frm10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 

FORM 10-Q

(Mark One)
 
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2007
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 1-35
 
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
 
There were 10,246,177,000 shares of common stock with a par value of $0.06 per share outstanding at June 30, 2007.
 

(1)

General Electric Company
 
   
Page
Part I - Financial Information
    
     
Item 1. Financial Statements
    
Condensed Statement of Earnings
    
 
3
 
4
 
5
 
6
 
7
 
8
 
18
 
30
     
Part II - Other Information
    
     
 
30
 
33
 
33
 
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 “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could adversely or positively affect our future results include: the behavior of financial markets, including fluctuations in interest and exchange rates and commodity and equity prices; the commercial and consumer credit environment; the impact of regulation and regulatory, investigative and legal actions; strategic actions, including acquisitions and 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; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
 

(2)

Part I. Financial Information
 
Item 1. Financial Statements
 
Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Three months ended June 30 (Unaudited)
  
 
Consolidated
  
GE
  
Financial
Services (GECS)
  
(In millions; per-share amounts in dollars)
2007
  
2006
  
2007
  
2006
  
2007
  
2006
  
                                     
Sales of goods
$
14,798
  
$
14,234
  
$
14,867
  
$
13,703
  
$
28
  
$
712
  
Sales of services
  
9,314
    
8,373
    
9,463
    
8,455
    
-
    
-
  
Other income
  
1,423
    
644
    
1,513
    
682
    
-
    
-
  
GECS earnings from continuing operations
  
-
    
-
    
2,167
    
2,594
    
-
    
-
  
GECS revenues from services
  
16,781
    
14,494
    
-
    
-
    
17,076
    
14,743
  
Total revenues
  
42,316
    
37,745
    
28,010
    
25,434
    
17,104
    
15,455
  
                                     
Cost of goods sold
  
11,900
    
11,006
    
11,974
    
10,529
    
23
    
659
  
Cost of services sold
  
5,607
    
5,316
    
5,756
    
5,397
    
-
    
-
  
Interest and other financial charges
  
5,718
    
4,480
    
422
    
439
    
5,540
    
4,196
  
Investment contracts, insurance losses and
                                    
insurance annuity benefits
  
892
    
793
    
-
    
-
    
925
    
831
  
Provision for losses on financing receivables
  
1,301
    
896
    
-
    
-
    
1,301
    
896
  
Other costs and expenses
  
10,201
    
9,174
    
3,526
    
3,415
    
6,783
    
5,853
  
Minority interest in net earnings of
                                    
consolidated affiliates
  
217
    
216
    
179
    
167
    
38
    
49
  
Total costs and expenses
  
35,836
    
31,881
    
21,857
    
19,947
    
14,610
    
12,484
  
                                     
Earnings from continuing operations
                                    
before income taxes
  
6,480
    
5,864
    
6,153
    
5,487
    
2,494
    
2,971
  
Provision for income taxes
  
(1,081
)
  
(1,063
)
  
(754
)
  
(686
)
  
(327
)
  
(377
)
Earnings from continuing operations
  
5,399
    
4,801
    
5,399
    
4,801
    
2,167
    
2,594
  
Earnings (loss) from discontinued operations,
                                    
net of taxes
  
21
    
145
    
21
    
145
    
(1
)
  
(2
)
Net earnings
$
5,420
  
$
4,946
  
$
5,420
  
$
4,946
  
$
2,166
  
$
2,592
  
                                     
Per-share amounts
                                    
Per-share amounts - earnings from
                                    
continuing operations
                                    
Diluted earnings per share
$
0.52
  
$
0.46
                          
Basic earnings per share
$
0.53
  
$
0.46
                          
                                     
Per-share amounts - net earnings
                                    
Diluted earnings per share
$
0.53
  
$
0.48
                          
Basic earnings per share
$
0.53
  
$
0.48
                          
                                     
Dividends declared per share
$
0.28
  
$
0.25
                          

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

(3)

Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Six months ended June 30 (Unaudited)
  
 
Consolidated
  
GE
  
Financial
Services (GECS)
  
(In millions; per-share amounts in dollars)
2007
  
2006
  
2007
  
2006
  
2007
  
2006
  
                                     
Sales of goods
$
27,503
  
$
26,549
  
$
27,604
  
$
25,509
  
$
60
  
$
1,267
  
Sales of services
  
17,706
    
17,322
    
17,996
    
17,515
    
-
    
-
  
Other income
  
1,934
    
1,094
    
2,087
    
1,160
    
-
    
-
  
GECS earnings from continuing operations
  
-
    
-
    
5,192
    
4,999
    
-
    
-
  
GECS revenues from services
  
33,803
    
28,588
    
-
    
-
    
34,378
    
29,077
  
Total revenues
  
80,946
    
73,553
    
52,879
    
49,183
    
34,438
    
30,344
  
                                     
Cost of goods sold
  
22,160
    
20,951
    
22,273
    
20,006
    
48
    
1,172
  
Cost of services sold
  
10,870
    
11,321
    
11,160
    
11,514
    
-
    
-
  
Interest and other financial charges
  
11,375
    
8,793
    
955
    
788
    
10,864
    
8,290
  
Investment contracts, insurance losses and
                                    
insurance annuity benefits
  
1,752
    
1,542
    
-
    
-
    
1,855
    
1,636
  
Provision for losses on financing receivables
  
2,475
    
1,718
    
-
    
-
    
2,475
    
1,718
  
Other costs and expenses
  
19,999
    
17,964
    
6,953
    
6,564
    
13,227
    
11,576
  
Minority interest in net earnings of
                                    
consolidated affiliates
  
439
    
435
    
308
    
311
    
131
    
124
  
Total costs and expenses
  
69,070
    
62,724
    
41,649
    
39,183
    
28,600
    
24,516
  
                                     
Earnings from continuing operations
                                    
before income taxes
  
11,876
    
10,829
    
11,230
    
10,000
    
5,838
    
5,828
  
Provision for income taxes
  
(2,010
)
  
(2,015
)
  
(1,364
)
  
(1,186
)
  
(646
)
  
(829
)
Earnings from continuing operations
  
9,866
    
8,814
    
9,866
    
8,814
    
5,192
    
4,999
  
Earnings (loss) from discontinued operations,
                                    
net of taxes
  
62
    
572
    
62
    
572
    
(3
)
  
261
  
Net earnings
$
9,928
  
$
9,386
  
$
9,928
  
$
9,386
  
$
5,189
  
$
5,260
  
                                     
Per-share amounts
                                    
Per-share amounts - earnings from
                                    
continuing operations
                                    
Diluted earnings per share
$
0.96
  
$
0.84
                          
Basic earnings per share
$
0.96
  
$
0.85
                          
                                     
Per-share amounts - net earnings
                                    
Diluted earnings per share
$
0.96
  
$
0.90
                          
Basic earnings per share
$
0.97
  
$
0.90
                          
                                     
Dividends declared per share
$
0.56
  
$
0.50
                          

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

(4)

Condensed Statement of Financial Position
General Electric Company and consolidated affiliates
 
 
Consolidated
  
GE
  
Financial
Services (GECS)
  
(In millions; except share amounts)
6/30/07
  
12/31/06
  
6/30/07
  
12/31/06
  
6/30/07
  
12/31/06
  
                                     
Cash and equivalents
$
15,850
  
$
14,275
  
$
2,093
  
$
4,480
  
$
14,066
  
$
12,629
  
Investment securities
  
45,131
    
47,826
    
409
    
342
    
44,730
    
47,492
  
Current receivables
  
12,734
    
13,449
    
13,147
    
13,773
    
-
    
-
  
Inventories
  
12,547
    
9,954
    
12,492
    
9,900
    
55
    
54
  
Financing receivables - net
  
350,042
    
334,205
    
-
    
-
    
350,070
    
334,232
  
Other GECS receivables
  
16,412
    
17,067
    
-
    
-
    
21,616
    
21,853
  
Property, plant and equipment (including
                                    
equipment leased to others) - net
  
76,390
    
70,903
    
13,420
    
12,675
    
62,970
    
58,228
  
Investment in GECS
  
-
    
-
    
55,064
    
54,097
    
-
    
-
  
Intangible assets - net
  
92,543
    
84,352
    
64,362
    
58,384
    
28,181
    
25,968
  
All other assets
  
107,835
    
96,530
    
36,422
    
33,496
    
72,336
    
64,212
  
Assets of discontinued operations
  
9,049
    
8,678
    
9,049
    
8,678
    
-
    
-
  
Total assets
$
738,533
  
$
697,239
  
$
206,458
  
$
195,825
  
$
594,024
  
$
564,668
  
                                     
Short-term borrowings
$
184,351
  
$
172,017
  
$
3,726
  
$
2,076
  
$
181,457
  
$
173,316
  
Accounts payable, principally trade accounts
  
19,314
    
20,753
    
10,807
    
10,969
    
12,837
    
13,923
  
Progress collections and price adjustments accrued
  
7,332
    
5,248
    
7,332
    
5,248
    
-
    
-
  
Other GE current liabilities
  
19,599
    
20,822
    
19,599
    
20,822
    
-
    
-
  
Long-term borrowings
  
282,790
    
260,762
    
9,091
    
9,043
    
274,992
    
252,963
  
Investment contracts, insurance liabilities
                                    
and insurance annuity benefits
  
34,596
    
34,499
    
-
    
-
    
34,977
    
34,807
  
All other liabilities
  
51,648
    
46,505
    
28,376
    
25,681
    
23,321
    
20,935
  
Deferred income taxes
  
12,670
    
14,210
    
2,732
    
1,993
    
9,938
    
12,217
  
Liabilities of discontinued operations
  
2,019
    
2,610
    
1,627
    
2,135
    
392
    
455
  
Total liabilities
  
614,319
    
577,426
    
83,290
    
77,967
    
537,914
    
508,616
  
                                     
Minority interest in equity of consolidated affiliates
  
7,191
    
7,499
    
6,145
    
5,544
    
1,046
    
1,955
  
Common stock (10,246,177,000 and 10,277,373,000
                                    
shares outstanding at June 30, 2007 and
                                    
December 31, 2006, respectively)
  
669
    
669
    
669
    
669
    
1
    
1
  
Accumulated gains (losses) - net
                                    
Investment securities
  
449
    
1,608
    
449
    
1,608
    
395
    
1,594
  
Currency translation adjustments
  
7,925
    
6,181
    
7,925
    
6,181
    
5,952
    
4,837
  
Cash flow hedges
  
600
    
(129
)
  
600
    
(129
)
  
561
    
(171
)
Benefit plans
  
(3,886
)
  
(4,406
)
  
(3,886
)
  
(4,406
)
  
(264
)
  
(278
)
Other capital
  
25,791
    
25,486
    
25,791
    
25,486
    
12,534
    
12,537
  
Retained earnings
  
111,819
    
107,798
    
111,819
    
107,798
    
35,885
    
35,577
  
Less common stock held in treasury
  
(26,344
)
  
(24,893
)
  
(26,344
)
  
(24,893
)
  
-
    
-
  
                                     
Total shareowners’ equity
  
117,023
    
112,314
    
117,023
    
112,314
    
55,064
    
54,097
  
                                     
Total liabilities and equity
$
738,533
  
$
697,239
  
$
206,458
  
$
195,825
  
$
594,024
  
$
564,668
  

The sum of accumulated gains (losses) on investment securities, currency translation adjustments, cash flow hedges and benefit plans constitutes “Accumulated nonowner changes other than earnings,” and was $5,088 million and $3,254 million at June 30, 2007, and December 31, 2006, respectively.
 
See notes to condensed, consolidated financial statements. Separate information is shown for “GE” and “Financial Services (GECS).” June 30, 2007, data are unaudited. Transactions between GE and GECS have been eliminated from the “Consolidated” columns.
 

(5)

Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates
 
 
Six months ended June 30 (Unaudited)
  
 
Consolidated
  
GE
  
Financial
Services (GECS)
  
(In millions)
2007
  
2006
  
2007
  
2006
  
2007
  
2006
  
                                     
Cash flows - operating activities
                                    
Net earnings
$
9,928
  
$
9,386
  
$
9,928
  
$
9,386
  
$
5,189
  
$
5,260
  
Loss (earnings) from discontinued operations
  
(62
)
  
(572
)
  
(65
)
  
(311
)
  
3
    
(261
)
Adjustments to reconcile net earnings to cash
                                    
provided from operating activities
                                    
Depreciation and amortization of property,
                                    
plant and equipment
  
4,864
    
4,051
    
994
    
973
    
3,870
    
3,078
  
Net earnings retained by GECS
  
-
    
-
    
(557
)
  
2,330
    
-
    
-
  
Deferred income taxes
  
361
    
371
    
87
    
31
    
274
    
340
  
Decrease in GE current receivables
  
615
    
1,168
    
1,606
    
2,929
    
-
    
-
  
Decrease (increase) in inventories
  
(1,362
)
  
(1,374
)
  
(1,372
)
  
(1,368
)
  
10
    
(6
)
Increase (decrease) in accounts payable
  
(598
)
  
(1,859
)
  
(573
)
  
(867
)
  
244
    
(373
)
Increase in GE progress collections
  
1,601
    
246
    
1,601
    
246
    
-
    
-
  
Provision for losses on GECS financing receivables
  
2,475
    
1,718
    
-
    
-
    
2,475
    
1,718
  
All other operating activities
  
681
    
(1,419
)
  
(90
)
  
477
    
795
    
(974
)
Cash from operating activities - continuing operations
  
18,503
    
11,716
    
11,559
    
13,826
    
12,860
    
8,782
  
Cash from (used for) operating activities - discontinued operations
  
(71
)
  
488
    
(54
)
  
497
    
(17
)
  
(9
)
Cash from operating activities
  
18,432
    
12,204
    
11,505
    
14,323
    
12,843
    
8,773
  
                                     
Cash flows - investing activities
                                    
Additions to property, plant and equipment
  
(8,950
)
  
(6,997
)
  
(1,569
)
  
(1,230
)
  
(7,498
)
  
(5,887
)
Dispositions of property, plant and equipment
  
4,805
    
2,896
    
-
    
-
    
4,805
    
2,896
  
Net increase in GECS financing receivables
  
(10,835
)
  
(13,836
)
  
-
    
-
    
(11,798
)
  
(15,483
)
Payments for principal businesses purchased
  
(13,185
)
  
(6,941
)
  
(7,356
)
  
(3,432
)
  
(5,829
)
  
(3,509
)
Proceeds from sales of discontinued operations
  
-
    
8,112
    
-
    
-
    
-
    
8,112
  
Proceeds from principal business dispositions
  
2,114
    
649
    
1,012
    
649
    
1,102
    
-
  
All other investing activities
  
(4,162
)
  
(15
)
  
(622
)
  
1,156
    
(3,584
)
  
(2,481
)
Cash used for investing activities - continuing operations
  
(30,213
)
  
(16,132
)
  
(8,535
)
  
(2,857
)
  
(22,802
)
  
(16,352
)
Cash from (used for) investing activities - discontinued operations
  
195
    
(3,286
)
  
178
    
(728
)
  
17
    
(2,558
)
Cash used for investing activities
  
(30,018
)
  
(19,418
)
  
(8,357
)
  
(3,585
)
  
(22,785
)
  
(18,910
)
                                     
Cash flows - financing activities
                                    
Net increase (decrease) in borrowings (maturities of 90 days or less)
  
(6,694
)
  
(3,543
)
  
(2,805
)
  
330
    
(6,623
)
  
(4,127
)
Newly issued debt (maturities longer than 90 days)
  
52,364
    
44,178
    
4,679
    
64
    
47,734
    
43,974
  
Repayments and other reductions (maturities longer than 90 days)
  
(24,645
)
  
(21,935
)
  
(125
)
  
(148
)
  
(24,520
)
  
(21,787
)
Net purchases of GE treasury shares
  
(1,392
)
  
(6,217
)
  
(1,392
)
  
(6,217
)
  
-
    
-
  
Dividends paid to shareowners
  
(5,768
)
  
(5,247
)
  
(5,768
)
  
(5,247
)
  
(4,632
)
  
(7,590
)
All other financing activities
  
(580
)
  
(546
)
  
-
    
-
    
(580
)
  
(546
)
Cash from (used for) financing activities - continuing operations
  
13,285
    
6,690
    
(5,411
)
  
(11,218
)
  
11,379
    
9,924
  
Cash from (used for) financing activities - discontinued operations
  
(124
)
  
(25
)
  
(124
)
  
231
    
-
    
(256
)
Cash from (used for) financing activities
  
13,161
    
6,665
    
(5,535
)
  
(10,987
)
  
11,379
    
9,668
  
                                     
Increase (decrease) in cash and equivalents
  
1,575
    
(549
)
  
(2,387
)
  
(249
)
  
1,437
    
(469
)
Cash and equivalents at beginning of year
  
14,275
    
11,801
    
4,480
    
2,015
    
12,629
    
10,106
  
Cash and equivalents at June 30
  
15,850
    
11,252
    
2,093
    
1,766
    
14,066
    
9,637
  
Less cash and equivalents of discontinued operations at June 30
  
-
    
153
    
-
    
-
    
-
    
153
  
Cash and equivalents of continuing operations at June 30
$
15,850
  
$
11,099
  
$
2,093
  
$
1,766
  
$
14,066
  
$
9,484
  

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


(6)

Summary of Operating Segments
General Electric Company and consolidated affiliates
 
 
Three months ended
June 30 (Unaudited)
  
Six months ended
June 30 (Unaudited)
  
(In millions)
2007
  
2006
  
2007
  
2006
  
                         
Revenues
                        
Infrastructure
$
13,913
  
$
11,332
  
$
25,896
  
$
21,484
  
Commercial Finance
  
6,383
    
5,527
    
12,666
    
11,011
  
GE Money
  
6,145
    
5,268
    
11,952
    
10,358
  
Healthcare
  
4,127
    
4,156
    
7,768
    
7,815
  
NBC Universal
  
3,625
    
3,858
    
7,109
    
8,340
  
Industrial
  
6,220
    
6,473
    
12,048
    
12,384
  
Total segment revenues
  
40,413
    
36,614
    
77,439
    
71,392
  
Corporate items and eliminations
  
1,903
    
1,131
    
3,507
    
2,161
  
Consolidated revenues
$
42,316
  
$
37,745
  
$
80,946
  
$
73,553
  
                         
Segment profit (a)
                        
Infrastructure
$
2,589
  
$
2,107
  
$
4,772
  
$
3,810
  
Commercial Finance
  
1,250
    
1,057
    
2,671
    
2,231
  
GE Money
  
952
    
880
    
1,803
    
1,716
  
Healthcare
  
731
    
795
    
1,251
    
1,291
  
NBC Universal
  
904
    
882
    
1,595
    
1,536
  
Industrial
  
482
    
478
    
841
    
813
  
Total segment profit
  
6,908
    
6,199
    
12,933
    
11,397
  
Corporate items and eliminations
  
(333
)
  
(273
)
  
(748
)
  
(609
)
GE interest and other financial charges
  
(422
)
  
(439
)
  
(955
)
  
(788
)
GE provision for income taxes
  
(754
)
  
(686
)
  
(1,364
)
  
(1,186
)
Earnings from continuing operations
  
5,399
    
4,801
    
9,866
    
8,814
  
Earnings from discontinued operations,
                        
net of taxes
  
21
    
145
    
62
    
572
  
Consolidated net earnings
$
5,420
  
$
4,946
  
$
9,928
  
$
9,386
  
                         

(a)
 
Segment profit always excludes the effects of principal pension plans, results reported as discontinued operations and accounting changes, and may exclude matters such as charges for restructuring; rationalization and other similar expenses; in-process research and development and certain other acquisition-related charges and balances; technology and product development costs; certain gains and losses from dispositions; and litigation settlements or other charges, responsibility for which preceded the current management team. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured - excluded in determining segment profit, which we also 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 also 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).
 

 

(7)

Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
1. The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company and all companies that we directly or indirectly control, either through majority ownership or otherwise. See note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2006. 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 have 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. In May 2007, we signed a definitive agreement to sell our Plastics business to Saudi Basic Industries Corporation. We presently expect this transaction to close in the third quarter of 2007, subject to customary closing conditions, including receipt of regulatory approvals. In the second quarter 2007, we reported results of operations, financial position and cash flows of both our Plastics business and the related Advanced Materials business, which we sold in the fourth quarter 2006, as discontinued operations for all periods presented. Both businesses were previously reported in the Industrial segment.
 
In 2006, we substantially completed our planned exit of our insurance businesses through 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) and the sale of GE Life, our U.K.-based life insurance operation, to Swiss Reinsurance Company (Swiss Re). Also during 2006, we completed the sale of our remaining 18% investment in Genworth Financial, Inc. (Genworth), our formerly wholly-owned subsidiary that conducted most of our consumer insurance business, including life and mortgage insurance operations, through a secondary public offering. Results of these businesses are reported as discontinued operations for all periods presented.
 

(8)

Revenues from discontinued insurance operations for the second quarter and first six months of 2006 were $1,337 million and $3,682 million, respectively. Earnings from such discontinued operations for the second quarter and first six months of 2006 were $162 million ($203 million pre tax) and $300 million ($382 million pre tax), respectively. Loss on disposal for the second quarter and first six months of 2006 was $164 million ($295 million pre tax) and $39 million ($11 million pre-tax gain), respectively. Revenues and earnings from discontinued insurance operations for the second quarter and first six months of 2007 were insignificant. Accrued liabilities associated with discontinued insurance operations, primarily tax related, amounted to $392 million as of June 30, 2007.
 
Financial information for discontinued Plastics and Advanced Materials operations is shown below.
 
 
Three months ended
June 30
  
Six months ended
June 30
  
(In millions)
2007
  
2006
  
2007
  
2006
  
                         
Operations
                        
Total revenues
$
1,683
  
$
2,303
  
$
3,272
  
$
4,524
  
                         
Earnings from discontinued operations before
                        
income taxes
  
149
    
184
    
206
    
393
  
Income tax benefit (expense)
  
(4
)
  
(37
)
  
9
    
(82
)
Earnings from discontinued operations before
                        
disposal, net of taxes
$
145
  
$
147
  
$
215
  
$
311
  
                         
Disposal
                        
Loss on disposal before income taxes(a)
$
(156
)
$
-
  
$
(191
)
$
-
  
Income tax benefit
  
33
    
-
    
41
    
-
  
Loss on disposal, net of taxes
$
(123
)
$
-
  
$
(150
)
$
-
  
                         
Earnings from discontinued operations,
                        
net of taxes
$
22
  
$
147
  
$
65
  
$
311
  
                         

(a)
Principally postretirement benefit plan curtailments.

 

(9)


 
At
  
(In millions)
6/30/07
  
12/31/06
  
             
Assets
            
Inventories
$
1,709
  
$
1,447
  
Property, plant and equipment (including equipment leased to others) - net
  
4,143
    
4,063
  
Intangible assets - net
  
2,080
    
2,081
  
Other
  
1,117
    
1,087
  
Assets of discontinued operations
$
9,049
  
$
8,678
  

 
 
At
  
(In millions)
6/30/07
  
12/31/06
  
             
Liabilities
            
Accounts payable, principally trade accounts
$
851
  
$
944
  
Other GE current liabilities
  
497
    
594
  
Other
  
279
    
597
  
Liabilities of discontinued operations
$
1,627
  
$
2,135
  

 
4. GECS revenues from services are summarized in the following table.
 
 
Three months ended
June 30
  
Six months ended
June 30
  
(In millions)
2007
  
2006
  
2007
  
2006
  
                         
Interest on loans
$
6,176
  
$
5,627
  
$
12,222
  
$
10,969
  
Equipment leased to others
  
3,690
    
3,152
    
7,453
    
6,067
  
Financing leases
  
1,215
    
1,025
    
2,353
    
2,027
  
Fees
  
1,317
    
1,009
    
2,510
    
2,016
  
Real estate investments
  
967
    
674
    
2,056
    
1,342
  
Investment income(a)
  
683
    
566
    
2,124
    
1,226
  
Premiums earned by insurance activities
  
519
    
485
    
1,070
    
976
  
Associated companies
  
590
    
484
    
1,015
    
929
  
Gross securitization gains
  
547
    
266
    
1,118
    
534
  
Other items
  
1,372
    
1,455
    
2,457
    
2,991
  
Total
$
17,076
  
$
14,743
  
$
34,378
  
$
29,077
  
                         

(a)
Included gain on sale of common stock in Swiss Re of $558 million during first quarter of 2007.

 

(10)

5. We sponsor a number of pension and retiree health and life insurance benefit plans. Principal pension plans include the GE Pension Plan and the GE Supplementary Pension Plan. Principal retiree benefit plans generally provide health and life insurance benefits to employees who retire under the GE Pension Plan with 10 or more years of service. Other pension plans include U.S. and non-U.S. pension plans with pension assets or obligations greater than $50 million. Smaller pension plans and other retiree benefit plans are not material individually or in the aggregate. The effect on operations of the pension plans follows.
 
 
Principal Pension Plans
  
 
Three months ended
June 30
  
Six months ended
June 30
  
(In millions)
  
2007
    
2006
    
2007
    
2006
  
                         
Expected return on plan assets
$
(987
)
$
(953
)
$
(1,973
)
$
(1,905
)
Service cost for benefits earned
  
306
    
323
    
620
    
689
  
Interest cost on benefit obligation
  
606
    
573
    
1,211
    
1,152
  
Prior service cost
  
72
    
57
    
119
    
115
  
Net actuarial loss recognized
  
175
    
181
    
351
    
369
  
Cost of principal pension plans
$
172
  
$
181
  
$
328
  
$
420
  

 
 
Other Pension Plans
  
 
Three months ended
June 30
  
Six months ended
June 30
  
(In millions)
  
2007
    
2006
    
2007
    
2006
  
                         
Expected return on plan assets
$
(122
)
$
(99
)
$
(242
)
$
(197
)
Service cost for benefits earned
  
86
    
83
    
172
    
166
  
Interest cost on benefit obligation
  
113
    
94
    
223
    
187
  
Prior service cost
  
2
    
1
    
3
    
2
  
Net actuarial loss recognized
  
42
    
39
    
83
    
78
  
Cost of other pension plans
$
121
  
$
118
  
$
239
  
$
236
  

 
The effect on operations of principal retiree health and life insurance plans follows.
 
 
Principal Retiree Health and
Life Insurance Plans
  
 
Three months ended
June 30
  
Six months ended
June 30
  
(In millions)
  
2007
    
2006
    
2007
    
2006
  
                         
Expected return on plan assets
$
(31
)
$
(32
)
$
(62
)
$
(64
)
Service cost for benefits earned
  
36
    
54
    
76
    
108
  
Interest cost on benefit obligation
  
112
    
114
    
225
    
228
  
Prior service cost
  
162
    
72
    
233
    
146
  
Net actuarial loss (gain) recognized
  
(17
)
  
18
    
(15
)
  
36
  
Cost of principal retiree benefit plans
$
262
  
$
226
  
$
457
  
$
454
  

 

(11)

6. On January 1, 2007, as disclosed in our March 31, 2007, Quarterly Report on Form 10-Q, we made required changes in certain aspects of our accounting for income taxes. The January 1, 2007, transition reduced our retained earnings by $126 million; of this total, $89 million was a decrease in goodwill and $77 million was a decrease in financing receivables − net, partially offset by a $40 million decrease in income tax liabilities.
 
The balance of “unrecognized tax benefits,” the amount of related interest and penalties we have provided and what we believe to be the range of reasonably possible changes in the next 12 months, were:
 
 
At
  
(In millions)
6/30/07
  
1/1/07
  
             
Unrecognized tax benefits
$
6,649
  
$
6,806
  
Portion that, if recognized, would reduce tax expense and effective tax rate(a)
  
4,359
    
4,302
  
Accrued interest on unrecognized tax benefits
  
1,061
    
1,281
  
Accrued penalties on unrecognized tax benefits
  
86
    
121
  
Reasonably possible reduction to the balance of unrecognized
            
tax benefits in succeeding 12 months
  
0-2,000
    
0-1,900
  
Portion that, if recognized, would reduce tax expense and effective tax rate(a)
  
0-1,300
    
0-900