GE 2013 Annual Report Download - page 80

78 GE 2013 ANNUAL REPORT
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the borrower, we resume accruing interest only when it is reason-
ably assured that we will recover full contractual payments, and
such loans pass underwriting reviews equivalent to those applied
to new loans. We resume accruing interest on nonaccrual con-
sumer loans when the customer’s account is less than 90 days
past due and collection of such amounts is probable. Interest
accruals on modifi ed consumer loans that are not considered
to be troubled debt restructurings (TDRs) may return to current
status (re-aged) only after receipt of at least three consecu-
tive minimum monthly payments or the equivalent cumulative
amount, subject to a re-aging limitation of once a year, or twice in
a fi ve-year period.
We recognize fi nancing lease income on the interest method
to produce a level yield on funds not yet recovered. Estimated
unguaranteed residual values are based upon management’s
best estimates of the value of the leased asset at the end of the
lease term. We use various sources of data in determining this
estimate, including information obtained from third parties,
which is adjusted for the attributes of the specifi c asset under
lease. Guarantees of residual values by unrelated third parties are
considered part of minimum lease payments. Signifi cant assump-
tions we use in estimating residual values include estimated net
cash fl ows over the remaining lease term, anticipated results of
future remarketing, and estimated future component part and
scrap metal prices, discounted at an appropriate rate.
We recognize operating lease income on a straight-line basis
over the terms of underlying leases.
Fees include commitment fees related to loans that we do
not expect to fund and line-of-credit fees. We record these fees
in earned income on a straight-line basis over the period to
which they relate. We record syndication fees in earned income
at the time related services are performed, unless signifi cant
contingencies exist.
Depreciation and Amortization
The cost of GE manufacturing plant and equipment is depreci-
ated over its estimated economic life. U.S. assets are depreciated
using an accelerated method based on a sum-of-the-years digits
formula; non-U.S. assets are generally depreciated on a straight-
line basis.
The cost of GECC equipment leased to others on operating
leases is depreciated on a straight-line basis to estimated residual
value over the lease term or over the estimated economic life of
the equipment.
The cost of GECC acquired real estate investments is depreci-
ated on a straight-line basis to the estimated salvage value over
the expected useful life or the estimated proceeds upon sale of
the investment at the end of the expected holding period if that
approach produces a higher measure of depreciation expense.
The cost of individually signifi cant customer relationships is
amortized in proportion to estimated total related sales; cost
of other intangible assets is generally amortized on a straight-
line basis over the asset’s estimated economic life. We review
long-lived assets for impairment whenever events or changes in
circumstances indicate that the related carrying amounts may
not be recoverable. See Notes 7 and 8.
Losses on Financing Receivables
Losses on fi nancing receivables are recognized when they are
incurred, which requires us to make our best estimate of probable
losses inherent in the portfolio. The method for calculating the
best estimate of losses depends on the size, type and risk char-
acteristics of the related fi nancing receivable. Such an 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, fi nancial health of specifi c customers
and market sectors, collateral values (including housing price
indices as applicable) and the present and expected future levels
of interest rates. The underlying assumptions, estimates and
assessments we use to provide for losses are updated periodi-
cally to refl ect our view of current conditions and are subject to
the regulatory examination process, which can result in changes
to our assumptions. Changes in such estimates can signifi cantly
affect the allowance and provision for losses. It is possible that we
will experience credit losses that are different from our current
estimates. Write-offs are deducted from the allowance for losses
when we judge the principal to be uncollectible and subsequent
recoveries are added to the allowance at the time cash is received
on a written-off account.
“Impaired” loans are defi ned as larger-balance or restructured
loans for which it is probable that the lender will be unable to col-
lect all amounts due according to the original contractual terms
of the loan agreement.
“Troubled debt restructurings” are those loans for which
we have granted a concession to a borrower experiencing
fi nancial diffi culties where we do not receive adequate compen-
sation. Such loans are classifi ed as impaired, and are individually
reviewed for specifi c reserves.
“Nonaccrual fi nancing receivables” are those on which we
have stopped accruing interest. We stop accruing interest at the
earlier of the time at which collection of an account becomes
doubtful or the account becomes 90 days past due, with the
exception of consumer credit card accounts, for which we con-
tinue to accrue interest until the accounts are written off in the
period that the account becomes 180 days past due. Although
we stop accruing interest in advance of payments, we recognize
interest income as cash is collected when appropriate, provided
the amount does not exceed that which would have been earned
at the historical effective interest rate. Recently restructured
fi nancing receivables are not considered delinquent when pay-
ments are brought current according to the restructured terms,
but may remain classifi ed as nonaccrual until there has been a
period of satisfactory payment performance by the borrower and
future payments are reasonably assured of collection.
“Nonearning fi nancing receivables” are a subset of nonaccrual
fi nancing receivables for which cash payments are not being
received or for which we are on the cost recovery method of
accounting (i.e., any payments are accounted for as a reduction of
principal). This category excludes loans purchased at a discount
(unless they have deteriorated post acquisition). These loans are
initially recorded at fair value and accrete interest income over
the estimated life of the loan based on reasonably estimable cash
fl ows, even if the underlying loans are contractually delinquent
at acquisition.