GE 2006 Annual Report Download - page 60

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Environmental Matters
Our operations, like operations of other companies engaged
in similar businesses, involve the use, disposal and cleanup of
substances regulated under environmental protection laws.
We are involved in a sizable number of remediation actions
to clean up hazardous wastes as required by federal and state
laws. Such statutes require that responsible parties fund reme-
diation actions regardless of fault, legality of original disposal or
ownership of a disposal site. Expenditures for site remediation
actions amounted to $0.2 billion in 2006 and $0.1 billion in both
2005 and 2004. We presently expect that such remediation
actions will require average annual expenditures in the range of
$0.2 billion to $0.3 billion over the next two years.
The U.S. Environmental Protection Agency (EPA) ruled in
February 2002 that approximately 150,000 pounds of polychlori-
nated biphenyls (PCBs) must be dredged from a 40-mile stretch
of the upper Hudson River in New York state. On November 2,
2006, the U.S. District Court for the Northern District of New York
approved a consent decree entered into between GE and the EPA
that represents a comprehensive framework for implementation
of the EPA’s 2002 decision to dredge PCB-containing sediments
in the upper Hudson River. The dredging will be performed in
two phases with an intervening peer review of performance after
phase 1. Under this consent decree, we have committed up to
$0.1 billion to reimburse the EPA for its past and future project
oversight costs and agreed to perform the first phase of dredging.
We further committed that, subject to future agreement with the
EPA about completion of dredging after completion of phase 1
and the peer review, we will be responsible for further costs,
including costs of phase 2 dredging. Our Statement of Financial
Position as of December 31, 2006 and 2005, included liabilities
for the estimated costs of this remediation.
Financial Resources and Liquidity
This discussion of financial resources and liquidity addresses
the Statement of Financial Position, the Statement of Changes in
Shareowners’ Equity, the Statement of Cash Flows, Contractual
Obligations, Off-Balance Sheet Arrangements, and Debt
Instruments, Guarantees and Covenants.
The fundamental differences between GE and GECS are
reflected in the measurements commonly used by investors,
rating agencies and financial analysts. These differences will
become clearer in the discussion that follows with respect to
the more significant items in the fi nancial statements.
Overview of Financial Position
Major changes in our financial position resulted from the following:
• During 2006, we substantially completed our insurance exit,
which reduced assets and liabilities of discontinued opera-
tions by $61.1 billion and $49.1 billion, respectively.
• During 2006, we completed the acquisitions of ZENON
Environmental Inc. at Infrastructure; IDX Systems Corporation
and Biacore International AB at Healthcare; iVillage Inc. at
NBC Universal; Banque Artesia Nederland N.V., Arden Realty, Inc.,
the custom fleet business of National Australia Bank Ltd., and
the senior housing portfolios of Formation Capital LLC at
Commercial Finance; and the private-label credit card portfolio
of Hudson’s Bay Company at GE Money.
• The U.S. dollar was weaker at December 31, 2006, than it
was at December 31, 2005, increasing the translated levels of
our non-U.S. dollar assets and liabilities. Overall, on average,
the U.S. dollar in 2006 was slightly stronger than during the
comparable 2005 period; stronger in the first half and weaker
in the second half of the year. Depending on the timing of our
non-U.S. dollar operations, this resulted in either decreasing
or increasing the translated levels of our operations as noted
in the preceding Operations section.
Statement of Financial Position
Because GE and GECS share certain significant elements of
their Statements of Financial Position — property, plant and
equipment and borrowings, for example — the following discussion
addresses significant captions in the “consolidated” statement.
Within the following discussions, however, we distinguish
between GE and GECS activities in order to permit meaningful
analysis of each individual consolidating statement.
INVESTMENT SECURITIES comprise mainly investment-grade debt
securities supporting obligations to annuitants and policyholders.
Investment securities were $47.8 billion at December 31, 2006,
compared with $42.1 billion at December 31, 2005.
We regularly review investment securities for impairment
based on both quantitative and qualitative criteria. Quantitative
criteria include length of time and amount that each security is
in an unrealized loss position and, for fixed maturities, whether
the issuer is in compliance with terms and covenants of the
security. Qualitative criteria include the financial health of and
specific prospects for the issuer, as well as our intent and ability
to hold the security to maturity or until forecasted recovery.
Our impairment reviews involve our finance, risk and asset
management teams as well as the portfolio management and
research capabilities of our internal and third-party asset managers.
Our qualitative review attempts to identify those issuers with a
greater than 50% chance of default in the following 12 months.
These securities are characterized as “at-risk” of impairment.
Of investment securities with unrealized losses at December 31,
2006, an insignificant amount was at risk of being charged to
earnings in the next 12 months.
Impairment losses for both 2006 and 2005 totaled $0.1 billion.
We recognized impairments in both periods for issuers in a variety
of industries; we do not believe that any of the impairments indi-
cate likely future impairments in the remaining portfolio.
Gross unrealized gains and losses totaled $2.9 billion and
$0.3 billion, respectively, at December 31, 2006, compared with
$2.3 billion and $0.5 billion, respectively, at December 31, 2005,
primarily reflecting an increase in the estimated fair value of
equity securities, partially offset by a decrease in the estimated
fair value of debt securities as interest rates increased.
At December 31, 2006, available 2007 accounting gains could
be as much as $1.7 billion, net of consequential adjustments to
certain insurance assets that are amortized based on anticipated
58 ge 2006 annual report