GE 2010 Annual Report Download - page 66

management’s discussion and analsis
64 GE 2010 ANNUAL REPORT
A fair value measurement is determined as the price we would
receive to sell an asset or pay to transfer a liability in an orderly
transaction between market participants at the measurement
date. In the absence of active markets for the identical assets or
liabilities, such measurements involve developing assumptions
based on market observable data and, in the absence of such
data, internal information that is consistent with what market
participants would use in a hypothetical transaction that occurs
at the measurement date. The determination of fair value often
involves significant judgments about assumptions such as deter-
mining an appropriate discount rate that factors in both risk and
liquidity premiums, identifying the similarities and differences in
market transactions, weighting those differences accordingly and
then making the appropriate adjustments to those market trans-
actions to reflect the risks specific to our asset being valued.
Further information on fair value measurements is provided
in Notes 1, 21 and 22.
OTHER LOSS CONTINGENCIES are uncertain and unresolved
matters that arise in the ordinary course of business and result
from events or actions by others that have the potential to
result in a future loss. Such contingencies include, but are not
limited to environmental obligations, litigation, regulatory pro-
ceedings, product quality and losses resulting from other events
and developments.
When a loss is considered probable and reasonably estimable,
we record a liability in the amount of our best estimate for the
ultimate loss. When there appears to be a range of possible costs
with equal likelihood, liabilities are based on the low end of such
range. However, the likelihood of a loss with respect to a particular
contingency is often difficult to predict and determining a mean-
ingful estimate of the loss or a range of loss may not be practicable
based on the information available and the potential effect of
future events and decisions by third parties that will determine
the ultimate resolution of the contingency. Moreover, it is not
uncommon for such matters to be resolved over many years,
during which time relevant developments and new information
must be continuously evaluated to determine both the likelihood
of potential loss and whether it is possible to reasonably estimate
a range of possible loss. When a loss is probable but a reasonable
estimate cannot be made, disclosure is provided.
Disclosure also is provided when it is reasonably possible that
a loss will be incurred or when it is reasonably possible that the
amount of a loss will exceed the recorded provision. We regularly
review all contingencies to determine whether the likelihood of
loss has changed and to assess whether a reasonable estimate of
the loss or range of loss can be made. As discussed above, devel-
opment of a meaningful estimate of loss or a range of potential loss
is complex when the outcome is directly dependent on negotia-
tions with or decisions by third parties, such as regulatory
agencies, the court system and other interested parties. Such
factors bear directly on whether it is possible to reasonably esti-
mate a range of potential loss and boundaries of high and
low estimates.
Further information is provided in Notes 13 and 25.
Other Information
New Accounting Standards
In September 2009, the FASB issued amendments to existing
standards for revenue arrangements with multiple components.
ASU 2009-13 requires the allocation of consideration to separate
components based on the relative selling price of each compo-
nent in a revenue arrangement. ASU 2009-14 requires certain
software-enabled products to be accounted for under the
general accounting standards for multiple component arrange-
ments as opposed to accounting standards specifically
applicable to software arrangements. The amendments are
effective prospectively for revenue arrangements entered into
or materially modified after January 1, 2011. The impact of
adopting these amendments is expected to be insignificant
to our financial statements.
Research and Development
GE-funded research and development expenditures were
$3.9 billion, $3.3 billion and $3.1 billion in 2010, 2009 and 2008,
respectively. In addition, research and development funding
from customers, principally the U.S. government, totaled
$1.0 billion, $1.1 billion and $1.3 billion in 2010, 2009 and 2008,
respectively. Technology Infrastructure’s Aviation business
accounts for the largest share of GE’s research and develop-
ment expenditures with funding from both GE and customer
funds. Energy Infrastructure’s Energy business and Technology
Infrastructure’s Healthcare 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 also
measure amounts spent on product and services technology.
These technology expenditures were $5.9 billion in 2010 and
included our reported research and development expenditures as
well as the amount spent to improve our existing products and
services, and to improve productivity of our plants, equipment
and processes.
Orders Backlog
GE’s total backlog of firm unfilled orders at the end of 2010 was
$66.7 billion, a decrease of 1% from year-end 2009, reflecting
decreased demand at Energy Infrastructure, partially offset by
increased demand at Technology Infrastructure. Of this backlog,
$46.0 billion related to products, of which 59% was scheduled
for delivery in 2011. Product services orders, included in this
reported backlog for only the succeeding 12 months, were
$20.6 billion at the end of 2010. Product services orders beyond
the succeeding 12 months were approximately $108.7 billion,
which combined with the firm unfilled orders described above
resulted in a total backlog of approximately $175.4 billion at
December 31, 2010. Orders constituting backlog may be can-
celled or deferred by customers, subject in certain cases to
penalties. See the Segment Operations section for
further information.