General Electric Company and consolidated affiliates

 

	Three months ended June 30 (Unaudited)
	Consolidated						GE						Financial Services (GECS)
(In millions; per-share amounts in dollars)	2006 (Restated)			2005 (Restated)			2006 (Restated)			2005 (Restated)			2006 (Restated)			2005 (Restated)
Sales of goods	$	16,524		$	14,749		$	15,993		$	14,101		$	712		$	664
Sales of services		8,373			8,240			8,455			8,307			-			-
Other income		657			596			695			624			-			-
GECS earnings from continuing operations		-			-			2,594			1,889			-			-
GECS revenues from services		14,346			12,954			-			-			14,595			13,297
GECS commercial paper interest rate swap adjustment		148			(239	)		-			-			148			(239	)
Total revenues		40,048			36,300			27,737			24,921			15,455			13,722
Cost of goods sold		12,827			11,425			12,350			10,812			659			628
Cost of services sold		5,316			5,171			5,397			5,238			-			-
Interest and other financial charges		4,527			3,775			486			336			4,196			3,592
Investment contracts, insurance losses and
insurance annuity benefits		793			799			-			-			831			850
Provision for losses on financing receivables		896			958			-			-			896			958
Other costs and expenses		9,406			8,741			3,647			3,266			5,853			5,643
Minority interest in net earnings of
consolidated affiliates		235			290			186			249			49			41
Total costs and expenses		34,000			31,159			22,066			19,901			12,484			11,712
Earnings from continuing operations
before income taxes		6,048			5,141			5,671			5,020			2,971			2,010
Provision for income taxes		(1,100	)		(904	)		(723	)		(783	)		(377	)		(121	)
Earnings from continuing operations		4,948			4,237			4,948			4,237			2,594			1,889
Earnings (loss) from discontinued operations,
net of taxes		(2	)		271			(2	)		271			(2	)		271
Net earnings	$	4,946		$	4,508		$	4,946		$	4,508		$	2,592		$	2,160
Per-share amounts
Per-share amounts - earnings from
continuing operations
Diluted earnings per share	$	0.48		$	0.40
Basic earnings per share	$	0.48		$	0.40
Per-share amounts - net earnings
Diluted earnings per share	$	0.48		$	0.42
Basic earnings per share	$	0.48		$	0.43
Dividends declared per share	$	0.25		$	0.22

See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

 

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General Electric Company and consolidated affiliates

 

	Six months ended June 30 (Unaudited)
	Consolidated						GE						Financial Services (GECS)
(In millions; per-share amounts in dollars)	2006 (Restated)			2005 (Restated)			2006 (Restated)			2005 (Restated)			2006 (Restated)			2005 (Restated)
Sales of goods	$	31,059		$	28,405		$	30,019		$	27,089		$	1,267		$	1,338
Sales of services		17,322			15,989			17,515			16,152			-			-
Other income		1,108			913			1,174			954			-			-
GECS earnings from continuing operations		-			-			4,999			3,977			-			-
GECS revenues from services		28,232			25,582			-			-			28,721			26,228
GECS commercial paper interest rate swap adjustment		356			119									356			119
Total revenues		78,077			71,008			53,707			48,172			30,344			27,685
Cost of goods sold		24,483			22,031			23,538			20,789			1,172			1,263
Cost of services sold		11,321			10,107			11,514			10,270			-			-
Interest and other financial charges		8,875			7,434			870			717			8,290			6,994
Investment contracts, insurance losses and
insurance annuity benefits		1,542			1,626			-			-			1,636			1,716
Provision for losses on financing receivables		1,718			1,860			-			-			1,718			1,860
Other costs and expenses		18,443			17,589			7,043			6,577			11,576			11,333
Minority interest in net earnings of
consolidated affiliates		473			506			349			435			124			71
Total costs and expenses		66,855			61,153			43,314			38,788			24,516			23,237
Earnings from continuing operations
before income taxes		11,222			9,855			10,393			9,384			5,828			4,448
Provision for income taxes		(2,097	)		(1,833	)		(1,268	)		(1,362	)		(829	)		(471	)
Earnings from continuing operations		9,125			8,022			9,125			8,022			4,999			3,977
Earnings from discontinued operations, net of taxes		261			676			261			676			261			676
Net earnings	$	9,386		$	8,698		$	9,386		$	8,698		$	5,260		$	4,653
Per-share amounts
Per-share amounts - earnings from
continuing operations
Diluted earnings per share	$	0.87		$	0.75
Basic earnings per share	$	0.88		$	0.76
Per-share amounts - net earnings
Diluted earnings per share	$	0.90		$	0.82
Basic earnings per share	$	0.90		$	0.82
Dividends declared per share	$	0.50		$	0.44

See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

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General Electric Company and consolidated affiliates

 

	Consolidated						GE						Financial Services (GECS)
(In millions; except share amounts)	6/30/06 (Restated)			12/31/05 (Restated)			6/30/06 (Restated)			12/31/05 (Restated)			6/30/06 (Restated)			12/31/05 (Restated)
Cash and equivalents	$	11,099		$	8,825		$	1,766		$	2,015		$	9,484		$	7,130
Investment securities		45,021			42,148			469			461			44,559			41,710
Current receivables		12,043			14,851			12,255			15,058			-			-
Inventories		11,744			10,474			11,579			10,315			165			159
Financing receivables - net		303,899			287,639			-			-			303,899			287,639
Other GECS receivables		15,732			14,332			-			-			20,282			18,625
Property, plant and equipment (including
equipment leased to others) - net		71,005			67,528			16,724			16,504			54,281			51,024
Investment in GECS		-			-			48,608			50,812			-			-
Intangible assets - net		85,583			81,630			60,719			57,839			24,864			23,791
All other assets		91,221			84,828			36,641			36,752			55,702			49,440
Assets of discontinued operations		15,090			61,066			-			-			15,090			61,066
Total assets	$	662,437		$	673,321		$	188,761		$	189,756		$	528,326		$	540,584
Short-term borrowings	$	157,449		$	158,156		$	1,517		$	1,127		$	156,327		$	157,672
Accounts payable, principally trade accounts		19,446			21,183			10,577			11,870			12,848			13,043
Progress collections and price adjustments accrued		4,708			4,456			4,708			4,456			-			-
Other GE current liabilities		21,020			21,042			21,020			21,059			-			-
Long-term borrowings		236,935			212,281			9,090			9,081			229,033			204,397
Investment contracts, insurance liabilities
and insurance annuity benefits		34,491			33,097			-			-			34,872			33,387
All other liabilities		40,933			39,966			23,328			23,273			17,702			16,787
Deferred income taxes		15,432			16,208			3,750			3,733			11,682			12,475
Liabilities of discontinued operations		14,957			49,527			-			-			14,959			49,763
Total liabilities		545,371			555,916			73,990			74,599			477,423			487,524
Minority interest in equity of consolidated affiliates		8,274			8,054			5,979			5,806			2,295			2,248
Common stock (10,323,359,000 and 10,484,268,000
shares outstanding at June 30, 2006 and
December 31, 2005, respectively)		669			669			669			669			1			1
Accumulated gains (losses) - net
Investment securities		453			1,831			453			1,831			381			1,754
Currency translation adjustments		4,267			2,532			4,267			2,532			3,435			2,287
Cash flow hedges		27			(352	)		27			(352	)		23			(343	)
Minimum pension liabilities		(917	)		(874	)		(917	)		(874	)		(192	)		(179	)
Other capital		25,482			25,227			25,482			25,227			12,524			12,386
Retained earnings		101,817			97,644			101,817			97,644			32,436			34,906
Less common stock held in treasury		(23,006	)		(17,326	)		(23,006	)		(17,326	)		-			-
Total shareowners’ equity		108,792			109,351			108,792			109,351			48,608			50,812
Total liabilities and equity	$	662,437		$	673,321		$	188,761		$	189,756		$	528,326		$	540,584

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,” and amounted to $3,830 million and $3,137 million at June 30, 2006, and December 31, 2005, respectively.

 

See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” June 30, 2006, data are unaudited. Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

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General Electric Company and consolidated affiliates

 

	Six months ended June 30 (Unaudited)
	Consolidated						GE						Financial Services (GECS)
(In millions)	2006 (Restated)		(a)	2005 (Restated)		(a)	2006 (Restated)		(a)	2005 (Restated)		(a)	2006 (Restated)		(a)	2005 (Restated)		(a)
Cash flows - operating activities
Net earnings	$	9,386		$	8,698		$	9,386		$	8,698		$	5,260		$	4,653
Earnings from discontinued operations		(261	)		(676	)		-			-			(261	)		(676	)
Adjustments to reconcile net earnings to cash
provided from operating activities
Depreciation and amortization of property,
plant and equipment		4,378			4,266			1,300			1,225			3,078			3,041
Earnings retained by GECS		-			-			2,330			(2,814	)		-			-
Deferred income taxes		395			(493	)		55			(87	)		340			(406	)
Decrease in GE current receivables		2,931			1,544			2,925			1,663			-			-
Increase in inventories		(1,467	)		(613	)		(1,461	)		(583	)		(6	)		(30	)
Decrease in accounts payable		(1,537	)		(1,401	)		(915	)		(1,228	)		(373	)		(71	)
Increase in GE progress collections		246			110			246			110			-			-
Provision for losses on GECS financing receivables		1,718			1,860			-			-			1,718			1,860
All other operating activities		(3,576	)		(34	)		457			1,043			(974	)		(525	)
Cash from operating activities - continuing operations		12,213			13,261			14,323			8,027			8,782			7,846
Cash from (used for) operating activities - discontinued operations		(9	)		2,407			-			-			(9	)		2,407
Cash from operating activities		12,204			15,668			14,323			8,027			8,773			10,253
Cash flows - investing activities
Additions to property, plant and equipment		(7,384	)		(6,141	)		(1,497	)		(1,049	)		(5,887	)		(5,092	)
Dispositions of property, plant and equipment		2,930			3,071			-			-			2,896			3,075
Net decrease (increase) in GECS financing receivables		(15,483	)		4,249			-			-			(15,483	)		4,249
Payments for principal businesses purchased		(7,000	)		(10,341	)		(3,491	)		(3,499	)		(3,509	)		(6,842	)
Proceeds from sales of discontinued operations		8,112			3,403			-			-			8,112			3,403
All other investing activities		1,965			(1,263	)		1,403			687			(2,481	)		(2,584	)
Cash used for investing activities - continuing operations		(16,860	)		(7,022	)		(3,585	)		(3,861	)		(16,352	)		(3,791	)
Cash used for investing activities - discontinued operations		(2,558	)		(1,131	)		-			-			(2,558	)		(1,131	)
Cash used for investing activities		(19,418	)		(8,153	)		(3,585	)		(3,861	)		(18,910	)		(4,922	)
Cash flows - financing activities
Net increase (decrease) in borrowings (maturities of 90 days or less)		(3,312	)		(5,667	)		561			48			(4,127	)		(5,801	)
Newly issued debt (maturities longer than 90 days)		44,178			40,526			64			87			43,974			40,378
Repayments and other reductions (maturities longer than 90 days)		(21,935	)		(38,191	)		(148	)		(692	)		(21,787	)		(37,499	)
Net purchases of GE treasury shares		(6,217	)		(389	)		(6,217	)		(389	)		-			-
Dividends paid to shareowners		(5,247	)		(4,677	)		(5,247	)		(4,677	)		(7,590	)		(1,839	)
All other financing activities		(546	)		(860	)		-			-			(546	)		(860	)
Cash from (used for) financing activities - continuing operations		6,921			(9,258	)		(10,987	)		(5,623	)		9,924			(5,621	)
Cash used for financing activities - discontinued operations		(256	)		(691	)		-			-			(256	)		(691	)
Cash from (used for) financing activities		6,665			(9,949	)		(10,987	)		(5,623	)		9,668			(6,312	)
Decrease in cash and equivalents		(549	)		(2,434	)		(249	)		(1,457	)		(469	)		(981	)
Cash and equivalents at beginning of year		11,801			15,328			2,015			3,155			10,106			12,367
Cash and equivalents at June 30		11,252			12,894			1,766			1,698			9,637			11,386
Less cash and equivalents of discontinued operations at June 30		153			3,852			-			-			153			3,852
Cash and equivalents of continuing operations at June 30	$	11,099		$	9,042		$	1,766		$	1,698		$	9,484		$	7,534

See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

(a)	Certain individual line items within cash from operating activities have been restated.

 

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General Electric Company and consolidated affiliates

 

	Three months ended June 30 (Unaudited)						Six months ended June 30 (Unaudited)
(In millions)	2006			2005			2006			2005
Revenues
Infrastructure	$	11,332		$	10,221		$	21,484		$	19,595
Industrial		8,788			8,253			16,928			15,921
Healthcare		4,156			3,768			7,815			7,089
NBC Universal		3,858			3,858			8,340			7,459
Commercial Finance		5,527			4,929			11,011			10,001
Consumer Finance		5,268			4,928			10,358			9,617
Total segment revenues		38,929			35,957			75,936			69,682
Corporate items and eliminations, as restated		1,119			343			2,141			1,326
Consolidated revenues	$	40,048		$	36,300		$	78,077		$	71,008
Segment profit (a)
Infrastructure	$	2,107		$	1,916		$	3,810		$	3,456
Industrial		729			635			1,329			1,161
Healthcare		795			672			1,291			1,081
NBC Universal		882			979			1,536			1,688
Commercial Finance		1,057			872			2,231			1,798
Consumer Finance		880			735			1,716			1,470
Total segment profit		6,450			5,809			11,913			10,654
Corporate items and eliminations, as restated		(293	)		(453	)		(650	)		(553	)
GE interest and other financial charges		(486	)		(336	)		(870	)		(717	)
GE provision for income taxes		(723	)		(783	)		(1,268	)		(1,362	)
Earnings from continuing operations		4,948			4,237			9,125			8,022
Earnings (loss) from discontinued operations,
net of taxes		(2	)		271			261			676
Consolidated net earnings	$	4,946		$	4,508		$	9,386		$	8,698

(a)

Segment profit always excludes the effects of principal pension plans, results reported as discontinued operations and accounting changes, and 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 and product development costs; certain gains and losses from dispositions; and litigation settlements or other charges, responsibility for which preceded the current management team. 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 Infrastructure and Industrial 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 Infrastructure segment (Aviation Financial Services, Energy Financial Services and Transportation Finance) and the Industrial segment (Equipment Services).

 

 

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1. 2007 Restatement

 

General Electric Company (GE) is filing this amendment to its Quarterly Report on Form 10-Q for the period ended June 30, 2006, to amend and restate financial statements and other financial information for the three and six months ended June 30, 2006 and 2005. 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, 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 periods are immaterial.

 

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 No. 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.

 

 

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Effects of the restatement by line item follow:

 

		Three months ended June 30												Six months ended June 30
		2006						2005						2006						2005
(In millions; per share amounts in dollars) (unaudited)		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)		$	-		$	148		$	-		$	(239	)	$	-		$	356		$	-		$	119
Interest and other financial charges			4,533			4,527			3,786			3,775			8,894			8,875			7,457			7,434
Earnings from continuing operations
before income taxes			5,894			6,048			5,369			5,141			10,847			11,222			9,713			9,855
Provision for income taxes			(1,040	)		(1,100	)		(993	)		(904	)		(1,951	)		(2,097	)		(1,777	)		(1,833	)
Earnings from continuing operations			4,854			4,948			4,376			4,237			8,896			9,125			7,936			8,022
Net earnings			4,852			4,946			4,647			4,508			9,157			9,386			8,612			8,698
(a)	Included in total revenues.
Per share amounts
Earnings from continuing
operations
Diluted earnings per share		$	0.47		$	0.48		$	0.41		$	0.40		$	0.85		$	0.87		$	0.75		$	0.75
Basic earnings per share			0.47			0.48			0.41			0.40			0.86			0.88			0.75			0.76
Net earnings
Diluted earnings per share		$	0.47		$	0.48		$	0.44		$	0.42		$	0.88		$	0.90		$	0.81		$	0.82
Basic earnings per share			0.47			0.48			0.44			0.43			0.88			0.90			0.81			0.82
GECS
GECS commercial paper interest rate
swap adjustment (a)		$	-		$	148		$	-		$	(239	)	$	-		$	356		$	-		$	119
Interest and other financial charges			4,202			4,196			3,603			3,592			8,309			8,290			7,017			6,994
Earnings from continuing operations
before income taxes			2,817			2,971			2,238			2,010			5,453			5,828			4,306			4,448
Provision for income taxes			(317	)		(377	)		(210	)		(121	)		(683	)		(829	)		(415	)		(471	)
Earnings from continuing operations			2,500			2,594			2,028			1,889			4,770			4,999			3,891			3,977
Net earnings			2,498			2,592			2,299			2,160			5,031			5,260			4,567			4,653
(a)	Included in total revenues.

 

 

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	6/30/06						12/31/05
(In millions) (unaudited)	As previously reported			As restated			As previously reported			As restated
Statement of Financial Position
Consolidated
All other assets	$	91,199		$	91,221		$	84,849		$	84,828
Total assets		662,415			662,437			673,342			673,321
Accounts payable		19,315			19,446			21,183			21,183
Other liabilities		40,910			40,933			39,966			39,966
Deferred income taxes		15,583			15,432			16,226			16,208
Total liabilities		545,368			545,371			555,934			555,916
Cash flow hedges		(236	)		27			(822	)		(352	)
Retained earnings		102,061			101,817			98,117			97,644
Total shareowners’ equity		108,773			108,792			109,354			109,351
Total liabilities and equity		662,415			662,437			673,342			673,321
GECS
All other assets	$	55,680		$	55,702		$	49,461		$	49,440
Total assets		528,304			528,326			540,605			540,584
Accounts payable		12,717			12,848			13,043			13,043
Other liabilities		17,679			17,702			16,787			16,787
Deferred income taxes		11,833			11,682			12,493			12,475
Total liabilities		477,420			477,423			487,542			487,524
Cash flow hedges		(240	)		23			(813	)		(343	)
Retained earnings		32,680			32,436			35,379			34,906
Total shareowners’ equity		48,589			48,608			50,815			50,812
Total liabilities and equity		528,304			528,326			540,605			540,584

 

The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company and all companies that we directly or indirectly control, either through majority ownership or otherwise. See note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2005. That note discusses consolidation and financial statement presentation. As used in this report on Form 10-Q (Report) and in the Annual Report on Form 10-K, “GE” represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis; GECS consists of General Electric Capital Services, Inc. and all of its affiliates; and “Consolidated” represents the adding together of GE and GECS with the effects of transactions between the two eliminated. We reclassified certain prior-period amounts to conform to the current period’s presentation. Unless otherwise indicated, information in these notes to condensed, consolidated financial statements relates to continuing operations.

 

 

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2. The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish interim quarterly closing dates using a fiscal calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar from 1993 through 2013 is available on our website, www.ge.com/secreports.

 

3. We classified GE Life, Genworth Financial, Inc. (Genworth) and most of GE Insurance Solutions Corporation (GE Insurance Solutions) as discontinued operations. Associated results of operations, financial position and cash flows are separately reported for all periods presented.

 

Completed 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 Reinsurance Company (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, that we are not permitted to sell until June 4, 2007, under the agreement we have with Swiss Re. GE Insurance Solutions’ earnings from discontinued operations, net of taxes, for the second quarter of 2006 and first six months of 2006 were $101 million and $236 million, respectively.

 

Completed 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, we recognized a pre-tax gain of $516 million ($300 million after tax) in the first quarter of 2006.

 

Planned sale of GE Life

 

In March 2006, we initiated a plan to sell GE Life, our U.K.-based life insurance operation. GE Life’s revenues for the second quarter and first six months of 2006 were $63 million and $862 million, respectively; and its earnings from operations for the second quarter and first six months of 2006 were $12 million and $17 million, respectively. For the first six months of 2006, we have provided for a pre-tax loss of $320 million ($285 million after tax), including a $110 million loss recognized in the second quarter of 2006 based on our best estimate of sales proceeds. We do not expect to realize a tax benefit for this loss. We anticipate selling GE Life by March 31, 2007.

 

 

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Summarized financial information

 

Summarized financial information for discontinued operations is set forth below. Gain (loss) on disposal included both actual (GE Insurance Solutions and Genworth) and estimated (GE Life) effects.

 

	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Discontinued operations before disposal
Revenues from services	$	1,337		$	5,017		$	3,682		$	10,230
Earnings from discontinued operations before
minority interest and income taxes	$	203		$	636		$	382		$	1,334
Minority interest		-			145			-			244
Earnings from discontinued operations before
income taxes		203			491			382			1,090
Income tax expense		(41	)		(220	)		(82	)		(500	)
Earnings from discontinued operations before
disposal, net of taxes	$	162		$	271		$	300		$	590
Disposal
Gain (loss) on disposal before income taxes	$	(295	)	$	-		$	11		$	156
Income tax benefit (expense)		131			-			(50	)		(70	)
Gain (loss) on disposal, net of taxes	$	(164	)	$	-		$	(39	)	$	86
Earnings (loss) from discontinued operations,
net of taxes	$	(2	)	$	271		$	261		$	676

 

	At
(In millions)	6/30/06			12/31/05
Assets
Cash and equivalents	$	153		$	2,976
Investment securities		11,776			37,633
Other receivables		472			13,915
Other		2,689			6,542
Assets of discontinued operations		15,090			61,066
Eliminations		-			-
Total	$	15,090		$	61,066
Liabilities and equity
Investment contracts, insurance liabilities and insurance annuity benefits	$	13,018		$	43,378
Other		1,941			6,385
Liabilities of discontinued operations		14,959			49,763
Eliminations		(2	)		(236	)
Total	$	14,957		$	49,527
Total accumulated nonowner changes other than earnings	$	168		$	652

 

 

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4. GECS revenues from services are summarized in the following table.

 

	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Interest on loans	$	5,627		$	5,238		$	10,969		$	10,101
Operating lease rentals		3,152			2,799			6,067			5,556
Fees		1,009			971			2,016			1,818
Financing leases		1,025			1,035			2,027			2,068
Investment income		566			587			1,226			1,242
Premiums earned by insurance activities		485			570			976			1,123
Other income		2,731			2,097			5,440			4,320
Total	$	14,595		$	13,297		$	28,721		$	26,228

 

5. We sponsor a number of pension and retiree health and life insurance benefit plans. Principal pension plans include the GE Pension Plan and the GE Supplementary Pension Plan. Principal retiree benefit plans generally provide health and life insurance benefits to employees who retire under the GE Pension Plan with 10 or more years of service. Other pension plans include the U.S. and non-U.S. pension plans whose pension assets or obligations exceeded $50 million. Smaller pension plans and other retiree benefit plans are not material individually or in the aggregate. The effect on operations of the pension and retiree benefit plans follows.

 

	Principal Pension Plans
	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Expected return on plan assets	$	(953	)	$	(970	)	$	(1,905	)	$	(1,940	)
Service cost for benefits earned		323			325			689			650
Interest cost on benefit obligation		573			563			1,152			1,120
Prior service cost		57			62			115			124
Net actuarial loss recognized		181			90			369			171
Cost of pension plans	$	181		$	70		$	420		$	125

 

	Other Pension Plans
	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Expected return on plan assets	$	(99	)	$	(88	)	$	(197	)	$	(176	)
Service cost for benefits earned		83			69			166			142
Interest cost on benefit obligation		94			89			187			179
Prior service cost		1			1			2			3
Net actuarial loss recognized		39			26			78			57
Cost of pension plans	$	118		$	97		$	236		$	205

 

 

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	Principal Retiree Health and Life Insurance Plans
	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Expected return on plan assets	$	(32	)	$	(35	)	$	(64	)	$	(69	)
Service cost for benefits earned		54			54			108			107
Interest cost on benefit obligation		114			127			228			253
Prior service cost		72			74			146			149
Net actuarial loss recognized		18			18			36			36
Cost of principal retiree benefit plans	$	226		$	238		$	454		$	476

 

 

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6. GE’s authorized common stock consists of 13,200,000,000 shares having a par value of $0.06 each. Information related to the calculation of earnings per share follows.

 

	Three months ended June 30
	2006						2005
(In millions; per-share amounts in dollars)	Diluted			Basic			Diluted			Basic
Consolidated
Earnings from continuing operations for
per-share calculation(a)	$	4,948		$	4,947		$	4,237		$	4,237
Earnings from discontinued operations
for per-share calculation(b)		(2	)		(2	)		269			271
Net earnings available for per-share calculation	$	4,946		$	4,945		$	4,506		$	4,508
Average equivalent shares
Shares of GE common stock outstanding		10,362			10,362			10,604			10,604
Employee compensation-related shares,
including stock options		38			-			46			-
Total average equivalent shares		10,400			10,362			10,650			10,604
Per-share amounts
Earnings from continuing operations	$	0.48		$	0.48		$	0.40		$	0.40
Earnings from discontinued operations	$	-		$	-		$	0.03		$	0.03
Net earnings	$	0.48		$	0.48		$	0.42		$	0.43
	Six months ended June 30
	2006						2005
(In millions; per-share amounts in dollars)	Diluted			Basic			Diluted			Basic
Consolidated
Earnings from continuing operations for
per-share calculation(a)	$	9,126		$	9,125		$	8,023		$	8,023
Earnings from discontinued operations
for per-share calculation(b)		261			261			672			676
Net earnings available for per-share calculation	$	9,386		$	9,386		$	8,694		$	8,698
Average equivalent shares
Shares of GE common stock outstanding		10,403			10,403			10,599			10,599
Employee compensation-related shares,
including stock options		38			-			45			-
Total average equivalent shares		10,441			10,403			10,644			10,599
Per-share amounts
Earnings from continuing operations	$	0.87		$	0.88		$	0.75		$	0.76
Earnings from discontinued operations	$	0.02		$	0.03		$	0.06		$	0.06
Net earnings	$	0.90		$	0.90		$	0.82		$	0.82

(a)	Including dividend equivalents.
(b)	Including dilutive effects of subsidiary-issued stock-based awards in 2005.

 

 

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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-to-date period; and the sum of per-share amounts from continuing operations and discontinued operations does not always equal the total per-share net earnings for the respective quarters.

 

7. Inventories consisted of the following.

 

	At
(In millions)	6/30/06			12/31/05
Raw materials and work in process	$	6,615		$	5,527
Finished goods		5,385			5,311
Unbilled shipments		363			333
		12,363			11,171
Less revaluation to LIFO		(619	)		(697	)
Total	$	11,744		$	10,474

 

8. GECS financing receivables - net, consisted of the following.

 

	At
(In millions)	6/30/06			12/31/05
Loans, net of deferred income	$	240,838		$	227,923
Investment in financing leases, net of deferred income		67,679			64,309
		308,517			292,232
Less allowance for losses		(4,618	)		(4,593	)
Financing receivables - net	$	303,899		$	287,639

 

Included in the above are the financing receivables of consolidated, liquidating securitization entities as follows (see note 14):

 

	At
(In millions)	6/30/06			12/31/05
Loans, net of deferred income	$	13,728		$	15,868
Investment in financing leases, net of deferred income		85			769
		13,813			16,637
Less allowance for losses		(34	)		(22	)
Financing receivables - net	$	13,779		$	16,615

 

 

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9. Property, plant and equipment (including equipment leased to others) - net, consisted of the following.

 

	At
(In millions)	6/30/06			12/31/05
Original cost	$	116,708		$	111,733
Less accumulated depreciation and amortization		(45,703	)		(44,205	)
Property, plant and equipment - net	$	71,005		$	67,528

 

10. Intangible assets - net, consisted of the following.

 

	At
(In millions)	6/30/06			12/31/05
Goodwill	$	72,468		$	69,611
Intangible assets subject to amortization		10,857			9,932
Indefinite-lived intangible assets(a)		2,258			2,087
Total	$	85,583		$	81,630

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

 

Changes in goodwill balances follow.

 

(In millions)	Balance 1/1/06			Acquisitions/ purchase accounting adjustments					Currency exchange and other					Balance 6/30/06
Infrastructure	$	10,166			$	588				$	115			$	10,869
Industrial		8,702				360					10				9,072
Healthcare		13,404				1,095					22				14,521
NBC Universal		17,534				754					(372	)			17,916
Commercial Finance		10,621				18					54				10,693
Consumer Finance		9,184				62					151				9,397
Total	$	69,611			$	2,877				$	(20	)		$	72,468

 

The amount of goodwill related to new acquisitions recorded during the first six months of 2006 was $2,709 million, the largest of which were IDX Systems Corporation ($1,114 million) by Healthcare, iVillage Inc. ($465 million) by NBC Universal and ZENON Membrane Solutions ($420 million) by Infrastructure. During 2006, we increased goodwill associated with previous acquisitions by $168 million; the largest such adjustment was an increase of $122 million associated with the 2005 acquisition of Ionics, Inc. by Infrastructure. Also during 2006, goodwill at NBC Universal declined by $304 million as part of the sale of four television stations.

 

 

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Intangible Assets Subject to Amortization

 

	At
	6/30/06											12/31/05
(In millions)	Gross carrying amount			Accumulated amortization					Net			Gross carrying amount			Accumulated amortization					Net
Patents, licenses and trademarks	$	5,089			$	(1,541	)		$	3,548		$	5,311			$	(1,406	)		$	3,905
Capitalized software		5,942				(3,410	)			2,532			5,586				(3,059	)			2,527
All other		6,229				(1,452	)			4,777			4,737				(1,237	)			3,500
Total	$	17,260			$	(6,403	)		$	10,857		$	15,634			$	(5,702	)		$	9,932

 

Consolidated amortization expense related to intangible assets subject to amortization amounted to $468 million and $362 million for the quarters ended June 30, 2006 and 2005, respectively. Consolidated amortization expense related to intangible assets subject to amortization for the six months ended June 30, 2006 and 2005, amounted to $900 million and $725 million, respectively.

 

 

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11. GECS borrowings are summarized in the following table.

 

	At
(In millions)	6/30/06			12/31/05
Short-term borrowings
Commercial paper
U.S.
Unsecured	$	63,305		$	67,643
Asset-backed(a)		7,620			9,267
Non-U.S.		22,845			20,456
Current portion of long-term debt(b)(c)		43,498			41,792
Other		19,059			18,514
Total		156,327			157,672
Long-term borrowings
Senior notes
Unsecured		205,296			180,546
Asset-backed(d)		6,661			6,845
Extendible notes(e)		13,984			14,022
Subordinated notes(f)		3,092			2,984
Total		229,033			204,397
Total borrowings	$	385,360		$	362,069

(a)	Entirely obligations of consolidated, liquidating securitization entities. See note 14.
(b)	Included short-term borrowings by consolidated, liquidating securitization entities of $700 million and $697 million at June 30, 2006, and December 31, 2005, respectively. See note 14.
(c)	Included $250 million of subordinated notes guaranteed by GE at both June 30, 2006, and December 31, 2005.
(d)	Included asset-backed senior notes issued by consolidated, liquidating securitization entities of $5,536 million and $6,845 million at June 30, 2006, and December 31, 2005, respectively. See note 14.
(e)	Included $38 million of obligations of consolidated, liquidating securitization entities at December 31, 2005. See note 14.
(f)	Included $750 million of subordinated notes guaranteed by GE at both June 30, 2006, and December 31, 2005.

 

12. A summary of increases (decreases) in shareowners’ equity, net of income taxes, that did not result directly from transactions with shareowners follows.

 

	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Net earnings	$	4,946		$	4,508		$	9,386		$	8,698
Investment securities - net		(706	)		1,496			(1,378	)		676
Currency translation adjustments - net		1,995			(3,734	)		1,735			(3,673	)
Cash flow hedges - net		201			(333	)		379			(11	)
Minimum pension liabilities - net		(28	)		11			(43	)		24
Total	$	6,408		$	1,948		$	10,079		$	5,714

 

 

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13. We adopted the 2004 revision to Statement of Financial Accounting Standards 123, Share-Based Payment (SFAS 123R), on January 1, 2006, using the modified prospective method. Among other things, SFAS 123R requires expensing the fair value of stock options, a previously optional accounting method that we adopted voluntarily in 2002. The transitional effects of this provision of SFAS 123R consisted of reductions in net earnings of $3 million and $6 million for the three months and six months ended June 30, 2006, respectively, to expense the unvested portion of options granted in 2001.

 

A comparison of reported net earnings for 2006 and 2005, and pro-forma net earnings for 2005, including effects of expensing stock options, follows.

 

	Three months ended June 30						Six months ended June 30
(In millions; per-share amounts in dollars)	2006			2005			2006			2005
Net earnings, as reported	$	4,946		$	4,508		$	9,386		$	8,698
Earnings per share, as reported
Diluted		0.48			0.42			0.90			0.82
Basic		0.48			0.43			0.90			0.82
Stock option expense included in net earnings		26			21			50			58
Total stock option expense		26			36	(a)		50			100	(a)
Pro-forma effects
Net earnings, on pro-forma basis					4,493						8,656
Earnings per share, on pro-forma basis
Diluted					0.42						0.81
Basic					0.42						0.82

Other share-based compensation expense recognized in net earnings amounted to $31 million and $30 million for the three months ended June 30, 2006 and 2005, respectively. The total income tax benefit recognized in earnings for all share-based compensation arrangements amounted to $29 million and $28 million for the three months ended June 30, 2006 and 2005, respectively. Other share-based compensation expense recognized in net earnings amounted to $57 million and $51 million for the six months ended June 30, 2006 and 2005, respectively. The total income tax benefit recognized in earnings for all share-based compensation arrangements amounted to $56 million and $59 million for the six months ended June 30, 2006 and 2005, respectively.

(a)

As if we applied SFAS 123R to expense stock options in all periods. Included amounts we actually recognized in earnings.

 

SFAS 123R also required us to change the statement of cash flow classification of certain tax benefits from share-based compensation deductions beginning on January 1, 2006. As a result, we classified $64 million as cash from financing activities rather than cash from operating activities for the six months ended June 30, 2006.

 

 

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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. Share requirements for all plans may be met from either unissued or treasury shares. Stock options expire 10 years from the date they are granted and vest over service periods that range from one to five years. RSUs give 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.

 

All grants of GE options under all plans must be approved by the Management Development and Compensation Committee, which consists entirely of outside directors.

 

Stock Option Activity

 

	Shares (in thousands)				Weighted- Average Exercise Price					Weighted- Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2006		259,116				$	33.07
Granted		9,898					33.99
Exercised		(10,104	)				16.05
Forfeited		(1,833	)				32.08
Expired		(2,755	)				40.75
Outstanding at June 30, 2006		254,322				$	33.70				4.6				$	892
Exercisable at June 30, 2006		193,117				$	34.16				3.6				$	793
Options expected to vest		55,077				$	32.19				7.6				$	94

We measure the fair value of each stock option grant at the date of grant using a Black-Scholes option pricing model. The weighted-average grant-date fair value of options granted during the six months ended June 30, 2006 and 2005, amounted to $8.41 and $9.44, respectively. The following assumptions were used in arriving at the fair value of options granted during the six months ended June 30, 2006 and 2005, respectively: risk-free interest rates of 5.0% and 4.0%; dividend yields of 2.9 and 2.4%; expected volatility factors of 25% and 28%; and expected lives of 6 years and 6 years. Risk free interest rate reflects the yield on zero-coupon U.S. Treasury securities. Expected dividend yield presumes a set dividend rate. Expected volatility is based on implied volatility from traded options and historical volatility of our stock. The expected option life is based on our historical experience of employee exercise behavior.

The total intrinsic value of options exercised during the six months ended June 30, 2006 and 2005, amounted to $183 million and $454 million, respectively. As of June 30, 2006, there was $191 million of total unrecognized compensation cost related to nonvested options. That cost is expected to be recognized over a weighted average period of 3 years and 10 months.

 

 

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RSU Activity

 

	Shares (in thousands)				Weighted- Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2006		33,078
Granted		3,814
Vested		(587	)
Forfeited		(1,146	)
Outstanding at June 30, 2006		35,159				5.7				$	1,159
RSUs expected to vest		31,774				5.3				$	1,047

The fair value of each restricted stock unit is the market price of our stock on the date of grant. The weighted-average grant-date fair value of RSUs granted during the six months ended June 30, 2006 and 2005, amounted to $34.12 and $35.22, respectively. The total intrinsic value of RSUs vested during the six months ended June 30, 2006 and 2005, amounted to $20 million and $45 million, respectively. As of June 30, 2006, there was $530 million of total unrecognized compensation cost related to nonvested RSUs. That cost is expected to be recognized over a weighted average period of 5 years and 3 months.

 

 

PSU Activity

 

As of June 30, 2006, 1.1 million PSUs with a weighted-average remaining contractual term of 2 years and 1 month, an aggregate intrinsic value of $37 million and $16 million of unrecognized compensation cost were outstanding.

 

 

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14. The following table represents assets in securitization entities, both consolidated and off-balance sheet.

 

	At
(In millions)	6/30/06			12/31/05
Receivables secured by:
Equipment	$	10,201		$	12,949
Commercial real estate		12,122			13,010
Residential real estate		7,478			8,882
Other assets		14,206			12,869
Credit card receivables		11,355			10,039
GE trade receivables		3,640			3,960
Total securitized assets	$	59,002		$	61,709

 

	At
(In millions)	6/30/06			12/31/05
Off-balance sheet(a)(b)	$	44,133		$	43,805
On-balance sheet(c)		14,869			17,904
Total securitized assets	$	59,002		$	61,709

(a)	At June 30, 2006, and December 31, 2005, liquidity support amounted to $1,793 million and $1,931 million, respectively. These amounts are net of $3,293 million and $3,786 million, respectively, participated or deferred beyond one year. Credit support amounted to $5,138 million and $5,988 million at June 30, 2006, and December 31, 2005, respectively.
(b)	Liabilities for recourse obligations related to off-balance sheet assets amounted to $65 million and $93 million at June 30, 2006, and December 31, 2005, respectively.
(c)	At June 30, 2006, and December 31, 2005, liquidity support amounted to $8,204 million and $10,044 million, respectively. These amounts are net of $21 million and $138 million, respectively, participated or deferred beyond one year. Credit support amounted to $3,830 million and $4,780 million at June 30, 2006, and December 31, 2005, respectively.

 

Assets in consolidated, liquidating securitization entities are shown in the following captions in the Condensed Statement of Financial Position.

 

	At
(In millions)	6/30/06			12/31/05
Financing receivables - net (note 8)	$	13,779		$	16,615
All other assets		1,090			1,289
Total	$	14,869		$	17,904

 

 

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2007 Restatement

 

As discussed in the explanatory note to the Form 10-Q/A and in note 1 to our financial statements, we are restating financial statements and other financial information for the three and six months ended June 30, 2006 and 2005. 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), 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 end 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 FAS 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 three and six months ended June 30, 2006 and 2005.

 

	Increase (decrease) in earnings from continuing operations
	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Total adjustment	$	94		$	(139	)	$	229		$	86
Previously reported earnings from continuing
operations	$	4,854		$	4,376		$	8,896		$	7,936
Percent variation from previously reported earnings
from continuing operations		1.9	%		(3.2	)%		2.6	%		1.1	%

 

 

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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. 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.

 

A. Results of Operations

 

General Electric Company’s consolidated financial statements represent the combination of the industrial manufacturing and product services businesses of General Electric Company (GE) and the financial services businesses of General Electric Capital Services, Inc. (GECS or financial services).

 

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 Exhibit 99 to this report on Form 10-Q.

 

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.

 

Overview

 

General Electric Company earnings from continuing operations increased 17% to $4.948 billion in the second quarter of 2006 compared with $4.237 billion in 2005. Earnings per share (EPS) from continuing operations were $0.48 in the second quarter of 2006, up 20% from last year’s $0.40. Five of our six segments contributed double-digit earnings growth for the quarter.

 

For the first six months of 2006, earnings from continuing operations increased 14% to $9.125 billion compared with $8.022 billion in 2005. EPS from continuing operations were $0.87 in the first six months of 2006, up 16% from last year’s $0.75.

 

Loss from discontinued operations was an inconsequential amount for the second quarter of 2006 compared with earnings of $0.3 billion in 2005 and included the results of Genworth Financial, Inc. (Genworth), GE Life and most of GE Insurance Solutions Corporation (GE Insurance Solutions).

 

Earnings from discontinued operations were $0.3 billion for the first six months of 2006 compared with $0.7 billion in 2005.

 

 

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Net earnings increased 10% to $4.946 billion and EPS increased 14% to $0.48 in the second quarter of 2006 compared with $4.508 billion and $0.42, respectively, in 2005.

 

For the first six months of 2006, net earnings increased 8% to $9.386 billion compared with $8.698 billion in 2005, and EPS increased 10% to $0.90, compared with last year’s $0.82.

 

Revenues of $40.0 billion in the second quarter of 2006 were 10% higher reflecting strong organic growth of 8%. A reconciliation between reported and organic revenues is shown in Exhibit 99. Industrial sales increased 9% to $24.4 billion, primarily reflecting organic growth. Sales of product services (including sales of spare parts and related services) increased 11% to $7.4 billion in the second quarter of 2006. Financial services revenues grew 13% to $15.5 billion, reflecting organic growth and the effects of acquisitions.

 

Revenues for the first six months of 2006 rose 10% to $78.1 billion, compared with $71.0 billion last year. Industrial sales of $47.5 billion were 10% higher than in 2005 reflecting strong organic growth, the effects of the first quarter 2006 Olympics broadcasts and acquisitions. Financial Services revenues for the first six months of 2006 were $30.3 billion, a $2.7 billion, or 10%, increase over the first six months of last year. Revenues increased as a result of acquisitions and organic revenue growth, partially offset by dispositions.

 

Overall, acquisitions contributed $0.7 billion and $3.7 billion to consolidated revenues in the second quarters of 2006 and 2005, respectively. Our consolidated net earnings in the second quarters of 2006 and 2005 included approximately $0.1 billion and $0.3 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 $0.1 billion and $0.2 billion in the second quarters of 2006 and 2005, respectively. The effects of dispositions on earnings were increases in net earnings of $0.1 billion and $0.3 billion in the second quarter of 2006 and 2005, respectively.

 

Acquisitions contributed $1.7 billion and $7.5 billion to consolidated revenues in the first six months of 2006 and 2005, respectively. Our consolidated net earnings in the first six months of 2006 and 2005 included approximately $0.2 billion and $0.7 billion, respectively, from acquired businesses. Dispositions also affected our operations through lower revenues of $0.4 billion in the first six months of both 2006 and 2005. The effects of dispositions on earnings were increases in net earnings of $0.1 billion and $0.2 billion in the first six months of 2006 and 2005, respectively.

 

The most significant acquisitions affecting Healthcare, Infrastructure and NBC Universal results in 2006 were IDX Systems Corporation, Edwards System Technology and the consolidation of MSNBC, respectively. The most significant acquisitions affecting Commercial Finance and Consumer Finance results in 2006 were a strategic joint venture with Garanti Bank, a full service bank in Turkey; 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 a strategic joint venture with Hyundai Card Company, a credit card lender in South Korea. These acquisitions collectively contributed $0.4 billion and $0.1 billion to second quarter revenues and earnings, respectively. Contributions to revenues and earnings for the first six months of 2006 were $0.8 billion and $0.2 billion, respectively.

 

 

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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.

 

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 and product 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, 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 Infrastructure segment (Aviation Financial Services, Energy Financial Services and Transportation Finance) and the Industrial segment (Equipment Services).

 

We have reclassified certain prior-period amounts to conform to the current period’s presentation. In addition to providing information on segments in their entirety, we have also provided supplemental information for certain businesses within the segments.

 

 

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Infrastructure

 

	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Revenues	$	11,332		$	10,221		$	21,484		$	19,595
Segment profit	$	2,107		$	1,916		$	3,810		$	3,456
Revenues
Aviation	$	3,291		$	2,971		$	6,332		$	5,561
Aviation Financial Services		981			819			1,915			1,636
Energy		4,442			3,884			8,277			7,835
Energy Financial Services		364			382			665			610
Oil & Gas		1,094			763			1,866			1,404
Transportation		1,002			892			2,025			1,648
Segment profit
Aviation	$	728		$	690		$	1,373		$	1,217
Aviation Financial Services		310			185			516			348
Energy		689			625			1,125			1,202
Energy Financial Services		146			179			263			273
Oil & Gas		108			75			163			102
Transportation		165			101			369			183

 

Infrastructure revenues increased 11%, or $1.1 billion, in the second quarter of 2006 reflecting higher volume ($1.1 billion) and higher prices ($0.1 billion) at the industrial businesses of the segment. The increase in volume reflected increased sales at the power generation equipment business at Energy, primarily wind related, strong equipment sales at Oil & Gas and Transportation, and increased commercial engine sales at Aviation. Higher prices were primarily at Aviation. Revenues also increased as a result of organic revenue growth at Aviation Financial Services ($0.2 billion). Intra-segment revenues, which increased $0.2 billion, were eliminated from total Infrastructure revenues.

 

Segment profit rose 10%, or $0.2 billion, in the second quarter as higher volume ($0.2 billion) and higher prices ($0.1 billion) were partially offset by higher material and other costs ($0.1 billion) at the industrial businesses of the segment. Volume increases were primarily at Energy, Aviation and Oil & Gas. Higher prices and higher material and other costs were primarily at Aviation. Segment profit from the financial services businesses increased $0.1 billion as a result of core growth at Aviation Financial Services, including growth in lower-taxed earnings from global operations.

 

Infrastructure revenues rose 10% to $21.5 billion for the six months ended June 30, 2006, as higher volume ($1.9 billion) was partially offset by the effects of the strengthening U.S. dollar ($0.2 billion) at the industrial businesses of the segment. The increase in volume reflected increased sales of power generation equipment at Energy, commercial and military services and commercial engines at Aviation and equipment at Oil & Gas, as well as increased locomotive sales at Transportation. Revenues also increased as a result of organic revenue growth at Aviation Financial Services ($0.3 billion) and Energy Financial Services ($0.1 billion). Intra-segment revenues, which increased $0.3 billion, were eliminated from total Infrastructure revenues.

 

 

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Segment profit for the first six months of 2006 rose 10% to $3.8 billion, compared with $3.5 billion in 2005, as higher volume ($0.3 billion) and productivity ($0.1 billion) were partially offset by higher material and other costs ($0.2 billion) at the industrial businesses of the segment. Volume increases were primarily at Aviation, Energy, Transportation and Oil & Gas. We realized productivity improvements at Transportation and Aviation. Higher material and other costs were primarily at Aviation. Segment profit from the financial services businesses increased $0.2 billion as a result of core growth at Aviation Financial Services. Core growth included growth in lower-taxed earnings from global operations and lower one-time benefits from our aircraft leasing reorganization.

 

Industrial

 

	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Revenues	$	8,788		$	8,253		$	16,928		$	15,921
Segment profit	$	729		$	635		$	1,329		$	1,161
Revenues
Consumer & Industrial	$	3,852		$	3,576		$	7,386		$	6,837
Equipment Services		1,797			1,652			3,431			3,226
Plastics		1,684			1,640			3,328			3,288
Segment profit
Consumer & Industrial	$	318		$	227		$	538		$	392
Equipment Services		60			36			76			46
Plastics		183			208			408			448

 

Industrial revenues rose 6%, or $0.5 billion, in the second quarter of 2006 reflecting higher volume ($0.5 billion) at the industrial businesses in the segment. The increase in volume was primarily at Consumer & Industrial and Plastics. Revenues also increased at Equipment Services as a result of the consolidation of GE SeaCo, an entity previously accounted for using the equity method ($0.1 billion) and organic revenue growth ($0.1 billion).

 

Segment profit rose 15%, or $0.1 billion, in the second quarter of 2006 as productivity ($0.3 billion), primarily at Consumer & Industrial and Plastics, was partially offset by higher material and other costs ($0.2 billion), primarily at Consumer & Industrial and Plastics. Segment profit was not significantly affected by price as higher prices at Consumer & Industrial partially offset lower prices at Plastics.

 

Industrial revenues rose 6% for the six months ended June 30, 2006 as higher volume ($1.0 billion) was partially offset by the effects of the strengthening U.S. dollar ($0.2 billion) at the industrial businesses in the segment, primarily Consumer & Industrial, Plastics and Security, which acquired Edwards Systems Technology late in the first quarter of 2005. Revenues also increased at Equipment Services as a result of organic revenue growth ($0.1 billion) and the consolidation of GE SeaCo ($0.1 billion).

 

 

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Segment profit rose 14% for the six months ended June 30, 2006, as productivity ($0.4 billion), primarily at Consumer & Industrial, Advanced Materials and Plastics, and higher volume ($0.1 billion) were partially offset by higher material and other costs ($0.3 billion), primarily at Consumer & Industrial, Advanced Materials and Plastics. Segment profit was not significantly affected by price as higher prices at Consumer & Industrial offset lower prices at Plastics. See Corporate items and eliminations for a discussion of items not allocated to this segment.

 

Healthcare revenues rose $0.4 billion, or 10%, in the second quarter of 2006 as higher volume ($0.5 billion) more than offset the effect of lower prices ($0.1 billion). The rise in volume related to increases in healthcare services including the effects of the 2006 acquisition of IDX and stronger equipment sales. Operating profit of $0.8 billion in 2006 was 18% higher than in the second quarter of 2005 as the effects of productivity ($0.1 billion) and higher volume ($0.1 billion) more than offset the effect of lower prices ($0.1 billion).

 

Healthcare revenues rose 10% to $7.8 billion in the first six months of 2006 as higher volume ($1.0 billion) more than offset the effect of lower prices ($0.2 billion) and the effects of the strengthening U.S. dollar ($0.1 billion). The rise in volume related to increases in healthcare services including the effects of the 2006 acquisition of IDX, stronger equipment sales and growth at Biosciences. Operating profit of $1.3 billion in the first six months of 2006 was 19% higher than in 2005 as productivity ($0.2 billion) and the effects of higher volume ($0.1 billion) more than offset the effects of lower prices ($0.2 billion) and higher material and other costs ($0.1 billion).

 

NBC Universal reported revenues of $3.9 billion in the second quarter of 2006, the same as second quarter 2005. We achieved improvements in our cable business, including $0.1 billion from consolidating MSNBC, and realized a $0.1 billion increase from the net effects of certain strategic actions, including 2006 gains from sale of four television stations and a favorable settlement compared with 2005’s gain on acquisition of preferred shares net of effects of an impairment. Revenues were reduced by lower ratings on network and station ad sales ($0.1 billion) and the combination of lower home video sales and license fees ($0.1 billion). Segment profit declined 10% in the second quarter of 2006 as $0.1 billion lower earnings from network and station operations and $0.1 billion lower film profitability (the result of timing of theatrical releases and lower home video sales) exceeded the net effects of the above-mentioned strategic actions ($0.1 billion).

 

NBC Universal reported revenues of $8.3 billion in the first six months of 2006, a 12% increase from 2005, resulting primarily from absence of a prior-year counterpart to the 2006 Olympic Games broadcasts ($0.7 billion), the effects of exiting a film distribution agreement ($0.2 billion), improvements in the cable business ($0.3 billion) and the above-mentioned strategic actions ($0.1 billion), partially offset by the effects of lower ratings on network and station ad sales ($0.3 billion). Segment profit declined 9%, or $0.2 billion, in the first six months of 2006 as the effects of lower earnings from network and station operations ($0.3 billion), including the 2006 Olympics broadcasts ($0.1 billion), and lower earnings from the film business ($0.1 billion), including the $0.1 billion favorable effects of the film distribution exit, were partially offset by higher earnings from the cable business ($0.1 billion) and the net effects of the above-mentioned strategic actions ($0.1 billion). See Corporate items and eliminations for a discussion of items not allocated to this segment.

 

 

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Commercial Finance

 

	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Revenues	$	5,527		$	4,929		$	11,011		$	10,001
Segment profit	$	1,057		$	872		$	2,231		$	1,798
	At
(In millions)	6/30/06			6/30/05			12/31/05
Total assets	$	206,510		$	185,665		$	190,546
	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Revenues
Capital Solutions	$	3,047		$	2,856		$	5,867		$	5,745
Real Estate		1,047			744			2,122			1,642
Segment profit
Capital Solutions	$	433		$	325		$	772		$	611
Real Estate		334			240			775			550
	At
(In millions)	6/30/06			6/30/05			12/31/05
Assets
Capital Solutions	$	90,710		$	85,069		$	87,306
Real Estate		44,144			35,619			35,323

 

Commercial Finance revenues and net earnings increased 12% and 21%, respectively, in the second quarter of 2006. 2006 revenues included $0.2 billion from acquisitions, but were reduced by dispositions ($0.1 billion). Revenues for the second quarter also increased as organic revenue growth ($0.6 billion) exceeded effects of the strengthening U.S. dollar ($0.1 billion). The increase in net earnings resulted primarily from core growth ($0.3 billion), including growth in lower-taxed earnings from global operations.

 

 

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Commercial Finance revenues and net earnings increased 10% and 24%, respectively, in the first six months of 2006. Revenues for the first six months of 2006 and 2005 included $0.4 billion and $0.1 billion from acquisitions, respectively, and in 2006 were reduced by dispositions ($0.2 billion). Revenues for the first six months also increased as organic revenue growth ($1.1 billion) exceeded effects of the strengthening U.S. dollar ($0.2 billion). The increase in net earnings resulted primarily from core growth ($0.5 billion), including growth in lower-taxed earnings from global operations, and acquisitions ($0.1 billion), partially offset by the strengthening U.S. dollar ($0.1 billion).

 

Consumer Finance

 

	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Revenues	$	5,268		$	4,928		$	10,358		$	9,617
Segment profit	$	880		$	735		$	1,716		$	1,470
	At
(In millions)	6/30/06			6/30/05			12/31/05
Total assets	$	169,416		$	149,568		$	158,829

 

Consumer Finance revenues and net earnings increased 7% and 20%, respectively, in the second quarter of 2006. 2006 revenues included $0.2 billion from acquisitions. Revenues for the second quarter also increased as organic revenue growth ($0.3 billion) exceeded effects of the strengthening U.S. dollar ($0.2 billion). The increase in net earnings resulted primarily from core growth ($0.1 billion), including growth in lower-taxed earnings from global operations.

 

Consumer Finance revenues and net earnings increased 8% and 17%, respectively, in the first six months of 2006. 2006 revenues included $0.4 billion from acquisitions. Revenues for the first six months also increased as organic revenue growth ($0.7 billion) exceeded effects of the strengthening U.S. dollar ($0.4 billion). The increase in net earnings resulted primarily from core growth ($0.2 billion), including growth in lower-taxed earnings from global operations, and acquisitions ($0.1 billion).

 

 

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Discontinued Insurance Operations

 

	Three months ended June 30						Six months ended June 30
(In millions)	2006			2005			2006			2005
Earnings (loss) from discontinued operations,
net of taxes	$	(2	)	$	271		$	261		$	676

 

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 Corporation (GE Insurance Solutions) to Swiss Reinsurance Company (Swiss Re) for $9.3 billion, including the assumption of $1.7 billion of debt. We received $5.4 billion in cash and $2.2 billion of newly issued Swiss Re common stock, representing a 9% interest in Swiss Re, that we are not permitted to sell until June 4, 2007, under the agreement we have with Swiss Re.

 

In March 2006, we completed the sale of our remaining 18% investment in Genworth Financial, Inc. (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, we recognized a pre-tax gain of $0.5 billion ($0.3 billion after tax).

 

In March 2006, we initiated a plan to sell GE Life, our U.K.-based life insurance operation. For the first six months of 2006, we have provided a loss of $0.3 billion, including a $0.1 billion loss recognized in the second quarter of 2006, based on our best estimate of sales proceeds. We do not expect to realize a tax benefit for this loss. We anticipate selling GE Life by March 31, 2007.

 

Discontinued operations comprise GE Life; the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions and most of its affiliates; 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.

 

Earnings from discontinued operations, net of taxes, for the second quarter of 2006 reflected earnings from GE Insurance Solutions through the date of disposal ($0.2 billion), loss on disposal of GE Insurance Solutions ($0.1 billion) and a provision for estimated loss on the planned sale of GE Life ($0.1 billion). GE Life results will be included in our discontinued operations until a transaction is completed.

 

Earnings from discontinued operations, net of taxes, for the second quarter of 2005 reflected operations of GE Insurance Solutions ($0.2 billion) and our share of Genworth’s earnings from operations ($0.1 billion).

 

Earnings from discontinued operations, net of taxes, for the first six months of 2006 reflected earnings from GE Insurance Solutions through the date of disposal ($0.3 billion), the gain on the sale of our remaining 18% investment in Genworth common stock ($0.3 billion), partially offset by a provision for estimated loss on the planned sale of GE Life ($0.3 billion) and the loss on disposal of GE Insurance Solutions ($0.1 billion).

 

 

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Earnings from discontinued operations, net of taxes, for the first six months of 2005 reflected earnings from GE Insurance Solutions ($0.3 billion), our share of Genworth’s earnings from operations ($0.3 billion) and the gain related to Genworth’s secondary public offering ($0.1 billion).

 

Corporate items and eliminations expense for the second quarter of 2006, decreased $0.2 billion compared with 2005, as the effects of the GECS commercial paper interest rate swap adjustment more than offset higher costs of our principal pension plans. Corporate item and eliminations expense for the first six months of 2006 increased $0.1 billion principally from higher costs of our principal pension plans.

 

Certain amounts included in this caption are not allocated to GE operating segments because they are excluded from the measurement of their operating performance for internal purposes. In the second quarter and first six months of 2006, these comprised $0.1 billion for a gain on sale of a business interest at the Equipment Services business of Industrial, offset by $0.1 billion for technology and product development costs at NBC Universal.

 

B. Statement of Financial Position

 

Overview of Financial Position

 

Major changes in our financial position resulted from the following:

 

·

During the second quarter of 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. This transaction reduced assets and liabilities of discontinued operations by $43.8 billion and $36.0 billion, respectively.

 

·	During the first quarter of 2006, we completed the sale of our remaining 18% investment in Genworth common stock and we initiated a plan to sell GE Life. We have separately reported the assets and liabilities related to these discontinued operations for all periods presented.

 

·

During the first six months of 2006, we completed the acquisitions of IDX Systems Corporation at Healthcare; iVillage Inc. at NBC Universal; ZENON Membrane Solutions at Infrastructure; Arden Realty, Inc., a fully integrated real estate company at Commercial Finance; and the private-label credit card portfolio of Hudson’s Bay Co. at Consumer Finance.

 

·

The U.S. dollar was weaker at June 30, 2006, than it was at December 31, 2005, increasing the translated levels of our non-U.S. dollar assets and liabilities. However, on average, the U.S. dollar in 2006 has been stronger than during the comparable 2005 period, decreasing the translated levels of our non-U.S. dollar operations, as noted in the preceding Results of Operations section.

 

Consolidated assets were $662.4 billion at June 30, 2006, a decrease of $10.9 billion from December 31, 2005. GE assets decreased $1.0 billion, while financial services’ assets decreased $12.3 billion.

 

GE assets were $188.7 billion at June 30, 2006, a $1.0 billion decrease from December 31, 2005. The decrease reflects a $2.8 billion decrease in current receivables and a $2.2 billion decrease in GE’s investment in GECS, partially offset by a $2.9 billion increase in intangible assets, primarily related to the acquisition of IDX Systems Corporation by Healthcare, and a $1.3 billion increase in inventories.

 

 

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Financial services assets were $528.3 billion at June 30, 2006. The $12.3 billion decrease from December 31, 2005, was primarily attributable to decreases in assets of discontinued operations of $46.0 billion, partially offset by increases in financing receivables of $16.3 billion, other assets of $6.2 billion, property, plant and equipment of $3.3 billion and investment securities of $2.8 billion.

 

Consolidated liabilities of $545.4 billion at June 30, 2006, were $10.6 billion lower than the year-end 2005 balance. GE liabilities decreased $0.6 billion, while financial services’ liabilities decreased $10.1 billion.

 

GE liabilities were $74.0 billion at June 30, 2006. During 2006, accounts payable decreased $1.3 billion to $10.6 billion and total borrowings increased $0.4 billion to $10.6 billion ($1.5 billion short term and $9.1 billion long term) at June 30, 2006, compared with December 31, 2005. The ratio of borrowings to total capital invested for GE at the end of the second quarter was 8.5% compared with 8.1% at the end of last year and 8.8% at June 30, 2005.

 

Financial services liabilities decreased $10.1 billion to $477.4 billion reflecting a decrease in liabilities of discontinued operations of $34.8 billion, offset by an increase in total borrowings of $23.3 billion, from year-end 2005.

 

Consolidated cash and equivalents were $11.1 billion at June 30, 2006, an increase of $2.3 billion during the first six months of 2006. Cash and equivalents amounted to $9.0 billion at June 30, 2005, a decrease of $3.0 billion from December 31, 2004. GE cash from operating activities (CFOA) is a useful measure of performance for our non-financial services businesses and totaled $14.3 billion in the first six months of 2006 and $8.0 billion in the first six months of 2005.

 

With respect to GE CFOA, we believe that it is useful to supplement our GE Condensed Statement of Cash Flows and to examine in a broader context the business activities that provide and require cash.

 

	Six months ended June 30
(In billions)	2006			2005
Operating cash collections	$	48.6		$	44.5
Operating cash payments		(41.9	)		(38.3	)
Cash dividends from GECS		7.6			1.8
GE cash from operating activities	$	14.3		$	8.0

 

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 about $4.1 billion during the first six months of 2006. These increases are consistent with the changes in comparable GE operating segment revenues. 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 the first six months of 2006 by about $3.6 billion, comparable to the increases in GE total costs and expenses.

 

 

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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 the first six months of 2006 by $0.9 billion to $8.8 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. Special dividends of $5.7 billion were paid by GECS to GE in the first six months of 2006; no special dividends were paid by GECS during the first six months of 2005.

 

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 on our announced $25 billion share repurchase program and continue making selective investments for long-term growth.

 

C. Financial Services Portfolio Quality

 

Investment securities comprise mainly available-for-sale investment-grade debt securities supporting obligations to annuitants and policyholders. We regularly review investment securities for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline, our intent and ability to hold to recovery and the financial health and specific prospects for the issuer. Of available-for-sale securities with unrealized losses at June 30, 2006, an immaterial amount was at risk of being charged to earnings in the next 12 months. Impairment losses for the first six months of 2006 totaled $0.1 billion compared with an inconsequential amount in the 2005 period. We do not believe that any of the 2006 impairment losses indicate likely future impairments in the remaining portfolio.

 

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, amounted to $308.5 billion at June 30, 2006, and $292.2 billion at December 31, 2005. The related allowance for losses amounted to $4.6 billion at both June 30, 2006, and December 31, 2005, representing our best estimate of probable losses inherent in the portfolio. 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; and “nonearning” receivables are those that are 90 days or more past due (or for which collection has otherwise become doubtful).

 

Financing receivables, before allowance for losses, increased $16.3 billion from December 31, 2005, primarily as a result of core growth ($32.6 billion), the effects of the weaker U.S. dollar at June 30, 2006 ($4.5 billion) and acquisitions ($2.6 billion), partially offset by securitizations and sales ($20.9 billion) and loans transferred to assets held for sale ($1.3 billion). Related nonearning receivables were $4.5 billion (1.5% of outstanding receivables) at June 30, 2006, compared with $4.1 billion (1.4% of outstanding receivables) at year-end 2005. This increase was primarily related to the weaker U.S. dollar and higher nonearning receivables in our European secured financing business at Consumer Finance, a business that tends to experience relatively higher delinquencies but lower losses than the rest of our consumer portfolio.

 

 

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Delinquency rates on managed Commercial Finance equipment loans and leases and managed Consumer Finance financing receivables follow.

 

	Delinquency rates at
	6/30/06		(a)	12/31/05			6/30/05
Commercial Finance	1.29	%		1.31	%		1.31	%
Consumer Finance	5.22			5.08			5.15

(a)	Subject to update.

 

Delinquency rates at Commercial Finance decreased from December 31, 2005, and June 30, 2005, to June 30, 2006, primarily resulting from improved credit quality across all portfolios.

 

 

D. Debt Instruments

 

During the first six months of 2006, GECS and GECS affiliates issued $43 billion of senior, unsecured long-term 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 forty years. We used the proceeds for repayment of maturing long-term debt, and to fund acquisitions and organic growth. We anticipate that we will issue between $22 billion and $32 billion of additional long-term debt during the remainder of 2006, mostly to repay maturing long-term debt. The ultimate amount we issue will depend on our needs and on the markets.

 

E. Other Information

 

New Accounting Standards

 

In July 2006, the Financial Accounting Standards Board (FASB) issued two related standards that address accounting for income taxes: FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes, and FASB Staff Position (FSP) FAS 13-2, Accounting for a Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction. Among other things, FIN 48 requires applying a “more likely than not” threshold to the recognition and derecognition of tax positions, while FSP FAS 13-2 requires a recalculation of returns on leveraged leases if there is a change or projected change in the timing of cash flows relating to income taxes generated by the leveraged lease. The new guidance will be effective for us on January 1, 2007. We expect the transition effects to be modest and to consist of reclassification of certain income tax-related liabilities in our Statement of Financial Position and an immaterial adjustment to the balance of retained earnings. Prior periods will not be restated as a result of this required accounting change.

 

 

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In connection with the restatement discussed above in the explanatory note to this Form 10-Q/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 June 30, 2006.

 

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-Q, 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 June 30, 2006, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Part II. Other Information

 

 

As previously reported, since January 2005, the U.S. Securities and Exchange Commission (SEC) staff has been conducting an investigation of the use of hedge accounting for derivatives by us and General Electric Capital Corporation (GE Capital). In August 2005 the SEC staff advised us that the SEC had issued a formal order of investigation in the matter. The SEC staff has subpoenaed documents and is taking testimony, and we and GE Capital continue to respond to staff inquiries in connection with the matter. We and GE Capital have been cooperating fully with the investigation.

 

 

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Item 2. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

Period(a)		Total number of shares purchased(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)
2006
April			36,962				$34.19				27,474
May			26,943				$34.38				23,640
June			30,952				$33.77				29,240
Total			94,857				$34.10				80,354				$13.9 billion

(a)	Information is presented on a fiscal calendar basis, consistent with our quarterly financial reporting.
(b)	This category includes 14,503 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 Internal Revenue Service Code 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 our 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.

 

 

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(a)	The annual meeting of Shareowners of General Electric Company was held on April 26, 2006.
(b)	All director nominees were elected.
(c)	Certain matters voted upon at the meeting and the votes cast with respect to such matters are as follows:
Proposals and Vote Tabulations
		Votes Cast						Broker
		For		Against		Abstain		Non-votes
Management Proposals
Ratification of selection of independent
auditors for 2006		8,327,308,580		363,656,494		74,246,892		-
Shareowner Proposals
(1)	Relating to cumulative voting	1,414,418,654		4,919,628,553		404,894,997		2,026,269,762
(2)	Relating to over-extended directors	2,199,744,907		4,317,716,499		221,480,798		2,026,269,762
(3)	Relating to director nominee from retiree ranks	274,809,542		6,344,083,122		120,049,540		2,026,269,762
(4)	Relating to independent board chairman	994,941,918		5,627,575,028		116,425,258		2,026,269,762
(5)	Relating to majority vote standard	1,277,578,892		5,317,444,285		143,919,027		2,026,269,762
(6)	Relating to global warming	427,409,472		5,735,885,995		575,646,737		2,026,269,762
Election of Directors
Director						Votes Received		Votes Withheld
James I. Cash, Jr.						8,355,930,396		409,281,570
William M. Castell						8,541,699,426		223,512,540
Ann M. Fudge						8,381,907,695		383,304,271
Claudio X. Gonzalez						6,847,945,319		1,917,266,647
Jeffrey R. Immelt						8,526,295,069		238,916,897
Andrea Jung						8,481,139,428		284,072,538
Alan G. Lafley						8,613,471,726		151,740,240
Robert W. Lane						8,613,657,332		151,554,634
Ralph S. Larsen						8,611,685,496		153,526,470
Rochelle B. Lazarus						8,609,289,841		155,922,125
Sam Nunn						8,568,765,821		196,446,145
Roger S. Penske						8,319,117,105		446,094,861
Robert J. Swieringa						8,361,462,892		403,749,074
Douglas A. Warner III						8,287,722,690		477,489,276
Robert C. Wright						8,541,959,442		223,252,524

 

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Exhibit 11	Computation of Per Share Earnings*.
Exhibit 12	Computation of Ratio of Earnings to Fixed Charges.
Exhibit 31(a)	Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended.
Exhibit 31(b)	Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Amended.
Exhibit 32	Certification Pursuant to 18 U.S.C. Section 1350.
Exhibit 99	Financial Measures That Supplement Generally Accepted Accounting Principles.
	*	Data required by Statement of Financial Accounting Standards No. 128, Earnings per Share, is provided in note 6 to the condensed, consolidated financial statements in this report.

 

 

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

		General Electric Company   (Registrant)
January 19, 2007		/s/ Philip D. Ameen
Date		Philip D. Ameen Vice President and Comptroller Duly Authorized Officer and Principal Accounting Officer

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