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