GE 2006 Annual Report Download - page 76

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Note 1
Summary of Significant Accounting Policies
Accounting principles
Our financial statements are prepared in conformity with U.S.
generally accepted accounting principles (GAAP).
Consolidation
Our financial statements consolidate all of our affi liates —
companies that we control and in which we hold a majority
voting interest. Associated companies are companies that we
do not control but over which we have signifi cant infl uence,
most often because we hold a shareholder voting position of
20% to 50%. Results of associated companies are presented
on a one-line basis. Investments in and advances to associated
companies are presented on a one-line basis in the caption
“All other assets” in our Statement of Financial Position, net of
allowance for losses that represents our best estimate of prob-
able losses inherent in such assets.
Financial statement presentation
We have reclassified certain prior-year amounts to conform to
the current year’s presentation.
Financial data and related measurements are presented in
the following categories:
• GE This represents the adding together of all affi liates other
than General Electric Capital Services, Inc. (GECS), whose
operations are presented on a one-line basis.
• GECS This affiliate owns all of the common stock of General
Electric Capital Corporation (GE Capital). GE Capital and its
respective affiliates are consolidated in the accompanying
GECS columns and constitute the majority of its business.
In 2005, most of GE Insurance Solutions Corporation
(GE Insurance Solutions), formerly an affiliate of GECS, was
classified as part of our discontinued insurance operations.
See note 2.
• CONSOLIDATED This represents the adding together of GE
and GECS.
• OPERATING SEGMENTS These comprise our six businesses
focused on the broad markets they serve: Infrastructure,
Commercial Finance, GE Money (formerly Consumer Finance),
Healthcare, NBC Universal and Industrial. For segment
reporting purposes, certain GECS businesses are included in
the industrial operating segments that actively manage
such businesses and report their results for internal
performance measurement purposes. These include Aviation
Financial Services, Energy Financial Services and Transportation
Finance reported in the Infrastructure segment, and
Equipment Services reported in the Industrial segment.
Unless otherwise indicated, information in these notes to
consolidated financial statements relates to continuing operations.
The effects of translating to U.S. dollars the fi nancial
statements of non-U.S. affiliates whose functional currency is
the local currency are included in shareowners’ equity. Asset and
liability accounts are translated at year-end exchange rates,
while revenues and expenses are translated at average rates for
the respective periods.
Effects of transactions between related companies are elimi-
nated. Transactions between GE and GECS are immaterial and
consist primarily of GECS services for material procurement and
trade receivables management; buildings and equipment leased
by GE from GECS; information technology (IT) and other services
sold to GECS by GE; aircraft engines manufactured by GE that
are installed on aircraft purchased by GECS from third-party
producers for lease to others; medical equipment manufactured
by GE that is leased by GECS to others; and various investments,
loans and allocations of GE corporate overhead costs.
Preparing financial statements in conformity with GAAP
requires us to make estimates and assumptions that affect
reported amounts and related disclosures. Actual results could
differ from those estimates.
Sales of goods and services
We record sales when a firm sales agreement is in place, delivery
has occurred or services have been rendered, and collectibility
of the fixed or determinable sales price is reasonably assured.
If customer acceptance of products is not assured, we record
sales only upon formal customer acceptance.
We expense costs to acquire or originate sales agreements
as incurred.
Sales of goods in the Industrial businesses typically do not
include multiple product and/or services elements. In contrast,
sales of goods in the Infrastructure and Healthcare businesses
sometimes include multiple components and sometimes include
a service component such as installation. In such contracts,
amounts assigned to each component are based on that compo-
nent’s objectively determined fair value, such as the sales price
for the component when it is sold separately or competitor
prices for similar components. We recognize sales of our delivered
components only when such delivered components have value
to the customer on a standalone basis, we have delivered all
components essential to functionality and each of our undeliv-
ered components has an objectively determined fair value. When
undelivered performance obligations are inconsequential or per-
functory and not essential to the functionality of the delivered
components (like certain training commitments), we recognize
sales on the total contract and make a provision for the cost of
the unperformed obligations.
We record sales of product services, certain power generation
and turbo-machinery equipment, military aircraft engines, infor-
mation technology projects and water treatment equipment in
accordance with their respective contracts. For long-term product
services agreements, we use estimated contract profit rates to
record sales as work is performed. For other contracts, we use
estimated contract profit rates to record sales as major compo-
nents are completed and delivered to customers. Estimates are
subject to revisions. Revisions that affect an agreement’s total
estimated profitability result in an immediate adjustment of
earnings. We provide for any loss when that loss is probable.
74 ge 2006 annual report