Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q

(Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2006
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 1-35
 
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

 
New York
 
14-0689340
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
   
3135 Easton Turnpike, Fairfield, CT
 
06828-0001
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant’s telephone number, including area code) (203) 373-2211
 
_______________________________________________
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
 
There were 10,323,359,000 shares of common stock with a par value of $0.06 per share outstanding at June 30, 2006.
 



(1)




General Electric Company
 
Part I - Financial Information
 
Page
   
 
Item 1. Financial Statements
   
Condensed Statement of Earnings
   
 
3
 
4
 
5
 
6
 
7
 
8
 
21
 
34
     
Part II - Other Information
   
     
 
34
 
34
 
35
 
36
 
37
 
Forward-Looking Statements
 
This document contains “forward-looking statements” - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties which could adversely or positively affect our future results include: the behavior of financial markets, including fluctuations in interest rates and commodity prices; strategic actions, including dispositions; future integration of acquired businesses; future financial performance of major industries which we serve, including, without limitation, the air and rail transportation, energy generation, media, real estate and healthcare industries; unanticipated loss development in our insurance businesses; and numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.


(2)




Part I. Financial Information
 
Item 1. Financial Statements
 
Condensed Statement of Earnings
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
 
2005
 
2006
 
2005
 
2006
 
2005
 
                                     
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
 
-
   
-
   
2,500
   
2,028
   
-
   
-
 
GECS revenues from services
 
14,346
   
12,954
   
-
   
-
   
14,595
   
13,297
 
Total revenues
 
39,900
   
36,539
   
27,643
   
25,060
   
15,307
   
13,961
 
                                     
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
 
4,533
   
3,786
   
486
   
336
   
4,202
   
3,603
 
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
 
34,006
   
31,170
   
22,066
   
19,901
   
12,490
   
11,723
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
5,894
   
5,369
   
5,577
   
5,159
   
2,817
   
2,238
 
Provision for income taxes
 
(1,040
)
 
(993
)
 
(723
)
 
(783
)
 
(317
)
 
(210
)
Earnings from continuing operations
 
4,854
   
4,376
   
4,854
   
4,376
   
2,500
   
2,028
 
Earnings (loss) from discontinued operations,
                                   
net of taxes
 
(2
)
 
271
   
(2
)
 
271
   
(2
)
 
271
 
Net earnings
$
4,852
 
$
4,647
 
$
4,852
 
$
4,647
 
$
2,498
 
$
2,299
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
0.47
 
$
0.41
                         
Basic earnings per share
$
0.47
 
$
0.41
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
0.47
 
$
0.44
                         
Basic earnings per share
$
0.47
 
$
0.44
                         
                                     
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.
 

(3)


Condensed Statement of Earnings
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
 
2005
 
2006
 
2005
 
2006
 
2005
 
                                     
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
 
-
   
-
   
4,770
   
3,891
   
-
   
-
 
GECS revenues from services
 
28,232
   
25,582
   
-
   
-
   
28,721
   
26,228
 
Total revenues
 
77,721
   
70,889
   
53,478
   
48,086
   
29,988
   
27,566
 
                                     
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
 
8,894
   
7,457
   
870
   
717
   
8,309
   
7,017
 
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
 
66,874
   
61,176
   
43,314
   
38,788
   
24,535
   
23,260
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
10,847
   
9,713
   
10,164
   
9,298
   
5,453
   
4,306
 
Provision for income taxes
 
(1,951
)
 
(1,777
)
 
(1,268
)
 
(1,362
)
 
(683
)
 
(415
)
Earnings from continuing operations
 
8,896
   
7,936
   
8,896
   
7,936
   
4,770
   
3,891
 
Earnings from discontinued operations, net of taxes
 
261
   
676
   
261
   
676
   
261
   
676
 
Net earnings
$
9,157
 
$
8,612
 
$
9,157
 
$
8,612
 
$
5,031
 
$
4,567
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
0.85
 
$
0.75
                         
Basic earnings per share
$
0.86
 
$
0.75
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
0.88
 
$
0.81
                         
Basic earnings per share
$
0.88
 
$
0.81
                         
                                     
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.

(4)


Condensed Statement of Financial Position
General Electric Company and consolidated affiliates
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions; except share amounts)
6/30/06
 
12/31/05
 
6/30/06
 
12/31/05
 
6/30/06
 
12/31/05
 
                                     
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
 
-
   
-
   
48,589
   
50,815
   
-
   
-
 
Intangible assets - net
 
85,583
   
81,630
   
60,719
   
57,839
   
24,864
   
23,791
 
All other assets
 
91,199
   
84,849
   
36,641
   
36,752
   
55,680
   
49,461
 
Assets of discontinued operations
 
15,090
   
61,066
   
-
   
-
   
15,090
   
61,066
 
Total assets
$
662,415
 
$
673,342
 
$
188,742
 
$
189,759
 
$
528,304
 
$
540,605
 
                                     
Short-term borrowings
$
157,449
 
$
158,156
 
$
1,517
 
$
1,127
 
$
156,327
 
$
157,672
 
Accounts payable, principally trade accounts
 
19,315
   
21,183
   
10,577
   
11,870
   
12,717
   
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
 
40,910
   
39,966
   
23,328
   
23,273
   
17,679
   
16,787
 
Deferred income taxes
 
15,583
   
16,226
   
3,750
   
3,733
   
11,833
   
12,493
 
Liabilities of discontinued operations
 
14,957
   
49,527
   
-
   
-
   
14,959
   
49,763
 
Total liabilities
 
545,368
   
555,934
   
73,990
   
74,599
   
477,420
   
487,542
 
                                     
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
 
(236
)
 
(822
)
 
(236
)
 
(822
)
 
(240
)
 
(813
)
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
 
102,061
   
98,117
   
102,061
   
98,117
   
32,680
   
35,379
 
Less common stock held in treasury
 
(23,006
)
 
(17,326
)
 
(23,006
)
 
(17,326
)
 
-
   
-
 
                                     
Total shareowners’ equity
 
108,773
   
109,354
   
108,773
   
109,354
   
48,589
   
50,815
 
                                     
Total liabilities and equity
$
662,415
 
$
673,342
 
$
188,742
 
$
189,759
 
$
528,304
 
$
540,605
 

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 $3,567 million and $2,667 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.

(5)


Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates
 
 
Six months ended June 30 (Unaudited)
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions)
2006
 
2005
 
2006
 
2005
 
2006
 
2005
 
     
   
   
   
   
   
   
   
   
   
     
Cash flows - operating activities
                                   
Net earnings
$
9,157
 
$
8,612
 
$
9,157
 
$
8,612
 
$
5,031
 
$
4,567
 
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
 
-
   
-
   
2,559
   
(2,728
)
 
-
   
-
 
Deferred income taxes
 
401
   
(549
)
 
55
   
(87
)
 
346
   
(462
)
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
 
(1,668
)
 
(1,401
)
 
(915
)
 
(1,228
)
 
(504
)
 
(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
 
(3,222
)
 
108
   
457
   
1,043
   
(620
)
 
(383
)
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.



(6)




Summary of Operating Segments
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
 
971
   
582
   
1,785
   
1,207
 
Consolidated revenues
$
39,900
 
$
36,539
 
$
77,721
 
$
70,889
 
                         
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
 
(387
)
 
(314
)
 
(879
)
 
(639
)
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
 
4,854
   
4,376
   
8,896
   
7,936
 
Earnings (loss) from discontinued operations,
                       
net of taxes
 
(2
)
 
271
   
261
   
676
 
Consolidated net earnings
$
4,852
 
$
4,647
 
$
9,157
 
$
8,612
 
                         

(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).
 

 

(7)


Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
1. 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.
 
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.
 

(8)


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.
 
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
 

 

(9)



 
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
 

 
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
 

 

(10)


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
 

 
 
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
 

 

(11)


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)
$
4,854
 
$
4,854
 
$
4,376
 
$
4,376
 
Earnings from discontinued operations
                       
for per-share calculation(b)
 
(2
)
 
(2
)
 
269
   
271
 
Net earnings available for per-share calculation
$
4,852
 
$
4,852
 
$
4,645
 
$
4,647
 
                         
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
$
0.47
 
$
0.47
 
$
0.41
 
$
0.41
 
Earnings from discontinued operations
$
-
 
$
-
 
$
0.03
 
$
0.03
 
Net earnings
$
0.47
 
$
0.47
 
$
0.44
 
$
0.44
 
                         
 
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)
$
8,896
 
$
8,896
 
$
7,936
 
$
7,936
 
Earnings from discontinued operations
                       
for per-share calculation(b)
 
261
   
261
   
672
   
676
 
Net earnings available for per-share calculation
$
9,157
 
$
9,157
 
$
8,608
 
$
8,612
 
                         
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
$
0.85
 
$
0.86
 
$
0.75
 
$
0.75
 
Earnings from discontinued operations
$
0.02
 
$
0.03
 
$
0.06
 
$
0.06
 
Net earnings
$
0.88
 
$
0.88
 
$
0.81
 
$
0.81
 
                         

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

 

(12)


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
 

 

(13)


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.
 

(14)


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.
 

(15)


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
$
4,852
 
$
4,647
 
$
9,157
 
$
8,612
 
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
 
313
   
(431
)
 
586
   
198
 
Minimum pension liabilities - net
 
(28
)
 
11
   
(43
)
 
24
 
Total
$
6,426
 
$
1,989
 
$
10,057
 
$
5,837
 

 

(16)


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
$
4,852
 
$
4,647
 
$
9,157
 
$
8,612
 
Earnings per share, as reported
                       
Diluted
 
0.47
   
0.44
   
0.88
   
0.81
 
Basic
 
0.47
   
0.44
   
0.88
   
0.81
 
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
       
4,632
         
8,570
 
Earnings per share, on pro-forma basis
                       
Diluted
       
0.43
         
0.81
 
Basic
       
0.44
         
0.81
 
                         

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.
 

(17)


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.

 

(18)


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.
 

(19)


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
 

 

(20)


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
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 11% to $4.854 billion in the second quarter of 2006 compared with $4.376 billion in 2005. Earnings per share (EPS) from continuing operations were $0.47 in the second quarter of 2006, up 15% from last year’s $0.41. 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 12% to $8.896 billion compared with $7.936 billion in 2005. EPS from continuing operations were $0.85 in the first six months of 2006, up 13% 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.
 
Net earnings increased 4% to $4.852 billion and EPS increased 7% to $0.47 in the second quarter of 2006 compared with $4.647 billion and $0.44, respectively, in 2005.
 
For the first six months of 2006, net earnings increased 6% to $9.157 billion compared with $8.612 billion in 2005, and EPS increased 9% to $0.88, compared with last year’s $0.81.
 
Revenues of $39.9 billion in the second quarter of 2006 were 9% 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 10% to $15.3 billion, reflecting organic growth and the effects of acquisitions.
 

(21)


Revenues for the first six months of 2006 rose 10% to $77.7 billion, compared with $70.9 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 $30.0 billion, a $2.4 billion, or 9%, 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.
 
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.
 

(22)


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.
 
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
 

 

(23)


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.
 
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.
 

(24)


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).
 
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).
 

(25)


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.
 

(26)


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.
 

(27)


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).
 

(28)


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).
 

(29)


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 and first six months of 2006, increased $0.1 billion and $0.2 billion, respectively, compared with 2005, 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.
 

(30)


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.
 

(31)


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.
 

(32)


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.
 
Delinquency rates at Consumer Finance increased from December 31, 2005, to June 30, 2006, as a result of higher delinquencies in our European secured financing business, discussed above, and our Australian business, which generally obtains credit insurance for certain receivables, partially offset by decreases in our U.S. business resulting from a continued strong economic environment. The increase from June 30, 2005, to June 30, 2006, reflected higher delinquencies in our European secured financing and Australian businesses, discussed above.
 
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.
 

(33)


Item 4. Controls and Procedures
 
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of June 30, 2006, and (ii) no change in internal control over financial reporting occurred during the quarter ended June 30, 2006, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
 
Part II. Other Information
 
Item 1. Legal Proceedings

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.
 
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.

 

(34)


 
Item 4. Submission of Matters to a Vote of Security Holders
 
(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

 

(35)


 
Item 6. Exhibits
 
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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Signatures
 
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)
 
 
 
July 24, 2006
 
/s/ Philip D. Ameen
 
Date
 
Philip D. Ameen
Vice President and Comptroller
Duly Authorized Officer and Principal Accounting Officer
 
 
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