GE 2005 Annual Report Download - page 58

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GE’S TOTAL RESEARCH AND DEVELOPMENT expenditures were $3.4 billion in 2005, compared with $3.1
billion and $2.7 billion in 2004 and 2003, respectively. In 2005, expenditures from GE’ s own funds were $2.7
billion compared with $2.4 billion in 2004. Expenditures funded by customers (mainly the U.S. government) were
$0.7 billion and $0.6 billion in 2005 and 2004, respectively.
Expenditures reported above reflect the definition of research and development required by U.S. generally
accepted accounting principles. For operating and management purposes, we consider amounts spent on product and
services technology to include our reported research and development expenditures, but also amounts for improving
our existing products and services, and the productivity of our plant, equipment and processes. On this basis, our
technology expenditures in 2005 were $5.2 billion.
GE’S TOTAL BACKLOG of firm unfilled orders at the end of 2005 was $36.1 billion, an increase of 6% from
year-end 2004, reflecting increased demand for wind turbines, locomotives and product services. Of the total
backlog, $23.8 billion related to products, of which 70% was scheduled for delivery in 2006. Product services
orders, included in this reported backlog for only the succeeding 12 months, were $12.3 billion at the end of 2005.
Orders constituting this backlog may be canceled or deferred by customers, subject in certain cases to penalties. See
the Segment Operations section for further information.
Critical Accounting Estimates
Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to
an understanding of our financial statements because they inherently involve significant judgments and
uncertainties. For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best
estimates routinely require adjustment. Also see note 1, Summary of Significant Accounting Policies, which
discusses accounting policies that we have selected from acceptable alternatives.
LOSSES ON FINANCING RECEIVABLES are recognized when they are incurred, which requires us to make
our best estimate of probable losses inherent in the portfolio. Such 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, financial health of specific customers and market
sectors, collateral values, and the present and expected future levels of interest rates. Our risk management process,
which includes standards and policies for reviewing major risk exposures and concentrations, ensures that relevant
data are identified and considered either for individual loans or leases, or on a portfolio basis, as appropriate.
Our lending and leasing experience and the extensive data we accumulate and analyze facilitate estimates
that have proven reliable over time. Our actual loss experience was in line with expectations for 2005, 2004 and
2003. While prospective losses depend to a large degree on future economic conditions, we do not anticipate
significant adverse credit development in 2006. Further information is provided in the Financial Resources and
Liquidity-Financing Receivables section, the Asset Impairment section that follows and in notes 1, 13 and 14.