Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

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 001-00035

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer      Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

There were 10,691,220,000 shares of common stock with a par value of $0.06 per share outstanding at June 25, 2010.

 

 

 


Table of Contents

General Electric Company

 

     Page

Part I – Financial Information

  

Item 1. Financial Statements

  

Condensed Statement of Earnings

   3

Three Months Ended June 30, 2010

   3

Six Months Ended June 30, 2010

   4

Condensed Statement of Financial Position

   5

Condensed Statement of Cash Flows

   6

Summary of Operating Segments

   7

Notes to Condensed, Consolidated Financial Statements (Unaudited)

   8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

   47

Item 3. Quantitative and Qualitative Disclosures About Market Risk

   72

Item 4. Controls and Procedures

   72
Part II – Other Information   

Item 1. Legal Proceedings

   72

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

   74

Item 6. Exhibits

   75

Signatures

   76

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 financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets; the impact of conditions in the financial and credit markets on the availability and cost of General Electric Capital Corporation’s (GECC) funding and on our ability to reduce GECC’s asset levels as planned; the impact of conditions in the housing market and unemployment rates on the level of commercial and consumer credit defaults; our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; the adequacy of our cash flow and earnings and other conditions which may affect our ability to pay our quarterly dividend at the planned level; the level of demand and financial performance of the major industries we serve, including, without limitation, air and rail transportation, energy generation, network television, real estate and healthcare; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of financial services regulation; strategic actions, including acquisitions and dispositions and our success in integrating acquired businesses; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive 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.

 

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Table of Contents

Part I. Financial Information

Item 1. Financial Statements.

General Electric Company and consolidated affiliates

Condensed Statement of Earnings

 

     Three months ended June 30 (Unaudited)  
     Consolidated          GE(a)     Financial Services (GECS)  
(In millions, except share amounts)    2010     2009           2010     2009     2010     2009  

Revenues

                 

Sales of goods

   $ 14,905     $ 15,906          $ 14,736     $ 15,701     $ 168     $ 205  

Sales of services

     9,599       10,172            9,667       10,311       —          —     

Other income

     278       34            304       80       —          —     

GECS earnings from continuing operations

     —          —               822       367       —          —     

GECS revenues from services

     12,662       12,996            —          —          12,980       13,252  
                                                     

Total revenues

     37,444       39,108            25,529       26,459       13,148       13,457  
                                                     
 

Costs and expenses

                 

Cost of goods sold

     11,129       12,450            10,975       12,287       154       164  

Cost of services sold

     6,067       6,354            6,134       6,493       —          —     

Interest and other financial charges

     4,171       4,653            430       348       3,870       4,468  

Investment contracts, insurance losses and insurance annuity benefits

     722       779            —          —          770       823  

Provision for losses on financing receivables

     2,009       2,817            —          —          2,009       2,817  

Other costs and expenses

     9,059       8,933            3,589       3,556       5,637       5,471  
                                                     

Total costs and expenses

     33,157       35,986            21,128       22,684       12,440       13,743  
                                                     
 

Earnings (loss) from continuing operations before income taxes

     4,287       3,122            4,401       3,775       708       (286

Benefit (provision) for income taxes

     (885     (227          (986     (897     101       670  
                                                     

Earnings from continuing operations

     3,402       2,895            3,415       2,878       809       384  

Loss from discontinued operations, net of taxes

     (188     (194          (188     (194     (188     (193
                                                     

Net earnings

     3,214       2,701            3,227       2,684       621       191  

Less net earnings (loss) attributable to noncontrolling interests

     105       12            118       (5     (13     17  
                                                     

Net earnings attributable to the Company

     3,109       2,689            3,109       2,689       634       174  

Preferred stock dividends declared

     (75     (75          (75     (75     —          —     
                                                     

Net earnings attributable to GE common shareowners

   $ 3,034     $ 2,614          $ 3,034     $ 2,614     $ 634     $ 174  
                                                   
                                                       

Amounts attributable to the Company

               

Earnings from continuing operations

   $ 3,297     $ 2,883        $ 3,297     $ 2,883     $ 822     $ 367  

Loss from discontinued operations, net of taxes

     (188     (194        (188     (194     (188     (193
                                                   

Net earnings attributable to the Company

   $ 3,109     $ 2,689        $ 3,109     $ 2,689     $ 634     $ 174  
                                                   

Per-share amounts

               

Earnings from continuing operations

               

Diluted earnings per share

   $ 0.30     $ 0.26             

Basic earnings per share

   $ 0.30     $ 0.26             

Net earnings

               

Diluted earnings per share

   $ 0.28     $ 0.25             

Basic earnings per share

   $ 0.28     $ 0.25             

Dividends declared per common share

   $ 0.10     $ 0.10             

 

 

 

(a) 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.

See Note 3 for other-than-temporary impairment amounts.

See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

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Table of Contents

General Electric Company and consolidated affiliates

Condensed Statement of Earnings

 

     Six months ended June 30 (Unaudited)  
     Consolidated          GE(a)     Financial Services (GECS)  
(In millions, except share amounts)    2010     2009           2010     2009     2010     2009  

Revenues

                 

Sales of goods

   $ 28,670     $ 29,978          $ 28,225     $ 29,514     $ 449     $ 478  

Sales of services

     19,507       20,227            19,687       20,520       —          —     

Other income

     628       462            680       559       —          —     

GECS earnings from continuing operations

     —          —               1,361       1,346       —          —     

GECS revenues from services

     25,244       26,879            —          —          25,870       27,436  
                                                     

Total revenues

     74,049       77,546            49,953       51,939       26,319       27,914  
                                                     
 

Costs and expenses

                 

Cost of goods sold

     21,701       23,883            21,286       23,509       419       388  

Cost of services sold

     13,007       12,987            13,186       13,280       —          —     

Interest and other financial charges

     8,332       9,980            773       724       7,808       9,589  

Investment contracts, insurance losses and insurance annuity benefits

     1,469       1,525            —          —          1,557       1,596  

Provision for losses on financing receivables

     4,272       5,153            —          —          4,272       5,153  

Other costs and expenses

     18,154       18,270            7,126       6,920       11,370       11,600  
                                                     

Total costs and expenses

     66,935       71,798            42,371       44,433       25,426       28,326  
                                                     
 

Earnings (loss) from continuing operations before income taxes

     7,114       5,748            7,582       7,506       893       (412

Benefit (provision) for income taxes

     (1,316     82            (1,774     (1,739     458       1,821  
                                                     

Earnings from continuing operations

     5,798       5,830            5,808       5,767       1,351       1,409  

Loss from discontinued operations,

                 

net of taxes

     (578     (215          (578     (215     (575     (197
                                                     

Net earnings

     5,220       5,615            5,230       5,552       776       1,212  

Less net earnings (loss) attributable to

                 

noncontrolling interests

     166       97            176       34       (10     63  
                                                     

Net earnings attributable to the Company

     5,054       5,518            5,054       5,518       786       1,149  

Preferred stock dividends declared

     (150     (150          (150     (150     —          —     
                                                     

Net earnings attributable to GE common shareowners

   $ 4,904     $ 5,368          $ 4,904     $ 5,368     $ 786     $ 1,149  
                                                     
                                                       

Amounts attributable to the Company

               

Earnings from continuing operations

   $ 5,632     $ 5,733        $ 5,632     $ 5,733     $ 1,361     $ 1,346  

Loss from discontinued operations, net of taxes

     (578     (215        (578     (215     (575     (197
                                                   

Net earnings attributable to the Company

   $ 5,054     $ 5,518        $ 5,054     $ 5,518     $ 786     $ 1,149  
                                                   

Per-share amounts

               

Earnings from continuing operations

               

Diluted earnings per share

   $ 0.51     $ 0.53             

Basic earnings per share

   $ 0.51     $ 0.53             

Net earnings

               

Diluted earnings per share

   $ 0.45     $ 0.51             

Basic earnings per share

   $ 0.46     $ 0.51             

Dividends declared per common share

   $ 0.20     $ 0.41             

 

 

 

(a) 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.

See Note 3 for other-than-temporary impairment amounts.

See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

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Table of Contents

General Electric Company and consolidated affiliates

Condensed Statement of Financial Position

 

     Consolidated          GE(a)     Financial Services (GECS)  
     June 30,     December 31,           June 30,     December 31,     June 30,     December 31,  
(In million, except share amounts)    2010     2009           2010     2009     2010     2009  
     (Unaudited)                 (Unaudited)           (Unaudited)        

Assets

                 

Cash and equivalents

   $ 73,848     $ 72,260          $ 12,861     $ 8,654     $ 61,547     $ 64,356  

Investment securities

     42,102       51,941            21       30       42,083       51,913  

Current receivables

     17,589       16,458            9,471       9,818       —          —     

Inventories

     11,366       11,987            11,295       11,916       71       71  

Financing receivables – net

     324,145       329,232            —          —          333,262       336,926  

Other GECS receivables

     8,577       14,177            —          —          13,093       18,752  

Property, plant and equipment – net

     65,358       69,212            11,668       12,495       53,690       56,717  

Investment in GECS

     —          —               67,267       70,833       —          —     

Goodwill

     63,094       65,574            35,951       36,613       27,143       28,961  

Other intangible assets – net

     10,946       11,929            8,153       8,450       2,793       3,479  

All other assets

     98,363       103,417            16,991       17,097       82,432       87,471  

Assets of businesses held for sale

     33,289       34,111            32,690       33,986       599       125  

Assets of discontinued operations

     1,253       1,520            50       50       1,203       1,470  
                                                     

Total assets(b)

   $ 749,930     $ 781,818          $ 206,418     $ 209,942     $ 617,916     $ 650,241  
                                                     

Liabilities and equity

                 

Short-term borrowings

   $ 120,154     $ 130,252          $ 289     $ 504     $ 121,011     $ 131,137  

Accounts payable, principally trade accounts

     14,230       19,703            10,101       10,373       8,184       13,275  

Progress collections and price adjustments accrued

     10,868       12,192            11,514       12,957       —          —     

Other GE current liabilities

     14,313       14,527            14,313       14,527       —          —     

Non-recourse borrowings of consolidated securitization entities

     33,411       3,883            —          —          33,411       3,883  

Bank deposits

     37,471       38,923            —          —          37,471       38,923  

Long-term borrowings

     298,701       337,134            9,617       11,681       289,768       326,391  

Investment contracts, insurance liabilities and insurance annuity benefits

     30,529       31,641            —          —          31,015       32,009  

All other liabilities

     55,349       58,861            34,904       35,232       20,565       23,756  

Deferred income taxes

     2,434       2,173            (4,217     (4,620     6,651       6,793  

Liabilities of businesses held for sale

     10,364       6,092            10,103       6,037       261       55  

Liabilities of discontinued operations

     1,381       1,301            167       163       1,214       1,138  
                                                     

Total liabilities(b)

     629,205       656,682            86,791       86,854       549,551       577,360  
                                                     

Preferred stock (30,000 shares outstanding at both June 30, 2010 and December 31, 2009)

     —          —               —          —          —          —     

Common stock (10,691,220,000 and 10,663,075,000 shares outstanding at June 30, 2010 and December 31, 2009, respectively)

     702       702            702       702       1       1  

Accumulated other comprehensive income – net(c)

                 

Investment securities

     291       (435          291       (435     289       (436

Currency translation adjustments

     (3,319     3,836            (3,319     3,836       (2,636     1,372  

Cash flow hedges

     (1,290     (1,734          (1,290     (1,734     (1,268     (1,769

Benefit plans

     (16,008     (16,932          (16,008     (16,932     (369     (434

Other capital

     37,357       37,729            37,357       37,729       27,583       27,591  

Retained earnings

     127,436       126,363            127,436       126,363       43,667       44,508  

Less common stock held in treasury

     (31,235     (32,238          (31,235     (32,238     —          —     
                                                     

Total GE shareowners’ equity

     113,934       117,291            113,934       117,291       67,267       70,833  

Noncontrolling interests(d)

     6,791       7,845            5,693       5,797       1,098       2,048  
                                                     

Total equity

     120,725       125,136            119,627       123,088       68,365       72,881  
                                                     

Total liabilities and equity

   $ 749,930     $ 781,818          $ 206,418     $ 209,942     $ 617,916     $ 650,241  
                                                     

 

 

 

(a) 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.
(b) Our consolidated assets at June 30, 2010 include total assets of $53,755 million of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs. These assets include net financing receivables of $42,786 million and investment securities of $7,126 million. Our consolidated liabilities at June 30, 2010 include liabilities of certain VIEs for which the VIE creditors do not have recourse to GE. These liabilities include non-recourse borrowings of consolidated securitization entities (CSEs) of $32,696 million. See Note 16.
(c) The sum of accumulated other comprehensive income—net was $(20,326) million and $(15,265) million at June 30, 2010 and December 31, 2009, respectively.
(d) Included accumulated other comprehensive income—net attributable to noncontrolling interests of $(185) million and $(188) million at June 30, 2010 and December 31, 2009, respectively.

See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

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Table of Contents

General Electric Company and consolidated affiliates

Condensed Statement of Cash Flows

 

     Six months ended June 30 (Unaudited)  
     Consolidated          GE(a)     Financial Services (GECS)  
(In millions)    2010     2009           2010     2009     2010     2009  

Cash flows – operating activities

                 

Net earnings

   $ 5,220     $ 5,615          $ 5,230     $ 5,552     $ 776     $ 1,212  

Less net earnings attributable to noncontrolling interests

     166       97            176       34       (10     63  
                                                     

Net earnings attributable to the Company

     5,054       5,518            5,054       5,518       786       1,149  

Loss from discontinued operations

     578       215            578       215       575       197  

Adjustments to reconcile net earnings attributable to the Company to cash provided from operating activities

                 

Depreciation and amortization of property, plant and equipment

     4,856       5,235            1,075       1,107       3,781       4,128  

Earnings from continuing operations retained by GECS

     —          —               (1,361     (1,346     —          —     

Deferred income taxes

     (1,615     (1,150          (422     29       (1,193     (1,179

Decrease (increase) in GE current receivables

     892       2,187            559       2,836       —          —     

Decrease (increase) in inventories

     522       210            559       246       —          4  

Increase (decrease) in accounts payable

     593       (984          201       (651     502       (1,278

Increase (decrease) in GE progress collections

     (1,452     (675          (1,486     (651     —          —     

Provision for losses on GECS financing receivables

     4,272       5,153            —          —          4,272       5,153  

All other operating activities

     2,919       (10,131          1,557       (259     1,564       (9,839
                                                     

Cash from (used for) operating activities – continuing operations

     16,619       5,578            6,314       7,044       10,287       (1,665

Cash from (used for) operating activities – discontinued operations

     (92     (44          —          —          (92     (44
                                                     

Cash from (used for) operating activities

     16,527       5,534            6,314       7,044       10,195       (1,709
                                                     

Cash flows – investing activities

                 

Additions to property, plant and equipment

     (3,019     (4,459          (937     (1,325     (2,204     (3,299

Dispositions of property, plant and equipment

     2,501       2,605            —          —          2,501       2,605  

Net decrease (increase) in GECS financing receivables

     16,669       25,944            —          —          17,312       25,450  

Proceeds from principal business dispositions

     2,678       9,032            1,683       186       825       8,846  

Payments for principal businesses purchased

     (19     (5,973          (19     (336     —          (5,637

Capital contribution from GE to GECS

     —          —               —          (9,500     —          —     

All other investing activities

     8,898       5            (91     (14     8,963       1,027  
                                                     

Cash from (used for) investing activities – continuing operations

     27,708       27,154            636       (10,989     27,397       28,992  

Cash from (used for) investing activities – discontinued operations

     26       48            —          —          26       48  
                                                     

Cash from (used for) investing activities

     27,734       27,202            636       (10,989     27,423       29,040  
                                                     
 

Cash flows – financing activities

                 

Net increase (decrease) in borrowings (maturities of 90 days or less)

     (1,357     (22,964          (1,063     1,564       (537     (25,512

Net increase (decrease) in bank deposits

     748       (6,450          —          —          748       (6,450

Newly issued debt (maturities longer than 90 days)

     31,661       49,890            4,116       1,330       27,291       48,691  

Repayments and other reductions (maturities longer than 90 days)

     (68,140     (40,681          (3,218     (1,559     (64,922     (39,122

Net dispositions (purchases) of GE shares for treasury

     178       484            178       484       —          —     

Dividends paid to shareowners

     (2,287     (6,705          (2,287     (6,705     —          —     

Capital contribution from GE to GECS

     —          —               —          —          —          9,500  

All other financing activities

     (1,637     (2,143          (162     (293     (1,475     (1,850
                                                     

Cash from (used for) financing activities – continuing operations

     (40,834     (28,569          (2,436     (5,179     (38,895     (14,743

Cash from (used for) financing activities – discontinued operations

     —          —               —          —          —          —     
                                                     

Cash from (used for) financing activities

     (40,834     (28,569          (2,436     (5,179     (38,895     (14,743
                                                     

Effect of currency exchange rate changes on cash

                 

and equivalents

     (1,905     (34          (307     19       (1,598     (53
                                                     

Increase (decrease) in cash and equivalents

     1,522       4,133            4,207       (9,105     (2,875     12,535  

Cash and equivalents at beginning of year

     72,444       48,367            8,654       12,090       64,540       37,666  
                                                     

Cash and equivalents at June 30

     73,966       52,500            12,861       2,985       61,665       50,201  

Less cash and equivalents of discontinued operations at June 30

     118       184            —          —          118       184  
                                                     

Cash and equivalents of continuing operations at June 30

   $ 73,848     $ 52,316          $ 12,861     $ 2,985     $ 61,547     $ 50,017  
                                                     

 

 

 

(a) 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.

See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns and are discussed in Note 17.

 

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Summary of Operating Segments

General Electric Company and consolidated affiliates

 

     Three months ended June 30
(Unaudited)
    Six months ended June 30
(Unaudited)
 
(In millions)    2010     2009     2010     2009  

Revenues

        

Energy Infrastructure(a)

   $ 9,540     $ 10,459     $ 18,195     $ 19,541  

Technology Infrastructure(a)

     9,061       9,637       17,720       19,160  

NBC Universal

     3,750       3,565       8,070       7,089  

GE Capital(a)

     12,297       12,736       24,628       26,511  

Home & Business Solutions(a)

     2,250       2,169       4,190       4,093  
                                

Total segment revenues

     36,898       38,566       72,803       76,394  

Corporate items and eliminations

     546       542       1,246       1,152  
                                

Consolidated revenues

   $ 37,444     $ 39,108     $ 74,049     $ 77,546  
                                

Segment profit(b)

        

Energy Infrastructure(a)

   $ 1,910     $ 1,863     $ 3,391     $ 3,181  

Technology Infrastructure(a)

     1,554       1,743       2,957       3,445  

NBC Universal

     607       539       806       930  

GE Capital(a)

     830       431       1,437       1,460  

Home & Business Solutions(a)

     143       90       214       135  
                                

Total segment profit

     5,044       4,666       8,805       9,151  

Corporate items and eliminations

     (331     (538     (626     (955

GE interest and other financial charges

     (430     (348     (773     (724

GE provision for income taxes

     (986     (897     (1,774     (1,739
                                

Earnings from continuing operations attributable

        

to the Company

     3,297       2,883       5,632       5,733  

Loss from discontinued operations, net of taxes, attributable to the Company

     (188     (194     (578     (215
                                

Consolidated net earnings attributable to the Company

   $ 3,109     $ 2,689     $ 5,054     $ 5,518  
                                

 

 

 

(a) Effective January 1, 2010, we reorganized our segments. We have reclassified prior-period amounts to conform to the current-period presentation. See Note 1 for a description of the reorganization.
(b) Segment profit always excludes the effects of principal pension plans, results reported as discontinued operations, earnings attributable to noncontrolling interests of consolidated subsidiaries 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 acquisitions or 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 sometimes refer to as “operating profit,” for Energy Infrastructure, Technology Infrastructure, NBC Universal and Home & Business Solutions; included in determining segment profit, which we sometimes refer to as “net earnings,” for GE Capital.

See accompanying notes to condensed, consolidated financial statements.

 

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Notes to Condensed, Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 for the year ended December 31, 2009, included in our Form 8-K filed on May 6, 2010, which discusses our consolidation and financial statement presentation. As used in this report on Form 10-Q (Report) and in our 2009 consolidated financial statements, “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.

Effective January 1, 2010, we reorganized our segments to better align our Consumer & Industrial and Energy businesses for growth. As a result of this reorganization, we created a new segment called Home & Business Solutions that includes the Appliances and Lighting businesses from our previous Consumer & Industrial segment and the retained portion of the GE Fanuc Intelligent Platforms business of our previous Enterprise Solutions business (formerly within our Technology Infrastructure segment). In addition, the Industrial business of our previous Consumer & Industrial segment and the Sensing & Inspection Technologies and Digital Energy businesses of our previous Enterprise Solutions business are now part of the Energy business within the Energy Infrastructure segment. The Security business of Enterprise Solutions is reported in Corporate Items and Eliminations for periods prior to its sale in the first quarter of 2010. Also, effective January 1, 2010, the Capital Finance segment was renamed GE Capital and includes all of the continuing operations of General Electric Capital Corporation (GECC). In addition, the Transportation Financial Services business, previously reported in GE Capital Aviation Services (GECAS), is now included in Commercial Lending and Leasing (CLL) and our Consumer business in Italy, previously reported in Consumer, is now included in CLL. GE includes Energy Infrastructure, Technology Infrastructure, NBC Universal (NBCU) and Home & Business Solutions. GECS includes GE Capital.

Beginning in the first quarter of 2010, we have included a separate line on the statement of cash flows for the effect of currency exchange rate changes on cash and equivalents. We had previously included the effect of currency exchange rate changes on cash and equivalents in “All other operating activities” for GE and “All other investing activities” for GECS, as the effect was insignificant.

We have reclassified certain prior-period amounts to conform to the current-period presentation. Unless otherwise indicated, information in these notes to condensed, consolidated financial statements relates to continuing operations.

Accounting Changes

On January 1, 2010, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2009-16 and ASU 2009-17, amendments to Accounting Standards Codification (ASC) 860, Transfers and Servicing, and ASC 810, Consolidation, respectively (ASU 2009-16 & 17). ASU 2009-16 eliminates the Qualified Special Purpose Entity (QSPE) concept, and ASU 2009-17 requires that all such entities be evaluated for consolidation as Variable Interest Entities (VIEs). Adoption of these amendments resulted in the consolidation of all of our sponsored QSPEs. In addition, we consolidated assets of VIEs related to direct investments in entities that hold loans and fixed income securities, a media joint venture and a small number of companies to which we have extended loans in the ordinary course of business and subsequently were subject to a troubled debt restructuring (TDR).

 

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We consolidated the assets and liabilities of these entities at amounts at which they would have been reported in our financial statements had we always consolidated them. We also deconsolidated certain entities where we did not meet the definition of the primary beneficiary under the revised guidance; however the effect was insignificant at January 1, 2010. The incremental effect on total assets and liabilities, net of our investment in these entities, was an increase of $31,097 million and $33,042 million, respectively, at January 1, 2010. The net reduction of total equity (including noncontrolling interests) was $1,945 million at January 1, 2010, principally related to the reversal of previously recognized securitization gains as a cumulative effect adjustment to retained earnings. See Note 16 for additional information.

The amended guidance on ASC 860 changed existing derecognition criteria in a manner that significantly narrows the types of transactions that will qualify as sales. The revised criteria apply to transfers of financial assets occurring after December 31, 2009.

Interim Period Presentation

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. It is suggested that these condensed, consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our 2009 consolidated financial statements. 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.

2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS

Assets and Liabilities of Businesses Held for Sale

NBC Universal

On December 3, 2009, we entered into an agreement with Comcast Corporation to transfer the assets of the NBCU business to a newly formed entity, which will consist of our NBCU businesses and Comcast Corporation's cable networks, regional sports networks, certain digital properties and certain unconsolidated investments. Pursuant to the transaction, we currently expect to receive $6,400 million in cash ($7.1 billion less certain adjustments based on various events between contract signing and closing) and will own a 49% interest in the newly formed entity. The transaction is subject to receipt of various regulatory approvals and is expected to close within the next six months.

We also entered into an agreement whereby we will acquire approximately 38% of Vivendi’s interest in NBCU for $2,000 million on September 26, 2010, if the transaction described above has not yet closed. Provided the transaction subsequently closes, we will acquire the remaining Vivendi NBCU interest for $3,578 million and make an additional payment of $222 million related to the previously purchased shares. If the entity formation transaction closes before September 26, 2010, we will purchase Vivendi’s entire ownership interest in NBCU (20%) for $5,800 million.

Prior to the sale, NBCU will borrow approximately $9,100 million from third-party lenders and distribute the cash to us. We expect to realize approximately $7,900 million in cash after debt reduction, transaction fees and the buyout of the Vivendi interest in NBCU.

 

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With respect to our 49% interest in the newly formed entity, we will hold redemption rights which, if exercised, cause the entity to purchase half of our ownership interest after 3.5 years and the remaining half after 7 years subject to certain exceptions, conditions and limitations. Our interest will also be subject to call provisions which, if exercised, allow Comcast Corporation to purchase our interest at specified times subject to certain exceptions. The redemption price for such transactions is determined pursuant to a formula specified in the agreement.

Subsequent to the close of the transaction, we will account for our 49% interest in the newly formed entity under the equity method.

On March 19, 2010, NBCU entered into a three-year credit agreement and a 364-day bridge loan agreement and on April 30, 2010, issued $4,000 million of senior, unsecured notes with maturities ranging from 2015 to 2040, in connection with the $9,100 million financing described above. If the transaction has not closed before June 10, 2011 or such earlier date as the master agreement governing the transaction is terminated, NBCU will redeem the senior, unsecured notes at a redemption price equal to 101% of the aggregate principal amount.

At June 30, 2010, NBCU assets and liabilities of $32,688 million and $10,103 million, respectively, were classified as held for sale. The major classes of assets are current receivables ($1,932 million), property, plant and equipment – net ($1,939 million), goodwill and other intangible assets – net ($22,212 million) and all other assets ($6,482 million), including film and television production costs of $4,379 million. The major classes of liabilities are accounts payable ($427 million), other GE current liabilities ($3,751 million), all other liabilities ($1,115 million) and long-term borrowings ($4,810 million).

At December 31, 2009, we classified the NBCU assets and liabilities of $32,150 million and $5,751 million, respectively, as held for sale. The major classes of assets are current receivables ($2,136 million), property, plant and equipment – net ($1,805 million), goodwill and other intangible assets – net ($21,574 million) and all other assets ($6,514 million), including film and television production costs of $4,507 million. The major classes of liabilities are accounts payable ($398 million), other GE current liabilities ($4,051 million) and all other liabilities ($1,300 million).

Other

On February 28, 2010, we completed the sale of our Security business for $1,787 million. Assets and liabilities of $1,780 million and $282 million, respectively, were classified as held for sale at December 31, 2009.

In June 2010, we committed to sell our GE Capital Consumer businesses in Indonesia and Argentina. Assets of $571 million and liabilities of $212 million were classified as held for sale at June 30, 2010.

 

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Summarized financial information for businesses held for sale is shown below.

 

(In millions)    June 30,
2010
   December 31,
2009

Assets

     

Cash and equivalents

   $ 62    $ —  

Current receivables

     1,932      2,188

Financing receivables – net

     467      —  

Property, plant and equipment – net

     1,973      1,978

Goodwill

     19,599      20,086

Other intangible assets – net

     2,639      2,866

All other assets

     6,484      6,621

Other

     133      372
             

Assets of businesses held for sale

   $ 33,289    $ 34,111
             

Liabilities

     

Accounts payable

   $ 448    $ 451

Other GE current liabilities

     3,755      4,139

All other liabilities

     1,219      1,447

Long-term borrowings

     4,810      2

Other

     132      53
             

Liabilities of businesses held for sale

   $ 10,364    $ 6,092
             

Discontinued Operations

Discontinued operations comprised GE Money Japan (our Japanese personal loan business, Lake, and our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC) and Plastics. Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.

Summarized financial information for discontinued GECS operations is shown below.

 

     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

Total revenues

   $ (2   $ (2   $ (3   $ (8
                                

Loss from discontinued operations, net of taxes

        

Loss from operations

   $ (3   $ (62   $ (9   $ (70

Loss on disposal

     (185     (131     (566     (127
                                

Total loss from discontinued operations, net of taxes

   $ (188   $ (193   $ (575   $ (197
                                

Assets of GECS discontinued operations were $1,203 million and $1,470 million at June 30, 2010 and December 31, 2009, respectively, and primarily comprised a deferred tax asset for a loss carryforward, which expires in 2015, related to the sale of our GE Money Japan business. Liabilities of GECS discontinued operations were $1,214 million and $1,138 million at June 30, 2010 and December 31, 2009, respectively. During the first six months of 2010, we recorded incremental reserves of $566 million related to interest refund claims on the 2008 sale of GE Money Japan. During the first quarter of 2010, we also reduced tax reserves by $325 million related to resolution of an uncertain tax position in Japan, but were required to record an offsetting valuation allowance on our deferred tax asset in Japan.

 

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GE Money Japan

During the third quarter of 2007, we committed to a plan to sell Lake upon determining that, despite restructuring, Japanese regulatory limits for interest charges on unsecured personal loans did not permit us to earn an acceptable return. During the third quarter of 2008, we completed the sale of GE Money Japan, which included Lake, along with our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd. As a result, we recognized an after-tax loss of $908 million in 2007 and an incremental loss in 2008 of $361 million. In connection with the sale, we reduced the proceeds on the sale for estimated interest refund claims in excess of the statutory interest rate. Proceeds from the sale may be increased or decreased based on the actual claims experienced in accordance with loss-sharing terms specified in the agreement, with all claims in excess of 258 billion Japanese Yen (approximately $2,900 million) remaining our responsibility. The underlying portfolio to which this obligation relates is in runoff and interest rates were capped for all designated accounts by mid-2009.

We update our estimate of our share of expected losses quarterly. We recorded a reserve of $132 million in the second quarter of 2009 for our estimated share of incremental losses under the loss-sharing provisions of the agreement based on our experience at that time. In the last several months, our overall claims experience has developed unfavorably. While the number of new claims continues to decline from 2009, the pace of the decline has been slower than expected and claims severity has increased. We believe that the level of excess interest refund claims has been impacted by the challenging global economic conditions, in addition to Japanese legislative and regulatory changes. During the first quarter of 2010, we accrued $380 million of incremental reserves for these claims. In the second quarter of 2010, we accrued an additional $186 million of reserves for these claims. As of June 30, 2010, our liability for reimbursement of claims in excess of the statutory interest rate was $697 million.

The amount of these reserves is based on analyses of recent and historical claims experience, pending and estimated future excess interest refund requests, the estimated percentage of customers who present valid requests, and our estimated payments related to those requests. We continue to monitor incoming claims activity relative to our expected claims levels. Our current expectations are that the pace of incoming claims continues to decelerate, average exposure per claim remains consistent with recent levels and we see the impact of our loss mitigation efforts. Estimating the pace of decline in incoming claims can have a significant impact on the total amount of our liability. For example, our current model assumes incoming claims continue to decline at a rate of 11% per month. June daily claims declined at a rate higher than assumed in our model. Holding all other assumptions constant, if claims were to decline at rates of 9%, 6% or 3% and we assume no impact from our loss mitigation efforts, our estimate of our liability would increase by approximately $100 million, $400 million and $1,200 million, respectively.

Uncertainties around the impact of laws and regulations, challenging economic conditions, the runoff status of the underlying book of business and the effects of our mitigation efforts make it difficult to develop a meaningful estimate of the aggregate possible claims exposure. Recent trends, including the effect of governmental actions, may continue to have an adverse effect on claims development. We will continue to review our estimated exposure quarterly, and make adjustments if required.

GE Money Japan revenues from discontinued operations were an insignificant amount in both the second quarter of 2010 and 2009 and both the first six months of 2010 and 2009, respectively. In total, GE Money Japan losses from discontinued operations, net of taxes, were $188 million and $136 million in the second quarters of 2010 and 2009, respectively, and $571 million and $132 million in the first six months of 2010 and 2009, respectively.

WMC

During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC revenues from discontinued operations were $(2) million in both the second quarters of 2010 and 2009, and $(3) million and $(9) million in the first six months of 2010 and 2009, respectively. In total, WMC’s earnings (loss) from discontinued operations, net of taxes, were $1 million and $(5) million in the second quarters of 2010 and 2009, respectively, and $(3) million and $(11) million in the first six months of 2010 and 2009, respectively.

 

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GE Industrial

GE industrial loss from discontinued operations, net of taxes, were $1 million in the second quarter of 2009 and $3 million and $18 million in the first six months of 2010 and 2009, respectively. There were no GE industrial losses from discontinued operations in the second quarter of 2010. The sum of GE industrial loss from discontinued operations, net of taxes, and GECS loss from discontinued operations, net of taxes, are reported as GE industrial loss from discontinued operations, net of taxes, on the Condensed Statement of Earnings.

Assets of GE industrial discontinued operations were $50 million at both June 30, 2010 and December 31, 2009. Liabilities of GE industrial discontinued operations were $167 million and $163 million at June 30, 2010, and December 31, 2009, respectively, and primarily represent taxes payable and pension liabilities related to the sale of our Plastics business in 2007.

3. INVESTMENT SECURITIES

Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment-grade debt securities supporting obligations to annuitants and policyholders in our run-off insurance operations and holders of guaranteed investment contracts (GICs) in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010), and investment securities held at our global banks. None of our securities are classified as held to maturity.

 

     At  
     June 30, 2010     December 31, 2009  
(In millions)    Amortized
cost
    Gross
unrealized
gains
   Gross
unrealized
losses
    Estimated
fair value
    Amortized
cost
    Gross
unrealized
gains
   Gross
unrealized
losses
    Estimated
fair value
 

GE

                  

Debt – U.S. corporate

   $ 4     $ —      $ —        $ 4     $ 12     $ 4    $ (1   $ 15  

Equity – available-for-sale

     17       —        —          17       14       1      —          15  
                                                              
     21       —        —          21       26       5      (1     30  
                                                              

GECS

                  

Debt

                  

U.S. corporate

     21,914       1,691      (442     23,163       23,410       981      (756     23,635  

State and municipal

     2,876       108      (207     2,777       2,006       34      (246     1,794  

Residential mortgage- backed(a)

     3,455       123      (492     3,086       4,005       79      (766     3,318  

Commercial mortgage-backed

     2,993       144      (260     2,877       3,053       89      (440     2,702  

Asset-backed

     2,908       86      (235     2,759       2,994       48      (305     2,737  

Corporate – non-U.S.

     2,301       99      (104     2,296       1,831       59      (50     1,840  

Government – non-U.S.

     2,585       78      (43     2,620       2,902       63      (29     2,936  

U.S. government and federal agency

     1,380       66      (26     1,420       2,628       46      —          2,674  

Retained interests(b)

     58       9      (26     41       8,479       392      (40     8,831  

Equity

                  

Available-for-sale

     540       123      (39     624       489       242      (5     726  

Trading

     420       —        —          420       720       —        —          720  
                                                              
     41,430       2,527      (1,874     42,083       52,517       2,033      (2,637     51,913  
                                                              

Eliminations

     (2     —        —          (2     (2     —        —          (2
                                                              

Total

   $ 41,449     $ 2,527    $ (1,874   $ 42,102     $ 52,541     $ 2,038    $ (2,638   $ 51,941  
                                                              

 

 

 

(a) Substantially collateralized by U.S. mortgages. Of our total RMBS portfolio at June 30, 2010, $2,039 million relates to securities issued by government sponsored entities and $1,047 million relates to securities of private label issuers. Securities issued by private label issuers are collateralized primarily by pools of individual direct mortgage loans of individual financial institutions.
(b) Included $1,918 million of retained interests at December 31, 2009 accounted for at fair value in accordance with ASC 815, Derivatives and Hedging. See Note 16.

 

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The fair value of investment securities decreased to $42,102 million at June 30, 2010, from $51,941 million at December 31, 2009, primarily driven by a decrease in retained interests as a result of our adoption of ASU 2009-16 & 17 and maturities, partially offset by improved market conditions.

The following tables present the estimated fair values and gross unrealized losses of our available-for-sale investment securities.

 

     In loss position for  
     Less than 12 months     12 months or more  
(In millions)    Estimated
fair value
   Gross
unrealized
losses
    Estimated
fair value
   Gross
unrealized
losses
 

June 30, 2010

          

Debt

          

U.S. corporate

   $ 1,373    $ (43   $ 3,216    $ (399

State and municipal

     431      (23     531      (184

Residential mortgage-backed

     692      (2     1,356      (490

Commercial mortgage-backed

     366      (3     1,327      (257

Asset-backed

     192      (22     959      (213

Corporate – non-U.S.

     486      (32     726      (72

Government – non-U.S.

     724      (3     135      (40

U.S. government and federal agency

     250      (26     —        —     

Retained interests

     —        —          14      (26

Equity

     209      (38     6      (1
                              

Total

   $ 4,723    $ (192   $ 8,270    $ (1,682
                              

December 31, 2009

          

Debt

          

U.S. corporate

   $ 3,146    $ (88   $ 4,881    $ (669

State and municipal

     592      (129     535      (117

Residential mortgage-backed

     118      (14     1,678      (752

Commercial mortgage-backed

     167      (5     1,293      (435

Asset-backed

     126      (11     1,342      (294

Corporate – non-U.S.

     374      (18     481      (32

Government – non-U.S.

     399      (4     224      (25

U.S. government and federal agency

     —        —          —        —     

Retained interests

     208      (16     27      (24

Equity

     92      (2     10      (3
                              

Total

   $ 5,222    $ (287   $ 10,471    $ (2,351
                              

We adopted amendments to ASC 320 and recorded a cumulative effect adjustment to increase retained earnings as of April 1, 2009 of $62 million.

We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell our debt securities and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position before recovery of our amortized cost. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future. The methodologies and significant inputs used to measure the amount of credit loss for our investment securities during the first six months of 2010 have not changed from those described in our 2009 consolidated financial statements. See Note 3 in our 2009 consolidated financial statements, for additional information regarding these methodologies and inputs.

 

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During the second quarter of 2010, we recorded pre-tax, other-than-temporary impairments of $101 million, of which $56 million was recorded through earnings and $45 million was recorded in accumulated other comprehensive income (AOCI). At April 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $381 million. During the second quarter, we recognized first time impairments of $36 million and incremental charges on previously impaired securities of $17 million. These amounts included $7 million related to securities that were subsequently sold.

During the six months of 2010, we recorded pre-tax, other-than-temporary impairments of $259 million, of which $135 million was recorded through earnings and $124 million was recorded in AOCI. At January 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $340 million. During the first six months of 2010, we recognized first time impairments of $92 million and incremental charges on previously impaired securities of $35 million. These amounts included $39 million related to securities that were subsequently sold.

During the three months ended June 30, 2009, we recorded pre-tax, other-than-temporary impairments of $306 million, of which $205 million was recorded through earnings, and $101 million was recorded in AOCI. At April 1, 2009 cumulative impairments recognized in earnings associated with debt securities still held were $258 million. During the second quarter, we recognized first time impairments of $26 million and incremental charges on previously impaired securities of $150 million. There were no securities sold that had previously been impaired.

During the first six months ended June 30, 2009, we recognized impairments of $603 million. Of the $603 million, $33 million was reclassified to retained earnings at April 1, 2009, as a result of the amendments to ASC 320, Investments – Debt and Equity Securities. Subsequent to April 1, 2009, first time and incremental credit impairments were $26 million and $150 million, respectively. There were no securities sold that had previously been impaired.

Contractual Maturities of GECS Investment in Available-for-Sale Debt Securities (Excluding Mortgage-Backed and Asset-Backed Securities)

 

(In millions)

   Amortized
cost
   Estimated
fair value

Due in

     

2010

   $ 2,878    $ 2,907

2011-2014

     6,221      6,420

2015-2019

     4,202      4,245

2020 and later

     17,755      18,704

We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.

Supplemental information about gross realized gains and losses on available-for-sale investment securities follows.

 

     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

GE

        

Gains

   $ —        $ —        $ —        $ —     

Losses, including impairments

     —          (107     —          (172
                                

Net

     —          (107     —          (172
                                

GECS

        

Gains

     40       35       133       59  

Losses, including impairments

     (62     (115     (144     (354
                                

Net

     (22     (80     (11     (295
                                

Total

   $ (22   $ (187   $ (11   $ (467
                                

 

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Although we generally do not have the intent to sell any specific securities at the end of the period, in the ordinary course of managing our investment securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. In some of our bank subsidiaries, we maintain a certain level of purchases and sales volume principally of non-U.S. government debt securities. In these situations, fair value approximates carrying value for these securities.

Proceeds from investment securities sales and early redemptions by the issuer totaled $3,641 million and $1,491 million in the second quarters of 2010 and 2009, respectively, and $7,588 million and $3,633 million in the first six months of 2010 and 2009, respectively, principally from the sales of short-term securities in our bank subsidiaries.

We recognized net pre-tax gains on trading securities of $4 million and $204 million in the second quarters of 2010 and 2009, respectively, and $19 million and $244 million in the first six months of 2010 and 2009, respectively.

4. INVENTORIES

Inventories consisted of the following.

 

     At  
(In millions)    June 30,
2010
    December 31,
2009
 

Raw materials and work in process

   $ 6,894     $ 7,581  

Finished goods

     4,301       4,176  

Unbilled shipments

     664       759  
                
     11,859       12,516  

Less revaluation to LIFO

     (493     (529
                

Total

   $ 11,366     $ 11,987  
                

5. GECS FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES

GECS financing receivables – net, consisted of the following.

 

     At  
(In millions)    June 30,
2010
    January 1,
2010(a)
    December 31,
2009
 

Loans, net of deferred income

   $ 294,016     $ 331,710     $ 290,586  

Investment in financing leases, net of deferred income

     48,339       55,209       54,445  
                        
     342,355       386,919       345,031  

Less allowance for losses

     (9,093     (9,805     (8,105
                        

Financing receivables – net(b)

   $ 333,262     $ 377,114     $ 336,926  
                        

 

 

 

(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) Financing receivables at June 30, 2010 and December 31, 2009 included $1,621 million and $2,704 million, respectively, relating to loans that had been acquired in a transfer but have been subject to credit deterioration since origination per ASC 310, Receivables.

 

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Effective January 1, 2009, loans acquired in a business acquisition are recorded at fair value, which incorporates our estimate at the acquisition date of the credit losses over the remaining life of the portfolio. As a result, the allowance for loan losses is not carried over at acquisition. This may result in lower reserve coverage ratios prospectively. Details of financing receivables – net follow.

 

     At  
(In millions)    June 30,
2010
    January 1,
2010(a)
    December 31,
2009
 

CLL(b)

      

Americas

   $ 93,042     $ 99,666     $ 87,496  

Europe

     36,067       43,403       41,455  

Asia

     11,914       13,159       13,202  

Other

     2,727       2,836       2,836  
                        
     143,750       159,064       144,989  
                        

Consumer(b)

      

Non-U.S. residential mortgages

     48,013       58,345       58,345  

Non-U.S. installment and revolving credit

     21,783       24,976       24,976  

U.S. installment and revolving credit

     42,946       47,171       23,190  

Non-U.S. auto

     10,012       13,344       13,344  

Other

     9,764       11,688       11,688  
                        
     132,518       155,524       131,543  
                        

Real Estate

     44,006       48,673       44,841  
                        

Energy Financial Services

     7,472       7,790       7,790  
                        

GECAS(b)

     12,337       13,254       13,254  
                        

Other(c)

     2,272       2,614       2,614  
                        
     342,355       386,919       345,031  

Less allowance for losses

     (9,093     (9,805     (8,105
                        

Total

   $ 333,262     $ 377,114     $ 336,926  
                        

 

 

 

(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.
(c) Consisted of loans and financing leases related to certain consolidated, liquidating securitization entities.

Individually impaired loans are defined by U.S. generally accepted accounting principles (GAAP) as larger balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. The vast majority of our consumer and a portion of our CLL nonearning receivables are excluded from this definition, as they represent smaller balance homogeneous loans that we evaluate collectively by portfolio for impairment. An analysis of impaired loans and specific reserves follows.

 

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     At
(In millions)    June 30,
2010
   January 1,
2010(a)
    December 31,
2009

Loans requiring allowance for losses

   $ 11,515    $ 9,541     $ 9,145

Loans expected to be fully recoverable

     3,924      3,914       3,741
                     

Total impaired loans

   $ 15,439    $ 13,455     $ 12,886
                     

Allowance for losses (specific reserves)

   $ 3,033    $ 2,376     $ 2,331

Average investment during the period

     14,182      (c     8,493

Interest income earned while impaired(b)

     206      (c     227

 

 

 

(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) Recognized principally on cash basis.
(c) Not applicable.

Impaired loans increased by $1,984 million from January 1, 2010, to June 30, 2010, primarily relating to increases at Real Estate. Impaired loans consolidated as a result of our adoption of ASU 2009-16 & 17 primarily related to our Consumer business. We regularly review our Real Estate loans for impairment using both quantitative and qualitative factors, such as debt service coverage and loan-to-value ratios. We classify Real Estate loans as impaired when the most recent valuation reflects a projected loan-to-value ratio at maturity in excess of 100%, even if the loan is currently paying in accordance with contractual terms. The increase in impaired loans and related specific reserves at Real Estate reflects our current estimate of collateral values of the underlying properties, and our estimate of loans which are not past due, but for which it is probable that we will be unable to collect the full principal balance at maturity due to a decline in the underlying value of the collateral. Of our $8,281 million impaired loans at Real Estate at June 30, 2010, $5,892 million are currently paying in accordance with the contractual terms of the loan. Impaired loans at CLL primarily represent senior secured lending positions.

Our loss mitigation strategy intends to minimize economic loss and, at times, can result in rate reductions, principal forgiveness, extensions, forbearance or other actions, which may cause the related loan to be classified as a TDR. Such loans are classified as impaired, and specific reserves are determined based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate, or collateral value as a practical expedient in accordance with the requirements of ASC 310-10-35. As of June 30, 2010, TDRs included in impaired loans were $5,942 million, primarily relating to Real Estate ($2,127 million), Consumer ($1,918 million) and CLL ($1,835 million). TDRs consolidated as a result of our adoption of ASU 2009-16 & 17 primarily related to our Consumer business ($364 million).

 

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GECS Allowance for Losses on Financing Receivables

 

(In millions)    Balance
December 31,
2009
   Adoption of
ASU 2009-
16 & 17 (a)
    Balance
January 1,
2010
   Provision
charged to
operations
    Other(b)     Gross
write-offs
    Recoveries    Balance
June 30,
2010

CLL(c)

                   

Americas

   $ 1,179    $ 66      $ 1,245    $ 630     $ (10   $ (558   $ 55    $ 1,362

Europe

     575      —          575      137       (70     (288     28      382

Asia

     244      (10     234      108       (23     (94     9      234

Other

     11      —          11      (1     (2     —          —        8

Consumer(c)

                   

Non-U.S. residential mortgages

     949      —          949      184       (105     (187     51      892

Non-U.S. installment and revolving credit

     1,181      —          1,181      652       (114     (987     288      1,020

U.S. installment and revolving credit

     1,698      1,602        3,300      1,604       (1     (2,400     251      2,754

Non-U.S. auto

     308      —          308      71       (43     (204     102      234

Other

     300      —          300      165       (34     (217     43      257

Real Estate

     1,494      42        1,536      645       (11     (374     1      1,797

Energy Financial Services

     28      —          28      24       1       —          —        53

GECAS(c)

     104      —          104      35       —          (89     —        50

Other

     34      —          34      18       —          (3     1      50
                                                           

Total

   $ 8,105    $ 1,700      $ 9,805    $ 4,272     $ (412   $ (5,401   $ 829    $ 9,093
                                                           

 

 

 

(a) Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
(b) Other primarily included the effects of currency exchange.
(c) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.

 

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Table of Contents
(In millions)    Balance
January 1,
2009
   Provision
charged to
operations
   Other(a)     Gross
write-offs
    Recoveries    Balance
June 30,
2009

CLL(b)

               

Americas

   $ 843    $ 736    $ (33   $ (457   $ 44    $ 1,133

Europe

     311      323      —          (192     36      478

Asia

     163      120      (6     (85     7      199

Other

     4      3      2       (1     —        8

Consumer(b)

               

Non-U.S. residential mortgages

     381      560      59       (231     59      828

Non-U.S. installment and revolving credit

     1,049      891      65       (1,092     228      1,141

U.S. installment and revolving credit

     1,700      1,729      (497     (1,438     81      1,575

Non-U.S. auto

     203      242      26       (297     90      264

Other

     226      160      (16     (163     27      234

Real Estate

     301      344      10       (85     —        570

Energy Financial Services

     58      32      2       —          —        92

GECAS(b)

     58      1      (1     —          —        58

Other

     28      12      1       (14     —        27
                                           

Total

   $ 5,325    $ 5,153    $ (388   $ (4,055   $ 572    $ 6,607
                                           

 

 

 

(a) Other primarily included the effects of securitization activity and currency exchange.
(b) During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment – net, consisted of the following.

 

     At  
(In millions)    June 30,
2010
    December 31,
2009
 

Original cost

   $ 108,976     $ 113,315  

Less accumulated depreciation and amortization

     (43,618     (44,103
                

Property, plant and equipment – net

   $ 65,358     $ 69,212  
                

 

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7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets – net, consisted of the following.

 

     At
(In millions)    June 30,
2010
   December 31,
2009

Goodwill

   $ 63,094    $ 65,574
             

Other intangible assets

     

Intangible assets subject to amortization

   $ 10,842    $ 11,824

Indefinite-lived intangible assets(a)

     104      105
             

Total

   $ 10,946    $ 11,929
             

 

 

 

(a) Indefinite-lived intangible assets principally comprised trademarks and tradenames.

Changes in goodwill balances follow.

 

(In millions)    Balance
January 1,
2010
   Acquisitions    Dispositions,
currency
exchange
and other
    Balance
June 30,
2010

Energy Infrastructure

   $ 12,777    $ —      $ (340   $ 12,437

Technology Infrastructure

     22,648      13      (158     22,503

GE Capital

     28,961      —        (1,818     27,143

Home & Business Solutions

     1,188      —        (177     1,011
                            

Total

   $ 65,574    $ 13    $ (2,493   $ 63,094
                            

Goodwill balances decreased $2,480 million during the first six months of 2010, primarily as a result of the stronger U.S. dollar ($1,780 million) and the deconsolidation of Regency Energy Partners L.P. (Regency) at GE Capital ($557 million).

On May 26, 2010, we sold our general partnership interest in Regency, a midstream natural gas services provider, and retained a 21% limited partnership interest. This resulted in the deconsolidation of Regency and the remeasurement of our limited partnership interest to fair value. We recorded a pre-tax gain of $119 million, which is reported in GECS revenues from services.

 

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Intangible Assets Subject to Amortization

 

     At
     June 30, 2010    December 31, 2009
(In millions)    Gross
carrying
amount
   Accumulated
amortization
    Net    Gross
carrying
amount
   Accumulated
amortization
    Net

Customer-related

   $ 5,826    $ (1,523   $ 4,303    $ 6,044    $ (1,392   $ 4,652

Patents, licenses and trademarks

     5,301      (2,404     2,897      5,198      (2,177     3,021

Capitalized software

     6,491      (4,201     2,290      6,549      (4,127     2,422

Lease valuations

     1,643      (831     812      1,754      (793     961

Present value of future profits

     889      (452     437      921      (470     451

All other

     399      (296     103      745      (428     317
                                           

Total

   $ 20,549    $ (9,707   $ 10,842    $ 21,211    $ (9,387   $ 11,824
                                           

Consolidated amortization related to intangible assets subject to amortization was $452 million and $553 million for the three months ended June 30, 2010 and 2009, respectively. Consolidated amortization related to intangible assets subject to amortization for the six months ended June 30, 2010 and 2009, was $858 million and $1,013 million, respectively.

 

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8. GECS BORROWINGS AND BANK DEPOSITS

GECS borrowings are summarized in the following table.

 

     At
(In millions)    June 30,
2010
   December 31,
2009

Short-term borrowings

     

Commercial paper

     

U.S.

   $ 36,330    $ 37,775

Non-U.S.

     9,647      9,525

Current portion of long-term borrowings(a)(b)(c)

     63,000      69,883

GE Interest Plus notes(d)

     8,354      7,541

Other(c)

     3,680      6,413
             

GECS short-term borrowings

   $ 121,011    $ 131,137
             

Long-term borrowings

     

Senior unsecured notes(a)(b)

   $ 269,641    $ 305,306

Subordinated notes(e)

     2,411      2,686

Subordinated debentures(f)

     6,952      7,647

Other(c)(g)

     10,764      10,752
             

GECS long-term borrowings

   $ 289,768    $ 326,391
             

Non-recourse borrowings of consolidated securitization entities(h)

   $ 33,411    $ 3,883
             

Bank deposits(i)

   $ 37,471    $ 38,923
             

Total borrowings and bank deposits

   $ 481,661    $ 500,334
             

 

 

 

(a) GECC had issued and outstanding $58,045 million and $59,336 million of senior, unsecured debt that was guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program at June 30, 2010 and December 31, 2009, respectively. Of the above amounts $13,000 million and $5,841 million is included in current portion of long-term borrowings at June 30, 2010 and December 31, 2009, respectively.
(b) Included in total long-term borrowings was $2,624 million and $3,138 million of obligations to holders of guaranteed investment contracts at June 30, 2010 and December 31, 2009, respectively. GECC could be required to repay up to approximately $2,500 million if its long-term credit rating were to fall below AA–/Aa3 or its short-term credit rating were to fall below A–1+/P–1.
(c) Included $10,400 million and $10,604 million of secured funding at June 30, 2010 and December 31, 2009, respectively, of which $3,795 million and $5,667 million is non-recourse to GECS at June 30, 2010 and December 31, 2009, respectively.
(d) Entirely variable denomination floating rate demand notes.
(e) Included $417 million of subordinated notes guaranteed by GE at both June 30, 2010 and December 31, 2009.
(f) Subordinated debentures receive rating agency equity credit and were hedged at issuance to the U.S. dollar equivalent of $7,725 million.
(g) Included $1,533 million and $1,649 million of covered bonds at June 30, 2010 and December 31, 2009, respectively. If the short-term credit rating of GECC were reduced below A–1/P–1, GECC would be required to partially cash collateralize these bonds in an amount up to $707 million.
(h) Included at June 30, 2010 was $2,100 million of commercial paper, $11,674 million of current portion of long-term borrowings and $19,637 million of long-term borrowings related to former QSPEs consolidated on January 1, 2010 upon our adoption of ASU 2009-16 & 17, previously consolidated liquidating securitization entities and other on-book securitization borrowings. Included at December 31, 2009, was $2,424 million of commercial paper, $378 million of current portion of long-term borrowings and $1,081 million of long-term borrowings issued by consolidated liquidating securitization entities. See Note 16.
(i) Included $19,816 million and $21,252 million of deposits in non-U.S. banks at June 30, 2010 and December 31, 2009, respectively, and $10,882 million and $10,476 million of certificates of deposits distributed by brokers with maturities greater than one year at June 30, 2010 and December 31, 2009, respectively.

 

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9. POSTRETIREMENT BENEFIT PLANS

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 with pension assets or obligations greater than $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 plans follows.

 

     Principal Pension Plans  
     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

Expected return on plan assets

   $ (1,084   $ (1,127   $ (2,170   $ (2,253

Service cost for benefits earned

     277       336       569       689  

Interest cost on benefit obligation

     667       665       1,342       1,334  

Prior service cost amortization

     59       80       119       161  

Net actuarial loss amortization

     329       83       662       173  
                                

Pension plans cost

   $ 248     $ 37     $ 522     $ 104  
                                

 

     Other Pension Plans  
     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

Expected return on plan assets

   $ (124   $ (105   $ (254   $ (211

Service cost for benefits earned

     62       82       144       165  

Interest cost on benefit obligation

     120       109       244       221  

Prior service cost amortization

     4       3       8       5  

Net actuarial loss amortization

     52       27       111       56  
                                

Pension plans cost

   $ 114     $ 116     $ 253     $ 236  
                                

The effect on operations of principal retiree health and life insurance plans follows.

 

     Principal Retiree Health and Life Insurance Plans  
     Three months ended June 30     Six months ended June 30  
(In millions)    2010     2009     2010     2009  

Expected return on plan assets

   $ (29   $ (32   $ (58   $ (64

Service cost for benefits earned

     54       85       112       159  

Interest cost on benefit obligation

     175       177       350       354  

Prior service cost amortization

     158       168       316       336  

Net actuarial gain amortization

     (6     (27     (12     (54
                                

Retiree benefit plans cost

   $ 352     $ 371     $ 708     $ 731  
                                

 

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10. INCOME TAXES

The balance of “unrecognized tax benefits,” the amount of related interest and penalties we have provided and what we believe to be the range of reasonably possible changes in the next 12 months, were:

 

     At
(In millions)    June 30,
2010
   December 31,
2009

Unrecognized tax benefits

   $ 6,862    $ 7,251

Portion that, if recognized, would reduce tax expense and effective tax rate(a)

     4,648      4,918

Accrued interest on unrecognized tax benefits

     1,498      1,369

Accrued penalties on unrecognized tax benefits

     99      99

Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months

     0-2,100      0-1,800

Portion that, if recognized, would reduce tax expense and effective tax rate(a)

     0-1,600      0-1,400

 

 

 

(a) Some portion of such reduction may be reported as discontinued operations.

The IRS is currently auditing our consolidated income tax returns for 2003-2007. In addition, certain other U.S. tax deficiency issues and refund claims for previous years remain unresolved. It is reasonably possible that the 2003-2005 U.S. audit cycle will be completed during the next 12 months, which could result in a decrease in our balance of “unrecognized tax benefits” – that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.

GE and GECS file a consolidated U.S. federal income tax return. The GECS provision for current tax expense includes its effect on the consolidated return. The effect of GECS on the consolidated liability is generally settled in cash as GE tax payments are due. The effect of GECS on the amount of the consolidated tax liability from the formation of the NBCU joint venture will be settled in cash when it otherwise would have reduced the liability of the group absent the tax on formation.

During the first quarter of 2009, following the change in our external credit ratings, funding actions taken and review of our operations, liquidity and funding, we determined that undistributed prior-year earnings of non-U.S. subsidiaries of GECS, on which we had previously provided deferred U.S. taxes, would be indefinitely reinvested outside the U.S. This change increased the amount of prior-year earnings indefinitely reinvested outside the U.S. by approximately $2 billion, resulting in an income tax benefit of $700 million in the first quarter of 2009.

 

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11. SHAREOWNERS’ EQUITY

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

 

     Three months ended June 30    Six months ended June 30
(In millions)    2010     2009    2010     2009

Net earnings attributable to the Company

   $ 3,109     $ 2,689    $ 5,054     $ 5,518

Investment securities – net

     633       1,553      726       918

Currency translation adjustments – net

     (4,743     6,545      (7,155     2,485

Cash flow hedges – net

     42       688      444       1,405

Benefit plans – net

     526       240      924       479
                             

Total

   $ (433   $ 11,715    $ (7   $ 10,805
                             

 

 

On January 1, 2010, we adopted ASU 2009-16 & 17. This resulted in a reduction of GE shareowners’ equity primarily related to the reversal of a portion of previously recognized securitization gains. This adjustment is reflected as a cumulative effect adjustment of the opening balances of retained earnings ($1,708 million) and accumulated other comprehensive income ($265 million). See Notes 1 and 16 for additional information.

Changes to noncontrolling interests during the second quarter of 2010 resulted from net earnings $105 million, dividends $(74) million, the effects of deconsolidating Regency $(979) million, AOCI $(48) million and other $31 million. Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.

Changes to noncontrolling interests during the first six months of 2010 resulted from net earnings $166 million, dividends $(259) million, the effects of deconsolidating Regency $(979) million, AOCI $(47) million and other $65 million. Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.

Changes to noncontrolling interests during the second quarter of 2009 resulted from net earnings $12 million, dividends $(93) million, AOCI $29 million and other $(12) million. Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.

Changes to noncontrolling interests during the first six months of 2009 resulted from net earnings $97 million, dividends $(292) million, the effects of deconsolidating Penske Truck Leasing Co., L.P. (PTL) $(331) million, AOCI $(4) million and other $(24) million. Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.

 

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12. GECS REVENUES FROM SERVICES

GECS revenues from services are summarized in the following table.

 

     Three months ended June 30    Six months ended June 30
(In millions)    2010    2009    2010    2009

Interest on loans(a)

   $ 5,604    $ 5,080    $ 11,330    $ 10,180

Equipment leased to others

     2,769      2,927      5,530      6,412

Fees(a)

     1,224      1,099      2,489      2,259

Investment income(a)(b)

     518      993      1,086      1,658

Financing leases(a)

     703      830      1,459      1,738

Premiums earned by insurance activities

     490      500      979      1,010

Net securitization gains(a)

     —        394      —        720

Real estate investments

     354      371      631      718

Associated companies

     460      309      1,057      474

Other items(c)(d)

     858      749      1,309      2,267
                           

Total

   $ 12,980    $ 13,252    $ 25,870    $ 27,436
                           

 

 

 

(a) On January 1, 2010, we adopted ASU 2009-16 & 17 which required us to consolidate substantially all of our former QSPEs. As a result, 2010 GECS Revenues from services include interest and fee income from these entities, which were not presented on a consolidated basis in 2009. Also beginning in 2010, we no longer record gains for substantially all of our securitizations as they are recorded as on-book financings. See Note 16.
(b) Included net other-than-temporary impairments on investment securities of $56 million and $97 million in the second quarters of 2010 and 2009, respectively, and $135 million and $329 million in the first six months of 2010 and 2009, respectively. See Note 3.
(c) Included a gain on the sale of a limited partnership interest in PTL and a related gain on the remeasurement of the retained investment to fair value totaling $296 million in the first quarter of 2009.
(d) Including a gain of $343 million on the remeasurement to fair value of our equity method investment in BAC Credomatic GECF Inc. (BAC), following our acquisition of a controlling interest in the second quarter of 2009.

 

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13. EARNINGS PER SHARE INFORMATION

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  
    2010     2009  
(In millions; per-share amounts in dollars)   Diluted     Basic     Diluted     Basic  

Amounts attributable to the Company:

       

Consolidated

       

Earnings from continuing operations for per-share calculation(a)

  $ 3,273     $ 3,273     $ 2,876     $ 2,876  

Preferred stock dividends declared

    (75     (75     (75     (75
                               

Earnings from continuing operations attributable to common shareowners for per-share calculation

  $ 3,198     $ 3,198     $ 2,801     $ 2,801  

Loss from discontinued operations for per-share calculation

    (188     (188     (194     (194

Net earnings attributable to GE common shareowners for per-share calculation

    3,011       3,011       2,607       2,607  

Average equivalent shares

       

Shares of GE common stock outstanding

    10,685       10,685       10,609       10,609  

Employee compensation-related shares, including stock options

    17       —          —          —     
                               

Total average equivalent shares

    10,702       10,685       10,609       10,609  
                               

Per-share amounts

       

Earnings from continuing operations

  $ 0.30     $ 0.30     $ 0.26     $ 0.26  

Loss from discontinued operations

    (0.02     (0.02     (0.02     (0.02

Net earnings

    0.28       0.28       0.25       0.25  

 

 

 

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Table of Contents
    Six months ended June 30  
    2010     2009  
(In millions; per-share amounts in dollars)   Diluted     Basic     Diluted     Basic  

Amounts attributable to the Company:

       

Consolidated

       

Earnings from continuing operations for per-share calculation(a)

  $ 5,590     $ 5,589     $ 5,718     $ 5,717  

Preferred stock dividends declared

    (150     (150     (150     (150
              &nb