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, 2008
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____ to ____
 
Commission file number 001-00035
 
GENERAL ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
 
There were 9,948,028,000 shares of common stock with a par value of $0.06 per share outstanding at June 27, 2008.
 

 
(1)
 
 

General Electric Company
 
   
Page
Part I - Financial Information
   
     
Item 1. Financial Statements
   
Condensed Statement of Earnings
   
 
3
 
4
 
5
 
6
 
7
 
8
 
28
 
42
     
Part II - Other Information
   
     
 
43
 
44
 
45
 
46
 
47
 
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(a)
 
Financial
Services (GECS)
 
(In millions; per-share amounts in dollars)
 
2008
   
2007
     
2008
   
2007
   
2008
   
2007
 
                                       
Sales of goods
$
17,387
 
$
14,761
   
$
16,956
 
$
14,832
 
$
528
 
$
28
 
Sales of services
 
10,712
   
9,288
     
10,890
   
9,437
   
   
 
Other income
 
574
   
1,424
     
667
   
1,512
   
   
 
GECS earnings from continuing operations
 
   
     
2,774
   
2,421
   
   
 
GECS revenues from services
 
18,218
   
16,911
     
   
   
18,555
   
17,207
 
Total revenues
 
46,891
   
42,384
     
31,287
   
28,202
   
19,083
   
17,235
 
                                       
Cost of goods sold
 
13,885
   
11,905
     
13,522
   
11,980
   
461
   
23
 
Cost of services sold
 
6,844
   
5,603
     
7,022
   
5,752
   
   
 
Interest and other financial charges
 
6,626
   
5,645
     
554
   
422
   
6,348
   
5,467
 
Investment contracts, insurance losses and
                                     
insurance annuity benefits
 
821
   
892
     
   
   
870
   
925
 
Provision for losses on financing receivables
 
1,490
   
1,057
     
   
   
1,490
   
1,057
 
Other costs and expenses
 
10,604
   
9,995
     
3,687
   
3,525
   
7,021
   
6,578
 
Minority interest in net earnings of
                                     
consolidated affiliates
 
184
   
221
     
127
   
179
   
57
   
42
 
Total costs and expenses
 
40,454
   
35,318
     
24,912
   
21,858
   
16,247
   
14,092
 
                                       
Earnings from continuing operations
                                     
before income taxes
 
6,437
   
7,066
     
6,375
   
6,344
   
2,836
   
3,143
 
Provision for income taxes
 
(1,043
)
 
(1,453
)
   
(981
)
 
(731
)
 
(62
)
 
(722
)
Earnings from continuing operations
 
5,394
   
5,613
     
5,394
   
5,613
   
2,774
   
2,421
 
Loss from discontinued operations,
                                     
net of taxes
 
(322
)
 
(231
)
   
(322
)
 
(231
)
 
(337
)
 
(255
)
Net earnings
$
5,072
 
$
5,382
   
$
5,072
 
$
5,382
 
$
2,437
 
$
2,166
 
                                       
Per-share amounts
                                     
Per-share amounts – earnings from
                                     
continuing operations
                                     
Diluted earnings per share
$
0.54
 
$
0.54
                           
Basic earnings per share
$
0.54
 
$
0.55
                           
                                       
Per-share amounts – net earnings
                                     
Diluted earnings per share
$
0.51
 
$
0.52
                           
Basic earnings per share
$
0.51
 
$
0.52
                           
                                       
Dividends declared per share
$
0.31
 
$
0.28
                           

(a)
Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services) which is presented on a one-line basis.
See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 
(3)
 
 

Condensed Statement of Earnings
General Electric Company and consolidated affiliates
 
 
Six months ended June 30 (Unaudited)
 
 
Consolidated
   
GE(a)
 
Financial
Services (GECS)
 
(In millions; per-share amounts in dollars)
 
2008
   
2007
     
2008
   
2007
   
2008
   
2007
 
                                       
Sales of goods
$
32,168
 
$
27,998
   
$
31,403
 
$
28,102
 
$
895
 
$
60
 
Sales of services
 
20,253
   
17,566
     
20,629
   
17,855
   
   
 
Other income
 
1,149
   
1,935
     
1,325
   
2,086
   
   
 
GECS earnings from continuing operations
 
   
     
5,240
   
5,845
   
   
 
GECS revenues from services
 
35,594
   
34,085
     
   
   
36,271
   
34,660
 
Total revenues
 
89,164
   
81,584
     
58,597
   
53,888
   
37,166
   
34,720
 
                                       
Cost of goods sold
 
25,793
   
22,494
     
25,145
   
22,610
   
778
   
48
 
Cost of services sold
 
12,929
   
10,860
     
13,305
   
11,150
   
   
 
Interest and other financial charges
 
13,156
   
11,223
     
1,156
   
955
   
12,527
   
10,712
 
Investment contracts, insurance losses and
                                     
insurance annuity benefits
 
1,625
   
1,752
     
   
   
1,718
   
1,855
 
Provision for losses on financing receivables
 
2,849
   
1,993
     
   
   
2,849
   
1,993
 
Other costs and expenses
 
20,839
   
19,592
     
7,239
   
6,952
   
13,833
   
12,818
 
Minority interest in net earnings of
                                     
consolidated affiliates
 
346
   
444
     
258
   
309
   
88
   
135
 
Total costs and expenses
 
77,537
   
68,358
     
47,103
   
41,976
   
31,793
   
27,561
 
                                       
Earnings from continuing operations
                                     
before income taxes
 
11,627
   
13,226
     
11,494
   
11,912
   
5,373
   
7,159
 
Provision for income taxes
 
(1,872
)
 
(2,685
)
   
(1,739
)
 
(1,371
)
 
(133
)
 
(1,314
)
Earnings from continuing operations
 
9,755
   
10,541
     
9,755
   
10,541
   
5,240
   
5,845
 
Loss from discontinued operations,
                                     
net of taxes
 
(379
)
 
(588
)
   
(379
)
 
(588
)
 
(408
)
 
(656
)
Net earnings
$
9,376
 
$
9,953
   
$
9,376
 
$
9,953
 
$
4,832
 
$
5,189
 
                                       
Per-share amounts
                                     
Per-share amounts – earnings from
                                     
continuing operations
                                     
Diluted earnings per share
$
0.98
 
$
1.02
                           
Basic earnings per share
$
0.98
 
$
1.03
                           
                                       
Per-share amounts – net earnings
                                     
Diluted earnings per share
$
0.94
 
$
0.97
                           
Basic earnings per share
$
0.94
 
$
0.97
                           
                                       
Dividends declared per share
$
0.62
 
$
0.56
                           

(a)
Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services) which is presented on a one-line basis.
See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 
(4)
 
 

Condensed Statement of Financial Position
General Electric Company and consolidated affiliates
 
 
Consolidated
   
GE(a)
 
Financial
Services (GECS)
 
(In millions; except share amounts)
June 30,
2008
 
December 31,
2007
   
June 30,
2008
 
December 31,
2007
 
June 30,
2008
 
December 31,
2007
 
 
(Unaudited)
   
     
(Unaudited)
   
 
   
(Unaudited)
   
   
                                       
Cash and equivalents
$
18,989
 
$
15,731
   
$
3,041
 
$
6,702
 
$
16,476
 
$
9,439
 
Investment securities
 
45,861
   
45,276
     
326
   
343
   
45,541
   
44,941
 
Current receivables
 
22,330
   
22,259
     
14,803
   
15,093
   
   
 
Inventories
 
15,012
   
12,897
     
14,930
   
12,834
   
82
   
63
 
Financing receivables – net
 
415,302
   
376,123
     
   
   
423,845
   
384,067
 
Other GECS receivables
 
16,205
   
16,514
     
   
   
21,789
   
22,078
 
Property, plant and equipment (including
                                     
equipment leased to others) – net
 
79,925
   
77,888
     
14,527
   
14,142
   
65,398
   
63,746
 
Investment in GECS
 
   
     
60,114
   
57,676
   
   
 
Goodwill
 
84,439
   
81,116
     
57,081
   
55,689
   
27,358
   
25,427
 
Other intangible assets – net
 
15,932
   
16,142
     
11,671
   
11,633
   
4,261
   
4,509
 
All other assets
 
124,417
   
122,844
     
43,470
   
40,608
   
82,511
   
83,388
 
Assets of discontinued operations
 
8,576
   
8,547
     
65
   
66
   
8,511
   
8,481
 
Total assets
$
846,988
 
$
795,337
   
$
220,028
 
$
214,786
 
$
695,772
 
$
646,139
 
                                       
Short-term borrowings
$
204,837
 
$
195,100
   
$
3,625
 
$
4,106
 
$
202,359
 
$
192,420
 
Accounts payable, principally trade accounts
 
22,278
   
21,338
     
11,391
   
11,120
   
15,946
   
14,714
 
Progress collections and price adjustments accrued
 
12,461
   
9,885
     
13,044
   
10,374
   
   
 
Other GE current liabilities
 
19,991
   
18,916
     
20,133
   
18,916
   
   
 
Long-term borrowings
 
351,264
   
319,013
     
10,059
   
11,656
   
342,488
   
308,502
 
Investment contracts, insurance liabilities
                                     
and insurance annuity benefits
 
34,298
   
34,068
     
   
   
34,685
   
34,359
 
All other liabilities
 
59,642
   
59,316
     
32,990
   
32,859
   
26,749
   
26,522
 
Deferred income taxes
 
12,708
   
12,490
     
3,545
   
3,391
   
9,163
   
9,099
 
Liabilities of discontinued operations
 
2,329
   
1,648
     
233
   
302
   
2,096
   
1,346
 
Total liabilities
 
719,808
   
671,774
     
95,020
   
92,724
   
633,486
   
586,962
 
                                       
Minority interest in equity of consolidated affiliates
 
8,794
   
8,004
     
6,622
   
6,503
   
2,172
   
1,501
 
Common stock (9,948,028,000 and 9,987,599,000
                                     
shares outstanding at June 30, 2008 and
                                     
December 31, 2007, respectively)
 
669
   
669
     
669
   
669
   
1
   
1
 
Accumulated gains (losses) – net
                                     
Investment securities
 
(1,204
)
 
124
     
(1,204
)
 
124
   
(1,204
)
 
110
 
Currency translation adjustments
 
12,112
   
10,708
     
12,112
   
10,708
   
8,268
   
7,472
 
Cash flow hedges
 
(546
)
 
(668
)
   
(546
)
 
(668
)
 
(608
)
 
(727
)
Benefit plans
 
(1,126
)
 
(1,840
)
   
(1,126
)
 
(1,840
)
 
(87
)
 
(105
)
Other capital
 
26,160
   
26,100
     
26,160
   
26,100
   
12,580
   
12,574
 
Retained earnings
 
120,537
   
117,362
     
120,537
   
117,362
   
41,164
   
38,351
 
Less common stock held in treasury
 
(38,216
)
 
(36,896
)
   
(38,216
)
 
(36,896
)
 
   
 
                                       
Total shareowners’ equity
 
118,386
   
115,559
     
118,386
   
115,559
   
60,114
   
57,676
 
                                       
Total liabilities and equity
$
846,988
 
$
795,337
   
$
220,028
 
$
214,786
 
$
695,772
 
$
646,139
 

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 $9,236 million and $8,324 million at June 30, 2008, and December 31, 2007, respectively.
(a)
Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services) which is presented on a one-line basis.
See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns.

 

 
(5)
 
 

Condensed Statement of Cash Flows
General Electric Company and consolidated affiliates
 
 
Six months ended June 30 (Unaudited)
 
 
Consolidated
   
GE(a)
 
Financial
Services (GECS)
 
(In millions)
 
2008
   
2007
  
  
 
2008
   
2007
   
2008
   
2007
 
                                       
Cash flows – operating activities
                                     
Net earnings
$
9,376
 
$
9,953
   
$
9,376
 
$
9,953
 
$
4,832
 
$
5,189
 
Loss from discontinued operations
 
379
   
588
     
379
   
588
   
408
   
656
 
Adjustments to reconcile net earnings to cash
                                     
provided from operating activities
                                     
Depreciation and amortization of property,
                                     
plant and equipment
 
5,356
   
4,851
     
1,089
   
994
   
4,267
   
3,857
 
Net earnings from continuing operations retained by GECS
 
   
     
(3,221
)
 
(1,213
)
 
   
 
Deferred income taxes
 
(326
)
 
697
     
(534
)
 
94
   
208
   
603
 
Decrease (increase) in GE current receivables
 
(842
)
 
736
     
110
   
1,599
   
   
 
Decrease (increase) in inventories
 
(1,949
)
 
(1,408
)
   
(1,930
)
 
(1,379
)
 
(19
)
 
10
 
Increase (decrease) in accounts payable
 
1,003
   
(485
)
   
477
   
(573
)
 
1,089
   
278
 
Increase in GE progress collections
 
2,776
   
1,758
     
2,866
   
1,601
   
   
 
Provision for losses on GECS financing receivables
 
2,849
   
1,993
     
   
   
2,849
   
1,993
 
All other operating activities
 
(1,020
)
 
(3,728
)
   
680
   
(105
)
 
(1,868
)
 
(3,482
)
Cash from operating activities – continuing operations
 
17,602
   
14,955
     
9,292
   
11,559
   
11,766
   
9,104
 
Cash from (used for) operating activities – discontinued operations
 
488
   
3,405
     
(9
)
 
(54
)
 
497
   
3,739
 
Cash from operating activities
 
18,090
   
18,360
     
9,283
   
11,505
   
12,263
   
12,843
 
                                       
Cash flows – investing activities
                                     
Additions to property, plant and equipment
 
(8,064
)
 
(8,935
)
   
(1,640
)
 
(1,569
)
 
(6,599
)
 
(7,496
)
Dispositions of property, plant and equipment
 
5,325
   
4,795
     
   
   
5,325
   
4,795
 
Net increase in GECS financing receivables
 
(23,770
)
 
(10,969
)
   
   
   
(24,781
)
 
(11,673
)
Proceeds from sale of discontinued operations
 
203
   
     
203
   
   
   
 
Proceeds from principal business dispositions
 
4,346
   
2,114
     
(76
)
 
1,012
   
4,422
   
1,102
 
Payments for principal businesses purchased
 
(14,678
)
 
(13,185
)
   
(1,916
)
 
(7,356
)
 
(12,762
)
 
(5,829
)
All other investing activities
 
(3,366
)
 
(285
)
   
212
   
(622
)
 
(3,571
)
 
65
 
Cash used for investing activities – continuing operations
 
(40,004
)
 
(26,465
)
   
(3,217
)
 
(8,535
)
 
(37,966
)
 
(19,036
)
Cash from (used for) investing activities – discontinued operations
 
(453
)
 
(3,291
)
   
   
178
   
(453
)
 
(3,749
)
Cash used for investing activities
 
(40,457
)
 
(29,756
)
   
(3,217
)
 
(8,357
)
 
(38,419
)
 
(22,785
)
                                       
Cash flows – financing activities
                                     
Net increase (decrease) in borrowings (maturities of
                                     
90 days or less)
 
7,001
   
(6,883
)
   
(2,015
)
 
(2,805
)
 
8,737
   
(6,622
)
Newly issued debt (maturities longer than 90 days)
 
61,355
   
52,369
     
98
   
4,679
   
61,396
   
47,739
 
Repayments and other reductions (maturities longer
                                     
than 90 days)
 
(34,766
)
 
(24,648
)
   
(52
)
 
(125
)
 
(34,714
)
 
(24,523
)
Net purchases of GE shares for treasury
 
(1,543
)
 
(1,392
)
   
(1,543
)
 
(1,392
)
 
   
 
Dividends paid to shareowners
 
(6,215
)
 
(5,768
)
   
(6,215
)
 
(5,768
)
 
(2,019
)
 
(4,632
)
All other financing activities
 
(163
)
 
(579
)
   
   
   
(163
)
 
(579
)
Cash from (used for) financing activities – continuing operations
 
25,669
   
13,099
     
(9,727
)
 
(5,411
)
 
33,237
   
11,383
 
Cash used for financing activities – discontinued operations
 
(5
)
 
(128
)
   
   
(124
)
 
(5
)
 
(4
)
Cash from (used for) financing activities
 
25,664
   
12,971
     
(9,727
)
 
(5,535
)
 
33,232
   
11,379
 
Increase (decrease) in cash and equivalents
 
3,297
   
1,575
     
(3,661
)
 
(2,387
)
 
7,076
   
1,437
 
Cash and equivalents at beginning of year
 
16,031
   
14,275
     
6,702
   
4,480
   
9,739
   
12,629
 
Cash and equivalents at June 30
 
19,328
   
15,850
     
3,041
   
2,093
   
16,815
   
14,066
 
Less cash and equivalents of discontinued operations at June 30
 
339
   
176
     
   
   
339
   
176
 
Cash and equivalents of continuing operations at June 30
$
18,989
 
$
15,674
   
$
3,041
 
$
2,093
 
$
16,476
 
$
13,890
 

(a)
Represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services) which is presented on a one-line basis.
See accompanying notes. Separate information is shown for “GE” and “Financial Services (GECS).” Transactions between GE and GECS have been eliminated from the “Consolidated” columns and are discussed in Note 16.

 
(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)
2008
 
2007
 
2008
 
2007
 
                         
Revenues
                       
Infrastructure
$
17,552
 
$
13,934
 
$
32,512
 
$
26,136
 
Commercial Finance
 
9,259
   
8,138
   
17,825
   
16,169
 
GE Money
 
6,629
   
6,276
   
13,037
   
12,234
 
Healthcare
 
4,491
   
4,045
   
8,378
   
7,940
 
NBC Universal
 
3,882
   
3,625
   
7,466
   
7,109
 
Industrial Products(a)
 
4,542
   
4,467
   
8,652
   
8,556
 
Total segment revenues
 
46,355
   
40,485
   
87,870
   
78,144
 
Corporate items and eliminations
 
536
   
1,899
   
1,294
   
3,440
 
Consolidated revenues
$
46,891
 
$
42,384
 
$
89,164
 
$
81,584
 
                         
Segment profit(b)
                       
Infrastructure
$
3,174
 
$
2,563
 
$
5,762
 
$
4,771
 
Commercial Finance
 
1,390
   
1,304
   
2,548
   
2,744
 
GE Money
 
1,056
   
1,158
   
2,051
   
2,381
 
Healthcare
 
747
   
692
   
1,275
   
1,329
 
NBC Universal
 
909
   
904
   
1,621
   
1,595
 
Industrial Products(a)
 
300
   
444
   
600
   
802
 
Total segment profit
 
7,576
   
7,065
   
13,857
   
13,622
 
Corporate items and eliminations
 
(647
)
 
(299
)
 
(1,207
)
 
(755
)
GE interest and other financial charges
 
(554
)
 
(422
)
 
(1,156
)
 
(955
)
GE provision for income taxes
 
(981
)
 
(731
)
 
(1,739
)
 
(1,371
)
Earnings from continuing operations
 
5,394
   
5,613
   
9,755
   
10,541
 
Loss from discontinued operations,
                       
net of taxes
 
(322
)
 
(231
)
 
(379
)
 
(588
)
Consolidated net earnings
$
5,072
 
$
5,382
 
$
9,376
 
$
9,953
 
                         

(a)
Formerly known as Industrial.
(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 sometimes refer to as “operating profit,” for Healthcare, NBC Universal, Industrial Products and the industrial businesses of the Infrastructure segment; included in determining segment profit, which we sometimes 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).
See accompanying notes to condensed, consolidated financial statements.

 

 
(7)
 
 

Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
1. Summary of Significant Accounting Policies
 
The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company and all companies that we directly or indirectly control, either through majority ownership or otherwise. See Note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2007, which discusses our 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. GE includes Healthcare, NBC Universal, Industrial Products and the industrial businesses of Infrastructure. GECS includes Commercial Finance, GE Money, and the financial services businesses of Infrastructure (Aviation Financial Services, Energy Financial Services and Transportation Finance). 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.
 
Our accounting policy for sales of goods and services is included below. See Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2007 for a summary of the remainder of our significant accounting policies.
 
Sales of goods and services
 
We record all sales of goods and services only when a firm sales agreement is in place, delivery has occurred or services have been rendered and collectibility of the fixed or determinable sales price is reasonably assured. In addition, if a sales agreement includes customer acceptance provisions, we recognize revenues as follows:
 
·  
In arrangements where we provide equipment and software for trial and evaluation purposes, we only recognize revenue after the customer accepts the product as set forth in the contract. In rare instances, we offer acceptance provisions that lapse over time. In these instances, we only recognize revenue upon the earlier of customer acceptance or after the specified time elapses.
 
·  
If a sales agreement includes general return rights, revenue is deferred until the return rights lapse unless future returns can be reasonably estimated, in which case revenue is recognized and an allowance is recorded for the returns.
 
·  
In situations where acceptance provisions are based on seller-specified objective criteria, we recognize revenue only after we have demonstrated that the delivered product meets those specifications.
 
·  
If a sales agreement includes customer-specified objective criteria, we recognize revenue when formal acceptance occurs or we have reliably demonstrated that all specified customer acceptance criteria have been met.
 

 
(8)
 
 

Sales of goods in the Industrial Products segment typically do not include multiple product and/or service elements. In contrast, sales of goods in the Infrastructure and Healthcare segments sometimes include multiple components. Our arrangements with multiple components usually involve future service deliverables such as installation, training or the future delivery of ancillary equipment. In such agreements, the amount assigned to each component is based on the total price and the undelivered component’s objectively determined fair value, determined from sources such as the separate selling price for that or a similar component or from competitor prices for similar components. If fair value of an undelivered component cannot be satisfactorily determined, we defer revenue until all multiple components are delivered.
 
Certain of our sales of products and services involve inconsequential or perfunctory performance obligations. These obligations can include non-essential installation or training, non-essential third party supplied items related to sales of healthcare devices, commissioning services related to the sales of locomotives, and provision of product manuals and limited technical product support. We consider these obligations to be inconsequential and perfunctory as their fair value is relatively insignificant relative to the related revenue; we have a demonstrated history of completing the remaining tasks in a timely manner; the work can be performed by customers or other contractors; and in the event that we were to fail to complete the remaining obligations under the sales contract, we do not have a refund obligation. When the only remaining undelivered performance obligation under an arrangement is inconsequential or perfunctory, we recognize revenue on the total contract and provide for the cost of the unperformed obligation.
 
Except for goods sold under long-term agreements, we recognize sales of goods under the provisions of U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition. Among other things, we recognize such sales when we have no risk of transit damage, a policy that in certain cases requires us to delay recognition of otherwise qualified sales until the goods have been physically delivered. We often sell consumer products, home videos and computer hardware and software products with a right of return. We use our accumulated experience to estimate and provide for such returns when we record the sale. Unless otherwise noted, we do not provide for anticipated losses before we record sales.
 
We account for revenue recognition on agreements for sales of goods and services under power generation unit and uprate contracts; nuclear fuel assemblies; larger oil drilling equipment projects; turbo-machinery unit contracts; military development contracts; and long-term construction projects, including construction of information technology systems in our Healthcare segment, under AICPA Statement of Position (SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. Under SOP 81-1, we estimate total contract revenue net of price concessions as well as total contract costs. For goods sold under power generation unit and uprate contracts, nuclear fuel assemblies, turbo-machinery unit contracts and military development contracts, we recognize sales as we complete major contract-specified deliverables, most often when customers receive title to the goods or accept the services as performed. For larger oil drilling equipment projects and long-term construction projects, we recognize sales based on our progress towards contract completion measured by actual costs incurred in relation to our estimate of total expected costs. We measure SOP 81-1 revenues by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. We provide for any loss that we expect to incur on these agreements when that loss is probable.
 

 
(9)
 
 

We recognize revenue upon delivery for sales of aircraft engines, military propulsion equipment and related spare parts not sold under long-term product services agreements. Delivery of large and small commercial engines, non-U.S. military equipment and all related spare parts occurs on shipment; delivery of military propulsion equipment sold to the U.S. Government or agencies thereof occurs upon receipt of a Material Inspection and Receiving Report, DD Form 250 or Memorandum of Shipment. Large commercial engines (CF6, CFM56, GE90, GEnx and GP7000) are complex aerospace equipment manufactured to customer order under a variety of sometimes-complex, long-term agreements. We measure sales of large commercial engines by applying our contract-specific estimated margin rates to incurred costs. We routinely update our estimates of future costs for large commercial engine agreements in process and report any cumulative effects of such adjustments in current operations. We measure revenue for small aircraft engines, military propulsion equipment and spare parts not subject to long-term product services agreements based on the specific contract on a specifically-measured output basis. We provide for any loss that we expect to incur on these agreements when that loss is probable; consistent with industry practice, for commercial engines, we make such provision only if such losses are not recoverable from future highly probable sales of spare parts for those engines.
 
We sell product services under long-term agreements in our Infrastructure segment, principally Aviation, Energy and Transportation, where costs of performing services are incurred on other than a straight-line basis. We also sell product services in Healthcare, where such costs are expected to be on a straight-line basis. All of these agreements are accounted for under Financial Accounting Standards Board (FASB) Technical Bulletin (FTB) 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts. For the Infrastructure FTB 90-1 agreements, we recognize related sales based on the extent of our progress towards completion measured by actual costs incurred in relation to total expected costs. We routinely update our estimates of future costs for agreements in process and report any cumulative effects of such adjustments in current operations. For the Healthcare FTB 90-1 agreements, we recognize revenues on a straight-line basis and expense related costs as incurred. We provide for any loss that we expect to incur on any of these agreements when that loss is probable.
 
NBC Universal records broadcast and cable television and Internet advertising sales when advertisements are aired, net of provision for any viewer shortfalls (make goods). We record sales from theatrical distribution of films as the films are exhibited; sales of home videos, net of a return provision, when the videos are delivered to and available for sale by retailers; fees from cable/satellite operators when services are provided; and licensing of film and television programming when we make the material available for airing.
 
Accounting changes
 
On January 1, 2008, we adopted FASB Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements, and SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which are more fully discussed in Note 13 to the condensed, consolidated financial statements.
 

 
(10)
 
 

2. Interim Period Presentation
 
The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these condensed, consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our latest shareowners’ Annual Report on Form 10-K. 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. Discontinued Operations
 
Discontinued operations is comprised of our Japanese personal loan business (Lake) and our Japanese mortgage and card businesses, excluding our minority ownership in GE Nissen Credit Co., Ltd. (GE Money Japan), our U.S. mortgage business (WMC), Plastics, Advanced Materials, GE Life, Genworth Financial, Inc. (Genworth) and most of GE Insurance Solutions Corporation (GE Insurance Solutions). Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.
 
GE Money Japan
 
In September 2007, we committed to a plan to sell Lake upon determining that, despite restructuring, Japanese regulatory limits for interest charges on unsecured personal loans did not permit us to earn an acceptable return. During the second quarter of 2008, we committed to sell GE Money Japan, resulting in the addition of our Japanese mortgage and card businesses to discontinued operations. Subsequent to the end of the second quarter, we reached an agreement to sell these businesses and expect to complete the sale by the end of the third quarter of 2008, subject to regulatory approval and closing conditions. In connection with this agreement, and primarily related to our Japanese mortgage and card businesses, we recorded an incremental $233 million impairment loss in the second quarter of 2008. GE Money Japan revenues from discontinued operations were $209 million and $276 million in the second quarters of 2008 and 2007, respectively, and $454 million and $578 million in the first six months of 2008 and 2007, respectively. In total, GE Money Japan losses from discontinued operations, net of taxes, were $311 million and $50 million in the second quarters of 2008 and 2007, respectively, and $358 million and $69 million in the first six months of 2008 and 2007, respectively.
 

 
(11)
 
 

WMC
 
In December 2007, we completed the sale of our U.S. mortgage business. In connection with the transaction, WMC retained certain obligations related to loans sold prior to the disposal of the business, including WMC’s contractual obligations to repurchase previously sold loans as to which there was an early payment default or with respect to which certain contractual representations and warranties were not met. Reserves related to these obligations were $280 million and $232 million at June 30, 2008 and March 31, 2008, respectively. WMC revenues from discontinued operations were $(62) million and $(407) million in the second quarters of 2008 and 2007, respectively, and $(57) million and $(860) million in the first six months of 2008 and 2007, respectively. In total, WMC’s losses from discontinued operations, net of taxes, were $20 million and $204 million in the second quarters of 2008 and 2007, respectively, and $27 million and $584 million in the first six months of 2008 and 2007, respectively.
 
Plastics and Advanced Materials
 
In August 2007, we completed the sale of our Plastics business to Saudi Basic Industries Corporation. Also, during the fourth quarter of 2006, we sold our Advanced Materials business. Plastics revenues from discontinued operations were $1,691 million in the second quarter of 2007 and $3,285 million in the first six months of 2007. In total, Plastics and Advanced Materials earnings from discontinued operations, net of taxes, were $15 million and $24 million in the second quarters of 2008 and 2007, respectively, and $29 million and $68 million in the first six months of 2008 and 2007, respectively.
 
Insurance
 
In total, losses from insurance-related discontinued operations, net of taxes, were $6 million and $1 million in the second quarters of 2008 and 2007, respectively, and $23 million and $3 million in the first six months of 2008 and 2007, respectively.
 

 
(12)
 
 

Summarized financial information for discontinued GE industrial operations is shown below.
 
 
Three months ended
June 30
 
Six months ended
June 30
 
(In millions)
2008
 
2007
 
2008
 
2007
 
                         
Operations
                       
Total revenues
$
 
$
1,691
 
$
 
$
3,285
 
                         
Earnings (loss) from discontinued operations
                       
before income taxes
$
(10
)
$
152
 
$
(10
)
$
210
 
Income tax benefit (expense)
 
20
   
(5
)
 
20
   
8
 
Earnings from discontinued operations before
                       
disposal, net of taxes
$
10
 
$
147
 
$
10
 
$
218
 
                         
Disposal
                       
Gain (loss) on disposal before income taxes
$
5
 
$
(156
)
$
19
 
$
(191
)
Income tax benefit
 
   
33
   
   
41
 
Gain (loss) on disposal, net of taxes
$
5
 
$
(123
)
$
19
 
$
(150
)
                         
Earnings from discontinued operations, net of taxes(a)
$
15
 
$
24
 
$
29
 
$
68
 
                         

(a)
The sum of GE industrial earnings from discontinued operations, net of taxes, and GECS loss from discontinued operations, net of taxes, below are reported as GE industrial loss from discontinued operations, net of taxes, on the Condensed Statement of Earnings.

 
Assets of GE industrial discontinued operations were $65 million at June 30, 2008, and $66 million at December 31, 2007. Liabilities of GE industrial discontinued operations were $233 million and $302 million at June 30, 2008, and December 31, 2007, respectively, and primarily represent taxes payable and pension liabilities related to the sale of our Plastics business.
 
Summarized financial information for discontinued GECS operations is shown below.
 
 
Three months ended
June 30
 
Six months ended
June 30
 
(In millions)
2008
 
2007
 
2008
 
2007
 
                         
Operations
                       
Total revenues
$
147
 
$
(131
)
$
397
 
$
(282
)
                         
Loss from discontinued operations before
                       
income taxes
$
(196
)
$
(651
)
$
(296
)
$
(1,327
)
Income tax benefit
 
91
   
395
   
120
   
670
 
Loss from discontinued operations, net of taxes
$
(105
)
$
(256
)
$
(176
)
$
(657
)
                         
Disposal
                       
Loss on disposal before income taxes
$
(222
)
$
(11
)
$
(222
)
$
(11
)
Income tax benefit (expense)
 
(10
)
 
12
   
(10
)
 
12
 
Gain (loss) on disposal, net of taxes
$
(232
)
$
1
 
$
(232
)
$
1
 
                         
Loss from discontinued operations, net of taxes
$
(337
)
$
(255
)
$
(408
)
$
(656
)

 

 
(13)
 
 

During the second quarter of 2008, we increased our assets of discontinued operations at June 30, 2008, and December 31, 2007 by $2,172 million and $1,778 million, respectively. These increases related to the inclusion of our Japanese mortgage and card businesses in discontinued operations.
 
 
At
 (In millions)
June 30,
2008
 
December 31,
2007
             
Assets
           
Cash and equivalents
$
339
 
$
300
 
Financing receivables – net
 
6,875
   
6,675
 
Other
 
1,297
   
1,506
 
Assets of discontinued operations
$
8,511
 
$
8,481
 

 
 
At
 (In millions)
June 30,
2008
 
December 31,
2007
             
Liabilities
           
Liabilities of discontinued operations
$
2,096
 
$
1,346
 

 
Assets and liabilities at June 30, 2008, and December 31, 2007, primarily comprised our GE Money Japan business.
 
4. GECS Revenues from Services
 
GECS revenues from services are summarized in the following table.
 
 
Three months ended
June 30
 
Six months ended
June 30
 
(In millions)
2008
 
2007
 
2008
 
2007
 
                         
Interest on loans
$
6,777
 
$
5,826
 
$
13,319
 
$
11,472
 
Equipment leased to others
 
3,909
   
3,690
   
7,719
   
7,453
 
Fees
 
1,448
   
1,709
   
2,814
   
3,218
 
Investment income(a)
 
1,061
   
903
   
1,959
   
2,613
 
Financing leases
 
1,186
   
1,215
   
2,349
   
2,353
 
Real estate investments
 
1,138