GE 2008 Annual Report Download - page 50

management’s discussion and analsis
48 ge 2008 annual report
financial statements. After adoption, noncontrolling interests
($8.9 billion and $8.0 billion at December 31, 2008 and 2007,
respectively) will be classified as shareowners’ equity, a change
from its current classification between liabilities and shareowners’
equity. Earnings attributable to minority interests ($0.6 billion in
2008 and $0.9 billion in both 2007 and 2006) will be included
in net earnings, although such earnings will continue to be
deducted to measure earnings per share. Purchases and sales of
minority interests will be reported in equity similar to treasury
stock transactions. Gains on sales of minority interests that would
not have been reported in net earnings under SFAS 160 amounted
to $0.4 billion and $0.9 billion in 2008 and 2007, respectively.
On December 12, 2007, the FASB ratified Emerging Issues
Task Force (EITF) Issue 07-1, Accounting for Collaborative
Arrangements. The consensus provides guidance on presentation
of the financial results of a collaborative arrangement, including
payments between the parties. The consensus requires us to
present the results of the collaborative arrangement in accordance
with EITF Issue 99-19, Reporting Revenue Gross as a Principal
versus Net as an Agent, and, in the absence of applicable author-
itative literature, to adopt an accounting policy for payments
between the participants that will be consistently applied. The
consensus is applied retrospectively to all collaborative arrange-
ments existing as of January 1, 2009, and covers arrangements
in several of our businesses. Adoption of this standard will not
affect our earnings, cash flows or financial position.
Research and Development
GE-funded research and development expenditures were $3.0 bil-
lion in both 2008 and 2007, and $2.8 billion in 2006. In addition,
research and development funding from customers, principally the
U.S. government, totaled $1.3 billion, $1.1 billion and $0.7 billion in
2008, 2007 and 2006, respectively. Technology Infrastructure’s
Aviation business accounts for the largest share of GE’s research
and development expenditures with funding from both GE and
customer funds. Technology Infrastructure’s Healthcare business
and Energy Infrastructure’s Energy business also made significant
expenditures funded primarily by GE.
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 2008 were $5.3 billion.
Orders Backlog
GE’s total backlog of firm unfilled orders at the end of 2008 was
$70.5 billion, an increase of 7% from year-end 2007, reflecting
increased demand at Energy Infrastructure and Technology
Infrastructure. Of the total backlog, $51.8 billion related to prod-
ucts, of which 60% was scheduled for delivery in 2009. Product
services orders, included in this reported backlog for only the
succeeding 12 months, were $18.7 billion at the end of 2008.
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.
Other Information
New Accounting Standards
On September 15, 2006, the FASB issued SFAS 157, Fair Value
Measurements, which defines fair value, establishes a new frame-
work for measuring that value and expands disclosures about
fair value measurements. The standard applied prospectively to
new fair value measurements performed after January 1, 2008,
for measurements of the fair values of financial instruments and
recurring fair value measurements of non-financial assets and
liabilities; on January 1, 2009, the standard applies to all remaining
fair value measurements, including non-recurring valuations of
non-financial assets and liabilities such as those used in measur-
ing impairments of goodwill, other intangible assets and other
long-lived assets. It also applies to fair value measurements of
non-financial assets acquired and liabilities assumed in business
combinations consummated after January 1, 2009.
On December 4, 2007, the FASB issued SFAS 141(R), Business
Combinations, which is effective for us on January 1, 2009. This
standard will significantly change the accounting for business
acquisitions both during the period of the acquisition and in sub-
sequent periods. Among the more significant changes in the
accounting for acquisitions are the following:
Þ In-process research and development (IPR&D) will be accounted
for as an asset, with the cost recognized as the research and
development is realized or abandoned. IPR&D is presently
expensed at the time of the acquisition.
Þ Contingent consideration will generally be recorded at fair
value with subsequent adjustments recognized in operations.
Contingent consideration is presently accounted for as an
adjustment of purchase price.
Þ Decreases in valuation allowances on acquired deferred
tax assets will be recognized in operations. Such changes
previously were considered to be subsequent changes in
consideration and were recorded as decreases in goodwill.
Þ Transaction costs will generally be expensed. Certain such
costs are presently treated as costs of the acquisition.
Generally, the effects of SFAS 141(R) will depend on future acquisi-
tions. In the fourth quarter of 2008, we expensed an insignificant
amount of direct costs related to business combinations that were
in process, but not completed by the effective date of SFAS 141(R).
In December 2008, the FASB issued FASB Staff Position (FSP)
FAS 141(R)-a, Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies,
a proposed FSP which would amend the accounting in SFAS 141(R)
for assets and liabilities arising from contingencies in a business
combination. The proposed FSP would require that pre-acquisition
contingencies be recognized at fair value, if fair value can be rea-
sonably determined. If fair value cannot be reasonably determined,
the proposed FSP requires measurement based on the best esti-
mate in accordance with SFAS 5, Accounting for Contingencies.
Also on December 4, 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51, which is effective for us on January 1,
2009. This standard will significantly change the accounting and
reporting related to noncontrolling interests in our consolidated