GE 2009 Annual Report Download - page 70

68 GE 2009 ANNUAL REPORT
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The cost of GECS 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 GECS 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 significant 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.
NBC Universal Film and Television Costs
We defer film and television production costs, including direct
costs, production overhead, development costs and interest.
We do not defer costs of exploitation, which principally comprise
costs of film and television program marketing and distribution.
We amortize deferred film and television production costs, as well
as associated participation and residual costs, on an individual
production basis using the ratio of the current period’s gross
revenues to estimated total remaining gross revenues from all
sources; we state such costs at the lower of amortized cost or
fair value. Estimates of total revenues and costs are based on
anticipated release patterns, public acceptance and historical
results for similar products. We defer the costs of acquired
broadcast material, including rights to material for use on NBC
Universal’s broadcast and cable/satellite television networks, at
the earlier of acquisition or when the license period begins and
the material is available for use. We amortize acquired broad-
cast material and rights when we broadcast the associated
programs; we state such costs at the lower of amortized cost
or net realizable value.
Losses on Financing Receivables
Our allowance for losses on financing receivables represents our
best estimate of probable losses inherent in the portfolio. Our
method of calculating estimated losses depends on the size,
type and risk characteristics of the related receivables. Write-offs
are deducted from the allowance for losses and subsequent
recoveries are added. Impaired financing receivables are written
down to the extent that we judge principal to be uncollectible.
Our portfolio consists entirely of homogenous consumer loans
and of commercial loans and leases. The underlying assumptions,
estimates and assessments we use to provide for losses are
continually updated to reflect our view of current conditions.
Changes in such estimates can significantly affect the allowance
and provision for losses. It is possible to experience credit losses
that are different from our current estimates.
Our consumer loan portfolio consists of smaller balance,
homogenous loans including card receivables, installment loans,
auto loans and leases and residential mortgages. We collectively
evaluate each portfolio for impairment quarterly. The allowance
for losses on these receivables is established through a process
that estimates the probable losses inherent in the portfolio based
upon statistical analyses of portfolio data. These analyses include
migration analysis, in which historical delinquency and credit
loss experience is applied to the current aging of the portfolio,
together with other analyses that reflect current trends and
conditions. We also consider overall portfolio indicators including
nonearning loans, trends in loan volume and lending terms,
credit policies and other observable environmental factors such
as unemployment rates and home price indices.
We write off unsecured closed-end installment loans at 120
days contractually past due and unsecured open-ended revolving
loans at 180 days contractually past due. We write down consumer
loans secured by collateral other than residential real estate when
such loans are 120 days past due. Consumer loans secured by
residential real estate (both revolving and closed-end loans) are
written down to the fair value of collateral, less costs to sell, no
later than when they become 360 days past due. Unsecured
consumer loans in bankruptcy are written off within 60 days of
notification of filing by the bankruptcy court or within contractual
write-off periods, whichever occurs earlier.
Our commercial loan and lease portfolio consists of a variety of
loans and leases, including both larger balance, non-homogenous
loans and leases and smaller balance homogenous commercial
and equipment loans and leases. Losses on such loans and leases
are recorded when probable and estimable. We routinely evalu-
ate our entire portfolio for potential specific credit or collection
issues that might indicate an impairment. For larger balance,
non-homogenous loans and leases, this survey first considers
the financial status, payment history, collateral value, industry
conditions and guarantor support related to specific customers.
Any delinquencies or bankruptcies are indications of potential
impairment requiring further assessment of collectibility. We
routinely receive financial as well as rating agency reports on our
customers, and we elevate for further attention those customers
whose operations we judge to be marginal or deteriorating. We
also elevate customers for further attention when we observe a
decline in collateral values for asset-based loans. While collateral
values are not always available, when we observe such a decline,
we evaluate relevant markets to assess recovery alternatives —
for example, for real estate loans, relevant markets are local; for
commercial aircraft loans, relevant markets are global. We provide
allowances based on our evaluation of all available information,
including expected future cash flows, fair value of collateral, net
of expected disposal costs, and the secondary market value of
the financing receivables. After providing for specific incurred
losses, we then determine an allowance for losses that have
been incurred in the balance of the portfolio but cannot yet be
identified to a specific loan or lease. This estimate is based on
historical and projected default rates and loss severity, and it is
prepared by each respective line of business.
The remainder of our commercial loans and leases are portfo-
lios of smaller balance homogenous commercial and equipment
positions that we evaluate collectively by portfolio for impairment
based upon various statistical analyses considering historical
losses and aging, as well as our view on current market and
economic conditions.
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.