Form 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A
Amendment No. 1 to Form 10-K

(Mark One)
 
þ 
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended December 31, 2005
or
 
¨ 
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from ___________to ___________
 
Commission file number 1-35
 
General Electric Company
(Exact name of registrant as specified in charter)

New York
      
14-0689340
(State or other jurisdiction of incorporation or organization)
      
(I.R.S. Employer Identification No.)
 
        
3135 Easton Turnpike, Fairfield, CT
  
06828-0001
  
203/373-2211
(Address of principal executive offices)
  
(Zip Code)
  
(Telephone No.)
         
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
  
Name of each exchange on which registered
Common stock, par value $0.06 per share
  
New York Stock Exchange
Boston Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:
 
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
 
The aggregate market value of the outstanding common equity of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was $367.3 billion. Affiliates of the Company beneficially own, in the aggregate, less than one-tenth of one percent of such shares. There were 10,423,424,768 shares of voting common stock with a par value of $0.06 outstanding at February 10, 2006.
 
 
DOCUMENTS INCORPORATED BY REFERENCE
 
The definitive proxy statement relating to the registrant’s Annual Meeting of Shareowners, held on April 26, 2006, is incorporated by reference in Part III to the extent described therein.
 

 


(1)



 
Table of Contents
 
   
Page
   
 
   
Part I 
  
     
Business
10
Risk Factors
22
Unresolved Staff Comments
23
Properties
23
Legal Proceedings
23
Submission of Matters to a Vote of Security Holders
24
   
Part II 
  
     
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
24
Selected Financial Data
25
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Quantitative and Qualitative Disclosures About Market Risk
65
Financial Statements and Supplementary Data
65
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
144
Controls and Procedures
144
Other Information
147
   
Part III 
  
     
Directors and Executive Officers of the Registrant
148
Executive Compensation
149
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
149
Certain Relationships and Related Transactions
149
Principal Accounting Fees and Services
149
   
Part IV 
  
     
Exhibits, Financial Statement Schedules
150
 
156




(2)



Explanatory Note
 
Overview
 
General Electric Company (GE) is filing this amendment to its Annual Report on Form 10-K for the year ended December 31, 2005, to amend and restate financial statements and other financial information for the years 2005, 2004 and 2003, and financial information for the years 2002 and 2001, and for each of the quarters in the years 2005 and 2004. In addition, we are filing amendments to our Quarterly Reports on Form 10-Q for each of the periods ended September 30, June 30, and March 31, 2006, to amend and restate financial statements for the first three quarters of 2006. The restatement adjusts our accounting for interest rate swap transactions related to a portion of the commercial paper issued by General Electric Capital Corporation (GECC) and General Electric Capital Services, Inc. (GECS), each wholly-owned subsidiaries of GE, from January 1, 2001, the date we adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The restatement has no effect on our cash flows or liquidity, and its effects on our financial position at the ends of the respective restated periods are immaterial. We have not found that any of our hedge positions were inconsistent with our risk management policies or economic objectives.
 
A comparison of the cumulative earnings effects of this non-cash restatement to cumulative earnings from continuing operations before accounting changes follows.
 
(In millions)
Cumulative January 1, 2001-
December 31, 2005
  
         
         
Decrease in earnings from continuing operations before
        
accounting changes
$
(473
)
  
         
Earnings from continuing operations before accounting changes
        
and error corrections
$
77,072
    

 
Background
 
As previously disclosed, the Boston Office of the U.S. Securities and Exchange Commission (SEC) is conducting a formal investigation of our application of SFAS 133. In the course of that investigation, the SEC Enforcement staff raised certain concerns about our accounting for the use of interest rate swaps to fix certain otherwise variable interest costs in a portion of our commercial paper program at GECC and GECS. The SEC Enforcement staff referred such concerns to the Office of Chief Accountant. We and our auditors determined that our accounting for the commercial paper hedging program satisfied the requirements of SFAS 133 and conveyed our views to the staff of the Office of Chief Accountant. Following our discussions, however, the Office of Chief Accountant communicated its view to us that our commercial paper hedging program as structured did not meet the SFAS 133 specificity requirement.
 

(3)

After considering the staff’s view, management recommended to the Audit Committee of our Board of Directors that previously reported financial results be restated to eliminate hedge accounting for the interest rate swaps entered into as part of our commercial paper hedging program from January 1, 2001. The Audit Committee discussed and agreed with this recommendation. At a meeting on January 18, 2007, the Board of Directors adopted the recommendation of the Audit Committee and determined that previously reported results for GE should be restated and, therefore, that the previously filed financial statements and other financial information referred to above should not be relied upon. The restatement resulted from a material weakness in internal control over financial reporting, namely, that we did not have adequately designed procedures to designate, with the specificity required under SFAS 133, each hedged commercial paper transaction.
 
As of January 1, 2007, we modified our commercial paper hedging program and adopted documentation for interest rate swaps that we believe complies with the requirements of SFAS 133 and remediated the related internal control weakness.
 
The SEC investigation into our application of SFAS 133 and hedge accounting is continuing. We continue to cooperate fully.
 
Amendment to this Form 10-K
 
The following sections of this Form 10-K have been revised to reflect the restatement: Part I - Item 1 - Business; Part II - Item 6 - Selected Financial Data, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A - Quantitative and Qualitative Disclosures About Market Risk; Item 8 - Financial Statements and Supplementary Data and Item 9A - Controls and Procedures; and Part IV - Item 15 - Exhibits and Financial Statement Schedules. Except to the extent relating to the restatement of our financial statements and other financial information described above, the financial statements and other disclosures in this Form 10-K do not reflect any events that have occurred after this Form 10-K was initially filed on March 3, 2006.
 
Effects of Restatement
 
The following tables set forth the effects of the restatement relating to the aforementioned hedge accounting on affected line items within our previously reported Statements of Earnings for the years 2005, 2004, 2003, 2002 and 2001, and for each of the quarters in the years 2005 and 2004. The restatement has no effect on our cash flows or liquidity, and its effects on our financial position at the ends of the respective restated periods are immaterial.
 

(4)

Effects on Statements of Earnings
 

Income (expense);(in millions;
per share amounts in dollars)
Cumulative
through
12/31/05
  
2005
  
2004
  
2003
  
2002
  
2001
  
                                     
GECS commercial paper
                                    
interest rate swap
                                    
adjustment(a)
$
(800
)
$
540
  
$
518
  
$
535
  
$
(1,889
)
$
(504
)
Interest and other financial
                                    
charges
  
24
    
49
    
45
    
1
    
(38
)
  
(33
)
Provision for income taxes
  
303
    
(231
)
  
(222
)
  
(211
)
  
758
    
209
  
Earnings from continuing
                                    
operations before
                                   
accounting changes
  
(473
)
  
358
    
341
    
325
    
(1,169
)
  
(328
)
Earnings before
                                   
accounting changes
  
(473
)
  
358
    
341
    
325
    
(1,169
)
  
(328
)
Net earnings
$
(473
)
$
358
  
$
341
  
$
325
  
$
(1,169
)
$
(328
)

(a)
Included in total revenues.

 

(5)


   
2005
    
2004
    
2003
    
2002
    
2001
  
                               
Per-share amounts - earnings from continuing
                              
operations before accounting changes
                              
Diluted, as reported
$
1.72
  
$
1.56
  
$
1.37
  
$
1.58
  
$
1.29
  
Adjustment
  
0.04
    
0.03
    
0.03
    
(0.12
)
  
(0.03
)
Diluted, as restated
$
1.76
  
$
1.59
  
$
1.40
  
$
1.46
  
$
1.26
  
                               
Basic, as reported
$
1.73
  
$
1.57
  
$
1.37
  
$
1.59
  
$
1.30
  
Adjustment
  
0.03
    
0.03
    
0.04
    
(0.12
)
  
(0.03
)
Basic, as restated
$
1.76
  
$
1.60
  
$
1.41
  
$
1.47
  
$
1.27
  
                               
Per-share amounts - earnings (loss) from
                             
discontinued operations
                             
Diluted, as reported
$
(0.18
)
$
0.05
  
$
0.20
  
$
(0.06
)
$
0.11
  
Adjustment
  
-
    
-
    
-
    
-
    
-
  
Diluted, as restated
$
(0.18
)
$
0.05
  
$
0.20
  
$
(0.06
)
$
0.11
  
                               
Basic, as reported
$
(0.18
)
$
0.05
  
$
0.21
  
$
(0.06
)
$
0.11
  
Adjustment
  
-
    
-
    
-
    
-
    
-
  
Basic, as restated
$
(0.18
)
$
0.05
  
$
0.21
  
$
(0.06
)
$
0.11
  
                               
Per-share amounts - earnings before accounting
                              
changes
                              
Diluted, as reported
$
1.54
  
$
1.61
  
$
1.57
  
$
1.51
  
$
1.40
  
Adjustment
  
0.03
    
0.03
    
0.03
    
(0.11
)
  
(0.03
)
Diluted, as restated
$
1.57
  
$
1.64
  
$
1.60
  
$
1.40
  
$
1.37
  
                               
Basic, as reported
$
1.55
  
$
1.62
  
$
1.58
  
$
1.52
  
$
1.42
  
Adjustment
  
0.03
    
0.03
    
0.03
    
(0.11
)
  
(0.04
)
Basic, as restated
$
1.58
  
$
1.65
  
$
1.61
  
$
1.41
  
$
1.38
  
                               
Per-share amounts - cumulative effect of
                             
accounting changes
                              
Diluted, as reported
$
-
  
$
-
  
$
(0.06
)
$
(0.10
)
$
(0.03
)
Adjustment
  
-
    
-
    
-
    
-
    
-
  
Diluted, as restated
$
-
  
$
-
  
$
(0.06
)
$
(0.10
)
$
(0.03
)
                               
Basic, as reported
$
-
  
$
-
  
$
(0.06
)
$
(0.10
)
$
(0.03
)
Adjustment
  
-
    
-
    
-
    
-
    
-
  
Basic, as restated
$
-
  
$
-
  
$
(0.06
)
$
(0.10
)
$
(0.03
)
                               
Per-share amounts - net earnings
                             
Diluted, as reported
$
1.54
  
$
1.61
  
$
1.51
  
$
1.41
  
$
1.37
  
Adjustment
  
0.03
    
0.03
    
0.03
    
(0.11
)
  
(0.03
)
Diluted, as restated
$
1.57
  
$
1.64
  
$
1.54
  
$
1.30
  
$
1.34
  
                               
Basic, as reported
$
1.55
  
$
1.62
  
$
1.52
  
$
1.42
  
$
1.39
  
Adjustment
  
0.03
    
0.03
    
0.03
    
(0.11
)
  
(0.03
)
Basic, as restated
$
1.58
  
$
1.65
  
$
1.55
  
$
1.31
  
$
1.36
  
                               

 

(6)


 
2005
  
Income (expense);(in millions;
per share amounts in dollars)
Total
  
First quarter
  
Second quarter
  
Third quarter
  
Fourth
quarter
  
                               
GECS commercial paper interest
                              
rate swap adjustment (a)
$
540
  
$
358
  
$
(239
)
$
271
  
$
150
  
Interest and other financial
                              
charges
  
49
    
12
    
11
    
13
    
13
  
Provision for income taxes
  
(231
)
  
(145
)
  
89
    
(111
)
  
(64
)
Earnings from continuing operations
 
358
    
225
    
(139
)
  
173
    
99
  
Net earnings
$
358
  
$
225
  
$
(139
)
$
173
  
$
99
  
                               
(a)
Included in total revenues.
                               
   
2005
  
     
First quarter
  
Second quarter
  
Third quarter
  
Fourth
quarter
  
                               
Per-share amounts - earnings from
                             
continuing operations
                             
Diluted, as reported
      
$
0.33
  
$
0.41
  
$
0.43
  
$
0.55
  
Adjustment
        
0.03
    
(0.01
)
  
0.02
    
0.01
  
Diluted, as restated
      
$
0.36
  
$
0.40
  
$
0.45
  
$
0.56
  
                               
Basic, as reported
      
$
0.34
  
$
0.41
  
$
0.43
  
$
0.55
  
Adjustment
        
0.02
    
(0.01
)
  
0.02
    
0.01
  
Basic, as restated
      
$
0.36
  
$
0.40
  
$
0.45
  
$
0.56
  
                               
Per-share amounts - earnings (loss) from
                             
discontinued operations
                             
Diluted, as reported
      
$
0.04
  
$
0.03
  
$
0.01
  
$
(0.26
)
Adjustment
        
-
    
-
    
-
    
-
  
Diluted, as restated
      
$
0.04
  
$
0.03
  
$
0.01
  
$
(0.26
)
                               
Basic, as reported
      
$
0.04
  
$
0.03
  
$
0.01
  
$
(0.26
)
Adjustment
        
-
    
-
    
-
    
-
  
Basic, as restated
      
$
0.04
  
$
0.03
  
$
0.01
  
$
(0.26
)
                               
Per-share amounts - net earnings
                             
Diluted, as reported
      
$
0.37
  
$
0.44
  
$
0.44
  
$
0.29
  
Adjustment
        
0.02
    
(0.02
)
  
0.02
    
0.01
  
Diluted, as restated
      
$
0.39
  
$
0.42
  
$
0.46
  
$
0.30
  
                               
Basic, as reported
      
$
0.37
  
$
0.44
  
$
0.44
  
$
0.29
  
Adjustment
        
0.03
    
(0.01
)
  
0.02
    
0.01
  
Basic, as restated
      
$
0.40
  
$
0.43
  
$
0.46
  
$
0.30
  
                               

(7)


 
2004
  
Income (expense);(in millions;
per share amounts in dollars)
Total
  
First quarter
  
Second quarter
  
Third quarter
  
Fourth
quarter
  
                               
GECS commercial paper interest
                              
rate swap adjustment (a)
$
518
  
$
(233
)
$
970
  
$
(381
)
$
162
  
Interest and other financial charges
  
45
    
10
    
10
    
13
    
12
  
Provision for income taxes
  
(222
)
  
87
    
(384
)
  
144
    
(69
)
Earnings from continuing operations
  
341
    
(136
)
  
596
    
(224
)
  
105
  
Net earnings
$
341
  
$
(136
)
$
596
  
$
(224
)
$
105
  
                               
(a)
Included in total revenues.
                               
     
2004
  
     
First quarter
  
Second quarter
  
Third quarter
  
Fourth
quarter
  
                               
Per-share amounts - earnings from
                             
continuing operations
                             
Diluted, as reported
      
$
0.29
  
$
0.35
  
$
0.37
  
$
0.54
  
Adjustment
        
(0.01
)
  
0.06
    
(0.02
)
  
0.01
  
Diluted, as restated
      
$
0.28
  
$
0.41
  
$
0.35
  
$
0.55
  
                               
Basic, as reported
      
$
0.29
  
$
0.35
  
$
0.37
  
$
0.54
  
Adjustment
        
(0.01
)
  
0.06
    
(0.02
)
  
0.01
  
Basic, as restated
      
$
0.28
  
$
0.41
  
$
0.35
  
$
0.55
  
                               
Per-share amounts - earnings (loss) from
                             
discontinued operations
                             
Diluted, as reported
      
$
0.04
  
$
0.01
  
$
0.01
  
$
(0.01
)
Adjustment
        
-
    
-
    
-
    
-
  
Diluted, as restated
      
$
0.04
  
$
0.01
  
$
0.01
  
$
(0.01
)
                               
Basic, as reported
      
$
0.04
  
$
0.01
  
$
0.01
  
$
(0.01
)
Adjustment
        
-
    
-
    
-
    
-
  
Basic, as restated
      
$
0.04
  
$
0.01
  
$
0.01
  
$
(0.01
)
                               
Per-share amounts - net earnings
                             
Diluted, as reported
      
$
0.33
  
$
0.36
  
$
0.38
  
$
0.53
  
Adjustment
        
(0.01
)
  
0.06
    
(0.02
)
  
0.01
  
Diluted, as restated
      
$
0.32
  
$
0.42
  
$
0.36
  
$
0.54
  
                               
Basic, as reported
      
$
0.33
  
$
0.36
  
$
0.39
  
$
0.53
  
Adjustment
        
(0.01
)
  
0.06
    
(0.03
)
  
0.01
  
Basic, as restated
      
$
0.32
  
$
0.42
  
$
0.36
  
$
0.54
  

 
Reversal of these cumulative adjustments will affect net earnings positively over the terms of the underlying interest rate swaps, but to a degree that we do not expect to be significant in any individual period given the terms of the arrangements and actions taken to eliminate the accounting volatility by modifying the documentation in a manner that will enable the swaps to qualify for hedge accounting effective January 1, 2007.
 

(8)

For additional information relating to the effect of the restatement, see the following items:
 
Part I
 
Item 1 - Business
 
Part II:
 
Item 6 - Selected Financial Data
 
Item 7 - Management’s Discussion and Analysis of Results of Operations and Financial Condition
 
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
 
Item 8 - Financial Statements and Supplementary Data
 
Item 9 - Controls and Procedures
 
Part IV:
 
Item 15 - Exhibits and Financial Statement Schedules
 
In light of the restatement, readers should not rely on our previously filed financial statements and other financial information for the years and for each of the quarters in the years 2005, 2004, 2003, 2002 and 2001.
 

(9)

Part I
 
 
Item 1. Business
 
General
 
Unless otherwise indicated by the context, we use the terms “GE,” “GECS” and “GE Capital” on the basis of consolidation described in note 1 to the consolidated financial statements of General Electric Company (the Company) on page 80. Also, unless otherwise indicated by the context, “General Electric” means the parent company, General Electric Company.
 
General Electric’s address is 1 River Road, Schenectady, NY 12345-6999; we also maintain executive offices at 3135 Easton Turnpike, Fairfield, CT 06828-0001.
 
GE is one of the largest and most diversified industrial corporations in the world. We have engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity since our incorporation in 1892. Over the years, we have developed or acquired new technologies and services that have broadened considerably the scope of our activities.
 
Our products include major appliances; lighting products; industrial automation products; medical diagnostic imaging systems; bioscience assays and separation technology products; electrical distribution and control equipment; locomotives; power generation and delivery products; nuclear power support services and fuel assemblies; commercial and military aircraft jet engines; chemicals and equipment for treatment of water and process systems; security equipment and systems; and engineered materials, such as plastics and silicones.
 
Our services include product services; electrical product supply houses; electrical apparatus installation, engineering, and repair and rebuilding services. Through our affiliate, NBC Universal, Inc., we produce and deliver network television services, operate television stations, produce and distribute motion pictures, operate cable/satellite networks, operate theme parks, and program activities in multimedia and the Internet. Through another affiliate, General Electric Capital Services, Inc., we offer a broad array of financial and other services including consumer financing, commercial and industrial financing, real estate financing, asset management and leasing, mortgage services, consumer savings and insurance services, and reinsurance.
 
In virtually all of our global business activities, we encounter aggressive and able competition. In many instances, the competitive climate is characterized by changing technology that requires continuing research and development, as well as customer commitments. With respect to manufacturing operations, we believe that, in general, we are one of the leading firms in most of the major industries in which we participate. The NBC Television Network is one of four major U.S. commercial broadcast television networks. We also compete with syndicated broadcast television programming, cable and satellite television programming activities and in the motion picture industry. The businesses in which GECS engages are subject to competition from various types of financial institutions, including commercial banks, thrifts, investment banks, broker-dealers, credit unions, leasing companies, consumer loan companies, independent finance companies, finance companies associated with manufacturers, and insurance and reinsurance companies.
 

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This document contains “forward-looking statements” - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties which could adversely or positively affect our future results include: the behavior of financial markets, including fluctuations in interest rates and commodity prices; strategic actions, including dispositions; future integration of acquired businesses; future financial performance of major industries which we serve, including, without limitation, the air and rail transportation, energy generation, media, real estate and healthcare industries; unanticipated loss development in our insurance businesses; and numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
 
Our consolidated global revenues increased to $77.9 billion in 2005, compared with $66.9 billion in 2004 and $54.3 billion in 2003. For additional information about our global operations, see pages 45 and 46.
 
Operating Segments
 
Segment revenue and profit information is presented on page 38. Additional financial data and commentary on recent financial results for operating segments are provided on pages 36, 37 and 39-44 and in note 26 (pages 127 and 128) to the consolidated financial statements.
 
In the fourth quarter of 2005, we announced the planned sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions Corporation (GE Insurance Solutions) and completed a Genworth Financial, Inc. (Genworth) secondary public offering, which reduced our ownership in Genworth to 18%. We have reported both GE Insurance Solutions and Genworth as discontinued operations for all periods presented. These businesses were previously reported in the Commercial Finance segment. Also, during the fourth quarter of 2005, our insurance activities, previously reported in the Commercial Finance segment, were transferred to corporate items and eliminations for all periods presented.
 
Operating businesses that are reported as segments include Infrastructure, Industrial, Healthcare, NBC Universal, Commercial Finance and Consumer Finance. There is appropriate elimination of the net earnings of GECS and the immaterial effect of transactions between segments to arrive at total consolidated data. A summary description of each of our operating segments follows.
 
We will also continue our longstanding practice of providing supplemental information for certain businesses within the segments.
 
Infrastructure
 
Infrastructure (27.8%, 27.7% and 32.2% of consolidated revenues in 2005, 2004 and 2003, respectively) produces, sells, finances and services equipment for the air transportation and energy generation industries. We also produce, sell and service equipment for the rail transportation and water treatment industries. During 2005, we made a number of acquisitions, the most significant of which was Ionics, Inc.
 
Our operations are located in North America, Europe, Asia and South America.
 

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Aviation and Aviation Financial Services
 
Aviation produces, sells and services jet engines, turboprop and turbo shaft engines, and related replacement parts for use in military and commercial aircraft. Our military engines are used in a wide variety of aircraft including fighters, bombers, tankers, helicopters and surveillance aircraft and our commercial engines power aircraft in all categories of range: short/medium, intermediate and long-range, as well as executive and regional aircraft. We also produce engines through CFM International, a company jointly owned by GE and Snecma Moteurs of France; and a new engine is being designed and marketed in a joint venture with the Pratt & Whitney division of United Technologies Corporation.
 
We provide maintenance, component repair and overhaul services (MRO), including sales of replacement parts, for many models of engines, including repair and overhaul of engines manufactured by competitors.
 
The worldwide competition in aircraft jet engines and MRO (including parts sales) is intense. Both U.S. and export markets are important. Product development cycles are long and product quality and efficiency are critical to success. Research and development expenditures, both customer-financed and internally funded, are important in this business, as are focused intellectual property strategies and protection of key aircraft engine design, manufacture, repair and product upgrade technologies.
 
Potential sales for any engine are limited by, among other things, its technological lifetime, which may vary considerably depending upon the rate of advance in technology, the small number of potential customers and the limited number of relevant airframe applications. Aircraft engine orders tend to follow military and airline procurement cycles, although these cycles differ from each other.
 
Aviation Financial Services is a global commercial aviation financial services business that offers a broad range of financial products to airlines, aircraft operators, owners, lenders, investors and airport developers. Financial products include leases, aircraft purchasing and trading, loans, engine/spare parts financing, pilot training, fleet planning and financial advisory services. We operate in a highly competitive environment. Our competitors include aircraft manufacturers, banks, financial institutions, and other finance and leasing companies. Competition is based on lease rates and terms, as well as aircraft delivery dates, condition and availability.
 
The U.S. commercial aviation industry continues to face challenges and financial pressure that affect a portion of our commercial aviation business. Many carriers are experiencing major restructuring and reorganization, including bankruptcies. These companies have experienced marginal returns and in some cases losses resulting from competitive pressures and increased fuel costs.
 

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Energy and Energy Financial Services
 
Energy serves power generation, industrial, government and other customers worldwide with products and services related to energy production, distribution and management. We offer wind turbines as part of our renewable energy portfolio, which also includes hydropower, solar, and geothermal technology. We also sell aircraft engine derivatives for use as industrial power sources. Gas turbines and generators are used principally in power plants for generation of electricity and for industrial cogeneration and mechanical drive applications. We are a worldwide supplier of gas turbines for Integrated Gasification Combined Cycle (IGCC) applications, having provided gas turbines for a significant number of the world's operating IGCC plants. IGCC systems convert coal and other hydrocarbons into synthetic gas which, after cleanup, is used as the primary fuel for gas turbines in combined-cycle systems. IGCC systems produce fewer air pollutants compared with traditional pulverized coal power plants. We sell steam turbines and generators to the electric utility industry and to private industrial customers for cogeneration applications. Products also include portable and rental power plants. Nuclear reactors, fuel and support services for both new and installed boiling water reactors are also a part of this segment. We provide our customers with total solutions to meet their needs through a complete portfolio of aftermarket services, including equipment upgrades, contractual services agreements, repairs, equipment installation, monitoring and diagnostics, asset management and performance optimization tools, remote performance testing and Dry Low NOx (DLN) tuning. We continue to invest in advanced technology development that will provide more value to our customers and more efficient solutions that comply with today’s strict environmental regulations.
 
Worldwide competition for power generation products and services is intense. Demand for most power generation products and services is global and, as a result, is sensitive to the economic and political environment of each country in which we do business. Regional load growth requirements and demand side management are important factors. The availability of fuels and related prices have a large impact on demand.
 
Energy Financial Services offers structured equity, leveraged leasing, partnerships, project finance and broad-based commercial finance to the global energy and water industries. We operate in a highly competitive environment. Our competitors include banks, financial institutions, energy companies, and other finance and leasing companies. Competition is based on price, that is interest rates and fees, as well as deal structure and terms. As we compete globally, our success is sensitive to the economic and political environment of each country in which we do business.
 
Oil & Gas
 
Oil & Gas offers advanced technology turbomachinery products and services for the production, transportation, storage, refining, and distribution of oil and natural gas. We have leading technology in total pipeline integrity solutions including analysis and pipeline asset management.
 
Transportation
 
Transportation provides technology solutions for customers in a variety of industries including railroad, transit, mining, oil and gas, power generation, and marine. We serve customers in more than 100 countries. Our products include high horsepower diesel-electric locomotives as well as parts and services for locomotives, including locomotives manufactured by competitors.
 
With the launch of the Evolution Series™ locomotive, we created our most technologically advanced, most fuel-efficient, diesel locomotive, while meeting or exceeding the U.S. Environmental Protection Agency’s Tier II requirements. Commercial production of the Evolution Series™ locomotive began in January 2005.
 

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The GE suite of locomotive services offerings, designed to improve fleet efficiency and reduce operating expenses, includes repair services, locomotive enhancements, modernizations, and information-based services like remote monitoring and diagnostics. We provide train control products, railway management services, and signaling systems to increase service levels, optimize asset utilization, and streamline operations for railroad owners and operators. We deliver leading edge tools that improve asset availability and reliability, optimize network planning, and control network execution to plan. We also offer leading drive technology solutions to the mining, transit, marine and stationary, and drilling industries. Our motors operate in thousands of applications, from electrical drive systems for large haulage trucks used in the mining industry to transit cars and drilling rigs, and our engines are used for marine power as well as stationary power generation applications. We also provide gearing technology for critical applications such as wind turbines.
 
Water
 
Water offers productivity solutions for pure water including the supply of specialty chemicals, pumps, valves, filters and fluid handling equipment for improving the performance of water, wastewater and process systems including mobile treatment systems and desalination processes.
 
For information about orders and backlog, see page 40.
 
Industrial
 
Industrial (21.7%, 22.8% and 22.0% of consolidated revenues in 2005, 2004 and 2003, respectively) produces and sells products including consumer appliances, industrial equipment and plastics, and related services. We also finance business equipment for a wide variety of customer applications. During 2005, we made a number of acquisitions, the most significant of which was Edwards Systems Technology.
 
Our operations are located in North America, Europe, Asia and South America.
 
Consumer & Industrial
 
Consumer & Industrial sells products characterized by high volume and relatively low unit prices. Our products share several characteristics - competitive design, efficient manufacturing and effective distribution and service. Strong global competition rarely permits premium pricing, so cost control, including productivity, is key. Despite pricing pressures on many of our products, we also invest in the development of differentiated, premium products that are more profitable. While some Consumer & Industrial products are primarily directed to consumer applications (major appliances, for example), and some primarily to industrial applications (switchgear, for example), others are directed to both markets (lighting, for example).
 
We sell and service major home appliances including refrigerators, freezers, electric and gas ranges, cooktops, dishwashers, clothes washers and dryers, microwave ovens, room air conditioners, and residential water systems for filtration, softening and heating. Brands are Monogram®, GE Profile™, GE®, and Hotpoint®.
 

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We manufacture certain products, and also source finished product and component parts from third-party global manufacturers. A large portion of our appliances sales are through a variety of retail outlets for replacement of installed units. Residential building contractors installing units in new construction are our second major U.S. channel. We offer the largest manufacturer’s service organization in the appliances industry, providing in-home repair, extended service plans, warranty administration and risk management services. We also manufacture and sell approximately 6,000 different lamp products for commercial, industrial and consumer markets, including full lines of incandescent, halogen, fluorescent, high-intensity discharge, light-emitting diode, automotive and miniature products.
 
Consumer & Industrial also provides integrated electrical equipment and systems used to distribute, protect and control energy and equipment. We manufacture and distribute electrical distribution and control products including transformers, meters, relays, circuit breakers, panel boards and general purpose controls that are used to distribute and manage power in a variety of residential, commercial, consumer and industrial applications. In addition, we design and manufacture motors and control systems used in end-industrial and consumer products such as heating, ventilation and air conditioning, dishwashers, and clothes washers and dryers. We also provide customer-focused solutions centered on the delivery and control of electric power, and market a wide variety of commercial lighting systems and lighting for aircraft, automotive and other transportation applications, front and rear video projection, medical, architectural, fiber optic, stage, studio, nightclub and theater applications.
 
The aggregate level of economic activity in markets for such products and services generally lags overall economic slowdowns as well as subsequent recoveries. In the United States, industrial markets are undergoing significant structural changes reflecting, among other factors, increased international competition and pressures to modernize productive capacity.
 
We also have a network of electrical product supply houses selling electrical products and parts, fasteners, voice and datacom parts, lighting equipment and supplies from GE and other leading manufacturers. Our business serves electrical contractors, industrial and commercial users, engineer constructors, original equipment manufacturers, utilities and the aerospace industry.
 
Equipment Services
 
Equipment Services helps customers manage, finance and operate a wide variety of business equipment worldwide. We provide rentals, leases, sales and asset management services of commercial and transportation equipment, including tractors, trailers, railroad rolling stock, modular space units, intermodal shipping containers and, primarily through an associated company, marine containers. Our operations are conducted in highly competitive markets. Economic conditions, geographic location, pricing and equipment availability are important factors in this business. Future success will depend upon our ability to maintain a large and diverse customer portfolio, optimize asset mix, maximize asset utilization and manage credit risk. In addition, we seek to understand our customers and to meet their needs with unique, efficient and cost effective product and service offerings.
 
Plastics
 
Plastics manufactures and sells high-performance plastics used by compounders, molders, and major original equipment manufacturers for use in a variety of applications, including fabrication of automotive parts, computer enclosures, compact disks and optical-quality media, major appliance parts, telecommunications equipment and construction materials. Our business has a significant operating presence around the world and we participate in numerous manufacturing and distribution joint ventures.
 

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Our business environment is characterized by technological innovation and heavy capital investment. To remain competitive we must maintain emphasis on efficient manufacturing process implementation and devote significant resources to market and application development. Our competitors include large, technology-driven suppliers of the same, as well as other functionally similar, materials. Our business is cyclical and is sensitive to variations in price and to the effects of supply/demand factors on the cost of raw materials such as benzene, cumene and methanol. Competition is affected by availability of manufacturing capacity and anticipation of new product or material performance requirements. Our application development, often in association with our existing or potential customers, and associated technology assistance have added additional market demand. Product and manufacturing process patents establish barriers to entry in many product lines.
 
Other
 
Our Industrial business sells structured products, silicones and high-purity quartzware. Market opportunities are created by substituting many of these products for other materials, thereby providing our customers with productivity through improved material performance at lower system costs. We sell these materials to a diverse, worldwide customer base, mainly manufacturers. Our business has a significant operating presence around the world and we participate in numerous manufacturing and distribution joint ventures.
 
We also offer protection and productivity solutions to some of the most pressing issues that industries face: safe facilities, plant automation and sensing applications in the operating environment. From home to industry to national security, our technology covers the full spectrum of security solutions, including card access systems, high-tech video monitoring, intrusion and smoke detection, real estate and property control, and explosives and narcotics detection. We are an industry leader in the design and manufacture of sensing elements, devices, instruments and systems that enable customers to monitor, protect, control and ensure the safety of their critical applications. Other products include precision sensors for temperature flow rate, pressure, humidity, gas, infrared and ultrasonic applications; high-quality handheld and portable field calibrators; stand-alone measurement instrumentation; and systems that provide the end-to-end solutions necessary to validate or certify vital commercial and industrial processes. We deliver automation hardware and software designed to help users reduce costs, increase efficiency and enhance profitability through a diverse array of capabilities and products, including controllers, embedded systems, advanced software, motion control, computer numerical controls, operator interfaces, industrial computers, and lasers.
 
Our products and services are sold to a diverse worldwide commercial and residential customer base in the transportation, industrial, pharmaceutical and healthcare markets. Our business environment is characterized by technological innovation and market growth. Our competitors include technology-driven suppliers of the same, as well as other functionally equivalent products and services.
 

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Healthcare
 
Healthcare (10.1%, 10.0% and 9.0% of consolidated revenues in 2005, 2004 and 2003, respectively) manufactures, sells and services a wide range of medical equipment including equipment for magnetic resonance (MR), computed tomography (CT), positron emission tomography (PET) imaging, x-ray, patient monitoring, diagnostic cardiology, nuclear imaging, ultrasound, bone densitometry, anesthesiology and oxygen therapy, neonatal and critical care, and therapy. In April 2004, we acquired Amersham plc, a world leader in medical diagnostics and life sciences. Products include diagnostic imaging agents used in medical scanning procedures, protein separations products including chromotography purification systems used in the manufacture of bio-pharmaceuticals, and high-throughput systems for applications in genomics, proteomics and bioassays. We sell product services to hospitals, medical facilities, and pharmaceutical and research companies worldwide. Our product services include remote diagnostic and repair services for medical equipment manufactured by GE and by others, as well as computerized data management and customer productivity services.
 
We compete with a variety of U.S. and non-U.S. manufacturers and services operations. Technological competence and innovation, excellence in design, high product performance, quality of services and competitive pricing are among the key factors affecting competition for these products and services. Throughout the world, we play a critical role in delivering new technology to improve patient outcomes and productivity tools to help control healthcare costs.
 
For information about orders and backlog, see page 41.
 
Our headquarters are in Chalfont St. Giles, United Kingdom and our operations are located in North America, Europe, Asia, Australia and South America.
 

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NBC Universal
 
NBC Universal, Inc. (NBC Universal) (9.8%, 9.5% and 6.1% of consolidated revenues in 2005, 2004 and 2003, respectively) was formed in May 2004 upon the combination of NBC with Vivendi Universal Entertainment LLLP and certain related assets. NBC Universal is principally engaged in the broadcast of network television services to affiliated television stations within the United States; the production of live and recorded television programs; the production and distribution of motion pictures; the operation, under licenses from the U.S. Federal Communications Commission (FCC), of television broadcasting stations; the ownership of several cable/satellite networks around the world; the operation of theme parks; and investment and programming activities in multimedia and the Internet. The NBC Television Network is one of four major U.S. commercial broadcast television networks and serves 230 affiliated stations within the United States. Telemundo is a leading U.S. Spanish-language commercial broadcast television network. At December 31, 2005, we owned and/or operated 30 VHF and UHF television stations including those located in Birmingham, AL; Los Angeles, CA; San Diego, CA; Hartford, CT; Miami, FL; Chicago, IL; New York, NY; Raleigh-Durham, NC; Columbus, OH; Philadelphia, PA; Providence, RI; Dallas, TX; and Washington, DC. Broadcasting operations of the NBC Television Network, the Telemundo network, and the company’s owned stations are subject to FCC regulation. Our operations include investment and programming activities in cable television, principally through USA Network, Bravo, CNBC, Sci Fi Channel, MSNBC, CNBC Europe, CNBC Asia Pacific, and entertainment channels across Europe and Latin America; equity investments in Arts and Entertainment, The History Channel, the Sundance Channel, ValueVision Media, Inc.; and a non-voting interest in Paxson Communications Corporation. We have secured exclusive United States television rights to the 2006, 2008, 2010 and 2012 Olympic Games.
 
NBC Universal’s broadcast ratings and advertising revenue are affected by viewer demographics and the availability of other entertainment choices. In addition, recent technological advances like personal video recorders offer personal entertainment through new media, introducing additional uncertainty to future revenue sources. Other technologies enable copying content, increasing the risk of content piracy, particularly in international markets where the intellectual property laws may not be clear or strictly applied.
 
Our headquarters are in New York, New York and our operations are located in North America, Europe and Asia.
 
Commercial Finance
 
Commercial Finance (13.7%, 14.5% and 14.9% of consolidated revenues in 2005, 2004 and 2003, respectively) offers a broad range of financial services worldwide. We have particular mid-market expertise and offer loans, leases and other financial services to customers, including manufacturers, distributors and end-users for a variety of equipment and major capital assets. These assets include industrial-related facilities and equipment; commercial and residential real estate; vehicles; corporate aircraft; and equipment used in many industries, including the construction, manufacturing, telecommunications and healthcare industries.
 
During 2005, we made a number of acquisitions, the most significant of which were the Transportation Financial Services Group of CitiCapital; the Inventory Finance division of Bombardier Capital; Antares Capital Corp., a unit of Massachusetts Mutual Life Insurance Co.; and ING’s portion of Heller AG.
 

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We operate in a highly competitive environment. Our competitors include commercial banks, investment banks, leasing companies, financing companies associated with manufacturers, and independent finance companies. Competition related to our lending and leasing operations is based on price, that is interest rates and fees, as well as deal structure and terms. Profitability is affected not only by broad economic conditions that affect customer credit quality and the availability and cost of capital, but also by successful management of credit risk, operating risk and market risks such as interest rate and currency exchange risks. Success requires high quality risk management systems, customer and industry specific knowledge, diversification, service and distribution channels, strong collateral and asset management knowledge, deal structuring expertise and the ability to reduce costs through technology and productivity.
 
Our headquarters are in Stamford, Connecticut with offices throughout North America, South America, Europe, Australia and Asia.
 
Capital Solutions
 
Capital Solutions offers a broad range of financial services worldwide, and has particular mid-market expertise, offering loans, leases, inventory finance and other financial services to customers, including manufacturers, dealers and end-users for a variety of equipment and major capital assets. These assets include retail facilities; vehicles; corporate aircraft; and equipment used in many industries, including the construction, transportation, technology, and manufacturing industries.
 
Real Estate
 
Real Estate operates globally, both directly and through joint ventures. Our Real Estate business finances, with both equity and loan structures, the acquisition, refinancing and renovation of office buildings, apartment buildings, retail facilities, industrial properties, parking facilities and franchise properties. Our typical Real Estate loans are intermediate term, may be either senior or subordinated, fixed or floating-rate, and are secured by existing income-producing commercial properties. Our originations of low loan-to-value loans are conducted for term securitization within one year. We invest in, and provide restructuring financing for, portfolios of mortgage loans, limited partnerships and tax-exempt bonds.
 
Consumer Finance
 
Consumer Finance (12.9%, 11.7% and 11.3% of consolidated revenues in 2005, 2004 and 2003, respectively) offers credit and deposit products and services to consumers, retailers, brokers and auto dealers in over 50 countries. We offer a broad range of financial products, including private-label credit cards; bank cards; Dual Cards™; corporate travel and purchasing cards; personal loans; auto loans; leases and inventory financing; residential mortgages; home equity loans; debt consolidation loans; current and savings accounts and insurance products related to consumer finance offerings for customers on a global basis.
 
In 2005, as part of our continued global expansion, we made a number of acquisitions, the most significant of which was a 25.5 percent voting stake in Garanti Bank, a full service bank in Turkey.
 

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Our operations are subject to a variety of bank and consumer protection regulations, including regulations controlling data privacy. Further, a number of countries have ceilings on rates chargeable to consumers in financial service transactions. We are subject to competition from various types of financial institutions including commercial banks, leasing companies, consumer loan companies, independent finance companies, manufacturers’ captive finance companies, and insurance companies. Industry participants compete on the basis of price, servicing capability, promotional marketing, risk management, and cross selling. The markets in which we operate are also subject to the risks from fluctuations in retail sales, interest and currency exchange rates, and the consumer’s capacity to repay debt.
 
Our headquarters are in Stamford, Connecticut and our operations are located in North America, South America, Europe, Australia and Asia.
 
Discontinued Operations
 
On November 18, 2005, we announced that we had entered into an agreement with Swiss Reinsurance Company (Swiss Re) to sell the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions. The transaction is expected to close in the second quarter of 2006, subject to regulatory approvals and customary closing conditions.
 
In May 2004, we completed the initial public offering of Genworth, our formerly wholly-owned subsidiary that conducted most of our consumer insurance business, including life and mortgage insurance operations. Throughout 2005, we continued to reduce our ownership in Genworth, currently at 18%. We intend to continue to dispose of our remaining shares in 2006, subject to market conditions.
 
We reported both the portions of GE Insurance Solutions described above and Genworth as discontinued operations for all periods presented.
 
Geographic Data, Exports from the U.S. and Total Global Operations
 
Geographic data (based on the location of the Company operation supplying goods or services and including exports from the U.S. to unaffiliated customers) are reported in note 26 to the consolidated financial statements on page 127.
 
Additional financial data about our exports from the U.S. and total global operations are provided on pages 45 and 46.
 
Orders Backlog
 
See pages 40, 41 and 58 for information about our backlog of unfilled orders.
 
Research and Development
 
Total expenditures for research and development were $3,425 million in 2005. Total expenditures were $3,091 million in 2004 and $2,656 million in 2003. Of these amounts, $2,741 million in 2005 was GE-funded ($2,443 million in 2004 and $2,103 million in 2003); and $684 million in 2005 was funded by customers ($648 million in 2004 and $553 million in 2003), principally the U.S. government. Infrastructure’s Aviation business accounts for the largest share of GE’s research and development expenditures from both GE and customer funds. Healthcare and Infrastructure’s Energy business also made significant expenditures of GE and customer research and development funds.
 

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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 remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Expenditures for site remediation actions amounted to $0.1 billion in each of the last two years. 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 polychlorinated biphenyls (PCBs) must be dredged from a 40-mile stretch of the upper Hudson River in New York State. On October 6, 2005, GE and the U.S. Environmental Protection Agency (EPA) entered into and filed in the U.S. District Court for the Northern District of New York a consent decree that, subject to approval of that court, 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, 2005 and 2004, included liabilities for the estimated costs of this remediation.
 
See page 119 for additional discussion of environmental matters.
 
Employee Relations
 
At year-end 2005, General Electric Company and consolidated affiliates employed approximately 316,000 persons, of whom approximately 161,000 were employed in the United States. For further information about employees, see page 26.
 
Approximately 22,650 GE manufacturing and service employees in the United States are represented for collective bargaining purposes by a total of approximately 150 different local collective bargaining groups. A majority of such employees are represented by union locals that are affiliated with, and bargain in conjunction with, the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers (IUE/CWA-AFL-CIO). During 2003, General Electric Company negotiated four-year contracts with unions representing a substantial majority of those United States employees who are represented by unions. Most of these contracts will terminate in June 2007. NBC Universal is party to approximately 160 labor agreements covering about 3,500 staff employees (and a large number of freelance employees) in the United States. These agreements are with various labor unions, expire at various dates and are generally for a term ranging from three to five years.
 
Executive Officers
 
See Part III, Item 10 of this Form 10-K/A Report for information about Executive Officers of the Registrant.
 

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Other
 
Because of the diversity of our products and services, as well as the wide geographic dispersion of our production facilities, we use numerous sources for the wide variety of raw materials needed for our operations. We have not been adversely affected by the inability to obtain raw materials.
 
We own, or hold licenses to use, numerous patents. New patents are continuously being obtained through our research and development activities as existing patents expire. Patented inventions are used both within the Company and are licensed to others, but no operating segment is substantially dependent on any single patent or group of related patents.
 
Agencies of the U.S. Government constitute our largest single customer. An analysis of sales of goods and services as a percentage of revenues follows:
 
 
% of Consolidated Revenues
  
% of GE Revenues
 
2005
  
2004
  
2003
  
2005
  
2004
  
2003
                                   
Total sales to U.S. Government Agencies
2
%
  
2
%
  
3
%
  
3
%
  
4
%
  
4
%
Infrastructure segment defense-related sales
2
    
2
    
2
    
3
    
3
    
3
  
 
 
GE is a trademark and service mark of General Electric Company; NBC is a trademark and service mark of NBC Universal, Inc.; and MSNBC is a trademark and service mark of MSNBC Cable, LLC.
 
The Company’s Internet address is www.ge.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available, without charge, on our website, www.ge.com/en/company/investor/secfilings.htm, as soon as reasonably practicable after they are filed electronically with the SEC. Copies are also available, without charge, from GE Corporate Investor Communications, 3135 Easton Turnpike, Fairfield, CT 06828.
 
 
Item 1A. Risk Factors
 
The following discussion of risk factors contains “forward-looking statements,” as discussed in Item 1. These risk factors may be important to understanding any statement in this Annual Report on Form 10-K/A or elsewhere. The following information should be read in conjunction with Management’s Discussion and Analysis (MD&A), and the consolidated financial statements and related notes in this report.
 
Our businesses routinely encounter and address risks, some of which will cause our future results to be different - sometimes materially different - than we presently anticipate. Discussion about the important operational risks that our businesses encounter can be found in the MD&A section in Item 7. and in the business descriptions in Item 1. of this Form 10-K/A. Below, we have described our present view of certain important strategic risks. Our reactions to material future developments as well as our competitors’ reactions to those developments will determine our future results.
 

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Our global growth is subject to a number of economic, political and regulatory risks
 
We conduct our operations in virtually every part of the world. Global economic and regulatory developments affect businesses such as ours in many ways. Operations are subject to the effects of global competition. Particular local jurisdiction risks include regulatory risks arising from local laws and from local liquidity regulations, including risks of not being able to retrieve assets. Our global business is affected by local economic environments, including inflation, recession and currency volatility. Political changes, some of which may be disruptive, can interfere with our supply chain, our customers and all of our activities in a particular location. While some of these risks can be hedged using derivatives or other financial instruments and some are insurable, such attempts to mitigate these risks are costly and not always successful.
 
Our credit ratings are important to our cost of capital
 
The major debt agencies routinely evaluate our debt and have given their highest debt ratings to us. One of our strategic objectives is to maintain these “Triple A” ratings as they serve to lower our borrowing costs and facilitate our access to a variety of lenders. Failure to maintain our Triple A debt rating could adversely affect our cost of funds and related margins.
 
The disposition of businesses that do not fit with our evolving strategy can be highly uncertain
 
We will continue to evaluate the potential disposition of assets and businesses that may no longer help us meet our objectives. Our decisions to sell Genworth and GE Insurance Solutions are recent examples of disposition decisions. When we decide to sell assets or a business, we may encounter difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the accomplishment of our strategic objectives, or we may dispose of a business at a price or on terms which are less than we had anticipated. In addition, there is a risk that we sell a business whose subsequent performance exceeds our expectations, in which case our decision would have potentially sacrificed enterprise value. Correspondingly, we may be too optimistic about a particular business’s prospects, in which case we may be unable to find a buyer at a price acceptable to us and therefore may have potentially sacrificed enterprise value.
 
 
Item 1B. Unresolved Staff Comments
 
Not applicable.
 
 
Item 2. Properties
 
Manufacturing operations are carried out at approximately 216 manufacturing plants located in 35 states in the United States and Puerto Rico and at 237 manufacturing plants located in 40 other countries.
 
 
Item 3. Legal Proceedings
 
In January 2005, the Boston District Office of the U.S. Securities and Exchange Commission (SEC) informed us that it had commenced an investigation and requested that GE and GE Capital voluntarily provide certain documents and information with respect to the use of hedge accounting for derivatives by us and GE Capital. The SEC Staff advised us in August 2005 that the SEC had issued a formal order of investigation in connection with this matter, which we believe to be a common step in the process in such matters. We and GE Capital have continued to voluntarily provide documents and information to the SEC Staff and we are cooperating fully with its investigation.
 

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On June 14, 2005, we received a subpoena from the U.S. Attorney’s Office for the Southern District of New York seeking documents relating to finite risk insurance. The subpoena is general in nature. GE received a similar subpoena from the Northeast Regional Office of the SEC on April 29, 2005. We are cooperating fully with the SEC and the U.S. Attorney’s Office.
 
On October 6, 2005, GE and the U.S. Environmental Protection Agency (EPA) entered into and filed in the U.S. District Court for the Northern District of New York a consent decree that, subject to approval of that court, 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 $111 million 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, 2005, included liabilities for our estimates of the future costs of this remediation.
 
 
Item 4. Submission of Matters to a Vote of Security Holders
 
Not applicable.
 
 
Part II
 
 
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
With respect to “Market Information”, in the United States, GE common stock is listed on the New York Stock Exchange (its principal market) and on the Boston Stock Exchange. GE common stock also is listed on The London Stock Exchange and on Euronext Paris. Trading prices, as reported on the New York Stock Exchange, Inc., Composite Transactions Tape, and dividend information follow:
 
 
Common stock market price
  
Dividends
(In dollars)
High
  
Low
  
declared
           
2005
          
Fourth quarter
$36.34
  
$32.67
  
$.25
Third quarter
35.78
  
32.85
  
.22
Second quarter
37.34
  
34.15
  
.22
First quarter
36.89
  
34.95
  
.22
           
2004
          
Fourth quarter
$37.75
  
$32.65
  
$.22
Third quarter
34.53
  
31.42
  
.20
Second quarter
33.49
  
29.55
  
.20
First quarter
34.57
  
28.88
  
.20
 
          

 
As of January 31, 2006, there were about 646,000 shareowner accounts of record.
 

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Period(a)
  
Total number
of shares
purchased(a)(b)
  
Average
price paid
per share
  
Total number of
shares purchased as
part of our share
repurchase program(c)
  
Approximate dollar
value of shares that
may yet be purchased
under our share
repurchase program
(Shares in thousands)
                                   
2005
                                  
October
    
34,008
      
$33.84
      
28,737
            
November
    
18,663
      
$35.48
      
11,853
            
December
    
45,911
      
$35.63
      
43,339
            
Total
    
98,582
      
$34.99
      
83,929
      
$
19.7 billion
  
                                   

(a)
Information is presented on a fiscal calendar basis, consistent with our quarterly financial reporting.
 
(b)
This category includes 14,653 thousand shares repurchased from our various benefit plans, primarily the GE Savings and Security Program (the S&SP). Through the S&SP, a defined contribution plan with 401(k) features, we repurchase shares resulting from changes in investment options by plan participants.
 
(c)
This balance represents the number of shares that were repurchased through the 2004 GE Share Repurchase Program as modified by the GE Board in November 2005 (the Program) under which we were authorized to repurchase up to $25 billion of Company common stock through 2008. The Program is flexible and shares are acquired with a combination of borrowings and free cash flow from the public markets and other sources, including GE Stock Direct, a stock purchase plan that is available to the public. As major acquisitions or other circumstances warrant, we modify the frequency and amount of share repurchases under the Program.

 
Item 6. Selected Financial Data
 
The selected financial data set forth in this Item 6 have been restated to reflect adjustments to our consolidated financial statements and other financial information contained in our Annual Report on Form 10-K for the year ended December 31, 2005, originally filed with the U.S. Securities and Exchange Commission (SEC) on March 3, 2006. The following selected financial data should be read in conjunction with our restated financial statements and the related Notes to Consolidated Financial Statements.
 
Information below is divided into two tables, each with three sections: upper portion - consolidated data; middle portion - GE data that reflect various conventional measurements for such enterprises; and lower portion - GECS data that reflect key information pertinent to financial services businesses. The first table reflects the “as reported” financial data; the second table sets forth the “as restated” financial data for that information affected by the restatement.
 



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(In millions; per-share amounts in dollars)
2005
  
2004
  
2003
  
2002
  
2001
  
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES - AS REPORTED
  
Revenues
$
149,702
   
$
134,481
   
$
112,886
   
$
113,856
   
$
107,558
  
Earnings from continuing operations before accounting changes
  
18,275
    
16,285
    
13,766
    
15,798
    
12,948
  
Earnings (loss) from discontinued operations, net of taxes
  
(1,922
)
  
534
    
2,057
    
(616
)
  
1,130
  
Earnings before accounting changes
  
16,353
    
16,819
    
15,823
    
15,182
    
14,078
  
Cumulative effect of accounting changes
  
-
    
-
    
(587
)
  
(1,015
)
  
(287
)
Net earnings
  
16,353
    
16,819
    
15,236
    
14,167
    
13,791
  
Dividends declared
  
9,647
    
8,594
    
7,759
    
7,266
    
6,555
  
Return on average shareowners’ equity(a)
  
17.6
%
  
17.6
%
  
19.6
%
  
27.2
%
  
24.7
%
Per share
                              
Earnings from continuing operations before accounting changes - diluted
$
1.72
  
$
1.56
  
$
1.37
  
$
1.58
  
$
1.29
  
Earnings (loss) from discontinued operations - diluted
  
(0.18
)
  
0.05
    
0.20
    
(0.06
)
  
0.11
  
Earnings before accounting changes - diluted
  
1.54
    
1.61
    
1.57
    
1.51
    
1.40
  
Cumulative effect of accounting changes - diluted
  
-
    
-
    
(0.06
)
  
(0.10
)
  
(0.03
)
Net earnings - diluted
  
1.54
    
1.61
    
1.51
    
1.41
    
1.37
  
Earnings from continuing operations before accounting changes - basic
  
1.73
    
1.57
    
1.37
    
1.59
    
1.30
  
Earnings (loss) from discontinued operations - basic
  
(0.18
)
  
0.05
    
0.21
    
(0.06
)
  
0.11
  
Earnings before accounting changes - basic
  
1.55
    
1.62
    
1.58
    
1.52
    
1.42
  
Cumulative effect of accounting changes - basic
  
-
    
-
    
(0.06
)
  
(0.10
)
  
(0.03
)
Net earnings - basic
  
1.55
    
1.62
    
1.52
    
1.42
    
1.39
  
Dividends declared
  
0.91
    
0.82
    
0.77
    
0.73
    
0.66
  
Stock price range
  
37.34-
    
37.75-
    
32.42-
    
41.84-
    
52.90-
  
   
32.67
    
28.88
    
21.30
    
21.40
    
28.25
  
Year-end closing stock price
  
35.05
    
36.50
    
30.98
    
24.35
    
40.08
  
Total assets of continuing operations
  
626,586
    
618,241
    
503,610
    
441,768
    
373,550
  
Total assets
  
673,342
    
750,507
    
647,828
    
575,236
    
495,012
  
Long-term borrowings
  
212,281
    
207,871
    
170,309
    
138,570
    
77,818
  
Shares outstanding - average (in thousands)
  
10,569,805
    
10,399,629
    
10,018,587
    
9,947,113
    
9,932,245
  
Shareowner accounts - average
  
634,000
    
658,000
    
670,000
    
655,000
    
625,000
  
Employees at year end
                              
United States
  
161,000
    
165,000
    
155,000
    
161,000
    
158,000
  
Other countries
  
155,000
    
142,000
    
150,000
    
154,000
    
152,000
  
Total employees
  
316,000
(b)
  
307,000
    
305,000
    
315,000
    
310,000
  
GE DATA - AS REPORTED
                              
Short-term borrowings
$
1,127
  
$
3,409
  
$
2,555
  
$
8,786
  
$
1,722
  
Long-term borrowings
  
9,081
    
7,625
    
8,388
    
970
    
787
  
Minority interest
  
5,806
    
7,701
    
1,079
    
1,028
    
948
  
Shareowners’ equity
  
109,354
    
110,821
    
79,631
    
64,079
    
55,000
  
Total capital invested
$
125,368
  
$
129,556
  
$
91,653
  
$
74,863
  
$
58,457
  
Return on average total capital invested(c)
  
16.4
%
  
16.0
%
  
17.7
%
  
25.8
%
  
24.9
%
Borrowings as a percentage of total capital invested(d)
  
8.1
%
  
9.0
%
  
11.9
%
  
13.0
%
  
4.3
%
Working capital(e)
$
8,399
  
$
8,328
  
$
5,282
  
$
3,821
  
$
(2,398
)
Additions to property, plant and equipment
  
2,812
    
2,427
    
2,158
    
2,386
    
2,876
  
GECS DATA - AS REPORTED
                              
Revenues
$
59,297
  
$
52,894
  
$
42,978
  
$
40,345
  
$
39,998
  
Earnings from continuing operations before accounting changes
  
9,141
    
7,853
    
5,931
    
5,291
    
4,406
  
Earnings (loss) from discontinued operations, net of taxes
  
(1,922
)
  
534
    
2,057
    
(616
)
  
1,130
  
Earnings before accounting changes
  
7,219
    
8,387
    
7,988
    
4,675
    
5,536
  
Cumulative effect of accounting changes
  
-
    
-
    
(339
)
  
(1,015
)
  
(12
)
Net earnings
  
7,219
    
8,387
    
7,649
    
3,660
    
5,524
  
Shareowner’s equity
  
50,815
    
54,292
    
45,759
    
37,302
    
28,766
  
Minority interest
  
2,248
    
4,902
    
5,115
    
4,445
    
4,267
  
Total borrowings
  
362,069
    
355,501
    
316,593
    
267,014
    
236,449
  
Ratio of debt to equity at GE Capital
  
7.09:1
    
6.46:1
    
6.63:1
    
6.46:1
    
7.21:1
  
Total assets of continuing operations
$
493,849
  
$
486,238
  
$
410,653
  
$
356,352
  
$
304,011
  
Total assets
  
540,605
    
618,504
    
554,871
    
489,820
    
425,473
  


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(In millions; per-share amounts in dollars)
  
2005
(Restated)
    
2004
(Restated)
    
2003
(Restated)
    
2002
(Restated
    
2001
(Restated
  
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES - AS RESTATED
  
Revenues
$
150,242
   
$
134,999
   
$
113,421
   
$
111,967
   
$
107,054
  
Earnings from continuing operations before accounting changes
  
18,633
    
16,626
    
14,091
    
14,629
    
12,620
  
Earnings (loss) from discontinued operations, net of taxes
  
(1,922
)
  
534
    
2,057
    
(616
)
  
1,130
  
Earnings before accounting changes
  
16,711
    
17,160
    
16,148
    
14,013
    
13,750
  
Net earnings
  
16,711
    
17,160
    
15,561
    
12,998
    
13,463
  
Return on average shareowners’ equity(a)
  
17.8
%
  
17.9
%
  
20.0
%
  
25.2
%
  
24.1
%
Per share
                              
Earnings from continuing operations before accounting changes - diluted
$
1.76
  
$
1.59
  
$
1.40
  
$
1.46
  
$
1.26
  
Earnings before accounting changes - diluted
  
1.57
    
1.64
    
1.60
    
1.40
    
1.37
  
Net earnings - diluted
  
1.57
    
1.64
    
1.54
    
1.30
    
1.34
  
Earnings from continuing operations before accounting changes - basic
  
1.76
    
1.60
    
1.41
    
1.47
    
1.27
  
Earnings before accounting changes - basic
  
1.58
    
1.65
    
1.61
    
1.41
    
1.38
  
Net earnings - basic
  
1.58
    
1.65
    
1.55
    
1.31
    
1.36
  
GE DATA - AS RESTATED
                              
Shareowners’ equity
  
109,351
    
110,908
    
79,662
    
63,979
    
55,019
  
Total capital invested
$
125,366
  
$
129,644
  
$
91,685
  
$
74,763
  
$
58,477
  
Return on average total capital invested(c)
  
16.6
%
  
16.2
%
  
18.1
%
  
24.0
%
  
24.3
%
Borrowings as a percentage of total capital invested(d)
  
8.1
%
  
9.0
%
  
11.9
%
  
13.0
%
  
4.3
%
GECS DATA - AS RESTATED
                              
Revenues
$
59,837
  
$
53,412
  
$
43,513
  
$
38,456
  
$
39,494
  
Earnings from continuing operations before accounting changes
  
9,499
    
8,194
    
6,256
    
4,122
    
4,078
  
Earnings before accounting changes
  
7,577
    
8,728
    
8,313
    
3,506
    
5,208
  
Net earnings
  
7,577
    
8,728
    
7,974
    
2,491
    
5,196
  
Shareowner’s equity
  
50,812
    
54,379
    
45,790
    
37,202
    
28,785
  
Total assets of continuing operations
  
493,828
    
486,348
    
410,659
    
356,134
    
304,031
  
Total assets
  
540,584
    
618,614
    
554,877
    
489,602
    
425,493
  

Transactions between GE and GECS have been eliminated from the consolidated information.
(a)
Return on Average Shareowners’ Equity - Earnings from continuing operations before accounting changes divided by average total shareowners’ equity, excluding effects of discontinued operations (on an annual basis, calculated using a five-point average). Average total shareowners’ equity, excluding effects of discontinued operations, as of the end of each of the years in the five-year period ended December 31, 2005, is described in the Supplemental Information section of Item 7.
(b)
Excludes employees of Genworth in 2005 as a result of the third quarter deconsolidation.
(c)
Return on Average Total Capital Invested - For GE, earnings from continuing operations before accounting changes plus the sum of after-tax interest and other financial charges and minority interest, divided by the sum of the averages of total shareowners’ equity (excluding effects of discontinued operations), borrowings, mandatorily redeemable preferred stock and minority interest (on an annual basis, calculated using a five-point average). Average total shareowners’ equity, excluding effects of discontinued operations as of the end of each of the years in the five-year period ended December 31, 2005, is described in the Supplemental Information section of Item 7.
(d)
Borrowings as a Percentage of Total Capital Invested - For GE, the sum of borrowings and mandatorily redeemable preferred stock, divided by the sum of borrowings, mandatorily redeemable preferred stock, minority interest and total shareowners’ equity.
 
(e)
Working Capital - Sum of receivables from the sales of goods and services, plus inventories, less trade accounts payables and progress collections.



(27)



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
2007 Restatement
 
As discussed in the explanatory note to this Form 10-K/A and in note 1 to our financial statements, we are restating financial statements and other financial information for the years 2005, 2004 and 2003, and financial information for the years 2002 and 2001, and for each of the quarters in the years 2005 and 2004. The restatement adjusts our accounting for interest rate swap transactions related to a portion of the commercial paper issued by General Electric Capital Corporation (GECC) and General Electric Capital Services, Inc. (GECS), each wholly-owned subsidiaries of GE, from January 1, 2001, the date we adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The restatement has no effect on our cash flows or liquidity, and its effects on our financial position at the ends of the respective restated periods are immaterial.
 
Interest rate swaps - agreements under which we pay a fixed rate of interest and receive a floating rate of interest on an agreed notional amount - are used in meeting our objective of managing interest rate risk related to our commercial paper program. Many of our financial assets - such as loans and leases - have long-term, fixed-rate yields, and funding them with proceeds of commercial paper would expose us to interest rate risk. Interest rate swaps are used to manage this risk. We use commercial paper in connection with interest rate swaps because that financing structure is highly effective at fixing interest rates, enabling us to match fixed rate assets with fixed rate funding (or “match funding”) provided by the hedged commercial paper. Consistent with our hedge documentation, we had measured and recognized hedge ineffectiveness each reporting period. We had never used the short-cut treatment provided for in SFAS 133 for any of these hedges.
 
The following table sets forth the effects of the error in accounting for interest rate swaps related to our commercial paper hedging program, more fully described beginning on page 3, on our previously reported earnings for the years 2001 through 2005, and each of the quarters in the years 2004 and 2005.
 

 
Increase (decrease) in
  
 
earnings from continuing operations
before accounting changes
  
(In millions)
  
2005
    
2004
    
2003
    
2002
    
2001
  
                               
Total adjustment
$
358
  
$
341
  
$
325
  
$
(1,169
)
$
(328
)
                               
Previously reported earnings from continuing
                             
operations before accounting changes
$
18,275
  
$
16,285
  
$
13,766
  
$
15,798
  
$
12,948
  
Percent variation from previously reported
                             
earnings from continuing operations
                             
before accounting changes
  
2.0
%
  
2.1
%
  
2.4
%
  
(7.4
)%
  
(2.5
)%
                               

 

(28)


(In millions)
Increase (decrease) in earnings from continuing operations(a)
  
 
2005
  
2004
  
Quarter
4th Qtr.
  
3rd Qtr.
  
2nd Qtr.
  
1st Qtr.
  
4th Qtr.
  
3rd Qtr.
  
2nd Qtr.
  
1st Qtr.
  
                                                 
Total adjustment
$
99
  
$
173
  
$
(139
)
$
225
  
$
105
  
$
(224
)
$
596
  
$
(136
)
                                                 
Previously reported
                                               
earnings from continuing
                                                
operations
$
5,772
  
$
4,569
  
$
4,372
  
$
3,562
  
$
5,718
  
$
3,941
  
$
3,658
  
$
2,968
  
Percent variation from
                                                
previously reported
                                                
earnings from continuing
                                                
operations
 
1.7
%
  
3.8
%
  
(3.2
)%
  
6.3
%
  
1.8
%
  
(5.7
)%
  
16.3
%
  
(4.6
)%
                                                 

(a)
See also note 30 to the Notes to Consolidated Financial Statements - Quarterly Information (Unaudited), as restated

 
Changes to our previously reported earnings detailed above reflect the volatility resulting from recognizing changes in the fair value of our commercial paper interest rate swaps immediately in earnings, rather than recording them in earnings over the remaining term of the hedging relationship. Values of these swaps move directly with changes in interest rates: increases in interest rates produce positive earnings effects from fair value gains on the interest rate swaps, as the amount of cash we receive on the swaps’ variable cash flow stream increases versus its fixed payment stream; similarly, negative earnings effects result from fair value losses on the swaps associated with decreases in interest rates as the amount of cash received on the swaps’ variable cash flow stream decreases versus its fixed payment stream. Interest rates generally trended downward during the period from 2001 to the present, explaining the slightly negative effect on earnings from this accounting error correction. However, interest rates were volatile within the years - for example increasing sharply in the second quarter of 2004 and first quarter of 2005, resulting in more pronounced positive earnings effects in those periods. As these swaps are used in match funding arrangements, which protect against the economic exposure to changes in interest rates, there are offsetting fair value changes associated with the related fixed rate assets. Because fair value changes related to fixed rate assets are not recognized in earnings under the current accounting model, the elimination of hedge accounting through correction of the error presents the current earnings effects of only one of two equal and offsetting components of the economic relationship.
 
The effects of these corrections resulted in a cumulative earnings decrease of $0.5 billion through December 31, 2005, all of which were related to interest rate swaps used in our commercial paper hedging program. Reversal of these cumulative adjustments will affect net earnings positively over the terms of the underlying interest rate swaps, but to a degree that we do not expect to be significant in any individual period given the terms of the arrangements and actions taken to eliminate the accounting volatility by modifying the documentation in a manner that will enable the swaps to qualify for hedge accounting effective January 1, 2007.
 
Operations
 
Our consolidated financial statements combine the industrial manufacturing, services and media businesses of General Electric Company (GE) with the financial services businesses of General Electric Capital Services, Inc. (GECS or financial services).
 

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In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission (SEC) rules. For such measures, we have provided supplemental explanations and reconciliations in the Supplemental Information section.
 
We present Management’s Discussion of Operations in five parts: Overview of Our Earnings from 2003 through 2005, Global Risk Management, Segment Operations, Global Operations and Environmental Matters.
 
Overview of Our Earnings from 2003 through 2005
 
Our results over the last several years reflect the global economic environment in which we operate. During these years, the economy has grown, but at a rate that, in historic terms, has been relatively modest. Long-term interest rates have been stable. We also experienced a weaker, but recently strengthening, U.S. dollar, escalating energy costs and higher fossil fuel-related raw material prices. Market developments in two industries in which we operate-power generation and commercial aviation - also had significant effects on our results. As the following pages show, our diversification and risk management strategies enabled us to continue to grow revenues and earnings to record levels during this challenging time.
 
Of our six segments, Infrastructure (29% and 36% of consolidated three-year revenues and total segment profit, respectively) was one of the most significantly affected by the recent economic environment. Infrastructure’s Energy business was particularly affected by the period of unprecedented U.S. power industry demands that peaked in 2002. The return to normal demand levels was reflected in subsequent lower shipments of large heavy-duty gas turbine units. In 2003, we sold 175 such units, compared with 122 in 2004 and 127 in 2005. During these years we invested in other lines of power generation such as wind power and developed product services that we believe will position the Energy business well for continued growth in 2006 and beyond. We also continued to invest in market-leading technology and services at Aviation, Transportation and Water. We had 1,405 commercial aircraft on lease at December 31, 2005, an increase of 63 aircraft from last year. All of our aircraft were on lease at the end of 2005, and at that time we held $10.6 billion (list price) of multiple-year orders for various Boeing, Airbus and other aircraft, including 73 aircraft ($4.8 billion list price) scheduled for delivery in 2006, all under agreement to commence operations with commercial airline customers. Product services and sales of our Evolution Series locomotives continue to be strong.
 
Industrial (22% and 10% of consolidated three-year revenues and total segment profit, respectively) is particularly sensitive to economic conditions. Higher capacity, in combination with declining or weak volume growth in many of the industries in which it operates, resulted in increased competitive price pressures. The Consumer & Industrial business continued to grow through product innovation and its focus on high-end appliances. The Plastics business was hit particularly hard during these three years because of additional pressure from significant inflation in natural gas and certain raw materials such as benzene. Increased earnings at Plastics reflected improved product pricing.
 

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We have achieved strong growth in our Healthcare and NBC Universal segments with a combination of organic growth and strategic acquisitions. Healthcare (10% and 11% of consolidated three-year revenues and total segment profit, respectively) realized benefits of acquisitions of Amersham plc (Amersham) in 2004 and Instrumentarium in 2003, expanding the breadth of our product and services offerings to the healthcare industry, and positioning us well for continued growth. NBC Universal (9% and 13% of consolidated three-year revenues and total segment profit, respectively) has developed into a diversified world-class media company over the last several years as the combination of NBC with Vivendi Universal Entertainment LLLP (VUE) in 2004 followed successful acquisitions of Telemundo and Bravo in 2002. NBC Universal revenues and segment profit rose 14% and 21%, respectively, in 2005, and 88% and 28%, respectively, in 2004, largely on acquisitions. We expect the technology and business model for the entertainment media industry to continue to evolve in the coming years and believe that NBC Universal is well positioned to compete in this challenging environment.
 
Commercial Finance and Consumer Finance (together, 26% and 31% of consolidated three-year revenues and total segment profit, respectively) are large, profitable growth businesses in which we continue to invest with confidence. In a challenging economic environment, these businesses grew earnings by a combined $1.3 billion and $1.0 billion in 2005 and 2004, respectively. Commercial Finance and Consumer Finance have delivered strong results through solid core growth, disciplined risk management and successful acquisitions. The most significant acquisitions affecting Commercial Finance and Consumer Finance results in 2005 were the commercial lending business of Transamerica Finance Corporation; WMC Finance Co. (WMC), a U.S. wholesale mortgage lender; Australian Financial Investments Group (AFIG), a residential mortgage lender in Australia; and the Transportation Financial Services Group of CitiCapital. These acquisitions collectively contributed $1.9 billion and $0.2 billion to 2005 revenues and net earnings, respectively.
 
Overall, acquisitions contributed $9.6 billion, $12.3 billion and $5.4 billion to consolidated revenues in 2005, 2004 and 2003, respectively. Our consolidated net earnings in 2005, 2004 and 2003 included approximately $0.9 billion, $1.2 billion and $0.5 billion, respectively, from acquired businesses. We integrate acquisitions as quickly as possible. Only revenues and earnings from the date we complete the acquisition through the end of the fourth following quarter are attributed to such businesses. Dispositions also affected our operations through lower revenues of $2.0 billion, $3.0 billion and $2.3 billion in 2005, 2004 and 2003, respectively. This resulted in lower earnings of $0.1 billion and $0.5 billion in 2005 and 2004, respectively, and higher earnings of $0.2 billion in 2003.
 
Significant matters relating to our Statement of Earnings are explained below.
 
INSURANCE EXIT. In 2005, we reduced our exposure to insurance in a disciplined fashion and our exit is now in sight.
 
·  
On November 18, 2005, we announced that we had entered into an agreement with Swiss Reinsurance Company (Swiss Re) to sell the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions. The transaction is expected to close in the second quarter of 2006, subject to regulatory approvals and customary closing conditions.
 
·  
In May 2004, we completed the initial public offering of Genworth Financial, Inc. (Genworth), our formerly wholly-owned subsidiary that conducted most of our consumer insurance business, including life and mortgage insurance operations. Throughout 2005, we continued to reduce our ownership in Genworth, currently at 18%. We intend to continue to dispose of our remaining shares in 2006, subject to market conditions.
 

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We reported both the portions of GE Insurance Solutions described above and Genworth as discontinued operations for all periods presented. Unless otherwise indicated, we refer to captions such as revenues and earnings from continuing operations simply as “revenues” and “earnings” throughout this Management’s Discussion and Analysis. Similarly, discussion of other matters in our consolidated financial statements relates to continuing operations unless otherwise indicated.
 
WE DECLARED $9.6 BILLION IN DIVIDENDS IN 2005. Per-share dividends of $0.91 were up 11% from 2004, following a 6% increase from the preceding year. In December 2005, our Board of Directors raised our quarterly dividend 14% to $0.25 per share. We have rewarded our shareowners with over 100 consecutive years of dividends, with 30 consecutive years of dividend growth, and our dividend growth for the past five years has significantly outpaced that of companies in the Standard & Poor’s (S&P) 500 stock index.
 
Except as otherwise noted, the analysis in the remainder of this section presents the results of GE (with GECS included on a one-line basis) and GECS. See the Segment Operations section for a more detailed discussion of the businesses within GE and GECS.
 
GE SALES OF PRODUCT SERVICES were $27.4 billion in 2005, a 9% increase over 2004. Increases in product services in 2005 and 2004 were widespread, led by continued strong growth at Infrastructure and Healthcare. Operating profit from product services was approximately $7.0 billion in 2005, up 14% from 2004, reflecting ongoing improvements at Infrastructure and Healthcare.
 
POSTRETIREMENT BENEFIT PLANS reduced pre-tax earnings by $1.7 billion, $1.2 billion and $0.2 billion in 2005, 2004 and 2003, respectively. Costs of our principal pension plans increased over the last three years primarily because of the effects of:
 
·  
Prior years investment losses which reduced pre-tax earnings by $0.5 billion, $0.6 billion and $0.4 billion in 2005, 2004 and 2003, respectively, and
 
·  
Lowering pension discount rates which reduced pre-tax earnings by $0.1 billion, $0.4 billion and $0.2 billion in 2005, 2004 and 2003, respectively.
 
Considering current and expected asset allocations, as well as historical and expected returns on various categories of assets in which our plans are invested, we have assumed that long-term returns on our principal pension plan assets would be 8.5% throughout this period and in 2006. U.S. generally accepted accounting principles provide for recognition of differences between assumed and actual returns over a period no longer than the average future service of employees.
 
We believe that our postretirement benefit costs will increase again in 2006 for a number of reasons, including further reduction in discount rates at December 31, 2005, and continued recognition of prior years investment losses relating to our principal pension plans.
 

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Our principal pension plans had a surplus of $5.8 billion at December 31, 2005. We will not make any contributions to the GE Pension Plan in 2006. To the best of our ability to forecast the next five years, we do not anticipate making contributions to that plan so long as expected investment returns are achieved. At December 31, 2005, the fair value of assets for our other pension plans was $2.9 billion less than their respective projected benefit obligations. We expect to contribute $0.4 billion to these plans in 2006, the same amount that was contributed in 2005 and 2004, respectively.
 
The funded status of our postretirement benefit plans and future effects on operating results depend on economic conditions and investment performance. See notes 6 and 7 for additional information about funded status, components of earnings effects and actuarial assumptions. See the Critical Accounting Estimates section for discussion of pension assumptions.
 
GE OTHER COSTS AND EXPENSES are selling, general and administrative expenses, which increased 11% to $13.3 billion in 2005, following a 22% increase in 2004, substantially the result of acquisitions in both years.
 
GE OPERATING PROFIT is earnings from continuing operations before interest and other financial charges, income taxes and the effects of accounting changes. GE operating profit was $13.3 billion in 2005, up from $11.4 billion in 2004 and $11.6 billion in 2003 (14.4%, 13.7% and 16.4% of GE total revenues in 2005, 2004 and 2003, respectively). The increase in 2005 operating profit reflected higher productivity (principally Healthcare and Infrastructure), volume (Infrastructure and NBC Universal) and prices (Industrial), partially offset by higher other costs across all segments. The decrease in 2004 reflected the combination of higher material and other costs (Industrial and NBC Universal), higher pension costs, lower prices (Infrastructure and Healthcare) and lower productivity (Infrastructure and NBC Universal), partially offset by increased volume (NBC Universal and Healthcare, reflecting 2004 combination/acquisition activity).
 
RESTATED INTEREST ON BORROWINGS AND OTHER FINANCIAL CHARGES amounted to $15.1 billion, $11.6 billion and $10.4 billion in 2005, 2004 and 2003, respectively. Substantially all of our borrowings are through GECS, where interest expense was $14.3 billion, $11.1 billion and $9.9 billion in 2005, 2004 and 2003, respectively. Changes over the three-year period reflected increased average borrowings and increased interest rates. GECS average borrowings were $346.1 billion, $319.2 billion and $305.0 billion in 2005, 2004 and 2003, respectively. GECS average composite effective interest rate was 4.2% in 2005, compared with 3.5% in 2004 and 3.2% in 2003. Proceeds of these borrowings were used in part to finance asset growth and acquisitions. In 2005, GECS average assets of $487.0 billion were 10% higher than in 2004, which in turn were 15% higher than in 2003. See the Financial Resources and Liquidity section for a discussion of interest rate risk management.
 
RESTATED INCOME TAXES
 
Income taxes are a significant cost. As a global commercial enterprise, our tax rates are affected by many factors, including our global mix of earnings, legislation, acquisitions, dispositions and tax characteristics of our income. Our tax returns are routinely audited and settlements of issues raised in these audits sometimes affect our tax provisions.
 

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Income taxes on consolidated earnings from continuing operations before accounting changes were 18.0% in 2005, compared with 18.2% in 2004 and 22.4% in 2003. Our consolidated income tax rate was essentially unchanged in 2005 from 2004 because the 2005 tax benefits from a reorganization of our aircraft leasing business and from the growth in lower-taxed global operations were about the same as the 2004 tax benefits from favorable U.S. Internal Revenue Service (IRS) settlements, the NBC Universal combination, the 2004 reorganization of our aircraft leasing business and a lower tax rate on the sale of a portion of Gecis, our business process outsourcing operation (now Genpact). Our consolidated income tax rate decreased by 4.2 percentage points in 2004 as the benefits listed above for 2004 were greater than the tax benefits from certain business dispositions in 2003. A more detailed analysis of differences between the U.S. federal statutory rate and the consolidated rate, as well as other information about our income tax provisions, is provided in note 8. The nature of business activities and associated income taxes differ for GE and for GECS and a separate analysis of each is presented in the paragraphs that follow.
 
Because GE tax expense does not include taxes on GECS earnings, the GE effective tax rate is best analyzed in relation to GE earnings excluding GECS. GE pre-tax earnings from continuing operations before accounting changes excluding GECS earnings from continuing operations before accounting changes were $11.9 billion, $10.4 billion and $10.7 billion for 2005, 2004 and 2003, respectively. On this basis, GE’s effective tax rate was 23.1% in 2005, 19.0% in 2004 and 26.7% in 2003. The increase in the 2005 rate over the 2004 rate was primarily attributable to the lack of current-year counterparts to the 2004 settlements with the IRS and 2004 tax benefits associated with the NBC Universal combination, both discussed below, that together reduced the 2004 rate by 7.2 percentage points. Partially offsetting this increase were the favorable impact of a number of audit resolutions with taxing authorities and our 2005 repatriation of earnings at the reduced U.S. tax rate provided in 2004 legislation (together representing a 3.2 percentage point reduction of the GE tax rate). These 2005 tax benefits are reflected in note 8 in the lines “All other - net” (1.6 percentage points) and “Tax on global activities including exports” (1.6 percentage points).
 
The 2004 rate reduction was primarily a result of two items that decreased the 2004 GE tax rate by 7.2 percentage points-settling several issues with the IRS for the years 1985 through 1999 and tax benefits associated with the NBC Universal combination. As part of the IRS settlements, we closed two significant issues: the 1997 tax-free exchange of the Lockheed Martin convertible preferred stock we received on the disposition of our Aerospace business in 1993, and a 1998 tax loss on the sale of a Puerto Rican subsidiary. The tax portion of these settlements is included in the line “IRS settlements of Lockheed Martin tax-free exchange/Puerto Rico subsidiary loss” in note 8. The tax benefits associated with the NBC Universal combination are included in the line “All other - net” in note 8. The 2004 GE effective tax rate also reflects lower pre-tax income primarily from lower earnings in the Energy business and higher costs related to our principal pension plans. Partially offsetting these changes was the non-recurrence of certain 2003 tax benefits.
 
GECS effective tax rate decreased to 12.3% in 2005 from 17.5% in 2004 and 16.1% in 2003. The 2005 GECS rate reflects the net benefits, discussed below, of a reorganization of our aircraft leasing business; and an increase in lower-taxed earnings from global operations. Together, these items more than account for the 6.6 percentage point decrease in rate from 2004 reflected in the line “Tax on global activities including exports” in note 8. Partially offsetting these benefits was the nonrecurrence of the benefits from 2004 favorable settlements with the IRS and the low-taxed disposition of a majority interest in Genpact. The lack of counterparts to these items increased the 2005 GECS tax rate by 1.7 percentage points.
 

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The increase in the GECS effective tax rate from 2003 to 2004 also reflected the net benefits, discussed below, of a reorganization of our aircraft leasing business, which decreased the 2004 effective tax rate 1.6 percentage points and is included in the line “Tax on global activities including exports” in note 8; tax benefits from favorable IRS settlements, which decreased the 2004 effective tax rate 1.2 percentage points and is included in the line “All other - net” in note 8; and the low-taxed disposition of a majority interest in Genpact which decreased the 2004 effective tax rate 0.8 percentage points, and is included in the line “Tax on global activities including exports” in note 8. Offsetting these benefits were the effects of higher pre-tax income and the nonrecurrence of a 2003 tax benefit on the disposition of shares of ERC Life Reinsurance Corporation.
 
As a result of the repeal of the extraterritorial income (ETI) taxing regime as part of the American Jobs Creation Act of 2004 (the Act), our aircraft leasing business no longer qualifies for a reduced U.S. tax rate. However, the Act also extended to aircraft leasing, the U.S. tax deferral benefits that were already available to other GE non-U.S. active operations. These legislative changes, coupled with a reorganization of our aircraft leasing business and a favorable Irish tax ruling, decreased the GECS effective tax rate 2.8 percentage points in 2005 and 1.6 percentage points in 2004.
 
Global Risk Management
 
A disciplined approach to risk is important in a diversified organization such as ours in order to ensure that we are executing according to our strategic objectives and that we only accept risk for which we are adequately compensated. It is necessary for us to manage risk at the individual transaction level, and to consider aggregate risk at the customer, industry, geography and collateral-type levels, where appropriate.
 
The GE Board of Directors oversees the risk management process through clearly established delegation of authority. Board and committee meeting agendas are jointly developed with management to cover risk topics presented to our Corporate Risk Committee, including environmental, compliance, liquidity, credit, market and event risks.
 
The GECS Board of Directors oversees the risk management process for financial services, and approves directly or by delegation all significant acquisitions and dispositions as well as borrowings and investments. All participants in the risk management process must comply with approval limits established by the Board.
 
The GECS Chief Risk Officer is responsible, through the Corporate Risk Function, for establishing standards for the measurement, reporting and limiting of risk; for managing and evaluating risk managers; for approving risk management policies; and for reviewing major risk exposures and concentrations across the organization. The GECS Corporate Risk Function analyzes certain business risks and assesses them in relation to aggregate risk appetite and approval limits set by the GECS Board of Directors.
 
Threshold responsibility for identifying, quantifying and mitigating risks is assigned to our individual businesses. Because the risks and their interdependencies are complex, we apply a Six Sigma-based analytical approach to each major product line that monitors performance against external benchmarks, proactively manages changing circumstances, provides early warning detection of risk and facilitates communication to all levels of authority. Other corporate functions such as Financial Planning and Analysis, Treasury, Legal and our Corporate Audit Staff support business-level risk management. Businesses that, for example, hedge financial risk with derivative financial instruments must do so using our centrally-managed Treasury function, providing assurance that the business strategy complies with our corporate policies and achieves economies of scale. We review risks periodically with business-level risk managers, senior management and our Board of Directors.
 

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GECS employs about 11,000 dedicated risk professionals, including 6,600 involved in collection activities and 400 specialized asset managers who evaluate leased asset residuals and remarket off-lease equipment.
 
GE and GECS manage a variety of risks including liquidity, credit, market and event risks.
 
·  
Liquidity risk is the risk of being unable to accommodate liability maturities, fund asset growth and meet contractual obligations through access to funding at reasonable market rates. Additional information about our liquidity and how we manage this risk can be found in the Financial Resources and Liquidity section and in notes 18 and 27.
 
·  
Credit risk is the risk of financial loss arising from a customer or counterparty failure to meet its contractual obligations. We face credit risk in our lending and leasing activities (see the Financial Resources and Liquidity and Critical Accounting Estimates sections and notes 1, 13, 14 and 29) and derivative financial instruments activities (see note 27).
 
·  
Market risk is the potential loss in value of investment and other asset and liability portfolios, including financial instruments, caused by changes in market variables, such as interest and currency exchange rates and equity and commodity prices. We are exposed to market risk in the normal course of our business operations as a result of our ongoing investing and funding activities. We attempt to mitigate the risks to our various portfolios arising from changes in interest and currency exchange rates in a variety of ways that often include offsetting positions in local currencies or selective use of derivatives. Additional information about how we mitigate the risks to our various portfolios from changes in interest and currency exchange rates can be found in the Financial Resources and Liquidity section and in note 27.
 
·  
Event risk is that body of risk beyond liquidity, credit and market risk. Event risk includes the possibility of adverse occurrences both within and beyond our control. Examples of event risk include natural disasters, availability of necessary materials, guarantees of product performance and business interruption. This type of risk is often insurable, and success in managing this risk is ultimately determined by the balance between the level of risk retained or assumed and the cost of transferring the risk to others. The decision as to the appropriate level of event risk to retain or cede is evaluated in the framework of business decisions. Additional information about certain event risk can be found in note 29.
 
Segment Operations
 
Operating segments comprise our six businesses focused on the broad markets they serve: Infrastructure, Industrial, Healthcare, NBC Universal, Commercial Finance and Consumer Finance. 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.
 
In the fourth quarter of 2005, we commenced reporting businesses affected by our insurance exit as discontinued operations for all periods presented. These businesses were previously reported in the Commercial Finance segment. Also, during the fourth quarter of 2005, our insurance activities, previously reported in the Commercial Finance segment, were transferred to Corporate items and eliminations for all periods presented.
 

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Segment profit is determined based on internal performance measures used by the Chief Executive Officer to assess the performance of each business in a given period. In connection with that assessment, the Chief Executive Officer may exclude matters such as charges for restructuring; rationalization and other similar expenses; in-process research and development and certain other acquisition-related charges and balances; technology development costs; certain gains and losses from dispositions; and litigation settlements or other charges, responsibility for which preceded the current management team.
 
Segment profit always excludes the effects of principal pension plans and results reported as discontinued operations and accounting changes. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured-excluded in determining segment profit, which we refer to as “operating profit,” for Healthcare, NBC Universal and the industrial businesses of the Industrial and Infrastructure segments; included in determining segment profit, which we refer to as “net earnings,” for Commercial Finance, Consumer Finance, and the financial services businesses of the Industrial segment (Equipment Services) and the Infrastructure segment (Aviation Financial Services, Energy Financial Services and Transportation Finance).
 

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Summary of Operating Segments
 
 
General Electric Company and consolidated affiliates
 
(In millions)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
2002
(Restated)
  
2001
(Restated)
  
REVENUES
                              
Infrastructure
$
41,803
  
$
37,373
  
$
36,569
  
$
40,119
  
$
36,419
  
Industrial
  
32,631
    
30,722
    
24,988
    
26,154
    
26,101
  
Healthcare
  
15,153
    
13,456
    
10,198
    
8,955
    
8,409
  
NBC Universal
  
14,689
    
12,886
    
6,871
    
7,149
    
5,769
  
Commercial Finance
  
20,646
    
19,524
    
16,927
    
15,688
    
14,610
  
Consumer Finance
  
19,416
    
15,734
    
12,845
    
10,266
    
9,508
  
Total segment revenues
  
144,338
    
129,695
    
108,398
    
108,331
    
100,816
  
Corporate items and eliminations, as restated
  
5,904
    
5,304
    
5,023
    
3,636
    
6,238
  
CONSOLIDATED REVENUES
$
150,242
  
$
134,999
  
$
113,421
  
$
111,967
  
$
107,054
  
SEGMENT PROFIT
                              
Infrastructure
$
7,769
  
$
6,797
  
$
7,362
  
$
9,178
  
$
7,869
  
Industrial
  
2,559
    
1,833
    
1,385
    
1,837
    
2,642
  
Healthcare
  
2,665
    
2,286
    
1,701
    
1,546
    
1,498
  
NBC Universal
  
3,092
    
2,558
    
1,998
    
1,658
    
1,408
  
Commercial Finance
  
4,290
    
3,570
    
2,907
    
2,170
    
1,784
  
Consumer Finance
  
3,050
    
2,520
    
2,161
    
1,799
    
1,602
  
Total segment profit
  
23,425
    
19,564
    
17,514
    
18,188
    
16,803
  
Corporate items and eliminations, as restated
  
(610
)
  
14
    
375
    
847
    
827
  
GE interest and other financial charges
  
(1,432
)
  
(979
)
  
(941
)
  
(569
)
  
(817
)
GE provision for income taxes
  
(2,750
)
  
(1,973
)
  
(2,857
)
  
(3,837
)
  
(4,193
)
Earnings from continuing operations
                              
before accounting changes
  
18,633
    
16,626
    
14,091
    
14,629
    
12,620
  
Earnings (loss) from discontinued
                              
operations, net of taxes
  
(1,922
)
  
534
    
2,057
    
(616
)
  
1,130
  
Earnings before accounting changes
  
16,711
    
17,160
    
16,148
    
14,013
    
13,750
  
Cumulative effect of accounting changes
  
-
    
-
    
(587
)
  
(1,015
)
  
(287
)
CONSOLIDATED NET EARNINGS
$
16,711
  
$
17,160
  
$
15,561
  
$
12,998
  
$
13,463
  
 
The notes to consolidated financial statements are an integral part of this summary.
 

 
In addition to providing information on segments in their entirety, we have also provided supplemental information for certain businesses within the segments.
 
For additional information about our segments, see note 26.
 

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INFRASTRUCTURE
 
(In millions)
  
2005
    
2004
    
2003
  
REVENUES
$
41,803
  
$
37,373
  
$
36,569
  
SEGMENT PROFIT
$
7,769
  
$
6,797
  
$
7,362
  

 
(In millions)
  
2005
    
2004
    
2003
  
REVENUES
                  
Aviation
$
11,904
  
$
11,094
  
$
9,808
  
Aviation Financial Services
  
3,504
    
3,159
    
2,881
  
Energy
  
16,525
    
14,586
    
16,611
  
Energy Financial Services
  
1,349
    
972
    
805
  
Oil & Gas
  
3,598
    
3,135
    
2,842
  
Transportation
  
3,577
    
3,007
    
2,543
  
SEGMENT PROFIT
                  
Aviation
$
2,573
  
$
2,238
  
$
1,809
  
Aviation Financial Services
  
764
    
520
    
506
  
Energy
  
2,665
    
2,543
    
3,875
  
Energy Financial Services
  
646
    
376
    
280
  
Oil & Gas
  
411
    
331
    
264
  
Transportation
  
524
    
516
    
450
  
 
 
Infrastructure revenues rose 12%, or $4.4 billion, in 2005 as higher volume ($4.3 billion) was partially offset by lower prices ($0.6 billion) at the industrial businesses in the segment. The increase in volume was primarily at Energy, Aviation and Transportation. The decrease in prices was primarily at Energy, and was partially offset by increased prices at Transportation and Aviation. Revenues also increased as a result of organic revenue growth at Energy Financial Services ($0.4 billion) and Aviation Financial Services ($0.3 billion).
 
Segment profit rose 14% to $7.8 billion, compared with $6.8 billion in 2004, as higher volume ($1.0 billion) and productivity ($0.2 billion including customer settlements and contract terminations) more than offset lower prices ($0.6 billion) and the effects of higher material and other costs ($0.3 billion) at the industrial businesses in the segment. The increase in volume primarily related to Energy, Aviation and Transportation. Segment profit also increased as a result of increased net earnings at the financial services businesses. This increase reflected core growth at Energy Financial Services ($0.3 billion) and core growth at Aviation Financial Services ($0.2 billion), including growth in lower-taxed earnings from global operations related to a reorganization of our aircraft leasing operations.
 
Infrastructure revenues increased 2%, or $0.8 billion, in 2004 as the weaker U.S. dollar ($0.5 billion), primarily at Energy, and higher volume ($0.4 billion) were partially offset by lower prices ($0.6 billion) at the industrial businesses of the segment, primarily at Energy. The increase in volume was the net result of increased sales in commercial services and military engines at Aviation and locomotives at Transportation, partially offset by lower sales at Energy. Energy sold 122 large heavy-duty gas turbines in 2004, compared with 175 in 2003. Financial services activity, primarily at Aviation Financial Services and Energy Financial Services, increased revenues primarily from organic revenue growth ($0.4 billion) and acquisitions ($0.1 billion).
 

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Segment profit fell 8%, or $0.6 billion, in 2004 as lower material costs ($0.3 billion), primarily at Energy, and higher volume ($0.1 billion) were more than offset by lower prices ($0.6 billion) and lower productivity ($0.6 billion) at the industrial businesses of the segment. The lower productivity was the net effect of lower productivity at Energy, primarily from the anticipated decline in higher margin gas turbine sales and a decrease in customer contract termination fees, partially offset by higher productivity at Aviation. Segment profit from the financial services businesses, primarily Energy Financial Services, increased $0.1 billion as a result of core growth.
 
Infrastructure orders were $38.4 billion in 2005, up from $34.0 billion in 2004. The $29.2 billion total backlog at year-end 2005 comprised unfilled product orders of $18.8 billion (of which 65% was scheduled for delivery in 2006) and product service orders of $10.4 billion scheduled for 2006 delivery. Comparable December 31, 2004, total backlog was $27.8 billion, of which $18.2 billion was for unfilled product orders and $9.6 billion for product services orders.
 
INDUSTRIAL
 
(In millions)
  
2005
    
2004
    
2003
  
REVENUES
$
32,631
  
$
30,722
  
$
24,988
  
SEGMENT PROFIT
$
2,559
  
$
1,833
  
$
1,385
  

 
(In millions)
  
2005
    
2004
    
2003
  
REVENUES
                  
Consumer & Industrial
$
14,092
  
$
13,767
  
$
12,843
  
Equipment Services
  
6,627
    
6,571
    
3,357
  
Plastics
  
6,606
    
6,066
    
5,501
  
SEGMENT PROFIT
                  
Consumer & Industrial
$
871
  
$
716
  
$
577
  
Equipment Services
  
197
    
82
    
(76
)
Plastics
  
867
    
566
    
503
  

 
Industrial revenues rose 6%, or $1.9 billion, in 2005 on higher prices ($1.5 billion), higher volume ($0.2 billion) and the weaker U.S. dollar ($0.2 billion) at the industrial businesses in the segment. We realized price increases primarily at Plastics and Consumer & Industrial. Volume increases related primarily to the acquisitions of Edwards Systems Technology and InVision Technologies, Inc. by our Security business, but were partially offset by lower volume at Plastics. Revenues at Equipment Services also increased as a result of organic revenue growth ($0.4 billion) and acquisitions ($0.1 billion), partially offset by the effects of the 2004 disposition of IT Solutions ($0.4 billion). Segment profit rose 35%, or $0.6 billion, at the industrial businesses in the segment in 2005 as price increases ($1.5 billion) and higher volume ($0.1 billion) more than offset higher material and other costs ($0.8 billion), primarily from commodities such as benzene and natural gas at Plastics, and lower productivity ($0.2 billion). Segment profit at Equipment Services also increased as a result of improved operating performance, reflecting core growth ($0.1 billion).
 

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Industrial revenues rose 23%, or $5.7 billion, in 2004 on higher volume ($2.0 billion), primarily at Consumer & Industrial and Plastics, the weaker U.S. dollar ($0.5 billion) and higher prices ($0.1 billion) at the industrial businesses in the segment. Higher prices at Plastics, as demand for plastic resins increased, were partially offset by lower prices at Consumer & Industrial. On January 1, 2004, we consolidated Penske Truck Leasing Co., L.P. (Penske), previously accounted for using the equity method. As a result, consolidated operating lease rentals and other income increased by $2.6 billion and $0.6 billion, respectively, from 2003 levels. Segment profit rose 32%, or $0.4 billion in 2004, as productivity ($0.8 billion), primarily at Consumer & Industrial and Plastics, higher volume ($0.1 billion) and higher prices ($0.1 billion) more than offset higher material and other costs ($0.8 billion), primarily from commodities such as benzene and natural gas at Plastics. Segment profit at Equipment Services also rose on improved operating performance ($0.2 billion). See Corporate Items and Eliminations for a discussion of items not allocated to this segment.
 
HEALTHCARE revenues increased 13% to $15.2 billion in 2005 as higher volume ($2.1 billion), including $0.8 billion from the Amersham acquisition in the second quarter of 2004, and the weaker U.S. dollar ($0.1 billion) more than offset lower prices ($0.4 billion). Operating profit of $2.7 billion was 17% higher than in 2004 as productivity ($0.5 billion) and higher volume ($0.4 billion) more than offset lower prices ($0.4 billion) and higher labor and other costs ($0.1 billion).
 
Healthcare revenues increased 32% to $13.5 billion in 2004 as higher volume ($3.3 billion), primarily from acquisitions including Amersham ($2.2 billion) and Instrumentarium ($1.0 billion), and the weaker U.S. dollar ($0.4 billion) more than offset lower prices ($0.4 billion). Operating profit of $2.3 billion in 2004 was 34% higher than in 2003 as the effects of higher volume ($0.5 billion) and productivity ($0.5 billion) more than offset the effects of lower prices ($0.4 billion). See Corporate Items and Eliminations for a discussion of items not allocated to this segment.
 
Orders received by Healthcare in 2005 were $15.6 billion, compared with $13.7 billion in 2004. The $5.4 billion total backlog at year-end 2005 comprised unfilled product orders of $3.5 billion (of which 90% was scheduled for delivery in 2006) and product services orders of $1.9 billion scheduled for 2006 delivery. Comparable December 31, 2004, total backlog was $4.7 billion, of which $2.8 billion was for unfilled product orders and $1.9 billion for product services orders.
 
NBC UNIVERSAL revenues rose 14%, or $1.8 billion, to $14.7 billion in 2005, reflecting a number of factors, the largest of which was the full-year contribution from the May 2004 combination of NBC with VUE. The full-year ownership of VUE was reflected in higher film revenues ($1.6 billion), growth of our entertainment cable business ($0.6 billion), and higher revenues from television production operations ($0.3 billion) and theme parks operations ($0.1 billion). Also contributing to the increase in 2005 revenues was $0.6 billion, partially from settling obligations related to preferred interests previously issued by VUE and partially from settling certain contracts as part of our MSNBC restructuring. Partial offsets arose from the lack of a current-year counterpart to the 2004 Olympic Games broadcasts ($0.9 billion), effects of lower ratings on network and station ad sales ($0.4 billion) and an investment impairment ($0.1 billion). Segment profit rose 21%, or $0.5 billion, in 2005 as the full-year ownership of VUE contributed $0.6 billion to higher earnings, including improvements in the film ($0.3 billion), entertainment cable ($0.3 billion) and television production ($0.2 billion) businesses. Effects of the preferred interests and restructuring transactions ($0.6 billion) were more than offset by the effects of lower earnings from network and station operations ($0.6 billion) and the investment impairment loss ($0.1 billion).
 

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Revenues were up sharply in 2004, to $12.9 billion, and segment profit was up 28% to $2.6 billion. Operations were significantly affected by the May combination of NBC and VUE, which increased revenues by $4.7 billion and, net of effects of the 20% minority interest, operating profit by $0.6 billion. Other significant 2004 factors affecting results were the Olympic Games broadcasts ($0.9 billion higher revenues), price increases ($0.2 billion of revenues and operating profit), volume ($0.3 billion of revenues and $0.1 billion of operating profit) and $0.3 billion higher NBC Universal operating costs.
 
COMMERCIAL FINANCE
 
(In millions)
  
2005
    
2004
    
2003
  
REVENUES
$
20,646
  
$
19,524
  
$
16,927
  
SEGMENT PROFIT
$
4,290
  
$
3,570
  
$
2,907
  

 
December 31 (In millions)
  
2005
    
2004
        
TOTAL ASSETS
$
190,546
  
$
184,388
        

 
(In millions)
  
2005
    
2004
    
2003
  
REVENUES
                  
Capital Solutions
$
11,476
  
$
11,503
  
$
9,893
  
Real Estate
  
3,492
    
3,084
    
2,956
  
SEGMENT PROFIT
                  
Capital Solutions
$
1,515
  
$
1,325
  
$
1,184
  
Real Estate
  
1,282
    
1,124
    
947
  

 
December 31 (In millions)
  
2005
    
2004
        
ASSETS
                  
Capital Solutions
$
87,306
  
$
80,514
        
Real Estate
  
35,323
    
39,515
        
 
 
Commercial Finance revenues and net earnings increased 6% and 20%, respectively, compared with 2004. Revenues during 2005 and 2004 included $1.0 billion and $0.3 billion from acquisitions, respectively, and in 2005 were reduced by $0.7 billion as a result of dispositions. Revenues during 2005 also increased $1.1 billion as a result of organic revenue growth ($0.8 billion) and the weaker U.S. dollar ($0.3 billion). The increase in net earnings resulted primarily from core growth ($0.6 billion), including growth in lower-taxed earnings from global operations, acquisitions ($0.2 billion) and the weaker U.S. dollar ($0.1 billion), partially offset by lower securitizations ($0.1 billion).
 
Commercial Finance revenues and net earnings increased 15% and 23%, respectively, compared with 2003. The increase in revenues resulted primarily from acquisitions ($2.2 billion) and the weaker U.S. dollar ($0.6 billion), partially offset by lower securitizations ($0.2 billion). The increase in net earnings resulted primarily from acquisitions ($0.4 billion), core growth ($0.3 billion) and the weaker U.S. dollar ($0.1 billion), partially offset by lower securitizations ($0.1 billion).
 

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CONSUMER FINANCE
 
(In millions)
  
2005
    
2004
    
2003
  
REVENUES
$
19,416
 
$
15,734
 
$
12,845
 
SEGMENT PROFIT
$
3,050
 
$
2,520
 
$
2,161
 

 
December 31 (In millions)
  
2005
    
2004
        
TOTAL ASSETS
$
158,829
  
$
151,255
        

Consumer Finance revenues and net earnings increased 23% and 21%, respectively, compared with 2004. Revenues for 2005 included $1.9 billion from acquisitions. Revenues during 2005 also increased $1.8 billion as a result of organic revenue growth ($1.5 billion) and the weaker U.S. dollar ($0.3 billion). The increase in net earnings resulted primarily from core growth ($0.6 billion), including growth in lower-taxed earnings from global operations, and acquisitions ($0.1 billion), partially offset by increased costs to launch new products and promote brand awareness ($0.2 billion).
 
Consumer Finance revenues and net earnings increased 22% and 17%, respectively, from 2003. The increase in revenues resulted primarily from organic revenue growth ($1.0 billion), acquisitions ($1.0 billion) and the weaker U.S. dollar ($0.8 billion). Organic revenue growth was achieved despite the absence of a 2004 counterpart to the 2003 gain on sale of The Home Depot private-label credit card receivables ($0.9 billion). The increase in net earnings resulted from core growth ($0.6 billion), including growth in lower-taxed earnings from global operations, acquisitions ($0.1 billion), and the weaker U.S. dollar ($0.1 billion), partially offset by the effects of The Home Depot private-label credit card receivables ($0.4 billion) and increased costs to launch new products and promote brand awareness in 2004 ($0.1 billion).
 
RESTATED CORPORATE ITEMS AND ELIMINATIONS
 
(In millions)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
REVENUES
                  
Insurance activities
$
6,469
  
$
4,711
  
$
4,466
  
GECS commercial paper interest rate swap adjustment
  
540
    
518
    
535
  
Eliminations and other
  
(1,105
)
  
75
    
22
  
Total
$
5,904
  
$
5,304
  
$
5,023
  
OPERATING PROFIT (COST)
                  
Insurance activities
$
131
  
$
30
  
$
21
  
Principal pension plans
  
(329
)
  
124
    
1,040
  
Underabsorbed corporate overhead
  
(464
)
  
(498
)
  
(630
)
GECS commercial paper interest rate swap adjustment
  
358
    
341
    
325
  
Other
  
(306
)
  
17
    
(381
)
Total
$
(610
)
$
14
  
$
375
  
 
 
Corporate Items and Eliminations include the effects of eliminating transactions between operating segments; results of our insurance activities remaining in continuing operations; cost of, and cost reductions from, our principal pension plans; results of liquidating businesses such as consolidated, liquidating securitization entities; underabsorbed corporate overhead; certain non-allocated amounts described below; and a variety of sundry items. Corporate Items and Eliminations is not an operating segment. Rather, it is added to operating segment totals to reconcile to consolidated totals on the financial statements.
 

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The caption “GECS commercial paper interest rate swap adjustment” consists of fair value changes associated with interest rate swaps that were designated as hedges of our commercial paper program. As more fully described beginning on page 28, the correction of our financial statements to eliminate the effects of hedge accounting for these swaps results in recognition in earnings of such fair value changes immediately rather than over the remaining term of the hedging relationship. Certain amounts included in the line “Other” above are not allocated to GE operating segments because they are excluded from the measurement of their operating performance for internal purposes. In 2004, these comprised $0.4 billion of Healthcare charges, principally related to the write-off of in-process research and development projects and other transitional costs associated with Amersham; and a $0.1 billion charge at Industrial as the gain on sale of the motors business was more than offset by costs for inventory obsolescence and other charges. In 2003, amounts not allocated to GE operating segments included charges of $0.2 billion for settlement of litigation, restructuring and other charges at Healthcare; and $0.1 billion for restructuring and other charges at Industrial.
 
Changes in Other operating profit (cost) also reflect gains of $0.1 billion and $0.3 billion from partial sales of an interest in Genpact, in 2005 and 2004, respectively.
 
DISCONTINUED INSURANCE OPERATIONS
 
(In millions)
  
2005
    
2004
    
2003
  
Earnings (loss) from discontinued
                  
operations, net of taxes
$
(1,922
)
$
534
  
$
2,057
  

Discontinued operations comprise the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions and most of its affiliates, that we agreed to sell in the fourth quarter of 2005; and Genworth, our formerly wholly-owned subsidiary that conducted most of our consumer insurance business, including life and mortgage insurance operations. Results of these businesses are reported as discontinued operations for all periods presented.
 
Loss from discontinued operations in 2005 reflected losses from the portions of GE Insurance Solutions described above ($2.8 billion), partially offset by Genworth earnings ($0.9 billion). GE Insurance Solutions results will be included in our 2006 discontinued operations to the date of closing, which is expected to be in the second quarter. Dividends we receive from Genworth and any gains or losses on sales of our remaining 18% position in Genworth common stock will also be reported in discontinued operations.
 
Earnings from discontinued operations in 2004 reflected earnings of Genworth ($0.4 billion), including our share of 2004 earnings from operations ($0.8 billion), partially offset by the loss on the Genworth initial public offering in May 2004 ($0.3 billion), and GE Insurance Solutions ($0.1 billion), primarily 2004 operations.
 
For additional information related to discontinued operations see note 2.
 

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Global Operations
 
Our global activities span all geographic regions and primarily encompass manufacturing for local and export markets, import and sale of products produced in other regions, leasing of aircraft, sourcing for our plants domiciled in other global regions and provision of financial services within these regional economies. Thus, when countries or regions experience currency and/or economic stress, we often have increased exposure to certain risks, but also often have new profit opportunities. Potential increased risks include, among other things, higher receivable delinquencies and bad debts, delays or cancelations of sales and orders principally related to power and aircraft equipment, higher local currency financing costs and slowdown in established financial services activities. New profit opportunities include, among other things, more opportunities for lower cost outsourcing, expansion of industrial and financial services activities through purchases of companies or assets at reduced prices and lower U.S. debt financing costs.
 
Estimated results of global activities include the results of our operations located outside the United States plus all U.S. exports. We classify certain GECS operations that cannot meaningfully be associated with specific geographic areas as “Other Global” for this purpose.
 
GLOBAL REVENUES BY REGION
 
(In millions)
  
2005
    
2004
    
2003
  
Europe
$
36,900
  
$
32,400
  
$
24,400
  
Pacific Basin
  
16,000
    
13,000
    
13,000
  
Americas
  
7,500
    
7,000
    
5,600
  
Other Global
  
6,100
    
5,700
    
4,600
  
   
66,500
    
58,100
    
47,600
  
Exports from the U.S. to external customers
  
11,400
    
8,800
    
6,700
  
Total(a)
$
77,900
  
$
66,900
  
$
54,300
  
 
(a)
Included $6.6 billion, $5.8 billion and $4.7 billion of intercompany revenues in 2005, 2004 and 2003, respectively.

 
Global revenues rose 16% to $77.9 billion in 2005 compared with $66.9 billion and $54.3 billion in 2004 and 2003, respectively. Global revenues to external customers as a percentage of consolidated revenues were 48% in 2005, compared with 45% and 44% in 2004 and 2003, respectively. The effects of the weaker U.S. dollar on reported results were to increase revenues by $0.9 billion, $4.1 billion and $3.1 billion in 2005, 2004 and 2003, respectively; and to increase earnings by $0.1 billion, $0.1 billion and $0.2 billion in 2005, 2004 and 2003, respectively.
 
GE global revenues were $48.2 billion in 2005, up 15% over 2004, led by increases at Infrastructure and NBC Universal, mainly in Europe and the Pacific Basin. Exports from the U.S. were up 30%, led by Infrastructure, again showing strength in Europe and the Pacific Basin. GE global revenues in 2004 were $41.7 billion, up 27% over 2003, led by Healthcare, including the effects of the Amersham acquisition, and NBC Universal, reflecting the combination of NBC and VUE. U.S. exports grew 31% in 2004 on strong growth at Infrastructure.
 

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GECS global revenues were $29.7 billion, $25.2 billion and $21.3 billion in 2005, 2004 and 2003, respectively. GECS revenues in the Pacific Basin increased 28% in 2005, primarily as a result of the acquisition of AFIG at Consumer Finance and organic revenue growth at Consumer Finance and Commercial Finance. GECS revenues increased 25% in Europe primarily as a result of higher investment income (largely offset by policyholder dividends) at our insurance activities, and organic revenue growth and acquisitions at Consumer Finance and Commercial Finance. Revenues in Other Global decreased 4% primarily as a result of the absence of a current-year counterpart to the 2004 gain on the sale of a majority interest in Genpact, partially offset by organic revenue growth at the financial services businesses in Infrastructure.
 
Global operating profit was $12.7 billion in 2005, an increase of 20% over 2004, which was 35% higher than in 2003. GE global operating profit in 2005 rose 30% reflecting solid growth in Europe and Other Global, mainly at Infrastructure.
 
Total assets of global operations on a continuing basis were $299.4 billion in 2005, an increase of $2.8 billion, or 1%, over 2004. GECS global assets on a continuing basis of $261.9 billion at the end of 2005 were 1% higher than at the end of 2004, reflecting acquisitions and core growth, almost fully offset by the recently strengthening U.S. dollar.
 
Financial results of our global activities reported in U.S. dollars are affected by currency exchange. We use a number of techniques to manage the effects of currency exchange, including selective borrowings in local currencies and selective hedging of significant cross-currency transactions. Such principal currencies are the pound sterling, the euro, the Japanese yen and the Canadian dollar.
 
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 remediation actions regardless of fault, legality of original disposal or ownership of a disposal site. Expenditures for site remediation actions amounted to $0.1 billion in each of the last two years. 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 polychlorinated biphenyls (PCBs) must be dredged from a 40-mile stretch of the upper Hudson River in New York state. On October 6, 2005, GE and the EPA entered into and filed in the U.S. District Court for the Northern District of New York a consent decree that, subject to approval of that court, 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, 2005 and 2004, included liabilities for the estimated costs of this remediation.
 

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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 financial statements.
 
Overview of Financial Position
 
Major changes in our financial position resulted from the following:
 
·  
In the fourth quarter of 2005, we announced the planned sale of most of GE Insurance Solutions and completed a Genworth secondary public offering, which reduced our ownership in Genworth from 27% to 18%. We have separately reported the assets and liabilities related to these discontinued operations for all periods presented.
 
·  
Our discontinued operations assets and liabilities decreased by $83.4 billion on September 27, 2005, when we reduced our ownership of Genworth to 27%, a level of investment that is reported as an associated company. As an associated company, our ongoing interest in Genworth operating results were presented on a one-line basis. This deconsolidation had a significant effect on our assets and liabilities of discontinued operations.
 
·  
During 2005, we completed the acquisitions of Edwards Systems Technology at Industrial and Ionics, Inc. at Infrastructure. GECS completed acquisitions of the Transportation Financial Services Group of CitiCapital, the Inventory Finance division of Bombardier Capital, Antares Capital Corp., a unit of Massachusetts Mutual Life Insurance Co., and ING’s portion of Heller AG.
 
·  
The U.S. dollar was stronger at December 31, 2005, than it was at December 31, 2004, reducing the translated levels of our non-U.S. dollar assets and liabilities. However, on average, the U.S. dollar in 2005 has been weaker than during the comparable 2004 period, resulting in increases in reported levels of non-U.S. dollar operations as noted in the preceding Operations section.
 
·  
Minority interest in equity of consolidated affiliates decreased $4.5 billion during 2005 principally from settlement of the VUE preferred interests and our acquisition of the previously outstanding minority interest in VUE common stock (together $1.9 billion), and redemption of preferred stock at General Electric Capital Corporation (GE Capital) ($2.5 billion). See notes 16 and 22.
 
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.
 

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INVESTMENT SECURITIES comprise mainly available-for-sale investment-grade debt securities supporting obligations to annuitants and policyholders, and debt and equity securities designated as trading and associated with certain non-U.S. insurance contract-holders who retain the related investment risks and rewards except in the event of our bankruptcy or liquidation. Investment securities were $53.1 billion at December 31, 2005, compared with $56.9 billion at December 31, 2004.
 
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 available-for-sale securities with unrealized losses at December 31, 2005, approximately $0.1 billion was at risk of being charged to earnings in the next 12 months; substantially all of this amount related to the automotive and commercial aviation industries.
 
Impairment losses for 2005 totaled $0.1 billion compared with $0.2 billion in 2004. We recognized impairments in both periods for issuers in a variety of industries; we do not believe that any of the impairments indicate likely future impairments in the remaining portfolio.
 
Gross unrealized gains and losses were $2.5 billion and $0.5 billion, respectively, at December 31, 2005, compared with $2.9 billion and $0.5 billion, respectively, at December 31, 2004, primarily reflecting a decrease in the estimated fair value of debt securities as interest rates increased. At December 31, 2005, available accounting gains could be as much as $0.7 billion, net of consequential adjustments to certain insurance assets that are amortized based on anticipated gross profits. The market values we used in determining unrealized gains and losses are those defined by relevant accounting standards and should not be viewed as a forecast of future gains or losses. See note 10.
 
We also hold collateralized investment securities issued by various airlines, including those operating in bankruptcy. Total amortized cost of these securities was $1.7 billion at December 31, 2005, and total fair value was $1.6 billion. Unrealized losses totaling $0.1 billion were associated with securities in an unrealized loss position for more than 12 months, an improvement from the comparable $0.3 billion a year earlier. All of these securities have remained current on all payment terms; we do not expect the borrowers to default. Current appraised market values of associated aircraft collateral exceeded both the market value and the amortized cost of our related securities at December 31, 2005, offering protection in the event of foreclosure. Therefore, we expect full recovery of our investment as well as our contractual returns.
 
WORKING CAPITAL, representing GE inventories and receivables from customers, less trade payables and progress collections, was $8.4 billion at December 31, 2005, up $0.1 billion from December 31, 2004, reflecting the effects of 2005 acquisitions.
 
We discuss current receivables and inventories, two important elements of working capital, in the following paragraphs.
 

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CURRENT RECEIVABLES for GE amounted to $15.1 billion at the end of 2005 and $14.5 billion at the end of 2004, and included $10.3 billion due from customers at the end of 2005 compared with $10.2 billion at the end of 2004. Turnover of customer receivables from sales of goods and services was 9.0 in 2005, compared with 9.4 in 2004. Other current receivables are primarily amounts that did not originate from sales of GE goods or services, such as advances to suppliers in connection with large contracts. See note 11.
 
INVENTORIES for GE amounted to $10.3 billion at December 31, 2005, up $0.7 billion from the end of 2004. This increase reflected higher inventories at Aviation and the effects of 2005 acquisitions. GE inventory turnover was 8.3 in 2005 compared with 8.4 in 2004. See note 12.
 
FINANCING RECEIVABLES is our largest category of assets and represents one of our primary sources of revenues. The portfolio of financing receivables, before allowance for losses, was $292.2 billion at December 31, 2005, and $288.3 billion at December 31, 2004. The related allowance for losses at December 31, 2005, amounted to $4.6 billion, compared with $5.6 billion at December 31, 2004, representing our best estimate of probable losses inherent in the portfolio. The allowance for losses decreased $1.0 billion from 2004. The 2005 decrease reflected write-offs of previously reserved financing receivables ($0.8 billion), principally commercial aviation loans and leases in our Infrastructure segment, and the recently strengthening U.S. dollar ($0.2 billion). During 2005, changes in U.S. bankruptcy laws prompted certain customers to accelerate filing for bankruptcy protection. These changes had an inconsequential effect on our allowance and earnings. Balances at December 31, 2005 and 2004, included securitized, managed GE trade receivables of $3.9 billion and $3.5 billion, respectively. See notes 13 and 14.
 
A discussion of the quality of certain elements of the financing receivables portfolio follows. For purposes of that discussion, “delinquent” receivables are those that are 30 days or more past due; “nonearning” receivables are those that are 90 days or more past due (or for which collection has otherwise become doubtful); and “reduced-earning” receivables are commercial receivables whose terms have been restructured to a below-market yield.
 
Commercial Finance financing receivables, before allowance for losses, totaled $131.8 billion at December 31, 2005, compared with $124.5 billion at December 31, 2004, and consisted of loans and leases to the equipment and leasing, commercial and industrial and real estate industries. This portfolio of receivables increased primarily from core growth ($39.9 billion) and acquisitions ($10.6 billion), partially offset by securitizations and sales ($37.3 billion) and the recently strengthening U.S. dollar ($2.0 billion). Related nonearning and reduced-earning receivables were $1.3 billion (1.0% of outstanding receivables) at December 31, 2005, and $1.4 billion (1.1% of outstanding receivables) at year-end 2004. Commercial Finance financing receivables are generally backed by assets and there is a broad spread of geographic and credit risk in the portfolio.
 
Consumer Finance financing receivables, before allowance for losses, were $130.1 billion at December 31, 2005, compared with $127.8 billion at December 31, 2004, and consisted primarily of card receivables, installment loans, auto loans and leases, and residential mortgages. This portfolio of receivables increased primarily as a result of core growth ($11.3 billion) and acquisitions ($0.4 billion), partially offset by the recently strengthening U.S. dollar ($7.8 billion), securitizations ($0.7 billion), loans transferred to assets held for sale ($0.5 billion) and dispositions ($0.4 billion). Nonearning consumer receivables were $2.8 billion at December 31, 2005, compared with $2.5 billion at December 31, 2004, representing 2.1% and 2.0% of outstanding receivables, respectively. The increase was primarily related to higher nonearning receivables in our European secured financing business, a business that tends to experience relatively higher delinquencies but lower losses than the rest of our consumer portfolio.
 

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Infrastructure financing receivables, before allowance for losses, were $19.1 billion at December 31, 2005, compared with $20.9 billion at December 31, 2004, and consisted primarily of loans and leases to the commercial aircraft and energy industries. Related nonearning and reduced-earning receivables were insignificant at December 31, 2005, down from $0.2 billion (0.8% of outstanding receivables) at December 31, 2004.
 
Other financing receivables, before allowance for losses, were $11.2 billion and $15.1 billion at December 31, 2005 and December 31, 2004, respectively, and consisted primarily of financing receivables in consolidated, liquidating securitization entities. This portfolio of receivables decreased because we have stopped transferring assets to these entities. Nonearning receivables at December 31, 2005, were $0.1 billion (0.7% of outstanding receivables) compared with $0.2 billion (1.2% of outstanding receivables) at December 31, 2004.
 
Delinquency rates on managed Commercial Finance equipment loans and leases and managed Consumer Finance financing receivables follow.
 
December 31
  
2005
    
2004
    
2003
  
Commercial Finance
  
1.31
%
  
1.40
%
  
1.38
%
Consumer Finance
  
5.08
    
4.85
    
5.62
 

 
Delinquency rates at Commercial Finance decreased from December 31, 2004, to December 31, 2005, primarily resulting from improved credit quality across all portfolios. The increase from December 31, 2003, to December 31, 2004, reflected the effect of certain acquired portfolios, partially offset by improvement in the overall core portfolio.
 
Delinquency rates at Consumer Finance increased from December 31, 2004, to December 31, 2005, as a result of higher delinquencies in our European secured financing business, discussed above. The decrease from December 31, 2003, to December 31, 2004, reflected the results of the standardization of our write-off policy, the acquisition of AFIG, and the U.S. acquisition of WMC, with lower relative delinquencies as a result of whole loan sales, partially offset by higher delinquencies in our European secured financing business, discussed above. See notes 13 and 14.
 
OTHER GECS RECEIVABLES totaled $19.1 billion at December 31, 2005, and $15.0 billion at December 31, 2004, and consisted primarily of nonfinancing customer receivables, insurance receivables, amounts due from GE (generally related to certain material procurement programs), amounts due under operating leases, receivables due on sale of securities and various sundry items.
 
PROPERTY, PLANT AND EQUIPMENT amounted to $67.5 billion at December 31, 2005, up $4.4 billion from 2004, primarily reflecting acquisitions of commercial aircraft at the Aviation Financial Services business of Infrastructure. GE property, plant and equipment consisted of investments for its own productive use, whereas the largest element for GECS was equipment provided to third parties on operating leases. Details by category of investment are presented in note 15.
 
GE expenditures for plant and equipment during 2005 totaled $2.8 billion, compared with $2.4 billion in 2004. Total expenditures for the past five years were $12.7 billion, of which 32% was investment for growth through new capacity and product development; 37% was investment in productivity through new equipment and process improvements; and 31% was investment for other purposes such as improvement of research and development facilities and safety and environmental protection.
 

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GECS additions to property, plant and equipment were $11.6 billion and $10.7 billion during 2005 and 2004, respectively, primarily reflecting additions of commercial aircraft at the Aviation Financial Services business of Infrastructure and vehicles at Commercial Finance and the Equipment Services business of Industrial.
 
INTANGIBLE ASSETS were $81.7 billion at year-end 2005, up from $78.5 billion at year-end 2004. GE intangibles increased $3.1 billion from $54.7 billion at the end of 2004, principally as a result of goodwill and other intangibles related to the Edwards Systems Technology acquisition by Industrial, the Ionics, Inc. acquisition by Infrastructure and the acquisitions of an additional interest in MSNBC and the previously outstanding minority interest in VUE by NBC Universal. GECS intangibles increased $0.2 billion to $23.9 billion at December 31, 2005, resulting from goodwill associated with acquisitions partially offset by the recently strengthening U.S. dollar and purchase accounting adjustments. See note 16.
 
ALL OTHER ASSETS totaled $87.4 billion at year-end 2005, a decrease of $2.1 billion, reflecting NBC Universal settling obligations related to preferred interests previously issued by VUE and dispositions affecting real estate, partially offset by increases in assets held for sale. See notes 16 and 17.
 
CONSOLIDATED BORROWINGS amounted to $370.4 billion at December 31, 2005, compared with $365.1 billion at the end of 2004.
 
GE total borrowings were $10.2 billion at year-end 2005 ($1.1 billion short term, $9.1 billion long term) compared with $11.0 billion at December 31, 2004. GE total debt at the end of 2005 equaled 8.1% of total capital compared with 9.0% at the end of 2004.
 
GECS borrowings amounted to $362.1 billion at December 31, 2005, of which $157.7 billion is due in 2006 and $204.4 billion is due in subsequent years. Comparable amounts at the end of 2004 were $355.5 billion in total, $154.3 billion due within one year and $201.2 billion due thereafter. Included in GECS total borrowings were borrowings of consolidated, liquidating securitization entities amounting to $16.8 billion and $25.8 billion at December 31, 2005 and 2004, respectively. A large portion of GECS borrowings ($97.4 billion and $96.9 billion at the end of 2005 and 2004, respectively) was issued in active commercial paper markets that we believe will continue to be a reliable source of short-term financing. The average remaining terms and interest rates of GE Capital commercial paper were 45 days and 4.09% at the end of 2005, compared with 42 days and 2.39% at the end of 2004. The GE Capital ratio of debt to equity was 7.09 to 1 at the end of 2005 and 6.46 to 1 at the end of 2004. See note 18.
 
EXCHANGE RATE AND INTEREST RATE RISKS are managed with a variety of straightforward techniques, including match funding and selective use of derivatives. We use derivatives to mitigate or eliminate certain financial and market risks because we conduct business in diverse markets around the world and local funding is not always efficient. In addition, we use derivatives to adjust the debt we are issuing to match the fixed or floating nature of the assets we are acquiring. We apply strict policies to manage each of these risks, including prohibitions on derivatives trading, derivatives market-making or other speculative activities. Following is an analysis of the potential effects of changes in interest rates and currency exchange rates using so-called “shock” tests that model effects of shifts in rates. These are not forecasts.
 
 
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·  
It is our policy to minimize exposure to interest rate changes. We fund our financial investments using debt or a combination of debt and hedging instruments so that the interest rates and terms of our borrowings match the expected yields and terms on our assets. To test the effectiveness of our positions, we assumed that, on January 1, 2006, interest rates increased by 100 basis points across the yield curve (a “parallel shift” in that curve) and further assumed that the increase remained in place for 2006. We estimated, based on that year-end 2005 portfolio and holding everything else constant, that our 2006 GE consolidated net earnings would decline by $0.2 billion.
 
·  
It is our policy to minimize currency exposures and to conduct operations either within functional currencies or using the protection of hedge strategies. We analyzed year-end 2005 consolidated currency exposures, including derivatives designated and effective as hedges, to identify assets and liabilities denominated in other than their relevant functional currencies. For such assets and liabilities, we then evaluated the effects of a 10% shift in exchange rates between those currencies and the U.S. dollar. This analysis indicated that there would be an inconsequential effect on 2006 earnings of such a shift in exchange rates.
 
Restated Statement of Changes in Shareowners’ Equity
 
Shareowners’ equity decreased $1.6 billion in 2005, and increased $31.2 billion in 2004 and $15.7 billion in 2003. Changes over the three-year period were largely attributable to net earnings, partially offset by dividends declared of $9.6 billion, $8.6 billion and $7.8 billion in 2005, 2004 and 2003, respectively. In 2005, we purchased $5.3 billion of GE stock (153.3 million shares) under our $25 billion share repurchase program. In 2004, we issued 341.7 million shares of stock in connection with the Amersham acquisition, which increased equity by $10.7 billion, and 119.4 million shares of stock to partially fund the combination of NBC and VUE, which increased equity by $3.8 billion. Currency translation adjustments decreased equity by $4.3 billion in 2005, compared with a $3.9 billion increase in 2004. Changes in currency translation adjustments reflect the effects of changes in currency exchange rates on our net investment in non-U.S. subsidiaries that have functional currencies other than the U.S. dollar. In 2005, the U.S. dollar strengthened against the pound sterling and euro. In 2004, the pound sterling, euro and, to a lesser extent, Asian currencies strengthened against the U.S. dollar. See note 23. Accumulated currency translation adjustments affect net earnings only when all or a portion of an affiliate is disposed of or substantially liquidated.
 
Overview of Our Cash Flow from 2003 through 2005
 
GE cash from operating activities (CFOA) is a useful measure of performance for our non-financial businesses and totaled $21.6 billion in 2005, $15.2 billion in 2004 and $12.9 billion in 2003. Generally, factors that affect our earnings-for example, pricing, volume, costs and productivity-affect CFOA similarly. However, while management of working capital, including timing of collections and payments and levels of inventory, affects operating results only indirectly, the effect of these programs on CFOA can be significant. Excluding progress collections, working capital improvements benefited CFOA by $2.8 billion since 2002, as we applied our Lean Six Sigma and other working capital management tools broadly.
 
Our GE Statement of Cash Flows shows CFOA in the required format. While that display is of some use in analyzing how various assets and liabilities affected our year-end cash positions, we believe that it is also useful to supplement that display and to examine in a broader context the business activities that provide and require cash.
 

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December 31 (In billions)
  
2005
    
2004
    
2003
  
Operating cash collections
$
89.9
  
$
81.6
  
$
68.4
  
Operating cash payments
 
(76.1
)
  
(69.5
)
  
(58.9
)
Cash dividends from GECS
  
7.8
    
3.1
    
3.4
  
GE cash from operating activities
$
21.6
  
$
15.2
  
$
12.9
  

 
The most significant source of cash in CFOA is customer-related activities, the largest of which is collecting cash following a product or services sale. GE operating cash collections increased by $8.3 billion during 2005 and by $13.2 billion during 2004. These increases are consistent with the changes in comparable GE operating segment revenues, comprising Healthcare, NBC Universal and the industrial businesses of the Industrial and Infrastructure segments, and which also reflect the effects of the second quarter 2004 acquisition of Amersham and combination of NBC and VUE. Analyses of operating segment revenues discussed in the preceding Segment Operations section is the best way of understanding their customer-related CFOA.
 
The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for the wide range of material and services necessary in a diversified global organization. GE operating cash payments increased in 2005 by $6.6 billion and by $10.6 billion in 2004, comparable to the increases in GE total costs and expenses, and also reflect the second quarter 2004 acquisition of Amersham and combination of NBC and VUE.
 
Dividends from GECS represented distribution of a portion of GECS retained earnings, including proceeds from certain business sales, and are distinct from cash from continuing operating activities within the financial services businesses, which increased in 2005 by $0.8 billion to $20.9 billion and in 2004 by $6.1 billion to $20.1 billion. The amount we show in CFOA is the total dividend, including the normal dividend as well as any special dividends from excess capital primarily resulting from GECS business sales. Financial services cash is not necessarily freely available for alternative uses. For example, use of cash generated by our regulated activities is often restricted by such regulations. Further, any reinvestment in financing receivables is shown in cash used for investing activities, not operating activities. Therefore, maintaining or growing financial services assets requires that we invest much of the cash they generate from operating activities in their earning assets.
 
Based on past performance and current expectations, in combination with the financial flexibility that comes with a strong balance sheet and the highest credit ratings, we believe that we are in a sound position to grow dividends, continue to execute our $25 billion share repurchase program, which is an expansion of the $15 billion share repurchase program announced in 2004, and continue making selective investments for long-term growth.
 

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Contractual Obligations
 
As defined by reporting regulations, our contractual obligations for future payments as of December 31, 2005, follow.
 
 
Payments due by period
  
(In billions)
  
Total
    
2006
    
2007-2008
    
2009-2010
    
2011and
thereafter
 
Borrowings (note 18)
$
370.4
  
$
158.2
  
$
87.1
  
$
45.5
  
$
79.6
  
Interest on borrowings
  
66.0
    
12.0
    
18.0
    
10.0
    
26.0
  
Operating lease obligations (note 5)
  
6.8
    
1.4
    
2.2
    
1.5
    
1.7
  
Purchase obligations(a)(b)
  
58.0
    
37.0
    
13.0
    
4.0
    
4.0
  
Insurance liabilities (note 19)(c)
  
28.0
    
5.0
    
6.0
    
4.0
    
13.0
  
Other liabilities(d)
  
60.0
    
13.0
    
6.0
    
4.0
    
37.0
  
Contractual obligations of discontinued
                              
operations(e)
  
12.0
    
1.0
    
1.0
    
1.0
    
9.0
  

(a)
 
Included all take-or-pay arrangements, capital expenditures, contractual commitments to purchase equipment that will be classified as equipment leased to others, software acquisition/license commitments, contractual minimum programming commitments and any contractually required cash payments for acquisitions.
 
(b)
 
Excluded funding commitments entered into in the ordinary course of business by our financial services businesses. Further information on these commitments and other guarantees is provided in note 29.
 
(c)
 
Included guaranteed investment contracts (GICs), structured settlements and single premium immediate annuities based on scheduled payouts, as well as those contracts with reasonably determinable cash flows such as deferred annuities, universal life, term life, long-term care, whole life and other life insurance contracts. 
 
(d)
 
Included an estimate of future expected funding requirements related to our pension and postretirement benefit plans. Because their future cash outflows are uncertain, the following non-current liabilities are excluded from the table above: deferred taxes, derivatives, deferred revenue and other sundry items. See notes 21 and 27 for further information on certain of these items.
 
(e)
Included payments for borrowings and interest on borrowings of $3.6 billion, operating lease obligations of $0.2 billion, other liabilities of $2.8 billion, and insurance liabilities of $5.4 billion. Insurance liabilities primarily included workers’ compensation tabular indemnity loan and long-term liability claims.

Off-Balance Sheet Arrangements
 
We use off-balance sheet arrangements in the ordinary course of business to improve shareowner returns. These securitization transactions also serve as funding sources for a variety of diversified lending and securities transactions. Our securitization transactions are similar to those used by many financial institutions.
 
In a typical securitization transaction, we sell assets to a special purpose entity (SPE), which has obtained cash by issuing beneficial interests, usually debt, to third parties. Securitization entities commonly use derivatives such as interest rate swaps to match interest rate characteristics of the assets with characteristics of the related beneficial interests. An example is an interest rate swap that serves to convert fixed rate assets to a variable rate, matching the cash flows on SPE floating rate debt. An investor in a beneficial interest usually has recourse to assets in the associated SPE, and often benefits from credit enhancements supporting those assets. The most common credit enhancement is overcollateralization, where we securitize a greater principal amount of assets than debt issued by the SPE. Our other credit enhancements are in the form of liquidity and credit support agreements and guarantee and reimbursement contracts. We have provided $0.1 billion at year-end 2005 representing our best estimate of the fair value of potential losses under these arrangements.
 

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Historically, we executed securitization transactions using entities sponsored by us and by third parties. Beginning in 2003, we only have executed securitization transactions with third parties in the asset-backed commercial paper and term markets. Securitization entities hold receivables secured by equipment, commercial and residential real estate, credit card and trade receivables and other assets. Our total securitized assets at year-end 2005 amounted to $61.7 billion, a $3.5 billion increase from year-end 2004. Of that total, the off-balance sheet amount was $43.8 billion, up $11.6 billion from December 31, 2004, and the amount in consolidated, liquidating securitization entities was $17.9 billion, down $8.1 billion from December 31, 2004, reflecting repayments. See note 28 for further information.
 
We have extensive experience in evaluating economic, liquidity and credit risk related to the assets we securitize. Assets held by these entities are of high quality and we actively monitor them in accordance with our servicing role. We apply rigorous controls to the execution of securitization transactions and continuously monitor developments affecting credit. In view of our experience and taking into consideration the historical depth and liquidity of global commercial paper markets, we believe that, under any plausible future economic scenario, the likelihood is remote that the financial support arrangements we provide to securitization entities could have an adverse effect on our financial position or results of operations.
 
Debt Instruments, Guarantees and Covenants
 
The major debt rating agencies routinely evaluate the debt of GE, GECS and GE Capital, the major borrowing affiliate of GECS. These agencies have given the highest debt ratings to GE and GE Capital (long-term rating AAA/Aaa; short-term rating A-1+/P-1). One of our strategic objectives is to maintain these ratings, as they serve to lower our cost of funds and to facilitate our access to a variety of lenders. We manage our businesses in a fashion that is consistent with maintaining these ratings.
 
GE, GECS and GE Capital have distinct business characteristics that the major debt rating agencies evaluate both quantitatively and qualitatively.
 
Quantitative measures include:
 
·  
Earnings and profitability, revenue growth, the breadth and diversity of sources of income and return on assets,
 
·  
Asset quality, including delinquency and write-off ratios and reserve coverage,
 
·  
Funding and liquidity, including cash generated from operating activities, leverage ratios such as debt-to-capital, market access, back-up liquidity from banks and other sources, composition of total debt and interest coverage, and
 
·  
Capital adequacy, including required capital and tangible leverage ratios.
 
Qualitative measures include:
 
·  
Franchise strength, including competitive advantage and market conditions and position,
 
·  
Strength of management, including experience, corporate governance and strategic thinking, and
 
 
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·  
Financial reporting quality, including clarity, completeness and transparency of all financial performance communications.
 
GE Capital’s ratings are supported contractually by a GE commitment to maintain the ratio of earnings to fixed charges at a specified level as described below.
 
As of January 1, 2003, we extended a business-specific, market-based leverage to the performance measurement of each of our financial services businesses. As a result, at January 1, 2003, debt of $12.5 billion previously allocated to our financial services segments was allocated to Corporate items and eliminations. We refer to this as “parent-supported debt.” As of December 31, 2004, $3.2 billion of such debt remained and was paid down during the first quarter of 2005.
 
During 2005, GECS paid $3.9 billion of special dividends to GE, which was a portion of the proceeds from the Genworth secondary public offerings.
 
During 2005, GE issued $1.5 billion of senior, unsecured three-year floating rate debt. The proceeds were used primarily for repayment of maturing long-term debt. During 2005, GECS and GECS affiliates issued $58 billion of senior, unsecured long-term debt and $2 billion of subordinated debt. This debt was both fixed and floating rate and was issued to institutional and retail investors in the U.S. and 15 other global markets. Maturities for these issuances ranged from one to 40 years. We used the proceeds primarily for repayment of maturing long-term debt, but also to fund acquisitions and organic growth. We anticipate that we will issue between $55 billion and $65 billion of additional long-term debt during 2006, mostly to repay maturing long-term debt. The ultimate amount we issue will depend on our needs and on the markets.
 
Following is the composition of GECS debt obligations excluding any asset-backed debt obligations, such as debt of consolidated, liquidating securitization entities.
 
December 31
  
2005
    
2004
        
Senior notes and other long-term debt
  
57
%
  
58
%
      
Commercial paper
  
26
    
25
        
Current portion of long-term debt
  
12
    
11
        
Other-bank and other retail deposits
  
5
    
6
        
Total
  
100
%
  
100
%
      

 
We target a ratio for commercial paper of 25% to 35% of outstanding debt based on the anticipated composition of our assets and the liquidity profile of our debt. GE Capital is the most widely held name in global commercial paper markets.
 
We believe that alternative sources of liquidity are sufficient to permit an orderly transition from commercial paper in the unlikely event of impaired access to those markets. Funding sources on which we would rely would depend on the nature of such a hypothetical event, but include $57.2 billion of contractually committed lending agreements with 75 highly-rated global banks and investment banks. Total credit lines extending beyond one year increased $0.3 billion to $57.1 billion at December 31, 2005. See note 18.
 

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Beyond contractually committed lending agreements, other sources of liquidity include medium and long-term funding, monetization, asset securitization, cash receipts from our lending and leasing activities, short-term secured funding on global assets and potential sales of other assets.
 
PRINCIPAL DEBT CONDITIONS are described below.
 
The following two conditions relate to GE and GECS:
 
·  
Swap, forward and option contracts are required to be executed under master-netting agreements containing mutual downgrade provisions that provide the ability of the counterparty to require assignment or termination if the long-term credit rating of either GE or GECS were to fall below A-/A3. Had this provision been triggered at December 31, 2005, we could have been required to disburse $2.2 billion.
 
·  
If GE Capital’s ratio of earnings to fixed charges, which was 1.70:1 at the end of 2005, as restated, were to deteriorate to 1.10:1 or, upon redemption of certain preferred stock, its ratio of debt to equity, which was 7.09:1 at the end of 2005, were to exceed 8:1, GE has committed to contribute capital to GE Capital. GE also has guaranteed certain issuances of subordinated debt of GECS with a face amount of $1.0 billion at December 31, 2005 and 2004.
 
The following three conditions relate to consolidated, liquidating securitization entities:
 
·  
If the short-term credit rating of GE Capital or certain consolidated, liquidating securitization entities discussed further in note 28 were to fall below A-1/P-1, GE Capital would be required to provide substitute liquidity for those entities or provide funds to retire the outstanding commercial paper. The maximum net amount that GE Capital would be required to provide in the event of such a downgrade is determined by contract, and amounted to $12.8 billion at January 1, 2006. Amounts related to non-consolidated SPEs were $1.7 billion.
 
·  
If the long-term credit rating of GE Capital were to fall below AA/Aa2, GE Capital would be required to provide substitute credit support or liquidate the consolidated, liquidating securitization entities. The maximum amount that GE Capital would be required to substitute in the event of such a downgrade is determined by contract, and amounted to $0.6 billion at December 31, 2005.
 
·  
For certain transactions, if the long-term credit rating of GE Capital were to fall below A/A2 or BBB+/Baa1 or its short-term credit rating were to fall below A-2/P-2, GE Capital could be required to provide substitute credit support or fund the undrawn commitment. GE Capital could be required to provide up to $2.0 billion in the event of such a downgrade based on terms in effect at December 31, 2005.
 
One group of consolidated SPEs holds high quality investment securities funded by the issuance of GICs. If the long-term credit rating of GE Capital were to fall below AA-/Aa3 or its short-term credit rating were to fall below A-1+/P-1, GE Capital could be required to provide up to $4.1 billion of capital to such entities.
 
In our history, we have never violated any of the above conditions either at GE, GECS or GE Capital. We believe that under any reasonable future economic developments, the likelihood that any such arrangements could have a significant effect on our operations, cash flows or financial position is remote.
 

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GE’S TOTAL RESEARCH AND DEVELOPMENT expenditures were $3.4 billion in 2005, compared with $3.1 billion and $2.7 billion in 2004 and 2003, respectively. In 2005, expenditures from GE’s own funds were $2.7 billion compared with $2.4 billion in 2004. Expenditures funded by customers (mainly the U.S. government) were $0.7 billion and $0.6 billion in 2005 and 2004, respectively.
 
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 2005 were $5.2 billion.
 
GE’S TOTAL BACKLOG of firm unfilled orders at the end of 2005 was $36.1 billion, an increase of 6% from year-end 2004, reflecting increased demand for wind turbines, locomotives and product services. Of the total backlog, $23.8 billion related to products, of which 70% was scheduled for delivery in 2006. Product services orders, included in this reported backlog for only the succeeding 12 months, were $12.3 billion at the end of 2005. Orders constituting this backlog may be canceled or deferred by customers, subject in certain cases to penalties. See the Segment Operations section for further information.
 
Critical Accounting Estimates
 
Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Also see note 1, Summary of Significant Accounting Policies, which discusses accounting policies that we have selected from acceptable alternatives.
 
LOSSES ON FINANCING RECEIVABLES are recognized when they are incurred, which requires us to make our best estimate of probable losses inherent in the portfolio. Such estimate requires consideration of historical loss experience, adjusted for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates, financial health of specific customers and market sectors, collateral values, and the present and expected future levels of interest rates. Our risk management process, which includes standards and policies for reviewing major risk exposures and concentrations, ensures that relevant data are identified and considered either for individual loans or leases, or on a portfolio basis, as appropriate.
 
Our lending and leasing experience and the extensive data we accumulate and analyze facilitate estimates that have proven reliable over time. Our actual loss experience was in line with expectations for 2005, 2004 and 2003. While prospective losses depend to a large degree on future economic conditions, we do not anticipate significant adverse credit development in 2006. Further information is provided in the Financial Resources and Liquidity-Financing Receivables section, the Asset Impairment section that follows and in notes 1, 13 and 14.
 

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REVENUE RECOGNITION ON LONG-TERM AGREEMENTS to provide product services (product services agreements) requires estimates of profits over the multiple-year terms of such agreements, considering factors such as the frequency and extent of future monitoring, maintenance and overhaul events; the amount of personnel, spare parts and other resources required to perform the services; and future billing rate and cost changes. We routinely review estimates under product services agreements and regularly revise them to adjust for changes in outlook. We also regularly assess customer credit risk inherent in the carrying amounts of receivables and contract costs and estimated earnings, including the risk that contractual penalties may not be sufficient to offset our accumulated investment in the event of customer termination. We gain insight into future utilization and cost trends, as well as credit risk, through our knowledge of the installed base of equipment and the close interaction with our customers that comes with supplying critical services and parts over extended periods. Revisions that affect a product services agreement’s total estimated profitability will also result in an immediate adjustment of earnings. We provide for probable losses. 
 
Carrying amounts for product services agreements in progress at December 31, 2005 and 2004, were $4.4 billion and $3.7 billion, respectively, and are included in the line, “Contract costs and estimated earnings” in note 17. Adjustments to earnings resulting from revisions to estimates on product services agreements have been insignificant for each of the years in the three-year period ended December 31, 2005.
 
Further information is provided in note 1.
 
ASSET IMPAIRMENT assessment involves various estimates and assumptions as follows:
 
INVESTMENTS. We regularly review investment securities for impairment based on both quantitative and qualitative criteria that include the extent to which cost exceeds market value, the duration of that market decline, our intent and ability to hold to maturity or until forecasted recovery and the financial health of and specific prospects for the issuer. We perform comprehensive market research and analysis and monitor market conditions to identify potential impairments. Further information about actual and potential impairment losses is provided in the Financial Resources and Liquidity-Investment Securities section and in notes 1 and 10.
 
LONG-LIVED ASSETS. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We derive the required undiscounted cash flow estimates from our historical experience and our internal business plans. To determine fair value, we use our internal cash flow estimates discounted at an appropriate interest rate, quoted market prices when available and independent appraisals, as appropriate.
 

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Commercial aircraft are a significant concentration of assets in Infrastructure, and are particularly subject to market fluctuations. Therefore, we test recoverability of each aircraft in our operating lease portfolio at least annually. Additionally, we perform quarterly evaluations in circumstances such as when aircraft are re-leased, current lease terms have changed or a specific lessee’s credit standing changes. Future rentals and residual values are based on historical experience and information received routinely from independent appraisers. Estimated cash flows from future leases are reduced for expected downtime between leases and for estimated technical costs required to prepare aircraft to be redeployed. Fair value used to measure impairment is based on current market values from independent appraisers.
 
We recognized impairment losses on our operating lease portfolio of commercial aircraft of $0.3 billion and $0.1 billion in 2005 and 2004, respectively. In addition to these impairment charges relating to operating leases, we recorded provisions for losses on financing receivables related to commercial aircraft of $0.2 billion in 2005, primarily related to Northwest Airlines Corporation (Northwest Airlines), and $0.3 billion in 2004, primarily related to US Airways and ATA Holdings Corp.
 
Certain of our commercial aviation customers are operating under bankruptcy protection while they implement steps to return to profitable operations with a lower cost structure. At December 31, 2005, our largest exposures to carriers operating in bankruptcy were to Delta Air Lines, $2.4 billion; UAL Corp., $1.4 billion; and Northwest Airlines, $1.3 billion. Our financial exposures to these carriers are substantially secured by various Boeing, Airbus and Bombardier aircraft and operating equipment. On February 1, 2006, UAL Corp. emerged from bankruptcy protection.
 
Further information on impairment losses and our exposure to the commercial aviation industry is provided in the Operations-Overview section and in notes 10, 15 and 29.
 
GOODWILL AND OTHER IDENTIFIED INTANGIBLE ASSETS. We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose of a reporting unit. Determining whether an impairment has occurred requires valuation of the respective reporting unit, which we estimate using a discounted cash flow method. When available and as appropriate, we use comparative market multiples to corroborate discounted cash flow results. In applying this methodology, we rely on a number of factors, including actual operating results, future business plans, economic projections and market data.
 
If this analysis indicates goodwill is impaired, measuring the impairment requires a fair value estimate of each identified tangible and intangible asset. In this case we supplement the cash flow approach discussed above with independent appraisals, as appropriate.
 
We test other identified intangible assets with defined useful lives and subject to amortization by comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. We test intangible assets with indefinite lives annually for impairment using a fair value method such as discounted cash flows.
 
Further information is provided in the Financial Resources and Liquidity-Intangible Assets section and in notes 1 and 16.
 

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PENSION ASSUMPTIONS are significant inputs to the actuarial models that measure pension benefit obligations and related effects on operations. Two assumptions-discount rate and expected return on assets-are important elements of plan expense and asset/liability measurement. We evaluate these critical assumptions at least annually on a plan and country-specific basis. We evaluate other assumptions involving demographic factors such as retirement age, mortality and turnover periodically and update them to reflect our experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
 
Accumulated and projected benefit obligations are expressed as the present value of future cash payments. We discount those cash payments using the weighted average of market-observed yields for high quality fixed income securities with maturities that correspond to the payment of benefits. Lower discount rates increase present values and subsequent year pension expense; higher discount rates decrease present values and subsequent year pension expense.
 
To reflect market interest rate conditions, we reduced our discount rate for principal pension plans at December 31, 2005, from 5.75% to 5.50% and at December 31, 2004, from 6.0% to 5.75%.
 
To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. Assets in our principal pension plans earned 10.2% in 2005 and had average annual earnings of 4.7%, 10.1% and 11.8% per year in the five, 10 and 25-year periods ended December 31, 2005, respectively. We believe that these results, in connection with our current and expected asset allocations, support our assumed long-term return of 8.5% on those assets.
 
Sensitivity to changes in key assumptions for our principal pension plans follows.
 
·  
Discount rate-A 25 basis point reduction in discount rate would increase pension cost in the following year by $0.2 billion.
 
·  
Expected return on assets-A 50 basis point increase in the expected return on assets would decrease pension cost in the following year by $0.2 billion.
 
Further information on our pension plans is provided in the Operations-Overview section and in note 7.
 
DERIVATIVES AND HEDGING. We use derivatives to manage a variety of risks, including risks related to interest rates, foreign exchange and commodity prices. Accounting for derivatives as hedges requires that, at inception and over the term of the arrangement, the hedged item and related derivative meet the requirements for hedge accounting. The accounting guidance related to derivatives accounting is complex. Failure to apply this complex guidance correctly will result in all changes in the fair value of the derivative being reported in earnings, while offsetting changes in the fair value of the hedged item are reported in earnings only upon realization, regardless of whether the hedging relationship is economically effective.
 

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In evaluating whether a particular relationship qualifies for hedge accounting, we first determine whether the relationship meets the strict criteria to qualify for exemption from ongoing effectiveness testing. For a relationship that does not meet these criteria, we test effectiveness at inception and quarterly there-after by determining whether changes in the fair value of the derivative offset, within a specified range, changes in the fair value of the hedged item. This test is conducted on a cumulative basis each reporting period. If fair value changes fail this test, we discontinue applying hedge accounting to that relationship prospectively. Fair values of both the derivative instrument and the hedged item are calculated using internal valuation models incorporating market-based assumptions, subject to third party confirmation.
 
At December 31, 2005, derivative assets and liabilities were $1.9 billion and $2.2 billion, respectively. Further information about our use of derivatives is provided in notes 1, 18 and 27.
 
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 Standard
 
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 123 (revised 2004), Share-Based Payment (SFAS 123R), which will be effective for us on January 1, 2006. Among other things, SFAS 123R requires expensing the fair value of stock options, previously optional accounting that we adopted voluntarily in 2002. The transitional effect of this provision of SFAS 123R will be modest, consisting of a reduction in full-year 2006 net earnings of $9 million to expense the unvested portion of options granted in 2001. SFAS 123R also will require us to change the classification of certain tax benefits from share-based compensation deductions to financing rather than operating cash flows. While the effects of these future tax deductions will depend on several variables, had SFAS 123R been in effect, approximately $0.3 billion would have been required to be classified as financing, not operating, cash flows in both 2005 and 2004. Prior periods will not be restated as a result of this accounting change.
 
Financial Measures that Supplement Generally Accepted Accounting Principles
 
We sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under U.S. Securities and Exchange Commission rules. Specifically, we have referred, in various sections of this Annual Report, to:
 
·  
Organic revenue growth in 2005
 
·  
Growth in Industrial cash from operating activities (CFOA) in 2005
 
·  
GE pre-tax earnings from continuing operations before accounting changes excluding GECS earnings from continuing operations before accounting changes, and the corresponding effective tax rates, for the three years ended December 31, 2005
 
 
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·  
Delinquency rates on certain financing receivables of the Commercial Finance and Consumer Finance segments for 2005, 2004 and 2003
 
·  
Average total shareowners’ equity, excluding effects of discontinued operations, as reported and as restated
 
The reasons we use these non-GAAP financial measures and their reconciliation to their most directly comparable GAAP financial measures follow.
 
Restated Organic Revenue Growth
 
(In millions)
2005
(Restated)
  
2004
(Restated)
  
% Change
  
GE consolidated revenues as reported
$
150,242
  
$
134,999
    
11
%
Less the effects of:
                  
Acquisitions, business dispositions (other
                  
than dispositions of businesses acquired for
                  
investment) and currency exchange rates
  
10,561
    
4,526
        
The 2004 Olympics broadcasts
  
-
    
927
        
The May 2005 SFAS 133 correction
  
-
    
503
        
GECS commercial paper interest rate swap adjustment(a)
  
540
    
518
        
GE consolidated revenues excluding the effects
                  
of acquisitions, business dispositions (other
                  
than dispositions of businesses acquired for
                  
investment), currency exchange rates, the 2004
                  
Olympics broadcasts, the May 2005 SFAS 133 correction
                  
and the GECS commercial paper interest rate swap
                  
adjustment (organic revenues)
$
139,141
  
$
128,525
    
8
%

(a)
Refer to page 28 for a description of this adjustment.

 
Growth in Industrial CFOA
 
(In millions)
  
2005
    
2004
    
%
change
  
Cash from GE’s operating activities as reported
$
21,609
  
$
15,204
    
42
%
Less GECS dividends
  
7,816
    
3,105
        
Cash from GE’s operating activities excluding
                  
dividends from GECS (Industrial CFOA)
$
13,793
  
$
12,099
    
14
%

 
Restated GE Tax Rate, Excluding GECS Earnings
 
(In millions)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
GE earnings from continuing operations before
                  
income taxes, and accounting changes
$
21,383
  
$
18,599
  
$
16,948
  
Less GECS earnings from continuing operations
                  
before accounting changes
  
9,499
    
8,194
    
6,256
  
Total
$
11,884
  
$
10,405
  
$
10,692
  
GE provision for income taxes
$
2,750
  
$
1,973
  
$
2,857
  
GE effective tax rate, excluding GECS earnings
  
23.1
%
  
19.0
%
  
26.7
%

 

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We believe that meaningful analysis of our financial performance requires an understanding of the factors underlying that performance and our judgments about the likelihood that particular factors will repeat. In some cases, short-term patterns and long-term trends may be obscured by large factors or events. For example, events or trends in a particular segment may be so significant as to obscure patterns and trends of our industrial or financial services businesses in total. For this reason, we believe that investors may find it useful to see our 2005 revenue growth without the effect of acquisitions, dispositions, currency exchange rates, and the effects of the GECS commercial paper interest rate swap adjustment, and without the effects of the 2004 Olympics broadcasts and the May 2005 SFAS 133 correction which effects have no counterpart in 2005 and if included would overshadow trends in ongoing revenues. Similarly, we believe that investors would find it useful to compare our 2005 operating cash flow against our 2004 operating cash flow without the impact of GECS dividends.
 
Delinquency Rates on Certain Financing Receivables
 
Delinquency rates on managed Commercial Finance equipment loans and leases and managed Consumer Finance financing receivables follow.
 
COMMERCIAL FINANCE
 
December 31
  
2005
    
2004
    
2003
  
Managed
  
1.31
%
  
1.40
%
  
1.38
%
Off-book
  
0.76
    
0.90
    
1.27
  
On-book
  
1.53
    
1.58
    
1.41
  

 
CONSUMER FINANCE
 
December 31
  
2005
    
2004
    
2003
  
Managed
  
5.08
%
  
4.85
%
  
5.62
%
Off-book
  
5.28
    
5.09
    
5.04
  
On-book
  
5.07
    
4.84
    
5.67
  

 
We believe that delinquency rates on managed financing receivables provide a useful perspective on our on and off-book portfolio quality and are key indicators of financial performance.
 
Average Total Shareowners’ Equity, Excluding Effects of Discontinued Operations(a)
 
2005
  
2004
  
2003
  
2002
  
2001
  
Average total shareowners’ equity(b) - as reported
$
111,683
  
$
95,656
  
$
71,336
  
$
59,174
  
$
52,674
  
Less:
                              
Cumulative effect of losses from
                              
discontinued operations(c)
  
3,094
    
2,980
    
925
    
1,007
    
226
  
Average net investment in discontinued
                              
operations(d)
  
4,620
    
-
    
-
    
-
    
-
  
Average total shareowners’ equity,
                              
excluding effects of discontinued
                              
operations(a) - as reported
$
103,969
  
$
92,676
  
$
70,411
  
$
58,167
  
$
52,448
 


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December 31 (In millions)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
2002
(Restated)
  
2001
(Restated)
  
Average total shareowners’ equity(b) - as restated
$
111,706
  
$
95,711
  
$
71,342
  
$
59,154
  
$
52,678
  
Less:
                              
Cumulative effect of losses from
                              
discontinued operations(c)
  
3,094
    
2,980
    
925
    
1,007
    
226
  
Average net investment in discontinued
                              
operations(d)
  
4,620
    
-
    
-
    
-
    
-
  
Average total shareowners’ equity,
                              
excluding effects of discontinued
                              
operations(a)- as restated
$
103,992
  
$
92,731
  
$
70,417
  
$
58,147
  
$
52,452
 

(a)
 
Used for computing return on average shareowners’ equity and return on average total capital invested shown on pages 26 and 27.
 
(b)
 
On an annual basis, calculated using a five-point average.
 
(c)
 
Represented the average cumulative net earnings effects of discontinued operations from 2001 to 2005 (on an annual basis, calculated using a five-point average).
 
(d)
Represented the average net investment in discontinued operations for the second half of 2005 only-see below.

U.S. GAAP requires earnings of discontinued operations to be displayed separately in the Statement of Earnings. Accordingly, the numerators used in our calculations of returns on average shareowners’ equity and average total capital invested presented in Selected Financial Data on pages 26 and 27 exclude those earnings (losses). Further we believe it is appropriate to exclude from the denominators, specifically the average total shareowners’ equity component, the cumulative effect of those earnings (losses) since 2000 for each of the five years for which such returns are presented, as well as our average net investment in discontinued operations for the second half of 2005 only. Had we disposed of these operations before mid-2005, proceeds would have been applied to reduce parent-supported debt at GE Capital; however since parent-supported debt at GE Capital was retired in the first half of 2005, we have assumed that any proceeds after that time would have been distributed to shareowners by means of share repurchases, thus reducing average total shareowners’ equity.
 
Definitions indicating how the above-named ratios are calculated using average total shareowners’ equity, excluding effects of discontinued operations, can be found on page 27.
 
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 
See pages 51 and 52.
 
 
Item 8. Financial Statements and Supplementary Data
 
Report of Independent Registered Public Accounting Firm
 
To Shareowners and Board of Directors of General Electric Company
 
We have audited the accompanying statement of financial position of General Electric Company and consolidated affiliates (“GE”) as of December 31, 2005 and 2004, and the related statements of earnings, changes in shareowners’ equity and cash flows for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of GE management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 

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We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements appearing on pages 67, 69, 70, 72 and 74-143 and the Summary of Operating Segments table on page 38 present fairly, in all material respects, the financial position of GE as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.
 
As discussed in note 1 to the consolidated financial statements, the consolidated financial statements have been restated.
 
As discussed in note 1 to the consolidated financial statements, GE in 2004 and 2003 changed its method of accounting for variable interest entities and in 2003 changed its method of accounting for asset retirement obligations.
 
Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The accompanying consolidating information appearing on pages 68, 71 and 73 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, results of operations and cash flows of the individual entities. The consolidating information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 10, 2006, except as to the second, third and fourth paragraphs of Management’s Annual Report on Internal Control over Financial Reporting (as restated), which are as of January 19, 2007, expressed an unqualified opinion on management's assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting as of December 31, 2005.
 
/s/ KPMG LLP
  
KPMG LLP
  
Stamford, Connecticut
  
February 10, 2006, except as to the restatement discussed in note 1 to the consolidated financial statements, which is as of January 19, 2007

 

 


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Statement of Earnings
 
 
General Electric Company
and consolidated affiliates
  
For the years ended December 31 (In millions; per-share amounts in dollars)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
REVENUES
                  
Sales of goods
$
59,837
  
$
55,005
  
$
49,963
  
Sales of services
  
32,752
    
29,700
    
22,391
  
Other income (note 3)
  
1,683
    
1,064
    
602
  
GECS earnings from continuing operations
                  
before accounting changes
  
-
    
-
    
-
  
GECS revenues from services (note 4)
  
55,430
    
48,712
    
39,930
  
GECS commercial paper interest rate swap adjustment (note 1)
  
540
    
518
    
535
  
Total revenues
  
150,242
    
134,999
    
113,421
  
COSTS AND EXPENSES (note 5)
                  
Cost of goods sold
  
46,169
    
42,645
    
37,189
  
Cost of services sold
  
20,645
    
19,114
    
14,017
  
Interest and other financial charges
  
15,138
    
11,611
    
10,459
  
Investment contracts, insurance losses and
                  
insurance annuity benefits
  
5,474
    
3,583
    
3,069
  
Provision for losses on financing receivables (note 14)
  
3,841
    
3,888
    
3,752
  
Other costs and expenses
  
35,271
    
33,096
    
26,480
  
Minority interest in net earnings of consolidated affiliates
  
986
    
728
    
308
  
Total costs and expenses
  
127,524
    
114,665
    
95,274
  
EARNINGS FROM CONTINUING OPERATIONS BEFORE
                  
INCOME TAXES AND ACCOUNTING CHANGES
  
22,718
    
20,334
    
18,147
  
Provision for income taxes (note 8)
  
(4,085
)
  
(3,708
)
  
(4,056
)
EARNINGS FROM CONTINUING OPERATIONS BEFORE
                  
ACCOUNTING CHANGES
  
18,633
    
16,626
    
14,091
  
Earnings (loss) from discontinued operations, net of taxes (note 2)
  
(1,922
)
  
534
    
2,057
  
EARNINGS BEFORE ACCOUNTING CHANGES
  
16,711
    
17,160
    
16,148
  
Cumulative effect of accounting changes (note 1)
  
-
    
-
    
(587
)
NET EARNINGS
$
16,711
  
$
17,160
  
$
15,561
  
Per-share amounts (note 9)
                  
Per-share amounts-earnings from continuing
                  
operations before accounting changes
                  
Diluted earnings per share
$
1.76
  
$
1.59
  
$
1.40
  
Basic earnings per share
  
1.76
    
1.60
    
1.41
  
Per-share amounts - earnings before accounting changes
                  
Diluted earnings per share
  
1.57
    
1.64
    
1.60
  
Basic earnings per share
  
1.58
    
1.65
    
1.61
  
Per-share amounts - net earnings
                  
Diluted earnings per share
  
1.57
    
1.64
    
1.54
  
Basic earnings per share
  
1.58
    
1.65
    
1.55
  
DIVIDENDS DECLARED PER SHARE
$
0.91
  
$
0.82
  
$
0.77
  

The notes to consolidated finance statements are an integral part of this statement.
 

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Statement of Earnings (continued)
 
 
GE
  
GECS
  
For the years ended December 31
(In millions; per-share amounts in dollars)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
REVENUES
    
   
    
   
    
   
    
   
    
   
      
Sales of goods
$
57,378
  
$
52,260
  
$
47,767
  
$
2,528
  
$
2,840
  
$
2,228
  
Sales of services
  
33,052
    
29,954
    
22,675
    
-
    
-
    
-
  
Other income (note 3)
  
1,764
    
1,076
    
645
    
-
    
-
    
-
  
GECS earnings from continuing operations
                                    
before accounting changes
  
9,499
    
8,194
    
6,256
    
-
    
-
    
-
  
GECS revenues from services (note 4)
  
-
    
-
    
-
    
56,769
    
50,054
    
40,750
  
GECS commercial paper interest rate swap
                                    
adjustment (note 1)
  
-
    
-
    
-
    
540
    
518
    
535
  
Total revenues
  
101,693
    
91,484
    
77,343
    
59,837
    
53,412
    
43,513
  
COSTS AND EXPENSES (note 5)
                                    
Cost of goods sold
  
43,870
    
39,999
    
35,102
    
2,369
    
2,741
    
2,119
  
Cost of services sold
  
20,945
    
19,368
    
14,301
    
-
    
-
    
-
  
Interest and other financial charges
  
1,432
    
979
    
941
    
14,259
    
11,076
    
9,896
  
Investment contracts, insurance losses
                                    
and insurance annuity benefits
  
-
    
-
    
-
    
5,674
    
3,800
    
3,069
  
Provision for losses on financing
                                    
receivables (note 14)
  
-
    
-
    
-
    
3,841
    
3,888
    
3,752
  
Other costs and expenses
  
13,279
    
12,001
    
9,870
    
22,658
    
21,788
    
17,095
  
Minority interest in net earnings of
                                    
consolidated affiliates
  
784
    
538
    
181
    
202
    
190
    
127
  
Total costs and expenses
  
80,310
    
72,885
    
60,395
    
49,003
    
43,483
    
36,058
  
EARNINGS FROM CONTINUING
                                    
OPERATIONS BEFORE INCOME
                                    
TAXES AND ACCOUNTING CHANGES
  
21,383
    
18,599
    
16,948
    
10,834
    
9,929
    
7,455
  
Provision for income taxes (note 8)
  
(2,750
)
  
(1,973
)
  
(2,857
)
  
(1,335
)
  
(1,735
)
  
(1,199
)
EARNINGS FROM CONTINUING OPERATIONS
                                    
BEFORE ACCOUNTING CHANGES
  
18,633
    
16,626
    
14,091
    
9,499
    
8,194
    
6,256
  
Earnings (loss) from discontinued
                                    
operations, net of taxes (note 2)
  
(1,922
)
  
534
    
2,057
    
(1,922
)
  
534
    
2,057
  
EARNINGS BEFORE ACCOUNTING CHANGES
  
16,711
    
17,160
    
16,148
    
7,577
    
8,728
    
8,313
  
Cumulative effect of accounting changes (note 1)
  
-
    
-
    
(587
)
  
-
    
-
    
(339
)
NET EARNINGS
$
16,711
  
$
17,160
  
$
15,561
  
$
7,577
  
$
8,728
  
$
7,974
  

In the consolidating data on this page, “GE” means the basis of consolidation as described in note 1 to the consolidated financial statements; “GECS” means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the “General Electric Company and consolidated affiliates” columns on the previous page.
 

(68)

Consolidated Statement of Changes in Shareowners’ Equity
 
(In millions)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
CHANGES IN SHAREOWNERS’ EQUITY (note 23)
                  
Balance at January 1
$
110,908
  
$
79,662
  
$
63,979
  
Dividends and other transactions with shareowners
  
(13,249
)
  
10,009
    
(5,520
)
Changes other than transactions with shareowners
                  
Increase attributable to net earnings
  
16,711
    
17,160
    
15,561
  
Investment securities - net
  
(437
)
  
412
    
710
  
Currency translation adjustments - net
  
(4,318
)
  
3,936
    
5,061
  
Cash flow hedges - net
  
(47
)
  
150
    
32
  
Minimum pension liabilities - net
  
(217
)
  
(421
)
  
(161
)
Total changes other than transactions with shareowners
  
11,692
    
21,237
    
21,203
  
Balance at December 31
$
109,351
  
$
110,908
  
$
79,662
  

The notes to consolidated financial statements are an integral part of this statement.
 

 

(69)

Statement of Financial Position
 
 
General Electric
Company
and consolidated
affiliates
  
At December 31 (In millions, except share amounts)
2005
(Restated)
  
2004
(Restated)
  
ASSETS
            
Cash and equivalents
$
9,011
  
$
12,152
  
Investment securities (note 10)
  
53,144
    
56,923
  
Current receivables (note 11)
  
14,851
    
14,233
  
Inventories (note 12)
  
10,474
    
9,778
  
Financing receivables - net (notes 13 and 14)
  
287,639
    
282,699
  
Other GECS receivables
  
14,767
    
11,340
  
Property, plant and equipment - net (note 15)
  
67,528
    
63,103
  
Investment in GECS
  
-
    
-
  
Intangible assets - net (note 16)
  
81,726
    
78,456
  
All other assets (note 17)
  
87,425
    
89,667
  
Assets of discontinued operations (note 2)
  
46,756
    
132,266
  
Total assets
$
673,321
  
$
750,617
  
LIABILITIES AND EQUITY
            
Short-term borrowings (note 18)
$
158,156
  
$
157,195
  
Accounts payable, principally trade accounts
  
21,273
    
19,137
  
Progress collections and price adjustments accrued
  
4,456
    
3,937
  
Dividends payable
  
2,623
    
2,329
  
All other current costs and expenses accrued
  
18,419
    
17,539
  
Long-term borrowings (note 18)
  
212,281
    
207,871
  
Investment contracts, insurance liabilities and
            
insurance annuity benefits (note 19)
  
45,432
    
48,076
  
All other liabilities (note 20)
  
40,632
    
42,779
  
Deferred income taxes (note 21)
  
16,312
    
15,308
  
Liabilities of and minority interest in
            
discontinued operations (note 2)
  
36,332
    
112,935
  
Total liabilities
  
555,916
    
627,106
  
Minority interest in equity of consolidated affiliates (note 22)
  
8,054
    
12,603
  
Common stock (10,484,268,000 and 10,586,358,000
            
shares outstanding at year-end 2005 and 2004, respectively)
  
669
    
669
  
Accumulated gains (losses) - net
            
Investment securities
  
1,831
    
2,268
  
Currency translation adjustments
  
2,532
    
6,850
  
Cash flow hedges
  
(352
)
  
(305
)
Minimum pension liabilities
  
(874
)
  
(657
)
Other capital
  
25,227
    
24,265
  
Retained earnings
  
97,644
    
90,580
  
Less common stock held in treasury
  
(17,326
)
  
(12,762
)
Total shareowners’ equity (notes 23 and 24)
  
109,351
    
110,908
  
Total liabilities and equity
$
673,321
  
$
750,617
  

The sum of accumulated gains (losses) on investment securities, currency translation adjustments, cash flow hedges and minimum pension liabilities constitutes “Accumulated nonowner changes other than earnings,” as shown in note 23, and was $3,137 million and $8,156 million at December 31, 2005 and 2004, respectively.
 
The notes to consolidated financial statements are an integral part of this statement.
 

(70)

Statement of Financial Position (continued)
 
 
GE
  
GECS
  
At December 31 (In millions, except share amounts)
2005
(Restated)
  
2004
(Restated)
  
2005
(Restated)
  
2004
(Restated)
  
ASSETS
                        
Cash and equivalents
$
2,015
  
$
3,155
  
$
7,316
  
$
9,191
  
Investment securities (note 10)
  
461
    
413
    
52,706
    
56,539
  
Current receivables (note 11)
  
15,058
    
14,533
    
-
    
-
  
Inventories (note 12)
  
10,315
    
9,589
    
159
    
189
  
Financing receivables - net (notes 13 and 14)
  
-
    
-
    
287,639
    
282,699
  
Other GECS receivables
  
-
    
-
    
19,060
    
14,965
  
Property, plant and equipment - net (note 15)
  
16,504
    
16,756
    
51,024
    
46,347
  
Investment in GECS
  
50,812
    
54,379
    
-
    
-
  
Intangible assets - net (note 16)
  
57,839
    
54,720
    
23,887
    
23,736
  
All other assets (note 17)
  
36,752
    
38,123
    
52,037
    
52,682
  
Assets of discontinued operations (note 2)
  
-
    
-
    
46,756
    
132,266
  
Total assets
$
189,756
  
$
191,668
  
$
540,584
  
$
618,614
  
LIABILITIES AND EQUITY
                        
Short-term borrowings (note 18)
$
1,127
  
$
3,409
  
$
157,672
  
$
154,292
  
Accounts payable, principally trade accounts
  
11,870
    
11,013
    
13,133
    
11,374
  
Progress collections and price adjustments accrued
  
4,456
    
3,937
    
-
    
-
  
Dividends payable
  
2,623
    
2,329
    
-
    
-
  
All other current costs and expenses accrued
  
18,436
    
17,569
    
-
    
-
  
Long-term borrowings (note 18)
  
9,081
    
7,625
    
204,397
    
201,209
  
Investment contracts, insurance liabilities
                        
and insurance annuity benefits (note 19)
  
-
    
-
    
45,722
    
48,393
  
All other liabilities (note 20)
  
23,273
    
23,561
    
17,453
    
19,300
  
Deferred income taxes (note 21)
  
3,733
    
3,616
    
12,579
    
11,692
  
Liabilities of and minority interest in
                        
discontinued operations (note 2)
  
-
    
-
    
36,568
    
113,073
  
Total liabilities
  
74,599
    
73,059
    
487,524
    
559,333
  
Minority interest in equity of consolidated
affiliates (note 22)
  
5,806
    
7,701
    
2,248
    
4,902
  
Common stock (10,484,268,000 and 10,586,358,000 shares
                        
outstanding at year-end 2005 and 2004, respectively)
  
669
    
669
    
1
    
1
  
Accumulated gains (losses) - net
                        
Investment securities
  
1,831
    
2,268
    
1,754
    
2,345
  
Currency translation adjustments
  
2,532
    
6,850
    
2,287
    
5,104
  
Cash flow hedges
  
(352
)
  
(305
)
  
(343
)
  
(436
)
Minimum pension liabilities
  
(874
)
  
(657
)
  
(179
)
  
(150
)
Other capital
  
25,227
    
24,265
    
12,386
    
12,370
  
Retained earnings
  
97,644
    
90,580
    
34,906
    
35,145
  
Less common stock held in treasury
  
(17,326
)
  
(12,762
)
  
-
    
-
  
Total shareowners’ equity (notes 23 and 24)
  
109,351
    
110,908
    
50,812
    
54,379
  
Total liabilities and equity
$
189,756
  
$
191,668
  
$
540,584
  
$
618,614
  

In the consolidating data on this page, “GE” means the basis of consolidation as described in note 1 to the consolidated financial statements; “GECS” means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the “General Electric Company and consolidated affiliates” columns.
 

(71)

Statement of Cash Flows
 
 
General Electric Company
and consolidated affiliates
  
For the years ended December 31 (In millions)
2005
(Restated)
(a)
2004
(Restated)
(a)
2003
(Restated)
(a)
CASH FLOWS - OPERATING ACTIVITIES
                  
Net earnings
$
16,711
  
$
17,160
  
$
15,561
  
Loss (earnings) from discontinued operations
  
1,922
    
(534
)
  
(2,057
)
Adjustments to reconcile net earnings to cash
                  
provided from operating activities
                  
Cumulative effect of accounting changes
  
-
    
-
    
587
  
Depreciation and amortization of property, plant and equipment
  
8,538
    
8,349
    
6,864
  
Earnings before accounting changes retained by GECS
  
-
    
-
    
-
  
Deferred income taxes
  
(890
)
  
50
    
1,417
  
Decrease (increase) in GE current receivables
  
(360
)
  
(849
)
  
534
  
Decrease (increase) in inventories
  
(578
)
  
(468
)
  
874
  
Increase in accounts payable
  
1,238
    
4,090
    
232
  
Increase (decrease) in GE progress collections
  
510
    
(464
)
  
(2,268
)
Increase (decrease) in insurance liabilities
  
1,034
    
1,959
    
(729
)
Provision for losses on GECS financing receivables
  
3,841
    
3,888
    
3,752
  
All other operating activities
  
1,821
    
(2,699
)
  
(2,927
)
Cash from operating activities - continuing operations
  
33,787
    
30,482
    
21,840
  
Cash from operating activities - discontinued operations
  
3,854
    
6,002
    
7,389
  
CASH FROM OPERATING ACTIVITIES
  
37,641
    
36,484
    
29,229
  
Cash flows - investing activities
                  
Additions to property, plant and equipment
  
(14,441
)
  
(13,092
)
  
(9,751
)
Dispositions of property, plant and equipment
  
6,027
    
5,838
    
4,918
  
Net increase in GECS financing receivables
  
(16,954
)
  
(15,280
)
  
(4,687
)
Payments for principal businesses purchased
  
(11,498
)
  
(18,703
)
  
(14,352
)
All other investing activities
  
6,535
    
10,785
    
7,974
  
Cash used for investing activities - continuing operations
  
(30,331
)
  
(30,452
)
  
(15,898
)
Cash used for investing activities - discontinued operations
  
(4,718
)
  
(7,962
)
  
(5,945
)
CASH USED FOR INVESTING ACTIVITIES
  
(35,049
)
  
(38,414
)
  
(21,843
)
Cash flows - financing activities
                  
Net increase (decrease) in borrowings (maturities of 90 days or less)
  
(4,600
)
  
(1,558
)
  
(20,559
)
Newly issued debt (maturities longer than 90 days)
  
66,523
    
58,538
    
67,719
  
Repayments and other reductions (maturities longer than 90 days)
  
(53,133
)
  
(47,106
)
  
(43,479
)
Net dispositions (purchases) of GE shares for treasury
  
(4,844
)
  
3,993
    
726
  
Dividends paid to shareowners
  
(9,352
)
  
(8,278
)
  
(7,643
)
All other financing activities
  
(1,191
)
  
(3,397
)
  
286
  
Cash from (used for) financing activities - continuing operations
  
(6,597
)
  
2,192
    
(2,950
)
Cash from (used for) financing activities - discontinued operations
  
478
    
2,402
    
(682
)
CASH FROM (USED FOR) FINANCING ACTIVITIES
  
(6,119
)
  
4,594
    
(3,632
)
INCREASE (DECREASE) IN CASH AND
                  
EQUIVALENTS DURING YEAR
  
(3,527
)
  
2,664
    
3,754
  
Cash and equivalents at beginning of year
  
15,328
    
12,664
    
8,910
  
Cash and equivalents at end of year
  
11,801
    
15,328
    
12,664
  
Less cash and equivalents of discontinued operations at end of year
  
2,790
    
3,176
    
2,734
  
Cash and equivalents of continuing operations at end of year
$
9,011
  
$
12,152
  
$
9,930
  
SUPPLEMENTAL DISCLOSURE OF CASH
                  
FLOWS INFORMATION
                  
Cash paid during the year for interest
$
(16,446
)
$
(11,907
)
$
(10,910
)
Cash recovered (paid) during the year for income taxes
  
(3,254
)
  
(1,339
)
  
(1,539
)

The notes to consolidated financial statements are an integral part of this statement.
 

(72)

Statement of Cash Flows (continued)
 
 
GE
    
GECS
  
For the years ended December 31 (In millions)
2005
(Restated
(a)
2004
(Restated)
(a)
2003
(Restated)
(a)
2005
(Restated)
(a)
2004
(Restated)
(a)
2003
(Restated)
(a)
CASH FLOWS - OPERATING ACTIVITIES
                                    
Net earnings
$
16,711
  
$
17,160
  
$
15,561
  
$
7,577
  
$
8,728
  
$
7,974
  
Loss (earnings) from discontinued operations
  
-
    
-
    
-
    
1,922
    
(534
)
  
(2,057
)
Adjustments to reconcile net earnings to cash
                                    
provided from operating activities
                                    
Cumulative effect of accounting changes
  
-
    
-
    
587
    
-
    
-
    
339
  
Depreciation and amortization of
                                    
property, plant and equipment
  
2,501
    
2,533
    
2,277
    
6,037
    
5,816
    
4,587
  
Earnings before accounting changes retained by GECS
  
239
    
(5,623
)
  
(4,878
)
  
-
    
-
    
-
  
Deferred income taxes
  
(287
)
  
(175
)
  
389
    
(603
)
  
225
    
1,028
  
Decrease (increase) in GE current receivables
  
(266
)
  
(908
)
  
585
    
-
    
-
    
-
  
Decrease (increase) in inventories
  
(608
)
  
(459
)
  
909
    
30
    
(9
)
  
(35
)
Increase in accounts payable
  
983
    
1,888
    
676
    
596
    
2,927
    
96
  
Increase (decrease) in GE progress collections
  
510
    
(464
)
  
(2,268
)
  
-
    
-
    
-
  
Increase (decrease) in insurance liabilities
  
-
    
-
    
-
    
1,034
    
1,959
    
(729
)
Provision for losses on GECS financing receivables
  
-
    
-
    
-
    
3,841
    
3,888
    
3,752
  
All other operating activities
  
1,826
    
1,252
    
(913
)
  
476
    
(2,875
)
  
(896
)
Cash from operating activities - continuing operations
  
21,609
    
15,204
    
12,925
    
20,910
    
20,125
    
14,059
  
Cash from operating activities -discontinued operations
  
-
    
-
    
-
    
3,854
    
6,002
    
7,389
  
CASH FROM OPERATING ACTIVITIES
  
21,609
    
15,204
    
12,925
    
24,764
    
26,127
    
21,448
  
Cash flows - investing activities
                                    
Additions to property, plant and equipment
  
(2,812
)
  
(2,427
)
  
(2,158
)
  
(11,629
)
  
(10,665
)
  
(7,593
)
Dispositions of property, plant and equipment
  
-
    
-
    
-
    
6,027
    
5,838
    
4,918
  
Net increase in GECS financing receivables
  
-
    
-
    
-
    
(16,954
)
  
(15,280
)
  
(4,687
)
Payments for principal businesses purchased
  
(4,331
)
  
(4,815
)
  
(3,870
)
  
(7,167
)
  
(13,888
)
  
(10,482
)
All other investing activities
  
702
    
632
    
236
    
4,644
    
8,386
    
6,103
  
Cash used for investing activities - continuing operations
  
(6,441
)
  
(6,610
)
  
(5,792
)
  
(25,079
)
  
(25,609
)
  
(11,741
)
Cash used for investing activities - discontinued operations
  
-
    
-
    
-
    
(4,718
)
  
(7,962
)
  
(5,945
)
CASH USED FOR INVESTING ACTIVITIES
  
(6,441
)
  
(6,610
)
  
(5,792
)
  
(29,797
)
  
(33,571
)
  
(17,686
)
Cash flows - financing activities
                                    
Net increase (decrease) in borrowings
                                    
(maturities of 90 days or less)
  
(392
)
  
(1,690
)
  
(6,704
)
  
(4,044
)
  
33
    
(13,487
)
Newly issued debt (maturities longer than 90 days)
  
1,704
    
434
    
7,356
    
65,054
    
58,143
    
60,113
  
Repayments and other reductions (maturities longer than 90 days)
  
(3,424
)
  
(1,568
)
  
(277
)
  
(49,709
)
  
(45,538
)
  
(43,202
)
Net dispositions (purchases) of GE shares for treasury
  
(4,844
)
  
3,993
    
726
    
-
    
-
    
-
  
Dividends paid to shareowners
  
(9,352
)
  
(8,278
)
  
(7,643
)
  
(7,816
)
  
(3,105
)
  
(3,435
)
All other financing activities
  
-
    
-
    
-
    
(1,191
)
  
(3,397
)
  
286
  
Cash from (used for) financing activities - continuing operations
  
(16,308
)
  
(7,109
)
  
(6,542
)
  
2,294
    
6,136
    
275
  
Cash from (used for) financing activities - discontinued operations
  
-
    
-
    
-
    
478
    
2,402
    
(682
)
CASH FROM (USED FOR) FINANCING ACTIVITIES
  
(16,308
)
  
(7,109
)
  
(6,542
)
  
2,772
    
8,538
    
(407
)
INCREASE (DECREASE) IN CASH AND
                                    
EQUIVALENTS DURING YEAR
  
(1,140
)
  
1,485
    
591
    
(2,261
)
  
1,094
    
3,355
  
Cash and equivalents at beginning of year
  
3,155
    
1,670
    
1,079
    
12,367
    
11,273
    
7,918
  
Cash and equivalents at end of year
  
2,015
    
3,155
    
1,670
    
10,106
    
12,367
    
11,273
  
Less cash and equivalents of discontinued operations at end of year
  
-
    
-
    
-
    
2,790
    
3,176
    
2,734
  
Cash and equivalents of continuing operations at end of year
$
2,015
  
$
3,155
  
$
1,670
  
$
7,316
  
$
9,191
  
$
8,539
  
SUPPLEMENTAL DISCLOSURE OF CASH
                                    
FLOWS INFORMATION
                                    
Cash paid during the year for interest
$
(928
)
$
(603
)
$
(248
)
$
(15,518
)
$
(11,304
)
$
(10,662
)
Cash recovered (paid) during the year for income taxes
  
(1,829
)
  
(2,261
)
  
(2,685
)
  
(1,425
)
  
922
    
1,146
  

In the consolidating data on this page, “GE” means the basis of consolidation as described in note 1 to the consolidated financial statements; “GECS” means General Electric Capital Services, Inc. and all of its affiliates and associated companies. Transactions between GE and GECS have been eliminated from the “General Electric Company and consolidated affiliates” columns.
 
(a)
Certain individual lines items within cash from operating activities have been restated.

 


(73)



Note 1
 
Summary of Significant Accounting Policies (Restated)
 
2007 Restatement
 
On January 19, 2007, we amended General Electric Company’s (GE) Annual Report on Form 10-K for the year ended December 31, 2005, to amend and restate financial statements and other financial information for the years 2005, 2004 and 2003 and financial information for the years 2002 and 2001, and for each of the quarters in the years 2005 and 2004. The restatement adjusts our accounting for interest rate swap transactions related to a portion of the commercial paper issued by General Electric Capital Corporation (GECC) and General Electric Capital Services, Inc. (GECS), each wholly-owned subsidiaries of GE, from January 1, 2001, the date we adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The restatement has no effect on our cash flows or liquidity, and its effects on our financial position at the ends of the respective restated periods are immaterial. This adjustment affects disclosure in the following footnotes: 8, 9, 17, 18, 21, 23, 25, 26, 27 and 30.
 
Background
 
As previously disclosed, the Boston Office of the U.S. Securities and Exchange Commission (SEC) is conducting a formal investigation of our application of SFAS 133. In the course of that investigation, the SEC Enforcement staff raised certain concerns about our accounting for the use of interest rate swaps to fix certain otherwise variable interest costs in a portion of our commercial paper program at GECC and GECS. The SEC Enforcement staff referred such concerns to the Office of Chief Accountant. We and our auditors determined that our accounting for the commercial paper hedging program satisfied the requirements of SFAS 133 and conveyed our views to the staff of the Office of Chief Accountant. Following our discussions, however, the Office of Chief Accountant communicated its view to us that our commercial paper hedging program as structured did not meet the SFAS 133 specificity requirement.
 
After considering the staff’s view, management recommended to the Audit Committee of our Board of Directors that previously reported financial results be restated to eliminate hedge accounting for the interest rate swaps entered into as part of our commercial paper hedging program from January 1, 2001. The Audit Committee discussed and agreed with this recommendation. At a meeting on January 18, 2007, the Board of Directors adopted the recommendation of the Audit Committee and determined that previously reported results for GE should be restated and, therefore, that the previously filed financial statements and other financial information referred to above should not be relied upon. The restatement resulted from a material weakness in internal control over financial reporting, namely, that we did not have adequately designed procedures to designate, with the specificity required under SFAS 133, each hedged commercial paper transaction.
 
The SEC investigation into our application of SFAS 133 and hedge accounting is continuing. We continue to cooperate fully.
 

(74)

Effects of the restatement by line item follow:
 
For the years ended December 31(In millions;
per share amounts in dollars)
2005
  
2004
  
2003
  
 
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
                                     
Statement of Earnings
    
   
    
   
    
   
    
   
    
   
      
                                     
Consolidated
                                    
GECS commercial paper interest
                                    
interest rate swap adjustment (a)
$
-
  
$
540
  
$
-
  
$
518
  
$
-
  
$
535
  
Interest and other financial charges
  
15,187
    
15,138
    
11,656
    
11,611
    
10,460
    
10,459
  
Earnings from continuing operations
                                   
before income taxes and
                                    
accounting changes
  
22,129
    
22,718
    
19,771
    
20,334
    
17,611
    
18,147
  
Provision for income taxes (note 8)
  
(3,854
)
  
(4,085
)
  
(3,486
)
  
(3,708
)
  
(3,845
)
  
(4,056
)
Earnings from continuing operations
                                    
before accounting changes
  
18,275
    
18,633
    
16,285
    
16,626
    
13,766
    
14,091
  
Earnings before accounting changes
  
16,353
    
16,711
    
16,819
    
17,160
    
15,823
    
16,148
  
Net earnings
  
16,353
    
16,711
    
16,819
    
17,160
    
15,236
    
15,561
  
                                     
(a)
Included in total revenues.
                                     
Per share amounts
                                    
Earnings from continuing operations
                                   
before accounting changes
                                    
Diluted earnings per share
$
1.72
  
$
1.76
  
$
1.56
  
$
1.59
  
$
1.37
  
$
1.40
  
Basic earnings per share
  
1.73
    
1.76
    
1.57
    
1.60
    
1.37
    
1.41
  
Earnings before accounting changes
                                    
Diluted earnings per share
$
1.54
  
$
1.57
  
$
1.61
  
$
1.64
  
$
1.57
  
$
1.60
  
Basic earnings per share
  
1.55
    
1.58
    
1.62
    
1.65
    
1.58
    
1.61
  
Net earnings
                                   
Diluted earnings per share
$
1.54
  
$
1.57
  
$
1.61
  
$
1.64
  
$
1.51
  
$
1.54
  
Basic earnings per share
  
1.55
    
1.58
    
1.62
    
1.65
    
1.52
    
1.55
  
                                     
GECS
                                    
GECS commercial paper interest
                                    
rate swap adjustment (a)
$
-
  
$
540
  
$
-
  
$
518
  
$
-
  
$
535
  
Interest and other financial charges
  
14,308
    
14,259
    
11,121
    
11,076
    
9,897
    
9,896
  
Earnings from continuing operations
                                   
before income taxes and accounting
                                    
changes
  
10,245
    
10,834
    
9,366
    
9,929
    
6,919
    
7,455
  
Provision for income taxes (note 8)
  
(1,104
)
  
(1,335
)
  
(1,513
)
  
(1,735
)
  
(988
)
  
(1,199
)
Earnings from continuing operations
                                   
before accounting changes
  
9,141
    
9,499
    
7,853
    
8,194
    
5,931
    
6,256
  
Earnings before accounting changes
  
7,219
    
7,577
    
8,387
    
8,728
    
7,988
    
8,313
  
Net earnings
 
7,219
    
7,577
    
8,387
    
8,728
    
7,649
    
7,974
  
                                     
(a)
Included in total revenues.
                                     

(75)


For the years ended December 31(In millions)
2005
  
2004
  
2003
  
 
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
                                     
Statement of Changes in
                                   
Shareowners’ Equity
                                    
                                     
Balance at January 1
$
110,821
  
$
110,908
  
$
79,631
  
$
79,662
  
$
64,079
  
$
63,979
  
Increase attributable to net earnings
  
16,353
    
16,711
    
16,819
    
17,160
    
15,236
    
15,561
  
Cash flow hedges - net
  
401
    
(47
)
  
435
    
150
    
226
    
32
  
Balance at December 31
  
109,354
    
109,351
    
110,821
    
110,908
    
79,631
    
79,662
  
                                     
                                     
At ended December 31(In millions)
2005
  
2004
      
 
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
          
                                     
Statement of Financial Position
                                    
                                     
Consolidated
                                    
All other assets (note 17)
$
87,446
  
$
87,425
  
$
89,557
  
$
89,667
              
Total assets
  
673,342
    
673,321
    
750,507
    
750,617
              
                                     
Deferred income taxes (note 21)
  
16,330
    
16,312
    
15,285
    
15,308
              
Total liabilities
  
555,934
    
555,916
    
627,083
    
627,106
              
                                     
Cash flow hedges
  
(822
)
  
(352
)
  
(1,223
)
  
(305
)
            
Retained earnings
  
98,117
    
97,644
    
91,411
    
90,580
              
Total shareowners’ equity (note 23)
  
109,354
    
109,351
    
110,821
    
110,908
              
Total liabilities and equity
  
673,342
    
673,321
    
750,507
    
750,617
              
                                     
                                     
At December 31 (In millions)
2005
  
2004
      
 
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
          
                                     
GECS
                                    
All other assets (note 17)
$
52,058
  
$
52,037
  
$
52,572
  
$
52,682
              
Total assets
  
540,605
    
540,584
    
618,504
    
618,614
              
                                     
Deferred income taxes (note 21)
  
12,597
    
12,579
    
11,669
    
11,692
              
Total liabilities
  
487,542
    
487,524
    
559,310
    
559,333
              
                                     
Cash flow hedges
  
(813
)
  
(343
)
  
(1,354
)
  
(436
)
            
Retained earnings
  
35,379
    
34,906
    
35,976
    
35,145
              
Total shareowner’s equity (note 23)
  
50,815
    
50,812
    
54,292
    
54,379
              
Total liabilities and equity
  
540,605
    
540,584
    
618,504
    
618,614
              
                                     

 

(76)


 
2005
  
 
First quarter
  
Second quarter
  
Third quarter
  
Fourth quarter
  
Quarterly Information (unaudited)
(In millions; per share amounts
in dollars)
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
Statement of Earnings
                                                
                                                 
Consolidated
                                                
GECS commercial paper interest
                                                
rate swap adjustment (a)
$
-
  
$
358
  
$
-
  
$
(239
)
$
-
  
$
271
  
$
-
  
$
150
  
Interest and other financial charges
  
3,679
    
3,667
    
3,793
    
3,782
    
3,727
    
3,714
    
3,988
    
3,975
  
Earnings from continuing operations
                                                
before income taxes and
                                                
accounting changes
  
4,351
    
4,721
    
5,365
    
5,137
    
5,717
    
6,001
    
6,696
    
6,859
  
Provision for income taxes
  
(789
)
  
(934
)
  
(993
)
  
(904
)
  
(1,148
)
  
(1,259
)
  
(924
)
  
(988
)
Earnings from continuing operations
                                                
before accounting changes
  
3,562
    
3,787
    
4,372
    
4,233
    
4,569
    
4,742
    
5,772
    
5,871
  
Earnings before accounting changes
  
3,965
    
4,190
    
4,647
    
4,508
    
4,677
    
4,850
    
3,064
    
3,163
  
Net earnings
  
3,965
    
4,190
    
4,647
    
4,508
    
4,677
    
4,850
    
3,064
    
3,163
  
                                                 
(a)
Included in total revenues.
                                                 
Per share amounts
                                                
Earnings from continuing
                                               
operations before
                                                
accounting changes
                                                
Diluted earnings per share
$
0.33
  
$
0.36
  
$
0.41
  
$
0.40
  
$
0.43
  
$
0.45
  
$
0.55
  
$
0.56
  
Basic earnings per share
  
0.34
    
0.36
    
0.41
    
0.40
    
0.43
    
0.45
    
0.55
    
0.56
  
                                                 
Earnings before accounting
                                                
changes
                                               
Diluted earnings per share
$
0.37
  
$
0.39
  
$
0.44
  
$
0.42
  
$
0.44
  
$
0.46
  
$
0.29
  
$
0.30
  
Basic earnings per share
  
0.37
    
0.40
    
0.44
    
0.43
    
0.44
    
0.46
    
0.29
    
0.30
  
                                                 
Net earnings
                                               
Diluted earnings per share
$
0.37
  
$
0.39
  
$
0.44
  
$
0.42
  
$
0.44
  
$
0.46
  
$
0.29
  
$
0.30
  
Basic earnings per share
  
0.37
    
0.40
    
0.44
    
0.43
    
0.44
    
0.46
    
0.29
    
0.30
  
                                                 
GECS
                                                
GECS commercial paper interest
                                               
rate swap adjustment (a)
$
-
  
$
358
  
$
-
  
$
(239
)
$
-
  
$
271
  
$
-
  
$
150
  
Interest and other financial charges
  
3,422
    
3,410
    
3,610
    
3,599
    
3,520
    
3,507
    
3,756
    
3,743
  
Earnings from continuing operations
                                                
before income taxes and
                                                
accounting changes
  
2,075
    
2,445
    
2,234
    
2,006
    
3,057
    
3,341
    
2,879
    
3,042
  
Provision for income taxes
  
(210
)
  
(355
)
  
(210
)
  
(121
)
  
(480
)
  
(591
)
  
(204
)
  
(268
)
Earnings from continuing operations
                                                
before accounting changes
  
1,865
    
2,090
    
2,024
    
1,885
    
2,577
    
2,750
    
2,675
    
2,774
  
Earnings before accounting changes
  
2,268
    
2,493
    
2,299
    
2,160
    
2,685
    
2,858
    
(33
)
  
66
  
Net earnings
  
2,268
    
2,493
    
2,299
    
2,160
    
2,685
    
2,858
    
(33
)
  
66
  
                                                 
(a)
Included in total revenues.

 

(77)


 
2004
  
 
First quarter
  
Second quarter
  
Third quarter
  
Fourth quarter
  
Quarterly Information (unaudited)
(In millions)
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
Statement of Earnings
                                                
                                                 
Consolidated
                                                
GECS commercial paper interest
                                                
rate swap adjustment (a)
$
-
  
$
(233
)
$
-
  
$
970
  
$
-
  
$
(381
)
$
  
-
$
162
  
Interest and other financial charges
  
2,744
    
2,734
    
2,687
    
2,677
    
2,886
    
2,873
    
3,339
    
3,327
  
Earnings from continuing operations
                                                
before income taxes and
                                                
accounting changes
  
3,860
    
3,637
    
4,359
    
5,339
    
4,941
    
4,573
    
6,611
    
6,785
  
Provision for income taxes
  
(892
)
  
(805
)
  
(701
)
  
(1,085
)
  
(1,000
)
  
(856
)
  
(893
)
  
(962
)
Earnings from continuing operations
                                               
before accounting changes
  
2,968
    
2,832
    
3,658
    
4,254
    
3,941
    
3,717
    
5,718
    
5,823
  
Earnings before accounting changes
  
3,366
    
3,230
    
3,751
    
4,347
    
4,071
    
3,847
    
5,631
    
5,736
  
Net earnings
  
3,366
    
3,230
    
3,751
    
4,347
    
4,071
    
3,847
    
5,631
    
5,736
  
 
(a)
Included in total revenues.
 
Per share amounts
                                                
Earnings from continuing
                                               
operations before accounting
                                                
changes
                                                
Diluted earnings per share
$
0.29
  
$
0.28
  
$
0.35
  
$
0.41
  
$
0.37
  
$
0.35
  
$
0.54
  
$
0.55
  
Basic earnings per share
  
0.29
    
0.28
    
0.35
    
0.41
    
0.37
    
0.35
    
0.54
    
0.55
  
                                                 
Earnings before accounting
                                                
changes
                                               
Diluted earnings per share
$
0.33
  
$
0.32
  
$
0.36
  
$
0.42
  
$
0.38
  
$
0.36
  
$
0.53
  
$
0.54
  
Basic earnings per share
  
0.33
    
0.32
    
0.36
    
0.42
    
0.39
    
0.36
    
0.53
    
0.54
  
                                                 
Net earnings
                                               
Diluted earnings per share
$
0.33
  
$
0.32
  
$
0.36
  
$
0.42
  
$
0.38
  
$
0.36
  
$
0.53
  
$
0.54
  
Basic earnings per share
  
0.33
    
0.32
    
0.36
    
0.42
    
0.39
    
0.36
    
0.53
    
0.54
  
                                                 
GECS
                                                
GECS commercial paper interest
                                               
rate swap adjustment (a)
$
-
  
$
(233
)
$
-
  
$
970
  
$
-
  
$
(381
)
$
-
  
$
162
  
Interest and other financial charges
  
2,605
    
2,595
    
2,755
    
2,745
    
2,646
    
2,633
    
3,115
    
3,103
  
Earnings from continuing operations
                                                
before income taxes and
                                                
accounting changes
  
1,998
    
1,775
    
1,676
    
2,656
    
2,673
    
2,305
    
3,019
    
3,193
  
Provision for income taxes
  
(426
)
  
(339
)
  
(245
)
  
(629
)
  
(550
)
  
(406
)
  
(292
)
  
(361
)
Earnings from continuing operations
                                                
before accounting changes
  
1,572
    
1,436
    
1,431
    
2,027
    
2,123
    
1,899
    
2,727
    
2,832
  
Earnings before accounting changes
  
1,971
    
1,834
    
1,523
    
2,120
    
2,253
    
2,029
    
2,640
    
2,745
  
Net earnings
  
1,971
    
1,834
    
1,523
    
2,120
    
2,253
    
2,029
    
2,640
    
2,745
  
 
(a)
Included in total revenues.

(78)


 
2005
  
 
First quarter
  
Second quarter
  
Third quarter
  
Fourth quarter
  
Quarterly Information (unaudited)
(In millions)
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
Statement of Financial Position
                                                
                                                 
Consolidated
                                                
All other assets
$
87,507
  
$
87,494
  
$
86,629
  
$
86,546
  
$
84,088
  
$
84,173
  
$
87,446
  
$
87,425
  
Total assets
  
752,223
    
752,210
    
740,362
    
740,279
    
662,672
    
662,757
    
673,342
    
673,321
  
                                                 
Deferred income taxes
  
15,216
    
15,198
    
16,091
    
16,044
    
15,503
    
15,523
    
16,330
    
16,312
  
Total liabilities
  
626,784
    
626,766
    
617,252
    
617,205
    
540,315
    
540,335
    
555,934
    
555,916
  
                                                 
Cash flow hedges
  
(594
)
  
17
    
(1,025
)
  
(316
)
  
(941
)
  
(304
)
  
(822
)
  
(352
)
Retained earnings
  
93,035
    
92,429
    
95,343
    
94,598
    
97,685
    
97,113
    
98,117
    
97,644
  
Total shareowners’ equity
  
112,872
    
112,877
    
112,384
    
112,348
    
112,981
    
113,046
    
109,354
    
109,351
  
Total liabilities and equity
  
752,223
    
752,210
    
740,362
    
740,279
    
662,672
    
662,757
    
673,342
    
673,321
  
                                                 
GECS
                                                
All other assets
$
50,756
  
$
50,743
  
$
52,753
  
$
52,670
  
$
49,874
  
$
49,959
  
$
52,058
  
$
52,037
  
Total assets
  
619,346
    
619,333
    
611,868
    
611,785
    
533,447
    
533,532
    
540,605
    
540,584
  
                                                 
Deferred income taxes
  
11,290
    
11,272
    
12,070
    
12,023
    
11,466
    
11,486
    
12,597
    
12,579
  
Total liabilities
  
558,169
    
558,151
    
551,273
    
551,226
    
475,875
    
475,895
    
487,542
    
487,524
  
                                                 
Cash flow hedges
  
(895
)
  
(284
)
  
(997
)
  
(288
)
  
(939
)
  
(302
)
  
(813
)
  
(343
)
Retained earnings
  
38,020
    
37,414
    
38,704
    
37,959
    
37,716
    
37,144
    
35,379
    
34,906
  
Total shareowner’s equity
  
56,333
    
56,338
    
55,713
    
55,677
    
53,876
    
53,941
    
50,815
    
50,812
  
Total liabilities and equity
  
619,346
    
619,333
    
611,868
    
611,785
    
533,447
    
533,532
    
540,605
    
540,584
  
                                                 
 
2004
  
 
First quarter
  
Second quarter
  
Third quarter
  
Fourth quarter
  
(In millions)(unaudited)
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
As
previously
reported
  
As
restated
  
Statement of Financial Position
                                                
                                                 
Consolidated
                                                
All other assets
$
72,836
  
$
72,920
  
$
82,012
  
$
82,055
  
$
84,626
  
$
84,643
  
$
89,557
  
$
89,667
  
Total assets
  
662,692
    
662,776
    
697,607
    
697,650
    
704,988
    
705,005
    
750,507
    
750,617
  
                                                 
Deferred income taxes
  
12,561
    
12,563
    
16,181
    
16,181
    
16,645
    
16,630
    
15,285
    
15,308
  
Total liabilities
  
568,908
    
568,910
    
585,622
    
585,622
    
590,234
    
590,219
    
627,083
    
627,106
  
                                                 
Cash flow hedges
  
(1,655
)
  
(265
)
  
(1,082
)
  
(327
)
  
(940
)
  
28
    
(1,223
)
  
(305
)
Retained earnings
  
84,530
    
83,222
    
86,164
    
85,452
    
88,124
    
87,188
    
91,411
    
90,580
  
Total shareowners’ equity
  
87,071
    
87,153
    
98,614
    
98,657
    
102,146
    
102,178
    
110,821
    
110,908
  
Total liabilities and equity
  
662,692
    
662,776
    
697,607
    
697,650
    
704,988
    
705,005
    
750,507
    
750,617
  
                                                 
GECS
                                                
All other assets
$
43,724
  
$
43,808
  
$
45,397
  
$
45,440
  
$
47,660
  
$
47,677
  
$
52,572
  
$
52,682
  
Total assets
  
567,208
    
567,292
    
569,412
    
569,455
    
577,794
    
577,811
    
618,504
    
618,614
  
                                                 
Deferred income taxes
  
10,837
    
10,839
    
11,176
    
11,176
    
11,830
    
11,815
    
11,669
    
11,692
  
Total liabilities
  
512,548
    
512,550
    
517,808
    
517,808
    
523,513
    
523,498
    
559,310
    
559,333
  
                                                 
Cash flow hedges
  
(1,609
)
  
(219
)
  
(1,028
)
  
(273
)
  
(1,281
)
  
(313
)
  
(1,354
)
  
(436
)
Retained earnings
  
32,285
    
30,977
    
32,345
    
31,633
    
34,377
    
33,441
    
35,976
    
35,145
  
Total shareowner’s equity
  
49,056
    
49,138
    
46,227
    
46,270
    
49,359
    
49,391
    
54,292
    
54,379
  
Total liabilities and equity
  
567,208
    
567,292
    
569,412
    
569,455
    
577,794
    
577,811
    
618,504
    
618,614
  

 

(79)

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 affiliates-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 significant influence, 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 probable losses inherent in such assets.
 
Because of new accounting requirements that became effective in 2004 and 2003, we consolidated certain non-affiliates, including certain special purpose entities (SPEs) and investments previously considered associated companies, in each of those years.
 
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 affiliates 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) and GE Insurance Solutions Corporation (GE Insurance Solutions), the parent of Employers Reinsurance Corporation. GE Capital and its respective affiliates are consolidated in the accompanying GECS columns and constitute its business.
 
In 2005, most of GE Insurance Solutions 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, Industrial, Healthcare, NBC Universal, Commercial Finance and Consumer Finance. 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.
 

(80)

The effects of translating to U.S. dollars the financial 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 period.
 
Effects of transactions between related companies are eliminated. 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 and loans.
 
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 of goods when a firm sales agreement is in place, delivery has occurred 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.
 
Consumer lighting products, home videos and computer hardware and software products are often sold with a right of return. Accumulated experience is used to estimate and provide for such returns when we record the sale.
 
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 services such as installation. In such contracts, amounts assigned to each component are based on that component’s objectively determined fair value, such as the sales price for the component when it is sold separately or competitor prices for similar components. Sales are recognized individually for delivered components only if they have value to the customer on a standalone basis and the undelivered components have objectively determined fair values and are not essential to the functionality of the delivered components. When undelivered components are inconsequential or perfunctory 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 incomplete components.
 
We record sales of product services, certain power generation equipment, military aircraft engines, Healthcare IT 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 components 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.
 
We expense costs to acquire or originate sales agreements as incurred.
 

(81)

NBC Universal, Inc. (NBC Universal) records broadcast and cable television advertising sales when advertisements are aired, net of provision for any viewer shortfalls (make goods). We record sales from theatrical distribution of films as the films are exhibited; sales of home videos, net of a return provision, when the videos are shipped and available for sale by retailers; fees from cable and satellite operators when services are provided; and licensing of film and television programming when we make the material available for airing.
 
GECS revenues from services (earned income)
 
We use the interest method to recognize income on all loans. Interest on loans includes origination, commitment and other non-refundable fees related to funding (recorded in earned income on the interest method). We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due. We recognize interest income on nonearning loans either as cash is collected or on a cost-recovery basis as conditions warrant. We resume accruing interest on nonearning, non-restructured commercial loans only when (a) payments are brought current according to the loan’s original terms and (b) future payments are reasonably assured. When we agree to restructured terms with the borrower, we resume accruing interest only when reasonably assured that we will recover full contractual payments, and such loans pass underwriting reviews equivalent to those applied to new loans. We resume accruing interest on nonearning consumer loans when the customer’s account is less than 90 days past due.
 
We record financing lease income on the interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values at the date of lease inception represent our initial estimates of the fair value of the leased assets at the expiration of the lease and are based primarily on independent appraisals, which are updated periodically. Guarantees of residual values by unrelated third parties are considered part of minimum lease payments. Significant assumptions we use in estimating residual values include estimated net cash flows over the remaining lease term, results of future remarketing, and future component part and scrap metal prices, discounted at an appropriate rate.
 
We recognize operating lease income on a straight-line basis over the terms of underlying leases.
 
Fees include commitment fees related to loans that we do not expect to fund and line-of-credit fees. We record these fees in earned income on a straight-line basis over the period to which they relate. We record syndication fees in earned income at the time related services are performed, unless significant contingencies exist.
 
See the Investment securities and GECS investment contracts, insurance liabilities and insurance annuity benefits sections of this note for a description of accounting policies for these activities.
 
Depreciation and amortization
 
The cost of GE manufacturing plant and equipment is depreciated over its estimated economic life. U.S. assets are depreciated using an accelerated method based on a sum-of-the-years digits formula; non-U.S. assets are depreciated on a straight-line basis.
 
The cost of GECS equipment leased to others on operating leases is amortized on a straight-line basis to estimated residual value over the lease term or over the estimated economic life of the equipment. See note 15.
 

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NBC Universal film and television costs
 
We defer film and television production costs, including direct costs, production overhead, development costs and interest. We do not defer costs of exploitation, which principally comprise costs of film and television program marketing and distribution. We amortize deferred film and television production costs, as well as associated participation and residual costs, on an individual production basis using the ratio of the current period’s gross revenues to estimated total remaining gross revenues from all sources; we state such costs at the lower of amortized cost or fair value. We defer the costs of acquired broadcast material, including rights to material for use on NBC Universal’s broadcast and cable networks, at the earlier of acquisition or when the license period begins and the material is available for use. We amortize acquired broadcast material and rights when we broadcast the associated programs; we state such costs at the lower of amortized cost or net realizable value.
 
Losses on financing receivables
 
Our allowance for losses on financing receivables represents our best estimate of probable losses inherent in the portfolio. Our method of calculating estimated losses depends on the size, type and risk characteristics of the related receivables. Write-offs are deducted from the allowance for losses and subsequent recoveries are added. Impaired financing receivables are written down to the extent that we judge principal to be uncollectible.
 
Our portfolio consists entirely of homogenous consumer loans and of commercial loans and leases. The underlying assumptions, estimates and assessments we use to provide for losses are continually updated to reflect our view of current conditions. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible to experience credit losses that are different from our current estimates.
 
Our consumer loan portfolio consists of smaller balance, homogenous loans including card receivables, installment loans, auto loans and leases and residential mortgages. We collectively evaluate each portfolio for impairment. The allowance for losses on these receivables is established through a process that estimates the probable losses inherent in the portfolio based upon statistical analyses of portfolio data. These analyses include migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, together with other analyses that reflect current trends and conditions. We also consider overall portfolio indicators including nonearning loans, trends in loan volume and lending terms, credit policies and other observable environmental factors.
 
During 2004, Consumer Finance adopted a global policy for uncollectible receivables that accelerated write-offs to follow one consistent basis. We write off unsecured closed-end installment loans at 120 days contractually past due and unsecured open-ended revolving loans at 180 days contractually past due. We write down loans secured by collateral other than real estate to the fair value of the collateral, less costs to sell, when such loans are 120 days past due. Consumer loans secured by residential real estate (both revolving and closed-end loans) are written down to the fair value of collateral, less costs to sell, no later than when they become 360 days past due. Unsecured loans in bankruptcy are written off within 60 days of notification of filing by the bankruptcy court or within contractual write-off periods, whichever occurs earlier.
 

(83)

Our commercial loan and lease portfolio consists of a variety of loans and leases, including both larger balance, non-homogenous loans and leases and smaller balance homogenous commercial and equipment loans and leases. Losses on such loans and leases are recorded when probable and estimable. We routinely survey our entire portfolio for potential specific credit or collection issues that might indicate an impairment. For larger balance, non-homogenous loans and leases, this survey first considers the financial status, payment history, collateral value, industry conditions and guarantor support related to specific customers. Any delinquencies or bankruptcies are indications of potential impairment requiring further assessment of collectibility. We routinely receive financial, as well as rating agency reports, on our customers, and we elevate for further attention those customers whose operations we judge to be marginal or deteriorating. We also elevate customers for further attention when we observe a decline in collateral values for asset-based loans. While collateral values are not always available, when we observe such a decline, we evaluate relevant markets to assess recovery alternatives- for example, for real estate loans, relevant markets are local; for aircraft loans, relevant markets are global. We provide allowances based on our evaluation of all available information, including expected future cash flows, fair value of collateral, net of disposal costs, and the secondary market value of the financing receivables. After providing for specific incurred losses, we then determine an allowance for losses that have been incurred in the balance of the portfolio but cannot yet be identified to a specific loan or lease. This estimate is based on historical and projected default rates and loss severity, and it is prepared by each respective line of business.
 
Experience is not available with new products; therefore, while we are developing that experience, we set loss allowances based on our experience with the most closely analogous products in our portfolio.
 
When we repossess collateral in satisfaction of a loan, we write down the receivable against the allowance for losses. Repossessed collateral is included in All other assets in the Statement of Financial Position and carried at the lower of cost or estimated fair value less costs to sell.
 
The remainder of our commercial loans and leases are portfolios of smaller balance homogenous commercial and equipment positions that we evaluate collectively for impairment based upon various statistical analyses considering historical losses and aging.
 
Sales of stock by affiliates
 
We record gains or losses on sales by an affiliate of its own shares as revenue unless realization of gains is not reasonably assured, in which case we record the results in shareowners’ equity.
 
Cash and equivalents
 
Debt securities with original maturities of three months or less are included in cash equivalents unless designated as available-for-sale and classified as investment securities.
 

(84)

Investment securities
 
We report investments in debt and marketable equity securities, and equity securities in our insurance portfolio, at fair value based on quoted market prices or, if quoted prices are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment. Unrealized gains and losses on available-for-sale investment securities are included in shareowners’ equity, net of applicable taxes and other adjustments. We regularly review investment securities for impairment based on both quantitative and qualitative criteria that include the extent to which cost exceeds market value, the duration of that market decline, our intent and ability to hold to maturity or until forecasted recovery and the financial health of and specific prospects for the issuer. Unrealized losses that are other than temporary are recognized in earnings. For investment securities designated as trading, unrealized gains and losses are recognized currently in earnings. Realized gains and losses are accounted for on the specific identification method.
 
Inventories
 
All inventories are stated at the lower of cost or realizable values. Cost for substantially all of GE’s U.S. inventories is determined on a last-in, first-out (LIFO) basis. Cost of other GE inventories is determined on a first-in, first-out (FIFO) basis. GECS inventories consist of finished products held for sale, and cost is determined on a FIFO basis.
 
Intangible assets
 
We do not amortize goodwill, but test it annually for impairment using a fair value approach at the reporting unit level. A reporting unit is the operating segment, or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. We recognize an impairment charge for any amount by which the carrying amount of a reporting unit’s goodwill exceeds its fair value. We use discounted cash flows to establish fair values. When available and as appropriate, we use comparative market multiples to corroborate discounted cash flow results. When a business within a reporting unit is disposed of, goodwill is allocated to the gain or loss on disposition using the relative fair value method.
 
We amortize the cost of other intangibles over their estimated useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested annually for impairment and written down to fair value as required.
 
GECS investment contracts, insurance liabilities and insurance annuity benefits
 
Certain SPEs, which we consolidate, provide guaranteed investment contracts to states, municipalities and municipal authorities. 
 
Our insurance activities also include providing insurance and reinsurance for life and health risks and providing certain annuity products. Three product groups are provided: traditional insurance contracts, investment contracts and universal life insurance contracts. Insurance contracts are contracts with significant mortality and/or morbidity risks, while investment contracts are contracts without such risks. Universal life insurance contracts are a particular type of long-duration insurance contract whose terms are not fixed and guaranteed.
 

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For short-duration insurance contracts, including accident and health insurance, we report premiums as earned income over the terms of the related agreements, generally on a pro-rata basis. For traditional long-duration insurance contracts including term, whole life and annuities payable for the life of the annuitant, we report premiums as earned income when due.
 
Premiums received on investment contracts (including annuities without significant mortality risk) and universal life contracts are not reported as revenues but rather as deposit liabilities. We recognize revenues for charges and assessments on these contracts, mostly for mortality, contract initiation, administration and surrender. Amounts credited to policyholder accounts are charged to expense.
 
Liabilities for traditional long-duration insurance contracts represent the present value of such benefits less the present value of future net premiums based on mortality, morbidity, interest and other assumptions at the time the policies were issued or acquired. Liabilities for investment contracts and universal life policies equal the account value, that is, the amount that accrues to the benefit of the contract or policyholder including credited interest and assessments through the financial statement date.
 
Liabilities for unpaid claims and claims adjustment expenses represent our best estimate of the ultimate obligations for reported and incurred-but-not-reported claims and the related estimated claim settlement expenses. Liabilities for unpaid claims and claims adjustment expenses are continually reviewed and adjusted through current operations.
 
Accounting changes
 
On July 1, 2003, we adopted FIN 46, Consolidation of Variable Interest Entities, and, on January 1, 2004, the related subsequent amendment (FIN 46R). Consequently, in 2003 we recorded a $372 million ($0.04 per share) after-tax charge related to the first-time consolidation of certain SPEs, reported in the caption “Cumulative effect of accounting changes.” There was no earnings effect arising from our adoption of FIN 46R. Additional information about entities consolidated under these rules is provided in note 28.
 
Statement of Financial Accounting Standards (SFAS) 143, Accounting for Asset Retirement Obligations, became effective for us on January 1, 2003. Under SFAS 143, obligations associated with the retirement of long-lived assets are recorded when there is a legal obligation to incur such costs and the fair value of the liability can be reasonably estimated. This amount is accounted for like an additional element of cost, and, like other cost elements, is depreciated over the corresponding asset’s useful life. On January 1, 2003, we recorded a one-time, non-cash transition charge of $330 million ($215 million after tax, or $0.02 per share), which is reported in the caption “Cumulative effect of accounting changes.” SFAS 143 primarily affects our accounting for costs associated with the future retirement of facilities used for storage and production of nuclear fuel and, with our acquisition of Amersham plc (Amersham) in April 2004, radio-pharmaceuticals and special radio-labeled chemicals.
 

(86)

In 2002, we adopted on a prospective basis the stock option expense provisions of SFAS 123, Accounting for Stock-Based Compensation. A comparison of reported and pro-forma net earnings, including effects of expensing stock options, follows.
 
(In millions; per-share amounts in dollars)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
Net earnings, as reported
$
16,711
  
$
17,160
  
$
15,561
  
Earnings per share, as reported
                  
Diluted
  
1.57
    
1.64
    
1.54
  
Basic
  
1.58
    
1.65
    
1.55
  
Stock option expense included in net earnings
  
106
    
93
    
81
  
Total stock option expense(a)
  
191
    
245
    
315
  
PRO-FORMA EFFECTS
                  
Net earnings, on pro-forma basis
  
16,626
    
17,008
    
15,327
  
Earnings per share, on pro-forma basis
                  
Diluted
  
1.57
    
1.63
    
1.52
  
Basic
  
1.57
    
1.64
    
1.53
  

Other stock-based compensation expense recognized in earnings was $87 million, $95 million and $75 million in 2005, 2004 and 2003, respectively.
 
(a)
As if we had applied SFAS 123 to expense stock options in all periods. Included amounts we actually recognized in earnings.

 
Note 2
 
Discontinued Operations
 
Planned sale of GE Insurance Solutions
 
On November 18, 2005, Swiss Reinsurance Company (Swiss Re) agreed to buy the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions for $8.5 billion, including the assumption of $1.7 billion of debt. Of the consideration other than assumed debt, 55%, or $3.7 billion, will consist of some combination of cash and mandatory convertible instruments and 45%, or $3.1 billion, of newly issued Swiss Re common stock that will be restricted from sale for 360 days. The common stock position is expected to represent about a 12% ownership position in Swiss Re. Operating results through closing will be controlled by us and be for our benefit, we will be subject to certain restrictions with respect to conducting the businesses being sold, and we and Swiss Re will mutually indemnify each other. Effective at closing, all claims liabilities will be the responsibility of Swiss Re.
 
We presently expect this transaction to close in the second quarter of 2006, subject to regulatory approvals and customary closing conditions.
 
Sale of Genworth
 
In May 2004, we completed the initial public offering of Genworth Financial Inc. (Genworth), our formerly wholly-owned subsidiary that conducted most of our consumer insurance business, including life and mortgage insurance operations. During 2005, we reduced our ownership in Genworth to 18% through further sales of stock in three secondary public offerings. Our remaining available-for-sale investment in Genworth common stock is included in assets of discontinued operations, and results of future sales will be reported in discontinued operations.
 

(87)

Discontinued operations
 
At December 31, 2005, most of GE Insurance Solutions and Genworth were classified as discontinued operations and their results of operations, financial position and cash flows are separately reported for all periods presented. Summarized financial information for discontinued operations is set forth below. Gain (loss) on disposal included actual (Genworth) and estimated (GE Insurance Solutions) effects of these sales.
 
 
Total
 
Genworth
 
GE Insurance
Solutions
 
(In millions)
  
2005
    
2004
    
2003
    
2005
    
2004
    
2003
    
2005
    
2004
    
2003
  
DISCONTINUED OPERATIONS
                                                      
BEFORE DISPOSAL
                                                      
Revenues from services
$
15,359
  
$
18,773
  
$
21,755
  
$
7,908
  
$
10,148
  
$
11,790
  
$
7,451
  
$
8,625
  
$
9,965
  
Earnings (loss) from discontinued
                                                      
operations before minority interest
                                                      
and income taxes
$
(1,748
)
$
1,479
  
$
2,682
  
$
1,388
  
$
1,546
  
$
2,039
  
$
(3,136
)
$
(67
)
$
643
  
Minority interest
  
394
    
200
    
2
    
394
    
200
    
2
    
-
    
-
    
-
  
Earnings (loss) from discontinued
                                                      
operations before income taxes
  
(2,142
)
  
1,279
    
2,680
    
994
    
1,346
    
2,037
    
(3,136
)
  
(67
)
  
643
  
Income tax benefit (expense)
  
602
    
(409
)
  
(623
)
  
(618
)
  
(566
)
  
(640
)
  
1,220
    
157
    
17
  
Earnings (loss) from discontinued
                                                      
operations before disposal,
                                                      
net of taxes
$
(1,540
)
$
870
  
$
2,057
  
$
376
  
$
780
  
$
1,397
  
$
(1,916
)
$
90
  
$
660
  
DISPOSAL
                                                      
Gain (loss) on disposal before income taxes
$
629
  
$
(570
)
$
-
  
$
932
  
$
(570
)
$
-
  
$
(303
)
$
-
  
$
-
  
Income tax benefit (expense)
  
(1,011
)
  
234
    
-
    
(380
)
  
234
    
-
    
(631
)
  
-
    
-
  
Gain (loss) on disposal, net of taxes
$
(382
)
$
(336
)
$
-
  
$
552
  
$
(336
)
$
-
  
$
(934
)
$
-
  
$
-
  
EARNINGS (LOSS) FROM
                                                     
DISCONTINUED OPERATIONS,
                                                      
NET OF TAXES
$
(1,922
)
$
534
  
$
2,057
  
$
928
  
$
444
  
$
1,397
  
$
(2,850
)
$
90
  
$
660
  

 
 
Total
  
Genworth
  
GE Insurance
Solutions
  
December 31 (In millions)
2005
  
2004
  
2005
  
2004
 
2005
 
2004
 
Cash and equivalents
$
2,790
  
$
3,176
  
$
-
  
$
1,407
  
$
2,790
  
$
1,769
  
Investment securities
  
26,637
    
78,613
    
2,981
    
54,064
    
23,656
    
24,549
  
Other GECS receivables
  
13,480
    
25,140
    
-
    
11,684
    
13,480
    
13,456
  
Other
  
3,849
    
25,337
    
-
    
20,642
    
3,849
    
4,695
  
Assets of discontinued operations
  
46,756
    
132,266
    
2,981
    
87,797
    
43,775
    
44,469
  
ELIMINATIONS
  
-
    
-
    
-
    
-
    
-
    
-
  
Total
$
46,756
  
$
132,266
  
$
2,981
  
$
87,797
  
$
43,775
  
$
44,469
  
Investment contracts, insurance liabilities
                                    
and insurance annuity benefits
$
31,043
  
$
92,509
  
$
-
  
$
61,857
  
$
31,043
  
$
30,652
  
Other
  
5,525
    
16,784
    
-
    
11,437
    
5,525
    
5,347
  
Minority interest
  
-
    
3,780
    
-
    
3,780
    
-
    
-
  
Liabilities of and minority interest
                                    
in discontinued operations
  
36,568
    
113,073
    
-
    
77,074
    
36,568
    
35,999
  
ELIMINATIONS
  
(236
)
  
(138
)
  
-
    
-
    
(236
)
  
(138
)
Total
$
36,332
  
$
112,935
  
$
-
  
$
77,074
  
$
36,332
  
$
35,861
  
Accumulated gains (losses)-net
                                    
 Investment securities
$
532
  
$
869
  
$
465
  
$
707
  
$
67
  
$
162
  
 Currency translation adjustments
  
(48
)
  
591
    
-
    
332
    
(48
)
  
259
  
 Cash flow hedges
  
-
    
189
    
-
    
191
    
-
    
(2
)
Total accumulated nonowner changes
                                    
other than earnings
$
484
  
$
1,649
  
$
465
  
$
1,230
  
$
19
  
$
419
  

 

(88)

Note 3
 
GE Other Income
 
(In millions)
  
2005
    
2004
    
2003
  
Sales of business interests
$
630
  
$
464
  
$
110
  
Associated companies
  
256
    
191
    
118
  
Licensing and royalty income
 
227
    
145
    
135
  
Marketable securities and bank deposits
  
96
    
92
    
75
  
Other items
  
555
    
184
    
207
  
Total
$
1,764
  
$
1,076
  
$
645
  

 
Note 4
 
GECS Revenues from Services
 
(In millions)
  
2005
    
2004
    
2003
  
Interest on loans
$
20,096
  
$
17,314
  
$
15,448
  
Operating lease rentals
  
11,582
    
10,744
    
7,199
  
Investment income
  
4,278
    
2,801
    
1,628
  
Fees
 
4,180
    
3,254
    
2,494
  
Financing leases
  
3,990
    
4,160
    
4,206
  
Premiums earned by insurance activities
  
2,951
    
2,428
    
3,432
  
Other income
  
9,692
    
9,353
    
6,343
  
Total(a)
$
56,769
  
$
50,054
  
$
40,750
  

(a)
Included $1,295 million, $962 million and $867 million from consolidated, liquidating securitization entities in 2005, 2004 and 2003, respectively. Of these amounts, $634 million in 2005 related to Australian Financial Investments Group (AFIG), a December 2004 acquisition.

 
Note 5
 
Supplemental Cost Information
 
Total expenditures for research and development were $3,425 million, $3,091 million and $2,656 million in 2005, 2004 and 2003, respectively. The portion we funded was $2,741 million in 2005, $2,443 million in 2004 and $2,103 million in 2003.
 
Rental expense under operating leases is shown below.
 
(In millions)
  
2005
    
2004
    
2003
  
GE
$
939
  
$
874
  
$
733
  
GECS
  
994
    
931
    
827
  

 
(89)
 
At December 31, 2005, minimum rental commitments under noncancelable operating leases aggregated $2,779 million and $4,039 million for GE and GECS, respectively. Amounts payable over the next five years follow.
 
(In millions)
2006
  
2007
  
2008
  
2009
  
2010
  
GE
$
596
  
$
499
  
$
408
  
$
330
  
$
285
  
GECS
  
778
    
679
    
582
    
521
    
388
  

 
GE’s selling, general and administrative expenses totaled $13,279 million in 2005, $12,001 million in 2004 and $9,870 million in 2003.
 
Note 6
 
Retiree Health and Life Benefits
 
We sponsor a number of retiree health and life insurance benefit plans (retiree benefit plans). Principal retiree benefit plans are discussed below; other such plans are not significant individually or in the aggregate.
 
PRINCIPAL RETIREE BENEFIT PLANS provide health and life insurance benefits to employees who retire under the GE Pension Plan with 10 or more years of service. Eligible retirees share in the cost of healthcare benefits. Effective January 1, 2005, we amended our principal retiree benefit plans to provide that, upon retirement of salaried employees who commenced service after that date, such retirees will pay in full for their participation in the GE retiree health benefit plans. These plans cover approximately 240,000 retirees and dependents.
 
The effect on operations of principal retiree benefit plans follows.
 
COST OF PRINCIPAL RETIREE BENEFIT PLANS
 
(In millions)
  
2005
    
2004
    
2003
  
Expected return on plan assets
$
(138
)
$
(149
)
$
(159
)
Service cost for benefits earned
  
243
    
210
    
307
  
Interest cost on benefit obligation
  
507
    
518
    
535
  
Prior service cost
 
326
    
298
    
191
  
Net actuarial loss recognized
  
70
    
60
    
127
  
Retiree benefit plans cost
$
1,008
  
$
937
  
$
1,001
  

ACTUARIAL ASSUMPTIONS. The discount rates at December 31 were used to measure the year-end benefit obligations and the earnings effects for the subsequent year. Actuarial assumptions used to determine benefit obligations and earnings effects for principal retiree benefit plans follow.
 
ACTUARIAL ASSUMPTIONS
 
December 31
2005
  
2004
  
2003
  
2002
  
Discount rate(a)
  
5.25
%
  
5.75
%
  
6.00
%
  
6.75
%
Compensation increases
  
5.00
    
5.00
    
5.00
    
5.00
  
Expected return on assets
  
8.50
    
8.50
    
8.50
    
8.50
  
Initial healthcare trend rate(b)
  
10.00
    
10.30
    
10.50
    
13.00
  

(a)
 
Weighted average discount rates of 5.90% and 6.40% were used for determination of costs in 2004 and 2003, respectively.
 
(b)
For 2005, gradually declining to 5% for 2015 and thereafter.

 

(90)

To determine the expected long-term rate of return on retiree life plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. We apply our expected rate of return to a market-related value of assets, which stabilizes variability in assets to which we apply that expected return.
 
We amortize experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, over a period no longer than the average future service of employees.
 
FUNDING POLICY. We fund retiree health benefits on a pay-as-you-go basis. We expect to contribute approximately $700 million in 2006 to fund such benefits. We fund retiree life insurance benefits at our discretion.
 
Changes in the accumulated postretirement benefit obligation for retiree benefit plans follow.
 
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION (APBO)
 
(In millions)
  
2005
    
2004
  
Balance at January 1
$
9,250
  
$
9,701
  
Service cost for benefits earned
  
243
    
210
  
Interest cost on benefit obligation
  
507
    
518
  
Participant contributions
  
41
    
37
  
Actuarial gain
  
(55
)
  
(509
)
Benefits paid
  
(856
)
  
(797
)
Other
  
(46
)
  
90
  
Balance at December 31(a)
$
9,084
  
$
9,250
  

(a)
The APBO for the retiree health plans was $6,713 million and $6,979 million at year-end 2005 and 2004, respectively.

 
Increasing or decreasing the healthcare cost trend rates by one percentage point would have had an insignificant effect on the December 31, 2005, accumulated postretirement benefit obligation and the annual cost of retiree health plans. Our principal retiree benefit plans are collectively bargained and have provisions that limit our per capita costs.
 
Changes in the fair value of assets for retiree benefit plans follow.
 
FAIR VALUE OF ASSETS
 
(In millions)
  
2005
    
2004
  
Balance at January 1
$
1,652
  
$
1,626
  
Actual gain on plan assets
  
107
    
160
  
Employer contributions
  
675
    
626
  
Participant contributions
  
41
    
37
  
Benefits paid
  
(856
)
  
(797
)
Balance at December 31
$
1,619
  
$
1,652
  

 
Plan assets are held in trust, as follows:
 

(91)

PLAN ASSET ALLOCATION
 
 
2005
 
2004
 
December 31
Target
allocation
 
Actual
allocation
 
Actual
allocation
 
U.S. equity securities
  
35-55
%
  
51
%
  
53
%
Non-U.S. equity securities
  
15-25
    
19
    
18
  
Debt securities
  
15-30
    
20
    
19
  
Real estate
  
1-10
    
2
    
1
  
Other
  
1-18
    
8
    
9
  
Total
        
100
%
  
100
%

 
Plan fiduciaries set investment policies and strategies for the trust. Long-term strategic investment objectives include preserving the funded status of the trust and balancing risk and return. The plan fiduciaries oversee the investment allocation process, which includes selecting investment managers, setting long-term strategic targets and monitoring asset allocations. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.
 
Trust assets invested in short-term securities must be invested in securities rated A1/P1 or better, other than 15% of short-term holdings which may be rated A2/P2. GE common stock represented 6.1% and 6.2% of trust assets at year-end 2005 and 2004, respectively, and is subject to a statutory limit when it reaches 10% of total trust assets.
 
Our recorded assets and liabilities for retiree benefit plans are as follows:
 
RETIREE BENEFIT ASSET (LIABILITY)
 
December 31 (In millions)
  
2005
    
2004
  
Funded status(a)
$
(7,465
)
$
(7,598
)
Unrecognized prior service cost
  
2,409
 
 
2,747
 
Unrecognized net actuarial loss
  
902
 
 
1,004
 
Net liability recognized
$
(4,154
)
$
(3,847
)
Amounts recorded in the Statement
  
 
 
 
 
 
of Financial Position:
  
 
 
 
 
 
Retiree life plans prepaid asset (liability)
$
(19
)
$
38
 
Retiree health plans liability
  
(4,135
)
 
(3,885
)
Net liability recognized
$
(4,154
)
$
(3,847
)

(a)
Fair value of assets less APBO, as shown in the preceding tables.

 
Estimated future benefit payments are as follows:
 
ESTIMATED FUTURE BENEFIT PAYMENTS
 
(In millions)
  
2006
  
2007
  
2008
  
2009
  
2010
  
2011-
2015
  
 
  
$
825
  
$
875
  
$
825
  
$
800
  
$
750
 
$
3,300
 

 

(92)

Note 7
 
Pension Benefits
 
We sponsor a number of pension plans. Principal pension plans, together with affiliate and certain other pension plans (other pension plans), detailed in this note represent about 99% of our total pension assets.
 
PRINCIPAL PENSION PLANS are the GE Pension Plan and the GE Supplementary Pension Plan.
 
The GE Pension Plan provides benefits to certain U.S. employees based on the greater of a formula recognizing career earnings or a formula recognizing length of service and final average earnings. Certain benefit provisions are subject to collective bargaining.
 
The GE Supplementary Pension Plan is an unfunded plan providing supplementary retirement benefits primarily to higher-level, longer-service U.S. employees.
 
OTHER PENSION PLANS in 2005 included 33 U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million. These defined benefit plans provide benefits to employees based on formulas recognizing length of service and earnings.
 
To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. For the principal pension plans, we apply our expected rate of return to a market-related value of assets, which stabilizes variability in assets to which we apply that expected return.
 
We amortize experience gains and losses and effects of changes in actuarial assumptions and plan provisions over a period no longer than the average future service of employees.
 
PENSION PLAN PARTICIPANTS
 
December 31, 2005 (In thousands)
Total
  
Principal
pension
plans
 
Other
pension
plans
 
Active employees
  
188
    
143
    
45
  
Vested former employees
  
210
    
173
    
37
  
Retirees and beneficiaries
 
230
    
207
    
23
  
Total
  
628
    
523
    
105
  


(93)

COST OF PENSION PLANS
 
 
Total
 
Principal pension plans
 
Other pension plans
 
(In millions)
2005
  
2004
  
2003
  
2005
  
2004
  
2003
  
2005
  
2004
  
2003
  
Expected return on
                                                      
plan assets
$
(4,242
)
$
(4,256
)
$
(4,243
)
$
(3,885
)
$
(3,958
)
$
(4,072
)
$
(357
)
$
(298
)
$
(171
)
Service cost for
                                                      
benefits earned
  
1,618
    
1,436
    
1,374
    
1,359
    
1,178
    
1,213
    
259
    
258
    
161
  
Interest cost on
                                                      
benefit obligation
  
2,609
    
2,511
    
2,385
    
2,248
    
2,199
    
2,180
    
361
    
312
    
205
  
Prior service cost
 
262
    
316
    
252
    
256
    
311
    
248
    
6
    
5
    
4
  
Net actuarial loss
                                                      
(gain) recognized
  
480
    
242
    
(548
)
  
351
    
146
    
(609
)
  
129
    
96
    
61
  
Total cost (income)
$
727
  
$
249
  
$
(780
)
$
329
  
$
(124
)
$
(1,040
)
$
398
  
$
373
  
$
260
  

 
ACTUARIAL ASSUMPTIONS are described below. The discount rates at December 31 were used to measure the year-end benefit obligations and the earnings effects for the subsequent year.
 
ACTUARIAL ASSUMPTIONS
 
 
Principal pension plans
 
Other pension plans
(weighted average)
 
December 31
 
2005
    
2004
    
2003
    
2002
    
2005
    
2004
    
2003
    
2002
  
Discount rate
  
5.50
%
  
5.75
%
  
6.00
%
  
6.75
%
  
4.74
%
  
5.28
%
  
5.53
%
  
5.88
%
Compensation increases
  
5.00
    
5.00
    
5.00
    
5.00
    
4.20
    
4.03
    
3.87
    
3.92
  
Expected return on assets
  
8.50
    
8.50
    
8.50
    
8.50
    
7.47
    
7.67
    
7.56
    
7.66
  

 
FUNDING POLICY for the GE Pension Plan is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as we may determine to be appropriate. We have not made contributions to the GE Pension Plan since 1987. We will not make any contributions to the GE Pension Plan in 2006; any GE contribution to that plan would require payment of excise taxes and would not be deductible for income tax purposes. In 2006, we expect to pay approximately $120 million for the GE Supplementary Pension Plan benefit payments and administrative expenses for our principal pension plans ($106 million in 2005), and expect to contribute approximately $385 million to other pension plans ($366 million in 2005).
 
BENEFIT OBLIGATIONS are described in the following table. Accumulated and projected benefit obligations (ABO and PBO) represent the obligations of a pension plan for past service as of the measurement date. ABO is the present value of benefits earned to date with benefits computed based on current compensation levels. PBO is ABO increased to reflect expected future compensation.
 

(94)

PROJECTED BENEFIT OBLIGATION
 
 
Principal pension plans
  
Other pension plans
  
(In millions)
  
2005
    
2004
    
2005
    
2004
  
Balance at January 1
$
39,969
  
$
37,827
  
$
7,122
  
$
4,761
  
Service cost for benefits earned
  
1,359
    
1,178
    
259
    
258
  
Interest cost on benefit obligations
  
2,248
    
2,199
    
361
    
312
  
Participant contributions
  
174
    
163
    
36
    
31
  
Plan amendments
  
-
    
-
    
3
    
15
  
Actuarial loss(a)
  
1,988
    
969
    
909
    
363
  
Benefits paid
  
(2,407
)
  
(2,367
)
  
(256
)
  
(226
)
Acquired plans
  
-
    
-
    
54
    
1,170
  
Exchange rate adjustments and other
  
-
    
-
    
(391
)
  
438
  
Balance at December 31(b)
$
43,331
  
$
39,969
  
$
8,097
  
$
7,122
  
 
(a)
 
Principally associated with discount rate changes.
 
(b)
The PBO for the GE Supplementary Pension Plan was $3,534 million and $3,266 million at year-end 2005 and 2004, respectively.

 
ABO balances for our pension plans follow.
 
ACCUMULATED BENEFIT OBLIGATION
 
December 31 (In millions)
  
2005
    
2004
  
GE Pension Plan
$
38,044
  
$
35,296
  
GE Supplementary Pension Plan
  
2,178
    
1,916
  
Other pension plans
  
7,194
    
6,320
  

 
Following is information about our pension plans in which the accumulated benefit obligation exceeds the fair value of plan assets.
 
PLANS WITH ASSETS LESS THAN ABO
 
December 31 (In millions)
  
2005
    
2004
  
Funded plans with assets less than ABO:
            
Plan assets
$
4,737
  
$
3,943
  
Accumulated benefit obligations
  
6,096
    
5,075
  
Projected benefit obligations
  
6,967
    
5,825
  
Unfunded plans covered by book reserves:(a)
            
Accrued pension liability
  
3,323
    
2,880
  
Accumulated benefit obligations
  
2,859
    
2,564
  
Projected benefit obligations
  
4,235
    
3,931
  

(a)
Primarily related to the GE Supplementary Pension Plan.

 
Pension plan assets are described below.
 

(95)

FAIR VALUE OF ASSETS
 
 
Principal pension plans
 
Other pension plans
 
(In millions)
2005
  
2004
  
2005
  
2004
  
Balance at January 1
$
46,665
  
$
43,879
  
$
4,602
  
$
2,989
  
Actual gain on plan assets
  
4,558
    
4,888
    
670
    
294
  
Employer contributions
  
106
    
102
    
365
    
364
  
Participant contributions
  
174
    
163
    
36
    
31
  
Benefits paid
  
(2,407
)
  
(2,367
)
  
(256
)
  
(226
)
Acquired plans
  
-
    
-
    
29
    
868
  
Exchange rate adjustments and other
  
-
    
-
    
(233
)
  
282
  
Balance at December 31
$
49,096
  
$
46,665
  
$
5,213
  
$
4,602
  

 
Our pension plan assets are held in trust, as follows:
 
PLAN ASSET ALLOCATION
 
 
Principal pension plans
 
 
2005
 
2004
 
December 31
Target
allocation
 
Actual
allocation
 
Actual
allocation
 
U.S. equity securities
  
30-45
%
  
42
%
  
44
%
Non-U.S. equity securities
  
15-25
    
21
    
19
  
Debt securities
  
15-30
    
18
    
19
  
Real estate
  
4-10
    
6
    
6
  
Private equities
  
5-11
    
7
    
6
  
Other
  
1-12
    
6
    
6
  
Total
        
100
%
  
100
%

 
Plan fiduciaries of the GE Pension Plan set investment policies and strategies for the GE Pension Trust. Long-term strategic investment objectives include preserving the funded status of the trust and balancing risk and return. These plan fiduciaries oversee the investment allocation process, which includes selecting investment managers, commissioning periodic asset-liability studies, setting long-term strategic targets and monitoring asset allocations. Target allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.
 
GE Pension Trust assets are invested subject to the following additional guidelines:
 
·  
Short-term securities must be rated A1/P1 or better, other than 15% of short-term holdings which may be rated A2/P2,
 
·  
Real estate may not exceed 25% of total assets (6% of trust assets at December 31, 2005),
 
·  
Investments in securities not freely tradable may not exceed 20% of total assets (12% of trust assets at December 31, 2005), and
 
·  
GE stock is limited by statute when it reaches 10% of total trust assets (6.4% and 7.0% at the end of 2005 and 2004, respectively).
 

(96)


 
Other pension plans (weighted average)
 
 
2005
 
2004
 
December 31
Target
allocation
 
Actual
allocation
 
Actual
allocation
 
Equity securities
  
63
%
  
65
%
  
65
%
Debt securities
  
30
    
28
    
27
  
Real estate
  
3
    
3
    
3
  
Other
  
4
    
4
    
5
  
Total
        
100
%
  
100
%

 
Our recorded assets and liabilities for pension plans are as follows:
 
PREPAID PENSION ASSET (LIABILITY)
 
 
Principal pension plans
  
Other pension plans
  
December 31 (In millions)
  
2005
    
2004
    
2005
    
2004
  
Funded status(a)
$
5,765
  
$
6,696
  
$
(2,884
)
$
(2,520
)
Unrecognized prior
                     
 
service cost
  
1,004
    
1,260
    
37
    
40
 
Unrecognized net
                     
 
actuarial loss
  
8,445
    
7,481
    
2,046
    
1,658
 
Net amount recognized
$
15,214
  
$
15,437
  
$
(801
)
$
(822
)
Amounts recorded in the
                      
 
Statement of Financial
                      
 
Position:
                      
 
Prepaid pension asset
$
17,853
  
$
17,629
  
$
114
  
$
153
 
Accrued pension
                      
 
obligation(b)
  
(2,639
)
  
(2,192
)
  
(2,197
)
  
(1,993
)
Intangible assets
  
-
    
-
    
54
    
57
 
Accumulated other
                      
 
comprehensive
                      
 
income
  
-
    
-
    
1,228
    
961
 
Net amount recognized
$
15,214
  
$
15,437
  
$
(801
)
$
(822
)

(a)
 
Fair value of assets less PBO, as shown in the preceding tables.
 
(b)
For principal pension plans, represents the GE Supplementary Pension Plan liability.

 
Estimated future benefit payments for our pension plans are as follows:
 
ESTIMATED FUTURE BENEFIT PAYMENTS
 
(In millions)
  
2006
  
2007
  
2008
  
2009
  
2010
  
2011-
2015
  
Principal pension plans
  
$
2,400
  
$
2,450
  
$
2,500
  
$
2,500
  
$
2,550
 
$
14,000
 
Other pension plans
    
250
    
275
    
275
    
300
  
 
300
 
 
1,650
 

 

(97)

Note 8
 
Provision for Income Taxes (Restated)
 
(In millions)
  
2005
(Restated)
    
2004
(Restated)
    
2003
(Restated)
  
GE
                  
Current tax expense
$
3,037
  
$
2,148
  
$
2,468
  
Deferred tax expense (benefit)
                  
from temporary differences
  
(287
)
  
(175
)
  
389
  
   
2,750
    
1,973
    
2,857
  
GECS
                  
Current tax expense
  
1,938
    
1,510
    
171
  
Deferred tax expense (benefit)
                  
from temporary differences
  
(603
)
  
225
    
1,028
  
   
1,335
    
1,735
    
1,199
  
CONSOLIDATED
                  
Current tax expense
  
4,975
    
3,658
    
2,639
  
Deferred tax expense (benefit)
                  
from temporary differences
  
(890
)
  
50
    
1,417
  
Total
$
4,085
  
$
3,708
  
$
4,056
  

 
GE and GECS file a consolidated U.S. federal income tax return. The GECS provision for current tax expense includes its effect on the consolidated return.
 
Consolidated current tax expense includes amounts applicable to U.S. federal income taxes of $2,527 million, $587 million and $1,314 million in 2005, 2004 and 2003, respectively, and amounts applicable to non-U.S. jurisdictions of $2,241 million, $2,577 million and $1,276 million in 2005, 2004 and 2003, respectively. Consolidated deferred taxes related to U.S. federal income taxes were benefits of $137 million and $27 million in 2005 and 2004, respectively, compared with an expense of $818 million in 2003.
 
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carryforwards, and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of temporary differences and forecasted operating earnings. See note 21 for details.
 
We have not provided U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that have been reinvested indefinitely. These earnings relate to ongoing operations and, at December 31, 2005, were approximately $36 billion. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when we plan to remit those earnings.
 

(98)

The American Jobs Creation Act of 2004 (the Act) allowed U.S. companies a one-time opportunity to repatriate non-U.S. earnings through 2005 at a 5.25% rate of tax rather than the normal U.S. tax rate of 35%, provided that certain criteria, including qualified U.S. reinvestment of those earnings, were met. Available U.S. foreign tax credits related to the repatriation are reduced under provisions of the Act. During the fourth quarter of 2005, we reached a final decision concerning repatriation. Because the vast majority of our non-U.S. earnings have been permanently reinvested in active business operations, we repatriated only $1.2 billion of non-U.S. earnings. Because a U.S. tax provision at normal tax rates had been provided on the majority of this amount, the result was a reduction of the GE and consolidated tax rates of approximately 0.5 percentage points.
 
Consolidated U.S. earnings from continuing operations before income taxes and accounting changes were $10,941 million in 2005, $9,633 million in 2004 and $10,058 million in 2003. The corresponding amounts for non-U.S.-based operations were $11,777 million in 2005, $10,701 million in 2004 and $8,089 million in 2003.
 
A reconciliation of the U.S. federal statutory income tax rate to the actual income tax rate is provided below.
 
RECONCILIATION OF U.S. FEDERAL STATUTORY INCOME TAX RATE TO ACTUAL INCOME TAX RATE (RESTATED)
 
 
Consolidated
  
GE
  
GECS
  
 
2005
  
2004
  
2003
  
2005
  
2004
  
2003
  
2005
  
2004
  
2003
  
U.S. federal statutory income tax rate
  
35.0
%
  
35.0
%
  
35.0
%
  
35.0
%
  
35.0
%
  
35.0
%
  
35.0
%
  
35.0
%
  
35.0
%
Increase (reduction) in rate
                                                      
resulting from:
                                                      
Inclusion of after-tax earnings
                                                      
of GECS in before-tax
                                                      
earnings of GE
  
-
    
-
    
-
    
(15.5
)
  
(15.4
)
  
(12.9
)
  
-
    
-
    
-
  
Tax-exempt income
  
(0.2
)
  
(0.3
)
  
(0.5
)
  
-
    
-
    
-
    
(0.5
)
  
(0.5
)
  
(1.1
)
Tax on global activities
                                                      
including exports
  
(15.5
)
  
(12.3
)
  
(9.6
)
  
(5.8
)
  
(5.8
)
  
(4.7
)
  
(21.0
)
  
(14.4
)
  
(12.5
)
IRS settlements of Lockheed
                                                      
Martin tax-free exchange/
                                                      
Puerto Rico subsidiary loss
  
-
    
(3.4
)
  
-
    
-
    
(3.7
)
  
-
    
-
    
-
    
-
  
All other-net
  
(1.3
)
  
(0.8
)
  
(2.5
)
  
(0.8
)
  
0.5
    
(0.5
)
  
(1.2
)
  
(2.6
)
  
(5.3
)
 
  
(17.0
)
  
(16.8
)
  
(12.6
)
  
(22.1
)
  
(24.4
)
  
(18.1
)
  
(22.7
)
  
(17.5
)
  
(18.9
)
Actual income tax rate
  
18.0
%
  
18.2
%
  
22.4
%
  
12.9
%
  
10.6
%
  
16.9
%
  
12.3
%
  
17.5
%
  
16.1
%

 

(99)

Note 9
 
Earnings Per Share Information (Restated)
 
 
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
(In millions; per-share amounts in dollars)
Diluted
  
Basic
  
Diluted
  
Basic
 
Diluted
 
Basic
 
CONSOLIDATED
                                  
 
Earnings from continuing operations before
                                  
 
accounting changes for per-share calculation(a)
$
18,634
  
$
18,633
  
$
16,627
  
$
16,626
  
$
14,092
  
$
14,091
 
Earnings (loss) from discontinued
                                  
 
operations for per-share calculation(b)
  
(1,933
)
  
(1,922
)
  
532
    
534
    
2,057
    
2,057
 
Earnings before accounting changes
                                  
 
for per-share calculation
  
16,701
    
16,711
    
17,159
    
17,160
    
16,149
    
16,148
 
Cumulative effect of accounting changes
  
-
    
-
    
-
    
-
    
(587
)
  
(587
)
Net earnings available for per-share calculation
$
16,701
  
$
16,711
  
$
17,159
  
$
17,160
  
$
15,562
  
$
15,561
 
AVERAGE EQUIVALENT SHARES
                                  
 
Shares of GE common stock outstanding
  
10,570
    
10,570
    
10,400
    
10,400
    
10,019
    
10,019
 
Employee compensation-related shares,
                                  
 
including stock options
  
41
    
-
    
45
    
-
    
56
    
-
 
Total average equivalent shares
  
10,611
    
10,570
    
10,445
    
10,400
    
10,075
    
10,019
 
PER-SHARE AMOUNTS
                                  
 
Earnings from continuing operations
                                  
 
before accounting changes
$
1.76
  
$
1.76
  
$
1.59
  
$
1.60
  
$
1.40
  
$
1.41
 
Earnings (loss) from discontinued operations
  
(0.18
)
  
(0.18
)
  
0.05
    
0.05
    
0.20
    
0.21
 
Earnings before accounting changes
  
1.57
    
1.58
    
1.64
    
1.65
    
1.60
    
1.61
 
Cumulative effect of accounting changes
  
-
    
-
    
-
    
-
    
(0.06
)
  
(0.06
)
Net earnings per share
$
1.57
  
$
1.58
  
$
1.64
  
$
1.65
  
$
1.54
  
$
1.55
 

(a)
 
Included dividend equivalents of approximately $1 million in each of the three years ended December 31, 2005.
 
(b)
Included dilutive effects of subsidiary-issued stock-based awards of approximately $11 million in 2005 and $2 million in 2004.

 
Note 10
 
Investment Securities
 
 
Estimated fair value
  
December 31 (In millions)
2005
  
2004
  
Available-for-sale securities
$
45,002
  
$
48,577
  
GECS trading securities
  
8,142
    
8,346
  
Total
$
53,144
  
$
56,923
  

 

(100)

AVAILABLE-FOR-SALE SECURITIES
 
 
2005
 
2004
 
December 31 (In millions)
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Estimated
fair
value
 
Amortized
cost
 
Gross
unrealized
Gains
 
Gross
unrealized
losses
 
Estimated
fair
value
 
GE
                                                
Debt-U.S. corporate
$
307
  
$
2
  
$
-
  
$
309
  
$
350
  
$
-
  
$
-
  
$
350
  
Equity
  
26
    
131
    
(5
)
  
152
    
58
    
8
    
(3
)
  
63
  
GE available-for-sale securities
  
333
    
133
    
(5
)
  
461
    
408
    
8
    
(3
)
  
413
  
GECS
                                                
Debt:
                                                
U.S. corporate
  
20,578
    
1,317
    
(339
)
  
21,556
    
22,703
    
1,596
    
(362
)
  
23,937
  
State and municipal
  
810
    
47
    
(2
)
  
855
    
802
    
63
    
-
    
865
  
Mortgage-backed(a)
  
5,677
    
44
    
(56
)
  
5,665
    
5,983
    
78
    
(25
)
  
6,036
  
Asset-backed
  
8,434
    
205
    
(19
)
  
8,620
    
7,610
    
251
    
(46
)
  
7,815
  
Corporate-non-U.S.
  
4,796
    
404
    
(11
)
  
5,189
    
5,309
    
405
    
(7
)
  
5,707
  
Government-non-U.S.
  
694
    
92
    
-
    
786
    
1,423
    
100
    
-
    
1,523
  
U.S. government and
                                                
federal agency
  
803
    
61
    
(5
)
  
859
    
759
    
59
    
(1
)
  
817
  
Equity
 
838
    
229
    
(33
)
  
1,034
    
1,194
    
314
    
(15
)
  
1,493
  
GECS available-for-sale
                                                
securities
  
42,630
    
2,399
    
(465
)
  
44,564
(b)
  
45,783
    
2,866
    
(456
)
  
48,193
(b)
ELIMINATIONS
  
(17
)
  
(6
)
  
-
    
(23
)
  
(17
)
  
(12
)
  
-
    
(29
)
Total
$
42,946
  
$
2,526
  
$
(470
)
$
45,002
  
$
46,174
  
$
2,862
  
$
(459
)
$
48,577
  

(a)
 
Substantially collateralized by U.S. residential mortgages.
 
(b)
Included $16 million in 2005 and $684 million in 2004 of debt securities related to consolidated, liquidating securitization entities. See note 28.

 

(101)

The following tables present the gross unrealized losses and estimated fair values of our available-for-sale investment securities.
 
 
Less than 12 months
 
12 months or more
 
December 31 (In millions)
Estimated
fair
value
 
Gross
unrealized
losses
 
Estimated
fair
value
 
Gross
unrealized
losses
 
2005 
                        
Debt:
                        
U.S. corporate
$
3,640
  
$
(131
)
$
2,584
  
$
(208
)
State and municipal
  
77
    
(2
)
  
-
    
-
  
Mortgage-backed
  
1,859
    
(22
)
  
1,190
    
(34
)
Asset-backed
  
1,495
    
(10
)
  
383
    
(9
)
Corporate-non-U.S.
  
286
    
(9
)
  
73
    
(2
)
U.S. government and
                       
federal agency
  
297
    
(5
)
  
-
    
-
  
Equity
  
84
    
(25
)
  
38
    
(13
)
Total
$
7,738
  
$
(204
)
$
4,268
  
$
(266
)
2004
                       
Debt:
                        
U.S. corporate
$
3,198
  
$
(88
)
$
1,346
  
$
(274
)
Mortgage-backed
  
2,465
    
(19
)
  
197
    
(6
)
Asset-backed
  
1,586
    
(15
)
  
429
    
(31
)
Corporate-non-U.S.
  
2,512
    
(2
)
  
168
    
(5
)
U.S. government and
                       
federal agency
  
116
    
(1
)
  
-
    
-
  
Equity
  
148
    
(14
)
  
49
    
(4
)
Total
$
10,025
  
$
(139
)
$
2,189
  
$
(320
)

 
Securities in an unrealized loss position for 12 months or more at December 31, 2005 and 2004, included investment securities collateralized by commercial aircraft, primarily Enhanced Equipment Trust Certificates, with unrealized losses of $96 million and $259 million, respectively, and estimated fair values of $1,207 million and $810 million, respectively. We review all of our investment securities routinely for other than temporary impairment as described in note 1. In accordance with that policy, we have provided for all amounts that we did not expect either to collect in accordance with the contractual terms of the instruments or to recover based on underlying collateral values. For our securities collateralized by commercial aircraft, that review included our best estimates of the securities’ cash flows and underlying collateral values, and assessment of whether the borrower was in compliance with terms and conditions. We believe that these securities, which are current on all payment terms, were trading at a discount to market value since the respective stated interest rates on the securities were below what was perceived as a market rate based on the ongoing negative market reaction to difficulties in the commercial airline industry. We do not anticipate changes in the timing and amount of estimated cash flows and we expect full recovery of our amortized cost. Should our cash flow expectation prove to be incorrect, the current appraised market values of associated collateral exceeded both the market value and the amortized cost of our related securities at December 31, 2005.
 
We presently intend to hold our investment securities in an unrealized loss position at December 31, 2005, at least until we can recover their respective amortized cost. We have the ability to hold our debt securities until their maturities.
 

(102)

CONTRACTUAL MATURITIES OF GECS INVESTMENT IN AVAILABLE-FOR-SALE DEBT SECURITIES (EXCLUDING MORTGAGE-BACKED AND ASSET-BACKED SECURITIES)
 
(In millions)
  
Amortized
cost
    
Estimated
fair value
  
Due in
            
2006
$
2,447
  
$
2,444
  
2007-2010
  
4,603
    
4,601
  
2011-2015
  
4,786
    
4,874
  
2016 and later
  
15,845
    
17,326
  

 
We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.
 
Supplemental information about gross realized gains and losses on available-for-sale investment securities follows.
 
(In millions)
  
2005
    
2004
    
2003
  
GE
                  
Gains
$
6
  
$
15
  
$
3
  
Losses, including impairments
  
(5
)
  
-
    
(38
)
Net
  
1
    
15
    
(35
)
GECS
                  
Gains
  
514
    
413
    
522
  
Losses, including impairments
  
(133
)
  
(209
)
  
(317
)
Net
  
381
    
204
    
205
  
Total
$
382
  
$
219
  
$
170
  

 
Proceeds from available-for-sale investment securities sales amounted to $14,100 million, $12,000 million and $12,400 million in 2005, 2004 and 2003, respectively.
 
GECS TRADING SECURITIES
 
Gains and losses on trading securities are for the benefit of certain non-U.S. insurance contractholders. In 2005 and 2004, we recognized net pre-tax gains on such securities of $862 million and $284 million, respectively, and recognized corresponding insurance losses of $860 million and $280 million, respectively, reflecting the contractholders participation in the actual returns generated by these investments.
 


(103)

Note 11
 
GE Current Receivables
 
December 31 (In millions)
  
2005
    
2004
  
Infrastructure
$
6,827
  
$
5,861
  
Industrial
 
2,255
    
2,230
  
Healthcare
  
2,947
    
2,862
  
NBC Universal
  
3,633
    
4,067
  
Corporate items and eliminations
  
154
    
251
  
   
15,816
    
15,271
  
Less allowance for losses
  
(758
)
  
(738
)
Total
$
15,058
  
$
14,533
  

Receivables balances at December 31, 2005 and 2004, before allowance for losses, included $10,250 million and $10,182 million, respectively, from sales of goods and services to customers, and $246 million at both December 31, 2005 and 2004, from transactions with associated companies.
 
Current receivables of $563 million and $435 million at December 31, 2005 and 2004, respectively, arose from sales, principally of aircraft engine goods and services on open account to various agencies of the U.S. government, our largest single customer. About 4% of our sales of goods and services were to the U.S. government in 2005, 2004 and 2003.
 
Note 12
 
Inventories
 
December 31 (In millions)
  
2005
    
2004
  
GE
            
Raw materials and work in process
$
5,527
  
$
5,042
  
Finished goods
  
5,152
    
4,806
  
Unbilled shipments
  
333
    
402
  
   
11,012
    
10,250
  
Less revaluation to LIFO
  
(697
)
  
(661
)
   
10,315
    
9,589
  
GECS
            
Finished goods
  
159
    
189
  
Total
$
10,474
  
$
9,778
  

 
As of December 31, 2005, we were obligated to acquire certain raw materials at market prices through the year 2027 under various take-or-pay or similar arrangements. Annual minimum commitments under these arrangements are insignificant.
 

(104)

Note 13
 
GECS Financing Receivables (investments in loans and financing leases)
 
December 31 (In millions)
  
2005
    
2004
  
Loans, net of deferred income
$
227,923
  
$
220,593
  
Investment in financing leases, net of deferred income
  
64,309
    
67,754
  
   
292,232
    
288,347
  
Less allowance for losses (note 14)
  
(4,593
)
  
(5,648
)
Financing receivables - net
$
287,639
  
$
282,699
  

 
Included in the above are the financing receivables of consolidated, liquidating securitization entities as follows:
 
December 31 (In millions)
  
2005
    
2004
  
Loans, net of deferred income
$
15,868
  
$
20,728
  
Investment in financing leases, net of deferred income
  
769
    
2,125
  
   
16,637
    
22,853
  
Less allowance for losses
  
(22)
    
(5)
  
Financing receivables - net
$
16,615
  
$
22,848
  

 
Details of financing receivables-net follow.
 
December 31 (In millions)
  
2005
    
2004
  
COMMERCIAL FINANCE
            
Equipment and leasing
$
70,851
  
$
64,540
  
Commercial and industrial
  
41,402
    
39,481
  
Real estate
  
19,555
    
20,470
  
   
131,808
    
124,491
  
CONSUMER FINANCE
            
Non-U.S. residential mortgages
  
46,205
    
42,201
  
Non-U.S. installment and revolving credit
  
31,849
    
33,889
  
Non-U.S. auto
  
22,803
    
23,517
  
U.S. installment and revolving credit
  
21,963
    
21,385
  
Other
  
7,286
    
6,771
  
   
130,106
    
127,763
  
INFRASTRUCTURE(a)
  
19,124
    
20,991
  
OTHER(b)
  
11,194
    
15,102
  
   
292,232
    
288,347
  
Less allowance for losses
  
(4,593
)
  
(5,648
)
Total
$
287,639
  
$
282,699
  

(a)
 
Included loans and financing leases of $11,192 million and $13,562 million at December 31, 2005 and 2004, respectively, related to commercial aircraft at Aviation Financial Services and loans and financing leases of $5,419 million and $4,659 million at December 31, 2005 and 2004, respectively, related to Energy Financial Services.
 
(b)
Included loans and financing leases of $10,160 million and $13,759 million at December 31, 2005 and 2004, respectively, related to certain consolidated, liquidating securitization entities.

 

(105)

GECS financing receivables include both loans and financing leases. Loans represent transactions in a variety of forms, including revolving charge and credit, mortgages, installment loans, intermediate-term loans and revolving loans secured by business assets. The portfolio includes loans carried at the principal amount on which finance charges are billed periodically, and loans carried at gross book value, which includes finance charges.
 
Investment in financing leases consists of direct financing and leveraged leases of aircraft, railroad rolling stock, autos, other transportation equipment, data processing equipment, medical equipment, commercial real estate and other manufacturing, power generation, and commercial equipment and facilities.
 
As the sole owner of assets under direct financing leases and as the equity participant in leveraged leases, GECS is taxed on total lease payments received and is entitled to tax deductions based on the cost of leased assets and tax deductions for interest paid to third-party participants. GECS is generally entitled to any residual value of leased assets.
 
Investment in direct financing and leveraged leases represents net unpaid rentals and estimated unguaranteed residual values of leased equipment, less related deferred income. GECS has no general obligation for principal and interest on notes and other instruments representing third-party participation related to leveraged leases; such notes and other instruments have not been included in liabilities but have been offset against the related rentals receivable. The GECS share of rentals receivable on leveraged leases is subordinate to the share of other participants who also have security interests in the leased equipment.
 
NET INVESTMENT IN FINANCING LEASES
 
 
Total
financing leases
 
Direct
financing leases (a)
 
Leveraged
leases (b)
 
December 31 (In millions)
  
2005
    
2004
    
2005
    
2004
    
2005
    
2004
  
Total minimum lease payments receivable
$
86,436
  
$
91,840
  
$
60,594
  
$
63,733
  
$
25,842
  
$
28,107
  
Less principal and interest on third-party
                                    
nonrecourse debt
  
(19,061
)
  
(20,992
)
  
-
    
-
    
(19,061
)
  
(20,992
)
Net rentals receivable
  
67,375
    
70,848
    
60,594
    
63,733
    
6,781
    
7,115
  
Estimated unguaranteed residual value
                                    
of leased assets
  
9,379
    
10,323
    
6,260
    
6,898
    
3,119
    
3,425
  
Less deferred income
  
(12,445
)
  
(13,417
)
  
(9,305
)
  
(9,966
)
  
(3,140
)
  
(3,451
)
Investment in financing leases, net of
                                    
deferred income
  
64,309
    
67,754
    
57,549
    
60,665
    
6,760
    
7,089
  
Less amounts to arrive at net investment
                                    
Allowance for losses
  
(525
)
  
(1,090
)
  
(380
)
  
(903
)
  
(145
)
  
(187
)
Deferred taxes
  
(8,037
)
  
(9,767
)
  
(3,495
)
  
(5,099
)
  
(4,542
)
  
(4,668
)
Net investment in financing leases
$
55,747
  
$
56,897
  
$
53,674
  
$
54,663
  
$
2,073
  
$
2,234
  

(a)
 
Included $475 million and $489 million of initial direct costs on direct financing leases at December 31, 2005 and 2004, respectively.
 
(b)
Included pre-tax income of $248 million and $340 million and income tax of $96 million and $131 million during 2005 and 2004, respectively. Net investment credits recognized during 2005 and 2004 were inconsequential.

 

(106)

CONTRACTUAL MATURITIES
 
(In millions)
  
Total loans
  
Net rentals
receivable
  
Due in
              
2006
  
$
74,232
  
$
17,812
  
2007
    
30,610
    
14,320
  
2008
    
23,696
    
10,756
  
2009
    
13,812
    
7,261
  
2010
    
14,306
    
4,164
  
2011 and later
    
71,267
    
13,062
  
Total
  
$
227,923
  
$
67,375
  

We expect actual maturities to differ from contractual maturities.
 
Individually “impaired” loans are defined by GAAP as larger balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. An analysis of impaired loans follows.
 
December 31 (In millions)
  
2005
    
2004
  
Loans requiring allowance for losses
$
1,479
  
$
1,689
  
Loans expected to be fully recoverable
  
451
    
520
  
 
$
1,930
  
$
2,209
  
Allowance for losses
$
627
  
$
749
  
Average investment during year
  
2,118
    
2,403
  
Interest income earned while impaired(a)
  
46
    
26
  
 
(a)
Recognized principally on cash basis.

 

(107)

Note 14
 
GECS Allowance for Losses on Financing Receivables
 
(In millions)
  
2005
    
2004
    
2003
  
BALANCE AT JANUARY 1
                  
Commercial Finance
$
1,562
  
$
1,952
  
$
2,407
  
Consumer Finance
  
3,473
    
3,984
    
2,782
  
Infrastructure
  
583
    
293
    
258
  
Other
  
30
    
27
    
53
  
   
5,648
    
6,256
    
5,500
  
PROVISION CHARGED TO OPERATIONS
                  
Commercial Finance
  
293
    
327
    
874
  
Consumer Finance
  
3,337
    
3,219
    
2,808
  
Infrastructure
  
210
    
325
    
28
  
Other
  
1
    
17
    
42
  
   
3,841
    
3,888
    
3,752
  
OTHER ADDITIONS (REDUCTIONS)
  
(487
)
  
(74
)
  
679
  
GROSS WRITE-OFFS
                  
Commercial Finance
  
(892
)
  
(928
)
  
(1,312
)
Consumer Finance(a)
  
(4,447
)
  
(4,423
)
  
(3,114
)
Infrastructure
  
(572
)
  
(27
)
  
(24
)
Other
  
(48
)
  
(74
)
  
(73
)
   
(5,959
)
  
(5,452
)
  
(4,523
)
RECOVERIES
                  
Commercial Finance
  
180
    
161
    
124
  
Consumer Finance
  
1,359
    
846
    
710
  
Infrastructure
  
-
    
2
    
2
  
Other
  
11
    
21
    
12
  
   
1,550
    
1,030
    
848
  
BALANCE AT DECEMBER 31
                  
Commercial Finance
  
1,110
    
1,562
    
1,952
  
Consumer Finance
  
3,234
    
3,473
    
3,984
  
Infrastructure
  
220
    
583
    
293
  
Other
  
29
    
30
    
27
  
Total
$
4,593
  
$
5,648
  
$
6,256
  

(a)
Included $889 million in 2004 related to the standardization of our write-off policy.

 
See note 13 for amounts related to consolidated, liquidating securitization entities.
 

(108)

SELECTED FINANCING RECEIVABLES RATIOS
 
December 31
  
2005
    
2004
  
ALLOWANCE FOR LOSSES ON FINANCING
            
RECEIVABLES AS A PERCENTAGE OF
            
TOTAL FINANCING RECEIVABLES
            
Commercial Finance
  
0.84
%
  
1.25
%
Consumer Finance
  
2.49
    
2.72
  
Infrastructure
  
1.15
    
2.78
  
Other
  
0.26
    
0.20
  
Total
  
1.57
    
1.96
  
NONEARNING AND REDUCED EARNING
            
FINANCING RECEIVABLES AS A PERCENTAGE
            
OF TOTAL FINANCING RECEIVABLES
            
Commercial Finance
  
1.0
%
  
1.1
%
Consumer Finance
  
2.1
    
2.0
  
Infrastructure
  
0.1
    
0.8
  
Other
  
0.7
    
1.2
  
Total
  
1.4
    
1.5
  

 

(109)

Note 15
 
Property, Plant and Equipment
 
December 31 (Dollars in millions)
Estimated
useful lives-
new (years)
  
2005
  
2004
  
ORIGINAL COST
                  
GE
                  
Land and improvements
  
8
(a)
$
1,366
  
$
1,562
  
Buildings, structures and related equipment
  
8-40
    
10,044
    
9,617
  
Machinery and equipment
  
4-20
    
25,811
    
25,026
  
Leasehold costs and manufacturing plant under construction
  
1-10
    
2,157
    
2,942
  
         
39,378
    
39,147
  
GECS(b)
                  
Buildings and equipment
  
2-40
    
5,547
    
5,684
  
Equipment leased to others
                  
Aircraft
  
20
    
32,941
    
26,837
  
Vehicles
  
1-14
    
23,208
    
23,056
  
Railroad rolling stock
  
3-30
    
3,327
    
3,390
  
Mobile and modular space
  
12-18
    
2,889
    
2,965
  
Construction and manufacturing
  
5-25
    
1,609
    
1,772
  
All other
  
2-33
    
2,834
    
3,021
  
         
72,355
    
66,725
  
Total
      
$
111,733
  
$
105,872
  
NET CARRYING VALUE
                  
GE
                  
Land and improvements
      
$
1,269
  
$
1,464
  
Buildings, structures and related equipment
        
4,823
    
4,405
  
Machinery and equipment
        
8,525
    
8,206
  
Leasehold costs and manufacturing plant under construction
        
1,887
    
2,681
  
         
16,504
    
16,756
  
GECS(b)
                  
Buildings and equipment
        
3,116
    
3,295
  
Equipment leased to others
                  
Aircraft(c)
        
27,116
    
21,991
  
Vehicles
        
14,064
    
14,062
  
Railroad rolling stock
        
2,188
    
2,193
  
Mobile and modular space
        
1,496
    
1,636
  
Construction and manufacturing
        
1,088
    
1,157
  
All other
        
1,956
    
2,013
  
         
51,024
    
46,347
  
Total
      
$
67,528
  
$
63,103
  

(a)
 
Estimated useful lives exclude land.
 
(b)
 
Included $1,935 million and $2,243 million of original cost of assets leased to GE with accumulated amortization of $298 million and $377 million at December 31, 2005 and 2004, respectively.
 
(c)
The Aviation Financial Services business of Infrastructure recognized impairment losses of $295 million in 2005 and $148 million in 2004 recorded in the caption “Other costs and expenses” in the Statement of Earnings to reflect adjustments to fair value based on current market values from independent appraisers.

 

(110)

Amortization of GECS equipment leased to others was $5,642 million, $5,365 million and $4,224 million in 2005, 2004 and 2003, respectively. Noncancelable future rentals due from customers for equipment on operating leases at December 31, 2005, are due as follows:
 
(In millions)
      
Due in
      
 
2006
  
$
7,615
 
2007
    
6,099
 
2008
    
4,743
 
2009
    
3,375
 
2010
    
2,642
 
2011 and later
    
7,840
 
Total
  
$
32,314
 

 
Note 16
 
Intangible Assets
 
December 31 (In millions)
  
2005
    
2004
  
GE
            
Goodwill
$
48,274
  
$
45,775
  
Intangible assets subject to amortization
  
7,478
    
6,911
  
Indefinite-lived intangible assets(a)
  
2,087
    
2,034
  
   
57,839
    
54,720
  
GECS
            
Goodwill
  
21,337
    
21,590
  
Intangible assets subject to amortization
  
2,550
    
2,146
  
   
23,887
    
23,736
  
Total
$
81,726
  
$
78,456
  

(a)
Indefinite-lived intangible assets principally comprised trademarks, tradenames and U.S. Federal Communications Commission licenses.

Changes in goodwill balances, net of accumulated amortization, follow.
 
 
2005
 
2004
 
(In millions)
Balance
January 1
 
Acquisitions/
purchase
accounting
adjustments
 
Currency
exchange
and other
 
Balance
December 31
 
Balance
January 1
 
Acquisitions/
purchase
accounting
adjustments
 
Currency
exchange
and other
 
Balance
December 31
 
Infrastructure
$
9,759
  
$
770
  
$
(363
)
$
10,166
  
$
9,355
  
$
212
  
$
192
  
$
9,759
 
Industrial
  
7,674
    
1,236
    
(208
)
  
8,702
    
5,885
    
666
    
1,123
(a)
  
7,674
 
Healthcare
  
13,259
    
226
    
(81
)
  
13,404
    
4,766
    
8,422
    
71
    
13,259
 
NBC Universal
  
16,672
    
946
    
(84
)
  
17,534
    
6,730
    
9,944
    
(2
)
  
16,672
 
Commercial Finance
  
10,141
    
766
    
(286
)
  
10,621
    
9,145
    
929
    
67
    
10,141
 
Consumer Finance
  
9,860
    
(24
)
  
(652
)
  
9,184
    
8,163
    
1,275
    
422
    
9,860
 
Total
$
67,365
  
$
3,920
  
$
(1,674
)
$
69,611
  
$
44,044
  
$
21,448
  
$
1,873
  
$
67,365
 

(a)
Included $1,055 million of goodwill associated with the consolidation of Penske effective January 1, 2004.

 

(111)

The amount of goodwill related to new acquisitions recorded during 2005 was $3,705 million, the largest of which were Edwards Systems Technology ($996 million) by Industrial, Ionics, Inc. ($681 million) by Infrastructure, Antares Capital Corp. ($407 million) by Commercial Finance, an additional interest in MSNBC ($402 million) and the previously outstanding minority interest in Vivendi Universal Entertainment LLLP (VUE) ($329 million) by NBC Universal.
 
The amount of goodwill related to purchase accounting adjustments to prior-year acquisitions during 2005 was $215 million, primarily associated with the 2004 acquisition of Amersham by Healthcare and the combination of NBC and VUE.
 
The amount of goodwill related to new acquisitions during 2004 was $20,948 million, the largest of which were the combination of NBC and VUE and the acquisition of Amersham by Healthcare, both discussed on the following page, and InVision Technologies, Inc. ($618 million) by Industrial.
 
The amount of goodwill related to purchase accounting adjustments to prior-year acquisitions during 2004 was $500 million, primarily associated with the 2003 acquisition of Instrumentarium at Healthcare and Allbank and First National Bank at Consumer Finance.
 
Upon closing an acquisition, we estimate the fair values of assets and liabilities acquired and consolidate the acquisition as quickly as possible. Given the time it takes to obtain pertinent information to finalize the acquired company’s balance sheet (frequently with implications for the price of the acquisition), then to adjust the acquired company’s accounting policies, procedures, books and records to our standards, it is often several quarters before we are able to finalize those initial fair value estimates. Accordingly, it is not uncommon for our initial estimates to be subsequently revised.
 

(112)

INTANGIBLE ASSETS SUBJECT TO AMORTIZATION
 
December 31 (In millions)
Gross
carrying
amount
  
Accumulated
amortization
  
Net
  
GE
                  
2005
                  
Patents, licenses and trademarks
$
4,814
  
$
(1,134
)
$
3,680
  
Capitalized software
  
4,109
    
(2,261
)
  
1,848
  
All other
  
2,172
    
(222
)
  
1,950
  
Total
$
11,095
  
$
(3,617
)
$
7,478
  
2004
                  
Patents, licenses and trademarks
$
4,736
  
$
(757
)
$
3,979
  
Capitalized software
  
3,763
    
(1,869
)
  
1,894
  
All other
  
1,171
    
(133
)
  
1,038
  
Total
$
9,670
  
$
(2,759
)
$
6,911
  
GECS
                  
2005
                  
Patents, licenses and trademarks
$
497
  
$
(272
)
$
225
  
Capitalized software
  
1,478
    
(799
)
  
679
  
All other
  
2,661
    
(1,015
)
  
1,646
  
Total
$
4,636
  
$
(2,086
)
$
2,550
  
2004
                  
Patents, licenses and trademarks
$
438
  
$
(226
)
$
212
  
Capitalized software
  
1,268
    
(672
)
  
596
  
All other
  
2,226
    
(888
)
  
1,338
  
Total
$
3,932
  
$
(1,786
)
$
2,146
  

 
Consolidated amortization expense related to intangible assets subject to amortization was $1,413 million and $1,375 million for 2005 and 2004, respectively.
 
SIGNIFICANT ACQUISITIONS AND COMBINATIONS
 
In April 2004, we acquired all of the outstanding common shares of Amersham, a world leader in medical diagnostics and life sciences. The total purchase price of $11,279 million included 341.7 million shares of GE common stock valued at $10,674 million, cash of $150 million and assumed debt of $455 million. Final allocation of the purchase price assigned $8,452 million to goodwill, $2,704 million to identified intangible assets that are being amortized over periods ranging from five to 25 years, $158 million to acquired inventories and $99 million to acquired in-process research and development projects charged to operations in the second quarter of 2004.
 

(113)

In May 2004, we completed the combination of NBC with VUE and certain related assets to create one of the world’s leading media companies, NBC Universal, Inc. (NBC Universal). Twenty percent of NBC Universal’s shares were issued to a subsidiary of Vivendi Universal (VU) as partial consideration for VU’s interest in VUE and the related assets. NBC’s acquired interest in VUE and the related assets were valued at $14,429 million, for which we exchanged the NBC Universal shares, paid cash to certain VUE interest holders of $3,650 million and assumed debt of $2,498 million. In March 2004, we had issued 119.4 million shares of our common stock for net cash proceeds of $3,765 million, and we used most of those proceeds to fund the $3,650 million we paid in this transaction. The final allocation of our acquired interest assigned $10,156 million to goodwill, $1,503 million to indefinite-lived intangibles and $307 million to identified intangible assets that are being amortized over periods ranging from two to 20 years. As a result of issuing the NBC Universal shares, we essentially disposed of 20% of NBC, and therefore recorded an increase in shareowners’ equity of $2,153 million, net of taxes of $1,439 million. IAC/InteractiveCorp (IAC), the holder of 5.44% of the VUE common interests, did not participate in the transaction and remained a minority interest holder of VUE at December 31, 2004. IAC also owned two series of VUE preferred interests at that date-$758 million of mandatorily redeemable Preferred A interests that we recorded as a liability and $1,582 million of cumulative redeemable Preferred B interests that we included in minority interest. As of the same date and in approximately the same amounts, VUE held U.S. Treasury securities as an economic hedge of the redemption of the Preferred A interests; and NBC Universal held IAC securities that could be used to redeem the Preferred B interests. We also agreed to provide VU any excess value in the IAC securities. The combined position provided an effective hedge of the disposition of those shares.
 
In June 2005, NBC Universal, VU and IAC jointly agreed to unwind various interrelated financial interests pertaining to the IAC investments described above. As part of that agreement, NBC Universal fully settled its obligations in connection with both the Preferred A and B interests in exchange for the U.S. Treasury securities, the IAC securities and $200 million cash. NBC Universal recognized a $318 million pre-tax gain on the final fair value adjustments to its various affected financial instruments as of the transaction date ($127 million, net of taxes and minority interest of $133 million and $58 million, respectively); and recorded an increase in shareowners’ equity of $108 million on the fair value exchange, net of taxes and minority interest of $82 million and $32 million, respectively. Also as part of that agreement, NBC Universal acquired IAC’s 5.44% common interest in VUE for cash of $800 million, including $160 million funded by VU, and other consideration of $115 million. The preliminary allocation of its acquired interest assigned $329 million to goodwill and $31 million to intangible assets. VU’s right to monetize its ownership interest over time at fair value was amended to begin in 2007.
 

(114)

Note 17
 
All Other Assets (Restated)
 
December 31 (In millions)
2005
(Restated)
  
2004
(Restated)
  
GE
            
Investments
            
Associated companies
$
1,824
  
$
1,830
  
Other(a)(b)
  
1,089
    
3,974
  
   
2,913
    
5,804
  
Prepaid pension asset - principal plans
  
17,853
    
17,629
  
Contract costs and estimated earnings
  
4,664
    
4,089
  
Film and television costs
  
3,828
    
3,441
  
Long-term receivables, including notes
  
2,790
    
2,821
  
Derivative instruments
  
247
    
628
  
Other
  
4,457
    
3,711
  
   
36,752
    
38,123
  
GECS
            
Investments
            
Associated companies
  
13,481
    
10,644
  
Real estate(c)
  
16,467
    
19,163
  
Assets held for sale(d)
  
8,574
    
6,501
  
Cost method(e)
  
2,280
    
2,392
  
Other
  
3,072
    
3,876
  
   
43,874
    
42,576
  
Deferred acquisition costs
  
1,541
    
1,619
  
Derivative instruments
  
1,601
    
3,162
  
Advances to suppliers
  
1,762
    
1,754
  
Other
  
3,259
    
3,571
  
   
52,037
    
52,682
  
ELIMINATIONS
  
(1,364
)
  
(1,138
)
Total(f)
$
87,425
  
$
89,667
  

(a)
 
The fair value of and unrealized loss on cost method investments in a continuous loss position in 2005 were insignificant. The fair value of and unrealized loss on cost method investments in a continuous loss position for less than 12 months in 2004 were $373 million and $34 million, respectively. Also included available-for-sale securities of $1,200 million in 2004, of which the unrealized loss on those in a continuous loss position for less than 12 months in 2004 was $111 million.
 
(b)
 
2004 amounts included investments associated with the VUE settlement in 2005. See note 16 for further information.
 
(c)
 
GECS investment in real estate consisted principally of two categories: real estate held for investment and equity method investments. Both categories contained a wide range of properties including the following at December 31, 2005: office buildings (52%), apartment buildings (20%), retail facilities (7%), industrial properties (6%), parking facilities (5%), franchise properties (3%) and other (7%). At December 31, 2005, investments were located in Europe (46%), North America (35%) and Asia (19%).
 
(d)
 
Assets were classified as held for sale on the date a decision was made to dispose of them through sale, securitization or other means. Such assets consisted primarily of real estate properties and mortgage and credit card receivables, and were accounted for at the lower of carrying amount or estimated fair value less costs to sell.
 
(e)
 
The fair value of and unrealized loss on those investments in a continuous loss position for less than 12 months in 2005 were $100 million and $31 million, respectively. The fair value of and unrealized loss on those investments in a continuous loss position for 12 months or more in 2005 were $22 million and $9 million, respectively. The fair value of and unrealized loss on those investments in a continuous loss position for less than 12 months in 2004 were $56 million and $25 million, respectively. The fair value of and unrealized loss on those investments in a continuous loss position for 12 months or more in 2004 were $55 million and $42 million, respectively.
 
(f)
Included $1,235 million in 2005 and $2,384 million in 2004 related to consolidated, liquidating securitization entities. See note 28.

 

(115)

Note 18
 
Borrowings (Restated)
 
SHORT-TERM BORROWINGS
 
 
2005
  
2004
  
December 31 (Dollars in millions)
Amount
  
Average
rate(a)
  
Amount
  
Average
rate(a)
  
GE
                        
Commercial paper
                        
U.S.
$
497
    
4.40
%
$
-
    
-
%
Non-U.S.
  
1
    
2.85
    
131
    
2.52
  
Payable to banks
  
358
    
3.99
    
407
    
2.95
  
Current portion of long-term debt
  
129
    
4.84
    
2,563
    
2.17
  
Other
  
142
          
308
        
   
1,127
          
3,409
        
GECS
                        
Commercial paper
                        
U.S.
                        
Unsecured
  
67,643
    
4.30
    
62,195
    
2.24
  
Asset-backed(b)
  
9,267
    
4.21
    
13,842
    
2.17
  
Non-U.S.
  
20,456
    
3.47
    
20,835
    
2.97
  
Current portion of long-term debt(c)(d)
  
41,792
    
4.05
    
37,530
    
4.11
  
Other
  
18,514
          
19,890
        
   
157,672
          
154,292
        
ELIMINATIONS
  
(643
)
        
(506
)
      
Total
$
158,156
        
$
157,195
        

(a)
 
Based on year-end balances and year-end local currency interest rates. Current portion of long-term debt included the effects of interest rate and currency swaps, if any, directly associated with the original debt issuance.
 
(b)
 
Entirely obligations of consolidated, liquidating securitization entities. See note 28.
 
(c)
 
Included short-term borrowings by consolidated, liquidating securitization entities of $697 million and $756 million at December 31, 2005 and 2004, respectively. See note 28.
 
(d)
Included $250 million of subordinated notes guaranteed by GE at December 31, 2005.

 

(116)

LONG-TERM BORROWINGS
 
December 31 (Dollars in millions)
2005
Average
rate(a)
  
Maturities
  
2005
  
2004
  
GE
                
 
 
 
 
Senior notes
  
4.88
%
  
2008-2013
  
$
6,486
 
$
4,984
 
Industrial development/ pollution control bonds
  
3.83
    
2011-2027
    
299
 
 
307
 
Payable to banks, principally U.S.
  
4.99
    
2007-2023
    
1,912
 
 
1,927
 
Other(b)
              
384
 
 
407
 
               
9,081
 
 
7,625
 
GECS
                
 
 
 
 
Senior notes
                
 
 
 
 
Unsecured
  
4.45
    
2007-2055
    
180,546
 
 
174,893
 
Asset-backed(c)
  
4.66
    
2007-2035
    
6,845
 
 
10,939
 
Extendible notes(d)
  
4.38
    
2007-2009
    
14,022
 
 
14,258
 
Subordinated notes(e)
  
6.00
    
2009-2037
    
2,984
 
 
1,119
 
               
204,397
 
 
201,209
 
ELIMINATIONS
              
(1,197
)
 
(963
)
Total
            
$
212,281
 
$
207,871
 

(a)
 
Based on year-end balances and year-end local currency interest rates, including the effects of interest rate and currency swaps, if any, directly associated with the original debt issuance.
 
(b)
 
A variety of obligations having various interest rates and maturities, including certain borrowings by parent operating components and affiliates.
 
(c)
 
Asset-backed senior notes were all issued by consolidated, liquidating securitization entities. See note 28.
 
(d)
 
Included obligations of consolidated, liquidating securitization entities in the amount of $38 million and $267 million at December 31, 2005 and 2004, respectively. See note 28.
 
(e)
Included $750 million and $1,000 million of subordinated notes guaranteed by GE at December 31, 2005 and 2004, respectively.

 
Our borrowings are addressed below from the perspectives of liquidity, interest rate and currency risk management. Additional information about borrowings and associated swaps can be found in note 27.
 
LIQUIDITY is affected by debt maturities and our ability to repay or refinance such debt. Long-term debt maturities over the next five years follow.
 
(In millions)
  
2006
  
2007
  
2008
  
2009
  
2010
  
GE
  
$
129
  
$
1,733
  
$
1,574
  
$
48
 
$
18
 
GECS
    
41,598
(a)
  
41,381
(b)
  
42,385
    
26,928
 
 
18,549
 

(a)
 
Floating rate extendible notes of $297 million are due in 2006, but are extendible at the option of the investors to a final maturity in 2008. Fixed and floating rate notes of $1,059 million contain put options with exercise dates in 2006, but have final maturity dates in 2007 ($250 million), 2008 ($350 million) and beyond 2010 ($459 million).
 
(b)
Floating rate extendible notes of $14,022 million are due in 2007, of which $2,000 million are extendible at the option of the investors to a final maturity in 2009.

 

(117)

Committed credit lines totaling $57.2 billion had been extended to us by 75 banks at year-end 2005. Included in this amount was $47.7 billion provided directly to GECS and $9.5 billion provided by 19 banks to GE, to which GECS also has access. The GECS lines include $27.4 billion of revolving credit agreements under which we can borrow funds for periods exceeding one year. The remaining $29.8 billion are 364-day lines of which $29.7 billion contain a term-out feature that allows GE or GECS to extend the borrowings for one year from the date of expiration of the lending agreement. We pay banks for credit facilities, but compensation amounts were insignificant in each of the past three years.
 
INTEREST RATE AND CURRENCY RISK is managed through the direct issuance of debt or use of derivatives. We take positions in view of anticipated behavior of assets, including prepayment behavior. We use a variety of instruments, including interest rate and currency swaps and currency forwards, to achieve our interest rate objectives. The following table shows GECS borrowing positions considering the effects of swaps of currencies and interest rates.
 
GECS EFFECTIVE BORROWINGS (INCLUDING SWAPS) (Restated)
 
 
2005
(Restated)
  
2004
(Restated)
  
December 31 (Dollars in millions)
Amount
  
Average rate
  
Amount
  
Short-term(a)
$
115,880
    
3.99
%
$
116,762
  
Long-term (including current portion)
                  
Fixed rate
$
145,428
    
4.51
%
$
134,259
  
Floating rate
  
100,761
    
4.29
    
104,480
  
Total long-term
$
246,189
        
$
238,739
  

(a)
Included commercial paper and other short-term debt.

 
At December 31, 2005, interest rate swap maturities ranged from 2006 to 2041.
 
The following table provides additional information about derivatives designated as hedges of borrowings in accordance with SFAS 133.
 
DERIVATIVE FAIR VALUES BY ACTIVITY/INSTRUMENT (Restated)
 
December 31 (In millions)
2005
(Restated)
  
2004
(Restated)
  
Cash flow hedges
$
726
  
$
254
  
Fair value hedges
 
(39
)
  
1,864
  
Total
$
687
  
$
2,118
  
Interest rate swaps
$
(423
)
$
(76
)
Currency swaps
  
1,110
    
2,194
  
Total
$
687
  
$
2,118
  

 
At December 31, 2005, approximately 82% of our interest rate swaps related to borrowings were exempt from ongoing tests of their effectiveness as hedges. We regularly assess the effectiveness of all other hedge positions using a variety of techniques, including cumulative dollar offset and regression analysis depending on which method was selected at inception of the respective hedge. See note 27.
 

(118)

Note 19
 
GECS Investment Contracts, Insurance Liabilities and Insurance Annuity Benefits
 
December 31 (In millions)
  
2005
    
2004
  
Investment contracts
$
16,039
  
$
18,268
  
Guaranteed investment contracts of SPEs
  
11,685
    
11,648
  
Total investment contracts
  
27,724
    
29,916
  
Life insurance benefits(a)
  
15,538
    
15,398
  
Unpaid claims and claims adjustment expenses
  
1,690
    
1,729
  
Unearned premiums
  
430
    
405
  
Universal life benefits
  
340
    
945
  
Total
$
45,722
  
$
48,393
  

(a)
Life insurance benefits are accounted for mainly by a net-level-premium method using estimated yields generally ranging from 3.0% to 8.5% in both 2005 and 2004.

 
When insurance affiliates cede insurance to third parties, they are not relieved of their primary obligation to policyholders. Losses on ceded risks give rise to claims for recovery; we establish allowances for probable losses on such receivables from reinsurers as required.
 
We recognize reinsurance recoveries as a reduction of the Statement of Earnings caption “Investment contracts, insurance losses and insurance annuity benefits.” Reinsurance recoveries were $183 million, $223 million and $434 million for the years ended December 31, 2005, 2004 and 2003, respectively.
 
Note 20
 
All Other Liabilities
 
This caption includes liabilities for various items including non-current compensation and benefits, deferred income, interest on tax liabilities, accrued participation and residuals, environmental remediation, asset retirement obligations, derivative instruments, product warranties and a variety of sundry items.
 
Accruals for non-current compensation and benefits amounted to $13,832 million and $12,502 million for year-end 2005 and 2004, respectively. These amounts include post-retirement benefits, international and supplemental pension benefits, and other compensation and benefit accruals such as deferred incentive compensation.
 
We are involved in numerous remediation actions to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs at each site are based on our best estimate of undiscounted future costs, excluding possible insurance recoveries. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low end of such range. Uncertainties about the status of laws, regulations, technology and information related to individual sites make it difficult to develop a meaningful estimate of the reasonably possible aggregate environmental remediation exposure. However, even in the unlikely event that remediation costs amounted to the high end of the range of costs for each site, the resulting additional liability would not be material to our financial position, results of operations or liquidity.
 

(119)

Note 21
 
Deferred Income Taxes (Restated)
 
Aggregate deferred income tax amounts are summarized below.
 
December 31 (In millions)
2005
(Restated)
  
2004
(Restated)
  
ASSETS
            
GE
$
9,928
  
$
9,464
  
GECS
  
6,335
    
6,739
  
   
16,263
    
16,203
  
LIABILITIES
            
GE
  
13,661
    
13,080
  
GECS
  
18,914
    
18,431
  
   
32,575
    
31,511
  
Net deferred income tax liability
$
16,312
  
$
15,308
  

 
Principal components of our net liability (asset) representing deferred income tax balances are as follows:
 
December 31 (In millions)
2005
(Restated)
  
2004
(Restated)
  
GE
            
Provisions for expenses(a)
$
(6,521
)
$
(5,833
)
Retiree insurance plans
  
(1,454
)
  
(1,346
)
Prepaid pension asset - principal plans
  
6,249
    
6,170
  
Depreciation
  
2,130
    
2,029
  
Intangible assets
 
1,490
    
1,204
  
Other - net
  
1,839
    
1,392
  
   
3,733
    
3,616
  
GECS
            
Financing leases
  
8,037
    
9,767
  
Operating leases
  
4,024
    
3,716
  
Intangible assets
 
1,195
    
892
  
Allowance for losses
  
(2,025
)
  
(2,149
)
Cash flow hedges
  
(372
)
  
(938
)
Other - net
  
1,720
    
404
  
   
12,579
    
11,692
  
Net deferred income tax liability
$
16,312
  
$
15,308
  

(a)
Represented the tax effects of temporary differences related to expense accruals for a wide variety of items, such as employee compensation and benefits, interest on tax liabilities, product warranties and other sundry items that are not currently deductible.

 

(120)

Note 22
 
Minority Interest in Equity of Consolidated Affiliates
 
Minority interest in equity of consolidated affiliates includes common shares in consolidated affiliates and preferred stock issued by GE Capital and by affiliates of GE Capital. Preferred shares that we are required to redeem at a specified or determinable date are classified as liabilities. The balance is summarized as follows:
 
December 31 (In millions)
  
2005
    
2004
  
Minority interest in consolidated affiliates
            
NBC Universal(a)
$
4,597
  
$
6,529
  
Others(b)
  
2,073
    
2,156
  
Minority interest in preferred stock(c)
            
GE Capital
  
70
    
2,600
  
GE Capital affiliates
  
1,314
    
1,318
  
Total
$
8,054
  
$
12,603
  

(a)
 
2004 amounts included preferred interests associated with VUE that were settled in 2005. See note 16 for further information.
 
(b)
 
Included minority interest in consolidated, liquidating securitization entities, partnerships and common shares of consolidated affiliates.
 
(c)
The preferred stock primarily pays cumulative dividends at variable rates. Dividend rates in local currency on the preferred stock ranged from 1.94% to 5.38% during 2005 and 0.99% to 5.46% during 2004.

 

(121)

Note 23
 
Shareowners’ Equity (Restated)
 
(In millions)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
COMMON STOCK ISSUED
$
669
  
$
669
  
$
669
  
ACCUMULATED NONOWNER CHANGES
                  
OTHER THAN EARNINGS
                  
Balance at January 1
$
8,156
  
$
4,079
  
$
(1,563
)
Investment securities - net of deferred taxes
                  
of $(307), $503 and $590
  
(231
)
  
677
    
960
  
Currency translation adjustments - net of deferred
                  
taxes of $646, $(1,314) and $(1,409)
  
(4,315
)
  
3,936
    
5,057
  
Cash flow hedges - net of deferred taxes of
                  
$493, $75 and $(438)
  
724
    
203
    
(784
)
Minimum pension liabilities - net of deferred
                  
taxes of $(159), $(184) and $(85)
  
(217
)
  
(421
)
  
(161
)
Reclassification adjustments
                 
Investment securities - net of
                  
deferred taxes of $(100), $(142) and $(135)
  
(206
)
  
(265
)
  
(250
)
Currency translation adjustments
  
(3
)
  
-
    
4
  
Cash flow hedges - net of deferred
                  
taxes of $(494), $(55) and $457
  
(771
)
  
(53
)
  
816
  
Balance at December 31(a)
$
3,137
  
$
8,156
  
$
4,079
  
OTHER CAPITAL
                  
Balance at January 1
$
24,265
  
$
17,497
  
$
17,288
  
Gains on treasury stock dispositions and other(b)
  
962
    
4,615
    
209
  
Issuance of subsidiary shares(b)(c)
  
-
    
2,153
    
-
  
Balance at December 31
$
25,227
  
$
24,265
  
$
17,497
  
RETAINED EARNINGS
                  
Balance at January 1
$
90,580
  
$
82,014
  
$
74,212
  
Net earnings
  
16,711
    
17,160
    
15,561
  
Dividends(b)
  
(9,647
)
  
(8,594
)
  
(7,759
)
Balance at December 31
$
97,644
  
$
90,580
  
$
82,014
  
COMMON STOCK HELD IN TREASURY
                  
Balance at January 1
$
(12,762
)
$
(24,597
)
$
(26,627
)
Purchases(b)
  
(6,868
)
  
(1,892
)
  
(1,177
)
Dispositions(b)(d)
  
2,304
    
13,727
    
3,207
  
Balance at December 31
$
(17,326
)
$
(12,762
)
$
(24,597
)
TOTAL EQUITY
                  
Balance at December 31
$
109,351
  
$
110,908
  
$
79,662
  

(a)
 
Included accumulated nonowner changes related to discontinued operations of $484 million, $1,649 million and $1,820 million at December 31, 2005, 2004 and 2003, respectively.
 
(b)
 
Total dividends and other transactions with shareowners reduced equity by $13,249 million in 2005; increased equity by $10,009 million in 2004; and reduced equity by $5,520 million in 2003.
 
(c)
 
Related to the issuance of 20% of NBC Universal’s shares to a subsidiary of VU as part of the transaction described in note 16.
 
(d)
In 2004, included 341.7 million shares valued at $10,674 million issued in the Amersham acquisition, and 119.4 million shares valued at $3,765 million sold to partially fund the NBC and VUE combination.

 

(122)

At December 31, 2005 and 2004, the aggregate statutory capital and surplus of the insurance activities and discontinued insurance operations totaled $9.8 billion and $19.4 billion, respectively. Accounting practices prescribed by statutory authorities are used in preparing statutory statements.
 
In December 2004, our Board of Directors authorized a three-year, $15 billion share repurchase program, expanded that program in 2005 to $25 billion and extended it through 2008. Under this share repurchase program, we repurchased 153.3 million shares for a total of $5.3 billion during 2005.
 
Common shares issued and outstanding are summarized in the following table.
 
SHARES OF GE COMMON STOCK
 
December 31 (In millions)
  
2005
    
2004
    
2003
  
Issued
  
11,145,212
    
11,145,212
    
11,145,212
  
In treasury
  
(660,944
)
  
(558,854
)
  
(1,082,092
)
Outstanding
  
10,484,268
    
10,586,358
    
10,063,120
  

 
GE has 50 million authorized shares of preferred stock ($1.00 par value), but has not issued any such shares as of December 31, 2005.
 
Note 24
 
Other Stock-Related Information
 
We grant stock options, restricted stock units (RSUs) and performance share units (PSUs) to employees under the 1990 Long-Term Incentive Plan as described in our current Proxy Statement. In addition, we grant options and RSUs in limited circumstances to consultants, advisors and independent contractors (primarily non-employee talent at NBC Universal) under a plan approved by our Board of Directors in 1997 (the consultants’ plan). There are outstanding grants under two separate shareowner-approved option plans for non-employee directors; the last grant was made in 2002 and no further grants are expected to be made under these plans. Requirements for stock option shares may be met from either unissued or treasury shares. RSUs give the recipients the right to receive shares of our stock upon the lapse of their related restrictions. Restrictions on RSUs lapse in various increments and at various dates, beginning after three years from date of grant through grantee retirement. Although the plan permits us to issue RSUs settleable in cash, we have only issued RSUs settleable in shares of our stock. PSUs give recipients the right to receive shares of our stock upon the achievement of certain performance targets.
 
We measure the total cost of each stock option grant at the date of grant using a market-based option trading model. We recognize the cost of each stock option, RSU and PSU on a straight-line basis over its vesting period.
 
Stock options expire 10 years from the date they are granted and vest over service periods that range from one to five years.
 
All grants of GE options under all plans must be approved by the Management Development and Compensation Committee, which consists entirely of outside directors.
 

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STOCK OPTION ACTIVITY
 
 
Average per share
  
(Shares in thousands)
  
Shares subject
to option
    
Exercise
price
    
Market
price
  
Balance at December 31, 2002
  
362,058
  
$
26.26
  
$
24.35
  
Options granted
  
8,261
    
31.19
    
31.19
  
Options exercised
  
(43,829
)
  
9.45
    
27.59
  
Options terminated
  
(10,643
)
  
38.98
    
(a
)
Balance at December 31, 2003
  
315,847
    
28.30
    
30.98
  
Options granted(b)
  
27,141
    
32.26
    
32.26
  
Options exercised
  
(43,110
)
  
10.54
    
32.68
  
Options terminated
  
(13,409
)
  
36.91
    
(a
)
Balance at December 31, 2004
  
286,469
    
30.94
    
36.50
  
Options granted
  
12,779
    
34.54
    
34.54
  
Options exercised
  
(31,568
)
  
12.54
    
35.37
  
Options terminated
  
(9,746
)
  
37.62
    
(a
)
Balance at December 31, 2005
  
257,934
  
$
33.12
  
$
35.05
  

(a)
 
Not applicable.
 
(b)
Included approximately 3.5 million options that replaced canceled stock appreciation rights and have identical terms.

 
STOCK COMPENSATION PLANS
 
December 31, 2005 (Shares in thousands)
Securities
to be
issued
upon
exercise
  
Weighted
average
exercise
price
  
Securities
available
for future
issuance
  
APPROVED BY SHAREOWNERS
                  
Options
  
256,584
  
$
33.16
    
(a
)
RSUs
  
31,877
    
(b
)
  
(a
)
PSUs
  
950
    
(b
)
  
(a
)
NOT APPROVED BY SHAREOWNERS
                  
(CONSULTANTS’ PLAN)
                  
Options
  
1,350
    
25.17
    
(c
)
RSUs
  
98
    
(b
)
  
(c
)
Total(d)
  
290,859
  
$
33.12
    
130,261
  

(a)
 
Under the 1990 Long-Term Incentive Plan, 0.95% of issued common stock (including treasury shares) as of the first day of each calendar year during which the Plan is in effect becomes available for awards in that calendar year. Total shares available for future issuance under the 1990 Long-Term Incentive Plan amounted to 105.9 million shares.
 
(b)
 
Not applicable.
 
(c)
 
Total shares available for future issuance under the consultants’ plan amount to 24.4 million shares.
 
(d)
In connection with various acquisitions, there are an additional 1.2 million options outstanding, with a weighted average exercise price of $21.81.

 
Outstanding options expire on various dates through December 8, 2015.
 
The following table summarizes information about stock options outstanding at December 31, 2005.
 

(124)

STOCK OPTIONS OUTSTANDING
 
(Shares in thousands)
Outstanding
 
Exercisable
 
Exercise price range
Shares
 
Average
life(a)
 
Average
exercise
price
 
Shares
 
Average
exercise
price
 
Under $14.00
  
10,115
    
0.5
  
$
13.45
    
10,115
  
$
13.45
  
14.01-21.00
  
16,390
    
0.7
    
14.91
    
16,390
    
14.91
  
21.01-28.00
  
70,980
    
4.5
    
25.72
    
56,919
    
25.40
  
28.01-35.00
  
46,379
    
8.5
    
32.69
    
10,559
    
31.85
  
35.01-42.00
  
49,327
    
4.3
    
37.18
    
41,329
    
37.47
  
42.01-49.00
  
51,243
    
5.0
    
43.30
    
51,242
    
43.30
  
Over $49.00
  
13,500
    
4.7
    
56.88
    
13,500
    
56.88
  
Total
  
257,934
    
4.9
  
$
33.12
    
200,054
  
$
33.48
  

At year-end 2004, options with an average exercise price of $29.40 were exercisable on 204 million shares; at year-end 2003, options with an average exercise price of $24.63 were exercisable on 214 million shares.
 
(a)
Average contractual life remaining in years.

 
OPTION VALUE INFORMATION(a)
 
   
2005
    
2004
    
2003
  
Fair value per option (in dollars)(b)
$
8.87
  
$
8.33
  
$
9.44
  
Valuation assumptions
                  
Expected option term (in years)
  
6
    
6
    
6
  
Expected volatility
  
28
%
  
28
%
  
35
%
Expected dividend yield
  
2.5
    
2.5
    
2.5
  
Risk-free interest rate
  
4.1
    
4.0
    
3.5
  

(a)
 
Weighted averages of option grants during each period.
 
(b)
Estimated using Black-Scholes option pricing model.

 
Note 25
 
Supplemental Cash Flows Information (Restated)
 
Changes in operating assets and liabilities are net of acquisitions and dispositions of principal businesses.
 
Amounts reported in the “Payments for principal businesses purchased” line in the Statement of Cash Flows is net of cash acquired and included debt assumed and immediately repaid in acquisitions.
 
Amounts reported in the “All other operating activities” line in the Statement of Cash Flows consists primarily of adjustments to current and noncurrent accruals and deferrals of costs and expenses, adjustments for gains and losses on assets, increases and decreases in assets held for sale and adjustments to assets.
 
Non-cash transactions include the following: in 2005, NBC Universal acquired IAC’s 5.44% common interest in VUE for a total purchase price that included $115 million of non-cash consideration, representing the fair value of future services to be performed by NBC Universal (see note 16); in 2004, the issuance of GE common stock valued at $10,674 million in connection with the acquisition of Amersham and the issuance of NBC Universal shares valued at $5,845 million in connection with the combination of NBC and VUE; and in 2003, the acquisition of Osmonics, Inc. for GE common stock valued at $240 million.
 

(125)

Certain supplemental information related to GE and GECS cash flows is shown below.
 
December 31 (In millions)
  
2005
    
2004
    
2003
  
GE
                  
NET DISPOSITIONS (PURCHASES) OF
                  
GE SHARES FOR TREASURY
                  
Open market purchases under share repurchase program
$
(5,024
)
$
(203
)
$
(340
)
Other purchases
  
(1,844
)
  
(1,689
)
  
(837
)
Dispositions
 
2,024
    
5,885
    
1,903
  
 
$
(4,844
)
$
3,993
  
$
726
  
GECS
                  
ALL OTHER OPERATING ACTIVITIES
                  
Net change in assets held for sale
$
2,192
  
$
84
  
$
1,168
  
Amortization of intangible assets
  
459
    
519
    
618
  
Realized gains on sale of investment securities
  
(381
)
  
(204
)
  
(205
)
Other
  
(1,794
)
  
(3,274
)
  
(2,477
)
 
$
479
  
$
(2,875
)
$
(896
)
NET INCREASE IN GECS FINANCING RECEIVABLES
                  
Increase in loans to customers
$
(315,697
)
$
(342,357
)
$
(263,815
)
Principal collections from customers - loans
  
267,728
    
305,846
    
238,518
  
Investment in equipment for financing leases
  
(23,508
)
  
(22,649
)
  
(22,825
)
Principal collections from customers - financing leases
  
21,770
    
19,715
    
18,909
  
Net change in credit card receivables
  
(21,391
)
  
(20,651
)
  
(11,483
)
Sales of financing receivables
  
54,144
    
44,816
    
36,009
  
 
$
(16,954
)
$
(15,280
)
$
(4,687
)
ALL OTHER INVESTING ACTIVITIES
                  
Purchases of securities by insurance activities
$
(9,264
)
$
(7,474
)
$
(7,942
)
Dispositions and maturities of securities by insurance activities
  
10,892
    
9,305
    
9,509
  
Proceeds from principal business dispositions
  
209
    
472
    
3,337
  
Other
  
2,807
    
6,083
    
1,199
  
 
$
4,644
  
$
8,386
  
$
6,103
  
NEWLY ISSUED DEBT HAVING MATURITIES
                  
LONGER THAN 90 DAYS
                  
Short-term (91 to 365 days)
$
4,675
  
$
3,940
  
$
3,661
  
Long-term (longer than one year)
  
60,176
    
53,641
    
55,661
  
Proceeds - nonrecourse, leveraged lease
  
203
    
562
    
791
  
 
$
65,054
  
$
58,143
  
$
60,113
  
REPAYMENTS AND OTHER REDUCTIONS OF DEBT
                  
HAVING MATURITIES LONGER THAN 90 DAYS
                  
Short-term (91 to 365 days)
$
(38,132
)
$
(41,443
)
$
(38,756
)
Long-term (longer than one year)
  
(10,746
)
  
(3,443
)
  
(3,664
)
Principal payments - nonrecourse, leveraged lease
  
(831
)
  
(652
)
  
(782
)
 
$
(49,709
)
$
(45,538
)
$
(43,202
)
ALL OTHER FINANCING ACTIVITIES
                  
Proceeds from sales of investment contracts
$
15,743
  
$
11,079
  
$
766
  
Redemption of investment contracts
  
(16,934
)
  
(14,476
)
  
(480
)
 
$
(1,191
)
$
(3,397
)
$
286
  

 

(126)

Note 26
 
Operating Segments (Restated)
 
REVENUES
 
 
Total
revenues
  
Intersegment
revenues
  
External
revenues
  
(In millions)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
2005
  
2004
  
2003
  
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
Infrastructure
$
41,803
  
$
37,373
  
$
36,569
  
$
405
  
$
481
  
$
449
  
$
41,398
  
$
36,892
  
$
36,120
  
Industrial
  
32,631
    
30,722
    
24,988
    
702
    
493
    
308
    
31,929
    
30,229
    
24,680
  
Healthcare
  
15,153
    
13,456
    
10,198
    
9
    
-
    
2
    
15,144
    
13,456
    
10,196
  
NBC Universal
  
14,689
    
12,886
    
6,871
    
-
    
-
    
-
    
14,689
    
12,886
    
6,871
  
Commercial Finance
  
20,646
    
19,524
    
16,927
    
204
    
279
    
197
    
20,442
    
19,245
    
16,730
  
Consumer Finance
  
19,416
    
15,734
    
12,845
    
52
    
33
    
23
    
19,364
    
15,701
    
12,822
  
Corporate items and
                                                      
eliminations (restated)
  
5,904
    
5,304
    
5,023
    
(1,372
)
  
(1,286
)
  
(979
)
  
7,276
    
6,590
    
6,002
  
Total
$
150,242
  
$
134,999
  
$
113,421
  
$
-
  
$
-
  
$
-
  
$
150,242
  
$
134,999
  
$
113,421
  

Revenues of GE businesses include income from sales of goods and services to customers and other income.
 
Sales from one component to another generally are priced at equivalent commercial selling prices.
 

 
Revenues originating from operations based in the United States were $90,428 million, $82,666 million and $70,533 million in 2005, 2004 and 2003, respectively. Revenues originating from operations based outside the United States were $59,815 million, $52,333 million and $42,888 million in 2005, 2004 and 2003, respectively.
 
 
Assets(a)
 
Property, plant
and equipment
additions(b)
 
Depreciation
and amortization
 
 
At December 31
 
For the years ended
December 31
 
For the years ended
December 31
 
(In millions)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
2005
  
2004
  
2003
  
2005
  
2004
  
2003
  
Infrastructure
$
89,555
  
$
82,798
  
$
76,185
  
$
4,188
  
$
3,938
  
$
3,540
  
$
2,436
  
$
2,162
  
$
2,077
  
Industrial
  
41,556
    
42,040
    
40,359
    
4,367
    
4,111
    
2,205
    
3,292
    
3,292
    
2,288
  
Healthcare
  
24,661
    
24,871
    
10,816
    
460
    
1,590
    
289
    
617
    
565
    
278
  
NBC Universal
  
31,196
    
34,206
    
11,619
    
275
    
1,189
    
121
    
339
    
273
    
117
  
Commercial Finance
  
190,546
    
184,388
    
172,471
    
5,426
    
4,573
    
5,141
    
2,648
    
2,772
    
2,444
  
Consumer Finance
  
158,829
    
151,255
    
106,530
    
189
    
217
    
191
    
393
    
334
    
276
  
Corporate items and
                                                      
eliminations (restated)
  
136,978
    
231,059
    
229,854
    
199
    
194
    
252
    
208
    
245
    
373
  
Total
$
673,321
  
$
750,617
  
$
647,834
  
$
15,104
  
$
15,812
  
$
11,739
  
$
9,933
  
$
9,643
  
$
7,853
  

(a)
 
Assets of discontinued operations are included in Corporate items and eliminations for all periods presented.
 
(b)
Additions to property, plant and equipment include amounts relating to principal businesses purchased.

 

(127)


 
Interest and other
financial charges
 
Provision for
income taxes
 
(In millions)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
Infrastructure(a)
$
1,706
  
$
1,436
  
$
1,236
  
$
(202
)
$
62
  
$
243
  
Industrial(a)
  
536
    
526
    
601
    
64
    
(124
)
  
(165
)
Commercial Finance
  
5,893
    
4,720
    
4,630
    
971
    
1,144
    
493
  
Consumer Finance
  
5,443
    
3,564
    
2,696
    
529
    
449
    
458
  
Corporate items and eliminations (restated)(b)
  
1,560
    
1,365
    
1,296
    
2,723
    
2,177
    
3,027
  
Total
$
15,138
  
$
11,611
  
$
10,459
  
$
4,085
  
$
3,708
  
$
4,056
  

(a)
 
Included only portions of the segment that are financial services businesses.
 
(b)
Included amounts for Healthcare, NBC Universal and the industrial businesses of Infrastructure and Industrial, for which our measure of segment profit excludes interest and other financial charges and income taxes.

 
Property, plant and equipment associated with operations based in the United States were $26,140 million, $25,219 million and $20,591 million at year-end 2005, 2004 and 2003, respectively. Property, plant and equipment associated with operations based outside the United States were $41,388 million, $37,884 million and $32,560 million at year-end 2005, 2004 and 2003, respectively.
 
Basis for presentation
 
Our operating businesses are organized based on the nature of markets and customers. Segment accounting policies are the same as described in note 1.
 
A description of our operating segments can be found on pages 142-145 and details of segment profit by operating segment can be found in the Summary of Operating Segments table on page 38 of this report.
 
Note 27
 
Derivatives and Other Financial Instruments
 
Derivatives and hedging
 
We conduct our business activities in diverse markets around the world, including countries where obtaining local funding may not be efficient. The nature of our activities exposes us to risks of changes in interest rates, currency exchange rates and commodity prices. We manage these risks using a variety of straightforward techniques, including issuing debt funding that matches the interest rate nature and currency denomination of the related asset. In addition, we selectively use derivatives to reduce our exposure to interest rate and currency risk. For example, if we make a fixed rate loan and fund that loan with variable rate debt, we will enter into an interest rate swap to pay a fixed rate of interest and receive a variable rate of interest, and designate the swap as a hedge of the variable rate borrowing. We apply strict policies to manage each of these risks, including prohibitions on derivatives trading, derivatives market-making or other speculative activities.
 

(128)

To qualify for hedge accounting, details of the hedging relationship must be formally documented at inception of the arrangement, including the risk management objective, hedging strategy, hedged item, specific risks that are to be hedged, the derivative instrument and how effectiveness is being assessed. The derivative must be highly effective in offsetting either changes in fair value or cash flows, as appropriate, for the risk being hedged. Effectiveness is assessed at the inception of the relationship. If specified criteria for the assumption of effectiveness are not met at hedge inception, effectiveness is assessed quarterly on a retrospective and prospective basis. Ineffectiveness is also measured quarterly, with the results recognized in earnings.
 
For derivatives that are not exchange-traded instruments, we use internal valuation models that incorporate market-based information. With the exception of foreign currency forwards and commodity derivatives, we also obtain valuations from our derivative counterparties to validate the valuations produced by our own models and to value a limited number of products that our internal models do not cover.
 
Cash flow hedges (Restated)
 
Our cash flow hedging arrangements use simple derivatives to offset the variability of expected future cash flows. We use interest rate and currency swaps to convert variable rate borrowings to match the nature of the assets we acquire. We use currency forwards and options to manage exposures to changes in currency exchange rates associated with commercial purchase and sale transactions, including commodities. These instruments permit us to reduce the cash flow variability, in local currency, of costs or selling prices denominated in currencies other than the functional currency. For derivatives designated as cash flow hedges, we record changes in fair value in a separate component of equity to the extent effective, then release those changes to earnings contemporaneously with the earnings effects of the hedged items. If the hedge relationship is terminated, then the change in fair value of the derivative recorded in equity is recognized contemporaneously with the earnings effects of the hedged item, consistent with the original hedge strategy.
 
At December 31, 2005, amounts related to derivatives qualifying as cash flow hedges amounted to a reduction of equity of $352 million, of which we expect to transfer $123 million to earnings in 2006 along with the earnings effects of the related forecasted transactions. At that date, the maximum term of derivative instruments that hedge forecasted transactions was 27 years and related to hedges of anticipated bond purchases. Funding for those purchases is provided by contractual premiums on insurance policies of similar duration.
 
Fair value hedges
 
Fair value hedges are hedges that reduce the risk of changes in the fair values of assets, liabilities and certain types of firm commitments. We use interest rate swaps, currency swaps and interest rate and currency forwards to hedge the effects of interest rate and currency exchange rate changes on local and nonfunctional currency denominated fixed-rate borrowings and certain types of fixed-rate assets. We record changes in fair value of a derivative designated and effective as a fair value hedge in earnings, offset by corresponding changes in the fair value of the hedged item.
 
Fair value adjustments decreased the carrying amount of debt outstanding at December 31, 2005, by $114 million.
 

(129)

Net investment hedges
 
Net investment hedges consist of currency forwards and currency swaps that reduce our exposure to changes in currency exchange rates on our investments in non-U.S. financial services subsidiaries. For qualifying net investment hedges, changes in the intrinsic value of the derivative are recorded in equity. Amounts excluded from the measure of effectiveness of net investment hedges are recognized in earnings in the period in which they arise. Derivative gains included in equity amounted to $977 million and $867 million at December 31, 2005 and 2004, respectively.
 
Derivatives not designated as hedges
 
We must meet specific criteria in order to apply any of the three forms of hedge accounting discussed above. For example, hedge accounting is not permitted for hedged items that are marked to market through earnings. However, we use derivatives to hedge exposures when it makes economic sense to do so, including circumstances in which the hedging relationship does not qualify for hedge accounting, as described in the following paragraph. Derivatives that do not qualify for hedge accounting are marked to market through earnings.
 
We use swaps, futures and option contracts, including caps, floors and collars, as economic hedges of changes in interest rates, currency exchange rates and equity prices on certain types of assets and liabilities. We sometimes use credit default swaps to hedge the credit risk of various counterparties with which we have entered into loan or leasing arrangements. We occasionally obtain equity warrants as part of sourcing or financing transactions. Although these instruments are considered to be derivatives, their economic risks are similar to, and managed on the same basis as, risks of other equity instruments we hold.
 
Earnings effects of derivatives (Restated)
 
In the context of hedging relationships, “effectiveness” refers to the degree to which fair value changes in the hedging instrument offset the corresponding expected earnings effects of the hedged item. At December 31, 2005, approximately 46 percent of our total interest rate swaps were exempt from ongoing tests of their effectiveness as hedges. For derivatives designated and qualifying as hedges but not qualifying for the assumption of effectiveness, we use a variety of techniques to assess effectiveness and measure ineffectiveness, including cumulative dollar offset and regression analysis, depending on which method was selected at inception of the respective hedge. Certain elements of hedge positions may be excluded from the measure of effectiveness, for example, changes in the value of purchased options attributable to volatility and passage of time.
 
The following table provides additional information about the earnings effects of derivatives.
 
PRE-TAX GAINS (LOSSES)
 
December 31 (In millions)
2005
(Restated)
  
2004
(Restated)
  
2003
(Restated)
  
CASH FLOW HEDGES
                  
Ineffectiveness
$
(27
)
$
20
  
$
(44
)
Amounts excluded from the measure of effectiveness
  
17
    
25
    
-
  
FAIR VALUE HEDGES
                  
Ineffectiveness
  
4
    
11
    
-
  
Amounts excluded from the measure of effectiveness
  
(8
)
  
3
    
-
  

 

(130)

For hedge relationships discontinued because the forecasted transaction is not expected to occur by the end of the originally specified period, any related derivative amounts recorded in equity are reclassified to earnings.
 
In 2005, we recognized an insignificant loss related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period.
 
In 2004, we recognized a pre-tax loss of $46 million, before cancelation penalties, for terminating a forward euro contract when our customer canceled its hedged, firm order for equipment and services.
 
Additional information regarding the use of derivatives related to our financing activities is provided in note 18.
 
Counterparty credit risk
 
The risk that counterparties to derivative contracts will default and not make payments to us according to the terms of the agreements is counterparty credit risk. We manage counterparty credit risk on an individual counterparty basis, which means that we net exposures on transactions by counterparty where legal right of offset exists and include the value of collateral to determine the amount of exposure to each counterparty. When the net exposure to a counterparty, based on the current market value of transactions, exceeds credit exposure limits (see table below), actions are taken to reduce exposure. Actions can include prohibiting the counterparty from entering into additional transactions, requiring collateral from the counterparty (as described below) and terminating or restructuring transactions.
 
Swaps are required to be executed under master agreements containing mutual credit downgrade provisions that provide the ability to require assignment or termination in the event either party is downgraded below A3 or A-. To mitigate credit risk, in certain cases we have entered into collateral arrangements that provide us with the right to hold collateral when the current market value of derivative contracts exceeds an exposure threshold. Under these arrangements, we may receive rights to cash or U.S. Treasury or other highly-rated securities to secure our exposure. Such collateral is available to us in the event that a counterparty defaults. We evaluate credit risk exposures and compliance with credit exposure limits net of such collateral.
 
Fair values of our derivatives assets and liabilities represent the replacement value of existing derivatives at market prices and can change significantly from period to period based on, among other factors, market movements and changes in our positions. At December 31, 2005, our exposure to counterparties, after consideration of netting arrangements and collateral, was $779 million.
 
Following is GECS policy relating to initial credit rating requirements and to exposure limits to counterparties.
 

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COUNTERPARTY CREDIT CRITERIA
 
 
Credit rating
  
 
Moody’s
  
S&P
  
Foreign exchange forwards and other derivatives less than one year
  
P-1
    
A-1
  
All derivatives between one and five years
  
Aa3
(a)
  
AA-
(a)
All derivatives greater than five years
  
Aaa
(a)
  
AAA
(a)

(a)
Counterparties that have an obligation to provide collateral to cover credit exposure in accordance with a credit support agreement must have a minimum A3/A-rating.

 
EXPOSURE LIMITS
 
(In millions)
      
Minimum rating
  
Exposure(a)
  
Moody’s
  
S&P
  
With collateral
arrangements
  
Without collateral
arrangements
  
Aaa
    
AAA
  
$
100
  
$
75
 
Aa3
    
AA-
    
50
  
 
50
 
A3
    
A-
    
5
  
 
-
 

(a)
For derivatives with maturities less than one year, counterparties are permitted to have unsecured exposure up to $150 million with a minimum rating of A-1/P-1.

 

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FINANCIAL INSTRUMENTS
 
 
2005
  
2004
  
 
    
Assets (liabilities)
      
Assets (liabilities)
 
December 31 (In millions)
Notional
amount
  
Carrying
amount (net)
  
Estimated
fair value
  
Notional
amount
 
Carrying
amount (net)
 
Estimated
fair value
 
GE
    
   
    
   
  
 
   
 
 
   
 
 
   
 
 
 
Assets
              
 
 
 
 
 
 
 
 
 
 
 
Investments and notes receivable(a)
$
(b
)
$
573
  
$
625
 
$
(b
)
$
3,465
 
$
3,545
 
Liabilities
              
 
 
 
 
 
 
 
 
 
 
 
Borrowings(c)(d)
  
(b
)
  
(10,208
)
  
(10,223
)
 
(b
)
 
(11,034
)
 
(11,144
)
Other financial instruments(a)
  
(b
)
  
-
    
-
 
 
(b
)
 
(758
)
 
(855
)
GECS
              
 
 
 
 
 
 
 
 
 
 
 
Assets
              
 
 
 
 
 
 
 
 
 
 
 
Loans
  
(b
)
  
223,855
    
224,259
 
 
(b
)
 
216,035
 
 
217,155
 
Other commercial and residential
                                   
mortgages held for sale
  
(b
)
  
6,696
    
6,696
 
 
(b
)
 
5,143
 
 
5,113
 
Other financial instruments
  
(b
)
  
4,138
    
4,494
 
 
(b
)
 
2,972
 
 
3,184
 
Liabilities
              
 
 
 
 
 
 
 
 
 
 
 
Borrowings(c)(d)
  
(b
)
  
(362,069
)
  
(369,972
)
 
(b
)
 
(355,501
)
 
(362,851
)
Investment contract benefits
  
(b
)
  
(9,877
)
  
(9,862
)
 
(b
)
 
(12,539
)
 
(12,520
)
Insurance - credit life(e)
  
2,365
    
(8
)
  
(8
)
 
2,210
 
 
(13
)
 
(13
)

(a)
 
2004 amounts included financial instruments associated with VUE that were settled in 2005. See note 16 for further information.
 
(b)
 
These financial instruments do not have notional amounts.
 
(c)
 
Included effects of interest rate and cross-currency swaps.
 
(d)
 
See note 18.
 
(e)
Net of reinsurance of $292 million and $105 million at December 31, 2005 and 2004, respectively.

 
Assets and liabilities that are reflected in the accompanying financial statements at fair value are not included in the above disclosures; such items include cash and equivalents, investment securities and derivative financial instruments. Other assets and liabilities-those not carried at fair value-are discussed below. Apart from certain of our borrowings and certain marketable securities, few of the instruments discussed below are actively traded and their fair values must often be determined using financial models. There is no assurance that such estimates could actually have been realized at December 31, 2005 or 2004.
 
A description of how we estimate fair values follows.
 
Loans
 
Based on quoted market prices, recent transactions and/or discounted future cash flows, using rates at which similar loans would have been made to similar borrowers.
 
Borrowings
 
Based on discounted future cash flows using current market rates which are comparable to market quotes.
 
Investment contract benefits
 
Based on expected future cash flows, discounted at currently offered rates for immediate annuity contracts or cash surrender values for single premium deferred annuities.
 

(133)

All other instruments
 
Based on comparable market transactions, discounted future cash flows, quoted market prices, and/or estimates of the cost to terminate or otherwise settle obligations.
 
Additional information about certain categories in the table above follows.
 
Residential mortgages
 
Residential mortgage products amounting to $12,633 million at December 31, 2005, were either high loan-to-value loans or those permitting interest-only payments. We originate such loans either for our portfolio or for sale in secondary markets. In both cases, higher yields compensate for the increased risk. The portfolio was geographically diverse, with Europe and North America the most significant market segments.
 
Insurance-credit life
 
Certain insurance affiliates, primarily in Consumer Finance, issue credit life insurance designed to pay the balance due on a loan if the borrower dies before the loan is repaid. As part of our overall risk management process, we cede to third parties a portion of this associated risk, but are not relieved of our primary obligation to policyholders.
 
LOAN COMMITMENTS
 
 
Notional amount
  
December 31 (In millions)
  
2005
    
2004
  
Ordinary course of business lending commitments
    
 
 
 
 
Fixed rate
$
4,648
 
$
2,260
 
Variable rate
  
7,026
 
 
8,145
 
Unused revolving credit lines(a)
    
 
 
 
 
Commercial
    
 
 
 
 
Fixed rate
  
779
 
 
1,210
 
Variable rate
  
20,779
 
 
21,411
 
Consumer - principally credit cards
    
 
 
 
 
Fixed rate
  
170,367
 
 
141,965
 
Variable rate
  
281,113
 
 
200,219
 

(a)
Excluded inventory financing arrangements, which may be withdrawn at our option, of $11.4 billion and $8.9 billion as of December 31, 2005 and 2004, respectively.

 
Note 28
 
Securitization Entities
 
We securitize financial assets in the ordinary course of business to improve shareowner returns. The securitization transactions we engage in are similar to those used by many financial institutions. Beyond improving returns, these securitization transactions serve as funding sources for a variety of diversified lending and securities transactions. Historically, we have used both GE-supported and third-party entities to execute securitization transactions funded in the commercial paper and term bond markets.
 

(134)

Securitized assets that are on-balance sheet include assets consolidated upon adoption of FIN 46. Although we do not control these entities, consolidation was required because we provided a majority of the credit and liquidity support for their activities. A majority of these entities were established to issue asset-backed securities, using assets that were sold by us and by third parties. These entities differ from others included in our consolidated financial statements because the assets they hold are legally isolated and are unavailable to us under any circumstances. Repayment of their liabilities depends primarily on cash flows generated by their assets. Because we have ceased transferring assets to these entities, balances will decrease as the assets repay. We refer to these entities as “consolidated, liquidating securitization entities.”
 
The following table represents assets in securitization entities, both consolidated and off-balance sheet.
 
December 31 (In millions)
  
2005
    
2004
  
Receivables secured by:
            
Equipment
$
12,949
  
$
13,941
  
Commercial real estate
  
13,010
    
14,626
  
Residential real estate
  
8,882
    
9,094
  
Other assets
  
12,869
    
9,880
  
Credit card receivables
 
10,039
    
7,075
  
GE trade receivables
  
3,960
    
3,582
  
Total securitized assets
$
61,709
  
$
58,198
  

 
December 31 (In millions)
  
2005
    
2004
  
Off-balance sheet(a)(b)
$
43,805
  
$
32,205
  
On-balance sheet(c)
  
17,904
    
25,993
  
Total securitized assets
$
61,709
  
$
58,198
  

(a)
 
At December 31, 2005 and 2004, liquidity support amounted to $2,000 million and $2,300 million, respectively. These amounts are net of $3,800 million and $4,300 million, respectively, participated or deferred beyond one year. Credit support amounted to $6,000 million and $6,600 million at December 31, 2005 and 2004, respectively.
 
(b)
 
Liabilities for recourse obligations related to off-balance sheet assets were $93 million and $64 million at December 31, 2005 and 2004, respectively.
 
(c)
At December 31, 2005 and 2004, liquidity support amounted to $10,000 million and $14,400 million, respectively. These amounts are net of $100 million and $1,200 million, respectively, participated or deferred beyond one year. Credit support amounted to $4,800 million and $6,900 million at December 31, 2005 and 2004, respectively.

 
The portfolio of financing receivables consisted of loans and financing lease receivables secured by equipment, commercial and residential real estate and other assets; credit card receivables; and trade receivables. Examples of these assets include loans and leases on manufacturing and transportation equipment, loans on commercial property, commercial loans, and balances of high credit quality accounts from sales of a broad range of products and services to a diversified customer base.
 

(135)

Assets in consolidated, liquidating securitization entities are shown in the following captions in the Statement of Financial Position.
 
December 31 (In millions)
  
2005
    
2004
  
Financing receivables - net (note 13)
$
16,615
  
$
22,848
  
Other assets
  
1,235
    
2,384
  
Other, principally investment securities
  
54
    
761
  
Total
$
17,904
  
$
25,993
  

 
Off-balance sheet arrangements
 
We engage in off-balance sheet securitization transactions with third-party entities and use public market term securitizations. As discussed above, assets in off-balance sheet securitization entities amounted to $43.8 billion and $32.2 billion at December 31, 2005 and 2004, respectively. Gross securitization gains amounted to $939 million in 2005 compared with $1,195 million in 2004 and $1,351 million in 2003.
 
Amounts recognized in our financial statements related to sales to off-balance sheet securitization entities are as follows:
 
December 31 (In millions)
  
2005
    
2004
  
Retained interests
$
4,515
  
$
3,671
  
Servicing assets
  
29
    
33
  
Recourse liability
 
(93
)
  
(64
)
Total
$
4,451
  
$
3,640
  

 
·  
RETAINED INTERESTS. When we securitize receivables, we determine fair value of retained interests based on discounted cash flow models that incorporate, among other things, assumptions about loan pool credit losses, prepayment speeds and discount rates. These assumptions are based on our experience, market trends and anticipated performance related to the particular assets securitized. We classify retained interests in securitized receivables as investment securities and mark them to fair value each reporting period, updating our models for current assumptions. These assets decrease as cash is received in payment. When the carrying amounts exceed fair value, we evaluate whether the unrealized loss is other than temporary and, if so, record any indicated loss in earnings currently.
 
·  
SERVICING ASSETS. Following a securitization transaction, we also may provide servicing for a market-based fee based on remaining outstanding principal balances. Servicing assets are primarily associated with residential mortgage loans. Their value is subject to credit, prepayment and interest rate risk.
 
·  
RECOURSE LIABILITY. Certain transactions involve credit support agreements. As a result, we provide for expected credit losses at amounts that approximate fair value.
 

(136)

The following table summarizes data related to securitization sales that we completed during 2005 and 2004.
 
(Dollars in millions)
Equipment
  
Commercial
real estate
  
Other
assets
  
Credit card
receivables
  
2005
                
 
 
 
 
Cash proceeds from securitization
$
3,702
  
$
5,571
  
$
4,705
 
$
6,985
 
Proceeds from collections reinvested
                
 
 
 
 
  in new receivables
  
-
    
-
    
27,697
 
 
10,067
 
Cash received on retained interests
  
190
    
69
    
10
 
 
1,644
 
Cash received from servicing and other sources
  
75
    
36
    
91
 
 
155
 
Weighted average lives (in months)
  
37
    
80
    
35
 
 
8
 
Assumptions as of sale date(a)
                
 
 
 
 
Discount rate
  
8.8
%
  
13.4
%
  
12.6
%
 
11.7
%
Prepayment rate
  
8.8
%
  
6.5
%
  
21.2
%
 
12.6
%
Estimate of credit losses
  
2.3
%
  
0.8
%
  
0.6
%
 
7.5
%
2004
                
 
 
 
 
Cash proceeds from securitization
$
5,367
  
$
4,578
  
$
-
 
$
8,121
 
Proceeds from collections reinvested
                
 
 
 
 
in new receivables
  
-
    
-
    
21,389
 
 
5,208
 
Cash received on retained interests
  
107
    
70
    
128
 
 
1,788
 
Cash received from servicing and other sources
  
85
    
6
    
62
 
 
138
 
Weighted average lives
               
 
 
 
 
(in months)
  
37
    
68
    
-
 
 
7
 
Assumptions as of sale date(a)
                
 
 
 
 
Discount rate
  
8.2
%
  
13.0
%
  
-
 
 
12.2
%
Prepayment rate
  
9.1
%
  
11.2
%
  
-
 
 
14.9
%
Estimate of credit losses
  
1.9
%
  
1.1
%
  
-
 
 
8.9
%

(a)
Based on weighted averages.

 

(137)

Key assumptions used in measuring the fair value of retained interests in securitizations and the sensitivity of the current fair value of residual cash flows to changes in those assumptions related to all outstanding retained interests as of December 31, 2005, are noted in the following table.
 
(Dollars in millions)
Equipment
  
Commercial
real estate
  
Other
assets
  
Credit card
receivables
  
DISCOUNT RATE(a)
  
6.4
%
  
11.0
%
  
5.5
%
 
11.1
%
Effect of:
                
 
 
 
 
10% Adverse change
$
(12
)
$
(14
)
$
(4
)
$
(10
)
20% Adverse change
  
(24
)
  
(26
)
  
(8
)
 
(23
)
PREPAYMENT RATE(a)
  
9.7
%
  
1.8
%
  
8.4
%
 
12.8
%
Effect of:
                
 
 
 
 
10% Adverse change
$
(6
)
$
(5
)
$
(7
)
$
(40
)
20% Adverse change
  
(12
)
  
(10
)
  
(12
)
 
(77
)
ESTIMATE OF CREDIT LOSSES(a)
  
2.0
%
  
1.1
%
  
0.5
%
 
7.1
%
Effect of:
                
 
 
 
 
10% Adverse change
$
(11
)
$
(7
)
$
(5
)
$
(39
)
20% Adverse change
  
(22
)
  
(13
)
  
(9
)
 
(81
)
Remaining weighted
                
 
 
 
 
average lives (in months)
  
27
    
51
    
15
 
 
7
 
Net credit losses
$
63
  
$
-
  
$
8
 
$
588
 
Delinquencies
  
93
    
5
    
59
 
 
374
 

(a)
Based on weighted averages.

 
GUARANTEE AND REIMBURSEMENT CONTRACTS. We provide protection to certain counterparties of interest rate swaps entered into by securitization-related entities related to changes in the relationship between commercial paper interest rates and the timing and amount of the payment streams. These arrangements provide protection for the life of the assets held by the securitization entities but generally amortize in proportion to the decline in underlying asset principal balances. At December 31, 2005, the notional amount of such support was $1,259 million and related assets and liabilities were insignificant.
 
Note 29
 
Commitments and Guarantees
 
Commitments, including guarantees
 
In our Aviation business of Infrastructure, we had committed to provide financial assistance on $2,269 million of future customer acquisitions of aircraft equipped with our engines, including commitments made to airlines in 2005 for future sales under our GE90 and GEnx engine campaigns. The Aviation Financial Services business of Infrastructure had placed multiple-year orders for various Boeing, Airbus and other aircraft with list prices approximating $10,595 million at December 31, 2005.
 
At December 31, 2005, we were committed under the following guarantee arrangements beyond those provided on behalf of securitization entities. See note 28.
 
 
(138)
 
 
·  
LIQUIDITY SUPPORT. Liquidity support provided to holders of certain variable rate bonds issued by municipalities amounted to $2,510 million at December 31, 2005. If holders elect to sell supported bonds that cannot be remarketed, we are obligated to repurchase them at par. If called upon, our position would be secured by the repurchased bonds. While we hold any such bonds, we would receive interest payments from the municipalities at a rate that is in excess of the stated rate on the bond. To date, we have not been required to perform under such arrangements and our existing liquidity support will decrease $1,437 million in 2006 and the remaining $1,073 million by the end of 2008 as the underlying variable rate bonds reach their maturity date. We are currently not providing any such new liquidity facilities.
 
·  
CREDIT SUPPORT. We have provided $7,227 million of credit support on behalf of certain customers or associated companies, predominantly joint ventures and partnerships, using arrangements such as standby letters of credit and performance guarantees. These arrangements enable our customers and associated companies to execute transactions or obtain desired financing arrangements with third parties. Should the customer or associated company fail to perform under the terms of the transaction or financing arrangement, we would be required to perform on their behalf. Under most such arrangements, our guarantee is secured, usually by the asset being purchased or financed, but possibly by certain other assets of the customer or associated company. The length of these credit support arrangements parallels the length of the related financing arrangements or transactions. The liability for such credit support was $268 million at December 31, 2005.
 
·  
INDEMNIFICATION AGREEMENTS. These are agreements that require us to fund up to $711 million under residual value guarantees on a variety of leased equipment and $229 million of other indemnification commitments arising primarily from sales of businesses or assets. Under most of our residual value guarantees, our commitment is secured by the leased asset at termination of the lease. The liability for these indemnification agreements was $69 million at December 31, 2005.
 
·  
CONTINGENT CONSIDERATION. These are agreements to provide additional consideration in a business combination to the seller if contractually specified conditions related to the acquired entity are achieved. At December 31, 2005, we had recognized liabilities for estimated payments amounting to $27 million of our total exposure of $434 million.
 
At year-end 2005, NBC Universal had $11,595 million of commitments to acquire film and broadcast material and the rights to broadcast television programs, including U.S. television rights to future Olympic Games and National Football League (NFL) games, contractual commitments under various creative talent arrangements and commitments under long-term television station affiliation agreements that require payments through 2014.
 
Our guarantees are provided in the ordinary course of business. We underwrite these guarantees considering economic, liquidity and credit risk of the counterparty. We believe that the likelihood is remote that any such arrangements could have a significant adverse effect on our financial position, results of operations or liquidity. We record liabilities for guarantees at estimated fair value, generally the amount of the premium received, or if we do not receive a premium, the amount based on appraisal, observed market values or discounted cash flows. Any associated recoveries from third parties are recorded as other receivables; not netted against the liabilities.
 

(139)

Product warranties
 
We provide for estimated product warranty expenses when we sell the related products. Because warranty estimates are forecasts that are based on the best available information-mostly historical claims experience-claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties follows.
 
(In millions)
  
2005
    
2004
    
2003
  
Balance at January 1
$
1,326
  
$
1,437
  
$
1,304
  
Current year provisions
  
448
    
720
    
751
  
Expenditures(a)
  
(699
)
  
(838
)
  
(749
)
Other changes
  
-
    
7
    
131
  
Balance at December 31
$
1,075
  
$
1,326
  
$
1,437
  

(a)
Primarily related to Infrastructure and Healthcare.

 
Note 30
 
Quarterly Information (Unaudited) (Restated)
 
 
First
quarter
  
Second
quarter
  
Third
quarter
  
Fourth
quarter
  
(In millions; per-share amounts in dollars)
2005
(Restated)
  
2004
(Restated)
  
2005
(Restated)
  
2004
(Restated)
  
2005
(Restated)
  
2004
(Restated)
  
2005
(Restated)
  
2004
(Restated)
  
CONSOLIDATED OPERATIONS
                                              
 
Earnings from continuing operations
$
3,787
  
$
2,832
  
$
4,233
  
$
4,254
  
$
4,742
  
$
3,717
  
$
5,871
  
$
5,823
 
Earnings (loss) from
                                              
 
discontinued operations
  
403
    
398
    
275
    
93
    
108
    
130
    
(2,708
)
  
(87
)
Net earnings
$
4,190
  
$
3,230
  
$
4,508
  
$
4,347
  
$
4,850
  
$
3,847
  
$
3,163
  
$
5,736
 
Per-share amounts - earnings from
                                              
 
continuing operations
                                              
 
Diluted earnings per share
$
0.36
  
$
0.28
  
$
0.40
  
$
0.41
  
$
0.45
  
$
0.35
  
$
0.56
  
$
0.55
 
Basic earnings per share
  
0.36
  
$
0.28
  
$
0.40
  
$
0.41
  
$
0.45
  
$
0.35
  
$
0.56
    
0.55
 
Per-share amounts - earnings (loss)
                                              
 
from discontinued operations
                                              
 
Diluted earnings per share
  
0.04
    
0.04
    
0.03
    
0.01
    
0.01
    
0.01
    
(0.26
)
  
(0.01
)
Basic earnings per share
  
0.04
    
0.04
    
0.03
    
0.01
    
0.01
    
0.01
    
(0.26
)
  
(0.01
)
Per-share amounts - net earnings
                                              
 
Diluted earnings per share
  
0.39
    
0.32
    
0.42
    
0.42
    
0.46
    
0.36
    
0.30
    
0.54
 
Basic earnings per share
  
0.40
    
0.32
    
0.43
    
0.42
    
0.46
    
0.36
    
0.30
    
0.54
 
SELECTED DATA
                                              
 
GE
                                              
 
Sales of goods and services
$
20,833
  
$
16,680
  
$
22,408
  
$
19,995
  
$
21,567
  
$
20,967
  
$
25,622
  
$
24,572
 
Gross profit from sales
  
5,824
    
4,467
    
6,358
    
5,503
    
5,978
    
5,648
    
7,455
    
7,229
 
GECS
                                              
 
Total revenues
  
14,585
    
11,761
    
14,136
    
13,719
    
15,841
    
12,649
    
15,275
    
15,283
 
Earnings from continuing operations
  
2,090
    
1,436
    
1,885
    
2,027
    
2,750
    
1,899
    
2,774
    
2,832
 

 
For GE, gross profit from sales is sales of goods and services less costs of goods and services sold.
 

(140)

Earnings-per-share amounts are computed independently each quarter for earnings from continuing operations, earnings from discontinued operations, and net earnings. As a result, the sum of each quarter’s per-share amount may not equal the total per-share amount for the respective year; and the sum of per-share amounts from continuing operations and discontinued operations may not equal the total per-share amounts for net earnings for the respective quarters.
 

(141)

Our Businesses
 
A description of operating segments for General Electric Company and consolidated affiliates as of December 31, 2005, and the basis for presentation in this report, follows.
 
Infrastructure
 
Jet engines and replacement parts and repair and maintenance services for all categories of commercial aircraft; for a wide variety of military aircraft, including fighters, bombers, tankers and helicopters; and for executive and regional aircraft. Products and services are sold worldwide to airframe manufacturers, airlines and government agencies. Rail systems products and maintenance services including diesel electric locomotives, transit propulsion equipment, motorized wheels for off-highway vehicles, and railway signaling communications systems.
 
Financial products to airlines, aircraft operators, owners, lenders and investors including leases, aircraft purchasing and trading, loans, engine/spare parts financing, pilot training, fleet planning and financial advisory services.
 
Power plant products and services, including design, installation, operation and maintenance services sold into global markets. Gas, steam and aeroderivative turbines, generators, combined cycle systems, controls and related services, including total asset optimization solutions, equipment upgrades and contractual services, are sold to power generation and other industrial customers. Renewable energy solutions including wind turbines and hydro turbines and generators. Advanced turbomachinery products and related services for the oil and gas market, including total pipeline integrity solutions. Substation automation, network solutions and power equipment sold to power transmission and distribution customers. Also includes portable and rental power plants, nuclear reactors, fuel and nuclear support services.
 
Chemical water treatment program services and equipment including mobile treatment systems and desalination processes.
 
Financial products to the global energy industry including structured equity, leveraged leasing, partnerships, project finance and broad-based commercial finance.
 
Industrial
 
Major appliances and related services for products such as refrigerators, freezers, electric and gas ranges, cooktops, dish-washers, clothes washers and dryers, microwave ovens, room air conditioners and residential water system products. These products are distributed to both retail outlets and direct to consumers, mainly for the replacement market, and to building contractors and distributors for new installations. Lighting products include a wide variety of lamps and lighting fixtures. Electrical distribution and control equipment includes power delivery and control products such as transformers, meters and relays. Also includes GE Supply, a network of electrical supply houses. Products and services are sold in North America and in global markets under various GE and private-label brands.
 
High-performance engineered plastics used in a variety of applications such as automotive parts, computer enclosures, telecommunications equipment and construction materials. Products also include structured products, silicones and high-purity quartzware. Products and services are sold worldwide to a diverse customer base consisting mainly of manufacturers.
 

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Rentals, leases, sales and asset management services of commercial and transportation equipment, including tractors, trailers, railroad rolling stock, modular space units, intermodal shipping containers and, primarily through an associated company, marine containers.
 
Measurement and sensing equipment (products and subsystems for sensing temperature, flow rates, humidity, pressure and detection of material defects); security equipment and systems (including card access systems, video and sensor monitoring equipment, integrated facility monitoring systems and explosive detection systems); a broad range of automation hardware and software. Markets are extremely diverse. Products and services are sold to commercial and industrial end-users, including utilities; original equipment manufacturers; electrical distributors; retail outlets; airports; railways; and transit authorities. Increasingly, products and services are developed for and sold in global markets.
 
Healthcare
 
Medical imaging systems such as magnetic resonance (MR) and computed tomography (CT) scanners, x-ray, nuclear imaging and ultrasound, as well as diagnostic cardiology and patient monitoring devices; related services, including equipment monitoring and repair, computerized data management and customer productivity services. Diagnostic imaging agents used in medical scanning procedures, protein separations products including chromotography purification systems used in the manufacture of biopharmaceuticals, and high-throughput systems for applications in genomics, proteomics and bioassays. Products and services are sold worldwide to hospitals, medical facilities, pharmaceutical and biotechnology companies and to the life science research market.
 
NBC Universal
 
Principal businesses are the furnishing of U.S. network television services to 230 affiliated stations, production of television programs, the production and distribution of motion pictures, operation of 30 VHF and UHF television broadcasting stations, operation of cable/satellite networks around the world, operation of theme parks, and investment and programming activities in multimedia and the Internet.
 
Commercial Finance
 
Loans, leases and other financial services to customers, including manufacturers, distributors and end-users for a variety of equipment and major capital assets. These assets include industrial-related facilities and equipment; commercial and residential real estate; vehicles; corporate aircraft; and equipment used in many industries, including the construction, manufacturing, telecommunications and healthcare industries.
 
Consumer Finance
 
Private-label credit cards; bank cards; Dual Cards™; corporate travel and purchasing cards; personal loans; auto loans; leases and inventory financing; residential mortgages; home equity loans; debt consolidation loans; current and savings accounts and insurance products for customers on a global basis.
 

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
Not applicable.
 
 
Item 9A. Controls and Procedures 
 
(a) Evaluation of Disclosure Controls and Procedures
 
In connection with the restatement discussed above in the explanatory note to this Form 10-K/A and in note 1 to our financial statements, under the direction of our Chief Executive Officer and Chief Financial Officer, we reevaluated our disclosure controls and procedures. We identified a material weakness in our internal control over financial reporting with respect to accounting for hedge transactions, namely, that we did not have adequately designed procedures to designate, with the specificity required under SFAS 133, each hedged commercial paper transaction. Solely as a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of December 31, 2005.
 
As of January 1, 2007, we modified our commercial paper hedging program and adopted documentation for interest rate swaps that we believe complies with the requirements of SFAS 133 and remediated the related internal control weakness. In connection with this amended Form 10-K, under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated our disclosure controls and procedures as currently in effect, including the remedial actions discussed above, and we have concluded that, as of this date, our disclosure controls and procedures are effective.
 
As previously reported, there was no change in our internal control over financial reporting during the quarter ended December 31, 2005, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
(b) Management’s Annual Report on Internal Control over Financial Reporting (as restated)
 
The management of General Electric Company is responsible for establishing and maintaining adequate internal control over financial reporting for the company. With the participation of the Chief Executive Officer and the Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2005, based on the framework and criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
In the company’s Annual Report on Form 10-K for the year ended December 31, 2005, filed on March 3, 2006, management concluded that our internal control over financial reporting was effective as of December 31, 2005. Subsequently, management identified a material weakness in our internal control over financial reporting with respect to accounting for hedge transactions, namely, that we did not have adequately designed procedures to designate, with the specificity required under SFAS 133, each hedged commercial paper transaction.
 

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This material weakness resulted in this amendment to our Annual Report on Form 10-K for the year ended December 31, 2005, in order to restate the financial statements for the years ended December 31, 2005, 2004 and 2003 and to restate financial information for the years ended December 31, 2002 and 2001 and each of the quarters in 2005 and 2004.
 
Solely as a result of this material weakness, our management has revised its earlier assessment and has now concluded that our internal control over financial reporting was not effective as of December 31, 2005.
 
General Electric Company’s independent auditor, KPMG LLP, a registered public accounting firm, has issued an audit report on our management’s revised assessment of our internal control over financial reporting as of December 31, 2005. This audit report follows.
 

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Report of Independent Registered Public Accounting Firm
 
To Shareowners and Board of Directors of General Electric Company:
 
We have audited management’s restated assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting (as restated) that General Electric Company and consolidated affiliates (“GE”) did not maintain effective internal control over financial reporting as of December 31, 2005, because of the effect of the material weakness identified in management’s restated assessment, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). GE management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of GE’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified and included in its restated assessment the following material weakness as of December 31, 2005: a failure to ensure adequately designed procedures to designate, with the specificity required by Statement of Financial Accounting Standards No. 133, each hedged commercial paper transaction. This material weakness resulted in restatements of the Company's previously issued consolidated financial statements as of December 31, 2005 and 2004, and for each of the years in the three-year period ended December 31, 2005 and the financial information for each of the quarters in 2005 and 2004.
 

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As stated in the fourth paragraph of Management’s Annual Report on Internal Control over Financial Reporting (as restated), management’s assessment of the effectiveness of GE’s internal control over financial reporting has been restated.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of financial position of General Electric Company and consolidated affiliates as of December 31, 2005 and 2004, and the related statements of earnings, changes in shareowners’ equity and cash flows for each of the years in the three-year period ended December 31, 2005. The aforementioned material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements (as restated), and this report does not affect our report dated February 10, 2006, except as to the restatement discussed in note 1 to the consolidated financial statements, which is as of January 19, 2007, which expressed an unqualified opinion on those consolidated financial statements.
 
In our opinion, management’s restated assessment that GE did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control - Integrated Framework issued by COSO. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, GE did not maintain effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by COSO.
 
/s/ KPMG LLP
  
KPMG LLP
  
Stamford, Connecticut
  
February 10, 2006, except as to the second, third and fourth paragraphs of Management’s Annual Report on Internal Control over Financial Reporting (as restated), which are as of January 19, 2007

 
 
Item 9B. Other Information
 
Not applicable.
 

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Part III
 
 
Item 10. Directors and Executive Officers of the Registrant
 
Executive Officers of the Registrant (As of March 1, 2006)
Name
   
Position
   
Age
   
Date assumed
Executive
Officer Position
 
  
 
  
 
  
 
Jeffrey R. Immelt
 
Chairman of the Board and Chief Executive Officer
  
50
  
January 1997
Philip D. Ameen
  
Vice President and Comptroller
  
57
  
April 1994
Ferdinando Beccalli-Falco
  
Senior Vice President, GE International
  
56
  
September 2003
Charlene T. Begley
  
Senior Vice President, GE Plastics
  
39
  
January 2003
Mark W. Begor
  
Senior Vice President, GE Consumer Finance, Americas
  
47
  
July 2005
Paul T. Bossidy
  
Senior Vice President, GE Capital Solutions
  
45
  
July 2005
David L. Calhoun
  
Vice Chairman of General Electric Company; President & CEO, GE Infrastructure
  
48
  
June 1995
James P. Campbell
  
Senior Vice President, GE Consumer & Industrial
  
48
  
April 2001
Kathryn A. Cassidy
  
Vice President and GE Treasurer
  
51
  
March 2003
William M. Castell
  
Vice Chairman of the Board and Executive Officer, General Electric Company; Chairman, GE Healthcare
  
58
  
April 2004
William J. Conaty
  
Senior Vice President, Human Resources
  
60
  
October 1993
Pamela Daley
  
Senior Vice President, Corporate Business Development
  
53
  
July 2004
Brackett B. Denniston
  
Senior Vice President and General Counsel
  
58
  
February 2004
Scott C. Donnelly
  
Senior Vice President, GE Aviation
  
44
  
August 2000
Shane Fitzsimons
  
Vice President, Corporate Financial Planning and Analysis
  
38
  
February 2004
Yoshiaki Fujimori
  
Senior Vice President, GE Consumer Finance, Asia
  
54
  
June 2001
Joseph M. Hogan
  
Senior Vice President, GE Healthcare
 
48
  
November 2000
John Krenicki, Jr.
  
Senior Vice President, GE Energy
  
43
  
March 2000
Mark M. Little
  
Senior Vice President, Global Research
  
53
  
November 2005
Michael A. Neal
  
Vice Chairman of General Electric Company; President & CEO, GE Capital Services
  
52
  
September 2002
David R. Nissen
  
Senior Vice President, GE Consumer Finance
  
54
  
September 2002
Michael E. Pralle
  
Senior Vice President, GE Real Estate
  
49
  
July 2005
Ronald R. Pressman
  
Senior Vice President, GE Insurance Solutions
  
47
  
September 2002
Gary M. Reiner
  
Senior Vice President and Chief Information Officer
  
51
  
January 1991
John G. Rice
  
Vice Chairman of General Electric Company; President & CEO, GE Industrial
  
49
  
September 1997
Keith S. Sherin
  
Senior Vice President and Chief Financial Officer
  
47
  
January 1999
Lloyd G. Trotter
  
Executive Vice President and Senior Operations Officer
  
60
  
November 1992
Robert C. Wright
  
Vice Chairman of the Board and Executive Officer, General Electric Company; Chairman and Chief Executive Officer, NBC Universal, Inc.
  
62
  
July 2000

 

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All Executive Officers are elected by the Board of Directors for an initial term which continues until the Board meeting immediately preceding the next annual statutory meeting of shareowners, and thereafter are elected for one-year terms or until their successors have been elected. All Executive Officers have been executives of GE for the last five years except Sir William M. Castell. Prior to joining GE in April 2004, Sir William Castell was the CEO of Amersham plc, since 1989.
 
The policies comprising GE’s code of conduct are set forth in the Company’s integrity manual, The Spirit & The Letter. These policies satisfy the SEC’s requirements for a “code of ethics,” and apply to all directors, officers and employees. The integrity manual is published on the Company’s website at www.ge.com/files/usa/citizenship/compliance/spirit/english.pdf. The Board will not permit any waiver of any ethics policy for any director or executive officer.
 
The remaining information called for by this item is incorporated by reference to “Election of Directors,” “Board of Directors and Committees,” “Information Relating to Directors, Nominees and Executive Officers” and “Additional Information” in the definitive proxy statement relating to the registrant’s Annual Meeting of Shareowners held on April 26, 2006.
 
 
Item 11. Executive Compensation
 
Incorporated by reference to “Information Relating To Directors, Nominees and Executive Officers,” “Contingent Long-Term Performance Awards,” “Summary Compensation Table,” “Stock Options,” “Compensation Committee Report,” “Five-Year Financial Performance Graph: 2001-2005” and “Retirement Benefits” in the definitive proxy statement relating to the registrant’s Annual Meeting of Shareowners held on April 26, 2006.
 
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
 
Incorporated by reference to “Information Relating to Directors, Nominees and Executive Officers” in the registrant’s definitive proxy statement relating to its Annual Meeting of Shareowners held on April 26, 2006.
 
The remaining information called for by this item relating to “Securities Authorized for Issuance under Equity Compensation Plans” is incorporated by reference to note 24 on pages 123-125.
 
 
Item 13. Certain Relationships and Related Transactions
 
Incorporated by reference to “Information Relating to Directors, Nominees and Executive Officers” in the registrant’s definitive proxy statement relating to its Annual Meeting of Shareowners held on April 26, 2006.
 
 
Item 14. Principal Accounting Fees and Services
 
Incorporated by reference to “Independent Auditor” in the registrant’s definitive proxy statement relating to its Annual Meeting of Shareowners held on April 26, 2006.
 

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Part IV
 
Item 15. Exhibits, Financial Statement Schedules
 
(a)1.
The schedules listed in Reg. 210.5-04 have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
 
(a)2.
Exhibit Index
 
 
(3)
The Certificate of Incorporation, as amended, and By-Laws, as amended, of General Electric Company (Incorporated by reference to Exhibit (3) of General Electric’s Current Report on Form 8-K dated April 27, 2000 (Commission file number 1-35)).
 
 
4(a) 
Amended and Restated General Electric Capital Corporation (GECC) Standard Global Multiple Series Indenture Provisions dated as of February 27, 1997 (Incorporated by reference to Exhibit 4(a) to GECC’s Registration Statement on Form S-3, File No. 333-59707 (Commission file number 1-6461)).
 
 
4(b)
Third Amended and Restated Indenture dated as of February 27, 1997 between GECC and JPMorgan Chase Bank, N.A. (formerly known as The Chase Manhattan Bank), as successor trustee (Incorporated by reference to Exhibit 4(c) to GECC’s Registration Statement on Form S-3, File No. 333-59707 (Commission file number 1-6461)).
 
 
4(c)
First Supplemental Indenture dated as of May 3, 1999, supplemental to Third Amended and Restated Indenture dated as of February 27, 1997 (Incorporated by reference to Exhibit 4(dd) to GECC’s Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File No. 333-76479 (Commission file number 1-6461)).
 
 
4(d)
Second Supplemental Indenture dated as of July 2, 2001, supplemental to Third Amended and Restated Indenture dated as of February 27, 1997 (Incorporated by reference to Exhibit 4 (f) to GECC’s Post-Effective Amendment No.1 to Registration Statement on Form S-3, File No. 333-40880 (Commission file number 1-6461)).
 
 
4(e)
Third Supplemental Indenture dated as of November 22, 2002, supplemental to Third Amended and Restated Indenture dated as of February 27, 1997 (Incorporated by reference to Exhibit 4(cc) to GECC’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-3, File No. 333-100527 (Commission file number 1-6461)).
 
 
4(f)
Senior Note Indenture dated as of January 1, 2003, between GE and The Bank of New York, as trustee for the senior debt securities. (Incorporated by reference to Exhibit 4(a) to GE’s Current Report on Form 8-K filed on January 29, 2003 (Commission file number 1-35)).
 
 
4(g)
Form of Global Medium-Term Note, Series A, Fixed Rate Registered Note (Incorporated by reference to Exhibit 4(m) to GECC’s Registration Statement on Form S-3, File No. 333-100527 (Commission file number 1-6461)).
 

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4(h)
Form of Global Medium-Term Note, Series A, Floating Rate Registered Note (Incorporated by reference to Exhibit 4(n) to the GECC’s Registration Statement on Form S-3, File No. 333-100527 (Commission file number 1-6461)).
 
 
4(i)
Form of LIBOR Floating Rate Note (Incorporated by reference to Exhibit 4 of General Electric’s Current Report on Form 8-K dated October 29, 2003 (Commission file number 1-35)).
 
 
4(j)
Fifth Amended and Restated Fiscal and Paying Agency Agreement among GECC, GE Capital Australia Funding Pty Ltd, GE Capital European Funding, GE Capital Canada Funding Company, GE Capital UK Funding and JPMorgan Chase Bank N.A., J.P. Morgan Bank Luxembourg, S.A. and J.P. Morgan Bank (Ireland) p.l.c., dated as of May 21, 2004 (Incorporated by reference to Exhibit 4(f) to General Electric Capital Services, Inc.’s Form 10-K Report for the fiscal year ended December 31, 2004).
 
 
4(k)
Agreement to furnish to the Securities and Exchange Commission upon request a copy of instruments defining the rights of holders of certain long-term debt of the registrant and consolidated subsidiaries.
 
 
(10)
All of the following exhibits consist of Executive Compensation Plans or Arrangements:
 
   
(a)
General Electric Incentive Compensation Plan, as amended effective July 1, 1991 (Incorporated by reference to Exhibit 10(a) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1991).
 
   
(b)
General Electric Financial Planning Program, as amended through September 1993 (Incorporated by reference to Exhibit 10(h) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993).
 
   
(c)
General Electric Supplemental Life Insurance Program, as amended February 8, 1991 (Incorporated by reference to Exhibit 10(i) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1990).
 
   
(d)
General Electric 1987 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(k) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1987).
 
   
(e)
General Electric 1991 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(n) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1990).
 
   
(f)
General Electric 1994 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(o) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993).
 
   
(g)
General Electric Directors’ Charitable Gift Plan, as amended through December 2002 (Incorporated by reference to Exhibit 10(i) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2002).
 

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(h)
General Electric Leadership Life Insurance Program, effective January 1, 1994 (Incorporated by reference to Exhibit 10(r) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1993).
 
   
(i)
General Electric 1996 Stock Option Plan for Non-Employee Directors (Incorporated by reference to Exhibit A to the General Electric Proxy Statement for its Annual Meeting of Shareowners held on April 24, 1996 (Commission file number 1-35)).
 
   
(j)
General Electric 1995 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(t) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1995).
 
   
(k)
General Electric 1996 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(v) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1996).
 
   
(l)
General Electric 1997 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(t) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1997).
 
   
(m)
General Electric 1990 Long-Term Incentive Plan as restated and amended effective August 1, 1997 (Incorporated by reference to Exhibit 10(u) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1997).
 
   
(n)
General Electric 1998 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(v) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1998).
 
   
(o)
General Electric 1999 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(v) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1999).
 
   
(p)
General Electric 2000 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(u) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2000).
 
   
(q)
General Electric Supplementary Pension Plan, as amended effective January 1, 2005 (Incorporated by reference to Exhibit 10(q) to the General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2004).
 
   
(r)
Form of GE Executive Life Insurance Agreement provided to GE officers, as revised November 2003 (Incorporated by reference to Exhibit 10(r) to the General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2004).
 

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(s)
General Electric 2001 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(x) to General Electric Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2001).
 
   
(t)  
General Electric 2003 Non-Employee Director Compensation Plan (Incorporated by reference to Exhibit 10(w) to General Electric Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2002).
 
   
(u)
General Electric 2003 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(x) to General Electric Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2002).
 
   
(v)
Amendment No. 1 to General Electric 1990 Long-Term Incentive Plan as restated and amended effective August 1, 1997 (Incorporated by reference to Exhibit 10(y) to General Electric Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2002).
 
   
(w)
Amendment to Nonqualified Deferred Compensation Plans, dated as of December 14, 2004 (Incorporated by reference to Exhibit 10(w) to the General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2004).
 
   
(x)
GE Retirement for the Good of the Company Program, as amended effective January 1, 2005 (Incorporated by reference to Exhibit 10(x) to the General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2004).
 
   
(y)
GE Excess Benefits Plan, effective July 1, 2003 (Incorporated by reference to Exhibit 10(y) to the General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2004).
 
   
(z)
General Electric 2002 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10(z) to the General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 2004).
 
   
(aa)
Form of Agreement for Stock Option Grants to Executive Officers under the General Electric 1990 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of General Electric’s Current Report on Form 8-K dated September 15, 2004 (Commission file number 1-35)).
 
   
(bb)
Form of Agreement for Annual Restricted Stock Unit Grants to Executive Officers under the General Electric 1990 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.2 of General Electric’s Current Report on Form 8-K dated September 15, 2004 (Commission file number 1-35)).
 
   
(cc)
Form of Agreement for RSU Career Retention Program Restricted Stock Unit Grants to Executive Officers under the General Electric 1990 Long Term Incentive Plan (Incorporated by reference to Exhibit 10 of General Electric’s Current Report on Form 8-K dated July 28, 2005 (Commission file number 1-35)).

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(dd)
Form of Agreement for Long Term Performance Award Grants to Executive Officers under the General Electric 1990 Long Term Incentive Plan.
 
   
(ee)
Form of Agreement for Performance Stock Unit Grants to Executive Officers under the General Electric 1990 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.5 of General Electric’s Current Report on Form 8-K dated September 15, 2004 (Commission file number 1-35)).
 
   
(ff)
General Electric 2006 Executive Deferred Salary Plan (Incorporated by reference to Exhibit 10 of General Electric’s Current Report on Form 8-K dated September 16, 2005 (Commission file number 1-35)).
 
   
(gg)
Transaction Agreement by and between Swiss Reinsurance Company and General Electric Company, dated November 18, 2005.
 
 
(11)
Statement re Computation of Per Share Earnings (Restated).**
 
 
(12)
Computation of Ratio of Earnings to Fixed Charges (Restated).*
 
 
(21)
Subsidiaries of Registrant.
 
 
(23)
Consent of independent registered public accounting firm incorporated by reference in each Prospectus constituting part of the Registration Statements on Form S-3 (Registration Nos. 33-50639, 33-39596, 33-39596-01, 33-29024, 333-59671, 333-120155, 333-72566 and 333-130117), on Form S-4 (Registration No. 333-107556), and on Form S-8 (Registration Nos. 333-01953, 333-42695, 333-74415, 333-83164, 333-98877, 333-94101, 333-65781, 333-88233, 333-117855, 333-99671 and 333-102111).*
 
 
(24)
Power of Attorney.*
 
 
31(a)
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended. *
 
 
31(b)
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.*
 
 
(32)
Certification Pursuant to 18 U.S.C. Section 1350.*
 
 
99(a) 
Income Maintenance Agreement, dated March 28, 1991, between the registrant and General Electric Capital Corporation (Incorporated by reference to Exhibit 28(a) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1990).
 
 
99(b) 
Undertaking for Inclusion in Registration Statements on Form S-8 of General Electric Company (Incorporated by reference to Exhibit 99(b) to General Electric Annual Report on Form 10-K (Commission file number 1-35) for the fiscal year ended December 31, 1992).
 

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99(c) 
Letter, dated February 4, 1999, from Dennis D. Dammerman of General Electric Company to Denis J. Nayden of General Electric Capital Corporation pursuant to which General Electric Company agrees to provide additional equity to General Electric Capital Corporation in conjunction with certain redemptions by General Electric Capital Corporation of shares of its Variable Cumulative Preferred Stock. (Incorporated by reference to Exhibit 99 (g) to General Electric Capital Corporation’s Post-Effective Amendment No. 1 to Registration Statement on Form S-3, File No. 333-59707) (Commission file number 1-6461).
 
*
Filed electronically herewith.
** 
Information required to be presented in Exhibit 11 is provided in note 9 to the consolidated financial statements under Part II, Item 8 of this Form 10-K/A in accordance with the provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.

 

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Signatures
 
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K/A for the fiscal year ended December 31, 2005, to be signed on its behalf by the undersigned, and in the capacities indicated, thereunto duly authorized in the Town of Fairfield and State of Connecticut on the 19th day of January 2007.
 
 
 
   
General Electric Company
(Registrant)
  
       
   
 
 
 
  
 
By
/s/ Keith S. Sherin
  
   
Keith S. Sherin
Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
  

 

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
 
Signer
  
Title
  
Date
           
           
           
 
/s/ Keith S. Sherin
 
Principal Financial Officer
  
January 19, 2007
 
Keith S. Sherin
Senior Vice President, Finance and
Chief Financial Officer
       
           
 
          
 
/s/ Philip D. Ameen
 
Principal Accounting Officer
  
January 19, 2007
 
Philip D. Ameen
Vice President and Comptroller
       
 
 
        
 
Jeffrey R. Immelt*
  
Chairman of the Board of Directors
(Principal Executive Officer)
    
 
 
        
 
James I. Cash, Jr.*
  
Director
    
 
William M. Castell*
  
Director
    
 
Ann M. Fudge*
  
Director
    
 
Claudio X. Gonzalez*
  
Director
    
 
Susan Hockfield
  
Director
    
 
Andrea Jung*
  
Director
    
 
Alan G. Lafley*
  
Director
    
 
Robert W. Lane*
  
Director
    
 
Ralph S. Larsen*
  
Director
    
 
Rochelle B. Lazarus*
  
Director
    
 
Sam Nunn*
  
Director
    
 
Roger S. Penske*
  
Director
    
 
Robert J. Swieringa*
  
Director
    
 
Douglas A. Warner III*
  
Director
    
 
Robert C. Wright*
  
Director
    
           
 
A majority of the Board of Directors
       
 
          
           
*By
/s/ Michael R. McAlevey
        
 
Michael R. McAlevey
Attorney-in-fact
January 19, 2007
        





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