GE 2006 Annual Report Download - page 68

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OTHER LOSS CONTINGENCIES are recorded as liabilities when it is
probable that a liability has been incurred and the amount of
the loss is reasonably estimable. Disclosure is required when
there is a reasonable possibility that the ultimate loss will
materially exceed the recorded provision. Contingent liabilities
are often resolved over long time periods. Estimating probable
losses requires analysis of multiple forecasts that often depend
on judgments about potential actions by third parties such as
regulators.
Further information is provided in notes 20 and 29.
Other Information
New Accounting Standards
In July 2006, the Financial Accounting Standards Board (FASB)
issued two related standards that address accounting for income
taxes: FASB Interpretation (FIN) 48, Accounting for Uncertainty in
Income Taxes, and FASB Staff Position (FSP) FAS 13–2, Accounting
for a Change or Projected Change in the Timing of Cash Flows
Relating to Income Taxes Generated by a Leveraged Lease
Transaction. Among other things, FIN 48 requires application
of a “more likely than not” threshold to the recognition and
derecognition of tax positions and that changes related to prior
years’ tax positions be recognized in the quarter of change.
FSP FAS 13–2 requires a recalculation of returns on leveraged
leases if there is a change or projected change in the timing of
cash flows relating to income taxes generated by the leveraged
lease. Both new standards became effective for us on January 1,
2007. The FASB is currently engaged in a project to provide
implementation guidance on FIN 48. While the effects of FIN 48
will depend somewhat upon this implementation guidance, we
expect the transition effects of these standards to be modest and
consist of reclassification of certain liabilities on our Statement
of Financial Position and an adjustment to the opening balance
of retained earnings. Prior periods will not be restated as a result
of these required accounting changes.
In February 2006, the FASB issued Statement of Financial
Accounting Standards (SFAS) 155, Accounting for Certain Hybrid
Financial Instruments— an Amendment of FASB Statements No. 133
and 140 (SFAS 155). This Statement amended SFAS 133 to include
within its scope prepayment features in newly created or acquired
retained interests related to securitizations. SFAS 155 will have the
effect of changing, from level yield to fair value, the basis on which
we recognize earnings on these retained interests. We expect
these effects to be immaterial to our 2007 operations.
Selected Financial Data
The facing page is divided into three sections: upper portion —
consolidated data; middle portion — GE data that refl ect various
conventional measurements for such enterprises; and lower
portion — GECS data that reflect key information pertinent to
financial services businesses.
GE’S TOTAL RESEARCH AND DEVELOPMENT expenditures were
$3.7 billion in 2006, compared with $3.4 billion and $3.1 billion
in 2005 and 2004, respectively. In 2006, expenditures from GE’s
own funds were $3.0 billion compared with $2.7 billion in 2005.
Expenditures funded by customers (mainly the U.S. government)
were $0.7 billion in both 2006 and 2005.
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 2006 were $5.7 billion.
GE’S TOTAL BACKLOG of fi rm unfilled orders at the end of 2006
was $46.5 billion, an increase of 29% from year-end 2005,
reflecting increased demand at Infrastructure. Of the total back-
log, $32.2 billion related to products, of which 63% was scheduled
for delivery in 2007. Product services orders, included in this
reported backlog for only the succeeding 12 months, were
$14.3 billion at the end of 2006. Orders constituting this backlog
may be cancelled or deferred by customers, subject in certain
cases to penalties. See the Segment Operations section for further
information.
66 ge 2006 annual report