec-
ognize the entire difference between the security’s amortized
cost basis and its fair value in earnings. For equity securities, we
consider the length of time and magnitude of the amount that
each security is in an unrealized loss position. If we do not expect
to recover the entire amortized cost basis of the security, we con-
sider the security to be other-than-temporarily impaired, and we
record the 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-tem-
porary, 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 posi-
tion and, for securities with fi xed maturities, whether the issuer
was in compliance with terms and covenants of the security.
For structured securities, we evaluated whether there was an
adverse change in the timing or amount of expected cash fl ows.
Qualitative criteria included the fi nancial health of and specifi c
prospects for the issuer, as well as our intent and ability to hold
the security to maturity or until forecasted recovery.
Realized gains and losses are accounted for on the specifi c
identifi cation method. Unrealized gains and losses on investment
securities classifi ed 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 signifi cant portion of GE U.S. inventories is determined
on a last-in, fi rst-out (LIFO) basis. Cost of other GE inventories is
determined on a fi rst-in, fi rst-out (FIFO) basis. LIFO was used for
38% and 41% of GE inventories at December 31, 2011 and 2010,
respectively. GECS inventories consist of fi nished 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 fi nancial 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 fl ows to establish fair values. When available
and as appropriate, we use comparative market multiples to
corroborate discounted cash fl ow results. When all or a portion of
a reporting unit is disposed, goodwill is allocated to the gain or
loss on disposition based on the relative fair values of the busi-
ness disposed 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 indefi nite. The cost of
intangible assets is generally amortized on a straight-line basis
over the asset’s estimated economic life, except that individually
signifi cant customer-related intangible assets are amortized in
relation to total related sales. Amortizable intangible assets are
tested for impairment based on undiscounted cash fl ows and, if
impaired, written down to fair value based on either discounted
cash fl ows or appraised values. Intangible assets with indefi nite
lives are tested annually for impairment and written down to fair
value as required.
GECS Investment Contracts, Insurance Liabilities and
Insurance Annuity Benefits
Certain entities, which we consolidate, provide guaranteed
investment contracts, primarily to states, municipalities and
municipal authorities.
Our insurance activities also include providing insurance and
reinsurance for life and health risks and providing certain annuity
products. Three product groups are provided: traditional insur-
ance contracts, investment contracts and universal life insurance
contracts. Insurance contracts are contracts with signifi cant