notes to consolidated financial statements We amortize the cost of other intangibles over their estimated useful lives unless such lives are deemed indefi nite. 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 invest- ment 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 signifi cant 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. 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 annui- ties 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 We adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) 123 (Revised 2004), Share-Based Payment (SFAS 123R) and related FASB Staff Positions (FSPs), effective January 1, 2006. Among other things, SFAS 123R requires expensing the fair value of stock options, a previously optional accounting method that we adopted voluntarily in 2002, and classification of excess tax benefi ts associated with share-based compensation deductions as cash from financing activities rather than cash from operating activities. We chose the modified prospective transition method, which requires that the new guidance be applied to the unvested portion of all outstanding stock option grants as of January 1, 2006, and to new grants after that date. We further applied the alternative transition method provided in FSP FAS 123(R) –3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. The transitional effects of SFAS 123R and related FSPs consisted of a reduction in net earnings of $10 million for the year ended December 31, 2006, to expense the unvested portion of options granted in 2001 and classification of $173 million related to excess tax benefits from share-based compensation deductions as cash from financing activities in our Statement of Cash Flows beginning in 2006, which previously would have been included in cash from operating activities. A comparison of reported net earnings for 2006, 2005 and 2004, and pro-forma net earnings for 2005 and 2004, including effects of expensing stock options, follows. (In millions per-share amounts in dollars) 2006 2005 2004 Net earnings, as reported $20,829 $16,711 $17,160 Earnings per share, as reported Diluted 2.00 1.57 1.64 Basic 1.65 Stock option expense included in net earnings 2.01 1.58 96 106 93 Total stock option expense(a) 96 191 245 PRO-FORMA EFFECTS (b) Net earnings, on pro-forma basis 16,626 17,008 Earnings per share, on pro-forma basis Diluted 1.57 1.63 (b) (b) Basic 1.57 1.64 Other share-based compensation expense recognized in net earnings amounted to $130 million, $87 million and $95 million in 2006, 2005 and 2004, respectively. The total income tax benefit recognized in earnings for all share-based compensation arrangements amounted to $117 million, $115 million and $101 million in 2006, 2005 and 2004, respectively. (a) As if we had applied SFAS 123R to expense stock options in all periods. Included amounts we actually recognized in earnings. (b) Not applicable. As of January 1, 2006, total stock option expense is included in net earnings. SFAS 158, Employers’ Accounting for Defi ned Benefi t Pension and Other Postretirement Plans, became effective for us as of December 31, 2006, and requires recognition of an asset or liability in the statement of financial position reflecting the funded status of pension and other postretirement benefit plans such as retiree health and life, with current-year changes in the funded status recognized in shareowners’ equity. SFAS 158 did not change the existing criteria for measurement of periodic benefi t costs, plan assets or benefi t obligations. ge 2006 annual report 77

notes to consolidated financial statements The following table summarizes the incremental effects of the initial adoption of SFAS 158 on our Statement of Financial Position at December 31, 2006. (In millions) Before Application of SFAS 158 SFAS 158 Adjustments After Application of SFAS 158 All other assets $ 99,809 $(2,697) $ 97,112 Total assets 699,936 (2,697) 697,239 All other liabilities 43,047 3,837 46,884 Deferred income taxes 16,886 (2,715) 14,171 Total liabilities 576,225 1,122 577,347 Accumulated gains (losses) — net Benefit plans (587) (3,819) (4,406) Total shareowners’ equity 116,133 (3,819) 112,314 Total liabilities and equity 699,936 (2,697) 697,239 See notes 6 and 7 for further details on our retiree health and life benefit plans and pension plans, respectively. Note 2 Discontinued Operations We classified GE Life, Genworth Financial, Inc. (Genworth) and most of GE Insurance Solutions as discontinued operations. Associated results of operations, financial position and cash flows are separately reported for all periods presented. Sale of GE Life In December 2006, we completed the sale of GE Life, our U.K.- based life insurance operation, to Swiss Reinsurance Company (Swiss Re) for $910 million. As a result, we recognized an after-tax loss of $267 million during 2006. GE Life revenues from discon- tinued operations were $2,096 million, $2,286 million and $708 million in 2006, 2005 and 2004, respectively. In total, GE Life loss from discontinued operations, net of taxes, was $178 million and $28 million in 2006 and 2005, respectively, compared with earn- ings from discontinued operations of $25 million in 2004. Sale of GE Insurance Solutions In June 2006, we completed the sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions to Swiss Re for $9,297 million, including the assumption of $1,700 million of debt. We received $5,359 million in cash and $2,238 million of newly issued Swiss Re common stock, representing a 9% interest in Swiss Re. As a result, we recognized after-tax losses of $134 million and $934 million in 2006 and 2005, respectively. GE Insurance Solutions revenues from discontinued operations were $2,815 million, $7,451 million and $8,625 million in 2006, 2005 and 2004, respectively. In total, GE Insurance Solutions earnings from discontinued operations, net of taxes, were $148 million and $90 million in 2006 and 2004, respectively, compared with a loss of $2,850 million in 2005. Sale of Genworth In March 2006, we completed the sale of our remaining 18% investment in Genworth through a secondary public offering of 71 million shares of Class A Common Stock and direct sale to Genworth of 15 million shares of Genworth Class B Common Stock. As a result of initial and secondary public offerings, we recognized after-tax gains of $220 million and $552 million in 2006 and 2005, respectively, compared with an after-tax loss of $336 million in 2004. Genworth revenues from discontinued operations were $5 million, $7,908 million and $10,148 million in 2006, 2005 and 2004, respectively. In total, Genworth earnings from discontinued operations, net of taxes, were $193 million, $928 million and $444 million in 2006, 2005 and 2004, respectively. Summarized financial information for discontinued operations is shown below. (In millions) 2006 2005 2004 OPERATIONS Revenues from services $4,916 $17,645 $19,481 Earnings (loss) from discontinued operations before minority interest and income taxes $ 382 $ (1,726) $ 1,517 Minority interest — 394 200 Earnings (loss) from discontinued operations before income taxes 382 (2,120) 1,317 Income tax benefi t (expense) (38) 552 (422) Earnings (loss) from discontinued operations before disposal, net of taxes $ 344 $ (1,568) $ 895 DISPOSAL Gain (loss) on disposal before income taxes $ (75) $ 629 $ (570) Income tax benefi t (expense) (106) (1,011) 234 Loss on disposal, net of taxes $ (181) $ (382) $ (336) EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES $ 163 $ (1,950) $ 559 December 31 (In millions) 2005 ASSETS Cash and equivalents $ 2,976 Investment securities 37,633 Other GECS receivables 13,915 Other 6,542 Assets of discontinued operations 61,066 ELIMINATIONS — Total $61,066 LIABILITIES AND EQUITY Investment contracts, insurance liabilities and insurance annuity benefi ts $43,378 Other 6,385 Liabilities of discontinued operations 49,763 ELIMINATIONS (236) Total $49,527 Total accumulated nonowner changes other than earnings $ 652 Accrued liabilities of $475 million as of December 31, 2006, will be settled beginning in 2007. 78 ge 2006 annual report