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 (Restated)			2005 (Restated)			2006 (Restated)			2005 (Restated)			2006 (Restated)			2005 (Restated)
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		-			-			2,607			2,773			-			-
GECS revenues from services		15,496			14,002			-			-			15,756			14,323
GECS commercial paper interest rate swap adjustment		(163	)		271			-			-			(163	)		271
Total revenues		40,693			36,639			27,698			24,707			16,112			15,137
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		5,139			3,702			507			339			4,798			3,495
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		34,842			30,651			22,122			19,274			13,230			11,809
Earnings from continuing operations
before income taxes		5,851			5,988			5,576			5,433			2,882			3,328
Provision for income taxes		(889	)		(1,223	)		(614	)		(668	)		(275	)		(555	)
Earnings from continuing operations		4,962			4,765			4,962			4,765			2,607			2,773
Earnings (loss) from discontinued operations,
net of taxes		(95	)		85			(95	)		85			(95	)		85
Net earnings	$	4,867		$	4,850		$	4,867		$	4,850		$	2,512		$	2,858
Per-share amounts
Per-share amounts - earnings from
continuing operations
Diluted earnings per share	$	0.48		$	0.45
Basic earnings per share	$	0.48		$	0.45
Per-share amounts - net earnings
Diluted earnings per share	$	0.47		$	0.46
Basic earnings per share	$	0.47		$	0.46
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.

 

(7)

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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 (Restated)			2005 (Restated)			2006 (Restated)			2005 (Restated)			2006 (Restated)			2005 (Restated)
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		-			-			7,606			6,750			-			-
GECS revenues from services		43,728			39,584			-			-			44,477			40,551
GECS commercial paper interest rate swap adjustment		193			390			-			-			193			390
Total revenues		118,770			107,647			81,405			72,879			46,456			42,822
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		14,014			11,136			1,377			1,056			13,088			10,489
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		101,697			91,804			65,436			58,062			37,746			35,046
Earnings from continuing operations
before income taxes		17,073			15,843			15,969			14,817			8,710			7,776
Provision for income taxes		(2,986	)		(3,056	)		(1,882	)		(2,030	)		(1,104	)		(1,026	)
Earnings from continuing operations		14,087			12,787			14,087			12,787			7,606			6,750
Earnings from discontinued operations, net of taxes		166			761			166			761			166			761
Net earnings	$	14,253		$	13,548		$	14,253		$	13,548		$	7,772		$	7,511
Per-share amounts
Per-share amounts - earnings from
continuing operations
Diluted earnings per share	$	1.35		$	1.20
Basic earnings per share	$	1.36		$	1.21
Per-share amounts - net earnings
Diluted earnings per share	$	1.37		$	1.27
Basic earnings per share	$	1.37		$	1.28
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.

(8)

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General Electric Company and consolidated affiliates

 

	Consolidated						GE						Financial Services (GECS)
(In millions; except share amounts)	9/30/06 (Restated)			12/31/05 (Restated)			9/30/06 (Restated)			12/31/05 (Restated)			9/30/06 (Restated)			12/31/05 (Restated)
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		-			-			51,035			50,812			-			-
Intangible assets - net		85,468			81,630			60,129			57,839			25,339			23,791
All other assets		98,423			84,828			39,232			36,752			60,391			49,440
Assets of discontinued operations		15,540			61,066			-			-			15,540			61,066
Total assets	$	682,065		$	673,321		$	192,846		$	189,756		$	546,207		$	540,584
Short-term borrowings	$	167,206		$	158,156		$	2,679		$	1,127		$	165,073		$	157,672
Accounts payable, principally trade accounts		18,864			21,183			10,500			11,870			12,145			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		41,863			39,966			23,803			23,273			18,156			16,787
Deferred income taxes		16,374			16,208			4,183			3,733			12,191			12,475
Liabilities of discontinued operations		15,289			49,527			-			-			15,289			49,763
Total liabilities		562,472			555,916			75,554			74,599			492,871			487,524
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		(172	)		(352	)		(172	)		(352	)		(139	)		(343	)
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		104,111			97,644			104,111			97,644			33,866			34,906
Less common stock held in treasury		(23,676	)		(17,326	)		(23,676	)		(17,326	)		-			-
Total shareowners’ equity		111,382			109,351			111,382			109,351			51,035			50,812
Total liabilities and equity	$	682,065		$	673,321		$	192,846		$	189,756		$	546,207		$	540,584

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 $4,934 million and $3,137 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.

(9)

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General Electric Company and consolidated affiliates

 

	Nine months ended September 30 (Unaudited)
	Consolidated						GE						Financial Services (GECS)
(In millions)	2006 (Restated)		(a)	2005 (Restated)		(a)	2006 (Restated)		(a)	2005 (Restated)		(a)	2006 (Restated)		(a)	2005 (Restated)		(a)
Cash flows - operating activities
Net earnings	$	14,253		$	13,548		$	14,253		$	13,548		$	7,772		$	7,511
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		-			-			899			(1,999	)		-			-
Deferred income taxes		1,505			(642	)		754			(146	)		751			(496	)
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		(1,432	)		(1,096	)		(435	)		(1,198	)		(946	)		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		(2,654	)		3,645			196			1,307			297			2,692
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.

(a)	Certain individual line item within cash from operating activities have been restated.

(10)

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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		939			1,311			3,080			2,637
Consolidated revenues	$	40,693		$	36,639		$	118,770		$	107,647
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		(393	)		49			(1,043	)		(504	)
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		4,962			4,765			14,087			12,787
Earnings (loss) from discontinued operations,
net of taxes		(95	)		85			166			761
Consolidated net earnings	$	4,867		$	4,850		$	14,253		$	13,548

(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).

 

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1. 2007 Restatement

 

General Electric Company (GE) is filing this amendment to its Quarterly Report on Form 10-Q for the period ended September 30, 2006, to amend and restate financial statements and other financial information for the three and nine months ended September 30, 2006 and 2005. The restatement adjusts our accounting for interest rate swap transactions related to a portion of the commercial paper issued by General Electric Capital Corporation (GECC) and General Electric Capital Services, Inc. (GECS), each wholly-owned subsidiaries, from January 1, 2001, the date we adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The restatement has not effect on our cash flows or liquidity, and its effects on our financial position at the ends of the respective periods are immaterial.

 

Background

 

As previously disclosed, the Boston Office of the U.S. Securities and Exchange Commission (SEC) is conducting a formal investigation of our application of SFAS No. 133. In the course of that investigation, the SEC Enforcement staff raised certain concerns about our accounting for the use of interest rate swaps to fix certain otherwise variable interest costs in a portion of our commercial paper program at GECC and GECS. The SEC Enforcement staff referred such concerns to the Office of Chief Accountant. We and our auditors determined that our accounting for the commercial paper hedging program satisfied the requirements of SFAS 133 and conveyed our views to the staff of the Office of Chief Accountant. Following our discussions, however, the Office of Chief Accountant communicated its view to us that our commercial paper hedging program as structured did not meet the SFAS 133 specificity requirement

 

After considering the staff’s view, management recommended to the Audit Committee of our Board of Directors that previously reported financial results be restated to eliminate hedge accounting for the interest rate swaps entered into as part of our commercial paper hedging program from January 1, 2001. The Audit Committee discussed and agreed with this recommendation. At a meeting on January 18, 2007, the Board of Directors adopted the recommendation of the Audit Committee and determined that previously reported results for GE should be restated and, therefore, that the previously filed financial statements and other financial information referred to above should not be relied upon. The restatement resulted from a material weakness in internal control over financial reporting, namely, that we did not have adequately designed procedures to designate, with the specificity required under SFAS 133, each hedged commercial paper transaction.

 

The SEC investigation into our application of SFAS 133 and hedge accounting is continuing. We continue to cooperate fully.

 

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Effects of the restatement by line item follow:

 

		Three months ended September 30												Nine months ended September 30
		2006						2005						2006						2005
(In millions; per share amounts in dollars) (unaudited)		As previously reported			As restated			As previously reported			As restated			As previously reported			As restated			As previously reported			As restated
Statement of Earnings
Consolidated
GECS commercial paper interest rate
swap adjustment (a)		$	-		$	(163	)	$	-		$	271		$	-		$	193		$	-		$	390
Interest and other financial charges			5,143			5,139			3,715			3,702			14,037			14,014			11,172			11,136
Earnings from continuing operations
before income taxes			6,010			5,851			5,704			5,988			16,857			17,073			15,417			15,843
Provision for income taxes			(951	)		(889	)		(1,112	)		(1,223	)		(2,902	)		(2,986	)		(2,889	)		(3,056	)
Earnings from continuing operations			5,059			4,962			4,592			4,765			13,955			14,087			12,528			12,787
Net earnings			4,964			4,867			4,677			4,850			14,121			14,253			13,289			13,548
(a)	Included in total revenues.
Per share amounts
Earnings from continuing
operations
Diluted earnings per share		$	0.49		$	0.48		$	0.43		$	0.45		$	1.34		$	1.35		$	1.18		$	1.20
Basic earnings per share			0.49			0.48			0.43			0.45			1.34			1.36			1.18			1.21
Net earnings
Diluted earnings per share		$	0.48		$	0.47		$	0.44		$	0.46		$	1.36		$	1.37		$	1.25		$	1.27
Basic earnings per share			0.48			0.47			0.44			0.46			1.36			1.37			1.25			1.28
GECS
GECS commercial paper interest rate
swap adjustment (a)		$	-		$	(163	)	$	-		$	271		$	-		$	193		$	-		$	390
Interest and other financial charges			4,802			4,798			3,508			3,495			13,111			13,088			10,525			10,489
Earnings from continuing operations
before income taxes			3,041			2,882			3,044			3,328			8,494			8,710			7,350			7,776
Provision for income taxes			(337	)		(275	)		(444	)		(555	)		(1,020	)		(1,104	)		(859	)		(1,026	)
Earnings from continuing operations			2,704			2,607			2,600			2,773			7,474			7,606			6,491			6,750
Net earnings			2,609			2,512			2,685			2,858			7,640			7,772			7,252			7,511
(a)	Included in total revenues.

 

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	9/30/06						12/31/05
(In millions) (unaudited)	As previously reported			As restated			As previously reported			As restated
Statement of Financial Position
Consolidated
All other assets	$	98,458		$	98,423		$	84,849		$	84,828
Total assets		682,100			682,065			673,342			673,321
Accounts payable		18,788			18,864			21,183			21,183
All other liabilities		41,849			41,863			39,966			39,966
Deferred income taxes		16,484			16,374			16,226			16,208
Total liabilities		562,492			562,472			555,934			555,916
Cash flow hedges		(498	)		(172	)		(822	)		(352	)
Retained earnings		104,452			104,111			98,117			97,644
Total shareowners’ equity		111,397			111,382			109,354			109,351
Total liabilities and equity		682,100			682,065			673,342			673,321
GECS
All other assets	$	60,426		$	60,391		$	49,461		$	49,440
Total assets		546,242			546,207			540,605			540,584
Accounts payable		12,069			12,145			13,043			13,043
All other liabilities		18,142			18,156			16,787			16,787
Deferred income taxes		12,301			12,191			12,493			12,475
Total liabilities		492,891			492,871			487,542			487,524
Cash flow hedges		(465	)		(139	)		(813	)		(343	)
Retained earnings		34,207			33,866			35,379			34,906
Total shareowner’s equity		51,050			51,035			50,815			50,812
Total liabilities and equity		546,242			546,207			540,605			540,584

 

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.

 

(14)

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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.

 

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	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

 

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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

 

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	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)	$	4,962		$	4,962		$	4,765		$	4,765
Earnings (loss) from discontinued operations
for per-share calculation(b)		(95	)		(95	)		82			85
Net earnings available for per-share calculation	$	4,867		$	4,867		$	4,847		$	4,850
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	$	0.48		$	0.48		$	0.45		$	0.45
Earnings (loss) from discontinued operations	$	(0.01	)	$	(0.01	)	$	0.01		$	0.01
Net earnings	$	0.47		$	0.47		$	0.46		$	0.46

(18)

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	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)	$	14,088		$	14,087		$	12,788		$	12,787
Earnings from discontinued operations
for per-share calculation(b)		166			166			753			761
Net earnings available for per-share calculation	$	14,254		$	14,253		$	13,541		$	13,548
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	$	1.35		$	1.36		$	1.20		$	1.21
Earnings from discontinued operations	$	0.02		$	0.02		$	0.07		$	0.07
Net earnings	$	1.37		$	1.37		$	1.27		$	1.28

(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

 

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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.

 

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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.

 

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11. GECS borrowings are summarized in the following table.

 

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

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

 

12. A summary of increases (decreases) in shareowners’ equity, net of income taxes, that did not result directly from transactions with shareowners follows.

 

	Three months ended September 30						Nine months ended September 30
(In millions)	2006 (Restated)			2005 (Restated)			2006 (Restated)			2005 (Restated)
Net earnings	$	4,867		$	4,850		$	14,253		$	13,548
Investment securities - net		800			(1,078	)		(578	)		(402	)
Currency translation adjustments - net		481			473			2,216			(3,200	)
Cash flow hedges - net		(199	)		12			180			1
Minimum pension liabilities - net		22			3			(21	)		27
Total	$	5,971		$	4,260		$	16,050		$	9,974

 

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13. We adopted the 2004 revision to Statement of Financial Accounting Standards 123, Share-Based Payment (SFAS 123R), on January 1, 2006, using the modified prospective method. Among other things, SFAS 123R requires expensing the fair value of stock options, a previously optional accounting method that we adopted voluntarily in 2002. The transitional effects of this provision of SFAS 123R consisted of reductions in net earnings of $3 million and $10 million for the three months and nine months ended September 30, 2006, respectively, to expense the unvested portion of options granted in 2001.

 

A comparison of reported net earnings for 2006 and 2005, and pro-forma net earnings for 2005, including effects of expensing stock options, follows.

 

	Three months ended September 30						Nine months ended September 30
(In millions; per-share amounts in dollars)	2006			2005			2006			2005
Net earnings, as reported	$	4,867		$	4,850		$	14,253		$	13,548
Earnings per share, as reported
Diluted		0.47			0.46			1.37			1.27
Basic		0.47			0.46			1.37			1.28
Stock option expense included in net earnings		27			26			77			84
Total stock option expense		27			41	(a)		77			141	(a)
Pro-forma effects
Net earnings, on pro-forma basis					4,835						13,491
Earnings per share, on pro-forma basis
Diluted					0.45						1.27
Basic					0.46						1.27

Other share-based compensation expense recognized in net earnings amounted to $34 million and $26 million for the three months ended September 30, 2006 and 2005, respectively. The total income tax benefit recognized in earnings for all share-based compensation arrangements amounted to $31 million and $28 million for the three months ended September 30, 2006 and 2005, respectively. Other share-based compensation expense recognized in net earnings amounted to $91 million and $77 million for the nine months ended September 30, 2006 and 2005, respectively. The total income tax benefit recognized in earnings for all share-based compensation arrangements amounted to $87 million for the nine months ended September 30, 2006, the same as in the 2005 time period.

(a)

As if we applied SFAS 123R to expense stock options in all periods. Included amounts we actually recognized in earnings.

 

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

 

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Other Stock-Related Information

 

We grant stock options, restricted stock units (RSUs) and performance share units (PSUs) to employees under the 1990 Long-Term Incentive Plan as described in our current Proxy Statement. In addition, we grant options and RSUs in limited circumstances to consultants, advisors and independent contractors (primarily non-employee talent at NBC Universal) under a plan approved by our Board of Directors in 1997 (the consultants’ plan). There are outstanding grants under two separate shareowner-approved option plans for non-employee directors. Share requirements for all plans may be met from either unissued or treasury shares. Stock options expire 10 years from the date they are granted and vest over service periods that range from one to five years. RSUs give recipients the right to receive shares of our stock upon the lapse of their related restrictions. Restrictions on RSUs lapse in various increments and at various dates, beginning after three years from date of grant through grantee retirement. Although the plan permits us to issue RSUs settleable in cash, we have only issued RSUs settleable in shares of our stock. PSUs give recipients the right to receive shares of our stock upon the achievement of certain performance targets.

 

All grants of GE options under all plans must be approved by the Management Development and Compensation Committee, which consists entirely of independent directors.

 

Stock Option Activity

 

	Shares (in thousands)				Weighted- Average Exercise Price					Weighted- Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2006		259,116				$	33.07
Granted		20,403					34.00
Exercised		(30,761	)				16.09
Forfeited		(3,514	)				32.36
Expired		(4,768	)				41.28
Outstanding at September 30, 2006		240,476				$	35.18				4.9				$	796
Exercisable at September 30, 2006		190,131				$	35.83				4.0				$	665
Options expected to vest		44,902				$	32.61				8.3				$	121

We measure the fair value of each stock option grant at the date of grant using a Black-Scholes option pricing model. The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2006 and 2005, amounted to $7.99 and $8.87, respectively. The following assumptions were used in arriving at the fair value of options granted during the nine months ended September 30, 2006 and 2005, respectively: risk-free interest rates of 4.8% and 4.1%; dividend yields of 2.9% and 2.6%; expected volatility factors of 24% and 28%; and expected lives of 6 years and 6 years. Risk free interest rates reflect the yield on zero-coupon U.S. Treasury securities. Expected dividend yields presume a set dividend rate. Expected volatilities are based on implied volatilities from traded options and historical volatility of our stock. The expected option lives are based on our historical experience of employee exercise behavior.

The total intrinsic value of options exercised during the nine months ended September 30, 2006 and 2005, amounted to $725 million and $696 million, respectively. As of September 30, 2006, there was $227 million of total unrecognized compensation cost related to nonvested options. That cost is expected to be recognized over a weighted average period of 4 years and 1 month.

 

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RSU activity

 

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

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

 

PSU activity

 

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

 

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14. The following table represents assets in securitization entities, both consolidated and off-balance sheet.

 

	At
(In millions)	9/30/06			12/31/05
Receivables secured by:
Equipment	$	9,640		$	12,949
Commercial real estate		11,467			13,010
Residential real estate		7,726			8,882
Other assets		14,758			12,869
Credit card receivables		12,853			10,039
Trade receivables, principally GE		3,647			3,960
Total securitized assets	$	60,091		$	61,709

 

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

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

 

Assets in consolidated, liquidating securitization entities are shown in the following captions in the Condensed Statement of Financial Position.

 

	At
(In millions)	9/30/06			12/31/05
Financing receivables - net (note 8)	$	12,628		$	16,615
All other assets		1,028			1,289
Total	$	13,656		$	17,904

 

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15. As part of our continuing review of our derivatives and hedging activities, we made immaterial adjustments in the third quarter of 2006 for certain prior-period activities. The largest such adjustment related to termination of hedge accounting for commercial paper swaps associated with the 2004 disposal of Genworth. This correction comprised a reduction of $79 million, net of tax, in our gain on the Genworth disposition and an adjustment of $45 million, net of tax, for the subsequent net increase in value of the stand-alone swaps.

 

 

2007 Restatement

 

As discussed in the explanatory note to this Form 10-Q/A and in note 1 to our financial statements, we are restating financial statements and other financial information for the three and nine months ended September 30, 2006 and 2005. The restate adjusts our accounting for interest rate swap transactions related to a portion of the commercial paper issued by General Electric Capital Corporation (GECC) and General Electric Capital Services, Inc. (GECS), each wholly-owned subsidiaries of GE from January 1, 2001, the date we adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The restatement has no effect on our cash flows or liquidity, and its effects on our financial position at the end of the respective restated periods are immaterial.

 

Interest rate swaps - agreements under which we pay a fixed rate of interest and receive a floating rate of interest on an agreed notional amount - are used in meeting our objective of managing interest rate risk related to our commercial paper program. Many of our financial assets - such as loans and leases - have long-term, fixed-rate yields, and funding them with proceeds of commercial paper would expose us to interest rate risk. Interest rate swaps are used to manage this risk. We use commercial paper in connection with interest rate swaps because that financing structure is highly effective at fixing interest rates, enabling us to match fixed rate assets with fixed rate funding (or “match funding”) provided by the hedged commercial paper. Consistent with our hedge documentation, we had measured and recognized hedge ineffectiveness each reporting period. We had never used the short-cut treatment provided for in FAS 133 for any of these hedges.

 

The following table sets forth the effects of the error in accounting for interest rate swaps related to our commercial paper hedging program, more fully described beginning on page 3, on our previously reported earnings for the three and nine months ended September 30, 2006 and 2005.

 

	Increase (decrease) in earnings from continuing operations
	Three months ended September 30						Nine months ended September 30
(In millions)	2006			2005			2006			2005
Total adjustment	$	(97	)	$	173		$	132		$	259
Previously reported earnings from continuing
operations	$	5,059		$	4,592		$	13,955		$	12,528
Percent variation from previously reported earnings
from continuing operations		(1.9	)%		3.8	%		0.9	%		2.1	%

 

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Changes to our previously reported earnings detailed above reflect the volatility resulting from recognizing changes in the fair value of our commercial paper interest rate swaps immediately in earnings, rather than recording them in earnings over the remaining term of the hedging relationship. Values of these swaps move directly with changes in interest rates: increases in interest rates produce positive earnings effects from fair value gains on the interest rate swaps, as the amount of cash we receive on the swaps’ variable cash flow stream increases versus its fixed payment stream; similarly, negative earnings effects result from fair value losses on the swaps associated with decreases in interest rates as the amount of cash received on the swaps’ variable cash flow stream decreases versus its fixed payment stream. As these swaps are used in match funding arrangements, which protect against the economic exposure to changes in interest rates, there are offsetting fair value changes associated with the related fixed rate assets. Because fair value changes related to fixed rate assets are not recognized in earnings under the current accounting model, the elimination of hedge accounting through correction of the error presents the current earnings effects of only one of two equal and offsetting components of the economic relationship.

 

A. Results of Operations

 

General Electric Company’s consolidated financial statements represent the combination of the industrial manufacturing and product services businesses of General Electric Company (GE) and the financial services businesses of General Electric Capital Services, Inc. (GECS or financial services).

 

In the accompanying analysis of financial information, we sometimes use information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the U.S. Securities and Exchange Commission (SEC) rules. For such measures, we have provided supplemental explanations and reconciliations in Exhibit 99 to this report on Form 10-Q.

 

Unless otherwise indicated, we refer to captions such as revenues and earnings from continuing operations simply as “revenues” and “earnings” throughout this Management’s Discussion and Analysis. Similarly, discussion of other matters in our consolidated financial statements relates to continuing operations unless otherwise indicated.

 

Overview

 

General Electric Company earnings increased 4% to $4.962 billion in the third quarter of 2006 compared with $4.765 billion in 2005. Earnings per share (EPS) were $0.48 in the third quarter of 2006, up 7% from last year’s $0.45. Four of our six segments contributed double-digit earnings growth for the quarter.

 

For the first nine months of 2006, earnings increased 10% to $14.087 billion compared with $12.787 billion in 2005. EPS were $1.35 in the first nine months of 2006, up 13% from last year’s $1.20.

 

Loss from discontinued operations was $0.1 billion in the third quarter of 2006 compared with earnings of $0.1 billion in 2005 and included the results of Genworth Financial, Inc. (Genworth), GE Life and most of GE Insurance Solutions Corporation (GE Insurance Solutions).

 

Earnings from discontinued operations were $0.2 billion for the first nine months of 2006 compared with $0.8 billion in 2005.

 

Net earnings of $4.867 billion in the third quarter of 2006 was relatively unchanged from $4.850 billion in 2005. EPS increased 2% from $0.46 in the third quarter of 2005 to $0.47 in 2006.

 

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For the first nine months of 2006, net earnings increased 5% to $14.253 billion compared with $13.548 billion in 2005, and EPS increased 8% to $1.37, compared with last year’s $1.27.

 

Revenues of $40.7 billion in the third quarter of 2006 were 11% higher reflecting strong organic revenue growth of 10%. A reconciliation between reported and organic revenues is shown in Exhibit 99. Industrial sales increased 13% to $24.5 billion, primarily reflecting organic growth. Sales of product services (including sales of spare parts and related services) increased 11% to $7.4 billion in the third quarter of 2006. Financial services revenues grew 6% to $16.1 billion, reflecting organic revenue growth and the effects of acquisitions.

 

Revenues for the first nine months of 2006 rose 10% to $118.8 billion, compared with $107.6 billion last year. Industrial sales of $72.0 billion were 11% higher than in 2005 reflecting strong organic growth, the effects of the first quarter 2006 Olympics broadcasts and acquisitions. Financial Services revenues for the first nine months of 2006 were $46.5 billion, a $3.6 billion, or 8%, increase over the first nine months of last year. Revenues increased as a result of acquisitions and organic revenue growth, partially offset by dispositions and the strengthening U.S. dollar.

 

Acquisitions contributed $0.9 billion and $1.1 billion to consolidated revenues in the third quarters of 2006 and 2005, respectively. Our consolidated net earnings included approximately $0.1 billion from acquired businesses in the third quarters of both 2006 and 2005. We integrate acquisitions as quickly as possible. Only revenues and earnings from the date we complete the acquisition through the end of the fourth following quarter are attributed to such businesses. Dispositions also affected our results through lower revenues of approximately $0.2 billion and $0.1 billion in the third quarters of 2006 and 2005, respectively, and higher earnings of approximately $0.1 billion in the third quarters of both 2006 and 2005.

 

Acquisitions contributed $2.6 billion and $8.6 billion to consolidated revenues in the first nine months of 2006 and 2005, respectively. Our consolidated net earnings in the first nine months of 2006 and 2005 included approximately $0.3 billion and $0.8 billion, respectively, from acquired businesses. Dispositions also affected our results through lower revenues of approximately $0.7 billion and $0.5 billion and increased earnings of approximately $0.2 billion and $0.3 billion in the first nine months of 2006 and 2005, respectively.

 

The most significant acquisitions affecting 2006 results were:

 

·	Infrastructure - Ionics, Inc. and ZENON Membrane Solutions

·	Industrial - Edwards System Technology and SBS Technology

·	Healthcare - IDX Systems Corporation

·	NBC Universal - controlling interest resulting in consolidation of MSNBC

·	Commercial Finance - Transportation Financial Services Group of CitiCapital, Antares Capital Corp. and the custom fleet business of National Australia Bank Ltd.

·	GE Money (formerly Consumer Finance) - joint ventures with Garanti Bank and Hyundai Card Company

 

In total, these acquisitions contributed $0.5 billion and $0.1 billion to third quarter 2006 revenues and earnings, respectively. Contributions to revenues and earnings for the first nine months of 2006 were $1.6 billion and $0.3 billion, respectively.

 

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Segment Operations

 

Operating segments comprise our six businesses focused on the broad markets they serve: Infrastructure, Industrial, Healthcare, NBC Universal, Commercial Finance and GE Money. For segment reporting purposes, certain GECS businesses are included in the industrial operating segments that actively manage such businesses and report their results for internal performance measurement purposes. These include Aviation Financial Services, Energy Financial Services and Transportation Finance reported in the Infrastructure segment, and Equipment Services reported in the Industrial segment.

 

Segment profit is determined based on internal performance measures used by the Chief Executive Officer to assess the performance of each business in a given period. In connection with that assessment, the Chief Executive Officer may exclude matters such as charges for restructuring; rationalization and other similar expenses; in-process research and development and certain other acquisition-related charges and balances; technology and product development costs; certain gains and losses from dispositions; and litigation settlements or other charges, responsibility for which preceded the current management team.

 

Segment profit always excludes the effects of principal pension plans, results reported as discontinued operations and accounting changes. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured - excluded in determining segment profit, which we refer to as “operating profit,” for Healthcare, NBC Universal and the industrial businesses of the Industrial and Infrastructure segments; included in determining segment profit, which we refer to as “net earnings,” for Commercial Finance, GE Money, and the financial services businesses of the Infrastructure segment (Aviation Financial Services, Energy Financial Services and Transportation Finance) and the Industrial segment (Equipment Services).

 

We have reclassified certain prior-period amounts to conform to the current period’s presentation. In addition to providing information on segments in their entirety, we have also provided supplemental information for certain businesses within the segments.

 

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Infrastructure

 

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

 

Infrastructure revenues increased 20%, or $2.0 billion, in the third quarter of 2006 reflecting higher volume ($1.7 billion), higher prices ($0.1 billion) and the effect of the weakening U.S. dollar ($0.1 billion) at the industrial businesses of the segment. Volume increased at Energy (primarily Wind equipment), Aviation (commercial, partially offset by military), Transportation (primarily locomotives and services) and Oil & Gas (new equipment and services). Higher prices were primarily at Energy, especially Wind equipment. The effect of the weakening U.S. dollar was primarily at Oil & Gas. Revenues also increased as a result of organic revenue growth at Energy Financial Services ($0.1 billion) and Aviation Financial Services ($0.1 billion). Intra-segment revenues, which increased $0.1 billion, were eliminated from total Infrastructure revenues.

 

Segment profit rose 24%, or $0.5 billion, in the third quarter as higher volume ($0.3 billion) and higher prices ($0.1 billion) more than offset lower productivity ($0.1 billion) and higher material and other costs ($0.1 billion) at the industrial businesses of the segment. Segment profit from the financial services businesses increased as a result of core growth at Aviation Financial Services ($0.1 billion), including growth in lower-taxed earnings from global operations that were more than offset by lower one-time benefits from our aircraft leasing reorganization, and Energy Financial Services ($0.1 billion).

 

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Infrastructure revenues rose 13% to $33.6 billion for the nine months ended September 30, 2006, as higher volume ($3.6 billion) and higher prices ($0.1 billion) were partially offset by the effects of the overall strengthening U.S. dollar over the nine months ($0.1 billion) at the industrial businesses of the segment. The increase in volume reflected increased sales of power generation equipment at Energy, commercial and military services and commercial engines at Aviation, equipment at Oil & Gas, and locomotives at Transportation. Revenues also increased as a result of organic revenue growth at Aviation Financial Services ($0.4 billion) and Energy Financial Services ($0.2 billion). Intra-segment revenues, which increased $0.5 billion, were eliminated from total Infrastructure revenues.

 

Segment profit for the nine months ended September 30, 2006, rose 15% to $6.1 billion, compared with $5.3 billion in 2005, as higher volume ($0.6 billion) and higher prices ($0.1 billion) were partially offset by higher material and other costs ($0.2 billion) at the industrial businesses of the segment. Volume increases were primarily at Energy and Aviation. Higher material and other costs were primarily at Aviation. Segment profit from the financial services businesses increased $0.3 billion primarily as a result of core growth at Aviation Financial Services ($0.2 billion), including growth in lower-taxed earnings from global operations that were more than offset by lower one-time benefits from our aircraft leasing reorganization.

 

Industrial

 

	Three months ended September 30						Nine months ended September 30
(In millions)	2006			2005			2006			2005
Revenues	$	8,526		$	8,257		$	25,454		$	24,178
Segment profit	$	692		$	629		$	2,021		$	1,790
Revenues
Consumer & Industrial	$	3,533		$	3,522		$	10,919		$	10,359
Equipment Services		1,848			1,709			5,279			4,935
Plastics		1,677			1,663			5,005			4,951
Segment profit
Consumer & Industrial	$	283		$	196		$	821		$	588
Equipment Services		91			66			167			112
Plastics		152			197			560			645

 

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

 

Segment profit rose 10%, or $0.1 billion, in the third quarter of 2006 as productivity ($0.4 billion), primarily at Consumer & Industrial and Plastics, was partially offset by higher material and other costs ($0.3 billion), primarily at Consumer & Industrial and Plastics, and lower prices ($0.1 billion), primarily at Plastics.

 

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Industrial revenues rose 5% for the nine months ended September 30, 2006 as higher volume ($1.2 billion) was partially offset by the effects of the strengthening U.S. dollar ($0.1 billion) and lower prices ($0.1 billion) at the industrial businesses in the segment. Volume increases were primarily at Consumer & Industrial and Plastics. Revenues also increased at Equipment Services as a result of organic revenue growth ($0.2 billion) and the consolidation of GE SeaCo ($0.2 billion).

 

Segment profit rose 13% for the nine months ended September 30, 2006, as productivity ($0.8 billion), primarily at Consumer & Industrial and Plastics, and higher volume ($0.1 billion) were partially offset by higher material and other costs ($0.6 billion), primarily at Consumer & Industrial and Plastics, and lower prices ($0.1 billion). Lower prices at Plastics were partially offset by higher prices at Consumer & Industrial. See Corporate items and eliminations for a discussion of items not allocated to this segment.

 

Healthcare revenues rose $0.3 billion, or 9%, in the third quarter of 2006 as higher volume ($0.4 billion) more than offset the effect of lower prices ($0.1 billion). The rise in volume related to increases in healthcare services, including the effects of the 2006 acquisition of IDX, and stronger equipment sales. Operating profit of $0.7 billion in the third quarter of 2006 was 19% higher than in 2005 as the effects of productivity ($0.2 billion) and higher volume ($0.1 billion) more than offset the effect of lower prices ($0.1 billion).

 

Healthcare revenues rose 10% to $11.7 billion in the first nine months of 2006 as higher volume ($1.4 billion) more than offset the effect of lower prices ($0.3 billion) and the effects of the strengthening U.S. dollar ($0.1 billion). The rise in volume related to increases in healthcare services, including the effects of the 2006 acquisition of IDX and stronger equipment sales. Operating profit of $2.0 billion in the first nine months of 2006 was 19% higher than in 2005 as productivity ($0.4 billion) and the effects of higher volume ($0.2 billion) more than offset the effects of lower prices ($0.3 billion) and higher material and other costs ($0.1 billion).

 

NBC Universal reported revenues of $3.6 billion in the third quarter of 2006, 20% higher than the third quarter of 2005, reflecting higher film revenues ($0.3 billion) and improvements in the cable business ($0.2 billion), including $0.1 billion from consolidating MSNBC. Segment profit declined 10%, or $0.1 billion, in the third quarter of 2006 as $0.1 billion lower earnings from network and station operations were only partially offset by higher earnings of the film and cable businesses.

 

NBC Universal reported revenues of $12.0 billion in the first nine months of 2006, a 14% increase from 2005, resulting primarily from absence of a prior-year counterpart to the 2006 Olympic Games broadcasts ($0.7 billion), improvements in the film business ($0.4 billion), improvements in the cable business ($0.4 billion) and the effects of exiting a film distribution agreement ($0.2 billion), partially offset by the effects of lower ratings on network and station ad sales ($0.3 billion). We also realized a $0.1 billion increase from the net effects of certain strategic actions, including 2006 gains from sale of four television stations and a favorable settlement compared with the gain on acquisition of preferred shares net of effects of an impairment in 2005. Segment profit declined 9%, or $0.2 billion, in the first nine months of 2006 as the effects of lower earnings from network and station operations ($0.3 billion), including the 2006 Olympics broadcasts ($0.1 billion), and lower earnings from the film business ($0.1 billion), including the $0.1 billion favorable effects of the film distribution exit, were partially offset by higher earnings from the cable business ($0.1 billion) and the net effects of the above-mentioned strategic actions ($0.1 billion). See Corporate items and eliminations for a discussion of items not allocated to this segment.

 

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Commercial Finance

 

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

 

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Commercial Finance revenues and net earnings increased 11% and 6%, respectively, in the third quarter of 2006. Revenues for 2006 included $0.2 billion from acquisitions. Revenues for the third quarter also increased as a result of organic revenue growth ($0.3 billion) and the effects of the weakening U.S. dollar ($0.1 billion). The increase in net earnings resulted primarily from core growth ($0.1 billion), including growth in lower-taxed earnings from global operations.

 

Commercial Finance revenues and net earnings increased 10% and 17%, respectively, in the first nine months of 2006. Revenues for the first nine months of 2006 and 2005 included $0.6 billion and $0.1 billion from acquisitions, respectively, and in 2006 were reduced by dispositions ($0.2 billion). Revenues for the first nine months also increased as a result of organic revenue growth ($1.5 billion), partially offset by the strengthening U.S. dollar ($0.1 billion). The increase in net earnings resulted primarily from core growth ($0.5 billion), including growth in lower-taxed earnings from global operations, and acquisitions ($0.1 billion).

 

GE Money

 

	Three months ended September 30						Nine months ended September 30
(In millions)	2006			2005			2006			2005
Revenues	$	5,590		$	4,913		$	15,948		$	14,530
Segment profit	$	916		$	810		$	2,632		$	2,280
	At
(In millions)	9/30/06			9/30/05			12/31/05
Total assets	$	175,649		$	153,315		$	158,829

 

GE Money revenues and net earnings increased 14% and 13%, respectively, in the third quarter of 2006. Revenues for 2006 included $0.2 billion from acquisitions. Revenues for the third quarter also increased as a result of organic revenue growth ($0.4 billion) and the effects of the weakening U.S. dollar ($0.1 billion). The $0.1 billion increase in net earnings resulted primarily from higher securitizations and acquisitions.

 

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

 

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

 

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Discontinued Insurance Operations

 

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

 

In October 2006, Swiss Reinsurance Company (Swiss Re) agreed to purchase GE Life, our U.K.-based life insurance operation, for approximately $0.9 billion. We have recorded a provision for our best estimate of loss on the sale of $0.3 billion before and after tax. We expect this transaction to close in the fourth quarter of 2006, subject to regulatory approvals and customary closing conditions.

 

In June 2006, we completed the sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions Corporation (GE Insurance Solutions) to Swiss Re for $9.3 billion, including the assumption of $1.7 billion of debt. We received $5.4 billion in cash and $2.2 billion of newly issued Swiss Re common stock, representing a 9% interest in Swiss Re, that we are not permitted to sell before June 4, 2007, under the agreement we have with Swiss Re.

 

In March 2006, we completed the sale of our remaining 18% investment in Genworth Financial, Inc. (Genworth) through a secondary public offering of 71 million shares of Class A Common Stock and direct sale to Genworth of 15 million shares of Genworth Class B Common Stock. As a result, we recognized a pre-tax gain of $0.5 billion ($0.3 billion after tax).

 

Discontinued operations comprise GE Life; the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions and most of its affiliates; and Genworth, our formerly wholly-owned subsidiary that conducted most of our consumer insurance business, including life and mortgage insurance operations. Results of these businesses are reported as discontinued operations for all periods presented.

 

Loss from discontinued operations, net of taxes, for the third quarter of 2006 was mostly the result of adjustments related to Genworth.

 

Earnings from discontinued operations, net of taxes, for the third quarter of 2005 reflected the gain related to Genworth’s secondary public offering ($0.3 billion) and our share of Genworth’s earnings from operations ($0.1 billion), partially offset by operations of GE Insurance Solutions ($0.2 billion).

 

Earnings from discontinued operations, net of taxes, for the first nine months of 2006 reflected earnings from GE Insurance Solutions through the date of disposal ($0.3 billion) and the gain on the sale of our remaining 18% investment in Genworth common stock ($0.2 billion), partially offset by a provision for estimated loss on the planned sale of GE Life ($0.3 billion) and the loss on disposal of GE Insurance Solutions ($0.1 billion).

 

Earnings from discontinued operations, net of taxes, for the first nine months of 2005 reflected our share of Genworth’s earnings from operations ($0.3 billion), the gain related to Genworth’s secondary public offering ($0.3 billion) and earnings from GE Insurance Solutions ($0.1 billion).

 

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Corporate items and eliminations expense for the third quarter of 2006 increased $0.4 billion, reflecting a lower GECS commercial paper interest rate swap adjustment in 2006 ($0.3 billion), the lack of a current-year counterpart to 2005 gains on sales of investment securities by continuing insurance operations ($0.1 billion) and higher costs of our principal pension plans ($0.1 billion).

 

Corporate items and eliminations expense for the nine months ended September 30, 2006, increased $0.5 billion, principally reflecting higher pension costs partially offset by a lower GECS commercial paper interest rate swap adjustment ($0.1 billion).

 

Certain amounts included in this caption are not allocated to GE operating segments because they are excluded from the measurement of their operating performance for internal purposes. In the third quarter of 2006, these included $0.2 billion for the gain on sale of GE Supply, partially offset by $0.1 billion for restructuring and other charges, at Industrial. For the nine months ended September 30, 2006, such amounts included $0.3 billion for gains on business dispositions (principally GE Supply), partially offset by $0.1 billion for restructuring and other charges, at Industrial; and $0.1 billion for technology and product development costs at NBC Universal.

 

B. Statement of Financial Position

 

Overview of Financial Position

 

Major changes in our financial position resulted from the following:

 

·	In October 2006, Swiss Re agreed to purchase GE Life, our U.K.-based life insurance operation. Since the first quarter of 2006, when we initiated our plan to sell GE Life, we have separately reported the assets and liabilities of GE Life as discontinued operations for all periods presented.

 

·	During the third quarter of 2006, we completed the sale of GE Supply. This transaction reduced total assets and total liabilities by $0.5 billion and $0.3 billion, respectively. We also reclassified our Advanced Materials business as an asset held for sale as of September 30, 2006.

 

·

During the second quarter of 2006, we completed the sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions to Swiss Re. This transaction reduced assets and liabilities of discontinued operations by $43.8 billion and $36.0 billion, respectively.

 

·	During the first quarter of 2006, we completed the sale of our remaining 18% investment in Genworth common stock. We have separately reported the assets and liabilities of Genworth as discontinued operations for all periods presented.

 

·

During the first nine months of 2006, we completed the acquisitions of IDX Systems Corporation at Healthcare; iVillage Inc. at NBC Universal; ZENON Membrane Solutions at Infrastructure; Arden Realty, Inc., the custom fleet business of National Australia Bank Ltd. and the senior housing portfolios of Formation Capital LLC at Commercial Finance; and the private-label credit card portfolio of Hudson’s Bay Co. at GE Money.

 

 

 

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·

The U.S. dollar was weaker at September 30, 2006, than it was at December 31, 2005, increasing the translated levels of our non-U.S. dollar assets and liabilities. However, on average, the U.S. dollar in the first nine months of 2006 has been stronger than during the comparable 2005 period, decreasing the translated levels of our non-U.S. dollar operations, as noted in the preceding Results of Operations section.

 

Consolidated assets were $682.1 billion at September 30, 2006, an increase of $8.8 billion from December 31, 2005. GE assets increased $3.1 billion, while financial services assets increased $5.6 billion.

 

GE assets were $192.9 billion at September 30, 2006, a $3.1 billion increase from December 31, 2005. The increase reflects a $2.3 billion increase in intangible assets, primarily related to the acquisitions of IDX Systems Corporation, ZENON Membrane Solutions and iVillage Inc., and a $1.4 billion increase in inventories, partially offset by a $2.3 billion decrease in current receivables and a $0.7 billion decrease in property, plant and equipment. In addition, all other assets increased $2.5 billion reflecting the reclassification of the Advanced Materials assets as held for sale.

 

Financial services assets were $546.2 billion at September 30, 2006. The $5.6 billion increase from December 31, 2005, was primarily attributable to increases in financing receivables of $22.6 billion, other assets of $11.0 billion, property, plant and equipment of $5.4 billion, cash and equivalents of $5.0 billion and investment securities of $3.5 billion. These increases were offset by decreases in assets of discontinued operations of $45.5 billion.

 

Consolidated liabilities of $562.5 billion at September 30, 2006, were $6.6 billion higher than the year-end 2005 balance. GE liabilities increased $1.0 billion, while financial services liabilities increased $5.3 billion.

 

GE liabilities were $75.6 billion at September 30, 2006. Through September 30, 2006, total borrowings increased $1.5 billion to $11.7 billion ($2.7 billion short term and $9.0 billion long term) and accounts payable decreased $1.4 billion to $10.5 billion compared with December 31, 2005. The ratio of borrowings to total capital invested for GE at the end of the third quarter was 9.1% compared with 8.1% at the end of last year and 8.5% at September 30, 2005.

 

Financial services liabilities increased $5.3 billion from year-end 2005 to $492.9 billion reflecting an increase in total borrowings of $38.1 billion, and investment contracts, insurance liabilities and insurance annuity benefits of $1.5 billion, partially offset by a decrease in liabilities of discontinued operations of $34.5 billion.

 

Consolidated cash and equivalents were $13.8 billion at September 30, 2006, an increase of $5.0 billion during the first nine months of 2006. Cash and equivalents amounted to $8.8 billion at September 30, 2005, a decrease of $3.3 billion from December 31, 2004. GE cash from operating activities (CFOA) is a useful measure of performance for our non-financial services businesses and totaled $18.5 billion in the first nine months of 2006 and $14.7 billion in the first nine months of 2005.

 

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With respect to GE CFOA, we believe that it is useful to supplement our GE Condensed Statement of Cash Flows and to examine in a broader context the business activities that provide and require cash.

 

	Nine months ended September 30
(In billions)	2006			2005
Operating cash collections	$	71.4		$	66.1
Operating cash payments		(61.6	)		(56.9	)
Cash dividends from GECS		8.7			5.5
GE cash from operating activities	$	18.5		$	14.7

 

The most significant source of cash in CFOA is customer-related activities, the largest of which is collecting cash following a product or services sale. GE operating cash collections increased by about $5.3 billion during the first nine months of 2006. These increases are consistent with the changes in comparable GE operating segment revenues. Analyses of operating segment revenues discussed in the preceding Segment Operations section is the best way of understanding their customer-related CFOA.

 

The most significant operating use of cash is to pay our suppliers, employees, tax authorities and others for the wide range of material and services necessary in a diversified global organization. GE operating cash payments increased in the first nine months of 2006 by about $4.7 billion, comparable to the increases in GE total costs and expenses.

 

Dividends from GECS represented distribution of a portion of GECS retained earnings, including proceeds from certain business sales, and are distinct from cash from continuing operating activities within the financial services businesses, which decreased in the first nine months of 2006 by $1.9 billion to $15.1 billion. The amount we show in CFOA is the total dividend, including the normal dividend as well as any special dividends from excess capital, primarily resulting from GECS business sales. Special dividends of $5.7 billion were paid by GECS to GE in the first nine months of 2006; $2.6 billion of special dividends were paid by GECS during the first nine months of 2005.

 

Based on past performance and current expectations, in combination with the financial flexibility that comes with a strong balance sheet and the highest credit ratings, we believe that we are in a sound position to grow dividends, continue to execute on our announced $25 billion share repurchase program and continue making selective investments for long-term growth.

 

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C. Financial Services Portfolio Quality

 

Investment securities comprise mainly available-for-sale investment-grade debt securities supporting obligations to annuitants and policyholders. We regularly review investment securities for impairment based on criteria that include the extent to which cost exceeds market value, the duration of that market decline, our intent and ability to hold to recovery and the financial health and specific prospects for the issuer. Of available-for-sale securities with unrealized losses at September 30, 2006, an immaterial amount was at risk of being charged to earnings in the next 12 months. Impairment losses for the first nine months of both 2006 and 2005 totaled $0.1 billion. We do not believe that any of the 2006 impairment losses indicate likely future impairments in the remaining portfolio.

 

Financing receivables is our largest category of assets and represents one of our primary sources of revenues. The portfolio of financing receivables, before allowance for losses, amounted to $314.8 billion at September 30, 2006, and $292.2 billion at December 31, 2005. The related allowance for losses amounted to $4.5 billion at September 30, 2006, and $4.6 billion at December 31, 2005, representing our best estimate of probable losses inherent in the portfolio. A discussion of the quality of certain elements of the financing receivables portfolio follows. For purposes of that discussion, “delinquent” receivables are those that are 30 days or more past due; and “nonearning” receivables are those that are 90 days or more past due (or for which collection has otherwise become doubtful).

 

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

 

Delinquency rates on managed Commercial Finance equipment loans and leases and managed GE Money financing receivables follow.

 

	Delinquency rates at
	9/30/06		(a)	12/31/05			9/30/05
Commercial Finance	1.33	%		1.31	%		1.24	%
GE Money	5.14			5.08			5.23

(a)	Subject to update.

 

Delinquency rates at Commercial Finance increased slightly from December 31, 2005, and September 30, 2005, to September 30, 2006, reflecting continued stable portfolio quality.

 

Delinquency rates at GE Money increased from December 31, 2005, to September 30, 2006, associated with the effects of the weakening U.S. dollar. The decrease from September 30, 2005, to September 30, 2006, resulted from growth in our unsecured financing businesses, which tend to experience relatively lower delinquencies than the rest of our portfolio, partially offset by the effects of the weakening U.S. dollar.

 

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D. Debt Instruments

 

During the first nine months of 2006, GECS and GECS affiliates issued $57 billion of senior, unsecured long-term debt and $2 billion of subordinated, unsecured long-term debt. This debt was both fixed and floating rate and was issued to institutional and retail investors in the U.S. and 17 other global markets. Maturities for these issuances ranged from one to sixty years. We used the proceeds for repayment of maturing long-term debt, and to fund acquisitions and organic growth. We anticipate that we will issue between $20 billion and $25 billion of additional long-term debt during the remainder of 2006, mostly to repay maturing long-term debt. The ultimate amount we issue will depend on our needs and on the markets.

 

E. Other Information

 

New Accounting Standards

 

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

 

In November 2005, the FASB added a project to its agenda to reconsider all accounting and disclosure requirements of its existing standards on pensions and other postretirement benefits. The initial objective of that project was to require annual measurement and recognition of an asset or liability reflecting the funded status of defined benefit postretirement plans, with current year changes in that funded status recognized through all other comprehensive income. No aspect of measuring net earnings was addressed or modified under this objective. In September 2006, FASB issued Statement of Financial Accounting Standards (SFAS) 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, which will be effective for us beginning December 31, 2006. Based on the December 31, 2005, funded status of our plans, we estimate that the effect of SFAS 158 at that time would have been to decrease total assets and shareowners’ equity about $8.5 billion. The actual effects will depend on the funded status of our plans at December 31, 2006, which will depend on several factors, principally 2006 returns on plan assets and December 31, 2006, discount rates.

 

 

In connection with the restatement discussed above in the explanatory note to this Form 10-Q/A and in note 1 to our financial statements, under the direction of our Chief Executive Officer and Chief Financial Officer, we reevaluated our disclosure controls and procedures. We identified a material weakness in our internal control over financial reporting with respect to accounting for hedge transactions, namely, that we did not have adequately designed procedures to designate, with the specificity required under SFAS 133, each hedged commercial paper transaction. Solely as a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of September 30, 2006.

 

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As of January 1, 2007, we modified our commercial paper hedging program and adopted documentation for interest rate swaps that we believe complies with the requirements of SFAS 133 and remediated the related internal control weakness. In connection with this amended Form 10-Q, under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated our disclosure controls and procedures as currently in effect, including the remedial actions discussed above, and we have concluded that, as of this date, our disclosure controls and procedures are effective.

 

As previously reported, there was no change in our internal control over financial reporting during the quarter ended September 30, 2006, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Part II. Other Information

 

 

In August, 2006 the New Jersey Department of Environmental Protection (DEP) issued an Administrative Order seeking a penalty of $142,000 for violations of the Clean Air Act at General Electric Capital Corporation’s Linden, New Jersey facility. The DEP has alleged that emissions from the facility exceed thresholds established in the site’s permit. General Electric Capital Corporation has requested a hearing to contest the fine.

 

 

 

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

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

 

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

 

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

 

 

		General Electric Company   (Registrant)
January 19, 2007		/s/ Philip D. Ameen
Date		Philip D. Ameen Vice President and Comptroller Duly Authorized Officer and Principal Accounting Officer