Form 10-Q

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

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

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

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



(1)




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


(2)




Part I. Financial Information
 
Item 1. Financial Statements
 
Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Three months ended June 30 (Unaudited)
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions; per-share amounts in dollars)
2006
 
2005
 
2006
 
2005
 
2006
 
2005
 
                                     
Sales of goods
$
16,524
 
$
14,749
 
$
15,993
 
$
14,101
 
$
712
 
$
664
 
Sales of services
 
8,373
   
8,240
   
8,455
   
8,307
   
-
   
-
 
Other income
 
657
   
596
   
695
   
624
   
-
   
-
 
GECS earnings from continuing operations
 
-
   
-
   
2,500
   
2,028
   
-
   
-
 
GECS revenues from services
 
14,346
   
12,954
   
-
   
-
   
14,595
   
13,297
 
Total revenues
 
39,900
   
36,539
   
27,643
   
25,060
   
15,307
   
13,961
 
                                     
Cost of goods sold
 
12,827
   
11,425
   
12,350
   
10,812
   
659
   
628
 
Cost of services sold
 
5,316
   
5,171
   
5,397
   
5,238
   
-
   
-
 
Interest and other financial charges
 
4,533
   
3,786
   
486
   
336
   
4,202
   
3,603
 
Investment contracts, insurance losses and
                                   
insurance annuity benefits
 
793
   
799
   
-
   
-
   
831
   
850
 
Provision for losses on financing receivables
 
896
   
958
   
-
   
-
   
896
   
958
 
Other costs and expenses
 
9,406
   
8,741
   
3,647
   
3,266
   
5,853
   
5,643
 
Minority interest in net earnings of
                                   
consolidated affiliates
 
235
   
290
   
186
   
249
   
49
   
41
 
Total costs and expenses
 
34,006
   
31,170
   
22,066
   
19,901
   
12,490
   
11,723
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
5,894
   
5,369
   
5,577
   
5,159
   
2,817
   
2,238
 
Provision for income taxes
 
(1,040
)
 
(993
)
 
(723
)
 
(783
)
 
(317
)
 
(210
)
Earnings from continuing operations
 
4,854
   
4,376
   
4,854
   
4,376
   
2,500
   
2,028
 
Earnings (loss) from discontinued operations,
                                   
net of taxes
 
(2
)
 
271
   
(2
)
 
271
   
(2
)
 
271
 
Net earnings
$
4,852
 
$
4,647
 
$
4,852
 
$
4,647
 
$
2,498
 
$
2,299
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
0.47
 
$
0.41
                         
Basic earnings per share
$
0.47
 
$
0.41
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
0.47
 
$
0.44
                         
Basic earnings per share
$
0.47
 
$
0.44
                         
                                     
Dividends declared per share
$
0.25
 
$
0.22
                         

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

(3)


Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Six months ended June 30 (Unaudited)
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions; per-share amounts in dollars)
2006
 
2005
 
2006
 
2005
 
2006
 
2005
 
                                     
Sales of goods
$
31,059
 
$
28,405
 
$
30,019
 
$
27,089
 
$
1,267
 
$
1,338
 
Sales of services
 
17,322
   
15,989
   
17,515
   
16,152
   
-
   
-
 
Other income
 
1,108
   
913
   
1,174
   
954
   
-
   
-
 
GECS earnings from continuing operations
 
-
   
-
   
4,770
   
3,891
   
-
   
-
 
GECS revenues from services
 
28,232
   
25,582
   
-
   
-
   
28,721
   
26,228
 
Total revenues
 
77,721
   
70,889
   
53,478
   
48,086
   
29,988
   
27,566
 
                                     
Cost of goods sold
 
24,483
   
22,031
   
23,538
   
20,789
   
1,172
   
1,263
 
Cost of services sold
 
11,321
   
10,107
   
11,514
   
10,270
   
-
   
-
 
Interest and other financial charges
 
8,894
   
7,457
   
870
   
717
   
8,309
   
7,017
 
Investment contracts, insurance losses and
                                   
insurance annuity benefits
 
1,542
   
1,626
   
-
   
-
   
1,636
   
1,716
 
Provision for losses on financing receivables
 
1,718
   
1,860
   
-
   
-
   
1,718
   
1,860
 
Other costs and expenses
 
18,443
   
17,589
   
7,043
   
6,577
   
11,576
   
11,333
 
Minority interest in net earnings of
                                   
consolidated affiliates
 
473
   
506
   
349
   
435
   
124
   
71
 
Total costs and expenses
 
66,874
   
61,176
   
43,314
   
38,788
   
24,535
   
23,260
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
10,847
   
9,713
   
10,164
   
9,298
   
5,453
   
4,306
 
Provision for income taxes
 
(1,951
)
 
(1,777
)
 
(1,268
)
 
(1,362
)
 
(683
)
 
(415
)
Earnings from continuing operations
 
8,896
   
7,936
   
8,896
   
7,936
   
4,770
   
3,891
 
Earnings from discontinued operations, net of taxes
 
261
   
676
   
261
   
676
   
261
   
676
 
Net earnings
$
9,157
 
$
8,612
 
$
9,157
 
$
8,612
 
$
5,031
 
$
4,567
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
0.85
 
$
0.75
                         
Basic earnings per share
$
0.86
 
$
0.75
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
0.88
 
$
0.81
                         
Basic earnings per share
$
0.88
 
$
0.81
                         
                                     
Dividends declared per share
$
0.50
 
$
0.44
                         

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

(4)


Condensed Statement of Financial Position
General Electric Company and consolidated affiliates
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions; except share amounts)
6/30/06
 
12/31/05
 
6/30/06
 
12/31/05
 
6/30/06
 
12/31/05
 
                                     
Cash and equivalents
$
11,099
 
$
8,825
 
$
1,766
 
$
2,015
 
$
9,484
 
$
7,130
 
Investment securities
 
45,021
   
42,148
   
469
   
461
   
44,559
   
41,710
 
Current receivables
 
12,043
   
14,851
   
12,255
   
15,058
   
-
   
-
 
Inventories
 
11,744
   
10,474
   
11,579
   
10,315
   
165
   
159
 
Financing receivables - net
 
303,899
   
287,639
   
-
   
-
   
303,899
   
287,639
 
Other GECS receivables
 
15,732
   
14,332
   
-
   
-
   
20,282
   
18,625
 
Property, plant and equipment (including
                                   
equipment leased to others) - net
 
71,005
   
67,528
   
16,724
   
16,504
   
54,281
   
51,024
 
Investment in GECS
 
-
   
-
   
48,589
   
50,815
   
-
   
-
 
Intangible assets - net
 
85,583
   
81,630
   
60,719
   
57,839
   
24,864
   
23,791
 
All other assets
 
91,199
   
84,849
   
36,641
   
36,752
   
55,680
   
49,461
 
Assets of discontinued operations
 
15,090
   
61,066
   
-
   
-
   
15,090
   
61,066
 
Total assets
$
662,415
 
$
673,342
 
$
188,742
 
$
189,759
 
$
528,304
 
$
540,605
 
                                     
Short-term borrowings
$
157,449
 
$
158,156
 
$
1,517
 
$
1,127
 
$
156,327
 
$
157,672
 
Accounts payable, principally trade accounts
 
19,315
   
21,183
   
10,577
   
11,870
   
12,717
   
13,043
 
Progress collections and price adjustments accrued
 
4,708
   
4,456
   
4,708
   
4,456
   
-
   
-
 
Other GE current liabilities
 
21,020
   
21,042
   
21,020
   
21,059
   
-
   
-
 
Long-term borrowings
 
236,935
   
212,281
   
9,090
   
9,081
   
229,033
   
204,397
 
Investment contracts, insurance liabilities
                                   
and insurance annuity benefits
 
34,491
   
33,097
   
-
   
-
   
34,872
   
33,387
 
All other liabilities
 
40,910
   
39,966
   
23,328
   
23,273
   
17,679
   
16,787
 
Deferred income taxes
 
15,583
   
16,226
   
3,750
   
3,733
   
11,833
   
12,493
 
Liabilities of discontinued operations
 
14,957
   
49,527
   
-
   
-
   
14,959
   
49,763
 
Total liabilities
 
545,368
   
555,934
   
73,990
   
74,599
   
477,420
   
487,542
 
                                     
Minority interest in equity of consolidated affiliates
 
8,274
   
8,054
   
5,979
   
5,806
   
2,295
   
2,248
 
Common stock (10,323,359,000 and 10,484,268,000
                                   
shares outstanding at June 30, 2006 and
                                   
December 31, 2005, respectively)
 
669
   
669
   
669
   
669
   
1
   
1
 
Accumulated gains (losses) - net
                                   
Investment securities
 
453
   
1,831
   
453
   
1,831
   
381
   
1,754
 
Currency translation adjustments
 
4,267
   
2,532
   
4,267
   
2,532
   
3,435
   
2,287
 
Cash flow hedges
 
(236
)
 
(822
)
 
(236
)
 
(822
)
 
(240
)
 
(813
)
Minimum pension liabilities
 
(917
)
 
(874
)
 
(917
)
 
(874
)
 
(192
)
 
(179
)
Other capital
 
25,482
   
25,227
   
25,482
   
25,227
   
12,524
   
12,386
 
Retained earnings
 
102,061
   
98,117
   
102,061
   
98,117
   
32,680
   
35,379
 
Less common stock held in treasury
 
(23,006
)
 
(17,326
)
 
(23,006
)
 
(17,326
)
 
-
   
-
 
                                     
Total shareowners’ equity
 
108,773
   
109,354
   
108,773
   
109,354
   
48,589
   
50,815
 
                                     
Total liabilities and equity
$
662,415
 
$
673,342
 
$
188,742
 
$
189,759
 
$
528,304
 
$
540,605
 

The sum of accumulated gains (losses) on investment securities, currency translation adjustments, cash flow hedges and minimum pension liabilities constitutes “Accumulated nonowner changes other than earnings,” and amounted to $3,567 million and $2,667 million at June 30, 2006, and December 31, 2005, respectively.
 
See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” June 30, 2006, data are unaudited. Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

(5)


Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates
 
 
Six months ended June 30 (Unaudited)
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions)
2006
 
2005
 
2006
 
2005
 
2006
 
2005
 
     
   
   
   
   
   
   
   
   
   
     
Cash flows - operating activities
                                   
Net earnings
$
9,157
 
$
8,612
 
$
9,157
 
$
8,612
 
$
5,031
 
$
4,567
 
Earnings from discontinued operations
 
(261
)
 
(676
)
 
-
   
-
   
(261
)
 
(676
)
Adjustments to reconcile net earnings to cash
                                   
provided from operating activities
                                   
Depreciation and amortization of property,
                                   
plant and equipment
 
4,378
   
4,266
   
1,300
   
1,225
   
3,078
   
3,041
 
Earnings retained by GECS
 
-
   
-
   
2,559
   
(2,728
)
 
-
   
-
 
Deferred income taxes
 
401
   
(549
)
 
55
   
(87
)
 
346
   
(462
)
Decrease in GE current receivables
 
2,931
   
1,544
   
2,925
   
1,663
   
-
   
-
 
Increase in inventories
 
(1,467
)
 
(613
)
 
(1,461
)
 
(583
)
 
(6
)
 
(30
)
Decrease in accounts payable
 
(1,668
)
 
(1,401
)
 
(915
)
 
(1,228
)
 
(504
)
 
(71
)
Increase in GE progress collections
 
246
   
110
   
246
   
110
   
-
   
-
 
Provision for losses on GECS financing receivables
 
1,718
   
1,860
   
-
   
-
   
1,718
   
1,860
 
All other operating activities
 
(3,222
)
 
108
   
457
   
1,043
   
(620
)
 
(383
)
Cash from operating activities - continuing operations
 
12,213
   
13,261
   
14,323
   
8,027
   
8,782
   
7,846
 
Cash from (used for) operating activities - discontinued operations
 
(9
)
 
2,407
   
-
   
-
   
(9
)
 
2,407
 
Cash from operating activities
 
12,204
   
15,668
   
14,323
   
8,027
   
8,773
   
10,253
 
                                     
Cash flows - investing activities
                                   
Additions to property, plant and equipment
 
(7,384
)
 
(6,141
)
 
(1,497
)
 
(1,049
)
 
(5,887
)
 
(5,092
)
Dispositions of property, plant and equipment
 
2,930
   
3,071
   
-
   
-
   
2,896
   
3,075
 
Net decrease (increase) in GECS financing receivables
 
(15,483
)
 
4,249
   
-
   
-
   
(15,483
)
 
4,249
 
Payments for principal businesses purchased
 
(7,000
)
 
(10,341
)
 
(3,491
)
 
(3,499
)
 
(3,509
)
 
(6,842
)
Proceeds from sales of discontinued operations
 
8,112
   
3,403
   
-
   
-
   
8,112
   
3,403
 
All other investing activities
 
1,965
   
(1,263
)
 
1,403
   
687
   
(2,481
)
 
(2,584
)
Cash used for investing activities - continuing operations
 
(16,860
)
 
(7,022
)
 
(3,585
)
 
(3,861
)
 
(16,352
)
 
(3,791
)
Cash used for investing activities - discontinued operations
 
(2,558
)
 
(1,131
)
 
-
   
-
   
(2,558
)
 
(1,131
)
Cash used for investing activities
 
(19,418
)
 
(8,153
)
 
(3,585
)
 
(3,861
)
 
(18,910
)
 
(4,922
)
                                     
Cash flows - financing activities
                                   
Net increase (decrease) in borrowings (maturities of 90 days or less)
 
(3,312
)
 
(5,667
)
 
561
   
48
   
(4,127
)
 
(5,801
)
Newly issued debt (maturities longer than 90 days)
 
44,178
   
40,526
   
64
   
87
   
43,974
   
40,378
 
Repayments and other reductions (maturities longer than 90 days)
 
(21,935
)
 
(38,191
)
 
(148
)
 
(692
)
 
(21,787
)
 
(37,499
)
Net purchases of GE treasury shares
 
(6,217
)
 
(389
)
 
(6,217
)
 
(389
)
 
-
   
-
 
Dividends paid to shareowners
 
(5,247
)
 
(4,677
)
 
(5,247
)
 
(4,677
)
 
(7,590
)
 
(1,839
)
All other financing activities
 
(546
)
 
(860
)
 
-
   
-
   
(546
)
 
(860
)
Cash from (used for) financing activities - continuing operations
 
6,921
   
(9,258
)
 
(10,987
)
 
(5,623
)
 
9,924
   
(5,621
)
Cash used for financing activities - discontinued operations
 
(256
)
 
(691
)
 
-
   
-
   
(256
)
 
(691
)
Cash from (used for) financing activities
 
6,665
   
(9,949
)
 
(10,987
)
 
(5,623
)
 
9,668
   
(6,312
)
                                     
Decrease in cash and equivalents
 
(549
)
 
(2,434
)
 
(249
)
 
(1,457
)
 
(469
)
 
(981
)
Cash and equivalents at beginning of year
 
11,801
   
15,328
   
2,015
   
3,155
   
10,106
   
12,367
 
Cash and equivalents at June 30
 
11,252
   
12,894
   
1,766
   
1,698
   
9,637
   
11,386
 
Less cash and equivalents of discontinued operations at June 30
 
153
   
3,852
   
-
   
-
   
153
   
3,852
 
Cash and equivalents of continuing operations at June 30
$
11,099
 
$
9,042
 
$
1,766
 
$
1,698
 
$
9,484
 
$
7,534
 

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



(6)




Summary of Operating Segments
General Electric Company and consolidated affiliates
 
 
Three months ended
June 30 (Unaudited)
 
Six months ended
June 30 (Unaudited)
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Revenues
                       
Infrastructure
$
11,332
 
$
10,221
 
$
21,484
 
$
19,595
 
Industrial
 
8,788
   
8,253
   
16,928
   
15,921
 
Healthcare
 
4,156
   
3,768
   
7,815
   
7,089
 
NBC Universal
 
3,858
   
3,858
   
8,340
   
7,459
 
Commercial Finance
 
5,527
   
4,929
   
11,011
   
10,001
 
Consumer Finance
 
5,268
   
4,928
   
10,358
   
9,617
 
Total segment revenues
 
38,929
   
35,957
   
75,936
   
69,682
 
Corporate items and eliminations
 
971
   
582
   
1,785
   
1,207
 
Consolidated revenues
$
39,900
 
$
36,539
 
$
77,721
 
$
70,889
 
                         
Segment profit (a)
                       
Infrastructure
$
2,107
 
$
1,916
 
$
3,810
 
$
3,456
 
Industrial
 
729
   
635
   
1,329
   
1,161
 
Healthcare
 
795
   
672
   
1,291
   
1,081
 
NBC Universal
 
882
   
979
   
1,536
   
1,688
 
Commercial Finance
 
1,057
   
872
   
2,231
   
1,798
 
Consumer Finance
 
880
   
735
   
1,716
   
1,470
 
Total segment profit
 
6,450
   
5,809
   
11,913
   
10,654
 
Corporate items and eliminations
 
(387
)
 
(314
)
 
(879
)
 
(639
)
GE interest and other financial charges
 
(486
)
 
(336
)
 
(870
)
 
(717
)
GE provision for income taxes
 
(723
)
 
(783
)
 
(1,268
)
 
(1,362
)
Earnings from continuing operations
 
4,854
   
4,376
   
8,896
   
7,936
 
Earnings (loss) from discontinued operations,
                       
net of taxes
 
(2
)
 
271
   
261
   
676
 
Consolidated net earnings
$
4,852
 
$
4,647
 
$
9,157
 
$
8,612
 
                         

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

 

(7)


Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
1. The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company and all companies that we directly or indirectly control, either through majority ownership or otherwise. See note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2005. That note discusses consolidation and financial statement presentation. As used in this report on Form 10-Q (Report) and in the Annual Report on Form 10-K, “GE” represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis; GECS consists of General Electric Capital Services, Inc. and all of its affiliates; and “Consolidated” represents the adding together of GE and GECS with the effects of transactions between the two eliminated. We reclassified certain prior-period amounts to conform to the current period’s presentation. Unless otherwise indicated, information in these notes to condensed, consolidated financial statements relates to continuing operations.
 
2. The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish interim quarterly closing dates using a fiscal calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar from 1993 through 2013 is available on our website, www.ge.com/secreports.
 
3. We classified GE Life, Genworth Financial, Inc. (Genworth) and most of GE Insurance Solutions Corporation (GE Insurance Solutions) as discontinued operations. Associated results of operations, financial position and cash flows are separately reported for all periods presented.
 
Completed sale of GE Insurance Solutions
 
In June 2006, we completed the sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions to Swiss Reinsurance Company (Swiss Re) for $9,297 million, including the assumption of $1,700 million of debt. We received $5,359 million in cash and $2,238 million of newly issued Swiss Re common stock, representing a 9% interest in Swiss Re, that we are not permitted to sell until June 4, 2007, under the agreement we have with Swiss Re. GE Insurance Solutions’ earnings from discontinued operations, net of taxes, for the second quarter of 2006 and first six months of 2006 were $101 million and $236 million, respectively.
 
Completed sale of Genworth
 
In March 2006, we completed the sale of our remaining 18% investment in Genworth through a secondary public offering of 71 million shares of Class A Common Stock and direct sale to Genworth of 15 million shares of Genworth Class B Common Stock. As a result, we recognized a pre-tax gain of $516 million ($300 million after tax) in the first quarter of 2006.
 

(8)


Planned sale of GE Life
 
In March 2006, we initiated a plan to sell GE Life, our U.K.-based life insurance operation. GE Life’s revenues for the second quarter and first six months of 2006 were $63 million and $862 million, respectively; and its earnings from operations for the second quarter and first six months of 2006 were $12 million and $17 million, respectively. For the first six months of 2006, we have provided for a pre-tax loss of $320 million ($285 million after tax), including a $110 million loss recognized in the second quarter of 2006 based on our best estimate of sales proceeds. We do not expect to realize a tax benefit for this loss. We anticipate selling GE Life by March 31, 2007.
 
Summarized financial information
 
Summarized financial information for discontinued operations is set forth below. Gain (loss) on disposal included both actual (GE Insurance Solutions and Genworth) and estimated (GE Life) effects.
 
 
Three months ended
June 30
 
Six months ended
June 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Discontinued operations before disposal
                       
Revenues from services
$
1,337
 
$
5,017
 
$
3,682
 
$
10,230
 
                         
Earnings from discontinued operations before
                       
minority interest and income taxes
$
203
 
$
636
 
$
382
 
$
1,334
 
Minority interest
 
-
   
145
   
-
   
244
 
Earnings from discontinued operations before
                       
income taxes
 
203
   
491
   
382
   
1,090
 
Income tax expense
 
(41
)
 
(220
)
 
(82
)
 
(500
)
Earnings from discontinued operations before
                       
disposal, net of taxes
$
162
 
$
271
 
$
300
 
$
590
 
                         
Disposal
                       
Gain (loss) on disposal before income taxes
$
(295
)
$
-
 
$
11
 
$
156
 
Income tax benefit (expense)
 
131
   
-
   
(50
)
 
(70
)
Gain (loss) on disposal, net of taxes
$
(164
)
$
-
 
$
(39
)
$
86
 
                         
Earnings (loss) from discontinued operations,
                       
net of taxes
$
(2
)
$
271
 
$
261
 
$
676
 

 

(9)



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

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

 

(10)


5. We sponsor a number of pension and retiree health and life insurance benefit plans. Principal pension plans include the GE Pension Plan and the GE Supplementary Pension Plan. Principal retiree benefit plans generally provide health and life insurance benefits to employees who retire under the GE Pension Plan with 10 or more years of service. Other pension plans include the U.S. and non-U.S. pension plans whose pension assets or obligations exceeded $50 million. Smaller pension plans and other retiree benefit plans are not material individually or in the aggregate. The effect on operations of the pension and retiree benefit plans follows.
 
 
Principal Pension Plans
 
 
Three months ended
June 30
 
Six months ended
June 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Expected return on plan assets
$
(953
)
$
(970
)
$
(1,905
)
$
(1,940
)
Service cost for benefits earned
 
323
   
325
   
689
   
650
 
Interest cost on benefit obligation
 
573
   
563
   
1,152
   
1,120
 
Prior service cost
 
57
   
62
   
115
   
124
 
Net actuarial loss recognized
 
181
   
90
   
369
   
171
 
Cost of pension plans
$
181
 
$
70
 
$
420
 
$
125
 

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

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

 

(11)


6. GE’s authorized common stock consists of 13,200,000,000 shares having a par value of $0.06 each. Information related to the calculation of earnings per share follows.
 
 
Three months ended June 30
 
 
2006
 
2005
 
(In millions; per-share amounts in dollars)
Diluted
 
Basic
 
Diluted
 
Basic
 
                         
Consolidated
                       
Earnings from continuing operations for
                       
per-share calculation(a)
$
4,854
 
$
4,854
 
$
4,376
 
$
4,376
 
Earnings from discontinued operations
                       
for per-share calculation(b)
 
(2
)
 
(2
)
 
269
   
271
 
Net earnings available for per-share calculation
$
4,852
 
$
4,852
 
$
4,645
 
$
4,647
 
                         
Average equivalent shares
                       
Shares of GE common stock outstanding
 
10,362
   
10,362
   
10,604
   
10,604
 
Employee compensation-related shares,
                       
including stock options
 
38
   
-
   
46
   
-
 
Total average equivalent shares
 
10,400
   
10,362
   
10,650
   
10,604
 
                         
Per-share amounts
                       
Earnings from continuing operations
$
0.47
 
$
0.47
 
$
0.41
 
$
0.41
 
Earnings from discontinued operations
$
-
 
$
-
 
$
0.03
 
$
0.03
 
Net earnings
$
0.47
 
$
0.47
 
$
0.44
 
$
0.44
 
                         
 
Six months ended June 30
 
 
2006
 
2005
 
(In millions; per-share amounts in dollars)
Diluted
 
Basic
 
Diluted
 
Basic
 
                         
Consolidated
                       
Earnings from continuing operations for
                       
per-share calculation(a)
$
8,896
 
$
8,896
 
$
7,936
 
$
7,936
 
Earnings from discontinued operations
                       
for per-share calculation(b)
 
261
   
261
   
672
   
676
 
Net earnings available for per-share calculation
$
9,157
 
$
9,157
 
$
8,608
 
$
8,612
 
                         
Average equivalent shares
                       
Shares of GE common stock outstanding
 
10,403
   
10,403
   
10,599
   
10,599
 
Employee compensation-related shares,
                       
including stock options
 
38
   
-
   
45
   
-
 
Total average equivalent shares
 
10,441
   
10,403
   
10,644
   
10,599
 
                         
Per-share amounts
                       
Earnings from continuing operations
$
0.85
 
$
0.86
 
$
0.75
 
$
0.75
 
Earnings from discontinued operations
$
0.02
 
$
0.03
 
$
0.06
 
$
0.06
 
Net earnings
$
0.88
 
$
0.88
 
$
0.81
 
$
0.81
 
                         

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

 

(12)


Earnings-per-share amounts are computed independently each quarter for earnings from continuing operations, earnings from discontinued operations and net earnings. As a result, the sum of each quarter’s per-share amount may not equal the total per-share amount for the respective year-to-date period; and the sum of per-share amounts from continuing operations and discontinued operations does not always equal the total per-share net earnings for the respective quarters.
 
7. Inventories consisted of the following.
 
 
At
 
(In millions)
6/30/06
 
12/31/05
 
             
Raw materials and work in process
$
6,615
 
$
5,527
 
Finished goods
 
5,385
   
5,311
 
Unbilled shipments
 
363
   
333
 
   
12,363
   
11,171
 
Less revaluation to LIFO
 
(619
)
 
(697
)
Total
$
11,744
 
$
10,474
 

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

 
Included in the above are the financing receivables of consolidated, liquidating securitization entities as follows (see note 14):
 
 
At
 
(In millions)
6/30/06
 
12/31/05
 
             
Loans, net of deferred income
$
13,728
 
$
15,868
 
Investment in financing leases, net of deferred income
 
85
   
769
 
   
13,813
   
16,637
 
Less allowance for losses
 
(34
)
 
(22
)
Financing receivables - net
$
13,779
 
$
16,615
 

 

(13)


9. Property, plant and equipment (including equipment leased to others) - net, consisted of the following.
 
 
At
 
(In millions)
6/30/06
 
12/31/05
 
             
Original cost
$
116,708
 
$
111,733
 
Less accumulated depreciation and amortization
 
(45,703
)
 
(44,205
)
Property, plant and equipment - net
$
71,005
 
$
67,528
 

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

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

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

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

(14)


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

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

(15)


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

(a)
 
Entirely obligations of consolidated, liquidating securitization entities. See note 14.
 
(b)
 
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