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 September 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 Exchange Act). Yes ¨ No þ
 
There were 10,308,102,000 shares of common stock with a par value of $0.06 per share outstanding at September 30, 2006.
 




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
 
35
 
35
 
36
 
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.



Part I. Financial Information
 
Item 1. Financial Statements
 
Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Three months ended September 30 (Unaudited)
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions; per-share amounts in dollars)
2006
 
2005
 
2006
 
2005
 
2006
 
2005
 
                                     
Sales of goods
$
15,656
 
$
14,346
 
$
15,255
 
$
13,823
 
$
519
 
$
543
 
Sales of services
 
9,134
   
7,673
   
9,223
   
7,744
   
-
   
-
 
Other income
 
570
   
347
   
613
   
367
   
-
   
-
 
GECS earnings from continuing operations
 
-
   
-
   
2,704
   
2,600
   
-
   
-
 
GECS revenues from services
 
15,496
   
14,002
   
-
   
-
   
15,756
   
14,323
 
Total revenues
 
40,856
   
36,368
   
27,795
   
24,534
   
16,275
   
14,866
 
                                     
Cost of goods sold
 
12,705
   
11,247
   
12,343
   
10,764
   
480
   
505
 
Cost of services sold
 
5,763
   
4,754
   
5,852
   
4,825
   
-
   
-
 
Interest and other financial charges
 
5,143
   
3,715
   
507
   
339
   
4,802
   
3,508
 
Investment contracts, insurance losses and
                                   
insurance annuity benefits
 
822
   
874
   
-
   
-
   
867
   
926
 
Provision for losses on financing receivables
 
965
   
1,095
   
-
   
-
   
965
   
1,095
 
Other costs and expenses
 
9,233
   
8,749
   
3,262
   
3,200
   
6,063
   
5,704
 
Minority interest in net earnings of
                                   
consolidated affiliates
 
215
   
230
   
158
   
146
   
57
   
84
 
Total costs and expenses
 
34,846
   
30,664
   
22,122
   
19,274
   
13,234
   
11,822
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
6,010
   
5,704
   
5,673
   
5,260
   
3,041
   
3,044
 
Provision for income taxes
 
(951
)
 
(1,112
)
 
(614
)
 
(668
)
 
(337
)
 
(444
)
Earnings from continuing operations
 
5,059
   
4,592
   
5,059
   
4,592
   
2,704
   
2,600
 
Earnings (loss) from discontinued operations,
                                   
net of taxes
 
(95
)
 
85
   
(95
)
 
85
   
(95
)
 
85
 
Net earnings
$
4,964
 
$
4,677
 
$
4,964
 
$
4,677
 
$
2,609
 
$
2,685
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
0.49
 
$
0.43
                         
Basic earnings per share
$
0.49
 
$
0.43
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
0.48
 
$
0.44
                         
Basic earnings per share
$
0.48
 
$
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.
 


Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Nine months ended September 30 (Unaudited)
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions; per-share amounts in dollars)
2006
 
2005
 
2006
 
2005
 
2006
 
2005
 
                                     
Sales of goods
$
46,715
 
$
42,751
 
$
45,274
 
$
40,912
 
$
1,786
 
$
1,881
 
Sales of services
 
26,456
   
23,662
   
26,738
   
23,896
   
-
   
-
 
Other income
 
1,678
   
1,260
   
1,787
   
1,321
   
-
   
-
 
GECS earnings from continuing operations
 
-
   
-
   
7,474
   
6,491
   
-
   
-
 
GECS revenues from services
 
43,728
   
39,584
   
-
   
-
   
44,477
   
40,551
 
Total revenues
 
118,577
   
107,257
   
81,273
   
72,620
   
46,263
   
42,432
 
                                     
Cost of goods sold
 
37,188
   
33,278
   
35,881
   
31,553
   
1,652
   
1,768
 
Cost of services sold
 
17,084
   
14,861
   
17,366
   
15,095
   
-
   
-
 
Interest and other financial charges
 
14,037
   
11,172
   
1,377
   
1,056
   
13,111
   
10,525
 
Investment contracts, insurance losses and
                                   
insurance annuity benefits
 
2,364
   
2,500
   
-
   
-
   
2,503
   
2,642
 
Provision for losses on financing receivables
 
2,683
   
2,955
   
-
   
-
   
2,683
   
2,955
 
Other costs and expenses
 
27,676
   
26,338
   
10,305
   
9,777
   
17,639
   
17,037
 
Minority interest in net earnings of
                                   
consolidated affiliates
 
688
   
736
   
507
   
581
   
181
   
155
 
Total costs and expenses
 
101,720
   
91,840
   
65,436
   
58,062
   
37,769
   
35,082
 
                                     
Earnings from continuing operations
                                   
before income taxes
 
16,857
   
15,417
   
15,837
   
14,558
   
8,494
   
7,350
 
Provision for income taxes
 
(2,902
)
 
(2,889
)
 
(1,882
)
 
(2,030
)
 
(1,020
)
 
(859
)
Earnings from continuing operations
 
13,955
   
12,528
   
13,955
   
12,528
   
7,474
   
6,491
 
Earnings from discontinued operations, net of taxes
 
166
   
761
   
166
   
761
   
166
   
761
 
Net earnings
$
14,121
 
$
13,289
 
$
14,121
 
$
13,289
 
$
7,640
 
$
7,252
 
                                     
Per-share amounts
                                   
Per-share amounts - earnings from
                                   
continuing operations
                                   
Diluted earnings per share
$
1.34
 
$
1.18
                         
Basic earnings per share
$
1.34
 
$
1.18
                         
                                     
Per-share amounts - net earnings
                                   
Diluted earnings per share
$
1.36
 
$
1.25
                         
Basic earnings per share
$
1.36
 
$
1.25
                         
                                     
Dividends declared per share
$
0.75
 
$
0.66
                         

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.


Condensed Statement of Financial Position
General Electric Company and consolidated affiliates
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions; except share amounts)
9/30/06
 
12/31/05
 
9/30/06
 
12/31/05
 
9/30/06
 
12/31/05
 
                                     
Cash and equivalents
$
13,782
 
$
8,825
 
$
1,739
 
$
2,015
 
$
12,144
 
$
7,130
 
Investment securities
 
45,626
   
42,148
   
425
   
461
   
45,208
   
41,710
 
Current receivables
 
12,535
   
14,851
   
12,771
   
15,058
   
-
   
-
 
Inventories
 
11,855
   
10,474
   
11,681
   
10,315
   
174
   
159
 
Financing receivables - net
 
310,231
   
287,639
   
-
   
-
   
310,258
   
287,639
 
Other GECS receivables
 
16,359
   
14,332
   
-
   
-
   
20,741
   
18,625
 
Property, plant and equipment (including
                                   
equipment leased to others) - net
 
72,246
   
67,528
   
15,834
   
16,504
   
56,412
   
51,024
 
Investment in GECS
 
-
   
-
   
51,050
   
50,815
   
-
   
-
 
Intangible assets - net
 
85,468
   
81,630
   
60,129
   
57,839
   
25,339
   
23,791
 
All other assets
 
98,458
   
84,849
   
39,232
   
36,752
   
60,426
   
49,461
 
Assets of discontinued operations
 
15,540
   
61,066
   
-
   
-
   
15,540
   
61,066
 
Total assets
$
682,100
 
$
673,342
 
$
192,861
 
$
189,759
 
$
546,242
 
$
540,605
 
                                     
Short-term borrowings
$
167,206
 
$
158,156
 
$
2,679
 
$
1,127
 
$
165,073
 
$
157,672
 
Accounts payable, principally trade accounts
 
18,788
   
21,183
   
10,500
   
11,870
   
12,069
   
13,043
 
Progress collections and price adjustments accrued
 
4,949
   
4,456
   
4,949
   
4,456
   
-
   
-
 
Other GE current liabilities
 
20,430
   
21,042
   
20,430
   
21,059
   
-
   
-
 
Long-term borrowings
 
242,927
   
212,281
   
9,010
   
9,081
   
235,123
   
204,397
 
Investment contracts, insurance liabilities
                                   
and insurance annuity benefits
 
34,570
   
33,097
   
-
   
-
   
34,894
   
33,387
 
All other liabilities
 
41,849
   
39,966
   
23,803
   
23,273
   
18,142
   
16,787
 
Deferred income taxes
 
16,484
   
16,226
   
4,183
   
3,733
   
12,301
   
12,493
 
Liabilities of discontinued operations
 
15,289
   
49,527
   
-
   
-
   
15,289
   
49,763
 
Total liabilities
 
562,492
   
555,934
   
75,554
   
74,599
   
492,891
   
487,542
 
                                     
Minority interest in equity of consolidated affiliates
 
8,211
   
8,054
   
5,910
   
5,806
   
2,301
   
2,248
 
Common stock (10,308,102,000 and 10,484,268,000
                                   
shares outstanding at September 30, 2006 and
                                   
December 31, 2005, respectively)
 
669
   
669
   
669
   
669
   
1
   
1
 
Accumulated gains (losses) - net
                                   
Investment securities
 
1,253
   
1,831
   
1,253
   
1,831
   
1,188
   
1,754
 
Currency translation adjustments
 
4,748
   
2,532
   
4,748
   
2,532
   
3,774
   
2,287
 
Cash flow hedges
 
(498
)
 
(822
)
 
(498
)
 
(822
)
 
(465
)
 
(813
)
Minimum pension liabilities
 
(895
)
 
(874
)
 
(895
)
 
(874
)
 
(193
)
 
(179
)
Other capital
 
25,344
   
25,227
   
25,344
   
25,227
   
12,538
   
12,386
 
Retained earnings
 
104,452
   
98,117
   
104,452
   
98,117
   
34,207
   
35,379
 
Less common stock held in treasury
 
(23,676
)
 
(17,326
)
 
(23,676
)
 
(17,326
)
 
-
   
-
 
                                     
Total shareowners’ equity
 
111,397
   
109,354
   
111,397
   
109,354
   
51,050
   
50,815
 
                                     
Total liabilities and equity
$
682,100
 
$
673,342
 
$
192,861
 
$
189,759
 
$
546,242
 
$
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 $4,608 million and $2,667 million at September 30, 2006, and December 31, 2005, respectively.
 
See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” September 30, 2006, data are unaudited. Transactions between GE and GECS have been eliminated from the “Consolidated” columns.


Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates
 
 
Nine months ended September 30 (Unaudited)
 
 
Consolidated
 
GE
 
Financial
Services (GECS)
 
(In millions)
2006
 
2005
 
2006
 
2005
 
2006
 
2005
 
     
  
   
  
   
  
   
  
   
  
     
Cash flows - operating activities
                                   
Net earnings
$
14,121
 
$
13,289
 
$
14,121
 
$
13,289
 
$
7,640
 
$
7,252
 
Earnings from discontinued operations
 
(166
)
 
(761
)
 
-
   
-
   
(166
)
 
(761
)
Adjustments to reconcile net earnings to cash
                                   
provided from operating activities
                                   
Depreciation and amortization of property,
                                   
plant and equipment
 
6,672
   
6,483
   
1,935
   
1,867
   
4,737
   
4,616
 
Earnings retained by GECS
 
-
   
-
   
1,031
   
(1,740
)
 
-
   
-
 
Deferred income taxes
 
1,509
   
(809
)
 
754
   
(146
)
 
755
   
(663
)
Decrease in GE current receivables
 
2,337
   
1,766
   
2,307
   
1,857
   
-
   
-
 
Decrease (increase) in inventories
 
(1,908
)
 
(919
)
 
(1,893
)
 
(934
)
 
(15
)
 
15
 
Increase (decrease) in accounts payable
 
(1,508
)
 
(1,096
)
 
(435
)
 
(1,198
)
 
(1,022
)
 
468
 
Increase in GE progress collections
 
469
   
395
   
469
   
395
   
-
   
-
 
Provision for losses on GECS financing receivables
 
2,683
   
2,955
   
-
   
-
   
2,683
   
2,955
 
All other operating activities
 
(2,450
)
 
4,071
   
196
   
1,307
   
501
   
3,118
 
Cash from operating activities - continuing operations
 
21,759
   
25,374
   
18,485
   
14,697
   
15,113
   
17,000
 
Cash from (used for) operating activities - discontinued operations
 
(64
)
 
3,888
   
-
   
-
   
(64
)
 
3,888
 
Cash from operating activities
 
21,695
   
29,262
   
18,485
   
14,697
   
15,049
   
20,888
 
                                     
Cash flows - investing activities
                                   
Additions to property, plant and equipment
 
(11,045
)
 
(9,666
)
 
(2,450
)
 
(1,616
)
 
(8,595
)
 
(8,050
)
Dispositions of property, plant and equipment
 
4,429
   
4,433
   
-
   
-
   
4,429
   
4,433
 
Net increase in GECS financing receivables
 
(24,179
)
 
(5,513
)
 
-
   
-
   
(24,179
)
 
(5,513
)
Payments for principal businesses purchased
 
(10,966
)
 
(10,527
)
 
(4,068
)
 
(3,784
)
 
(6,898
)
 
(6,743
)
Proceeds from sales of discontinued operations
 
8,112
   
6,690
   
-
   
-
   
8,112
   
6,690
 
All other investing activities
 
1,224
   
(1,347
)
 
1,405
   
819
   
(3,483
)
 
(2,937
)
Cash used for investing activities - continuing operations
 
(32,425
)
 
(15,930
)
 
(5,113
)
 
(4,581
)
 
(30,614
)
 
(12,120
)
Cash used for investing activities - discontinued operations
 
(2,469
)
 
(5,250
)
 
-
   
-
   
(2,469
)
 
(5,250
)
Cash used for investing activities
 
(34,894
)
 
(21,180
)
 
(5,113
)
 
(4,581
)
 
(33,083
)
 
(17,370
)
                                     
Cash flows - financing activities
                                   
Net increase (decrease) in borrowings (maturities of 90 days or less)
 
600
   
(9,871
)
 
1,596
   
(493
)
 
(1,089
)
 
(7,680
)
Newly issued debt (maturities longer than 90 days)
 
60,745
   
48,289
   
88
   
151
   
60,665
   
48,159
 
Repayments and other reductions (maturities longer than 90 days)
 
(29,754
)
 
(40,866
)
 
(111
)
 
(819
)
 
(29,643
)
 
(40,047
)
Net purchases of GE treasury shares
 
(7,390
)
 
(1,868
)
 
(7,390
)
 
(1,868
)
 
-
   
-
 
Dividends paid to shareowners
 
(7,831
)
 
(7,015
)
 
(7,831
)
 
(7,015
)
 
(8,671
)
 
(5,512
)
All other financing activities
 
(747
)
 
(1,401
)
 
-
   
-
   
(747
)
 
(1,401
)
Cash from (used for) financing activities - continuing operations
 
15,623
   
(12,732
)
 
(13,648
)
 
(10,044
)
 
20,515
   
(6,481
)
Cash from (used for) financing activities - discontinued operations
 
(257
)
 
249
   
-
   
-
   
(257
)
 
249
 
Cash from (used for) financing activities
 
15,366
   
(12,483
)
 
(13,648
)
 
(10,044
)
 
20,258
   
(6,232
)
                                     
Increase (decrease) in cash and equivalents
 
2,167
   
(4,401
)
 
(276
)
 
72
   
2,224
   
(2,714
)
Cash and equivalents at beginning of year
 
11,801
   
15,328
   
2,015
   
3,155
   
10,106
   
12,367
 
Cash and equivalents at September 30
 
13,968
   
10,927
   
1,739
   
3,227
   
12,330
   
9,653
 
Less cash and equivalents of discontinued
                                   
operations at September 30
 
186
   
2,154
   
-
   
-
   
186
   
2,154
 
Cash and equivalents of continuing operations at September 30
$
13,782
 
$
8,773
 
$
1,739
 
$
3,227
 
$
12,144
 
$
7,499
 

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.




Summary of Operating Segments
General Electric Company and consolidated affiliates
 
 
Three months ended
September 30 (Unaudited)
 
Nine months ended
September 30 (Unaudited)
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Revenues
                       
Infrastructure
$
12,104
 
$
10,128
 
$
33,588
 
$
29,723
 
Industrial
 
8,526
   
8,257
   
25,454
   
24,178
 
Healthcare
 
3,897
   
3,578
   
11,712
   
10,667
 
NBC Universal
 
3,631
   
3,038
   
11,971
   
10,497
 
Commercial Finance
 
6,006
   
5,414
   
17,017
   
15,415
 
GE Money (a)
 
5,590
   
4,913
   
15,948
   
14,530
 
Total segment revenues
 
39,754
   
35,328
   
115,690
   
105,010
 
Corporate items and eliminations
 
1,102
   
1,040
   
2,887
   
2,247
 
Consolidated revenues
$
40,856
 
$
36,368
 
$
118,577
 
$
107,257
 
                         
Segment profit (b)
                       
Infrastructure
$
2,336
 
$
1,880
 
$
6,146
 
$
5,336
 
Industrial
 
692
   
629
   
2,021
   
1,790
 
Healthcare
 
700
   
589
   
1,991
   
1,670
 
NBC Universal
 
542
   
603
   
2,078
   
2,291
 
Commercial Finance
 
1,290
   
1,212
   
3,521
   
3,010
 
GE Money (a)
 
916
   
810
   
2,632
   
2,280
 
Total segment profit
 
6,476
   
5,723
   
18,389
   
16,377
 
Corporate items and eliminations
 
(296
)
 
(124
)
 
(1,175
)
 
(763
)
GE interest and other financial charges
 
(507
)
 
(339
)
 
(1,377
)
 
(1,056
)
GE provision for income taxes
 
(614
)
 
(668
)
 
(1,882
)
 
(2,030
)
Earnings from continuing operations
 
5,059
   
4,592
   
13,955
   
12,528
 
Earnings (loss) from discontinued operations,
                       
net of taxes
 
(95
)
 
85
   
166
   
761
 
Consolidated net earnings
$
4,964
 
$
4,677
 
$
14,121
 
$
13,289
 
                         

(a)
 
Formerly known as Consumer Finance.
 
(b)
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, GE Money, and the financial services businesses of the Infrastructure segment (Aviation Financial Services, Energy Financial Services and Transportation Finance) and the Industrial segment (Equipment Services).

 


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 before June 4, 2007, under the agreement we have with Swiss Re. GE Insurance Solutions loss from discontinued operations, net of taxes, for the third quarter of 2006 was $25 million and earnings from discontinued operations, net of taxes, for the first nine months of 2006 were $211 million.
 
Completed sale of Genworth
 
In March 2006, we completed the sale of our remaining 18% investment in Genworth through a secondary public offering of 71 million shares of Class A Common Stock and direct sale to Genworth of 15 million shares of Genworth Class B Common Stock. As a result, we recognized a pre-tax gain of $516 million ($300 million after tax) in the first quarter of 2006.
 


Planned sale of GE Life
 
On October 13, 2006, Swiss Re agreed to purchase GE Life, our U.K.-based life insurance operation, for 465 million pounds (approximately $863 million). Operating results through closing will be controlled by us and be for our benefit, subject to certain restrictions with respect to conducting the operation being sold. Effective at closing, all policyholder and other customer contracts will be the responsibility of Swiss Re. We expect this transaction to close in the fourth quarter of 2006, subject to regulatory approvals and customary closing conditions. GE Life revenues for the third quarter and first nine months of 2006 were $490 million and $1,352 million, respectively; its earnings from operations for the third quarter and first nine months of 2006 were $12 million and $29 million, respectively. We have provided for our best estimate of loss on the sale. We made no such provision in the third quarter of 2006. We have provided $320 million ($285 million after tax) for the first nine months of 2006.

Summarized financial information for discontinued operations
 
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
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Operations
                       
Revenues from services
$
489
 
$
5,137
 
$
4,171
 
$
15,367
 
                         
Earnings from discontinued operations before
                       
minority interest and income taxes
$
9
 
$
47
 
$
391
 
$
1,381
 
Minority interest
 
-
   
150
   
-
   
394
 
Earnings (loss) from discontinued operations
                       
before income taxes
 
9
   
(103
)
 
391
   
987
 
Income tax expense
 
(4
)
 
(66
)
 
(86
)
 
(566
)
Earnings (loss) from discontinued operations
                       
before disposal, net of taxes
$
5
 
$
(169
)
$
305
 
$
421
 
                         
Disposal
                       
Gain (loss) on disposal before income taxes
$
(163
)
$
420
 
$
(152
)
$
576
 
Income tax benefit (expense)
 
63
   
(166
)
 
13
   
(236
)
Gain (loss) on disposal, net of taxes
$
(100
)
$
254
 
$
(139
)
$
340
 
                         
Earnings (loss) from discontinued operations,
                       
net of taxes
$
(95
)
$
85
 
$
166
 
$
761
 

 



 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Assets
           
Cash and equivalents
$
186
 
$
2,976
 
Investment securities
 
12,107
   
37,633
 
Other receivables
 
467
   
13,915
 
Other
 
2,780
   
6,542
 
Assets of discontinued operations
$
15,540
 
$
61,066
 

 
 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Liabilities and equity
           
Investment contracts, insurance liabilities and insurance annuity benefits
$
13,403
 
$
43,378
 
Other
 
1,886
   
6,385
 
Liabilities of discontinued operations
 
15,289
   
49,763
 
Eliminations
 
-
   
(236
)
Total
$
15,289
 
$
49,527
 
             
Total accumulated nonowner changes other than earnings
$
194
 
$
652
 

 
4. GECS revenues from services are summarized in the following table.
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Interest on loans
$
5,586
 
$
4,843
 
$
16,555
 
$
14,944
 
Operating lease rentals
 
3,410
   
3,006
   
9,477
   
8,562
 
Fees
 
1,002
   
1,126
   
3,018
   
2,944
 
Financing leases
 
1,176
   
962
   
3,203
   
3,030
 
Investment income
 
687
   
895
   
1,913
   
2,137
 
Premiums earned by insurance activities
 
536
   
563
   
1,512
   
1,686
 
Other income
 
3,359
   
2,928
   
8,799
   
7,248
 
Total
$
15,756
 
$
14,323
 
$
44,477
 
$
40,551
 

 


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
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Expected return on plan assets
$
(953
)
$
(971
)
$
(2,858
)
$
(2,911
)
Service cost for benefits earned
 
338
   
407
   
1,027
   
1,057
 
Interest cost on benefit obligation
 
576
   
564
   
1,728
   
1,684
 
Prior service cost
 
69
   
63
   
184
   
187
 
Net actuarial loss recognized
 
181
   
90
   
550
   
261
 
Cost of pension plans
$
211
 
$
153
 
$
631
 
$
278
 

 
 
Other Pension Plans
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Expected return on plan assets
$
(101
)
$
(87
)
$
(298
)
$
(267
)
Service cost for benefits earned
 
81
   
66
   
247
   
212
 
Interest cost on benefit obligation
 
96
   
89
   
283
   
274
 
Prior service cost
 
1
   
1
   
3
   
5
 
Net actuarial loss recognized
 
42
   
29
   
120
   
86
 
Cost of pension plans
$
119
 
$
98
 
$
355
 
$
310
 

 
 
Principal Retiree Health and
Life Insurance Plans
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Expected return on plan assets
$
(31
)
$
(34
)
$
(95
)
$
(103
)
Service cost for benefits earned
 
50
   
92
   
158
   
199
 
Interest cost on benefit obligation
 
114
   
127
   
342
   
380
 
Prior service cost
 
101
   
75
   
247
   
224
 
Net actuarial loss recognized
 
16
   
18
   
52
   
54
 
Cost of principal retiree benefit plans
$
250
 
$
278
 
$
704
 
$
754
 

 


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 September 30
 
 
2006
 
2005
 
(In millions; per-share amounts in dollars)
Diluted
 
Basic
 
Diluted
 
Basic
 
                         
Consolidated
                       
Earnings from continuing operations for
                       
per-share calculation(a)
$
5,060
 
$
5,059
 
$
4,592
 
$
4,592
 
Earnings (loss) from discontinued operations
                       
for per-share calculation(b)
 
(95
)
 
(95
)
 
82
   
85
 
Net earnings available for per-share calculation
$
4,965
 
$
4,964
 
$
4,674
 
$
4,677
 
                         
Average equivalent shares
                       
Shares of GE common stock outstanding
 
10,317
   
10,317
   
10,585
   
10,585
 
Employee compensation-related shares,
                       
including stock options
 
31
   
-
   
38
   
-
 
Total average equivalent shares
 
10,348
   
10,317
   
10,623
   
10,585
 
                         
Per-share amounts
                       
Earnings from continuing operations
$
0.49
 
$
0.49
 
$
0.43
 
$
0.43
 
Earnings (loss) from discontinued operations
$
(0.01
)
$
(0.01
)
$
0.01
 
$
0.01
 
Net earnings
$
0.48
 
$
0.48
 
$
0.44
 
$
0.44
 
                         
 
Nine months ended September 30
 
 
2006
 
2005
 
(In millions; per-share amounts in dollars)
Diluted
 
Basic
 
Diluted
 
Basic
 
                         
Consolidated
                       
Earnings from continuing operations for
                       
per-share calculation(a)
$
13,956
 
$
13,955
 
$
12,528
 
$
12,528
 
Earnings from discontinued operations
                       
for per-share calculation(b)
 
166
   
166
   
753
   
761
 
Net earnings available for per-share calculation
$
14,122
 
$
14,121
 
$
13,281
 
$
13,289
 
                         
Average equivalent shares
                       
Shares of GE common stock outstanding
 
10,380
   
10,380
   
10,591
   
10,591
 
Employee compensation-related shares,
                       
including stock options
 
35
   
-
   
42
   
-
 
Total average equivalent shares
 
10,415
   
10,380
   
10,633
   
10,591
 
                         
Per-share amounts
                       
Earnings from continuing operations
$
1.34
 
$
1.34
 
$
1.18
 
$
1.18
 
Earnings from discontinued operations
$
0.02
 
$
0.02
 
$
0.07
 
$
0.07
 
Net earnings
$
1.36
 
$
1.36
 
$
1.25
 
$
1.25
 
                         

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

 


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)
9/30/06
 
12/31/05
 
             
Raw materials and work in process
$
6,724
 
$
5,527
 
Finished goods
 
5,339
   
5,311
 
Unbilled shipments
 
426
   
333
 
   
12,489
   
11,171
 
Less revaluation to LIFO
 
(634
)
 
(697
)
Total
$
11,855
 
$
10,474
 

 
8. GECS financing receivables - net, consisted of the following.
 
 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Loans, net of deferred income
$
246,494
 
$
227,923
 
Investment in financing leases, net of deferred income
 
68,278
   
64,309
 
   
314,772
   
292,232
 
Less allowance for losses
 
(4,514
)
 
(4,593
)
Financing receivables - net
$
310,258
 
$
287,639
 

 
Included in the above are the financing receivables of consolidated, liquidating securitization entities as follows (see note 14):
 
 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Loans, net of deferred income
$
12,444
 
$
15,868
 
Investment in financing leases, net of deferred income
 
213
   
769
 
   
12,657
   
16,637
 
Less allowance for losses
 
(29
)
 
(22
)
Financing receivables - net
$
12,628
 
$
16,615
 

 


9. Property, plant and equipment (including equipment leased to others) - net, consisted of the following.
 
 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Original cost
$
117,847
 
$
111,729
 
Less accumulated depreciation and amortization
 
(45,601
)
 
(44,201
)
Property, plant and equipment - net
$
72,246
 
$
67,528
 

 
10. Intangible assets - net, consisted of the following.
 
 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Goodwill
$
72,472
 
$
69,611
 
Intangible assets subject to amortization
 
10,690
   
9,932
 
Indefinite-lived intangible assets(a)
 
2,306
   
2,087
 
Total
$
85,468
 
$
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
9/30/06
 
                                 
Infrastructure
$
10,166
   
$
643
     
$
124
   
$
10,933
 
Industrial
 
8,702
     
297
       
(855
)
   
8,144
 
Healthcare
 
13,404
     
1,407
       
19
     
14,830
 
NBC Universal
 
17,534
     
768
       
(372
)
   
17,930
 
Commercial Finance
 
10,621
     
378
       
63
     
11,062
 
GE Money
 
9,184
     
224
       
165
     
9,573
 
Total
$
69,611
   
$
3,717
     
$
(856
)
 
$
72,472
 

 
Goodwill balances increased $3,692 million in 2006 as a result of new acquisitions. The largest goodwill balance increases this year arose from acquisitions of IDX Systems Corporation ($1,111 million at Healthcare), ZENON Membrane Solutions ($514 million at Infrastructure) and iVillage Inc. ($468 million at NBC Universal). During 2006, we increased goodwill associated with previous acquisitions by $25 million. Also during 2006, goodwill balances declined as a result of reclassifying the Advanced Materials business to assets held for sale ($930 million at Industrial) and the sale of television stations ($304 million at NBC Universal).
 


Intangible assets subject to amortization
 
 
At
 
 
9/30/06
 
12/31/05
 
(In millions)
Gross
carrying
amount
 
Accumulated
amortization
 
Net
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
 
                                             
Patents, licenses and trademarks 
$
5,058
   
$
(1,559
)
 
$
3,499
 
$
5,311
   
$
(1,406
)
 
$
3,905
 
Capitalized software
 
6,057
     
(3,553
)
   
2,504
   
5,586
     
(3,059
)
   
2,527
 
All other
 
6,298
     
(1,611
)
   
4,687
   
4,737
     
(1,237
)
   
3,500
 
Total
$
17,413
   
$
(6,723
)
 
$
10,690
 
$
15,634
   
$
(5,702
)
 
$
9,932
 

 
Consolidated amortization expense related to intangible assets subject to amortization amounted to $458 million and $311 million for the quarters ended September 30, 2006 and 2005, respectively, and $1,358 million and $1,036 million for the nine months ended September 30, 2006 and 2005, respectively.
 


11. GECS borrowings are summarized in the following table.
 
 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Short-term borrowings
           
             
Commercial paper
           
U.S.
           
Unsecured
$
65,208
 
$
67,643
 
Asset-backed (a)
 
6,927
   
9,267
 
Non-U.S.
 
24,137
   
20,456
 
Current portion of long-term debt (b)(c)
 
49,659
   
41,792
 
Other
 
19,142
   
18,514
 
Total
 
165,073
   
157,672
 
             
Long-term borrowings
           
             
Senior notes
           
Unsecured
 
211,911
   
180,546
 
Asset-backed (d)
 
6,181
   
6,845
 
Extendible notes (e)
 
11,991
   
14,022
 
Subordinated notes (f)
 
5,040
   
2,984
 
Total
 
235,123
   
204,397
 
Total borrowings
$
400,196
 
$
362,069
 
             

(a)
 
Entirely obligations of consolidated, liquidating securitization entities. See note 14.
 
(b)
 
Included short-term borrowings by consolidated, liquidating securitization entities of $497 million and $697 million at September 30, 2006, and December 31, 2005, respectively. See note 14.
 
(c)
 
Included $250 million of subordinated notes guaranteed by GE at both September 30, 2006, and December 31, 2005.
 
(d)
 
Included asset-backed senior notes issued by consolidated, liquidating securitization entities of $5,024 million and $6,845 million at September 30, 2006, and December 31, 2005, respectively. See note 14.
 
(e)
 
Included $38 million of obligations of consolidated, liquidating securitization entities at December 31, 2005. See note 14.
 
(f)
Included $750 million of subordinated notes guaranteed by GE at both September 30, 2006, and December 31, 2005.

 
12. A summary of increases (decreases) in shareowners’ equity, net of income taxes, that did not result directly from transactions with shareowners follows.
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Net earnings
$
4,964
 
$
4,677
 
$
14,121
 
$
13,289
 
Investment securities - net
 
800
   
(1,078
)
 
(578
)
 
(402
)
Currency translation adjustments - net
 
481
   
473
   
2,216
   
(3,200
)
Cash flow hedges - net
 
(262
)
 
84
   
324
   
282
 
Minimum pension liabilities - net
 
22
   
3
   
(21
)
 
27
 
Total
$
6,005
 
$
4,159
 
$
16,062
 
$
9,996
 

 


13. We adopted the 2004 revision to Statement of Financial Accounting Standards 123, Share-Based Payment (SFAS 123R), on January 1, 2006, using the modified prospective method. Among other things, SFAS 123R requires expensing the fair value of stock options, a previously optional accounting method that we adopted voluntarily in 2002. The transitional effects of this provision of SFAS 123R consisted of reductions in net earnings of $3 million and $10 million for the three months and nine months ended September 30, 2006, respectively, to expense the unvested portion of options granted in 2001.
 
A comparison of reported net earnings for 2006 and 2005, and pro-forma net earnings for 2005, including effects of expensing stock options, follows.
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions; per-share amounts in dollars)
2006
 
2005
 
2006
 
2005
 
                         
Net earnings, as reported
$
4,964
 
$
4,677
 
$
14,121
 
$
13,289
 
Earnings per share, as reported
                       
Diluted
 
0.48
   
0.44
   
1.36
   
1.25
 
Basic
 
0.48
   
0.44
   
1.36
   
1.25
 
Stock option expense included in net earnings
 
27
   
26
   
77
   
84
 
Total stock option expense
 
27
   
41
(a)
 
77
   
141
(a)
                         
Pro-forma effects
                       
Net earnings, on pro-forma basis
       
4,662
         
13,232
 
Earnings per share, on pro-forma basis
                       
Diluted
       
0.44
         
1.24
 
Basic
       
0.44
         
1.25
 
                         

Other share-based compensation expense recognized in net earnings amounted to $34 million and $26 million for the three months ended September 30, 2006 and 2005, respectively. The total income tax benefit recognized in earnings for all share-based compensation arrangements amounted to $31 million and $28 million for the three months ended September 30, 2006 and 2005, respectively. Other share-based compensation expense recognized in net earnings amounted to $91 million and $77 million for the nine months ended September 30, 2006 and 2005, respectively. The total income tax benefit recognized in earnings for all share-based compensation arrangements amounted to $87 million for the nine months ended September 30, 2006, the same as in the 2005 time period.
 
(a)
As if we applied SFAS 123R to expense stock options in all periods. Included amounts we actually recognized in earnings.

 
SFAS 123R also required us to change the statement of cash flows classification of certain tax benefits from share-based compensation deductions beginning on January 1, 2006. As a result, we classified $111 million as cash from financing activities rather than cash from operating activities for the nine months ended September 30, 2006.
 


Other Stock-Related Information
 
We grant stock options, restricted stock units (RSUs) and performance share units (PSUs) to employees under the 1990 Long-Term Incentive Plan as described in our current Proxy Statement. In addition, we grant options and RSUs in limited circumstances to consultants, advisors and independent contractors (primarily non-employee talent at NBC Universal) under a plan approved by our Board of Directors in 1997 (the consultants’ plan). There are outstanding grants under two separate shareowner-approved option plans for non-employee directors. Share requirements for all plans may be met from either unissued or treasury shares. Stock options expire 10 years from the date they are granted and vest over service periods that range from one to five years. RSUs give recipients the right to receive shares of our stock upon the lapse of their related restrictions. Restrictions on RSUs lapse in various increments and at various dates, beginning after three years from date of grant through grantee retirement. Although the plan permits us to issue RSUs settleable in cash, we have only issued RSUs settleable in shares of our stock. PSUs give recipients the right to receive shares of our stock upon the achievement of certain performance targets.
 
All grants of GE options under all plans must be approved by the Management Development and Compensation Committee, which consists entirely of independent directors.
 
Stock Option Activity
 
 
Shares
(in thousands)
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic
Value
(in millions)
                                   
Outstanding at January 1, 2006
 
259,116
     
$
33.07
                   
Granted
 
20,403
       
34.00
                   
Exercised
 
(30,761
)
     
16.09
                   
Forfeited
 
(3,514
)
     
32.36
                   
Expired
 
(4,768
)
     
41.28
                   
Outstanding at September 30, 2006
 
240,476
     
$
35.18
     
4.9
     
$
796
 
Exercisable at September 30, 2006
 
190,131
     
$
35.83
     
4.0
     
$
665
 
Options expected to vest
 
44,902
     
$
32.61
     
8.3
     
$
121
 
                                   

We measure the fair value of each stock option grant at the date of grant using a Black-Scholes option pricing model. The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2006 and 2005, amounted to $7.99 and $8.87, respectively. The following assumptions were used in arriving at the fair value of options granted during the nine months ended September 30, 2006 and 2005, respectively: risk-free interest rates of 4.8% and 4.1%; dividend yields of 2.9% and 2.6%; expected volatility factors of 24% and 28%; and expected lives of 6 years and 6 years. Risk free interest rates reflect the yield on zero-coupon U.S. Treasury securities. Expected dividend yields presume a set dividend rate. Expected volatilities are based on implied volatilities from traded options and historical volatility of our stock. The expected option lives are based on our historical experience of employee exercise behavior.
 
The total intrinsic value of options exercised during the nine months ended September 30, 2006 and 2005, amounted to $725 million and $696 million, respectively. As of September 30, 2006, there was $227 million of total unrecognized compensation cost related to nonvested options. That cost is expected to be recognized over a weighted average period of 4 years and 1 month.

 


RSU activity
 
 
Shares
(in thousands)
 
Weighted-
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic
Value
(in millions)
 
                           
Outstanding at January 1, 2006
 
33,078
                     
Granted
 
8,689
                     
Vested
 
(4,602
)
                   
Forfeited
 
(2,378
)
                   
Outstanding at September 30, 2006
 
34,787
     
5.9
     
$
1,228
   
RSUs expected to vest
 
31,211
     
5.1
     
$
1,102
   
                           

The fair value of each restricted stock unit is the market price of our stock on the date of grant. The weighted-average grant-date fair value of RSUs granted during the nine months ended September 30, 2006 and 2005, amounted to $33.86 and $34.71, respectively. The total intrinsic value of RSUs vested during the nine months ended September 30, 2006 and 2005, amounted to $123 million and $82 million, respectively. As of September 30, 2006, there was $586 million of total unrecognized compensation cost related to nonvested RSUs. That cost is expected to be recognized over a weighted average period of 5 years and 2 months.

 
PSU activity
 
As of September 30, 2006, 1.4 million PSUs with a weighted-average remaining contractual term of 2 years and 3 months, an aggregate intrinsic value of $49 million and $20 million of unrecognized compensation cost were outstanding.
 


14. The following table represents assets in securitization entities, both consolidated and off-balance sheet.
 
 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Receivables secured by:
           
Equipment
$
9,640
 
$
12,949
 
Commercial real estate
 
11,467
   
13,010
 
Residential real estate
 
7,726
   
8,882
 
Other assets
 
14,758
   
12,869
 
Credit card receivables
 
12,853
   
10,039
 
Trade receivables, principally GE
 
3,647
   
3,960
 
Total securitized assets
$
60,091
 
$
61,709
 

 
 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Off-balance sheet(a)(b)
$
46,435
 
$
43,805
 
On-balance sheet(c)
 
13,656
   
17,904
 
Total securitized assets
$
60,091
 
$
61,709
 
             

(a)
 
At September 30, 2006, and December 31, 2005, liquidity support amounted to $1,737 million and $1,931 million, respectively. These amounts are net of $3,162 million and $3,786 million, respectively, participated or deferred beyond one year. Credit support amounted to $4,977 million and $5,988 million at September 30, 2006, and December 31, 2005, respectively.
 
(b)
 
Liabilities for recourse obligations related to off-balance sheet assets amounted to $74 million and $93 million at September 30, 2006, and December 31, 2005, respectively.
 
(c)
At September 30, 2006, and December 31, 2005, liquidity support amounted to $7,315 million and $10,044 million, respectively. These amounts are net of $21 million and $138 million, respectively, participated or deferred beyond one year. Credit support amounted to $3,535 million and $4,780 million at September 30, 2006, and December 31, 2005, respectively.

 
Assets in consolidated, liquidating securitization entities are shown in the following captions in the Condensed Statement of Financial Position.
 
 
At
 
(In millions)
9/30/06
 
12/31/05
 
             
Financing receivables - net (note 8)
$
12,628
 
$
16,615
 
All other assets
 
1,028
   
1,289
 
Total
$
13,656
 
$
17,904
 

 


15. As part of our continuing review of our derivatives and hedging activities, we made immaterial adjustments in the third quarter of 2006 for certain prior-period activities. The largest such adjustment related to termination of hedge accounting for commercial paper swaps associated with the 2004 disposal of Genworth. This correction comprised a reduction of $79 million, net of tax, in our gain on the Genworth disposition and an adjustment of $45 million, net of tax, for the subsequent net increase in value of the stand-alone swaps.
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
A. Results of Operations
 
General Electric Company’s consolidated financial statements represent the combination of the industrial manufacturing and product services businesses of General Electric Company (GE) and the financial services businesses of General Electric Capital Services, Inc. (GECS or financial services).
 
In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission (SEC) rules. For such measures, we have provided supplemental explanations and reconciliations in Exhibit 99 to this report on Form 10-Q.
 
Unless otherwise indicated, we refer to captions such as revenues and earnings from continuing operations simply as “revenues” and “earnings” throughout this Management’s Discussion and Analysis. Similarly, discussion of other matters in our consolidated financial statements relates to continuing operations unless otherwise indicated.
 
Overview
 
General Electric Company earnings increased 10% to $5.059 billion in the third quarter of 2006 compared with $4.592 billion in 2005. Earnings per share (EPS) were $0.49 in the third quarter of 2006, up 14% from last year’s $0.43. Four of our six segments contributed double-digit earnings growth for the quarter.
 
For the first nine months of 2006, earnings increased 11% to $13.955 billion compared with $12.528 billion in 2005. EPS were $1.34 in the first nine months of 2006, up 14% from last year’s $1.18.
 
Loss from discontinued operations was $0.1 billion in the third quarter of 2006 compared with earnings of $0.1 billion in 2005 and included the results of Genworth Financial, Inc. (Genworth), GE Life and most of GE Insurance Solutions Corporation (GE Insurance Solutions).
 
Earnings from discontinued operations were $0.2 billion for the first nine months of 2006 compared with $0.8 billion in 2005.
 
Net earnings increased 6% to $4.964 billion and EPS increased 9% to $0.48 in the third quarter of 2006 compared with $4.677 billion and $0.44, respectively, in 2005.
 
For the first nine months of 2006, net earnings increased 6% to $14.121 billion compared with $13.289 billion in 2005, and EPS increased 9% to $1.36, compared with last year’s $1.25.
 


Revenues of $40.9 billion in the third quarter of 2006 were 12% higher reflecting strong organic revenue growth of 10%. A reconciliation between reported and organic revenues is shown in Exhibit 99. Industrial sales increased 13% to $24.5 billion, primarily reflecting organic growth. Sales of product services (including sales of spare parts and related services) increased 11% to $7.4 billion in the third quarter of 2006. Financial services revenues grew 9% to $16.3 billion, reflecting organic revenue growth and the effects of acquisitions.
 
Revenues for the first nine months of 2006 rose 11% to $118.6 billion, compared with $107.3 billion last year. Industrial sales of $72.0 billion were 11% higher than in 2005 reflecting strong organic growth, the effects of the first quarter 2006 Olympics broadcasts and acquisitions. Financial Services revenues for the first nine months of 2006 were $46.3 billion, a $3.8 billion, or 9%, increase over the first nine months of last year. Revenues increased as a result of acquisitions and organic revenue growth, partially offset by dispositions and the strengthening U.S. dollar.
 
Acquisitions contributed $0.9 billion and $1.1 billion to consolidated revenues in the third quarters of 2006 and 2005, respectively. Our consolidated net earnings included approximately $0.1 billion from acquired businesses in the third quarters of both 2006 and 2005. We integrate acquisitions as quickly as possible. Only revenues and earnings from the date we complete the acquisition through the end of the fourth following quarter are attributed to such businesses. Dispositions also affected our results through lower revenues of approximately $0.2 billion and $0.1 billion in the third quarters of 2006 and 2005, respectively, and higher earnings of approximately $0.1 billion in the third quarters of both 2006 and 2005.
 
Acquisitions contributed $2.6 billion and $8.6 billion to consolidated revenues in the first nine months of 2006 and 2005, respectively. Our consolidated net earnings in the first nine months of 2006 and 2005 included approximately $0.3 billion and $0.8 billion, respectively, from acquired businesses. Dispositions also affected our results through lower revenues of approximately $0.7 billion and $0.5 billion and increased earnings of approximately $0.2 billion and $0.3 billion in the first nine months of 2006 and 2005, respectively.
 
The most significant acquisitions affecting 2006 results were:
 
·  
Infrastructure - Ionics, Inc. and ZENON Membrane Solutions
·  
Industrial - Edwards System Technology and SBS Technology
·  
Healthcare - IDX Systems Corporation
·  
NBC Universal - controlling interest resulting in consolidation of MSNBC
·  
Commercial Finance - Transportation Financial Services Group of CitiCapital, Antares Capital Corp. and the custom fleet business of National Australia Bank Ltd.
·  
GE Money (formerly Consumer Finance) - joint ventures with Garanti Bank and Hyundai Card Company
 
In total, these acquisitions contributed $0.5 billion and $0.1 billion to third quarter 2006 revenues and earnings, respectively. Contributions to revenues and earnings for the first nine months of 2006 were $1.6 billion and $0.3 billion, respectively.
 


Segment Operations
 
Operating segments comprise our six businesses focused on the broad markets they serve: Infrastructure, Industrial, Healthcare, NBC Universal, Commercial Finance and GE Money. For segment reporting purposes, certain GECS businesses are included in the industrial operating segments that actively manage such businesses and report their results for internal performance measurement purposes. These include Aviation Financial Services, Energy Financial Services and Transportation Finance reported in the Infrastructure segment, and Equipment Services reported in the Industrial segment.
 
Segment profit is determined based on internal performance measures used by the Chief Executive Officer to assess the performance of each business in a given period. In connection with that assessment, the Chief Executive Officer may exclude matters such as charges for restructuring; rationalization and other similar expenses; in-process research and development and certain other acquisition-related charges and balances; technology and product development costs; certain gains and losses from dispositions; and litigation settlements or other charges, responsibility for which preceded the current management team.
 
Segment profit always excludes the effects of principal pension plans, results reported as discontinued operations and accounting changes. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured - excluded in determining segment profit, which we refer to as “operating profit,” for Healthcare, NBC Universal and the industrial businesses of the Industrial and Infrastructure segments; included in determining segment profit, which we refer to as “net earnings,” for Commercial Finance, GE Money, and the financial services businesses of the Infrastructure segment (Aviation Financial Services, Energy Financial Services and Transportation Finance) and the Industrial segment (Equipment Services).
 
We have reclassified certain prior-period amounts to conform to the current period’s presentation. In addition to providing information on segments in their entirety, we have also provided supplemental information for certain businesses within the segments.
 


Infrastructure
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Revenues
$
12,104
 
$
10,128
 
$
33,588
 
$
29,723
 
                         
Segment profit
$
2,336
 
$
1,880
 
$
6,146
 
$
5,336
 
                         
Revenues
                       
Aviation
$
3,157
 
$
3,007
 
$
9,489
 
$
8,568
 
Aviation Financial Services
 
1,075
   
964
   
2,990
   
2,600
 
Energy
 
5,055
   
3,681
   
13,332
   
11,516
 
Energy Financial Services
 
524
   
379
   
1,189
   
989
 
Oil & Gas
 
1,029
   
906
   
2,895
   
2,310
 
Transportation
 
1,016
   
910
   
3,041
   
2,558
 
                         
Segment profit
                       
Aviation
$
706
 
$
604
 
$
2,079
 
$
1,821
 
Aviation Financial Services
 
261
   
195
   
777
   
543
 
Energy
 
747
   
584
   
1,872
   
1,786
 
Energy Financial Services
 
234
   
177
   
497
   
450
 
Oil & Gas
 
161
   
107
   
324
   
209
 
Transportation
 
196
   
161
   
565
   
344
 

 
Infrastructure revenues increased 20%, or $2.0 billion, in the third quarter of 2006 reflecting higher volume ($1.7 billion), higher prices ($0.1 billion) and the effect of the weakening U.S. dollar ($0.1 billion) at the industrial businesses of the segment. Volume increased at Energy (primarily Wind equipment), Aviation (commercial, partially offset by military), Transportation (primarily locomotives and services) and Oil & Gas (new equipment and services). Higher prices were primarily at Energy, especially Wind equipment. The effect of the weakening U.S. dollar was primarily at Oil & Gas. Revenues also increased as a result of organic revenue growth at Energy Financial Services ($0.1 billion) and Aviation Financial Services ($0.1 billion). Intra-segment revenues, which increased $0.1 billion, were eliminated from total Infrastructure revenues.
 
Segment profit rose 24%, or $0.5 billion, in the third quarter as higher volume ($0.3 billion) and higher prices ($0.1 billion) more than offset lower productivity ($0.1 billion) and higher material and other costs ($0.1 billion) at the industrial businesses of the segment. Segment profit from the financial services businesses increased as a result of core growth at Aviation Financial Services ($0.1 billion), including growth in lower-taxed earnings from global operations that were more than offset by lower one-time benefits from our aircraft leasing reorganization, and Energy Financial Services ($0.1 billion).
 


Infrastructure revenues rose 13% to $33.6 billion for the nine months ended September 30, 2006, as higher volume ($3.6 billion) and higher prices ($0.1 billion) were partially offset by the effects of the overall strengthening U.S. dollar over the nine months ($0.1 billion) at the industrial businesses of the segment. The increase in volume reflected increased sales of power generation equipment at Energy, commercial and military services and commercial engines at Aviation, equipment at Oil & Gas, and locomotives at Transportation. Revenues also increased as a result of organic revenue growth at Aviation Financial Services ($0.4 billion) and Energy Financial Services ($0.2 billion). Intra-segment revenues, which increased $0.5 billion, were eliminated from total Infrastructure revenues.
 
Segment profit for the nine months ended September 30, 2006, rose 15% to $6.1 billion, compared with $5.3 billion in 2005, as higher volume ($0.6 billion) and higher prices ($0.1 billion) were partially offset by higher material and other costs ($0.2 billion) at the industrial businesses of the segment. Volume increases were primarily at Energy and Aviation. Higher material and other costs were primarily at Aviation. Segment profit from the financial services businesses increased $0.3 billion primarily as a result of core growth at Aviation Financial Services ($0.2 billion), including growth in lower-taxed earnings from global operations that were more than offset by lower one-time benefits from our aircraft leasing reorganization.
 
Industrial
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Revenues
$
8,526
 
$
8,257
 
$
25,454
 
$
24,178
 
                         
Segment profit
$
692
 
$
629
 
$
2,021
 
$
1,790
 
                         
Revenues
                       
Consumer & Industrial
$
3,533
 
$
3,522
 
$
10,919
 
$
10,359
 
Equipment Services
 
1,848
   
1,709
   
5,279
   
4,935
 
Plastics
 
1,677
   
1,663
   
5,005
   
4,951
 
                         
Segment profit
                       
Consumer & Industrial
$
283
 
$
196
 
$
821
 
$
588
 
Equipment Services
 
91
   
66
   
167
   
112
 
Plastics
 
152
   
197
   
560
   
645
 

 
Industrial revenues rose 3%, or $0.3 billion, in the third quarter of 2006 as higher volume ($0.2 billion) was partially offset by lower prices ($0.1 billion) at the industrial businesses in the segment. The increase in volume and decrease in prices was primarily at Plastics. Revenues in the third quarter of 2006 were also approximately $0.3 billion lower as a result of the sale of GE Supply during the quarter. Revenues also increased at Equipment Services as a result of the second quarter 2006 consolidation of GE SeaCo, an entity previously accounted for using the equity method ($0.1 billion) and organic revenue growth ($0.1 billion).
 
Segment profit rose 10%, or $0.1 billion, in the third quarter of 2006 as productivity ($0.4 billion), primarily at Consumer & Industrial and Plastics, was partially offset by higher material and other costs ($0.3 billion), primarily at Consumer & Industrial and Plastics, and lower prices ($0.1 billion), primarily at Plastics.
 


Industrial revenues rose 5% for the nine months ended September 30, 2006 as higher volume ($1.2 billion) was partially offset by the effects of the strengthening U.S. dollar ($0.1 billion) and lower prices ($0.1 billion) at the industrial businesses in the segment. Volume increases were primarily at Consumer & Industrial and Plastics. Revenues also increased at Equipment Services as a result of organic revenue growth ($0.2 billion) and the consolidation of GE SeaCo ($0.2 billion).
 
Segment profit rose 13% for the nine months ended September 30, 2006, as productivity ($0.8 billion), primarily at Consumer & Industrial and Plastics, and higher volume ($0.1 billion) were partially offset by higher material and other costs ($0.6 billion), primarily at Consumer & Industrial and Plastics, and lower prices ($0.1 billion). Lower prices at Plastics were partially offset by higher prices at Consumer & Industrial. See Corporate items and eliminations for a discussion of items not allocated to this segment.
 
Healthcare revenues rose $0.3 billion, or 9%, in the third quarter of 2006 as higher volume ($0.4 billion) more than offset the effect of lower prices ($0.1 billion). The rise in volume related to increases in healthcare services, including the effects of the 2006 acquisition of IDX, and stronger equipment sales. Operating profit of $0.7 billion in the third quarter of 2006 was 19% higher than in 2005 as the effects of productivity ($0.2 billion) and higher volume ($0.1 billion) more than offset the effect of lower prices ($0.1 billion).
 
Healthcare revenues rose 10% to $11.7 billion in the first nine months of 2006 as higher volume ($1.4 billion) more than offset the effect of lower prices ($0.3 billion) and the effects of the strengthening U.S. dollar ($0.1 billion). The rise in volume related to increases in healthcare services, including the effects of the 2006 acquisition of IDX and stronger equipment sales. Operating profit of $2.0 billion in the first nine months of 2006 was 19% higher than in 2005 as productivity ($0.4 billion) and the effects of higher volume ($0.2 billion) more than offset the effects of lower prices ($0.3 billion) and higher material and other costs ($0.1 billion).
 
NBC Universal reported revenues of $3.6 billion in the third quarter of 2006, 20% higher than the third quarter of 2005, reflecting higher film revenues ($0.3 billion) and improvements in the cable business ($0.2 billion), including $0.1 billion from consolidating MSNBC. Segment profit declined 10%, or $0.1 billion, in the third quarter of 2006 as $0.1 billion lower earnings from network and station operations were only partially offset by higher earnings of the film and cable businesses.
 
NBC Universal reported revenues of $12.0 billion in the first nine months of 2006, a 14% increase from 2005, resulting primarily from absence of a prior-year counterpart to the 2006 Olympic Games broadcasts ($0.7 billion), improvements in the film business ($0.4 billion), improvements in the cable business ($0.4 billion) and the effects of exiting a film distribution agreement ($0.2 billion), partially offset by the effects of lower ratings on network and station ad sales ($0.3 billion). We also realized a $0.1 billion increase from the net effects of certain strategic actions, including 2006 gains from sale of four television stations and a favorable settlement compared with the gain on acquisition of preferred shares net of effects of an impairment in 2005. Segment profit declined 9%, or $0.2 billion, in the first nine months of 2006 as the effects of lower earnings from network and station operations ($0.3 billion), including the 2006 Olympics broadcasts ($0.1 billion), and lower earnings from the film business ($0.1 billion), including the $0.1 billion favorable effects of the film distribution exit, were partially offset by higher earnings from the cable business ($0.1 billion) and the net effects of the above-mentioned strategic actions ($0.1 billion). See Corporate items and eliminations for a discussion of items not allocated to this segment.
 


Commercial Finance
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Revenues
$
6,006
 
$
5,414
 
$
17,017
 
$
15,415
 
                         
Segment profit
$
1,290
 
$
1,212
 
$
3,521
 
$
3,010
 
                         
                         
 
At
       
(In millions)
9/30/06
 
9/30/05
 
12/31/05
       
                         
Total assets
$
215,276
 
$
183,139
 
$
190,546
       
                         
                         
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Revenues
                       
Capital Solutions
$
3,101
 
$
2,834
 
$
8,968
 
$
8,579
 
Real Estate
 
1,328
   
1,022
   
3,450
   
2,664
 
                         
Segment profit
                       
Capital Solutions
$
525
 
$
444
 
$
1,297
 
$
1,055
 
Real Estate
 
440
   
343
   
1,215
   
893
 
                         
                         
 
At
       
(In millions)
9/30/06
 
9/30/05
 
12/31/05
       
                         
Assets
                       
Capital Solutions
$
92,560
 
$
83,724
 
$
87,306
       
Real Estate
 
48,525
   
34,845
   
35,323
       

 


Commercial Finance revenues and net earnings increased 11% and 6%, respectively, in the third quarter of 2006. Revenues for 2006 included $0.2 billion from acquisitions. Revenues for the third quarter also increased as a result of organic revenue growth ($0.3 billion) and the effects of the weakening U.S. dollar ($0.1 billion). The increase in net earnings resulted primarily from core growth ($0.1 billion), including growth in lower-taxed earnings from global operations.
 
Commercial Finance revenues and net earnings increased 10% and 17%, respectively, in the first nine months of 2006. Revenues for the first nine months of 2006 and 2005 included $0.6 billion and $0.1 billion from acquisitions, respectively, and in 2006 were reduced by dispositions ($0.2 billion). Revenues for the first nine months also increased as a result of organic revenue growth ($1.5 billion), partially offset by the strengthening U.S. dollar ($0.1 billion). The increase in net earnings resulted primarily from core growth ($0.5 billion), including growth in lower-taxed earnings from global operations, and acquisitions ($0.1 billion).
 
GE Money
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Revenues
$
5,590
 
$
4,913
 
$
15,948
 
$
14,530
 
                         
Segment profit
$
916
 
$
810
 
$
2,632
 
$
2,280
 
                         
                         
 
At
       
(In millions)
9/30/06
 
9/30/05
 
12/31/05
       
                         
Total assets
$
175,649
 
$
153,315
 
$
158,829
       

 
GE Money revenues and net earnings increased 14% and 13%, respectively, in the third quarter of 2006. Revenues for 2006 included $0.2 billion from acquisitions. Revenues for the third quarter also increased as a result of organic revenue growth ($0.4 billion) and the effects of the weakening U.S. dollar ($0.1 billion). The $0.1 billion increase in net earnings resulted primarily from higher securitizations and acquisitions.
 
GE Money revenues and net earnings increased 10% and 15%, respectively, in the first nine months of 2006. Revenues for 2006 included $0.7 billion from acquisitions. Revenues for the first nine months also increased as a result of organic revenue growth ($1.0 billion), partially offset by the strengthening U.S. dollar ($0.3 billion). The increase in net earnings resulted primarily from core growth ($0.2 billion), including growth in lower-taxed earnings from global operations, acquisitions ($0.2 billion) and higher securitizations ($0.1 billion).

    In Japan, we are evaluating the potential effects of legislative proposals to reduce the maximum allowable lending rate and limit individual consumer borrowing. We have also made provisions related to customer claims for interest refunds under Japanese law. Our future revenues and provisions for losses could be affected by both this proposed legislation and continued increases in the volume and amounts of interest refund claims.
 


Discontinued Insurance Operations
 
 
Three months ended
September 30
 
Nine months ended
September 30
 
(In millions)
2006
 
2005
 
2006
 
2005
 
                         
Earnings (loss) from discontinued operations,
                       
net of taxes
$
(95
)
$
85
 
$
166
 
$
761
 

 
In October 2006, Swiss Reinsurance Company (Swiss Re) agreed to purchase GE Life, our U.K.-based life insurance operation, for approximately $0.9 billion. We have recorded a provision for our best estimate of loss on the sale of $0.3 billion before and after tax. We expect this transaction to close in the fourth quarter of 2006, subject to regulatory approvals and customary closing conditions.
 
In June 2006, we completed the sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions Corporation (GE Insurance Solutions) to Swiss Re for $9.3 billion, including the assumption of $1.7 billion of debt. We received $5.4 billion in cash and $2.2 billion of newly issued Swiss Re common stock, representing a 9% interest in Swiss Re, that we are not permitted to sell before June 4, 2007, under the agreement we have with Swiss Re.
 
In March 2006, we completed the sale of our remaining 18% investment in Genworth Financial, Inc. (Genworth) through a secondary public offering of 71 million shares of Class A Common Stock and direct sale to Genworth of 15 million shares of Genworth Class B Common Stock. As a result, we recognized a pre-tax gain of $0.5 billion ($0.3 billion after tax).
 
Discontinued operations comprise GE Life; the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions and most of its affiliates; and Genworth, our formerly wholly-owned subsidiary that conducted most of our consumer insurance business, including life and mortgage insurance operations. Results of these businesses are reported as discontinued operations for all periods presented.
 
Loss from discontinued operations, net of taxes, for the third quarter of 2006 was mostly the result of adjustments related to Genworth.
 
Earnings from discontinued operations, net of taxes, for the third quarter of 2005 reflected the gain related to Genworth’s secondary public offering ($0.3 billion) and our share of Genworth’s earnings from operations ($0.1 billion), partially offset by operations of GE Insurance Solutions ($0.2 billion).
 
Earnings from discontinued operations, net of taxes, for the first nine months of 2006 reflected earnings from GE Insurance Solutions through the date of disposal ($0.3 billion) and the gain on the sale of our remaining 18% investment in Genworth common stock ($0.2 billion), partially offset by a provision for estimated loss on the planned sale of GE Life ($0.3 billion) and the loss on disposal of GE Insurance Solutions ($0.1 billion).
 
Earnings from discontinued operations, net of taxes, for the first nine months of 2005 reflected our share of Genworth’s earnings from operations ($0.3 billion), the gain related to Genworth’s secondary public offering ($0.3 billion) and earnings from GE Insurance Solutions ($0.1 billion).
 


Corporate items and eliminations expense for the third quarter of 2006 increased $0.2 billion, reflecting the lack of a current-year counterpart to 2005 gains on sales of investment securities by continuing insurance operations ($0.1 billion) and higher costs of our principal pension plans ($0.1 billion).
 
Corporate items and eliminations expense for the nine months ended September 30, 2006, increased $0.4 billion, principally reflecting higher pension costs.
 
Certain amounts included in this caption are not allocated to GE operating segments because they are excluded from the measurement of their operating performance for internal purposes. In the third quarter of 2006, these included $0.2 billion for the gain on sale of GE Supply, partially offset by $0.1 billion for restructuring and other charges, at Industrial. For the nine months ended September 30, 2006, such amounts included $0.3 billion for gains on business dispositions (principally GE Supply), partially offset by $0.1 billion for restructuring and other charges, at Industrial; and $0.1 billion for technology and product development costs at NBC Universal.
 
B. Statement of Financial Position
 
Overview of Financial Position
 
Major changes in our financial position resulted from the following:
 
·  
In October 2006, Swiss Re agreed to purchase GE Life, our U.K.-based life insurance operation. Since the first quarter of 2006, when we initiated our plan to sell GE Life, we have separately reported the assets and liabilities of GE Life as discontinued operations for all periods presented.
 
·  
During the third quarter of 2006, we completed the sale of GE Supply. This transaction reduced total assets and total liabilities by $0.5 billion and $0.3 billion, respectively. We also reclassified our Advanced Materials business as an asset held for sale as of September 30, 2006.
 
·  
During the second quarter of 2006, we completed the sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions to Swiss Re. This transaction reduced assets and liabilities of discontinued operations by $43.8 billion and $36.0 billion, respectively.
 
·  
During the first quarter of 2006, we completed the sale of our remaining 18% investment in Genworth common stock. We have separately reported the assets and liabilities of Genworth as discontinued operations for all periods presented.
 
·  
During the first nine months of 2006, we completed the acquisitions of IDX Systems Corporation at Healthcare; iVillage Inc. at NBC Universal; ZENON Membrane Solutions at Infrastructure; Arden Realty, Inc., the custom fleet business of National Australia Bank Ltd. and the senior housing portfolios of Formation Capital LLC at Commercial Finance; and the private-label credit card portfolio of Hudson’s Bay Co. at GE Money.
 
·  
The U.S. dollar was weaker at September 30, 2006, than it was at December 31, 2005, increasing the translated levels of our non-U.S. dollar assets and liabilities. However, on average, the U.S. dollar in the first nine months of 2006 has been stronger than during the comparable 2005 period, decreasing the translated levels of our non-U.S. dollar operations, as noted in the preceding Results of Operations section.
 


Consolidated assets were $682.1 billion at September 30, 2006, an increase of $8.8 billion from December 31, 2005. GE assets increased $3.1 billion, while financial services assets increased $5.6 billion.
 
GE assets were $192.9 billion at September 30, 2006, a $3.1 billion increase from December 31, 2005. The increase reflects a $2.3 billion increase in intangible assets, primarily related to the acquisitions of IDX Systems Corporation, ZENON Membrane Solutions and iVillage Inc., and a $1.4 billion increase in inventories, partially offset by a $2.3 billion decrease in current receivables and a $0.7 billion decrease in property, plant and equipment. In addition, all other assets increased $2.5 billion reflecting the reclassification of the Advanced Materials assets as held for sale.
 
Financial services assets were $546.2 billion at September 30, 2006. The $5.6 billion increase from December 31, 2005, was primarily attributable to increases in financing receivables of $22.6 billion, other assets of $11.0 billion, property, plant and equipment of $5.4 billion, cash and equivalents of $5.0 billion and investment securities of $3.5 billion. These increases were offset by decreases in assets of discontinued operations of $45.5 billion.
 
Consolidated liabilities of $562.5 billion at September 30, 2006, were $6.6 billion higher than the year-end 2005 balance. GE liabilities increased $1.0 billion, while financial services liabilities increased $5.3 billion.
 
GE liabilities were $75.6 billion at September 30, 2006. Through September 30, 2006, total borrowings increased $1.5 billion to $11.7 billion ($2.7 billion short term and $9.0 billion long term) and accounts payable decreased $1.4 billion to $10.5 billion compared with December 31, 2005. The ratio of borrowings to total capital invested for GE at the end of the third quarter was 9.1% compared with 8.1% at the end of last year and 8.5% at September 30, 2005.
 
Financial services liabilities increased $5.3 billion from year-end 2005 to $492.9 billion reflecting an increase in total borrowings of $38.1 billion, and investment contracts, insurance liabilities and insurance annuity benefits of $1.5 billion, partially offset by a decrease in liabilities of discontinued operations of $34.5 billion.
 
Consolidated cash and equivalents were $13.8 billion at September 30, 2006, an increase of $5.0 billion during the first nine months of 2006. Cash and equivalents amounted to $8.8 billion at September 30, 2005, a decrease of $3.3 billion from December 31, 2004. GE cash from operating activities (CFOA) is a useful measure of performance for our non-financial services businesses and totaled $18.5 billion in the first nine months of 2006 and $14.7 billion in the first nine months of 2005.
 
With respect to GE CFOA, we believe that it is useful to supplement our GE Condensed Statement of Cash Flows and to examine in a broader context the business activities that provide and require cash.
 
 
Nine months ended
September 30
 
(In billions)
2006
 
2005
 
             
Operating cash collections
$
71.4
 
$
66.1
 
Operating cash payments
 
(61.6
)
 
(56.9
)
Cash dividends from GECS
 
8.7
   
5.5
 
GE cash from operating activities
$
18.5
 
$
14.7
 

 


The most significant source of cash in CFOA is customer-related activities, the largest of which is collecting cash following a product or services sale. GE operating cash collections increased by about $5.3 billion during the first nine months of 2006. These increases are consistent with the changes in comparable GE operating segment revenues. Analyses of operating segment revenues discussed in the preceding Segment Operations section is the best way of understanding their customer-related CFOA.
 
The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for the wide range of material and services necessary in a diversified global organization. GE operating cash payments increased in the first nine months of 2006 by about $4.7 billion, comparable to the increases in GE total costs and expenses.
 
Dividends from GECS represented distribution of a portion of GECS retained earnings, including proceeds from certain business sales, and are distinct from cash from continuing operating activities within the financial services businesses, which decreased in the first nine months of 2006 by $1.9 billion to $15.1 billion. The amount we show in CFOA is the total dividend, including the normal dividend as well as any special dividends from excess capital, primarily resulting from GECS business sales. Special dividends of $5.7 billion were paid by GECS to GE in the first nine months of 2006; $2.6 billion of special dividends were paid by GECS during the first nine months of 2005.
 
Based on past performance and current expectations, in combination with the financial flexibility that comes with a strong balance sheet and the highest credit ratings, we believe that we are in a sound position to grow dividends, continue to execute on our announced $25 billion share repurchase program and continue making selective investments for long-term growth.
 
C. Financial Services Portfolio Quality
 
Investment securities comprise mainly available-for-sale investment-grade debt securities supporting obligations to annuitants and policyholders. We regularly review investment securities for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline, our intent and ability to hold to recovery and the financial health and specific prospects for the issuer. Of available-for-sale securities with unrealized losses at September 30, 2006, an immaterial amount was at risk of being charged to earnings in the next 12 months. Impairment losses for the first nine months of both 2006 and 2005 totaled $0.1 billion. We do not believe that any of the 2006 impairment losses indicate likely future impairments in the remaining portfolio.
 
Financing receivables is our largest category of assets and represents one of our primary sources of revenues. The portfolio of financing receivables, before allowance for losses, amounted to $314.8 billion at September 30, 2006, and $292.2 billion at December 31, 2005. The related allowance for losses amounted to $4.5 billion at September 30, 2006, and $4.6 billion at December 31, 2005, representing our best estimate of probable losses inherent in the portfolio. A discussion of the quality of certain elements of the financing receivables portfolio follows. For purposes of that discussion, “delinquent” receivables are those that are 30 days or more past due; and “nonearning” receivables are those that are 90 days or more past due (or for which collection has otherwise become doubtful).
 


Financing receivables, before allowance for losses, increased $22.5 billion from December 31, 2005, primarily as a result of core growth ($48.8 billion), the effects of the weaker U.S. dollar at September 30, 2006, ($5.6 billion) and acquisitions ($3.6 billion), partially offset by securitizations and sales ($33.4 billion) and loans transferred to assets held for sale ($1.7 billion). Related nonearning receivables were $4.7 billion (1.5% of outstanding receivables) at September 30, 2006, compared with $4.1 billion (1.4% of outstanding receivables) at year-end 2005. This $0.6 billion increase was primarily related to additions from certain secured transactions in our corporate finance business at Commercial Finance and higher nonearning receivables at GE Money resulting from core growth.
 
Delinquency rates on managed Commercial Finance equipment loans and leases and managed GE Money financing receivables follow.
 
 
Delinquency rates at
 
 
9/30/06
(a)
12/31/05
 
9/30/05
 
                   
Commercial Finance
1.33
%
 
1.31
%
 
1.24
%
 
GE Money
5.14
   
5.08
   
5.23
   
                   

(a)
Subject to update.

 
Delinquency rates at Commercial Finance increased slightly from December 31, 2005, and September 30, 2005, to September 30, 2006, reflecting continued stable portfolio quality.
 
Delinquency rates at GE Money increased from December 31, 2005, to September 30, 2006, associated with the effects of the weakening U.S. dollar. The decrease from September 30, 2005, to September 30, 2006, resulted from growth in our unsecured financing businesses, which tend to experience relatively lower delinquencies than the rest of our portfolio, partially offset by the effects of the weakening U.S. dollar.
 
D. Debt Instruments
 
During the first nine months of 2006, GECS and GECS affiliates issued $57 billion of senior, unsecured long-term debt and $2 billion of subordinated, unsecured long-term debt. This debt was both fixed and floating rate and was issued to institutional and retail investors in the U.S. and 17 other global markets. Maturities for these issuances ranged from one to sixty years. We used the proceeds for repayment of maturing long-term debt, and to fund acquisitions and organic growth. We anticipate that we will issue between $20 billion and $25 billion of additional long-term debt during the remainder of 2006, mostly to repay maturing long-term debt. The ultimate amount we issue will depend on our needs and on the markets.
 


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

    In November 2005, the FASB added a project to its agenda to reconsider all accounting and disclosure requirements of its existing standards on pensions and other postretirement benefits. The initial objective of that project was to require annual measurement and recognition of an asset or liability reflecting the funded status of defined benefit postretirement plans, with current year changes in that funded status recognized through all other comprehensive income. No aspect of measuring net earnings was addressed or modified under this objective. In September 2006, FASB issued Statement of Financial Accounting Standards (SFAS) 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, which will be effective for us beginning December 31, 2006. Based on the December 31, 2005, funded status of our plans, we estimate that the effect of SFAS 158 at that time would have been to decrease total assets and shareowners’ equity about $8.5 billion. The actual effects will depend on the funded status of our plans at December 31, 2006, which will depend on several factors, principally 2006 returns on plan assets and December 31, 2006, discount rates.
 
Item 4. Controls and Procedures
 
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of September 30, 2006, and (ii) no change in internal control over financial reporting occurred during the quarter ended September 30, 2006, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
 
Part II. Other Information
 
Item 1. Legal Proceedings
 
In August, 2006 the New Jersey Department of Environmental Protection (DEP) issued an Administrative Order seeking a penalty of $142,000 for violations of the Clean Air Act at General Electric Capital Corporation’s Linden, New Jersey facility. The DEP has alleged that emissions from the facility exceed thresholds established in the site’s permit. General Electric Capital Corporation has requested a hearing to contest the fine.
 


 
Item 2. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
Period(a)
 
Total number
of shares
purchased(b)
 
Average
price paid
per share
 
Total number of
shares purchased as
part of our share
repurchase program(c)
 
Approximate dollar
value of shares that
may yet be purchased
under our share
repurchase program
 
(Shares in thousands)
                               
                                 
2006
                               
July
   
19,695
     
$32.86
     
15,348
         
August
   
13,144
     
$33.50
     
6,282
         
September
   
15,962
     
$34.84
     
9,801
         
Total
   
48,801
     
$33.68
     
31,431
     
$12.9 billion
 
                                 

(a)
 
Information is presented on a fiscal calendar basis, consistent with our quarterly financial reporting.
 
(b)
 
This category includes 17,370 thousand shares repurchased from our various benefit plans, primarily the GE Savings and Security Program (the S&SP). Through the S&SP, a defined contribution plan with Internal Revenue Service Code 401(k) features, we repurchase shares resulting from changes in investment options by plan participants.
 
(c)
This balance represents the number of shares that were repurchased through the 2004 GE Share Repurchase Program as modified by the GE Board in November 2005 (the Program) under which we were authorized to repurchase up to $25 billion of our common stock through 2008. The Program is flexible and shares are acquired with a combination of borrowings and free cash flow from the public markets and other sources, including GE Stock Direct, a stock purchase plan that is available to the public. As major acquisitions or other circumstances warrant, we modify the frequency and amount of share repurchases under the Program.

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

 


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

 
   
General Electric Company
 
(Registrant)
 
 
 
October 30, 2006
 
/s/ Philip D. Ameen
 
Date
 
Philip D. Ameen
Vice President and Comptroller
Duly Authorized Officer and Principal Accounting Officer
 

(36)