10-Q 1 frm10q.htm FORM 10-Q frm10q.htm

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

FORM 10-Q

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

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

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

(1)


General Electric Company
 
   
Page
Part I - Financial Information
   
     
Item 1. Financial Statements
   
Condensed Statement of Earnings
   
 
3
 
4
 
5
 
6
 
7
 
8
 
18
 
30
     
Part II - Other Information
   
     
 
30
 
33
 
33
 
35
 
36
 
Forward-Looking Statements
 
This document contains “forward-looking statements”- that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could adversely or positively affect our future results include: the behavior of financial markets, including fluctuations in interest and exchange rates and commodity and equity prices; the commercial and consumer credit environment; the impact of regulation and regulatory, investigative and legal actions; strategic actions, including acquisitions and dispositions; future integration of acquired businesses; future financial performance of major industries which we serve, including, without limitation, the air and rail transportation, energy generation, media, real estate and healthcare industries; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.
 

(2)


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

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

(3)


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

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

(4)


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

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

(5)


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

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


(6)


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

(a)
 
Segment profit always excludes the effects of principal pension plans, results reported as discontinued operations and accounting changes, and may exclude matters such as charges for restructuring; rationalization and other similar expenses; in-process research and development and certain other acquisition-related charges and balances; technology and product development costs; certain gains and losses from dispositions; and litigation settlements or other charges, responsibility for which preceded the current management team. Segment profit excludes or includes interest and other financial charges and income taxes according to how a particular segment’s management is measured - excluded in determining segment profit, which we also refer to as “operating profit,” for Healthcare, NBC Universal and the industrial businesses of the Infrastructure and Industrial segments; included in determining segment profit, which we also refer to as “net earnings,” for Commercial Finance, GE Money, and the financial services businesses of the Infrastructure segment (Aviation Financial Services, Energy Financial Services and Transportation Finance) and the Industrial segment (Equipment Services).
 

 

(7)


 
1. The accompanying condensed, consolidated financial statements represent the consolidation of General Electric Company and all companies that we directly or indirectly control, either through majority ownership or otherwise. See note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2006. That note discusses consolidation and financial statement presentation. As used in this report on Form 10-Q (Report) and in the Annual Report on Form 10-K, “GE” represents the adding together of all affiliated companies except General Electric Capital Services, Inc. (GECS or financial services), which is presented on a one-line basis; GECS consists of General Electric Capital Services, Inc. and all of its affiliates; and “Consolidated” represents the adding together of GE and GECS with the effects of transactions between the two eliminated. We have reclassified certain prior-period amounts to conform to the current-period’s presentation. Unless otherwise indicated, information in these notes to condensed, consolidated financial statements relates to continuing operations.
 
2. The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish interim quarterly closing dates using a fiscal calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar from 1993 through 2013 is available on our website, www.ge.com/secreports.
 
3. In May 2007, we signed a definitive agreement to sell our Plastics business to Saudi Basic Industries Corporation. We presently expect this transaction to close in the third quarter of 2007, subject to customary closing conditions, including receipt of regulatory approvals. In the second quarter 2007, we reported results of operations, financial position and cash flows of both our Plastics business and the related Advanced Materials business, which we sold in the fourth quarter 2006, as discontinued operations for all periods presented. Both businesses were previously reported in the Industrial segment.
 
In 2006, we substantially completed our planned exit of our insurance businesses through the sale of the property and casualty insurance and reinsurance businesses and the European life and health operations of GE Insurance Solutions Corporation (GE Insurance Solutions) and the sale of GE Life, our U.K.-based life insurance operation, to Swiss Reinsurance Company (Swiss Re). Also during 2006, we completed the sale of our remaining 18% investment in Genworth Financial, Inc. (Genworth), our formerly wholly-owned subsidiary that conducted most of our consumer insurance business, including life and mortgage insurance operations, through a secondary public offering. Results of these businesses are reported as discontinued operations for all periods presented.
 

(8)


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

(a)
Principally postretirement benefit plan curtailments.

 

(9)



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

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

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

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

 

(10)


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

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

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

 

(11)


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